The Morning Call--More on the Fed and climate change

 

The Morning Call

 

8/31/21

 

The Market

         

    Technical

 

            Monday in the charts.

            https://www.zerohedge.com/markets/crypto-tech-stocks-soar-soft-data-slumps-18-month-lows

 

            More signs of potential upside pain.

            https://www.zerohedge.com/the-market-ear/cxso3pfcpi

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

                          Month to date retail chain store sales grew faster than in the prior week.

 

The June Case Shiller YoY home price index rose 19.1% versus estimates of 18.5%.

 

The August Dallas Fed manufacturing index was reported at 9 versus 27.3 in July.

                          https://www.advisorperspectives.com/dshort/updates/2021/08/30/august-dallas-fed-manufacturing

 

                        International

 

July Japanese unemployment was 2.8% versus predictions of 2.9%; July preliminary industrial production was -1.5% versus -2.5%; July YoY housing starts were up 9.9% versus +4.8%; YoY construction orders was -3.4% versus +32.3% recorded in June; August consumer confidence was 36.1 versus 37.9 in July.

 

August Chinese preliminary manufacturing PMI was 50.1 versus estimates of 50.2; the August preliminary nonmanufacturing PMI was 47.5 versus 53.3 in July.

 

August German unemployment rate was 5.5% versus expectations  of 5.6%.

 

The August EU flash CPI was +0.4% versus -0.1% in  July.

 

                        Other

 

            The Fed

 

Last wee on ek, I linked to (and derided) an article advocating for the Fed to add climate change to the factors that needed to be considered in formulating monetary policy.  Here is another one on the Fed and climate change.  The good news is that its main thesis is that the Fed can best positively impact climate change by creating a stable economic environment---like avoiding blowing another dot com or real estate bubble.  Alas, too late.

https://www.nytimes.com/2021/08/26/upshot/fed-climate-change-analysis.html

 

              The blueprint for ECB tapering.

              https://www.zerohedge.com/markets/ecbs-holzmann-sparks-fears-ecb-taper-wont-happen-long-time-here-blueprint-pepp-tapering

 

            Inflation

 

              Here is another example of shrinkflation.

              https://cafehayek.com/2021/08/hidden-inflation.html

 

              This is the Cleveland Fed’s update on expected August CPI.

              https://econbrowser.com/archives/2021/08/inflation-outlook-looking-forward-to-august-data

 

              John Paulson warns about inflation.

              https://www.zerohedge.com/commodities/parabolic-gold-john-paulson-warns-inflation-well-above-expectations-its-way

 

            The coronavirus

 

One of the problems in assessing the seriousness of this disease is how it has been measured.  This article offers some insight into how it is being measured and how that could be improved.

              https://coyoteblog.com/coyote_blog/2021/08/crazy-government-responses-to-covid-part-3-the-wrong-metrics.html

 

 

     Bottom line.

 

            The latest from John Mauldin.

            https://www.advisorperspectives.com/commentaries/2021/08/27/perfect-storms?firm=mauldin-economics

 

    News on Stocks in Our Portfolios

 

 

 

What I am reading today

 

This author argues that speculation is a necessary part of capital formation, innovation and economic progress.  However, he fails to differentiate between a venture capitalist speculating on a new technology and a seventeen year old meme stock player speculating in AMC.

https://investoramnesia.com/2021/08/29/speculation-is-necessary-governments-can-help/

 

            Ten pieces of advice for young workers.

            https://ritholtz.com/2021/08/wisdom-i-wish-i-knew-30-years-ago/

 

            We know how to solve global poverty because we already are.

            https://www.adamsmith.org/blog/fortunately-we-know-how-to-solve-this-problem-global-neoliberalism

 

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Monday Morning Chartology

 

 

The Morning Call

 

8/30/21

 

The Market

 

    Technical

 

The S&P had a good week, topped off by the Friday sprint higher on Powell’s nothingburger Jackson Hole speech.  My only comment is to repeat 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.’ 

 

 

US investors cut leverage for first time in over a year.

https://www.ft.com/content/c17db619-b7a7-4501-8983-d86e90ff3721

 

The ‘pain’ trade is a melt up.

https://www.zerohedge.com/markets/meltup-here-would-be-most-painful-goldmans-sentiment-indicator-hits-lowest-level-63-weeks

 

 

 

 

 

Despite a strong advance on Friday, the long bond was down last week.  Nevertheless, it didn’t even try to challenge the lower boundary of its short term trading range or its 200 DMA, which is a mild plus.  However, as you can see, it seems to be forming a pennant formation---one that, given its current width, could take a long time to resolve itself.  This pattern portrays some uncertainty among bond investors which really isn’t that surprising given the current goings on in Afghanistan, congress and the Fed.  For the moment, I am coloring bond investors uncertain.

 

 

Friday’s rocket ride in GLD was impressive.  It pushed through the downward sloping trend line off its early June high and challenged both its 100 and 200 DMA’s (both resistance.  If it remains above its 100 DMA  though the close on Tuesday, it will revert to support.  If it remains above its 200 DMA though the close on Wednesday it will also revert to support).  Follow through.

