The Long-Term ‘Death Cross’ Averted

08.06.2016 • Investing

From Capital & Conflict (GREAT BRITAIN)-

What to make of Yellen and the underwhelming US May jobs report? It was a shocker. Only 38,000 new jobs created in the Colonies in the month of May, according to the US Bureau of Labor Statistics. That was a six-year low and far below expectations.

But we’re back to the good old days when bad news is good news. How is underwhelming American job market good news for stocks? Markets are now convinced that the Federal Reserve won’t follow through on its plan to raise US interest rates when it meets on 14-15 June. The next meeting after that is in late July, right in the middle of Hillary Clinton’s coronation and the Democratic National Convention in Philadelphia (where the Declaration of Independence was signed).

And just like that, the crisis of the long-term “death cross” has been averted. For now. See below. The S&P 500 is actually not far off its all-time high of 2,131 in May 2015. Thus in the face of Fed headwinds (illusory apparently) and geopolitical risks (Brexit) stocks are telling you: don’t worry. Be happy.


Card-carrying members of the Janet Yellen Fan Club will have paid close attention to what she said Monday in a speech. This is the bit that caught my eye (in the interest of full disclosure, I’m not a member of the club). Yellen said that:

Although this recent labour market report was, on balance, concerning, let me emphasise that one should never attach too much significance to any single monthly report… If incoming data are consistent with labour market conditions strengthening and inflation making progress toward our two percent objective, as I expect, further gradual increases in the federal funds rate are likely to be appropriate.

Blah blah blah. Talk talk talk. Jaw jaw jaw.

Here’s the important point: Yellen and the Fed might be quite content to raise rates in the midst of higher stock prices. When they did it last time, markets tanked. But raising rates when markets are strong is easier to do than when they’re weak. If the Fed is fair dinkum about normalising rates, they’ll raise.

By the way, Yellen also mentioned Brexit as a risk. Are you feeling the Brexit fatigue too, dear reader? It’s going to be a slog for the next two weeks. But at least it will be over soon.

Or will it? Adrian Sykes covered the last general election and the Scottish independence referendum for From what I can gather, he was the only analyst to predict an outright win for the Tories. I haven’t asked him how he did it. But I did ask him, during this most political of seasons (including the US elections) if he’d contribute some observations forCapital & Conflict.

Consider this your “trigger warning” though. If you’re easily offended, if you have delicate sensibilities, or you believe in limiting free speech and a free press, you probably shouldn’t read Adrian’s missives. But I couldn’t be happier to publish them:

Despite an intervention by a retired bank manager who once held the office of Prime Minister, but never quite filled it, the last three weeks of this divisive and ugly campaign are unlikely to change the outcome. John Major, long upper lip quivering with indignation and malice, spoke about trust; forgetting that he had forfeited his own when he got his knickers in a twist with his shirt whilst trysting with a take-away. Andrew Mitchell, of Plebgate fame, reveals that Major tried to block Boris from becoming an M.P. twenty-five years ago. Major is just a forlorn hamster.

The odds are at odds with the polls: stuck at 1-3 on for Remain and 23-10 against for Brexit. Bookies report that 72% of all bargains have backed the latter, but the big money is punting on Remain. YouGov suggests a late swing to Brexit (45% to 41%), but finds 11% still undecided. I remain convinced that most of these will vote Remain, in a rerun of the Scottish referendum. “Undecided” probably means “mind your own business”. The only figure that will matter on the day is turnout; and no poll can forecast this. 

As a rule of thumb, 62%+ will bring victory to Remain and 58% or less, vice versa: the rest is fingers in the wind. The abiding worry is that the result will be too close to offer comfort to either side, with implications too dire to contemplate. Foreign investors don’t answer pollsters and don’t bet with bookies: the stock market is the best place to look for guidance – and it is decidedly queasy. It is 72 years since D-Day. Some would say, why did we bother? The war is still going on.

Someday this war’s going to end. But probably not today. The worst result is a close and non-definitive vote, which leads to an interminable process without a clear conclusion. But there are worst things in life than uncertainty, including death, taxes, and German food.

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