China is panicking.

In fact, China is showing 2008-like signs as they are on the brink of a severe recession.

Over the last 2 days, China has begun Pandemic-level stimulus, as seen during lockdowns in 2020.

Is China dragging the global economy into a recession?

(a thread) The first signs of weakness came after China’s HY real estate index fell a massive 82% in just over 2 years.

This came as Evergrande, one of China’s real estate giants, filed Chapter 15 bankruptcy.

This put the index back down to 2008-levels, but barely anyone talked about it.

You can't make this up:

Silver is quietly in one of its hottest bull markets of all time, now up 36% in 2024 ALONE.

Like Gold, Silver is trading as if we are in another a major crisis.

But, it's barely getting any attention.

So what's happening to Silver prices?

(a thread) Silver prices, $SLV, are now up nearly 80% over the last 2 years.

This significantly exceed's Gold's 2-year run of 60% and it's up almost 10% MORE year-to-date.

We are seeing 2009-like movement in precious metals but a vastly different economic backdrop.

Interest rates are actually UP since the Fed cut rates last week.

In fact, some products have seen interest rise 20+ bps over the last week, even as the Fed cut rates by 50 bps.

How's this possible?

Here's how we knew the move was coming and capitalized on it.

(a thread) The 10-year note yield, $TNX, has risen from 3.60% to 3.80% in just 6 days.

Since the Fed announced a rate cut, bond prices have gotten crushed.

This comes even as the Fed announced a LARGER than expected 50 bps rate cut.

But why?

What in the world is happening to Gold?

Gold prices are up a MASSIVE 28% in 2024 to a fresh record high of $2,660/oz.

This puts Gold on track for its best annual return since 1979, all while the Fed is calling for a "soft landing."

Is Gold telling us something?

(a thread) If Gold closed at its current price on December 31st, it would post its best year since 2010.

However, if the current pace of the rally continues, Gold could see its best year since 1979.

That's when gold rose 126% in a single year.

Gold is trading like we are in a crisis.

Something doesn't add up here:

This week, the Fed started rate cuts with a 50 basis point cut for the first time since 2008.

Even 1 week prior to the decision, market odds overwhelmingly supported at 25 basis point cut

Was the Fed pressured into a larger rate cut?

(a thread) Here's a graphic summarizing market expectations of the Fed meeting outcome on Wednesday.

1 week before the meeting, markets saw a 70% chance of a 25 basis point rate cut.

Even 24 hours before the decision, odds of a 25 basis point cut were as high as 72%.

It's official.

The Fed has kicked off the interest rate cut cycle with a 50 basis point rate cut.

This is only the THIRD time in recent history that the Fed has started rate cuts with a 50 bps cut.

The previous 2 times, the economy crashed.

Is this time different?

(a thread) The 2 previous times were in 2007 and 2001.

As shown in the returns table below, those were the rate cut cycle with negative 1 and 2-year return in the S&P 500.

In 2001, the market fell 31% after 2 years and in 2007 the market fell 26% after 2 years.

These were major crises.

It's officially Fed day.

Markets are heading into the most divided Fed meeting since 2008.

The majority of investors think that the Fed should cut interest rates by 50 basis points today.

But here's why history says you DON'T want a 50 bps rate cut.

(a thread) Currently, 65% of investors believe that the Fed should cut interest rates by 50 basis points.

Over the last 40 years, there have only been 2 times that the Fed started with a 50 basis point cut.

Both times, it did not end well for the S&P 500.

The countdown begins:

We are now less than 24 hours away from the Fed interest rate decision.

Markets are divided, with a 60% chance of a 50 basis point rate cut and a 40% chance of a 25 basis point cut.

Here's why a 50 basis point rate cut would be HISTORIC.

(a thread) Since the 1980s, 25 basis point rate cuts have become the Fed's preferred course of action.

In fact, only 2 interest rate cut cycles have BEGUN with rate cuts greater than 25 basis points:

1. 2001, during the Dot-com bubble

2. 2007, during the Financial Crisis

Everyone is talking about whether the Fed will cut interest rates by 25 or 50 basis points.

But, what actually happens to the stock market when the Fed starts cutting rates?

History says a large move is coming for stocks.

Here's how you can get ahead of the move.

(a thread) While a 50 basis point rate cut is favored, at a 65% chance, a 25 basis point cut still has a 35% chance of happening.

However, the real secret here is it DOES NOT MATTER in the long run.

Regardless, futures see the Fed funds rate going down to ~3.00% over the next year.

The odds of a 50 basis point interest rate cut this week have gone from 2% to 59% in a matter of hours.

But, there was no new material economic data or guidance from the Fed.

A 25 basis point rate cut was the expectation until a few hours ago.

So what happened?

(a thread) It all started after the Wall Street Journal published the below headline early Sunday morning, at 5:30 AM ET.

This article effectively said that the Fed's short term target rate of 5.25% to 5.50% is too high.

This is the highest Fed Funds Rate since 2001.

Stock markets around the world are crashing right now, but why?

The answer to this question is the Yen carry trade, a term you'll probably hear many times this week.

So what exactly is the Yen carry trade and why did it cause a market downturn?

A thread to explain:

(1/7) It all started after the Bank of Japan (BOJ) decided to raise rates at their most recent meeting.

The BOJ raised rates to ~0.25% in their second rate hike since 2007, effectively ending negative rate policy.

For years, traders took advantage of these ultra low rates.

(2/7)

You can't make this up:

New evidence suggests the Bank of Japan INTERVENED on Monday when the Japanese Yen crashed.

At 9:30 PM ET on Sunday night, the Japanese Yen weakened to 160 against the US Dollar for the first time since 1990.

Then, exactly 2.5 hours after the headlines came out, the ratio just crashed from 160.20 to 156.50.

