The Everything Code TL;DR.

The labor force participation rate isn’t going to rise anytime soon – it’s set to keep declining over time. This is a structural problem…

We’ve got aging demographics, falling birth rates, and now the rise of automation.

Humans are already being replaced by AI and robots at a staggering pace, and that shift is only just beginning. This is deflationary.

It also reinforces the need for ongoing stimulus to keep the system afloat.

Fewer workers. More tech. Same debts… The log regression channel says the same:

The labor force participation rate will continue to decline over time…

Latest SLOOS reported fewer banks tightening credit standards on C&I loans.

Yes, conditions remain tight but what’s important here is that the worst of the tightening is behind us and this is what equities started to price in back in Q4 ‘22 when the liquidity cycle bottomed… 1/ Remember, SLOOS just equals current ISM…

Let’s talk US bank lending, the latest chart to dominate FinTwit macro bear feeds…

Yes, bank lending standards leads bank lending activity, but bank lending is an extremely lagging indicator and the market generally tends to look through the actual tightening…

A thread 🧵 The “credit crunch” that everyone is talking about IS coming…

But, to highlight just how lagging this data actually is, I have added recession bars to the chart.

Bank lending always bottoms WELL after the recession is already over…

Bears really coming out of the woodwork on March Philly Fed data…

I think it’s the wrong take.

A lot of people are using the 1970s as the period most similar to today…

Some are using 2000 or 2008…

We’re using 1990.

It’s a near perfect fit. Let me show you…

A thread 🧵 Back in 1990, CPI rose to 6.4% year-on-year (near ten year highs at the time), igniting fears that the 1970s were returning with a vengeance…

Sound familiar?

Just stumbled across a super interesting chart during my weekly GMI database refresh…

For the first time in ten months, commodity prices are trading pretty much bang on fair value.

Our GMI Fair Value index had been suggesting ~20% YoY downside, but the gap has finally closed…

https://twitter.com/BittelJulien/status/1555497329947545602

This is also interesting when you take into account that ISM New Orders minus Inventories is likely in the process of bottoming and leads commodity prices by seven months.

Early days still but something to have on your radar. Probably more a story for H2 2023. Let’s see…

Jan US CPI report: Let’s discuss…

A short thread 🧵 If you look at the Atlanta Fed's measure for "Flexible" CPI, so basically commodities ex. food and energy (i.e. household supplies, appliances & clothing), the measure has done a full round trip: 19.7% in Feb 2022 to just 0.1% in Jan…

OECD data update for December:

The % of OECD countries with rising lead indicators MoM is down to 41%…

Lowest monthly print since April 2020.

1/4 The main driver of this slowdown has been China…

The China Credit Impulse leads global growth momentum by 6 months.

This suggests the slowdown has further to go, but December data out of China is encouraging.

Not out of the woods yet, but heading in the right direction…

2/4

Re: copper/gold ratio... clock’s ticking... Same for equities vs. bonds...

The dollar is looking very oversold.

I still think a stronger dollar will be a key theme to watch out for in 2021. Speculators are back to being near record short DXY as a % of total OI.

According to the latest BofA FMS, EM equities are projected to be the best performing asset class in ‘21.

Building a bear case:

-Overbought sentiment
-Crowded reflation positioning
-US fin. conditions at record lows
-Econ. surprises at record highs

Let’s look at some charts. While there’s still room for a further rise in EM PMIs into year-end, the % of EM OECD countries with rising lead indicators MoM is down to 67%, from 100% in July.

There is a 6M lead which means we should peak out by early next year.

Something to keep an eye on.

Just a couple of interesting US bond market observations from your friendly neighbourhood bond bull to close out the week.

1) Long duration bonds (TLT) are still looking like they’re setting up for their next big move higher. 2) A close below long-term support would be a clear negative, but for the time being we continue to hold.

ISM Manufacturing New Orders rose to 67.9 in October, their highest lvl since Jan ‘04.

While quite a few US macro indicators continue to track an ‘01 analog (NFIB, consumer conf., heavy truck sales, etc.), it’s interesting to see how closely ISM NOs are mirroring the early 80’s. Even the magnitude of the move is identical: a 40pt rise over 6M.

Back then, this marked the peak & what followed was a 12M decline in new orders from Nov ‘80-Nov ‘81.

Equities officially bottomed in Aug ‘82, which was the true cycle low & an 8Y bull mkt in equities started.

A rise in the US UR of >0.5% off 24M rolling lows has been the 100% threshold for recession. This has historically corresponded w/ deep equity bear mkts. In ‘01/‘08, equities went on to fall another 35%/50% after the signal. Strategic buying opportunity for equities? Not yet imo. Here is the long-term chart of the US unemployment rate deviation from 24M rolling lows. A monthly close above 0.5% has a 100% track record over 70Y at signalling a recession.