Powell's Risk Has Shifted from Inflation to Unemployment

I don't pretend to have any special insights into financial markets and inflation so feel free to roll your eyes at this and scroll on to that funny meme about the Super Bowl but ...

Fed Chair Powell's insistence on seeing data to prove that inflation has come down or that job markets are faltering before he cuts rates seems to me to ignore the inevitable lag in the effects of higher rates. The data we see this month is a function of forces from months ago. If you wait for evidence, you'll wait too long.

The Fed has a dual mandate: keep inflation AND unemployment low. In my opinion, without a near-term rate hike, the risk of inflation above 2% is now much lower than the risk of unemployment rising above 4%. Put differently, I think it's time for Powell to start worrying more about continued strength in the job market and less about inflation again rising. It will be too late if he won't change until he has proof.

The Absurdly Good Fourth Quarter of 2023 (a heck of a way to run a recession)

The 4th Quarter of 2023 was almost comically good.
(All averages are for this 21st century.)

Inflation:
target: 2%
actual: 2%
Avg: 2.6%

Job creation for quarter:
494k
Avg: 275k

Unemployment rate:
3.7%
Avg: 5.8%

NASDAQ change in 4th Q:
Up 14%
Avg: Up 2.7%

GDP Growth for 4Q 2023:
Up 3.3%
Avg: 2%

It's a heck of a way to run a recession.

2024 Year of the Dragon - Boldness, Enthusiasm, Innovation and ... Imagination

We're just a couple of weeks away from the Year of the Dragon. The dragon is the most promising - and definitely the coolest looking - of the 12 Chinese animals. February 10 marks the start of a year for boldness, enthusiasm, and innovation. You know - for a change.

And when the animal for a year is imaginary, that has to say something about the importance of imagination, right?*  In any case, it's a second chance to start the new year right.

*

"What's this new year like?" 

"A dragon."

"What's that like?" 

"Well, it's not real so I guess whatever you imagine." 

Now that sounds like a year when a person can fully explore the notion of free will.

Economic Data on Jobs, S&P 500, GDP Growth and Deficits From Reagan Through Biden's Presidencies - Spot the Patterns

Spot the patterns.

It seems to me that there are 2.

1. Deficits grow under Republican presidents and shrink under Democratic presidents.
2. Job creation is stronger during Democratic presidencies.

These could be random but I doubt it.

Republican presidents consistently cut taxes. (Trump rather famously cut taxes by about a trillion - a cut that went disproportionately to the rich) Cutting taxes without cutting spending leads to deficits. That's not fancy philosophy. That's arithmetic. Deficits inevitably grow under Republican presidents because they have a clear plan for cutting taxes but no plan for cutting spending.

Job creation is stronger under Democratic presidents because they are the party that focuses more on labor and the job market in contrast to Republicans who focus more on capital markets. Keynesian economics is largely dismissed by Republican presidents and largely supported by data. Timely stimulus can help job markets to recover. And as importantly, unfettered or unregulated capital markets will invariably lead to booms and busts that are particularly tough for the labor market (which is to say, those people who depend on jobs and not wealth to support their living expenses).

Perhaps you can see other patterns. I'd be curious as to what those are.

You Must Be This Angry to Vote - Donald's Republican Party

"America is too great for small dreams."
- Ronald Reagan

“We’re a nation whose economy is collapsing into a cesspool of ruin. We have become a drug infested, crime-ridden nation, which is incapable of solving the simplest of problems.”
- Donald Trump

Reagan's "It's morning again in America," has become Trump's campaign marked by "mourning again in America."

This negativity is helped along by almost laughably negative economics coverage. 

If it were a novel, it would include dialogue like this: 

"It's a beautiful, sunny day Heathcliff. Kiss me!"

Heathcliff, through clenched teeth, "Someday we are all going to die."

But given it is "news" coverage, it sounds like this: 

"Unemployment is at record lows! The stock market is at record highs! Inflation is dramatically lower!"

"Yes but the economy will eventually fall into a recession. It might not be for a decade. It might be next week. But it will eventually falter. And that bad news - however speculative - is the real news."

