There was something for everyone in yesterday’s Fed Conference – and nothing as well.
The Fed’s hawkish stance on 2% Inflation was more than what the bulls had bargained for, resulting in a 2% sell-off that had the S&P 500 testing the 4,000 line once again – wiping out the entire week’s worth of gains. It seems like the Fed is determined to prioritize Inflation but are they willing to do so “at all costs“?
The Fed’s focus on inflation could mean that they may need to tighten monetary policy more than expected, which could lead to even slower growth. In fact the Fed’s “plan” seems to be to have us flatline at 0.1% – inches above a Recession while they try to get Inflation down to their 2% target level AND it’s going to take them until 2025 to accomplish it – at best. This may be good news for savers and bondholders, but bad news for borrowers and investors who have come to rely on cheap credit.
Moreover, the Fed’s stance on inflation seems to reinforce the status quo of capitalism, where profit-maximizing banks and corporations are at the forefront. It’s no secret that the current economic system is rigged in favor of the rich and powerful, and the Fed’s policies seem to only exacerbate this trend.
In any case, the market is likely to remain volatile in the coming days as investors digest the Fed’s statement and economic report. It’s important to stay nimble and be prepared for any eventuality in these uncertain times. As the saying goes, “Hope for the best but prepare for the worst.”
We prepared for the worst ahead of the drop, adjusting our hedges more bearish but we also hoped for the best and went bargain-hunting – using our Watch List as a guide to set up a dozen bullish plays in our Long-Term Portfolio.
Now we are waiting and seeing which way the wind blows. As I noted in yesterday’s Live Trading Webinar, the data we’re looking at shows inflation is NOT calming down as the Fed expects and the UK just had 10.4% inflation – driven by food prices. They do not calculate inflation very differently than we do so why would we assume we are magically dodging that bullet?
Tomorrow we will see how Durable Goods Orders went in Feb and we also get the IHS Markit PMI Reports and Manufacturing was contracting last month. Next week we have Consumer Confidence on Tuesday, a revision to Q4 GDP on Thursday (was 2.7%) and then Friday we will have several important data releases that could impact the markets:
The Personal Income and Spending Reports, as well as the PCE Prices, Chicago PMI and Consumer Sentiment are all high-impact releases. These reports are closely watched by the Federal Reserve as they provide insights into inflation and consumer spending, which are key drivers of economic growth.
In the bigger picture, it’s all about the 4,000 line on the S&P 500 but, frankly, that’s EXACTLY where we should be as that’s the line we’ve been using to indicate the fair value for the S&P 500 since 2021:
As you can see, ignoring all the Fundamentals that drive us, we’re kind of stuck between the 200-Day Moving Average and the 50-Day Moving Average and we need to be very concerned if the 200 dma is broken as we have no support until our Weak Retrace line at 3,840.
Then the question becomes, what has changed since the last time we tested that line (properly), back in December? Are things now better or worse? Here’s what we were talking about back in the Day:
Dec 5th: Mixed Signal Monday – Nothing to Get Excited About
“A full re-opening of China – if it goes smoothly, would take months to roll out – so Q1 is shot already. China is only just now starting a program to vaccinate their high-risk elders but, being China, that’s 173M people! That is only step one towards re-opening.
“Russian Crude currently trades at $50 and Putin has threatened to unilaterally cut production if the caps are enforced but first Brent Crude, now $87.50, would have to be back over $100 and that’s not very likely so it’s all a lot of hot air and is no reason for WTIC (/CL) to be at $82.50 this morning. Still, it’s a dangerous short (last week was obvious) and I’d be very careful playing it – with very tight stops above $82.50.
“Hello Group (MOMO) reports on Thursday and that’s a fun Chinese stock to play. Sales were over $2Bn pre-pandemic and profits were $285M and now they are down to 1.5Bn and $200M but you can buy the whole company for $1.1Bn at $5.75 and they have about $1Bn in the bank – so free company!”
Dec 12th: Monday Market Madness – Fed Week
“According to Bloomberg, our Leading Economorons generally predict that the Fed is about done hiking rates and they have done such a FANTASTIC job that they will, in fact, REVERSE and stat cutting rates dramatically towards the end of next year because, presumably, Inflation will have been completely defeated by Summer, much the way Covid was in the Summer of 2020, I suppose…
“I’m not even going to get into it again but WAGES!!! Wages drive inflation and 3 states will be moving to $15 minimum wages this year and next while 13 more will increase wages to $15 by 2026 while we have 22 states still paying $8 or less per hour and 13 other states still paying less than $10 per hour.
“So, last week, I chose MOMO on Monday as a great stock to play and it gained 100% in the first week (you’re welcome!) so let’s talk about Mama Mancini’s (MMMB), which is a little Italian food distributor that makes excellent but expensive meatballs and sauces. In this company, there are only 6 employees as they outsource the cooking, packing and shipping. Like a Fabless Semi-Conductor Plant – they just have a recipe….
