Friday Wrap: The Shutdown, Subprime Collapse, & Systemic Risk.

Commentary from the Distilled Perspective of Patrick T Bulger Analytics

The U.S. government is in a shutdown,
adding an immediate layer of uncertainty to an already volatile system.

Globally, we note the National Day holiday for China and South Korea, which affects data flow.

We also received negative Services PMI from Canada.

• The Cost of Uncertainty
  The uncertainty that Powell mentioned a few weeks ago is beginning to look much larger.
• Bankruptcy at First Brands and subprime auto lender Tricolor Holdings
  are being reported to have hundreds of millions of dollars of impact on major bank names.
• Remember: The Fed tends to cut into times of trouble, not into good times.

Are there systemic risks hidden by media noise?

2018 to 2020 Pattern Recall: Economic erosion began in 2018,
In 2019 the media blamed A Powell Pivot,
With no mention of troubles at a leading German Bank & subsequent REPO Crisis.
Then into a Q1 2020 recession with the word COVID on it.
COVID hit the radar in the January of 2020 area.

Seeing Beyond the Surface Data
Despite the shutdown, we did manage to conjure 4 Feds-a-jawboning as we head into the holiday season.

• Consider the complexity of the Baker Hughes rig count report:
  If you close down five spent rigs, but open two very productive rigs, you’re netting more oil with less rigs.

You must count your rigs carefully.

Like anything, reports of a rally must be assessed with precision:

Is volume up and price up, implying true demand?
Or is supply down, volume down, with price up due to lower supply not meeting lower demand?

That second picture is a very different, stag-like-ish reality.

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Patrick T Bulger

#Investing #RiskManagement #DistilledPerspective #SystemicRisk
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