You know the old saying, or maybe you don't. If not, always remember this. It may one day save your life, or for the purposes of this column, preserve capital. "Slow is smooth, smooth is fast." What this means, basically, is to allow your brain to process all available information in real time, and act accordingly. It does not mean that it is okay to freeze in fear. It simply means that when under pressure there is an urge... to behave impulsively, in order to get to the other side. Don't know? Always be self-aware enough to understand that there is something, sometimes quite a lot, that you and I do not know. Might never know.
Ultimately, the times demand that we drag out my old order of process for decision making. I think it fits nicely with current market/economic realities, and the old military adage mentioned above. Remember, always for those responsible either for the management of money or people that there are five stages in the determination of what must or must not be done. The first step is to "Understand". Take the time to read, to be as cognizant as possible of how the powers that be are stacked up. Does your posture match your reality? I get this little sick feeling in the back of my neck when I know that my trading has become a little too much like gambling. I bet a lot of you do too.
Once we understand a situation, we know what to look for. We know what signals danger ahead, or what confirms suspicions. Step number two is "Identification". Here is where cognitive ability differentiates us from our prehistoric relatives. Here, we identify both what is defensible, and potential avenues of attack. This is where we know if we are doing exactly what we think we should be. The ability to identify both opportunities as well as challenges, permit step number three... which is to "Adapt".
For without the ability to become whatever is needed whenever the need arises, then we will surely, and probably sooner rather than later... run into a situation that we'll find ourselves ill-equipped to meet some given challenge. This is the most important stage in decision making. Needs change. Environments change. So must we. There can be no victory on any level without either an innate or personally developed ability to adjust. Step four and step five are almost automatic, depending on outcome. Step four is to "Overcome". Step five is to "Maintain" or to "Carry on with the mission", in other words, just get back to work. There is no step five without a step four. There is no step four without successfully completing the first three steps. If you have not overcome, either you have failed in the process, or new information has either become, or is not yet available. We move back to step one. To "Understand". The flow of reason here is smooth. There is no panic. Why? Because panic is our greatest internal threat. (Yes, we call them panic points, in fact... they are anything but.)
There is no timetable for going through the process of decision making. Rash decisions rarely help. What we do know is that composure is everything. We take the time to be smooth, even if it seems slow, because like we were told a long, long time ago in a very hot, very humid place by very rugged, very able type people... "Slow is smooth, smooth is fast.
The Field
Tuesday's action now in the books, presents as yet another volatile session. At first, it looked as if another beat-down was in store for everything technology. Instead, it was the Nasdaq Composite that came all the way back from a 2% hole (on top of the 2.5% Monday beating) to close down less than one tenth of one percent. It was the rest of the market that faced the music on Tuesday, ahead of this (Wednesday) morning's April data on consumer level inflation (CPI). The more severe selling seemed to be centered on such highly cyclical sectors as Energy (Despite rising crude prices. Guess domestic pipeline shutdowns hurt the industry more than does a rise in the underlying commodity based on military confrontation in the Middle East.)
Strangely enough, the only sector SPDR ETF to finish in the green, Materials (XLB) is considered to be, indeed cyclical. For a nice change, though still lower on the day, second and third place went to Communications Services (XLC) and Technology (XLK) , or combine the two and just label them "growth". Materials were led higher by producers of nonferrous metals. Shocker. Speaking of nonferrous metals, I know I have been talking incessantly about Freeport-McMoRan (FCX) , but I have something cool to show you below concerning one of that firm's competitors.
Breadth was absolutely awful downtown, but not quite so bad up in midtown. At the NYSE, losers beat winners by roughly 3 to 1, while advancing volume beat declining volume by about 3 to 2. This all came on increased aggregate trading volume, so it counts as broad professional distribution. At the Nasdaq, losers did beat winners by less than 3 to 2, while advancing volume actually beat declining volume. Aggregate trading volume receded from Monday's levels, indicating a lack of professional conviction.
Did You Know?
...That gasoline moving through Colonial's network of pipelines cruises along at just five miles per hour. You jog faster than that. The trip from the Gulf coast to the New Jersey side of New York Harbor takes 14 days and 16 hours from start to finish. Both diesel and jet fuel, heavier than gasoline, take about 19 days to make the trip. Conclusion? Your local gas station is probably going to run dry this week at some point if it has not already. Conclusion number two? If you find gasoline, close your eyes and pay what they ask. You don't need an emergency at home and no gas in the car.
By Now...
.. My bet is that most of you have either read the op-ed in the Wall Street Journal penned by Christian Broda and Stan Druckenmiler, or seen the Druckenmiller interview on CNBC or both. Some key take-aways?
(For more, see Jim Cramer: The Enlightening Billionaires - Druckenmiller and Tepper)
One. From the Op-Ed. "The Fed continues to buy $40 billion a month in mortgages even as housing is clearly running out of supply. And the central bank still isn't even thinking about ending $120 billion a month of (total) bond purchases."
