FedAir is on Fire
Hot oil has it burning. Markets aren't liking the ride.
The Fed spoke and moved markets today, but it really shouldn’t have bumped the needle at all because the Fed only said what most people expected it to say. I had said — merely in keeping with the majority opinion on this particular matter of great concern — that the Fed would mostly likely hold on interest hikes at this September meeting and then raise rates another time later this year and stay higher for longer.
That to me was as safe as betting the dog-food bowl with all the dog food in it would get all the doggone attention. After all, the Fed has pretty well been waving the one bowl with all the meat in it since its last meeting and projecting the same trajectory in vaguer terms before that meeting. So, this packed all the surprise of months-old news.
That is exactly what the Fed did. Yet, all major stock indices fell because of what the Fed spoke, and Treasury yields ascended new heights not seen since the start of the Great Recession. All this really demonstrated to me was the complacency in markets that was causing them to lean toward dreams because they are fueled by greed, rather than reality. No surprise there either. Just verifiable proof of the markets’ chosen ignorance of their circumstances.
The Fed spoke straight reality and, in fact, hardly even acknowledged the recent rise in inflation at all, which would have been far more hawkish, because the Fed Heads were hoping to continue to look victorious over inflation … and in control. Hoping to sound like they are still piloting the aircraft toward a safe landing, instead of admitting to the passengers it has been taken over by a Saudi Arab flight crew armed with oil-production box cutters. The soft-landing prospects are starting to look a little more like flight 911 to me than like FedAir. But, according to former Pilot Powell, we are still flying the Fed-friendly skies, united.
The stock market’s primary fear gauge — the VIX — has reached the low peg of complacency, but some commenters in the news today said they expect that to change as the market reorganizes its thinking a bit about the apparently “surprise” reality of another Fed rate hike. Of course, it is no surprise to me that the market would be surprised, and I’ve said it likely would.
Bonds took the hint, so yields soared, climbing to temperature levels long unseen, pretty much across the Fed’s instrument panel. That, of course, will create more competition for stocks to show stronger earnings to prove they can beat safer bond yields — something stocks are not able to show in most cases. So, stock prices will descend if this rise in Treasury yields holds, which it certainly should if any real oxygen entered back into investor brains today.
It’s those slippery oil prices
Well, it’s a lot of things really; but the driving news for all of this, which gained momentum in sweeping headlines today, is the likely duration and height of the rise in oil prices with several articles in today’s news noting that petroleum prices now own the inflation fight just like they did back in the 70s and 80s. Those oil temp. gauges are looking very hot. The four bright-red oil temperature lights for the four engines on the Fed’s 747 should be making the cockpit glow like the Vegas strip. One economist I respect has been on the falling inflation viewpoint for awhile, changed to neutral this summer, and today says that rising petroleum prices have changed the game. Inflation just got “sticky at last,” he wrote summarily.
So, viewpoints on Oilprice.com, Morningstar, and other sites are coalescing around my own summer proclamation that oil was helping inflation put in that upward turn I had predicted for both and that it will continue to drive that move. The idea that Arab oil now owns the inflation war is now emerging as a consensus view.
Meanwhile, on that thick and sticky turn that the labor market has been slogging through back at ground level, Amazon announced massive hiring decisions for the remainder of the year and a pay boost to try to attract all the new laborers it needs. Pilot Powell didn’t mention that either, as he claimed labor is doing what the Fed wants it to. Speaking of those wage increases, the UAW is hitting the point all the harder that the big CEOs of the Big-Three automakers can take a big fat kick in their big butts in terms of their own astronomical salaries in order to pay labor a whole heck of a lot more.
Inflation has lit the fire as workers now fight to make sure they lose nothing to it and tell companies they can give the hit to the overpaid higher-ups in the hiring hierarchy. Diminished competition among labor has finally strengthened their bargaining hand. Expect to hear all kinds of arguments about how we need to let in a lot more cheap immigrants in order to stop this from happening because God forbid CEOs and shareholders make less than customary 20% gains each year on their stocks through buybacks that deploy all that surplus company cash plus dividends plus bloated cash salaries.
Of course, the argument will not be worded quite that truthfully, party politics being what they are.
So, expect a little more turbulence on FedAir in the months ahead as the slick bankers and the oil barrens wrestle for control of the cockpit and as management and labor get in a food fight between first-class and economy in the passenger cabin. The loaded pop cans and wine glasses will be cross-firing up and down the aisle in holiday jubilee.
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(Headlines supporting the editorial above appear in boldface in the aggregated news that follows.)
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