Spreads/ Charts/ Inflation or Employment/ The $

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Spreads

What may have been the most popular chart of the week, came from the Atlanta Fed.

There is no denying this is a volatile metric, but the extent of the move caught more than a few off guard.

The data seemed to show a vast effort by U.S. businesses to ramp up foreign buying ahead of new tariffs. Economists worried that was a bad sign for U.S. economic growth in the first quarter of 2025, because imports are subtracted from GDP.

Analysts at Goldman Sachs offered a different explanation over the weekend: They think the big pickup in imports is mostly due to a flood of gold bars heading to the U.S., a hot trade that reflects the complex financial market for the precious metal and a split in the prices of gold in London versus New York.”  

If GDP were to be headed for negative future prints we thought taking a look into credit spreads might be warranted.

Are they moving up in anticipation of a slowing economy?

Turns out they are starting to.

That blue line above is the SPX Index inverted.

Longer term view.

As shown above, we are a ways away from spreads being near highs, but it appears there is not a lot of room below from this chart.

Another way to look at spreads is comparing them to shorter dated Treasury paper. Below is Moody’s Corporate BAA Bond Index relative to the 3M TSY, it may be signaling what the Atlanta Fed Now forecast is already saying.

As shown above, when the spread compresses below 1, the color red seems to appear.


Charts

When markets head into rough waters many like to fall back on technical charts for guidance. We thought it worth highlighting a few this week.

The VIX Index. Is it breaking out?

With respect to the VIX Index we saw this interesting back test. From 2005 looking at certain levels of the VIX and the 1 week as well as 1-month average forward returns. As well as the Standard Deviation.

So, if the VIX hits 30, the 1-month average return is 1.6%.

200 Day Moving Averages for SPX and NDX

Momentum Basket relative to the SPY.

The Fear Index, VIX, is up and many major averages are breaking down, as defined by trading below their 200 day Moving Averages. This was highly publicized during the week and could only lead to sentiment indicators turning negative.

For perspective, and yes this is only 1 metric, but the FWD P/E multiples are still elevated. A bit of a messy chart below, but it does show pre and post pandemic multiple levels for NDX, blue line, SPX, green line, and SPW-equal weighted SPX, red line.

Only the SPW Index is back to its pre pandemic levels. The other 2, SPX and NDX,  are still 3 or 4 turns higher.

What is the takeaway from all the above charts, the markets are a bit sloppy right now but its hard to say they are cheap on Fwd. P/E basis.

Inflation or Employment

Should Inflation still be the leading concern of the Federal reserve?

According to a service that tries to dynamically calculate it, it probably should not be.  

https://truflation.com/marketplace/us-inflation-rate 

The employment side of the equation saw a few metrics released this week.

One metric that does not appear above is the Challenger US Job cut announcements.

“Outplacement firm Challenger, Gray & Christmas said Thursday that companies planned to cut 172,017 jobs in February, up sharply from 49,795 in January and 84,638 a year ago, posting the highest monthly total since July 2020 during the pandemic and the highest for February since 2009.

The largest layoff count in February was in the government sector, which accounted for 62,242 of the total due to Department of Government Efficiency actions. The retail sector posted the second largest total for the month with 38,956 cuts.”

The most cited reason for layoffs other than DOGE actions was bankruptcy, which accounted for 35,172 of the totals.

We think the above chart is self-explanatory.


The $

The last chart we wanted to point out is the US $, as tracked by the DXY Index. It has fully round tripped since the presidential election. And, yes, it is also below its 200-day moving average. Simply pointing out the move.

Is the honeymoon over?

Some earnings to keep an eye on next week:

