I grew up on the shores of Lake Erie. From a very early age my parents enjoyed boating. Their passion grew from a small (24 wood boat) to larger, pleasure boats (41) as I got older. Nothing made my late father any happier than being out on the water in his boat.
I have such fond memories of being on the boat on nice summer days cruising on the lake with endless sunshine and the wind in my hair. We would go to one of the many islands, Canada, or another fun destination.
However, sometimes the lake was rough, and then it wasnt much fun. I remember getting sick from being tossed around from the rough seas, because
Lake Erie is the shallowest of the Great Lakes.
As a result, it can get rough extremely quickly when the wind picks up.
I was on some very harrowing trips when the lake whipped up quickly and the lake grew ferocious by the minute. I recall transitions from calm summer fun to the tumultuous chaos of 6-to-10-foot waves taking only minutes.
These transitions resembled the 2022 stock and bond markets, especially when unfavorable news comes out.
This past week started off with a positive Monday. Then Tuesdays August date was released. Instead of the expected pullback in the monthly inflation numbers, the readings were slightly hotter. And the year-over-year inflation numbers stayed elevated at 8.3%.
The expectation was that the decline in energy prices (gasoline) would offset other inflationary prices. Energy has declined but food and rents continued to climb.
After the release of the data early Tuesday morning, the market turned negatively very quickly. Most analysts and market pundits were expecting to see the previous rate hikes begin to soften the rate of inflation. Their thesis was if we saw slower inflation numbers, the Fed would be inclined to pivot and raise rates in a smaller increment next week at their upcoming meeting. With the unexpected new data, all bets are now on that the Fed raises by at least 75 bp. Some economists, like Larry Summers (ex-Treasury Secretary) are insisting that the Fed should be even more aggressive and raise as much as 1.0%. That would be unprecedented.
The stock market went on a severe nosedive (worst since June 2020) and interest rates headed towards new highs (the and US Treasuries hit new highs, the did not)
The lingering inflation picture is captured below.
Then on Wednesday, the , which is the Feds more closely watched index, came out and backed up the higher inflation story from the previous day.
More negative news hit Thursday night when Fed Ex (NYSE:) conveyed to the world that a major slowdown was occurring worldwide, especially in China and Europe. Consumer Sentiment also came in disappointing on Friday morning and exacerbated an already dismal week of news.
Fox financial news anchor Charles Payne recently pointed out that if they were still doing the calculations based on the methodology from the 1970s-1980s, inflation would be around 16% right now. However, the government changed the way it calculates these inflation indices by using different weighting. See below:
It was a rough week in the stock and bond markets. The ended down 5.2% from last Friday, the was down 5.8% and the Small Cap () held up a bit better but still down -4.5%.
We dont know, but our indicators have been Risk Off for several weeks now. Several of our investment strategies (including Mish) are heavily invested in Cash.
As noted above, interest rates have been rising most of the year. In fact, for holders of Fixed Income (bond) funds including variations like Preferred Bonds, Convertibles, High Yield, and even Municipal bonds, 2022 has been a negative year. Historically, this is the worst year for what are typically referred to as conservative and low risk instruments. The returns range from down -6% to over - 15% for most of these bond funds. And for many Americans, these hold a sizable place in their overall portfolio and are supposed to provide the income they rely on. The double-edged sword is that most investors invested in these types of funds are not only losing principal, but the income they produce is less than inflation. Most pension plans are severely underfunded and will not be able to cover their obligations and could default in the next decade.
The Federal Reserve watches the yield curve closely. Today the 2-year US Treasury note is yielding approximately 2.78% and the 10-year US Treasury is yielding 2.44%. That means we have an inverted yield curve of approximately -34 basis points. This has always forecasted a coming recession.
Looking at other areas of the yield curve, we have not seen this big of an inversion between the 2 year and Treasury Yields since 2000. See below:
Are we already in a recession? Many economists believe so, but if we are not, we suspect we will be soon.
In these columns we have frequently discussed earnings contractions coming soon to US companies. This will be due to many factors, these include rising labor costs, health care costs, material costs, transportation, distribution costs and a potential (and real) slowdown of business due to demand destruction and non-affordability factors.
Thursday night Federal Express provided guidance that their business is slowing quite rapidly. They attribute much of their business weakness to China (again shutting down business due to Covid concerns) and Europe, already in a recession. Their concern for a global recession forthcoming (if not already) caused the stock to sell off by 22% on Friday.
FDX Daily Chart
At the beginning of 2022 Federal Express had a market capitalization of $70 billion and was (and is) a staple of American companies providing important shipping for the supply chain. Today this company is worth $40 billion and has seen 40% of its market capitalization evaporate overnight.
