Economy
US CPI UpdateUS CPI
US Headline and Core CPI for October both came in lower than expected (decrease).
US Headline CPI:
YoY – Actual 3.24% / Exp. 3.3% / Prev. 3.7% (Green on cha
rt)
US Core CPI:
YoY – Actual 4.02% / Exp. 4.2% / Prev. 4.13% (Blue on chart)
The chart below illustrates the direction of the current YoY down trend for both Headline and Core CPI however we are still not at the historical moderate levels of inflation desired. You can see these moderate levels of inflation between 1 – 3% from 2002 – 2020 below.
Nice to see the Core CPI come down, almost down, into the moderate historical averages
PUKA
US & Headline CPI - October Release/Overview US CPI
US Headline and Core CPI for October both came in lower than expected (decrease).
US Headline CPI:
YoY – Actual 3.24% / Exp. 3.3% / Prev. 3.7% (Green on chart)
US Core CPI:
YoY – Actual 4.02% / Exp. 4.2% / Prev. 4.13% (Blue on chart)
The chart below illustrates the direction of the current YoY down trend for both Headline and Core CPI however we are still not at the historical moderate levels of inflation desired. You can see these moderate levels of inflation between 1 – 3% from 2002 – 2020 below.
Nice to see the Core CPI come down, almost down, into the moderate historical averages
PUKA
We are not in a recessionary bear market yet....This analysis overlays US Recessions over CBOE:SPX on the top pane.
Bottom pane is a technique shared by famous trader , Larry William - recently presented at a NAAIM Conference. The technique looks at US job market as % of population. You can find more on Sentimentrader.
Larger declines in stock market are usually accompanied by a recession. There is clearly a softening of the labor market but hanging above the recession territory.
Unless we dip into a recession and Oct 2022 lows on SPX holds - we are not in a recessionary bear market.
Japan Inflation Overview JAPAN CPI
Japan Headline and Core CPI for Sept both came in lower than expected.
Japan Headline CPI:
YoY – Actual 3.0% / Exp. 3.2% / Prev. 3.2% (green on chart)
Japan Core CPI:
YoY – Actual 4.2% / Exp. 4.3% / Prev. 4.3% (blue on chart)
The chart below illustrates that Core CPI appears to be plateauing with Headline CPI decreasing from 4.3% to 3% since Jan 2023. Similar to the Eurozone chart you can we are long way from the moderate levels of inflation between -1.5 – 1.5% from 2015 – 2020 below.
Japan’s economy contracted by 2.1 per cent during the third quarter of 2023, following an expansion in the previous two quarters. Analysts fear the country might slip into a recession. The contraction was sparked by a combination of sticky core inflation holding close to its 4.2 – 4.3% ceiling since May 2023, the slowing of exports, and low pay rises that appear to have led to weak domestic consumption.
“Given the absence of a growth engine it wouldn’t surprise me if the Japanese economy contracted again in the current quarter. The risk of Japan falling into recession cannot be ruled out.” - Takeshi Minami – Chief Economist Norinchuckin Research Institute
Quantitative Tightening Effects on the Markets This video tutorial discussion:
• What is QE and QT?
• Each impact to the stock market
• The latest QT, how will the stock market into 2024?
Dow Jones Futures & Its Minimum Fluctuation
E-mini Dow Jones Futures
1.0 index point = $5.00
Code: YM
Micro E-mini Dow Jones Futures
1.0 index point = $0.50
Code: MYM
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
Understanding GDP Growth: A Key Indicator of Economic HealthIntroduction
Gross Domestic Product (GDP) growth is a crucial economic indicator that provides insight into the overall health and performance of a country's economy. As a comprehensive measure of a nation's economic activity, GDP growth reflects the value of all goods and services produced within a country over a specific period. In this article, we will explore the significance of GDP growth, its components, and the impact it has on various aspects of a nation's well-being.
Definition and Components of GDP
GDP is the total value of all goods and services produced within a country's borders in a given time frame. It is commonly calculated quarterly and annually. There are three main ways to measure GDP: the production approach, the income approach, and the expenditure approach. Each approach provides a unique perspective on economic activity.
Production Approach: This method calculates GDP by adding up all the value-added at each stage of production. It includes the value of intermediate goods and services to avoid double counting.
Income Approach: GDP can also be measured by summing up all the incomes earned by individuals and businesses within a country, including wages, profits, and taxes minus subsidies.
Expenditure Approach: This approach calculates GDP by summing up all the expenditures made in the economy. It includes consumption, investment, government spending, and net exports (exports minus imports).
Importance
Here are some of the primary reasons why GDP growth is considered important:
Economic Health - GDP growth is a fundamental measure of a country's economic health. A positive growth rate indicates that the economy is expanding, producing more goods and services over time. This growth is essential for creating jobs, increasing incomes, and improving overall living standards.
Job Creation - A growing economy often leads to increased employment opportunities. As businesses expand to meet rising demand for goods and services, they hire more workers, reducing unemployment rates and contributing to a more robust labor market.
