Category Archives: Silver

(Bloomberg) — Stocks got hit by a selloff in the world’s largest tech companies ahead of key central bank decisions. Bonds and gold climbed as traders rushed for safety amid geopolitical risks. Oil remained lower.Most Read from BloombergIsrael’s military struck Beirut, aiming at a Hezbollah commander, in response to a rocket attack on Saturday in the Golan Heights that killed 12 people. Most shares in the S&P 500 rose, but renewed tech weakness weighed on the gauge — with Nvidia Corp. tumbling 6%. After a $2.3-trillion Nasdaq 100 wipeout, investors awaited Microsoft Corp.’s results amid concern that firms aren’t yet seeing returns from artificial intelligence. Its numbers will set the scene for reports from other heavyweighs this week, with markets also gearing up for Wednesday’s Federal Reserve decision.“If the Fed does not signal a September rate cut, markets could get a bit ugly given recent tech weakness — especially if earnings underwhelm,” said Tom Essaye at The Sevens Report.While the Fed is expected to hold benchmark rates at the highest level in more than two decades, traders will be closely watching for any hints that the start of policy easing is near. In the run-up to the announcement, data showed US consumer confidence rose on an improved outlook for the economy and job openings beat forecasts.The S&P 500 fell about 1%. The Nasdaq 100 slid 1.5%. A gauge of the “Magnificent Seven” megacaps sank 2.5%. The Russell 2000 of small firms was little changed. Microsoft is investigating outages of some Office applications and cloud services. CrowdStrike Holdings Inc. plunged on a report Delta Air Lines Inc. hired an attorney after a tech outage. Procter & Gamble Co. sank on a sales miss. JetBlue Airways Corp. soared on a turnaround plan.Treasury 10-year yields declined three basis points to 4.14%. West Texas Intermediate crude hovered near $75.The yen rose. Bank of Japan Governor Kazuo Ueda will be under intense scrutiny Wednesday when he unveils his plans for quantitative tightening and delivers a decision on the policy interest rate. Recent yen weakness has done more harm than good for the Japanese economy, according to Japan’s newly appointed top foreign exchange official.*BOJ BOARD MEMBERS TO DISCUSS RAISING RATES TO 0.25%: NHKThe continuing broadening of this year’s powerful stock market rally hangs on what the Fed does and says about interest rates after its two-day meeting wraps up on Wednesday. Since the latest consumer price index print showed signs of cooling inflation, traders have stepped up their rotation out of Big Technology shares and into everything from small-capitalization stocks to value plays.If the Fed is about to begin a rate reduction cycle, stock bulls have history on their side. In the six prior hiking cycles, the S&P 500 Index has risen an average 5% a year after the first cut, according to calculations by the financial research firm CFRA. What’s more, the gains also broadened, with the small-cap Russell 2000 Index climbing 3.2% 12 months later, CFRA’s data show.Goldman Sachs Group Inc. Chief Executive Officer David Solomon said one or two Fed rate cuts later this year are looking increasingly likely, after predicting just two months ago there would be no rate reductions in 2024.“One or two cuts in the fall seems more likely,” Solomon said Tuesday in a CNBC interview from Paris. “There’s no question there are some shifts in consumer behavior, and the cumulative impact of what’s been kind of a long inflationary pressure, even though it’s moderating, is having an effect on consumer habits.”The S&P 500 Index has probably already logged the gains it will see this year, but the benchmark still presents ample opportunities for investors, according to Bank of America Corp.While neutral on the index overall, BofA’s Savita Subramanian says there’s potential for strong returns in a few areas: among dividend payers, “old school” capital-expenditure beneficiaries like infrastructure, construction and manufacturing stocks, and other themes that don’t revolve around artificial intelligence.“In mid-2023, sentiment was deeply negative and our toolkit suggested that the direction of economic and earnings surprises was more likely positive than negative,” Subramanian, the firm’s head of US equity and quantitative strategy, told clients in a note dated July 29. “Today, sentiment is neutral and positive surprises are ebbing.”Corporate Highlights:Pfizer Inc. raised its profit expectations for the year, citing new cancer drugs, as it seeks to dig out of a Covid-related hole in sales.Merck & Co. got hit as light sales of its Gardasil HPV vaccine in China dimmed quarterly profit and sales that beat Wall Street estimates.SoFi Technologies Inc. raised its forecast for this year’s profit and revenue as the fintech benefits from both its newer technology businesses and its trademark lending operation.Archer-Daniels-Midland Co.’s quarterly profit shrank more than expected as the grain trading giant faces a downturn in crop markets.Airbus SE’s operating profit fell by more than half in the second quarter after the company booked a charge at its space unit, forcing it to cut costs amid lower-than-anticipated aircraft deliveries.L’Oréal SA reported sluggish sales growth in the second quarter as the world’s biggest maker of beauty products suffered from weakness in China.BP Plc maintained the pace of share buybacks and increased its dividend as strong second-quarter earnings from pumping crude offset weakness in other parts of the business.Grifols SA, the Spanish pharmaceutical company hit by a short seller attack this year, said it overstated the value of its stake in a Chinese firm and reported an accounting adjustment of €457 million ($494 million).Key events this week:Eurozone CPI, WednesdayBank of Japan policy decision, WednesdayUS ADP employment change, WednesdayFed rate decision, WednesdayMeta Platforms earnings, WednesdayEurozone S&P Global Eurozone Manufacturing PMI, unemployment, ThursdayUS initial jobless claims, ISM Manufacturing, ThursdayAmazon, Apple earnings, ThursdayBank of England rate decision, ThursdayUS employment, factory orders, FridaySome of the main moves in markets:StocksThe S&P 500 fell 0.8% as of 1:23 p.m. New York timeThe Nasdaq 100 fell 1.6%The Dow Jones Industrial Average rose 0.2%The MSCI World Index fell 0.5%Bloomberg Magnificent 7 Total Return Index fell 2.4%The Russell 2000 Index was little changedCurrenciesThe Bloomberg Dollar Spot Index was little changedThe euro was little changed at $1.0817The British pound fell 0.2% to $1.2837The Japanese yen rose 0.6% to 153.09 per dollarCryptocurrenciesBitcoin fell 2.2% to $65,906.04Ether fell 0.9% to $3,292.95BondsThe yield on 10-year Treasuries declined three basis points to 4.14%Germany’s 10-year yield declined two basis points to 2.34%Britain’s 10-year yield was little changed at 4.04%CommoditiesWest Texas Intermediate crude fell 1.1% to $74.94 a barrelSpot gold rose 1% to $2,407.08 an ounceThis story was produced with the assistance of Bloomberg Automation.Most Read from Bloomberg Businessweek©2024 Bloomberg L.P. 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OpenAI seeks ‘vast quantities’ of nuclear fusion energy to power superhuman AI

OpenAI’s energy demands will be substantial. Not just OpenAI but this set off an AI arms race which will turn into an Energy Sourcing Stampede.Grids are already stressed out in USA. (Remember Texas, California, Mid Atlantic, East Coast and other regions where heat waves or impact weather created hundreds of blackouts and this summers heat has caused of 7,500 power interruptions)

Data centers in their rush to be first movers are developing pop up power plants (solar) but AI data centers are going to source even more so lets discuss Nuclear Energy.

