The Sound of Silence
"Hello Darkness, my old friend
I've come to talk with you again
Because a vision softly creeping
Left its seed while I was sleeping
And the vision that was planted on my brain
Still remains
Within the sound of silence"
- Paul Simon (1964)
Shhh....
Tick, tick, tick, tick.
I waited. For hours it seemed.
For hours it was, but not too many. The day had passed. Equities performed in what appeared to be positive fashion for most of the session. Even if six of the 11 S&P sector select SPDR ETFs closed lower than where they started. Even if the Dow Industrials gave up 158 points (-0.44%), weighed down by the wonderful world of Disney DIS.
Materials (XLB) led the way. That's a growth story, right? Aluminum, Nonferrous Metals, and Steel stocks led the sector. Technology (XLK) placed second, led by Renewable Energy Equipment and Semiconductors. The Philadelphia Semiconductor Index ran 1.95%, as both Advanced Micro Devices (AMD) and Nvidia (NVDA) re-assumed their places as industry royalty. That all sounds growthy to me. Or is this simply inflation hedge positioning?
I mean, away from alternative assets such as cryptocurrencies and actual precious metals, how would one brace for even more inflation? In materials that certainly will be in demand now that the bipartisan infrastructure bill is fact, and in chips, where the pricing power is now and will be possibly forever. All chips, yes, but with a focus on the high end.
Trading was light on Thursday. Bank holidays here in the U.S. as well as in many nations around the globe. No bond trading. Breadth was overwhelmingly positive. Traders leaned into small- and mid-caps and waited for trading in U.S. Treasury securities to open on Thursday evening. Open they did, and on weakness. Not a rout by any stretch of the imagination, but lower, or higher as debt security performance is often expressed in yield form. Bond prices have moderated through the hours since, but that early overnight performance, while not quite unexpected, served a cold reminder. All is not exactly well, and there is a lot of work ahead.
The Question
The question, from a political and ultimately economic perspective, becomes this: With consumer inflation running at more than three-decade highs, still accelerating and now well beyond even the most dire professional projections of just a few months ago, is the Biden administration's $1.85 trillion-ish social issue and climate change spending plan now dead? Common sense would infer that this bill at a minimum would have to be delayed well into 2022. It's an election year, though. The most optimistic of professional opinions now only see this current bout with inflation ebbing at perhaps the midpoint of next year.
One must keep in mind that this year alone, the legislature has passed that $1 trillion ($550 billion in new cash) infrastructure bill on top of a $1.9 trillion COVID relief package that boosted household incomes. All of this was built on top of all of the crisis-level fiscal and monetary support placed under the economy in 2020.
According to the St. Louis Fed, total assets on the Fed's balance sheet that had bottomed below $3.8 trillion as recently as September 2019 stood above $8.5 trillion just one week ago. US federal debt, which stood at $22.7 trillion at the end of fiscal 2019, now stands just below $29 trillion. While I do find the increasing national debt and size of the central bank's balance sheet somewhat alarming, I find truly frightening that the velocity of money stock (M2) spiked slightly in third quarter of 2020 but has slowed sequentially for each quarter since from the quarter prior despite so much of the economy having reopened.
This study in human behavior in response to a public health crisis that begat a perplexing economic reality would in theory support the Fed's "transitory" narrative on consumer inflation. While I am still buying that story, one must also be fully cognizant that over the past five months this inflation we speak on and think on has accelerated even as the speed of transaction as a percentage of money supply has slowed. That's just not supposed to happen. We may not be wrong, but then again, if we were, it would not be the first time.
I do not walk the halls of the United States Capitol, so I know nothing. That said, I cannot imagine that this October print for consumer inflation does not at least slow down the progressive side of the Democratic Party as the numbers clearly reinforce the concerns often expressed by those comprising the fiscally moderate side of said party.
Wait, What?
