FOMC policy ?3

10:16 16-Dec-21

Europe has followed suit with the Fed by also tapering, and the Bank of England just did a surprise rate hike making it the first in the rich world to move.  Housing starts also jumped in November underlining the danger should both real estate and market prices ebb.  All of this makes Powell's nothing-burger of press conference yesterday even more amusing; per my notes below, Fed credibility may be hitting an all-time low.  The dollar initially dove to €/$1.123, but then quickly jumped to €/$1.129 yesterday and has spiked again to just below €/$1.135 this morning.  Despite that, hydrocarbon prices are up across the board, with Henry Hub at $3.88 while TTF and JKM have spiked to $43.68 and $43.20 for January and February, respectively, over the past week. 

NFE and GLNG are rebounding along with the rest of the market, and I think they will have far more staying power (though still with volatility) than most stocks; inflation is only positive for stocks in the short term, and the Fed will be forced to react.  That goes double for XEBEF/XBC as Europe tightens methane emission regulation and promotes hydrogen adoption, even as it considers joint import purchases.  On the other side of the pond Clean Energy has wracked up more supply contracts.  For the record, I've been watching the December declines in CLNE, but would only buy shares well below $6.  All this has to be weighed against the pandemic, and LUMN remains another value in my eyes, due to early indications from Korea.  Furthermore, Nokia may have a product to ease build out.  I also feel compelled to reiterate that VIRT and BGCP should reap the benefits of the coming market dynamic.

In other stock-specific news, Akoustis has a fourth tier-1 5G customer to which it should sample early next year, hopefully leading to a foundry agreement in 2023.  I think AKTS is attractively priced for the long term, but there's no predicting December pricing.  More trivially, UDC extended its contract with Tianma, in China, and Westport has extended its debt maturity with Canada.

The Fed has issued its statement with a slightly more dovish tilt than many had come to expect.  It doubled its tapering projection for December to cut $20b and $10b from treasury and mortgage backed security purchases for this month, and intends to double that cut again in January.  This still puts us on a pace to wind down more quickly... in March barring further adjustments.  That will be followed by higher rates; the dot plot changed to show 3 rate hikes for each of the next two years.  Compare that to the dot plots from June or March and the trend toward higher rates is clear.

Equity markets jumped on the temporary reprieve, but the Fed is toasting stale bread as far as I am concerned.  I doubt inflation will abate as the administration is saying, since it is putting ever more pressure on China.  Though the reasons are good, disruption of global commerce seems likely to continue.  With rich world debt at record levels, this is going to take views on continued hot readings from a kitchen fire to burning house status, increasing the chances of a severe correction early next year.