OpenAI is seeking to purchase “vast quantities” of electricity from nuclear fusion to power its data centers.

The International Energy Agency (IEA) forecasts that total data center electricity consumption could reach more than 1,000 terawatt-hours (TWh) by 2026, which is roughly equivalent to Japan’s entire electricity consumption.

AI-related services are significantly increasing energy demands. For example, incorporating AI into search engines like Google could lead to a tenfold increase in electricity demand.

OpenAI’s ChatGPT uses about 2.9 Wh of electricity per request, compared to 0.3 Wh for a typical Google search.

The AI industry’s electricity demand is expected to grow exponentially, potentially increasing tenfold from 2023 to 2026.

Microsoft and OpenAI are reportedly working on a massive 5GW AI data center project called Stargate, which could cost up to $100 billion and come online in 2028.

In the US, data center electricity consumption is estimated to rise from about 200 TWh in 2022 to almost 260 TWh in 2026, accounting for 6% of total electricity demand.

OpenAI’s data centers energy needs will be enormous, likely in the hundreds of terawatt-hours range annually.

The fact that OpenAI is seeking nuclear fusion energy, which is still in development, underscores the magnitude of their anticipated energy requirements for future AI systems

Forget Uranium: Silver is a Much Better Way to Profit from AI & Nuclear Energy

Rod Cluster Control Assemblies (RCCAs)

Structure:

RCCAs consist of absorber rods attached to a spider assembly.

A typical RCCA has 24 absorber rodlets.

The spider assembly includes a brazed spider, spider springs, a spring retainer, and a spring tension bolt.

Dimensions:

While exact dimensions aren’t provided, we know that RCCAs are designed to fit within fuel assemblies in the reactor core.

For example, they’re available in configurations for 14×14, 15×15, 16×16, 17×17, and 17x17XL core layouts.

Materials:

The absorber rods are made of a silver-indium-cadmium (Ag-In-Cd) alloy.

The rod cladding is made of high-purity, partially cold-worked Type 304 stainless steel tubing.

The outer surface of the cladding is coated with industrial hard-chrome plating for enhanced wear resistance

RECAP:

AI data centers will use more energy than any other industry sector in USA.

The two prevailing sources of AI Data Center Energy Needs are Solar and Nuclear.

Solar panels use 500,000 ounces of Silver per gigawatt

Considering a project like Microsoft / Open AI Stargate

This table illustrates the silver usage for solar installations, comparing a standard 1 GW installation to the proposed Stargate AI data center project. The Stargate project, with its massive 5 GW capacity, would require five times the amount of silver used in a 1 GW installation, totaling 2,500,000 ounces of silver.

This significant silver requirement for large-scale solar projects like the Stargate AI data center underscores the growing demand for silver in the renewable energy sector. It also highlights the potential impact of AI and data center projects on silver consumption, as these facilities increasingly turn to solar power to meet their enormous energy needs

Silver: Best Way to Invest in AI and Silver could rival Uranium when considering Nuclear Energy based on the Rod Cluster Control Assemblies mentioned above

Uranium is relatively abundant in Earth’s surface due to its lithophile nature, which causes it to concentrate in the continental crust during geological processes.

Additionally, uranium’s long half-life allows it to persist in the crust over geological time scales. Unlike siderophilic elements that alloy with iron and sink to the core, uranium’s chemical properties prevent it from doing so, contributing to its presence in the Earth’s crust.

The Earth’s crust contains about 2-4 parts per million of uranium, making it more common than silver.

In contrast, silver is rarer in Earth’s surface, with an average crustal abundance of only 0.075 parts per million. There are only 33 deposits of Silver Globally with over 25 Million ounces and most of these are not of the highest grade compared to the 4 silver miners we endorse.

Silver is in high demand for various applications, including AI, aerospace, solar panels, electronics, robotics, jewelry, investment, and military uses.

This increased demand across multiple industries will lead to a massive spike in silver’s value and importance in the global market, making it a critical resource and its significant to report Silver’s relative rarity compared to uranium.

Outcrop Silver TSXV: OCG | OTCQX: OCGSF | DE: MRGOutcrop Silver is advancing the Santa Ana project, a high-grade silver deposit located near the town of Mariquita in Colombia’s Tolima Department. The project covers over 27,697 hectares and is situated approximately 190 km from Bogota.

Santa Ana is notable for its exceptional silver grades, with indicated resources averaging over 600 g/t silver equivalent

The company has conducted extensive exploration, completing more than 330 diamond drill holes and discovering seven mineralized veins within a 3.7 km area of the historic Santa Ana mines vein system.

Outcrop Silver’s focus on this primary silver project with world-class discovery potential positions it as a unique player in the silver mining sector Continue reading →