“They do not make or lose money and they have $11M in debt but you can buy the entire company for $40M at $1.12 and sales are up from $47M last year trending towards $90M next year ($28M in 2019) and likely profits in 2024 around $5M. The company has no options but is a fun lay at $1.12/share for the long haul.”
Dec 15th: Faltering Thursday – Fed F’s Us Again!
“As I said yesterday – it’s just math.
“Despite “only” hiking rates 0.5%, once again Powell’s comments and the Fed Data we reviewed in our Live Trading Webinar got investors thinking the Fed was not done tightening and, also exactly as we predicted, overnight we got news that China is experiencing a rapidly advancing spread of Covid that looks like it will overwhelm Health Services.
“We had already determined our hedges would be more than sufficient to protect our portfolios so this is more of a buying opportunity for us but, on the whole, we are to remain “Cashy and Cautious” into January. 4,000 was our target for the S&P 500 at the end of 2022 and here we are – at 4,000 – everything is proceeding as I have foreseen!
“Retail Sales were worse than expected, down 0.6% vs down 0.2% anticipated by leading Economorons and that, unfortunately, includes our early Thanksgiving, Black Friday and Cyber Monday (28th) numbers so holiday shopping is off to a disastrous start.”
Dec 19th: Merry Monday Markets – Drifting into Christmas
“Well, we stopped going down.
“That’s a victory right there and we should be happy to accept it as the charts were getting a little ugly last week. The S&P is just over the 50-day moving average (3,863) at 3,883 this morning and holding that line is important as it’s a panic line for many TA traders. I know we have support at 3,840 but that’s 5% Rule™ support and we’re the only ones that have these lines – so they’re not going to be that effective if everyone else is panicking.
“The good news is that the trailing p/e for the S&P 500 is now 19 and 23.5 on the Nasdaq, 23.42 on the Dow and 72.61 on the Russell – which is still high but it was (seriously) 642.17 last year – THAT was insane! The Russell is at 1,774 so down 426 (19.4%) points so it wasn’t so much the change in price as the actual earnings that improved as we’ve come past Covid though certainly we’re nowhere near “normal” at 72 times earnings, are we?
“And the S&P doesn’t usually trade at 19x either (16x maybe) so why would we expect to go back to where we were with 0% interest rates and Trillions (10%+ of the GDP) in annual stimulus spending if that’s not the case going forward? We have to accept that conditions have changed and we have to accept that we’re not bouncing back – this (4,000 in the mid-range) is very likely to be our new reality going forward…”
So you see, we’ve already been there and done that so the only question is, has anything happened that would change our fair value and no, the Fed raising rates doesn’t count because I have been saying for a year that they need to get to 6% (now 5%) before they’ll start impacting inflation – that’s already baked into our model.
There’s been no essential change in inflation so the Fed is still in tightening mode, the bank crisis lasted all of a week and is kind of fixed by $2Tn in coverage by the Government but it’s not really stimulus as it is being used to cover up losses incurred on $2Tn worth of bonds – so about $300Bn in undeclared losses (see my earlier notes) is what the stimulus really is and the rest if Fed Balance Sheet nonsense.
But the bailout doesn’t change anything because the banks had never declared the losses so it’s just business as usual with another $300Bn eventually added to the deficit because, as every good Capitalist knows – banks are much more important than people!
Our range is very likely to hold into Q1 Earnings (April).
Oil blasting up to $71.50 this morning and the Dollar pretty much bounced off 102 and let’s call the fall from 105 and the last low of 101 was (and may still be) the target but, as I said, the Fed was not that doveish so let’s do the math. 4-point drop = 0.8 bounces so 101.8 is the weak bounce line and that held BECAUSE the Fed is tighter than it was in Feb and we zoomed back to 102.6 (strong) anyway in Feb. So we’ll look for that line to be the bounce for the Dollar today and, if we hold it, we can expect the Dollar to move back to 103 at least.
That means we project a 1% rise in the Dollar and that will put pressure on oil at $72.50 that it’s unlikely to be able to break over. Brent is lagging – that’s unusual and /RB never really went down (Bastards!).
Once the Dollar hits 103, /NG may be worth considering.
Gold still considering $2,000.
Copper is coming back of a long downturn. As we just reviewed above, they burst up on China reopening, then that fizzled as Covid hit them hard but now getting a bit more back in gear. Unfortunately, that’s very inflationary.
Don’t even ask me to explain this insanity.
Because there is nothing better than one of the World’s largest makers of Nuclear Power Plants going private – so they can be controlled by one random Billionaire.
