Wednesday/ interest rates: shooting up ⬆️

Fed officials voted unanimously to lift their benchmark federal-funds rate to a range between 3% and 3.25%, a level last seen in early 2008. Nearly all of them expect to raise rates to between 4% and 4.5% by the end of this year, according to new projections released Wednesday, which would call for sizable rate increases at policy meetings in November and December.
– The Wall Street Journal

Inflation sits at 8%, out of sight on this graph. So that interest rate number of 3.00-3.25 (the little circle) still needs to go up, and go up rapidly. Eventually, after all the crises in the world have subsided enough, we want a real interest rate of oh, 2%, 3% (nominal interest rate minus inflation). How in earth will we ever get there? (Brutal answer: By the Fed raising rates until they have killed the strong demand for goods and services and probably by putting people out of work in the process).

Thursday/ stamps, from South Africa

My shipment of stamps from a seller in South Africa that I had bought in July, arrived today— in a sturdy envelope covered with South African stamps.
(Very ‘meta’ to use stamps to send stamps .. and so much nicer than using a bland computer-generated postage paid label).

http://tiffaneejacob.com/wp-json/wp/v2/tags/730 Lighthouses, issued Jun. 9, 1988. These stamps still have explicate postage rate values on (16c, 30c, 40c, 50c), and by 2022 they had lost some 90% of their original postage rate value due to inflation. (I used inflationtool.com to convert 1988 South African Rands to 2022 Rands).
temptingly Migratory Animals, Issued Oct. 4, 1999. These are marked ‘Standard Postage’ (what we call ‘Forever’ stamps in the USA). So the stamp is valid indefinitely* for postage on a standard envelope. These were a good ‘investment’. Their value increased 3-fold from 1999 to 2022. (ZAR 1.00 in  1999 is equivalent to ZAR 3.31 in 2022, according to inflationtool.com)
*Marketing hype, not? Is anything on Earth ‘forever’ or ‘indefinite’?

Wednesday/ inflation: stubbornly high 📈

‘Goodbye 50, hello 100’
– Financial analyst, commenting on the expected Fed hike rate next week (in basis points)


Inflation was still above 8% in August, and pervasive, found in service sectors as well as consumer goods. Gas prices were down, but not nearly enough to offset the increases everywhere else.

I took the Wall Street Journal’s quick survey to estimate my personal inflation rate. The Bureau of Labor Statistics (BLS) has a CPI basket of 80,000 items which are grouped into categories broad (such as food) and narrow (like bananas).
The BLS revises what it tracks every two years based on the spending habits of volunteers who keep a purchase diary. Everyone’s inflation rate is a little different, of course, because we buy different things and services.

There it is: my inflation rate is closer to 10%, and not the official 8.3% for August. (It was actually above 11%, then I threw in Computers, peripherals and smart home assistants for the laser printer I had bought recently, and that dragged it down to below 10%. Yes- I don’t buy a laser printer every year, but I do buy technology products now and then).
Look at chicken (up 16.5% year-over-year), cheese (up 13.5%) and milk (up 17%). Yikes.

Friday/ the Fed spooks the markets 👻

We will keep at it until we are confident the job is done.
– Federal Reserve Chair Jerome Powell, at the end of his speech in Jackson Hole, WY today.


It had to happen, of course: Fed Chair Powell reminding investors that there are several interest rate rises and probably some pain ahead, before the Federal Reserve Bank will be sure that inflation is under control.

Hopefully the selling today was mostly done by fund managers— not individual investors. The best advice on down days like today: do nothing.

Investors had a nice run off the low of Jun. 16. It is easy to look back now and realize that was a low point. As Jeff Sommer writes in the New York Times: ‘The very best advice would have required a crystal ball: You should have sold precisely on Jan. 3, when the S&P 500 stock index was at its peak, and bought on June 16, when it hit bottom. (Then, quite possibly, you should have sold again on Aug. 16, before the market turned rocky. The verdict is still out on that one.)’
[Graph from the Wall Street Journal]

Friday/ medicine for inflation

The House passed the massive piece of legislation called the Inflation Reduction Act today (the Senate had already passed it). There are lots of really good stuff in it.

John Cassidy writes for The New Yorker magazine: The Inflation Reduction Act contains the biggest effort to tackle climate change that the U.S. government has taken. Right now, thanks largely to the retirement of coal-fired electricity plants, the country is on track to reduce its carbon emissions by about thirty per cent by 2030, compared to 2005. By providing about $370 billion in tax credits over ten years for solar and wind producers, as well as for the purchase of electric vehicles, the new bill will increase the emissions reduction to about forty per cent, according to several expert analyses. The House gave final congressional approval on Friday to a spending bill which would attempt to tackle climate change, the high cost of prescription drugs and lower the deficit by roughly $300 billion. It was passed without any Republican support and now goes to President Biden for his signature.

