Friday, September 10, 2021

Quick Macro Update

Well, this'll likely be the last you'll hear from me for the next week or so. Heading out soon for my annual trek to Montana to do a little fly fishing with a buddy and my dear friend Matt, the fishing guide whom I introduced you to a few years ago. I believe that blog post holds the all-time record for most hits. Linking it to last September's rendition. Note that this year I'll be out of the office Monday through Friday.

As for our weekly macro analysis, I'll keep this one brief.

Morning Note: Unsavory

As we've stressed herein over the past year, the present state of financial markets, by itself, does not allow the Fed to get, let's say, consequential, in terms of combating inflation going forward. 

Thursday, September 9, 2021

Wednesday, September 8, 2021

This Week's Message: Unique to Our Lifetimes -- And -- No, Inflation's Not So Concentrated...

Eight times each year each Federal Reserve Bank interviews key business contacts, economists, analysts, etc., in their respective districts to assemble what we can view as a real-time general conditions snapshot for the U.S.

Morning Note: Too Much Prevention??

I ran across the following Robert Oppenheimer quote while listening to a recorded lecture yesterday and got to thinking about how the desperation of policymakers, elected and appointed, to circumvent the painful (yet essential) stages of cyclical economic and market phenomena grows -- as do the tools they bring to bear -- with each cycle:

Tuesday, September 7, 2021

Morning Note: Belaboring the Labor Topic

This morning's action in treasuries, and the dollar, has me belaboring just a bit the labor topic (touched on it here, here and here Friday and Saturday). 

Saturday, September 4, 2021

Quotes of the Day: Sticky or Not...

We touched on employment conditions yesterday (here and here), and, again, I'm in the camp that believes the latest is not about a slowing economy at this point, it's about the obvious:

Friday, September 3, 2021

Macro Update: Terrible Auto Sales, Disappointing Jobs Number, Weakening Consumer Confidence, But Context Right Here is Key! (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust.


Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Jobs Number Missed, But Don't Hold Your Breath

Generally-speaking, the initial market reaction to a bit of news or data doesn't always end up reflecting what ultimately becomes the, let's say, enduring market reaction. This morning, however, with regard to the July jobs data, I think the market's impulse is on the money.

Thursday, September 2, 2021

Morning Note: "Good decision processes" are key...

There's virtually nothing in the morning data worth getting excited about. Jobless claims were a bit better than expected, the trade balance was as well, auto sales were abysmal but there we're talking lack of inventory, unit labor costs were up (productivity down) but there we're talking increased working hours, factory orders were a hair better than expected and the final durable goods number shows a 1% month-on-month decline. One could make a stink over European producer prices popping by 2.3% month-on-month, but no, as I type our Eurozone ETF is right there with the S&P 500 this morning, up a smidge.

Wednesday, September 1, 2021

This Week's Message: The Trade That Keeps On Ticking -- And -- Status Quo Bias

The trade that keeps on ticking is large cap U.S. growth (read big tech). And the latest data, frankly, couldn't offer more support.

Morning Note: Coming Off the Boil -- And -- A Pet Peeve

Global PMIs overnight confirmed that economies are indeed coming off the boil. Whether it's a natural come-down from what we'll deem an overdose of government stimuli or it's more about the delta variant, or a bit of both, remains to be seen. 

Tuesday, August 31, 2021

Morning Note: The Correct View of the World

US equity index futures left rally mode overnight to come into today's session slightly red. The overnight data and related news was all over the place.

Monday, August 30, 2021

Morning Note: U.S. Seeing Hotter Inflation... Hmm....

Despite the present tumults of Afghanistan, Ida and Delta, markets are relatively quiet to start the week. 

Friday, August 27, 2021

Macro Update: "Narrow" and "Transitory" Inflation Fantasy (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: "A Man Hears What He Wants to Hear and Disregards the Rest" -- And a little music 😎

Traders were sanguine this morning ahead of Fed head Powell's speech due to start at 10am ET. Which is interesting since, without exception, the five Fed members (only one a voting member) who've granted interviews yesterday and today said they're ready to begin cutting monthly bond purchases much sooner than later.

Thursday, August 26, 2021

Morning Note: Taper Talk Tomorrow -- And -- A Key To 'Long-Term' Investment Success

Tomorrow is setting up to be an interesting day for markets. Fed Chair J. Powell gives his keynote speech in Jackson Hole; a speech that was, at one point, clearly meant to confirm that indeed taper (cutting a bit back on monthly bond purchase) was coming, and to offer up the timeline. 

Thing is, during the time between the recent lining up of Fed board members to each give their public nods to taper and today, the delta variant has reared its very ugly head -- seeding doubt around Powell sounding the alarm come tomorrow. 

Wednesday, August 25, 2021

This Week's Message: Why European Equities -- And -- Highlights From a Week's Worth of Messaging

In last week's macro video I featured a clip of an interview where an analyst made a case for European stocks that comports with our own long-term thesis. I also reiterated that much of the rest of the outside world's equity markets offer a unique relative (to the U.S.) value proposition as well.

Morning Note: It (the setup) Is Way Different This Time!

I'll cut quickly to the chase this morning after a few quotes from my own morning reads (although don't skip this one, the book quote at the bottom's a good one). A more substantial weekly message will follow later today.

Tuesday, August 24, 2021

Morning Note: Optimism and Inflation Remain -- And -- At the Mercy of Expert Test-Takers (and Mess-Makers!)

We'll devote this morning's message to yesterday's release of IHS Markit's August U.S. Flash (preliminary) Manufacturing and Services Purchasing Managers Indices (PMI). They say a ton about current conditions.

Monday, August 23, 2021

Morning Note: Markets are Snapping Back, but why? -- And -- Happy People Spend Money

Weekend news says Korean exports for the first 20 days of August surprised to the upside, and Japan's and Australia's latest manufacturing PMI surveys held up fine. Their respective services PMI surveys, however, contracted notably (covid fears and restrictions). Eurozone services PMI's held up much better (higher vaccine rates and notably fewer restrictions, if any), while manufacturing PMIs continue to denote a mix of optimism, supply constraints and inflation.

Sunday, August 22, 2021

Rough Week, Concentrated Tech, EM (etc.) Prospects (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:


Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Friday, August 20, 2021

Macro Update: Big Drop in Our Conditions Index -- And -- The Bullish Long-Term Case for European Equities (video)

Early in the video, where I show the history of our index against the S&P 500, I remind the viewer of what I was anticipating back in the day -- that when our index turns red and we turn cautious, in all likelihood the market will rally a bit further. 

I forgot to explain why that might occur: It's simply because the very same data that would have us cautious would spook policymakers into taking measures that would likely boost equity markets in an attempt to inspire the sort of reflexivity that they'd hope would avert an impending economic slowdown. 

Attention First-Time Homebuyers: Careful What You Wish For!

Rick Palacios Jr., director of research for John Burns Real Estate Consulting just posted a most-telling thread on the current state of the residential real estate market (see below). 

Morning Note: "Average" Stock Correcting Hugely -- And -- Patience is Key!

Yesterday, I touched on the resoundingly negative breadth that conflicted with positive moves in the major averages. While this morning's breadth is a touch more tolerable, it's still nothing to write home about.

Thursday, August 19, 2021

Breadth Doesn't Match Today's Action (so far) -- And -- A Preview to a Simple Cynical Market Narrative

As I type, the S&P 500 Index has clawed its way back to a 4 point gain, while the Nasdaq Composite is now up an impressive, all things considered, 0.24%.

So the U.S. stock market's back from a messy couple of days! Well, not so fast. As I type, literally 60% of the S&P 500's constituents are down on the morning, while just shy of 70% of the Nasdaq's members are currently bleeding.

