Tuesday Talk: Plenty Of Action To Go Around

There is plenty of action to go around and the Fed's August junket to Jackson Hole is a good two months away. Yesterday the markets moved in opposite directions with the Dow down and the Nasdaq up. The S&P 500 closed at 4,226, down 3.4 points, the Dow closed at 34,630, down 126 points and the Nasdaq Comp closed at 13,882, up 67 points. Currently, futures are wading in the shallow end with the S&P treading water at 4,235, the Dow at 34,635 and the Nasdaq 100 a little deeper at 13,880 up 75 points.

Jackson Hole Store Fronts, Wyoming


TalkMarkets contributor Ironman checks on the continuing upward spiral in home prices in his article Relative Affordability Of U.S. New Homes Continues Rapid Decline.

"Median new home sale prices continued rising faster than median household income in April 2021. We can see that trend in the latest update to our chart tracking the ratio of the trailing twelve-month averages of median new home sale prices to median household income. Through April 2021's preliminary estimates, we find the typical new home sold in the U.S. now costs 5.24 times the typical household income."

Here's the chart:

Stefan Gleason who is a metals investment professional is not surprisingly watching inflation signals like a hawk stalking  its prey. A few of his recent observations can be found in his article ‘Taper’ Talk Is Back: Will A Tantrum Follow?.

Among Gleason's jottings worth noting are these:

"Former New York Fed President William Dudley said the central bank will begin the process of tapering – winding down its monthly asset purchases – by year-end"...and (though agreeing with Fed sentiment that current inflation is transitory) "Dudley acknowledged the likelihood of inflation persisting above 2% longer-term."

"The latest Consumer Price Index report due out on Thursday could be a doozy. The CPI is likely to come in even hotter than last month’s 4.2% annual increase. The Fed may be forced by inflation realities to start tapering sooner than it (and Wall Street) would like."

"Investors who considering tapering their precious metals holdings ahead of potential Fed tightening may wish to reconsider. Although Fed-driven volatility in metals and other markets is possible, officials are in no position to take significant action on interest rates that would make U.S. fiat dollars a compelling alternative to sound money."

The team at Zacks Equity Research gives readers at quick look at what to expect from (GME) in GameStop To Post Q1 Earnings: What Awaits The Stock?.

"GameStop Corp. is likely to register top-line growth when it reports first-quarter fiscal 2021 numbers on Jun 9, after the closing bell. The Zacks Consensus Estimate for revenues is pegged at $1,170 million, which indicates an increase of 14.6% from the prior-year quarter’s reported figure."

"...during the first nine weeks of fiscal 2021, the company witnessed limited operations, primarily in Europe, due to pandemic-led government-mandated restrictions. Also, the company operated with a 13% decline in its store base, due to strategic store optimization efforts. Such headwinds are likely to have been a drag on first-quarter performance."

Read the full article for more details.

As some TalkMarkets readers will have observed, the Oil and Gas sector is an active participant in the post-pandemic recovery. TalkMarkets contributor Bill Kort in a short investor primer titled Green Energy Throws Fossil Fuel A Life Line takes a look at what that means for investors now and going forward. Here is some of what he has to say:

"Climate change is real. Some may debate the cause but, excepting a few Luddites, this has become a consensus...This fact is not lost upon oil-producing countries or the companies that find, produce, and market the ‘black gold.’"

"Why oil producer (s) be in a hurry to increase production when a 10% production cut equates to $30 or $40 per barrel more cash flow at a time when your most important source of revenue is under threat by the ‘green revolution?’ Maximizing cash flow and investing away from hydrocarbons would seem a rational course to take...The new mantra (for oil producers) might become "Produce Less, Maximize Cash Flow, Direct New Investment To Alternative Energy Enterprises."


"The longer it takes for the ‘green revolution’ to transpire the bigger the supply gap/demand and the greater the economic pain of higher oil prices. This could play out over many years because of reticence on the part of management and countries to invest heavily in new hydrocarbon sources.

As convoluted as it sounds, going green truly becomes a lifeline to fossil fuels. I think you want to own this sector. The caveat, I already do!"

