Daily Economic Update: September 13, 2023

$29 dongles, an attempt to impeach Biden, MGM casino cyber attack, covid, UK GDP contracting, but it's CPI that is in focus today. At the last FOMC meeting, the Fed had identified five pieces of economic data that would inform their upcoming decision, those were: the Employment Cost Index back on July 28, the two Jobs reports (8/4 and 9/1) and the two CPI reports (8/10 and today's upcoming report), most commentators and the market believe those reports, which have shown some slowing in labor data and cooling inflation, will likely leave the Fed on pause next week (CME FedWatch has probability of a pause at 93%), but we'll see what happens with today's CPI.   To start the day, the 2Y is up 3bps to 5.03% and the 10Y is higher by 3-4bps to 4.31%.   On the cap we get CPI and the 30Y Bond Auction.  If you're looking for bank forecast for the inflation read you can find them here.

If you missed it yesterday, Howard Mark's put out his most recent memo. As is typical of Howard's memo's, it's worth a read.  He spends some time using tennis as an analogy, harkening back to Charlie Ellis' classic "The Loser's Game" in which Ellis argues that argues that lay investors have the best chance of success in investing in the stock market by avoiding costly mistakes, minimizing cost and focusing on asset allocation and passive investing.  Mark's states: "The amateur doesn’t have to hit winners to win, and that’s a good thing, because he or she generally is incapable of doing so dependably."

As we look ahead today's inflation reading, it's always "fun" to reflect on inflation, so here's a few gem's from Irving Fisher's classic "The Money Illusion":

• "Money Illusion"; that is the failure to perceive that the dollar, or any other unit of money, expands or shrinks in value.
• "As long as a dollar is not safe, any agreement to pay a dollar is not safe. However certain it may be that you are going to get the promised dollar, it is not at all sure what the dollar is going to be worth when you get it."
  
• "In short if more money pays for the same goods their price must rise, just as if more butter is spread over the same slice of bread it must be spread thicker, the thickness represents the price level, the bread the quantity of goods."
• "..the only important fact, in so far as the price level is concerned, is the relation between these two circulations [money and goods]...if the circulation of money increases relatively to the circulation of goods, the price level will rise. If, on the contrary, it decreases relatively, the price level will fall; that is, whether the butter is thick or thin depends on whether there is much or little butter relative to the bread."
• "War has always been by far the greatest expander of paper money and credit, and therefore the cause of the greatest price upheavals in history."
• "[Inflation] It would, indeed, be of no importance if everybody's income were adjusted to the change in prices. But this is not and cannot be the case...a change in the money yardstick, the dollar, is far more serious, and for three reasons:
• it affects all sales
• it is used for long-term contracts...we are constantly contracting to pay present dollars for future dollars...it makes tremendous difference, for instance, to a bond holder.
• these disasterous effects are not perceived because of money illusion
• "when your house is burglarized, society is none the poorer..that would be cold comfort to you..in somewhat the same sense this burglarizing dollar is defrauding people...it is social injustice."
• "while inflation is going on, the general public finds it hard to admit that there can be too much money....After rapid inflation once starts, the clamor for more money often grows louder and louder."
• "When prices are rising wages and salaries are, as it were, running after a lost train."
• "Business is always injured by uncertainty. Uncertainty paralyzes effort, and uncertainty in the purchasing power of the dollar is the worst of all business uncertainties."
  
• "As inflation goes on, the workers continually grow more dissatisfied and attribute their plight to an intentional plundering by a social system of exploitation." "Out of such discontent, therefore came Bolshevism and other radical theories."
  
• "worst examples of inflation have come from unbalanced government budgets. As we have seen, when a government cannot make both ends meet, it pays its bills by manufacturing the money needed."

