Soft Landing?A lot of market participants are falling for the Fed's illusion that a soft landing has been achieved. However, the charts are still warning that a recession is coming.
The chart below shows the extreme degree of inversion between the 10-year Treasury bond and the 3-month Treasury bill. The current inversion is the worst in over 40 years.
A yield curve inversion reduces bank lending for various reasons, one of which is the removal of the incentive for banks to borrow at lower short-term rates and lend at higher long-term rates. Since bank credit is how most money comes into creation, a yield curve inversion is, therefore, a sign that monetary conditions are deteriorating. Indeed, manipulating the interest rate is how the central bank controls the money supply and induces a recession.
The impact of rate hikes always occurs on a lagging basis. The lag can last anywhere from several quarters to several years. As the infographic below shows, an economic recession will likely begin in the U.S. between Q4 2023 and Q4 2024.
The warning signs of the coming liquidity crisis are everywhere.
In a prior post (shown below), @SquishTrade and I pointed out that a major disparity between the volatility of bond prices and the volatility of equity prices is occurring. This extreme disparity could be a warning that much greater volatility for equity markets has yet to come.
Even for stocks that have experienced a strong rally in 2023, the basis of their surge is largely unsupported by dollar liquidity levels. In the chart below, the price of NASDAQ:NVDA is compared against the dollar liquidity index.
This is further confirmed by the below chart, which shows how extreme the price of NASDAQ:NVDA as a ratio to the price of a risk-free 10-year Treasury bond has become. Never before have investors been willing to pay so high of a risk premium to hold Nvidia's stock.
While anything is possible, the charts suggest that there isn't enough money in the economy to support the payment of debt at current yields. The below chart shows the price of long-term government Treasurys (adjusted for interest payments) as a ratio to the M2 money supply.
There is simply not enough money in the M2 money stock for market participants to be able to pay all newly issued debt at the current high rates. When the liquidity issues begin to mount, the Fed will quickly pivot back to new money creation, as it did in March 2023 when it abruptly created the Bank Term Funding Program (BTFP), which is the latest of the many tools that the Fed uses to create new money.
However, when the economy begins to slow, this time around central banks will get trapped because of commodity price inflation. Although commodity prices are generally disinflating at the present time, this slow disinflation is merely forming a bull flag on the higher timeframes.
With unemployment also bull flagging on the higher timeframes, when commodity prices and unemployment concurrently break out, the result will definitionally be stagflation.
Important Disclaimer
Nothing in this post should be considered financial advice. Trading and investing always involve risks and one should carefully review all such risks before making a trade or investment decision. Do not buy or sell any security based on anything in this post. Please consult with a financial advisor before making any financial decisions. This post is for educational purposes only.
Economy
Currency In Circulation Versus UraniumThis chart illustrates the way uranium miners are attracting more and more of the money supply. This is very bullish for uranium.
Exploring the Features of TradingView: Your Ultimate Trading PalIntroduction:
TradingView has gained widespread recognition as a versatile platform for traders and investors, offering a wide range of tools and features to analyze and trade financial markets. In this guide, we will dive into the core features that make TradingView a go-to choice for traders of all levels.
User-Friendly Interface
Intuitive Charting : Discover how TradingView's user-friendly charting interface allows traders to analyze price movements with ease.
Customizable Layouts : Learn about the platform's flexibility in creating customized layouts, allowing traders to arrange charts and tools to suit their preferences.
Powerful Charting Tools
Drawing Tools : Explore a variety of drawing tools, including trendlines, shapes, and Fibonacci retracement, to enhance technical analysis.
Technical Indicators : Discover a vast library of technical indicators, from moving averages to oscillators, to aid in market analysis.
Chart Types : Understand how TradingView supports different chart types, such as candlestick, bar, and line charts, catering to various trading strategies.
Real-Time Market Data
Real-Time Price Data : Learn how TradingView provides real-time and historical price data for a wide range of assets, including forex, stocks, cryptocurrencies, and commodities.
Economic Calendar : Explore the integrated economic calendar, offering timely updates on key economic events and their potential impact on the markets.
Trading Integration
Broker Integration: Find out how TradingView allows users to connect their trading accounts with supported brokers to execute trades directly from the platform.
