Is the Recession Actually Coming?

Happy Market Update! 

Well, I’ve been 50 for over a week now, and people ask how I am…how am I? Having the best decade of my life! A week in. Let’s be honest, it feels like 49, which felt like 48. No big deal. Huh. Big deal…that’s one thing I heard a lot. What are you doing to celebrate the big deal? Turning 50 is a big deal! Why? I disagree. It’s another year gone by. I don’t mean to sound salty, because I am not. I just don’t get it. Who decided it’s a big deal? And why not 60 or 80? It’s really no big deal. Believe it or not…I don’t want or need that attention. Now, presents? Yes. I need those. Lots of those. Feel free to drop them off or mail them to the office. 

In all seriousness, it’s been a great time to look back on things…and now I am finished with that. I am always moving forward. Most weekday mornings, I get up and workout. This week I’ve been listening to GRIT a book by Angela Duckworth. I’m only 4 chapters in, but she has made me push a little harder on my hikes with the 40pound pack. It can be tiresome moving up the hill. But I won’t let 50 get the best of me. If I’ve decided that 80 is the big deal…well, then I’ve got to get there. Having a 5 year old should help. So onward and upward.

Meanwhile, back at the ranch, it’s been a wild week, this first week in my 50s, to say the least. So, my 50s are roaring to a start. From a poor jobs report last week to spirit animals to the DOW down 1000 points to start this week, it’s been a wild ride. Let’s dive into what’s happening…

First, the 10-2 yield curve. You might remember that when this breaks above 0, we usually head towards a recession. Well, we got within 0.9% of 0…”so you’re saying there’s a chance”…

We also watch jobs for recessions. Cisco announced just a few hours ago they were having a second round of job cuts. 

In fact, unemployment as a whole has been ticking up. That also usually leads to recessions. But don’t take my word for it…here it is right from the Fed. The rule of thumb is when we cross 4%...and keep moving up, the recession is starting or has already begun. Regardless, jobs have told us for years everything is okay. But I’ve also reported most of those are not full time jobs…maybe none of them. Eventually it falls apart. Is that the beginning?

This chart is your daily candlestick chart of the DOW. The the 1st is labeled. Look at that sell off over 3 days. The top of Thursday was 41096 and the low on Monday was 38499. Okay, so what? So what? That is a massive move in 3 days. Yes, the next 4 days have tried to get us back to the Friday lows. But this is not a healthy chart, in my opinion. Yes, it could be a correction, and things will go back up. But it’s interesting that the Wednesday before was the day the Fed did not move rates…and is setting up for a 25 point drop in September. If this trends continues…especially with a weak August job report on Sept 6th, we might get 50. I think that could freak traders out. What is really happening? (Red is not good for your 401k…typically)

Some say it’s the Japanese Yen. I would love to explain it here in writing, but it would be long and confusing. The idea is that people borrowed money at 0% in Japan and used it WITH margin to buy here. Now Japan is raising rates which makes the cost of that money more expensive. And the dollar has been following…making it worthless when converting back to Japan. And with a market selling off, margin calls come quick…and you have to dump (sell) stocks to satisfy margin requirements. Huh? Let’s just say big money needed to become cash quick. And this is probably not done yet. I’m telling you…things over seas impact your stocks and bonds here (impacting your housing interest rates). Man am I glad I took this job. I am never bored. (And I was 50…like that!) If you didn’t follow this, I have a presentation I can show you that I put together for staff, LOs, and friends! Haha.

Here is a fairly decent explanation form Yahoo Finance:

https://finance.yahoo.com/news/why-the-japanese-yen-is-pushing-around-the-us-stock-market-morning-brief-100053746.html

How is earnings season? Well…it’s been decent…and bad at the same time. Some big names have had large misses. In fact, 41% of companies in the Russell 2000 (mid size companies) have had negative earnings, per Apollo.

But we continue to buy stuff. It’s easy when the credit card companies keep giving everyone more credit. At some point this has to stop…then what? “Hold on to your potatoes, Dr Jones.” From our friend NOD.

10yr: Have a look at that V from this past 2 weeks. The WSJ put out a notice from Freddie Mac that rates dropped…uh, yeah. For like a day and then bounced up. But you will see that I added another blue line down below. This may be a trendline leveling down. So maybe this will be the new downtrend? Either way, this is looking good for interest rates to continue their downward move. 

MBS: A nice move as well on the right side. Remember, up means lower rates. But it’s not as dramatic as the yield above. That’s pretty normal when things move quickly. But again, this is strength in lower rates. Our tide may have actually turned, finally. 

So you are probably wondering about the spirit animal comment. Well, Mine is…nah, I’m gonna let you wonder. Hell, it could be a Bear (company) or a snake (the one I removed from my yard), or perhaps a golden eagle (one was sitting on the side of the road eating something as I drove by slowly…and it stared at me). I’m reading up on those to see. How about you? Are you noticing things around you that may stand out? Or are you just going through your day oblivious to everything around you? I hope the former and not the latter. But those people are out there...oblivious to these cool things around us. Usually those are the people I’m behind on the freeway. You know what I’m talking about. What’s your spirit animal? Don’t believe in those? That’s cool. They see you, though.

What doesn’t kill us makes us stronger.