Sideways Markets, Yellen Inflation Indicator, Kohl’s Deal, AMD Offer

Metal health…

Well I’m frustrated

Outmoded

I really want to be overrated

I am a discoverer

And I’m a keeper

I’m not a loser and I’m not crying

– Cavazo, Sarzo, DuBrow, Banali (Quiet Riot), 1983

The fun house

Maybe it’s like a visit to the Hall of Mirrors? One mirror makes you look small and fat, the next…tall and thin. Each mirror is intentionally distorted. For a true reflection of its real appearance, you have to leave the attraction. Shares opened at the low on Tuesday and rallied from there. On Monday, stocks opened higher and sold from there. Friday, no one cared. On Thursday, we saw everything bottom-up play out. In fact, since taking its 21-day EMA (exponential moving average) on May 31 on high trading volume, the S&P 500 (as well as the S&P 400, S&P 600, Dow Transports, Philadelphia Semiconductors, Nasdaq Composite, Nasdaq 100 and Russell 2000), has really moved for the most part…sideways on low trading volume.

Just look at how, at least the S&P 500 has nestled between the support at this (green) 21-day line, despite being breached more than once, and the resistance just below a 38.2% Fibonacci retracement from early January to May. Relative strength has also remained close to perfect neutrality since May, while the daily MACD for this index, showing a 12-day EMA that bullishly topped the 26-day EMA, also shows both of these averages in negative territory. , while the nine-day EMA histogram is frankly positive.

The S&P 500, Nasdaq Composite, Nasdaq 100, Dow Transports, smaller cap indices and Philly Semis are all reaching, as if out of reach, their respective 50-day SMAs. Taking this line would somehow not only validate the trading bottom, which was established on May 12 and confirmed on the 20th and 24th, but would authenticate the place of these indices on the right (recovery) side of this bear market. , because the “50” is the first of the two major moving averages that always seem to have the most influence with portfolio managers and weight with their respective risk managers.

The volume of trade? How do we explain the volume of transactions? The overall trading volume attributed to the S&P 500 has only touched the 50-day SMA trading volume for this index once since May 20, and that was due to month-end positioning. Ditto for the Nasdaq Composite. It’s as if everyone who matters is comfortable right here in this tight range, with a certain amount of capital at risk and a certain amount on the side…while they wait. Expect May CPI data on Friday and expect May retail sales and FOMC policy statement next Tuesday.

Wednesday morning

Early Wednesday morning, stock index futures looked set to open into the hole in response to a weak open in Europe and mixed trading in Asia. It would be a plus for the market if recent trading trends persist. The US Ten Year Note is again paying over 3%. Keep in mind that the Treasury raffled off $33 billion worth of ten-year paper this afternoon, and the three-year note auction on Tuesday afternoon went poorly with very few request foreign accounts. The US dollar strengthens overnight against the pound, euro and yen, but is more or less stable against the loonie. Most cryptocurrencies are well off their Tuesday highs.

Good news !!

Treasury Secretary Janet Yellen apparently expects consumer inflation to remain elevated. Testifying before the Senate Finance Committee, Madam Secretary said: “There is no doubt that we have enormous inflationary pressures, that inflation is really our main economic problem at this point and that it is essential that we let’s fix it. I expect inflation to stay high even though I really hope it will come down.”

We hope it goes down too, Janet. I thought you said “good news”, Sarge? I did it. As most of you who are not new to the world of fiscal and monetary policy are well aware, Ms. Yellen has regularly been a contrary indicator when it comes to projecting inflation. As Fed chair she admittedly never was able to understand why the Phillips curve didn’t work in this environment and why the Fed for years couldn’t cause consumer level inflation close to its target rate of 2%. As Secretary of the Treasury, she did not see this kind of inflation coming.

In all honesty, I haven’t seen inflation rise much above all else with a handful year over year and have seen it peak in March. (This pic may still turn out to be correct.) You already know that if you’re reading me. The war in Eastern Europe and the way mainland China handled Covid in 2022 were impossible to see in advance, and both had a huge impact on rising inflation this year. That’s why I shake my head and laugh when I hear the pundits call out the Fed as if they missed something obvious. I doubt too many of these experts, and you know who they are, ever venture into a projection of their own before the fact that can be guessed.

The fact is, however, that results matter, even if the game changes while you’re playing it, and Yellen’s track record on inflation suggests that if she considers inflation to be persistent, it’s likely already peaked. Again, we hope. She hopes.

