The Long Term Investor

Pre-Fed I have a really good gain going today. Of course pre-Fed is meaningless today.

All my stocks are nicely Up except for HON at this moment.

 

The news of the day.

Fed holds rates steady, upgrades assessment of economic growth

https://www.cnbc.com/2023/11/01/fed-meeting-november-2023-.html

(BOLD is my opinion OR what I consider important content)

"Key Points

• The Federal Reserve’s rating-setting group on Wednesday unanimously agreed to hold the key federal funds rate in a target range between 5.25%-5.5%, where it has been since July.
• This was the second consecutive meeting that the Federal Open Market Committee chose to hold, following a string of 11 rate hikes, including four in 2023.
• The decision included an upgrade to the committee’s general assessment of the economy.

The Federal Reserve on Wednesday again held benchmark interest rates steady amid a backdrop of a growing economy and labor market and inflation that is still well above the central bank’s target.

In a widely expected move, the Fed’s rate-setting group unanimously agreed to hold the key federal funds rate in a target range between 5.25%-5.5%, where it has been since July. This was the second consecutive meeting that the Federal Open Market Committee chose to hold, following a string of 11 rate hikes, including four in 2023.

The decision included an upgrade to the committee’s general assessment of the economy. Stocks gained immediately following the news.

“The process of getting inflation sustainably down to 2% has a long way to go,” Fed Chair Jerome Powell said in remarks at a news conference. He stressed that the central bank hasn’t made any decisions yet for its December meeting, saying that “The committee will always do what it thinks is appropriate at the time.”

The post-meeting statement had indicated that “economic activity expanded at a strong pace in the third quarter,” compared with the September statement that said the economy had expanded at a “solid pace.” The statement also noted that employment gains “have moderated since earlier in the year but remain strong.”

The gross domestic product expanded at a 4.9% annualized rate in the third quarter, stronger than even elevated expectations. Nonfarm payrolls growth totaled 336,000 in September, well ahead of the Wall Street outlook.

There were few other changes to the statement, other than a notation that both financial and credit conditions had tightened. The addition of “financial” to the phrase followed a surge in Treasury yields that has caused concern on Wall Street. The statement continued to note that the committee is still “determining the extent of additional policy firming” that it may need to achieve its goals. “The Committee will continue to assess additional information and its implications for monetary policy,” the statement said.

Wednesday’s decision to stay put comes with inflation slowing from its rapid pace of 2022 and a labor market that has been surprisingly resilient despite all the interest rate hikes. The increases have been targeted at easing economic growth and bringing a supply and demand mismatch in the labor market back into balance. There were 1.5 available jobs for every available worker in September, according to Labor Department data released earlier Wednesday.

Core inflation is currently running at 3.7% on an annual basis, according to the latest personal consumption expenditures price index reading, which the Fed favors as an indicator for prices.

While that has decreased steadily this year, it is well above the Fed’s 2% annual target.

The post-meeting statement indicated that the Fed sees the economy holding strong despite the rate hikes, a position in itself that could prompt policymakers into a prolonged tightening stance.

In recent days, the “higher-for-longer” mantra has become a central theme for where the Fed is headed. While multiple officials have said they think rates can stay where they are as the Fed assesses the impact of the previous increases, virtually none have said they are considering cuts anytime soon. Market pricing indicates the first cut could come around June 2024, according to CME Group data.

The restrictive stance has been a factor in the surging bond yields. Treasury yields have risen to levels not seen since 2007, the earliest days of the financial crisis, as markets parse out what is ahead. Yields and prices move in opposite direction, so a rise in the former reflects waning investor appetite for Treasurys, generally considered the largest and most liquid market in the world.

The surge in yields is seen as a byproduct of multiple factors, including stronger-than-expected economic growth, stubbornly high inflation, a hawkish Fed and an elevated “term premium” for bond investors demanding higher yields in return for the risk of holding longer-duration fixed income.