Income Generation - GDP growth is linked to the overall income generated within a country. As the economy expands, incomes generally rise, providing individuals and households with more financial resources. This, in turn, contributes to an improvement in the standard of living.
Investment Climate - Investors and businesses often use GDP growth as a critical factor in assessing the attractiveness of a country for investment. A growing economy suggests potential opportunities for businesses to thrive, encouraging both domestic and foreign investments.
Government Policy - Policymakers use GDP growth data to formulate economic policies. High GDP growth rates may lead to expansionary policies aimed at sustaining economic momentum, while low or negative growth rates may prompt policymakers to adopt measures to stimulate economic activity.
Consumer and Business Confidence - Positive GDP growth contributes to increased confidence among consumers and businesses. When people perceive a growing economy, they are more likely to spend money, and businesses are more inclined to invest and expand.
International Competitiveness - A country with a strong and growing economy is often viewed as more competitive on the global stage. A robust GDP growth rate enhances a nation's economic influence and can attract international trade and investment.
Government Revenues - Higher GDP growth rates can lead to increased tax revenues for the government. This additional income can be used to fund public services, infrastructure projects, and social programs, contributing to the overall development of the nation.
Debt Management - Economic growth can help manage a country's debt burden. A growing economy typically generates more revenue, making it easier for the government to service its debt without relying excessively on borrowing.
Poverty Reduction - Sustainable GDP growth is often associated with poverty reduction. As the economy expands, opportunities for employment and income generation increase, helping to lift people out of poverty.
Conclusion
In conclusion, Gross Domestic Product (GDP) growth stands as a cornerstone in understanding and evaluating a nation's economic well-being. Through its comprehensive measurement of all goods and services produced within a country, GDP growth provides valuable insights into economic health, job creation, income generation, and various other facets that collectively contribute to the overall prosperity of a nation.
The three approaches to measuring GDP—production, income, and expenditure—offer distinct perspectives, ensuring a holistic understanding of economic activity. The importance of GDP growth cannot be overstated, as it serves as a fundamental gauge of a country's economic trajectory and influences crucial decision-making processes at both the individual and policy levels.
The positive correlation between GDP growth and job creation underscores the role of a thriving economy in fostering employment opportunities and contributing to a robust labor market. Additionally, the impact on income generation translates into an improved standard of living for individuals and households, reflecting the tangible benefits of economic expansion.
Investors and businesses keenly observe GDP growth as a key indicator when evaluating the potential for investment. Government policymakers, armed with GDP data, craft strategies to either sustain economic momentum or stimulate activity, underscoring the pivotal role GDP growth plays in shaping economic policies.
The ripple effects of GDP growth extend to consumer and business confidence, international competitiveness, government revenues, and effective debt management. A growing economy not only instills confidence but also attracts global trade and investment, positioning the nation favorably on the international stage.
Perhaps most importantly, sustainable GDP growth is intricately linked to poverty reduction. As the economy expands, opportunities for employment and income generation increase, contributing to the uplifting of individuals and communities from poverty.
In essence, the study of GDP growth goes beyond mere economic statistics; it serves as a compass guiding nations towards prosperity, inclusive development, and an improved quality of life for their citizens. Recognizing the multi-dimensional impact of GDP growth enables policymakers, businesses, and individuals to make informed decisions that foster long-term economic well-being and societal advancement.
MV=PQ RevisitedHistorical data can be hard to compare against modern ones.
The longer back an analyst goes, the better the results of their analysis.
100 years of yield rate analysis may seem enough...
5000 years of interest rates however is a whole new story.
Money has been as cheap as it has been for the past 5000 years. Incredible numbers...
Source: www.trustnet.com
Fun Fact: Banks have existed since the early days of humanity!
Unsurprisingly, trading is not a modern invention.
Many agree that yield rates have been too low and equities too high.
Some go against the flow and suggest that the stock market bubble has yet to come.
I have been looking here and there, trying to find the reason the .com bubble was created in the first place. With that in mind I hoped that I would find when the next one will come...
Price has just skipped through the previous ceiling, and is now in a new territory. The drawn channel suggests that SPX hasn't reached the top of its channel.
There are many more comparisons that may suggest that equities haven't peaked.
By comparing DJA with one of its subsets (DJI) we have concluded that the DOW hasn't saturated yet. This analysis above is as classical as it gets.
While many thought equities would die ...
... the Bane of Traders has trapped many of us, myself included.
Big-Tech dominance inside Nasdaq Composite suggests that a .com bubble may be brewing inside IXIC, just like we saw in SPX/CPIAUCSL in 1994.
Onto the basics of financial now.
MV=PQ is one of the foundations of how economies function.
For more information read my previous idea:
For simplicity reasons, we merge PQ. I don't have financial data for each one of them.
PQ for the US is considered as the GDP. Another example of GDP can be SPX, which extends beyond the limits of US soil.
GDP has been slowing down...
