From the rapid growth of crypto to the dramatic volatility of the asset class, governments around the world are responding through regulatory and legislative actions. Some jurisdictions have announced clear and accommodating frameworks in the hope to create the crypto hubs […]
"The advice I would give to someone is to not take anyone's advice."
— Eddie Murphy
Friday Downhill Charts
The Tour de France is sport’s most amazing event: more than 2,000 miles of cycling over 23 days. Some of it straight uphill and some of it straight down.
The downhills are the scary part: The riders get going at 60 miles per hour and the crashes are terrifying.
Risk assets have been placidly chugging uphill of late, but we may be getting to a scary part as the economy turns downhill: Are we headed for a pileup?
There’s no doubt we remain in the mountain stages — because the Fed is still hiking.
(See what I did there? Mountains?? Hiking??? Ah, never mind.)
Last week, various Fed speakers made hawkish speeches to push back on the pivot narrative that the market has gotten excited about — but this week’s FOMC minutes made us question whether they really mean it.
Are we ignoring them at our peril? Or should we take their advice and sell before they crash us?
Best case: We've climbed the hill and it's a flat sprint to the soft-landing finish line.
Worst case: The Fed is shoving us toward a pileup.
Either way, we’ve transitioned from worrying about how fast rates will be going up to how fast the economy will be going down.
Let’s see if some charts can help get us safely over the finish line.
Merge narrative? Risk proxy? Canary in the coal mine?
Closely tracing Nasdaq as of late, ether (purple line) seems to have taken over from bitcoin as crypto’s native proxy for risk assets. If so, we may have crested the top of the mountain: ETH is down 9% today.
YoY (year-on-year) headline CPI is still scary at 8%+, but that’s looking in the rearview mirror. The MoM (month-on-month) figures make it obvious we’re headed downhill — but maybe not as fast as you think. Even 0% MoM CPI from here on out would get the YoY number down to only 5.4% by year-end. That may not be fast enough for the Fed — which is why they still think we need a shove to get going.
Month-on-month inflation is up vs. last month (MoMoM?):
The Cleveland Fed sees August MoM CPI at 13 bips, which is up from 0% last month — but down from 1.3% two months ago. Pretty good, but that would still only get us to 6% CPI headlines by year-end, which may not be good enough.
How about after August?
It’s mostly a supply-side story from there, as demand-side inflation has officially rolled over. To get below 0% MoM, we’ll need the supply side to roll over, too.
GDP estimates are going downhill:
The Cleveland Fed’s estimate for Q3 GDP has fallen from 2.5% last week to 1.8% now, probably, I’m guessing, on inventory build. Kohl’s is the latest retailer to tell us they have too much inventory of too many wrong things: They cut their full-year forecasts in half this week. Ouch.
Is it all priced in?
Markets are a game of second and third derivatives (you know, that I know, that you know…), so risk assets don’t have to go down just because the economy does. Despite the rally, sentiment remains about as bad as it gets, which suggests the path-of-most-pain would be for markets to continue to chug higher.
The downhill will get us eventually — but probably not when we’re all expecting it.
In the meantime, here’s my official, FINRA-licensed, no-joke investment advice: Don’t take anyone’s advice. (Especially not mine.)
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