In hisDaily Market Notes report to investors, while commenting on the peace dividend, Louis Navellier wrote:
Q2 2021 hedge fund letters, conferences and more
Another Peace Dividend
The U.S. is now effectively out of the nation building business, so it will be interesting how the U.S. Defense Department budget will be impacted in the future. The real wars now a days are predominately economic wars where China has been perceived to be the big winner. It is possible that if defense spending plunges in the upcoming years that the stock market may benefit from what many like to call a “peace dividend.”
The 10-year Treasury bond declined during the Afghanistan crisis, so all eyes are now on the Fed to see how it impacts monetary policy. Interestingly, The Wall Street Journal this week had an “exclusive” report that Fed “officials are nearing agreement to begin scaling back their easy money policies in about three months if the economic recovery continues.” This WSJ article implies that the Fed many announce at their September 21st and 22nd Federal Open Market Committee (FOMC) meeting when the Fed may commence curtailing its $120 billion per month in quantitative easing. Frankly, if the FOMC clarifies that it may curtail its quantitative easing, it may not happen until 2022. Furthermore, if and when the Fed curtails its quantitative easing, I bet that the FOMC will merely “downshift” to approximately $80 billion per month in quantitative easing.
Powell's Uncertainty
At his virtual “town hall” on Tuesday, Fed Chairman Jerome Powell offered no views on monetary policy, but said “It’s not yet clear whether the Delta (coronavirus) strain will have important effects on the economy; we’ll have to see about that.” In other words, Fed Chairman Powell has an uncertain economic outlook, so I expect that Fed policy will remain unchanged and that any tapering decision will be kicked down the road.
The most interesting comments from a Fed official came from Minneapolis Fed President, Neil Kashkari, who on Tuesday was speaking at the Pacific Northwest Economic Regional Annual Summit in Big Sky, Montana. Specifically, Kashari, who implemented the TARP programs during the 2008 financial crisis, said “Cryptocurrency is 95% fraud, hype, noise and confusion.” Yikes! I think we know what Neil’s opinion is about cryptocurrencies. Interestingly, the Fed some time ago declared Bitcoin and other cryptocurrencies as “not legal tender.” However, the Treasury Department declared cryptocurrencies as “an asset” and in your 2020 tax return, you are required to declare your cryptocurrency transactions. Clearly, the regulators cannot agree on cryptocurrencies, so confusion reigns!
Slowing Growth
There are signs this week that economic growth may be slowing. As an example, the Commerce Department on Wednesday announced that new housing starts declined 7% which was below economists’ consensus estimate of an annual pace of 1.61 million. However, as long as there is a low inventory of homes for sale and rising median prices, I expect that most homebuilders will continue to post record profits.
The Commerce Department reported on Tuesday that retail sales declined 1.1% in July, which was substantially worse than economists’ consensus estimate
Interestingly, the WSJ reported that a MasterCard tracker of consumer spending, excluding vehicle sales & gas stations, rose approximately 11% in July compared to a year ago. MasterCard also reported that in the past 12 months, spending on apparel & jewelry surged 80%, while restaurant revenue rose 61%. Based on these consumer spending patterns, it appears that consumers are getting out and about, so the Covid-19 Delta variant is not yet curtailing consumer spending.
I should add that China’s National Bureau of Statistics reported this week that retail sales decelerated to an 8.5% improvement in July, down from June’s 12.1% retail sales gain. There is a growing concern that China’s strict Covid-19 restrictions may impact economic growth after China recently shutdown all inbound and outbound services at its Meishan terminal at its Zhoushan port, due to a Covid-19 outbreak. The Zhoushan port is the third busiest port in the world and specializes in shipping containers that go predominately to Europe and the U.S. This is the second time this year that the Zhoushan port had to be closed under China’s “zero tolerance” policy.
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