Silent bus ride late at night
What was I thinking? This can't be right.
The cool kid in school
Suddenly feels more like the fool
Few called by name.
Pride kindled like flame.
The sacred oath
To support and defend.
True faith and allegiance.
Even until our end
Our glorious flag
Turned pure courage
A boy stood upon yellow footprints
Turned into a man
Who died for me
Pray for the families
Pray for the souls
Pray for all
Who take their place
Not sure how much Thursday counted for anything, market-wise. It was difficult for traders to focus upon their day jobs. Terrorist attacks close to the airport in Kabul took the lives of American service persons and probably more than a hundred Afghan civilians. I could rant here, but this is not the time to let anger boil over. There will surely be investigations and congressional hearings into how poorly this withdrawal from Afghanistan has been executed. Now that poor (or lack of any) planning has sacrificed American lives, that's assured. I would prefer that correcting the "now" be prioritized over assessing what is done. I just don't know how anyone who has been involved at the strategic level over the past four to six weeks can be trusted to correct anything.
Traders took off some risk on Thursday, but not a ton of risk. Honestly, what do geo-political blunders have to do with the forward P/E ratio for anything? Sure, longer term, conditions may develop impacting allocation such as global relationships with allies, adversaries and client states. That is not today's story, however. Defensive sectors were favored over cyclicals. Little volatility, though. Basically, markets that would have been cautious anyway going into Federal Reserve Chairman Jerome Powell's address were more so. Trading volumes decreased from Wednesday. U.S. Treasuries showed little volatility. Traders in their offices simply switched from the financial networks to mainstream news outlets.
Fed Chair Jerome Powell
The Fed chair is slated to speak on Friday at 10 a.m. ET. Three Fed officials were out and about, making the financial media rounds early on Thursday expressing their forward-looking views on the trajectory of domestic monetary policy. Dallas Fed President Robert Kaplan would like to see a shift toward reducing the central bank's $120 billion monthly asset purchase program announced on Sept. 23 and implemented as soon as October. St. Louis Fed President James Bullard would like to see a tapering of these asset purchases begin sometime this autumn and be completed by the end of the first quarter of 2022. Kansas City Fed President Esther George made plain her preference for getting a start on reducing those purchases this year.
Investors can't just blow these three off as three rogue regional Federal Reserve district presidents. As 2021 turns into 2022, Bullard and George along with Cleveland Fed President Loretta Mester, who almost always has held more hawkish views than her peers, and Boston Fed President Eric Rosengren, who has expressed more hawkish views of late than he has in the past, will replace a quartet of more dovish regional district presidents as voting members of the Federal Open Market Committee (FOMC). Out will be Richmond's Tom Barkin, Atlanta's Raphael Bostic, San Francisco's Mary Daly and Chicago's Charles Evans. The latter three of those four have all regularly expressed more dovish views than many of their contemporaries.
What I am trying to tell you is that Powell needs to sort of lay it both ways this morning, but once the tapering ball gets rolling, that ball could roll downhill rather quickly. There is a chance that even if the Fed is cautious at the outset that the FOMC come January will need to guard against its own aggression.
For today, I think Powell must pave the way for tapering to be, if not announced, then at least mentioned it with some level of certainty in the official September statement. However, the chairman must also respect the fact that the Bureau of Labor Statistics Employment survey data for September and October (published in early October and November) is infinitely more important than the August data that will be published in a few days.
Why Is That?
The Fed, at least officially, has a dual mandate. Its job is to manage price stability while promoting maximum sustainable employment. We understand labor markets have been making progress and that consumer pricing has been too hot. That said, most K-thru-12 schools in the country still have not started their school years. In areas where they have, primarily in the U.S. Southeast, there is already anecdotal evidence of the Delta variant of the SARS-CoV-2 virus spreading among children and then at the household level to their families. Of all the reasons I have seen for why the Southeast has struggled as much if not more with the virus in recent weeks than much of the rest of the country, I have seen little mention that this region tends to start and finish its school year about a month ahead of everyone else. A worst-case scenario, that of a nationwide children's pandemic, would continue to keep single parents and second household earners from returning to the labor force.
In addition, you may or may not have noticed, but when the Department of Labor hits us each and every week with its numbers for both Initial and Continuing Jobless Claims, in the material it also update us on totals of all individuals currently reliant upon either state and/or federal unemployment assistance. While 2.862 million folks remain enrolled in state programs, including federal programs for gig workers and freelancers, almost 9 million individuals are still enrolled in either the PUA (Pandemic Unemployment Assistance) or PEUC (Pandemic Emergency Unemployment Compensation) programs. The data runs with a nearly three-week lag, but more than 12 million folks are receiving some kind of help.
