Could massive monetary support have softened the deep bear market many expected? It is an interesting question. Particularly given the Fed has hiked rates at one of the most aggressive paces in history. Combined with inverted yield curves, surging debt levels, and weak economic data, a recession and bear market seem assured.
I always shudder at the four most dangerous words in investing, “this time is different.“ However, could the massive amount of monetary support combined with trillions in Government spending change historical outcomes?
One of my favorite Twitter follows, @MichaelAArouet, recently posted a compelling question.
“What are the odds that the fastest tightening cycle combined with highest debt/GDP level will end up in a soft landing?”
Here is the chart to support his question.
What is clear is that since 1981, the Federal Government has been on a rampant spending spree. To Michael’s point, low-interest rates supported increasing debt levels, and previous rate hike cycles inevitably ended in recession. Such is logical given that rate increases divert economic spending to debt service.
Such is seen in the chart below, which shows that increased debt levels subsequently lower economic growth rates. (The chart uses data based on CBO projections for debt levels and the BEA projections for potential inflation-adjusted GDP.)
While politicians consistently focus on spending more money to help the citizenry, the outcomes have been far less favorable. As discussed in “Taking Risk Is No Longer Necessary,” since 1982, economic prosperity has shifted from the middle class to the top 10% of income earners.
This shift from the middle class, combined with the massive fiscal and monetary supports of 2020 and 2021, introduces an exciting dynamic concerning Michael’s question. One issue many may be overlooking is that despite higher rates, the economy, and by extension, the stock market, maybe more resilient than expected.
Monetary Support Is Still High
One aspect of monetary support that much of the mainstream media overlooks was the massive Inflation Reduction Act of $1.7 Trillion that was on top of the more than $5 Trillion in direct stimulus payments during the Pandemic era.
Beginning in 2000, the “money supply” as a percentage of GDP grew sharply, with each Administration ratcheting up debt to pay for politically driven agendas. However, in 2020, monetary support changed radically by sending checks directly to households. That resulted in both a “surge” in economic activity and inflation due to “reopening” from an artificially manufactured “shutdown.”
As shown, M2, a measure of monetary liquidity, is still highly elevated as a percentage of GDP. This “pig in the python” still moves through the economic system. The massive deviation from previous growth trends will require an extended time frame for reversion. Such is why calls for a “recession” have been early, and the data continues to surprise economists.
Federal Spending Ramps Up
However, another overlooked aspect of monetary support could keep the economy from a more profound recessionary drag. In 2022 the Biden Administration was finally able to force through $1.7 Trillion in Federal spending in the Inflation Reduction Act. Those funds are getting spent in 2023 to start various projects, which will provide economic support in the near term, regardless of their success or failure.
In the first quarter of 2023, Federal spending increased by 3% on a quarter-over-quarter basis. Using that increase as a baseline, we can project federal spending through the end of the year, which will eclipse $7 Trillion at the current run rate. Of course, if the current Republican-controlled house can negotiate some spending cuts while raising the debt ceiling, that number will decline.
The point here is that while many economists and analysts are predicting a sharp slowdown and recession later this year, which is indeed possible, there is still a lot of liquidity supporting economic activity in the near term.
Is The Worst Behind Us?
As investors, we must ask whether the market suggests the worse is behind us. Since October, stocks have been in a decent rally, with the Nasdaq leading the charge in 2023. That rally is noteworthy because the stock market leads the economy by 6-9 months.
However, this is the dichotomy that investors currently face. We have repeatedly noted the various recessionary indicators such as inverted yield curves, the 6-month rate of change of the Leading Economic Index, and our Economic composite. These indicators have a flawless track record of predicting recessions over time. I have shown both the LEI rate-of-change and the Economic Composite below. As noted, the current index readings are at levels consistent with recessions since 1974.
Given that economic data is primarily lagging, it will be some time before we know whether the current readings coincided with a recessionary slowdown. However, as noted by the two horizontal lines, outside of the 2020 and 2008 recessions, current readings are near levels that previously denoted recessionary lows.
