Daily Economic Update: June 21, 2024

"Meaning is not something you stumble across, like the answer to a riddle or the prize in a treasure hunt. Meaning is something you build into your life. You build it out of your own past, out of your affections and loyalties, out of the experience of humankind as it is passed on to you, out of your own talent and understanding, out of the things you believe in, out of the things and people you love, out of the values for which you are willing to sacrifice something. The ingredients are there. You are the only one who can put them together into that unique pattern that will be your life. Let it be a life that has dignity and meaning for you. If it does, then the particular balance of success or failure is of less account. "  - John Gardner, "The Road to Self Renewal"

Daily Economic Update: June 20, 2024

 "Achievers are a socially acceptable form of violent men, overdoing it in one way or another.  Their casualties tend to be their marriages, their families and their their health." - John Eldredge

Daily Economic Update: June 19, 2024

                  " If you find serenity and happiness, there may be jealousy;

                                                     be happy anyway.

The good you do today, people will often forget tomorrow;

do good anyway.

Give the world the best you have, and it may never be enough;

give the world the best you’ve got anyway.

You see, in the final analysis, it is between you and God;

                                it was never between you and them anyway." 

 - Mother Teresa, Do It Anyway (excerpt) 

 

Daily Economic Update: June 18, 2024

 "..you are 100 percent responsible for your life. You alone are responsible for the choices you make and the actions you take.  That said, you must also realize your choices, behaviors, and habits are influenced by very powerful external forces...Everyone is affected by three kinds of influences: input (what you feed your mind), associations (the people you spend time with) and environment (your surroundings)."  - Darren Hardy, The Compound Effect

Daily Economic Update: June 17, 2024

The week ahead features more central bank meetings including Australia and the BoE.  Stateside retail sales and PMI's will be the highlights along with Fedspeak.  But we're overdue for a week of cutting out the noise. So as is done periodically we'll do just do a quote a day for the week.

"A good leader never becomes an obstacle or rival. She empathizes with those she leads and points the way toward a good that transcends their relationship - shifting the center of gravity away from herself."  - Luke Burgis, Wanting 

Daily Economic Update: June 14, 2024

It's a summer Friday, two days past the most important Wednesday of your career, why are you reading this?

Yesterday saw headline PPI post a decline of 0.2% MoM with core PPI flat MoM, both lower than expected.  Jobless claims rose more than expected, but remain low.  Many market participants believe the recent inflation data rules out the chance of a rate hike from here.

The 30Y Treasury auction was referred to as "stellar" as it priced 1.5bps inside when-issued. Is it falling inflation, falling growth expectations, both that helped bolster demand?  In any event today's supply didn't look like an issue.

If you guessed all-time highs on equities you were right.  

On the day head it's UofM sentiment as the highlight.

XTOD: Private equity is coming to college athletics.  As detailed in this article, the Big 12 is considering an equity investment of up to $1 billion for 20% of the conference.  Another example demonstrating that college athletes are professional athletes.  https://cbssports.com/college-football/news/big-12-considering-private-equity-investment-of-up-to-1-billion-for-as-much-as-20-of-conference/

XTOD: Private equity is going to blow up the world.

XTOD: The question for private credit is how much continued growth depends on expanding:

- retail access  - redeem-ability  - secondary market liquidity - leverage (!!) 

By all accounts, all these features are becoming more common. The asset class quickly starts looking a lot different.  Leverage is the key because it’s the only way outsize relative growth can continue. You can’t somehow recreate the 15x levered banking system on 1x leverage.

Daily Economic Update: June 13, 2024

It was the most important Wednesday in history I believe.  And I learned why I should be gravely concerned about electric boats and sharks, perhaps later than others, but educating myself nonetheless.

The cooler than expected CPI data lead to a double-digit move lower in yields and of course sent stocks to new highs.  Both moves were mostly sustained through the FOMC despite the ‘hawkish’ dot plot.

