Recession Risk Still (but less), China, Inflation, Commodities, Stocks and the Dollar (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

China stepping up, part way

From this morning's (Tuesday) internal log:

9/24/2024

Yesterday’s move in our core allocation may turn out to have been more (near-term) timely (i.e., lucky) than we anticipated.

From our internal supporting narrative:

“Reducing our exposure to US staples and healthcare reflects marginally better odds of a soft-landing based on the Fed’s aggressive start to the easing cycle, and recent improvement in the PWA Index… However, our base case remains that recession odds are better than 50/50 on a 6-12 month horizon… Therefore, despite the cuts, staples and healthcare remain top weightings, as do cash (t-bills) and gold.

Increasing our emerging mkt equity exposure reflects the improved prospects for a near-term weaker-trending dollar, as well as China’s historically-weak valuations and the likelihood of Chinese policymakers to be forced to step up the stimulus over the next 12 months.”

Well, I guess I should've said next 12 hours... They stepped up last night… Here are the details (HT P. Boockvar):

Recession (risk) Concern of the Day

From our internal morning note:

9/20/2024

While, based on the headline data of late, one might indeed criticize the Fed over its 50 bp cut, particularly considering how Powell cheer-leaded the “strong” economy (i.e., then why the double-cut??), our view (despite the recent less-bad reading from our own index) remains that the under-the-surface indicators point to not-small odds of recession in the not-too-distant future. So, frankly, I have no problem with the double-cut.

Noting that higher-income/asset-holding folks have been doing virtually all of the heavy-lifting for months, here’s yet another sign that we may be onto something:  

Less Bad Conditions, Housing Highlights, Fed Cuts and Rates Rise (hmm!!) & Leveraged Market Moves (video)

Attention Clients, please consider this one a must-watch video...

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Unusual, Unintuitive, And "The Great Covid Money Drop"

A little bonus content that I felt compelled to share this morning.

From our internal log:

9/17/2024

While the bulls will cite what retail sales say about the strength of the consumer, when you look at them in real (inflation-adjusted) terms…. well:

“While Retail Sales are up 2.1% y/y, it still isn’t enough to keep up with the impact of inflation. Once you take that into account, Retail Sales have been negative on a y/y basis for seven of the last eight months and 17 of the last 22 months.”  –Bespoke

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The following got me thinking about just how unusual and unintuitive the current investment setup is.

A Quick Note on the Fed, On Gold and On Stocks

Since this week will be mostly about the Fed, I can keep the written post very brief and to the point.

Here's from our internal Monday morning note:

9/16/2024

Nick T’s WSJ article effectively moved the needle to a 50 bps cut on Wednesday… Since the article, odds have spiked to 64% (in fed funds futures)... If that’s the case, the US central bank is clearly the most dovish among the majors, per the below:

Consumer Confidence, Small Biz Uncertainty, 50 bps Back on the Table, and THE Issue for the Fed (video)

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Attention Non-Client subscribers: Nothing in this video should be construed as investment advice. The examples expressed relate to portfolio management we perform on behalf of our clients, and, again, under no circumstances are they to be considered recommendations to the viewer.

Things Not Lining Up

Attention clients, this one's important to take in when you have a few minutes.

While I concede that Wall Street’s soft landing narrative – while, in my humble opinion, relying entirely on the Fed – has merit, there’s simply far too much uncertainty yet emerging from the data (not to mention where we are in the cycle, equity market valuations [very high), yada yada] to have us adding risk to client portfolios right here.

Case in point being the latest Fed Beige Book.

Here’s Peter Boockvar with the highlights:

The Bull Case

While our work sees a global macro setup fraught with risk-asset risk, today I want to consider what I see as some key points in the present bullish narrative; the narrative that says this is, in fact, an ideal moment to be adding to risk assets (read stocks).