Uncle Joe the Magician (President Biden) will sign the Inflation Reduction Act into law next week.  Yes, nothing in life is guaranteed, but this bill is not inflationary (spending money that is not gained elsewhere). It aims to reduce the deficit by raising corporate taxes, and will save the federal government and citizens money on prescription medicines and medical bills. And it fights carbon emissions in a big way. [Cartoon by Tom Stiglich]
Graphic by the NYT showing the spending and savings/ new revenue for the Inflation Reduction Act.

Wednesday/ July’s inflation 🎈

July’s 0% inflation and last week’s booming jobs report underscore the kind of economy we’re building – an economy that works for everyone.
– President Biden @POTUS on Twitter


Well. Technically there was month-over-month deflation in July (going from 9.1% in June to 8.5% in July). Also, this has happened before: March 8.5%, April 8.3%.
The July number means that year-over-year, consumer prices are still up a whopping 8.5%, and the Federal Reserve Bank still has its work cut out. It’s a long way down to the 2% long-term target for inflation.

 

Wednesday/ inflation: still going up

June’s inflation came in at 9.1%.
It seems that the Fed will definitely raise the Federal Reserve rate another 75 basis points at the end of July, and it could very well be 100 basis points (1.0%).

The Gross Domestic Product (GDP) number for the second quarter will come out just the day after the interest rate hike.
GDP growth in Q1 was -1.6%.
Goldman Sachs now says the GDP growth number for Q2 will come in at 0.7%.
The Atlanta Fed is way more pessimistic: its latest forecast for Q2 GDP growth is -1.2%.
A negative Q2 number would mean we are in a recession: two consecutive quarters of negative GDP growth.
It seems we need to have our recession sooner rather than later, so that inflation can be tamed.

So far in 2022 we have had Jan 7.5% | Feb 7.9% | Mar 8.5% | Apr 8.3% | May 8.6% | Jun 9.1%.
[Graph from Wall Street Journal]

Saturday/ the crypto party is over🎈

“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said.
“Gradually, then suddenly.”
-from Ernest Hemingway’s novel The Sun Also Rises (1926)


A headline in the Wall Street Journal says ‘The Crypto Party Is Over’.
It certainly seems to be.
As of Saturday night (cryptocurrencies trade 24/7), Bitcoin was at $18,450, down 30% for the week, and some 72% down from its $68,789 all-time high in Nov. 2021.
(Still up 7-fold from 5 years ago, though).

It was a bad weeks for stocks, but a worse one for all things crypto.
I see a melting Bitcoin ice sculpture and a Shiba Inu doggie, mascot of Dogecoin, in the WSJ picture.
As for the guy on the unicorn floatie in the pool— in business, unicorn has come to be the moniker given to a privately held startup company valued at over US$1 billion.

Tuesday/ the bears are out 🐻

The press is full of bear market reports with the recent declines in the stock market indices.

Wed 6/15, 2.00 pm EDT: Fed Chairman Jerome Powell announced that the Federal Reserve will indeed raise the federal funds rate by 75 basis points (0.75%), bringing it to the range 1.5%- 1.75%. Right now they project a rate of about 3.5% by year-end.

Here’s the New York Post. ‘Bear market has economy running scared’ .. is that really true?
The economy is running too hot, if anything, and as the picture shows: it is Uncle Sam (the government, White House) that is scared.
Investors are scared as well, of course.
There’s a bear in the Tintin adventure by cartoonist Hergé called Le Temple du Soleil (Temple of the Sun). The outcome was that Captain Haddock ran away from the bear, and came to no harm.
Originally published in Tintin Magazine in 1946-48, the cartoon strips were later collected in albums or bande dessinée in French— literally ‘drawn strips’.

Monday/ lots of red ink

Grr .. another rough day in the stock market.
Dow Jones -2.8%
S&P 500 -3.9%
Nasdaq -4.7%
Russell 2000 -4.8%
DJ Total Mkt -4.1%

The Fed may raise rates by 0.75% after all, on Wednesday.

Infographics below are from the
New York Times,
the Washington Post, and
the front page of tomorrow’s Wall Street Journal.

