Market Briefing for Tuesday, May 24

Dire warnings compete with financial fantasy in the ongoing efforts by most analysts and money managers to dissuade investors from demanding selling in a struggling market that is conflicted in so many ways. Simply put, we've arrived at the point after nominal Expiration; the internal distribution persists on rallies; at the same time the market gives ground reluctantly because shorts get run-in.

The new week began as we suggested; some minor efforts to extend the upside with no real gusto. While allowing for a brief flailing punch above a visible standard deviation mean that happens to closely track a little daily declining-tops pattern at the moment, we don't see any prospect for a sustainable rally. What we do see allows a contraction in trading perhaps, given the proximity of a coming Memorial Day holiday weekend, which can allow both rallies and declines to be amplified a bit (due to thin market conditions); but with a bias leaning toward a break to the downside as it sorts out to the bitter end.

I say that because of how they stretch this out trying to avoid resolution; and in my thinking not because of 'confidence', but rather of 'fear' of the potential for a more aggressive drop, such as a 'flash crash'. That's not essential of course; but it is a possibility regardless of any brief effort to probe the upside along the way.

The classic swans are well known; monetary; geopolitical or even economic; both globally and domestically. Just to update a bit: the firing today of the TSA 'Head of Security', as you like heard on the newscasts (Mr. Hogan was also Assistant Administrator of TSA, in this case the Office of Security Operations), may be a political expedient; but comes at a terrible time given disorganization anyway, in a season of a holiday that runs right into the Ramadan month where terrorists are pledging new attacks. And as we've seen, the attacks generally are not just coming through the security lines. (Today there was an attack at the beach city of Latakia, one of the normally calm spots in Syria and home of Russia's naval presence. ISIS penetrating that area is likely further evidence of their turn away from Iraq a bit towards the Mediterranean, which clearly has to be deflected.)

As for travel, you should know that TSAPre lines are often as long as the regular lines now; and reducing the fee for that therefore won't help much. Delta (DAL) buying part of Clear will help (where they operate, like the miserable airports like Miami and Orlando, which are incredibly disorganized and Clear would be a help, for now at least); until the majority of Delta frequent flyers start using it later this year so it becomes bogged down. The expedited systems for 'regular' flyers simply haves to be expanded and not merely by having an excuse to hire more agents that of course do not really effectively deter most threats. Why ground crew monitoring was so lax for so long is also mind-boggling. It's as if nobody's thinking about it proactively.

I think there's concern; and I suspect there's no reason to have this mess other than they expect another imminent attack (they may have had some hint before EgyptAir; whether that turns out to be terrorism or an internal fire); as it is clear (no pun intended) that more modern scanning systems exist as well as reasonable profiling (such as granting access quickly to all very frequent flyers as there shouldn't be a need to schedule a trip to an airport to be interviewed if you're a businessman or -woman who's been flying regularly for years and/or in a certain level of airline status... that would really help expedite all this). So too a semi-Israeli approach, where passengers are processed by computer before the journey to the airport and vehicles and passengers verified at on-ramps into the airports; something that would also help protect curbside areas and deter what happened in Brussels for instance.

In other areas, we've warned for months about Venezuela and here we are with a semi-martial-law status in Caracas. It's pathetic; ever since the decent staff of the Armed Forces was sacked by Chavez, with his ridiculous people's militia set up. Of course now they to find little food, a messed up distribution network, and over a year's wages in the collapse currency to buy a plane ticket out to Miami. It may be at the point where the U.S. and other Latin nations have to intervene. This bites; and I'm not referring to the Zika mosquitoes.

What you see in South America (in part); or in China; or in parts of Europe that staved off grappling with situations by financialization/more debt, is simply the inevitable consequence of borrowing from the future. We've warned of Deutsche Bank (DB) for months; and now Moody's downgraded them two notches to just above 'junk'. It just piles more pain on Germany and Eastern Europe's largest lender.

In sum: not much has changed. The primary fear is that the Fed will sort of try to smooth the political establishment waters by hiking rates and (though they're way late in so doing, whether they do it in June or not) allowing one candidate to pretend the uptick in economic activity or jobs is more significant than it is. The reality is the economy is not only performing below potential but regressing a bit. That's the argument some make for the Fed 'not' moving; but we think that while they are in a quandary, moving is the lesser of evils given what they've created.