That help runs dry on Labor Day. What I am saying is that only those still receiving state aid will continue to receive sustenance checks after Sept. 6. Roughly 11 million folks will see a halt to the help they have been receiving and the other 1 million will get a $300-a-week haircut as they lose the federal stipend that had been paid along with the state payment.
It isn't that I don't think the Fed's balance sheet probably has become too large to manage. It has. It isn't that I don't think it would be preferable to someday normalize credit markets and remove all artificial impact from price discovery. I just do not think it wise, politically or economically for that matter, to act ahead of being able to assess how well labor markets absorb these 11 million persons who most likely will need to look for work. Increased supplies of labor should impact wage growth, which in theory could/should suppress consumer inflation. I am a Von Mises guy at heart. I want to get there. Acting prior to December is foolish. Bullard and George have been vague enough whereas I think they may understand this. Kaplan, though... Moving ahead of data on jobs and wages prior to December is both rash and impulsive.
Some Folks Have to Be Told
According to a study in the New England Journal of Medicine that included hundreds of thousands of patients that either have received a messenger RNA vaccine (such as the Pfizer (PFE) or Moderna (MRNA) jabs) or have been infected with the SARS-CoV-2 virus, one to five persons out of 100,000 receiving the jabs appear to develop a heart inflammation condition known as myocarditis. Of those infected, the rate is much higher -- 11 per 100,000. This is one of the many conditions I suffered last year when I was sick with the virus. It's no joke. The study also finds that the vaccine carries less risk than the virus itself for arrhythmia, acute kidney injury, pulmonary embolism, deep-vein thrombosis, myocardial infarction, pericarditis and intracranial hemorrhage.
But by all means, keep on walking around unvaccinated and unmasked. You'll probably just keep getting lucky. What could possibly go wrong? After all... freedom.
A couple names disappointed on Thursday that caught my attention. Prior to the opening bell, Dollar General (DG) beat on both the top and bottom lines but guided full-year sales growth below consensus and kept the high end of its earnings-per-share projection below the level Wall Street was seeking. I added on the dip as the shares did rebound well off of the lows.
Not only had DG been supported by its own 21-day exponential moving average (EMA) for a week, the rally off Thursday's lows ran out of steam at the 50-day simple moving average (SMA). If the gap between those two lines does not present an obvious algorithmic battlefield, then I am losing my touch. Besides, with 11 million folks about to lose their sustenance checks, just where do you think they are going to shop?
The other loser was Peloton Interactive (PTON) . I would not touch this one with a 10-foot pole. Peloton missed badly on just how negative losses would be despite continued sales growth. It also guided current-quarter revenue well below consensus while reducing prices for its original bike to levels still out of the price range of most middle-class folks. The most aggressive growth is in paid digital subscriptions. Which are aimed at folks who use their own spin bikes and treadmills.
I am a subscriber to this service as well as other exercise streaming video services. If Peloton wants to keep or attract people like me, it needs to seriously up its game. Its greatest asset is the depth of its library. It does have a lot of material and the running programs are really pretty good. But if someone really needs to work out hard core, especially for spinning, they are going elsewhere. I am here to train. Period. Not bounce around and sweat a little to my favorite tunes. Well, that's one guy's opinion.
Economics (All Times Eastern)
08:30 - Personal Income (July): Expecting 0.2% m/m, Last 0.1% m/m.
08:30 - Consumer Spending (July): Expecting 0.4% m/m, Last 1.0% m/m.
08:30 - PCE Price Index (July): Expecting 4.1% y/y, Last 4.0% y/y.
08:30 - Core PCE Price Index (July): Expecting 3.6% y/y, Last 3.5% y/y.
08:30 - Wholesale Inventories (July-adv): Last 1.1% m/m.
08:30 - Goods Trade Balance (July-adv): Last $-92.05B.
10:00 - U of M Consumer Sentiment (Aug-F): Flashed 70.2.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 405.
The Fed (All Times Eastern)
All Day - Jackson Hole (virtual) Economic Symposium.
10:00 - Speaker: Federal Reserve Chair Jerome Powell.
Today's Earnings Highlights (Consensus EPS Expectations)