Maverick and DOGE

By Jeff Kelly on December 6, 2024

There’s learning to be done in every encounter we have. Sometimes learning and growing comes in the most unexpected ways. And from unexpected sources. Sandra has been back east the past week visiting Ms. Louise. I’ve been charged with getting our 10-month-old lab puppy (he’s not puppy sized anymore) Maverick to the dog park to work off some of that puppy energy.

Maverick is the king of the dog park. The first few times I took him I was just watching to see he didn’t cause any trouble. I did notice he played with all different groups of dogs. He didn’t just hang out with the cool kids, he played with them all. One day a woman came up to me and said “Maverick is such a terrific dog. Look at him greeting the people along with the dogs.” I had not noticed him doing this even though this was our 7^th or 8^th visit to the park. When we arrived, he went around to the people he knew from the park and gave each one a nuzzle and got a pet from them in return. Then he went to run with his dog buddies.  All done instinctually, just wants to be friends and maybe get some water after a run. Mav just lives a life he wants others to reciprocate. Lots to learn there about interactions with others, treating everyone with respect and running full speed with the wind in your face on a beautiful afternoon. Good boy Mav!

The markets are running full speed as well. New high after new high. Make no mistake valuations are in the stratosphere.  Does it matter if flows into the market continue, no. Will it matter at some point, yes. That period is likely after January 20^th.

We will get the Consumer Price Index next week. We are looking for an uptick in reported level of inflation. This likely keeps bonds trading in a range. If we are at the lower end of the range (yield on bonds) when the number is reported, bond prices will sell off and yields rise. It’s hard to see a compelling case for bond prices to rise over the next 6 months.

The markets as well as many individuals, including lots of CEO’s and entrepreneurs, are very optimistic about the DOGE committee (Department of Government Efficiency). If done equitably this could be a large bipartisan win. It’s hard to be against more efficient, cheaper government. The details will be critical, but many very qualified folks are willing to give input to this project. This is very similar to how in the 1940s FDR used private industry to push manufacturing during World War II. Will it work? Lots of egos to manage but pulling it off will be great for the country and the markets.

CHARTS FROM THE WEEK PAST

Wards auto sales have surged, rising in November to highest since May 2021.

A comparison of the performance of different assets post 2016 election vs. 2024.

Bitcoin with the magic of no valuation metric has done the best. Interesting how much better small caps did in 2016 as well as regional banks. S&P 500 performance is similar.

The percentage of stocks above their 20 and 50 day moving average (blue line) has been declining as the market moves higher.

Not a great look.

Realized volatility trending lower.

But we are close to seeing 3 month cross above 1 month.

October factory orders +0.2% m/m vs. +0.2% est. & -0.2% prior (rev up from -0.5%) … orders ex-transportation (orange) +0.1% vs. +0.1% prior.

ISM Headline = -3.9 pts to 52.1.

Services Activity Slowed, but … remains in expansion and the moderation was off last month’s cycle high level.The number of industries reporting growth was static sequentially at 14 and just below cycle peak levels of 15. The marked decline in inventories amidst ongoing demand solidity may be a harbinger of a new year/post-election increase in orders. The S&P Services PMI was revised lower relative to the preliminary Nov estimate but still notched a fresh cycle high on the Headline.

The number of industries reporting growth was static sequentially at 14 and just below cycle peak levels of 15.

The S&P Services PMI was revised lower relative to the preliminary Nov estimate but still notched a fresh cycle high on the Headline.

Inflation set to pick up when November data is reported.

In Europe we see cyclicals vs. defensives heading higher as the economic surprise index heads lower.

These usually trade together.

At an 11-month low of 45.2 in November, the EZ Manufacturing PMI slouched further in the direction of “Yikes” while holding on script with respect to Seasonality (visual below). 

Headline= +1.9 pts to 48.4 = a 5-month high but an 8^th consecutive month sub-50 amidst a broader contractionary streak in which the headline has been below 50 for 24 of last 25 months.

New Orders = +3.3 pts to 50.4 = first month of expansion (and highest reading) in 9-months. Employment = +3.7 pts to 48.1 = 5-month high while holding in contraction for a 6^th straight month. PMI: the S&P Manufacturing PMI aligned directionally, rising +2.5 pts to a 5-month high at 49.7.

German industrial production published this morning is ugly: -1.0% month-on-month in October after -2.0% mom in Sep!

And the details of the IFO are not encouraging. The difference between orders and inventory is in the bottom 5th percentile of its historic distribution.

There have been 56 new highs in the S&P 500 in 2024.

December and January are typically good stretches for market performance.

“If BTC is going to $1 million, does that mean the NDX is going to 500k, and I assume the SPX is going to 60k. If yes, what happens to inflation when financial assets approach one quadrillion dollars?”

Source: Jim Bianco

Single stock leveraged ETF volume.

What could possibly go wrong?

Companies don’t have the longevity they did in the past.

Wall Street Strategists are raising targets for 2025.

The sector matrix shows consumer staples and healthcare underperforming.

Remarkable how high the administrative costs of healthcare in the United states are relative to other nations.

When there is no competition there are higher prices.

China now 64% of major shipbuilding orderbook.

Consumer goods imports continue to rebound at a rather health clip; up by 8.1% year/year as of October.

WEEKEND HOMEWORK

Art Cashin passed away this week.

He was a good man. He spoke to everyone with kindness and humor. He was the face of the New York Stock Exchange for many years. He was very nice to me on a couple visits to the NYSE. He will be missed. A good read below.

Remembering an NYSE Legend

A great book and a great leader. Germany has been a mess since she left.

For sixteen years, Angela Merkel was Chancellor of Germany and at the forefront of European and international politics. In her memoir, she looks back on her life in two German states―East Germany until 1990, and reunified Germany thereafter. How did she, coming from the East, rise to the top of the Christian Democratic Union to become the first woman to hold the office of chancellor? And how did she then become one of the most powerful heads of government in the Western world? What guided her?

In Freedom, Angela Merkel recounts daily life in the chancellor’s office as well as the dramatic days and nights when she made far-reaching decisions in Berlin, Brussels, and beyond. She traces the long lines of change in international cooperation and reveals the pressure politicians face when seeking solutions to complex problems in a globalized world. Here, she takes us behind the scenes of international politics, demonstrating both the importance of personal conversations and, crucially, their limits.

The holidays approach and there is much to do. Presents need to be bought, plans need to be made and gratitude should be given. It’s also a season to be giving to those less fortunate. The K shaped economy has left many in the lurch. At the holiday season putting a gift in the hands of a child that won’t otherwise receive one is an act of kindness and grace. Pick a place and make a holiday great for a needy child. Make it great for yourself as well with a call to an old friend. Reach out and remember good times. It will make the holidays even more special. And get those steps in! Miles to go before we sleep. Have a great weekend.