Paper Trading: Learn about the paper trading feature, which lets users practice trading strategies without risking real capital.
Social Collaboration
Community and Sharing : Discover TradingView's social aspects, where traders can share ideas, charts, and analyses with the trading community.
Script Sharing: Explore how users can create and share custom scripts and indicators with others in the TradingView community.
Alerts and Notifications
Price Alerts: Understand how traders can set price alerts to be notified when an asset reaches a specified price level.
News Alerts: Learn about the platform's news feed and alerts for staying updated on market-moving news.
Mobile Accessibility
Mobile Apps: Find out how TradingView offers mobile apps for both iOS and Android devices, enabling traders to monitor and trade on the go.
Scripting and Strategy Development
Pine Script: Explore the proprietary Pine Script language, allowing users to create custom indicators and trading strategies.
Conclusion:
TradingView stands out as a comprehensive and feature-rich platform that caters to the needs of traders and investors across various markets. With its user-friendly interface, powerful charting tools, real-time data, social collaboration, and integration capabilities, it has become an invaluable companion for traders looking to make informed decisions and execute trades efficiently.
Whether you are a beginner or an experienced trader, TradingView's diverse features empower you to analyze markets, develop strategies, and participate in trading with confidence.
Mastering Forex Trading Psychology for Consistent SuccessIntroduction:
Forex trading is not just about analyzing charts and economic data; it's also about understanding and managing the psychological aspects of trading. In this comprehensive guide, we will explore the crucial role psychology plays in forex trading and provide strategies to help you develop a disciplined and resilient trading mindset.
The Impact of Emotions in Forex Trading
* Emotion-Driven Decisions: Understand how emotions like fear, greed, and impatience can lead to impulsive and irrational trading decisions.
* Psychological Biases: Learn about common cognitive biases, such as confirmation bias and overconfidence, that can cloud judgment.
* The Trading Cycle: Recognize the emotional stages traders often go through, including euphoria after wins and despair after losses.
Developing Emotional Intelligence
* Self-Awareness : Reflect on your emotional triggers and reactions when trading. Keep a trading journal to track your emotions and decisions.
* Emotional Control: Learn techniques like deep breathing, mindfulness, and visualization to stay calm and focused during trades.
* Stress Management: Implement stress reduction practices, such as exercise and meditation, to manage the pressure of trading.
Building a Disciplined Trading Mindset
* Trading Plan: Create a well-defined trading plan that includes entry and exit strategies, risk management rules, and clear goals.
* Stick to the Plan: Develop the discipline to follow your trading plan consistently, even when emotions tempt you to deviate.
* Accepting Losses: Understand that losses are part of trading and focus on the long-term strategy rather than individual trades.
Overcoming Psychological Pitfalls
* Revenge Trading: Avoid the urge to immediately recover losses with impulsive trades. Stick to your plan.
* Overtrading: Set daily or weekly trading limits and avoid overcommitting capital in a single day.
* FOMO (Fear of Missing Out): Resist chasing after quick profits on hot trends. Trust your analysis and strategy.
Staying Informed and Continuously Learning
* Market Education: Stay updated with forex market developments and continuously improve your trading skills.
* Community and Mentorship: Join trading communities, forums, or seek mentorship to gain insights from experienced traders.
Conclusion:
Trading psychology is as critical as technical and fundamental analysis when it comes to achieving consistent success in forex trading. By understanding your emotions, developing emotional intelligence, and maintaining discipline, you can overcome psychological challenges and make more informed, rational trading decisions.
Remember that mastering trading psychology is an ongoing process. Practice, self-reflection, and a commitment to improving your mindset will lead to better trading outcomes over time.
$300 oil? Any time that we see oil increasing I feel like we see a few articles and posts predicting $200/barrel oil. Now we've got a Forbes article predicting $300/barrel oil. For fun, here are the peak searches for $200 and $300 oil over time vs WTI price.
