Month: September 2024

“This is mastery,” says @Overton in a post on X, “The perfect articulation of what is currently transpiring in America.”

In just over three brief minutes, Vivek Ramaswamy delivered what might be the most incisive explanation of the forces shaping the 2024 election and what Americans are truly facing.

“You hear a lot of fellow Republicans refer to Kamala Harris as a far-left ideologue or a Marxist or a communist. You won’t generally hear me levelling that critique against her because I think it gives her too much credit.“

“Kamala Harris isn’t ideological particularly. I think last night [the debate] demonstrated this too.”

Ramaswamy argues that the real adversary is not a singular candidate, but rather a pervasive interconnected system;

“We’re not even up against a candidate. We’re up against a machine. It’s a perverted upside down version, hellish version of the San Antonio Spurs under Gregg Popovich or something like that in the sphere of American politics.”

“You could replace the individual person who’s playing in the position, but it’s the machine that ultimately achieves its objective, and that’s what’s really going on in this race.”

“This isn’t about Republicans vs. Democrats. Not quite. It’s not about Black vs. White. It’s not about man vs. woman. The media, the powers that be will try to train you. Divide and conquer. Pit groups against one another. Identity politics. Vote bank politics. Don’t fall for that trick.”

According to Ramaswamy, the true divide is between the managerial class and everyday citizens.

“It is about the managerial class, the bureaucratic class and the everyday citizen. That’s the real divide in this country.”

“You’ve seen many former Democrats, even iconoclastic Democrats that have criticized candidate like Kamala Harris or Joe Biden, even from a progressive vantage point, now shifting over to support Donald Trump.”

“So,” Ramaswamy asks (and answers): “what’s going on there?”

“I think it is evidence of the fact of the real divide is not really between the traditional Republican and the Democrat, but between this managerial class, the people who were never elected to exercise political power.”

“Be they in the media, be they in certain parts of the corporate capture machine or especially be they in the administrative state, the unelected bureaucrats who are writing more laws and setting more policies than even Congress which was elected to actually carry out that function, that’s who’s actually running the country.”

The clear-speaking and clear-thinking tech executive turned political operative summed it all up perfectly:

“It’s not Joe Biden – it’s not even really Kamala Harris, it’s not their ideology because I don’t think they have one.”

“It is the permanent state.”

“The fourth branch of government.”

“The leviathan.”

“The swamp.”

“The managerial class.”

“The committee class.”

“The bureaucrats.”

“That’s who’s running the show today. And that’s what we’re really up against. We’re not just running to defeat a candidate, we are running to dismantle a system.”

And that’s why Ramaswamy says we need Donald Trump…

“That’s what Donald Trump meant the first time around when he said he wanted to go in there and drain the swamp, and I think this time more than ever, he has the toolkit to actually do it.”

Watch Vivek’s ‘drop the mic’ moment in full below:

WATCH: Vivek Ramaswamy Delivers The Greatest Breakdown of the 2024 Election in Under Three Minutes — ‘We Are Running to Dismantle a System’ | @VivekGRamaswamy

This is mastery. The perfect articulation of what is currently transpiring in America.

Vivek Ramaswamy just delivered… pic.twitter.com/LsPHttvnZM

— Overton (@overton_news) September 14, 2024

Authored by Luis Cornelio via HeadlineUSA.com,

President Joe Biden threw his pledge of decency out of the window on Sunday when a British reporter asked about Russian threats of a potential war with the U.S. 

Biden – about to converse with British Prime Minister Keir Starmer – showed no interest in the question and told the reporter to hush. 

“I say you be quiet when I speak, okay? That’s what I say. Good idea?” Biden rudely said while sitting in front of Starmer and next to Secretary of State Antony Blinken and National Security Advisor Jake Sullivan. 

The reporter, presumably a member of the British press corps traveling with Starmer, reiterated his question despite Biden’s berating. 

“But what do you say to Vladimir Putin’s threat of war, sir? It’s a serious threat,” the journalist pressed, referring to Putin’s warning that any U.S. approval of long-range weapons for Ukraine could lead to war with Russia.

“You gotta be quiet and I’m going to make a statement, okay?” Biden responded, turning back to Starmer and welcoming him to the White House. 

Crooked Joe Biden freaks out on a reporter for asking him a question.

His cognitive decline (which Kamala covered up) has turned him even angrier. pic.twitter.com/6fXMo9PPGZ

— RNC Research (@RNCResearch) September 14, 2024

This incident – first reported by the New York Post – is part of Biden’s pattern of berating reporters who ask pointed questions. 

He previously referred to Peter Doocy, a White House correspondent for Fox News, as a “stupid son of a b*tch.” Doocy’s question about whether inflation was a “political liability” for the 2022 midterms triggered Biden’s anger.

