tag:blogger.com,1999:blog-66169596423919886082024-03-18T13:22:10.049-07:00Calafia Beach PunditIn 2007 I retired as Chief Economist of Western Asset Mgmt, a manager of institutional fixed-income portfolios. I now enjoy keeping up on markets from my condo overlooking Calafia Beach in San Clemente CA. This site is not intended to provide trading or timing advice; I don't believe conditions in the market change very often. I am an investor, not a trader. Blogging is a source of self-discipline which helps me better understand the market and better manage my own portfolio.Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.comBlogger3874125tag:blogger.com,1999:blog-6616959642391988608.post-90353921017668027302024-03-17T18:15:00.000-07:002024-03-17T18:15:42.097-07:00COVID lessons learnedOur COVID national nightmare began just four years ago, so now is a fitting moment to step back and review what happened and what we have learned as a result. The Committee to Unleash Prosperity, headed up by my good friend Steve Moore, recently published a study which compiles all that we have learned about COVID and the egregious attempts of many to deal with it. This needs to be widely Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com3tag:blogger.com,1999:blog-6616959642391988608.post-46160164624238612402024-03-14T11:20:00.000-07:002024-03-14T11:20:39.539-07:00Inflation is NOT running hotDon't jump to conclusions based on one month's number.The Final Demand version of the Producer Price Index rose 0.6% in February, and that was twice the amount the market expected to see. A Bloomberg headline this morning said "Bond Yields Jump as Hot Inflation Curbs Fed Wagers." Worse still, the full version of the PPI rose 1.4% in February. OMG! Well, the reality is VERY different, as Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com6tag:blogger.com,1999:blog-6616959642391988608.post-9170709950093640042024-03-12T14:04:00.000-07:002024-03-12T14:04:13.694-07:00Ex-shelter inflation has been less than 2% for 8 months"Hot CPI" read the headlines today, referring to the 0.4% rise in the February CPI and the 3.2% year over year change in the CPI. My take: inflation is running hot only if you think it makes sense to look at the year over year rise in nationwide housing prices 18 months ago. If you omit that one item (which comprises about one-third of the CPI), then you find that the year over year change in theScott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com14tag:blogger.com,1999:blog-6616959642391988608.post-65670493978260027152024-03-11T16:39:00.000-07:002024-03-11T16:39:32.971-07:00A quick recap of the February jobs reportThe February jobs report was impressive on the surface (+275K), but nothing to get excited about. Most of the recent strength in jobs comes from government hiring, which is the least likely to boost the economy's growth potential. Private sector jobs growth—the main source of the economy's vitality—has decelerated significantly over the past two years, and is now growing at a modest 1.6% per yearScott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com2tag:blogger.com,1999:blog-6616959642391988608.post-31296387635297380272024-03-07T15:38:00.000-08:002024-03-07T15:38:13.221-08:00Big Picture: private sector financial health excellentToday the Fed published its estimates of the private sector's balance sheet and net worth, and it's nice to see that the numbers reflect very healthy conditions. (This is not a pitch that you will find in tonight's State of the Union address, but if Biden were smart he would reference these charts.) Chart #1As of year end 2023, the net worth (total assets minus total liabilities) of the US Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com6tag:blogger.com,1999:blog-6616959642391988608.post-38206362793201159612024-03-05T18:42:00.000-08:002024-03-06T12:17:44.212-08:00M2, inflation & economy updateThis post includes important updates on the M2 money supply, inflation, and key economic indicators. The all-important M2 money supply continues to come back into line with long-term trends, key inflation measures are very close to the Fed's target, and money demand is returning to pre-Covid levels. The service sector (dominated by housing-related costs) is the only area of the economy suffering Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com6tag:blogger.com,1999:blog-6616959642391988608.post-21228584450703099592024-02-13T16:08:00.000-08:002024-02-14T21:39:50.725-08:00The CPI overshoot is a statistical artifact The January CPI overshot expectations by 0.1% and the stock market had convulsions. It's absurd. If it weren't for shelter costs, which now comprise 25% of the CPI, the year over year change in the CPI would have been 1.6%, well below the Fed's target and very good news for everyone. But the way the BLS calculates shelter costs has boosted the reported year over year change in the CPI to 3.1Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com21tag:blogger.com,1999:blog-6616959642391988608.post-24689421062755147352024-02-09T13:39:00.000-08:002024-02-09T15:29:27.895-08:00S&P 500 @ 5000Today the S&P 500 index (considered by most professional investors to be the toughest index to beat) climbed past 5000, a milestone of sorts. To put this into perspective, here is a chart that shows the S&P 500 index from 1950 through