USGDP is the total cost of all products produced in the US. A slowing GDP means a slowing net-production of the US market. If productivity hasn't changed significantly in the past decade, a slowing GDP may be due to falling prices. And with yield rates nearing zero in 2020, we can safely say that inflation has turned negative in the US.
A slowing GDP may also mean that equities have slowed down. This gives more importance to the incoming-equity-bubble scenario. An equity bubble may come for some, but not for all.
The tide has turned in favor of NDX against IXIC, and DJI against DJA. Charting suggests wealth accumulation in a smaller part of the main idices.
GDP may be breaking out.
With money velocity (main chart) in record-low values, we can expect faster money flow in the years to come. That means increased productivity/inflation/GDP.
As expected, long-term inflation may also be breaking out of its decreasing trend.
Don't forget: High inflation may be a problem for some. An increased GDP growth caused by high inflation will certainly help the chosen big-ones. There cannot be high GDP with nobody profiting from it.
To get rich you must inherit or steal. -Aristotle Onassis
In the end, trading hasn't changed at all in 5000 years. There are still pirates, kings, queens, emperors and peasants. Markets will march upwards with or without us.
Tread lightly, for this is hallowed ground.
-Father Grigori
Delinquency Rates on Credit Card Loans Not seen since June 2012Credit Card Defaults Last rose 1994, 2006, slowly in 2016 and now a rapid incline of delinquency rate of 2.77%. I do foresee this trend to continue to the upside. The momentum of higher rates has contributed to the pressures. The rise may not be linear but the upside certainty appears to reach 3.25-3.5%. We'll keep monitoring
Modeling a shift in SRAS and AD over the past year, I think. I used the U.S PCE YoY as the base, I then overlaid the M1 YoY and Real GDP YoY. I used the beginning of this years as a reference point as that is roughly when the fed began increasing interest rates.
As the price level declines demonstrated by a decline in the money supply and PCE YoY declining
Real GDP YoY is seen increasing
To my understanding this visualizes how SRAS and AD have shifted to the left over the past year
Macro Monday 19~Nonfarm Payrolls Macro Monday 19
Total Non-Farm Payrolls: Pre-Recession Observations
What is Non-Farm Payroll?
The nonfarm payroll measures the number of workers in the U.S. includes 80% of US workers. The figures exclude farm workers (Nonfarm) and workers in several other job classifications such as military and non-profit employees.
Data on nonfarm payrolls is collected by the Bureau of Labor Statistics (BLS) and it is included in the monthly Employment Situation report (the “Employment Report”) which includes two surveys, the Household Survey, and the Establishment Survey. Nonfarm Payroll is included in the latter the Establishment Survey.
The Establishment Survey gathers data from approximately 122,000 nonfarm businesses and government agencies for some 666,000 work sites and about one-third of all payroll workers. Anyone on the payroll of a surveyed business during that reference week, including part-time workers and those on paid leave, is included in the count used to produce an estimate of total U.S. nonfarm payrolls
The Full Employment Report is released by the BLS on the first Friday of each month at 8:30 AM ET and reflects the previous month's data.
The Chart
▫️ The Chart highlights the last four recessions (red shaded areas)
▫️ The aim of the chart is to identify what Non-Farm Payroll movement occurred prior to each recession (in the blue shaded areas) so that we create a gauge that identifies the early warning signals of such recessions.
▫️ From reviewing the data (illustrated in the data chart), prior to each recession there was a either a confirmed decline in Non-Farm Payrolls prior to recession or an increase of less than 0.0300 mln in Non-Farm Payrolls prior to recession (a tapering off or sideways move). This was evident prior to all four recessions reviewed.
Main Findings:
1. The four most recent recessions all seen a decline in Non-Farm Payrolls prior to recession or an increase of less than 0.030 mln in Non-Farm Payrolls prior to recession (the “Signal”). Advance notice of recession was 1 to 12 months depending on recession (final column)
2. Currently we do not have a decline or an increase of less than 0.030 mln in Non-Farm Payrolls thus suggesting we do not have an advance recession warning triggering at present.
3. From a review of the data chart we are now aware that a pre-recession signal can trigger and provide us with 1 months advance notice or 12 months advance notice. In the event the parameters of number 1 above are met to provide a Signal, we can then add this chart/metric as a recession warning chart.
Breakdown of Each Recession Signal
(signal defined in 1 above):
▫️ The 1990 recession gave us a 1 month advance warning of recession.
▫️ The 2000 recession provided 2 advance warnings (2 & 3 in the chart), one signal gave us a 9 month heads up and the other a 3 month advance notice.
▫️ Similarly, the GFC 2007 recession provided 2 advance warnings (4 & 5 in the chart), one gave us 5 month advance warning, and the second was the signal the recession had started.
▫️ COVID-19 provided a 12 month advance warning with a decline registered from Jan – Feb in 2019.
