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Thursday, December 1, 2022

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Thursday Frenzy – Bernanke Boosts Markets, Bashes Dollar

Hallelujah!!!

And He shall print for ever and ever.  That's right kids, Uncle Ben came to the rescue last night with his most doveish speech of the year (and the competition was fierce!).  We went over the Fed Minutes (well, half of them, they were long!) in yesterday's chat (tweeted here) but all that analysis was thrown out the window when Bernanke said: "Both sides of our mandate are saying we need to be MORE accommodative."

MORE???  (and, yes, that's what it sounds like inside my head) And oh yes, MORE was the message and, just in case you were somewhat thick of head, the Fed Chairman said this (in less than 25 minutes):

  • "You can only conclude that highly accommodative monetary policy for the foreseeable future is what's needed in the U.S. economy"
  • (Fed Governors) "were concerned that stating an intention to slow the pace of asset purchases…might be misinterpreted as signaling an end to the addition of policy accommodation or even be seen as the initial step toward exit from the (Fed's) highly accommodative policy stance."
  • "The Fed is heading toward a possible, and gradual, change in the mix of instruments it is using to help the economy, but that shouldn't be confused with the overall thrust of policy which is highly accommodative."
  • "The overall message is accommodation."

Holy cow!  Being that accommodative can get you arrested – except in certain parts of Nevada…

Now, as sexy as all that accommodation may sound to the bulls (and we intended to go bullish today if Bernanke came through), I have a bit of a problem with it – and it's not just the fear of catching some monetary disease that makes my wallet drip:

It's the LACK of reaction to his statement.  Sure the Futures are up about 1% pre-market (8am) but the Dollar is down 1.3% and the Nikkei once again topped out at our 14,600 shorting target (/NKD) and oil topped at $107 where we shorted that again in early morning Member Chat (and a LOT of ground was covered this morning) and TLT (20-year notes) has barely  budged, indicating Bond Traders aren't buying what Bernanke is selling.  

That will be tested later today when we get our 30-year auction at 1pm.  Rates have been shooting up on long bonds ever since "tapering" became a buzzword and our last few long auctions have had very poor participation (but the Fed is always there to buy up the excess).  We'll also get a look at the Fed's burgeoning balance sheet after the close today but, as you can see from the chart on the left – that ship has sailed long ago and now, like our National Debt – it's just some crazy big number that can't really be conceived so we pretty much just ignore it (the SEP Effect).  

What we can't ignore is the upcoming earnings or the weak data but let's back-peddle a bit to WHY the Chairman of the Federal Reserve felt it necessary to say "accomodative" 5 times in 25 minutes.  There's a hint of desperation in the air as Bernanke pulls a Draghi and talks the best of all possible gains but offers nothing concrete as far as details and nothing at all that is actually new.  

Are we turning into Europe?  Surely the data recently has sucked.  Garner just reported that Global PC shipments fell 10.9% from last year's awful levels and Samsung just confirmed this with HORRIBLE earnings and Cannaccord cut their SmartPhone forecasts by 2%, with sales leaning toward less expensive models.  YUM brands saw a 20% drop in China sales (but there was a bird flu issue) but US sales were only up 1% (not even the supposed drop in unemployment) and margins fell 270 basis points as food chains have to push discounts to drive traffic.  

NBR (oil services) put up poor numbers with lowered guidance and refinery stocks are tanking as the crack spread is falling because – you can fake the price of oil all you want (not even going to get into that this week) but you can't fake the price of gasoline because, ultimately, you need the consumers to buy it from you.  After hanging out around $2.70 at the end of June, gasoline (/RB) is crossing $3 this morning – up more than 10% in the first 10 days of the month.  At this pace, gasoline will be $5 by January!  (just kidding – hopefully). 

Gas last poped $3 (wholesale) back in February and ran up to $3.34 (another 10%) but oil was only $98 at the time (10% lower) and quickly fell back to $89 (another 10% lower) by March so we can assume the economy can't really take much more than $3.30 on gasoline but $106 oil means other non-discretionary items like food and electricity and heating oil are 10% more expensive and the leaves 10% less money for gas.  So, if you are now going to ask consumers (who are making 0.6% more than they did in February) to pay 10% more for oil AND gas – I think discretionary spending may begin to suffer.  

In short – something's gotta give and, from the few earnings reports we're seeing so far – it looks like it might be Corporate Profits.  Never before in our nation's history have Corporations made so much and paid so little.  So little to their workers and so little to the Government, who collected less than 1/3 of the taxes from Corporations in 2012 than they did in 2007 and it was less than half of what they collected in 1977, when the economy was 50% smaller!  

You can see the consumer suffering in what Real Clear Markets refers to as "The Astonishing Collapse of Work in America" and this is the kind of stuff the Fed SHOULD be worried about as our employment to population ratio is COLLAPSING – from 87 to 81 (7%) in just 5 years and down from 95% back in the 50s (down 15%).  

With 300M people, that's 45M jobs that have been lost in 5 decades and 21M of those jobs lost in the past 5 years with no end in sight.  In fact, even today, Jobless Claims jumped up to 360,000 vs 340,000 expected (same a prior) and continuing claims went up antother 24,000 to 2.98M.  

As our Republican friends are quick to point out – more lazy mouths to feed.  Why don't they go start their own businesses and raise capital to do a few LBOs and pay back the loan by laying off 100,000 more people like the rest of us?  Some people are just born lazy I guess…  

Ah Capitalism, you f'ing bitch! 

 

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PHil – I'm thinking that SQQQ calls make a good short hedge for this market, what do you think?

Good morning!

USD/JPY seems is gaining strength.

Good morning from Toronto

OIL/cnbc

They have guy on cnbc saying oil 120.00due to higher demand (liars)

Thanks, Phil!

Phil,

Would like to understand your thinking behind using ISRG 400 puts as a cover for a dnsde hedge 7/11 post. Thus far, you are absoultely right,spot on. Earnings dropped 9%, the stk did overreact by dropping 20% (510 to 410) but the fundamental outlook going forward (as I interpret the news) may have changed/deteriorated also:

(1)  hosp  are reconsidering 'luxury' perhaps trendy eqpt purchases esp in light of studies questioning whether the robotic surgery does produce better clinicaly results.

(2) Changes in Obamacare are expected to decrease incentives for owning daVinci sys and the expectatons are that they will at least defer purchases until there is more clarity

(3) European and emerging mkt  hosp are not in a position to afford da Vinci sys

(4) Industry/company cmtry going forward seems more cautious and much less optimistic than in past.

Wouldn't these factors raise the possibility fo ISRG seeing a sub 400 price – down just 5% from ISRG's price at entry (410)? Just asking (esp since this rec is looking good) – wanted to understand your risk/reward rationale of ISRG as a cover vs another stk which also had a selloff due to a bad qtr but whose fundamental outlook (perceived) had not changed as much.

Thanks ,as always for the insight

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