Created with Sketch.
Notes on the Week Ahead
10 minutes | Dec 5, 2022
Redhotnot – The Investment Implications of the Job Market Mosaic
At 8:30AM, on the first Friday of every month, the Labor Department releases the monthly jobs report. By 8:35AM, the network scriptwriters deliver a verdict to the teleprompters – jobs either “sky rocketed” or “plunged”. The job market is either “red hot” or “stalling out” and, either way, investors need to be worried. No middle ground will keep an audience.
7 minutes | Nov 22, 2022
The Investment Implications of the Housing Slump
For many people, I suspect, 2022 will be a year to forget. However, for millions of home-builders, home-sellers and home-buyers, it will be remembered for the speed with which a housing boom turned into a housing bust. The reason, of course, has been a surge in mortgage rates. These rates look likely to stay high, at least over the next year, contributing to sharp declines in housing starts and home sales and a negative impact on GDP. Eventually, this could motivate the Federal Reserve to reverse course and cut rates. However, mortgage rates are unlikely to fall to anything like the levels they maintained for the 14 years prior to 2022, while limited housing supply will probably prevent a collapse in prices. Given this, it appears we are now entering an era when the decision to buy a house should be focused more on the finding the right home in which to live than the right asset in which to invest.
10 minutes | Nov 15, 2022
Recession Risks: Standing on the Edge of a Swamp
Markets bounced higher last week in a justifiable show of enthusiasm as the latest CPI data confirmed that inflation is indeed receding. However, even as investors worry less about inflation they may well worry more about recession. The risk of a near-term recession is climbing. However, such a recession would be more like sliding into an economic swamp than falling off an economic cliff. While a “swamp” recession wouldn’t be very deep, the economy would likely struggle to get out of it. The good news for investors is that a prolonged period of economic swampiness should snuff out inflation and force the Federal Reserve to reverse a significant part of their 2022 tightening.
11 minutes | Oct 31, 2022
The Market-Moving Menu of Data and Events
Among the many challenges of parenthood is trying to get your kids to eat healthy food. As the children get older, the school lunchroom becomes one of battlefields, with some kind of weekly menu posted online or sent home with the kids. Many of these menus appear to imply that the three essential food groups are sodium, fat and sugar. However, some schools employ a little more imagination both in providing healthy choices and evoking some interest in the fare to come. This week the lunchrooms in our own local schools will feature “Rocking Roll Ups” on Monday, “Healthy Half Days” on Wednesday and “National Sandwich Day” on Thursday, with vegetarian options available daily. I’m not quite sure what all of that means but it does sound interesting.
10 minutes | Oct 24, 2022
Lifting the Fog of Uncertainty on Growth, Inflation, Politics and Rates
At the peak of the railroad boom of the late 19th century, the Framingham and Lowell line was incorporated to transport goods and passengers up and down the western outskirts of Boston. Over the years, the traffic dwindled, the line was sold and resold and eventually abandoned. However, for more than three decades now, some enterprising local citizens have pursued the construction of a bike trail along the old abandoned line, which is now, finally, mostly complete.
10 minutes | Oct 17, 2022
The Monetary Implications of Fiscal Drag
On many occasions in my adult life, I have made New Year’s resolutions to become fitter. As the days of the old year gradually dwindled and my girth gradually expanded, I would commit myself to exercise more and eat less. However, experience has taught me that both of these noble aspirations must be approached with moderation. Any attempt to starve myself while running more miles leads inevitably to physical slowdown or breakdown. Moreover, if I simply refuse to eat more, the exercise comes to a screeching halt.
8 minutes | Oct 10, 2022
The Slope of the Inflation Slide
The Federal Reserve maintains strict rules prohibiting FOMC members from commenting on the economic outlook or monetary policy in the 10 days preceding an FOMC meeting or on the following day. Thereafter they are free to speak and over the last two weeks many have opined on both subjects. Their opinions show remarkable unanimity. They are focused on bringing inflation back down to their 2% target. They acknowledge the uncertainty in the economic outlook, and, as a consequence, they profess themselves to be “data dependent” and frequently quote, with furrowed brows, the year-over-year increases in CPI and consumption deflator measures of inflation.
9 minutes | Oct 3, 2022
The Recession that Didn’t Bark
A famous Sherlock Holmes story concerns the abduction of a race horse and a guard dog that didn’t bark. For those who haven’t read the story, I’ll skip over the reason for the dog’s silence. The point is he didn’t bark – no alarm was raised – no actions were taken - and the horse disappeared. Entering the fourth quarter of 2022, the U.S. economy is teetering on the edge of recession. However, it is a recession that has been delayed and potentially softened by an excess demand for labor, the lack of over-building in the most cyclical sectors of the economy and healthy bank balance sheets.
8 minutes | Sep 26, 2022
The Scales of Fundamentals and Price
In weighing the value of any security, the scales of financial markets are supposed to maintain a fine balance between fundamentals and price. The plate of fundamental factors is piled high with macro trends, geopolitical issues, weather and environmental events, policy decisions and individual security attributes. The other plate is far more sparsely occupied – price stands alone, accounting for half of any assessment of the opportunity and risk in the purchase of an asset.
