Month: October 2022

CPI for all items rises 0.4% in September as shelter and food increase, gasoline falls

(…) The index for all items less food and energy rose 0.6 percent in September, as it did in August. The indexes for shelter, medical care, motor vehicle insurance, new vehicles, household furnishings and
operations, and education were among those that increased over the month. There were some indexes that declined in September, including those for used cars and trucks, apparel, and communication.

The all items index increased 8.2 percent for the 12 months ending September, a slightly smaller figure than the 8.3-percent increase for the period ending August. The all items less food and energy index rose
6.6 percent over the last 12 months.

U.S. Producer Prices Show Unexpected Strength in September

The Producer Price Index for Final Demand increased 0.4% during September after falling 0.2% in August, revised from -0.1%. The 0.4% July decline was unrevised. During the last 12 months, the PPI increase moderated to 8.5% from an 11.7% March peak. A 0.2% September PPI gain had been expected in the Action Economics Forecast Survey.

The Producer Price Index less food, energy & trade services increased 0.4% (5.6% y/y) following unrevised gains of 0.2% in August and 0.1% in July. The PPI excluding just food & energy rose 0.3% last month. A 0.3% increase had been expected.

The rise in the September PPI was paced by a 1.2% increase (11.9% y/y) in food prices after they eased 0.1% in August. (…)

Energy prices rose 0.7% (24.2% y/y), following two straight months of sharp decline. (…)

The PPI for goods less food & energy held steady (7.5% y/y) in September following two straight months of 0.2% increase. These recent readings are the slowest since late in 2020. (…) Prices for private capital equipment improved 0.3% in September (8.8% y/y) after rising 0.4% in August. (…)

Services prices increased 0.4% (6.8% y/y) in September after a 0.3% August gain. Trade services prices improved 0.1% (12.7% y/y) after rising 0.5% in August. Services prices less trade, transportation & warehousing strengthened 0.6% (2.7% y/y) after rising 0.4% in August. (…)

Atlanta Fed’s Business Inflation Expectations Unchanged at 3.3 Percent

STRANGE EMPLOYMENT STATS

As seen last Friday, the U.S. economy added 263k jobs in September. Strangely, 355k new jobs were in the 55+ age group (341k men) after having lost a cumulative 98k between March and August. What prompted all these 55+ men to suddenly look for a job in September?

Some suggest that many “have to come back to work because the bear market has undermined their early-retirement calculations”. The American Staffing Association found that “More than three in 10 U.S. retirees say they would be motivated to rejoin the workforce if inflation continued to eat into their savings”.

It could also be statistical noise. The monthly chart above shows how erratic employment in this age group has been since March. The quarterly chart below is much quieter and suggests little job growth in this group over the past 6 months.

Employment below 55yrs actually fell 92k in September, the first down month since the pandemic started. Since March, the average monthly gain was 399k. Maybe September was also a statistical quirk for everybody…

Steelworkers Union Approves Contract With Cleveland-Cliffs United Steelworkers wants U.S. Steel to match wage increases provided in Cleveland-Cliffs’ contract.

(…) Cleveland-Cliffs and United Steelworkers agreed to a 20% increase in hourly wages over the life of the newly ratified contract [4 years], but the union and Pittsburgh-based U.S. Steel remain at odds over a similar wage increase that the union is seeking. (…)

U.S. Steel said it is offering wage increases of about 14%, with two years of 3% raises and two years of 4% increases, though it expects workers to receive additional compensation from profit-sharing bonuses. U.S. Steel said it expects to pay steelworkers about $20 an hour in profit-sharing for the time they worked during the quarter ended Sept. 30. (…)

“We need guaranteed wages,” said Don Furko, president of a union local for workers at U.S. Steel’s Mon Valley Works. “We’ve got members buying houses and buying cars and they can’t have incomes based on profit-sharing.” (…)

Fed Minutes Show Concerns of More Persistent High Inflation Officials last month revised up their expectations of future interest rate increases and said labor markets would need to weaken

(…) “Many participants emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action,” the minutes said. (…)

Nearly all the policy makers who participated in last month’s gathering penciled in large interest-rate rises at each of their coming two meetings this year. The projections also suggested they would dial down the size of their rate increases by December and potentially end them by February or March. (…)

In a speech Monday, Fed Vice Chairwoman Lael Brainard cautioned against raising rates too rapidly to allow officials time to study how higher borrowing costs are coursing through the economy.

