I won’t belabor the Chairman’s reflection of potential impacts on inflation or for risks; while I do note he referred to ‘consumer spending as resilient’. Alright at the same time it doesn’t feel that way when looking at larger spending trends, aside the superficial overview. Powell realizes the impact on most Americans.Last week’s data was slightly ‘more’ inflationary, and I was glad that CNBC did ask Chairman Powerll ‘why’ that didn’t temper their zeal for the 50 BP cut. His comment of making decisions ‘meeting by meeting’ sort of sidestepped all that as he ‘thinks’ prices will get to a place that is more appropriate (means lower).
As to the ‘inflation trend’, I believed (grains and Oil) Powell was comfortable at this point to cut rates, which follows trends that have been in-place elsewhere.I am worried about geopolitical issues more so; to wit expansion of war as the counterattack to Hezbollah, which has been attacking Northern Israel for quite some time. Very clever intelligence and engineering by the Mossad, with the ‘beepers’ sold to the terrorists made in Hungary, under a Chinese license; so the terrorists were not smart enough to ponder where they were made. Now it is being learned that cell phones and two way radios of Hezbollah are also in the process of being exploded; really smart ahead of wider war risk and so important to minimize Israeli casualties and maximize confusion in Hezbollah (perhaps they’ll resort to carrier pigeons or donkeys for communications). Do expect more protests by Tehran. Their ‘slightly injured Ambassador’ was more seriously hurt than reported: he lost an eye in the beeper attack.A footnote: the FBI today said they ‘thwarted’ a huge recent cyberattack ‘from thousands of Chinese-made devices’. The targets, in the United States, were not identified. They said it was huge; and didn’t comment about a relationship with the Huawei routers and so on, which were prohibited several years ago.
Market X-ray: Fed cutting cycle finally begins; and maybe markets can get a bit more interesting going forward. This is ‘not’ a ‘pre-emtive’ monetary policy shift by the Fed however, as the real world has reflected this for some months as I’ve noted with mortgages primarily.S&P action was very much as anticipated; spike higher; selling squall; then a bit of comeback. Widening rate-spreads are not a favorable sign; so it is worth keeping that in mind (sort rates vs. long rates). (Long rates already fell; so we are not as optimistic about long rates falling ‘much’; while short rates should a bit more ‘relatively speaking’.)The only ‘confusing’ aspect was Chairman Powell saying ‘we’re not in a rush’ to get anywhere.. and some will interpret that as why the ensuing selling wave that we looked for regardless. Powell said the word ‘re-calibrate’ nine times in regards to their policy change; taking place over time. I figured he’d temper all the worries about a 50 basis point cut; to assuage fears of trouble economics. It’s just profit-taking and the reactive spike, then temporary sell-off looked for.The accumulation of Fed member viewpoints can change; so we don’t draw a lot more than already noted about this Fed and it’s policies. For months I have noted the ‘mortgage rates’ coming down for a year now; and so that’s tells you a lot about where rates where going, and the ‘lag’ on the part of the Fed with a rate cut; so you could argue the 50 basis points is the Fed catching down with the real-world of mortgages or other longer-term financing(s).ALL the FOMC members did note expectations for more cuts even this year; and that matters, as even the lone dissenter agreed rates will trend still lower. After the S&P swings are digested, it could start getting interesting with small caps.. maybe not yet, but ponder it. Although nothing held in the spike rally in the wake of the rate-cut, small-cap stocks like Soundhound, should benefit from a rate cut. Small caps, often reliant on external financing (though SOUN is pretty self-reliant at this point), stand to benefit from lower rates compared to large-caps, which typically fund operations through operating cash flow.
So there we are; a faster ‘cadence’ of the Fed to not get (further) behind as I see their ‘excessive’ patience in cutting rates, well after some other nations. I am not impressed with Powell saying he doesn’t see it as a new pace; since it is already reflected in real world scenarios. They likely won’t dare otherwise.Powell spoke of ‘slower job creation’ (ah ha… we’ve pointed out the part-time workers and multiple jobs aspect they all ignored a couple months back); and nevertheless a pace of economic growth; but said it bears watching; so sure. I also note he pointed to a lack of risking ‘claims’ from big companies.Oh… in small speculations; you may recall Intuitive Machines (LUNR), which we made some money on with the Moon launch; and because despite tipping over on the lunar surface, we thought it wise to keep some (house money) for the future. That future arrived today with a NASA Award for LUNR to build at least a series of near-earth orbit satellites, which differs from the moon project of course. We hadn’t followed it closely lately; but simply hold the remaining small amount of shares after the previous run and profit-taking.
Bottom-line: a model or empiracly-based approach to rates suggests that the Fed will continue to remove restrictions, as they’re guided lower. Given what is so far our ‘softish’ landing, we don’t assume a recession many others see. I would note most that do have fought the S&P upside consistently up to now.And the profit-taking wave is very much in the scope of what we anticipated all week, so I can’t embrace those who see anything particularly confusing.
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Market Briefing For Thursday, Sept 19
