lonely is The Night…
… when there is no one left to call. You think the time is right, the writing on the wall says.
– William (Billy) h. Square (1981)
Writing on the wall?
Have you missed me I know I missed you, although I needed a little break and the four days were just worth getting right. By the way, in case you forgot, the annual “Economic” Clown Show from Davos, Switzerland closed this morning and runs its course all week. Perhaps this is the year that the World Economic Forum, now virtual in the face of the epidemic, suddenly falls short of “TV on mute” broadcasting as issues such as social and workplace justice as well as global trust of the Kovid-19 countries. There are hot topics, pushing us with something to sell (that we don’t need because we’re warriors) a notch or two below level meditation. Perhaps “Forum” will be less than a paid holiday this year for those involved and more “work”. Those of us watching from home and / or office will appreciate it.
You kids have had a heck of a time without me, have you? From the look of things, the Nasdaq Composite had a special holiday week (+ 4.2%), only to be outperformed by its more tech-focused, non-financial cousin, the Nasdaq 100 (+ 4.4%). The S&P 400, 500, and 600, while everything from small to large caps returned between 1.5% and 2%. rock and roll? Trading volume was high on the Nasdaq where the action was taken, but trading was increased in almost all places in the first few weeks of the year. Equity markets grew more as investors gained more confidence moving towards a more open economy? In a new era of leadership in Washington? As economic activity and money velocity improve? No, no, no more.
What happened last week was clear. Transports sold out. Industries such as distribution services, trucking, airlines, railroad, maritime transport, and transportation services such as transportation are all sold with the group. No, according to Housing Numbers last week there was not a development story, and despite what the Philly Fed told you. Plain and simple, bond traders stopped selling the long end of the US Treasury spectrum. The US moved sideways to reduce yields by 10 years.
This, in turn … spreads the compressed short-term / long-term yield. As the Fed anchored the short end of the curve, demonstrations of such a spread (such as 3 months / 10 years) only show the 10th mirror.
While there are an unlimited number of stories that are taking the financial markets where they are going, this is a technical reason why the communications services and information technology sectors got up last week, and this (not earnings) is also why banks in particular Is, and the financial sector more broadly, were put back in their cages. The consumer remains fearful. Which we get till Monday morning.
Really what now? How fast can equity markets grow based on expectations of increased incentives when the economy reopens? As the calendar leads, the most dangerous month of the market, at least in recent years? On our immediate front, fourth-quarter earnings are out of a monster week this week in the season. While Simplified will see a week where 120 S&P 500 component corporations are scheduled to report, which is 24% of the total, this 24% index by market-cap is about 40% of the total. As of Monday (today) it will be really quiet on the earnings front, as of Friday, such fun will narrow into three days of intense action. So important names would report, it becomes difficult to list them in a sort of beak order, but I think traders, or at least this trader, have to focus on Johnson & Johnson ()JNJ) Tuesday evening (what else can be said around obtaining a third vaccine than the market for financial performance) and Apple (AAPL) On Wednesday afternoon, the stock has a broad impact on each single fund holder in the country about whether they know it or not.
For the season, there has been a steady improvement in the numbers released in FactSet for the quarter. For Q4, with S&P reporting 13%, the decline in mixed (reported and expected) earnings for the entire index is still -4.7%, from -8.8% a few weeks earlier. Expectations for mixed revenue generation now range from + 0.4% to + 0.7% over the same period. By the way, I will not bore you with more numbers, but expectations for the next reporting season (Q1, 2021) are rising rapidly.
what I think
I think that going forward, almost everything can be put into four boxes of market impact…
1) Kovid-19. Yes, you must have heard all this before. The virus is still in charge, and it won’t be until. While everyone knows someone who has traveled recently, everyone also knows 15 people who would not step inside a grocery store, or any kind of retail outlet. On the vaccine rollout, obviously we can do better, and the race for the vaccine versus muting virus continues. Everyone heard that President Biden referred to 100 million vaccinations in 100 days. Is good By the time you realize that one million Americans were being vaccinated every day before President Trump stepped down. I highly doubt that President Biden intended that they would do nothing to improve the rollout initiated under the former administration, but that is exactly what 100 million vaccinations tell us in 100 days. We were told that the army would lead the roll-out. Well, where is the army? Is this not a priority? Hello?
