Is The Bottom Almost Here?

[TwoCitiesCapital]

3 hours ago, gfp said:

 

Why is that unusual?  The main thing that would make the TYX yield go down would be economic weakness and the main thing that would cause the yield to go up would be economic strength.  Just think about it as reflation/bullish vs deflation/bearish.

 

 

 

Because for the last few years, QQQ has been highly correlated with TLT. 

 

Paying a 30x multiple to earnings provides a similar duration to long term treasuries. Basically QQQ should trade like a long duration Treasury with a corporate spread premium. 

 

In addition, for years people have been saying higher multiples on the market are justified due to low interest rates and that there was no alternative to equities. 

 

Now that interest rates have risen substantially, it seems few are suggesting that multiples need to come down OR that flows might go to alternatives that are significantly more attractive. Just seems like they expect to win both ways even though it's not really logically consistent if TINA ever was true to begin with. 

[Spekulatius]

@TwoCitiesCapital yeah, if you ever expect the economy to perk up, big tech /QQQ would not be what I expect to do well. I would think that small caps, retail stocks, commodity  or value stocks would be the trade.

 

I think the QQQ is a flow story which probably was ignited by the AI mania.

[Thrifty3000]

 

^ inflation trend.

 

We won’t experience the full effects of the Fed rate hikes and tightening for 6 to 18 months.

[gfp]

I'm not of the belief that what the Fed does matters much but I do find it surprising that markets are pricing in an additional 25 basis point hike in Fed Funds in the next meeting or two.  Even copper has come down a lot - and there are legitimate supply shortages there.  Commodities are telling you demand is weak.  Shipping prices are telling you demand is weak.  Oil prices will probably hold up because of the cartel but even oil prices are pretty weak considering the fundamentals.  Demand is weak everywhere.  China reopening was a dud.

 

I would anticipate the market pops higher on the debt ceiling resolution and then immediately gets sold. 

[Sweet]

Is it really that surprising when you had fed officials this week saying two more hikes this year?

 

Some of them have lost the plot.  Why hike when inflation is down.  Killing the economy is not part of their mandate.

[Gregmal]

Yea it’s stunning to me to hear them continuing to talk about inflation lol. Like your 15 minutes is up. Go home. 

[John Hjorth]

Talks between americans all along, getting along.  New data for today just revealed Germany is in mild / garden version of recession.

 

I couldn't care less.

[gfp]

Yeah I don't usually pay much attention to global macro either, but I don't hold any cash and I am super bearish and fully invested at the same time.  This exact moment is a new high in every account I manage, yet I am adding to shorts in RSP and actually buying TLT.  But I'm not going to sell the 5 stocks I own in size just because I am super bearish.

[Gregmal]

Even the meteoritic rise in egg prices has reversed. This is all bullshit and anyone still talking about it needs to have their head examined.
 

 

[gfp]

Unfortunately it seems like the debt ceiling will probably not come to a head this week, as the Treasury is signaling for $64 Billion of net new issuance on 6/1 so we will probably have to sit through another month of this "negotiation."

[Gregmal]

Shucks. Was hoping for SPY 3000 next week. 

[changegonnacome]

 

4 hours ago, Sweet said:

Some of them have lost the plot.  Why hike when inflation is down.  Killing the economy is not part of their mandate.

 

4 hours ago, Gregmal said:

Yea it’s stunning to me to hear them continuing to talk about inflation lol. Like your 15 minutes is up. Go home.

U.S. Core PCE Price Index YoY

Release Date	Time	Actual	Forecast	Previous
May 26, 2023 (Apr)	08:30		4.6%	4.6%
Apr 28, 2023 (Mar)	08:30	4.6%	4.5%	4.7%
Mar 31, 2023 (Feb)	08:30	4.6%	4.7%	4.7%
Feb 24, 2023 (Jan)	09:30	4.7%	4.3%	4.6%
Jan 27, 2023 (Dec)	09:30	4.4%	4.4%	4.7%
Dec 23, 2022 (Nov)	09:30	4.7%	4.7%	5.0%
Dec 01, 2022 (Oct)	09:30	5.0%	5.0%	5.2%
Oct 28, 2022 (Sep)	08:30	5.1%	5.2%	4.9%
Sep 30, 2022 (Aug)	08:30	4.9%	4.7%	4.7%
Aug 26, 2022 (Jul)	08:30	4.6%	4.7%	4.8%
Jul 29, 2022 (Jun)	08:30	4.8%	4.7%	4.7%
Jun 30, 2022 (May)	08:30	4.7%	4.8%	4.9%

 

https://www.bea.gov/data/personal-consumption-expenditures-price-index-excluding-food-and-energy

 

Unfortunately - the facts don't agree with you both......wishing something was so and it being so....are two different things.

