<![CDATA[American Economy Daily]]>https://www.americaneconomydaily.comhttps://substackcdn.com/image/fetch/$s_!zWO2!,w_256,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa7b0b93e-11d2-4c55-98ff-eceb5aa05c75_200x200.pngAmerican Economy Dailyhttps://www.americaneconomydaily.comSubstackSun, 15 Nov 2026 00:09:25 GMT<![CDATA[Forget Cuts. Price In Hikes.]]>https://www.americaneconomydaily.com/p/forget-cuts-price-in-hikeshttps://www.americaneconomydaily.com/p/forget-cuts-price-in-hikesFri, 13 Nov 2026 15:12:19 GMTTreasuries are heading for their worst week since the April 2025 liberation day tariff shock. The 10-year yield reached 5.16% on Friday, up 0.3 percentage points from the end of last week (FT). The two-year moved even faster, rising 0.36 points this week to 4.88%, its biggest jump since late 2024.

The dollar index hit 103.277, its highest since April 2025 (WSJ). Sales of existing homes dropped to their lowest level since 2010 (WSJ).

The trigger was October's consumer price index. It rose 0.4%, beating forecasts for the third month in a row (CNBC). Chicago Fed president Austan Goolsbee called the report "borderline disturbing" (CNBC).

For a regular investor, the question is no longer when the Fed cuts. It is how many more times the Fed hikes.

The Market Now Expects Hikes, Not Cuts

The Fed lifted its target range to 3.75%-4% in September and held in October (CNBC). Futures now fully price a quarter-point increase in December (FT). CNBC puts the odds of a half-point move at 15%, an idea Governor Christopher Waller raised this week.

A January hike, given 10% odds a week ago, is now largely priced in. A third by June is fully priced (FT).

New York Fed president John Williams, usually a centrist voice, sounded firm. Williams called the economy strong and said the labor market keeps strengthening. Williams also described inflation as persistent (WSJ).

Fed funds rate vs. 10-year Treasury yield
Fed funds rate vs. 10-year Treasury yield

The effective fed funds rate held flat at 3.88% from Oct. 31 through Nov. 11. Over a similar stretch the 10-year yield swung from 5.05% on Oct. 28 down to 4.84% on Nov. 5 and back up to 4.98% on Nov. 10.

How Can Gas Prices Fall and Inflation Still Get Worse?

Cheaper gasoline makes this look like a contradiction. It isn't, because price pressure has spread well beyond energy.

  • Core CPI, which strips out food and energy, rose 0.3% for the third straight month (WSJ).

  • Two Cleveland Fed gauges that drop outliers both point higher. The median CPI ran at a 3.7% annual rate and the trimmed-mean CPI at 4.5% (same source).

  • The Atlanta Fed's sticky-price index, which tracks prices that change slowly, sped up to a 4.7% annualized pace, the fastest since February 2025 (Axios).

  • Food prices rose 0.5% in October as higher freight costs fed through. Medical services and auto insurance also accelerated, as did hotels (Barron's).

WSJ's Greg Ip explains the stakes. If inflation is stuck near 3% rather than drifting down on its own, a light touch on the brakes won't be enough. The Fed would have to deliberately cool the economy, which means slower growth and more unemployment (WSJ).

Housing and Stocks Take the First Hit

Housing is where higher rates show up first (FT):

  • Existing-home sales fell 5.5% in October to a 3.75mn annual pace. That is the slowest since August 2010 and below the 3.85mn forecast.

  • Inventory rose to 1.59mn homes, or 5.1 months of supply.

  • Mortgage rates reached as high as 7.5% in early October.

  • Jefferies expects October's rate jump to drag on sales in November and December.

Stocks look less stretched than the selloff might suggest. Barron's notes the S&P 500 trades at about 18 times expected earnings, close to its 10-year average. The problem is momentum.

Since Kevin Warsh's Senate confirmation as Fed chair, the 10-year yield has climbed nearly a full point (Barron's). Over that span the S&P 500 has gained less than 1% despite strong earnings (Barron's). Rising yields are eating all of that profit growth.

Opposing Views

The Bull Case

Mary Ellen Stanek of Baird Advisors, who has 47 years in fixed income, argues investors shouldn't flee bonds at these yields (Barron's). Her points:

  • The Bloomberg U.S. Aggregate index paid a 3.2% yield after inflation in the third quarter.

  • At the end of the third quarter, the 10-year Treasury yielded 5.29%, compared with an S&P 500 earnings yield of 3.81%. Treasury yields were last that high in 2002.

  • Baird's municipal bond fund yields 4.86%, which works out to 8.21% for someone in the top 40.8% tax bracket.

Stanek expects just one more quarter-point hike. She favors intermediate bonds in the five-to-six-year duration range, a measure of how much a bond's price moves when rates change.

Governor Michelle Bowman supports a gentler path. Bowman notes that falling stocks, higher borrowing costs and a stronger dollar are already tightening conditions for the Fed (Axios).

The Bear Case

Economist Steve Hanke warns of a meaningful risk of a financial crisis, pointing to heavy investment and rising credit exposure on top of stretched valuations. In that scenario, Hanke says, the broad stock market could fall 40% (Wealthion).

Hanke expects the bond bear market to continue, with the 10-year yield possibly staying above 5%. Hanke would put new money in money market funds rather than stocks (Wealthion). Carson Group's Sonu Varghese argues that the longer the Fed waits, the more economic and market pain it is likely to cause in the end (Barron's).

The signal to watch is the yield curve. The WSJ's Economics newsletter puts the two-year yield 0.25 percentage point below the 10-year (WSJ). The newsletter treats a move above it as the point to start weighing a recession (WSJ).

Conclusion

The Fed's next move looks like a hike, and inflation is now broad enough that lower gas prices won't stop it. That is a gut punch for homebuyers and for stocks that need falling rates. It is good news for anyone who wants to lock in income.

  • Plan for higher-for-longer rates. Futures price hikes into 2027, not cuts.

  • Watch core and trimmed-mean CPI, not gas prices, to read the Fed.

  • Treat a two-year yield above the 10-year as a recession warning.

  • Intermediate bonds and munis offer income not seen in decades, but expect price swings if Hanke is right.

  • Hold cash in money market funds while the Fed decides how hard to push.

Sources

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]]><![CDATA[Hotter Prices, Faster Fed?]]>https://www.americaneconomydaily.com/p/hotter-prices-faster-fedhttps://www.americaneconomydaily.com/p/hotter-prices-faster-fedThu, 12 Nov 2026 14:20:25 GMTConsumer prices rose 0.4% in October, beating the 0.3% economists expected. Core prices, which leave out food and energy, climbed 0.3% against a 0.2% forecast, according to the Bureau of Labor Statistics (CNBC). The BLS skipped an annual rate this time because last year's government shutdown left no October 2025 data to compare against.

Bond traders didn't wait. The 2-year Treasury yield rose 0.18 percentage point to 4.725%, its largest one-day gain since April 9, 2025 (WSJ). The 10-year yield pushed back above 5% (WSJ).

A December hike now looks settled. The open question is how fast the Fed moves after that.

The Headline Cooled. The Problem Didn't.

On the surface, October looks like progress: 0.4% is down from September's 0.6%. Look under the hood and almost all of that relief came from energy. The energy index rose 0.7% in October after jumping 5.2% the month before (FT). Everything else ran hot:

  • Core rose 0.3% for the third month in a row. WSJ's Economics newsletter points out that any monthly core reading above 0.2% doesn't fit with the Fed's 2% goal (WSJ).

  • Food rose 0.5% after holding flat in September (Barron's).

  • Shelter rose 0.3% and made up more than 30% of the headline gain. Electricity rose 0.9% (CNBC).

  • Smartphone prices jumped 1.4%, the biggest increase on record, and TVs rose 3.3% (AP).

The trend is worse than any single month. Core prices rose at a 3.7% annualized pace over the three months through October, compared with 1.6% for the three months through July (WSJ). The Cleveland Fed's trimmed-mean CPI, which removes the biggest outliers, rose at a 4.5% rate (WSJ).

US inflation: headline vs. core CPI, year over year
US inflation: headline vs. core CPI, year over year

The chart shows headline inflation at 3.72% year over year in September, up from 2.43% in February, while core sat at 2.57%.

How can gas prices be falling while inflation heats up? Because the price increases are spreading. Fed Governor Michelle Bowman said pressures that used to sit in a few categories may now be broadening (AP). Chicago Fed President Austan Goolsbee called the report "borderline disturbing" (CNBC).

Gradual or Faster? The Fed's Real Debate

The Fed lifted its benchmark rate to a 3.75%-4% range in September, then held it there in October. Futures traders now unanimously expect a December hike. They put the odds of a half-point move at 15%, and see a 60% chance that rates reach 4.25%-4.5% by January (CNBC).

The officials who want to move faster:

  • Christopher Waller said before the release that a core reading near 0.3% should put a half-point hike on the table. He warned that "hiking only 25 basis points would put our credibility at risk" (FT).

  • Lorie Logan of the Dallas Fed wants at least two more quarter-point increases. She also suggested the Fed could pick up its pace this winter (WSJ).

The officials urging patience:

  • Anna Paulson of the Philadelphia Fed prefers small steps so households and businesses have time to adjust. She would speed up only if wages, inflation expectations or underlying inflation climbed: "Right now, that's not what I'm seeing" (WSJ).

  • Bowman warned that financial conditions have already tightened, which reduces the benefit of more hikes (WSJ).

Goolsbee sounds alarmed, especially about inflation expectations becoming entrenched. Still, he declined to commit to a December move, and he doesn't vote until next year (CNBC). Chairman Kevin Warsh has said little either way.

Higher Yields: Pain for AI Stocks, Opportunity for Income

The Nasdaq composite closed down 0.7% Tuesday. Nvidia fell nearly 5% (WSJ). Bowman said investors seem to be rethinking the expected returns on AI spending, which is pushing stock prices down and raising borrowing costs for builders (WSJ).

AI creates a double bind for the Fed: the buildout itself is helping keep inflation high (WSJ). Since mid-May, the 10-year yield has climbed nearly a full percentage point, while the S&P 500 has gained less than 1% (Barron's).

Savers face the opposite picture. Baird's Mary Ellen Stanek notes the 10-year yield stood at 5.29% at the end of the third quarter, while the S&P 500's earnings yield was 3.81%. Treasuries were last that high in 2002 (Barron's).

After inflation, the Bloomberg Aggregate bond index yielded 3.2% in the third quarter. Baird's muni fund yields 4.86%, which works out to 8.21% on a tax-adjusted basis for top earners (Barron's).

Opposing Views

The Bull Case

Barron's Martin Baccardax notes the S&P 500 trades near 18 times forward earnings, among the cheapest levels since 2023. LSEG expects roughly 30% fourth-quarter earnings growth (Barron's). Evercore ISI's Krishna Guha still expects inflation to ease as tariff, energy and AI pressures fade. Pimco's Tiffany Wilding says this is not a repeat of 2022 (WSJ).

The Bear Case

WSJ's Economics newsletter argues that if inflation is stuck near 3%, the Fed will have to slow growth and raise unemployment to bring it down. The 2-year yield is now just 0.25 point below the 10-year, and an inversion would be a recession warning. Goldman Sachs sees leftover price effects lasting through the first half of 2027 (WSJ).

Carson Group's Sonu Varghese says the longer the Fed waits, the more pain it will eventually cause (Barron's). Matt Klein reads the midterm results as voters punishing rising prices above all else, which gives the Fed political cover to hike (The Overshoot).

Conclusion

Falling gas prices flattered the headline number. Underneath, inflation is broadening, and the Fed is now debating speed, not direction.

  • Watch core CPI, not headline. Three straight 0.3% readings are what changed the Fed's tone.

  • Treat a December hike as the base case. January is the real swing meeting.

  • Paulson's tests are the ones to track: wages and inflation expectations would tip the Fed toward faster hikes.

  • Rate-sensitive AI names stay exposed while the 10-year hovers near 5%.

  • Income investors can now lock in yields not seen in decades, especially in intermediate bonds and munis.

Sources

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]]><![CDATA[Hot CPI, Hotter Bond Market]]>https://www.americaneconomydaily.com/p/hot-cpi-hotter-bond-markethttps://www.americaneconomydaily.com/p/hot-cpi-hotter-bond-marketWed, 11 Nov 2026 14:20:32 GMTConsumer prices rose 0.4% in October, beating the 0.3% economists had penciled in, the Bureau of Labor Statistics said Tuesday (CNBC). Core CPI, which leaves out food and energy, gained 0.3% against a 0.2% forecast. That makes three straight months at that pace (Axios).

Hours before the release, Fed governor Christopher Waller said in London that a core reading that warm should put a half-point December hike on the table. The Fed last raised rates by more than a quarter point in 2022 (WSJ).

Bonds didn't wait. The 2-year Treasury yield climbed 0.18 percentage point to 4.725%, its biggest daily jump since April 9, 2025 (WSJ). The 10-year briefly touched 5% (WSJ).

The average 30-year mortgage rate rose 12 basis points to 7.30%, according to Mortgage News Daily (CNBC). For investors, the question is whether the market is now running ahead of the Fed.

