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Twas the Week Before Christmas

| December 19, 2023

Twas the Week before Christmas, when all through the markets

Not an IPO was stirring, not even a SPAC;

The stockings were hung from the desk with thoughts;

In hopes that a Christmas rally would soon be here;

The traders were busy in their cubicles;

Just waiting for a trade that might not come;

While visions of window dressing flashed on their screens;

Market specialists had finally taken a breath;

Just as year-end tax loss selling started in earnest;

Then, out of nowhere, there was such a noise;

I rose from my shiny corner office to see the cause;

Outside, at 11 Wall Street was Chair Powell and his 8 Fed Governors;

It was true, there would be a Santa Claus rally after all;

He had checked his list twice, and all were on the nice list;

As he left for his real work, he shouted;

“Happy Christmas to all, and to all good health!”


I thought I would have a little fun, I hope you had some as well. Don’t worry, I realize my retirement hobby won’t be poetry and children’s literature!

Fed Chair Powell sure did give us a Santa Claus rally with his last meeting of the year. As of the November meeting, the Federal Reserve was still expecting one more interest rate increase and no cuts next year. Of course, the markets didn’t believe that and had begun to price in some cuts.

Low and behold, last week the FED declared that the economy was slowing and that they are now projecting not one, not two, but three interest rate cuts next year (of course the market has priced in 5).

Let’s be clear, you don’t need to put people out of work in order to have lower inflation. We have said before, if the only tool you have is a hammer, everything looks like a nail. If all you can affect is demand, then you will make sure to destroy demand by putting people out of work so they don’t have money.

But that’s not the only possible solution. You can have productivity rates increase to offset much if not all of the inflation pressures. Here is the latest chart from the Bureau of Labor Statistics (BLS) on productivity.



Non-farm productivity increased by 4.7% in the 3rd quarter. Meanwhile 3rd quarter GDP registered a healthy 4.9% growth. Labor and general prices can go up, but if more “stuff” is produced with less overall labor, it will be difficult for inflation to get out of hand. We are seeing labor now consistent with 2% inflation.



Lastly, we have been discussing Owner’s Equivalent Rent (OER) and how that has affected overall inflation. Here’s part of an article from the Wall Street Journal two days ago.

It’s not hard to see why the FED is reconsidering raising rates further, given the very lagged effects of housing costs. Here is what the new FED dot plot looks like:

That’s a big drop in just six weeks.  It’s also a warning shot for the $6T+ in money market earning a close to 5%.  That’s going to start disappearing, as will juicy CD rates.

That’s it for today, I hope you have a great week and a wonderful holiday with family and friends. If you have any comments or questions or year-end needs, please feel free to reach out to us. As you might expect, our offices and the financial markets will be closed next Monday for Christmas and the following Monday for New Year’s Day. Otherwise, we are around and available to tackle year-end needs should you need to reach us.

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