Morning Note: Feels a bit like Q4 2018

At roughly the two-minute mark in last weekend’s video commentary I mentioned the seeming sanguineness of a most-respected macro analyst around how equity markets would react to the Fed tapering its monthly bond purchases. I then said the following:

Wednesday, August 18, 2021

This Week's Message: A Snapshot of What We Think We're In For -- And -- Brief Narratives on Gold, Ag and Non-US Equities

For this week's main message I'll share an excerpt from my latest internal log entry, where I briefly update our theses on individual positions. Specifically, non-US equities, gold and ag futures. But first, my thoughts on today's market reaction to the release of the Fed's latest meeting minutes.

Morning Note: Housing Hurting

As we've previously discussed herein, folks (survey respondents) think it's, frankly, an awful time to go buying a house. That, by the way, was confirmed in the latest from the widely followed University of Michigan Consumer Survey.

Tuesday, August 17, 2021

Supposed to be weird right here...

Clearly, there's lots (LOTS!) going on in the world for the equity market to get the jitters over. There's also, as I mentioned in our recent technical look at gold and U.S. equities, seasonality:

Morning Note: Retail Sales Miss -- Do or Don't Do China? -- And -- How the "Big Money" is Not Made

Our October 30, 2020 Macro Update was subtitled "Pulling Forward." Here's a snippet:

Monday, August 16, 2021

Morning Note: Inflation's Doing a Serious Number on Sentiment -- And -- Narratives (for sure!) Drive Markets

A Chinese data miss, the delta spread and the disheartening scenes from Afghanistan has global equities (save for India's) heading south to start the week.

Saturday, August 14, 2021

Macro Update: Shipping #s Off, Sector Action Bullish -- And -- Why Washington Might Love a Correction Right Here (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Friday, August 13, 2021

Morning Note: It's Either Higher (price) or Lesser (quantity), Or Both -- And -- It's Constraints That Count

Lots to parse in our weekly macro exercise today, so I'll keep this morning's note short and sweet.

So, according to an Evercore ISI survey, retailers are presently able to pass higher costs onto the consumer:

Thursday, August 12, 2021

Morning Note: The Mark Twain Trade

It's probably safe to say that reports of the death of the reflation trade have been greatly exaggerated. Of course our longer-term base case firmly supports that notion. The past few days have seen growth (read tech) give way (notably) to the likes of industrials, materials, financials and so on.

Wednesday, August 11, 2021

This Week's Message: The Inconvenient Truth About Today's Bond Market Signal...

I’m reading lots of commentary these days from macro players who still see the bond market as a legitimate signal of general conditions.

They tend to also see inflation right here as transitory phenomena; believing that once covid-driven bottlenecks are relieved we’ll see the costs of goods and services descend to notably lower levels, and/or we’ll see the future rate of inflation slow, and meet right back down with that sub-2% trend.

Morning Note: Good luck moving OPEC...

So, inflation remains hot, but presumably not as hot as some expected this morning's CPI report to print, and word has it that the Biden Administration is urging OPEC to open the oil taps a bit more. 

With regard to the latter, the message is, help us out here, we're going to be spending hugely* and we need to get the inflation bug off our back...   

Tuesday, August 10, 2021

Morning Note: Jobs Galore! -- And -- "A Messy Multipolar World"

From last Tuesday's morning note:
"Presumed noble intentions notwithstanding, and while, indeed, the Delta variant may represent heightened deterrent for the careful would-be job-seeker, aggressive government intervention can't help but lead to market distortions; labor market included..."

Monday, August 9, 2021

Gold and Stocks Technicals -- And -- Long Term Trends (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: About Last Night -- And -- "Paradigm Shifts" That Matter

Last night was something to behold during the Asian session. The volatility was notable in equity futures, in tech in particular, but it was extreme in the precious metals space. Here's Peter Boockvar's take:

Saturday, August 7, 2021

Macro Update: Car Sales Tanking, Jobs Numbers Rising -- And Will Inflation Last? Well, It Better! (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Friday, August 6, 2021

Morning Note: Why Our Approach

So ya'd think on a morning when the official jobs number comes in just shy of a million that the stock market would be screaming higher, wouldn't ya?

Thursday, August 5, 2021

Morning Note: A Dangerous Ethos

Per this week's main message, pundits who believe we're to revert right back to the inflation setup (none to speak of) of the past several decades point to the signals of a bond market that is anything but a legitimate market/economic signaler these days. It, in a sense, signals whatever the Fed desires it to signal -- which would be that inflation this go-round is "transitory" and, therefore, the Fed's free to print at will, to suppress interest rates ad infinitum and to essentially fund federal deficits as far as the eye can see.

Wednesday, August 4, 2021

This Week's Message: The One Thing (the only thing) I Absolutely Know

Sharing my latest entry to our internal log as this week's main message:

Interesting; reading all the commentary around the economy, inflation, financial markets, etc. Credible macro players who sit in the deflation camp are understandably pounding their chests with “see, the reflation trade is already dead” as the 10-year yield sinks below 1.2%.

Morning Note: Presumed Noble Intentions Notwithstanding

ADP's jobs number whiffed expectations by a mile this morning, seeing bond yields lower and the gold price higher on the news.

Tuesday, August 3, 2021

Morning Note: Inflation's A Must

Fed Chair J. Powell suggested in last Wednesday's press conference that inflation was concentrated in select areas of the economy.

Here was my take last Thursday morning:

Monday, August 2, 2021

Morning Note: Feeling Copper

15 of the 24 July global manufacturing purchasing manager's indices that were posted overnight showed declining sentiment readings (vs June's). With presently covid-stricken areas of Asia of course faring the worst. 

Sunday, August 1, 2021

Quotes of the Day: The Ongoing Commodities (and producers) Setup

While, like all tradable markets, the commodity space will absolutely see its share of volatility* (down and up) in the months and years to come, as we've firmly stated herein, in our view the longer-term setup remains historically-attractive.

Saturday, July 31, 2021

Macro Update: Flat (but telling), Latin American Cats -- And -- My Latest Musings

Mixing it up a bit, we'll do this week's macro update in writing...

For starters, our own general conditions index scored no change on the week, with an overall macro score of  29.17:

Friday, July 30, 2021

Quote of the Day: That's Risky

"Even though the S&P's hitting new highs I'm hard-pressed to find people that are really enjoying this and that are excited about this move. Most people that I know, professional traders, are all holding their heads down and complaining about how this is hurting and how nothing's working."

Morning Note: "Lean Into the Future"

Of all the companies to miss revenue expectations, in this environment, Amazon... Hmm... Its stock price this morning (off nearly 7%) says traders were caught a bit off guard. 

Of course it's not that Amazon is suffering in the least, it's that the operative word above is "expectations." And human nature being what it is, there's that "recency bias" (always anticipating more of the latest) that forever rocks markets as economic and market regimes begin to change... More on that in our upcoming macro update...

Thursday, July 29, 2021

Wednesday, July 28, 2021

This Week's Message: Immediate and Intermediate-Term Conditions

This week's main message comes from my most recent entry to our internal market log:

7/25/2021 Immediate and intermediate-term conditions:

Morning Note: The Trader's Ultimate Challenge

Three heavyweights (to put it mildly) -- Apple, Microsoft and Google -- per their after-the-bell earnings releases yesterday scored knockouts. I.e., they soundly beat analysts' estimates.

Tuesday, July 27, 2021

Morning Note: The Essential Challenge of Risk Management

If you're the type who cares to follow day-to-day market gyrations.. well, like I said last Tuesday

"One thing's for certain, it's going to be one volatile summer for asset markets!"

While heavyweight earnings releases (Apple, Google and Microsoft today) can certainly move the equity market, a Fed policy meeting announcement (tomorrow) can move everything. 

Monday, July 26, 2021

Quote and Chart of the Day: "The minute the equity market stops rising..."

You've heard me make the point over and over again (as recently as this weekend's video) that the Fed simply can't let the stock market go (not suggesting they'll succeed indefinitely), as our economy is essentially levered to its continued rise.

