The Economy

We flew Frontier once. I don't think I'd do it again, even for a short flight where I an afford to be late. We had to do a round trip from Philadephia to Tampa for something and I decided to go cheap-o. We did Frontier one way and Spirit the other way. On the way there, they loaded us onto the plane (I think this was Spirit) and then when everyone was settled, made us all get off. The plane had a flat tire. As an aside, I never thought about a plane's tires before, but I was watching from the terminal. They drove up, lifted the plane with a giant jack and changed the tire, pretty much how you'd do it for your car on the side of the highway.

On the way back I think it was Frontier, we were sitting at the gate for an inordinate amount of time, and the pilot gets on the PA and says, "Folks, I am not going to lie to you, when they refueled the plane, I think the guy took off with the gas cap. We aren't going anywhere until we find it." About 20 minutes later, he gets back on the PA and says, "Folks, good news, we found a new gas cap. But we're not going anywhere for a while, you can't believe how much paperwork you have to fill out when you change out the gas cap on an airplane."

 

Ya'll may want to start paying attention. ... A slew of economic data has been suggesting the global economy is slowing down dramatically over the last few months. And it's actually data that is not produced by politicians. ISM, PMI numbers, etc.

Markets have just been focused on anticipation of central banks easing up on the higher rates they had instituded, ostensibly to fight inflation. People were looking through the fact that higher rates had to have had an effect on investment and spending and the hit the real economy has to have been taking.

On Wednesday, the Fed pretty much signaled (in their rate decision and Powell's press conference) that it is going to cut in September -- likely 25 basis points. But markets started to panic a little because it became a, "Is it because things are slowing down and they are scared and know stuff we don't"?

Yesterday, we got really bad PMI numbers -- if they weren't a blip of some kind, the economy is getting hit hard. Yields on the 10 year bond dropped dramatically in response. Markets have consistently taken lower yields to mean that the party is back on. But something feels like it may be changing. Markets are taking bad news as bad news *gasp*.

Just now we got the monthly jobs report. The consensus estimate was for the number of new jobs to keep dropping, coming in at 176K. It came in at 114K. And the unemployment rate, which was expected to remain unchained, jumped from 4.1 percent to 4.3 percent. And what's worse is that those numbers have been so phony under this administration (they put out a headline for political purposes and revise down dramatically later when no one is printing a headline) that you have to wonder what the reality is.

Immediately, Fed Funds futures priced in a 90 percent chance of a 50 basis point cut (not 25) in September. But it's not rate cuts like "Happy days are here again, NVIDIA stock to the moon!" It's, "Wow, they may not have control and we may actually see a recession."

I'm not asking you to think about what any of this means for markets (which are disconnected from anything fundamental, it is all monetary stimulation). But we have not seen a bust for a while, and the boom we have gotten from cheap rates and QE has been epic for a very long time. There is a price to pay.

In the mean time, the problems with them easing off. ... are primarily they haven't conquered inflation. They just shift the goal posts and pretend like things are good. Throughout the QE era, it was nonsense about a 2 percent target (like decreasing people's purchasing power by 2 percent a year is somehow a good thing). Now it is, "Well, at 2.5 or 3 percent on the indexes, it's close enough to 2 percent." Yesterday, the Eurozone printed a CPI of 2.6 percent. People are getting killed by this.

On top of it, the size of the bond auctions the U.S. is running has gotten massive to deal with all of the debt we are running. And this is what everyone is going to be waking up to sooner than they realize. There is not nearly enough foreign demand for our debt to keep that up for any period of time. The only thing that enabled all of the debt we ran up for a decade and a half (after the financial crisis) was the Federal Reserve scheme of creating money (devaluing the dollar) and using that new money to buy the U.S. debt we were issuing to borrow endlessly and live a fantasy. That kind of scheme puts U.S. credit worthiness at way more risk than people realize. And we already used up most of the pass the U.S. gets to do something like that.

I won't say this is a turning point, because I have learned never to underestimate the willingness to come up with new price fixing schemes to try to deal with the messes they created, thereby finding a way to kick the can down the road and create a more and more miserable underclass. But they are really backed into a corner now.