NOVEMBER 25, 2023 – The November report came in at 3.2%, well below my forecast of 3.6%. The 3-month annualized inflation rate is 2.6%. The 6-month annualized inflation rate is 2.8%. These figures are lower than the annualized rate (3.6%) and thus indicate the annual CPI could drift lower. However, continue reading.
Based on the data, my prediction for next month’s figure is 3.6%. The December and January reports should show annual CPI for 2023 to be just below 4%. Then from the February report on into the Summer, the CPI should be very steady at about 3% (say 2.8%-3.2%).
Shalom and Prayers to my Brothers and Sisters in Israel.
OCTOBER 13, 2023 – The October report came in at 3.7%, just below my forecast of 3.8%. The 3-month annualized inflation rate is 3.6%. The 6-month annualized inflation rate is 4.0%. These figures bracket the annualized rate (3.7%) and thus indicate the annual CPI should not change much.
Based on the data, my prediction for next month’s figure is 3.6%. I think this might be a tad low. But, it would surprise the market to see it tick down.
The December and January reports should show annual CPI for 2023 to be above 4%. That should not make the Fed happy. At least one more Fed Fund Rates hike seems certain.
Shalom and Prayers to my Brothers and Sisters in Israel.
SEPTEMBER 25, 2023 – Most importantly, only 3 months to Christmas:) And I am sure you have seen all of the Christmas stuff in the stores already. Next year it will be out in July. Ridiculous.
Two more recession indicators are wrong this time around. The (Mis)Leading Economic Indicator has declined for 17 straight months. I assume its purpose is to forecast a recession to occur within a few months after several negative readings. It has been wrong for over a year. Maybe this is where the broken record (look it up youngsters) recession mongers get their reasoning for thinking a recession is about to occur. Just fyi, the only other times it had this long of a streak was 1973-1975 and 2007-2009. The two worst recessions since The Great Depression.
The third indicator that has been wrong is M-2 Money Supply. It is more negative than it was in The Great Depression! Yet, no recession. In fact, it is looking like 3rd Quarter GDP may show an acceleration in growth to over 2%. However, I will say that is not a lock as I have seen forecasts from 0.5% to over 5.5% (Fed Atlanta). This quarter will be very unpredictable. But, it should definitely be positive and thus we can officially close the case on there being no recession in 2023.
Let me bring something up for the first time. I think I will be harping on this for the next few years. I believe the reason many prominent indicators are wrong this go around is due to what has happened since the pandemic. Almost all indicators soared to extreme high readings never seen before. And many are falling to record lows. What I am seeing is if you draw a straight line from say 2010 or 2015 through 2023, these indicators are exactly where they should be. i.e. The lows are evening out the highs and overall we are reverting to the mean.
I saw this recently in national retail sales. Adjusted for inflation, retail sales have been flat for the past 18-24 months. However, they increased significantly after the pandemic. If you apply the 2010-2019 compound annual growth rate to 2019 sales, you will be exactly where we are at in 2023. I will discuss more examples and provide more specific information as I encounter graphs showing this occurrence.
FED FUND RATES – The Fed did what it was told to do and held rates the same in September. Also, they went ahead and said what the market has forecast for a long time and that is another rate hike lies ahead. The 100% trend of the Fed following the market continues.
HOUSING – As I noted in a prior blog, the market is signaling weakness in the housing market after forecasting the strength we have seen all year. The homebuilder stock index has declined 10% from its July top. We need to continue to watch this play out. It is telling us we should see weakness next Spring. What will slow the accelerating strength in the housing market? Maybe 8%+ rates on 30-year mortgages? About the only thing I can think of. But, it doesn’t matter. The market just says it will happen. The price trend in the 4th Quarter will tell us if the Spring slowdown is just that or the start of a more significant downturn like we had in the second half of 2022.
REGIONAL BANKS – These stocks have declined a significant 15% from their July highs. Basically, they declined some more after the SVP failure, then soared over 40%, and now down 15% – in the end, they have gone nowhere since the Monday after the SVP failure. What is the market telling us? It definitely says not to expect the 250-400+ bank failures that so many people are predicting. Those people expected such to occur by now, in fact. As far as I know, the number remains at one small bank in Kansas. In regard to CRE loans, banks have been refinancing these all year long at higher interest rates. I haven’t heard of any significant issues. The problems have occurred in the CMBS market – gotta hand it to the supposed smartest lenders and investors in real estate:)
INTEREST RATES – Treasury Bonds have broken below last October’s low. This means interest rates are at new highs for this downturn. As I write this, I see a headline saying they are at the highest level since 2007. However, we are now on the clock to look for a final bottom in this multi-year downturn in prices (increases in yields). That doesn’t mean it will occur next week. I am thinking it is several months away. Maybe around the beginning of the year. Too early to give a reasonable forecast re timing and price (yield). The 4th Quarter price action will get us much closer to predicting when the bottom is in. What should follow will be a strong bond rally back to the range of the Summer 2022 and April 2023 highs (lows in yields). First things first. Let’s have the current downturn play out and get a bottom in place. Bottomline, mortgage rates will not be going down the remainder of the year. And they might head over 8% on the 30-year mortgage.
