American Gothic
The Federal debt and how the Visigoths may try to break the system if no one fixes it.
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Eye on the Market
Michael Cembalest, Chairman of Market and Investment Strategy offers timely commentary on the economy, markets and investment portfolios
LATEST COMMENTARY
The End of the Affair
The End of the Affair. The affair with market catalysts of the last decade is over now, and a new era of investing begins. A look at a world of higher inflation, more regionalized trade and investment and more capital scarcity.
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Holiday Eye on the Market: Non-Fungible Trainwreck
A discussion of the YUCs, the MUCs, FTX and three rules for investors: the Gensler Rule, the Sirens Rule and the Summers Rule. Our 2023 Outlook will be released as usual on January 1st.
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Little Red Wagon
A preliminary read on midterm election results given the context of prevailing market and economic conditions.
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A CH₄, HR4346 and mRNA-1273 Thanksgiving
My list of things I am thankful for this year: CH4, HR4346 and mRNA-1273. Of course, your mileage may vary.
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Reruns
Three reruns for investors. First, in almost every post-war bear market, equity declines preceded the fall in earnings, growth and employment. As a result, we’re more focused on changes in manufacturing surveys than on the other victims of a recession as a sign of the bottom. Second, Graham Allison’s rising power conflict analysis and its historical precedents come back into focus with the latest US policies cutting off high performance semiconductor exports to China. Third, another press article on a small country as a prototype for a renewable future that does not address its irrelevance for larger developed or developing economies.
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Arrested Development
Three topics this week: the repricing of risky credit, labor markets and a COVID recap. While equities are pricing in a much greater probability of recession now, the credit markets are just getting started. One canary in the coal mine: the Citrix financing, which will be followed by a string of even weaker credits. On labor markets, the Fed is facing the tightest labor supply conditions in decades. Can second chance policies easing the path to employment for people with criminal arrest records help increase the labor supply, or will the Fed have to crush the economy to restore desired levels of wage and price inflation? Lastly, an update on bivalent vaccines and inhalable vaccines, as the latter offers the best chance of actually reducing infection and transmission.
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On CPI, S&P, GHG and the IRS
Three topics in this month’s Eye on the Market. First, an update on the Fed, inflation and corporate profits since we believe the June equity market lows may be retested in the fall. Second, a detailed look at what would have to happen for the climate bill’s projected GHG savings to actually occur; the answer matters given the implications for the US natural gas industry. And finally, will all the new IRS agents really stick to auditing taxpayers above $400k? Data from the GAO suggests there may not be enough of them to meet the Administration’s revenue targets.
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The second gear of the Manchin-Schumer bill
Whenever there’s a tax/spending bill passed by Congress, the Congressional Budget Office “scores” the bill with respect to its impact on deficits, debt and GDP.
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Long Hot Summer Reading List
Most summer reading lists are carefully curated, inspirational elegies to the human spirit. This is not that. See today’s note for links to reading materials on energy, economics, finance, the Supreme Court, geopolitics and COVID/cancer research as this long hot summer rolls on. Also, a look at the recently unearthed “Shakespeare’s Annotated Guide to Bitcoin”.
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Independence Days
Europe’s energy crisis, China’s commodity trade war with Australia and other examples of resource nationalism (India and Indonesia restrictions on exports of wheat, sugar and palm oil) have reinforced the following: relying on essential food and energy imports is a risky proposition with respect to supply, price, currency stability and national security.
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Eye on the Market 12th Annual Energy Paper
The Elephants in the Room. We start with a global summary of the energy landscape, including the energy crisis in Europe. We continue with a detailed assessment of the hydrogen economy, whose liftoff is still many years away.
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Dearly beloved
JP Morgan CEO Jamie Dimon stated last week that he expects a “hurricane” resulting from the end of the largest fiscal and monetary experiment in history, and from the ongoing impact of Russia’s invasion of Ukraine on food and energy prices.
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Bear Market Barometers
The slowdown induced by central bank tightening is just starting. You can be patient when adding risk to portfolios; earnings will eventually decline and markets are not pricing in high risk of recession.