Key TMTs                                                                    

• Oracle Corp (ORCL) Mon, Mar 10    

• Adobe Inc (ADBE) Wed, Mar 12

• DocuSign (DOCU) Thu, Mar 13

• Rubrik Inc (RBRK) Thu, Mar 13

• Ciena Corp (CIEN) Tue, Mar 11

• UiPath Inc (PATH) Wed, Mar 12

• SentinelOne (S) Wed, Mar 12

• Asana Inc (ASAN) Mon, Mar 10

• Semtech (SMTC) Thu, Mar 13

• PagerDuty (PD) Thu, Mar 13

• Phreesia (PHR) Wed, Mar 12



Key Consumers

• Inditex (ITX SM) Wed, Mar 12

• Volkswagen AG (VOW GR) Tue, Mar 11

• BMW Ag (BMW GR) Fri, Mar 14

• Dr Ing Porsche (P911 GR) Wed, Mar 12

• Henkel AG (HEN3 GR) Tue, Mar 11

• Daimler Truck (DTG GR) Fri, Mar 14

• Ferguson Ent (FERG) Tue, Mar 11

• Williams-Sonoma (WSM) Thu, Mar 13

• Viking Holding (VIK) Tue, Mar 11

• Dick’s Sporting (DKS) Tue, Mar 11

• Dollar Gen (DG) Thu, Mar 13

• American Eagle (AEO) Wed, Mar 12

• Kohl’s Corp (KSS) Tue, Mar 11

• Buckle Inc (BKE) Fri, Mar 14

• Ulta Beauty (ULTA) Thu, Mar 13

• Casey’s General (CASY) Tue, Mar 11

• Vail Resorts (MTN) Mon, Mar 10

• Puma SE (PUM GR) Wed, Mar 12

• Korn Ferry (KFY) Tue, Mar 11

• HUGO BOSS (BOSS GR) Thu, Mar 13

• Afya Ltd (AFYA) Thu, Mar 13

• G-III Apparel (GIII) Thu, Mar 13


China ADRs

• Li Auto (LI) Fri, Mar 14

• Futu Holdings (FUTU) Thu, Mar 13

• Kanzhun Ltd (BZ) Tue, Mar 11

• MINISO Group (MNSO) Wed, Mar 12

• WeRide (WRD) Fri, Mar 14

• RLX Tech (RLX) Fri, Mar 14

• Weibo Corp (WB) Thu, Mar 13

• Hesai Group (HSAI) Mon, Mar 10

• EHang Holding (EH) Wed, Mar 12

• Hello Group (MOMO) Wed, Mar 12

Have a wonderful weekend!

Best,

Meraki Trading Team

About Meraki Global Advisors

Meraki Global Advisors is a leading outsourced trading firm that eliminates investment managers’ implicit and explicit deadweight loss resulting from inefficient trading desk architectures. With locations in Park City, UT and Hong Kong, Meraki’s best-in-class traders provide conflict-free 24×6 global trading in every asset class, region, and country to hedge funds and asset managers of all sizes. Meraki Global Advisors LLC is a FINRA member and SEC Registered and Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.

For more information, visit the Meraki Global Advisors website and LinkedIn page
Contact:
Mary McAvey
VP of Business Development

10yr TSY/ China Continued/ Housing Affordability/ Brown Shoots

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10yr TSY

Today, Friday February 28th, there was a fair amount of Economic news released, including the Federal reserve’s preferred inflation metric, PCE. There were some surprises both good and bad:  personal Income better, spending disappointing both in real and inflation adjusted terms. The PCE metrics were all basically in line with expectations.

The reason we mention it is because the true measuring stick is usually the response of the 10yr TSY. At the time of this writing, the 10yr is basically flat on a yield basis. It just so happens to be hovering right around 4.25% yield. Funny enough, we saw a chart earlier in the week that suggested the 4.25% level is rather attractive.

China continued

We would like to revisit a chart from last week that we are still trying to fully understand.

This one:

M1 Money supply for China. Quite the chart!

We noticed a few headlines this week regarding Chinese economic policy on Bloomberg as well.

Monday: China’s local governments are set to issue an unprecedented $233 billion of bonds in the first two months of the year, exacerbating a cash squeeze in the financial system.

Tuesday: China is increasing scrutiny of outbound investments by domestic companies as well as their use of proceeds from Hong Kong share sales, people familiar said.

Wednesday: China plans to inject at least $55 billion into three of its biggest banks, people familiar said. The plan may be completed as soon as June and follows through on a broad stimulus package unveiled in 2024.

The question becomes why is China going through these motions now? The top 6 banks have capital levels that far exceed national capital requirements. Is there something the Chinese Officials see that nobody else does?

What metrics could we look to for evidence that mark to market could be an issue? First thought is home prices.

The Home Price Index suggests prices have been in a negative trajectory since early 2017.

Looking at all property developer and home building names in HSI and CSI indices, we see that despite both broad indexes either being at 52-week highs or within 7% of 52-week highs, the property developer and home builder names in the two indices are on average 22% off their 52-week high.  They are underperforming the broader market. 

Maybe the market senses something as well considering the differential in performance?

China increases the M1, top chart, adding liquidity to the economy. Announces Monday they will sell $233B in bonds to soak some of that liquidity back up, but then also announce they will “increase scrutiny of outbound investments by domestic companies” to keep everything onshore.  More importantly, why now?


As the reader you can draw your own conclusion here on what this data means. 

Housing Affordability

Housing affordability is getting strained fast.  Annual U.S. household income needed to purchase a typical US home.

Jan. 2020 -> $51,646

Jan. 2021 -> $51,740

Jan. 2022 -> $62,669

Jan. 2023 -> $86,184

Jan. 2024 -> $92,006

Jan. 2025 -> $92,538 

5-year shift +79%!   

The result of the above.

Existing home sales making 20+ year lows.

Brown Shoots

Are we starting to see a more consistent flow of data points that suggest the economy is slowing? It sure seemed that way this past week.

Let’s start with Consumer Confidence:

Consumer Confidence Expectations

Initial Jobless Claims

Retail Sentiment

The AAII survey of the US retail investor has just collapsed to -41.2, the 8th lowest reading since the survey started in 1987.

Finally, US Average Weekly Hours Worked could be suggesting pain ahead as well.

Recently, each time the US Average Weekly Hours has dipped below 34.2 hours, a recession has occurred. Granted the 2nd time we were in the midst of a pandemic. GDP is stealthily moving lower, along with the Average Weekly Hours Index already below 34.2, it’s a cross-section of economic data to keep an eye on.

Most recent GDP Now estimate from Atlanta Fed.

Yup, we hate to leave you with that, but that green line is now in negative territory!

Have a great long weekend!