While her remarks didn’t directly push back against rate increases that are already anticipated by investors, they represented the most comprehensive effort by a senior Fed official this year to build the case against an even steeper path for further rate rises. (…)

The minutes showed officials’ growing concern about how long it has taken for supply-chain constraints to reduce prices for goods at the same time that tight labor markets could keep wages and prices elevated. (…)

The minutes also reveal that “most” participants want to see a broader impact:

Most participants remarked that, although some interest-sensitive categories of spending—such as housing and business fixed investment—had already started to respond to the tightening of financial conditions, a sizable portion of economic activity had yet to display much response. They noted also that inflation had not yet responded appreciably to policy tightening and that a significant reduction in inflation would likely lag that of aggregate demand.

Maybe most participants had seen this Axios note:

PepsiCo reported today that prices drove a 17% increase in net revenue growth, while organic volumes fell by only 1%. “The truth is that our brands … are being stretched to higher price points and consumers are following us,” PepsiCo CEO Ramon Laguarta said on a conference call.

That said, Conagra Brands reported last week that sales rose 9.7%, including +14.3% due to prices and a 4.6% decline in volume.

Meanwhile, Bloomberg tells us that “In the latest tit for tat, the US may ban Russian aluminum over its military escalation in Ukraine, a commodity that had been long shielded by previous sanctions. Three options are on the table: An outright ban, brutally punitive tariffs amounting to an effective ban, or sanctions on the company that produces Russia’s aluminum, people familiar said.”

Goldman Sachs:

We would view options (1) and (2) as limited in market impact given that Russia’s aluminium only represents 4% of US aluminium imports so far this year, which in turn represents just 1% of total US demand. However, if policy options (1) and (2) were followed by either/both the EU following suit as well as an LME ban, then that would still generate a significant tightening to the Western aluminium market.

If that sequence of events transpired, then we think the price upside seen since this latest announcement would prove to be relatively sticky though lacking in catalyst for a further significant leg higher.

However, if option (3) was followed, we believe that the upward pressure on price would be material given the dislocation it would generate in the market based on Russia’s significant supply role to the ex-China market (~15% total supply, 3.5Mty) and China’s current limited import capacity for primary metal imports (150kty ytd). In short, we believe this would generate an outsized supply shock to the Western market that could be solvable in the short run by higher prices.

Finally, the FOMC minutes also included this: “Many participants indicated that once the policy rate had reached a sufficiently restrictive level, it likely would be appropriate to maintain that level for some time until there was compelling evidence that inflation was on course to return to the 2% objective.”

In effect, the policy path is laid out more clearly:

• boost rates to a “sufficiently restrictive” level, (~4.5%), possibly by January 2023,
• pause until March-April to assess conditions,
• if there is “compelling evidence”, cut.

The debate will be on defining “compelling evidence”… The FOMC has never been very sharp on its inflation calls, has it?

The recession call is becoming more significant as this Bloomberg chart illustrates. The dispersion of potential returns is about to widen considerably. Profits always decline in a recession.

Source: Simon White, Bloomberg Markets Live Blog (via The Daily Shot)

Then the question becomes, how bad and how long?

It must be just a coincidence that the 2022 Fat Bear contest winner, “one of the biggest brown bears on Earth”, had also won the 2020 contest.

Lian Law/NPS photo

Evergrande’s Debt-Crisis Fallout: Losses, Layoffs and More Defaults The property titan’s financial troubles set off a chain reaction across China, causing businesses and individuals alike to suffer.