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The Tide Goes Out: Growth Trade Aftermath
A combination of rising rates, the Russian invasion of Ukraine and years of investor acceptance of unprofitable new companies (the “YUCs”) led to a sharp repricing of growth stocks in Q1 of this year.
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Surveying the Damage
Surveying the Damage: Russia’s recurring war on Ukraine, equity market declines and the opportunity for bottom-fishing investors, the energy price surge/recession outlook in Europe, the impact of rising metals prices on EV battery costs, and the COVID situation in Hong Kong
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China and the Russian invasion of Ukraine; full steam ahead for the Fed
In this note we examine the latest on China’s economy and markets. But first: comments on China’s connection to the war in Ukraine since its financial and energy decisions may dilute the effectiveness of sanctions on Russia:
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Russia/Ukraine update: Energy implications
The brief note covers the price Europe is now paying for allowing its energy reliance on Russia to reach extreme levels, and the implications for the durability of sanctions placed on Russia if Russia retaliates with energy sanctions on Europe.
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Risk unwind, supply chains and the Ukraine
Global markets have had to digest a lot of bad news in a very short period.
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The Maltese Falcoin
In this piece, we examine the adoption trends, capital flows and use cases for cryptocurrencies and blockchains. Use cases include crypto as a store of value, cross border remittances, decentralized finance, non-fungible tokens and blockchain adoption in financial services.
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Dude, Where’s My Stuff?
The global supply chain mess will require increased vaccination and acquired immunity, semiconductor capacity expansion and the end of extraordinary housing/labor supports to resolve. A close look at some very anomalous charts on shipping, semiconductors, inventories, labor shortages, foreclosures and mortality.
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Your Fall 2021 syllabus
Greetings students. We look forward to seeing you back on campus. Your Fall 2021 syllabus is attached. Syllabus update: Biology BI66 “The Origins of COVID” has been cancelled until further notice.
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Red Med Redemption
Red Med Redemption: A visual depiction of politics, ideology, vaccine resistance and the Delta variant. Other topics: US economic recovery update, and big tech reliance on acquisitions to fuel growth at a time of rising anti-trust enforcement. We conclude with a new “Investor Odds & Ends” section that covers NYC hotel/office markets and possible changes in personal, corporate and international tax rates.
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Thy Brother’s Keeper
COVID and the Delta variant; the Fed as firefighter and arsonist; US-China economic divorce picks up steam; and the pig-snake inflation timetable (how long until we know if there’s a permanent wage/price rise).
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Food Fight: 2021 private equity update
Every two years, we take a close look at the performance of the private equity industry given its rising share of institutional and individual portfolios. Our findings this year: the private equity industry is still outperforming public equity, but this outperformance narrowed as all markets benefit from non-stop monetary and fiscal stimulus, and as private equity acquisition multiples rise. We examine manager dispersion, benchmarks, co-investing, GP-led secondary funds, the torrid pace of industry fundraising and manager fees in this year’s piece.
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Election 2020 - Praying for Time
The election as referendum on America: how well does the “system” work, and for whom?
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The Needle and the Damage Done
The cost of engineering a US recovery as the world waits for a vaccine; Biden agenda on taxes/spending; Tech stocks (2020 vs 1999); COVID and The Fountainhead; US election rules, dates and process in light of derogatory comments on mail-in voting by the President and Attorney General
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The Bounce
The US recovery; The flood of money and market returns; Globalization lives; Reducing COVID mortality through vascular treatments; Realistic timetables for never-been-done before vaccines; Sweden’s COVID experiment is not what you think
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The Day After
Tracking the rebirth of the US consumer with real time data as a function of infection levels and state policy. Additional topics: no evidence yet of material second waves of COVID infection, and a round-up of the latest news on vaccine trials (Moderna, Oxford, Sinovac) and anticoagulants.
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Zoom Room
In this week’s Eye on the Market, we review topics from our recent client Zoom calls. Topics include: risk of inflation, second waves of infection, the effectiveness of lockdowns and Biden’s taxation and spending agenda.
