Recession Risk Is Pulled Forward
Recession Risk Is Pulled Forward
CLUB/EDGE client post Wednesday, August 21, 2024. Focus on "statistically significant" BLS, growth fears transitioning to recession fears, and STAGFLATIONARY RECESSION.
» CLUB/EDGE client post AUGUST 21st, 2:00 PM ET.
Higher Gaps To Fill, Still
I believe the mechanical buying in the markets that is systematic (read: computers) will help SPX, QQQ + XLK to reach those higher hourly/daily gap fills (I have talked about in my live trading room repeatedly) as ideal price targets for this reflexive rally off August 5th low. I estimate it to take place on or about NVDA earnings.
But ... as you know, I am already on alert for a macro trigger that can and will quickly unwind those longs and create an air pocket of risk lower as a result of hedges having been blown out or closed, and bad news representing bad news moving forward.
The BLS revision this morning helped get us closer, as the BLS revised their estimates down 818K, or 28% of the original 2.9M jobs added over the last year, ending March 2024. This is the biggest revision since 2009!
It is even more of an outlier when you consider this:
"the annual benchmark revisions over the last 10 years have averaged +/- one-tenth of one percent of total nonfarm employment" BLS
This report? I statistically significant -.5% !!
Remember, there are incomes attached to those jobs!!
That would lower monthly payroll gains (initially +246K) by 68K a month, on average.
This means job growth was +1.4% in March 2024, versus previously reported +1.9%.
@NickTimiraos
So my 267K/mo jobless claim trigger is now firmly in play.
It also demonstrates (to me anyway), how desperate Fed/Treasury/White House were to obfuscate the degradation of job growth under the surface.
Why? So they could keep the inflation illusion alive - great for banks/markets and asset holders - especially into a contentious election.
It's called the Wealth Effect.
But it completely disguises the troubles I have been addressing past few months of WHY global central banks are cutting: falling global credit demand, a Fed keeping policy too restrictive for rest of world, forcing foreign countries to devalue their currency in order to compete, forcing foreign money to seek the higher yields and stock market returns of the US, AND to support an ever rising deficit and the policy interventions that support it.
So the revisions on the monthly payrolls + the one off adjustment, the BLS overstated jobs by 1.051 million from the initial reports (12 mo period through March 2024) -- keeping the Fed too tight, for too long. A good way to evaporate the potency of trillions of dollars in fiscal. All the debt, and a fraction of the growth. Shameful. Bryan Rich
So even though machines may be bidding up US equities, the better tells of RECESSION RISK are front-and-center: USD, YIELDS & OIL are falling, AGAIN.
BEARS REPEATING
“My bet: This crowded trade in VIX and Notes/Bond shorts will amplify market shocks as "growth fears" transition into recession fears when:
1. 10Y US yield stays below 3.8%
2. Crude oil crashes + stays below $70.
3. Jobless claims get/stay above 267K”
So, if investors are on edge for Bad News, we got some!
But the market is acting like it doesn't know it yet.
With Thursday pre-market jobless claims AND Jackson Hole & BOJ/Parliament Friday, I can imagine we get more of the same - Policy Interference - to keep the market from rolling over too hard. (At least until post OpEx & NVDA earnings.)
But my main themes are clearly working:
US 10Y Year just itching to crash lower
Crude oil just itching to crash lower
Jobless claims just itching to crash higher
Safety of XLP, XLV, XLU continues to pay as GDX, XHB durable rotation themes
Yen is structurally moving higher which will continue to trigger waves of basis trade unwinds
And my main themes short also bear watching:
Banks look ready to roll over.
And when banks fall, concentration risk in MAG7 will unwind.
Last but not least, my main macro themes will, in time, pull forward recession risk:
Mortgage rates are about to move lower, faster. This will pull 10Y lower and is negative banks... which hurts lending, investment, jobs.
Crude oil prices are about to move lower, faster. This is also negative banks... especially since oil is a collateral hedge with bonds!
Jobless claims are about to move higher, faster. This is also negative banks... especially since economic growth and inflation is what helps banks make money!
The Bullish Parade
Few months ago, I did a Bloomberg interview with my call that the rally could continue.
Here's the client post I did up as support and you will see my caveats:
Fast forward, I have pivoted but I see a constant parade of bullish narratives - from retail sales to foreign money flow into equities, from low unemployment to rising global liquidity flows. SO many reasons not to fear recession I am told, and yet, here I am writing to you about MY FEARS of recession risk getting pulled forward. And with that a reversal will follow in retails sales, foreign equity flows, employment and even global liquidity.
A word about global liquidity:
Talk of rising global liquidity is bullish when inflation is expanding, and when real growth is expanding, with jobs and wages supporting consumption.
Talk of rising global liquidity is not bullish when inflation is falling and real growth is slowing, with higher unemployment and falling incomes reducing consumption.
That's where I see us going: STAGFLATIONARY RECESSION
And the money companies are/were making on higher prices will compress, as will their earnings and stock prices.
And all will be made worse by repatriation of foreign dollars headed home as Fed rate cuts kick in and with it deflation of equities, consumption, jobs and wages.
It's all a cycle, and we are at the end of it.
And no AI will not save us, and neither will Bitcoin.
