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Bookmark– Global equity markets are spiking. Records are being broken…
Why? Is it strong Gross Domestic Product increases among the world’s leading economies… the United States, China, Japan and eurozone nations that are driving the frenzy?
Is it accelerating commerce that’s sending products and services far and wide across the globe that’s increasing corporate profitability — boosting trade, productivity and personal income that’s driving stock markets higher?
Remember January?
Go back to January. The equity markets were in a terrible slump. The Dow rang in the New Year on the lowest down note in its history. By late January, the Russell 2000, a broad measure of US equity markets, was down some 23 percent from its peak.
Around the world, it was more of the same but worse. Some $6 trillion of global share value was wiped from the face of the world’s equity markets. The Shanghai Composite Index fell over 20 percent from a high in late December, and Japan’s Nikkei Index was trapped in bear-market territory.
By month’s end, oil prices collapsed some 21 percent and commodity prices were slumping to multi-year lows.
What a difference a few months make
That was then. A new day has dawned. From sinking equity markets to crashing currencies, from slumping commodity prices to failing economies… happy days are here again.
Why? What specific economic fundamentals have boosted down markets to new highs and lifted sagging ones from their new-year lows?
Was it the terribly weak GDP numbers in the United States, Japan and Europe of 1 percent, 0.2 percent and 0.4 percent respectively for the first half of the year? Was it trade-dependent China’s exports that fell 4.4 percent year over year in July? Or was it their imports that slumped 12.5 percent for the 21st straight month of decline?
As evidenced by the factual data, it is not economic fundamentals driving equity and commodity markets higher. It is high expectations for continued central banksters’ manipulation: The People’s Bank of China, the European Central Bank, the Bank of England, the Federal Reserve, the Reserve Bank of Australia, etc., which have driven interest rates to record-low negative or zero levels and/or initiated new rounds of stimulus programs that, while boosting equity markets, have by all quantitative measures failed to generate true economic growth. In fact, despite massive Federal Reserve intervention, US economic growth since the recession ended is tracking at its weakest pace of any expansion since 1949.
Trend Forecast:
What’s next? Follow the money. A Bank of America Merrill Lynch survey found that cash levels in portfolios were at the highest levels since 2001, while Wealth-X Billionaire Census reports billionaires are holding $1.7 trillion in cash. According to regulatory filings, gambler George Soros, holding put options on some 4 million shares in exchange-traded funds, is betting heavily against the S&P 500.
Again, in this climate void of true price discovery and central bank manipulation, we maintain our forecast that when gold breaks strongly above $1,400 per ounce, it will spike toward $2,000.
Art Cashin weighs in with some extremely important notes…
A portion of today’s note from Art Cashin: The Other Complacency – Fed President Dudley says the markets are too complacent about a possible rate hike this year. There are other signs of complacency showing.
Our friend, Peter Boockvar, at the Lindsey Group took note of one. Here’s a bit from Peter:
Stock market sentiment reached the “danger level” according to II. Bulls rose 1.9 pts to 56.2 from 54.3 last week while Bears fell .9 pts to 20. That bear level is a one year low while the Bulls are at the highest since April 2015. The Bull/Bear spread is the biggest since June 2015. So we have extreme bullish stock market sentiment (it’s not the most hated market), markets just off record highs, interest rates that are moving higher, falling earnings estimate for Q3 and we are entering September/October. Interesting times.
Jason Goepfert, over at Sundial Capital cited yet another. Here’s a bit from Jason:
Bond traders are not feeling stock investors’ sense of calm. While the VIX has collapsed to nearly its lowest level in several years, the spread on high-yield bonds remains much higher, relatively speaking. This is exceptionally unusual since the two indicators usually show a high positive correlation. The only two other times it diverged to this degree, volatility on stocks spiked higher over the next several months.
These are not exactly hurricane warnings but they are signals that bear watching – close watching.
Overnight And Overseas – In Asia, Tokyo rallied as the yen pulled back a bit. Shanghai was flat while Hong Kong fell along with India and Australia.
In Europe, markets are flat to somewhat lower. Banks and financials getting dinged. Portuguese yields pop on fears of a rating downgrade. August volumes are down 25% or 30%.
The dollar and Treasury yields rise on Dudley/Lockhart comments in front of Bullard at 1:00 and the Minutes at 2:00. The stronger dollar puts pressure on both the base and precious metals. Oil a touch softer on huge API product build. DOE at 10:30.
Consensus – Watch crude to see if short squeeze is over. On any equity pullback, watch S&P support at 2172/2175.
August 18 (King World News) – Gerald Celente
