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Shelter Inflation. The Tail That Wags The DogInflation is finally cooling off as inflation gradually loosened its grip on Wall Street and the economy in 2023, raising hopes for a gentler Federal Reserve and further gains for the market in 2024. Stocks rallied to their best 9-weeks stripe over the past 20 years in November and December, 2023 (so-called 'Santa Rally') as investors raised their bets that the Fed is done hiking interest rates to fight inflation. 6Mo USCPI Inflation was at its lowest levels since Covid-19 pandemic in early 2023 Top 4 U.S. stock market Indices were in rally in 2023 The economy has cooled under the weight of rising interest rates, as the central bank intended, but remains surprisingly resilient. Energy prices are down. Food prices are mellowing out. But the cost of having a place to live is still rising much faster than just about every other essential. U.S. Consumer Price Index inflation Headline inflation was up 3.1% from a year ago, and so-called "core" inflation, which excludes volatile food and energy prices, was up 4%. But the cost of shelter, which is the biggest component of the basket of goods the BLS uses to measure the cost of living, was up 6.5%. "The shelter index was the largest factor in the monthly increase in the index for all items less food and energy," read the Bureau of Labor Statistics report accompanying the latest data on consumer prices. "The shelter index increased 6.5 percent over the last year, accounting for nearly 70 percent of the total increase." When the covid-19 pandemic hit, the cost of housing surged as those who could afford it sought out bigger homes and many city-dwellers transitioned to the suburbs. What goes into Consumer Price Index That and a glut of savings unhindered by low interest rates combined to exacerbate what had been a long-simmering Housing crisis the U.S. But now that baked-in price hikes and rising mortgage rates spurred by tightened Federal Reserve monetary policy have put a bit of a damper on things, the housing market is also starting to cool. U.S. Single Family Home Prices in "Bubble Mode" 30Yrs Fixed Mortgage Rate is at 20Yrs Highs. 30Yrs Mortgage Annual Payment U.S. Single Family Home, only Interest. Housing prices tend to be “much stickier” than most costs, which means that when they rise we feel it more - and for longer (read - "for ever"). Housing prices do not compressed like just baked iPhone or iMac later in few years of its release. - Does all af that mean that pre-covid levels of relative housing affordability are coming back? - Sure "No". But at least American wages, which are still rising faster than before the pandemic thanks to increased worker power, will have a little chance to make up some lost ground. The issue is still Federal Reserve' lagged tightening policy, that is "The Tail That Wags The Dog".
FRED:CUSR0000SAH1
by Pandorra
Perhaps a 'Santa Rally' is just one step away to begin this yearStock markets often enjoy a seasonal share boost during the festive period. It's been an unpredictable year for stock markets after gloomy 2022 but all we are, traders, investors, TradingViewers are hoping for a successful end-of-year boost in the form of a so-called Santa rally. Shares have delivered a mixed performance so far in 2023, amid SVB crisis, high inflation and interest rate hikes, so while children are compiling their Christmas lists, traders also want some sweet candies. Traditionally, festive cheer and holiday household spending make the markets more optimistic during the holiday season, boosting investor portfolios. But will 2023 follow the trend? The "Santa rally", a term coined in 1972 by Yale Hirsch, the founder of the Stock Trader’s Almanac, "describes a tendency for the stock market to go up by 1% to 2%" over final five trading days of the outgoing year and the first two of the new one, said Forbes Advisor . This period has "historically" shown higher stock prices in the S&P 500 CBOE:SPX 79.2% of the time, says Investopedia . What drives the Santa rally? Reasons for the Santa rally are vary and one explanation is the cheery "end of year mood" that means investors are in more of a "buying temperament" rather than selling shares, which pushes up stock prices Will there be a Santa rally this year? Probably, Yes. November "capped off the best three months" for global shares since the pandemic stock