In this article, I will present evidence that shows it is highly likely the next US President will inherit a major recession and stock bear market. This is likely to dominate the early years of their administration, which will lower his or her popularity and make it difficult to implement their agenda.In addition to being interesting, I hope this information will help investors who want to prosper during the challenging times ahead. Betting Markets Currently Favor Trump According to the table below from Real Clear Politics, betting markets are predicting Trump will likely win the Presidency with 58% odds. Harris is second with 33% odds, and Michelle Obama is a distant third with only 3% odds. Whoever wins the election will likely have a challenging time in their early years if there is a recession and bear market, particularly with the country already highly divided politically. Real Clear Politics Presidential Economic Policies Are Not Likely To Prevent Recession It is unlikely that the next President will have any major influence on the likelihood of a recession and bear market. If Trump is elected, he may try to implement higher tariffs, trade restrictions, and tougher immigration policies while trying to offset the negative impact of these policies on the economy by reducing regulations and lowering income taxes. Unfortunately, high-budget deficits and the huge government debt problem will likely persist, since neither party has a plan to restructure major entitlement programs like Social Security or Medicare, which is the key driver of long-term debt and deficits. Federal Reserve Monetary Policy Drives Boom-Bust Business Cycle Unlike Presidential fiscal policies, I believe Federal Reserve monetary policy is the key driver of the boom-bust business cycle. That is why Wall Street hangs on every word said by Fed Chair Jay Powell and his central planning colleagues. According to the Austrian Business Cycle Theory, developed a century ago by Austrian economists Ludwig von Mises and F.A. Hayek, unsustainable economic booms are caused by central and commercial banks creating new money out of thin air. The inevitable busts occur when they slow money supply growth or, even worse, contract it. In response to the Covid panic of 2020, the Fed created 40% more US dollars. That led to the highest inflation rates since the early 1980s. That high “transitory” inflation forced the Fed to raise the Federal Funds interest rate by over five percentage points over the past couple of years, which is the biggest increase in over 40 years. Every time there has been a large increase in rates by the Fed, there has been a recession. One of the Fed’s preferred inflation measures is “SuperCore CPI”, which is services inflation less shelter. SuperCore CPI rose 4.8% in June, which is 2.4 times higher than the Fed’s 2% target. This suggests the Fed should not be cutting rates anytime soon if they are serious about fighting the inflation they created, but I believe they will as unemployment rises and a recession becomes obvious. For those investors who believe the Fed can prevent a recession with rate cuts at this point, I remind them that the Fed slashed rates all throughout the early 2000s and 2008-2009 recessions, but that failed to prevent them or their related stock bear markets. The chart below shows the Federal Funds rate going back 70 years. It indicates that recessions (shaded gray) began after significant Fed rate hikes, including in the early 2000s, 2008-2009, and 2020. It also shows that the Fed has held rates at a similar level and for a similar year-long period as they did before the Great Recession. This is not a bullish chart for the economy. FRED Yield Curve Inversion Always Precedes Recessions Due to the Fed rate hikes, short-term rates are higher than long-term rates, which is called an “inverted yield curve”. Every time the yield curve has been this inverted in the past 100 years, there has been a major recession. That includes the Great Depression of the 1930s. The 10-Year/1-Year Treasury yield curve has been inverted for the past two years, as shown in the chart below. That is longer than the 18 months of yield curve inversion before the Great Recession of 2008-2009. Historically, the longer the yield curve inversion, the longer the subsequent recession. FRED Money Supply Has Been Declining Due to the Fed’s tight monetary policies, the Fed’s Monetary Base (currency plus bank reserves) has declined 11% since December 2021, as this chart shows. FRED The popular M2 money supply has declined by 3.5% since March 2022. I believe a better money supply measure is one that does not double count and includes money that can be immediately spent. Based on the work of economist Murray N. Rothbard, this can be defined as M2 less small time deposits less retail money market funds plus Treasury Deposits with Federal Reserve Banks. This measure is down 12.7% since May 2022, as shown here. That is the biggest decline since the Great Depression. FRED Housing Demand Is In Recession Housing demand is very sensitive to interest rates, which makes it an excellent leading economic indicator. Due to mortgage rates more than doubling over the past few years and very high home prices relative to incomes, buying conditions for homes are near the worst levels in history and housing demand is very weak. As a result, the NAHB Housing Market Index (blue line in the chart below) has fallen to a level typically seen during recessions. In addition, housing starts (red line) are down 4.4% year-over-year. NAHB Manufacturing And PMIs Are In Recession Manufacturing is also a proven leading economic indicator. As shown below, manufacturers’ new orders (ex-defense and aircraft) are declining -0.3% year-over-year. That is not an inspiring sign for the economy. FRED The composite of the ISM manufacturing and services purchasing manager indexes (“PMIs”) is below 51, which typically only occurs in a recession, as shown below. Arch Global Economics Real Retail Sales Are Declining Declining real retail sales are a typical recession sign. In June, real retail sales fell 0.7%. As the following chart shows, real retail sales have been flattish or declining for more than two years. Imagine how much real retail sales can decline when unemployment starts rising significantly, as it typically does about two years after the yield curve inverts. FRED Unemployment Is Rising At A Recessionary Pace Speaking of unemployment, there are numerous signs it is getting worse. One sign is temporary job losses, which are a leading employment indicator since temporary workers are the easiest type of employee to lay off. Temporary job losses have totaled 515,000 since March 2022 and are falling at a rate only seen in recessions. That is also true of other leading employment indicators such as job openings, quits, and hires. Another sign of a recession is declining full-time jobs. While part-time jobs have increased, a whopping 1.6 million full-time jobs have been lost over the past year. As this chart shows, full-time jobs are falling at a pace only seen around recessions. FRED Historically, a recession has always occurred when the four-week moving average of continuing unemployment insurance claims rose 20% or more. So far, they have increased 37% from their lows in June 2022, as shown here. FRED Another sign of a recessionary jobs market is the combined ISM manufacturing and services Employment Composite has been below the neutral 50 level for months, as shown here. Longview Economics Perhaps the simplest and most useful employment indicator is the unemployment rate. Historically, whenever it has risen at least 0.5% from its lows, there has been a recession. So far, it has increased 0.7% from its low of 3.4% in 2023 to 4.1% now. FRED Leading Economic Index Is Declining At A Recessionary Pace The Conference Board’s Leading Economic Index is a composite of 10 proven leading economic indicators. As the chart below shows, it is declining -5% year-over-year. That is similar to the declines seen at the beginning of recent recessions. The Conference Board Stock Market Valuation Is At All-Time High What does a recession mean for the stock market, when we’re at the beginning of the “AI revolution”? Remember when Internet mania drove the stock market to such high valuations in 2000 that the NASDAQ ended up collapsing about 80% during the relatively brief and mild recession of the early 2000s? The stock market always falls into a bear market during a recession. The higher the starting valuation, the deeper the bear market that usually follows. As this chart from economist and fund manager John Hussman shows, the stock market is now at the highest valuation level in history…even higher than the valuations seen at the Tech Bubble peak of 2000 or even the 1929 peak. This stock market valuation ratio (which is similar to Warren Buffett’s preferred valuation ratio: total stock market capitalization to GDP) has a century of accurately forecasting long-term (12-year) returns for the S&P 500 better than any other valuation metric. Based on this all-time high valuation level, the S&P 500 is likely to be at least 50% lower in 12 years. Hussman Strategic Advisors What Can Investors Do? With a new President likely to inherit a recession and bear market, what can an informed investor do? The easiest strategy is to identify when the bear market is likely starting based on technical indicators and simply invest in Treasury bills or a money market fund and earn 5% interest risk-free. I believe they can also consider investing in gold and silver. I recently argued that gold and silver are in a bull market uptrend that is likely to continue for a while. For those investors willing to take on more risk in the goal of seeking higher returns during a bear market, they can buy inverse ETFs that rise in price when stocks fall, such as SH or PSQ. I wish you the best of luck in navigating the challenging times ahead. Please let me know your thoughts in the comments below, so we can all continue learning from each other. adamkaz Continue reading →

