Morning Report: Inflationary expectations increase

Posted on November 10, 2023 by Brent Nyitray

Vital Statistics:

Stocks are higher despite some hawkish comments out of Jerome Powell yesterday. Bonds and MBS are up.

Bonds got hit yesterday on a lousy 30-year auction and hawkish comments out of Jerome Powell. At an IMF conference, Powell said:

“The Federal Open Market Committee (FOMC) is committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2 percent over time; we are not confident that we have achieved such a stance. We know that ongoing progress toward our 2 percent goal is not assured: Inflation has given us a few head fakes. If it becomes appropriate to tighten policy further, we will not hesitate to do so. We will continue to move carefully, however, allowing us to address both the risk of being misled by a few good months of data, and the risk of overtightening. We are making decisions meeting by meeting, based on the totality of the incoming data and their implications for the outlook for economic activity and inflation, as well as the balance of risks, determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time. We will keep at it until the job is done.”

The 30 year auction at a -5.3 basis point tail, the highest on record. Primary dealers bought nearly a quarter of the issue (double normal) as foreign demand evaporated.

Consumer sentiment fell for the fourth straight month, according to the University of Michigan Consumer Sentiment Survey. We saw a divergence in sentiment amongst income groups, with higher income groups improving based on asset prices, while lower income groups are getting hit by inflation.

Importantly, the year-ahead inflationary expectations ticked up from 4.2% to 4.4%, indicating that the big jump in October (from 3.2% to 4.2%) was not just an outlier. Long-run expectations increased as well to the highest since 2011. Blame high gasoline prices on the increase.

On this Veteran’s Day, I want to share a sea story.

I was on the USS Gridley (CG-21) in the Persian Gulf at the end of Desert Storm (early 92). The combat part was over, but we still kept a Tomahawk shooter in the Northern Persian Gulf. The job of the USS Gridley was to defend the Tomahawk shooter (typically a Spruance class destroyer) from air attack.

Anyway, defending a Spruance destroyer is a pretty boring job. We were assigned a 8 nautical mile box and would lazily steam back and forth in it, all while dodging fishing boats, oil rigs, and tankers. One morning, the Middle East commander ordered us to investigate a distress signal in the Arabian Sea. We left the Northern Persian Gulf and headed through the Straits of Hormuz.

We eventually found the ship that made the call. It was a Somali cargo ship with a ton of people on it. We couldn’t communicate with the ship, so we sent a couple of engineers in a small boat to take a look at it and see if they could fix it. The seas were really rough, and doing loops around the ship while we waited for the verdict from the engineers was a pain. The engineers reported back that the diesel engine had somehow lost its oil and it was ruined, like cylinder-lining-in-the-sump. Unfixable. We reported back to the ME Commander who ordered us to tow the thing back to Somalia.

To pass a rope between ships, you fire a shot line (basically an orange bobbin with strong thread) from a rifle, then attach a 1 inch rope to that (called the messenger line) and then attach the towline (which is 5 inches in diameter and heavy as hell). The towline does the work. We pass by the ship, and our guy on deck pulls out the rifle and shoots the line over. Everyone on the deck of the Somali ship watches the orange bobbin fly over their heads. Then they look back at us with a “What the hell are you weird Americans doing?” look on their faces. We yell back “PULL! PULL!” They don’t speak English and they don’t get that they are supposed to pull on the orange line. By this time, the orange line has slipped off the Somali ship and we had to make another pass. Remember, these are ships, not Ferraris and getting close for a loop around in rough seas takes a while.

So this time, we pass by slowly, shoot the line over, and pantomime pulling. Luckily the light bulb goes off on the other ship and they start pulling on the shot line. They pull the shot line up, grab the 1 inch messenger line and tie it to the bow and signal they are ready to go. They don’t realize there is another rope tied to the 1 inch rope. Towing a 8,000 ton ship with a 1 inch line is like towing a car with twine. We pantomime pulling again. They don’t get it. We finally get them on the radio. We pass the word on the ship for anyone with foreign language skills to report to the bridge. That covered Spanish and Tagalog. No dice. We call up the intel weenies. Get an Arabic speaker, but the Somalis don’t understand.

We finally gave up and towed the ship with the messenger line. We go slowly (like 1.5 knots) and take them back to Mogadishu. It took us forever to get back. When we finally got them to port, we asked the Port Manager where he wanted these guys. He didn’t want them and told us to take the ship somewhere else. We didn’t want a diplomatic incident, so we called up the Commander of the Middle East and told him the story. We were told to just leave them anyway. We told Mogadishu ”the Adele II is your headache now.” The Adele II dropped anchor, and we headed back to the Persian Gulf.

In our wrap-up report to the Commander Middle East, we included a “lesson learned” – translate “Heave Around” in every known language.

Filed under: Economy |

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38 Responses

  1. Let the mutherfuker burn!'s avatar
    Let the mutherfuker burn!, on November 10, 2023 at 1:14 pm said:

    Scott and Brent,

    What’s your take on this?

    https://archive.ph/zKOQi

    What is Heavy Around in Somali? Shoulda had Ilhan Omar with you.

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  2. Let the mutherfuker burn!'s avatar
    Let the mutherfuker burn!, on November 10, 2023 at 2:30 pm said:

    I used to read Megan McAre regularly but every time she writes something she includes this, or a variation of it.

    https://x.com/asymmetricinfo/status/1722997225062572261?s=46&t=vSGsUlnc4rLxcUf7zfUiHg

    I don’t understand what “immense damage to the GOP” she’s talking about other than she was a NeverTrumper from the get go.

    Apparently, to appease one’s neighbors one must denounce Trump with every exchange?

