Dow went up 264 with buying into the close, advanbcers over decliners about 2-1 & NAZ gained 113. The MLP index added 3+ to 230 (last seen in Jan 2020) & the REIT index gained 5+ to 440. Junk bond funds continued weak & Treasuries remained in demand, reducing yields. Oil went up 1+ to about 120 & gold rose 13 to 1856 (more on both below).
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
Treasury Secretary Janet Yellen said the US faces "unacceptable" levels of inflation as a result of the COVID-19 pandemic & the Russian war in Ukraine & pledged to drive down the price of everyday goods with an "appropriate" budgetary stance. "We currently face macroeconomic challenges, including unacceptable levels of inflation as well as the headwinds associated with the disruptions caused by the pandemic’s effect on supply chains, and the effects of supply side disturbances to oil and food markets resulting from Russia’s war in Ukraine," Yellen added in prepared remarks while testifying before the Senate Finance Committee. Yellen said that elements of Pres Biden's proposed spending legislation – including reform to the prescription drug market & clean energy initiatives – could help reduce costs for many American families. But she offered few solutions to cool the hottest inflation in nearly 4 decades beyond that & noted any actions from the White House or Congress would merely act as an accompaniment to steps taken by the Federal Reserve. "To dampen inflationary pressures without undermining the strength of the labor market an appropriate budgetary stance is needed to complement monetary policy actions by the Federal Reserve," she said. "Moving forward, elements of the president’s proposed legislation – including the clean energy initiatives and plans to reform the prescription drug market – can help lower the costs paid by American consumers." The White House started taking steps last week to address growing voter unrest over surging inflation by stressing that officials are maximizing efforts to bring prices under control ahead of the Nov midterms, in which Dems risk losing their already razor-thin majorities. Biden called tackling inflation his "top priority" during a rare Oval Office meeting last week with Fed Chair Jerome Powell, though he also sought to deflect blame over soaring prices, saying that fighting inflation largely falls under the purview of the central bank. The White House has increasingly tried to shift the responsibility for tackling prices to the Fed – as polls show that inflation, which has hovered near a 40-year high for months, is a top concern for voters.
Treasury secretary calls inflation 'unacceptable,' says Biden not to blame
The World Bank slashed its global growth forecast & warned that many countries could fall into recession as the economy slips into a period of stagflation reminiscent of the 1970s. Global economic expansion is expected to drop to 2.9% this year from 5.7% in 2021 — 1.2 percentage points lower than the 4.1% predicted in Jan, the bank said in its latest Global Economic Prospects report. Growth is expected to then hover around that level thru 2023-2024 while inflation remains above target in most economies, the report said, pointing to stagflation risks. Russia's invasion of Ukraine & the resultant surge in commodity prices have compounded existing Covid pandemic-induced damage to the global economy, which the World Bank said is now entering what may be “a protracted period of feeble growth and elevated inflation.” “The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth. For many countries, recession will be hard to avoid,” World Bank Pres David Malpass said. Growth in advanced economies is projected to decelerate sharply to 2.6% in 2022 from 5.1% in 2021 before further moderating to 2.2% in 2023, the report added. Expansion in emerging market & developing economies, meanwhile, is projected to fall to 3.4% in 2022 from 6.6% in 2021, well below the annual average of 4.8% in 2011-2019. That as inflation continues to climb in both advanced & developing economies, prompting central banks to tighten monetary policy & raise interest rates to curb soaring prices. The present high-inflation, weak growth environment has drawn parallels with the 1970s, a period of intense stagflation which required steep increases in interest rates in advanced economies & triggered a string of financial crises in emerging market & developing economies. The World Bank's Jun report offers what it calls the “first systematic” comparison between the situation now & that of 50 years ago.
