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WHAT YOU NEED TO KNOW!

PREPARE FOR A HARD LANDING!



The Yield Curve & Christine Lagarde Agree... Don't Expect A "Soft Landing"! The curve has inched slightly back up but remains stubbornly inverted, and now even the Wizards of Global Finance themselves like European Central Bank President Christine Lagarde are warning against assuming a “soft landing” is anything but assured for the global economy.

Inflation and growth factors are now tumbling in a 'recessionary' kind of way (CHART RIGHT).

All of which has prompted a surge in rate-cut hopes, with 2024 expectations at their highest since April (61bps) as 2025 is now pricing in four full rate-cuts.

RESEARCH

THE TIME FOR THE "INDIRECT EXCHANGE" HAS ARRIVED!

• There is NOTHING SAFE or RISK FREE in Storing wealth in Fiat currency or Sovereign Bombs (.. er BONDS)! 
• Holding Fiat Currencies is not a way to STORE WEALTH and Value, or CREATE cash flow!
• Storing wealth in PAPER is a RECIPE for CONFISCATION of your WEALTH! 
• Since going of the Gold Standard the US Dollar became a FIAT Currency because it can't assure it will be a Store of Value. Specifically, it can be debased by simply creating more of it. That is the problem we have today. The dollar continues to lose its purchase power because of the expansion of the money supply at a greater rate than the creation of real wealth.

THE MASTER OF THE INDIRECT EXCHANGE - Berkshire Hathaway

• There is no better example than the King of the Indirect Exchange - Warren Buffett and Berkshire Hathaway. Buffett has an extensive portfolio of various types of Insurance companies which we will use as an example.
• Buffett takes continuously diminishing paper money and exchanges it for companies which create more (cash flow) than they consume for inelastic (basic industries) products and services for Consumers.
• He then rides the waves of Inflation and Deflation (Booms and Busts of fiat currencies and credit based financial system) to create opportunities just like bankers do!
• Buffett sells paper claims (Insurance) whose claims are constantly debasing; (Money creation reduces the purchasing power of paper claims) and invests in Real things (will re-price to reflect the lower purchasing power of the currency they are denominated in) that cash flow.
• His Insurance liabilities recede at the rate of debasement, while his Wealth multiplies with:
• Cashflow and
• Repricing of the asset in debasing IOU's (known as Fiat Currency)

Q2 EARNINGS SEASON

• Investors are increasingly worried about the deviation of earnings expectations being so far above long term growth trends.
• NVIDIA, Amazon.com, Meta Platforms, and Alphabet are expected to report year-over-year earnings growth of 56.4% for the second quarter. 
• Excluding these four companies, the blended (combines actual and estimated results) earnings growth rate for the remaining 496 companies in the S&P 500 would be 5.7% for Q2 2024.
• Overall, the blended earnings growth rate for the entire S&P 500 for Q2 2024 is 9.7%. 

DEVELOPMENTS TO WATCH

1- DECEMBER 2023 - THE ELECTION YEAR PUMP

• Beginning in December 2023 Government Personal Income Transfer Payments to Social Benefits for Persons (Illegal Immigrants) began.
• Over 6 Months it totaled ~$1Trillion.
• This Direct Treasury Liquidity Injection triggered an unprecedented Election Year Market Surge.

2- NATO - EXPLODING DEFENSE SPENDING

• In 2023, the U.S. accounted for $860 billion spent by member countries in the organization, representing 68% of the total expenditure.
• This amount is over 10 times more than that of the second-placed country, Germany.
• Twenty-three of NATO’s 32 members are now meeting the minimum level of annual defense spending (2% of GDP), stipulated for countries in the alliance. This is up significantly from 10 member countries in 2023.

GLOBAL ECONOMIC REPORTING

ADVANCED RETAIL SALES

• The Y-o-Y retail sales growth slowed to just 2.3% - the slowest since February.
• May 2024's upward revision was the largest since May 2023.
• Core (Ex-Autos) retail sales soared 0.4% MoM (well above the 0.0% exp) and May was also revised higher.

INDUSTRIAL PRODUCTION

• The Y-o-Y retail sales growth slowed to just 2.3% - the slowest since February.
• May 2024's upward revision was the largest since May 2023.
• Core (Ex-Autos) retail sales soared 0.4% MoM (well above the 0.0% exp) and May was also revised higher.

FED DISTRICT BANK SURVEYS

• 5 out of 12 Fed Districts Show Flat or Declining Economic Growth.
• Very recessionary because it is very recessionary. Within 2-3 months a majority will highly likely be in decline.

In this week's "Current Market Perspectives", we focus on the signals that sentiment, fundamentals and various markets (Credit, Bond and Equity) are currently giving us.

