19 Jul WE ARE LIVING IN UNIQUE TIMES
Last week I wrote firms that typically reiterate the accepted catalysts for market movements are now openly questioning the glaring market inefficiencies strongly inferring possible nefarious or manipulative activity.
Friday Bloomberg quoted a $2.2 billion Treasury portfolio manager at Wells Fargo with 30 years of experience stating “The Fed has killed the interest rate cycle. I think the Fed determines we are on a path of low growth around a very very low range of yields and will take all and every action to ensure that such a low interest rate environment will continue to exist.”
Many are convinced—albeit proof is entirely absent—the Fed is aggressively purchasing futures and derivatives to ensure Treasury yields do not rise in the face of the greatest inflation in over 40 years. Almost everyone is perplexed as yields have fallen even as the inflation data has greatly exceeded estimates by a factor of almost two.
FRB Powell is adamant that today’s inflation is “transitory” albeit he did redefine transitory to 6-9 months versus 2-3 months.
Changing topics, the NASDAQ 100 has been on a major advance since mid-May, a rally that commenced around the same time Treasury yields began to fall. Bespoke Investments observed the vast majority of the gains in the indices is the result of FAAMG plus TSLA and NFLX. The rest of the market has essentially rolled over.
Bloomberg opined Friday the “mega sized tech companies have no margin in error as there is no room for forgiveness as these companies begin report 2Q profits next week.”
Speaking of unrealistic expectations, the WSJ reports Japan’s Government Investment Fund with over $1.6 trillion in assets is abandoning “trendy ESG investing “as the strategy is financial loser and we cannot sacrifice returns for the sake of buying socially acceptable investments.”
Japan has been a leader in ESG and green investing and the fund stated the vast majority of the names are financially failing.
As noted many times, ESG financing is surging in the US, perhaps the result of the Administration lowering the fiduciary standards for such investments and fees/management fees are about two to three times greater than traditional management. Bloomberg reports ESG lending in 2021 has exceeded $3 trillion, more than the total originated in 2020. It is predicted if ESG lending continues at this pace, $11 trillion annually could be originated by 2025. Wow!
This week the fate of the $4.1 trillion spending bill could be decided. This bill is the largest spending increase in history increasing government spending to over 25% of the economy versus the modern norm of 20% to 21%. This bill is on the heels several other trillion dollar polices.
How will this be paid? Is today’s government stealing from future generations? There is near unanimity government spending is extremely inefficient given the lack of a profit motive. The negative views of DMV, the Post Office or the VA are great examples of bureaucratic inefficiencies and consistently are viewed on the lowest rung of customer satisfaction.
I cynically ask why do we want more?
Enough of the rants, Friday all indices declined with the realization that companies that are able to pass on increased costs will out perform.
The economic calendar is comprised of various housing indicators, the Index of Leading Economic Indicators and several manufacturing statistics. How will the data influence psychology?
Last night the foreign markets were down. London was down 2.03%, Paris down 2.16% and Frankfurt down 2.20%. China was down 0.07%, Japan down 1.85% and Hang Seng down 1.84%.
The Dow should open moderately lower on virus fears. Earnings season accelerates this weak and according to Bloomberg 87% of reports mentioned the word “inflation” as a current and possible threat to margins and profitability. The 10-year is up 18/32 to yield 1.24%.