What Now Wednesday? Powell Disappoints, Mnuchin Makes Promises…


Wheeee, what a ride!

As we expected, Powell's speech yesterday was a disappointment and the Dow fell 200 points during Tuesday's session and you can see why we're using the DXD ETF as one of our primary hedges.  We stayed down overnight but, early this morning (about 5am) Steve Mnuchin jumped on CNBC at midnight in Bharain to tell Hadley Gamble that the US and China were "90% of the way there" on the path to a trade deal.

This is, of course, meaningless nonsense as we're the same 90% of the way there as we were when trade negotiations broke down a few months ago so Mnuchin is simply tearing a page out of Chamberlian's book to declare "Peace in our Time" to score points at home, no matter how untrue the facts of the matter are.  Still the market responds like Pavlov's dogs EVERY time someone in the administration says we are making progress on trade, and this morning was no different with the Dow Futures (/YM) popping over 100 points (0.4%) on the "news", we get a rally.  

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We had the same "good news" at the last G20 meeting in December, when the headlines were: "Donald Trump and Xi Jinping declare trade truce at G20" yet here we are, 7 months later with even more tariffs and even less progress.  We were 100% then, we're 90% now – what exactly is the market celebrating?

Certainly it wasn't the Data as we had TERRIBLE numbers from theRichmond Fed,New Home Sales missed by 10%andConsumer Confidence dove 10% in Expectations and 8.3% overall.  Consumer Confidence is now at a 2-year low while Economorons predicted it would be higher – which shows you how clueless the people making pronouncements on this economy truly are!

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As you can see from the chart, forward expectations (red) re now lower than they were when Trump took office in January of 2017.  If we see the other segments move lower to join them, then we really have to question:

  • 700 (31%) S&P points we added from 2,250
  • 6,500 (32.5%) Dow points from 20,000
  • 2,590 (52%) points we added to the Nasdaq (Composite) from 5,000
  • 1,740 (15.5%) points we added to the NYSE from 11,200 
  • 150 (11%) points we added to the Russell from 1,375

Notice the last two indexes are up less than half of the Dow and the S&P and the Nasdaq is simply off in LaLa Land and the NYSE and the Russell are the broadest indexes with 2,800 and 2,000 companies respectively represented while the S&P and Dow are both manipulated constantly by eliminating under-performing companies from their much smaller samplings (500 and 30) and the Nasdaq (100) is really just the AAPLdaq +99 and AAPL is 80 points from $115 back in Jan 2017 and that's 69.5% – so there's where those gains are coming from on the Nasdaq (and also a big Dow and S&P contributor).  

So we have this gigantic house of market cards we have built up over two years of broken promises and policies from the Trump administration and we're in a Trade War with the rest of the World and on the verge of actual war with Iran and Consumers are getting very worried and, just this morning, May Durable Goods had another big miss – down 1.3% vs -0.5% expected and that's coming off -2.8% in April which is revised EVEN LOWER than the -2.1% we thought really sucked at the time. 

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Will investors ever wake up and begin to question these sky-high market valuations or will the Fed promise us more free money and the Administration declare peace in our time again and we can pretend everything is OK again?  I call this the "Phuket Market" which can best be described as if your family was about to go bankrupt and lose your home so Mom and Dad decide to take the family to Disney and max out the credit cards because – Phuket!

We will discuss this further duringthis afternoon's Live Trading Webinar (1pm, EST).