=========

THE TIME FOR THE "INDIRECT EXCHANGE" HAS ARRIVED!

2024 SITUATIONAL ANALYSIS

1. There is NOTHING SAFE or RISK FREE in Storing wealth in Fiat currency or Sovereign Bombs (.. er BONDS)! 
2. Holding Fiat Currencies is not a way to STORE WEALTH and Value, or CREATE cash flow!
3. Storing wealth in PAPER is a RECIPE for CONFISCATION of your WEALTH! 

In today's world, Growth is a function of a printing press: consumption represented as production and Credit Creation.

• We HAD ~$62T in government debt, on a global economy as measured by GDP in 2020, of ~$84.96Tdebt.
• It will be $82T in 2022 with an expected GDP of $104T.
• This is ~$20T of new Debt to grow the Global economy by the same ~$20T!
• ARE WE GROWING DEBT OR GDP??
• It makes you wonder whether we are growing the economy or just debt??

To understand why this is, you need to understand what Money is.

WHAT IS MONEY?

• Money can be anything we collectively decide is money. However, for it to function well and be sustainable it must be able to be a:

i) Medium of ex- change

ii) Store of value and

iii) Unit of account

• Money must possess six characteristics:

1. Divisible
2. Portable
3. Acceptable
4. Scarce
5. Durable and
6. Stable in value

IT IS ABOUT THE LOST PURCHASING POWER OF FIAT CURRENCIES

Since going of the Gold Standard, the US Dollar became a FIAT Currency because it can't assure it will be a Store of Value. Specifically, it can be debased by simply creating more of it. That is the problem we have today. The dollar continues to lose its purchase power because of the expansion of the money supply at a greater rate than the creation of real wealth.

WHAT IS THE INDIRECT EXCHANGE?

The Indirect Exchange is Ludwig von Mises solution for surviving a Currency and Financial Extinction Event.

In its most simple terms the Indirect Exchange is:

Exchanging Something of Uncertain Value (Fiat Money)

for Something of Real Value (Real Wealth)

that Cash Flows.

It is Key to Understand that Real Wealth can only be created by:

1. GROWING IT
2. MINING IT
3. BUILDING IT
4. MANUFACTURING IT

YOU CAN'T JUST PRINT IT!!

The creation of wealth comes about by producing more than you consume, where producing may be a company's goods or services it provides and the wealth creation is the net discounted free cash flow it creates. Those profits or savings, when invested into producing valued assets, improves the standard of living for everyone. Capitalism is about the creation of real wealth.

We do not currently operate in a Capitalist System but rather a Credit System, where rather than savings being created we create credit that is used for consumption (rather than productive asset). This does not raise the Standard of Living for everyone but only the fiat creators of the initial credit.

THE MASTER OF THE INDIRECT EXCHANGE - Berkshire Hathaway

Warren Buffett is known to be different because he:

• Always plans to hold for the Long Term to capitalize on the Indirect Exchange
• Buys Companies with a competitive "Moat" - Monopolies preferred
• Buys VALUE by assessing Price vs Value
• Finances new acquisitions with Berkshire Hathaway's free cash

BUFFETT'S BIGGEST BUYS IN THIS BULL MARKET RUN

There are only a few stocks Buffett and his portfolio managers have found particularly attractive during the current bull market.

Berkshire made headlines last year when it started buying a "mystery stock" -- one that it received permission from the Securities and Exchange Commission to keep confidential in its quarterly filings. After months of speculation, in its most recent 13F disclosure, the conglomerate revealed that the mystery position was commercial property and casualty insurance company Chubb (CB 0.07%).

Buffett is very familiar with the insurance business. One of the first businesses he bought after taking over Berkshire Hathaway (which originally was a textile company) was a small Omaha-based insurance company, National Indemnity. Over the years, insurance has become a core piece of Berkshire's operations. So his investment in Chubb speaks loudly. As of this writing, Berkshire's stake in Chubb was worth about $6.8 billion.

HOW DOES THE INDIRECT EXCHANGE WORK?

The best way to describe how the Indirect Exchange works is to give an example. There is no better example than the King of the Indirect Exchange - Warren Buffett and Berkshire Hathaway.

Buffett has an extensive portfolio of various types of Insurance companies which we will use as an example.

• Buffett takes continuously diminishing paper money and exchanges it for companies which create more than (cash flow) they consume for inelastic (basic industries) products and services for Consumers.
• He then rides the waves of Inflation and Deflation (Booms and Busts of fiat currencies and credit based financial system) to create opportunities just like bankers do!

