Things you need to know.
- Pause, Accelerate, Pause, and then Accelerate again…. but it does feel tired…
- Powell promises to stay put…and reveals that unemployment is more like 10%
- Earnings and Stimulus keep a floor under investors.
- POT Stocks are ALL the rage today…. Reddit chats rooms in a frenzy
- Oil traders takes some profits – but demand is not waning…
- Try the Giambotta (was a special request from a ‘streetfighter’)
Pause – again…. Yesterday saw investors step back and digest the latest moves higher….…. Eco data in the morning – CPI – showing that inflationary pressures in the economy remain benign…. the m/m report coming in at +0.3% (expected) and ex food and energy of 0% – below the expected rate of +0.2%. The y/y report also showing weaker results….at 1.4% vs. the expected 1.5%. so for now – it’s all clear ahead….but for many the worries remain…..the already sizeable relief/stimulus packages that we have plus the expected massive package that is proposed ($1.9 tril) could likely cause inflation to accelerate both quickly and steeply in the future….….causing many to wonder how the FED would handle a sudden and sustained push up in prices….talk of late 70’s/early 80’s style inflation becoming more common in both the chat rooms as well as in the media.
For those of you too young to understand – what happened in the 1970’s let me just lay it out…. The market was a disaster – …. Eco growth was weak, and unemployment ran into the double digits. The ‘EASY MONEY’ policies employed by the FED in the early 70’s – designed to achieve FULL EMPLOYMENT – caused inflation to surge….1973: 6.2%, 1975: 9.1%, 1978: 7.6%, 1980: 14.7%! And that last rate forced then FED Chair Paul Volker to raise interest rates to more than 20% – sending interest rate sensitive sectors plunging………. the Dow which ended the year (1980) at 963.99 fell 17.7% by August 1982 to trade at 792. Now yes, you can argue that was then and this is now…. the world is a different place – and you would be correct – but do not underestimate the power of history to repeat itself…. because those that do not remember the past are doomed to repeat it….
But to be clear – we are not there yet and all the eco data points remain under control – but we all know how quickly that can change. At 4 pm – the Dow ended the day +62 pts or 0.20%, while the S&P, Nasdaq and Russell all retreated – falling 1.5 pts, 36 pts and 16 pts, respectively.
What else happened yesterday? More earnings and more FED speak….
We are in the final days of this earnings season and reports continue to impress…Profits are up 5.1% across the range of companies that have reported…. this in contrast to the expected 9% declines….and it is also a 180 degree turn from the 3rd qtrs. 5.6% contraction. Among some of the names that reported yesterday – UBER, LYFT, TWTR, KO, CSCO, and ORCL – so the excitement continues.
And then we had a reality check from FED Chair Jay Powell…. who said that while the official unemployment has fallen to 6.3% – the real picture is ‘a long way from where it needs to be’ and in fact said that the ‘real unemployment rate is probably closer to 10% – saying that the headline number has ‘dramatically understated the true damage, including the biggest 12 months drop in the labor force participation rate since 1948! (I pointed this out in Monday’s note – when the gov’t reported a drop from 6.7% to 6.3%….it was not what it appeared at all…. the rate fell because more people dropped out…thus are no longer counted….so be careful how you interpret the data…) As of today – more than 10 mil people are out of work – that is 4.4 mil more than this time last year…. just ahead of the onset of the pandemic.
He also said that to address this issue – the FED will be required to remain ‘patiently accommodative’ embracing the lessons of the past (think historical) …. Oh boy – I just told you what the history was….
And this is what is causing the latest pause….as investors re-assess his language and his determination to ‘fix it’. It is a Mario Draghi type moment….’We will do whatever it takes….’ So – sit tight…the easy money story is not over yet….And that brings up another recent phenomenon……SPAC’s – those Special Purpose Acquisition Companies – which are all the rage this past year….If you haven’t been paying attention there have been a myriad of SPAC’s that have come to the market…raising all kinds of blank check companies ready to pounce on the latest ideas…..Here is the problem…..there are NOT enough UNICORN companies (or NON-UNICORN) companies to support all of the money raised in these SPACS…….so it is a game of musical chairs…..and we all know how that ends…..Just sayin’…..It feels a bit frothy.
