Gene Inger: The Inger Letter – April 28, 2014
(Note: due to the pivotal nature of 'superficial' market action, amidst high anxiety related to Russia potentially reacting to Ukrainian stabilization efforts in the East; we have delved into the ramifications extensively.
We took huge downside gains awhile back with our 'A-B-C' decline; and retain a 'position-posture' S&P 1876 short-sale from Thursday into the new week's start. The last few weeks proactive stance down and up, were a great time to join; as ensuing action in the S&P and stocks shows. This report is heavily abbreviated in fairness to our Daily Briefing members.)
Market behavior not driven by Ukraine – is somehow interpreted as 'bullish' for the markets. True superficially by some views; but not analytically or from a factual perspective; if one objectively looks at internal market behavior. First, momentum overpriced tech giants led the decline starting almost two months ago as we'd outlined at the time (internal distribution masked by rotation).
Second, those who've mentioned Ukraine tend to note how global markets, so far, resist reflecting issues with Russia. Acknowledging a bit of defensiveness ahead of a 'military weekend', is partially why we did something unusual. That is: retain Thursday's E-mini/June S&P short-sale from 1876 overnight; and throughout Friday too; and continuing profitably short over this weekend.
Most who mention Ukraine 'until now' tend to see it not as a meaningful issue; and something that sidetracks the market from an otherwise blissful advance. I believe that the market decline, and institutional tactical defensiveness, in fact was signaled by the very 'rotation' that most analysts or pundits praise. We had argued that was a 'sign of panic'; an ability to mask their exodus before only a 'keyhole exit' remained; and that the recent projected rebound truly yielded only a 'canine aroma' . So before what appear to be 'pre-war' jitters; stocks were in trouble; the funds couldn't short or go heavily cash; so we argued they shifted to less volatile stocks as a place to 'park' money; not because of bullishness.
The Russians Are Coming; The Russians Are Coming – ominously trends to a reality that was often a spoof of 'cold war' comedy; like the Alan Arkin film. Not a joke to anyone from Poland, the Baltic States, or Hungary or Czechoslovakia, who struggled for years to restore their sovereignty from Russian occupiers. It's a reason why those who suggest the U.S. (with it's acknowledged problems as well as foreign policy missteps in recent years) should avoid its responsibilities, as regards NATO; well, they don't get it. That's similar to isolationist arguments in the 1930's, which found us ill-prepared then to tackle global challenges.
We were comforted by oceans protecting us from foreign entanglements; while not grasping that just because you don't want war doesn't mean the other side has the same attitude. That's why it's stunning if not shocking to see surprise at Putin's behavior; since his move to the right and deposing of his opponents as well as press freedom and intolerance, have been known for several years. At the same time the Russian buildup of conventional forces, while we focused on a 'pivot toward the Pacific', and cyber-warfare, was really evident and clever. If your potential opponent concludes only 'digital and drone' warfare is the future; well, then prepare for something else, like World War II style hard invasion.
It's not dissimilar to 5th columns that were organized by communists during the 1950's, or earlier manipulation of well-meaning German ancestry Americans, who once thought Nazi's offered good promise (recall the German-American 'Bund' actually rented Madison Square Garden in NY for a full-Nazi regalia). It is not paranoia to mobilize and prepare to engage (which hopefully dissuades an enemy) those who assemble and try to make things appear 'spinning' and out-of-control, when Moscow is very much in control and plans these stages.
(Debt issues discussed.) As to Oil & Gas; will Putin cut-off his nose to spite his face? Reliance on Russia will diminish in years ahead; especially after this; no matter how it resolves. So Russia, heavily dependent on natural resource oil & gas revenues, risks losing it's 'customers'; which normally isn't very profitable.
For sure it's dicey, and nobody knows if Putin 'really is' a megalomaniac. Over a month ago I mentioned NATO generals were dusting-off (more assessment). Be paranoid, this isn't comic theater.
