Category: Finances

“We feel like we’re getting closer or maybe even there.”
-Federal Reserve Bank Chairman Jerome Powell today, on whether more federal-fund rate increases are in the offing

The Federal Reserve Bank increased the federal-funds rate by another 0.25% today.
(So another message to the consumer to stop borrowing money, and to stop buying stuff that is not really needed.
The average credit card interest rate is now 24.25%, according to Forbes Advisor’s weekly credit card rates report. Inflation here in the States is now at about 5%.)

From the Wall Street Journal:
With the latest increase, the Fed has raised its benchmark federal-funds rate by a cumulative 5 percentage points from near zero in March 2022, the most rapid series of increases since the 1980s. The rate influences other rates throughout the economy, such as on mortgages, credit cards and business loans.

It was a rough week in the US stock market last week, and today went better.
Still, the uncertainty around inflation and a recession in 2023 is not going to be resolved for several more months.

Writes James McIntosh for the Wall Street Journal under a heading ‘Markets History 101: It’s Time to Buy Bonds‘:
Even after their big falls, stocks still look very expensive compared to bonds. The optimism that started this year has faded, but investors continue to bet that long-run inflation will come back under control and profit margins will stay high. And many remain wary of bonds, even as yields approach 4% on the 10-year Treasury and are above 5% on six-month bills.

The central lesson of financial history is that, over the long run, U.S. stocks beat bonds. But buying stocks when they are expensive—at 18 times estimated earnings for the next 12 months, they have rarely been pricier outside the dot-com bubble and the post-pandemic boom—is a recipe for substandard returns.

The largest lottery winnings ever is the Powerball payout of US$2.04 billion recorded just last year on Nov. 7, 2022.
As of today, and for tonight’s drawing, the Mega Millions prize is up to $1.35 billion.

From thelotter.com:
The biggest jackpots in the world, both starting and awarded, belong to US Powerball and Mega Millions.
Both of the lotteries jackpot prizes reset to an estimated US$20 million each time they’re won.
This is larger than many lotteries’ biggest payouts!
The second-biggest starting prize belongs to Europe’s transnational star: The EuroMillions.
The top prize starts at €17 million and can grow with each rollover until it reaches the prize cap.

Update Sat. 1/14:  The second largest jackpot in Mega Millions history was sold in Lebanon, Maine (pop. 6,000) at the Hometown Gas & Grill. The winner hasn’t come forward yet.

Fed officials voted unanimously to lift their benchmark federal-funds rate to a range between 3% and 3.25%, a level last seen in early 2008. Nearly all of them expect to raise rates to between 4% and 4.5% by the end of this year, according to new projections released Wednesday, which would call for sizable rate increases at policy meetings in November and December.
– The Wall Street Journal

‘Goodbye 50, hello 100’
– Financial analyst, commenting on the expected Fed hike rate next week (in basis points)

Inflation was still above 8% in August, and pervasive, found in service sectors as well as consumer goods. Gas prices were down, but not nearly enough to offset the increases everywhere else.

I took the Wall Street Journal’s quick survey to estimate my personal inflation rate. The Bureau of Labor Statistics (BLS) has a CPI basket of 80,000 items which are grouped into categories broad (such as food) and narrow (like bananas).
The BLS revises what it tracks every two years based on the spending habits of volunteers who keep a purchase diary. Everyone’s inflation rate is a little different, of course, because we buy different things and services.

We will keep at it until we are confident the job is done.
– Federal Reserve Chair Jerome Powell, at the end of his speech in Jackson Hole, WY today.

It had to happen, of course: Fed Chair Powell reminding investors that there are several interest rate rises and probably some pain ahead, before the Federal Reserve Bank will be sure that inflation is under control.

Hopefully the selling today was mostly done by fund managers— not individual investors. The best advice on down days like today: do nothing.

July’s 0% inflation and last week’s booming jobs report underscore the kind of economy we’re building – an economy that works for everyone.
– President Biden @POTUS on Twitter

Well. Technically there was month-over-month deflation in July (going from 9.1% in June to 8.5% in July). Also, this has happened before: March 8.5%, April 8.3%.
The July number means that year-over-year, consumer prices are still up a whopping 8.5%, and the Federal Reserve Bank still has its work cut out. It’s a long way down to the 2% long-term target for inflation.

June’s inflation came in at 9.1%.
It seems that the Fed will definitely raise the Federal Reserve rate another 75 basis points at the end of July, and it could very well be 100 basis points (1.0%).

