Monetary policy around the world is too loose
This commentary was posted recently by fund managers, research firms, and market newsletter writers and was edited by Barron’s.
June 24: Is monetary policy backtracking in this highly unusual cycle? Markets only took a fleeting blow from the Fed’s slight pullback from uber-dovishness last week, as the big picture is that almost all central banks still have easy 11 policies. The Bank of Mexico’s shock rate hike this week is an exception that proves the rule. The fact that 10-year Treasury yields are stuck at 1.5%, even as core inflation surpasses 3%, and stocks are testing all-time highs again is a testament to the Fed’s lack of fear among market players. And, while President Powell expressed his concern about the persistence of inflation during this week’s testimony, his main message is that we still have a long way to go in the recovery, especially on the front lines. employment.
But the openness question is whether monetary policy is the appropriate vehicle to bring us to the destination of full employment. As widely covered here and elsewhere, 9 million job postings in the United States do not suggest that there is a demand problem. It is becoming increasingly evident that supply problems are a constraint to growth, whether it be hesitant workers, bottlenecks, shortages or arrears. Yet the policy is still set at maximum demand support, with fiscal policy now ready to add another step, via an infrastructure deal. The cautiously retreating central banks – Norway, Mexico and even Canada – are the few who seem to openly recognize this new reality.
A Deep Dive Into VIX Futures
The McClellan Market Report
McClellan Financial Publications
June 24: Anyone Can Watch the VIX [
volatility index] for stock market sentiment indications. These are beginner tips, although still quite good. The real fun is digging deep into the data that no one else is looking at for fun information.
This week [we’ll look at] the total open interest in VIX futures. VIX futures were first traded in 2004, but were not really used as a trading vehicle until around 2012. Normally, total open interest fluctuates with stock prices. It becomes interesting when open interest goes too far one way or the other, or when behavior changes.
In 2021, we are witnessing a change in behavior. Total open interest has declined from the February peak and has now fallen to the 200-day moving average, although prices continue to rise. It is the change in behavior that is so important to note. Since VIX futures began trading in 2004, significant price peaks for the S&P 500 have appeared when VIX’s open interest was well above its 200 day MA. I should clarify further that just being well above the 200 day MA is not enough to peak. Prices may continue to increase despite such a condition.
On the contrary, having a VIX open interest below the 200 day MA is helpful in ruling out the possibility that prices are now at a major high. This is a missing trim condition. So we have some assurance that there should be a lot more [room] so that the prices are higher. When we see hedge funds get excited again to trade VIX futures and open interest rates well above the 200-day MA, we can worry about a significant high for stock prices.
Housing availability crisis
June 22: Total sales of existing homes fell at an annualized rate of 5.80 million units in May from April’s sales rate of 5.85 million units, slightly better than the pace of 5.73 million units that we and the consensus expected. While the May sales figure may have been a little better than expected, the actual May sales figure is much worse than it implies.
As our regular readers know, when it comes to construction and residential sales data, we have no use for seasonally adjusted annualized main figures let alone any attempt at analysis based on those figures, focusing on only on non-seasonally adjusted data. Unadjusted data shows there were 528,000 existing homes sold in May, well below our forecast of 561,000 sales. While this is up from the 513,000 sales in April, the 2.9% increase is much smaller than the typical increase in May.
As has been the case for years, not months, reduced inventory once again held back sales in May. Existing home listings hit 1.23 million units in May, slightly more than our forecast of 1.22 million units, but that left listings down 20.7% year-over-year nonetheless. on the other. The median selling price of existing homes hit $ 350,300, the highest on record and an increase of 23.6% year-on-year, although the median selling price is skewed by the combination of increasingly weighted sales towards the higher price ranges given the shortage of inventory in the lower price ranges. While we seek some relief on the supply front in the second half of 2021 to help slow the pace of house price appreciation, affordability will remain an issue, especially for potential buyers. for the first time.
—Richard F. Moody
June 21: There is at least one potentially very disruptive emerging technology: quantum computing. At some point, advanced semiconductors (the smallest and the best) will hit a physical limit: chips can’t get much smaller.
Computers using quantum physics instead of traditional solid-state architectures have much higher performance and processing power than conventional computers.
While it probably won’t become mainstream for at least five years, quantum computing has the potential to transform everything from technology to healthcare.
Cruelest month for stocks
Texas Capital Bank
June 21: Remember that June is one of the worst months of the year for stock performance. Someone must be in the last place. Friday [June 18] the day of the triple witch put the exclamation mark on the stock market performance of the month. The portfolio’s positioning at the end of the quarter and the expiration of options caused most stocks to drop by one or two percent. All three Dow indices are in the red for June, with recovery-oriented Transports being the worst off, -7% at Friday’s close. A quarter of the S&P 500 is made up of growth-oriented tech stocks, and the sector helped the big index stay above water for the month.
The tremor at the end of June may persist. Most very short term index charts are trending down, but all remain in their consolidation zones that go back to mid-April. Year 2 of a bull cycle should see some bumps along the way. Stocks are less than 4% below historic highs and earnings expectations are improving. Any summer correction should be a buying opportunity.
—Steve Orr, Greg Kalb
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