Yesterday's retail sales were better than expected and jobless claims show no signs of labor weakness, yet rates continued their post FOMC decline. The BoE and ECB both sounded more hawkish than the FOMC. Yields continue to fall further to start the day as the everything rally continues. 2Y at 4.39% and 10Y at 3.92%.
ATL GDP now is at 2.6% for 4Q. Empire Mfg and Industrial Production on the day ahead.
In sticking with the holiday theme of issuing reports about financial stability, here is the Financial Stability Oversight Council's 2023 report in which they cover a range of potential vulnerabilities and provide recommendations for action.
XTOD: Holiday Video (Blackstone's Version) 🎬🎵 Inspired by the Eras Tour, Steve Schwarzman & Jon Gray take $BX on the road for “The Alternatives Era” Tour… many sequins & one original song later, we bring you the latest in our annual tradition ⬇ Watch the full video: https://bit.ly/47V13YZ
XTOD: I watched this again and I’m 80% sure it’s going to be in a documentary ten years from now about a massive financial crisis
XTOD: “Not only will we not tell you the accurate marks, but we’re hilarious!” Aside from the cringeworthy video, can we please stop calling highly correlated levered equities “alternatives” because they don’t update the prices? That doesn’t make them bad investments, but they ain’t alternatives.
XTOD: Powell has no problem with money going into stocks. It cant do any (inflation) damage there, and the capital gains tax revenues will be welcome. He needed to get the "pivot" (which, unlike the Put, was always inevitable) out of the way before Iowa. Now they go dark.
XTOD: Criticize the Fed on policy grounds, but trade with them, because they are bigger than you.
I do both :)
XTOD: Here's a great stat for you: The small-cap Russell 2,000 made a new 52-week high today after hitting a 52-week low just 48 days ago. That's the shortest turnaround time in the index's history to go from 52-week low to 52-week high dating back to the 1970s!
XTOD: A quick 🧵on monetary policy because I see a lot of market commentators who don’t seem to understand what the Federal Reserve is thinking regarding the future path of interest rates. One way to think about monetary policy is in terms of the difference between the policy interest rate and the “natural” interest rate. The conventional wisdom in the mainstream of the profession is that when the policy rate is below the natural rate, inflation rises. When the policy rate is above the natural rate, inflation declines. When the policy rate is equals natural rate, the inflation rate is constant. If you accept this premise and you are in a world of rising inflation, that means the policy rate is too low. But you can’t just raise the policy rate to equal the natural rate since you need inflation to decline. Thus, you have to raise the policy rate above the natural rate. Of course, you can’t leave the policy rate above the natural rate indefinitely. Thus, once inflation comes down and expectations of inflation start to be around the central bank’s target rate, they should lower the policy rate down to the natural rate. Thus, there’s no great mystery about why the Fed is signaling that rates will be lower next year. This isn’t the Fed admitting there are fiscal constraints. This isn’t the Fed having weak hands. This isn’t (necessarily) an Arthur Burns moment. This is their standard framework. Now, it’s possible that they lower rates too soon. That could be — or might lead to — an Arthur Burns moment and the potential for the stop-go policies of the 70s. But the main challenge the Fed is going to face in the months ahead is how it weighs its credibility with the public against what their policy framework would say to do. They might be reluctant to lower rates if the public sees them as lowering rates too soon. Thus, if they lower rates too soon, inflation won’t get back to 2%. If they are perceived to have lowered rates too soon, this affects their credibility & inflation expectations could be wildly un-anchored. If they wait too long to lower rates, they’ll likely cause a recession To me, this suggests that all the talk about a soft landing are wildly pre-mature. (A lot of this is just cheerleading anyway.) This is especially true because a lot of debt is going to have to roll over at higher rates in the coming months. But my basic point is that a lot of the commentary following the Fed meeting is just noise. It’s straightforward to understand what they’re doing if you know how they think.
https://x.com/blackstone/status/1735313364232921167?s=20
https://x.com/Citrini7/status/1735520223141261319?s=20
https://x.com/CliffordAsness/status/1735388678644527576?s=20
https://x.com/Stimpyz1/status/1735315334331249131?s=20
https://x.com/SteveMiran/status/1735305263857480186?s=20
https://x.com/bespokeinvest/status/1735414291325747313?s=20
https://x.com/RebelEconProf/status/1735307813461938201?s=20
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