 

Friday/ inflation: still over 8% 😲

Welp. Year-over-year inflation for May was 8.6%, up a smidge from March (8.5% ) and April (8.3%).
So while the headlines again screamed ‘Inflation soars to 40-year high’ today, it’s been there for three months running now.

The Federal Reserve Board is widely expected to raise the fed funds rate by a half point next Wednesday, but some economists say it should be 0.75% or even 1.00%. I agree with 0.75% or 1.00% —but what do I know?

Food is expensive. We’re all going to have to subsist on hot dogs and ice cream if it goes on like this.
How come ice cream is up 4.5% with milk up 14.5%? A lot of milk goes into making ice cream, not? 🤔
[Graphic by Wall Street Journal from data by US Labor Dept.]

Friday/ the stock market is now closed

It was another rough week for the US stock market.
This was the eighth-straight weekly loss for the Dow Jones Industrial Index (-2.8%), its longest weekly losing streak since 1923.
The S&P 500 Index briefly dipped below 20% from its record high in January.

Cartoon by Dick Wright, printed in the Las Vegas Review-Journal on March 3, 2022.

Wednesday/ at its peak?

Year-over-year inflation for April was 8.3%, a slight dip from the March figure of 8.5%. The stock market is not happy🤬, of course— and Bitcoin is now below $29k, down more than 50% from its Nov. ’21 high.

At the recent Berkshire Hathaway annual meeting, Warren Buffet reiterated his disdain for cryptocurrencies, saying he would not buy all the cryptocurrency in the world for $25. (I would 😊).  I suspect he picked $25 because he then said if someone offered him a 1% stake in all the farmland in the country, he’d immediately write the check for $25 billion. (Got me. I cannot do that even if I wanted to).

His point was that cryptocurrency has no intrinsic, underlying value, and cannot be used as a real-world asset to produce income.

Here’s the a graph that shows both inflation numbers: inflation aka the Consumer Price Index (CPI) in dark blue, and also core inflation (a little less volatile since it excludes food and energy), in light blue.

Thursday/ a roller-coaster ride 🎢

‘Without price stability, the economy does not work for anybody, really’
– Fed Chair Jerome Powell at the Federal Reserve’s news conference yesterday


Wow. We ride the rollercoaster. Up yesterday, the stock market sold off in a big way again today (Dow -3.1%, S&P 500 -4.6%, Nasdaq -5.0%).

Inflation is still very high, and the Fed is finally raising interest rates.
(The Fed funds rate is now 0.75-1.00% after yesterday’s 0.5% raise).
A range of 2-3% is considered neutral, and time will tell if the Fed will have to go above that to bring inflation down to 2%.

Chairman of the Federal Reserve Board, Jerome Powell, addressing reporters face-to-face for the first time since the pandemic began. The Fed has the tools to control inflation (1. interest rates, 2. the Federal Reserve’s balance sheet and 3. their communication, usually called ‘forward guidance’), but the tools are blunt, and affect the broad economy as a whole.
[Still from Wall Street Journal video recoding]
Inflation is very high, and not showing signs of moderating yet. This graph shows the famous Consumer Price Index (CPI), a basket of goods and services that includes prices from the food & energy sector. The annual Core Inflation rate excludes food & energy prices, but was also very high for March 2022: 6.5%.
[Graphic from Yahoo Finance]
The Fed Funds rate was more or less in its ‘neutral’ range of 2-3% (not stimulating nor restricting economic activity) before the pandemic hit, but was then cut to 0-0.25% when the economy went into free fall in Mar. 2020. Dark gray bands show recessions. The tricky thing for the Fed to do is to raise interest rates (to tame inflation), without triggering a recession in the economy.
[Graphic from Yahoo Finance]

Wednesday/ taming inflation

Inflation rose to 7.9% in February, the highest rate since 1982. It is still well below the peak of 14.6% in 1980. The Federal Reserve Board raised its benchmark interest rate by 0.25%, and will almost certainly raise it several more times this year, to bring inflation under control.

Jeanna Smialek writes in the New York Times of what happened in the early ’80s:
Mr. Volcker’s Fed rolled out policies that pushed a key short-term interest rate to nearly 20 percent and sent unemployment soaring to nearly 11 percent in 1981. Car dealers mailed the Fed keys from unsold vehicles, builders sent two-by-fours from unbuilt houses and farmers drove tractors around the Fed building in Washington in protest. But the approach worked, killing off the rapid price inflation that had festered throughout the 1970s.

I vaguely remembered this TIME magazine cover of 40 years ago (maybe only because of the CIGAR and the cloud of smoke!) of Paul Volcker, and looked it up. Current Fed Chair Jerome Powell says of Paul Volcker: “I think he was one of the great public servants of the era — the greatest economic public servant of the era.”

