Make me proud!
"May I have your attention please? Mr. Hunter has brought it to my attention that morale may be a bit low. That you may be a bit...on edge. So I suggest this...any crew member who feels he can't handle the situation can leave the ship right now! Gentleman, we're at DEFCON three, war is imminent. This is the captain. That is all."
--Capt. Frank Ramsey, USS Alabama
Good morning and welcome back to the front lines. Elmer is set to hike up the hill and deliver a punch that is likely to thrill. While another rate nudge is all but guaranteed, the storm clouds on the horizon seem to be crystallizing on our collective radar. No, we're not talking about Rita-although she surely isn't helping the situation-we're talking about the economic conundrum that these hurricanes have brought to bear. To hike or not to hike? That, my friends, is a rather loaded question.
Input inflation, as measured by the CRB (but defused by the BLS), has been squeezing companies and consumers for quite some time. Anyone who drives a car, has a kid in college or is enrolled in a family health plan can attest to the cost side of the equation. At the same time, as we edge through a debt-dependent recovery, pricing power in commoditized arenas is crunching margins in corporate America. And while the mainstay market averages flirt with fresh acne, the simple truth is that business, across a spectrum of industries, is getting tougher and tougher.
A wise man once said that we can pick the market direction or game the timing of a move but we'll rarely nail both. That's an apt observation as we digest a bevy of crosscurrents and cast an eye towards quarter-end. A confluence of energy supply constraints, 18-year highs in gold, performance anxiety, looming (but not yet communicated) pre-announcements, monster technical levels, crowded conditions and a jittery geopolitical landscape is shaping the tape and making life difficult for professional prognosticators.
I've shared a few good thoughts through the years and had my fair share of mistakes as well. I know better than to know anything, for sure, but have tried to spy emerging trends before they splash the front pages of tomorrow's financial press. One such vibe was the emergence of energy and metals as the new market chieftains, a leadership shift that I've subscribed to for a few years. But as these sectors become increasingly obvious to the mainstream masses, the path of maximum frustration has the tendency to shift and shake. I'm still a long-term subscriber to both groups (and believe energy will one day be the top dog in the S&P) but the easy trade, as they say, may have passed.
So, what now for the minxy moxie? I offered yesterday that 25 bips and hawkish (measured) language was likely as Elmer wants to maintain a vigilant legacy. Given the looming resistance in the S&P (1250) and BKX (100), coupled with the perceived downtick in the fundamental arena, my sense is that the path of least resistance is lower. The wild card, of course, is quarter-end agendas and the perception that the hurricane rebuilding effort will buoy the economy (something that I believe is flawed thinking but must respect as a function of perception). And, of course, the message from the corporate bond market remains the same and that's been a steady signal through the years.
I'll be eyeing our tells (breadth, levels, financials, semis) as broad market guides while watching for rotations (pumping winners, purging losers) and performance anxiety vehicles (Google, Apple). And, of course, we all know that FOMC days are a tale of two tapes so be on the lookout for bipolar behavior on either side of 2:15. It's not easy, Minyans, but it's not impossible either. Discipline over conviction, positive thinking and proactive patience will go a long way in taking us to where we wanna be.
Good luck today.
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