While We Wait
A bullish few days... While we wait... Another derailment... It's what we said... Don't travel to these countries... More fairy dust is coming... Mailbag: Your feedback for Dan...
We've had a string of bullish trading days...
U.S. stocks have had, on balance, a positive run lately. Since I (Corey McLaughlin) last spoke about it last Wednesday, the benchmark S&P 500 Index has popped right off its 200-day moving average – a key level we've been monitoring.
The index is up about 3% in the past three trading days. All those inflation and additional rate-hike fears from this time last week have already escaped the headlines – for now. But the story hasn't changed all that much...
Bond traders still expect the federal-funds rate to keep rising until at least a range of 5.25% to 5.5%. And based on futures activity, roughly half of them expect to see interest rates of 5.5% to 5.75% come July.
A three-month U.S. Treasury bill is still yielding 4.9%... The six-month version is at 5.1%... And while the yield on the 10-year Treasury note has dropped back below 4%, it's still in a mini-uptrend since February 1. All the while, the S&P 500 is trading above its long-term trend.
At the least, it feels to me like we're in a "calm before the storm" holding pattern until the Federal Reserve's next meeting in two weeks, with policy decisions being announced on March 22. (With tomorrow being a possible volatile day, too... more on that in a bit.) As Stansberry NewsWire analyst Kevin Sanford wrote in a morning commentary today...
Not only will we have another inflation reading under our belt, but the central bank will update its Summary of Economic Projections and interest-rate outlook. We'll have a clear idea of just how close we are to peak interest rates.
Kevin also explored why the market's reaction to recent inflation data, particularly the personal consumption expenditures ("PCE") price index, might be a bit overblown. One month of unfavorable inflation data does not make for a new trend, he says. Again, check that out here.
Well, well, well...
When we wrote about the trouble on the tracks recently, we noted that folks have been ignoring the worrisome length of American freight trains for years.
Well, after another derailment of a Norfolk Southern (NSC) train on Saturday – the third in just over a month, including the disaster in East Palestine, Ohio – that may be changing in a hurry. The company sent around an internal e-mail indicating that it was planning to reduce train length in an effort to prevent future incidents... or at least ease public concerns.
The e-mail, according to CNBC, was sent to Norfolk Southern yard managers less than 12 hours after the latest derailment (which also happened in Ohio). It read in part...
Effective immediately no trains will run over 10,000 feet. This restriction goes for all trains... There will be more to come in the next few days...
It should be noted that 10,000 feet is roughly 1.9 miles. So the trains are still allowed to be long enough, for example, to get from my home to our nearest county line. Still, I was going to say, at least this policy change sounds like the start of a fix... But it's not.
The Norfolk Southern train that derailed in East Palestine was actually less than 10,000 feet already. Had this new policy been in place before, it wouldn't have prevented the toxic derailment of that reportedly 9,300-foot train anyway.
Do you know what countries are on the 'Level 4: Do Not Travel' list?...
Scanning the headlines today, we saw the story about four American citizens being kidnapped in Mexico near the U.S. border in an area where drug-cartel gang violence is particularly commonplace.
The story also mentioned that this incident occurred in a part of Mexico that is on the U.S. State Department's "Level 4: Do Not Travel" list, the highest-level travel warning from the U.S. government.
Aside from our thoughts being with those kidnap victims, and hoping for their safe and healthy return, this got me thinking about what other places may be on America's "Do Not Travel" list today. Well, it's certain states in Mexico, Gaza, and the entirety of the following countries...
Burma (Myanmar), Russia, Iran, Mali, Venezuela, Iraq, Somalia, Haiti, Ukraine, Afghanistan, Yemen, Syria, Sudan, South Sudan, North Korea, Libya, Central African Republic, Burkina Faso, and Belarus.
Some are self-explanatory... like the countries involved in the war in Eastern Europe. Others may require some more detail... but most warnings have to do with civil unrest and deadly crime threats.
I bring this up not only as a public-service announcement about traveling to these places (not sure that's needed, though), but also because having all the names in one spot shows you all the places the U.S. doesn't trust today.
Also, China – a topic here lately you've heard about from our colleague Dave Lashmet – is right after the above group in terms of warnings at "Level 3: Reconsider Travel." That's in part, the U.S. says, because of China's "arbitrary enforcement of local laws" and "wrongful detentions."
More fairy dust is coming tomorrow...
In the spirit of our colleague Dan Ferris' latest Friday essay, in which he talked about the Fed's latest "fairy tale," tomorrow the markets will digest more fairy dust from Federal Reserve Chair Jerome Powell...