• China’s Bursting Housing Bubble Will Rock the Economy for Years

(…) An analysis by the International Monetary Fund this week showed that 45% of developers might not be able to cover their debt obligations with earnings, and 20% of them could become insolvent if their inventory value is marked to current property prices. (…)

While sales in big cities like Beijing, Shanghai, and Shenzhen saw a slight uptick in the first weeks of September, the overall market by dollar value at the 100 biggest developers was still down 25% last month from a year earlier. (…)

Housing supply needs to drop by about 25% to align with projected fundamental demand in 2031, according to Chang Shu, chief Asia economist at Bloomberg Economics. Fundamental demand strips out speculative buyers. (…)

Source: NBS, United Nations World Population Prospects, Bloomberg Economics

Bloomberg Economics estimates about 2.8 billion square meters of real estate is currently sitting empty — an area 47 times the size of Manhattan. (…)

“China as a country will get through the property downturn — it always does,” said Anne Stevenson-Yang, co-founder of research firm J. Capital Research Ltd., which is bearish on Chinese real estate. “But people will take losses and banks are going to be asked to take a haircut.”

“China as a country will get through the property downturn — it always does,” said Anne Stevenson-Yang, co-founder of research firm J. Capital Research Ltd., which is bearish on Chinese real estate. “But people will take losses and banks are going to be asked to take a haircut.”

• Chinese Local Governments Buying Houses to Aid Property Sector Some local governments in China are buying homes in bulk from developers or encouraging state-owned entities to do so in their latest efforts to prop up the real-estate market, the Securities Times reported Thursday.

(…) It’s unknown whether the purchases are endorsed by the central government, but governments at all levels are offering more help to try and arrest the slumping real-estate sector after mortgage-rate cuts and a flurry of relaxation measures failed to stimulate demand. China’s latest property policy package announced before the week-long holiday in October hasn’t ignited a sales turnaround, with residential transactions for the traditionally sales-friendly week plunging 38% from a year earlier in 20 major cities, according to China Index Holdings Ltd. (…)

In a sign of that weak outlook, domestic sales of excavators dropped almost 25% in September from a year earlier, according to media reports Thursday, the 18th straight month of declines.

Samsung Gets One-Year Exemption From New U.S. Chip Restrictions on China The semiconductor giant received a one-year exemption from new U.S. restrictions that block exports of advanced chips and related equipment to China.

The U.S. Department of Commerce granted Samsung authorization to continue receiving chip-making equipment and other items needed to maintain its memory-chip production in China, the people said. The South Korean firm operates chip facilities in two Chinese cities. (…)

The restrictions appeared to offer at least one concession to some of the allies, as the Commerce Department would review applications for certain exports to U.S. and U.S.-allied facilities operating in China on a case-by-case basis. Chinese-owned facilities, in contrast, would face a presumption of denial. (…)

Samsung dominates production of two major types of memory chips—DRAM and NAND flash. The South Korean tech giant operates a NAND flash memory-chip plant in Xi’an and a chip-packaging facility in Suzhou.

As of the second quarter of this year, Samsung accounted for 43.5% of global revenue for DRAM and roughly one-third of global revenue for NAND flash, according to TrendForce, a Taiwan-based tech-market researcher. It is the No. 1 player in both memory markets.

• TSMC Posts Record Profit, Gains Exemption From U.S. Chip Curbs on China

• U.S. Suppliers Leave Chinese Chip Maker Tool makers are pulling out staff and pausing work as they assess the impact of Commerce Department restrictions on semiconductor exports to China

State-owned Yangtze Memory Technologies Co. is facing a freeze in support from key suppliers including KLA Corp. KLAC -2.17%▼ and Lam Research Corp., LRCX -0.94%▼ the people said. (…)

The U.S. suppliers have paused support of already installed equipment at YMTC in recent days and temporarily halted installation of new tools, the people said. The suppliers are also temporarily pulling out their staff based at YMTC, the people said.

