Rate Cut Rally in 2024

Powell Will Cave [Morning Reckoning] November 09, 2023 [WEBSITE]( | [UNSUBSCRIBE]( Rate Cut Rally in 2024 Asti, Northern Italy November 09, 2023 [Sean Ring] SEAN RING Good morning Reader, My friend and erstwhile colleague Greg Guenthner wrote a peach of a piece for Tuesday’s Morning Reckoning. [In it, The Gunner wrote]( Despite the three months of choppy descent we experienced after the averages topped out in late July, last month’s drop shouldn’t have set off any alarm bells. Not only are pullbacks and downside moves perfectly normal events, there are also seasonal trends the market has closely followed this year — specifically how the S&P performs during a pre-election year. Earlier this year, I showed you the pre-election year cycle roadmap, specifically how the S&P tends to top out during the summer months in the pre-election cycle and remain in a range until a year-end push. One important caveat when dealing with seasonality data is it’s the trend that counts. And for the entire year, the S&P is more or less following these seasonal trends. Is it a perfect match? Absolutely not. But our composite continues to offer a general idea of what we should expect heading into 2024. I couldn’t agree more. And as far as Presidential cycles are concerned, 2024, an election year, is poised for a big rally. In fact, [election years produce rallies 82% of the time.]( But a specific confluence of events is occurring right now that confirms Greg’s technical hypothesis and bolsters it. This is despite the general economy getting smacked in the mouth. Let me build the story for you. [James Altucher: THIS is my top AI investment pick]( I’ve been called a “genius investor” by my fans… And an “eccentric millionaire” by some others. I think it’s because I make big predictions that [tend to come true.]( Today, I’m making my boldest prediction ever. Revealing the AI stocks I believe… Could turn as little as $10,000… Into $1 MILLION over the next few years. To show you I’m serious about helping you get in on this opportunity, I’m giving away one of my top 5 AI 2.0 stock picks – free. [See my top 5 pick here now.]( [LEARN MORE]( Things You Already Know Debt is Out of Control Of course, you’ve been hit over the head with the national debt nearly every day. Heck, I know I write about it enough. But the truth is we’ve gone parabolic on our debt now, just like all those “alarmist” Austrian economists said we would. So awful is the US national debt, it’s growing faster than the country’s GDP. [chart] Credit: [@SchumanKimm]( The debt-to-GDP ratio is Greek-like. [chart] Credit: [@GameOfTrades_]( These are the debt payments on that national debt: [chart] Credit: [@WallStreetSilv]( Yes, that’s a trillion dollars pissed away on interest payments. That’s higher than the defense budget. Hard to believe, I know. And that’s the problem. With elevated interest rates, the US government can’t afford the payments. Something has to be done. But we’ll get back to that in a moment. Of course, with rates on the up, that’s exerted pressure on the dollar. Dollar Has Rallied Hard Since July, the USD has roofed it. It’s only starting to level off. [chart] But it’s not just the Fed. It’s the all-important Eurodollar market. As eminent colleague Jim Rickards wrote in yesterday’s [Daily Reckoning]( Eurodollars are dollar-denominated deposits held at foreign offices of major banks, and therefore fall outside the jurisdiction of the Fed and U.S. banking regulations. The Fed actually has very little influence over the global dollar market and the exchange value of the dollar. The old currency metrics of balance of trade and moves in capital accounts are leftovers from the world of fixed exchange rates, which have been gone for decades. What drives the dollar is the Eurodollar market, as conducted by the world’s largest banks in London, New York and Tokyo. It’s here where global liquidity and interest rates are actually determined. The Eurodollar market needs a constant supply of depositors parking their money in offshore offices of major banks. Right now, this market is in contraction. Derivatives are being unwound, balance sheets are being trimmed and interbank overnight lending is being financed with collateral. And these banks are demanding the best collateral. They won’t accept corporate debt, mortgages or even intermediate-term U.S. Treasuries. The only acceptable collateral consists of short-term U.S. Treasury bills, the shorter the better. This means 1-month, 3-month and 6-month bills. Those are denominated in dollars, of course. In order to get the bills to post as collateral, banks have to buy dollars to buy the bills. This has created enormous demand for dollars. And that partly accounts for the strength of the dollar. So, we have high debt, high rates, and a strong currency. Next are some things you may need to be aware of. Things You May Not Know Unemployment is Getting Worse Sure, the unemployment rate is still historically low. And initial jobless claims are also still pretty low. But continuing claims are starting to blow out. [chart] Credit: [Trading Economics]( High levels of continuing jobless claims indicate a sluggish job market, limited job opportunities, or structural issues within specific industries. If employment was the last domino to fall before a recession, consider that done now. The Fed Has to Cut Sooner, Faster It was always “higher for longer,” but the bond market no longer