Share this page!

Enter URL or ID to Unroll

You can paste full URL like: https://x.com/threadreaderapp/status/1644127596119195649
or just the ID like: 1644127596119195649

How to get URL link on X (Twitter) App

  1. On the Twitter thread, click on or icon on the bottom
  2. Click again on or Share Via icon
  3. Click on Copy Link to Tweet
  4. Paste it above and click "Unroll Thread"!
  5. More info at Twitter Help
Jim Bianco Profile picture
@biancoresearch
Jan 14, 2022 • 6 tweets • 2 min read • Read on X
Scrolly
1/5
 A thread to go over my interpretation of interest rates.

First this is what the market currently has priced in. 36% for the 5th hike in Feb 2023 is the highest ever.

First hike in March is now 86%. At this point any talk of no hike in March would move the market.
2/5
Earlier this morning Mike Wilson of Morgan Stanley was on Bloomberg TV. He is looking for 1.60% on 2-year yields at mid-year (from 0.945%).
3/5
This fits our view that the 10-year minus 2-year curve can invert by mid-year.
4/5
Why are 10yr ylds trending sideways as 2yr ylds relentlessly rise?

10yr ylds are a risk-off instrument, not an inflation pay. The fact that 10yr ylds are not rising in the face of inflation is a market signal that the Fed is going to hike too much and break something.
5/5
We will know when the Fed has “broken something” when/if the yield curve inverts.

It might not be obvious what broke the day the yield curve inverts, but the market will be signaling that something is indeed broken and it will be apparent in short order.
Bonus

Why will the Fed hike so much they will break something?

Inflation got away from them and is now intensely political. The economists can leave the FOMC board room. Hiking to address inflation is now the domain of politics and PR people worried about Fed optics.

• • •

Missing some Tweet in this thread? You can try to force a refresh
　

Keep Current with Jim Bianco

Jim Bianco Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @biancoresearch

Jim Bianco Profile picture
Nov 27
1/7
This analysis concludes by saying "something is seriously wrong with the housing market."

Not based on this chart.

tl:dr - New home sizes are falling to account for this spread falling below zero. Adjust for that, and there is nothing to see here.

Short 🧵
2/7
Same chart with prices in the top panel.

It is correct that the new home premium (green) above existing home prices (blue) has collapsed from 38% in 2013 to below zero today (the lowest in 54 years).

Why?

See new home prices (orange), they stalled. Image
3/7
Here is the average home price (orange) and the home's size (blue). The reason prices are falling is that builders are constructing smaller homes.

But as the bottom panel shows (green), the price per square foot is as high as ever.

No bear market, just smaller homes. Image
Read 8 tweets
Jim Bianco Profile picture
Nov 25
1/8
Following @deanbaker and @ezraklein ...

Homeowners will not tolerate a "fix" that will lower prices. So, nothing will get done about affordability.
=
What is housing?

* Affordable shelter?
* Piggy bank that funds retirement?

Both cannot be true at the same time.
2/8
For the 50 years following WWII (box), home price gains kept pace with inflation ("real" prices), making housing affordable.

Starting in the late 90s, housing went into wild boom-bust cycles.

This is when housing started to be viewed as a piggy bank to fund retirement. Image
3/8
400 years of real (inflation-adjusted) home prices in Amsterdam show that housing has remained affordable for centuries.

This view began to break down in the late 1990s, as housing became the piggy bank for retirement. Image
Read 8 tweets
Jim Bianco Profile picture
Nov 16
1/4
I assume Marks is referring to the 1-year forward P/E ratio for the S&P 500, the standard Wall Street valuation metric (which is closer to 25 now, but was 23 a few weeks ago).

Here is a long-term proxy for that ... the Shiller Cyclically Adjusted Price/Earnings (CAPE) ratio back to 1881. It is a 10-year average of P/E/ ratios.

At 40, it is one of the highest readings ever, even higher than 1929.Image
2/4
What does it mean that valuations are this high?

