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Andy West, PhD

@andycwest

Feb 5

WHATS HAPPENING WITH US EMPLOYMENT / PAYROLLS and implications
a thread:

1/x

After a +517k Jan 23 payrolls & resilient employment mth after mth despite a year of rate hikes, whats really happening & does it mean soft landing?

read on

#macro #unemployment #stocks $SPY $QQQ

2/x I'm not delving into statistical adjustments, this is about the real backdrop & whats driving overall trends. From that I'll draw some clarifying conclusions.

Here's the recent payrolls numbers charted. The trend shows payrolls normalizing down from elevated levels w/ chop

3/x Why were they elevated at the beginning of '22? Its all about the re-hiring of workers laid off during COVID. This is still on going.

The Chart shows US Total Employed. The US shed ~15% of its workforce as COVID hit and only recently surpassed 2019 levels, now +2% vs then.

Read 17 tweets

Andy West, PhD

@andycwest

Dec 20, 2022

PREPARE FOR HIGHER VOLATILITY:

Important 🧵:

We’ve had a bear mkt rally which has now failed and partially unwound. Brief Santa rally or not, the following chart pack tells a clear story of impending volatility:

#macro #stocks $SPY $QQQ

Financial conditions:

This chart isn’t a mirror image - it’s the GS Fin Cond index against the #SPX. I’ve been tweeting updates on this for 6 mths because when conditions tighten, #stocks roll. Once again the Fed and now BoJ have triggered the tightening needed for inflation 🧯

Yields:

10 year yields are on the rise again with added fuel from the BoJ pivot yesterday. As the benchmark the risk free rate, this is negative for #SPX in the near term

Read 9 tweets

Andy West, PhD

@andycwest

Dec 14, 2022

#Fed day: the down/up reaction of #stocks shows something here for both hawks & doves.

For me (looking ahead), the Fed faces a dilemma in 1H '23. Cool/negative goods/energy inflation but still strong wage gains given tight labor.

Headline CPI...
#macro

will fall (particularly in Q1), potentially to even ~5% by March data, but wage gains will see medium term services & core inflation drivers inconsistent in the Fed's lens with a sustainable return to 2-3% target.

So Mr Mkt is saying based on history, the Fed never keeps...

rates at peak for long (ie the market assumes rate cuts soon after the peak).

But we need to consider that perhaps this time, with the labor pool down due to COVID and structural labor tightness, the #Fed may be FORCED to keep rates at the peak plateau for longer...

Read 10 tweets

Andy West, PhD

@andycwest

Nov 14, 2022

Updated Inflation, rates outlook & prospects for #bonds and #stocks:

We're moving into a new phase of disinflation from here. This is what I expect to see unfold: Update 🧵:

#macro $SPY $QQQ #inflation

Back in early August I wrote that we were about to experience a surge in core inflation into end Q3.

At the time #stocks had rallied strongly and this presaged another pullback given it meant the #Fed had to be more hawkish.

I was a touch early w/ mths:

https://twitter.com/andycwest/status/1557110837059325952?s=20&t=3Ezw1vdqQ1s372hDh4O60A

This played out and I've posted my multi-factor inflation model for US CPI previously. It shows #inflation moderating quickly in mid 2023:

Fair to say this generates skepticism. The narrative is once CPI >5% it stays there for > 2 years. Well where to now?

Read 13 tweets

Andy West, PhD

@andycwest

Oct 26, 2022

$GOOGL: I honestly don't even know where to start in breaking down this disaster of a quarter from $GOOG (and no, I'm NOT short, except by way of sector ETF).

Read the usual bulge bracket broker reports and you'd think this is ok. Its NOT and here's why

a 🧵:
$QQQ $SPY

First - is this rev growth a pass or fail? Simply - BIG fail. Here's the internet advertising price growth chart from HedgQuarter's Info Tech Sector Drivers dashboard

Ad prices are still up 10-20% YoY so the 10% rev growth for search ads & 3.8% for YouTube is abysmal.

2nd - are costs being managed? If you were the owner of a business whose mgt grew its headcount by 20% while in the last 2 Qtrs your net revs grew 12% & 7%, I think you'd have a few choice words.

$GOOG mgt bought their own B/S and chowed down. They thought it would last 4ever

Read 6 tweets

Andy West, PhD

@andycwest

Oct 19, 2022

PART 2 of 2 - Bond crash implications for stocks:

Why does the #bonds crash signal further pressure for #stocks?
(& why do rate hikes take so long to show in earnings?)

Here I deal with general corporates, consumer & the banks:
$SPY $QQQ #macro

CORPORATES:

As cost of capital rises, the direct impact on corporate earnings starts small then builds. The direct impact of higher rates on corporate borrowings can be estimated to be only approx -2-3% on EPS extra each year due to termed out debt at past low rates. But

about 20% of debt gets refi’d each yr so this builds to a more material headwind over 12-24 mths.

WORKING CAPITAL EFFECTS

Working capital terms start to get tightened by companies as rates rise. Due to WC debt costs (mainly floating rates), companies are forced to offer

Read 21 tweets

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