Market Briefing For Friday, June 10

Polarized views on CPI's impact  for upcoming short-term market action for sure are varied, to the degree that it's borderline irrelevant to speculate how the numbers will sort out, more than we have in recent days.

Initial response being similar to a Fed day; where you get a reaction, then the S&P reverses and goes the opposite direction just for a bit, commonly then returning to the direction of the original move, is probable.

And of course the Hearings (reason for tonight's early publication; intending to give attention to the media / political event; whether agreeing with the varied postulations and solutions that will be urged). So I'm grateful to a member for reminding us of Ben Franklin's admonition. To me compromise is usually the best logical domestic solution too-often missing between our elections.

The market is simply an absence of bids ahead of all this. The market's very worried about 'rates', about 'inflation', about 'war', and even about layoffs in a climate of higher living costs all the way around; along with Housing declines (and thus perception of eroding household wealth; even if it changes little). If we get another leg down, before or after a reaction bounce, I believe you can anticipate purges to lead to a conclusion of the bear phase; but that doesn't of course resolve matters overhanging this market; including expensive S&P; Oil prices extended (almost out of control as impacts inflation); and yes the war. I think it's an open question how much of this is already 'in' the market; but S&P can overshoot the downside and it wouldn't be too hard from this level.

I suspect the nuances of micro-assessing the "headline" CPI numbers will not matter; although I dispute President Biden's remark today that 'Gasoline and Food' are the only real problem. Actually wage increases preceded all of it, so Oil was up even back then I began noting how 'behind the curve' the Fed was.

But anyway, with regard to POTUS, the so-called 'core CPI', which oddly does exclude 'Food and Energy', really isn't 'core'; since food and Oil (gasoline for a consumer who doesn't view in macro terms) are very much the heart of woes in price impacts. Throw in the 'drought' and famine risk in much of the world to have a broader picture; which of course largely relates to Russia's war taking an existing inflation (the 'be careful what you wish for 2% transitory nonsense that prevailed before Ukraine) to higher levels, and shortages in other things.

China didn't help any of this; with a protracted 2-month lockdown of Shanghai which of course is their largest city and primary financial center. (Much of that was formerly in Hong Kong; but the pro-Beijing crowd somewhat moved into the Mainland; while more realistic and balanced businesses tended to shift ate least regional HQ offices to Singapore, or even to Tokyo.)

China is sort-of taking their foot off the brake, but nobody trust them and that's absolutely reasonable considering President Xi's backtracking and invoking of Marxism in speeches he made domestically; something avoided for years. It's not exactly like Putin's turn lasting years from wanting to integrate into Europe or even NATO, to an evil mirror-image wanting to conquer part of Europe. In Putin's case I suspect it's more Napoleonic syndrome (Peter the Great really; a desire to remake the ancient Russian Empire more than just Soviet Union).

Chairman Powell doesn't think he's bluffing (Einhorn thinks he is) about 'tools' in his toolbox to fight inflation. And we have expressed slightly similar views at variance because I think the Fed believes they can do it; and I say it's all or at least mostly Oil prices (and wages) that will determine this.

Also Housing was projected here to decline and it is. It's a 'buyer's market' in many cities where prices were absurd; but like S&P, some of the 'fluff came out', but there can be more if circumstances brace for higher inflation; slower economic growth, and more political circus which may be necessary. Yet it still distracts from focusing on the factors that affect every family and individual to some extent: inflation; keeping China from blockading Taiwan as some tend to think happens this year; and expending some energy to get a Ukraine deal for at least a ceasefire, and ideally more. Otherwise food inflation seen thus far is the tip of an iceberg; with famine threatening some countries or even markets.

In sum: nothing much has changed with a defensive market 'on-hold' ahead of CPI; and limited (it at all) influences from the Jan. 6th Hearing, which airs in hours after this earlier-than-usual Briefing, as I too want to watch the show.

(And while it won't be a 'charade', it is fair to call it a 'show', since they hired a Hollywood producer to structure it; which may give it more 'punch' to avoid the audience finding it soporific, as opposed to just going forward conservatively. I will find it 'dramatic' if by-chance former Vice President Pence shows up with a testimony; as it's a low-prospect rumor making the rounds this afternoon.)

More than half of stocks are fundamentally cheaper than a decade; because it remains a fact that most stocks cratered well before the still-debatable levels of the S&P. Again less than 10 stocks control almost 90% of volume & action; so that's was the divergent or bifurcated markets we talked of for a year plus. But if they tank S&P again; buyers will generally avoid everything for awhile. I further do think a key vulnerability few talk about, is Housing prices and how that will impact the attitudes of families about 'perceived' fallback wealth.