 The composition of the CPI report may not have been as promising as people think with most of the cooling coming from categories that might be considered less stable like a big reduction in airfare.  

The FOMC held rates as expected, you’ve already read 100 recaps, but you haven’t read my recap here.

And speaking of questions, why does no one ask about FAIT? If we’re targeting average inflation, doesn’t that mean we need inflation to be below 2% after being above 2% to average 2%, because like math?  Who knows.  And why did no one ask Powell to weigh in on the risk of electric boats, it would have been entertaining: “Do I stay on top of the boat and get electrocuted, or do I jump over by the shark and not get electrocuted?”  That seems like a good segue way into a discussion about the balance of risk.

I would tell you what’s on tap for Thursday, but how will it ever compare to Wednesday?  But sure, PPI and 30y auction is exciting stuff.

XTOD: Perfect time to start cutting rates https://pbs.twimg.com/media/GP4QjJ7W4AAeqgR?format=png&name=900x900

XTOD: Hawkish dot plots. Only 1 cut, AND revising up neutral rate (still low IMO) and longer term unemployment rate.

XTOD: Powell's implication remains that Fed policy can control inflation or growth just because it's part of the Fed's dual mandate. In reality, the Fed can't control geopolitics, trade wars, international development strategies, commodity sourcing or distribution costs, rents, debt-based purchasing, skyrocketing rents, the price of gold, cocoa, or a host of variables that can and will influence any randomly set target inflation rate.  

The Fed's policy hasn't kept the markets from booming either. However, it has fueled the distortion between financial assets and the real economy. #permanentdistortion

XTOD: Finally a pleasant surprise. Core CPI was 0.16% in May (2.0% annual rate). Headline was 0.01%. These are the best monthly readings since 8/21 & 7/22 respectively.  Good news but caution: just 1 print & some fluky items.  Core annual rate for 1/3/6/12 months:  2.0/3.3/3.7/3.4

XTOD: NEW: 2nd-grade teacher who was arrested for being drunk in class is no longer facing charges because "it is not illegal to teach drunk."  I love America. 

Wendy Munson was arrested after teaching her students at Nuestro Elementary School in California while drunk.  Munson failed a sobriety test and was twice the legal limit two hours after she was initially arrested.  District Attorney Jennifer Dupre announced that they didn't find any charges, noting that "it is not illegal to teach drunk."  "While the District Attorney’s Office agrees that it is highly inappropriate to teach while intoxicated, it is, unfortunately, not illegal."  "We couldn’t prove that her intoxication would endanger [the kids]."  Munson is not listed as a teacher on the school's website, indicating she was fired.

XTOD: "There’s no way to create a long-term, enjoyable, sustainable life by having a series of short-term transactional relationships that you move your life through. That’s where you end up with these people who can buy anything, who’ve made hundreds of millions, if not billions, of dollars, who are miserable. I’ve met these people. They have their IRR (internal rate of return) etched on their tombstone.   No one gives a shit. No one cares."

FOMC Recap: I've got 21 Questions Behind the Questions at the FOMC Press Conference

 

• FOMC held policy rates at 5.25% to 5.50% as expected
• FOMC statement characterized progress towards reaching the 2% target as "modest further progress" while continuing to characterize growth as "strong" and unemployment as "low"
• The SEP (Dots) Median dot showed 1 hike projected for remainder of 2024 vs. 3 in the March Dots
• The median longer run neutral rate was also raised to 2.8% up from 2.6%.

We spend a lot of time thinking about the FOMC statement and press conference, but do we really pay much attention to the questions the reporters in the room ask?  We know the questions are generally tame, perhaps you remember what happened to Pedro Da Costa when he asked Yellen a tough question back in 2017.  You also know Powell's answers are generally all non-answers.  So does anyone actually pay attention to the press conference?

Well today we are going to focus on the questions and try to get to the questions behind the questions.  Please note that the "Actual Question(s)" are paraphrased from reporter questions during the press conference.

