Tag Archives: Fed

INFLATION UPDATE

UPDATE JANUARY 25, 2023 – First off, 11 months to Christmas! I just wanted to add to the record that I personally believe the ceiling for the July 12th reading will be 1.4%. Obviously, as the months go on and more data is available, I will be able to refine my forecast. But, for now, I am fairly confident the reading will be between 0% and 1.4%. We shall see….

UPDATE JANUARY 19, 2023 – This was buried in the original post below. I wanted to make it clear, and go on record, that I believe when the July 12th CPI announcement comes out there is a 95%+ chance of annual inflation being below 2%. It should definitely be in the 0%-2% range. That is the Fed’s target range. I haven’t seen anyone forecast this. If you have, please let me know. I like to check out prognosticators that have similar opinions to me and see if I can figure out what data they are using. New data between now and then can change this forecast. But, right now, I am not seeing anything that could occur to do such. However, that is why they are called black swan events, eh:) We will check back on July 12th and see if this prediction was wrong or right.

Do note that even if inflation goes down to 0%, that just means prices remain at the current high levels. People want prices to decline. But, that only occurs in a Depression or Recession. Which do you prefer – a Recession to have prices decline a few percentage points or a growing economy with prices rising? People have always adjusted their income and expenses to account for the higher prices. Just like 50 years ago when gas prices went from 30 cents a gallon to $1 a gallon. Many price shocks have occurred and we simply adjust our style of living. The same will happen this year as people accept that current prices are the new norm.

JANUARY 13, 2023 – The 2022 annual inflation rate ended at 6.5%. As I expected, that was below the 7.0%-7.1% my data was forecasting.
The next release is February 14th. My forecast is 5.6%-5.7%. That is aggressive. I don’t think I will be on the high end this time.
As I mentioned last month, the 3-month and 6-month annualized inflation figures show us where annual inflation is headed. Those figures are currently 0% and 0.3%, respectively. Thus, the annual inflation rate has to decline in the months ahead.
By the end of the First Quarter, annual inflation should be in the 3%-4% range. It should definitely be below the Fed’s 2% target by the end of the 2nd Quarter.
Remember, ask those forecasting double-digit inflation how that is going:)
Shalom and Happy New Year!
The Mann

INFLATION ESTIMATE FOR YEAREND 2022 & A 6-MONTH LOOK INTO THE FUTURE

DECEMBER 25, 2022 – The December CPI reading comes out on January 12th. My forecast for November was 7.5%-7.8% and it came in at 7.1%. I am making my forecasts at the high end so as to be a ceiling. Albeit, the November reading was lower than I expected.
My December forecast range is 7.0%-7.1%. A narrow range this time. I would not be surprised if it was on the high end again. Also, note this will be the inflation rate for the entire year of 2022.
For those of you who just wanted to know my forecast, you can stop reading now. I am about to let you inside the thinking of The Mann’s brain:) Before I do that, I wanted to say RIP to Coach Mike Leach. There were two minds that I could relate to in my lifetime – Robin Williams and Coach Mike Leach. They had minds closest to how mine operates. I miss them both. So here goes re inflation….
There are economists and others who have been calling for 10% and 12% and higher inflation in 2023. They are simply ‘wishing’ for such for whatever reason. If they have any data to base this on, I would love to see it. I seriously doubt they do.
I think of future inflation as I do to an automobile’s speed. Get ready to hark back to your calculus class:) Acceleration is a derivative of velocity. A car that is going 70mph this second and then 70mph the next second has an acceleration of 0. To go from 70mph to 71mph you must accelerate at a positive rate. To do the opposite you must have negative acceleration. So now let’s take this analogy to inflation….
The current 12-month annual inflation rate is 7.1%. The 3-month and 6-month annualized inflation rates tell us where annual inflation is headed in the near future. Right now, the 3-month annualized rate is 2.1% and the 6-month annualized rate is 3.7%. The deceleration from 7.1% to 3.7% to 2.1% is telling. It will be near impossible for annual inflation to go up for quite awhile. The data says it will be declining towards the Feds target of 2%.

Some observations on how much the rate of inflation is declining…..The 3-month annualized rate peaked at 12.7% in June. It has ranged from 0.7% to 2.4% for the past 3 months. This is your best indicator of current inflation.

The 6-month annualized rate also peaked at 12.6% in June. It has declined significantly to the current 3.7% rate. There is a very good chance this rate will go below 2% in the next few months.

With the 3-month and 6-month annualized rates in the 2% range, it is apparent that annual inflation is headed towards that figure. I think there is a good chance by the end of the 1st Quarter 2023 annual inflation will be below 5%. And by the end of the 2nd Quarter 2023, it should be below 3%.

