The House passed the massive piece of legislation called the Inflation Reduction Act today (the Senate had already passed it). There are lots of really good stuff in it.
John Cassidy writes for The New Yorker magazine: The Inflation Reduction Act contains the biggest effort to tackle climate change that the U.S. government has taken. Right now, thanks largely to the retirement of coal-fired electricity plants, the country is on track to reduce its carbon emissions by about thirty per cent by 2030, compared to 2005. By providing about $370 billion in tax credits over ten years for solar and wind producers, as well as for the purchase of electric vehicles, the new bill will increase the emissions reduction to about forty per cent, according to several expert analyses. The House gave final congressional approval on Friday to a spending bill which would attempt to tackle climate change, the high cost of prescription drugs and lower the deficit by roughly $300 billion. It was passed without any Republican support and now goes to President Biden for his signature.
Uncle Joe the Magician (President Biden) will sign the Inflation Reduction Act into law next week. Yes, nothing in life is guaranteed, but this bill is not inflationary (spending money that is not gained elsewhere). It aims to reduce the deficit by raising corporate taxes, and will save the federal government and citizens money on prescription medicines and medical bills. And it fights carbon emissions in a big way. [Cartoon by Tom Stiglich]Graphic by the NYT showing the spending and savings/ new revenue for the Inflation Reduction Act.
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.
So far in 2022 we have had Jan 7.5% | Feb 7.9% | Mar 8.5% | Apr 8.3% | May 8.6% | Jun 9.1%. [Graph from Wall Street Journal]
“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.
The press is full of bear market reports with the recent declines in the stock market indices.
Wed 6/15, 2.00 pm EDT: Fed Chairman Jerome Powell announced that the Federal Reserve will indeed raise the federal funds rate by 75 basis points (0.75%), bringing it to the range 1.5%- 1.75%. Right now they project a rate of about 3.5% by year-end.
Here’s the New York Post. ‘Bear market has economy running scared’ .. is that really true? The economy is running too hot, if anything, and as the picture shows: it is Uncle Sam (the government, White House) that is scared. Investors are scared as well, of course.There’s a bear in the Tintin adventure by cartoonist Hergé called Le Temple du Soleil (Temple of the Sun). The outcome was that Captain Haddock ran away from the bear, and came to no harm. Originally published in Tintin Magazine in 1946-48, the cartoon strips were later collected in albums or bande dessinée in French— literally ‘drawn strips’.
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?
Food is expensive. We’re all going to have to subsist on hot dogs and ice cream if it goes on like this. How come ice cream is up 4.5% with milk up 14.5%? A lot of milk goes into making ice cream, not? [Graphic by Wall Street Journal from data by US Labor Dept.]
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.
Cartoon by Dick Wright, printed in the Las Vegas Review-Journal on March 3, 2022.
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.
Here’s the a graph that shows both inflation numbers: inflation aka the Consumer Price Index (CPI) in dark blue, and also core inflation (a little less volatile since it excludes food and energy), in light blue.
‘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%.
Chairman of the Federal Reserve Board, Jerome Powell, addressing reporters face-to-face for the first time since the pandemic began. The Fed has the tools to control inflation (1. interest rates, 2. the Federal Reserve’s balance sheet and 3. their communication, usually called ‘forward guidance’), but the tools are blunt, and affect the broad economy as a whole. [Still from Wall Street Journal video recoding]Inflation is very high, and not showing signs of moderating yet. This graph shows the famous Consumer Price Index (CPI), a basket of goods and services that includes prices from the food & energy sector. The annual Core Inflation rate excludes food & energy prices, but was also very high for March 2022: 6.5%. [Graphic from Yahoo Finance]The Fed Funds rate was more or less in its ‘neutral’ range of 2-3% (not stimulating nor restricting economic activity) before the pandemic hit, but was then cut to 0-0.25% when the economy went into free fall in Mar. 2020. Dark gray bands show recessions. The tricky thing for the Fed to do is to raise interest rates (to tame inflation), without triggering a recession in the economy. [Graphic from Yahoo Finance]
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.
