"Devoid of confounding variables like earnings or growth, Bitcoin or Ethereum are good sentiment and liquidity litmus test. Each experienced a >40% trough-to-peak rally during the month of January."
Well, recent price action would suggest that the bear may be emerging from hibernation. SPX nominally up on Friday's close, the cryptos down 2 or 3%.
Yup, big declines this week in many of the names referenced here. Tesla seemed to be one of the last holdouts but may have finally rolled over today too.
Great writing, thank you Bear. So true that the answer to so many seemingly paradoxical indicators is yes. I fear scenario 4 may be the ultimate path. I am yet to hear anyone indicate softening of the labor market anecdotally - every business owner I talk to is exhausted with the lack of willing labor supply. On another facet: I may be over simplifying, and I'm sure that there are all sorts of fancy credit terms out there, but I just can't get past the reality that when operating cash position dries up it's not long later that the music has to stop for a business. The data that keeps catching my eye is the sharp reversal in trend related to commercial entities, checkable deposits. Very opposite of the checkable situation for households. https://fred.stlouisfed.org/series/NCBCDCA
Great write up as always! I have also been thinking about this disconnect particularly the 10Y & 2Y yield inversion. As you mentioned we haven’t seen this type of inversion since the 1970s and 1980s. The longest it has taken for a rescission to hit after the 10Y & 2Y is 24 months. We are currently around 9 months in, my thinking is that we might see equity markets rallying for another year and three (maybe longer). Until the market finally breaks and the yield curve corrects.
A really nice YTD rally. I wanted to lock it in. My gut feeling is we give up the YTD gains and flip red for the year sooner than later. Bought some boomer preferreds. This market and environment is not easy.
Powell’s brief aside quoted above stood out to me as being the most candidate and insightful."
People don't really analyze crumbs ... I'm sure you're making a point that although many of the words are of little value they are all being scrutinized as though they had value?
And, probably, "candid"? Auto-corrupt strikes!
OK, back to the article. I hope you'll make the point that one reason for the apparent contradiction in the data is that deeply entrenched Narratives are purposely obscuring and outright lying about Reality.
I guess the idea is that people are searching for clues in very small things like a bread crumb. It also alludes to the story of Hansel and Gretel where they follow a "path" of bread crumbs, like as investors trying to find the path of monetary policy. But maybe its not the best metaphor, and the typos certainly make it harder to read.
And yes, "candidate" was a bad one... fortunately its fixed here in the online version.
At a minimum, we overgeneralize everything. Certainly Silicon Valley does not have a historically great labor market today, and for those people, national averages mean nothing.
And absolutely right on housing - tech centers SF and Seattle have seen massive drops in prices and are leading the country in declines.
Though to be fair, both the labor market and housing market has been pretty darn good in these sectors for the past 12 years or so, which itself is related to expansionary policy.
Read some relevant pieces about labor hoarding that may explain some of this macro puzzle. A lot of the construction workers that should have been laid off with the drastic decrease in housing activity was instead retained as firms are paranoid of being unable to hire back workers when things “go back to normal.” This may be informed by how fast the economy recovered in 2020.
When you consider how deeply payrolls got hammered during the pandemic, its easy to see how labor market would be very strong in a quick recovery, as it is still catching up from a very low base. In the case of construction, I'm curious how much is due to hoarding vs ongoing construction... recall, in the 2000's housing cycle, prices plateaued for almost 2 years before eventually falling in 2007 and 2008. Meanwhile this housing cycle appears to be much shorter, with prices peaking and falling immediately. Therefore there could be a lag effect at play.
Burry also once told people to read everything I've written on China real estate, so we know he can't be that reliable!
I do think its possible we see a recession and ongoing inflation. Typically recessions do a fantastic job of stopping inflation (at least temporarily), but there are so many truly unique aspects of this cycle.
Even if you take a monetarist perspective, its not clear. Money supply experienced a massive step-change increase, but is now shrinking. How long does it take for nominal prices still catch up to the "step-change" and how much does the current negative rate of change matter? We don't really know.
This is what drives the caution in my notes like this one - question convictions and be willing to follow the data, because we are in uncharted waters.
I have a little glass mug that is shaped like a bear that a relative got me for Christmas this year - I’ll have to send you a picture. it’s my go to mug now for morning lattes. Glad you are back on schedule this week.
"Devoid of confounding variables like earnings or growth, Bitcoin or Ethereum are good sentiment and liquidity litmus test. Each experienced a >40% trough-to-peak rally during the month of January."
Well, recent price action would suggest that the bear may be emerging from hibernation. SPX nominally up on Friday's close, the cryptos down 2 or 3%.
