Month: September 2024

Authored by Dylan Sharkey via IllinoisPolicy.org,

Tiny hotel toiletries will soon be outlawed in Illinois. A new law will make Illinois hotels ditch small plastic bottles for shampoo and other care products.

The days are numbered for small shampoo bottles in Illinois hotels because of a new law signed by Gov. J.B. Pritzker.

Hotels with more than 50 rooms are banned from providing single-use plastic bottles of shampoo, mouthwash and other toiletries starting July 1, 2025.

If a hotel has less than 50 rooms, the law takes effect on Jan. 1, 2026. Hotels will then be expected to transition to refillable containers or face a written warning followed by a fine of up to $1,500.

Washington, New York and California have enacted similar laws. The Illinois General Assembly previously had a bill that would have banned the use of Styrofoam containers, but a partial ban passed instead that applies only to state facilities and agencies.

Illinois has more than $142 billion in pension debt, the nation’s second-worst unemployment rate, second-highest corporate income tax rate, second-highest property taxes and fourth highest in-state tuition for public universities.

Those major problems have festered for years without state lawmakers finding the political will to fix them.

But when it comes to the plastic perils found in hotel bathrooms, Illinois’ political leaders are shiny and manageable.

After two weeks slumped in a deck-chair on a beach, The (reported) President of The United States of America – Joe Biden – is back baby…

However, when asked by reporters about going out on the trail to campaign for his vice president Kamala Harris, he offered a somewhat surprising response…

“I’m not able to go out in the crowds anymore. The Secret Service doesn’t let me,” Biden told a reporter.

When asked “why not?”

He responded “They say it’s too dangerous.”

Forgive us for questioning this ‘narrative’ but isn’t that what the Secret Service is for?

Is society really so dangerous now that even the US President (and most popular president ever – according to 2020’s reported election count) is fearful for his safety in public…

See how dangerous society has become under president Trump… Oh wait https://t.co/e3H7Z9CzQY

— zerohedge (@zerohedge) September 3, 2024

Buried deep inside today’s JOLTs report was some data that is simply stunning, and suggests that Friday’s jobs report – now that the data goalseeking and manipulation is largely over with the near-record downward jobs revision in the books – could be a disaster.

We are referring to the historic collapse in construction job openings, which have tumbled from an all time high of 456K in February to a four year low of 248K in July, a plunge of nearly 50% in just 6 months, and a level which the US economy first reach back in 2016!

And yet… in the same period, the Department of Labor’s “other hand” which clearly was unaware of what is going in the realm of job openings, reports that when it comes to actual Construction jobs, the number has never been higher: indeed, at 950K, the number of residential building construction jobs is the highest on record.

Needless to say, there has never been a disconnect as gaping as the one shown below!

Which data set is right? To answer that question you don’t even have to look at where interest rates are (nor know what the highest rates in 40 years do to housing demand), but merely take a look at the other key metrics of the US housing market such as new Housing Starts which are in freefall, or the lagging Housing Completions which are unchanged in two years…

… and realize that the number of construction jobs is about to crater.

If yesterday’s market dump was a bang, today’s continued selling more of a whimper.

One day after the biggest drop in the S&P since the August 5 rout (which however was followed by a just as violent episode of BTFD) today stocks saw continued selling, with what little interest to buy the dip emerged promptly faded right around the time Europe closed for trading, prompting renewed if more gradual selling, which has pushed the S&P down 0.3%, a far cry from yesterday’s 2% dump, and sent it back to where it was after last month’s much stronger than expected retail sales report.

Under the surface it was more of the same: mounting fears of a hard landing, which after yesterday’s catastrophic manufacturing surveys (both ISM and PMI), were reinvigorated by today’s dire JOLTS report which saw a massive, 4-sigma miss in job openings, which not only printed below the lowest estimate…

… but also tumbled to the lowest level since January 2021 (after a sharp downward revision to the previous month of course), leaving Friday’s payrolls report in the lurch.

And since we are now squarely in a “bad data is bad news” regime, today’s rising hard-landing fears meant a 2nd day of uniform selling, with just Utilities and Consumer Staples – those pre-recession bond proxy sectors – that eeked out modest gains, with everything else a deep red.

