Morning Note: Beware the “Seemingly Superior Financial Opinion”

Federal Reserve chief Jerome Powell has quite the task ahead of him today, as this week’s rate policy meeting concludes and he has to report what’s what to the world — well, to the markets!

Too soon, in my opinion (i.e., stocks aren’t suffering), to announce “yield curve control” (ycc), but he’ll be asked, and his answer will, make no mistake, move the market, in one direction or the other.

If he doesn’t come off amenable to the notion, I fully expect we’ll see interest rates spike and stocks (tech especially) tank. If, on the other hand, he can somehow fashion together a credible-sounding statement that essentially says, yes, we’ll be going there should this keep up — well, they won’t need to go there for awhile, because the world will go there, rates will tank and stocks will (especially tech) rally quite impressively, I suspect… 

If I had to place a bet (which I don’t) either way this morning, I’d bet on the former: Again, stocks (save for tech, here and there) really aren’t suffering. Judging by the tech sector at the start of today’s session (down 1.4%) the market agrees…

Speaking of suffering, housing starts reported this morning missed estimates by a whopping 10%. Like I said yesterday, I’m generally not warm to the convenient cold weather excuse, but, yes, this time I do believe — to no small degree — it fits. That said, mortgage rates are now “comfortably” above 3% and, well, the price of materials (read lumber!) is through the roof. Yesterday’s release of the NHIB Housing Index (homebuilder sentiment) was disappointing: Higher lumber prices were mentioned, big time! And the NHIB estimates that they alone add $24k to the price of your average home… Oof!!

The good (global) news overnight was that the busiest port on the planet (Singapore) saw activity surge in February. Although Japan’s trade data lagged (Lunar New Year contributing to the down), but, of the two, Singapore’s the one to watch.

Asian equities struggled a bit overnight, with 10 of the 16 markets we track closing modestly lower.

Europe’s off this morning as well, with 14 of the 19 bourses we follow in the red as I type.

U.S. major averages are mostly (save for the Dow) lower to start the day: Dow up 71 points (0.20%), SP500 down 0.41%, SP500 Equal Weight down 0.16%, Nasdaq 100 down 0.93%, Russell 2000 down 0.69%.

The VIX (SP500 implied volatility) is up 4.95%. VXN (Nasdaq i.v.) is up 5.67%.

Oil futures are down 0.51%, gold’s down 0.29%, silver’s up 0.08%, copper futures are up 0.76% and the ag complex is down 0.66%.

The 10-year treasury is down (yield up) and the dollar is up 0.07%.

Led by base metals, metals miners, banks, financials and industrials — but dragged by solar producers, uranium miners, wind producers, emerging market equities and utilities — our core mix is off 0.22% to start the session.

As I warned on Monday, the quoting herein for a bit will come mainly from Galbraith’s A Short History of Financial Euphoria

If you haven’t been captured by the present “speculative mood” the following should resonate:

Emphasis mine…

“So much, as I’ve said, is clear. Less understood is the mass psychology of the speculative mood. When it is fully comprehended, it allows those so favored to save themselves from disaster.

Given the pressure of this crowd psychology, however, the saved will be the exception to a very broad and binding rule. They will be required to resist two compelling forces: one, the powerful personal interest that develops in the euphoric belief, and the other, the pressure of public and seemingly superior financial opinion that is brought to bear on behalf of such belief.

Both stand as proof of Schiller’s dictum that the crowd converts the individual from reasonably good sense to the stupidity against which, as he also said, “the very Gods Themselves contend in vain.””

“The euphoric episode is protected and sustained by the will of those who are involved, in order to justify the circumstances that are making them rich. And it is equally protected by the will to ignore, exorcise, or condemn those who express doubts.”

Have a nice day!

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