My favorite part was that you went to the trouble of plotting a most devious… chart crime! The least is that you didn’t insert some Brazilian Portuguese into the mix. :-(
Sir, with all due respect, debunking a strawman version of bears' arguments is not doing your subscribers a favor. Let me attempt to provide the bear case better so you have a more interesting challenge:
For the labor market,
1- People on severance count as employed in the establishment survey. There are a lot of those.
2- Continuing claims remain stubbornly high. They will keep rising in my opinion because:
3- Employment figures in recent PMIs look horrible.
AND many layoffs are announced every day.
AND hiring has ground to a halt in the JOLTS data.
Other data:
1- US PMIs themselves look very weak.
2- They look way worse around the world. It is an interconnected world economy through the eurodollar system, despite naysayers which brings me to:
3- China. They are in serious deflation, the property sector is going downhill. Stimulus is NOT helping AT ALL.
4- Eurodollar indicators like swap spreads and repo fails intermittently flash grave warning signals. 5- USD also just won't come down. There is a serious dollar shortage.
6- CRE is a trillion dollar problem, getting worse by the second.
7- Europe has a Q1 2024 maturity wall problem.
8- So does the US, more spread out in 2024.
9- US consumer is tapped out. Retail sales only increased in the US after walmart announced buy now pay later. We will see delinquencies skyrocket this year.
10- The effect of the credit crunch operates on a 1-1.5 year lag. (See recent Jeff Snider video)
The economy only held on until now because Biden admin
1- hired way too many workers in 2023. It was the greatest in proportion (above 30%) in history.
2- stopped a huge proportion of people from paying back student loans.
3- aggressively incentivized bnpl through backchannels (I can expand. this is speculation on my part, but would make a lot of sense.)
Biden admin only elongated the cycle, which allowed the rates to be kept higher for longer, which is causing even heavier damage to refinancing companies behind the scenes.
This is not a healthy economy. It is having a last gasp of GDP now for a deflationary recession later.
I would absolutely LOVE it if you could do your best against the above because my net worth is tied to this thesis.
1- People on severance count as employed in the establishment survey. There are a lot of those.
I mostly watch initial claims for slack in the labor market. The labor market remains very tight as evidenced by earnings and Initial Claims.
2- Continuing claims remain stubbornly high.
Continuing claims are far below their average from 2013 to 2019 .. barely off the lows made during the peak of the hypercycle. 1871k is a very low figure consistent with tight labor market.
They will keep rising in my opinion because:
3- Employment figures in recent PMIs look horrible.
PMIs have been a terrible guide to the economy this cycle due to political polarization. They continue to be terrible.
AND many layoffs are announced every day.
Layoffs were much higher in early 2023 and were easily absorbed.
AND hiring has ground to a halt in the JOLTS data.
Hiring has slowed to 2015 levels, consistent with normalization not recession.
Other data:
1- US PMIs themselves look very weak.
These have been a terrible guide to the real world. ISM was lower in 2022 and it meant nothing.
2- They look way worse around the world. It is an interconnected world economy through the eurodollar system, despite naysayers which brings me to:
JPM global manufacturing PMI has been at current levels for past 12 months. Again, it has been a poor indicator. It was one of the main reasons people were calling for recession in January 2023. If anything, global PMIs are now rising off a low base but I continue to believe they are useless in this cycle.
3- China. They are in serious deflation, the property sector is going downhill. Stimulus is NOT helping AT ALL.
Agreed. I’m bearish AUDUSD and china generally. Balance sheet recession will go on for years.
4- Eurodollar indicators like swap spreads and repo fails intermittently flash grave warning signals.
I don’t see this. I see spreads in a familiar ranges. What ticker are you looking at?
5- 5- USD also just won't come down. There is a serious dollar shortage.
Strong USD reflects massive inflows into US assets due to strong USD economy. USDMXN and other USD/EM near the lows, which reflects no shortage of USD. If there was a shortage of USD, we would see weak EM not strong.
6- CRE is a trillion dollar problem, getting worse by the second.
Agreed, short specific REITs probably works although this issue has been well known for 3 years so I’m not sure if it’s priced in. It might not be and there are probably excellent regional bank shrots like NYCB. Not systemtic though as it’s the small banks that are most exposed. The big banks are fine. See charts here https://www.semafor.com/article/02/08/2024/new-york-community-banks-troubles-threaten-a-new-crisis
7- Europe has a Q1 2024 maturity wall problem.
Short European banks might work for this.
8- So does the US, more spread out in 2024.
Cost of servicing debt is making new lows for US corporates. That’s why credit spreads are so tight. Most corporations refinanced at low rates. There are always maturity walls though, and this is a concern for mortgages in Canada, etc. Of all the maturity walls, the US corporate one is least concerning to me.
9- US consumer is tapped out. Retail sales only increased in the US after walmart announced buy now pay later. We will see delinquencies skyrocket this year.
Delinquencies far below 2010-2019 average. If they go up ill be concerned. Walmart is 6% of US retail sales and their 2023 revenue was flat compared to 2022. Barely moves the needle.