The continued barrage of bad news also means that what until yesterday was a 35% probability of a 50bps rate cut in the September FOMC (with one rate cut now guaranteed), rose as high as 50% just after the JOLTS shock, before easing back to 44%. In other words, ahead of Friday’s payroll, it is effectively a coin toss if the Fed cuts rates 25bps or 50bps in two weeks.

The hard-landing panic did not help either the VIX, or the volatility of the VIX (aka VVIX), with both indexes reversing an early morning drop and resuming their ascent for a 2nd day.

But while previous cases of hard-landing fears at least saw rotation out of everything and into AI, today the love was sorely lacking, and yesterday’s record plunge in NVDA only became bigger, as the stock lost another 2%, pushing it below both 100DMA (after it tripped the 50DMA yesterday) and bringing the two-day drop to 11.4%, or a massive $333 billion loss in market cap in two days. Yes, Nvidia has lost a third of a trillion in the past two days.

Yet while traders sold stocks first and asked questions later, or not at all, the money once again piled into bonds, with the 10Y yiel sliding for a second day, and dropping to 3.75%, the lowest print this year, and the lowest level since last July.

But while 10Y yields dropped, 2Y yields absolutely crumbled, leading to the first (brief) 2s10s yield curve disinversion since July 2022. For those who were just waiting for this event to being the countdown to the recession, because by now everyone knows that while the inversion is bad, it is the subsequent steepening that triggers the actual recession countdown, can start counting.

It wasn’t just yields that took out 2024 lows: so did oil, as not even a denial of the Reuters bullshit report from last week that OPEC+ would boost production, managed to lead to any buying impetus of the black oil, which tumbled another 2%, and dropped to the lowest level since last December.

In other words, it is once again up to China – and its stalled stimulus – to breathe some air into the slumping commodity market… if not all of it: since the next step by either the US, or China is more stimulus, whether monetary or fiscal, gold continues to await the next steps, and after tumbling yesterday, recovered much of its losses and is trading just shy of all time high.

Authored by Lawrence Wilson via The Epoch Times (emphasis ours),

Michigan voters helped swing the Electoral College to Donald Trump in 2016 and then to Joe Biden in 2020. The votes were close in each election, with the winner decided by 0.2 percent in 2016 and 2.8 percent in 2020.

The state’s major cities, including Detroit, Ann Arbor, Lansing, and Grand Rapids, are Democratic strongholds, while the smaller cities and rural areas tend to vote Republican in national elections.

From the shores of the Port of Detroit to the sandy beaches of Grand Haven, The Epoch Times traveled Michigan from coast to coast to find out how this year’s political messaging is landing with voters.

Jake Anderson, 28, an epidemiologist from Grand Rapids, said he has seen ads from both campaigns that give negative information about the other candidate.

“I would say, overall, it’s a pretty dividing way,” Anderson said.

Anderson, who is employed by a nonprofit working with Native Americans, said that while he’s not very involved in politics, he’d like to see more bipartisanship.

“Just to focus on working together. That would be my biggest takeaway,” he said.

Javon Shivers, 28, of Saginaw, Michigan, said he had received mail from the Harris–Walz campaign but did not pay much attention to it.

“I’m really not into politics,” he said. “I’m my own president. That’s how I look at it.”

The clothing entrepreneur said he sees a disconnect between politics and the lives of ordinary people.

“It really doesn’t change anything for me myself,” he said. “You still have to live your day-to-day life outside of what they’re doing.”

Shivers said he would like to see the candidates speak candidly about the issues.

“I would like to see them talk about the truth, about what’s really going on in society,” he said.

“Yeah, I’ve seen some ads,” Germaine Green, 51, of Grand Rapids, said. “I’m probably not going to vote for either one of them.”

Green said he’d like to hear candidates talk more about illegal immigration and its effect on working people.

“They’re giving all this money to immigrants, like food stamps. The average American wants to see money in their paycheck.”

Sam Bayle, 33, of Grand Rapids, said he had seen advertisements from both campaigns but that none made a positive impression on him.

“I get through them as quick as I can because I’m sick of seeing all of them, to be completely honest,” he said.

“I would like a little talk about the general way that government works, like all the money involved in it.

“A little more transparency in terms of where funding is coming from and what you’re looking to do. Actual conversations instead of just the party line.”

Larena Singleton, 50, of Detroit, said she has received mail from both the Harris and Trump campaigns.

“We’re being bombarded with it,” she said. “At least five days a week, we get mail from both.”

