Latest / Financial Survival Network / Economic Outlook and Market Analysis - Jim Welsh #5861

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Economic Outlook and Market Analysis - Jim Welsh #5861 · Financial Survival Network

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  But I think we're going to see the economy start to slow in the third
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  quarter, and that's slowing is going to pick up speed as we get him
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  the fourth quarter. But the Fed isn't going to react immediately by lowering rates,
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  and I think that's going to be the hard part for the market to
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  accept. If you will, you're listening to Carrie Letz's Financial Survival Network where
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  to Financial Survival Network dot com and get your free newsletter and gift. Financial
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  Survival Network now more than ever. And welcome you are watching listening to the
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  Financial Survival Network. I'm your host, Carrie lets Well. This person who
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  we're going to hear from today was correct about inflation and a let's see if
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  what is thinking in terms of the hard landing soft landing or we'll just say,
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  stay suspended in the air forever, right, yeah, forever and ever.
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  Jim Welsh Macrotide dot com with us. Jim, welcome back so he
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  could join your carry. As though inflation is over, we can all rest
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  assured. We don't have to worry about anything because they fixed it right.
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  Not quite, no fix it, No, they not entirely. Again,
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  last October, I began to write that we were going to see a significant
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  decline and inflation in the first half of this year, predominantly because the takeaway
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  values carry from last year because the CBIs are rated change, so they give
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  subtract the number from twelve months ago, and you add in the current month.
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  So I was talking about back in February this year that we could see
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  the CPI down to three percent, which we fought out. That's exactly where
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  it when. And the part was because the takeaway value from June of twenty
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  twenty two was one point three percent, and then you just add whatever the
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  current months changes, in this case it was point two percent, and then
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  implied that we could see the CPI dropped by about a percent, which it
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  did from four to three. What goal listeners and viewers will see in one
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  of the charts I provided is going forward the next six months, the numbers
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  changed. So instead of the average monthly decline in the first six months was
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  point eight nine percent, it's only point two percent. In July, it's
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  flat. August it's twelve basis points. So if the CPI continues to be
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  up point two percent and the next two months, when we get the August
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  reading in mid September, the CPI is going to go from three to maybe
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  three three, maybe three four. So the only point being is that a
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  lot of the improvement was because of the reverse from last year's numbers. And
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  what I've written about is the thing that could make that an even worse comparison
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  is I think energy prices are, in terms of oil, going to head
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  higher. The low in June was around sixty seven dollars, it's trading around
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  seventy six. Based on the chart, I think crude oil can get to
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  eighty one, it gets much above that eighty six, and nat gas prices
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  bottom at two twenty five the I think two sixty something. I think potentially
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  they could get to three forty. So the point being is the big takeaway
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  values were led by a big decline in energy costs, and they're now reversing.
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  So the ZPI in the next few months may tick higher than just the
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  point three or point four that I indicated. And then also food prices.
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  Russia ended their deal with Ukraine. We've seen grain prices in terms of corn
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  and wheat jump three to four or five percent. Again, that will add
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  to the headline inflation and coming months. So you know, it's not like,
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  oh, my gosh, the world is falling, but a lot of
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  people have kind of built in the assumption to your question, oh, inflation
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  is behind us, it's not a problem, and I don't believe that's the
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  case. All right, So it is a problem. And the unemployment employment
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  numbers also a problem, isn't it. I think so. Historically we know
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  that monetary policy actually lag. The average recession has taken nineteen months to begin
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  after a yield curve in version. So the yield curve inversion in July of
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  last year, which kind of implies by late this year early next year,
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  would be the average lag time. There's a chart that I provided showing the
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  federal funds rate, and what was done in this chart, Carre is they
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  pushed the federal funds rate forward by eighteen months in a sense to account for
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  that lag time, and then overlaid unemployment claims on top of it. And
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  what we can see is historically a big increase in unemployment claims have followed after
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  big increases in the federal funds rate. Well, the Fed funds rate started
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  up in March of last year. Eighteen months gets us basically to September.
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  So my point is that we're going to see the unemployment numbers start to tick
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  up later this year. The job numbers are already starting to slow. The
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  two hundred and nine thousand looked like a good number on the top, but
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  the sixty thousand of that was government jobs. Hours worked have been declining significantly
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  over the last twelve eighteen months. Looking at on employment claims, they're starting
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  to creep higher. So the point being carry is that I believe we're going
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  to see the labor market start to reflect the impact from higher interest rates.
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  And the Fed itself has projected that next year the unemplumbent rate will get to
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  four point five percent. Well, anything anytime there's been a point five percent,
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  in other words, you go from three and a half to four,
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  that's been a recession or you're on the doorstep or in our recession. So
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  you know, the Fed wants to get inflation down. The biggest declines in
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  inflation have occurred during recessions, so I know the Fed wants to avoid a
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  recession. But I think the combination of the yield curban version leading economic indicators
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  which have dropped fourteen months in a row, and whenever they've declined as much
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  as they have, there's always been a recession in the last fifty years.