I clearly indicated that there are global financial implications to a war in Europe; or even just Allied application of sanctions. Because, were Putin to cease his provocations (and incredible propaganda trying to make them appear victims, rather than perpetrators they are), the 'status quo' of the past will not return. As that is the case financially; then what happens if Ukraine moves in to stabilize Eastern Ukraine, which essentially has been undermined by Russia. (This is a tactical discussion of what we suspect is virtually underway now in the region. As you know our approach is to integrate what influences occur in the markets over time, in an objective manner, rather than a strict method approach.)
Russia's recklessness ignores nuanced aspects of Ukraine's desire which was to seek paths toward EU association; which is up to Ukraine. It was never up to Putin's military threats, coups, kidnappings of OSCE officials, or a myriad other moves, such as helicopter infantry forces assembling far away now on Latvia's border; MIG incursions overnight into Ukrainian airspace, and more. Whether invasion's imminent or not, (sorry reserved as integrates backdrop finances). (Of course that's why I laughed at analysts speculating about how much more loft a 'tech bubble' could have; when it's been deflating for about two months.)
Now, we actually agree Moscow doesn't see the issues as we outlined; or that some money managers are using a crisis to 'mask' real reasons for market risk (details of this assessed). Analysts tend to act perplexed that many stocks are heavily hit now; ignoring overpriced natures of so many sectors they pushed.
And the crisis IS a problem, even if war were to be avoided (though again this looks like preparation for one so-called 'exercise' to simply 'drift' across the border into Ukraine, which is probably why MIG fighter pilots penetrated foreign airspace to familiarize themselves with terrain, 'friend & foe' identifications; as well as general reconnaissance). The Russian TU-144 bomber incursions into the airspace of both England and Finland the other day were described as the 'bombers straying' into UK and Finnish airspace. Right. They failed to heed Air Controller warnings; requiring RAF and Finnish jets scrambling to intercept.
As if sanctions (and Russian's counter-moves mostly related to weaning itself away from Western financial structures ; or so they say in their list of counter efforts announced Friday regarding 'Foreign Exchange or potential sovereign bond sales) are not 'factored-in'; then that still remains a substantive risk, with unknown, unfavorable, consequences. There absolutely is market implication.
(Members will next see charts that affirm everything we projected regarding the 'real' state of housing; household formations; and mortgage applications.)
It would be ironic, if one asks; 'what' is Putin really thinking? (Ideas follow.)
We approach the new trading week 'short' guidelines from the S&P 1890 point of inflection (from which we suggested taking enormous earlier gains); thus the new additional reference point from Thursday, which remains a 'live' guideline short-sale from E-Mini / June S&P 1876. We'll address it early Monday.
Daily action – identified a lot all year; including having outlined for weeks the slippage in housing; hence we didn't understand why others were surprised by the housing reports; since underlying data (like family formations and of course mortgage origination's and permits) was already trending negatively. Aside all the preoccupation with Ukraine; it's clear that bullish analysts with 'optimistic' estimates were ignoring facts.
Objectively things are grinding along; stronger in some economic sectors; while by no means (with geopolitics aside even) is there anything remotely broad.
Speaking of geopolitics; as of late Saturday afternoon (press time), reports are coming from a Russian News Service claiming 15,000 Ukrainian troops, along with 200 tanks and armored personnel carriers, are surrounding the separatist occupied town of Slavyasnk. (We quote Moscow and assess implications.)
Just held a Skype conversation with a personal friend who is a political scientist at NYU of Prague. It's his view the Russian people so far 'do' support Putin's campaign. As he views it from Prague; Russians will only restrain themselves if we see two things: a) stronger firm Western resolve and leadership; and b) a Kiev government that can reestablish stability in Eastern Ukraine promptly. The problem is (details are shared with members). For major Averages we had a 'keyhole exit' weeks ago; now we are just past a 'failing' secondary test of prior highs. As we outlined it's a sort of 'head & shoulders' top; (more follows).
