The Muddy Market – by Justin Vaughn

(Justin Vaughn, Editor, Options Trading Report)

Across the board, this week stocks have edged lower, with the high-techs being abused to a greater degree. Investors and traders alike are worried about the future tightening and the effects of the early moves by the Federal Reserve. Chairman Jerome Powell has warned that with the already imposed rate increases and the expected future increases that the economy could ‘soften’ and lead to a more sustained fall and into a ‘real’ economic slow-down. Enter the…Bear. “An economic downturn is certainly a possibility,” Mr. Powell said during the congressional hearings yesterday, Wednesday. Stocks have whipsawed the last several weeks as the inflation cloud hovers over the markets. The present S&P 500 is near a record, suffering its worst first half of the year since 1962, as noted by Dow Jones Market Data. Crude oil has receded a bit settling in the $107 to $110 range, after a strong run-up, forcing gasoline prices to the $5.00 range throughout the U.S. In the first week of June, U.S. gasoline stations were ‘off’ 8.2%, with the trend likely to continue throughout the summer. Big oil also is also directly affected by wild inflation as consumer demand wains, and retail prices accelerate, happening presently. (add in the massive sales of EV autos). Many commodities are being tossed and turned by the threat of developing inflation, with copper falling 2.3%, and selling near $4.00 a pound, off from its consistent levels of $4.00 to $4.65. Other base metals are also affected with downturns exceeding upticks.

Where ‘oh’ where are the workers…A most puzzling question that seems to have no answer. As businesses struggle back to a sense of normalcy, finding new hires is nearly impossible. Smaller businesses with less than 50 employees are hit the hardest. They are unable to find and replace lost workers, many of which ‘disappeared’ during the intense Covid- 19 outbreak. Even with offering higher wages and better benefits, finding employees is a difficult situation. As one small business stated; ‘we are fighting an uphill battle. “The severity of the labor shortage means you’re paying workers more and your construction schedules are longer, both of which are big drivers in overall cost,” said Brian Turmail, the industry group’s vice president of public affairs and strategic initiatives.’

The natural gas merry-go-around with its soaring prices is worsening, as the sanctions are biting-in. As a major component and contributor to inflation, there is no stopping natural gas prices. Sadly, there is little ‘back-up’ to take up the shortage, as Russia ‘was’ a major supplier to a majority of European countries. Much of our natural gas (U.S.) is now being sent to the European Theatre to bolster those countries previously supplied by Russia, Almost 12 to 13 billion cubic feet is heading to Europe each day, as the U.S. is the world’s largest producer. Canada, Algeria, and Norway are also picking up the ‘slack.’ “There is almost no ceiling for natural gas, you can reduce your driving a lot easier than you can reduce your natural gas consumption,” said Kent Bayazitoglu, analyst, at energy consultant Baker & O’Brien, Inc.


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Ellen Meade, Retired from the Federal Reserve last year as a senior advisor, WSJ Referring to the course of action Fed Chair Powell is taking. “If he’s willing to blow up carefully laid plans to deliver a hawkish surprise, we should take him at his word that he will stay the course.”

Lou Barnes, mortgage banker, in Boulder, Colorado. WSJ “You can’t double mortgage rates in a 6-month span and live to tell about it,” he said. “At 6%-plus, mortgages will be very painful.”

James Gorman, CEO Morgan-Stanley, on why he’s “pretty relaxed” about a possible recession. Barron’s “We’re in a brave new world right now, I don’t think anyone can accurately predict inflation one year from now.”

Lawrence Summers, economist, and professor, Harvard University, Barron’s “There’s a phrase that my children use: TMI or too much information. It’s an idea that central banks might want to include more in their repertoire.” He adds, “I think the 0.75-percentage point move was a desirable move for the Fed’s credibility, but I don’t think the Fed helped itself with the new projections and rhetoric. We are still headed for a pretty hard landing.”