THANK YOU!
I don’t have a long list of donors but they mean a lot to me. Some have been helping for many, many years. I have always made a point of sending a personal thank you note of appreciation. Today, I thank all my donors, large and small, publicly, on my behalf but also on behalf of all free riders.
For all kinds of good and not so good reasons, I sadly find myself short of time to send personal notes but I wish to hereby officially thank you all.
This totally open and ad-free blog needs support to justify spending for increasingly expensive content benefitting everybody.
This has been a long cycle and inflation is very high in financial services. In the past month, I have had to cancel two valuable services, their owners having become much too greedy for me to justify subscribing. They shall come after me again at the end of the bear market.
I have never done any marketing of any sort for the blog. But if you find this blog useful and valuable, perhaps you could forward it on to a friend/co-worker, or share the link on social media? Who knows, they could become supporters?
RECESSION WATCH
Some readers wondered why yesterday (Peakflation?) I mentioned Fiera Capital’s recession call. I could say that Jean-Guy Desjardins, an old friend and business partner, is one of the best cycle callers/strategists I know but rather I will present Fiera’s asset mix performance record since 2006. Note how good they have been at calling recessions/down markets.
Exactly one year ago, Fiera’s strategy team introduced an inflationary scenario to its 3 economic scenarios. In September, they ditched the “Inflationary Boom” second most likely scenario (40%) and replaced it by a “Stagflation” scenario (40%), still slightly favoring a softer “Reflation” scenario at 50%. Last May, “Stagflation” moved to the main scenario (55%) but “Recession” became #2 at 35% with “Soft Landing” an unlikely 10% probability.
Now, Fiera’s strategists see dark clouds all over: “Deep Recession” at 50%, “Shallow Recession” at 30% and “Stagflation” at 20%.
The best they see for the U.S. economy over the next 12-18 months is +1.0% GDP growth, 5% CPI, short-term rates at 3.25% (6.0% in “Deep Recession”!), and 10Y Ts at 3.5% (5% in “DR”). These are among the most negative scenarios around.
Last week, the Atlanta Fed GDPNow was -1.2% for Q2 which could trigger a recession call by the NBER. Yesterday, Goldman Sachs lowered is Q2 tracker to +0.7% while its Current Activity Indicator stood at -0.5%, down from +0.3% in May. From GS:
What leading indicators should investors watch to monitor the risk of falling into a recession in real time? We rank potential leading indicators by their leading properties and real time accuracy, and find that ISM new orders and other manufacturing surveys, consumer expectations, and initial jobless claims rank highly. The series that score the best on both dimensions have slowed in recent months—the three-month averages of the 10 highest-ranked indicators are consistent with slightly positive growth on average, though the very latest prints point to negative growth.
Small Business Expectations for Future Conditions Hit All-Time Low Owners reporting inflation as biggest business problem highest since 1980
Key findings:
- The net percent of owners who expect real sales to be higher decreased 13 points from May to a net negative 28%, a severe decline.
- Fifty percent of owners reported job openings that could not be filled, down one point from May, but historically very high.
- The net percent of owners raising average selling prices decreased three points to a net 69% seasonally adjusted, following May’s record high reading. Price raising activity over the past 12 months has escalated, reaching levels not seen since the early 1980s when prices were rising at double digit rates.
- The frequency of reports of positive profit trends was a net negative 25%, down one point from May.
(…) Unadjusted, 4% of owners reported lower average selling prices and 69% reported higher average prices. Price hikes were the most frequent in retail trades (80% higher, 3% lower), transportation (78% higher, 0% lower), construction (75% higher, 4% lower), and wholesale (69% higher, 7% lower). Seasonally adjusted, a net 44% plan price hikes.
A net 48% (seasonally adjusted) reported raising compensation, down one point from May. A net 28% of owners plan to raise compensation in the next three months, up three points from May and historically very high. (…)
- Fedex CEO: “Our volumes across all lines of business in our just-reported quarter were all down.”
PC Shipments Suffer Steepest Decline in Years Shipments in the second quarter dropped by 12.6% from the year-ago period, marking their steepest decline in nine years, according to data from Gartner.