The scatter graph below goes back to 1881.

It shows the NEXT (future) 1-year REAL (after inflation) return of the stock market on the y-axis.

The CAPE on the x-axis.

The red box is the returns when the CAPE is above 34. It's a mixed bag of positive and negative returns.
Restated, valuation is NOT a good timing tool.Image
3/4
But if the y-axis is extended to the NEXT (future) 5-year REAL (after inflation) return, then THERE IS NO EXAMPLE, OVER THE LAST 150 YEARS, OF THE STOCK MARKET BEATING INFLATION OVER THE NEXT 5-YEARS WHEN THE CAPE IS ABOVE 34.

Restated, valuation is an expectation tool. Unless one makes the case that corporate earnings are going to have their most significant surge in history, the stock market is destined to disappoint over the next several years.Image
Read 4 tweets
Jim Bianco Profile picture
Nov 7
1/6
The preliminary November University of Michigan Consumer Sentiment Survey was released this morning (blue). The "current conditions" measure of this survey set a new ALL-TIME LOW.

Before 2020 (COVID), the stock market (red) was the primary driver of the public's economic outlook. These two series moved up and down together. Since COVID, this relationship has completely disconnected.

This leads to some uncomfortable explanations.

Half of the country owns no assets and lives paycheck to paycheck. Have they now moved to being angry at a booming stock market that worsens inequality? Is this why socialists are getting elected? Do they want their agenda to knock the market down? Is a bear market now the goal, not the concern?Image
2/6
Why the anger?

Since the COVID recession ended in April 2020, cumulative price increases (orange) have outpaced cumulative wage increases (blue).

This devastates the bottom 50% of wage earners (and especially the bottom 30%) who own no assets and live paycheck-to-paycheck. They are having to do with less.Image
3/6
For comparison, the opposite happened in the 2010s. The cumulative gain in wages (blue) beat the cumulative rise in prices (orange).

In this scenario, the bottom 50% of wage earners were able to make ends meet and maybe get a little ahead, as their paychecks bought a bit more each year.Image
Read 6 tweets
Jim Bianco Profile picture
Nov 2
1/13

🧵on the stresses in the funding markets, why they are happening, and what it means. Be sure to see the last two posts (12 and 13).

Funding rates are rising relative to the Federal Reserve's administered rates (bottom panel arrow).

This signals stress in funding markets. Image
2/13

Another signal of stress is that the Fed's Standing Repo Facility (SRF) is getting used regularly, a new record on Friday.

If money is too expensive, banks can borrow from the Fed at 4.00%.

Note that only 40 banks are counterparties, no broker/dealers, no hedge funds. LimitedImage
3/13

The Fed sees the stress and is ending Quantitative Tightening (QT) on Dec 1.

This will end Fed balance sheet shrinkage and slow the decline in bank reserves, now at a 5-year low.

Lower bank reserves mean banks have less ability to supply funding to the markets. Image
Read 13 tweets
Jim Bianco Profile picture
Oct 28
1/5
JP Morgan has identified 41 AI-related stocks, 8% of the S&P 500. These stocks now account for 47% of the Index's market capitalization, a new record.

The other 459 stocks, 92% of the S&P 500, are 53% of the Index's market capitalization. Image
2/5
The list of the AI-related stocks Image
3/5
ChatGPT was released on November 29, 2022.

Since this date, these 41 stocks have accounted for 74% of the S&P 500's total increase (blue). The other 25% came from the remaining 459 stocks (orange). Image
Read 5 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Don't want to be a Premium member but still want to support us?

Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal

Or Donate anonymously using crypto!

Ethereum

0xfe58350B80634f60Fa6Dc149a72b4DFbc17D341E copy

Bitcoin

3ATGMxNzCUFzxpMCHL5sWSt4DVtS8UqXpi copy

Thank you for your support!

Follow Us!

Send Email!

:(