As markets have reached my upper market risk price zone (see also: Playing with Fire & The Final Wave) I wanted to share some larger structural observations with readers. Note the backdrop of volatility at record lows, markets seemingly rising every day and people being bullish as dips no longer exist. All this fits in with a larger macro script I’ve been commenting on for quite some time and from my perspective we are setting ourselves up for massive pain, one that will now only get worse after all the artificial intervention we have witnessed in the past several years.
Why? Well I kinda summarized it on twitter the other day:
8 yrs of easy money:
Wealth inequality at its highest
Consumers in record debt
Corporations levered up
$20T gov’t debt
— Sven Henrich (@NorthmanTrader) July 24, 2017
In walking you through some considerations I’ve drawn from the macro sections of some of our recent Daily Briefs:
We have entered the prime sell zone we’ve been talking about for a long time now. The price expansion came on the heels of yet another central banker who again turned dovish (Janet Yellen July 12). Why? Because the macro reality I have been harping about continues to gnaw on the central bank narrative: They can’t normalize rates, the entire financial construct would collapse on its own weight. Debt levels are unsustainable and low rates keep the illusion of sustainability alive. The question always was how sensitive the spending and investment universe would react to any changes in rates.
What we’ve witnessed over the past 1 1/2 years has been a bounce in earnings, one that in aggregate, benefited greatly from a bounce in energy earnings, but one that also continued to draw from ever more free liquidity that is permeating the financial system along with tech monopolies expanding their power/monopoly positions.
In my view none of it is sustainable, the question has always been how this would unfold in terms of a final wave or topping move as I have termed it previously.
In recent weeks again we saw disappointing data on the macro front and I want to reiterate what I regard as an important fact in all this: Bears continue to be correct in their macro assessment. All the growth promised simply has not materialized. Again. And hence Janet Yellen was 50/50 and non committal in her July 12/13 testimony to Congress.
The Fed is done raising rates again. Maybe we’ll get one more for giggles in December during what appears to be her last meeting. Donald Trump looks to replace her and he’ll replace her with someone that will do his bidding although he left the door open yesterday. Never before has a president used market levels as a benchmark of his presidential performance in such a way. But he does. Every time markets make new highs he tweets about it. It makes sense for him to use the market as a benchmark as he’s now polling worse after 6 months in office than any president in the past 70 years.
His base continues to support him although it is unclear as to why from a policy perspective. From an entertainment perspective perhaps. From a ideological perspective perhaps. From a policy perspective? Name me one policy that’s on the agenda or under discussion that will help address wealth inequality or further wage growth. I can’t think of any. Not that any would have been on the plate during a Clinton presidency either. But that has been my larger point: Nothing is structurally changing and the problems keep being pushed under the rug. Politicians keep getting to play the game consequence free as central bankers keep pushing markets higher. And so we have a lot of drama in the news but precious little substance.
Hence I suspect the president is taking credit for a liquidity cycle he has precious little to do with. But I mention it all because he will have a strong incentive to appoint someone who will do his bidding for when markets drop. And they will drop.
This week I again added macro charts that highlight the coming wall in the earnings narrative that has helped support equities. Here’s the picture that presents itself:
Loan growth continues to slow. Delinquencies continue to rise. People have piled into higher car loan balances while used car prices are plummeting. Consumer debt is at all time highs and retail sales growth has been falling. Yet rent prices, the largest cost line item for most people, continue to rise unabated. Construction spending growth has been sinking. These are all facts.
An economy dependent on debt expansion to keep the elusion of organic growth alive can’t sustain growth in the long term without it. And so the price sensitivity of consumers would be greatly challenged with raising rates. Productivity growth is not there and neither is the real wage growth needed to offset these challenges. And hence the Fed is done raising rates again.
As I was reading the comments coming from the various FOMC members recently (and there were plenty) the immediate impression I got was: They know. They know and they are following all the issues we’ve been talking about here. Productivity growth is not there. Debt levels are too high and valuations are stretched and are posing risks.
“the increase in prices of risky assets in most asset markets over the past six months points to a notable uptick in risk appetites, although this shift has not yet led to a pickup in the pace of borrowing or a sizable rise in leverage at financial institutions.
Measures of earnings strength, such as the return on assets, continue to approach pre-crisis levels at most banks, although with interest rates being so low, the return on assets might be expected to have declined relative to their pre-crisis levels–and that fact is also a cause for concern.
the corporate business sector appears to be notably leveraged, with the current aggregate corporate-sector leverage standing near 20-year highs.
elevated leverage leaves the corporate sector vulnerable to other shocks, such as earnings shocks.
