What's going on with the economy and potentially what's coming. And then we're going
to look at some technical analysis to look at the various financial markets that people
are most interested the dollar, SMP gold, gold stocks, and treasure yields.
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And welcome. You are listening to and watching the Financial Survival Network.
I'm your host, Carrie Lutz, and we're here with our good friend Jim
Welsh from macrotides dot com. And Jim's got some some info that he wants
to share with you. Got any questions or comments, you can always send
an email to me k l at kerry Lets dot com. In the meantime,
Jim you find him at macrotides dot com. Jim. Great to have
you back on so Hey, you got some new numbers for us. Great
to be joining you, Carrie. As your viewers will see, we're going
to look at the fundamental side of the equation in terms of what's going on
with the economy and potentially what's coming. And then we're going to look at
some technical analysis to look at the various financial markets that you know, people
are most interested the dollar s and p gold, gold stocks, and treasure
yields. So you know, as people may remember, the Bureau of Economic
Analysis when they did their first revision a first quarter GDP, it dropped from
one point six percent to one point three And as I discussed in various letters,
that was a little misleading carry because the BEA subtracts imports, and the
reason why is because they're trying to capture domestic production. So the point though,
is if demand is so strong that it's being fulfilled from overseas, that
doesn't reflect weakness. So they subtracted point nine percent from first quarter GDP.
And the second thing is retailers paired inventories, which subtracted another point five Now,
what happens is when they cut back on inventories, unless the economy slows
immediately, over time, they're going to rebuild those inventories. So the point
being is that one point three percent was really closer to two point seven when
you adjust for these other factors. So the idea being is, do we
need to be worry about a recession right here, right now. No.
But I think what we're going to review is some indicators that suggest a market
slowing in the economy is coming. And I like this quote from Somerset Vaughn.
The fact that a great many people believe something is no guarantee of its
truth. And look at the chart below which it shows that now eighty eight
percent of economists has surveyed in the first week of June by Bloomberg don't think
we have to worry about a recession. And the counterpoint is back in twenty
twenty two, the majority of economists thought we were going to be in a
recession, and if not, in twenty twenty two, twenty twenty three,
and in twenty twenty two and twenty three. My point was job growth is
really strong, consumers still have money, So the idea that we were going
to have a recession in twenty twenty two or twenty twenty three was unlikely at
this point. Though, just at a time when everyone else is like,
hey, we don't have to worry about a recession, I think there are
reasons why more caution is warranted. And so if we skipped down to the
next page, you know, consumer spending has really been the linchpin under the
economy, and the bank credit analyst has a model where they look at the
individual state on employment numbers, they adjust him for the population in each state
and come up with an adjusted unemployment rate and historically, going back to the
late nineteen seventies, carry it. Anytime this has gone up by I think
twenty five basis points, it's signaled a recession. There has never been a
false positive. In other words, there's never been a time when it's,
oh, yeah, we got to worry about a recession and then one didn't
show up. So in March this gave a recession signal. And historically,
going back to the lates seventies, the league time has been less than six
months. So to me, again, I'm going to take from this not
necessarily oh my god, the sky's going to be falling here six months from
March, but that the notion that the the labor market is going to remain
strong. This really casts doubt on whether that's going to be sustained. And
the next chart kind of shows and it hasn't been getting a lot of attention.
Is the unemployment rate bottom that three point four percent in April of twenty
twenty three, So it's been kind of creeping higher. You know, it's
like putting the frog in the pot on the stove and the temperature gets increased
very gradually. Well, the unemployment rate's gone from three point four to four
percent in May. Historically, going back to nineteen forty five, carry,
whenever you've had this amount of increase, there has always been a recession.
And again I'll say there's been a lot of usual aspects to this recovery.
You know, one being the huge amount of government spending which is continuing.
Uh, you know, the deficit for this year revised from i think one
point five trillion from in February to one point nine trillion. So again what
we're seeing is, hey, the consumer has been the linch pin and the
labor market has been very beneficial. I think it's going to slow. This
looks at yield curb inversions going back to like nineteen twenty eight, and what
it chose is whenever there's been an inversion over three hundred and fifty days a
recession. This surely followed, we're at about six hundred and three days.
