Month: January 2023

Amazon to Lay Off Over 18,000 Workers, the Most in Tech Wave The cuts focused on the company’s corporate staff exceed an earlier projection and represent about 5% of the company’s corporate workforce.

(…) and 1.2% of its overall tally of 1.5 million employees as of September. (…)

“Amazon has weathered uncertain and difficult economies in the past, and we will continue to do so,” said Mr. Jassy. He added that the majority of the cuts are on the retail and recruiting areas of Amazon. The blog post said the company would alert affected employees later this month. (…)

On Wednesday, Salesforce Inc. CRM 3.57%increase; green up pointing triangle said that it was laying off 10% of its workforce. Co-Chief Executive Marc Benioff said the business-software provider hired too many people as revenue surged earlier in the pandemic. “I take responsibility for that,” he said.

Job Openings Held Nearly Steady in November, Showing Still-Strong Labor Demand Available positions well exceed number of unemployed Americans seeking work

About 10.5 million jobs were available in November, essentially unchanged from October and well above prepandemic openings levels, the Labor Department said Wednesday. The report also showed layoffs stayed low and a larger share of workers quit their jobs in November than a month earlier, a sign Americans were still confident in their employment prospects. (…)

Workers have handed in more than four million resignations each month since the economy reopened in mid-2021, outpacing the average 3.5 million resignations in 2019 before the pandemic hit.

Quits rates have remained elevated in recent months in industries including leisure and hospitality. (…)

Note that private hires (red) have dropped 12.1% since February and are back to pre-pandemic levels.

Fed Minutes Show Officials Feared Markets’ Rallies Could Hinder Inflation Fight Policy makers worried they could have to raise rates more than projected if higher stock, bond prices spur economy

(…) “An unwarranted easing in financial conditions, especially if driven by a misperception by the public of” how the Fed will react to economic developments “would complicate the committee’s effort to restore price stability,” said minutes of the Fed’s Dec. 13-14 meeting. (…)

While inflation moderated in October and November, officials last month “stressed that it would take substantially more evidence of progress to be confident that inflation was on a sustained downward path,” the minutes said.

Officials indicated they saw the risk of inflation staying higher than many forecasters anticipate as “a key factor shaping the outlook for policy,” the minutes said. (…)

Some 17 of 19 officials penciled in plans to raise the rate to a level above 5% in 2023 and hold it there until some time in 2024. No officials projected rate cuts next year, the minutes said.

Minneapolis Fed President Neel Kashkari, in an essay published online Wednesday, said he expects the Fed to pause rate rises after reaching a peak rate of 5.4%.

“Wherever that end point is, we won’t immediately know if it is high enough to bring inflation back down to 2% in a reasonable period of time,” he said. “Any sign of slow progress that keeps inflation elevated for longer will warrant, in my view, taking the policy rate potentially much higher.” (…)

Last month, officials projected that year-over-year core inflation, which excludes volatile food and energy categories, would fall from 4.8% in the fourth quarter of 2022 to 3.5% in the same period of this year, according to their preferred gauge, the Commerce Department’s personal-consumption expenditures price index. That was up from their projection in September that it would fall from 4.5% to 3.1%. (…)

On Wednesday, investors saw a roughly 70% probability of a 0.25-point rate increase at the Fed’s coming meeting, and a 30% probability of a larger half-point bump, according to interest-rate futures market prices compiled by CME Group. (…)

More from the minutes (my emphasis): note that the first 5 dots reflect the staff’s views, followed by “participants’ views”.