Chip-making equipment vendor Applied Materials Inc. on Wednesday slashed its sales projection for the current quarter by about $400 million, citing the restrictions. The company, one of the largest producers of chip equipment in the world, counts China’s leading chip-makers among its many customers. It generated more than 27% of its sales from China in the second quarter, or nearly $1.8 billion. A large portion of those sales go to multinational firms that operate in China and are expected to be exempt from controls targeting Chinese chip-makers.

Applied said it was pursuing export licenses and authorizations, but added that it expected a similar impact to sales in the first quarter of next year. (…)

The U.S. export control measures, which restrict companies sending chips and chip-making equipment to China, are some of the broadest the U.S. has enacted against China’s semiconductor industry. They veer from previous actions that often targeted individual companies and a narrower subset of technology. (…)

“I believe the U.S. government intends to force the more advanced production facilities of Chinese companies like SMIC and YMTC to shut down entirely,” Gregory Allen, a senior fellow at the Center for Strategic and International Studies, said. “However, the more advanced Chinese production facilities of South Korean and other internationally-owned companies will merely be prevented from expanding beyond their current production footprint.” (…)

American companies dominate the global chip-production equipment supply chain, with a combined share of 41%, while China’s is 5% or lower, according to a Boston Consulting Group analysis. (…)

• TSMC Cuts Capital Spending 10% in a Warning for Tech Sector

TSMC said it expects to spend about $36 billion in 2022 on capital equipment, down from at least $40 billion previously. The sharp reduction in expenditure — an important indicator of its own expectations for growth across sectors from smartphones to servers and electric vehicles — suggest the Taiwanese firm is bracing for a broader-than-anticipated downturn. (…)

“The company’s 10% cut in full-year capital spending target implies prolonged weakness in smartphone and PC chip demand,” Bloomberg Intelligence analyst Charles Shum said. (…)

The restrictions make it more difficult for chipmakers to move their inventories and hit TSMC more severely than previous actions by the US, Fubon Research analysts led by Sherman Shang said in a note this week. The curbs mean about 5%-8% of TSMC’s total revenue will likely be restricted, they said. Bloomberg Intelligence estimates TSMC could lose more than 10% of its annual sales because of the restrictions.

It’s “too early to provide a specific number, however the inventory correction will likely see its biggest impact sometime in the first half of 2023,” Chief Executive Officer C. C. Wei told analysts on a conference call. The impact of the US curbs will be manageable, he said. (…)

Recession Watch: here we go again

(…) The fan charts below show Fathom’s outlook on the likely course for GDP across the major advanced economies plus China. For each, a recession is in our central case: either right away (the August GDP print for the UK suggests the recession here may already have begun), or within the next year or so. In China’s case, there is a large swag of downside risk visible in this chart, which arises thanks to the pronounced risk of a banking crisis there.

The gold dots on these charts represent the mean forecast from the Reuters poll of economists. Fathom’s central forecast is below the consensus in all cases: in fact, the consensus is often above the range of our 80% confidence intervals captured in the shaded bands of these charts. (…)

• Could China suffer a banking crisis soon?

China has a housing problem. In some urban areas, house price to household income ratios are now as high as 18:1. In contrast, the house price-to-income ratio across the US is around 3:1. The answer to China’s housing problem should be simple (build more houses) — and yet it is not.

Bizarrely, while there are plenty of construction projects in China, not enough of them are being completed. Indeed, Fathom estimates that the stock of housing currently under construction or paused (including those demolished) would ensure sufficient accommodation to house more than 200 million people. This is roughly equivalent to the population of Brazil.

Why not finish them and declare them vacant and ready for sale? The answer is simple — if they released these additional homes on to the market, the boost to supply would crash house prices and place significant stress upon developers, mortgage holders and banks.

