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Gene Inger's Daily Briefing (highlights) - for Thursday, Dec. 15, 2016 |
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The anxious Fed door to higher rates - was opened wide by Trump's victory, and the promise to revive, not just recover, America's economy as we go forward. The Federal Reserve may envision enhanced prospects in ways they're not going to discuss (probably politically); but nevertheless as anticipated (by them as well); they had the 'window' to hike rates as well as indicate a faster-pace to coming rate hikes, by virtue of the 'new optimism'.  At another time the market would have sold off; more than knee-jerk types of responses that were not surprising at all. The faster pace is not really so much; because it's all still at low rates; and the Fed knows 'debt service' is at-risk if they were to assume a velocity of rates beyond what can readily be absorbed along the 'pace' of the economy. (Now comments about a 'real' risk Yahoo! poses, and the Electoral College bitter challenges and market implications; a discussion for members only.) As to the economy. It has to show resilience continuing in the face of slightly higher rates, so I believe this will prove to be a modest consolidation for the short-run. Look for Dow 20,000 despite the Fed-based profit-taking waves. Later, we'll talk about inflation goals (shame on them for a policy that wants inflation, but we all know what that's about.. repayment of US debts with depreciated Greenbacks). And they don't have a softer U.S. Dollar, and I don't expect that just yet; with a caveat that it depends on (reserved).   However, there is no alternative. Socialism and/or wealth redistribution for sure would not trigger 'animal spirits'; suppressing incentives to repatriate a slew of wealth (Apple being the poster child for this) would not be a likely prospect in a different structure. Renegotiating NAFTA and both Pacific as well as European trade deals (especially a possible free-trade zone with a very cordial and sobering UK would be welcomed), but can only occur with an optimistic and businesslike structure of governance as is 'incoming'. Globally, we anticipate (reserved for members). In fact it is a wake-up call to Brussels to 'reverse' incredible bureaucracies that led a frustrated UK (those who 'got it') to vote for Brexit (whether compromised or not by Parliamentary efforts to 'modify' the will of the People). Regulatory changes (especially as impact smaller banks in the U.S) will of course have impact on the Financials and strengthening of expansion both in the Country; and that will be firm relative to (other aspects we explore).  Meanwhile the United States has done a better job at eradicating ISIS over in Iraq; and should be able to move to help liberate Palmyra (again) from a new takeover by the barbarians (well those barbarians, of which they are a few groups there that likely merit the label). As I reported yesterday; having nailed the 3 ISIS leaders who were in-charge of planning the Paris attacks was a 'very' big deal; and is extremely welcome by our friends in France. Is there a reason this key victory by the US against ISIS is not heard widely? While this goes on; China has ignited it's dragons a bit, by firing-off warning press releases about Taiwan and U.S trade; but more visibly by completing anti-aircraft and anti-missile (battery) installations on the very islands they build illegally in the South China Sea and promised not to militarize. China is saying to Trump: checkmate. (Comments on Chinese and Russian share investments are for members.)  In-sum: the market is long-in-the-tooth; the profit-taking or selling squalls in the wake of the Fed hike were not that unusual; so (we go right back up.) All this is in-context of a bullish trend from the Election; but one that's stretched for sure, and aside a desire to push this higher in-line with our 100% bullish stance since right at the Election; the coming upward extension reflects far more of a lack of heavy sellers, than any serious buying interest. Rotation prevails too; and you had the expected Oil short-term hit we projected; but it too will see a revival swiftly. (More for subscribing daily members.)
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Daily action - for weeks has noted that a Fed move was overdue, and has been well-anticipated by the equity and credit markets. Thus today's news of course was a sort of 'buy the rumor / sell the news' swing; as was clearly expected. Those selling 'on' the Fed hike (or the promise of a faster pace ahead) will likely be surprised that the market absorbs this and rebounds within hours; (balance for ingerletter.com members only).
 Wednesday became a light liquidity day with various swings unable, or at least struggling, to contain the series of selling squalls; perhaps because Yellen didn't give the Street a 'rates slow and low for longer' sentence in the FOMC statement, but rather suggesting continuing the upward trend which is entirely normal to expect in a recovery. To hungover bond bulls, that's as close to announcing 'party over', which it really has been for months in the credit arena. We believe the Fed (with a posture led by Stan Fischer) has been chomping at the bit to hike rates for months, and was getting behind the curve. So a rate hike was baked-in; her comments not so much. The Fed should bless the market optimism (or Trumpism) for empowering the ease of hiking rates, and by no means throttling the overall uptrend, yet.
There is 'zero' reason the Fed should have accommodated those credit enthusiasts as in the past. Why? (Reserved 'new world' discussion.)  The interest-rate trend in-place since the Election continues. That's higher rates at a slightly faster pace (more). The Fed remains fairly structured (or rigid) so won't outwardly validate shifts in sentiment or business confidence post the Elections; just shows how oblivious the Fed still is to (reserved).  |
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Fast-paced pre-Fed recoveries - can set-up a consolidation and roiling; at the same time we'd still anticipate further efforts toward year-end rallies with a caveat (regards an advance forecast for year-end / early January action).
So more reasons to anticipate no enthusiasm by sellers just as of yet. At the same time we get various reactions to recent Cabinet nominees of course; let me summarize what I think is a reasonable perspective: the selection of Tillerson is potentially genius, as I mentioned Saturday when I (prematurely but turned-out right) designated his selection. I think there's a plan, which is not the continuous tension and rivalry with Russia (discussion). In as much as oil production of Russia and the United States, combined, vastly exceeds Saudi Arabia and OPEC; this creates tremendous newly potentially-combined leverage; thus giving NO-PEC countries (led by the USA and Russia) a potential ability to stop OPEC dominance of oil price manipulation by the Saudi-led producers who are not really our friends. In fact, the combined leverage (redacted impact on Iran and others).  In-sum: nobody is pointing out that Trump was actually the peace choice; while the campaigns suggested otherwise. It was Clinton, not Trump, that was constantly talking about being tough with Russia; not working things out. It was Clinton not Trump, that talked of a 'no-fly zone' over Aleppo; an idea that would have simply prolonged an untenable stalemate. (More.) If we were really optimistic on the future, we might talk of a challenge that goes all the way back to Dwight Eisenhower's departing Address; actually toning-down the military-industrial complex. (That is not what any expect.) So I think the market 'Trump Romp' telegraphs some of this. Not to mention tax reform will be tremendous over the coming years; pulling Apple and big tech money and production back to the USA. We will hear more about such ideas after the big-tech meeting at Trump Tower Wednesday. What we may not hear about yet is any discussion of replicating what Great Britain just passed, in terms of a very stringent cyber-security 'Law' for 2017.  Bottom-line: this all matters to markets. Follow (reserved). |
The Election has been a catalyst to shuffle money; reflecting dynamic new American economic prospects; or at least perception of revival with a punch; not just a bland stagflation sort of recovery. At the moment this is basically reactivity to projected Fed news ahead of yet-higher equity prices. We have been bullish since projected a soaring market would on these results (before the Vote saying that), then remained so consistently. For now (not forever), all declines will be false & abortive as a primary uptrend persists.
Enjoy the holidays (as you already are if you subscribed last month) !
Gene
Gene Inger