Hand, Man, Cryptocurrency, Ripple, Watch


Is time running out for cryptocurrencies? In a Mises Institute article Price Discovery Is Alive And Well In Crypto, TalkMarkets contributor Doug French takes another stab at taking stock of the role of cryptassets in the macroeconomy. 

French notes that Matt Maley, chief market strategist for Miller Tabak + Co. believes that “If the market continues to see wild swings based on Elon Musk tweets, it’s going to be a big setback for this asset class.” That may be some of what we are seeing now. In his piece French also, reports on what Weston Nakamura, a key trader (in the crypto space and others) has to say about the topic. Here's a bit of that. 

“Bitcoin (BITCOMP) is not a US asset, just like oil is not a US asset, just like gold is not a US asset. Now, those are denominated in USD”. Sure, Americans think in US dollars, but “it's BTC/fiat, and it's not an American asset. People need to get that in their head. If you actually look at BTC/JPY (Japanese Yen), the levels make a hell of a lot more sense.” Investors are simply looking for ways to escape the US dollar and “What this crypto space does is it allows for 1 trillion or 2 trillion of that excess froth to be diverted away from stocks and from real estate and all that and to go into this very benign asset”.

Pretty interesting stuff. French concludes with the following:

"There will be a day when the Fed, the Treasury, and the SEC (Securities and Exchange Commission) will stick their long regulatory snouts into crypto. It may not mean the digital party is over, but the markets will lose the price discovery elasticity that currently works so well."

If you have even just a toe in crypto you should read this article.

High Angle Shot of Suburban Neighborhood


REITS (Real Estate Investment Trusts), in and out of fashion as investment vehicles for Jane and Joe investor are making a bit of a splash these days as the search for income yielding investments continues. Chuck Carnevale in a video called Are The Juicy Yields Of Mortgage REITs Worth The Risk? examines the current offerings in the market and assesses the risks.

"Investors seeking yield can easily be enticed by high-yielding instruments such as mortgage REITs (mREITs). With this video, I am going to cover the top 10 mortgage REITs by market cap and discuss whether their 7% to 9% yields are attractive or too risky. I will further reveal that although statistically, these mortgage REITs appear attractive and even attractively valued, but statistics alone do not tell the whole story. In the video I will go over Two Harbors Investment (TWO), Apollo Commercial Real Estate (ARI), Arbor Realty Trust (ABR), Chimera Investment Corp (CIM), Hannon Armstrong Sustainable (HASI), Blackstone Mortgage Trust (BXMT), New Residential Investment (NRZ), Starwood Property Trust (STWD), AGNC Investment Corp (AGNC), Annaly Capital Management (NLY)."

With all the different directions the markets seems to be heading it can be difficult to keep things in focus, but the fact remains that the economy is recovering and people are going back to work. Steven Hansen at Econintersect rounds out the column today with an analysis of a new Conference Board rebport about the rebound in employment in his piece May 2021 Conference Board Employment Index: Historically Rapid Job Growth Expected In The Coming Months.

"The Conference Board's Employment Trends Index - which forecasts employment for the next 6 months - increased with the authors saying, "In the past three months, the Employment Trends Index grew much faster than any other three-month period in the history of the index prior to the pandemic". 

Econintersect evaluates the year-over-year change of this index (which is different than the headline view) - as we do with our own employment index. The year-over-year index growth rate decelerated 5.7 % month-over-month and a positive 36.7 % year-over-year. The Econintersect employment index is now in positive territory but now declining and we are predicting slowing growth over the next 6 months.

The Conference Board index is predicting improving job growth 6 months from now. The bottom line is that I doubt you can forecast using traditional methods what employment will look like six months from today as we are living in a whole different world."

Slowing growth but not a decline in employment, Mr. Hansen.

Things are getting better and with the days getting warmer and nights getting longer I think we can all take time out to enjoy a cold beer, and the song "Stone Cold Daddy-O" by John Fritz seems the perfect laid back accompaniment.

Have a good week.

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William K. 2 years ago Member's comment

There is a caution required for understanding the carefully selected weael words from the federal reserve. "Transitory" means "not permanent", it does NOT mean short. Life is transitory as well, mostly not short, in addition. So that transitory inflation might be around for 50 years, and still be transitory. Thus we must be very cautious about exact meanings when weasels talk, and not presume that the meaning is clear.