(…) International Data Corp., another data provider, said the year-over-year decline in global device shipments was around 15.3% in the second quarter. The two research firms count the data slightly differently. (…)
Pandemic demand for computers was so strong, though, that even with recent declines, overall shipment levels remain above prepandemic levels, IDC said. (…)
New York Fed Survey Finds Long-Term Inflation Expectations Falling Americans are expecting lower inflation increases over the longer run, amid a sharp drop in the projected rate of home-price increases, the Federal Reserve Bank of New York said in a report
The bank said in its June Survey of Consumer Expectations that three years from now, respondents see inflation at a 3.6% rise, down from a 3.9% increase in May. The bank also said five years from now, the expected rate of inflation is seen at a 2.8% gain, from the prior month’s projected 2.9% rise.
The easing in longer-term inflation expectations comes as nearer-term forecasts continue to point to higher price pressures. The survey found that respondents expect inflation a year from now to hit 6.8%, the highest reading for the New York Fed report that dates back to 2013, compared with a projected 6.6% rise in May. (…)
In the New York Fed report, the bank found that the expected rate of home-price increases a year from now ebbed sharply to a 4.4% rise in June, compared with 5.8% in May. That is the smallest expected increase since February 2021, and the bank said “the decline, the second largest recorded in the survey’s series only to the sharp drop at the onset of the pandemic, was broad based across age, education, and income groups.” (…)
In the report, households see gasoline prices rising by 5.6% a year from now, up from a 5.5% rise in May.
The New York Fed report also found that “perceptions about households’ current financial situations compared with a year ago deteriorated in June, with more respondents reporting being financially worse off than they were a year ago.”
Home-Sale Cancellations Jumped in June as Buyers Backed Away Roughly 60,000 deals fell through, equal to 15% of homes that entered into contract.
- Some homebuilder comments courtesy of Rick Palacios Jr., Director of Research at John Burns Real Estate Consulting (via CalculatedRisk)
#Atlanta builder: “Someone turned out the lights on our sales in June!”
#Austin builder: “Sales have fallen off a cliff. We’re selling 1/3 of what we sold in March and April. Trades are more willing to negotiate pricing since market has adjusted significantly past 60 days.”
#Birmingham builder: “Sales have fallen 75% the last two months in a further out community.”
#Boise builder: “Sales have slowed tremendously. Builders are dropping prices and halting new starts. Seeing prices drop on labor due to slowing of home starts. Expecting 15% to 20% reduction in most costs.”
- @RickPalaciosJr: June home builder sentiment and survey results are in. Top themes: 1) A lot more new home buyers cancelling. 2) Price cuts becoming fairly common. 3) Drop in demand finally cooling construction cost pressures (builder layoffs also happening).
Also from CalculatedRisk:
[Housing] Inventory is increasing rapidly. Inventory bottomed seasonally at the beginning of March 2022 and is now up 104% since then. More than double! Altos reports inventory is up 31.7% year-over-year and is now 12.3% above the peak last year.
- @LizAnnSonders: Monthly mortgage payment is more affordable (when taking 20% down payment into account) than average rent cost, but gap is closing swiftly
BMO Raises Minimum Pay for US Workers to $20 in Fight for Labor In October, Bank of Montreal raised its US workers’ minimum hourly base pay 20% to $18 an hour. The company also raised base pay for a majority of its workers — including those affected by the latest increase — by 3% in June.
- Germany’s biggest industrial union asks for an 8% raise. (AP)
London’s Heathrow Limits Passengers Amid Staff Shortages, Demand
Hopes of Covid Reprieve Fade as Subvariant Takes Over Covid-19 is circulating widely as the BA. 5 Omicron subvariant elevates the risk of reinfections and dominates case counts, spoiling chances for a summer reprieve from the pandemic across much of the U.S.
- Omicron Strains Drive Covid Wave in Europe as Measures Fall Away A Covid-19 infection wave driven by two hyper-infectious Omicron subvariants is moving rapidly across Europe, leading to an uptick in cases and hospitalizations.
SPACs: Bill Ackman’s Pershing Square will return $4 billion to investors after failing to find a target firm.
A Logarithmic Map of the Entire Observable Universe