World Bank slashes global growth forecast to 2.9%, warns of 1970s-style stagflation
Homeowners are in the money & it just keeps coming. 2 years of rapidly rising home prices have pushed the the nation's collective home equity to new highs. The amount of money mortgage holders could pull out of their homes while still keeping a 20% equity cushion rose by an unprecedented $1.2T in Q1, according to a new analysis from Black Knight, a mortgage software & analytics firm. That is the largest quarterly increase since the company began tracking the figure in 2005. Mortgage holders' tappable equity was up 34% ($2.8T) in Apr compared with a year ago. Total tappable equity stood at $11T, 2 times the previous peak in 2006. That works out to an average of about $207K per homeowner. Tappable equity is largely held by high-credit borrowers with low mortgage rates. Nearly ¾ of those borrowers have rates below 4%. The current rate on the 30-year fixed mortgage is over 5%. The flipside of rising home values is that prospective buyers are increasingly being priced out of the market. Mortgage rates have also been rising sharply, putting homeownership further out of reach for some. “It really is a bifurcated landscape – one that grows ever more challenging for those looking to purchase a home but is simultaneously a boon for those who already own and have seen their housing wealth rise substantially over the last couple of years,” said Ben Graboske, pres of Black Knight Data & Analytics. “Depending upon where you stand, this could be the best or worst of all possible markets.” The housing market, however, is showing slight signs of cooling. Home prices, as measured by Black Knight in Apr, were up 19.9% year over year, down from the 20.4% gain seen in Mar. The slowed growth could be an early indication of the impact of rising rates. “April’s decline is more likely a sign of deceleration caused by the modest rate increases in late 2021 and early 2022 when rates first began ticking upwards,” Graboske added. “The March and April 2022 rate spikes will take time to show up in repeat sales indexes.” Rising interest rates historically cool home prices, but supply remains pitifully low in the current market. Active listings are 67% below pre-pandemic levels, with about 820K fewer listings than a typical spring season.
Housing wealth gains a record $1.2 trillion, but there are signs the market is coolingGold prices closed modestly higher as the precious metal recovered from back-to-back losses. As investors prepare for H2, a big focus will be Fri's US inflation update from the consumer-price index for May. Gold futures gained 0.5% ($8) to settle at $1852 per ounce. In other markets, the $ gave up earlier gains to turn lower against a basket of its main rivals, after climbing to a fresh 20-year high against the ¥ at more than 132¥ to the $. US stock indices were higher, after slipping between modest gains & losses. With few places for investors to hide as stocks, bonds & most other financial assets have come under sharp pressure in 2022, gold is being pitched as an alternative that can add diversification & help protect investors from high inflation in H2. Analysts suggest investors focus on corp fundamentals, limit duration & consider inflation-sensitive alternatives, including gold, with the expectation that volatility could remain high in H2 as the Federal Reserve looks to further tighten financial conditions to rein in inflation.
Gold ends higher as strong dollar takes a breather
A widely followed Federal Reserve gauge is indicating that the US economy could be headed for a 2nd consecutive qtr of negative growth, meeting a rule-of-thumb definition for a recession. In an update, the Atlanta Fed's GDPNow tracker is now pointing to an annualized gain of just 0.9% for Q2. Following a 1.5% drop in the first 3 months of the year, the indicator is showing the economy doesn't have much further to go before it slides into what many consider a recession. GDPNow follows economic data in real time & uses it to project the way the economy is heading. Today's data, combined with other recent releases, resulted in the model downgrading what had been an estimate of 1.3% growth as of Jun 1 to the new outlook for a 0.9% gain. Personal consumption expenditures, a measure of consumer spending that is responsible for nearly 70% of GDP, saw a cut to a 3.7% gain from a previous 4.4% estimate. Also, real gross private domestic investment now is expected to shave 8.5% off growth, from the previous 8.3%. At the same time, an improvement to the trade outlook resulted in a mild boost to the estimate. The US trade deficit with its global partners fell to $87.1B in Apr — still a large number by historical standards but down more than $20Mn from Mar's record. On net, trade is expected to subtract 0.13 percentage points from GDP in Q2, from a previous estimate of -0.25 percentage points, according to the Atlanta Fed.
Fed GDP tracker shows the economy could be on the brink of a recession
Oil futures ended a choppy session with gains, putting the US benchmark at a 3-month high just below $120 a barrel as investors await storage data. West Texas Intermediate (WTI) crude for Jul rose 91¢ (0.8%) to close at $119.41 a barrel, the highest finish for a front-month contract since Mar 8. Aug Brent, the global benchmark, rose $1.06 (0.9%) to settle at $120.57 a barrel, its highest finish since May 31. WTI crude oil continues to pick up steam on its rally, as price is once again attempting to break the highs & channel top at $120 per barrel. Crude oil is drawing strong support from the recent EU decision to embargo most of Russian oil by the end of the year. This means that the region would have to keep sourcing the commodity from other suppliers, including the US. However, the OPEC decision to boost production targets might keep a lid on crude oil rallies in the near term. This could ease global supply crunch concerns, even as demand for fuel & energy commodities pick up.
WTI Crude Oil Price Analysis for June 7, 2022
This was an uninspiring day for stocks. US oil is back at 120, not far from records reached in 2008. There are more indications that GDP growth in Q2 will be slightly positive at the best. Even if the gain is very small, when combined with the data from Q1 it could produce an economy that was off a tad in H1. That would not be received well by investors. The Dow chart below shows that while it has stopped its decline, it's just treading water at a depressed level. It finished today about 10% below its record high in early Jan.
Dow Jones Industrials
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