Side Note: Interestingly this has some alignment with last week’s chart on Durable goods. In Feb 2019 one year before the COVID-19 Crash the Durable Goods Moving Average provided an advanced sell/recession signal, and whilst the S&P500 did rally c.13.5% after the signal over the subsequent 12 months, the S&P500 ultimately fell 23% thereafter in a matter of months taking back all those gains and more. Durable Goods is also included in the Establishment Survey so maybe it should come as no surprise that we have synchronicity between both charts on the COVID Crash. The Durable goods chart is also not presently signaling a recession similar to this Nonfarm payroll chart. Both charts appear to demonstrate some resiliency in the employment market (echoing Jerome Powell's sentiment that Employment is tight).
False Signals
▫️ Unfortunately there are a number of false signals throughout the chart whereby a decline in payrolls or an increase of less than 0.0300 mln is observed with no follow up recession however most of these false signals are either 1 month in duration or happened in the direct follow up years after the recession slump (when a recession is no longer of concern). Regardless, for this reason the Non-Farm Payrolls Recession Signal cannot be utilized as a standalone indicator, we need other charts and data to help identify the risk of recession.
▫️ Other data should be utilized in conjunction with Non-Farm Payrolls such as the following closely aligned charts all of which are show concerning pre-recession patterns in one way or another;
1. Total Non-Farm Layoffs and Discharges
2. Total Nonfarm Job Openings
3. US Continuing Jobless Claims
1. Total Non-Farm Layoffs and Discharges is signaling a similar trend to the 2007 Great Financial Crisis were there was an initial increase of c.450k (up to the first peak) and eventually a total increase of c.885k from lows to peak recession high.
- At present we are trending upwards and had an initial peak of c.507k (it could be the only peak or the initial peak, time will tell).
2. Total Nonfarm Job Openings is signaling a significant decline in job openings much larger than the prior two instances where job opening declines led to recession.
- A quick glance at the chart and you can see that we have exceeded the typically level required for recession and exceeded the typical timeframe (using GFC and COVID as reference points).
3. US Continuing Jobless Claims -Prior to the last 8 recessions the average increase in cont. claims was a 424k increase over an average timeframe of 11 months.
- Since Sept 2022 Cont. Claims have increased from c.1.3m to 1.818m (an increase of c.518k over a 13.5 month period). We are above both pre-recession averages number of increase and time.
In summary:
▫️ Last week’s Durable Goods Chart and this week’s Nonfarm payrolls chart are not triggering a recession warning at present. Both charts appear to emphasize a resilient labor market.
▫️ In stark contrast all three of the additional charts I provided above are incredibly concerning on the recession probability front. In particular Cont. claims , the most concerning of the bunch, is surpassing all pre-recession averages, highlighting that people are finding it harder to recover from a job loss and find a new job. This chart alone would suggest that the labor market is beginning to significantly soften.
▫️ Over the past week we have also had an update to the Purchaser Managers Index which declined further into contractionary territory from 49.0 to 46.7 (est. 49.0). Another signal towards a softening labor market.
▫️ It would be remiss of me not mention that I have seen a Month Over Month (MoM) Chart of the Nonfarm payrolls doing the rounds and it appears to illustrate a softening and slowing of labor conditions (will share in the comments). Such a trend could translate to a gradual tapering and/or decline on our monthly Nonfarm chart over time.
When you consider all of the above, you would have to expect a market decline is around the corner but also expect some continued lag before we see it due to those few charts that are not even showing the pre-recession signals, never mind an actual recession signal. The charts holding out are Durable Goods, Nonfarm Payrolls and ill throw in Major Market Index TVC:XMI as a complimentary chart that has not lost its support as of yet. We are also aware that the Dow Theory has confirmed a bear market and has been expecting a market rally before bear trend continuation (the sell into rally). All the same these moving parts can change and pivot so we have to keep an open mind but its hard not to lean very cautiously as it stands. We can keep an eye on these final charts that remain defiant as they may be the final strongholds and provide us with the final warnings in the event of....
As always folks stay nimble out there
PUKA
Housing and labour market about to crash like in 2008?The Fed has stopped hiking rates and the yield curve is flipping. This was the time when the housing and labour market started crashing in 2008.
Time for a repeat?
Are we in a recession? (spoiler: no)I wanted to aggregate some of the things that the NBER considers when determining a recession, and provide three links that people can follow to monitor for recession likelihood.
The NBER uses lagging data so they officially declare recessions after they've been under way for some time and sometimes at their conclusion. However, we can monitor the data points that they consider to view whether they are expanding or contracting.
I've included:
Non-farm payrolls
Consumption
Household employment
Real GDP
Gross industrial output
Real personal income less transfer payments
You can see that, despite the rightening monetary conditions, real economic variables continue to expand.
I've also included the Sahm Recession indicator by WeatherUmrella. This uses a 0.5 increase in unemployment over 3 months to indicate that a recession is underway. www.tradingview.com
Links:
I'll keep this chart public (hopefully it's helpful). www.tradingview.com
Sahm Rule official at the Federal Reserve fred.stlouisfed.org
Smoothed probability of recession fred.stlouisfed.org
The last uses the same criteria as the NBER, using some matrix algebra to use what's available to extrapolate a real time determination. It's been very accurate.