The Inflation Problem Is Broad, Not Just Gas

The energy shock is fading from the monthly numbers. What replaced it is more worrying:

  • Energy rose 0.7% in October, down from 5.2% in September (WSJ). Gasoline gained 1% after a 9.1% surge (Axios).

  • Food rose 0.5% and shelter 0.3%, while transportation services rose 0.8%. BLS said shelter made up more than 30% of the headline gain (CNBC).

  • Underlying inflation is speeding up. Annualized over three months, core hit 3.7% as of October, up from 1.6% as of July (WSJ).

BLS published no yearly rate this month. Last year's shutdown left October 2025 with no data to compare against.

The Wall Street Journal ran its own estimate and put annual inflation at 4%, or 2.8% on core. The official September figures were 3.7% and 2.6% (WSJ).

US inflation: headline vs. core CPI, year over year
US inflation: headline vs. core CPI, year over year

Headline inflation rose from 2.39% in January to 3.72% in September, while core stayed in a narrow band between 2.45% and 2.82%. This year's spike has mostly been an energy story.

Oil Is Sliding and the Fed Isn't United

Crude is moving the other way. December WTI futures, the U.S. benchmark, fell to $86.30 a barrel. That is a two-month slide of around 15% (Barron's).

Brent sat at $91.78, close to a 20% drop from its October 30 high of $113.40. U.S. gasoline fell back under $4 a gallon for the first time since late July (Barron's). Vanguard's Josh Hirt told Barron's that unless prices spike again, oil's drag on inflation should stay limited.

The committee is also split. Philadelphia Fed President Anna Paulson, a voter, still prefers raising rates gradually. Paulson would speed up only if wages or inflation expectations started climbing. "Right now, that's not what I'm seeing," she said (WSJ).

Dallas Fed President Lorie Logan was hawkish, but she favors two quarter-point hikes followed by a pause (Barron's). Traders see the same thing. CME's FedWatch puts the odds of a December half-point at just 9%, against 91% for a quarter point (WSJ).

Back-to-back quarter-point hikes in December and January are priced near 59% (WSJ). Deutsche Bank's Matthew Luzzetti expects a quarter point at each of the next three meetings (WSJ). So the market is pricing a faster pace, not a jumbo move.

What a Half-Point Would Hit

  • Mortgages: Tuesday ended four straight weeks of falling rates. Last week the MBA's 30-year average had eased to 7.21% from 7.30%. Applications rose 6.2%, with purchases up 8% and refinances up 5%. Refinances were still 57% below a year earlier (CNBC). A bigger hike would likely end that recovery.

  • Leveraged companies: Junk-rated borrowers account for almost a quarter of the $2tn in U.S. corporate debt that must be refinanced over the next two years. Many rely on floating-rate private credit, which resets every quarter. CCC-rated bonds already yield almost 18% (FT).

  • Growth stocks: The Nasdaq closed down 0.7% Tuesday (WSJ). Its futures then jumped 2% Wednesday after CoreWeave beat revenue estimates (WSJ). Tech is trading on AI news as much as on the Fed.

Opposing Views

The Bull Case

Principal Asset Management's Seema Shah says a December hike looks nearly certain. But Shah argues a half-point hasn't been earned: "An outsized move should require evidence that inflation is accelerating decisively, expectations are becoming unanchored or the economy is overheating" (Barron's). Logan herself noted that long-term inflation expectations remain near target. Add falling crude and Paulson's patience, and the yield spike looks like a market getting ahead of itself.

The Bear Case

Waller argues that a quarter point after a third firm core print "would put our credibility at risk, a risk I am not eager to take" (WSJ). Waller also doubts diesel will fall soon, because global refining capacity is damaged. Diesel was still around $6.10 this week (WSJ).

Businesses are still raising prices too. A net 37% of NFIB firms plan increases, the highest share since July 2022 (CNBC). Brent also bounced above $93 Wednesday (WSJ).

Conclusion

October's report locks in a December hike, but the evidence for a jumbo move is thinner than Tuesday's bond selloff suggests. Futures already lean toward a steadier series of quarter points.

  • Watch core CPI, not headline. A fourth 0.3% month would strengthen Waller's case.

  • A 10-year yield near 5% and mortgage rates at 7.30% already price in a lot of tightening. If oil keeps falling, some of that could reverse.

  • Weak-balance-sheet borrowers with floating-rate debt are the most exposed to any half-point surprise.

  • Track diesel and Brent. A renewed energy spike is the biggest risk to the overdone-repricing view.

  • Listen for Chairman Kevin Warsh, who has said little so far about how fast he wants to move.

Sources

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]]><![CDATA[Watch the Bond Market, Not Congress]]>https://www.americaneconomydaily.com/p/watch-the-bond-market-not-congresshttps://www.americaneconomydaily.com/p/watch-the-bond-market-not-congressMon, 09 Nov 2026 14:20:42 GMTTreasury yields flipped higher on Monday, with the 10-year up 0.9 basis points to 4.869% after starting the day lower (WSJ). Traders are done trading the midterms. Now they're watching Tuesday's October consumer price index and Friday's producer price index, plus a run of long-dated Treasury auctions.

That shift follows an ugly week for stocks. The Nasdaq Composite fell 5.5% on Thursday, its worst day since the April 2025 tariff turmoil. The S&P 500 posted its fourth weekly loss in a row (Barron's).

Chip stocks led the selling on fears a Democratic Congress will slow data-center construction. The question for regular investors: after the AI rout, are long-term rates and tighter liquidity the next shoe to drop?

Washington's Bark Is Louder Than Its Bite

The headline story is that Democrats now threaten Trump's grip on the Fed and the banks:

  • A Democratic Senate can block Trump's picks for the Fed board. Investment manager Mark Spindel said Trump's chance to reshape the Fed's relationship with the White House "clearly died Tuesday" (WSJ).

  • But Trump has appointed only three of the 12 rate-setting voters. The Warsh-led Fed already went against his wishes, hiking in September for the first time since 2023 (same source).

  • Bank stocks barely flinched. WSJ's Telis Demos notes the KBW Nasdaq Bank index is down 1.7% since the election, versus about 2.5% for the S&P 500 and over 11% for the PHLX Semiconductor index. Fed supervision chief Michelle Bowman and Chair Kevin Warsh hold those roles through 2029 and 2030 (WSJ).

Mostly, the politics just lock in an independent Fed with a hawkish lean. Markets now see an 81% chance of a December hike, up from roughly 72% before Friday's jobs report, per LSEG data cited by WSJ. Employers added 165,000 jobs in October (AP), nearly triple expectations. Unemployment stood at 4.1% (Real Investment Advice).

The Real Tell: Yields Rising While Oil Falls

How can yields turn up if the biggest inflation driver is getting cheaper? Brent crude fell 3.5% to $94.93 on Monday and WTI dropped 3% to $88.13 after Trump played down further strikes on Iran (WSJ). AP reports crude plunged after the midterms on hopes Democrats push to end the conflict, the same war that has kept CPI running above 3% since March (AP).

Cheaper oil should pull long yields down. If the 10-year rises anyway, the bond market is saying its worry goes beyond energy: sticky inflation elsewhere, heavy Treasury supply, or both.

10-Year vs. 2-Year Treasury Yields
10-Year vs. 2-Year Treasury Yields

The 10-year eased from 5.13% on October 21 to 4.84% on November 5, while the 2-year slipped from 4.81% to 4.46% over the same stretch.

Wolf Richter of Wolf Street puts that rally in context. The 10-year closed at 5.31% on October 5, and the October 7 auction cleared at 5.30%, the highest auction yield since November 2000. The 45-basis-point slide since then, to 4.86% on Friday, is small next to the 121-basis-point drop of late 2023 or the 105-basis-point drop of mid-2024. If yields head higher from here, Richter argues, it shows the market can't even manage a proper relief rally.

This week is the test. The 10-year auction lands Tuesday, hours after CPI, with the 30-year auction Thursday.

Barron's cites a 0.3% monthly headline CPI forecast after September's 0.6%, with core at 0.2%. RBC expects core at 0.3%, citing three months of accelerating goods prices (FT). Real Investment Advice adds that the recent energy drop probably won't show up until the December reports.

Why Liquidity Is the Bridge to Stocks

Real Investment Advice's liquidity gauge reads -18.73, down from -13.66 a week ago and +5.23 a month ago. Two plumbing signals drive it:

  • Bank reserves near $2.9 trillion, under the Fed's $3 trillion comfort level.

  • SOFR, the overnight secured borrowing rate, trading 7-10bps above the effective fed funds rate, an early sign of funding strain.

Real Investment Advice notes falling bond yields have been helping liquidity. Reverse that, and a cushion disappears just as the S&P 500 sits at 7,376.86. That is barely above a 200-day average of 7,325, which the firm calls the level that matters most (Real Investment Advice). Even roughly 29% third-quarter earnings growth hasn't stopped the S&P 500 from sliding 3.6% since early October (Barron's).

Opposing Views

The Bull Case

Crossborder Capital argues the election is modestly bullish for long Treasuries: fewer odds of new tax cuts and more reliance on the Fed if growth weakens (Capital Wars). On AI, JPMorgan Asset Management's Hugh Gimber says "data centre rollout will continue at pace," and S&P 500 futures were up 0.9% Monday (FT).

Jefferies' Mohit Kumar expects "hiccups rather than a derailing of the AI trade" (WSJ). Real Investment Advice found 27 similar oversold setups since 1950; the index was higher a month later 23 times.

The Bear Case

Wolf Richter warns a failed rally could open the next leg of the selloff, and says he won't buy at auctions at these yields. TD Securities sees headline inflation finishing 2026 at 4.0% and core at 2.8% (WSJ).

Friday's PPI is expected at 6.6% year over year (Barron's). Andy Constan told Forward Guidance that AI, onshoring and deficit promises must be funded largely by private credit, not the Fed. Even Crossborder expects 2026's liquidity squeeze to weigh on 2027 growth.

Conclusion

The election grabbed the headlines. The bond market gets the final say on whether last week's AI selloff spreads into something broader.

  • Watch Tuesday's CPI and 10-year auction together; a weak auction after a hot print is the danger combo.

  • If oil keeps falling and the 10-year still rises, treat it as a warning, not noise.

  • Track liquidity plumbing: reserves below $3 trillion and SOFR above fed funds.

  • The S&P 500's 200-day average near 7,325 is the line between correction and something worse.

  • Don't overreact to Fed and bank headlines; the Fed's hawkish lean matters more than who sits in Congress.

Sources

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]]><![CDATA[What Traders Are Feeling: Mood Cools as Stocks and Bitcoin Slip]]>https://www.americaneconomydaily.com/p/what-traders-are-feeling-mood-coolshttps://www.americaneconomydaily.com/p/what-traders-are-feeling-mood-coolsMon, 09 Nov 2026 00:22:43 GMTTrader mood cooled this week in both markets, and prices followed. Stock sentiment slipped while the S&P 500 fell 2.7%. Crypto sentiment dropped from bullish to neutral as Bitcoin lost 1.9%.

Stocks

The week's reading. Stock sentiment averaged 8.3 for the week of Nov 2, 2026, down 5.4 points from 13.7 the week before; both weeks are neutral. The S&P 500 closed at 7,376.86 on Nov 6, down 2.7% for the week, after a 0.6% dip the week before.

Sentiment hit its low of -10.6 on Nov 5, the same day the index posted its lowest close of the week at 7,353.73. The high was 25.4 on Nov 4, and the latest weekday reading was 4.6 on Nov 6.

Trader stock sentiment vs. the S&P 500
Trader stock sentiment vs. the S&P 500

The weekend. With the market closed, the S&P 500 stays at 7,376.86 until trading resumes. On Nov 7, with 66 traders posting on stocks, the last reading was 7.1, up 2.5 points from Friday's 5 PM ET close of 4.6. On Nov 8, with 71 traders posting, it eased to 2.7, down 1.9 points from Friday. Both are neutral.

News vs. traders. Headlines got gloomier: the share carrying fear rose to 11.9% from 10.1% the prior week, while greed rose to 1.4% from 1.0%. Trader posts moved the same way, with fear at 5.6% versus 4.2% and greed at 4.5% versus 3.6%. Trader figures combine stocks and crypto.

Fear and greed in news headlines vs. trader posts, by day
Fear and greed in news headlines vs. trader posts, by day

Loudest bull and bear. On Nov 4, @SuperLuckeee argued that a blue Congress is good news for $SPY. @SuperLuckeee pointed to the fund's one-day reversal from $748 to $768 and named $800+ as the next target. Their reasons included a possible off-ramp from the Iran war, Brent oil under $100, room for Fed cuts, and gridlock that limits policy surprises.

@SuperLuckeee added that $SPY was higher after 10 of the last 10 midterms. @SuperLuckeee signed off: "Expecting a big Santa Claus rally now!" The very next day, stock sentiment sank to its weekly low.

They have leaned short on $MU and $QQQ since both lost that line, eyeing the daily 200 SMA as a downside target. If that level breaks, they expect a retest of the July low, a move they have prepared for.

Insider buying. The largest open-market purchase filed this week was a $35.0 million buy of MDGL by BAKER BROS. ADVISORS LP (filed Nov 6). Next came a $31.5 million buy of COUR by Pale Fire Capital SE (filed Nov 5). Third was a $26.9 million buy of SIRI by BERKSHIRE HATHAWAY INC (filed Nov 3).

