The new week dawned with familiar banter.
“Banter” may not be the best word. It denotes “teasing remarks” that are “playful and friendly.”
There’s not much that’s playful, let alone friendly, about the debate and discourse around today’s topics du jour.
For example, the inflation discussion has devolved into a vitriolic affair between warring factions. The “transitory” camp is derided for being dangerously behind the curve and for tempting fate at the risk of further impoverishing the already downtrodden masses. The “permanent” camp is viewed by team transitory as alarmists who’ve seized on an anomalous situation (cost-push inflation engendered by a once-in-a-century public health crisis) to resurrect Paul Volcker.
The rhetoric escalates by the week. At this point, it’s incendiary.
And then there’s Tesla and its mercurial creator whose penchant for spite manifests in cringeworthy social media sniping. For traders and investors, the important point is that Tesla is embedded in various modern market structure dynamics. If the flap of a butterfly’s wings can set in motion the chain of events that ultimately causes a typhoon, Musk is Mothra.
At the same time, his antics continue to suggest that despite being brilliant beyond measure, Musk is off-kilter psychologically. Often, brilliance and eccentricity go hand in hand, but at some point, it would be comforting if history’s richest person (in whose hands the private space industry rests) would refrain from off-color remarks. “I keep forgetting that you’re still alive,” Musk told Bernie Sanders, after the senator tweeted about billionaires and taxes. Bernie didn’t mention Musk by name, but it didn’t matter. “Want me to sell more stock, Bernie? Just say the word,” he added.
Again, that’s cringeworthy. And it’s drawing in Michael Burry, another genius who isn’t known for being judicious with his tweets. “Let’s face it. Elon Musk borrowed against 88.3 million shares, sold all his mansions, moved to Texas and is asking Bernie Sanders whether he should sell more stock,” Burry said, just after midnight. “He doesn’t need cash. He just wants to sell Tesla.”
When it comes to the demise of civility in America, Twitter is a big part of the problem. It’s a soul-sucking platform that’s immeasurably inimical to public discourse – a digital black hole that tempts otherwise sane people to do silly things, as I’ve put it previously. Its role in destroying civility and undermining Americans’ sense of community by facilitating the indiscriminate spewing of slander can’t be overstated. Real discussion is made impossible by design.
In any event, stocks seemed fine to start the week despite — well, despite everything. “It’s remarkable to witness so many red flags and headwinds emerge yet the liquidity-driven equity and bond markets remain elevated at lofty valuations,” JonesTrading’s Mike O’Rourke said, noting that although US equities “finally” had a down week, it was “a mild 31 basis points and took nearly half the quarter to materialize.”
O’Rourke went on to flag the rather unfortunate signal from the preliminary read on University of Michigan sentiment for November. “The report has a long history and provides a good sense of the pulse of American consumers,” he wrote. “Even though the market doesn’t care at the moment, it probably should soon start to care.”
That gets to the heart of things. There are a lot of things the market “should” care about, not least of which is deteriorating public sentiment tied to rising prices. But, as O’Rourke noted, a “liquidity-driven” equity rally is difficult to fade.
JPMorgan’s Mislav Matejka is still bullish. Inflation will print higher, but central banks will retain their dovishness, he said, noting that the Fed’s framework permits overshoots and doesn’t demand a policy response immediately.
Meanwhile, his colleague Dubravko Lakos-Bujas suggested the prospective removal of tariffs could be a right-tail catalyst for equities. “While most investors remain negative on US-China trade, we see a potentially compelling case for easing tariffs” in the run-up to the midterm elections, Lakos-Bujas wrote. Such a reversal could be a $5 boon to EPS with another $5 upside from second-order effects.
Market participants were awaiting news on a virtual summit between Joe Biden and Xi Jinping. One wonders if their exchange was more “playful and friendly” banter or more Musk suggesting that octogenarians are assumed dead until proven otherwise.
What I find amazing, though, is that “normal” Americans were given a fair chunk of change to make them whole during the high intensity phase of the COVID crisis (and fair enough).
But, literally as soon as possible, they started treating that money as “cash burning a hole in their pocket” rather than, IDK, save a hefty % of it for later…
Like – am I mischaracterising things or are Americans now all the spendthrift of the European clichés?
