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Things That Won’t Happen In 2023
Things That Won’t Happen In 2023
By Dario Perkins, chief strategist of TS Lombard
Things That Won’t Happen In 2023
A light-hearted take…
By Dario Perkins, chief strategist of TS Lombard
Things That Won't Happen In 2023
- A light-hearted take on 2023, with big consensus-busting “non-forecasts”
- Such as Powell takes his Volcker obsession too far; BoE needs a bailout…
- …CBDCs realize the conspiracy theorists’ nightmare; Brexit, what Brexit?
Since we first published our annual “Things that won’t happen” outlook in 2015, writing outlandish non-forecasts has become considerably more difficult. Back then, nobody would have taken us seriously if we had said Donald Trump would become US president or the UK would quit the EU or there would be a two-year pandemic with rolling global lockdowns. And the surprises kept on coming in 2022. Suddenly we had central bankers who didn’t seem to care about the stock market (except when trading their own PA positions), equity strategists forecasting actual market declines (admittedly only after their first 15 Buy-The-Dip recommendations had failed) and England not winning the World Cup (again). Meanwhile, nobody could have known that cryptocurrencies were just digital tulips or that paying millions for Jpeg monkey pictures – freely available to anyone with a smart phone – was a bad idea. Anyway, humbled by the silliness of real life, here are some things that won’t happen in 2023 (probably…).
#PivotsAreForWimps
In 2022, Jerome Powell made no secret of his admiration for every central bankers’ hero, Paul Volcker, the 6ft7in former Fed chair who famously broke the back of inflation in the early 1980s. Powell promised to learn from the experience of the 1970s and 1980s, ‘keeping at it’ until he had slain the inflation monster once again. But in 2023, after another global energy shock pushes inflation to its highest-ever level, Powell takes his unrequited bromance with Mr Volcker a step too far, donning two-inch platform shoes and a rumpled dark suit and casually puffing on a large cigar at every public engagement. Things get out of hand in August, as US interest rates hit 25% and Powell insists on entering his FOMC press conference to the tune of “Eye of the Tiger”. His embarrassment is complete when he is finally doxxed on #fintwitter as @IHeartVolcker79 (check out his Twitter feed, which is totally dedicated to “Big Paul” and even includes the occassional love poem). Not to be out done, Christine Lagarde tries to revive the ECB’s own monetary heritage, inviting Otmar Issing to run the economics department at the ECB and forcing all officials to read the historical works of Karl-Otto Pöhl. The BoE’s Andrew Bailey treads a path of defiant British exceptionalism, giving a speech on “Why 15% inflation isn’t really that bad”.
War games
A full-scale nuclear crisis is triggered after an unidentified projectile – thought to be the ball from Harry Kane's missed penalty re-entering the Earth’s atmosphere – passes through Russian airspace in February. Vladimir Putin once again steps up the readiness of his nuclear arsenal, this time to the “I’m absolutely not kidding, this is totally serious, just try me” level and NATO responds accordingly. War is averted only after Italian Prime Minister Giorgia Meloni engages Putin in a game of online Tic-Tac-Toe and the Russian leader suddenly grasps the futility of nuclear engagement. But there is now no stopping the world’s tilt towards deglobalization. Trade barriers continue to build, supply lines shrink, and Western leaders – egged on by central bankers – introduce a new US$5 per day maximum wage and lower the minimum age for full-time employment. At the same time, the US dollar’s status as the world’s reserve currency is further tarnished, with Trump’s new trading cards emerging as a viable alternative.
The ’don’t-call-it-a-bailout’ Bank of England
As the Bank of England starts to make huge losses on its enormous QE holdings, it quickly becomes apparent that the central bank requires an urgent bailout. After the failure to sell the institution (at a steep discount) to a syndicate involving Elon Musk and the PBoC, the Treasury has no choice but to take the BoE back into government hands. But renationalization comes with stinging conditions, including a strict cap on central banker bonuses, a vastly reduced menu in the lunchtime canteen and the cancellation of the annual staff sports day (which does, in fact, exist…). Andrew Bailey even agrees to take a haircut, albeit under great duress. More than 12,000 members of the Bank’s core forecasting team resign when the government unveils a strict performance-related wage structure. (Fortunately, the ECB is still hiring and its internal pay structure is totally detached from the accuracy of its staff projections – in fact, the bigger the forecast errors, the larger the wage deals.)