In February 2024, Biden lashed out at Doocy during a press conference discussing Special Counsel Robert Hur’s findings on Biden’s mishandling of classified documents. Hur cited Biden’s weak memory as a factor in recommending against criminal prosecution. 

“How bad is your memory and can you continue as president,” Doocy asked, referencing Hur’s findings. 

Biden then retorted, “My memory is so bad I let you speak.” 

Seemingly taking cues from her boss, White House Press Secretary Karine Jean-Pierre on Friday berated Newsmax’s James Rosen for challenging her on Haitian nationals.

“Not everybody wants to hear the sound of your voice, sir,” she rudely told Rosen.

This behavior, though unsurprising, contradicts Biden’s purported pledge to restore “decency” and “respect” to the White House if elected in 2020.

Hedge funds and other asset managers have never been more pessimistic about the outlook for petroleum prices, as signs multiply that the major industrial economies are losing momentum according to energy analyst John Kemp. Investors have also concluded Saudi Arabia and its OPEC+ allies have run out of options and either cannot or will not restrict their own production further to offset the slowdown in consumption growth and slide in prices.

Hedge funds and other money managers sold the equivalent of 128 million barrels in the six most important futures and options contracts over the seven days ending on September 10. Fund managers have sold petroleum in eight of the most recent ten weeks, cutting their combined position by a total of 558 million barrels since the start of July.

And for the first time on record, funds held a net short position of 34 million barrels down from a net long position of 524 million barrels on July 2.

The most recent week saw heavy sales across the board, led by Brent (-54 million barrels), but including NYMEX and ICE WTI (-27 million), European gas oil (-20 million), U.S. diesel (-15 million) and U.S. gasoline (-11 million). 

Fund managers have sold Brent in seven of the most recent nine weeks, slashing their position by a total of 213 million barrels since July 9.  For the first time on record, funds held a net short position in Brent of 13 million barrels down from a net long position of 200 million nine weeks earlier.

 
Fund managers also held a record net short position of 48 million barrels in European gas oil and a near-record net short position of 39 million barrels in U.S. diesel.

Even in WTI and gasoline, where sentiment was not quite as gloomy, positions were only a few million barrels above record lows.

In the premier NYMEX WTI contract, fund managers have boosted short positions by a total of 61 million barrels in the last four weeks.

Bearish petroleum positions have become very crowded and the accumulation of short positions is creating conditions for a sharp jump in prices if and when the news flow becomes less negative.

For now, however, investors are focused on the limited options available to OPEC⁺ to counter the deteriorating economic outlook.

DEPTHS OF DESPAIR

Investors are extraordinarily pessimistic even though benchmark Brent futures prices have already fallen to their lowest in real terms since early 2021.

After adjusting for inflation, crude prices have retreated to levels last seen when the major economies were still in the grip of the coronavirus pandemic and the first successful vaccines had only recently been announced.

Inflation-adjusted Brent prices have averaged $72 per barrel so far in September, putting them in the 35th percentile for all months since the turn of the century, down from a recent high of $90 (57th percentile) in April.

The price slide is sending an increasingly strong signal about the need for a further deceleration in production growth to match the deteriorating macroeconomic environment and worsening outlook for consumption.

Since October 2022, Saudi Arabia and its OPEC⁺ partners have announced production cuts totalling 5.66 million barrels per day (b/d) to reduce excess inventories and drive prices higher.

Recently the group has been trying to unwind some of those cuts but has been forced to postpone planned output increases by the slowdown in consumption and renewed slump in prices.

Investors have concluded the group does not have an appetite to cut production further in the short or medium term.

The burden of adjustment must therefore fall on rival producers in the United States, Brazil, Canada and Guyana, which have accounted for nearly all output growth in recent years

Prices will decline until they enforce a further slowdown in drilling and production growth by U.S. shale producers, the most price-sensitive suppliers in the short term.

U.S. NATURAL GAS

Investors are cautiously building a bullish position in U.S. natural gas as ultra-low prices and record consumption by gas-fired generators whittle away excess inventories inherited from the exceptionally mild winter of 2023/24.

Hedge funds purchased the equivalent of 192 billion cubic feet (bcf) in the two major futures and options contracts tied to prices at Henry Hub in Louisiana over the seven days ending on September 10.

Funds have purchased a total of 290 bcf over the last two weeks taking their net long position to 507 bcf (45th percentile for all weeks since 2010) though the position is still far below the recent high of 1,170 bcf (60th percentile) in mid-June.

Inventories have been normalising rapidly as ultra-low prices have encouraged maximum consumption by power generators in the last stages of the summer airconditioning season.

Working inventories increased by a total of just 188 bcf over the nine weeks ending on September 6, the smallest seasonal accumulation for more than a decade, and less than half the average of 441 bcf in the past ten years.

