Just because we still think the economy is headed for a recession, doesn’t mean we think the housing market is going to get killed.

Very early this year our economics team got a pleasant surprise: Consensus Economics, which collects forecasts from roughly 200 economists around the world, rated us the most accurate forecasters of the United States for 2022, based on our forecasts for GDP and CPI. Unfortunately, we don’t expect a repeat award for 2023.

The Federal Reserve declared victory today, projecting a soft landing as its base case in the years ahead, with more cuts in short-term rates, and with inflation gradually getting back to its 2.0% goal without a recession.

For the first time in roughly fifteen years, interest rates in the United States are about right. In economics, we call it the “neutral” or “natural” rate.

Widely regarded as a barometer for the overall stock market, the S&P 500 Index tracks the performance of 500 of the largest companies listed on U.S. stock exchanges.

New home prices are much lower than a year ago. The average price of a new home sold in October was 10.4% lower, while the median price was down 17.6%.

When Argentina entered the 20th Century, its prospects looked bright. On a per person basis, its economy was on par with Canada and Sweden and about two-thirds of the United States.

Now that we’re about to enter the Christmas shopping season, expect even more focus than usual on the consumer over the next several weeks.

The primary holder of U.S. Federal debt is, surprising to many, the U.S. federal government itself, accounting for approximately 40% of the total outstanding debt.

Two weeks ago, the yield on the 10-year Treasury Note was hovering around 5%, and the S&P 500 was in contraction territory, down over 10%.

The Fed kept rates unchanged at today’s meeting, but whether they are done with rate hikes or simply at a pause is yet to be determined.

The S&P 500 closed at 4,117 on Friday, more than 10% below its recent peak in late July. Some are saying it’s a brand-new bear market for stocks.

We still think a recession is coming, but it definitely didn’t start in the third quarter. Instead, as we set out below, it looks like real GDP expanded at a 4.7% annual rate.

At the end of October we will get our first look at real GDP growth for the third quarter and it looks like it was very strong.

Back in 2008, Ben Bernanke and Hank Paulson, using fear of financial collapse, convinced President Bush and Congress to 1) pass a $700 billion bailout of banks (called TARP) and 2) allow the Federal Reserve to pay banks interest on reserves at the same time the Fed moved from a scarce reserve model of monetary policy to an abundant reserve policy.

The fiscal year ended last week, alarms went off both literally and figuratively, and a last-minute deal was reached to keep the government open for another forty-five days.

The Atlanta Fed’s GDP Now model is tracking a Real GDP growth rate of 4.9% for Q3, which would be the fastest quarterly growth rate since the earlier part of the COVID recovery.

While the Fed kept rates unchanged at today’s meeting, between the press conference and forecast updates, Powell and Co. gave plenty of ammo to keep the financial press busy speculating about what may come at the next FOMC meeting this Fall.

The University of Colorado Buffaloes are undefeated and suck up a lot of oxygen in the college football world.

Inflation averaged 1.8% in the ten years pre-COVID. Don’t expect inflation to average that low in the decade ahead. Not until the US finds a way to repeat the 1980s policy mix.

Back in the 1980s, President Reagan took enormous political heat (Sam Donaldson comes to mind) for being fiscally irresponsible. His offense? Presiding over a budget deficit that peaked at 5.9% of GDP in Fiscal Year 1983.

At the heart of our assessment of the stock market is our Capitalized Profits Model.

What’s going on with the markets and the economy? Long-term Treasury yields are up substantially since last Fall while the stock market, after a big rally, has stumbled so far this month. Meanwhile, the real economy appears to continue to chug along – even accelerating!

Wars cost money, and throughout history, countries have borrowed to fight them. There are plenty of examples of wars bankrupting countries, but the US was so dominant in the 1940s that at the end of World War II, its debt only cost about 1.8% of GDP to service.

What would you do if you won the Mega Millions? It’s now up to a record $1.55 billion! We would start a not-for-profit to educate people not to play the lottery.

