12# Signal 2 Noise

Author

micksonmatch
February 20, 2024

In today’s issue:

  1. S2N Updates.

  2. Key Performance Wrap

  3. Commodities maybe topping out

  4. AI, not Liquidity driving the current stock rally

  5. Commercial real estate and private credit worries

S2N Updates

I am happy to write today that most of the backend issues have been resolved. I have a feeling that part of the reason is because there are multiple people working on the backend of the site simultaneously. It appears to be caching related.

I hope to complete the sign-up along with trial registrations today. It is very important for me to get this right. Onboarding is so important and often neglected. Getting the lists correct is important, as there is nothing worse than receiving something you didn’t subscribe to, because the site just lazily combined different registrations into one list. 

I just attended Jeff Sniders Euro Dollar University webinar; a lot of what he is offering his clients I will be offering, so I feel that I am tracking down the right path. Jeff is a master in monetary economics.

Performance Review

Chart Gallery

Interesting

Economic News Today

Active Signals

S2N Insights

We are at a very interesting stage in the world of economics and geopolitics. Frankly, I cannot remember when the world was in such a fragile state. I personally think something epic is about to happen in the markets as some of the pressure building fights for release.

Gold is trying to join the Bitcoin party but is lagging quite significantly. I’m still not sure if Bitcoin is more of a risk-on trade like stocks or a safe haven play like gold.

The Chinese currency (Yuan) is also showing some weakness (remember, a rise in the rate signifies a weakness like the Yen).  I have also included above, under the “Interesting” section, a chart showing the differential in the 10-year China versus USA bond yields. This spread would indicate further weakness in the Yuan. 

The 10% drop in coffee is a rather large move for a day. Coffee is still up over 10% for the month and 27% for the year. This could be a sign of a potential blowoff top. If I look at some of the other commodity charts dropping, it could be an interesting sign of a slowing world economy.

A few newsletters ago, I said I needed to add a dot to the last data point as I wasn’t sure where the end was. I also said I should add some text on the chart for the last data value and date. It was a good thing I did, as it seems the data source for some of my fixed income data has probably expired. It says the last date is 2024-02-15. I ran an update today, the 20th, so something is wrong. Anyway, I am sharing because I said I would do it, and I want to show I am true to my word.

I also included a chart above with SPY vs. Net Liquidity. There is a divergence at the moment, with the stock price movement not coming from the increase and decrease in central banking liquidity. At the moment, we are riding the A.I. wave. As I have been saying, I think this is about to fade.

Cathie Wood, the CIO of the (infamous) Ark Invest fund, has been a seller of NVIDIA.  NVIDIA is the 4th largest company in the US, with a market cap of $1.8 trillion. I am prepared to bet you $100. If you asked 100 random people the names of the top 5 companies in the world, less than 2 would be able to tell you that NVIDIA is in the top 5.

I continue to get nervous about the potential disaster looming in commercial real estate. First, there was COVID, which accelerated the work-from-home phenomenon. Now you have the potential productivity gains from AI, further reducing the need for people to work in offices. Not to mention the layoffs coming with enhanced productivity. 

Another point I want to have on the record is the explosion in the private lending business. This is a global phenomenon, but the shadow banking sector in the US has grown to $1.7 trillion. As most of this credit sits outside the lending standards and rigours of the banking sector, it has the potential to be a source of contagion. I am not saying the end of the world is coming. I am saying this is one of the places to keep an eye on, as it will be among the first to see casualties.

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