"The Stock Market Could Close tomorrow and the Federal Reserve could quit printing money or double it and we wouldn't be affected long term" -- Warren Buffett

• Buffett sells paper claims (Insurance) whose claims are constantly debasing, (Money creation reduces the purchasing power of paper claims), and invests in Real things (will re-price to reflect the lower purchasing power of the currency they are denominated in) that cash flow.
• His Insurance liabilities recede at the rate of debasement, while his Wealth multiplies with
• Cashflow and
• The repricing of the asset in debasing IOU's (known as Fiat Currency)
• The math becomes (an illustration only):
• Liabilities debase at the rate of inflation (realistically 8-9%)
• Cashflows 9%
• Real Repricing to reflect the lost Purchasing Power of the Currency it is denominated in - 8-10%
• Result: 8 + 9 + 8 = 25%

HOW TO FINANCE THE INDIRECT EXCHANGE



Mr. Buffett’s most recent JPY- denominated debt issuance -- $1.7bn in April, (perhaps to be deployed in BUYING CHUBB?) This was one of the more interesting moves of the year.  

BUFFETT GETS THE CASH TODAY AND PAYS IT BACK IN THE FUTURE IN DEVALUED PAPER

(while making big ongoing profits in addition to devaluing policy payout values).

Q2 EARNINGS

KEY NETRICS

• Earnings Scorecard: For Q2 2024 (with 14% of S&P 500 companies reporting actual results), 80% of S&P 500 companies have reported a positive EPS surprise and 62% of S&P 500 companies have reported a positive revenue surprise.
• Earnings Growth: For Q2 2024, the blended (year-over-year) earnings growth rate for the S&P 500 is 9.7%. If 9.7% is the actual growth rate for the quarter, it will mark the highest year-over-year earnings growth rate reported by the index since Q4 2021 (31.4%).
• Earnings Revisions: On June 30, the estimated (year-over-year) earnings growth rate for the S&P 500 for Q2 2024 was 8.9%. Five sectors are reporting higher earnings today (compared to June 30) due to upward revisions to EPS estimates and positive EPS surprises.
• Earnings Guidance: For Q3 2024, 5 S&P 500 companies have issued negative EPS guidance and 5 S&P 500 companies have issued positive EPS guidance.
• Valuation: The forward 12-month P/E ratio for the S&P 500 is 21.2. This P/E ratio is above the 5-year average (19.3) and above the 10-year average (17.9). 
• 

WHAT'S THE EARLY TONE OF Q2 EARNINGS?

• In a word: UNEVEN 

CHART RIGHT: Investors (including ourselves) are increasingly worried about the deviation of earnings expectations being so far above long term growth trends.

• The banks were a mixed bag with major dispersion across the big names (see Money Center Banks Below). 
• A set of non-Magnificent Seven, yet high profile tech companies -- ASML, TSM and NFLX -- were generally pushed around:

1. ASML was hit very hard for a few reasons ...
2. TSM chopped despite a beat-and-raise ...
3. NFLX is neither fish nor fowl. 

• To level set - expectations were elevated coming into this:
• One year ago, consensus was calling for an earnings decline of 9%,
• While this year the expectation is for growth of 9%.
• That has proven to be a challenge so far. 
• As we head into a stretch that will be heavily dominated by the mega cap tech names, NDX is off 4% from the local highs, yet still 21% above the Q1 lows. 
• The bar was set high, and now the onus shifts to the best companies on the planet to deliver.
• Earnings expectations into the Q2 earnings season are high: for the aggregate S&P 500 index, consensus expects 9% year/year EPS growth, the highest level of expected growth since 2021. Expectations for the mega cap tech stocks in particular are elevated, and with record index concentration disappointing results from them, could weigh on the index.

MONEY CENTERED BANK EARNINGS LEAD THE WAY

• CITI
• Citigroup said quarterly profits rose 10 per cent from last year, even as the bank faced higher losses in its credit card business and a $136mn regulatory fine.
• The bank earned a better than expected $3.2bn in the quarter. Revenue increased to more than $20bn, up from $19bn a year ago.
• Citi’s corporate and investment bank was the largest driver of profits for the second consecutive quarter, after a resurgence in dealmaking and debt offerings.
• Citi is midway through a restructuring announced last September. It has promised to cut as many as 20,000 jobs by 2026 to boost returns that have lagged behind rivals.
• Nine months into the program, Citi has already reduced the number of employees by 11,000, but substantial cost reductions have yet to materialize.
• The bank’s quarterly earnings were also weighed down by losses tied to consumer lending, as higher interest rates have started to hurt cash-strapped US households.
• Profits in Citi’s US credit card and consumer banking businesses fell 74 per cent from a year ago.
• Credit losses in those businesses cost the bank $2.3bn in the quarter, up from $1.5bn a year ago, largely driven by a rise in delinquent credit card borrowers.
• Year-on-year growth in revenue from credit cards, issued on behalf of retailers such as Costco or Home Depot, also dropped to 6 per cent, from 18 per cent in the first quarter, is a sign consumer spending is weakening.