Powell is set to sit before Congress and answer questions starting at 10 a.m. Eastern time tomorrow, as part of his required semiannual testimony. These events are usually multi-hour sessions that feature a variety of questions.
So the Fed chair is liable to say something that traders will run with one way or another...
If we know anything, it's that Powell will probably say the central bank expects to keep raising lending rates and that inflation is "much too high"... because the people he's talking to in Congress task the Fed with "stable prices and maximum employment."
The U.S. still has one without the other at the moment.
A Gold CEO Talks the Fed
"We may see one or two more hikes from the Fed. The bigger issue going forward is the funding that the Treasury is going to require," Rudi Fronk, CEO of Seabridge Gold, tells our editor-at-large Daniela Cambone. "The Fed needs inflation to put the debt-to-GDP genie back in the bottle."
Click here to watch this episode of The Daniela Cambone Show right now. And to see more videos and podcasts from the Stansberry Research team, be sure to visit our Stansberry Investor platform anytime.
New 52-week highs (as of 3/3/23): Atkore (ATKR), BorgWarner (BWA), Copart (CPRT), iShares MSCI Mexico Fund (EWW), Comfort Systems USA (FIX), W.W. Grainger (GWW), indie Semiconductor (INDI), Ingersoll Rand (IR), iShares U.S. Aerospace & Defense Fund (ITA), Luna Innovations (LUNA), MYR Group (MYRG), Nucor (NUE), Novo Nordisk (NVO), Invesco Dynamic Oil & Gas Services Fund (PXJ), and Trane Technologies (TT).
In today's mailbag, Part I of your feedback on Dan Ferris' Friday essay about the Federal Reserve's latest "fairy tale." We'll share more tomorrow... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"Yes, the Fed has shown repeatedly it is made up of a Board of Clowns and its 400 PhD lemmings who haven't had an original thought since they got their degrees. But they have an impossible task under Congressional directive to maintain a steady economy, full employment, and a stable dollar.
"Even they can see the unending runaway fiscal spending of the elected in D.C.; they have no arrows in their quiver to curb monetary growth and inflation other than raising rates and Quantitative tightening, both of which will depress lending and the economy.
"In sum, there is no solution to the spending insanity in D.C. wrecking our economy because if they don't shoot their arrows high inflation will not end." – Paid-up subscriber Robert B.
"Mr. Ferris, How do you 'beat down demand' when the government is pumping $2 trillion per year of stimulus into the economy? The Fed raises rates; the federal government pumps more stimulus. With government spending out of control, the Fed's interest rate hammer can't nail down demand fast enough." – Paid-up subscriber Al A.
"Hi Dan, Its always interesting and eye opening to read your commentaries especially about the Fed. The themes that stand out are the push pull of supply and demand on prices and consequently inflation. As wages increase so too do costs of goods production. Raising the cost of money makes goods more expensive to produce. When passed on to the consumer it seemingly raises inflation unless of course it reduces demand and therefore increases supply.
"But in today's economic environment, demand of food and fuel is pretty constant, people have to eat and drive to work and deliver goods. So increasing the price of money ultimately only increases costs but does not significantly reduce demand. Perhaps the fed should consider ways to increase supply in [an] effort to lower prices. Efforts to hinder oil and gas production for noble purposes do not increase supply and can lead to big shortages, I.E. increased prices and more inflation.
"Bird flu killing chicken populations should raise the price of eggs. (The highest inflation item seen in food products). Makes sense and can't be avoided. But higher costs of money/ loans, as example, make the cost of food production more expensive without denting demand. Ditto for fuel. Isn't the effect opposite of the intent?
"Maybe the Fed could consider what it can do to assist growers, farmers, drillers, refineries and business in general to stimulate goods to increase supply and reduce prices as demand is satiated. Isn't that free market economics?" – Paid-up subscriber Joseph K.
"Dear Dan, Ronald Reagan once said the 10 scariest words ever are: 'I'm from the government and I'm here to help you.'
"Truer words were never spoken. There should not be a Fed. No one can name a Fed governor who had a clue of what they were doing, much less a good track record of economic calls. Let the market decide where interest rates should go. We would all be better off.
"Of course there would be less government jobs, God forbid!" – Paid-up subscriber Steve T.
"Nicely explained concept and article today. Thank you." – Paid-up subscriber Mike T.
"Dan, awesome Digest today. You NAILED it!! Best one yet! Keep up the great insight! One for the record books." – Paid-up subscriber Patrick P.
All the best,
Corey McLaughlin
Baltimore, Maryland
March 6, 2023