US Equities Strong

Daily Analysis - 26/12/2017

Putin removes Navalny as contender, Rubble weakens


In the latest putsch, if we still use that word, after all dictators don’t need putsches, Putin critic and contender for the presidency in next year’s election Alexey Navalny is barred from being a candidate. S&P 500 index near record levels. Too early for retail data, but early expectations are very positive. OPEC cuts actually contributing to keeping oil above $58.00 per bbl.


Watch the Rubble today. The Russian Federation continued along its path of dictatorship and central, one-man rule as Czar Vladimir Putin removed a credible and popular candidate, attorney Alexey Navalny from standing in the election of 2018. The hapless citizens of mother Russians hardly have any sort of say in the workings of their “government” that is unless they are in the inner circle of the Kremlin, sort of just like under the Communists. However, now at least the capital markets can voice their votes on the jackbooted Putin regime. The USDRUB rate as of press time was rising, meaning that it was taking more rubles to buy a US dollar, i.e. the Rubble was weakening. As you would think. But remember, everything, including everything is rigged in the Russian Federation. You can be sure that the oligarchs and their minions will be ordered to sell US dollars to keep the Rubble artificially strong. There will be only so much intervention that is ordered to take place before the banks will bend to the will of the global markets and relent, letting the USDRUB rate rise illustrating a perfectly democratic statement about what is happening in Russia today.



Crude price was strong this morning in opening trading remaining above $58 per barrel as traders returned from the Christmas holiday eager to trade oil. And there is a lot to be eager about in the oil patch, particularly if you are bullish. The Rig count in the US, an obsessively watched count of the number of drills (called rigs) added to or subtracted from the total on a weekly basis, did not increase for a second week running. IN other words, no new supply is going to be entering production soon, thereby not putting downward pressure on the price. And speaking of keeping upward pressure on price, our friends at OPEC the worldwide cartel of oil producers, and their non-OPEC supporters who follow their lead, are holding to and indeed extended their production quotas through the end of 2018 just last week. The geopolitics of this affair are fascinating, however, suffice to say that this arrangement is likely to start cracking and falling apart soon. Cartels are notoriously difficult to manage because of the huge temptation to cheat against your partners/co-conspirators. Particularly as price is high, the desire to over pump, violating the quotas, grows. Think of the famous game the prisoners’ dilemma. It is precisely the same scenario. Prices are likely to start falling soon. But for now they are rising.


S&P 500

Will you have a look at the S&P 500? Talk about the proverbial runaway freight train. When will it end? Each day or three, brings news of the index of the 500 largest capitalized US corporations reaching a new all-time high. Not to put the kibosh on this party but we need to be steely eyed with all aspects of capital market undertakings: These new records are not redolent with robust and vigorous surges. On the contrary, each new record, while indeed higher than the previous high, is not so by very much at all. The market is drifting to these new records. It is not surging to them.  Keep in mind too that with virtually no alternative to park your investment funds (are you really going to put your fun money to speculate with into bonds or bank accounts that pay bubkiss?), most investors place their capital in the stock or stock market derivative markets. With record profits reported by corporations in the last quarter, since they are not plowing profits into investments for the future, but instead buying their own shares back and increasing dividend payments, the stock value are indeed rising. Once interest rates start to approach their long term average of around 5.25% we will see a balancing between long term debt investment and equity speculation. But that is not here yet. Current interest rates in the US are 1.25%. No one is running to capture those fantastic returns. The stock markets of America will continue to rise for the foreseeable future.



US indicators of economic health and wellbeing have been pretty vigorous recently. Unexpectedly strong housing sales, from building permits to new home sales and existing home sales as well as pending sales all shot up well above their expected targets last week. Too, the Philadelphia Federal Reserve bank (there are 12 banks across the US keeping tabs on their respective regions) produces a report on manufacturing activity in its region that was very positive. More positive than expected. And finally the sentiment of US consumers was very high in recent surveys of this important series of indicators. A look at the EURUSD chart shows steadily, though measured, strengthening of the US currency against its second place trading bloc, the EU. Look for this trend to continue as us interest rates climb as they are surely likely to do.


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