Friday, October 15, 2021

Morning Note: Friendly for stocks, not so much for bonds -- And -- The trouble with trying to time cycles...

Please pardon my cynicism, and we do like banks right here, but when the powers that be engage in what ultimately amounts to the pumping of unthinkable liquidity into the financial system (read markets), well, yeah, you're going to see news lines like this following a Goldman Sachs' earnings announcement:

"At New York-based Goldman, investment-banking gains were bolstered by outperformance in advisory, which brought in $1.65 billion. Trading-division revenue came in at $5.61 billion, according to a statement Friday, surging past last year's headline pace."

Goldman shares are up over 2% in the pre-market... 

Also, speaking of equity market-friendly news this morning, U.S. retail sales came in way better than expected. Economists predicted an actual decline of 0.2% for September; ex out autos and they were thinking up 0.5%. Well, they actually increased 0.7%, and August's were revised up to 0.9%. Ex-autos they rose 0.8% last month.

Now, what's good news for stocks can be bad news for bonds (read higher interest rates!). Such rosy retail numbers virtually lock the likelihood of the Fed tapering bond purchases come, say, November. And, not to mention, they do zero to quell present inflation fears...

Here's your 1-minute TLT (long-term treasury bond ETF) price (moves opposite the yield) chart so far this morning (grey area = pre-market):

Asian equities were in rally mode overnight, with all but 2 of the 16 markets we track closing higher.

Europe's no slouch either so far this morning: 14 of the 19 bourses we follow are in the green, as I type.

US stocks are starting the day on a nicely positive note: Dow up 264 points (0.76%), SP500 up 0.53%, SP500 Equal Weight up 0.60%, Nasdaq 100 up 0.22%, Nasdaq Comp up 0.28%, Russell 2000 up 0.89%. 

The VIX sits at 15.97, down 5.28%.

Oil futures are up 1.27%, gold's down 1.48%, silver's down 0.87%, copper futures are up 2.86% and the ag complex is up 0.72%.

The 10-year treasury is down (yield up) and the dollar is up 0.03%.

Led by base metals futures, metals miners, oil services stocks, MP (rare earth miner) and Latin American equities -- but dragged by uranium miners, gold, KRBN (carbon credits), silver and TIP (treasury inflation protected securities), our core portfolio is up 0.46% to start the day.


Our colleague Hari Krishnan, in his (and Ash Bennington's) excellent and insightful book Market Tremors, artfully points out "the trouble" with trying to time cycles:

"The trouble is that we don’t know when the cycle will turn. Many observers with a bearish disposition argue that every passing day makes the risk of an imminent liquidation more likely. This may well be true, but a simple analogy shows the dangers in this assumption. Imagine that you are waiting for a friend. If someone issued a guarantee that your friend would be no more than an hour late, the odds that he or she will arrive in the next 5 min would increase rapidly over time. After 55 min, the probability of arrival in the next 5 would be 100%. However, this doesn’t correspond with experience. The longer you are kept waiting, the less likely that your friend will be coming anytime soon. Something material may have happened, which has qualitatively changed the distribution of arrival times."

Have a great day!

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