Morning Note: Politics and Markets -- And -- A Most Instructive Quote

Once again sharing from our internal market log:

3/30/2022

Thinking about political constraints and incentives this evening:

Headline: “Biden Team Weighs a Massive Release of Oil to Combat Inflation.”

I.e., hit the SPR, which was originally intended to tap only in the event of national (security) emergency. Not, that is, to manipulate the price when market forces dictate one higher than is politically expedient.

There’s so much wrong with the above I’m not even sure where to begin. But, suffice to say, the absolute most that can be hoped for is a temporary reprieve.

Stock Market Snapshot (video)

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Morning Note: Not 'Ultimately' a Bullish Setup Right Here

Last evening's entry to our internal market log:

3/29/2022

Interesting action today. Commodities continued their notable slide at the open, while stocks (non-US especially) rallied hard. This was clearly in anticipation of constructive peace talks.

While the talks did not result in a ceasefire, some level of de-escalation was assured; although that’s already been occurring in specific areas of late, and skepticism is warranted with regard to the motivation.

Commodities crept back up during the session: Among our core positions, gold finished 4 bps in the green, silver lost only 9 bps, energy stocks clawed back all but 26 bps of their earlier losses. Metals miners and base metals futures however still closed down 1.42% and 1.80% respectively.

Bonds rallied.

So, were it not for the continued malaise in base metals, I’d say the action in commodities reflects anticipation of no end in near-term sight for Russia/Ukraine. The rebound in gold, and the bullish action in bonds seem to support that notion. Stocks, however, while (US) still not positive on the year, rallied as if odds favor a near-term end to the war.

Speaking of stocks, the action entirely comports with my view that myopia is acute right here, and, therefore, given the possibility of looming peace , no one wants to miss out on what they expect to be a sharp rally on the news. That said, the more the market continues to move higher on the prospects for peace, the more likely peace ultimately becomes a sell the news event. As, in the immediate aftermath, the market will have to deal with major headwinds emanating from a Fed that appears hellbent on reining in inflation.

Not, ultimately, a bullish setup right here…

Asian equities were positive overnight, with all but 3 of the markets we track closing higher.

Europe's struggling this morning, with 13 of the 19 bourses we follow in the red as I type.

US stocks are mixed (mostly lower) to start the session: Dow up 29 points (0.08%), SP500 down 0.24%, SP500 Equal Weight down 0.18%, Nasdaq 100 down 0.49%%, Nasdaq Comp down 0.52%, Russell 2000 down 0.38%.

The VIX sits at 18.93, up 0.16%.

Oil futures are up 3.58%, gold's up 0.71%, silver's up 0.46%, copper futures are up 0.22% and the ag complex (DBA) is up 1.11%.

The 10-year treasury is up (yield down) and the dollar is down 0.59%.

Among our 37 core positions (excluding cash and short-term bond ETF), 22 -- led by MP (rare earth miner), base metals miners, uranium miners, wind stocks and base metals futures -- are in the green so far this morning. The losers are being led lower by carbon credits, Eurozone equities, semiconductor stocks, banks and tech stocks.

From William Struss's and Neil Howe's enlightening and provocative 1997 book The Fourth Turning (I highly recommend):

“There is a mysterious cycle in human events,” President Franklin Roosevelt observed in the depths of the Great Depression. “To some generations much is given. Of other generations much is expected. This generation has a rendezvous with destiny.”

The cycle remains mysterious, but need not come as a total surprise. Though the scenario and outcome are uncertain, the schedule is set: The next Fourth Turning—America's next rendezvous with destiny—will begin in roughly ten years and end in roughly thirty. How can we offer this prophecy with such confidence? Because it's all happened before. Many times."

Hmm.... 

Have a great day!
Marty

Morning Note: Musing on the Current Commodity Setup -- And -- The Ultimate Investment Question

Yesterday evening, after skimming through the latest from a few commodity bulls generous enough to post their thoughts on Twitter, I found myself contemplating the short-term setup on my keyboard. 

Here you go:

Morning Note: Much to Watch!

Like I said in the weekend economic update, we hold no delusions with regard to commodities right here. Meaning, while we remain notably bullish on their go-forward prospects, they've run up a lot over a short period of time and, among other potential catalysts, any hint at peace in Europe would have them indeed pairing a chunk of those gains. Note that we turned bullish commodities well before the invasion.

Stock Market Snapshot (video)

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Economic Update: No Delusions Regarding Commodities -- And -- OK Global Sentiment (video)

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Morning Note: No More Waiting on the World to Change (and a little music )

Super quick note this morning (economic update up next).

So, I've dared herein of late utter those famously-considered-ill-conceived four words when it comes to investing "it's different this time." But, you know, while, sure, human nature seems to never change, over many decades it evolves (or perhaps [in a very protracted manner] cycles) through patterns that ultimately inflect into societal sea changes that indeed alter the structural investment landscape and, therefore, virtually demand a re-thinking of what we think we know about asset class relationships, correlations and so on.  

Morning Note: Minds Wide Open...

So, I keep saying that the US equity market has major headwinds in its face, despite that (via the SP500) it's only off 6.5% year-to-date. Yes, "only!"

Staying with this week's theme, we'll touch once again on the mystery that is a stock market that, for the moment, holds up against the Fed's explicit promise to remove its punchbowl.

Stock Market Snapshot (video)

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Morning Note: Maybe It's ....................