Block None

It looks like the stars are lining up for President Biden’s nominee for vice president for oversight (and a seat on the board of governors) at the Federal Reserve. Michael Barr, a longtime Treasury Department veteran who has largely remained publicly apolitical, unlike the president’s first choice for the job, Sarah Bloom Raskin. Barr won the support of three Republican members of the Senate Banking Committee, Pat Toomey of Pennsylvania, Mike Rounds of South Dakota and Cynthia Lummis of Wyoming, who all indicated they would vote for Barr on Wednesday (today) when the committee meets to vote on Barr’s nomination.

Michael Barr was one of Dodd-Frank’s “behind-the-scenes” architects and said he doesn’t see the Fed as having the power to allocate credit or use financial regulation as a means to accelerate the transition to a low-carbon economy. economy.

Mr. and Mrs. America are at an impasse

The Federal Reserve released its April consumer credit report on Tuesday evening. The number printed at a meteoric rise of $38 billion, after a downwardly revised increase (but still a multi-year high) of $47.4 billion for March. April expectations were for growth of around $32 billion. Non-revolving loans (car loans, student loans, etc.) increased “only” by 7.1% in April, after increasing by 7.6% in March and by 8.5% in February, after having hovered around 5% for years. Beyond that, revolving credit (credit cards) rose 19.6% in April on top of a torrid print of 29% for March, after that line hovered around 8% growth or less. for years until the end of 2021.

There’s no doubt that Mr. and Mrs. Average American rely on credit more than ever to maintain their household’s standard of living. While those of us who are castle bound will point to the hot American consumer, those of us who have lived on both sides of the fence understand that these consumers would not stock up on revolving credit in an inflationary environment. which will eventually put them, their families and their revolving debt in a bad place unless they deem it necessary.

Do you remember that glut of savings that was going to entice American consumers? Yeah, good times. This is not the case.

Cheaper offer?

The gang that couldn’t pull it straight, also known as Kohl’s Corp (KSS), is apparently in advanced talks to be sold in an estimated $8 billion deal. Kohl’s has, according to the Wall Street Journal, entered into exclusive talks with the holding company known as the Franchise Group (FRG). FRG reportedly offered about $60 per share for KSS, which is higher than the $50 offer allegedly made by private equity firm Sycamore Partners.

This period of exclusivity is expected to last three weeks while the two parties negotiate. Keep in mind that Kohl’s is rumored to have received offers approaching $70 in the past and managed to screw it all up, as shareholders inexplicably backed the current board in a recent vote at the company wide. KSS closed up 8.2% on Tuesday at $45.59. FRG also traded higher, closing at $38.77 (+4.8%).

More money

On Tuesday, Advanced Micro Devices (AMD) announced pricing for an underwritten offering of $1 billion in senior notes. This offering consists of $500 million of 3.924% Senior Notes due 2032 and $500 million of 4.393% Senior Notes due 2052. The Notes will be senior unsecured obligations of AMD. The offer is expected to close on June 9 (Thursday). The net proceeds will be used for general corporate purposes.

At the end of the March quarter, AMD had $6.532 billion in net cash on the balance sheet and a current ratio of 2.39. It’s excellent. Excluding inventory valued at $2.431 billion, the business held steady with a quick ratio of 1.96. Always excellent.

The company had no short-term borrowings on the balance sheet and $1.475 billion in long-term debt, of which $312 million was considered current. AMD could pay off its long-term debt out of pocket and can still do so next week. Free cash flow, as you were going to ask, has been exceptionally strong for five quarters now.

This offer, as important as it may seem, does not materially or negatively impact my very positive perception of the health of AMD’s balance sheet. (I’m long AMD, and potentially biased.)

Economy (all Eastern times)

07:00 – 30-year MBA mortgage rate (weekly): Last 5.33%.

07:00 – MBA Mortgage Applications (Weekly): Latest -2.3% w/w.

10:00 a.m. – Wholesaler inventories (April): Expected 2.1% m/m, latest 2.7% m/m.

10:30 a.m. – Oil inventories (weekly): Last -5.068M.

10:30 a.m. – Fuel stocks (weekly): Last -711K.

1:00 p.m. – Auction of ten-year tickets: $33 billion.

The Fed (all Eastern times)

Fed blackout period.

Highlights of Today’s Earnings (PSE Consensus Expectations)

Before the Open: (CPB) (.61), (OLLI) (.31), (THO) (4.79)

After the close: (FIVE) (.58)

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