Newsletter

“A rose by any other name would smell as sweet.” – William Shakespeare, Romeo and Juliet Yesterday, the Bureau of Economic Analysis released its first GDP estimate for Q1, revealing a – 0.28% contraction. The report appears to blame the Trump Tariffs, citing a surge in imports as companies stockpiled ahead of the levies. But this narrative does more harm than good. First, this front-running of tariffs is a one-time effect, leaving doubt as to potential effects going forward. Second,…

Each month, we provide a brief look at various parts of the market or economy. As I prepared for this month’s newsletter, I spent time reviewing our past reports and noticed something important: we seem like contrarians. While I am not going to break the trend, I would like to stress that we are not contrarians but rather prefer to focus our communications on subjects you may not be reading elsewhere. Case in point: This week, the government released the…

“It’s tough to make predictions, especially about the future” – Yogi Berra Mainstream economic theory has taken a beating in recent years. Sophisticated tools (rules) that were developed to forecast relatively small changes in economic conditions have been unreliable with the extreme changes the world has faced since the onset of COVID. For instance, the Index of Leading Economic Indicators has been flashing a recession warning since late 2021, a period where the US experienced strong economic growth. In our…

Long time readers of our newsletter know that we are not fond of market narratives – stories built on an ounce of truth and a pound of nonsense. They are the modern equivalent of ghost stories… but for old(er) people. The latest narrative involves rising interest rates in the US. The story tellers begin with a 6-week chart showing rapidly rising rates and they tie the rise in rates to a new fear of fiscal deficits and tariffs. This is…

Last month’s Recession Watch newsletter highlighted VISA’s credit card activity index to get a sense of how the consumer is faring. This month, we take a higher-level view of spending and explain why bank lending is critical for economic growth. The chart compares the most recent lending data vs levels seen just prior to the COVID crisis. Total lending is currently growing at a 2.5% annual rate versus 4.7% pre-COVID. More importantly, consumer credit card lending is the only segment…

Over the past month, the economic narrative has finally shifted. At the annual Federal Reserve conference in Jackson Hole, Chair Powell expressed ‘greater confidence’ in the declining inflation data and the normalization of labor markets. Consequently, the financial media has started featuring a new group of experts who argue that the Fed might be acting too late. Are they right? Answering this question is difficult under normal circumstances, but this economic cycle is far from normal. The sophisticated models designed…

As we have chronicled, the underlying inflation data is showing persistent signs of weakeningwhile the headline numbers remained stubbornly high. Conversely, we have shown that whileeconomic growth remains strong, the growth is ever increasingly attributable to one sector of theeconomy – the consumer; or more precisely, consumer spending on services. Recent data releasessuggest that both inflation and spending are finally cooling. To continue with the soft-landing analogy (cliche?), we are in final approach but we arecaptained by a team with…

As the inflation story continues to drag on longer than anyone hoped or expected, we continue todissect it and present our findings to clients. In those discussions, a few questions keep surfacing. Here are a few answers: Inflation simply refers to the change in prices, typically reported on a year-over-year basis. Ifan apple cost $1.00 last year but costs $1.10 this year, the ten cent increase amounts to 10%inflation. However, if the price of the apple falls to $0.90, it…