Big Earnings and FOMC Week!
What a week we have ahead of us, as the companies that represent some 43% of the total earnings in the SP500 are set to report. This week is also highlighted by the FOMC rate decision on Wednesday. The FOMC is widely expected to cut the Federal Funds rate by 25bp moving the range down to 3.75%-4.00%. The YoY CPI at 3% is not a hindrance whatsoever as the deteriorating job picture is more the focus especially the paltry 28k avg. monthly job gain over the last few months. Yes we know the stock markets continue to press into higher and higher new highs, but once again, you know they do not reflect the overall economic viability of our nation. The economic forecasting via equity prices was supplanted long ago and is now merely a reflection of both debasement in debt fiat money and more so the cash hoarding capacities of the top 10% crowd, more particularly the top 1%.
There are many financial alchemy type vehicles that also contribute to the nominal equity price gains and it will some day be well exposed, but that day is not today. However we know that the financial system continues to evolve and it seems equity nominal pricing is immune to pretty much any and all real economic factors. When we speak of equity markets, we are generally referring to what we call the MEGA9s the top 9 market cap stocks, because honestly the capital is so tightly concentrated and this group offers the bulk of the equity market return structure.
Our subscribers get their daily dose of our MEGA9s in our subscriber only section, where we keep a close eye on the movements within this group and offer a hedging solution to those that want a bit more dynamic investment approach.
One of the areas of concern or growing concern that we believe you will begin to hear about as interest rates fall is the private credit sector. This is one of the new areas of growth over the last a decade or so and as rates tumble and competition heats up, we expect this to be an area of concern.
So many falsely believe that lower rates leads to economic expansion, well we would rather you look at it from the lens of tighter risk free money up take. What we mean by uptake is the total return from the interest rate spread between the rates a company pays on its debt vs the rate of return they can achieve through, say T-Bills. Let’s look at it from the lens of say, Chase who pays on average 2.4% interest on its total deposits and collects on avg. 6.75%. This is a 4.35% positive differential but as rates fall the bank will see this differential narrow and margin compression will ensue as customers swap out of their higher variable yielding debt and into lower debt cost structures. This tends outpace the banks ability to offset by lowering the interest that it pays on deposits leading to lower net interest uptake overall.
As Magnelibra has stated many times over, HIGHER RATES = HIGHER INFLATION explicitly through the billions in risk free interest up take. Another example of this phenomenon can be found in a simple back of the envelope calculation of our US Treasury’s interest cost on its overall debt. For example with $38Tn in overall debt and a T-Bill Rate of say 4.25% this equates to an interest outlay per year of $1.615 trillion dollars. Now if we can lower the Federal Funds rate to say 1% where an expected T-Bill rate would be 1.25% instead, this equates to a total net interest cost of $475 Billion dollars a massive reduction of over $1.14 Trillion in interest costs. This means there would be $1.14 trillion less uptake of the risk free interest by the debt holders. Let’s just say risk taking and leverage would be drastically constrained. This is the future we envision and its one that will take shape over the next couple of years. Yeah we know nobody looks at it this way, because we monitor social media and nobody explains it like this…
We also know the absolute destruction in the underlying economy that is ongoing, and a recent NYFED data point highlights this, how about a 58% increase in 90+ Days Credit Card Delinquencies since 2022:
We know all of this data makes it hard to navigate things, but our goal is to prove to you that nominal prices have very little to do with overall economic fundamental principles, that is until they do. There will come a time in the future where leverage gets purged, where nominal prices meet an onslaught of selling due to forced cash raising by investors who are encumbered, but that time is not now! We have to keep that thought fresh in our minds from time to time, but know that the day to day, can continue into euphoric territory.
Ok so what do we have on tap this week besides the FOMC decision on Wednesday, let’s take a quick look at the earnings front. Today after the close we have Waste Management, a stellar performer over the years, but has struggled with the $235 level. It wouldn’t surprise us to see a move back up above $220 here given the proximity of the 21/50 period MA about to cross:
We have big tech earnings Wednesday and Thursday that we will cover in our posts later this week, but META, MSFT and GOOG will be the markets focus going into Wednesday. We also have ServiceNow (NOW) coming out that day, they had a massive move after last quarters earnings and we will take a look at them as well. On the consumer side, Chipotle (CMG) gives us a good look at the consumer sentiment side as will Carvana (CVNA) but the tech giants obviously set the tone for the overall market place. Then on Thursday we have LLY and MRK in the morning alongside Mastercard (MA), we also want to watch Roblox (RBLX) we know its a big staple of the kiddies today and thus its an outlet for spending by the GenX parent crowd. After the close are the earnings reports from AMZN and AAPL. So we know this week is a big one, and we hope we can bring you some added color from the technical side to improve your odds of winning!
As far as some technical charts, let’s start off with the QQQ ETF, the market is close to its resistance for the week, which stands at 628 as of the trade this morning its trading 626:
As far as the Nasdaq and SP500 futures technical areas of interest, the Nasdaq resistance on the week is 26250 with support down at 25250 and the bull/bear flip zone of 24500:
The SP500 weekly resistance is at 6925, support 6750 with the pivot flip area of 6575:
Its obvious the market levered sentiment is full optimism via the rate cut scenario. This is something you want to step outside of and fight but rather go with until the bull/bear pivots are breached. In our subscriber only section we have our CTA Model Sentiment tracker that tries to convey this overall market sentiment flow in the global macro markets that we cover.
That is it for our free access commentary, please subscribe in order to gain full access to our global macro data trackers and insight and think about joining via our new Founder Digital Strategy Membership tier, where we cover digital currencies and offer a unique approach to this digital asset space. With this tier we offer a discretionary reward structure to showcase our commitment to our Founding Members and to demonstrate the power of the decentralized future!
Our goal is simple, to make sure you have all the quantitative and qualitative data in your arsenal to be the smartest person in the room. Honestly that is all that matters, when you have the right weapons you can sit back and enjoy listening to all the idiots trying to justify their narrative, all the while sitting back and knowing what you know. To only choose to expose your knowledge at your own will and then impose it, that is real power! This is what Magnelibra provides to you.
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