today. As the green line indicates, the index (sans dividends) has risen at an annualized rate of about 8% per year. According to Bloomberg, and including Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com5tag:blogger.com,1999:blog-6616959642391988608.post-10822460526000830272024-02-05T16:38:00.000-08:002024-02-05T16:38:16.575-08:00It's a moderate-growth, disinflationary worldIn my economic slowdown post a month ago I was generally upbeat, but I worried about the slowdown in job creation. Those worries faded with a strong January jobs number. The US economy is ok: credit spreads are still quite low, liquidity is still abundant, the dollar is still strong, inflation is still declining, and there are only a few indicators that suggest caution. Meanwhile, the Fed seems Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com8tag:blogger.com,1999:blog-6616959642391988608.post-32879372044182626822024-01-26T17:44:00.000-08:002024-01-26T17:44:28.174-08:00A quick chart six-packHere are six charts that are worth a few minutes of your time, along with come quick commentary: Chart #1\Chart #1 comes from the Co-Star Group, where they keep track of the many thousands of sales of commercial property from across the country. Their repeat-sale index (the best kind) of commercial property prices weighted according to their value (bigger, more expensive properties get more Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com13tag:blogger.com,1999:blog-6616959642391988608.post-36168191478316056162024-01-24T16:46:00.000-08:002024-01-25T12:53:33.634-08:00More disinflation, no recession, US king of the worldBoth the Fed and most Fed watchers (especially those in the financial press) chronically misunderstand the relationship between economic growth and inflation. Strong growth doesn't cause inflation, and reducing inflation doesn't require a recession. Inflation is the result of an imbalance in the supply and the demand for money. Bringing down inflation requires that the Fed address this imbalance,Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com5tag:blogger.com,1999:blog-6616959642391988608.post-46955683548940554962024-01-08T17:15:00.000-08:002024-01-08T17:15:06.676-08:00Economic slowdown on top of lower inflation begs for major adjustmentsMany months ago it became abundantly clear that the Fed had extinguished the inflation fires that were stoked in 2020-21, and therefore lower interest rates were called for. More recently, we see that the economy has lost a lot of its forward momentum, and that also argues for lower rates. 10-yr Treasury yields have fallen meaningfully in recent months, but short-term interest rates are still Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com13tag:blogger.com,1999:blog-6616959642391988608.post-21286593694170661142023-12-31T12:03:00.000-08:002023-12-31T12:05:20.708-08:00Recommended reading: "Poor Charlie's Almanack"I learned many things from my time at Western Asset Management, many of them from fellow colleagues such as Ken Leech. Ken further endeared himself by one day inviting Charlie Munger to address the professional staff. What a delight that was! As icing on Munger's talk, we received a copy of the first edition of Poor Charlie's Almanack, which I subsequently read and reread. It's full of wit, Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com4tag:blogger.com,1999:blog-6616959642391988608.post-58613046776590147122023-12-27T08:30:00.000-08:002023-12-27T08:30:58.746-08:00Monetary policy and economic overview at year endThe Fed has conquered inflation. It's time to start easing. The economy looks OK, no looming recession. Chart #1Chart #1 is arguably the most important chart that the market and the Fed have almost completely ignored for decades. Sure, everyone talks about the money supply (the best measure of which is M2), but no one talks about money demand. And as all students of economics should Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com8tag:blogger.com,1999:blog-6616959642391988608.post-60600592191125604702023-12-12T17:13:00.000-08:002023-12-12T17:13:45.989-08:00CPI less shelter is only 1.4%Shelter costs comprise about one-third of the CPI, and shelter costs are driven primarily by housing prices 18 months before. Which is to say that the way BLS goes about calculating the CPI is bogus. If we take out this bogus component of the CPI we are left with the fact that the CPI rose a mere 1.4% in the 12 months ended November '23. Long story short: the Fed has successfully stomped out the Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com21tag:blogger.com,1999:blog-6616959642391988608.post-56547767944992736282023-12-05T16:46:00.000-08:002023-12-05T16:46:03.809-08:00Some big picture chartsWhile the world waits anxiously to see if the jobs report this Friday shows that too many people are working—because the Fed (erroneously) believes that might be inflationary and thus a reason to raise interest rates still further—I offer six charts that look at the U.S. economy from a big picture perspective. I don't find anything sinister or strange in these charts. Instead, I see an economy Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com9tag:blogger.com,1999:blog-6616959642391988608.post-45900242266921822182023-11-30T13:56:00.000-08:002023-11-30T13:56:41.154-08:00A reassuring outlookThis is a short post to update