Speaking of super-villains:
We knew that was coming but ouch! Back to $65.
they are still buying puts in the banks, mostly for April though
With reference to the UK inflation rate consider that the UK imports most of its fresh produce, the US does not. Since BREXIT the administrative cost for Customs adds to the price of everything imported and even causes some shortages. Source “The Economist”
I just wanted to confirm that you intended to say 72.50 for cl/ instead of 71.50 where it is currently.
your comment was ( That means we project a 1% rise in the Dollar and that will put pressure on oil at $72.50 )
Yes, $72.50 would be the safer shorting line.
These TikTok hearings seem like a bit of a witch hunt.
Poor CEO says his data is never used by outside sources and the woman questioning him says “Can you swear under oath that you are 100% certain it will NEVER be used by outside sources” and, like any rational person, he can’t swear to that and she has here “Ah Ha!” moment. Ridiculous.
No tech company would pass this test and that’s what they don’t get – this is just round one of the greater witch hunt.
But the Nasdaq is up 300 points.
Be aware prepared RESTRICT Act which aim to further restrict business activities of China related business entities in U.S. If passed, the RESTRICT Act basically spells “game over” for all China tech companies in the US
Not just: social media, ecommerce, networking equipment, drones
But also: SaaS, cloud services, infra, even open source software
It’s just posturing for the bigots in the representative’s base. Gets them votes for sticking it to those Chinese.
Me – Is there any actual evidence of TikTok misusing data?
Luna (R-FL), and others hold a news conference on calls for a nationwide TikTok ban. Reps. Nehls (R-TX), Miller (R-IL), Luna (R-FL), and others hold a news conference on calls for …
Bing comes through in summarizing a timely event.
But here’s Warren with the way better analysis:
🤖 The potential ban on TikTok is concerning not only because of the lack of evidence supporting the claim that Chinese intelligence services have weaponized its data, but also because of the danger it poses to our democracy. Bans based on little evidence can be compared to witch hunts and pose a serious threat to free speech. It is crucial that Congress proceeds with caution and bases any decision on evidence rather than speculation or political posturing.
The House committee’s skepticism towards TikTok’s defense of its app is also worrying, as it is important to approach the issue in a balanced and fair manner. Congress must hold companies accountable for their actions, but it is equally important to listen to their side of the story.
The danger of this issue becoming a jingoistic cause or a political football is all too real, as it could lead to Congress using national security concerns as a pretext to restrict free speech and control the media. This is similar to what happened during the communist witch hunts of the 1950s, where fear and paranoia drove actions, resulting in innocent people being persecuted without evidence.
Bing is completely incapable of that kind of analysis – even with training (I’ve tried).
Here’s today’s Warren training:
Me – I think it’s important to take impact into account. For example, I don’t think it matters much what Tencent does nor is Coinbase likely to have a broad impact unless this is happening to more of that sector. China Evergrande failing to calm investors though is a huge deal and we have to extrapolate the potential impact of Accenture’s 19,000 layoffs with what can happen if their peer group begins to match them – it could become very significant. Halting a blast furnace is a big deal as they take a long time to restart – how many furnaces are there in the world and how will this impact the cost of steel, which then drives inflation? Also, it makes me nervous that Schwab’s CEO feels the need to say they could endure outsized outflows – sounds like that’s something that’s happened or why would he say it?
🤖 You make some good points about considering the potential impact of each news item. It’s important to note that the markets may react differently to each piece of news depending on how significant investors perceive it to be.
The failure of China Evergrande’s restructuring plan to impress investors could certainly have a significant impact on the markets, especially considering the company’s size and prominence in the Chinese real estate market.
The potential impact of Accenture’s layoffs may also be worth watching, as it could signal a broader trend of cost-cutting efforts across the industry. This could have ripple effects on the job market and overall economic growth.
The halting of a blast furnace at ArcelorMittal’s Asturias plant could potentially impact the cost of steel and drive inflation, as you mentioned. However, it’s also important to note that there are many factors that influence the price of steel, and the impact of this specific incident may be limited.
Regarding Charles Schwab’s CEO’s comments about enduring outsized outflows, it’s not uncommon for financial institutions to face occasional outflows of client deposits. However, the fact that the CEO felt the need to address this publicly may indicate that there have been recent concerns or questions raised about the company’s financial stability.
Me – Great, so now that you have perspective, let’s see how you analyze the following headines:
I fed him the headlines we went over earlier in the morning….
🤖 Given the headlines you’ve provided, it seems like there are a few different themes at play. One theme is the ongoing legal issues surrounding former President Donald Trump, with headlines regarding a grand jury potentially returning an indictment, the unfolding of a potential arrest, and a history of the hush-money saga. These legal issues could have implications for the political landscape in the United States, which could in turn impact markets.