buys it. Jared Dillian, editor of the Daily Dirtnap, tweeted: Credit: [@dailydirtnap]( [Porter Stansberry retweeted]( Dillian and added: Correct. And the real concern isn’t the recession, it is how corporate balance sheets & regional banks are going to weather big reductions in consumer spending. Stocks at 25X earnings with 10-year rates at 4% aren’t going to react well to double-digit declines in revs. But Dillian wrote to buy 2s. What does that mean? The Bullish Steepening We’re seeing the 10-year yield come down. That means investors are buying US Treasury 10-year notes. (There’s an inverse relationship between price and yield. As investors buy, the price goes up, and, as a result, the yield goes down.) What Dillian and many other investors think is that the Fed will be forced to cut harder and sooner. Thorsten Polleit mentioned this in my interview with him. Next Tuesday, we will air that on our brand-new Paradigm Press YouTube Channel. If the Fed starts to cut hard, the “short end” of the curve will drop dramatically, and dramatically more than the ten-year yield has fallen. That would “un-invert” the yield curve, potentially putting 2s (shorthand for 2-year yields) lower than 10s (10-year yields). The yield curve would then be normal or upward-sloping. We call this a bullish steepening because bond buying creates this type of steepening. Hence, buying, and therefore higher bond prices, make this bullish. [chart] Great, but what does that mean for the rest of the asset classes? What This Means For Assets in 2024 If the Fed panics and cuts quickly - the opposite of the panicking hike it did during 2022 — then stocks, bonds, real estate, gold, and crypto can all roof it. Rate cuts would mean a weaker dollar, and that’s filip for US asset prices. Of course, stocks and bonds like lower discount rates. In our clown world, economic bad news is good news for the stock and bond market. It means Nanny Fed has brought back the punch bowl. Gold has no yield and will find it much easier to compete against bonds offering lower yields. The same goes for crypto, which would probably price in a “disaster premium,” and rightly so. Real estate will also benefit from lower cap rates. As 2024 is the last year in the election cycle, all this is perfectly plausible. So the last thing you want to be now is short. And you certainly don’t want to panic and sell on economic bad news. Wrap Up Hold. Hold on for now. Things will look like they’re about to fall off a cliff. But there Jay Powell will be to rescue us — well, his rich buddies, but we’ll benefit as well — from the impending doom of a sell-off. The punch bowl will be brought out, and there’ll be drinks all around — if you’ve kept your nerve. I can’t wait for the new year myself! Have a lovely day. All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com X (formerly Twitter): [@seaniechaos]( [Urgent Notice From Paradigm CIO Zach Scheidt!]( [Click here to learn more]( Hi, Zach Scheidt here… I’m the Chief Income Officer at Paradigm Press. With inflation raging (and showing no signs of coming to an end any time soon), almost everyone in America is feeling the pain in a big way. Which is why, several months ago, I set out on a big mission… my goal was to create a [complete, step-by-step plan to surviving and beating inflation]( one that anyone could take advantage of. Today, after hundreds of hours of research, I’m revealing all of my findings. [Simply click here now to see how to survive America’s deadly inflation crisis](. [LEARN MORE]( In Case You Missed It… A "Sucker Breakdown" Fools Investors… Again! Greg Guenthner, Editor [Greg Guenthner] GREG GUENTHNER Good Morning Reader, The same old story that’s hoodwinked investors since the dawn of time… You’ve heard of a sucker rally… But what about a sucker breakdown? We might have just witnessed one asinvestors jettisoned their stocks last week just before a huge snapback move that began with frantic short-covering rallies — and could end with an epic melt-up into the holidays. Here’s how it all started… It was looking bleak for the bulls heading into November. The major averages had just logged their third straight monthly decline, with the S&P giving back every cent of its summer gains. A messy geopolitical landscape continued to dominate the headlines as war intensified in the Middle East, fueling fresh protests throughout Europe and the US. A Fed meeting was also looming large over the markets. Any new hawkish comments threatened to trigger a fresh wave of selling, potentially shoving key stocks and sectors below support. Sentiment was in the gutter and the bulls were nowhere to be found. I’m sure there were more than a few investors yanking their money out of stocks, loading up on puts, and doing their best to resist smashing the panic button and retreating to the bomb shelter to wait out the crash. But as we discussed [last week]( these are the exact market conditions that should prompt you to watch for a bounce. Panicking while everyone else is panicking rarely pays. In fact, this type of herd behavior consistently punishes emotional investors – the folks who blindly buy stocks without any clue as to what to do next. Today, I’m going to show you why I’ve been on the lookout for a sharp rally, why the market bounced where it did, and how you can regroup if you missed last week’s big move off the lows. A Technical Tourist Trap On Oct. 20, the S&P 500 closed below its 200-day moving average