This may be one of many shoes to drop from corporate America. Below is a table of Yardeni Research estimates of earnings the remainder of the year as compared to a large universe Consensus Forecasts:
We want to provide you an easy way to calculate the fair value of the S&P 500 and where this market may go if it factors in these earnings estimates. Please note that a favorable Federal Reserve environment is when they are in an accommodating mode. This means keeping rates lower than inflation or lowering rates. This low cost of capital keeps earnings growing with PE multiples staying on the higher side (18-22x earnings typically).
When the Fed is in a non-accommodative mode, raising short-term rates and/or draining liquidity from the system, we would most likely see a contraction of earnings estimates. In that case, multiples would likely fall to a range from 12-16x earnings, or even much lower during recessions.
The chart above shows the Consensus Estimates of analysts and economists on Wall Street. Ed Yardeni of Yardeni Research does an excellent job of providing his detailed analysis. He shows a much smaller growth projection (3.1%) for the year 2022.
Doing the arithmetic, here are some high-low estimates for the S&P 500 value. Since the market is always looking ahead, this would most likely happen in the next month and certainly prior to the end of the year:
It is safe to say that if there are more companies, like Fed Ex, who will adjust their earnings estimates, we may see the lower side of the above estimates. If, however, we have a soft landing and growth picks up going into 2023, we could see the higher side of the ranges above. The Median of these estimates is about 3600 on the S&P 500 or where we were in June 2022.
On Friday, an important market support line was broken. Many analysts and market pundits have been conveying in their subscriber updates that the S&P at 3900 would likely hold and they felt that was an important point to watch for.
Like a hot knife going thru butter, the market pierced 3900 on Friday and closed below there (and below both the 50- and 200-day moving averages). Notice that support lines below:
We have long commented that when housing becomes unaffordable, it will have a dramatic effect on slowing the economy down further. Today, mortgage rates hit the highest they have been at since midmid-2008. Mortgage applications have basically stopped.
30-Yr Fixed Mortgage Rate
Affordability in housing is determined by ones pay (free cash flow), housing prices and the mortgage rates. Given the escalation of housing prices the past few years (up on average 20%-30% in most parts of the country), purchasing a new or upgraded house has become out of reach for many buyers. And as reported in the CPI numbers last Tuesday, rents have gone up to an average price of $2500 suggesting that now people cannot even afford to rent an apartment. This will further affect earnings of housing related companies and force more corporate revisions downward.
A few weeks back we shared with you that September can be a difficult month for the stock market. This is further amplified during midterm voting years. We want to remind you that beginning September 12 through the end of the month, this period can be a very volatile and choppy period.
Was it a coincidence that this past Tuesday (September 13) that the markets new leg down began?
Please invest carefully during this period.
5 Actions You Can Take for a Smoother Investment Ride Now
Follow this link:
5 Actions To Create A Smoother Ride Ahead Of Rough Seas - Investing.com
- High seas drama: Cruise ship bound for Bahamas is diverted to Portland - Mainebiz - December 22nd, 2023 [December 22nd, 2023]
- African Ports Overwhelmed By Red Sea Reroutings - gCaptain - December 22nd, 2023 [December 22nd, 2023]
- Party Pirates: A Hilarious Co-op Adventure on the High Seas - Game Is Hard - December 22nd, 2023 [December 22nd, 2023]
- Boat sinks in high seas off Malpe, eight fishermen rescued - Public TV English - December 22nd, 2023 [December 22nd, 2023]
- Arena's Swept Away is a Dark Tale on the High Seas with Music by Grammy Winners The Avett Brothers - The Zebra - December 16th, 2023 [December 16th, 2023]
- Money Memories: Finances on the high seas - Louisville Public Media - December 16th, 2023 [December 16th, 2023]