Well, that was a lot to cover. I will probably post again once we get the October inflation reading.
Til then, Happy Fall.
SEPTEMBER 13, 2023 – The September report came in at 3.7%, just below my forecast of 3.5%-3.6%. The 3-month annualized inflation rate is 3.9%. The 6-month annualized inflation rate is 4.1%. These figures are slightly above the annualized rate (3.7%) and thus indicate the annual CPI should not change much.
Based on the data, my prediction for next month’s figure is 3.8%. Due to oil prices steadily increasing, I do not think 3.9% can be ruled out.
I think the 3.8%-3.9% range will remain the same for the November report, also. Then watch out as the next two reports should show annual CPI for 2023 to be above 4%. That should not make the Fed happy.
OIL – A quick note for all of the happy plants on Earth. We are at a record level of 105 million (!) barrels of oil being used everyday. We have surpassed the prior record that occurred in 2019 before the Pandemic. The death of fossil fuels has been greatly exaggerated. In fact, there appears to be a direct correlation between more Electric Vehicles (EVs) and more oil consumption. This is not a surprise to anyone outside the misinformation environmentalist community. More electric usage means more fossil fuel usage. Which, of course, helps the planet’s plants as they live on CO2. As production is running at only 103 million barrels per day, the shortage will continue to drive oil prices higher. Which will contribute to inflation edging higher.
For a moment, you should sit and try to comprehend how much oil 105 millions barrels is. There are 42 gallons in a barrel. That is a mindboggling amount of oil being used everyday. For decades in the past and decades in the future. How much oil is/was in the Earth?!?!? Seems like the Earth is a giant oil ball. And if we use all that oil and it turns to CO2 or such, will the Earth become much lighter than it was? How many dinosaurs did it take to create all of this oil? Thankfully, humans saw the opportunity for sustainability and found a way to recycle all of the dinosaurs. We definitely have at least 30-50+ years more of recycling ahead of us. Environmentalists, you are embarrassing failures.
Til next month’s report.
AUGUST 31, 2023 – As we end August, a quick look at what the market is telling the Fed to do at its September 19-20th meeting. 3-month and 6-month Treasury Bills are yielding 5.56%-5.58%. The Fed Funds Rate is at 5.25%-5.5%. That is saying not to raise the rate. However, it wouldn’t take much for those rates to get to a point where the market says to raise rates by another 25bp.
For awhile the market has said no change in September and a 25bp increase in December. That seems to still be the case. We will see if anything changes over the next few weeks.
Have a great Labor Day weekend.
And good riddance to July and August!
AUGUST 26, 2023 – Hopefully, it is a full liquidation bankruptcy and its 2300+ stores are closed down. For 30+ years, I have wondered why shareholders didn’t complain about the drugstore chains paying 500%-1000%+ too much for their real estate. The excuse that the business profits would make up for the real estate losses was BS.
I am aware of a situation about 25 years ago where one of the chains wanted a rural site that was worth about $100,000. They gave the site selector instructions to buy at any cost. The farmer that owned it didn’t want to sell and turned down offers of $3 million, then $4 million, on up to $10 million!!!! The market turned down and they ended up not buying any site in the area. But, to be willing to pay ANYTHING for a $100,000 piece of property was insane.
This bankruptcy may be due to the opioid lawsuits. But, it is needed just for the stupidity of real estate purchases over the past 30+ years.
There are modern day companies doing the same. Some pay too much and others land lease at obscene rates. A few years ago I reviewed an appraisal report where one big-name c-store leased a parcel of land that was just bought for $800,000. The capped land rental was $6mm!!!!! Again, why pay a rental rate that is 7.5x market!?!?!? I probably won’t be around to see these companies go bankrupt.
Call me insane for thinking you can buy your real estate at market AND have a profitable business.
Lastly, I hope all the appraisers that use 0% Vacancy for these national tenant leases realize how stupid that is. As I have said for decades, large companies have the best lawyers and can get out of leases easier than local tenants can. Divide the number of store closures over the past 20 years by the number of stores in the country and you probably have a good vacancy factor to use for these leases.
One of the reasons big-time investors have consistently overpaid for real estate by about 20% for the past 30+ years is assuming no vacancy loss. The other two items they underestimate in their assumptions are expenses and cap rates.
