Thursday/ flirting with 5,000 🤩

The S&P 500’s (.SPX) forward price-to-earnings ratio— a commonly used metric to value stocks— rose to 20.4 times this week, a level last reached in February 2022, according to LSEG Datastream.
That puts it far above the index’s historic average of 15.7.

It isn’t unusual for valuations to climb along with stock prices, and equities can stay expensive for a long time before returning to more moderate levels. Still, some investors believe the index’s growing multiple has made buying into the broad market a less enticing proposition. The S&P 500 has surged 21% since late October, making new record highs along the way.

It briefly crossed the 5,000 level at the end of Thursday’s session, before closing just below the mark.
– Lewis Krauskopf reporting for Reuters

There was excitement on the CNBC channel today in the run-up to the close, but the S&P 500 ultimately closed just below 5,000.
The “Magnificent Seven” stocks— Apple AAPL, Microsoft MSFT, Alphabet GOOGL, Amazon AMZN, NVIDIA NVDA, Meta Platforms META and Tesla TSLA— now account for almost 30% of the S&P 500 index.

Wednesday/ the real interest rate 💵

The Federal Reserve Bank announced today that it is holding the federal funds rate steady.  (The rate  has been 5.25% to 5.5% since last summer.)

NYT Opinion writer Peter Coy points out (see below) that that means— with inflation coming down— that the Fed is actually tightening monetary policy.

Friday/ a soft landing? 🛬

The classic example of a soft landing is the monetary tightening conducted under Alan Greenspan in the mid-1990s. In early 1994, the economy was approaching its third year of recovery following the 1990-91 recession. By February 1994, the unemployment rate was falling rapidly, down from 7.8% to 6.6%. CPI inflation sat at 2.8%, and the federal funds rate sat at around 3%. With the economy growing and unemployment shrinking rapidly, the Fed was concerned about a potential pick-up of inflation and decided to raise rates preemptively. During 1994, the Fed raised rates seven times, doubling the federal funds rate from 3% to 6%. It then cut its key interest rate, the federal funds rate, three times in 1995 when it saw the economy softening more than required to keep inflation from rising.
– Sam Boocker and David Wessel writing for Brookings.edu, Sept. 14, 2023


They all turned out to be wrong— those economists and money managers that opined a year ago that we would have a recession here in the United States by now.

The year is almost out, and jobs are still being added to the economy.

Lydia DePillis writes in the New York Times:
Employers added 199,000 jobs last month, the Labor Department reported Friday, while the unemployment rate dropped to 3.7%, from 3.9%.
The increase in employment includes tens of thousands of autoworkers and actors who returned to their jobs after strikes, and others in related businesses that had been stalled by the walkouts, meaning underlying job growth is slightly weaker.

Black Friday 🛍

Seattle is reportedly dead last on a list of large cities for spending on holiday gifts, per person. (The city’s 10.25% sales tax and relatively few shopping malls are given the blame.)
Nevertheless— I trust that the the profits from retailers had moved from the red to the black by this Black Friday.

It is sunny but chilly here in the city this weekend (high of 46°F /7°C today).
Here’s looking west towards the Olympic mountain range from Republican Street and 13th Avenue East, a few minutes before the sun set at 4.24 pm.

Friday/ working hard 😓

The US economy added 336,000 new jobs to payrolls in September: about double what analysts had expected.
The stock market fell at first (the Fed may have to keep hiking interest rates), but by the early afternoon, the stock market decided that the initial sell-off was overdone, and by the end of trading the Dow Jones Industrial Index was up by 288 points (0.87%).

Here’s how September’s job number compares with other months. The unemployment rate is steady at 3.8%, according to the Labor Department. Even though hourly wages have risen faster than inflation, housing unaffordability is still a growing problem.
[Graph and text from the New York Times]

Monday/ another mega-jackpot 💰

The estimated $1.55 billion Mega Millions jackpot for the Tuesday night drawing is one of the largest in U.S. history.