12 minutes | Sep 20, 2022
Why the Fed should worry less about sticky inflation (but probably won’t)
When future historians reflect upon the current age, they might call it “the worry years”. As America emerges from the pandemic, there are still serious health concerns, a yawning political divide, rising autocracy around the world, a brutal war in Europe and the highest inflation in 40 years. Moreover, anxiety triggered by these genuine problems is being amplified by cable channels and social media which ever more efficiently gather their audience by appealing to fear and outrage.
8 minutes | Sep 6, 2022
Job Openings, Recession Risks and Prospects for a Fed Reversal
On Saturday, Sari and I made our annual pilgrimage to Kimballs for lobster roll. Kimball Farm, which started as an ice-cream stand in Westford, Massachusetts, has ballooned into a huge enterprise over the years and there was a big crowd lined up in front of us when we arrived. Undaunted, we traced our way to the back of the line and hoped it would move fast. It did not.
6 minutes | Aug 31, 2022
The Investment Implications of Jackson Hole
Whatever else anyone may say about Jay Powell’s much-awaited speech in Jackson Hole, it had two distinct virtues. It was clear and it was brief, running to just 1,300 well-chosen words. In the same spirit, and despite a sharp 1,008 point slide in the Dow Jones Industrial Average on Friday, it is important to be succinct in discussing both where the economy is and potential Fed policy going forward. For additional insights from Dr. David Kelly, listen to the Insights Now podcast.
10 minutes | Aug 22, 2022
A Line in the Sand on Inflation
The phrase “drawing a line in the sand” has an unhappy history. In the U.S., it is said to have originated with Colonel William B. Travis, who drew a line in the sand at the Alamo declaring his willingness to fight and die rather than surrender. In 2008, following the takeover of Bear Stearns earlier that year, federal authorities drew a line in the sand and let Lehman Brothers go bankrupt. And in recent weeks, Fed officials have seemed to draw a line in the sand on inflation. For the podbeam description, can we add the following line towards the end: “For additional insights from Dr. David Kelly, listen to the Insights Now podcast.”
14 minutes | Aug 16, 2022
The Global Inflation War
Normally, the great challenge in talking about the global economy is finding a theme. The economic fortunes of nations are usually driven by such a disparate array of political, financial, demographic and environmental cross-currents that it is impossible to establish a framework for analysis. Twice however, in this still young century, events have unfolded to provide just such a theme as the world battled the global financial crisis in 2008 and the global pandemic in 2020. For additional insights from Dr. David Kelly, listen to the Insights Now podcast.
9 minutes | Aug 8, 2022
The Inflation Cold Front
After weeks of steamy hot temperatures, a cold front is set to move through the Boston suburbs on Tuesday. While the relief will be nice, in truth, the temperature will only edge down from the low 90s to the low 80s. However, it is the start of something and, as we are well aware in this part of the country, longer-term forces will bring us much colder weather before too long.
11 minutes | Aug 2, 2022
Twists and Turns on the Road to a Better Investment Environment
The long history of financial markets, like most classic novels, is full of misunderstandings, miscalculations and mistakes. Despite all of this, the story normally twists and turns its way to a happy ending. This may yet be the case for investors in the very unusual economy that has unfolded following the pandemic recession and recovery.
11 minutes | Jul 26, 2022
From Allegro to Adagio: Growth, Inflation and the Fed
When engaged in the more mundane tasks of my job, I often have classical music playing in the background. A piano concerto, in the hands of a great orchestra and soloist, is a delight to the ears as the rush and energy of the first movement gives way to the softer pace of the second. And when the conductor downshifts the tempo, the musicians follow with effortless precision.
12 minutes | Jul 11, 2022
The Lag in the Drag
Last Friday’s strong jobs numbers came as a relief to many who feared that the U.S. economy was quickly sliding into recession. On its face, the June employment report seems to support further aggressive Federal Reserve tightening, leading to higher U.S. interest rates and a further appreciation of the dollar, and offsetting forces impacting U.S. equities. For additional insights from Dr. David Kelly, listen to the Insights Now podcast.
11 minutes | Jul 5, 2022
The Quiet Machinery of Repair
One minor side effect of this terrible pandemic is that we have all become more educated on our own immune system. Looked at objectively, it is a masterpiece of evolutionary excellence. The outward signs of infection are normally easy to see – coughing, sneezing and obvious fever warn other humans to keep away, while our own exhaustion makes us less mobile and thus less likely to infect. The extraordinary havoc wrought by Covid-19 is primarily due to the virus’s ability to make someone contagious even before these symptoms appear. For additional insights from Dr. David Kelly, listen to the Insights Now podcast.
8 minutes | Jun 28, 2022
The Rollover Race between Growth and Inflation
In times long gone by, a popular event at town fairs and school sports days was the sack race. The competitors would assemble at the starting line, each encased up to the waist in a burlap bag and gripping firmly onto its sides. At the gun, they would hop furiously in the direction of the finish line, 100 yards ahead. As a sporting contest, it lacked dramatic tension, with most of the competitors biting the dust in the first 50 yards. But it was entertaining to speculate on which brave athlete would roll over first. For additional insights from Dr. David Kelly, listen to the Insights Now podcast.
Terms of Service
Do Not Sell My Personal Information
© Stitcher 2022