Author Archives: Michael Murphy

Dear New World Investor: Traders have fully priced in another quarter-point (25 basis points) interest-rate increase by the Fed within the next two policy meetings and a more than 1-in-2 chance that hike could arrive as soon as the June 14 meeting. Near-term yields have moved higher for 10 straight trading sessions fueled by increased optimism about a potential debt-ceiling deal and resilient economic data that could pave the way for additional Fed tightening. I think they’re wrong. The recent Federal Open Market Committee minutes said: “Several participants noted that if the economy evolved along the lines of their current...

Read More »

Dear New World Investor: Many years ago, I learned that one good way to make money in the market is to understand the consensus view and then figure out where it is most likely to be wrong. Not that the consensus is always wrong – it’s usually right but fully priced into the market. So I was interested in a recent Reuters poll of 116 economists that said a couple of interesting things. First, they said the risk of a US default over the debt ceiling was higher compared to prior stand-offs. That surprised me. The risk of a default...

Read More »

Dear New World Investor: Nonfarm payrolls rose by 253,000 in April with the unemployment rate falling to 3.4%. Economists expected 185,000 jobs last month with the unemployment rate ticking marginally higher to 3.6%. April was even stronger than March’s +236,000 – maybe. But is the jobs market really that strong? February’s +326,000 payrolls number was revised down a whopping 23.9% or 78,000 jobs to +248,000. March’s +236,000 was revised down 30.0% or 71,000 jobs to +165,000. WTF, Bureau of Labor Statistics? The BLS reports an important number that moves markets and then revises it by 25% to 30% a couple...

Read More »

Dear New World Investor: The Fed is following my November 3 game plan to a T: Click for larger graphic The Fed in March: “We anticipate that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.” The Fed Yesterday: “In determining the extent to which additional policy firming may be appropriate to return inflation to 2% over time, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation,...

Read More »

Dear New World Investor: While the unemployment rate remains below 4%, the number of permanent job losses has begun to rise significantly. The latest two-month increase was as steep as in every recession for the last 30 years. Layoffs in higher-paying jobs has been increasing, causing a rise in the loss of permanent jobs. The current headline strength of the labor market has been disguised by the ongoing demand for workers to perform jobs of a lower skill level in hospitality and travel. The overall labor market is not as healthy as it seems. Click for larger graphic h/t @TaviCosta...

Read More »

Dear New World Investor: On April 11, a dad and his five children were in their second-story apartment in Queens while he was charging his e-bike in the vestibule. Suddenly, the battery exploded in flames. As the fire raced through the building, he and three of the kids jumped to safety. His 7-year-old son and 19-year-old daughter burned to death. They were the fourth and fifth deaths in the 59 e-bike fire incidents in New York City so far this year. Last year, six people died and hundreds were injured in over 200 e-bike fires in NYC. As the FDNY...

Read More »

Dear New World Investor: The S&P 500 bottomed on October 12 at 3491.58. It’s a Wall Street shibboleth that the market leads the economy by six months, so let’s see – November 12, December 12, January 12, February 12, March 12, April 12 – yep, here we are. All the forces behind the Fed’s tightening regime should be peaking. Let’s dive in… Employment: Last Friday’s March payrolls report showed a sharp drop from February’s +326,000 to +236,000. Today’s new unemployment claims hit 239,000, above the consensus estimate and the highest since January 2022. With job openings at new lows, job...

Read More »

Dear New World Investor: Inflation is slowing towards the Fed’s current 2% target. Employment is slowing rapidly, with the March payrolls number due during tomorrow’s stock and bond market holiday. In February, the personal consumption expenditures (PCE) price index — the Federal Reserve’s preferred measure of inflation — was up 5.0% from a year earlier and 0.3% month-over-month. The core PCE index, which excludes food and energy costs, posted a year-over-year increase of 4.6% and also was up 0.3% month-over-month, just below the 0.4%% estimate. A 0.3% monthly increase compounds to 2.0% a year – the Fed’s target. On the...

Read More »

Dear New World Investor: In the wake of the Silicon Valley Bank et. al.failures, Wall Street sentiment has turned from mere “doom and gloom” to outright “apocalyptic.” According to the latest BofA fund manager survey, the majority of Wall Street professionals now expect a “systemic credit event” emerging unexpectedly out of the shadow banking sector – although it’s not clear to me how an unexpected event can be expected by a majority of Wall Street professionals. And retail investors are fearful, as they always are when stocks are cheap. Click for larger graphic So it’s time to buy another stock....

Read More »

Dear New World Investor: “Whenever the Fed hits the brakes, someone goes through the windshield.” It’s an old Wall Street saying born of painful observation, and it’s true. After 11 days of turmoil that brought down four banks and left a fifth teetering, the markets went from pricing a late-cycle inflationary expansion to a deflationary banking crisis requiring significant monetary stimulation in the course of five days. Fed Chairman Powell had to thread a difficult needle. If he raised the Fed funds rate 50 basis points (0.5 percentage points) due to persistent inflation, he would have piled more stress on...

Read More »