Newsletters - Past Issues

What is different here lately?

Last Friday the market sold off hard with the Dow having dropped close to 1000 points before recovering to close down 610. The rebound late in the day did little to ease the pain for investors however. Most of the usual stock favorites got obliterated and no doubt serious damage was done to investor portfolios.

One of the rumored causes was that the number of unemployed spiked up past expectations. Adding to the monetary conflagration was the fact that Intel, the iconic microchip company, fell by a whopping 21% on a bad earnings report. It also announced it would lay off about 15% of its workforce. The one day hammering was the worst day for Intel stock in 5 decades and exasperated the bleak unemployment numbers.

What is interesting in this particular rout was how the market reacted to the negative news of the day. Simply put, whereas stock markets long ago used to sell off on bad economic news as it meant declining sales and earnings, in recent decades when bad economic news came out, the markets would rise. This was because the Federal Reserve (the FED) repeatedly were quick on the trigger to halt any significant market downturns by using the many monetary tools at its disposal. These tools include lowering interest rates, funneling cash to the banking `system` and easing credit requirements.

Eventually market participants learned over the years that ill markets brought the FED to the rescue. That rescue included using their many financial tools to flood the `system` with money which would thereby goose the markets upwards.  Simply put, if the economic campfire was starting to go out, they would pour this monetary gasoline on it to get it going again. 

The FED did it so many times in the last few decades, Wall Street and the FED itself began to believe they were omnipotent and could negate any downturns by simply raining money down on Wall Street.

So often did the FED act on sour market news, Wall Street named the reaction by the FED on the down markets the “FED PUT”.  This term basically meant that investors and Wall Street alike would not have to fear an all-out market crash as any severe and persistent downturn would be met with FED actions to stop it.

With this FED PUT in place, over time bad news soon became good news because bad news meant the FED would act to juice the markets upwards.

If unemployment spiked, the FEDS would fire up the printing presses. If a large hedge fund went broke and threatened to bring down the system, the FEDS cobble together a bail out. An out of the blue event like 9/11 perhaps would find the FEDS coordinating stock purchasing en masse along with the Wall Street and the banking industry.

Fast forward to today, and the world economy is coming out of an unprecedented world shutdown from CoVid and the massive amount of rescue money printed to stave off a global depression from it. This has resulted in massive and ongoing inflation resulting from that money printing. Since FED money creation is argued to have caused the inflation, the FED can no longer print away a market crash due to that same inflation.

Last week when the unemployment news came out, bad as it was, Wall Street perhaps finally realized there would be no FED to the rescue. It simply can’t print any more money to finance any more bailouts as that would cause even more inflation.

And unlike so many times before, this time around the economy’s worsening condition moved the markets downward. A radical change from a market that rose or fell depending on what the FED would do.

This was a meaningful departure from what had been for decades where any economic weakness would be perceived to be followed by the FED’s printing press. Perhaps the markets will now have to start to reflect the health of the economy instead of being a market driven solely by the repeated steroid injections of easy money by the FED.

  “Watching the markets so you don’t have to”    

(end)    

(As mentioned please use the below disclaimer exactly) THANKS   (Regulations)    

This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, and California Insurance License #0L34249 His insurance agency is BAP INC. insurance services.  Email: news@moneymanagementradio.com

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Ouch!

Last month in the state of Maryland, a huge cargo ship lost power and plowed into a key connecting bridge which subsequently collapsed and blocked the port of Baltimore and killing at least half a dozen people.

Reminding readers of last week’s article discussing how the lack of attentiveness continually costs us both money, time and, unfortunately at times, precious lives, the tragic accident of a ship containing 4700 cargo containers is a stark example of a costly mistake.

Considering the ship was capable of carrying 10,000 containers, I suppose we are fortunate it was not filled to capacity.

It didn’t matter. This mid-sized sea monster, and yes there are larger ships, lost complete power and hit one of the bridges support structures and the entire bridge collapsed in a heap of twisted metal. A source of mine said the cause was bad fuel taken on overseas which had killed the engine multiple times in port but this is unsubstantiated at this point in time.

This is yet another example of how somebody, or many somebodies, failed to do something the way it was supposed to be done and now we have a big mess to clean up, a host of heart broken families and likely another reason to believe inflation may get a big boost as a result.

And yes, although most of the cargo should be able to be salvaged, the delay to shipping by the blockage of this major east coast port will no doubt add to the cost of something to somebody.

Onboard was 41,000 tons of fertilizer bound for other ports of call, and being spring, it couldn’t have come at a worse time. Some of the fertilizer made it into the waterways of the Patapsco River where the accident occurred and an ecological disaster may be in the making

If you view photos of the aftermath, it’s obvious it will be weeks before the ship is offloaded and cleared from the scene. The Port of Baltimore is no small potatoes when it comes to ports. It ranks among the top 20 U.S. ports in terms of tonnage and container handling, is the 10th largest for dry bulk, and is a major hub for the import and export of motorized vehicles. The accident blocked all of its ports except one.

Washington has released 60 million in funds to help with the recovery and cleanup efforts with likely more to follow. Gigantic cranes, able to lift hundreds of tons at a clip, are hurriedly moving into the area.

The disassembly of both the ship and the wreck is a slow, tedious and dangerous process. The bridge is in pieces, twisted metal everywhere, and workers have to be extra careful, both for their own safety and the safety of the waters of the Patapsco.

Much like a Jenga set, any wrong move could cause more pieces to plunge uncontrollably into the turbulent waters, causing even more damage, making the cleanup even harder.

Although there are ships that were waiting to get into the Port of Baltimore and now have to be rerouted, more ships are trapped up river and now can’t get out until the waterway is cleared. According to the Department of Transportation, there are 3 bulk carriers, 2 general cargo ships, 1 vehicle carrier, 1 tanker, 4 Ready Reserve Force vessels, and the offending cargo ship, the Dali, now trapped behind the fallen bridge

No doubt product, whatever it is all those ships are carrying, or were going to carry, will be delayed, and some product may spoil depending on what is where.

The rerouting of incoming ships will also be costly and time consuming, and expected to last for literally months. Rebuilding of the bridge so cars may once again cross will likely be a very long time from now, adding even more costs as a result of the wreck.

It’s difficult to ascertain just exactly what the costs will be to us living here on the West Coast, or indeed, to all Americans when all is said and done.

One thing is clear, it certainly won’t help prices to come down any.

“Watching the markets so you don’t have to”                

This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, and California Insurance License #0L34249. His insurance agency is BAP INC. insurance services.  Email: news@moneymanagementradio.com

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