As a result, in early September stocks were still high but back within the normal range of ± 1 standard deviations away from the average for the first time since early February.

With the main airconditioning season almost over, inventories will soon start rising faster, and are likely still to be above average when the main winter heating season starts on November 1.

But the surplus will be much smaller than a few months ago, and prices have begun to climb, reflecting the more balanced outlook for winter 2024/25.

In more bad news for the Netanyahu government amid large protests led by hostage victims’ families, Israel’s military has belatedly issued the damning results of a formal probe into the deaths of three Israeli hostages whose bodies were recovered back in December.

The Israel Defense Forces (IDF) now admit the three were “most likely” killed as a result of an Israeli airstrike. This comes after months of prior denials and is sure to fuel the anti-Netanyahu protests movement further. The IDF issued its findings with a ‘high probability’. 

Two soldiers – Corporal Nick Beiser and Sergeant Ron Sherman – and and civilian man, Eliya Toledano, had been kidnapped by the Hamas raids into southern Israel on Oct. 7.

They were being held in tunnels underneath the Gaza Strip when on November 10, 2023 airstrikes conducted by Israeli Air Force jets resulted in their deaths, the IDF has described.

The military says it was unaware of their presence in the vicinity during the bombing raid. “It is estimated that the three were most likely killed as a by-product of an IDF airstrike, during the assassination of the commander of the northern division of Hamas, Ahmed Andor, on November 10, 2023,” an official statement said.

“This is an estimate with a high probability in view of all the data, but it is not possible to determine with certainty the circumstances of their death,” the IDF continued. “This determination is based on the location where their bodies were found in relation to the impact of the attack,” as well as intelligence assessments. The families of the victims were informed of the internal military investigations findings on Sunday.

Qatar-based Al Jazeera, which is banned by Israel, has pointed out that the findings will prove deeply embarrassing for the Israeli government and military at a tense time of domestic turmoil and division:

“There have been a series of significant intelligence and security failures that the military has gone through throughout this war, the most notable of them back in December when the Israeli army shot and killed three captives in the Gaza Strip,” she said.

Salhut said the latest admission by the military “is not being received quite well because there are families of captives calling for a deal, fearing this exact type of thing.“

“It is certainly an embarrassment on all scales, not just politically but security-wise as well, that the army made this admission so many months later.”

There are some 100 captives still believed to be in the Strip, but many of them are feared dead. Families also fear that a number of captives have been killed by Israeli ‘friendly fire’ in the chaos of urban fighting – and are angered that a second-round major hostage deal with Hamas has not been achieved. 

Earlier this month Hamas warned that it would execute hostages if IDF forces get close to their locations. This appears to have happened in the case of six deceased recovered earlier in September. Before they were shot multiple times by Palestinian militants, the six were held in horrific underground conditions and in small confines.

In the lead up to the 2020 election between Donald Trump and Joe Biden the US was embroiled in a host of civil conflicts from BLM and Antifa riots to debates over the pandemic response.  The Democrat’s election message was essentially a “return to normalcy” – “Wouldn’t it be nice if all these riots and disruptions stopped?  Vote for Joe and it will all go away.”

Except, it didn’t go away.

Today as the 2024 election swiftly approaches the public is being made a very similar empty offer; the claim being that none of this political drama would be happening if Trump wasn’t a factor.  It is this argument that is being used to justify not one but two separate near-miss assassination attempts on Trump, both carried out by confirmed supporters of Democrat institutions like ActBlue and the latest suspect, 58-year-old Ryan Routh, is a verified Bernie Sanders and DNC supporter who actively tried to recruit foreign mercenaries for the war in Ukraine. (Claims that Routh voted for Trump in 2016 appear to be false.  Records from his residence in North Carolina show Routh did not vote in 2016).

This is 58-year-old Ryan Wesley Routh. A background check on Routh turned up about 50 pages of criminal activity. (Yes, 50). Most of the charges state ‘charges filed, unspecified’ and cover a time span from 1984 to 2019.

He is registered to vote in Guilford County, North… pic.twitter.com/0bBOJwCI0L

— Sarah Fields (@SarahisCensored) September 15, 2024

Establishment news platforms blame Trump for both attempts on his life.

The second assertion by leftists is that Democrats like Kamala Harris are not responsible for the actions of two “random” unhinged shooters and the political left is mostly peaceful, but this excuse doesn’t hold up to scrutiny.  In fact, Democrat media rhetoric for the past several years has radicalized progressive activists into a delusional frenzy, with millions of them being told that Trump and conservatives are an “existential threat to Democracy” similar to the Third Reich.  