10- The effect of the credit crunch operates on a 1-1.5 year lag. (See recent Jeff Snider video)
Agreed on this. I’m on high alert for any evidence of a credit crunch. No need to front run it as people have been trying since January 2023.
The economy only held on until now because Biden admin
1- hired way too many workers in 2023. It was the greatest in proportion (above 30%) in history.
2- stopped a huge proportion of people from paying back student loans.
3- aggressively incentivized bnpl through backchannels (I can expand. this is speculation on my part, but would make a lot of sense.)
Biden admin only elongated the cycle, which allowed the rates to be kept higher for longer, which is causing even heavier damage to refinancing companies behind the scenes.
This is not a healthy economy. It is having a last gasp of GDP now for a deflationary recession later.
Fiscal is a huge contributor to growth and this is unlikely to stop in an election year. Both Trump and Biden are doing MMT style policies and I think this will continue. Student loan payments restarted ages ago with zero impact on the economy.
Every single major data point shows strength. Specific secondary data points show weakness. I’m sure the economy will roll over one day but that could be 2025 or 2026 .. this looks to me like we have bottomed in most of the soft indicators and they are ready to catch up to robust hard data.
Great read as ever Brent and TY. You don’t seem to mention anything around the challenges of credit and companies that need to refinance their debt in a post ZIRP world ? Evidently those that need to do that are going to experience far higher costs due to real rates and would look to cut costs in other areas, like labor perhaps ? Are we not starting to see the initial cracks of another round of layoffs, UPS et al and also now waiting for what Cisco has to say ? Cheers
For puzzled kids like me, the “Brash RBNZ call” is a reference to Donald Brash who served as RBNZ governor from 1988 to 2002! My entire childhood!
Hahaha. Thanks for the Hall & Oats reference: 'Your kiss, your kiss I can't resist...'
Few
Always a solid read, thanks Brent.
My favorite part was that you went to the trouble of plotting a most devious… chart crime! The least is that you didn’t insert some Brazilian Portuguese into the mix. :-(
Great stuff, as always.
Sir, with all due respect, debunking a strawman version of bears' arguments is not doing your subscribers a favor. Let me attempt to provide the bear case better so you have a more interesting challenge:
For the labor market,
1- People on severance count as employed in the establishment survey. There are a lot of those.
2- Continuing claims remain stubbornly high. They will keep rising in my opinion because:
3- Employment figures in recent PMIs look horrible.
AND many layoffs are announced every day.
AND hiring has ground to a halt in the JOLTS data.
Other data:
1- US PMIs themselves look very weak.
2- They look way worse around the world. It is an interconnected world economy through the eurodollar system, despite naysayers which brings me to:
3- China. They are in serious deflation, the property sector is going downhill. Stimulus is NOT helping AT ALL.
4- Eurodollar indicators like swap spreads and repo fails intermittently flash grave warning signals. 5- USD also just won't come down. There is a serious dollar shortage.
6- CRE is a trillion dollar problem, getting worse by the second.
7- Europe has a Q1 2024 maturity wall problem.
8- So does the US, more spread out in 2024.
9- US consumer is tapped out. Retail sales only increased in the US after walmart announced buy now pay later. We will see delinquencies skyrocket this year.
10- The effect of the credit crunch operates on a 1-1.5 year lag. (See recent Jeff Snider video)
The economy only held on until now because Biden admin
1- hired way too many workers in 2023. It was the greatest in proportion (above 30%) in history.
2- stopped a huge proportion of people from paying back student loans.
3- aggressively incentivized bnpl through backchannels (I can expand. this is speculation on my part, but would make a lot of sense.)
Biden admin only elongated the cycle, which allowed the rates to be kept higher for longer, which is causing even heavier damage to refinancing companies behind the scenes.
This is not a healthy economy. It is having a last gasp of GDP now for a deflationary recession later.
I would absolutely LOVE it if you could do your best against the above because my net worth is tied to this thesis.
Warm regards
Hi mate here’s how I see it.
1- People on severance count as employed in the establishment survey. There are a lot of those.
I mostly watch initial claims for slack in the labor market. The labor market remains very tight as evidenced by earnings and Initial Claims.
2- Continuing claims remain stubbornly high.
Continuing claims are far below their average from 2013 to 2019 .. barely off the lows made during the peak of the hypercycle. 1871k is a very low figure consistent with tight labor market.
They will keep rising in my opinion because:
3- Employment figures in recent PMIs look horrible.
PMIs have been a terrible guide to the economy this cycle due to political polarization. They continue to be terrible.
AND many layoffs are announced every day.
Layoffs were much higher in early 2023 and were easily absorbed.
AND hiring has ground to a halt in the JOLTS data.
Hiring has slowed to 2015 levels, consistent with normalization not recession.
Other data:
1- US PMIs themselves look very weak.
These have been a terrible guide to the real world. ISM was lower in 2022 and it meant nothing.
