In his Daily Market Notes report to investors, while commenting on the big Fed meeting, Louis Navellier wrote:
Many well-known hedge fund managers are also philanthropists, and many of them have their own foundations. Seth Klarman of Baupost is one of those with his own foundation, and he invested in a handful of hedge funds through his foundation. This list of Klarman's favorite hedge funds is based on the Klarman Family Foundation's 990 Read More
The Big Fed Meeting
The big Fed meeting is here. The most significant news of the week, perhaps of the entire 4th quarter, is whether the Fed will formally announce that tapering will start later this month. How the stock market digests the Fed taking away the punchbowl will be a significant test of equity valuations. Earnings are strong, forecasts for 2022 growth are strong, labor demand is strong, consumer spending is strong, even capital spending budgets are strong.
But while tapering has happened before, this time has different important elements to it. When the Fed announced in 2013 that they were going to taper their Quantitative Easing purchases in the foreseeable future, the market reacted quickly to the downside first bonds, then stocks. The Fed however then proceeded to actually launch a third wave of QE to the tune of another $1.5 trillion through 2015 and expressed high confidence that the stock market would continue to trade higher.
This time, the Fed is going to be taking away the injection of a towering $120 billion a month and not merely suggesting it but is expected to be beginning as soon as later this month, forecasted to reduce $15B incrementally each month down to zero and then start raising rates soon thereafter. This is an unprecedented swing in liquidity; forecasting the outcome in the short run is speculation, not a repeat of the past. At the same time, the pandemic is not over yet and the winter months which proved the most challenging last year are right around the corner, the labor market is acting unusual, and inflation numbers are much higher than the last time tapering was on the table.
Most unusual is that with tapering on the front burner, bond yield levels have actually been falling and stocks are hitting new all-time highs, the opposite of what happened last time investors contemplated tapering by the Fed. It will be interesting to see if the market holds the course if, in fact, tapering actually begins this month, even more interesting if the Fed surprises and kicks the can down the road until next year. We will know shortly.
ISM Manufacturing Index Slips
The Institute of Supply Management (ISM) announced that its manufacturing index slipped to 60.8 in October. Interestingly, ISM reported that 26 commodities were in short supply in October, with some commodities having up to a 13-month long wait. Not surprisingly, the prices that manufacturers paid surged to 85.7 in October. The good news is the deliveries component rose to 75.6 in October. The bad news was the new order component fell to 59.8 in October. Nonetheless, factories are still reporting substantial order backlogs, which bodes well for GDP growth.
ADP reported on Wednesday that 571,000 new private payroll jobs were created in October. This was the strongest ADP private payroll report in the past four months. The leisure and hospitality sector led the way and created 185,000 new jobs. Large businesses (over 500 employees) led the October job creation and created 342,000 new jobs. The construction sector added 54,000 jobs, while manufacturing created 53,000 new jobs. Obviously, this positive ADP private payroll report bodes well for Friday’s Labor Department payroll report.
The outcome of the COP26 global conference has not been too destructive to the world economy. Even though many world leaders, like British Prime Minister Boris Johnson, warned that the world only has a decade to stop carbon dioxide-related Armageddon, the proposed changes should not curtail worldwide GDP growth. The biggest change are proposed carbon tariffs on goods, like cement, chemicals and steel, from countries that have excessive carbon emissions. This is a clear snub to China, which has an increasingly hostile relationship with many countries. The other proposed change was a cap on methane emissions, especially from crude oil and natural gas wells, which ironically would make Russian energy more dominant since they are not expected to comply. Many countries, including Brazil, pledged to end deforestation by 2030 and plant more trees. So overall, the COP26 included world leaders from 110 countries and lots of billionaires, which is why there were over 400 jets in Glasgow, Scotland.
Interestingly, The New York Times reported that a Swiss company developed Orca, which is a massive carbon capture device in Iceland, powered by geothermal energy, that takes carbon dioxide from the air and turns it into basalt rock. So in addition to planting trees as a carbon offset, the world leaders and billionaires at COP26 can offset their jet emissions by investing in making more basalt rocks. So just in case you think I am being cynical, it is very difficult to plant trees in Iceland and some other rocky places, so the Orca carbon capture device is an alternative solution for carbon capture.
No Tax Increase
Finally, I must add that in the wake of the Virginia governor’s race as well as an ultra-close governor’s race in New Jersey, the Biden Administration is unlikely to pass a tax increase or its proposed infrastructure spending this year, which included a lot of social spending programs, like expanded childcare. Although the Democratic Party has not lost the House of Representatives yet, Tuesday’s election outcome was an “earthquake” that will likely cause more representatives to act independently like Senators Joe Manchin and Kyrston Sinema. Wall Street typically likes divided government and gridlock, so I suspect that the stock market will continue to prosper.
Heard & Notable
A retired utility worker has won a $2 million lottery twice. A little over three years ago, a utility worker in Maryland won $2 million from a scratch-off lottery game that he bought for $30. Last week, the Maryland Lottery announced that the now-retired utility worker had won another $2 million in a scratch-off game rightfully named $2,000,000 Richer. Source: NPR