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  3. jnc4p's avatar
    jnc4p, on November 10, 2023 at 2:43 pm said:

    Peak 2023:

    “Experts Warn Swift, Kelce Relationship Might Not Make It If Trump Wins Presidency”

    https://babylonbee.com/

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  5. Let the mutherfuker burn!'s avatar
    Let the mutherfuker burn!, on November 10, 2023 at 10:22 pm said:

    The thing is I think this is generally true as all major conflicts the US has been involved with prior to ‘93 required the drafting of a majority of combatants.

    https://www.newsweek.com/american-military-recruitment-problems-public-apathy-1842449

    What people say versus what people do.

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  6. jnc4p's avatar
    jnc4p, on November 11, 2023 at 11:14 am said:

    Good read:

    “And the question I kept wanting to ask, and did ask, is what is the threat that occasioned the building of this anti-disinformation complex? If you’re going to start abrading and eroding the First Amendment, you got to have a good reason, an urgent reason, an existential reason, I would think. But what was it?

    Matt Taibbi: Well, I think we know what it is, right? The obvious answer is Trump, and they wouldn’t say that out loud. They would maybe say that about January 6th. But if you go back and look at the history of this thing, when did they stop aiming this big mechanism at ISIS, Al-Qaeda, Al-Nusra, and start turning it this way? It coincided with some pretty conspicuous events. You had the Arab Spring, then you had the rise of all these populous movements in Europe. And they were on the left and the right. You had Podemos in Spain, right? And the rightist movements in Austria, and then there was Occupy and The Tea Party here in the States. And then, Trump and Bernie Sanders get elected.

    But the thing about Trump that I think triggered this whole thing was that he specifically bypassed traditional media. Up until that point, and I know this because I watched it as a campaign reporter and was initially mystified by it, but then, later was obsessed with it as a key problem with the American political process, was that a small handful of campaign journalists got to basically decide who ran for president or who got to be the nominee. They lost that power in 2016 when Trump just went over their heads with a Twitter account, and won the nomination despite unanimous denunciations, even from conservative reporters. And I think that’s the emergency, is we lost control of this thing. We got to get it back. And don’t you think?”

    https://www.racket.news/p/transcript-america-this-week-episode-e7b

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    • Brent Nyitray's avatar
      Brent Nyitray, on November 11, 2023 at 11:34 am said:

      Despite all of Trump’s baggage, he did reveal that the democrats are authoritarian and will stop at nothing to gain power, while the republicans are feckless, controlled opposition.

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  7. jnc4p's avatar
    jnc4p, on November 11, 2023 at 11:26 am said:

    Brent, the wikipedia version of your story:

    “Following an extensive operational evaluation and qualification phase, Gridley deployed to the Persian Gulf, the ship operated in support of the aircraft carrier USS Independence. Gridley rescued the disabled merchant vessel Adel 11 in the North Arabian Sea in June 1992. When Operation Southern Watch, the enforcement of a “no-fly” zone over southern Iraq, commenced in August, Gridley was the first ship on station off the coast of Kuwait. She provided coastal radar coverage and air-defense protection for ships in the northern Persian Gulf. ”

    https://en.wikipedia.org/wiki/USS_Gridley_(DLG-21)

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  8. Let the mutherfuker burn!'s avatar
    Let the mutherfuker burn!, on November 11, 2023 at 1:21 pm said:

    I actually think they’re hoping for a Randy Weaver / David Koresh type stand-off – bonus if some LEO’s get killed.

    https://x.com/julie_kelly2/status/1723362804017598753?s=46&t=vSGsUlnc4rLxcUf7zfUiHg

    Seems pretty obvious to me.

    The fact that this guy gave them the slip, by going out the back, and disappeared for two days before turning himself in does not paint these morons in glory.

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  9. jnc4p's avatar
    jnc4p, on November 11, 2023 at 1:42 pm said:

    I realize that it’s technically Veterans’ Day and not Memorial Day, but this is a good read nonetheless:

    “Divers find dog tags and a ring in the wreck of a WWII bomber at sea”

    https://www.washingtonpost.com/history/2023/11/11/wwii-bomber-dive-dog-tag/

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  10. jnc4p's avatar
    jnc4p, on November 12, 2023 at 9:06 am said:

    Robert Reich should stop trying to persuade people to vote for Trump:

    “The difference between the first Trump administration-in-waiting and this second one is this: The first was ready to help Trump navigate the shoals of official Washington. The second is ready to help Trump destroy official Washington. ”

    https://robertreich.substack.com/p/what-is-trump-planning-if-he-gets?utm_source=profile&utm_medium=reader2

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  11. jnc4p's avatar
    jnc4p, on November 12, 2023 at 12:56 pm said:

    Spot on:

    “Zelensky Cancels Elections To Focus On Fighting For Democracy
    World · Nov 7, 2023 · BabylonBee.com”

    https://babylonbee.com/cleanArticle/zelensky-cancels-elections-to-focus-on-fighting-for-democracy

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  14. jnc4p's avatar
    jnc4p, on November 13, 2023 at 10:20 am said:

    This is actually a good idea, presuming that US Marines are there to provide shipboard security:

    “Injured kids are dying in Gaza. Send in the hospital ships.
    By Michael Rose
    November 10, 2023 at 7:15 a.m. EST”

    https://www.washingtonpost.com/opinions/2023/11/10/gaza-kids-navy-hospital-ships/

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    • Let the mutherfuker burn!'s avatar
      Let the mutherfuker burn!, on November 13, 2023 at 10:25 am said:

      The problem is, where do they go after? No muzzie country wants them, I don’t want them and putting them on a US ship guarantees they come here as the idea of returning them to Gaza will be demagogued to death.

      I’d charter flights out of Egypt directly to Iran for treatment.

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