Smoke Signals And Fantasy Worlds

The Fed is planning to hike rates beyond 5% in 2023 and company analysts are holed up with the C-suite in a fantasy world, disconnected from reality like kids running a crypto exchange from an expensive treehouse in the Bahamas. Those are two takeaways from my Tuesday afternoon reading. This is shaping up to be one of those weeks where there's a lot worth mentioning, but most of it is incremental rather than groundbreaking, a somewhat annoying conjuncture that's conducive to the buildup of open
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7 thoughts on “Smoke Signals And Fantasy Worlds

  1. It’s pretty difficult to see the Fed continue to tighten if consumers stop spending and profits crater. They are going 50 next week that’s pretty much in the cards. After that, I want to see all the macro numbers prior to the Feb meeting, and to see if there is any more “broken china”. My guess for a stop/pivot would be a noteworthy credit event. No credit event means a tightening bias keeps going.

  2. I wonder where the Fed-stopping breakage will come from. In the last few months, we’ve seen GBP/Gilts teeter, USD soar, various emerging economies pushed to the edge of default, JPY plunge, UST liquidity dry up, crypto implode, even some FOMC members worrying publicly about stresses, and yet the Fed has pushed relentlessly on.

    Evidently, risk of breakage won’t force the Fed to abandon its fight against inflation. Neither will actual breakage of things that are peripheral and expendable. Crypto was peripheral. El Salvador or Pakistan’s debt will be expendable. To stop the Fed, the broken thing has to be something big that is central to the US financial system.

    Markets should be able to identify the breakage candidates. If the Fed is soon going to be halted, there should be a price, a CDS, a premium, an I.V., somewhere out there that is starting to scream. Is there?

  3. I’m suspicious of the depth and longevity of any recessionary earnings hit – I think it may be another example of things happening faster this cycle than anyone expects. For example, on the goods side, we don’t have an earnings hit coming in 2023 from an inventory correction; we’re having it right now, as it started in 3Q. China is seeing 40% order declines from the US – right now. Ocean shipping rates are presently at nadir, down 90% – as of last month. A freight analytics firm sees this downturn in goods having corrected by next summer, meaning order data and confidence may start improving in late 1Q while investors are still nervously listening to 4Q earnings calls. I suspect that analysts projecting withdrawal symptoms from Covid demand pull in ’23 are behind the game by a quarter, at least. We may find analysts are right in their calls, but they need to be playing their tune on a 78 rpm turntable to keep up with this cycle.

  4. I guess consumers are gonna borrow and borrow until they can’t borrow no ‘mo.

    Total consumer credit rose $27.1 billion in October, up from a revised $25.8 billion gain in the prior month.
    Here’s the Federal Reserve’s release.
    https://www.federalreserve.gov/releases/g19/current/default.htm

    Thats a 6.9% annual rate, up from a revised 6.6% in the prior month.
    Economists had been expecting a $26 billion gain.
    Revolving credit, mainly credit cards, rose 10.4% in October after an 8.2% increase from the prior month.
    Credit card balances increased 15% over the past year ended in September, according to separate New York Fed data. This is the largest increase in in more than 20 years.

    1. Forgot to mention that Heisenberg’s pages have already extensively covered the fact that this build-up in consumer debt is coming as savings have deteriorated.

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