All week long we called for alternating moves that would work lower later; with our E-mini June S&P short-sale from 1876 on Thursday held overnight clearly emphasizing our defensive posture. Of course our 'inflection' short-sale back at June S&P 1890 not only nailed the high (reversing from up to down back then) and took something like 40-50 handles of downside gain. Hence we refer to it as the 'inflection' or tipping point; (balance of technical comments reserved; with most technical analysis via video).
Let's hope we don't awake Sunday to a Russian invasion. And too bad Norman Jewison isn't around to make a sequel to 'The Russians Are Coming' .
For a 'lite' note; here's a glance at what a 'flush display' iPhone 6 may be like.
Prior highlights follow:
Preserving the 'status quo' – seems to be the 'comfortable' objective of most money managers and politicians these days. Sorry to say we suspect they will not be pleased with the outcome; meaning that serious challenges are ahead.
Geopolitical challenges are even more confounding. A reluctant NATO (which is typically about 75% funded by the United States) tries to converge individual member policies so they can show some backbone against Russia's influence, and that's especially as it might extend beyond the borders of Ukraine. Russia knows the US is tired (and has funding issues); while most European nations at this point have degraded their military forces significantly over the last decade.
(Majority of prior week's comments and charts, including reflections on Amazon and Microsoft are reserved.)
(The broadband chart is of general interest relating 'speed' to price nationally.)
We're just noting a further word of caution because of the 48 hour warning; so now you know this becomes a potential 'military weekend', yet again. Hard to say given the lackluster late trading on Thursday (certainly no enthusiasm after the Apple or Facebook results on a broad basis, and no spunk left in general); while one might logically think traders wouldn't go home long on Friday. (This was written Thursday; and we retained our still-live S&P 1876 short-sale.)
End of 'status-quo' affirmed?
Last night I addressed the 'status quo'; so I find it illuminating that the incoming Bank of England Chief Economist (Andrew Haldane) now suggested 'models' (both micro and macro) being used require total review. I commend his candor.
He basically pointed to failures of Keynsian economics in this application (as have we from the start of the Fed's grotesque debt burden upon our people, as well as belief it drains private sector capital, and unnecessarily help the banks branch-out into everything from equities to commodity hoarding).
Of course it's refreshing to hear such views from a 'central bank' economist; so I want to share the main points, and yes, I think we've made them all before:
1) The pursuit of self-interest, by individual firms and by individuals within these firms, has left society poorer;
2) The economy in crisis behaved more like slime descending a warehouse wall, than Newton's pendulum; its motion more organic than harmonic;
3) We are a co-operative species as well as a competitive one. For monetary economists, this (thinking) turns the world on its head;
4) In this light it's time to reconsider some basic economic building blocks.
He goes into detail; basically says that in the current light, economic models do not or have not made sense (hooray; someone seems to get it). He said most policies are not rational, and are driven by a herd mentality, including 'fear'.
This is the first time that 'fear' is applied to 'why' they let the kind of Quantitative Easing or other 'crisis measures' remain active, when they were no longer vital. That was a main argument about post-Debacle application of bailouts; believe needed then; but immediately had to be pulled. Later, until the recent 'tapering' they left monetary policy in a 'crisis mode'; long after (more follows including discussion of 'bankers' and ForEx traders jumping out of windows or off roofs).
There are lots of hard challenges ahead; and this time, there must be sobriety in geopolitics & fiscal policies; beyond monetary shell games.
Enjoy the weekend!
Gene
Contact Information:E-mail: Existing member change of email address; back-up address; or immediate (upgrade) activation:Telephone (email preferred):Content sources: (courtesy Bloomberg; eSignal, DecisionPoint, and/or others as may be noted)Copyright (c) 2014 E.E. Inger & Co. Inc. / The Inger Letter |
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Gene Inger: The Inger Letter – April 28, 2014
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