Month In Review – November 30

Summary

• One helluva bear trap set the prior week sent traders scrambling after the Fed Chair caved, at least in rhetoric, to the president’s bullying
• Most sovereign bond yields down on the month, led by hard-hit Turkey and Indonesian 10-years
• The U.S. credit markets had a rough month
• Argentina and Brazil currencies were lower with South Africa and Turkey recovering smartly.  Nice EM bookends
• Last week’s big stock rally allowed most stock indices to turn up for the month
• Mexico’s Bolso showing exceptional weakness as the new government takes over
• Natural gas up yuge in November while crude oil down yuge

Commentary:  Given that calling the short-term market is mug’s game,  it is exceedingly more difficult when politicians and economic policymakers will not allow the markets to find their true or correct level.   Everyone is now into market price manipulation:  companies with their buybacks;  central banks with their QE, and political leaders with their jawboning and selected, sometimes fake, news releases.  This can’t be positive in the long-run.  But, hey,  we get our bonuses and reelected in the short-run, no?

Nevertheless, we believe, given all indicators point to, and the backdrop of a shrinking Fed balance sheet, coupled with bloating U.S. budget deficit and the crowding out effect,  a high probability we have seen or are closer to the top than a new bull run.

The bullshit factor coming out of almost all governments is another factor traders must deal with.   For example, the president just tweeted “China has agreed to reduce and remove tariffs on cars coming into China from the U.S. Currently the tariff is 40%.”  It’s hard to unpack this.

According to the South China Morning Post,

China’s tariff on car imports from all over the world was cut to 15 per cent from 25 per cent. But for US cars, China added a 25 per cent tariff over the summer, making the rate 40 per cent.  – SCMP

So did China remove the 40 percent, of which 25 percent were in retaliation to U.S. taiffs, on all U.S. cars, while the U.S. left its tariffs in place with the threat to escalate if negotiations go south?  That interpretation should be highly discounted until more clarification.

We view the so-called  “biggest trade deal ever” just a cease-fire with a still high risk of tanking.

Let the traders run with it, however.

The 2810-15 level on the S&P is critical, right about where futures are trading as we write.  There is probably enough trader torque to take that out and rally this market into year-end.

Longer Term

The following charts were on Fareed Zakaria this morning, which capture our view of the U.S. market over the next few years.  We will let you make your own inferences and investment decisions based on the charts