Sticks and Stones
I was but a child. I lived half a mile from school. In those days, that meant you walked. I had no idea that other kids could be mean. I learned quickly.
My dad was a soldier. During the Vietnam War era. He served a few years on active duty and then had stayed on in the National Guard, so he was seen around the neighborhood from time to time in a U.S. Army uniform at a time when a large part of the nation had become completely intolerant of those in service to the nation. They thank us for our service now. For those who have forgotten, they used to spit at us and call us "baby killers." That nonsense was still going on when I put on a uniform for myself in the very early 1980s, but at least by then the tables had started to turn. There were some people several years after the fall of Saigon who were not quite so afraid to show some support for those willing to take the oath and serve under our flag.
I held a special kind of pride in my father's service. Lord knows, I was willing to fight for him, because it felt like defending America. "There he is, his father's a soldier." The hippies would yell, and then they would surround. There would sometimes be two or three, other times 10 or more. I would finally throw down my book bag and take my beating. It hurt in real time, but it felt good, almost too good inside. I never doubted for a second that my dad was a good man, and I wanted to be just like him. I may have been a 7- or 9-year-old kid, but I could not wait to take that oath and stand up for my country. It might as well start with these creeps who seemed to wait for me on the way home. Every day. Teenagers. The big kids. Real brave... until you turn around with two fists ready to rock. Then if their pals aren't around...
They say that words can't hurt you. and in truth, they cannot, but they sure can change the way you think. They sure can cause a reaction. The spoken word sure mattered across financial markets on Thursday. Enough of the ripped school clothes and torn-up school bags of the early 1970s. Every one of those "older kids" eventually learned. Let's talk about markets.
... has far to go? Had further to go after the closing bell had peeled its last. It happened around midday. Equity markets had made an early attempt to add to Wednesday's gains. Yes, the Dow Industrials were down on Wednesday, but as I have told readers before, that index is too narrow to honestly be included as a major. It is only really featured in the year 2020 due to public recognition and its own longevity. The S&P 500 and the Nasdaq Composite are the only true majors at this point. Arguably, the Dow Transports, Nasdaq 100, the S&P 400 and Russell 2000 are all more important to those charged with market assessment as well.
Anyway, at some point mid-session, it became apparent that the Trump administration had taken a pass on negotiating from the Republican perspective a next-phase fiscal stimulus package. Does that mean that electoral concession is soon coming? How do I know, but Real Clear Politics (the last high-profile holdout) did finally call Pennsylvania, and with it the election, on Thursday. This leaves Senate majority leader (at least for a couple months, maybe a couple years more) Mitch McConnell in the position of leading negotiation from the right.
McConnell made plain his lack of interest in a "dramatically larger stimulus" package centered around pandemic aid. Not a shock. The Senate's failed "skinny" bill prior to the election was indeed the fiscal opposite of what the House had passed back in late spring, even far less than what Speaker (for now?) Nancy Pelosi had come down to, back in October. With the virus spreading at an alarming rate across just about every corner of the nation, forcing a number of regional leaders to take restrictive action that will slow economic activity, this put the algorithms that control price discovery in this perverse era into motion.
"Don't Let the Negative Steal the Blue Out of the Sky"
... "Life" (Brides of Destruction) 2004
The losses were not overtly large in percentage terms. Small-caps were hit the hardest, with the tech-laden Nasdaq indices performing the best while still surrendering more than one-half of one percent. All 11 sectors finished lower, however, as lockdowns became probable, Food Retailers and Wholesalers (part of the Staples sector) rallied, as did Health Care Providers. Breadth was nasty. Losers beat winners at the New York Stock Exchange (NYSE) by more than 3 to 1, and at the Nasdaq by more than 2 to 1. Declining volume beat advancing volume at the NYSE also by close to 3 to 1, and at the Nasdaq by close to 3 to 2. Aggregate trading volume increased from the day prior.
Sectors that showed the most weakness on Thursday were all of those that would most benefit from increased velocity of money, either artificially through policy or through a return to some kind of normal. Energy and Materials took it on the chin, while McConnell's comments did a number on the yield curve. That, in turn, did a number on the Financials.
Sen. McConnell was not the only one flapping his gums on Thursday. Both Federal Reserve Chairman Jerome Powell and European Central Bank (ECB) President Christine Lagarde spoke publicly, and both had an impact.
Powell again described an economy recovering more quickly than had been anticipated, the trajectory of which was now threatened yet again by viral spread causing local lockdowns. Powell is hopeful and welcomes the recent positive vaccine headlines such as those released by Pfizer (PFE) and soon expected from Moderna (MRNA) . Interestingly, Powell again stressed that our nation's legislature still needs to act to get a struggling populace from point A to point B or face a "permanent scarring" of the economy.
As for the president of the ECB, Lagarde mentioned the possibility of a digital currency that at some point would be created and controlled by the central bank. We have heard such rumblings mentioned around the Fed in the past. Interestingly, Bitcoin rallied on this news in dollar terms. Bitcoin has become a commodity of choice among some investors, seen in the same light across a younger demographic as us older folks look at precious metals such as gold. Better hope the grid never goes down.
While some may see value created across the realm of crypto-currencies should central banks get involved, I see that as potentially the beginning of the end. Right now, there is certainly a place for "cryptos," but not as a safe haven. I see them more as a means of moving wealth around, either out of nations with troubled currencies or intentionally beneath the radar. Once governments move toward removing cash from the system, and then central banks move toward full control over the currency, all transactions will be tracked and taxed. A place for an independent currency in that world would be uncertain at best.
Thursday may have been one of vigorous exercise for investors. The hours that came after the close were much kinder as the Walt Disney Company (DIS) , Cisco Systems (CSCO) and Applied Materials (AMAT) all reported their quarterly financial results.. and all three bested expectations. All three stocks have rallied overnight. Disney and Cisco are Dow components, hence the nice pop in futures markets that you see on your screen at zero--dark thirty. I am long both of those names and expect to lay out my thoughts for at least one of them for Real Money shortly.
Back after breakfast and prayers. Hang tough, gang.
Economics (All Times Eastern)
08:30 - PPI (Oct): Expecting 0.3% y/y, Last 0.4% y/y.
08:30 - Core PPI (Oct): Expecting 1.2% y/y, Last 1.2% y/y.
10:00 - U of M Consumer Sentiment (Nov-adv): Expecting 82.0, Last 81.8.
10:30 - Natural Gas Inventories (Weekly): Last -36B cf.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 226.
The Fed (All Times Eastern)
07:00 - Speaker: New York Fed Pres. John Williams.
08:30 - Speaker: St. Louis Fed Pres. James Bullard.
Today's Earnings Highlights (Consensus EPS Expectations)