Private Wealth

Weekly Research Briefing: Data Incoming

April 12, 2022

This is a most busy week of data for the markets. CPI and PPI for inflation. March retail sales and industrial production. UofM consumer sentiment. The kick-off to first quarter corporate earnings. And, by the way, we get to digest all this information in four days rather than five as the markets are closed for Good Friday.

Last week was a busy one with the FOMC minutes showing strong future support for 50 basis point bumps to Fed Funds and a balance sheet shrink of $95b per month. The only thing holding the Fed back in March was the Ukraine war. Don't expect them to show restraint in the future with the market seeing 50bp hikes at both of the next FOMC meetings. Equities seemed ready to digest the aggressiveness at the Fed, but the Treasury bond markets continue to have only one direction: straight down. The sharp rise in yields and inversion of some longer yield curves gave stock buyers a reason to pause. Also, the lack of a cease fire in Ukraine and the increased COVID lockdowns in China did not help investors’ appetite. So VIX back above 20 and the S&P 500 back below its 200-day moving average for now.

Some good news is that market prices are beginning to correct some future economic issues. The slowdown in Chinese economic activity has weighed on oil prices, which are now below $95 from the peak of $130 last month. And worries about future economic activity in the U.S. has led to a 30bp steepening in the 10/2-year yield curve. A shortage in sunflower plantings has led to the U.S. allowing them to plant them at will in their idle fields. Expect extreme prices in the markets to continue to self-correct as capital moves and investors and companies chase opportunities. If lithium prices get high enough, expect Elon Musk to buy the Great Salt Lake and dig up every ounce of it. It only takes the right prices before someone takes an action on it, especially if it is a raw material commodity in ample supply.

Have fun with the week of numbers and commentary. And Happy Easter.

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Could Tuesday's CPI reading be the peak for this cycle?

BofA/Merrill Lynch thinks it could: “Headline CPI likely surged 1.1% mom in March, while core should rise 0.4% (0.40% unrounded) mom. Yoy rates should accelerate to 8.4% and 6.5%, respectively, which we expect will reflect the peak for yoy inflation.”

Plenty of push and pulls in the number that the market will be watching on Tuesday...

Q: Tuesday's consumer-price inflation report is expected to earn quite a few superlatives—though not for good reasons. It will likely post a fresh 40-year high, be the fourth month in a row over 7%, and the first time since 1982 over 8%. How likely is this to be the peak?

Greg: Oh boy. I thought December was the peak. Then January. Then February. Will March be the peak? I sure hope so. A couple reasons why: Crude oil peaked in the first week of March and gasoline peaked the week after. So, cross my fingers, energy should flip from pushing inflation up to pushing it down, at least for now. Second, used-car prices have started to drop, by 6% between January and March, according to the Manheim Used Vehicle Value Index. Lots of other things are still putting upward pressure on prices but they may not be getting worse; the housing market may be cooling off in response to higher mortgage rates, and hourly wages have stopped accelerating. With time those things may cool off housing and service inflation. But let’s be clear: When inflation is 8%, the Fed, and Americans, aren't going to be satisfied because it's stopped going up, they need it to go down.


US job vacancies rate

Some of the previously screaming components like autos and fuel are now in retreat...

U.S. used car prices are down 2.1% and 3.4% in the last two months. And according to Gas Buddy, American are now spending $100 million less on gasoline every day than they did a month ago.

The Tightest Labor Market in Postwar US History

Jones Trading

Walmart remains a wind at the back of the U.S. economy...

Walmart Inc. is raising starting pay for in-house truck drivers to as much as $110,000 a year and expanding a program that trains its existing workers to become drivers.

The company, in a bid to keep its supply chain running smoothly, is setting starting salaries for its truck drivers between $95,000 and $110,000 a year, up from an average starting salary of $87,000, said a Walmart spokeswoman. The internal training program will offer workers in other Walmart roles a 12-week course to become certified truck drivers and join the company’s internal fleet, the company said...

Walmart and other large retailers have grown significantly by revenue during the pandemic as demand for items including household goods and building materials soared, creating the need for more supply-chain workers. At the same time, the higher levels of demand, production bottlenecks and port delays have resulted in supply-chain snarls. And so far, large retailers have been able to push up wages for hourly workers and other roles without denting their profits.


Market pricing for the number of 25 bps Fed rate hikes

Total U.S. wages are ripping higher at a record pace with the lowest earning quartile leading the charge higher...

@LizAnnSonders: Lowest-earning workers (blue) with strongest wage gains on record... wage growth also up for highest-paid cohort (orange), but not nearly as strong. @AtlantaFed

SPX move from yield curve invesion to the market peak

And new help to the U.S. economy as consumers decide to ramp up on their borrowings...

