investorpolitico

Big talk about the Monday rally. Do not get confused, it is just a technical rally.

The major US indexes lost the Moving Average 50 and were deeply oversold (35) and bounced back without regaining the MDA 50.

In a complete shift from his election campaign, President Trump became warmonger on the style of its predecessor (US has been at war for 93% of time since foundation).

Attacks on Syria, Afghanistan and potentially North Korea. An a shift in strategy with boots on ground in Syria and Iraq.

How did this happen?

It all started with the dismissal of the security adviser Flynn and the nomination of Mattis and McMaster.

The US Deep State (industrial- military complex) won over President Trump (or better say he had to bow down) and the USD600 billion dollar industry needs enemies and wars to feed itself.

So, it is all back to “war as usual”. But the stakes are higher than ever as the world is edging towards a maximum instability (even without Trump) as the power players are shifting (China increase power, resurgent Russia, imperialist Turkey, NATO woes, jihadism).

And the US is expanding bases around China and Russia as containment (if you wonder what would happen if Russia and China put bases around the US….look at the Cuban crisis).

And it you think this is an anti-US conspiracy, please look at the youtube President Eisenhower speech re the Deep State https://www.youtube.com/watch?v=8y06NSBBRtY

And nothing happened to stop it (well President JFK tried).

Why this happens. A Chinese political analyst put it beautifully: The US (or West) is called a Capitalistic society as Capital dominates politics.

In China, in no way a group of billionaires could dominate the One Party.

China is far from the perfect example and a not a democracy, but he has a point.

So we have different non-democratic powers.

King Putin and Russia.

Plutocratic West.

One Party China.

Sultan-style Turkey, Saudi Arabia and Iran.

maybe the closest thing to democracy is the good old UK.

Erdogan completed his ascent and won the referendum. Now he is almost a sultan.

A few consequences 

Turkey will keep drifting away from the West, the EU and NATO. It will keep the links until convenient…but more and more could be attracted by China and Russia.

It will be more and more imperialistic towards Syria and Northen Iraq rising the spectrum of a wider Turkey /Iran war (Iran election towards end of May).

Another piece of the chessboard as changed.

An NBC report said that a US source confirmed that a pre emptive strike could be launched if there is sign of a nuclear test.

That report has been challenged saying that only retaliation after a test.

The carrier group is not there, but the US has 2 destroyers in range and B2 Stealth Bombers in Guam.

North Korea said that something big is planned tomorrow Saturday 15 and there would be merciless retialiation in case of interference.

They also evacuated 600,000 people from the capital.

With everyone drawing Red Lines not to be crossed….also the market has drawn one.

The SP500 as an unconfirmed descending pattern (lower highs, but not lower lows) since 1 March with first strong support  at 2,322 (Fibonacci 76.40%).

The pattern is still “bull” , but weakness is increasing -two times it broke an ascending channel (23 March and 10 April).

Until 2,2204 (Fib 23.80%) it can re-rally.

The RED LINE is actually 2,150-2,080. This is the start of the Trump rally and practically 2 years of previous tops.

And if it loses that …all hell would break loose.

Gold (inverse) has a strong signal with the MDA crossing over.

VIX not yet in full alert, but kind of at the base of serious issues with a rise of 41% since 21 March

CBOE SKEW (one off black swan event indicator is instead lower

The spread between 10 years government bond Germany /France is at 0.73 (the max since a while ) and also the Italian bond yield are going straight up (even more than France…meaning that if Melenchon/Le Pen win the biggest causalities will be the Italian banks).

In summary the market needs to pull up quite soon with strength (apart a probable oversold bounce) or we could run into issues. It looks like a spring coil…but we do not know yet which way it will pounce.

Update

Yesterday breach of the SP500 means that the market will at least test the MDA200 (currently 2.290). Being oversold probably it will try and recover the MDA50.

China; 150,000 troop stationed at the border. Initially it was thought as friendly positioning in case of humanitarian catastrophe. Now China draw its red line that if North Korea is threatening the safety of China, it will go for a decapitation blow.

US – the air carrier group is still making its way (being diverted from Darwin). Meanwhile there are massive exercise (already planned) until the 21 April. The Seal Team 6 (which killed Osama Bin Laden) is there training with other special forces.

Russia has a guided -missile cruiser and a tanker near Busan (NK) (again part of a routine mission)

Japan is sending several warship.

