Subscribe to receive this FREE daily commentary directly in your email
[widget id=”text-22″]
[widget id=”text-23″]
The Fed and The Market Are Playing A Giant Game Of Chicken!
MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN SHARES OF NFLX, TSLA, AND DIS
[widget id=”text-19″]
I’m a little bit confused by this latest move by the Fed, of forecasting two more rate hikes this year. It seems bizarre in my opinion, and I am completely shocked by that.
10-year rates hardly budge on the day, basically finishing the day at 2.97 percent, but the two-year did end higher at 2.57 percent. It shrinks the spread between the 10 and 2’s to just 40 bps.
It would seem to me that it is a game of chicken being played right now, by the Fed and the market. With the Fed raising the front end of the curve, and the market saying I don’t think so on the long-end of the curve. The markets long-term view on inflation is that it inflation will remain in check, based on the 10-year rate. Surprisingly, from what I heard in the press conference, the Fed isn’t looking for any surprises either. So why are they choosing to be so aggressive? I’m not entirely sure. I can’t understand it.
[widget id=”text-28″]
Inflation
Look at the PPI, which was just over 3 percent today. But look at it as it relates to oil.
As I have said before Oil is going lower, probably to about $60, in the short-term, and that means those inflation rates will come down not, up. Remember who called oil’s rise to $75 in December, yeah me. Maybe even go back to mid-50’s.
Long-end of Curve
Part of the reason why the long-end of the curve will not rise is that foreign buyers are merely buying our bonds. Look at the spread between US and German 10 year government bonds. I have shown this before, and as long as the spread stays this wide, the long-end of the curve will not rise. Perhaps something changes at the ECB’s meeting.
This may just be merely a game of chicken, and who will blink first, the Fed or the market.
Dollar
The dollar did not react. But if the Fed is going to maintain an aggressive monetary policy and the foreign buyers are going to continue to flood the bond market, the dollar will have but one direction to go but up, and that too is bad for Oil, and inflation.
[widget id=”text-22″]
Banks
But those banks stock keep looking worse and worse, and I hear people talking on tv about how they have positioned themselves in the banks, or they say the banks are going higher. I’m just thinking to myself, what are you talking about! Are you looking at what I’m looking at? Clearly Not! The XLF got right to resistance today, following the Fed, and then sold right back off.
Who knows maybe I’m entirely wrong, but if the cost to borrow for the banks continues to rise, i.e., deposit rates, and the rate at which they make loans do not increase, how is that good? Unless you are under the assumption, the long-end of the curve will rise, and I think at this point you can not make that assumption.
The chart for XLF keeps looking worse and worse. If this is a game of chicken, then the one place you do not want to be is the banks, because that spread is going to keep getting smaller and these banks are going to squash.
Unlock Deeper Insights with Exclusive Member-Only Video Content on The Market Chronicles YouTube Channel – Just $34.99/Month
[widget id=”wordads_sidebar_widget-41″]
S&P 500
We got to 2791 in the S&P 500, and all I can say is wow, I nailed this one, calling the breakout in the middle of May, and I called it right. I called to rise to 2,800, and if you want to argue over 9 S&P points, go right ahead, but nobody was calling 2,800 on May 6. No one!Â
Where do we go from here? Good question. I will let you know soon.
Around The Horn
Tesla
I’ll tell you Elon Musk has no fear; he stepped right up buying 73,000 shares of Tesla, on June 12 and 13, he was even buying them cheap! No, he was buying them when the stock was up huge!.
But the stock did stall at resistance $346 today, and going back to $333 seems possible over the next day or two.
Netflix
Netflix today shot up to about $380 after Goldman put a $490 price target on the stock! I thought I was being overly aggressive when I said I thought it might go to $390. Well, here we are just 10 points away.
Disney/Comcast/Fox
Part of me is really hoping Comcast gets Fox, and Disney just walks away. Disney does not need to bolster its content and spending all of that money just to get a controlling interest in Hulu seems like a waste. After seeing the way the market “reward” AT&T for its acquisition of Time Warner, Disney may be better off. BTW Comcast stock is down over 20 percent over the past year.
I think if anything it shows how desperate Comcast really is to get out of the cable business and into the content business. Because as I have said over and over again, there will be no need for cable in 3 to 4 years or even broadband internet connection. The speeds of 5G will do away with all of that, and instead, you will have a wireless provider, and that makes Comcast basically useless to the consumer.
You may very well have an Apple iTV on the wall in the not to distance future too, but with a wireless connection to your 5G provider, instead of cable ports and HDMI cables.
Still sick, and getting grouchy, off to bed soon!
Until Tomorrow.
-Mike
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future.Â
Subscribe to receive this FREE daily commentary directly in your email
Charts used with the permission of Bloomberg Finance L.P. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
Comments are closed.