Policymakers are aware of the issues in the housing market but, fearing the impact on the wider economy, have traditionally been reluctant to address them. That low key stance on the housing market appeared to change in the run-up to Xi Jinping’s expected third term as President. Regulations such as the ‘three red lines’, and Beijing’s decision to let the troubled property developer Evergrande fail, reflect this new, tougher stance.

Even so, the plan is not to burst the housing bubble (which would undermine the government’s implicit guarantee, both for that sector and the wider economy), but simply to slow the rate at which it continues to expand. Managing this successfully was always going to be a difficult juggling act.

Given the recent steep decline in new construction projects, with housing starts down 37% year-to-date, it is easy to draw comparisons between the current situation and the onset of previous housing market crashes in the US and Spain.

Where China stands apart from those previous crises is in terms of house prices, which remain broadly flat. This has partly been achieved by reducing the number of residential construction projects that reach completion (they are down more than 20% in the year to date). Whether this will be sufficient to prevent prices falling more dramatically remains to be seen.

The big question now is whether the issues in China’s housing sector will spill over into other sectors of the economy, especially banking. So far, recent debt defaults among the nation’s largest companies have remained highly concentrated in the construction sector — even more so than normal — with little suggestion that trouble may spread. But that does not mean that contagion can be ruled out. Indeed, consumer confidence and spending plans have collapsed at a remarkable rate, as elevated house prices mean households are highly exposed to adverse outcomes in the real estate sector.

So, what are the odds that these troubles will spill over into the banking sector? Banking FVI scores are elevated globally, and the picture in China is no different — the odds of a crisis are at their highest since before 2010. Indeed, given the malign international backdrop, the attempted clampdown on the housing sector looks somewhat akin to poking a bear in the eye with a pointy stick. As a result, Fathom’s latest quarterly outlook assumes a 15% likelihood of a banking crisis erupting in China. (…)

Consequently, the impact of a banking crisis in China is likely to be very large — Fathom estimates that the typical loss in output following a banking crisis reaches as much as 10% after three years. This is responsible for the very pronounced downside skew to Fathom’s fan chart for Chinese GDP.

• Global Economic Outlook 2023: Global Recession Fears Resurface, Risks Mount

Regarding the short-run outlook, the global economy is weakening rapidly, with the US and Europe forecast to experience recessions in the very near term and China to suffer significantly weaker growth in 2023. A global recession may be avoided, but the world will probably experience notably below-trend growth of 2.1 percent in 2023.

Beyond 2023, the global economy will likely return to its slowing trend growth rate (2.6 percent) relative to the prepandemic pace (3.3 percent). The aging workforce across many mature and large emerging market economies will have a material dampening effect on the growth of labor and capital. As these quantitative drivers of growth slow, productivity increases will become more important drivers of output and revenue growth. (The Conference Board)

• President Joe Biden played down recession risks in a CNN interview on Tuesday. He said that if it does happen, he believed it would be “very slight.”

U.S. Small Business Index Improves During September

The NFIB Small Business Optimism Index rose to 92.1 during September from 91.8 in August, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. This was the third consecutive monthly increase and left the reading at the highest level since May. The NFIB Uncertainty Index fell to 72 in September from 74 in August.

Five of the index’s ten components rose in September. The reading of planned employment rose to 23%, its highest level in three months. Though it remained negative, the index of expected real sales in six months rose to -10% last month from -19% in August. It stood at the highest level since February of this year . The index of expected credit conditions also remained below zero at -6%, but it was the least negative reading in three months. Those reporting that now was a good time to expand improved minimally to 6%, the highest level in four months. The earnings trend measure edged higher to -31%, but remained near the expansion low.

Working lower, the percent of firms expecting the economy to improve fell to -44% and reversed a small piece of its August gain. The percent of firms with positions they were unable to fill right now weakened to 46% from 49% in August. It the lowest since June of last year. Firms expecting to make capital outlays in the next three to six months eased minimally to 24%. The reading for those reporting that inventories were too low fell to one from three, and those planning to add to inventories weakened to zero from four.

