Latest / Financial Survival Network / Whats Next for the Economy and Stock Market? - Jim Welsh #6095

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Whats Next for the Economy and Stock Market? - Jim Welsh #6095 · Financial Survival Network

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What's going on with the economy and potentially what's coming. And then we're going
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to look at some technical analysis to look at the various financial markets that people
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are most interested the dollar, SMP gold, gold stocks, and treasure yields.
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You're listening to Carrie Lutz's Financial Survival Network, where you get valuable information
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And welcome. You are listening to and watching the Financial Survival Network.
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I'm your host, Carrie Lutz, and we're here with our good friend Jim
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Welsh from macrotides dot com. And Jim's got some some info that he wants
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to share with you. Got any questions or comments, you can always send
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an email to me k l at kerry Lets dot com. In the meantime,
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Jim you find him at macrotides dot com. Jim. Great to have
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you back on so Hey, you got some new numbers for us. Great
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to be joining you, Carrie. As your viewers will see, we're going
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to look at the fundamental side of the equation in terms of what's going on
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with the economy and potentially what's coming. And then we're going to look at
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some technical analysis to look at the various financial markets that you know, people
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are most interested the dollar s and p gold, gold stocks, and treasure
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yields. So you know, as people may remember, the Bureau of Economic
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Analysis when they did their first revision a first quarter GDP, it dropped from
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one point six percent to one point three And as I discussed in various letters,
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that was a little misleading carry because the BEA subtracts imports, and the
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reason why is because they're trying to capture domestic production. So the point though,
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is if demand is so strong that it's being fulfilled from overseas, that
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doesn't reflect weakness. So they subtracted point nine percent from first quarter GDP.
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And the second thing is retailers paired inventories, which subtracted another point five Now,
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what happens is when they cut back on inventories, unless the economy slows
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immediately, over time, they're going to rebuild those inventories. So the point
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being is that one point three percent was really closer to two point seven when
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you adjust for these other factors. So the idea being is, do we
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need to be worry about a recession right here, right now. No.
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But I think what we're going to review is some indicators that suggest a market
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slowing in the economy is coming. And I like this quote from Somerset Vaughn.
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The fact that a great many people believe something is no guarantee of its
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truth. And look at the chart below which it shows that now eighty eight
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percent of economists has surveyed in the first week of June by Bloomberg don't think
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we have to worry about a recession. And the counterpoint is back in twenty
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twenty two, the majority of economists thought we were going to be in a
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recession, and if not, in twenty twenty two, twenty twenty three,
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and in twenty twenty two and twenty three. My point was job growth is
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really strong, consumers still have money, So the idea that we were going
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to have a recession in twenty twenty two or twenty twenty three was unlikely at
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this point. Though, just at a time when everyone else is like,
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hey, we don't have to worry about a recession, I think there are
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reasons why more caution is warranted. And so if we skipped down to the
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next page, you know, consumer spending has really been the linchpin under the
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economy, and the bank credit analyst has a model where they look at the
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individual state on employment numbers, they adjust him for the population in each state
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and come up with an adjusted unemployment rate and historically, going back to the
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late nineteen seventies, carry it. Anytime this has gone up by I think
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twenty five basis points, it's signaled a recession. There has never been a
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false positive. In other words, there's never been a time when it's,
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oh, yeah, we got to worry about a recession and then one didn't
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show up. So in March this gave a recession signal. And historically,
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going back to the lates seventies, the league time has been less than six
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months. So to me, again, I'm going to take from this not
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necessarily oh my god, the sky's going to be falling here six months from
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March, but that the notion that the the labor market is going to remain
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strong. This really casts doubt on whether that's going to be sustained. And
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the next chart kind of shows and it hasn't been getting a lot of attention.
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Is the unemployment rate bottom that three point four percent in April of twenty
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twenty three, So it's been kind of creeping higher. You know, it's
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like putting the frog in the pot on the stove and the temperature gets increased
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very gradually. Well, the unemployment rate's gone from three point four to four
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percent in May. Historically, going back to nineteen forty five, carry,
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whenever you've had this amount of increase, there has always been a recession.
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And again I'll say there's been a lot of usual aspects to this recovery.
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You know, one being the huge amount of government spending which is continuing.