market recovery in 2020, so there are a lot of hopes that stars will align, and momentum in the markets, helped by declining U.S. Treasuries rate, will push prices higher in the run-up to Christmas. Sure, there is "no guarantee", though. Sometimes it happens. Sometimes not. The odds of a Santa rally may be in your favor, but the "best option" (author's opinion) is to do nothing, remain invested and be "pleasantly surprised" by another strong month by the new year. The main technical graph for SPDR S&P500 ETF Trust AMEX:SPY says that we right now somewhere around 460 U.S. dollars per share (relevant to 4'600 points for CBOE:SPX Index), and just one step to break it out to reach CBOE:SPX 5'000 Milestone by the end of the year. Just follow the major upside trend, that's been taken from Q4'22. And that is all. Merry Christmas y'all, TradingViewers! See you in a Happy New 2024 Year! 💖💖
AMEX:SPY
by Pandorra
32
🔁 S&P500 Index vs. Inflation. The Big, Big CyclesThe market 'bloodbath is likely to continue' with investors set to lose tens of trillions over next decade, "Dr. Doom" Nouriel Roubini says. orld economies are facing a "megathreatened age," with stagflation set to become a core driver of major market headwinds, "Dr. Doom" Nouriel Roubini said in a Project Syndicate article published recently on Friday, November 24, 2023. This will be reflected in both equity and fixed-income markets, as the downturn that investors suffered in 2022 becomes a long-term trend. "This bloodbath is likely to continue," Roubini wrote. Assuming inflation averages 5% instead of the Fed's 2% target, long-term bond yields would need to be close to 7.5% for a real return of 2.5%, he explained. But if Treasury yields rise from about 4.5% to 7.5%, bond prices will crash by 30% and equities will be in a "serious bear market," he added "Globally, losses for bondholders and equity investors alike could grow into the tens of trillions of dollars over the next decade," Roubini warned. As to why inflation will stay high, he referenced a plethora of threats, ranging from an aging workforce to deglobalization, as well as increased government spending on areas such as war and climate adaptation. But the situation is made worse by the fact that debt has boomed among both private and government borrowers, triggering a "debt trap" scenario for central banks. And efforts to reduce inflation through higher interest rates risk causing a recession among highly-leveraged borrowers, something governments want to avoid. Faced with this, central banks could raise inflation targets above historical averages, as signaled by the fact that many are pausing rate hikes despite still too-high core inflation, Roubini said. Other analysts also warn that the increase in public borrowing and spending will lead to eventual defaults, unless debt ratios are brought down. To deal with this situation, Roubini noted that some countries will simply allow higher inflation to erode nominal debt. The main technical graph, the ratio of SP500 index SP:SPX and inflation FRED:CPIAUCSL says, in this time we still is in the bullish 9/18/27 yrs cycle, however over decade or so, Roubini can be clearly right with recent warnings. Check the chart below for more details.
SP:SPX
by Pandorra
2
🐹 Caution To All TLT Hamsters - TBT Has More Room to DeliverTBT is a UltraShort 20+ Year Treasury ETF. This Fund seeks daily investment results, before fees and expenses, that correspond to two times the inverse (-2x) of the Daily performance of the ICE U.S. Treasury 20+ Year Bond Index. 1. Always look first. Never rush into a trade or investment blindly. 2. Wait, and wait again, for the pattern to develop. 3. Be patient and use alerts to get notified when the time is right. 4. Measure trading ranges and adjust your plan for sideways action. 5. Look for bases and consolidations. 6. Zoom out and look for historical levels of support and resistance within those bases or consolidations. 7. Markets can go sideways longer than traders can stay solvent. 8. Adjust your stop loss and take profit targets for the choppy price action. 9. Be prepared for false breakouts and false breakdowns. 10. Choppy markets do not trade like trending markets. Technical picture in AMEX:TBT indicates it has possibility to further upside price action, up to 57 - 60 U.S. dollars per share, as key multi year resistance (5-years simple MA) has been successfully broken at the end of 2022.
