Brutal heat wave

Hasn't rained for a few weeks now.  Additionally, temps have risen to late-July norms.  Highs in the mid-90s this week.

Flora are already starting to wilt, and grass is already turning brown.

The last major drought around here was in 1998-2000.  The 21st century has delivered rainier-than-expected summers.  Until now.

Chance of rain Wednesday, but that forecast is still several days away, so it's basically meaningless as far as accuracy goes.

I just hope we get at least one good drenching shower before July 4th, otherwise there's going to be an outbreak of fires when some fireworks inevitably land on dead grass.

On the petrodollar

There's a lot of discussion going on about the Petrodollar coming to an end a few days ago due to the expiration of a treaty.  There are sites debunking this, claiming that no such treaty formalized the Petrodollar and that it's all just fake news.  The truth, as usual, is somewhere in the middle.

Yes, there was a Petrodollar agreement.  But it was an informal one, not part of a treaty.  And the relationship has been slowly but steadily unwinding.  Saudi Arabia joined the BRICS this year, and that's a move that, in geopolitical terms, aligns them against the West.  I'm not sure if the BRICS founders intended for it to become a proxy for a new anti-Western political bloc, but that's sort of what it is now whether anyone likes it or not.  Any country that joins BRICS is going to be seen as an enemy by the West, or at least not a friend, even if the country's motives are purely economic and otherwise friendly.

In the past, the U.S. government could enforce its monetary policy using military force and the threat thereof.  (Mostly implicitly, of course, not explicitly, because explicit threats are way too gauche for most career diplomats.)  That paradigm, though, is not so much the case anymore.  A series of failures and humiliations has eroded the rest of the world's fear of the U.S. military.  Other countries are no longer cowed into using the dollar, so they feel safe in exploring other options.  They're looking to Russia and China as examples, and perhaps even military protectors, and they're gradually lining up to hitch their wagons to the BRICS horse.

The dollar's inflationary chickens have slowly but steadily been coming home to roost, and there are a lot more chickens out there that haven't moved yet.  Where does money go to die?  Well, we might just find out the hard way.

The upcoming election, by the way, won't have any effect on any of this stuff.  No one in Washington is ready for what could possibly come.  They wouldn't even believe you if you warned them.  Intellectual and educational deficiencies aside, it's simply too far outside their normalcy bias.

Fukuyama's infamous slogan notwithstanding, history has not ended.  And I fear that within the next decade or so it will get way more exciting than any of us would ever want.

Mexican bloodbath

Not a literal bloodbath.  A figurative one.  I'm talking about Mexican stocks.

The country has elected a new President, and traders are not optimistic about her.  Mexican stocks got a bit of a haircut on Monday.

Here are the top losers from Monday's trading session.  Notice all the Mexican companies:

 

 

Mexico has enough problems already, and now this presumably disastrous new leader will... well, we don't know what she'll do.  Latin America can be a pretty wild place, politically speaking.  Anything is possible.  But if the financial experts are pessimistic, and they obviously are, then I'm inclined to be pessimistic too, at least until mitigating evidence appears.

I own some Latin American stocks, but no Mexican ones, and it looks like I won't be picking any up any time soon.

The A.I. Boom... or Bust?

It's no secret that the recent gains in the stock market have been concentrated in the A.I. sector.  It's been something like the Dotcom Bubble, though not anywhere to that extent.  Lots of enthusiasm and hype, high valuations, and mixed results when it comes to actual earnings.

The S&P 500 is top-heavy with A.I. stocks, hence its performance this year:

When we equally weigh the components, removing a little bit of the A.I. bias, we get results that, while still bullish, are a little more modest:

When we look only at small-cap stocks, completely removing heavy-hitting companies like Nvidia, Microsoft, Amazon, Google, and so on and so forth, we get results that are a bit more concerning:

The Russell 2000 index is about where it was at in late December.  It's gone sideways for this calendar year so far.  Whatever "bullishness" exists in the stock market, it seems to be a phenomenon of the large caps, not the small ones.  The A.I. boom has not trickled down to the little guys.  When you factor in inflation, the small caps are actually down slightly.

I've made this comparison between these three indexes in previous blog posts, but it's always good to revisit it every now and then to see if the prevailing patterns are still holding.  And that seems to be the case.  The "bull market" is an A.I. bandwagon ride, nothing more.

Now, Memorial Day weekend has just passed us by, so summer has now officially begun, which means travel season is here.  Maybe we'll see something interesting in the vacation-related economy.  I don't know.

There's a Federal Reserve board meeting in the middle of June.  Lots of people have been expecting an interest rate cut at that meeting.  I'm a bit more skeptical.  I'm not sure if a rate cut is priced into the market or not, though.  The Fed might remain hawkish on inflation, but the market might not be bothered by it much at all.  We'll just have to see.

Oil and gold have risen in recent months, but not as much as I would have expected given the geopolitical realities.  My portfolio is still oil-heavy, though.  As long as there's a "war on oil" in this country, I expect non-American oil companies to benefit.  The modern world runs on oil whether people like it or not.

What does the summer hold?  Well, I don't know.  Summer is usually a dead season for stocks, though there has been the occasional bull-market summer before.  I'm inclined to say the action will be mostly sideways until evidence to the contrary presents itself.

BRICS summit in October in Russia.  If there's going to be any major global economic news, I expect it to happen then.  That at least gives us the whole summer to chill out, though, so that's what I intend to do.  I recommend everyone else to stay cool, too.  There will be plenty of things to panic about in the fall.