Hump Day Follies
Walk humble and carry a big stick!
In the thick of the evening when the dealing got rough,
She was too pat to open and too cool to bluff.
As I picked up my matches and was closing the door,
I had one of those flashes I'd been there before, been there before.
Good morning and welcome to the scorning. Yesterday's melt was a furry bear pelt that busted the bulls and the hand they were dealt. The rhyme to the reason was an interest rate treason that seemingly sparked a new worry season. "Inflation abounds" was making the rounds and ticks were then juggled between the stock clowns. Is it really that simple (this pop to the pimple) or will Hoofy soon smile and show off that dimple? The hump has arrived in the home of the clan so let's now dive into the flames that we fan!
We often discuss the psychology metric and its importance rarely has been as readily apparent as it was yesterday. Sir Elmer stepped up and again spewed his pooh only to find a room full of Boos. His message was intended to be constructive and upbeat--he was (shockingly) "confident" on the US economy, offered that "some banks may benefit from higher rates" and inflation, according to him, is "reasonably contained." Dollars to Krispy Kremes, if the Minx marched forward, those headlines would be painting the morning press.
While we were 'assured' that "Greenspan did not address monetary policy in his prepared text," Hoofy's heroes tumbled one by one into a trap door and the extrapolation explanation began in earnest. I know that from my perch, and despite being pretty grizzly on the dark financial corner we've painted ourselves into, I initially missed the subtle reference to higher rates (or, perhaps more likely, figured that folks already knew what was on the docket). Blink and ya missed it, the meltage jack hammered the Minx through once staunch support.
We've now entered a period where some would argue that the prospect of higher rates are baked into the financial cake. The bulls--and there are many--are quick to offer that rates, on an absolute basis, are draggin' along at 40 year lows. Further, they'll (correctly) point out that the historic reaction to the first rate hike, if and when, is higher equities prices. True dat, Hoofmo, but it's also important to remember why we are where we are and what it took to get us here. I mean, jeez, when Phoebe and Zoë start askin' me about the carry trade, it makes you stop to think.
Overnight earnings were better across the board (Motorola (MOT:NYSE) and my IM's lit up like a Christmas tree as they hit the tape. That may or may not impact today's trading (in the midst of the soap box derby) but I wanna offer a few quick insights. While reports that have been, by most accounts, "robust" vs. relative expectations, we must remind ourselves that stocks are leading indicators and a discounting mechanism. Indeed, many of these very same companies were equally (if not more) forlorn during last year's low. Further, and this is potentially more impactful, equities as a whole are being traded, to a degree, as a monolithic asset class in the global game of musical assets. So while we wade through the intramarket rotations, be cognizant of the inter-market influences.
We power up this morning to find Europe a percent lower, the dollar firm (DXY poking the 200-day), metals heavy (silver down 6%) and the stateside futes green (but below fair value). Typically, after an outsized move, the Minx likes to probe the prevalent direction and an early test of S&P 1110 wouldn't shock the shnitz outa me. Taking a step back, there's plenty of technical Tuttle that suggests further caution is warranted but you and I both know that Elmer will soon have a bone to pick with with the bears. Deja Boo!
Good luck today.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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