A 'transition zone' - out of the normally risky, and sometimes risque, August, September, October time-frame, is moving towards completion; albeit not yet. Equities are under-performing; a China Shoppe's at risk of being wrecked; at the same time a few sectors (Oil and Semi's) continue strong. Whether they'll stay that way 'in event' of an Asian dragon slaying investors; is still pending. At this point we have a 'grab-bag' of challenges increasingly spinning.

Despite a bit of whining from investors who want things to happen constantly, this has actually been a fairly mild corrective phase, and so-far (famously can be sad fingers crossed) no catastrophe. Lots of angst about debt; a persistent 'lack of cutting slack' to politicians or economists, who really can't do much in a backdrop like we're facing, and especially with Covid lurking continuously. In the case of Covid a risk is that it circulates this Winter, reinforcing 'stagflation'.

On this Columbus Day our bond market was closed; but the underlying status of the market and rates hasn't changed. Inflation in the energy sector puts the Fed in a 'touchy place' as far as media and the public is concerned; making it tougher for the Fed to do the impossible (get inflation without high Oil prices).

But for the moment we have to monitor whether China's bond collapse is a sign of yet-another aspect of the 'new world disorder'. 

Commodity prices somewhat retrenched (lumber and meats for-instance) just a few weeks ago; whereas the change to 'renewable' (technically not feasible to the extent they want yet) is impacting pricing on Oil; as nobody wants new drilling; as Government has leaned-on everyone (including wanting to ditch a rather important deduction called the 'Depletion Allowance'); which was one of the keys to exploration based on presumption that there's less oil reserves, as you pump-out the readily-recoverable Oil. Also knowing you have that sure eases justifying secondary recovery efforts on otherwise-depleting wells.

While we spend many hours preparing a few remarks on photonics, and sure do believe that and the semiconductor sector overall will remain prominent in the future; it's going to take some time to get advanced into that next phase. If one correlates that to the semiconductor equipment makers, the automakers (who somewhat bemoan lack of new cars while actually focusing on designs in the EV and solid-state battery realm that are not yet in-production) or to the health and wellness conventional and digital products of the years coming-up; it's a work-in-progress, so give these things some time to 'mature' just a bit.

The dust settles; we get through a tax-selling part of the year by conventional means; and maybe a couple of the busted so-called 'hot' SPACS that do have interesting futures, get to be low-risk.

This market is still focused on how energy issues are mitigating supply-chains restoring to normal; and you know why this is more of a China than U.S. issue (as China has serious outages). The ultimate irony might be if all conventional thinking is turned on its head; and the USA has to navigate China's decline. (!)

Aside our President's (absurd) pressure on OPEC to 'produce more Oil', there is much more basically behind the public facade to 'combating' high Oil prices. The essential stimulus (and more than essential) during the pandemic clearly was inflationary; and too many became accustomed to subsidies as well. But it did prevent a post-WWI-Spanish (Kansas) flu 'depression', and that's great. But now a question is how do they reign in the new profligate spending tone?

I sure don't have all the answers to that; because some would argue we need better infrastructure more than we needed a lot of the questionable loans that did more than sustain small businesses during the core of the pandemic, and now there's understandable reluctance to go to the mat to incur more debts. I submit a thought about Oil on this, that I've made before.

And that is 'why' for many months the Fed has spoken of 'desirable inflation'. I never thought it would be only 2%, nor transitory when it came to wages and energy (because of the same politicians trying their best to decimate oil & gas industries). They want enduring inflation 'so as to repay' or at least to 'service debt' with debased Greenbacks; hence they sacrifice the struggle of the poor at the alter of modestly higher basic wages, and much higher inflation. There are other concerns surrounding this; such as our strong Dollar and pressure on Trade, with American goods becoming even more expensive abroad.

Expectations surrounding earnings about to flow in most sectors, are trimmed a bit; because the continuation of the pandemic is an 'inconvenient reality' for a lot of analysts who envision onward and upward. We should see upside for a few sectors next year; but again geopolitical risks have to be considered too along with corporate prospects. Energy and semiconductors may outperform.