On Thursday, Moderna (MRNA) issued a public statement insisting that it did not agree that a trio of NIH (National Institutes of Health) scientists had "co-invented" the modified nucleotide in Moderna's messenger RNA COVID-19 vaccine. Apparently, when Moderna filed its patent for the jab back in July, it left out Kizzmekia Corbett, Barney Graham and John Mascola, three U.S. government scientists who the NIH thinks helped Moderna produce the end product.
Moderna claims it has offered to make the government a co-owner of patent applications that list only Moderna scientists as inventors so that the government can license the patents as it sees fit. However, Moderna insists that only its scientists worked to select the genetic sequence used in the vaccine.
Why this matters is that public advocacy groups are concerned that if not acknowledged as a joint inventor, the U.S. could hold less influence over how the vaccine is used and be less able to help secure access for low- to middle-income nations.
Interesting
Big data analytics firm and government contractor Palantir Technologies (PLTR) beat the street's expectations for both top- and bottom-line performance on Tuesday morning. This is a Sarge name, by the way. Palantir expects 40% revenue growth for full year 2021 and reiterated guidance of 30% growth or greater for each year from 2021 through 2025. Despite the growth, the government business is decelerating and there are doubts.about that specific trajectory as well, quite justifiably, about the valuation of this equity. The shares sold off hard, down 9% on Tuesday and another 7% on Wednesday before recapturing 2% on Thursday.
Turns out that Cathie Woods' ARK Investment Management added more than 2.7 million shares of Palantir on Tuesday and Wednesday valued at about $64 million. The shares were purchased for four ETFs -- ARK Innovation (ARKK) , ARK Autonomous Technology & Robotics (ARKQ) , ARK Next Generation Internet (ARKW) and ARK Genomic Revolution (ARKG) . While Cathie Wood's performance through the pandemic into this past February was legendary, and from that point on, not so much, everything she does is going to be seen under a microscope. If she is anything, she is high profile.
You had to know that this was coming. Or maybe you didn't. Maybe it's just that nothing surprises anymore. Tuttle Capital Management this week launched the Short Innovation ETF (SARK) , which is the first exchange traded fund to make inverse exposure to another ETF, that being ARK Innovation, or ARKK, its mission focus. SARK will charge a 75-basis-point fee, same as ARKK, and will rely on swap contracts more than overtly shorting ARKK. Tuttle says the swap contracts will likely cost a rough 5.1%, which is similar to ARKK's stock borrowing fee.
Know what? No thank you. I think I'll keep doing my own homework and trading stocks individually. We really are becoming the Wild West.
Elsewhere
News broke overnight Wednesday into Thursday that Tesla (TSLA) CEO Elon Musk had exercised stock options resulting in the acquisition of 2.15 million shares (at $6.24 apiece) on Monday to "satisfy tax withholding obligations" and then sold 934,000 shares the same day. On Tuesday and Wednesday, Musk sold another 3.5 million shares of TSLA valued at about $3.9 billion in a series of trades that were not part of a pre-planned stock sale. Including shares that were planned to be sold, Musk has unloaded more than $5 billion of Tesla stock days after poling his Twitter audience over whether he should sell 10% of his stake in Tesla to the public.
Interestingly, TSLA is down 12.98% for the week to date, while on Thursday, which is when all this news became more well-known, electric vehicle manufacturers much further down the food chain soared. The just-public Rivian Automotive (RIVN) popped 22%, while Fisker Inc. (FSR) ran 11%, Canoo Inc. (GOEV) rallied 5.4%, Lordstown Motors (RIDE) gained 24% ahead of earnings and Lucid Group (LCID) jumped 10%. Hmmm.
Economics (All Times Eastern)
10:00 - U of M Consumer Sentiment (Nov-adv): Expecting 72.4, Last 71.7.
10:00 - JOLTs Job Openings (Sep): Last 10.439M.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 450.
The Fed (All Times Eastern)
12:10 - Speaker: New York Fed Pres. John Williams.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (AZN) (1.25), (VIPS) (1.52), (WRBY) (-.22)
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