🟪 Friday Prophetic Charts

“Far more money has been lost by investors preparing for corrections than has been lost in the corrections themselves.” 

— Peter Lynch

If economists are so smart, how come they’re not richer? Name me a billionaire economist.

You can’t, because the hard truth is that there are no more billionaire economists than there are billionaire newsletter writers (namely, zero). 

The last time a couple of economists tried to hit it big, they formed the hedge fund Long-term Capital Management (LTCM), which nearly sank the financial system.

And those were Nobel Laureates, the best of the best!

Why, then, do we keep listening to them? 

The economists at the Fed told us inflation was transitory, and it wasn’t. And then they told us it wasn’t, and now it is.

The only thing that hasn’t been transitory is economists’ persistent calls for a recession — which keeps not happening.

Maybe we should try listening to the billionaires instead?

Billionaire Steve Cohen is bullish: “I’m making a prognostication — we’re going up,” he said at a conference this week, citing the salutary effects of AI on corporate margins.

But billionaire Stan Druckenmiller is bearish: He’s so worried about the US deficit he thinks defaulting on Treasuries now would be the lesser of two evils.

And billionaire Carl Icahn is … ready to give up? This week he admitted to having lost $9 billion shorting the market since 2017.

“I’ve always told people there is nobody who can really pick the market on a short-term or an intermediate-term basis,” Icahn told the FT. 

And that may be the only advice we should be following (even if he couldn’t follow it himself).

Druckenmiller, too, is realistic about his forecasting ability: "I can make a case in three years for inflation being at 8%, or deflation."

Which doesn’t do much good: Per Peter Lynch, the opportunity cost of waiting three years to find out might be greater than the cost of being long for an inevitable correction.

If we can’t trust the world’s top economists — and we can’t trust the market’s legendary billionaires, what are we left with?

Charts, of course.

So, let’s see what they have to say.

Unexpected:

Who’d have guessed Nasdaq (despite 5% fed funds), homebuilders (despite 7% mortgage rates), the Nikkei (despite the Yen), and the Dax (despite the energy crisis) would all be making new 52-week highs, all up at least 16% on the year? I certainly don’t recall anyone predicting it.

Equally surprising?

Last week’s jump in jobless claims turned out to be fake news (literally). This week, claims are back down to 242,000 — the lowest level since 2019 and then, before that, the 1970s. 

Humans still needed:

Headline-making tech-sector layoffs have slowed to a crawl. And 90% of those laid off have already found other jobs. The remaining 10% may just have to move: State data out this morning showed the unemployment rate rising to 4.5% in California and falling to 2.2% in Alabama.

Waiting for Godot?

This (admittedly confusing) chart shows how recession forecasts (the red line) keep getting pushed out: Recession, they tell us, is perpetually three months away.

They’ll be right, eventually:

But it won’t be this quarter: The Atlanta Fed estimate for Q2 GDP is up to a distinctly non-recessionary 2.9%.

And non-inflationary, too:

Truflation.com’s real-time estimate for inflation is down to just 3.15% —  we were told we had to choose between growth and disinflation, but maybe we can have both?

So, what could go wrong?

The debt ceiling, of course: The Treasury is now down to its last $94 billion. (But maybe about double that including the cash they scrape up with “extraordinary measures.”)

$94 billion is not a lot:

The Treasury paid out $50.9 billion in interest on Monday alone. The incomings and outgoings are lumpy (on Wednesday, Treasury paid out only $1 million in interest), so it’s hard to say when exactly we’ll hit the ceiling. One informed forecaster has us cutting it dangerously close on June 9th. 

But we’re done making forecasts, right? Right.

Except for this one: I predict you’ll have a great weekend.

Thanks for following along this week, prophetic readers.

— Byron Gilliam

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Written by Byron Gilliam

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