Record Bull and Bear Bets: Brace Yourself for a Rough Month

Written by Dennis Slothower
Posted April 11, 2017

Odd Syrian Airport Attack

While the slightly downward trend has remained in place for the last six weeks, it was odd that there was no significant selling on Wall Street following a U.S. military strike on the Syrian airport where Syrian planes purportedly took off from and delivered sarin gas attacks on civilians, wreaking death and destruction on innocent Syrian men, women, and children.

With the recent gas attack, Assad signaled to the U.S. that he had no intention of observing Obama’s red line on deadly weapons of mass destruction — and Trump quickly threw down the gauntlet, letting Assad know that the new man in charge is no Obama weakling. The reaction was swift and highly targeted... and odd.

Remember, Trump was entertaining Chinese President Xi Jinping, at dinner no less, when the strikes were made. Looking at drone coverage of the strikes it looked like very little of the airport was disrupted. In fact, Syrian jets took off the next morning for conventional strikes against Syrian “rebels”. This smells more like a staged operational response signal to China and North Korea than a real counter move against Assad’s military force.

Either way, apparently most traders and investors approved of the quick military reaction, as stocks took a minor dip in early trading on Friday, only to rebound and go sideways into the close.

It was as though no economic situation or report was going to counter the trading market’s affirmation that the Syrian attack was well deserved. In fact, even an amazingly disappointing jobs report failed to dent trader resolve to hold steady on prices as a show of confidence in President Trump’s decision to retaliate with the airport attack.

A Killing Q1 GDP

The important message ignored by the market on Friday was that the Atlanta Fed revised expectations for Q1 GDP downward to 0.6% — from an earlier 1.2%, essentially cutting it in half!

We have mentioned several times that late in Obama’s tenure the GDP calculations were revised to include a number of absurd activities and assets as “growth” items. It is estimated that as much as one to two percent of the current GDP calculation is “phony”, meaning that if Q1 GDP ends up at 0.6% or lower we are technically in a recession that is being masked by phony GDP calculations.

And a recession is what we have been warning about for a number of months — while the market has been driven skyward — a phony market based on phony numbers — designed by a calculating Federal Reserve and previous administration — designed to blame the current Republican administration when the market bubble pops and the real economy shows its disappointing colors.

Terrible but Innocuous Jobs Report

Remember a few weeks ago when the House Republican leadership pulled its Obamacare Repeal and Replace bill only hours ahead of a scheduled vote? At that time we suspected that the jobs report on Friday would be a bad one, on the basis that many small employers had gambled on “Replace and Replace” going through — only to be taken for a ride.

It was expected that the mandate of 50 or more employees requiring a full group health care plan would no longer be enforced and that part-time workers could start working more than 30 hours. When the Replace and Replace bill was jerked, these smaller employers probably had to quickly adjust for their bet on these penalties going away. Thus, we see a jobs report of 98,000 after last month’s amazing 235,000-plus new jobs — which was revised downward on Friday, by the way.

If you consider that the January and February numbers were revised down by 38,000 the 98,000 could be thought of as a 60,000 number, or a drop of almost 180,000 jobs from January / February. Bottom line, this would be a drop in new jobs by 75% following the failed Obamacare Replace and Replace bill.

There is an important economic message here — the fiscal benefits of Trump’s policies are not going to be realized anywhere near as soon as the market has factored in. While it didn’t show up in Friday’s trading, the message will sink in loud and clear after April 15th.

Though the market ignored the jobs report on Friday, don’t expect that to continue. The impact of shrinking jobs will hit traders hard in the coming weeks.

Leading into the report last week, the stock market was able to rebound. Monday saw the market go back and forth, but end the day flat.

Here again, I think the government doesn’t want wealthy tax payers filing tax extensions to postpone paying their income tax hoping stocks will rebound, so it tends to support the stock market prices going into April 15th.

Meanwhile, the public is fully invested with speculative bullish record bets.

record bull market bets

At the same time smart money is all out with commercial hedgers showing record bearish bets.

record bear market bets

The public has stayed mostly in bonds until President Trump was elected but has now put its faith in him, with smart money betting on the Fed taking the punch bowl away from this party with higher interest rates and tighter monetary conditions slowing the economy.

I think the public is right about President Trump ultimately seeing fiscal policies being approved but wrong about the timing of when these fiscal policies will materialize.

The second half of April and especially going into May looks particularly threatening to the bull market.

To your wealth,

Dennis Slothower Signature

Dennis Slothower
Editor, Wall Street Underground Profits

Dennis Slothower has been leading a small but profitable group of investors to some extraordinary profits in both good markets and bad over the course of a 38+ year investment career, starting as a stock broker in 1979. In 2011 Dennis was named the top performer by Hulbert Financial Digest for avoiding the Crash of 2008. Now, he is bringing his extensive experience to the public through Outsider Club and Wall Street Underground Profits. For more about Dennis, check out his editor page.

*Follow Outsider Club on Facebook and Twitter.


Investing in Marijuana Without Getting Burned