XTOD: A picture of inflation as a tax on the average family: https://bloomberg.com/news/articles/2023-09-12/us-inflation-adjusted-incomes-fell-2-3-in-2022-from-prior-year?srnd=undefined#xj4y7vzkg

XTOD: Every Twitter economist is saying the same brain dead, out of touch thing…“Why are the American people so negative on the economy? GDP is up!”  Maybe because they just watched their purchasing power be annihilated by generational inflation, real household incomes have fallen for 3 years in a row and wealth inequality continues to expand. All while their tax dollars are being wasted and/or sent overseas.  GDP doesn’t come up at the kitchen table for normal Americans you clowns.
“Honey… the credit card bill is due and we don’t have enough to cover it this month. Our groceries have doubled and student loans are restarting soon. There’s also a possibility of layoffs coming at work.”  “Oh don’t worry about that. GDP is trending stronger than expected!”

XTOD: Today we broke the record for the longest streak of trading days (210) with an inverted 10yr/3mth yield curve.  What that means, you be the judge...

XTOD: "We don't have enough Americans to afford what is going on out there right now."  Housing Market Set For A "Cat 5" Storm, Worse Than The Great Financial Crisis.

XTOD: Let me make one thing clear on  @IRSnews  ERC.  Small business owners who qualified rightly claimed this. GOOD. Law was designed FOR THEM.  Years later, most new claimants are being SOLD the ERC for 25-30% commission. Most new claims are fraud.  Danny Werfel knows it. Good for him!

XTOD: Don't believe me? Since 1983, whenever entitlement spending pushed deficits too high, Congress responded by cutting defense and social spending (education, veterans, kids), and raising middle-class taxes. And it will get much worse.

XTOD: A CDC advisory panel met to come up with a recommendation on whether updated COVID shots approved by the government should be used broadly or targeted to specific at-risk populations, setting the stage for the launch of a re-vaccination campaign

XTOD: Government: "OK so there's a pandemic, but don't worry we're going to let you not make payments for 3 years." 
Borrowers: "OK cool, I'm going to buy a house with that money." 
G: "Wait no, that's not what we said..."
B: "OK I also bought a new car"
G: "Wait stop, that's not how this works."
B: "We're in Europe on vacation, AirBnB does Klarna now."
G: "......"

Daily Economic Update: September 12, 2023

Today starts with yields pretty flat the 2Y is at ~5.00% and the 10Y is 4.28% .  Big day for Tesla yesterday as Morgan Stanley suddenly uncovers a supercomputer known as "Dojo" that is being used to train Tesla's self-driving feature.   “The same forces that have driven AWS [Amazon Web Services] to reach 70% of Amazon total EBIT can work at Tesla, in our view, opening up new addressable markets that extend well beyond selling vehicles at a fixed price. The catalyst? Dojo, Tesla’s customer supercomputing effort in the works for the past 5 years,” Jonas wrote.  You should see the AI super-computer that powers this blog and also mines crypto while I sleep....blog market cap now infinity.

This morning, the NFIB Small Business Optimism survey was lighter than estimated and remains below average with their Chief Economist citing inflation and a shortage of workers as being "the biggest obstacles for Main Street".  Across the pond in the UK, 'regular pay' which excludes bonus was up 7.8% YoY and is at the highest on record with pay increases in financial services leading the way, this despite data this morning showing the UK economy shed jobs.

In non-market news, Aaron Rodgers might be done for the year, new iPhones, Putin meeting with Kim Jong Un.

The 10Y auction will be the big fixed income item of the day as markets await tomorrow's CPI. 

XTOD: DIMON: “.. I would not be a buyer of Treasuries at 4.2%, nor would I be a buyer of credit spreads at these spread levels.”  [He wouldn’t be surprised to see 10yr Treasury yields at 5.5% or oil at $120-150.] 