 

The dollar experienced a major reversal last week, first opening a big gap down open on Monday and topping it off on Friday by challenging the uptrend off its early June low.  As always, I expect that gap down open to be filled and we need follow through to Friday’s break.

 

 

Bottom line.  Investors continue discount the lower inflation/lower interest rate scenario.

 

 

Friday in the charts.

https://www.zerohedge.com/markets/dovish-powell-sparks-most-painful-meltup-52nd-record-high-2021

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        Review of Last Week 

 

The data releases last week were almost evenly matched but the primary indicators were quite upbeat (four plus, one neutral, one negative).  That doesn’t fit the ‘slowing from the post Covid bounce back’ scenario; but this is one week’s stats.  There needs to be follow through to upgrade my forecast.

 

Of course, the major piece of economic news was the widely anticipated Jackson Hole speech by Chair Powell---which not only carried a more dovish tone but also there was no mention of a timeline for tapering.  Just a vague reference that it will probably occur before year end.  Bottom line, this story line is getting a bit worn---lots of ‘on the one hand, on the other hand’ public rhetoric about tapering from Fed officials then do nothing when the rubber hits the road.

https://www.zerohedge.com/markets/your-last-minute-j-pow-j-hole-preview

 

Wall Street reacts.

https://www.zerohedge.com/markets/wall-street-reacts-powells-dovish-nothingburger-speech

 

Overseas, the numbers remained negative.  So, no help there.   

 

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.’---which we got in spades this week as Biden’s ghastly spending extravaganza made progress in the house and the Fed once again declined to behave responsibly.

                       

 

                                US

 

         

                        International

 

                          July Japanese YoY retail sales were up 2.4% versus estimates of up 2.1%.

 

                          Preliminary August German CPI was 0.0% versus expectations of +0.1%.

 

August EU economic sentiment was 117.5 versus consensus of 117.9; industrial sentiment was 13.7 versus 13.4; services sentiment was 16.8, in line; consumer confidence was -5.3, also in line.

 

                        Other

 

                          Real disposable income per capita inches up in July.

                          https://www.advisorperspectives.com/dshort/updates/2021/08/27/real-disposable-income-per-capita-inches-up-in-july

           

                          Update on big four economic indicators.

                          https://www.advisorperspectives.com/dshort/updates/2021/08/27/the-big-four-real-personal-income-in-july

 

                          Drawdown analysis can be useful for economic indicators.

                          http://www.capitalspectator.com/drawdown-analysis-is-also-valuable-for-economic-indicators/

 

          Bottom line

 

My favorite optimist makes the case for a Market that is not overvalued.  The problems I see with the analysis is that (1) GAAP profits are fairy dust.  They included every imaginable adjustment that will positively impact the reported number.  Compare that profit figure with those reported on corporate tax returns which are significantly lower.  True those figures are also subject to creative accounting.  But using GAAP profits as the ‘E’ in ‘P/E’ overstates corporate earnings and (2) the Fed/QE has destroyed the pricing of risk.  Using a discount factor based on current interest rates fails to recognize this enormous anomaly.

            http://scottgrannis.blogspot.com/2021/08/corporate-profits-are-impressive.html

 

 

         News on Stocks in Our Portfolios

           

What I am reading today

           

               

This is amazing. NASA has a gun that can be fired at asteroids to either break them up or deflect their path.

https://www.nytimes.com/2021/08/25/science/asteroid-deflection-collision.html

 

 

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The Morning Call--No good choices

 

The Morning Call

 

8/27/21

 

The Market

         

    Technical

 

            Thursday in the charts.

            https://www.zerohedge.com/markets/stocks-slide-kabul-blast-kaplan-bullard-bad-data

 

            More on the deteriorating breadth in the Market.

            https://www.advisorperspectives.com/commentaries/2021/08/26/you-take-my-breadth-away-markets-underlying-deterioration

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

                          Weekly jobless claims came in at 353,000 versus expectations of 350,000.

 

Q2 2^nd estimate of GDP growth was 6.6% versus consensus of 6.7%; the price indicator was +6.2% versus 6.0%.

https://www.advisorperspectives.com/dshort/updates/2021/08/26/q2-gdp-second-estimate-real-gdp-inches-up-to-6-6

 

July personal income rose 1.1% versus forecasts of +0.2%; personal spending  was up 0.3%, in line.

 

The July goods trade balance was -$86.3 billion versus -$92.0 billion in June.

 

The July PCE price index increased 0.4% versus 0.5% in June; the core PCE price index was up 0.3%, in line.

 

The August Kansas City Fed manufacturing index was 22 versus 41 reported in July.