If such is the case, it is possible the recent rally in stocks, a leading indicator, combined with the ongoing monetary supports, suggests we may start to see some improvement in the economic data. If such is the case, then on an inflation-adjusted basis, the corrective market drawdown did achieve historical norms for recessionary periods.
Furthermore, the correction process may be complete as it held critical support at the 200-week moving average. Such remains support for the market since the 2009 lows. Again, if we see some improvement in sentiment-driven and data-driven surveys, such will confirm the market is leading the economic progress.
There are many arguments against the current market rally, given the lag effect of the Fed’s most aggressive rate hiking campaign since the 1970s. Furthermore, those rate hikes, and much tighter bank lending standards, will eventually reduce consumer spending. Such was the point made in “NFIB Sends Recession Alert.” To wit.
“However, tighter bank lending standards have always been a strong “recession alert” signal as it correlates with changes in retail sales. (Retail sales comprise roughly 40% of PCE, which is 70% of the GDP calculation.)”
I am not suggesting the markets, and the economy, won’t potentially struggle in the months ahead. However, we could avoid a deep economic due to the still massive amounts of monetary support in the system.
These competing forces will make investing more difficult until those monetary excesses reverse.
One thing is for sure. The volatility we have seen in the markets over the last year will likely continue. Investors should expect lower rates of future returns. Of course, that will result from much less monetary support and lower economic growth rates resulting from increased debt levels.
But that is an article for next time.
The post Monetary Support Suggests Bear Market Is Possibly Over appeared first on RIA.recession pandemic stimulus economic growth reopening nasdaq stocks fed recession gdp interest rates consumer spending stimulus
Bitcoin price must break $31K to avoid 2023 ‘bearish fractal’
BTC price needs to recoup some more key levels before ditching longer-term bearish risk, the latest Bitcoin analysis says.
BTC price needs to recoup some more key levels before ditching longer-term bearish risk, the latest Bitcoin analysis says.
Bitcoin (BTC) held above $30,000 at the Oct. 23 Wall Street open as analysis said BTC price strength could cancel its “bearish fractal.”
BTC price preserves majority of early upside
The largest cryptocurrency made snap gains after the Oct. 22 weekly close, stopping just shy of $31,000 in what became its highest levels since July.
Now, popular trader and analyst Rekt Capital is keen to see the $31,000 level break.
“Bitcoin has Weekly Closed above the Lower High resistance to confirm the breakout,” he commented alongside the weekly chart.
Rekt Capital argued that BTC/USD could disregard the bearish chart fractal in play throughout 2023 next. This had involved the two year-to-date highs near $32,000 forming a doubletop formation, with downside due as a result.
Specifically, Bitcoin requires a “breach” of $31,000 in order to do so.
#BTC— Rekt Capital (@rektcapital) October 23, 2023
Is Bitcoin on the cusp of invalidating the Bearish Fractal?
Here are the Bearish Fractal Invalidation Criteria:
a) Bull Market Support Band holds as support ✅
b) Weekly Close beyond Lower High resistance ✅
c) Breach of $31k yearly highs ❌$BTC #Crypto #Bitcoin https://t.co/4H3OMiDzFB pic.twitter.com/mjoO8OF1Qs
More encouraging cues came from the True Market Deviation indicator from on-chain analytics firm Glassnode.
As noted by its lead analyst, Checkmate, on Oct. 23, the metric, also known as the Average Active Investor (AVIV) profit ratio, has crossed a key level.
Bitcoin’s True Mean Market price (TMM) — the level that BTC/USD spends exactly 50% above or below — is now below its spot price, at $29,780.
“Have we now paid our bear market dues?” Checkmate queried, describing TMM as Bitcoin’s “most accurate cost basis model.”
Institutions awaken in “Uptober"
Analyzing the potential drivers of the rally, meanwhile, James Van Straten, research and data analyst at crypto insights firm CryptoSlate, flagged the potential approval of the United States’ first Bitcoin spot-price-based exchange-traded fund (ETF).
