Father’s Day and The Fed

By Jeff Kelly on June 16, 2023

CHARTS FROM THE WEEK PAST

Happy Father’s Day to all the dads out there. I love being a dad. Truth is I liked it better when they were little and saw me in the fragile light of their childhood. Sadly, they do grow up to see you, warts, and all. I’m very proud of our children. Every now and then in casual conversation they will say something like “I was brought up to believe in hard work and meaning what you say.” They won’t know how my heart sings as they say those words. They will think it’s just a conversation and to me it’s a validation of many years of worry, stress, and joy involved in being a dad.

One of the joys of my job is I get to talk to many of your children. Talking to younger people is good for the soul. Their outlook on the future is unfettered with worries of the past. They see the potential amongst the problems. They see possibilities not just obstacles. They see promise not just predicament. It’s uplifting to say the least.

It brings me to the central thing I have learned in being a father. Listening is so much more important than talking. Listening to what they say, what their friends say and hearing what they say. Seems so simple yet so hard to do. We want so much for them to be happy, safe, and fulfilled. Helping them to achieve these goals requires us to know what bothers them. We can’t learn that only by talking.

I hope your Father’s Day is filled with those important to you. I’ll get to talk with all our kids, but none will be in town. I miss that too from when they were little. Seeing them every day and listening to how their day went. For those of you with little ones still around, remember “the days are long, but the years are short.” It’s very true. Enjoy these times, they will soon be gone.

The market is painting a picture of tremendous earnings growth in a low growth world. It will be another month before we see earnings for the second quarter. The path of least resistance into July is probably higher. This is against a backdrop of GDP estimates dropping as more data comes in. China is stimulating at a very high pace. Perhaps this stimulus is what works its way into the world economies to make the markets move seem prescient.

The market has seen a broadening of participation over the past 2 weeks. More stocks moving up is a welcome change. At some point we will need to see some macro data improve to justify higher prices. As many of the charts below indicate we have not seen any change in the economic data supporting this view.

The Fed meeting this week went as one would expect. Despite the many indicators to the contrary the Fed, led by Jerome Powell see inflation behind every corner. The Fed is making policy mistakes, just as they did by not raising rates in 2021. Only this time they are refusing to see inflation waning. They may prove to be the least accurate forecasters in Fed history and that’s saying a lot.

CHARTS FROM THE WEEK PAST

They yield curve inversion has continued to for 12 months.

The 3^rd longest on record.

Cass Freight shipments at 3-year lows.

Headline Retail Sales rose +0.3% M/M and accelerated to +1.7% Y/Y … but that was due almost exclusively to a modest bounce in building materials and the cycle low (supply shock impacted) comp in auto sales (which represent >20% weight in the index).  

Rail traffic intermodal units down 11.9% 0n the week, -10.9% on the year.

Investments in clean energy are massive and everywhere.

Broader inflationary pressures falling in Europe and everywhere else too.

“Prior episodes of sharply narrowing breadth have been followed by a ‘catch up’ from a broader valuation rerating. The potential profit boost from AI has expanded the right tail for equities”.

OPEC production cuts usually lead to price increases.

Growth isn’t as aggressively priced as it was in 2000.

But that also depends on the earnings continuing.

According to Deutsche Bank, the U.S. housing market is under-built.

It got worse during the pandemic as household formations boomed far above completions. Deutsche Bank says they’ve gone from “cautiously optimistic to decisively bullish on new residential construction”.

Final demand energy plunged -6.9% m/m, confirming May’s CPI energy deflation.

Food dropped -1.3% m/m, a positive sign for consumer prices (CPI) which usually trail PPI by about 3 months.

AI is everywhere.

May industrial production -0.2% m/m vs. +0.1% est. & +0.5% prior … factory production +0.1% vs. +0.9% prior; utilities -1.8% vs. -1.8% prior; mining -0.4% vs. +0.3% prior.

The 2^nd quarter is looking fine for consumer, financials, industrial and utilities.

Rough for energy, materials, health care and tech. Negative for S&P 500.

Rent measures beginning to rollover.

Lots of debt needs to be rolled over in Europe at much higher rates.

Advance decline line shows a divergence from the S&P 500 new highs.

Headline inflations falls significantly.

Core CPI down but not by as much as the headline numbers.

Shelter CPI year over year just starting to rollover.

Homeowners’ equity more than 3x 2006 levels.

CFO’s expect employment growth to be zero through the balance of the year.

States are gaining jobs and benefits from the IRA manufacturing Clean Energy Products.

Sadly, some Governors are not embracing the jobs this legislation could bring to their states.

Barron’s covers have been contrary indicators in the past.

WEEKEND HOMEWORK

The world is finally spending more on solar than oil production

The Rolex Story is terrific.

COLOSSUS | Ben Clymer – Rolex: Timeless Excellence

There’s no doubt that our world has gotten more extreme. Pandemics, climate change, superpower rivalries, cyberattacks, political radicalization—virtually, everywhere we look there is mayhem bearing down on us, putting trillions of assets at risk.

And at least two factions have formed around how to respond. In Chaos Kings, Scott Patterson depicts how one faction, led by Nassim Nicholas Taleb, bestselling author of The Black Swan, believes humans can never see the big disaster coming. In their view, extreme events—so-called Black Swans—while inevitable, will always catch us by surprise. In 2007, Taleb’s longtime collaborator, Mark Spitznagel, launched the Universa hedge fund, which would go on to make billions protecting investors against unforeseen chaos in the market.

A second faction, which relies on complex formulas, believes looming chaos can be detected. Chief among these risk prognosticators is Didier Sornette, a colorful French mathematician who enjoys riding his motorcycle at speeds in excess of 170 miles per hour. When Sornette looks out from what he calls his Financial Crisis Observatory in Zurich, Switzerland, what he sees are Dragon Kings—punishing events that are unlikely to occur but have probabilities that can be predicted…and defended against.

Excellent Tim Ferriss Podcast with David Maisel. A great story of building a career.

David Maisel is the founder of Mythos Studios and the founding chairman of Marvel Studios. In 2003, David pitched Marvel on his idea of Marvel financing and producing its own movies in a connected cinematic universe. He went on to executive produce Iron Man, The Incredible Hulk, Iron Man 2, Thor, Captain America: The First Avenger,and The Angry Birds Movie. In 2009, David arranged the sale of Marvel to Disney for $4 billion.

David is currently the Founder of Mythos Studios, an IP entertainment studio. The Ekos Genesis Art Collection, all 1/1 original hand-crafted digital art, is the first offering in the forthcoming Ekos Universe.

It’s a great weekend to get out and enjoy the summer. Do that extra walk, hit the gym call a friend. For the dads out there I hope you have a terrific Father’s Day. Make it the best ever.