Morning Note: We'll Take Brazil over Beijing Right Here...

As I record the year-to-date results of the world's major equity markets (part of our weekly macro exercise), two areas have been jumping out at me for the past several months, Asia (China in particular) and Latin America.

Saturday, July 24, 2021

Quote of the Day: We'll "be talking about big shovels"

Pulitzer Prize-winning author and economic historian Daniel Yergin is considered one of the world's most influential energy pundits. He was the featured guest in today's Smarter Markets podcast.  

As clients will note below, his commentary jibes to a virtual T with our long-term thesis (which we're expressing in our core portfolio) on the energy, and the mining, space:   

Macro Update: Conditions Continue to Wane (but no worries at this juncture) -- And -- "We're Not Very Correlated to the U.S. Market" Right Here... (video)

Bloomberg opinion columnist, Allianz Chief Economist, Ex-Pimco CIO and Queens College, Cambridge President Mohamed El-Erian is on the same page we are on inflation going forward:

"Inflation is not going to be transitory. I've been pretty certain in my mind about three prior calls (all were spot on). This is the fourth one."

"I have a whole list of companies that have announced price increases, that have told us they expect further price increases, and that they expect them to stick."

Among other things, I make mention of the latter in this week's video, below...

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Thursday, July 22, 2021

Morning Note: Yeah, Inflation is a Thing Right Now...

Hmm... there are 9.2 million job openings in this country and new weekly unemployment claims are up 3 weeks in a row (419k reported this morning; 69k more than expected). Somethin ain't right... ?

Well, according to the Wall Street Journal:

Wednesday, July 21, 2021

This Week's Message: What's Happened to the Inflation Trade/Setup? -- And -- Today's Key Questions...

Clients and regular readers know that our overall macro thesis includes a view that has odds favoring inflation running "hotter" well into the foreseeable -- beyond the present "transitory" rise in prices that was inevitable given the dead-stop/fast-rebound (pent-up-demand) nature of COVID providing cover for the most aggressive fiscal and monetary action the world has ever seen (including, on the monetary side, an utter breaching of the Federal Reserve Act of 1913 [forbids the Fed from buying corporate securities, which they did anyway], which of course, on top of taking personal incomes [via "stimulus" checks], in the aggregate, above prepandemic levels) -- takes the concept of moral hazard to a whole new level!

Morning Note: Builders Playing It Safe -- And -- "Resilience Lies in Expanding Our Awareness"

In yesterday's morning note I pointed to consumer sentiment around the present home buying impulse (non-existent) as an explanation for June's disappointing building permits number. In their evening note yesterday Bespoke Investment Group had the following take:

Tuesday, July 20, 2021

Morning Note: It's the materials, but it's becoming the sentiment as well (in housing)...

Housing data (starts and permits) were out this morning, painting a mixed picture. Starts exceeded expectations by 53k, although May was revised down by 26k. Single family accounted for 1.13 million of the 1.643 million total.

Monday, July 19, 2021

Market Commentary (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Not Over-Thinking It Right Here -- And --- "Sitting Tight" is Fine, When...

COVID scares notwithstanding, per our latest technical analysis (recent videos), stocks have been looking heavy for quite some time. 

And while this morning's, and last week's downward volatility may seem unusual, actually, what's been unusual is the lack of any serious corrective action, given extended valuations, debt setups, geopolitics, bad breadth, and so on.

Wednesday, July 14, 2021

This Week's Message(s): Highlights From the Past Week

Well, your inbox is going to get a little skinnier over the next few days, as this will be my last post until early next week. Our youngest and I will be deep in the northern California woods, enjoying a little disconnection from the outside world.

Therefore, my shortened workweek has me making this week's main message an easy one. Call it main messages, or highlights, from the past week's commentary herein.

Morning Note: "The Necessary Maturity"

From yesterday morning's note:

Tuesday, July 13, 2021

Morning Note: Hot CPI, Hedging Oil -- And -- Successful Investors and Poker Players Think Alike...

We've made our case; that the Fed finds itself in the worst of corners, and its board members are not remotely willing to take measures that would actually fulfil their mandate of low, steady inflation. For, if they do, they'll catch the blame for popping the mother of all asset bubbles.

Monday, July 12, 2021

Morning Note: Bullish Themes -- And -- Redistribution Is Cyclical Phenomena

Four quotes from my weekend reading:
"U.S. Treasury Secretary Janet Yellen signaled she’ll prod multilateral development banks to rein in their lending for fossil fuels, part of a global effort to make the financial system greener. 
The remarks reflect an effort by finance ministers and central bankers around the world to push lending institutions to support goals for slashing greenhouse-gas emissions and stop money flowing into projects that add to pollution."

Sunday, July 11, 2021

Quote of the Day: There Just Isn't Enough Stuff Like Copper (that they can get to fast enough)

In this week's video update I finished my intro by saying:

", unique opportunities, but not without volatility like we've seen the last 2 or 3 months."

Saturday, July 10, 2021

Macro Update: Consumer Credit Up, Global Sentiment Off (a bit), Economists Surprised -- And -- Rotation or Consolidation? (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Friday, July 9, 2021

Morning Note: "The Summation of Wisdom"

Given China's posture lately toward its own (publicly listed Chinese companies seeing intense scrutiny and hamstringing restrictions), not to mention Xi's utterly belligerent tone toward the rest of the world of late, one might think that the country is suddenly willing to allow its securities markets (not to mention its economy) to suffer for the good of the empire.

Thursday, July 8, 2021

Morning Note: The Domain of Policymakers

So what's got traders hitting the sell button this morning? Is it the delta variant that, per last weekend's video, we believe has been playing a bit of havoc in non-US markets of late? Is it a weaker-than-expected recovery? Is it the lack of an agreement on infrastructure? Those would be the 3 most cited presumed catalysts by the media this morning.

Wednesday, July 7, 2021

Quote of the Day: Take That One to the Bank!

Just listened to a Bloomberg interview clip (with a former ECB Chief Economist) associated with today's announcement that the European Central Bank (ECB) will allow an "overshooting" of its raised inflation target going forward. I.e., they raised their target to 2% and, at the same time, stated that they'll allow inflation to exceed it going forward. 

Morning Note: An Unabashed Will to Spend Comes With Consequences...

We looked at the following graph in last weekend's video update:

Tuesday, July 6, 2021

This Week's Message: Seeing's One Thing, Sitting's Altogether Another...

My schedule the next few days has me bringing this week's main message to you early, and keeping it relatively brief. 

I can't tell you how many times, since late-summer 2019 I've been labeled a "bear" by clients and associates. All the while, when you consider our core asset mix, in late-'19, and since -- while it's evolved notably to comport with our general view of the world and concerns over certain areas of the stock market -- you certainly wouldn't say we've run for cover, we're just not all-in the stock market like we were, say, from the bottom in '09 to December '19.

Morning Note: Jittery

Traders seem a bit jittery as we start the week. Gold's rallying (+1.25%) and the VIX (goes up when options traders hedge, or speculate on, the downside) is up 6%. Oil futures were up bigly in the premarket -- on news that OPEC talks broke down over the weekend -- although they've done a complete 180 since (down 0.40% as I type). Emerging markets are taking a hit, as China hits its own tech sector for not toeing the China line, and rising COVID cases are clearly a concern. And, to aptly top it all off, the S&P 500 itself (with its highest weighting to tech stocks since 1999 [if not ever]) is barely lower while its individual losers lead its gainers by nearly 3 to 1 (oof!, if tech ever takes a serious breather)... The S&P 500 Equal Weight (treats all equally) was down 5 times the cap weighted index at the open.

Monday, July 5, 2021

Quote and Chart of the Day: Uncharted Territory...

Numerously herein of late we've stated that the debt and interest rate setup, and what we believe the Fed virtually has to resort to in their attempt to facilitate massive government deficits without piercing debt and asset bubbles, takes us to the 1940s playbook.

