[Market Madness] Edition 0065
Inflate this
A mixed bag
Well folks, first things first. I got my Master of Science in Finance diploma in the mail late yesterday afternoon from Bentley University. It is always much better to actually have it in my hands than just say I completed the program. A big ‘thank you’ to all my support systems for helping me in this journey and preparing me for the road ahead. As I continue to search the job market for the right opportunity, I’m optimistic I will find something just right. Okay, back to the finance.
Its been an interesting trading day so far. The indices have bounced between green and red all day, juggling COVID 19 news with economic recovery optimism, but to little avail. Dr. Fauci returns from his spotlight absence to continue warning that the fight against COVID 19 in the U.S. is far from over. Worries have risen over spikes in some states that had reopened early, particularly in Texas and Florida. Elsewhere, the SEC told Hertz that it is uncomfy with their plan to issue stock during its bankruptcy proceedings. Apple has hit an all-time high stock price, with some analysts raising their price targets to the mid $400s. By the close,the Dow Jones and S&P moved deeper into the red, and the NASDAQ maintained its positive status on the day.
Did you miss yesterdays’s piece? No worries! Get it right here and catch up on the madness.
Fundamentals
Wednesday Close:
Dow Jones Industrial Avg: -0.65%
S&P 500: -0.36%
NASDAQ: +0.15%
US 10 YR: 0.736%
Crude OIL: $37.69
Market Madness Portfolio: +0.00%
COVID 19 Global Cases: 8,346,709
Indices Overseas:
FTSE 100: +0.36%
Nikkei 225: -0.56%
Hang Seng: +2.39%
TEDRATE: 0.12
LIBOR (3 month): 0.30788%
Peekaboo inflation
One of the most dreaded terms and outcomes in finance and economics is inflation. There are absolute horror stories of countries with runaway inflation and the challenges that followed (see Zimbabwe, Venezuela, Germany during the early 1920s, etc.). We have chatted here several times now about the fears of potential inflation spikes following the onslaught of federal stimulus and spending that has taken shape to combat the coronavirus. The conversation comes at an interesting time where we’ve not seen high inflation in the U.S. for a long time. Part of the Federal Reserve’s ‘dual mandate’ is price stability, which presents itself in the form of monitoring and targeting inflation to be around 2%. For some time now, we’ve consistently been below 2%.
Inflation is important because it helps dictate consumer’s buying power of their money. What can be confusing is that the denomination on the paper money bills do not change, but relative prices of goods and services do. When prices change, your ability to purchase goods also changes, either for the better or the worse. The Consumer Price Index (CPI) and Core CPI (which excludes volatile food and energy prices) are some of the most common measures of inflation here in the U.S.. They track the prices over time of a collection of goods, a ‘basket,’ to help measure the rate of inflation.
Don’t worry, it is not all bad however! Some inflation, particularly the Fed’s 2% target, is actually beneficial to the economy in the short-term. The fear of inflation confronts consumers with the choice to spend or save their money. Instead of stuffing cash in your mattress and watching it erode value over time, because or rising prices, consumer will either spend their money now on goods and services they want, or they will choose to invest in financial investment vehicles that will provide them with the change to gain a return over and above inflation. The real problems begin once inflation begins to creep above a central bank’s target and, even worse, runs away on the bank.
What is the principle concern for investors and market experts currently is calculating the probability that we will see inflation above what is expected in the coming years. The government here in the U.S. has gotten themselves into an interesting, albeit a similar problem in the wake of massive stimulus. An interesting take from an inflation expert suggests this:
“Inflation will come because politicians can no longer credibly claim they don’t have the money to spend after hosing down the economy with cash for the past three months.” (excerpted from article)
He also suggests that we might see a period of deflation (price declines) in the next two or so years before seeing this aforementioned inflation. Regardless, he does raise an interesting point about the government spending. With the budget deficit widening past the grand canyon, American’s cannot help but ask why they aren’t just printing more and more money if they did it to help combat COVID 19. What is less commonly understood is the dangerous combination of consumers holding cash and the government printing money. More and more money is printed, but more money is being horded and not reinvested into the economy. This combination almost certainly will lend itself to inflation.
Current inflation options (which are used to track the chance of inflationary situations in the future) are not predicting any extraordinarily large inflation within the next five years which is interesting unto itself. I’m not an inflation expert, so I’ll let the experts do the talking. I’m definitely not rooting for inflation, because if we got hit with unexpectedly large inflation shock, then we’d be in another world of hurt.
Quick Takes
Moderna CEO suggesting ‘high probability’ of success with current COVID 19 vaccine development. (via CNBC)
Dr. Fauci returns to the spotlight, suggesting more needs to be done to curtail the spread of COVID 19 in the wake of upticks. (via FT)
OPEC Monthly Oil Market Report leaves 2020 demand projection unchanged. Current projection remains down 9.1 million barrels/day. (via ATOM+)*
Beijing cancels flights in their continued effort to curb resurgence of COVID 19. (via Reuters)
German COVID 19 contact tracing app downloaded over 6.5 million times. (via ATOM+, headline only)*
Apple announces App Store ecosystem generated $519 billion in billings and sales during the 2019 calendar year. (via Apple)
Mortgage demand by home buyers reaches 11 year spike in the wake of even lower rates. (via CNBC)
The Fed is looking to move away from ETF purchases and into purchasing corporate bonds directly. (via CNBC)
*ATOM+ provides account holders with a feed of news articles and headlines across all major business reporting sites as well as government committee meeting notes, economic data releases, links to analyst reports and recommendations and company press reports. ATOM staff also produces internally written market commentaries three times per day.
Reader’s Corner
The reader found a heartbreaking article about a young investor’s suicide after seeing insurmountable negative cash balance in his account. The story is a tragedy and underscores the risks involved in novice investing, particularly in options trading. My heart goes out to this young man’s family and loved ones during this incredibly difficult time.
Behind the Madness
Thank you again for checking in.
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