US stocks rose during morning Trading Friday, poised for a comeback bid as investors embraced new pricing data that showed inflation continuing to ease, solidifying expectations for coming interest-rate cuts.The Dow Jones Industrial Average (^DJI) added 1.6%, or more than 600 points, after the blue-chip index eked out a closing gain. The S&P 500 (^GSPC) rose about 1%, while the Nasdaq Composite (^IXIC) climbed 0.8%, both coming off a failed attempt to rebound from this week’s tech-led sell-off.Stocks are looking positive after a volatile series of sessions that have put the major gauges on track for hefty weekly losses. The Nasdaq and the S&P 500 have taken a bruising as Big Tech earnings undermined confidence in the AI trade, spurring the ongoing exodus from megacaps into small cap stocks.That pause in this year’s rally has Wall Street questioning whether the sell-off is a turning point to sustained lower prices or a typical bull-market pullback. In play are earnings-fueled concerns about softness in the US economy, though Thursday’s surprisingly hot GDP print eased those somewhat.Friday’s big data point was the closely watched Personal Consumption Expenditures (PCE) index, which provided more fuel to the notion of a still-strong economy and gradually cooling inflation. “Core” PCE, which strips out the cost of food and energy and is closely watched by the Fed, came in slightly higher than expectations but rose at its slowest pace in over three years.Read more: 32 charts that tell the story of markets and the economy right nowInvestors are also getting set for quarterly earnings next week from four more “Magnificent Seven” techs — Apple (AAPL), Microsoft (MSFT), Amazon (AMZN) and Meta (META).Live5 updatesFri, July 26, 2024 at 11:45 AM EDTThe Fed inches closer to easing Fed officials will huddle next week to decide the next the next course of action on interest rate policy. While the market widely expects officials to hold rates steady in July, the meeting’s significance comes as officials hint at where they stand for their September meeting, when observers predict the first rate will arrive.”We expect the Fed to keep its policy rate unchanged in July while signaling progress on reducing inflation has resumed,” said Bank of America Global Research analyst Michael Gapen in a report on Friday.Even though Fed officials have indicated that recent inflation readings are encouraging, some analysts still do not believe that a September cut is guaranteed. Fed officials have emphasized that more data is needed before they can pull the trigger on an easing cycle.”The Fed is optimistic that cuts are likely in the near-term, but we do not think it is willing to signal September is a done deal,” Gapen said. “It could happen, but it would depend on the data.”Gapen also noted that easing inflation has prompted the Fed to emphasize both sides of its dual mandate, instead of just focusing on price stability. That will give officials leeway to cut rates for a variety of reasons.”Cuts can happen because the economy cools, because inflation slows, or both.”Fri, July 26, 2024 at 11:00 AM EDTStocks trending in morning tradingHere are some of the stocks leading Yahoo Finance’s trending tickers page during morning trading on Friday.3M (MMM): Shares of the manufacturing company rose more than 15% early Friday after raising the low end of its full-year adjusted earnings guidance and reporting second quarter sales that came in above expectations.DexCom (DXCM): The manufacturer behind glucose monitors saw its shared plummet close to 40% Friday morning after the company shocked Wall Street with a cut its annual revenue forecast tied to fewer new customers and an internal restructuring.Deckers Outdoors (DECK): Shares of the footwear designer rose 7% after the company reported Q1 results that beat estimates, with net sales of $825.3 million coming in better than the $807.8 million Wall Street was expecting. Deckers also raised its full-year profit forecast.Coursera (COUR): The online learning platform that has been under pressure because of the looming threat of an AI-led disruption in education, surged more than 40% Friday after earnings came in above expectations. Coursera said it surpassed more than 2 million enrollments in its array of generative AI offerings.Fri, July 26, 2024 at 10:22 AM EDTComing rate cuts could calm fears of slowing growth This week’s topsy-turvy trading was fueled in part by fears of slowing growth, and second guessing tied to Big Tech’s AI push.But Friday’s favorable inflation reading, which will boost the case for the Fed to start cutting rates, could help calm those fears, as more affordable borrowing will help the economy to continue to expand.”Recently, the market has pivoted to fears of slowing growth over fears of sticky inflation, and we think both concerns are valid, but if the Fed is able to lower rates in a predictable and reasonable manner then the economy should continue to expand and inflation should (very slowly) proceed lower to the Fed’s target,” said Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance, in a note on Friday.A recent stream of encouraging inflation data has also helped minimize less favorable price pressure data from the first quarter, which Fed officials have said prompted them to rethink their rate-cutting timeline and instead instill a plan of higher rates for longer.Without that impediment, central bankers now have more leeway to start cutting rates. “For the past few months the inflation data have been cooperating,” Zaccarelli said. And as long as the data keeps coming in to boost the Fed’s confidence in slowing inflation, multiple cuts could be in store for the year.Fri, July 26, 2024 at 9:31 AM EDTStocks poised for rebound after encouraging inflation data The final session of a volatile trading week had stocks set for a rebound as new inflation data showed easing price pressures, boosting investor confidence in a widely expected September rate cut.The Dow Jones Industrial Average (^DJI) added 0.6%, or about 200 points, after the blue-chip index eked out a closing gain. The S&P 500 (^GSPC) rose about 0.8%, while the Nasdaq Composite (^IXIC) climbed 1.1%, both coming off a failed attempt to rebound from this week’s tech-led sell-off.Fri, July 26, 2024 at 8:56 AM EDT Fed’s preferred inflation gauge steadies ahead of expected cutsThe latest reading of the Fed’s preferred inflation gauge showed prices increased slightly more than expected in June.The core Personal Consumption Expenditures (PCE) index, which strips out the cost of food and energy and is closely watched by the Federal Reserve, rose 2.6% over the prior year in June; above economists’ estimate of a 2.5% increase and unchanged from the month prior. Still, the print marked the slowest annual increase for core PCE in more than three years.Core PCE rose 0.2 % from the prior month, in line with Wall Street’s expectations for 0.2% and faster than the 0.1% increase seen in May. Continue reading →

DNY59The major market averages rebounded during the first half of yesterday’s trading day on a better-than-expected GDP report for the second quarter, but the rally fizzled in the afternoon when technology stocks resumed their downtrend. The relentless selling in the sector that started the day after the Consumer Price Index (CPI) report for June was released on July 11 is probably closer to its end than just beginning. The sector was simply overbought, as the euphoria over the benefits of artificial intelligence (AI) reached a fever pitch, and the sector needed to revert to the mean. FinvizCoincidentally, investors were also looking for a good reason to broaden the bull market rally beyond technology, which came in the form of an extremely favorable inflation report, affirming the Fed will likely begin easing policy no later than September. That opened the floodgates to the ongoing rotation. The Magnificent 7 technology stocks and many other names in the sector that have been riding the AI wave were clearly exhibiting extreme valuations, but that is not the definition of a bubble, as many disgruntled bears are trying to claim. Nor is the correction in the sector a bubble bursting. Valuation is a horrible timing tool for markets, sectors, and stocks, as all can remain overvalued or undervalued for extended periods of time. To form a bubble, you need excesses in the economy and markets beyond the valuation of one sector, but they don’t exist. BloombergThe economy proved its resilience once again by growing 2.8% in the second quarter, according to the initial estimate by the Bureau of Economic Analysis. That was well ahead of the consensus expectation for 2% growth, but it is important to note that inventory building contributed 0.8% to the overall number. Still, when we exclude inventories, government spending, and trade, which results in “core” growth, the number was a healthy 2.6%. Most importantly, consumer spending rose 2.3% and was the largest contributor to growth. Despite some signs of fatigue, the consumer is alive and well. BloombergThe GDP price index (inflation) increased at a 2.3% annual rate during the quarter, which should comfort the Fed as it embarks on an easing cycle, because it can ease for all the right reasons. The most important one is that the rate of inflation is gracefully falling to its target of 2% at a much faster rate than the Fed forecasted in its more recent Summary of Economic Projections. The soft landing taking place is the primary reason that the correction in the technology sector is probably nearing its end. I surmised last week that we would see a 10% decline in the Nasdaq 100 (QQQ), which would bring the index down to approximately $450 before we found support. That support would coincide with the Relative Strength Index (top of chart) falling from an extremely overbought 80-plus into oversold territory below 30. Yesterday, the index closed at $458, and the RSI fell to 33. Stockcharts While I think we are close, I am not inclined to load the boat on the largest technology names, and there is no guarantee we don’t see this index fall to a more deeply oversold level that tests the 200-day moving average at $425, although I see that as a low probability. Still, these companies need to grow earnings into what are still expensive stock prices, which means we probably see churn between here and their 52-week highs in the weeks and months ahead. Meanwhile, the rest of the market continues to narrow the performance gap, which has been my expectation all year long. This improvement in breadth is a sign of strength, reinforcing the foundation of the bull market. The Russell 2000 index (IWM) has nearly closed the gap with the Nasdaq 100 on a year-to-date basis. Portfolios that have been well diversified across market caps and sectors should be enjoying outsized gains as this rotation takes place. Stockcharts Continue reading →

