Australian (ASX) Stock Market Forum

US Inflation Rate

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should be in the debt thread, but hej, as the Swedes 🇸🇪 say..
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...First thing I want to ask you about is are we finally at the point in the United States where debt is actually starting to matter?

Louis Gave:
It’s that old Ben Stein rule, right? If things can’t go on, they won’t. ....I think that’s the right question. I think this is undeniably the most important question right now. I think if you look at the past month, the TLT is down, what, something like 9% or something—the long-dated US ETF—frankly on fairly low news. Right? It’s not like we’ve had the Feds say anything. It’s not like we have a political crisis in the US. We’ve had the debt ceiling thing pass, what was it, back in March, I think, on basically no news whatsoever.

In fact, inflation data looks like it’s been softer and rolling over. Growth hasn’t been that strong. All of a sudden, out of the blue, US Treasuries, at the long end, puke out 9%. And this is the single most important asset class in the world, the deepest, most liquid market. And is it pricing in higher inflation? I don’t think so. Is it pricing in much stronger growth? I also don’t think so. So, what is it pricing in? Is it pricing in the fact that the fiscal situation in the US is getting too stressed?

And here, I’ll just throw a couple numbers your way, going back to this Ben Stein rule. If you look at the US, the US is roughly 4% of the global population. The US budget deficit today is 40% of the world’s budget deficits. So you add up all the world’s budget deficits together, the US is 40%. And if you add up all of the world’s current account deficits, so you take all the countries that have current account deficits, the US is now 60% of the world’s current account deficits. So 4% of the world’s population makes 40% of the world’s budget deficit, 60% of the world’s current account deficit, which means that... Concretely, what does that mean?

That means that to keep the show on the road, the US has to attract, year in, year out, roughly between half and two-thirds of the world’s marginal increase in savings. If that money, between roughly... Let’s say two-thirds of the world’s savings don’t float to the US every year. Then you’re either going to have a problem with the debt or a problem with the US dollar.

And maybe we’re there. Maybe that’s where we are now, where the US fiscal situation has been such where it’s like, “You know what? We’re going to pile in a trillion and a half of additional debts every year while our interest costs rise by 300 or 400 billion dollars additional every year.” The numbers just start getting too big. It’s too big for the foreigners to fund, it’s too big for US private savers to fund, and it’s too big for even the US commercial banks to fund.

Or at least, it’s too big for them to fund with an inverted yield curve because why would US commercial banks run out and buy the long end of the yield curve when the yield curve is that inverted?....

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Any full reproduction of Global Macro Update is prohibited without express written permission. If you would like to quote brief portions, please reference www.MauldinEconomics.com as the source and keep all links within the portion being used fully active and intact
 
outstanding debt ALWAYS matters to me

the fact the borrower hasn't been worried (recently ) signals to me the borrower either has no intention to repay it OR is relying on timely refinancing .

that does not symbolize 'safe-haven' to me
 
... (cont.)
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...And then it comes back to this. The US, in the past 20 years, has gone from, what was it, five or six trillion in debt to $32.5 today, $35 by January 2025, and probably before. So let’s call it almost a $30 trillion increase in debt.What do you have to show for this money?

If I was American—and I’m not—if I was American, I would say, “Hold on. We’ve just loaded 30 trillion in debt over the past generation. Where’s the Hoover Dam that we’ve built? Where’s the Tennessee Valley Authority? Where’s the high-speed rail links? Where’s the Interstate Highway System? What did we get for this 30 trillion in debts?”

And the reality is, what you get is either pet political projects like, “Let’s put fabs in Arizona.” So you get that. Obviously, you get wars, and what you get is increasing transfer payments because you look at the US, Social Security, Medicare, and Medicaid, plus interest payments are basically almost equal today to tax receipts. So that’s before you’ve paid anybody’s salaries, before you’ve maintained any roads, before you’ve done any of these things. That’s how you end up with a budget deficit of 8% of GDP.

And so, the big problem is, I have nothing against debt, but when you pile on the debt, it’s got to be for productive stuff. If you’re a company, you pile on debt because you’re building a factory. If you’re an individual, you pile on debt because you’re getting a mortgage. If what you’re doing is running up the credit card debt to fund your current spending, that’s much more problematic.

And that’s where the US is today, going back to how we started. Have we reached a point now where the US annual increase in debt requires roughly two-thirds of the world’s global savings to fund it—the annual increase in savings—that we reached the point where the train starts going off the rails?.
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Any full reproduction of Global Macro Update is prohibited without express written permission. If you would like to quote brief portions, please reference www.MauldinEconomics.com as the source and keep all links within the portion being used fully active and intact.
 
FOMC met. ...Fed policymakers at the median still see the central bank’s benchmark overnight interest rate peaking this year, and then a slower pace of cuts in 2024..

