Avalanches Don’t Start on the Surface

Fed raise 25 basis points, ISM Manufacturing New Orders collapse to 42.5%…nothing to see here

Long ago I used to work in the snowboard and skateboard industry. One of the benefits was meetings were often held at ski resorts and part of the time was spent snowboarding. The one thing you learn as a snowboarder is how to prepare for an avalanche. I learned that avalanches don’t start on the surface but rather underneath. Four things that have to happen for an avalanche to occur are a steep slope, a slab of snow, a weak layer and a trigger. Once the four become aligned, you have a higher probability of an avalanche.

It’s the same with economics. Once the underlying layers of the economy begin to weaken, there is a higher probability of a financial avalanche. Depending on the underlying conditions, you could have a large financial avalanche like the financial crisis of 2007-2009 or brief like 2020.

Today we find ourselves with the surface looking good. QQQ’s are up YTD. On the daily chart we are pressing the 250 day M.A., yet this is on lower the volume. Usually volume is a big part of a bull market rally.

The Federal Reserve has move Fed Funds Rates up 25 bps. Which will increase the cost of money over the next 6 months.

ISM Manufacturing New Orders are down 42.5% since the top in 2021-2022. Every time this has happen over the last 40 years a recession has followed.

Inflation has increased costing the American people more expensive lives. The first affected are the lower income earners and then soon after the middle class. We can see this in the job layoffs within the tech industry and probably will see this continue throughout more traditional industries in the coming months.

There are many other layers that we could point to that are indicating that the world economy is slowing. This will eventually trickle in to investment markets around the world. The housing market has slowed in demand for new homes and the sale of existing homes.

Todays Game Plan