Morning Report: Inflationary expectations fall

Vital Statistics:

S&P futures3,83948.15
Oil (WTI)98.312.58
10 year government bond yield 2.95%
30 year fixed rate mortgage 5.78%

Stocks are higher this morning after a positive retail sales number. Bonds and MBS are flat.

The yield curve continues to invert, with the 2s / 10s spread at -20 basis points and the 2s / 30s spread at -5 basis points. The yield curve’s shape isn’t dispositive – there is an old joke that an inverted yield curve has predicted 12 of the last 5 recessions, but it flashing warning signs and we are getting confirmation elsewhere.

Retail Sales rose 1% MOM and 8.4% YOY. Note this number is not adjusted for inflation, which is running right about the same level. Ex-vehicles and gasoline sales rose 0.7%, which was much better that -0.2% Street expectation.

Wells Fargo reported earnings this morning. Earnings per share declined 47% on a YOY basis. Revenues were down 16% YOY, and earnings were mainly affected by provisions for credit losses. The credit losses should really have an asterisk nest to it. Most of the banks over-reserved for losses in the early days of COVID and when the losses never materialized, they reversed them in 2021. Now that we are back to normalcy, they are reserving for credit losses again. So you get a strange YOY comparison, which will be pretty common for all the banks, IMO.

The mortgage banking numbers were pretty lousy, as expected. Home lending earnings were down about 50% (as they telegraphed a month ago), as falling origination income was offset somewhat by increased servicing income. Originations fell 11% QOQ and 36% YOY to $34.1 billion.

Consumer sentiment improved in the preliminary July reading of the University of Michigan Consumer Sentiment Index. More importantly, the inflationary expectations of consumers began to moderate. As we learned from the FOMC minutes from the June meeting, the Fed pays close attention to this number.

Consumer sentiment indices are often nothing more than gasoline price indices – in other words high gas prices depress sentiment. Gas prices are off the highs from a month ago, so I guess it makes sense that inflationary expectations would fall. Regardless, this number is welcome news for everyone.

This highlights one of the big risks at the fed: by adjusting policy to inflationary expectations, the Fed risks chasing oil prices which is the wrong metric to use.

That said, consumers’ financial situation isn’t in the best of places. One of the metrics for this survey asks consumers about their current financial situation. You can see from the chart below, they are in a bad place:

A recent article in the New York Post shows the difficulty in measuring inflation. BMW is now requiring subscriptions to use heated seats or automatically adjusted high-beams. Access to CarPlay requires an up-front fee. It is the Spirit Airlines model – advertise a low price and then charge for the oxygen the passenger breathes.

Now, according to the government, the only relevant number is the price of the car, however if automakers are lowering prices by introducing a slew of add-on charges, then the price growth is understated. It is a different play on shrinkflation, which is evident again to anyone who eats a bagged salad for lunch.

28 Responses

  1. People’s minds have been broken:


  2. This is funny:


    • I think the end result is that the Democrats will become the party of women and the Republicans will become the party of men.


      • Eh. More men voted against Trump in 2020 than voted against him in 2016.

        I think the schism is way more class-based. Republicans will be the party of the working class and the non-elite or non-elite adjacent. Democrats will be the party of the elites and the expert classes.

        If anything Republicans will be getting more married women and mothers. And even some younger single women the Dems would otherwise get may shift Republican because the left’s hostility towards femininity, heterosexual relationships, and eagerness to let men come in and destroy women’s spaces because of trans-rights.

        But I think the most visible division is going to be around class.


        • Marriage rates have been falling pretty dramatically, and I don’t see anything reversing it.

          I suspect this generation of fourth wave women will be like the spinster suffragettes of old.


        • Yeah. That’s an unfortunate cultural shift.


        • Yeah. That’s an unfortunate cultural shift.

          It is interesting. If you are a top 10% guy (doing well financially and good looking) you will have almost all women trying to date you. You will get more ass than a toilet seat in Penn Station.

          If you are not, you will have to be content with porn.


        • And the older they get the more content with porn they’ll get, even the good income/good lucking. Rosie does not complain incessantly.


  3. This made me laugh.


  4. What percentage of the Democratic constituency believes this bullshit?


    • The left is a cult. So they all do


    • Of diehard, vote a straight-Democratic-ticket (unless there is a really good green candidate) voters? 80%? 90%? Not registered Democrats mind you, just the people who have never stepped across the aisle. For the people for whom their politics is a religion, they believe all the apocalypse predictions. When they don’t happen, it really doesn’t matter. It’s about faith.


  5. Trump no longer a unique evil, y’all.


    • The left has considered every R president since Eisenhower to be Literally. Hitler.


    • Good luck with that. I think the number of voters swayed by the people making these arguments (or any other arguments, on any issue) can be counted on one hand.

      They just assume their social status amongst the Twitterverse is meaningful, and gives them social authority, so when they impart wisdom they change people’s opinions. After all, if a blue checkmark said it . . .

      These folks, I think, are the least relevant people to ever believe themselves to be supremely relevant the world has ever seen.


  6. This has got to be a troll account

    They were already shooting each other. The time to make adjustments is BEFORE people start shooting each other.
    And I keep repeating. This does not need to be a point in time thing. Or even an actual separation. Increase state’s rights. Let states act more independently (because the federal government is not). Make sure the federal government, via the supreme court, cannot override our elections.

    Each state already has a government and a constitution. Make them stronger, better. Protect them from a federal government that now functions as a surrogate, via the supreme court and republican controlled Senate, for the red states.

    Blue states are not safe if they are not strengthened.

    Kygre July 17 · 04:45:00 PM

    Fascinating discussion nonetheless.

    I’m pretty sure Kygre is a troll, but God love him.


    • It is funny. I was commenting on a post that said something about how the left is concentrated in cities and in the event of a civil war, the non-left (who drive the trucks in this country) could easily do a trucking embargo of I-95 from DC to Boston. The cities would be out of food and gas in 72 hours.

      The left’s response: “What about the children?”

      These people can switch from aggressor to victim in a nanosecond.


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