Investing When Nothing Matters And Anything Goes

The recent US equity market rally has a lot of people scratching their heads, Paul Kiker and I included.

As of April 14th, the rally was not only strong, but in the 99.7th percentile for all 10-day market returns in all of the S&P 500 (SPY)’s history.

Are things really that awesome?  Most people think not.

Especially Main Street, which is recording the lowest consumer confidence in decades.

That may be related to the fact that US housing sales are at “depression levels” according to Nick Gerli, who recently noted that the only worse month for March housing sales was March 2009.

This massive disconnect between Wall Street and Main Street is yet more evidence that the system which rules the financial and political spheres isn’t serving the majority, but rather a very narrow (and narrowing) set of interests.

Most people have been living with the reality of the sharpest single-month hike in gasoline and diesel prices on record:

Of course, this is going to stoke inflation (as it’s measured), but in reality, this isn’t prices rising due to the overproduction of money (the definition of inflation), rather rising prices due to supply shortages.

Naturally and predictably, the US BLS agency came out with a laughable Producer Price Index (PPI) reading.  In it, the BLS claimed that energy costs had only risen by 8.5% for producers during March, a month in which oil-related energy sources were up by 37% to 66%.

If you note the total for Goods inflation, however, standing at 1.6% for March, that would annualize out to 21% inflation were it to be sustained.

Now, we’d expect that to moderate, but that depends on the Iran war ending today.  Every week that it drags on is another week of oil supply shock that will have to be resolved via ‘demand destruction,’ which can only come about by price increases.

Well, it can also come about by forced government rationing, but that never actually works out because that merely enforces economic destruction from the top down rather than letting the economy work it out from the bottom up.

It seems that fundamentals (housing, consumer stress, energy, inventories) no longer align with US equity market price action.  Welcome to the Truman Show.

It is a time that calls for prudence, caution, and having a defined plan of action to navigate what has become a set of markets that are disconnected from reality. But they always have to realign, and when they do, it’s usually ‘chaotic’ to use a euphemism.