“But most investors do capitulate eventually. They simply run out of the resolve needed to hold out. Once the asset has doubled or tripled in price on the way up — or halved on the way down — many people feel so stupid and wrong, and are so envious of those who’ve profited from the fad or side-stepped the decline, that they lose the will to resist further. My favorite quote on this subject is from Charles Kindleberger: “There is nothing as disturbing to one’s well-being and judgment as to see a friend get rich” (Manias, Panics, and Crashes: A History of Financial Crises, 1989). Market participants are pained by the money that others have made and they’ve missed out on, and they’re afraid the trend (and the pain) will continue further. They conclude that joining the herd will stop the pain, so they surrender. Eventually they buy the asset well into its rise or sell after it has fallen a great deal. In other words, after failing to do the right thing in stage one, they compound the error by taking that action in stage three, when it has become the wrong thing to do. That’s capitulation. It’s a highly destructive aspect of investor behavior during cycles, and a great example of psychology-induced error at its worst.” ― Howard Marks

1. U.S. Consumer Prices Jump Most Since 2008 — the consumer price index jumped 0.9% in June and 5.4% from the same month last year, according to Labor Department data released Tuesday. Excluding the volatile food and energy components, the so-called core CPI rose 4.5% from June 2020, the largest advance since November 1991. Used vehicles accounted for more than a third of the gain in the CPI, the agency said. The outsize increase was also driven in large part by the pricing rebound in categories associated with a broader reopening of the economy including hotel stays, car rentals, apparel and airfares.
2. Senate Democrats Agree on $3.5 Trillion Infrastructure Bill — Senate Majority Leader Chuck Schumer announced that Democrats on the Senate Budget Committee and White House officials had clinched a deal on a $3.5 trillion investment plan. The proposal notably includes a significant expansion of the Medicare healthcare program for the elderly as well as major spending on education, child care, and the fight against climate change. The deal would come on top of a separate bipartisan infrastructure bill currently being discussed that would add some $600 billion of new spending to invest in roads, bridges, and broadband connections.
3. CDC says deaths on the rise again after weeks of decline — “After weeks of declines, seven-day average daily deaths have increased by 26% to 211 per day,” Dr. Rochelle Walensky said during a press briefing. New cases are also on the rise, with a current seven-day average of 26,300 cases, according to the CDC. That is an increase of roughly 70% from the seven day average last week. The seven-day average for hospitalizations is now at 2,790, up about 36% from a week ago after weeks of decline. Reflecting on the new numbers, Walensky said the pandemic has now become a “pandemic of the unvaccinated.” The five states with the highest case rates, Arkansas, Florida, Louisiana, Missouri and Nevada, all had a higher rate of new vaccinations compared to the national average.
4. Biden’s Hong Kong Warning Sends Message to Companies, China — The Biden administration warned investors about the risks of doing business in Hong Kong, issuing an advisory saying China’s push to exert more control over the financial hub threatens the rule of law and endangers employees and data. The U.S. warning singles out the Hong Kong’s National Security Law, imposed on the territory by Beijing last year, as a key concern. It said the vaguely-worded legislation has been used to justify the arrest of foreign nationals, including a U.S. citizen, to undermine data security, and to allow warrantless electronic surveillance.

The week ahead — Economic data from Econoday.com:

“In business, financial and market cycles, most excesses on the upside — and the inevitable reactions to the downside, which also tend to overshoot — are the result of exaggerated swings of the pendulum of psychology. Thus understanding and being alert to excessive swings is an entry-level requirement for avoiding harm from cyclical extremes, and hopefully for profiting from them.”
― Howard Marks

