E Market Briefing For Jan. 6, 2020

This is sort of our 'Pretorian Guard' if you will. It won't be surprising that I tell you one family friend in the Ready Reserves finds himself on a Navy 'mobilization (online) portal'; potentially sourced for deployment.    

All this may do a favor for the market; by taking the edge off excess, and at the same time not doing much damage to the broad list that hasn't at all been at the helm of upward action over the past year (a reason we've not believed the overall market was 'really' not as 'jammed overbought' as technicians generally contended; although the S&P sure was frothy.

Overall; a 'black swan' swooped in; but we're not viewing this as some alarmists are. There's probably blow-back coming; regardless whether we actually neutralized an imminent threat (that might have been not in Iraq, but in Lebanon, which is where Soleimani factually flew in from).  

Trump has shown a great deal of military restraint in his foreign policy. I am not convinced that it was merely his 'ego' after Khamani said 'Trump could do nothing' that kicked-in. And an attack on our Embassy by the organized Shia militia (or impending on in another country), are attacks on our Country. Iran 'probably' won't risk conventional war over this; but asymmetric risk is a real concern as everyone now knows.

The stock market will likely be a sort of trading range for the moment; as it wants to take a bigger hit, somewhat offset by oil, but also ahead of (at mid-month) the presumed China trade deal signing; and later Brexit. It's a full-plate to digest, and we'll nibble at all these areas over the month of course; with a modest focus on CES we've already begun.

Prior highlights follow: 


Flash at Press Time: after preparing tonight's report below; I got an 'unconfirmed' report that tonight's rocket attack on Baghdad Airport in Iraq, killed the Iranian military (QUDS Force) head; the notorious General Solamani. Killed by his own supporters would be the inference. However, it sounds like a wishful-thinking stretch and pretty-extreme news story; assuming he could be freely in Baghdad and just happened to be hit? Although we know that Iran has advisory barracks 'in' Iraq, which purposely were 'not yet' targeted by the US Air Force strikes last Sunday. So we'll see. Interesting. It's going to be interesting to see if this starts a war, 'or' triggers a mass uprising of Iranian freedom fighters, who have been suppressed since the 'Green Revolution' attempt to throw-out the theocratic mullahs that have been running Iran since the Revolution.  
 

A robust start for 2020 - relies in-part on the promise of a China 'trade deal' signing on January 15th; and Beijing's PBOC (central bank) cut of their Reserve Requirements by 50 basis points (we heard on Tuesday a rate move was coming to help stimulate their economy). 

Basically the market is running higher (perhaps too rapidly); but while it surges ahead (mostly Apple and a handful of others plus general relief I thought likely), and creates concern about worrying when markets start a year strongly, there is the 'worry wall side of that'.  

That side of the 'wall' is the idea that President Trump is playing stocks with the expertise of a technician (and no I won't label Kudlow as one at the same time he knows his stuff). Nobody really talks much about this, and I'm unsure if Trump even consciously realizes he's making his own game; but I suspect he knows. How so? He focuses on the S&P.  

We can debate the merits or duration of a 'breakout' or a 'melt-up' for the general market; especially since most who are optimistic now didn't believe me in recent months that this basically goes up until it doesn't; and that we'd get periodic shakeouts or even corrections; but no awful disaster, and certainly no financial catastrophe, at least for now. So now they like it; and some thing 'that' is a warning. Might be short-term but not beyond; and not much after the first signing of a China trade deal.  

Why? Because dividing reconciliation with China into multiple phases in a sense keeps everyone hanging. Even if the Phase One is solidly more substantial than some speculated (Ag only for-instance, and it won't be An-only; but likely include energy too for-instance); there's more. I doubt Trump would have referenced 'visiting Beijing later' unless there was. In that sense, the strategy leaves room for the market to play with this thru 2020; and that's exactly how you get shakeouts but no Bear Market.  

Also the argument about recession is nonsense; we're just starting the Roaring 20's (perhaps); and coming out of, not going into, a new slump. Europe trails in this regard, and so does China (which cut Reserve rates just today as we sniffed-out some rate cut coming a couple days ago). It was and is the United States that is lifting the global scene, as indicated likely more than a year ago ahead of the forecast transition. So it is that transition year just past, that completed a lot of the 'rolling adjustments' in many stocks and business sectors starting in the Spring of 2018; and for which we saw 'green shoots' emerge during the 2nd half of 2018.  

In-sum: in general we're not saying big stocks are bargains (they're not of course); but with a broadening of the 'base' of stocks participating; it's not out of the question that of course a 'day of reckoning' arrives; but as we have a friendly (and frightened to do otherwise perhaps) Fed and an ECB interested in starting the retreat from the pain of negative rates; it's premature to assume anything like a final spike top is dead-ahead.  

Sort of a peak (that resembles that superficially) may well present itself; but presuming China completes Phase One; and Iran doesn't attack us (I also assume Trump is smart enough to prepare but not preemptively attack Iranian targets to deter them -it's being rumored- because they'd likely respond in a sharp way rather than bend... so caution on all that); and presuming Little Rocket Man cools his jets (bad visual ..); well this can be a rotating market; but with an upward bias (?) for awhile longer.  

