Dec

18

A View, from Bill Rafter

December 18, 2018 |

With regard to fundamental (macroeconomic data), none suggest recession.  If there is any suggestion, it would be for a market correction.  That specific data (a longer-term view of Treasury tax revenues) is complicated because there are only four historical examples, not enough for reliability.  However even that data seems to have run its course, as a short-term view of Treasury payroll tax receipts has turned up, meaning that the December Jobs Report will be more positive than expected.  You might wonder how we know that when we are only halfway through December, but in reality the end date for that data collection is last Friday (the 14th), which is already available.  So, expect some bullish data.

A quasi-fundamental piece of data we examine is the relationship between debt and equity.  Specifically, we monitor the moving correlation of stocks with bonds.  We view this as a fundamental item rather than a technical one, although it originates within the markets.  The most bullish scenario is when both stocks and bonds are moving higher, which is not currently happening.  But it is not convincingly so; it could reverse in a heartbeat.

Our technical picture is weighted more on the bullish side.  Of particular interest is the calm being exhibited by the volume in options, both that of individual equities and indices, the latter being particularly used to hedge bets.  In short, there is no panic there.  So the players there are either foolishly complacent or simply not worried.  We also monitor the sentiment difference between professionals and amateurs.  It is quite clear that the amateurs are those who are in panic mode.  

If we were to go further and examine breadth, specifically the advance-decline series of both issues and volume, that data has turned upward.  

Our long-term experience is that whenever there is a disagreement between fundamental and technical factors, go with the technical.  The technical items measure decisions having been made by real players, which does not always describe the fundamental items.

The real problem is political.  We have a much different journalistic environment that we have ever experienced.  Not only does the press hope to bury the President, but also the economy.  Hence the rise of Socialist “stars”.  We do not know how to deal with that, other than it is wishful thinking on the part of the Fourth Estate, a group that historically never invests.  We would expect such wishful thinking to go unrewarded.  

My apologies for the lack of charts proving my points, but there is just too much data to represent.


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