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  And lastly, lending standards have been increased significantly before the regional bank crisis in
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  March. Lag time is about nine months. And when you think about it,
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  if you're a small business owner and you have a loando in September,
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  well, the increase and lending standards that took place late last year, you
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  haven't felt it, but it will fee it when your loan comes due in
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  terms of either cost of the loan is going to go up significantly. And
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  potentially what also starts to happen is banks start to scruit light. Do they
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  want to give you the same amount of money because their outlook is that the
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  economy is going to slow. So again, a lot of this stuff has
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  built in lag times. And what's happened is a year ago, as you
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  know, everyone was talking recession, recession or I pushed back against I said,
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  there's not going to be a recession in twenty twenty two, and I
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  in my monthly macrotides. I went to explanations why I didn't think there would
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  be a recession in the first half of this year. But I think we're
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  going to see the economy start to slow in the third quarter, and that's
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  slowing is going to pick up speed as we get him the fourth quarter.
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  But the Fed isn't going to react immediately by lowering rates, and I think
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  that's going to be the hard part for the market to accept, if you
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  will. All right, so everything you know is wrong. In other words,
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  everything you're thinking of, Well again, markets are as you know.
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  I mean, markets are kind of weird. Everyone thought there was going to
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  be a recession for the wrong reasons, just because you had two quarters in
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  a row of negative GDP. Well, historically that's been a pretty good benchmark.
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  But in the first half of last year, job growth was averaging three
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  hundred and fifty thousand new jobs. That's like a boom. A Gross domestic
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  income was up in the first quarter of last year and the third quarter,
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  So even while GDP was down, GDI was up in the first quarter.
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  And the National Bureau of Economic Research, that's the outfit that determines the beginning
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  and ends of recession. They don't look just at gross domestic product. They
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  look at six different groups of indicators, and they wait, gross domestic income
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  equally with gross domestic product. Now here's the thing. No one's talking about
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  it. In the fourth quarter GDI was down three and a half percent,
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  and it was down I think one point three percent in the first quarter.
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  So in other words, these are all, in my opinion, signs that
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  things are under the surface, slowly but surely slowing down. And it all
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  adds up in my mind. You know that the economy is going to slow
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  in the second half of this year, and I think more so next year.
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  I don't all right, so more slowing, do you think we'll have
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  a legitimate recession? Then a problem? I mean there's going to be at
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  least one quarter of negative GDP rolls. I think the odds of a recession
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  are very high, but it may not really chick in until we get into
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  the early part of next year. And again I'm relying on the yield curve,
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  LI lending standards going up. In a little common sense, every time
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  those indicators have hit levels that they are currently at, there hasn't been a
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  recession going back to the last sixty years, so I reliable. Yeah,
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  absolutely, at a minimum a significant slowdown. Now what's ironic is equity investors
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  because everyone was wrong about the recession last year or the first half of this
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  year. Now, hey, we don't have to worry about a recession.
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  Mary Lynch does a survey every month of mail managers money managers. Sixty eight
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  percent don't think we're going to have a recession. So it's really, you
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  know, shifted significantly from where it was a year ago, and it's almost
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  perfect setup where now that no one's anticipating a recession, the odds are that
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  it's like you're going to increase and I'm not trying to be flipping again.
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  It's based on the historical performance of very good indicators. All right, So
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  is it going to be a hard landing or a soft landing? Very difficult
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  to know because a lot of things show up out of the woodwork that can't
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  be anticipated. I think commercial real estate is going to be a problem next
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  year, you know, obviously office buildings, even shopping malls. You know,
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  we don't know how much unemployment will go up, so to me,
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  it doesn't at this point in time. It's given them most of you are
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  looking for a recession, the fact that there's a recession likely is enough.
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  Are they surprise a negative surprise? And I think for most investors, if
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  it turns out to be a hard landing, well it's just going to be
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  a really bad surprise. And we don't need to know that at this point
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  time. Yeah, yeah, yep, yep. All right. So if
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  you had to hazard a guess, your inclination, your gut all these years
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  you've been doing this, what you're feeling, I think it's going to be
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  worse than a soft landing. Okay, you know, you know. I
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  just there's just a lot of excesses that have built up, and it makes
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  time to address them. And again, people have been able to keep spending
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  because of the accumulated savings, extra savings that they had because of the pandemic
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  distribution of money they weren't allowed to go out. But that savings is starting
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  to whittle down, and so the slowdown in spending is already starting to show
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  up. Same store sales last week came out, Carrie, they were down
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  slightly. We're seeing more signs of credit card stress showing up. So some
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  of the things that got overlooked last week in terms of the CPI dropped and
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  it wasn't that wonderful real number out to another one. The government gives a
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  report in terms of revenues and expenditures. Well, expenditures are still quite strong,
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  which is again one of the reasons why the economy has been hanging in
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  there. But income, you know, in otherwords, taxes peaked in the
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  fourth quarter of last year, and i've been trending down so far through the
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  first six months of this year. Historically, that's another leading indicator that you're
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  approaching a recession. So a lot of these things are moving in that direction.