Largest open-market insider buys this week
Largest open-market insider buys this week

Our track record. Our analysis covers Oct 8, 2026 through Nov 3, 2026, and the samples are small. When stock sentiment was in its top quarter of readings (6 cases), SPY was lower two days later in 5 of 6 cases and higher in 1 of 6. The average move was down 0.69%, against a typical two-day move of down 0.04% (p = 0.07; not statistically significant). Treat it as context, not a trade signal.

Crypto

The week's reading. Crypto sentiment averaged 17.5 this week, down 12.2 points from 29.7 the week before, moving from bullish to neutral. Bitcoin closed at $75,748 on Nov 7, down 1.9% for the week, after a 4.8% drop the week before.

Its lowest daily close was $75,747 on Nov 6, and Yahoo Finance had it at $74,740 intraday on Nov 9, 2026. Sentiment ranged from 14.1 on Nov 2 to 26.4 on Nov 4, with the latest weekday reading at 14.7 on Nov 6. Over the weekend the mood swung: the last reading on Nov 7 was 44.1 (bullish), then -1.3 (neutral) on Nov 8.

Trader crypto sentiment vs. Bitcoin
Trader crypto sentiment vs. Bitcoin

News vs. traders. The same combined trader figures apply here. Fear rose in both headlines and posts, with greed edging up from a low base.

Loudest bull and bear. On Nov 7, @CryptoKaleo held up Litecoin as the template for coins that return from the dead. In their read, Zcash has completed the first phase of that pattern and is close to finishing the second, which they think sets it up for a far bigger rally than the market expects. They put the next clear resistance about 170% above current levels and sketched ZEC near $5K if Bitcoin also returns to its highs.

@rektcapital took the gloomier view on Nov 5, saying Bitcoin was retesting old support as new resistance for a third straight week after a weekly close below ~$78300. They read the repeated rejections as sell-side pressure building at lower levels, and @rektcapital called ~$76800 "absolutely crucial support right now." Bitcoin's Nov 7 close of $75,748 came in below that line.

Our track record. The same caveats apply: data from Oct 8 through Nov 3, and small samples. When crypto sentiment was in its top quarter of readings (8 cases), BTC-USD was lower two days later in 6 of 8 cases. The average move was down 1.01% vs a typical two-day move of down 0.90% (p = 0.87; not statistically significant).

When sentiment was in its bottom quarter (9 cases), BTC-USD was higher the next day in 7 of 9 cases. The average move was up 0.49% vs a typical one-day move of down 0.42%. That result has p = 0.02, below 0.05 but one of many tests we ran. It is context, not a trade signal.

Bottom line

Traders turned more cautious as stocks and Bitcoin slid, and headlines carried more fear too. Neither market tipped into bearish sentiment, so this looks like a cooling, not a panic. Loud voices on both sides made confident calls, and the week mostly rewarded the bears.

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]]><![CDATA[Hot Jobs, Shaky Case for a Hike]]>https://www.americaneconomydaily.com/p/hot-jobs-shaky-case-for-a-hikehttps://www.americaneconomydaily.com/p/hot-jobs-shaky-case-for-a-hikeSun, 08 Nov 2026 14:20:56 GMTThe U.S. economy added 165,000 jobs in October, far above the 65,000 that analysts in a Bloomberg poll expected (FT). The unemployment rate dipped to 4.1% against a forecast of 4.2% (FT). Earlier months were revised up too: August now shows 186,000 jobs and September 60,000 (CNBC).

On the surface, that settles the December debate. San Francisco Fed President Mary Daly said Americans are on a "treadmill of high inflation" and that more tightening is likely (CNBC). Traders put the odds of a quarter-point hike at the Dec. 8-9 meeting at 76.8%, per CME FedWatch (CNBC).

But the headline is only part of the story. The Fed has more reasons to hesitate than the payroll number implies.

The Details Are Softer Than the Headline

How can the labor market be overheating if people who lose a job are struggling to land another? The October report shows both at once.

  • A broader jobless measure that counts discouraged workers and involuntary part-timers rose to 7.9%, up 0.3 percentage point (CNBC).

  • The average spell of unemployment climbed to 27.1 weeks, the longest since September 2021 (CNBC).

  • A total of 1.96 million people have been jobless for more than 27 weeks (CNBC).

  • The long-term unemployed made up 27.6% of all jobless workers, the highest share since late 2021 (CNBC).

Indeed economist Cory Stahle told CNBC the typical job search now outlasts unemployment benefits (CNBC). In Stahle's view, that partly explains why jobless claims look so low. Record-low claims may reflect people who have aged out of the system, not just a hot market.

Wages aren't driving inflation either. Average hourly earnings rose 3.1% from a year earlier, while September CPI ran at 3.7% (CNBC). Daly herself said real wages are falling (CNBC). FT's analysts note unit labor costs fell at a 0.7% annualized pace in the third quarter on strong productivity gains (FT).

[Chart: Unemployment rate vs. fed funds rate. Insert image file 2026-11-08-hot-jobs-shaky-case-for-a-hike.png here in the editor.] Unemployment has eased from 4.5% in November 2025 to 4.1% in October 2026. The effective fed funds rate stood at 3.88% in late October.

Politics and Markets Are Already Tightening

The Democratic sweep of Congress changes the backdrop. Barron's argues it could slow the buildout of power-hungry AI data centers in states like Texas, Georgia and Ohio (Barron's). Less building would ease demand for energy and construction materials, Barron's says, making the outcome modestly disinflationary. Barron's also notes a more dovish group of regional Fed presidents rotates onto the rate-setting committee in January.

Markets are doing some of the Fed's work for it. WSJ's Nick Timiraos writes that AI-linked stocks have been sliding since mid-October (WSJ). Timiraos says a lasting repricing could tighten financial conditions, doing part of the job officials want from rate hikes.

Timiraos also reports that Chair Kevin Warsh distrusts setting policy off lagging, revision-prone monthly data. Odds of further hikes in 2027 slipped after the election and Thursday's tech sell-off (CNBC).

Bonds barely blinked at the jobs beat. The two-year yield briefly rose as much as 0.06 percentage points to 4.53% before the move faded (FT). Bespoke Investment Group's George Pearkes explained that "the Treasury market is more focused on inflation at the moment" (FT).

This Week Decides It

October CPI lands Tuesday, Nov. 10. It is the last CPI reading officials get before the December meeting (WSJ). FactSet's consensus calls for 0.24% month-over-month on the headline and 0.2% on core, cooler than August and September (Wolf Street). Because of last year's shutdown, the BLS won't publish a year-over-year rate (Wolf Street).

ING expects both to rise 0.3%, enough to keep a hike likely (WSJ). Producer prices follow Friday.

Yields are the other tell. Wolf Richter notes the 10-year yield is down 45 basis points since Oct. 5 to 4.86% (Wolf Street). The 30-year is down 40 basis points to 5.26%. By recent standards, both are small rallies (Wolf Street).

The 10-year auction comes Tuesday, hours after CPI, with the 30-year on Thursday. If yields turn back up, Richter sees a warning of another leg of selling.

Opposing Views

The Bull Case

FT's analysts argue the labor market is tightening into an inflation risk (FT). The FT analysts expect a December hike plus a third increase early next year, with only an equity rout likely to force a pause.

Employ America calls the report clearly strong and says the job market can absorb modest tightening (Employ America). Jefferies chief economist Thomas Simons said the data "suggest a December hike is almost a lock" (FT). Wolf Richter adds that prime-age participation held at 83.7% (Wolf Street).

The Bear Case

CNBC's reporting describes a low-hire, low-fire market where job losers stay stuck for months, a weakness masked by low claims (CNBC). Daly concedes the job market is solid but not booming, with pay trailing prices (CNBC).

Barron's argues the election gives the Fed more room to hike but possibly less need to (Barron's). And Richter warns a stalled bond rally could open the door to a significant new Treasury selloff (Wolf Street).

Conclusion

The payroll headline makes a December hike look obvious. But long-term unemployment, falling real wages, a political reset and fragile markets give the Fed reasons for caution. This week's inflation and bond data matter more than Friday's jobs number.

  • Watch Tuesday's CPI: a print cooler than ING's 0.3% call strengthens the case for patience.

  • Watch the 10-year yield around Tuesday's auction; a climb back from 4.86% would be a warning for bonds.

  • Don't read low jobless claims as pure strength; many long-term unemployed may have exhausted benefits.

  • Track the AI-stock selloff; a sustained repricing tightens conditions without a Fed move.

  • Remember that more dovish voters join the Fed's committee in January.

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]]><![CDATA[Good Jobs, Bad News?]]>https://www.americaneconomydaily.com/p/good-jobs-bad-newshttps://www.americaneconomydaily.com/p/good-jobs-bad-newsSat, 07 Nov 2026 14:22:29 GMTThe U.S. economy added 165,000 jobs in October, far above the 59,000 economists polled by the WSJ had penciled in, and the unemployment rate slipped to 4.1% from 4.2% (WSJ). August and September were revised up by a combined 84,000, lifting the three-month average to 137,000 jobs a month (FT).

For investors, the timing is awkward. The report landed a day after the Nasdaq Composite fell 5.5% in an AI-led selloff (WSJ), and it gives the Fed another reason to raise rates in December.

Traders pushed the odds of a quarter-point hike at the Dec. 8-9 meeting to 76.8%, according to CME's FedWatch, and Treasury yields rose across the curve (CNBC). Good news for workers is bad news for anyone praying for a Fed pause.

The Mainstream Narrative: A Labor Market That Can Handle a Hike

The gains were broad, not just healthcare. Per CNBC:

  • Professional and business services: +70,000

  • Healthcare: +42,000

  • Transportation and warehousing: +25,000

  • Manufacturing: +19,000

That professional services number compares with an average monthly gain of 15,000 over the prior 12 months (WSJ). The labor force also grew by 421,000 and participation edged up to 61.9%. So the unemployment rate fell even as more people looked for work (CNBC).

Wall Street drew the obvious conclusion. "This data, combined with the longer-term trends in inflation, suggest a December hike is almost a lock," said Jefferies chief economist Thomas Simons (FT).

Monthly change in US nonfarm payrolls
Monthly change in US nonfarm payrolls

Hiring has swung hard this year: outright declines in February and July, then an upwardly revised +186,000 in August, +60,000 in September and October's +165,000 (CNBC).

That volatility matters. The WSJ notes a Labor Department methodology change this year may have amplified monthly swings (WSJ). With fewer workers entering the market, Yale's Budget Lab puts the break-even pace of hiring at just over 5,000 a month (AP). A single big payroll number says less than it used to.

Underneath the Headline: Longer Searches, Shrinking Paychecks

How can the job market be booming if the people inside it are falling behind? Look past the topline:

  • The broad U-6 underemployment rate rose 0.3 percentage point to 7.9% (CNBC).

  • The average spell of unemployment hit 27.1 weeks, the longest since September 2021 (CNBC).

  • 1.96 million people have been jobless for more than 27 weeks (CNBC). That group made up 27.6% of the unemployed, the highest share since late 2021 (CNBC).

  • Average hourly earnings rose 3.1% from a year ago, against September CPI inflation of 3.7% (CNBC).

  • The WSJ says that is likely the seventh straight month pay trailed prices. The WSJ also reports labor's share of business output fell to 53% in the third quarter, the lowest in 80 years of records (WSJ).

Even a Fed hawk sees it. San Francisco Fed President Mary Daly said households are "not out of the game, but they are on a treadmill of high inflation" (CNBC).

This cuts against the wage-price spiral story. Unit labor costs fell at a 0.7% annualized rate in the third quarter thanks to strong productivity, while hourly compensation grew at a 2.9% rate (FT). Don't blame workers for higher prices.

Why the Hawkish Move May Be Peaking

The bond market's reaction was smaller than the headline. The two-year yield closed at 4.520% and the 10-year at 4.858%, yet the two-year has now fallen six weeks in a row and the 30-year five weeks in a row (WSJ).

The FT reports the initial jump in yields and the dollar quickly faded. Bespoke's George Pearkes told the FT that bond traders care more about inflation right now (FT).

FedWatch prices just one more hike after December. Odds for 2027 increases have slipped since the midterms and the tech selloff (CNBC).

The tiebreaker comes Tuesday. October CPI is the last inflation report officials see before the December meeting, the WSJ's Nick Timiraos writes. Timiraos adds that Chair Kevin Warsh has been openly skeptical of leaning on backward-looking monthly data (WSJ).

Opposing Views

The Bull Case

The WSJ's Telis Demos argues Treasuries remain a strong hedge against an AI unwind. Yields are still near generational highs, Demos notes, and the 10-year sat below 4% fewer than nine months ago. Over the past month, Demos adds, the S&P 500 is down around 5% while a Treasury index is up close to 3% (WSJ).

Pence Wealth Management's Dryden Pence is also hopeful on prices. "The long-term trajectory for inflation we believe is lower" (WSJ).

The Bear Case

An FT analysis expects a December hike plus a third increase early next year as the Fed reverses its three late-2025 insurance cuts. In the FT's view, only an equity rout is likely to force a pause (FT).