Sunday, July 4, 2021

Macro Update: June's Countertrend Market Action, Breadth, Valuation, and, Yes, Inflation (video)

This week's macro update runs longer than usual, so I thought I'd break it down for you, in case you'd like to skip the topics that we've more or less covered in earlier posts.

Friday, July 2, 2021

Morning Note: How "The Big Money" Is Made (and, frankly, not lost)...

So, if the headlines got it right on how good this morning's jobs number was, then our view of what's driving stocks these days says they should be tanking.

Thursday, July 1, 2021

Morning Note: Know (the mind of) your opponent...

All eyes will be on the June jobs print tomorrow, and, if you're a stock market bull, be careful what you wish for.

Wednesday, June 30, 2021

This Week's Message: Critical Thinking Is Critical, Right Here...

As I sit here staring at a blank screen, thinking that I've sufficiently (and some!) expressed our primary theme/thesis herein of late, I glance over at an adjacent screen featuring our core positions and notice today's top 10 performers, in the following order:

Morning Note: "As Expected", if you're not in the Roaring 20s camp...

Payroll company ADP's monthly private sector jobs report released this morning shows 692k net new jobs taken for June. That was 92k ahead of expectations, although, ironically, May's number was revised down by precisely 92k. As you might expect all but 48k occurred in the services sector, with more than half in the leisure/hospitality space.

Tuesday, June 29, 2021

Morning Note: Oddities Emerge...

"I've done a ton of research" was the phrase the young basketball player who sparked up a crypto conversation with me on Saturday kept repeating throughout our friendly, call it debate.

Monday, June 28, 2021

Morning Note: An Unlikely Source of Truth

Here's yet another quote that should sound familiar:

“Not surprised by high asset valuations, it’s tied to easy Fed policy.”

Sunday, June 27, 2021

Saturday, June 26, 2021

Macro Update: Risks, Opportunities and An Unusual Breadth Reading In Stocks (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Friday, June 25, 2021

Morning Note: Don't Drink and Invest!

While we're seeing a bit of choppiness, if not topiness, in US data of late (I'll be scoring our macro index later this morning), the global setup appears relatively solid for the time being.

Thursday, June 24, 2021

Morning Note: It Can Pay to Raise Interest Rates, for Some Countries

As we've reported, lip service aside, U.S. central bankers (as a voting majority) have zero desire -- or room, frankly -- to tighten monetary conditions for far into the foreseeable future.

Wednesday, June 23, 2021

This Week's Message: More On Inflation, On China-driven Inflation and A Few Timely Portfolio Tweaks

Gotta stick with the inflation theme, as, like I keep saying, getting that one (essentially the dollar) right over the next few years will we suspect be key to investment success.

This chart of the US Dollar Index will look familiar to video watchers:

Morning Note: Groceries

Quick note this morning; saving the good stuff for our main weekly message (coming today or tomorrow).

Tuesday, June 22, 2021

Morning Note: Appropriately Careful Right Here

Given last week's selloff -- sparked by what, in reality, amounted to utterly benign lip service (though sufficient to trip a few trading algos into sell mode) to those who believe the Fed should essentially do their job and allow interest rates to do their job with regard to rising inflation -- markets are a little on edge this morning awaiting J. Powell's testimony before the Select Subcommittee on the Coronavirus Crisis. 

Monday, June 21, 2021

Morning Note: What Is Virtually for Certain

Last week, the worst since last October for the Dow, saw stocks jittery out of the gate -- rightly so as it turns out -- then fold after the Fed announced that 2023 will likely see the beginning of a campaign to wean the economy off of what amounts to a negative (adjusted for inflation) interest rate regime.

Imagine the disruption in those asset markets folks -- by design -- thought were immune to consequential losses due to the promise of perpetual central bank support. Well, as you noticed, several asset markets just gave us, and the Fed, a sneak preview.

Saturday, June 19, 2021

Macro Update: Housing Headaches, Crowded Commodities, and the Reality of the Interest Rate -- and Currency! -- Setup (video)

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust: 

Friday, June 18, 2021

Morning Note: The Punch is Spiked, The Market's Addicted

Friday's our deep-dive day around here, and given the week we've had I'm anxious to get to the scoring of our index, checking correlations, assessing the technicals, yada, yada -- and getting back to you with our weekly macro update. Soooo, this morning's note's going to be short and sweet.

Thursday, June 17, 2021

Morning Note: Yesterday's sting...

 Here's from yesterday morning's note:

"Jittery trading so far this week says that markets fear that the Fed may hint that they are aware of inflationary forces that may indeed turn out to be something more than simply "transitory" and, thus, outline what they might actually do about it.
While in my view that makes perfect sense, the number it'd do on markets makes such a confession -- at this particular meeting -- while indeed possible, a lower probability than them focusing on the millions of folks who remain out of work, disappointing retail sales yesterday, yada yada... Without, by the way, remotely acknowledging the fact that hugely generous government benefits pretty much explains both data points (excessive unemployment benefits [disincentive to take a job], and the comedown off of the last stimulus check resulting in lower than expected retail sales)."

Here's from yesterday evening's note:

"So what got the dollar rising and the other stuff featured above falling today?

Well, it was this afternoon's message from the Fed that, while aside from tinkering with the rate they pay banks on excess reserves and in the overnight repo market, they anticipate lifting their benchmark rate off of zero sometime in the year 2023, and that they may even be inclined to cut back a bit on their monthly bond-buying frenzy by this year-end.

Now, frankly, there's nothing historically-speaking consequential in terms of magnitude there. In fact, historically-speaking, it's far less of a threat than one might've expected given the pace of growth, and inflation, of late."

That "other stuff" I referred to was stocks, commodities and emerging market currencies.

So, essentially, the Fed forecast two more years of a zero policy rate, nudging even then to what remains a historically-low level, and maybe cutting back a bit its asset purchases by year-end (in only, I suspect, mortgage backed securities [the federal government will need the Fed to gobble up what'll remain huge treasury bond issuance well into the future]).

My point? Yesterday the Fed dipped its toe into the market's water just to take the temperature (or temperament) for even the modest of monetary tightening, and while assets (equities in particular) -- at least yesterday -- handled it fairly well by the close, that spike in the dollar and what it portends (should it persist), given the present global macro setup has, I suspect, them lining up to do a bit of, well, like I also said in yesterday evening's note:

"Bottom line: Jerome Powell and company have truly backed themselves into the proverbial corner. I.e., should asset and currency markets even threaten to unravel due to what is, by historical standards, a mere placatory nod to those who see rising inflation as presently more than simply "transitory" phenomena, I highly suspect we'll see the Fed walk back today's dipping-of-their-toes, lickety-split."

As for this morning, while commodities (save for oil) are still feeling yesterday's sting, stocks are opening only modestly lower and treasury bonds are already saying "nothing to see here folks." Although treasuries are likely also getting a lift from this morning's worse than expected weekly jobless claims number. In fact, equity futures were notably lower just prior to that claims number as well (yep, with the stock market trading on easy money, bad economic news is actually good news.) Although the day is still very young...

Asian equities struggled overnight. While 3 of the 16 markets we track were closed, only 3 of the remaining 13 closed the session higher.

Europe's struggling this morning as well. Also with 3 bourses shuttered, only 4 of the remaining 16 we follow are in the green as I type.

U.S. major averages are essentially flat: Dow down up 26 points (0.05%), SP500 up 0.06%, SSP500 Equal Weight up 0.10%, Nasdaq 100 flat, Nasdaq Comp down 0.04%, Russell 2000 up 0.03%.

The VIX (SP500 implied volatility) is down 5.01%. VXN (Nasdaq 100 i.v.) is down 1.63%.

Oil futures are up 0.08%, gold's down 2.19%, silver's down 3.28%, copper futures are down 2.00% and the ag complex is down 1.31%.

The 10-year treasury is up (yield down) and the dollar is up a big 0.46%.

