Fed Chair Powell informed the world yesterday that the Fed is ready to “pivot” even before a core inflation reading (PCE) hits their desired 2%. And, this was after a lower-than-expected inflation report (Producer Price Index) was released.
As a result, both stocks and bonds performed well, reminding us again that SOMEBODY WILL PROBABLY BE VERY WRONG. Stocks go up on the prospect of a strong economy and higher profits. Bond prices, however, go up on the prospect of lower inflation and a weaker economy.
Is it possible that this time is different and that rates will fall and the economy will surge as a result? Not likely.
Fed Helping Biden Or Sh*tting Bricks?
Someone asked me that exact question yesterday. While I do think the Fed would prefer to see Biden win, I think they are willing to cut rates sooner than expected because they are very concerned about the economy – for the many reasons I have been illuminating in my blogs.
Unemployment Shoots Up After The Fed Cuts Rates
The Fed has the world convinced that they can control the economy, but macro pundits constantly remind us that the Fed reacts to the economy; the Fed either cuts in response to negative economic news, or the economy tanks even after rates are cut.
This excellent post on X by The Kobeissi Letter shows how unemployment SPIKED every time the Fed has cut rates since 1950! If the Fed can save the day, why would unemployment shoot up? Kobeissi’s point: “History says a ‘soft landing’ is unlikely.”
Stocks Vs Bonds; Who’s Wrong?
The above subheading is the title of this post on X by Jeff Snider. Snider explains that stocks are going higher “because everyone believes that everyone believes in a soft landing…” Got that? Snider makes this point: “Historical analysis reveals that stock prices are less about economic fundamentals… [and] are more reflective of collective market psychology, akin to Keynes’s beauty contest.” He also shows in his videos how much more accurate the bond market has always been in predicting interest rates and the state of the economy. And right now the bond market is screaming recession.
Everyone Always Thinks “This Time Is Different…” Why???
In the late 1990s, prior to the dotcom crash, and in 2007, prior to the 2008 crash, we heard “this time is different” over and over and over. And…we’re hearing it now. But, macro pundits remind us again and again that we always see recessions after the yield curve inverts (when short-term rates are higher than long-term rates), and have been seeing the largest and longest yield curve inversion we’ve ever seen.
In this short and somewhat comical video, a guy who goes by the pseudonym of “J Bravo” points out how the WSJ, the Fed, and a survey of economists were ALL predicting strong economic growth ahead in 2007, ignoring the inverted yield curves. And… they were wrong. A lot wrong. George Gammon makes the same case in this video, while also reminding us that he “barely graduated from high school,” so he could be wrong. 😊 His point is only that history and the data don’t lie, irrespective of the messenger.
Jim Bianco Says No Recession Still…
Renowned macro analyst, Jim Bianco, is still making the case that there will be no recession. In this post on X, Bianco says there has never been a recession when the major indexes are all hitting all-time highs. I am not sure he’s correct, but I am sharing this as a reason why some people think “this time is different.”
Conclusion
Rates will still bounce around, but I remain strongly ensconced in the “Inverted Yield Curves Don’t Lie” camp, and I still expect a recession and much lower rates next year. This time is “never” different.