XTOD: Colombian cocaine output surged to a record last year, with the drug flooding into new markets and fueling violence across the world

XTOD: If you had bough $1000 worth of Bed Bath & Beyond stock one year ago, it would be now worth $26   With AMC, you would have $96 left   If you had bought $1,000 worth of Budweiser (the beer, not the stock) 1 year ago, drank all the beer, then turned in the cans for the 10 cent deposit, you would have $214 
Based on the above, my current investment advice is to drink heavily and recycle

XTOD: Note this morning from Apollo's Torsten Slok about why the Fed's measure of "supercore" inflation remains high. He sees it as a reason monetary policy must remain tight. I see it as a reason to stop focusing on a deeply flawed measure

XTOD: To date still one of my favorite learning materials. (Lehman Foreign Exchange Training Manual)

XTOD: "The money needed to sustain this giant prosperity-generating machine comes from the government running deficits and from banks extending credit, with the Fed’s activities linking the two." 8/10

XTOD: The share of U.S. households reporting that it's harder to obtain credit than one year ago hit a new high in the New York Fed's consumer survey, which is around 10 years old

XTOD: The mechanics of negative convexity and how it can impact bondholders.   https://vgi.vg/488hoKh

XTOD: Kyle Bass Says US Banks to Lose $250 Billion in Office Holdings  @business  Banks in the US will lose $200, $250 billion in office over time here, Bass said. And there’s about $2 trillion of equity in the banks so it’s like a 10% hit to US banking equity. #CMBS

XTOD: Youth is definitely a virtue for many tasks, such as moving furniture, carrying water up a mountain (in the absence of mules), skiing at very high speed in a rocky steep terrain, but it won't help much in challenging age old investment wisdom.

XTOD: Yo if your name is Omar and you’re from San Rafael, your girl Jessica who works at Starbucks is cheating on you.   I’m waiting for my food and she’s talking about it with her coworkers behind the counter.

XTOD: MGM casino hack:  “The system is still down,” receptionist at Borgata casino in New Jersey tells me, adding slot machines are only taking cash as a result.   She said most guests were understanding but that “a couple are angry.” 

XTOD: Orangutan launches possum out of enclosure at zoo — as horrified visitors scream https://trib.al/04HoK8I

Daily Economic Update: September 11, 2023

 

September 11th starts with yields up and steeper the 2Y is 4.99% and 10Y is up ~4bps to 4.294%.  The Yen is stronger against the USD as over the weekend Ueda said Japan may eventually end NIRP (negative interest rate policy) with the 2% inflation target in sight.   It will be an important week in economic data heading into next week's FOMC decision as we get CPI on Wednesday, Retail Sales on Thursday, and another look at consumer expectations for inflation with UofM survey on Friday.  Speaking of central banks, the ECB decision on Thursday will likely be of some interest given the continued inflationary pressures against continued weakness in areas like German manufacturing, as the European Commission cut the Euro Area growth forecast for remainder of 2023 and 2024 with contraction in Germany.

Staying in the states, there are some pretty big disconnects in GDP forecasting amongst Federal Reserve regional bank forecasters as Atlanta Fed's GDPNow is estimating real GDP at 5.6% for 3Q2023 and the newly reinstated NY Fed GDP nowcast at only 2.25%.  The considerably better growth forecast have caused some commercial bank researchers to up their year end yield targets, with JPM now seeing 10Y yields ending the year at 4.20% up from 3.85% in their last forecast.  Morgan Stanley on the other hand stated "We stand alone, with conviction, telling investors to buy government bonds, despite incessant selling, weak price action, driven by backward looking - and in our view - questionable narratives." Guess time will tell who is correct.  Lots of talk of the Arm IPO this week, around the $55bln valuation threshold.

No major data today with a 3Y Note Auction the highlight of the day.
Tue: 10Y Note Auction
Wed:  CPI, 30Y Bond Auction
Thu: ECB Decision, Jobless Claims, PPI, Retail Sales
Fri: Empire Mfg, Industrial Production and UofM

XTOD: NY Fed Q3 GDP Nowcast: +2.2%  Atl Fed Q3 GDPNow: +5.6%  Really smart move by Central Bankers here. You want to diversify your views in case one of these is way off the mark.