 

As I've said for months and months now.........3.4% unemployment, nominal spending growth like we have & sleepy productivity growth is completely and utterly incompatible with a magical soft landing trip back to 2% inflation where nobody gets hurt.

 

And as I've been saying for months the rubber is now hitting the road on sticky, plateauing and hard to shift inflation....and this is exactly whats showing up in the MoM data above and more tellingly inside the SuperCore number.....this 'core' inflation isn't going down and is showing basically zero progress in going down.......see Made in China inflation went away as we all knew it would....Supply chain inflation sorted itself as we discussed here......Avian flu egg inflation is/will go away cause well more chickens is an easy problem to fix....but that was a head fake on progress....lurking underneath all that is Made in America inflation, domestic monetary inflation.........its hit a stubborn floor for months now. Literally going sideways.

 

Some people seem confused as Fed speak out there is now kite flying the possibility of more rate rises in H2, not rate cuts like dreamers wanted.....see you can pretend they are lunatics if you want............but if your mandate is 2% inflation.....and your actually at about double that at ~4%........its no surprise at all your considering additional measures, the Fed officials are being very very rational........you just need to look at the complete lack of progress around this domestic inflation......its there, its a fact......no more supply chain excuses left now.......the Unites Sates Federal Reserve Bank is failing to adequately control prices as per its 2% stated target. End of story.

 

See folks have confused progress on headline inflation which was driven by the rolling off of China, Energy, Supply Chain stuff......and extrapolated, as humans do, the most recent past out into the future. They are very wrong on that extrapolation as it pertains to inflation............we've reached the part of Mount Everest Inflation where the cliff goes vertical and the oxygen levels drop but you can just about see the peak.......but its a tough slog getting from 4% down to 2%....and the economy/labor market is going to get hypoxia on the way to 2......(Hypoxia: confusion, restlessness, difficulty breathing, rapid heart rate, and bluish skin).....sounds about right in terms of symptoms that define the end of a rate hiking cycle  ....we aren't quite there yet.....maybe Jay Powell will never get to the summit of Everest....but he's still talking a good game.....lets hope he has some descent sherpas to help him get there. The alternatives aren't good.....trust me....the recent rise in long term rates is the first sign of a growing lack of faith that this Fed has the stomach/tools or wherewithal to get inflation under control......investors and the average Joe Sixpack for sure live out at the end long end of the curve, not the short end the Fed controls....you dont wanna see a world where the 30yr starts incorporating the assumption that the monetary authorities arent taking their mandate seriously and 4% inflation is the new normal moving forward.....that is not a good day for SPY/QQQ & the home price index.

 

 

[Gregmal]

8 minutes ago, changegonnacome said:

 

 

U.S. Core PCE Price Index YoY

Release Date	Time	Actual	Forecast	Previous
May 26, 2023 (Apr)	08:30		4.6%	4.6%
Apr 28, 2023 (Mar)	08:30	4.6%	4.5%	4.7%
Mar 31, 2023 (Feb)	08:30	4.6%	4.7%	4.7%
Feb 24, 2023 (Jan)	09:30	4.7%	4.3%	4.6%
Jan 27, 2023 (Dec)	09:30	4.4%	4.4%	4.7%
Dec 23, 2022 (Nov)	09:30	4.7%	4.7%	5.0%
Dec 01, 2022 (Oct)	09:30	5.0%	5.0%	5.2%
Oct 28, 2022 (Sep)	08:30	5.1%	5.2%	4.9%
Sep 30, 2022 (Aug)	08:30	4.9%	4.7%	4.7%
Aug 26, 2022 (Jul)	08:30	4.6%	4.7%	4.8%
Jul 29, 2022 (Jun)	08:30	4.8%	4.7%	4.7%
Jun 30, 2022 (May)	08:30	4.7%	4.8%	4.9%

 

https://www.bea.gov/data/personal-consumption-expenditures-price-index-excluding-food-and-energy

 

Unfortunately - the facts don't agree with you both......wishing something was so and it being so....are two different things.

 

As I've said for months and months now.........3.4% unemployment, nominal spending growth like we have & sleepy productivity growth is completely and utterly incompatible with a magical soft landing trip back to 2% inflation where nobody gets hurt.

 

And as I've been saying for months the rubber is now hitting the road on sticky, plateauing and hard to shift inflation....and this is exactly whats showing up in the MoM data above and more tellingly inside the SuperCore number.....this 'core' inflation isn't going down and is showing basically zero progress in going down.......see Made in China inflation went away as we all knew it would....Supply chain inflation sorted itself as we discussed here......Avian flu egg inflation is/will go away cause well more chickens is an easy problem to fix....but that was a head fake on progress....lurking underneath all that is Made in America inflation, domestic monetary inflation.........its hit a stubborn floor for months now. Literally going sideways.