• incoming data showed nascent signs of a moderation in inflationary pressures
• Both market- and survey-based measures continued to point to expectations for a moderation of inflation over the coming year.
• output was expected to move below the staff’s estimate of potential near the end of 2024—a year later than in the previous forecast—and to remain below potential in 2025. Likewise, the unemployment rate was expected to move above the staff’s estimate of its natural rate near the end of 2024 and remain above it in 2025.
• With the effects of supply–demand imbalances in goods markets expected to un-wind further and labor and product markets projected to become less tight, the staff continued to forecast that inflation would decline markedly over the next two years. Core goods inflation was anticipated to slow further, housing services inflation was expected to peak in 2023 and then move down, while core non-housing services inflation was forecast to move down as wage growth eased. In 2025, both total and core PCE price inflation were expected to be near 2 percent.
• With inflation still elevated, the staff continued to view the risks to the inflation projection as skewed to the upside. Moreover, the sluggish growth in real private domestic spending expected over the next year, a subdued global economic outlook, and persistently tight financial conditions were seen as tilting the risks to the downside around the baseline projection for real economic activity, and the staff still viewed the possibility of a recession sometime over the next year as a plausible alternative to the baseline.

So the FOMC’s staff observes that economic growth and inflation are slowing as desired by the Fed and that a recession in 2023 is plausible. Yet, they view the risk to inflation as skewed to the upside while the risk to growth is skewed to the downside.

• Participants remarked that, although real GDP appeared to have rebounded moderately in the second half of 2022 after declining somewhat in the first half, economic activity appeared likely to expand in 2023 at a pace well below its trend growth rate. With inflation remaining unacceptably high, participants expected that a sustained period of below-trend real GDP growth would be needed to bring aggregate supply and aggregate demand into better balance and thereby reduce inflationary pressures.
• They also observed that many households were increasingly using credit to finance spending. Overall, participants assessed that there was considerable uncertainty around the consumer spending outlook.
• Participants generally concluded that there remained a large imbalance between labor supply and labor demand, as indicated by the still-large number of job openings and elevated nominal wage growth. Participants commented that labor demand had remained strong to date despite the slowdown in economic growth, with a few remarking that some business contacts reported that they would be keen to retain workers even in the face of slowing demand for output because of their recent experiences of labor shortages and hiring challenges.
• some participants commented that labor supply appeared to be constrained by structural factors such as early retirements, reduced availability or increased cost of childcare, more costly transportation, and reduced immigration.
• a continued subdued expansion in aggregate demand would likely be needed to reduce remaining upward pressure on inflation.
• Participants noted that, in the latest inflation data, the pace of increase for prices of core services excluding shelter—which represents the largest component of core PCE price inflation—was high. They also remarked that this component of inflation has tended to be closely linked to nominal wage growth and therefore would likely remain persistently elevated if the labor market remained very tight. Consequently, while there were few signs of adverse wage-price dynamics at present, they assessed that bringing down this component of inflation to mandate-consistent levels would require some softening in the growth of labor demand to bring the labor market back into better balance.
• Participants generally noted that the uncertainty associated with their economic outlooks was high and that the risks to the inflation outlook remained tilted to the upside. Participants cited the possibility that price pressures could prove to be more persistent than anticipated, due to, for example, the labor market staying tight for longer than anticipated.
• A number of participants judged that the risks to the outlook for economic activity were weighted to the downside. They noted that sources of such risks included the potential for more persistent inflation inducing more restrictive policy responses, the prospect of unexpected negative shocks tipping the economy into a recession in an environment of subdued growth, and the possibility of households’ and businesses’ concerns about the outlook restraining their spending sufficiently to reduce aggregate output.
• monetary policy approached a stance that was sufficiently restrictive to achieve these goals.
  
• Participants generally observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2 percent, which was likely to take some time. In view of the persistent and unacceptably high level of inflation, several participants commented that historical experience cautioned against prematurely loosening monetary policy.
• Participants generally indicated that upside risks to the inflation outlook remained a key factor shaping the outlook for policy. A couple of participants noted that risks to the inflation outlook were becoming more balanced. Participants generally observed that maintaining a restrictive policy stance for a sustained period until inflation is clearly on a path toward 2 percent is appropriate from a risk-management perspective.

Participants noted that the economy is slowing “at a pace well below its trend growth rate” and that “there were few signs of adverse wage-price dynamics at present” even though labor demand was strong as companies opt to “retain workers” and due to ”structural factors”. They also noted that prices of “core services excluding shelter—which represents the largest component of core PCE price inflation—was high.

