Equities rose ahead of central banks and tech earnings. Treasury financing estimates showed the TGA will be drawn down to $700bln by 4Q and estimated borrowing is down slightly due to QT in Q3 and spending in Q4. We get the mix of bills and bonds on Wednesday. The 10Y yield was back under 4.20 and at 4.17% and the 2Y was at 4.39%.
The Fed isn't going to cut at this meeting, but nonetheless between now and the FOMC you'll hear plenty of arguments from those favoring cuts now and those opposed. Camp "cut now" does have a lot of overlap with "team transitory" but it's not the exact same group. I'll try my best to summarize and over generalize the two views which you likely know already:
Team Rate Cut: we already have inflation coming back to target, given estimates of short and long-run neutral rates (r-star) policy is far too restrictive. The balance of risk is now skewed so far towards risking a recession that we need to cut now.
Team No Cut: inflation continuing to run above 2%, labor is not that weak, overall financial conditions remain quite loose (have you seen all-time highs in stocks? have you seen tight credit spreads?). Quitting too soon risk a reacceleration of inflation.
Irrespective of where you might stand, it's interesting to wonder how much additional debate and frankly wasted energy has been caused by the Fed's forward guidance, by the constant appearances, and by a system of their own creation that has conditioned market participants to believe in two things: 1) the first cut will likely be the first of many and 2) the first cut is important in the sense that it means something like "we won the inflation fight and are now fighting to prevent recession".
Overall market expectations for the Fed are that they'll note the progress in the fight against inflation, that risks in their dual mandate are balanced and that they don't need to see much more evidence on the inflation side before a cut.
On the day ahead it's home prices and JOLTS.
XTOD: The eagle has soft landed. The New York Fed’s measure of underlying inflation is now just 2.06 percent. The Fed should cut rates now now now.
XTOD: Buy private equity into a Kamala Harris administration.
XTOD: Blackstone President Jon Gray put out a video last week with a bullish view on commercial/multifamily real estate (sans office) and pointing toward more acquisitions in coming months. Some highlights:
"At the beginning of the year, we said real estate values were bottoming. And I would say now, six months later, after it’s pretty clear from the data that that’s occurred, we’d say real estate values are recovering – really with the exception of office buildings."
"We continue to see the cost of capital come down, and we’ve seen greater availability of debt."
"We’re seeing a sharp decline in new supply, and that of course creates a foundation for the recovery as well. We really think this is a good time to be investing capital. We’ve been doing it for the last six months in real estate, and I expect you’ll see a lot in the back half of the year as well."
XTOD: Hang around people who work hard, they will probably rub off on you. Hang around people who complain and hate, you will end up doing the same. Hang with individuals who talk about growth, you will develop the same mindset. Moral of the story? Check your circle. That’s your future.
XTOD: People wish for other people’s lives but not for their sacrifices.
We wish for the prize but not for the price.
https://x.com/paulkrugman/status/1817985174229106812
https://x.com/MetacriticCap/status/1817966147389776252
https://x.com/jayparsons/status/1817909263836094753https://x.com/BaseballDudes48/status/1817576682988904753
https://x.com/AlexHormozi/status/1817626778443407593
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