I see a red door
And I want it painted black
No colors anymore
I want them to turn black
- Paint it Black, Jagger, Richard (The Rolling Stones), 1966
Realization
Every once in a while, the human brain grasps "ugly." Unwelcome. It is. Doing nothing is not an option. A noble warrior collapses deep in the jungle. Semi-conscious. Warm to the touch. Too warm. Little over three klicks from help. Nine line? Medivac will take too long. Run. Run as fast as you can. You can do it. This is why you train so hard. God is with you. Nice kid. He would do this for me. He would do this for any of us. Eight of you stay here, defensive perimeter. Keep the radio. You four with me. Three of us switch off carrying Jacques. Patrick on point. Luis on rear guard. Let's go. Hail Mary, full of grace...
Three and a half decades later. Back to the moment. This moment. Let my heart rate slow. Tuesday. Markets weaken right after the opening bell. This could get "ugly." Mid morning. Support rushes in. Then more. Equity markets, at least at the large-cap level, no... make that all-caps are rallying. The S&P 500 turns -0.7% into +0.6%. The S&P 500 and the Nasdaq Composite both find support close enough to their 21-day EMAs... which has been where the love has been found for two weeks now. Not quite as significant as the 50-day SMA, but certainly a door that needs to open if that 50 day line is to come into play.
"This is awesome." I was taking profits at what seems to be highs for some Sarge faves such as Advanced Micro Devices (AMD) and Walt Disney (DIS) , not to mention a bevy of my materials names that had been under water until recently. Haircut time. I was added to United Parcel Service (UPS) . I was reinitiating a new long in Abbott Labs (ABT) . Thought about shaving Walmart (WMT) , Target (TGT) , Home Depot (HD) , and that newly beefed up long position in Amazon (AMZN) , and pulled my finger out of the trigger well. No, I will not sell anything from that basket.
The realization was that I was not alone. Traders across the entire equity marketplace were doing what I was doing. Shaving winners, and restocking on pandemic plays. Outside of Energy that was trading higher for its own nasty reason, Pharmaceuticals and Biotech led the way. I really should have never sold my darned Moderna (MRNA) . At least I did hang onto Pfizer (PFE) , even beefed that one up.
Trading volumes increased. Breadth was generally positive, though not as decisively as one might have expected for such a green day. In fact losers did just edge winners for these names listed up by the Father Duffy statue (Times Square). Stocks listed closer to George Washington (Wall Street) fared better.
The Why
You know already. Delta spreads as we have said it would. Delta does not discriminate by age as prior variants had. We knew that too. Businesses are rapidly preparing for a "rolling" kind of shut-down economy. GDP estimates for the Chinese economy are being reduced. Here, the economy was already growing well below expectations. The mindless behave as if the current spread will not alter human behavior over the second half of the year. I think this virus, which clearly does not behave as all previously known viruses have, will force us to change our ways if we have not already. More permanent than temporary.
Municipalities are already taking steps to try to ensure that economic activity does not come to a halt. Vaccine passports? Does not guarantee anything beyond the fact that the guy eating next to you also gives a darn beyond his own myopic world. That card that the CDC issued to you has two more spots on it if you have received either the Pfizer or Moderna vaccine, three more if you got the Johnson & Johnson (JNJ) jab. You're going to need those extra spots. You may need a second card. Anti-vaxxer? Don't complain. Not that all of this is your doing. There are many places on earth where vaccines are not yet readily available, so there still would have been mutation... but you certainly contributed to the problem.
In the military, everyone lines up and gets the flu shot every year. You don't get a choice. Some years it gets you sick for a day or two. Other years, you're fine... but entire units are never taken offline by the flu. This is your life now. Because it is so difficult to vaccinate the planet's population in a timely manner, this virus will continue to make errors in replication, creating mutation. Our messenger RNA vaccines (which are more readily adjustable than old-school vaccines, and thus our best weapon in this fight) will have to keep up. We will at times over the next decade, have to mask up, and have to maintain social distance.
The virus also has more power to control both fiscal and monetary policy than does the data or do any of our leaders individually. That's unfortunate.
I could not foresee this thing
Happening to you
No colors anymore
You'll have to...
Paint them black.
Marshall Matt Dillon
As a child, I always watched "Gunsmoke" with my Dad. James Arness, before becoming a TV star, had been severely wounded at Anzio. Not only was he a tough guy cowboy on the tube. He was infantry. He was the real thing. In our house, he walked on water. That was a long time ago.