1. Actual Question: Walk me through the average inflation forecast of 2.8% by year end, it's already 2.75% and forecasted to be lower, do you expect inflation to get worse?
   Question behind the Question:  How do you guys actually come up with your forecast / what are you smoking?
   
   
2. Actual Question: If you have this wrong and inflation is rising is the outlook for rates wrong?
   Question behind the Question:  Are you going to pull a Lagarde and cut rates while rising inflation forecast?
   
   
3. Actual Question: Would more inflation readings like today make a September cut possible?
   Question behind the question: You say you're data dependent, so can you please just tell us what the data needs to show you so you are willing to cut rates?
   
   
4. Actual Question: Did anyone change their projections after the inflation data today?
   Question behind the question: If there is no consistency with how people make their projections, do these dots mean anything?
   
   
5. Actual Question:  How do you view the labor market and how it gets us back to 2%?
   Question behind the question:  Do you still think 'there will be pain' to get inflation back to 2%?
   
   
6. Actual Question: How do you interpret the differences in labor market survey data?
   Question behind the question:  It looks like these surveys are a shit show, can we even rely on the jobs data?
   
   
7. Actual Question: Why did the committee shift down their rate cut forecast?
   Question behind the question: You say you're data dependent, if the data is moving your way, why are you moving the other way?
   
   
8. Actual Question: How should we interpret the rise in the long-run neutral forecast?
   Question behind the question:  You guys have no clue about r-star, right?
   
   
9. Actual Question: Should we conclude that you guys realized you haven't been as restrictive as you think you are?
   Question behind the question: Again, do you guys have any clue as to whether your policy is actually restrictive?
   
   
10. Actual Question: If policy is restrictive why does growth and unemployment not change in your forecast?
    Question behind the question: How many times do we have to ask you whether you can explain how your policy works and how you determine these projections?
    
    
11. Actual Question: Your growth forecast sees no slowdown and unemployment isn't worse, and inflation isn't falling, why do you need to cut rates this year?
    Question behind the question: Either your forecast is wrong or the way you describe your policy is working is wrong, which is it?
    
    
12. Actual Question: Is there concern for housing and financial stability in leaving rates where they are?
    Question behind the question: Are you really just planning to cut rates to bail out certain industries?
    
    
13. Actual Question: People are unhappy at the prices at the grocery store, it doesn't seem like there are still a lot of inflationary pressures in the economy, could you tell us more?
    Question behind the question: Can you tell me again why people hate inflation?
    
    
14. Actual Question: Can you give us a sense of what one rate cut would actually do to the economy?
    Question behind the question:  Why are we all here wasting our time talking about one rate cut?
    
    
15. Actual Question: Is there something about what happened in the first half of the year that you think differently about now?
    Question behind the question:  You guys were so wrong to start the year, did you learn anything?
    
    
16. Actual Question: What is your message to American's who see good data, but feel unhappy about the economy?
    Question behind the question: Do you think American's don't understand economic data, or are they right and inflation just sucks that bad?
    
    
17. Actual Question: Borrowing money is expensive, about when will you lower rates?
    Question behind the question:  People liked free money, when can people get back to getting free money?
    
    
18. Actual Question: What data have you found that is encouraging to you?
    Question behind the question:  You said data matters, can you please just tell us what data matters and where it needs to get to for you to be happy?
    
    
19. Actual Question:  Is your conservatism really just concern about stickiness of housing inflation?
    Question behind the question: Why do we use OER in our inflation measures?
    
    
20. Actual Question: The last jobs report showed more people working multiple jobs, people are paying for things on their credit cards, what will cause a breaking point for spending?
    Question behind the question: Do you really believe the economy is doing as well as the data shows, or is it all a facade?
    
    
21. Actual Question: Can you tell me what you look at in the labor market to decide when to cut rates?
    Question behind the question:  My god, I've been sitting in this press conference for almost an hour, will you please just tell us what data matters?