Wolf Richter points to a tightening market: three-month annualized wage growth jumped to 3.9%, the highest in 11 months (Wolf Street). Employ America says wage growth may be turning up (Employ America). Demos also warns new Democratic spending could add bond supply and push yields up (WSJ).

Conclusion

October's jobs report all but locks in a December hike. Yet falling real pay and longer job searches, plus a fading bond-market reaction, suggest the Fed's hawkish run is closer to its end than its start.

  • Treat a December hike as the base case; FedWatch odds sit at 76.8%.

  • Watch Tuesday's October CPI: a soft print strengthens the case that December is the last move for a while.

  • Don't read too much into one payroll number; the unemployment rate and long-term joblessness tell you more.

  • Treasuries still offer diversification if the AI selloff deepens.

  • Risks to that view: re-accelerating wages, an oil spike, or new deficit spending.

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]]><![CDATA[What Traders Are Feeling: Prices Slip, and Traders Lose Their Nerve a Little]]>https://www.americaneconomydaily.com/p/what-traders-are-feeling-prices-sliphttps://www.americaneconomydaily.com/p/what-traders-are-feeling-prices-slipSat, 07 Nov 2026 02:34:31 GMTTraders cooled on both markets this week, and prices gave them reason to. Stock sentiment averaged 8.3, down 5.4 points from the prior week, while the S&P 500 fell 2.7%. Crypto mood slid further, down 12.2 points, as Bitcoin lost 1.6%.

Stocks

The week’s reading. Our stock reading averaged 8.3 for the week of Nov 2, 2026, which is neutral. That is down 5.4 points from the prior week’s average of 13.7. The S&P 500 closed at 7,376.86 on Nov 6, 2026, down 2.7% from 7,580.07 on Oct 30, 2026. The week before, the index slipped 0.6%.

Mood peaked at 25.4 on Nov 4, 2026. It then dropped to -10.6 on Nov 5, 2026, the same day the S&P 500 posted its lowest close of the week at 7,353.73. The latest reading is 4.6, close to Monday’s 4.8, so traders ended the week roughly where they started it.

News vs. traders. The share of news headlines carrying fear rose to 11.9% from 10.1%, and greed rose to 1.5% from 1.0%. Trader posts moved the same way, with fear at 5.6% versus 4.2% and greed at 4.5% versus 3.6%. Those trader figures cover stocks and crypto together.

With fear and greed both rising, this looks like a louder week more than a clearly darker one.

Loudest bull and bear. On Nov 4, @SuperLuckeee made the case that a Democratic Congress is good news for stocks. They pointed to a one-day $SPY reversal from $748 to $768 and set a next target of $800+. Their eight reasons ranged from Brent falling under $100 to gridlock blocking policy surprises.

@SuperLuckeee also cited history: in 10 of the last 10 midterms, $SPY was higher six months and a year later. “The panic was the dip,” @SuperLuckeee wrote. They expect a Santa Claus rally. The next day’s close did not get the memo.

On Nov 5, @DMT_Doctor took the other side. They said Micron has been selling hard since it was rejected at its daily 50-day moving average, and that they have leaned short on both $MU and $QQQ since each lost that line. Their downside target is the daily 200-day average. If that level does not hold, @DMT_Doctor expects a retest of the July low, a move they say they have been planning for.

Insider buying. Three large open-market purchases showed up in Form 4 filings this week. Pale Fire Capital SE bought $31.5 million of COUR, filed Nov 5. BERKSHIRE HATHAWAY INC bought $26.9 million of SIRI, filed Nov 3, 2026. ARCH Venture Partners IX, LLC bought $25.0 million of LYEL, also filed Nov 5.

Our track record. Our analysis covers data from Oct 8, 2026 through Nov 3, and the samples are small. When stock sentiment sat in its top quarter of readings (6 cases), SPY was lower two days later in 5 of 6 cases and higher in 1 of 6. The average move was down 0.69%, against a typical two-day move of down 0.04% (p = 0.07; not statistically significant). Read it as context, not a trade signal.

Crypto

The week’s reading. Crypto sentiment averaged 17.5 this week, which is neutral. That is down 12.2 points from the prior week’s 29.7, which counted as bullish. Bitcoin’s daily close went from $77,198 on Oct 30 to $75,942 on Nov 5, down 1.6%. It traded at $75,943 intraday on Nov 6, per Yahoo Finance, after falling 4.8% the week before.

The reading never strayed far from the middle. It opened the week at its low of 14.1 on Nov 2. It peaked at 26.4 on Nov 4 and finished at 14.7.

News vs. traders. The headline and trader figures above cover crypto too. Crypto mood fell further than stock mood, even though Bitcoin dropped less than the S&P 500.

Loudest bull and bear. On Nov 5, @0xbeehive argued that Bitcoin is forming a falling wedge after weeks of selling. The trader wrote that “the $75K support is STILL holding” despite repeated chances for bears to break it. They noted price was pressing into that zone again and liked the setup. Bitcoin’s daily close that day stayed above $75K, if not by a wide margin.

The same day, @rektcapital read the chart the other way. They said Bitcoin was retesting an old support level as new resistance for the third week running, after a weekly close slightly below ~$78300. They read repeated rejected upside wicks as evidence of renewed sell-side pressure and named ~$76800 as crucial support. Bitcoin’s Nov 5 close came in under it.

Our track record. When crypto sentiment sat in its top quarter of readings (8 cases), BTC-USD was lower two days later in 6 of 8 cases and higher in 2 of 8. The average move was down 1.01%, against a typical two-day move of down 0.90% (p = 0.87; not statistically significant). That makes it context, not a trade signal.

The gloomier days tell a slightly more interesting story. When crypto sentiment sat in its bottom quarter (9 cases), BTC-USD was higher the next day in 7 of 9 cases. The average move was up 0.49%, versus a typical one-day move of down 0.42% (p = 0.02; below 0.05, but one of many tests). One result among many can be luck, so treat it as context, not a trade signal.

Bottom line

Both markets fell and traders noticed, but neither reading left neutral for the week. The loudest voices argued over chart levels and a post-election rally that had not arrived by Friday. Call it mild unease with plenty of talk.

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]]><![CDATA[Squeezed From Both Sides]]>https://www.americaneconomydaily.com/p/squeezed-from-both-sideshttps://www.americaneconomydaily.com/p/squeezed-from-both-sidesFri, 06 Nov 2026 14:21:21 GMTTwo days after Democrats swept the midterms, Wall Street had its worst session in more than a year. The Nasdaq Composite fell 5.52% to 24315 and slipped into correction territory, losing $2.5 trillion in market value (WSJ, WSJ). The S&P 500 lost 4.36%, and every sector closed lower (WSJ).

The FT counted $3.2tn erased across U.S. stocks. By the FT's math, no single day has wiped more value from the S&P Composite 1500 in records reaching back to the turn of the millennium (FT).

Money stampeded into Treasurys. The 10-year yield sat around 4.870% this morning, near two-month lows (WSJ). Yet markets still see roughly 70% odds of a December Fed hike (IBD).

AI stocks are being marked down on political risk while the Fed keeps tightening on the table. That leaves today's October jobs report as the tiebreaker.

This Was About Washington, Not Just Earnings

The easy story is weak chip earnings. CBOE's JJ Kinahan pointed to Qualcomm's report as the spark (WSJ). But earnings misses don't usually sink every sector at once. Politics does.

Several newly elected Democrats ran against data centers. Michigan senator-elect Abdul El-Sayed has called for a "full-on pause" in frontier AI work (FT). Incoming South Carolina senator Annie Andrews wants a two-year ban on building new data centres (FT). SYZ Group's Charles-Henry Monchau told the FT that investors now fear the peak in AI capital spending has already passed.

The damage:

  • Nvidia fell 9.3%, shedding more than $400bn in value; Micron dropped 17% and Broadcom 10% (FT)

  • The PHLX Semiconductor index had its worst day since the depths of the pandemic (WSJ)

  • Japan's Nikkei 225 entered a bear market and South Korea's Kospi closed more than 6% lower (WSJ)

  • Non-tech names fell too: Caterpillar slid 6.4% (FT)

The pros were already bleeding. Morgan Stanley said October saw the biggest active unwinding at stock-picking hedge funds in over a decade (WSJ). Goldman Sachs said tech-focused funds lost more than 4% on Thursday alone (WSJ).

Bonds Worked as a Haven. The Fed Could Change That.

WSJ columnist Telis Demos calls Thursday a textbook flight to safety. Over the past month, the S&P 500 is down around 5%, while the ICE BofA U.S. Treasury index is up close to 3%. The 10-year had touched 5.3% and now sits about half a point lower (WSJ).

Fed funds rate vs. 10-year Treasury yield
Fed funds rate vs. 10-year Treasury yield

The effective fed funds rate held at 3.88 from Oct. 24 through Nov. 4, while the 10-year yield slid from 5.12 on Oct. 20 to 4.9 on Nov. 4.

So how can bonds stay a haven if the Fed is still hiking? Richmond Fed President Thomas Barkin said Thursday that with joblessness close to record lows and inflation still elevated, the direction for rates is clear. For Barkin, the open question is speed, and he prefers moving gradually (CNBC).

The Fed's range is 3.75% to 4%. A December hike would lift it to 4% to 4.25% (IBD).

The stock rout briefly helped bonds by cutting hike odds from more than 80% to close to 70% (WSJ). This morning's futures bounce nudged CME odds back from 67% to 70% (IBD).

Why Today's Jobs Number Is the Swing Factor

The consensus looks unremarkable:

  • Econoday forecasters expect 62,000 payrolls, 64,000 of them private, with unemployment steady at 4.2% (IBD)

  • FactSet's survey says 65,000; the Chicago Fed sees unemployment dipping to 4.1% (Barron's)

  • ADP showed 86,000 private jobs in October, and jobless claims fell to 189,000 (Barron's)

The detail underneath matters more. Yearly wage growth is forecast at 2.9%, which would be its first dip below 3% since May 2021 (IBD). Barron's describes a market where hiring, quitting and layoffs are all running low at the same time. Cleveland Fed economist Bruce Fallick calls that unusual outside a recession and a sign the labor market is more exposed to shocks.

The WSJ expects yields to react to the print, with hot data raising December hike odds. A hot number squeezes stocks and bonds at once. A soft one, especially on wages, gives bonds room to rally and the Fed a reason to wait.

Opposing Views

The Bull Case

Columbia Threadneedle's Anthony Willis thinks Thursday was an overreaction. "The Democrats are not going to want to crush this momentum," Willis said (WSJ).

Nasdaq futures rose 1.6% this morning and Nvidia gained close to 4% premarket (WSJ). Barron's notes Micron closed Thursday at just 3.7 times fiscal 2027 earnings (Barron's). Data-center operator TeraWulf posted $62.9 million in computing lease revenue against a $49.6 million estimate, and peer Iren's AI revenue jumped 182% (Barron's).

The Bear Case

Jeff Snider argues AI is mostly a debt story tracing the path of past tech bubbles. Snider would rather see it burst soon than in two years, when far more debt would be tied up in excess capacity (Wealthion). Barkin himself flagged hyperscaler debt issuance of better than $500 billion this year as worth watching (CNBC). Vital Knowledge's Adam Crisafulli described investors giving up and selling everything (FT).

Conclusion

The AI trade now carries political risk it didn't price a week ago, and the Fed isn't riding to the rescue. Today's jobs report decides whether bonds keep cushioning the fall or join it.

  • Watch wage growth, not just payrolls: yearly pay gains are forecast at 2.9%, which would be the first reading under 3% since May 2021.

  • A hot print raises December hike odds and can hit stocks and bonds together.

  • Treasurys have beaten both stocks and high-grade corporate bonds over the past month.

  • Cheap chip valuations only hold if data-center demand survives the new Congress.

  • AI-linked debt, not just AI stocks, is where the next stress could show up.

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]]><![CDATA[Oil Votes for Peace]]>https://www.americaneconomydaily.com/p/oil-votes-for-peacehttps://www.americaneconomydaily.com/p/oil-votes-for-peaceFri, 06 Nov 2026 00:30:56 GMTTuesday's Democratic sweep of the House and Senate had become an oil trade by Wednesday afternoon. Vice President JD Vance publicly blamed the Republican losses on the Iran war, and traders began pricing in an American exit.

U.S. crude futures dropped $7.97, or 8.3%, to $88.12 a barrel. That was the steepest three-day percentage slide in almost five years (WSJ). Brent, the global benchmark, settled 8.7% lower at $94.62 (WSJ).

Everything else followed oil. The Dow gained 1,569.40 points, or 3.03%, its biggest one-day jump since April 9, 2025. The S&P 500 added 1.58% and the Nasdaq 1.44% (WSJ).

The 10-year Treasury yield slid to 4.891%, and gold climbed 3.4% to $4,061.10 an ounce (WSJ). So is this a peace dividend, or just a bet on one?

Cheap Oil Is America's Edge

Prices are what voters punished. In the AP Voter Poll, about 9 in 10 voters called the cost of living a crucial or major factor in their vote. Consumer prices are up 3.7% over the past year, versus 3% when Trump started his second term. Energy costs jumped after the war began in February (AP).

Falling crude is the quickest way to cool that number without the Fed lifting a finger. Traders saw it right away: the dollar weakened as they weighed what cheaper oil means for Fed policy (WSJ).

