Summary – A top-down review of interesting calls and comments made last week in Treasuries, monetary policy, economics, stocks, bonds & commodities. TAC is our acronym for Tweets, Articles, & Clips – our basic inputs for this article.
Editor’s Note: In this series of articles, we include important or interesting Tweets, Articles, Video Clips with our comments. This is an article that expresses our personal opinions about comments made on Television, Tweeter, and in Print. It is NOT intended to provide any investment advice of any type whatsoever. No one should base any investing decisions or conclusions based on anything written in or inferred from this article. Macro Viewpoints & its affiliates expressly disclaim all liability in respect to actions taken based on any or all of the information in this article. Investing is a serious matter and all investment decisions should only be taken after a detailed discussion with your investment advisor and should be subject to your objectives, suitability requirements and risk tolerance.
1.Mid-August to Mid-September Rally?
Allow us to revisit what we wrote in Section 4 of our last week’s article:
- “Recall what Kelsey Berro said about 2000-2001, 2006-2007, 1995 – in all of these scenarios, everybody thought that the Fed had engineered a soft landing! Why should August-September 2023 be any different? So if, by some miracle or a minor brain operation, Fed Chairman Powell hints at some kind of even short term dovishness, then Treasury rates would go down & sold-off FANG-Semi-AI-software stocks & other growth stocks might rally hard.”
Look what Bespoke tweeted after Powell’s speech at Jackson Hole:
- Bespoke@bespokeinvest – Fri – Fed fund futures have Fed Funds down 100 bps to 4.25-4.5% by the December 2024 meeting. The 2-year Treasury yield is currently at 5.1%.
And how did tech stocks act on Friday after the initial Powell shock wore off?
A summary of last week:
- VIX down 9.4%; Dow down 45 bps; SPX up 82 bps; COMPX up 2.3%; NDX up 1.7%; RUT down 27 bps; DJT down 55 bps; SMH up 2.2%; AAPL up 2.3%; GOOGL up 1.9%; MSFT up 2%; NFLX up 2.8%; BAC down 2.1%; C down 2.4%; JPM down 1.3%;
- TLT up 1.6%; EDV up 2.3%; ZROZ up 3.3%;
- UUP up 80 bps; DXY up 72 bps; Gold up 1.2%; Silver up 6.4%; Copper up 1.6%; EEM up 1.3%; KWEB up 3.1%; EWZ up 2.7%; EWY up 1.6%; EWG down 44 bps
Leaving Treasuries & US Bank stocks aside for the moment, the “FANG-Semi-AI” stocks or “sexy” stocks (per Rosie’s term) went up as well the global “sexy” stocks like KWEB & Brazil. So allow us to repeat our concluding paragraph from last week, despite the pain it seems to cause some “elites” at CNBC Fast Money:
- “… be like enjoying a ride on the Bon Jovi theme train drinking all the way to meeting Earth Wind & Fire in mid-late September before or after the September Options expiration. If that doesn’t sound like a fun ride, what would?”
Having never ever been considered “sexy”, the above is our nerdy attempt to sound musically sexy while describing our belief in a mid-August to mid-September rally a la 2007.
Now our task has been made easier by the eminently successful (what else is as sexy in life as success?) Larry Williams & the respected Carley Garner by their thoughts this week about a rally at least into mid-September.
- Carley Garner via Cramer – Tuesday, Aug 22 – mid-August to mid-September rally, then cool-off & then a rally into year-end as long as 4,300 holds; if not fall to 3,900 (based on our hastily scribbled notes);
We have all heard of about the falling money-supply and heard Jeremy Siegel almost yell at Chairman Powell about that. Guess Powell heard him! As Siegel should know, the first derivative of a curve usually signals a change before the underlying curve does. And who has already signaled that turn in the rate of change of money supply? The eminent Larry Williams via Jim Cramer:
- Larry Williams via Cramer – Wednesday August 23 – rate of change of money supply usually triggers a Dow rally; … worked 19/21 times …. 12-month rate of change in money supply has moved up for 2 consecutive months; … finally now in the right direction …. beginning of a ….. rally (?)…. (we stress these are our hastily scribbled notes while listening to Cramer; … check with Cramer & CNBC before acting on the snippets above)
We understand that CNBC keeps most of their good technical clips behind Cramer’s pay-wall but that paywall exists because of regular viewers. In our opinion, CNBC would do its viewers & perhaps itself good by bringing out such important clips out of Cramer’s paywall or at least post a transcript of such clips on CNBC.com with appropriate editorial comments as they deem necessary.