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Uh, you know, the deficit for this year revised from i think one
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point five trillion from in February to one point nine trillion. So again what
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we're seeing is, hey, the consumer has been the linch pin and the
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labor market has been very beneficial. I think it's going to slow. This
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looks at yield curb inversions going back to like nineteen twenty eight, and what
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it chose is whenever there's been an inversion over three hundred and fifty days a
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recession. This surely followed, we're at about six hundred and three days.
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I think as of yesterday, you're late last week. So again my point
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is, oh, I'm not saying, oh the guy the sky fall and
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this guideline. It just raises the probability, in my point, my view,
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that we're going to see a market slowing in the economy as all these
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things kind of come home to bear. And you know, the FED has
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decided higher for longer, which didn't surprise me one bit. But the reality
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is for small businesses that used the banking system for funding, that higher for
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longer is significant because they're paying nine to eleven percent most small businesses to borrow
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money, and small businesses in this country create fifty percent of all new jobs.
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So the longer we go with these rates where they're at and Kerry,
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it's going to I think wigh on small businesses, and again that has implications
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for the labor market. All right, Yeah, So the number of days
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that this inverted yield curve has persisted for and really the Fed's been powerless to
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do anything about it really is sending out major alarm bells, isn't it.
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Yeah, I mean that to me, the takeaway value here these stats is
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again the economy is going to be slowing, I think markedly as we go
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towards the end of this year and especially next year, because I think commercial
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real estate is going to be a more significant problem next year. Last year
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banks did extend and pretend, in other words, loans can do, and
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they worked out some stuff pushing it off in the future. But as we
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all know, the home or the office market isn't improving. There's a glut
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of apartments out there, so we're seeing price declines in multifamily apartments. So
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again, this is a problem that's kind of in the back burner, out
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of sight, out of mind, But I think as we get into next
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year it will become more important. And obviously if the economy slows, you
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know, it's only going to worsen that situation. You know, investors have
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been focusing when is the FED going to cut? When's the Fed going to
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cut? So I went back and if you go to scroll down just a
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little bit, and I went back to winter recession started, and then where
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was the SMP when the Fed made the first rate cut? And then what
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subsequently happened, and what it shows is going back to nineteen sixty nine.
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In each of these instances other than nineteen ninety eight, there were kind of
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some special circumstances that were going on in nineteen ninety eight, But what you
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can see is more than eighty percent of the decline and the average decline was
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about thirty eight percent in these bear markets, eighty percent of the decline of
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the SMP happened after the first rate cut. So the reason is the Fed
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historically has not cut rates just because inflation came down. They cut rates because
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the economy slowed, the unemployment rates started ticking up, and they cut rates
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in order to if you will, like catch up, play ketchup, and
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soften the slowdown in the economy. Of course, that has implications for earnings.
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Right now, Wall Street expects runings to be up this year and next.
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The PE ratio is elevated relative to the average over time, and so
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historically that's why you get these big declines in the market when it realizes,
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oh my goodness, the economy is slowing. We're going into a recession.
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So you know, again, from a statistical standpoint, we're seeing indications the
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economy is going to slow, and at some point in time, the Fed's
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going to respond to it. But if the economy subsequently goes into recession,
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it historically has been really bad news for the stock market. Okay, all
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right, so you're full of joy, right, bubbly news here? Well,
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no, you know what it is, you know, Kerry, is
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I want to keep my head on a swivel. And so whenever there's a
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narrative out there that's widely embraced, I always want to kind of say,
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all right, is it justified? And always, for a period of time,
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whatever the narrative, it is justified. But at some point in time,
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the narrative runs its course, and the way to avoid getting hurt in
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the stock market or other financial markets is to kind of see it coming.
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So technically I'll use this analogy. You know, all we drive SIXU eighted
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cylinder engines and cars, and if all the cylinders are working together, we
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got great pickup when we step on the gas. Few economy is pretty good.
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Everything's Colpus said it. But when one of the cylinders or two of
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the cylinders start being out of sync with the others, well, acceleration isn't
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so good. Fuel economy goes down, and ultimately the engine breaks down.