Yes I don't dispute the idea that down-the-road a more disastrous, even creditmarket / debt-based risk presents itself, but history supports my suspicion that the macro risks will be talked about but not impact stocks broadly until we actually get 'the' blow-off spike. We're seeing a little bit of one now; but because of what I've just suggested; it may not be final at all. Look at the progression I outlined way back in the 1990's (and I'm delighted some of you are with us since then).

Back then you had 10% give or take sell-offs in the S&P and it worked higher thereafter. Each one of those was a buy-the-dips pattern; more or less what we've seen since indicating the cycle low last Christmas (I refer of course to 2018; not two weeks ago). Presuming that was what I said, a cycle low, this is then anything but a broad overbought market.  

Bottom-line: I have argued this point for months; and few see it even now. They're out there talking recession; or valuation spike and that's not the case. That, in fact, was the cycle high, back in January of 2018.. two years ago (so wow feels like yesterday).  

Thereafter had a rolling bear market outside of buybacks and nonsense as stocks corrected. Now we're in the midst of a new cycle and they think we're at the end of the old. Nope. It's going to pause periodically; but it's not over; and as I've said for months now, it could be the tailend of 2020 or even 2021 before we're needing to seriously consider that.  

Also; with lots of year-end tax selling victims (the downtrodden masses of stocks, often depressed beyond necessity based on their businesses and prospects) rebounding somewhat, that helped the overall breadth in the last couple days of 2019 or of course here at 2020's start. Our vision has and remains clear (dare I say 20/20) about how the President is planning this; which is not to say it succeeds, but that's the strategy. 

Near-term: details near the end of tonight's report about a rocket attack on Baghdad Airport. Earlier, Defense Secretary Mark Esper put Iran and its proxies on notice, saying the US is prepared to launch "pre-emptive action" if American troops and interests come under threat. Horns of a dilemma perhaps; but also perhaps the Chief Mullah believes it when he said yesterday that 'Trump won't dare do a thing'. In this case Khamani is poking the bear. I suspect he right that Trump doesn't want to but he also is not about to allow Benghazi-like situations.  

Speaking of, in Libya a Turkish Air Force plane was shot down; appears by Libyan rebels near Benghazi. Turkey is in the process of moving into Libya with troops, not long after they cut a deal to extend (their absurd) drilling rights to offshore Libya. (It's a move I criticized last week while favoring the aspect of 'corking' the flow of migrants out of North Africa; but Turkey's motives are dubious.) The Middle East is not cooling but it is a game-changer to have Iran provoke us via surrogates, and perhaps advise the Libyan rebels too. On top of that there was an Isis attack (by an affiliated group) in Nigeria.  

So stay abreast 'if' any of this undermines the market, aside supporting Oil prices, which are unlikely to come down anyway; but not with this (of course the normal reason for firm Oil is as outlined; supply/demand and the China deal reviving hopes for some degree of global growth. 

Update at 8:30 pm ET Thursday: now there's a second report saying that Abu Mahdi al-Muhandis, Deputy Commander of Hashd al-Shaabi and Qassem Solaimi Commander of IRGC killed in Baghdad. (Editor: keep in mind I scrambled to stay current as the Daily was finished just as these stories starting crossing the wires; I did my best to stay with it.)  
 
(Macro) action - is not excessively focused on the alternatives outlined by everyone; most of whom did not concur (nor yet figured-out) whether or not my idea of the cycle low being just over a year ago; or significant cycle high (allowing for interim retreats) being way out in the future.  
 
But in all humility; S&P can't constantly advance like today; although for sure I thought somewhat (brief brick-wall or not) it could because the 'universe of stocks' participating would broaden out. I started to review a long list of stocks that are downtrodden and capable of rebound; then I stopped; because that generally is not what we think investors should do in this Index / ETF / HFT era. A few individual stocks for sure; but most money managers at this point are viewing EFT's and Indexes (sort of a modern approach to avoiding deep research); and that's both a factor in pushing the market higher; while also a risk consideration 'eventually'.

So over the holiday (grrr) I took time to prepare a special write-up for a prominent National Service, and I'll share it (about Amarin) in a couple days; well before it's published. You already know the backdrop; and it's just a summary. Today a couple new members asked for an update as did an online site; so below is what I posted there after today's close as a bit of an update. The only part I think our members might not realize is the British Law aspect of how a buyout of Amarin might have to work:

If there's a buyout offer for Amarin, it could get interesting. As I've noted to our members (it's our stock of the year pick from last year; AMD was from the year before and it's been great) .. Amarin may consider a 'deal' but unless it changes what it outlined, English law would prevail; requiring 90% of common shareholders approve; rather than just 50% under Delaware US law. So, while I don't doubt they'd get that percentage at a sufficient price (institutions might well be happy to exchange shares with Pfizer, Gilead, Abbott or whichever big pharma was the acquirer); there might be an effort to suppress share price for exactly that reason; so the on-its-merits price stays low enough to allow wiggle room for a deal, or (ideally) a bidding war to put it 'in-play'. (I'm totally speculating about this.)
 

Sure, on its own it can grow gradually and more insurance will cover it (formularies or not at the year's start, because it reduces payments for cath-lab work, and so on, for patients on Vascepa for near a year or more). And Amarin would likely see 30+ as I've written as a minimum objective; but as the Irish guys have been pretty clever with this stock (such as favorable chatter before Goldman's secondary perhaps); who is to say that's not the case now (holding it back so whoever the/a suitor may be can get positioned favorably or at least enough so that the price isn't so high as to discourage them). F

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