Best,

Meraki Trading Team

About Meraki Global Advisors

Meraki Global Advisors is a leading outsourced trading firm that eliminates investment managers’ implicit and explicit deadweight loss resulting from inefficient trading desk architectures. With locations in Park City, UT and Hong Kong, Meraki’s best-in-class traders provide conflict-free 24×6 global trading in every asset class, region, and country to hedge funds and asset managers of all sizes. Meraki Global Advisors LLC is a FINRA member and SEC Registered and Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.

For more information, visit the Meraki Global Advisors website and LinkedIn page
Contact:
Mary McAvey
VP of Business Development

Home Prices/ China/ Conflicting Charts

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Home Prices

In previous pieces we have presented this input of the CPI, the contribution of Shelter. This input accounts for 36.22% of the YoY CPI. The metric has been slowly but steadily moving lower since the Q2 2023.

We saw a few charts this week that led us to believe the trend above will continue and possibly accelerate.

New Home inventory is approaching some high-capacity levels.

There are now 9 times more new homes for sale than the average number of homes sold per month, the highest since 2022, per Reventure. In other words, it would take 9 months for current inventory of new homes on the market to sell given the current sales pace. This ratio is more than 2 TIMES higher than in 2020. In the past, there were only 4 periods when months of supply were higher than they are now with 3 of them being during recessions. Meanwhile, the number of new single-family homes for sale has risen to 494,000, the highest since the 2008 Financial Crisis. Such a large imbalance suggests price cuts may be coming.

On the rental side we noticed this chart.

US rental vacancy rate from ApartmentList has now surpassed July 2020 peak, as of January, now up to 6.85%.

The 2 charts above inspired us to look at the Existing Home Inventory. As many know, there is a definite seasonality to the existing home selling process, so wanted to look at the growth in inventory on that seasonal basis. Turns out the inventory grew in January the most it has since 2019, pre pandemic.

One Housing specialist we follow suggests the delta on home price increases has gone negative as well.

“Home price appreciation was about 4% to end 2024. It’s closer to 2% now nationally. Lots of local markets are negative YoY.”

The 4 preceding examples would seem to indicate that the first chart above will at the very least continue its present trajectory lower, and if more than 1/3 of the CPI input continues with a negative delta, we think it will be pretty tough for the CPI to surprise to the upside in the near future.



China

This past week there has been a bit of a focus on Chinese related equities. Recent 13F filings revealed that more than a few funds have been increasing their exposure to China. Then we saw this headline on Bloomberg:

“Morgan Stanley strategists have turned optimistic on Chinese stocks, recommending an equal weight position and predicting the MSCI China Index to reach 77 by the end of 2025. The strategists cite a “structural regime shift” in China’s equity market, driven by technological breakthroughs, regulatory shifts, and efforts by companies to boost share value. The upgrade follows similar bullish views from other Wall Street firms, including Goldman Sachs, JPMorgan Chase, and UBS, and suggests a fundamental shift in how global investors approach the Chinese market.  Lombard Odier Investment Managers has increased its overweight position in Chinese stocks this year, betting on the country’s successful transition into a new economy focused on high-value tech.” -BBG

The HSI Index closed up 3.8% this week alone.

Considering the filings, the Bloomberg headline made us wonder if this was simply the sell side following the buyside? Tough to say, wouldn’t be the first time.

But then we came across this chart:

Chinese Money supply. Powerful move!

This might explain the moves better than positioning or sell side upgrades?

We were curious about the correlation. Appears it is strongest with the CSI 300, SHSZ300 Index, at .916.

If the .916 correlation holds, should we expect a multiple re-rating on the CSI 300?

Too many variables to know for sure, but we don’t think it would come as a surprise if the multiple were to elevate toward 16, considering the chart above.

Conflicting Charts

A couple of charts we found somewhat conflicting.

According to the BAML Fund Manager survey, Investors see US Equities as overvalued.

89% of Fund managers now believe U.S Equities are overvalued. That is the most since the Dot Com bubble.

But then there is this statistic. Should the S&P 500 finish February higher, that would mean stocks gained in both Jan and Feb. Rest of year? Higher 93.1% of the time and up 12.3% on avg. Full year up nearly 20% on avg.

Hmmmmm…..

Have a great long weekend!

Best,

Meraki Trading Team

About Meraki Global Advisors

Meraki Global Advisors is a leading outsourced trading firm that eliminates investment managers’ implicit and explicit deadweight loss resulting from inefficient trading desk architectures. With locations in Park City, UT and Hong Kong, Meraki’s best-in-class traders provide conflict-free 24×6 global trading in every asset class, region, and country to hedge funds and asset managers of all sizes. Meraki Global Advisors LLC is a FINRA member and SEC Registered and Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.

For more information, visit the Meraki Global Advisors website and LinkedIn page
Contact:
Mary McAvey
VP of Business Development

Retail Sales/ Consumer Credit/ Housing Prices/ Indices/ Small Business Outlook

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Retail Sales

Today, Valentines Day, Retail Sales were released by the US Census Bureau and they disappointed estimates.

Retail Sales were released by the US Census Bureau and they disappointed estimates.