 

                        International

 

                        Other

 

            The Fed

 

What a great idea.  Let’s add climate change to the growing number of mandates (inflation, unemployment, the Market) the Fed needs to factor into monetary policy.  After all, it has done such a bang up job of managing its current mandates.

              https://www.nytimes.com/2021/08/26/upshot/fed-climate-change-analysis.html

 

I noted yesterday that the Fed had painted itself into a corner; that is, whatever decision it makes (taper or no taper), the consequences are bad.  Here is another voice on that point.

              https://www.zerohedge.com/markets/mistake-things-are-coming-head-markets

 

            Inflation

 

This is a comparative analysis of how current inflation is impacting different income groups (i.e., rich versus poor).

              http://jwmason.org/slackwire/inflation-for-whom/

 

What is going to happen to all the money pumped into the economy by the politicians ($5 trillion and counting) and the Fed ($4 trillion and counting)?  So far, I haven’t heard a good answer.

              https://www.nakedcapitalism.com/2021/08/the-most-monstrously-overstimulated-economy-markets-ever.html

 

              The global supply chain problems are getting worse.  That can’t be good for prices.

              https://www.bloomberg.com/news/articles/2021-08-25/the-world-economy-s-supply-chain-problem-keeps-getting-worse?srnd=premium&sref=loFkkPMQ

                       

                          Speaking of which, BoA’s ‘nontransitory’ inflation meter just hit a new high.

              https://www.zerohedge.com/markets/one-banks-non-transitory-inflation-meter-just-hit-new-record-high

 

            The coronavirus

 

There are two counterfactuals to all the covid death infections/deaths stats which our political and chattering classes have chosen to ignore.  This article addresses one of them:  how many people died because they were unable to be diagnosed/treated for other diseases because our medical system was (unnecessarily?) in gridlock.

https://www.adamsmith.org/blog/the-core-lesson-of-economics

 

Here is another blow to the current narrative: natural immunity is thirteen times more effective than vaccination induced immunity.

              https://www.zerohedge.com/covid-19/ends-debate-israeli-study-shows-natural-immunity-13x-more-effective-vaccines-stopping

 

            Afghanistan

 

Here is a tally of the equipment the US is leaving behind in Afghanistan.  Does this make us the world’s largest weapons supplier to terrorists?

              https://www.dailywire.com/news/u-s-leaving-behind-75000-vehicles-600000-weapons-208-aircraft-in-afghanistan-watchdog-says

 

    News on Stocks in Our Portfolios

 

Altria (NYSE:MO) declares $0.90/share quarterly dividend, 4.7% increase from prior dividend of $0.86.

What I am reading today

 

           

 

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The Morning Call---The Fed is in a corner---Who knew

 

The Morning Call

 

8/26/21

 

The Market

         

    Technical

 

            Wednesday in the charts.

            https://www.zerohedge.com/markets/small-caps-soar-biggest-short-squeeze-7-months-bitcoin-bond-yields-spike

 

            Breadth has picked up.

            https://sentimentrader.com/blog/buyers-make-another-save-with-breadth-thrust/

 

            Buybacks are increasing.

            https://www.zerohedge.com/markets/just-stocks-dipped-below-critical-support-level-last-week-banks-unleashed-record-buyback

 

            Jeffrey Gundlach on the dollar.

            https://currently.att.yahoo.com/att/jeffrey-gundlach-view-on-the-us-dollar-decline-154813067.html?.tsrc=daily_mail&uh_test=1_11

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

                        International

 

                          July UK YoY auto production fell 37.6% versus +27.1% in June.

 

September German consumer confidence came in at -1.2 versus estimates of -0.7.

 

                        Other

 

                          New home prices on the rise.

                          https://politicalcalculations.blogspot.com/2021/08/new-home-market-cap-rebounding-on.html#.YSZ9d45KiUk

 

            Highlights

 

Today’s analysis includes: (1) whatever the Fed chooses to do [taper/not taper] the consequences are negative for the economy, (2) Powell has not choice---remain accommodative or adios, (3) the debt/deficit is simply too big to avoid higher taxes, (4) just how transitory is inflation likely to be, (5) the Afghan misadventure did have some positive effects.

 

            The Fed

 

              That corner into which the Fed has painted itself is getting ever smaller.

              https://www.nytimes.com/2021/08/25/business/economy/federal-reserve-jackson-hole-meeting.html

 

              Either Powell plays ball with Biden (QEForever) or he is out.

              https://www.zerohedge.com/political/word-about-tapering-and-who-fed-bed

 

            Fiscal Policy

 

              What Biden’s new spending plan will likely mean for taxes.

              https://www.washingtonexaminer.com/opinion/3-5-trillion-democratic-party-spending-plan-means-tax-hikes

 

              The debt elephant.

              https://www.zerohedge.com/personal-finance/what-miami-stripper-and-fiscal-elephant-have-common

 

            Inflation

 

              How sticky is inflation?

              https://www.zerohedge.com/personal-finance/high-inflation-could-be-stickier-anticipated

 

            Afghanistan

 

              For those looking for a silver lining.

              https://www.persuasion.community/p/the-afghanistan-war-was-a-partial

 

    News on Stocks in Our Portfolios

 

Williams-Sonoma (NYSE:WSM): Q2 Non-GAAP EPS of $3.24 beats by $0.66; GAAP EPS of $3.21 beats by $0.63.

Revenue of $1.95B (+30.9% Y/Y) beats by $150M.

 

Williams-Sonoma (NYSE:WSM) declares $0.71/share quarterly dividend, 20.3% increase from prior dividend of $0.59.

 

What I am reading today

 

           

 

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