Now we know what the long-anticipated and incessantly discussed “taper” will look like. And it starts a little earlier than some investors hoped.

So why are markets cheering? The answer is simple . . . but perhaps the immediate future won’t live up to what people say they want to happen.

First, a bit of good news. The Fed made one thing perfectly clear. The taper doesn’t necessarily mean short-term interest rates will climb on any fixed schedule.

Once monthly asset purchases stop, long-term rates will finally be free to find their own level. But the short end of the yield curve will stay exactly where it is until we see “maximum employment.”

That’s probably unemployment below 4% and probably closer to 3.5%, where it bottomed out before the pandemic.

And we are a long way from that world. While today’s job creation numbers were encouraging, the last recovery cycle took three years from the current level to hit “maximum.”

Even Jay Powell, ever the optimist, thinks we might see a rate hike a year from now. That’s a long time.

The Problem

However, there’s a problem. People hope earnings will stay ahead of the Fed because P/E multiples that look reasonable in a near-zero-rate world become unworkable as the rate environment heats up.

It’s really simple math. To support a given share price, a company needs to maintain a certain level of earnings. That level gets higher as interest rates rise.

(Technically the real problem is that the maximum P/E multiple investors are willing to accept goes down with every rate hike. In a normal rate environment, we want to see 15-18X earnings, which makes the 21-22X multiples we see across the market today precarious at best.)

Between now and the theoretical moment that the Fed feels comfortable letting long-term rates rise all the way back to around 3%, earnings need to expand 40% to make that math work.

I think the process will take years and the market as a whole can probably make that lift by that point. However, the road to that equilibrium point won’t be free from bumps.

Sometimes earnings will get ahead of the Fed and rate-adjusted multiples will contract. But sometimes the Fed will take the lead and earnings just won’t be able to grow fast enough to counteract the drag.

When that happens, the “P” in the P/E calculation needs to drop in order to keep the numbers flowing in the right direction. That means prices need to fall.

It means a correction. We might not get it this month or next month, but early 2022 earnings comparisons will start getting extremely challenging . . . especially if inflation remains a factor.

And that’s not even counting the artificial speed bump that higher corporate tax rates would create. One way or another, the biggest companies need to show us 40 percentage points of growth before the Fed declares victory.

That might take four years if my forecasts are on the money. In that scenario, unless the Fed is extremely lenient, there’s a significant correction on the horizon.

I don’t think the Fed can be lenient with inflation chewing on everything. The minute they can claim their employment target has been satisfied, they’ll start pushing on rates in order to keep the economy from overheating.

It’s no wonder we’re having a lot of fun with options in this environment. My High Octane Trader has been booking about 8% per trade net (counting the occasional strikeout in with the base hits) and when you look at a 9-day average holding period, those “little” gains compound mighty fast.

We play puts as well as calls. In a sideways market, the short-term view is where it’s at. That’s what it takes to keep the real money flowing.

Cannabis Corner: Finally A Win (But Not From The Usual Suspects)

As you probably know by now, I’m not a fan of the big cultivators. Aurora, Canopy and even Tilray just don’t have the right economics on their side.

They’re commodity vendors. My team does a lot of work with retail-oriented companies and they constantly report back that when you sell a commodity product, you get commodity pricing.

Bulk cannabis is the lowest common denominator. It’s sold by the ton and then repackaged as a discount option in the dispensaries.

Higher-quality products with a differentiated focus can command higher pricing and higher margins. That’s where you want to be.

But the problem is that those products aren’t in the wheelhouse of the big cultivators. While they try, they just don’t have the DNA . . . sometimes literally.

And the people who are growing differentiated products aren’t publicly traded.

However, you can get access to that world via the hydroponic product distributors who sell agricultural tools (“picks and shovels”) to the leading players in the green gold rush.

I’m thinking of Scott Miracle-Gro (SMG) and GrowGeneration (GRWG). Both had a fantastic week.

In fact, their gains alone propelled my proprietary cannabis index to positive territory this week. The tide may once again be turning in this group.

Canopy, on the other hand, lost ground. Aurora was flat. Factor out SMG and GRWG and the group continues to drift lower.

That’s no fun. Be choosy. Start by getting as close as possible to differentiated “Cannabis 2.0” players as you can.

Maybe that means private equity, local investment in a dispensary or grow operation near you. Maybe that means buying stock in the companies that supply the local grow operations.

GreenTech Opportunities: Is Tesla For Real?

What’s going on with Elon Musk? Does Tesla have a 100,000-car deal with Hertz or not?

Apparently the truth is a little more complicated than the initial headline led some speculators to believe. Yes, Hertz wants 100,000 electric cars in its rental fleet.

Half will go straight to Uber to make available to drivers. The others will go to Hertz lots around the country.

But there’s no real timeline for that delivery. While Hertz wants them by the end of next year, as Elon says, they have to wait in line like everyone else.

This big order is coming out of existing production capacity. It’s not like this is a gigantic windfall that Tesla can add directly on top of current revenue projections.

It’s a great sign, don’t get me wrong. Good for Hertz, good for Uber. They get to charge green-oriented drivers and passengers extra for green transportation solutions.

In my view, the real upside in green tech is not the standalone providers like Tesla, which disrupt the market but then falter when it’s time to capitalize on the buzz they create.

I think about the early Internet boom when you had standalone email companies rise to prominence and then melt down when the ability to send electronic messages shifted from novelty to commodity.

It’s why we split the world into “first movers” that have the bright idea and “first provers” that turn it into a viable enterprise. We know Tesla is in the first group.

Let’s see if they can make the leap. Until then, I prefer GM and Ford as they ramp up their electric vehicle operations.

But if you want my favorite standalone movers that might become provers . . . you’ll want to read this special report.