Dissident Thoughts

Fiscal Hangover BofA this morning lamenting that the tailwind from fiscal impulse (a product of wild deficit spending) is beginning to fade, showing up in sluggish Q1 growth across the board (something we noticed a couple of weeks ago, albeit it is more obvious). "In other words, the fiscal impulse would shift from a significant contributor to growth last year, to more of a neutral factor going forward." To add to the gloom, after unexpectedly slumping last month to 37.9, the Chicago PMI cratered even more unexpectedly in May, when it defied hopes of a rebound to 41.5, and instead tumbled even more to a cycle low of 35.4 which was not only below the lowest estimate, but was staggeringly low overall. To get a sense of just how low, the last two times it printed here was during the peak of the covid and global financial crises. Below here, the index was at for the start of six of the seven recessions that have occurred since its inception. 🔗 BofA

"Sell the First Rate Cut" Michael Hartnett, the analyst at BofA who correctly anticipated that the last rate hike would be sold (in defiance of a solid consensus at the time; indeed it marked the top over the next six months), now suggests doing the same thing when the Fed pivots: "H2 reversal of short bond trade; buy any-dip in bond prices (yields come down) & for stocks 'sell the first cut' still the call." 📝 Selling the first rate cut and buying bonds is positioning for recession as growth slows. In anticipation of recession, bond yields and interest rates tend to trend lower ("safe haven" bonds tend to be bought and the Fed cuts), and growth stocks tend to be sold. "Equity breadth worst since Mar'09 (Chart 3) as AI crowds out Wall St & Main St dollars..." 📝 Equity breadth refers to the number of stocks participating in a market advance or decline. The outperformance of Magnificent 7 has carried the entire market but also deteriorated breadth as the advance is mostly due to a handful of stocks. "...2020s just one pain trade after another… next is value outperforming growth stocks + breadth reversing as economic growth slows… catalyst is a benign <0.2% PCE (a VERY low inflation print) unable to support wobbly tech." 🔗 BofA (Hartnett)

PCE 0.3% MoM, Exp. 0.3% PCE Core 0.2%, Exp. 0.2% PCE 2.7% YoY, Exp. 2.7% PCE Core 2.8%, Exp. 2.8%

Elections odds post-verdict "Prior to the verdict, Trump was a -150 favorite, meaning oddsmakers gave him a roughly 53% chance of winning the election. After being found guilty of falsifying business records, Trump's odds have fallen to -112, which translates to a 48.28% to win the election." "Meanwhile, President Joe Biden's odds to emerge victorious in November moved from +160 (a 34% chance) to +145 (a 37.3% chance). A $100 bet on his odds would earn $145 in profits." — ActionNetwork PredictIt showing a more dramatic narrowing of odds.

It's difficult to ignore the circus, but earlier today Politico reported what is probably the most noteworthy news item of the last few weeks: https://t.me/CIG_telegram/48093

*DONALD TRUMP FOUND GUILTY AT NEW YORK HUSH MONEY TRIAL

@Dissident_Thoughts_chat and all other DMs alleging to be this channel are fake/scams. That we would message subscribers directly about a total collapse of the payment system and suggest the only solution comes from "purchasing the recommended ISO coins" (crypto) should set off some alarm bells... 🚨

NEW - U.S. economic juggernaut slows down: Revision shows it grew at a slower pace in the first quarter than initially reported. https://www.disclose.tv/id/ncw8jdpq7a/ @disclosetv

Risks Shifting #commentary The biggest risk coming into the year was a re-acceleration in inflation off Powell's December pivot, but transitory disinflation has since grown into consensus of sorts (even if the FMS says it hasn't). This is why it was a no brainer to be getting long precious metals and short bonds (yields up) into 2024, IMO. But it more so continues to feel like individuals are in the “economy will never slow” camp and that the risk of economic contraction is being seriously downplayed. The market continues to be in this never ending loop of "financial conditions tighten -> stocks down" / "financial conditions loosen -> stocks up", until it ends up breaking that cycle which likely comes with a more material slowdown in growth. Maybe the economy does keep chugging along but just like we saw from the latest NFP, it doesn’t take much to swing the pendulum the other way and I wouldn’t be surprised to see it happen again. I was dismissing the recession / hard landing calls coming into the year, but I now think the risks are shifting to the economy rather than inflation as people focus on the shiny object and not look ahead. h/t @eliant_capital

🇨🇳 🇹🇼 🇺🇸 Taiwan's Divine Winds: China's strike window is now or never 🔶️ China has a very favorable moment to strike and clear reasons to do so in short. Their demographics are going to start being a drag in the 2030s, so it’s increasingly now or never. https://telegra.ph/Taiwans-Divine-Winds-05-29