The Morning Call
12/14/22
The
Market
Technical
Tuesday in the
charts.
Note: the S&P
spiked at the open on the CPI print. It then
blew through its 200 DMA and touched the upper boundary of its short term
downtrend; but gave most of it back.
Before drawing too firm a technical opinion, we need to get through the
FOMC meeting and its closing narrative. That
said, yesterday’s pin action can hardly be termed positive.
Fundamental
Headlines
The
Economy
US
Weekly mortgage
applications rose 3.2% while purchase applications were up 4.0%.
International
September EU industrial production fell 2.0%
versus projections of -1.5%.
October Japanese
machinery orders were up 5.4% versus estimates of +2.6%; October industrial
production fell 3.2% versus -2.6%; Q4 large company capex spending was up 19.2%
versus +23.0%; the small manufacturers index was -2 versus -6; the large nonmanufacturers
index was 19 versus 17.
November UK CPI
was up 0.4% versus expectations of +0.6%; core CPI was +0.3% versus +0.5%.
Other
The
Fed
Yesterday’s CPI
number likely marks the end of the ‘peak inflation’ debate. That we know that the worst level inflation has
been reached is clearly a plus. But
given the Fed’s aggressive rate hiking, there was strong reason to believe that
would occur likely sooner than later.
Unfortunately, that was the easy part.
Now the Fed has to face the ‘how high for how long’ decision which will
be a lot more difficult. I linked to an
article yesterday that there was a growing consensus that the Fed would
negotiate a ‘soft landing’. i.e., bring inflation back to the 2% level with
only a mild recession. History says that
is the epitome of wishful thinking. And
the Fed’s recent handling of ‘transitory’ inflation only reinforces the point. My bottom line being that the economy/stock
market is not out of the woods and patience is not out of style. Here is more discussion:
The debate over how high for how long.
Part two.
https://www.capitalspectator.com/how-long-and-how-far-will-the-fed-lift-interest-rates/
Goldman’s reaction.
Lance Roberts
reaction.
https://www.zerohedge.com/markets/fed-broke-something-part-2-bonds-best-2023-powell-pivots
Winter is coming.
https://www.zerohedge.com/markets/foghorn-blowing-few-heed-its-warning
Fiscal
Policy
This is the
abstract from a paper by Greg Mankiw entitled ‘Government debt and capital
accumulation in an era of low interest rates’.
The conclusion fits right in with that of the Rogoff and Reinhart study
showing that high national debt slows economic growth:
ABSTRACT This
essay discusses the reasons for and implications of the decline in real
interest rates around the world over the past several decades. It suggests that
the decline in interest rates is largely explicable from trends in saving,
growth, and markups. In this environment, greater government debt is likely not
problematic from a budgetary standpoint. But a Ponzi-like scheme of perpetual
debt rollover might fail, and such a failure would make a bad state of the
world even worse. In addition, even if a perpetual debt rollover succeeds, the
increased debt could still crowd out capital, reducing labor productivity, real
wages, and consumption. The entire study
is here:
https://www.brookings.edu/wp-content/uploads/2022/03/16265-BPEA-Sp22_Mankiw_WEB.pdf
Recession
Recession probability up to 1 in 6.
Bottom line
The latest from
Morgan Stanley.
Avoiding envy.
https://alhambrapartners.com/2022/12/12/weekly-market-pulse-envy/
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