Dec 16
Europe confronts a demographic doom loop.
@TheRabbitHole84 Births in the European Union have been trending downward for decades.
Immigration, legal and illegal postpones the inevitable day of reckoning for the United States.
Political polarization is fading in the United States. See Washington Post.
Thomas Rogan writes about the drone sightings over New Jersey.
https://x.com/TomRtweets/status/1868027552775967177
One expert has observed that some of the stranger drones videoed at close range match the characteristics of an in-development US Navy reconnaissance and logistics drone.
https://unherd.com/newsroom/us-government-losing-public-trust-over-new-jersey-drones/
Markets and Stocks
The market is in good shape, if a bit expensive. The economy is reasonably strong, 2.5% + GDP growth. Earnings are rising. The Fed is in a prolonged rate cutting cycle and there are several big picture catalysts which are positive, AI, cheap energy and a presidential administration that wants growth.
Very importantly, the Fed is cutting rates and at the same time the economy is growing at a nice pace.
Invest don’t trade. Don’t borrow to buy stocks. Most option trading ends badly.
But short term, say the next six weeks, market performance is just a guess. My personal bet is that the S&P 500 bounces from current levels and ends the first week of January at new all time highs. See below for edited longer comments by Mike Santoli of CNBC.
Institutions and hedge funds will tend to chase Apple into year end. It is an easy name to own. It is the Coca Cola of the AI revolution.
Last week, both American Express and Goldman Sachs presented at a financial services conference. Both companies said that the outlook was very positive. I like both names a lot.
Hood remains very attractive. For patient investors, FLG and GBCI look very good. GBCI is a buy and hold for five years and longer. FLG has the potential to double over the next three years.
As a play on increasing interest in financial markets, CME continues to look good.
Financial deregulation will benefit the biggest banks. I prefer BAC and JPM.
Micron reports Wednesday.
On the data front, retail sales are out Tuesday, with the PCE inflation numbers out on Friday. Personal income, consumption and savings are also reported on Friday.
The Fed will cut rates on Wednesday. But Fed Chair Powell’s post meeting commentary will be hawkish, the economy is stronger than expected and inflation is sticky. But we should get a very good PCE inflation report on Friday.
Fed funds futures pricing shows a 97% likelihood that the Fed bank will lower its benchmark lending rate by a quarter-percentage point, to a target range between 4.25% and 4.50%, down from the 4.50% to 4.75% today.
But the meeting will also bring the Fed’s quarterly summary of economic projections, or “dot plot,” showing how policymakers regard inflation and the jobs market in the year ahead and the outlook for further interest rate cuts.
Santoli writes at CNBC:
While the S&P 500′s trend remains rather unassailable, merely pausing a hair below record highs and holding above the 6000 level for two weeks, the broader market so far in December has softened up and narrowed again.
The equal-weight S&P is off 3% this month, more stocks fell than rose each of the past ten trading sessions, the median component is down 4%, and cyclical bellwether groups industrials and banks have shed closer to 5%. The Nasdaq 100 has countered this pressure with a 4% advance in December, as the growth stock starter pack of Apple, Amazon, Alphabet and Tesla are up between 4% and 26%.
In recent weeks I’ve noted the two-track tape featuring orderly core indexes alongside a rushing current of speculative risk-seeking in select “Trump trades,” resurrected volatile tech, crypto-levered plays and heavily shorted story stocks. Last Monday saw a severe downside reversal in the overheated momentum cohort, with Applovin, Palantirand Microstrategy thumped as laggard boring stocks caught a bid.
Yet this action didn’t spur immediate instability across the market, even as some froth was helpfully skimmed away.
In other words, nothing here to generate significant concern, especially given it all fits with a general tendency of even strong fourth-quarter rallies to hit a soft patch in the first half of December. And perhaps it’s providing an occasion for a pretty cozy and optimistic consensus to consider potential surprises.
The economic-surprise indexes rolled over starting three weeks ago, just as inflation readings have stalled above the Federal Reserve’s target.
This is shifting the perceived interplay of the economy the Fed and the markets. The bond market’s expectation of another quarter-point rate cut next week was solidified by the CPI and PPI inflation readings, which were a bit warm but in ways that aren’t seen filtering into the Fed’s benchmark PCE inflation gauge.
But after that, the path grows foggy, a pause could be more likely, and the ultimate destination of rates might not be too far below where we are. This shouldn’t on its face be a worrying scenario. It would rather closely resemble the stunted 1995 rate-cut cycle of just a few moves over several months, then a long hold as the economy, a productivity boom and equity markets levitated.
This vocal minority might well be wondering how much fruit is left to pick after two straight years of 20%-plus S&P 500 gains. History says such a two-year performance in itself is neither a scary portent nor a ticket to further riches. The year following back-to-back 20% up years on balance delivers the longer-run average performance both in frequency and magnitude of gains the following year – with wide variation from high to low.
