SPX -- Quickie Update

The re-opening of the US economy has been a rather muted success. Sure, business sales and
production have bounced back sharply, and my profits indicator, although still negative on a yr/yr
basis, is improving. Unfortunately, initial claims for unemployment insurance is still running at
an awful 1.3 mil. a week. From a Covid-19 perspective, the economic reopening has been a
disaster, featuring a sharp run-up in both cases and deaths. In states across the south and west,
health delivery systems are being sorely taxed with the risk of humanitarian issues on the rise in
spots like GA, FL, TX and AZ. The rise in cases  may well partly account for the rise in claims.
Across the US, many localities face risky school autumn openings because cases are rising
and testing and contact tracing have become less useful. I am not about to speculate on whether
the virus is practically out of control and whether efforts to tame it will cause additional and
substantial economic damage. So, I would not care to speculate on how well the economy and
the markets will do over the next few weeks and months. The sheer large number of dumbfucks
both in office and among the public have cost us dearly health-wise and we can only hope that
common sense will regain more footing.

The intermediate term trend indicators remain positive for the SPX. It has been range-bound for
a short period of time. The SPX is currently moderately overbought at a 6.5% premium to its
40 wk. m/a.  SPX Weekly  

SPX -- Update

Fundamentals
On balance, the US economy is showing a degree of recovery from deeply depressed levels.
Retail sales have come back nicely and output levels have moved up some. My profits ahead
indicator reads -15.4 which is awful but not as bad  as at the bottom in 2009. My business strength
indicator (BSI) is a lowly 107.9, which also exceeds the bottom in 2009 (A sound, healthy BSI
runs 140 -145). It remains very concerning that nearly 25 million people have lost their jobs and
that more recent data suggests that more upscale employees are being laid off. As the economy
continues to re-open, many more workers will be recalled, but the upscale earning jobs that are
lost will be very slow to comeback. There is huge slack in the economy, and even though raw
materials prices have been recovering, deflationary and default pressures will continue for a
while. The Fed remains just about fully accomodative, but Congress is juggling the ball here
on fiscal policy with an off-chance there could be a fuck up later this summer. So far, market
players have been letting the 2020 national election ride.

SPX Chart
The recovery uptrend from late Mar. was broken on a correction of a sharp overbought and the
SPX is now in a downtrend which is so early as to be inconclusive. The market is mildly over-
bought against the 200 day m/a, and the negative rollover in MACD bears watching. The
continued high VIX reading implies more volatility.  DailySPX

Economic / Markets Fundamentals

My primary liquidity indicators are strongly positive. This suggests that economic recovery is
not far off in time and it is supportive of the stock market. Based upon accelerating monetary
liquidity, a degree of economic recovery should begin before summer 2020 is over.

Presently, the US economy is still in a state of deep free fall with the indicators suggesting a
deeply distressed state.

With mounting sector wide defaults in prospect, further fiscal and monetary rescue efforts may
well be needed through 2020 to underwrite a very strong monetary liquidity trend and assure
the economy of a good shot at recovery.

Inflation vs. deflation measures remain in the deflation camp, but will switch over to inflationary
if recovery takes hold and strong inventory pipeline filling efforts materialize.

Eventual economic recovery will put downward pressure on Treas. and top quality bond prices
even if short rates continue at historically low levels.

Business profits measures are currently deep in the tank, but should improve as economic
recovery takes hold.

Covid-19 will remain a major wild card especially if economic reopening measures such as
social distancing and personal protection recommendations are flouted by a goodly number
of folks. With vaccines and therapeutic measures not ready tomorrow, the virus could make
a vigorous comeback and throw economic expansion possibilities into a cocked hat.

The US and other economies are going to need help from Lady Luck if slow, grinding recoveries
are to give way to strong and sustainable expansions

Consensus appears to favor SPX net per share rising from whatever depths to the $170. level
in 2021. That would put fair value at SPX 2800. Since we're already above that level, I view
the market as uninteresting except for the occasional long side trade should times come along
when obviously bubbly sentiment may falter.

SPX Daily

Let Us Hope The Dumbfucks Do Not Prevail

The US economy could decline by 20+% from peak to trough through the late summer. Even with
an expected bounce back over the last five months of this year, there could be 25-30 million people
out of work on NewYears Day, 2021. SPX profits could be down from $155. a share to $100. by
the time the year closes out. A gradual re-opening of the economy featuring regulations on
social distancing and the maintenance of sanitary places of business may secure a modest rebound
in the economy right through 2021, even with successful vaccination and improved therapeutic
programs. a significant amount of dumb political leadership and reckless individual behavior
could set the US back periodically both in terms of the battle against the virus and in the economic
realm. I hope the clear right wing foolishness we are seeing, even though aided and abetted by
Trump, does not rise to a threatening level. The general public fears Covid-19 and will be cautious
as we proceed. If warm summer air slows Covid's progression temporarily, this summer, then I
hope folks do not let their guard down. The medical experts seem to agree it could come back
with a vengeance in late autumn and this means states have to ramp up testing and contact tracing
as much as they can.

I remain concerned about deflationary pressure and its effect on debt coverage capability across
sectors of the economy. With the recent large decline in resource capacity utilization, my deflation
pressure gauge has reached the low levels seen during the Great Depression. Possible wide scale
business defaults across the globe could lead to cascades of additional bankruptcies here and
there and keep the large gaps in capacity and elevated levels of unemployment large enough to
retard economic growth for years to come.

