DECEMBER 15, 2023 – First off, happy birthday to my dear wife.
Back in April and June, I mentioned that the wave theory I follow showed a strong rally ahead. It would require us breaking through the all-time highs by a wide margin. This week the Dow 30 achieved new highs and is above 37,000 for the first time ever. 40k and possibly 44k in 2024 are on the table. They have been for over 6 months.
With the information below it is time to 100% emphatically declare anyone that has forecast a recession for the past 18 months and into 2024 dead wrong. Their analysis is totally in error. Just fess up and admit with hat in hand you have no clue what you were talking about. You will feel better:) On to where the data stands and what it is telling us.
BANKS – To date, we have had two bank closures that I am aware of. One was strange as it was not FDIC-insured. We will be ending the year much closer to my forecast of 0-10 closures than the 176-200 closures forecast by many people. I think we will be able to say the same next December.
As for CRE loan defaults, I have dealt with about 5 bad loans. There has been no consistency as to why the loans went south. I am seeing nothing that indicates a lot of foreclosures nor anything specific to a property type.
Amazingly, the Regional Bank Index (KRE) is up 58% from its yearly low and is back above where it was before the SVB/SBNY closings. Remember, buy when there is blood in the streets. It worked again.
To reiterate, the market is saying that it does not believe there will be a CRE loan debacle for banks. Either not many CRE loans will default and/or banks are well prepared and capitalized to handle the defaults.
HOUSING – Home prices have been up all year and the rate of appreciation is increasing. It isn’t much. That is a good sign as it can be sustained into 2024.
The Homebuilders Stock Index was up over 5% one day this week and is now up an incredible 62% (!)from last year’s lows. On top of that, this is an all-time high.
Those who forecast a crash in the housing market continue to be way off the mark. As I said all along, 7% interest rates are nothing to worry about.
INTEREST RATES – Bonds bottomed on October 23rd. A strong rally has dropped rates by about 100bp already. A minor correction should start soon. Then after the new year, we will continue the decline in interest rates. The target is about 25-125bp lower than we are today.
INFLATION – The December report came in at 3.1%, well below my forecast of 3.6%. The 3-month annualized inflation rate is 0.0%. The 6-month annualized inflation rate is 1.9%. These figures are lower than the annualized rate (3.1%) and thus indicate the annual CPI should drift lower. However, continue reading.
Based on the data, my prediction for next month’s figure is 3.5%-3.6%. The January report should show annual CPI for 2023 to be around 3.5%. Then from the February report on into the Summer, the CPI should crumble towards 2%.
SUMMARY – With the Dow 30, bank, and housing stocks at their highs, the markets are saying all should be well through the first half of 2024. The economy is supposed to be looking good in an Election Year. That looks to be the case again.
I will reprint this statement from a post a few months ago: I put this hidden little sentence out there to refer back to in 12-18 months – The chance of a recession occurring looks to be 4th Quarter 2024 into 2025. The first year of the president cycle often sees an economic downturn. I suspect that a year from now the broken-clock recession mongers will have given up and admitted the economy is strong, et al. Just in time to be wrong again:)
Happy Hannukah, Merry Christmas, and Happy New Year!
Shalom,
The Mann