In the household sector, new borrowing is driven mostly by borrowers with higher credit scores, and the amount of debt that borrowers have relative to their incomes is falling, suggesting that the debt is more manageable. That said, two pockets in the household sector deserve scrutiny. Auto loan balances and delinquency rates are high for borrowers with lower credit scores, meaning that the riskiest borrowers are borrowing more and not paying it back as often. Of note, delinquencies on recently issued auto loans have also increased, indicating that underwriting standards in the auto loan industry may be deteriorating. Student loan balances keep rising, and delinquency rates on those loans are near historical highs. These strains within the household sector leave such borrowers vulnerable to adverse shocks and probably weigh on their spending. At first glance, one is tempted to say that the potential for this distress to adversely affect the financial system seems moderate, because both subprime auto loan and student loan borrowers account for a small share of other debt categories. But, on second thought, one should remember that pre-crisis subprime mortgage loans were dismissed as a stability risk because they accounted for only about 13 percent of household mortgages, and not take excessive confidence.
Let me conclude my assessment of current financial stability conditions with a discussion of asset valuation pressures. Prices of risky assets have increased in most major asset markets in recent months even as risk-free rates also rose. In equity markets, price-to-earnings ratios now stand in the top quintiles of their historical distributions, while corporate bond spreads are near their post-crisis lows.
The general rise in valuation pressures may be partly explained by a generally brighter economic outlook, but there are signs that risk appetite increased as well. For example, estimates of equity and bond risk premiums are at the lower end of their historical distributions, and, relative to some non-price-based measures of uncertainty, the implied volatility index VIX is particularly subdued. So far, the evidently high risk appetite has not lead to increased leverage across the financial system, but close monitoring is warranted.
We have a better capitalized and more liquid banking system, less run-prone money markets, and more robust resolution mechanisms for large financial institutions. However, it would be foolish to think we have eliminated all risks. For example, we still have limited insight into parts of the shadow banking system, and–as already mentioned–uncertainty remains about the final configuration of short-term funding markets in the wake of money funds reform.
The U.S. financial system is inherently dynamic, with a range of institutions competing to offer a changing mix of financial products. New financial technologies promise great benefits but will no doubt carry novel risks. As a result, we monitor these vulnerabilities, and we are vigilant with respect to economic and financial developments across markets and institutions within the United States and around the world. And we know that complacency must be avoided.”
Now take these comments in context of a Fed that wants to raise rates while at the same time the IMF comes out with this:
The IMF forecasts the U.S. growth rate will steadily fall over the next 5 years, assuming no major policy changes https://t.co/0sKXSPk18q
— Wall Street Journal (@WSJ) June 27, 2017
The Fed’s William’s says this:
“The stock market seems to be running pretty much on fumes,” San Francisco Federal Reserve Bank President John Williams said in an interview carried on Sydney’s ABC News affiliate and available on the internet on Tuesday. “It’s something that clearly is a risk to the U.S. economy, some correction there — it’s something we have to be prepared for to respond to if it does happen.”
with measures of market volatility near historic lows, “I am somewhat concerned about the complacency in the market,” he said.
They know. And the very notion of a market correction is a risk factor to their outlook. That’s how intertwined everything has become and hence they continuously aim to prevent one from occurring.
Yet even Janet Yellen was referring to “rich valuations”. While she declares the world to be safe from another financial crisis in our lifetime (huh?) she too is aware of where we are and the risks of unwinding policies that were intended for banks to go back to the very same ways that contributed so much to the crisis in 2007:
“Yellen said it would “not be a good thing” if reforms of the financial services industry since the crisis were unwound, and urged those who had helped manage the fallout at the time to be vocal in preventing such a dilution.”
And policy risks exists.
Take healthcare. I know of no policy detail that suggests this latest “healthcare” bill, if you can call it that, would do anything to improve health or care. It’s a tax distribution bill that benefits insurance agencies and the top 1% at the explicit expense of the poor and vulnerable and is cutting Medicare. Check with the CBO or the AMA.
This again goes to the financial viability of the bottom 50% who have no way of ever catching up and are a recession away from being completely financially defunct:
“Half of this country cannot cope with another recession.
These people don’t have savings to tide them through another blight in the job market. They don’t have backup streams of income. They don’t even know what a recession might mean for their investments, with the result that they have not made any preparations.