The Russian Collusion hoax, the false claims of insurrection on January 6th and the false claims about Trump’s “racism” have driven these people insane and, in their minds, killing him would save the world.  Demonize your political enemies enough and any criminal action could be treated as justifiable.  This zealotry is not limited to a handful of bad apples, it’s pervasive among progressive groups.

 

The classic Marxist strategy is to attack the target leadership or system as much as possible while claiming your attempts at sabotage are actually the fault of the very people you seek to destroy.  In other words, gaslight your political opponents and tell everyone they made you do bad things to them.  Leftists must remain the perpetual victims, the perpetual underdogs, otherwise their entire narrative as “revolutionaries” falls apart.

It should be noted that only one side of the American discourse has consistently supported violence and assassination as their go-to solution to the possibility of losing the election.

The corporate media want to blame Trump for the second assassinat*on attempt on his life today.

His mortal sin? Disagreeing with Democrats.

Here are two straight minutes of partisan Democrats spreading hateful and incendiary rhetoric about Donald Trump:pic.twitter.com/6t3q9XJuv7

— Kyle Becker (@kylenabecker) September 16, 2024

This is not to say that the scale needs to be “balanced out” (that’s a debate for another time), only that leftists continue to ignore the very democracy they claim to defend whenever public sentiment doesn’t go their way.  Make no mistake, if Ryan Routh had been successful there would be millions of Democrats on social media cheering and gloating today.  They don’t care about what’s right, they only care about “winning.”

Via SchiffGold.com,

As the 2024 presidential race ramps up, Vice President Kamala Harris has unveiled an economic agenda that she claims will lower costs for American families and boost economic growth. However, her proposals reveal a reliance on heavy-handed government intervention that will harm the very people she aims to help. At the core of Harris’ approach is a fundamental distrust of free markets and a belief that the government can effectively micromanage the country’s economic systems.

One of Harris’ most concerning proposals is her plan to impose federal limits on price increases for food producers and grocers. While rising food prices are undoubtedly a burden for many families, attempting to control prices through government intervention is a recipe for disaster. Price controls invariably lead to shortages and black markets. Looking at the failures of price controls in countries like Venezuela is enough to see the devastating consequences of such policies. Instead of allowing market forces to efficiently allocate resources and incentivize increased production, Harris’ approach will result in reduced investment in the food industry and potential shortages of staple goods.

Harris’ housing proposals similarly rely on heavy-handed government intervention. Her plan calls for the construction of 3 million new housing units to ease supply shortages, along with providing $25,000 in down payment support for first-time homebuyers. Having the federal government directly subsidize construction on this scale risks crowding out private investment, leading to crippling public sector inefficiencies.

Instead, housing reform should focus on removing regulatory barriers to new construction at the local level. Restrictive zoning laws and mandates are the primary culprits behind America’s housing shortage. By incentivizing states to improve these processes, we would promote private sector housing development without incurring massive federal spending. The solution is less government intervention, not more.

Harris’ tax proposals also reflect a misguided belief that we can tax and spend our way to prosperity. By seeking to raise taxes on corporations and high-income individuals, she risks reducing the capital investment needed to drive productivity growth and real wage increases.

The vice president also plans to expand various subsidies for housing, childcare, and other expenses. While they appear to give support to families, these policies fail to address the root causes of affordability challenges and risk creating new forms of government dependency. A better approach would be to pursue policies that decrease the government influence in the economy which causes the inflation that is harming families.

Proponents of Harris’ plan argue that it will provide much-needed relief to struggling American citizens. However, the long-term consequences outweigh the potential short-term benefits. According to an analysis by the Penn Wharton Budget Model, Harris’ economic proposals would increase federal deficits by $1.2 trillion over the next 10 years on a conventional basis, and by $2.0 trillion when accounting for macroeconomic effects. This massive increase in government debt will tend to crowd out private investment and lead to higher interest rates, potentially triggering a recession.

Moreover, the Penn Wharton analysis projects that Harris’ plan would actually reduce GDP by 1.3 percent by 2034 and by 4 percent within 30 years, relative to current law.

This decline in economic output would translate to lower wages for workers across all income groups. The model estimates that pre-tax wages would fall by nearly one percent over the next decade and by 3.3 percent by 2054.

These projections highlight the central flaw in Harris’ approach: by prioritizing short-term government intervention over policies that foster long-term economic growth, her plan risks making everyone worse off in the long run.

Ultimately, Harris’ economic vision reflects a belief that enlightened bureaucrats and politicians in Washington can effectively plan and manage a $25 trillion economy.

But the failures of central planning throughout history show that free markets remain the greatest engine for prosperity and human flourishing.

Rather than expanding government control over vast swaths of the economy, policymakers should focus on creating the conditions for organic economic growth. This means maintaining sound monetary policy, reducing regulatory burdens, promoting free trade, and fostering innovation and entrepreneurship.