1. Fed Officials See Earlier End for Bond Buying — Fed officials discussing the matter at their June 15-16 policy meeting weren’t ready to reduce their $120 billion in monthly purchases of Treasury and mortgage securities, according to minutes of the gathering released Wednesday. The minutes offer a strong sign officials will ramp up more formal deliberations at their next meeting, July 27-28, over when and how to reduce the bond buying. Officials generally judged that, “as a matter of prudent planning, it was important to be well positioned to reduce the pace of asset purchases, if appropriate, in response to unexpected economic developments, including faster-than-anticipated progress” toward the Fed’s inflation and employment goals or risks of too much inflation.
2. Tokyo Olympics to Ban Spectators in City as Virus Resurges — the Tokyo Olympics will ban domestic spectators in events held in Japan’s capital, revising an earlier decision to allow some fans, as the resurgence of virus cases pushed the government to declare a state of emergency in the city. The decision, announced by Olympic Minister Tamayo Marukawa, comes after Japanese Prime Minister Yoshihide Suga declared a fourth state of emergency for Tokyo, running from July 12 through Aug. 22. It’s a reversal from a decision last month to limit the number of spectators at either 10,000 or 50% of venue capacity, whichever is smaller.
More than half of the 43 Olympic and Paralympic venues, including the 68,000-capacity National Stadium that’s set to host the opening ceremony on July 23, are located in Tokyo. Organizers had said that a no-spectator scenario was possible, depending on the virus situation. A decision to bar fans from overseas was announced in March.
3. Biden to Target Railroads, Ocean Shipping in Executive Order — the Biden administration will push regulators to confront consolidation and perceived anticompetitive pricing in the ocean shipping and railroad industries as part of a broad effort to blunt the power of big business to dominate industries, according to a person familiar with the situation. The administration says the relatively small number of major players in the ocean-shipping trade and in the U.S. freight rail business has enabled companies to charge unreasonable fees. The STB proposed a competitive switching rule in 2016 but hasn’t yet acted on it. “The consolidation brought about much-needed rationalization in the system 25 years ago, but the net result is a lot of shippers who are subject to a market-dominant railroad,” said a government official briefed on the White House’s proposal for the STB.
4. Biogen Faces FDA Probe of Alzheimer’s Drug Approval — the head of the U.S. Food and Drug Administration said she is seeking a federal investigation of the approval of the Biogen Inc. Alzheimer’s disease drug Aduhelm, a highly unusual step that will increase scrutiny of a heavily criticized clearance. Aduhelm was granted approval by the FDA last month over the objection of outside scientific advisers who had voted against the drug last November. The agency ordered Biogen to do an additional trial to confirm that the therapy benefits patients, and given nine years to produce data.

The week ahead — Economic data from Econoday.com:

“Skepticism and pessimism aren’t synonymous. Skepticism calls for pessimism when optimism is excessive. But it also calls for optimism when pessimism is excessive.”
― Howard Marks