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So the point in the stock market is in a healthy market, the averages
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are either going all up together, we're going all down together. It's kind
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of like, okay, everything is in gear. At inflection points, things
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start to to burn. And when you're at a market high, yes,
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yeah, yeah, okay, agree, you're a market high. What happens
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is, Hey, what we're seeing is look at the semiconductors and what they've
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done from May fifteen until June eighteenth, and what we can see is up
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nineteen percent. In the meantime, the broad market the New York composite seventeen
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hundred stocks that's down. Value Lying composite seventeen hundred stocks that's down. So
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we're seeing a huge bifurcation. So everyone talking about the economies are okay,
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but the behavior of some of the broad market averages carry suggests that there's more
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concerned under the surface. And this kind of discrepancy is normally what we have
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seen historically at important market tops. Everyone's excited about it. Nvidia, get
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it? Artificial intelligence? Is you gonna change the way we live? It
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is already? Yeah? You know, I mean I didn't tell you this,
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but I made a bos that looks just like you, Jim, so
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I don't need to interview you anymore. Isn't going to be our last interview
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here, you'll see, right right, I'm sure that bottill be even smarter.
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You just let it know what I say, much, right, Just
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let it just tell it what to say it that it'll take care of every
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It'll just go from there. You know, you can just you know,
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I can put my feet up and in fact, great, Well, what
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I wanted to point out is semiconductor structure obviously critical and at the forefront of
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artificial intelligence. People can't buy enough of them type of thing. But semiconductors
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are hugely cyclical. So if we scro down just a little bit, there's
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a table showing how this semiconductor one more down so what you can see,
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you know, coming off the dot com bubble, I mean, the Internet
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was amazing, right, I mean, talk about how badly the economy would
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have been during the pandemic if we didn't have the technology that existed now to
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do zoom meetings, to be able to do ordering online, and all the
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rest of them. All Right, the Internet certainly fulfilled whatever the hopes and
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dreams were back in two thousand, But as the economy slowed, companies were
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forced to cut costs and they stopped spending as much money. So you had
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stocks that had a very high pe ratio because they were growing at thirty percent
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or more, and all of a sudden, that growth is accelerated rapidly.
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So in the two thousand and one recession, which was a very mild recession,
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I think with GDP was not like one point four percent, the semis
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were down eighty three percent. Two thousand and eight deeper economic contraction, SEMI
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is down sixty five percent. So my point is this enthusiasm for AI and
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the semiconductor stocks, I understand it, But at the same time, I
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think some of the people that are barely in this believe that it will be
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immune to the business cycle. I'm sorry, if you get a recession.
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No company is completely immune to the business cycle. So my bet is that
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as we slow down between now and your end, I think a recession becomes
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a higher probability next year. I think, you know, the order rate
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for computer chips is going to slow initially and then drop. The other thing
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I'll point out is in the last twelve months or so, I think companies
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have bought fifty billion dollars worth of chips from Nvidio. Yeah, but it's
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those chips by those companies only generated about three billion of revenue. So I
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think there's this window of time where all this enthusiasm, but then there's going
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to be a valley as people struggle to monetize what they spent. That it's
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going to take time to convert artificial intelligence to meaningful, real world positive outcomes.
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And during that window time, if I'm right, what's going to happen
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to the order book bring VIDI and the other semiconductor stuff skid. Right,
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It's going to skid absolutely, So that to me is the warning. And
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let's go down a little bit further. One thing, I don't remember if
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I put that in here or not. Maybe I did. We'll see,
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okay, Before we leave to the semiconductor issue, in Vidia had a key
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reversal on June twentieth, so did the semiconductor in this The last time that
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happened was March eighth, and it ushered in a correction that ultimately in Vidia
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dropped twenty two percent by mid April, and the semis I think we're down
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maybe eleven or twelve percent, So that key reversal we saw a couple of
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days ago. I think think is kind of a clearing call that, all
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right, we're going to see these stocks undergo a correction. Lagged performance in
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the russell and the value line and the broad market. I don't think we're
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going to be able to see a rotation that cleanly the baton gets passed.
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So I think everything is set up. I was looking in late March for
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a five to seven percent correction. The S and P drop five point seven
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percent. I think we're close to something similar Kerrie over the next handful of
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weeks. So if I go back to the ancient era of Alan Greenspan,
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you would call this a rational exuberance. And it looks like it's coming to
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an end. Yeah, I think so. I mean again, at least
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in the short term, and then we'll see how the market corrects the pattern
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that develops to be able to disturn. All right, Is this just another
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correction like the one in April and we're going to have another rally to higher
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highs or is it going to be more menacing? I can't know that right
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now. All I know is the warning signs in terms of the divergencies with
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the marketing average is and the advanced decline line hasn't confirmed this new hive.
