Brief Summary
The video discusses the possibility of a looming financial crisis, indicated by contracting manufacturing activity, declining imports and exports, and decreasing new orders. It also explores the relationship between these economic indicators and the labor market, highlighting potential job losses and rising unemployment. Despite these warning signs, the video suggests a potential stock market melt-up driven by hedge fund activity and systematic positioning, before an eventual market downturn.
- Manufacturing activity is contracting, with declining imports and exports signaling economic slowdown.
- The labor market is weakening, with job cuts and potential rise in unemployment.
- Despite recession signs, a stock market melt-up is possible due to hedge fund and machine activity.
US Manufacturing Contraction and Financial Crisis
US manufacturing activity contracted in May for the fourth consecutive month, signaling a potential financial crisis. The decline in imports, as highlighted by the ISM's import measure dropping significantly, is a major warning sign because the US is the world's largest importer, and reduced imports impact the labor market. Additionally, exports have fallen to a five-year low, reflecting retaliatory tariffs and a slowing global economy, which further reduces demand for workers.
Imports, Unemployment, and the Labor Market
Historically, there's an inverse relationship between imports and unemployment. When imports decrease, the unemployment rate tends to increase, as seen in past recessions. The manufacturing sector is already cutting jobs, as indicated by the ISM report, with the employment index declining for the fourth consecutive month. Companies are reducing headcounts through layoffs and hiring freezes due to uncertain demand, which is a departure from previous statements about retaining employees.
New Orders, Corporate Profits, and Job Losses
A decline in manufacturers' new orders of durable goods is directly correlated with a rise in unemployment. Manufacturers are struggling to keep employees due to a lack of work, leading to potential job losses. Higher material costs are also an issue for producers, who are unable to absorb price increases, resulting in layoffs. Corporate profits are decelerating, and companies are likely to defend their margins by reducing their biggest expense: employees.
Global Economic Impact and South Korean Exports
The trade war is ongoing, with no immediate end in sight, and its resolution may not restore the economy to normal. South Korea's exports are dropping due to tariff and political risks, reflecting a decrease in global demand. Reduced consumer spending in the US, due to job losses, impacts exporting countries like South Korea. Overall imports in South Korea have decreased, indicating a drop in external demand and signaling a dangerous global economic situation.
Stock Market Melt-Up and Hedge Fund Activity
Despite the economic slowdown, JP Morgan warns of a potential US stock market decline due to stagflation, while a melt-up is still possible. The relationship between job openings, average weekly hours, and the unemployment rate with the NASDAQ 100 indicates a potential market correction. Hedge funds, who have been shorting the market, may need to cover their positions, potentially driving the market higher. Systematic positioning across CTAs and risk parity funds also suggests they are buyers in all scenarios, which could squeeze hedge funds and pull retail investors back into the market.
Trading Against the Machines
The video highlights a successful trade on uranium, driven by understanding machine positioning. The strategy involves looking at machine positions across various markets and using a historical overlay to anticipate buying sprees by machines. The service offers daily reports, tradable signals, risk control levels, and a free 30-day trial to learn how to trade against the machines.