I think as of yesterday, you're late last week. So again my point
is, oh, I'm not saying, oh the guy the sky fall and
this guideline. It just raises the probability, in my point, my view,
that we're going to see a market slowing in the economy as all these
things kind of come home to bear. And you know, the FED has
decided higher for longer, which didn't surprise me one bit. But the reality
is for small businesses that used the banking system for funding, that higher for
longer is significant because they're paying nine to eleven percent most small businesses to borrow
money, and small businesses in this country create fifty percent of all new jobs.
So the longer we go with these rates where they're at and Kerry,
it's going to I think wigh on small businesses, and again that has implications
for the labor market. All right, Yeah, So the number of days
that this inverted yield curve has persisted for and really the Fed's been powerless to
do anything about it really is sending out major alarm bells, isn't it.
Yeah, I mean that to me, the takeaway value here these stats is
again the economy is going to be slowing, I think markedly as we go
towards the end of this year and especially next year, because I think commercial
real estate is going to be a more significant problem next year. Last year
banks did extend and pretend, in other words, loans can do, and
they worked out some stuff pushing it off in the future. But as we
all know, the home or the office market isn't improving. There's a glut
of apartments out there, so we're seeing price declines in multifamily apartments. So
again, this is a problem that's kind of in the back burner, out
of sight, out of mind, But I think as we get into next
year it will become more important. And obviously if the economy slows, you
know, it's only going to worsen that situation. You know, investors have
been focusing when is the FED going to cut? When's the Fed going to
cut? So I went back and if you go to scroll down just a
little bit, and I went back to winter recession started, and then where
was the SMP when the Fed made the first rate cut? And then what
subsequently happened, and what it shows is going back to nineteen sixty nine.
In each of these instances other than nineteen ninety eight, there were kind of
some special circumstances that were going on in nineteen ninety eight, But what you
can see is more than eighty percent of the decline and the average decline was
about thirty eight percent in these bear markets, eighty percent of the decline of
the SMP happened after the first rate cut. So the reason is the Fed
historically has not cut rates just because inflation came down. They cut rates because
the economy slowed, the unemployment rates started ticking up, and they cut rates
in order to if you will, like catch up, play ketchup, and
soften the slowdown in the economy. Of course, that has implications for earnings.
Right now, Wall Street expects runings to be up this year and next.
The PE ratio is elevated relative to the average over time, and so
historically that's why you get these big declines in the market when it realizes,
oh my goodness, the economy is slowing. We're going into a recession.
So you know, again, from a statistical standpoint, we're seeing indications the
economy is going to slow, and at some point in time, the Fed's
going to respond to it. But if the economy subsequently goes into recession,
it historically has been really bad news for the stock market. Okay, all
right, so you're full of joy, right, bubbly news here? Well,
no, you know what it is, you know, Kerry, is
I want to keep my head on a swivel. And so whenever there's a
narrative out there that's widely embraced, I always want to kind of say,
all right, is it justified? And always, for a period of time,
whatever the narrative, it is justified. But at some point in time,
the narrative runs its course, and the way to avoid getting hurt in
the stock market or other financial markets is to kind of see it coming.
So technically I'll use this analogy. You know, all we drive SIXU eighted
cylinder engines and cars, and if all the cylinders are working together, we
got great pickup when we step on the gas. Few economy is pretty good.
Everything's Colpus said it. But when one of the cylinders or two of
the cylinders start being out of sync with the others, well, acceleration isn't
so good. Fuel economy goes down, and ultimately the engine breaks down.
