Whip Inflation Never

Posted on October 18, 2024 by MN Gordon

The storyline all year from the Federal Reserve and the Treasury was that consumer price inflation was coming down. That it would soon be within the Fed’s arbitrary 2 percent target. That the runaway inflation over the last few years was a mere pothole in the road to greater prosperity.

On September 18, the Fed was so sure it had expelled inflation that it cut the federal funds rate for the first time since March 16, 2020. What’s more, the Fed went big. It cut 50 basis points.

The stock market has made hay in the weeks that have followed. Since September 18, the S&P 500 is up over 220 points, and has hit new all-time highs along the way.

This has pushed stocks to extreme valuations. The Buffett indicator, the ratio of total market capitalization over gross domestic product, is now over 200 percent. A fair market valuation is a ratio between 107 and 131 percent. Anything above 155 percent is considered significantly overvalued.

While the Fed’s rate cuts are thrilling for stock market investors – for now – they’re terrible for working Americans who are struggling to make ends meet. In fact, last week’s CPI report showed the Fed may have jumped the gun. Continue reading →

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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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