Finally all alone
The years go by so quickly
Twisted and crazy
The house you built
Not the same anymore
one you are there
Once you are there
you can’t come back
nothing lives
nothing grows
On the dead meadow
– Zakk Wylde (Black Label Society), 2003
pictures
He works quietly. Alone, a vision in a blackened window. He’s not bored. His fire burns bright for it is his hour. Zero dark thirty. Twenty-four hours ago he looked at the charts. He saw technical damage. He wondered if the financial markets would bottom out. He wondered if they could reach the bottom. In the blink of an eye he must explain himself… the roar of demand, the pang of uncontrolled thirst… for knowledge, for benefit, for justice. He knows the story. The wildest rallies seem to happen during bear markets. Is that one of them? Or is that something else…something to nurture and build on?
Tuesday kids
The S&P 500 had suffered a death cross as both the Nasdaq Composite and Nasdaq 100 had made new lows. Then the air began to warm, the first buds of the season appeared on my Japanese maple tree, which I’ve tended since we were both much younger. Signs of increased efforts emerged from Eastern Europe, efforts to negotiate an acceptable end to this absurd merry-go-round of death and madness. How do you bring back what is lost? How to restore balance to global markets and the global economy? How indeed, so as not to overtake us?
The February PPI then hit the band below the consensus level, the pace of wholesale price increases slowed, at least on a month-to-month basis, while the year-to-year number held up year-on-year. Crude Oil continued its return to mid-prices, probably based less on optimism that sanctioned markets could be restored quickly and more because the upside in this market was disproportionate to reality. Treasury bond prices stabilized, stock prices shot off their lows as visions of somewhat controlled overheads danced in the CFO’s mind…
… all ahead of Wednesday afternoon’s FOMC policy statement, which will herald a shift in US and global monetary policy that could potentially change everything. All. Tie your shoes. Make sure they are double knotted. From here it gets interesting.
Episodic Wednesday
Everyone loves a circus. That’s what they say. I was told that Diet Dr. Pepper tastes just like the original. Is this the real thing? My boyish heart leaps for joy as the sparklingly clad man in the center ring enters the cage full of big cats. How do plate spinners and jugglers even begin to learn their craft? How many clowns actually fit in this car?
In Beijing, the country’s Financial Stability and Development Committee held a meeting promising remedies to a number of issues that had contributed to the severe pressure on Chinese stocks at home and abroad. Chinese state media reports that government agencies “should actively implement policies that benefit markets.” A statement emerging from that meeting said, “Any policy that has a significant impact on capital markets should be coordinated in advance with financial management departments to maintain stability and consistency of policy expectations.”
The statement adds that monetary policy will be proactive in the first quarter and that new lending will increase. The telling statement also said that continuing economic development is the Chinese Communist Party’s first priority and that fighting the coronavirus should be coordinated with economic development. Does this sound like a change in Beijing’s zero-tolerance policy towards Covid? I guess the world will find out soon. Chinese stocks? Big out.
Half a world away…
US intelligence reports that Russian forces have made “limited to no progress” in recent days. The Ukrainian military reported earlier this morning that it had dealt “devastating blows” to Russian positions as it launched counterattacks. Ukraine reports that its military has launched missile and aerial bombing attacks on Russian ground targets to trap equipment columns and troops.
On Tuesday, Ukrainian President Volodymyr Zelenskyy received the heads of state of Poland, the Czech Republic and Slovenia and addressed virtually all of them from the war-torn capital of Kyiv before Canada’s parliament. Zelenskyi will similarly address both houses of the US House of Representatives on Wednesday.
However, it was Zelenskyi’s statement Wednesday morning that drove stock index futures higher along with the news out of China. Zelenskyy said: “All wars end with agreements… I am told that the positions in the negotiations sound more realistic. However, time is still needed before decisions are in the interest of Ukraine. Our heroes, our defenders give us this time to defend Ukraine everywhere.”
How does that sound to you? Doesn’t sound like a guy losing a war at all, does it?
Oh yeah
Update on Russia’s potential default situation… Russia has $117 million in interest payments due today (Wednesday). This payment must be made in US dollars. A 30-day grace period applies. Until the expiry of this period, Russia will not be in default with this payment. Aside from that, Russia is also roughly in the middle of a 30-day grace period that began on March 2 on ruble-denominated bond coupons. Russia has not defaulted on ruble-denominated bonds since 1998 and on foreign-currency-denominated debt obligations since the fall of the Tsar in 1918. Russia is not viewed as systemically important as a more globally interdependent economy could be.
the spear
Many nations have sent second and third generation anti-tank systems to the Ukrainian military. Third generation systems are believed to be required to take out the Russian T-90 main battle tank, believed to be the combat equivalent of the US M-1 Abrams. Luckily, many Russian tanks are older “Soviet-era” T-72s, and the next-generation T-14s are expected to go into production this year.