1. Costly New Alzheimer’s Drug Could Force Medicare to Restrict Access — Biogen Inc. priced the drug Aduhelm at $56,000 a year. Wall Street analysts estimate it could eventually surpass $5 billion in yearly sales, mostly paid by Medicare, while some health economists warn the bill would be multiples higher.
Medicare normally pays unconditionally for approved medicines. To limit the financial hit from Aduhelm, however, Medicare could restrict access, former U.S. health officials and health-policy experts said. Aside from the medicine itself, there is the cost of infusing the drug, brain-imaging tests and doctor visits, said Scott A. Small, director of Columbia University’s Alzheimer’s Disease Research Center. The total cost will approximate $100,000 annually per patient, he said. Paying for the treatment will largely fall on Medicare, which provides health insurance to people 65 years and older and covers most of the six million Americans with Alzheimer’s.
2. United Airlines Bets on Post-Pandemic Growth With Its Biggest Ever Jet Order — the Chicago-based airline said last week that it will purchase 200 of Boeing Co. BA +0.40% ’s 737 MAX jets and 70 larger Airbus EADSY -1.53% SE A321neos, a deal valued at more than $30 billion at list prices before customary discounts. United is looking to replace most of its 50-seat jets and other smaller, older aircraft with these larger planes that can carry more passengers and allow it to sell more premium seats. United’s move follows recent jet orders from carriers including Southwest Airlines Co. and Alaska Air Group Inc. The recovery has helped Boeing clear most of its inventory of unclaimed MAX jets. United had previously unveiled plans to buy an additional 25 MAX jets and to accelerate delivery of dozens more to meet near-term demand, but the carrier said the orders unveiled Tuesday are part of a more detailed post-pandemic strategy. United said the new planes would help it add almost 30% more seats per domestic flight and 75% more premium seats in first class or with extra legroom.
3. Robinhood’s Luster Stained Again With a Record $70 Million Fine — Financial Industry Regulatory Authority fines almost $70 million from the brokerage in a record settlement Wednesday, including a $57 million fine and about $12.6 million in payments to aggrieved customers. It follows Robinhood’s meteoric rise against the backdrop of the Covid-19 pandemic and the frenzy over hot stocks such as GameStop Corp. that warped the realm of retail trading. The agency accused Robinhood of misleading customers, having weak technology oversight and allowing thousands of users to trade options even though they may not have been suitable candidates, among other infractions.
4. Fed’s Harker Supports Start of Bond Buying Pullback Later This Year — Federal Reserve Bank of Philadelphia President Patrick Harker said Thursday that while an interest rate rise lies some ways in the distance, he is ready for the U.S. central bank to begin slowing the pace of its asset buying stimulus this year. Officials have been focused on what to do with their $80 billion a month in Treasury bond buying and $40 billion a month in mortgage bond purchases. At the FOMC meeting last month, Fed Chairman Jerome Powell acknowledged officials are discussing pulling back on the support but offered no details for when, or how, that might play out.

The week ahead — Economic data from Econoday.com:

“The last four and a half years have been carefree, halcyon times for investors. That doesn’t mean it’ll stay that way. I’ll give Warren Buffett the last word, as I often do: “It’s only when the tide goes out that you find out who’s been swimming naked.” Pollyannas take note: the tide cannot come in forever.”
― Howard Marks

1. U.S. Existing Home Sales Fell for a Fourth Straight Month in May — contract closings decreased 0.9% from the prior month to an annualized 5.8 million, according to data out Tuesday from the National Association of Realtors. The median forecast in a Bloomberg survey of economists called for a 5.73 million rate in May. Home prices will likely remain elevated for some time as builders struggle to replace the deficit in existing homes with new builds. They cite high materials prices, supply shortages and a limited number of skilled workers as ongoing challenges. The median selling price rose 23.6% from a year ago to a record $350,300 in May.
2. Mideast Joins Bitcoin Craze With First Dubai Crypto Listing — the Canadian fund was the first of its type to be listed on a major exchange, in Toronto last year. The intent of the Dubai listing is to get trading at all hours around the globe. Dubai-based Dalma Capital Management Ltd. is the joint lead arranger for the offering. The Bitcoin Fund invests in long-term holdings of Bitcoin as a safer alternative to direct investments in the cryptocurrency, according to its prospectus. The fund does not speculate with regard to short-term changes in Bitcoin prices.
3. Fauci Calls Delta Variant the “Greatest Threat” to Defeating Coronavirus — Delta, first identified in India, is now about 20.6% of new U.S. cases and is expected to become the dominant strain, said Dr. Rochelle Walensky, director of the Centers for Disease Control and Prevention. Delta is estimated to be 60% more transmissible than the Alpha variant first identified in the U.K. Fauci said studies have shown that the Pfizer – BioNTech vaccine is 88% effective against the Delta variant two weeks after the second dose, and he urged Americans to get fully vaccinated to “crush the outbreak.”
4. Biden, Senators Agree to Roughly $1 Trillion Infrastructure Plan — President Biden and a group of centrist senators agreed to a roughly $1 trillion infrastructure plan, securing a long-sought bipartisan deal on overhauling the nation’s transportation, water and broadband infrastructure that lawmakers and the White House will now attempt to shepherd through a closely-divided Capitol Hill. Drafts of the agreement had called for $579 billion of spending above expected federal levels, totaling $973 billion over five years and $1.2 trillion if continued over eight. The lawmakers had discussed financing the package with a mix of public-private partnerships, existing federal funds, and revenue collected from enhanced enforcement at the Internal Revenue Service.
5. Hong Kong will ban all passenger flights from the United Kingdom starting July 1, 2021 — the government classified the U.K. as an “extremely high risk,” citing the rebound of the cases in the U.K. and the “widespread Delta variant virus strain there,” the Associated Press reported. People who have spent more than two hours in the U.K. will be prohibited from boarding passenger flights to Hong Kong. Hong Kong has one of the world’s strictest quarantine requirements for incoming passengers, and had recently increased quarantines for travelers from the U.K. to three weeks in hotel quarantine, The Financial Times reported. The Delta variant now makes up 99% of new cases in the U.K.