• BANK OF AMERICA (BAC)
• Beat on top and bottom line and CFO expects NII to rise in Q3 and Q4.
• Mostly stronger than expected, however there were several rather notable red flags including:
• A miss in FICC, Wealth and Investment Management, the company's NIM came in below expectations while charge-offs hit a multiyear high. 
• Net Interest Yield dropped, sliding to 1.93% from 1.99% and missing the 1.95% estimate, as a result of "higher deposit costs." Net Interest Income also missed, dropping to $13.7BN, below the $13.8BN estimate, dropping from $14.0BN and the lowest in years.

• GOLDMAN SACHS (GS)
• Goldman Sachs reported second quarter profits, which more than doubled to $3bn as both fixed-income and equity traders outpaced analysts’ estimates, offset by a small miss in investment banking, while a rebounding capital-markets business helped drive better-than-expected results across much of the company’s Wall Street operations.
• Net income of just over $3 billion exceeded the $2.8 billion analysts were expecting and was up 150% from $1.2bn a year earlier, when it was plagued by losses in real estate investments and the consumer-banking unit in the middle of an industrywide dealmaking slowdown.
• This translated to a 180% increase in EPS to $8.62, beating estimates of $8.34, and was thanks to revenue of $12.73 billion, which also beat estimates of $12.46 billion and was 17% higher than a year ago.

• JP MORGAN (JPM)
• A strong showing except that miss by FIC (more on that below).
• What is notable is that for yet another quarter JPM reported record quarterly profit of $18.1 billion, up $3.7 billion YoY, thanks to revenue beats by the company's equity traders and investment bankers, while Net Interest Income printed at $22.86BN, just above the $22.82BN expected. The "unmanaged" number came in just below estimates, even though the net yield on interest-earning assets was 2.62% below the estimate of 2.65%.
• Much of the bottom-line surge was one-time as JPM took a multibillion-dollar gain ($7.9BN pretax) tied to a Visa share exchange.
• The bank also recorded $546 million in net investment securities losses.
• JPM's net income was only $13.1 billion, down from both a quarter ago and a year ago.
• JPM's return on equity hit 23%, and that’s up to 28% if you follow the bank’s ROTCE stat.
• As for the bank's CET1 capital ratios, the standard came in at 15.3% and advanced hit 15.5%. This means that the bank’s total loss-absorbing capacity is now $534 billion.

• MORGAN STANLEY (MS)
• Missed on wealth management revenue and AUM.
• Did beat on EPS, revenue, and other key metrics.
• CEO says dividends are the highest priority in the use of capital, not thinking about acquisitions in the short term.

• CHARLES SCHWAB (SCHW)
• Bank deposits and net interest revenue fell.

• WELLS FARGO ( WFC )
• NII and NIM disappointed forecasts, with FY NII guidance marginally lower than expected.
• CFO expects FY NII decline to be in the upper half of the forecast range.
• CFO said revenue-related expenses drove costs higher and growth 'weaker than we thought'.

GLOBAL BANK PERFORMANCE OVER THE PAST TWO YEARS

• US (BKX) +16%
• EU (SX7E) +116%
• Japan (TPNBNK) +150%.

How to reconcile this?

What was the best way to get the best bang for your buck from higher rates?

• Japan (coming off negative rates for decades, which decimated bank profitability) and trading at 0.45x book, were the cheapest higher rates play globally, followed by Europe (0.6-0.7x book value), then followed by the US (over book value). 
• In addition, Europe and Japan have seen much less repricing of deposits vs the US as rates have increased (less competition from MM funds) and don’t have the same issues with commercial real estate, increased regulation or unrealized losses on securities portfolios.

MAGNIFICENT 7 EARNINGS EXPECTATIONS

A number of the companies in the “Magnificent 7” saw their stock prices increase during the second quarter, which helped to drive the value of the S&P 500 higher during this period.

Are companies in the “Magnificent 7” also expected to drive earnings higher for the S&P 500 for the second quarter? The answer is yes. Four of the companies in the “Magnificent 7” are projected to be among the top five contributors to year-over-year earnings growth for the S&P 500 for Q2 2024.

These four companies (in order of highest to lowest contribution) are NVIDIA, Amazon.com, Meta Platforms, and Alphabet.

