Melting: Up Or Down?

Forget Miller Time, a beer commercial that use to haunt the airways of sporting events. It's now melt-up or melt-down time. And you won't find a shortage of gurus pushing one or the other, each with his or her historical data backed arguments.

Should this surprise you? No. You can always tell experts by their vocabulary. Take economists. We wish someone would. When their expectations or predictions go awry, it's a conundrum. But when it happens to rest of us, it simply known as the feces hitting the big fan. Conundrums only happen to experts. You know what the name of what happens to the rest of us is.

So let's look at what the experts are touting. First, there's cyclicals versus the safe and steady. The latter consists of utilities, telecom and staples with decent dividends. These have been holding serve for at least the past three years, surprising many with their total returns. Cyclicals, on the other hand, have been sick, under the weather of poor economic growth despite global monetary madness in the eyes of many. That this ratio seems to have slightly changed, the melt-up gang quotes to buttress their view.

Then there's the government bond markets, not just in the U.S. but elsewhere like the UK after Brexit. The UK has a long-dated bond maturing in 2068. Its yield has been cut nearly in half, falling from 2% to a bit over 1.5%, pushing up the bond's price 53% so far this year. To say this is not normal, as one wag who manages UK bonds for a well-known firm, noted is classic British understatement. Our bet is it will in the end turn out to be ludicrous.

Is the bond market and investors discounting a future recession? Or are panicking central bankers proving their clueless? Forget cream. In the bureaucratic world incompetence rises to the top. Back in the late 1960s it was known as the Peter principle after it's late originator of the term, Lawrence J. Peter

The principle is really quite simple, just the opposite of the power structure crowd, people rise not to their level of maximum competence but to one or three levels above it. Forget the hallelujahs. Can someone shout central bankers? What happening is known on the Street as correlation. The Bank of England lowers rates, it matters not to the market by hook or crook at this stage, sending demand higher for bonds in other countries, suppressing yields further there.

Monkey see, monkey do. You jump out the window we will too. That's what central bankers in their lack of  a clue are foisting on the scene and it's more than dangerous. It could turn out to be actionable as an economic war crime. There are people at the ends of these actions.

Meanwhile, back to the melt-up, melt-down issue, another positive melt-uppers cite is 52-week new highs and lows. It recently hit levels not seen in years. They also cite vacation time. August is notoriously a slow month for stocks. So when all the unwashed return to their normal drudgery they will dump some money into a rally at a new high that many have sat out for years.

Recent data, however, show insider buying by corporate executives hit an all time low. There are also concerns about corporate earnings. So we'll see.