The week ahead — Economic data from Econoday.com:

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
― Howard Marks

1. U.S. Retail Sales Drop, Hinting at Shift to Spending on Services — the total value of retail purchases fell 1.3% in May following an upwardly revised 0.9% gain in April, Commerce Department figures showed Tuesday. The median estimate in a Bloomberg survey of economists called for a 0.8% decrease. For the last year, demand for goods has been propped up by elevated savings supported by fiscal stimulus, bringing total retail sales well above pre-pandemic levels. The May decline in retail sales suggests that as travel picks up and entertainment venues reopen, spending on goods is starting to moderate.
2. U.S. Talking to China on Boeing 737 Max Approval — The Biden administration is engaging with China in an effort to win approval for Boeing Co.’s 737 Max planes, which remain banned in the country even as other jurisdictions have reauthorized it following crashes. the two countries have yet to resume formal trade negotiations since President Joe Biden took office and initiated a broad review of China relations. Raimondo brought positive news for Boeing, with the U.S. and the European Union agreeing to extend a tariff truce for five years — parking a dispute over aircraft subsidies given to Airbus SE and Boeing that saw the allies impose duties on $11.5 billion of each other’s exports.
3. Fed Signals Earlier Interest-Rate Rise — Fed officials signaled interest rates will rise sooner and faster than previously expected, a surprise development that comes as inflation runs much hotter than officials have anticipated. Seven officials now expect to lift interest rates next year, up from four officials in March. More important: All but five members think rates will need to increase in 2023. In March, only 7 thought so, with 11 members expecting to keep rates pinned at zero. Markets have been expecting no change in rates before 2024. And more important still is the fact that five officials now see rates at 1% or higher in 2023, suggesting rates won’t just rise sooner but faster. The Fed’s statement Wednesday said it would continue buying $120 billion a month in Treasuries and mortgage-backed securities, but Powell opened the door to a tapering announcement during his press conference.

The week ahead — Economic data from Econoday.com:

“The desire for more, the fear of missing out, the tendency to compare against others, the influence of the crowd and the dream of the sure thing—these factors are near universal. Thus they have a profound collective impact on most investors and most markets. The result is mistakes, and those mistakes are frequent, widespread and recurring.”
― Howard Marks

