TINA Turning?

All I want is a little reaction
Just enough to tip the scales
--Tina Turner

During the era of interest rate suppression, people turned to stocks, particularly dividend payers, because it seemed there was no alterative (TINA). With yields presently moving higher, the TINA attitude should dissipate as investors switch out of stock in favor of the relative safety of high yielding bonds.

Today the 2 yr Treasury yields touched 4%. This more than 2x the S&P 500 dividend yield.

The higher this spread goes, the more pressure we should see on stocks as investors flock to 'risk-free' cash yields.

CAPE Fear

I'm a walkin' in the rain
Tears are fallin' and I feel the pain
Wishin' you were here by me
To end this misery
--Del Shannon

Although stocks have come in, Robert Shiller's CAPE index suggests much more downside work must be done before 'normal' valuations return.

Could be, although I wonder how massive market stimulus and, now, structural goods/services inflation factor in.

See the Signs

Life is demanding
Without understanding
--Ace of Base

Article lays out five signs of recession currently flashing red:

1) Declining monetary base. As quantitative tightening proceeds, money supply should drop even more.

2) Inverted yield curve. Inverted yield curves are leading indicators of economic problems, and have preceded every recession for decades.

3) Tighter lending standards. Economic slowdowns increase risk aversion. Banks tighten credit standards to avoid losses during recessions. We're approaching tightness associated with past recessions.

4) Falling housing market prices. Mortgage rates have more than doubled over the past year. As prices and borrowing costs go up, demand for houses has gone down. Inventory is now above 10 months of supply--a threshold that has consistently been associated with past recessions.

5) Declining manufacturing and trade sales. Sales are down over one percent YOY. Declines below zero have coincided with every recession since the 1970s.

These indicators suggest that a recession is not imminent. Rather, it is likely already here.

Utilities Yielding to Miners

"You know, the worst ain't so bad when it finally happens. Not half as bad as you figure it'll be before it's happened."
--Curtin (The Treasure of the Sierra Madre)

Those seeking dividend income often flock to utilities given the sector's consistently high payouts. However, the income-producing status of utes is currently being challenged by...mining stocks. The dividend yield differential has narrowed to decades+ lows.

Two things are going on. One is that utility stocks have been bid up recently, causing their yields to fall. The other is that mining stocks, despite their strong balance sheets and cash flows, have been crushed recently, causing their yields to rise.

While they have surely been disappointed that the sector has not yet responded to the present environment as expected, gold bulls are at least being paid well to wait.

position in gold

Slanted News, Slanted Ratings

You got me running
Going out of my mind
You got me thinking
That I'm wasting my time
--Electric Light Orchestra

How has unbalanced media coverage translated into perceptions of confidence in news reports? According to a recent Gallup poll, not well.

Confidence in newspaper and television news has dwindled to fractions of what they were a few decades back.

Not surprisingly, Democrats exude more confidence in their media outlets than Republicans do.

Those leaning right average confidence levels in the single digits.

Slanted news creates downward slanted ratings.

Institutional Confidence

Oh, but I gotta think twice
Before I give my heart away
And I know all the game that you play
--George Michael

New Gallup poll indicates confidence in many US institutions continues to decline.

Outside of small business and the military, the percentage of people expressing considerable confidence is below 50% and, in many cases, in the teens moving toward single digits.

Some institutions, including the presidency, are down more than 10 percentage points in a year.

While these results might concern members of those institutions, they are unlikely to surprise the average person on the street.

Stocks Still

A gambler's share
The only risk that you would take
The only loss you could forsake
The only bluff you couldn't fake
--Bob Seger

Time series of AAII asset allocation indicates that, despite the nasty market pullback, individual investors have maintained their historical allocation to equities.

Usually, big market declines cause investors to dump stocks in favor of cash.

So far, however, stock allocations remain at about 70% of financial assets. There has been a slight uptick in cash to about 18% at the expense of bonds at about 12%.

Another point supporting the narrative that while individual investors feel bad about the market decline, they haven't acted on it in a substantial way--at least not via their investment accounts. 

Dollar Dominance

We're talking 'bout the dollar bill
And that old man that's over the hill
--Simply Red

The US dollar has been touching multi-year highs as 'risk off' traders flee to what is perceived as the best house in a bad neighborhood. The below graph is telling in that regard.

