In the end, it doesn't matter what we think. It matters what they think.
Yep, we rallied, because President Xi Jinping and Federal Reserve Chairman Jay Powell made decisions that they knew would lead to rallies, rallies that are collateral damage -- or collateral pleasure -- and they didn't care. They wanted to do what's right by as many people as possible.
Let's first tackle this country. Jay Powell decided not to raise rates, because he didn't think it was appropriate while there are still so many poor people, particularly African Americans, being left behind. Yes, he wants the disenfranchised to do better. He knows that the delta variant is slowing the economy, so he does not feel he is jeopardizing the country by keeping rates low to help the disenfranchised. He's going to remain accommodative until more poor people are doing better.
Some will say that Jay is wrong and that inflation is raging and he's really hurting the economy in the long run. They will grouse that the inflationary issues he's talking about, ones like the semiconductor shortage, can be cured simply by raising rates and quelling demand. There won't be a shortage when there is no demand. Others might say that he could stop the use of natural gas, which his skyrocketing, by having the jobless keep the heat down. Still, others might say that he is just such a dove that he can't stand to see anybody unemployed, even if everything, every good, every service, every wage, is going up. They really and truly believe that he is oblivious to everything that is happening in the country.
Me? I don't care what people think. I care what Jay thinks. He runs the Fed. He doesn't have to listen to anyone. If he wants to make it so more poor people do better and he thinks that can happen by keeping rates easy, then it doesn't matter what the heck others think. They can trash him and heckle him and say he is public enemy No. 1 -- not just for the rich, but for the poor, because the poor are ultimately hurt the most by inflation. I am in Jay's camp; if you don't have a job, you sure as heck aren't keeping up with inflation.
Now, let's circle back to the stock market. There are plenty of commentators who thought that Jay would crumble, given how they see inflation everywhere. They did not expect he would be completely dismissive of their views and didn't want to really even talk taper until we saw what happens with the disease. They just don't get the guy. They wanted a ticker taper parade.
But if you are them, the critics, the ones who don't get that Jay has consistently favored the poor, you have to go buy stocks, even if you don't want to. Today, they can't say "I disagree with Jay, I am not buying stocks." That's because they have masters and their masters aren't sitting there saying, "I don't like what Jay is doing, and I hope that my money managers don't like it, either, and are sitting out this rally."
You see, the clients aren't ideologues. They are rich people who want to get richer. So, even though almost every commentator comes on air and says that Jay is outrageous, as long as Jay is, well Jay, the Fed chair, they can't stay away from stocks, because they are entrusted to make money -- not lose money. Losing money in the name of inflation is a vice, to twist Barry Goldwater's favorite phrase. Google him if you don't know him or it.
So, these ideologues now have to buy stocks, because Powell just simply refused to use their playbook. He runs the Fed; they just run money; they lose; he wins. Tomorrow they can start heckling him again, but Jay is like Brady. He wears the rings. They've got nothing except negative COVID tests.
Now let's deal with China. President Xi, too, wants common prosperity. But instead of trying to boost the disenfranchised, he wants to crush the rich in the long tradition of Mao, Stalin and Lenin. His common prosperity theme isn't a bad one if it didn't involve rank repression, homophobia and outright religious hatred.
Xi's done a lot to ruin the careers of those who profited from gaming and financial engineering and e-tailing and ride-sharing.
But he hadn't tackled the obscenely rich property moguls. Then he got his chance with Evergrande, the colossally horrible real estate conglomerate with $300 billion in debt. He made it clear that he wasn't going to bail out the company.
That caused a lot of selling in pretty must everything related to china, including all of the mineral and mining and oil and industrial stocks, as well, of course, as the banks, because money managers always think that all banks are tethered to each other.
Last night President Xi blinked. He decided to bail out the smaller lenders, those that bought property from Evergrande, as well as the local banks. He didn't mean to set off a big rally by doing so. He knows that there are still some rich people who got away with this and he's probably furious at himself that he wasn't able to do a precision bombing of the rich without hurting the poor. It's really his first mistake in his road to Maoist prosperity. But it happened and it, too, was great for the stock market. There's another bill coming due for Evergrande tomorrow. That's the bill that Evergrande owns the foreign bond owners. The foreign bond buyers are from countries that are so on the hook to China that it doesn't matter if Xi crushes them, so, despite what the press will say the risk stayed market and never went systemic.
Now, let's put all of this in the context of a bull. You know I used to have a bull, his name was Norman. For 30 days, the cows rule the roost. But one day a month, the bull showed his prowess. I have news for people who don't understand the analogy. As much as I loved the cows, especially Fine Touch and Ambush, when it came down to that one day each month, they didn't have the votes. The bulls did. We have two bulls in charge of the finances of two countries. They don't care about the cows. They have a job to do and they do it.
My conclusion: You can be a cow and avoid the bull all you want, and even curse him or charge him or run from him. But the bull gets its day. Jay and Xi got their day. And the markets are fecund because of it.