Friday, April 9, 2021

Morning Note: "The Game is About Preservation of Capital"

With all due respect to any conspiracy theorists out there, it's been my all-too-often observation/opinion that conspiracy theories are, again, all-too-often, about outcomes that simply don't comport with the theorist's preconceived notions.

Well, that said, the fact that the Bureau of Labor Statistics' systems froze this morning -- the morning when the latest Producer Price Index read is to be released -- a moment when virtually nothing could be more inconvenient, given the Fed's present objectives, than a serious bout of inflation... well... very odd indeed!

Well, I can tell you that the bond market didn't wait for the BLS to come back on line.

Suffice to say that that's a big move in the 10-year treasury yield this morning:

And while inflation, by definition, means a cheaper dollar, rising interest rates -- which is what the dollar is reacting to this morning -- can be an offsetting tailwind:

Recall, per my preaching over the past year, that there are two things that the present setup simply cannot do -- sustainably rising interest rates and a sustainably rising U.S. dollar. 

And virtually nowhere is that risk on display more than in tech stocks (at least based on the latest correlations).

Here's the pre-market action in futures on the tech-heavy Nasdaq 100 Index:


So, the BLS is back on line, and while a 1% move in PPI is twice what was "expected", it's certainly -- and conveniently -- not the end of the world. But, nevertheless, it's -- for the moment -- enough to keep a serious bid under interest rates and the dollar, and a lack of one under tech stocks.

Asian stocks had a rough night last night, with 12 of the 16 markets we track finishing in the red.

Europe's doing okay so far this morning, 15 of the 19 bourses we follow are up a bit as I type.

U.S. major averages are off to a mixed start, Dow up 105 points (0.30%), SP500 up 0.04%, SP500 Equal Weight up 0.26%, Nasdaq 100 down 0.46%, Russell 2000 down 0.20.

The VIX (SP500 implied volatility) is up 1.36%. VXN (Nasdaq 100 i.v.) is up 1.87%.

Oil futures are down 0.62%, gold's down 1.06%, silver's down 1.36%, copper futures are down 0.57% and the ag complex is up 0.23%.

The 10-year treasury is down (yield up) and the dollar is up 0.25%.

Led by banks, financials, AT&T, materials and utilities -- but dragged by solar stocks, silver, gold miners, gold and emerging market equities -- our core portfolio is off 0.16% to start the day.

I couldn't agree more with the following by Barclays' John Porter, taken from his interview featured in Steven Drobney's excellent book Inside the House of Money:
"The most important quality of a trader is discipline. That is a sine qua non of trading; one must have discipline. It is even more important than idea generation. The key over time is to have the discipline to capitalize on your successes and minimize your mistakes because, ultimately, the game is about preservation of capital."

Have a great day!

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