INTERMEDIATE-TERM FORECAST: Down
INFLATION FORECAST OVER NEXT 6 MONTHS: low inflation or all-out deflation
MARKET POSITION: Bear market
INVESTMENT STANCE: 100% cash
STOCK CRASH POTENTIAL (NEXT 1-6 MONTHS): Elevated
ECONOMY: low growth
Next Monthly Report: Dec 9
November 11, 2023
Disclaimer: Do not trade off of this advice. This blog is for informational purposes only. Any investment advice are just suggestions. The author has no experience working in the financial industry.
The official unemployment rate continues to be at historic lows, though it has crept up lately. It was 3.9 percent in October, up from 3.5 percent in September. Total non-farm jobs openings tells a different story from the low official numbers. It has been falling steadily since March of last year. This FRED graph goes back to December 2000. Every decline in the number of job openings has occurred during a recession (shaded grey). So there is a major discrepancy between the official unemployment figures and the figure below. The economy is in worse shape than as you think.
Real Estate
I released an Interim Report on the current situation in real estate last month. Real estate is clearly in a slowdown. Mortgage application are at the lowest level since the mid-1990s. According to FRED, the median price of existing homes sold decreased from $404k in September to $394k in October. (The all-time record high was $413k set in June 2022.)
Real estate prices do tend to be loosely correlated with the stock market. Stocks set an all-time high early last year, then had a 25 percent decline and rallied strongly until summer. Home prices had an eerily similar pattern. After setting an all-time high last year, prices had fallen some 10 percent before rebounding and then falling again. Home prices too were near their all-time record highs this past summer, but did NOT surpass their all-time high of 2022. Stocks have turned down and real estate so far has done the same.
Stocks
Stocks have rallied since the beginning of this month after declining for two months. The Dow Industrials, S&P 500, and NASDAQ have all popped above their 50 day and 200 day moving averages. However, the Dow Transports and NYSE Composite remain below their moving averages. This indicates a fractured market. After this rally is over, stocks will likely break down hard.
M2 Money Supply is Shrinking
Seldomly will you hear in the media that the money supply is actually shrinking, which is the first time sustained shrinkage (1993 and 1995 had brief spurts into negative territory) has happened since 1932, which was the era of the Great Depression. Even the 2008 financial crisis did not produce a negative growth rate in the money supply. Currently the quarterly M2 annual growth rate is -3.77 percent.
https://www.longtermtrends.net/m2-money-supply-vs-inflation/
See also:
The End of the 40-Year Bull Market in Bonds. What’s Next
R.I.P Bond Bull Market , 1981-2021
Interest Rates
One of the reasons the market has turned up may have been due to falling interest rates of late. Whether interest rates have peaked or not remains to be seen. Bonds have already suffered their worst bear market in history, with the 30 year bond declining 40 percent in value over the past three years.
The decline in rates could be indicating the beginning to flight to safety. However rates won’t decline in earnest until a real market panic ensues. We are nowhere close to panic yet.
Quite a bit of damage has already been done in the banking sector, mainly due to the collapse in bond value, which many banks were heavily invested in. Silvergate and SVB were early casualties but the entire banking sector remains weak.
Conclusion
Things may be coming to a head pretty soon. Stay tuned. Stay out of stocks and other speculative investments. Stay in cash and cash equivalents.
Next monthly report: Dec 9
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