October 20, 2023

Powell Signals Extended Interest-Rate Pause

📰 News Organizations

  • Powell Signals Extended Interest-Rate Pause. The Federal Reserve Chair suggested the run-up in long-term Treasury yields could allow the central bank to suspend a historic run of interest-rate increases so long as recent progress on inflation continues.

  • Household Net Worth Surged 37%. Households’ median net worth, or wealth, climbed 37% from 2019 to 2022, after adjusting for inflation. Rising home and stock prices that far outpaced inflation helped support the net worth increases.

  • AT&T Beats Earnings Estimate After Reversing Subscriber Trend. The carrier added 468,000 mobile subscribers in the third quarter and forecast full-year free cash flow of about $16.5 billion, compared with previous guidance of $16 billion or better.

  • American Airlines Posts Third-Quarter Loss And Trims 2023 Profit Forecast. The airline posted a third-quarter loss on Thursday and trimmed its profit forecast for the year, partly in response to higher fuel prices.

  • Nestlé Misses Nine-Month Sales Estimates. The lower-than-expected nine-month sales growth was due to higher product prices making shoppers limit spending. Nestle said it expects volumes to turn positive again by the end of the year.

  • Nokia to Cut 14,000 Jobs After 69% Profit Plunge. Nokia’s operating profit missed estimates in the third quarter. The move is expected to save as much as $421 million next year and an additional €300 million in 2025.

🐦 Twitter

  • A US homebuyer now needs to earn a record $115k to afford the median priced home for sale, an increase of over 53% in the last 3 years. Source.

  • Gold approaching $2,000/oz again, now poised for a historical break out that could mark the beginning of another long-term cycle. Source.

  • Thanks to the Nifty Seven, US equities are dominating non-US equities. It’s a matter of relative earnings driving relative returns, despite relative valuations. Source.

  • Total US Debt is now $33.649 trillion, up $58 billion in one day and up $604 billion in one month... up $20 billion every day, up $833 million every hour. At this rate, US debt will be $41 trillion in one year. Source.

  • Analysis/forecast from Bloomberg Economics shows sustained 50bps increase in term premium would raise unemployment rate to 4.3% in 2024 and 4.6% in 2025; sustained 100bps increase would up it to 4.5% in 2024 and then 5.2% in 2025. Source.

  • Projecting out the deficit rate long-term in the months after a debt ceiling bottle neck (coiled spring) tends to not be very accurate. But yes, the US deficit is exploding, and unlike the past four decades, interest rates aren’t structurally falling to offset it. Source.

Bond yields by their nature are self correcting as elevated yields slow economic activity and create incremental demand from yield sensitive buyers. The much bigger risk is for equity holders reliant on yield pressure remaining contained.

Bob Elliott

📓 Online Publications

  • US Jobless Claims Fall to 198,000, Lowest Level Since January. Initial jobless claims fell to 198,000 in the week ending Oct. 14, according to Labor Department data out Thursday. The lowest level since January as the labor market kept powering ahead.

  • Home Sales Slide to Lowest Pace Since 2010 as High Rates Squeeze Market. Increased rates are weighing on demand. But high rates are also limiting the inventory of homes on the market, because homeowners with low rates are unwilling to sell and move.

  • Coinbase Picks Ireland for EU Hub. Coinbase, which has an e-money license in Ireland, said the country will be its hub in the European Union. The crypto exchange is on track to apply for a MiCA license, which gives it the right to operate across the EU.

  • New York AG Sues Crypto Companies. New York's Attorney General Letitia James is launching a lawsuit against crypto titans Gemini Trust Company, Genesis Global Capital and its affiliates, and Digital Currency Group for massive investor fraud.

  • Home Values Surge to New Record as Median Prices Climb to $350K. The median US home price rose to $350,000 in the third quarter, 2% higher than the previous record set just a quarter earlier, according to new data released Thursday by Attom.

🎧 Podcasts

  • Bets Against Shekel Heap Pressure on Israeli Central Bank. It’s continued to grind weaker despite the Bank of Israel announcing that it would sell up to $30bn to support the currency when the conflict first broke out. So it’s now trading at Shk 4.03 to the dollar. Source(5:10)

  • Global De-dollarization Unlikely. Chinese disinterest in a post-dollar world challenges the prevalent narrative. The weaponization of the dollar and the lack of viable alternatives because of other currencies being soft makes it less likely for de-dollarization. Source(26:02)

  • Housing Currently Insulated From Potential Economic Downturns. This is due to low mortgage rates, particularly for the majority of homeowners with rates below 5%. Households are less likely to walk away from their homes. Source(19:04)

  • The IRS’ Direct File Pilot Program Coming to 13 States. The direct-file is an alternative to commercial options like TurboTax and H&R Block. Some of the states included in the pilot are Arizona, California, Massachusetts, and New York, for the 2024 filing season. Source(0:33)

  • The Jobs Market and the Gig Economy. The gig economy and non-traditional employment options are becoming more prominent, making it easier for people to generate income. This emphasizes the resilience of the housing market in the face of broader economic challenges. Source(21:14)