Singleton said she dislikes the tone she hears from both campaigns.

“I don’t like the bickering back and forth,” she said. “Debating is one thing, but then when you’re trying to throw shade or throw dirt on each other, that’s something different.

“Both campaigns should be talking more about helping the homeless and about education.”

Many children are not being fully educated in public schools, she said. Education should be “getting the kids back into the fundamentals.”

Read the rest here…

One week after the latest Q2 GDP revision came in hotter than expected on the back of what was supposedly a surge in consumer spending, which helped push US economic growth to a 3.0% pace in Q2, more than double the 1.4% in Q1, moments ago the Fed published the latest Beige Book reports according to which US economic activity “grew slightly” in three Districts, while the number of Districts that reported flat or declining activity rose from five in the prior period to nine in the current period, refuting any speculation of a recovery in the economy. 

While economic activity was stagnant at best, the labor market was also disappointing, with the Beige Book noting that while employment levels were steady overall, there were isolated reports that firms filled only necessary positions, reduced hours and shifts, or lowered overall employment levels through attrition. Still, reports of layoffs remained rare while wage growth was modest, and increases in nonlabor input costs and selling prices ranged from slight to moderate.

More ominously, “consumer spending ticked down in most Districts, having generally held steady during the prior reporting period” or in other words, deteriorating. Auto sales continued to vary by District, with some noting increases in sales and others reporting slowing sales because of elevated interest rates and high vehicle prices. Manufacturing activity declined in most Districts, and two Districts noted that these declines were part of ongoing contractions in the sector.

While residential construction and real estate activity was reportedly “mixed”, most Districts’ reports indicated softer home sales. Likewise, reports on commercial construction and real estate activity were “mixed.”

The chart below summarizes the Fed’s mandate dilemma best: while mentions of “slow” have been consistently rising since troughing in January, Beige Book mentions of “inflation” are tied for the lowest in two years.

Looking ahead, the Fed’s district contacts “expected economic activity to remain stable or to improve somewhat in the coming months” – these will be very disappointed – though contacts in three Districts, i.e., the realists, anticipated slight declines.

Taking a closer look at the two key Fed mandates, jobs and inflation, we first turn to labor markets where the Beige Book made the following downbeat observations:

• Hedge Funds Sell Employment levels were generally flat to up slightly in recent weeks, a deterioration from “rising at a slight pace overall” reported in the last Beige Book.
• Five Districts saw slight or modest increases in overall headcounts, but a few Districts reported that firms reduced shifts and hours, left advertised positions unfilled, or reduced headcounts through attrition—though accounts of layoffs remained rare.
• Employers were more selective with their hires and less likely to expand their workforces, citing concerns about demand and an uncertain economic outlook.
• Accordingly, candidates faced increasing difficulties and longer times to secure a job.
• As competition for workers has eased and staff turnover has fallen, firms felt less pressure to increase wages and salaries.
• On balance, wages rose at a modest pace, in line with the slowing trend described in recent reports. Skilled tradespeople and other workers with specialized skills remained in short supply and continued to see stronger wage increases, as did those in unions. Which is bad news for the millions of unskilled illegal immigrants who have gotten a job under the radar in the past 3.5 years.

As for prices, it appears that we are on the edge of disinflation if not outright deflation:

• On balance, prices increased modestly in the most recent reporting period. However, three Districts reported only slight increases in selling prices.
• Nonlabor input cost increases were largely described as modest to moderate and as generally easing, though one District described input cost increases as ticking up.
• A number of Districts observed that both freight and insurance costs continued to increase.
• By contrast, some Districts noted that cost pressures moderated for food, lumber, and concrete.
• Looking ahead, contacts generally expected price and cost pressures to stabilize or ease further in the coming months.

For those curious what individual regional Fed had to say, here is a snapshot:

• Boston: Economic activity increased modestly, but results varied widely. Residential real estate led recent activity, with strong increases in single-family home sales. Consumers’ increased budget consciousness showed up in slightly softer retail and restaurant sales, and retailers perceived pressure to lower their prices. Job creation slowed. The outlook was mixed between optimism and increased caution.
• New York: On balance, regional economic activity remained flat. Labor market conditions continued to moderate, with ongoing cooling in labor demand and increased worker availability. Consumer spending was unchanged. Housing markets remained solid, with home prices edging up. Selling price increases remained modest.
• Philadelphia: Business activity declined slightly in the current Beige Book period after rising slightly last period. Employment appeared to decline slightly, while consumer spending fell modestly. Nonmanufacturing activity held steady. Wage growth continued at a modest pace, as did reported rises in input costs and prices. Expectations for future growth remained slightly positive overall—growing more widespread for manufacturers but waning for others.
• Cleveland: District business activity declined slightly in recent weeks, though contacts expected activity to increase slightly in the near term. Demand for manufactured goods softened further, and consumer spending declined moderately. Employment levels were stable to slightly up. On balance, wages and nonlabor costs increased modestly, while selling prices grew slightly.
• Richmond: The regional economy contracted slightly this cycle after increasing slightly last period. Consumers pulled back on spending on goods and services, including travel and vehicles and other big-ticket items. Manufacturing activity also declined slightly while nonfinancial services firms reported flat demand in recent weeks. Employment continued to grow at a mild pace amid modest wage growth. Year-over-year price growth remained somewhat elevated.
• Atlanta: Economic activity in the Sixth District declined slightly. Employment increased modestly and wages grew slowly. Prices grew modestly, and pricing power lessened. Consumer spending declined. Leisure travel slowed, but business travel improved. Housing activity declined. Demand for transportation services weakened. Loan volumes increased. Manufacturing activity fell. Energy activity expanded.
• Chicago: Economic activity increased slightly. Employment and business spending rose slightly; manufacturing activity and consumer spending were flat; nonbusiness contacts saw little change in activity; and construction and real estate activity edged down. Prices were up modestly, wages rose moderately, and financial conditions were little changed. Prospects for 2024 farm income declined some.
• St. Louis: Economic activity has remained unchanged since our previous report. Contacts reported weakening of household finances and overall lower demand. Employment has been stable and wage growth continued to moderate back toward longer-run trends. Prices to consumers have increased modestly, production costs have increased and are expected to be more persistent. The economic outlook has remained slightly pessimistic since our previous report.
• Minneapolis: District economic activity fell slightly. Employment was flat and hiring softened, while wage growth was moderate. Price pressures eased as overall prices increased slightly but at a slower pace. Consumer spending was slightly lower, but tourism held up and vehicle sales increased. Manufacturing and construction activity declined. Agricultural conditions remained weak.
• Kansas City: Economic activity in the Tenth District remained stable. Many contacts indicated they recently reduced hiring activity relative to their plans at the beginning of the year. Contacts reported particular weakness in demand for entry-level work. In housing markets, both brokers and homebuilders indicated activity is poised to rise if borrowing costs decline even slightly.
• Dallas: The Eleventh District economy expanded modestly over the reporting period. Employment was stable, and wage growth remained moderate. Selling price growth continued below average in the service sector but was more typical in manufacturing. Outlooks were somewhat mixed, though most businesses expect demand to stay the same or increase over the next six months.
• San Francisco: Economic activity remained stable, employment levels and prices rose slightly. Wages grew modestly, while retail sales were stable. Activity in consumer services and manufacturing ticked down a bit. Conditions in the agriculture, residential, and commercial real estate markets continued to soften slightly. Activity in the financial services sector remained muted.

More in the full Beige Book.

Authored by Frank Fang via The Epoch Times (emphasis ours),

TAIPEI, Taiwan—The Chinese Communist Party (CCP) is more concerned about advancing toward hegemony than realizing its dream of territorial integrity, according to Taiwan President Lai Ching-te.

Lai made the remark in an interview with a Taiwanese television program aired on Sept. 1 to mark his first 100 days in office. He noted that although Beijing often brings up the issue of territorial integrity to justify its ambitions to seize the self-ruled island, the CCP does not use the same rhetoric about historically Chinese territories in Russia.

“China’s intention to attack and annex Taiwan is not because of what any one person or political party in Taiwan says or does. It is not for the sake of territorial integrity that China wants to annex Taiwan,” Lai said.

“If it is for the sake of territorial integrity, why doesn’t [China] take back the lands occupied by Russia that were signed over in the Treaty of Aigun? Russia is now at its weakest, right?” he added.

The Qing Dynasty signed the Treaty of Aigun in 1858, ceding over a vast tract of land in what is now Russia’s far east to the Russian Empire. The land comprises much of the present-day border along the Amur River.

Lai suggested that China bring up the treaty and ask Russia to return the land.