The odds to win the big prize is about 1 in 302.6 million.
Yes, you could buy 10 tickets and make it 1 in 30.26 million, but you would still be much more likely to be killed by an asteroid (1 in 1.6 million).

Update Tue 8/8: The largest jackpot in Mega Millions history, worth an estimated $1.58 billion, was secured in Florida on Tuesday night.
The winning ticketholder can choose between the massive $1.58 billion jackpot paid in annual payments or a one-time cash option worth an estimated $783.3 million.
The winning numbers were 13, 19, 20, 32, 33, and the gold Mega ball 14.
– From the New York Post.

The sign in the 7-11 store on 15th Avenue East here on Capitol Hill. Is $ 1.55 billion too much of a good thing? That $5.2 million prize for the Washington State Lotto would come in handy.
Should one take the lump sum, or the annuity option? From CNBC: Andrew Stoltmann, a Chicago-based lawyer who has represented several lottery winners, says 95% choose the lump sum option, which he describes as a “big mistake.” There are three “big drains” on lottery winners: bad investments, relatives who ask for money and overspending, according to Stoltmann.

Wednesday/ another rate hike 📈

The rate hikes have slowed down to 0.25 % increases, and it will take 6 months or more before the full effect of all the hikes are felt by consumers. By some estimates US consumers are burning through $100 billion per month of piled-up pandemic-era savings and government support. (Six months to go, then that’s gone). Also, many people still have home loans and car loans— and debt— taken out at very low 2022 interest rates.

The Federal Reserve raised the federal funds rate by a quarter percent today, to a range of 5.0-5.25%.

From the Wall Street Journal:
Powell didn’t rule out another rate rise at the central bank’s September meeting, but he emphasized how much the central bank had already done along with the amount of time it can take for monetary policy to cool inflation.
“We’ve come a long way. Inflation repeatedly has proved stronger than we and other forecasters have expected, and at some point that may change,” Powell said. “We have to be ready to follow the data, and given how far we’ve come, we can afford to be a little patient, as well as resolute, as we let this unfold.”
Fed officials have been concerned that underlying price pressures may prove more persistent as a solid labor market allows workers to bargain for higher pay, making it harder to get inflation down further.

Friday/ three big T’s 🍏

Happy Friday.
Apple is worth an eye-popping $3 trillion as of today.
(Microsoft is valued at around $2.5 trillion).

Apple’s stock closed Friday at $193.97, up 2.3% on the day and valuing the company at $3.05 trillion. Much of Apple’s current resilience rests on the strength of its iPhone, which accounts for around half of its annual sales.
[Reporting & graphic from the Wall Street Journal]

Thursday/ as the ceiling flew away 💸

We skipped the light fandango
Turned cartwheels ‘cross the floor
I was feeling kinda seasick
The crowd called out for more
The room was humming harder
As the ceiling flew away
When we called out for another drink
The waiter brought a tray
And so it was that later
As the miller told his tale
That her face, at first just ghostly
Turned a whiter shade of pale
– From ‘A Whiter Shade of Pale’, song by the English rock band Procol Harum that was issued as their debut record on 12 May 1967.


10.58 pm, Washington DC
From the New York Times:
The legislation passed the Senate by a vote of 63-36, ensuring the federal government will not run out of money to pay its bills on Monday. It now goes to President Biden to be signed.

Thursday/ be afraid, be very afraid 😵‍💫

If you’re not afraid yet, you should be.
-Catherine Rampell, writing in the Washington Post about the latest debt-ceiling increase showdown in Washington (Treasury Secretary Janet Yellen raised the alarm earlier this week, saying the U.S. government could be out of options to pay its bills by June 1)


Apparently it was not enough that the Republican Party had pushed t****  and his now-convicted seditionist supporters on us for four years.

Now the House Republicans and Speaker Kevin McCarthy want military veterans, social security recipients— and really every American in some way— to pay for the previous Republican administration’s tax cuts.

