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.
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...'
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
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
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
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?