Morning Roundup

By Mark Masterson on November 11, 2024

Good morning,

Below are the news items moving markets today:

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Executive Summary

Happy Monday!

Markets off to a solid start to the new week.  Here is the economic data on tap this week:

• CPI INFLATION (WED.)

• PPI INFLATION (THURS.)

• JOBLESS CLAIMS (THURS.)

• RETAIL SALES (FRI.)

• NY FED MANUFACTURING INDEX (FRI.)

No doubt the inflation data will be a key metric to watch – both the PPI on Thursday and CPI on Wednesday.

One risk we face is another wave of inflation.  The below analog does not have to repeat – but it sure does look likely.  It shows the 1970’s in red, and today in blue.
With Trump likely sparking some true, organic growth in the economy (rather than debt driven growth via deficits) – inflation could certainly curl higher.  Add to it the possibility of tariffs – which many feel will be inflationary – and I am high alert.

Oxford Economics/Haver Analytics 11 10 24

Here are the Fed speakers to watch for this  week:

• FOMC MEMBER WALLER (TUES. 10:00AM)

• FOMC MEMBER BARKIN (TUES. 10:15AM)

• FOMC MEMBER KASHKARI (TUES. 2:00PM)

• FOMC MEMBER HARKER (TUES. 5:00PM)

• FOMC MEMBER LOGAN (WED. 9:45AM)

• FOMC MEMBER MUSALEM (WED. 1:00PM)

• FOMC MEMBER SCHMID (WED. 1:30PM)

• FOMC MEMBER KUGLER (THURS. 7:00AM)

• FOMC MEMBER BARKIN (THURS. 9:00AM)

• FED CHAIR POWELL (THURS. 3:00PM)

• FOMC MEMBER WILLIAMS (THURS. 4:15PM)

Here is the latest out of Washington:

• Trump tariff hikes will likely be used as bargaining chips in new trade negotiations (Washington Post)
• Scott Bessent, a leading candidate to become Treasury Secretary, had ‘very positive’ meeting with Trump last Friday (Reuters)
• Trump set to pick ex-ICE head Tom Homan as his US “Border Czar (Axios, link, Reuters)
• Senate GOP leader candidates pounce on Trump’s new demand to seek fast appointments (link, Reuters, Axios)
• Trump’s allies coalesce behind Rick Scott’s bid to lead Senate (FT)
• Republican lawmakers’ first tax-cut challenge will be to seek agreement on the deficit number (link)
• Pentagon worries about Trump’s pledge to “purge” the military of “woke” generals (Reuters)

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Articles of Interest:

• Markets:
  • Treasury breakeven rates trend higher on Trump reflationary policy proposals (FT)
  • Trump trade more complicated than 2016 given higher inflation, deficits, rates, and valuations (link, Bloomberg)
  • Strategists see rising risk of bond weakness, fewer Fed rate cuts (Bloomberg)
  • Investors consider which Trump Trade winners will stick after initial rally (Bloomberg)
  • Bitcoin hits record $80K (Bloomberg)

Central banks:

• Fed chair Powell ready for legal battle if Trump tries to fire him (link)
• Trump return puts new pressure on US inflation and risks ballooning the deficit, complicating Fed’s rate path (Yahoo Finance)

• Economy:
  • US CPI preview – inflation seen moving sideways October, highlighting uneven path complicating Fed’s policy outlook (Bloomberg)
  • Post-Covid inflation spike leaves toxic legacy for governments across rich economies, piling pressure on politicians (FT)
• Geopolitics:
  • Trump reportedly in a call warns Russia’s Putin not to intensify war in Ukraine (Axios, Reuters)
  • Several senior House Republicans privately working on legislation to dramatically alter US trade relationship with China (Punch Bowl)
  • Beijing hopes to use ‘proactive’ tariff cuts and investment offers to draw US allies in Europe and Asia (link)
• Crypto:
  • Bitcoin breaks $81,000 as Trump trade turbocharges cryptocurrencies, GOP closer to clinching control of Congress (FT, Reuters)
• Commodities:
  • More than a quarter of US Gulf of Mexico oil, 16% of natural gas offline after storm Rafael (Reuters)
  • US oil executives eagerly awaiting Trump’s expected rollback of environmental regulations (FT)
  • Trump win a big blow to renewable energy, prompting many developers to projects on hold and investors to dump shares (FT)
  • Former Trump Commerce Secretary Ross says he may carve out tariff exemptions such as Canadian oil & gas (Bloomberg)
  • Global commodities stuck in a holding pattern after China’s latest effort to revive its economy (Bloomberg, Bloomberg)

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Charts of the day:

Sentiment check….

This will be a headwind in 2025.  Americans have a record amount of their assets invested in stocks.  This is due to the last decade of Fed and Fiscal support.

While I doubt it becomes an issue in the next quarter or two – sentiment cannot remain this extreme indefinitely. 

It’s on my radar for next year.

Goldman Sachs 11 11 24

Tech saw outflows last week.  In fact, we just experienced the largest outflows from tech over the last four weeks.

That is good in my view.  It means the market is seeing a rotation into other – less overvalued – sectors.

Bank of America 11 11 24

Small caps have benefited and will probably benefit from more economic growth in a Trump administration.

The P/E discount in Small Caps versus Large Caps is akin to observations made at the turn of the century.

The S&P 600 is trading 25.4% cheaper than the S&P 500.

We find this valuation relationship in 1976, 1998, 2001 and 2020.

Jeff Weniger 11 11 24

Update on Buffett……

• Berkshire Hathaway’s, $BRK, cash position relative to total assets jumped to 28.0% in Q3 2024, the most in at least 34 years.

• This means that Buffett’s cash share has DOUBLED in just a year.

• The company is piling into cash at a faster pace than in the mid-2000’s.

• Back then, this percentage reached 24.5% in Q2 2005 and remained elevated until 2008.

• Berkshire Hathaway also decided to HALT stock buybacks for the first time since 2018.

Kobeissi letter 11 11 24

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Quote of the day:

“It is better to be approximately right, than precisely wrong.”

— Warren Buffett