The Morning Call--Rationalizing inflation

 

The Morning Call

 

5/21/21

 

The Market

         

          The S&P rallied to finish right on the lower boundary of its short term uptrend.  That pushes the time element of our discipline out a day.  So, if the S&P remains below  the lower boundary of its short term uptrend though the close on Monday, it will reset to a trading range.

 

Thursday in the charts.

https://www.zerohedge.com/markets/bitcoin-big-tech-bonds-bounce-breakevens-buck-breakdown

 

More on the rising margin debt.

https://www.nakedcapitalism.com/2021/05/known-stock-market-leverage-hits-wtf-high-out-the-other-side-of-its-mouth-the-fed-warns-about-hidden-leverage-that-blew-up-archegos.html

 

The draw of the 200 day moving average.

https://howardlindzon.com/the-draw-of-the-200-day-moving-average/

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

The April leading economic indicators were up 1.5% versus consensus of being up 1.4%.

                          https://www.advisorperspectives.com/dshort/updates/2021/05/20/cb-leading-economic-index-full-recovery-from-covid-contraction

 

The May Philadelphia Fed manufacturing index came in at 31.5 versus estimates of 43.0.

                          https://www.advisorperspectives.com/dshort/updates/2021/05/20/philly-fed-mfg-index-decline-in-may-but-remain-elevated

 

                        International

 

April Japanese CPI was -0.4% versus +0.2% recorded in March; the May flash manufacturing PMI was 52.5 versus 53.6 in April; the flash services PMI was 45.7 versus 49.5 in April; the flash composite PMI was 48.1 versus 51.0 in April.

 

April UK retail sales grew 9.2% versus predictions of +4.5%; ex fuel, they were +9.0% versus +4.2%; May UK consumer confidence was reported at -9 versus  -12; the May flash manufacturing PMI was 66.1 versus 60.5; the flash services PMI was 61.8 versus 62.0; the flash composite PMI was 62.0, in line.

 

The May German flash manufacturing PMI was 64.0 versus forecasts of 65.9; the flash services PMI was 52.8 versus 52.0; the flash composite PMI was 56.2 versus 57.1.

 

The May EU flash manufacturing PMI was 62.8 versus projections of 62.5; the flash services PMI was 55.1 versus 56.3; the flash composite PMI was 56.9 versus 55.1.

 

                        Other

               

                           The national mortgage delinquency rate decreased in April.

                           https://www.calculatedriskblog.com/2021/05/black-knight-national-mortgage.html

 

                          The lack of slack.

                          https://alephblog.com/2021/05/19/lack-of-slack/

 

                          Citi economic surprise index just went negative.

               https://www.bloomberg.com/news/articles/2021-05-20/the-citi-u-s-economic-surprise-index-just-went-negative-for-the-first-time-since-last-     june?sref=loFkkPMQ

 

 

                        Inflation

 

This article is characterized as a monetarist rationalization   for why inflation is not a risk.  Unfortunately, he misses three points: (1) most importantly, he assumes that 2% inflation is OK and designing monetary policy around that standard is OK.  Two percent inflation is not OK.  Any inflation is detrimental to your and my financial health, (2) he assumes that the Fed can fine tune the economy to produce 2% inflation over the long term.  I do not know how many times I have to say this, but the Fed has never, ever, ever succeeded in attaining its established objectives, and (3) he says that the huge fiscal largess funded by our government is not inflationary.  While he is correct IF that stimulus isn’t monetized.  However, I just linked to an article yesterday detailing how the Fed is indeed monetizing the debt.  Bottom line.  There may be an argument for ‘transitory’ inflation, but this ain’t it.

                        https://www.washingtonexaminer.com/opinion/whos-afraid-of-inflation

 

                        This article is not a rationalization of inflation but rather a way to analyze it.

                        https://www.nytimes.com/2021/05/20/upshot/inflation-five-questions.html

 

                        Here is my favorite optimist turned pessimist (must read).

                        http://scottgrannis.blogspot.com/2021/05/the-fed-and-our-politicians-are-playing.html

 

                        Why stratospheric container rates could go higher.

                        https://www.zerohedge.com/economics/why-stratospheric-container-rates-could-rocket-even-higher

 

                        Bets are soaring that oil hits $100/barrel by year end.

                        https://www.zerohedge.com/commodities/bets-are-soaring-oil-hits-100-december

 

                        German price pressures show worrisome trend.

                        https://www.zerohedge.com/markets/germanys-price-pressures-show-worrisome-trend

 

 

     Bottom line.

 

                What higher corporate taxes could mean for stock prices.  The only problem I have with this analysis is the author’s assumption that the US economy will reach full capacity soon.  All the numbers that I have seen contradict that supposition.

                https://www.morningstar.com/articles/1039809/what-corporate-tax-rate-hikes-could-mean-for-stocks

 

    News on Stocks in Our Portfolios

 

V.F. Corp (NYSE:VFC): FQ4 Non-GAAP EPS of $0.27 misses by $0.02; GAAP EPS of $0.16 misses by $0.15.

Revenue of $2.58B (+22.9% Y/Y) beats by $70M.

 

McDonald's (NYSE:MCD) declares $1.29/share quarterly dividend, in line with previous.

 

Home Depot (NYSE:HD) declares $1.65/share quarterly dividend, in line with previous.

 

What I am reading today

 

            The optimal amount of hassle (good read).

            https://www.collaborativefund.com/blog/the-optimal-amount-of-hassle/

 

 

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