Led by MP (rare earth miner), solar stocks, emerging market equities, energy stocks and tech stocks -- but dragged by silver, gold miners, gold, base metals miners, uranium miners and ag futures -- our core mix is off 0.43% to start the day.

With regard to the intentionally soft tone of the Fed's water-testing yesterday, know that it's not so much about the extent to which they may ultimately begin tightening, it's the fact that they're even talking about it that has markets on edge.

Per James Weatherall in his insightful book The Physics of Wall Street:

"...the psychological effect of a change in stimulus isn’t determined by the absolute magnitude of the change, but rather by its change relative to the starting point."

Have a great day!

Wednesday, June 16, 2021

This Week's Message: The Fed "Threatens"

You've heard or read me express, multiple times of late, that if there were only one element in markets that I could build a macro thesis around presently it would be the U.S. dollar.

Today, by the way, the dollar saw its biggest one-day surge in over a year.

Morning Note: China's Playing With a Beachball

The Federal Reserve winds down its June policy meeting today, rate announcement coming at 11am pt, press conference with J. Powell to follow.

Jittery trading so far this week says that markets fear that the Fed may hint that they are aware of inflationary forces that may indeed turn out to be something more than simply "transitory" and, thus, outline what they might actually do about it.

Tuesday, June 15, 2021

Morning Note: Copper's feeling sick, but not to worry, doctors are standing by...

In our last few macro videos I suggested that copper could see some meaningful near-term downside action before it resumes what I suspect will be a fundamentally-based march further into all-time high territory.

Well, this morning it's seeing it, big time!

Monday, June 14, 2021

Morning Note: Impatience Can Be Costly

I wouldn't expect much action (or much trading volume, let's say) in markets leading into this Wednesday's Fed announcement and press conference. 

This morning's modest move lower in large cap equities suggests that, at least as the week gets underway, there's a little jitteriness around the prospects that the committee might hint that they’re maybe talking about when they might drain a bit of the punchbowl.

Sunday, June 13, 2021

Macro Update: General Conditions Improving, Inflation Expectations Waning -- And -- Central Bank Intimidated

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Friday, June 11, 2021

Morning Note: There Must Be Something Wrong With Me -- And/Or -- Economists Should Read Popper

Doing a little thinking out loud (on my keyboard) this morning as I catch some of the noise around inflation prospects among the pundits.

Not sure if it's always been there and I'm just now noticing it, or if the discourse around general conditions -- even when we're not talking meme stocks, cryptocurrency and bubbles in general -- has grown quite rancorous of late. You'd think we're talking politics (or crypto), as opposed to boring old economics!

Thursday, June 10, 2021

Morning Note: Sticky

This week's main message is coming your way shortly, and it's a bit of a read (an important one 😎), so I'll keep the morning note brief.

May CPI was released this morning, and, yes, the month-on-month numbers, particularly in the services space (far more sticky [as in stick around] than the goods space) support our thesis that this go-round inflation -- at a somewhat higher level than we've grown accustomed -- is likely to, well, stick around.

This Week's Message: Positive Equity Market Setup, But Beware a Policy Misstep

In yesterday's note I mentioned that "our modeling" favored the notion that the recent weakness in the tech sector is more about a change in leadership versus the harbinger of something more pernicious.

Here are a number of the key indicators that instruct our theses around equity markets and have us, per yesterday's note, relatively sanguine -- yet nevertheless cautious (the +1s, -1s and 0s denote positive, negative and neutral signals):

Wednesday, June 9, 2021

Morning Note: Leaders Lagging

The tech sector's been struggling a bit of late. 

Having not seen a new high since April 19th, tech really needs to hold that yellow line it's been hugging on the daily chart or we're talking a near-classic, and potentially ugly, head-and-shoulders technical pattern:

Tuesday, June 8, 2021

Morning Note: What's troubling small business owners?

Being that small businesses account for ~2/3rds of U.S. jobs, we take them seriously, In fact, the NFIB Small Business Optimism Index accounts for three of the forty-nine inputs to our PWA Macro Index.


Monday, June 7, 2021

Morning Note: The Lesson

If I had a nickel for every time of late that I've referenced the 90s tech boom (then bust) while discussing the frenzy that's going on in certain spots in today's market, well... I'd need a suitcase to lug them around in.

In his note this morning, economist Peter Boockvar sympathizes, and reminds us (via the 1998 Forbes cover below) of how the newbie traders of the 90s -- SO much like today's -- really thought they had Wall Street's number:

Saturday, June 5, 2021

Macro Update: Slight Uptick -- And -- More on Bubbles, the Fed, Inflation, etc.

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Friday, June 4, 2021

Morning Note: All the Cover the Fed Needs -- And -- My Advice to the "Student"-Trader

So, equity futures were struggling a bit to find direction this morning before the release of the May jobs report. As I type, however, 10 minutes before the market open, and 50 minutes after it was reported that 559,000 folks found jobs, futures are trading nicely in the green.

Thursday, June 3, 2021

Morning Note: Fed Failure Not An Option

Jobs news this morning suggests that last month's hiccup was, well, maybe just a hiccup. Payroll company ADP says 978k folks found jobs in May, which is an astounding 328k more than expected, while weekly jobless claims continue to come down: 387k in this morning's report, vs 385k expected and 21k lower than last week. This Friday's official May jobs number will be telling...

Wednesday, June 2, 2021

This Week's Message: The Dollar's the Loser

A client intimated in a recent meeting that, based on our assessment of probabilities for each of our current core positions going forward, we're not as bearish on stocks as my general vibe (here on the blog) might otherwise suggest.

Morning Note: Well, Acetone's Cheap -- And -- Top-Down Desperation

While, like I keep saying, getting the longer-term inflation story right will be key to investing success the next few years -- a most hotly debated story these days, mind you -- there's no debating that it's presently paying us a serious visit.

Tuesday, June 1, 2021

Morning Note: Always Look to Disconfirm

Weekend and overnight global economic news (impressive Purchasing Mgrs Indices in particular) presumably explains a very nice pop higher in equities as June gets underway. 

But one thing that caught my attention immediately this morning was the pop in the VIX and in VXN (implied volatility for the S&P 500 and the Nasdaq 100 indices); they were up 3.10% and 4.66% respectively. There's typically a strong inverse relationship between the two, as rising implied vol suggests increased hedging among options traders.

Sunday, May 30, 2021

Charts of the Day: Lumber and Housing; Interesting...

While it's way premature to call an end to the recent housing "boom", the latest action in lumber and housing sentiment is getting interesting.

Saturday, May 29, 2021

Macro Update: Another Step Back, Quashing Crypto?, Commodity Dip-Buying??, and Not Buying the Bullish Dollar Signal (video)

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Friday, May 28, 2021

Morning Note: Math Tools and Risk Models Don't Do the Trick

Core PCE (personal consumption expenditures) inflation bested expectations; up 0.7% month-on-month -- that's not a little. And while the debate -- transient vs structural inflation -- will rage on for months to come, suffice to say that higher prices look to be hanging around awhile.

Thursday, May 27, 2021

Morning Note: The Economy, and Costs, are Looking Up -- And -- The Global disOrder

The second reading of Q2 GDP came in unchanged at +6.4%, the GDP Price Index, however, was revised up. No surprise, right? I mean, you've been out and about...

Wednesday, May 26, 2021

This Week's Message: Bullish Technical Setup, But....

I can make my main point this week by going heavy on visuals, light on verbs.

For starters, let's scroll through some technical indicators we've been tracking for years.

Morning Note: Sentiment Signals From the Futures Markets

Our weekly assessment of futures speculators positioning offers up sentiment indications, across asset classes, among traders sophisticated enough to play in that space. As I perform the exercise I typically make notes along the way on the positioning, and/or change thereof, of key indices, commodities and currencies and interpret what that says about what these folks are thinking/anticipating.

