Big Chill Coming
Stocks and bonds and gold have all been on a tear, but there is a cold wind a comin'
This weekend, The Daily Doom crossed a significant milestone to become a “Substack Best Seller.” It’s nice to hit a level of some success that Substack considers noteworthy to where this site will now be wearing that little badge of success. Thank you to all my past patrons who have hung with me for years and to new ones who have jumped on board with their support. There were times when I wasn’t sure things were going to be able to continue at all, but the new Substack-hosted website is doing better than my old Great Recession Blog did because Substack has internal promotion benefits that the old site didn’t have, and it frees me up from doing all my own endless website maintenance. As a result, it has, with considerable effort in making the change, proven to be the right move.
I just made my first major economic prediction for 2024 in my latest “Deeper Dive,” available to my paying subscribers, and let me summarize that we’re headed for a “year of chaos.” The article gives the particulars that form near mathematical certainty to the cause, laying out why it will bring what it will bring. We’re about to get slammed. (Without giving it away, I invite readers to comment on that below if they choose too, but I know comments don’t often happen here, pro or con.)
There is lots of big news in todays edition, available to all readers, whether they support The Daily Doom or not and some good humor in the “Doomer Humor” section.
Gold is … well … golden right now
First, the weekend was huge for gold, taking it to new record heights, and then it corrected with a record reversal, too. It was the 6th biggest intraday drop in the history of spot gold trading! I was called to do an interview on Goldseek Radio in the middle of my morning about why gold was soaring, and as I laid out my one caveat to it soaring even higher, it turned and dropped off a cliff. I promise it wasn’t me. “Best-seller” here doesn’t mean there is more than a small gathering of shivering people around this soap box listening, so I don’t move markets.
Actually, I didn’t have that much to say on it; it was just a wild swing. However, an old gold pro like Bob Moriarty, listed in the headlines below, has a lot more of value to say on gold than I do, as he watches every aspect of the market all the time. He’s my go-to gold guy, whether he knows it or not.
So, lots of gold headlines today.
Stocks swinging in the wind
Stocks were also left swinging in the wind today after this past year’s earlier peaks. And what a cold wind it could turn out to be. Their big November rally came to halt at the start of December as lots of data comes in this week and none of it too good so far. Commentators sounded like me for once, saying the rally was perhaps overly “euphoric” (was the world they used out of my usual word box) about Fed rate cuts. I’d take the “perhaps” out, and say it was undoubtedly over euphoric as there is zero chance of the Fed pivot that the market is betting on. The market has made that bet for a year and half, at least, and it has been wrong every time, as I’ve said it would be; and I’m still saying it will be wrong; but that doesn’t stop it from relentlessly believing the nonsensical fantasy that inflation will not allow, even if inflation cools more.
There is a deep winter chill coming in (but not to inflation), as I describe in that “Deeper Dive,” and warm optimism won’t have what it takes to combat the winter headwind that will be hitting the economy in 2024. Right now, as the market is merely chillaxin’ from its recent rocket ride, there is still room for it to soar higher because the worst news I’ve laid out isn’t likely to pile in during December, but I’ve also been saying all along that inflation is in the process of going up month-to-month, and THAT is what everyone should be watching, not year-on-year because what is year-on-year made of but just a twelve-month popcorn string of month-on-month changes? So, if you want to see the turn coming in, look at the recent months, not those that happened nine, ten, eleven and twelve months back when the Fed was having big success, which are baked into the YoY figures.
While this inflation has nothing to do with what I have warned of for 2024, it is the kind of cold draft that could still hit the market as soon as this December if YoY inflation turns up due to another month of rising inflation. Given that the entire rally was built on hope of the phantom Powell pivot — the mirage that Powell, himself, keeps saying to the market “not going to happen” — the market could fall apart badly if the return of inflation suddenly crystalizes in full view.
And the stock and bond markets are exposed and vulnerable say many commentators today:
Technically “overbought” conditions and bullish positioning have left markets vulnerable to corrections after the historic rallies in both equities and Treasuries last month.
Morgan Stanley’s Michael Wilson, US stocks are headed for a rocky end to the year. The strategist said December could bring “near-term volatility in both rates and equities…. Perhaps one should be contrarian yet again.”
A period of consolidation may be a necessary breather,” said Jason Draho at UBS Global Wealth Management. “A lot of good news is priced in.”
Yes, and a lot of the bad news isn’t, as the market continues to ignore monthly rising inflation and to disbelieve Powell as it has done for nearly two years and to ignore NUMEROUS signs of recession. It is also ignoring just how much slow-down is yet to arrive from the tightening the Fed has already done due to the huge lag effect that Powell keeps reminding everyone of. Stuff still to come even if Powell never raises rates again.
“We had a massive increase in interest rates that just haven’t totally hit the economy yet,” said Dana D’Auria at Envestnet Inc. “The market has a decent chance of slowing down next year. Does it mean it’s a massive crash? No, not necessarily. But I don’t advocate chasing after stocks and not being balanced in the way that you go to the market.”
“Markets are approaching the limits of what can plausibly be priced without attaching material odds of a recession in the near term,” Goldman Sachs Group Inc. strategists including Praveen Korapaty, wrote.
So, there is plenty of room here for a chill December, too, before the big chill of next year arrives.
Chris Larkin at E*Trade from Morgan Stanley, traders may be wondering if the market has gotten a little too complacent.
A lot too complacent. It’s downright insane. The recession is already getting started, as I also laid out in that “Deeper Dive,” yet the lag effect has a long way to go to keep taking us down, and that is if the Fed is cut a break and inflation fades away, but that is far from likely, as even the Fed says, but the market hears only the words it wants to hear. The likelihood of rate cuts after such a fight? Zero. Unless things break badly, but a break like that will hardly help the market.
“All eyes will be on Friday’s monthly jobs report to see if it confirms the cooling trend we saw most of last month,” Larkin said. “If it doesn’t, it may renew concerns the Fed’s 2024 pivot to rate cuts could be delayed.”
Yeah, or if jobs crash badly, concerns of recession could suddenly jump in front of the market’s moving car. The market is priced for perfection in a world that is turning chaotic. It is priced for a temperately cooling job market as a sign of mild slowing of the economy that will ease inflation downward. And none of that is the big stuff we’ll be seeing in ‘24. There’s a big chill coming, and it’s not that hard to see.
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