The one that we would like to point out is the Control Group. 1.1% miss to expectations is a big miss, and more importantly it goes into the calculations of other macro indices. We are no experts on the exact math, but shortly after that number was reported the Atlanta Fed updated their GDP Now estimate. Now, we are only ½ way through Q1, but they revised down their Q1 GDP estimate from +2.9% to +2.3% which we thought worthy of mention.

GDP Growth

Consumer Credit

Juxtapose the January Retail Sales numbers discussed above with Consumer Credit numbers from December.

Last week Consumer Credit MoM (Non-Mortgage) was released.

Consumer Credit MoM (Non-Mortgage)

Obviously, seasonality plays a role in this number, the holidays, and all, but at almost 9X the December average, the metric is notable.

Consumer Credit MoM (Non-Mortgage)

Another reason it was noticeable:

Consumer Credit MoM (Non-Mortgage)

That was actually the largest addition ever.

Reminded us of a chart we presented recently showing large private debt as well as the present interest rate level.

Outstanding Consumer Credit in Billions

Now, let’s add the cost of that debt at the present interest rate level to see what the gross $ amount looks like. Simple math for perspective, $1.38 trillion at 21.47% interest rate equals $296 Billion in interest costs.

Pre Covid Levels

That’s an 80% increase in interest costs between pre- and post-pandemic, born entirely by the individual consumer.

Retail Sales increased 39% from pre Covid until recently, the amount of interest owed, not including principle, has increased by 80%.  That’s more than double that sales metric. At what point will this begin to impact the consumer’s purchasing power? 

Retail Sales increased 39% from pre Covid until recently, the amount of interest owed, not including principle, has increased by 80%

Housing Prices

We have pointed out the impact of housing’s prices on inflation metrics before, but we think there is one chart worth updating.

Housing Prices

Not since the GFC has this index seen these levels.

Housing Prices

On a seasonality basis this metric has not been this bad since 2009.

Housing Prices

Indices

A couple of random notes caught our eye this week. We mention this, because in a nonlinear way, we believe they are related.

Last weekend, Bloomberg ran an article discussing the economics of different Hedge Fund business models.

The following chart was included:

Indices

In this day and age of increased transparency, it makes us wonder if public endowments and pension funds will become increasingly cost sensitive to their investment choices?

Then, we came across the Bill Ackman letter that included a fair amount of informative charts.  This one in particular caught our eye.

Passive funds now represent more than half of all mutual fund and ETF assets, making inclusion in the indices they track increasingly important.

Passive Funds

So, if we consider the concept of price consciousness from the first point above, and the trend direction of index fund flows from the 2nd point above, the relevance of popular benchmarks/Indexes will become ever more important.  It could prove to be a virtuous or vicious cycle, depending on adds and deletes. 
It makes us wonder if keeping an eye on the particular companies, whether public or private, that oversee the construction of popular indexes might not be a wise move?

Small Business Outlook

The NFIB recently released a bunch of their Indices. We like to keep an eye on a few. One stood out this week: The Small Business Outlook for General Business Conditions. It has had quite a run.

Small Business Outlook

For perspective we wanted to see the last time the outlook was this good. It may come as no surprise that it was back in 2016.

Notice the similar vertical incline?

Small Business Outlook

Funny enough they have something in common.

Small Business Outlook

We add the SPX Fwd. estimates for this reason. In the 3 years before the pandemic struck, or prior to the AI phenomena, the estimates moved up by 52%. Maybe this is just coincidence, or maybe not, but it’s hard not to notice the improved sentiment out there after the first 20 days of President’s second term.

Have a great long weekend!

Best,

Meraki Trading Team

About Meraki Global Advisors

Meraki Global Advisors is a leading outsourced trading firm that eliminates investment managers’ implicit and explicit deadweight loss resulting from inefficient trading desk architectures. With locations in Park City, UT and Hong Kong, Meraki’s best-in-class traders provide conflict-free 24×6 global trading in every asset class, region, and country to hedge funds and asset managers of all sizes. Meraki Global Advisors LLC is a FINRA member and SEC Registered and Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.

For more information, visit the Meraki Global Advisors website and LinkedIn page
Contact:
Mary McAvey
VP of Business Development

India/ Crypto/ Employment

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India

Since late September 2024, India’s NIFTY Index has fallen nearly -13%.

According to one broker’s research, current market sentiment makes for an interesting entry point:

Although the Sentiment metric above looks pretty good, we thought looking at a forward multiple might shed more light on the timing accuracy. The Index is currently at a level that historically has not seen the market bounce. However, when the forward multiple historically dips below 19X roughly, it does appear to be a market turning point:

As shown above, not quite there yet, and from the chart below the Index does not appear attractive on a technical basis:

Top panel- the 150 Day MA (Green line) has inflected lower.

Middle Panel- the RSI at 55 is neutral at best.

Bottom Panel- Stochastics suggest the Index has not flipped.

Crypto

Generally, not something we watch too closely, but with the recent focus on Crypto courtesy of the new Administration, we thought this chart might be of interest to a few.

ARK published research which can be found here:
Full report here: http://ark-invest.com/big-ideas-2025

Employment

Today, Friday Feb 7th, 2025, the Non-Farm Payroll numbers were released. The number was a bit shy of expectations, 143k vs 175k estimate, but the previous month’s revision more than made up for that difference.

