Daily Economic Update: September 1, 2023

 

It's a Jobs Friday, one of those days that SIFMA doesn't have an early bond market close but everyone that's anyone has already fueled up their choppers with pilots on standby to head to the Hamptons (see around 3 minute mark).  Market estimates are for +170K on the headline, but the whisper number seems lower as bank research desk are citing the impact of Hollywood strikes and the bankruptcy of Yellow trucking.  Stock futures higher and 10Y is up ~1.5bp to 4.11% and 2Y flat around 4.85% both over 20bps off recent highs.  Oil has been sneaking higher despite China woes.

After JOLTS showed some signs of labor market softening this will be the last major labor market indicator ahead of the September 20 FOMC announcement.  

Been reading John Cochrane's 3 part 'dissertation' asking just what do we (we economists) really know about how interest rates affect inflation.  "As you may recall, the standard story says that the Fed raises interest rates; inflation (and expected inflation) don't immediately jump up, so real interest rates rise; with some lag, higher real interest rates push down employment and output (IS); with some more lag, the softer economy leads to lower prices and wages (Phillips curve). So higher interest rates lower future inflation, albeit with "long and variable lags." ".. Modern (anything post 1972) theory really does not support this idea. The standard new-Keynesian model does not produce anything like the standard story."  He concludes with this: "for my lay readers, here is as far as I know where we are. If you, like the Fed, hold to standard beliefs that higher interest rates lower future output and inflation with long and variable lags, know there is no simple economic theory behind that belief, and certainly the standard story is not how economic models of the last four decades work."

XTOD: Madame Ringarde will go down in history as worst CB governor of all times if she presides over a pause in Sep when EZ CPI is above 5% and services CPI at 5.5%. Whatever the growth, whatever the lag, whatever the what.

XTOD: Mitch McConnell CLEARED by NFL concussion protocols

XTOD: Nebraska police pull over man with a Watusi bull riding in the passenger’s seat https://northeast.newschannelnebraska.com/story/49572004/norfolk-police-pull-over-man-and-bull-riding-shotgun

XTOD: “A recession is inevitable so own bonds” is the same as saying “the economy goes up over time, own stocks”.

XTOD: IMF sees interest rates remaining high for 'quite some time,' top official says http://reut.rs/3sCTKFx

XTOD: There are other costs (than inflation) of mis-calibrated monetary policy. 

30 YR mortgage rates were pushed  below 3% as the Fed bought MBS, partly guided by low r* estimates. Now the rates>> 7%.  

➡️large cohort of US homeowners who are locked in, unable/unwilling to move.  This cohort will likely be locked in for a long time. Persistent negative effects on labor mobility.   This new paper finds large lock-in effects on the probability of moving.

XTOD: B of A: “10-year Treasury on course for 3rd consecutive loss (-0.3% in ‘23, -17.0% in ’22, -3.9% in ’21) .. has never occurred in 250-year history of US republic ..” [Hartnett]

XTOD: Most interesting macro takeaway from meetings with CEOs this week…

“At least we can fill job openings now, but at every talent level we have hired for over past 2 years, we are SOOO overpaying for the work output we are actually getting.”  

Every CEO in violent agreement w/this.

XTOD: There is a metric shit ton of private equity firms holding onto worthless assets, not marking them to market and taking fees based on the fairytale values they make up.  Hundreds of billions in complete vaporware

XTOD: "The freedom to do what you want, when you want, with whom you want, for as long as yo want, is true freedom."

https://twitter.com/INArteCarloDoss/status/1697562338453225743?s=20
https://twitter.com/Phil_Lewis_/status/1697035990609658292?s=20
https://twitter.com/prometheusmacro/status/1697311675479896169?s=20
https://twitter.com/Reuters/status/1697561275838910811?s=20
https://twitter.com/HannoLustig/status/1697079563279601916?s=20
https://twitter.com/carlquintanilla/status/1697559660616622206?s=20
https://twitter.com/EpsilonTheory/status/1697289829220864319?s=20
https://twitter.com/GRomePow/status/1697215160711106860?s=20
https://twitter.com/Psy_of_Money/status/1697221748448456970?s=20