1. Eli Lilly May Be a Big Winner From the FDA’s Alzheimer’s Decision — The company is developing its own Alzheimer’s therapy, called donanemab, which works along the same principles as Aduhelm. Analysts say the details of the FDA’s decision on Aduhelm may allow Lilly to file for approval for donanemab far sooner than expected. Eli lilly’s unveiling of data from a donanemab trial called Trailblazer-ALZ in March was a major event for investors. While the data showed that the drug had rapidly and dramatically cleared amyloid plaque, the brain buildup thought to have a role in Alzheimer’s disease, experts noted that that the slowing of cognitive decline seen in the study was not statistically significant by all measures.
2. U.S. Senate Is Poised to Pass China Bill — The U.S. Senate could soon pass a wide-ranging China bill that has bipartisan support for major investments to boost the country’s technology edge over China. The package focuses on bolstering U.S. leadership in areas like artificial intelligence, high-performance computing, and advanced manufacturing. The package also lays out funding to increase chip production domestically.
Other proposals range from trying to secure U.S. research and innovation at academic centers from foreign intervention to calling for a domestic boycott of the Winter 2022 Olympics in Beijing.
The package offers a framework for the evolving U.S.-China relationship on multiple fronts as policy makers try to find a balance between pushing back against China over human rights concerns and technology-related issues while avoiding damaging U.S. companies’ lucrative business in China.
3. Bipartisan Group of Senators Reaches Agreement on Infrastructure Proposal — Members of a bipartisan group of senators said they had reached an agreement on an infrastructure proposal that would be fully paid for without tax increases. While the group of 10 senators didn’t reveal details of the plan in its statement, people familiar with the agreement said it called for $579 billion above expected future federal spending on infrastructure. The overall proposal would spend $974 billion over five years and $1.2 trillion if it continued over eight years, according to some of the people.
4. U.S. Inflation Is Highest in 13 Years as Prices Surge 5% — The Labor Department said last month’s increase in the consumer-price index was the largest since August 2008, when the reading rose 5.4%. The core-price index, which excludes the often-volatile categories of food and energy, jumped 3.8% in May from the year before—the largest increase for that reading since June 1992. May’s jump in prices extends a trend that accelerated this spring amid widespread Covid-19 vaccinations, relaxed business restrictions, trillions of dollars in federal pandemic relief programs and ample household savings—all of which have stoked demand for Americans to spend and travel more.
Overall prices jumped at a 9.7% annualized rate over the three months ended in May. On a month-to-month basis, overall prices rose a seasonally adjusted 0.6% and core prices rose 0.7%.

The week ahead — Economic data from Econoday.com:

June 4, 2021 Weekly Recap Will Not Be Published This Week; The Office is Closed for Some Needed R&R

The week ahead — Economic data from Econoday.com:

1. GOP to Offer Biden Nearly $1 Trillion for Infrastructure Plan — Democratic lawmakers have warned that time is running short to determine whether a bipartisan deal on infrastructure is possible, with progressives already calling for a go-it-alone approach using fast-track budget procedures. A new offer around $1 trillion would still be well short of Friday’s $1.7 trillion proposal from the White House. On Friday, the Biden administration reduced its proposal by more than $500 billion from an initial $2.25 trillion by lowering spending on roads, bridges and broadband and saying he is willing to make investments in the manufacturing sector in separate bills — like the China-focused legislation on the Senate floor this week.
2. HSBC to Exit Unprofitable U.S. Retail Banking — HSBC, Europe’s second-largest bank by assets said it would sell most of its branches on the U.S.’s east and west coast to Citizens Bank and Cathay Bank, respectively, as part of a plan to implement some $4.5 billion of cost cuts, shed 35,000 jobs worldwide, and shift its main focus to Asia. The British-Asian bank is also in talks with U.S. private-equity fund Cerberus Capital Management to unload its loss-making French operations. HSBC lost $547 million in wealth management and personal banking in the U.S. last year, compared with the $5 billion profit it made in Hong Kong and the rest of Asia.
2. Amazon to Buy MGM for $6.5 Billion Excluding Debt — Amazon.com Inc. to buy James Bond movie company Metro-Goldwyn-Mayer, potentially taking one of the last major independent film studios off the market. The proliferation of streaming services, including newer arrivals such as Disney+, HBO Max and Paramount+, has put pressure on Amazon to acquire more programming. MGM’s vast backlog also provides plenty of material at a time when production of new shows and movies is still recovering from the pandemic.
4. Ford Announces $30 Billion Commitment to its Electric Vehicles Future — Ford Motor is expanding its commitment to vehicle electrification, surprising investors with plans to increase spending on electric vehicles to $30 billion by 2025. It added $8 billion to its previous spending goal, and said it will target the additional money for battery production.
Ford, which sold about 4.2 million vehicles in 2020, expects electric vehicles to be 40% of its sales by 2030. Some analysts say its electric-vehicle strategy has lagged behind General Motors and Volkswagen, which is providing its EV technology to Ford for future plug-in offerings in Europe.
5. Senate Republicans Block Jan. 6 Riot Commission — Senate Republicans blocked the creation of a bipartisan, independent commission to investigate the Jan. 6 assault on the U.S. Capitol by a pro-Trump mob, after GOP leaders urged colleagues to reject it. The bill needed 60 votes to advance in the evenly divided Senate, thanks to the chamber’s longstanding filibuster rule. That means 10 Republicans would have had to vote with all 50 members of the Democratic caucus to allow the bill to proceed. Only six did, and the legislation fell short, with 54 votes in favor and 35 against, with 11 senators not voting.
6. Biden Is Expected to Unveil $6 Trillion Spending Plan — the president is proposing a $6 trillion budget for fiscal year 2022, which begins Oct. 1, according to people familiar with the plans. That includes $1.52 trillion in discretionary spending for the military and domestic programs, including more funding for education, healthcare, research and renewable energy, White House officials said in April. Under the proposal, debt as a percentage of annual gross domestic product would within a few years exceed the level at the end of World War II and climb to 117% of GDP by the end of 2031, according to people familiar with the matter. That would be up from about 100% this year.

