Market Briefing For Thursday, Sept. 23

Decoupling 'tapering' from rate 'hikes' was the preferred path presumed by probably everybody, and that's what we got. GDP forecasts were lowered by the Fed, which infers lack of "feistyness", along with expectation for growth.

Lime, Drink, Glass, Club Soda, Cocktail


Sort of 'soon' (perhaps November) the Fed begins tapering, they may already slightly reduce their MBS (mortgaged-backed securities) purchasing patterns. Moving a rate hike idea into 2022 rather than 2023 is seen as sort of 'hawkish' but as I discussed last night, aside brief jitters that's favorable as helps avoid the bear's desired (and dreaded by others) calamitous debt catastrophe. 

So, speaking of dodging a catastrophe, this is an illustration, but check it out. In a couple years we'll finally have a space telescope that would detect this well in-advance. Again this was closer to Earth than our Moon just last week.

Possibly you expected a Fed-related chart? Hah, not much new to show, and continuity and stability is the name of the game as they try threading needles.

Doubtless it's already a dangerous debt environment, just saying it would be a good bit more threatening if they keep this game going much longer. Hence a perceived tilt to hawkishness is actually more bullish than being dovish. There is no impediment to business from slightly higher rates, so it isn't such a worry as seems to be troubling others. I've said before: firm rates here are a plus. Of course that changes if it's because of Chinese or similar massive liquidation.

So, the take-home message from the FOMC: dot-plots' have firmed-up short maturities, and rates eventually will move-up. Inflation is still foggy long-term, but for now remains enduring not transitory as I have believed all along. Down the road there will be a big readjustment, just not now, and the Fed obviously is aware of the bigger-picture risks as well.

Executive summary:

  • The Fed obviously is cognizant of global perspectives, including Chinese financial challenges, and remember a sudden rate hike would be the most dangerous Fed 'thing' for the market, but the Fed isn't doing that now.
  • Reducing asset purchases in the first 'official' warning of the Fed doing it, probably starting late this year.
  • During next year rates should firm a bit, although they will do that also just if China had a disaster so started liquidating their Treasury holdings.
  • The Fed doesn't want to be labeled as further 'flattening' the curve, slowly shifting a bit, and knowing that China 'capital flight' into Treasuries is likely playing into this.
  • Though the Fed doesn't like to suggest they're not in-control, to the extent the buying is from abroad, they're not, those buyers don't care about yield being so low, they are looking for stability in Dollar-denominated assets.
  • Markets are giving the Fed plenty of room (hopefully not rope) to taper in the near-term, without upsetting the apple-cart, so they likely welcome it.
  • Extremely large Fed Balance Sheets prevail and we won't get much shift in that, as whether the Fed (or indirectly China) has a lock on rate moves, it's unlikely traders are going to make major shifts 'yet' back on the Fed.
  • The Fed provided no clarity on what 'maximum employment is', and that is typical, just as the word 'soon' about tapering is consistent for them.
  • I was 'slightly' amused by the Chairman's reference to China as having high debt for an 'emerging market' economy, as China is hardly merely emerging, just one reason favorable trade policies were snugged-up.
  • His remark that the Evergrande (EGRNF) 'crisis' is primarily indirect, was accurate as he used the word 'indirect', and acknowledge possible spillovers that could be related to global financial confidence (avoided Treasuries talk).
  • On stocks: Sorrento filed Phase 3 Trial 'completion' (apparently) on the US Government's 'clinical trial website' for SP-102, which is the lumbar pain relief therapy (as far as I recall, there's so many).
  • We await their promised data on 2 or 3 trials and of course Covi-Stix, as shareholders are frustrated by lack of follow-through, we urge investors to prod Dr. Ji and Sorrento (SRNE) to be more forthcoming in plain English, and we'd suggest contacting medical site 'reporters' to check on CoviStix progress.
  • Sorrento has been accused of not being in the 'Rescue America' Biden plan, well they are listed among the participants per a story I read today in a West Palm Beach journal (probably because of the Dyadic relationship they would write about it (partner Dyadic is based in Jupiter Florida).

We just summed it up, other than the minimally important booster approval (at the FDA for older Americans, as that too was in the plan and hard to reject of course). More discussions of where we are and a misc. topics, follow.

The 'Roaring 20's' are not over, but that normally comes after the pandemic. I believe the market's move to the S&P 4400 level by leading mega-caps tends to reinforce the idea the Country (if not the world) will get through COVID-19, to move ahead (SPX).

So shakeouts are interludes, and we can only envision growth invigorated lots more as we get through this over the course of the next year. It will take time, as many realize, and that's why the 'play' continues in biotech (especially as it is also clear the initial vaccines are not the ultimate, generation 2 coming) and will include treatments and pills as soon as available.

This is an excerpt from Gene Inger's Daily Briefing, which typically includes one or two videos as well as more charts and analyses. You can subscribe for  more

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Mitch Reynolds 2 years ago Member's comment

Great read, thanks Gene.

Gene Inger 2 years ago Contributor's comment

Thanks for the kind words; when I grow up I'll get more concise :). Although not discussed in these excerpts our new pick of AEHR Test Systems went insane... we're in at 5-6 and it's near 14 in just 3 weeks. Yes we're holding. And our LPTH at 2 is looking interesting; SRNE is a laggard but of course could double on a dime if FDA approves the antigen test. (Hope that helps; welcome any of you guys & gals as actual subscribers.)