XTOD: Chicago Fed research: Fed rate increases have already taken substantial effect on output but the majority of effects have yet to occur for labor market  The model says the Fed has done enough to bring inflation to target by 2024 while avoiding a recession  https://chicagofed.org/publications/chicago-fed-letter/2023/483

XTOD: The only three variables that are too low in this late cycle are the only three that actually matter:  - spreads   - vol  - ERP  Everything else is levitating, rates, equities, house prices,…  Usually liquidity ties it all together, not now

XTOD: @INArteCarloDoss  has a great list of the reasons to be in cash.  But the big kahuna which ties them all together is missing.   Bond Term Premium is negative.   All four need to go higher or the economy will continue to surprise on the upside.  We think all four will go higher.

XTOD: New Fed Z.1 (which gives us early household wealth data) is out for the three months through June 2023.   A big pop driven by stocks and real estate has pushed household (+nonprofit) net worth back above where it was before rate hikes started in 2022.  https://federalreserve.gov/releases/z1/dataviz/z1/changes_in_net_worth/chart/

XTOD: Yes I agree, owning the index guarantees you own the winners, whoever that ends up being

XTOD: India is studying possible responses to a potential Chinese invasion of Taiwan after the US made discreet inquiries on how the nation could contribute in the event of a war, according to senior Indian government officials. The study, commissioned by India’s top military commander, will assess various war scenarios and provide options for the giant Asian country in case a conflict breaks out. Some Indian military commanders believe that strong statements may suffice as a response in case the war is short, but ultimately that will not be enough if the conflict drags on like Russia’s war in Ukraine, the officials said. Under Prime Minister Narendra Modi, India has developed a policy of “multi-alignment,” effectively hedging its bets by fostering close ties to the US while refusing to join international sanctions on Russia. That policy will be tested in the event of a drastic deterioration of US-China ties. via Bloomberg

XTOD: If markets are efficient, why are people still holding huge sums in bank accounts that yield 0.63% when money market funds pay 5.08%?

XTOD: Wow, there’s something that Lenin, Keynes, and Austrian economists all agree on:  The best way to destroy society is to debase the currency.  I'm genuinely curious what a Keynesian today thinks of these statements from Keynes in 1919.....haha imagine being an MMTer and knowing that Lenin, Keynes, and Austrians are all able to see/admit that debasing the currency destroys society.  they prob spin this as motivation... "everyone is wrong except MMTers!!"

XTOD: Citigroup is tanking the way Credit Suisse did near the end.

XTOD: Crypto exchange FTX will likely get approval to liquidate its assets 13th of September.  They had $3.4b worth of crypto in April.  Current proposed plan is to sell up to $200m worth of crypto every week.

XTOD: Everything seems coordinated to hit in October 🤫  1) Student loan payments resume 2) Government budget shutdown October 2nd 3) Virus lockdowns 4) Bank failures 5) FEMA & FCC Nationwide Emergency Alert Test for October 4th

Daily Economic Update: September 8, 2023

Despite strong ISM Services and jobless claims to start yesterday, yields ended lower as markets focused on news like that out of Walmart, which is cutting starting pay for some new hourly workers. To start the day, yields are relatively flat with 10Y at  4.24% and 2Y at 4.94%.  As we head into Fed's blackout period, NY Fed President Williams yesterday seemed to join the chorus of Fed officials who seem to generally be promoting a "pause" at the upcoming meeting.  With the yield curve still in deep inversion, there was a good St. Louis Fed post yesterday on the yield curve inversion and recession probabilities.  In it the author derives a lower recession probability if you look at the inversion of the yield curve in "real" (inflation-adjusted) terms.