for the first time in seven months. Moves like this always seem to attract the technical tourists. These folks love to draw their little lines on charts and swear that stocks have to obey their every command. Of course, any break of one of their magical long-term moving averages spawns more than a handful of breathless reports proclaiming that the market is looking wobbly and cratering below an important support level. But as any seasoned trader will tell you, a moving average isn’t a mystical line that releases some sort of stock-killing poison when price breaks beneath it. In reality, it’s simply a smoothing device that helps us identify the primary trend. More importantly, you tend to see longer-term buyers stepping in to buy when price moves below a rising 200-day moving average. And in case you’ve been stuck under a rock (or inside a bear cave) this year, the 200-day bottomed out during the second quarter and has been pointed higher ever since. [chart] Again, there are no guarantees in the market — and a breakdown from these levels was (and still is!) a possibility. But rushing to sell everything or short the market on this so-called breakdown would be a fool's errand. It’s also worth noting that this break below the 200-day took the S&P right back to a confluence of support levels marked by the February and April highs. This was a key area the S&P needed to top to ignite the summer rally, so it should be viewed as strong support for the index, regardless of the relationship to the 200-day moving average. It’s Rally Season Despite the three months of choppy descent we experienced after the averages topped out in late July, last month’s drop shouldn’t have set off any alarm bells. Not only are pullbacks and downside moves perfectly normal events, there are also seasonal trends the market has closely followed this year — specifically how the S&P performs during a pre-election year. Earlier this year, I showed you the pre-election year cycle roadmap, specifically how the S&P tends to top out during the summer months in the pre-election cycle and remain in a range until a year-end push. One important caveat when dealing with seasonality data is it’s the trend that counts. And for the entire year, the S&P is more or less following these seasonal trends. Is it a perfect match? Absolutely not. But our composite continues to offer a general idea of what we should expect heading into 2024. While the large-cap index did rally more than I expected into the end of July, it remained well within a normal pre-election year cycle. August is generally a weaker performing month, giving way to a choppy, corrective fall. The market then typically finds a bottom in late October, and investors enjoy a final push higher into December. Sound familiar? This is exactly what we’re seeing play out in the markets right now. To recap: We’ve seen the S&P undercut a longer-term moving average and retest an important support area — all while investors loaded up on downside bets as sentiment sank to extreme bearish levels. The sucker breakdown is in full effect. There are plenty of reasons to feel bearish about the market. But right now, price is telling you to hold your nose and buy into a potential year-end melt-up move. What do you think? Will the rally stick? Or are the bulls still flirting with disaster? Let me know by emailing [here](mailto:feedback@dailyreckoning.com). Best, [Greg Guenthner] Greg Guenthner Contributing Editor, Morning Reckoning feedback@dailyreckoning.com Thank you for reading The Morning Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Sean Ring] [Sean Ring, CAIA, FRM and CMT]( is a former banker and financial educator and is the editor of the Rude Awakening. Sean has trained interns and graduates from Goldman Sachs, Morgan Stanley, Citi, Bank of America, Standard Chartered Bank, DBS (Singapore), the Abu Dhabi Investment Authority (ADIA), Bank Indonesia (the central bank), HSBC, Barclays, RBS, and BlackRock. He knows the global economy is being corrupted by forces that most people can't understand and has used his unique and worldly experiences to help people navigate the markets. [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your The Daily Reckoning e-mail subscription and associated external offers sent from The Daily Reckoning, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. We welcome comments or suggestions at feedback@dailyreckoning.com. This address is for feedback only. For questions about your account or to speak with customer service, [contact us here]( or call (844)-731-0984. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized financial advice. We allow the editors of our publications to recommend securities that they own themselves. However, our policy prohibits editors from exiting a personal trade while the recommendation to subscribers is open. In no circumstance may an editor sell a security before subscribers have a fair opportunity to exit. The length of time an editor must wait after subscribers have been advised to exit a play depends on the type of publication. All other employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. The Daily Reckoning is committed to protecting and respecting your privacy. We do not rent or share your email address. Please read our [Privacy Statement.]( If you are having trouble receiving your The Daily Reckoning subscription, you can ensure its arrival in your mailbox by [whitelisting The Daily Reckoning.](