So the point in the stock market is in a healthy market, the averages
are either going all up together, we're going all down together. It's kind
of like, okay, everything is in gear. At inflection points, things
start to to burn. And when you're at a market high, yes,
yeah, yeah, okay, agree, you're a market high. What happens
is, Hey, what we're seeing is look at the semiconductors and what they've
done from May fifteen until June eighteenth, and what we can see is up
nineteen percent. In the meantime, the broad market the New York composite seventeen
hundred stocks that's down. Value Lying composite seventeen hundred stocks that's down. So
we're seeing a huge bifurcation. So everyone talking about the economies are okay,
but the behavior of some of the broad market averages carry suggests that there's more
concerned under the surface. And this kind of discrepancy is normally what we have
seen historically at important market tops. Everyone's excited about it. Nvidia, get
it? Artificial intelligence? Is you gonna change the way we live? It
is already? Yeah? You know, I mean I didn't tell you this,
but I made a bos that looks just like you, Jim, so
I don't need to interview you anymore. Isn't going to be our last interview
here, you'll see, right right, I'm sure that bottill be even smarter.
You just let it know what I say, much, right, Just
let it just tell it what to say it that it'll take care of every
It'll just go from there. You know, you can just you know,
I can put my feet up and in fact, great, Well, what
I wanted to point out is semiconductor structure obviously critical and at the forefront of
artificial intelligence. People can't buy enough of them type of thing. But semiconductors
are hugely cyclical. So if we scro down just a little bit, there's
a table showing how this semiconductor one more down so what you can see,
you know, coming off the dot com bubble, I mean, the Internet
was amazing, right, I mean, talk about how badly the economy would
have been during the pandemic if we didn't have the technology that existed now to
do zoom meetings, to be able to do ordering online, and all the
rest of them. All Right, the Internet certainly fulfilled whatever the hopes and
dreams were back in two thousand, But as the economy slowed, companies were
forced to cut costs and they stopped spending as much money. So you had
stocks that had a very high pe ratio because they were growing at thirty percent
or more, and all of a sudden, that growth is accelerated rapidly.
So in the two thousand and one recession, which was a very mild recession,
I think with GDP was not like one point four percent, the semis
were down eighty three percent. Two thousand and eight deeper economic contraction, SEMI
is down sixty five percent. So my point is this enthusiasm for AI and
the semiconductor stocks, I understand it, But at the same time, I
think some of the people that are barely in this believe that it will be
immune to the business cycle. I'm sorry, if you get a recession.
No company is completely immune to the business cycle. So my bet is that
as we slow down between now and your end, I think a recession becomes
a higher probability next year. I think, you know, the order rate
for computer chips is going to slow initially and then drop. The other thing
I'll point out is in the last twelve months or so, I think companies
have bought fifty billion dollars worth of chips from Nvidio. Yeah, but it's
those chips by those companies only generated about three billion of revenue. So I
think there's this window of time where all this enthusiasm, but then there's going
to be a valley as people struggle to monetize what they spent. That it's
going to take time to convert artificial intelligence to meaningful, real world positive outcomes.
And during that window time, if I'm right, what's going to happen
to the order book bring VIDI and the other semiconductor stuff skid. Right,
It's going to skid absolutely, So that to me is the warning. And
let's go down a little bit further. One thing, I don't remember if
I put that in here or not. Maybe I did. We'll see,
okay, Before we leave to the semiconductor issue, in Vidia had a key
reversal on June twentieth, so did the semiconductor in this The last time that
happened was March eighth, and it ushered in a correction that ultimately in Vidia
dropped twenty two percent by mid April, and the semis I think we're down
maybe eleven or twelve percent, So that key reversal we saw a couple of
days ago. I think think is kind of a clearing call that, all
right, we're going to see these stocks undergo a correction. Lagged performance in
the russell and the value line and the broad market. I don't think we're
going to be able to see a rotation that cleanly the baton gets passed.
So I think everything is set up. I was looking in late March for
a five to seven percent correction. The S and P drop five point seven
percent. I think we're close to something similar Kerrie over the next handful of
weeks. So if I go back to the ancient era of Alan Greenspan,
you would call this a rational exuberance. And it looks like it's coming to
an end. Yeah, I think so. I mean again, at least
in the short term, and then we'll see how the market corrects the pattern
that develops to be able to disturn. All right, Is this just another
correction like the one in April and we're going to have another rally to higher
highs or is it going to be more menacing? I can't know that right
now. All I know is the warning signs in terms of the divergencies with
the marketing average is and the advanced decline line hasn't confirmed this new hive.