Which is true on a YoY basis (+7.3% in November) but MoM this category was down in October and unchanged in November; last 4 months +3.2% annualized.

The rest is about risks to their views and forecasts which, dare I say, have been quite wrong in the past several years…

• Fed’s George Says Rates Should Stay Above 5% Well Into 2024 The Fed raised its benchmark interest rate from nearly zero to 4.3% last year.

Corporate Insiders Aren’t Betting on a Market Rebound It is telling that executives and directors haven’t been scooping up their own stocks, even as market declines have lowered share prices.

Insider sentiment, measured by the trailing three-month average ratio of companies whose executives or directors have been buying stock versus selling, has dropped for six consecutive months, according to data from InsiderSentiment.com. That is the longest such decline in almost two years. (…)

Last year, the ratio of insider buying to selling inched up in June when stocks hit their summer lows, but it has been trending downward ever since. If insiders remain on the sidelines, that could portend more trouble ahead for the stock market, strategists say. (…)

Among the few sectors seeing increased insider buying activity are the small-cap healthcare, industrials and consumer-staples groups, according to InsiderSentiment.com’s analysis. Those segments are traditionally considered defensive sectors that can hold up in a recession. (…)

MANUFACTURING PMIs

China and the Eurozone PMIs were covered yesterday.

• US manufacturing operating conditions deteriorate at fastest rate since May 2020

Manufacturing firms in the US indicated a solid decline in the health of the sector during December, according to the latest PMI^TM data from S&P Global. The downturn stemmed from weak client demand which drove faster contractions in output and new orders. Muted domestic and foreign customer demand led to a slower rise in employment. Staffing numbers rose only fractionally as pressure on capacity waned and backlogs of work fell sharply. At the same time, firms scaled back their purchasing activity as excess stocks built earlier in the year were utilised to fulfil orders.

Meanwhile, lower prices for some inputs such as metals and fuel led to the slowest uptick in cost burdens since July 2020. In an effort to drive sales and pass on cost savings, firms hiked their selling prices at the softest pace for just over two years.

The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI™) posted 46.2 in December, down from 47.7 in November, but matched the earlier released ‘flash’ estimate. The latest data signalled the fastest decline in operating conditions since May 2020, and was among the sharpest since 2009.

Production levels at manufacturing firms contracted for the second month running at the end of the year. Output fell at a solid pace that was the quickest in just over two-and-a-half years, as client demand waned and new orders fell further.

Contributing to the quicker decline in output was a sharper downturn in new sales during December. The decrease in new orders was steep overall and among the fastest on record (since May 2007). Companies noted that weak client demand stemmed from economic uncertainty and inflationary pressures leading to lower purchasing power among customers.

Foreign client demand also contracted as dollar strength and global economic uncertainty weighed on sales made abroad. The fall in new export orders was solid, despite easing to the slowest in three months.

December data signalled a notable slowdown in rates of input cost and output charge inflation at manufacturers. The pace of increase in cost burdens was the softest since July 2020, as firms stated that lower prices for inputs such as fuel, metals and oil-related products dampened the overall upturn in operating expenses. Moreover, the rate of cost inflation was slower than the series average.

In an effort to drive sales, firms also registered a softer uptick in selling prices at the end of the year. Cost savings were largely passed through to customers, as output charges increased at the slowest pace in just over two years.

Nonetheless, the rate of inflation was quicker than the series trend and historically sharp. Lower input prices for some items were in part driven by reduced demand for materials. Purchasing activity dropped markedly and at the fastest pace since May 2020. Such a fall also led to broadly unchanged lead times for inputs, as supplier capacity constraints were less apparent than earlier in the year. Weak demand conditions contributed to firms opting to work through excess stocks built earlier in the year, with pre-production inventories falling sharply and stocks of finished goods broadly unchanged on the month.

Backlogs of work contracted at a steep pace in December amid lower new order inflows. Consequently, firms recorded only a slight increase in employment. The rate of job creation was the second-slowest in the current 29-month sequence of growth, as some firms filled long-held vacancies for skilled workers.

Finally, output expectations picked up to a three-month high, but remained historically subdued. Firms expressed concerns regarding the impact of inflation and weak demand on future output.

• In Canada where the Manufacturing PMI declined from 49.6 to 49.2:

Once again weakness was primarily centred on production and new orders. Both fell for a sixth month in succession, with output down to the greatest degree since August. Conversely, new orders declined at the weakest pace since July, through the rate of contraction was again solid. Firms widely commented that market demand was subdued as the corrosive effects on sales of inflation and uncertainty persisted.

While in Mexico, increasingly benefitting from the realignment of supply chains:

• Manufacturing conditions in Mexico improve further at year end

The Mexican manufacturing industry ended 2022 in a better shape than it started, with a further expansion in new orders underpinning a renewed upturn in production and input buying. Firms continued to add to their payrolls and maintained an upbeat view towards growth prospects. While input cost inflation remained high, the latest increase was the slowest in ten months. Concurrently, charges rose only marginally.

The S&P Global Mexico Manufacturing Purchasing Managers’ Index™ (PMI™) was above the neutral 50.0 mark for the fourth successive month in December. Moreover, rising from 50.6 in November to 51.3, the latest reading indicated the strongest improvement in the health of the sector since June.

New orders provided the main impetus to the headline figure, rising slightly but nevertheless at the fastest pace in close to four years. According to survey participants, sales were boosted by better underlying demand and clients bringing purchases forward in anticipation of higher selling prices next year.

International orders were broadly stable in December, after falling in each of the prior four months. Some firms reported higher sales to the US and restocking efforts among other external clients. However, several companies continued to see exports dampened by troubles in the automotive sector and challenging economic conditions in Europe.

• Global manufacturing downturn continues at end of 2022 as output and new orders fall further

The J.P.Morgan Global Manufacturing PMI™ fell to a 30-month low of 48.6 in December and remained below the neutral mark of 50.0 for the fourth straight month. Excluding the lows registered during the early months of the global pandemic, the current PMI reading is the lowest since the first half of 2009.

Only seven out of the 29 nations for which December data were available had a PMI reading in expansion territory – India, Russia, Mexico, Colombia, Indonesia, the Philippines and Australia. (…)

The trend in demand fared worse, with new orders falling at the quickest pace for over two-and-a-half years and new export business declining to one of the greatest extents since mid-2020. (…)

Natural Gas Plunges as Warm Weather Is Forecast Warm weather and ample supplies of natural-gas have pushed prices down more than 50% since the summer to about what they cost a year ago, before Russia’s invasion of Ukraine jolted energy markets.

Falling French inflation sparks hope of end to Europe’s price surge French inflation fell to 6.7% YoY in December, vs expectations of a slight rise following the 7.1% November rise.

Small Business Wage Growth Moderates as 2022 Closes

The rate of hourly wage growth for U.S. small businesses continued to decline to 4.95 percent year-over-year in December, according to the latest Paychex | IHS Markit Small Business Employment Watch. Additionally, the Small Business Jobs Index which measures national employment growth for businesses with fewer than 50 workers remained unchanged from the previous month at 99.38. [-1.5% YoY]

• One-month annualized hourly earnings growth was below four percent for the third time during the past four months.
• At 0.48 percent, one-month annualized weekly hours worked growth was positive for the fourth consecutive month.

Microsoft Workers to Form Company’s First Union in the U.S. Around 300 employees at the software company’s videogame unit ZeniMax have voted to organize with the Communications Workers of America.

(…) Just a handful of U.S.-based unions exist in the videogame industry. (…)

In June, Microsoft said it was open to working with any labor unions that want to organize within its workforce, making it an outlier in the tech industry. Last year Amazon.com Inc. AMZN 2.17%increase; green up pointing triangle contested workers’ efforts to unionize. Microsoft has said it would support workers at Activision Blizzard Inc. ATVI 0.43%increase; green up pointing triangle who organized last year should its $75 billion deal for the “Call of Duty” developer close. (…)

In addition to Amazon and Activision, other big companies where new groups of workers have recently voted to carry union cards include Apple Inc., Starbucks Corp., Trader Joe’s, Recreational Equipment Inc. and Chipotle Mexican Grill Inc.