There also are worries over Treasury issuance as the government looks to finance its massive debt load. The department this week said it will be auctioning off $776 billion of debt in the third quarter, starting with $112 billion across three auctions next week.

During a recent appearance in New York, Powell said he thinks the economy may have to slow further to bring down inflation. Most forecasters expect economic growth to tail off ahead.

A Treasury Department forecast released earlier this week indicated that the pace of growth likely will tumble to 0.7% in the fourth quarter and just 1% for the full year in 2024. Projections the Fed released in September put expected GDP growth at 1.5% in 2024.

In the wake of the Fed’s comments, the Atlanta Fed’s GDPNow growth tracker slashed expectations for fourth-quarter GDP almost in half to 1.2% from 2.3%. The gauge takes in data on a real-time basis and adjusts its estimates with the latest information.

Whitney Watson, co-CIO of fixed income and liquidity solutions at Goldman Sachs Asset Management, said it’s likely the Fed will keep its policy unchanged into next year.

“There are risks in both directions,” Watson said. “The rise inflation expectations, owing to higher gas prices, combined with strong economic activity, preserves the prospect of another rate hike. Conversely, a more pronounced economic slowdown caused by the growing impact of higher interest rates might accelerate the timeline for transitioning to rate cuts.”"

MY COMMENT

Confirmation of what the markets have expected. However......the delusion continues that there might be some rate drops next year. I do not expect any rate cuts in 2024.....unless economic data changes significantly.

That being said......I have no issue with the Ten Year Treasury being at about 5% for the longer term.....that is is in line with historical norms.

Good news for the markets today.

 

We are in full on RALLY mode today as we move toward the close. If these gains hold....it will be three green day in a row.

Now that the FED is done.....we move on to AAPL earnings tomorrow after the bell.

 

HERE is the real cause of most of the economic problems and issues in the country......and....the FED will not talk about them or even mention them. Of course I am talking about government.....the greatest cause of inflation and economic turmoil.

Billionaire investor Stanley Druckenmiller accuses Janet Yellen of making the ‘biggest blunder in Treasury history’

https://finance.yahoo.com/news/billionaire-investor-stanley-druckenmiller-accuses-125123462.html

(BOLD is my opinion OR what I consider important content)

"Janet Yellen is behind the “biggest blunder” in the history of America’s Treasury, according to billionaire hedge funder Stanley Druckenmiller.

Druckenmiller—whose decades-long career has seen him build a net worth of more than $6 billion—slammed the Treasury Secretary during an on-stage discussion at last week’s Robin Hood Investors Conference, arguing that Yellen had failed to take advantage of the ultra-low interest rates era.

“When rates were practically zero, every Tom, Dick and Harry in the U.S. refinanced their mortgage… corporations extended [their debt],” he said. “Unfortunately, we had one entity that did not: the U.S. Treasury.”

In 2020, at the height of the COVID-19 pandemic, central banks all over the world cut interest rates as lockdowns and health concerns stifled spending. The U.S. Federal Reserve eased monetary policy so that rates fell to near zero.

Thanks to a post-pandemic surge in consumer demand, labor and production shortages, and Russia’s invasion of Ukraine sparking a global energy crisis, inflation spiraled to its highest level in four decades last year. The Fed, then, has been much more hawkish over the past two years as it battles to tame surging prices, carrying out a series of rate hikes that has brought interest rates to a 22-year high.

Druckenmiller—who was chief investment officer at George Soros’s wealth management firm for more than a decade before setting up Duquesne Capital Management in the 1980s—argued last week that Yellen should have issued more long-dated Treasury bonds when debt was cheap.

“Janet Yellen, I guess because political myopia or whatever, was issuing 2-years at 15 basis points when she could have issued 10-years at 70 basis points or 30-years at 180 basis points,” he said. “I literally think if you go back to Alexander Hamilton, it is the biggest blunder in the history of the Treasury. I have no idea why she has not been called out on this. She has no right to still be in that job.”

