Morning Comment: Norman Bates's Mother


The State of the Union Speech will be delivered tomorrow night…but the President will be able avoid talking about the state of our union (for the most part) given what is going on in Ukraine. Therefore, to a certain degree, President Biden is lucky that this geopolitical issue has exploded onto the scene. It will allow him to avoid talking about the issues that are facing us on the domestic side of things. The problem is that the fact that these geopolitical issues are taking the focus away from our domestic problems will likely mean that these critically important issues will not be addressed in the way this need to be as we move through 2022.

Of course, the “union” we live in is something that the President Biden has been working to split apart ever since he took office. This means that he has worked just as hard as the previous president to create disunity in this country, so this has become a bi-partisan issue. What we’re saying is that the problems we’re facing today have to do with a failure of leadership…all around the world. Here in the U.S., this failure of leadership comes from both sides of the political aisle. Therefore, it is our opinion that we need a serious change in leadership from both parties in the coming mid-term elections. Our leadership is much too old and intrenched to face today’s problems. (We thought we saw Norman Bates’s mother on TV the other day…only to realize it was Nancy Pelosi.)

There are just too many people in Washington DC that have too much to gain from keeping things “the way they have always been.” It’ time to “throw the bums out”…on both sides…so that we can deal with today’s problems in a way that will actually help solve them!

Okay, now that we got that off our chests, let’s talk about the markets. The futures are trading lower this morning, but they have bounced back quite a bit from the overnight lows as we go to press. News that Putin has set his nuclear arsenal on a “special regime of high alert combat duty” has put investors on edge. However, the news that many Russian lenders have been removed from the SWIFT messaging system seems to be having the biggest negative impact on the markets. This could create missed payments in the global banking system. In fact, Credit Suisse is comparing this situation to when Lehman was unable to make payments back during the great financial crisis.

That said, we are not seeing any evidence of significant stress in the credit markets right now. Spreads are not widening out…and they are nowhere near as wide as they were on Thursday…and not even in the same stratosphere as they were in 2020, 2018 (much less 2008). This could/should be a key reason why the futures are taking back some of their dramatic decline is saw last night.

However, crude oil is still trading higher by more than 4%....and natural gas is up by almost 3% this morning. Therefore, even if we’re not facing the kind of dire situation that some are portraying, we still have a situation where inflation…which was already a BIG problem BEFORE the war in Ukraine began…will become an even bigger one. Let’s face it, it’s great that Russian and Ukrainian officials are going to meet. However, based on what we’re hear from some very insightful geopolitical experts, Putin’s goal is to take control of Ukraine and push out the President Zelenskiy and his government. Thus, investors are likely to remain very skeptical about anything Russia does to make it seem like they’re willing to de-escalate this crisis.

In other words, it sure seems to us that the problems involving the geopolitical crisis in eastern Europe are not going away any time soon. When you combine this with the fact that the Fed is moving from its most accommodative policy…to one of tightening (even if they don’t go as aggressively as some have hinted to recently)…it’s not the kind of situation that bodes well for global economic growth. It also doesn’t bond well for a resumption of the strong bull market in stocks that we experienced in 2021. This would be true if the stock market was accurately reflecting what was going on in the underlying economy at the end of 2021. Since it wasn’t…as can be seen by the extremely high levels of valuation at the beginning of the year…we still believe that the stock market will see lower-lows in the coming weeks/months.

With this in mind, we’d like to reiterate the support/resistance levels for the S&P 500 Index we highlighted in our weekend piece. On the support side of things, we’ll be watching the closing lows from last week of 4,225. Any meaningful break below that line will not only give it another key “lower-low,” but it will also take the S&P well below the “neck-line” of its “H&S” pattern…and that would be a very negative development. If we’re wrong, however, and the market can continue its bounce from late last week…and it can rally back above its February highs of 4,590 in any material way, it will give it a nice “higher-high”…which would give the index some much needed relief.






Matthew J. Maley

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

TheMaleyReport.com

275 Grove St. Suite 2-400

Newton, MA 02466

617-663-5381

mmaley@millertabak.com


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Feb 28, 2022 — 8:02 AM
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