From the rapid growth of crypto to the dramatic volatility of the asset class, governments around the world are responding through regulatory and legislative actions. Some jurisdictions have announced clear and accommodating frameworks in the hope to create the crypto hubs […]
The Fed whisperer spoke this week, so 75 bips is a lock for September 21.
Less importantly, the Fed Chair spoke, too.
At a Cato webinar, Powell said the Fed’s biggest concern is that people would “incorporate higher inflation into [their] economic decision making” and that “our job is to make sure that doesn't happen.”
It’s not happening: US consumers are reacting to inflation by buying less, not more.
Walmart says customers are trading down; Dollar General is seeing more shoppers from the $100k+ income bracket; diners are switching from restaurants with tablecloths to restaurants where you wipe the table off yourself; diners from those restaurants are switching to McDonald’s; and McDonald’s diners are switching to value meals.
We’re still traveling, though: This past weekend saw 8.8 million air travelers in the US, 7% more than Labor Day weekend of 2019. It was the first time since the pandemic that a long weekend saw more travel than the same weekend of 2019.
It’s less fun than in 2019, however: In the first half of this year, there was about a one-in-four chance your flight was delayed.
So, maybe consider staying home, which is what the Fed wants you to do, anyway. And go to McDonald’s. And order the value meal.
Until we do, Chair Powell will keep firing rate hikes at us like Queen Elizabeth firing live rounds at a Sandhurst practice range.
We may be doing everything right. And every indicator may be pointing to lower inflation. But, at this point, Powell is not going to believe it until he sees it.
How long until he sees it? Let’s check the charts.
It’ll get a little worse before it gets better:
36 bips MoM is still not bad, but energy is doing all the work: The core numbers are still uncomfortably high.
Supply-side pressures are fading fast, however:
The US ISM Supplier Deliveries Index, a measure of supply-chain delays (and one of Alan Greenspan’s favorite leading indicators), is at a 30-month low and not far off the long-term norms.
The supply of houses is even better (for buyers):
The lagged effect of the housing boom is likely to be the biggest contributor to CPI in coming months. But that, too, should soon pass: At nearly 11 months, the supply of new homes in the US is near multi-decade highs.
It’s a buyers’ market for cars, too:
Used car prices (solid gray line) are falling by as much as 2% per week. At that rate, you should be able to get a pre-owned car for free in just 50 weeks. (Someone check my math on that, please.)
We’re eating out too much, though:
OpenTable reservations are up 1.9% vs. 2019. The Fed would prefer us to get some groceries at Dollar General and eat in. (Yes, you urban dilettantes, Dollar General has groceries.)
And there are still too many jobs:
Job openings outnumber unemployed people nearly two to one.
Despite all the jobs, sentiment is grim, especially globally:
Consumer sentiment is generally a contra-indicator, so this is a good sign for risk assets. (I guess.)
Investor sentiment is equally grim:
Options data suggests that institutional investors are expecting the market to make new lows. Possibly because they’ve been reading Morgan Stanley’s US strategists: "We do not think the bear market is over." MS sees the S&P falling by at least another 15% this year and by as much as 25% if we get a recession. That would see the S&P down to 3,000. Ouch.
We’ve already experienced historic levels of ouch this year:
@michaelbatnick notes that the traditional 60/40 portfolio is having its worst year in decades.
Keep in mind, though, this bear market started on the very first day of the year, making the year-to-date comparisons look a little worse than they are.
Equities actually look pretty good, considering:
The S&P (red line) has held up much better than you’d expect — especially given the move in real yields (blue line, inverted).
I’d say that’s good news. But Powell will keep firing rate hikes at us until he turns it into bad news.
Have a great weekend, fellow monarchists, and I’ll see you next week at DAS NYC.
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