Notes on the Week Ahead

My first job out of graduate school, in the early 1990s, was as the consumer economist for the economic consulting firm of DRI/McGraw-Hill, in Lexington, Massachusetts.  One weekend each month, we would run a U.S. macroeconomic forecast.  (It always had to be over the weekend, as this was the only time when we could get our own clients off our mainframe computer.)  Anyway, on Saturday afternoon, h...

At his press conference on November 2nd, Fed Chairman, Jay Powell opined that the window for a soft landing had narrowed.  This was very much in line with his messaging for many months which has emphasized that the Fed regards inflation as being much too high and is willing to put the economy in recession, if necessary, to return it to its 2% target.  However, it also underscores the economic prob...

At 8:30AM, on the first Friday of every month, the Labor Department releases the monthly jobs report.  By 8:35AM, the network scriptwriters deliver a verdict to the teleprompters – jobs either “sky rocketed” or “plunged”.  The job market is either “red hot” or “stalling out” and, either way, investors need to be worried.  No middle ground will keep an audience.

For many people, I suspect, 2022 will be a year to forget.  However, for millions of home-builders, home-sellers and home-buyers, it will be remembered for the speed with which a housing boom turned into a housing bust.  The reason, of course, has been a surge in mortgage rates.  These rates look likely to stay high, at least over the next year, contributing to sharp declines in housing starts and...

Markets bounced higher last week in a justifiable show of enthusiasm as the latest CPI data confirmed that inflation is indeed receding.  However, even as investors worry less about inflation they may well worry more about recession.  The risk of a near-term recession is climbing.  However, such a recession would be more like sliding into an economic swamp than falling off an economic cliff.  Whil...

Among the many challenges of parenthood is trying to get your kids to eat healthy food.  As the children get older, the school lunchroom becomes one of battlefields, with some kind of weekly menu posted online or sent home with the kids.  Many of these menus appear to imply that the three essential food groups are sodium, fat and sugar.  However, some schools employ a little more imagination both...

At the peak of the railroad boom of the late 19th century, the Framingham and Lowell line was incorporated to transport goods and passengers up and down the western outskirts of Boston.  Over the years, the traffic dwindled, the line was sold and resold and eventually abandoned.  However, for more than three decades now, some enterprising local citizens have pursued the construction of a bike trai...

On many occasions in my adult life, I have made New Year’s resolutions to become fitter.  As the days of the old year gradually dwindled and my girth gradually expanded, I would commit myself to exercise more and eat less.  However, experience has taught me that both of these noble aspirations must be approached with moderation.  Any attempt to starve myself while running more miles leads inevitab...

The Federal Reserve maintains strict rules prohibiting FOMC members from commenting on the economic outlook or monetary policy in the 10 days preceding an FOMC meeting or on the following day.  Thereafter they are free to speak and over the last two weeks many have opined on both subjects.  Their opinions show remarkable unanimity.  They are focused on bringing inflation back down to their 2% targ...

A famous Sherlock Holmes story concerns the abduction of a race horse and a guard dog that didn’t bark.  For those who haven’t read the story, I’ll skip over the reason for the dog’s silence.  The point is he didn’t bark – no alarm was raised – no actions were taken - and the horse disappeared. Entering the fourth quarter of 2022, the U.S. economy is teetering on the edge of recession.  However, i...

In weighing the value of any security, the scales of financial markets are supposed to maintain a fine balance between fundamentals and price.  The plate of fundamental factors is piled high with macro trends, geopolitical issues, weather and environmental events, policy decisions and individual security attributes.  The other plate is far more sparsely occupied – price stands alone, accounting fo...

When future historians reflect upon the current age, they might call it “the worry years”. As America emerges from the pandemic, there are still serious health concerns, a yawning political divide, rising autocracy around the world, a brutal war in Europe and the highest inflation in 40 years. Moreover, anxiety triggered by these genuine problems is being amplified by cable channels and social med...

