April 19, 2024
By Steve Blumenthal

“World peace must develop from inner peace. Peace is not just mere absence of violence. Peace is, I think, the manifestation of human compassion.“

– Dalai Lama XIV  

I’ve been writing about the growing geopolitical challenges, mainly a rising power (China and its allies) challenging the existing power (the United States and its allies). Iran’s direct attack on Israel and Israel’s response last night bring the world closer to a global conflict. China, Russia, Iran, and parts of the southern hemisphere are aligned on one side, with the United States and much of the democratic free world on the other.

On a car ride from Bangor Airport in Maine to the 2019 Camp Kotok fishing event, my friend Dr. Jonathan T. D. Ward turned my lights on to “China’s Vision of Victory,” any disbelief I had then vanished. His book was prescient. Everyone now knows about the trade relationship (trade war) with China. The reshoring/friend-shoring of manufacturing supply chains and escalating trade tariffs are problematic and inflationary. 

Iran’s proxy wars (Hamas, Hezbollah, and the Houthis) against Israel turned into direct confrontation a week ago when Iran fired hundreds of missiles and drones at Israel. The U.S. and its allies have engaged in the conflict, with assets participating in air defense. Tensions have escalated globally. Israel responded last night. 

In a letter this week, Felix Zulauf said, “The US-centric unipolar world is in the process of ending, but the U.S. and its Western allies are trying to defend it. China, the rising challenger, keeps pushing for a multipolar order and has the support or sympathy of the Global South. This geopolitical conflict transmits regional conflicts like those in the Ukraine or the Middle East into proxy wars that take on a much more important meaning.”

You and I have great compassion, as do most of our friends. Sadly, more than a few in the world don’t. We are at a challenging point in time.

While off the highs, the U.S. equity markets remain overvalued, and subsequent returns over the coming ten years are projected to be around 0% (plus or minus a few percent). The more significant macroeconomic issue is the probability of higher-for-longer inflation and interest rates. While the complexities around trade conflicts are profound, add the free-money path the developed world has embraced into the equation, and it’s not hard to see that this is a sea change from what we’ve all experienced over the last forty years. One has to consider the implications and the impact on risk assets. 

Keep your investment defense on the field! 

Here are two quick charts I shared in Trade Signals this week. The first is a Weekly MACD on the S&P 500 Index. MACD stands for moving average convergence/divergence. It is a momentum indicator that shows the relationship between two moving averages of a security’s price. It does an excellent job of identifying intermediate-term trends in the market or most securities.

Here’s how to read the chart:

• The top section plots relative strength. Red arrows indicate ‘extreme overbought periods.’
• The center section plots the S&P 500 price.
• The lower section is the MACD. Red arrows signal intermediate-term bear market trends, and green arrows signal intermediate-term bull market trends.

Source: StockCharts.com

This next chart plots the yield on the 10-year Treasury Note. While the Fed is in control of the short-term rates, they are not in control of the longer-term yields. 

Here is how to read the chart:

• The red circle in the upper right frames the recent breakout. The solid red line was the prior resistance level at 4.33%. You can see it broke above that line this month and is yielding 4.617% at the time of this post. 
• The yellow zone is my target for yields to fall to in the next recession. I have no idea if I will be correct. I’ll be watching the MACD in the lower section.
• Green arrows in the lower MACD section signal intermediate-term bull market trends (declining yields and rising bond prices).
• Red arrows signal rising yields and declining bond prices or intermediate-term bear market trends in bonds. 
• The most recent signal is RED.

Source: StockCharts.com

Grab your coffee and find your favorite chair. Let’s zero in on the debt level in the developed world. And I share a quick note about my experience spending last Sunday at the Masters.

On My Radar:

Source: NDR

 

Chart 2 – Sadly, the picture is far worse:

Unfunded entitlement programs are not included in the $83 trillion Domestic Outstanding Debt figures above. The source for the following charts is usdebtclock.org.

