re: CPI comes in slightly hotter than expected, pre market stocks rally

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Unless we see a lot of layoffs between now and April, I would expect CPI to continue to remain sticky above 3%. If we don't see CPI go below 3% in May, a June cut is off the table and we may even hear Fed language indicating a possible hike for 2024. They really should have raised the rates again in Q4 of last year.

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The market has simply refused to embrace the obvious. It fought all the hikes all along the way, stupidly believing Powell was sending coded messages when he was literally just saying every time what he would do - and then proceed to do it. Now, it's insisting that there will be cuts.

I think higher for longer is obvious, which is why I like tilting fixed income exposure extremely to the front end, getting a risk-free 5.5%. I don't see any reason at all yet to extend duration.

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You obviously believe them when they redefine "recession" and then say "recession? what recession?" It doesn't matter what we call it or what stats we cherrypick, by any measure, we are teetering on the brink of some real pain. Any number of things could trigger it and when it happens, it happens a lot faster than you can imagine.

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Not necessarily. But the semantic argument you are referring to happened prior to the Oct/Nov 2022 survey in question. I'm totally fine saying a technical recession happened prior to that. But moving on to what we're actually talking about, there clearly HAS NOT been a recession since the 100% survey. And that pisses off a lot of people around here.

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by any measure, we are teetering on the brink of some real pain

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Just because you keep repeating this doesn't make it fact.

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Again, they aren't doing enough soon enough. The economists should know this (and I think they do), yet the media continues to run cover with headlines like "hotter than expected." It implies they can't see it coming when they can (or should). It implies it's outside their control, when it's not. It implies "we're doing what we should be doing, but we just can't figure out why the results are showing something different. It's not our fault (when it is)."

None of this is "unexpected." It's 100% expected by anyone with any sense...because they aren't doing enough on the monetary policy side and the fiscal side is running wild at the same time.

In summary, this "unexpected"/"hotter than expected" shite is a lie. If they came out and said, "we expected inflation to continue" then people would start wondering why the frick they aren't fixing the problem THEY created. So they pretend they don't understand why all this is happening.

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I still don't know WHAT you're trying to address. Inflation at 3.5% instead of long-term target of 2%? Intentional recession? Higher/lower rates?

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the problem THEY created. So they pretend they don't understand why all this is happening.

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So your contention is it's a conspiracy of scores of external/independent economists?

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No idea what you're getting at here. "Greatest" as in "largest" isn't meaninfgul because growth/size doesn't equal health. Healthy growth is when inflation corresponds to economic output. That's "target inflation." When it's out of whack/sync, it's not healthy at all, and right now our economy is anything but healthy. It's propped up by popsicle sticks. Their solution is when it's about to fail, to shove in another popsicle stick.

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So your goal is "healthy growth"?

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I wanted them to raise rates 8 years ago when the economy was in the right place to absorb the short term pain. Instead, they left rates low far longer than they should have and the government spent like a drunken sailor on shore leave...and now we're in the position we're in now, where it's too late to fix it without breaking shite.

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What exactly is "our position"?

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I want them to think long-term for once and stop trying to have everything now at the expense of later. Growth done responsibly, in a healthy and sustainable way, is slower...but it sticks and you don't have bullshite like we have now.

Does that answer your question?

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Sort of. I don't agree at all that it's obvious that we are on the brink of something terrible. IMO, medium/long-term yields have found their range (call it 3.38-4.3%) and the more severe inflation that was linked to Covid/supply chain nonsense is clearly behind us. I'm not a huge believer in the AI theme in general, but one would have to admit at the very least that it's another example of American ingenuity and productivity that is relevant to the discussion. Unemployment is historically low. Innovation is still at our backs. The rest of the world is horribly fricked up. We have the reserve currency. I'm just not sure what I'm supposed to be terrified of here.

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The market has simply refused to embrace the obvious. It fought all the hikes all along the way, stupidly believing Powell was sending coded messages when he was literally just saying every time what he would do - and then proceed to do it. Now, it's insisting that there will be cuts.

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Ever since JPow mentioned a possible 3 cuts for 2024, some in the market were saying it was going to be as high as six.

As I posted in another thread not too long ago, the market sees what it wants to see. Last month we had the exact same "CPI hotter than expected" terminology to describe the January numbers. In that thread someone responded that they think 5 cuts for this year were "def still on the table".

Even as late as yesterday there were economist who were certain we would get a cut in June (Powell's recent "not far" testimony before Congress didn't help). Today? It's that June is likely going to see the pause continue instead of a cut.

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I think higher for longer is obvious, which is why I like tilting fixed income exposure extremely to the front end, getting a risk-free 5.5%. I don't see any reason at all yet to extend duration.

