The Federal Reserve is raising interest rates. And Fed Chairman Jerome Powell has made it clear that he's focused on fighting inflation...
This Is How the Fed Causes Recessions
By Carlton Neel, CEO, Chaikin Analytics
The Federal Reserve is raising interest rates.
And Fed Chairman Jerome Powell has made it clear that he's focused on fighting inflation...
In mid-May, Powell said he would tackle the problem of rising inflation. And even "if that involves moving past broadly understood levels of neutral, we won't hesitate to do that."
That's Fed-speak for "We're not afraid of pushing the economy into a recession to stop inflation." And Powell meant it...
Interest rates are soaring. The yield on the 10-year U.S. Treasury note hit an all-time low of 0.52% in August 2020. Today, less than two years later, it's at more than 3%.
Now, that increase might not sound like much. After all, a 2.5% rise on the price of a gallon of milk is roughly 11 cents.
But in monetary-policy terms... these rate hikes are massive.
In fact, this is exactly how the Fed causes recessions...
You see, rate hikes aren't about making things like milk and eggs more expensive. Instead, they make debt more expensive.
That's true for both consumers and businesses. And the rising cost of debt is what pushes down economic growth.
It's a little convoluted. But as consumers, we can measure the effects of rising rates in a simple way...
I'm talking about mortgage and refinance demand.
And today, the data is as clear as it gets... Powell and the Fed are getting exactly what they want.
Let's look at how we know that's true. And we'll also see how that translates into recessionary pressure...
The man who called the 2008 and 2020 crashes predicts a massive financial "heist" could sweep the U.S. He has already warned the U.S. Pentagon and the FBI. But few people are willing to admit this could actually happen on U.S. soil. Or how one move right now could make you massive profits as it unfolds. Click here to learn more.
This could be the most radical UPGRADE in transportation ever. It could be bigger than Uber, Tesla, or even the steam engine! And as Matt McCall explains, this little-known opportunity could help you cash in on a potential $19 TRILLION trend. Click here for the full story.
It's one thing to know rising rates increase the cost of debt. But it's another thing to feel it.
Right now, homebuyers are feeling that pressure firsthand. And they're responding...
In short, mortgage demand is at its lowest level in 22 years. And refinance demand is down 75% from the same time last year.
Now, maybe you're thinking, "Of course homebuying is slowing. Look at how crazy the housing market got."
But the reality is... when it comes to long-term debt, interest rates, not high prices, determine how hot the market runs.
In the following table, you can see why interest rates matter. Take a look...
This example involves two 30-year home loans. Notice that both homes cost $430,000. That's roughly in line with the current U.S. median home sales price today.
Now, look at the interest rate on the loan. It changes from 2.5% to 5%. And as you can see, that makes all the difference...
The buyer's payment price would increase from $1,812 to $2,360. That's a 30% jump!
Over the life of the loan, the consequences are even greater. The total interest paid would soar a staggering 121%.
So it's no wonder that homebuying is slowing today...
Even a seemingly small increase in rates makes the payment on a new home much more expensive. In the end, those rising rates more than double the cost of the interest.
That's true for consumers like us. And it's also true for businesses...
Businesses do almost everything with debt.
So rapidly rising rates make the cost of doing business more expensive. And most businesses make the same calculation that would-be homebuyers do...
When debt is cheap, they feel like they can afford to do or buy anything. But when debt is expensive, they decide to pass on previously obtainable purchases.
That shift causes recessions. And it's exactly the environment we're in right now.
Until the Fed lets off the brakes, we'll continue to face this kind of recessionary pressure.
As you saw, it's just basic math.
Good investing,
Carlton Neel
Market View
Major Indexes and Notable Sectors
# Hld: Bullish Neutral Bearish
Dow 30
-0.84%
6
20
4
S&P 500
-1.08%
93
294
110
Nasdaq
-0.72%
12
60
27
Small Caps
-1.54%
317
1059
511
Bonds
-0.89%
— According to the Chaikin Power Bar, Small Cap stocks and Large Cap stocks remain somewhat Bearish. Major indexes are mixed.
* * * *
Top Movers
Gainers
LVS
+4.35%
WYNN
+4.18%
ETSY
+4.17%
KMX
+4.08%
BF.B
+3.94%
Losers
MO
-8.37%
CCL
-6.17%
EXPD
-5.68%
STT
-5.44%
INTC
-5.28%
* * * *
Earnings Report
Reporting Today
Rating
Before Open
After Close
ZBRA
DOCU, MTN
No earnings reporting today.
Earnings Surprises
BF.B Brown-Forman Corporation
Q4
$0.31
Beat by $0.05
QMCO Quantum Corporation
Q4
$-0.08
Missed by $-0.09
AVO Mission Produce, Inc.
Q2
$-0.17
Missed by $-0.23
* * * *
Sector Tracker
Sector movement over the last 5 days
Energy
+4.13%
Industrials
+1.44%
Materials
+1.30%
Communication
+1.18%
Discretionary
+0.20%
Health Care
+0.10%
Information Technology
+0.03%
Staples
-0.23%
Utilities
-0.74%
Financial
-0.80%
Real Estate
-1.33%
* * * *
Industry Focus
Semiconductor Services
1
18
11
Over the past 6 months, the Semiconductor subsector (XSD) has underperformed the S&P 500 by -14.89%. Its Power Bar ratio, which measures future potential, is Very Weak, with more Bearish than Bullish stocks. It is currently ranked #19 of 21 subsectors and has moved down 6 slots over the past week.
Indicative Stocks
SYNA
Synaptics Incorporat
MRVL
Marvell Technology,
WOLF
Wolfspeed, Inc.
* * * *
You have received this e-mail as part of your subscription to PowerFeed. If you no longer want to receive e-mails from PowerFeed, click here.
You're receiving this e-mail at diansastroxz.forex@blogger.com.
For questions about your account or to speak with customer service, call +1 (877) 697-6783 (U.S.), 9 a.m. - 5 p.m. Eastern time or e-mail info@chaikinanalytics.com. Please note: The law prohibits us from giving personalized investment advice.
Any brokers mentioned constitute a partial list of available brokers and is for your information only. Chaikin Analytics, LLC, does not recommend or endorse any brokers, dealers, or investment advisors.
Chaikin Analytics forbids its writers from having a financial interest in any security they recommend to our subscribers. All employees of Chaikin Analytics, LLC (and affiliated companies) must wait 24 hours after an investment recommendation is published online – or 72 hours after a direct mail publication is sent – before acting on that recommendation.
This work is based on SEC filings, current events, interviews, corporate press releases, and what we've learned as financial journalists. It may contain errors, and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.
Post a Comment
Post a Comment