A spokesperson for Yellen via the U.S. Treasury Department was not immediately available for comment when contacted outside of usual business hours.

Druckenmiller, who closed Duquesne Capital in 2010 and now manages his money through a family office, warned at the Robin Hood conference that there would be long-term consequences for the current U.S. debt picture.

“When the debt rolls over by 2033, interest expense is going to be 4.5% of GDP if rates are where they are now,” he warned. “By 2043—it sounds like a long time, but it is really not—interest expense as a percentage of GDP will be 7%. That is 144% of all current discretionary spending.”

$1 trillion borrowing

With U.S. fiscal spending reaching unprecedented levels, the U.S. Treasury is expected to borrow more than $1 trillion via short-dated T-bills by the end of 2023 as the government looks to build its cash reserves.

According to the Cato Institute thinktank, federal interest payments doubled between 2015 and 2023, with the government set to pay $640 billion in net interest this year. By some estimates, interest payments will become the government’s single biggest expense by 2051.

Druckenmiller isn’t the only high-profile financier to have sounded the alarm over the U.S. debt picture in recent months.

Back in June, Bridgewater Associates founder Ray Dalio warned America was facing a debt crisis as there may not be enough buyers for the influx of government debt on the market.

Meanwhile, JPMorgan boss Jamie Dimon said earlier this month that “the largest peacetime fiscal deficits ever” could stoke America’s inflation problem and fuel further rate hikes."

MY COMMENT

This sort of stuff never changes. We are ruled by un-elected, bureaucrat, empty suits. Yellen is the perfect example.

Add in the continued annual RAID by government on the Social Security tax money......and replacement of that "real money" with special worthless government IOU's.......and you have the icing on the cake.

 

Here is a companion story to the above.

Treasury details plans to step up size of bond sales to manage growing debt load and higher rates

https://www.cnbc.com/2023/11/01/tre...anage-growing-debt-load-and-higher-rates.html

 

Here is some nuts and bolts news that should be of interest to most working people.

IRS announces 2024 retirement account contribution limits: $23,000 for 401(k) plans, $7,000 for IRAs

https://www.cnbc.com/2023/11/01/irs-401k-ira-contribution-limits-for-2024.html

"......The employee contribution limit for 401(k) plans is increasing to $23,000in 2024, up from $22,500 in 2023, and catch-up contributions for savers age 50 and older will remain unchanged at $7,500. The new amounts also apply to 403(b) plans, most 457 plans and Thrift Savings Plans.

The agency also boosted contribution limits for IRAs, allowing investors to save $7,000 in 2024, up from $6,500 in 2023. Catch-up contributions will remain unchanged at $1,000.

In 2024, more Americans may qualify for Roth IRA contributions, with the adjusted gross income phaseout range rising to between $146,000 and $161,000 for single individuals and heads of households, up from between $138,000 and $153,000 in 2023.

.....The Roth IRA contribution phaseout for married couples filing together will rise to between $230,000 and $240,000 in 2024, up from between $218,000 and $228,000.".....

 

I had a great day today in my stocks.....a perfect day in fact. All eight were UP today. of particular note.....NVDA +3.79%.....AMZN +2.94%......and....MSFT +2.35%.

I also got in a good beat on the SP500 by 1.17% today.

 

Looking forward to the AAPL earnings news tomorrow and the end of the week in two days.

 

I have been siting and watching the GREAT OPEN for the past half hour. Day four of this little rally. The start of something big.....you never know.

I will simply take as much as the markets want to give.

 

Now on to one of my favorite topics.

The Fed is Finished*

https://ritholtz.com/2023/11/the-fed-is-finished/

(BOLD is my opinion OR what I consider important content)

"Everybody is waiting with bated breath for today’s 2:00 announcement about the rates, but let me spare you the suspense:

They are done with rate hikes this cycle. The next change in rates is more likely to be down than up.