It is estimated that the Russian army has lost more than 200 tanks and nearly 1,300 vehicles to attack, capture or abandonment since this invasion began in late February. The crème de la crème of anti-tank weapons are the US-made FGM-148 Javelin and the British-Swedish-developed NLAW (Nest Generation Light Anti-Tank Weapon). These weapons fly in a high arc and land on top of a tank where the armor is weaker. This also allows the Hunter-Killer team to shift their position after firing to avoid being identified by enemy forces, as they no longer have to manually keep their projectile on target.
The NLAW is manufactured by Thales Air Defense, a Belfast-headquartered subsidiary of the Thales Group based in Paris, France. The Thales Group is listed on Euronext Paris. The Javelin is a joint venture between Lockheed Martin (LMT) and Raytheon (RTX). US and NATO stocks must be replenished. That’s a certainty.
fed day
As with most FOMC policy decisions, I don’t think the Fed left much for guesswork. Jerome Powell is too smart for that. Even if you could be guaranteed an immediate 25 basis point hike to the Fed Funds Rate target range and laid the groundwork for the timing of the forthcoming balance sheet tightening program, could you guarantee the market reaction? I bet not.
As always, from a markets perspective, much will emerge from the presentation, the press conference and of course… the Fed’s “usually inaccurate” economic forecasts. Futures markets are pricing in a 1.75% to 2% fed funds rate by the end of the year, meaning pros still expect FFR to rise 25 basis points at every single policy meeting “which has become the norm.” increased for the remainder of 2022.
The idea is to tame inflation at the consumer level without seriously damaging labor markets and thereby… forcing the economy into contraction. The FOMC really has no choice but to move steadily, but in small measure, like the idea of shocking the economy as some other economists have suggested, with a big rate hike or a more hawkish stance to initiate that course change as a means in the direction of slowing inflation, would indeed do just that…shock the economy. No thank you.
We all know that Jerome Powell is fundamentally more combative than either of his two (maybe three) predecessors, as he proved in his famous battles with then-President Trump in 2018. In fact, these struggles were one-sided, as Powell remained largely quiet but backed down and the economy benefited from this policy easing at the time.
I see the way forward as uncertain. Easily said, harder to fully understand. No one can predict the outcome of this planet’s geopolitical problems. Nobody knows what the SARS-CoV-2 virus is doing from here. There are some who see the Fed as being behind the inflation curve. I think it had to be them as the conditions were extreme. The abuse of previous monetary (and fiscal) policy decisions is not the fault of this Fed. Keeping the US economy from an open depression during an ordered shutdown certainly is. Let’s remember.
What should or should have done differently and how quickly? Easy throwing of stones from afar. Decisions made shortly after the January 2021 inauguration regarding US fossil fuel production and distribution, pandemic-related supply chain shortages and the war in Europe all have at least as much to do with the current pace of inflation as the public’s easy money health crisis time. Any economist who doesn’t push an agenda knows that. Let the man speak now.
economy (All Times Eastern)
08:30 – Retail Sales (February): Expected 0.4% m/m, last 3.8% m/m.
08:30 – Core Retail Sales (February): Expected 0.9%m/m, latest 3.3%m/m.
08:30 – Import Prices (February): Expected 1.6% m/m, last 2.0% m/m.
08:30 – Export Prices (February): Expected 1.3% m/m, last 2.9% m/m.
10:00 – Business Inventories (January): Expected 1.1% m/m, last 2.1% m/m.
10:00 – NAHB Housing Market Index (March): Expected 81, Last 82.
10:30 – Oil Stocks (Weekly): Last -1.863M.
10:30 – Gasoline Inventories (Weekly): Last -1.405M
the fed (All Times Eastern)
14:00 – FOMC policy decision.
14:00 – FOMC Economic Forecasts.
14:30 – FOMC press conference.
Today’s result highlights (consensus EPS expectations)
Before the Open: (JBL) (1.48)
After closing: (GES) (1.15), (LEN) (2.58), (WSM) (4.82)
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