Thursday, April 1, 2021

Morning Note: Don't Be Fooled By All the Fun! Unless of course you love risk...

So, let's get yesterday's news out of the way...

Proposed: $2.25 trillion on infrastructure over 8 years, with another $1 trillion trailer to come. 

Equity markets seem okay with it this morning, but nothing Earth-shattering to the upside. I wonder if the proposed corporate tax increase -- that'll shave $150 billion a year off of company bottom lines (for 15 years) -- isn't weighing on share prices a bit? Rest assured, it will, if/when passed... And how might the market do with that much less in share buy backs (which partly explains how we got here) in the years to come? Hmm...

Lo and behold, our core portfolio is being led higher this morning by uranium miners, lithium miners and solar companies.

And while the Nasdaq Comp (read tech) looks healthy this morning (advancers leading decliners better than 2 to 1), the S&P 500 (despite its headline gain) is roughly split down the middle (as many losers as gainers), and 20 of the Dow's 30 are (despite its headline modest gain) in the red, as I type...

Asian equities had a good night last night, with 14 of the 16 markets we track closing higher.

Europe's definitely feeling it this morning as well, all 19 bourses we follow are in the green thus far.

U.S. major averages are green across the board as well: Dow up 50 points (0.15%), SP500 up 0.78%, SP500 Equal Weight up 0.35%, Nasdaq 100 up 1.74%, Russell 2000 up 1.07%.

The VIX (SP500 implied volatility) is down 7.01%. VXN (Nasdaq i.v.) is down 3.66%.

Oil futures are up 2.16%, gold's up 0.96%, silver's up 0.59%, copper futures are (interestingly) down 0.29% and the ag complex is up 0.32%.

The 10-year treasury is up (yield down) and the dollar is down 0.10%.

Led by uranium miners, ALB (lithium), solar companies, tech and gold miners -- but dragged by consumer staples, AT&T, Verizon, metals miners (interestingly) and utilities -- our core mix is up 0.42% to start the session.

If there's one book that I've read over the past year that truly explains what I'll call the epic fix our policymakers have politicked us into, it's Lee, Lee and Caldiron's The Rise of Carry

Here's from the book's final page:

"Realistically, 2007–2009 was the last opportunity for the authorities to lean against carry by allowing carry traders to suffer catastrophic losses, thereby helping to unwind some of the economically damaging structural effects of carry that we have discussed in this book.
That opportunity was lost, and the carry regime has been strengthened further. The consequences for the United States and other countries—financial corporatism, growing inequality, an economy that no longer benefits a large proportion of the population, voters voting for nationalist or populist parties or movements—are becoming evident.

The result is that the next 20 years are guaranteed to be tumultuous. The financial markets stand at the epicenter of developments and will provide important clues to broader trends. These clues include the behavior of financial market volatility and the presence or otherwise of inflationary pressures in the economy. Forewarnings of inflation may be apparent in central bank or other government responses to crisis."

Well, The Rise of Carry was published just prior to the latest episode, and my how the authorities did not allow egregious risk takers to suffer the consequences of their insanely irresponsibly ways (I wrote about these risks ad nauseam in 2019 as well). Quite the opposite in fact. Not only did they in-effect relieve the hedge fund and private equity firms’ portfolios of their embarrassingly insolvent debt holdings (essentially off-loading them onto the taxpayer), they inspired them to do more of the same.

So, no, my friends, while indeed the Fed can play this shell game for a long time yet to come, just know that the ice remains too thin to run out there and hang with the crowd who has no clue what they're skating on -- regardless of how much fun it appears they're having in the meantime. 

Not to say, mind you, that there aren't opportunities where the ice looks a bit thicker, there are -- which is where we're focused -- it's just maybe not as pretty (slick, speedy) over there...

Have a great day! 

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