J Studios/DigitalVision via Getty ImagesBy Chris Turner Does Donald Trump really want a weaker dollar? Q: Why is the issue of weak dollar policy back in the headlines now? A: Bloomberg Businessweek published an interview with Donald Trump on 16 July. His opening gambit focused on problems in the US manufacturing sector and the ‘big currency problem’ that the US faces today. He singled out USD/JPY and USD/CNY, focusing on the unfair competitive advantage that a company like Komatsu has over Caterpillar. These comments and his choice of JD Vance as running mate point to the focus on key mid-western swing states – with a heavy manufacturing presence – in the run-up to November. Q: What does a weak dollar policy actually mean? A: The US Treasury (i.e. the politicians) is in charge of FX policy and can express its views on the dollar through key G7 & G20 Communiques. Over the years, the language in those has settled on the need for flexible exchange rates which reflect underlying fundamentals and the need to avoid competitive devaluations. US Treasury Secretaries can be asked their views on dollar/dollar policy and were Donald Trump to win in November, the choice of any potential Treasury Secretary will be important for markets. So you might have, for instance, Jamie Dimon, who’s unlikely to seek a weaker dollar, versus Robert Lighthizer who’s seen as very protectionist and who could pursue a weaker dollar policy. Q: What other tools does the US Treasury have to impact FX markets? A: In theory, the US Treasury could intervene to sell dollars and buy unlimited FX, but that seems very unlikely. More in focus will be the use of UST’s semi-annual FX report to label China a currency manipulator and threaten/extend tariffs should China weaken its currency any further. That is what UST did in August 2019 when China gave into market pressure and allowed USD/CNY to trade higher. The chart below shows that the manipulator tag did not make much difference to FX markets, although likely created more space for US tariffs. USD/JPY is different. Tokyo wants a lower USD/JPY and is currently intervening to achieve it. The US will not be seeking particular tariffs for Tokyo over its FX rate/policy. But USD/JPY will probably be at the forefront of any adjustment were the weak dollar policy theme to gain traction. USD/CNY versus the broad dollar trend Source: Refinitiv, ING The macro context is key Q: Should we distinguish between Donald Trump wanting a stronger CNY/JPY and wanting a broadly weaker dollar? A: Yes. Mr Trump’s focus is on the competitive advantages enjoyed by China and Japan from weak currencies. During his last Presidency, he avoided going near a weak dollar policy. Assuming he has sensible people at the US Treasury, the risk of a weak dollar policy destabilising US Treasuries, driving borrowing costs up and equities lower, would likely discourage the UST from actively pushing for such an FX policy. Q: Will US Treasury FX policy make much of a difference anyway? A: The macro context will be key. Were Mr Trump to win the Presidency and Congress and then extend tax cuts while broadly raising protectionism to a new level, then this would be a dollar-positive policy mix. And the ongoing threats against the alleged undervalued renminbi (while still present) would not have much impact on the FX market. Should the economy weaken for whatever reason, the pressure to seek more stimulus through a weaker dollar will grow. In reality, a newly-elected Trump cannot try to suppress China (= less CNY demand), create four years of unprecedented US prosperity (= stronger USD), and really expect USD/CNY to trade lower. Q: If UST did try to push a weak dollar policy, how far could the dollar fall? A: We have models that try to gauge ‘risk premia’ in pairs like EUR/USD. For example, how far could EUR/USD trade away from levels suggested by short-dated rate spreads, yield curves and global equity markets – inputs which normally work quite well in determining short-term pricing. Our chart below shows that over the last 10 years, EUR/USD has traded +/- 5-6% around its short-term fair value, which could be a way to isolate/evaluate the impact of any weak dollar policy from the UST. EUR/USD deviation from Financial Fair Value Source: ING Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user’s means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Original Post Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks. Continue reading →

The US economy grew at a faster than expected pace in the second quarter.The Bureau of Economic Analysis’s advance estimate of first quarter US gross domestic product (GDP) showed the economy grew at an annualized pace of 2.8% during the period, well above the 2% growth expected by economists surveyed by Bloomberg. The reading came in higher than first quarter GDP, which was revised down to 1.4%.Meanwhile, the “core” Personal Consumption Expenditures index, which excludes the volatile food and energy categories, grew by 2.9% in the first quarter, above estimates of 2.7% but significantly lower than 3.7% gain in the prior quarter.The data’s release comes as investors try to gauge when the Federal Reserve will start cutting interest rates and if the central bank can achieve a soft landing, where inflation comes down to its 2% target without a significant economic downturn.Entering Thursday, markets had priced in a 100% chance the Fed would cut rates by the end of its September meeting.”The data today will reinforce the notion that the Fed has the benefit of time,” Renaissance Macro head of economic research Neil Dutta wrote in a note following Thursday’s release. “In the Fed’s mind, there is no need to rush with private domestic demand growing at a solid pace over the second quarter. July remains a set up meeting for September.”Soccer Football – FIFA World Cup Qatar 2022 – Group B – Iran v United States – Al Thumama Stadium, Doha, Qatar – November 29, 2022 Fans display a United States flag in the stands before the match REUTERS/Fabrizio Bensch (REUTERS / Reuters)Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.Click here for in-depth analysis of the latest stock market news and events moving stock pricesRead the latest financial and business news from Yahoo Finance Continue reading →