Sarge says: There are three Fed speakers on today's docket. There are two events scheduled for tomorrow. Five of you spoke yesterday. Yes, I know some of you read me, so I address you directly. Can someone, either on the Board of Governors or at a district bank please respond to this. Why on earth is the central bank still buying $40 billion in MBS per month when the real estate market has clearly gotten beyond the reach of the middle class in this country? This needs an immediate answer. No more gibberish. (You know who you are.)
Two. From the Op-Ed. "Isn't the Fed supposed to act as a counterbalance to these (overly expansive fiscal policy) political whims?"
Sarge says: I have been thinking about this a lot lately. I do fear that as the nation reached levels of deficit spending unimaginable in my lifetime that the need to finance ongoing government operations could, and may have already compromised the Fed's independence. Neither political party is off the hook here. President Clinton was the last U.S. president that even thought about faking fiscal responsibility. He may have put the whole military on food stamps, and crippled key U.S. intelligence agencies to get there, but that argument is for another time.
Three. From the Op-Ed. "The Congressional Budget Office projects that in 20 years, almost 30% of all yearly fiscal revenues will have to be used solely to pay back interests on government debt, up from a current level of 8%."
Sarge says: The CBO makes this projection of course with both interest rates and currency valuations in 20 years still in the unknown column. Is that when the U.S. is forced to monetize the debt? Anyone want to bet against the bond market (vigilantes) taking back control of medium to long-term interest rates or bet on a more powerful U.S. (fiat) dollar?
Four. From the Op-Ed. "With risks in mind, and with unambiguous evidence of a strong recovery, the Fed should be doing more than re-anchoring inflation expectations to a slightly higher level. Fed policy has enabled financial-market excesses."
Sarge says: Well, the Fed and Treasury Department were absolutely heroic in the early days of the pandemic shutdown. That said... this economic environment is not that economic environment. Treasury Department leadership is selected by the Executive branch. The treasury itself is controlled legislatively. This is politics. Tough love does not get people elected. Hence there will likely never again be fiscally responsible leadership in elected government. At least not until all of this loose policy leads to something truly calamitous. Which it will. The Federal Reserve Bank, if independent, could be a check (as in checks and balances) on perverse over-use of federal funds and federal funding that can only harm not just future generations, but the future of nations, most importantly, this one.
Five. From the Interview. Druckenmiller raises the possibility that perhaps as soon as in 15 years, the U.S. Dollar could not just lose its place as "the" reserve currency to the world, but as "a" reserve currency altogether... and all of the benefits that go along with that status.
Sarge says: Why the heck do you think I have been trying to push the idea of backing U.S. fiat with actual hard assets? Even while those deemed worthless (modern Keynesian economists) sneer at the thought? My idea (Joe, Janet, Jay... I'm speaking to you) is to launch a preemptive strike against all global fiat currencies as the U.S. Dollar's usage in cross-border trade and international prestige continues to plummet. This would make the greenback (even though more expensive) more desirable in exchange for goods and services, thus preserving for longer the dollar's place in the world. You know that someone somewhere is going to back their currency at some point. Think China and Russia have been buying all of that gold for all these decades because it is pretty? You know that the rest of the world, once someone finally jumps... backing their currencies with nothing more than good faith will be forced to follow. With the handwriting on the wall, act first, and act aggressively. Just win.
Two Charts
The fact is even with the lousy data coming out of China and the firm supposedly cancelling for now, plans to expand the Shanghai Gigafactory, the shares of Tesla (TSLA) are not yet quite oversold. The focus here now needs to be on the RSI, currently at 36, and the stock's 200 day SMA, currently at $579. Should the RSI approach 30 and the shares approach the 200 day line at about the same time, there is a good chance that algorithmic traders pick up on that and provide at least a short-term rebound... which would be a trading opportunity. I think for those long this name, that if you haven't, you need to find protection. That 200 day line cracks and what happens is going to be like lightning.
My second favorite and rarely spoken of copper stock... Southern Copper (SCCO) , trying to break out of a year to date (so far) period of basing consolidation, pulled off a neat trick this week. The shares traded much higher on Monday, and then filled that newly created gap, while still managing to close higher still, on Tuesday. Exciting? Yes. Something previously thought (at least by me) impossible? Kind of.
That said, even with the stock now technically overbought, it is hard not to see this name in a positive way. My target price is par, an even $100. I panic at $76.
Economics (All Times Eastern)
08:30 - CPI (Apr): Expecting 3.6% y/y, Last 2.6% y/y.
08:30 - Core CPI (Apr): Expecting 2.3% y/y, Last 1.6% y/y.
10:30 - Oil Inventories (Weekly): Last -7.99M.
10:30 - Gasoline Stocks (Weekly): Last +737K.
13:00 - Ten Year Note Auction.
14:00 - Federal Budget Statement: Last $-660B.
The Fed (All Times Eastern)
09:00 - Speaker: Federal Reserve Vice Chair Richard Clarida.
13:00 - Speaker: Atlanta Fed Pres. Raphael Bostic.
13:30 - Speaker: Philadelphia Fed Pres. Patrick Harker.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (WEN) (.14)
