• President's day weekly comment

    This Monday is President's Day. For traders, the significance is that US cash equities markets will be closed. For most of the public, the day honors the birth of President Washington and the office of the presidency itself.

    But after only one month since Trump entered the White House, I have the feeling that what has been lost is the aura of respect surrounding that office.

    What is surprising to an outsider is the media coverage linked to a president who wants to be front-line in all the battles.

    This reminds me of how the French President Sarkozy managed his presidency: he took part in all the meetings and often appeared on TV to explain his decisions. This presence was too much for French electors, who replaced him five years later with a socialist President who became the most unpopular French president. Fast forward another five years and France could easily fall into isolationism dictated by the far-right party. This choice would certainly spell the end of the European project itself, which is why the Euro is so weak and why money is flowing into US assets.

    What has brought about the world's shift to isolationism and extremism? Why has such a movement taken hold? I believe it is because of overpopulation and overconsumption in a world that has finite resources. I hope that the overpopulation and finite resources issues will be handled peacefully. This is what matters most for the sustainability of planet earth.

    And the markets in all of this? Clearly, markets do fear European instability and hence are moving assets out of the Euro zone. Japan fears North Korea and China and hence is moving assets to the protection of the US. Chinese investors fear their own government and hence are moving assets out of China.

    We can see below that much money is moving into the 10 largest US companies.





    Non-SP500 stocks are attracting almost no money.



    We can also see that the 20DMF is strong and trending higher, indicating that large investors are buying the market, while the cumulative tick's negativity might indicate that small caps are being sold.



    Note below that the 20 Year Treasuries are also sold, indicating that more money should be made available to chase the largest US stocks.



    On top of that, we can see that since the start of January, excess reserves increased by 300$B. This is a very large amount of money that is being pulled out of the markets.



    Conclusions:

    This equities buying is probably not sustainable, but the move is powerful enough to continue for some time. The data however clearly shows that there is a double standard market, with small caps less attractive than the largest corporations.

    Excess reserves could indicate that US banks are afraid of the price levels of US equities and of the situation of the US Treasuries markets and hence prefer getting paid by the Fed to park their money at no risk. Foreigners do not enjoy such a luxury and must purchase US equities.

    What could change this trend? Probably the defiance building up regarding the effectiveness of the US policies combined to a regain of faith in the European project.

    On a side story, I published here a study on the Cumulative Tick

    http://www.effectivevolume.com/showt...umulative-Tick