Making Hay Monday - August 19th, 2024
High-level macro-market insights, actionable economic forecasts, and plenty of friendly candor to give you a fighting chance in the day's financial fray.
Charts of the Week
Despite a serious scare earlier this month, the consensus belief remains that an economic soft landing is virtually assured. Yet, as you can see, the Citibank Economic Surprise index continues to run in solidly negative territory. That was also the case, though, back in 2022 when a recession was avoided, notwithstanding two consecutive negative growth quarters. What is different this time is that the Leading Economic Indicators have now been in a 29-month downtrend. Another decline was reported this morning. Moreover, there hasn’t been a single positive print in that period. Only February of this year was not in the red and that reading was merely flat. Even the lead-up to the Great Recession was shorter, in that case 20 months. A recession may indeed be avoided, but the risks are not nearly as negligible as the overwhelming majority of Wall Street economists and strategists contend.
No major stock market took it on the chin harder during the recent sell-off than Japan’s. However, it has also snapped back with world-leading vigor. Last week alone, it spurted about 8½% and is now up nearly 19% from its August 5th low. Wouldn’t it have been nice to have received an alert on the Nikkei two weeks ago?
“In a crisis, the only thing that goes up is correlation.” -Warren Buffett
The 35-Year Catch-Up
Champion
If nothing else, the stunningly quick global stock market correction seen at the beginning of this month once again illustrated the benefits of buying into a worldwide margin call. Another term for what happened is forced liquidation. This is usually where prices of widely held assets crash, forcing leveraged holders to either put up more cash or be sold out by their broker. However, in the case of the early-August convulsions, it was actually an asset — more specifically, a currency — which had been shorted that was the source of the massive margin call. Those alert and brave enough to buy into this most recent iteration of obliteration are already sitting on nice gains.