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GDP for the second quarter grew at 3%, showing no sign of a slowdown. Concurrently, there is an aggressive global monetary easing going on worldwide, as almost every central bank in the world is lowering interest rates. Money supply is expanding, financial conditions are easing, economic conditions are good, and global stocks are reaching for all-time highs. The number of advancing stocks to declining stocks, otherwise known as “breadth”, is suggesting a continuing bullish bias.

It is unusual for central banks to begin easing financial conditions when markets are at their highs, but usually a sign that expensive asset classes should continue to become more expensive. It may be arg...

Wall Street analysts are now predicting that the S&P 500 will report earnings growth of 11.33% in 2024 and 14.4% in 2025. While these are estimates, the outlook is very strong, and has even been revised up since the end of last year. We are in the midst of a “soft landing” with expectations of rate cuts ahead by the Fed, which is a bullish scenario.

Inflation has come down to 3%, and while prices are still 21% higher than when the pandemic began in early 2020, the inflation swap market is previewing 2% inflation in one year’s time. Low unemployment and real wage gains are keeping the consumer positive, and stimulative fiscal policy is still providing a tailwind to the econom...

Stocks surged in Q1 2024 across a variety of sectors, and earnings season will soon test the breadth of that rally. Last week’s CPI report on inflation is confirming that interest rates may indeed remain higher for longer as the bond markets have been suggesting. Inflation as measured by CPI, rose by 3.5% in March, higher than expectations, and signaling an acceleration of inflation. Without food and energy, inflation is now at 3.8%, while shelter was up 5.7%, and electricity was up 5%. This was the third time in as many months that the CPI was higher than expected.

It is most likely high interest rates that are causing shelter prices to spike, because so many homeowners are locked in...

A lot of bad news has been ignored by Wall Street on the assumption that the Fed will ‘pivot” and begin lowering interest rates this year. The market is annualizing three and six-month inflation, which is generating a lower inflation number than by comparing the last twelve months. For example, the Fed’s preferred inflation measure, the “core PCE” still shows annual inflation at 3.2%, while the six-month measure is now at 1.9%. This is leading many market participants to expect a significant amount of easing from the Fed. In fact, the futures market is expecting the Fed cut its short-term interest rates by 1.7% between now and the end of the year. Based on recen...

The stock market has been pricing in the possibility of the Fed cutting interest rates – a Fed “pivot “, which, presumably, could drive higher stock valuations. However, the bond market is clearly pricing in a serious economic recession ahead. Signs that unemployment has hit bottom, and is now rising, have begun appearing in recent economic data, which, historically (since 1948) spells trouble for stocks, particularly in the first three months of rising unemployment. Here is the most recent chart for US job openings from the St. Louis Fed:

When businesses cut job openings, layoffs often coincide. Another leading indicator of unemployment, temporary help services, have been d...

2022 was a year that focused on inflation’s potential impact on financial markets and asset prices. It was twice as bad as the global financial crisis in 2008; nearly $40 trillion in stock and bond value disappeared.

2023 will be a year in which the second-round effects of that inflation and subsequent rate hikes actually materialize.

This will come at a time when central banks around the world are raising interest rates to slow their economies to tame inflation, and shrinking their balance sheets from having over-stimulated economic activity for the past 14 years. The global money printing press stopped in 2022; we should now expect growth and inflation to fall.

To fight inflation, the U...

The inflation problem is now well-known to everyone, but the larger looming problem is credit and currency risk, as well as a contracting economy. US government debt now stands at $31 trillion, while global debt is at $360 trillion. While these numbers may seem grotesque, they are the result of a global borrowing spree for over a decade with zero interest rates. Now that central banks are aggressively raising rates, how will that debt get serviced?

There was a near collapse in the British bond market last week. The new Prime Minister, Liz Truss, decided to propose sweeping tax cuts for the wealthy at a time when UK debt is soaring, interest rates are rising sharply, there is a treacherous ene...

The first quarter was impacted by a hawkish Federal Reserve, a war in Ukraine, global supply shocks causing rampant inflation, and global risks intensifying.

The Federal Reserve’s tightening cycle is now fully underway, with the futures market predicting as many as 5 more rate hikes this year following a one-quarter point rake hike on March 15^th. The Fed is tightening monetary conditions into a U.S. slowdown, which is quite the contrary of what happened between 2016 and 2018.

Furthermore, the Fed announced an end to their “quantitative easing” program, which means that they will be draining $95 billion of assets from their balance sheet every month starting in May and reachin...

With the end of fiscal stimulus in 2022 and the Fed transitioning away from an extraordinarily accommodative stance, there is a risk that recent inflationary impulses will be short-lived.

Despite the volatility seen in January, many remain positive on the stock market, citing a robust economy and earnings growth. However, there are a few recent indications which give cause for reflection.

Last week, the New York manufacturing survey slipped into contraction. Consumer sentiment has fallen to its second lowest level in 10 years, with three-quarters of consumers ranking inflation, rather than unemployment, the most serious problem facing the nation. Core retail sales have been unexpectedly trendi...

The growth outlook for the fourth quarter is opaque, because there is no way to determine when supply chain disruptions will begin to unwind. A reluctant recognition of higher inflation by the Federal Reserve is developing, as supply chain bottlenecks are holding up inflation longer than previously thought. There are currently 72 container ships off the port of Los Angeles which cannot deliver some 550,000 containers coming from Asia. This is due to a lack of investment in US ports over the past 10 years, as well as a shortage of qualified truckers, and may continue into 2022.. Consumers have been warned that Christmas shopping may be severely impaired by empty shelves this year.

Complicating...