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Created on: 4/20/2024 4:32:27 PM Last Update: 4/20/2024 8:15:30 PM Posted by: RTT
WARNING: This entry is 237 days old. It may contain broken links, out-dated or misleading content. Please read on with caution.
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Fed panic signal to watch for
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 The canary warning for a possible risk off market will come from higher unemployment, with a bond market sell off, followed by a significant FED rate cut.
Jay Powell (Chairman of the Federal Reserve) said if the unemployment rate reaches +4.0% (currently 3.8% to 3.9%), the FED inflation goals will have to be sacrificed to attend to employment goals.
Confirmed employment risk will occur when unemployment continuing claims continue to rise.
A leading data point for continuing claims is the NBER small business future hiring plans survey. Recently, this has jumped higher (note: the data on the chart is inverted), and if it holds these levels, it signals higher continuing claims in the months ahead.
The 3 month and or the 10 year Treasury note can signal rate cuts are near by their immediate significant sell down. The last three FED rate cutting cycles (years 2000, 2007 and 2019) either the 3 month or the 10 year Treasury paper sold down hard before the FED cut rates. In all three circumstances, continuing claims showed a greater risk to employment by trending higher.
Not all rate cuts lead to a hard risk off recession corrections. Yes, 2007 (housing crisis) and 2019 (COVID) surely did, but 2000 started off mild and was later assisted by middle east war risks (resulting in higher oil prices). The reader should notice how late stocks reacted in all years referenced (2000, 2007 and 2019) after both the 3 month and 10 year Treasury markets sold down.
POINT: The bond market new first!
Rising rates, holding rates on pause after hikes, or even the first 75 basis rate cut are not all ways bearish for risk on assets. But when the 3 month TBill rate is falling faster than the 10 year Treasury bond (yield curve steeping) then this will be clearly seen as the dawn of risk off.
This point is keep an eye on the 3 month, 10 year and leading employment data for clues for the dawn of risk off for asset markets.
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Investing Quote...
..“Stocks, like atoms, are really centers of energies.Therefore they are controlled mathematically"…."There is no chance in nature because mathematical principles of the highest order lie at the foundation of all things”..
William D Gann
..."If you don't read the newspaper, you're uninformed. If you read the newspaper, you're mis-informed."...
Mark Twain
My experience has been that in successful businesses and fund management companies, which performed well over the long-term, some courageous decisions were taken. Courageous fund managers reduce their positions when markets become frothy and accumulate equities when economic and social conditions are dire. They avoid the most popular sectors, which are therefore over-valued, and invest in neglected sectors because being neglected by investors they are by definition inexpensive. The point is that it is very hard and that it takes a lot of courage for a fund manager to avoid the most popular sectors and stocks and to invest in unloved assets. Finally, every investor understands the principle ‘buy low and sell high’, but when prices are low nobody wants to buy.
Marc Faber
.."A government is the most dangerous threat to a man's rights: it holds a legal monopoly on the use of physical force against legally disarmed victims"..
Ayn Rand
.."The financial markets generally are unpredictable. So that one has to have different scenarios... The idea that you can actually predict what's going to happen contradicts my way of looking at the market."..
George Soros
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