“The second best decision in time is infinitely better than the perfect late decision.”
– General Omar N. Bradley
Ugly, not horrible
Wednesday’s trade was horrible. On time. There was a good reason. In fact, there were good reasons for the weight placed on price discovery by algorithms that react faster than we mere humans can. There was a time when we would see a title cross and then wait for the band to move. Now we see the tape move and then search for the title.
Consumer prices in October were largely responsible for a second straight day of “decline” for stocks on Wednesday. This is what kindled the fire and supplied the kindling. The Evergrande news, or should I say “the headlines” of Evergrande has been the accelerator. Long before the markets learned that the China Evergrande group had again avoided a default, as clients of clearing firm Clearstream were receiving overdue interest payments on three separate dollar bonds. The struggling real estate giant had to make coupon payments totaling $ 148.1 million as several 30-day grace periods expired on Wednesday. It had been widely reported earlier, at least on social media, and by some news sources during Wednesday’s regular trading session that Evergrande had “officially” defaulted.
High speed keyword reading algorithms then did what they do best. Create momentum.
Learn more about this conflagration
October consumer prices hit the strip an hour before these two opening bells at 11 Wall Street and Times Square. The main CPI printed with a grip at six, up 6.2% year over year, or + 0.9% month over month – inflation to the point of highest sale recorded by US consumers since 1990. Core inflation was much colder, but still too high, at 4.6% from last October and up 0.6% from September .
Energy pricing is of course out of control, with gasoline up 6.2% over just one month, and 49.6% over one year. Fuel oil has evolved similarly both sequentially and annually. Energy services? + 12.3% m / m and 59.1% a / a.
Used car prices have re-accelerated after slowing for three months. While the prices of food and the prices of non-energy services, housing and health care have all increased, none have matched energy prices.
What do you expect when global economies cannot reopen uniformly? What do you expect when a nation that finally achieves energy independence, quite voluntarily, through what can only now be considered a political error, gives up that independence?
The misery index (remember that one?) – Unemployment rate + overall CPI (4.6% + 6.2%) – is now reaching a level rarely seen in modern America, 10, 8%, despite a dizzying drop in unemployment since the spring.
Less than high expectations
October’s impression of inflation set the bond market in motion. Traders began to sell the long end of the curve, and this expression of distribution was indeed exacerbated by a 30-year US paper auction that tracked the secondary market at the time by five basis points, printing at a high yield of 1.94%. Remember, bond markets are closed today for federal (truly global) holidays.
This chart illustrates the yield spread between the 90-day US Treasury bill and the 10-year US note. While Wednesday’s move looked alarming, this biggest of all spreads, at least as far as the Fed is concerned, has consistently flattened overall since early November and certainly since mid-October. However, that spread doesn’t really capture where much of Wednesday’s damage was done.
The US 2-year note has given up nine basis points and is now frozen in time at a yield of 0.515%, while the US 5-year note has ended at a yield of 1.222%, having given up an incredible 14 points basic. The yield spread between the US 2-year note and the US 10-year note (also heavily watched) did not quite look like the chart above, as the entire spectrum moved in unison.
Check this out:
The underlying fear now becomes, “What now? Depending on where the hottest spots are, inflation always seems transient in nature. It doesn’t make the pill any less bitter to swallow right now. As I find it highly unlikely that this scorching pace of price acceleration will subside at the earliest before mid-2022, what if we see a headline for November, December or January CPI that hits the strip with a 7 or, bite my tongue, a grip 8? What if core inflation crept into the 5s or (I don’t want to think about it) the 6s?
I’ve long argued that the current heat was temporary, and that after, perhaps in the third quarter of 2022, consumer inflation stabilizes closer to 3% than anything else. It is still very possible, maybe even probable. The big question becomes: what pressure does the FOMC, a committee really undergoing political change, feel to face this current misery? Labor market conditions were the focus of President Powell’s attention, and in my opinion, they should be. Of course, too much cash has been created.
Will the Fed feel compelled to press gas on tapering? Remember that all QE is always accommodating. Is the next version of the FOMC, with a very different board of governors and possibly a new president, rushing to be in a more flexible position sooner than expected?
First of all, Mr. President. Rename President Powell or appoint his successor and appoint at least one new governor simultaneously. The time to act urgently has already passed.
A “taper tantrum” of the financial markets is always possible.
Wednesday’s stock market action may not have been very pleasant, but it did a lot to fix current market conditions. What the markets really need to do, and it would be far better than increased volatility before the holidays, would be to build a period of base consolidation for the major indices.
On Wednesday, the Losers decisively beat the winners of the two major New York Stock Exchanges on a significant trading volume. There were clear signs of professional distribution, which at this point is akin to profit taking. The large-cap and small-cap Nasdaq indices were the hardest hit by the bond market-induced equity market appreciation for the day. Growth volume represented 34.8% of the aggregate for stocks listed on the NYSE, while progression volume represented 28.6% of the composite for stocks listed on the Nasdaq.
Readers will note that the Nasdaq Composite is probably the closest among our major indices to test its 21-day Exponential Moving Average (EMA). The index closed Wednesday with a premium of just 1.1% over this moving average, compared to more than 4% on Monday morning, while the index closed with a premium of 3.5% over its average. 50-day simple mobile (SMA), compared with 6.1. % Monday morning. For the S&P 500, these premiums now stand at 1.3% and 3.6% respectively.
While the stock markets may pause today on lower volumes, with many participants absent for the day and who knows who will make it a four day weekend, it would be hard to believe this reset is over. . Economic growth does not appear to be a problem. Then again, the central bank is always adding liquidity and minimizing rate hikes. Yes, I am still a bull. No, I’m not quite into it.
Supposedly, the United States and China made a joint COP26 statement to cooperate on climate change – if you believe Chinese Climate Envoy Xie Zhenhua and Special Presidential Envoy of China. United States for Climate Change John Kerry.
Before I write anything overly critical of either side here, let’s pretend I’m from Missouri.
On that note …
Forex Suggest estimates that Bitcoin mining is by far the “dirtiest” of all cryptocurrencies, and alone will be responsible for emitting 56.8 million tonnes of CO2 into the environment just for the sake of it. 2021. As many companies commit to achieving net zero carbon emissions and actually trying to eliminate past emissions, simply offsetting the environmental damage caused by Bitcoin miners this year alone would require the estimated work. of 284.1 million trees all working together at the same time. Ethereum, the second dirtiest crypto, according to the study, would only require 21.9 million trees working together to make up for the damage done in 2021.
No day off
Apparently, the mainstream media thinks it’s a big deal that the Wall Streeters don’t have a New Years day off this year, given that January 1 falls on a Saturday. Uh, guess what? Most Wall Street either works for a commission or is paid based on their profit / loss ratio.
The people responsible for creating their own paychecks never complain about going to work. It’s the statutory holidays that reduce the number of working days in a monthly billing period that this crowd complains about. They will all work on weekends if you let them.
Highlights of today’s earnings (Consensus expectations for BPA)
Get an email alert every time I write an article for real money. Click the “+ Follow” next to my signature for this article.