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Agreed. I started this year as the "year of money markets" for my investments. Until/Unless we see inflation go down to at least 2.7% along with a drop in GDP and increase in Unemployment, I'm putting all new investment funds into money markets. Free money is free money.

CPI number never really mattered in the first place. Market makers use whatever it is as an excuse to hold a bid, destroy puts and delta buyback all the way back to ATH.

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I'm not saying it wouldn't be great to spend less and make more intelligent overall decisions. It's just not clear to me what the nature of your impending catastrophe is.

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We're basically an emerging market with GRC status at this point, deficits 7% of gdp, financing with short term debt etc...

Powell is irrelevant with debt/gdp at 125%. The $1T in interest paid to boomers is stimulative. If he cuts it's stimulative.

Either way, with boomers now retiring en masse debt goes parabolic. Fiscal is driving everything, aka we've entered fiscal dominance. Look to the 1940s for guidance because that's where we are. The entitlement ponzis have been destined to sink the ship since Clinton and Bush exported our industrial base. A service economy can't support the entitlement paygos.

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Powell is irrelevant with debt/gdp at 125%. The $1T in interest paid to boomers is stimulative. If he cuts it's stimulative.

Either way, with boomers now retiring en masse debt goes parabolic. Fiscal is driving everything, aka we've entered fiscal dominance. Look to the 1940s for guidance because that's where we are. The entitlement ponzis have been destined to sink the ship since Clinton and Bush exported our industrial base. A service economy can't support the entitlement paygos.

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Resulting in what?

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That's a vivid metaphor, but I'm not sure it holds.

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It holds. Everything is propped up right now; we’re definitely not fundamentally/foundationally sound. You think just because everything is propped up that we’re okay because, hey, “we haven’t crashed yet.”

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Sticking to the actual economy and not figurative language, what EXACTLY are you worried about happening from here? Stocks down a bit? Interest rates higher? A recession/depression?

I'm not saying it wouldn't be great to spend less and make more intelligent overall decisions. It's just not clear to me what the nature of your impending catastrophe is.

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I’m not going to write 10 pages, which is what it would take to explain every single detail, nuance, and angle, but in a nutshell…

It's not “worry” as much as it is warning that we need to get our shite together.

Right now, we’re looking at persistent inflation. That’s not great, but it can be addressed. They are half-assing it, but inflation can be addressed. They just have to do it.

A recession isn’t great, but it too can be addressed…as long as inflation is under control.

Inflation combined with flat or reduced economic output (and usually rising unemployment) is called, yep, Stagflation. Hard to get into, but a sonofabitch to get out of. And for the same reason - whatever you do to address one side generally causes the other to go in the other direction.

Things have to happen just right to get in it, but you have to literally break shite to get out.

So how do you get into stagflation?

Supply-shock and supply chain disruption is one major cause...generally a front-end trigger. We have had both recently, but they have largely unwound themselves for now (although we could cause it again via overregulation of certain sectors). Let's set that aside for now.

The other main driver is poor economic policy – monetary, fiscal, or both.

As I’ve said before, those can work together, they can cancel each other out, or they can fight each other. Right now, the Fed’s monetary policy that is intended to address inflationary pressure (rate hikes) is being overpowered by the government’s fiscal policy. The Fed waited too long, didn’t do enough, and is getting overpowered. They aren’t necessarily fueling inflation with low rates, but they’re damn sure not killing it with high ones (and you could argue that consumers are using credit to bridge the gap, so demand is still there to further drive prices up).

Result – inflation isn’t in check. That’s one half of stagflation.

Some of the many fiscal policy decisions that can lead to stagflation are increasing business taxes, harsh regulatory measures, raising minimum wage, and increased spending (particularly social spending).

Biden just talked about hiking corporate taxes – check

Harsh regulatory measures – check

Minimum wage has sharply increased over the last couple of years and they're proposing raising it again – check

Spending is out of control - check

Result – increased potential for continued inflation via wage-price spirals, and flat or reduced economic output/employment. Both halves of stagflation.

Again, stagflation IS difficult to get into, but the elements are all currently present or on the way (if they do what they say they’re going to do). All that would have to happen is they occur in the right sequence, and we’re fricked.

Credit is driving things right now. Consumer behavior has not changed much - people are absorbing price increases by using credit. That credit is rapidly approaching its limit. What do you think happens when it runs out?

Unemployment isn't great like they say it is. First of all, the numbers are bullshite and are revised once nobody's looking. Secondly, the jobs that are being created are largely government jobs. Government doesn't produce, but those people do spend. It's not a good indicator of health. There is tension everywhere. Labor participation and "employment/jobs" are not the same.

