Wall Street Clustery

Posted on February 16, 2024 by MN Gordon

In the buildup to this week’s Consumer Price Index (CPI) report we came across an article on MarketWatch.  The author, Jeffry Bartash, closed his remarks with a brief contrast of the CPI with the Federal Reserve’s preferred price gauge, the Personal Consumption Expenditures (PCE) index.

According to Bartash, the PCE index gives less weight to housing than the CPI.  Housing costs are the most significant monthly expense for many people.  For whatever reason, the PCE index developers at the Commerce Department don’t think this is an important factor for understanding price changes.

Maybe this is why the Fed prefers the PCE index over CPI.  Another likely reason is that the PCE index also considers shifts in consumer behavior as a result of higher prices.  As elaborated by Bartash:

“A grocery shopper, for example, might buy ground beef instead of ribeye to save money.  Or a shopper in a hardware store might buy a cheaper imported tool instead of a more costly American-made one.”

These supposed shifts in consumer behavior may help fabricate the PCE index more to the Fed’s liking.  In reality, they make for poor assumptions as to what consumers actually do. Continue reading →

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Tang Ping in the Year of the Dragon

Posted on February 9, 2024 by MN Gordon

“Never give a sword to a man who can’t dance.” – Confucius

Intervention from Beijing

Have Chinese stocks, supported by fresh government intervention, reached their bottom?

This week, from Monday through Thursday, the Shanghai Composite Index is up 5.52 percent.  Similarly, over this time, Hong Kong’s Hang Seng Index is up 3.53 percent.

Still, these indexes have a lot of ground to make up.  The Shanghai Composite Index is down 22.61 percent since September 2021.  Meanwhile, the Hang Seng Index is down over 50 percent in the last six years.

Chinese stocks have lost a combined $7 trillion since 2021.  The poor stock market performance has become an embarrassment for President Xi Jinping.

Several years ago, he was relishing in his nifty slogan: “The East is rising, the West is declining.”  Now, he’s compelling regulators to devise a rescue.

In late-January, Beijing announced several interventions to, hopefully, stimulate the Chinese economy and revive the stock market.  This week, on February 5, bank reserve ratio requirements were cut by 50 basis points.  This is expected to free up about one trillion yuan ($139.04) worth of long term funds. Continue reading →

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Do You Have a Passion for Political Solutions?

Posted on February 2, 2024 by MN Gordon

This week, as expected, the Federal Reserve did not hike nor cut the federal funds rate.  Instead, following the two-day FOMC meeting, the central bank announced on Wednesday it would be holding even – within a target range of 5.25 and 5.5 percent.

What surprised the stock market were Fed Chair Jay Powell’s words that followed the official statement.  Powell repeatedly said the Fed needs more “confidence” that it has consumer price inflation licked.

Powell also said it won’t likely cut rates at its next meeting in March.  This comment had the effect of a turd in a swimming pool.  Stocks abruptly sold off.  The S&P 500 closed the day down 1.6 percent and the NASDAQ dropped 2.2 percent.  Shares of Alphabet slid 7 percent, after reporting poor ad revenues.

The Fed continues to find itself in a precarious position.  Consumer price inflation remains above its 2 percent target.  Yet some regional banks are hemorrhaging cash.

Case in point, on Wednesday shares of New York Community Bancorp crashed 38 percent.  This came after it reported a fourth quarter loss of $252 million. Continue reading →

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Fed’s QT Taper Talks Are Already Behind The Eight Ball

Posted on January 26, 2024 by MN Gordon

On June 1, 2022, the Jay Powell Chaired Federal Reserve formally commenced Quantitative Tightening (QT).  The Fed’s balance sheet had topped $8.9 trillion.  Consumer price inflation was rocketing towards a 40 year high.

“Brace yourself,” advised JPMorgan Chase CEO Jamie Dimon at the time.

The master plan was for the Fed to reduce its holdings of Treasuries and mortgage-backed securities by a combined $47.5 billion per month for the first three months.  Then, in September 2022, this monthly reduction was increased to $95 billion (i.e. $60 billion in Treasuries and $35 billion in mortgage-backed securities).

Aside from the abrupt $400 billion spike in March of 2023, when Silicon Valley Bank, Signature Bank, First Republic Bank all failed in rapid succession, QT has continued according to plan.  Today, the Fed’s balance sheet stands at just under $7.7 trillion.

The next FOMC meeting is on January 30 and 31.  And the scuttlebutt from the Wall Street Journal is that the Fed’s now considering a change of plans: Continue reading →

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