And the old men march slowly, old bones stiff and sore
They're tired old heroes from a forgotten war
And the young people ask, "what are they marching for?"
And I ask myself the same question
But the band plays Waltzing Matilda
And the old men still answer the call
But as year follows year, more old men disappear
Someday no one will march there at all
-- "The Band Played Waltzing Matilda" Eric Bogle, 1980
Always Faithful
On this day, 80 years ago, Japanese Naval and Air Forces attacked the United States military facilities at Pearl Harbor, Hawaii in waves. The attack was not expected, and the armed forces of the U.S. would be thrust into a World War on two fronts -- unlike anything the U.S. had been a part of before.
The attack of Dec. 7, 1941 took the lives of 2,403 Americans, including 68 civilians. Nineteen U.S. Navy ships, including eight battleships, were either damaged or destroyed. As I scan those 2,403 names, I stop at Private First Class Charles Robert "Bobby" Taylor of the United States Marine Corps who was serving aboard the USS Oklahoma.
Taylor enlisted in the Marines on May 8, 1940, ironically out of Oklahoma City, Okla. It took the Japanese military all of 12 minutes from the time the first torpedo struck the Oklahoma to the time that the ship capsized. More than 400 sailors and Marines were killed on board. These men were then buried in 52 mass graves on the island of Oahu. Bobby Taylor, son of Charles and Helen Taylor, was never going home.
The battleship was righted, and refloated in 1944, in time to rejoin the war. After the war, the Department of the Navy exhumed and identified as many of the remains of those service members as possible using the methods of the day. In 2015, the Navy tried again, using modern science to try to identify the remaining original crew members of the Oklahoma. PFC Charles Robert Taylor was officially accounted for on July 26, 2021.
Unidentified for almost 80 years, hopefully never forgotten, we now pray for the repose of the soul of Bobby Taylor, United States Marine.
Good News
Equity markets rallied quite broadly Monday, and now, equity index futures markets have rallied overnight as more good news hit the tape in China. No, this has nothing to do with a "diplomatic" boycott of the Winter Olympics where athletes who were going to go still go, and diplomats who were not going still are not. This information, China's trade balance, which printed at 10 p.m. ET on Monday night in New York (11 a.m. Tuesday morning in Beijing) had an immediate favorable impact on global equities, U.S. equity index futures and energy prices.
What happened is that while China's trade balance (in dollar terms) contracted in November from October, and the headline surplus fell well short of expectations, both exports from China and imports to China beat expectations and hit record levels. This is obviously taken as a very positive signal for global economic growth.
Exports from China increased 22% (versus expectations of 20.3%) to $326B, as imports to China soared 32% (versus expectations of just 21.5%) to $254B. The U.S. was China's largest import destination. Exports to the U.S. over the first 11 months of 2021 have now increased an above-trend 28.3%, while exports from the U.S. to China have expanded 36.9%.
The green energy crowd (not to mention Planet Earth) is not going to like this, but the volume of coal being imported into China has hit 2021 highs ahead of winter, as natural gas imports hit 10-month highs and crude imports reached their highest level in three months. Might not be very good ecologically, but definitely economically positive for right now.
Marketplace
This puts a little spice on top of a Monday that was kicked off by China's central bank signaling the coming of easier money by Dec. 15. The date probably sounds familiar, as this is precisely when we expect the Federal Reserve to announce an acceleration in the pace of that central bank's removal of excess accommodation in an attempt to confront spiking consumer-level inflation.
On Monday, the S&P 500 took back 1.2%, which was approximately what our broadest large-cap equity index gave up for all of last week. While that fits neatly into the story, it was not really the S&P 500 that took the headlines. Economically sensitive areas of the economy outperformed investment driven by less elastic forces. The Dow Transports (+2.26%) easily bested the Nasdaq Composite (+0.93%) and Nasdaq 100 (+0.85%), while small-caps (S&P 600 +2.41%, Russell 2000 +2.05%) trounced even the blue chips (DJIA +1.87%).
Breadth was solid for the day, as value clobbered growth, but growth still did well. All 11 S&P sector-select SPDR ETFs closed the regular session in the green, with nine of 11 tacking on more than one percent. Winners beat losers at the NYSE by roughly three to one, and at the Nasdaq by about seven to four.
Advancing volume comprised 78.9% of the NYSE composite, and an even 66% of the Nasdaq composite despite an apparent decrease in aggregate trading volume for names domiciled at both exchanges. While not a positive, the contraction in trading volume is expected for a Monday, and did not take total trading volume for constituents of either the S&P 500 or the Nasdaq Composite down to their respective trading volume 50-day simple moving averages.
