Archive for August 2024

The Friday File: It’s always critical to remember that correlation is not causation. For example, there is a .93 correlation coefficient (CC), and an R-Squared of .86 between the name Bailey and attendance at Cleveland Indians/Guardians baseball games between 1975-2019. Better yet, there’s a CC of 0.77 and R-Squared of 0.59 between UFO sightings in…

July CPI fell to 2.9%, its lowest level since 3/21, while the more important core measure hit 3.2%, its lowest since 4/21. Moreover, over the last three months core CPI is up 1.6% annualized, down from 2.1% in June. The major problem, housing. It was responsible for 90% of the CPI’s 2.9% Y-o-Y rise. Nonetheless,…

Pre-Covid, next twelve-month operating margins for fortune 500 firms on an equal weighted basis (thus largely excluding tech mega-caps), were 13%. When Covid hit they quickly collapsed to 9% by 6/20. However, over the ensuing 12 months they more than recovered and peaked at 14.5% in mid-2022. From then through mid-2023 they fell to 13.25%…

When fund managers were asked what they consider the biggest tail risk, a recession is now top for 39% of managers, up from 18% a few months ago. Geopolitical conflict is unchanged at 25%, while inflation follows at 12%, down from over 30%. A systematic credit event is cited by 11%, up slightly, then an…

The labor market is meaningfully weakening. A year ago, the Y-o-Y increase in the labor force was 3 million and net employment gains were 2.9 million. 97% of job entrants found a job. Now the labor force is 1.3 million larger than it was Y-o-Y, but employment gains have been a paltry 57,000, meaning 4%…

The Friday File: The current dollar value of a Paris Olympic gold medal is slightly over $1,000. The medal is composed of 505 grams of silver and six grams of gold. Silver medals are composed of 505 grams of silver and are worth about $500. Bronze medals are made of 385 grams of copper and…

Markets are implying an 80% chance of a 50bps September cut. Great news, right? Maybe not. On 1/3/2001, the Fed began with a 50bps rate cut and a recession came in March. On 9/18/07, the Fed also began with a 50bps cut and in December a recession commenced. Both times equities jumped and headlines praised…

Since 1930, a period of almost 100 years, the S&P 500 has historically declined by 5% about 3.3 times a year. The frequency of a 10% decline, or a correction, is 1.1 times a year, while the historic frequency of a 15% decline averages just once every other year. Lastly, the average incidence of a…

Since 1955, the Fed has unwound 86%, on average, of the prior rate hikes during the ensuing rate easing cycle, which we’re entering. This means the Fed funds rate bottoms out at 0.75%. The smallest historical reversal would suggest that Fed funds hits 2.25%. Yet the market is now expecting a Fed funds rate trough…

Employers added 114,000 net July jobs, the lowest level since 12/20 except for the 108,000 three months ago. May and June were revised down by 29,000 and wage growth slowed to 3.6%, barely ahead of inflation, the weakest reading since 5/21. The unemployment rate rose to 4.3%, the highest rate since 10/21. It’s now risen…