Consumer borrowing surged in February by most on record, +$41.8 billion vs. $+18.1 billion est. & +$8.9 billion in prior month (rev up from +$6.8 billion) … revolving credit (which includes credit cards) rose $18 billion (largest on record).

Wide distribution of outcomes after historical yield curve inversions

The Daily Shot

Last week we learned that the Fed was ready to move +50 basis points but that they held back to +25bps due to the Ukraine war...

Federal Reserve officials signaled they could raise rates by a half-percentage point at their meeting early next month and begin reducing their $9 trillion asset portfolio as part of their most aggressive effort in more than two decades to curb price pressures.

Minutes from the Fed’s March 15-16 meeting, released Wednesday, showed that many officials last month were prepared to raise rates by a half-point but opted for a smaller, quarter-point increase because of concern over the fallout from Russia’s invasion of Ukraine...

Officials last month approved their first interest rate increase in more than three years, raising their benchmark rate to a range between 0.25% and 0.5%. They also penciled in a series of additional rate increases this year to take rates closer to 2%, with inflation having surged to a four-decade high.

“Many participants noted that one or more [half-percentage-point] increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified,” the minutes said.

The minutes revealed for the first time how officials expect to shrink their asset holdings much faster than they did last decade, which would serve as another key tool for tightening monetary policy. Officials neared agreement on a plan that, after a roughly three-month ramp-up, would allow up to $95 billion in securities to mature every month without being replaced.


The financial markets don't expect the Fed to hold back for the next two meetings...

The Federal Reserve is expected to deliver two back-to-back half-point interest rate hikes in May and June to tackle runaway inflation, according to economists polled by Reuters – right now Fed Funds pricing in a 88% chance of at least that.

Wide distribution of outcomes after historical yield curve inversions

CME Group

The market expectation for this year’s total Fed rate hikes is now above 2.5%...

Wide distribution of outcomes after historical yield curve inversions

The Daily Shot

Did you survive the 10-yr vs. 2-yr yield curve inversion of 2022?

As I look at the 10/2-yr spread today, I see +27bps.

Wide distribution of outcomes after historical yield curve inversions

The Daily Shot

If you are still focused on the recent 10-year vs 2-year Treasury inversion...

You could increase your recession prediction odds if you shrunk your short maturity target. The data below from The Leuthold Group shows that a 5/7/10 year vs. 3 month is much more accurate. And no, those three curves have not yet inverted.

Cumulative personal savings in the pandemic


The absolute moves higher in Treasury yields are having an equal effect on mortgage interest rates...

Consumer spending on energy and food


So, we should wonder if higher mortgage rates are responsible for the slight improvement in housing inventory...

Markit Canada Manufacturing PMI

Calculated Risk

Easy to see that more speculative lumber futures are selling off as mortgage rates surge...

Wide distribution of outcomes after historical yield curve inversions

The Daily Shot

First quarter 2022 earnings are here!

Let's begin with the usual big banks, Delta Airlines, United Healthcare and Fastenal.



Goldman Sachs see downward pressure in future earnings estimates but thinks the market will give companies a hall pass for the current quarter's macro uncertainties...

Consensus expects 1Q EPS growth will decelerate sharply to just 5% year/year. To put the slowdown in context, EPS growth was 48% year/year in 1Q 2021 and 27% last quarter. Profit growth averaged 50% last year as the economy recovered from the 2020 Covid recession.” … “We forecast downside risks to earnings estimates for the remaining quarters in 2022. Full-year EPS estimates have actually been revised 2% higher since the start of the year and earnings growth is forecast to accelerate in coming quarters. Analysts appear reluctant to adequately trim forecasts despite the high degree of uncertainty surrounding the economic outlook. Although our 2022 top-down EPS estimate is 3% below bottom-up consensus ($221 vs. $227), we believe results from 1Q earnings season are unlikely to generate enough clarity for analyst estimates to fully converge to our forecast.

Goldman Sachs

Expectations for Q1 earnings growth have pulled back in the last three months, but Q2 -Q4 estimates have been raised...

Best Year for Commodities

Earnings might be more key to the market right now...

As this chart shows, stocks struggle when long Treasury yields are rising, and forward earnings estimates are falling.

After the Flood

Oxford Economics

Historically, bull market peaks tend to occur 6 months before the start of a recession...

Dow Jones Utility Average


But even with all the negatives and bearishness, there is still some big money that wants to get long right now...

As Fundstrat illustrates below, the market just had a pretty good cluster of buy signals lined up.

Bloomberg US Corporate High Yield


The recovery in equities has been helped by the big move in the Defensive stocks...

@jasongoepfert: This is one for the record books. More than half of Utility stocks have hit a 52-week high on an average day over the past 10 days. That's never happened before, at least since 1952.