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Same thing happened in January twenty twenty two October two thousand and seven, and
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there's many other instances going back. So the table set, it really all
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comes down to carry does a reason to sell materialize whatever it may be,
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because the weakness of the market internally tells us that it'll struggle to deal with
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an increase in selling pressure. And that's the setup. Now it's just a
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question of what how important the reason to sell is. So we can look
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at gold in some of the markets and we could have liquidity issues that force
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liquidation in the stock market. We know when there's a liquidity matter, liquidity
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event, that the first thing people dump are stocks, right well, especially
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the heighthly liquid stocks, you know, and liquid the better. Yeah,
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And eventually you get down to the over owned stocks and when they go down
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enough, you know it's like get me out, all right. So in
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terms of gold, you know, the bigger picture is from the low at
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eighteen twelve, I think gold has had three waves up and we're in the
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middle of a wave for correction. We had a fake out where gold hopped
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above for one day, that upper declining red tround line reversed down on Friday,
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and I think the odds are gold is going to trade below the twenty
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two eighty two and we could see it as low as like twenty two p
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five based on retlacement levels and salt port. But once this correction is overcarry,
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I think we're going to see gold rally to the new all time high
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above twenty five hundred and potentially higher than that and taking one step at time.
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So how long you think that's going to be. Jim, My guess
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is gold will bottom in the next sixty days. That it could be thirty
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days that this correction. You know, we're nearing the end of the correction.
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I just think there's like one final wash here. As gold takes out
20:27
that prior low, it's going to hit stops and so forth. But my
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point is, rather than being intimidated by it, it's an opportunity in my
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view, to be a buyer. The gold stocks very similar in the sense
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that if I'm right about gold pulling back, the gold stocks is measured by
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gd X the ETF. I think we'll have a period of weakness and then
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as you can see up there. I'm giving some instructions in terms of buying
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IAU, which is the goal ETF, because I'm going to be a buyer
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on the upcoming weakness and scale in a little bit based on gold drops below
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twenty two eighty two? Does it get down to twenty two forty? Okay,
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you want to buy someone? I like that chart. I do like
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it. Kind of cup and handle. You know, we saw the handle
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in gold and in silver, so you know now it's going to retrace a
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bit right kind of Yeah, yeah, I'm breadless, it's out. I
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didn't hit it here, mollis. Yeah. Yeah, they had a big
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cart and people got really bullish, you know, a month or two ago
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the double topped. Also yeah, and that you know from a tick issues,
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Oh okay, that looks ominous and so forth. You know. So
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again just from a price pattern standpoint, yeah, I think that really is
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looking chart. It's correct for a way four and wave five if items at
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twenty two to fifty twenty five fifty or higher becoming Yeah, and the gold
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stocks and you know I've really been lagging from yeah oh wow, yeah,
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well, and I think there's a catch up trade coming there and if you
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go down to a little bit further, uh carry, And of course this
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is going to be I think on your website so people can read all this
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step from They'll have a link in the shout out so you can download Jim's
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report and you know, get the ball belong on the podcast. Yeah.
22:36
So anyway, I think GDX can drop to the low between thirty two and
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thirty two and a half. Thirty one and a half is possible based on
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a retracement of the big move from twenty five to thirty seven. I think
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Kimra or whatever your trace room was, whether it was fifty percent. That
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sounds about right, Mandy, Yeah six bucks, yea, yeah, it'd
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be fifty percent of retracement. But again, I think this weakness is a
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buying opportunity, and ultimately I think the next rally will take out the thirty
23:12
seven dollars high that we saw or six weeks ago, and there was a
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hind going back a little bit further near forty one. So I think GDX
23:23
is setting up a nice entry point or a rally that ultimately I think will
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take it up towards forty one, forty to forty one, So that'd be
23:32
a pretty nice trade. So I wish you had a new months shorten there
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because Newmont's due to report some monster earnings because the price of gold has got
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up over two hundred and fifty dollars even if it's partly hedged since their last
23:49
earnings report where it was like around nineteen hundred something, and their earnings are
23:56
going up and the stock is doing absolutely nothing here. Yeah, I think
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one thing that's happened, Carrie, is money that maybe in the past would
24:04
have traded the medals as well as the metal stocks is trading bitcoin. People
24:11
are looking for action, okay in the past, Hey you want a beta,
24:15
go buy you a gold stock or buy sold okay. TLT. I
24:22
turned positive on TLT over the last couple of months. On average, we're
24:27
long at around ninety one dollars of TLT. Again, my supposition is the
24:32
economy is going to slow more than expected. That TLT declined from one seventy
24:40
nine in BArch of twenty twenty forty in October of last year. So again,
24:47
a three eight two retlacement I get you up to about one nineteen.