QT into 2024 FED Balance sheet target 7.75 TRILLION Targeting FED Draw down towards 7.75 Trillion which equates to a 1.215 Trillion run off of the balance sheet. Coinciding well with the RREPO as the cushion
U.S. Unemployment crossing 20 month MA is usually very bearishHistorically, when unemployment crosses the 20 month moving average, a spike in unemployment follows in the next 12 months. These spikes in unemployment usually correspond with market downside in the S&P 500. The majority of the losses in the S&P usually happen early within the rise of unemployment. The recent rise of unemployment from 3.6 to 3.8 reported Friday September 1 2023 has put unemployment above the 20 month moving average.
This is an early warning sign for a possible recession in the next 12 months.
30-year mortgage rates are at 20+ year highsThis chart shows the 30-year mortgage rate. How important is this chart? Why does it matter? Well, to people like me, potential new home buyers, it's hard to overstate just how important this chart is.
I have to understand it.
If you already have a home at a low interest rate, congrats! Lucky you.
But for those searching the market, it's time to pay close attention, as it exerts a significant influence on various aspects of the housing market and individual financial decisions.
First and foremost, it directly impacts the price of houses. When mortgage rates are low, prospective homebuyers can afford larger loans, which drives up demand and, subsequently, home prices. Conversely, when rates rise, borrowing becomes more expensive, which can cool down demand and put downward pressure on housing prices.
Furthermore, the 30-year mortgage rate plays a pivotal role in determining what individuals can afford. A higher interest rate translates to higher monthly mortgage payments, potentially limiting the purchasing power of potential buyers. This has ripple effects across the entire economy, even equity and crypto markets as now people have less and less to invest. The endless bid dries up a tad.
To get the point... I'm watching this chart closely. It's currently at 20+ year highs. And it could go even higher. Let's watch this closely.
Germany's Productivity is rekt since 2008Hello everyone,
I was curious today what the productivity of German labor is.
It crashed hard in 2008 and hasn't been able to improve much ever since.
Thanks to German politics, there is not enough investments being made that could increase workers productivity.
It's been in a range for long - I wonder how much longer it will take until German productivity sees new highs.
What do you think?
Job Openings, Unemployment Rate, and S&P CorrelationsHere is a graph showing the correlations between the leading indicators of the economy, Job Openings, Unemployment Rate, and the S&P.
It can be seen from the charts that the Job Openings (.a) historically begin to decline before there is any change in the unemployment rate. A simple explanation for this could be, less jobs, more people unemployed.
Once the unemployment rate begins to creep up (.b); historically this has led to a sell off in the S&P.
Higher for LongerUS inflation data in July 2023 provided mixed signals. While Consumer Price Index (CPI) is moving in the right direction, producer price inflation suggest pipeline pressures are picking up. Core CPI, which excludes often-volatile food and energy costs, rose only 0.2% for a second month in a row . However, US producer prices picked up in July, owing to increases in certain service categories. This likely buys more time for the Federal Reserve (Fed) to deliberate on the future path of monetary policy.
The flows into bond exchange traded funds (ETFs) have been volatile. Over the past year, investors were starting to embrace duration. Investors were positioned for recession, inflation crash, and Fed cuts - evident from $31.7bn inflows to Treasury bond ETFs on pace for a record year2. However, investors are starting to pull out of the biggest bond ETFs devoted to Treasuries. More than $1.8 billion came out of the $39 billion iShares 20+ Year Treasury Bond ETF last week, the most since March 20203. Sentiment toward long-dated Treasuries has soured over the past month amid growing conviction that the Fed will keep interest rates at elevated levels for an extended period. We expect rates to remain higher for longer and are unlikely to see the Fed cut rates until the Q1 of next year amidst a stronger US economy.
Don’t celebrate on disinflation just yet
Overall, the US economy continues to show extraordinary resilience despite monetary constraints and credit tightening. While inflation has shown encouraging signs of decline, we caution that the level remains high. Strong July retail sales raise the risk of a re-acceleration in inflation. The four biggest categories of the ex-auto’s component saw outsized gains: non-store retailers, restaurants & bars, groceries, and general merchandise. Amidst a tight US labour market, with unemployment at historic lows and wages continuing to rise, the downward pricing momentum in the service sector is likely to be at a slower rate. Commodity prices are also beginning to rebound from the weakness seen in Q2 2023. Energy prices have been rising on the back of Organisation of Petroleum Exporting Countries and its allies (OPEC+) production cuts. If commodity prices extend their recent momentum, it could pose upside risks to inflation.