There is a new, not so amusing sign, hanging outside today's Republican Circus - I mean Party.

Haecceity: the irreducible determination of a thing that makes it this particular thing

Haecceity is a term from medieval scholastic philosophy, first coined by followers of Duns Scotus to denote a concept that he seems to have originated: the irreducible determination of a thing that makes it this particular thing.

I kind of love this: the irreducible determination of a thing that makes it this particular thing. Or, the irreducible determination of a person that makes it this particular person.

So, what is your haecceity?

The Odds of Layoff Are the Lowest They've Been in Your Career (and what the unemployment claims stat would look like as a cartoon)

Initial claims for unemployment came in at their lowest level in 18 months. The last time they were lower than that - lower than September of 2022 - was in the late 1960s - when the labor force was half the size it is today. 

It is no exaggeration to say that this is the period with the lowest chance of being laid off during the career of anyone working today.

If stats were cartoons, this stat would look like this:

American women don't like Trump and Trump doesn't like American women - and one of the most stunning stories lost in chaos of Trump's last week in office

American women don't like Trump and Trump doesn't like American women.

Donald has been married three times, once to an American for 4 years. Every other woman he marries is an immigrant.

He made that American – Marla Maples – sign a prenup, a document in which he claimed to be worth $1.17 billion and offered Marla only one million dollars – with no alimony – when they divorced. His child support for Tiffany would continue only to 21 and would stop if Tiffany got a job or joined the army or Peace Corp.

[source: https://www.vanityfair.com/news/2019/06/marla-maple-prenup-donald-trump-marriage ]

Ivana – the mother of three of his children – is rather bizarrely buried in one of his golf courses. Her burial does grant Trump certain tax breaks on the New Jersey golf course where she is buried. “The New Jersey tax code does exempt cemetery land from all taxes, rates, and assessments. Potentially, her grave could save the property from paying a significant sum in a state with high tax rates.”

[source: https://www.snopes.com/fact-check/ivana-trump-golf-club-burial/ ]

In the 2020 election, it was women who elected Joe Biden and sent Trump back to Mar-a-Lago. 52% of voters were women and they voted for Biden by a 15-point margin – 57% of women voted for Biden and only 42% voted for Trump.

[source: https://www.nytimes.com/interactive/2020/11/03/us/elections/exit-polls-president.html ]

The day after Trump’s inauguration, the Woman’s March was the largest single-day protest in American history – involving somewhere between 1.0 to 1.6 percent of all Americans – about 3 to 5 million people.

And of course, Donald doesn’t like American women. At least 18 women have accused this man - who bragged that if you are a star you could grab women by the p**** - of sexual harassment. A judge in the Jean Carroll case that found Trump guilty clarified that the charge against him did qualify as rape. Donald owned the Miss Teen Beauty Pageant and bragged about how that allowed him to walk into the dressing area to ogle the teenage girls as they got dressed for the contest.

The policy that Trump is proudest of - appointing Supreme Court justices to overturn Roe v. Wade - shifted the most personal and important choice a woman can make from that woman to the state.

One of the clearest indications of Donald’s feelings for women was lost in the noise of 3,000 Americans a day dying from COVID and the aftermath of the January 6th assault on the Capitol. The two women he appointed to his Cabinet resigned after that assault on democracy. And what did Donald make a priority amid the turmoil of a riot, an attempted coup, cabinet resignations, and a pandemic?

On January 13, with only one week left in his presidency, Trump rushed through the execution of Lisa Montgomery. Her death marked the first federal execution of a woman in nearly 70 years. Donald made her execution a priority and one of the last things he did before leaving office.
[source: https://www.nytimes.com/2021/01/13/us/politics/lisa-montgomery-execution.html ]

Donald. American women don’t like him and he doesn’t like them. Given the poor judgement of American men, we can only hope that women again save this country in November. Maybe even a few more men will have sense enough to side with them.

Unemployment, inflation, job creation and COVID-related deaths - before, during, and after a global pandemic.