Tuesday, May 25, 2021

Morning Note: Beware the Investing Einstein

While (per yesterday's noteChina attempts to clamp down on metals prices, it appears ready to support its notably underperforming (ytd) equity markets. China's CSI 300 Index was up 3.2% overnight. 

Monday, May 24, 2021

Morning Note: China Passing the Buck

I mentioned in last week's macro update that Chinese authorities are presently focused on/concerned over the rising price of industrial metals. Clearly, per the weekend news, that is indeed the case; China's National Development and Reform Commission warned commodity firms that they've "zero tolerance" for hoarding or monopoly behavior. 

Saturday, May 22, 2021

Macro Update: Minor Step Back, Commodities Correcting, Biased Analyses, the Fed's Fix, and a Brief Technical Analysis (video)

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Friday, May 21, 2021

Morning Note: Operative Words

This morning's schedule has me keeping our opening note short and sweet. This week's meaningful macro update will arrive in your inbox later today.

Thursday, May 20, 2021

Morning Note: No "Shrinking Back" -- And/Or -- No Stopping This High-Speed Money Train

There's no doubt that the following quote from the April Fed Minutes (released yesterday) had much to do with yesterday's volatile session in equities:

Wednesday, May 19, 2021

This Week's Message: It's Way Different This Time -- Except When it Comes to Share Buybacks...

For this week's main message I'll point to two of the developments that are influencing our present macro thesis, then share some key highlights from our latest messaging.

Morning Note: No Rush to Rescue Us From Inflation

While commodities (save for gold [which one might argue is a currency]) are (unlike yesterday) not showing any immunity to this morning's dip in equities, for the moment we'll attribute these inevitable down moves to profit-taking after what I'll call a massive, unsustainable runup -- as I've been pointing out/anticipating in recent videos.

Tuesday, May 18, 2021

Monday, May 17, 2021

Friday, May 14, 2021

Macro Update: Rising Tide, One-Time Incentives, Hedging Ag and the Inflation Risk of Populism (video)

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Morning Note: The Uncertainty Spawned by the (perceived) End of Uncertainty

U.S. retail sales were released this morning and, as you might expect, folks are now spending less on stuff and more on stuffing their faces, in public places that is...

Thursday, May 13, 2021

This Week's Message: Our Present Inflation Narrative -- and the Potential For Something 'Long-Term' Special In Commodities

One of the late great economist Milton Friedman’s oft-quoted assertions is:

“Inflation is always and everywhere a monetary phenomenon"

Morning Note: A Quick Technical Look at Tech

In that there's a deep read (our main weekly message) coming your way shortly, I'll keep this morning's note brief and to the point.

Wednesday, May 12, 2021

Morning Note: Heed Your Seeing Eyes and Your Soaring Grocery Bill

We've talked about the base-effect distortion of the latest data when compared to where we were a year ago. So, sure, when we look at year-on-year CPI north of 4% (core [ex-food and energy] at 3%) no sweat. Ah, but month-over-month? Of course that's meaningful.

Tuesday, May 11, 2021

Morning Note: Markets Own the Fed

The NFIB Small Business Survey was out this morning and, as I'll bet you suspect, optimism's up among the companies who employ more than half the U.S. working population. And, nearly more than ever, they'd love to be employing even more. 

Monday, May 10, 2021

Small Shift In Our Core Allocation...

FYI We made a modest core allocation shift this morning in portfolios large enough to hold our remaining position in FXY (Japanese Yen). The move speaks more about the relative attractiveness of Mexican equities than it does about any serious lack thereof for the yen. 

It makes for a tax-efficient (in non-retirement accounts) rotation as well.

Morning Note: Trust your intuition on the jobs report, but don't on investing...

In Friday's morning note I closed my opening muse on the employment setup with the following:

Sunday, May 9, 2021

It's the Thought That Counts (SNL, Musk, Dogecoin, Dotcom)

I recall sitting in the audience at a money manager conference, circa 1999, in, if I recall correctly, Chicago. The place was abuzz with conversations about the tech sector. One of the featured speakers was the lead manager of a fund with "net" in its name (the name's been changed at least three times since). Its inception was August 1996 -- at the market peak in March 2000, the fund was up nearly 1,000%.

Friday, May 7, 2021

Macro Update: Excess Liquidity, Rising Commodities, and Market Extremes (video)

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Morning Note: It's a "Taker's" Market -- And -- The cost of short-term thinking...

Well, hmm... that didn't go well!

I'm referring to this morning's jobs report. The expectation was for north of 1 million jobs "taken" (typically, the term is "created", but we have a huge number of openings and, thus, eager employers, so I'll call it a "taker's" market right here). The actual number came in at 266k...

Thursday, May 6, 2021

Surprise Quote of the Day

I must say, it's encouraging, although I must say surprising, to hear anyone at the Fed warn of what we've been pounding the table on herein for far too long now:


Morning Note: Is good news really good news? Depends on what you're after... Or on what's moving markets...

So the latest jobless claims number came in way better than expected; under $500k for the first time since Covid first struck. That's some good news, right?

Wednesday, May 5, 2021

This Week's Message: The Circle (Cycle) of Life (Economy), Charts That Trouble Me -- And -- Key Highlights

If it were up to my lovely wife, mosquitoes would be eradicated from the face of the Earth. Of course she knows, though I remind her every time she says such things, of the great circle of life -- that mosquitoes are an essential food for certain animals that are essential food for other animals that are essential food for other animals, and so on. And, of course, that we are essential food for mosquitos. 

Morning Note: Reactions

While, as to be expected, Janet Yellen quickly walked back her "interest rates may need to rise, if" comment that shook tech stocks (in particular) yesterday, the market's instant reaction to her comment, and her ultimate reaction to the market's reaction, speaks to two things.

Tuesday, May 4, 2021

Morning Note: The Nerve!

So I ask my friend who's in the car business: "When those stimulus checks come out, do you get busy?"

He says: "Yeah! Those are down payments."

Monday, May 3, 2021

Morning Note: Rampant Optimism -- And -- Always Ask, "What Could Go Wrong?"

A number of global Manufacturing PMIs (Purchasing Managers Indices) were released overnight and this morning and, make no mistake, optimism is rampant throughout much of the world. 

Saturday, May 1, 2021

Quote of the Day: A 'New' Dependence on Non-US Actors...

Michael Kao of Akanthos Capital Management expressed what I view to be a spot-on concern (or irony) in a recent RealVision interview.  

Friday, April 30, 2021

Macro Update: Conditions Continue to Improve -- And -- More on Capacity Constraints, etc...

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Quote and Charts of the Day: The Mere Mention

The mere mention by a Fed governor of what Fed Chair Powell refused to mention during Wednesday's press conference has sent stocks into a minor tizzy this morning, the dollar into serious rally mode, and yet, and fascinatingly, hardly anything in the bond market.

Morning Note: Many Are Learning the Wrong Lessons, I Fear!

In yesterday's video commentary I mentioned the lack of capacity buildout in the oil space. Chevron and Exxon both reported Q1 earnings this morning; Chevron said it reduced its spend on large development projects, which resulted in a notably higher-than-anticipated cash flow number. While analysts had expected Exxon to announce a sizable capex cut, the company reported no change. However, it did announce that excess cash flow going forward will be used to pay down debt (i.e., less going forward to go toward expanding capacity).

Thursday, April 29, 2021

Updated Technical Analyses (video)

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Morning Note: Not Quite Mass Euphoria -- And -- Be the Skeptic

The investor sentiment story for quite awhile now has been one of virtual mass euphoria, which isn't a stretch if you focus on the individual investor and investment advisor surveys. Our own "fear/greed barometer" last scored a -50: While not the -100 that would indeed be "mass euphoria", it's definitely lopsided toward the bull side of the boat.

Wednesday, April 28, 2021

Chart of the Day -- And -- Additional Evidence/Trends Supporting Our 'Longer-Term' Inflation Thesis

Yesterday I suggested that the setup for today (Fed meeting wrap up) was volatility.

