Thursday, May 10, 2018

Stock Market Goldilocks Reports Today. Porridge Anyone?


In one small 8:30 am speck of time today we had very low CPI and another blow out jobs number. Can anyone say Goldilocks?

Goldilocks Market

The late 1990s were coined Goldilocks, as in it's story book. After a bout of macro headwinds, rate hikes, geopolitical mess, this morning's economic numbers could mean Goldilocks.

Perfect Economic Reports This Morning

If you are still bearish please look in the mirror and ask yourself why. Don't fight the Fed means to be bullish when they cut rates and cautious when they raise rates.

That said, let's think.

Low inflation, can they keep aggressively raising rates? No way, right? They'd risk sending the economy into a deflationary spiral that they couldn't get out of.

CPI, Oh My

Today's .1% core CPI number was nuts. Point-one is nuts. The Fed said they were near their 2% target and so they can raise rates.  Let's do the math .1% X 12 months is, help me here, much less than 2%. I don't have a calculator. Use your fingers.

A few more point-ones and they can't raise rates for a long time. That's a big change in the (don't make me use this word) narrative (ugh, I used that word for the first time, it's become so cliche, please forgive me.)

Jobs, Oh My

Source
Jobless claims are right near (I think a few thousand year) all-time lows for three weeks in a row. No job-LESS claims means a strong economy. No multiplied by Less = People have jobs.

Market Melt-Up?

So you have no inflation and a steaming jobs market. That means you get the growth but you don't need to put out the inflation-fire with higher rates so you have the chance for a market melt-up.

I can't believe I just said that.

Valuations are measured on a DCF basis, Discounted Cash Flows.  Future cash flows are your numerator and the prevailing interest rate is your denominator.  But when the future denominator goes down, meaning you don't expect rate hikes, what happens to your future value? Math whizzes? (answer in comments) Answer: Valuations go up. As in melt-up.

Tech's Leading

Apple new highs, Intel new highs, Cisco new highs, Microsoft new highs, NVIDIA new highs. Notice any pattern? New highs anyone?

Tech's accelerating revenue trend this quarter now combined with low inflation and strong jobs make for a beautiful 1990s recipe for porridge. Goldilocks anyone?

Conclusion

I'm bulled up, as in melt-up-bulled-up.  Porridge anyone?



Reading Comprehension

Porridge is
A) A type of bird.
B) The goalie for the Canadians.
C) The mean lawyer Trump tweeted against.
D) What stock market bulls eat.

Please answer in comments.






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