Outside of the “Magnificent 7” companies, Merck is expected to be the top overall contributor to earnings growth for Q2 for the index. Merck is benefitting from an easier comparison to a loss reported in the year-ago quarter. In aggregate, these four “Magnificent 7” companies are expected to report year-over-year earnings growth of 56.4% for the second quarter.

Excluding these four companies, the blended (combines actual and estimated results) earnings growth rate for the remaining 496 companies in the S&P 500 would be 5.7% for Q2 2024. Overall, the blended earnings growth rate for the entire S&P 500 for Q2 2024 is 9.7%.

Analysts predict these four companies in aggregate will report year-over-year earnings growth of more than 25% for the remaining two quarters of 2024. However, it is interesting to note that analysts believe the other 496 companies in the index will report double-digit (year-over-year) earnings growth starting in Q4 2024.

DEVELOPMENTS

1- DECEMBER 2023 - THE ELECTION YEAR PUMP

• Beginning in December 2023 Government Personal Income Transfer Payments to Social Benefits for Persons (Illegal Immigrants) began. (Chart Right)
• Over 6 Months of government handouts totaled ~$1Trillion.

CHART BELOW

• This Direct Treasury Liquidity Injection triggered an unprecedented Election Year Market Surge in equities.
• Yields rose as it was seen to be an inflationary consumption impulse to shelter, food and services.

By February the economy was already showing increasing Inflation data surprises. This coupled with negative Growth surprises has now led to mounting Recession expectations as the surge in Government Transfer payments is subsiding.

NATO - MEMBERS RAMPING SPENDING IN AN UNPRECEDENTED MANNER

Non-U.S. members of the North Atlantic Treaty Organization (NATO) have increased their expenditure on defense, with a big spike after the Russian invasion of Ukraine in 2022.

This graphic, via Visual Capitalist's Marcus Lu, visualizes the annual percentage change in defense expenditure among NATO members (excluding the U.S.) since 2012 in real terms.

Non-U.S. NATO Members are Ramping Up Defense Spending

• NATO members have significantly increased their defense spending over the past two years, likely due to the ongoing conflicts in Ukraine and, more recently, in Israel.
• Twenty-three of NATO’s 32 members are now meeting the minimum level of annual defense spending (2% of GDP) stipulated for countries in the alliance. This is up significantly from 10 member countries in 2023.
• The majority of these expenditures will finance troops. It also includes payment of pensions, expenditures for peacekeeping and humanitarian operations, and investment in research and development (R&D).
• Despite the growth in expenditures by non-U.S. members, America is still the most significant contributor to NATO’s budget. In 2023, the U.S. accounted for $860 billion spent by member countries in the organization, representing 68% of the total expenditure. This amount is over 10 times more than that of the second-placed country, Germany.
• If you enjoy posts like these, check out Breaking Down $1.3T in NATO Defense Spending, which visualizes the expected defense expenditures of NATO members in 2023.

GLOBAL ECONOMIC INDICATORS:

What This Week's Key Global Economic Releases Tell Us

ADVANCED RETAIL SALES

On a non-seasonally-adjusted basis, real retail sales (roughly 'adjusted' for CPI) tumbled Y-o-Y in June.

(CHART RIGHT).

• The Y-o-Y retail sales growth slowed to just 2.3% - the slowest since February.
• May 2024's upward revision was the largest since May 2023.
• Core (Ex-Autos) retail sales soared 0.4% MoM (well above the 0.0% exp) and May was also revised higher.
• Non-store retailers (online) were the biggest driver of the gains in June while motor vehicles and parts dealers saw sales plunge.

INDUSTRIAL PRODUCTION

US industrial production rose a better than expected 0.6% MoM in June (double the 0.3% jump expected but slower than the 0.9% surge in May). This pulled industrial production up 1.6% YoY - the best since Oct 2022.

Manufacturing production also surged in June, (jumping 0.4% MoM vs +0.1% exp), and May was revised up from 0.9% to +1.0% MoM). That MoM jump pulled the YoY change up to +1.1%.

Capacity Utilization also increased significantly to 78.8% in June.

FED DISTRICT BANK SURVEYS

5 out of 12 Fed Districts Show Flat or Declining Economic Growth

The Progression:

• Modest to Slight or Flat (2)
• Slight to Flat or Decline (5)
• Flat to Decline (3)
• Already Declining (2)

This looks very recessionary because it is very recessionary.

Within 2-3 months, a majority will highly likely be in decline.

Recession When?

I thought recession started in May or June and I have seen little to change my mind,

but perhaps I am a couple months early. Mish Shedlock (Former Macro Analytics Co-Host)

GLOBAL MACRO

WHAT DOES YOUR SCAN OF THE DATA BELOW TELL YOU? - THE MEDIA AVOIDS BAD NEWS!

