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Something Has to Give: Rising Markets In Scary Macros

Market Conditions Improving

Signals Matters News Letter: The Signals THAT Matter

Broadly, the core and timeless principles behind the infrastructure of Signals Matter Portfolio Construction are carefully discussed here and here.


Scary Macros

The Latest US Bond Signals:

The most obvious bond signal for now is the Fed’s hawkish rate pause in June. The pause, otherwise “dovish,” was made less so by Powell’s claim to raise rates later in the year. This, of course, is yet another mixed signal from a cornered central bank. With interest expense on US Government Debt surpassing the $1T annual mark, and with much of this new debt issued on the shorter duration/term end of the UST market, those payments will be coming due sooner and at a higher price. This is a signal of scary macros. Something has to give as this debt burden likely leads to more “credit events” (banks, repo markets, mortgage space) in an already very fragile debt landscape. For now, central banks expect the Fed Funds Rate to remain elevated above 4% into 2024. Again, this is risky business.

Scary Macros

Debt, in short, remains a key concern, amidst scary macros. Since breaking the June 4 debt ceiling, US Government Debt has risen by $700B, at an average monthly rate of $500B. As most would again agree: Something has to give.

The Latest US Stock Signals:

As for the rise in US equities for 2023, most are of the opinion that no one expected it. Bad news, however, is good news in Fed-driven markets. Following the bank failures of early 2023, markets priced in and anticipated a Powell rate pause, which is precisely what happened in June, though Powell claims further hikes are anticipated. This hawkish pause, however, has been an obvious tailwind for stocks, as investors feel the worst of rising rates is behind them. This may be a dangerous assumption, but regardless of the pause, pivot or hike possibilities for the remainder of 2023, one signal is clear: The markets follow the Fed.

Scary Macros

The present bull charge is being led narrowly by just 6 or 7 big names on downward earning revisions. Despite this, even small cap stocks have seen their largest moves since March, with real estate leading the way. (?) New housing starts/construction appear bullish despite a rising rate environment, but current home-owners are fearful of selling existing properties, as they would have to re-purchase their next home at higher mortgage rates. Thus, the inventory of existing homes is tightening, which is bearish, while new construction homes are thus rising, which is bullish. This is just one of many bi-polar signals within a bi-polar market led by a central bank fighting to postpone a recession.

Other Key Market Signals:

Scary Macros

In an ongoing shift away from the USD in international trade settlements, concerns regarding the rising market share and GDP growth in the BRICS vs. the G-7 is getting harder to ignore. The BRICS, along with at least 16 other nations (“the BRICS +”) will be meeting in South Africa this August. French President Macron tried to invite himself, but was politely declined (thus far) based upon distrust of his true stance vis-à-vis US policies in the East. Nevertheless, there are ever-growing signs that the US and USD are losing percentages of their once hegemonic trust and influence. Key among these changes is the weakening ties between the Biden White House and the Crown Prince of Saudi Arabia. The inevitable weakening of Petrodollar transactions will have dramatic implications for the USD going forward.

Macro Thoughts & Gold: board member and Gold-Switzerland/Matterhorn Asset Management, AG Partner, Matthew Piepenburg, shares his latest insights on the foregoing debt and rate themes, as well as de-dollarization and other geopolitical risk signals here:

Modern Currency Policy: Nations Compete, Citizens Suffer

Solid Gold in a Broken World

Stories for Children: The US Economic Fairytale

Even More

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