In Case You Missed It: Key Charts of the Week:

By Mark Masterson on September 15, 2023

It has been said “a picture is worth a thousand words.”  With that in mind, below below are a few of the most important or interesting charts from the past week…..

Charts from this past week:

On the economy – I fielded a few questions last week regarding the GDP data holding up – versus the leading indicators negative for 16 months.

I note the below chart that it would not be the first time that the data is inconsistent.  In fact, while the blue line and the gray line tend to move in the same direction, they make the move with a different degree of intensity.

Its interesting that the last time the U.S. saw this big a gap between the YoY % change of the Leading Economic Indicators (LEI) and real #GDP was in 2008.

2008 did not end well – but it was a time when soft landing was all the rage, real estate was on fire to the upside (in a bubble), equity markets were resilient, and GDP was strong right up to the third quarter…..

David Lin 9 11 23

Below is the S&P 500.

One rule of thumb that is pretty consistent is markets tend to correct at least back to the 38% Fibonacci level of the previous rally.  Its common to reach the 50% level, and not uncommon to reach the 61.8% level.

As you can see, the rally thus far has not even come close to the 38.2% level on any pullbacks.

Should the market continue to correct – that 38% level is a place to watch for a meaningful bounce or bottom.  (around the 4200 level)

Some charts just make you scratch your head.

See the below chart of Money supply.  (m1)

Note: Over 80% of all US money created (US Dollars printed) took place between 2020 and 2023.

Read that again.  80% of all money supply ever created was created in the last three years.

It’s easy to understand how inflation jumped after charts like this…..

Brian Roemmele

I saw the below chart and think of this every time I see our politicians on TV.

Clearly something must change to provide for new/younger leadership in the next few decades….

Markets and Mayhem 9 12 23

Looks like the hedge fund crowd is now knee deep in the same “super 7” names as everyone else. 

Hedge funds are *very* long mega-cap tech.

via Goldman Sachs

Goldman Sachs 9 12 23

One sector that is not gaining the same attention is energy.  It is quietly moving higher over the past few months.

Yet – no flows into energy names.  I suspect that will change.

Strategas 9 12 23

Meanwhile, Oil prices $CL_F are up 30% over the last three months to reach their highest level in almost a year near $90/bbl.

The recent surge has been driven by ongoing production cuts made by Saudi Arabia, Russia and their OPEC allies.

Meanwhile, U.S. crude inventories have fallen to their lowest level since 1983.

To be exact the USA has 46 days worth of emergency oil supply left.

Any unexpected supply disruption could be extremely problematic amid the current backdrop, and push prices well above $100/bbl.

Bank of America 9 12 23

Back to the Bank of America data……

BofA’s latest Fund Manager Survey sees 17-month high in equity allocations:

• BofA’s latest Global Fund Manager Survey said investor sentiment no longer extremely bearish, with global equity allocations at a 17-month high.
• However, also cautioned investors not yet bullish, as FMS cash level remains elevated at 4.9%.
• Survey showed growing optimism global soft landing despite China growth outlook down to lockdown lows.
• Survey showed 29 point jump in US equity allocations to first overweight since Aug-22 as net-69% expect lower short-term rates, most since Dec-08.

As you can see – investors have not sold or reduced their equity allocations.  This is highly unusual in market declines.  Notice the 2009 and 2000-2002 bear markets.

Typically – you need to see some selling to end a bear market.

Bank of America 9 12 23

I took a look at the John Williams website “Shadowstats” this morning.  You may recall that John calculates CPI using the same methodology the government used in 1990, and 1980 – to compare it with todays methodology which includes many adjustments to keep it down.

Below are the results…..

Top chart is the 1990 calculation and shows approximately 8% inflation today.

The bottom chart is the 1980 and shows approximately 11% inflation today.

Shadowstats.com 9 14 23

A few interesting charts on the gap between GDP and GDI….

First – why does it matter?

Real gross domestic income (“GDI”).

For every dollar someone spends on a good or a service – such as a movie ticket, a new watch, or a haircut – another individual earns a dollar of income to deliver that good or service.