Since China doesn’t, Lai added, “it’s obvious they don’t want to invade Taiwan for territorial reasons.”

The CCP considers Lai a “separatist” and has escalated cross-strait tension since his election victory in January. Days after Lai was sworn in, Beijing launched what it called “punishment “military drills encircling Taiwan.

In 2023, Joseph Wu, then-Taiwan’s foreign minister under Lai’s predecessor, Tsai Ing-wen, warned that the Chinese regime is “more likely” to invade Taiwan in 2027.

CIA Director William Burns also warned last year that CCP leader Xi Jinping had instructed his military to be prepared for a 2027 invasion.

Beijing’s real reason for wanting to seize Taiwan, Lai said, is to change the rules-based international order.

“It wants to achieve hegemony in the international area, in the Western Pacific—that is its real aim,” the president said.

Taiwan is located on the first island chain, which runs from Japan southward through Taiwan and the Philippines and onward to Malaysia. The first island chain is considered a barrier that prevents China from having easy access to the Pacific Ocean for its naval and air forces.

Challenging the US

Akio Yaita, a Japanese political commentator and journalist, stated that he agreed with Lai’s assessment of China’s intention to annex Taiwan, according to a Sept. 2 Facebook post.

“Russia, now in the middle of a war, has seen a decline in its national power. If China wants to get its land back, it should be a good opportunity. Maybe it can be done just by spending some money. It is unknown why China continues to privately provide Russia with a lot of assistance without making any demand,” Yaita wrote.

Amid Russia’s ongoing war in Ukraine, the Biden administration has sanctioned Chinese companies for providing machine tools and electronic components to the Russian military.

Yaita also pointed out that the Chinese regime under former CCP leader Jiang Zemin also handed over land to Russia in the 1990s.

“What Xi Jinping wants to oppose is the free democratic camp headed by the United States. And Russia is China’s accomplice. The belief that ‘Taiwan’s independence will lead to war’ is just a random excuse for China,” Yaita concluded.

Chiu Chih-wei, a legislator from Taiwan’s ruling Democratic Progressive Party, echoed Lai’s comment in a Facebook post on Sept. 3, adding that Beijing also has a hardline attitude toward its territorial claim in the South China Sea.

“China’s reunification of Taiwan is not only to eliminate the government that fled to Taiwan after losing the Chinese Civil War, but it also symbolizes China’s rise as a great power and its challenge to the United States,” Chiu wrote.

The Republic of China (ROC), which is Taiwan’s official name, was founded in 1912 in China. The ROC government, under Nationalist leader Chiang Kai-shek, relocated to Taiwan in 1949 after losing control of China to Mao Zedong’s communist forces in the Chinese Civil War.

Reuters contributed to the report.

Earlier we detailed Tuesday’s Russian attack on a Ukrainian military academy in the central part of the country, which resulted in 51 people killed and over 271 wounded in what was the single deadliest attack on a gathering of Ukrainian cadets of the two-and-a-half-year long war.

On Wednesday Russia’s Defense Ministry offered an unexpected explanation, saying that its forces were targeting not only Ukrainian soldiers but their foreign instructors who were leading classes at the Poltava Institute of Military Communications, which was left utterly destroyed.

“On Sept. 3, the armed forces of the Russian Federation launched a precision strike on the 179th joint training center of the Armed Forces of Ukraine in the city of Poltava,” the Russian Defense Ministry statement began.

It said at the institute was “under the guidance of foreign instructors” and so they were targeted for elimination.

Ukraine’s defense ministry had confirmed that at the time of the large-scale daytime Iskander missile attack classes and teaching was underway at the military academy. Ukrainian MP Oleksiy Goncharenko described that the cadets merely allowed a 2-minute warning by air defense sirens

The Russian MoD statement further described that “specialists in communications and electronic warfare were trained from all parts and military units of the Ukrainian armed forces, as well as operators of unmanned aerial vehicles involved in strikes on civilian objects on the territory of the Russian Federation.”

Russia has for weeks been getting pummeled by Ukrainian cross-border drones strikes, which have especially impacted oil and gas facilities.

So in an unprecedented escalation, Russia’s military is saying the deadly strike on the military academy was fundamentally to take out foreign instructors from the West who allegedly were involved in guiding drone operations on Russian soil.

