The Fed has officially entered its blackout period, which is kind of like K-holing for central bankers—total silence, a dissociative state, and no ability to communicate about what's really going on.
But before the dissociation kicked in, Powell reportedly locked eyes with a colorful toad (possibly a Stanford economist in disguise) who whispered four mystical words: Trade. Immigration. Fiscal. Regulation. Powell then delivered his parting prophecy at the U.S. Monetary Policy Forum: "It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy."
And with that, he slipped away into the ether… leaving the rest of us to interpret the signs, read the entrails, and argue over whether the toad was hawkish or dovish.
Markets Puke, Meta-Narratives Laugh
Speaking of blacking out, that might be what was experienced by some investors who checked their 401k statements, after the stock market had its worst week since September 2024.
We’ll start this week with the S&P down 6% from its recent high, trading at 5,770. It’s tempting to blame policy chaos for the recent sell-off. But zooming out, this all fits the two meta-narratives we’ve talked about since January. Oh, you don’t remember the two competing “meta-narratives"? One being the proverb that “trees don’t grow to the sky” with the competing narrative that “this time is different” and there are increasingly companies that are not subject to laws of diminishing returns and earn increasing returns from scale. If you’re newer to this blog or just need a refresher, I recommend going backwards in order to move forward and giving a re-read to some of the post from the start of the year, starting here.
Powell’s Solid Labor Market: Funny How?
Friday’s Jobs Report, posted a headline of +151K and showed the unemployment rate ticked up to 4.1%. Weakness was seen in government employment and a household survey showing a sharp decline in the number of self-employed workers. And just before slipping fully into the blackout void, Powell reassured us that, "Many indicators show that the labor market is solid and broadly in balance. Smoothing over the month-to-month volatility, since September, employers have added a solid 191,000 jobs a month on average." And that overall, “The economy has been growing at a solid pace.”
Solid? Solid how, Jerome? Like you’re saying it’s healthy? Strong? Or solid like it’s frozen? Or maybe solid like “cement shoes” solid? You’re telling me it’s “solid”—I’m just trying to understand here. I’m funny how? I amuse you? Solid how?
Speaking of Drugs, Does Someone Need Rehab?
If Powell’s ‘solid’ economy feels like cement shoes, Treasury Secretary Bessent thinks it’s more like an addict hitting rock bottom - “We have become addicted to this government sending, and there’s going to be a detox period.”
Bessent’s comments and the overall uncertainty don’t seem to be helping the market “vibes”. For as bad as the “vibes” seem, are the vibes right now really all that different from those of last fall? Am I wrong? Take a look at my post from back on November 1, 2024, when the S&P was trading at 5,716 and decide.
What’s different now appears to be the “t” word (well and about every other major category Powell mentioned above).
Ben Stein Lectures Us - Anyone?
I told you I gave up the “t” word, but that doesn’t stop me from quoting Ben Stein as an economics professor from the 1986 classic, Ferris Bueller's Day Off.
“In 1930, the Republican-controlled House of Representatives, in an effort to alleviate the effects of the... Anyone? Anyone?... the Great Depression, passed the... Anyone? Anyone? The tariff bill? The Hawley-Smoot Tariff Act? Which, anyone? Raised or lowered?... raised tariffs, in an effort to collect more revenue for the federal government. Did it work? Anyone? Anyone know the effects? It did not work, and the United States sank deeper into the Great Depression. Today we have a similar debate over this. Anyone know what this is? Class? Anyone? Anyone? Anyone seen this before? The Laffer Curve. Anyone know what this says? It says that at this point on the revenue curve, you will get exactly the same amount of revenue as at this point. This is very controversial. Does anyone know what Vice President Bush called this in 1980? Anyone? Something-d-o-o economics. "Voodoo" economics.”
Let’s hope it all doesn’t go that 1930s direction.
The Week Ahead “Inflationpalooza”:
This week will be all about inflation, both inflation expectations and the CPI report on Wednesday.
Mon: NY Fed Consumer Inflation Expectations
Tue: JOLTS, 3Y Note Auction
Wed: CPI, Bank of Canada, 10Y Note Auction
Thur: PPI, Jobless Claims, 30Y Bond Auction
Fri: UofM Inflation Expectations
Chinese deflation to start the week, will it be U.S. inflation to end the week? The 10Y treasury yield will start at 4.30% and the 2Y yield will start at 4.00%, where will they end the week is the question.
XTOD: Futures getting hammered to start the week. Bonds crushed. Dollar down. Gold flat. No safe havens at the moment. Chaos.
XTOD: Bloomberg on China’s negative inflation data — not just PPI, which has been negative for a while, but also core and headline CPI. These numbers will amplify concerns about the risk of a self-reinforcing process of “Japanification” of the Chinese economy. https://pbs.twimg.com/media/GlkmCxWXMAEUU77?format=jpg&name=small
XTOD: Our recent GDPNow updates stirred up a lot of conversation about the model’s subcomponents, including a trade deficit spurred on by an increase in nonmonetary gold imports. In an article and the thread below, Pat Higgins, creator of the GDPNow model, provides additional insight with a “gold adjusted” model and accounting for today’s (March 7) labor market report……“The topline growth forecasts also increased today—standard model -2.4% to -1.6%, “gold adjusted” model -0.4% to 0.4%—as data from today’s labor market report came in stronger than the model was expecting based on the limited February data the model received prior to that release.”
XTOD: "Lots of luck if you're an impulsive person who has to be gratified immediately. You're probably not going to have a very good life — and we can't fix you....That demand for immediate gratification is the way to ruin. It may also give you syphilis."
- Charlie Munger
Charlie's (younger) partner, Warren Buffett always said that short term market forecasts are poison. Those that makes these sort of projections only make fortune tellers look good!
https://x.com/SpencerHakimian/status/1898857842225909895
https://x.com/elerianm/status/1898590551848452413
https://x.com/AtlantaFed/status/1898126049453465652
https://x.com/DougKass/status/1898501223273431496
No comments:
Post a Comment