The Morning Call
7/19/21
The
Market
Technical
In equity land, inflation
trumped liquidity last week. Stocks had
a disappointing week despite Powell’s fairy tale testimony before congress plus
very positive earnings reports. The
reason: CPI, PPI, consumer (consumer sentiment) and business (Beige Book)
inflation expectations were all over estimates.
Is this the beginning of the end of investor confidence that QE (the
Fed) will conquer all? It is too soon to
tell. So, for the moment I am sticking
with my current short term pin action premise: ‘I can’t see an end to this
uptrend as long as the money keeps flowing with abundance and in the absence of
any major negative exogenous event.’
Not so with the bond
crowd. TLT rallied most of the
week. It began a challenge of its 200
DMA on Thursday, tried to push back below that MA on Friday but couldn’t (now resistance;
if it remains there through the close on Tuesday, it will revert to
support). I have linked to two articles
below under ‘Inflation’ that addresses the possible causes of the stock/bond
pin action dichotomy. Who is
correct? As you know, I believe that history has shown
that the bond guys to get it right much more often than their stock counterparts.
GLD was basically
flat on the week, providing little informational value to the schizophrenic
behavior of the major markets. However,
intraweek it (1) closed that huge mid-June gap down open, removing its upward
magnetic pull and (2) attempted to challenge its 200 DMA [now resistance] and
failed. Both suggest more downside.
The dollar again followed
TLT’s lead last week, bolstering the lower inflation/slower growth scenario.
https://www.zerohedge.com/the-market-ear/ca9xyetwuz
Friday in the
charts.
https://www.zerohedge.com/markets/big-tech-breaks-weekly-win-streak-bonds-shrug-inflation-fest
Fundamental
Headlines
The
Economy
Review of Last Week
The data releases
last week negative---the primary indicators were neutral (one plus, one minus)
but the inflation numbers were lousy. So,
the stats continue to confirm that the post Covid burst of economic activity is
falling short of expectations.
The Fed and its
‘transitory’ inflation forecast remains at the center of investors’
attention. And there was lots of news to
chew on last week on that subject.
Powell made his semiannual trip to capitol hill to testify on the
economy and Fed policy. Both his formal
remarks as well as those made during the Q&A sessions were more dovish than
generally expected---with no hint of the punch bowl removal.
In addition, the
most recent Beige Book was released. But
its narrative injected some cognitive dissonance into Powell’s
storyline---apparently a majority of participants in the Book’s survey do not
believe that inflation is transitory. Ooops.
That said, the Fed has a history of never letting reality interfere with
its chosen policy. So again, I don’t see
QE ending anytime soon.
On the fiscal
side, the dems are driving to hoop on a massive infrastructure bill much of
which is not really infrastructure spending but social services---euphemistically
‘human infrastructure’. If they are
successful in passing anything close to the bill in its present form, history
suggests that it will add to inflationary price pressures. That would just exacerbate the risk that the
current irresponsible monetary and fiscal policies will lead to stagflation.
Overseas, the numbers
were again slightly positive. While two
weeks of upbeat data is promising, it is too soon to assume overall
improvement.
Bottom line. ‘As
you know my opinion is that following an initial snapback (which may already
be over), the US economy will likely return to its former subpar secular growth
rate, stymied by an irresponsible mix of fiscal/monetary policies.’
US
International
Inflation
Why
bond prices are not reflecting inflation fears.
Same conclusion
from a different perspective.
https://www.zerohedge.com/economics/monetary-policy-not-expansionary
Though consumer sentiment is.
Inflation starting to weigh on consumer confidence.
https://www.zerohedge.com/economics/inflation-starting-weigh-consumer-confidence-and-spending
The
Fed
The ECB’s new inflation plan is worse than the
old.
https://www.zerohedge.com/markets/ecbs-new-inflation-plan-old-plan-worse
News on Stocks in Our Portfolios
What
I am reading today
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