In yesterday's note I suggested that it was no mystery to us why stocks (via the SP500) have only suffered mid-single digit declines year-to-date (although they were low-double digit at one point). I referenced the "wall of worry" adage to suggest that there's sufficient potential buying pressure that traders en masse are all too aware of should global angst suddenly abate a bit. The fear of missing out, if you will, keeps them engaged...

Morning Note: No Big Mystery

The action in equities of late has been nothing short of fascinating, not mysterious mind you, but fascinating.

Morning Note: "Pixie Dust"

A most common refrain on Wall Street is "don't fight the Fed." And history does indeed lend credibility to that advice. I.e., certainly, when the Fed is playing monetary policy loose and easy, asset prices do tend to rise. And the opposite generally holds true; markets tend to ultimately struggle when the Fed attempts to quash the ill effects of what forever amounts to a party that got sloppy and stayed open way past closing time.

Market's Distracted (video)

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Economic Update: Housing Okay, Although Homebuilders See Headwinds (video)

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Quote of the Day: Again, Status Quo Bias won't have it going forward....

Macro thinker Lynn Alden nails it in this month's newsletter:

"In recent years, many people spoke about how inflation was dead, and how commodity scarcity was a thing of the past.

The problem with an efficient-but-not-resilient global supply chain, is that it stops working once the smallest of exceptions occur. It could be a natural disaster of some sort, such as a virus. It could be a human disaster of some sort, such as a war. Or both, in the case of the 2020s decade thus far. A highly-levered and fragile system is not designed for such shocks.

And the problem with calling commodity scarcity a thing of the past, is that cheap commodity prices deter new investment in new commodity projects, resulting in stagnant supply, and eventually scarcity and higher prices. The commodity industry is notoriously boom-and-bust in nature every couple of decades due to this dynamic."

And to truly punctuate our status quo bias point:

"The structure global monetary system tends to change every several decades either due to new technology or sovereign defaults (often both), and yet participants tend to assume it will be permanent this time, which is a classic “end of history” perspective."

 

Morning Note: Bottlenecks Do Inspire Investment -- And -- Are We Paying Attention?

Keeping this morning's note brief, as Friday's are when we dig into the latest economic data (weekly update to follow), I wanted to just touch on the ongoing challenges around production bottlenecks -- as they're a real issue with regard to the near-term inflation trend.

Quick Technical Stock Market Update (video)

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Morning Note: The Most Dangerous 3 Words In Investing

Suffice to say that yesterday's rally -- considering the distribution of the gains and the extent of the moves across regions -- was more about international developments (glimmers of hope around Russia/Ukraine and very market-friendly comments out of China) than it was about J. Powell once again coming to the rescue.

Morning Note: Which Powell's Gonna Show?

So, it's Fed day, and, as I mentioned in our latest video update, Chairman Powell seems to have a knack for pleasing the equity market in his post-announcement pressers. That said, I should clarify, that's been the case pretty much from early 2019 on. Up to that point, his market-friendliness notably paled in comparison to, say, the likes of Ben Bernanke.

Morning Note: Latest Log Entry

This morning's open looks like a virtual replay of yesterday's; US equities (save for commodity-related) up, commodities down. Which (commodities down) is/was, in our view, a high probability occurrence, per the messaging in recent videos. The question of course would be, are we talking trend going forward?

Morning Note: Fed's Meeting, Commodities Retreating

Well, the Fed holds its much-anticipated March meeting this week, and they've virtually assured that a formal tightening cycle is about to begin.  All indications suggest that a .25% bump in the Fed funds rate will be announced; we'll see what they have to say about the future of their enormously bloated balance sheet. Make no mistake, the financial markets will be hanging on every word, particularly those of Chairman Powell during the presser.

Brief Stock Market Update (video)

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Weekly Macro Update

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Morning Note: Consumers Are Feeling It (inflation)

Equities, in the wee hours, were looking to end the week on a positive note, inspired by a V. Putin comment that ceasefire talks have taken "positive shifts." However, as I type, the Dow has given back the lion's share of those gains, the S&P 500 is flat and the Nasdaq is now in the red. While we'll pray that indeed there's light (very soon) at the end of this tragic tunnel, keep in mind, this is the same V. Putin who said there'd be no invasion right up to the day it began. 

Morning Note: CPI and Central Bankers' Concerns

As I suggested in last week's macro update, given the recent extreme ramp up in commodities prices, we should expect to see some choppiness there, if not real downside volatility, in the near-term as "things" move forward. 

Macro Update: Clear as Mud (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Commodities on a Tear

This will be a short note, followed a little later today by our weekly macro video.

Globally, stocks are continuing their descent on the back of the Russia/Ukraine war and its implications across markets and economies.

Morning Note: Less Than Ideal (Equity Market) Conditions

Looking at present trends/setups, and what they portend with regard to US equities, for --

Stocks, ag, metals, gold and silver technical update (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Morning Note: Question now is .25 or .50%?

In Monday's morning note we featured data showing that fed funds futures were, in the face of intense global angst, still pricing in a zero chance that the Fed will not raise its benchmark rate at its upcoming meeting.

Morning Note: The "S" Word

Our messaging herein, with regard to the immediate general setup, is getting redundant. I.e., the Fed doesn't seem to be backing down from its signaling that a rate hike, that a halting of QE, and that QT (quantitative tightening [balance sheet "shrinking"]) is on the near-term horizon. Other central banks, however, the EU's and Australia's come to mind, are sounding a bit of a (relatively) dovish tune due to the dynamics around Russia/Ukraine.