The Indefatigable Bull

This stock market continues to defy my attempts to figure it out.  Since early November, it's been practically a straight line going up at about 25 degrees above horizontal.  I've never seen a cleaner bull market trend line.  Frankly, it's too perfect, and I can't help but wonder how much of it is the result of human activity and how much is just bots and algorithms making automated trades.

Gold continues to hit new highs.  It's been doing this for the past few weeks.  The price of everything seems to be climbing at a disturbing and unsustainable rate, so naturally the powers that be say that inflation is under control.  (That was sarcasm in case you weren't sure.  Inflation is actually quite onerous, and lots of people are suffering because they can't afford anything.)

I own several South American stocks, so I'm now keeping on eye on the political squabbling that has erupted on that continent recently.  The embassy raid in Ecuador is just the latest in a series of dust-ups.  In all the talk of a potential World War III that's been going on lately, commentators usually focus on Russia, Ukraine, NATO, and the Middle East.  No one is talking about WWIII breaking out in South America, and that makes my inner contrarian think that's where it might start.

Stock market crashes often happen in September and October, but if I recall correctly, April and May are the next best months for it to happen.  If we can make it to June without a crash or correction, then maybe we can have a soft-landing consolidation or something during the summer.

In the meantime, though, the bull market seems unstoppable.  I'm not selling out.  I'm keeping my positions, collecting my dividends, and waiting for the wave to crest.

But crest it must, eventually, and woe to those who get caught in the undertow.

Just sent my first Substack newsletter email

Hopefully I didn't screw it up too badly.  Lol...

I'm subscribed to my own newsletter, and I got the email, so I know it went out.  But everyone is on different devices and whatnot, and there's no telling how the newsletter might display on any given machine.

Anyway, at least I got the first one out of the way.

Miscellaneous stuff

I think I'm ready to start sending out my newsletter in Substack.  TinyLetter is going away, so I had to find a replacement, and I decided to go with Substack.  There will be some cosmetic differences in the emails, but hopefully there won't be any real snags.

SpaceX is heading for the moon.  On the one hand, I'm not a fan of moon missions because I think it's just a useless rock with no real promise, but on the other hand, it's still a really cool thing to do.  I even picked up some shares of Intuitive Machines as a result of the successful launch and in the hopes of a successful landing and mission.  Which brings me to my next point...

I bought shares of a couple of stocks on Thursday.  I did this in spite of the fact that I think markets are overbought and in need of a correction.  My gut tells me that this purchase of mine can be considered a contrarian indicator; in other words, my finally giving in is what will signal the start of the decline.  Will we see a correction within the next few weeks?  I think the odds of it just got significantly better.

As part of the moon mission, the Columbia apparel company is using its Omni-Heat Infinity technology to shield the craft from the extreme temperatures of space.  Here's a YouTube video about it:

 

I like and sometimes wear Columbia's stuff, and I think this promotional venture of theirs, while admittedly a bit gimmicky, is nonetheless pretty darn cool.  By modern marketing standards--by which I mean we live in an era in which corporate marketing departments seem to be purposefully trying to destroy their brands--it's downright genius.  After I publish this blog post, I'm going to go over to Yahoo Finance and take a look at Columbia's stock info.

I've started gaining weight again.  I'm about ten pounds heavier than where I'd like to be.  I'll try to reduce that in the weeks ahead.  My overall fitness level is really quite pathetic.

I finished The Hour of the Dragon, the only novel-length Conan story by Robert Howard.  It was a serviceable enough book.  I could have done without the "he ejaculated" dialog tags and other goofy devices, but it was still a Conan story, so it still had all the awesome stuff for which such stories are famous.

Charging ahead

I just can't get a handle on this stock market.  Nothing seems to faze it, not even the usual technical indicators.  RSI over 70?  Doesn't matter, we're going higher.  Low volatility?  Doesn't matter, we're going higher.  

Geopolitical unrest increasing in various places around the globe?  Doesn't matter.  Credit and mortgage problems on the rise?  Doesn't matter.  Chinese stock market falling to lowest levels since 2019?  Doesn't--well, you get the idea.

I think there's an inflation report coming out tomorrow, so maybe that will cause a ripple.  But I doubt it.

Rates unchanged as expected

The Federal Reserve left rates unchanged, and that's no surprise.  The question everyone is trying to figure out is when they'll start cutting.  From what I can tell, no one is considering the possibility of zero rate cuts in 2024, and the notion of a rate increase is basically unthinkable.  The market has priced in rate cuts, and any news that shakes that faith should have a bearish effect on stocks.

Meanwhile, the S&P 500 has charged ahead to new highs this year.

 

The chart is just a bit misleading, though.  The S&P 500 is heavily weighted towards the Magnificent 7 stocks.  Most of the gains have come from those stocks: Microsoft, Alphabet, Amazon, Apple, Meta, Nvidia, and Tesla.  A significant part of those companies' gains are undoubtedly due to the A.I. craze of last year.

So, those companies aside, what does the market look like in general?  For that, we look at the "equal weight" chart of the S&P 500.  In this one, all of the components of the index are given equal weight.  Here it is:

 

As you can see, no new highs in 2024 for the equal-weight version.

