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September 25, 2022 | Notes on Inflation
We were a bit preoccupied here in Puerto Rico this week. Hurricane Fiona decided to camp out over the island, bringing mind-boggling amounts of rain. I am sure you have seen the flooding pictures. The entire island lost power and much of it is still down. Our oversized diesel generator, which I thought quite expensive […]
September 18, 2022 | Inflation Sinks In
Remember when inflation was going to be transitory? Good times. I was in that camp myself early on, as were some serious analysts I greatly respect (and still do). Then the data began to show core inflation would be stickier than expected, and I turned in my Team Transitory T-shirt. I appreciate people who admit their […]
September 11, 2022 | Labor Mysteries
Politicians talk about “jobs, jobs, jobs” because a steady income keeps people happy and (mostly) voting for incumbents. Carville once told us, “It’s the economy, stupid,” and it always has been. Economies in recession are usually bad for those in power. Economists care about jobs for a different reason. Labor is a factor of production—part […]
August 27, 2022 | Your Inflation May Vary
People who think about the economy are a non-random subset of the population. Most folks aren’t like us. Worse, we aren’t always like us. Hence the endless arguments. Currently our subset is debating whether we face inflation or recession. In my view, it’s not an either/or question: We can have inflation and recession. That’s why I keep talking about […]
August 14, 2022 | Curving Toward Stagflation
The latest data shows inflation is still with us at an 8.5% annual rate. That means we can expect the Fed to keep tightening, trying to reduce demand and relieve pressure on consumer prices. At the same time, we’ve seen declining GDP growth the last two quarters. Some people raise measurement issues. Fine. Grant that […]
August 7, 2022 | Weirdness Factors
It’s a recession! No, not yet! I see these arguments everywhere and I’m already tired of them. For those who believe it is not yet a recession, I will make a deal with you. The third quarter is likely to be negative. When we have three quarters of a recession in a row, just give […]
July 31, 2022 | A Weird Recession
Professional economists, perhaps tired of being asked, years ago formed a committee to officially mark the beginning and end of recessions, the NBER (Nation Bureau of Economic Research) committee considers a variety of data, but its final decision is subjective. Many of those who pay attention prefer a more objective rule, such as “two consecutive […]
July 24, 2022 | Hubris at the Fed
Finding just the right word brings great pleasure to writers like me. As I think and write about the Federal Reserve, the word “hubris” keeps coming to mind. The Merriam-Webster dictionary defines hubris as “exaggerated pride or self-confidence.” The entry notes the concept originated in ancient theater. “In classical Greek tragedy, hubris was often a […]
July 17, 2022 | Forgotten Lessons
“Those who cannot remember the past are condemned to repeat it” is a well-known quote that’s also incomplete. You can remember the past vividly and still have to repeat it. This happens when, for instance, powerful people forget (or ignore) important lessons that affect everyone. In politics, we can often limit the damage by voting […]
July 10, 2022 | John Bull and Two Percent
The economics profession has long had a vigorous academic argument over “natural” interest rates. What would rates be if we could somehow remove all the subjective actors—central banks, commercial lenders, government agencies—that conspire to set them? What would nature do if we left it alone? It’s an academic argument because, in the real world, we […]
July 3, 2022 | Time Has a Price
One benefit of human progress is the way we gain “common knowledge” that was once anything but common. We observe basic facts—for example, water boils if placed over a flame—and then build on them. Boiling water took us to steam engines and then much more. But that path wasn’t always obvious. We see a similar […]
June 26, 2022 | Inflation Reaches Unicorns
Government has three primary functions. It should provide for military defense of the nation. It should enforce contracts between individuals. It should protect citizens from crimes against themselves or their property. When government—in pursuit of good intentions—tries to rearrange the economy, legislate morality, or help special interests, the cost comes in inefficiency, lack of motivation, […]
June 19, 2022 | Gradually Worse