Europe is heading the other way. Eurozone inflation sped up to 4.0% in October from 3.8%, beating the 3.9% forecast (WSJ).

FT says bond markets abroad have been battered for months by energy-driven inflation. British 10-year gilt yields still sit at 5.16%, even after their biggest daily drop since May (FT).

The U.S., by contrast, pumps 14 million barrels of crude a day (WSJ). That gives it a cushion Europe lacks.

WTI crude oil price, 2026
WTI crude oil price, 2026

WTI spot crude slipped from $110.01 on October 19 to $99.64 on November 3, before Wednesday's election-driven plunge (FRED).

A Hope, Not a Deal

The catch: nobody has signed anything. FT reports that Brent had already lost more than 17% since late last week on reports of progress toward a U.S.-Iran agreement (FT).

Trump told the FT he has no immediate plans to strike Iran (CNBC). But on Wednesday Trump also told reporters he would make the same choice to fight again (AP). "For oil prices to sustainably move lower, a durable off-ramp is needed," said Raymond James analyst Pavel Molchanov (Axios).

The physical market isn't buying the peace story: supply is getting tighter, not looser. According to EIA data (WSJ):

  • Commercial crude stocks fell for a fifth straight week, to 409.8 million barrels in the week ended Oct. 30, 4% under the five-year norm.

  • Distillate stocks, which include diesel, dropped to 99.3 million barrels, the lowest since May 2003 and 13% below the five-year average.

  • Gasoline inventories are 2% below normal while demand rose.

The Cracks Under the Rally

Oil is not the only soft spot:

  • AI wobbles. Investors fear new Democratic governors in Texas and Ohio could slow data center construction. CoreWeave fell 9.9%, Nebius 6.7%, Nvidia 3.1% and Micron 7.0% (WSJ).

  • Credit stress. Real Investment Advice notes that investment-grade spreads (the extra yield over Treasurys) sit near 20-year lows. The weakest CCC-rated borrowers, however, are seeing spreads widen sharply (RIA). Jeff Snider argues the AI boom is more a debt story than a stock story. Snider says credit markets show the cycle has turned, though not at red-alert levels (Wealthion).

  • Debt ceiling. CNBC's analysis expects Democrats to use the borrowing limit as leverage against Trump. The Treasury could hit its cap by midsummer, with the X-date (when bills can't all be paid) pushed to late 2027. PGIM's Robert Sockin says a technical default isn't his base case, but the risk is the highest it has been (CNBC).

Vontobel's Andrew Jackson put the bond problem simply. "Blocking new spending is not the same as reducing the existing deficit," Jackson said (WSJ).

Opposing Views

The Bull Case

The election really did change the war math. "A Democratic sweep changes the political cost of continuing the Iran war," said Rystad Energy's Claudio Galimberti. Natixis analyst Joel Hancock calls Trump's recent Iran remarks conciliatory (FT).

JPMorgan traders see reduced deficit spending as a market focus after the vote (CNBC). The economy underneath is holding up: unemployment is 4.2% (AP), and September job openings hit 7.52 million against 7.10 million expected (RIA).

The Bear Case

Without a deal, an analyst quoted by the FT expects Brent to climb back over $100 because shipping crude out of the Gulf is still hard and costly (FT). CIBC's Rebecca Babin describes traders as reacting on emotion first and analysis later (CNBC).

RIA warns that first-day election trades are driven by positioning and reflex. RIA recalls how S&P futures fell over 5% on Trump's 2016 win, then closed green the next day (RIA). And CNBC argues a Democrat-led debt fight is more likely to raise spending than cut it (CNBC).

Conclusion

Cheaper oil gives the U.S. a disinflation break that Europe doesn't have, but Wednesday's rally priced in a peace deal that doesn't exist yet. As RIA puts it, let the market finish voting.

  • Treat sub-$90 crude as a hope trade until a U.S.-Iran deal is actually signed.

  • Watch weekly EIA inventories: falling crude and diesel stocks argue against a lasting oil slump.

  • Track CCC credit spreads for signs that stress is climbing to better-rated borrowers.

  • Expect debt-ceiling headlines to add volatility to Treasurys through 2027.

  • Ask which of Wednesday's moves are still standing a month from now before chasing them.

Sources

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]]><![CDATA[Bonds Cheer the Blue Wave. Don't Get Used to It.]]>https://www.americaneconomydaily.com/p/bonds-cheer-the-blue-wave-dont-gethttps://www.americaneconomydaily.com/p/bonds-cheer-the-blue-wave-dont-getWed, 04 Nov 2026 14:19:39 GMTDemocrats took both the House and the Senate on Tuesday, and bond buyers showed up Wednesday morning. The 10-year Treasury yield slipped 3.5 basis points to 4.914%. The 2-year touched a two-month low of 4.546% before settling near 4.603% (WSJ).

A basis point is one hundredth of a percentage point. The 30-year bond eased 4 basis points to 5.289% (CNBC). The dollar index fell 0.5% to 101.31, and gold futures jumped 2.8% to $4,052.50 an ounce, back above $4,000 (WSJ).

This election was about prices. In AP polling cited by the WSJ, roughly 39% of voters named the economy as the top issue, and nearly 90% said the cost of living drove their vote. Inflation ran at 3.7% in September, and real wages have fallen for six months (WSJ). Investors now face one question: is this rally the start of a trend, or a one-day sigh of relief?

Why the Market Exhaled

Three things lined up at once:

  • Spending restraint. With a hostile Congress, analysts see less chance of bills that widen the deficit (WSJ). JPMorgan traders said Wall Street is focused on "reduced deficit spending," which Congress could force through budget fights or even a shutdown (CNBC).

  • Cheaper oil. Brent fell 1.3% to $102.30 a barrel and WTI slipped 0.7% to $95.33. Deutsche Bank says prices keep falling if the Middle East stays quiet, and notes that Trump has admitted the Iran war helped Democrats win (WSJ). That follows a nearly 8% drop in Brent on Monday, driven by reports of diplomatic progress between Washington and Tehran (FT).

  • Slower growth, cooler prices. Brokerage XM argues that tax cuts, new stimulus and deregulation are now less likely. That could slow the economy but also ease fears of runaway inflation and more Fed hikes (WSJ).

Mortgage Rates Are Easing, From a High Perch

10-Year Treasury Yield vs. 30-Year Mortgage Rate
10-Year Treasury Yield vs. 30-Year Mortgage Rate

The 10-year yield slid from 5.15% on Oct. 19 to 4.91% on Nov. 2. The weekly 30-year fixed mortgage rate eased from 7.4% in mid-October to 7.24% on Oct. 29, still well above the 6.65% it posted on Aug. 20.

The Mortgage Bankers Association's numbers tell a similar story. Its average 30-year contract rate dipped to 7.3% from 7.37%, the third weekly decline in a row (CNBC). So how can rates fall for three straight weeks while buyers keep walking away? Because the drop is small next to the September spike that froze housing.

  • Purchase applications fell 2% on the week and sit 19% below a year ago.

  • Refinance demand is 60% lower than the same week last year, since rates remain about a full point above where they were then.

  • More borrowers are choosing adjustable-rate loans to shrink their starting payment.

The relief may already be fading. Mortgage News Daily says rates crept higher early this week after a hotter-than-expected job openings report (CNBC).

Gridlock Doesn't Shrink the Debt

The mainstream read says divided government means less borrowing, which means lower yields. Vontobel's Andrew Jackson pokes a hole in that: "Blocking new spending is not the same as reducing the existing deficit" (WSJ). Jackson warns that ongoing deficits and heavy Treasury issuance could put a floor under long-term yields, and that inflation and the Fed will matter more to bonds than the vote.

Some analysts expect more spending, not less. SEB thinks the power shift will lead to a slightly more expansionary fiscal policy (WSJ). On Wealthion, Chris Casey of Windrock Wealth Management argues that when power is split, the only way to pass anything is to hand something to every side. In his view, spending and deficits will hold steady or grow (Wealthion).

The Fed also hasn't changed course. Traders still price a nearly 83% chance of a December rate hike, according to CME's FedWatch tool (WSJ).

Opposing Views

The Bull Case

A Congress that can block Trump's fiscal agenda limits new borrowing, and Jackson agrees this can support Treasurys (WSJ). Saxo Bank's Ole Hansen ties gold's rally to the same hope: a check on unaffordable fiscal expansion (WSJ). Edmond de Rothschild's Nabil Milali adds that the presidential veto should stop any large new Democratic programs. If Deutsche Bank is right that oil falls without fresh escalation, lower energy prices could cool inflation and pull yields down further (WSJ).

The Bear Case

Capital Economics' Neil Shearing argues that a president boxed in at home may turn to foreign policy, where he has more freedom. Renewed strikes on Iran could send Brent above $120 (WSJ).

Peter Schiff says interest on the national debt will top Social Security spending next year even if rates stay put. Schiff believes the Fed is trapped, unable to fight inflation without triggering a crisis (Peter Schiff). The Wealthion episode goes further, raising the possibility of a 7% 10-year yield heading into the 2028 election (Wealthion). Inflation pressure isn't only a U.S. story, either: eurozone inflation hit 4.0% in October, above forecasts (WSJ).

Conclusion

The election changed who controls Congress, not the size of the debt or the pace of inflation. Wednesday's bond rally looks more like relief than a turning point.

  • Treat the drop in yields as a reaction to one event, not proof that rates have peaked.

  • Watch oil and Iran headlines. Calm pushes yields down, while escalation could push Brent above $120.

  • Keep an eye on the December Fed meeting. Markets still expect a hike.

  • Homebuyers waiting for cheap mortgages may wait a long time. Rates are only edging down from a September spike.

  • Gold's bounce reflects deficit worries that gridlock won't solve.

Sources

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]]><![CDATA[Oil Under $100, Problem Solved?]]>https://www.americaneconomydaily.com/p/oil-under-100-problem-solvedhttps://www.americaneconomydaily.com/p/oil-under-100-problem-solvedMon, 02 Nov 2026 14:18:53 GMTU.S. crude slipped under $100 a barrel Monday morning. December West Texas Intermediate futures dropped 4.17% to $99.78, and January Brent lost 3.94% to $108.96 (CNBC).

The selloff followed reports that Washington and Tehran are both seeking a diplomatic exit from the Middle East war (CNBC). Secretary of State Marco Rubio told reporters President Trump would rather settle the conflict without force. Iranian officials signaled a deal is still possible after two days of Qatari-mediated talks (CNBC).

Markets jumped at it. The 10-year Treasury yield slipped 1 basis point to 4.918%, and the U.K. 10-year gilt hit 5.219%, its lowest in nearly six weeks (WSJ). Nasdaq 100 futures rose 0.8% after the index fell 3.5% Friday and closed out its worst month in more than a year (FT). So how can oil be fixed when nothing about supply has changed?

The Mainstream Narrative: Peace Is Getting Priced In

The relief story is simple. Cheaper oil means less inflation pressure, which means less pressure on the Federal Reserve. Dat Tong of Exness notes markets still expect a quarter-point Fed hike in December but have trimmed the number of increases priced through mid-2027 (WSJ). Citigroup's Anthony Yuen credits recent Qatari and Saudi visits to Tehran, plus some profit-taking (FT).

Now read the rest of the same reports. The Wall Street Journal and New York Times say the U.S. is preparing for possible renewed strikes after the Nov. 3 midterms (CNBC). Washington reportedly told several Gulf allies to get ready for a short but intensive campaign against Iran (WSJ).

Iran's Supreme Leader Mojtaba Khamenei ordered his forces to answer any threat with a response unlimited by geography (CNBC). Egypt's foreign minister warned a second round would be more destructive than the first (FT). PVM Oil Associates' Tamas Varga noted that ongoing attacks on ships and refineries are "doing little to inspire confidence in the prospects for lasting ceasefires" (CNBC).

Nothing Changed on the Supply Side

[Chart: WTI crude oil price, past year. Insert image file 2026-11-02-oil-under-100-problem-solved.png here in the editor.] FRED data shows WTI jumping from 94.99 on Oct. 12 to 110.01 on Oct. 19 and still sitting at 103.37 on Oct. 27. Monday's dip gives back only part of a month of war-risk gains.

The physical market tells the real story:

  • OPEC+'s seven core members agreed Sunday to hold December output steady; they meet again Nov. 29 (WSJ).

  • Verified transits through the Strait of Hormuz remain at half their prewar level, and Saudi east coast loadings average 3.49 million barrels a day (WSJ).

  • Global onshore inventories are near their lowest in at least a decade, and Gulf threats have pushed freight and insurance costs sharply higher (WSJ).

  • OPEC output was around 25.1 million barrels a day in September, still more than 3 million barrels a day below February's prewar level (WSJ).

Then there is refining, the step that turns crude into the gasoline and diesel you actually buy. About 10% of global refining capacity has gone offline this year, and the International Energy Agency expects the diesel shortage to last into 2027 (FT).

Exxon, Chevron, BP, Shell and TotalEnergies earned more than $50bn combined in third-quarter net income and are steering it to buybacks and debt paydown. Exxon won't lift refining spending beyond the $9bn already planned, and BP says it won't add capacity for now (FT). Morningstar's Allen Good was blunt: "no one is going to build a greenfield refinery in Europe and the US, given the time it would take" (FT).

