Circa: Now!

Posted on May 12, 2023 by MN Gordon

America’s economic landscape is becoming littered with one steaming pile after another. The primary offenders include consumer price inflation, interest rates, gross domestic product, and unemployment.  Here we’ll take a sniff of the unpleasant odor that’s wafting around us.

To begin, consumer price inflation is still well above the Federal Reserve’s 2 percent target.  In fact, the Bureau of Labor Statistics reported this week that consumer price inflation, as measured by the consumer price index, is increasing at an annual rate of 4.9 percent.

And even if you go by the Fed’s preferred inflation metric, the personal consumption expenditures price index, consumer prices are rising at an annual rate of 4.2 percent.  This is still more than double the Fed’s selected target.

So, too, short-term interest rates are relatively high when compared to the last 15 years.  By this, when you go from 0 percent to over 5 percent in a matter of 18 months the impact on credit markets can be both significant and adverse.  As the former managers of Silicon Valley Bank recently discovered, ultra-safe Treasuries can quickly transform into risky assets. Continue reading →

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What Will People Do?

Posted on May 5, 2023 by MN Gordon

Put my dusty morals on the dusty moral shelf
Try to do for others but I care more for myself
My life is like a desert just a lot of sand and rocks
Try and buy some peace of mind and find the store is locked

You can’t get water from a bone dry wishing well

– Bone Dry, by the Cadillac Tramps

Letters of Doom

Treasury Secretary Janet Yellen is a woman of letters.  We like this about her.  Because, like us, in a world of text snippets, tweets, and animated gifs, she finds the traditional exchange of letters to be most civilized.

Her academically trained brain – ensconced beneath a white hair shelmet – guides her thinking.  With purpose and intent, Yellen puts fingers to keyboard and taps out letters to Congress warning of imminent doom.

Her most recent letter, published on Department of the Treasury letterhead, and addressed to The Honorable Kevin McCarthy, rolled off the printing press on Monday the 1st of May.  The objective of the letter was to correct grave misinformation she supplied in a prior letter to Congress.

Specifically, on Friday the 13th of January, Yellen, sent a letter to Congress informing legislators that the statutory debt limit of approximately $31.381 trillion would be eclipsed on January 19.  And that the Treasury must resort to extraordinary measures – accounting maneuvers – to delay a U.S. government default. Continue reading →

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What the End of Fed Rate Hikes Means for Stocks

Posted on April 28, 2023 by MN Gordon

According to this week’s Commerce Department report, U.S. GDP increased at an annualized rate of 1.1 percent during Q1 2023.  The experts thought GDP would grow by 2 percent.  They were wrong.

By now, it’s very well possible GDP has already slipped into reverse.  We won’t know until the Commerce Department’s Q2 report is released in late July.  In the interim, there’s an important question to be asked:

Is a recession bullish or bearish for stocks?

Next week, following the federal open market committee (FOMC) meeting on May 2 and 3, it’s widely anticipated that the Federal Reserve will hike interest rates by 25 basis points.  This will take the federal funds rate to a range of 5.00 to 5.25 percent.

It is also anticipated that this will be the last rate hike of this rate hiking cycle.  That the Fed will then hold interest rates, before cutting them later this year to offset the recession.

Interest rate cuts are commonly recognized as being bullish for stocks and stimulative for the economy.  Here at the Economic Prism, we have some reservations. Continue reading →

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What Brookfield’s Default Has to Do with You

Posted on April 21, 2023 by MN Gordon

Over more than two decades we worked off and on in Downtown Los Angeles.  We had a client for several years at 555 West 5th Street, in the tower at the base of Bunker Hill.  We’d meet several times a week.  Always in the morning.

Sometimes he would boast about his property in Coeur d’Alene, Idaho, and how he’d one day leave LA.  Other times he’d deliver us a wire brushing for events beyond our control.  One time he accused us of ‘smash and grab’ tactics for merely requesting payment of a past due invoice for contracted work that had already been delivered.

After these inspiring encounters we’d hike by the collection of derelicts and dope smokers sprawled out on the wall in front of the Central Library.  This was as we made our way back to our office at the Wedbush Center on Wilshire Boulevard near Figueroa Street.

On the corner in front of the 7-Eleven a clown appeared one day.  He had oversized shoes, a rainbow wig, face paint – the whole costume.  All day every day, rain or shine, he was there, jumping around, waving at cars and buses, and fist bumping people walking by.  Then, after about nine months, he was gone.  We never saw or heard of him again. Continue reading →

Posted in Economy, MN Gordon | Tagged , , , , | 18 Comments