Barron’s Survey: Strategists Say Beware the Bear
Stocks could tread water for the rest of the year—or even fall. Wall Street’s top strategists also predict only modest gains in 2017.
By Vito J. Racanelli
For the first time in years, there’s dissension in the ranks of the Barron’s strategists.
Since this bull market—now the second-longest in history, after that of 1987-2000—sprang to life in March 2009, that has been a winning call.
At one point that month, the S&P slumped to 1810, down 15% from the previous high of May 2015, and 75% of the way to a bear market.
Perhaps most important, a majority also believes that, among global equities, U.S. stocks remain the place to be, given their relative safety versus foreign shares and riskier bonds, plus their relatively good profits in a slow-growth world.
On the positive side, there might be an increased likelihood of a profit-repatriation holiday for U.S. companies, which are holding some $2 trillion in cash overseas, something Trump supports. But that’s probably not enough to outweigh the Goldilocks scenario: a Clinton presidency with the Republicans retaining at least the lower house in Congress.
The Fed is handcuffed.”
“You don’t need much of a rise in rates to see a big move [down] in the stocks. It’s a very tight relationship.”
Besides election uncertainty, she notes that market valuations are expensive versus their historical levels, underlying sales growth is at a three-year low, and Chinese economic expansion might be disappointing.
THE BULLS BEG TO DIFFER, at least when it comes to 2016’s second half. From a mathematical point of view, earnings almost have to improve, if only because energy-sector profits should stop being a huge drag, notes Prudential’s Praveen. In fact, oil-patch earnings comparisons should turn positive in the fourth quarter.
Merkel Doesn’t Blame the Voter
The establishment’s view that there is no crisis in the system is leading to surprising election results for mainstream parties.
By George Friedman
German Chancellor Angela Merkel said something interesting yesterday. She said that the voters should not be blamed for her party’s defeat on Sunday in her home district. In the chancellor's words, “scolding the voters achieves nothing.” The Christian Democratic Union (CDU) came in third in local legislative elections in Mecklenburg-Western Pomerania, behind the anti-immigration nationalist party Alternative for Germany. The elections decided nothing major, but were a measure of how unpopular the CDU and Merkel have become.
In normal election years, the idea of blaming the voters for the outcome of a vote would have been absurd. Under the doctrine of “Vox Populi, Vox Dei” (the voice of the people is the voice of God), which is the foundation of democracy, the people are the judge of politicians, not the other way around. The assertion that the people are the voice of God was a challenge to the idea of the divine right of kings. It was not kings that spoke for God, but the people.
Merkel’s statement makes no sense until you realize that we are now in the age of the “stupid voter.” Mainstream parties have dominated the European and the American political systems for a very long time, and within these parties, certain ideologies, factions and personalities have prevailed, while others have been marginalized.
Parties, ideas and people have been governing for so long that it is assumed that all reasonable people will see their continued governance, with some minor variations, as the will of God. Certain values are taken for granted, as are certain modes of behavior. There is more commonality between the establishment parties than challengers from inside or outside the parties.
These are times of systemic failure. In Europe, the European Union has failed to solve the problems that arose from the 2008 crisis for eight years, and there is no indication that a solution is forthcoming. Nevertheless, the idea that a radical change is needed in how the problem is viewed and how the governing system operates is normally seen as preposterous.
The mainstream parties see the problems as manageable. When further problems, such as the immigration issue, are piled on top of existing ones and are handled as maladroitly as that was, it becomes apparent that something is wrong with the governing principles, the dominant parties, the leading individuals and so on.
But while this is becoming visible outside of the establishment parties, the establishment is oblivious that they are failing. In their minds, there have been minor difficulties that need to be worked out over time, and the increasing noise from outside their framework is first a nuisance and then a hindrance to their prudent management of the situation.
As the public becomes more alarmed and frustrated at the inability of the establishment parties to grasp that there is something terribly wrong, two things happen. First, the voters are blamed for their immaturity and there is increasing alarm that the irresponsibility of the public will disrupt the management of the system. Second, leaders arise who share or (in the case of politicians) exploit the increasing fear. The mainstream parties invent the idea that it is these new politicians, inappropriate by tenor and character of governing, who are creating a crisis.
This is important: the perception is that the new politicians are creating the crisis, not the other way around.
The response of the mainstream politicians and their supporters to the Brexit vote was a classic example. There has been an increasing social crisis in Britain that neither of the major parties seemed aware of. They assumed that most people would not want major banks to leave London and therefore would vote to remain in the EU. They could not grasp that the majority of Britain had far greater problems, which the City was neglecting and possibly compounding.
The leading parties held the leaders that supported Brexit in contempt. They thought former head of the U.K. Independence Party Nigel Farage, who led the movement to exit the EU, clearly was not suited to govern, nor was former London Mayor Boris Johnson, who also supported the “leave” campaign. They were seen as outsiders to a well-running system. The leading politicians of the mainstream parties did not know or suspect that over half of British voters were appalled at their handling of the European Union question and much else.
