What a rally, right?

It's funny how excited people can get over nothing and, if you listen to CNBC or the rest of the Financial Media, you would think this market is completely unstoppable because we bounced off 24,000 on the Dow yesterday but that's only because they assume you are an uncritical viewer with no memory and no ability to step back and look at the big picutre which, as you can see from this Dow chart – does not actually look all that thrilling – even with this morning's 0.5% pop in the Futures.

The Dow opened 2018 at 25,250 so we're about 1,000 points lower (4%) at the moment and the S&P is basically flat at our 2,728 line and the Nasdaq is higher at 7,100 from 6,700 so call it 6.5% and the Russell is up 100 at 1,650 (also 6.5%) and the NYSE (the broadest index) started the year at 12,900 and sits at 12,500 so down 400 is -3% for the year.

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So it's a mixed bag and not too exciting and, of course, this is the last day of Q2 with a very low-volume holiday week approaching which means a lot of the action we're seeing now is window-dressing and not at all to be taken seriously.  Also notice that, this morning, we can attribute ALL of the market's 0.5% gains to a 0.6% drop in the Dollar – which is the thing the markets are priced in.

When the value of the thing (Dollars) the market is priced in goes down, then you need more of them to buy the same share of stock so the VALUE of the stock does not change, but the price does.  It's a neat little magic trick the funds often pull at the end of the quarter to prop up their portfolios so they have pretty charts and graphs for you to look at in the prospectus – so they can sell you more crap next quarter!

We had big volume on Monday as the indexes took a tumble but, since then, we've been extremely weak on volume as we've dribbled along to our weak bounce lines.  On SPY, you can see that all of the volume on Tuesday and yesterday barely add up to Monday's down volume yet the very, very uncritical Financial Media just waves their pom poms and tells you how wonderful the rally is and how strong the markets are:

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And, of course, we have our beloved leaders running around telling us how great things are and how we can easily withstand a trade war with China and Europe and Mexico and Canada because none of them make up a major portion of our trading.  Really, that's what the "analysts" say on TV and in the press and nobody challenges them on their nonsense figures – unless of course we do some amazing amount of trade with Fiji I was unaware of (maybe the water?). 

There's simply no accountablity anymore in this "facts don't matter" World we've constructed.  If you feel like being bullish – just declare yourself a bull and deny any evidence that seems to be bearish and all will be well.  So far it's mostly working so more power to you, I guess…

You can believe we can not collect taxes from rich people or corporations and that the subsequent deficits don't matter and our failing infrastructure doesn't matter and all the social programs we're cutting don't have consequences and, because most people have the attention span of a gnat – you will seem to be right for a very, very long time.  The Roman Empire didn't collapse in a day but see if you know anyone who even had the attention span to readthe definitive book on the subject.  Here's the cliff notes video.

Aside from pants, both Roman Empires fell apart after over-reaching, running up massive debts and facing rebellion from outsiders who were sick and tired of their self-righteous crap.  When you run around the World telling other people how to run their lives – you'd better have your own house in order and the second Roman Empire did not learn that lesson from the first and the third Roman Empire was essentially Great Britain which also lost control of everything over time and now it's Pax Americana, the Empire we began after World War II which has long been tolerated because we have never abused our power – until now.

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What Donald Trump calls "weakness" of previous administrations is what used to be called restraint.  No one minds a giant in the village when he helps plow the fields and brings trees from the forest to build their homes but when he starts jumping up and down and demanding "fair trade" by insisting that a 5-foot villager should also provide 50 trees a day to "balance" the books – then the villagers tend to get together and decide it's time for him to go.

Trump is a bully who is encouraged by the "weak" responses to his tariffs from the rest of the World but, next week, they actually go into effect and if our former allies announce a full retaliation right when US companies are going to announce their forward projections for the rest of the year – look out below!

6 major banks did not do well enough on their stress tests to be allowed to increase dividend payouts or stock buybacks (GS, MS, JPM, AXP, MTB and KEY) and Deutsche Bank flat out failed with "widespread and critical deficiencies" – these things are hard to square with a "robust" economy.  China's banks broke a 13-day losing streak this morning as the Government stepped in with more easing but it's a weak bounce, at best and the easing weakens the Yuan which then make the trade deficit even more "unfair" to the US.  The Bulls are betting China just sits there and takes this abuse – I'm betting they are taking their time and will strike back at an opportune moment.

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Argentina is leading Emerging Markets down to Hell as their Peso is rapidly collapsing and this chart is against the Mexican Peso, which is also falling compared to the Dollar.  We will all cry if Argentina falls apart but it's just another major thing the markets are ignoring at the moment as there are simply so many things to worry about that this doesn't even rate a mention in the media.

In fact, the only thing doing well is oil, which blasted up to $74 just in time to completely screw over 200M Americans who will be filling their tanks over the holiday weekend.  That's because we've also clamped down on Iran Sanctions so the Saudis now owe Trump big time as his timing – the same week the Saudis said they would add 1Mb/day to production – means another $2.2Bn a month for the Saudis to play with.  This allows Saudi Arabia (who were also involved in campaign collusion) to strengthen their ties with – you guessed it:  Russia!  

No collusion, fake news… you know the drill.  

Meanwhile, 24,450 on the Dow (/YM), 2,730 on the S&P (/ES), 7,075 on the Nasdaq (/NQ) and 1,666 on the Russell areour weak bounce linesand we'll see if we can hold them today – otherwise, it will be time for more bearish bets into the holiday weekend.

Have a great weekend, 

  • Phil