Mistakes from the Past

Posted on October 11, 2024 by MN Gordon

Sometimes things don’t work out as planned…

On September 18, the Federal Reserve cut the federal funds rate by 50 basis points. This was the first time the Fed cut rates since March 16, 2020. The aggressive rate cut was goaded on by people like Elizabeth Warren, who said Fed Chair Jerome Powell was “behind the curve.”

Over the last three weeks something unexpected by the Fed has happened. The yield on the 10-Year Treasury didn’t follow the Fed’s rate cut down. Rather, it did the opposite. It went up.

This week the yield on the 10-Year Treasury spiked above 4 percent for the first time since July 31. The yield on the 2-Year Treasury note also topped 4 percent. Thus, the Treasury market is not cooperating with the Fed’s desire for cheaper credit.

Could it be that Warren was wrong, and the Fed wasn’t behind the curve after all? Was September’s 0.50 percent rate cut a policy mistake? Will the Fed add to its mistake with an additional rate cut in November? Continue reading →

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The Ghost of Harry Bridges

Posted on October 4, 2024 by MN Gordon

I am a simple lab’ring man
And I work along the shore,
For to keep the hungry wolves away
From the poor longshoreman’s door.
I toil all day long in the broiling sun
On the ships that come in from the sea,
From early light until late at night
For the poor man’s family.

Then it’s give us good pay
For every day
For that’s all we ask of thee,
For our cause is right
And we’re out on a strike
For the poor man’s family.

The Longshoreman’s Strike, by Edward Harrigan (1875)

Three Day Strike

Dockworkers on the East and Gulf Coasts went on strike on Tuesday. This marked the first major work stoppage by the International Longshoremen’s Association (ILA) since 1977. It halted about half the nation’s ocean shipping imports and affected 36 ports from Maine to Texas.

Bananas, socks, automobiles, booze, electronics, Christmas goodies, and everything in between. The disruption would have cost the economy billions of dollars per day, upset supply chains, and pushed up consumer prices.

But after three days a tentative deal was reached. Late on Thursday, the strike came to a quick end. Workers who’d walked off the job on Tuesday agreed to return. Now they have a three-day backlog to work through. Continue reading →

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China is Winning the EV War

Posted on September 27, 2024 by MN Gordon

Jim Farley, chief executive of Ford Motor Company, knew it was bad before he boarded his return flight to Michigan. His fact-finding mission to China in May had revealed the cold hard truth.

That “Chinese EV makers are using a low-cost supply base to undercut the competition on price, offering slick digital features and aggressively expanding to overseas markets.”

According to Farley, “this is an existential threat.”

While U.S., German, and Japanese automakers were busy focusing their electric vehicle (EV) rivalry on Tesla, Chinese EV makers like Xiaomi and BYD were busy upending the market. Lower prices, high-tech interiors and rapid vehicles updates, have brought Chinese made EVs to dominance in the span of a few short years.

Farley’s EV products cost more and do less. The Ford Mustang Mach-E, for example, has a range of 320 miles and a price of $39,995 to $58,995. By comparison, the BYD Sea Lion 07 has a range of 379 miles and a price of $26,700 to $33,200.

American consumers generally have no clue of what has happened. Steep tariffs have kept Chinese EVs out of the U.S. so far. Under the veil of protectionism, the American public is none the wiser. Continue reading →

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Let the Games Begin!

Posted on September 20, 2024 by MN Gordon

Monetary policy took center stage this week.  On Tuesday and Wednesday, the Federal Open Market Committee (FOMC) huddled up, licked their collective index finger, held it up to the wind, and then commanded how they would intervene in credit markets.

With the major stock market indexes and housing prices near all-time highs.  And with consumer price inflation still rising.  These are hardly the conditions that demand cheaper credit.

Nonetheless, the Federal Reserve cut the federal funds rate for the first time since March 16, 2020 – during the dark days of the coronavirus panic.  What’s more, the Fed went big.

Wall Street wanted a 0.50 percent rate cut.  Thus, the Fed delivered a 0.50 percent rate cut.

Traders had waited all year for this moment.  They’d diligently bid up share prices for months in anticipation.  When the moment finally arrived, they reacted like a deer in the headlights. Continue reading →

Posted in Economy, MN Gordon | Tagged , , , , | 1 Comment