As we have done before, looking “below the hood”, is often worth the time and effort. Of the 143k total number, 93k came from either Education & Health Services or Government.

We mentioned this previously but thought adding a few different charts might help offer perspective on the contribution these two sectors have had to the most scrutinized employment number out there.

Education

Can the education sector continue to add jobs at the previous pace with metrics like these above? Maybe they can, but that is a hard proposition to believe in.

With respect to the Government adding jobs, we have a different metric to offer. The Employment Cost Index, there are indexes for both Private and Government jobs.

Employment Cost Indexes for Private and Government

Notice that the Private employment cost Index has already rolled over, beginning back in 2022, at the height of Inflation. But, and more importantly, the Government employment cost index has yet to follow. It does not take an expert to see there is pretty solid relationship between the two, whether that is causational or coincidental is irrelevant.

So, if the pattern is to continue the cost of hiring a Government employee is becoming less expensive.

If we look at the Non-Farm Payroll Index less the contributions of Education/Health Services and Government jobs, it would look something like this.

If the contribution of Education/Healthcare Services and Government were to deteriorate, which seems likely considering the above metrics, then this chart is likely to see increased red soon.

According to a Bloomberg story:
“Out of the 2.2 million jobs added in the US in 2024, 1.4 million were in education, health care or government. In the 2010s, a solid contribution from those industries was closer to 700,000 positions per year, half of last year’s pace. These industries were laggards in the post-pandemic recovery, taking longer to normalize than food services or construction. Schools and hospitals weren’t getting into bidding wars for workers the way airlines or restaurants were in 2021. Government employers took longer to disburse the funds they received as pandemic relief or under President Joe Biden’s fiscal support programs. In some cases, it has taken weakness elsewhere for workers to accept the lower pay but relative stability of positions in education and government.”

So, if we revisit the Employment Cost Index chart but add CPI and the 10yr TSY yield for perspective, it’s hard to believe wage pressure will drive Inflation higher from here.

Why go through this entire exercise?

Well, if Government Job Cost index follows that of the Private sector, as shown above, the support it has been able to provide to the Non-Farm Payroll Index this past year will no longer be there. Education and Health care most likely follow as noted from the Bloomberg article above. And this is not even accounting for the recent activity of the new administration regarding Government employees.

Final anecdotal note surrounding the Government jobs. We think this speaks for itself.

5 of the top 7 richest counties in the US are in the immediate vicinity of Washington DC.

This region must be producing something more economically valuable than the nonstop innovation coming out of Silicon Valley, right?

Have a great weekend!

Best,

Meraki Trading Team

About Meraki Global Advisors

Meraki Global Advisors is a leading outsourced trading firm that eliminates investment managers’ implicit and explicit deadweight loss resulting from inefficient trading desk architectures. With locations in Park City, UT and Hong Kong, Meraki’s best-in-class traders provide conflict-free 24×6 global trading in every asset class, region, and country to hedge funds and asset managers of all sizes. Meraki Global Advisors LLC is a FINRA member and SEC Registered and Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.

For more information, visit the Meraki Global Advisors website and LinkedIn page
Contact:
Mary McAvey
VP of Business Development

CPI & 10Yr./ Employment

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CPI & 10yr.

Occasionally, it’s nice to look back at some older charts or metrics that used to be in greater focus, just to review. One that caught our eye recently is the correlation between US CPI and both the 10yr TSY as well as the 2yr TSY.

The correlation is rather strong:

Occasionally, it’s nice to look back at some older charts or metrics that used to be in greater focus, just to review. One that caught our eye recently is the correlation between US CPI and both the 10yr TSY as well as the 2yr TSY.

We thought the .851 is notable, so it led us to take a deeper dive into the CPI. We all know Inflation has been top of mind since the Fed began its raising cycle and even more deeply followed once that course was reversed.

Core Services is the greatest single sector contributor to the CPI, and of that 61%, 34%-more than ½-is directly related to shelter.

Core Services is the greatest single sector contributor to the CPI, and of that 61%, 34%-more than ½-is directly related to shelter.

Below we have the 2 components that add up to 34% of the CPI. As the chart depicts below, both metrics have yet to return to pre covid levels.

Below we have the 2 components that add up to 34% of the CPI. As the chart depicts below, both metrics have yet to return to pre covid levels.

Why focus on these 2 metrics, other than their weightings in the CPI?

Well, Pending Home Sales were reported Thursday, January 30th, and the YoY number came in well below expectations:

Pending Home Sales were reported Thursday, January 30th, and the YoY number came in well below expectations:

As seen above, a big miss on the Pending Home Sales YoY, 4.2% Est vs -2.9% actual, is what caught our eye.

So, Sales are certainly falling off, but what about supply? Could it be supply is spooking would be buyers?

Does not look like it from the below chart.

Sales are certainly falling off, but what about supply? Could it be supply is spooking would be buyers? Does not look like it from the below chart.

Hard to miss the media not mentioning that Housing supply is lacking. If we look a little deeper though, through a seasonality lens, it appears we are headed into the time of the year where inventory builds.