 

Some people seem confused as Fed speak out there is now kite flying the possibility of more rate rises in H2, not rate cuts like dreamers wanted.....see you can pretend they are lunatics if you want............but if your mandate is 2% inflation.....and your actually at about double that at ~4%........its no surprise at all your considering additional measures, the Fed officials are being very very rational........you just need to look at the complete lack of progress around this domestic inflation......its there, its a fact......no more supply chain excuses left now.......the Unites Sates Federal Reserve Bank is failing to adequately control prices as per its 2% stated target. End of story.

 

See folks have confused progress on headline inflation which was driven by the rolling off of China, Energy, Supply Chain stuff......and extrapolated, as humans do, the most recent past out into the future. They are very wrong on that extrapolation as it pertains to inflation............we've reached the part of Mount Everest Inflation where the cliff goes vertical and the oxygen levels drop but you can just about see the peak.......but its a tough slog getting from 4% down to 2%....and the economy/labor market is going to get hypoxia on the way to 2......(Hypoxia: confusion, restlessness, difficulty breathing, rapid heart rate, and bluish skin).....sounds about right in terms of symptoms that define the end of a rate hiking cycle  ....we aren't quite there yet.....maybe Jay Powell will never get to the summit of Everest....but he's still talking a good game.....lets hope he has some descent sherpas to help him get there. The alternatives aren't good.....trust me....the recent rise in long term rates is the first sign of a growing lack of faith that this Fed has the stomach/tools or wherewithal to get inflation under control......investors and the average Joe Sixpack for sure live out at the end long end of the curve, not the short end the Fed controls....you dont wanna see a world where the 30yr starts incorporating the assumption that the monetary authorities arent taking their mandate seriously and 4% inflation is the new normal moving forward.....that is not a good day for SPY/QQQ & the home price index.

 

 

And the flaw in their backward looking approach that may eventually screw the economy and your focus is again totally missing how big a component meaningless stuff like OER is in the equation. And then when all else fails it goes back to “bars, restaurants, and hotels are too expensive”…nothing is inflating anymore. We trumped up wage price spirals starting in January and nothing happened. It just never ends. There’s nothing commendable or rational about playing with peoples jobs and livelihoods but that’s exactly what they love doing. But I suppose their thesis is now “people with 3% 30 year fixed rate mortgages have an imaginary rent burden”…in other words, imaginary inflation. 

[Sweet]

Even with core, interest rates are now above inflation.  

The tightening effect takes time to show up.

 

The Fed was too slow to tighten and are too slow to stop.

 

CPI is down by half and interest rates have only just hit 5.25%.

 

We need to pause for a while, ratcheting the rates higher makes no sense.

 

 

Edited May 25, 2023 by Sweet

[Gregmal]

Plus, when would the extinction of the super low 30 year fixed start showing up on a 12 month lagging figure? Oh. 12 months from when you would last expect to see them reflected via rate locks and home closing. So what? July? We are about to see those things drop off big too. And I’m not sure why folks aren’t aware of this either. Still think there’s a chance we see negative cpi figures late summer or so. But the fork is in last years wondering about inflation remaining high. It’s not. June year over year with the housing and oil mega spikes in 22 will really start to show this, more so than it already had. 

[changegonnacome]

Inflation Inched Higher in April, Reflecting Challenge for the Fed:

https://www.nytimes.com/2023/05/26/us/politics/inflation-april-federal-reserve.html

 

Oops there's that sticky inflation again for another month

 

[changegonnacome]

14 hours ago, Gregmal said:

eventually screw the economy and your focus is again totally missing how big a component meaningless stuff like OER is in the equation.

14 hours ago, Gregmal said:

And I’m not sure why folks aren’t aware of this either.

14 hours ago, Gregmal said:

But I suppose their thesis is now “people with 3% 30 year fixed rate mortgages have an imaginary rent burden”…in other words, imaginary inflation. 

 

Yeah of course....who doesnt know about OER? If your hanging your "the Fed are reckless morons intent on destroying jobs & the economy for absolutely no reason" thesis on the idea that somehow they are missing the hiding in plain sight OER data roll off, you are mistaken on that. The Fed knows it all too well, they see it....but they are looking through that and have been clear that they are looking past that....to the underlying inflation story stripped of food, energy & housing....& its not good. It demonstrates almost no progress on this SuperCore number. Today's new numbers confirm that same.

 

As I pointed out in my post above this...its domestic services inflation that's the problem....the so called SuperCore number.....I link to CorePCE data cause its readily available to link too.....it strips out food & energy....& Supercore goes on to strip out housing/OER........and the number the Fed has guided everybody to look at it as its key measure on progress..........read the minutes and the press releases....they fully get the OER component.

 

Services inflation (supercore)......no big deal I hear you say............services only made up like 77.6% of the US economy in 2021. 

