A rising economy boosts public sentiment. Practicing stoicism and following Buddhist teachings may be a better way to remain levelheaded. The goal in life should be to strike the perfect balance, living in perfect harmony. Key word: should. In reality, incentive structures dictate otherwise.
For this reason, status matters. The perception of power matters. People want these things to feel content. How can they achieve them? Money helps. For this reason, financial stability is the pinnacle from which public sentiment and quality of life can be both measured and reverse engineered.
The cascading effects of negative public opinion tend to compound. Whether increased negativity is due to a falling economy, or it happens the other way around, is a bit like the ‘chicken or the egg.’ As a money manager, I spot both the chicken and the egg, so I don’t exactly care which came first. It’s not my job to make that assertion. My job is to react.
To borrow from the magnificent Lyn Alden, "As a boring analyst, if I don't trigger liberals, conservatives, progressives, and libertarians each at least once on a quarterly basis, I'm probably not doing my job right. Writing to the crowd is for influencers. Writing to the truth (as far as I can see it) is for analysts." I could never put it better myself, so I will not try! I strongly recommend you to follow @LynAldenContact over on Twitter! For the rest of this post, as "politics" inevitably are tangentially related to market events, keep Lyn's quote in mind as a backdrop of sorts.
The great and powerful Sam Harris has made his political leanings well known on a number of occasions. As an indication of just how anti-Trump he is, have a look at the quote to the right. Granted, this may have been said tongue in cheek, or at the very least should be considered hyperbolic. Still, political polarization is a trend that has only ever gotten worse since researchers began tracking the data in the 1980's.
This being the case, before we move on to the Twitter Files, it should be stated that, if the Hunter Biden laptop story went out with transparent, objective reporting, it may not have influenced votes and changed the outcome. In fact, data on the margin of Biden's victory would strongly indicate that the result would have been the same. In any event, should the story have been suppressed, should the FBI have gotten involved, and should the government be so insistent on tracking misinformation? No. Categorically no. And I do not say this with political bias. I say it as a macroeconomic and geopolitical analyst. But I digress.
From part two of "the Twitter Files," I defer to the freedom fighting internet celebrity Kim Dotcom. He is another great follow @KimDotcom on Twitter. "Twitter has become a spy agency and a censorship tool for the deep state in collusion with the Democratic Party. The same is happening at every big tech company today. They limit political speech as well as leaks about crimes and corruption by the Government and politicians. ... This is the biggest criminal conspiracy in history. Spy agencies are now running the show. Their budgets and powers are increasing every year. They spy on all of us and have dirt on everyone. Politicians who don’t work with them have no future. They are removed by scandal, etc."
With faith in mainstream institutions falling toward all time lows, and with President Biden's administration flirting with historically low approval / popularity ratings, these Twitter Files are pouring gasoline on the fire. At the same time, it has come out that Samuel Bankman-Fried, who comes from a family of lawyers with connections to MIT and DC elite, fraudulently donated $100,000,000 dollars of user funds to politicians. He stole $10,000,000,000, spends his days goofing around on Twitter, parading around the Bahamas, and when he did an interview with the NY Times the other day, the audience applauded for him. These are challenging times to take "serious people" seriously, and they are not helping their own cause.
From the National Priorities Project, Last month, "the Pentagon once again failed to pass a basic audit showing that it knows where its money goes," the National Priorities Project at the Institute for Policy Studies said in a statement. "And instead of holding out for any kind of accountability, Congress stands ready to give a big raise to an agency that failed to account for more than 60% of its assets." In total, it is estimated that they were unable to account for more than $2,000,000,000,000 (yes, that's 2 trillion, with a T), of their assets. No matter, they went on to propose and approve a fiscal budget of $847,000,000,000 for 2023.