Below is a Heat Map showing Inventory by month, same metric as the above chart.

Below is a Heat Map showing Inventory by month, same metric as the above chart.

As seen from the 5-year averages above, Inventory seasonally grows January through July.

One part of the home sales equation we have yet to mention is the affordability part. Home prices over the last 5 years have doubled wage growth.

As seen from the 5-year averages above, Inventory seasonally grows January through July. One part of the home sales equation we have yet to mention is the affordability part. Home prices over the last 5 years have doubled wage growth.

Affordability has become a serious headwind, most likely being a large contributor to the Pending home sales miss on Thursday.

Affordability has become a serious headwind, most likely being a large contributor to the Pending home sales miss on Thursday.

or looked at in a different way:

Affordability has become a serious headwind, most likely being a large contributor to the Pending home sales miss on Thursday.

Both charts are interactive and from the following link in case anyone would like to take a deeper dive:

https://www.atlantafed.org/research/data-and-tools/home-ownership-affordability-monitor 

It is hard to believe in a scenario where the 2 constituents of the CPI mentioned above could move higher and continue to help elevate the CPI Index itself. Between the headwinds of affordability and seasonality, pricing could see its momentum change.

The .85 correlation would lead one to believe the 10yr TSY could begin to feel the impact of those headwinds.

It is hard to believe in a scenario where the 2 constituents of the CPI mentioned above could move higher and continue to help elevate the CPI Index itself. Between the headwinds of affordability and seasonality, pricing could see its momentum change. The .85 correlation would lead one to believe the 10yr TSY could begin to feel the impact of those headwinds.

Employment

Is the US job market weakening under the surface? The average duration of unemployment in the US jumped to 24 weeks in December, the highest in nearly 3 years. Over the last 2 years, the average duration of unemployment has jumped by 5 weeks. The time it takes Americans to find a new job is now higher than in any other period before the 2008 Financial Crisis. This data coincides with new job postings on Indeed falling over the last 3 years to near their lowest since the 2020 pandemic.

Is the US job market weakening under the surface? The average duration of unemployment in the US jumped to 24 weeks in December, the highest in nearly 3 years. Over the last 2 years, the average duration of unemployment has jumped by 5 weeks. The time it takes Americans to find a new job is now higher than in any other period before the 2008 Financial Crisis. This data coincides with new job postings on Indeed falling over the last 3 years to near their lowest since the 2020 pandemic.

As seen above, other than during Covid, every time this metric begins to move up, a recession seems to appear.
The Indeed job postings below.

As seen above, other than during Covid, every time this metric begins to move up, a recession seems to appear. The Indeed job postings below.

Have a great weekend!

Best,

Meraki Trading Team

About Meraki Global Advisors

Meraki Global Advisors is a leading outsourced trading firm that eliminates investment managers’ implicit and explicit deadweight loss resulting from inefficient trading desk architectures. With locations in Park City, UT and Hong Kong, Meraki’s best-in-class traders provide conflict-free 24×6 global trading in every asset class, region, and country to hedge funds and asset managers of all sizes. Meraki Global Advisors LLC is a FINRA member and SEC Registered and Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.

For more information, visit the Meraki Global Advisors website and LinkedIn page
Contact:
Mary McAvey
VP of Business Development

Future performance/ Rents/ DXY/ Chinese population

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The week felt unusually long with the Inauguration to start, and then a flurry of activity as promised by the new administration. But that did not translate into any real identifiable market patterns worthy of passing along this week. We did see plenty of one-off impactful points though, so in no particular order we will highlight them below.

Future performance

With another week left in January, talk will inevitably start to focus on the fabled January Barometer. This is an age-old indicator that says that “as January goes, so goes the rest of the year.”  It’s good to keep in mind that statistically speaking this is true, but it is true for every other month in the year as well.  All this indicator really says is that markets trend; if the month in question is up (or down), it is likely part of a longer trend, suggesting that the months that follow will do the same.

Rents

The Cleveland Fed released their Rent metrics recently.

Federal reserve Chairman Powell has acknowledged that the Cleveland Fed “New” rents generally lead the “All” rents. New rents just came in at -2.43%. 

As you can see from the chart below, New rents are approaching levels not seen since the GFC.


One of the major factors driving the above could simply be Consumer views on buying a home. According to the University of Michigan Survey of those seeing Good Conditions less their survey of those seeing Bad conditions, Its no wonder the consumer is negotiating for lower rents.

DXY Update

Last week we presented a chart of the GS Financial Conditions Index and how we thought the strength of the US$ might be impacting it.

Well, we found another chart this week that made us want to revisit the above


Updated version of the chart from last week just goes to show the sensitivity that both the SPX market multiple and the GS Financial Conditions Index both have to the USD. The DXY Index moved less than .5% lower and that results in a full multiple point higher of the Forward SPX multiple.


If the above pattern from President Trump’s first term holds true, will certainly be interesting to see the impact to that Forward multiple.

