Post 255

A snapshot of what’s going on in the world’s economy.  Financial Ructions and book reviews can be a bit more technical so feel free to skip them.  See disclaimer at the end of this note.

Summary

  • Many people moved further away from their office during COVID.
    • The mortgage rate situation in the US might make it difficult for some to come back into the office.
  • The Bee Gees help save lives.
  • Inflation in fast-food prices is forcing more people to eat at home.
    • This is getting serious.
  • Boeing, SpaceX and Peter, Paul and Mary.
  • Jobs in the US are either increasing or decreasing depending on the survey.
    • But government jobs continue to soar.
  • In Financial Ructions:
    • The Bank of Canada lowered its key interest rate.
      • Good for some, but not for many others and not for the economy longer-term.
    • Yes, higher (normal) rates do result in stronger economic growth.
    • The soft-landing policymakers target is for asset prices and final spending.
      • At the expense of the long-term health of the economy.
    • The US dollar is not strong, but less weak.

News

Working Further From The Office

According to a report by the WSJ, more people are living further away from where they work.

  • Obviously, the ability to work from home and companies offering hybrid models have contributed a lot to this.
  • It’s also a lot easier these days to make use of your time in the car by listening to podcasts or books online.
  • According to Gusto, the average distance travelled to work:
    • 2019: 10 miles
    • 2023: 27 miles.
  • Supporting this is a report from Demographia which says that between 2021 and 2023, the 56 largest cities in the US lost a net number of 1.9 million jobs.

The article interviews some people who moved further away during COVID and who say that it is only the hybrid model that makes it possible.

  • If they had to do the long drive more than 1-3 days a week it wouldn’t work for them.
  • This makes it more difficult for companies to try and force their employees back into the office full time.
    • Particularly in the US where a lot of people are “trapped” in their homes with generationally low mortgage rates.

Stayin Alive

Apparently, med students listening to the Bee Gees song Stayin Alive improves their CPR effectiveness.

  • The song has 103 beats per minute which is in the recommended range of compressions i.e. 100-120.
    • Demonstration with music ‘here.’
  • According to this article, a hospital in New York has created a Spotify playlist with songs that have 100-120 beats per minute.
    • PM: With my luck, if I need CPR, I’ll get someone with no sense of rhythm.
    • Or they’ll be listening to Feelings.

Cheese Birkins?

According to Lending Tree (via A Havenstein Moment) burgers are the new Birkins as rapid price increases in fast-food are changing peoples’ eating habits:

  • Prices have risen so much 78% of people now consider it a luxury.
  • 62% of Americans say they are eating fast food less often.
  • Apparently 67% of Americans believe that fast food should be cheaper than eating at home.
    • PM: That’s a strange one.
      • You’d think that making stuff at home should be cheaper, although on looking it up there do appear to be some items that are cheaper at the fast-food joint.
      • Specifically, I remember back in the day when McDonald’s had their double cheeseburger on the dollar menu.
      • There were all kinds of people online trying to make a double cheeseburger at home for less than a buck and I’m not sure anyone could do it.
  • 75% of Americans eat fast food at least once a week.
    • 2% have it seven times a week or more.
  • In a sign of the times, more fast-food restaurants are asking for tips.
    • More than half of those who were asked to leave a tip did so.
    • However, few people do leave a tip at fast-food joints.
    • In a report on Tip Creep by Statista, they site a survey by Pew Research Center which shows the number of people who usually tip at a fast food restaurant is only 12%.

Boeing: This Time It’s Good News

Boeing has for the first time taken astronauts into space.

  • Their spacecraft is called Starliner.
    • The rocket is an Atlas 5.
      • Original rocket designed by Lockheed Martin and now a joint venture with Boeing.
  • In 2020, SpaceX’s Dragon was the first commercial operator to take astronauts into orbit:
    • Spacecraft is called Dragon
    • PM: “Dragon” people into space. 🙂
      • The rocket is a Falcon 9.
        • Incredibly, SpaceX developed their own engine.

PM: This is all pretty amazing stuff.

  • Apparently Musk named the spacecraft Dragon from the song by Peter, Paul and Mary called Puff The Magic Dragon.
    • PM:
      • It’s a great song, but I never really appreciated the lyrics or knew what it was about.
      • Some felt it was about smoking weed because of the word Puff.
      • But it was simply a song about the loss of childhood innocence exemplified by a boy losing interest in his toy dragon.
      • Here are some of the lyrics:
      • A dragon lives forever, but not so little girls and boys
      • Painted wings and giant’s rings make way for other toys
      • One gray night it happened, Jackie Paper came no more
      • And Puff, that mighty dragon, he ceased his fearless roar
      • His head was bent in sorrow, green scales fell like rain
      • Puff no longer went to play along the cherry lane
      • Without his lifelong friend, Puff could not be brave
      • So Puff, that mighty dragon, sadly slipped into his cave
        • Nice live version ‘here’ from 1986.  They had great harmony.