The SPX is now wildly overvalued on 2020 fundamentals and continues to discount a recovery
in earnings power that may not arrive until 2022 or thereafter without massive pro- growth
fiscal policies. Trump is so far out of his depth that should he win re-election this November,
and should the Senate stay in GOP hands, economic and social stability could well be
threatened.

I have managed money for nearly a half century and have managed to maintain my cool through
all those years. As a New York guy, I know well how vicious this virus can be. So, I have plenty
of emotion now and can only hope folks come to treat Covid as the threat as it is.

With this rant out of the way, I plan to gather my wits again and face the future as it comes.
Watch over your selves and those who are near and dear.

Into The Valley We Go

Before the Covid-19 hit, I had fair value for the SPX at 2800 (16.5 x $170. SPX earning power).
I was a conservative fuddy-dud as the market traded above that level for much of last year, and it
surged early this year, topping out at a whopping overvalued level near 3400. We all know what
happened next. Now, economic downturn be damned, we have the SPX trading again above 2800!

The global economy has entered a deep downturn and unlike previous such instances there now is
heavy monetary and fiscal support in place to cushion the fall. Here in the US, the powerful rally
off the March low of 2200 reflects investor confidence that the economy will soon begin to
recover, especially since most states have begun processes to re-open local economies after weeks
of stay-at-home /social distancing requirements.

The re-opening processes do not comply with the guidance offered by the medical experts, and
with the virus case count still rising, the chance that the virus will infect perhaps many more
people here makes these ventures highly risky. Not only could virus case surges crash local health
systems, they could alarm enough people to force states to reconsider their choices and take
restrictive actions which could abort nascent local recoveries and create a national political crisis.
At the least, the SPX ought to pause here just to gauge whether this new nightmare could eventuate.

Polls show most people want to see the national economy re-open but also show substantial
apprehension about going out into it and risking their health and lives. Well, if there was ever a
time for Lady Luck to smile down on us, this is it.

The chart link below shows the SPX has reached a critical pass or fail spot (RSI %). The medium
term MACD is improving but still remains negative, and the longer run MACD continues
deeply negative, suggesting that the market's true longer view direction is, if not negative
yet to be decided in the weeks or months ahead. Finally, the SPX is approaching an important
test of its 40 wk. m/a.  SPX Weekly

Sotto Voce -- "Acceptable Deaths"

Pressures to re-open the US economy continue to grow. Thanks largely to the many Covid policy
failings of Team Trump, the quantum leap in various testing procedures needed to minimize flare
ups in the virus as the economy moves to open gradually and selectively are still absent. A range
of low population density states that are anxious to re-open will, if they proceed, have to do the
random testing as well as the business unit testing 'on the fly'. There will likely be flare-ups in
areas of these states, and deaths will occur.  This development will put governors in a very tight
spot as folks come back to work amid fresh outbreaks that may tax smaller regional health care
systems and require heavy remedial action. If the setbacks are not large, selected states may
move ahead with opening plans, and returning workers may be forced to gamble their lives upon
return so as not to lose their livelihoods. These local scenarios will play to a national audience
and increase the tensions and fears of the workforce. Local level safeguards galore will be needed
to mitigate the rising caseload if pressures to return to reinstating 'stay at home' policies rises
sharply.

On a national level, it would appear to be prudent to attempt to re-open the economy only
gradually and in a very coordinated manner to contain the virus damage as best as possible.
I do not know if cautious, slow programs to return to normal will undermine investor confidence
or whether markets players will 'keep the faith' through a long ordeal. I would not be shocked
to find continuing market volatility that flows from advances and setbacks along the road to
normalcy.

Deflation Pressure

I have used an inflation directional pressure gauge for nearly 50 years with good results. It
became a deflation pressure gauge over 2008 - 10 and that is what it has turned into again
recently. Basically, I watch the longer term momentum of commodity price composites along
with measures of economic slack focused on capacity utilization rates. The deflation pressure
gauge is signalling the rapid development of downward price pressure currently. So far, the
readings have not been as serious as in 2008 - 09, but we could still be early in the game. Back
in 2008, the vulnerable credits were short term, such as asset backed commercial paper. Over
$2 trillion in short term credits were wiped off the books back then with large bailouts needed for
finance companies and insurers. This time the weakness is in longer term credits ranked  BBB
and lower.

Here in the US, the Fed has jumped in and is providing massive amounts of liquidity to the
money and credit markets. Companies across a wide range of industries are also drawing down
their lines of credit at the banks. Fortunately for now, banks have maintained ample liquidity, so
there is private sector credit still available to worthy borrowers. On top of that, fiscal policy is
providing credit to smaller borrowers.

So, as I read through my e-inbox, I see a decent level of investor confidence that the Fed and
fiscal policies will provide sufficient back-stopping to ward off a spiral of deflation induced
debt liquidation .

This situation still demands close monitoring as programs to open economies may prove far
more complex and time consuming than we can readily foresee, with the consequence that
default risk may increase more rapidly than we now envision.

My 12 yr. long pressure gauge is also evidencing deflation pressure as few economies  have
been able to run flat out for long, with this coupled with the fact that the CRB Commodities
Index is now trading nearly 70% below its 2008 peak. I hope not, but there could be some
debt chickens from way back when that may come home to roost.