Walking and Regional Banks

By Jeff Kelly on February 2, 2024

“Above all do not lose your desire to walk. Every day I walk myself into a state of well-being and walk away from every illness. I have walked myself into the best thoughts and I know of no thought so burdensome that one cannot walk away from it.”

– Soren Kierkegaard

Walking is always good. Almost anyone can do it. I walk a lot. Technology today allows me to take calls, listen to podcasts and books all while walking. I get great ideas when walking. I always feel better after a walk. If we are going to improve the general health of our population, it’s not going to begin with CrossFit or any extreme fitness regime. But it could begin with walking.

The tendency in our world seems to push to extremes. Whether it’s politics, exercise, sports or investing we have many screaming for us to move to one extreme or the other. Such was the case this week in the markets. We saw big moves up and down in both the stock and bond markets.

The news conference after the Federal reserve meeting caused stocks to move lower along with some poor tech earnings. Today, a big jobs number caused bonds to sell off, but better tech earnings led the equity markets higher. Today in particular, the market breadth was awful. As I write on the NYSE, 2132 stocks are down and 733 are up. This is with the market making new highs. Not what we’d like to see but understandable.

This week also gave us some insights into the problems at regional banks with commercial real estate. New York Community Bank dropped 45% after disclosing the troubles they see in commercial real estate.

NY Community Bancorp Stock Drops Record 45%

Aozora Bank of Japan also reported heavy losses in U.S. Commercial Real estate. They said the average loan to value of commercial real estate in the U.S. is 166%. That means loans are 66% greater than the value of real estate on bank balance sheets.

Japan’s Aozora Bank hits near 3-year lows as bad U.S. property loans prompt loss forecast

None of this matters today to the equity markets. It may be a reason the Fed will cut rates even in the face of stronger economic reports. At some point this will be an issue, when is anyone’s guess.

More earnings next week and lots more data. Still, the bull market moves on.

CHARTS FROM THE PAST WEEK

Core goods and services ex housing moves below all levels since the pandemic.

Sahm rule indicates a coming recession.

The Sahm rule identifies signals related to the start of a recession. And the way it works is when the three-month moving average of the unemployment rate, that’s the national unemployment rate, rises by half a percentage point or more, relative to its low from the previous 12 months, that indicates a recession.

Layoffs inching higher but not near critical levels.

Like it or hate the IRA has generated a significant number of jobs in many states.

Wind and Solar now produce more power than coal.

A 0DTE option is an options contract set to expire at the end of the current trading day.

These now represent over 50% of options volume. They didn’t exist two years ago.  

Services employment is waning.

Labor force flows look different than reported jobs numbers.

Bank earnings have been poor and aren’t likely to improve soon.

Regional Banks are by far the worst.

Goldman expects income growth of 3.2% in 2024.

Rainbows and puppy dogs from Goldman Sachs!

Goldman Sachs thinks existing home sales rebound in 2024.

If they do, the economy likely does well. If is does, can the Fed cut rates much?

The birth/death adjustments in the job’s calculation accounts for about 40% of job gains over the past year.

Temporary staffing and overtime hitting new lows.

This usually happens at the end of a hiring cycle.

Federal Reserve Regional manufacturing surveys were worse in January.

Global trade trending to the downside.

A sad and completely unnecessary situation depicted in the slide below.

Food insecurity is a problem and getting worse.

401K hardship withdrawals continue to accelerate.

Not a good sign.

Last week saw the largest inflow to tech funds since August 2023.

We then corrected about 10% in September and October.

Yields are moving lower around the world.

The total number of containerships fell to 131 at 1/23/24, from 151 at 12/31/23 and 162 at 11/30/23.

The average number of containerships passing through the Suez Canal in 2023 was 174.

December construction spending +0.9% month/month vs. +0.5% est. & +0.9% in prior month (rev up from +0.4%) … private construction +0.7%; private residential +1.4%; private residential home improvement +1.7%; public +1.3%.

January ISM Manufacturing PMI at 49.1 vs. 47.2 est. & 47.1 prior (rev down from 47.4); new orders jumped to 52.9 vs. 45.2 prior; prices paid jumped to 52.5 vs. 47 prior … employment stayed in contraction at 47.1 vs. 47.5 prior.

Tech shows few signs of slowing down.

Rate cuts are coming.

But the reasons for rate cuts might not be well received.

WEEKEND HOMEWORK

Great podcast about the man who helped build the electrical grid in America but died broke. The story of course involves leverage. Lots of lessons here.

#336 How To Lose A Few Billion Dollars: Samuel Insull

A terrific book. I don’t know if will help you make billions but great stuff in there.

From provocative recommendations for “rearranging your brain”―an essential prerequisite to accomplishing enormous goals―to practical advice for dealing with colleagues, Jacobs will have you rethinking what it means to win big. He explains why it’s critical to spot key trends and capitalize on them, including the biggest trend of all―the rapid evolution of technology relative to human development. And, he shares his techniques for

• turning a healthy fear of failure to your advantage,
• achieving lots of high-quality M&A without imploding,
• building an outrageously talented team,
• catalyzing electric meetings, and
• transforming a company into a superorganism that kills the competition.

How to Make a Few Billion Dollars is an inside look at how this entrepreneurial titan leads with humility, compassion, and accountability, while running hard toward the American Dream. If your personal dream is to create wealth through free markets or to triumph in sports, the arts, politics, philanthropy, or any other part of your life, this book will help you make that a reality.

We are through 1/12 of 2024. Where did that month go. Do something nice for someone this weekend. It will make you feel great. Have a great weekend.