A 'return to normalcy' - is clearly a goal of the Fed. However there's little in current economic and market scenes that fits the 'business as usual' definition of normalcy. Nor do I concur with those looking for a recession next year; as it is so far along in our view (with stocks anticipating it for many months), that by historical references (barring a general collapse or World War) it out to near a time of emergence next year, which (ideally) stocks would reflect earlier.

This is a complicated time. Everything is bifurcated. Stocks. Society itself. The political backdrop. Even the military stage on-which any non-war-related stock market call would depend. Even the gathering this week of Oil & Gas partners (they say military relations; but as usual it's follow-the-money) in Cairo has an effect on markets (as more Oil & Gas from the Eastern Mediterranean would I believe reduce dependence on both OPEC and Russia; as noted for years).

Yes history shows us that when you have S&P drop 15% or more in a year's first-half, you often get upward behavior in the year's second-half. Certainly it can't be that simple; but sure, if it's not a 'Depression', then rotational bottoms could be anticipated later this year; with realization more struggling likely first.

I delved into much of this in prior Briefings; so I just want to emphasize that it is understandable that the Fed wants a return to 'normalcy'; but the problem is (and I said this really two years ago even as we nailed the reversal in 2020), it really is a problem... we went too long at emergency low rates.. and when any rate structure prevails for an extensive period, that becomes the 'new normal'.

I agree with the Fed 'wanting' to get out of their mistaken 'boxed in a corner' of overstaying 'emergency' easing and stimulus; but getting to a positive inflation adjusted rate looks almost impossible for now. Yes, inflation can roll-over, and of course is believed key to stabilizing the market and reducing pressure on a hell-bent Fed to hike repeatedly; with Oil and Food prices being really the key.

My view has focused on Oil (the Dollar and Food) for a long time; and to that I added 'war' as the geopolitical situation elevated an already-tough backdrop it seemed ongoing due to lackadaisical then excessive policies (both ways). So, yes inflation sees some market-based indicators that support unwinding what has been a spike in inflation; copper, soybeans, lumber etc. are falling (not the Oil market alone; though it's shifting more to defense, as US demand choking policy moves aren't particularly effective, as well as being tardy to appear.

IF we can get inflation to fade to maybe a 4% rate rather than the current high levels, all kinds of relief will be felt (including in politics and at the FOMC). The stock market has already reflected the worries; so ultimately it should reflect a trend of 'hope' since crisis creates opportunity; as we'll move into new phases, although time it is going to be tricky; and we're not there yet; barring ceasefire to the Ukraine war; which incidentally isn't as out-of-the-question some think.

Housing is a big concern; even though there's a lot of relaxed thinking as they contrast (correctly) the mortgage strutures now versus the 2005'-'07 area and the associated insane negative-amortization mortgages, CMO's and so on. In this case we suspect 'normal' (5-7% conventional loans) will knock props out, from the crowd of pooled funds buying properties to rent out; and that's part of the rental market craziness. That will cool; few more will be structured thusly; at the same time as piles of listings for sale will subsequently hit the listings. I do distinguish that from 'primary residence' folks like us, who aren't at all likely to part with our paid-for or low-interest-mortgages, as the case may be. But it will be a different story as few buyers will show up for high-cost loans at least for awhile, and the cash-on-cash returns that were promoted will evaporate.

In sum: things will get worked out but it will take time. Avoiding accidents will be important in the meantime; so we don't find (the Balkans or similar?) being a launching pad for the Ukraine war turning into World War 3 (we contend not as even Putin has to realize he miscalculated and wants to somehow emerge with saved-face and perhaps physically saved life.. his own.. he damaged his mother Russia to an extent unseen since basically his bolsheviks appeared).

Again the next week 'may' see some fluctuations; then an effort to stabilize or hold S&P together; which would be seasonally normal. Later in the month we get a CPI reading; and if that shows early fading prices; you get an extension and increase the chances of holding the area around recent S&P lows. Small stocks (and big too) will nevertheless flail and sometimes fail with false-starts; a 'Dog Days (daze) of Summer' characteristic that increasingly frustrates most traders and requires infinite patience by investors. It is what it is; as often you have seen in the later Summer and early Fall. It's important because it likely is going to set-up the best opportunities (among survivors) for 2023. We'll focus on the Semiconductors (often have over decades) 'if' the 'Chip Act' is passed by a recalcitrant Congress that is mindless if it doesn't proceed with the bill.

It's a process and not finished yet. Sure, those 'now' getting bearish are late to this downtrend; but that's not to say SOX (Index for Semi's) can't work lower. I do however view shorting (or Put buying) as late for this cycle; and while there is big front-burner news potential with Semi's (both the U.S. Congress bill and what happens with China/Taiwan as well as individual players in the 'space'); I would not mind the sector being 'ragged' along with other techs this Summer; at the same time (shades of Fall 2018); another leg lower might set-up a good investment (not just trading) entry for a number of the Semiconductor issues.

