ISM Hints At Forward Deceleration

As a former manufacturing guy, I am well aware of how monetary policy and the state of the US dollar affects US manufacturers. But I have not been that guy for so long now that I tend not to look at it as closely anymore. But the current time seems appropriate for a review of the manufacturing sector.

I actually used to look down upon the ‘services’ economy as something almost artificial, given that the US had been exporting its manufacturing base (and thus, much of its productivity) for decades and replacing normal economic cycles with monetary chicanery (like the Fed’s ability to regulate the economy through interest rate manipulation) in order to keep the consumerist racket going.

The latest round of monetary manipulation (the post-2020 cycle was driven by the Fed’s latest inflationary operation) is being addressed by the bond market, which is forcing the Fed to raise interest rates. The anticipation of which is a primary driver of the US dollar, which has been diverging inflation for a year. USD is on a heater now much like it was in 2014 when NFTRH caught that bottom in real time amid the post-2011 Goldilocks phase (in the US, while deflationary pressure persisted globally).

USD has retraced 62% of its decline into the 2007 low and is now at a long-term resistance area. Will it ‘sell the news’ of a hawkish Fed just as it bought the news (in 2021, which we also nailed in real time) of terrible inflation permeating the macro? That is for another article, as this one is about the ISM. For the purposes of this article, suffice it to say that a strong USD impairs US manufacturing exports. Continue reading "ISM Hints At Forward Deceleration"

The Continuum: Through The Limiters!

Inflation pushes the 30-year Treasury bond yield through long-term moving average trends!

Okay, let’s take a breath. I don’t like to use ‘!’ in titles or even in articles. In fact, when I see too many of them I immediately think that someone really REALLY wants me to see their point. That said, the signal shown below is pretty important.

It’s in-month with a monstrously over-bearish bond sentiment backdrop similar to when we installed a red arrow on the chart below at the height of the Q1 2011 frenzy (cue the Bond King: “short the long bond!”). Chart jockeys are probably delivering the bad news of the chart’s inverted H&S, a potential for which NFTRH began managing a year ago when the 30yr yield hit our initial target of 2.5% and then recoiled as expected after the public became very concerned about inflation.


But we were planning for the possibility that the pullback could make a right side shoulder to a bullish pattern, and so it did. Now the question is whether the Continuum continues (resumes its long journey down) or does something it has not done for decades, which is to break the limiting moving average trends. It’s an important question, states Captain Obvious. Continue reading "The Continuum: Through The Limiters!"

Yield Curve Inverts Deeper Than August Of 2019

Like the larger media, this tiny little spec within the media reports the news to you. The 10yr-2yr yield curve has inverted (ref. Yield Curve inversion upcoming). Now, what does it mean?

Well, the first thing it usually means is not to panic (especially now that High Yield credit spreads are easing), but to tune out the media hype about it because it is not the inversion that tends to signal an economic bust but instead, the steepening that follows it. Among the important questions are how long will it remain inverted and how deep will the inversion go before the next steepener?

Here is today’s post-payrolls (+431k jobs) move as the bond market demands that the Fed get off its ample behind and get with the inflation making nasty headlines as it cost-pushes across the economy while the Fed and the long end of the curve lag well behind. But the Fed is probably lagging for a reason and one major reason could be that they see the curve, they know what comes next and it’s not pretty.

yield curve

From the post linked at the top: Continue reading "Yield Curve Inverts Deeper Than August Of 2019"

Fed Not Hawkish: Hellflation Or Liquidation Ahead

Is the Fed trying to blow another, more covert asset bubble?

[edit] With a note that another, less viable option is possible as well. That would be a ‘just right’ Goldilocks gently disinflationary option similar to the 2012-2019 phase.

[edit2] A subsequent post notes another reason the Fed may be erring dovish, as the Bank sector negatively diverges long-term yields (30yr has ticked the underside of our target zone of 2.5% to 2.7%, after all) and the yield curve continues to flatten.

The asset bubble that almost ended in Q1 2020 was rescued by two main saviors, 1) unsustainable bearish (no, terrorized) sentiment and, even more so, 2) balls out central bank inflation, led by the US Federal Reserve. The resulting bubble leg was in the bag from the moment the dovish Fed made its first headline about asset purchases and rate cuts.

This latest leg of the asset bubble has been under stress in 2022, as the supposed reflection of ‘good’ inflation, the stock market (SPX), has trended down all year. More recently, commodities and precious metals have gotten dinged as well after spiking upward on the Russia/Ukraine war, which exacerbated the Fed’s inflation (as manufactured in Q1-Q2 2020) after the inflationary effects on commodity prices were already exacerbated by pandemic-related supply chain issues. Continue reading "Fed Not Hawkish: Hellflation Or Liquidation Ahead"

Fed Jawbones Mean Business

3 month T-bill yield is demanding the Fed raise the Funds rate

And the Fed is listening.

Yesterday I made a sarcasm-tinged post about the parade of Fed jawbones in the media and the coordinated and thus comical desperation they seem to exhibit. The stern message is that the Fed Funds rate could be raised at any time (which is possible even before the next FOMC meeting on March 16, in my opinion).

I would not advise you to listen to those who think they know what the Fed is thinking and insist that the Fed will not dare raise the Funds rate. They will dare and they will do it, barring any significant short-term changes to the current macro. In my experience, the Fed has done what the bond market tells it to do almost without exception. Ben Bernanke held ZIRP for a deplorably long time but that was because the T bill on the chart below allowed him to. Continue reading "Fed Jawbones Mean Business"