Tag: The Federal Reserve

"Harbinger Of Doom": Amigo 3 In Play, But Real Doom Awaits

Posted on by The INO.com Team

“The Harbinger of Doom”? Of course, we (well, the media) are talking about the yield curve AKA Amigo #3 of our 3 happy-go-lucky riders of the macro. I have annoyed you repeatedly with this imagery in order to show that three important macro factors needed to finish riding before a situation turns decidedly negative.

Amigo 1: SPX (or stocks in general)/Gold Ratio

Amigo 2: 30 Year Treasury Yield

Amigo 3: Yield Curve

In honor of Amigo 3’s arrival to prime time let’s have a good old fashioned Amigos update (going in reverse order) and see if we can annoy a few more people along the way.

yield curve

Yield Curve

Clicking the headline yields a Bloomberg article all about various yield curves and all the doomed news  you can use, including a hyperactive interview with an expert bringing us all up to speed on the situation. Continue reading ""Harbinger Of Doom": Amigo 3 In Play, But Real Doom Awaits" →

A Post-Powell View Of USD, S&P 500 And Gold

Posted on by The INO.com Team

The Fed blinked. This was not news to Macro Tourist Kevin Muir or readers of Biiwii.com, which is very pleased to publish his work.

Fed Finally Blinks

Amid a weakening global economy, gathering signs of weakening in the US economy and a dump in inflation expectations, Jerome Powell implied that the Fed may be going on hold for a while after a December rate hike.

This graph from SG Cross Asset Research/Equity Quant by way of Kevin Muir’s article attempts to show that the accumulated rate hike tightening and “shadow” tightening as a result of QE suspension has now met or exceeded the levels that preceded the last two economic recessions.

Jerome Powell

Add in very high profile haranguing by Donald Trump, the above-noted drop in inflation expectations and economic weakening (that began with our Semi sector signals nearly a year ago) and it sure is not surprising that the Fed may take its foot off the break for a while, and possibly a long while.

So what is expected of our two main themes, the cyclical and risk ‘on’ stock market and the counter-cyclical and risk ‘off’ gold and the miners, which leverage gold’s counter-cyclical utility? Let’s check in after this week’s events. Continue reading "A Post-Powell View Of USD, S&P 500 And Gold" →

Is The Housing Market About To Turn Positive?

Posted on by George Yacik

One of the anomalies of the current economic rebound compared to past recoveries is the virtual absence of the housing market in the upturn. Not only has the housing industry – and its symbiotic partner, the mortgage market – failed to lead or even participate in the recovery, as it usually does, it’s been a laggard most of the way.

The main reason, of course, is the huge change in perception among young Americans about the attractiveness of home ownership. Most of them grew up during the housing boom of the early 2000s and the subsequent bust following the financial crisis – indeed, the housing bust was the root cause of the crisis – so homeownership for many of them has mostly negative connotations, as opposed to a symbol of the American Dream.

Then there’s the burden of student loan debt, which has made homeownership unaffordable for many, so it’s not hard to see why the U.S. homeownership rate has dropped to 64.3% most recently, down from the peak of 69.2% at the end of 2004.

Making matters even worse is the relative lack of homes for sale, which has created a huge supply-and-demand imbalance pushing prices in most areas of the country higher. The reason for the lack of supply is threefold: Older homeowners don’t want to give up the 3.5% mortgage they’ve refinanced into over the past several years. And many of them still can’t sell their homes at the price they want because the value is still below where it was 10 years ago. They’re also reluctant to sell their homes only to have to find a new home at an inflated price. Continue reading "Is The Housing Market About To Turn Positive?" →

Where Do We Go From Here?

Posted on by George Yacik

As expected, the Federal Reserve left interest rates unchanged at last week’s post-Election Day monetary policy meeting, while signaling another 25-basis point increase in the federal funds rate at its December 18-19 get-together.

But the results of last week’s elections, which returned control of the House to the Democrats, may put future rate increases next year in doubt. That bodes well for long-term Treasury bond prices – i.e., yields may have peaked.

As we know, Maxine Waters, D-California, is now the likely next chairman of the House Financial Services Committee. To put it mildly, she doesn’t like banks. Her first order of business, no doubt, is to impeach President Trump, as she’s said countless times. But a more realistic second goal will be to roll back all or most of the recent bank regulatory measures made so far by the Trump Administration, which, of course, rolled back much of the regulatory measures passed under the previous administration, mainly through the Dodd-Frank financial reform law.

If she’s successful, that will reduce the mammoth profits the banks have been making the past several years, which were boosted further by the Republicans’ tax reform law. That sharply reduced corporate income tax rates, not just for banks but all companies, although the banks seem to be the biggest beneficiaries. No doubt Waters and her Democrat colleagues have that in their gunsights also.

But that won’t be the end of it. Continue reading "Where Do We Go From Here?" →

Are We Better Off Today Than Two Years Ago?

Posted on by George Yacik

Two weeks from now Americans will head to the polls to vote in what has been billed as “the most important election of our lifetime.” That may be a bit of hyperbole, but it will no doubt be one of the most important – maybe not as important as the previous one in 2016, but certainly a close second.

Since then, there have been some huge changes in the financial markets and the economy, nearly all of them wildly – and demonstrably – positive. CNBC was nice enough to quantify them the other day in this chart, and the numbers are startling.

I’ll just mention a few:

  • S&P 500: Up 32% since the 2016 election.
  • Average hourly earnings: Up 5%, to $27.24 from $25.88.
  • Nonfarm payrolls: up 4.4 million, to 149.5 million from 145.1 million.
  • Unemployment rate: 3.7%, down from 4.9%.
  • Consumer confidence: up 37 points, to 138 from 101.
  • Corporate tax rate: 21%, down from 35%.
  • Assets held by the Federal Reserve: down 6%, to $4.22 trillion from $4.52 trillion.

Needless to say, there have been some negatives: Continue reading "Are We Better Off Today Than Two Years Ago?" →