On the pricing front, the percentage of firms raising prices fell to 51% from 53%, the least percentage in twelve months and down from a 66% March high. The percentage of firms planning to raise prices eased to 31%, the fewest since January 2021 and down from a November 2021 high of 54%.

As for labor costs, the percentage of firms raising compensation during the last three months eased to 45% from 46% and stood at the lowest level since February. The percentage of firms planning to raise compensation declined to 23% in September from 26%. It remained down from highs of 32% in each month of Q4’21.

The single most important problem facing small business was inflation, reported 30% of NFIB members, up from nearly zero at the beginning of last year. The quality of labor was reported as the most important problem by 22% of respondents, down from a November 2021 high of 29%. The cost of labor was reported as the most important problem by a steady 10% of firms, up from eight percent in June.

Roughly 24 million small businesses exist in the U.S. and they create 80% of all new jobs. The typical NFIB member employs 10 people and reports gross sales of about $500,000 a year.

  

• Median household spending growth expectations fell sharply to 6.0% from 7.8% in August, its steepest one month decline since the series’ inception in June 2013, and its lowest reading since January of this year. The decline was broad based across demographic groups. (NY Fed’s Survey of Consumer Expectations)

Dodge Momentum Index Rises In September

The Dodge Momentum Index (DMI), issued by Dodge Construction Network, improved 5.7% (2000=100) in September to 183.2 from the revised August reading of 173.4. The DMI is a monthly measure of the initial report for nonresidential building projects in planning, shown to lead construction spending for nonresidential buildings by a full year. In September, the commercial component of the Momentum Index rose 2.9%, while the institutional component also increased, seeing a double-digit gain of 11.7%.

After a solid performance in September, the DMI landed less than 5% below an all-time high. On the commercial side, the figure was primarily bolstered by an influx of data centers entering the planning queue.  The institutional component saw a notable increase in research and development laboratory projects in the education sector, with solid contributions from healthcare and recreation projects entering the planning process. On a year-over-year basis, the DMI was 26% higher than September in 2021; the commercial component was up 25%, and institutional planning was 28% higher.

A total of 39 projects with a value of $100 million or more entered planning in September. The leading commercial projects included a $500 million data center campus on the Tech Park at Brambleton site in Ashburn, VA, and the $500 million construction of two warehousing buildings at the Matrix Global Logistics Park’s West Campus in Bloomfield, NY. The leading institutional projects were the $311 million Shoshone-Bannock Casino in Mountain Home, ID, and a $300 million laboratory project at 120 Middlesex Ave in Somerville, MA.

“The gain in the Momentum Index and its components in September reassures us that despite whispers of recession, owners and developers are still looking to move forward with projects to meet demand,” stated David Reaves, senior economist for Dodge Construction Network. “Certain subsectors have shown resilience since the pandemic’s onset, such as data center projects, and continue to stream into the planning pipeline. However, looming challenges still remain for the sector, including supply shortages and the rising cost of materials that could chip away at the flow of new projects if inflation is not tempered.”

Apartment demand cratering

The rental market is chilling out after an explosive run last year, Emily writes. Soaring rent prices have been a major driver of inflation. This could be a sign that those price pressures are starting to ease — but it could take time before the consumer price index numbers reflect the shift.

Demand for new leases took a surprising tumble in the third quarter, according to data from RealPage. It’s the first time in 30 years that the firm has seen negative demand for new apartments in Q3, traditionally a strong season.

“Negative demand” means more folks moved out of apartments than moved in.

The slowdown isn’t necessarily about affordability but is more to do with how folks are feeling about the economy, according to RealPage’s analysis.

