AM Brew, June 3rd 2022

SORRY: This was supposed to be distributed 2.5 hours ago prior to the market open:

Yesterday's action looked like bullish confirmation. The morning opened strong, with the pre-market futures up around 0.5% across the board, then Microsoft guided towards a stitch of weakness, and stocks traded down hard in the first 75 minutes. Then, by the end of the day, a large broad-based rally ensued, with the scariest names faring the best:

Our take is that the bear market downdraft is off the table at this time and that stocks will have a bid on any further declines. This market looks safe to range trade.

Musk announced that TSLA would like to reduce staff by 10% due to his "super bad feeling" about the economy. Musk isn't alone, things are getting a tad scarier than normal.

Yesterday's action in crude oil was manic in a pattern similar to equities, but in the opposite direction:

The Saudi announcement on production increases caused oil to fall $5, which was fully reversed when the market realized the output increase was only equal to 0.4% of global demand. Even worse, market participants are doubting whether the Saudis will be able to quickly deliver on the proposed 648,000 barrel a day increase. Oil shows that although yesterday looked like a classic follow through day, it was more confirmation that there is enough value out there to keep a floor on the market around 3800 on the S&P. This has been a good range trading market, and since earnings season is more than a month away, it appears that the upcoming month will be a good range trading market.

Global inflation should be getting more news: Turkish inflation in April & May exceeded 70%. Wow. Korean inflation, after a decade of 1%, is now 5%. The European area headline inflation is about 8% now, and the UK is in the danger zone with a 9% inflation rate. A little over a week ago, we were talking about oil not breaching $112. Now we are talking about oil staying under $120. That is a lot of price pressure in just a few days. Oil has advanced 6 straight weeks. INFLATION was CRAZY BEFORE this SIX STRAIGHT WEEK RISE.

Yesterday California voted to give GM's Cruise division ( no relation to TopGun: Maverick ) approval to operate driverless taxis. Note that they have been offering free rides since February, so the test must have gone well. Its going to take a decade, but this is the start of Plato's utopian world. Thousands of years ago, the Greeks' pontificated that man's ultimate world would be one of education & leisure - well, its coming in the form of robots. Thirty years from now, life is going to be easy, but 12 years from now, its going to be an economic storm as the robots take jobs out of the inflationary economy. This worker scarcity is only likely to increase the pace of robotic adoption - robots don't need annual raises for their loyalty. The decade of the 30s is likely to be worse than the last one, as robots take all the jobs and there is no political solution on how to distribute the benefits of the utopian society. Of course, do your own research & form your own opinion, but we are preparing ourselves now for this possibility. Apartments seem like one area to over-weight as people will still need a place to live in their unemployed bliss.

If you don't think this is relevant information, think again. Right now you have the choice of listening to Jerome Powell or you can pay attention to the underlying seismic activity - the global population is aging & lazy, and there is a worker shortage, which is inflationary. Robotic and automation technology is quickly approaching human capability and costs are coming down fast. When the robots take a large portion of jobs, it will be the largest economic dislocation in market history. Start preparing now. Don't believe me, Musk just said that Tesla is unveiling a robot as early as September. Tesla is always a year early, so Musk is going to have a functioning robot out there by Christmas 2023. Insane. By 2027, this robot will be able to do a lot, and it will be cheap. Right now, the robot can "only" deadlift 150 pounds and go at 5 mph, but by 2027, this thing will be closer to double that for the higher end models. If it really can do a 10 pound arm extend lift, this robot is functionally close to a healthy human male. GM's Cruise news alone is normally big, but 2 AI announcements in 2 days - its coming, take time out of your day-trading to think about preparing soon:

Goldman is noting that Emerging Markets tend to outperform in periods of dollar/commodity strength. Since asset allocation can explain as much as 90% of performance, we will be publishing more on this topic in posts for our premium subscribers.

Yesterday's ADP employment data should mute any effects of today's non-farm payroll release. Equity futures are off a tad, which should be expected after such a great rally on no news.

Yesterday's market action was a bit unusual, but the last week-and-a-half has shown that there is buying interest out there. Last year, with rates under 1%, the stock market was absolutely the only game in town. That said, in 2021, inflation was 4% and interest rates 1%, so real rates were negative -3%. Today, fixed income investing is a bit less scary, with yields around 4% for low risk bonds, but inflation is hovering around 7%, so real rates are still in the negative -3% range. In real terms, fixed income is just as scary as ever, but stocks are NOW A LOT CHEAPER.

The S&P sold off hard yesterday after Microsoft's slight quarterly warning, but even MSFT ended the day up ! This is a classic range trading market: a bad news item spurs a selloff, then a good news item brings it right back. Google & Amazon have been strong for a few days straight now, so that is a slight headwind for the indices, as they got recent help off heavily sold lows.

Here is a brief post on energy from our charting guys. Energy seems to be the key to everything, as its so unpredictable & so important.