As an aside, probably one of the worst takes I hear seemingly daily in the financial media goes something like: 'the U.S. economy is so much less interest rate sensitive because people have used fixed rate debt'. From there the pundit will typically follow that with a statement to a seemingly logical conclusion that goes something like 'therefore the Fed's rate hikes are less impactful...or therefore 'long and variable lags'.  That all seems reasonable.  So why do I think this is a bad take? The reason I think this is a bad take is that it fails to recognize that fixed-rate liabilities are someone else's fixed-rate asset.  What is therefore great for someone who borrowed at a low fixed rate is equally bad for someone who holds that loan/security as an asset.  These same pundits often talk about Fed policy working through financial conditions and wealth effects, but then seem to skip the step where they account for the mark-to-market losses that anyone who holds a fixed rate asset with a low interest rate are experiencing.  It's only been 6 months since SVB and concerns about banks mismanaging duration risk were all the headlines and I guess now we only account for the gains from holding fixed rate liabilities on the books of homeowners and corporations.
Now if you want to get into a discussion around the structure of the U.S. economy and how it's shifted to a more technological based and services oriented economy, or how certain industries have lower leverage than the past,  then I can probably buy into the narrative that the economy as a whole might be less interest rate sensitive, but that's not the sound bite narrative I hear on TV.   

On the day it's Wholesale Inventories and Consumer Credit

XTOD: SBF has no friends left.

XTOD: Scoop: TikTok's Shop marketplace is live for some US users. It looks like an Amazon copycat and is full of cheap Chinese goods.

XTOD: Is there any research or empirical support to the notion that the last mile on inflation is the hardest? (serious question)

XTOD: The authors' findings show the significant uncertainty surrounding the measurement of inflation in real-time, which adds to the challenges faced by policymakers, analysts, and the general public in analyzing inflation.

XTOD: They are not  pouring money into “alternative” assets. They are pouring money into over-priced (and over-fee’d) under-expected returned beta (plus some vol laundering). Overpriced beta ain’t “alternative.”

XTOD: US investment-grade bond supply over the first two days after Labor Day has totaled $52.6 billion, the third largest over the same period since 2010: Bank of America research.

XTOD: Seems like everyone has forgotten about the banks just as they are flashing warning signs again

Daily Economic Update: September 7, 2023

After another day of rising, U.S. yields open the day a little lower with the 2Y right around 5% after crossing 5% yesterday following better than expected ISM services data.  The 10Y is 4.27% also down slightly 2bps from yesterday's close.  Yesterday's Fed Beige Book showed some signs of slowing in the job market and some squeeze in profit margins as businesses struggled to pass on higher input cost to consumers, perhaps another sign the consumer is rolling over and exhausting excess savings.  Fedspeak continues to skew towards inaction at the upcoming FOMC meeting.  Atlanta Fed GDPNow is still up at 5.6%.  China data continues to show weak trade, oil continues to stay high (see airline profit warnings), Covid cases out there, and path of rates remain a question mark. 
On the day ahead we have a decline in Apple in the pre-market due to reports that China looks to expand the ban on iPhone sales to state firms and agencies.   On the day ahead: Jobless claims, Productivity and Cost, Fed Williams speaking 330pm, Bowman.

XTOD: Out of 28,114 publicly-listed U.S. companies analyzed over past century, 25 best stocks have created nearly 1/3 of all shareholder wealth; put another way, just 0.1% of stocks have added over $17.6 trillion to investors’ wallets;  @VisualCap  graphic from Henrik Bessembinder of  @ASU  shows best stocks of past century [Past performance is no guarantee of future results]

XTOD: Point 10 in Tom Sargent's 2007 Berkeley graduation speech:  "When a government spends, its citizens eventually pay, either today or tomorrow, either through explicit taxes or implicit ones like inflation." 

