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As Recession Noise Grows, Recession Signal Is Fading

As Recession Noise Grows, Recession Signal Is Fading

Authored by Simon White, Bloomberg macro strategist,

The clamor for a US recession has…



As Recession Noise Grows, Recession Signal Is Fading

Authored by Simon White, Bloomberg macro strategist,

The clamor for a US recession has grown louder in recent weeks, but forward-looking data shows the risk of one is easing not rising.

Despite the abrupt turn in the mood music in recent weeks it is looking increasingly likely the official arbiter of US recessions, the National Bureau of Economic Research, won’t call one, leaving stocks priced for too negative an outcome.

Warning sounds about a US recession have been growing louder. But that has been fueled by principally lagging economic data telling us where the economy’s been, not where it’s going next. Leading data is inflecting higher, suggesting the US may skirt a NBER-recession for most of next year.

Academic disputes are said to matter so much as they mean so little. The same can be said for recession prediction — after all, it’s what the market does that ultimately counts for investors. Nonetheless, the recent flurry of recession chatter deserves a reply, as a close look at the data shows that a slump in the medium term is no longer the base case.

I come at this as a soft-landing skeptic. Multiple reliable data points had been pointing toward a recession, but there is now enough contrary data to sow sufficient doubt.

Before going any further we have to set the terms of reference. It can be argued the US has experienced or is already in a recession, for instance by looking at GDI, manufacturing, goods GDP, or earnings. But with no hard-and-fast definition of an economic contraction (the technical definition of two-consecutive quarters of negative growth is too simplistic), having a referee in the NBER is the best option.

The downside is the NBER doesn’t announce recessions until after they have started, and thus is impractical for investors in real time. The utility instead comes from noting that the times the NBER deems to be recessions are when stocks have experienced their worst downturns — thus trying to figure out ahead of the NBER when there will be a contraction can save investors from considerable losses.

Since March this year, the S&P has been trading as if an NBER-recession will be avoided. Lately stocks have sold off, but they are still a long way above the median S&P in bear markets that had a recession (the blue line in the chart below). That means there is still sizable downside risk today if there is a downturn; but equivalently there is the risk from missed opportunity as stocks could eclipse their recent highs, or more, if a slump is avoided.

NBER recession dating is not an exact science. As the bureau itself puts it, “there are no fixed rules or thresholds that trigger a determination of decline.” But the research body requires a recession be durable, diffuse and deep. It also gives four of the key variables it uses as recession determinants:

  • real personal consumption expenditure (PCE)

  • payrolls

  • industrial production

  • real personal income net of transfer payments

Let’s start there. In the chart below we can see the four series over the last 50+ years. All of them contracted on an annual basis at some point during each NBER recession since 1970, apart from the one in 2001, where real PCE didn’t contract (recessions are vertical gray bars in the chart below).

Zooming in to the present in the next chart, we can see that none of the four indicators are currently contracting. Industrial production is flat-lining around zero, payrolls growth is turning lower from a high level, while real PCE and real personal income are positive and have been rising.

Not only is the NBER very unlikely to call a recession based on the current state of play, leading data shows that is unlikely to change in the next 6-9 months.

All four indicators are coincident-to-lagging, and most of them are released with a delay.

That’s why we must turn to leading data series to pre-empt the NBER. It is increasingly pointing in the direction that the current slowdown won’t last quite long enough (have the duration) or fall hard enough (have the depth) to trigger an NBER recession.

First, there is the recent upturn in the manufacturing ISM, which anticipates that industrial production should soon recover. October’s ISM disappointed to the downside, and if sustained this would cause some concern. But leading data for the ISM, such as the rising new orders-to-inventory ratio and the steepening in the global yield curve (shown below), intimate the ISM has bottomed and should continue its rise.

Second, there is the strong upturn in the US Leading Indicator (composed of leading data series such as building permits), which points to a continued rise in real retail-sales growth, and thus real PCE.

Third, real wage growth has been growing positively, keeping real income less transfer payments supported. However, of the four indicators, real income faces the most downside risk. Leading indicators for wages are rolling over, pointing to lower wage growth next year.

Finally, an inflection lower in the annual growth of unemployment claims points to eventual support for payrolls growth. WARN data (which leads claims) is also now flat again, indicating any claims growth should be contained. The jobs market should continue to slow, but leading data is showing the slowdown may not be of sufficient depth for the NBER to deem it recession worthy.

None of the indicators are screaming recession. The NBER has stated it gives more weight to real income growth and payrolls in its assessment, but even if these two end up contracting, the data is showing that the other series do not look like following them down soon. Remember, the bureau has never called a recession in the last 50 years when fewer than three of the four indicators have been contracting, and then only once.

