Thursday, February 16, 2023

Morning Note: The "Catch-22"

This morning's action (in response to this morning's producer prices print) serves as somewhat of a microcosm of our message in yesterday's video... Like I said:

"Folks who are rushing back into the market, thinking the economy's in good shape, stand the risk of getting their hearts broken, because the more that goes on the more it's going to embolden the central bankers to stay tight, and to push out their anticipated rate hikes in terms of duration, and maybe even increase them in terms of degree.

So, that is the conundrum; the Fed can ease off, but we still think that's going to take something pretty ugly in the economy for that to happen, and in the markets as well."

"So, you get the "catch-22," if you will... that a good economy means continued tight monetary policy, which means probably lower stock prices, ultimately... Or, the economy rolls over, we have our recession, the Fed gives you what you want, in terms of rate cuts and monetary stimulus, but corporate earnings go to the floor, and, suddenly, the S&P is at 3,200, which is where we think it should be in a recessionary scenario."

I'll leave this morning's message here and encourage you to take a look at yesterday's video, in case you missed it:

Asian stocks were mostly higher overnight, with 10 of the 16 markets we track closed higher.

Europe, on the other hand, is mostly red so far this morning, with 14 of the 19 bourses we follow trading down as I type.

US equity averages are down to start the session: Dow by 393 points (1.15%), SP500 down 1.11%, SP500 Equal Weight down 1.13%, Nasdaq 100 down 1.11%, Nasdaq Comp down 1.10%, Russell 2000 down 0.93%.

The VIX sits at 19.49, down 6.91%.

Oil futures are up 0.20%, gold's down 0.19%, silver's down 0.14%, copper futures are up 1.57% and the ag complex (DBA) is up 0.05%.

The 10-year treasury is down (yield up) and the dollar is up 0.20%.

Among our 36 core positions (excluding options hedges, cash and short-term bond ETF), only 4 -- Albemarle, Vietnam equities, base metals miners and ag futures -- are in the green so far this morning. The losers being led lower by AMD, uranium miners, Amazon, Disney and utilities stocks.

"China and India are in very different stages than the United States and most European countries. Which stages countries are in versus other countries affects the relations between countries..."
--Dalio, Ray. Principles for Dealing with the Changing World Order 

Have a great day!

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