Negative demand is a sign of a slowdown in new household formation — people holding off on moving out of their current situation, in other words. (Axios)

Data: RealPage Market Analysis; Note: Negative demand means more renters moved out than moved in; Chart: Axios Visuals

Europe’s Car Output to Plummet by Millions, S&P Predicts

Parts shortages and supply bottlenecks are likely to weigh most heavily on automakers from November through spring of 2023, particularly if energy is cut during the colder winter months, S&P Global Mobility said in a report released Tuesday.   (…) “Factories may have to halt “shipments of completed vehicles due to shortages of single components.” (…)

S&P had forecast that Europe-based factories would produce 4 million to 4.5 million vehicles per quarter. If energy restrictions are put in place, auto output could drop to as low as 2.8 million per quarter. That would be 4.8 million to 6.8 million units of lost production on an annual basis. (…)

Factories in Spain, Italy and Belgium face the biggest risks, with all three countries receiving the lowest score on energy self-sufficiency.

Intel Plans Thousands of Job Cuts in Face of PC Slowdown Chipmaker may announce move around time of its earnings report on Oct. 27

• Mortgage lenders continue layoffs as demand plummets. (Bloomberg)
• Amazon Workers at California Warehouse Seek to Join Upstart Union

(…) The ALU [Amazon Labor Union] in April won an election at a warehouse employing about 8,000 workers in New York City’s Staten Island  — an outcome Amazon is seeking to overturn. The group lost a second vote at a much smaller Staten Island facility the next month, but has since sought to back Amazon workers beyond New York City.

An ALU-affiliated group of workers at a warehouse in Schodack, New York, near Albany, begins voting on whether to join the union on Wednesday. Vote counting at the facility, called ALB1, is set to begin Oct. 18.

The Retail, Wholesale and Department Store Union, meanwhile, is seeking to represent workers at an Amazon warehouse in Birmingham, Alabama. Federal officials determined that Amazon’s conduct during a vote there last year made a fair election impossible, and a rerun election remains too close to call.

31% of Retirees Say Continued Inflation Would Motivate Them to Rejoin the Workforce Overall, 14% of current retirees stated they are open to or actively looking for work. 41% of retirees would look for a job if they could have a flexible work schedule, and 35% would do so if they could work remote full-time.

SENTIMENT WATCH

Bridgewater’s Dalio warns of a ‘perfect storm’ for economy

(…) Domestic tension in the U.S. population caused by “irreconcilable differences” and a yawning wealth gap, combined with international conflicts, are contributing to the perfect storm, he said.

“The Fed and the government together gave enormous amounts of debt and credit and created a lurch forward. A giant lurch forward and created a bubble. Now they’re putting on the brakes. So now we’re going to create a giant lurch backward,” Dalio said at the Greenwich Economic Forum. (…)

Interest rates above 4.5% could tip the economy into a downturn, he said. “I don’t know whether that’s 4.5% or the economy could not take an interest rate much higher than that before it’s going to be negative.”

Rich Millennials Have Lost Confidence in Stock Market, BofA Says A new survey by the bank finds that the young and wealthy prefer assets like cryptocurrency, real estate and private equity.

Individuals ages 21 to 42 with at least $3 million in assets have only a quarter of their portfolio in equities, compared with more than half for those who are older, according to the study, which was released Tuesday. (…)

The Bank of America study, which surveyed 1,052 people with investable assets of more than $3 million, found that younger people allocated 15% of their portfolio to digital currencies, compared with just 2% for older respondents. (…)

Baby Boomers will transfer an estimated $84 trillion of their wealth to Generation X and millennials between now and 2045, according to market research by Cerulli Associates. The bulk of that money is projected to go to heirs, while about 15% will be donated to philanthropy. (…)

INSIDERS STILL CAUTIOUS

While investors appear to have started the fourth quarter convincing themselves that the Federal Reserve is near the end of its tightening cycle, insiders remain cautious. The INK US Market Indicator has only managed to edge up to 44% which is a few points higher than last week. At 44%, there are slightly more than four stocks with key insider buying for every ten with key insider selling. If September 30th represents a market low, insiders are not confirming it, at least not yet. (INK Research)