XTOD: Supply continues to do its thing: For the first time in many decades, apartment rents are rapidly flattening (and could soon go negative) at the same time demand remains healthy.  Why? Apartment construction is at 40+ year highs-- shifting the balance of power to renters.  YoY, effective asking rents for new leases (same-store) inched up just 0.28% and could turn negative by September.  Compare 2023 to the last two times (excluding 2020 pandemic year): early 2000s and 2009. In those prior two periods, rents fell as recessions hit, jobs were lost, demand evaporated and vacancy hit 7-8%. By comparison, in 2023, vacancy has been fairly stable since January in the mid 5% range.  Demand is solid, but operators are giving on price in order to compete and to protect occupancy / cashflow.  That'll likely continue through 2024 as supply peaks, before 2025-26 as supply by then will be significantly less.  The rent slowdown won't show up in CPI until early-ish 2024. But it'll happen. CPI rents won't go negative by then, but they'll look pedestrian at that point.

XTOD: AIR B&B to lead real estate market crash.  If you want a new home your happy days are around the corner. Same for rental property. The best time to get rich is in a crash. Good luck.

XTOD: Here's the big story in childcare: There's been mass closures of "in home daycares" (the most affordable option)  More than 97,000 have closed since the early 2000s, cutting the overall industry by ~half.  As pandemic aid ends, expect even more closures.  https://washingtonpost.com/business/2023/09/05/child-care-cliff-day-care/

XTOD: There's a great line in Walter Bagehot's "Lombard Street" (1873!!), where he essentially says this is the most efficient role of banks.  "Busy bankers" don't have time to become specialized, and thus should just be the senior lenders to those who are

XTOD: “being able to pass on an investment and then get in after it’s gone up 100% is a superpower”.

XTOD: Our US members' confidence in finding or holding a job (grey line) matched its highest level since March.  Y/Y declines in this metric are moderating.

XTOD: What bear steepening? (This one)  From August 1 pre QRA supply to today 

2s : + 14bp

10s : + 28bp

30s: + 28bp 

I keep hearing this because the curve did bear steepen. Twitter warned us of a supply driven bear steepening

XTOD: Want to handle pressure better? Learn to compete against “nameless, faceless opponents.” In other words, focus on competing against the game itself, which is what you have trained to do (personally and as a team).

Daily Economic Update: September 6, 2023

Continued dollar strength especially against Asian currencies (JPY and CNY)  and rising oil prices are front and center today as equities and bonds are little changed to start the day.  The 2Y UST is trading ~4.95% while 10Y is ~4.25% ahead of today's ISM Services and Fed Beige book.  Fed Governor Waller yesterday didn't rule out more hikes and didn't seem to favor cuts.  German factor ordered missed estimates badly falling 11.7% in another sign of stagflationary fears for EU.

XTOD: You know what breaks the S&P 500?  People selling off their Vanguard funds from their retirement accounts and paying the penalty because they no longer work and milk now cost $357.73. 

Few understand this.

XTOD: A Delta flight from Atlanta to Barcelona was forced to return to Atlanta to address, "diarrhea all the way through the airplane."

XTOD: There's an epic Battle for Narrative right now.  Each side is vying to get a landmark share placing out successfully:

- On one side, OPEC wants to pump the Saudi Aramco placing through the Inflation narrative

- On the other side, Wall Street wants to pump the ARM IPO through the AI AI AI AI narrative 

The only certainty is that a new class of bagholders will be created

XTOD: Long list of people who keep on telling me how smart they are to be long duration and what an idiot I am for being short it. It's almost as if they don't have a quote provider and they are living in their own little fantasy land where supply gets mysteriously bought by Daddy.

XTOD: Join us on the blog as we mark one year since Liz Truss began her short-lived tenure as PM, one that got us all talking about submerging markets and...lettuce. 

Daily Economic Update: September 5, 2023

The first full week of September starts with yields higher, the 2Y up ~4bps to 4.92% and the 10Y up ~5bps to 4.23% . GS research was out with a report where they cut their next 12- month recession probability assessment down to 15% from 20% and appeared to disagree with the notion that monetary policy will have impacts from 'long and variable lags' (maybe they've been reading John Cochrane's blog?).  In their report they also are confident the Fed is likely done hiking and call for very gradual rate cuts starting in 2Q2024.  Ahead of the weekend G20 meeting, the Financial Stability Board has a letter out this morning highlighting the risk of rising debt service cost such as real estate and leverage in the non-bank financial sector. Of course crypto risk and climate risk are in the letter as well.