Same thing happened in January twenty twenty two October two thousand and seven, and
there's many other instances going back. So the table set, it really all
comes down to carry does a reason to sell materialize whatever it may be,
because the weakness of the market internally tells us that it'll struggle to deal with
an increase in selling pressure. And that's the setup. Now it's just a
question of what how important the reason to sell is. So we can look
at gold in some of the markets and we could have liquidity issues that force
liquidation in the stock market. We know when there's a liquidity matter, liquidity
event, that the first thing people dump are stocks, right well, especially
the heighthly liquid stocks, you know, and liquid the better. Yeah,
And eventually you get down to the over owned stocks and when they go down
enough, you know it's like get me out, all right. So in
terms of gold, you know, the bigger picture is from the low at
eighteen twelve, I think gold has had three waves up and we're in the
middle of a wave for correction. We had a fake out where gold hopped
above for one day, that upper declining red tround line reversed down on Friday,
and I think the odds are gold is going to trade below the twenty
two eighty two and we could see it as low as like twenty two p
five based on retlacement levels and salt port. But once this correction is overcarry,
I think we're going to see gold rally to the new all time high
above twenty five hundred and potentially higher than that and taking one step at time.
So how long you think that's going to be. Jim, My guess
is gold will bottom in the next sixty days. That it could be thirty
days that this correction. You know, we're nearing the end of the correction.
I just think there's like one final wash here. As gold takes out
that prior low, it's going to hit stops and so forth. But my
point is, rather than being intimidated by it, it's an opportunity in my
view, to be a buyer. The gold stocks very similar in the sense
that if I'm right about gold pulling back, the gold stocks is measured by
gd X the ETF. I think we'll have a period of weakness and then
as you can see up there. I'm giving some instructions in terms of buying
IAU, which is the goal ETF, because I'm going to be a buyer
on the upcoming weakness and scale in a little bit based on gold drops below
twenty two eighty two? Does it get down to twenty two forty? Okay,
you want to buy someone? I like that chart. I do like
it. Kind of cup and handle. You know, we saw the handle
in gold and in silver, so you know now it's going to retrace a
bit right kind of Yeah, yeah, I'm breadless, it's out. I
didn't hit it here, mollis. Yeah. Yeah, they had a big
cart and people got really bullish, you know, a month or two ago
the double topped. Also yeah, and that you know from a tick issues,
Oh okay, that looks ominous and so forth. You know. So
again just from a price pattern standpoint, yeah, I think that really is
looking chart. It's correct for a way four and wave five if items at
twenty two to fifty twenty five fifty or higher becoming Yeah, and the gold
stocks and you know I've really been lagging from yeah oh wow, yeah,
well, and I think there's a catch up trade coming there and if you
go down to a little bit further, uh carry, And of course this
is going to be I think on your website so people can read all this
step from They'll have a link in the shout out so you can download Jim's
report and you know, get the ball belong on the podcast. Yeah.
So anyway, I think GDX can drop to the low between thirty two and
thirty two and a half. Thirty one and a half is possible based on
a retracement of the big move from twenty five to thirty seven. I think
Kimra or whatever your trace room was, whether it was fifty percent. That
sounds about right, Mandy, Yeah six bucks, yea, yeah, it'd
be fifty percent of retracement. But again, I think this weakness is a
buying opportunity, and ultimately I think the next rally will take out the thirty
seven dollars high that we saw or six weeks ago, and there was a
hind going back a little bit further near forty one. So I think GDX
is setting up a nice entry point or a rally that ultimately I think will
take it up towards forty one, forty to forty one, So that'd be
a pretty nice trade. So I wish you had a new months shorten there
because Newmont's due to report some monster earnings because the price of gold has got
up over two hundred and fifty dollars even if it's partly hedged since their last
earnings report where it was like around nineteen hundred something, and their earnings are
going up and the stock is doing absolutely nothing here. Yeah, I think
one thing that's happened, Carrie, is money that maybe in the past would
have traded the medals as well as the metal stocks is trading bitcoin. People
are looking for action, okay in the past, Hey you want a beta,
go buy you a gold stock or buy sold okay. TLT. I
turned positive on TLT over the last couple of months. On average, we're
long at around ninety one dollars of TLT. Again, my supposition is the
economy is going to slow more than expected. That TLT declined from one seventy
nine in BArch of twenty twenty forty in October of last year. So again,
a three eight two retlacement I get you up to about one nineteen.
