Fellow board members,
Since the Fed has raised the funds and discount rates, I would like to report the Zweig model results. The official reading is not the worst possible number but let us say that it is in very very strong sell territory. The only reading that is positive is consumer consolidated credit, which has surprised me by not indicating a dangerous level of consumer debt.
That having been said, my trend indicator is also very close to the minimum vale that it achieved in either 2020 or at the market low earlier this year. Usually that happens before a bear market rally. It did in 2020 and earlier this year.
Housing has declined significantly due to the 3% increase in mortgage rates. According to Ed Yardeni, housing is the main driver of the economy. You might remember that housing cratered in 2007-8, which preceded the financial crisis. However, note that a big decline has already happened. That usually precedes a recovery.
My reading of Powell is that he follows the politics. In October 2018, he stopped raising interest rates when the president complained about it. Now everyone (President Biden) has focused on inflation, so he is squeezing interest rates to reduce inflation. What this tells me is that after the election in November, he will suddenly have a change of heart and put a pause on interest rate increases in order to minimize the severity of any recession. If that were to happen, then the markets would scream higher.
Similarly, the Ukraine war could have a decided turn toward ending, no matter what Putin is doing now. That would drive energy prices to very low levels and cause gasoline prices to plummet, thereby eliminating the most visible sign of inflation.
What am I saying? Look, the way the universe works is that good things happen as well as bad. Notice that our big events of the past 6 years have all been terribly bad: 100 year pandemic, highly inflationary invasion of Ukraine (generating a worldwide humanitarian crisis) and massive destabilizing political upheaval worldwide and nationally. The Universe will deliver a spectacular upside surprise because that is the way it works (Generalized Second Law of Thermodynamics).
Just sayin'.
Good luck,
Tex
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Since the Fed has raised the funds and discount rates, I would like to report the Zweig model results. The official reading is not the worst possible number but let us say that it is in very very strong sell territory. The only reading that is positive is consumer consolidated credit, which has surprised me by not indicating a dangerous level of consumer debt.
That having been said, my trend indicator is also very close to the minimum vale that it achieved in either 2020 or at the market low earlier this year. Usually that happens before a bear market rally. It did in 2020 and earlier this year.
Housing has declined significantly due to the 3% increase in mortgage rates. According to Ed Yardeni, housing is the main driver of the economy. You might remember that housing cratered in 2007-8, which preceded the financial crisis. However, note that a big decline has already happened. That usually precedes a recovery.
My reading of Powell is that he follows the politics. In October 2018, he stopped raising interest rates when the president complained about it. Now everyone (President Biden) has focused on inflation, so he is squeezing interest rates to reduce inflation. What this tells me is that after the election in November, he will suddenly have a change of heart and put a pause on interest rate increases in order to minimize the severity of any recession. If that were to happen, then the markets would scream higher.
Similarly, the Ukraine war could have a decided turn toward ending, no matter what Putin is doing now. That would drive energy prices to very low levels and cause gasoline prices to plummet, thereby eliminating the most visible sign of inflation.
What am I saying? Look, the way the universe works is that good things happen as well as bad. Notice that our big events of the past 6 years have all been terribly bad: 100 year pandemic, highly inflationary invasion of Ukraine (generating a worldwide humanitarian crisis) and massive destabilizing political upheaval worldwide and nationally. The Universe will deliver a spectacular upside surprise because that is the way it works (Generalized Second Law of Thermodynamics).
Just sayin'.
Good luck,
Tex
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