MAY 11, 2023 – As forecast, inflation didn’t change much last month. But, did fall below 5.0%. Significant declines will occur over the next two months.
The 3-month annualized inflation rate is high at 5.7%. The 6-month annualized inflation rate is 3.6%. These figures bracket the annualized rate (4.9%) and thus indicate the decline in the annual CPI should slow down after the next two months are in.
Based on the data, my prediction for next month’s figure is 4.1%-4.3%. I like the data and am confident the next reading will be in that range.
As for the July 12th forecast, the data now suggests a figure around 3.2%-3.4%. The odds for a figure around 2% are about nil, unless we have full blown deflation show up. Doubtful, but there are signs we may get surprise negative readings in the coming months. I will need to see it to believe it. After bottoming with the July 12th figure, it looks like inflation will rebound in the second half of the year to the 5%-6% range. That said, we will be far below the double-digit rates many people have been forecasting for the past year. However, this will make the Fed consider more rate increases. Something, the market is not pricing in at this time.
A bit of trivia. The annual CPI rate has decreased for 10 straight months. I am certain that streak will extend to 12 months. The only times such a streak occurred was in 1921 and 2012. Neither were around a recession or stock market crash.
BANKS – Regarding banks, week after week goes by without any closures. At this point, we are much closer to my forecast of 0-10 closures than the 176-200 closures forecast by many people. Pac West seems to be the bank on the hot seat right now. It is one of the ten banks I listed a few months ago.
The Regional Bank Index (KRE) broke down last week and is about 10%-15% below the low set the Monday after the SVB/SBNY closings. This is saying the market expects to see CRE loan losses (I am going to post about this soon) increase the remainder of the year. No surprise in that forecast.
HOUSING – The American Enterprise Institute’s (AEI) Home Price Appreciation (HPA) Index was up 1.4% month-over-month in March. I believe it has been up every month this year. NAR reported that home prices increased in 70% of metro areas in the First Quarter of 2023. The Homebuilders Stock Index is up a full 40% from last year’s lows. Those who forecast a crash in the housing market appear to be way off. As I forecast about a year ago, the housing market would slow way down and possibly go slightly negative (that has occurred in the hottest markets). A year later I am seeing a slightly improving market ahead.
Til next month.
Shalom,
The Mann
Tag Archives: Banks
GDP & BANKS UPDATE
APRIL 29, 2023 – 1st Quarter came in at +1.1%. It continues to slow. But, another positive quarter. Early forecasts show 2nd Quarter GDP being slightly positive. However, with ample time for adjustments, there is a chance it could end up being negative.
Quick note, I received an email from the Fed last week showing it was expecting 1st Quarter GDP to be +1.13%. They appear to be the only one to get the forecast right. Of course, they have access to all of the data that goes into the GDP.
Regardless, it will be around Halloween before a recession can be in the books. And if the 2nd Quarter GDP does end up being positive, a recession cannot be official until late January 2024.
So far, the stock market says a recession will not occur this year. We shall see who is right – the stock market and the smart money or everyone else that is all but guaranteeing a recession will occur in 2023.
Will the Leading Economic Indicator that has declined for 10+ months and has been signaling a recession for many months be right?
Will the fact that bank credit tightening leads to a recession be right?
There are numerous other indicators signaling a recession will occur this year. The only problem they have is they are not the stock market.
My bet is, and always has been, on the stock market being correct. As always, we shall see.
BANKS – Still no new bank failures. First Republic Bank was part of this original crisis that occurred with the SVB and SNBY and Credit Suisse failures. The only other bank that is walking on thin ice is Deutsche Bank. Beyond this initial list, no banks have failed. The count remains 0 versus the 176-200 predicted by many people. (UPDATE – In 1907, JP Morgan the person came to the rescue of the banking system and in 2023 the company with his name did the same.))
The Regional Bank Index remains about 2% above the low set during the SVB/SBNY crisis with the drawdown to date being 3%. Money is not being made on these stocks. But, they sure have not fallen apart. Friday was a classic day that fools the public. The headline news was First Republic Bank heading towards failure. Instead of being down, both the Regional Bank Index and the Dow were up. The Dow is now above 34,000 again. Remember, a Bull Market climbs a wall of worry. The more negative news we have this year, the higher stocks should go. And it looks like all we will hear from the pundits is negative news. When the news turns positive, the stock market will have already topped.
Happy trading and investing.
Shalom,
The Mann
INFLATION FORECAST AND BANK UPDATE
APRIL 14, 2023 – As I said a month ago, I thought the data was forecasting a higher rate than we would see. Sure enough, annual inflation fell significantly to 5.0%. Just under my forecast of 5.1%-5.3%.
The 3-month annualized inflation rate is a very high 6.9%. The 6-month annualized inflation rate is 3.4%. These figures bracket the annualized rate (5.0%) and thus indicate the decline in the annual CPI should slow down.
Based on the data, my prediction for next month’s figure is 5.0%-5.1%. My gut tells me this will be the ceiling with a rate as low as 4.6% possible.
The June and July readings will reflect significant declines in the annual CPI. As for the July 12th forecast, the data now suggests a ceiling around 3%. The odds for a figure around 2% have become very small. It is looking like we might have 3%-4% inflation for the second half of the year. It will take a recession combined with deflation to achieve the Fed’s goal of sub-2% inflation. That said, 3%-4% is far below the double-digit rates many people have been forecasting for the past year.
Regarding banks, week after week goes by without any closures. At this point, we are much closer to my forecast of 0-10 closures than the 176-200 closures forecast by many people. CRE loan losses are on their way. But, I just don’t see many banks failing because of such. Simply due to increased capital from 15 years ago and the Fed shoring up their unrealized treasury bond losses.
The Regional Bank Index (KRE) remains about 3%-5% above the low set the Monday after the SVB/SBNY closings. The maximum drawdown since then was about 1.5%. Not much movement in general. But, the market certainly hasn’t thrown in the towel on these banks.
Lastly, the market is telling the Fed to raise rates another 25bp and then later this year lower them twice.
Shalom,
The Mann