China’s Population Concerns

China’s population fell by ~1.39 million people in 2024, to a total of 1.41 billion, marking the 3rd straight yearly decline. 2024 marked 2nd lowest number of births since the founding of the People’s Republic of China in 1949. Bloomberg estimates that China’s population will shrink by ~50 million by 2035, to 1.36 billion, the lowest since 2012. All while the working-age population has been declining for over 5 years. China’s falling demographics are at the core of their economic issues.

We also thought this chart from CLSA gave further perspective on the issue.

According to ChatGPT:

“To maintain a positive GDP growth, a country typically needs to maintain or grow its working-age population, since this is the group that contributes to production and economic output. Several factors influence the relationship between birth rates and GDP growth, but here’s a basic breakdown:

Replacement-level fertility: For a population to replace itself in the long term, the fertility rate must generally be around 2.1 children per woman. This accounts for children who do not survive to adulthood and those who may not have children themselves. A fertility rate below 2.1 would eventually result in a shrinking population, which could pose challenges for maintaining GDP growth unless other factors, like immigration, offset the decline.”

The above makes us wonder if growth estimates related to Chinese exposure are taking this into account.

Have a great weekend!

Best,

Meraki Trading Team

About Meraki Global Advisors

Meraki Global Advisors is a leading outsourced trading firm that eliminates investment managers’ implicit and explicit deadweight loss resulting from inefficient trading desk architectures. With locations in Park City, UT and Hong Kong, Meraki’s best-in-class traders provide conflict-free 24×6 global trading in every asset class, region, and country to hedge funds and asset managers of all sizes. Meraki Global Advisors LLC is a FINRA member and SEC Registered and Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.

For more information, visit the Meraki Global Advisors website and LinkedIn page
Contact:
Mary McAvey
VP of Business Development

AI & Employment/ USD Strength/ Insurance Costs/ Balance Sheet

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AI & Employment

This past week the JPM Healthcare conference took place. The NVDA CEO and founder, Jensen Huang, took the stage with some Healthcare industry leaders for a fireside chat to discuss AI’s impact in healthcare. It got us thinking how will AI impact healthcare overall.

The above chart would suggest a fast-growing addressable market size by 2030.

Where is the present impact?

A more detailed idea of where the impact could be?

Why bring this up?

What will the impact mean for employment in the healthcare industry?

Well, we have noticed recently that 2 of the most impactful drivers to the Non-Farm Payroll (NFP) numbers have been Healthcare and Government jobs.

Below is a busy chart, we know, but it contains the contribution of Healthcare jobs, in the middle panel, and Government jobs, in the bottom panel to that of the overall NFP number, blue line in the top panel.

The top panel also contains the combination of the bottom 2 panels to give a better idea of just how much those 2 subsectors contributed.  Bottom line to look for in the following charts is this:  The 3 month average of government and healthcare as a percentage of total jobs contributed is just over 40%, with the last reading just under 44%.  Almost half the NFP #, so closely watched by the Federal Reserve, is being largely driven from these 2 subsectors.

A simpler way to look at this is a chart of the % contribution of the 2 subsectors:

So, what happens if those drivers loose their momentum? Tough to argue against the demographics of an aging population, the Baby Boomers specifically. But, what if the initial AI contribution to the HC industry is the “low hanging fruit” if you will. Positions that AI can more easily and safely step into before taking on harder tasks that could carry a heavier responsibility to never be wrong. Since the beginning of 2022, as you can see from the 2nd panel of the chart above this last one, the HC industry has been on net hiring spree, that is a heck of a run.

Why include the Government jobs as well ? Considering all the chatter around a new quasi department, “DOGE”, Department of Government Efficiency, we think it’s a safe assumption that Government jobs could go net negative as that “department” begins to garner traction.

Bottom line, its possible that the 40% that has been driving the NFP numbers over the last few years could now be in jeopardy. Total conjecture on our part, but at the very least knowing what had been driving those NFP numbers is worthy of awareness.

In addition to the above its hard to miss anecdotal posts referring to AI’s forthcoming impact. Starting with GS CEO David Solomon:

or this one by Greg Isenberg:

Strength of the USD

We like to keep an eye on the GS Financial Conditions Index, the higher the Index the tighter Financial conditions are. Lately the Index has started trending north.

Many believe this is largely a function of the strengthening USD.

Notice the Blue line, USD Index, making a recent break higher, which some feel will only tighten financial conditions more.

So, if financial conditions have yet to be impacted fully by the strength of the USD, what do we think will happen to Fwd P/E multiples once the impact has begun to be felt?

Insurance Costs

We saw a very scary article on Bloomberg this week which we thought worth highlighting. The Uninsurance nightmare brewing in the US.

“But this isn’t just a Los Angeles problem. From California to Texas, Florida and beyond, parts of the US most susceptible to natural disasters are slowly waking up to an underinsurance nightmare. It’s still ballooning in scope as home values keep rising, people keep crowding onto the front lines of climate change and a heating planet keeps intensifying those disasters.”

“Nature will have a say in how quickly this process moves. Los Angeles homeowners caught in the city’s wildfires are already discovering insurance payouts won’t come close to replacing the full value of their homes, the Wall Street Journal reported this weekend. A lot of assumed wealth has gone up in literal smoke, destroying people’s financial security and deflating some of that housing bubble.”