This morning – it is all about the POT stocks…. yesterday saw a surge in a handful of names…. SNDL +79% (yesterday), TLRY +51% (yesterday), OGI + 37% (yesterday) and APHA +11% (yesterday) – one guess why all the action……. REDDIT chat rooms….and a Barron’s front page story…. Investors piling into these names ahead of what is expected to be the legalization of marijuana in the US…. I mean think of all the tax revenue this will generate….so while many of these names have already surged – the current trend will most likely cause them to surge more….and if you like smoking pot – why not buy the stocks that allow you to benefit from the investment. And easy way to get in? The ETF space – you can try MSOS +55% ytd, YOLO +87% ytd, POTX +200% ytd, THCX +145%, CNBS +131% and HMUS +70%. (Each one of these charts look the same).
US futures are up … in what is a ‘just buy everything mentality’ (which is itself a signal….) it defies reality. The Dow +100, S&P’s +14, Nasdaq +71, and the Russell up 7. Much of the action today is being credited to the Powell commentary….and the idea that low rates are here to stay for the foreseeable future is alive and well and his comments did little to change that narrative. So, strap in…. (for now).
In addition, the market continues to anticipate a massive stimulus package supported by Joey…. any idea that it will be much less than the proposed $1.9 tril is a mistake. Earnings today include: PEP, KHC, K, DIS & EXPE.
Eco data today – Initial Jobless Claims – exp of 760k, Cont Claims of 4.42 mil, Mortgage Delinquencies and Foreclosures.
European markets are up small…. At 7 am the FTSE+0.11%, CAC 40 +0.04%, DAX +0.51%, EUROSTOXX +0.47%, SPAIN -0.21% and ITALY +0.22%.
Oil – remains above $58/barrel…. but has backed off a bit from its most recent high….in what appears to be more of some profit taking vs. any change in the story…. Inventories continue to fall, and production cuts remain intact. There are some talking heads that are saying oil has rallied to far too fast – think ‘stretched’ A pullback to $55 would not be a surprise….
Bitcoin? + $1100 at $46,150…
The S&P closed at 3909 as it struggles to remain north of 3900……We did test 3884 yesterday so we did breach the century mark for a while before they managed to push it up and thru….but it still feels a bit tired….And while futures are up in the pre-mkt……there is nothing new to cause investors to keep chasing….which doesn’t mean the algo’s won’t chase – but then again it also means that the algo’s won’t change their tune in a moment’s notice…
Stay the course – You are invested so you are not missing out at all….if you have a well-defined and balanced portfolio. I am sitting back with new money and letting my invested money do the work….
Text INVEST to 21000 to get my digital business card – give me a call if you want to discuss what Slatestone can do for you.
Take Good Care,
Chief Market Strategist, Consultant
Today I am repeating this recipe at a special request from a mentor and good friend….many will know him as a ‘Streetfighter’. For those of you who are unfamiliar with this dish… it translates into – “clean out the fridge”
The traditional recipe for Giambotta calls for onions, garlic, potatoes, eggplant, bell pepper, tomatoes, tomato paste and vegetable broth and seasoning. It is up to you… you can add or delete any veggie you want as it is open to interpretation. Although the dish is mostly vegetarian, feel free to add in beef stew meat, sweet sausage or even cut up chicken pieces…
Preheat a heavy bottom pot – add olive oil and crushed garlic – sauté. Next add chopped onions and cook over med temp… Prepare the other veggies… cut up the potatoes, eggplant, zucchini, and peppers… add to pot and season with s&p… cover and cook…
Now add in a can of crushed tomatoes and the veggie stock (if you want it thicker then add in the small can of tomato paste) – bring to a boil and then turn to simmer… If you are adding meat (stew sized cubes) – then in a frying pan – quickly brown the meat – season with s&p and then add to the pot… toss in some fresh basil and let simmer for 20 mins…
When ready you can serve this as a side dish or if you put it over rice (or even pasta – Rigatoni) you can make it a meal. Toss in some fresh made garlic bread and Bingo!