Signals Matters News Letter: The Signals THAT Matter
Is the White Swan more obvious, and dangerous than the black swan?
Broadly, the core and timeless principles behind the infrastructure of Signals Matter Portfolio Construction are carefully discussed here and here.
As for WHAT’S HAPPENING NOW…
Frothy markets, unloved USTs and manipulated job reports have the markets trapped in a bi-polar fantasy of denying simple debt indicators. With the S&P staring down the barrel of over $740B in bonds set to roll-over (i.e., re-price) in 2024, Powell’s “higher for longer” policy has broken credit markets, including Uncle Sam’s bar-tab, 30% of which is also set to reprice in the next 36 months. Despite so-called “blockbuster” US jobs data, the Fed will have to cut rates so that the US government and stock market can survive. Many worry the good news out of the job market will temper such dovish cuts, but even the 200,000 new jobs ignore the 1.5M lost jobs and the 700,000 “part time” jobs hidden in the headline shuffle. The delta is still negative, but the hype is forever positive. Smart money has to see the lighthouse of reality despite the fog of so-called prosperity. Bulls and bears will be waiting to see what the Fed does rather than says, as always…
The question now is when, not if, Powell will cut rates. He is currently hiding behind bogus labor data from an equally bogus BLS to postpone the inevitable pivot, which will only come when markets start to shake, rattle and then roll south, which means the VIX is likely positioned for a move up and to the right.
The Latest US Bond Signals:
Nasim Taleb, author of the famous “Black Swan” which warned against unforeseeable market threats, is now warning of what we’ve been saying for years, namely the open and obvious “white swan” of an undeniable debt spiral in which US sovereign bonds (and all other bonds, most notably the HY, or “junk” sector) now find themselves. With the Congressional Budget Office projecting another $20T in IOU’s to be issued in the next 10 years despite a US government debt level already racing toward and past $34T, such debt levels are appalling. Furthermore, the net sell-off in USTs since 2014 by global central banks losing faith in Uncle Sam’s UST, make it clear that the only real and substantive buyer of these debt instruments will be the Fed, which means a liquidity crisis leading to inevitable “Super QE” is only a matter of time not debate. Longer term, this means currency debasement, negative real rates and further inflation, however misreported, is the ultimate end-game for sophisticated investor’s thinking beyond the next headline or market quarter.
The Latest US Stock Signals:
The S&P is approaching its 5000 milestone on the tailwind of the only market force that matters: Central bank policy. Projected rate cuts by Powell for 2024 have speculators giddy with more cheap debt and hence more debt roll-over schemes to keep otherwise insolvent zombies and grossly over-valued tech names alive along side the magnificent 7, which comprise 30% of the exchange’s market cap, forever defying anti-trust laws and basic principles of genuine, free-market capitalism. Meanwhile, the S&P 7 continues to rise on dangerous hot air, pushing a bubble just waiting to pop, yet which no one can time.
Other Key Market Signals:
Gold (nearing all-time highs) and other commodities are positioned to break out once the equity cycle buckles, but that day has yet to come despite ever-growing recessionary indicators on Main Street (the Conference Board of Leading Indicators, M2 declines, an inverted yield curve and hidden rather than officially reported inflation). In Europe, social unrest is rising as Germany flirts in and out of recession while farmers in Holland, Germany and France stage mass protests deliberately ignored by the corporate media. Immigration tensions, obvious in Texas, are also rising to danger levels in an EU inundated with refugees from the West’s failed wars. In short, social unrest, driven more by economics than ideology, is rearing its head despite a rising S&P.
Macro Thoughts & Gold:
SignalsMatter.com board member and VON GREYERZ, AG Partner, Matthew Piepenburg, shares his latest insights on gold, the USD, oil and the macro forces of 2023 heading into 2024 here:
2024 Markets: The End of a Crappy Year, The Beginning of a Worse One
More Golden Proof: The Dollar is Totally Screwed
The US Is Living on Borrowed Time
Even More
Signals Matter Market Reports reflect the company’s long-term macro views and are posted free of charge at www.SignalsMatter.com, on LinkedIn, and directly to your inbox by Signing Up Here. Our Portfolio Solutions are geared to shorter timeframes, may therefore differ from our longer-term perspectives, and are available to Subscribers that Join Here. For information on Direct Invest at Signals Matter Advisors, click Direct Invest, or Book a Meeting.
