Here's the Deal with the Economy- November 17, 2024

Economy: In Slowdown

Market Cycle: Bullish

_{Week 46 of 52 for 2024: 88.5% of the way through 2024}

Programming Update: Based on some fantastic feedback, I’ll be changing the format of this weekly newsletter. Going forward, it will be divided and emailed in two separate segments. The first will cover the economic news from the past week, and the second will focus on key market trends and what to watch for in the week ahead. This change is aimed at making the newsletter easier to digest in smaller pieces.

Thank you to everyone who has shared feedback. This project will continue to evolve to bring economic and market clarity to those without the time or insights to do so themselves.

Weekly Note:

Welp. Inflation made a bit of a comeback this week, reminding economic watchers that we’re still not completely in the clear. While the Consumer Price Index (CPI) came in as expected, the Producer Price Index (PPI) was a little hotter than anticipated.

Why does that matter? Think of the PPI as the “first stop” for inflation. It measures price changes for producers, or the makers of goods. When costs rise at the production level, it often leads to price increases for consumers, which we typically see ~2-3 months later in CPI and Personal Consumption Expenditures (PCE). (Next scheduled PCE release is Nov. 27th.)

The immediate effect? Treasury yields spiked, as the 10-year Treasury yield reached as high as 4.505% before buyers stepped in. As the yields for our country’s debt continues to stay elevated due to stubborn inflation and spending plans by the incoming administration.

In related news, a new federal department headed by Elon Musk and Vivek Ramaswamy aptly titled the Department of Government Efficiency (D.O.G.E.) was announced. Yes, named after the crypto coin famously supported by Elon Musk.

This new department is significant, and it’s worth paying close attention to how effective it will be. Reason being, if the D.O.G.E. doesn’t deliver measurable results in cutting government costs, and the Trump administration proceeds with its plan to reduce revenue (tax cuts) while also increasing federal spending, the U.S. could face a situation similar to what happened in the UK with Liz Truss in October 2022. In that case, aggressive spending plans in an inflationary environment led to market turmoil, and the British government faced backlash from investors and rising bond yields. Ultimately leading to Truss’s resignation 49 days after taking office, making her the shortest serving Prime Minister in the long history of the United Kingdom.

In the U.S., it’s essential to understand that if government spending rises sharply during a time of high inflation while at the same time reducing the country’s revenue, it’s not “bond vigilantes” (or bond market investors) causing the problem. Instead, it would be the result of decisions by those in power who do not understand the implications of increased spending in a high inflation environment.

The result of which would be a terrible unforced error.

Hopefully those in power will learn from history, like when Bill Clinton complained to his aides in the 90’s, “You mean to tell me that the success of the economic program and my re-election hinges on the Federal Reserve and a bunch of fucking bond traders?” Or, like when Barrack Obama had to tone down his anti-Wall Street rhetoric to get support for the March 2009 bailouts in order to get the US out of the Great Financial Crisis.

It’s not a political thing, it’s a dollars and common sense thing. As markets are saying, “You want us to buy more of your debt when higher inflation rates are still hanging around? Fine, but it’s going to cost you more to do so.” Pretty standard stuff if you think it through without the obscured view of a political lens.

It’s the result of policy decisions that increase debt levels at an already fragile time for the economy. If such a scenario unfolds, responsibility would rest with the administration’s decisions and not with “boogeymen” in the financial sector. Though they will absolutely be blamed for any fallout that follows from the policies. Something which already began on the campaign trail.

And before anybody gets too far outside of reality with their thinking, Fed or no Fed, this is the case. So they are not at fault here either, as history shows that they have followed the bond market since the early 80’s.

Meanwhile, Americans are continuing to spend, and a decent portion of that spending is still going into their homes. This is happening even though the residential real estate market is still in a severe recession. We saw evidence of this trend in Home Depot’s latest earnings report, which also got a boost from spending related to hurricane recovery after storms Helene and Milton.

Will all of this be enough to stop the Fed from cutting rates by another 0.25% at their upcoming meeting on December 18th? Probably not. But it may be enough to prompt them to pause any further cuts for a few months. Allowing them to observe how a total reduction of one percentage point is impacting the economy.