AMEX:TBT
by Pandorra
What's a Tea! Fed Policy Expectations Plunge Gold to Key SupportGold declined marginally by 3% in September hitting its major support of 52 weeks SMA, in the face of higher long term Treasury yields TVC:TNX and a stronger Dollar index TVC:DXY . Sentiment remained weak for most of the month as ETFs continued to lose AUM while COMEX managed money net long futures positions fell to a five month low previously in August 2023. 👉 Since July, long-dated yields have risen faster than short-dated yields, meaning the yield curve is exhibiting a "bear steepening", something often seen during a reflationary or early business cycle period. 👉 Following this thesis, lets compare 13-Weeks Treasury Bills Yield CBOE:IRX.P that jumped in 3 months from 5.150 to 5.330 only, and 10-Years Treasury Notes Yield TVC:US10Y with gains from 3.820 to 4.630 at the same time. 👉 While gold tends to underperform risk assets during these periods, it is not common to see bear steepening this late in the business cycle and recent moves in yields may be masking other factors at play, such as higher risk premiums 👉 Soft US economic data suggests also that a slowdown is still likely, which, alongside a potential change in the shape of the yield curve, could signal an environment where gold has historically performed well. Yields take center stage 👉 August and September were challenging for gold. After dipping below US$1,900/oz, it staged a late recovery – around the Fed’s Jackson Hole annual symposium, than turned more down after Fed's September Meeting to finish September down approximately by 3 per cent. 👉 The US Treasury yield curve is arguably the most important financial indicator around, and its trajectory and shape are constantly under scrutiny. Most of the time (90%) it slopes upward as investors need to be compensated for lending their money for longer. But at these times, it inverts. As it has since July 2022, suggesting bond market participants are waiting Fed's monetary policy tightening continuation. Lets Compare Gold Spot in U.S. Dollars (RHS) vs. 6-Months Fed's Policy Expectations based on Jun'24 30-Days Federal Funds Futures CBOT:ZQM2024 (LHS) Gold Spot in U.S. Dollars (RHS) vs. 12-Months Fed's Policy Expectations based on Dec'24 30-Days Federal Funds Futures CBOT:ZQZ2024 (LHS) What’s next 👉 In summary, the move in the 10-year yield can likely be attributed to three main factors. A shift up in the ‘higher interest rates for longer’ narrative, supply and demand forces and a rise in the risk premium. 👉 The latter factor might start to provide support to gold prices, if it continues to increase from its key support of 52W SMA. 👉 If we simply look at bear steepening, gold tends to underperform – with low single digit average returns. Historically, the most likely successor to a bear steepening is a bull flattening (approx. a third of the time). This is characterized by a fall in the long end of the curve relative to the short end, effectively an unwinding of the rising premia we’ve witnessed. 👉 This partly took place at the latter end of September with gold likely benefitting from such yield declines. Also, soft data continue to suggest that a slowdown is still firmly on the cards. This could result in either a bull steepening or a rare "bear-". Both phases have on average been gold friendly, yielding an annualized return of 15% – the highest of all the phases. Gold Market Breath 👉 What is Market Breath overall? 👉 Market Breath is a Percentage of Index Components Trading Above their N-Period Moving Average. 👉 Traders can use this index to see what percentage of index components are trading above their N-period moving average, for example, above the 200-day moving average. 👉 A rise above 50% in the indicator indicates increased market strength, while like the index of new highs and lows, traders and investors often look for extreme values to find extreme overbought and oversold conditions in the broader market. 👉 Gold Market Breath Indicator INDEX:YATH (number of S&P/TSX Global Gold Index TSX:TTGD above 200-Day SMA) is at 2.43, that is one of the lowest multi year readings . In conclusion, there are some reasonable considerations for further Gold spot purchases following the thesis that 52W SMA is a strong support for Gold in 2023, and further Fed's Policy expectations for upcoming 2024 are fully in the hands already.
OANDA:XAUUSD
by Pandorra
5
Real Yields vs. Gold (Divergence of the Year)What are real interest rates? The real interest rate is the rate of interest an investor, saver or lender receives after allowing for inflation. It can be described more formally by the Fisher equation, which states that the real interest rate is approximately the nominal interest rate minus the inflation rate. Now, two scenarios unfold. One, the gap in the chart closes when real yield goes back below zero. As we transitioned into QE this year--rightly so with bonds inverted 6 months before-- before COVID. It was the catalyst. Now with 5 years of the fed funds rates being near 0 to "average out" inflation, how to you think this chart will respond? A tip. QT is the opposite of QE.