On Saturday, Sari and I made our annual pilgrimage to Kimballs for lobster roll.  Kimball Farm, which started as an ice-cream stand in Westford, Massachusetts, has ballooned into a huge enterprise over the years and there was a big crowd lined up in front of us when we arrived.  Undaunted, we traced our way to the back of the line and hoped it would move fast.  It did not.

Whatever else anyone may say about Jay Powell’s much-awaited speech in Jackson Hole, it had two distinct virtues. It was clear and it was brief, running to just 1,300 well-chosen words. In the same spirit, and despite a sharp 1,008 point slide in the Dow Jones Industrial Average on Friday, it is important to be succinct in discussing both where the economy is and potential Fed policy going forward...

The phrase “drawing a line in the sand” has an unhappy history.  In the U.S., it is said to have originated with Colonel William B. Travis, who drew a line in the sand at the Alamo declaring his willingness to fight and die rather than surrender.  In 2008, following the takeover of Bear Stearns earlier that year, federal authorities drew a line in the sand and let Lehman Brothers go bankrupt.  And...

Normally, the great challenge in talking about the global economy is finding a theme.  The economic fortunes of nations are usually driven by such a disparate array of political, financial, demographic and environmental cross-currents that it is impossible to establish a framework for analysis.  Twice however, in this still young century, events have unfolded to provide just such a theme as the wo...

After weeks of steamy hot temperatures, a cold front is set to move through the Boston suburbs on Tuesday. While the relief will be nice, in truth, the temperature will only edge down from the low 90s to the low 80s. However, it is the start of something and, as we are well aware in this part of the country, longer-term forces will bring us much colder weather before too long.

The long history of financial markets, like most classic novels, is full of misunderstandings, miscalculations and mistakes. Despite all of this, the story normally twists and turns its way to a happy ending. This may yet be the case for investors in the very unusual economy that has unfolded following the pandemic recession and recovery.

When engaged in the more mundane tasks of my job, I often have classical music playing in the background. A piano concerto, in the hands of a great orchestra and soloist, is a delight to the ears as the rush and energy of the first movement gives way to the softer pace of the second. And when the conductor downshifts the tempo, the musicians follow with effortless precision.

Last Friday’s strong jobs numbers came as a relief to many who feared that the U.S. economy was quickly sliding into recession. On its face, the June employment report seems to support further aggressive Federal Reserve tightening, leading to higher U.S. interest rates and a further appreciation of the dollar, and offsetting forces impacting U.S. equities. For additional insights from Dr. David Ke...

One minor side effect of this terrible pandemic is that we have all become more educated on our own immune system.  Looked at objectively, it is a masterpiece of evolutionary excellence.  The outward signs of infection are normally easy to see – coughing, sneezing and obvious fever warn other humans to keep away, while our own exhaustion makes us less mobile and thus less likely to infect.  The ex...

In times long gone by, a popular event at town fairs and school sports days was the sack race.  The competitors would assemble at the starting line, each encased up to the waist in a burlap bag and gripping firmly onto its sides.  At the gun, they would hop furiously in the direction of the finish line, 100 yards ahead.  As a sporting contest, it lacked dramatic tension, with most of the competito...

I refuse to believe, despite gathering evidence to the contrary, that I am getting older.  This being my mindset, I am perpetually astonished by the increasing youth of my colleagues.  According to the Census Bureau, the median age of an American today is 38 years which doesn’t, on its face, sound extraordinary.  However, what it does mean is that most of the people I work with have only experienc...

I have been on many delayed flights recently and have a certain sympathy for the pilots who, having repeatedly told us that we would be taking off shortly, have to continually backpedal due to weather or staff or equipment. They always thank us for our patience but in reality they are the patient ones. We, the passengers, are seething, and what’s more, we have suddenly become vocal experts on dodg...

Following a solid jobs report last week, investors this week will turn their attention to inflation which, to say the least, has been more of a problem this year.  We expect this Friday’s CPI report to show a 0.6% increase in prices overall and 0.4% excluding food and energy.  On a year-over-year basis, we are looking for headline inflation to fall from 8.2% to 8.1% and for core inflation to drop...