In addition, Treasury yield spreads finally steepened, even if just a little bit...
...while Put/Call ratios, still elevated, also took their foot off of the gas...
...and the VIX at least continues to work its way sideways, albeit at dangerous levels.
On that note, the inside days for the red candlesticks of late could signal reduced volatility going forward. They could also signal a continuance of trend, which for the VIX is currently upward. Wish I could be more helpful than that.
Here's the Deal
While it will still take at least another week, or maybe even multiple weeks to have any hard data on the Omicron variant based on anything clinical, the anecdotal evidence coming out of southern Africa and from elsewhere continues to paint a picture that while perhaps as transmissible as Measles, this version of Covid could still prove potentially less severe in nature than its predecessors. A smallish study of infected individuals in South Africa found a pattern of milder illness. This is more powerful at the moment, at least for the markets, than is the overhanging probability of tighter monetary policy.
Don't worry. Once hard evidence suggests that our lives might not be more threatened than they already were -- and all we have to worry about is the still surging Delta variant and global thermo-nuclear warfare -- the removal of accommodation and potential for higher interest rates will again matter. I promise.
Until then, it appears that travel stocks such as the airlines and cruise lines are cool. On Monday, the top-performing stock in the S&P 500 was Norwegian Cruise Lines ( NCLH) , up 9.5% for the session, while Royal Caribbean Group ( RCL) and Carnival Corporation ( CCL) finished in third and fourth place. United Airlines ( UAL) and American Airlines ( AAL) rounded out the top five, while gaming and lodging stocks filled out the next five.
Now, This Would Be a Deal
While it appears that President Biden and Defense Secretary Lloyd Austin have their hands full as Presidents Putin and Xi pose threats to Ukraine and Taiwan, respectively, it appears that perhaps someone else, quite strategically significant may prefer to align themselves with the West.
Finland is not a member of the NATO military alliance, and shares a long (800 miles) border with Russia. Reports are circulating overnight that the Finnish Ministry of Defense will draw up a proposal to procure Lockheed Martin's ( LMT) F-35 Lightning II stealth fighter aircraft in what would be an $11.3B deal to replace the nation's aging fleet of F/A-18 Hornets, which was originally a joint venture between McDonnell Douglas and Northrop Grumman ( NOC) , but is currently manufactured by Boeing ( BA) (McDonnell Douglas and Boeing merged in 1997).
Should Finland come on board as an F-35 client state, this would add the Scandinavian nation to the likes of Poland, Norway, Denmark, the U.K., Italy, the Netherlands, Belgium and Israel forming a "stealthy" defensive shell against potential Russian aggression against Western Europe. At the same time, Australia, Japan, South Korea, and Singapore are all F-35 clients capable of defending against China's regional influence.
Eye-Popping Deal
You probably have noticed that the semis are up overnight. You probably noticed that Intel ( INTC) is up twice as much, in percentage terms as is the rest of the group. The Wall Street Journal reported last night that Intel is planning to publicly list shares in the firm's Mobileye autonomous driving vehicle unit. The company is expecting to take Mobileye public in 2022, through an IPO, and could potentially value the Israeli company, which originally went public in 2014 and was acquired by Intel in 2017, at more than $50B. Just for giggles, at Monday's closing price all of Intel was worth roughly $200B.
As we all have seen, since Pat Gelsinger took over as CEO, he has been trying to find ways to unlock value and re-ignite Intel's competitive fire as firms like Nvidia ( NVDA) , Advanced Micro Devices ( AMD) and even Marvell Technology ( MRVL) have all out-competed Intel for market share in various corners of the industry. Intel has even made plans to compete in the foundry business against the likes of Taiwan Semiconductor ( TSM) .
One thing is fairly certain. This move would indeed capitalize on the transformation underway across the automotive industry, and would serve the purpose of unlocking huge amounts of capital at an elevated valuation.
Economics (All Times Eastern)
08:30 - Balance of Trade (Oct): Expecting $-67B, Last $-80.9B.
08:30 - Unit Labor Costs (Q3-rev): Flashed 8.3% q/q.
08:30 - Non-Farm Productivity (Q3-rev): Flashed 5.0% q/q.
08:55 - Redbook (Weekly): Last 16.9% y/y.
15:00 - Consumer Credit (Oct): Last $29.91B.
16:30 - API Oil Inventories (Weekly): Last -747K.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: ( AZO) (21.08)
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