Tuesday, February 15, 2022

Morning Note: Don't Hold Your Breath

Here are a couple timely snippets from our latest commentary:

"I'd instruct both short-term bulls and bears to not hold their breath right here (this market is bound to remain uber volatile, in both directions)."

From Saturday's video update:

Summing up the SPX daily chart: "...from a technician's perspective, boy, you couldn't ask for less -- if you're a bear you couldn't ask for more. So that's not a good look right there.

Of course we do know what Friday was all about, and, presumably, if we hear over the weekend that Russia's pulling troops away from Ukraine, well, then there's very strong odds that that (the SPX daily bar) is going to push itself up higher.

Now let me throw a wrench into that: Should something occur, geopolitically, globally, that really gets the world panicky -- it, on balance, will weigh on economic data. If it lasts for any period of time, it'll slow activity. And if it slows activity, well, then that should slow some of these pressures that would have the Fed raising interest rates (the Fed funds rate), some think by half-a-percent at next month's meeting.

Fed governor Bullard said that he wants to see a one-percent increase by July; that's what got the market upset on Thursday. But if you have big global angst, then the Fed can justify maybe backing off a bit, maybe that'll have a weakening impact on the economy.

So, remedying that, which of course we all want -- these geopolitical risks, the one in particular that we're talking about -- that could create some optimism. And what does that mean? That means no alleviation of the pressure on the Fed.

That's better than the opposite for sure, but, ultimately, you get a nice relief rally, then you say there's nothing getting in the way of bigger rate increases than what equities have priced in, and then of course we roll right back over. 

Things to think about."

Stocks (save for energy and anything related to precious metals [and grains]) are rallying big this morning on news that Russia has moved 10,000 troops away from the Ukrainian border.

Let's pray that sticks, but, again, either way, nobody should be holding their breath right here!

Asian equities struggled overnight, with all but 3 of the 16 markets we track closing lower.

Europe's in rally mode this morning, with all but 2 of the bourses we follow trading notably higher as I type.

US major averages are green across the board: Dow up 332 points (0.96%), SP500 up 1.15%, SP500 Equal Weight up 1.12%, Nasdaq 100 up 1.74%, Nasdaq Comp up 1.83%, Russell 2000 up 1.76%.

The VIX sits at 26.35, down 6.99%.

Oil futures are down 4.70%, gold's down 1.19%, silver's down 3.15%, copper futures are up 0.40% and the ag complex (DBA) is down 0.62%.

The 10-year treasury is up (yield down) and the dollar is down 0.12%.

Among our 38 (rotated out of Indian equities yesterday) core positions (excluding cash and short-term bond ETF), 29 -- led by ALB (lithium miner), solar stocks, chip stocks, Sweden equities, wind stocks, MP (rare earth miner), Disney and German stocks -- are in the green so far this morning. The biggest losers this morning are silver, energy stocks, metals miners, gold and ag futures.

It's easy to criticize today's central bankers as if their actions -- whether one considers them complacent, reactionary, or, alas, either at precisely the wrong times -- are somehow unique in the chronicles of history. Well... human nature being what it is:  
"In 1931, Adolph Miller would testify before the Congress that the easing of credit in the middle of 1927 was “the greatest and boldest operation ever undertaken by the Federal Reserve System, . . . [resulting] in one of the most costly errors committed by it or any other banking system in the last years.”
Some historians, echoing the views of Hoover and Miller, see the meeting on Long Island as the pivotal moment, the turning point that set in train the fateful sequence of events that would eventually lead the world into depression. They argue that by artificially depressing interest rates in the United States to prop up the pound, the Fed helped fuel the stock bubble that subsequently led to the crash two years later."

Ahamed, Liaquat. Lords of Finance: The Bankers Who Broke the World 

Have a great day!

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