Friday, July 23, 2021

Morning Note: A Bloat of a Different Color

 Bloomberg's "Macro Man" Cameron Crise is making sense this morning:

"It’s pretty easy to point the finger at stock market valuation as a source of concern, but the fact is that it’s hard to envisage any sort of secular or medium-term top being put in place when corporate performance is this spectacular.

It’s little coincidence that all of this has occurred during a time of extraordinary stimulus-- both fiscal and monetary-- for the economy. Clearly, corporations have been prime beneficiaries of this largesse, as indeed they have been for years. Whatever one might think of how beneficial it is to structure an economy in that fashion, that’s what we’re left with. While there is a common complaint that QE, etc. has pumped up stock prices and other financial assets to absurd valuations, at least part of the reason for this (at least recently) is that it has created a foundation for extraordinary corporate performance.

Until that starts to wane, calling an enduring top is going to be a pretty frustrating exercise."

Although, and I'm in no way "calling an enduring top" right here, I will say that when one ultimately comes, it'll likely be when it's least expected. The market likes to do that... 

Today is macro day around here and I've got pithy stuff to share after I perform my weekly macro duties (score our index, etc.) -- our weekly video commentary will likely come your way sometime later today, tomorrow at the latest -- so I'll keep this morning's note brief and jump to the numbers right here:

Asia (China notably) struggled overnight with 11 of the 16 markets we track closing lower (Japan was closed).

Europe's mostly rallying this morning, with all but 4 of the 19 bourses we follow in the green thus far.

In concentrated fashion (i.e., smallcaps, materials, energy and industrials are lagging notably; the former three bleeding this morning), U.S. stocks are mostly catching a bid: Dow up 133 points (0.38%), SP500 up 0.49%, SP500 Equal Weight up 0.23%, Nasdaq 100 up 0.47%, Nasdaq Comp up 0.34%, Russell 2000 down 0.18.

The VIX (SP500 implied volatility is down 3.62%. VXN (Nasdaq 100 i.v. is down 0.76%.

Oil futures are down 0.26%, gold's down 0.45%, silver's down 1.27%, copper futures are up 0.18% and the ag complex is up 0.16%.

The 10-year treasury is down (yield up) and the dollar is up 0.18%.

Led by MP (rare earth miner), Eurozone equities, base metals futures, KRBN (carbon credits) and tech stocks -- but dragged by ALB (lithium miner), solar stocks, oil services stocks, emerging market equities and gold miners -- our core portfolio is off 0.14% to start the session.

I penned the following a few years ago (featured in the daily devotional I published back in 2013). Seems like yesterday -- or, alas, in terms of what we're presently (and will be ad infinitum) seeing -- today:

A Bloat of a Different Color

What if I told you you’re currently netting, on average, 250 calories per meal more than you’re burning off daily? You tell me: Would you be fatter or skinnier a year from now?
If you arrange your daily activities so as to net minimal physical stress, you tell me: Will your bones and muscles be more or less dense, and will they possess more or less capacity a year from now?
What would you say if I told you that you could lose weight by increasing your caloric intake by 70 percent daily? And what if I told you that you could become physically stronger while exerting even less over the next twelve months? As much as you’d love to believe me, you’d tell me I’m full of it.
But what if I were the recipient of the Nobel Prize in nutrition (were there such a thing)? Would you believe me then? Sadly, some of you (those who’d do just about anything not to diet or exercise) would. But alas, my academic prowess notwithstanding, my saying it wouldn’t amount to a hill-a-pork-n-beans twelve months from now.
Now what if I told you that you’re spending 70 percent more than your annual income? You tell me: Will you be richer or poorer a year from now? And what would you say if I told you that you’d be in better fiscal shape if you spent even more over the next twelve months? I’d be full of it, right?
But what if you were a company? Still full of it. Ah, but what if you were a nation? Now there’s a bloat of an entirely different color. For at least one Nobel Prize–winning economist, many other not-Nobel-laureate economists, and oodles of pandering politicians would have you believe that very thing. The question is, do you?

But hey, and make no mistake, while there's ever-rising risk in such a world, there's oodles of opportunity to carefully and prudently exploit as well!

Have a great day!

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