Tag Archives: Inflation

Mann Overboard

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 No banking system could withstand even 20% of that amount being withdrawn.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

Mann Overboard

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.

Mann Overboard

I WASN’T EVEN CLOSE

FEBRUARY 15, 2023 – Well, when you are wrong you need to admit it:) I felt all along my CPI forecast around 5.6% was too low. The CPI gets recalibrated each January and thus it is very tough to figure out where the ‘new’ numbers will fall. I sure didn’t expect them to be as high as they were. This is the first sign of inflation returning since last June.
The 3-month annualized inflation rate is 1.6%. The 6-month annualized inflation rate is 2.0%. Both figures are still much lower than the annualized rate (6.4%) and thus indicate the annual CPI should continue to decline.
My prediction for next month’s figure is 5.7%. My gut tells me it may be closer to 6.0%.
As for the July 12th forecast, the data now suggests a ceiling around 3%. The odds are still good for a figure around 2%.
Til next month…..forecasting will humble you. But, that is a good thing.
Shalom,
The Mann

P.S. I did want to mention that the market has told the Fed to do two more 25bp rate increases.

Mann Overboard

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

Mann Overboard

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

Mann Overboard

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

Mann Overboard

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

Mann Overboard

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