Monday, October 15, 2018

Global Warning Ignored

The bad news is that the $1 trillion dollar tax cut sugar high is wearing off making sudden market plunges far more frequent. The good news is that these global-assisted plunges are being completely ignored. Just like every other risk.

In summary it's a denialist paradise melting like a snowball in the sun:



"Haibin Zhu, chief China economist at J.P. Morgan, said the bank's baseline scenario is for the U.S. to impose tariffs on all Chinese imports. That means "real painful economic events in 2019" 

"There's been a denial factor in the market"


Memo to all employees: All painful events must begin after bonus is paid






The way of denial is to put lipstick on a pig by putting a positive spin on a dire situation. For example, this headline sounds great at first:



"A record 85 percent of market pros say the world is in the "late cycle" period of growth. That's the highest reading since November 2008, just two months after Lehman Brothers collapsed and triggered the worst days of the Great Recession. That level is also a full 11 percentage points above its previous record in December 2007"

"The gap between expectations for the U.S. economy vs. the world is at its widest since October 2007, right around the stock market highs before the crisis plunge."

Remember bank earnings last Friday? Well here are the bank stocks two days later:






The Denialist-in-Chief finally admitted that Global Warming is no longer a hoax, so he's going to fix it by making it worse. The same way he fixed the big, fat, ugly bubble, by making it bigger, fatter and uglier. Because every denialist knows that's how you fix all problems - by ignoring them and making them worse.  



Speaking of ignoring risk, last week's market plunge saw the VIX gain 200% in five days. It was the fourth largest five day % VIX spike in the past twenty years. 



Here I show the largest five day % spikes in the VIX over the past twenty years. The five largest all came since 2008. Two came this year alone. I overlaid the Rest of World to show that these vol spikes are really just overnight gaps that are assiduously ignored:



In addition to overnight risk, the other factor causing these dislocations is the fact that the tax cut sugar high is wearing off. 


Buybacks have been especially powerful lately. Flush with excess cash from tax cuts and the strong economy, US companies are on track to repurchase $1 trillion of stock this year for the first time ever, according to Goldman Sachs. Last month Goldman Sachs even warned that the looming blackout period posed a "near-term risk" to the market.



Combine a liquidity crisis with the worst global macro since the 2007 top and what do you get?




The S&P 500 closed below its 200 day today, now Skynet is working overtime to gain it back in the overnight.

Because barring that, it gets FUGLY...




Fortunately, there's a safe haven from all of this risk:




https://www.investing.com/analysis/hate-market-volatility-buy-these-2-recessionproof-dividend-stocks-200348371




"Walmart and AT&T Inc are two dividend stocks that can help keep your portfolio protected from a prolonged market downturn or even an economic recession."


With advice like this who needs enemies?