With the federal funds rate falling to 5.1 per cent by the end of 2024 and 3.9 per cent by the end of 2025, the central bank’s main measure of inflation is projected to drop to 3.3 per cent by the end of this year, to 2.5 per cent next year and to 2.2 per cent by the end of 2025. The Fed expects to get inflation back to its 2 per cent target in 2026, which is later than some officials had thought possible.

“Inflation remains elevated,” the rate-setting Federal Open Market Committee (FOMC) said in a policy statement that included projections incorporating stronger economic and job growth than prior forecasts, and keeping prospects for a “soft landing” squarely in view.
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It’s official, interest rates to stay higher for longer

At the press conference, Powell said that although achieving a soft landing was “a primary objective”, the worst mistake the Fed could make would be to fail to restore price stability.

“The record is clear on that - if you don’t restore price stability, inflation comes back”, he said. It would be “miserable” to see a return of inflation which would force the Fed to resume tightening.
“So the best thing we can do for everyone, we believe, is to restore price stability.”
 
Dona Ferentes said:
It’s official, interest rates to stay higher for longer

At the press conference, Powell said that although achieving a soft landing was “a primary objective”, the worst mistake the Fed could make would be to fail to restore price stability.

“The record is clear on that - if you don’t restore price stability, inflation comes back”, he said. It would be “miserable” to see a return of inflation which would force the Fed to resume tightening.
“So the best thing we can do for everyone, we believe, is to restore price stability.”
Click to expand...
and the market reaction ?

Dow34,440.88-76.85-0.22%
S&P 5004,402.20-41.75-0.94%
Nasdaq13,469.13-209.06-1.53%
 
well, that's one market
... more importantly, in Bondland the two-year Treasury yield, which is strongly tied to expectations for official rates, hit its highest level since 2006, at 5.17 per cent while the benchmark US 10-year bond yield climbed to 4.4 per cent, its highest yield since 2007.
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and Yield Curve inversion continues
 
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Adam Creighton thinks that the US needs massive increases in income tax.
Problem is, that the wealthiest will just find new and exciting ways to avoid it, while the few people in the bottom 90% who actually pay any tax at all will be slugged even further.

1697234847223.png
The problem is heightened with the IRS report from 2021.
From Zero Hedge
The tax gap—the difference between what is owed and paid to the government—widened to $688 billion in tax year 2021, which the IRS claims “underscores the importance” of the need for increased compliance.
For tax year 2020, the IRS estimates the gap to be $601 billion. For 2021, it is estimated to be $688 billion, which is “a significant jump” from previous estimates, according to an Oct. 12 news release. The 2021 tax gap is $192 billion more than estimates from 2014-16 and $138 billion more than 2017-19.

This is the first time the IRS is making tax gas projections on an annual basis. Previously, the number was published once every three years. Moving forward, the IRS plans to publish the data yearly.

As the 2020 and 2021 tax gap numbers are estimates, they can be revised up or down at a later time.

“This increase in the tax gap underscores the importance of increased IRS compliance efforts on key areas,” said IRS Commissioner Danny Werfel. “With the help of Inflation Reduction Act funding, we are adding focus and resources to areas of compliance concern, including high-income and high-wealth individuals, partnerships, and corporations.”

“These steps are urgent in many ways, including adding more fairness to the tax system, protecting those who pay their taxes, and working to combat the tax gap.”

While the IRS focuses on boosting its compliance rate and closing the tax gap, there are concerns that such efforts could affect smaller businesses and low and middle-income households.

Last month, the agency announced that it was looking to fill more than 3,700 positions nationally to assist with “expanded enforcement work” focusing on complex partnerships, large corporations, and high-income earners.

IRS commissioner Mr. Werfel said that the new employees at the agency would not target individuals and entities making less than $400,000 annually.
Click to expand...
Like most government stats, the estimates are always a little on the generous side.
Mick
 
divs4ever said:
no problems they will start a very big war somewhere ( overseas )

well that is what has happened in the past
Click to expand...
probably a tongue in cheek comment, but nonetheless, that is getting less likely by the day.
1. They are already stretched in the proxy wars of Ukraine and Gaza/middle east.
2. Younger Americans are showing less and less inclination to even join the military, much less actually go and fight in a war in another country. The US military has reduced the standards to allow more unfit, unhealthy specimens into its ranks.
The marines changed its fitness tests in 2020 to allow more to pass for the sake of gender diversity.
Mick
 
mullokintyre said:
probably a tongue in cheek comment, but nonetheless, that is getting less likely by the day.
1. They are already stretched in the proxy wars of Ukraine and Gaza/middle east.
2. Younger Americans are showing less and less inclination to even join the military, much less actually go and fight in a war in another country. The US military has reduced the standards to allow more unfit, unhealthy specimens into its ranks.
The marines changed its fitness tests in 2020 to allow more to pass for the sake of gender diversity.
Mick
Click to expand...

time will tell ... but i remember one financial commentator commenting a couple of years back , about using a major war to distraction from ugly home economies

so would the US get itself dragged into a war where it is unprepared , like say WW2

desperate power-brokers create disastrous situations
 
Dona Ferentes said:
It’s official, interest rates to stay higher for longer

At the press conference, Powell said that although achieving a soft landing was “a primary objective”, the worst mistake the Fed could make would be to fail to restore price stability.
Click to expand...
and it's unofficial, but the direction has reversed.....

