Summary: Jay Powell at Jackson Hole, Wyoming, today turned out a speech unlike any other he has given before. That said, it wasn't actually something new either from a Fed chair or one in that same setting. Like Ben Bernanke a long time before, Powell started out by admitting the US is in serious trouble before then trying to sell the world he has a way to fix this. Sadly, it's also the same one Bernanke tried to sell.

Summary: Summary: The US Treasury market continues its aggressive bull steepening, with more parts of the yield curve un-inverting including the 2-year/10-year spread for the first time. At the same time, the US govt reported an even better second quarter GDP estimate. How can we reconcile these two very different signals? Easy: use GDP's opposite side. Unlike the more famous version, the other one is flashing all the same warning signals as Treasuries, the unemployment rate, even overseas economies.

Summary: Given the mainstream description of economic circumstances especially in the United State the past few years, the idea of the entire financial world hedging to be prepared for more depression economics seems beyond far-fetched. It at first appears downright preposterous. Yet, the full weight of evidence is on the markets’ side. All that’s really left is to rewrite the narrative which actually fits the facts.

Summary: China’s PBOC came out with a surprise rate cut to begin this week because the government’s Third Plenum went over like a lead balloon. The real story behind it is a troubled power attempting to do what no other socialist system has ever been able to, all because the monetary challenge was too big for them to tackle. This is a measure of the degree of difficulty for China and simultaneously a commentary on what the whole world is facing.

Summary: Over the last couple of weeks, the UST yield curve’s 5-year to 10-year spread has un-inverted and steepened. This is potentially a critical first step signaling the wider trend for the marketplace though also just as importantly the economy. Unfortunately, it isn’t so easy and simple. Here we’ll review the developments and some historical cases to see what we can make of all this.

Summary: The June 2024 CPI data didn’t just produce solid disinflation, it actually showed an alarming amount. For the second straight month, the core CPI dipped sharply and in a way we’ve rarely seen before. It doesn’t matter it wasn’t negative, it has clearly been pushed outside of its usual range and pattern. Examining its history especially during the worst recessions shows just how unusual and what it must take to create these abrupt and sharp changes to price conditions. The fact these are perfectly consistent with everything we’ve been getting only makes a strongly compelling case even more so.

Summary: We are now at the stage where we can finally talk about superstition. In other words, Fed rate cuts. Why does everyone believe these have magic powers? Economic study (small “e”) almost never gives us a clear, unambiguous result, but when it comes to central bank rate policies at these times it actually does. The evidence leaves no room even for interpretation. With rate cuts on the way, let’s examine both the evidence and the rationale no matter how irrational.

Summary: China’s top central banker acknowledged his institution is undertaking radical reform. This is not a good sign, instead a critical signal that the music has indeed stopped where it matters, if only to start playing a different song in a different venue. Once central banks shift to “communication” you know it is over, not for them but for the real power and money in the world. The consequences are enormous and are going to be with us for a very long time.

Summary: The latest update on the ongoing saga of Basel’s so-called Endgame. Recent reports suggest the Federal Reserve is willing to substantially scale down some of the proposals. Questions remain as to whether the other regulators will go along. While the discussion continues, we have more projections on potential effects and their costs from a couple of sources. It isn’t so much the simulated measurements they’ve produced which should grab the attention of everyone involved, but why the estimates turned out the way they did.

Summary: Two matters now dominate the foreign financial affairs of the US government: Russia and China. The latter is a new development though one whose roots are very much intertwined with parts of the other. Russia is currently benefiting from the real power of the eurodollar system, inadvertently illustrating why China is not now nor will ever be able to get out from under it. We’ll discuss the short run implications as well as the long run picture.

Summary: The dollar continues to be dominant in the most critical aspect of the modern reserve currency dynamic: FX. Despite the loss of some “petrodollars” there never was a threat from the “petrodollar” because the latter never existed. Economics has left the public with a host of misconceptions since Economists have failed to accurately account or even depict how money functions let alone reserve currency money

Summary: How much of this overwhelming “vibe” of recession is real? According to most mainstream sources, it is purely a matter of biased perspective. That view seems to be based on solid data. Yet, it is actually grounded in incomplete interpretation of questionable data that gets more so not less. Some important recent updates raise more problems by showing the “vibe” has already been far more plausible.

Summary: Continuing to evaluate the effectiveness of our monetary and financial signals. With markets on a rampage right now, it is as important as ever to calibrate and review. What have massive inversions really been saying all this time? What does their increasingly negative spreads say about what’s still ahead?

Summary: With curves hugely inverted, it’s quite natural to ask, what are the chances they are sending a false positive? The answer to that question depends on what you mean. Here we’ll take the first of several deeper dives into the recent history of curve/financial indications to evaluate them for their usefulness and performance. In doing so, we’ll uncover what they’re really telling us. It isn’t about another Lehman.