[Gregmal]

point ones and point twos

move around randomly as they do

so far, hardly a path to SPY thirty two

 

first it was transitory

now it is here forever

as the Fed keeps looking backwards

the forecasts never get much better

 

 

 

Jokes aside, if these things are such a big deal and input...whats the payoff of it all? I get some people are super duper excited about 5% bonds....Im not. If inflation is 5% you have no upside. If the rationale is stocks might go down, well then the stock market isnt for everyone, IDK. The meat of the issue is wayyyy behind us. We are off from the "5-10%" inflation everyone screamed about and Id be shocked if we ever get back there again anytime soon, especially if all else just stays the same. So whats the point and whats the play? A while ago some of us talked about FFR futures....trade woulda been a bust. Obsessing over the last 25 or maybe 50 here seems so short sighted. Its also crazy to hear these delusional Fed clowns talking about "not happening fast enough" and "stubbornly high"...Uhmmm, the first small hike was barely one year ago. Its maybe been 8 months or so since rates were anywhere impactful. They've admitted theres a huge lag, generally 12-18 months....and yet we've gone 9 to 4 and theyre still mouth breathing about "not happening fast enough"...whats fast enough? Hike tomorrow by 200 bps and voila a day later we get instaCPI and it comes in at 1.99%? This is starting to challenge covid in terms of stupidity of the response from these officials. 

[RedLion]

21 hours ago, Gregmal said:

Even the meteoritic rise in egg prices has reversed. This is all bullshit and anyone still talking about it needs to have their head examined.
 

 

And here I just bought a small farm and chickens. Bad timing as always. 

[backtothebeach]

Everyone focusing only on the Fed and interest rates… Channeling @wabuffo … when the debt ceiling negotiations result in federal spending cuts or at least stop spending increases, wouldn’t that be the final nail in the coffin for inflation?

[Spooky]

Greg is right. Most of the remaining inflation in the CPI / core data is related to real estate which is calculated in an absurd way which significantly lags actual data. It is just a matter of time until this works through the system and shows up in the official inflation data. 

 

If the Fed holds rates here we could soon be in a Goldilocks period for stocks again with inflation under 4%.

[TwoCitiesCapital]

2 minutes ago, Spooky said:

Greg is right. Most of the remaining inflation in the CPI / core data is related to real estate which is calculated in an absurd way which significantly lags actual data. It is just a matter of time until this works through the system and shows up in the official inflation data. 

 

If the Fed holds rates here we could soon be in a Goldilocks period for stocks again with inflation under 4%.

 

You can call it absurd, but it's to reflect the average renter's inflation, which occurs with a lag from the increase in prices. From that perspective, it's more accurate than immediately marking everything up to reflect the rise in price. 

 

Homeowners don't immediately feel the rise in price either because it only matters when they sell and rebuy so much t makes sense to prioritize rents. 

 

 

Edited May 26, 2023 by TwoCitiesCapital

[Spooky]

6 minutes ago, TwoCitiesCapital said:

 

You can call it absurd, but it's to reflect the average renter's inflation, which occurs with a lag from the increase in prices. From that perspective, it's more accurate than immediately marking everything up to reflect the rise in price. 

 

Homeowners don't immediately feel the rise in price either because it only matters when they sell and rebuy so much t makes sense to prioritize rents. 

 

 

Absurd was a harsh word choice on my end but it doesn’t really change the overall point. I also think looking at monthly inflation data makes no sense since it is noisy and volatile. This is from the WSJ a while back: 

 

[changegonnacome]

21 minutes ago, Spooky said:

Most of the remaining inflation in the CPI / core data is related to real estate which is calculated in an absurd way which significantly lags actual data.

 

You not read what the Fed says? - they've been excluding real estate from their inflation concerns for months and months now.....the only absurd thing is that folks seem to think that the Fed is so moronic that its missing the OER/real estate influence and roll off. Go read the press releases & minutes the Fed agrees with you......they are excluding real estate as they consider the inflation picture.

Edited May 26, 2023 by changegonnacome

[changegonnacome]

 

 

THIS ^ is the problem and what the Fed is looking at.

 

The United States is a SERVICE based economy.

 

Believing your on a path back to 2% inflation......when the largest component of your economy (services) is printing 4.5% Month over Month inflation figures......is the absurd part.

 

Back of the envelope math and accounting for services being 77% of the economy......and rolling off all the stuff that people know is going to roll off....your looking at an economy 'stuck' with headline inflation running at about 3.5 - 3.75%.......meaning the Fed is missing its inflation target not by a little but by alot......its like saying your going to land the plane in New York but you actually end up landing in Chicago. That sound like a Central Bank thats meeting its goals.....and as I've said.....you dont want a world where the 10yr or 30yr.....starts assuming 3.75% inflation as the norm on a go forward basis.

Edited May 26, 2023 by changegonnacome