Blame it on…
January 14, 2022
–Blame it on Brainard…and other Fed officials who are teeing up an initial hike in March (which the rates market had already priced). SPX -1.4% and Nasdaq -2.5%. April Fed Funds settled 9969 or 31 bps, as compared to the current Fed Effective rate of 8 bps. So 23 of an expected 25 bp hike is priced. All I can say is, it’s two months until the March 16 FOMC and a lot can change. In September of 2015 when liftoff was all but certain, an emerging market swoon delayed the move until December. Of course, at that time the inflation numbers were much tamer than this week’s CPI of 7% and yesterday’s PPI of 9.7% with Core 8.3%.
–It was a nice throwback to see “Dr Doom” quoted in a Bloomberg story today; Henry Kaufmann had been the chief economist at Salomon Bros in the late 1970s and 1980s and wants someone to step into Volcker’s shoes and crank up rates to crack inflation. An economy that is completely dependent on asset values can’t handle a discount rate that diminishes the fantasy of future cash flows, but….Dr Doom.
–Dec Retail Sales today expected modest at +0.1%, though BofA data apparently forecasts -1.3%. With all the talk of shipping delays, Christmas sales were likely pulled forward into November, and of course, the blockbuster Consumer Credit number for Nov ($19 billion revolving) would seem to bolster that argument, but the Nov Retail Sales numbers weren’t wildly strong. There’s a headline on Bloomberg that the IRS is going to crack down on transactions over $600 in an attempt to squelch side “side hustles”. This, as smash and grab looting continues without consequences. And I am not just talking about Pelosi’s trading. It’s like a Kafka novel.
–The eurodollar curve flattened a bit with the whites unchanged as near term hiking has been adequately priced, while greens through golds were up 3 to 3.5. The ten year yield fell to 1.708%, down 2.2 on the day and back below last year’s high yield. False breakout? I don’t think so. On the other hand, another throwback from the 1980’s, “bond vigilantes” have all but disappeared.
