Economist’s “News and Views” Wednesday 10-2-2024
BE CAREFUL! This Is Serious - The Crash Will Be WORSE Than 2008 - Chris Vermeulen
Finance Flow: 10-1-2024
America's slowing job market is weighing heavily on consumer sentiment. The latest survey from the Conference Board reveals that Americans have become significantly more pessimistic about the current state of the U.S. economy and the future of the job market.
Adding to these concerns are exceedingly high debt levels across major global economies, increasing the likelihood of not just one but potentially multiple debt crises ahead. In the U.S., the Congressional Budget Office projects that the debt-to-GDP ratio will surpass 150% by 2034, up from the current 98%, pushing the nation's debt to its highest level in history.
Chris Vermeulen of The Technical Traders, speaking with Liberty and Finance, shares his insights on the current market, suggesting that a significant decline may be on the horizon as the stock market shows signs of topping out.
He points to several warning signals, including worsening economic data, rising unemployment, maxed-out business sales, skyrocketing credit card debt, and increasing mortgage delinquencies in both commercial and residential sectors. Vermeulen believes these are typical indicators of a Stage 3 market environment, where underlying issues begin to worsen before becoming more visible.
More stocks are joining the S&P 500's recent surge to record highs, easing earlier concerns that the 2024 rally was primarily driven by a few giant tech companies.
The index is on pace to gain 5% in the third quarter, which ends on Monday. This time, however, optimism surrounding the Federal Reserve’s rate cuts is encouraging investors to move into regional banks, industrial companies, and other sectors poised to benefit from a stronger economy and lower interest rates, in addition to the tech stocks that have already seen significant gains this year.
Despite this positive momentum, Chris Vermeulen warns of several concerning signs that suggest the stock market is beginning to break down, even though the indexes continue to perform well. He foresees a potential correction of 30%, 40%, or even 50%, noting that the 2022 pullback of around 25% was just a precursor to what might be coming.
The Federal Reserve began its first rate-cutting cycle in four years earlier this month with a 50-basis point reduction, a move that Chairman Jerome Powell described as a measure to protect a resilient economy. According to LSEG data, traders are giving equal odds for another large rate cut when the Fed meets again in November, and they are forecasting over 190 basis points of cuts by the end of 2025.
Several sectors of the stock market are benefiting from the expectation of lower rates and stable growth. The S&P 500’s industrial and financial sectors, considered among the most sensitive to economic shifts, have gained 10.6% and nearly 10%, respectively, in the third quarter.
Chris Vermeulen explains that even if the Federal Reserve continues to cut rates, as it did during the 2008 financial crisis, it won't necessarily save the stock market. He notes that during times of panic, investors often rush to sell their portfolios, particularly those trading on margin, which forces brokers to execute sales regardless of rate cuts.
This selling pressure, driven by fear and forced liquidations, can overwhelm any potential positive impact from the Fed's rate cuts.
'I'll Cripple You': Port Workers Strike, Will Inflation Spike? | Brian Belski
David Lin: 10-2-2024
Brian Belski, Chief Investment Strategist of BMO Capital Markets, discusses the port worker strikes, escalating tensions in the Middle East, and where the S&P 500 going to close by year-end.
0:00 - Intro
1:10 - ILA dock strikes
6:24 - Inflation outlook
8:40 - Crude oil
10:49 - Middle East tensions
13:30 - S&P 500 outlook
18:35 - Stock market valuations
20:30 - Sector preferences
24:34 - Canadian stock market
Chinese Yuan Overtake US Dollar: What's Going On?
Fastepo: 10-1-2024
China has escalated its economic rivalry with the United States, this time taking direct aim at the U.S. dollar. In recent months, Chinese financial institutions have significantly increased their short positions against the American currency, betting on its decline.
Estimates suggest that Chinese banks have allocated over $100 billion toward these positions, positioning themselves to profit from any devaluation of the dollar. The strategy revolves around sophisticated financial instruments, particularly foreign exchange swaps, which allow Chinese banks to effectively "short" the dollar.
This maneuver enables these banks to benefit from shifts in currency values. In practice, Chinese institutions swap yuan for dollars at a predetermined rate. Should the dollar depreciate by the contract’s end, the American counterpart owes more yuan, generating gains for the Chinese bank.
These activities have grown substantially, with state-run Chinese banks reportedly building up more than $100 billion in short positions by 2024.
The tactic has been deployed as part of broader efforts to stabilize the yuan without exhausting China's foreign reserves. This currency strategy is driven by the mounting pressure on the yuan, which has been weakened by both the Federal Reserve's hawkish policies and a cooling Chinese economy.
By engaging in these swaps, Chinese banks have been able to secure returns during periods of market volatility, sometimes reaping returns of up to 6% for traders involved in these deals.