GDP captures the spending side of these transactions. GDI captures the income side.

In a perfect world, GDP and GDI would be the same. But we don’t live in a perfect world… There is always some difference because these statistics are measured using different data sets and different sources. But the difference should be minimal, and it typically is.

When we see a large gap between GDP and GDI, it can be a warning sign for the economy. And the gap is large right now…

Stansberry research 9 14 23

So what?

Well, as Stansberry looked into it – they  took a look at the 10 quarters where this divergence was the largest, every single occurrence (sans current day) has either been in the year leading into a recession or the year of.

Every.  Single.  Year.

Take a look at the table below…

Stansberry research 9 14 23

Well – how accurate is it?

For three consecutive quarters, the annual percent change in GDI has been negative.

As you can see, the last time GDI fell negative was during the onset of the pandemic.

In fact, since 1950, we’ve seen this figure turn negative 12 times!

And in all 12, the National Bureau of Economic Research declared an official recession.

That is 12 for 12.

Stansberry research 9 14 23

I thought this was an interesting chart……

You can see that over time, the tech heavy Nasdaq has closely followed Bitcoin prices – and vice versa.  Why?  Likely because both are expressions on speculation at this point.

That seems to have changed earlier this year as tech moved higher, but bitcoin moved lower.

Will they re-connect?  How?  Bitcoin moving higher, or tech moving lower?

Topdowncharts.com 9 14 23

Wow.  Someone will be wrong here.

Hedge funds in red are massively short bonds.

Asset managers in blue are massively long bonds.

Barchart.com 9 14 23

One guy who is not a fan of bonds (in addition to Jamie Dimon who I highlighted earlier this week) is Ray Dalio…..

• “I don’t want to own debt, you know, bonds and those kinds of things. Temporarily right now, cash I think is good.”
• https://www.bloomberg.com/news/articles/2023-09-14/ray-dalio-says-he-doesn-t-want-to-hold-bonds-cash-is-good?utm_source=website&utm_medium=share&utm_campaign=twitter

Looking at sector flows – its still tech getting all the flows.

I like to see the energy outflows (green line) as a contrarian.  It has not attracted much capital despite a strong rally over the past two months.

Crescat Capital/ Deutsche bank 9 14 23

Since it collapsed in mid July – the dollar has staged a massive rally.  It is up 9 weeks in a row – which is very rare.

You can see below that it is and remains very overbought.

In the past – such overbought conditions have led to a decline in the dollar.  (see the blue arrows)

The good news is that when the dollar declines, it will help many asset classes – commodities, precious metals, emerging markets, and US stocks will also likely have a tailwind.

As we have explained – the dollar index is a mix of other currencies.  The Euro is 60% of the index.  Thus, if the Euro is up, the dollar is down – and vice versa.  The Yen is 20% of the index – which also moves the dollar.

So – as the Euro and Yen have both been lower, the dollar has been higher.

The Euro below is almost a perfect reflection of the dollar chart above – just the opposite.

Today the Euro is oversold and looking for a bounce.

Below is the Euro and dollar chart overlay I track.

The gaps always close (in time)

The massive gap started to close at the end of last year.  The recent reversal still keeps a large gap in place that will likely close with the dollar moving lower and Euro moving higher.

A few more charts on the economy……

About that yield curve inversion – another article….

• The Bond Market Has Never Sounded Recession Alarms for This Long  https://www.bloomberg.com/news/articles/2023-09-14/the-bond-market-has-never-sounded-recession-alarms-for-this-long?embedded-checkout=true

• 10-year yield has been below 3-month rate for 212 trading days
• ‘Ignore the signal at your own risk,’ Duke’s Harvey says

The blue vertical periods show the length of time the yield curve is inverted.

The red vertical lines are recessions……

Bloomberg 9 15 23

Bank lending continues to slow.

A net 51% of US Banks are now tightening their lending standards, the highest since 2020 and at levels that have coincided with recessionary periods in the past.

Charlie Bilello 9 15 23