“And home insurers aren’t just declining to renew policies in places like California’s WUI or Florida’s Gulf Coast. As the Budget Committee noted, they’re also starting to avoid places like Oklahoma, likely as a result of its exposure to thunderstorms, the destructive power of which has been amplified by climate change. Montana and New Jersey are among the many other states where insurance nonrenewals are a small but growing problem. This trend is driving homeowners, who must have insurance to get a mortgage, into the arms of state-run insurers of last resort or risky, lightly regulated insurers that tend to offer inadequate coverage.”

“Put it all together, and you get something that looks an awful lot like systemic risk, threatening home values across the country.”

Balance Sheet

Will we be seeing metrics like this consistently in the future ?

The US govt had total revenue (taxes, fees, tariffs) of $454 billion. The US govt paid $140 billion in interest on the national debt. 31% of all govt revenue was consumed by interest payments on the debt. It is actually worse than that. The money revenue and payments for things like social security push up the revenue number, but it is all out the door to recipients right away. If you ignore the social security and unemployment insurance money, the US govt had $317 billion in revenue and paid $140 billion in interest on the national debt. About 44% of all revenue went to interest.

or looked at another way:

Have a great weekend!

Best,

Meraki Trading Team

About Meraki Global Advisors

Meraki Global Advisors is a leading outsourced trading firm that eliminates investment managers’ implicit and explicit deadweight loss resulting from inefficient trading desk architectures. With locations in Park City, UT and Hong Kong, Meraki’s best-in-class traders provide conflict-free 24×6 global trading in every asset class, region, and country to hedge funds and asset managers of all sizes. Meraki Global Advisors LLC is a FINRA member and SEC Registered and Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.

For more information, visit the Meraki Global Advisors website and LinkedIn page
Contact:
Mary McAvey
VP of Business Development

Employment & Rates/ Tariffs

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Employment & Rates

Still undefeated in signaling a US Recession?

It’s an interesting thought considering some of the Economic data reported this week. NFP came in strongly above expectations today, as well as JOLTS earlier in the week showing better Job openings than expected.

The level of the 10yr TSY and the GDP YoY should probably be weaker if the signal trend is to hold?

The question brings us to this chart.

Should we be concerned that a replay of 1981, hint Volcker, is around the corner ?

The 10-year yield is now up 104 basis points since the Fed started cutting (black).

In the last 60 years, only one time have 10-year yields risen more in a rate-cutting cycle, in 1981 (brown) when Volcker took the funds down from its world record high of 20%, and the bond market hated it (causing Yardeni to coin the term, “Bond Market Vigilantes”)

The current rate rise is “getting into the conversation” of surpassing the 1981 rate rise. It probably will not, but who thought it would get this close after 100+ days?

With the potential for higher rates, we thought this chart from Citi was worth pointing out.

But there is one thing that nags some about the strength of the employment metrics. Is it possible that revisions could be forthcoming?

We saw this posted wondering if the comment on the bottom right of this screen shot, “ the US has lost 1.3M full time jobs over the last 13 months” will resonate with the people that make rate decisions.

Is it possible that the US consumer is beginning to sense something regarding employment?

Revolving Consumer Credit might be suggesting so, largest drawdown since Covid.

But, for perspective, it could simply be interest rate levels as well. Blue line below.

Please note that the Outstanding metric above, white line, does not include the 11/30/24 13.7% drop, but the rates are certainly the same if not higher.

Tariffs:

Negative spillover from tariffs on China to pressure Korea, Taiwan, and Australia.

Best,

Meraki Trading Team

About Meraki Global Advisors

Meraki Global Advisors is a leading outsourced trading firm that eliminates investment managers’ implicit and explicit deadweight loss resulting from inefficient trading desk architectures. With locations in Park City, UT and Hong Kong, Meraki’s best-in-class traders provide conflict-free 24×6 global trading in every asset class, region, and country to hedge funds and asset managers of all sizes. Meraki Global Advisors LLC is a FINRA member and SEC Registered and Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.

For more information, visit the Meraki Global Advisors website and LinkedIn page
Contact:
Mary McAvey
VP of Business Development

Performance/ Inflation

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Performance

As the year came to a close we thought offering a brief summation of performance metrics might help with perspective.

MS PB Performance estimates:

The market managed to complete the year without having a double digit draw down.

Inflation

A potential concern heading into the new year is the delayed impact to the lower end consumer.

Simplified chart of Main Street vs Wall Street’s perspective on Inflation:

We wonder if the above is exacerbating the below?

Best of luck to all in 2025!

Meraki Trading Team

About Meraki Global Advisors

Meraki Global Advisors is a leading outsourced trading firm that eliminates investment managers’ implicit and explicit deadweight loss resulting from inefficient trading desk architectures. With locations in Park City, UT and Hong Kong, Meraki’s best-in-class traders provide conflict-free 24×6 global trading in every asset class, region, and country to hedge funds and asset managers of all sizes. Meraki Global Advisors LLC is a FINRA member and SEC Registered and Meraki Global Advisors (HK) Ltd is licensed and regulated by the Securities & Futures Commission of Hong Kong.

For more information, visit the Meraki Global Advisors website and LinkedIn page
Contact:
Mary McAvey
VP of Business Development