The Bad All-Time Highs

😱 Are we in a recession or not? The yield curve might have an idea… March 25, 2024 | Peel #674 Silver Banana goes to... [CapLinked. ]( In this issue of the Peel: - 👀 Check out the latest interest rate moves of other major countries. - 🌿 Want to get high with your portfolio? Check out pot stocks. - 😱 Are we in a recession or not? The yield curve might have an idea… Market Snapshot 📸 Banana Bits 🍌 - Are U.S. treasuries the new “[too big to fail](=)?” - Even some realtors are happy with the [NAR’s lawsuit decision](=) - Allocations to equity assets are tied at [an all-time high](=)… just don’t ask what happened after it got this high last time… - While BTC funds saw outflows, physical BTC funds saw their [most inflows since May 2023]( Get Promoted and Climb the Corporate Ladder with Caplinked Wondering if switching your VDR to Caplinked could be the secret sauce to your next promotion? Well, it just might! In a world where change makers are the MVPs, sticking to the 'same old' is like volunteering for obsolescence. Caplinked isn’t just a tool; it’s your ticket to showing the higher-ups that you’re not just riding the wave—you’re making it. While we can’t guarantee a corner office, we can promise that [shaking things up with Caplinked puts you in the spotlight.]( After all, who ever made it to the top by playing it safe? Macro Monkey Says 🐒 Rate of Play The easiest way to pass a test? Sit next to the smart kid and copy all of their answers. The easiest way to set national interest rate policies? Well, it turns out it's basically the same strategy. At least, that’s the case for most central banks. And, while the U.S. is probably far from being the smartest in… anything… we certainly still are the largest and most impactful. But, our classmates around the world are starting to take their eyes off our paper. Global interest rates are starting to diverge. And while the changes have been small and scarce so far, this small shift could represent a huge new wave. What Happened? Last week, the U.S. central bank, the Federal Reserve, elected to maintain their current stance on monetary policy, partly by holding interest rates steady in the 5.25%-5.5% range. [Source](=) During the same and preceding weeks, global central banks had to make the call on interest rates for their own economies. Since the pandemic hit, lockstep moves—outside of China—have been the norm. Going even further back, the GFC brought global rates to the floor nearly in unison. That “floor” level may have varied by country, but for the past decade and a half, central banks around the world have largely followed a copy-paste strategy. But we’ve seen two significant divergences from JPow’s rate of play. Over the past few weeks, the Swiss National Bank has began cutting interest rates while the Bank of Japan has raised. Who Cares? There are basically 7 central banks that markets actually care about. These include: - The Federal Reserve (the Fed)—U.S. - The European Central Bank (ECB)—Eurozone - The Bank of Japan (BOJ)—Japan - The Bank of England (BOE)—the U.K. - The People’s Bank of China (PBOC)—China - The Swiss National Bank (SNB)—Switzerland - The Bank of Canada (BOC)—Canada The path has been similar for these major players. The ZIRP era was largely a global phenomenon, with some, like Japan, going a lot farther than others and actually pulling rates negative for more than a decade (as we discussed last week). Now that the effects of the GFC and pandemic have largely (and finally) f*cked off, unique challenges of each economy are starting to emerge and, as a result, central bank independence is on the rise. Clearly, we can see that each central bank is in a different position in terms of level. But, as we always say, because the market is forward-looking, direction often matters far more. This is grossly over-generalized, BUT for much of the period of the last decade and a half, the direction of rate moves has rarely been surprising. The amount of the move might be surprising, but we kinda know the direction going in across the globe. What we’re seeing now is that central banks from Switzerland to Japan are starting to surprise U.S. markets with their direction as well. While the number and degree of these divergences may be small, the divergence itself presents a whole new narrative to the global interest rate story. The Takeaway? Now, the latest interest rate moves among these Big 7 look something like this: Sorry for the lousy cropping, btw. The key here is not necessarily the moves, but the drivers of those diverging moves. This is best exemplified by our cutters. China’s economic slowdown warrants cuts as a way to spur growth, whereas for Switzerland, the SNB stated this is primarily a currency-related move given the Franc’s drastic rise over the past few years. Like a cruise ship moving 10mph, the actual change itself is small, but the impact is so huge that diverging global rate policy still carries a lotta force. Not only is it a stock pickers market once again, but a country and currency pickers market, too. Does any of this make sense? What's Ripe 🤩 Pot Stocks (MJ) 📈8.0% - Getting high alongside your portfolio could become the new hot thing in the U.S. Pot stocks surged as the federal government might become cool. - On Friday, U.S. Vice President Kamala Harris said “nobody should have to go to jail for smoking weed” and that the current classification of cannabis