19 May 2021

Markets

The Fed finally moved. Some committee members whispered the possibility of reducing QE, or “tapering” in the jargon. This knocked 3.2% off the price of oil (but see the item about the China credit impulse below). The markets are fixated by the Fed, because it …

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The close of the day

Wrap

Odd day. Housing starts disappointing, although recent data has been very noisy. Explanations vary from shortage of labour to shortage of lumber. Weather is always a confounding factor. Not obviously risk on or risk off:

• Ponzi sector up, $ARKK up 1.43%,
• $DXY weaker …

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Wrap

Rotation into value, especially energy characterized today.

• precious metals up, oil up, agricultural commodities mixed,
• dollar weak, but not very, 0.15% decline against Yen,
• bond yields trending, but 10Y still only at 1.62%,
• bitcoin taking a beating, down to $44K,
• NDX weak, MSFT, DIS and CRM all …

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History of the Fed and what its expanded mandate will do to the price of crude

This is a brilliant summary.

History of the Fed’s Mandate:

• Maintain purchasing power of USD (1914);
• Reduce market volatility via monetary policy (added during WWI);
• Stand by and watch the crash they crated …

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Retail Army regroups and refocuses

In the past week, there’s been a significant rotation in retail investor preference. Last week’s inflow into FCX was 6.7 standard deviations above the 1-year average. A similar trend played out for Energy names with the combined buying of XOM and CVX …

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The day in review

Markets

US markets are trading at or close to all-time highs. This is accounted for by:

• unprecedented fiscal stimulus, including budget deficits of the sort that are barely seen in times of war,
• repression of interest rates to the point that real returns on any sovereign …

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There be dragons!

Inflation

YoY consumer prices in the USA hit 4.2%. This is the highest inflation reading for thirteen years, and it was unlucky for all equities.

• pretty much all equities were down, around 2% generally,
• commodity plays, financials and energy companies, were least affected,
• the 10Y Treasury …

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The day in the rear view mirror

Hwang’s extraordinary returns

The following was copied from the latest Bear Cave newsletter. It’s well worth signing up to this weekly, free service.

The Unbelievable Archegos Story

Bill Hwang reportedly grew assets in his family office from $200 million in 2013 …

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The day

Today I was travelling. I took a quick look at the markets before turning in. Normal service will be resumed tomorrow.

Wrap

It looks as though the markets are gradually waking up to the reality of inflation in the USA. The scale of the fiscal activity is beginning …

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Thought for the day

Inflation and money supply

There is mounting evidence that inflation is being seen in actual prices. This chart is for intermediate goods and services, but it’s hard to see why this doesn’t bleed through to retail prices soon. The ISM figures are lagged by …

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