A diplomacy headline can move a futures contract in an hour. It can't reopen Hormuz or build a refinery.

A Week Built to Reverse the Move

Any rate relief depends on oil staying down, and the calendar is packed:

  • Monday: Apple reports after the close, with AMD, Palantir and Qualcomm also on deck (Barron's).

  • Tuesday: the midterms, the date tied to possible renewed strikes (CNBC).

  • Wednesday: Treasury's quarterly refunding announcement (WSJ).

  • Friday: October payrolls, expected at 55,000 after 29,000 in September (WSJ).

Note that the Fed debate is about hikes, not cuts. Two-year yields actually crept up to around 4.600% Monday as investors kept expecting a December increase (WSJ). DHF Capital's Bas Kooijman says fresh supply disruptions or a strong jobs report would strengthen the case for tighter policy (WSJ). And on the day crude fell, Goldman Sachs raised its year-end Brent target from $90 to $105 on post-midterm flare-up risk (FT).

Opposing Views

The Bull Case

Barclays' Ajay Rajadhyaksha told clients it is "time to tiptoe back in" to risk assets, pointing out that demand for computing power still outruns supply and earnings have held up (FT). With Qatar pushing for an interim deal before the vote (FT) and fewer Fed hikes now priced, a real agreement could make cheaper crude stick.

The Bear Case

Rabobank's Joe DeLaura sees Brent averaging $120 in the first half of next year and expects energy infrastructure to be targeted if fighting escalates (FT). An FT column by the chair of Rockefeller International argues the AI boom can't outlast higher rates, with AI-related debt issuance likely above $600bn in 2026 (FT). Allspring's Rushabh Amin calls sentiment fragile and expects volatility through earnings season (FT).

Conclusion

Monday's rally priced in peace before any deal exists, while the supply, refining and Fed risks stayed exactly where they were. Treat it as a headline bounce, not a trend change.

  • Oil fell on talk; OPEC+ output, Hormuz traffic and refining capacity didn't budge.

  • Markets still price a December Fed hike; cheaper crude only trimmed later ones.

  • Tuesday's midterms are the date to watch for renewed U.S.-Iran strikes.

  • A hot payrolls number Friday could revive tightening bets fast.

  • Don't count on pump relief while the diesel shortage runs into 2027.

Sources

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]]><![CDATA[Repricing or Unwind?]]>https://www.americaneconomydaily.com/p/repricing-or-unwindhttps://www.americaneconomydaily.com/p/repricing-or-unwindSun, 01 Nov 2026 20:38:34 GMTFriday was the day the AI trade cracked in public. Intel collapsed 29% to $65.76, its steepest one-day fall since 1974, after a weak fourth-quarter forecast tied to slumping PC sales. Amazon slipped 1.4% as its ad growth cooled.

The Nasdaq Composite dropped 2.86% to 25437.00, its worst session since June 5 and its worst month since March 2025 (WSJ). The S&P 500 lost 1.82% to 7580.07 (WSJ). Axios counts $1.2 trillion in Nasdaq value erased in October (Axios).

The earnings misses steal the headlines, but for a regular investor they're a sideshow. Is this a healthy markdown of overpriced AI winners? Or is it the start of an unwind, driven by the borrowed money behind the AI build-out? That answer is in the debt markets.

The Stock Selloff Is Narrow. The Credit Stress Is Not.

How can the market be breaking if most stocks went up last week? Real Investment Advice points out that nine of 11 sectors rose and the equal-weight S&P 500 gained 0.8% (RIA). RIA notes the damage was almost all in tech and communication services (RIA). Judged by stocks alone, that's a rotation, not a rout.

Debt tells a different story. Credit-default swaps are insurance that pays if a company defaults. According to bond data provider Solve, swaps on Amazon, Alphabet, Microsoft, Meta and Oracle climbed over the past month to their highest levels since 2021 (WSJ).

Oracle's protection cost jumped by more than 1 percentage point (WSJ). These are some of the strongest balance sheets on earth.

Further down the ladder it gets uglier. "The weak links are going to suffer first," Pimco CIO Dan Ivascyn told the WSJ.

  • CoreWeave bonds issued at 9.75% earlier this year now yield above 15% (WSJ).

  • Neoclouds, the firms that build data centers and rent out AI computing power, such as CoreWeave, Nebius and Nscale, have been all but locked out of new bond deals lately (WSJ).

Financing Costs Matter More Than Any Earnings Miss

The build-out runs on credit. By Bank of America's count, AI-related borrowing across U.S. corporate debt reached $655 billion as of mid-October, versus $394 billion for all of 2025 (WSJ). Analysts look for close to $1 trillion next year (WSJ). When that money gets pricier, every project gets harder to pencil out.

And it is getting pricier. The Fed raised short-term rates in September for the first time in three years (WSJ). The Fed held at 3.75% to 4.00% last week, and futures price roughly an 85% chance of a December hike (RIA). Even Alphabet posted negative free cash flow of $9.1 billion against $51.4 billion of quarterly capital spending (RIA).

The wider junk market is cracking at the bottom. The FT reports yields on CCC-rated debt, the lowest rung of junk, have topped 18 per cent in the U.S., up from about 15 per cent in January (FT). Pimco's Lotfi Karoui argues stronger borrowers can handle higher rates, while CCC companies have little room to maneuver.

Junk-bond spreads vs. 10-year Treasury yield
Junk-bond spreads vs. 10-year Treasury yield

The broad junk spread stood at 3.25 percentage points on Oct. 14 and 3.26 on Oct. 29. Over the same stretch, the 10-year yield eased from 5.19% to 4.98%. So the stress is concentrated in the weakest borrowers rather than across all of high yield.

That is the line to watch. If the broad spread starts climbing too, the unwind is spreading.

Investors Are Already Buying Insurance

Put options on CoreWeave, which pay off if the stock falls, hit record volume this month, according to Cboe data (WSJ). Jump Trading has launched a desk that lets data-center operators hedge against falling compute rental prices. "You don't need to be bearish to want some insurance," said Jump president Dave Olsen (WSJ).

Anyone counting on a bond fund for safety should take note. BCA Research says corporate bonds no longer diversify AI risk well (Barron's). BCA's reasoning is that hyperscalers, neoclouds and chip makers are all heavy borrowers (Barron's).

Opposing Views

The Bull Case

Generali's Thomas Hempell, writing in Barron's, cautions against writing off the build-out. Hempell argues demand for AI tools and computing power should keep growing fast.

Ed Yardeni points to Anthropic's IPO filing: first-half revenue jumped from $1.2 billion to $16.3 billion, and it holds $131.7 billion in cash and short-term investments. Strategist Luke Lango notes chip makers still report exponential growth in AI orders (WSJ). Microsoft's Azure grew 48% (RIA).

The Bear Case

WSJ columnist James Mackintosh warns the money is circular. Mackintosh notes that Nvidia, AMD and Broadcom put $5 billion into Meta's $25 billion stock sale (WSJ). Nvidia has also given a $105 billion backstop for an Ohio data center. Telecom-gear makers wrote off billions in similar customer financing in 2001 (WSJ).

Eurodollar University highlights Amazon's $42.4 billion free cash outflow and a new supplier financing facility of up to $80 billion (YouTube). Eurodollar University also flags banks stuck with a bridge loan of roughly $15 billion for a Texas data center after the state paused new projects (YouTube). PGIM's Robert Sockin now puts recession odds at maybe 25 per cent (FT).

Conclusion

The stock selloff alone looks like a repricing. But the debt behind AI is where an unwind would start, and the weakest borrowers are already shut out.

  • Watch the broad junk spread; a sustained climb would signal stress spreading beyond neoclouds and CCC credits.

  • Rising Fed rate expectations hurt heavily indebted AI builders more than any one earnings miss.

  • Don't assume a corporate bond fund protects you from AI risk.

  • Check whether a tech company's growth relies on borrowing or circular deals with its own suppliers.

  • Hedging is a sign of caution, not panic; size positions so you don't need to sell into a credit scare.

Sources

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]]><![CDATA[Growth Beats, Rates Bite]]>https://www.americaneconomydaily.com/p/growth-beats-rates-bitehttps://www.americaneconomydaily.com/p/growth-beats-rates-biteFri, 30 Oct 2026 16:04:20 GMTThe U.S. economy grew at a 3.4% annual rate in the third quarter, the Commerce Department said Thursday. Economists surveyed by the Wall Street Journal had expected 3.1%. Growth also sped up from 2.2% in the second quarter, the fastest pace in a year (WSJ). Consumer spending rose at a 3.8% clip, and business investment excluding housing jumped 12.7% on the AI build-out (AP).

The same morning, the Fed's preferred inflation gauge, the PCE price index, climbed to 3.6% over 12 months, up from 3.4% a month earlier (WSJ). A day before that, the Fed held its benchmark rate in a range between 3.75% and 4% on a 10-2 vote. Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented, favoring a quarter-point increase (WSJ).

The Mainstream Narrative: The Economy Is Firing

The details mostly back up the headline:

  • Final sales to private domestic purchasers rose at a 4.9% rate, up from 4.6%. That gauge of underlying demand, which leaves out government, inventories and trade, grew at its fastest since the second quarter of 2021 (WSJ).

  • Initial jobless claims fell to 194,000, near levels last seen in the late 1960s (CNBC).

US real GDP growth (quarterly, annualized)
US real GDP growth (quarterly, annualized)

FRED data show growth whipsawing from 0.1% in early 2025 and 0.2% in late 2025 to 3.4% in the third quarter of 2026, up from 2.2% in the second quarter.

How Can Spending Be This Strong If Households Are Squeezed?

Consumers are spending, but the money is increasingly coming out of savings, not paychecks. AP reports that wealthier Americans, flush with record stock market gains, are leading the spending (AP).

  • Inflation-adjusted consumer spending was flat in September after rising 0.5% in August (WSJ).

  • Real after-tax income dipped in September and sat only 1% above its level a year ago, while inflation-adjusted spending grew 2.5% (AP).

  • The personal savings rate drifted down to 3.8%, the lowest since late 2022 (FT).

The rate-sensitive corners of the economy are already bleeding. Housing investment dropped 3.3% and has fallen six of the last seven quarters (AP). Net exports also subtracted 3.32 percentage points from growth as imports of chips, turbines and copper poured in, though the WSJ editorial board calls that an accounting quirk (WSJ Opinion).

The Real Risk Is Rates, Not Recession

Inflation is not just energy anymore. The monthly PCE gain of 0.5% was the largest since March (CNBC). Core PCE, which strips out food and energy, accelerated to 3.1% from 3% (WSJ).

Gasoline and other energy goods rose 9.2% in the month, but transportation services prices also rose 2.1%, the fastest since 2022 (CNBC, FT). TD's Ksenia Bushmeneva sees price pressures starting to build (AP).

The market already expects the Fed to respond. Futures price in a hike in December (WSJ), and the FT's analysis sees a December move followed by another in next year's first quarter (FT). Fed Chair Kevin Warsh also pushed back on the idea that the AI boom is immune to higher rates: “Interest rates get in the cracks” (WSJ).

Why this matters for stocks: the bond market. The 10-year Treasury yield fell 0.056 percentage point to 4.988% on Thursday (WSJ). Earlier this month, though, long-term yields hit their highest in more than two decades. Some lower-rated borrowers riding the AI spending wave now pay more for credit (WSJ).

On the day, the S&P 500 closed 0.3% lower and the Nasdaq 100 dropped 1.4% (FT). When a growth beat sends tech lower, the market is telling you exactly what scares it.

Opposing Views

The Bull Case

Warsh's argument is productivity: a more efficient economy can run faster before prices take off. “Is the economy running too hot? That isn't the judgment of most of my colleagues,” he said (WSJ).

The WSJ editorial board puts productivity growth at an average 2.25% a year since January 2025, against 1.3% over 2010-2019 (WSJ Opinion). On a quarterly basis, PCE prices rose 2.1% headline and 2.5% core, down from 5% and 3.3% in the second quarter (CNBC).

In a Wealthion interview, a market strategist argues the rally rests on broad, sturdy earnings for this year and next, not just AI. The strategist reads the flush-out of leveraged chip bets as healthy, and is bullish on balance (Wealthion).

The Bear Case

Bianco Research's Jim Bianco found the inflation number more telling than GDP and asked: “why didn't the Fed hike rates again?” (FT). Former Fed economist Riccardo Trezzi went further, putting core prices likely at a 4% annualized pace. To Trezzi, skipping an October hike made no sense on risk-management grounds and simply looked too dovish (WSJ).

RSM's Joe Brusuelas made the case for action from strong spending, rock-bottom jobless claims, soaring business investment and hot inflation (AP). TD's Bushmeneva expects consumer demand to suffer over the next few quarters as real income shrinks and the savings cushion thins, with pricier credit adding to the drag (AP).

Conclusion

This GDP beat makes a near-term recession look unlikely, but it also strengthens the case for higher rates. The threat to the rally has shifted from weak growth to the cost of money.

  • Watch the December 9 Fed meeting: futures already price a hike, so the surprise would be a hold.

  • Watch core PCE and services inflation, not just gasoline; the broadening is what keeps the Fed hawkish.