Today, the BOJ said its current account will fall 7.56 TRILLION YEN, or $48.2 billion USD, more than TRIPLE previous expectations.

Did the BOJ just artificially prop up their currency minutes after it collapsed?

Something didn't add up.

(1/5) That's when we posted the below asking if "someone just intervened?"

It simply didn't make sense that the currency crashed just minutes after hitting the 160 threshold.

The latest data suggests that the Bank of Japan (BOJ) intervened on Monday.

(2/5)

December 13th, 2023, the day that the Fed made its biggest mistake:

This was arguably worse than the Fed's 2021 call that inflation was "transitory."

The Fed seemingly declared victory against inflation and we are now paying the price.

What was the Fed thinking?

🧵 (1/10) To better understand what happened here, we must first look just a couple weeks prior to the clip above.

Just 2 weeks before their Fed meeting, on December 1st, Powell said:

Talking of cutting interest rates are "premature."

This came with little surprise to markets.

(2/10)

BREAKING: Average home payment for a homebuyer hits a record $3,322/month, according to WSJ.

Meanwhile, the average cost to rent a home is at a record $2,184/month.

It is now less affordable than any time in history to buy a home in the US.

This is a crisis.

(a thread)

1/11 Here's a chart showing the monthly payment on a new mortgage versus renting.

At $3,322/month, a homebuyer would be spending ~$40,000/year on home payments.

That's ~67% of the median POST-TAX household income.

Renting costs ~$26,000/year or ~43% of median post-tax income.

2/11

It's the first day after a 2-week Fed blackout.

The first comment after the blackout ended was by NY Fed President Williams.

He said the Fed is NOT talking about rate cuts now.

This is the exact OPPOSITE of what Powell said on Wednesday.

The Fed messed up.

(a thread)

1/10 What is a Fed blackout?

It's a period of time around Fed meetings where Fed members are restricted in speaking about Fed policy.

This is designed to limit conflicting messages and market confusion around Fed meetings.

The blackout period ended yesterday at midnight.

2/10

JUST IN: Users on X are reporting mass cancellations of Disney+, $DIS, subscriptions after Elon Musk interview.

Within just hours of Elon Musk's interview, thousands of users have posted screenshots of cancelled Disney+ subscriptions.

In addition to Disney+, users are reporting cancellations of Paramount Plus and others.

This comes after Elon Musk accused some advertisers of blackmailing X with advertising money.

Disney's CEO, Bob Iger, was specifically called out.
Since its 2021 high, Disney, $DIS, is down ~53% and has erased ~$180 billion in value.

As streaming becomes more competitive Disney+ has been facing pressure.

Disney's next earnings call should be interesting.

Follow us @KobeissiLetter for real time analysis as this develops.

In May, we saw credit default swaps spike sharply as fears of a US default increased.

The swaps jumped ~120% in 2 months and then fell ~70% after the debt ceiling crisis "ended."

Here's the chart for these same credit default swaps.

The swaps are now up ~60% since June even as we continue to hear that the debt ceiling crisis is over.

On Friday, Moody's cut their US credit outlook from stable to negative.

This comes just a couple months after S&P cut their US credit rating for the first time since 2011.

Deficit spending is out of control.
Since the debt ceiling "crisis" ended, total US debt is up over $2 trillion.

Since 2020, total US debt is officially up more than $10 TRILLION.

In 2024, we will have the first ever year with $1 trillion+ in US interest expense.

Interest is now our second largest expense.

Something is happening in the San Francisco real estate market.

Take a look at this house listed for sale.

In 2015, the owner purchased the property for $1.4 million, 27% ABOVE the asking price.

Now, 8 years later, the property is listed for $1.1 million, 22% BELOW what the owner paid for it.

This homeowner now has "negative equity" which is a growing trending impact 1.2 MILLION homeowners in the US.

Could this be the beginning of a bubble bursting?
According to Corelogic, 1.2 million mortgages are now "underwater."

Homeowners with mortgages (63% of all properties) saw equity decrease by of $108.4 billion over the last year.

In California, the average home lost $60,000 in equity in just 1 year.

This is not sustainable.

BREAKING: Crude oil prices rise above $87.00 for the first time since November 2022.

Saudi Arabia just announced they will be extending production cuts of 1 million barrels per day until January 2024.

In less than 3 months, oil prices have gained a massive ~31%.

The last time oil neared $90, the US Strategic Petroleum Reserve (SPR) had 250 MILLION more barrels of crude oil.

What happened to refilling the SPR?
In October 2022, the Biden administration announced its intent to refill the SPR.

A statement from the White House said they plan to make purchases when oil prices are " at or below $67 to $72 per barrel."

Since then, the SPR remains at its lowest levels since 1983.

JUST IN: US New Home Sales jump 4.4% in July, now up a MASSIVE 31.5% over the last year.

Meanwhile, existing home sales are down 16.6% over the last year, biggest drop since 2010.

High rates made it too expensive to sell.

People are "trapped" in their houses.

(a thread)

1/9 New home sales are skyrocketed as interest rates jump to a 23-year high of 7.5%.

The 4.4% jump in July was well above expectations of 1.0%.

As rates rise, people do not want to sell their homes.

Many people have locked in historically-low mortgage rates.

2/9

Existing home sales just fell 2.2% in July, putting existing sales down 16.6% over the last year.

Now, existing homes sales are at their lowest since 2010.

We are about to see new home prices drop BELOW existing home prices for the first time since 2005.

Truly historic.

(1/7) According to Zerohedge, this puts the Seasonally Adjusted Annual Rate (SAAR) at its lowest since 2010.

To put this in perspective, even during the pandemic lockdowns, existing home sales did not drop this low.

This housing market truly is making some historic moves.

(2/7)