The Anglosphere
Even when left-leaning leaders like Bill Clinton and Tony Blair were in power, the American post-Reagan, and the U.K.’s post-Thatcher politics have been unwaveringly subservient to “the market” and its deregulation, . Three decades of deregulation — especially of the financial industry, starting with Thatcher’s “Big Bang” — have resulted in, as you would expect, slightly higher economic growth rates and rapidly expanding discrepancies between the incomes of the rich and the rest. Europeans see this occurring in what they call, somewhat contemptuously, the “Anglosphere”; Canada and New Zealand, for the most part, have avoided being sucked into this sphere.
The unbearable disparity that now exists between the rich and the rest in the Anglosphere, especially in America, has pushed voters into the hands of populist politicians, resulting in Brexit and the Donald. What is referred to as populism in the Anglosphere, is really nationalism, and if we are completely honest, it is “white nationalism”. Europe’s twentieth-century experience with racist-nationalism has made most of the population fearful of neo-fascist politicians, but there still exists a significant minority that see excluding “others” as a solution to the rising disparity. Ultra-nationalist political candidates, like Greet Wilders in the Netherlands and Le Pen in France, saw Brexit and Trump as signs that at last their moment had arrived, and for months following the American election, it seemed possible that these extremists could take control of Europe and then dismantle it.
By the time the election in the Netherlands came around, however, the dysfunctional White House circus had convinced the Dutch that they didn’t want a ticket to that particular show, and Wilders gained only a few seats. Europe’s fear started to look more like a false alarm with fascism remaining a minority taste. Last week’s French election showed Le Pen that she was no closer to the Presidency than her Nazi-sympathizer father was 15 years ago.
The markets around the world, have breathed a sigh of relief because of this, and also because it is now evident that the Donald, despite the fact that Republicans control both the House and the Senate, is unable to push through any of his “bat-shit crazy” policies. We think that if it wasn’t for the Donald, the market would be in an even stronger bull market than it already is.
Equities
The AAII investor bull sentiment rose to 38% and the bear sentiment dropped to 31.7%, which puts both readings at their historical averages. The “counter-trend” pattern that we have been following, continues to show a down-spike in the bull sentiment at elevated SPX readings which tend to predict minor market tops. This pattern predicts a pull back before the rally continues to new highs (chart below).
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As an aside, it is interesting to note that robotic (AI) trading algorithms have not changed the way markets trade (other than increasing volume and speed). This makes sense. These machine-learning programs, trained themselves to trade by studying historical information that was laid down by Human traders. These neural networks, do not invent ways of trading, they simply look for repetitive patterns, then trade these patterns from inception; a kind of self-fulfilling prediction.
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The down-spike in the put-to-call ratio has marked a near-term top in the SPX, but it is not clear whether the pull-back has finished, or if the SPX will turn back down to meet the trend line (chart below).
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Gold
Gold turned back at the ~$1300 resistance zone and now sits at the $1260-$1250 support zone. If gold breaks below $1250, then the next support is at $1225-$1220 which corresponds to both the 38% retrace of the July to December 2016 correction, and the 50% retrace level of the December to April rally (chart below).
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The gold miners percent bullish index and the HUI gold bugs index, are both coming off of resistance and are looking weak (chart below).
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