One thing seems clear in all this mess.....banks in receivership, public sector bailouts, private sector investment consortiums, market assaults on the next most weak, public and private official statements of confidence, etc. One of the first signs that there is a problem somewhere is when you have to say there isn't a problem. What we clearly have is a classic crisis of confidence. Best case scenario, legislators get excited, regulators get busy, banks circle the wagons to preserve liquidity, tighten credit and the money spigot slows. Tight credit constrains investment and growth and more rapid pace of economic slowdown becomes inevitable. In my view, probability of recession has increased markedly and timing has moved nearer.
It's a clear crisis of leadership at the very highest levels of our government. There is so much incompetence and idealism and a glaring lack of talent and expertise. People have next to no confidence in our leadership.
Wednesday will become known as Fed "Pivot" Day. The day in which the Fed indicated a shift in policy stance away from raising rates and tightening monetary policy to squeeze out inflationary pressures. Chair Powell clearly indicated that rate hikes are over and the next likely course - at some point - is lower rates but for now consensus view is that the most likely case is the elusive "soft landing". FOMC members projecting 3 rate cuts in 2024, beginning mid-yearish. Equity and bond markets rallied like drunken fools in celebration. Color me skeptical, I've been in the business for almost 50 years and "soft landings" are few and far between. That said, core elements - solid labor markets and healthy consumer - are firmly in place and while not my "base case" it is well within in the range of likely outcomes. In any event, at these levels with bonds/fixed income offering positive real returns as an option for the first time in decades I'll be trimming risk (e.g., selling stocks) into rallies while keeping overall equity exposure on the conservative side of my risk range. Expect an awful lot of volatility with an election year upon us and meaningful geo-political risk across the globe. Stay balanced fellas..... Fed Meeting News Today: FOMC Leaves Interest Rates Steady, Projects 3 Cuts in 2024, Powell Says Hikes Likely Over
Amazing isn't it? After months of telling us that their target inflation rate is 2% the Fed. suddenly stops hiking rates no where near it's target. As the street has been anticipating, the foot is coming off the breaks as we enter an election year. I'm not sure that I'd call today's consumers "healthy" Credit card debt has reached an all time high as inflation has consumed the pandemic savings many had accumulated.
Gip, in my book, I'd say the Fed has pitched damn near a perfect game to this point and I think most objective observers agree that it's appropriate to pause at this point. By most any measure I follow and judging by the the comments of the major bank CEO's, consumers are in good shape. Employment and spending remain solid and loan delinquencies remain well within normal bounds, even low by historical standards. Importantly, holiday spending to date shows a modest year over year increase. While there is some decline in the savings of the lower-income, the balance sheets of middle income and above and small businesses remain quite healthy. The labor market and jobs are the key. So long as the labor market remains solid and they have jobs, consumers will spend. Inasmuch as they account for 70% of GDP, as long as consumers spend, the economy will remain on firm footing and the "soft landing" scenario is quite plausible. My own view is that I expect a modest, but short, down turn late spring to mid-year. It's virtually unheard of for the Fed to raise rates as aggressively as they did without a downturn but I supported their policy stance then and support it now. All in all, the data is convincing me to be more optimistic about the outlook that I was 6-9 months ago, which isn't to say that there aren't some bumpy times ahead. Retail sales shoot up 0.3% in November as consumers hit the gas on spending ahead of holidays
I grill a lot. I use wood chips on charcoal. 3 years ago, they were 4.99 a bag. Same bag last week - 11.99.
Gip, they are PROJECTING that inflation is on the trajectory to hit 2% again by 2026 while falling steadily until then. This is where I'm VERY skeptical. If the fed starts dropping rates at the end of the first quarter, I'd bet inflation starts to climb pretty quick. Heck core inflation is still at 4% right now... it might start climbing again in Jan.
