Legend Art Cashin died yesterday. He will be sorely missed. In the meantime, China just launched a trade war against the US.
Legend Art Cashin Dies
December 3 (King World News) – Peter Boockvar: My heart breaks with the loss of Art Cashin, both a good friend and an irreplaceable market participant and source for so many of us. His daily writings were always a must read and his personal friendship was something I always treasured as it was not every day when a legend was your friend. The one story I’ll give was his sole use of cash whenever we had dinner together, the countless memorable times. It was typically in a group setting, whether small or large, and he would first request an early start but would usually leave early, leaving me with either one or two crisp $100 bills to cover his cost of dinner. As it was always too much, I would keep the balance in my wallet and thus be his temporary bank, unfortunately without interest, with whatever was left over. The next time we would have dinner, I would make sure to give him his ‘withdrawal’ which he would then apply to that dinner’s bill. Art, as I know you’re reading my comments today from wherever you are now, as you always did and I thank you, I will miss you very much, both personally and professionally.
On to the Fed…
On to the Fed and I must say the focus of their analysis on whether to cut rates again in December and thereafter is becoming very myopic by their dismissive attitude towards markets and their holy grail view of restrictiveness and narrow focus of it. What is the stock market measuring anyway? Is it a reflection of the market’s view of the present value of future cash flows with a discount rate used? An earnings forecast with a P/E multiple slapped on? Is it just a casino? Is it just some random reflection of emotions with no regards to underlying fundamentals? I want to believe it is mainly the first choice but why would Fed Governor Waller say yesterday in a prepared speech, “I believe the evidence is strong that policy continues to be significantly restrictive and that cutting again will only mean that we aren’t pressing on the brake pedal quite as hard.” Evidence strong? Significantly restrictive? Governor Waller, please be specific, what exactly is being restricted and significantly? Are credit spreads at near record tights and stock market multiples near record highs sending any message that might be worth listening to about the economic and earnings outlook? Yes, the cost of capital is high for many, whether for business or households or anyone in commercial real estate but how do you square this with financial conditions?
As yes, the stock market is not the economy and vice versa, there still is a relationship between earnings growth and stock prices with the unknown multiple applied to it. If the case, why is the Fed ignoring what the market is telling us? What if the stock market is right that the economic and earnings prospects are looking bright with it trading at a record high and near record multiple? Because if it is not and if the Fed is right and its policy is restrictive, implying it is restricting economic activity, then we have an epic equity bubble on our hands. If the stock market is right, then the Fed’s indifference towards it is going to lead to further easing just as the economy is improving which then risks this whole inflation fight.
So Dear Fed, don’t ignore markets. Maybe the economy does need some more rate cuts but wouldn’t it be prudent to wait for some more information on the message that it is currently sending? I believe so and please be more specific of what your definition of ‘restrictive’ is in the current context…
ALERT:
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China Launches Trade War Against US
In response to the newly announced export controls on more semi products, particularly high bandwidth memory and certain equipment, to China by the outgoing Biden administration, we’re getting a taste of what is to come with tariffs too as China has now banned the shipments of gallium, germanium and antimony to the US. These are key raw materials that we need. According to Reuters, “Gallium and germanium are used in semiconductors, while germanium is also used in infrared technology, fiber optic cables and solar cells.” Antimony seems to be used in a lot of different end markets.
Speaking of chips, Microchip lowered its revenue guidance last night and said “We indicated in our November 2, 2024 earnings call that significant turns orders were required to achieve the midpoint of our December 2024 quarter revenue guidance. Those turns orders have been slower than anticipated and we now expect our December 2024 revenue to be close to the low end of our original guidance which is $1.025 billion.”
Also, “With inventory levels high and having ample capacity in place, we have decided to shut down our Tempe wafer fabrication facility that we refer to as Fab 2.”
We are being reminded again that outside of the AI spend ecosystem, the semiconductor industry is still challenged by lackluster demand for PCs, smartphones and industrial uses.
Chaos In France
French politics is headed for a no confidence vote tomorrow as the Barnier government is about to be the shortest tenured rule since 1958 but markets are relatively unperturbed. The euro is holding the $1.05 level and French oats are tame. That said, the CAC is down on the year, also hurt by the luxury brands and slower China spend on its products.
All Hell Is About To Break Loose
To listen to this timely and powerful audio interview with Michael Oliver CLICK HERE OR ON THE IMAGE BELOW.
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