We present the data in a way you can quickly see what is happening.

THIS WEEK WE SAW

Exp=Expectations, Rev=Revision, Prev=Previous

OUR FIRST GAP DOWN IN NVIDIA?!?!

"MARKET TOPS ARE A PROCESS" - MAJOR TOPS ARE A LONG PROCESS



Click All Charts to Enlarge

NVIDIA: This week we experienced our FIRST Gap Down in NVDA since it started its meteoric rise! Then also fell another 2.55 on Friday's Options expiration. We now have the potential beginnings of a down TREND channel, however, note we have long term Momentum support (lower pane) not too far below Friday's close.

1 - SITUATIONAL ANALYSIS

THIS WEEKS RECAP

EARLIER IN THE WEEK

• The Russell 2000 has outperformed the Nasdaq by 12% (the biggest 1-week outperformance since the TMT bubble burst)
• The Russell has outperformed the S&P 500 by 10% (the biggest 1-week outperformance since the Black Monday market crash in 1987).
• US equities have seen a strong broadening move - 76% of stocks have outperformed the benchmark in the last week, in-line with the best 1W breadth in at least 20 years.
• Under the hood there have also been clear signs of risk-on moves with Unprofitable Tech up 11 days in a row, the best ever run for the basket.
• The Russell's 14D RSI is up to 81, the most overbought level in 7 years.

JULY OPTIONS EXPIRATION

• The world's largest IT outage Friday did nothing to help the week as CrowdStrike accidentally confirmed the reality of an 'almost internet kill-switch', leaving Nasdaq suffering its worst week since April (with MAG7 basket down around 4%). Small Caps and The Dow ended the week higher while S&P joined Nasdaq in the red.
• The relative underperformance of Nasdaq vs Small Caps in the last two weeks is the largest since the reversal at the top of the dotcom bubble in 2001.
• Nasdaq is only down a little in July while Russell 2000 remains up over 7%.
• The cap-weighted S&P underperformed the equal-weight S&P by 250bps this week, (the most since Nov 2020 - election/vaccines), and by 450bps in the last two weeks.
• The Magnificent 7 stocks have lost $1.3 trillion in market cap since the peak on 7/10 - the biggest 7-day drop for that basket ever.
• VIX had a big week surging back above 16 - its biggest absolute weekly jump since March 2023 (SVB implosion). It wasn't just VIX - skews all started to blow out this week and implied correlation surged back off record lows.
• WTI tumbled back to an $80 handle - the lowest in a month (from two-month highs).

A SHIFT TO SOFT LANDING EXPECTATIONS

The market is indicating a shift to a potential "Soft Landing" scenario from a "No Landing" growth scenario.

This is confirmed by key measures shown below (dotted box) with each supporting chart further below.

US RETAIL SALES & RECESSIONS

This week's June Retail Sales indicated NEGATIVE 0.68% Y-o-Y nominal growth. The US is a slightly less than 70% consumption economy. In the past, retail sales trended sideways preceding a Recession.

CHART BELOW

Equities have outperformed bonds despite a rise in the unemployment rate.

1- CREDIT - JNK

CREDIT ALWAYS LEADS - Heightened Caution Is Warranted!

CHART RIGHT

The last time CCC/B diverged, it was the dot-com warning.

CHART BELOW

High yield credit has not been confirming the rally in stocks. It is warning there are problems in the underlying credit world.

CHART BELOW

• Prices have been steadily rising with the 100 DMA now having crossed the 100 DMA.
• We appear to be competing an ABCDE Corrective pattern within Wave 2.
• Wave 2 should end by August.
• Prices then can be expected to fall with spreads widening.

2- TREASURIES - TNX

• The 10Y US Treasury Note Yield (TNX) continues to weaken as the 40 WMA breaks the 50 DMA to the downside.
• Support appears to be the 80 WMA (in black) at ~4.10%.
• The MATASI Proprietary Momentum Indicator (lower pane) suggests near term support has been found (the black line) is likely to soon be broken, taking the yield to ~4.1%.

3- THE US DOLLAR - DXY

• The US Dollar is starting to show weakness as it drops below all its daily moving averages.
• The tightly banded moving averages may soon see the 50 DMA break through the 100 DMA to downside.
• As rate cut expectations grow, we can expect the dollar to weaken further.

4- COMMODITIES - GOLD & SILVER

• On Wednesday, Gold broke higher to a new high on a weakening US Dollar. By Friday's close, Gold had retraced much of its potential breakout gains.
• Gold also broke its overhead Momentum resistance (lower pane) before falling back to its lower Momentum support trend line.

