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#45 S2N: A Hectic Week Ends
Michael Berman, Ph.D.
April 19, 2024
Today’s Spotlight
The news today is all centred around Israel’s strike on Iran. I am not going to do a spotlight today, just want to share a bunch of observations.
S2N Observations
Let’s start with one of my trade suggestions to go short around 10,000. Cocoa had another big move up, and we got stopped out at our 11,000 stop. All part of the game no dramas.
Bond yields continued to rise, helped by comments by New York Fed President John Williams. He said yesterday that another rate hike isn’t his base case. But he also said that “if the data are telling us that we would need higher interest rates to achieve our goals, then we would obviously want to do that.”
30-year mortgage rates crossed over 7% last week, adding further pressure on home owners.
I closely monitor the repo and reverse repo markets, and you can see that the Fed jumped into the repo market last night to buy $113 billion of treasury’s, injecting liquidity into the system. There are clearly some challenges in the system happening under the hood. The US was tipped off that there was going to be a strike on Iran so perhaps they wanted to ensure there was sufficient liquidity in the system.
One of my favourite analysts is James Bianco. He shared this image with the following comments:
The US is a $28 trillion economy. It has 160 million workers. Initial claims for unemployment insurance are state programs, with 50 state rules, hundreds of offices, and 50 websites to file. Weather, seasonality, holidays, and economic vibrations drive the number of people filing claims from week to week. Yet this measure is so stable that it does not vary by even 1,000 applications a week. Just the number of applications incorrectly filed out every week should cause it to vary more than this.
Closer to home in Australia, corporate insolvencies have hit their highest level in at least 25 years. It is like we have 2 economies here in Australia. One is the real economy and the other is the real-estate economy. Real estate in Australia is the number one religion. Saying anything against property is considered sacrilegious, and I am regarded by many as a heretic.
Mortgages in Australia have a much shorter fixed term. Nobody has more than 5 years. We are nearly 2 years into the rate-hiking cycle, and it is only now that many mortgage holders are starting to feel the pinch as they refinance into a higher rate environment. If corporate insolvencies continue to rise, then job losses will start to gain momentum right into the eye of the mortgage rate storm, and more households will be forced to sell their houses. I am not calling a crash but I am calling a significant retracement in the order of 20 – 25%.
Performance Review
To learn a bit more about the Z-Score, which I use for the colour signals, read this blog post.
Chart Gallery
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