(Bloomberg) — The assumptions that have driven this year’s global financial markets are being rapidly rethought.Most Read from BloombergIn bond and currency markets, investors are racing to redeploy money amid mounting doubt over the outlook for the US economy, which has led to speculation that the Federal Reserve may need to cut interest rates faster or deeper than planned. Helping to drive the shift: A weakening American consumer, which is showing up in a rash of disappointing corporate earnings.At the same time, stockholders have suddenly grown skeptical that technology companies’ massive investments in artificial intelligence will pay off any time soon. As a result, investors have been frantically dumping shares of big winners such as Nvidia Corp. and Broadcom Inc.Copper and other industrial metals are also reversing a recent run-up, with China’s slowdown playing a role in their decline along with the worries over the US and tech.“It does seem that an unwinding has begun of popular trades that brought valuations to stupid levels,” Louis-Vincent Gave, chief executive officer of Gavekal Research, wrote in a note to clients Thursday.At Apollo Global Management, chief economist Torsten Slok told clients on Thursday that “if the economy starts slowing down, the speed of the slowdown becomes essential. A faster slowdown would have negative implications for earnings and increase the probability of a selloff in stock markets and credit markets.”Here’s a look at some of the notable market moves and the underlying assumptions that have changed:Government BondsIn the bond market, this bleaker global growth outlook is bolstering wagers on rate cuts. Investors are snapping up short-dated securities amid concern monetary policy is proving too tight, acting before borrowing costs come down.At one point on Thursday, the yield on the two-year US Treasury note traded just 12 basis points above the 10-year — the closest the market has come to ending an inversion in place since the middle of 2022, and a far cry from a spread of more than 50 basis points a month ago.While the chances of rate cut by the Fed at next week’s meeting look very slim, the market is now pricing in deeper cuts later this year.Traders see about 30 basis points of easing by September, suggesting about a 20% chance of a supersized cut. More than 70 basis points of cuts are seen through 2024, seven basis points more than on Wednesday.The repricing is also bolstering the yen, one of the biggest victims of tighter monetary policy in the US over the past two years. The Japanese currency has rallied around 6% from a low touched earlier this month, by far the biggest advance across the Group-of-10 peers.Investors have liked to borrow in the low-yielding yen to fund investments in higher yielders such as Mexico’s peso or the Australian and New Zealand dollars, but now reckon change is underway with the gap between the Bank of Japan’s benchmark and its counterparts set to narrow.Stock marketsUS and European equity markets have been driven this year by a consensus that inflation was coming under control, allowing the Fed to ease monetary policy later in the year and thus avoid a recession.By mid-May, the Stoxx Europe 600 Index was sitting at a record, giving investors a 12% return to date in 2024. The S&P 500 set a record as recently as July 16, with tech leading the charge.Now many investors are taking the view that the Fed is falling behind the curve — not only is inflation quieting, but the economy is weakening too much. China is already easing monetary policy amid a slump in the world’s Number 2 economy.Hence the predictions from some market watchers that the Fed could indeed act as soon as next week to lower borrowing costs or be forced to do more later if policymakers wait.Almost a third of S&P 500 companies have reported second-quarter results so far, and the spotlight is increasingly on the sales figures, where the slowdown in economic growth is starting to become visible. Only 43% of companies have managed to beat revenue expectations, which would be the lowest reading in five years, according to data compiled by Bloomberg Intelligence.And that AI frenzy no longer looks so positive. Investors were taken aback this week how much Google parent Alphabet Inc. is spending on the technology, with little to show for it yet in terms of revenue.The Nasdaq 100 Index has sunk almost 8% from its July 10 record, wiping $2.3 trillion off the market value of companies in the benchmark. The index is still up 13% this year, and an investor survey by Bank of America Corp. this month showed that positioning in the so-called Magnificent Seven was the most crowded trade since exposure to growth stocks in October 2020.“Valuations of mega-cap tech were increasingly impossible to justify with anything but the most heroic forecast for future growth, earnings and monetary policy,” said James Athey, portfolio manager at Marlborough Group. “It’s inevitable that these kinds of extremes cannot persist.”MetalsMounting pessimism about demand and the tech industry is also infecting the metals market.Copper fell below the $9,000-a-ton threshold for the first time since early April and is down by about a fifth since reaching a record in mid-May.What’s changed there is investors who previously bought the metal on concerns of tightening supply and higher usage in data centers and other areas are shifting to fretting about rising inventories and weak conditions in the Chinese spot market.Tin and Aluminum have also fallen.What Bloomberg’s Strategists are Saying…“In the perennial tussle between fear and greed, the former has seized the upper hand as a raft of consensus positions have suffered losses this week. It all represents a collective trip to the pain cave, one of those periodic episodes when positioning is just about the only fundamental that matters as investment risk gets reduced across the board.”— Cameron Crise, macro strategistSee MLIV for more–With assistance from Sagarika Jaisinghani, Constantine Courcoulas and Mark Burton.Most Read from Bloomberg Businessweek©2024 Bloomberg L.P. Continue reading →