5- S&P 500

• The S&P 500 sold off by ~79 points on Wednesday to 5588.
• The Magnificent 7 stocks have lost a staggering $1.1 Trillion in market cap in the last five days, taking the S&P 500 down with it.
• The S&P 500 appears to be near a major long term "Doom" top, which we should complete in the not too distant future. Equity markets normally weaken significantly at the time of the first Fed Rate cut, reflecting the reason the Fed is cutting - weakening economic conditions and hence the possibility of weakening earnings going forward..

2 - FUNDAMENTAL ANALYSIS

WHEN RUSSELL 2000 (Small Caps) OUTPERFORM RUSSELL 1000 (Large Caps)

When the Russell 2000 (Small Caps) outperform the Russell 1000 (Large Caps) by 3% or more - the S&P 500 has been higher in every instance one year later by 32% since 1979! The last five days have seen Small Caps (Russell 2000) outperform Large Caps (Russell 1000) by the largest amount in history (going back to 1979).

The earnings outlook for small caps has started to improve:

• Consensus revenue and net income growth forecasts for the Russell 2000 show a strong recovery in late 2024, with it approaching the S&P 500.
• Data on Russell 2000 futures show that traders had pushed their exposure to the most net-short since 2023.
• About 25% of the $68 billion iShares Russell 2000 ETF’s free float is held short, compared with 9.9% for the $564 billion SPDR S&P 500 ETF Trust and 7.6% for the $302 billion Invesco QQQ Trust Series 1, according to data from S3 Partners.
• Last week's inflow to IWM was the largest since December 4.. The chart looks like a break-out.

WARREN BUFFETT INDICATOR

Warren Buffett Indicator hits 195%, the highest level in history, surpassing the Dot Com bubble, the Global Financial Crisis and the 2022 Bear Market

GLOBAL CENTRAL BANKS SEE A RECESSION

CHART RIGHT

The Federal Reserve, despite its public narrative, has its Financial Conditions Index about as loose as it can get it!

ALWAYS watch what central banks do - not what they talk about publicly!

CHART BELOW

The policy pivot has started. With the major exception of the US Federal Reserve, global central banks have on a net basis began loosening.

3 - TECHNICAL ANALYSIS.

MARKET DRIVERS

"AS GO THE FINANCIALS, SO GO THE BANKS: AS GO THE BANKS, SO GO THE MARKETS."

MATASII FINANCIAL STOCK INDEX

We continue to keep an eye on both the Bank and Financial stocks to give us an early signal of market direction. We have been showing the banks over the last few weeks, but the Financials now appear to be giving a clearer signal.

• The MATASII Financial Index has broken strongly to the upside.
• Momentum (bottom pane) has found long term support and appears to want to head to the overhead resistance trend line, shown by a dotted descending orange momentum trend line.

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

MATASII BANK STOCK INDEX

• The MATASII Bank Index has surged to and through its upper trend line (black dashed line) before retreating on Friday.
• The "e" Wave may possibly be completed here, at our original target price.
• Momentum (bottom pane) also broke the overhead resistance trend line, (shown by a dotted descending orange momentum trend line) before also retreating.
• The high may now be in.

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

As goes NVDA, so goes the MAG-7, As Goes Mag-7 so goes The Market.

Investment benefactors are often not the big winners.

NVDA - Daily

CHART RIGHT: NVDA v the darling of the Dotcom Bubble (for those who recall), CSCO was dominant. It appears that was nothing!

• NVDA gapped lower on Wednesday finding initial support just above the 50 DMA - likely to minimally touch the 50 DMA.
• Momentum (Lower pane) has plunged lower and still has more to go before finding Momentum support.
• The Dotted Black Trend line in the MATASII Proprietary Momentum Indicator (lower pane below) has clearly indicated this sell-off was coming.

Divergence is normally seen as a warning to the downside and is still ahead if the Divergence isn't removed by a movement higher in Momentum.

• At some point, the major unfilled gaps (at much lower levels) must be filled. NVDA therefore may no longer become a Short to Intermediate Long Term hold, but rather a position trading stock as others entering the space and force margins to contract. 

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

MAGNIFICENT 7

• The Magnificent 7 stocks have lost $1.3 trillion in market cap since the peak on 7/10 - the biggest 7-day drop for that basket ever.
• The basket of 'Magnificent 7' stocks sold down again on Wednesday.
• The momentum Divergence signal, which had been clearly broken (bottom pane), tested it as support, which we cautioned it would likely do.
• Continued caution is advised since major global "Dark Pools" have been identified as presently operating behind the scenes on the Mag-7.

