SVET Reports
SVET Markets Weekly Update (December 12–16, 2022)
The past week brought to us two macro-economic surprises — lower than expected inflation rate and retails sales reversal from growth to decline. At the same time, Powell’s reaction to the sound of the approaching recession was not surprising at all. Jerome ignored it completely and spooked the markets by his hawkish rhetorics. As a result, NASDAQ, which started the week at 17085 closed it on 16527 cutting back 3.1 percent. BTC went down 2.8 percent (from 11015 to 10705).
Here are details:
Inflation Rate: fact — 7.1 percent, prognosis — 7.6;
Fed Interest Rate: fact — 4.5 percent, prognosis — 4.5;
Retail Sales: fact — 0.6 percent decrease; prognosis — 0.2 increase.
Monday’s markets went sideway with no macro-data releases and traders’ pre-FED procrastination.
Tuesday’s inflation numbers showed 7.1 percent instead of the expected 7.6. It energized bulls which led to NASDAQ’s forming 4 percent gap (11118–11542) on the opening. Then prices dropped during the mid-day take-profit trades. BTC went up the same 4 percent (17427–18106) during the same time frame.
Neither the reverberating echo of FTX’s impact nor CZ’s hardships managed to destabilize the markets this week.
FTX reminds me four other major disruption events: dot-com boom-bust, Enron scapegoating, MtGox hysteria and Madoff corruption. FTX had ~30 bln dot-com valuation, Enron’s corporate debtors, Madoff’s political frenemies and MtGox’s technological obnoxiousness.
FTX implosion is the Christmas gift for tech-haters. Inept politicians, which are incapable to address the real-world issues — the war, the stagnation and the deteriorating social conditions — turn to the political theater. Publicly executing 30-year-olds is the best way to appeal to your constituencies.
At Monday we also saw the Government Financial Position report published by the US Treasury Financial Management Service. It showed that govs Revenues equaled 4.2 Trillion while Costs exceeded 7.3 Trillion in 2021. It resulted in the 2.8 Trillion deficit. Up to date it has accrued into the 22.3 Trillion debt’s mountain.
Naturally, it continued into 2022. Only in November the deficit rose to 249 Billion (health and education are leading the race). For comparison: in Nov 1980 the government deficit was 8.9 Billion, in Nov 1990–47.7, in Nov 2000–23.7, in Nov 2010–150.4 and in Nov 2020–145.3 Billion.
The state covers this deficit by issuing (printing) govs’ tokens named the US treasury notes or ‘dollars’. That becomes someone’s claims on non-existing assets. There is 22.3 Trillion of those. On the other side, the government holds only 1.2 Trillion worth of assets on its balance. The rest 21.1 Trillion is a vapor. Creditors will get nothing for their claims. Does that sound familiar?
Several FTX managers are facing heavy charges for robbing their creditors. How many other peoples are to be hold accountable when we really start to count?
On Wednesday markets participants were not supposed to hold their breaths in advance of Powell’s deliverance. 50 points rise was already priced in and that exactly what we have got.
As a result day traders decided to sell the news brining NASDAQ from 11135 to 11065 (0.6 percent). Digital markets players uploaded BTC more aggressively moving the needle from 18350 to 17660 (3.7 percent). Before that the first breach of 18K-resistance line after the FTX crash of November 8 was registered. Still, given the dismal macro-economic fundamentals, it looks like that there is not enough positive energy left on markets to fuel the traditional Christmas rally.
Thursday was the revenge-of-the-sith day. On Wed post-trading hours’ conference Powell disapproved of the continuing service sector’s exuberance indicating that even the 5 percent high rate might not be enough to satisfy FOMC. He, also, bluntly dismissed all questions regarding the looming recession. Jerome, basically, said that this is not his concern.
It spooked traders, again, and they brought NASDAQ from 11012 to 10775 (2.1 percent) on the morning hours (BTC went from 17725 to 17401 or 1.8 percent). With that BTC still stayed within uprising channel on hourly.
Friday’s BTC was trading above 17500 when Chinese markets started to tumble at midnight (PST) taking the crypto-crowd with it. BTC didn’t pause diving below 16600 and breaching its bullish channels at 17000. As a result, it stands on its two-weeks lows wiping 6 percents of its value. NASDAQ trades were much less dramatic. The index slided down for about a percent (opened at 10833 and closed at 10694).
The sell-off started in China but Jerome is the one to blame. Bulls all over the world were taken aback by Powell’s dismissal of good CPI — bad retails sales reports and his nonchalant flirtations with the looming stagflation. Bears took the lead. Still NASDAQ / BTC are trading within their two-months ranges, living some hope for a recovery.
Under the ‘usual’ circumstances the Census Bureau reporting retail sales’ decline would turn markets bullish — but not this Thursday.
Sales numbers showed minus 0.6 percent — the biggest drop this year — while analytics predicted 0.2 growth. Most affected in November were sales of furniture, building materials and vehicles (reduced by more than 2.3 percent). Electronics, sporting goods and other retailers stores fall on average one percent. Still peoples must drink and dine which kept sales in restaurants growing (about 0.8 percent).
This week (Dec 19–23) won’t have much on the macro-economic side. Nonetheless, you might watch for: Building Permits report issued by Census Bureau (or CB) on Tuesday, Dec 20 and for Personal Income / Spending data (from Bureau of Economic Analysis) added by Durable Goods Orders (from CB) on Friday, Dec 23.
October’s durable goods indicator accelerated by 1 percent. Two factors — the travel and the war — propelled costs of orders received by manufacturer of transportation equipment (by 2.1 percent) and military aircraft (21.7).
Permits, which have been more or less steadily rising from their decades low of about 510K (reached in Jan-Feb 2009) to its near-historical-highs of 1.9M (in Jan 2022), now stumbled under the FED’s and the inflation’s double pressure.
Building permits which stood on 1.87M in March dropped to 1.512 in October and are expected by market prognosticators to go further down (to 1.48) in November. As with the rest of the indicators that one shows that the recession come to different regions (and industries) at different times. While permits went down in the West (-12.9 percent) and Northeast (-13.2), it is still up in the South (1.5) and Midwest (0.5).
Those regional (and sectoral) divergences are natural for large economies. Each region is supposed to have its own financial policy to function properly. Attempting to rule it by ‘the one ring’ is rotten in its core. The unlimited power blurs the FOMC’s optics. The long history of ‘central bankers’ misguided policies adds to other strong arguments against the FED’s existence.
In October incomes grew 0.7 percent (0.4 in Sept) while spendings — by 0.8 (0.6). This spike shows the same sectoral discrepancies. While some businesses (f.e. manufacturing or technologies) continue to soften under Powell’s pressure, gradually entering into the recession, others (transports, hotels, restaurants) still look for the added workforce.
As a result, we see both increases in private wages and government benefits, which are upset by rising expenditures on transportation, food and accommodation. November’s projections put it back on truck (0.3 percent). Analysts expect that the rest of the economy will get recessional sooner rather than later.
Overall, what Jerome keeps telling us is that our personal incomes (and the wealth) must be reduced for the sake of outdated theories. Millions of employees and ten of thousands of entrepreneurs must be put out of the job and deprived of means to support their families only because Powell’s and his cronies’ interpretations of a couple of excel spreadsheets.
How ‘capitalist’ is the world’s finance governance model? How preposterous is the idea to delegate the unlimited power to decide our future to several old dudes?
The battle against centralized finance is the fight for our humanity. Whether we stay free or will live as brainless insectoids serving our lava-queens in the world-size ant-house.