Just because you’re paranoid…
The conspiracy theorists’ worst fears are realized when several central banks unveil CBDCs as a new weapon in the war on inflation. These new digital currencies not only give the authorities a direct means of controlling the CPI – since officials can monitor and adjust the price of millions of goods in real time; central banks find they can even have the power to manipulate consumer behavior in ways they had never previously dared to imagine. Thinking of paying more than 2% extra on your weekly groceries? Here’s a small electric jolt to make you think again! Bidding up the price of that item on eBay or in a virtual queue for those just-released concert tickets? Let’s see you do that when the battery life on your smart phone suddenly goes to zero! Demanding a 10% wage hike? Here’s your very own personalized “price stability surcharge”! And don’t worry about filing a tax return, for your convenience we can just make the cash disappear from your bank account! Eventually the public get wise to CBDC manipulation and go back to traditional safe havens, such as digital monkeys, shitcoins and meme stocks.
2016 mystery solved!
Something started to go profoundly wrong for the UK economy in 2016. Investment plunged, exports cratered – particularly those to our main trading partners – and the UK was suddenly less attractive to foreign workers. Many businesses are now suffering acute labor shortages and the NHS is on its knees, with waiting lists of up to 97 years. Weirdly, nobody has been able to identify what caused this sudden deterioration in the UK’s performance. Even British politicians – who, with their PPE and classics degrees, number among the smartest and best educated in the world – can offer nothing more than an inaudible mumble when asked how they might restore UK prosperity. Sometimes it’s as if they know the answer but don’t want to talk about it, like they are ignoring a giant pink elephant in the corner of the room. Fortunately, the mystery is solved in 2023 with the help of 175 PhD economists and an “event study” based on literally everything that happened in 2016. And it turns out the answer was staring us in the face: it must have been the discovery of Roman tablets at the site of Bloomberg’s new offices in London. The building is demolished, the tablets reburied, and the UK posts a remarkable boom. “Cool Britannia” is back!
Artificial Economists
TS Lombard will discover that everything their economists do can be outsourced – at no charge – to Artificial Intelligence software, including the writing of their seminal “Things that won’t happen” report. I’m not joking. Asked to make some “funny economic predictions about 2023”, here is what ChatGPT came up with. DO NOT SHOW THIS TO MY BOSS:
- A new fashion trend of wearing clothes made entirely out of money will emerge, leading to a decrease in the amount of physical cash in circulation and curing the inflation problem.
- A group of economists will discover that the key to a successful economy is dancing, which will lead to mandatory dance parties being introduced at all workplaces.
- A group of rebellious teenagers will start a movement to boycott paying taxes, causing the government to resort to collecting taxes in the form of memes.
- A new cryptocurrency called "LOLcoin” will emerge and quickly gain popularity, prompting many people to invest their life savings in it.
- The "Taco Tuesday Index" will become the leading indicator of consumer confidence, as people's willingness to splurge on Mexican food during the week becomes a key metric for economists to track.
- The stock market will crash after a group of rebellious llamas take over the New York Stock Exchange and start trading banana stocks.
We are SO doomed.
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Homes listed for sale in early June sell for $7,700 more
New Zillow research suggests the spring home shopping season may see a second wave this summer if mortgage rates fall
The post Homes listed for sale in…
- A Zillow analysis of 2023 home sales finds homes listed in the first two weeks of June sold for 2.3% more.
- The best time to list a home for sale is a month later than it was in 2019, likely driven by mortgage rates.
- The best time to list can be as early as the second half of February in San Francisco, and as late as the first half of July in New York and Philadelphia.