🔥 The Number 1 Recession Indicator Signals Great Danger 🚨 The Sahm Rule Recession Indicator (white) is on the rise. Historically, a rise in this indicator has always signaled a recession and a corresponding fall in asset prices.
How it's calculated:
"The Sahm Rule identifies signals related to the start of a recession when the three-month moving average of the national unemployment rate (U3) rises by 0.50 percentage points or more relative to its low during the previous 12 months."
In other words, once unemployment starts to rise quickly, this indicator moves up and a recession is on the horizon.
Since it's inception in the 1950's, every time this indicator reaches above 0.3, the trend seems to be irreversible and only reverses back after the recession is "over". See the orange line for the performance of the SP500: it has an inverse relationship with the SAHM indicator.
Keep a close eye on this indicator. Seeing how fast it's rising, there's historically a huge probability that the US economy will see a recession somewhere in the next few months. Keep an eye out for bearish price action in stocks and crypto during this time.
Unemployment Rate including RSI vs SP500 vs Fed Funds RateThis chart illustrates the relationship between the BLS US Unemployment Rate (UR) including the RSI for the UR, plotted against the SP500 (SPX) and the Fed Funds Rate (FFR). The data illustrates the idea that the FFR pushes the UR upward, and when the RSI for the UR trends up and crosses 50, the UR then surges upward rapidly (relatively speaking), resulting in a significant sell-off of the SPX.
The Bank of Japan can’t let goThis week financial markets were dominated by central banks policy decisions. While the Federal Reserve (Fed) and Bank of England (BOE) kept rates on hold, the policy board of the Bank of Japan (BOJ) decided to further increase the flexibility in its yield curve control policy.
The BOJ previously set a strict cap of 1.0% for the 10-year Japanese Government Bond (JGB) yield. But it has now decided that 1% should be a “reference” (not a strict cap), which effectively allows the yield to rise above 1% when the BOJ thinks it is appropriate. The upper bound of 1% appears to be a level they can’t let go of. By doing so, the BOJ is choosing an exit path that gives them the maximum flexibility but minimum volatility around the Yen. We view this as a dovish move as consensus expectations were for the BOJ to move the cap to 1.25% rather than 1%.
Japan’s remains on a narrow path
One of the reasons holding back the BOJ from normalisation of policy rates, is they still believe Japan’s recovery since the re-opening in October 2022 remains on a narrow path as it relies heavily on tourism, while the broader services sectors have yet to pick up significantly and manufacturing activity has been hampered by soft exports. Japan’s flash PMI readings for October showed us a bifurcated economy where the services sector is stronger than the manufacturing sector. Manufacturing PMI clocked in at 47.6, which is in contraction territory. Services PMI was 51.1, which is down from last month’s reading of 53.8 but is still in expansion territory, no doubt helped by fiscal stimulus and the accommodative monetary policy environment.
BOJ on the lookout for an intensified virtuous cycle between wages and prices
BOJ governor Ueda indicated that the BoJ will be monitoring the upcoming spring union-employer wage negotiations. A strong outcome could catalyse the earlier attainment of sustained inflation in Japan, but overall, Japan’s recovery isn’t strong enough yet for employers, especially small enterprises, to meaningful support wage hikes in the broad economy. While headline inflation bolted north of 4% in January 2023, it appears to have peaked and has begun receding. While core inflation remains around the 4% mark. The Producer Price Index (PPI) slowed to 2% annually in September suggesting a stabilization or even drop in CPI ahead.
The BOJ revised its outlook for core inflation (all items less fresh food and energy) to 3.8% in FY23, 1.9% for FY24 and 1.9% for FY25. The BoJ stated that the inflation uptick “needs to be accompanied by an intensified virtuous cycle between wages and prices”.
The Yen is unlikely to appreciate under BOJ’s policy change owing to the large gap in interest rates between the US and Japan. The direction of the Yen matters for Japanese equities owing to Japan high export tilt. The exporters stand to benefit amidst a weaker Yen.
Fire power abounds for Japanese equities
Japanese equities had a strong first half in 2023, attaining 33-year highs. Yet valuations at 15.7x price to earnings ratio (P/E), still trade at a 30% discount to its 15-year average providing room to catch up. More importantly, earnings revision estimates in Japan are currently the highest among the major economies. Earnings yield at 4.07% for the Nikkei 225 Index has been trending above bond yields 0.947% for 10 Year JGBs , keeping the well-known TINA (There is no Alternative) trade alive in favour of Japanese equities.
Tailwind from corporate governance reforms
Tokyo Stock Exchange’s (TSE) call for listed companies to focus on achieving sustainable growth and enhancing corporate value is beginning to bear fruit. The call was aimed at companies with a price to book (P/B) ratio below one. Those companies were asked to develop a plan for improvement, disclose and then implement and track its progress. The progress has been encouraging with 31% of companies on the prime market making a disclosure of their plan .