While not yet awarded the green light, a U.S. spot ETF is being treated as an inevitability after legal battles resulted in regulators losing sway.
“The potential approval of a spot ETF for Bitcoin has spurred a significant increase in bullish inflows in the crypto market,” Van Straten wrote in an update published on Oct. 23.
He noted that Glassnode data shows inflows via over-the-counter (OTC) trading desks spiking since late September.
“In addition, the Purpose Bitcoin ETF, with its holdings of approximately 25,000 Bitcoin, has observed consistent inflow throughout the past month. Even though these inflows might not be termed as ‘large,’ they denote a positive market sentiment,” he continued.
“This uptick in inflows across various platforms indicates an optimistic market response to the potential approval of a Bitcoin ETF, bolstering the overall landscape of digital assets.”
The largest Bitcoin institutional investment vehicle, the Grayscale Bitcoin Trust (GBTC), continues to see a lower discount to the Bitcoin spot price, having already seen its smallest negative margin since December 2021.
This stood at -13.12% as of Oct. 23, per data from monitoring resource CoinGlass.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.cryptocurrency bitcoin crypto btc etf crypto
California bill aims to cap crypto ATM withdrawals at $1K per day to combat scams
A new legislative investigation found some crypto ATMs charging a premium as high as 33%, while a few ATMs had limits of up to $50,000.
An airline just launched one of the country’s longest domestic flights
The trip from New York’s JFK to Anchorage International Airport will take over seven hours.
While the title for longest commercial flight in the world will soon be taken over by the 20-hour and 10,576-mile journey between Sydney and London that Australia's Qantas Airways (QUBSF) - Get Free Report is preparing to launch in 2025, the U.S. is a big country with a number of long-haul domestic flights on its own.
Without even looking at U.S. territories overseas such as Guam or American Samoa, one can spend more than 10 hours in the air and end up only in another state. Some of the longest domestic flights in the U.S. include routes from Boston to Honolulu in Hawaii and Chicago to Alaska's Anchorage.
In a move to bring more service from mainland U.S. to Alaska, Alaska Airlines (ALK) - Get Free Report is about to launch its longest flight yet that is subsequently also one of the longest in the country — the route from New York's JFK to Anchorage International Airport will take over seven hours and cross 3,386 miles.
New flight takes travelers to 'land of midnight sun'
The route will debut on June 13, 2024 and take place daily on a Boeing 737-8 (BA) - Get Free Report. The airline recently invested in the plane with the longest capacity in its fleet to be able to serve faraway destinations on the East Coast.
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"We're eager to welcome guests to our great state from the city that never sleeps to the land of the midnight sun on Alaska's new nonstop flight," Jillian Simpson, president and CEO of the Alaska Travel Industry Association, said in a statement. "There's so much to do in Anchorage and in the smaller towns nearby, mapping out your itinerary might be the toughest thing you do before heading west."
The route is part of Alaska Airlines' wider efforts to expand its coverage between Alaska and the mainland U.S. On May 18, it will also launch a nonstop route between Anchorage and San Diego that will take just over six hours and span nearly 2,500 miles. While the airline serves many Californian cities, San Diego's smaller size meant that residents would have previously needed to transfer in Seattle or LA on their way to Alaska.
New routes meant to serve both burgeoning tourist interest and local demand
After adding the new flights, Alaska Airlines expects to have 63 flights a day leaving from Anchorage during the summer of 2024. This is designed to meet the burgeoning traveler interest in the state as well as serve Alaskans who are separated from large American cities by geography.
"Alaskans like to get out," the airline said in announcing the new routes. "Sometimes that might mean hitting all the must-sees in New York City or taking surf lessons in SoCal. We'll make it more convenient for our guests to get there from Anchorage, as well as lots of other places."
For those who are able to make travel plans this far in advance, both the New York and San Diego flights to Anchorage are already available for booking on Alaska Airlines' website. The former starts at $400 each way for mid-week departures, while flying into the state from San Diego will cost from $300.stocks