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: CPI
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
AN EVERYTHING UPDATE :)
UPDATE – MARCH 23, 2023 – A few items to update regarding the post below and other recent posts. I had heard that 1/3 of bank deposits are uninsured. I just saw a chart from the FDIC that says about 1/2, or about $9 Trillion (!), in deposits are uninsured. No banking system could withstand even 20% of that amount being withdrawn. Money continues to leave banks as consumers can get 4%+ in money market funds and T-Bills versus 0.5% in banks. With the inverted yield curve, banks are unable to pay 4%-5% on deposits in line with the Fed Fund Rates.
Here is a list of banks with the most unrealized losses in relation to their total equity capital. Remember, the Fed is letting banks get funding on their underwater bonds at full par value. So, this doesn’t necessarily mean a run on deposits at these banks will make them go under. But, they are on thin ice. Customers Bancorp, Inc., First Republic Bank (been in the news for a week), Sany Spring Bancorp, Inc., New York Community Bancorp, Inc., First Foundation, Inc., Ally Financial, Inc. (by far the worst ratio….and like CACC, in the auto loan business), Dime Community Bancshares Inc., Pacific Premier Bancorp Inc., Prosperity Bancshares Inc., and Columbia Financial, Inc. The late-SVB was in this group, too.
The more I understand what the Fed has done, it appears this is what I would call IQE1 – Indirect Quantitative Easing 1. Leave it to us Baby Boomers and our invention of creative financing to now come up with an Indirect QE:) Gotta love us:) In the end, it will probably be referred to as QE4. See my next post as to a term you will want to watch for to know when the Fed has gone all in on the real QE4.
As an aside, the Regional Bank ETF hit a new low by a few pennies today. The market is still sorting out which banks to sell and which to buy.
Also, I mention in the original post below that the market is telling the Fed to lower rates 150bps in 2024. I heard today that has been moved up and the market wants the Fed to pivot in 3-4 months and start lowering rates. No pressure on Powell, eh!
MARCH 21, 2023 – As the 1st Quarter comes to an end, this seems like a good time to update my thoughts on forecasts on many items. So, here goes. No particular order.
BANKS – As this has been the hot topic for the last 10 days. It seems like everyone is predicting hundreds of bank failures to come. The Texas Ratio shows 200 banks at risk. Folks we have entered QE4. I think the last QE was QE3. Correct me if I am wrong. If Vegas gave me good odds, I would bet no more American banks would fail this year. Yes, you heard me right. As there might be some small banks that are in marginal shape, I am thinking a better bet is less than 5 or so banks will fail. I am thinking total assets of banks that might fail will be under $50 Billion. Maybe much lower. There are 10 banks with relatively high CRE ratios. But, their reserves are likely high enough to handle upcoming CRE losses. And the Fed thru QE4 already shored up the weakness in their Balance Sheets. I learned from QE1 thru QE3 that the Fed isn’t going to allow our markets to suffer for too long. As the saying goes, buy when there is blood in the streets. That occurred on Monday March 13th. The S&P Regional Bank ETF I mentioned bottomed that day at 41.92. It has been higher since and closed today at 46.07. Up 10%. No, you wouldn’t have bought at the bottom tick. But, you probably would have bought very close to it as it was such an obvious moment in time. I have been wrong before. But, I can see that panic bottom not being violated and the ETF continuing higher this year. The entire world is anti-regional banks. That is when you should be pro-regional banks.
INFLATION – Geez this will get extremely long if I write as much as I did about banks:) I still see a July 12th annual reading of 3% or lower. 2% is still likely. I will throw out something you likely have not heard from anyone. There is a slim chance of a NEGATIVE inflation (aka deflation) reading at yearend or, more likely, in 2024. That isn’t a prediction I would lay too much money on. But, if you gave me the same odds that FDU had of beating Purdue in The Big Dance, I would put some money down.
FED FUNDS RATE – Everyone is asking this week what will the Fed do at the upcoming meeting. It is truly a 50/50 chance they will not make a change or raise the rate 25bp. In the end, there is minimal difference. The difference is more psychological. My guess is they make no change and defer such to April. The market was telling them they had 50bp more to go. Now it is 25bp. Let’s wait a month and see what the market says after things have calmed down. A surprising item I saw was the market is telling the Fed to DROP rates 150bp in 2024. Although the market forecast last year’s rate increases early in the year, I think it is a bit early to put much weight into the 2024 message. Also, remember, the average time between the first rate decrease and the last rate increase is 4.5 months. Since, we will likely have the last increase in March-May, it would be difficult to have a decrease by yearend. Again, give me FDU odds, and I would take a chance on a decrease in November or December.