Large companies with a price to book ratio below one have been more proactive with disclosure. Historically cash-heavy Japanese companies face increasing pressure to improve their numbers, possibly by funnelling historically high excess cash reserves into increased buybacks or dividends.
Conclusion
Inflation has been missing in Japan for more than a decade. So now that it has arrived aided by the post pandemic pick up of the Japanese economy, policy makers are not in a rush to obliterate it. With wage growth lagging behind inflation, the Bank of Japan does not appear ready to wean itself from Yield Curve Control until a more intensified virtuous cycle is observed between wages and prices. The BOJ’s policy decision this week is unlikely to allow the appreciation of the Yen, which should continue to provide a competitive advantage to Japanese exporters.
This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
Approximated Total Global Net LiquidityCombines liquidity in usd: Major Eurozone countries, Japan, China, USA, and Canada
Labor and unemployment - an objective look at the dataIt's important to look at multiple data points in labor and consumer reporting before drawing conclusions. Be skeptical of any financial or social media presenting a single data point as something to be optimistic or pessimistic about.
The chart covers comparative labor information:
Job openings (blue) are coming down quickly, which we've heard a lot about. However, we don't hear many talking about how there are still 2MM more job openings than the pre-covid maximum.
Participation (white) is increasing and coming close to recovering to a pre-covid level. Note that we haven't seen labor participation fully recover from the prior two recessions. Job openings (demand) should come down as participation (supply) increases, bringing them close to equilibrium
Unemployment (red) remains near a historic low
USCJC Continuing and initial jobless claims have increased slightly, but are still below recessionary levels. These will increase as more participants compete for positions.
USJO Job offers (green) and USJQ job quits (red) are each coming down, but remain very high. This is also consistent with more participation in the labor force. Permanent job losses (pink) have ticked up, but remain low. This is an important metric to keep an eye on.
Consumer income, spending, and borrowingIt's important to look at multiple data points in labor and consumer reporting before drawing conclusions. Be skeptical of any financial or social media presenting a single data point as something to be optimistic or pessimistic about.
This chart reviews income, spending, and borrowing data:
M2 money supply (bright green) is included so that we can visualize increases in other metrics with the increase in the supply of funds to the economy
RPI real personal income (blue) and DSPI (yellow) real disposable income have some wild swings 2020-2021. This is logical given the wage competition required to hire when the participation rate is very low. RPI has flattened and the most recent disposable income figure is down sightly.
USPS Personal savings (green) is coming down at a pace that is visually similar to the increase in participation. USPSP Personal spending (red) is a volatile figure that is starting to become consistent with historical trend.
All consumer loans (purple) and all credit card loans (light purple) are increasing. Note the rates of change in the pane below compare the rate of change for consumer borrowing to that of real personal income. Income had a steeper upward rate of change and the rate of change for borrowing has been declining. Both are coming in line with one another.
The last pane covers all delinquencies (red), credit card delinquencies (pink), and real estate secured delinquencies (white). We've heard about a lot about credit card delinquencies having an alarming rate of change. This is confirmed with the addition of a pink rate of change in the pane above. While a continued rate of change from 2021-2022 would not be sustainable long-term, credit card delinquency totals are now in a normal pre-covid range. Additionally, they are still relatively low when compared to the growth in card balances and growth in money supply.
Macro Monday 18~Durable Goods SignalsMacro Monday 18
Using New Orders for Durable Goods to Anticipate Market Direction
This week we are using the Manufacturers New Orders for Durable Goods Survey data (“Durable Goods”) to help anticipate price movements on the S&P500. The 30 month moving average for Durable Goods can act as a threshold level for buy and sell signals for the S&P500 whilst also providing advance warnings of recession and/or capitulation events. This has been clearly illustrated in the chart.
Durable Goods Explained
Durable goods orders is a broad-based monthly survey conducted by the U.S. Census Bureau that measures current industrial activity which proves to be is useful as an economic indicator for investors. Durable goods orders reflect new orders placed with domestic manufacturers for delivery of long-lasting manufactured goods (durable goods) in the near term or future.
A high durable goods number indicates an economy on the upswing while a low number indicates a downward trajectory.
Durable goods orders tell investors what to expect from the manufacturing sector, a major component of the economy, and provide more insight into the supply chain than most indicators. This can be especially useful in helping investors understand the earnings in industries such as machinery, technology manufacturing, and transportation.
What’s Included in Durable Goods?
Durable goods are expensive items that last three years or more. As a result, companies purchase them infrequently. Examples include machinery and equipment, such as computer equipment, industrial machinery, and raw steel, as well as more expensive items, such as steam shovels, tanks, and airplanes—commercial planes make up a significant component of durable goods for the U.S. economy. Many analysts will look at durable goods orders, excluding the defense and transportation sectors as large once off orders can often skew the figures.
