Mission Accomplished: Yellen Says Fed's Battle is Over!
Who wouldn't trust a sweet ol' gramma?
Janet Yellen coos that the Fed has landed so softly we didn’t even feel the wheels touch the tarmac. It’s “mission accomplished,” according to Jesse Felder’s take on Yellen’s praise for the Powell landing. Apparently inflation has been tamed now with no significant damage to labor and no recession. Time to stop worrying about the economy or inflation. Oh, and she probably added another, “There will never be another financial crisis in my lifetime” for good measure as she is want to do.
Global freight, however, didn’t get Yellen’s memo, surging 60% last week with more freight-rate hikes to be delivered this week. So, likely more inflation coming down the road.
And, while GDP supports Yammering Yellen, the Druckenmiller Recession Proxy keeps screaming recession:
Which is an odd place for stocks to be priced to perfection, but investors probably prefer to listen to Yellen than Druck.
For a time with no recession, these days sure are turning in record business bankruptcies:
Private U.S. companies are seeing their earnings and profit margins collapse after the Federal Reserve’s rate hikes have lifted financing costs, and are increasingly going broke, according to a new report.
And that can actually increase inflation, too:
Larger companies have been mostly insulated from the pain so far. But these corporations often use mid-sized private firms as suppliers, and the failure of smaller businesses could disrupt supply chains and boost costs for bigger enterprises, according to the report from Marblegate Asset Management and Rapid Ratings on Monday.
Now, you might think bankruptcies aren’t that far above normal so far, but most companies, especially if they are not publicly traded companies, are hiding their pain, so you don’t know how many more are coming until the arrive:
“The water looks fine from the shore but what’s happening underneath the surface is a very very troubled environment that is very dangerous,” said Andrew Milgram, managing partner and chief investment officer at Marblegate….
The private companies saw a measure of their income, earnings before interest, taxes, depreciation and amortization, fall more than 20 per cent between 2019 and 2022. At larger public corporations, Ebitda grew nearly 20 per cent on average. Profit margins contracted among the smaller companies, and expanded at the bigger firms.
That profit pressure has resulted in more companies collapsing. Bankruptcy filings rose by more than 250 per cent in 2023 from the year before, driven mainly by smaller companies, according to the report.
These kinds of measures are why I am not predicting a recession for 2024. I’m saying we are already in one!
As Yellen smiles with glee over the sound shape we are in, she might consider that the commercial real-estate market is already a disaster, even if it is hasn’t taken down anymore banks.
America’s offices are emptier than at any point in at least four decades, reflecting years of overbuilding and shifting work habits that were accelerated by the pandemic.
Their plight has been made impossible by the Fed’s rate hikes, and the Fed has made clear there are no cuts on the near horizon.
A staggering 19.6% of office space in major U.S. cities wasn’t leased as of the fourth quarter, according to Moody’s Analytics, up from 18.8% a year earlier. That is slightly above the previous records of 19.3% set in 1986 and 1991 and the highest number since at least 1979, which is as far back as Moody’s data goes.
And it is not like we’ve mostly weathered through this now. Even if the Fed were to start lowering rates this summer, the lag time for the economy to feel the benefit from that loosening of credit is another year or more beyond that point. So, how many of these landlords can survive that long?
This time, most analysts expect offices to stay emptier for longer because vacancies have less to do with economic cycles and more to do with the growing popularity of working from home.
So, we have a lot more dead wood to burn up in bankruptcies for many months ahead. It might be a little soon and cavalier for the glee team to be singing about soft landings.
If the battle is behind us, and the landing has been stuck—softly stuck—why are so many banks back to running to the Fed’s latest bailout program for funding?
Over the last two months, the balance in the Fed Bank Term Funding Program (BTFP) has surged, and the pace of borrowing appears to be increasing.
Since Nov. 19, the amount of outstanding loans in the BTFP has increased by $27.3 billion. The balance in the bailout program grew by nearly $5.4 billion in just the last week.
As of Jan. 3, the balance in the BTFP stood at just over $141.2 billion. It’s the largest balance since the program was created in March.
Looks like trouble beneath the surface to me. When I see a lot of smoke curling out from under a door, I assume trouble. Could just be, of course, Janet and Jerome are in their smoking Cubans.
Let’s just hope it’s not due to banks carrying a lot of commercial real-estate loans or dealing with those business bankruptcies. Better hope it’s just J&J enjoying the soft landing up in the pilot’s airport lounge.