The threat of a longshoreman strike on the East Coast flared up again this week, affecting both the U.S. and Canada. At the Port of Montreal, tensions escalated as employers initiated a lockout after dockworkers rejected a final contract offer. Meanwhile, union representatives for dockworkers at U.S. East and Gulf Coast ports walked away from negotiations, largely over disagreements on automation. The union’s resistance is aimed at preventing automation which would lower costs for American businesses and consumers, as they seek to protect current job numbers.

This situation highlights another potential inflationary pressure in the economy. If these labor disputes disrupt port operations, the resulting delays and supply shortages could push prices higher, adding another headwind for the U.S. economy.

Meanwhile, in the land of AI, this week brought a huge development as OpenAI Nears Launch of AI Agent Tool to Automate Tasks for Users. It is being hailed as A Powerful AI Breakthrough that is about to Transform the World, and that AI Agents Are Coming to Take Away Your Busy Work.

While at the same time, the potential showdown in the industry ramped up as Elon Musk is escalating his legal feud with Sam Altman by casting OpenAI as a monopolist.

What a time to be alive. You can choose to let Legacy Media and charlatans who incessantly try to scare you to give you needless anxiety about the coming years, or you can follow along with a well-rounded perspective. The result of which will open your eyes to a world of financial opportunities.

The choice is yours. Be angry and scared, or see the potential while better understanding the real risks without the extremism.

More Top Economic Stories of the Week:

Cars were once a financial engine of America’s middle class. Now they’re a ‘wealth killer.’

Why it matters: One of the many things I track in the economy is the resale markets for cars and heavy equipment. Having had my eye on both regularly for over a decade, it is astounding how much these items are currently fetching. “Transportation is the average American’s second-largest expense after housing; it accounts for 17% of a household’s average spending. (Housing eats up 33%.) Average monthly payments on new cars recently hit record levels. Yet unlike real estate, cars are depreciable assets, and most vehicles lose 20% of their value after one year.”

Super Micro Needs a New Auditor by This Weekend. Its Options Are Limited.

Why it matters: Get your popcorn ready. This story could get more interesting. However, this is nowhere near a market changing event yet, so no reason to be worried at this stage.

I Spoke Only to Chatbots for 24 Hours. Who Needs Human Friends?

Why it matters: Interesting look at what AI is currently capable of in your daily life.

Loyalty Is Common Thread as Trump Fills Foreign Policy, Immigration Jobs

Why it matters: Legacy Media has been annoyingly trying to convince everyone this week that there is some sort of tradition where incoming Presidents only pick people for their administration who hate them and want them to fail. Seriously WTF on this one. A great example of why Legacy Media is dying in it’s current form.

Former Pentagon Official on UFOs: ‘We Are Not Alone’

Why it matters: Queue the X Files music. Joking aside, it’s cool to see this going more mainstream. If you want to blow your mind, look up “Washington flap” from 1952. There are many more stories like this that most are not aware of. Very intriguing things happening. Keep an open mind and your head on a swivel.

Mergers and Acquisitions Should Grow Next Year. These Stocks Can Benefit.

Why it matters: Expect to see M&A activity surge next year, which will continue to align with how the economy operates while in the Economic Slowdown phase.

Taco Bell and KFC’s Owner Says AI-Driven Marketing Is Boosting Purchases

Why it matters: More info on how AI is being deployed in the market place.

Trump vs. Media Moves Back to the White House

Why it matters: Aren’t journalists supposed to keep the Executive Branch in check for both parties and no matter what party holds office???

These Baby-Chasing Grandparents Are Turbocharging Demographic Shifts

Why it matters: “Who’s buying homes?” “Who can continue to afford homes at these prices?” the charlatans continue to scream. Turns out, lots of people. But it’s not a perfect scenario, so they can continue to manipulate their followers that everything is wrong with the economy and that the US is crumbling. These people and their followers need to get a grip. Their prediction was wrong a long time ago.

How This Simple Tool Helped Jensen Huang Build Nvidia Into the King of AI

Why it matters: Get to know this guy. Steve Jobs level genius as a business operator. If you are wondering how and why the US hasn’t entered a recession over the past few years, this man and his company are a major reason why.

Most Important Data Drops from the Past Week:

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