They don’t have an updated resume either — a minor point, except that it says something about preparedness.
Such are the alarming findings of a new survey, reminding us once again that for half of us America is a “rich country” in name only.
Some 49% say they are living paycheck to paycheck, and 61% admit they lack the savings to cover six months of expenses.”
Come on. So from a structural perspective I have to take all this as another validation point that none of the structural issues are getting addressed, if anything, wealth inequality is set to expand even further at the first sign of trouble.
And what is it we are seeing? Where’s the growth?
So no, from my perspective the seeds of the next crisis have been planted and no current policy proposals will help address any of them. If anything, tax cuts, if they ever come through in whatever form, will only help exacerbate the structural issues and, if anything, may provide additional and temporary liquidity into a financial system that is already drowning in artificial liquidity.
Keep in mind that almost 50% of Americans don’t own any stocks. In essence one could argue that every headline of new market highs is celebrating an increase in wealth inequality on some level as the poor and middle class are simply not benefitting from these gains. Actually they get hurt by the ancillary effects. Housing prices hit record highs and many people simply can’t afford them hence the amount of renters keeps rising.
But you see headlines of record household wealth. True in aggregate, but of course it does not account for wealth distribution. Again half the country doesn’t own stocks and the wealthiest own the most shares. And of course much of this wealth is not in liquid assets. Housing prices are near record highs. We all know what happens when the wind blows the other direction. Household wealth figures can be quite deceiving.
The fact is we have been witnessing years of failed promises of growth and hence we get treated to this constant show of forecast failure:
So who benefits from tax cut proposals? The top 1% of course and it highlights the priorities of the system: It benefits those that is serves and NONE of this helps with the structural issues or wealth inequality or anything that voters supposedly concern themselves about.
Even Warren Buffet was very clear on this recently in reference to the healthcare plan:
“Warren Buffett thinks the Republican health care bill has an alternative purpose: to help the already-wealthy make even more money.
“I filed this on April 15. And if the Republican — well, if the bill that passed the House with 217 votes had been in effect this year, I would have saved — I can give you the exact figure. I would have saved $679,999, or over 17% of my tax bill,” Buffett said.
The Senate bill repeals a number of Affordable Care Act taxes that primarily affect wealthier Americans. An analysis from the Tax Policy Center found that almost half the benefits from those tax cuts would go to the top 1% of households, with an average tax bill decrease of $37,240 under the proposed legislation.
“There’s nothing ambiguous about that,” Buffett said. “I will be given a 17% tax cut. And the people it’s directed at are couples with $250,000 or more of income. You could entitle this, you know, Relief for the Rich Act or something . . . I have got friends where it would have saved them as much as — it gets into the $10-million-and-up figure.“
There you have it, make no mistake about what’s going on here. And I think most people get it and hence even a FOX News poll, FOX being extremely supportive of the president, shows disastrous polling results for the health care bill proposed by Republicans:
So none of this has to do with populism, a broad based agenda to help people, or healthcare, or any structural improvements. And know that is the same agenda for the proposed estate tax elimination: Make the wealthy wealthier.
And it’s working:
“The number of ultra-high net worth (UHNW) individuals, or those with $30 million (£23.58 million) in assets or more, grew by 3.5% to 226,450, according to a new report by Wealth-X. Their combined wealth increased by 1.5% to $27 trillion (£21.22 trillion), although the average net worth of each person fell for the first time since 2013. UHNW individuals make up only 0.003% of the global adult population.”
All of this is accelerating the speed of the wealth inequality train which, from an ultimate macro perspective, is bearish as it continues to hollow out society at large:
“Global debt levels have climbed $500 billion in the past year to a record $217 trillion, a new study shows, just as major central banks prepare to end years of super-cheap credit policies.
Years of cheap central bank cash has delivered a sugar rush to world equity markets, pushing them to successive record highs. But another side effect has been explosive credit growth as households, companies and governments rushed to take advantage of rock-bottom borrowing costs.
Global debt, as a result, now amounts to 327 percent of the world’s annual economic output, the Institute of International Finance (IIF) said in a report late on Tuesday.”
These are strange times we operate in and from my perspective the ongoing central bank interventions continue to distort everything. Yet even BAML is seeing the end game here and it’s a matter of when and how as the ever expanding wealth inequality is an obvious problem in the world:
I don’t know when markets will wake up to this realization as well, but as we saw sudden liquidity surprises such as the recent bank buyback announcements still hold sway over these markets.