THE BIG SHORT 2 – As I posted last August, this cycle’s ‘big short’ was auto loans. As of Yearend 2022, $20 Billion of Generation Z and Millennials auto loans are over 90 days past due. They need to watch a classic cult movie of the early 1980’s – Repo Man. They can probably stream it:) Digressing, my uncle was a repo man. I went out one night in Fort Lauderdale with him getting cars. Scariest night of my life. Back to now….Also, for 20% of Generation Z, over 20% of their after-tax income goes to a car payment!!!! Insanity. Of course, I am sure it is like their college loans and a gun was put to their head and they were forced to take on this debt;) SCOTUS will be listening to a case in 2024 about Biden wanting to forgive auto loan debt. Have some ethics. Have some morals. Pay your debt even if it takes the rest of your life!!! The one stock I mentioned was Credit Acceptance Corporation (CACC). Its all-time high was 703.27. Its bottom to date was at the beginning of year at 358.00. That is a 49% decline. At today’s close of 415, it is down 41%. That is far in excess of the DOW being down 12% from its all-time high. Not a bad call for those who actually played The Big Short 2.
BITCOIN – There is a current setup that is similar to two times in the past that took Bitcoin up over 60x and then over 20x. As assets soar in price, it becomes more difficult to have the same huge percentage increases. So, if this setup plays out, then maybe a 5x-10x move over the next 1-3 years is possible. From the recent major low around $16,000, that would be $80,000-$160,000. This will take some time to play out.
STOCKS & BONDS – It seems like everyone is looking for a recession this year. Everyone is expecting the stock market to fall apart. As I have posted on here many times, 2022 was the recession. In 2022, the global loss for stocks and bonds was about $36.5 Trillion (!!!). In comparison, the maximum loss in 2008 was about $23.5 Trillion and in 2020 was about $24.0 Trillion. What more do people want? A CRASH 50% larger than what occurred in 2008 isn’t enough? Since I seem to be in the mood to put out crazy forecasts, let’s not stop here. By yearend, I can see the DOW above 38,000 and the S&P 500 in the 4800-4900 range. 40k in ’24 has a nice ring to it. I would be interested if you see anyone else forecasting the DOW above 38k or S&P 500 above 4800. Those who know me know I have been a bear my entire life. I have always lived for downturns. For me to be this bullish, is beyond amazing to even me. A question I always want to ask analysts is what would it take for you to say your forecast is wrong. In this case, that would be the DOW breaking below last October’s lows at 28,660. If that occurs, the above is out the door.
OIL – I honestly haven’t looked at a chart since I sold all my oil and gas (aka pro-plant stocks) holdings the day oil hit $137 per barrel. This was about a week into the Russia/Ukraine dustup. The opposite of buy when there is blood in the streets is sell when everyone wants to buy something. That was the day of the high and oil has recently traded as low as $70. Almost a 50% decline. Do you remember a year ago when everyone said we were in for a major shortage of oil and prices would go even higher? What are those people saying now? This is the first time in my life I have not owned oil and gas stocks. It is getting tempting after a 50% decline. I may check into the charts and see what is up. If I do, I will post my thoughts here. In the interim, please boycott EVs and buy only gas vehicles and devices and help the plants around the world flourish and feed its 8 billion people. I always tell people that whether it is bonds or corn or cattle or oil it is us futures traders that dictate what the price is and what consumers will pay. It is not supply and demand. It is not government actions. Commodity traders are the ones in control.
HOUSING – I am exhausted writing the above. I will cover housing in the near future. There are mixed signals. But, in general, I am feeling my expectation of unexpected market strength is playing out perfectly. NAR’s price index just declined on a year-over-year basis for the first time since 2012. However, AEI’s HPA saw a recent monthly increase. Also, Pending Home Sales are up 9.3% in the two months thru January. That is the dead of winter and home sales are up almost double digits. Remember, a year ago, the housing market was super strong. So, this isn’t working off of low numbers. Looking at a chart since 2001, when Pending Home Sales turn up they don’t usually turn back down. My prediction re mortgage rates has come very close to occurring. We have not been below 6% yet. This decline is getting long in the tooth and I am watching the charts to see when the bottom is in place and we turn back up. Although the rates have been down ever since I predicted such, it is looking like a move below 6% might not happen. Still a chance though.
