During the ten years prior to COVID, PCE inflation, the Fed’s preferred measure, averaged about 1.5% per year. Jerome Powell said it was too low and he wanted inflation to “average” 2% over time. Well, he got his wish, and more. PCE inflation has averaged 3.7% in the past five years and 2.6% over the past ten years. In other words, because of its misguided policies during COVID, the Fed has pushed inflation above both its short-term and long-term target. Any apparent success at bringing i… View More
The volatile risk-off backdrop has continued. Economic concerns have surged with the U.S.-led trade war moving into high gear. The current turbulence may yet provide a good buying opportunity in risk asset markets but probably from lower than current levels. Whether equity markets rebound or continue sinking hinges on the outcome of the trade war and whether the endpoint is: a) meaningful protectionism that soon undermines the global economic expansion, or perhaps continued high uncertainty that… View More
It is true that tariffs are a tax. It is also true that tariff policies have been volatile…on and off again…different carve outs…different countries…phone calls that change things. All this clearly has an impact on the market. So, we are not surprised to see stock market volatility. However, it isn’t all about tariffs. Many major models of overall stock market valuation show that the market is expensive. The so-called Buffet Indicator, which measures the market cap of the S&P 500 … View More
Is the US already in recession? Probably not. But in the first quarter, real GDP is very likely to have a minus sign in front of it. Yes, a negative reading for real growth! Even before Friday there were some troubling signs. Retail sales fell 0.9% in January while housing starts dropped 9.8%. The personal saving rate hit a new post-COVID low in the fourth quarter, existing home sales declined 4.9% for the month and, with pending home sales (contracts on existing homes) down, February will like… View More
Global financial markets have hit a rough patch as the cumulative impact of President Trump’s trade and related economic threats are fueling concerns that he will diverge from the pro-growth script that he initially followed during his first term. Then, the positive economic elements arrived first, primarily tax cuts, before the negative actions followed, i.e., a brief trade war. These negative actions caused a downturn in global trade and slowed the U.S. economy and corporate profits. The U.… View More