SPVM - Markets Are Time Frame Exchanges - Weekly Blog # 796

2023-08-08 04:02:00 ET

Summary

• The bulk of investors are not currently active. August is normally a low-volume month, but it appears we are not in normal times.
• There appears to be less conviction as to where we are going. A reasonable bet is that the majority of opinions regarding future direction are wrong.
• We heard two opinions which the media suggested were in contrast with one another. Fitch lowered its credit rating on US Treasuries by one notch to AA+ from AAA, while JPMorgan's Jamie Dimon stated that no large country has a stronger credit condition.

Who is in Today’s Crowd

The bulk of investors are not currently active. August is normally a low-volume month, but it appears we are not in normal times. There appears to be less conviction as to where we are going. A reasonable bet is that the majority of opinions regarding future direction are wrong.

This past week, we heard two opinions which the media suggested were in contrast with one another. Fitch lowered its credit rating on US Treasuries by one notch to AA+ from AAA, while Jamie Dimon stated that no large country has a stronger credit condition. Actually, they are probably both correct, the difference is in their function. The Chairman and President of JPMorgan Chase was reassuring depositors that the US government was currently the safest place to invest. Fitch, as a credit rating forecaster, was suggesting future political battles within the US could delay the promptness of the US government in making payments on all its obligations. Both could be correct.

Jamie Dimon is probably correct that US government payment dates will not currently be violated. (This excludes delays in payments on various government contracts, which are not funded obligations.) Fitch raises the question as to when the political process in the future could lead to some delays. These are important concerns, but it is not the total picture as far as investors are concerned.

A funder of the US government who will be repaid in devalued dollars due to high levels of inflation. An added concern is the foreign exchange value of the US dollar in a world that is increasingly measured in other currencies. Both geopolitical and economic factors may make the dollar worth less when purchasing essential items from overseas providers. (Energy, clothing, critical medical resources, etc.)

Looking beyond the next few years, the picture looks less promising due to aging populations in the US and around the world. Both the US government and private sector are failing to build up the reserves necessary to pay retirees likely to have health issues. Historically, the next generation utilizes their working years to pay for their own retirement and the care of their seniors. That is not happening now. Many workers currently spend all they earn and do not focus on long-term cash generation.

Other Disturbing News of the Week

1) The current President looks to FDR as a great, if not the greatest, president. FDR believed his greatest achievement was the National Recovery Act of 1933 requiring competitors to meet and agree to wage rates for their employees. The higher the better. The act was ruled unconstitutional by the Supreme Court.

2) The UAW is demanding the “Big 3” give their workers a 40% increase. (This is the same union that forced the US auto companies and their suppliers to raise wages, leading to an increase in foreign manufactured car imports and a decline in US auto exports.)

3) One investment adviser called to my attention an article by Bob Kirby, the great salesman from The Capital Group. His article, written in 1975, showed how each generation fails to learn from the past. Bob earned enough during his lifetime to endow 5 scholarships at leading universities, hoping to correct this situation. Caltech was a recipient of one of these Robert Kirby scholarships.

4) Xi, the Chinese Leader, measures national success in terms of technical self-sufficiency.

5) For the past week, only 2 of the 31 Dow Jones-Standard & Poor’s market indices were up - these were select micro and internet services.

6) Only 5 of the 72 price indices published by the WSJ each Saturday were up this week. Three were energy and two were currencies. Wheat and corn were the two biggest losers.

7) A US Navy Petty Officer was caught supplying detailed photographs of an attack amphibious ship to a Chinese agent. (One of the many difficulties facing an amphibious landing on Taiwan is the lack of amphibious ships and their training. Over 60 years ago, I served on such a ship as a USMC Combat Cargo Officer.)

8) Last week, volume in NYSE stocks declined 59% vs. 62% for the NASDAQ.

9) Major advertising agencies are cutting their estimates for the rest of this year because their clients are cutting budgets.

Conclusions

The Fitch credit rate cut was not the only bearish news that caught my attention last week. The comparisons with the FDR-led Depression is a bit unnerving. What is clear is that while the bulk of the US focuses on the general movement of the dollar, many in Washington are focused on the probability of votes, particularly at the top of the tickets.

What are you seeing and believing?

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

For further details see: