The yield curve is often used as a proxy for bank profit margins. The logic is that banks tend to borrow short-term and lend for longer terms. Therefore the difference between a bank’s short-term borrowing rate and long-term lending rates approximates its profit margins. As we have discussed numerous times, the yield curve has inverted […]
0DTE options are speculative option trades that expire within a day of expiration. Furthermore, and very topical, the popularity of 0DTE options has accelerated immensely, accounting for over 50% of all options volume. Before the pre-pandemic era, 0DTE trading accounted for 5-10% of all options volume. Thus far, the interest is mainly for calls, i.e., […]
Per a recent Yahoo article: “The average American renter is now paying more than 30 percent of their income on housing, as wages have failed to keep up with rent hikes and affordable units remain scarce, a new report shows.” The government defines those with a rent burden as paying more than 30% of their […]
The graph below shows that a sub-45 reading on the ISM manufacturing survey index has accompanied nine of the last ten recessions. The only outlier, and by a very slim margin, was 2020. The never-seen-before economic shutdown and the massive stimulus made that recession non-comparable to more typical economic slowdowns. The latest ISM survey rose […]
Wednesday’s Home Purchase Index fell sharply to the lowest level since 1995. The index compiled by the Mortgage Bankers Association (MBA) computes the number of home purchases based on a sample of approximately 75% activity. The combination of elevated home prices and mortgage rates approaching 7% keeps individuals from buying houses or even seeking out […]
Consumer staple companies typically include companies that sell essential goods. As such, earnings growth tends to be limited but reliable, even during a recession. Proctor Gamble, the maker of many household items we use daily, is the most significant contributor to the sector. Conversely, discretionary stocks sell non-essential goods. Amazon and Tesla make up a […]
Housing comprises almost 40% of CPI, of which rents account for about three-quarters of that amount. Therefore, to help forecast CPI and, notably, consider what the Fed may or may not do, let’s closely examine rent costs, particularly apartment rents. To do so, the graph below shows that owners’ equivalent rent (OER), mainly comprised of […]
German economic growth in the fourth quarter was revised lower to negative 0.4%. More concerning, German GDP is now back to pre-covid levels. Weak household consumption and capital formation were responsible for the decline. Most U.S. investors do not pay attention to German economic data or data from other major economic powers, despite the fact […]
Tuesday’s Commentary led with a discussion of equity valuations and margins. Both are well above average, portending an elevated level of risk for the equity markets. As shown below, corporate bonds also exhibit no worries about a pending recession. The graph compares the yield difference between corporate bonds and U.S. Treasuries. The difference measures the […]