Economic freedom, not top-down control, is the most effective way to build a more prosperous future for all.

It’s all about the Fed this week and the first rate cut since March 2020 when Powell took rates to zero in response to the global covid shock. The only question is whether it will be a 25bps or 50bps rate cut. During a 36-hour monetary roller coaster mid week, we will also get policy decisions in Brazil, South Africa the UK and Japan, but those pale in comparison to the Fed.

This time last week DB’s Jim Reid suggested that if we were going to get 50bps from the Fed on Wednesday we probably needed a media leak as we approached or entered this past weekend. Thursday’s WSJ (link here) and FT (link here) articles certainly weren’t smoking guns towards 50bps but they suggested the prospect was higher than where it was after Wednesday’s slightly firmer CPI report. It’s hard to know how informed the WSJ article was but as you will remember, the same author (Nick Timiraos) wrote a much firmer endorsement of a surprise 75bps hike just before the June 2022 FOMC which completely moved the needle at the time. There was little doubt that this was well informed. As we will discuss in more detail shortly, DB economists and strategists put both WSJ articles (2022 vs 2024) from this same author into the bank’s proprietary AI tool (it’s not called ChatDBT but I’ll refer to it that way) and it said that “the June 2022 article conveys a strong sense of urgency and conviction regarding the need for a significant rate hike to combat inflation. The September 2024 article, while discussing the possibility of a rate cut, presents a more balanced and less decisive outlook, reflecting the Fed’s cautious approach in navigating economic uncertainty”. So it confirmed the prior assumption about the fresh WSJ article that although this could be a signal that things were closer than we thought, there is no slam dunk here.

Back to the Fed, in the absence of any weekend articles that could have been sourced to the Fed, it really leaves the decision on Wednesday on a knife-edge, something that hasn’t often been the case by the time we ultimately arrived at each FOMC in recent years. Normally its been fairly obvious that close to the meeting or the Fed have found a way of guiding the market to the eventual outcome. At the moment DB is expecting 25bps but with market pricing where it is (66bps priced in this morning), and if no Fed leaks push us back towards 25bps over the course of the next 12-24 hours, DB economists could easily move to a 50bps today as they don’t think the Fed will want to surprise the market too much on the day. We will see. As important as the 25 vs 50 debate will be the communication from the Fed. Would a 50bps be the start of 50s or a one off larger move to start the cycle? Would a 25bps mean the bar for subsequent 50s is high? There will be lots to digest.It will be difficult to deviate the messaging too far away from the latest updated Summary of Economic Projections (SEP) and dot  plots though. So in many ways that constrains the messaging unless we see large changes.

DB’s economists think the Fed’s growth forecasts are likely to be little changed but the median core PCE inflation forecast could fall by a tenth or two. They believe the unemployment rate forecast will move higher this year – likely into the 4.3-4.4% range – but be mostly unchanged in subsequent years. If the Fed cuts by 25bps on Wednesday, they would expect a median of 75bps of cuts this year and if they cut by 50bps, they would expect the SEP to reflect 100bps of cuts through year-end.

Outside of the Fed the main highlights are tomorrow’s US retail sales and industrial production, Wednesday’s US housing starts and permits and UK inflation, Thursday’s Bank of England decision, US existing home sales and initial jobless claims, and Friday sees the BoJ meeting, China decide on 1 and 5-yr prime rates, Japan’s CPI, and German PPI.

We also get some global central bank activity starting with the Bank of England’s policy rate decision on Wednesday. Economists surveyed by Bloomberg are expecting the Bank Rate to remain unchanged at 5% after Governor Bailey warned in August that the BOE will need to be “careful not to cut interest rates too quickly, or too much.”  And on Friday, the key point of interest for the day will be the Bank of Japan’s policy rate decision. No change from the prevailing 0.25% target rate is expected by surveyed economists this time around.

Courtesy of DB, here is a day-by-day calendar of events

Monday September 16

• Data: US September Empire manufacturing index, Italy July general government debt, trade balance, Eurozone July trade balance, Q2 labour costs, Canada August existing home sales, July manufacturing sales
• Central banks: ECB’s Panetta speaks

Tuesday September 17

• Data: US August retail sales, industrial production, capacity utilisation, September New York Fed services business activity, NAHB housing market index, July business inventories, Japan July Tertiary industry index, Germany and Eurozone September Zew survey, Canada August CPI, housing starts
• Auctions: US 20-yr Bonds (reopening, $13bn)

Wednesday September 18

• Data: US August building permits, housing starts, July total net TIC flows, UK August CPI, RPI, PPI, July house price index, Japan August trade balance, July core machine orders, Eurozone July construction output, Canada July international securities transactions, New Zealand Q2 GDP
• Central banks: Fed’s decision, BoC’s summary of deliberations, ECB’s Holzmann, Vujcic and Nagel speak