Forward P/E and subsequent 5-yr annualized returns

Not to be left out of the Defensive stock party, the Healthcare sector joined Utilities to notch an all-time high...

S&P 500


Technology stocks need to nail earnings this quarter. And then they need an easing in long interest rates...

@Schuldensuehner: This BBG chart highlights that US Tech stocks feeling the heat of rising yields. US 10y yields jump to 2.78% this morning, highest since 2019.

S&P 500 Growth/Value Ratio QoQ

Now this is an interesting chart. Energy stocks have stayed high because most analysts are still only using $60-80 oil in their long term forecasts...

@sstrazza: New highs from Energy stocks even with Crude about 25% off the March highs

US IPO Proceeds and Activity

If credit quality worries exist, you can't find it in the performance of the largest Bank Loan ETF...

The largest High Yield Bond ETF is down with Treasuries due to its duration risk, but bank loans are adjustable rate so it's performance is much more of a credit play.

Wide distribution of outcomes after historical yield curve inversions

The Daily Shot

It helps that bank loan funds are one of the few fixed income sleeves gathering assets...

National average office occupancy level

BofA Global Research

Consumer loan investors getting cold feet as delinquencies tick higher...

This year, investors have sold bonds broadly, driving up yields, which rise when prices fall. But consumer-debt yields are rising even faster, a sign that traders believe the relative risk is increasing. Bonds backed by the most-traded category of subprime auto loans have recently yielded 1.45 percentage points more than standard benchmarks, according to data from JPMorgan Chase & Co. , up from a 0.9-percentage-point premium, or spread, at the start of the year. Yields also have climbed for bonds backed by credit-card debt and other types of consumer debt.

Rising costs in the bond market prompted at least one consumer lender to cancel a new financing in recent weeks: Affirm, which specializes in “buy-now-pay-later” loans for online purchases, pulled a $500 million bond backed by the loans in March after a large investor demanded a higher interest rate on the deal, according to a hedge-fund manager.


Reduction of person days on business premises

Interesting company items from last week's calls & conferences...

Lowes - We do look at big ticket items as a guide to if consumers start to trade down or slow down spending, and we have not seen any of that happen at this point in time. Consumers are still engaging with us at higher price points and entry-level price points too.

Costco Stores - U.S. core comp up 12.7% was broadly in line with the previous month's 12.9% and above the 11.2% est. and translated to a 2-year stack of 24.0% vs. 23.2% in February. Global traffic was steady at 8.2% vs. 8.0% in February. E-commerce growth decelerated to 9.2% compared with 10.4% in February, while transactions at 8.3% showed a nice acceleration from February's 5.5%;

Carnival Cruise - said it had its busiest booking week in the company's history, seeing a double-digit increase between March 28 and April 3 from the previous seven-day record, and is operating nearly at its pre-pandemic capacity as 22 of its 23 ships are back in operation

Hammerstone Markets

The shipping market dynamics seem to be in retreat from earlier highs...

@carlquintanilla: “We are seeing a rather quick response .. in the container shipping market ..” Shipping rate for a 40-foot box from Shanghai to LA “is down noticeably in the past 4 weeks.” - @pboockvar

Flipped Home Transacations

Could the USPS accelerate the price increase of junk mail by a double digit rate?

(US) USPS raises price of First-Class Mail Forever stamp by 6.5% from 58 cents to 60 cents, effective July 10th - The proposed prices, approved by the Governors of the U.S. Postal Service, would raise First-Class Mail prices approximately 6.5 percent which is lower than the Bureau of Labor Statistics annual inflation rate of 7.9 percent as of the end of February. The price changes reflect a judicious implementation of the Postal Service's pricing authority provided by the Postal Regulatory Commission. - Source

High oil prices continue to bring U.S. oil rigs back into service...

Spring 2022

The Daily Shot

Canada's economy is surging as its unemployment rate falls to the lowest since 1976...

The Canadian economy continues to demonstrate a robust recovery from the COVID pandemic. The recent spike in oil prices is also providing a tailwind to the economy. GDP data have been strong lately, and to complement these solid growth figures, Canada's labor market has been on fire. March data reinforce this trend as the economy created a net 72.5K jobs over the course of the month, largely in line with consensus expectations. While the economy lost 20K part-time jobs in March, growth in full-time positions more than made up for the decline. In March, Canada's economy created close to 93K full-time jobs, a welcome sight for the overall health of the economy. Strong job creation also pushed Canada's unemployment rate down to 5.3%, the lowest jobless rate since the early 1970s, with the participation rate solidly above 65%. In our view, strong jobs data for the month of March should keep the Bank of Canada committed to tightening monetary policy.

Wells Fargo

EV Models Will Double

Another Canadian non-worry is water...

