Updated: Sep 6
Happy Market Update!
Kids are an interesting thing. Jackson is 4 and is starting to understand competition. How? Well, he tries to eat faster than me to “win for you”. Yeah, we gotta work on his English for sure. But you get the point. Well, here’s the problem…I grew up in the last inflationary period, and I learned what money couldn’t do. It couldn’t buy everything you wanted…and oops, it was more expensive tomorrow. Sound familiar? Well, because of that…you ate everything on your plate, and you ate it fast. So right now, I hold an undefeated record at the dinner table. Eating that quickly may not be the healthiest thing. But by God, I am not losing! Here’s a recent video of me in the act:
Speaking of undefeated, Jackson is undefeated in the backstroke. He had his first swim competition this past Saturday, and he smoked the other two kids. I’m not saying he’s Michael Phelps. But I’m also not saying he’s not. Unfortunately for me, all the parents were quite pleasant. Where’s all this talk about parents throwing hands? (That’s apparently the new way to say fighting for the young people out there, although some would lead you to believe it’s “tossing” hands.) Well, I was pumped and ready to go bare knuckles (young people…that’s some older stuff there), and what a letdown. Some of you are saying…just wait. Regardless, I’m super proud of my kiddo, in case you can’t tell.
Jackson in the future? No pressure, kid.
Speaking of winning: is the Fed winning? They seem to think the soft landing is coming and not some crash into a mountain. I can’t see into the future either. But I just don’t see how that happens. Let’s start by revisiting some friends.
First up, 10yr-2yr yield curve: In the past 40+ years, every time this dipped below 0. We had a recession. Do you bet against the trend? I don’t. “But this time will be different” – famous last words. Currently this sits at minus 0.86.
Second, 10yr-3mos: same story. Each time in the past 40 years we have dipped below 0, we have a recession. We are currently at minus 0.96. That’s the lowest level on this chart. But this will be different? Not a chance in hell, IMO.
Is the Fed done raising rates? No way. In fact, inflation is moving back up. The personal consumption expenditures (PCE) came out Friday and moved up (“unexpectedly”). From the government website: BEA.gov. Those are months Sept-Jan. See that large spike in Jan? that will move into your costs in 30-60 days. Here we go again…and the Fed sees this. So the question is, do they move 25bps at the next meeting or, gulp, 50? Bond market build in 60 bps in the past few weeks.
This was an interesting tweet from @profplum99. This shows an increase in layoffs. You’ve heard it…here’s a chart confirming the spike. The large one? Covid. Layoffs don’t happen at the end of a down cycle…
This next chart is the S&P500 (SPY ETF). There is a lot going on. Here’s a recap of what is being discussed: You can clearly see a downtrend since early 2022. Some believe that Bear Market ended in October(which would be one of the shortest bear markets ever), where the up trend begins. There are bull rallies in bear markets and bear rallies in bull markets. So which is it? I think the circled area is what we watch. If that moves back into the down trend, and it violates the uptrend line, then the bear market is still intact, IMO, and that was what is referred to as a bull trap. If it rallies from here, then we might just see the bear market end. But with the above items, and previous discussion pints in the emails, I can’t see that is possible. Yes…when the bull market begins, we will still feel pain. So it could be. This is why I read charts almost every day of my life. What excitement? Here you go!
10yr: Here we are again seeing a move up out of a downtrend. I don’t like this consolidation moving on top of the yellow line on the right. That consolidates for a move higher probably. That means higher rates for now. Why such a large move the past few weeks? Because I think that the bond market knew the inflation was strong before it was reported. Bonds know what is going on. Ugh. Lock your loan.
MBS: Some consolidation at the lows again, and they are not back below all the moving averages. Nuts. Lock your loans.
Doom and gloom! I know. But I didn’t call for an all-out economic collapse (yet). Did you know that employment in arms production is increasing? Why? We make weapons for war. Yikes. I’m not interested in seeing that, but I'm worried DC has us so deep in it now. I’m not old enough to know Vietnam other than books and tv. I am old enough to remember how those people in my parent’s generation got treated upon returning. While this one seems to be us kinda getting involved similarly to that one, it’s different. I bet we find corruption at its highest levels someday. I just hope it doesn’t have to be at the cost of our countrymen and women. I’m really not interested in being the bad guys. I left my storm trooper outfit at the laundry.
Originating Branch Manager