For the 12-month period ended Sept. 30, more than 2,500 union representation petitions were filed with the National Labor Relations Board—a 53% increase from the prior year and the most since 2016.

• The year of salary transparency

New laws went into effect in California and Washington state on Sunday requiring employers to post salary ranges on job listings, Axios’ Emily Peck reports, following similar legislation in Colorado and New York. New York and California are major employment hubs, and have outsize influence when it comes to standard-setting for employers. Expect to see these rules catch on widely in the new year.

As of Dec. 4, 61% of NYC listings on Indeed.com included salary information, up from just 27% a month before the law change.

• More than 8 million workers will get a raise on New Year’s Day 23 states and D.C. will see minimum wage hikes ranging from $0.23 to $1.50 an hour

(…) In addition, 27 cities and counties will increase their minimum wages on January 1, adding to the number of workers likely to see increased earnings. (…)

Axios:

The biggest factor driving the increases was inflation — 13 states tie their minimum wage rate to the Consumer Price Index, as Wolters Kluwer notes in a new analysis. Other states had increases set by legislation or ballot initiatives.

Data: Economic Policy Institute; Note: Note: Hawaii and Florida increases took effect in October 2022; Map: Kavya Beheraj/Axios

• Chewy Looks to Open More Automated Fulfillment Centers in Drive to Control Costs

(…) In the coming 15 months, Chewy will open at least two more of these hubs—which rely on automated storage, retrieval and sorting systems—cutting the time employees spend finding, picking and packing products, according to Mario Marte, the chief financial officer. In some cases, Chewy has fully eliminated manual box-packing, which was previously done by workers, he said. (…

The automated centers, which need a third less people to ship the same volume, come at a time of surging labor costs and other inflationary pressures that are driving up costs for companies. The company, which had over 21,000 employees and 13 fulfillment centers in December, usually requires about 1,200 people for a manned distribution center.

Chewy said it expects a 50% improvement in labor productivity in its automated distribution centers, an overall 30% reduction in fixed and variable cost per unit, as well as a 25% increase in throughput capacity per square foot. (…)

    This slow mo accident is now into its final steps. It took a while, but we’re there now. Real estate is about 25% of China’s economy. There will be blood:

China Weighs Steps to Shore Up ‘Too-Big-to-Fail’ Developers

(…) China has more than 100 listed real estate developers with market values of at least $1 billion that have received unqualified auditing reviews for their financial results ending in 2022, according to data compiled by Bloomberg. Authorities are unlikely to disclose the names of the qualified developers, said the people. (…)

China’s home sales continued to slump in December, plunging 31% from a year earlier, underscoring the challenges of reversing the downturn amid rampant Covid outbreaks. (…)

• Lenders fail to sell Evergrande’s Hong Kong headquarters by tender

The tender sale of embattled China Evergrande Group’s (3333.HK) Hong Kong headquarters has lapsed again, two sources with knowledge said, because the offer prices and terms did not meet requirements.

Lenders to the office tower, China Evergrande Centre, valued at between HK$8 billion and HK$9 billion ($1.02 billion to $1.15 billion), appointed receiver in September to seize the asset, and put it on tender sale with a deadline for bid submission on Oct. 31.

Evergrande, which is saddled with more than $300 billion in liabilities and is at the centre of an unprecedented property sector crisis in China, had been trying to sell its 27-storey tower in Hong Kong’s Wan Chai district to raise cash before it was seized by creditors.

Chinese state-owned China Citic Bank Corp Ltd (601998.SS), whose Hong Kong subsidiary leads the lender group, did not immediately respond to request for comment.

    

Related? Probably.

• Battered by Covid, China Hits Pause on Giant Chip Spending Aimed at Rivaling US

Top officials are discussing ways to move away from costly subsidies that have so far borne little fruit and encouraged both graft and American sanctions, people familiar with the matter said. While some continue to push for incentives of as much as 1 trillion yuan ($145 billion), other policymakers have lost their taste for an investment-led approach that’s not yielded the results anticipated, the people said.

