As the gold market continues to trade sloppy while building the handle portion of its cup & handle formation, here is a look at the “Lunch to solve the world’s problems.”
“The Lunch”
March 14 (King World News) – Today’s note from Jeff Saut, Chief Investment Strategist at Raymond James: Those of you that have read these letters over the years know I am part of a lunch group that meets once a year to discuss the state of the markets and the world. The lunch is attended by some of Wall Street’s most iconic folks, as well as past high level government officials, portfolio managers, strategists, well you get the idea. Regrettably, one of the rules of said lunch is that nobody can reveal who attended the lunch, but if I could, you would recognize most of the participants…
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The title of yesterday’s lunch was, “Lunch to solve the world’s problems.” The first discussion was about why there is no inflation. One response was that small business is not raising prices for fear of losing customers. He added that, every month, 26% of small business want to raise prices every month, but only about half of them do it. I offered that I think it is the demographics. When I was in my 30s/40s, I had huge demands for “things.” In my 50s/60s, that demand changed. I now spend very little money on things. Another participant offered, “The lack of inflation is not a supply issue, but a lack of demand.” He also averred that China has brought about price deflation and that the Amazon “death star” has accelerated it. Someone else talked about asset inflation and noted that the labor force is not growing in China.
MMT (Modern Monetary Theory) was discussed. MMT claims that the word “borrowing” is a misnomer when it comes to a sovereign government’s fiscal operations, because what the government is doing is accepting back its own IOUs, and nobody can borrow back their own debt instruments. Sovereign government goes into debt by issuing its own liabilities that are financial wealth to the private sector. Private debt is debt, but government debt is financial wealth to the private sector. The group offered that this is what we have been doing and it has created “excess reserves”, because inflation has had a downward bias, so debt doesn’t matter when compared to the increase of U.S. household net worth. Or, the current cost of U.S. debt is negligible in real terms as long as interest rates are below nominal GDP growth (free money).
One person asked, “How many tricks has the government tried, how many are left, and why do we still have subpar GDP growth?” – a very intriguing question to which I have no answer. He concluded, “It is because the world is dominated by the central banks.” Finally, one year ago, the group decided stocks were expensive and sentiment was euphoric, which is not the case currently. The smartest guy in the room ended the lunch by stating, “The budget will be telegraphed by the spending caps and that the tax bill of 2021 is the real risk of a recession.” One of the portfolio managers I invited to the lunch said, “This was the best thing I have done in my life!”
In my absence, the stock market has done pretty well. Indeed, since the intraday reaction low of 2722.27 on March 8, 2019, the S&P 500 (SPX/2810.92) has gained ~3.6%. My indicators suggested that would be the case with the path of least resistance on the upside. As I have said, “There will be NO retest of the December lows.” As Lowry’s Research notes:
“Today’s rally triggered a buy signal for aggressive traders when the 14-day Stochastic indicator crossed above its moving average. And, with today’s 3 point gain, the Short Term Index is now 2 points from fulfilling the 6 point gain from its most recent low needed to register a conventional short-term buy signal. The intermediate-term balance of Supply and Demand continues to improve with today’s 5 point gain in Buying Power and 6 point drop in Selling Pressure to a new reaction low.”
My energy indicators agree with that, with the monthly indicator fully charged up. … Stocks need energy and real buying in order to get a significant rally with staying power.
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