Fed Officials remain divided
Messaging on a somewhat mixed inflation outlook from the Fed Officials remains a mixed bag. One faction remains of the view that rates hikes over the past year and a half has done its job while another group contends that pausing too soon could risk inflation re-accelerating. Fed governor’s Michelle Bowman and Christopher Waller remain in the hawkish camp, hinting at more rate increases being needed to get inflation on a path down to the 2% target.
Futures markets are assigning about a 11% chance of a 25-basis-point rate hike when the Fed next meets on 19 and 20 September4. Additionally, rate cuts have now been completely taken off the table until perhaps later in the Q1 2024. The latest Fed minutes reveal commentary from officials, including the hawks, such as Neel Kashkari, suggest a willingness to pause again in September, but to leave the door open for further hikes at the upcoming meetings5.
Opportunity for a yield seeking investor
It’s been an impressive turnaround since the pandemic when negative real yields became the norm. TINA- ‘There Is No Alternative’ to equities, is over now that evidence of the shift to a 5% world appears stronger than ever. Today investors have the opportunity to lock in one of the highest yields in decades, with US two-year yields paying close to 5% exceeding the yields at longer maturities without the volatility witnessed in the 10-year sector. A resilient US economy is likely to keep interest rates and bond yields higher for longer.
Sources
1 Bureau of Labour Statistics as of 10 July 2023
2 BofA ETF Research, Bloomberg as of 9 August 2022 - 9 August 2023
3 Bloomberg as of 14 August 2023
4 Bloomberg as of 17 August 2023
5 federalreserve.gov as of 16 August 2023
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.
Market conditions STILL don't foretell a market crash soonBack in May I made a post "Market conditions don't foretell a market crash soon." Here we are almost four months later and not much has changed.
Again, some points here looking back to 2001. (2020 was an irregular event). Sorry for all the colors here, but everything is connected.
1. The Fed Rate (FEDFUNDS dark purple) falls before unemployment rises and recession. Note that the market rose while the interest rate was at its peak in 2006-2007 and 2019.
2. There are still more job openings than people to fill them (JTSJOL Non-Farm Job Openings minus USCJC US Continuing Jobless Claims - dark blue). Unchanged since May.
3. Unemployment Rate (UNRATE gray) rises as before SPX (yellow) drops. Currently UNRATE is pretty static and close to multi-year lows.
4. The following are static since May:
* Initial Jobless Claims (USIJC light blue)
* Continuing Jobless Claims (USCJC pink)
* Non-farm Payrolls (USNFP green)
* Job openings (JTSJOL light purple)
5. After a year in decline, M2 Money Supply is rising again (USM2 dark red).
6. The SPX drop last year was a result of inflation -> rate rises -> fear. But the recession didn't happen and the economy still looks strong?
Conclusion is that macro conditions don't foretell a market crash in the immediate future.
THIS IS FOR MY OWN RECORDS ONLY. NOT TRADING ADVICE. EVERYTHING CAN CHANGE VERY QUICKLY.
Silver versus average hourlyThere's a loose correlation between hourly wages and the price of silver. Check it out.
Inflection Point Alert: Tracking Housing Affordability Through tThe CUSR0000SEHC/M2 ratio serves as a unique lens to evaluate the dynamics between housing costs and the broader monetary environment. This ratio compares the Consumer Price Index for Owners Equivalent Rent of Residences (CUSR0000SEHC) to the M2 Money Supply, providing insights into housing affordability relative to the amount of money in circulation.
Key Observations:
Declining Ratio Pre-December 2021 - Prior to December 2021, the ratio was on a downward trajectory, suggesting that housing costs were not rising as quickly as the money supply. This could have been indicative of increased housing affordability or a result of loose monetary policy.
Inflection Point in December 2021 - A notable change occurs in December 2021, where the ratio starts to rise. This inflection point signals a potential shift in housing affordability, indicating that housing costs may be rising faster than the money supply.
