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Interest rates, the yield curve, and the Fed chasing a Phantom (lagging) Menace

  – by New Deal democratThere’s a lot going on with interest rates in the past few days.Mortgage rates have increased above 7%:This is the highest…

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8 months ago

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 - by New Deal democrat

There’s a lot going on with interest rates in the past few days.


Mortgage rates have increased above 7%:



This is the highest rate since 2008. Needless to say, if it lasts for any period of time it will further damage the housing market.

The yield curve has almost completely inverted from 3 years out (lower bar on left; upper bar shows a similar curve in April 2000, 11 months before the 2001 recession):



As of this morning, the curve is normally sloped from the 3.12% Fed funds rate up through the 3year Treasury, which is yielding 4.22% (which, as an aside, is a mighty tasty temptation to buy medium maturity bonds). Beyond that, with the exception of the 20 year Treasury, each maturity of longer duration is yielding progressively less. If this is like almost all recessions in the last half century, the short end of the yield curve will fully invert (i.e., Fed funds through 2 years as well) before the recession actually begins. Although I won’t show the graph, the yield curve *un*-inverted before the last two recessions even began, immediately or shortly after the Fed began to lower rates again.

On the issue of rents, house prices, and owners equivalent rent, Prof. Paul Krugman follows up on the fact that OER is a lagging measure. Today he touts the monthly decline in new rental lease prices as possibly signaling a downturn in inflation:





He’s referring to the “National Rent Index” from Apartment List, which Bill McBride has also been tracking. Because it tracks rents in only new or renewed leases, it picks up increases or decreases more quickly than those indexes that measure all rentals (including those that were renewed, e.g., 9 months ago).

I don’t think the index is quite the signal Paul Krugman does, because it is not seasonally adjusted, and rents typically decrease in the last 4 months of each year:



Here is the cumulative yearly index for each of the past 5 years:



The -0.1% non-seasonally adjusted decrease in September this year is on par with that of 2018, and less of a decline in September 2019 or 2020. For the first half of this year, rents were increasing at a faster, and accelerating, rate compared with 2018 and 2019. Since June have rent changes been comparable with (and not more negative than) those two years.

I thought I would take a look at Apartment List’s rental index and compare it with the Case Shiller house price index:



Note that house prices broke out to the upside YoY beginning in late spring 2020, while apartment rents did not do so until early 2021. There were rent increase moratoriums in place during the pandemic, which may have affected that comparison. Still, it is cautionary that for the limited 5 year comparison time we do have, house price indexes moved first.

Finally, what would the Fed have done if it had used the Case Shiller index instead of owners equivalent rent in its targeted “core inflation” metric?

Via Mike Sherlock, here’s what the “Case Shiller [total, not core] CPI” looks like through last month:



Here’s another way of looking at the data, comparing the monthly % changes in the Case Shiller national house price index (blue), owners equivalent rent (red, right scale), and core CPI (i.e., minus food and energy) (gold, right scale):



Rent + owner’s equivalent rent are 40% of core inflation. Unsurprisingly, core inflation tends to track similarly to OER. But between May 2021 and May 2022, OER only averaged +0.4% monthly, whereas the Case Shiller index increased 1.5% on average monthly. If 40% of core inflation increased at 1.5% monthly instead of 0.4% monthly, core inflation would have on average been +0.4% higher each month for that entire year.

In other words, the Fed would have had a much earlier warning that an upsurge in core inflation was not going to be “transitory.” 

By contrast, during the last 3 months of the period through July that we have house price index data, OER has averaged +0.4%, whereas house prices have increased on average +0.6%. This would have brought core inflation down by -0.1% each month. If we use the last two months, OER is +0.6% and house prices have been unchanged. Core inflation would have been -0.3% lower in June and July.

In fact, if the trend of the last several months continues, by year end OER is going to be higher than house price appreciation on a YoY as well as m/m basis. And while OER has been increasing, house price indexes have been decelerating. 

In other words, if the Fed keeps raising rates, it is most likely chasing a phantom menace, a lagging indicator which leading measures for which will have already peaked and come down sharply.

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Nike Making a Surprising Return to Macy’s

After a brief break, Nike and Macy’s rekindle their partnership.

