US economic review

[james03]

10 yr. yield now pushing towards 4.2%, a large drop.  Should provide relief on mortgage rates, currently at 6.75%, down about 0.25%, and also lower government interest expenses.  The markets are showing confidence in Trump's ability to cut spending.

WTI around $69 and Brent around $73.  Still trending down.  The markets might be front running a Ukraine peace deal.  If Trump gets sanctions lifted, Brent can easily get down to $65, which would crush inflation for a period of time.

I think the next Fed move is to cut rates.  They'll probably end up around 3.5% to 3.75%.  However for now they are going to hold rates steady for awhile.  SOFR is currently at 4.3%

With the cuts, lower interest expenses, tariff increases, and deregulation, I believe Trump lowers the deficit by $1 TRILLION by the end of 2025 and possible even larger savings.  Cutting the Dept. of Education and USAID saves $300 Billion.  Lower interest rates means lower interest expenses also.

[james03]

Reference this chart with the inflation reports:



You can see what caused the recent uptick in inflation.  And then crude has almost crashed.

Inflation is going to drop, and the Fed will cut as its next move, but probably hold steady one more time.

I said Brent would hit $65 after the end of the Ukraine war.  It could be a real crash, with $45 as a possibility.  Brent has dropped to $71.50 in the past few days.  Low crude prices overall are good for the economy.  Trump needs the Ukraine war to end.

In other news the 10 yr. bond is at 4.18% now.  So the markets also think the Fed is going to cut.  Mortgage rates will go lower and soon take out 6.5%, which also helps Trump.

[james03]

Interesting happenings in Germany.  The Germans have opened the spigots on usurious government spending, and the German bond yields have shot up.

A recap of a trade I had previously mentioned.  You borrow Euros from Germany at say 2.5%, convert it to dollars, and buy US debt at 4.5% or so.  "Convert to dollars" means dollar demand, and so we saw the dollar strengthen.

Well due to this huge change, essentially one that surprised everyone, a lot of banks and funds are on the wrong side of the trade.  Since their interest expense on the Euro loans now spiked up, they are not making money on this trade or even losing money.

So you saw a big sell off in US debt, essentially the 10 yr. spiked from around 4.15% to 4.5% in a day or two, and the dollar drop as people were scrambling for Euros to close out their Euro loans.

It was interesting to observe if you are an econ geek.

I think the move is short lived, however the German spending will result in higher inflation in Germany.  This will also contribute to higher deficits in Europe and the UK as their interest expense just got a lot higher.

All the socialist rats are scrambling around trying to consume the last bits of capital available to them.  The US is the one eyed man in a blind kingdom in that at least directionally they are cutting spending.  Don't know if 4-D can succeed at this, but at least he recognizes the problem.

[james03]

Crude oil is down.  Gasoline down a few cents.  Inflation came in low, probably < 2% at this point due to the drop in energy prices.  In 2025 the Fed will cut some more, and this will lead to economic growth.  The big problem is Trump is obeying his ZOG masters and getting bogged down in the Mideast again.  Yemen could derail the drop in crude prices, however I think a Ukraine peace deal still will hit crude prices hard.

[james03]

Zion Don bombs Yemen and Israel kicked off the genocide again.  Brent back up above $72 again.

I think a settlement in Ukraine and the lifting of oil sanctions will have a big effect, but this was a bad week.  And it's going to be bad until we get to a peace deal.

[james03]

S&P below 5000.  Looks like we are getting to the bottom.  I picked up some great companies on a big sale.

Brent got to where it needs to make inflation effectively zero.  So the Fed now has room to cut.  The markets are discounting a global recession, which is likely given the huge debt overhang in the EU and China, along with the deindustrialization of Germany and the UK.  The US has attracted $2 TRILLION in new investments from overseas, so it is set up for a nice recovery.  Inflation is going back to a low level, unemployment is staying low, and I think mortgage rates will see 5% as the 10 year bond broke below 4%.  All good for young people and wage earners.  Not so good if you are a boomer who has to sell stock from his 401(K).

Believe it or not the US stock market is still considered to be in a bull market.  It could take out 4800, which would be an official bear, but I think we are nearing a bottom.

If Trump gets an end to the Ukraine War and normalizes relations with Russia, I think $45 Brent is very possible.  Being Zion Don and stirring up crap with Yemen, and with Iran is slitting his own throat to benefit his ZOG masters.

In summary, the tariffs are very beneficial for the economy and will mostly benefit wage earners and young people.  Same with the deportations and closing the border.

The future investment will be energy companies which you will pick up at a deep discount.  Maybe 6 months out for that.  I track the Vanguard VDE to gage that.  When it gets below $80, then I'll be looking at energy stocks to buy.

[james03]

Two measures of inflation, CPI and PPI came in negative month over month.  Brent is below $65.

On the stock market we either made the bottom, or we have one more leg down.  The downside potential is 4600 on the S&P.  However the over sold indicators are really high, and volatility has crashed.  If I were forced to bet, I'd say we already bottomed, but it is a close call.  I have orders for some stock that haven't been filled, and chances are I'll miss out.

Big action is in foreign exchange and bonds.  Either hedge funds were forced to liquidate what is called the "basis trade" (they are forced to sell bonds), or foreign countries are selling bonds to defend their currency.  Dollar weakened and bond yields spiked during a period of market panic.  Very unusual.  Who wants to buy German bonds paying 2.5%, when Germany is a failing economy?  Points to forced liquidations, which will play out and then people will rush to get back into dollars.

The way that this went down is that the stock market crashed.  Euro banks which had borrowed Euros, exchanged them for dollars, and bought US stocks closed their positions.  They then had to pay off the Euro loans, so sold dollars for Euros, crashing the dollar.  This then avalanched into hedge funds having to liquidate bonds, which also were funded by Euro loans, and it had a destructive feed back.

[james03]

A more sinister play would be the EU bank sold their Treasuries and bought a bunch of Euros to hit the US dollar.  Perhaps they want to force the Fed to lower rates which helps Europe.  I'm not sure if the Fed steps in between now and their next meeting.  I'm leaning the Fed waits until then.

[Heinrich]

James, why is silver not ascending commensurate to stratospheric rise of gold?