#155 - Cancel The FBI, KANYE and CLIMATE CHANGE
- stock markets might have bottomed
- nobody is above the law (unless they’re a Clinton)
- Inflation Reduction Bill Takes on Climate Change
- Apple bends the knee to the CCP
- Sports are just around the corner!!
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👉 For specific investment questions or advice contact Joel @ Gold Investment Management.
Good morning. It is nice to see 30 year mortgage rates back below 5 percent. They ticked up near 6 percent and 13 year highs a few weeks back.
The S&P and Nasdaq 100 are still well below their 200 day moving averages but moving up and on a mission to touch them it seems from below.
I am rooting for us to capture the 200-day moving averages. The first ‘growth’ index to do that is biotech, but it was also the first and hardest hit tech index on the way down.
The good news is that people are still out there buying technology stocks… In June it looked like that would never happen again. So many technology stocks have rallied 50 percent and are still well below their 200-day moving averages so I would not be surprised to see a continued rally but would also expect some chop and some blowups.
The typical bear market rally is a 50% to 61.8% retracement from the last major high. For the S&P 500 (SPY) that would mean 410-420. It is not far from there. In the meantime, some of the most shorted stocks have staged monstrous short squeezes. Such price action often precedes overall market pullbacks.
The job numbers last Friday surprised everyone.
Why does it matter?
The market rally in the past month or so has been mainly based on the assumption that the worst of inflation is behind us and the Fed’s tightening is not going to be as aggressive in the future. This assumption might turn out to be a bit premature. We will know soon enough. July CPI readings come out on tomorrow morning. As usual, we will be paying attention to how the market reacts to it; not to the numbers themselves.
Otherwise, the recent rally has been fuelled by government spending (clean energy, semiconductor bills), acquisitions (especially in the biotech field), and general improvement in market sentiment – most earnings received a favorable market reaction this season. Let’s see if those catalysts will be strong enough to fight a hawkish Fed.
Small Cap Break Out:
Small-caps are breaking out to new 4-month highs relative to Large-caps.
This underperformance in Small-caps began in Q1 2021 which, among other things, sparked the beginning of this bear market.
This week would mark the 18-month point, if a bear market is even something we're still in.
This kind of outperformance from Small-caps is not something we've seen over the past 18-months.
And as usual, for me it's less about "what" is happening, and more about "where" it's happening.
Small-caps are getting this outperformance going at exactly the 61.8% retracement of the entire rally from the ETFs inception in the Spring of 2000.
We saw a decade of Small-cap outperformance followed by a decade of underperformance.
What's the next decade look like?
Is this a new trend that's just getting started?
💸Reformed Millennials - Post of The Week
ANTI INFLATION INFLATION BILL: Climate
So while spending and capital incentives are rarely anti inflationary, the inflation reduction act is the largest investment in carbon reduction ever for any country on the planet.
Nearly $3.5 trillion in cumulative capital investment the bill will drive in new American energy supply infrastructure over the next decade...
It’s incredible to see America continuously challenge and iterate on what europe thinks is best policy.
There are ZERO carbon taxes and hundreds of billions in incentives. THIS is how you save the future. Technology and investment with out the penalties.
The Act would:
1. Cut annual emissions in 2030 by an additional ~1 billion tons below current policy (incl. Infrastr Law)
2. Do about two-thirds of the remaining work needed to close the gap between current policy and the nation’s 2030 climate goal (to get to at least 50% below 2005 levels)
3. drive down the cost of adopting clean energy and other climate solutions across the nation, making it easier for executive agencies, state and local governments, and private sector leaders to increase their ambitions and help close the remaining 0.5 billion ton gap left.
4. Reduce cumulative GHG emissions by about 6.3 billion tons over the next decade (retaining about 80% of the cumulative emissions impact of the House-passed Build Back Better Act btw).
The Inflation Reduction Act cuts US emissions primarily by making clean energy cheap, through tax credits, grants, rebates, and loan programs that will make it easier for households, businesses, and utilities to electrify and adopt clean energy, clean fuels, and clean vehicles.
Subsidies and tax credits will accelerate deployment of two trends already well underway: the transition to clean electricity and electric vehicles. Those two sectors contribute ~360 Mt and ~280 Mt respectively to 2030 emissions reductions.
The Act also incentivizes installation of efficiency upgrades and carbon capture in industrial sectors, contributing ~130 Mt of reductions. This bill's CCS tax credits make CO2 capture truly viable in the highest emitting industries, incl. refineries, cement & steel (plus power).
Rebates, tax credits and grants to spur electrification & efficiency in buildings; reductions in oil & gas sector methane pollution spurred by the methane fee & grants; and funding to improve forest/ag conservation & carbon sequestration also contribute ~210 Mt collectively.
What Happens If Bonds Keep Rallying?
See what happens when the bond market isn't crashing every day?
Growth stocks can actually catch a bid.
And we've seen quite the move already. The average stock in the Nasdaq is up over 37% off its lows.
So just imagine what they would do if rates really correct?
In the upper pane we have the US 10-year yield. In black below we have the ratio of Large-cap Growth vs Large-cap Value.
Notice how the black line drops (Growth outperforms) when rates are correcting.
The way I see it, sector rotation is the lifeblood of a bull market. If Growth was the leader during the initial bounce (while rates fell), will we see some rotation into some of the more value-oriented areas?
It doesn't have to happen tomorrow. But sector rotation would likely coincide with a change in the trend for rates.
🐦 Twitter Thread of The Week 🐦
MSTR and Saylor are splitting as the long time CEO and founder departs to promote bitcoin full time.
Chris Bloomstran breaks down $MSTR’s latest quarter. And its not good.
TLDR: SELL MSTR it’s going to zero.