With the Dow down 162 points, and the SP500 down 0.08% and the Nasdaq Comp off by 0.28% -- well..... volatility? While equities did jump around a bit as Powell spoke, not so much, at least not in stocks...

This Week's Message: Bond Market No Help

"This makes no sense!" is a common refrain coming from our clients who've been around a few stock market blocks in their day.

Morning Note: It's HOW we think that matters...

Keeping this morning's note quick (our weekly "main message" coming later today), I'll update yesterday's charts of the day (although I'll use Nasdaq futures this time to catch the pre-market action) to give you a feel of how traders are positioning ahead of today's Fed policy announcement.

Tuesday, April 27, 2021

Charts of the Day: Will he? -- And -- The Setup is for Volatility

Judging by the action in bonds, tech stocks and to some extent the dollar this morning, traders are thinking that Fed chief J. Powell may indeed acknowledge rising inflation risk during tomorrow's press conference, or that there's at least enough risk that he will to place some bets, or to take some chips off the table.

Morning Note: Lots priced in -- And -- The incentives/results of cheap, easy credit...

As we suggested they would be, earnings beats have been stellar -- and while I seldom watch financial news networks these days, I can only imagine the running of the bulls on the likes of CNBC.

Monday, April 26, 2021

Morning Note: The long-run can indeed mean the long-run...

In this weekend's video commentary I made mention of a highly respected economist who (among others) categorically disagrees with our present inflation thesis.

Per his commentary this morning, another respected thinker in the space (economist Peter Boockvar), actually sympathizes with our side of that debate; particularly where it relates to the impact of interest rates:

Sunday, April 25, 2021

Quote of the Day: Hmm...

Well, not that this necessarily supports our structural (longer-term) rising inflation thesis. But, then again, wages are sticky (i.e., not easy to reduce once they're set).

From today's Wall Street Journal:   emphasis mine...

Restaurants Serve Up Signing Bonuses, Higher Pay to Win Back Workers: With job openings above pre-pandemic levels, eateries from McDonald’s to Wolfgang Puck’s Spago are battling for new hires

"Some restaurant owners have said they are having to pass along some of the wage increases to customers in the form of higher prices, as other costs rise at the same time. Consumer prices for fast food in March grew 6.5% compared with last year, the biggest year-over-year increase since at least 1998, Labor Department data show."

Saturday, April 24, 2021

Macro Update And My Views on Present Inflation Risk (video)

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Quotes of the Day: Beware the happy (or sad) theorist, and yourself...

It's so interesting reading the deeper analyses of the strategists and economists whose work I respect.

It just occurred to me as I read the most recent deep dive of a firm that typically leaves few stones unturned, that they're somewhat subtly, and I suspect unwittingly, tipping their hand in terms of what I can only describe as their innate bias.

Friday, April 23, 2021

Morning Note: Words to heed, indeed...

Keeping this morning's note quick, as today is the day we do our deep macro dive, and this week's update will be fairly robust. We'll get into the weeds of what's driving our present inflation thesis.

Stocks had somewhat of a rough go of it yesterday as Washington floated the idea of raising capital gains tax rates on the highest earners. As you've noticed, financial markets (and, not to mention, the highest earners) hold more than a little political sway, as even some Democrats are expressing some concern. So, while, unequivocally, the current Administration's platform demands higher taxes, I don't suspect it'll be all that easy to get across the finish line...

Thursday, April 22, 2021

Quotes and Chart of the Day: Takes Me Back

Man! Reading this morning's WSJ article "Robinhood, Three Friends and the Fortune That Got Away" so takes me back to the late 90s!

Morning Note: More Present-Day Fascinations -- And -- Don't Be A "Blockhead!"

In this week's main message I mentioned "the fascinating developments all around us", referring to the high level of stocks (compared to pre-pandemic prices), the likes of GameStop and the euphoria (in some circles) over cryptocurrencies. 

Wednesday, April 21, 2021

This Week's Message: Our Near-Term Concerns, Our Long-Term Likes -- And -- What Good Poker Players and Good Investors Have In Common

I've mentioned several times herein of late that, presently, the bull market in equities is more about stimulus than it is fundamentals. A relationship/correlation that makes for a precarious overall setup, from a couple of perspectives:

Morning Note: Inflation's Here -- And -- Beware the Uber-Confident Expert

Like I keep saying, the hot debate (in my geeky world) is whether the inflation that we're seeing (vs what's showing up [or not showing up] in CPI) is cyclical (short-term) or structural (long-term).

Tuesday, April 20, 2021

Morning Note: The Main Lesson of History

You could argue that Asian equities' (Japan in particular) weakness overnight had something to do with Japan moving back into a state of (covid) emergency -- it wasn't announced until this morning, but it was rumored during the session. You could also surmise that, after a nice run of late, markets are simply taking a breather.

Europe's taking a beating this morning on no apparent news, although Russia has amassed a hundred thousand troops along the Ukrainian border...hmm...

Monday, April 19, 2021

Morning Note: Beware Your "Status Quo Bias"

As you've no doubt noticed, seldom do we do bitcoin herein, and when we do it's generally pointing to the crypto space (while it's to be taken seriously) as yet another indication of the bubbly characteristic(s) of present-day financial markets.

Friday, April 16, 2021

Chart of the Day: Lumber Bubble!

In today's video I mentioned the rising cost of lumber. I'm thinking this would be a good one to chart for you as well.

Here's a one-year look:

Yep, that's ~$340 a year ago, and $1,295/thousand board feet as I type!

While we can debate whether or not there's a bubble in housing, there's no debating the bubble in lumber!

Macro Update: Macro Conditions Continue to Look Up (video)

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Morning Note: Please Pass the Cake

Another short and sweet note this morning; our weekly macro update to follow a bit later today.

Bloomberg's "Macro Man" Cameron Crise pretty much says all one needs to say about the healthiness of present-day market action ("FOMC" being the Fed):

Thursday, April 15, 2021

Morning Note: "Abnormal Is Normal"

To get a feel for how confused markets are these days, consider this morning:

Retail sales, two important regional manufacturing surveys, and jobless claims were released and, suffice to say, retail sales and manufacturing knocked it out of the park. Initial jobless claims even, while still an ominous 576k, were a net positive -- as expectations were for 700k. The financial space (BofA, Citi, Wells and Blackrock) saw a slew of earnings releases that all destroyed expectations...

Wednesday, April 14, 2021

This Week's Message: Thinking Outside the Crowd

In the portfolio management world the term "short volatility" means essentially positioning in a manner that benefits from a low-volatility/rising asset price environment. 

A portfolio that is "short volatility" typically enjoys extended periods of nice, incrementally (barring the occasional hiccup) positive returns, with periodic bouts of large surprise shocks that tend to wipe out literally years of those nice, incremental gains... A simple buy and hold stock portfolio would, technically-speaking, be your classic example...

A “long volatility” hedging strategy, in contrast, is one where small ongoing costs are incurred, with periodic bouts of large surprise shocks, when outsized gains on the hedge are realized. I.e., it’s akin to paying insurance premiums in order to mitigate huge losses during those surprise shocks.

Our busy graph below (translation to follow) plots the past 60 years of action in the S&P 500 Index. The red arrows illustrate the number of years' worth of gains the 4 major bear markets of the era ultimately took back. The green arrows (in the 73/74 and the '00-'03/'07-'09 episodes) denote how many years it took to sustainably recapture the pre-bear market all time high. 

Note: The recovery from last year's selloff was too quick to allow me to squeeze in a green arrow, and of course it may yet be premature to label the recapture "sustainable."

'73/74 bear market: Drawdown, -48%. Years of gains lost, 11.5. Years to recapture prior peak, 10.6.

'00-'03 bear market: Drawdown, -51%. Years of gains lost, 5.4. Years to recapture prior peak, 12.9.

