Morning Note: Fed Constraints and Govt Ambitions Make for an Anemic Inflation Response -- And -- Bullish Ag -- And -- It Takes More Than Just Money

Equity futures last evening quickly moved from nicely red to notably green upon Moderna's CEO telling the Financial Times, with regard to the existing vaccine efficacy related to the latest COVID variant:

“I think it’s going to be a material drop. I just don’t know how much because we need to wait for the data. But all the scientists I’ve talked to…are like, ‘This is not going to be good.'”

As we've suggested herein, self-imposed constraints (the result of years-long policies that deserve the credit/blame for blowing an equity bubble to, by some measures, an extreme [not to mention govt ambitions that demand running large deficits against a debt pile that well exceeds the size of the economy]) on the Fed simply do not allow for a consequential strategy (they'll battle it at the margin until something in the markets breaks) for dealing with inflation. 

Thus, any external threat provides cover for Chairman Powell, per his comment yesterday:

“The recent rise in Covid-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity...”

He did also acknowledge the added "uncertainty for inflation", along with the following:

“Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labour market and intensify supply-chain disruptions.”

Our long-term inflation thesis actually has little-to-nothing to do with COVID, but of course that last statement suggests that the "transient"ness of present inflation could carry on well into next year.

The folks at Crescat Capital, for reasons (including our view on the dollar, on inflation, on weather, etc.) we sympathize with, are quite bullish on commodities -- including ag: 

 

Asian equities continue to buckle under the weight of today's COVID angst, with 10 of the 16 markets we track closing lower (Japan, Hong Kong, So Korea and Singapore notably).

Europe's actually hanging in there so far this morning, with 15 of the 19 bourses we follow in the green, as I type.

US major averages are struggling: Dow down 326 points (0.93%), SP500 down 0.62%, SP500 Equal Weight down 1.06%, Nasdaq 100 down 0.13%, Nasdaq Comp down 0.14% (recall from yesterday's note, tech will outperform during a COVID scare [it'll likely be a relative dog on the other side of it, however]), Russell 2000 down 0.85%.

The VIX, at 24.50 (up 6.7%) exhibits nervousness.

Oil futures are down 3.35%, gold's up 1.19%, silver's up 1.37%, copper futures are down 0.23% and the ag complex is down 1.42%.

The 10-year treasury is up (yield down) and the dollar is down a big 0.79%.

Led by MP (rare earth miner), silver, AMD (chip maker), gold, KRBN (carbon credits) and Indian equities -- but dragged by AT&T, oil services stocks, Viacom/CBS, uranium miners and bank stocks -- our core portfolio is off 0.20% to start the day.

A primary factor supporting the narrative among the stock market bulls going into next year is the massive amounts of money sloshing within the system. Not the least of which being the $2+ trillion sitting in consumers' savings accounts.

Well, while I to some degree certainly sympathize, when it comes to the will to speculate (or continue to speculate), John K. Galbraith, in his must-read history lesson The Great Crash 1929 suggests that access to money alone ain't always enough:

"...the explanation obviously assumes that people will always speculate if only they can get the money to finance it. Nothing could be farther from the case. There were times before and there have been long periods since when credit was plentiful and cheap—far cheaper than in 1927–29—and when speculation was negligible."

Have a great day!
Marty