Balefire9/iStock via Getty ImagesGold is now in vogue among investors and mainstream financial media. The metal has captured much attention as it recently surged to a new all-time high of $2,488. It is trading at about $2,400 as of this writing, up 18% YTD. And it has gained 47% since bottoming at 1628 in October 2022. I have read many commentaries in financial media citing strong central bank buying as a key reason for gold’s surge and as a signal for more gains ahead. However, these developments made me skeptical. In my view, none of the articles considered central bank buying in the proper context. More specifically: How much have central banks bought relative to the total gold tradable market cap? How much have they bought relative to total trading volume? How useful has their buy/sell behavior been as an indicator of gold’s current and future price trend? In other words, are the central banks “smart money,” as many would have us believe? Answers to these questions took considerable research and calculations. Publicly available data are inconsistent. The data I mined (pun intended) surprised me. I had to check the numbers several times. Surprisingly, the best data I could find shows the thesis of central bank gold buying as a reason for the rally is in doubt, if not outright wrong. There is even evidence that central bank gold buying has served as a good contrarian indicator. Central Bank Gold Buying – The Numbers Do Not Explain the Rally Let’s begin with a look at central bank gold net purchases as a percentage of total tradable market cap. The table below depicts key metrics gleaned from the World Gold Council website, which I believe is the most authoritative publicly available source. Worldwide central banks added a net 2,229 tonnes, or 71,663,910 ounces to their gold reserves during 2022-2023 and the first five months of 2024. As an aside, Bullion Vault data shows a much lower number for net purchases, by about 50%. Therefore, the net purchase metrics below may be overstated. Author, World Gold Council, Kitco The data show that over the past two and a half year buying spree, central banks accumulated $172.293B, or 2.99% of the total tradable gold market cap of $5 trillion. It is hard to see how this would move the price needle much, especially given bank purchases were spread out over two and a half years. Another gauge is total net purchases relative to the total gold market. The chart below shows the distribution of all gold assets in the world. The total is approximately $12 trillion according to the World Gold Council. The central bank share of the total is about 17%. Their buying during the period equals 1.2% of the entire gold market. In terms of their own reserves, banks tacked on 7.4% of their total of approximately $2 trillion (at year-end 2022). That means the banks added about 3% per year to their total reserves during the past 29 months. Again, this is not a spectacular number when placed in this context. World Gold Council Central Bank Gold Buying Relative to World Market Liquidity Next, let’s look at central bank buying versus total trading volume. If central banks were buying large sums relative to what is available on major trading exchanges, it would drive up prices. The table below shows the relevant metrics. Author, World Gold Council, Tradegoldtrading.com During the last 29 months, central banks accumulated gold at an average of about $61B per year. That compares with annual average trading volume (using 2023 data of $162.63B per day) of about $46,512B or $46.5 trillion. Hence, central banks purchased only 0.13% of total annual liquidity. Another way to look at it is that during an average 12-months of one of the most aggressive buying sprees ever, central banks bought a little more than one-third of the daily world gold trading volume. These numbers surprised me. After more digging, I found the chart below. It shows gold is the second most liquid asset – behind the S&P 500 and ahead of the highly liquid U.S. T-bill market. It supports the idea that central bank buying has less impact on the market than we expect. World Gold Council Indeed, the World Gold Council states: The size of the market allows it to absorb large purchases and sales from both institutional investors and central banks without resulting in price distortions. And in stark contrast to many financial markets, gold’s liquidity has not dried up, even during times of financial stress, making it a much less volatile asset.” This further supports the idea that central bank transactions have less much impact on gold’s price than most financial media suggest. Central Banks Are Not Smart Money Now let’s turn to the question of whether one should follow central bank buying and selling to inform investment decisions. Many gold pundits frequently tell us that central banks are “smart money.” Yet, once again, the data tell a different story. The chart below shows the total world central bank net gold purchases versus the year-end gold price since 2002. Author, SD Bullion, World Gold Council Here are takeaways regarding how central banks fared with their buying and selling decisions: From 2002 through 2008, central banks were consistent net sellers of gold while the metal more than doubled from $343 to $865. Central banks proved to be a good contrarian indicator of gold’s direction. Furthermore, their selling failed to deter gold’s strong advance. In 2009, banks loaded up and added a net of 676 tonnes. Gold increased to $1,104 by year-end. Central banks were smart money. From 2010 through 2012, central banks added a cumulative 987 tonnes while gold went to $1,664 for a gain of $471. Central banks were smart money. From 2013 to 2015, the banks added a whopping 1,636 tonnes. They accelerated purchases at the top during 2015, adding 913 tonnes. Yet, gold dropped that year from $1,199 to $1,062. Central banks were a good contrarian indicator. Gold declined despite strong central bank buying. After gold bottomed in 2015, central banks had less enthusiasm, adding less than average, or 104 tonnes in 2016. Yet, by the end of 2017 gold advanced to $1,296. The banks added 523 tonnes that year, helping to fuel the advance. Yet gold was flat again in 2018 and ended the year at $1,282. Banks were not smart money. Central banks added 1,475 tonnes during 2018-2020, while gold went to $1,878 for a gain of 45%. This could have been a causative factor for the gains. The banks were smart money. From 2021 – May 2024 central banks added a whopping 2,679 tonnes. During that time, gold rallied to its current level of about $2,400. However, as shown above, the purchase volume represented a small percentage of the market. The banks were smart money. In the seven sub-periods we examined, central banks proved to be smart money in four cases. They were not smart money in three cases. in fact, the latter included a seven-year period and a three-year period when they were a contrarian indicator. Out of the twenty-two and half years examined, the central banks were on the correct side of the market for 12 years, neutral during one and wrong during 10. That is a little better than a coin flip, but hardly smart money. Further, the data suggests their buy and sell decisions had negligible or at least inconsistent effect on gold’s price. Astonishment and Problems Admittedly, I was astonished by these findings. I had to check my numbers several times. Almost everything I have read over many years supports the belief about central banks’ strong influence on the gold market. There is one exception. I credited Robert Prechter’s Socionomic Theory of Finance in the comments section of one of my earlier articles. Prechter called out central bank actions in the early 2000s as a contrarian indicator. How can it be that central banks have a negligible impact on the gold market? The data above might be wrong. It is very possible central banks have bought much more gold than they have admitted to. Most believe that Russia and China have not been honest with their reporting. To be sure, Bullion Vault noted: Many analysts believe China’s national gold bullion holdings are larger than the reported total, perhaps twice the size if you compare the country’s visible private-sector demand against its gold mining output and bullion imports. The excess supply must have gone somewhere, and the People’s Bank has in the past kept the changes in its gold holdings a secret, suddenly announcing huge increases in its gold reserves in 2009 and 2015.” Another possibility is that options and futures traders sometimes manipulate the market. There are prominent gold experts who fervently believe this. However, gold is a vote of no confidence for fiat currencies. Its success undermines the goals of central banks who want stable currencies. Therefore, if anything, central banks would be inclined to depress gold’s price rather than fuel its advance. It is also possible that I am missing something in my analysis. There are many smart readers on SA, so I welcome your insights! Why I Own Gold: An Effective Component of an All-Weather Portfolio Regardless of the actual numbers, I don’t own gold because central banks are accumulating it. Those who follow me know I utilize an all-weather portfolio approach. Gold is a core holding, with a 15% allocation in my portfolio. I have owned it for more than a decade and will continue to hold it for the long run. Previous SA articles, including my all-weather portfolio articles, provide more details. For those who want the highlights, here is a recap: Solid long-term returns. Since 2000 gold has returned 8.7% per year, outperforming the S&P 500’s return of 7.4%, per VanEck. Since 1971, after Nixon devalued the dollar, gold has returned 8.3% per year. Excellent portfolio diversification. Since January 2000, gold’s correlation is 0.046 and 0.447 with U.S. equities and Global Treasuries ex-US respectively, according to the World Gold Council’s calculator. An Ibbotson study regarding the benefits of precious metals diversification stated: “Based on the forward looking resampled efficient frontiers, asset allocations that include precious metals have better risk-adjusted performance (as measured by Sharpe ratio) than asset allocations without the precious metals. Investors can potentially improve the reward-to-risk ratio in conservative, moderate, and aggressive asset allocations by including precious metals with allocations of 7.1%, 12.5%, and 15.7%, respectively. These results suggest that including precious metals in an asset allocation may increase expected returns and reduce portfolio risk.” An effective currency and debt hedge. Over the past 30 years, the correlation between the U.S. dollar and gold was -0.65. Another study found a high correlation of 0.93 between gold and U.S. debt from 1982-2010. The Financial Times interviewed Alan Greenspan in 2014. They asked, “Do you think that gold is currently a good investment?” Greenspan replied: Yes, remember what we are looking at. Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it.” Long-term prospects. In 2022 with gold at $1940, I presented why gold could reach $5,000 in three to six years. I cited the monetary stock as a factor that could justify a much higher gold price. I also showed the Dow to Gold ratio, another sentiment measure that favored gold for the longer-term. What Really Drives the Price of Gold – Sentiment A final comment before wrapping up. For those who haven’t read it, I discussed the fallacies of using fundamentals to explain or predict gold’s price movements in Where is Gold Going? Watch Sentiment, Not Fundamentals. The data here on Fed gold buying further supports this thesis. As a result, I will continue to watch sentiment via the Commitment of Traders (COT) report and Elliott Wave Theory. Conclusion Central bank gold buying doesn’t appear to be as impactful nor relevant as many believe. But there are other very good reasons to own gold as part of a well-diversified portfolio. But it has experienced long periods of stagnation and at times can be volatile. As such, patience is required. I look forward to your comments. Continue reading →

LilliDayIt’s a human shortcoming to favor simple explanations for the business cycle. The notion that reliability and timeliness can be forged in one indicator endures, but recent history has hammered this approach, reminds a new commentary from Axios. “Recession indicators don’t work like they used to,” the news site reports. “Many of them have been tripped, yet no big downturn has materialized. The quirks of the pandemic business cycle – driven by a rolling series of disruptions to supply and demand – are the likely culprit.” Among the indicators that have failed to provide timely signals of an approaching recession: the yield curve, the Leading Economic Index, and temporary help employment, which Axios notes “was big tell” in the past but has stumbled recently. It’s tempting to blame the after-effects of the pandemic for the false signals. To be fair, much has changed for the business cycle since covid upended the usual routine, and it would be naive to minimize this factor. But it’s also fair to observe that no one business-cycle indicator has ever been flawless. That’s always been true, and always will be. Forecasting, as the saying goes, is hard, especially about the future. Fortunately, there are techniques to minimize the noise, maximize the signal and boost the timeliness and reliability of recession analytics. It starts with a basic premise that’s been documented for decades in empirical analytics: combining modeling analytics enhances results. Regular readers of CapitalSpectator.com know that your editor is a big fan of ensemble methodologies for estimating real-time recession risk. As I wrote in 2016, “we should be wary of relying on market signals alone for estimating recession risk.” Eight years later, the same principle applies, and for a good reason: it works. Or, to be more accurate, it fails less often than the usual suspects. Granted, it’s impossible to develop a genuinely flawless methodology. Indeed, there’s a crucial tradeoff that must be recognized in recession analytics: timeliness vs. reliability. The two are in conflict with one another. Although there’s no one perfect answer for calibrating this relationship in modeling, ignoring this hard fact by relying on one, even a handful of indicators, is asking for trouble. In fact, one could argue that building a multi-factor recession model is more relevant and practical than ever. All the more reason that this core principle has long informed the methodology of weekly updates of The US Business Cycle Risk Report (now in its 10th year), a sister publication of CapitalSpectator.com. At a high level, the main focus is carefully curating a diversified set of indicators to estimate the current state of the economy. Using that foundation, a near-term forecast is updated weekly. The key principle: the estimates reflect a wide variety of indicators and models. The reasoning: it’s never clear which indicator or model will fail in real time–and, yes, something’s always failing. It’s the aviation equivalent of recognizing that if you’re flying across the Pacific, it’s well-advised not to rely on one engine. On that basis, the current state of the economy continues to favor expansion, based on the main indicator that aggregates a variety of signaling for The US Business Cycle Risk Report. In the current issue of the newsletter, the probability that an NBER-defined recession has started or is imminent is roughly 9%. Using a multi-factor set of proprietary business-cycle indicators to forecast the near-term outlook suggests that economic activity is stabilizing through August, albeit at a slow/sluggish pace. Note: the tipping points that separate expansion from recession for the indexes in the chart below are 50% (ETI) and 0% (EMI). Why limit the forward estimates to a month or two? Because looking out much further is guessing. It’s deeply flawed/naive to assume that it’s possible to model how the complexity of the US economy will involve much beyond the very near future. Indeed, the only thing more deeply flawed than relying on one indicator in recession analysis is forecasting six-month, a year, or longer. Original Post Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors. Continue reading →

