But I think we're going to see the economy start to slow in the third
quarter, and that's slowing is going to pick up speed as we get him
the fourth quarter. But the Fed isn't going to react immediately by lowering rates,
and I think that's going to be the hard part for the market to
accept. If you will, you're listening to Carrie Letz's Financial Survival Network where
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Survival Network now more than ever. And welcome you are watching listening to the
Financial Survival Network. I'm your host, Carrie lets Well. This person who
we're going to hear from today was correct about inflation and a let's see if
what is thinking in terms of the hard landing soft landing or we'll just say,
stay suspended in the air forever, right, yeah, forever and ever.
Jim Welsh Macrotide dot com with us. Jim, welcome back so he
could join your carry. As though inflation is over, we can all rest
assured. We don't have to worry about anything because they fixed it right.
Not quite, no fix it, No, they not entirely. Again,
last October, I began to write that we were going to see a significant
decline and inflation in the first half of this year, predominantly because the takeaway
values carry from last year because the CBIs are rated change, so they give
subtract the number from twelve months ago, and you add in the current month.
So I was talking about back in February this year that we could see
the CPI down to three percent, which we fought out. That's exactly where
it when. And the part was because the takeaway value from June of twenty
twenty two was one point three percent, and then you just add whatever the
current months changes, in this case it was point two percent, and then
implied that we could see the CPI dropped by about a percent, which it
did from four to three. What goal listeners and viewers will see in one
of the charts I provided is going forward the next six months, the numbers
changed. So instead of the average monthly decline in the first six months was
point eight nine percent, it's only point two percent. In July, it's
flat. August it's twelve basis points. So if the CPI continues to be
up point two percent and the next two months, when we get the August
reading in mid September, the CPI is going to go from three to maybe
three three, maybe three four. So the only point being is that a
lot of the improvement was because of the reverse from last year's numbers. And
what I've written about is the thing that could make that an even worse comparison
is I think energy prices are, in terms of oil, going to head
higher. The low in June was around sixty seven dollars, it's trading around
seventy six. Based on the chart, I think crude oil can get to
eighty one, it gets much above that eighty six, and nat gas prices
bottom at two twenty five the I think two sixty something. I think potentially
they could get to three forty. So the point being is the big takeaway
values were led by a big decline in energy costs, and they're now reversing.
So the ZPI in the next few months may tick higher than just the
point three or point four that I indicated. And then also food prices.
Russia ended their deal with Ukraine. We've seen grain prices in terms of corn
and wheat jump three to four or five percent. Again, that will add
to the headline inflation and coming months. So you know, it's not like,
oh, my gosh, the world is falling, but a lot of
people have kind of built in the assumption to your question, oh, inflation
is behind us, it's not a problem, and I don't believe that's the
case. All right, So it is a problem. And the unemployment employment
numbers also a problem, isn't it. I think so. Historically we know
that monetary policy actually lag. The average recession has taken nineteen months to begin
after a yield curve in version. So the yield curve inversion in July of
last year, which kind of implies by late this year early next year,
would be the average lag time. There's a chart that I provided showing the
federal funds rate, and what was done in this chart, Carre is they
pushed the federal funds rate forward by eighteen months in a sense to account for
that lag time, and then overlaid unemployment claims on top of it. And
what we can see is historically a big increase in unemployment claims have followed after
big increases in the federal funds rate. Well, the Fed funds rate started
up in March of last year. Eighteen months gets us basically to September.
So my point is that we're going to see the unemployment numbers start to tick
up later this year. The job numbers are already starting to slow. The
two hundred and nine thousand looked like a good number on the top, but
the sixty thousand of that was government jobs. Hours worked have been declining significantly
over the last twelve eighteen months. Looking at on employment claims, they're starting
to creep higher. So the point being carry is that I believe we're going
to see the labor market start to reflect the impact from higher interest rates.
And the Fed itself has projected that next year the unemplumbent rate will get to
four point five percent. Well, anything anytime there's been a point five percent,
in other words, you go from three and a half to four,
that's been a recession or you're on the doorstep or in our recession. So
you know, the Fed wants to get inflation down. The biggest declines in
inflation have occurred during recessions, so I know the Fed wants to avoid a
recession. But I think the combination of the yield curban version leading economic indicators
which have dropped fourteen months in a row, and whenever they've declined as much
as they have, there's always been a recession in the last fifty years.
