You are forgiven if you take in economic reporting and feel as though you are trapped in a version of Charles Dickens’ “A Tale of Two Cities,” specifically its best of times, worst of times passage.
Fed chief Jerome Powell took to the podium Wednesday to announce a 25-basis points increase in interest rates, as expected. But it was his press conference afterward, in which he dispensed with his fire-and-brimstone warnings on inflation and the economy and instead turned all warm and fuzzy, that was taken as him waving the white flag.
Taking its cue from Powell, the Dow Jones Industrial stock average, down 500 points or so at the worst of the day, rallied to a small gain. Other stock averages did similar turnarounds and even bond interest rates sank a bit in the face of this latest Fed rates raise, a real-life example of the investment world seeing the Fed about to capitulate on its attempt to rein in inflation and resulting speculation in the investment world.
All bark and no bite. All hat and no cattle. Pick the most appropriate cliché for the Feds’ jawboning bluff being called.
The optimists, the bulls, see nothing but sunshine and lollipops ahead.
The pessimists, the bears, see a lot of fools about to be fleeced.
Who is right? How can one tell?
Consider the government Gross Domestic Product (GDP) report for 2022, that saw the biggest drop in consumers’ disposable income since 1932. Because they no longer teach history in schools, allow me to point out that was in the midst of The Great Depression.
But the optimists counter that current individual savings totals, still flush with stimulus handouts, are at all-time highs.
The pessimists’ reply is a simple inquiry: So why are credit card balances at all-time highs? This at a time when interest rates are through the roof and all that debt comes at a huge cost.
Why is the flood of car repossessions taxing the available supply of those doing the repossessing?
The optimists can point to all that spending on stocks in recent weeks, pushing the share prices to near all-time highs.
And then there is the job picture, which is stunningly strong if you believe the government reports.
Yet this comes against a backdrop of huge layoffs, particularly among tech giants. Meta (formerly Facebook) saw its share price rally immensely today based in large part on promises to cut spending, a euphemism for reducing employee headcount.
Although our often moribund Johnstown real estate market seems late to recognizing the reality, rising mortgage interest rates have crippled housing markets across the country.
Ah, say the bulls, this just makes housing more affordable. Perhaps, if you still have a full-time, well-paying job.
We’ve written before that the job reports can distort reality on the ground. Job openings in California don’t necessarily benefit unemployed in Pennsylvania.
Demand for writers of computer code doesn’t help the person whose job skill is limited to asking if we want fries with that fast food order.
A highly compensated worker loses his job and the local eatery hires a waiter. That’s a wash on job reports.
Those reports, by the way, are mostly conjecture and modeling and very little actual counting.
The inflation rate declining is heralded as a huge win. Not entirely. If in 2023 you are paying 110 percent of 2022 costs for goods and services, but the inflation rate drops to 5 percent in 2023, you’re still on pace to pay 115.5 percent of 2022 costs in 2024.
To repeat, a decline in rate of inflation, doesn’t mean you are making up economic ground, only that you are losing ground at a slower rate.
The optimists made a lot of money on their investments today. The more speculative those investments, the more they made.
I made a little bit, too, based on safety plays such as gold and silver rising on the back of a declining U.S. dollar.
I’m still thinking I’m on the right side of the boat for the long haul. But these are curious times, with increasingly insane happenings in the investment world, right along with what’s happening in the world writ large.
Sam Ross Jr's site 