Anti-Social Media

Silicon Valley's resident fratboy, Mark Zuckerberg, will shortly be roasted over the Congressional coals. Donald Trump's personal lawyer, Michael Cohen, is one DOJ photocopy away from a perp walk. Trump and Xi's 'Trade War of Words', is whipsawing the market. Critical policy is seemingly being made up on the fly. The narrative of the market has been commandeered by messages emanating from the 'Tweet House'.

Marshall McLuhan is looking positively clairvoyant. In 1964, the famed U of T professor introduced us to his catch phrase "The Medium is the Message". It sounds like he was talking about today's Social Media landscape. The Twitter/Facebook dominated communications world has created new risks to market psychology. The backlash we are now experiencing was inevitable. MacLuan's tag line could be now be rephrased as the "The medium is the mess age". How are we to trust the system after the Facebook scandal of privacy invasion?

In our rush to be early adopters of anything that looks disruptive, we have relaxed the critical thinking of the risks to that technology. Personal privacy and even 'truth' have been the collateral damage. The market is now faced with a potential compression of PE multiples that are directly attributable to that risk. The monetization of Social Media that has driven the tech dominated market recently, is rightfully being called into question.

Even Bitcoin is undergoing a hard re-boot. In a rush to be first, "investors" grabbed up easy acreage in the crypto currency land rush, never thinking about the consequences of the price bubble they created. Nvidia's chip pricing was recently driven totally by Bitcoin miner demand. The price of Bitcoin has now collapsed enough to make that demand obsolete. The shake-out is on, as late-comers get margin calls and early adherents face mounting tax bills.

For me, this faltering leadership is good news, as I have vacated the U.S. market, and converted the currency to the C$. Hard assets look increasingly attractive. They are completely unloved and under-owned. But they need the narrative to shift quickly to global reflation. The Growth/Value rotation is now closer than ever. Remember, leadership change only occurs during a down market.

Markets are in desperate need of this rotation to extend this elongated Bull. The likes of Rosenberg and Gartman are calling it quits. I can't blame them, unless the cyclical slowing that we are seeing (Citi's Economic Surprise has gone negative) reverses quickly. The Global economy has been like pushing a rock up a hill for years now. Just as Lucy did to Charlie Brown, Trump's trade rhetoric has snatched away the football just as it was about to be kicked hard. I didn't think a guy that can't see his foot for his waistline could so accurately shoot it.

So let's cheer on the scenario in which Trump needs a Trade 'win' for a push to the fall 2018 mid-terms. Xi is doing his part by offering a fig leaf in Bo'ao this morning.

The template should come shortly from the NAFTA deal that is being rushed into place. It can't come soon enough for this market. We are currently hanging by a thread - namely the Q1 earnings parade that is shortly to reveal the effects of the Trump tax cut. But we already paid for that last year. I don't think we can rally on old news in the face of deteriorating fundamentals.

The precursor to a rally is a strong cyclical resurgence. The copper/gold ratio is starting to show a sharp recovery this morning. Rising bond yields would also help confirm the reflation scenario. The PPI ran hot this morning and I believe tomorrow's CPI will print above consensus.

Richard Nixon, in 1974, had buttons printed saying "Whip Inflation Now". I'm gonna print some buttons that say: "Go Inflation Go"!

Risk Model : 2/5 - Risk Off

The VIX is still too elevated to provide comfort. Given the bearish headlines, the oversold level of AAII sentiment is encouraging. Just as we did with the Canadian Dollar last month, we are pricing in the worst case scenario with the trade fears. The bounce in copper/gold is encouraging but needs more work. The potential for a rotation out of Tech into Cyclicals is tantalizingly close, but remains elusive.

The market isn't oversold enough to add to longs. I'm holding off going 'all-in' for now but it wouldn't take much.

By the way, what did you guys do with Spring while I was gone? I'm freezing!