The immediate response of these parties was to wonder who these voters were. They knew no one who supported Brexit. The next response was to focus on the lack of sophistication, education and even intelligence of the voters. They never blamed the referendum result on the failure of the EU or themselves. It was the fault of the "stupid voters" and the dangerous demagogic politicians who led them. Vox Populi, Vox Dei, turned into “I didn’t know there were so many idiots in Britain.”
The same can be said for the reaction of mainstream parties to Donald Trump. The United States is having a significant social crisis, where the middle and, most important, the lower-middle classes are incapable of living the kinds of lives that had become standard for these classes since World War II. The major parties had presided over this crisis. Mitt Romney spoke of 47 percent of Americans as moochers. President Barack Obama spoke of the problem but proposed only the same solutions that created this situation. Neither party could grasp that a massive political explosion was coming.
As with Brexit, the leading politicians did not realize that the situation was out of hand. The one thing a politician should understand is the mood of the people. But the politicians in Europe and the United States had not only lost touch with them, but regarded them, as Romney and former British Prime Minister David Cameron did, as the problem.
In a democracy, when politicians are oblivious to what is happening around them and a massive social crisis is well under way, the consequences are utterly predictable. First, the public knows full well there is a serious problem. Second, they know the establishment doesn’t care. Third, they know the political system is the only recourse. And finally, personalities arise to lead them against the establishment.
The establishment looks at these new leaders as bizarre and doomed to fail. These leaders, unlike the establishment, are aware of the social crisis and the contempt the establishment is held in. They do everything they can to appear utterly different than establishment politicians.
The establishment believes this will lead to the downfall of the new politicians. They are totally unaware of how offensive their mode of government and even mode of speech has become.
This does not mean that the new politicians will win. It does mean that a schism has opened up in society and that spending money on television ads won’t heal it. Regardless of who wins the election, a vast percentage of voters see the establishment parties and even the state as their enemies. And the underlying reason is that the establishment parties have no intention to address, or plan for addressing, the core problem, which is that the system is in crisis.
In Europe, the economic condition is tolerable for the upper half of society but not the lower half. The same is increasingly true in the United States. On top of this stress is the perception that the countries’ leaders are more concerned with fairness to immigrants than fairness to citizens. If this is true, the politicians must do something about it. If it is not true, then politicians must reshape public thinking.
But the “stupid voter syndrome” is now evident in Europe and the U.S. There is deep contempt for the Trump voter, the Brexit voter and now the anti-CDU voter. The common sense of citizenship has been torn on both sides. The anti-establishment voters hurl contempt at the establishment. The establishment hurls it back. This is why Merkel’s statement that we shouldn’t blame the voters is so extraordinary. First, she isn’t blaming them. Second, and most fascinating, she is acknowledging that the voters might be blamed.
This is a systemic crisis. It is how major social problems are managed politically. Half still support the mainstream. Half support the upstart. The establishment can’t conceive of the upstart winning. The upstart doesn’t always win. But as the Brexit vote showed, sometimes it does. And then members of the establishment are shocked, realizing they don’t know anyone with views that oppose their own. And that is the core of the problema.
Trump’s Emotional Intelligence Déficit
Joseph S. Nye
CAMBRIDGE – Last month, 50 former national security officials who had served at high levels in Republican administrations from Richard Nixon to George W. Bush published a letter saying they would not vote for their party’s presidential nominee, Donald Trump. In their words, “a President must be disciplined, control emotions, and act only after reflection and careful deliberation.” Simply put, “Trump lacks the temperament to be President.”
In the terminology of modern leadership theory, Trump is deficient in emotional intelligence – the self-mastery, discipline, and empathic capacity that allows leaders to channel their personal passions and attract others. Contrary to the view that feelings interfere with thinking, emotional intelligence – which includes two major components, mastery of the self and outreach to others – suggests that the ability to understand and regulate emotions can make overall thinking more effective.
While the concept is modern, the idea is not new. Practical people have long understood its importance in leadership. In the 1930s, former Supreme Court Justice Oliver Wendell Holmes, a crusty old veteran of the American Civil War, was taken to meet Franklin D. Roosevelt, a fellow Harvard graduate but one who had not been a distinguished student. Asked later about his impressions of the new president, Holmes famously quipped: “second-class intellect; first-class temperament.” Most historians would agree that Roosevelt’s success as a leader rested more on his emotional than his analytical IQ.
Psychologists have tried to measure intelligence for more than a century. General IQ tests measure such dimensions of intelligence as verbal comprehension and perceptual reasoning, but IQ scores predict only about 10-20% of variation in life success. The 80% that remains unexplained is the product of hundreds of factors playing out over time. Emotional intelligence is one of them.
Some experts argue that emotional intelligence is twice as important as technical or cognitive skills. Others suggest it plays a more modest role. Moreover, psychologists differ about how the two dimensions of emotional intelligence – self-control and empathy – relate to each other. Bill Clinton, for example, scored low on the first but high on the second. Nonetheless, they agree that emotional intelligence is an important component of leadership. Richard Nixon probably had a higher IQ than Roosevelt, but much lower emotional intelligence.