If appraisers really wanted to ‘reflect the market,’ they would come in 20% below the purchase prices for national tenant properties. Easy to do by using a realistic 5%-10% vacancy and 100bp higher cap rate.
Alas, it won’t happen. Market Price is what the market wants and what appraisers provide. At least we know for this property type, Market Value is 20% lower.
AUGUST 23, 2023 – I will just give the link to an article on this subject. It supports my argument that CRE loans are not a worry for the overall banking industry. However, I am sure there are other articles with other data that suggest otherwise.
Between the stats in this article and my posts showing that higher interest rates can easily be absorbed as CRE loans are refinanced, there just isn’t solid evidence that 200+ banks are going to go under by yearend. Or even in 2024. The count is at one small bank in Kansas so far.
It looks like the ones being hurt by CRE loans this cycle are the so-call sophisticated investors – CMBS lenders and REITs. Apparently, they outsmarted themselves:)
UPDATE AUGUST 27, 2023 – Although forecasters are often wrong, current data shows an expectation for GDP to grow 1.9% (up from previous forecasts around 0.6%!!!) in the 3rd Quarter and 1.2% in the 4th Quarter. This would result in over a 2.0% growth rate for all of 2023. How wrong can those recession mongers be!!! Remember, listen to what the stock market is forecasting and not to what the economists are saying.
For 2024, current estimates are +1.3% for the year with each quarter being in the +1.0-1.5% range. It is too early to much faith in those figures. They will certainly change by yearend. But, they have been going up, not down. And no quarters are forecast to be negative. Much less the required two consecutive negative quarters. Keep putting pressure on those people calling for a recession now in 2024, after they admitted being wrong about 2023.
AUGUST 23, 2023 – Most people are aware of the inverted yield curve indicator predicting a recession. Duke professor and Canadian economist Campbell Harvey is credited with ‘inventing’ this indicator. I question that, but it doesn’t matter. The indicator has a perfect 8-for-8 record predicting recessions since World War II.
What doesn’t get much attention is the indicator PRECEDES recessions. If you see a graph, you will clearly see that the inverted yield curve comes before a recession occurs. Mr. Harvey says a recession has started on average 11-13 months after the yield curve becomes inverted. That is easy to see. It is fact. No argument from me about this lead time.
BUT, what I notice from the historical graph is the yield curve has always been at +100bp and up to +200bp by the time a recession starts. This gives us a long lead time to deal with a recession. It takes a long while and is a major move for the yield curve to go from the current -0.68% up to +1.00%-+2.00%. Until we see significant movement towards positive territory, no worries about a recession starting soon.
If you want to see what Mr. Harvey says and see the historical graph I am referring to, cut and paste the following link:
Also, a sales pitch for a neat item I bought several months ago – The Tidbyt. Go to https://tidbyt.com/ to look at it and purchase one. It would make a nice gift.
Instead of having the Fake News Media on all day, I have a Tidbyt across the room from me. I have programmed it to give me current and future weather, info on tropical storms/hurricanes or other serious weather nearby, news headlines from various sources, the price of Bitcoin, and in the evenings the current 10-Year Treasury Bond yield and the difference between it and the 2-Year Treasury Bill. Right now, those are 4.34% and -0.68%. I will be aware of this moving towards zero well in advance. I do believe recently it was over -0.90%.
FYI, the yield curve stayed negative in July 2022. Thus, 11-13 months out is June to August 2023. Obviously, we are not in a recession. I believe I posted previously that this indicator would break its streak of accurate predictions. Mr. Harvey is saying be patient. He says ‘it is way too early’ to say the indicator is wrong. The stopped clock concept might make this indicator 9-for-9 one year. But, in my opinion, it is now wrong and is 8-for-9.
As there is no chance of a recession this year and the earliest it could possibly be would be the first two quarters of 2024, that would put us 18+ months out from when the yield curve went and stayed negative. Not unprecedented. But, certainly well beyond the norm.
I will wait to see +100bp to see if at that very moment we are in a recession. Remember, that will be a coincidence signal. It won’t be giving any lead time.
As I always say, we shall see.
AUGUST 18, 2023 – The stock market fell through a critical level this week. Thus, I wanted to get my thoughts out there as to what appears to be happening and what we need to keep an eye on. As I continually complain about, you cannot be a broken record and hope you are right eventually. The market clearly tells us in advance what is going to happen.
The Dow 30 peaked on August 1st. It is down just about 4% as of today’s low. That is a minor decline. But, in the Elliott Wave Theory the decline crossed a level that should not have been broken. As such, we have to be alert to a trend change.