And lastly, lending standards have been increased significantly before the regional bank crisis in
March. Lag time is about nine months. And when you think about it,
if you're a small business owner and you have a loando in September,
well, the increase and lending standards that took place late last year, you
haven't felt it, but it will fee it when your loan comes due in
terms of either cost of the loan is going to go up significantly. And
potentially what also starts to happen is banks start to scruit light. Do they
want to give you the same amount of money because their outlook is that the
economy is going to slow. So again, a lot of this stuff has
built in lag times. And what's happened is a year ago, as you
know, everyone was talking recession, recession or I pushed back against I said,
there's not going to be a recession in twenty twenty two, and I
in my monthly macrotides. I went to explanations why I didn't think there would
be a recession in the first half of this year. But I think we're
going to see the economy start to slow in the third quarter, and that's
slowing is going to pick up speed as we get him the fourth quarter.
But the Fed isn't going to react immediately by lowering rates, and I think
that's going to be the hard part for the market to accept, if you
will. All right, so everything you know is wrong. In other words,
everything you're thinking of, Well again, markets are as you know.
I mean, markets are kind of weird. Everyone thought there was going to
be a recession for the wrong reasons, just because you had two quarters in
a row of negative GDP. Well, historically that's been a pretty good benchmark.
But in the first half of last year, job growth was averaging three
hundred and fifty thousand new jobs. That's like a boom. A Gross domestic
income was up in the first quarter of last year and the third quarter,
So even while GDP was down, GDI was up in the first quarter.
And the National Bureau of Economic Research, that's the outfit that determines the beginning
and ends of recession. They don't look just at gross domestic product. They
look at six different groups of indicators, and they wait, gross domestic income
equally with gross domestic product. Now here's the thing. No one's talking about
it. In the fourth quarter GDI was down three and a half percent,
and it was down I think one point three percent in the first quarter.
So in other words, these are all, in my opinion, signs that
things are under the surface, slowly but surely slowing down. And it all
adds up in my mind. You know that the economy is going to slow
in the second half of this year, and I think more so next year.
I don't all right, so more slowing, do you think we'll have
a legitimate recession? Then a problem? I mean there's going to be at
least one quarter of negative GDP rolls. I think the odds of a recession
are very high, but it may not really chick in until we get into
the early part of next year. And again I'm relying on the yield curve,
LI lending standards going up. In a little common sense, every time
those indicators have hit levels that they are currently at, there hasn't been a
recession going back to the last sixty years, so I reliable. Yeah,
absolutely, at a minimum a significant slowdown. Now what's ironic is equity investors
because everyone was wrong about the recession last year or the first half of this
year. Now, hey, we don't have to worry about a recession.
Mary Lynch does a survey every month of mail managers money managers. Sixty eight
percent don't think we're going to have a recession. So it's really, you
know, shifted significantly from where it was a year ago, and it's almost
perfect setup where now that no one's anticipating a recession, the odds are that
it's like you're going to increase and I'm not trying to be flipping again.
It's based on the historical performance of very good indicators. All right, So
is it going to be a hard landing or a soft landing? Very difficult
to know because a lot of things show up out of the woodwork that can't
be anticipated. I think commercial real estate is going to be a problem next
year, you know, obviously office buildings, even shopping malls. You know,
we don't know how much unemployment will go up, so to me,
it doesn't at this point in time. It's given them most of you are
looking for a recession, the fact that there's a recession likely is enough.
Are they surprise a negative surprise? And I think for most investors, if
it turns out to be a hard landing, well it's just going to be
a really bad surprise. And we don't need to know that at this point
time. Yeah, yeah, yep, yep. All right. So if
you had to hazard a guess, your inclination, your gut all these years
you've been doing this, what you're feeling, I think it's going to be
worse than a soft landing. Okay, you know, you know. I
just there's just a lot of excesses that have built up, and it makes
time to address them. And again, people have been able to keep spending
because of the accumulated savings, extra savings that they had because of the pandemic
distribution of money they weren't allowed to go out. But that savings is starting
to whittle down, and so the slowdown in spending is already starting to show
up. Same store sales last week came out, Carrie, they were down
slightly. We're seeing more signs of credit card stress showing up. So some
of the things that got overlooked last week in terms of the CPI dropped and
it wasn't that wonderful real number out to another one. The government gives a
report in terms of revenues and expenditures. Well, expenditures are still quite strong,
which is again one of the reasons why the economy has been hanging in
there. But income, you know, in otherwords, taxes peaked in the
fourth quarter of last year, and i've been trending down so far through the
first six months of this year. Historically, that's another leading indicator that you're
approaching a recession. So a lot of these things are moving in that direction.
