Good morning on this best day of the week, Wednesday,

Retail sales surprised to the upside today which could have spurred a pull back in prices on fear of a Fed response, but markets seem to have gotten it right for now. Retail sales were higher than expected but still below previous levels. Capacity Utilization and Industrial Production data were both weaker than expected.

Target is the most recent company to announce layoffs. A retailer cutting staff heading into the biggest retail season of the year speaks volumes. Markets seem to be less volatile overall, which is a welcome change from the last months and the general mood seems to be less fearful (other than in crypto).

The 10-yr treasury is down to 3.72% today (we were 4.30 a week ago) and mortgage bonds are continuing to improve. I expect the 10-yr can run to 3.60% or so before being tested. We will see what happens then. I still recommend defense, but I can for now, be less neurotic moment to moment.

I continue to hear about the growth in inventory and how problematic that is. Here is a great chart to show inventory has remained stable for 10 weeks (orange line). The reason it is as high as it is (4.6 months) is because of the lack of transactions (sticks at the bottom). This will all flip as rates continue to improve. There was already an uptick in mortgage applications this past week.

This was an interesting piece from Bloomberg today:

For the first time in a while, things feel somewhat pivot-y. We’ve gotten some cooler-than-expected inflation prints, and some slightly more dovish talk. And as such we’ve seen a significant easing in the dollar.

We’ve also seen a drop in short-term rates, and a rally in stocks and other risk assets as you’d expect. Of course, the one area that hasn’t seen a rebound is crypto, for all the reasons you’ve read about in the news.

I don’t know if “ironic” is the right word for it, but it’s certainly something that FTX was collapsing at the exact moment that we got that CPI print last week that sent the entire market soaring. The CPI report was on November 10. The next day FTX filed for Chapter 11. What if the inflation print had happened a week earlier and coins had staged a huge rally along with stocks?

The thing is, though, almost by definition something has to break or be broken in order for the Fed to actually pivot. Not everybody can come through to the other side of the turning point intact. By definition, someone is NGMI, otherwise what did the rate hikes accomplish? If everyone can keep doing the same thing as before, then what was accomplished in the inflation fight? What problem was solved?

To some extent, the market-slash-broader economy is like a giant tontine right now. There may be riches on the other side, but it only pays out to after some participants fail to survive.

Please remain safe and stay healthy, make today great!