At least, if Powell & Company truly had a handle on what has been driving inflation for the past few years, that would be their position.

It has been frustrating watching the FOMC come around to eventually making the right decision, but all too often, they are late to the party: Late getting off of emergency footing, late to begin raising rates in response to surging inflation in 2021, late to see this was being driven by fiscal not monetary stimulus of the pandemic, late to recognize the FOMC itself is a driver of housing inflation, and finally, late to recognize inflation had peaked and reversed.

I am not sure if they quite recognize the potential damage they are doing to the economy. I don’t see any indication the FOMC understands that shortages in single-family homes, rental units, semiconductors, automobiles, and Labor won’t be cured by higher rates. In many cases, they will only be exacerbated.

That is especially true in housing, where the Fed is creating new problems and making existing ones even worse:

1. Lack of Single Family Homes: We’ve discussed this before most notably in 2021, but home builders have wildly underbuilt the number of houses relative to population growth following the financial crisis (GFC). That’s 15 years of under-building homes following five years of overbuilding them. Meanwhile, the US population continues to grow and household formation has ticked up dramatically following the pandemic.

As the chart above shows, we are off the lows of 2022, but other than during the pandemic, the Months’ Supply of existing homes for sale is at its lowest level going back 40 years.

There is simply too little supply relative to not just demand but need.

2. Low Mortgage Rate Golden handcuffs: Approximately 60% of homeowners with a mortgage have rates of 4% or lower. This prevents people from moving to a new home, regardless of whether they’re moving up or downsizing. Rates between 7 and 8% simply make the monthly carrying costs too pricey; this is true regardless of the purchase price.

If the Fed wants to see housing prices moderate, an appointment rentals fall, we need a much greater supply of single-family homes. I don’t know why it is so counterintuitive to see that happens with lower mortgage rates. The FOMC obviously should not go back to zero but somewhere in the low 4s% is a much better fed funds rate than where we are today. It shouldn’t take a recession to get there.

3. Owner’s Equivalent Rent: It lags badly versus other measures of rental price changes. (this is why I suspect the Fed believes inflation is worse than it is).

It is also worth noting that during the GFC, Owners’ Equivalent Rent understated inflation era when so many people we’re able to take advantage of low rates and no credit standards to pile into home purchases; today the lack of supply and increased rates has OER overstating rental inflation.

Outside of housing, it’s pretty clear that labor and automobiles are the other sources of increased prices that monetary policy is not reaching. Selective food shortages are problematic; wars in the Middle East and Ukraine are also making oil pricier, and The Fed has no control over those geopolitical events via rate increases.

As noted over the summer, The Fed is on the verge of snatching defeat from the jaws of victory. Let’s hope they figure this out sooner rather than later."


MY COMMENT

As to the last sentence above......dont hold your breath for the FED to wake up and understand their job, their role, and their obligations to the American people. No....they are simply government bureaucrats....or worse....they are empty suit partisan hacks.

 

The Ten Year yield is at 4.651% right now. That is a big factor in the markets today.

 

The markets today.

Stocks rise as investors bet on end to Fed hikes

https://finance.yahoo.com/news/stoc...estors-bet-on-end-to-fed-hikes-133532528.html

(BOLD is my opinion OR what I consider important content)

"Stocks climbed on Thursday as investors bet the Federal Reserve is close to wrapping up its rate-hiking campaign and assessed a fresh stream of corporate results.

The tech-heavy Nasdaq (^IXIC) soared more than 1.1%. The S&P 500 (^GSPC) was up about 1% while the Dow Jones Industrial Average (^DJI) gained roughly 0.9%.

All three major gauges closed Wednesday with strong gains after the Fed held interest rates steady at their highest range in 22 years. The market's overall takeaway from Chair Jerome Powell's comments on the decision is that the US central bank will stick with keeping rates unchanged in December.

