Now the magazine cover?/I love you but...

The highest Bull and lowest Bear levels since November 2021 in two widely watched sentiment gauges, the CNN Fear/Greed index in the 'Extreme Greed' category, the VIX with a 13 handle and now the Barron's article, "Don't Fear the Bull Market. Why Stocks are Headed Higher", https://www.barrons.com/articles/stock-market-bull-up-down-outlook-a7abb320?mod=Searchresults

Maybe it's now time for a bit of a tree shaking to wring out some of the complacency that everything will be just fine notwithstanding tight money, QT and the various economic challenges that will not change for a while I believe. 

One of my favorite asset price valuation gauges is the quarterly net worth as a % of disposable income stat from the Fed's flow of funds statement. This figure was updated yesterday and it fell to 760% for Q1 2023 from 762% in Q4 and off the record high of 840% in Q1 2022. For perspective though, it peaked at 702% in Q4 2019, right before you know what, it topped at 649% in Q1 2007 before you know what and got to 614% in Q1 2000 right before you know what. So when someone mentions the 'everything bubble', this valuation metric is what they are referring to. 

Fed's Flow of Funds Net worth as % of Disposable Income

There is always some interesting commentary in the Signet Jewelers quarterly conference call and yesterday was no different. Over the last few quarters the CEO Gina Drosos has pointed out the 3 year dating cycle between 'nice to meet you', and if dating goes well thereafter, to eventual engagement and marriage. So in Q1, "as we predicted, there were fewer engagements in the quarter resulting from Covid disruption of dating three years ago." She also mentioned "given softening trends in late April...which we've seen continue in the second quarter." They also lowered guidance "based on increasing macro pressure on consumer spending." Gina said "The swing factors in recent consumer confidence, lower tax refunds, economic concerns triggered by regional bank failures, and continued inflation led to a weakening trend in spending across the jewelry industry of an additional 10 points that we estimate based on external reports."

Further, "In fashion, we continue to see pressure at lower price points as has been the case for the past year. However, later in the quarter, we began to see degradation at higher price points between $1,000 and $5,000 in fashion. Price points remained strong at $5,000 and above. This price erosion continued into the 2nd quarter."

"As a result of declining trends in late April and through the 2nd quarter to date, we expect the current softness will continue throughout the year and have updated our guidance to account for a lower range of top line outcomes. We believe the current trend reflects the impact of increasing macro pressure on discretionary categories, including the jewelry industry. For example, going into Mother's Day, we expected to see a $40 million to $50 million shift from Q1 into Q2 as a result of timing, and we did not see this shift materialize. Additionally, we began to see softening at higher price points, which previously had been relatively insulated and lower price points remained under pressure."

And this was pretty interesting with regards to how they forecast eventual engagements and their bridal business. "As we mentioned at our Investor Day, we have identified and tracked a proprietary list of 45 milestones that trace a couple's journey through four major relationship stages, meeting, exclusivity, committed, and engagement. What our data has shown is that once couples experience at least 27 of these milestones, it becomes highly likely that they will move to engagement. For example, couples traveling together is one of the top milestones later in a couple's journey to engagement. We see evidence of this milestone currently across our data sources, including online search activity. Searches for couples vacation on TikTok are currently twice what they were in Q4. Google searches for travel or vacation together are up more than 30%...The key point is that we're seeing the engagement milestones occurring as expected, which reinforces our confidence that engagements will begin to recover as we approach the end of the year."

Well, according to those 'people', it doesn't look like there will be any tweak to yield curve control next week from the Bank of Japan, notwithstanding inflation running at double their 2% obsession. Bloomberg News is reporting that "Bank of Japan officials see little need to adjust its yield curve control program at a policy meeting next week given improvement in the functioning of the bond market and the smooth shape of the yield curve, according to people familiar with the matter. The officials also recognize that inflation is running stronger than they expected, a factor that raises the chance of the BoJ upgrading its inflation forecast in a quarterly economic outlook report in July, according to the people." 

The yen is weaker on the dovish story as the BoJ is not yet ready to respond to higher inflation, and getting close to 140 again. JGB yields fell too. The Nikkei in turn rallied by 2% and we still are long and bullish on Japanese stocks. 

China's May CPI rose .2% y/o/y as expected. Ex food and energy saw prices up by .6% y/o/y. We know inflation has been pretty benign in China, a lot of which was Covid and the slow recovery upon the reopening but low inflation is a good thing. The PPI was lower by 4.6% y/o/y, a bit more than the forecast of a 4.3% drop and vs the decline of 3.6% in April. With regards to PPI, many tie its ups and downs to the direction of the Chinese industrial sector but its also in sync with the direction of commodity prices. Asian stocks were mostly higher following the US rally.