I’ve been waiting for 4% to be breached–and right now the 10 year treasury is trading at 4.03%. This is a mostly meaningful because it is a round number–psychologically important. Inflation is the culprit–not just in the U.S., but globally. Seems to me that many folks on the website have done the right thing–raised a little cash in the last month and then sat on their hands as ‘cash’ rewards them for their patience. Market timing is generally a loser for me, but this time it seemed more ‘obvious’ that booking some gains and waiting was the right thing to do.
Where are rates going? Higher–how much higher is anyone’s guess, but until we see employment affected in a significant way rates will go higher. It goes without saying that we need to see the CPI and PCE numbers to soften a bit. We will see February jobs number next week.
In 30 minutes we have 1st time jobless claims. We need to see this start moving higher in the weeks an months ahead–this is the canary in the coal mine for employment–we get it every week. Expectations are for 197,000 claims versus 192,000 last week–not to wish ill will to anyone, but would love to see 210,000 or some such number, but no reason to believe that will happen.
So I will again be sitting on my hands—nothing new about that.
17 thoughts on “4% Breached – What Now?”
My son went to a restaurant Thursday night at 7pm. $100 for two including tip. Place was completely full delaying the food service. Mostly senior citizens. They are spending locally adding to the money in circulation. Same thing when I eat lunch out. Restaurants crowded. That doesn’t look like recession yet.
We cut way back on reetsaurants. Just can’t justify the high price compared to other thungs we can spend the money on. They are crowded here too, yet lots of people are broke. Two-tiered economy. And saving is out of fashion.
Where are rates going? Higher–how much higher is anyone’s guess
Tis a great time to make money doing nothing. As you state ‘higher’. And get over 4% in a MM while doing nothing.
The interest rate spread between BBB- preferred stocks and the 10 year Treasury seems way too low. What am I missing?
You’re missing nothing! Credit spreads are currently tight because the markets are (for now) pricing in low default rates for this cycle.
That old dog Powell gonna have to bark real loud, show his teeth and maybe even start growling, lol. We need a Pitbull, but we got a big old goofy basset hound.
With debt @ 130% to GNP, and more trillion dollar deficits, Powell will have it much harder than Volker did to deal with inflation. Caught in a box!
I think rates of 5%-6% for full employment may be on the horizon. Not good for bonds and preferred.
The Treasury is turning over a $trillion here a $trillion there with higher rates to meet its funding needs! Yikes
Service on the debt will be out of control if inflation remains above 2-3%.
Apologies in advance for a long post. Just came back from getting scoped and I have to sit here with my thoughts (which I will inflict on you) while the last of the anesthesia wears off.
My worry is still that everyone is looking to Powell to fix inflation, but he doesn’t have the tools to fix it. He seems to have the commitment to fix it, but he is really just a “one trick pony” whose only real tool is to raise/lower rates.
I think of our current inflation mess as a supply/demand problem. It is being driven by too much (borrowed) money pouring into the economy from the massive deficit spending by (many) governments , especially the US (i.e. its an excess supply of money problem) and not by an overheating economy (which would be an excess demand for money problem).
Historically, the fed was dealing with excess demand problems and its tool was reasonably effective, so long as the fed was willing to use it.
We are now experiencing something different.
Because Powell is using his tool to raise rates, he may reduce demand for money, but he can’t reduce supply . I think that will drive us into a new situation a bit like stagflation, i.e. we will have high inflation (and high rates as Powell keeps using his hammer on a problem that is not a nail) and an economy in recession because Powell has driven rates up so much that businesses start to choke (i.e. demand is reduced) and we fall into recession.
Ultimately, fed actions may make the problem worse because supply will continue to grow and demand will be reduced by fed action. We may see some short term improvements as the market reacts to Powell continuing to try, but it won’t last because he can’t fix the underlying problem.
If my thoughts are correct, the simple (but not easy) solution would be to stop driving supply (i.e massively reduce deficit spending). Unfortunately, that is not likely to happen soon (especially with an election coming up and “leaders” trying to buy votes through ever more spending).
Because he can’t reduce supply, maybe Powell should reverse course and try to spur economic growth (increase demand) as a way to “sop up” some of the tidal wave of cash that is pouring in. It wouldn’t absorb all the cash, but it might help. Perhaps a radical departure from current theory, but the current approach doesn’t seem to be working….
In the mean time, I guess I will keep trying to buy inflation resistant things like treasuries, CDs, and watch for ways to garner more cash.
If by Supply you mean money supply you are correct expanding the money supply causes Inflation. If you mean supply shortage of materials and labor I disagree. That can move prices up and down around the same level but does not cause spiraling Inflation.
Stop increasing the money supply would kill Inflation dead in its tracks And kill a lot of other things too, that’s why they don’t do it. Raising rates is an indirect approach, kinda like running the air conditioner and heater at the same time.
Thanks for reading my post Martin. I appreciate the feedback.
Yes, I was talking about money supply.
I am talking about stopping the tidal wave of cash the government, which is driving up supply at an unsustainable rate. If that would stop (or even drop significantly), I think inflation would drop like a rock. Of course, that can’t happen because of the current political situation.
I don’t think it would completely stop the growth of the money supply if “normal” economic growth could continue (i.e. if the fed doesn’t strangle growth so much that it stunts the demand side).
Of course, I could be thinking about this all wrong. wouldn’t be the first time.
Private. I agree – with this Frankenstien Modern Monetary Theory, fiscal policy is the primary tool to reduce inflation. When inflation moves up, fiscal spending/stimulus should slow or stop. But reflecting on yesterdays thread of pols and their need to spend $, this leg of the stool is missing. MMT is only a theory that does not work in the world we live in.
MMT is not the problem because, as the theory clearly lays it out, when inflation threatens then the money faucet must be closed. This can be done by either decreasing spending or increasing taxes. Only Congress can do that, and they will never do either one to any significant degree.
Bottom line: don’t blame MMT, blame Congress.
Weekly jobless claims fall 2,000 to 190,000
Continuing claims drop 5,000 to 1.655 million
Fourth-quarter labor costs revised higher
Now that recession cat is out of the bat….It is time for politicians and media and those who do not understand the harm that inflation does to our ecomony to begin hammering Powell as being cruel and out of touch – and ultimately demand his ouster.
If you were around in the 80s you saw this same movie staring Chairman Arrthur Burns and Paul Vockler. Burns gave into the heat and lost the battle with inflation, where as Vockler stood his ground and as a result inflation cycled lower for many years
For 2022, unit labor costs are up more than 6% and productivity was down 1.7%. Seems like the same experts who asserted “transitory” are now denying “wage-price spiral?”
Right on Potter.