*** denotes well-worth reading in full at source (even if excerpted extensively here)
Economic and Market Fare:
Final Q3 GDP Comes Unexpectedly Hot At 3.2%, Well Above 2.9% Estimate
US Leading Economic Indicators Plunge Most 'Since Lehman'
... And on a year-over-year basis, the LEI is down 4.42% - its biggest YoY drop since 2008 (Lehman) outside of the COVID lockdown-enforced collapse...
Lumber Prices Collapse As Homebuilder Sentiment Falters
FedEx Misses On Revenue; Cuts Another Billion In Costs; Trims Outlook On "Continued Demand Weakness"
US Durable Goods Orders Plunge In November, Biggest Drop Since COVID
US New Home Sales Unexpectedly Soar (Again) In November
Mitchell: Bank of Japan has not shifted direction on monetary policy
Klein: The Bank of Japan Makes a Tweak
Adjusting the parameters of yield curve control for the 10-year tenor while increasing asset purchases is not tightening, not a pivot, and not a signal (or at least not an obvious one).
***** Grannis: Higher interest rates have solved the inflation problem
As I've been pointing out for over two years, rapid growth in the M2 money supply is a big deal, and one that has not received much attention, if any. At first (i.e., mid- to late 2020) it was OK, because the public felt comfortable holding on to large amounts of cash in their bank deposit and savings accounts at a time of great Covid-related uncertainty and economy-wide lockdowns. But starting early last year, when the worst of the Covid panic was subsiding and life was beginning to get back to normal, people began spending that money. Soon, a flood of spending collided with supply shortages and a still-crippled economy, and the result was higher prices. By the end of last year, inflation was galloping towards 10% or so, but the Fed ignored it, asserting it was merely "transitory." It wasn't until March of this year that the Fed began to get worried. True to form (unfortunately), the Fed was—once again!—late to the inflation party, and they have been trying to catch up ever since. As we now know, they embarked on an impressive series of rate hikes which took short-term rates from 0.25% last March to now 4.5%. That marked the most aggressive monetary tightening in history.
Last week the Fed reiterated its intention to snuff out inflation with still more hikes. Sadly, they are now overstaying their welcome at the inflation party, because we know that inflation peaked many months ago. Unfortunately they didn't get my memo on the subject.
The market is rightly concerned to be worried by all of this.
When all is said and done, the Fed has but one job: to keep the demand for money in line with the supply of money. .....
... Everything is working against the housing market. Does the Fed really want to crush the housing market by hiking rates further? I think they will come to their senses pretty quickly and back off of their recently-announced tightening pledge.
The unexpected risk next year is not a recession, which looks very likely based on the data, but that one happens faster than almost all expect. Front-end Eurodollar or Fed Funds flatteners should do well in such a scenario.
Sometimes it is prudent to be skeptical when all the experts agree, but based on a dispassionate analysis of the data, there is a very high likelihood the US has a recession next year. Indeed, it would be remiss not to forecast one when there is such a weight of data pointing in that direction.
One of the most stark examples is the rapid tightening in financial conditions, to an extent only seen around recessions.
SF Fed 'Proxy Rate' Signals Most-Inverted Yield Curve Since 1981
Quotes of the Week:
This report includes 47 of our best, worst, and favorite charts of 2022 and the must-see macro/market charts to have on your radar in 2023…
(not just) for the ESG crowd:
Doug Varty, who stepped down as chair of Ontario’s Species Conservation Action Agency, said the government ‘is not listening to or acting in the best long-term interests of the people’
Left unchecked, it could continue to spill oil into the ocean for another 100 years. ...
Acute tissue injuries and microglial activation were the most common abnormalities in COVID-19 brains. Focal evidence of encephalitis-like changes was noted despite the lack of detectable virus. The majority of older subjects showed age-related brain pathologies even in the absence of known neurologic disease. Findings of this study suggest that acute brain injury superimposed on common pre-existing brain disease may put older subjects at higher risk of post-COVID neurologic sequelae.
Severe COVID-19 is associated with epithelial and endothelial barrier dysfunction within the lung as well as in distal organs. While it is appreciated that an exaggerated inflammatory response is associated with barrier dysfunction, the triggers of vascular leak are unclear. Here, we report that cell-intrinsic interactions between the Spike (S) glycoprotein of SARS-CoV-2 and epithelial/endothelial cells are sufficient to induce barrier dysfunction in vitro and vascular leak in vivo, independently of viral replication and the ACE2 receptor. ...
Vid of the Week:
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