Take the 2008 financial panic. Was it market failure and bad business models or was it using the government to subsidize housing plus mark-to-market accounting? We believe the latter…without the subsidies and bad accounting rules, the recession might not have happened at all.

No one should be popping champagne when they see Thursday’s GDP report. The good news is that it won’t be negative.

The best news last week was that inflation came in below expectations for June. Consumer prices rose a moderate 0.2% for the month, while producer prices increased only 0.1%.

Prior to 2008, when the Federal Reserve ran a “scarce reserve” monetary policy, just about every bank in the US had a federal funds trading desk. These trading desks lent and borrowed federal funds (reserves) amongst each other.

In 1852, Karl Marx said, "Men make their own history, but they do not make it as they please; they do not make it under circumstances chosen by themselves but under circumstances directly encountered and transmitted from the past."

We get a big bunch of data reports this week: GDP revisions and economy-wide corporate profits for the first quarter; durable goods, new home sales, personal income, and consumer spending for May; home prices for April.

Lately, it’s been easy to see the optimism. As of the Friday close, the S&P 500 is up 15% so far this year (not including dividends) and up 23% (again, without dividends) versus the lowest bear-market close back in October.

The Federal Reserve will meet this week and announce its decisions on Wednesday.

We have used the word “unprecedented” to talk about the economy during and after COVID. We have never before locked down economic activity, while printing trillions of new dollars to help finance trillions of extra government borrowing to pay people not to work.

The stock market finished Friday on a high note, with the S&P 500 index just north of 4,200 for the first time since August 2022 and up 17.6% versus the market bottom in October.

We live in unprecedented times. Since the COVID pandemic, the economy has been deeply influenced by a massive increase in government spending, COVID-related shutdowns, and a huge increase in the money supply.

If you’ve been to a high school or college commencement lately, then you know the drill: at some point at least one speaker will urge the graduates to be “agents of change,” suggesting they’d like to see these students make the world a better place through some sort of social activism.

It’s hard to open up a newspaper these days and not see a scary story about the debt ceiling debate. The Biden Administration is saying that a “default” is approaching if an agreement isn’t reached soon.

Yes, we have banking problems. No, this is not 2008. It’s much more like the 1970s Savings & Loan problems.

The Fed raised short-term interest rates by another quarter percentage point today to a range of 5.00 – 5.25%, just like most analysts and investors expected. In addition, policymakers made changes to its official statement that hint that this rate hike might be the last of the cycle.

For nine of the last fifteen years, few people thought about the Fed. Sure, we discussed QT and QE, but the Federal Reserve held interest rates at zero year after year.

In spite of weakness in some economic data, problems in the banking sector, and much higher interest rates, real GDP in the first quarter will almost certainly show moderate growth.

The US economy is being tugged in two different directions right now. On the positive side we have the lingering effects of the massive stimulus of 2020-21, the renormalization of the service sector after COVID Lockdowns, and, as always, the entrepreneurial and innovative spirit of the American people.

History is full of economic and societal collapses. The Incan and Roman societies disappeared, the Ottoman Empire fell apart, the United Kingdom saw the pound lose its reserve currency status. So, anyone who says the US, and the dollar, couldn’t face the same fate doesn’t pay attention to history.

Fifteen years ago, in 2008, the Federal Reserve started an experiment in monetary policy, switching from a “scarce reserve” system to one based on “abundant reserves.” This switch has created massive problems that are hitting not just the private banking system but the Fed itself.

If you were bullish for 2023…congratulations!

The Federal Reserve raised short-term interest rates by another quarter point on Wednesday.

The Fed raised short-term rates by another 25 basis points (bp) today and made no changes to the expected peak for short-term rates later this year.

The late great Supreme Court Justice Antonin Scalia was often in dissent in key legal cases during his long career.

In multiple ways, this is the most difficult time we have ever seen to make a forecast.