Traders are now pricing in an 85% chance there will be no more Fed hikes this year, compared with 59% odds the day before its policymakers' meeting, according to the CME FedWatch Tool.

But JPMorgan Chase (JPM) CEO Jamie Dimon told Yahoo Finance that he thinks the Federal Reserve could raise interest rates an additional 75 basis points due to "stickier" inflation, saying, "I suspect they may not be done."

Attention is now turning more closely to earnings season, with Apple's (AAPL) quarterly report due after-hours the highlight in a packed Thursday. Top of mind will be what its results show about the iPhone situation in China and global consumer spending, after a mixed bag of reports from US tech giants so far.

Meanwhile, Starbucks (SBUX) shares popped in early trading after the coffee chain beat estimates for revenue and earnings. Shopify (SHOP) said it returned to a profit in the third quarter as it adopted AI, and its shares jumped 15%."

MY COMMENT

We are in the middle of an EPIC earnings reporting season. The BEATS seem to be broad based and just keep on rolling in.

Events and market news seems to be nicely lining up for a year end rally......as the fear mongering topics drop off the radar one after another.

It has been a while since we had a nice SANTA rally....at least a couple of years if not more......WE DESERVE IT.

 

The other short term information behind some of the market strength today.

Labor costs show surprise decline in the third quarter

https://www.cnbc.com/2023/11/02/labor-costs-show-surprise-decline-in-the-third-quarter.html

(BOLD is my opinion OR what I consider important content)

"The cost of labor unexpectedly declined in the third quarter, providing at least some relief on the inflation front, the Labor Department reported Thursday.

Unit labor costs, a measure of hourly compensation against productivity, fell 0.8% for the July-through-September period at a seasonally adjusted rate. Economists surveyed by Dow Jones had been looking for a gain of 0.7%. On a 12-month basis, unit labor costs increased 1.9%.

The breakdown reflected a 3.9% increase in hourly compensation, offset by a 4.7% rise in productivity.

That increase in productivity also was more than expected, beating the Dow Jones estimate for a rise of 4.3% for the biggest quarterly gain since the third quarter of 2020. Output climbed 5.9%, while hours worked rose 1.1%.

The developments come as the Federal Reserve is seeking to tamp down inflation through a series of interest rate increases.

On Wednesday, Fed Chair Jerome Powell said wage gains “have really come down significantly over the course of the last 18 months to a level where they’re substantially closer to that level that would be consistent with 2% inflation over time,” the central bank’s target.

In other economic news Thursday, initial filings for unemployment benefits for the week ended Oct. 28 totaled a seasonally adjusted 217,000, up 5,000 from the previous period and higher than the 214,000 estimate, the Labor Department said in a separate report.

Continuing claims, which run a week behind, totaled 1.82 million, an increase of 35,000 and higher than the 1.81 million FactSet estimate."

MY COMMENT

I wonder how much of the good productivity jump is due to more and more companies bringing employees......well make that FORCING employees......to come to the office.

From what I have been reading over the past months the view of employers is that work from home is NOT productive. Everyone seems to be talking about the advantages of working at the office. Of course the reasons are the same as you would expect......company culture, mentoring, being able to help, train, and monitor new workers, better coordination and team working, more sharing, etc, etc, etc.

 

I suspect that this is simply CYA in action.

Target CEO says shoppers are pulling back, even on groceries

https://www.cnbc.com/2023/11/02/target-ceo-says-shoppers-are-pulling-back-even-on-groceries.html

MY COMMENT

No need to post this "stuff". I suspect that this executive is making broad comments about retail to cover the fact that TARGET has really screwed up over the past years with their customers and potential customers.

I doubt that this is the headline for retail in general.....it is a TARGET specific issue. Their management lost focus on what really counts and got off into the weeds over the past few years.

NO.....I am not going to get into all the specific reasons or the politics behind them.