Ad Hoc Commentary – probably as good as it gets for the S&P500 for now
The barometer of the world economy, the S&P500, had perhaps ran out of steam for now. We had been blessed with the foresight of instilling confidence when the index hit bottom twice in the last one year:
On Sep 30, 2015: “…At this moment, the S&P500 looks increasingly like a good buy…”
On Feb 12, 2016: “Those who stampeded out of US stocks on a panic will probably regret it by the end of the year…”
https://tradehaven.net/ad-hoc-commentary-yellen-keeps-the-faith/
Today is the last trading day of April, and the price action seems to indicate that we are unable to break upwards. The greatest headwind to the S&P500 has nothing to do with demand/supply of goods/services. The greatest headwind the S&P500 is the US dollar, and uncertainty around the next person to occupy the White House. For now, Yellen is stalling, and we probably had to wait for her June meeting. If Yellen hikes then, then the US dollar will reverse current weakness and start attracting capital into America’s S&P500. If Yellen holds, then we will need to wait for clarity in the White House race. In any case, S&P500 will find it very hard to clear 2130.
After the demise of America’s global surplus recycling mechanism in the fall of 2008, we had seen 8 more years of leveraging. Today, the world finds herself on a debt hangover worse than 2008, coupled with lower incomes. The main reason we do not see a credit crisis now is low interest rates. Yellen faces the impossible task of hiking rates to save pension funds versus holding rates at zero to avoid a new credit crisis.
Professor Reinhart recently commented that the IMF-World Bank Spring Meetings ‘missed’ the elephant in the room:
“…But with the largest economies, nearly eight years after the global financial crisis, burdened by high and rising levels of public and private debts, it is baffling that comprehensive restructuring does not figure prominently among the menu of policy options. Indeed, for the global economy, debt restructuring is the proverbial elephant in the room…”
Yours truly believes the real culprit driving the debt elephant is demographics:
“The demographics in most major economies – including the US, in Europe and Japan – are a major issue – and present us with the question of how we are going to pay down the huge debt burden. With life expectancy increasing rapidly, we no longer have the young, working populations required to sustain a debt-driven economic model in the same way as we’ve managed to do in the past.”
America’s deficit is going to get a lot of attention in 2017 because, for the first time ever, both Medicare and Social Security are expected to be in deficit:
One can expect the public to first focus on the dearth of young people. Once the public realizes that babies do not become working adults overnight, and that they cannot import enough immigrants into America to fix the demographic burden, they will then focus on the multitude of old people. It could easily devolve into an unproductive blame game – 59 million abortions since 1973, the right to die, Feminist Movement and motherhood, stagnant real wages since 1970s, and so on.
America does not need a presidential candidate that engages in kitsch debates. What America needs today is a leader like John F. Kennedy that can commit the nation to an ambitious technological feat and deliver on it. If America can send a man to the moon in less than a decade after committing to it, it is probable that a determined America can solve the underlying problem of caring for the old.
Good luck in the markets.