2- They look way worse around the world. It is an interconnected world economy through the eurodollar system, despite naysayers which brings me to:
JPM global manufacturing PMI has been at current levels for past 12 months. Again, it has been a poor indicator. It was one of the main reasons people were calling for recession in January 2023. If anything, global PMIs are now rising off a low base but I continue to believe they are useless in this cycle.
3- China. They are in serious deflation, the property sector is going downhill. Stimulus is NOT helping AT ALL.
Agreed. I’m bearish AUDUSD and china generally. Balance sheet recession will go on for years.
4- Eurodollar indicators like swap spreads and repo fails intermittently flash grave warning signals.
I don’t see this. I see spreads in a familiar ranges. What ticker are you looking at?
5- 5- USD also just won't come down. There is a serious dollar shortage.
Strong USD reflects massive inflows into US assets due to strong USD economy. USDMXN and other USD/EM near the lows, which reflects no shortage of USD. If there was a shortage of USD, we would see weak EM not strong.
6- CRE is a trillion dollar problem, getting worse by the second.
Agreed, short specific REITs probably works although this issue has been well known for 3 years so I’m not sure if it’s priced in. It might not be and there are probably excellent regional bank shrots like NYCB. Not systemtic though as it’s the small banks that are most exposed. The big banks are fine. See charts here https://www.semafor.com/article/02/08/2024/new-york-community-banks-troubles-threaten-a-new-crisis
7- Europe has a Q1 2024 maturity wall problem.
Short European banks might work for this.
8- So does the US, more spread out in 2024.
Cost of servicing debt is making new lows for US corporates. That’s why credit spreads are so tight. Most corporations refinanced at low rates. There are always maturity walls though, and this is a concern for mortgages in Canada, etc. Of all the maturity walls, the US corporate one is least concerning to me.
9- US consumer is tapped out. Retail sales only increased in the US after walmart announced buy now pay later. We will see delinquencies skyrocket this year.
Delinquencies far below 2010-2019 average. If they go up ill be concerned. Walmart is 6% of US retail sales and their 2023 revenue was flat compared to 2022. Barely moves the needle.
10- The effect of the credit crunch operates on a 1-1.5 year lag. (See recent Jeff Snider video)
Agreed on this. I’m on high alert for any evidence of a credit crunch. No need to front run it as people have been trying since January 2023.
The economy only held on until now because Biden admin
1- hired way too many workers in 2023. It was the greatest in proportion (above 30%) in history.
2- stopped a huge proportion of people from paying back student loans.
3- aggressively incentivized bnpl through backchannels (I can expand. this is speculation on my part, but would make a lot of sense.)
Biden admin only elongated the cycle, which allowed the rates to be kept higher for longer, which is causing even heavier damage to refinancing companies behind the scenes.
This is not a healthy economy. It is having a last gasp of GDP now for a deflationary recession later.
Fiscal is a huge contributor to growth and this is unlikely to stop in an election year. Both Trump and Biden are doing MMT style policies and I think this will continue. Student loan payments restarted ages ago with zero impact on the economy.
Every single major data point shows strength. Specific secondary data points show weakness. I’m sure the economy will roll over one day but that could be 2025 or 2026 .. this looks to me like we have bottomed in most of the soft indicators and they are ready to catch up to robust hard data.
Thank you (really, much appreciated) for this. I will think about it for a while.
Donald Brash. so few remember
Very exciting, keen to know more!
Great note, Brent - especially liked the signal/noise comparison of NFP vs Household Survey, very instructive! Keep up the great work.
Great read as ever Brent and TY. You don’t seem to mention anything around the challenges of credit and companies that need to refinance their debt in a post ZIRP world ? Evidently those that need to do that are going to experience far higher costs due to real rates and would look to cut costs in other areas, like labor perhaps ? Are we not starting to see the initial cracks of another round of layoffs, UPS et al and also now waiting for what Cisco has to say ? Cheers
yes this is comign at some poitn but right now credit costs are making new lows still ... will be a long time before this matters imo
eric prydz is by far one of the best house/electronic DJs on this planet. Love his tracks and his concerns are even more mind-blowing
**concerts
Hi Brent,
Big Foot recession is a valid label. Labels and fundamental macro economics are only half of the market story.
Many other catalysts can send a market south, but in all cases option positioning in the modern markets is needed.
Option positioning shows much of the market positioned short, not hedged.
This may well cause big problems with a good catalyst of headline, rates or war being labelled the events reason.
Even if the market OI completely repositions at Feb OPEX the swing in deltas will give the market a huge shake.
Analog in recent stocks as short. JNJ July23 short positioning swung long August OPEX and crashed 17%.
It's hard to find a recent market analog as extreme. June23 OPEX swing was big and included AAPL,it took five weeks to blow off.
Jan OPEX 2020 took a month to sink Feb 20th. That is the only market positioning as short to be found.
Thanks, that's my diatribe.
Just curious, what's the logic behind rates down = "receive"? Because you're "receiving" gains in your bonds?
Yep you receive the interest payments because you own the underlying fixed income instrument. And if you're short bonds you pay the interest.