Instead, they’re seeking alternative ways to assist homegrown chipmakers, such as lowering the cost of semiconductor materials, the people said, asking not to be identified revealing sensitive negotiations. (…)

It underscores how the country’s economic ructions are taxing Beijing’s resources and hobbling its chip ambitions — one of President Xi Jinping’s top priorities. That could have ramifications for spending in other critical areas, from the environment to defense. (…)

China’s government could still decide to divert resources from other arenas to fund its chipmakers. (…)

But the discussions now underway are in stark contrast to Beijing’s prior efforts of pouring colossal resources into the chip industry, including setting up the National Integrated Circuit Industry Investment Fund in 2014. (…)

Xi’s administration grew frustrated that tens of billions of dollars funneled into the industry over the past decade haven’t produced breakthroughs that allow China to compete with the US on a more equal footing. In fact, SMIC and Yangtze, arguably the two most advanced Chinese semiconductor players, were crippled by US sanctions.

Senior Beijing officials ordered a flurry of anti-graft probes into top industry figures last summer, blaming corruption for wasted and inefficient investment. The Big Fund is likely to lose its stature as a result, the people said.

(…) officials are now asking local semiconductor material suppliers to cut prices to provide support to their domestic customers, the people said. (…)

John Authers: Gradually Then Suddenly, New Questions Confront China

(…) Like Hemingway’s notion of bankruptcy, the easing of Covid controls happened gradually then suddenly, from testing requirements to mobility constraints being lifted last month so quickly it was hard to keep up.

(…) the great feeling that the wolf is dead and we can all go out and enjoy ourselves might actually happen in China, even though such a moment, though much hoped for, never really happened in Europe or the Americas. (…)

The post-pandemic era isn’t here just yet. Brace for another month of anxiously monitoring infection data, this time from China, before any all-clear signal.

• China’s Great Leap Forward Into Herd Immunity (A personal account of a Bloomberg columnist)

(…) It was like going back to 2019, to pre-Covid China. Shanghai quickly turned into a party town. Restaurants were packed. Young people crowded into trendy cafes and wine bars. No one wore masks at yoga studios. I hosted a homecoming party for myself, spending a merry afternoon with a dozen childhood friends. It was liberating.

But omicron spread equally fast. On Dec. 15, only eight days after the reboot, my dad tested positive, probably catching Covid at a neighborhood pickup basketball game with friends. My mom fell ill two days later. (…)

My parents cautioned me not to be too inquisitive. They didn’t want people to know they were sick. Even though the virus could be everywhere, being infected was still considered a social taboo. (…)

Around the time my parents fell ill, busy streets started to thin out. By the third week of December, I was one of the few patrons at supermarkets and shopping malls. Passengers in subways looked unwell, many were coughing. Grocery delivery services took hours, because riders were sick as well. According to a set of big data analytics, this wave probably peaked around Dec. 21, two weeks after the reopening. That should be accurate, based on what I saw. (…)

By the last week of December, we knew of almost no family that had been spared. Omicron infected an estimated 37 million a day. According to one informal online survey, only about 23% of Shanghai residents were uninfected by the end of 2022. The actual figure is likely even lower, as rapid antigen tests were sold out and some people might be asymptomatic. (…)

How do the Chinese feel? I did not sense the anguish the country experienced during early days of the pandemic in early 2020, or the sweeping anger when people were locked down at home for months at a time earlier in 2022. Rather, most are resigned, prepared to get infected sooner or later. By now, the government’s Covid response has itself become a joke: No one trusted the official statistics or what the official medical experts said. More importantly, people just wanted to turn the page and move on. They are so sick of Covid Zero they’d rather be sick.

Many are also hopeful, planning for family road trips, overseas vacations and the simple luxury of entering the subway without having to scan any health code. On my way back to Hong Kong, as a test of China’s reopening resolve, I brought back a case of live Shanghai hairy crabs. These cherished delicacies flew through Shanghai and Hong Kong’s check points: No one tested whether these crabs carried the virus, as they would have done during the Covid Zero era. As one friend said, winter’s already here, spring shouldn’t be too far away.