For a different opinion on where the S&P and QQQ might be headed, listen to the views expressed on Friday, August 25 by Carter Worth, resident technician at CNBC Options Action:
The $SPX and Nasdaq both snapping 3-week losing streaks, but is the markets proverbial glass half full or half empty? @CarterBWorth @Michael_Khouw @BrianStutlandlay out their takes. pic.twitter.com/BZvBB5Hjfc
— Options Action (@OptionsAction) August 25, 2023
2. Treasury rates – Respite from up move Or a false breakout?
If you read the above views closely, you will notice that the case for a mid-August to mid-September S&P rally is really based on the assumption that Treasury rates will fall or at least stay flattish going forward. Recall that two weeks ago, we made a case for a rally in Treasury prices (fall in Treasury rates). That case was backed by Carter Worth on CNBC Options Action on Friday, August 6: He said in that clip:
- “Carter Worth – Rates peaked 5-yr, 10-yr, 30-yr almost a year ago. That rates are breaking out call – its the exact opposite; if we do break out, its going to be a small event a head fake that’s if we do; TLT chart has the makings of a perfect double bottom … “
Then came last week and the breakout ABOVE the October 22 levels in Treasuries – 30-yr closed at 4.372%; 10-yr closed at 4.249%. And the big event this week was Chairman Powell’s speech at Jackson Hole.
So last Friday and for most of this past week, folks on CNBC & especially on CNBC Fast Money hinted or explicitly spoke about a breakout in Treasury yields following Powell’s speech & their own expectations for inflation breaking higher.
Well, Chairman Powell did speak & that too hawkishly. But long duration Treasury rates actually fell after his speech and this week. Not only did they merely fall, but the 30-yr yield closed the week at 4.283% and the 10-yr yield closed at 4.233%, both below the breakout levels that were breached on August 18.
We have heard smart technicians say that a false breakout often has serious technical significance. So if the breakout of August 18 in 10-yr & 30-yr Treasuries turns out to be false, then that would be a big deal. In that case, this week’s rally in TLT/EDV/ZROZ (up 1.6%/2.3%/3.3%) might continue. And that would be supportive of the “sexy”-stocks rally of this week.
That brings us to our “It’s the same old story but it’s told a different way” quote from Bon Jovi’s famous song and the TLT chart from 2007.
We will know soon enough whether the 2007 precedent of a joint TLT-SPY rally from mid-August to mid-September proves to be a parallel of sorts for the next 2-3 weeks.
3. Did Carter Worth forget “it” or is that “it” just not important to CNBC?
If you click on the CNBC Options Action video clip in Section 1 above, you will hear Carter Worth speak of this past week’s action by highlighting “Dow down, Transports down, Russell 2000 down, Midcaps flat“. All true, of course. But when one highlights Dow down 45 bps. Transports down 55 bps; RUT down 27 bps , shouldn’t one highlight the much bigger declines in what might be the most important sector going forward?
We are alluding to the performance of America’s biggest banks this past week – BAC down 2.1%; C down 2.4%; JPM down 1.3%. Which sector is most related to loan-growth in the economy & to consumer’s spending power than the banking sector? Which sector has been the base of America’s credit problems, not to mention credit crunch? The banking sector is virtually screaming, at least as we hear it. Look at America’s most wounded big bank:
A 25% under-performance in one of America’s most important banks, at least in name? Notice that Citi has now fallen below its SVB-1st Republic bailout low. Doesn’t the steep drop in August suggest something is rotten somewhere? If you think this is an exception, look at Bank of America:
OMG! BAC has under-performed the SPY by 30%, 5% worse than even Citi! Fortunately, it still trades ABOVE its SVB-1st Republic bailout low! That brings us to the bluest of the blue, the most pristine bank – JPMorgan Chase:
Thankfully it looks much less worse than BAC & C. Now let us compare these 3 bank charts to 2007:
Just look at the 2023 & 2007 charts of the 3 big banks & you will notice that while these bank charts show a steep drop in August 2023, they show a similar steep drop in July 2007. If we had the ability-insights of a Tom McClellan, we would have moved the 2023 charts back by 1 month or 2007 charts forward by 1-month to see how similar the stock drops look.
What happened in & after July 2007? A Treasury rally (fall in Treasury rates) began in July 2007 and on August 3, 2007, you had the “they know nothing” rant by Cramer. Which one of these two did the trick or were both needed? Because look the 2007 charts of C/BAC/JPM and you will see either a rally or a stabilization from August 2007 into mid-October 2007. This was a 2.5-3-month move & those don’t happen without something changing underneath.
This is why we take the “rate of change of money supply bottoming” call of Larry Williams (via Cramer) quite seriously (assuming Cramer quoted him correctly). And why we think it is exceedingly important for Treasury rates to fall or at least stabilize for the next few weeks.
After all, the Powell Fed can do a lot just by reducing QT without saying anything publicly or by quietly beginning to buy long duration Treasuries in a Twist-like process.