Spring home sellers looking to maximize their sale price may want to wait it out and list their home for sale in the first half of June. A new Zillow® analysis of 2023 sales found that homes listed in the first two weeks of June sold for 2.3% more, a $7,700 boost on a typical U.S. home.
The best time to list consistently had been early May in the years leading up to the pandemic. The shift to June suggests mortgage rates are strongly influencing demand on top of the usual seasonality that brings buyers to the market in the spring. This home-shopping season is poised to follow a similar pattern as that in 2023, with the potential for a second wave if the Federal Reserve lowers interest rates midyear or later.
The 2.3% sale price premium registered last June followed the first spring in more than 15 years with mortgage rates over 6% on a 30-year fixed-rate loan. The high rates put home buyers on the back foot, and as rates continued upward through May, they were still reassessing and less likely to bid boldly. In June, however, rates pulled back a little from 6.79% to 6.67%, which likely presented an opportunity for determined buyers heading into summer. More buyers understood their market position and could afford to transact, boosting competition and sale prices.
The old logic was that sellers could earn a premium by listing in late spring, when search activity hit its peak. Now, with persistently low inventory, mortgage rate fluctuations make their own seasonality. First-time home buyers who are on the edge of qualifying for a home loan may dip in and out of the market, depending on what’s happening with rates. It is almost certain the Federal Reserve will push back any interest-rate cuts to mid-2024 at the earliest. If mortgage rates follow, that could bring another surge of buyers later this year.
Mortgage rates have been impacting affordability and sale prices since they began rising rapidly two years ago. In 2022, sellers nationwide saw the highest sale premium when they listed their home in late March, right before rates barreled past 5% and continued climbing.
Zillow’s research finds the best time to list can vary widely by metropolitan area. In 2023, it was as early as the second half of February in San Francisco, and as late as the first half of July in New York. Thirty of the top 35 largest metro areas saw for-sale listings command the highest sale prices between May and early July last year.
Zillow also found a wide range in the sale price premiums associated with homes listed during those peak periods. At the hottest time of the year in San Jose, homes sold for 5.5% more, a $88,000 boost on a typical home. Meanwhile, homes in San Antonio sold for 1.9% more during that same time period.
Metropolitan Area | Best Time to List | Price Premium | Dollar Boost |
United States | First half of June | 2.3% | $7,700 |
New York, NY | First half of July | 2.4% | $15,500 |
Los Angeles, CA | First half of May | 4.1% | $39,300 |
Chicago, IL | First half of June | 2.8% | $8,800 |
Dallas, TX | First half of June | 2.5% | $9,200 |
Houston, TX | Second half of April | 2.0% | $6,200 |
Washington, DC | Second half of June | 2.2% | $12,700 |
Philadelphia, PA | First half of July | 2.4% | $8,200 |
Miami, FL | First half of June | 2.3% | $12,900 |
Atlanta, GA | Second half of June | 2.3% | $8,700 |
Boston, MA | Second half of May | 3.5% | $23,600 |
Phoenix, AZ | First half of June | 3.2% | $14,700 |
San Francisco, CA | Second half of February | 4.2% | $50,300 |
Riverside, CA | First half of May | 2.7% | $15,600 |
Detroit, MI | First half of July | 3.3% | $7,900 |
Seattle, WA | First half of June | 4.3% | $31,500 |
Minneapolis, MN | Second half of May | 3.7% | $13,400 |
San Diego, CA | Second half of April | 3.1% | $29,600 |
Tampa, FL | Second half of June | 2.1% | $8,000 |
Denver, CO | Second half of May | 2.9% | $16,900 |
Baltimore, MD | First half of July | 2.2% | $8,200 |
St. Louis, MO | First half of June | 2.9% | $7,000 |
Orlando, FL | First half of June | 2.2% | $8,700 |
Charlotte, NC | Second half of May | 3.0% | $11,000 |
San Antonio, TX | First half of June | 1.9% | $5,400 |
Portland, OR | Second half of April | 2.6% | $14,300 |
Sacramento, CA | First half of June | 3.2% | $17,900 |
Pittsburgh, PA | Second half of June | 2.3% | $4,700 |
Cincinnati, OH | Second half of April | 2.7% | $7,500 |
Austin, TX | Second half of May | 2.8% | $12,600 |
Las Vegas, NV | First half of June | 3.4% | $14,600 |
Kansas City, MO | Second half of May | 2.5% | $7,300 |
Columbus, OH | Second half of June | 3.3% | $10,400 |
Indianapolis, IN | First half of July | 3.0% | $8,100 |
Cleveland, OH | First half of July | 3.4% | $7,400 |
San Jose, CA | First half of June | 5.5% | $88,400 |
The post Homes listed for sale in early June sell for $7,700 more appeared first on Zillow Research.