At the same time, as this theatrical production delves deeper into absurdity, the plan to hire 87,000 new IRS agents is being met with some frustration, to put it lightly. To be fair, from the NY Times, "In other words, the funding will enable the I.R.S. to increase its work force over the next 10 years to 113,000 employees. That is about the same number of workers it employed annually in the early 1990s." In other words, the idea that more tax agents are being hired to do the government's dirty work is being blown out of proportion. But one thing is for sure, monitoring PayPal, Zelle, Venmo, etc. transactions of $600 or more is not the most clever solution.
Transactions under $600 then, by definition, will not be monitored by the IRS & relevant tax authorities. To the left, do you notice a sudden trend of $599 transactions increasing? I haven't seen that much exponential growth since Bitcoin grew from a few pennies to being worth almost $69,000. The inefficacy of policymakers does not instill confidence in the legislative process, particularly as negative sentiment compounds.
Around 93% of Americans expressed concern about inflation in July of this year. Close to 70% expressed concern over the upcoming recession in August of this year. Then the expected "red wave" in November midterms did not come to fruition. The Biden administration quickly came out doubled down on their stances on, well, damn near everything. So we can only assume that the downward trajectory in markets will continue.
The S&P 500 Index charted above the Volatility index shows that decreased volatility has directly correlated with bear market rallies. Having reached the top of the trend line that has been in place since November 2021, volatility looks to be rearing its ugly head again, indicating a move back to the downside. So much for the "Santa rally," though Jerome Powell may be wearing a Christmas hat at the FOMC meeting next week! We shall see.
The QQQ ETF, which tracks the Nasdaq index, is following an almost identical pattern as the S&P 500. It is charted above the relative strength index (RSI) and simple moving average (SMA). Technically speaking, the Nasdaq appears to have a better chance of breaking through to the upside than the S&P 500, as it is closer to pushing above the descending wedge. The relationship between the RSI and SMA, since the beginning of the downtrend in November of 2021, is setting up a formation that would indicate a move to the downside being more likely. As above, we shall see. Of course, throughout all of this, there are interesting swing plays, longs and shorts, as well as intraday options spreads with a high likelihood of profit. As always, my eyes remain on the prize. There is no seat for emotion at the trader's table.
Adding my voice to the conversation, which ultimately is the goal more so than making money, what I would like to suggest is that, whatever continued downturn this economy may encounter, we take a page out of Finland’s playbook. "Many things are undeniably good here – beautiful nature, we're well governed, lots of things are in order,” the business owner said. The country of vast forests and lakes is also known for its well-functioning public services, ubiquitous saunas, widespread trust in authority and low levels of crime and inequality." I couldn't help but put the glaring flaw in bold. Yikes.
Again, though, we must engage with our actual reality. Focusing on fostering positive sentiment in order to grow an economy that works for everyone — that sounds like a political platform that will get you into office. In other words, not gonna happen. So until further notice, I have my eyes on key levels of support in the S&P and Nasdaq as the descending wedges continue. I remain bearish on both public sentiment and the economy.
There will be more layoffs, the Fed will hike rates higher and keep them up there for longer, talks of stagflation turned into recession, and some are now calling for an extended depression. When the cost of capital is higher and revenue is lower, borrowers become less credit-worthy. Quantitative tightening literally takes money out of circulation. Behind the scenes, balance sheets need to do some serious restructuring. If they are unable to do so, eventual margin calls and liquidity crunches are inevitable. This is exactly the type of context that is ripe for a black swan type of event.
Conditions indicate downside, at least in the immediate / short term. So is there any reason to be bullish? Yes. Necessity is the mother of invention. Therefore, I am extremely bullish on personal accountability, stoicism, Buddhist teachings, striking a balance in life, finding peace, the search for meaning, living in harmony, Bitcoin as an eventual reserve currency, revised monetary policy, a new financial system, better world leaders, and plenty of other things.
If the system has to fall apart for us to emerge better for it on the other side, then burn it all to the ground, baby! Alternately, potential damage to my credibility aside, I would absolutely love to be incorrect. If there is a soft landing, geopolitical tensions reside, and it is nothing but smooth sailing ahead in global markets and macroeconomics alike, that of course works for me too. Win-win!
Follow me on Twitter: @SokolCapital
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