In the movie, “The Hustler” (Robert Rossen, director), a character stresses: “Look, you wanna hustle pool, don’t you? This game isn’t like football. Nobody pays you for yardage. When you hustle you keep score real simple. The end of the game you count up your money. That’s how you find out who’s best. That’s the only way.”
During the era of sustained global yield repression engineered by America’s trusty Federal Reserve Board and its central banking comrades, “investors” and other traders generally have engaged in enthusiastic hunts for adequate return (“yield”) in assorted financial fields. These territories include United States and other stocks, US corporate bonds, lower-grade foreign dollar-denominated sovereign debt, and commodities “in general”.
Convergence and divergence (lead/lag) relationships between realms such as the S+P 500, American corporate debt, and the petroleum complex are a matter of subjective perspective. The connections and patterns are complex and not necessarily precise; they can shift or even transform. Nevertheless, within this accommodative policy yield environment, often involving monumental money printing (quantitative easing) strategies and other generous monetary schemes, price trends in the S+P 500 and these other marketplaces frequently have been similar. Prices in these benchmark stock indices, lower-grade interest rate instruments, and commodities often have risen (or fallen) at roughly the same time They have climbed in bull markets (and fallen in bear markets) “together”. For example, the magnificent bull moves for US stocks and these “related” financial areas peaked in early to mid-first quarter 2020. Their subsequent bloody bear crashes intertwined, ending at around the same time. The ensuing price rallies in these assorted key districts generally embarked around late March 2020, and their subsequent bullish patterns thereafter interrelated. The S+P 500’s attained its record high on 9/2/20 at 3588.
“Marketplace Maneuvers: Searching for Yield, Running for Cover” (9/7/20) concluded: “various phenomena indicate that these marketplaces are at or near important price highs and probably have started to or soon will decline together.” Noteworthy interconnected price falls followed the S+P 500’s September 2020 summit. Even if Congress answers widespread fervent prayers and enacts another large deficit spending (stimulus) package, the S+P 500’s 9/2/20 peak probably will not be broken by much, if at all.
What bearish factors did “Marketplace Maneuvers” identify? They include the probability of a feeble global recovery (the recovery will not be V-shaped), the persistence of the coronavirus problem for at least the next several months, and lofty American stock marketplace valuations (and the substantial risk of disappointing late 2020 and calendar 2021 corporate earnings). The Democrats probably will triumph in the 11/3/20 American national election, which portends a reversal of the corporate tax “reform” legislation as well as the enactment of increased taxes on high-earning individuals and the passage of capital gains taxes. Also on the US national political scene, fears are growing of a political crisis if President Trump disputes the November voting outcome.
Other warning signals of notable price falls in the S+P 500 and various related marketplaces are vulnerable US (and other) households (reduced consumer spending) and endangered small businesses, massive and rising government debt, a greater risk of rising US interest rates (at least in the corporate and low-quality sovereign landscapes) than many believe (even with ongoing Fed yield repression), and the weakness in the US dollar.
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Adventures in Marketland- Hunting for Return (10-6-20)