Things not adding up in this fairy tale environment
Abraham George Macro View
We are in fantasy world or what we call “a fairy tale environment”. Just like in the fairy tale “Alice in Wonderland” as the young girl was falling through the rabbit hole, she kept on seeing amazing things and facing many adventures.
Corporate bankruptcies are running at a record pace. The travel industry, restaurants commercial office space are all at the brink of collapse but the stock market is all buoyant.
In many ways, we are in an economic situation that we cannot comprehend based on past experiences. No past presidents have attached performance of the stock markets to the president’s office as much as president Trump has.
All the support from the Fed and Treasury were supposed to lift the economy from the grass root level which will eventually lead to higher stock markets. What has happened is that the asset prices have gone up and continued to go higher but those benefits are not trickling down into the economy.
The rise of stocks like Apple and Tesla are not explainable with old valuation methods. To add fuel to the fire both companies are taking measures to make it more accessible for bigger speculations.
One of the main reasons stocks rallied yesterday was that President Trump announced emergency authorization for a new COVID-19 treatment. Convalescent plasma. In layman’s terms, it is the blood plasma from patients that have recovered from the virus. Believe it is heavily laden with virus antibodies and has been shown to reduce deaths by up to 35%.
President Trump is so desperate to find a solution for the pandemic that is ravaging the nation, he is prepared to go any lengths. He somehow wants it a few weeks before the election. His team probably is banging on a solution for the pandemic and a strong stock market to give him a fighting chance to win the election.
All the three major asset classes are showing signs of a turn around as we have been projecting in our recent reports but the equities are in a different world. Let’s look more in detail.
Equities
With yesterday’s close in the Dow and S&P 500 one can expect more subdivisions to the upside. Only a break below 3355 in the S&P 500 and a move below 27,525 will invalidate the current strength.
Bonds
After making another rally to 180 yesterday think bonds must have topped out. The downside supports are at 177^15 but we are looking close to 170 going forward.
Euro
As outlined in our last report the Euro carried itself to 1.1850 and has fallen back. Eventually prices should come down to 1.1500.
Gold
After making a low on Friday at 1911 gold rallied to 1962. This up move has been in three waves indicating that it is corrective in nature. The next leg of its move should be more forceful and trending.
Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.