Here are some scenarios that that will likely play out if the United States indeed defaults on its debt (as reported by Catherine Rampell in the Washington Post):
1. U.S. Treasurys get downgraded — as does virtually every other asset on earth.
2. Interest rates rise further for U.S. consumers, businesses and the government.
3. Global investors likely would sell U.S. dollar-denominated assets as confidence in them evaporates; the dollar might lose value in foreign-exchange markets.
4. Stock markets plummet.
5. Companies holding Treasurys suffer hits to both revenue and balance sheets.
6. There might be a scramble to close out trades that people would otherwise hold.
7. Some of the infrastructure underpinning large parts of the financial system (called “central counterparty clearinghouses”) could essentially get overwhelmed and go down.

Wednesday/ fed-funds now 5.0-5.25% 💸

“We feel like we’re getting closer or maybe even there.”
-Federal Reserve Bank Chairman Jerome Powell today, on whether more federal-fund rate increases are in the offing


The Federal Reserve Bank increased the federal-funds rate by another 0.25% today.
(So another message to the consumer to stop borrowing money, and to stop buying stuff that is not really needed.
The average credit card interest rate is now 24.25%, according to Forbes Advisor’s weekly credit card rates report. Inflation here in the States is now at about 5%.)

From the Wall Street Journal:
With the latest increase, the Fed has raised its benchmark federal-funds rate by a cumulative 5 percentage points from near zero in March 2022, the most rapid series of increases since the 1980s. The rate influences other rates throughout the economy, such as on mortgages, credit cards and business loans.

Monday/ buy bonds? 📜

The MSCI USA Index is a stock market index that measures the performance of large- and mid-cap companies in the U.S.
It was down by 19.46% in 2022, but up more than 20% in each of the previous three years.

It was a rough week in the US stock market last week, and today went better.
Still, the uncertainty around inflation and a recession in 2023 is not going to be resolved for several more months.

Writes James McIntosh for the Wall Street Journal under a heading ‘Markets History 101: It’s Time to Buy Bonds‘:
Even after their big falls, stocks still look very expensive compared to bonds. The optimism that started this year has faded, but investors continue to bet that long-run inflation will come back under control and profit margins will stay high. And many remain wary of bonds, even as yields approach 4% on the 10-year Treasury and are above 5% on six-month bills.

The central lesson of financial history is that, over the long run, U.S. stocks beat bonds. But buying stocks when they are expensive—at 18 times estimated earnings for the next 12 months, they have rarely been pricier outside the dot-com bubble and the post-pandemic boom—is a recipe for substandard returns.

Lucky Friday the 13th? ☘️

The largest lottery winnings ever is the Powerball payout of US$2.04 billion recorded just last year on Nov. 7, 2022.
As of today, and for tonight’s drawing, the Mega Millions prize is up to $1.35 billion.

From thelotter.com:
The biggest jackpots in the world, both starting and awarded, belong to US Powerball and Mega Millions.
Both of the lotteries jackpot prizes reset to an estimated US$20 million each time they’re won.
This is larger than many lotteries’ biggest payouts!
The second-biggest starting prize belongs to Europe’s transnational star: The EuroMillions.
The top prize starts at €17 million and can grow with each rollover until it reaches the prize cap.

Update Sat. 1/14:  The second largest jackpot in Mega Millions history was sold in Lebanon, Maine (pop. 6,000) at the Hometown Gas & Grill. The winner hasn’t come forward yet.

The display board at the 7-11 here on 15th Ave. on Capitol Hill, where I had just bought 3 tickets for $2 each for the $1.35 billion Mega Millions lottery. I’m such a rank amateur when it comes to buying lottery tickets, that the clerk had to inquire twice as to exactly WHICH lottery I wanted tickets for (For the big prize— duh .. and it didn’t help that his accent make it sound like MAGA millions😆).

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).

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).
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]