The Morning Call
8/24/26
The
Market
Technical
The S&P had a
rough week. On Thursday, it appeared as
though it was going fall back to challenge its former all time high but then
bounced on Friday. Hopefully, it was
only making a new higher low. Supporting
that notion, it remains above all three DMAs as well as being in uptrends
across all timeframes.
Sheep get
slaughtered.
Why the stock
market has to crash.
https://awealthofcommonsense.com/2026/08/why-the-stock-market-has-to-crash/
Margin debt fell
in July.
https://www.advisorperspectives.com/dshort/updates/2026/08/20/margin-debt-finra-july-2026
The long bond had
a decent week though it ended on a down note and did nothing to alter an
otherwise dismal performance. As you know, the Wednesday rally was brought on
by Bessent’s version of Operation Twist (buying long Treasuries with funds
raised from short Treasuries)---which unfortunately for him (Trump) had a one
day shelf life. Apparently, you can’t
fool the bond guys when the government is accruing debt at an historic pace,
the hyperscalers credit appetite is insatiable, the Iranian war is pressuring
oil prices higher while the Ukraine conflict is having the same impact on wheat
and Trump keeps insisting that ‘tariffs’ is a beautiful word. Bottom line, the technicals haven’t changed: TLT
is below all three DMAs and in downtrends across all timeframes;… for the long
bond to rise enough to even challenge the upper boundary of its very short term
downtrend is going to take a series of very positive developments.
GLD continued to
surge, resetting its 100 DMA to support and challenging its 200 DMA---likely a
function of the spiraling federal debt, rising oil and grain prices, a chikens**t
attempt to manipulate the interest rate market and as yet a vague understanding
of the Fed plans to do about all the foregoing. I added to my GDX position.
Goldman sees gold
rally accelerating.
The dollar continued its poor performance---largely
due to the factors listed above for gold’s shiny performance. On a long term
basis, the dollar remains in no man’s land and at this point I see little prospect
of its breaking out of even its short term trading range.
Friday in the charts.
https://www.zerohedge.com/markets/bessents-bailout-brings-big-week-bonds-bitcoin-bullion-battered-big-tech-buck?gift=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJuaWQiOiIxMTIyNDE3Iiwic2VuZGVyVWlkIjoiUUhnc3BaZVVFS2E3RHhXM216eFlKbjhaWEFoMiIsImlhdCI6MTc4NzM0NDA3OCwiZXhwIjoxNzg5OTM2MDc4LCJhdWQiOiJ6aC1naWZ0In0.zNviSKNan20iBStW8p0exm81Myciijs0JpfpGr649T8
Friday in the technical stats.
https://www.barchart.com/stocks/momentum
https://www.barchart.com/stocks/market-performance
https://www.barchart.com/stocks/sectors/rankings
https://www.barchart.com/stocks/signals/new-recommendations
The latest from
Goldman’s desk.
Hedge funds are
selling.
Monday morning
setup: Futures are lower with Tech underperforming as the market focuses on
NVDA / MRVL earnings this week; while the AI theme is pressured globally and
memory stocks slump driven by a slide in the Kospi. Futures got a boost
just after 7am when CNBC reported that the Treasury could use the General
Account ($935BN as of today) to fund bond buybacks. As of 8:00am ET,
S&P futures are down 0.2%, rising from a session low hit this morning
around -0.4%. Nasdaq futures are down 0.4% with Mag7 names mixed and
Software up. In premarket trading, Memory/Semis are weaker, dragging down the
Tech tape. Defensives are leading Cyclicals ex-Materials as Metals/Miners look
to extend their bullish run. European stocks are lower, dragged down by tech
while\South Korea’s Kospi was once again Asia's top loser, sliding 3.1%. Shares
of SK Hynix also lost more than 3%. Bond yields are lower, down 3-4bp as the
curve shifts lower and USD is bid with the Dollar stronger versus G7. In
commodities, oil and ags are pulling the group lower on reports of more than
15mm bbl leaving SoH over the weekend; gold / base are bid as silver sells off
as part of AI weakness. Warsh’s speech Friday at 10am is the macro focus for
the week but we also get updates on PCE, which has been de-risked with the
CPI/PPI prints, income / spending, housing data, and some regional Fed activity
indicators. US session has few scheduled events Monday; ahead this week
are coupon auctions, July personal income and spending data including PCE price
indexes, and Federal Reserve Chairman Kevin Warsh speech at Jackson Hole
Symposium.
Fundamental
Headlines
The
Economy
Last
week, the US stats were light and balanced, though the primary indicators were
one positive and two negative. No price
measures. On the other hand, overseas, the
data was plentiful, also balanced but with one neutral and three negative inflation
datapoints.
While
the US stats didn’t exactly extend a three week streak of disappointing number
(1) they certainly didn’t reverse it and (2) the overall discouraging primary
data leaves open the question of a weakening in economic growth. However, the inflation data suggests my ‘good
as it is going to get but not any worse’ forecast is alive and well.