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21 mins ago

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June 4, 2023

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Retail is a tough industry and it’s really fickle right now post covid pandemic. Macy’s  (M) - Get Free Report retail footprint has been similar to the likes of recently failed retailers like Sears, Kmart, Bed Bath and Beyond, but also similar to Target  (TGT) - Get Free Report, who is considered a leader in the retail industry. How is it that similar business models fail, and others seem to succeed at the same time?

The struggles Macy’s is facing is multifaceted as it lost its wholesale partnership with Nike  (NKE) - Get Free Report to sell the brand’s apparel in 2021. Nike was focused on selling directly to customers rather than having retailers reach their customer base, according to Retail Dive. Macy’s like all retailers was already struggling after 2020 and the pandemic, and losing a major brand like Nike would prove to be a hard hit. Customers were definitely disappointed that they could no longer buy the Nike brand apparel at Macy’s stores, according to Jeff Gennette, Macy’s CEO.

Macy’s is facing changes in leadership as well; its long-term CEO is retiring after four decades with the company and Macy’s has already selected his replacement. Bloomingdale’s CEO Tony Spring will replace Gennette to lead the department store. Spring also has a long retail tenure, he has been with Bloomingdale’s for 35+ years, according to CNN Business.

Image source: Shutterstock

Macy’s Brings Back Nike

Nike and Macy’s are bringing the Nike apparel back to the department store as well as online. Both Nike and Macy’s have been faced with retail challenges, and working togethe,r both companies may benefit during this tumultuous time for retailers.

“It is imperative that we have the right assortment, including the appropriate mix of private and national brands that our customers care about, with compelling value and price points that appeal to our diverse, fashion-conscious base,” said Macy’s CEO and Chairman Jeff Gennette in the most recent earnings call. “Value does not mean the lowest price. It means offering the right brands, fashion content, and elevated omnichannel shopping experiences.”

“This morning, we are excited to share that we are bringing Nike back to the Macy's nameplate this fall. This mutually beneficial relationship reflects our strategy to provide customers with an enhanced and elevated offering. Starting in October, an expanded Nike selection including apparel, plus size women's, big and tall men's, kids' bags, and gear will be available online and in key locations nationwide. Footwear will continue to be sold in our Finish Line licensed locations,” Gennette said.

Retail chains and department stores alike are struggling to work through staffing their stores during this unprecedented labor shortage. Other retail chains like Dollar General  (DG) - Get Free Report have noted that they have inventory, but not the staff to be able to move it to the retail floor. Staffing continues to be an ongoing challenge across industries. Building and maintaining positive business partnerships and relationships may be the right choice to help weather the storm for the long-term success of both Nike and Macy’s.

Making the Most of Competitions Downfalls

Macy’s and Nike have the opportunity to make the most of rivals’ challenges right now. Nike has the chance to step ahead while Adidas  (ADDDF)  was stuck figuring out what to do with its unsold inventory of shoes from its terminated partnership with Kayne West, aka “Ye.” Adidas decided to sell the rest of the Yeezy inventory exclusively through its website and donate the proceeds to the charities that were hurt by the antisemitic statements he made on social media.

Macy’s sells similar products that Bed Bath and Beyond sold, which filed for bankruptcy and will close all of its stores. Bed Bath and Beyond closures include its Buy Buy Baby stores. As the home goods store winds down its operations and sells off the remaining inventory, shoppers will have one less storefront to visit when it comes to buying products for the home.

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This Hack Makes Flying Spirit Better Than JetBlue Or Southwest

It’s possible to make the no-frills, low-cost carrier as nice as flying much more expensive airlines (for less money).

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3 hours ago

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June 4, 2023

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It may seem impossible that the low-cost, no-frills air carrier could be an improvement over Southwest Airlines or its would-be merger partner JetBlue, but it’s possible.

Before the covid pandemic, I flew Southwest Airlines fairly religiously in order to maintain my A-List status. You need 25 one-way flights each year (or 35,000 miles) to keep that status and I flew just enough to keep eking out my renewal each year.

A-List has some meaningful perks for Southwest Airlines  (LUV) - Get Free Report passengers. You get same-day standby for free, which was very convenient when I was flying for work and a meeting got canceled allowing me to leave earlier. In addition, A-List members can change their flights with no fees or penalties, and most importantly, they get priority boarding status.

Southwest boards based on its A, B, and C boarding groups with 60 slots in each group. A-List members got checked in early and were guaranteed that if they don’t get an “A” spot, they could check in between the A and B groups. They can also do that if they fly standby and missed the check-in window altogether.