Leaders use emotional intelligence to manage their “charisma” or personal magnetism across changing contexts. We all present ourselves to others in a variety of ways in order to manage the impressions we make: for example, we “dress for success.” Politicians, too, “dress” differently for different audiences. Ronald Reagan’s staff was famous for its effectiveness in managing impressions. Even a tough general like George Patton used to practice his scowl in front of a mirror.
Successful management of personal impressions requires some of the same emotional discipline and skill possessed by good actors. Acting and leadership have a great deal in common. Both combine self-control with the ability to project. Reagan’s prior experience as a Hollywood actor served him well in this regard, and Roosevelt was a consummate actor as well. Despite his pain and difficulty in moving on his polio-crippled legs, FDR maintained a smiling exterior, and was careful to avoid being photographed in the wheelchair he used.
Humans, like other primate groups, focus their attention on the leader. Whether CEOs and presidents realize it or not, the signals they convey are always closely watched. Emotional intelligence involves awareness and control of such signals, and the self-discipline that prevents personal psychological needs from distorting policy. Nixon, for example, could strategize effectively on foreign policy; but he was less able to manage the personal insecurities that caused him to create an “enemies list” and eventually led to his downfall.
Trump has some of the skills of emotional intelligence. He is an actor whose experience hosting a reality-television show enabled him to dominate the crowded Republican primary field and attract considerable media attention. Dressing for the occasion in his signature red baseball cap with the slogan “Make America Great Again,” he appeared to have gamed the system with a winning strategy of using “politically incorrect” statements to focus attention on himself and gain enormous free publicity.
But Trump has proven deficient in terms of self-control, leaving him unable to move toward the center for the general election. Likewise, he has failed to display the discipline needed to master the details of foreign policy, with the result that, unlike Nixon, he comes across as naive about world affairs.
Trump has a reputation as a bully in interactions with peers, but that is not bad per se. As the Stanford psychologist Roderick Kramer has pointed out, President Lyndon Johnson was a bully, and many Silicon Valley entrepreneurs have a bullying style. But Kramer calls such figures bullies with a vision that inspires others to want to follow them.
And Trump’s narcissism has led him to overreact, often counter-productively, to criticism and affronts. For example, he became embroiled in a dispute with an American Muslim couple whose son, a US soldier, was killed in Iraq, and in a petty feud with Paul Ryan, the Speaker of the House of Representatives, after Trump felt slighted. In such cases, Trump stepped on his own message.
It is this deficiency in his emotional intelligence that has cost Trump the support of some of the most distinguished foreign policy experts in his party and in the country. In their words, “he is unable or unwilling to separate truth from falsehood. He does not encourage conflicting views. He lacks self-control and acts impetuously. He cannot tolerate criticism.” Or, as Holmes might say, Trump has been disqualified by his second-class temperament.
Gold In Excess Of $8000 While US Dollar Collapses
By: Hubert Moolman
The US Dollar Index is not a measure of the value of the US dollar relative to gold. However, there is a relationship between the US Dollar Index and gold price rallies.
The best gold price rallies came during periods where the US dollar index was in a declining trend.
During the 70s, for example, the US dollar index was in decline during the major gold rallies (1971 to 1974, and 1976 to 1980).
The same, but opposite, is also true for the biggest gold declines, in that they occur when the US dollar index is having its best rallies.
Below, is a US Dollar Index chart (from tradingview.com) since 2012:
For many reasons, the price pattern since June 2014, is not likely a bullish flag or pennant-type pattern. Notice the divergence between price and the RSI (between the two blue lines) - this is one reason. Price has marginally made a higher high, however; the RSI has made a significantly lower high instead. This suggests that the US Dollar Index is going lower.
Therefore, it is likely to follow the RSI to the June 2014 breakout level, and even possibly lower.
With this kind of decline in the US Dollar Index, gold is likely to have a strong rally.
Previously, I have shown how the long-term analysis of the US Dollar Index suggests that the gold rally is likely to be similar to the gold rally of the late 70s. Below, is an updated version of that chart:
On the chart, I have marked two fractals (1 to 5). Both fractals exist in similar conditions - relative to the relevant Dow/Gold ratio peaks (1966 and 1999). If the current pattern continues to follow the 70s pattern, then the US Dollar Index is likely to decline significantly over the coming months.
This analysis also indirectly shows that gold is likely to perform in a similar manner to how it moved from about $100 to $850 in the late 70s. Furthermore, the analysis suggests that we are now at a point similar to January/February 1977. If this pattern plays out like it did in the late 70s, and gold has a similar rally, then we will see a gold price in excess of $8000.
Based on my other analysis, including the likelihood that Dow is likely to collapse during the coming US Dollar Index decline, it is very likely that the current gold rally will far exceed the one of the late 70s.
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Las convicciones son mas peligrosos enemigos de la verdad que las mentiras.
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
No soy alguien que sabe, sino alguien que busca.
Only Gold is money. Everything else is debt.
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Quien no lo ha dado todo no ha dado nada.
History repeats itself, first as tragedy, second as farce.
We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.
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