Weekly Economic and Stock Market Commentary: December 13, 2021
As for the stock market specifically:
The bulls came roaring back this week, and I am unsure if I mixed animal metaphors with that line. In fact, the Standard and Poor’s 500 had the largest 2-day and 3-day gains in history. The cherry on top was the S & P 500 ended the week at a record closing level.
The supposed reason is that markets have figured out what multiple governments and government health officials have not.
The omicron mutation of the coronavirus does not cause severe ill effects. Please remember that my knowledge here is limited, so make sure you get better information from better sources.
This week is the quarterly quadruple witching event. We often see more volatility than usual during these weeks. Normally it is in the direction of the bullish percent indicators, but this week (more later) they point in opposite directions.
Once again we’re looking for Harry Truman’s one-handed economist.
We had inflation news last week. I will discuss that more in the economic news section later.
During inflationary times it is my opinion that you want to own “stuff” – companies, real estate, hard assets. The world benefited those who own stuff this year. Those who lend are having difficulty, and very likely going backward after the impact of inflation. Of course, the opposite
is also true, those who borrow will be paying back debt with inflated dollars. Interestingly, I haven’t seen a significant movement of precious metals, yet.
The Dow Jones Industrial Average and Nasdaq Composite numbers have not recovered as well as the S & P. Once again, it goes back to how these measures are weighted. The S & P 500 has more weighting in the “not so mega-cap” stocks that sway the other indices.
Overall, to use my favorite metaphor for the market, a spring, the spring is neutral now, neither compressed nor stretched.
The risk assessing tools had a good week. The NYSE Bullish Percent indicator went back of offense. The Optionable measurement is within wiggle room of turning positive. The OTC gained much last week, but it still lags. That gives us a split recommendation of WEALTH ACCUMULATION for NYSE stocks and WEALTH PRESERVATION for the OTC.
Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.
Below is where our indicators stand as of December 10, 2021 (Courtesy Dorsey, Wright, and Associates).
On a general note:
The Department of Labor told us that inflation hit a rate last seen in 1982, which is before many of us thought about retirement. The inflation rate came in at 6.8% on a year-over-year basis. The core rate that excludes food and energy rose 4.9% from November to November. Our “friends in Washington” blamed it on the pandemic recovery. This was the sixth consecutive month with year-over-year inflation greater than 5%. The “good” news is that wages rose 4.3%. We are spotting “only 2.5%” to inflation over the past year.
In my opinion, once again they are delusional, or they believe we are delusional. Many prices are substantially higher than in late 2019 before the pandemic hit.
“Our friends in Washington,” all said they expect inflation to slow in the future. That is one prediction that will come true at some point. I take that to believe the slope of the ascent will lessen, but not decline. Of course, that’s just my opinion, you are welcome to disagree.
Assuming the above is accurate, it will leave us with a new floor for prices. With, at some point, a lower rate of inflation. In the end, it will be more expensive down the road than now.
It is in the interest of our government to permit inflation with the debt we have. That allows us to pay back the buyers of government debt – at least not the debt covered with inflation protection – with dollars that are worth less than the dollars borrowed.
Not Just Inflation
Let’s move on from the inflation disgust to our budget. In November 2021, the government ran a deficit of $191 billion dollars. That was larger than November 2020. The Treasury saw taxes come in 28% higher in November 2021 compared to November 2020. Let’s revisit what I just said: Revenues were 28% higher year over year, and simultaneously, the budget deficit also increased year over year, by 31%! For those of you whose revenue increased 28% last year, Congratulations as you are in rare company.
Remember how each party continually asks for more tax dollars “to solve the deficit.” Once again, spending seems to be more of a problem than tax collection.