Current position: Carefully Floating
Stocks are lower and Mortgage Bonds are vacillating between unchanged and losses after comments from Chase CEO Jamie Dimon on CNBC, stating that he thinks the 10 - year is going to move much higher. We could not disagree more, but is he someone who has had reliable predictions?
Let's look at some of his recent forecasts - He said to brace for Stocks to go down another 30% on October 13th, meanwhile, they have gone up 15% since. While we think the lows in Stocks have yet to be set, his timing is way off and investors who sold everything when he said missed out on a big bear market rally. He also said oil would hit $175 per barrel when oil was $120, which would be a 46% rise, but it's dropped 38 % since.
We continue to believe that yields will move lower, one inflation report at a time.
CoreLogic Appreciation Data
CoreLogic released their Home Price Index report, showing that home prices declined by 0.1% in October and are up 10.1% year over year, which is a decline from 11.4%. Rates were 6.5% at the time when people were shopping, which is still elevated, and home prices hung in there quite well.
CoreLogic forecasts that home prices will remain flat in November and rise 4.1% in the year going forward, which is an increase from 3.9% in the previous report. This is important - Although we are seeing some slightly negative readings month to month, they still forecast over 4% appreciation nationwide over the next year, which is in line with our expectations.
Remember that 4% appreciation can still be meaningful for wealth creation - If someone bought a $400,000 home, and put 10% down, that means they would gain $16,000 in appreciation over the next year and earn a 40% return on their investment due to leverage.
Jobs Divergence
There was a huge gap between the Business Survey, where the headline job creation figure comes from, and Household Survey, where the unemployment rate comes from. In October, the Business Survey showed 284k job creations, while the Household survey was down 328k. Then in November, the Business Survey was up 263k while the Household Survey was down 138k. So, over this two - month period, the Business Survey showed 547k jobs created, while the Household Survey slid 466k..over a 1M difference. Such a gap in two months has occurred less than 1% of the time in the past, and the data dates back more than 70 years. Previous times were the winter of 2020, spring of 2007, summer of 1981, spring of 1980, spring of 1960, and in spring of 1953. All were years when recessions occurred.
Additionally, the Business Roundtable released its Q4 CEO Economic Outlook Survey showed that Hiring plans fell 17 points to 61. There is a lot of underlying weakness in the labor market that is not captured in the headline Jobs Report number that the media reports on.
More Signs of Recession
The spread between the 10 - year and 2 - year Treasury now stands at -81bp, which is the deepest inversion since 1981. The 10 - year and 3 - month spread is now -76bp, which is also incredibly deep. These inversions are very reliable recession indicators, especially the 10 - year minus 3 - month. Additionally, the Chicago PMI is now beneath 40 and has called a recession with 100% accuracy in the last 7 occurrences.
Lastly, the Philadelphia Fed does a quarterly survey asking "professional forecasters" the probability of a recession in the next four quarters. It s now almost twice what it was prior to the Great Recession. Professional forecasters tilt to the bullish side of the optimism street. When 43% of them think a recession is likely within the next year, we should pay attention.
Technical Analysis
Mortgage Bonds are battling with an important technical level at the 100 - day Moving Average If Bonds can break above this level, there is a lot of room to the upside until reaching the highs from December 2 at 101.75, roughly 75bp higher than current levels. If Bonds are turned lower, there is support at 100.53.
The 10 - year Treasury yield is battling with overhead resistance at 3.57%, which is another important technical level. If yields can remain beneath this, they can move lower to test the 100 - day Moving Average at 3.46%. On the other hand, if yields don't hold at 3.57%, they will likely test the next level at 3.67%. We will watch these levels closely and remain patient until we get a signal either way. Begin the day carefully floating.