I was obsessed with Wall Street from an early age. I grew up wanting to be a stockbroker. I pretended to read the WSJ in middle school. I took a field trip to the New York Stock Exchange my freshman year. I had a “Wall Street” street sign hanging in my room.
Then last week’s New York City Democratic primary resulted with a…socialist?
Say it ain’t so Big Apple! The City that Never Sleeps! If you can make it here you can make it anywhere!
Our daughters, both gainfully employed today, were both in college in 2020. Hyper-ambitious. Obsessed with grades. So much so that we told them on more than one occasion, “go make a bad decision or something.” Early that year, I told them that the only way the Democrats could lose was if they nominated a socialist like Bernie Sanders. He was competitive for a while, eventually dropping out to pave the way for Biden. My daughters liked Sanders and couldn’t understand why I was so opposed to him.
They are both way smarter than me, so I went the dumbed-down route. “Do you guys like group projects?”
“No, they suck.”
You can think of all the reasons why they listed off.
“Socialism is like a giant group project. You hate it when classmates are allowed to live off your hard work, and so do I. It never works in the long run.”
Fast forward 5 years, with tech trillionaires competing to be the first private NASA and Jeff Bezos trying to rent Venice for his wedding, and I can appreciate their viewpoint, even if I don’t agree with it.
But now…NYC has gone socialist?! What’s next – Texas banning guns? California lowering taxes?
Even more disturbing…a New York billionaire...rich off the family business his dad built…with an outsized ego…a penchant for late night theatrics…might be the only one left to save Gotham?
Is Donald Trump…gulp…Batman?
Last Week This Morning
- 10T: 4.28%
- 2T: 3.75%
- SOFR: 4.28%
- Term SOFR: 4.32%
- GDP: -0.5% vs -0.2% expected
- Personal Income: -0.4% vs 0.3% expected
- Personal Spending: -0.1% vs 0.1 expected
- Inflation
- Core PCE m/m: 0.2% vs 0.1% expected
- Core PCE y/y: 2.7% vs 2.6% expected
- Fed Speeches – enough dovish chatter to help rates lower
- Fed Chair Powell: “I think if it turns out that inflation pressures remain contained, we will get to a place where we cut rates sooner than later.”
- Fed Bowman: "Should inflation pressures remain contained; I would support lowering the policy rate as soon as our next meeting."
- Fed Williams: “I expect uncertainty and tariffs to restrain spending and reduced immigration to slow labor force growth.”
- Fed Kashkari: “Maintain my outlook for two cuts over the remainder of 2025, implying a possible first cut in September, barring some surprising development before then."
- Fed Barkin: “To date, these increases have had only modest effects on measured inflation, but I anticipate more pressure is coming.”
- Fed Goolsbee: “Somewhat surprisingly, thus far, the impact of tariffs has not been what people feared…if we do not see inflation resulting from these tariff increases, then, in my mind, we never left what I was calling the golden path before April 2.”
GDP and Inflation
Core PCE came in slightly higher than expected, but not enough to spook markets against a weaker than expected GDP revision and very weak consumer spending.
The inflation story is entirely about tariffs now (supply side), but demand has dropped off substantially. This is what I’ve been talking about for months. The best cure for inflation is inflation. People adjust their spending habits when things cost more. Below is the SF Fed composition of inflation - the green is supply side, while the blue is demand side.
Let me zoom in for the boomers. Look at how small the blue (demand) was last month.
That can’t be good for consumer spending data, which drives GDP. The NY Fed DGSE model forecasts substantial GDP cooling over the next 12 months, from 3%-ish to 0%-ish.
We get the next job report on Friday. Who cares what the number will be at this point, we won’t have an accurate gauge for two more months. The forecast is for 113k. I can’t figure out why this isn’t a bigger deal to people. The economy needs to average roughly 100k to keep pace with population growth. That means we are already flirting with contraction.
Plus, continuing claims hit 2mm. One of my favorite economists is Neil Dutta, Head of Economics at Renaissance Macro Research. He notes that while layoffs have not begun in earnest, a genuine lack of hiring has. And that usually comes before layoffs.
Rates
All it took to push yields down was for me to say they would go up – The Inverse JP lives on! Bloomberg’s Edward Bolingbroke highlighted how option traders are loading up on protection against a T10 at 4%. What happened to the “sell America, rates skyrocketing” trade?
Asset managers continue to pile into long 10yr positions (helping to explain the deeply negative swap spreads we are seeing). Hedge funds are taking the opposite position. In general, asset managers tend to be right. This is a good sign if you want lower rates.
Meanwhile, the T2 is at its lowest level in two months, which is good for caps. Futures markets have a 92% probability of a cut by the September meeting (CME Group Fedwatch).
Betting markets are picking up steam for the next Fed Chair nomination (Polymarket and Bloomberg).
Meanwhile, here’s what I think it should be since I promise to cut Fed Funds 1% lower than any other nominee with a motto of “Make rates low again!”
Given how strongly the Inverse JP performed last week, I will bite my tongue on where I think rates are headed so as not to jinx us all…
But here I am, shockingly accurately portrayed…
The Week Ahead
Jobs Thursday. Last month saw a downward revision of 108k to the prior month. Let’s all make a pact to not overreact to the headline NFP and instead focus on last month’s revision. Deal?
Since I needed to have some fun while maintaining my sanity this weekend, a couple more…
Trump and Vance on the Great Wall of Mexico. I can’t tell if JD is jumping or if the Donald threw him…
What Mamdani thinks he looks like.
Vs what he actually looks like.