Dodge City has a new Marshall. His name is Gary Gensler, current chair of the SEC. On Tuesday, Gensler called on Congress to grant the SEC additional power to police the trading of cryptocurrencies and protect investors in what has become the "Wild West" of the financial marketplace. I believe Gensler used the words... "fraud, scams, and abuse." It is about time that someone seriously takes a look here. The bi-partisan infrastructure bill looks to tax crypto transactions and catch tax cheats, but that was born more from looking under the sofa cushions in an effort to fund that bill than out of any need to protect those who might need protection.
Money
What we know is that money is easily divisible. Fiat, precious metals, and cryptos are all divisible. Money serves as a unit of account. Fiat, and even cryptos serve this function better than metals. Money serves as a store of value. Fiat, and gold serve this function better than cryptos as cryptos are way too volatile on a day to day basis. Money serves as a medium of exchange. Metals can not effectively serve this purpose. Cryptos have not legitimately served this purpose.
To be fair, cryptos do serve as a medium of exchange not for goods or legal services, but for drug dealers, terrorists, money launderers, cyber criminals and tax cheats. The only legitimate purpose that I can think of for independent cryptocurrencies is speculation, and quite honestly speculators are in bed with demand created by (say it with me)... drug dealers, terrorists, money launderers, cyber criminals, and tax cheats.
There are members of the cult that will defend cryptos by pointing out that all of these mentioned nefarious activities were already effectively served by fiat. That much is indeed true, but unlike with cryptocurrencies, you can use fiat to feed your family, and cash is going to go away. You can count on that. Fiat is going to "go crypto"... then what? In fact, once independent products created through blockchain technology are correctly recognized as commodities and not as alternative currencies, it is then that consideration might be made toward perhaps moving sovereign currencies away from the "fiat" concept and once again back them with something other than good faith. It is then that cryptocurrencies will be ready for legitimate use and purpose.
The only thing is that at that point you won't refer to Bitcoin, or Dogecoin or Ripple or Ethereum. You will know them as the U.S., Canadian, and Australian dollars, the British Pound, the Euro, and the Japanese Yen. You thought the central banks, treasury departments, and regulators of the world would allow monetary decentralization that reduces national power to carry on for very long? That is so cute.
Anyone Else Notice...
...That Japanese 10 Year paper did not trade on Tuesday. Oh... the market was open. There were bids and offers. This was the first time there was not a single trade for that product over an entire day's session since... June. Apparently when a secondary market boils down to one dominant buyer and holder, there ends up being a whole lot less interest. Who knew?
By the Way
One thing I did last night after the close, was flip out of Lockheed Martin (LMT) and into General Dynamics (GD) at least until the dust settles. What dust? Glad you asked. Lockheed purchased group annuity contracts from Athene Holding (ATH) on Tuesday in order to transfer $4.9 billion in pension obligations (impacting 18K retirees). No additional funding will be required, which is good from a corporate point of view. Lockheed also had to reduce full year EPS guidance from $26.70 to $27.00 down to $21.95 to $22.25. Wall Street had been at $26.95 on this metric. Net sales guidance of $67.3 billion to $68.7 billion, and guidance of cash flow from operations ($8.9 billion) were left in place.
Readers will note that both LMT and GD are stuck in basing patterns that go back to this past spring after a nice rise in price prior. The two, however, are at very different places in those patterns. While GD flirts with resistance in an attempted breakout, LMT is left fending for itself at support.
Nothing may happen here. Wall Street may yawn depending on how many fund managers saw this coming. In that case I will flip back. I like LMT. That said, should this break support for LMT, I won't be the only one having allocated those funds toward other defense contractors. This is just risk management, gang... not a long-term investment decision.
Economics (All Times Eastern)
08:15 - ADP Employment Report (July): Expecting 687K, Last 692K.
09:45 - Markit Services PMI (July-rev): Flashed 59.8.
10:00 - ISM Non-Manufacturing Index (February): Expecting 60.4, Last 60.1.
10:30 - Oil Inventories (Weekly): Last -4.089M.
10:30 - Gasoline Stocks (Weekly): Last -2.253M.
10:30 - Natural Gas Inventories (Weekly): Last -86B cf.
The Fed (All Times Eastern)
10:00 - Speaker: Federal Reserve Vice Chair Richard Clarida.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (CVS) (2.07), (KHC) (0.72), (RCL) (-4.38), (SMG) (3.52)
After the Close: (EA) (0.64), (MCK) (4.10), (MGM) (-0.37), (QRVO) (2.45), (ROKU) (0.14), (UBER) (-0.32), (WDC) (1.50)
(AMD, UPS, ABT, WMT, and AMZN are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)