M2, GDP, and inflation statistics. All are consistent with the view that the economy is growing at a moderate pace and inflation is fast approaching the Fed's target (indeed, by some measures it is already below target).M2, the most important monetary variable that the world (and the Fed) seem resolutely to ignore, continues to decline. It ballooned in 2020 and 2021Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com8tag:blogger.com,1999:blog-6616959642391988608.post-7311271031691255702023-11-19T22:19:00.000-08:002023-11-22T17:54:33.577-08:00Congratulations, Javier Milei!Javier Milei first appeared on my radar screen 3-4 years ago. At the time I thought he would be the perfect person to rescue Argentina from economic oblivion, because he sees things the same way I do. But then I realized that was almost impossible. How could he, a virtual unknown, ever overcome generations of Peronist rule and endemic corruption? Well, he did, and now he has a shot at pulling offScott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com13tag:blogger.com,1999:blog-6616959642391988608.post-53792842417969277872023-11-15T11:44:00.000-08:002023-11-16T08:29:15.433-08:00Inflation RIPI've been predicting the demise of inflation for at least a year now, and today's CPI report makes it official—there's no denying that inflation has fallen to within spitting distance of the Fed's target. Not coincidentally, the market has finally acknowledged what I've been expecting for many months: the chances of another Fed tightening at this point are zero. The only issue now is when the FedScott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com23tag:blogger.com,1999:blog-6616959642391988608.post-18122582236773863102023-10-28T16:04:00.004-07:002023-10-29T11:07:28.961-07:00Growth and inflation update: not much to worry aboutThe big news this week—though widely anticipated—was the 4.9% annualized growth of the economy in the third quarter. Analysts still infected by Phillips Curve thinking worried that a strong economy would encourage the Fed to keep rates "higher for longer," thus posing the risk of a recession next year. (Note: economic growth does not cause inflation. In fact, over the past year the economy has Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com27tag:blogger.com,1999:blog-6616959642391988608.post-91784447025201597102023-10-25T15:51:00.000-07:002023-10-25T15:51:50.264-07:00M2 update: continued disinflationWith this post I provide continued coverage of the all-important M2 money variable that almost no one, including the Fed, has bothered to pay attention to for the past several years. Click here to see my first post (October '20) highlighting the extraordinary growth of M2 and why it wasn't inflationary. Click here to see my first warning (March '21) that rapid M2 growth threatened a significant Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com11tag:blogger.com,1999:blog-6616959642391988608.post-20863644682554163212023-10-20T14:40:00.000-07:002023-10-20T14:40:37.567-07:00Argentina votes as the peso plungesI've been an observer of the Argentine economy ever since I first went there in 1970 to visit my soon-to-become wife. So I am compelled to make this brief post as Argentina's currency passes a key marker: today, Argentines must now come up with 1000 pesos to buy just one dollar. Actually, if Argentina had never taken multiple zeros off its currency several times since 1916, when the exchange rateScott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com11tag:blogger.com,1999:blog-6616959642391988608.post-46259142581807910332023-10-12T13:19:00.000-07:002023-10-12T13:19:01.659-07:00CPI ex shelter is 2.0%On a year over year basis, the CPI is up 3.7%. Excluding shelter costs, which we know are artificially inflated by BLS methodology, the CPI is up only 2.0%. It is not unreasonable to think that the Fed has successfully arrested the inflation that was caused by $6 trillion of federal deficit spending in 2020 and 2021. Mission accomplished. No more rate hikes are needed.Chart #1Chart #1 compares Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com21tag:blogger.com,1999:blog-6616959642391988608.post-16971269897194408762023-09-28T19:13:00.006-07:002023-10-09T15:08:02.045-07:00M2, GDP, and interest rate updateA quick update on M2, GDP, and interest rates: There is still a "surplus" of M2 money, but it is shrinking every month. Higher interest rates have boosted the demand for money, in effect neutralizing the declining M2 surplus. We know this because all indicators point to a significant decline in inflation, especially when measured at the margin (year over year growth rates can be very Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com39tag:blogger.com,1999:blog-6616959642391988608.post-29003916756275347922023-09-21T18:22:00.001-07:002023-09-22T13:51:51.055-07:00What the Fed is overlookingYesterday the FOMC decided to keep its target Fed funds rate unchanged at 5.5%. That was no surprise to the market, but the tone of Powell's press conference and meeting minutes convinced the market that rates are likely to be "higher for longer" than previously expected. Market expectations are now geared to expect one more hike before year end, and only a few cuts by the end of next year. To Scott Grannishttp://www.blogger.com/profile/14028519647946868684noreply@blogger.com17