Thursday September 19

• Data: US Q2 current account balance, September Philadelphia Fed business outlook, August leading index, existing home sales, initial jobless claims, Italy July current account balance, EU27 August new car registrations, ECB July current account
• Central banks: BoE’s decision, ECB’s Knot, Nagel and Schnabel speak, Norges decision
• Earnings: FedEx
• Auctions: US 10-yr TIPS (reopening, $17bn)

Friday September 20

• Data: China 1-yr and 5-yr loan prime rates, UK September GfK consumer confidence, August retail sales, public finances, Japan August national CPI, Germany August PPI, France September manufacturing confidence, August retail sales, Eurozone September consumer confidence, Canada July retail sales, August industrial product price index, raw materials price index
• Central banks: BoJ’s decision, ECB’s Lagarde speaks

* * *

Finally, looking at just the US, Goldman writes that the key economic data releases this week are the retail sales report on Tuesday and the Philly Fed manufacturing index on Thursday. The September FOMC meeting is this week. The post-meeting statement will be released at 2:00 PM ET, followed by Chair Powell’s press conference at 2:30 PM.

Monday, September 16

• 08:30 AM Empire State manufacturing survey, September 11.5 (consensus -4.3, last -4.7)

Tuesday, September 17

• 08:30 AM Retail sales, August (GS -0.3%, consensus -0.2%, last +1.0%); Retail sales ex-auto, August (GS +0.1%, consensus +0.2%, last +0.4%); Retail sales ex-auto & gas, August (GS +0.1%, consensus +0.3%, last +0.4%); Core retail sales, August (GS +0.1%, consensus +0.3%, last +0.3%): We estimate core retail sales expanded 0.1% in August (ex-autos, gasoline, and building materials; month-over-month SA). Our forecast reflects mixed card spending and a moderation from the 7.7% annualized pace of retail control growth over the prior two months, but a potential boost from back-to-school shopping. We estimate a 0.3% decline in headline retail sales, reflecting lower gasoline prices and lower auto sales.
• 09:15 AM Industrial production, August (GS +0.2%, consensus +0.2%, last -0.6%); Manufacturing production, August (GS +0.1%, consensus flat, last -0.3%); Capacity utilization, August (GS 77.8%, consensus 77.9%, last 77.8%): We estimate industrial production increased 0.2%, as strong natural gas and electricity production balance weak oil and mining production. We estimate capacity utilization remained at 77.8%.
• 10:00 AM Dallas Fed President Logan (FOMC non-voter) speaks: Dallas Fed President Lorie Logan will deliver pre-recorded welcoming remarks at the Eleventh District Banking Conference, hosted by the Dallas Fed. Her remarks will not address monetary policy or the economy, reflecting the FOMC’s blackout period.
• 10:00 AM NAHB housing market index, September (consensus 41, last 39): 10:00 AM Business inventories, August (consensus +0.3%, last +0.3%)

Wednesday, September 18

08:30 AM Housing starts, August (GS +6.3%, consensus +5.9%, last -6.8%); Building permits, August (consensus +1.3%, last -3.3%);

02:00 PM FOMC statement, September 17-18 meeting: We expect the FOMC to lower the fed funds rate by 25bp at the September meeting, followed by 25bp cuts at the November and December meetings. We expect the SEP’s median unemployment rate projection to rise to 4.2%/4.3%/4.2% in 2024-2026 (vs. 4.0%/4.2%/4.1% in June) and remain at 4.2% in 2027. We expect the median GDP growth projection to rise slightly in 2024 and the core PCE inflation projection to edge down in 2024 and 2025 in response to softer inflation data since the June FOMC meeting. We will publish our expectations for the fed funds rate projections in our FOMC preview this week.

Thursday, September 19

• 08:30 AM Initial jobless claims, week ended September 13 (GS 225k, consensus 230k, last 230k); Continuing jobless claims, week ended September 6 (consensus 1,855k, last 1,855k)
• 08:30 AM Philadelphia Fed manufacturing index, September (GS flat, consensus -1.0, last -7.0): We estimate that the Philadelphia Fed manufacturing index rebounded 7.0pt to flat in September, reflecting upward convergence to other surveys.
• 10:00 AM Existing home sales, August (GS +1.5%, consensus -1.3%, last -0.6%)

Friday, September 20

• There are no major economic data releases scheduled.

Source: DB, Goldman

Consumers are furious that ground beef, orange juice, eggs, cocoa, and food in general have skyrocketed in price. For low—and middle-income households, a trip to the supermarket has become a painful experience in the era of Bidenomics. Adding to the strain, the cost of a cup of coffee will rise even higher into the end of the year and likely in the first half of 2025.  

