Top Advisors Corner

Gene Inger: The Inger Letter October 14, 2016

Gene Inger

Gene Inger


Propelled higher by Oil and Dollar strength - Monday's stock market thrust higher, though it wasn't reflecting the dogfight that followed testy positions taken by not just the candidates, but within the 'Parties'. Later in the session the edge came-off the rally; and it faded as we desired. (I am optimistic that again we probe the high-end of the recent range to only falter; dropping back to the bottom of the S&P's recent range.) 


In our second video tonight, I discuss what I suspect is 'really' going on with respect to a 'reported' alignment of Russia's Oil policy with that of the Saudi's. This matters, because the latest 'oil war' was begun by the Saudi's (as thoroughly described here at the time) to somewhat thwart Russia's financial capacity to aid the Iranian / Hezbollah / Syrian axis; a posture that the younger leadership in Riyadh has backed-away from a bit, perhaps because they recognize a Wahhabi fanatic fundamentalist mixture of Islamic-extremists ultimately are targeting Saudi Arabia too.

(Dow Jones Industrial Average overlay doesn't have to replicate; but..)

As the Islamic extremist terrorists start biting the hand that feeds them; I contemplate a 'qui pro quo': back-off the lengthy anti-Russia / anti-Iran / anti-U.S. flooding of cheap Oil, in-exchange for (a unique perspective on the changing allegiances, including Turkey's new-found anti-terror mode). In other words our view of the convoluted Middle East mess as now is shifting in ways that will effect not just Oil but credit markets too.

Here's where it gets interesting: if my hunch is remotely right (redacted in fairness to us and subscribers) or 'rapprochement' appears.  It might not be reported thusly, but as I am fond of saying: 'follow the money'. The money says there's a quid-pro-quo (such as I detailed) involved. 

Now; here's the rub. Iran & Iraq (the latter virtually a Iranian puppet).. these nations don't want to cooperate with the Saudi's; however they are a bit beholden to the Russians now (American media doesn't report recent usage of Iraqi facilities by Russians, even a control room few are aware of). So if Russia truly wants a deal with Saudi Arabia and the Saudi's are equivalently motivated; Iran & Iraq (redacted projection).

Why mention this today? Because it (or implications on the war against ISIS too) is far more important to global security (and oil prices), than anything related to the domestic political circus for the moment.

Speaking of theatrics, that also matters, and more may appear before the Election. The way the news flow has been; a lot can happen in the remaining three weeks. What's useful is (reserved). It's understood by both parties that absent a truly vibrant working class (more follows; in these highlights we strive to share just part of our thinking in a complex market environment.. the heart of tactics and trade guidelines are for our regular subscribers only; and we invite you to join us).

So it's not all about demographics, the Fed or valuation (though all play intense and challenging roles); it comes down to growth. Sanders and Trump have provided valuable discourse giving American voters more insight than they've had before; including an understanding of (more). 

Bottom-line: regardless how the Election goes; we should see efforts to shake things up; (more). Either way the focus needs to be on reform and growth beyond all the lip-service we've heard over the past year. Either way we'll likely have a stock market (preliminary 2017 outlook).

Given serious disconnects (redacted). For traders, the fading rallies continue; near-term prospects: the S&P internal high remains behind.

The influence of more stable Oil (we did feel a 40 Floor was put on Oil at the time Goldman and others were suggesting lower; as I called for 50 again, and now we have that) helps mitigate the overall risk to key sectors of our economy. Dollar strength does relate to other structural dimensions; and not directly to the Oil story; (balance reserved). 

Now, while traders and media 'bought into' the Russian/Saudi 'story'; it may be true that no deal occurs without Iran participating. That's why I pointed out what 'could' be a 'quid pro quo'. If arrangement behind the news are a trading facade again, or it flops; (outcome reserved). 

Also the realization by the ECB (and eventually China) that a perennial embrace of Quantitative Easing won't work to enhance growth recovery while in some aspects (we believed) it became counterproductive due to having been relied upon for far too long by many central bankers.

In-sum: the Debate isn't worthy of discussing more; you all know about it. The market did find the rebound unsustainable, as we outlined over the weekend should it occur; and that's without knowing the Oil story. It was the real stimulant for Monday's early rally; and ran out of steam as we suggested intraday (per my weekend view of any thrust faltering).   

Daily action - discussed the 'two sides of the coin' with regard to Oil at this point; and the idea that the market has vulnerability regardless of a victory by either side in the Presidential contest (if it deserves the term) that is not exactly the model to inspire either idealism or conservatism in our youth. However, ironically the arguments are heated enough to suggest an 'actual contest' versus both sides being of similar political or 'insider' backgrounds, as is usually the case. It's not Presidential; but at the same time it's anything but boring. Good for the Country? That's to be determined. As the World has been on decline; with demographics nobody wants to challenge (here, Japan or Europe); who knows; this might provoke real dialog in the wake of the Campaign here as well as abroad; as it's clear much needs addressing and reform barely started.

(Our trading guideline remains short from Dec. S&P 2167 for now.)

For the markets, perhaps trade and taxes are the main debate element that might influence matters. However even there little can readily yet be discerned; aside both sides not disputing Trade needs 'adjustment'. 
If there's one tidbit out tonight (I'll reserve this comment).

(Notice proximity to breaking the primary uptrend; defense should fail.)

What one can't stay out of is the risk that's building; the unsustainably brief rallies; the capacity of this market to backslide if there is shown to be no 'real' Oil deal (redacted). For now we're simply stay short from a week-ago basis December S&P at 2167. 

In my humble opinion a push up and out of the trading range that has so dogged this market, would just be a 'bark' if you will; with prospects of the market falling right back through to the lower-end (or below) that level that has held so far on a lateral basis. The market like politics, has a bit of a 'canine aroma' to it this month.    

Prior highlights follow: (largely redacted in fairness to members). 
                                                         
Bottom-line: in essence: many variations of systematic macro-risks exist at this time. Not just credit markets, but risk-parity (often volume-targeting) funds, as remain heavily long both equities and fixed-income. That helped drive recent correlations of markets; setting-up noted risk. 

The process of an 'epic unwind' has been telegraphed and resisted, while seemingly set-up by recent market behavior (including Oil-led projected rebounds and our renewed firm Dollar call). Look for S&P to work lower and reverse Monday's rebound; hence we remain short. 

Enjoy the evening; 

Gene

Gene Inger

www.ingerletter.com