Last
week’s primary focal points were somewhat related:
(1)
the bond market appears to have awakened to the [a]
the federal deficit---it crossed the $40 trillion mark last week and [b] the
enormous financing needs of the AI buildout. The result being higher long rates
and the threat of more to come. Of
course, it is early and this sudden concern could reverse itself as quickly as
it arose. However, it could also be a
warning sign of more turmoil in the bond market. And given the lack of concern
about the budget deficit on the part of our ruling class and the insatiable
capital appetite of the AI buildout, it seems equally likely that we are destined
for higher interest rates. Which is not good for the economy [raises the price
of growth] or the markets [lower bond prices and a higher discount rate on
corporate earnings].
Rising rates and the stock market.
Summary: Consider the 14 bull markets over the last 50 years
in the calendar maintained by Ned Davis Research. For eight of them, the
Treasury’s 10-year yield was lower on the day of the top than where it stood
three months prior.
The unseen impact of government spending on
inflation.
The high risk Treasury standoff.
https://www.capitalspectator.com/buybacks-vs-bond-bears-the-high%e2%80%91stakes-standoff-continues/
(2)
concerns about the health of the AI buildout. There are several issues involved [a] are the
hyperscalers overbuilding as occurred in the housing and dotcom eras, [b] since
most of the financing is being done with debt instruments, what is the
magnitude of the credit risk, [c] along those lines, are the large language
models even needed for a majority of AI tasks, [d] worse, are the {current} models
just generating ‘slop’ and [e] will the Chinese open models wreak havoc on the
US closed models.
To be clear, I am not a tech guru and don’t pretend
to know the answers to all those questions.
What I do know is that [a] the AI buildout is consuming an enormous
amount of capital and represents a meaningful portion of incremental GDP
growth---so any significant performance shortfall would be painful and [b] a
lot analysts smarter than me are asking those questions and that spells risk
with a capital ‘R’.
That suggests a heightened level overall economic
risk as well as AI industry specific risk.
To be sure, that doesn’t mean a worse case outcome. I continue to hold positions in both the chip
manufacturers and the hyperscalers---although their performances has been such
that I have Sold Half of virtually every stock.
And I am not running for the hills in the rest of my Portfolios. That said, I have my finger on the trigger
for several holdings. And should the
economics of the AI buildout become more clouded, I will take some money off
the table,
AI debt surge testing investor limits.
(3)
in the background remains the issues of the Iranian
and Ukrainian wars as well as Trump’s insistence that somehow tariffs are a
grand economic plus for the economy---all of which are a burden to economic
growth.
Bottom
line: the prospect for not just a slowing in the rate of economic growth but
perhaps stagflation has appeared on the horizon. Not yet enough to warrant a
change in my outlook but enough to have my finger on the warning light.
Guns and
butter---Part 2.
https://bonddad.blogspot.com/2026/08/the-latest-on-inflationary-expansion-of.html
America is about
to get more expensive.
Higher rates are slowing the
economy less than in the past.
What the debt panic gets wrong.
https://talkmarkets.com/article/normal-interest-rates-what-the-debt-panic-gets-wrong-1787311729
US
From Friday:
The flash August
manufacturing PMI was 53.2 versus estimates of 53.4; the flash services PMI was
56.8 versus 54.0; the flash composite PMI was 56.0 versus 53.2.
The July Chicago
Fed national activity index came in at -0.08 versus consensus of +0.1
International
From Friday:
The flash August
EU consumer confidence index was -15.8 versus
-16.3.
Other
Iran
Overnight news.
Monetary
Policy
White House undermining the Fed.
Summary:
So it’s particularly incomprehensible that the Bessent Treasury has continued
ostensibly the same issuance plan and gone further in its
attempt to suppress yields. (Officially, the advisory committee continues to
tolerate this, but says that its “current projections could warrant increases in
coupon issuance” in fiscal year 2027, so Bessent’s leash is getting shorter.)
The Trump administration ordered Fannie Mae and Freddie Mac to buy mortgage
bonds to bolster
housing affordability; tweaked bank capital rules to get banks to
hold more Treasuries; backed a stablecoin law to fan sovereign bond demand from
the cryptosphere; and supported Japan’s recent currency intervention, which
oh-so-coincidentally discouraged a major foreign holder of US debt from selling
it to support its currency. All of this undermines Warsh. Given that Bessent
keeps failing to durably move markets with this clumsy fiscal hocus-pocus,
Warsh may just grit his teeth and hope that all of this is soon forgotten. But
if Bessent keeps pulling new gimmicks out of his “big toolkit,” the risk is
that all this might spiral into a very public confrontation.
Inflation
Grain prices surge.
https://giftarticle.ft.com/giftarticle/actions/redeem/0efcc690-4c30-4217-be6f-c1b13d730285
A monster El Nino is coming.
Investing
Should you invest
in bonds right now?
News (but not a Buy recommendation) on Stocks
in Our Portfolios
T Rowe Price.
What
I am reading today
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