Bloomberg reports that premium arabica beans are experiencing adverse weather conditions in top producer Brazil, pushing prices up in New York to a 13-year high. 

Coffee rallies have been gathering pace from ongoing concerns about harsh weather in top producer Brazil. The nation is wrapping up its 2024-25 harvest and production prospects weakened after heat and dryness hurt fields. Attention is now shifting to next season’s potential, and Brazil has been gripped by its worst drought in decades, threatening further crop damage.-BBG

Arabica futures in New York jumped to $2.6475 per pound in New York, the highest since 2011. Prices are up 40% on the year as shortages of the cheaper robusta beans increase demand for arabica by coffee chains. 

Bloomberg outlines the latest price hikes:

Across the supply chain, the impact of this year’s rally is already evident. JM Smucker Co., whose brands like Folgers and Café Bustelo dominate the US’s at-home coffee market, hiked its prices earlier this summer. Restaurant chain Pret A Manger scrapped its UK coffee subscription that gave customers as many as five drinks per day.

Meanwhile, Giuseppe Lavazza, chairman of coffee roaster Luigi Lavazza SpA, told Bloomberg in a separate report that low-cost robusta beans in Vietnam, the world’s top producer of robusta, have experienced adverse weather conditions contributing to a production shortfall, thus fueling prices higher and higher. 

“We’ve never seen something like that in the history of our industry,” Lavazza said, adding, “And what is very special is the long-lasting effect of this.”

Lavazza said the European Union Deforestation Regulation, which will be enforced by the end of 2024, will ensure companies do not source coffee beans from deforested lands. 

“No doubt that the coffee that European roasters are going to buy will cost much more,” he noted, adding, “Companies in the coffee industry are facing very strong headwinds.”

The big takeaway for consumers is that food inflation is very sticky. Get used to higher prices. And somehow, the Marxists in America believe supermarkets are gouging customers.

Authored by Peter Tchir via Academy Securities,

The Great Debates

Another in a string of “interesting” weeks! Stocks surged on the week, with the S&P 500 rising 4% and breaking 5,555, which was discussed by many as being a critical level to breach. The Nasdaq led the way, up almost 6% on the week, but many of the laggards started to catch up. ARKK (a proxy for “disruption”) rallied a whopping 10% on the week! The first time in a while that I think it performed like a truly high-beta play on the market!

On the surface, a “simple” week of rallying, but we had some moments of downside, most critically on Wednesday as the S&P opened down more than 1.5% only to stage a “stunning” (at least for me) turnaround, finishing the day up over 1% (the Nasdaq trading was even more volatile).

As we continue to see the market whipsaw (the major indices are below where they rallied to in August, after the early August fear), I think that we can keep this week’s T-Report simple (my travel week was a bit draining) and cover the major bases, by sticking to the theme of “Debates.”

The Presidential Debate

I hate treading into this area as it is fraught with danger. So I will stick to what I think I know, from the data and commentary I’m collecting:

• Unlike the last debate, both Trump and Harris are likely sticking around for the election! (I figured I’d start with something easy).

• According to the betting odds, it seems that Harris has edged up slightly on most betting platforms. Not by much, but I think based on that we can assume that the debate seemed to work in her favor versus his favor (which might be backed up by the fact that Trump has now said he will not do another debate – though that could change on a moment’s notice).

So why did we sell off so hard overnight and at the open only to recover?

• There were some comments regarding AI, which we will discuss later (it certainly helped).

• The markets are pricing in that the Republicans will control the Senate, which means that we can start pricing in a split government and Wall Street does like gridlock. One view, which I agree with, is that if you are voting against someone as opposed to for someone, there is a greater probability of splitting your ticket – helping keep gridlock on the table. Gridlock will be generally good for Wall Street as opposed to the “risk” of a full sweep, which would likely scare the markets.

• As you know, I’ve been avoiding getting very specific on what I think either candidate’s campaign promises will mean for the economy after the election – namely because they are just that – “promises” from politicians on the campaign trail that rarely come to fruition. While I think we all have a sense of how Trump might govern if elected (since he already served 4 years as president) we are all trying to figure out how Harris would govern if elected. What seemed to give a lot of people comfort was a series of stories indicating that she is being pressured by large donors to move to the center. From my seat, she does seem to have changed her messaging over time – from when she was a prosecutor to when she was running for Senate, so maybe she will adopt a policy more centric than what she has advocated for in the fairly recent past. That is a bet that Wall Street seems to be making, and it seems reasonable to me.

The key for the election, from a Wall Street standpoint, seems as simple as:

• Wall Street would like gridlock. The anticipation of gridlock is helping bonds because the market would be able to discount the likelihood of some of the bigger deficit-producing “promises” ever becoming reality.

