As inflation continues to moderate and the employment picture weakens – markets are trying to gauge just how much the central bank will move. A 25 basis point (bps) cut for September is now a 100% probability according to CME Group’s FedWatch tool. There’s a 63.5% chance of a 25 bps cut; and 36.5% of a 50 bps cut. Markets clearly want 50 bps… but they also know that very rarely is there just “only one rate cut”. This post explores the relationship between debt growth (across all sectors) and the overall trend for interest rates. It’s a relationship which is not often discussed – but would be remiss of investors to ignore.
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Market Rallies on ‘Strong’ Retail Sales / Soft Landing
This week we received advanced retail sales for the month of July. From mine, this is one of the more important data points – as it sheds light on what we see with the relative health of the consumer. With spending making up 70% of GDP – any signs of slowing serve as a warning. Advanced retail sales accelerated 1.08% on the month – adjusted for seasonality but not inflation. Economists had been looking for a 0.3% increase MoM. However, June sales were revised to a decline of 0.2% after initially being reported as flat. As regular readers will know, it’s virtually impossible to glean anything from a nominal data point when viewed month-over-month. And whilst the media (and stock market) could not get over how ‘strong’ the data was – I would warn against jumping to conclusions.
A Time of Transition
Think of a time when you worked through major transition in your life. For example, maybe it was the end of a relationship; a deep loss; changing your career; starting a family; or relocating for work. Generally during times of meaningful transition there is a period of adjustment and uncertainty. And sometimes, the change will come with volatility. From mine, it’s possible the market’s wild behavior this week is representative of one in transition. However, it’s still early. Volatility in stock markets are typically associated with meaningful turning points… this posts explore more about what’s happening below the surface; and why I think the 20-year era of cheap money is drawing to an end.
Fear & Greed
Wall St. is driven by just two emotions: fear and greed. Pending on the degree to which you succumb to these emotions – it will have a profound impact on your bottom line. All too often, most investors will do two things: (i) buy when there is market greed; and (ii) sell when there is fear. It’s the opposite of what you should do. However, this is something you need to master if you are to be successful in the game of asset speculation.
For a full list of posts from 2017…