The Gross Domestic Product (GDP) number for the second quarter will come out just the day after the interest rate hike.
GDP growth in Q1 was -1.6%.
Goldman Sachs now says the GDP growth number for Q2 will come in at 0.7%.
The Atlanta Fed is way more pessimistic: its latest forecast for Q2 GDP growth is -1.2%.
A negative Q2 number would mean we are in a recession: two consecutive quarters of negative GDP growth.
It seems we need to have our recession sooner rather than later, so that inflation can be tamed.

“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said.
“Gradually, then suddenly.”
-from Ernest Hemingway’s novel The Sun Also Rises (1926)

A headline in the Wall Street Journal says ‘The Crypto Party Is Over’.
It certainly seems to be.
As of Saturday night (cryptocurrencies trade 24/7), Bitcoin was at $18,450, down 30% for the week, and some 72% down from its $68,789 all-time high in Nov. 2021.
(Still up 7-fold from 5 years ago, though).

It was a bad weeks for stocks, but a worse one for all things crypto.
I see a melting Bitcoin ice sculpture and a Shiba Inu doggie, mascot of Dogecoin, in the WSJ picture.
As for the guy on the unicorn floatie in the pool— in business, unicorn has come to be the moniker given to a privately held startup company valued at over US$1 billion.

Grr .. another rough day in the stock market.
Dow Jones -2.8%
S&P 500 -3.9%
Nasdaq -4.7%
Russell 2000 -4.8%
DJ Total Mkt -4.1%

The Fed may raise rates by 0.75% after all, on Wednesday.

Infographics below are from the
New York Times,
the Washington Post, and
the front page of tomorrow’s Wall Street Journal.

Welp. Year-over-year inflation for May was 8.6%, up a smidge from March (8.5% ) and April (8.3%).
So while the headlines again screamed ‘Inflation soars to 40-year high’ today, it’s been there for three months running now.

The Federal Reserve Board is widely expected to raise the fed funds rate by a half point next Wednesday, but some economists say it should be 0.75% or even 1.00%. I agree with 0.75% or 1.00% —but what do I know?

It was another rough week for the US stock market.
This was the eighth-straight weekly loss for the Dow Jones Industrial Index (-2.8%), its longest weekly losing streak since 1923.
The S&P 500 Index briefly dipped below 20% from its record high in January.

Year-over-year inflation for April was 8.3%, a slight dip from the March figure of 8.5%. The stock market is not happy🤬, of course— and Bitcoin is now below $29k, down more than 50% from its Nov. ’21 high.

At the recent Berkshire Hathaway annual meeting, Warren Buffet reiterated his disdain for cryptocurrencies, saying he would not buy all the cryptocurrency in the world for $25. (I would 😊).  I suspect he picked $25 because he then said if someone offered him a 1% stake in all the farmland in the country, he’d immediately write the check for $25 billion. (Got me. I cannot do that even if I wanted to).

His point was that cryptocurrency has no intrinsic, underlying value, and cannot be used as a real-world asset to produce income.

‘Without price stability, the economy does not work for anybody, really’
– Fed Chair Jerome Powell at the Federal Reserve’s news conference yesterday

Wow. We ride the rollercoaster. Up yesterday, the stock market sold off in a big way again today (Dow -3.1%, S&P 500 -4.6%, Nasdaq -5.0%).

Inflation is still very high, and the Fed is finally raising interest rates.
(The Fed funds rate is now 0.75-1.00% after yesterday’s 0.5% raise).
A range of 2-3% is considered neutral, and time will tell if the Fed will have to go above that to bring inflation down to 2%.

Inflation rose to 7.9% in February, the highest rate since 1982. It is still well below the peak of 14.6% in 1980. The Federal Reserve Board raised its benchmark interest rate by 0.25%, and will almost certainly raise it several more times this year, to bring inflation under control.

Jeanna Smialek writes in the New York Times of what happened in the early ’80s:
Mr. Volcker’s Fed rolled out policies that pushed a key short-term interest rate to nearly 20 percent and sent unemployment soaring to nearly 11 percent in 1981. Car dealers mailed the Fed keys from unsold vehicles, builders sent two-by-fours from unbuilt houses and farmers drove tractors around the Fed building in Washington in protest. But the approach worked, killing off the rapid price inflation that had festered throughout the 1970s.