Wall Street Dances in the Ballroom of the Titanic

Peter's Market Rap for the Week Ending January 19, 2024

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AND PLEASE ENJOY YOUR WEEKEND!

It’s déjà vu all over again as hedge fund moguls and pension fund managers on Wall Street continue to party even as danger lurks behind every door.

I’m talking about Houthi missiles, North Korean rockets, China’s tightening noose around Taiwan against the backdrop of its faltering economy, a war that appears to be turning with the Russian tide, a headlong plunge into war with Iran, a looming fiscal cliff, an ever more prolonged future of higher interest rates, falling real wages across blue-collar America, a Congress with all the discipline of a baby’s bowel movements, a Republican Party at war with itself pitting RINOs against the vast MAGA majority, a Democrat party saddled with an octogenarian they can barely remember his name, a coming artificial intelligence tech tsunami that may finally fulfill our worst fears about a machine takeover of humanity, and an alphabet soup of legacy media – ABC, CBS, NBC, PBS, CNN, MSNBC, and that in resident Fox in the Trump henhouse, Fox news – that refuses to tell us the real truth about just about anything.

So this week, yet again, the band on Wall Street played on with all the concern about the gathering storm as the intelligentsia and landed gentry who danced in the Titanic ballroom had for the water that was gushing into their ship.

The only two things I can tell you are this: As I have noted, follow the old Wall Street adage that you shouldn’t fight the trend, and try not to get sucked into this game of musical chairs.

As for the key numbers and events, the S&P 500 and NASDAQ both hit new highs this week even as the fear index rose precipitously.  Once again, the blood of the Wall Street bears ran in the streets – ran in the streets, that is, only if these bears were foolish enough to short the market rather than to watch the spectacle in cash.

One big news item had retail sales unexpectedly hot, increasing by 0.6% rather than the estimated 0.4% in December.  Wall Street initially reacted by going into a brief swoon, worried as it was that this surprisingly robust number would put the kibosh on expectations that the Federal Reserve would be cutting rates soon.  However, Wall Street rebounded sharply the next day, presumably on the hope of market participants for continued economic growth.

But here’s the thing: far too much of Wall Street is too parochial and what really caught my eye was the fact that retail sales are falling in other countries around the globe.  In the United Kingdom, for example retail sales fell by 3.2 percent in December, which was the sharpest drop since the UK was in a Covid lockdown.  The bigger lesson here is that when other countries around the world are suffering, they can’t buy our exports and this will eventually come to harm us.

The other piece of good news Wall Street seemed to embrace was the abject surrender of House Republicans to a Uniparty on Capitol Hill that seems bound and determined to spend this great nation  into oblivion without taking any steps whatsoever to secure our border or instill some fiscal discipline. 

Here’s a riddle for you: what’s the difference between Nancy Pelosi, Kevin McCarthy, and Mike Johnson as House Speakers?  The answer, of course, is “not a damn thing.”

To kick the spending can furthered down the road this time, Speaker Johnson persuaded more than 100 Republicans to join Democrats in passing a resolution that maintains the drunken sailor budget of the United States of America.  And yes, Wall Street seemed to like this news as it meant no uncertainty over a government shutdown and no end in sight for the Keynesian fiscal stimulus on steroids coursing through the veins of the US economy like methamphetamine courses through the veins of the speed addict.

In times like this, it’s a good time to walk away from the poker table otherwise known as the stock market and let others place bets which are more akin to gambling than careful speculation. 

We are truly in uncharted territory, and I continue to believe that the only reason why we are witnessing anything like a bull market is not because the economy is healthy, inflation is under control, the Federal Reserve will soon be cutting rates and will become a Goldilocks economy.  Rather, I think a small number of stocks – and this is an empirical fact – are simply propelling markets upward; and these stocks with names like Nvidia and Microsoft are precisely the artificial intelligence and high tech stocks that are part of this secular longer-term wave.

So have a good weekend.  Cash remains king in my household.  God save the Queen.  Just kidding about that last one.

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