is “absurd.” - Now, this is about the 420th time the Biden Admin has hinted at this. But, since pot stocks were down so badly, it didn’t get much to get them lifted. FedEx (FDX) 📈7.4% - After several quarters of disappointing investors on more than just shipment times, FedEx delivered a solid Q4 thanks to cost-cutting. - Revenue came up short of estimates, and guidance was below expectations. But, EPS beat, and given how beaten down shares are, analysts will take it. - The real story here is how much Amazon is eating FedEx and UPS. They went from nothing in 2005 to the largest delivery service in the U.S. by 2022. What's Rotten 🤮 Lululemon (LULU) 📉15.8% - Lulu gave Wall Street lemonade, and then they turned it into lemons. The athleisure maker beat across the board but had weak guidance. - Everyone’s favorite brand to buy the knock-off version of reported EPS of $5.29/sh on $3.21bn vs the $5/sh on $3.19bn estimate. - “Poor macro conditions” are to blame (allegedly), as U.S. consumers pull back on apparel spending and Chinese consumers pull back on… spending. Digital World Acquisition Corp (DWAC) 📉13.7% - Stop donating to former Pres Donnie T’s GoFundMe for his legal… issues. Instead, just buy what’s soon to be called “Trump Media.” - Shareholders in this SPAC have officially approved the acquisition of Truth Social, Donald Trump’s Twitter/X competitor/carbon copy. - Before Friday’s tumble, Trump’s position sat at ~$3bn. We’ll see if that holds up when this thing begins trading as “DJT” as early as next week. = Thought Banana 🤔 The Bad Kind of All-Time Highs 2024 has been the year of all-time highs. The S&P 500 seems to set a new one every 5 trades, BTC finally made all the buyers in 2021 whole, and international markets from Germany to Japan are setting record highs as well. But not all all-time highs are created equal. And the one we’re talking about today is one of the best vibe killers of all time. When 2 > 10 [Source](=) Bears love salmon, honey, and inversions in the treasury yield curve. Specifically, inverted yields between 2-and-10yr notes tend to be the most filling. That’s because the inverted yield curve is one of the best recession predictors out there. Since 1955, every official U.S. recession—except one—had been predated by the yield on 2 year treasuries going above that of the 10 year. Usually recessions follow within a range of 6-24 months with 18 months as the sweet spot. Last week, we officially set a record for the longest period of time in which the 2-and-10-year yields have been inverted. This is about one of the only bearish signals on the market right now, but it’s a big, flashing, red one at that. And here, we see the current state of play for the U.S. treasury yield curve. Normally, longer date maturities should be higher than shorter. But, we’ve officially set a new all-time high for the length of time in which that hasn’t been the case. Comforting, right? Well, Actually… Yield curves have a better record than even Tom Brady when it comes to high-stakes environments. But, it actually might not matter as much as this sterling record tends to suggest. For starters, there’s a common quip from yield curve inversion haters that “the yield curve inversion has predicted 9 of the last 5 recessions.” That’s because the yield curve has inverted since 1955 without a recession following. It’s rare, but it has happened. Plus, the damn “inventor” of the 2-and-10yr inversion as a macro indicator has indicated in recent years that the indicator might not be all it’s cracked up to be. Campbell Harvey, a professor at Duke University, notes that the signal is more “causal” than predictive, calling it a “self-fulfilling prophecy.” [Source]( Basically, the “self-fulfilling” part stems from changes in business decisions in response to the inversion. The signal that a slowdown is coming via assigning a higher yield to shorter-dated maturities causes companies to change their investment plans. So, while this is definitely a flashing red bearish sign, it’s not the end of the world… yet. 💭 The Big Question 💭: Will this yield curve inversion add to the GOAT recession signal’s reputation? If recessions usually come within 24 months, and we’re getting close to that level, when can we expect a slowdown? Banana Brain Teaser 💡 Previous 🗓 During a recent storm, 9 neighborhoods experienced power failures of durations 34, 29, 27, 46, 18, 25, 12, 35, and 16 minutes, respectively. For these 9 neighborhoods, what was the median duration, in minutes, of the power failures? Answer: 27 minutes Today 🕐 A technician makes a round trip to and from a certain service center by the same route. If the technician completes the drive to the center and then completes 10 percent of the drive from the center, what percent of the round trip has the technician completed? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “However, an inverted yield curve should ultimately be a significant headwind for an economy, as capitalism works best when there is a positive return for taking more risk with lending and investments further out the curve” — Jim Reid How Would You Rate Today's Peel? 😁[All the bananas](=) 😐[Meh](=) 😩[Rotten AF](=) Happy Investing, David, Vyom, Jasper & Patrick [ADVERTISE]( // [WSO ALPHA]( // [ACADEMY]() // [COURSES]() // [LEGAL]() [Unsubscribe]( IB Oasis Corp. (aka "Wall Street Oasis") 20705 Saint Charles St Saratoga, California 95070 United States (617) 337-3353