Still this is a classic diplomatic posturing – a slow and clear move to send message (unlike the surprise attack on Syria).

North Korea in the usual brash tone is threatening everything, including a pre-emptive nuclear strike (US fonts account for a maximum of 2 to 5 small nuclear devices deliverable).

Apart the nuclear option, there are some issues.

The country is so secret that there is no reliable intelligence able to identify all facilities.

Seul (a city with 20 million inhabitants) is in target range of the well defended North Korea artillery (estimates say that it would take a week to eliminate it, at a cost of a minimum 5,000 civilian death).

North Korea has 1,000s of terrorist sleeper cells in South Korea and US.

North Korea has still a number of kilo class Soviet submarines that still work quite well (in 2010 they sank a South Korean corvette).

And let’s not forget the new realm…a cyber attack specially on US banks and civil infrastructures.

The cost is simply too high. Hopefully

We all feel the wind of war with Syria and North Korea.

Apart the real chance of war, there is another possible explanation. 

It is just a brutal style of negotiation (which would fit very well with Trump).

Syria…it could be a ploy to get rid of Assad while letting Russia keep the influence zones of its interest and part of a broader negotiation including Ukraine.

North Korea…it could be a negotiating tactic with China (and China is putting pressure in NK).

This  would make a lot of sense. It is a better scenario than before…even if negotiations can fail.

Syria and North Korea are looking outright scary.

In Syria a new edict from President Trump says that the use of barrel bombs will be considered a red line. Barrel bombs are the preferred weapon of Assad (13,000 have been used in 2016) and also would be something very simple to use as an excuse without evidence.

On the other side Russia and Iran confirmed that an attack on Syria would be considered their red line and they will answer with force. And Putin and Rohuani are not people that go back on their words.

North Korea officials spoke to CNN saying, about the current US task force making his way to North Korea,  the “current grim situation” justifies Pyongyang’s “self-defensive and pre-emptive strike capabilities with the nuclear force at the core.” And we all know that Kim Jong Un is quite mad.

Hopefully not a World War 3 in the making.

News: China just deployed 150,000 troops to the NK border 

The easy win in second round of Macron (Europeist and establishment candidate) is starting to look shaky.

It looks more like a 4 horse race (Le Pen, Macron, Melechon and Fillon).

An Artificial Intelligence Model which survey all internet traffic points at a Le Pen win. Also a model from Prof Galam suggest a Le Pen win. Both models got Brexit and Trump right.

I would not discount even Melenchon.

But some hard data.

Polls practically give 24% Le Pen – Macron and 18%  Fillon-Melenchon.

If you sum all the votes of the Left and Right there is over 50% of the French people fed up with the establishment. Which is now more nationalist vs globalist than Left/Right.

Voting is not compulsory in France. While Le Pen voters are very committed (usually 85% vote), Macron supporters are less likely so (statistics say 65% will actually vote and 30% say that they could still vote for someone else).

Melechon (extreme left) stunned the pollsters with  5% gain in a week.

Le Pen visit to Russia and comments about the Second World War France Vichy government behavior did not win her any favor.

Fillon stopped bleeding support.

Macron sometimes in his rally say things that succeed to upset most people.

And Assange of Wikileaks promised he will release new secret documents closer to the elections (in February he specially targeted Fillon, Le Pen and Macron).

So models apart, any outcome is possible – even the scariest one Le Pen-Melenchon, specially in a low turnout vote as Le Pen and Melenchon voters are more likely to vote.

The markets agree with this view. The Euro is weakening and the spread between 10 years German Bund and the French one is at 0.71 while in mid March was in the low 0.6.

23 April and 7 May will be very interesting days.

As Trump attacked Syria and sent warships to North Korea, the French election went out of focus – even if they could destroy the European Union.

Le Pen and Fillon are neck and neck. Polls give a slight advantage to Le Pen and the usual defeat in second round.

The new factor is that Melechon, one of the more extreme left candidates, caught up in the polls with them.

As polls can be wrong any of the three can reach the second stage.

We could even have a Le Pen vs Melechon face off with no establishment candidate!

Melechon is a pure socialist that want to rise the minimum wage and he is against European institutions and Germany and limits that cripple the poor and is vaguely pro Russia.  

He kind of share many of Le Pen points, but he is more vague about if he wants out of the EU.