Yet, it’s all rather marginal isn’t it? For months I’ve been pointing out the select participation and markets keep running from sector rotation to sector rotation. To me this is a warning sign of things to come.
Everything I see data wise seems so strenuously put together to mask the structural rot underneath. And, to be fair, they, meaning those that perpetrate the illusion, have been extremely successful in masking everything and we see it every single day in the stock market.
After all they keep pressing the buy button:
There has been zero accountability for all the meddling, distortions and artificial interference in what is supposed to be free markets. There are no free markets in the sense that asset classes, currencies or interest rates are not floating freely in a global market of buyers and sellers. Interest rates are largely pegged, currencies are constantly played with and moved by central bankers, and of course many stocks and ETFs are bought by central banks directly. We all know that.
My issue has always been: What is the ultimate result? Well, the result is that the world is more in debt than ever, wealth inequality is at its worst in many decades and growth has been absent. With no change in sight.
Yes global intervention can keep things on the up and up but it takes ever more to do it.
And so now we have this occasional talk about central banks tightening and taking away the sugar. I’m not buying it.
The ECB already is on record they are not even discussing taking away stimulus, there is no timetable, the BOJ will not stop either (they said) and the Fed recently made it clear they have no idea what to do when. It’s all talk at best. Indeed both Draghi and Janet Yellen are on the record that they would increase stimulus at the first sign of trouble. They can’t let markets operate freely which suggests organic price discovery is much lower.
Hence in context it is interesting that the FOMC pointed out the issues in loan growth and subprime exhaustion.
Yes the absolute levels are still ok, but it’s the growth trend that informs us about something not being right. Without loan growth and with increasing delinquencies you don’t have a growth story. Full stop:
The auto industry is slowing and consumers that are buying cars now will have their resale values hammered. Recently Volvo announced that by 2019 ALL their new cars will be either electric or partially electric. There’s clearly a shift coming.
Subprime is already a challenge. Student loans? Don’t get me started. Student loan debt is so high it is locking out an entire generation from becoming homeowners.
How about retirements for the baby boomers leaving the job market if they can?
There is ZERO evidence that markets or the economy can handle higher yields, yet I see people propagating exactly this notion. Stay long, buy every dip.
But if they were to actually remove the sugar?
Impact unknown, but Jamie Dimon rang the warning bell recently:
JPMorgan Chase & Co. Chairman Jamie Dimon said the unwinding of central bank bond-buying programs is an unprecedented challenge that may be more disruptive than people think.
“We’ve never have had QE like this before, we’ve never had unwinding like this before,” Dimon said at a conference in Paris Tuesday. “Obviously that should say something to you about the risk that might mean, because we’ve never lived with it before.”
So I’m waving the white flag. Not for us or our outlook, but I’m waving it for central bankers for the time they will have to admit defeat. The very defeat that is already programmed into what they are doing. Take Mario Draghi who basically claimed victory but then conceded he “MUST” continue with stimulus. The unprecedented distortion in global capital markets continues unabated and is reflected in not only in the unnatural volatility compression, but the ever apparent totality of the positions that central banks are acquiring to keep things calm.
As much as you are likely tired hearing about it I am tired of talking about it, but how can we ignore it? Tiny Switzerland is now the 8th largest holder of US stocks via its central bank the SNB. Madness. Buyers with no consequences or consideration for value keep buying US stocks with no end in sight. Don’t anyone tell me it has no impact on valuations and the supply/demand curve. Of course it does and hence the distortions. More passive buyers who don’t know what they actually own, more central bank buyers who face no consequences when stocks go down, and fund managers who need to create alpha.
And yet margins are decreasing:
— Sven Henrich (@NorthmanTrader) June 26, 2017
We all have an appointment with reality but nobody is acknowledging it it seems. Instead we got buybacks in lieu of financial soundness in many cases.
Take GE. GE has a pension deficit of over $31B!! Yet:
“At $31 billion, GE’s pension shortfall is the biggest among S&P 500 companies and 50 percent greater than any other corporation in the U.S. It’s a deficit that has swelled in recent years as Immelt spent more than $45 billion on share buybacks to win over Wall Street and pacify activists like Nelson Peltz.”
Guess what? You either default or you have to take on debt or reprioritize spending to meet these obligations, that limits the business prospects, it’s a major structural weakness.
