Saturday, July 25, 2020

Macro Update: Calling It Like We See It

Before we dive into this week's macro briefing, allow me to repeat something I wrote in Thursday's morning note:
"To really drive home for you the precariousness of current conditions from a purely asset performance standpoint, just two things you need to know: gold is up 23.5% on the year, and if you're willing to lock up your money for 10 years, the U.S. treasury will pay you 0.58% on it annually."
Truly, I could end it here and wish you a nice weekend. As gold -- not by way of Fed machinations -- rocketing to all-time highs and treasury yields at all-time lows says that something of virtually "all-time" nature has to be occurring in the economy at large. And, make no mistake -- regardless of what some on Wall Street and, not to mention, Washington might have you think -- that something ain't all-time "good", to put it mildly!

Well, our PWA Macro Index came in unchanged last week, at -36.54. A score below zero denotes heightened recession risk and cause for defensive investment measures. A score 36 points below zero, well, clients, you know why we're hedged with options and hold a good slug of gold and, not to mention, groceries in your portfolios.

Truck tonnage, while its impressive bounce can be explained away by the idiosyncrasies (stimulus checks, online shopping) of the times, nevertheless merits a bump from negative (-1) to neutral (0) in our index:   Click each insert below to enlarge...

The other input that improved its score last week (from 0 to +1) was our LEI (Leading Economic Indicator)/CEI (Coincident Economic Indicator) Ratio for June. The uniqueness of the day is indeed having unique influence on this particular indicator as well: Leading indicators are to a notable extent comprised of items that the Fed is clearly targeting; such as stock prices and credit spreads. Although, regardless, we score each input as its chart demands, which -- in an attempt to mitigate the potential for overall false signaling -- is why our index includes several dozen inputs:

Only one area contracted to the point that required a negative score change (from +1 to -1), and that was the Baltic Dry Index (tracks the cost of shipping raw materials across the world's oceans). Which suggests that the recent rise in commodities prices may be more about money printing, supply chain issues, etc., than it is about a robust renewal in global economic activity. Although this one can get pretty noisy -- and also reflects the availability of ships, shipping routes and so on:

In addition to all we track on a formal basis, we stay abreast of any and all other data points that we believe offer insight into the present state of macro affairs.

Things like restaurant reservations across the country. I mean, if indeed -- as, again, some would suggest -- we're on the verge of a V-shaped recovery, well.....

Here's OpenTable's data on "online reservations, phone reservations and walk-ins" on a year-over-year percentage basis for restaurants on the OpenTable network "across all channels":

Very tough times (-65%) for the restaurant industry. 

Here's another one that caught my attention. Permanent business closures since March 1st outnumber temporary ones:

Again, V-shaped recovery -- if that means swift rebound to prior levels of economic activity -- is 100% not in the cards.

The New York Fed's own weekly economic index isn't looking the least-bit V-ish these days either:

And lastly, the latest surveys around what folks are doing with what the government's been doling out doesn't point to much near-term improvement in the data featured above:

Sorry folks. We'd love nothing more than to paint a rosy picture on what's to come, and boy will we -- and boy will we exploit it -- when the data demand it. But, for now, and always, we have to call it like we see it -- and invest accordingly.

Have a wonderful weekend!

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