24:51
So the initial rally went from eighty two to one hundred. That's eighteen bucks.
24:55
You had eighteen bucks to eighty seven, you're at one oh five.
25:00
So I think PLT is going higher, but at a minimum it should in
25:06
terms of from the low in October of twenty three, get an A wave
25:11
up to one hundred, a B wave down to one hundred or partly eighty
25:15
seven and change. I think we're at the beginning of a C wave that
25:19
will take TLT above the prior high at one hundred point five seven and potentially
25:25
up to one oh five to one oh nine. And if the economy really
25:27
goes into recession, that one nineteen number is a possibility. So yeah,
25:36
I mean just again, make yeah longer term. I'mbarissed bonds, and the
25:42
reason being is when it went from US seventy nine to eighty two, and
25:47
I've got reports if anybody wants to see all this good stuff, it will
25:51
decline in five waves. For me, that means the major trend in bond
25:56
prices is down and yields are up. But after a five weight move,
26:00
you're always going to get a retracement move, and that's where in the middle
26:03
of that retlacement move. God, if we get a recession, the deficit
26:08
is going to go from you know, one point nine trie into probably three
26:11
tride. So the amount of supply the bond market is going to have to
26:15
handle and the next recession and beyond, I think it can be able to
26:19
yeah, exactly, Yeah, and that's why yields can go out. Yeah.
26:23
Can you spell monetize? Good luck? You know? All right,
26:27
So we got one more dollar real quick. That red shread line is just
26:34
you know that one oh, it's I think a one oh six twenty five.
26:38
We're flirting with that. So I've been looking for the dollar to top
26:42
and roll over. But what's going on in Europe, But the French elections
26:47
has caused the year old to be quite weak. It's fifty seven percent of
26:52
the dollar index. The elections are going to be held June thirtieth and July
26:56
seventh. So to me, if the dollar closes above that trend line again,
27:02
that would not be good for gold. I don't think it's not good
27:06
for the US economy. So to me, the dollars at kind of a
27:10
critical lever level here up around one oh five seventy five. All right,
27:15
all right, there's one more thing on the S and P. If we
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can just out do it real quick, Okay, sure, Well I'm looking
27:21
for based on all this stuff we talked earlier, I think the S and
27:25
P is set up for a five to seven percent correction or some price targets
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mentioned here. I think there's a shot carry that you could see one more
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rally above fifty five oh five to complete the move up from last April's low,
27:40
and I think that would be a place to go short. All right,
27:42
excellent here, really good info here. I've known you long enough to
27:48
know that you know you're right a lot more often than you're wrong, and
27:55
I think it's a reasonable analysis. One thing we didn't talk about don't really
28:00
want to, of course, is the election and what's happening there, because
28:06
that all figures into this. But maybe in ways we're not totally clear about
28:10
right now, Hey, make sure you go over to Jim's site the links
28:12
in the show notes of this interview on Financial Survival Network dot com. When
28:18
you're there, sign up for your free newsletter and it's macrotides dot com.
28:22
Questions, comments, et cetera. Kl at Carrie LUTs dot com. Jim,
28:26
appreciate your sharing this with us. Again. The link is in the
28:30
show notes to this interview to download Jim's report the PDF, and Jim provides
28:38
that to you Gratus, and you might want to take a closer look at
28:41
macrotides. Jim appreciate it all, and let me stop the share and we
28:48
will everybody can get a good look at two good looking older gentlemen. Yeah,
28:55
well that's it, especially that, right, yeah, the gentleman,
29:00
right, not the older part. Yeah, well, well let's not talk
29:03
about that. Yes, anything is like the economy and the market going down.
29:10
I don't want to talk about my physical presence. They used to call
29:14
that piling on in football, you know. Yeah, fifteen, I'm good,
29:21
all right, Jim, A month or two be well, sounds good
29:23
YouTube. Thanks for listening to carry Letz's Financial Survival Network, your solution to
29:30
today's trying times. For the latest, go to Financial Survivalnetwork dot com.
29:34
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