Russian state media is going so far as to call the academy located in Poltava a “NATO instructor base”…

NATO INSTRUCTOR BASE DESTROYED IN POLTAVA

The damaged military institute in Poltava was a base where foreign instructors were working, Kherson region Vladimir Saldo told Sputnik at the Eastern Economic Forum (EEF).

”Now [Ukrainian forces] are under the leadership of NATO… pic.twitter.com/eyZLtLhs6v

— Sputnik (@SputnikInt) September 4, 2024

Late last month the sprawling Kavkaz oil and petroleum storage facility in the town of Proletarsk was hit by drone strike. The resulting blaze was so extensive and fierce that it took emergency crews two full weeks to extinguish the fire.

While Ukraine and NATO have throughout the war kept tight-lipped about identifying deceased foreign fighters and instructors who died while embedded with the army, there is a high likelihood that among the casualties of the Poltava attack were British, US, or European trainers. But again, the public is not likely to find confirmation of this anytime soon. The Pentagon has also not commented on Russia’s claims.

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

Part One of this article described the burgeoning bull steepening yield curve environment and what it implies about economic growth and Fed policy. It also discussed the three other predominant types of yield curve shifts and what they suggest for the economy and Fed policy.

Persistent yield curve shifts tend to correlate with different stock performances. With the odds growing that a long bull steepening may be upon us, it’s incumbent upon us to quantify how various stock indices, sectors, and factors have done during similar yield curve movements.

Limiting Losses With Yield Curve Analysis

Stocks spend a lot more time trending upward than downward. However, in those relatively brief periods where longer-term bearish trends endure, investors are advised to take steps to reduce their risks and limit their losses. An active approach puts you on higher ground than you otherwise might have been. Moreover, when the market resumes its upward trend, you have ample funds to purchase stocks at lower prices and better risk-return profiles.

We discussed this topic at length in Bear Market Wealth Management. Per the article:

Growing wealth happens over decades. Within these decades are many bullish and bearish cycles. While investors tend to focus on making the most of the bullish cycles, it is equally important to avoid letting bear markets reverse your progress. The amount of time spent in bear markets is minimal, but the time lost recovering your wealth can be substantial. 

You may wonder why an article about bond yield curves leads off with a discussion of bear market strategies for stocks. Simply, some yield curve shifts correlate well with positive stock market returns and others with negative returns. Prior bull steepening environments have not been friendly to buy and hold stock investors. Therefore, we hope this analysis guides you in preparing to reduce risk if needed.

The Recent Bull Steepening History

The graph below charts the 2- and 10-year yields and the 2-year/10-year yield curve. Additionally, shaded in gray are periods we deem persistent bull steepening. We defined the bull steepening periods by the curve’s movement and the trend’s consistency. To qualify, the yield curve had to be increasing, with 2-year and 10-year yields moving lower for 20 weeks or longer. Furthermore, we required at least 80% of the weeks to be in the bullish steepening trend.

As shown, there have been five such periods since 1995. The most recent stretched from May 2019 to March 2020. The current bull steepening has not been occurring long enough to meet our standards defined above.

Bull Steepening Cycles Are Bearish For Most Stocks

Having defined the periods, we then studied various stock indices, sectors, and factors to assess their performance during the timeframes. To remind you, bull steepening trades typically occur when the economy is slowing, and anticipation of Fed rate cuts grows. Those traits adequately describe the current period.

Furthermore, and of importance, the current steepening is occurring from a yield curve that has been inverted for two years. Inverted means the yield on the 10-year is less than the 2-year. An inversion reduces the incentives for banks to lend, thus further increasing the odds of economic weakness.

As noted in Part One, the yield curve inversion is a recession warning but is not usually timely. Contrarily, the yield curve un-inversion typically portends a recession is coming within a year or less.

The yield curve briefly returned to positive territory as we put the final edits on this article. Therefore, we now have a much more explicit recession warning.

The graph below shows that even though we have a firmer warning, a recession can take more than a year to enter.

Bond Returns

By definition, all Treasury bonds provide positive returns in a bull steepening. While two-year yields will fall more than ten-year yields, the duration on ten-year notes is much greater. Thus, from a total return perspective, longer-duration bonds often provide better returns than shorter-duration bonds.

The table below shows the total return (coupons and price) for two- and ten-year notes during the five bull steepening periods.

Stock Returns

The first graph below charts the average returns of 19 assets, stock indices, factors, and sectors during the five bull steepening periods. The second graph compounds their returns over the five periods. 