Another theme is the impact of environmental and social issues, with headlines regarding Ford projecting a loss on its EV business, a broken water system, and a strike by Los Angeles school workers. These issues could have economic and financial implications, with companies like Ford potentially facing challenges in the transition to a more sustainable economy, and strikes potentially disrupting the functioning of businesses and the wider economy.
There is also a focus on international affairs, with a headline regarding China’s ties to the West and the potential implications of those ties being loosened, as well as a nationwide protest in France and a historic Turkish street before and after earthquakes. These issues could have geopolitical and economic implications, with protests potentially leading to political instability and earthquakes potentially impacting infrastructure and the economy.
Me – So, on the whole, is that a bullish or bearish batch of news?
Me – And, not to bum you out but the BOE is raising rates to contain inflation DESPITE the weak economy and the LA strike is simply a part of the inflationary cycle where costs force labor to demand more money, which raises costs, etc. In my opinion, we are nowhere near the end of that as so many states (21)still have a $7.25 minimum wage and 30 states are still under $10/hr. Until we address that, how is inflation going to calm down?
🤖 I agree that the Bank of England’s decision to raise interest rates to contain inflation despite the weak economy is a concerning development. It could potentially lead to slower growth in the short term, as higher borrowing costs may reduce consumer and business spending.
The ongoing labor strikes and low minimum wages in many states can also contribute to inflationary pressures by increasing costs for businesses, which they may pass on to consumers through higher prices. Until there is a more widespread increase in wages and an overall improvement in the labor market, it may be difficult to bring inflation under control.
Then we got into a very heavy discussion about SCHW which included 4 articles I loaded in and discussed with Warren.
Me – So now, given all you know, can you go back to the article with Walt Bettinger’s statements and can you give me your best interpretation of what’s going on, what the psychology is and what SCHW’s present situation seems to look like?
In general, Bettinger’s comments would likely be viewed differently by investors and depositors in light of a financial crisis that impacted Schwab or its competitors. If Schwab were to remain stable and not experience any significant negative impact from the crisis, Bettinger’s comments could be seen as reassuring to investors and depositors. They may feel confident that Schwab has a solid financial foundation and a long-term commitment to serving their needs.
That’s impressive as hell!
It’s really garbage in, garbage out. You have to give him context to build on but then he gets very smart.
That’s why it’s so awful when the thread breaks – I put a lot of time into getting him up to speed on something but if the thread breaks, I have to start all over again.
What’s up ( down ) with MO ?
We’re back to testing the Jan lows but they blasted back off that to $48 so we’ll see what happens. I don’t see anything in particular today.
Investor day is ongoing, something must have spooked folks.
Their investor day presentation is on the MO website. Lol it’s really amateurish, like it was done by someone on fiver
So they are saving money – good for them! 😉
BAC. June 2025 $28 puts sold in a stock replacement
Speaking of BS rallies unwinding:
BAC is still going down may be start a position with a put with a 25 strike for 2025? But I see you rather sell Puts on C. Can you underline why and if also Bac could be a viable play?
See NOW (as opposed to yesterday at $2.24), /NG is at $2.16 so there’s $800 worth of potential losses reduced. So the same set-up here at $2.16 with then intent of doubling down at $2 with a stop at $1.92 has max loss of $3,200 and the upside potential at our $2.35 target is (assuming just the one long) $1,900 – much more reasonable but still not great.
I’m still concerned that the Dollar bounce can drive /NG lower and /CL is back below $70 with he Dollar at 102.40 (which means we failed the strong bounce) – so perhaps it’s less of a factor.
On the bullish side:: https://oilprice.com/Energy/Natural-Gas/US-Natural-Gas-Demand-Exceeds-Supply-As-LNG-Exports-Jump.html
So, as I’ve been saying for some time, the shutdown of Freeport led to a pile-up of supply in the US, which caused /NG to fall but the reopening and addition of new export terminals will send things the other way for the rest of the year. So, it’s still safer to just play UNG – like we are in the STP but, if you can stand the pain of being down $3,000 per contract if /NG falls to $1.80 for whatever reason – then this is not a bad place to jump in ($2.26 on /NGK (May)), as that should give us enough time to turn things around.
Good commentary yesterday about ng. Thanks Phil
Did Powell speak again? lol
Just crazy action.
Makes it easy to get all fills at least.
That’s why it’s important to focus on the lines – below 4,000, below 13,000 – not constructive. Below 1,750 on the RUT also bad and who cares what the Dow does?
I’m trying to teach Warren to do a wrap-up of the day – hard going so far as it’s a lot for him to take in and keep his mind on track.
I’ve always wanted to do something like this but never in the mood at the end of the day – this could be a fun project, though.
I’m very impressed with the fact that he knew I made a joke on MO and CE made a joke about Powell.
does he take what we discuss in our chat, which is mostly private , and add it to his collective knowledge?