They are going to have to choose which one they want, inflation or a recession, pick one, and address it - otherwise there's a good chance they frick up and get both.

Either raise rates and knock out inflation at the expense of output in the short-term, or leave rates low (they are still low...they were just raised from damn near nothing) and let inflation go while the economy still sputters along.

If they choose the latter, they're just going to have to fix a bigger problem later. But those are their choices at this point. I'd prefer the Fed hammer inflation and get it in check so the rest is manageable (they don't want to because then they'll take all the blame when the government is just as much or more at fault).

What they'll probably do is what they've set the stage to do, which is fail to check inflation while also regulating the frick out of industry and raising corporate taxes, resulting in rising prices and reduced output at the same time. That stagflation thing. Because they're stupid...which has been my point all along.

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This is the only thing I disagree with. The federal government hasn't raised their minimum wage since 2009. There are quite a few states which have increased theirs since then, but 20 which still hold it at the federal level of $7.25. In those states there are few, if any, businesses that actually pay that low because of competition for workers.

An interesting tidbit I noticed while looking this information up is that states which are among those with the highest minimum wages are also usually the stages people are leaving. States like NY, CA, IL and DC and, generally, heading to states where the state minimum wage is lower (TX, FL, ID, TN, etc). Let me stress, these aren't businesses (although some of that is going on), but families and individuals. If increased minimum wages are such a wonderful thing, why is it that labor seems to be fleeing them (or, rather, the economies those wages exist within)?

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This point isn't wrong, but there is tension between the two halves. Okay, so Federal Minimum Wage hasn't increased. States with gigantic economies (California is 8th largest the world or thereabouts) have. And even if people are leaving, your second paragraph mentions they're taking their labor with them. So what does that do to labor costs? The effect is still the same in the end - companies pay more because minimum wage is higher OR they pay more because worker supply is reduced OR they reduce economic output (or 1 of the first 2 AND the 3rd...which is wages, and by extension prices, UP + economic output DOWN...Stagflation).

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One thing you touched on but didn't go more into is federal spending. Inflation is too much money chasing too few goods. The President just proposed a $7.5T budget (which would make next year's deficits anywhere from $2.5T-$3.5T), which was thankfully shot down by the Speaker. That's an indication of how incredibly inept this administration is on understanding basic fiscal and economic philosophies.

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Agreed. They are morons. Or doing it on purpose. MMT is bullshite and I personally think they know it, but are just doing it anyway. Because who's going to stop them?

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Everything is propped up right now; we’re definitely not fundamentally/foundationally sound.

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I agree we could be more fundamentally sound, but do not agree everything is "propped up".

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Right now, we’re looking at persistent inflation. That’s not great, but it can be addressed. They are half-assing it, but inflation can be addressed. They just have to do it.

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Inflation is 3.5% right now - a smidge too high, basically. We had nearly 20 years of disinflation - largely due to China. If we are going to insist on being at odds with China, then I don't see an easy glidepath right back to disinflation.

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As I’ve said before, those can work together, they can cancel each other out, or they can fight each other. Right now, the Fed’s monetary policy that is intended to address inflationary pressure (rate hikes) is being overpowered by the government’s fiscal policy. The Fed waited too long, didn’t do enough, and is getting overpowered. They aren’t necessarily fueling inflation with low rates, but they’re damn sure not killing it with high ones (and you could argue that consumers are using credit to bridge the gap, so demand is still there to further drive prices up).

Result – inflation isn’t in check. That’s one half of stagflation.

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You seem very concerned with inflation. There are other credible observers concerned about DEflation.

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Biden just talked about hiking corporate taxes – check

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Yes. Literally 0% chance of passing anything even close to what he "proposed" (I argue it was merely hollow virtue signaling and now an actual proposal).

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Unemployment isn't great like they say it is. First of all, the numbers are bullshite and are revised once nobody's looking.

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I debunked this on a separate thread the other day. For all the hand-wringing about "misses to the downside", the figures for the past 14 months have been off by 13%. That is VERY accurate. Basically 3 million jobs instead of 3.5 million.

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and let inflation go while the economy still sputters along.

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The economy is not "sputtering along".

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What they'll probably do is what they've set the stage to do, which is fail to check inflation while also regulating the frick out of industry and raising corporate taxes, resulting in rising prices and reduced output at the same time. That stagflation thing. Because they're stupid...which has been my point all along.

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I certainly give you credit for having a well-argued vision of the present and the future - I just think you're pretty far off the mark. Only time will tell.

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Agreed. They are morons. Or doing it on purpose. MMT is bullshite and I personally think they know it, but are just doing it anyway. Because who's going to stop them?

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is they/them in the room with us now?