At some point, the USD may be a meaty short candidate--particularly if you subscribe to the notion that the USD is in the process of losing its reserve currency status.

Correlation, Causation, Consequence

"There's a storm coming, Frank."
--Col Keith Davenport (Twelve O'Clock High)

They say correlation isn't causation.

Increasingly, however, many prospective voters think it is.

Unless they can scare people back into their houses again this fall, the consequence of these antecedents projects to be an election bloodbath.

Diverging Confidence

Chuck Scarett: How you feeling today?
Joe Scheffer: Confident.
--Joe Somebody

Two marquee measures of consumer confidence are diverging. The Conference Board's measure (blue line) is on the high end while the University of Michigan's measure (orange line) is tanking.

Although, as historical data indicate, the two series track each other well, there are periods of divergence--primarily because the Conference Board's measure appears to lag slightly behind UMich. 

When that divergence hits extremes, it is often noteworthy. Past instances where the difference between the two series has been this wide have corresponded to recessions.

It won't be too long before we find out whether history rhymes again.

Hysteria Again

I get hysterical
Hysteria
Oh can you feel it?
Do you believe it?
--Def Leppard

Acute situations foster System 1 thinking rather than reasoned thinking. System 1 thinking presents opportunity for politicians to engage in emotional capture.

It should therefore not be surprising that gun grabbers are once again coming out of the woodwork following recent episodes of mass shootings. They betray any semblance of sincerity by their hysterical idiocy.

These pages have previously suggested that, if they really wanted to sponsor 'serious' conversations about the positions they advocate, anti-gunners would benefit from better understanding of the firearms they target, and of their utility in self-defense situations.

That gun grabbers consistently fail to do so suggests that they believe the calm, reasoned approach to be a losing strategy.

So they continue down the path of hysteria.

More Extremes

Dr Melissa Reeves: Why do you call Billy 'The Extreme?'
Dustin 'Dusty' Davis: Because Bill IS 'The Extreme!'
--Twister

More data points suggest that we're approaching noteworthy market extremes. Bank of America's (BAC) fund manager survey is touching crisis-level sentiment in both expectations for economic growth...

...and for profit growth.

On a separate front, credit default swaps on investment grade (IG) debt widening--approaching levels that have historically caused the Fed to pivot away from program intended to tighten monetary conditions.

I continue to sense that, although the Fed is talking tough, it will act far more dovishly than currently expected.

position in BAC

Fibo Optics

Not long ago 
I could feel your strength and your devotion
What was so clear
Is now overcast with mixed emotions
--Gloria Estefan

Stocks continue their slide, with the COMP drawdown from highs exceeding 30% last seen during the credit crisis. The SPX just missed the -20% bear market proxy today.

Because stocks pretty much went straight up off their corona lows to all time highs, there's not many branches of support to hang onto on the way down. Consequently, technicians are resorting to Fibonacci retracement levels to generate estimates of possible support levels.

Coming up fast is the 38.2% retracement level. For the SPX that equates to 3815. The SPX touched 3859 intraday before rallying back up to 3930.

Will be interesting to see what happens if/when the current 'wide and loose' action takes prices down to that Fibo level.

Another Hot Print

It's too close for comfort
This heat has got
Right out of hand
--Bananarama

Measured inflation still coming in hot, with monthly CPI printing at +8.3% YOY. This is far higher than the 'expert' predictions in the 6% range as pundits postulate that 'peak' inflation has already occurred.

Futures immediately sold the news, as the knee jerk reaction is that the Fed will have to behave more hawkishly.

That said, I wouldn't want to be short here. Seems like there's a lotta bad news already baked in--at least in the near term.

There is also the question about how far the Fed can actually raise rates without breaking the system. I personally suspect the answer is much lower than current consensus.

Bear Crowd

Well, I got one foot on the platform
The other foot on the train
--The Animals

Tend to agree with this post. Lotta bearish sentiment. When sentiment gets this lopsided, trend reversals are often imminent.

AAII sentiment chart pictures the extreme field position.

Have been nibbling long here and there.

Whippy Trippy

Jared Cohen: Sam, how long under normal operations would it take your people to clear that from our book?
Sam Rogers: What?
--Margin Call

After the +900 Dow pt day post Fed on Wed, Thurs saw -1100 pts. This am the Dow opened -400 in the hole only to claw back to even.

