The Fed’s balance sheet modestly expanded during the week ended November 9th - which explains why Treasury yields were flat to down along the yield curve over the same period. The Fed’s Treasury and Agency security holdings increased by a combined total of approximately $26 million over the past week ($25 million Treasury holdings increase … Continue reading The Fed’s Balance Sheet Reduction (QT) Update
Equity indices have rallied today as reported Headline and Core CPI increased by "only" 7.7% and 6.3% Y-O-Y respectively. Many Technology names are up double-digit percentages today on this macro news despite the fact that many companies are cutting heads (it's not just CRM, LYFT, META, MSFT, NFLX, RDFN and SHOP), given the weak economic … Continue reading Sell This Rally
CPI figures are due Thursday morning. CPI is a blunt tool at best. We have written on a number of occasions as to why we are not fans of the Government-reported CPI data. To summarize why we dislike the CPI measure: CPI is not a comprehensive measure of price inflation. Much of the price inflation … Continue reading CPI Data Quality Is Low
Governments gorged on historically low interest rates since 2009 and issued record amounts of debt to fund all sorts of silly spending programs from economic "stimulus" checks to QE. Debt securities are subject to the laws of supply and demand as is any commodity. We have too much paper outstanding - especially as it relates … Continue reading More QE Is Coming. Stagflation Is Staying.
The Fed raised its policy rate target range by 75 BPS to 3.75-4.00%. We believe it is likely that the Fed will raise its policy rate by another 50 BPS in December and another 50 BPS or so during Q1 2023. Where we differ with the street is that we believe that the Fed will … Continue reading Fed Raises By 75 BPS. Don’t Forget QT.
I'm puzzled by the talk of an imminent Fed pivot. If the credit market completely seizes the Fed would pivot. If the unemployment rate were to double to 6% the Fed would pivot. The Fed will not stop tightening because the equity markets are off for the year or because the housing market has slowed. … Continue reading The Fed Remains Accommodative. Pivot Not In Sight.
The ICE BofA High Yield Index stood at 9.5% at week's end (measured daily), whereas CPI (a monthly measure) stood at 8.2% as of September. Therefore, investors enjoy 130 basis points (the delta between the High Yield Index and the CPI) of positive real yield. The fact that positive real yield exists in the High … Continue reading High Yield Bonds Offer A Positive Real Yield
The thin margin grocery business is a scale game. Grocery chain operators will continue to offset rising input costs (primarily food and labor) with higher retail prices and an increased focus on self-service and automation. Walmart (WMT) is the leading grocery chain in the U.S. and only Amazon (AMZN), has the balance sheet to compete. … Continue reading Kroger and Albertsons Rumored Deal Makes Sense
We continue to expect the Fed to raise its Fed Funds Rate by 75 BPS in early November. Core inflation was up 0.6% month-to-month (6.6%) for the year. Shelter was the primary driver of Core Inflation as it carried a 32.5% relative weighting and was up 0.7% month-to-month. Food was up 0.8% month-to-month and has … Continue reading With Core Inflation Up The Fed Won’t Change Its Path
Price inflation is no great mystery. It's a function of Money Supply growth that is not tied to Productivity. The remedy is simple: The U.S. must spend less and produce more. Government spending was $6.8 Trillion in 2021, $4.5 Trillion of which (66% of total spending, 19% of GDP) went to Entitlements. The U.S. ran … Continue reading Inflation: Why We Have It & How To Fix It.