Thursday, February 24, 2022

Morning Note: Expectations

Sadly, there are far more important things than markets occurring on the world stage, but markets and economics are our focus herein.

Here's my quick reply to a recent query around what to expect with regard to interest rates and residential real estate under these circumstances:

"It depends on how far it goes, how long it lasts from here.

Typically, other-country events such as these (in "recent" past) have been met with swift reactions in markets (stocks sell off, interest rates plunge, real estate values would be less affected [in of course non-involved countries] initially).

The bigger question of course is how long it lasts. If it's a protracted affair we should expect it to be a weight on the economy, negatively impacting asset prices (with interest rates typically trending lower).

However, this one, given the commodities in play in the region, stands to exacerbate already high inflation. In theory, that would have a positive effect on interest rates (pushing them higher). Lots depends on the Fed's commentary the next few days. Ironically, if they continue with their scheduled plan to begin raising the Fed funds rate in March, and halt asset purchases, that'll likely negatively effect interest rates, as it'll be viewed as a further drag on the economy.

Very fluid situation for now..."
Economist Ed Yardeni pondered the market impact of geopolitical crises:
"Geopolitical crises have tended to be buying opportunities for stock investors in recent years. We’ve counted 73 panic attacks that included a smattering of geopolitical crises since the start of the current bull market in 2009. We are counting the latest selloff since February 18 as Panic Attack No. 74 and attribute it mostly to the Ukraine crisis. The previous one started on January 5 and was attributable to another Fed taper tantrum. These back-to-back panic attacks have caused the S&P 500 to drop 10.3% since its record high on January 3 through February 22, qualifying the downdraft as a correction."

In the short-run, consistent with our chart of potential "oversoldness" for the S&P 500 yesterday, he may very well be right. The only issue I have with his assertion is that his time frame is from 2009 forward ("the current bull market"). Market conditions (US in particular) are vastly different at this juncture than they were throughout most of the life of the "current bull market." 

And here's economist Peter Boockvar this morning on the immediate impact on commodity prices:

"As of this writing, the price of European natural gas is up by 32%, the price of aluminum is at a record high, nickel at a 10 yr high, palladium is higher by 5.3% to the highest since August, brent crude is trading at almost $105 with WTI just below $100, wheat is spiking by almost 6% to a 10 yr high of $9.25 per bushel, corn higher by 5% to back above $7 per bushel, soybeans is now above $17, higher by 4%, and gold and silver are each up about 3%."
Much more to come herein...

All 16 of the Asian markets we track closed notably lower overnight.

Europe's of course a mess this morning as well, with all 19 of the bourses we track markedly down as I type.

US stocks are in the red to start the session: Dow down 747 points (2.25%), SP500 down 1.67%, SP500 Equal Weight down 1.54%, Nasdaq 100 down 1.27%, Nasdaq Comp down 1.29%, Russell 2000 down 0.97%.

The VIX sits at 34.76, up 12.06%.

Oil futures are up 6.32%, gold's up 1.36%, silver's up 0.92%, copper futures are up 0.03% and the ag complex (DBA) is up 0.24%.

The 10-year treasury is up (yield down) and the dollar is up 1.31%.

Among our 38 core positions (excluding cash and short-term bond ETF), 9 -- led by base metals futures, wind stocks, uranium miners, treasury inflation protected bonds and gold -- are in the green so far this morning. The losers are being led lower by carbon credits, Eurozone equities, emerging market equities, South Korean equities and bank stocks.


"...not even a world war can keep the stock market from being a bull market when conditions are bullish, or a bear market when conditions are bearish. And all a man needs to know to make money is to appraise conditions."

--Jesse Livermore 

Have a nice day,

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