Durable goods orders data can often be volatile and revisions are not uncommon, so investors and analysts typically use several months of averages instead of relying too heavily on the data of a single month. In our chart we have found the 30 month moving average to be particularly apt as a threshold level
The Chart
In the chart we have the Durable Orders metric in blue and the S&P500 in baby blue. The 30 month moving average on Durable Goods (Dark Brown Line) is used as a threshold level for buy and sell signals.
When the blue line for new orders of Durable Goods definitively passes the 30 month moving average (Dark Brown Line) this provides the buy or sell signal based on whether it moves above or below the average.
Main Findings
1. When Durable Goods Orders(blue) fall below the 30 month moving average(brown) this is sell signal
2. When Durable Goods Orders(blue) break above the 30 month moving average(brown) this is a buy signal
3. Declining durable goods and/or a fall below the 30 month moving average has offered advanced warning of recession and/or capitulation.
Sell Signal Record
(Blue line crossing below Dark Brown Line)
▫️ In Oct 2000 five months before the Dot.Com Crash which commenced in Mar 2001, the Durable Goods Moving Average provided a sell signal offering an five month advanced warning of recession.
▫️ In Dec 2007 the Great Financial Crisis (“GFC”) commenced and whilst New Orders for Durable Goods had not passed below the moving average before the recession it did pass the moving average mid recession signalling an advance warning of the major capitulation event of the GFC crash. Once again Durable Goods was of great utility in avoiding unnecessary losses.
▫️ A sell signal triggered in Oct 2014 and whilst there was no crash, the S&P500 price oscillated sideways for >24 months post signal and only increased in value by 9%. During this 24 month period capital would have been better allocated somewhere offering a better than 9% return.
▫️ In Feb 2019 one year before the COVID-19 Crash the Durable Goods Moving Average provided an advanced sell/recession signal, and whilst the S&P500 did rally c.13.5% after the signal over the subsequent 12 months, the S&P500 ultimately fell 23% thereafter in a matter of months taking back all those gains and more.
Buy Signal Record
(Blue line crossing above Dark Brown Line)
▫️ As you can see from the chart the buy signals provide a great confirmation of trend, that price on the S&P500 will likely continue in an upwards trajectory.
▫️ For the four buy signals confirmed we had 50 months of upwards price pressure on the S&P500 on the first two occasions and on the latter two 18 months and 15 months of upwards price action.
▫️ Taking the four aforementioned buy signals, an the average return was 60.5% f(max return possible from a buy signal the market high).
▫️ The performance from a buy signal to sell signal was an average of 43% across the four instances.
The chart demonstrates that using the 30 month moving average for Durable Goods New Orders can very useful in determining market trend.
At present we are well above the 30 month moving average and appear to be trending upwards. We can continue to monitor this chart and watch for a cross of the 30 month moving average as an additional confirmation of a change to a bearish trend for the S&P500 when it happens. For now this is just another chart to help us identify bearish/bullish trend changes by using the economic data from Manufacturers New Orders for Durable Goods.
As always folks, stay nimble
PUKA
USCCI - Consumer Confidence Index - Recession is HereThe US Consumer Confidence Index (USCCI) does not look so good.
Consumers (normal people) are feeling anxious about their future, and they have good reasons for that.
The Bull Market did not last long after the Covid Pandemic and people don't feel optimistic about their future spending or wealth.
If you don't know what the CCI is, no worries, I will briefly explain, so that a 12 year old will know.
A very well-known university in Michigan started doing some surveys a long time ago.
They were asking people how they feel about their future, about their spending confidence, etc.
Basically, you can also ask yourself:
Can you afford a new car now?
Are you making more money now then you were 2 years ago?
Do you have financial stability? How do you feel about that?
Are you thinking of moving into a new, nicer home?
For me it's a NO for most questions above.
Not sure about you...
Now, if I may continue, I will tell you this: people are scared.
In fact, Covid shocked the world as we know it.
We got used to being bullied by the higher, running forces in the world.
Anyway, there are many factors for which Consumers are pessimistic at these times:
- War & Tensions: Ukraine vs. Russia
- Inflation Spike
- Energy Crisis
- Federal Reserve (FED) Interest Rate Hike
- Surging Prices
- Bear Market Fears
- Recession Talks
Remember this: WINTER IS COMING!
No joke, many will suffer.
The media plays a major role with inflicting sentiments in your mind.
As for me, I'm more of a technical guy, so I go with what my technical analysis tells me.
Until now I mentioned my personal fundamental analysis take.
I'm not optimistic about the markets.
The FED messed it all up. They overreacted with that Quantitative Easing (QE).
Artificial (fake & printed) money was injected, and of course it lost its value.
Because of that, Inflation skyrocketed, and of course they're surprised.
NO! It's the oldest trick in the book. They are controlling the global economy.
It's actually them who are causing inflation or stagflation, and also them who are switching bullish and bearish gears.
But enough about that. I'm gonna' switch to the Technical Side.
I just wanted to get that off my chest. LOL
So, I'm an Elliottician. That means I trade by using the Elliott Wave Theory.
