In Case You Missed It: My Charts of the Week

By Mark Masterson on April 14, 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:

I have 6 or 7 charts that show the potential for a recession rising in the video commentary.

Here is another one……

Leading economic index is in a deep decline that has always led to a recession…..

Deutsche Bank 4 10 23

It does not look like the bank concerns are quite over.

Over the weekend I saw these stats……

• *U.S. BANK DEPOSITS FELL BY NEARLY $65 BILLION LAST WEEK, TENTH STRAIGHT WEEKLY DROP
• *U.S. BANK LOANS, LEASES FELL BY $45.1B IN WEEK ENDED MARCH 29

The Fed did reduce its balance sheet last week……

I mentioned that the emergency loan program is not QE – precisely because it gets paid back.  That is what we are seeing thus far……

The Fed’s emergency liquidity injections after the SVB failure (+$392 billion) don’t appear to be continuing, with a $101 billion decline in the Fed’s balance over the last 2 weeks.

Charlie Bilello 4 10 23

A bit of history of market returns during recessions…..

Quite a wide range of outcomes….

BofA Research/ Mayhem4Markets 4 10 23

The tech sector remains quite high relative to the rest of the S&P 500.  In fact, its back to the dot.com bubble peak!

H/t:

@ISABELNET_/ Morgan Stanley 4 10 23

Those same futures are pricing in rate cuts later this year.

So – as a refresher – what happens in the rate pause, then cut cycle?

Often is the case that a recessionary bear market low comes well after the first rate cuts.

• On average the first Fed cut is about 10 months before the ultimate bear market low.
• The curve steepening began, which tends to have a 17 month lead time. Credit conditions are now tightening, which has about a 15 month lead time.

Here is a good visual from Bank of America.

We have already seen the curve steepen over the past few months.

Credit is tightening now due to the bank issues.

So – is the rate cut next?

Bank of America 4 11 23

Remember – the Fed pivot has not historically been a good thing.

In the below chart – the dark blue lines show the Fed funds and when they turn down. (Fed cutting rates)

The vertical light blue line shows when the market bottomed after that event

Bank of America 4 11 23

Finally, another Bank of America chart suggests the Fed has entered a downturn as of last month…..

BofA’s Regime Indicator suggests that the economy has entered a downturn.

@soberlook

charts..

Bank of America 4 11 23

Interesting chart.

We hear about the surge in money markets – and they are up after the banking crisis.

The below chart puts it into the context of the overall market – including stocks and bonds.

Using this metric, we are not even close to the highs

Bloomberg/Fed 4 11 23

This is interesting…..

Hedge funds appear to be loaded up on shorts.

This suggests we may have a short covering rally in stocks at some point in the near future….

Bloomberg 4 11 23

So inflation continues to cool (5.0 year over year versus 5.1% year over year expected), but the core inflation rate rose slightly. 

Here is the visual….

US Core CPI (ex-Food/Energy) moved up to 5.6% YoY, driven in large part by the continued rise in shelter CPI (+8.2% YoY, highest since ’82).

Charlie Bilello 4 12 23

Interesting note from a client this morning…..It includes a chart showing the rate of change in US commercial bank loans.  They have fallen off a cliff……

“On the chart below, you can see the rate of change in U.S. commercial bank loans and leases.  During the last two weeks of March, this figure plunged by nearly $105 billion (red arrow)…  This drop eclipses anything we’ve ever seen – even during the 2008 financial crisis.

Essentially this means that less capital is available to help grow the economy.  It just raises economic slowdown risks. 

Jeff Clark 4 12 23

Saw this note/article on CNBC…

This is a sign of things you never see at a market bottom. 

Quick sentiment check……

Still showing the dumb money at/near the extreme optimism level.

I highlighted where we saw the market (in black above) and sentiment since this bear market started

Sentimenttrader.com 4 12 23

Another historical chart showing historical market performance when the Fed stops hiking rates, or pauses…..

Bank of America 4 12 23

Interesting chart showing commodities….

This is the Goldman Sachs commodity index weekly view.

It suggests the downtrend in commodities may be ending if this breakout from the down-sloping wedge holds.

Strange to see as we are about to see economic growth slow – but perhaps it is pricing a good bit of that in?

One reason the Fed has to likely keep hiking is inflation is having a toll on wages…..

As you can see below, US wage growth has failed to keep pace with rising consumer prices for a record 24 consecutive months.

This is a decline in prosperity for the American worker.  Remember, inflation hits everyone -and many workers are not as fortunate to have significant assets, home ownership, or large portfolios. 

Charlie Bilello 4 13 23

While that is going on – we are seeing the deficit exploding in 2023. 

According to data released yesterday, for the first 3 months of 2023, the deficit was a whopping $679 Billion!

According to Larry McDonald, that was…..

• An increase of 134% over Q1 2022 which was $291 Billion
• Uncle Sam just reported a monthly deficit of $378B.
• +92% year over year – 6th largest monthly deficit in US history (3 of those 6 were during covid in  20).
• interest expenses +54% y/y to $66B – annual run rate of $800B.

See below…..

Government spending is far outpacing inflation.

US Federal Government Spending has increased 185% over the last 20 years versus a 64% increase in overall inflation (CPI).

That’s an annualized increase in spending of 5.5% per year, which is more than double the 2.5% annualized increase in CPI.

Charlie Bilello 4 13 23

One problem….interest rates are higher today.  Much of our debt will mature in the next year – and have to be refinanced at a higher rate.

This is driving interest expense on US public debt to record levels…..

The Interest Expense on US Public Debt rose to $812 billion over the past year, a record high. If it continues to increase at the current pace it will soon be the largest line item in the Federal budget, surpassing Social Security.

Charlie Bilello 4 13 23

Is the bank crisis over?  The Fed’s emergency loan program is slowly unwinding as over the last three weeks the Fed’s balance sheet has reversed 30% of the post-SVB liquidity injections with a total decline of $119 Billion.

If you watched my video market commentary – I highlighted how emergency lending programs tend to be paid back quickly.  It is expensive money to the banks as it is a loan at 4.75%.  The banks pay it back as fast as possible.

Charlie Bilello 4 14 23

Uh oh….

Will the magazine cover indicator strike again?

I have shown you over the years how the cover of Barron’s or The Economist, or even Forbes can often mark a top or a bottom.  Why?  The theory is that once it hits the cover of a major magazine, the trend is mature.

Well….

Below is The Economist cover from yesterday.

It highlights how the US economy is the envy of the world and resistant to downturns……

We shall see.

The Economist 4 14 23

If you don’t believe me, just look at this recent cover…..

Bitcoin bottomed on the very next day (Nov 20th, 2022) and is up 50% since.

11 19 23

In the game of investing….(its not really a game of course) – everyone is looking for the Holy Grail.

It looks like we found it.

It’s the CNBC “Markets in Turmoil” specials they run when the stock markets is volatile.

It may have the best track record I have ever seen….

Honestly – I think this is hilarious.  .

Charlie Bilello 4 14 23