Scott, that's the essence of the current debate...with the Fed's favored inflation gauge "core" PCE consistently trending down for the past year tho still running 3.46% in October, FOMC member projections for 2024 show as wide a dispersion of expectations as I've seen. Projections for # of cuts range from zero to 6 and even public comments by Fed Governors suggest a wide range of policy views. Alot of uncertainty as you would expect in this environment keeping in mind their dual mandate of 1) price stability and 2) full employment. If cracks in the labor market begin to appear, the calls for easing will intensify. Easy to forget but important to keep in mind and a material monetary factor is that even with the Fed rate hikes on pause, monetary tightening is still proceeding apace to the tune of $100 billion a month being removed from the economy by way of "QT" (quantitative tightening) wherein the Fed is in essence "reversing" the massive flood of liquidity injected into the economy as a result of the Trump admin Covid response. Since last June, the Fed has removed $1.2 Trillion from it's balance sheet. Personal Consumption Expenditures Excluding Food and Energy (Chain-Type Price Index) | FRED | St. Louis Fed https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20231213.pdf
Consumer credit card debt is north of $1 Billion. Unpaid student loan debt is at $1.7 Billion. The average mortgage in the United States is now over $3,200.00 per month. I read an article yesterday about a disturbing new trend among the under 40 crowd. They are simply refusing to pay their student loan debt and some are ignoring their credit card debt as well. They call it Doomsday financing or something like that. Their theory is that they see no futures for themselves; can't afford a house or anything substantial and they see no future for the nation so they are living for the day. Now that is a different perspective than you'll get on the business channels but the debt just keeps growing like the tide rising. Businesses are closing because of crime and unsafe conditions for their customers and employees. In 2023 alone YTD numbers for retail theft are currently at $1.2 Billion. Most of us on here have some money invested and are enjoying good returns on cash investments as well as good dividends in a strong stock market. But if you're living day to day and have no emergency fund or savings then you are feeling pretty hopeless and that probably takes in at least 60% of this country.
George, I get it, your cup is 3/4 empty, so your gonna focus on the anecdotal negatives. In the meantime, for the economy in aggregate, payrolls and output at all-time highs, unemployment is at structural lows, GDP just posted a well above trend 5% growth print, job growth still continues unabated even in the face of historical monetary tightening, credit delinquencies tho rising remain near all-time lows, businesses are still hiring and consumers are still consuming at record pace. That simply cannot happen if 60% of the country is feeling hopeless. The Fed has been efforting mightily for over a year now to cool off this economy and we do need them to manage the slowdown towards a "soft landing". At present tho there is not a developed economy in the world that is in better position to withstand weakness than ours PS - George I mean no disrespect by my 3/4 empty comment only to suggest that I believe your assessment to be filtered by your political views. If you make your living in the capital markets the way I do, it's decidedly unprofitable for me to let my political bias get in the way of an objective view of the data and color my decisions. This economy is not without its warts but it's performance in the face of an aggressive Fed tightening cycle has been extraordinary and continues to impress most fair-minded observers
As a matter of fact I do take offense at your sophomoric characterization of me. Nothing I wrote is false; it is all factual except for the possible exception of my 60% number which may be a little shy. I'm happy you're killing it in the capital markets. You earned it. But there is a growing division in this country between the haves and have nots that threatens us all. To ignore that, to pretend it's not real because some economic indicators are pointing up. A house is only as strong as its foundation and with the declining educational standards and performance, the exploding street drug expansion, the lawlessness of our major cities and the eroding moral fiber of our society our foundation has a multitude of large cracks in it. You're going to be fine and so will I. I think my 40 something year old sons will squeak by. But I have serious concerns about my grandsons, through no fault of their own. It's hard to believe that you and I share the same planet much less the same conservative orientation.
Suit yourself George. Must be my bad in that I had mistakenly thought this topic was about Markets and the economy. Had I realized that it had morphed into Pending Societal Collapse I would have directed my comments appropriately and not flippantly addressed the most recent data regarding the current state of the markets and economy.
So nobody wants to talk about the wood chips? DOC...really?....I'd have to risk a trespassing fine to get the heat I needed....