Sorry – the link with the article is that this excess spending seems to be a major factor driving inflation, beyond supply side snags and labor shortages.
Rather interesting to hear that Americans may be spending too much of their COVID aid. It’s been a long time since I had my last monetary economics class but as I remember Milton Friedman, the Nobel Laureate, said that if given a significant windfall most people would save most, if not all of it (high marginal propensity to save). I guess he was wrong, at least about this windfall.
Considering that inflation has been completely disregarded by the Fed for the past 6+ months because it’s viewed as transitory, I think more scrutiny is required for their doveish justification, unemployment. While the argument could be made that providing business with easy lending should equate to higher employment, it has so far not done that. And while this has been noted and reported on at length, I don’t really see the willingness to understand what measures would improve employment. While the Fed is all on board to throw out the playbook to support the markets and big business, it’s sticking with the playbook for employment, even if employment refuses to budge. If employment really was that concerning, why wouldn’t there be more of an effort to understand what the workforce wants in order to return to work?
The difference is clear, labor has no power, that power has been gradually taken from them since the 1970’s. And while business and the Fed are annoyed that people don’t want garbage wages to get treated like crap to earn them mega profits, they aren’t exactly willing to give back any of the power that’s been taken from the workforce. They may raise wages, but this is a temporary measure. They are not going to pay anything more than is required in the long term, and nothing is being changed about the requirements for employers.
So the Fed has its weak excuse for continual support for big business. Big business has its excuse for high prices, poor service, and low inventory. Both assume eventually the working class will be forced to heal to them and return to jobs nobody wants to work. In the meantime, Fed support will ensure the power players keep making their money.
Instead of offering a “carrot “ to return to work, they might have to slash unemployment benefits and/or allow immigration to fill positions.
Yes, because why should the richest country in the history of the world and supposedly the leader of the democratic free world, pay anyone a living wage?
https://livingwage.mit.edu/
Thanks for the link, interesting stuff. Most employers in my area don’t pay near the living wage even for employees with years of job tenure.
The devaluaton of workers is accelerating. Everyone is replaceable and the production metric measuring gets more sophisticated to the point where you have 75 seconds for a bathroom break. Amazon is leading the way in creating soul-crushing jobs. So sure, let’s force everyone to take any job they can get and give the employers even more power. And don’t forget: unions are bad!! Emptynester shows so much understanding of the average worker’s conditions. This is the path towards the end of the America that I love and believed in as a force for good here and around the world. Maybe I just bought the BS for longer than many. Silly me.
I follow Burry on Twitter. Some interesting things I’ve learned about him:
1) He’s a racist (arguing the police don’t treat black people any worse than white people, lots of white persecution fantasy)
2) He’s anti-vax (apparently an MD and an incomplete residency ~20 years ago qualifies him as a vaccine expert)
3) He’s anti-tax, anti-government spending, and anti-MMT
4) He’s anti Biden (“Let’s go Brandon!”)
5) He’s pro-GME (he’s idolized by the reddit/wallstreetbets crowd)
(reposting this from an earlier comment thread in case anyone wants to venture a response…thanks)
one nagging thought that I’ve wondered about, while also not having the economic sophistication to fully answer is this – what if the Fed’s QE 4 program / $ quantity had been 50% of what it was – asset prices would likely have been lower, buying power / wealth effect less / demand lower probably, maybe supply chain issues less stressed / problematic, – and inflation less that what society is currently experiencing meaning less social discontent given the enormous disparity in wealth that’s gone hyperbolic since 3/2020 … again it’s been a nagging thought – very curious about others’ thoughts on this….thanks…
QE is pretty ineffective as far as real world is concerned. Its main characteristics seem to be “higher asset prices” (and thus rising inequality but I’m not sure people truly perceive even big changes unless their own circumstances change for the worse) and “stabilizing the banks” (which is good but…)
The inflation we’re experiencing seems mostly due to fiscal actions and COVID linked supply disruptions.
The social discontent is, imho, mostly the result of Fox News 20 years war against the USA (and, to a lesser degree, the absurdity of some wokes on Twitter, providing red meat to the Fox News/right-wing propaganda machine)