You’re tired. I am tired. I hope you find the above of interest. Even eye-opening. Forecasts obviously do not come true 100% of the time. Keep that in mind. I certainly do:) I am disappointed with even a single incorrect forecast. I give it my best to be right as much as possible and to admit when I am wrong. I rarely see the pundits come out and say I was dead wrong. They should be forced to do such.
Always glad to hear from you. Please email me with any thoughts you have. Any charts or data you see that I might be interested in. I am at GeorgeRMann@Aol.Com.
Shalom,
The Mann
INFLATION FORECAST
MARCH 15, 2023 – This month treated me better. As I wrote last month, the data suggested annual inflation at 5.6%-5.7%, but I thought 6.0% was more likely. It came in at 6.0%.
The 3-month annualized inflation rate is 4.3%. The 6-month annualized inflation rate is 3.2%. Both figures are still much lower than the annualized rate (6.0%) and thus indicate the annual CPI should continue to decline.
Based on the data, my prediction for next month’s figure is 5.6%-5.7%. However, my gut tells me it may be much lower in the 5.1%-5.3% range.
As for the July 12th forecast, the data now suggests a ceiling around 3%. However, the odds for a figure around 2% are starting to decline.
Shalom,
The Mann
P.S. I did want to mention that the market has told the Fed another 25bp rate increase is acceptable. After this week’s bank debacle, there is a decent chance the Fed will forego an increase this month. A tough call for Mr. Powell. 25bp is minor anyway. It is more about the action than the amount at this time. We shall see.
INFLATION FORECAST
NOVEMBER 25, 2022 – The next CPI announcement comes out December 13th. The last one was a positive surprise that resulted in a 1200-point stock market rally.
I am not seeing much occurring this time around. My forecast is 7.5%-7.8%. Last month’s annual CPI figure was 7.7%. So, I am not seeing much change this month. We shall see how it goes.
Shalom,
The Mann
INFLATION AND THE ONGOING RECESSION
OCTOBER 16, 2022 – First, a moment of silence for Marie Antoinette who was beheaded on this day in history. Would it be appropriate, or not, to honor her by having a piece of cake….but, I already digress:)
I have never tried to forecast inflation. I have probably made a forecast on most everything. Just not the CPI.
But, as it is just numbers. And I LOVE numbers. I figure what the heck.
After doing my analysis by hand (as always…I am not into spreadsheets and so on….the old-fashion way works best for me), my forecast is for annual CPI to end 2022 below 8%. For a range, I say 7.6% to 7.8%.
I am looking at below 7% (say 6.7%) at the end of the first quarter in 2023. And below 6% (say 5.9%) at the end of the second quarter in 2023. After doing my research, I have to say it is insane to try to forecast inflation more than a quarter out.
I guaranty that I have not looked at anyone else’s forecasts. I don’t know if anyone forecasts inflation rates 3-9 months out. So, pure coincidence if you have seen anything that is around my numbers above.
Also, those numbers will do nothing to keep the Fed from raising rates by 75bp two more times. Please remember, as I have posted here forever, the MARKET will tell you how much rates are going up. The Fed has FOLLOWED the market 100% of the time. The Fed never makes the decision. The market tells the Fed what to do and when.
Hold on….did you feel that….I bet you did….my outdoor thermometer just went from 72.6 degrees to 72.4 degrees. Wow, the climate changed!
Ooops, I did it again (hats off to you Britney)…I digressed again.
My last note is regarding our ONGOING recession. ((Someone please tell Jamie Dimon, who said we might enter a recession next year, that we have been in a recession ALL YEAR!)) With the stock market hitting new lows recently, the current economic downturn is now forecast to extend thru the 1st Quarter of 2023. Additional lows in the stock market will continue to push that date out.
Oh, one other last note. The US Dollar either has, or will within the next few weeks to a month, put in a MAJOR top. I don’t know how a weaker dollar plays into your world. But, something for you to consider.
And that gets me all caught up on all my forecasts. The inflation one won’t be near as easy as the housing one was in June. Some forecasts are easy. Some are difficult.
We shall see how the above turns out.
Shalom,
The Mann