- The Arctic Sunrise II Does the ISA have 'enforcement jurisdiction' on the High Seas? - EJIL: Talk! - December 16th, 2023 [December 16th, 2023]
- Severe Weather Impacting Multiple Cruise Ships - Cruise Hive - December 16th, 2023 [December 16th, 2023]
- Taking to the high seas for an up-close look at South Fork Wind - theday.com - December 16th, 2023 [December 16th, 2023]
- High Waves and Rough Seas Forecast for Costa Rica Coasts - The Tico Times - December 16th, 2023 [December 16th, 2023]
- Diesel theft on the high seas: When international cargo ships meet fishing boats in the dead of night - The Indian Express - December 16th, 2023 [December 16th, 2023]
- Meet the couple who've been on more than 200 cruises - and love life on the high seas so much they're selling - Daily Mail - December 16th, 2023 [December 16th, 2023]
- Report to Congress on the U.N. Law of the Sea Convention - USNI ... - USNI News - October 10th, 2023 [October 10th, 2023]
- Simplifying Docker Installation on Linux - Linux Journal - October 10th, 2023 [October 10th, 2023]
- Mallory to Present 'Oceans Apart: Global Governance Approaches to ... - University of Arkansas Newswire - October 10th, 2023 [October 10th, 2023]
- NEWS: A NEW 'Moana' Show Is Coming to the Disney Treasure ... - AllEars.Net - October 10th, 2023 [October 10th, 2023]
- Things to do Oct. 13-19 in the Chicago suburbs, Northwest Indiana - Chicago Tribune - October 10th, 2023 [October 10th, 2023]
- Marine "Biomimetics" Could Be the Blue Economy's Next Big Hit - The Maritime Executive - October 10th, 2023 [October 10th, 2023]
- All eyes on France this Saturday evening - Offaly Independent - October 10th, 2023 [October 10th, 2023]
- 80s-themed cruise: A blast to the past with P&O's high-sea adventure - New Zealand Herald - October 10th, 2023 [October 10th, 2023]
- High seas glamour: what its like to cruise the world with Cunard - Executive Traveller - October 10th, 2023 [October 10th, 2023]
- Warfare MMO Foxhole is adding naval combat complete with huge ... - PC Gamer - October 10th, 2023 [October 10th, 2023]
- One Piece Season 2 Cast: Every Character Expected to Appear - The Direct - October 10th, 2023 [October 10th, 2023]
- The future of Portuguese football: the pitch, the pixels, and the promise - PortuGOAL.net - October 10th, 2023 [October 10th, 2023]
- Typhoon Koinu to cause high winds, rough waters in East Sea - VietNamNet - October 10th, 2023 [October 10th, 2023]
- Governing our seas using core principles of sustainability - Mail and Guardian - September 19th, 2023 [September 19th, 2023]
- Marine Medium Speed Engine Oil Market: Navigating the High Seas ... - Digital Journal - September 19th, 2023 [September 19th, 2023]
- Threats on the high seas and the Pak-Saudi partnership - Arab News Pakistan - September 19th, 2023 [September 19th, 2023]
- China Wants to Burn Out Southeast Asian Navies - Foreign Policy - September 19th, 2023 [September 19th, 2023]
- Sea of Thieves Will Have to Face the Reaper Sooner or Later - GameRant - September 19th, 2023 [September 19th, 2023]
- Whine Wednesdays: Pigs On The High Seas Disgusting Behavior ... - LoyaltyLobby - May 18th, 2023 [May 18th, 2023]
- Carnival Now Looks in Ship Shape for the High Seas - RealMoney - RealMoney - May 18th, 2023 [May 18th, 2023]
- Why a new UN treaty to safeguard the high seas matters | Mint - Mint - May 18th, 2023 [May 18th, 2023]
- Navigating Unfairness on the High Seas: Class Action Waiver Clauses - Lexology - May 18th, 2023 [May 18th, 2023]
- High-Seas Search for 39 Crewmembers of Capsized Chinese ... - The Maritime Executive - May 18th, 2023 [May 18th, 2023]
- The Wager by David Grann review a rollicking and nuanced history of the high seas - The Guardian - May 18th, 2023 [May 18th, 2023]
- A musician from Sauk Prairie sees the world on the high seas - WiscNews - May 18th, 2023 [May 18th, 2023]
- How to obtain The Major-General minion in Final Fantasy XIV - Fanbyte - May 18th, 2023 [May 18th, 2023]
- ShipRocked 2024: Artist Lineup Revealed For Hard Rockin Adventure On The High Seas! - Icon Vs. Icon - May 18th, 2023 [May 18th, 2023]
- Local playwright's Hollerwood show premiers at West T. Hill - The ... - Interior Journal - May 18th, 2023 [May 18th, 2023]
- Meth worth several thousand crores seized from high seas by Indian Navy, NCB - The News Minute - May 18th, 2023 [May 18th, 2023]
- Salute to Sailors: Navy employs technology and training to ready sailors - WHP Harrisburg - May 18th, 2023 [May 18th, 2023]
