Market Briefing For Monday, June 13

Escape from increasingly obvious realities is perhaps a proper way now to describe what the central bankers (not just our Fed, though its pained to hike is in the same universe of interrelated pressures upon not just rates, but currencies), as well as fiscal policy makers (who are mostly moribund) are up against.

The flight from pending 'air pockets' in the market is just part of the concern. For all practical purposes we're talking about a broader 'societal' recognition of what has otherwise been a 'macro' worry for some time; where does 'can kicking' the accumulated debt, and inability of countries (not just people) to live beyond their means, take us?

The answer has been lethargy in business; less confidence with lower rates as it should not be assumed people don't realize that there's a reason that's troubling when rates stay low for so long while governments 'pretend' things are reviving more robustly (especially when the opposite is the case; not merely guidance having to be repeatedly lowered for earnings or particularly GDP estimates).

It also can culminate with 'societal discord', and even 'systemic risk' that comes at a time when even bankers are starting to hoard funds; thus inferring worries of a possible rainy-day need ahead. Many businesses and wealthy individuals are doing this also; and it is separate and apart from selling rallies (which we've suggested for a long time, and you'll note the S&P really isn't ahead for say the last year and a half). Bargains to buy have been few and far between; though of course that will change if the market finally corrects... or even risks collapsing.

So sure; low yields have been a big part of this and it hammers many banks. In the broader market there indeed is a mosaic of concerns. Presumptions that the UK remains may be increased if it scares more Brits (Labor members?) to vote to 'stay'; while again the polls suggest more in favor of leaving (as do ridiculous demands from the EU, including the threatened fines on limiting migrants from member states who refuse admittance to those who aren't vetted).

Everything is not fine as some contend. The narrative is one of complacency; as well as not one of increasing profitability calls by many industries. Now we have a Fed meeting coming; and guess what... if the Fed doesn't hike and the market rallies on that, well, it's a sale. If the Fed does hike, it will tank, rebound, and then tank again (in our view).

As for Brexit; that's a part of the shaky unwinding of the EU and perhaps Euro; though the opposite of consensus estimates may occur (that would be a weaker Pound initially and stronger down the road); with either probably not seriously undermining the strength of the U.S. Dollar.

In sum: this is an 'event-risk' time; but analysts or pundits focused on individual 'events' are overlooking the general trend, which is a continued unwind of calls for recoveries and a low-yield environment that leaves markets vulnerable. And that's regardless of the FOMC this week and even Brexit; though of course this matters with respect to day-to-day trading.

Either way we see the market lower in the U.S., along the overall lines we have suggested, including a June swoon; perhaps a subsequent rebound if yields get even lower later; and then risk of an implosion perhaps after some stabilization efforts into early-mid July (after the swoon). Ideally that would be lower rebound peaks, with ensuing erosion; and ongoing 'flash crash' risk through Summer.