And/Or, does a new public figure needs to stand up on national TV and pronounce a new version of “they know nothing” about the Fed? Who today has the reach & the credibility that surpasses Cramer’s by a wide margin? Who has made far more money than Cramer in the stock market? Who can appeal to today’s young voter-investors far better than Cramer can?
If Vivek Ramaswamy can stand up in his first Republican Debate and persuasively deride the climate change agenda as a “hoax”, imagine what he could do to the Fed, an institution that no one in America understands & one that rules the financial lives of Americans more than any elected or un-elected leader?
Speaking of the climate change agenda, read our adjacent article about how India’s landing of on the South Pole of the Moon has the potential to relegate today’s Climate Change plan rhetoric to a Malthusian-trap like dustbin.
4. India as a 21st century global aerospace & industrial power
Sometimes you can get lucky in addition to being smart & successful. That is the new India-Russia story.
What has been the reality of pre-Modi India in aerospace & industrial sectors? We surveyed this history in Section 4.2 The Russian Weapons Success in India of our article The Critical & Pivotal aspect of the Biden-Modi meeting & trip. This section highlighted the history of Russia delivering weapons technology & systems to an India that didn’t have this capability. Recall that the entire discussion re Ukraine-India has revolved around India being critically dependent on Russia for its military purchases.
Then this week happened. The entire world was stunned to watch live the India, they thought of a second rate aerospace, industrial & military country, do something that no other country had ever done before – soft-land its Lunar lander on the South Pole of the Moon. Then the World watched live the Indian Pradyaan Rover wheel down & travel on the moon’s utterly unexplored southern surface collecting critical data.
Russia was loath to allow India to be the first on the Moon’s south pole. After all, the first lander gets significant rights & it showcases the country’s space prowess. So Russia sent up its own Lunar vehicle after India had launched its & then tried to get ahead of India by choosing a shorter trajectory for the landing. Sadly for them, the Russian Lunar craft crashed while landing.
That made the world almost ready to hear similar bad news about India’s Chandra-Yaan-3. Instead, the world saw live the perfect soft landing of India’s “Vikram” lander on the moon’s South Pole.
The simultaneous soft landing of India’s “Vikram” lander on the Moon’s South Pole & the crash of Russia’s own lander sent a huge message to the entire world – India is now a first rate Space Power that has done something no other country has been able to do & that something has huge ramifications for space exploration for the earth’s benefit. And India is now ranked higher than Russia at least as far as space exploration is concerned.
And this happened while PM Modi was attending the BRICS summit in South Africa with both President Xi of China & Foreign Minister of Russia in physical attendance. This amazing success clearly showed the entire BRIC base how powerful India has become today. And PM Modi, for his part, announced that India’s landing was for the entire humanity & pledged to share the developments with the entire BRICS community. Just think how this complicates the task of President Xi to dominate the BRICS group as he desires.
Hopefully, this has also opened the eyes of and at CNBC, Bloomberg, Fox Business and the rest of US media. Until now, they understood & accepted the brilliant success of Indian-Americans in America’s corporate world. But that acceptance has come with a feeling that it is due to US knowhow, US education & US commerce in addition to the basic talent of India’s diaspora. Therefore that acceptance has not meant a similar respect for intra-India companies, executive & universities.
The unbelievable success of Chandra-Yaan-3 has come from these unrecognized assets of India – superb education in technology, excellent management both strategic & product and a fervent missionary zeal to deliver the best product. So hopefully US media will finally recognize that Indians in India are just as good as Indian expats in America. When they do, the image & respect for what India can be tomorrow will change drastically.
The stunning success of the indigenous Chandra-Yaan-3 has come with a budget of $1.93 billion in total for India’s space program. This is virtually a throw-away amount for the US & even perhaps for China. That is because today’s rich & high-budgeted America has forgotten the America that entered the 20th century after a completely Europe-dominated 19th century. We discussed how today’s India could be that America in that article on February 7, 2009, especially the Section titled Parallels to how and why America won over Europe 100 years ago.
This is why the United States has approved joint Indo-USA manufacturing of GE-F-414, the state of the art aircraft engine for India’s fighters. The deal comes with a 80% technology transfer of the engine to India, despite the fact that “the US has never allowed the transfer of this level of technology to any one“, not even Israel or NATO allies like Japan, Australia etc.
For a simple explanation of why the South Pole of the Moon is important & why it was so difficult to land on it, listen to Neil deGrasse Tyson in the clip below:
Imagine you were living in late 18th century America. Even if you were incredibly foresighted & brilliant enough to buy both New Orleans & the entire Louisiana Purchase from the French, would you have imagined massive supertankers rolling in from the Middle East into New Orleans 200 years later? We doubt it. Similarly can we even imagine what the mineral resources of the South Pole of the Moon can do for a richer & cleaner Earth?
We take the first step in that direction via our adjacent article – India’s Landing on Moon’s South Pole & Climate Change Fears on Earth.
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