Every year, I tried really hard to keep those perks, but in 2022, it simply was not possible. I didn’t travel anywhere close to the amount I did before covid and had to let my A-List status expire as the year ended.

I was not super happy about it, but as my travel ramped up, I was being forced to fly like a regular person with no status. That changed, however, when Spirit Airlines ran a quick promotion where people with top-tier status at a number of major airlines and hotels could buy Spirit’s top-tier Gold loyalty status for $100.

It’s the best $100 I have ever spent because it elevates the experience on the no-frills airline.

Spirit is a low-cost carrier.

Image source: Shutterstock

Why Spirit Airlines Gold Status Is So Valuable

A low-cost carrier, Spirit charges for everything. Your basic fare gives you the right to get on the plane with a personal item (think a purse or a small backpack). Fares are very low because you pay for everything from checked bags to a full-size carry-on to getting an actual seat assignment. Spirit passengers even pay for water and soda, and they can opt to pay for snacks and perks like being able to get through airport security faster.

As a Gold member, I pay the basic fare price and then get bags and a premium seat assignment for free. On the three Spirit flights I have booked, I was able to get an exit row seat, with much more legroom for no extra charge. I also got access to a priority security line at the airport and got to board in the first group.

In addition, I also got one flight change (for each leg of my trip) free (which I did not need to use on this trip).

What It’s Like Flying As a Spirit Gold Member

Spirit tends to fly out of the least convenient terminal at every airport (at least that has been my experience). That was true of my Fort Lauderdale flight where the airline flies from Terminal 4, which has a small parking lot that never seems to have any spaces. That forces you to park in a garage that’s farther away, but it’s well marked and walkable or there’s a tram if you are willing to wait.

My flight was a 9:30 p.m. non-stop to Las Vegas on a Saturday night. There were very few people in the security line and while I had access to a priority Spirit line, I’m also a Clear member and opted to go with that experience instead.

Once I cleared security, I made my way to my gate passing a few shops and some restaurants. I stopped to buy some snacks, as my first boss drilled the idea of never getting onto a plane without an emergency snack into my head before my first business trip 30 years ago (I was 19).

The gate had plenty of seats and we were scheduled to board at 8:45. When boarding was called, at roughly 8:47, the woman at the desk called for people needing extra assistance, families flying with kids under two, and active military members. There were none of those, so she then called for Group 1 and since I was standing near the gate, I was literally the first person on the plane.

In my multiple years of being Southwest A-List, I had never had fewer than 20 people board before me. I found my seat and while the actual seat was hard and not all that comfortable (Spirit skimps on the padding to save on fuel) the exit row legroom was impressive. In fact, the distance between my seat and the seat in front of me was so great that I actually had to lean forward to type on my laptop given the very narrow fold-down tray.

My flight was not without problems. It did not have WiFi, which the airline did not announce until we were in the air (so I could not text my wife to let her know I would be out of touch for five hours). Aside from that, however, my Gold status also got me a free soda, water, coffee, or juice, as well as a choice of snacks.

So, for my very lucky $100 purchase of Gold status, I had a roomier seat than I have ever had on Southwest. I was also paying a price that was less than half what I would have paid on Southwest or JetBlue, neither of which offered a comparable direct flight.

Spirit may be no-frills for infrequent flyers, but for its elite passengers, the airline offers value and meaningful perks. It also offers 10X points for Gold members, so even with the cheap fares I’m paying, the first two Spirit flights I have booked will earn enough points to allow me to keep my status for another year.

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Who Can You Trust?

Who Can You Trust?

Authored by James Howard Kunstler via Kunstler.com,

“I’m sick and tired of hearing Democrats whining about Joe Biden’s…

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4 hours ago

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June 4, 2023

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Who Can You Trust?

Authored by James Howard Kunstler via Kunstler.com,

“I’m sick and tired of hearing Democrats whining about Joe Biden’s age. The man knows how to govern. Just shut up and vote to save Democracy.”

- Rob Reiner, Hollywood savant

Perhaps you’re aware that the World Health Organization (WHO) is cooking up a plan to impose its will over all the sovereign nations on this planet in the event of future pandemics.