Policy and Market Dynamics - The inflection point could be attributed to various factors such as changes in economic or monetary policy, or shifts in market demand and supply for housing.
Implications:
Economic Policy - Policymakers and investors should pay close attention to this trend as it could have broader implications for economic policy, including interest rates and housing market regulations.
Investment Decisions - For traders and investors, this could serve as a leading indicator for sectors sensitive to housing costs and interest rates.
Public Awareness - For the general public, understanding this ratio can offer insights into the future trajectory of housing affordability, a key component of the cost of living.
Conclusion:
The CUSR0000SEHC/M2 ratio offers a nuanced view of the interplay between housing costs and monetary conditions. The recent inflection point warrants further investigation and could be a harbinger of less affordable housing or changes in economic conditions. As such, it serves as a valuable tool for policymakers, investors, and the general public alike.
A yield neutral play against curve inversion The idea is a position that profits from any difference between the 20yr bond ETF ( NASDAQ:TLT ) and NASDAQ:IEF , the 10yr Note ETF. The potential opportunity lies in their identical share price, a rare event.
Yield on the 20yr has never been lower than the yield on the 10yr (since 1989). The top chart shows the difference in price . Always above 0. It implies that TLT's share price has always been higher than IEF's (middle chart, excluding 6mo in 2011). Bottom chart is TLT-IEF. Almost always >= zero.
This week the price difference was ~zero. A position that profits from any gap between TLT and IEF is a high probability trade.
Actionable trade details will depend on the assets used and may include:
ETF's NASDAQ:TLT and NASDAQ:IEF
TLT calls and IEF puts
20yr treasury bonds (in place of TLT
Futures ZB and ZN or their micro-equivalents
INFLATION BUBBLE AT CROSSROAD INFLATION VS DEFLATION Based on the last 120 year of DATA the inflation cycle had peaked . The mistake some will have that it is the beginning of ASSET DEFLATION CYCLE . SEE THE 1921 TIME TO WHICH I STATE we are in based on the 89 2010 4 and 2 year cycles and time spirals which called for a top in sp in sept and late dec 2021 which would see a major new BEAR market in all assets classes to which the panic cycle due oct 4th to th 20th focus on the 10th with targets of 3511/3490 . this is the FIRST leg of the deflationary CRASH cycle NOT the END .
iran exportsThe amount of Iran's exports is in a double zigzag pattern, and the B wave of Y is complete in 2020, and it is expected to have a downward trend until 2026 and 2027. After that we see the price explosion
2 yr 10 yr spread watch this its going to come in The chart posted is the 10/2 spread that everyone is watching >it bottomed see golden ratio
China Is The Next JapanIn the 1980's, Japan was the ascendant global power.
Year after year, Japan's GDP grew, and it seemed like a foregone conclusion that the country would flip the USA in terms of economic output and political standing (as you can see from the chart above).
What happened next? Utter stagnation.
Demographic issues and a popping asset bubble led to issues that continue to this day, and the economy has never really been able to get off the ground in the last 30 years:
Today, the parallels with China are clear.
China is the new ascendant power.
However;
The country faces a credit crisis, an asset bubble, and demographic shifts that could lead to a massive period of stagnation for the world's second largest economy.
Will China fall behind?
Combined with other weakening economic data, it seems likely that the Chinese dream is over.
Here's the problem; China is an autocracy.
People have put up with a lack of freedoms due to the increasing quality of life.
What happens if that stops?
Thankfully, nobody knows what the future holds. That said, political instability seems likely.
As housing continues to worsen, we're worried about exposure to China from a big picture perspective:
Individually, the best ways to play this seem like puts on FXI, the largest concentrated Chinese mega cap bet. If the economy stagnates, we expect mega-caps will be hit accordingly:
Long puts on big companies like BABA and JD also seem like reasonable trades over the next few years as multiples come in.
Cheers!
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30 Year Mortgage Target - OVER 7.5%I anticipate 30 Year Mortgage rates have a clear ceiling towards 7.63% then hover for a bit sideways. I believe the avg for this decade 2030 will the new norm at 5%
When it will Come down?When 1-dgs10/dgs2 closes below the orange line at 0.1013, it all comes tumbling down.