Thursday/ gasoline: now above five

Expensive gas is in the news again.
I walked by three gas stations tonight and did a mini-survey.
It turned out that my average for just these three is spot-on for the city’s average.
Seattle is about a dollar a gallon above the national average, but a dollar or more below California’s prices.
(The New York Times: California’s high fuel prices are partly because of taxes as well as regulatory programs aimed at reducing greenhouse gas emissions. Together, they added about $1.27 to the cost of a gallon of gas last month, according to a calculation by the Western States Petroleum Association.)

CompanyRegular Unleaded [$/ Gal]
7-Eleven4.899
Shell4.999
765.179
Average5.026
7-Eleven was the cheapest at $4.899/ gal.
Got to love those perpetual and silly 9/10 of a cent at the end. That’s Madison Avenue on which work had ground to a halt weeks ago, due to a city-wide strike by concrete workers.
Here’s Shell with $4.999/ gal.
Let’s call it 5 even, shall we? And yeah, those scooters on the sidewalk are looking better and better.
And whoah. 76 is NOT SHY, coming in at $5.179/ gal. (If you are not willing to fumble with paper money and coins, and pay with a card, it’s $5.199/ gal).
Take that street car behind the sign, mate.

Sunday/ cash is king

[Image from Basis 365® Accounting’s blog]
‘Cash is king’
– Origin unknown, but the saying gained popularity after Pehr G. Gyllenhammar, CEO of Volvo, used it after the global stock market suddenly crashed in Oct. 1987.


I was in the QFC grocery store at Harvard Market on Saturday, and about to put in my credit card to pay for my items at the self check-out.

‘Attention, customers!’ came an announcement. ‘For the next 20 minutes, no credit card, no Apply Pay, no Google Pay can be used; it will be cash only’.
The in-store transaction server must have keeled over or frozen up; maybe it had to be rebooted.
Lucky for me I had cash in my wallet, to let loose⁠— and vamoose.

Friday/ inflation: spiking up

The Consumer Price Index climbed by 6.8 percent in the past year through November, the data showed, the fastest in almost 40 years.
The headline below says inflation is pressuring Washington (President Biden and the Democrats, I presume).
It’s up to the Federal Reserve Bank and chairman Jay Powell, to decide when to raise interest rates to curb inflation, though.

From the New York Times: In the 1960s, the central bank failed to take sufficiently decisive action to tamp down rising prices. Inflation soared, rising to double-digit levels during the 1970s, and Paul Volcker, then the Fed chair, pushed interest rates up sharply to get things under control in the early 1980s.

Monday/ TSLA’s big T market cap

 

 

 

Hertz said on Monday that it would convert more than 20 percent of its rental fleet to Tesla’s electric cars by the end of next year, an announcement that helped propel Tesla’s stock value beyond $1 trillion for the first time.

Tesla’s stock closed at $1024.86, up more than 12% on the day and giving the company a market value of $1.03 trillion.

The Wall Street Journal notes that the market caps of the biggest nine automakers need to be added to get to Tesla’s market cap.

Yes, Tesla sells 1/10th the number of cars that Volkswagen does, but it will deliver double the cars this year, compared to what it had delivered in 2020. And the stock market bulls argue that Tesla is technically not a car company: it’s a technology company.

Wednesday/ inflation now at 5%

The annual inflation rate for the United States was 5.0% for the 12 months ended May 2021, up from 4.2% for April, according to U.S. Labor Department data published on June 10.

Will the Federal Reserve Bank have to raise interest rates from zero much sooner than it had expected just a few months ago?

‘Based on central bankers’ fresh projections released Wednesday, the median Fed official expected to achieve the central bank’s goals and lift rates by late 2023. The Fed’s interest rate projections showed that more than half of its 18 officials expected rate increases by the end of that year. More, but not quite half, expected an increase or two in 2022.

That markup came as Fed officials offered headier economic forecasts. They now see growth coming in stronger in 2021, and expect inflation to average 3.4 percent in the final three months of the year. They expect that headline inflation gauge to retreat quickly, however, falling to 2.1 percent next year and 2.2 percent in 2023′.
– Jeanna Smialek reporting for the New York Times

Annual US inflation rates has been as low as 0.7% in 2015, and not much higher than 2.0% in any other year since 2012. There is a big debate among economists as to how long the recent, higher rates of 4.2% (for April) and 5% (for May) will persist.
[Cartoon by Robert Rich for Hedgeye.com]