- The Ocean Race Summit Newport urges recognition of the inherent ... - The Ocean Race - May 18th, 2023 [May 18th, 2023]
- Max Reveals All of the New Titles Coming to It's Platform In May ... - Just Jared Jr. - May 18th, 2023 [May 18th, 2023]
- Fisheries: agreement reached on sustainable management of ... - Oceans and fisheries - May 18th, 2023 [May 18th, 2023]
- United Arab Emirates formally accepts Agreement on Fisheries ... - WTO Latest News - May 18th, 2023 [May 18th, 2023]
- Murky Tar Balls Reappear on Goa's Golden Beaches | Weather.com - The Weather Channel - May 18th, 2023 [May 18th, 2023]
- Study: Fishing Subsidies Support Unregulated Distant-Water Fishing - The Maritime Executive - May 18th, 2023 [May 18th, 2023]
- The Rings Of Power's Morfydd Clark Hints At 'Quite A Lot Of New ... - Looper - May 18th, 2023 [May 18th, 2023]
- Chris Armstrong Short Cuts: High Seas Fishing LRB 18 May 2023 - London Review of Books - May 14th, 2023 [May 14th, 2023]
- It's Chaos on the High Seas in New 'The Meg 2' Poster - Collider - May 14th, 2023 [May 14th, 2023]
- From South Dakota to the high seas, the world gets less transparent - Coda Story - May 14th, 2023 [May 14th, 2023]
- Stepping up action - Nature.com - May 14th, 2023 [May 14th, 2023]
- Stricken Shiling tipped to return to Wellington the scene of its ... - Stuff - May 14th, 2023 [May 14th, 2023]
- Press Briefing by Press Secretary Karine Jean-Pierre and Secretary ... - The White House - May 14th, 2023 [May 14th, 2023]
- Bangladesh: Dangerous Cyclone Mocha expected to make landfall ... - Save the Children International - May 14th, 2023 [May 14th, 2023]
- Stricken 294-metre Shiling tipped to return to Wellington - the scene ... - Stuff.co.nz - May 14th, 2023 [May 14th, 2023]
- Sneak peek: Inside Royal Caribbean's Icon of the Seas, the largest cruise ship ever - The Points Guy - May 14th, 2023 [May 14th, 2023]
- 'Pirates of the Caribbean: Tides of War' is Celebrating Its 6th ... - Touch Arcade - May 14th, 2023 [May 14th, 2023]
- Is Deck 1 on a Cruise Ship Bad - Pros and Cons - Cruise Hive - May 14th, 2023 [May 14th, 2023]
- US-Iran nuclear struggle is playing out on the high seas - The Telegraph - May 14th, 2023 [May 14th, 2023]
- Muscle Flexing In South China Sea: Why India-ASEAN War Games Send A Strong Signal To Beijing - ABP Live - May 14th, 2023 [May 14th, 2023]
- Everybody Has a Story: Surviving rough ride in a smelly ship - The Columbian - May 14th, 2023 [May 14th, 2023]
- Holiday warning over Majorca party boats loved by Brits as officials vow massive new crackdown... - The US Sun - May 14th, 2023 [May 14th, 2023]
- Dark waters: how the adventure of a lifetime turned to tragedy - The Guardian - May 14th, 2023 [May 14th, 2023]
- Guarding our seas and the blue economy - Philstar.com - May 14th, 2023 [May 14th, 2023]
- Driverless boats, enduring sensors on the special ops maritime menu - Defense News - May 14th, 2023 [May 14th, 2023]
- List Of The Cleanest Cruise Ships In The World (2023) - Cruise Mummy - May 14th, 2023 [May 14th, 2023]
- Sea of Survivors: What if Vampire Survivors and Sea of Thieves had ... - Windows Central - May 14th, 2023 [May 14th, 2023]
- All hands on deck as UN meets to protect high seas - February 18th, 2023 [February 18th, 2023]
- 'High Seas' Season 4 Canceled at Netflix Even After Initial Renewal - January 22nd, 2023 [January 22nd, 2023]
- 'High Seas' Netflix Review: Stream It or Skip It? - Decider - January 22nd, 2023 [January 22nd, 2023]
- What Is High Seas Governance? - National Oceanic and Atmospheric ... - January 22nd, 2023 [January 22nd, 2023]
- Move Over Disney: Carnival Is Grooming on the High Seas - December 23rd, 2022 [December 23rd, 2022]
- Get Your First Look at Halloween on the High Seas on the Disney Wish ... - November 23rd, 2022 [November 23rd, 2022]
- Repost: On Armistice Day, Remembering the German High Seas Fleet ... - November 23rd, 2022 [November 23rd, 2022]
- Pirates of High Seas Fest 2022 returns to Panama City Beach - November 19th, 2022 [November 19th, 2022]
- Boo! Get a First Look at Halloween on the High Seas on the Disney Wish - November 19th, 2022 [November 19th, 2022]
- Historically powerful storm to hit Alaska this weekend with seas up ... - October 25th, 2022 [October 25th, 2022]
- Explained: What is the UN High Seas Treaty, and why have countries ... - October 25th, 2022 [October 25th, 2022]