A side note re the Fed Funds Rate. The average time between the last increase and the first decrease is 4.5 months. This doesn’t mean that on April 27th the Fed will drop the Fed Funds Rate. But, if the Fed sees annual inflation around 5% and steadily declining, it does give hope that they won’t be increasing rates. The first drop might not occur until they see all of the above data solidly in the 2% and under range. That cannot occur until at least the 3rd Quarter of 2023.

So, there you go re the thinking of The Mann. I hope it makes sense. Albeit, I am sure some of it is confusing and I don’t explain enough. If you ever have any questions, just send me an email.

Oh (there’s this non-stop brain thinking away…), let me throw this out there. Back in the Spring I talked about how virtually no one could see home prices declining by the end of this year. And now here we are and that is reality. Is there anyone saying that by April-June next year the economy will be on the rebound? Housing moves slower and follows the economy in changing direction so a bottoming in prices should occur later in the year. Have you seen anyone seeing such occurring? I have not. I only hear about Jamie Dimon and everyone forecasting a recession next year (which has already occurred this year!!!) and overall just a terrible year. I have not seen any forecasts for a turnaround starting slowly in the 2nd Quarter and becoming more apparent in the 3rd and 4th Quarters. I will revisit this forecast in 6 months:)

Shalom and Happy New Year!!! I hope 2023 is a great year for you.

The Mann

BULL MARKET, INTEREST RATES, & MORE

DECEMBER 2, 2022 – The DJIA bottomed at 28,661 in October. Yesterday, it surpassed 34,393, which is a 20% rise and what the market defines as being a Bull Market. I didn’t see that mentioned anywhere in the media. Strange.
I read that the average time between when the Fed stops raising rates and lowers them for the first time is 4.5 months. It appears that the stock market is telegraphing such.
Bottomline, the market is saying things will be bad through the 1st Quarter of 2023 and then improve from there.
The 30-Year Fixed Mortgage Rate declined to 6.49% this week. This is down from the top I called when rates were 7.22%. And, we are already over halfway to my forecast of rates going below 6%.
As for the US Dollar, it has declined from the top of 114.778 in late September to 104.533 at today’s close. That is a hefty 8.9% decline.
The forecasts are going well. As everything ebbs and flows, I would expect there to be some movement against my forecasts before the trends resume.
One last tidbit of information that I found simply incredible. The American Enterprise Institute reported that ‘for every [25- to 54-year old] guy who is out of work and looking for a job, there are four guys who are neither working nor looking for work.’ That is insane. For those who try to say it is unfair to generalize that the younger generations do not want to work, the facts say you are wrong. The labor force participation rate is down to 62.3%, which is well below pre-pandemic levels. I wonder how the economy holds up when that rate goes below 50%?
My inflation forecast is 7.5% to 7.8%. The Fed is estimating 7.49%. I am not expecting this report to be shocking in any way. We will find out on December 13th.

Happy Holidays to all!

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

UPDATE TO MY SUBDIVISION POST STARTED IN JULY

OCTOBER 3, 2022 – As I noted back in July, appraisers of residential subdivisions needed to start forecasting a SIGNIFICANT slowdown in lot and home sales. Now they should add to that a forecast of declining lot and home prices.
For those who have been around to see numerous downturns in the past 35+ years (yes, I am officially old!), the one thing we can be certain of is that all of those builder take-down contracts and letters-of-intent are worth less than the paper they are written on.
I haven’t reviewed a subdivision appraisal in a few months (I guess that is saying something about the market). But, as late as June or July appraisers were still relying on builder takedown contracts. Hopefully, that has totally ceased. Some pertinent info follows.
The Fed’s hurry-up offense is having an equally dramatic effect on the U.S. housing market. In response, home builders are walking away from land deals. In the second quarter, KB Homes abandoned 8,800 previously controlled lots while Lennar walked on 10,000 home sites. More than a fifth of home builders are taking the same action. (Quill Intelligence)
Home buyer cancellations neared 18% in July with Texas being tops at 27%. (John Burns Consulting)
In Western markets, cancellations hit 38% in the week ended September 15th. They’ve been above 30% for 14 straight weeks. Prior to April, the cancellation rate held in a relatively tight 7-12% range for 23 straight months. (Zelman & Associates)
Only one homebuilder has announced layoffs so far. Stanley Black & Decker announced 1,000 jobs in finance are being cut. Job cuts occur about 4 quarters after housing permits peak. 2023 will be ugly for homebuilder employees.
Remember, very slow future absorption and declining lot and house prices. I will post when I see the first appraiser to have the testicular fortitude to do this in an appraisal:)
Shalom,
The Mann

STOCK MARKET UPDATE

MAY 10 – Hopefully everyone had a great Mother’s Day and is staying safe and well.