Chatter is that there was forced liquidation yesterday--which makes one wonder about the force behind the post Fed announcement rally that serendipitously brough higher prices for the folks who needed to sell...

Love and Liberty

No more running down the wrong road
Dancing to a different drum
Can't you see what's going on
Deep inside your heart?
--Michael McDonald

Leonard Read's Students of Liberty is a thoughtful compilation of remarks made to students at Pitt in 1950. I found several points particularly interesting.

Read proposes that the history of the world is largely a history of violence. These pages have proposed similarly. Some violence is direct, such as war, while other violence is indirect, such as the violence that manifests under the guise of democracy. For example, when people vote to raise taxes to pay for a particular program, those voters are principals of violence. They contract with the strong arm of government to shake down others for resources to fund their pet projects.

The alternative to violence, Read suggests, is love. Love refers to the kindly virtues in human relations such as charity, integrity, and not doing unto others what you would not have them do unto you. This is, of course, Christ's central message. 

If we are to trends of violence toward love, then Read asserts that liberty is required. Love "generates and grows among free men; only with great difficulty among men ruled by the principles of violence. As violence begets violence so does one personal act of kindness beget another." (28) 

How does liberty grow? Read dismisses approaches such as marketing campaigns, subsidized instruction, and fear mongering programs. Instead, he advocates for self-motivated learning and improvement. Only through personal search for truth and leading by example will liberty grow.

Read admits that his 'one-individual-at-a-time' notion lacks the speed of other, more aggressive proposals, but he argues that the Students of Liberty approach is the only one that will produce durable and lasting change.

Here we are 70+ years later, and most of the approaches that Read downplayed have been tried with marginal success. Perhaps it is time to put Read's proposal to work.

I personally plan to.

Inconvenient Covid Truth

Never had a doubt
In the beginning
Never a doubt
--Naked Eyes

Article discusses the inconvenience of Sweden's minimalist policies related to CV19. Inconvenient for statists, that is.

Media coverage has largely moved on from its previous 24-7 shock-and-awe corona campaign. As it has done so, the mainstream media has failed to admit that they were wrong on Sweden. 

Whereas pundits predicted that Sweden's laissez-faire approach constituted a death sentence for its citizens, the reality shows that Sweden's CV19 results were not noticeably different from other countries. More than 50 countries reported more deaths per capita.

It is increasingly clear from Sweden's results that political measures were of limited, or perhaps even negative, value in combating the virus.

Given the media's past record on self-accountability, we can be confident that it will not own up to its mistake in condemning Sweden's lack of CV19 intervention.

Saving Rain

Here comes the rain again
Raining on my head like a tragedy
Tearing me apart like a new emotion
--Eurythmics

Nice graphic that shows that not only do Americans have no net savings, but that savings is negative after inflation.

As the Fed has suppressed interest rates over the past 30-40 yrs, people have had less incentive to save. Why put money into a savings account when there is little or no compensation to do so?

Now add inflation. As prices go higher, why put money away today when those dollars are expected to be worth less tomorrow?

Remember the saying 'Save it for a rainy day'?

No savings means no buffer against uncertainty (i.e., you'll get rained on). And, perhaps more importantly, no capital to fund productivity improvement.

Hyper Connectedness and Hyperinflation

Hundred dollar car note
Two hundred rent
I get a check on Friday
But it's already spent
--Huey Lewis & the News

With 40 yr highs in official measures goods and service prices, it should not be surprising that inflation expectations are marking similar highs.

Although it is caused by increases in money supply, inflation's effect on prices can be shaped by buyer psychology. The greater the belief that money will be worth less tomorrow, then the more consumers will buy today in attempt to get ahead of that devaluation. Prices squirt higher as result.

That is why it is often said that once inflationary psychology takes hold, the toothpaste is out of the tube.

This time around, I wonder whether inflation expectations may be worse than in the past due to the amplifying effect of our increased connectedness. We know that networked individuals are more tightly coupled, meaning that they respond similarly to stimuli and disturbances. 

If the echo chambers of social networks, et al tell individuals that inflation is rocketing, might this exacerbate expectations and the 'buy today' behavior that serves as a coping mechanism?

Weimar Germany. Venezuela. Could hyper connectedness breed hyperinflation?