Distortions from March’s helicopter money drop continue to cloud the forecast horizon. In nominal terms, income fell -13% M/M in April. This shouldn’t have been a surprise given that the free money raised March’s nominal income by 21%! Another distortion appeared in core PCE (Personal Consumption Expenditure) prices (the price index most watched by the Fed). It rose +0.7% in April, mainly on the back of reopening (rising prices of air fares, hotels, used …Read More
Employment and Inflation: The Double Whammy
As much as the big miss in employment was a shock on Friday May 7, the May 12 CPI data turned out to be a double whammy. April headline CPI came in at +0.8% M/M, while market consensus was +0.2%, another huge miss by market forecasters. Y/Y CPI was +4.2%, up significantly from March’s 2.6% Y/Y print. What appears strange to us, and looks to be contradictory to reality, is …Read More
Incoming Data Looks Robust – It’s A Mirage
Incoming PPI data marked the initial volley of the oncoming “siege” of inflation data. Despite reopenings, state Initial Unemployment Claims spiked as March ended. Either the reopening lags are longer than we thought, or disincentives from overly generous benefit payments are at play. If recent history is any guide, only part (25%) of the stimulus cash will be spent on consumption, the remainder saved or used to reduce debt. Business, …Read More
A ‘W’ Recovery, Obstructed By Bankruptcies And Unemployment
The Recession’s ending isn’t the story – it is whether or not the Recovery lives up to its billing. In truth, the Recovery’s shape was never going to be a CAPITAL “V.” Like in the post-Great Depression period or the post-1918 pandemic period, consumer behavior will radically change. And, there is a lot of evidence that that has already begun. In those past periods, consumers became more frugal, and today’s data shows a surge …Read More
The “Avoidance” Reaction
Preamble I received an email from my travel agent last Monday (March 2) informing me that, because Italy had been raised to a Travel Level 3 by the CDC (strongly advised not to travel there), our vacation to Italy (March 12-22) had to be postponed, else we risked being quarantined upon our return. In addition, the previous Friday, two corporate meetings in my immediate schedule for the week in the …Read More
Corona, Corona, Corona Bonds Really Do Have More Fun!
The equity market finally showed some sensitivity to the effects of the coronavirus (Covid-19) last week with the S&P 500 falling 1.25% from its record high close on Valentine’s day for the holiday shortened week. The leading issue which dominated every news cycle (except for the Democratic debate for a few hours) was Covid-19 and the economic uncertainties surrounding it. Markets rose on news or speculation that infection cases were …Read More
