About 45 years ago, a famous song appeared. As the years passed, the song’s popularity grew dramatically. The name of the song was “Brain Damage” and it started like this:
The lunatic is on the grass
The lunatic is on the grass
Remembering games and daisy chains and laughs
Got to keep the loonies on the path
The lunatic is in the hall
The lunatics are in my hall
The paper holds their folded faces to the floor
And every day the paper boy brings more
And if the dam breaks open many years too soon
And if there is no room upon the hill
And if your head explodes with dark forebodings too
I’ll see you on the dark side of the moon
The developments of the last few days and hours may remind us that lunacy may be on the loose. The US government shutdown created a crisis out of nothing. That crisis endangers now the growth rate of the economy. It is estimated that the shutdown has already reduced the GDP growth rate by half a percent. If it continues for another month, the growth rate may be reduced to less than half of a percent and if it is extended into March, then it may be reduced to zero if not turn negative. After that, all outcomes are possible. At the same time, the political fever in our Imperial Capital is intensifying to the point that the White House is implicated into advancing foreign interests!
On the other side of the Atlantic the defeat of PM May’s Brexit plan by such an astounding margin presents a unique dilemma for the UK and the EU where are possible outcomes (hard crash, no deal exit, delayed exit, second referendum, etc.) are up in the air, which may increase volatility, while undermining the UK’s prospects. Indications are that we may be headed for a delay in the Brexit path. PM May is facing a confidence vote today and here are the possible outcomes of the happenings in the UK, courtesy of the New York Times.
In the different commentaries we published in anticipation of the New Year, we expressed our cautious optimism for the global markets and particularly for the US and Chinese markets. The fact is that since late December we have been experiencing a market upswing to the point that the previous support levels signified by the 50-Day Moving Averages have now started becoming resistance levels.
In the graph above, which denotes the MSCI World Index, we clearly see the upswing trend, and we can observe the same thing in the S&P 500 graph below along with their resistance levels.
We should also state that the same thing is being observed in Europe and Asia, as shown in the two graphs below.
It should be noted that the Asian markets have not broken their 50-Day Moving Average resistance level since January of last year; hence if trade talks evolve well and if China stimulus (both fiscal and monetary) is successful, we should expect that the resistance level will break and the upswing will continue.
However, our concern is that the political theater in Europe and the US may become the impediment for the upswing’s trend and hence we just want to raise a flag of caution. Pink Floyd’s song about such lunacy closed with the following words:
The lunatic is in my head
The lunatic is in my head
You raise the blade, you make the change
You re-arrange me ’til I’m sane
You lock the door
And throw away the key
There’s someone in my head but it’s not me
And if the cloud bursts, thunder in your ear
You shout and no one seems to hear
And if the band you’re in starts playing different tunes
I’ll see you on the dark side of the moon
Domestic & International Developments: Market Reaction and Assessment
Author : John E. Charalambakis
Date : January 16, 2019
About 45 years ago, a famous song appeared. As the years passed, the song’s popularity grew dramatically. The name of the song was “Brain Damage” and it started like this:
The lunatic is on the grass
The lunatic is on the grass
Remembering games and daisy chains and laughs
Got to keep the loonies on the path
The lunatic is in the hall
The lunatics are in my hall
The paper holds their folded faces to the floor
And every day the paper boy brings more
And if the dam breaks open many years too soon
And if there is no room upon the hill
And if your head explodes with dark forebodings too
I’ll see you on the dark side of the moon
The developments of the last few days and hours may remind us that lunacy may be on the loose. The US government shutdown created a crisis out of nothing. That crisis endangers now the growth rate of the economy. It is estimated that the shutdown has already reduced the GDP growth rate by half a percent. If it continues for another month, the growth rate may be reduced to less than half of a percent and if it is extended into March, then it may be reduced to zero if not turn negative. After that, all outcomes are possible. At the same time, the political fever in our Imperial Capital is intensifying to the point that the White House is implicated into advancing foreign interests!
On the other side of the Atlantic the defeat of PM May’s Brexit plan by such an astounding margin presents a unique dilemma for the UK and the EU where are possible outcomes (hard crash, no deal exit, delayed exit, second referendum, etc.) are up in the air, which may increase volatility, while undermining the UK’s prospects. Indications are that we may be headed for a delay in the Brexit path. PM May is facing a confidence vote today and here are the possible outcomes of the happenings in the UK, courtesy of the New York Times.
In the different commentaries we published in anticipation of the New Year, we expressed our cautious optimism for the global markets and particularly for the US and Chinese markets. The fact is that since late December we have been experiencing a market upswing to the point that the previous support levels signified by the 50-Day Moving Averages have now started becoming resistance levels.
In the graph above, which denotes the MSCI World Index, we clearly see the upswing trend, and we can observe the same thing in the S&P 500 graph below along with their resistance levels.
We should also state that the same thing is being observed in Europe and Asia, as shown in the two graphs below.
It should be noted that the Asian markets have not broken their 50-Day Moving Average resistance level since January of last year; hence if trade talks evolve well and if China stimulus (both fiscal and monetary) is successful, we should expect that the resistance level will break and the upswing will continue.
However, our concern is that the political theater in Europe and the US may become the impediment for the upswing’s trend and hence we just want to raise a flag of caution. Pink Floyd’s song about such lunacy closed with the following words:
The lunatic is in my head
The lunatic is in my head
You raise the blade, you make the change
You re-arrange me ’til I’m sane
You lock the door
And throw away the key
There’s someone in my head but it’s not me
And if the cloud bursts, thunder in your ear
You shout and no one seems to hear
And if the band you’re in starts playing different tunes
I’ll see you on the dark side of the moon