Stock market volatility is at all-time lows. Valuations are near all-time highs using any number of different measures. Yet the key economies are having a historically weak recovery. It looks crazy and it is. What has made it possible is the greatest debt bubble in history.
In case you haven’t noticed, capital has been flooding out of active investing (where managers buy stocks and build their own portfolio) and into passive vehicles such as Exchange Traded Funds (ETFs).
The stock market ripped higher again yesterday. The last couple of days, the Nasdaq, Nasdaq 100, Dow and S&P, have gapped higher with the former two making new highs. Why? Apparently because Trump’s tax plan is about to be revealed. Do we need to be reminded that Trump’s health care, extreme vetting, infrastructure and border wall initiatives have all failed? Thank goodness for Syria and North Korea, where Trump can make decisions without Congress.
Lately, I’ve been reporting to you on the troubling slow-down in auto sales and production. Is this data trying to warn us about a wider slow-down?
The U.S. auto industry is a very important economic driver. Sales have risen for eight straight years, last year setting a new record of 17.55 million vehicles. Much of what the Federal Reserve sees as an economic recovery is really the upturn in the car industry since the bailout of GM in 2009.
As you know, dear reader, I have been following the pension issue for the last year. Here are just some recent headlines: from Texas, “Without a Fix, Teacher Healthcare Fund is Empty Next Year”, from Modesto, California “City Considers Freeze on Hiring and Promotions as Pension Costs Loom”, and “Emotions Run High as Kentucky Retirement Systems Pension Hole Grows.” These stories go on and on and on.
Record auto sales have been propped for up for years by low interest rates, loosening auto lending standards with terms being stretched to the max and a wave of leases, all of which have allowed the American consumer to trade up to more expensive vehicles while maintaining low monthly payments.
Yesterday we got the latest numbers (February) for Personal Consumption Expenditure (PCE), the Fed’s favourite price inflation measure. It’s their favourite because it does the best job of suppressing the real rate of inflation.
If you don’t want to know something, don’t ask the question.
The traditional Investment Banking equity research model is about to undergo a radical transformation. New regulations set to go into effect in 2018 in Europe require Investment Banks to break out the pricing of equity research charged to their buy side clients so that clients can be billed for research directly rather than paying indirectly through inflated commissions.
We have been waiting for the Trump narrative to exhaust itself so that real news can be taken seriously again. Yesterday, we may have got the first signs of that exhaustion.