Pre-pandemic
2019 - low inflation and unemployment and 2 million jobs created


Pandemic
2020 - drop in demand results in huge layoffs and drop in household spending translates into a sharp rise in unemployment - more than 9 million jobs lost - and a drop in inflation along with demand.
2021
Worst year for COVID deaths and yet - as more Americans are vaccinated - economy opens back up. Inflation spikes while the economy creates a record number of jobs, bringing unemployment back down to below 4%.

Recovery
2022
Recovery begins in earnest. The rate of job creation is still higher than any year on record - except for 2021. With the economy so strong and demand so high, inflation begins to drop but is still high. 

Normalization
2023
COVID deaths now - like flu - are part of annual death toll. By yearend, unemployment had been at a sub-4% level for longest stretch since the 1960s. As job creation slows, inflation slowly falls back to a normal range (but still roughly one point higher than pre-pandemic.) 

2024
The economy - and society more broadly - absorbed an historic spike in loss of life and jobs for a couple of years and has largely returned to normal. It is hard to imagine that it could have turned out much better. Easy to believe that it could have turned out much worse. (The economy has never before created more than 7 million jobs in a single year - or even 5 million jobs for that matter. This recovery - getting back to unemployment below 4% - could have easily taken years longer.)

The only comparable wave of death and economic contraction was the Spanish flu in 1918 and after, the recovery from which was a contributing factor to the roaring '20s. There is a very real possibility that these 2020s will represent another roaring 20s. 

Some Stark Contrasts Between The 2024 Candidates

It is 2024 and Americans will choose between Trump and Biden to be president from 2025 to 2029.

Trump - 

• Spent a record amount of time as president tweeting, watching TV and golfing. (Trump sent an average of 33 tweets per day, roughly the number Biden sends each month.)
• Cheated on his third wife (who was home with their newborn) with a porn star (who he paid with campaign funds). He is the favorite of evangelicals.
• Insisted that the national government had no responsibility for COVID response - that a pandemic sweeping across the globe should be the responsibility of state and local governments and not his administration - and had Americans dying of COVID in his last month in office at a rate of more than one 9-11 per day, a pandemic that was particularly deadly for the elderly. He is the favorite of old people.
• Holds the record for worst job creation (or best job destruction) during a presidency since modern records began after the Great Depression. He is the favorite of people who say he's good for the economy.
• Incited an insurrection to overturn the election results from 2020 and has promised to use the office for retribution against political enemies once re-elected. 2 states have already pointed to the 14th amendment as reason to take him off their ballot for the 2024 election. He is the favorite of folks who talk about the importance of the constitution.
• Presided over the worst rise in violent crime in American history. He is the favorite of Americans who want someone tough on crime.

Since Biden took office,

• Weekly rates of death from COVID have fallen to 3% of what they were under Trump. (He treated the COVID response as a national - not a local government - issue.)
• The unemployment rate is at its lowest rate for the longest time since the late 1960s. (He signed a stimulus bill that rapidly lowered unemployment.)
• During Biden's presidency, violent crime has dropped to its lowest levels since the 1960s.
• New business applications are at a record level. Not just up slightly. They are up almost 50% from what they were a short time ago. stats here: https://www.census.gov/econ/bfs/visualizations/interactivegraphs.html 

Biden and Trump hold the record for jobs created during the first term: Biden for the most jobs created and Trump for the most jobs destroyed. (And Biden still has 13 months to build on - or even reverse - this record.)

35 months into Biden's presidency, the economy has created 14.3 million jobs. In Clinton's first term, the economy created 11.6 million and in the first of his terms for which BLS posts numbers, the economy created 11.2 million jobs under FDR. The two worst first terms in modern times were under George W. Bush - the economy created about 100,000 jobs - and Trump, during which the economy lost 2.6 million jobs Thus far, the economy has created 2.7 million more jobs under Biden's presidency compared to Clinton, who has the second best numbers. The gap between Trump and W. Bush is also 2.7 million - but of course Trump's gap is 2.7 million worse than it was under Bush.

Trump is - obviously - the front-runner in this election.

