Yields have fallen off YTD highs the 10Y is down ~5bps but remains above 4.50% while the 2Y is down to 5.06%. Markets continue to monitor the possibility of a government shutdown which some are pegging odds of a shutdown at 90%. Yesterday's consumer confidence and new home data didn't seem to help sentiment with stocks falling again, now off 7% from July highs. If you're in the camp that the Fed should cut rates sooner rather than later, data out of Brazil (a central bank that has begun cuts) yesterday showed inflation rising for the second straight month hitting 5% YoY. On the day ahead in the U.S. it's durable goods data and 5Y note auction.
Given the recent sell-off in Treasuries, I've been thinking more about the "Hamilton Norm", a topic I had first learned about through economist Eric Leeper. I was reminded of the topic yesterday, when author and investor Mark Higgins stated the following in a substack post: "In 1790, Alexander Hamilton warned Congress that the true secret of rendering a nation’s credit immortal was to ensure that “the creation of public debt should always be accompanied with the means of extinguishment.”⁵ During the nation’s first 175 years, the U.S. adhered to this principle, and public debt was issued in large quantities only during times of emergency, such as the War of 1812, Civil War, and the two World Wars." Have we violated the norm and does it matter?
I found the recent Macro Musing podcast hosted by David Beckworth and featuring former KC Fed President Thomas Hoenig to be pretty interesting, especially Hoenig's retelling of the events leading to the GFC. Hoenig: Then we go and we have the great financial crisis. We lowered rates from 2001, 2002, all the way down to… it was above 5%, all the way down to 1%, and people were using their homes as ATMs. Greenspan even referred to that. They were refinancing at these lower interest rates, taking the money out, spending it, life was good. They increased their leverage, their debt. Bankers and the public took the bait, low interest rates. Then we got inflation started, went up to 3%, 4%, close to 5% and so the Fed, what did they do? The increased rates from 1% to 5.25% over the two-year period. 2006, they stopped. When did the crisis really blow up? Over two years later, [it was] called Lehman Brothers. And so, they blamed it on the bankers. They took the bait, low interest rates, do it. Get the loans out there. Housing is great. You can finance it forever. Interest rates are going to stay low forever. We had a crisis and we blamed it on the bankers. We get the Dodd-Frank.
Hoenig: Now we’re at today, what do we do? We have a pandemic. I understand we put money in there for the immediate crisis, but then we have the CARES Act. That was an immediate crisis. We had the Reconciliation Act in late 2020. That was another two trillion, so two trillion plus two trillion. Then we had the Recovery Act, another two trillion. Then the Fed, every month from March 2020 through 2020 and into 2021, printed money at the rate of $120 billion in new reserves every month. Interest rates were kept at zero and guess what? The banks took the bait. They were handed this, we have loans out at 3%. We have commercial real estate. We have Treasuries on people's balance sheets because they're risk-free, right? They're risk free, so they load up on that stuff. Suddenly, we have 9% inflation, and the Fed gets [inaudible]. They raise rates from 0% basically to 5.5% today in less than two years. So, in March, we have a banking crisis......I remind people that we're a year and a half into the tightening phase. The great financial crisis was two years in the tightening phase, and then two years before the crisis really erupted. We're early in this process, folks. Get ready. We're just getting into it now. Now, I could be wrong. I have been in the past. I could tell you that, but if I am, I will be humbly willing to accept it, but I don't think so.....We put $8 trillion into the economy over what we were projecting to do in three years. God help us if it wasn’t strong. It doesn't make sense. Are we going to continue to print money and do this, so we have inflation and inflation takes care of the problem? I don't think so. I'm not at all saying that we're going to have a soft landing. I could be wrong, understood. I'm willing to accept that risk.
XTOD: May 1986: Top Gun 1 released Oct 1987: Black Monday Crash May 2022: Top Gun 2 released Oct 2023: Black Monday Crash 2?
XTOD: i was told that rising bond yields were bad for stocks and falling yields were good for stocks i'd like to speak with the manager
XTOD: The manager is away buying stocks. Will return shortly.
XTOD: People keep piling into $TLT, another $750m this wk, amazing, can't recall an ETF taking in so much money ($16b, #2 overall) while being down so much and so consistently (esp when you can get just as much yield w no duration risk). Also happened w $KWEB but smaller scale.
XTOD: Please see my new essay on monetary policy https://www.minneapolisfed.org/article/2023/policy-has-tightened-a-lot-is-it-enough-a-second-update
XTOD: Who tricked everyone into thinking that travel is the most fun thing you can do in life? When I'm taking a trip, maybe 25% of it is actually fun The rest of it is logistics, packing, checkins/outs, spending stupid money, running out of clothes, crowds, lines, airports, etc
XTOD: Here’s a great little anecdote Kurt Vonnegut relayed at Joe Heller's funeral: Joseph Heller, an important and funny writer now dead, and I were at a party given by a billionaire on Shelter Island.
I said, “Joe, how does it make you feel to know that our host only yesterday may have made more money than your novel ‘Catch-22’ has earned in its entire history?”
And Joe said, “I’ve got something he can never have.”
And I said, “What on earth could that be, Joe?”
And Joe said, “... Enough.”
https://x.com/agnostoxxx/status/1706640753194152115?s=20
https://x.com/concodanomics/status/1706634837807734988?s=20
https://x.com/stevehouf/status/1706636432297574853?s=20
https://x.com/EricBalchunas/status/1706649911356166519?s=20
https://x.com/neelkashkari/status/1706671832483373464?s=20
https://x.com/TrailerParkGuy/status/1706293631273836864?s=20
https://x.com/donnelly_brent/status/1706625302720340473?s=20
No comments:
Post a Comment