So the initial rally went from eighty two to one hundred. That's eighteen bucks.
You had eighteen bucks to eighty seven, you're at one oh five.
So I think PLT is going higher, but at a minimum it should in
terms of from the low in October of twenty three, get an A wave
up to one hundred, a B wave down to one hundred or partly eighty
seven and change. I think we're at the beginning of a C wave that
will take TLT above the prior high at one hundred point five seven and potentially
up to one oh five to one oh nine. And if the economy really
goes into recession, that one nineteen number is a possibility. So yeah,
I mean just again, make yeah longer term. I'mbarissed bonds, and the
reason being is when it went from US seventy nine to eighty two, and
I've got reports if anybody wants to see all this good stuff, it will
decline in five waves. For me, that means the major trend in bond
prices is down and yields are up. But after a five weight move,
you're always going to get a retracement move, and that's where in the middle
of that retlacement move. God, if we get a recession, the deficit
is going to go from you know, one point nine trie into probably three
tride. So the amount of supply the bond market is going to have to
handle and the next recession and beyond, I think it can be able to
yeah, exactly, Yeah, and that's why yields can go out. Yeah.
Can you spell monetize? Good luck? You know? All right,
So we got one more dollar real quick. That red shread line is just
you know that one oh, it's I think a one oh six twenty five.
We're flirting with that. So I've been looking for the dollar to top
and roll over. But what's going on in Europe, But the French elections
has caused the year old to be quite weak. It's fifty seven percent of
the dollar index. The elections are going to be held June thirtieth and July
seventh. So to me, if the dollar closes above that trend line again,
that would not be good for gold. I don't think it's not good
for the US economy. So to me, the dollars at kind of a
critical lever level here up around one oh five seventy five. All right,
all right, there's one more thing on the S and P. If we
can just out do it real quick, Okay, sure, Well I'm looking
for based on all this stuff we talked earlier, I think the S and
P is set up for a five to seven percent correction or some price targets
mentioned here. I think there's a shot carry that you could see one more
rally above fifty five oh five to complete the move up from last April's low,
and I think that would be a place to go short. All right,
excellent here, really good info here. I've known you long enough to
know that you know you're right a lot more often than you're wrong, and
I think it's a reasonable analysis. One thing we didn't talk about don't really
want to, of course, is the election and what's happening there, because
that all figures into this. But maybe in ways we're not totally clear about
right now, Hey, make sure you go over to Jim's site the links
in the show notes of this interview on Financial Survival Network dot com. When
you're there, sign up for your free newsletter and it's macrotides dot com.
Questions, comments, et cetera. Kl at Carrie LUTs dot com. Jim,
appreciate your sharing this with us. Again. The link is in the
show notes to this interview to download Jim's report the PDF, and Jim provides
that to you Gratus, and you might want to take a closer look at
macrotides. Jim appreciate it all, and let me stop the share and we
will everybody can get a good look at two good looking older gentlemen. Yeah,
well that's it, especially that, right, yeah, the gentleman,
right, not the older part. Yeah, well, well let's not talk
about that. Yes, anything is like the economy and the market going down.
I don't want to talk about my physical presence. They used to call
that piling on in football, you know. Yeah, fifteen, I'm good,
all right, Jim, A month or two be well, sounds good
YouTube. Thanks for listening to carry Letz's Financial Survival Network, your solution to
today's trying times. For the latest, go to Financial Survivalnetwork dot com.
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