The Percentage of Americans Who Made $1 Million in Wages in 2022

2022 wage information (does not include rental income, profits, earnings or gains from the sale of assets, etc.)

Of Americans who reported an income on W-2 forms,

• 90% earned at least $5,000.
• 50% earned at least $40,847.18 - the median wage.
• 10% earned at least $120,000
• 1% earned at least $350,000
• 0.1% earned at least $1 million
• 0.003% - or more than 5,000 - earned at least $10 million in 2022.
• Only 227 earned $50,000,000 or more.

data:
https://www.ssa.gov/cgi-bin/netcomp.cgi?year=2022

In a Parallel Universe - Feminists' January 6th Attack on the White House that Nancy Pelosi Provoked

In a parallel universe.

On January 6th of 2021, after losing her Democratic majority and Speakership in what she insisted was a rigged election, Nancy Pelosi held a rally that she concluded by telling the feminists and Black Lives Matter crowd gathered that they would march on the White House. She then added, "We fight like hell. And if you don't fight like hell, you're not going to have a country anymore." Some say that her willingness to tell it like it is was one of the chief reasons that she had become the first woman to be Speaker of the House and admired her bold words. Others claimed her speech was incendiary.

The liberal crowd, angry at Donald Trump, began to march towards the White House. The number of secret service members standing at the barricades put up around the White House were wildly outnumbered and soon the protesters overwhelmed them and were in the White House itself. Some of the rioters broke into the Oval Office and put their feet up on Trump's desk, lighting up cigars. Others roamed the halls of the White House chanting, "Donnie!" Portraits were torn from the wall, random items broken or taken. Secret service, wildly outnumbered, continued to retreat from the angry feminists. Meanwhile, Trump and his family hid in a secret location, away from protestors who became more brazen, taking souvenirs from his office and randomly damaging furniture and fixtures in this historic building that did so much to define the world's oldest democracy.

The aftermath of what some called just a peaceful protest and others called a riot led to a flurry of arrests and sentences and Pelosi continued to insist that the protestors who stormed the White House menacingly calling out "Donnie!" had love in their hearts. Others said it was no different than any White House tour. More than a year later, one of the liberal radicals broke into Donald Trump's house and attacked Melania with a hammer, leaving her with a serious injury that required surgery for her fractured skull.*

The January 6th attack on the White House is still described by Pelosi and others as a peaceful protest. Others think otherwise. Perhaps we will never know.

* Yes. This actually happened to Nancy Pelosi's husband, who was attacked in his own home by one of the demented MAGA boys.

Why Democratic Presidencies Have Created 100,000 More Jobs Per Month Than Republican Presidencies Since 1939

Since Nixon - who quipped, "We're all Keynesians now" - the simplest distinction between Republicans and Democrats has been the belief in Keynesian economics.

Keynes was a savvy investor who died wealthy. He didn't just manage his own investments but also managed the portfolios of institutions like King's College at Cambridge.

Keynes - like modern Republicans - was a big fan of capital markets and their ability to create wealth. He also knew that capital markets sometimes need intervention - something most Republicans still don't admit.

A simple example of when markets need intervention is when there is a recession. When spending and hiring is down, the rational investor will abstain from making investments. This - of course - means that the downturn could be prolonged or even worsened. Everyone is doing what is best for them as individuals and as a result doing what is worst for them as a group. The simplest understanding of Keynes is that he argued that government should stimulate overall markets (with spending or tax cuts or both) during downturns in order to return the economy to full employment and entice rational investors to again expand, hire, or start new businesses.

Republicans are more likely to see downturns as good for the economy and are reluctant to intervene. A Republican president will happily sign a budget that results in deficits but is less inclined to do that simply because unemployment is up. One of the big differences between Romney and Obama in 2012 is that Romney advocated for letting the car companies in Detroit go bankrupt rather than intervening to save the companies and the jobs they represented.

So the simple question is, do presidents more sympathetic to Keynes preside over periods of higher rates of job creation? The answer is yes. Since 1939, 3X as many jobs have been created under Democrat presidents than Republican presidents. And this is not simply because Democratic presidents have been in office more years. Since 1939, the economy has produced about 100,000 more jobs per month under Democratic rather than Republican presidents.