In fact, the lack of gains is even more apparent when you broaden the timeline out to five years.  Here's the normal (unequally weighted) chart for the index:

 

And here's the equal-weight version over the same time period:

In this second chart, the market peaked in January of 2022 and has yet to revisit that high.  Take out the bias towards the Magnificent 7, and stocks have basically gone sideways for two years.

I thought in December that we'd see a correction in the first quarter of this year, and I still think that.  So far, though, all the would-be catalysts for market declines have amounted to nought.  Red Sea traffic disruptions, Middle East conflicts, Russo-Ukrainian stuff, farmer protests in Europe, all of the myriad American domestic issues... none have succeeded in spooking the market.  It seems highly irrational to me, but, as the saying goes, markets can remain irrational longer than you can remain solvent.

Just FYI, though... the VIX is about where it was in late 2019/early 2020.  I expected a correction then, too, and we got an outright crash in February/March of 2020 as a result of the Covid panic.  Here's the five-year chart of the VIX with the 2020 spike readily apparent:

The starter gun is cocked.  All we need is some event to pull the trigger.

We'll see what February brings us.

Happy New Year!

The 2020s have been a difficult few years.  I think we can all agree on that.  But hope springs eternal, and for all things there is a time, and perhaps 2024 will see some positive things come into their own.

Best of luck in the coming year, folks, and take care.  :)

Higher prices inbound?

In a global economy, prices of goods are directly affected by the price of oceangoing shipping.  If shipping is safe and cheap, then the prices of goods will also be cheaper than they would be if shipping was dangerous and expensive.

For a long time now, shipping has been relatively safe by historical standards.  The U.S. Navy has ruled the waves for decades and has kept the sea lanes free and clear.

Recent activity in the Red Sea threatens to disrupt that status quo.

After taking a hit from a missile to one of its container ships this week, Maersk has decided to avoid the Red Sea and the Suez Canal altogether and go the longer way around the Cape of Good Hope.  A few other shipping companies have followed suit.

https://www.wsj.com/articles/maersk-hapag-lloyd-rethink-red-sea-voyages-after-attacks-on-ships-f117b471

How long will the Red Sea be too dangerous for commercial traffic?  How high will the prices of goods rise?  How long will they stay high before coming back down?  Those are good questions, and I don't have any answers.  But here are a few things to consider:

1.)  Egypt collects fees for use of the Suez Canal.  Decreased traffic means a decrease in foreign currency revenue.  I doubt the Egyptians will be very happy about this, and I'm sure they're currently trying to decide how to deal with the Houthis in a way that will restore Canal traffic to its usual level.  They might resort to military action, but I think a diplomatic solution is far more likely.  They may have already made their decision; who knows.

2.)  The Chinese have a significant interest in the Canal.  About 60% of their exports to Europe pass through it.  Until their Belt & Road Initiative is up and running to a degree sufficient enough to allow them to bypass the Red Sea without suffering any inconvenience, they need the Canal.  Like the Egyptians, the Chinese might pursue either a diplomatic or a military solution, but I think they're more likely than the Egyptians to pursue a military one.  They have the muscle, and due to their status as the world's factory, they would almost certainly have the world's support if they went in and flattened the Houthis.  Also, some Chinese companies own stakes in some Egyptian ports, so there's some added impetus for action.  On the other side of the argument, the Chinese have a long history of making threats but not following through, so the prudent presumption is that they'll back down from conflict as usual.

3.)  After decades of off-shoring its manufacturing base, the U.S. is now dependent on China for manufactured goods.  This dependency was predicated on the assumption that the sea lanes would remain free and clear.  An increase in piracy and privateering changes that equation.  I doubt anything short of the political dissolution of the U.S. will be enough to repatriate the manufacturing, but I can't rule it out.  A quick-and-dirty solution to the Red Sea crisis would be to issue Letters of Marque and Reprisal and let bounty hunters take out the Houthis.  That would be a radical step, and so unlikely that I'm embarrassed to even bring it up, but I think it might be the most politically palatable across the board.  Official action by the Navy and/or Marines is possible, too, but doubtful due to the military's current state of decline and a general demoralization and enervation among the citizenry.  We simply don't have the guts and vitality that Americans had in the days of President Jefferson and Stephen Decatur.

4.)  European nations need Chinese goods, but they don't have the military muscle to solve this problem, so they must go begging and horse trading.  Perhaps the EU will make offers to Turkey or Iran in exchange for their assistance.  I can easily see Erdogan seizing this opportunity to secure boons for his country in exchange for taking action against the Houthis.  He has so far played East and West against each other quite expertly during the Ukraine conflict, so he's definitely clever enough.

So those are my thoughts at the moment.  The biggest loser here is Europe.  They're the ones most directly affected by the disruption in Red Sea traffic.  China doesn't need the Canal to ship stuff to the Americas or Australia, so supplies to those continents should be uninterrupted.

Europe is already facing a cold, dark, expensive winter, and this Red Sea stuff is just piling on.  Add in the various nations' preexisting domestic issues and conflicts between natives and foreigners, and the whole place seems ready to boil over.  Might we see a for-real revolution or shooting war in Western Europe?  I wouldn't put money on it, but I also won't rule it out.

2024 threatens to be exciting.  Prepare accordingly.