WASHINGTON, June 19, 2017 – For no apparent reason, last week’s sullen stock market trade suddenly turned positive Monday. As we approach the 1 p.m. hour today, the Dow Jones Industrials (DJIA) are flirting once again with new records while the tech-heavy NASDAQ, seemingly DOA last week, is also pretty perky at least as of this moment.
Perhaps Amazon’s (symbol: AMZN) big announcement regarding its bid for Whole Foods (WFM) has put a bit of pep back in tech’s step, although it would seem this is more of a retail-side move. Perhaps even better, Whole Foods continues to rise, indicating that at least some speculators out there think someone else could enter a bid for this trendy but expensive supermarket chain before the game is over.
At any rate, like most smaller investors, we generally prefer bullish days to bearish ones, so we’re enjoying today’s action, at least for now. Yet we also bear in mind that it continues to be “Sell in May” season, and we tend to distrust most bullish moves occurring in June, July and August, figuring they might be a trap to suck us in before the sellers and the shorts mount another surprise attack on our self-traded retirement accounts.
Apple (AAPL) is staging a sharp recovery today, although it remains to be seen how long the company’s recovery will last, given that the usual (short) suspects are hoping for another brief fun so they can short those shares at a higher price. We think these bearish traders are typical anti-Apple nutcases, particularly when we read on the same day that some analysts are predicting that grossly overpriced Tesla (TSLA) will exceed Apple in value in fairly short order.
We suppose that could happen if deluded Tesla fans keep bidding those essentially worthless shares upward. But we’re simply waiting for the best day to short (TSLA), given that the shares are essentially running on fumes and U.S. government, taxpayer-funded subsidies. The “genius” of Elon Musk, at least in this endeavor, is his ability to get predictably fawning press for whatever he does.
Typical media stories reliably overlook the fact that Tesla is essentially another Obama-era taxpayer rip-off whose smooth ride will come to an end as soon as Republicans in Congress notice what’s going on. Oops, sorry. The Stupid Party never notices anything that might work in their favor. Next topic.
Just a quick postscript on the Federal Reserve and its rather baffling and counterintuitive interest rate hike, announced last week. The economy, which seems to be struggling again near term, remains far away from 4 percent growth-friendly territory, and the Fed is not close to meeting its alleged 2 percent inflation growth goal, save in groceries and the like which, bizarrely, don’t count in their inflation figures.
We offer as supporting evidence this observation we received in an email from Stockcharts.com, to which we subscribe. It references the CRB Index, a widely followed commodity index that’s recently been indicating weakness in commodity prices pretty much across the boards:
“CRB INDEX IS TRADING AT LOWEST LEVEL IN MORE THAN A YEAR… Ever since Wednesday’s Fed rate hike, and the press conference by Janet Yellen, I’ve been thinking a lot about inflation. I believe the Fed is underestimating how weak inflation really is. I also believe that’s because it’s looking in the wrong places. Or, more to the point, it’s ignoring the weak signals hiding in plain sight. Namely, falling commodity prices.
“…the Reuters/Jefferies CRB Index falling this week to the lowest level since the spring of 2016. Ms. Yellen may refer to that falling trend as “noise.” To a chart reader, it’s called a downtrend. The CRB Index includes 19 actively traded commodities which include energy, industrial and precious metals, and agricultural markets. [The Bloomberg Commodity Index has also fallen to the lowest level in a year]. Ms. Yellen said that the Fed views the recent decline in inflation as transitory. She referred to a temporary drop in the cost of cellphone plans as an example of why inflation could bounce. Is that really what the Fed is relying on? What about falling food and energy prices. Then again, economists don’t include those in their calculations for “core” inflation. [They consider them too volatile, whatever that means]. But that omission helps explain why they’ve been so wrong for so long on inflation. The implications are important. If the Fed is wrong on inflation, then its plan to keep raising rates is misguided. Falling bond yields, and a flattening yield curve, imply that bond traders are already suggesting that.”
We don’t often quote from our subscription services (for which users like us must pay), but we felt Stockcharts.com wouldn’t mind this brief transgression, given that this entry so succinctly describes the current situation.
Bottom line: Given continued commodity deflation as cited above, The Fed’s current move is inexplicable, economy-wise, unless they’re in a situation where they figure they’d better stick to pre-announced policy rather than confuse the markets.
Additionally, there’s likely no love lost between Janet Yellen and the Fed’s Obama appointees, who’d probably like nothing better than to execute economy-stifling moves early in the Trump presidency to make his efforts to improve the economy futile.
That said, there’s even another possibility, mainly that from a purely political standpoint, the Fed tends to prefer getting its nastiest moves out of the way in the first year of a new presidency, which then tends to allow the economy to recover nicely just in time to help out the incumbent in the next presidential election.
That said, it’s hard for even this writer – who’s lived in and around the Nation’s Capital for the past 50 years (minus 4 in South Carolina) – to figure out what any part of the Federal government is doing these days, or even if they know what they’re doing themselves.
Rather than wander further into the speculative political thicket, we’ll just lean back for now and enjoy the current bullish move as long as it lasts. It’s probably not a good day to get back into trading action, as today’s celebratory move could be nothing more than a head-fake. But it’s nice to see our portfolios appreciate a bit after last week’s constant sector smackdown.
Disclaimer: The author of this column maintains active trading and investment portfolios and owns residential and investment real estate units.
Any positions mentioned in this article describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. Market viewpoints, indications, and analysis by the author and/or cited sources are opinions and aren’t necessarily predictive of any future market or government actions. All individual investors travel at their own risk. Caution in trading and investing should be exercised at all times.