Welcome To The Second Half Of 2018

Welcome to the second half of 2018. Thus far, 2018 has been the year of surprises. Bitcoin is down 70% from its late 2017 apex. Oil at $74/barrel is at a 3 /1/2 year high versus the consensus view of $45/barrel.

Second quarter GDP is expected to be in the “high four handle” versus the projected “low two handle.” The PCE or the Federal Reserve’s preferred inflationary indicator is at the highest level since March 2012, again eclipsing expectations. Accordingly the 10-year Treasury at 2.85% yield eclipsed the 2.50% mid-year target. Four interest rates are now expected versus two.

And then there is equity performance. The NASDAQ has continued its relentless advance, but the advance is predominately focused in just five names perhaps creating the most concentrated amount of wealth in history. The S & P 500 and Dow are essentially flat.

Geopolitically, economic nationalism and populism has replaced globalism and interdependency. On January 1, “the experts” declared economic nationalism as dead; a flash in the pan.

Today is vastly different than yesterday, a differentiation that I believe is not yet manifested in the markets, perhaps the result of the massive proliferation of passive algorithmic and index trading that now comprises 90% of the volume. Such trading is based upon momentum and size not macroeconomic/geopolitical and security analysis.

On January 1, 2019, what will I be writing? In my view, because of the tectonic changes in the geopolitical and macro-economic landscape, a macroeconomic and geopolitical thesis is required, further stating the days of passive investing/indexing are waning. This is the inverse of the last 10 years.

At this juncture, I will not opine about the election other than I believe the support for the president and his policies is much greater than the media — both traditional and social — suggests.

Few will risk speaking true views under fears of being labeled homophobic, xenophobic, unenlightened and uneducated individuals. The president is challenging the establishment, an establishment which the business and political elite have spent billions in creating and maintaining.

This is holiday shortened trading week. June’s unemployment data is released Friday and will offer evidence as to the economy’s underlying strength. Historically, voters vote by their pocketbooks and the data could offer some potential insight into November’s elections.

Last night the foreign markets were down. London was down 0.83%, Paris was down 0.79% and Frankfurt was down 0.33%. China was down 2.52%, Japan was down 2.21% and Hang Sang was closed for a holiday.