Instead, the biggest risk to a soft landing come from two other factors: geopolitical, and credit.

I won’t dwell on the first - an unexpected escalation in global hostilities would likely hit sentiment enough to tip the US into recession.

Credit is the biggest endogenous risk facing the economy and the market. Bankruptcy filings and charge-off rates are rising, indicating underlying stress not reflected in credit spreads. Moreover, the opacity in rapidly growing private-credit markets is becoming a greater concern. Credit should be monitored closely as a fast unraveling would swiftly take the economy into recession territory.

Until then an NBER-recession looks less likely than so over the next 6-9 months. Which is not how the situation looked earlier in the summer. Abnormally high fiscal deficits; the asynchronous recovery after the pandemic disrupting the traditional interplay between the goods and services economy; and money illusion to a degree most haven’t experienced before are all factors why this time is not following the usual script.

When the leading data turns sufficiently down, the NBER will make a recession announcement in due course. But we are unlikely to hear from them for a while yet.

Tyler Durden Thu, 11/09/2023 - 12:25

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Ethereum Spikes On BlackRock ETF Filing, “Heavily Institutional” Buying Sends Bitcoin Soaring

Ethereum Spikes On BlackRock ETF Filing, "Heavily Institutional" Buying Sends Bitcoin Soaring

Update (1230ET): Shortly after Bitcoin’s huge…



Ethereum Spikes On BlackRock ETF Filing, "Heavily Institutional" Buying Sends Bitcoin Soaring

Update (1230ET): Shortly after Bitcoin's huge surge overnight, Ethereum started to spike, reversing recent weakness vs Bitcoin...

The surge takes Ethereum to its highest since April...

With market participants pointing to BlackRock's filing for an Ethereum Trust ETF...

*  *  *

Bitcoin prices have exploded higher overnight, nearing $38,000, with the renewed bullish tone attributed to a combination of factors, including resurgent institutional interest, growing adoption, and a favorable macroeconomic climate.

Source: Bloomberg

For context, this price move has now erased the losses since the Terra stablecoin crisis 18 months ago...

Source: Bloomberg

As CoinTelegraph reports, while not expected until 2024, today, Nov. 9, marks the start of the period during which the long-awaited spot Bitcoin ETF approval announcement from regulators could theoretically come.

“We still believe 90% chance by Jan 10 for spot Bitcoin ETF approvals,” James Seyffart, research analyst at Bloomberg Intelligence, wrote on the topic.

“But if it comes earlier we are entering a window where a wave of approval orders for all the current applicants *COULD* occur.”

Reacting to Seyffart, financial commentator Tedtalksmacro agreed.

“BTC sure is trading like an ETF decision is due any moment,” part of his own commentary read.

However, Bloomberg's Seyffart noted that even if 19b-4 is approved, an S-1 approval could take weeks or months between approval and launch.

A total of 12 asset managers have filed for a spot Bitcoin ETF with the SEC.

Additionally, short-sellers might be exiting positions, fueling the move higher.

As CoinDesk reports, data shows just under $50 million in liquidations occurred in a four-hour period during early Asian trading hours, creating a "short squeeze"

Most notably, as Goldman Sachs' Crypto team points out, initial market data suggests that market activity was heavily institutional with four main indicators:

1. In October, we saw approximately $437m of inflows into BTC exchange - traded products (Bloomberg). On a weekly basis, BTC-based digital asset investment products led the largest single-week inflows into crypto funds since July 2022, for the week ending 27 Oct 2023. BTC-based funds accounted for 90% of the total crypto fund inflows, totaling $296m ( Bloomberg ).

2. Most noticeable change was on CME, where Bitcoin futures open interest notched to an all-time high of 20,369 contracts on 25 Oct 2023 ( CME Group ), and 6 of the top 10 open interest days for bitcoin futures occurred between 20 and 27 Oct 2023. Total open interest on CME hit $3.58b on 30 Oct 2023. In October, CME surpassed the 100k BTC mark for the first time, overtaking Bybit and OKX to rank second behind only Binance ( CoinDesk ) among exchanges offering standard Bitcoin futures and perpetual futures. The daily traded volume for the front 3 - month expiries on CME also notched a YTD high of 25,185 contracts on 25 Oct 2023

3. In addition, the open interest across BTC options also reached an all - time high of $15.4b on 27 Oct 2023 ( The Block Data

4. On - chain activity remains muted relative to rest of the year, with daily active address count of 1.1m (vs 950k addresses (annual average in 2023) ( Coinmetrics ) and DEX to CEX spot trade volume at 13% (vs May’23 21%) ( The Block Data ).