Apple in general tends to go on a run as a rally matures, rather than lead the market off a correction. Blending quality financials, defensive properties and now a story that fits with investors’ craving for the next AI beneficiaries in digital services, Apple is an easy name to grab for to top up equity exposure. Note, though, the chart also shows these flourishes have often set the stage for early-year pullbacks.
The market can carry higher with full valuations and upbeat expectations so long as plausible forecasts of double-digit earnings growth next year are hit - and the policy carrot is held in front of Wall Street rather than the stick threatening trade flows and labor supply.
It’s nearly a sure thing that – as everyone anticipates – merger volumes and initial public offerings will start to proliferate, trends that tend to coincide with a higher-metabolism market, bolstering valuations and investor confidence for a time before they overshoot into value destruction and excess equity supply. ( I think GS looks terrific.)
We should all celebrate technological innovation.
From
SpaceX could be key to avoiding (or winning) a US-China conflict.Elon Musk’s company has become a critical force in defense technology, its value recently soaring to $350 billion.
Its advancements, like the Starlink satellite network and Starship rockets, are revolutionizing military capabilities, giving the US a significant strategic edge over rivals: “Todd Harrison, a space policy analyst with the American Enterprise Institute, said it would probably take China 10 years to develop a rocket with carrying capacity like Starship’s, giving the U.S. military a window of exclusivity.”
Starlink’s encrypted communications and real-time surveillance are transforming battlefield tactics, while Starship’s massive payload capacity could enable rapid troop and equipment deployment: “Security experts say SpaceX has leapfrogged so far ahead in several critical technologies that it could deter major rivals like China from engaging in a war with the United States — or tip the balance if one breaks out.” (Wapo)
Quantum computing is on the horizon. The technology, long considered a major “if,” is now clearly only a question of “when.” Quantum systems, unlike traditional computers, use "qubits" capable of holding multiple states simultaneously, enabling exponential computational power. Google’s machine recently surpassed a key threshold in error correction, demonstrating reduced mistakes as qubit counts grow:
Google said its quantum computer, based on a computer chip called Willow, needed less than five minutes to perform a mathematical calculation that one of the world’s most powerful supercomputers could not complete in 10 septillion years, a length of time that exceeds the age of the known universe.
This achievement could have major implications for fields like drug discovery, AI, and national security. (NYT)
Nvidia introduces AI that can mull things over. CEO Jensen Huanghighlighted a transformative concept during the company’s recent earnings call: "long thinking" AI models. This next generation of AI is poised to reason deeply and tackle complex challenges over extended periods. Unlike earlier AI models, which excelled in rapid responses but often made errors, "long thinking" models take more time to deliberate, providing updates and seeking feedback. These models promise not only smarter AI but also a significant economic impact, driving demand for advanced infrastructure and scaling AI's capabilities across industries. (WSJ)
Economics
It is a positive development that many states are pivoting to SKILLs away from credentials when making employment decisions. 33220
In the past two years, 25 states have enacted executive orders and legislation to reduce unnecessary degree requirements for public sector jobs, signaling a shift toward skill-based hiring.
This paper examines the impact of these policy commitments on public perceptions, media coverage, and job posting practices in the time following their adoption.
Our analysis reveals significant increases in public awareness of skill-based hiring concepts, such as the 'paper ceiling' (i.e., bachelor’s degree analog of the glass ceiling), and a notable decline in bachelor’s degree requirements in state government job postings.
We estimate that degree requirements dropped by 2.5 percentage points for each additional year of policy exposure in states with commitments.
These findings suggest that state policy commitments have expanded access to government jobs for workers skilled through alternative routes (STARs) other than the bachelor’s degree in keeping with the intended goals of the policies to broaden the talent pool for public sector hiring.
https://www.nber.org/papers/w33220
Politics
If you don’t like technology’s obeisance To Trump, support rolling back the administrative state.
The $1 million donations came gradually — and then all at once.
Meta. Amazon. OpenAI’s Sam Altman. Each of these Silicon Valley companies or their leaders promised to support President-elect Donald J. Trump’s inaugural committee with seven-figure checks over the past week, often accompanied by a pilgrimage to Mar-a-Lago to bend the knee.
The procession of tech leaders who traveled to hobnob with Mr. Trump face-to-face included Sundar Pichai, Google’s chief executive, and Sergey Brin, a Google founder, who together dined with Mr. Trump on Thursday. Tim Cook, Apple’s chief executive, shared a meal with Mr. Trump on Friday. And Jeff Bezos, the founder of Amazon, planned to meet with Mr. Trump in the next few days.
This was the week when many tech companies and their top executives, as reluctant as they may have been, acknowledged the reality of getting business done in Mr. Trump’s Washington. With their donations, visits and comments, they joined a party that has already raged for a month, as a cohort of influential Silicon Valley billionaires, led by Elon Musk, began running parts of Mr. Trump’s transition after endorsing him in the campaign.
While businesses frequently try to get on an incoming president’s good side, the frenzy of tech activity stood out from other industries. Until President Obama’s administration, the tech industry had largely stayed aloof from politics. Some wrote just small checks for Mr. Trump’s first inauguration. See the New York Times.