What the market has told us so far is that the economy will be fine into the 1st Quarter of 2024. There is basically zero chance of a recession occurring in the last two quarters of 2023. In fact, it is telling us that the news will be great this Winter. That said, if August 1 becomes a significant top, then the market is telling us that a chance of a recession by next Fall may occur. It will be October 2024 before we could have confirmation of two consecutive quarters of negative GDP. That assumes the 1st Quarter 2024 GDP will be positive.
It is just difficult to believe that right before the Presidential Election we will have confirmation of a recession. The incumbent administration does all it can to avoid such from occurring. That is why the first year of a new president is when a recession usually occurs.
The Regional Bank Index has had its largest decline since the bottom in May. It is down 11% from its recent high. The Homebuilders Index is down 6.5% from its recent high. The NASDAQ is down 8% from its recent highs. But, the NASDAQ’s waves are in better shape than the DOW 30. We will see if the indices align or keep diverging.
Treasury Bonds are about to break to new lows. Thus, interest rates are hitting new highs. The 30-year mortgage rate is above 7% again. It has been awhile since I called the top last year to the exact day. These are the highest rates in 21 years.
Ten-year treasuries are at 4.25%. The waves are projecting a move to 4.54%. The current rate is the highest in 12 years.
If the waves play out as expected, rates should go up about another 1/4% and then decline to the 2.5% to 3.3% range over the next year or such. The incumbent administration would certainly like that to happen during an election year! This scenario matches up with the market’s expectation that the Fed Funds Rate will be lowered 2 or 3 times in 2024.
My feeling is rates are finally back to market levels. We have had government-controlled, artificially low interest rates for most of the past 8 or so years. We are finally at a level where rates reflect the risk of underlying assets like bonds and real estate.
The market is at a critical stage. How it plays out will tell us what will happen in the Spring.
In regard to us Baby Boomers, I came across the following stats from Quill Intelligence. About 10,000 Baby Boomers turn 65 every day; seven in ten will need long-term care in their lifetime. The number of Americans over the age of 85 is expected to more than double from 2019 to 2040, from 6.6 million to 14.4 million. An estimated 711,700 caregiver jobs will open up every year from 2021 to 2031.
The good news is us Baby Boomers will remain in charge of the power positions and almost all of the world’s wealth for another 10-20 years. The generation before us earned the title The Greatest Generation. But, the Baby Boomer generation provided the peak for the world that hasn’t been seen since The Roman Empire. Things will decline generation after generation for hundreds of years to come. I do think we have just begun The Dark Ages II.
I guess I should end this cheerful post here.
AUGUST 16, 2023 – I might be the only one who has thought about this. Probably because my mind never stops and I love numbers:) So, let’s get to the numbers.
We currently have about 335 million people. Looking at the US Population Clock at Census.Gov we add 1 net person every 15 seconds. Just fyi:) That site also has a World Population Clock and we are nearing 8 Billion people. More trivia for you in case you are on Jeopardy!
According to the St. Louis Fed, our current Employment/Population Ratio is 60.4%. Therefore, we have about 202,340,000 employed people. Unemployment is 3.5%. I don’t know if the Employment/Population Ratio does or does not include unemployed people. So, let’s say we have about 7.2 million unemployed people.
For decades, I have seen reports of around 200,000 to 300,000 new jobs every month. I have wondered how do we maintain an unemployment rate of 3.5% or 5% or 7% or whatever when adding say 3 million new jobs per year would employ everyone in 2 or 3 years?
Way in the back of my mind I remember reading somewhere (and about 30+ years ago) that most of these new jobs are simply due to population growth and not really more people being employed. Finally, after 30 years of this sticking in my mind (yes, I do keep things on my mind for years and even decades), I decided today to do some math:)
To population we go. Let’s say the average age of people entering the workforce is 21 years old. Sort of an average of those starting at 18 years old and those graduating college at 23 years old and then going to work.
America’s population increased by 2,660,000 between July 1, 2021 and July 1,2022. Multiplying this by today’s 60.4% Employment/Population Ratio yields 1,606,400 jobs are needed this year due to population growth. This equates to 134,000 (Rounded) new jobs per month are simply needed to employ our increasing population. Therefore, it is only the amount above 134,000 per month that is actually existing positions being filled by existing workers.
And that is why the unemployment rate doesn’t go to zero in 1-2 years. Most of the new jobs are being absorbed by the new (young) people entering the workforce.
In 2023, monthly job growth has averaged about 270,000 through July. This is almost double the amount needed each month to address population growth. That is a healthy amount of new jobs being absorbed by the existing population.
And many of you are now saying that was 15 minutes of my life I won’t get back lol The takeaway is when down the road monthly job growth slows to around 135,000 per month you will know that basically we are not adding any jobs. We are simply keeping up with population growth.
Hopefully, the next thing I think of to post about will be a bit more interesting:)
Stay cool out there.