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Ready or Not: The US prepares to reopen
An update on the COVID-19 crisis as the US prepares to reopen despite having one of the highest infection rates in the world. Additional topics: monoclonal antibodies and anti-viral trials; the growing gap between markets and the economy; S&P 500 earnings haves and have-nots; regional equity performance (Europe loses again) and leveraged loans at a time of rising bankruptcies.
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State's Rights
In this week’s note, we discuss the latest news on US infection trends and reopening plans, Remdesivir trial results and whether US fiscal stimulus is “enough”.
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Are we there yet?
Lockdown relaxation and economic reawakening…are we there yet?
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COVID and culture
In this week's note, we take a close look at country and regional virus data, and examine the pitfalls of over-extrapolating trends that often reverse.
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The equity rally and herd immunity
After the equity rally, P/E multiples are back at around 16x 2021 consensus earnings.
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Man vs Nature Part II
Virus trends and head-fakes, convalescent plasma and U.S. vs. China lockdowns.
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Man vs Nature: what the government can and cannot fix
There are things the government can try and fix during a pandemic and other things which it can't.
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John Stuart Mill and the road from ruin to recovery
There are some difficult days ahead as quarantines and lockdowns grow. I want to share something with you from John Stuart Mill as we head into the unknown.
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The pandemic gap
A lot of data is being made available on the coronavirus, but most of it requires careful analysis before drawing conclusions.
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Berning Man
Confounding almost every forecast we saw last week, Senator Biden appears to have emerged from Super Tuesday with a sizeable delegate lead. Why might the night have turned out so differently from what was expected just a few days ago?
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COVID-19 update
A Coronavirus update: severity, consequences and implications for investors.
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Millions and Trillions
Answers to questions on the coronavirus, US megacap stocks, the cost of Democratic Healthcare plans, the Iowa caucus and the problem with the student loan system.
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Rotten Tomatoes
Consensus reactions to the Phase I US-China deal are very skeptical, but may be missing the broader point. A brief note on what happened, and the alternatives.
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Ghosts of Christmas Past
After a very positive year for investors in 2019, we expect lower positive returns on financial assets in 2020 as some Ghosts of Christmas Past reappear.
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War of the Worlds
How a discussion about China and Hong Kong morphed into a chart war about Trump, Hoover, Taft, Rachel Maddow and Anderson Cooper.
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The Armageddonists
While recessions and bear markets are a fact of life, something peculiar happened after the Global Financial Crisis: the rise of the Armageddonists.
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Warren Peace
A close look at the Progressive Agenda, China’s deteriorating welcome mat in DC and US Tech IPOs.
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Active Management and QE-distorted markets
Michael Cembalest analyzes the performance of over 6,700 domestic and international active equity managers and discusses the challenges they face.
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Cold Turkey
A brief comment on a proposal from leading Presidential candidates to ban hydraulic fracturing everywhere, immediately.
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So long Yellow Brick Road
It was a long, hot summer at the Heritage Foundation. An update from the front lines of the Trade War.
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Lost in Space: The Search for Democratic Socialism in the Real World
Michael went on a search for Democratic Socialism in the real world, and ended up halfway around the globe from where he began.
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Listen when people tell you who they are
Michael discusses how he should have taken Trump at his word on tariffs, and the impact of the widening trade war on global growth and equity markets as proposed tariffs approach pre-war levels.
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Smoot Hardly
The US-China trade war, prescription drug price legislation and the 2020 election.
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Energy Outlook 2019: Mountains and Molehills
Topics: unattainable objectives of the Green New Deal; overview of the world’s decarbonization challenges; Germany’s energy transition; Trump’s War on Science.
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SPECIAL REPORTS
Annual OutlooksOutlook 2021: The Hazmat Recovery
In response to the worst pandemic in 50 years and a country at war with itself over lockdowns, individual freedoms and election results, the Fed and Congress airdropped an unprecedented amount of stimulus with vaccine airdrops to follow.
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Market Outlook 2020: Ghosts of Christmas Past
After a very positive year for investors in 2019, we expect lower positive returns on financial assets in 2020 as some Ghosts of Christmas Past reappear.
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