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Morning Market Report: Feb. 20th, 2024

The overnight futures are setting up a gap open deja vu of last Tuesday's CPI gap 'n crap, albeit smaller. Last week after the market imploded on Tuesday it crawled its way back all week to the PPI print on Friday, but then it rolled over at the top of the gap. You can see the importance of 5,000 to this entire rally. If it's lost then it will have been a bull trap.

Overnight in Asia, the Chinese government started to panic, cutting their benchmark mortgage rate the most on record. It won't work. The Chinese housing market has only seen a mild correction so far. Compared to the housing bubbles in Japan in the late '80s and the U.S. in 2008 the pain in China is only getting started. The government's crisis management has been haphazard at best. Just two years ago as the markets started to implode they rolled out with their "Common Prosperity" program which meant that they were going to stop bailing out markets, because those policies had led to record wealth inequality. Now two years later with markets in free fall they are way behind the curve. From a policy standpoint, what it shows is that government needs to rein in excess before it gets out of control because trying to control it once it's exploding never works. It's a cautionary tale for the rest of the world, including the U.S.

"Beijing stepped up support for the downtrodden property sector at the heart of China’s slowdown, but the move has done little to boost stocks—instead underscoring the structural issues at the heart of the world’s second-largest economy"

While even rumors of Chinese stimulus have helped stocks shoot up in the past, the PBOC’s substantial move was met with a muted response. It may be that such an aggressive rate cut looks a little desperate"

Of course this week is Nvidia earnings (Wednesday) and retail earnings throughout the rest of the week. This morning, results from Walmart and Home Depot "beat", however, Home Depot stock is falling. It may have something to do with the 3% year over year revenue decline. Another problem is that this is when the glue fumes from Q4 earnings season begin to wear off.


On the topic of stimulus dependency, on Twitter I showed this chart below of alternating bull markets and bear markets in the U.S.. Then I lined it up with the U.S. Federal election cycle, and they fit perfectly. In other words, U.S. markets are now entirely dependent not just on monetary policy but also on fiscal policy. The only time the two parties agree on anything is AFTER an election. In between elections they hold back stimulus while pretending to care about the deficit, until markets implode and they can save the day. Which is a long ways away this year.

In summary, we are all Japan now. And yet they STILL haven't figured it out.

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