[ Please note that there is a section at the end which is meant solely for clients]
BUYERS STEPPING UP
Green Shoot #1 - Wednesday’s report of 9.1% year-over-year increase in the Consumer Price Index and 5.9% increase in Core CPI (which excludes food and energy) initially rattled the markets as calls for a 1% interest rate hike and recession were abundant. Then we saw buyers step in, gobbling up battered down stocks and the stock indexes closed well above opening levels.
Green Shoot #2 - Thursday’s report of wholesale Producer Prices (PPI) shooting up 11.3% year-over-year in June sent more recession and interest rate worries throughout the markets. However, both PPI and PPI excluding food and energy (6.4%) decelerated from May levels. Also jobless claims of 244,000 were the highest since November 2021. Once again, equity markets took a hit at the open and we saw buyers step in as the stock indexes closed well above opening levels.
This indicates to me that the sellers are running out of ammunition and buyers are putting their cash to work. I would consider this confirmation that a bottoming process is entering a new and constructive phase. All three major indexes are several percent above their recent lows, further proof of a bottoming process that is taking place.
THE CONTRARIONS ARE GARNERING ATTENTION
Green Shoot #3 - Doug Kass, a hedge fund manager, perma-bear, and friend of mine (we worked together at The Street.com for over a decade) is now bullish on a macro basis. He does not turn bullish often, but when he does, its worth listening to. You might not recall, but Doug called a “generational low” for the stock market in 2009. This week he made a bullish call which is worth reading and paying attention to.
Green Shoot #4 - The double negative contrarian calls are also worth paying attention to. What are these types of calls? Wall Street sell-side analysts who have been bullish all the way down are now flipping over to a bearish opinion. They are playing a cover-you-butt game. Now after the markets are lower by 20% or more, they are throwing in the towel and become bearish. No value added here, except that its another sign of a bottom.
INTERNAL ECONOMIC INCONSISTENCIES
Green Shoot #5 - A few months ago, shelves were empty at Walmart (WMT), Costco (COST), Best Buy (BBY), Target (TGT) and Home Depot (HD). This resulted in fear that Inflation expectations would continue to rise. OK, that makes sense. Now, those retailers are swimming in inventory and are cutting prices quickly as more inventory is in the pipeline. Gasoline prices have edged lower from record levels.
Despite all that, expectations for further escalation in inflation continues. These expectations in turn are fanning the flames of the FOMC to such an extent that there are abundant calls for a 1.00% interest rate hike at the next meeting. Doing so in my opinion would be a tragic mistake. I am also now hearing that some Fed watchers are taking a less hawkish stand and expect 50 to 75 basis points in tightening. Talk about internal inconsistencies.
Unless labor demands higher wages (see the Green Shoot #6) then we might have top ticked inflation. Don’t get me wrong, I do not have much confidence in the White House’s economic team. I just see an inventory correction from shortage to normality as a self-correcting phenomenon that will not need any fiscal or monetary interference. By the end of the summer I believe that inflation will be below 6% absent any more drunken sailor spending in Washington.
Green Shoot #6 - Americans quit their jobs at a record pace of 4.5 million in March while job openings of 11.5 million, also a record, were available at the same time. Through May, about 20 million Americans quit their jobs year to date. Unless these people are secret millionaires, they don’t have bargaining power over wages. They also don’t have money to throw around to chase prices higher. I don’t see companies having that much of excess employees on the books that would produce meaningful recessionary job losses. Rather, eventually those 20 million quitters will start to look at the 11.5 million of available jobs.
Yes, the economy is not in great condition and perhaps in some geographic locations we are teetering on a mild recession. I expect inflation to back off a little, such that the Federal Reserve will be less aggressive with their tightening plan. On the energy front, we must source more oil and gas domestically and less from abroad. As I mentioned, I do not have much confidence in the White House's economic team. I do expect a high-level firing/resignation in that economic team to take place which will be greeted warmly by Wall Street and spark a 5% rally for the Standard & Poor’s 500 Index (SPX). Who are the candidates for getting the axe? Pete Buttigieg, Secretary of Transportation; Janet Yellen, Treasury Secretary; Alejandro Mayorkas, Secretary of Homeland Security; and/or, Jennifer Granholm, Secretary of Energy.
AN IMPORTANT MESSAGE TO CLIENTS
As some of you may know, TD Ameritrade was acquired by Charles Schwab back in 2020. Both organizations have been hard at work in the background these past couple of years to devise a plan for advisors and their clients to make the transition and integration as smooth as possible. While we do not have an exact date, Schwab has already begun to reach out to TD Ameritrade’s advisor professionals, and we expect the process to begin in the next few weeks.
There are a few things we ask that you, our clients do to help ensure your account transition goes smoothly.
First, please make sure that you have access to your TD Ameritrade account at advisorclient.com. Once you have that, please set all your records (statements, etc.) to digital format (not paper).
Next, please make sure you have access to atlas.bridgeft.com where you can review your invoices and performance reporting. You should have received third-quarter invoices last week. Please note that Bridge was only able to source information for client accounts beginning in 2012, so longer relationship clients will have incomplete performance data.
If you are having any difficulty accessing any of the above logins, please reach out to Carly at firstname.lastname@example.org, she will be happy to assist you with whatever you may need, technology-wise.
As always, feel free to reach out to me with any of your questions or concerns.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC was long SPY, SSO and SPXL- although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, (LVAM) an investment advisor representative, specializing in high net worth private wealth management. LVAM is affiliated with Kingswood Wealth Advisors Services, a registered investment advisor. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right-hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
© 2022 LakeView Asset Management, LLC. All rights reserved.