US Jobs

  • US added in May:
    • Establishment survey: +272,000.
      • Goods: 25,000
      • Services: 204,000
        • By far the most jobs were created in health care and social assistance: 83,500
        • PM: It appears that people getting sick from being stressed out trying to pay their bills is good for the jobs number.
      • Government: 43,000
        • Government added almost twice as many jobs as goods-producing companies in the private sector.
        • And added an average of 52,000 per month over the last twelve months.      
    • Household survey: -408,000
      • According to this survey, private industry lost 424,000
        • But self employed had a good month: up 113,000
    • Wages were up 4.1% from last year.

Unemployment rate:

  • Feb: 3.9%
  • Mar: 3.8%
  • Apr: 3.9%
  • May: 4.0%

Financial Ructions

Note: ‘Financial Ructions’ is optional-to-read for those who are interested in taking a bit of a deeper dive…

Welcome News?

The Bank of Canada lowered its key interest rate by 0.25% (25 basis points).

  • Now at 4.75%.

Canada’s Finance Minister said that this is “welcome news for Canada and Canadians.”

  • PM: No, it’s welcome news for asset owners, especially homeowners.
    • The government’s and homeowners’ hopes are that lower mortgage rates will once again propel home prices higher.
    • For the rest of Canadians who don’t own a home this is not welcome news.
      • The priors’ gain comes at the latters’ expense.
    • And longer term this will not be welcome news for “all” Canadians as driving interest rates below their natural rate leads to declines in productivity growth.
      • Or as in the case of Canada, not just declines in the rate of “growth” but actual declines.
    • As a reminder, from a historical perspective, current interest rates are closer to “normal” and not high.
      • I.e. normal rates which used to lead to much faster economic growth.

Higher Rates Equals Higher Growth

  • US Fed Funds target rates:
    • Average: 1954-2007: 5.7%
      • Real GDP growth: 3.4%
    • Average: 2009-2021: 0.52%
      • Real GDP growth: 2.4%
    • The rate today: 5.33%
    • Some would argue that the lower interest rates in the US were because the economy was growing slower.
    • But it was the lower interest rates that caused economic growth to slow.
    • Lower interest rates are about protecting asset prices and do so at the expense of economic prosperity for anyone not owning those assets.
      • And longer term even most asset owners will lose.

Eventual Crash Landing

  • The head of the Bank of Canada still expects a soft landing.
    • Policymakers can continuously fiddle with the symptoms of a thriving economy, but those very actions rot the system from within.
      • Leading to an us vs. them mentality in society with one group gaining at the expense of the other.
    • There is no longer-term soft landing with these policies.
      • Ultimately it will be like trying to land the Hindenburg on a dumpster fire.

US Dollar

The US dollar index according to data from Marketwatch:

  • 2014: 80.32
  • 2024: 104.94
    • Up 31%
    • Note that with other central banks now lowering their key rates and the US so far holding firm, this could contribute to even more US dollar strength.
      • Although the Bank of Japan did raise their key rate to ZERO.
        • And their 10yr rate is now yielding about 1% after being on the floor since 2015.

Global Central Bank Interest Rates:

  • US Federal Reserve: 5.33%
  • Bank of England: 5.25%
  • Bank of Canada: 4.75%
  • European Central Bank: 3.75%
  • Bank of Japan: 0%-0.25%

PM: Note that the strength in the US dollar is a “relative” strength.

  • In absolute terms the US dollar is weakening rapidly, but less rapidly than other currencies.
  • Obviously, inflation is used to measure a currency’s debasement.
  • However, this significantly understates the level of debasement i.e. how much of your wealth is taken from your savings or purchasing power from your wages.
  • First, the officials continuously monkey around with the CPI/PCE number:
    • Changing the basket of goods
    • Leaving out certain things
      • Like in my last post showing how soaring property insurance costs are for the most part not included in the inflation number.
    • Substitution: If your favourite steak goes up in price and you switch to a cheaper cut of steak that went up less in price, government economists assume your quality of life has not changed and so will use the lower price-increasing steak in the official inflation data.
    • Hedonic Adjustments: If the price of a car goes up, but government officials feel that the quality of the car also went up they will reduce the price rise impact on the official CPI number.  In fact, sometimes they reflect a falling price i.e. even though you’re paying more for the car the government will tell you that you’re paying less (I use a real-life example in my book).
  • Second, through investment and productivity, prices of many or most goods should fall.
    • Improvements in productivity that lead to excess profitability eventually get competed away through lower prices for consumers.
    • However, you don’t see these lower prices because governments increase the money supply at an even faster rate.
  • So, if the official rate of inflation is 3%, the real amount of the currency debasement is:
    • The official 3% rate
    • The amount of inflation that government officials take out via substitution, hedonics etc.
    • The lower prices that you should have seen from productivity growth.

Disclaimer: Note that Paulitical Economy™ should not be considered as investment advice, and I have not verified all of the sources of information.  It is meant for general interest purposes only.  Please consult an advisor if you plan on putting any of your hard-earned capital to work during these turbulent times.

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