Lincoln's huge breakthrough was to make the creation of capital even more important to economic progress than conquering new land. FDR's huge breakthrough was to make labor markets the simplest measure of economic health and tailor policies towards full employment and wage growth (and all the R&D and education policies that suggested in addition to stimulus programs).

There are plenty of Republicans who still haven't updated their ideas about the policies that make for a healthy economy since the time of Coolidge roughly a century ago. The difference in the rate of job creation is a simple consequence of their resistance to that update.

[Numbers updated through December of 2023, as of 5 Jan 2024]

The Smuggled Gods of Ellis Island

 Nobody knows just how many gods and beliefs were smuggled in through Ellis Island as the millions of immigrants came from various lands to live here in the land of religious freedom. 

The Truth About Free Will

 So, do we believe in free will? No. There's no profit in it. But reasonably priced will? That we can support and even offer at a low monthly fee, starting at just $9.99.

An Overlooked Future Utopia for Man's Best Friend

In the future, we will have 2 technologies that will change norms: self-driving cars and free energy. One of the consequences of this? Dogs will regularly be out "driving" around town, amusing themselves for no particular reason at (nearly) zero marginal cost.

2024 Economic Forecast: Faltering Labor Market and Booming Stock Market

I'm going to make an economic forecast for 2024.

Back in November of 2016, with Trump coming into office, I made this forecast. (The full forecast is

 https://rwrld.blogspot.com/2016/11/a-stimulus-boom-and-white-men-dancing.html
)

"The next four years will be great and it's perfectly plausible that unemployment will drop below 4% within two to three years. We might even see the uninterrupted run of positive job creation run out another four years, as absurd as that sounds."

We did see an uninterrupted run of positive job creation for 3 more years (finally interrupted by a global pandemic).
And unemployment did (absurdly) drop below 4% in less than two years.

No real economist would have made those forecasts so you can be glad that I only play one in my blog.

So what outlandish forecasts do I have for 2024? A booming stock market and a faltering job market. And really, both seem to me simply natural consequences of Powell's rate cuts finally kicking in and the resultant need to quickly reverse that.

First of all, the Fed's higher rates are going to finally have an effect on aggregate demand. Powell has never once spoken to his theory of how long is the lag between his hiking rates and when that would reduce inflation. Inflation has come down but there is little evidence that it worked through the mechanism of higher rates - which lowers investment and borrowing and thus spending and prices. Most of the evidence seems to point to prices simply dropping as post-pandemic supply chains have slowly returned to normal and the world has gradually found substitutes for Putin's oil. I suspect that in early 2024 Powell's higher rates are going to finally impact spending and GDP growth will begin to falter. This will come largely after inflation has abated and we could even see a quarter or more of deflation. This is going to be bad for the labor market and we could see a month or three of job losses before yearend. (I doubt that it'll be anything major but you won't know that from all the cries of alarm.) At that point, Powell will rapidly begin dropping rates but of course ... the lag means it won't change things in the labor market very quickly. It will - though - change things in the stock market. All else being equal, lower real interest rates raise the value of assets and if Powell lowers rates more quickly than expected, the stock market will rise more than expected.

Capital markets will be happy with the sudden rush to lower interest rates. Faltering labor markets will be the reason for this rush.

2024 Forecast?

• Unemployment rate will rise above 4% and we will have perhaps one quarter of job losses.
• Stock prices will rise along with the unemployment rate. Perhaps dramatically.

**

These 2 images were generated by DALL-E. One a booming stock market and the other a scone line where people are lined up in a coffee shop looking online for work.

The Reality of the NASDAQ in these 2020s (so far)

The market volatility of the last few years has obscured a simple fact: at the end of 2023 the NASDAQ closed only 3% higher than it closed in 2020. 

That's the return on a savings account but with more twists, turns and narrative possibilities. A rise of 21% in 2021, a fall of 33% in 2022, and a rise of 27% in 2023 made it sound like more was happening than really was.

The NASDAQ: we're not here for the returns. We're here for the excitement.