Consumer inflation now is running at a 5% annual rate, the fastest pace since mid-2008. Fed policy makers dismiss the current increase as “transitory,” an extraordinary phenomenon that will disappear once the economic effects of measuring from the past year’s pandemic depressed price levels end and supply catches up. Interestingly Deutsche Bank warns that “neglecting inflation leaves global economies sitting on a time bomb.” That view is not shared by many world economic powers. Normally the alarms would sound off in the bond market, yet precisely the opposite is happening. Following the release of the consumer price data Thursday (6-10-21) the ‘benchmark’ 10 -year Treasury note’s yield fell to 1.43%, its lowest level since early March, and down sharply from its recent high of 1.745% late that month. Again lower yields translate into higher bond prices, not what might be expected. Whatever the case, the continued downward descent in bond yields has had a positive effect on stocks. The S&P 500 index closed at a record Thursday (6-1-21), bolstered by technology shares with valuations pumped up by lower long term interest rates. As the stock and AMC, to name a few, exhibited inflationary fears this past week, it came away better for it. But investors better make sure they don’t get too complacent. Inflation as we know it by now is running hot–and we didn’t need May’s report to confirm it. This past week, however, it was the DowJones Industrial Average that was hit the hardest, falling 276 points, or 0.8%, to 34,479. The Nasdaq Composite on the other hand, rose 1.9%, to 14,069, while the S&P 500 index finished up 0.4%, to 4247. And even stranger, was the reaction from the U.S.Treasury market. All this might suggest that the investor has already ‘bought in’ what the Federal Reserve is contending, that inflation is temporary… and there is “no need to worry about a 70’s-style price shock developing,” quoted by Ben Levisohn, of Barron’s.
Here They Come… The Teen Traders…Are they trading or gambling? New apps make it ‘a piece of cake’ for teenagers to easily trade, or gamble, or ‘play’ with small amounts of money. Robinhood is just one app that has given the teens an easy and foolproof avenue to officially trade stocks. Low to no commissions have paved the way to purchase one to any amount of shares, as was evidenced by the massive moves by GamStop and AMC. Millions of teen players around the world, many following Reddit, manipulated chosen stocks, driving them sky high, and some slipping back. The meme culture introduced many young players, some interested in buying and selling stock and many others interested in ‘gaming it.’ In any event many brokerage firms are ‘angling’ into the youth market…. led by Fidelity, Greenlight Financial technology, Stash, and M1 Finance…and are all trying to attract prospective clients. These brokerages allow unlimited access to nearly the entire U.S. markets. Established brokerage firms and the mentioned start-ups are marketing to the teenagers for the same reasons banks have long-pitched accounts to children: building loyalty and most importantly acquiring the next generation of clients. “Alot of your brand loyalty-whether it’s to Fidelity, Cocoa Puffs, or Marlboro–will be based on how much you enjoy the experience when you’re young,” says Lawrence Steinberg, a professor of adolescent psychology at Temple University.
The FBI goes high tech. The Department of justice nabbed $2.3 million on the $4 million Bitcoin ransom paid out to Russian hackers in a ‘ransomware’ attack on Colonial Pipeline–the first such recovery ever made. Interestingly, the FBI was able to empty a digital wallet with Bitcoin after obtaining a private key. The operation demonstrates investigators’ growing technical ability to disrupt and dismantle the financial infrastructure that have enabled gangs and thugs to squeeze hundreds of millions of dollars from victims every year, cybersecurity experts say. “You can’t hide behind cryptocurrency,” said Elvis Chan, assistant special agent in charge of the cyber branch of the FBI’s San Francisco field office. Separately, law enforcement agencies announced 800 arrests in 16 countries from a three-year investigation using an app designed by the FBI, which organized crime figures thought was a secure form of communication. It was not.
RUMBLINGS ON THE STREET
Janet Yellen, Secretary of the Treasury, in an interview with Bloomberg, this past week. Barron’s “If we ended up with a slightly higher interest rate environment, it would actually be a plus for society’s point of view and the Fed’s point of view,” declared Janet Yellen, who has a bit more than passing familiarity with the subject. We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade,” the treasury secretary said in an interview with Bloomberg this past week.
Tom Porcelli, Strategist at RBC Barron’s Mr. Porcelli notes that the Fed’s “transitory” comments were never about hyperinflation but something far tamer: Fed Vice Chairman Richard Clarida has said the central bank wants to see a year’s worth of 2% inflation before tightening monetary policy. “That’s it,” he says. “Not 5% inflation, not 15% inflation, 2% inflation. We think that is an incredibly low hurdle, which the transitory crowd seems to lack an appreciation for.” Mr. Porcelli adds, “It almost feels like the market is all-in on transitory inflation.”
Greg Shilling, head of an advisory firm bearing his name, writes in a client letter, that the housing bubble, while nowhere near as inflated as during the aughts, is beginning to deflate. In April, existing home sales fell for the third-straight month, while new housing starts slid 9.5%. In addition building permits have been in a downtrend. From Barron’s, 6-14-21
Securities and Exchange Chairman, Gary Gensler, Barron’s “It’s not free trading, somebody is paying for your and my order flow…It is zero commission, but not necessarily free.”