Market psychology depends on passage of the 'chips act' more than just for a few semi stocks; it will signify whether the incredibly divisive political backdrop can't even come closer to reinforce America's effort at 'resourcing' production.

As to Semiconductors; well remember a few months back the crowd chasing AMD (while we were in favor of selling multiple tranches or portions to them); as well as all the other chip-related stocks. Now the analysts are universally it seems concerned about 'earnings revisions' lower. Well of course; shortage in time goes to surplus; and overbought gets to oversold.

The 'speed' at which the Fed comes-off it's hawkish stance they properly view (as they should but waited too long as discussed) as their 'prime directive'; will determine whether or not any 'fireworks' can be lit under this market; or if any rallies will awe little more than a kid playing with sparklers by the lake.

Nobody can prove whether the extended decline in S&P (which we looked for but regardless of day-to-day fluctuations, remains a very complex market in a variety of ways) is related to the 'risk-off' mode of Bitcoin and crypto overall (I suspect a bit); but regardless of 'tail wagging the dog' or the inverse; there's a well-delayed recognition of 'risk-off' financial assets that began 18 months ago and we still have a concurring debate about whether we're 'in' recession (yes in my opinion, for some time, however with an economic bifurcation that we'd rather not describe as impacting different 'classes' than others; but it is that).

Risk-off and 'called' loans to hedge funds (or even brokers) isn't easy to glean although we heard a couple that folded-inwardly (typically designated a family fund); and now we see TD Ameritrade apparently seeking to buyout Cowen. I have no idea if Cowen had problems; or TD is after their 'book'; but I think it's probably emblematic of consolidation that will likely expand over time.

Part of the high-rate backdrop also presses money managers to perform; as it is common for hedgers to use bank loans at higher levels relative to net asset values, that the industry permits for normal investors. In addition to weighing a bit on consolidations; it also is a cautionary tone (obviously) for speculation. If we do find the Fed calming down later in the year as (if; but I suspect) inflation ebbs; the tide will shift back to 'risk-on'; given that nobody wants high interest rates on borrowed funds and that goes doubly so for leveraged hedge funds.

Inflation numbers, any progress toward stopping (if not ending) the war surely matters this month; as the accelerated flow of NATO weaponry to Ukraine will give them better than a fighting chance against Russian barbarity as hints are already suggesting (opposite of just a week earlier). I don't concur entirely as relates to high Oil or gasoline prices; because they were up more than 50% in the months before Putin's invasion; and were exacerbated by the war's onset.

Plus of course the associated sanctions or limitations (Russia's making more not less from Oil sales since the war); which turned-out to be fairly limited. So there is a circular money flow; and even China indirectly is involved; but that's not to suggest as some do, that the U.S. buying Chinese goods funds Russia; which is stretching the case by a couple of extremist commentators).

Bottom line: the latest storm is still being weathered; the first day of Q3 was more like expected, with some nervous buying even with Oil higher; and late in the day ahead of the long weekend (this was expected in my morning call). This may prove to be merely the seasonal stabilization effort (erratic at best); hence prospects for it being an 'eye in the storm' dominates hesitant traders, as is entirely understandable given the variables and associated risks (not the least of which is the 'trend', the war, and more). A fade of inflation would help.

I'm not familiar with many in an overzealous crypto sector; even though called a couple significant rallies and declines. This goes all the way back to arguing 'for' regulation; and against investing (only trading) if one must in that 'space'. I argued about it with a well-known advocate of Bitcoin at a New York 'expo', and though I'm really novice to it, I was right going up and the 65k double top.

Today we have a Voyager (crypto broker-dealer) suspension of trading and/or deposits or withdrawals. This after 3AC (a crypto hedge fund) defaulted on a 670 million loan (unsure of details and never looked at either of these; it filed for bankruptcy late Friday). What I wonder is 'whether' such entities failing (or teetering) can be to this era like Bear Stearns was to 2008; following my key 'Epic Debacle' Feb. 2007 warning. I really don't know; but I do know the Miami 'Lambo' crowd is shaking by now (it's just a minor part of why I fear the real estate seen is just 'over the top' in Miami and headed for a tumble.. over the years Miami property has always gone through boom & bust repetitions).

With so many stocks already trashed; and fundamental prospects still soft, the downside risk however isn't as great as some either permabears or new bears suggest. However it's still a rocky saga, with liquidity issues (as an alternating series of fast-paced rallies and declines showed months ago); and hence the 'fix' might oddly be an 'event', not necessarily systemic, but sufficient to shake remaining optimism, and conversely adequate to trigger the Fed to pivot. Just a hint of something that might be 'out there'; and would lead to another stock market transition; perhaps even with Index drama sometimes seen in purges.