Notes on the Week Ahead

Across the economy, the outlook is for slower growth.  Slower growth in demand, in employment, in profits and in inflation.  Recession is by no means certain.  However, a slow-growing economy is rather like a slow-moving bicycle – the slower its moves, the easier it is to topple it over.  And so, in the spring of 2023, there is a significant risk of recession starting before the end of the year. 

On Ireland’s Atlantic seaboard, ten miles west of the town of Lisdoonvarna, stand the majestic Cliffs of Moher.  They are a popular tourist attraction but also a dangerous one – in the 25 years ended in 2017, 66 people tragically plunged over the cliffs to their death. Of course, there is no reason why anyone should meet such a fate.  The long grassy path beside the cliffs is bounded by a wire fen...

The quantity of money was a big issue in the background of my childhood. There were no money machines or credit cards (at least in our house). So every Monday, my father would write a check for cash, usually for less than 100 pounds, and hand it to my mother for housekeeping for the week. She would then drive to the bank, cash it, put the notes in her purse and slowly dole them out as the days wen...

It seems like a distant memory now, but in the decade before the pandemic, the main preoccupation of the Federal Reserve was boosting inflation, as measured by the headline personal consumption deflator, to 2%.  Inflation undershot this target in ten of the twelve years between 2008 and 2019. 

Eliud Kipchoge, the only man to ever run a marathon in under two hours, is in town for next week’s Boston Marathon. In the runup to the race, reporters will no doubt ask him about whether he is worried about any particular competitor. He will predictably reply that he is not - but that he has to focus on his own fitness and his own decisions in running the race. As with all individual sports, the...

In three weeks, I will once again have the honor of running the Boston Marathon as a member of the gasping geezers division of the Dana-Farber Marathon Challenge team. A year ago, as I clambered up the Newton Hills, I resolved that, if I was ever fool enough to do this again, I’d lose a few pounds before attempting it. Admittedly, a few miles later, I made a sterner vow that I would never be fool...

A good set of brakes is a very comforting thing.  A gentle tap of the foot should produce a quiet and gentle deceleration, as brake pads press up against disc rotors, in a smooth but firm action.  When I drive these days, I take this technology for granted.   However, the vehicles I drove as a young man offered far less assurance.  There were times when applying the brakes unleashed a cacophony of...

One obstacle to assessing the direction of the American economy is the difficulty in getting a handle on how many people live in this country and how fast that number is growing.  It would seem to be a very elementary problem – surely the Census Bureau provides timely data on the size of the population, as well as births, deaths and net migration?  But it does not.  So far as I know, there is no o...

Over the years, my standard approach to analyzing corporate profits has been to think of them as the last slice taken from a big national income pie.  The growth of the pie itself is important.  But so is the size of the other slices, such as labor costs, interest costs and corporate taxes.  Once every one else has had their slice, what’s left over is corporate profits.   It’s a useful model for a...

It was 60 degrees in Acton yesterday, as our normally frigid Massachusetts winter continued to be a no-show.  Not that I have any problem with this, since running, rather than skiing, is my exercise of choice.  But this weirdly mild season is leaving nature very confused with streams gurgling, buds swelling and birds twittering loudly, presumably about their nest-building plans.

There is a slowdown lurking.  It is currently hiding so well, in the long grass of statistical anomaly, that many observers, including the Federal Reserve, don’t seem to notice it at all. However, investors need to recognize it and have a clear view on the outlook for economic growth, jobs, inflation and profits, how the Federal Reserve may react to a slowdown, and what this could mean for investm...

In investing, as in life, it is important to learn from the past, appreciate the present and plan for the future.  This is particularly true at turning points. In the early weeks of the New Year, we do appear to be at an economic turning point.  Fourth-quarter GDP and consumption deflator data, due out this week, may give the impression of continued solid growth with still strong year-over-year in...

Last Friday afternoon, amidst the lengthening shadows of a winter sun, the Treasury Secretary delivered an ominous warning: By this Thursday, the U.S. federal debt will reach its legal limit, requiring her to take extraordinary measures just to keep paying the bills. Secretary Yellen’s warning was, perhaps, a little premature and she suggested that, with some adjustments, our real rendezvous with...

The word “resolution” has multiple meanings. The most obvious at this time of the year, is a decision to behave differently going forward. In many social sciences, “resolution” refers to a problem that is somehow mitigated or eliminated. Or, taken at its most literal, “resolution” could simply mean coming up with new answers to old questions – that is to say – “re-solving” them.

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...