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Technical Analysis - Volume Metrics

We have covered a number of technical analysis indicators in our blog articles. Today, we are going to look at a volume indicator that measures the quantity of buy orders or volume versus the quantity of sell orders or volume.

One such indicator is "On Balance Volume" which as it's title suggests is measuring a running total of buy and sell volume that translates into a trend line that is moving up or down and can be used to correlate or measure against price. It can also be used to spot trends in price as well as price reversals.

For example, if price is moving up but the "on-balance-volume" is trending down - meaning their is more selling volume than buying volume - this may indicate a potential "price" reversal. The same is true in reverse. If "price" is moving down but the "on balance volume" indcator is trending up this can indicate a potential reversal in price.

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Navigating The Rising Tide of Interest Rate Hikes

The Fed is Waking Up and Is putting its foot on the brakes!

“Hindsight says we should have moved earlier. . . . But there really is no precedent for this.”  Fed Chair Powell, March 3, 2022

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Fear of Recession and The Yield Curve

The Yield Curve inverting has been the most accurate predictor of the economy tipping into a recession for the last 50 years. Typically, it takes about 6 months from the time the Yield Curve inverts for a recession to kick in. So, what exactly does an "inversion of the yield curve" mean? An inversion of the yield curve is looking at and referring to the differences in interest rates being charged by banks over a 2 and 10 year lending horizon. Economists also look at the 3 and 10 year lending rates as well.

Typically banks will charge a lower interest for a short term loan than for a longer term loan. Banks are incentivized to lend out at higher interest rates over a longer term loan period. However, when the 10 year interest lending rate is less than the 2 year lending rate, banks have less incentive to lend. This is known as the "yield curve inversion" when the longer term 10 year lending rate is less than than the 2-year rate. It does not happen often but when it does, it has been a good predictor of an upcoming recession for over 50 years. 

The spread between 10-year and 2-year Treasuries has fallen from 0.89% in early January to just 0.18% on March 21. So while we are close, we are not there yet.

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The 50 Dollar Sandwich Economy

If you are walking into The French Laundry, a 3 star michelin restaurant in Napa, you may well expect to pay $50 plus for a sandwich extraordinaire. Not so, when you walk into your average sandwich place. I almost fell out of my chair when the person cutting my hair told me she was going to be charged $50 for a chicken sandwich at a local eatery in Walnut Creek, La Fontaine. She had paid $20 for a sandwich one day, $30 the next and then a few days later was presented with the $50 price tag. She declined the sandwich. 

While this may be an extraordinary tale of sandwich inflation and who knows what else, the reality is that the cost of eating out has gone up significantly, but this is sandwich madness. Yes, Russia and Ukraine are two of the largest exporters of wheat and there will be supply shortages that impact prices worldwide. The Russia-Ukraine situation has also sent gas prices soaring. Gas prices have risen to some of the highest in recent USA history. However, has America stopped growing its own wheat and raising it's own chickens? Of course not. So, why is a local sandwich shop in Walnut Creek charging $50 for a chicken sandwich? Is it the best chicken sandwich in Walnut Creek? Probably not.

The supply chain issues have given opportunity for corporate and business greed to inflate as well. While some price increases may be justified, of course, some price increases across a range of industries ranging from 50-500% are quite litterally "out of this world" and unjustified by any rational commercial standards.

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Russia, Putin and The Impact of War on the Global Economy

Authoritarian leaders have many things in common: A need for self-glorification, self-preservation, vanity and power are four of many. They can never get enough of these. One person dictates the future of millions held captive by fear and repression and effects millions in the Ukraine by what ammounts to an open decleration of war. On the one hand, Putin's agenda appears to be founded in reclaiming a long gone era of Russian influence and power and countering his fear of NATO expansion to Russia's borders. While this is no doubt influencing his decisions and causing mayhem with his fragile ego, one can also infer that what is motivating Putin - under the guise of a strongman - is fear for his own political surivival and his legacy with the West encroaching on his doorstep, a Russia that has been broken up and is only a part of it's former empire.

This is Putin's war, not Russia's war. Putin's strategic plan, if he follows through into Ukraine which looks more probable at this juncture, will have severe financial repercussions for Russia. Not only will maintaining a war be costly for Russia, the economic sanctions will - once fully implemented in the event of a full scale invasion of Ukraine - be crippling. The Ukraine will not sit idle with its 200,000 person army plus reservists joining them and funding from the west.

Russia's allies are few and not surprisingly are authoritarian leaders with their own empire building or reclaiming agenda's. China while overtly supporting Putin treads a fine line. It will be wary of supporting Russia too much as it still needs America as a trading partner and will therefore not want to further alienate the USA.

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