• China’s Finance Minister Reiterates Plan for Fiscal Expansion

Liu said, according to an interview with the official Xinhua News Agency on Tuesday, that China’s recovery is still not solid. He cited risks including a contraction in demand and disruptions to supply.

The finance chief said the government needs to expand fiscal spending, use proceeds from special government bonds to boost investment in more areas, as well as increase transfer payments to less-developed areas.

Liu also vowed to prevent systemic risks from government debt. He said risks are controllable, with outstanding government debt at below 60% of GDP — a level that’s lower than in major economies. Liu said the country will push forward transforming local government financing-platform companies in a market-oriented way. (…)

• China’s Pledge to Lift Consumption Sparks Debate on Cash Handouts

The worst year ever triggers a historic amount of Panic

(…) While models vary, the Panic/Euphoria Model shows some of the worst sentiment in 30 years.

This model is based on the Citi Panic / Euphoria model published in Barron’s magazine. It does not reflect those published values; rather, our interpretation of the model inputs and construction differs modestly from the published figures. It is composed of the following primary inputs:

• NYSE short interest
• Margin debt
• Nasdaq vs. NYSE volume
• Investor’s Intelligence survey
• AAII survey
• Retail money market funds
• Put/call ratios
• Commodities prices
• Retail gasoline prices

(…) Thanks to plunging values in some of the inputs, the model exceeded -0.5 for one of the few times in its history.

Foreward returns were exceptional whenever Panic exceeded -0.45 for the first time in at least six months. This doesn’t include October 2002, when it barely missed the cutoff. That signal returned +25.1% over the next year.

A table of maximum gains and losses over each time frame shows that the 1998 and 2020 signals were quite early, and the S&P suffered double-digit losses almost immediately. These were the final meltdown phases of the declines, and losses were quickly reversed.

What the research tells us…

A miserable year for investors in nearly any financial asset, 2022 will go down as historic in many respects. Not least among them is a year in which traders faced losses after either chasing rallies or buying dips to an extent never seen before. There has been a tendency to see some relief in the first weeks after less-miserable years. It should help that sentiment has deteriorated, though whether it’s extreme enough isn’t conclusive. Several models have only declined to the lower end of neutral. The Panic/Euphoria Model has been quite accurate over the decades, and its current extreme suggests positive medium- to long-term returns after the horrid ones just passed.

Wealth Effect?

“In total, $25 trillion of global equity wealth vanished in 2022 and the world bond market lost nearly $10 trillion…that is equivalent to about one-third of world GDP” (D. Rosenberg)

• Rookie Traders Are Calling It Quits, and Their Families Are Thrilled Many who picked up investing during the pandemic are cooling on the hobby

(…) Individual investors are broadly staying invested in stocks, unlike previous downturns when many dumped their holdings. But lots of one-time day traders are finding they are now content to buy and hold rather than try to time their investments. Average daily trading volume is down markedly at major brokerage firms that cater to retail customers. (…)

Yeah! Sure! Nothing like crashing “investments” to suddenly morph into a long-term investor…

Banks should be more cautious on crypto contagion risks, U.S. regulators warn

“Oh! BTW, we did have concerns even tough we never said so… You have now been warned.”

(…) In their first joint statement on crypto, the Federal Reserve, Federal Deposit Insurance Corp (FDIC) and the Office of the Comptroller of the Currency (OCC) said they had concerns with the safety and soundness of bank business models that are highly concentrated in crypto. (…)

Banks issuing or holding crypto tokens stored on public, decentralized networks are “highly likely” to be inconsistent with safe and sound banking practices, the regulators added, potentially dealing a blow to several lenders’ ongoing efforts to provide crypto services to customers.

The statement comes after months of hesitancy from regulators to issue uniform guidance or rules on cryptocurrency, even as banks have expressed a desire for more clarity. (…)