Just completed my weekly macro exercise: Our PWA Index improved for the second consecutive week, going from -61.54 to -57.69. 

Click each insert below to enlarge…





While 2 weeks of improvement is indeed welcome, per the scores featured below (along the S&P 500 graph; red-shaded areas highlight recessions), historically-speaking we remain in an exceedingly weak macro environment:



Three components improved enough to positively impact their scores…


Small Business Optimism (from red [-1] to yellow [0]):



Small Business Hiring Plans (from red to yellow):



Baltic Dry Index (from yellow to green [+1]):


While other components fell deeper into, or rose to a shallower point in, the red, one area of notable concern is inflation (falling rapidly).


Personal Consumption Expenditures (PCE) Price Index, CPI & CPI ex-food and energy:



New York Fed Underlying Inflation Gauge:



However, the Producer Price Index came in less bad:



Components that deserve additional mention — in that the underlying reality may ultimately conflict with how they presently score — are Consumer Debt Outstanding, Consumer Savings Ratio and Mortgage Applications.


As for Consumer Debt, per the next graph, folks used a good chunk of their stimulus (and add’l unemployment) checks to aggressively pay down their credit cards. Of course that’s not at all what the government had in mind. And while, when I where my financial planner hat, I love it, it certainly doesn’t support the economic setup:



Essentially the same narrative around consumer savings:



And while the huge rally back in mortgage purchase applications is unambiguously positive, note that such a jump (red circles) in early-stage recession is the norm (as folks pounce on record-low mortgage rates), before things begin to get ugly:



So, in a nutshell, and I know this comes as no surprise, a “reopening” economy reflects positively within our economic index. 


Time of course will tell if we’re beginning our ascent to a setup that would have us resume the growthy mode of asset management we maintained from the bottom of the last recession all the way to late-summer last year. And while we’re not at all looking for our index to move into the green before we reengage in generally unhedged fashion, I suspect we’ve got a ways yet to go before we begin seeing the breadth rate of change that would turn us bullish. Typically, and ironically, that occurs while folks are thinking the world has ended and stocks are, and have been, markedly selling off (in capitulatory fashion). The March stock market low, by the way, exhibited virtually none of the telltale signs…


As regular readers know, our credit market analysis is at the heart of what had/has us thinking that the next recession was going to be epoch, even before I could spell “coronavirus.” And while there are a whole host of charts I could present that would illustrate why we remain very concerned, the following showing the level of existing BBB (lowest investment grade rating) corporate debt — and its trajectory thus far since all hell broke loose — means that, alas, the Fed has succeeded in keeping the credit bubble alive and well to this point:





Okay, two more…


Total corporate debt remains staggering! The grey shaded areas highlight past recessions. I.e., the current recession hasn’t even begun to do its work, and the powers that be are desperate to keep it that way. Should they succeed in circumventing natural market clearing, well, let’s just say they’ll be setting the stage for a yet more devastating economic collapse further down the road:





As if you needed more, take a look at the rising share of companies whose debt service presently exceeds their profits:



And you were wondering why we remain guarded while stocks are trading like the coast is clear… It’s not…


Have a nice weekend!
Marty