Wordle Video


Has anyone done more to bring together Europe than Mr. Putin?

Russia has made a "massive strategic blunder" as Finland and Sweden look poised to join NATO as early as the summer, The Times reported on Monday, citing officials.

The United States officials said that NATO membership for both Nordic countries was "a topic of conversation and multiple sessions" during talks between the alliance's foreign ministers last week attended by Sweden and Finland.


Wordle Video

And Finland will spend an extra $400/citizen on defense spending to fortify that eastern border...

Finland’s five-party government agreed to add more than 2 billion euros ($2.2 billion) in defense spending after its neighbor Russia launched an invasion of Ukraine.

The one-time boost in expenditure represents about a 70% increase from the Nordic country’s regular 2022 military budget of about 2.8 billion euros.

The country of 5.5 million people, which has the European Union’s longest border with Russia, is joining similar initiatives elsewhere in Europe. Its neighbor Sweden, which also isn’t part of the NATO alliance, aims to reach the defense bloc’s target of military spending of 2% of gross domestic product “as soon as possible,” while Denmark seeks to reach NATO’s target by 2033.


The Kremlin loses when the Russian population learns the truth...

@AlexKokcharov: How times have changed: 10 most downloaded apps in App Store in #Russia, February (left) and March (right)

Wordle Video


And you thought U.S. inflation was high...

But I wonder if this is understated given how so many food basket items have become completely unavailable (like bananas). Wouldn't some individual price series move toward infinity or do they just exclude them from the calculation?

Spring 2022

The Daily Shot

In other news, banana-less countries are toxic to debt buyers...

Russia will halt bond sales for the rest of the year and take legal action if sanctions force it into a default on its debt, according to the country’s finance minister.

Anton Siluanov’s comments in Russian newspaper Izvestia come days after the government breached the terms on two bonds by paying investors rubles instead of dollars, and its credit grade at S&P Global Ratings was cut to ‘selective default.’

The threat of default has been hanging over Russia for weeks after it was hit with sanctions because of its invasion of Ukraine. The government in Moscow says it has the funds to meet its debt obligations and has repeatedly blamed the restrictions for its difficulties in making bond payments. Siluanov has said the U.S. and others are trying to force Russia into default...

Because of the financial and economic restrictions, the cost of insuring Russia’s government debt surged at one point last week to signal a 99% chance of default within a year.


Spring 2022

Joan Solotar is spot on here. Semi-liquid private market products will find their way into all corners of the wealth management industry...

If you want to invest in corporate equity and debt, why only do so with publicly traded securities and miss out on 90% of the universe which is private?

Alternative assets will eventually find their way into 401(k) plans, predicted Joan Solotar, global head of private wealth solutions at Blackstone Inc.

“The premise of saving for 10, 20, 30, 40 years and only having access to daily liquidity products doesn’t make sense,” said Solotar, speaking Thursday at the Bloomberg Wealth Summit in New York. “It’s a mismatch.”...

Alternative assets like real estate, private debt and private equity are seen as a way to diversify and earn returns uncorrelated with traditional financial markets. They were once the sole purview of large institutional investors who don’t need assets to be particularly liquid, but the creation of liquidity in certain alternative products aimed at retail investors has broadened their appeal.

“The alternative investments that are now accessible are what we call semi-liquid -- there is quarterly liquidity -- and that has changed what’s happening in the alts business,” said Solotar. “That’s been the big defining moment upon which advisers have really started to embrace alternatives.”


From raising $1 billion to lights out in a snap of the fingers...

Gone are the days of valuing companies off of unprofitable metrics like customers, subscribers or clicks. The free money tide is going out. Do you know what the current profitability and cash flows of your invested companies looks like? If not, they could disappear like Fast.

Fast, the one-stop checkout startup valued last year at over $500 million, on Tuesday came to a screeching halt. No down round. No belt-tightening. Just a straight-out shutdown.

Why it matters: Around 450 people lost their jobs, and investors like Stripe, Addition and Index Ventures lost around $120 million (depending on if any value can be recouped via asset sales).

The big picture: Fast paid too little attention to burn rate because it just assumed the VC gravy train would keep rolling. It's not the only one, so don't be surprised to see similar stories in the near future.

It's a startup strategy that's mostly paid off for the past decade but, as we first discussed in January, things have changed. It's like the longest-ever game of musical chairs has finally ended.

This is particularly true for a company like Fast, whose business was largely driven by big marketing spend.

Backstory: The Information reports that Fast originally sought to raise new funding at more than $1 billion, but investors balked. It then halved its ask and offered to lay off around 50% of its staff, but there were still no takers.


And finally, if any countries have seized Russian private jets in their possession, now is a very good time to sell them...

National average office occupancy level

Goldman Sachs

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