Wednesday seems to have turned out to be a glorious satisfaction for many on Wall Street and elsewhere with absolute blowout Apple™ earnings, an absolute guarantee for open ended QE via Fed. Chair Jerome Powell’s post FOMC presser, and a speech from the President that all but laid out how the “magic money tree” aka MMT (Modern Monetary Theory) will enable $Trillions more to be spent while raising taxes to pay for it all.
Reaction in the overnight “markets?” Do I really need to have you guess? You know what’s coming…
New. Never. Before. Seen. In. Human. History. Highs.
It’s all just fantastic! Right?
Maybe. However, let’s dissect a bit of it and I’ll add just a tad of commentary in general terms for your consideration.
In regards to Apple…
No doubt about it, the report was a genuine blockbuster. iMac®, iPhone®, iPad® and more were absolutely stellar. Why? Well, there is the obvious of the lock-down and people both buying and upgrading hardware, along with software and services. But there was also a hidden aspect to why it may have been better than expected, and it was this: There was, for the first time in a while, something to truly upgrade and update into.
The new M1 processor (Apple’s new and proprietary innovation) has made it worth it, for it’s a true upgrade with easily visible improvements to both speed and function. I personally updated (and will be updating even more) my own devices – and I have a lot of them.
But this time, it’s worth it. This is not the same old-same old “upgrade and update” of the past. This is a true meaningful improvement. As an Apple “fan boy” myself regarding the use of the product, I couldn’t be happier. Then, came the let down…
It appears Mr. Cook can not negate his total dedication and slavish embrace of Wall Street, where he upped the now already humongous stock buy back program to a whopping $90 Billion! For perspective – $90B is larger than the total market cap for 350 companies (not cumulative) of the 500 listed in the S&P 500™. In other words – he could buy any one of those 350 in cash. It’s near mind-blowing from my perspective, which I feel would also coincide with the late Mr. Jobs, also. (Remember: Jobs completely eschewed anything of this sort.)
I am still of the opinion, that in the end, it will be precisely this (aka
giving away redeploying a $trillion) that will not only tarnish Mr. Cook’s now stellar reputation. But may in fact, be the root cause in any market downturn that “shows him the door.” Or, as is euphemistically said “Announced his sudden retirement to spend more time with family.” Remember, every time Apple stock goes down and does not recover – the money is gone. As always, we shall see.
The presser after the meeting was as predictable as it was boring. However, there was one single back and forth that caught everyone’s ear that was truly listening, and went something like this…
When asked about the current state of the “markets” being at record highs, while the Fed was still engaged with its massive QE monthly, Mr. Powell stated:
Paraphrasing: “Some things reflect to froth in the market, however, we don’t see that as affecting our current policy.”
Interpretation? “Any fear of any tapering is now off the table indefinitely, so you can buy, buy, buy because the Fed’s got our back and just declared it publicly! Not only are they not ‘thinking about, thinking about’ raising interest rates. He just all but said the same for QE!”
There’s nothing to say to this until we actually see what comes out, how its reacted to and handled by, the financial press in the coming months. If it shows any true support or ‘legs’ as passing in any form that resembles the President’s message? It’s going to have real implications for the “markets” then, but not before. All the “markets” will discern is all that “free money” they’ll get access to via differing avenues. The moment it flips into more probable chances of passing as described? It will take on the same affect as the Trump tax cuts did in 2017-18. Only in reverse. Again, we shall see.
The hidden aspect to all of the above that no one’s looking at, that is making its presence known under the surface, that can throw everything in a tail spin, which I’ve stated before and “They’re baaaack!” aka interest rates – and they are rising.
The yield on the 10Year, as I’m sitting here typing this, has now risen above 1.65%. The Fed through different representatives (Mr. Kashkari being one) implied that rising interest rate would give them pause and concern. That was when it was well below 1.5%. Again, it’s now back over 1.65% and rising.
The Fed is supposedly in charge of all interest rates, everyone presumes. Yes, they are, but it’s an illusion.
Think of them like a bully that dictates you hand your lunch money to, everyday. Then, one day, not only do you refuse, so does everyone else being extorted.
Sure, he may come after you, but he can’t come after everybody, simultaneously.
This premise replicates what is known in the financial world as “Bond vigilantes.” And once it takes hold – any assertion or premise of control by the “bully” is seen as not only futile, but worse: weakness.
All I will conclude with is the following, which most have not heard about over the last month or so with these interest rates rising: We’ve had more ‘blow ups’ of once “stellar” hedge funds worth $100’s of Billions in assets under management, seemingly all at once, since the beginning of the Great Financial Crisis.
Why? My conjecture, of course: Insane leverage – interest rates rising. A double whammy, because inputs such as the 10Y reflect the carry cost of those leveraged positions. And they’ve gone from well under .5% to now well over 1.5% and rising. The 10Year had been up as high as 1.77+% just a few weeks ago. It’s looking like we’re on our way back.
To put it in the simplest terms…
That would be like someone’s mortgage suddenly doubling, then tripling and more, with no end in sight.
Which just so happens to be eerily similar to what began happening in 2006-07.
But not too worry we’re told, “The Fed’s got this!”
Or, as said by that genius known as, Alfred E. Neuman…
“What, me worry?”
© 2021 Mark St.Cyr
Note: This is not trading or investing advice of any sort. This commentary is for “big picture” discussion purposes only. Please read, or re-read the “About This Site” page for any questions or clarifications.