Anti-Trust

Although the latest market shake-out was headline-worthy, investors have already begun to buy the most recent unsatisfyingly shallow dip. A violent internal churning amongst sectors again prevented a more coordinated sell-off. Value and commodity stocks bare budged during the 5-day sell-off, with many even making 52-week highs. It appears the pandemic and the Fed hawkish pivot are being universally looked over. But another disease is now quietly spreading - inflation expectations.

And what we are likely to see on that front is not comforting for our friends at the Fed. The main risk to their forecast is now not Covid - as they fixed upon last year - but the future course of inflation. It has replaced the virus as the primary focus for investors, as well. The recent steepening of the yield curve is like a Covid 'rapid test' of the successful return to normalcy in the bond market. But is it possibly giving us a false positive? We don't know, but we will definitely find out soon.

Politicians, eager to move past the tiresome pandemic palaver, are seizing upon this topic, making it the newest political football. In an effort to appease the masses, the Democrats are using the surge in reported inflation to deflect attention on their failing legislative agenda and dimming Mid-Term election prospects. There are seriously loud echoes of the 1970s in all this talk. Wage and price controls were commonly proposed solutions back then. Any serious reading of the outcome of that failed experiment would argue against using this ineffective, populist-driven approach. But that doesn't mean it won't get support from politicians - on both sides of Congress.

Quitely last month, Congress easily passed an updated anti-trust bill and more draconian versions are circling the halls of Congress. The Democratic versions are focussed on the traditional bugbears of railways, consumer goods, and telecom - sectors generating real effects on their constituents' pocketbooks. The Republicans, eager to appease their base, have focussed their ire on big tech as a backlash against their perceived control of social media's "fake news". Either way, their meddling in the corporate suite is likely to create headaches for investors as the economy reaccelerates.

Joe Biden for his part is a two-time loser in this PR race as now he faces criticism for his dithering approach to the pandemic while spiraling food and energy prices cut into consumers' bank accounts. His most recent policy approaches to inflation are looking - to be charitable - problematic. Late last year he revealed a solution to higher gasoline prices by using the Strategic Petroleum Reserve to pee in the global ocean of crude oil supply - to little effect. The latest pronouncement from his brainiac economic advisors is to blame "corporate greed" for the rise in prices. Really? Are we to believe that CEO's of Corporate America got together and decided to:

1) create climate changes sufficient to produce commodity shortages?

2) create a pandemic that cut off supplies and curtailed transportation of goods?

3) encourage the FED to maintain uber-accommodative monetary policies long after they were needed?

4) convince Vladimir Putin and MBS to deftly manage the supply/demand balance of oil, all while encouraging pension plans from investing in new supplies?

You might also add that they are somehow convincing older workers to permanently retire and forcing younger workers to seek more meaningful employment opportunities in more affordable jurisdictions.

The empty rhetoric that comes out of politicians' mouths in response to highly complex problems is usually dismissed by markets. But when they start making laws in an effort to control corporate behaviour, watch out below.

When it comes to politicians, I have a distinct feeling of anti-trust.

Risk Model: 3/5 - Risk On

The choppy action of the averages belies the significant correction in high beta segments of the market. As one analyst called them - "Hopes, Dreams, Themes and Memes" - these companies have experienced huge price deterioration. I'm viewing this market action with optimism as the more traditional and investible segments hang in like champs. Financials, notably have benefitted from the re-steepening yield curve as investors, especially in the U.S. look past Omicron. I would also include the "quality" tech stocks that have faded slightly like Microsoft and Apple.

A re-acceleration in global growth, although not a slam dunk, is still the most likely outcome this year, despite the ill-advised policy construct in China and the soaring caseloads of the virus globally. I went long again last week as timing the improvement in sentiment is impossible to predict. I believe it could be a melt-up given the liquidity still sloshing around the globe.

Still no signal from the range-bound Copper/Gold ratio! Notice how the Copper looks like the Korean market - sideways consolidation. Korea is the most economically sensitive major market in Asia and I use it to validate my views on the path of growth in China. They are like an arms dealer who wins either way when things heat up!

These sideways patterns will need to break out one way or the other to signal the direction of the next leg of the bull market.