Editors' picks
U
by TayFx
45
US10Y-US02Y Inversion;Un-Inversion compared w/ Dotcom FractalRemember, the stock market isn't the economy. A healthy economy usually is correlated to a healthy stock-market (price valuations, liquidity) However, the reverse is not true. The stock market isn’t the economy. There are a lot of private businesses in the U.S. that don’t reflect in the stock market. The stock market is forward looking while economic data reflects what happened in the past (backward looking). The stock market doesn’t reflect how the economy is “today”, instead it reflects where investors think the economy will be in the future (3,6,12+ months). When you look at March of 2009, stocks at that point had bottomed, with unemployment continuing to rise--peaking at 10% in Q4 of 2009 (6 months from the March 09’ bottom). Now keeping in mind that the stock-market is forward looking and that economic data is backward looking, we can make the assumption that speculation accounts for the difference that investors would price in if they had current economic data. The stock market is more volatile than the economy. Geopolitical tensions, external environmental affects, currency rates, also contribute. The stock market is just a collective of speculators, with investors being optimistic towards the reopening of the economy. Markets have done well when news gets less bad. Stimulus Since mid-March, the fed has both cut interest rates to near zero, buying trillions of U.S. dollars of assets. Low interest rates encourage business to borrow at low costs. One of the things this does is set a floor for investors who assume that interest rates will be low for a while, giving them purchasing power. Multiple studies done that showed a good percentage of Americans using part of their $1,200 stimulus checks to trade stocks” (Fitzgerald, 2020). This can be directly correlated with Robinhood new accounts peaking 4 weeks after the checks began to ship (Bloomberg, 2020) and also Google Trend all time high’s for words like “Buy stocks” ( Google , 2020). According to Pew Research, only 14% of U.S. families are invested in the stock market, with 52% having “some” investments via 401k or IRA’s. This mean that the gains disproportionately benefited a minority of the country. I think that it’s clear the stimulus positively affected Wallstreet while leaving Mainstreet behind.
TVC:US10YLong
by TayFx
US5Y Breakeven Inflation vs. WTI (USOIL)The graph above shows that the correlation between the breakeven inflation rate and oil prices is not limited to the steep decline that occurred in 2014. Indeed, the correlation between the two series over the entire period shown (January 2011 through March 2019) is 0.65. Prior to 2015, the two series appear to occasionally move together. The comovement was particularly obvious when the two series exhibited large changes, rising together in early 2011, falling together in late 2011, etc. From January 2011 to January 2015, the correlation between the series was 0.49. From January 2015 to March 2019, the correlation between the two series became even more apparent, rising to 0.85. A few academic papers have tried to analyze the cause of the comovement, but the high degree of correlation between the two series remains puzzling. Even if changes in oil prices pass through to consumer prices, one wouldn’t expect such a close correspondence between oil prices today and consumer prices at a 5-year horizon. 15:21:58 (UTC) Sat Aug 15, 2020
F
by TayFx
Total Public Debt as Percent of GDP (All-Time-High) for Aug 13White House Economic Adviser Larry Kudlow has really changed his tone on the scale and sustainability of American debt. Remarks country isn't nearing its borrowing limits. Total Public Debt as Percent of Gross Domestic Product (GFDEGDQ188S) was first constructed by the Federal Reserve Bank of St. Louis in October 2012. It is calculated using Federal Government Debt: Total Public Debt (GFDEBTN) and Gross Domestic Product, 1 Decimal (GDP): GFDEGDQ188S = ((GFDEBTN/1000)/GDP)*100 GFDEBTN/1000 transforms GFDEBTN from millions of dollars to billions of dollars.
F
by TayFx
7
"All Time High's"This was the first chart that signaled a recession in April of 2020 when the curve first inverted last year in May. This was pure luck, by simply drawing a fractal of previous yield curve inversions from past recessions from May, which was around 360 days from the TA that suggested the market would recess in April of 2020. Obviously covid is a black-swan--unpredictable and un-speculative--however the bond markets continue to get this all correct, 6-12 months in advance. Keep your tabs on the curve.
TVC:US10Y
by TayFx
2
The Fed is expecting a negative cut in interest rates.The Fed is expecting a negative cut in interest rates. A week ago, I wrote about the Fed cutting the dollar rate to zero. This is exactly what my fractal analysis showed. It is therefore advisable to continue along this path. Current analysis shows that 3-month US government bond yields are ahead of further decline. This predicts a further cut in the dollar interest rate to the negative interest rate range. I also assume that the dollar will have lower interest rates (negative interest rates higher) than the euro. Therefore, in the shorter term, I expect further strengthening of the euro.
TVC:US03MEducation
by meszaros
6