Alphabet (GOOG, GOOGL) stock slipped more than 4% on Wednesday as investors kept a close on the company’s increased AI spending while disappointing YouTube advertising revenue was also a pain point for investors after the Google parent’s latest quarterly release.Yahoo Finance’s Dan Howley reports: Google parent Alphabet (GOOG, GOOGL) reported its fiscal second quarter earnings after the bell on Tuesday, beating analysts’ estimates on the top and bottom lines as its cloud businesses continue to pick up steam, topping the $1 billion mark for operating profit for the first time.For the quarter, the company saw earnings per share of $1.89 on revenue of $84.7 billion. Analysts were anticipating earnings per share of $1.85 on revenue of $84.3 billion, according to data compiled by Bloomberg. That’s a jump from the same period last year of 31% and 14%, respectively, when the company reported earnings per share of $1.44 on revenue of $74.6 billion.Advertising revenue topped $64.6 billion versus analysts’ expectations of $64.5 billion, and up from $58.1 billion last year. YouTube ad revenue, however, fell short, with the segment bringing in $8.66 billion versus expectations of $8.95 billion.Google saw cloud revenue of $10.35 billion and operating income of $1.17 billion. That’s better than analyst expectations of $10.1 billion and operating income of $982.2 million and higher than the $8 billion in revenue and $395 million in operating income the company reported in Q2 2023.Alphabet shares are up 30% year to date. Shares of rivals Microsoft (MSFT) and Amazon (AMZN) are up 18% and 22% year to date, respectively. All three companies are pouring money into building out their generative AI capabilities, spending lavishly on data centers capable of powering the AI models they offer via their cloud service platforms.In the second quarter, Alphabet reported spending $2.2 billion building AI models across its DeepMind and Google Research organizations. That’s up from $1.1 billion in Q2 2023. When exactly AI starts to generate revenue for Google’s Cloud business, let alone its ad segment, is still up in the air.“It is still too early to count on AI benefits as most [companies] remain in pilot mode, and material AI [revenue] is more likely a 2025-26 event,” Jefferies analyst Brent Thill wrote in a recent client note ahead of Alphabet’s earnings announcement. Continue reading →

By Indradip GhoshBENGALURU (Reuters) – The Federal Reserve will cut interest rates just twice this year, in September and December, as resilient U.S. consumer demand warrants a cautious approach despite easing inflation, according to a growing majority of economists in a Reuters poll.Declining price pressures over the past few months and recent signs of labor market weakness gave several members of the policy-setting Federal Open Market Committee (FOMC) “greater confidence” inflation will return to the U.S. central bank’s 2% goal without a significant economic slowdown.Markets grabbed that opportunity to price in two to three rate reductions this year, lifting stocks by around 2% and pushing down yields on the 10-year Treasury note by more than 25 basis points this month. But economists have held on to expectations for just two cuts for the last four months, and are more convinced now.Stronger-than-expected retail sales in June suggest consumer spending remains resilient and, along with a consensus view from the poll that the jobless rate won’t rise much from the current 4.1%, argues for patience.While all 100 economists in the July 17-23 Reuters poll said the Fed will keep rates unchanged on July 31, more than 80% – 82 of 100 – forecast the first 25-basis-point cut would come in September, pushing the federal funds rate to the 5.00%-5.25% range. That was a stronger majority compared to the nearly two-thirds who said so last month.While 15 expected the first rate reduction to happen in November or December, only three said the Fed would wait until next year.”We expect a 25-basis-point reduction in the target range at the September and December FOMC meetings, barring a meaningful upside surprise in the inflation data,” wrote Jonathan Pingle, chief U.S. economist at UBS.”We suspect unexpectedly quite weak employment data would be needed to create the urgency to lower rates more than that this year.”Nearly three-quarters of economists – 73 of 100 – predicted two 25-basis-point cuts this year, more than the roughly 60% who took that view in the June survey. Seventy of the economists in the latest poll said the cuts would happen in September and December.While 16 expected one or no cut this year, 11 predicted more than two. Among 21 primary dealers polled, nearly 60%, or 12, expected the Fed to reduce rates twice in 2024.Much of the outlook will hinge on key data releases this week, including a reading of second-quarter gross domestic product (GDP) and personal consumption expenditures (PCE) price index data for June.While the U.S. economy is expected to have expanded at an annualized rate of 2.0% last quarter, faster than the 1.4% in the first quarter, PCE inflation – which the Fed targets at 2% – is expected to have declined only slightly to an annual 2.5% in June from 2.6% in May, a separate Reuters survey predicted.None of the measures of inflation – the consumer price index (CPI), core CPI, PCE and core PCE – were expected to reach 2% until at least 2026, according to median forecasts in the latest poll.Just over half of economists – 17 of 30 – said inflation for the rest of the year was more likely to be higher than what they forecasted rather than lower.”Inflation has been very difficult to forecast this year and has behaved unpredictably. Rents, for example, have been far more persistent than anyone expected,” said Chris Low, chief economist at FHN Financial.”As long as we have moderate growth, the Fed can be patient,” he said.The Fed will cut rates once in each quarter through 2025, taking the federal funds rate to the 3.75%-4.00% range by the end of 2025, according to median forecasts in the survey.The U.S. economy was forecast to expand 2.3% this year, faster than what Fed officials currently see as the non-inflationary growth rate of 1.8%. It will grow 1.7% and 2.0% in 2025 and 2026, respectively, according to the poll.(Other stories from the Reuters global economic poll)(Reporting by Indradip Ghosh; Polling by Milounee Purohit, Vijayalakshmi Srinivasan and Mumal Rathore; Editing by Ross Finley and Paul Simao) Continue reading →