  • Watch long-term Treasury yields, with the 10-year at 4.988% Thursday; mortgage rates track longer-term yields.

  • Rate-sensitive sectors like housing and appliances are already hurting while high-end consumers keep spending.

  • A falling savings rate means consumer strength is running on fumes for many households.

Sources

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]]><![CDATA[Rising Unemployment is Warning of Recession]]>https://www.americaneconomydaily.com/p/rising-unemployment-is-warning-ofhttps://www.americaneconomydaily.com/p/rising-unemployment-is-warning-ofThu, 11 Jul 2024 11:30:49 GMTThe job market is showing further signs of strain. The unemployment rate has risen to 4.1%, up from the low of 3.4%. Jobless claims have continued to rise across the US. People are working more Full Time Jobs than every before. Job Openings are sharply dropping. AND, our current employment situation is trigger recessionary warnings.

The Sahm Rule

The Sahm Rule is designed to identify the start of a recession using changes in the total unemployment rate. It says that when the three-month moving average of the jobless rate rises by at least a half-percentage point from its low during the previous 12 months, then a recession has started. This rule has signaled every recession since 1970. With the U-3 rate having risen from 0.5 percent in July 2023 to 1.0 percent in June 2024, the Sahm Rule has been triggered.

Employment Composite Index based on 7 indicators is signaling for a recession.
(This is from Nov 2023, Look Where Their Composite Was Then. Source)

This index puts together information to picks up shifts in the labor market. These shifts are reduced demand for temporary help, increases in initial and continuing jobless claims, changes in the composition of the employed (for example, part-time “for economic reasons” because full-time work is unavailable), changes in the duration of unemployment, and declines in aggregate hours worked.

Multiple Full Time Jobs At Record Levels
Source( Multiple FT Jobs, Multiple Jobs)

On one hand, many individuals are struggling to secure employment, while on the other, some are working multiple full-time jobs just to cope with the inflationary price increases experienced in recent years. It shows how bifurcated our economy has become and how our middle class is being crushed.

Job Openings

Job openings have been falling off a cliff. Declines like this have only happened during 2000, 2008 and 2020 Recessions. Each decline has ended with sharp economic downturns.

Continuing claims

Continuing claims have risen to 1.85 million, up from 1.83 million, marking the ninth consecutive week of increases. This trend suggests that many unemployed individuals are finding it increasingly difficult to find new employment. As job openings continues to drop, this will continue to rise. This trend is lining up with unemployment rates rise as well.

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]]><![CDATA[The Real Story Behind Employment]]>https://www.americaneconomydaily.com/p/the-real-story-behind-employmenthttps://www.americaneconomydaily.com/p/the-real-story-behind-employmentThu, 13 Jun 2024 11:20:13 GMTBase Jobs #’s Being Reported On

The US economy added far more jobs than expected in May as nonfarm payrolls expanded by 272,000 for the month, up from 165,000 in April and well ahead of the Dow Jones consensus. The unemployment rate rose to 4%, the first time it has reached this level since January 2022. This increase was due to a decrease in the number of people holding jobs by 408,000 as reported by the household survey used to calculate the unemployment rate. Additionally, the survey revealed a decline in full-time workers by 625,000, while part-time positions increased by 286,000. Revisions brought jobs added in March and April down by 15,000.

The Mainstream Narrative

  • The strong jobs data and wage growth suggest a robust economy, which decreases the likelihood of the Federal Reserve cutting interest rates.

  • Chances of rate cuts for the Fed’s mid-September meeting fell from 81% to 57%.

  • Inflation has been slower to fall in 2024 because of our robust labor markets.

This raises a couple questions:

  • How is our labor market this robust when full time employment is down?

  • How are we getting positive jobs added reports every month?

  • Why are all job gains foreign based workers?

  • Why do we rely only on the establishment survey and not the household survey?

Full Time vs Part Time Employment
(Sources FT Emp, PT Emp)

Since June 2023 Full Time Employment is down over 1.5 million jobs. How is this job market robust if we are actively taking away full time jobs and replacing them with part time jobs? It is logical to assume that many of the price increases in inflation has not been due strictly to wages. So why does the Federal Reserve then tie themselves so directly to employment as a measure of who the economy is doing?

What is driving positive job reports

The BLS uses something called Birth/Death Assumptions, which account for the formation of new businesses. In May, the BLS assumed that 231,000 jobs were added due to these assumptions. Without Birth/Death assumptions, the number of jobs added for this year drops to -557,000, as Birth/Death assumptions account for +603,000. So the assumption is that so many new businesses are forming that our economy is adding jobs.

Foreign vs Native Born Employment
Source (Foreign vs Native)

When we look at this chart two thing are obvious. Native born workers have almost no job growth since 2018. Foreign born workers have consistently taken a larger share of the job market. In May, 663k native-born Americans lost their job while 414,000 immigrants (legal and illegal) gained a job.

So why would foreign born workers employment be rising?

Simple “In 2023, median usual weekly earnings of foreign-born full-time wage and salary workers ($987) were 86.6 percent of the earnings of their native-born counterparts ($1,140)”

(Source BLS)

The employment segment experiencing growth comprises individuals who can be paid below market rates. Undocumented workers are particularly vulnerable to exploitation by businesses. Additionally, legally present foreign workers face the risk of losing their visa status if they lose their job, and they often lack strong familial support networks already in the US.

Establishment vs Household Survey

The Household Survey counts the number of employed individuals, including the self-employed and those with multiple jobs, while the Establishment Survey measures the number of jobs in the economy, counting each job separately even if held by the same person. The Household Survey is the lesser-used measure, although the unemployment rate comes from this survey.

In May, the disparity between the headline jobs number from the establishment survey and the household survey reached 4.1 million, marking the largest difference in history. Over the past 6 months 1 million Americans have become unemployed. Additionally, the number of people working multiple jobs in the U.S. nearly hit a record high of 8.4 million in May 2024.

(Source)

Also worth noting:

The BLS is reducing the sample size of the Household Survey due to “budget constraints”. As a government, we run a 380 billion deficit monthly and somehow cannot afford to run this survey effectively? Highly Suspect. Seems these numbers are not favored, so lets slash the funding to fix the numbers. To silence opposing narrative.

Wrapping Up:

While the job numbers on the surface look strong, there's a lot more going on underneath. The rise in the unemployment rate and the loss of full-time jobs point to some real problems in the labor market, even as part-time work increases. The big gap between the establishment and household surveys also makes us question the accuracy of the job gains we're seeing. The segment of workers adding jobs are foreign-born workers taking jobs at lower wages. Plus, cutting the household survey's sample size due to "budget constraints" seems suspicious and makes it harder to trust these figures. As the Federal Reserve bases its decisions on these numbers, it's important to dig deeper to get the real picture of our economy.

Thanks For Reading!

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If you have any source you wish to see in our lineup, please reach out and let us know. We continually look to incorporate more independent sources to our weekly wrap-up.

]]><![CDATA[AI Busted]]>https://www.americaneconomydaily.com/p/ai-bustedhttps://www.americaneconomydaily.com/p/ai-bustedWed, 05 Jun 2024 11:10:55 GMTAre we in the mist of an AI Bubble thats about to BURST?

All we hear about these days is how AI is going to change everything—transform the world, revolutionize jobs. And guess what? That change is happening right now…

I mean these are just some of the headlines we are being inundated with:

Source.

Where exactly is this change happening ?

The main claims focus on white-collar jobs being automated. Companies are attributing layoffs to AI, or at least that's what the headlines suggest.

But even with these claims, earnings calls and public statements made by companies indicate that these layoffs aren’t due to AI. For example, “A UPS spokesperson later said AI is not replacing workers, and that executives did not make an explicit connection between AI and the permanent layoffs on the company’s earnings call.” (Above Link)

So we have a huge wave of white collar layoffs happening and its all due to AI, yet its not due to AI.

I mean look at this graph. ChatGPT release date wasn’t even released until end of 2022. Yet software jobs had already peaked and returned to baseline. So ChatGPT / LLMs couldn’t have caused all of these layoffs? That also only leaves ~1year for companies to actually implement AI. Not many companies have the sophistication to do so.

We're in a situation similar to the dotcom bust of 2000. The internet is definitely transformative, but real change takes time—it doesn't happen overnight. The internet didn't really take off until smartphones became affordable and people could access it from anywhere. I mean pets.com reached $400 million valuation while selling products at about ~60% loss. The only reason pets.com reached this valuation was the internet trend stick that was slapped onto it. Exactly what we are seeing with the AI bumper sticker companies are slapping onto their company.

Look at the # companies saying AI in earning calls. Just following the herd and using buzzwords to generate stock interest. (Source)

Right now, most new AI advancements are just companies wrapping features that call upon large language models (LLMs), usually from OpenAI.

SideNote: Other forms of AI have already existed for years, so why weren’t predictive models laying off people before?

Current LLM Issues

Chevy's AI customer service messed up big time by selling a $76,000 item for just $1. (Source) This slip-up shows just how easy it is to trick our current AI systems. While this might seem like a harmless mistake, it actually points to a bigger issue: when these large language models (LLMs) have access to sensitive information, they can be easily fooled into giving it away.

Think of an LLM like a 4-year-old with a photographic memory of every piece of text ever written. This kid knows tons of words and can put them together in a way that sounds right. But they don't have the critical thinking skills to make good decisions. Even though they can talk the talk, they don't really understand the deeper meaning behind what they're saying.

I mean look at this Bloomberg Automation (AI) from 6/3/24. Yes, there was technically a drop in price due to a technical issue, but this is something a human writer would easily catch. The price dropped by over $600k but the AI has no reference of why that is crazy. It lacks the context and experience and the ability to connect with all of the data it has trained on. Source

Image

Here is the NYSE technical issue that lead to many stocks literally dropping to worthless. $GOLD, $BMO, $BRK.A (Berkshire) all experienced drops of 99%.

NYSE Source

Image

Unexpected GME Connection

That leads to another question. Why is it that when all of the glitches happen, GME (Gamestop) seems to be at the center of the discussion? Shouldn’t GME have 0 correlation with the broader stock market and how exchanges are operating??

It has long been a theory among "APEs" that when the stock market crashes, GameStop will shoot up in price. This theory is supported by GME's beta, which is around -0.3. A negative beta means that when the market goes up, the stock tends to go down, and vice versa. See the picture version below.

Image

When we dig deeper into this situation, there's a lot of unusual swap activity involving GME that seems to be at play. A swap is a type of derivative contract. One example is a Portfolio Swap, where an investor pays someone to manage a basket of stocks or assets. The manager then passes any gains or losses along to the investor. So, while I don't own the stocks, I still get the profits or losses from them.

Firms that blew up during the 2021 GME rise, like Archegos, had massive swap positions that went the wrong way. Another problem with swaps is their ability to hide your position and leverage. Archegos could go to multiple banks and open these swap contracts, continually leveraging itself without the other banks knowing about the counterparty risk. This commented document on the SEC website does a pretty good job of detailing this issue. (Source)

Maybe this is just a technical issue, but it seems GME has a connection to these issue. These hidden swaps/derivative contracts could play a massive role in the market moving forward.

Note: This was meant to be an article just on AI and how overblown it has become.

Thanks For Reading!

To Read Past Newsletters Click here.

If you have any source you wish to see in our lineup, please reach out and let us know. We continually look to incorporate more independent sources to our weekly wrap-up.

]]><![CDATA[Level Down, Earnings Season Signals Economic Decline]]>https://www.americaneconomydaily.com/p/level-down-earnings-season-signalshttps://www.americaneconomydaily.com/p/level-down-earnings-season-signalsThu, 23 May 2024 11:20:41 GMT

Earnings Season

The narratives emerging from the business sector during this Earnings Season, coupled with macroeconomic data, suggest a potential recession. The fundamentals of the economy appear less robust than some narratives suggest, with insufficient incomes at the heart of the issue. As consumers run out of options, they will inevitably have to cut back on spending, which will have a ripple effect throughout the economy.

Apple

Apple stock jumped after announcing a $110 billion share buyback program and increased its dividend by 4% to 25 cents per share. The company's fiscal second-quarter revenue fell 4% to $90.75 billion, while net income slipped 2% to $23.64 billion. The company reported a nearly 10% drop in iPhone sales, indicating weak demand for the latest generation of smartphones.

Walmart

Walmart, the retail giant, delivered a substantial earnings beat for the first quarter of fiscal 2025. The company's Chief Financial Officer (CFO) noted that upper-income (100k+) households accounted for the majority of share gains in the quarter. Walmart has observed a continuation of "value-seeking behaviors" among its customers over the past year.

Kraft Heinz

Kraft Heinz experienced a drop in its shares after reporting first-quarter results that missed analysts' estimates. The company's revenue was $6.41 billion, a decrease of 1.2% from the previous year. Sales fell across all three of the company's regional segments, with North America experiencing a 1.2% decrease to $4.83 billion. The company attributed this decline to higher prices and the reduction of Supplemental Nutrition Assistance Program (SNAP) benefits in the United States.

