Saturday, July 24, 2021

For Investors Only -- Nothing About The Bakken

I think there's a huge difference between "inflation" due to the "Fed printing money" and simply "a short-term surge in prices." 

Analogy:

  • "inflation" due to the "Fed printing money": long term, the price of oil will increase, all things being equal; contango is the normal state of affairs for commodities like oil, not backwardation; versus
  • simply a short-term surge in prices: the surge in the price of oil when a Category 5 hurricane shuts down the Gulf of Mexico, Louisiana, and Texas;

The surge in the price of lumber had absolutely nothing to do with "the Fed printing money." 

Too much money chasing too few goods.

What causes too much money? Right now, it's not due to "the Fed printing money." 

What causes too few goods? It's not lack of production, per se. 

House prices did not appreciate 20% (or whatever it was) because there was too much money being "printed by the Fed." 

The current Fed chairperson, a centrist, remains in the office for another six months or so; his replacement is likely to be a woman, also a centrist. In other words, no major changes over the next two years.

Whatever. We move on.

We move on to the graphics below and the very interesting Bloomberg story today (see below).

Amazing graphics:

Graphic above:

  • A: trajectory when folks thought we were coming out of the pandemic; extend line A and we're easily at 36,000 for the Dow;
  • B: trajectory when vaccinations slowed down; and delta variant emerged
  • C: trajectory not seen; when delta variant concerns dissipate, probably beginning in October, 2021;

The graphic that absolutely amazes me

Someone is reading the blog. From Bloomberg via Yahoo!Finance today:$17 trillion "on the sidelines.


In the stock market, the refusal of retail investors to back down from every macro threat has become the only story. When will it end? Judging by the size of all the pools of cash lying around, it could be a while.

Among all the economic stories of the pandemic, the one about money piling up in people’s accounts has been the most significant in the stock market, where the S&P 500 just notched its seventh gain in nine weeks. Money market accounts, viewed in some circles as a “dry powder” reserve for equity deployment, sit at just under $4.5 trillion. A more obscure balance, the Federal Reserve’s count of money on deposit with commercial banks, has risen 33% from 2019 to $17 trillion.

While none of the money is completely unencumbered and professionals tend to hate the concept of “cash on the sidelines,” something is arming the day-trader cadres who seem bent on letting no market selloff last more than 24 hours. Take Monday, for example, when fears the delta variant would upend progress sent the S&P 500 down as much as 2.2%. Dip buyers ran to the rescue then and the rest of the week, sending the S&P 500 higher by almost 2% through Friday, despite virus cases still spiking.

How powerful is the retail cannon? On Monday alone, they bought a record $2.2 billion worth of equities, with the biggest exchange-traded fund tracking the S&P 500, ticker SPY, alone notching an all-time high of $482 million in retail purchases, according to Vanda Research. An analysis from DataTrek Research showed that Google searches in the U.S. that day for the phrase “dow jones” -- the term most associated with stock market investing, according to the firm -- spiked when stocks declined quickly, peaking at 1 p.m. in New York.

“It’s almost like investors are seasoned to say, stocks are down, it’s got to be a buying opportunity,” said Gene Goldman, chief investment officer at Cetera Financial Group. “Part of that is because there’s no other game in town right now. You look at bond yields so low, cryptocurrencies struggling, other parts of the market are not that great.”

The unending appetite for stocks led equity ETFs to break their annual record in April, and the pace hasn’t slowed since. In July, the products have already taken in more than $15 billion, helping fuel total ETF inflows to the brink of a full-year record, with more than five months to go.

Still, other measures of retail prowess show a mixed picture. Data from Charles Schwab shows that the percentage of cash in their clients’ brokerages accounts in June fell to 10.5%, the lowest since 2018.

“That probably suggests that the dry powder has been put to work over the course of the year, but maybe it’s not entirely out of fuel for further investment,” said Jeffrey Kleintop, chief global investment strategist for Charles Schwab & Co. “There’s still a good bit of momentum and desire to put money to work and look for alternatives to the bond market which remains relatively unattractive.”

Much more at the link, but you get the point. 

At some point, GDP growth will slow down but I think the delta variant moved the graphic to the right (good news). 

If a recession is defined as a negative growth for "extended period of time" (two quarters), I don't see the next recession any time soon (defined as the next five years). 

I still maintain that 2020 - 2035 was compressed into 2020 - 2025 due to market changes due to Covid-19. 

Like the US economy, sitting pretty:


If Sophia looks exhausted, she is. In addition to a long day of swimming in 100-degree, bright-sun weather, she has been very, very busy with other activities.

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