 

Chart 3: Total US Assets vs. Total US Unfunded Liabilities 

Chart 4: M2 Money Supply in 2000 was $4.7 trillion. It is $20.6 trillion NOW

Source:usdebtclock.org.

 

This is not a recommendation to buy or sell any security. It is for educational discussion purposes only. Consult your advisor. 

 

I “like” and “retweet” posts I find interesting. I enjoy X because I can easily follow people I like to keep On My Radar.

You can follow me on X (formerly Twitter) @SBlumenthalCMG.

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Personal Note: Sunday at The Masters

Scottie Scheffler won the Masters, finishing four shots ahead of Sweden’s Ludvig Aberg, who finished second at 7-under 281. Three players tied for third at 4-under 284: Tommy Fleetwood, Max Homa, and Collin Morikawa. Sixty competitors, including Tiger Woods, made the cut.  

I walked the course with friends and spent an hour and a half sitting in the first row on the tee box at hole twelve. I closed my eyes and said a silent prayer to my old man. We then went on to enjoy the show. Rory Mcllroy was just three feet away. Oh, that fantastic swing.  

It was interesting listening to the player and caddie discuss the club selection. The distance to the hole was 158 years, and the wind was a factor. Most of the players selected a nine iron. Their swings were effortless—that pure sound from hitting down on the ball followed by a dollar bill-length divot. Max Homa also hit a nine iron. He later said it was a perfect strike. Unfortunately, his ball bounded off the putting surface and into a bush. 

As the leaders entered the back nine, there was growing excitement that the tournament might go to a playoff with Scheffler, Homa, and Aberg huddled at the top of the leaderboard. Homa’s double boogie on the difficult par three 12th hole dashed his hopes. Scheffler was unshakable.  

Scottie took home $3.6 million, Aberg $2.16 million, and Homa $1.04 million. Tiger finished 15 strokes over par in 60th place and took home $40 thousand. You can find more from the Masters here.  

I thought about my dad and smiled while thinking about my family and children. The Masters! What a tradition. Family, grateful!

I wish I had a few photos to share—we weren’t allowed to take phones or cameras on the property. I sure did feel like a kid in Disneyland. It was great fun!

Tomorrow, the weather looks to be in the mid-60s and sunny here in suburban Phila. Susan is coaching soccer, and I’ll be working on my golf swing. I’m heading to Stonewall early with my good friend Andy, and I’ll do my best to channel my inner Rory Mcllroy. Slow and smooth, slow and smooth. Beat Andy, beat Andy. 

Finally, feeling offsides and unsettled, I went searching for some inspiration and found a few:

“There is no ‘way to peace,’ there is only ‘peace,'” said Mahatma Gandhi. 

“You may say I’m a dreamer, but I’m not the only one. I hope someday you’ll join us. And the world will live as one.” ― John Lennon. 

“Better than a thousand hollow words is one word that brings peace.” ― Buddha

“Peace begins with a smile.” ― Mother Teresa.

All the best to you and yours. Praying for a better world and wishing you peace and a big smile! 

With kind regards,

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Stephen B. Blumenthal
Executive Chairman & CIO
CMG Capital Management Group, Inc.
Private Wealth Client Website – www.cmgprivatewealth.com
TAMP Advisor Client Webiste – www.cmgwealth.com

If you are not signed up to receive the free weekly On My Radar letter, you can sign up here. Follow me on Spotify, Twitter @SBlumenthalCMG, and LinkedIn.  

Forbes Book – On My Radar, Navigating Stock Market Cycles.  Stephen Blumenthal gives investors a game plan and the advice they need to develop a risk-minded and opportunity-based investment approach. It is about how to grow and defend your wealth. You can learn more here.

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Stephen Blumenthal founded CMG Capital Management Group in 1992 and serves today as its Executive Chairman and CIO. Steve authors a free weekly e-letter entitled, “On My Radar.” Steve shares his views on macroeconomic research, valuations, portfolio construction, asset allocation and risk management.

Follow Steve on Twitter @SBlumenthalCMG and LinkedIn.

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