It proven to me over the years that it works.
The Market's price movements are simply suman beings buy & sell emotions, as a herd.
Yeah, they're all sheep, and most indicators are based those herd emotions.
So, on this USCCI chart, which is coming from 1953, I'm labeling my Elliott Wave Count.
What I see is a Triple Three Complex Correction, in a very BIG degree.
TradingView calls it: Elliott Triple Combo Wave (WXYXZ).
Based on that Wave Count, I am suspecting more down-side to this chart.
In a nutshell, I'm anticipating a RECESSION.
How big it will be and how long it will last, that depends.
For what I know, the Bear Market has already started for Indices globally.
My VIX (Volatility Index) idea backs this up.
Short and simple: the USCCI would tag the 61.8% Fibonacci Retracement of Wave A (white).
That's a point of interest for bulls, because it reflects the Golden Ratio.
If it breaches and goes lower than that, then it's not just a Recession anymore, it's gonna' be more like a Depression.
1929 all over again. Funny how these Cycles come into play...
My chart has labels and infographic stuff.
Write a comment if you want, give a like if you give a :poop: :D
Good luck!
World Wars & US Inflation From 1914This is the US Inflation Rate (YoY) from 1914 until 2022.
Symbol is called USIRYY and it measures the Inflation Volatility in the United States.
With the War going on in Ukraine, and Russia trying to force its way through, I took the liberty of looking into the following:
- How Global Wars Affect Inflation
- How US Inflation Reacts to External Wars
- How Wars Affect the Financial Markets
You can see the time-lines, it's all laid-out in the chart (graph).
I took all the Major World Wars and events that significantly affected, not only the US Inflation, but Inflation itself.
First of all, the US Inflation Rate (USIRYY) tells me the following:
* When the US was involved in a War, we can notice that the US Inflation spiked.
* Most of the times when US was not involved in an External War, then Inflation dropped.
That's because of War & Uncertainty Sentiment around this "terrific" word.
War does not bring anything good, in fact, in only brings bad times.
People die and global sentiment gets super-negative.
This of course, leads to... you guessed it: Market Crash.
Why? Because after or during times of War, there are Recessions and Depressions.
Supply Chains are disrupted and the Global Economy falls on its face.
What about looking at things from a Technical Analysis perspective?
* Symmetrical Triangle: and the only way is UP!
I will give you points which I believe are worth keeping in mind for the next Market Crash.
First of all, let's be logical about this.
Winter is coming and it's only gonna get worse before it gets better.
As Inflation spiked to a 40y high, the higher powers intervened, in an attempt to cool the Inflation spike off.
I'm talking here about the Federal Reserve (FED) ramping up the Interest Rates.
This is the Effective Federal Funds Rate (FEDFUNDS).
Can you see the break-out?
They want to calm down Inflation, but they can't.
Why? Because this is no ordinary Inflationary period, it's a long-lasting thing.
One of those hyperinflation, deflation, stagflation, or whatever the heck these experts call it... :)
The Volatility Index (VIX) tells me that another spike in Fear Sentiment is inevitable.
I'm in love with Elliott Wave Analysis, so I labeled this next chart.
This is the United States Consumer Confidence Index (USCCI) and it measures exactly what its name says, LOL.
When it drops, people are freaking out. When it rises, people are optimistic and the Markets are going up. Daaaa!
With all that said, what's the bottom line here?
I believe that periods of terror are gonna hit us all.
Are we having World War 3? Who the heck knows?
All I know is that there are more pieces to this puzzle:
United States 10Y Bonds (USB10YUSD) have reached the Support, and a spike bigger than the Covid Pandemic has started:
The 10Y Treasury Note Yield (TNX) have broken out of a 40y down-trend:
Isn't it ironic how it synced with the Inflation 40y high?
Damn!
Germany 40 (DAX, GER30, GRXEUR) is doomed.
Fractal sequence, Descending Channel, and a "beautiful" ABC Elliott Wave Pattern.
So, how can you prosper from all this?
Metals could be a good hedge.
Gold (XAUUSD) just broke out of an important Bearish Structure.
Maybe it will go up.
Natural Gas (NG1!) & Crude Oil (USOIL) however, are showing Bearish Reversals.
Bitcoin (BTCUSD) is Bearish until further notice as well.
But this may become the new currency moving forward.
In times of terror, the banking systems might need to change.
Cash and Card is so '00.
WHAT'S YOUR TAKE? WAR OR PEACE?
Leave your commend down below.
Cheers!
Richard
USEHS: Existing home sales 2008 to 2023. Eerilly similar.Hi,
I do not post as often as I'd like to, the market being bearish and not as fun as a bullish one.
Was thinking it would be interesting to compare 2008 to 2023 Existing housing sales.
The chart patterns are very similar, in form and timing. In 2008, crash came very close to the low in existing home sales.
We are at that very specific point right now. Not saying a crash is going to happen. Just wondering if this indicator is worth anything.
Remember, stay humble, have fun, make money.
Maax