That means, for instance, that the WHO would issue orders to the USA about lockdowns, vaccines, and vaccine passports and we US citizens supposedly would be compelled to follow them.

Why the “Joe Biden” regime would go along with this globalist fuckery is one of the abiding mysteries of our time - except that they go along with everything else that the cabal of Geneva cooks up, such as attacks on farmers, and on oil production, and on relations between men and women, and on personal privacy, and on economic liberty throughout Western Civ, as if they’re working overtime to kill it off. And all of us with it.

I think they are working overtime at that because the sore-beset citizens of Western Civ are onto their game, and getting restless about it. So, the Geneva cabal is in a race against time before the center pole of their circus tent collapses and the nations of the world are compelled to follow the zeitgeist in the direction of de-centralizing, foiling all their grand plans.

The “Joe Biden” regime is pretending to ignore the reality that this WHO deal is actually a treaty that would require ratification by a two-thirds vote in the senate, an unlikely outcome. In any case, handing over authority to the WHO — in effect, to its chief Tedros Adhanom Ghebreyesus — to push around American citizens like a giant herd of cattle would be patently unlawful.

That center pole of the circus tent is the wobbling global economy. It’s barely holding up the canvas over the three rings of the circus. In the center ring, the death-defying spectacle of the Biden Family crime case is playing out before a huge audience (us). This week, a gun went off at the FBI and smoke is curling out of the barrel. FBI Director Christopher Wray was forced to verify that he’s been sitting on an incriminating document for three years from a “trusted” confidential human source, i.e., an informant, stating that the Biden Family received a $5-million bribe from a foreign entity when “JB” was vice-president.

That’s only one bribe of many others, of course, as documented in the Hunter Biden laptop, and it must be obvious it represents treasonous behavior that will demand resignation or impeachment. As this spools out in the weeks and months ahead, do you think Americans will be in the mood to accept further insults such as “Joe Biden” surrendering our national sovereignty to the WHO?

Anyway, you must ask yourself: why on earth should I trust the WHO about anything? Did they not participate in laying a trip on the world with Covid-19? How did those lockdowns work out? Do you think they destroyed enough businesses and ruined enough households? How’s the vaccination program doing? Effective? Safe? Yeah, maybe not so much. Maybe killing a lot of people, wrecking immune systems, sterilizing reproductive organs, causing gross disabilities, shattering lives.

Of course, in over three years neither the WHO nor the US medical authorities showed the slightest interest in helping to figure out how the Covid-19 virus was made in a lab, and exactly how it got loose in the world. Lately, Dr. Ghebreyesus has warned the world about much worse future pandemics supposedly coming down at us. Oh? Really? What does he know that we don’t? That possibly new efforts to concoct chimeric diseases are ongoing in labs around the world? (You know that dozens of such labs were discovered in Ukraine as the war got underway there in 2022.) What’s Dr. Ghebreyesus doing to stop that?

If US orgs and citizens are involved in this “research,” why doesn’t the WHO alert our government leaders so they can stop it? (Would they? I’m not so sure.) And, who is behind it this time? The Eco-Health Alliance again, like with Covid-19? By the way, that outfit got another whopping grant last fall from the NIH to “study” bat viruses — right after the NIH terminated a previous grant on account of The Eco-Health Alliance failing to turn over notebooks and other records.

No, you cannot trust the WHO about anything. The “trust horizon” (a concept introduced by the great Nicole Foss, late of The Automatic Earth dot com) is shrinking. You can no longer trust any distant authorities. You also cannot trust the US federal government (especially the executive branch behind “Joe Biden”). And notice: the trust horizon is shrinking just as the world is de-centralizing. This, you see, is the main contradiction behind all the Globalists’ twisted ambitions to control everything, including you. They are working against the current tide of human history which is pushing everything toward down-scaling, re-localization, and re-assertion of the sovereign individual person.

That trend will become increasingly evident as things organized at the giant scale start to implode — giant retail chains, medical behemoths, hedge funds, big banks, you name it. The world no longer has the mojo for globalism. There’s reason to wonder these days whether the USA has the mojo to remain a unified national polity of states. Our federal government is not only financially bankrupt beyond any coherent reckoning, it is also morally bankrupt, and it has decided to make war against its own people. None of this is satisfactory and none of this is working. It’s time to figure out who and what you can trust and act accordingly.

Tyler Durden Sun, 06/04/2023 - 09:20

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