Morning Note: The long-run can indeed mean the long-run…

In this weekend’s video commentary I made mention of a highly respected economist who (among others) categorically disagrees with our present inflation thesis.

Per his commentary this morning, another respected thinker in the space (economist Peter Boockvar), actually sympathizes with our side of that debate; particularly where it relates to the impact of interest rates:

“…the level of global interest rates is just still so low. If we didn’t have negative interest rates overseas, if we didn’t have zero rates in the US, if we had a 10 yr yield that was maybe 3%, the world’s bond markets would be better able to handle and absorb a higher rate of inflation. But, with where they are now, they are completely unprepared for inflation surprises, even modest ones.”

Big week for markets, with an avalanche of earnings reports and the Fed’s monthly policy meeting! 

As for earnings, look for a huge majority to beat expectations, which is nearly always the case, as Wall Street and the companies themselves are most adept at managing expectations in a manner that makes it very difficult to disappoint. 

As for the Fed, they’re very much in the expectations business themselves. Bottom line, they do not want to tighten policy — despite now other (a handful of) countries’ central banks threatening to go there, or at least having the conversation. 

It’ll be interesting if chair Powell even hints of tapering the asset purchases, or abandoning his we’re not even thinking about thinking about raising interest rates pledge. 

If indeed he does, look for equities to take a hit… I, therefore, suspect he won’t — but there’s some pressure building to at least verbalize a willingness sometime before the next millennia…


Asian equities were mixed overnight, with 8 of the 16 markets we track closing lower.


Europe’s broadly green this morning, with all but 1 of the 19 bourses we follow trading higher.

U.S. major averages are green as well to start the session: Dow up 35 points (0.15%), SP500 up 0.22%, SP500 Equal Weight up 0.41%, Nasdaq 100 up 0.14%, Nasdaq Comp up 0.35%, Russell 2000 up 1.02%.

The VIX (SP500 implied volatility) is up 2.37%. VXN (Nasdaq 100 i.v.) is up 3.58%.

Oil futures are down 1.29%, gold’s up 0.14%, silver’s up 0.44%, copper futures are up 1.97% and the ag complex is up 0.85%.

The 10-year treasury is up (yield down) and the dollar is up 0.02%.

Led by MP (rare earth miner), ALB (lithium miner), oil services stocks, industrial metals miners and base metals themselves — but dragged by consumer staples stocks, wind stocks, solar stocks, utilities stocks and Verizon — our core mix is up 0.33% to start the day.


Just picked up Thomas Philippon’s book The Great Reversal. And based on the number of my highlights very early on, I’m guessing his will become a familiar name herein as I offer up the daily quotes:

“We cannot trust our intuition, and we certainly should not repeat the conventional wisdom, especially when it happens to coincide with our preconceptions or economic interests.

Hence, when you hear a manager arguing that competition has never been tougher, you should put as much faith in that statement as one from a barber who says you really need a haircut. Or, I might add, from a banker who argues that leverage is really, really safe.”

Or, I might add, from an investment advisor who says you should have your portfolio all in stocks because they always make money in the long-run.

Well, sure, but recall from our April 14th post — the long-run can indeed mean the long-run!  

’73/74 bear market: Drawdown, -48%. Years of gains lost, 11.5. Years to recapture prior peak, 10.6.

’00-’03 bear market: Drawdown, -51%. Years of gains lost, 5.4. Years to recapture prior peak, 12.9.

’07-’09 bear market: Drawdown, -57%. Years of gains lost, 12.4. Years to recapture prior peak, 5.5.

Have a great day!
Marty


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