A lot of noise this week and not much meaningful signal. Home Depot missed on revenue which indicates consumer weakness. Contrary, private debt continues to climb despite rising insterest rates and the labor market remains sutbornly strong.
Weird… big data analytics company Palantir dumps $50 million gold investment and buys $1.62 billion treasuries. What do they know? Gold is typically a hedge against inflation. Treasuries, on the hand, move inverse to interest rates. Is this a prediction of interest rate cuts?
Meanwhile stress on regional banks continues but I’m more confident that it won’t spill into outright contagion. That said I expect more bankruptcies among weaker companies.
This remains one of the craziest chart pictures in my career… - Michael Green
A couple of takeaways for the week. First, we are seeing signs that the liquidity crisis may not be over, the huge draw down in deposits may still cause problems. Consumer debt is also a concern as it’s more difficult to get credit than one year ago.
Second, increasing number of economist speculating that we are in, or are entering a recession. Recessions are notoriously hard to identify until after the fact, and a lot of contributing factors that may make this one double difficult to spot. For example, the labor market is looking very peculiar with the prime-age employment recovering in record time.
Last, the hype cycle continues on both the end of oil and the end of the US dollar. In my opinion both are long term risks but can be mitigated. Beware of snake oil and fear mongering, it takes a long time to systemically change a global economy. Just as COVID was a challenge for the global supply chain, it did not end overnight.
Is long term demographic trend (boomers retiring) a contributing factor?
Are we going to see the first layoffless recession? Similar to stagflation, we could go into a recession while there is a worker shortage because due to an aging labor force due to a lack of immigration
We technically go into a recession but there are plenty of jobs - Kim Khan
Continued questions and fall out from the bank liquidity bailouts. The market is rattled and there is enough FUD in the system that between credit and consumer pull back there is no way we can avoid a contraction.
That said, I think we are well on our way through this cycle and as historically the designation of a recession comes AFTER the event. Bottom line we are further through this contraction than we think.
Bemoan capitalism, but as The Sandbox Daily puts it:
It is important to remember that Bear Markets happen with reasonable frequency and are a feature of the economic cycle, not a bug.
Fallout from SVB, Credit Suisse and First Republic and the liquidity crisis. This is far from over, and may result in bailouts.
As I wrote about in Dot-Com Bubble 2.0 we are now entering phase 2 of the downturn when the broader market will reel from tech excesses. I did not anticipate that small regional banks, which lend to small business, could be the catalyst.
My other eye is on energy prices with two things in play. First oil prices are declining which is indicative of a recession but conceals the underlying supply shortage. The second are expiring subsidies on green energy which could have an impact similar to solar back in the late 2000s.
Deposit outflows were accelerating in the weeks before the failures