2) stimulation / support. This Wednesday, we will hear from FOMC, and there will be some damage control. I do not expect the economy to improve as the Fed’s asset purchase program improves. I hope that some sort of solicitation made in connection with Fed Chair Jerome Powell, and incoming Treasury Secretary Janet Yellen, will work together. The threat of the market’s short-term threat would be the politicization of President Biden’s $ 1.9 trillion fiscal rescue proposal that comes on top of the $ 900 billion package passed late in President Trump’s term and an even larger infrastructure recharge package. The management of the economy is dangerously close to Morden monetary theory, which would ultimately result in a complete loss of confidence in fiat currency, in my opinion.
3) Tax rates. Increases in corporate, income and capital gains taxes, not to mention their negative effects on share repurchase programs, have yet to price investment and money velocity. At some point, there will be a realization that there will be a concern on how to pay for it, at least in part, with the expense of a rapidly growing emergency deficit. Equity markets will barely sell on that day, and potentially sell out. I thought we might have seen some corrective behavior in January. The clock is ticking on that call, but we will see improvement when the markets are ready. Remain nimble. Be diversified across diverse classes in property classes.
4) Growth / Inflation. Development is the goal. Inflation is like a goal, but one that almost all but fools know enough to fear. Fundamentally, deficit spending depends on the idea that a dollar spend creates an increase of more than a dollar. Thus the “Keynesian multiplier” which was introduced in 1931 when the debt to GDP ratio was about 22%. I think it is common knowledge that a dollar borrowed and spent in an environment of low debt can return more than a dollar in consumption, savings and investment overall. Now, incorporating the theory into the fiscal / monetary era that it was not made dangerous. Understand that a dollar must be borrowed and spent to increase velocity. This is actually it. Can dollars borrowed and spent still generate more than a dollar in consumption, savings and investment after servicing debt as well as increased taxes? What happens when this multiplier falls well below one, or even stops at zero. You still need constant, not legislative demands. Without demand, you will either refuse in a disruptive environment or in heaven, losing confidence in the hyper-inflationary currency. Scary things.
What can be done?
Well for one, we are going to be creative. Jay, and Janet, I need to pay attention to both of you here. Forget academic nonsense, we are already outside the box, not to mention textbooks. Instead of hurting the most probable death spiral currently referred to as Morden monetary theory, let us consider an alternative. With the next major fiscal support package, let’s consider the federal government building large-scale strategic reserves not just for crude oil, but for almost all industrial commodities as well as precious metals. In fact, if someone can be more creative than me, then let us explore a wide variety of unfinished and incomplete goods and perhaps services.
What does it do? Quite simply, the idea would create demand for whether there was a demand for real or not. This requires major investment up front, which will have a sparse effect on the US dollar, which will create inflation at the wholesale / producer level without warring other currencies and touching monetary policy. Once sufficient supply is established, consumer-level inflation should become problematic, the supply side of these markets can then be used to mitigate the rebellion, not the rapidly increasing short-term interest rates or the Fed’s Without relying on the premature ending of the balance sheet. Oh, you might have read the most important economics-based paragraph you will read today. I know, next year, it will be a book written by an elite level university professor and someone else’s thoughts.
On top of that, I don’t care, let’s just roll the ball. Realize that this idea combines the value of the US dollar with hard assets, which should help strengthen confidence in FITs without reliance on gold glitter. This is, to me at least, the key as we head down a potentially unstable road.
Take care that the fun never stops. On Saturday, Beijing flew eight fighter jets with four fighter jets in Taiwan’s airspace. We knew that mainland China would test the new administration’s resolve to protect the autonomous island of Formosa. US Navy forces moved a carrier group into the South China Sea before being out on the weekend, thus in my opinion the first of many tests would pass. The question is … does the mainland really want to play these games, or is it interested in forcing America to withdraw more borrowed money that could be spent on other priorities, rather than on defense? The I do not know this.
Economics (All eastern)
10:30 – Dallas Fed Manufacturing Index (January): Expected 4.5, final 9.7.
Fed up (All eastern)
Fed Blackout Period.
Today’s earnings highlights (Consensus EPS expectations)