Amidst 'Alice In Wonderland' Optimism

Amidst 'Alice in Wonderland' optimism - flowing forth to justify the expiration and post-FOMC rally of the past week, was an absence not only of anything that approaches realistic assessments of economic prospects, but a few things too.

Among those: a sort of benign complacency towards extended market levels; an absence of all kinds of confirmations of recovery (that even a Fed President or several by now) have suggested present (to wit, rekindling an April Fed meeting that backs-off a somewhat dovish stance just presented, which temporarily tanked the Dollar).

Also there's failure to consider that as (per our forecast) the Dollar Index firmed back-up, you'd get Oil softening a bit (not just the inventory data), and stocks consolidating. Plus through all this post-FOMC and post-Expiration efforts trying to extend the market (and pundits rationalizing why investors who got out back in January should get in during this strength, which is excessive and exhausted) were doing so amid mixed-to-negative internal deterioration, and fairly clear (not just geopolitical or technical) evidence that the 'recovery' was not rolling-along as at least three Fed regional Presidents claimed during the week's interviews.

Now; we had the attack yesterday, which the French had warned the world more generally, and Belgium in particular, was coming (in fact one story specifically is saying a warning of a coming attack on Brussels Int'l. Airport was coming). You'll recall our mentioning last Friday's very accurate statement by French President Hollande: that Islamist terror networks in Europe were connected; were far wider than widely believed (encompassing many nations) and that they involved many more people than previously thought (found worrisome since a small percentage of many migrants or radicalized locals, is still a large number of individuals).

I've been concerned about this for a long time as you know); can't imagine what goes through Chancellor Merkel's mind now; as she tries defending 'open arms' immigration policies. No doubt this is sad for the majority of 'legitimate' refugees, but in wartime there is no choice but to tighten up controls. And therein likes the big problem. President Hollande of France seems to be the 'only' major leader I can think of that 'gets is'; this is a 'war'; not a police action or mere prosecutorial challenge for investigators (though it is that too).

Example: we understand our President going to the baseball game in Havana at the same time he says we have to live our lives normally, or be terrorized and so they win in that way. But again he doesn't get it. The terrorists 'could care less' if he watches baseball, or dashes to Air Force One to return to Washington. They are out to 'prevail' over the Judaic-Christian world; no more, no less. They would be happy to prevail by demographics (that topic has been around Europe for the longest period of time since the North African migrations began); or by violence. They don't care. But now that they are trying to secure territorial ambitions (their so-called caliphate) it puts a clock on their efforts to discourage the West from a coordinated effort to dislodge them; so they try to dissuade us by attacks.

Most in Western intelligence believe they would use NBC (nuclear, biologic or chemical) weapons if they obtain them (they may have 'some' elements of those already); another reason to stop them. The USAF has shifted B-52 bombers to the region (perhaps flying out of RAF bases) and if not for carpet-bombing, they can carry serious newer smart weapons that can be guided from the updated or remaining heavy bombers. And as this comes to a head, it has market meaning as well. Travel will contract and economic activity will be throttled merely by the necessity of serious security at airports, train stations and major highways on all border points. Militaries will be mobilized and our President who a couple weeks ago said there was 'no existential threat' will be pained to modify those words by some sort of reinterpretation. NATO will be reinforced as Russia won't seriously object as these vermin are after them now as much or more than they are us.

This morning I spoke with a lady in Antwerp I know from last year's cruise; also locked-down (all of Belgium is). Her kids aren't at school and she was in a travel office only because it's near her home. Of course they're busily trying to re-book stranded travelers as there are no flights out; and few seats on trains to Paris or Amsterdam. Again this was an attack on Europe, not just on Belgium. Yes there may be relatively safer regions (such as the Eastern parts of Europe which did not accept the migrant flood nor show particular compassion, which makes them seem prescient rather than prejudiced). 

The latest story from the AP (Associated Press) 'says' this evening that ISIS has infiltrated Europe with over 400 'trained' fighters intending to cause havoc soon; perhaps that's the reason for the travel warning that the State Dept. issued. As a really sick twist to it; AP sources one story suggesting ISIS recently kidnapped a Catholic Priest and might crucify him on Easter Sunday. We pray not, while very clearly believing that this is wartime, and more leaders have to grapple with that.

Bottom-line: the market is pricey on valuation; on technicals; and deteriorating. All the activities of the last few weeks were manufactured, including excessively optimistic rhetoric about global economic strength and better upside prospects. If they are better, it would be insufficient to justify high price levels for equities; if they are even worse (whether influenced by 'war' or not), even more concerning.  

In-sum: I listened to the former bin-Laden sector head of the CIA today. He very clearly reiterated views similar to our own; adding a simple point: just because a feeling of compassion exists, doesn't mean you have to open your doors wide to anyone and everyone.

Leaders need to understand that this is a war; and that it is their primary duty to protect the security of a nation's citizens. We don't want a police state of course; but we do want security and the safety to live our lives; and to that end realize a modicum of change must occur until the scourge to mankind is eliminated or at least seriously contained. It is an existential threat and it is attacking the world.

It has ramifications for markets and in my view means that business as usual is out the door; as the time to reeducate and deprogram the radical Islamic youth was years ago; and so little has been done that the unwinding becomes tougher now as a result. Nobody wants to be authoritarian; but nobody wants a sickness that's borne out of extremist ideologies to matriculate further. It's USA Today that carried the story about the 400 murderers smuggled into Europe; that's enough to awaken leaders you'd think; and they had to know before yesterday. Why the wishful thinking or naivete to act 'as if' they were caught by surprise.