Yup, big declines this week in many of the names referenced here. Tesla seemed to be one of the last holdouts but may have finally rolled over today too.
Great writing, thank you Bear. So true that the answer to so many seemingly paradoxical indicators is yes. I fear scenario 4 may be the ultimate path. I am yet to hear anyone indicate softening of the labor market anecdotally - every business owner I talk to is exhausted with the lack of willing labor supply. On another facet: I may be over simplifying, and I'm sure that there are all sorts of fancy credit terms out there, but I just can't get past the reality that when operating cash position dries up it's not long later that the music has to stop for a business. The data that keeps catching my eye is the sharp reversal in trend related to commercial entities, checkable deposits. Very opposite of the checkable situation for households. https://fred.stlouisfed.org/series/NCBCDCA
Great write up as always! I have also been thinking about this disconnect particularly the 10Y & 2Y yield inversion. As you mentioned we haven’t seen this type of inversion since the 1970s and 1980s. The longest it has taken for a rescission to hit after the 10Y & 2Y is 24 months. We are currently around 9 months in, my thinking is that we might see equity markets rallying for another year and three (maybe longer). Until the market finally breaks and the yield curve corrects.
A really nice YTD rally. I wanted to lock it in. My gut feeling is we give up the YTD gains and flip red for the year sooner than later. Bought some boomer preferreds. This market and environment is not easy.
Think I’m with you on all of that! Definitely feels like gravity will come back into play soon.
"Every word is analyzed like a bread crumb ...
Powell’s brief aside quoted above stood out to me as being the most candidate and insightful."
People don't really analyze crumbs ... I'm sure you're making a point that although many of the words are of little value they are all being scrutinized as though they had value?
And, probably, "candid"? Auto-corrupt strikes!
OK, back to the article. I hope you'll make the point that one reason for the apparent contradiction in the data is that deeply entrenched Narratives are purposely obscuring and outright lying about Reality.
I guess the idea is that people are searching for clues in very small things like a bread crumb. It also alludes to the story of Hansel and Gretel where they follow a "path" of bread crumbs, like as investors trying to find the path of monetary policy. But maybe its not the best metaphor, and the typos certainly make it harder to read.
And yes, "candidate" was a bad one... fortunately its fixed here in the online version.
Fair enough and I like the H&G ref.
Here in Silicon Valley, top of mind seems to be serious job loss. Also, homes have reverted to selling below asking.
Few will hear about human suffering... the media, imo, is firmly committed to bolstering govt policies.
I sometimes wonder about Tech. Did they hear JPow say he would tighten till breakage and decide to lay off workers to get it over with?
At a minimum, we overgeneralize everything. Certainly Silicon Valley does not have a historically great labor market today, and for those people, national averages mean nothing.
And absolutely right on housing - tech centers SF and Seattle have seen massive drops in prices and are leading the country in declines.
Though to be fair, both the labor market and housing market has been pretty darn good in these sectors for the past 12 years or so, which itself is related to expansionary policy.
Read some relevant pieces about labor hoarding that may explain some of this macro puzzle. A lot of the construction workers that should have been laid off with the drastic decrease in housing activity was instead retained as firms are paranoid of being unable to hire back workers when things “go back to normal.” This may be informed by how fast the economy recovered in 2020.
When you consider how deeply payrolls got hammered during the pandemic, its easy to see how labor market would be very strong in a quick recovery, as it is still catching up from a very low base. In the case of construction, I'm curious how much is due to hoarding vs ongoing construction... recall, in the 2000's housing cycle, prices plateaued for almost 2 years before eventually falling in 2007 and 2008. Meanwhile this housing cycle appears to be much shorter, with prices peaking and falling immediately. Therefore there could be a lag effect at play.
Micheal Burry once said high inflation and multi-year recession. No one is telling this.
Burry also once told people to read everything I've written on China real estate, so we know he can't be that reliable!
I do think its possible we see a recession and ongoing inflation. Typically recessions do a fantastic job of stopping inflation (at least temporarily), but there are so many truly unique aspects of this cycle.
Even if you take a monetarist perspective, its not clear. Money supply experienced a massive step-change increase, but is now shrinking. How long does it take for nominal prices still catch up to the "step-change" and how much does the current negative rate of change matter? We don't really know.
This is what drives the caution in my notes like this one - question convictions and be willing to follow the data, because we are in uncharted waters.
Sum coffe, it’s Friday plus some great article from TLBS, what else? Thanks Bear!
I have a little glass mug that is shaped like a bear that a relative got me for Christmas this year - I’ll have to send you a picture. it’s my go to mug now for morning lattes. Glad you are back on schedule this week.
Hahaha I love it, send me one signed!!