Thursday, December 16, 2021

Morning Note: It's Either Belief in the Fed or Myopia and Seasonality -- And -- The Nature/Incubation of the Politician

Well, Jerome Powell threaded the needle beautifully yesterday. That is, if his objective was to acknowledge that inflation is indeed worthy of the Fed's attention, without at the same time cracking the equity market.

The Fed's post-meeting policy announcement, which was precisely what we (and everybody else, btw) anticipated in yesterday morning's note, by itself left the market in limbo. It was Powell's crafty fielding of a pointed question or two that sent an unambiguous signal to markets that, for the time being, we got your back. At least that's how much of the punditry read yesterday's tea leaves...

Me, I dunno... The "dot plot" -- an anonymous unblindfolded pin-the-tail-on-the-donkey exercise that illustrates where Fed governors see the Fed funds rate in the future -- says multiple rate hikes are coming over the next few years. And that (as historically-low as rates will still be in the aftermath), my friends, ultimately poses a notable headwind for much of the US stock market, at present valuation levels.

So, again, either the aforementioned punditry has it right, or we're simply talking myopia and seasonality (Decembers are typically good to stocks), and, after all, we had a dip to buy!

Asian equities leaned green overnight, with 13 of the 16 markets we track closing higher.

Europe's bouncing so far this morning, with 17 of the 19 bourses we follow trading up, as I type.

US major averages are mixed: Dow up 116 points (0.33%), SP500 up 0.09%, SP500 Equal Weight up 0.61%, Nasdaq 100 down 0.68%, Nasdaq Comp down 0.42%, Russell 2000 up 0.57%.

The VIX sits at 19.17, down 0.62%.

Oil futures are up 1.02%, gold's up 0.77%, silver's up 1.65%, copper futures are up 3.24% and the ag complex is down 0.28%.

The 10-year treasury is up (yield down) and the dollar is down a big 0.51%.

Led by AT&T, MP (rare earth miner), metals miners, base metals futures and uranium miners -- but dragged by chip makers, tech stocks, treasury inflation protected securities and ag futures -- our core portfolio is up 0.55% to start the session.

I'm thinking (cynically thinking) it might be timely to drag this one out:

"It is the nature of the politician— intentions notwithstanding— to attempt to fix the things that bring pain to his constituents. Like the overprotective parents who can’t bear to witness their child suffering the normal pains of life, who carefully arrange the child’s experiences, who provide for every whim, who fill life’s potholes before the little angel can lose a step, and who ultimately deliver an emotionally anemic adult void of any real-life problem-solving skills. One who sees government (as he did Mommy and Daddy) as the answer to all the world’s challenges. This surely describes the incubation of many of today’s politicians.

Thus, when the economic cycle inevitably turns and the excesses born of every expansion unwind and create unavoidable pain, beware the politician who promises he can fix everything, claiming he can allay all future pain and risk through legislation..."
Mazorra, Martin. Leaving Liberty?: Essays on Politics and Free-Market Thinking

Make no mistake folks, I was (and am) picking on both sides of the political aisle in that one!

Have a great day!

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