US Economy, the stock market , and other investment/savings strategies

[DougMacG]

"As noted by the IBD article posted recently on our forum, serious contradictions are to be found in our ability to pay for our debt and our continuing deficits AND take care of what needs doing.  This includes a dire need to reverse the declines in military spending for all the wars on the horizon."

Age old political dilemma, we need to drastically cut overall federal spending while seriously increasing military readiness.  How?

[Crafty_Dog]

Oil below 70 today.  VIX in the 12s.

[ccp]

so what does this mean
low volatility
oil down

? buy oil?

[Crafty_Dog]

Not sure!  Market seems surprisingly sanguine, while we were see possible armageddon.  Also worth noting is that gold is around $2050 and BTC is around 44.   I experience cognitive dissonance.

[DougMacG]

so what does this mean
low volatility
oil down

? buy oil?

VIX. "measures how much volatility professional investors think the S&P 500 index will experience over the next 30 days"

  - Not something I follow but it seems that stability, low volatility is good, high volatility bad.

Oil down can mean a number of things, global demand falling meaning global recession.  Could mean production increased with the recent spike in prices.  More importantly, one sign of things like food and production being more affordable going forward.

As mentioned, there are good and bad signs out there for investors and people who predict the near-term future of the economy.  ("cognitive dissonance")

[Crafty_Dog]

"Not something I follow but it seems that stability, low volatility is good, high volatility bad."

Exactly how I understand the VIX.  So, given current circumstances it seems quite counterintuitive to me that it be quite low.  What am I missing?

[ccp]

https://www.dailymail.co.uk/yourmoney/article-12825029/American-Dream-Dead-Moving-Abroad.html

look at the map

[Crafty_Dog]

Oil down to 68.

Gold drops below 2,000.

VIX now in the 11s.

All rather inconsistent with our notion here that the world is going to hell in a handbasket.

WTF?

[Crafty_Dog]

https://www.dailymail.co.uk/news/article-13180433/billionaires-Jeff-Bezos-Leon-Black-Mark-Zuckerberg-sell-stocks.html

[DougMacG]

https://www.ft.com/content/53f64b6b-3151-46b3-ad83-3a4732c35d41?segmentId=b385c2ad-87ed-d8ff-aaec-0f8435cd42d9

 APRIL 19 2024

Noted economist Mohamed El-Erian hints that the markets ignoring escalating Middle East tensions may be missing potentially dire consequences.

"recent escalation of tensions between Iran and Israel...significant consequences not only for an already unstable Middle East but also for the wellbeing of the global economy and the stability of its financial system."

"the global economy ... is already too fragile to handle a large new economic shock. Specifically, a further round of military escalation between Iran and Israel would undermine already low and fragile global growth, push up goods inflation at a time when services inflation is still too high, and impose demands on fiscal and monetary authorities that have already used up much of their policy flexibility and have limited operating space."
...
"First, two of the potential engines of global growth — the already-stressed Chinese and European economies — would be hit relatively hard given their high dependence on imported energy. 

Second, US inflation would prove even more stubborn at a time when progress in reducing price pressures has already disappointed this year, thereby acting as a bigger counter to early rate cuts by the Federal Reserve. 

Third, the strong dollar would get a further appreciation boost, undermining trade and financial intermediation.

And finally, with worsening economic and geopolitical situations, risk premia would increase. This would lead to higher borrowing costs than might have prevailed otherwise. "
...
"There is no doubt that the latest round of Iran-Israel hostilities has crossed many lines and durably raised the geopolitical temperature in the region. Yet markets seem keen to brush this aside, comforted by the fact that we are yet to reach the boiling point of significant human casualties and physical damage in these retaliation rounds — a point that would cause significant economic and financial dislocations. Given that this is a region that is vulnerable to errors of judgment, insufficient understanding of adversaries, and implementation accidents, that could well prove too complacent a reaction."
--------------------------

I would add this war conducted by the Houthis is already having an effect.
https://www.datacenterdynamics.com/en/analysis/the-houthis-and-the-red-sea-a-new-risk-to-subsea-cables/

Are ships that once passed through the Suez canal really going all the way around the Horn of Africa?  And Biden, NATO et al have no answer for it?

We live in a troubled world.  [Invest accordingly.]

[Crafty_Dog]

The charts will not print, but hopefully the commentary is worthy:
===============

Weekly Market Update May 17, 2024

Paul M. DeSisto, CFA
May 17, 2024


Fed Funds 5.25% - 5.5%, US Ten Year 4.422%, Oil $79.99



Inflation figures reported this week showed a very slight reduction in the inflation rate, which nonetheless further energized a May rally in stocks being led by Artificial Intelligence-oriented technology stocks. The April 3.4% CPI rate, down a tenth of a point from March, was enough to remove the threat of a hike in Fed Funds and increase the chance of a rate cut in September to 67%.

There is market adage, “Sell in May, and Go Away,” based on stocks’ historical lethargy as the summer begins and market participants go on vacation. While not foolproof, it has been true often enough to warrant attention. Stocks may have gotten ahead of themselves and could be due for a significant correction. One useful study is to compare the yield on stocks to that of bonds. A stock’s yield is simply the inverse of its price earnings ratio. According to FACTSET, as of May 10th the forward P/E of the S&P 500 is 20.4 times. A P/E of 20.4 gives an earnings yield of 4.9%. That is higher than the ten-year treasury yield’s 4.42%, the first time since the dot.com crash of 2000 that the earnings yield has topped the ten-year. An earnings yield higher than the bond yield is one sign of an overpriced market. It deserves mentioning that the 20.4 P/E is above the 5-year average (19.1) and above the 10-year average (17..





The run-up in stocks this month suggests a momentum-driven market. To measure momentum, market technicians may use the Relative Strength Index, a momentum oscillator that measures the speed and change of price movements. The RSI oscillates between zero and 100. Traditionally the RSI is considered overbought when above 70 and oversold when below 30. The Dow Jones Industrial, Standard and Poor’s 500, and NASDAQ Composite are all pushing up against the 70 level. (Unsurprising, given last week’s Weekly Market Update that discussed the weakness of small cap stocks, the Russell 2000 is not so overbought.) The indices may go even higher for a while, but there will be a correction.



Despite the euphoria that came out of the inflation report, inflation has merely cooled. Prices are still rising, even if at a slower rate. Things cost more than they used to and will cost still more next year. It does not mean that things are getting better, just that they are getting worse more slowly. Higher prices have required Americans to spend more of their savings to maintain their lifestyle. The national savings rate has declined to 3.2%, the lowest in 17 years. The consumer seems to have been “tapped out,” with the University of Michigan’s consumer sentiment index falling to a six-month low on inflation and unemployment fears. With a stock market correction becoming more likely, and with short-term bonds offering real yields (yields adjusted for inflation) of 2%, it makes sense for even the most aggressive investor to maintain a portfolio of short-term fixed income investments within their accounts.

================

I would add that from a peak of 19 (which is not a super high number, upper 20s would be in my mental map) it is back down to 13.   From 86 oil is now 79.   After fading from 2400 to 2300,  Gold is back above $2400.

Silver, which I had sort of laughed at through the years of silver ads on FOX, continues to move strongly up-- working from memory, silver meandered in the low to mid 20s, but now is over 31.