Ho, Ho...Hum

Three bearish charts, just in time for Christmas...

(Source: Getty Images)

Joel Bowman, checking in today from Exaltación de la Cruz, Argentina...

Another month, another “higher than expected” inflation reading. 

Yesterday’s Producer Price Index (PPI) print came in a tad hot, with the Labor Department reporting a 0.3% price increase for the month of November, slightly above the forecast 0.2% expected by analysts.

The same measure was up 7.4% from a year ago. 

Food was one key driver, rising 3.3% for the month. Wholesale vegetables alone were up 38%. On the other side of the scale, energy declined 3.3%.

Markets will be attuned to the Consumer Price Index read, which comes in next Tuesday, a day ahead of the Fed’s next rate announcement. As usual, everything hinges on prognostications over What Will Jerome Do (WWJD)? Here’s CNBC:

The hot inflation data keeps the Fed on track for another rate increase, likely a 0.5% hike that would push benchmark borrowing rates to a target range of 4.25%-4.5%. Policymakers have been pushing rates higher in an effort to quell stubborn inflation that has emerged over the past 18 months after being mostly dormant for more than a decade.

We’ll have more on the head of the world’s largest banking cartel in tomorrow’s Sunday Session. In the meantime, here’s Bonner Private Research’s macro analyst, Dan Denning, with some timely Christmas cheer...

“Santa is not coming to town.”

So read the upbeat email Dan Denning sent privately to the BPR team earlier this week. (Sheesh! Next he’s going to tell us Santa is not real!)

What’s got Dan in a bearish mood, you wonder? The following three charts...

First, the S&P 500 hits 200-day MA, tests, turns lower...

Next, LQD (corporate bonds) hits 200-day MA, tests, turns lower...

And finally, TLT (long-term government bonds) hits 100-day MA, tests, turns lower... 

Three bearish charts, just in time for Christmas. Ho, ho… hum.

Meanwhile, here’s BPR Investment Director, Tom Dyson, echoing Dan’s sentiment in his market note to members this past Wednesday...

We’re betting stocks are in a secular BEAR market, especially when priced in gold. Any time there’s a sustained rally in the stock market – like the one we’ve had recently – I start bracing for the next leg down to new lows.

I don’t like the big picture set up this week. It’s not a good time to add more risk. And the charts seem to be suggesting this, too. This is the S&P 500. Has the latest bear market rally run out of steam?

Add to that, yield curves are extremely inverted and becoming more inverted every day. Inverted yield curves are a sign that something is seriously broken in the money markets. The interest rate on a short term loan should always be lower than the interest rate on a long term loan, all else being equal. 

The German 10y/2y spread is now the most inverted it’s been since 1992. The US 10y/2y spread is now the most inverted it’s been since 1981. When the bond market is telling you there’s a recession coming, you should listen. 

This is exactly the kind of work BPR members get delivered to their inbox Wednesday and Friday. It’s Dan’s role to survey the macro landscape, looking for big picture trends that impact your investments. Tom pours over company earnings reports and balance sheets, looking for opportunities to help preserve your wealth and profit along the way through “tactical trades.”

If you’re not already receiving all Dan and Tom’s paid research, we invite you to find a subscription option that works for you, here...

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And now for Bill Bonner’s missives from the past week...

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Meanwhile, it’s panem et circenses down here on the pampas. While inflation in Argentina runs at a G20-besting 88%... the government is embroiled in scandal after scandal... and the economy circles the drain...

... the weary workers turn their attention instead to the great football distraction. It’s almost as if history repeats itself, repeats itself, repeats itself...

Until tomorrow...

Cheers,

Joel Bowman