There are plenty of concerns remaining in this Quarter; hence the guidance I'd expect to be conservative. The year 2022 will probably not be a good year in an overall stance; however 2021 wasn't either for many stocks. That's why the approach by money managers of holding-up the 'illusion of strength' via S&P's biggest-cap influencers is what this year was largely about until it faded a bit. Next year will depend less on buybacks or earnings; more on Covid treatment adequately empowering everyone to live their lives (that's still seen as risky).

Are we nearly done correcting; or building 'toward' a more dramatic swoon? It may depend on China, which does impact the prospects in our markets too. In this world we're somewhat intertwined, like it or not, and with politics aside. Of course this is reasonably well-known; but it's way beyond supply-chain woes.

I'm not sure American managers have taken Evergrande seriously enough at this point; as we saw it as a potentially unraveling crisis depending on how the 'homeowners' in China were protected, not the investors in Evergrande as the grand-scale property developer struggled to offload some of it's holdings. I did discuss this in the 2nd video recorded late today; so won't expound more now.

So let's assume that the 'supply-chain issues' and 'labor crunch' in the U.S. (a function of pandemic more than laziness or absence of people; childcare is a factor too, as everyone is watching-over their kids closer during the pandemic and the Administration funding does nothing to address some of the concern); let's assume that you can't motivate the 'early retirees' to return to work in a physical location; let's assume that inflation is not 'transitory'; lets presume a desperate move by the PBOC does not prevent China being broken a bit, and what do you get?

You get inflationary trends already shifting to inflation here; deflation there; as well as potentially-disruptive dynamics in Asia. To wit: history shows economic destabilization correlates with some of the riskiest geopolitical events. If 'CCP' is worried about maintaining control (things tend to happen when people are in dire straights) instead of being merely uneasy; they might crack down hard on their people (beyond what they have), or conversely try to focus the people on Taiwan and external issues (that they pretend are internal).

We see some of that already; so the potential risk actually makes our worries here in the USA pale by comparison. However that's not to say we have fewer worries; nor that we've had particularly competent governance of the issues.

Finally among stocks; the purge of AT&T has continued; one firm upgrades it slightly; but it hasn't based-out yet. I don't believe management handled either the dividend cut or the merger share distribution right; as even now we've got no idea of the precise allocations; and that's how one estimates real value. Of course the price decline means the yield is back up for those who buy now as that however does nothing for existing owners. We wish AT&T would clarify.

Bottom line: I understand how the struggle has persisted around the S&P's 50-Day Moving Average. That came in around 4400 and we faltered there today again. However, we could get a rebound try Tuesday; unless we have a 'financial accident' overnight (Tuesday) in China; resulting in a big plunge.

It goes without saying that our forecast for rebounding shuffles to the 50-DMA were efforts to stabilize, but that 'probabilities' favored the market breaking in the wake of those efforts; with a next measure down to 4100 or so in S&P; as well as 3800 possibly requiring some sort of fiscal or financial accident. If that is to occur, everyone focuses on Washington; but possibly needs to gander a bit towards Beijing; since they are borderline having that right now.

As it relates to our market is a bit complicated (that's the intertwined globalism as well) but fair to say our S&P and especially big NASDAQ stocks; have not priced-in financial accidents in China; and have focused solely on avoidance of fiscal accidents in the USA. At the moment the risks of repercussions from China looms more front-and-center; so we'll see if they can hold it together.

It is important to remember not so many decades ago the fear was of 'Japan' buying everything, as sitting on the trade-throne at the time. I noted apropos how a Japanese bank bought the Union Bank Building on Wilshire Blvd. in LA and then a few years later, the 'bank' bought it back from the Japanese. So all the conventional assumptions about China's ascendancy might be revisited. I have no doubt that Beijing has been smarter the way they invested globally; but ironically they created lots of problems accelerating growth beyond what is sustainable. That may be 'good' problems; but only if they can manage it.