30yrs ago today; Buffet SAYS current admin chock full of, "...economic illiterate"; is it different this time?
Good afternoon. YESTERDAY I noted a couple of ‘versaries where the crash of the UST market still source of debate and topical — perhaps even MORESO in light of oncoming supply as the Fed continues to hike rates and exit from QE.
Today, I will acknowledge another…History.com notes on this day in 1993 @ 12:18p,
At 12:18 p.m., a terrorist bomb explodes in a parking garage of the World Trade Center in New York City, leaving a massive, multi-story crater and causing the collapse of several steel-reinforced concrete floors in the vicinity of the blast…
Little did I (or anyone else, for that matter) realize that this was just a warning shot across the bow and a precursor of what was to come…and just how serious the hate IS for what freedoms we all enjoy each and every day.
Moving along, and in addition TO a few observations from Global Wall St inbox noted just yesterday, a couple other items hit intertubes and my inbox which I thought worth sharing … Things I’m going to attempt to browse ahead of global markets reopening and the week just ahead
ZH: Highlights From Warren Buffett's 2022 Letter
… On stock buybacks... and a rare jab at Joe Biden (or rather, Joe Biden's handlers) from Buffett, a consummate, Hillary Clinton-supporting Democrat:
A very minor gain in per-share intrinsic value took place in 2022 through Berkshire share repurchases as well as similar moves at Apple and American Express, both significant investees of ours. At Berkshire, we directly increased your interest in our unique collection of businesses by repurchasing 1.2% of the company’s outstanding shares. At Apple and Amex, repurchases increased Berkshire’s ownership a bit without any cost to us.
Gains from value-accretive repurchases, it should be emphasized, benefit all owners – in every respect. Imagine, if you will, three fully-informed shareholders of a local auto dealership, one of whom manages the business. Imagine, further, that one of the passive owners wishes to sell his interest back to the company at a price attractive to the two continuing shareholders. When completed, has this transaction harmed anyone? Is the manager somehow favored over the continuing passive owners? Has the public been hurt? When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive).
One OTHER highlight from Buffet’s letter which shouldn’t surprise ANY of us, given TBILLS now up over 5%,
… As for the future, Berkshire will always hold a boatload of cash and U.S. Treasury bills along with a wide array of businesses…
Cash, as they say, is KING (once again) … or so the saying goes. More on that in a moment. But first, from Callum Thomas,
Off-Topic ChartStorm: Bond Yields
… 8. Taylor-Made: This version of the Taylor Rule suggests cash rates are still way too low. And based on the previous comments, would also suggest that bond yields may also need to head higher yet.
9. Inflation Bond Model: Another perspective, my long-term rate of inflation model is still pointing to US 10-year yields in the high 4%’s. And going back to that macro divergence chart, it’s clear that the bond market is still pricing off inflation and policy rates rather than recession risk (for now).
Source: Topdown Charts @TopdownCharts
Speaking of SAYINGS on Global Wall Street, lets now turn to a fan favorite … specifically that one perhaps you’ve heard … you know, how it is NEVER different this time?
Well, Morgan Stanley’s chief global economist (who name has been mentioned for Fed vice chair role left open by BRAINard jumpin’ ship),
Sunday Start | What's Next in Global Macro: Every Time Is Different
… Subsequently, services demand recovered as the economy reopened, but the reopening was rife with frictions, as a large swath of the labor market reinvented itself or was displaced for a period of time. While the collapse in demand was highly correlated, the recovery was not. One consequence of this rather uncorrelated cycle is that inflation has been noisy. Today, we see that inflation for goods has retreated notably, but services inflation remains robust, even after an aggressive tightening cycle.
With inflation running higher than at any point since the 1970s, we have another key difference. The Federal Reserve (and other DM central banks) is hiking rates to bring inflation down. This hiking cycle is the first since the 1970s with that motivation. Put differently, in most previous cycles, hiking rates went along with strong growth, and when growth and earnings showed signs of slowing, policy retreated. This time, the Fed is intentionally raising rates to slow growth substantially below the potential growth rate of the economy and plans to keep them high while the economy slumps. This central bank strategy is clearly a key difference relative to other cycles…
He / his firm continues thinking ‘soft landing’ and ends short missive touching on labor hoarding as some cover for it being different this time,
… The seasonally adjusted non-farm payrolls were strong, reflecting much less of a contraction in jobs than is typical for a January. This labor hoarding dynamic is a key part of why we have been in favor of a soft landing. In past cycles, when there has been a slowdown, there have been waves of layoffs. This time, we see that pattern in tech, but not across the rest of the economy. So, maybe this time is different.
Let us recall this years down the road when HE or the likes are at top of the Fed’s ‘food chain’ as it is Festivus for the restOFus who live, trade, manage portfolios and simply LIVE in the real world where it is simply NEVER different this time.
IF we don’t learn from history we’re doomed to repeat it? And so, with THAT in mind, this weeks Barron’s COVER STORY caught my attention,
The central bank's efforts to tame inflation haven't worked yet. More pain, and a harder landing, could lie ahead.
… But the unique structure of the 2022 economy blunted the power of the Fed’s tools. Years of low interest rates, dating back to the aftermath of the 2008-09 financial crisis, had allowed for a transformation of much of the debt in the U.S., both household and corporate, away from variable rates that rise as the central bank tightens policy. That meant that even as the Fed raised interest rates eight consecutive times over the past year, swaths of households and corporations were slow to feel the impact.
Consider mortgages. Before the 2008-09 financial crisis, nearly 40% of mortgages were adjustable rate, so Fed rate hikes drove payments up and served to choke off household spending, says Ellen Zentner, chief U.S. economist at Morgan Stanley. Today, that share is just 10%, meaning the overwhelming majority of homeowners hold mortgages at 30-year fixed rates and therefore aren’t being heavily affected by rising interest rates in the same way. Rates on student debt payments and most auto loans are similarly locked in.
“In general, it means much less sensitivity of households to rising in interest rates,” Zentner says. “That has been less understood.”
So, it IS different this time? The story continues on labor,
… There are probably other factors at play, too: A shrinking labor supply has made hiring difficult, which appears to be prompting some employers to hoard workers they might otherwise have laid off. An undersupply of housing, in combination with fresh federal investment in infrastructure, has kept the construction industry in business even as mortgage rates spike. Investor optimism has been helping loosen financial conditions since the fall, making it harder for the Fed to slow things down…
In closing, maybe / maybe NOT with some words from Dean Baker,
… But others feel the latest strength could tip the scales in the other direction: The harder the central bank has to work to see the cooling it wants, the higher the risk rises of a policy error that forces a recession.
Baker, for one, is predicting no downturn for 2023 as of now. But he worries that some of the recent data, particularly the red-hot jobs numbers, could boost the chances of a Fed overreaction.
“The story of a recession would be if the Fed basically freaks out,” Baker says. “If they go, ‘Oh my God, this is really out of control, we have to really slam on the brakes.’ That’s the biggest risk.”
Even unprecedented strength so far, then, isn’t enough to ensure the Fed can avoid the outcome most forecasters still expect.
But, then again, most forecasters expected more weakness by now, too.
That is all for now, from me … Enjoy what is left of your weekend!
LOL you still think it's a 'free' country. Do you now hate Woody Harelson? Are you up to date on all your 'boosters'? And yes I'm unvaxxed. Or as we evil ones like to say: Purebloods