Question of the Week

Which old school board game does quantitative tightening most resemble?

Operation
Battleship
Sorry
Monopoly

All eyes were on Jerome Powell yesterday as he took incoming heat from both sides of the aisle. As I watched and listened to the hearing confirmation, it appeared to me that the Fed Chairman was trying to keep three things alive:

• His job
• American Style Capitalism
• Stock Market Rally

I think he succeeded in all three, although he took shrapnel along the way. Sen. Warren railed against corporate greed while others tried to shift parts of the inflation picture to the purview of one jurisdiction or another- essentially attempting to deflect any White House culpability.

I did, however, chuckle at the choice of words Powell used when saying he sees signs that supply chains might be healing: "You always see a few snowflakes, but it doesn't amount to a storm yet.”

When reminded Quantitative Easing (QE) was supposed to be “temporary” when introduced by former Fed chair Ben Bernanke, Powell explained that it would be temporary and rare if we were not stuck in a low-interest-rate environment.

It’s like back in the day when you would memorialize your affection for your first girlfriend by carving her name onto a tree trunk: Federal Reserve loves QE Forever. The bond market is not known for being romantic, as it mostly yawned and pulled back a little.

Warm & Fuzzies in Stock Market

While bond yields only dipped slightly, the stock market staged its best rally of the year - lots of green on the screen.

But it was still about the financial-energy trade, although cyclic buying spread to other sectors as investors beat a hasty retreat from traditional defensive names. I keep watching Real Estate (XLRE), which a ton of Wall Street mavens say will be the best performing sector in 2022, in part because of its historical moves during rate-hiking cycles.

Market Breadth

Market breadth was better, albeit with light overall volume. But there were finally more advancers than decliners, and stronger up to down volume. Yet on the NASDAQ Composite, there were still more 52-week lows than highs. This simple measure will go a long way in indicating when the rebound is gaining momentum.

Market Breadth	NYSE	NASDAQ
Advancing	2,444	3,184
Declining	900	1,473
52 Week High	96	43
52 Week Low	55	167
Up Volume	2.83B	2.95B
Down Volume	611.82M	936.78M

Filibuster Follies

Yesterday, President Biden gave a blistering speech on why he is no longer a protector of the Senate filibuster. Like everything, it’s framed as a racial issue instead of defending the minority in the Senate. The framers understood the tyranny of majorities, and filibustering was another way to achieve checks and balances.

The problem for President Biden is members of his party are not ready to make any exceptions to the rule. So, on that note, the president threatened if folks want to filibuster, then they’ll have to do it by the book, which means standing on their feet and talking and talking and talking.

If you want to filibuster, you’re going to have to do it for real.

President Biden is thinking Mr. Smith goes to Washington, where Jimmy Stewart’s character takes on the establishment with a Herculean filibuster that lasted for hours.

To fill the air with words, Mr. Smith read from:

The U.S. Constitution

Declaration of Independence

Second Epistle of the Corinthians

I understand the threat to force Senators to stand and truly to filibuster, but keep in mind that Jefferson Smith was 30 years old when he was appointed the vacant job. 

• Today, the average age of a U.S. Senator is 63 – and those are the whippersnappers.
• The most popular birth years are between 1952 and 1954, with seven members each.

If Republicans take the Senate in the midterms, there would be a lot of angry septuagenarian Democrats upset at a move that would essentially stop them from filibustering in what is a losing gambit in the first place.

Today, all eyes will be on the Consumer Price Index (CPI), which will weave a number of tales as it promises to be an explosive number.

Portfolio Approach

There are no sector weighting changes to our Hotline Model Portfolio.

Today’s Session

CPI & Inflation

The year to year read on CPI came in line with consensus at 7.0%, while the month-to-month number of +0.5% was ahead of consensus of 0.4%.  Year over year core (ex food and energy) inflation was 5.5% against consensus 5.4%.

There were a number of highs or lowlights.

Key Components	Year to Year	Month to Month
New vehicles	11.8	1.0
Used vehicles	37.3	1.0
Food	7.0	0.5
Shelter	4.1	0.4
Furniture	13.8	2.0
Lodging away	23.9	1.2
Smart phones	-14.1	-0.8

Truth Bomb

Real wages are getting hammered and people are getting stretched.  Wages will have to keep racing higher, which will test how much business can hike their prices.  The breaking point will be a compensation of peaking wage gains midyear, and businesses hitting a brick wall on price hikes, which is already starting to happen. 

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