“Yet in the last two years, GE spent little more than $2 billion on total pension contributions, which hasn’t been nearly enough to keep the overall shortfall from widening. (The company also curtailed capital investments.) At the end of last year, its pension had $94 billion in obligations but only $63 billion in assets — a funding ratio of 67 percent.
“GE has the tension between financialization and innovation,” said William Lazonick, a professor of economics at the University of Massachusetts Lowell. “People at the top are living in fear of hedge fund activists and worry about their share price rather than what is going on with the company.”
So low rates hurt and keep in mind all these pension funds need 7.5% in annual return to even have a chance at surviving. The demographic picture is not changing any time soon.
“And the longer its pension remains underfunded, the costlier it becomes. The Pension Benefit Guaranty Corp., a government agency that acts as a backstop when plans fail, has more than tripled its rates for companies with funding deficits, and they’re set to rise even more in the next two years.
Because interest rates are still relatively low, it’s possible for GE to borrow money it needs to cover its shortfall. Verizon Communications Inc. and FedEx Corp. sold bonds this year to do just that. But according to Cowen, GE may be constrained in how much more debt it can take on because it’s already on the hook for about $130 billion. Debt in the industrial units is lower, though, at about $20.5 billion.
If GE is able to fully fund its pension with debt, there’s no guarantee it won’t fall behind again. Investing in safe, low-yielding bonds might not be enough for GE to earn the 7.5 percent return that it expects for its pension assets each year and pay for the debt that it incurs. Taking on more risk could leave its pension vulnerable to another market downturn.
“This would be quite a risky strategy,” Mitchell said. “Any unpleasant investment surprises would leave the pension even worse-funded than now.”
So you see the structural issues I keep harping about are deep and they are real and they remain completely unaddressed and central banks keep them at the low, but they are also exacerbating the issues.
I have no idea how any of this can or will play out, but I keep coming back to the same conclusion: Our financial system and markets are in no way reflective of the structural reality underneath.
So people keep buying stocks, central banks are buying stocks, pension funds are buying stocks, ETFs are buying stocks and round and round we go.
But what are people buying here?
As it turns out the investment universe keeps shrinking and is increasingly becoming one dimensional in the hands of ever fewer active investors. The larger pool is simply getting smaller. There are more ETFs than stocks, ever larger funds & central banks holding an increasing amount of shares and individual investors owning less individual stocks but different forms of derivatives via ETFs, 401Ks, etc.
The global financial system of stock markets is becoming a self-fulfilling ecosystem where no sellers exist and ever more money gets allocated into fewer and fewer available asset options to buy. To be frank I don’t fully understand the long term implications and I’m not sure anybody does. My gut tells me that this is an accident waiting to happen as more and more investors actually don’t really understand what they own.
Consider: There are nearly 6,000 indexes today but just 3,599 stocks in the Wilshire 5000 total market index, down from 7562 in 1998. Much of it due to M&A and hence the big became even bigger and, in some cases, clearly stifled competition by getting rid of rivals or potential rivals in the marketplace.
The other big trend is the move toward passive investing:
And the landscape keeps changing:
“ETFs currently account for nearly a quarter of U.S. stock-market trading volume versus 76% for individual stocks. Three years ago, ETFs accounted for 20%. Meanwhile, the percentage of equity-fund assets has jumped in the wake of the U.S. financial crisis, rising to 37% in 2017 from 19% in 2009, according to Bank of America.”
“Investors have increasingly shifted to passive investments: Clients have been net buyers of over $160 billion in ETFs versus net sellers of over $200 billion in single stocks since 2009,” said Subramanian, citing Bank of America Merrill Lynch’s equity client flow data.
At the forefront of this charge has been Vanguard, whose share of the S&P 500 market capitalization doubled from 2010 to 6.8% today, Subramanian said. The number of S&P 500 stocks in which Vanguard holds more than a 5% stake totaled 491 recently, versus 116 in 2010.
The end result:
“The number of S&P 500 stocks in which Vanguard holds more than a 5% stake totaled 491 recently, versus 116 in 2010”:
So Vanguard alone holds over 5% of the float in virtually all the SPX stocks. And they’re not selling, they just keep allocating, especially through their passive index funds. Self-fulfilling? Why do we climb the mountain? Because it is there. Why do we buy stocks? Because they are there and we have to allocate funds.