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February Employment Situation
By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…
By Paul Gomme and Peter Rupert
The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.
Temporary help services employment continues a steep decline after a sharp post-pandemic rise.
Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.
The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.
The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.
Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.
As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.
Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.
The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.
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Mortgage rates fall as labor market normalizes
Jobless claims show an expanding economy. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.
Everyone was waiting to see if this week’s jobs report would send mortgage rates higher, which is what happened last month. Instead, the 10-year yield had a muted response after the headline number beat estimates, but we have negative job revisions from previous months. The Federal Reserve’s fear of wage growth spiraling out of control hasn’t materialized for over two years now and the unemployment rate ticked up to 3.9%. For now, we can say the labor market isn’t tight anymore, but it’s also not breaking.
The key labor data line in this expansion is the weekly jobless claims report. Jobless claims show an expanding economy that has not lost jobs yet. We will only be in a recession once jobless claims exceed 323,000 on a four-week moving average.
From the Fed: In the week ended March 2, initial claims for unemployment insurance benefits were flat, at 217,000. The four-week moving average declined slightly by 750, to 212,250
Below is an explanation of how we got here with the labor market, which all started during COVID-19.
1. I wrote the COVID-19 recovery model on April 7, 2020, and retired it on Dec. 9, 2020. By that time, the upfront recovery phase was done, and I needed to model out when we would get the jobs lost back.
2. Early in the labor market recovery, when we saw weaker job reports, I doubled and tripled down on my assertion that job openings would get to 10 million in this recovery. Job openings rose as high as to 12 million and are currently over 9 million. Even with the massive miss on a job report in May 2021, I didn’t waver.
Currently, the jobs openings, quit percentage and hires data are below pre-COVID-19 levels, which means the labor market isn’t as tight as it once was, and this is why the employment cost index has been slowing data to move along the quits percentage.
3. I wrote that we should get back all the jobs lost to COVID-19 by September of 2022. At the time this would be a speedy labor market recovery, and it happened on schedule, too
Total employment data
4. This is the key one for right now: If COVID-19 hadn’t happened, we would have between 157 million and 159 million jobs today, which would have been in line with the job growth rate in February 2020. Today, we are at 157,808,000. This is important because job growth should be cooling down now. We are more in line with where the labor market should be when averaging 140K-165K monthly. So for now, the fact that we aren’t trending between 140K-165K means we still have a bit more recovery kick left before we get down to those levels.
From BLS: Total nonfarm payroll employment rose by 275,000 in February, and the unemployment rate increased to 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in government, in food services and drinking places, in social assistance, and in transportation and warehousing.
Here are the jobs that were created and lost in the previous month:
In this jobs report, the unemployment rate for education levels looks like this:
- Less than a high school diploma: 6.1%
- High school graduate and no college: 4.2%
- Some college or associate degree: 3.1%
- Bachelor’s degree or higher: 2.2%
Today’s report has continued the trend of the labor data beating my expectations, only because I am looking for the jobs data to slow down to a level of 140K-165K, which hasn’t happened yet. I wouldn’t categorize the labor market as being tight anymore because of the quits ratio and the hires data in the job openings report. This also shows itself in the employment cost index as well. These are key data lines for the Fed and the reason we are going to see three rate cuts this year.
recession unemployment covid-19 fed federal reserve mortgage rates recession recovery unemployment-
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