Lots of time left, though, for the growing economic and financial strains to keep popping and cracking until the breaks become visible—sort of like a 737 that has had a depressurization light flickering on and off once in awhile for a few months, which no one could figure out, then suddenly it just blows a panel out the side of the plane.
As Janet relaxes about inflation, I am maintaining my own prediction that inflation rises (and has already shown glints of that). Here is a little realization just in from the sudden “unexpected” rise in European year-on-year inflation that backs that prediction up:
Furthermore, the December inflation figures in the eurozone proved that the base effect was an uncomfortably large driver of the consumer price index annual decline in November. In fact, all the components published by Eurostat in the December advance came significantly above the European Central Bank target.
This is something I’ve tried to point out several times – that we need to keep our eyes on month-on-month inflation where small rises have been seen because the base effect on year-on-year inflation is giving those long-term numbers a lot of help in continuing to decline due to months more than half a year ago when inflation was coming down quickly. The base effect will be disappearing about now, so we may start to see YoY inflation rise. Then the fantasy-chasing markets will have a lot of reconciliation to reality to do.
We need to be careful with excessive optimism about inflation and even more aware of the perils of expecting disinflation with no economic harm. Many market participants are suddenly surprised that January has started with a negative trend, but this is explained by the excessive expectations of aggressive and immediate rate cuts.
Yeah, those were out of line. So, expect realignment to reality, even if Janet and Jerome are smoking up a storm in the lounge as Janet congratulates him on a great fight.
(Headlines today are free for everyone, and the quotes above come from the stories below that appear in boldface. Thank you to those who help make this writing possible.)
Economania (national & global economic collapse plus market news)
Private Companies Increasingly Going Bust as Profit Shrinks
Janet Yellen Declares ‘Mission Accomplished’
Second-largest U.S. radio company Audacy files for bankruptcy
Barclays slashed 5,000 jobs in 2023 as latest overhaul ramps up
China Stocks Slump to Five-Year Low in a Dismal Start to 2024
Mid-air blowout puts BOEING back in hot seat
Real-Estate Rubble (housing, commercial & global real-estate bubble trouble)
Offices Around America Hit New Vacancy Record
Millennials are moving to 'the most boring places in the world'
Money Matters (monetary policy, metals, cryptos, currency wars & cashless)
Bank Borrowing From Fed Bailout Program Has Surged
Bitcoin touches highest level in nearly two years as deadline for spot ETFs looms: CNBC Crypto World
Overinflated from too much money & Underfed from too few goods (due to weather, sanctions or other supply issues)
Three Risks to the Inflation Narrative
PepsiCo products removed from supermarket giant's shelves over 'unacceptable' price hikes
Oil falls about 4% as Saudi price cuts add to demand doubts
Wars & Rumors of War, Revolts, Hacks & Cyberattacks (+ AI threats)
With each strike, fears grow that Israel, the US and Iran’s allies are inching closer to all-out war
Israel-Hamas war 'could easily metastasize' beyond Gaza, Blinken warns
Russians are going to shocking lengths to escape war – at agonising cost
Political Pandemonium & Social Senescence (major socio-political issues & events but not campaigns)
Speaker Johnson in pressure cooker as shutdown deadline nears ... again
Speaker Johnson Announces $1.66 Trillion Bipartisan Package To Avert Shutdown
The ‘walking route’: How an underground industry is helping migrants flee China for the US
Michelle Obama: 'Terrified' about '24 election
Democrats question whether Biden should agree to debate Trump
A Pox Upon Us (the plagues, pandemics & health police of the 2020s)
The AARP Just Told Its 38 Million Members To Get An 8th (Yes, Eighth!!) Shot Of mRNA
Calamity and Catastrophe
40 states under blizzard, wind or flood alerts Monday as winter storms cross country
Gonna sound loike a broken record. Debt must be repaid or repudiated. It is now (or very soon) time. Unfortunately it will result in a tremendous lowering of standard of living. Unavoidable and long overdue. I can only sincerely hope Mrs Yellen does NOT believe what she says. I find it inconceivable that she is that stupid. The banks are ALL in trouble, maybe the big ones less so; CRE lenders and creditors are likely in even worse shape; state and municipal governments are increasingly bankrupt, and the National debt is rising one TRILLION every quarter. I am not even an armchair economist (more likely a toilet bowl economist), but how can this end with anything other than collapse?? Its the Great Recxession all over again but 50 times worse. Soft landing?? Like an asteroid has a soft landing.
I guess if the mission is to continue to prop up the fake stock market and the banks, then it probably is pretty much being accomplished. Linking as usual @https://nothingnewunderthesun2016.com/