Running, Nasdaq and Inflation

By Jeff Kelly on December 17, 2021

My wife and I have been workout people for much of our lives. When we started dating, we lived in different cities. We’d chat on the phone about our workout for the day which usually involved running. This is before any of the tracking devices available today. I would occasionally modestly exaggerate how fast I was running a particular distance. Sandra would always report better times. I went to visit her one weekend and we decided to go on a run together. I was running at a pace quite a bit faster than was normal for me. She was unfazed. It turned out I could only keep pace with her for a couple miles. She then buried me!

Fast forward to today. We have been running more and Sandra comes back and reports her times. Suffice it to say I don’t report mine. It’s very embarrassing. I’m not talking about being beaten by a few seconds, this is a beat down of massive proportions. I’m making an early New Year’s resolution to get faster and at least narrow the gap.

The market has some gaps it needs to fill in its performance as well. Despite being in a seasonally strong period we are seeing some poor action in the biggest winners of the year. Technology has seen some large declines in individual names over the past couple weeks. The charts of many leaders are, in a word, terrible. Given the concentration of gains in a few Nasdaq stocks over much of 2021 this is particularly concerning. This can be resolved quickly with a couple positive days in breath and volume. So far, we have been unable to put back-to-back days together.

Another area of concern is the outperformance beginning to surface in many defensive areas such as telecom, healthcare, and staples. If this action continues we will see a larger correction than we have seen at any time this year. Seasonality is a positive, not a guarantee.

We have also observed interest rates decline when the concern over inflation and the Fed has reached a crescendo. The market maybe telling us the interest rate/inflation scare is over blown. 

The data is still positive. The likely outcome remains positive. However, there are some storm clouds gathering that must be acknowledged.

CHARTS FROM THIS WEEK PAST

Ugly action in the Nasdaq 100 ETF, QQQ, between Wednesday and Thursday.

A nice rally after the Fed Meeting on Wednesday followed by a complete give back on Thursday. This in what should be a seasonally strong period.

Now through year end is typically the strongest seasonal period of the year.

Not a great start yesterday.

Industrial production stronger in November, +0.5% vs. +0.6% est. & +1.7% in prior month (rev up from +1.6%) … level now at highest since September 2019.

The Advance/Decline Line will need to improve for the market to get out of the up one day down the next pattern.

Lots of equities with weak charts.

The natural expectation would be for the U.S. Dollar to strengthen during a period leading up to and including Fed tightening.

This isn’t the case. The Dollar rises months ahead of the tightening and rolls over even before the tightening begins.

Housing starts stronger in November, +11.8% vs. +3.1% estimate. & -3.1% in prior month (rev down from -0.7%); building permits also stronger, rising +3.6% vs. +0.5% estimate & +4.2% in prior month (rev up from +4%).

Mortgage payments vs. Incomes at lows for the past 30 years.

Home affordability at near record highs despite price increases.

Housing Starts strong in November.

Another look.

“the only publicly listed fund in North America that invests in physical uranium”

Six months ago, the Sprott Physical Uranium Trust didn’t exist. Now it holds almost a third of the world’s annual supply. How a Less-Than Six-Month-Old Fund Shook the Nuclear Fuel Market. If you started a fund and bought a third of that physical commodity’s annual world supply, you would make any commodity increase significantly in price. How much of the “inflation” caused by increases in commodity prices has been caused by financial instruments? In 2008 oil ran to almost 150.00 per barrel as many endowments discovered the joy of owning oil futures contracts. Once they stopped buying, oil went from 150 to 30.

Real yields on junk bonds are negative.

Not a good look.

The first time we have ever seen the Russell 2000 (Small Cap Index) below its 200-day moving average with the S&P 500 at an all-time high.

Not a positive.

Consumer sentiment has retrenched over the past few weeks.

It’s not surprising given the virus news and the general media spin to the negative side of all stories.

Lots of interest in Metaverse or at least in Facebook’s name change.

Hospitalizations declining in South Africa.

Good news if it continues.

Many public company officers are selling 100 Million Dollar positions in their company’s stock.

A look at total insider selling by month.

November was big.

Lots of opinions on where inflation will end 2022.

71% believe it will be 3% or higher.

If China construction continues its decline, it will further reduce the pressure on commodity prices.

Much of this decline is attributable to the Evergrande collapse. Other major property developers are also in some difficulty.

The probability of 3 rate hikes in 2022 was close to 100% before the Fed Meeting this week.

Likely lower now.

WEEKEND HOMEWORK

Three Steps to the Future (Presentation | 30 mins)Benedict Evans charts the macro and strategic trends underpinning the tech industry in 2021. Pair with: A conversation with Marc Andreessen on building the future.

Here are the riveting histories of myriad presidential friendships, among them:

• Abraham Lincoln and Joshua Speed: They shared a bed for four years during which Speed saved his friend from a crippling depression. Two decades later the friends worked together to save the Union. 
• Harry Truman and Eddie Jacobson: When Truman wavered on whether to recognize the state of Israel in 1948, his lifelong friend and former business partner intervened at just the right moment with just the right words to steer the president’s decision. 
• Franklin Delano Roosevelt and Daisy Suckley: Unassuming and overlooked during her lifetime, Daisy Suckley was in reality FDR’s most trusted, constant confidant, the respite for a lonely and overworked President navigating the Great Depression and World War II
• John Kennedy and David Ormsby-Gore: They met as young men in pre-war London and began a conversation over the meaning of leadership.  A generation later the Cuban Missile Crisis would put their ideas to test as Ormsby-Gore became the president’s unofficial, but most valued foreign policy advisor.

These and other friendships—including Thomas Jefferson and James Madison, Franklin Pierce and Nathaniel Hawthorne, and Bill Clinton and Vernon Jordan—populate this fresh and provocative exploration of a series of seminal presidential friendships.

We have experienced a bit of trouble with Fred trying to use the Christmas Tree as he would an outdoor tree. He’s sorry, sort of! I hope your weekend is fabulous.