StatWeek

 

 

  Since last March, the Fed boss has been on a mission to smash inflation by jacking up interest rates. And to prove he means business he’s sent the Fed on the most aggressive rate hike cycle in history. This has paid off. The annual inflation rate is down from its June peak of 9.1% to 6% today. But it’s also come with some serious collateral damage… As we’ve seen over the past couple of weeks, it’s triggered a panic in the banking system. Higher rates have torpedoed the value of the long-term bonds banks have been holding to back deposits. This brought on the collapses of three U.S. banks. And regional bank shares are getting clobbered.

  On April 1st, 2019 gold was reclassified as a Tier 1 asset after having been a Tier 3 asset under previous Basel Agreements.    This means that it is recognized as a high-quality liquid asset (HQLA).⁴ This is why we believe commercial banks will move to holding more gold.   Gold has several characteristics that could make it an attractive addition to a bank's balance sheet, particularly during inflationary or stagflationary times:   Zero counterparty risk:  Gold does not rely on the creditworthiness of any institution or government, which means there is no risk of default associated with it. This can be appealing to banks, especially during times of economic uncertainty or stress. Hedge against inflation:  Gold has historically been seen as a hedge against inflation because its value tends to rise when the purchasing power of fiat currencies declines. In an inflationary environment, holding gold could help banks protect their balance sheets from the eroding effects of inflation.

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  Can you see what it means? In short, Americans are out of cash. Consumer debt is at an all-time high, and personal saving is lower than it’s ever been. According to the  Wall Street Journal , even wealthy Americans could soon suffer “more than usual.” Over the course of my career, I’ve seen a lot of things — but I’ve never seen anything quite as alarming as this. What does it mean for the U.S. economy?

  But do you know what history has taught us right before a capitalist economy comes to an inevitable end? Those in between get squashed.   Take a look at this chart that shows the middle class's share of income over the past 30 years: ​Since the advent of the internet, middle earners have consistently made less money than everyone else. In 2020, the trend temporarily reversed, but that was just an outlier due to stimulus checks.  Same with accumulated wealth. Is it a coincidence that the middle class began to shrink right when the internet took off?  A.I. will be the tipping point that finishes them off. 

 

 

  Credit is now "tighter" than at any time since right before the last financial crisis, excluding a brief period early in the pandemic. Take a look... As credit continues to tighten, I predict we'll read more and more stories in the coming months about rising delinquencies, defaults, and bankruptcies. The Fed stepped in after the pandemic with unprecedented stimulus the last time credit tightened. But it's powerless to stop the credit crisis this time due to persistent inflation...

  The Cleveland Fed’s measure of the trimmed mean (in which outlier components in either direction are discarded and an average taken of the rest) is barely below its January level, and still above 6%. Its measure of the median has topped 7% for the first time.  

 I n the wake of the banking sector meltdown, here’s what gold as a chaos-hedge looks like… But the interest in gold today isn’t solely due to banking-based fear rippling through the market. It’s also because the Fed finds itself between a rock and a hard place, which amplifies uncertainty about the economic/investment landscape looking forward.

  Historically speaking, whenever the Fed pauses a rate-hike cycle as inflation is falling – exactly the situation we will have in 2023 – tech stocks always outperform: Either this is the first time in history that the combination of steady interest rates and falling inflation equals tech stock underperformance, or…  Tech stocks are about to stage an epic comeback. We’ll go with the latter.  Tech stocks have regained their mojo, and the party’s just getting started.  But if you want to maximize your returns in this comeback, you can’t just settle on buying the  Invesco QQQ ETF  ( QQQ ) – an ETF that tracks the  Nasdaq.  

 NASDAQ Holding up nicely The Nasdaq100 just put in a classic outside week, engulfing the entirety of the prior week's trading: And yes those Growth stocks are catching a bid with rates falling at a record pace. But there are still pockets of strength outside of growth. Look at General Electric, for example, making new 5-year highs: There are stocks going up, there are stocks that are a mess, and there are some stocks going down.

 Gold ready for a POP Look at Gold priced in South African Rand, for example, which is one of the largest producers of gold in the world: With Gold already breaking out in other currencies, and now Gold is breaking out to new all-time highs relative to bonds, how can we possibly ignore that? I think it's only a matter of time before you see Gold making new all-time highs priced in good old American Dollars.

The formerly favored gauge on whether a recession is coming — the Treasury yield curve — has been inverted since last July:  — has been inverted since last July: This time they’ve been pretty quiet about it despite it having predicted the past seven recessions (shown in gray in the chart below): I could wager some guesses as to why they’re not panicking about it this time (different president in office, different policies causing problems, different narrative to enforce), but that’s not what I’m here for.

 

  How it happened, in a picture: Higher Treasury yields mean both lower bond prices and lower deposits (because depositors switch into money markets). And when yields go this high, this fast, something is going to break.   Surprisingly, it’s not the job market: At a committee hearing this week, Senator John Kennedy asked Chair Powell if his intention was to fight inflation by putting people out of work: “That's your job, is it not?" If so, Powell risks a poor performance review: The economy added another 311,000 jobs in February, according to this morning’s data. The unemployment rate (above) did tick up to 3.6%, however, which took some of the sting out of the report.    How can jobs and unemployment both be up? By having more new workers than new jobs: The labor participation rate for prime-age workers rose to a robust 83.1% in February, suggesting some combination of high inflation and higher wages has caused people to start looking for jobs again.    The other good-bad new

  FDIC reports that unrealized losses on bonds held by banks totaled  $620 billion  in Q4. “These unrealized losses could become actual losses should banks need to sell securities to meet liquidity needs,” the FDIC reported at the time. And this week, banks needed to sell securities. 

Think of the yield curve simply as an economic barometer. The curve tends to slope up when investors are optimistic about future economic growth. It slopes down – and eventually inverts or goes below zero – when they see slowing growth ahead. And as you can see in the chart below, the yield curve hasn’t been so steeply inverted since Paul Volcker was running the Fed more than four decades ago. He’s remembered as the guy who slayed the inflation of the 1970s by jacking up interest rates into double digits. But he also triggered the “double-dip” recessions of the early 1980s. This has predicted past recessions with staggering accuracy… It’s all in this next chart from Credit Suisse. It shows how each yield curve inversion (readings below 0) has preceded a recession (gray shaded areas). There’s a lag between the extreme inversion readings (red circles) and the recessions that follow. Market Wizard who made $95 million for his clients in 2008 – and predicted the 2022 collapse – reveals his

  Today’s issue covers   a brief overview of the bank stock meltdown, the continued slowdown in tech revenue, and more from the day.  📰 Check out today’s heat map: Every sector closed red. Utilities (-0.79%) led, and financials (-4.09%) lagged. 🔻 In economic news, initial jobless claims rose by 21,000 to a 5-month high of 211,000. Meanwhile, General Motors sent a letter to its U.S. white-collar employees offering voluntary buyouts as it looks to cut costs further. And Salesforce is cutting hundreds of sales and marketing jobs this week. ✂️ Internationally, Russia’s biggest lender Sberbank saw an 80% decline in its 2022 net profit as sanctions impacted its operations. 🏦 Shares of General Electric rose the most in two years after it issued upbeat guidance for its Aerospace business’ margins and energy business profitability goal. 👍