James Van Straten, research and data analyst at crypto insights firm CryptoSlate, wrote in part of his latest research, referencing data from on-chain analytics firm Glassnode, which showed U.S. buyers sustaining the rally.

“Americans carrying this thing,” William Clemente, co-founder of crypto research firm Reflexivity added.

The $37,000 milestone sets up the more significant $40,000 psychological barrier to be broken, instilling a renewed sense of optimism in the cryptocurrency community.

“It’s always gonna be this” way, said Zaheer Ebtikar, founder of crypto fund Split Capital.

“People can’t help it. [Crypto] is literally the most FOMO industry ever.”

Meanwhile, Ethereum is also soaring higher, touching $2000 for the first time since July as interest in DeFi, and more specifically 'yield farming' begins to emerge once again...

As Bloomberg reports, yield farming was once a popular method for crypto projects to bootstrap new users in a short amount of time. It was especially popular in the ultra-low-interest-rate environment during the Covid-19 pandemic. That changed when crypto prices tumbled and traditional interest rates rose. 

“It just took the industry a bit of time to adjust to a regime of high tradfi yields with low crypto volumes, and being able to create competitive product in that space,” said Leo Mizuhara, founder and CEO of DeFi institutional asset manager Hashnote. Tradfi is a popular term used to describe traditional finance.

The surge in ETH has reverted its recent weakness against BTC...

As we tweeted on Oct 20th, the ETH/BTC cross was at a critical support level and today's price action suggests a push back above that...

The key question on investors’ minds now is whether the market has structurally changed?

Tyler Durden Thu, 11/09/2023 - 12:35

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Millennials face this frightening financial reality

It’s not just inflation that’s turned millennials’ budgets upside down.



Inflation has been busting all budgets, but something worse has put millions of millennials in the financial hot seat. 

What happens in the coming year could be critical to whether younger Americans can make ends meet or suffer a financial reckoning.

Millennials are increasingly financially strapped.


Soaring inflation isn't the only problem

Everything from lattes to used cars costs more than it did only a few short years ago when covid-era policies lined pockets with stimulus money.

But inflation, while onerous, is less of a problem this year. At its peak, the Consumer Price Index, one of the most common inflation measures, was up more than 9% year-over-year in 2022. It grew by a much more manageable 3.7% in September.

Related: Dave Ramsey has bold advice on a major money strategy now

While slower inflation is good news, millennials aren’t really doing any better financially. Slowing inflation should offer millennials an opportunity to catch up, but that’s not happening.

According to the Bureau of Labor Statistics, real wages, or pay minus inflation, are negative, so households are still losing ground.

Given that higher costs are still outpacing paychecks, millennials are forced to tap savings or, worse, credit cards to make up the difference.

Unfortunately, much of the savings they stashed from stimulus payments during the covid lockdowns has already been spent. As a result, credit cards are increasingly doing the heavy lifting.

But the reality is that those mounting credit-card balances have put millennials in the worst financial shape of any generation.

According to the New York Fed’s Quarterly Report on Household Debt and Credit, millennials, whom the Fed defines as those born 1980 to 1994, are struggling the most to make increasingly larger credit card payments.

The report says Americans’ credit-card balances in Q3 increased by $154 billion from one year earlier, the largest increase since it began reporting these numbers in 1999.

More personal finance:

Americans now owe $1.08 trillion to credit-card issuers, but it’s not just bigger balances that have millennials struggling.

Interest rates are higher and burdensome

The Federal Reserve has increased the federal funds rate by 5.25 percentage points since March 2022 to slow inflation. Those hikes are working, but they’ve come at a stiff cost to borrowers. 

Banks are spending more to finance loans and as a result, they’re charging cardholders more to protect against the risk of defaults.

The result is that the average credit card carried an interest rate of 21% in the third quarter, up from below 15% in Q1 2022, according to WalletHub.

The harsh reality is these higher rates on bigger balances are driving increasingly more millennials behind on their payments.

While baby boomers and Gen X are doing better, millennials' delinquency rates are now above prepandemic levels. Those with balances above $20,000 and credit-card borrowers with student loans and auto loans have the highest delinquency rates.

That's unsurprising given the average cost of a new car is over $48,000, up $10,000 since September 2020, according to Consumer Reports and Kelley Blue Book. Student-loan payments had been paused because of policies put in place during the covid pandemic, but those payments restarted in October.

Major credit card issuers are already feeling the pinch. Discover DFS recently disclosed that its charge-off rate last quarter climbed by 1.8 percentage points from a year earlier to 3.5%. The situation is similar at Capital One COF. Its charge-off rate averaged 4.4% in Q3, well above the 3.9% rate recorded in September 2019 before covid.

Delinquent payments cause ripple effects

If bigger bills mean more millennials fail to make payments on time, it could have significant ripple effects. Delinquency and default can significantly lower credit scores, making home buying even more challenging.

