Which Disturbance in the Farce can be Profitably Ignored Today?

There has been some talk about submerging market turmoil recently and the term “contagion” has seen an unexpected revival in popularity – on Friday that is, which is an eternity ago. As we have pointed out previously, the action is no longer in line with the “synchronized global expansion” narrative, which means with respect to Wall Street that it is best ignored.

Misbehaving EM currencies – the Turkish lira has become quite unruly of late, which is bad juju for a country with a huge balance of payments deficit and an external debt-to-GDP ratio of well above 50%. Arguably the zaftig move in the Chinese yuan is the more important event though. If it breaches the red resistance line in the chart above, the yuan will be at a new 10-year low. Oh well, who cares? Not the US stock market if recent headlines are any indication.

Last week we documented the extreme complacency that currently prevails among market participants (see “Stock Market Manias of the Past vs the Echo Bubble” for the details). Wall Street’s nonchalant disdain for the growing consternation in the submerging markets arena is illustrated further by a few headlines we have come across just yesterday and today (this is by no means a complete list):

Barrons.com • Tue 3:15 PM, Morning Movers: Dow Rallies as Earnings Put Turkey Out of Mind

Barrons.com • Tue 7:44 PM, Intraday Update: Dow Climbs as Markets Close Eyes to Turkey

CNBC • Tue 2:50 PM Pros take most bullish position on US stocks in 3 years amid ‘peak profits, policy and returns’

CNBC • Tue 2:50 PM Investors haven’t been this bullish on US stocks since January 2015

Ino.com • Tue 10:00 AM Now May Be The Time To Buy A FANG ETF

Marketwatch • Wed 11:26 AM The market is so good that Trump can’t mess it up