🟪 Friday Dangerous Charts

Friday Dangerous Charts

Will 2024 be a year of living dangerously?

There’s no particular reason to think so. Prices are deflating, employment is rising, interest rates are falling — things are good.

But therein lies the risk.

At the start of 2023, there was a lot to worry about and it turned out to be a great year (for markets, at least).

At the start of 2024, we don’t seem to have many worries at all.

That could be a problem because, counterintuitively, markets are most dangerous when there’s nothing to worry about.

Financial markets love to climb a wall of worry and, starting with the pandemic, that climb has been unusually steep over the past four years.

We managed the climb far better than anyone would have guessed, but now that we’ve ascended past the last of those worries (recession), you have to wonder what’s next — from the top, there’s only one way to go.

The economist Ed Yardeni sums this up nicely by inverting FDR’s famous quote: “We have nothing to fear but nothing to fear.”

After a surprisingly good 2023, is there nothing left to worry about?

If so, that could prove to be a problem for our investment portfolios — so let’s check the charts to see if we can find something scary.

Soft landing? Or no landing?

One year ago, US unemployment was an impossibly low 3.5%. It’s now 3.7%. Like a broken clock, the many predictors of recession will eventually be right, but some very good news from 2023 is that unemployment doesn’t have to go up for inflation to go down. 

Wages don’t have to go down, either:

At 4.1%, US wage growth is decelerating slower than inflation — which means wages are rising in real terms.

Opportunity is rising, too:

The extended period of full employment is pulling people who are typically left out into the labor market — US job growth has been fastest among those without a high school diploma.

Boomers are quitting:

The labor force participation rate among those over 55 fell in December — like because boomers are retiring early on their capital gains from equities and real estate. 

Crypto could do the same for Gen Z, which would leave just millennials to do all the jobs.

Still growing:

Over 2023 as a whole, the U.S. economy added 2.9 million jobs. We scoffed at Powell’s stated goal of cooling off the labor market (lower quits and hiring) without raising unemployment, but that’s exactly what’s happened.

Rent is less of a worry:

Apartment buildings that broke ground when interest rates were near zero are now ready to be lived in. Bookmark this chart to use when it’s time to negotiate the rent again.  

Something for economists to worry about:

The response rate on the survey that estimates non-farm payrolls has fallen from over 60% just a few years ago to just over 40% now. For JOLTS it’s down to nearly 30%. Economists should be worried about the quality of their data and the rest of us should be reminded to not take that data as gospel.

Worried about missing out?

At $39.4 billion, the SPY S&P 500 ETF had its biggest inflows in at least a decade.

Booming inflows into equities may be a sign that we have nothing to fear but the lack of fear.

On the other hand, Conor Sen thinks that falling interest rates after a period of underinvestment could create a 1980s-style economic boom — which might mean a 1980s-style melt-up in markets.

So maybe we should be worried about not being bullish enough?

Either way, 2024 is going to be an adventure.

Have a great first weekend of the year, daring readers.

― Byron Gilliam

We're Watching

In today's episode of Empire Santi and Jason dive into recent crypto market volatility triggered by an analyst report forecasting SEC rejection of a spot Bitcoin ETF. They discuss the risks of overleveraging during bull runs, debate the usefulness of "economic security," and managing greed in seek of high yields. The conversation then turns to an in-depth analysis of the emerging trend of "restaking" protocols and discuss concerns about adding fragility and centralization risks. To close out they discuss the pending SEC decisions around several Bitcoin ETF filings . Thanks for tuning in!

Watch or listen to Empire on Youtube, Spotify or Apple.

Daily Insights