I vaguely remembered this TIME magazine cover of 40 years ago (maybe only because of the CIGAR and the cloud of smoke!) of Paul Volcker, and looked it up. Current Fed Chair Jerome Powell says of Paul Volcker: “I think he was one of the great public servants of the era — the greatest economic public servant of the era.”
Expensive gas is in the news again.
I walked by three gas stations tonight and did a mini-survey.
It turned out that my average for just these three is spot-on for the city’s average.
Seattle is about a dollar a gallon above the national average, but a dollar or more below California’s prices.
(The New York Times: California’s high fuel prices are partly because of taxes as well as regulatory programs aimed at reducing greenhouse gas emissions. Together, they added about $1.27 to the cost of a gallon of gas last month, according to a calculation by the Western States Petroleum Association.)
Company
Regular Unleaded [$/ Gal]
7-Eleven
4.899
Shell
4.999
76
5.179
Average
5.026
Showing 1 to 4 of 4 entries
7-Eleven was the cheapest at $4.899/ gal. Got to love those perpetual and silly 9/10 of a cent at the end. That’s Madison Avenue on which work had ground to a halt weeks ago, due to a city-wide strike by concrete workers.Here’s Shell with $4.999/ gal. Let’s call it 5 even, shall we? And yeah, those scooters on the sidewalk are looking better and better.And whoah. 76 is NOT SHY, coming in at $5.179/ gal. (If you are not willing to fumble with paper money and coins, and pay with a card, it’s $5.199/ gal). Take that street car behind the sign, mate.
[Image from Basis 365® Accounting’s blog]‘Cash is king’
– Origin unknown, but the saying gained popularity after Pehr G. Gyllenhammar, CEO of Volvo, used it after the global stock market suddenly crashed in Oct. 1987.
I was in the QFC grocery store at Harvard Market on Saturday, and about to put in my credit card to pay for my items at the self check-out.
‘Attention, customers!’ came an announcement. ‘For the next 20 minutes, no credit card, no Apply Pay, no Google Pay can be used; it will be cash only’.
The in-store transaction server must have keeled over or frozen up; maybe it had to be rebooted.
Lucky for me I had cash in my wallet, to let loose— and vamoose.
The Consumer Price Index climbed by 6.8 percent in the past year through November, the data showed, the fastest in almost 40 years.
The headline below says inflation is pressuring Washington (President Biden and the Democrats, I presume).
It’s up to the Federal Reserve Bank and chairman Jay Powell, to decide when to raise interest rates to curb inflation, though.
From the New York Times: In the 1960s, the central bank failed to take sufficiently decisive action to tamp down rising prices. Inflation soared, rising to double-digit levels during the 1970s, and Paul Volcker, then the Fed chair, pushed interest rates up sharply to get things under control in the early 1980s.
Hertz said on Monday that it would convert more than 20 percent of its rental fleet to Tesla’s electric cars by the end of next year, an announcement that helped propel Tesla’s stock value beyond $1 trillion for the first time.
Tesla’s stock closed at $1024.86, up more than 12% on the day and giving the company a market value of $1.03 trillion.
The Wall Street Journal notes that the market caps of the biggest nine automakers need to be added to get to Tesla’s market cap.
Yes, Tesla sells 1/10th the number of cars that Volkswagen does, but it will deliver double the cars this year, compared to what it had delivered in 2020. And the stock market bulls argue that Tesla is technically not a car company: it’s a technology company.
The annual inflation rate for the United States was 5.0% for the 12 months ended May 2021, up from 4.2% for April, according to U.S. Labor Department data published on June 10.
Will the Federal Reserve Bank have to raise interest rates from zero much sooner than it had expected just a few months ago?
‘Based on central bankers’ fresh projections released Wednesday, the median Fed official expected to achieve the central bank’s goals and lift rates by late 2023. The Fed’s interest rate projections showed that more than half of its 18 officials expected rate increases by the end of that year. More, but not quite half, expected an increase or two in 2022.
