Despite Treasury Secretary Janet Yellen claiming that inflation was only transitory and likely to disappear, we are seeing continued inflation. Now we see that Unit Labor Costs are up 3.2% QoQ for Q4 2022.
Even worse, US unit labor costs rose 6.5% on a year-over-year (YoY) basis, the WORST since 1982.
And yes, Q4 2022 unit labor costs are up 2x the expectations.
In normal times, The Federal Reserve would raise rates to cool down the economy. The Taylor Rule suggests a Fed target rate of 10.59% versus the current Fed rate of 4.75%. A long way to go!!
What a mess in Washington DC. While House Republicans are at lagerheads with Senate Democrats and Resident Biden over Federal spending cuts, the price of insuring against a debt default just rose to 76.75.
How bad it that? Put it this way. Millions are fleeing Mexico and Guatemala and coming to the US. But Mexico has a lower cost of insuring against a debt default than the USA. And Guatemala is almost as expensive as the USA.
It will all be over soon, according to CDS prices.
As The Federal Reserve reaffirms their draining of the monetary punch bowl, we are seeing investors flock towards the bond market. Particularly the iShares Short Treasury ETF. $2.5 BILLION to be exact.
Meanwhile, credit ETFs are hammered by record outflows of almost $12 Billion.
The reason why? Inflation remains elevated which is leading The Fed to keep their foot on the monetary brake pedal.
Treasury Secretary (and former Federal Reserve Chair) Janet Yellen kept saying inflation was simply transitory. And for a while, the US saw cooling inflation. But we just saw ISM Manufacturing prices paid rise in February for the second straight month.
Yellen is over in Ukraine handing Zelenksyy yet another couple of billions. This is after Biden just visited Ukraine. Why not VP Kamala Harris?? Or war monger Adam Schiff??
Only Seattle and San Francisco experienced negative growth in home prices on a year-over-year basis. All of the top twenty metro areas experience negative month-over-month price declines from November to December.
The gap between the VIX Put-call volume and CBOE Put-call ratio is the widest since 2006, the precursor of a major volatility spike.
Meanwhile, for those of you interest in railroad regulatory issues, as a general matter, regulations are rarely ever “reversed,:” but rather modified or replaced with changes. No administration would be able to outright “repeal” a major safety regulation because it almost certainly be immediately enjoined by a court and found to be counter to Congressional delegation.
I assume most of the attention will be on this final rule (https://www.federalregister.gov/documents/2020/10/07/2020-18339/rail-integrity-and-track-safety-standards) published and effective on Oct 7, 2020. It is considered”deregulatory” in the sense that it results in an economic or compliance cost savings, mostly owing to a change in the permissible type of track integrity monitoring, and decrease in the resulting number of “slow orders.”
Unlike Pete Buttigieg who apparently did not read the regulations when he blamed Trump, read the actual published “deregulation.” A faulty railcar axel which was the cause of the East Palestine Ohio trail derailment was NOT impacted by the “deregulation.” Instead of Mayor Pete, he should be called “Cheap Shot Pete.”
Not really a surprise, but January’s personal spending numbers came in hot at 1.8% MoM. Also, Personal Consumption Expenditures PRICE index (aka, inflation) rose to 5.4% YoY.
Here comes The Fed! The 2-year Treasury yield rose 10 basis points this morning.
The US Federal government reminds me of the Peggy Lee song “Is That All There Is?” Since the outbreak of Covid in 2020 and the absurb spending spree by Pelosi and Schumer, the Federal government has increased their debt by 36% to help pay for the Federal spending spree. That amounts to $54.8 TRILLION in additional Federal debt since January 2020.
What did the US economy get for all that Federal spending? In Q4 2022, Real GDP rose by … 0.91% YoY. Seriously? Is that all there is from $54.8 TRILLION in additional Federal debt?
Another bit of lousy news. Look at the trend in S&P 500 Earnings Surprise (5 year).
On the housing front, the US housing market was hit with the biggest six-month wipeout since 2008.
At least US Transportation Secretary “Pothole Pete” Buttigieg FINALLY showed up (three weeks after that East Palestine Ohio train disaster). Here is Buttigieg practising for his press conference.
Bull steepenings in the yield curve are generally seen as a precursor to a recession, but they are often preceded by bear steepenings. The 3m30y curve is currently bear steepening, indicating a recession could begin as early as the summer. In fact, the 3m30y curve is now inverted at -94.628 basis points pointing to a recession in summer 2023.
This is happening as the US house payment to income ratio near all-time highs.
Confounded Interest - Anthony B. Sanders 
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