The Market Bull – November 6, 2019
The yield curve officially un-inverts after the Fed pushed the short end of the curve lower with its rate cuts. Profits continue to come in weak.
The Mortgage Bankers Association reports that its mortgage activity monitor slipped .1% last week as refi’s gained 1.8% and purchase apps fell 2.5%. The 30-year contract rate for a jumbo loan fell to 3.97%.
Productivity slipped .3% in the 3rd quarter missing expectations of a .9% gain by a country mile. Unit labor costs advanced 3.6% a third consecutive outsize gain and also more than expected. This will put considerable pressure on corporate profit margins going forward. With the earnings reporting season looking to produce a 3rd consecutive decline in corporate profits valuations will be driven higher. Not a good combination.
There has been considerable debate, not so much by the mainstream media as it doesn’t fit the official narrative, about the problems in the Repo Market and why the Fed figured it had to resume ballooning its balance sheet at a rate not seen since the Great Financial Crisis. One school of thought is that JP Morgan Chase precipitated the event in the name of fun and profits. Another is that Duetsche Bank is on the ropes, hemorrhaging money and about to implode, with the Fed fearing another crisis as a result. Something isn’t right and the borrow short term and lend long term model used by numerous finance related companies while very profitable when large amounts of leverage are applied. Carries considerable risk when the yield curve inverts and short-term rates move higher than long-term rates, as they did recently. Short-term rates blowing out to 10% as they did of late, prompting the Fed to intervene dramatically in the Repo Market recently, would have absolutely destroyed this model and produced another crisis. Similar things happened in 2008. But we still don’t know why it happened this time.
Standard and Poors 500 Index closed at: 3,076.78 up 2.16
NASDAQ finished the day: 8,410.63 up 24.05
Gold ended trading at: $1,491.70 up $8.00