That markup came as Fed officials offered headier economic forecasts. They now see growth coming in stronger in 2021, and expect inflation to average 3.4 percent in the final three months of the year. They expect that headline inflation gauge to retreat quickly, however, falling to 2.1 percent next year and 2.2 percent in 2023′.
– Jeanna Smialek reporting for the New York Times
Annual US inflation rates has been as low as 0.7% in 2015, and not much higher than 2.0% in any other year since 2012. There is a big debate among economists as to how long the recent, higher rates of 4.2% (for April) and 5% (for May) will persist. [Cartoon by Robert Rich for Hedgeye.com]
– Brett Arends in an opinion piece on MarketWatch called ‘An open letter to the GameStop army on Reddit’
There has been a ferocious tug-of-war happening on the US stock market with the shares of a company called GameStop.
Let’s set the scene first.
GameStop is an American video game, consumer electronics & gaming merchandise retailer. They closed 1,000 stores last year and seems destined to go out of business altogether in a year or two. (Computer games are, in general, no longer sold as physical items that can be resold second-hand. Game players buy & download their games from the web).
Hedge funds are for billionaires and wealthy investors, and their managers like to use derivative instruments to make ungodly sums of money for their clients (and sometimes ungodly losses). One such instrument is short selling. The investor (hedge fund) borrows shares from a broker, sells it into the market. The investor has to buy back these shares at a future date. So the investor hopes/ believes the share price will fall. (That way the investor pockets the difference). If the share price ends up higher at the future date, the investor will be forced to buy it back at the higher price, and lose money/ lose a LOT of money.
Robinhood is a financial services start-up with an app that makes it super-easy for individual investors to buy and sell shares, at zero commissions (free). Critics charge that they make transacting too easy, and that they lure young and first-time investors into day-trading, instead of long-term investing.
Enter social news aggregation, web content rating, and discussion website Reddit.
The community members from reddit.com/r/wallstreetbets/ want to flip off the hedge fund managers and help the little guy to make money. One of the ways to do this recently, has been to pile into GameStop shares. If large enough numbers of investors (‘investors’?) ignore the sage advice from Yahoo Finance that a stock is overvalued, and buy it anyway, things start to happen.
GameStop was sort of left for dead by July 2020 ($4), but then came Jan 1, 2021 ($18), and when more short-sellers had to jump in this week and start to buy GameStop in a classic ‘short squeeze’. The demand pushed the price up to $468 at 9.45am this morning. That’s a 100-fold increase from six months ago.
By today, hedge funds are said to have lost at least US$5bn. On the other side are people such as a Texas fifth-grader that cashed in the 10 GameStop shares his mom gave him for Kwanzaa, on Wednesday — for almost $3,200. She had bought them for $6 apiece as a holiday gift in 2019.
Robinhood jumped in and blocked its investors from buying GameStop today. I’d say that is interfering with the free market. Google removed over 100,000 one-star reviews of the Robinhood app on Google’s Play Store, to restore its 4-star rating. I’d say that is interfering of some kind. Billionaire Leon Cooperman was on CNBC again today, saying he doesn’t fault the wallstreetbets investors, but that this would end in tears. (Yes, it would for some, but not for everyone). Cooperman reiterated his position that rich people shouldn’t pay more taxes.
All this is happening against the backdrop of a deadly pandemic, that has devastated the economy & magnified inequalities ten-fold. The federal government is pushing trillions of dollars of stimulus into the economy, with hundreds of billions going to undeserving companies and individuals.
So exactly how free is this economy, this market, and who on Wall Street, is manipulating whom?
Today’s panel for GameStop shares from Yahoo Finance. Volatile! 44% down in one session, and then 61% up after hours. Look at the belated ‘Overvalued’ marker at the bottom left. One-year target estimate $13.44.
The venerable Dow Jones Industrial Average stock market index closed above 30,000 for the first time today. (Trump can eat his words now— the ones where he had said the stock market would crash if Biden won).
These slides are from the online Wall Street Journal. The annotations are mine.