This time last year, the great debate was whether inflation would be “transitory.” That question is now settled (Narrator: “It wasn’t transitory at all.”), we have moved on to debating what the Federal Reserve will do about it… and can do about it. The experts at the Strategic Investment Conference fell into two camps: The […]
June 12, 2022 | A Trillion Here, a Trillion There…
Complaining about federal debt is a time-honored American tradition. Remember Ross Perot and his hockey-stick charts? Then there was Harry Figgie’s 1992 best-selling book, Bankruptcy 1995. It was quite a sensation at the time. Not only did the US government not go bankrupt in 1995, but a few years later it achieved the unimaginable feat […]
June 5, 2022 | No Soft Landings
“There’s no soft landing when you’re this far out of equilibrium.” —Tom Hoenig My last four letters featured highlights from the Strategic Investment Conference. I told you they would build toward a conclusion that might not be obvious. Today we’ll lift that final curtain. Some of it is good news. Innovation will continue, technology will […]
May 29, 2022 | Rock and a Hard Place
Two weeks after SIC ended, I’m beginning to assimilate everything. Different pieces are connecting in my head. I’d like to tell you I have a vision for uninterrupted peace and prosperity. Sadly, that’s not the case. Good things are coming, but not just yet. For now, we are stuck in an awkward interregnum. It looks […]
May 22, 2022 | Hardening of the Economies
Atherosclerosis, or hardening of the arteries, occurs when substances like cholesterol accumulate and impede your blood flow. This keeps your body from delivering nutrients where needed. Left untreated, it usually doesn’t end well. Something similar is happening to the global economy. Like atherosclerosis, it’s been building toward a crisis for years. Central bank policy errors, […]
May 15, 2022 | A Little Harder
The Strategic Investment Conference wrapped up this week with another wave of strong, fascinating speakers and panels. I gave you some highlights in last week’s Soft Now, Hard Later letter. Today I have more to share and, as you’ll see, the plot thickened considerably. After 16 years I’ve learned how this goes. You begin with […]
May 8, 2022 | Soft Now, Hard Later
The Strategic Investment Conference is in full swing. This is our 18th consecutive year and the third in an all-online virtual format. In 2020 we had to make that transition quickly, yet somehow the team pulled it off. Now we are getting the hang of it—though I do firmly intend to have an in-person event […]
May 1, 2022 | The Fed Is NGMI
We found out this week that the first quarter was recessionary: GDP down 1.4% when the expectation was that the quarter would be up 1%. Rather large miss! Even so, the quarter-over-quarter comparisons were difficult so I believe the Fed will look past it and a 50-basis-point hike in May is still on. Even if […]
April 24, 2022 | Into the Fire
If you haven’t noticed—perhaps because you live on Mars—inflation is here. Not just in the US but almost everywhere. Prices for everyday goods and services, including necessities like food, are climbing rapidly. The US Consumer Price Index rose 8.5% in the 12 months through March… and we know it understates categories like housing. These year-over-year […]
April 17, 2022 | More on the Yield Curve and Helping Ukraine
It’s Easter weekend, so we are going to revisit a 2018 letter about the yield curve. The yield curve is much misunderstood and misused by many analysts. This letter will give you the tools to understand the correct importance and relevance of the yield curve. And then, a few comments about Ukraine. First, a reminder […]
April 10, 2022 | Other Possibilities
An old Danish proverb, later attributed to everyone from Mark Twain to Nostradamus to Yogi Berra, says, “Predictions are difficult, especially about the future.” I would refine it a little: Predictions are actually pretty easy. Accurate predictions are very difficult. We can never know the future because it’s not here yet. We can only make educated forecasts […]
March 20, 2022 | Brace for (Recession) Impact
The Strange Recession we are now entering is strange for another reason beside those I described last week. The last “normal” recession ended in 2009, almost 13 years ago. As with most unpleasant experiences, we don’t put a lot of energy into remembering what it was like. The problem is we need to remember it […]
February 27, 2022 | The Three-Act Recovery, Plus Your Questions
This week’s news is seemingly all about Ukraine and Russia. It is a terrible situation. But as an economic matter, we still have serious economic challenges no matter how it develops. I’ll have some thoughts on the Ukraine effects at the end of this letter. First I want to tell you about an economic analysis […]