A Calculated Course

Powell Speaks, Stocks Rise…..A very deliberate Jerome Powell carefully explained in great detail why he expects a recent surge in inflation to ‘fade’ over time. Powell’s measured remarks also signaled the Fed would not rush to begin tapering, prompting the markets positive reaction. At the Fed’s meeting late last month the economy has seen “more progress” in the form of a strong employment report for July, but also the further spread of the Delta Variant. The rise of Covid-19 infections, due to the Delta Variant, has complicated the economic slowdown, at the very moment officials we’re ready to reduce, or taper bond purchases. “While the Delta Variant presents a near term risk, the prospects are good for continued progress toward maximum employment,” he said, (Powell). The next meeting will be September 21-22, with several Fed officers favoring a beginning to taper bond purchases, shortly after the meeting if hiring remains strong. Investors were monitoring Mr. Powell’s speech for any clue about when the Fed might scale back its easy-money policies. Such policies have helped propel stocks to their all-time highs. Mr. Powell reaffirmed Friday that the central bank would begin ‘tapering’ bond purchases later this year. While he didn’t say when exactly the process would begin, Powell spent much of his speech explaining why he is still very confident that the recent inflation surge would prove to be temporary and the Fed should not rush to tighten monetary policy.

The S&P 500 advanced nearly 40 points or 0.9% to 4509, after Mr. Powell’s speech at Jackson Hole, Wyoming conference. It was the first time the index closed above 4500. The technology-loaded Nasdaq Composite rose 183 points or 1.2% to a record 15129. The Dow Jones Industrial Average rose 242 points or 0.7% to 35455. All three indexes were up for the week. Still, stocks have been ‘buoyant’ in hopes that strong economic growth will extend a surge in corporate profits. That surge has been building for several months. A good indicator of future economic growth is the Russell 2000 Index, representing smaller companies, which was up 63 points to a near-record 2297, a strong indication of what’s brewing.

The Everything Shortage…..Every industry is under pressure to restock all short-supply items, items that are out of stock and unable to be resupplied, due to the tremendous shortages created by the worldwide Covid-19 pandemic. Those shortages and all the ramifications there-of could lead to prolonged pressure of the Fed to temper inflation. As inflation creeps in, effects are massive. As the Fed is the protector in the financial sector, the investors’ odds are defended. As the shortages and supply deficits affect costs (of resupply), pushing companies to increase debt in order to satisfy supply, the cost of money is a big factor. That money is subject to higher costs and that is pushing the Fed to its watchdog policy. As bottlenecks ease a bit, and production begins to return to pre-pandemic levels, supply will satisfy demand and balance will occur. As analysts predict, prices will rise throughout the summer and fall months, the moderate. With the uptrend in wages and the efficiency of long-term productivity, gains have reduced their wage exposure. Today it takes an average of two workers to generate $1 million in revenue, while in 1986 it took 8 workers.

The Grass Is ‘Really’ Greener Grown In America. While investors flocked to Canadian cannabis stocks, they ignored the faster-growing U.S. companies already profitable. Multistate operators were successfully flourishing, as many states stepped up legislation and legalized weed. It seemed Canada was far ahead in terms of legalization and 1000’s of acres of fields. Many fledgling companies sprung up and quickly capitalized. Growth was ‘overnight’ and stock prices sizzled. All the while, solid companies well entrenched in the tobacco industry were laying the groundwork for major production… in America. In less than twelve months the U.S. became a leader and major player. With the help of Congress, The House of Representatives passed, by a 3-1 margin, a bill that would allow the pot industry to use the federally regulated banking system. Soon after Senate Democratic Leaders supported a matching bank bill with local governments hungry for tax revenue. Legislation is aggressively passing in a majority of states. Market researcher BOT Analytics forecasts sales topping $40 billion by 2026 when the illicit market, perhaps twice the size, and slipping, is overtaken legitimately. If the history of the alcoholic-beverage industry is any guide, customers will eventually come over to the legal market. Canada was a pioneer in purveying weed, but the real action is right under our nose, literally (in the U.S.).


Debbie Cunningham, investment chief of global liquidity markets at Federated Hermes Inc. WSJ “I don’t think the SEC is in a seat where they want this industry to die a quick death or a slow and painful death,” adding that many of the regulators’ ideas would accomplish one or the other. Officials at the SEC “realize that,” she said.

Christopher Smart, chief global strategist at Barings WSJ The mood music going into Powell’s speech was ‘taper is coming, taper is coming,’ which might have led people to think he was going to make an announcement,” said Mr. Smart. Instead, Mr. Powell’s measured remarks signaled the Fed wouldn’t rush to begin tapering, prompting the market’s positive reaction, Mr. Smart said. “He reset expectations slightly towards later, ” the strategist said.

Jerome Powell, Federal Reserve Chairman WSJ “While the Delta Variant presents a near-term risk, the prospects are good for a continued progress toward maximum employment.”

Kevin McCarthy, House Minority Leader (R., Cal) WSJ Said Friday that Mr. Biden had lost the faith of the American people., “There will be a day of reckoning,” he said.