Archive for June 2022

CPI inflation is 8.5%. Market-based inflation expectations (MBIE) one year from now are 4.8%, MBIE over the five-year period starting a year from now are 2.32%, and MBIE over the five-year period starting in five years are just 2.26%. These low forward-looking inflation numbers strongly suggest the market, which isn’t necessarily correct, thinks our high…

Following the most recent 75bps rate hike by the Fed, the NY Fed’s economic model pegs the chances of a recession, or a hard-landing, defined as one quarter in which Y-o-Y GDP growth is negative between now and the end of 2024 at 80%. The probability of continued uninterrupted growth over the same 10 quarters…

Bond yields have been particularly volatile of late as markets struggle to understand the simultaneous impacts of inflation, which is being driven by the Russian invasion of Ukraine, supply-chain issues and rising inflation expectations, which collectively push yields up, and the increasing likelihood of a recession, due to recent outsized Fed rate hikes and expectations…

While a recession is highly likely, it’s not guaranteed, and the odds of one rise the more the Fed must act on its own. That is, the White House and Congress can more deftly reduce inflation as the combination of legislative action, executive orders, and regulatory changes (energy policy and labor policy, as examples) are…

The Friday File: Earlier this week, Dimitri Muratov, the editor-in-chief of Novaya Gazeta, a newspaper fiercely critical of President Putin and that suspended operations in March after state warnings, auctioned off his 2021 Nobel Peace Prize medal to aid displaced Ukrainian children. The price of $103.5 million obliterated the previous high of $4.76 million in…

Reducing the federal gas and diesel taxes from 18.4 cents/gallon and 24.4 cents/gallon, respectively, to zero for three months, would cost the Treasury $10 billion, and probably not much help consumers. That’s because the slightly lower price would boost demand but won’t boost refining capacity, the critical supply-chain problem. The more the price reduction stimulates…

May existing housing sales fell 8.6% Y-o-Y, have declined four months in a row, and are at the lowest May level since 2015 (except for 5/20). Inventories, while profoundly low, are edging up, and due to declining sales, months of inventory is smartly up. Lastly, house price appreciation, while strong is slowing, more for sale…

The US airline with the highest costs excluding fuel is American; 12 cents/seat mile. In close second is Delta at about 11.5, and then United at 11. All are large legacy carriers with big networks, focused on high paying business travelers. Southwest is next at 10.5 cents, then Alaska at nine and JetBlue at almost…

The Friday File: Fifty years ago today, three DC police officers caught five burglars breaking into the Democratic National Campaign Committee in the iconic Watergate Building in Washington. Economically, from 1/1/73 through Richard Milhouse Nixon’s resignation on 8/8/74, the S&P 500 fell about 50% as the US economy slid into recession. As for inflation, in…

Since the start of the Great Depression, there have been 22 bear markets, defined as a stock market decline of more than 20%. The average duration of those bear markets is 11 months. The median duration is eight months. The shortest bear market was in 2020, just a month; the longest was the dotcom bear…