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

DISTRIBUTION & ROTATION ACCELERATING - FURTHER WEAKENING TECH - SURGING SMALL CAP

THE RUSSELL SURGES (Above): As earning season gets underway, the market is chasing small caps, while distribution in tech and the Mag-7. shows itself. Fund Managers are minimally protecting themselves from possible negative earning surprises &/or are rotating their weighting from big tech to small cap value.

THE EQUAL WEIGHT (Above):

• The MATASII CROSS has given a BUY signal to the Equal Weight EFF (RSP).
• It appears Wave 5 of a five wave impulse wave is now underway.

"CURRENCY" MARKET (Currency, Gold, Black Gold (Oil) & Bitcoin)

10Y REAL YIELD RATE (TIPS)

Real Rates reached our initial overhead resistance level of 2.25% before falling off hard as part of our expected "x" leg lower (chart right). We are approaching support and a potential turn upward in yields.

Two alternative resolutions have developed.

Gold is suggesting it will be resolved by a fall in real rates (chart lower right).

CONTROL PACKAGE

There are TEN charts we have outlined in prior chart packages, which we will continue to watch closely as a CURRENT Control Set:

1. US DOLLAR -DXY - MONTHLY (CHART LINK)
2. US DOLLAR - DXY - DAILY (CHART LINK)
3. GOLD - DAILY (CHART LINK)
4. GOLD cfd's - DAILY (CHART LINK)
5. GOLD - Integrated - Barrick Gold (CHART LINK)
6. SILVER - DAILY (CHART LINK)
7. OIL - XLE - MONTHLY (CHART LINK)
8. OIL - WTIC - MONTHLY - (CHART LINK)
9. BITCOIN - BTCUSD -WEEKLY (CHART LINK)
10. 10y TIPS - Real Rates - Daily (CHART LINK)

US EQUITY MARKETS

CONTROL PACKAGE

There are FIVE charts we have outlined in prior chart packages that we will continue to watch closely as a CURRENT "control set":

1. The S&P 500 (CHART LINK)
2. The DJIA (CHART LINK)
3. The Russell 2000 through the IWM ETF (CHART LINK)
4. The MAGNIFICENT SEVEN (CHART ABOVE WITH MATASII CROSS - LINK)
5. Nvidia (NVDA) (CHART LINK)

S&P 500 CFD

• The S&P 500 cfd has shown weakness this week as Big Tech gets hit harder than has recently been witnessed.
• There is a strong possibility we may have a price channel "through-over" before retesting the rising trend channel.
• The MATASII Proprietary Momentum Indicator (middle pane) has not yet broken the concerning Divergence pattern shown by the descending orange dotted trend line.

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

S&P 500 - Daily - Our Thought Experiment

OUR CURRENT ASSESSMENT IS THAT THE INTERMEDIATE TERM IS LIKELY TO LOOK LIKE THE FOLLOWING:

NOTE: To reiterate - "the black labeled activity shown below, between now and July, looks like a "Killing Field", where the algos take Day Traders, "Dip Buyers", the "Gamma Guys" and FOMO's all out on stretchers!"

• The S&P 500 has been weak this week after previously breaking to new highs.
• The MATASII Proprietary Momentum Indicator (middle pane) has not yet broken the concerning Divergence pattern shown by the descending orange dotted trend line. Lower prices are likely.

STOCK MONITOR: What We Spotted

BOND MARKET

CONTROL PACKAGE

There are FIVE charts we have outlined in prior chart packages that we will continue to watch closely as a CURRENT "control set":

1. The 10Y TREASURY NOTE YIELD - TNX - HOURLY (CHART LINK)
2. The 10Y TREASURY NOTE YIELD - TNX - DAILY (CHART LINK)
3. The 10Y TREASURY NOTE YIELD - TNX - WEEKLY (CHART LINK)
4. The 30Y TREASURY BOND YIELD - TNX - WEEKLY (CHART LINK)
5. REAL RATES (CHART LINK)

FISHER'S EQUATION = 10Y Yield = 10Y INFLATION BE% + REAL % = 2.298% + 1.908% = 4.206%

10Y UST - TNX - Hourly

• The TNX rose at the end of the week week, as it reaches for its 144 EMA.
• Importantly in the near term is that Momentum (lower pane) appears to have reached a longer term overhead support level.
• We have labeled an Alternative ALT ABCDE count that is inline with the movements in the Real Rate Yields (chart shown above).

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

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2020 VIDEOS OUTLINING THE COMING RISE IN INFLATION, STAGLFLATION & COMMODITY PRICES

THE REGULATORY STATE

RELEASED - 01-17-24 --- 212 Page Paper

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