Headline US inflation fell to 3.2 per cent in the 12 months through October, from a 3.7 per cent pace the previous month, with core inflation easing to 4 per cent.
 
Empire Fed Manufacturing survey shows a sharp fall in November.
Employment numbers also fell.
However, in a nod to the "inflation is slowing meme", the prices paid index moved down six points to 16.7, suggesting an ongoing moderation in input price increases, while the prices received index held steady at 11.5, a sign that selling price increases remained modest.
From Zero Hedge
After three strong 'beats' in a row, the Empire State Manufacturing Survey crashed back into contraction, well below expectations in December (from +9.1 to -14.5, +2.0 exp).

The drop takes the measure from 'expansion' at 7-month-highs to 'contraction' at 4-month-lows...

bfm1B11.jpg
The new orders fell six points to -11.3, pointing to a decline in orders for a third consecutive month, and the shipments index fell sixteen points to -6.4, indicating that shipments fell.

The unfilled orders index held steady at -24.0, a sign that unfilled orders continued to fall significantly.

After rising into positive territory last month, the inventories index retreated fourteen points to -5.2, suggesting that inventories moved lower.

The delivery times index dropped ten points to -15.6, its lowest reading in several years, a sign that delivery times shortened.

The index for number of employees fell four points to -8.4, its lowest level in several months, pointing to a modest decline in employment levels.
1702845307230.png
Mick
 
In another sign that things may not be all that rosy in the US, there has been a significant increase in the number of Americans under water on their Auto Loans. The value of used cars has sufficiently such that their outstanding loan amount they took out is now greate than the value of the car.
From Zero hedge

Consumers face increasing financial difficulties due to elevated inflation, a generational high in interest rates, maxed-out credit cards, lack of personal savings, and two years of negative real wage growth amid the mounting failures of 'Bidenomics.' The latest distress is that the number of Americans in upside-down auto loans has reached the highest level since 2020.

According to automotive research firm Edmunds.com, the number of Americans with auto loans "underwater" or "negative equity" in November reached an average of $6,054, the highest level since April 2020.

2023-12-16_11-30-03.pngSource: Bloomberg
"It's a precarious spot for many Americans, coming after a twin surge in car buying and interest rates has strained finances and fueled an uptick in automobile repossessions," Bloomberg explained, adding the average rate for a new car loan is 7.4% and 11.6% for a used car.

Snag_cb27a60.png

Earlier this year, when discussing the "perfect storm" hitting the US auto market, we showed that according to Fitch, "More Americans Can't Afford Their Car Payments Than During The Peak Of Financial Crisis"... The average new car loan has reached a record high of $40,000.

new%20car%20loans%20financed_0.jpg
... which was to be expected: after all, the latest consumer credit report from the Fed revolving credit shows high-interest rates have bogged down student and auto loans; in other words, consumer is stretched.

bfm24F9.jpg

"We're in this situation where combined with the cost of the vehicles being so high and the interest rates being so historically high, you have a lot of people who are in bad car loans," Joseph Yoon, consumer insights analyst for Edmunds, told Bloomberg.

To Yoon's point, the percentage of subprime auto borrowers at least 60 days past due in September topped 6.11%, the highest ever.

2023-10-21_09-44-13.pngSource: Bloomberg
Thos is not surprising when one considers the state of the used vehicle market.
The following chart shows the decline in vehicle classes from november 2022 to november 2023.

1702854003696.png
A declining value in a year when inflation was at its peak shopws jist how much they have fallen in real terms.
Mick
 
So producer prices came in above expectations, retail Sales came in below expectations.
Forget about the Jobless claims stats, they are garbage.
But the marjket expectation of some rate reductions has not changed.
Will the market be disappointed again?
Mick
1710457853609.png
1710457888403.png
 
mullokintyre said:
So producer prices came in above expectations, retail Sales came in below expectations.
Forget about the Jobless claims stats, they are garbage.
But the marjket expectation of some rate reductions has not changed.
Will the market be disappointed again?
Mick
View attachment 172782
View attachment 172783
Click to expand...
The share market rose when this was released. Why?

It looks to me that the screws are tightening.
Interest rate cuts will have to happen, probably by June to stop a recession.
 

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