Good Monday AM,

Bonds are slightly improved from Friday.

The Mortgage Bonds are stuck right at resistance. If it can break above, we could see a mini rally. The ten-year is still caught on a significant Fibonacci level which is 3.91. This is a light news week with Consumer confidence (Tomorrow) and ISM manufacturing on Wednesday, although we do get some heavier data later in the week (Jobs on Friday). Both are important but neither will typically move the market much on their own. It is about as tough as it can be to predict direction from here. Typically, the recommendation is to lock at the top of resistance and float at the bottom. We currently sit at the top. This could be different as bonds are signaling some signs of improvement. I do see sustained improvement on the horizon. We just need to get there.

Some great slides to share today:

The first is that housing is not falling or even flailing. Year over year, 99% of all counties across the country have price gains.

The below two charts need to be read together. The first is the Fed’s predictions on the most important economic metrics. Among so many other recession projectors (which are almost unanimously flashing red), when 12 month unemployment average exceeds the current unemployment rate, it’s been a tried and true recession projector. Looking at the Fed’s inflation expectation, we are going to run into that situation soon.  

I am still looking for answers as to why employment has been so strong for so long…

Well, part-time work is exploding. The number of Americans working part time rose by 1.2 million in December and January compared with the preceding months, according to the Labor Department. Most of that increase—857,000 workers—was driven by people who worked part time by choice, not because they were unable to find full-time work or their hours were cut. The increase reflects changes in the U.S. economy and the historically tight labor market, according to economists, employers and workers. As the pandemic led to burnout among some workers and drove many to reconsider their careers, some have downshifted to part-time roles, Lauren Weber reports.

And with inflation high and prices for food, housing and other necessities rising, others who had retired or opted out of the workforce are taking on part-time jobs to supplement their household income. The availability of part-time roles may also be drawing women back to the labor force.

I am not a trader, but it also doesn’t take one to understand that all markets and economics are connected. My expectations is that if/when equities stumble, bonds will become far more popular. High demand for bonds will drive rates down. The below two charts do a pretty good job of explaining what the cycle is and where we are in it. The second chart makes an argument we are in the capitulation phase.

That’s all for now.

Please remain safe and stay healthy, make today great!