• Wall Street will like any sense that politicians are already pivoting towards the center as the election nears and they try to win over moderates and independents.

Only 7 more weeks of campaigning!

The Rate Cut Debate

According to the WIRP (Interest Rate Probability on Bloomberg) function, the market has priced in a total of 3 cuts in the next 2 meetings (to be honest, I had to check if the thing is working, because it certainly felt like 4 or more cuts were being priced in).

The meeting this week is priced in at 50/50 for a 50 bp cut. As someone who advocated for a July cut (and even thought 50 in July would be appropriate – Building the Case for Rate Cuts), I should be in the 50 bp camp (it is certainly what I think they should do, but will they?).

The Fed doesn’t like to surprise markets (though it is probably more against surprising on the negative side than on the positive) which leaves them in a bit of a quandary with markets pricing in a 50% chance. At that level, a 25 bp cut would surprise the market negatively (I cannot shake the impression that the contracts used to estimate the WIRP are less aggressive on the cut front than other markets). Let’s also not forget that on 9/11 (a day we should never forget and that still brings tears to my eyes, reliving that horrible time) the market was “only” pricing in a 17% chance of a 50 bp hike.

I’d go 50, but for a group that decided not to cut at all in July, has the data been good enough on the inflation front (maybe) or weak enough on the job front (maybe) to cut 50?

Either way I expect at least one dissent, as at least one person will say they wanted 50 if they go with 25, or someone will argue that 25 was right, if they go with 50. I find the dissent “fascinating” since I think (facetiously) that as far as “Chairmen” go, Mao and Stalin had more dissenters than the Fed Chair gets, which has always seemed weird to me.

Is this a Fed that is willing to cut 50 and risk seeing either an uptick in inflation or job creation? That is probably what will drive the debate at this meeting!

In any case:

• 75 in the next 2 meetings sounds correct (though I’m leaning towards 25 then 50).

• More “interesting” is that the market is pricing in 10 cuts, getting down to 2.86% by next September – which seems far too fast.

  • I’m not sure that the terminal rate will still be in the 2.75% to 2.875% range based on the dots. The median was 2.75% but the average was 2.875%. I don’t see it dropping and could see a case where it moves up a smidge – but that is only useful at the margin.

  • They would need to revise their dots for next year downwards rather significantly! Are they really prepared to do that?

The risk from the Fed is to disappoint holders of longer-dated bonds and equities, with more of the risk coming from what they say about the next year or so, than what they do at this meeting – though a 50 bp cut would allow markets to ignore any hawkish comments (which seems like a path the Fed would not like to go down – as it really would decrease their ability to jawbone).

The AI Debate

From a macro/econ/market perspective, the AI debate remains incredibly important as the AI stocks remain big drivers of most market moves. As discussed in Gell-Mann Amnesia Effect, it is a debate surrounding valuations and current (call it next year or so) cost versus benefit. Is the cost of implementing AI outpacing the benefit? Has the market priced in competition or other risks? Or, is the risk still that the market hasn’t yet digested the true impact of AI?

Markets did respond to some industry leaders giving positive comments on the outlook and if “buy the dip” remains strong in any sector, it is the AI and chip sector (though NVDL actually saw the leveraged version of NVDA shares outstanding decrease on the week).

What I’m starting to play with is Open AI o1 (also known as Strawberry). It is designed to be a “reasoning model for solving hard problems.” It seems interesting at first blush. It is much slower than ChatGPT but seems to try to come up with actual answers (rather than what sometimes seems like glorified search results). It wouldn’t tell me who will win the election (something about data only until October 2023) or what the stock market would do (which I guess is bad, since it would be great to day trade this market perfectly and capture all those 1% moves, but probably good, as I’d have less reason to exist).

Speaking of which, I’ve been told this model is scoring 95% on average on the LSAT.

I just started to play with this, but since I’ve been on the “overvalued” side of the equation, I wanted to make sure people see this as soon as possible, as it could be another seminal moment in AI! While everyone was talking 50 bps on Thursday and Friday, this new version was released on September 12th , so I’m not sure how much, if anything, is priced in. However, given the valuations, even with this sort of advancement (if it is truly as impressive as it sounds), was it already priced in?

Bottom Line

My biggest fear, in both directions, for stocks and bonds (and even credit), remains that there seems to be very little depth in terms of liquidity.

Be small, be nervous, and expect volatility to continue – in both directions and for moves to be outsized relative to the news or information flow!

The “peaceful” days of summer seem like a distant memory already, and those days weren’t even that peaceful this summer!

Good luck, and I do wish the Fed would come out at 10am ET, as the hours ahead of the Fed are dull and filled with nothing but time to second guess every position you have, regardless of how much time, effort, and preparation went into setting up those positions!