Commodities - Especially Softs - On Major Breakout!
Keith Schneider | Nov 14, 2021 04:18AM ET
Are you ready for rising food prices and Thanksgiving? Ready for even more exorbitant building supplies and a higher cost of building and maintaining a house? Ready for even more increased costs of travel and entertainment? Ready for even slower service at your local restaurant as they grapple with fewer people working? Ready to wait even longer for that new or used car you are trying to lease or purchase? Ready for much higher gasoline prices and out of sight heating bills?
Are you seeing that stocks are trading at nosebleed valuations bringing back memories of 1999-2000 while the Fed continues to pump?
Unfortunately, these are all the inevitable outcomes of a post-COVID world and less people in the job force, a shortage of semiconductors for cars and a stock market that keeps going up no matter what the inflation numbers are clearly showing.
My business associate Donn had some work done at his home in Ohio this past month. When he received the invoice, the labor cost was 1/3 the material cost for replacing some siding on his house. This reality has not occurred since the late 70's.
Here in Santa Fe, we are hosting our Thanksgiving gathering with many of our nearest and dearest coming to our house to enjoy the holiday. We were informed this past week that the cost of the turkey will be around 16% higher than last year at this time (which looks cheap compared to stuffing and cornbread whose main ingredients are corn and wheat).
We at MarketGauge continue to believe (as Mish repeatedly says on TV) that given the speed of rising prices in commodities, goods and services, and corporations' ability to pass on their higher costs to consumers, the Fed should be countering this inflation by raising interest rates.
Higher interest rates would dampen price increases and potentially slow down the economy. However, the Fed is fearful of it negatively affecting the job market and tanking the stock market. They mentioned that they will begin to taper $15 billion a month, in bond purchases.
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Is this enough? Probably not!
Jim Grant, publisher of the Interest Rate Observer, in a recent interview, said it best:
"The Fed reminds me of a speculator who is on the wrong side of the market.”
The fact that the Federal Reserve is now beginning to taper its bond purchases makes little difference in Grant’s view. Grant admitted that his timing has been off in his predictions of a reckoning for several years. He also admitted that his timing of the stock market has been off as he’s been predicting a reckoning for several years,
Our message is to take advantage of the rally in stocks, but be prepared to exit on a moments notice. The traditional 60/40 portfolio might still hold if you replace bonds with the other B …. Bitcoin.
h2 The Week's Market Highlights/h2Risk On/ Bullish
- Despite the selloff this week in the indices, volume patterns improved across the key US equity benchmarks and held their 10 DMAs
- Volume analysis shows that there were no distribution days for iShares Russell 2000 ETF (NYSE:IWM) over the past 2 weeks putting the Grandpa Russell in the spotlight for further strength
- Interest Rates spiked lower to start the week and got overbought short term before mean-reverting but hanging onto a bullish phase
- VanEck Semiconductor ETF (NASDAQ:SMH) and SPDR® S&P Homebuilders ETF (NYSE:XHB) were both up on the week, two positive risk-on indications
- Invesco DB Agriculture Fund (NYSE:DBA) (Soft Commodities) Gold Miners (NYSE:GDX), Silver via iShares Silver Trust (NYSE:SLV), and Invesco WilderHill Clean Energy ETF (NYSE:PBW) led the week, a clear sign of inflationary pressures which could be a positive for stocks short-term and extremely negative long-term
- In Mish's Modern Family, SPDR® S&P Retail ETF (NYSE:XRT) closed very strongly on the week, outperforming the SPDR® S&P 500 (NYSE:SPY) on both a short and longer-term basis on good volume
- The dollar ripped higher across the board hitting the highest levels in more than a year which is mostly a positive for US stocks considering current conditions
Risk Off /Bearish
- Sector rotation shows some risk-off type behavior, with Consumer Discretionary Select Sector SPDR® Fund (NYSE:XLY) being the biggest loser on the week - 3.5%
- Gold (NYSE:GLD) and Gold Miners via VanEck Gold Miners ETF (NYSE:GDX), were both strong on the week breaking out of multi month bases
Neutral Metrics Or Just Noteworthy Developments
- Risk Gauges remain neutral but deteriorated slightly as Gold rallied while stocks retreated
- Stocks were down marginally on the week, -.5% after a nice bounce to close the week on Friday
- Market internals moved down from neutral to negative readings because of this week's selloff
- Long Term Interest Rates spiked lower and got overbought early this week before mean-reverting
- Transportation (IYT) needs to be watched carefully, it is either on the cusp of a major breakout or potentially looking at a double-top pattern
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