U.S. Financial Markets
Ignore Risks, Especially U.S. November Elections
By Victor
Sperandeo with the Curmudgeon
Fed Rate Cuts vs Recession Risks:
While Fed Chairman Jerome Powell officially announced future
Fed Funds interest rate reductions on Friday at the Feds annual Jackson Hole
conference, the markets elation of the past two weeks may be misplaced. The rate cuts, starting at the September FOMC
meeting, may signal the beginning of a recession as the yield curve uninverts
and the unemployment rate continues to rise.
Worries about a recession have risen since August 2nd
after weak July jobs data which showed labor market demand has softened with
hints of slowing labor income gains and rising layoffs, said Michael Feroli,
chief U.S. economist at JPMorgan Chase, in a note to clients.
Yet despite numerous warning indicators, economists are not
forecasting a recession any time soon and financial markets dont care.
-->We beg to differ!
Uncertainty of November Elections:
A very serious, underestimated problem for the
markets and political system stability is the potential catastrophic effects of
the November 2024 U.S. elections.
What could happen is completely up in the air, but
a huge risk is that the U.S. Constitutional Republic is in jeopardy of ending.
Victor says the rule of law is gone and he counts only three congressman that
consistently vote in harmony with the U.S. Constitution.
Here are some political warning signs:
·
The Democratic party left
wing (progressives) have become radical and promote violence. The numerous
college campus protests by pro-Palestinian/anti-Israel radicals are a recent
example of such left-wing radical violence.
·
Progressives often criticize the
Democratic party leadership for not being bold enough in pursuing their
left-wing policies. Dissension abounds within the party!
·
The attacks by the
Republicans on the Dems are over the top aggressive, especially after the July
13th Trump assassination attempt [1.].
·
This aggressive rhetoric is
emblematic of the deep polarization in American politics. Victor does not recall another period of time
when emotions were this high. Perhaps during the civil war (1861-1865)?
·
While theres no evidence,
Victor believes there is a chance of NO ELECTIONS in November. AI agents say: There are no credible news
reports or discussions about canceling the 2024 election. Claims suggesting
otherwise are false and unsupported.
Note 1. In every aspect, the Trump assassination
attempt looks like a coverup of the most heinous crime that can be
committed in the U.S. The FBI is investigating the shooting as a potential act
of domestic terrorism, but many believe that others, especially the U.S. secret
service were involved in a conspiracy to assassinate Trump...
.
On the U.S. Economy:
·
The U.S. unemployment rate
has moved up from a low of 3.4% in April 2023 to 4.3% in July triggering the Sahm
Rule (when the three-month average of the U.S. unemployment rate increases
by 0.5 percentage points or more from its 12-month low). We explained the Sahm rule as a recession
indicator in Is it Too Late for the Fed to Overcome the Sahm Rule and
Prevent a Recession?
·
On Wednesday, the BLS
(again) revised down previously reported net payroll gains by 818,000 for
the 12 months ended in March. The
current $1.5 trillion U.S. budget deficit so far in fiscal year 2024 (which
ends September 30th) is the highest ever in peace time. It is likely to top the 2023 deficit of $1.7
trillion and be 7% of GDP. Compare that to the 50-year average of 3.7% of GDP.
While budget deficits havent mattered to the markets since the early 1980s, we
dont believe that will go on forever and the day of reckoning is approaching.
·
The U.S. dollar has weakened,
and it could get much weaker. That could cause a flight to gold and other safe
assets (like T-Bills) from long bonds and 10-year notes.
·
Martin Armstrong says theres a fear of a U.S. debt
default and that is why central banks are buying gold. If there is a big war, the U.S. will default
on its debt. . .. I am very concerned they will
start WWIII before the end of the year and maybe by September.
·
Heavy selling of a nations
currency causes hyperinflation, which is the worst possible economic
scenario. Everything gets wiped out except precious metals.
International and Geopolitical Risks:
1. The nations known collectively as the West,
such as the UK, Germany, France, Australia, New Zealand, the Eurozone, Japan, and
the United States are all more or less in decline.
2. The UK has seemingly turned into a tyrannical
political system, under the Labor partys rule of prime minister Keir Starmer
who has embraced socialism. The state is now anti-UK citizens and pro-migrant
from any other country. Elon Musk has said he believes the UK is headed for
Civil War?
3. The war between Israel and Irans terrorist
proxies (Hamas, Hezbollah, Houthis, Islamic Jihad, etc.) is heating up.
The U.S. State Department is gravely concerned about the Houthis
recent attacks on the Greek-flagged oil tanker MT DELTA
SOUNION. The Iran backed Yemen based
terrorist group attacks threaten to spill a million barrels of oil into the Red
Sea, an amount four times the size of the Exxon Valdez disaster. While the crew has been evacuated, the
Houthis appear determined to sink the ship and its cargo into the sea. The
Houthis have made clear they are willing to destroy the fishing industry and
regional ecosystems that Yemenis and other communities in the region rely on
for their livelihoods, just as they have undermined the delivery of vital
humanitarian aid to the region through their reckless attacks.
UPDATE: Israeli
warplanes bombarded dozens of targets in southern Lebanon early Sunday against
Iran backed Hezbollah (see photo below), which then fired a barrage of missiles
and drones toward Israel. It was one of
the largest exchanges of cross-border fire since the war in the Gaza Strip
began October 7, 2023. Israel said its
attack was a pre-emptive defense against Hezbollah rockets, while Hezbollah
said it had retaliated for the killing of senior commander Fouad Shukur in the
Beirut suburbs last month.
In northern Israel, warning sirens sounded, and
explosions were heard in several areas as Israel's Iron Dome aerial defense
system shot down rockets coming from southern Lebanon.
"Israel should, as it did this morning, deliver
a pre-emptive strike. But if Hezbollah continues Israel should strike very hard
to remove the threat from Hezbollah once and for all," said Yuval Peleg,
73, from Haifa.
A resident of the southern Lebanese town of Zibqeen
told Reuters he had awakened "to the sound of planes and the loud
explosions of rockets - even before the dawn prayer. It felt like the
apocalypse."
Hezbollah said its attack was complete, but future
strikes could be carried out, while Israeli Prime Minister Benjamin Netanyahu
vowed: This is not the end. STAY
TUNED!
Smoke in Lebanon from the Israel pre-emptive strike against
Hezbollah.
Photo credit: Kawnat Haju,
Agents France-Presse... Getty Images
..
Analysts warn that any escalation or a miscalculation
by any of the combatants could set off a wider regional war in the hyper tense
Middle East. A full-scale war between
Israel and Iran would be devastating for the whole world!
..
Victors Conclusions:
Theres a tremendous amount of uncertainty now which
buoyant financial markets have ignored. The many immense risks seem to be
hidden from view of financial market participants who continue to celebrate
forthcoming Fed rate cuts without factoring in the risks of a recession.
What happens after the November U.S. elections could
be a game changer. For now, its time to
keep gold, sell stocks and buy T-Bills.
End Quote:
Money is made by sitting, not trading. Jesse
Livermore.
Jesse Lauriston Livermore was an American stock
trader. He is considered a pioneer of day trading and was the basis for the
main character of Reminiscences of a Stock Operator, a best-selling book
by Edwin Lefθvre.
..
Be well, wishing you success and good luck. Till next time
.
The Curmudgeon
ajwdct@gmail.com
Follow the Curmudgeon on Twitter @ajwdct247
Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.
Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies, and government policies. Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.
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