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:

"A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases."

While, indeed, current conditions, historically-speaking, would absolutely warrant a Fed tightening -- in fact, in years (well.. decades) past they'd already be hiking interest rates and carefully draining liquidity from the system -- make no mistake my friends, not in today's world! 

You see, the past few decades have brought an amazing display of bailouts and, in the process, the blowing up of a debt bubble the likes of which not seen since the 1930s and 40s. 

Therefore, obligatory rhetoric aside, odds strongly favor the Fed following the 1940s playbook: Print in sufficient (huge) quantity to fund Federal government spending, while suppressing interest rates and, thus, allowing inflation to run hotter far into the foreseeable future. Anything else virtually assures the bursting of the current everything bubble. Hence, the jitteriness stocks display at the mere hint that someday, maybe, the Fed will tap the breaks on their high-speed money train.

Asian stocks leaned red overnight, with 11 of the 16 markets we track closing lower.

Europe, on the other hand, is across-the-board green so far this morning; all of the 19 bourses we follow are trading higher as I type.

U.S. major averages (despite declining financials, industrials, materials and energy), save for the Russell, are in the green as well: Dow up 62 points (0.18%), SP500 up 0.54%, SP500 Equal Weight up 0.20%, Nasdaq 100 up 1.24%, Nasdaq Comp up 1.05%, Russell 2000 down 0.05%. 

The VIX (SP500 Implied Volatility) is down 4.96%. VXN (Nasdaq 100 i.v.) is down 4.31%.

Oil futures are down 0.99%, gold's up 0.42%, silver's up 0.39%, copper futures are down 0.47% and the ag complex is down 0.14%.

The 10-year treasury is up (yield down) and the dollar down 0.37%.

Led by solar stocks, wind stocks, AT&T, tech stocks and Eurozone stocks -- but dragged by energy stocks, MP (rare earth miner), metals miners, metals futures and bank stocks -- our core portfolio is up 0.18% to start the day. 

In this week's main message (be sure to read if you haven't already) I dared to declare the dreaded 4-word phrase ("it's different this time") that has made fools of so many who've been foolish enough to mouth it throughout the history of markets and economies. Well, as we've preached herein for years, markets and economies are ultimately just reflections of humans in action, and per Oliver Wendell Holmes,

“Every now and then a man’s mind is stretched by a new idea or sensation, and never shrinks back to its former dimensions.”

Have a great day!


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