6-Chart Monday (10/4/21)

By Charlie Bilello

04 Oct 2021

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6 charts from the past week that tell an interesting story in markets and investing…

1) 0% Rates Make 0 Sense

One of the primary factors that led to last housing bubble was the Federal Reserve holding rates at 1% for over a year (June 2003 – June 2004), long after such extreme easy money policy was warranted (recession ended in November 2001).

The parallels to today are growing with home prices skyrocketing and the Fed continuing to hold interest rates at 0% in spite of strongest economic growth numbers we’ve seen since the early 1980s.

The nearly 20% increase in national home prices over the last year is the largest in history by a wide margin. And yet, rates are expected to remain at 0% for at least another year.

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2) Tall “Transitory Tales

The “transitory” inflation we were promised is remaining stubbornly high, with the latest PCE Price Index showing a 4.30% increase. That’s the highest rate we’ve seen since 1990.

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The latest ISM Manufacturing report had a consistent theme throughout: labor shortages, supply chain constraints, and rising prices. Said one respondent: “we will not see and end to this in 2021.” All evidence is pointing to above-average inflation continuing in the near term.

3) Hot Commodities

While US equities had their worst month of the year in September (S&P 500: -4.8%), Commodities continued their steady advance. In an interesting change of leadership, Commodities have bested equities over the past 18 months. The last time that happened was back in 2011.

The CRB Index ended the week at a 6-year high, up 128% from the lows last April.

Cotton is the latest commodity to spike, surging to levels we haven’t seen in over 10 years. This will likely mean higher prices to come for clothing.

4) It’s All Relative

The US Dollar Index hit a 52-week high last week with the 2-largest components (Euro & Yen) hitting 52-week lows.

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The divergence in expectations for monetary policy is likely the big driver here, with the Fed expected to start raising rates next year while the ECB and the Bank of Japan are expected to keep rates at negative levels indefinitely.

This is in spite of similar inflationary pressures in Europe as we are experiencing in the US, with prices in Germany rising at the highest rate since 1993 (+4.1% over the last year).

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The bond market in the US is starting to accept the reality of an eventual move off of 0%, with 5-year Treasury yields moving above 1% for the first time since February 2020.

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5) Another Meme Bites the Dust

Remember when Bed Bath & Beyond ($BBBY) became a “meme” stock back in January? It’s now 70% lower and down on the year.

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6) Delta Downswing Continues

Covid-19 hospitalizations in the US continue to subside, down over 33% from their peak in early September.

The combination of natural and vaccine immunity will hopefully continue to make outcomes from contracting the virus less and less severe. We’re seeing that globally with deaths now at their lowest levels since last November, with the last 2 waves making lower highs and lower lows…

And that’s it for this week. Thanks for reading.

Have a great week everyone!


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