Powell Is A “Weenie”; ISM Hitting Stride

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Powell Is A “Weenie”; ISM Hitting Stride
<a href="https://pixabay.com/users/stevepb/">stevepb</a> / Pixabay

Commenting on today’s markets and calling Jerome Powell a “weenie” strategist Louis Navellier wrote in a note to investors:

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Q4 2020 hedge fund letters, conferences and more

Powell Is A Weenie

If you would like to know what I think about Fed Chairman Jerome Powell, in my opinion, Powell is a "weenie" since he keeps hitting his Fed talking points and ignoring the fact that Treasury bond yields are soaring.

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The stock market is worried about (1) inflation, (2) rising crude oil prices, (3) rising Treasury bond yields, (4) the fact that the federal budget deficit recently crossed over $28 trillion as well as (5) the fact that both Fed Chairman Powell and Treasury Secretary Janet Yellen seem to believe in Modern Monetary Theory (MMT), which is unlimited money printing via Quantitative easing.

The conundrum that the market is witnessing is the Fed is losing control over the Treasury yield curve and may not have enough money for sufficient quantitative easing to control Treasury bond yields.  Furthermore, Fed Chairman Powell keeps talking about how inflation is transitory and may not persist.  This is the real problem.  Wall Street sees higher crude oil prices and Treasury yields, while Powell is essentially in denial about inflation, which does not inspire investor confidence.  That is the bad news.

ISM Hitting Stride

The economic news this week is stunning.  The Institute of Supply Management (ISM) reported that its manufacturing index rose to 60.8 in February, up from 58.7 in January, which is the highest level in almost three years (since February 2018).  This was the ninth straight month the ISM manufacturing index has risen and the details within the ISM report were especially encouraging.

A strong housing sector is helping boost manufacturing activity for appliance, furniture and building materials.  As I mentioned on a podcast, the automotive sector is hindered by the global chip shortage for OLED and LED screens.  This essentially means the backlog is growing in the automotive sector that will like keep the ISM manufacturing index strong in the upcoming months.

The other exciting thing that briefly boosted financial markets early on the week is the 1-shot Johnson & Johnson vaccine for Covid-19 was approved by the FDA and distribution is now underway.  The number of new Covid-19 cases continue to plummet, but our elected leaders are reluctant to tell us things are getting better, since Congress is striving to jam through the $1.9 billion Covid-19 relief/stimulus bill, which ironically is full of pork and not much Covid-19 relief.  However, since Covid-19 is the “excuse” for the stimulus bill, which will include $1,400 relief to millions of Americans, our elected leaders have to propagate the Covid-19 crisis a bit longer.  However, as soon as President Biden signs the Covid-19 relief/stimulus bill, it will soon be announced that we were miraculously cured.  This essentially means that unemployment claims will continue to decline and consumer spending will remain strong, aided by $1,400 relief being sent to millions of Americans!

Hospitality, Education Constrains Jobs Report

Private payroll will register gains in the coming months, but hospitality’s contribution will not be material.

Canada and in the midst of its worst economic contraction in 300 years.  Statistics Canada, announced on Tuesday that Canada’s GDP in 2020 contracted 5.4% decrease, the largest since World War II.

Canada has been borrowing to stimulate its economy and its government debt now stands at 353% of GDP, which is more than three times higher than the U.S. federal government’s budget deficit.  While Americans tend to spend their stimulus, Canadians, tend to hoard it.  Also not helping Canada is its status as a major energy exporter while U.S. crude oil inventories are soaring. Don’t look for improvement in Canada soon. 

In equities, there are silver linings and green shoots, but big tech stocks like Apple (AAPL), Tesla (TSLA), and Facebook (FB) and other flagship stocks, like Home Depot (HD) have lost their mojo.  This makes room for market leadership in small caps, mid caps and international ADRs.

The Labor Department reported that 379,000 payroll jobs were created in February, which was substantially above economists’ consensus expectation of 210,000 . . .Education jobs declined by 69,000 so the decision by California and some other states to keep schools closed continues to limit growth education jobs.  There are 8.5 million fewer payroll jobs than there were a year ago, many of which are working mothers.  So as long as schools remain closed, many working mothers cannot return to the workforce, so reopening schools is becoming an increasingly important national priority!

Finally, the Commerce Department announced that the trade deficit rose 1.8% in February to $68.2 billion as exports rose 0.9% to $191.9 billion and imports increased 1.2% to $260.2 billion.  Interestingly, Costco reported that the “container” shortage is hindering its impressive same-store sales growth, so potentially the trade deficit could be much larger.  As the trade deficit gets larger, it will economists to revise their GDP estimates a bit lower.

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