On the day ahead we have Factory Order data, the highlight of the week is likely to be ISM services report and Fed Beige Book on Wednesday.  Hopefully the U.S. service sector data is better than China's where their services PMI hit an 8-month low.  Also in APAC the Royal Bank of Australia kept their policy stance on hold with the cash rate at 4.1%.  The dollar hitting a 43-week high against the AUD.

There has been a lot of talk about the resumption of student loan repayments (interest resumed accruing on Sep. 1), but some data is showing that some borrowers might have been making monthly payments as it became evident that payments would resume, so perhaps some of the impact could have been pulled forward.

On the week ahead the calendar looks like:
Today (Tue): Factory Orders
Wed: Fed Collins speaks, S&P PMI's and ISM Services data, Bank of Canada Rate Decision (10am) Fed Beige Book (2pm), Fed Logan speaking at 3pm
Thur: Jobless claims, Productivity and Cost, Fed Williams speaking 330pm, Bowman speaking 455pm..Goolsbee, Harker and Bostic also speaking during day
Fri: Wholesale Inventories, Consumer Credit

XTOD: When the market closes up on a Friday, it is a statement of traders' confidence. When it does it on a lot of Fridays, it becomes a more emphatic statement. Years ago, I studied this and found 6 weeks was a good lookback period. DJIA is up 7 of the last 8 Fridays.

XTOD: more than 73,000 festival attendees and campers are trapped with no access in or out of the Burning Man festival that takes place in Black Rock City, Nevada. This situation has arisen after a heavy overnight rainstorm transformed the once dry, dusty desert into an undrivable mud pit, causing disastrous conditions. Festival-goers have been asked to shelter in place and conserve food and water due to the poor conditions. Travelers were informed that burning man festival is closed, and anyone heading to the festival will be turned away, as a national emergency has been declared at the festival.

XTOD: Did a deep dive into the most interesting Jackson Hole paper and came away thinking that the optimal solution to Treasury market "dysfunction" is just yield curve control

XTOD: I agree with @jasonfurman  that real rates are most worrisome factor in fiscal outlook. As noted in a prior column, real rates have gone from well below real growth pre-pandemic to roughly equal now, removing an important stabilizing factor for the debt. 

XTOD: The question is which real assets?  Commodities never do well in a recession..Real estate gets taxed when governments implement wealth tax ..Gold price is manipulated via paper gold market..What else is out there?

XTOD: S&P: Despite a relatively innocuous July the global corporate default tally has hit 91, more than double the amount at this point last year and well above the 10-year average. 

XTOD: This is an interesting chart showing that Google trends for the word "strike" recently surged to record levels.  This spike implies a growing pressure among workers to secure improved compensation deals with their employers.  Labor strikes are becoming a regular occurrence in society, reminiscent of their prevalence in the 1970s.  These are unmistakable signs of an inflationary setting, where the rising cost of living is placing significant pressure on wages to rise.

XTOD: Modern day corporate America is essentially indentured servitude. They pay you enough monthly so you take out tons of liabilities that are enough to make you ‘comfortable’ - but not free from the payments of those liabilities.   Most Americans at the end of the month (or beginning) when they pay said liabilities put in their ATM card and have essentially little (or) no money left. The net relationship is essentially swapping your time to accumulate liabilities (swap time for net nothing) and said ‘luxuries’ - ie: I might be able to drive my two door sports car - but your employer can rug pull you at any moment interfering with that ability to continue paying your lenders to live a lifestyle you can’t actually afford.  Unfortunately I think 90+% of Americans are living a lifestyle they can’t actually afford (guilty of it myself, as well)....This line has never been more true, especially among younger gens: We’re “buying things [we] don’t need to impress people [we] don’t like”. 

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."