Market Briefing For Wednesday, July 20

Economic confidence slipping does matter, both in the U.S. and Europe; and occurs at a very interesting (almost unprecedented) time, as stock indexes hit a new high, while the desire to sell or short concurrently increased.

Typically this might be a contrary indicator, suggesting jumping-in on the buy-side of the trade. However, more investors increasingly understand recent artificiality of the moves, and how much of it is fueled by not by anything valuation-based at all, but by a variation of yield-chasing (sovereign flows), and in some cases now a direct buying of corporate bonds by central banks; perhaps beyond mandates.

Last night I applauded the Republican Platform for including revival of important financial reform; to wit proposing reinstatement of the Glass-Steagall Act. I failed to mention that even former President Clinton has commented some time ago a wish that he had not signed off on its repeal. Thus, to avoid being viewed as just in the pocket of institutions, this could actually become a popular bipartisan idea if Hillary would simply concur, since Bill has previously expressed such views. If she fails to do so and argues that Platform point, she will fall into the trap of being disingenuous with respect to taking the bloated institutions down a peg, which is clearly something the majority of voters of both parties sort of favor this year.

Globally matters continue to be volatile and fluid, with new developments almost daily. Pressures on France and now Germany to establish fair but secure policies on migration are rising; and that's not missed by American voters either. Earlier in this day I had coffee with an insurance executive from Bern (Switzerland) indeed in agreement with the challenges facing Europe and the regrets Merkel must feel as to how she opened the doors so wide after years of basically worker-permits (mostly to Turks); but otherwise made it quite difficult for migrants to arrive and or work in Germany.

Then we have Turkey, which has gone off the deep end a bit. Our Secretary of State Kerry warning Ankara about its activities lest they risk their NATO standing is for sure a start; but Erdogan's response so far is pathetic. He says things like being open to restoring the death penalty if his Parliament approves; but he's 'sacked' almost everyone opposed to him; and clearly is moving more towards being the dictator many already saw (with Islamist leanings), rather than a secular leader. His purge is ridiculous; now up to about 40,000 including most professors and teachers. There's no way a 'list' of so many so-called 'coup' participants existed or could be accumulated so quickly after the so-called attempted overthrow. So, despite scapegoats or some political support, it looks like nothing less than very heavy-handed efforts to suppress or eliminate 'all' opposition, including all merely political viewpoints, and thus intimidate the population into following along. 

The strategic significance of Turkey cannot be overstated; it remains an anchor of somewhat eastern Europe at the crossroads into the Middle East. Conveniently, it seems too many journalists have overlooked the creeping corruption, the son's oil dealings that funneled money to ISIS, or the realization that he's trying to grow his power-base from the fundamentalist East and suppress the secular West. It's a big problem, and even more pressing that all other Middle East challenges for the moment. Aside that, the Kerry/Putin meetings got little press or understanding that Washington finally realizes that Russia's Middle East ideas have some merit even though of course Russia wishes to step into the growing power vacuum.

In sum: all the geopolitical, economic and financial points we've recently made at this time continue valid. We do expect fading rallies to give way to more erosion, as suggested likely in July's second half.