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  It just is like it always does. It just takes longer than people
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  expect, and in this case, it's kind of fooled them to think that,
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  Okay, if it hasn't happened by now, it's not going to happen.
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  Yeah. All right, well, I'm glad we touched space. Glad
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  we got your latest update. I will we have some jets on the markets
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  if you want to cover those real quick. Yeah, let's let's cover I'm
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  sure. Yeah. So you know gold, I think gold completed the first
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  phase. If you will have the next bull market when it rallied from sixteen
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  sixteen to twenty fifty nine. Since early May, I've been looking for a
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  wave to pullback. The three eight two retracement of the rally was eighteen ninety
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  four or ninety and at eighteen ninety four, it's possible that pullback is done.
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  Carry I still think the odds are we're going to see one more dip
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  in gold below eighteen ninety four before we see the beginning of the next leg
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  higher that will take gold to new all time highs. Twenty three hundred.
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  Twenty four hundred is definitely in reach. In terms of the SMP five hundred,
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  we're at a really interesting juncture. Primary the seven eighty six retracement of
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  the decline last year is forty five thirty four. We're within one percent of
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  that at this point in time. The big rally up from October into early
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  December, pull back into March, the rally we've seen since March, those
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  two legs are equal at twelve. So these measurements to me suggest we're in
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  the zip code of what could be an important high. The fundamentals suggests that
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  eight people are overestimating the positive part of about the economy. Sentiment has gotten
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  really pretty wildly bullish. The only thing that's really happening and still in good
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  shape is momentum, So that is the next thing that needs to happen to
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  kind of start to confirm this stuff. Yeah, you know, I would
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  discount and so on the chart of the SMP, see way they down to
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  October big ABC up to a B wave high. What that implies carry is
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  the potential of a sea wave decline that will undercut the lows October. Now,
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  if I thought the FED was going to be cutting rates soon, or
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  that the economy was going to be holding in their well or gaining strength,
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  that would cast doubt on that pattern analysis. The fact it's just the opposite,
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  you know, means like, okay, it's time to get pretty cautious.
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  I think, given where prices are at this point in time, all
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  right makes a lot of sense. Hey, the banking crisis, is it
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  going to come back with a vengeance or is it over for now? Well?
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  I think the one that happened in March got blown out of proportion.
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  Quite honestly. It was three banks that were extraordinarily badly managed based on their
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  mismatch between deposits and liabilities and everything else. So to me, that was
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  never likely to become the old my god, a full blown thing. The
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  key thing is people are like, oh, we're gonna have a credit crunch.
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  No, but the real problem is that lending standards at in the first
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  quarter got up to forty six percent. They got to forty three percent at
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  the end of last year. Historic of going back to last fifty years,
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  when other whenever more than twenty percent of banks have raised lending standards, we've
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  had a recession. Well, it was forty three percent in the last year,
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  in forty six in the first quarter. So to me, that is
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  the bigger issue. No one's talking about it. You know, they were
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  worried, Oh my god, this guy's going to fall. That created some
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  negativity. The market got oversold, and we've seen the market rally and the
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  employment report for me that came out I think it was in June second it
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  was three hundred and nine thousand. That really seemed to solidify people's viewpoint that,
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  oh, we don't have to worry about a recession for whatever reason.
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  And then we've seen cyclical stocks rally, a small cap stocks rally again on
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  the idea that we're not going to have a recession, and if we do,
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  it's going to be an inconvenient you know, soft landing. So we're
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  at it. I think you know an inflection point potentially, you know a
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  number of these markets. All right, Well, interesting, very very interesting
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  times ahead here, Jim. We always appreciate your coming on and giving us
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  your insight. Macrotides dot com is where you find Jim and there's a link
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  in the shows this interview on Financial Survival Network dot com and here I would
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  like to offer their line macrotides to anyone who All they have to do is
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  send me an email Jim Welsh macro at Gmail, and I'll send you The
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  July issue covered a lot of important points regarding the labor market, and I
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  think they'll find it pretty and I'll probably toss in the most recent weekly technical
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  review. Week and a half ago, I was looking for the spated rally
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  above forty five hundred, the dollar to drop below one hundreds, have a
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  sharp decline. It had formed a triangle. I thought Bonniels would come down
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  a little bit, and I thought gold would pop all based on that big
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  decline in the CPI reports. I'm happy to send those reports out to your
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  faithful listeners. All right, hey, if you got any questions, kl
• 18:22
  at Kerry Lutz dot com and appreciate you coming on. We will talk to
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  you again soon. Joe sounds good. Stay well, Carrie, thanks for
• 18:30
  listening to carry Lutz's Financial Survival Network, your solution to today's trying times.
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  For the latest, go to Financial Survival Network dot com. Financial Survival Network
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  now more than ever,