It just is like it always does. It just takes longer than people
expect, and in this case, it's kind of fooled them to think that,
Okay, if it hasn't happened by now, it's not going to happen.
Yeah. All right, well, I'm glad we touched space. Glad
we got your latest update. I will we have some jets on the markets
if you want to cover those real quick. Yeah, let's let's cover I'm
sure. Yeah. So you know gold, I think gold completed the first
phase. If you will have the next bull market when it rallied from sixteen
sixteen to twenty fifty nine. Since early May, I've been looking for a
wave to pullback. The three eight two retracement of the rally was eighteen ninety
four or ninety and at eighteen ninety four, it's possible that pullback is done.
Carry I still think the odds are we're going to see one more dip
in gold below eighteen ninety four before we see the beginning of the next leg
higher that will take gold to new all time highs. Twenty three hundred.
Twenty four hundred is definitely in reach. In terms of the SMP five hundred,
we're at a really interesting juncture. Primary the seven eighty six retracement of
the decline last year is forty five thirty four. We're within one percent of
that at this point in time. The big rally up from October into early
December, pull back into March, the rally we've seen since March, those
two legs are equal at twelve. So these measurements to me suggest we're in
the zip code of what could be an important high. The fundamentals suggests that
eight people are overestimating the positive part of about the economy. Sentiment has gotten
really pretty wildly bullish. The only thing that's really happening and still in good
shape is momentum, So that is the next thing that needs to happen to
kind of start to confirm this stuff. Yeah, you know, I would
discount and so on the chart of the SMP, see way they down to
October big ABC up to a B wave high. What that implies carry is
the potential of a sea wave decline that will undercut the lows October. Now,
if I thought the FED was going to be cutting rates soon, or
that the economy was going to be holding in their well or gaining strength,
that would cast doubt on that pattern analysis. The fact it's just the opposite,
you know, means like, okay, it's time to get pretty cautious.
I think, given where prices are at this point in time, all
right makes a lot of sense. Hey, the banking crisis, is it
going to come back with a vengeance or is it over for now? Well?
I think the one that happened in March got blown out of proportion.
Quite honestly. It was three banks that were extraordinarily badly managed based on their
mismatch between deposits and liabilities and everything else. So to me, that was
never likely to become the old my god, a full blown thing. The
key thing is people are like, oh, we're gonna have a credit crunch.
No, but the real problem is that lending standards at in the first
quarter got up to forty six percent. They got to forty three percent at
the end of last year. Historic of going back to last fifty years,
when other whenever more than twenty percent of banks have raised lending standards, we've
had a recession. Well, it was forty three percent in the last year,
in forty six in the first quarter. So to me, that is
the bigger issue. No one's talking about it. You know, they were
worried, Oh my god, this guy's going to fall. That created some
negativity. The market got oversold, and we've seen the market rally and the
employment report for me that came out I think it was in June second it
was three hundred and nine thousand. That really seemed to solidify people's viewpoint that,
oh, we don't have to worry about a recession for whatever reason.
And then we've seen cyclical stocks rally, a small cap stocks rally again on
the idea that we're not going to have a recession, and if we do,
it's going to be an inconvenient you know, soft landing. So we're
at it. I think you know an inflection point potentially, you know a
number of these markets. All right, Well, interesting, very very interesting
times ahead here, Jim. We always appreciate your coming on and giving us
your insight. Macrotides dot com is where you find Jim and there's a link
in the shows this interview on Financial Survival Network dot com and here I would
like to offer their line macrotides to anyone who All they have to do is
send me an email Jim Welsh macro at Gmail, and I'll send you The
July issue covered a lot of important points regarding the labor market, and I
think they'll find it pretty and I'll probably toss in the most recent weekly technical
review. Week and a half ago, I was looking for the spated rally
above forty five hundred, the dollar to drop below one hundreds, have a
sharp decline. It had formed a triangle. I thought Bonniels would come down
a little bit, and I thought gold would pop all based on that big
decline in the CPI reports. I'm happy to send those reports out to your
faithful listeners. All right, hey, if you got any questions, kl
at Kerry Lutz dot com and appreciate you coming on. We will talk to
you again soon. Joe sounds good. Stay well, Carrie, thanks for
listening to carry Lutz's Financial Survival Network, your solution to today's trying times.
For the latest, go to Financial Survival Network dot com. Financial Survival Network
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