Weekly Market Comment: June 12th

The chip industry remains in a (dill) pickle. 

U.S. consumer price inflation grew last month at a 13-year-high rate of 5%, while core inflation (excluding food and energy) was up 3.8%. While unexpected and possibly the germination of sustained inflation, Mr. Market shrugged it off and touched new highs, while gold (traditionally an inflation hedge) yawned and went back to sleep (up $3 to $1898). Of course, just because the market doesn’t believe it today doesn’t mean it won’t change its mind.

A lot of the inflation gain was again found in used car prices, fueled by difficulty with sourcing microchips for new cars.  We’ve heard anecdotally that some new car manufacturers have cars built but awaiting computer chips.  

As for the shortage, that was related to a spike in demand for electronic goods to make quarantine life less painful to endure, mixed with pandemic-caused factory closures as well as weather problems (namely a water shortage in Taiwan due to no typhoons making landfall, which resulted in half the normal rain levels).  According to the South China Morning Post, the shortage – which they believe will last into 2022 – was also affected by the “US-China tech war”.

And you thought you had insecurities

The FBI managed to recover 75 Bitcoin of the ransomware payments made to the Colonia Pipeline hackers. They not only tracked the money to over a dozen cryptocurrency wallets, but they were able to open those wallet because they had the passwords. They didn’t say how they managed to get the passwords but they did. The subtext is that Uncle Sam can access your crypto wallet if motivated to do so.  So much for crypto’s security?

Naturally, Bitcoin got smoked on the news and was trading below half its former peak value. What’s the price now? Who knows! Because whatever price we might type here, it’s likely to be quite different than when you read these words.

What remains popular as ever is fiat cash, that is cash issued by governments. It’s so popular that banks are witnessing a sort of reverse-run on reserves, partly stoked by pandemic-inspired saving by consumers with nowhere to spend it, mixed with some financial insecurity due to fears of the pandemic unknown.  The Fed spending $120 billion buying back bonds is playing a large role as well.  For example, when the central bank buys a bond in the secondary market from, say, a pension fund, the central bank can’t just hand over newly-minted electronic money to the pension fund. Such central bank cash “reserves” can only be held by banks, so they get the electronic cash. That makes the bank bigger.  It also makes bank-to-bank lending rates fall. 

The last time some banks turned away money was in 2008 when their lending business dried up. Something similar is happening today, as customers both retail and corporate prefer to sit on their savings and not borrow (having just been to hell and back due to the pandemic).

It's yet another example of market distortion brought on by the pandemic.

Never forget.

The FDA granted Biogen’s controversial Alzheimer’s drug accelerated approval, meaning the drug could hit the market but follow up research illustrating its benefits will be required to keep the drug on the market.  The drug attempts to reduce amyloid, the brain-clogging protein thought by many to cause Alzheimer’s.

Other drugs combatting amyloid are in the works by other pharma companies.  All of these efforts have been years in the making and there are no assurances of success.  But such is the nature of big pharmaceutical companies that are often pilloried as being greedy. Yes, they are greedy. Anyone chasing profits is, to some degree. And sometimes that greed reaches disgusting and immoral levels and should be curbed and corrected.

But as the work towards solving Alzheimer’s or the pandemic illustrate, outsized profits only happen if pharma produces tangible, life-preserving results that are of great benefit to us all.

Noteworthy links:

• Why Canada won’t open its doors
• Green junk bonds may not deliver green results
• Get to know mCloud’s Arnel Santos, former COO of Nova Chemicals
• How America fractured into four parts (an excellent, though long, look into the vastly different ways Americans view their own country)
• Salman Rushdie on literature
• Book review: ‘Shape’ makes geometry entertaining. Really, it does.
• Photos of the week, by The Atlantic

Musings Beyond the Markets

Does plexiglass at restaurants, banks and offices really work? Based on skyrocketing sales past $750 million last spring, one would assume that it’s effective. Yet, there have been no published studies on their efficacy and is why,  according to a Harvard indoor-air researcher, displays of plexiglass shields amounts to little more than “hygiene theater,” reports Bloomberg.

Where the plexiglass is widely believed to help is when two people stand face-to-face closely, such as a customer walking up to a kiosk or bank teller.  But for larger, less directional interactions such as offices and schools, such shields are the wrong focus. Instead, better air filtration and ventilation are key.  And research does substantiate that improving ventilation and mask-wearing yields safer outcomes than erecting plastic sheets.

Improved air ventilation is what we, at the Cadence Financial Group at Raymond James, have focused on, having recently hired mCloud Technologies to install SecureAire, a system to filter contaminants and electrostatically kill pathogens such as bacteria and viruses half the size of a coronavirus.

This system costs several thousands of dollars per year to run but is our commitment to the safety of our team and visiting clients - which we anticipate will eventually climb toward more normal levels at some point in the future.

We would like to extend a special thanks to mCloud and our friend Warren for helping make this happen.

Word of the Week

bedraggled (adj.) – dirty and disheveled. “Looking at her, bedraggled and beaten, some might have seen weakness. He saw strength, determination, and a will no one could crush.” – Nalini Singh