General Mills

General Mills Inc., a leading breakfast and snack food manufacturer, reported a third-quarter adjusted income of $674 million which surpassed analyst estimates. However, the company experienced a 1% decrease in net sales from the third quarter of the previous year. The company has noted that sales have decreased over the last several quarters due to price increases implemented to combat inflation, which led some consumers to switch to cheaper brands. General Mills affirmed its lowered full year guidance projections from December.

Lowes

Lowes, has reported a better-than-expected performance in the first quarter, with sales and earnings surpassing analysts' expectations. The company has maintained its full-year financial forecasts with comparable sales predicted to fall by 2% to 3% from 2023. This cautious outlook is attributed to a continued weakness in consumer demand for big-ticket, discretionary projects.

Home Depot

Home Depot posted mixed first-quarter results, narrowly beating profit estimates & missing revenue estimates. The company attributed this to customers delaying larger projects and purchases, a trend that has been observed in previous quarters due to persistently high inflation and interest rates. A slowdown in home sales is hurting retailers as people tend to spend more on home improvement after buying or selling a home.

Etsy

Etsy experienced a significant drop in its shares following the release of its quarterly earnings, which fell short of expectations. Despite an increase in active buyers on the site, gross merchandise sales (GMS) across the marketplace decreased from the previous year. The company reported first-quarter income of $63 million a steep decline from the $74.54 million income reported in the same quarter of the previous year. The CEO of Etsy attributed this performance to a challenging environment where consumers are reducing their spending on discretionary products. The company also laid off about 11% of its employees in December.

Lululemon

Lululemon Athletica experienced a 15.8% drop in stock following the release of its report for the fourth quarter of fiscal 2023. Despite strong results for the quarter that surpassed Wall Street expectations, the company's guidance for the first quarter of fiscal 2024 spurred a stock sell-off. The Q1 guidance was notably lower than consensus estimates, especially for earnings.

Under Armour

Under Armour has projected a decrease in its fiscal 2025 revenue by a "low-double-digit percentage rate". This includes a significant 15%-17% decline in North America. Under Armour's board approved a stock buyback plan, allowing the company to repurchase $500 million of its own shares over the next three years.

Earnings Report Takeaways

  • Companies are expecting less growth moving forward, indicating a potential deterioration in the economy. This is evidenced by their projections for lower revenues and earnings, as well as the challenges they face in the retail environment due to high inventories and consumer shifts towards cheaper brands.

  • The common factors contributing to these challenges include a decrease in consumer spending, increased competition, and higher prices. These factors are expected to continue impacting the companies' performance moving forward, leading to a more challenging business environment.

  • This trend is characterized by a focus on essential purchases and a shift away from discretionary spending, suggesting that many consumers are dealing with stretched wallets.

Building off the actual earnings reports, there are two metrics that are worth comparing too. These are the Late Earnings Report Index (LERI) & the Conference Board Measure of CEO Confidence.

The LERI tracks outlier earnings date changes among publicly traded companies with market capitalizations of $250 million and higher. A reading above 100 indicates companies are feeling uncertain about their current and short-term prospects.

The Measure of CEO Confidence surveys a sample of CEOs. A measure of 50 is the baseline, with close to 50 being considered cautious, above 50 optimistic outlook and below 50 pessimistic.

Late Earnings Report Index (LERI)

The current post-peak season LERI reading stands at 157. This is the highest its been since Q4 2019, right before the 2020 crash. This indicates that companies are less certain about economic conditions than they were at the beginning of the year. As of May 10, there were 107 late outliers. Link: LERI

Cautious optimism continues to prevail among CEOs

Link

The Measure of CEO Confidence™ rose to 54 in Q2 2024, up from 53 in the previous quarter. This marks the second consecutive quarter in which the Measure is above 50, indicating that CEOs are cautiously optimistic following two years of gloom.

Only 35% of CEOs surveyed in April anticipate a recession within the next 12 to 18 months, down from 72% in Q4 2023. Regarding expectations for their own industries, fewer CEOs expect conditions to worsen, while 46% think conditions will be the ‘same.’ 30% of CEOs expect economic conditions to improve over the next six months, down from 36% in Q1.

The LERI is signaling the opposite of the Measure of CEO Confidence survey. It is quite strange that CEOs in their earnings reports are so cautious about the future and project lower sales and profits and yet they anticipate the US missing a recession. Seems there is a massive mismatch between the survey and what earnings season is telling us. This could be due to only 136 CEOs participating in the survey and being in more resilient industries. As well, there is some mismatch between recession fears being lower according to these CEOs and short term economic outlook being worse.

We might be in a phase where companies are lowering short-term expectations while aiming for higher efficiency. The problem is in today's economy, growth is crucial. Lower growth can impact the entire economy, as the same cycles that boost growth can unwind & lead to its decline. Therefore, earnings reports may be a more accurate indicator of our economic future in this case.

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To Read Past Newsletters Click here.

If you have any source you wish to see in our lineup, please reach out and let us know. We continually look to incorporate more independent sources to our weekly wrap-up.

]]><![CDATA[Rise of the Memes. GME]]>https://www.americaneconomydaily.com/p/rise-of-the-memes-gmehttps://www.americaneconomydaily.com/p/rise-of-the-memes-gmeTue, 14 May 2024 11:20:34 GMTGamestop soars as Roaring Kitty trader resurfaces. Single tweet leads to 70% increase.

This is the prevailing narrative surrounding GameStop (GME). However, examining the week before reveals a significant 50% surge in stock price, climbing from approximately $10 to $20. Surprisingly, this substantial movement occurred without any corresponding news or announcements affecting the stock.

So what’s actually the underlying reason for this price increase? Why are meme stocks suddenly surging?

Keep in mind that this is a theory, not a confirmed fact, but consider the following.

The surge of forum called WallStreetBets in 2021 revealed a culture of individuals willing to risk it all to reach for better riches. After the meme stock surge in 2021, this community exploded including several others. One community even reached nearly 1 million members specifically focused on GME. Superstonk. This is by far the largest retail supported stock, dwarfing TSLAs reddit which only has 25,000 members.

So what did this reveal?
A couple things:

  • An increasing rise of a 'YOLO' (You Only Live Once) mentality, characterized by high-risk, high-reward strategies. Mostly 0DTE and far out of the money options.

  • A growing perception that the economy is excluding many individuals, leading to a belief that adopting such high-stakes behavior is the only path to financial success.

  • An unearthing of systemic corruption that “allegedly” proves that the market has been rigged against retail investors.(Make sure to watch the information at the end, honestly go ahead and skip to the end of the first two bullet points don’t matter to you)

Now in a small sample size, this behavior would have little effect on the market. But is this community of thought growing?

Lets connect some other pieces here.

Birth Rates:

We have seen birth rates plummet to under replacement levels. This will create a contraction in the upcoming workforce available in the US. But when we look at what makes up birth rates, its really a question of house formation. Why are young people not reproducing?

One issue is the breakdown in incomes between male and females. Women generally will date at their perceived level or above. This can be seen from online dating. This excerpt from a study found by Paul Van Der Laken succinctly sums it up. link

As women's socioeconomic status has improved, they have become more selective in choosing their partners. Another chart showing here shows how income drives tinder engagement as well.

So better looking, higher earning men are what women are after. (Obvi)

So why is this different than the past?

Social media has significantly increased the competition in the dating landscape. Men are no longer competing to be the most desirable in their local community; they now find themselves contending with suitors from across the globe, or at least from a larger geographic radius. This shift has coincided with a noticeable decline in sex, a trend that has become more pronounced since the 2008 Global Financial Crisis. (Chart Below) Two major developments occurred after the GFC: the swift rise of social media and a scarcity of economic opportunities, which were insufficient to accommodate the increasing number of college graduates.

Returning to the YOLO strategy, consider the scenario where men find their potential suitors lacking. In response, they have a couple of options. They can enhance their physical appearance, which is somewhat feasible, or more commonly, they might seek to increase their earnings. If advancing significantly in their careers isn't viable, the alternative is to adjust their risk/reward balance by opting for investments with low odds of success but potentially massive returns. Thus, their investment approach often shifts towards 'moonshot' bets.

This appears to be an emerging trend likely to expand further. Much like the influence of passive investing on future market dynamics, high-risk investment strategies are also poised to leave a significant impact. This trend is particularly evident in the surge of investments in alternative cryptocurrency projects and coins, which has led to a notable increase in subsequent foreclosures.

When you put this information together, you can see a growing community of individuals that are reinforced by social media to treat investments in a more YOLO strategy and to take chances that prior generations would not have concerned themselves with.

Now the final reason for this entrenched meme stock mania investing is basically an f u from investors to large capital players that are capable of manipulating markets. This will require it owns future posts but here are some resources we implore you to explore.

Succinct wrap up of the gme saga. Link

The Great Taking, link. How our brokers have turned our assets like stocks into IOUs that we don’t actually own.

Literally tons of fines and articles about Wall Street committing crimes and paying Pennie’s here.

Thanks For Reading!

To Read Past Newsletters Click here.

If you have any source you wish to see in our lineup, please reach out and let us know. We continually look to incorporate more independent sources to our weekly wrap-up.

]]><![CDATA[Japanese Yen Crisis: The Dilemma of Intervention and the Impact of the USD/JPY Carry Trade]]>https://www.americaneconomydaily.com/p/japanese-yen-crisis-the-dilemma-ofhttps://www.americaneconomydaily.com/p/japanese-yen-crisis-the-dilemma-ofTue, 30 Apr 2024 11:52:39 GMTThe Yen has recently dropped through 155 per dollar for the first time since 1990, a significant event that has kept foreign exchange (FX) traders on high alert for potential intervention from monetary authorities. The yen's rapid fluctuations have led to speculation about potential intervention by Japanese authorities to prevent excessive weakening of the currency. The yen's decline is largely attributed to changing interest rate expectations.

Big Whoop, Why Does This Matter?

The Yen Carry Trade.

The carry trade refers to a financial strategy where an investor borrows money at a low-interest rate in one currency (in this case, JPY) and invests it in another currency with higher interest rates (in this case, USD). This strategy is profitable as long as the exchange rate between the two currencies remains stable. The current yen interest rate is set at ~0%, where the U.S. dollar 10y is currently at 4.6%.

The carry trade strategy is influenced by the yield differentials between the two countries. The yield differential refers to the difference in interest rates between two countries. If Japan’s interest rates are at 0% and US interest rates are at 5%, an investor can borrow in JPY at 0% interest, exchange it for USD, and invest in a US bank, earning 5% interest on their savings. Analysts from Deutsche Bank estimate this market to be around $20 trillion as of November 2023. This massive size means that the feedback loop exists more strongly for dollar/yen than any other currency.

The Risks of the Carry Trade

An Example

If the USD depreciates against the JPY, the investor could lose despite the interest rate difference. This risk is particularly relevant in the current economic climate, where there are indications that the Federal Reserve may start cutting rates. As well, many central banks are in the process of cutting rates as of now. If this happens, the USD could fall, and the JPY could appreciate, eroding the yield on yen carry trades.

The BoJ is stuck

Intervene in JPY Spot Market

If the BoJ decides to intervene in the JPY spot market by purchasing JPY, they would need to fund this by selling sections of their substantial US Treasuries hoard. As Japan sells US Treasuries (USTs) to acquire the dollars necessary to buy back their own currency, this action pushes bond prices down, causing US yields to rise. As these yields rise, the carry trade becomes increasingly profitable, which in turn puts more downward pressure on the yen. This results in a vicious cycle where interventions in dollar terms have to get larger, causing yields to rise even more.

Raise Rates

The BoJ decides to raise rates. There a couple issues with this scenario. Japan has one of the highest levels of government debt relative to GDP in the world. Higher interest rates would increase the cost of servicing this debt and Japan would have to cut spending or increase taxes, which could also hurt the economy. A rate increase would lead to an appreciation of the yen which would make Japanese exports more expensive on the global market, potentially hurting export-driven sectors of the economy. Given Japan's reliance on exports, this could be a significant concern. As well, this would lead to a great unwind of carry trade, more later. A sudden or significant increase in rates could also lead to market volatility, affecting stocks, bonds, and other financial instruments, putting Japans financial stability at risk.

Alternatively, the Fed could cut rates to reduce the appeal of the carry trade, leading to lower rate of devaluation, but this is unlikely given recent inflation readings and the fact that domestic monetary policy doesn't typically revolve around events in other countries.

The Unwinding

When a trade opens, say borrow JPY to buy USD assets, this devalues JPY. An increases the value of USD assets (due to demand to purchase the asset). This then creates a loop that continually brings new investors as the trade becomes more lucrative.

Now what happens if the trade goes south. In 2008, many of these trade were put into subprime mortgages. When these mortgages failed, there was a rush to the door to sell these mortgages, buy JPY and pay back the loan. This scenario reverse the feedback loop above. Where now the JPY is appreciating, creating a scenario where all other carry trades become less profitable or negative and then those trades unwind. The USD or counterparty assets then lose value as well.

The problem is the amount of leverage in this trade. The feedback loop creates an environment where more and more borrowing keeps fueling the trade, making it bigger and bigger. As stated by the $20 trillion market estimate stated earlier. When a catalyst sets off these trades to be unwound, it will snowball quickly. When $20trillion in assets get unwound and sold into the market quickly it leads to a scenario akin to the 1987 crash.

Thanks For Reading!

Article on GFC and USD/JPY carry trade influence. Link

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