Truth and A Gap Fill

By Jeff Kelly on December 27, 2024

“The Roaring Twenties were very pleasant if you did not stop to think. Most people didn’t stop to think. And still don’t, as they look back. If they did, they would see not just the pervasiveness of hardship throughout the decade, but the horrible prelude it proved to be”

Eric Burns Author of the book 1920

We live in a compelling period. There has seldom been more opportunity, peril, angst and optimism present all at the same time. What you feel is a function of where you are at. This is always true, but the split is much wider than usual. It is always this way as we enter the final phase of The Fourth Turning.

One of the key components of our issues as a people is the inability to agree on what is the truth. Some insist we must agree with everything a politician utters no matter how outlandish or inaccurate it proves to be. Others take the other side in every argument. The actual honest to goodness truth is in there somewhere and until we can agree on a reasonable location, we are going to struggle.

One of the ongoing battle grounds has been immigration. This week has seen a pitched battle between advocates for the incoming administration. Some favor the use of immigration for qualified folks while others want no immigration at all. We are a country of immigrants. We need engineers. If we had enough engineers domestically, I’m confident they would be hired. We don’t have enough. It makes sense to welcome all these talented, educated people into our work force. But even here we have trouble agreeing on the truth. Some believe we can magically train all the engineers we need from the ranks of the unemployed right here in the good old USA. Good luck with that.

Many of our issues are much more difficult, unless or until we can agree on the truth of the issues so clearly present, divisions will continue unabated.

Markets have issues as well. Today was a tough day for many of the best performers of the past year. We are looking at the last area of support before markets fill the final gap from the election rally. This comes in about 576.92. This is the white line on the chart below. Filling this gap while likely create enough fear and worry for the market to rally into January. We’ll see if this plays out early next week.

CHARTS FROM THE WEEK PAST

Weightings of the top 10 holdings in the S&P 500 have never been higher.

Existing SINGLE-FAMILY home sales in 2024 the lowest since the mid 1990s.

Only the cutting cycle in the early 1980’s has seen a worse reaction in 10-year yields.

Tender rejects-the amount of loads rejected because truckers have better offers for their time (economic health) has moved much higher.

Nominal dollar spent paying the national debt has never been higher, but as a percentage of GDP it’s still below the period from 1978-1998.

November new home sales +5.9% m/m vs. +9.7% est. & -14.8% prior (rev up from -17.3%) … median new home price fell by 4.4% y/y to $402,600.

November durable goods orders -1.1% m/m vs. -0.3% est. & +0.8% prior (rev up from +0.3%) … orders ex-transportation -0.1% vs. +0.3% est. & +0.2% prior.

Construction spending has stabilized across different types.

Poised to move higher.

Volatility is likely to pick up in 2025.

It is the toll we pay to be LONG-TERM investors.

The two-year rate of change is in the 95^th percentile for market moves.

We are extended.

US High Yield credit spreads have moved up some ~30bps off the lows This may or may not turn out to be **the** low… but the push lower in credit spreads has clearly stalled for now.

Emerging Markets relative to U.S. Markets have never been lower.

December Conference board Consumer Confidence Index down to 104.7 vs. 113.2 est. & 112.8 prior (rev up from 111.7) … present situation down to 140.2 vs. 141.4; expectations down to 81.1 vs. 93.7 prior.

Still high historically.

Global coal consumption hit an ALL-TIME high in 2024.

It’s looking higher in 2025.

Government spending in 2024.

Bond Funds have seen an inflow of more than $600 Billion this year, the largest annual inflow in history.

This is despite poor returns.

Since October 1^st copper is down over 15%.

Oil down 11.5% since October.

Gasoline futures also down 10.7% since October.

Yet over the same period yields on the 10-year treasury are up over 28%. Inflation worries are prevalent.

But are they justified?

Bitcoin and global money supply have traded together.

Now Global money supply is moving lower. Does BTC follow?

Yet, the Move index, Treasury bond volatility has declined 30%.

Less accidents via self driving vehicles can lead to big changes in many industries.

WEEKEND HOMEWORK

An excellent book on the current darling of the investment world.

In The Nvidia Way, acclaimed tech writer Tae Kim draws on more than one hundred interviews—including Jensen (as he is known) and his cofounders, the two original venture capital investors, early former employees, and current senior executives—to show how Nvidia played the longest of long games, repeatedly creating new markets and outmaneuvering competitors, including the original semiconductor giant, Intel, which now finds itself well behind the upstart. Kim offers revelations at every step, among them:

An authoritative, myth-busting account of Nvidia’s founding in 1993.
How Nvidia managed to overcome early missteps that would have killed most start-ups.

The benefits of Nvidia’s flat organizational structure, which allows even low-level employees to contribute to the direction of the company.

How Jensen’s obsession with solving the Innovator’s Dilemma—the trend of entrenched market leaders falling to smaller, nimbler companies—drove him to reinvent his approach to corporate strategy.

How Nvidia saw the coming AI wave sooner than anyone else, and how it bet its future on a technology that had not yet arrived.

It’s the last weekend of 2024. Make it count!!!