As it stands, millennials are already behind when it comes to purchasing homes. According to Apartment List, just 42% of millennials owned homes by age 30, versus 51% of baby boomers.

The median home listed for sale was priced at $425,000 nationwide in October, according to That's up 13% from a year earlier and significantly above 2018 when prices were below $300,000. 

Meanwhile, the average 30-year mortgage rate is flirting with 8%, the highest in more than 20 years. The National Association of Realtors reports that home affordability is the worst since at least 1989. 

The combination of mounting credit card debt borrowed at sky-high interest rates, student loan payments restarting, and housing unaffordability at lows could mean millennials are caught in a financial spiral that won’t be easily fixed.

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Consumer favorite retailer files for Chapter 11 bankruptcy

A major provider of party supplies has filed for Chapter 11 bankruptcy seeking to sell its assets.



Retail suppliers are essential to the survival of retailers, since without adequate inventory to sell, stores can't generate necessary revenue to remain in business. Suppliers occasionally have hard times and sometimes need to file bankruptcy to stay afloat. Some of those suppliers will reorganize and continue operating. Others will sell their assets to a new operator or may have such severe financial distress that they will need liquidate and go out of business.

Fresno, Calif.-based Prima Wawona, the nation's largest peach producer that supplies grocers like Walmart and Kroger KR, filed for Chapter 11 on Oct. 13 seeking to sell its assets to its lenders or a third party buyer. The debtor's lenders have agreed to allow the company to use its cash to fund operations and keep paying vendors and suppliers while the bankruptcy case proceeds.

Related: Beloved fast-food chain files for Chapter 11 bankruptcy

Instant Brands, maker of Instant Pot, Corning and Pyrex kitchenware, filed for Chapter 11 in June to seek a sale of its assets. The company, which sells its products to numerous retailers, including Walmart and Target TGT, reached an agreement in bankruptcy to sell its assets to private equity firm Centre Lane Partners. The deal is expected to close in the fourth quarter. 

Party supply retailer Party City filed Chapter 11 in January to restructure its debts after rising inflation, supply chain issues, a helium shortage and fallout from the Covid pandemic caused financial distress. The retailer emerged from bankruptcy in October. One of Party City's suppliers also ran into some financial distress that led to a bankruptcy filing.

Anagram Balloons seeks sale in Chapter 11

Party City's affiliate and a top supplier Anagram Balloons on Nov. 8 filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Texas in Houston seeking to sell its assets to its first-lien note lenders. The company listed $100 million to $500 million in assets and liabilities in its petition.

The Eden Prairie, Minn., balloon retailer manufactures and sells foil balloons and inflated décor domestically and internationally to party supply specialty stores, grocers, mass marketers, parks, drugstores and discount variety stores. The wholly owned subsidiary of Party City provides products directly to retailers like Walmart WMT, Dollar Treen DLTR and Canadian Tire and through domestic and international distributors. The balloon maker was not a debtor in Party City's Chapter 11.

Anagram currently employs about 350 employees and operates a 500,000 square-foot manufacturing, production and distribution facility.

Anagram has faced financial distress resulting from unsustainable debt on its balance sheet, lingering effects from the Covid-19 pandemic, global inflation and helium shortages that put strain on its balance sheet. Party City had filed a motion to reject Anagram contracts in its Chapter 11 case, but it did not follow through with that motion. Anagram sought a restructuring solution with its creditors, but was unable to reach a consensus on a reorganization transaction, according to a declaration from the company's Chief Restructuring Officer Adrian Frankum of Ankura Consulting Group. 

Debtor Anagram Holdings filed a motion seeking $22 million in senior secured debtor-in-possession financing with $10 million available immediately on approval of a interim order in order to fund the bankruptcy case and sales process. The remainder would be available on final order approval. It also seeks a $15 million first-lien asset-based loan facility from its prepetition ABL lender Wells Fargo that will roll up prepetition ABL obligations.

Anagram Balloons seeks a sale of its assets in bankruptcy.

Image source: Shuttertock

Prepetition lenders will credit bid at bankruptcy auction

The debtor's first-lien and DIP notes lender will submit a stalking horse credit bid for the full amount of the DIP and first-lien debt in a Section 363 auction of the company. It currently owes $110 million in prepetition first-lien debt, $84.7 million in Second Lien Note debt and $15 million to Wells Fargo in ABL debt.

The debtor will seek higher and better offers for its assets from potential buyers through a bankruptcy auction that is proposed for Dec. 5. The debtor is proposing to close the sale Dec. 29. A hearing is scheduled for Nov. 17 to consider the debtor's bidding procedures.

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