Next, we break out the returns by similar classes of stocks. We added gold and gold miners to the factor returns graph. The graphs show the average return and the average of the maximum drawdowns during the five periods.

There are a few important takeaways:

• Gold and gold miners are the best performers during bull steepening periods by a long shot.

• Besides gold and gold miners, staples were the only other category with a positive compounded and average return.

• Every index, sector, asset, and factor, including gold and gold miners, had a negative average return at some point during the steepening period.

• The differences between S&P value and growth were not as significant as we suspected they would be.

• Similarly, the differences between the S&P 500 and the S&P small and mid-cap indexes were minimal.

• The lower beta, more value-oriented sectors clearly outperformed the higher beta sectors and factors during the steepening shift.

A Disclaimer About Expectations

It’s easy to extrapolate the past to the future. However, each of the five periods above was different. There is no doubt that the next persistent bull steepening, whether we are in it now or in the future, will have different characteristics. Past performance may not be a reliable indicator of the future.

We are currently 12 weeks into a bull steepening cycle. If it persists for another eight weeks, it will meet the threshold we used to calculate the results above. However, if that is the case, the data to calculate the expected returns and drawdowns will start from late May. The early start date could skew our expectations.

For instance, gold is up about 10% from the start date. If this is a persistent bull steepening cycle and gold ultimately matches the average 13% return over the prior five periods, it has limited upside. However, its average drawdown during the previous periods is about 6%.

Therefore, if this instance matches the average return and drawdown, we should expect gold to fall by 15% before rebounding to about 3% more than current levels.

Similarly, the sectors with prices higher than their late May levels could decline by more than the average return from current levels to match the average return.

Summary

The results of our study are relatively consistent across the five time frames. Therefore, if the current bull steepening continues, the likelihood that gold, gold miners, and the more conservative, lower beta sectors outperform the broader market is good.

The recent performance of the utility and staples sectors, along with gold and gold miners, might hint that investors are betting on a bull steepening.

We leave you with two graphs showing the importance of risk management during a bull steepening cycle that leads to a recession.

In what’s turned into a massive political shake-up in Canada, Jagmeet Singh, leader of the progressive National Democratic Party (NDP), is pulling the plug on his party’s support deal with Prime Minister Justin Trudeau’s Liberal government. Singh is set to announce the breakup in a video going live on social media Wednesday afternoon – a move that could send shockwaves through the country’s political landscape.

The deal is done.

The Liberals are too weak, too selfish and too beholden to corporate interests to stop the Conservatives and their plans to cut. But the NDP can.

Big corporations and CEOs have had their governments. It’s the people’s time. pic.twitter.com/BsE9zT0CwF

— Jagmeet Singh (@theJagmeetSingh) September 4, 2024

The agreement, called a “confidence-and-supply” deal, was supposed to last until June 2025. But Singh says he’s had enough.

“Justin Trudeau has proven again and again he will always cave to corporate greed. The Liberals have let people down. They don’t deserve another chance from Canadians,” says Singh in the video – for which CBC News obtained a transcript.

The decision sets the stage for what Singh calls an even bigger battle – gearing up to challenge Poilievre in the next election, determined to “stop Conservative cuts” and protect Canadians from a government that he claims would prioritize big corporations and wealthy CEOs.

“There is another, even bigger battle ahead. The threat of Pierre Poilievre and Conservative cuts. From workers, from retirees, from young people, from patients, from families — he will cut in order to give more to big corporations and wealthy CEOs,” says Singh.

The “Confidence and Supply” agreement was a pact where both parties support the government on key votes, like the budget, in exchange for action on certain priorities. This particular deal between Singh’s New Democratic Party (NDP) and Trudeau’s Liberals, struck in March 2022, was the first of its kind at the federal level. It ensured that Trudeau’s minority government could survive key votes in Parliament.

Conservative Leader Pierre Poilievre recently called on Singh to ditch the deal, pushing the NDP to stop backing Trudeau’s Liberals. And now, it looks like Singh is doing just that.

The NDP’s spokesperson revealed the move has been in the works for about two weeks, and they plan to discuss with Trudeau’s camp just an hour before the video goes live. If you thought Canadian politics was boring, think again. The gloves are off, and with the next federal election not scheduled until October 2025, there’s a lot of time for punches to be thrown.