The Buzz on Business for June 13th 2024

The Consumer Price Index for May came in better than expected yesterday. We’ll get into the specifics in just a moment but suffice it to say that the surge in inflation that we have seen over the last four months has, at least for now, come to a halt if it hasn’t reversed.

The Federal Reserve Open Market Committee concluded two days of meeting leaving interest rate policy unchanged. Unchanged in the face of surging pressure from the political class to cut rates.

The argument in favor of rate cuts has a number of threads. Taken one at a time, we happen to think those arguments fail and that a rate cut anytime soon would probably be a mistake.

Let’s dispense with the most obvious: rate cuts would support stock prices. There are few people on earth more in favor of high stock prices than us. But gimme a break. Stocks are at all-time highs. Rates have been elevated for over two years and stocks have more than managed. The worst thing for stocks is inflation. See the 1970s. A rate cut would help stock prices, no doubt about that, but the markets are fine.

The real estate market is a somewhat more delicate problem, especially commercial real estate which is highly sensitive to interest rates, and which is suffering from low occupancy rates. Lower interest rates would surely help. While it seems that commercial real estate lurches from crisis to crisis and that this one is due more to a work from home ethic that came out of the pandemic than from higher rates, we are somewhat sympathetic to this argument. Surely a collapse in commercial real estate prices would not be good.

Residential Real Estate is also a complex issue. People, it is claimed, can’t buy houses because mortgage rates are too high. Yeah, but a lower mortgage rate would just spike demand and send prices even higher. Inflation, were it to spike, would send prices higher still.

The solution to housing prices is on the supply side and even that is interest rate sensitive. Builders are some of the banks’ biggest customers.

The supply of housing is a complex issue only partly explained by interest rates. Land use policies and a not-in-my-back-yard ethos is a big part of the problem as well. Either way, inflation is the enemy.

There is virtue in higher rates which is inexcusably overlooked, in our view. Higher rates encourage savings and discourage debt. Higher rates increase the incomes for folks who live off their savings.

Finally, rates aren’t all that high. At present, a 5.25% Fed Funds rate is below the median rate for the last seventy years. It’s less than one-third of what it was in 1982, the outset of the biggest economic and stock market boom in over 100 years.

We’re not huge fans of Jerome Powell. We think he deserves much of the blame for this recent inflationary spiral. But he has, thus far, respectfully ignored the politicians, from all points on the political spectrum, who are calling for his head.

We hope he keeps his head and continues, respectfully or not, to ignore them.

Stock Market Report

Weakness in the Dow spoiled an otherwise perfect day. New record highs for stocks, advancers outpacing declining stocks by over two-to-one and all of it on good volume.

• As we said, the Dow Jones Industrials were down on the day, but not by much. They gave up thirty-five points, less than one-tenth of one percent and closed at 38,712.
• The S&P 500 was up forty-six points. That’s nine-tenths and it closed at 5,421, a new all-time closing high.
• Likewise, the NASDAQ Composite. It was up a stout 265 points, that’s 1.50% and it closed at 17,608, a new all-time high for the techs!
• Speaking of stout, the Russell 2000 was up over 1.60%, that’s thirty-three points on Russell 2000 and they closed at 2,057.

Bond Market Report

Rates were down, bonds were up on Thursday.

• The yield on the 2-year treasury fell over seven basis points and closed at 4.760%.
• The 20-year was off six ticks and now yields 4.569%.

Oil, Gold, and Bitcoin

• Oil closed off its highs but still managed a small gain. It was up $0.17, and a barrel now changes hands at $78.29.
• Gold had a small gain. It was up $5.30, and a troy ounce will now set you back $2,337.70.
• Likewise, Bitcoin had a small gain! It was up $163.99 and at 4:00 PM ET stood at $67,597.62.

GOOD NEWS ON INFLATION!

Here at the Buzz on Business, when looking at economic reports, we tend to focus on the month-over-month numbers, rather than the typically more widely reported year-over-year figures. The YoY numbers are just the sum of the last twelve-monthly numbers and are often as dramatically effected by what was reported thirteen months ago than what happened during the last thirty days.

And over the last thirty days, consumer prices increased by 0.00%. No inflation! Expectations were for a modest 0.10% increase, so better than expectations but also symbolic. After three years of ever rising prices, perhaps the tables have turned.

Today, the Producer Price Index complex rolls out. Again, expectations are that inflation at the wholesale level increased by 0.10%.

We also get initial and continuing jobless claims which were markedly weaker last week. Weakness that was more than offset by last Friday’s stout jobs report.

Another busy day on tap. Everyone here at the Ministry of Truth is peddling as fast as we can to watch read, listen and analyze so we can report all of it to you, here on the Buzz.