It’s been awhile since I talked about the stock market.  For over a month now the DOW has been in about a 2000 point range.  Quite a change from days in March where it was up or down 2000 points.  All of this back and forth and the market still hasn’t been able to get up to the 25,100 target.

As I mentioned the last time I talked about stocks, we are essentially in a stalemate.  The market should be declining to the 13,000-15,000 range.  However, the Fed is pumping trillions into the system and this is offsetting the selling.  The experts I listen to are taking the stance I am taking – stand aside and wait for a break in one direction or another to occur.

If you have had read my blog and white papers over the past decade, you know I harp on price and value being two very different things.  In real estate, prices rarely reflect the current value of the underlying asset.  Albeit market participants and appraisers believe sale prices are a reflection of market value.  They aren’t.

I bring this up because we may be encountering a historical disconnect between the value of companies and the price of their stock.  A company that was worth $100 a share before the virus hit might now be worth $80 (value is extremely slow to change for large corporations, so a 20% decline is beyond extreme).  However, if the trillions being pumped into the system goes into the stock market in some amount, then that stock that may have went from a high of $150 down to $75 in March and may now be $125.  And might go even higher.

Money is pouring in regardless of what the underlying asset is worth.  Re-inflating prices is what the Fed did starting 12 years ago and it worked for most asset classes.  They are doing all they can to make this happen again.  One day the house of cards will crumble and it won’t be pretty.  They might be able to avoid the end game this time, but I don’t think they will the next time things fall apart.

Right now the World’s Largest Casino (stocks, bonds, currencies) is open and gamblers are taking their position on how things will play out over the next 6-24 months.  But, these are simply gamblers.  True investors are still uncertain of the future and are standing aside.  There are no new mergers.  No new commercial real estate transactions.  When Sam Zell says he is still uncertain of how this will play out and is doing nothing, that speaks volumes.

As they say, better safe than sorry.  Capital preservation is key.  Don’t jump into the game too early.  Be patient.  It is ok to miss the exact bottom and wait for the new trend to start.

As a side note, remember that this is not a liquidity crisis.  That has been solved by Central Banks worldwide.  This is a SOLVENCY issue.  Companies will go bankrupt over the remainder of the year because they have too much debt.  It is that simple.  This will also apply to individuals and real estate owners.  Too much debt and you are likely to go under.  As they say, cash is king.  It will be once again during this downturn.

And a side note to the side note….The bond market is pricing in a 28% chance of the Fed Fund Rate going negative!  Some indicators suggest a drop to -2.0%!!!  Everyone says negative interest rates are not coming to America.  Even Fed presidents say that.  The only problem is the Fed FOLLOWS the bond market.  The bond market will dictate whether America goes to negative interest rates.  Right now it is just starting to head in that direction.  There will be more to discuss as this unfolds going forward.

Unemployment came in at 14.7% albeit the U-6 (whatever that is exactly) suggests we will see 23%+ next month.  The analyst I mentioned that forecast 16.5% was a bit high.  For historical perspective, we went from unemployment rates at 50 year lows to 90 year highs in a month or two.  Just insane, eh.

It’s  a big week for Bitcoin as the 4-year ‘halving’ occurs.  Since I suggested to my friends a month ago to buy some it has gone up 50%.  However, the expectation is still a 10x move from here by the end of 2021.  It seems like everyone is aware of the halving and past events and have been buying in advance.  Since past history has shown a 10% to 30% decline in price right after the halving, that would surely shock the newbies to Bitcoin.  The public usually gets on board when it is too late and then dumps when things turn against them.  I will be watching for some kind of correction between now and the end of June.  If it occurs, I will hop on board and hope the 10x unfolds as predicted.

Brent Crude is back over $30 a barrel.  Many oil stocks, e.g. Exxon, are up over 50% from their lows.  The damage will last at least another year or two.  But, oil and gas are not going away regardless of what the tree huggers wish and say.  The more electric vehicles they make the more fossil fuel using power plants get built.  Plus, 95%+ of vehicles will run on gas for many decades into the future.  It is unlikely Millennials will live to see a serious decline in the use of oil and natural gas.  There simply are no viable alternatives.

The Fake News Media likes to make the masses think oil and gas are on their way out.  They do the same with meat.  They even talked people in to creating fake meat.  Fake meat means it is NOT meat!  Fake meat is an oxymoron!  But, more importantly, projections call for meat consumption to be 70 percent higher in 2050 than it was in 2010.  PETA won’t tell you that though:)

I only bring the above items up because it all goes back to my constant reminder – EDUCATE YOURSELF!  I think we can switch up an old joke – How can you tell if a broadcaster is lying – s/he is moving his/her lips:)

Educate yourself and then make your own decision.  Think for yourself.  You will be much better off in life.

Stay safe.

The Mann