The Dow Jones Industrial Average debuted on May 26, 1896, the brainchild of Charles Dow and his statistics-minded business partner Edward Jones. Back then its components were 12 smoke-stack companies: American Cotton Oil, American Sugar, American Tobacco, Chicago Gas, Distilling & Cattle Feeding, General Electric, Laclede Gas, National Lead, North American, Tennessee Coal and Iron, U.S. Leather, and U.S. Rubber.In 1928, the Dow was expanded to include 30 companies. Companies from older industries are replaced from time to time by newer ones. (This slide is old, actually. ExxonMobil & United Technologies are out of the Dow). The current 30 components are: 3M, American Express, Amgen, Apple, Boeing, Caterpillar, Chevron, Cisco Systems, Coca-Cola, Disney, Dow, Goldman Sachs, Home Depot, Honeywell, IBM, Intel, Johnson & Johnson, JP Morgan Chase, McDonald’s, Merck, Microsoft, Nike, Procter & Gamble, Salesforce, Travelers, UnitedHealth, Visa, Walgreens, and Walmart.Check out this steep drop in Feb & March when the reality of the pandemic set in .. but then the Federal Reserve’s massive, multi-trillion-dollar economic stimulus, and optimism due to the Covid-19 vaccine announcements overcame all of that, in just 9 months. Make no mistake, though. This optimistic stock market index does not reflect the general state of the national economy. There is still a loonng road ahead to repair the widespread damage the pandemic had done.This slide shows how the spectacular growth of the tech giants offset the poor performance of the industrial companies. (Not sure why GE & XOM are shown. GE was removed from the DJIA in 2018, after which none of the original components of the DJIA remained. Exxon Mobil was removed in August this year).
The world is awash in oil, with the recent ‘demand destruction’ as the pundits call it. (The world still uses 75 million barrels a day, down from 100 million). Oil producers have not been able or willing to cut production, though. It takes a lot of money to close down an oil well, and even more to reopen it.
How’s this for an oil price: from $18.27 on Friday down to -$37.63 per barrel ! Yikes. Now all eyes turn to the June price. And is this an ominous sign for what still lies ahead for the world economy? [From the front page of the WSJ for Tuesday].A breaking point was reached today, though. I turn on the financial channel CNBC in the mornings, and this morning the May contracts dropped 90%, then down to a penny, back up a bit, and then it went negative and stayed there.This has never happened. How can the price of oil be negative? Well, there are hardly any more places left to store the stuff. So producers will now literally pay ‘buyers’ to take the gooey black stuff off their hands. There was talk today of filling up empty supertankers that may still remain, even though they have nowhere to go.
What’s going to happen is that a lot of oil producers in Texas are going to go bust. I’ll have to look, but I believe many of the tar sands producers and the frackers are long gone (they needed a price of $60 a barrel to stay afloat).
People filling up their car tanks, and airlines filling up airplanes with jet fuel, will continue to pay lower prices. It’s just that there is nowhere to go, really. The world has closed down.
It was a beautiful blue-sky day here in Seattle, but another Black Monday on the financial markets.
Not the Federal Reserve’s emergency rate cut of 100 basis points (to zero), that was announced on Sunday, nor Trump’s press conference at the close of the bell on Monday, made much of a difference.
All three Wall Street indexes opened 12% down. The circuit breakers kicked in. After 15 minutes, trading resumed for the rest of the day, but without any uptick.
Falling off a cliff: we’re now almost back at January 2017 levels, when Trump took office. Trump has been very fond of tweeting out something like ‘Highest Stock Market in History!’. Just this Friday, he gloated about the day’s ‘huge gains’. (Pro tip: single-day gains are almost meaningless in such a choppy market; a ‘dead cat bounce’).Blue skies and blossoms from my second floor window. Smith Brothers’ cow truck is delivering fresh milk to my neighbor. A little while later the UPS truck came by and dropped my new tennis shoes I had ordered online. Puget Sound Energy put up ‘No Parking’ signs along the sidewalk. They are going to chop up the asphalt any day now, to work on the gas line buried beneath it.
, of course— and Bitcoin is now below $29k, down more than 50% from its Nov. ’21 high.
). 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).