The week ahead — Economic data from Econoday.com:

“There are three ingredients for success—aggressiveness, timing and skill—and if you have enough aggressiveness at the right time, you don’t need that much skill.”
― Howard Marks

1. WarnerMedia’s Combination with Discovery Is the Latest Salvo in the Streaming Wars — WarnerMedia’s combination with Discovery creates the second-largest U.S. media company behind Walt Disney. Viacom and Comcast, the parent of NBCUniversal, will find themselves on the smaller end after the deal closes in terms of streaming scale, competing against their rivals’ bigger subscriber bases with their Paramount+ and Peacock offerings.
2. New York Drops Masks and Capacity Limits, a Potential Boon to Tourism — New York officially drops mask mandates for the vaccinated and capacity limits for everything from restaurants to museums and theaters on Wednesday, a potential boon to New York City’s economy as workers return to Midtown offices and tourists repopulate Times Square. More than 42% of all New Yorkers have been fully vaccinated as of Tuesday, and 12- to 15-year-olds became eligible for the Pfizer shots last week. Nearly 53% of the state’s adults are fully vaccinated. Tourists can get vaccinated in the city.
3. Fed Officials Discussed Tapering Bond Buying in the Latest Fed Minutes — The minutes related to the Federal Open Market Committee meeting at the end of April, before a weak report on the number of jobs added that month and before the April consumer-price index reported the fastest yearly increase since 2008. In the minutes, Fed officials noted elevated risk appetite in capital markets. “Should investor risk appetite fall, an associated drop in asset prices coupled with high business and financial leverage could have adverse implications for the real economy,” the minutes said. Supply chain bottlenecks and input shortages may not be resolved quickly, the minutes said, and could put upward pressure on prices.
4. Treasury Calls for Crypto Transfers Over $10,000 to Be Reported to IRS — The U.S. Treasury said the Biden administration’s proposal to strengthen tax compliance includes a requirement for transfers of at least $10,000 of cryptocurrency to be reported to the Internal Revenue Service. Cash transactions in excess of $10,000 are already subject to IRS reporting requirements.
The IRS in 2020 added a line about cryptocurrency on the Form 1040, the individual tax return, in an effort to gain more visibility into virtual currency transactions.

The week ahead — Economic data from Econoday.com:

May 14, 2021 Weekly Recap Will Not Be Published This Week; The Office is Closed for Some Needed R&R

The week ahead — Economic data from Econoday.com: