The Sun Also Rises

How did you go bankrupt? Two ways. Gradually and then suddenly. – Ernest Hemingway The Sun Also Rises

We have been pointing towards a looming crisis in the municipal finance area. No, this is not a repeat from last week when we talked about the fiscal problems in the great state of Connecticut. It was Illinois’ turn this week to make headlines. The two big ratings agencies, Moody’s and S&P lowered their rating on Illinois to one step above junk as its budget impasse dragged onward. Illinois will likely reach junk status by July of this year. It is now the lowest rated US state ever.

Big banks are complaining that their profit’s are drying up and this is mostly due to Federal Reserve polices. The yield curve is flattening which is stymieing bank’s ability to make money on loans while volatility in markets has dried up pinching trading profits. JP Morgan, Bank of America and Morgan Stanley all warned on profits this week as trading profits are blamed. We expect the Federal Reserve to heed their calls. The yield curve problem may take longer to solve but we should expect the Fed to allow for more volatility in markets. JP Morgan warned on trading in May of 2014. The market continued to march higher another 9% into December of that year.

The head of one of the largest asset managers on the planet, BlackRock’s’ Larry Fink, warned the equity market is not appreciating the message from the Treasury yield curve and we have to agree. The bond market continues to rally with the US 10 Year yielding a paltry 2.15% at week’s end. It is a caution sign that both the bond and stock markets are rallying while the yield curve flattens. Investors may be chasing the stock market a bit as there seems to be some evidence of FOMO. Fear of Missing Out as the market hits new highs. The laggards from 2017 YTD rallied this week and that tells us that money managers are chasing. This plays right into our animal spirits theory and the 1987 scenario. History doesn’t repeat but human beings are susceptible to making the same mistakes over and over again.

Oil had another rough week as it is still below the critical $50 a barrel on West Texas Crude (WTI). New pension and retirement money entered the market as the calendar flipped to the month of June. Equities have broken out of the range that they had been trapped in for the last 3 months. The range of 2330-2400 on the S&P 500 was broken last week and the market extended its move to just below 2440. We expect this breakout to extend to 2475.  For now, volume is low and the trend is your friend.

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I  think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd  Blankfein

To learn more about us and Blackthorn Asset Management LLC visit our website at  or check out our LinkedIn page at .


A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill


Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.



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