Long everything and still pension funds are hopelessly underfunded, the middle class shrinking with insufficient retirement money to rely on:
“Baby boomers, or those born between 1946 and 1964, expect they’ll need $658,000 in their defined contribution plans by the time they retire, but the average in those employer-sponsored plans is $263,000, according to a survey of 900 investors by financial services firm Legg Mason. Older boomers, who are 65 to 74, have an average of $300,000. Their asset allocation for all of their investments are also conservative, according to QS Investors, an investment management firm Legg Mason acquired in 2014, with 30% in cash, 24% in equities, 22% in fixed income, 4% in non-traditional assets, 8% in investment real estate, 2% in gold and other precious metals and 8% in other investments.
“They have less than half the assets they hope to have in retirement,” said James Norman, president of QS Investors. “That’s a pretty big miss.”
Swell. So what will it take to get everything funded and people to have adequate security in their retirements? Nobody knows. But the train needs to keep on chugging otherwise it will get even worse. Again it seems a self fulfilling prophecy.
And yet by definition the variety of shareholders is shrinking. And to me this raises questions of liquidity and risk. After all:
“The actual shares available, or ‘true float’ — float shares, less shares held by passive funds — for S&P 500 stocks, may be grossly overestimated,”
And yet there seems no end in sight:
“For a glimpse of what a market increasingly driven by ETFs looks like, Subramanian pointed to Japan.
“In Japan, nearly 70% of the assets under management of Japan-focused equity funds is passive — granted, the BoJ has been buying ETFs — and their markets are still functioning,” she said.
But it has come at a price. The number of active funds outperforming Japan’s Tokyo Stock Price Index has fallen to 34% between 2014 to 2016 from 46% between 2002 to 2013.”
2 key messages here: This will continue and likely expand. And times will get even more complex for active managers. The implications for us as traders can also not be underestimated.
Between passive ETF flows, central banks buying, buybacks, algos, etc it remains a very challenging environment as the rules of just 2 years ago, never mind 10 years ago, no longer seem to apply.
My biggest complaint of all this has been that volatility has been compressed, valuations have gotten ever more expensive and indices no longer correct and the dips are getting shallower and shallower. Every breakdown is bought. Because it has to.
To be fair earnings growth continues to be decent for the moment (mostly driven by a YoY bounce in energy), but again, we see everything heading for an unavoidable wall. Consumers continue to be tapped out by ever higher debt burdens, car loans are now close to running for 6 years on ever higher balances, wage growth again disappointed and the entire forward multiple universe seems premised on none of this mattering and recessions having been eliminated. Given the passive and unconcerned nature of markets operating in a reduced liquidity environment I maintain we are opening ourselves up to an eventual negative shock of epic proportion.
But fair enough, so far nothing has mattered and in no bubble anything matters until there is a trigger, hence critics like myself get often dismissed as naysayers or perma-bears.
From my perspective we are in the final move up paving the way for a larger top in 2017 setting us up for a recessionary move into 2018/2019 with potential far reaching consequences if central banks lose control. And it’s the timing of the latter part that is unknowable. Plenty of fund managers think we’re setting up for a downturn later in 2018.
But it’s coming whether we want to believe it or not. And a large swath of the American population is utterly unprepared for it. They already don’t have the resources to pay for a basic cash emergency. They are in record debt, and many have lost all hope in the American Dream. George Carlin famously quipped: That’s why they call it the American dream, because you have to be asleep to believe it.
And it is precisely because of this structural ‘left behind’ feeling millions of Americans have experienced that Donald Trump is in power. He wasn’t elected because he brings expertise, wisdom, or any particular competence to the job. Indeed his daily twitter outbursts tend to suggest precisely opposite. While many may have believed his campaign promises, for many more it was clear that, if nothing else, a Donald Trump presidency would be a giant middle finger in the face of the very establishment that has so underserved them.
If it’s entertainment you want, you got it. But the business model of both parties continues to be to sell hope and fear at the same time, but not to deliver on any substantive level.
Here’s the cumulative running Treasury P&L from June 2016 versus June 2017:
The short answer: Nothing has structurally changed except more debt and spending. But central banks have enabled politicians to keep selling the same goods. Unemployment is low, stock markets are high and all appears calm and sanguine.
But be aware: Things always look the best near tops, bears look like idiots and Wall Street never tells you to sell:
— Sven Henrich (@NorthmanTrader) July 14, 2017
So by all means, keep thinking that all the glitter in the headlines is gold. It’s not. It’s fool’s gold.