'07-'09 bear market: Drawdown, -57%. Years of gains lost, 12.4. Years to recapture prior peak, 5.5.

'20 bear market: Drawdown, -35%. Years of gains lost, 3.4 years. Years Months to recapture prior peak, 6.

Observations: The historically-brief periods separating the 3 most recent major (-30+%) declines speak to the herculean efforts of the powers that be. I.e., efforts that, intentions notwithstanding, served to arrest what would've otherwise turned out to be true market clearing (healthy) events. 

In not allowing the markets to purge all of the excesses of prior expansions, subsequent expansions forever begin in somewhat (albeit subtly) constrained fashion, requiring what amounts to the Fed maintaining easy monetary conditions in virtual perpetuity (read forever inflating bubbles)...

Thus, presently, low interest rates notwithstanding, equity market valuations remain at all-time highs and the debt concerns we've expressed ad nauseam herein have only been exacerbated (in terms of degree) exponentially! 

I.e., last year's selloff accomplished zero by way of healthy market clearing.

Hence, our inclusion of non-correlated (to U.S. stocks) asset classes into our core portfolio mix, increasing our global equities exposures, and our active "pure" hedging of major downside risk via options

Listening to an interview Monday evening with economist Jens Nordvig; he made the ultimate point with regard to the present macro setup, and, I'll add, what has U.S. equity market valuations remaining, for the time being, at all time highs:   

emphasis mine...
"It's just very hard to find historical examples of a cycle that looks like this one. We can obviously go back to the previous big pandemics and think about how they played out, but the policy responses were totally different."

"...certainly on the stimulus front in the U.S.. We're just talking about totally unprecedented numbers. Even the numbers we've already achieved are unprecedented, at least all the way back to the second world war. And we're already talking about the next round. We're just getting the last round signed and we're already on to the next one."

If you're new to our firm, say, within the past 2 years, it would be entirely understanding for you to surmise that we are inherently risk-averse. If, on the other hand, like most of you (clients), you've been with us throughout a market cycle or two, you know that there's nothing inherent about our presently cautious approach to U.S equities. 

In fact, during what was, at the time, the most volatile year of the longest bull market in history, 2018, we maintained our bullish posture throughout. It wasn't until late-summer 2019 that our assessment changed -- due to general conditions at the time -- and we became "cautious" with the regard to the risk/reward setup for the U.S. equity market.

Here's a 5-year graph of the S&P 500; the green box captures January 1, 2018 to August 2019, the yellow box captures everything since:

Note my notations -- pointing out our bent throughout the two periods. 

To get a feel for why we remained sanguine (maintaining the bullish posture we adopted back in early 2009) during the depths of the near-20% selloff in Q4 of 2018, here are a few snippets from our weekly message on 12/21 of that year:

"We are forever in search of the signs and signals that say "warning! Recession ahead!" As, typically, bear markets are things of recessions.

So how do we do that? We do that by testing the data that matter against the periods that led up to past recessions. And as we perform that function here today, the character of the data on balance (per our proprietary macro index) does not yet signal recession, and remains notably more positive than it was during the whopping 2011 correction, and slightly better than the 12+% draw down of early 2016, yet somewhat worse than conditions during the 2015 correction."

"Here's a small sampling of the data we track (shaded areas are recessions, I circled the areas around the 2011 correction and the back-to-back corrections of 2015 and 2016). I of course cherry-picked examples that emphasize my point, and those that most folks are familiar with and/or can relate to:"

"As you no doubt noted in the above, as it relates to the featured charts, present conditions do not remotely resemble recessions past, or even the 2011 and 2016 market corrections."

"History suggests that this -- a correction amid an ongoing economic expansion -- is the stuff strong rallies are made of."

Now let's fast forward to our September 1, 2019 blog post to get a feel for the state of general conditions a mere 9 months later:

"As we've been discussing and illustrating herein, we see real under-the-surface cracks forming in the macro economic setup. All the while there's this popular (in some circles) narrative that those of us expressing such concerns run the risk of talking the economy into recession.
Hmm... well, sure, sentiment is huge when it comes to the economy, but I can think nothing more dangerous/irresponsible for an investor or money manager to do than to pretend everything's perfectly okay, when clearly it isn't. We must see things as they are, and act accordingly.

Speaking of "seeing things as they are", here's our charting of some of the data points that currently weigh on the Economic and Financial Stress subindexes within our proprietary macro index -- which just came in below zero (heightened recession risk) for the 5th consecutive week:"

Click here to view the charts referenced... 

Okay, so skimming through past commentaries it occurs to me that I could do this all day, so I won't. Suffice to say that the evidence was sufficient to demand that -- after remaining unwaveringly bullish for the 10 previous years -- we begin hedging portfolios as of late-August 2019... Then, by December of that year, and incrementally since, we've been managing, via sector and asset class shifts, to a position mix that has us less correlated to the U.S. equity market, while taking advantage of the money printing and interest rate suppression that the powers that be are aggressively resorting to in order to keep modern history's most ominous debt bubble afloat for as long as humanly possible. 

Currently, that overall target mix consists of 18% cash and short-term fixed income securities, 24% currencies and commodities, 19% developed market foreign equities, 10% emerging market equities and 29% U.S. equities (bias toward materials, energy, green energy, financials and industrials).

Now, back to that last graph above...

Here we'll fold in the aggregated earnings per share (orange) for the S&P 500 Index. Note how it was topping out as our macro assessment instructed us to begin hedging, and how it has literally plunged since:

Well, I suppose we could say that we were prescient in our analysis. But, then again, unforeseen COVID showed up...

Well, sure -- prescience and COVID notwithstanding -- but look at the blue line (the S&P itself)... It literally screamed higher, while what would be the definition of the underlying fundamentals (corporate earnings) screamed epic bear market ahead!

So, how unusual is it to see stocks "scream higher", for any extended period of time, while earnings are epically rolling over?

Let's take a 30-year look:

Answer: Very!

For good measure, and to further illustrate how unusual the present setup is (in terms of the price action in stocks), let's fold in the recessions that occurred during those 30 years:

Of course what's happening here is the stock market discounting an absolute explosion upward in corporate earnings going forward — literally back to pre-covid levels... 

That's a very tall order that, in my opinion, is simply not doable without steady, ongoing fiscal injections that, per the Nordvig quote above, are already beyond virtually anything we've ever seen...

Therefore, make no mistake -- given the enormity of present-day asset (and debt) bubbles -- steady, ongoing fiscal injections we are indeed going to see. 

The question for us, on our clients' behalf, is, do we chase what everyone else seems so comfortable -- we presume based on the prospects for perpetual stimulus -- chasing? Or do we think deeper and catch the areas that are more fundamentally (positively) impacted by dollar debasement and interest rate suppression, while combing the world for other relative value plays?

We do the latter of course...

To expand on our recent charting of U.S. vs foreign equities (speaking of “combing the world”) let's break down their respective performances in thirds over the past 30 years.

Here's 4/1991 to 4/2001:

Here's 4/2001 to 4/2011:

Here's 4/2011 to today:

Well, clearly, everybody's presently betting on the white line!

But if you think outside the crowd and simply plot the relative performance trends and how the leadership has tended to flip roughly every ten years, barring any other considerations (and there are of course many), history says it's time to pare back your bets on the white* and add some serious color* to your portfolio.

*White being U.S. equities, orange being Europe, yellow being developed markets (Europe, Far East, Australasia), blue being emerging markets.

I.e., the above, and other considerations, has us feeling very good about our present 50% of equities target to those colored lines.

With regard to commodities, here's from last week's macro update:
"...with regard to the opportunities in the commodities' space, aside from the obvious, consider the relative performance setup that's developed over the past 10 years.

I.e., while U.S. major equity averages are stretching epically into all time high territory, commodities and miners are just now breaking out of a decade-long downtrend:"

Thanks for reading!