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Bounce in Money Growth is Good News and Bad News
The monthly money supply numbers are out. I have bad news and good news.
The bad news is that the contraction in the money supply appears to be over. That’s not bad news per se (see below), but it’s bad in that the anti-inflationary work that was happening is coming to an end before it’s quite finished. Although I would be reluctant to annualize any one month’s change in M2, the $92bln increase in M2 in March was the largest increase since 2021. It only annualizes to 5.5%, so it isn’t exactly running away from us – but it’s positive. The 3-month and 6-month changes are also positive, and the highest since early 2022 in each case. Again, we’re only 0.72% above the ding-dong lows of last October, but the sign is now positive.
With the money supply figures now in, and with the advance Q1 GDP report due this week, we can revisit our chart of “how much more inflation ‘potential energy’ remains.” (see “Where Inflation Stands in the Cycle,” November 2023). As that article (and this chart) illustrates, if M2 doesn’t go down then this gets more difficult. M2 in Q1 rose at a 1.24% annualized rate over Q4. GDP is expected to rise 2.5% annualized. So M/Q…barely moves, as the chart shows.
We will eventually get back to the line, unless velocity is permanently impaired. Despite all of the crazy people who told you it was, there’s no evidence of that. M2 velocity will rise about 1% (not annualized), if the GDP forecasts are on point. That will be the smallest q/q change in several years, and velocity will be getting very close to the 2020Q1 dropping-off point. But there frankly is no reason for velocity to stop there; higher interest rates imply higher money velocity. However, we are getting close.
(Incidentally, if you’re curious how we can be almost back to the dropping-off point of velocity and yet still be 5% below the line in the first chart above, it’s because I’m using core inflation. With food and energy, we’re a little closer to the line and have used up more of the ‘potential energy.’ But food and energy are of course volatile and so while a good spike in energy prices would look like we’ve used up all of the potential energy, that could just be a one-off effect.)
Either way, we aren’t too far away from getting back to home base and that’s good news. Yes, prices by the time we are done will have risen 25% since the end of 2019, and that can’t really be characterized as a ‘win.’ Let’s go Brandon. But we are getting closer.
The good news about the new rise in M2 is that it’s timely. Markets and the economy were starting to show signs of money getting a little tight; losing a little lubrication in the machinery. An economy does need money to run, and while the only way we can get back to the old price level is to have money supply continue to decrease, that’s also a painful process. In the long run, we would have price stability if the change in M was approximately equal to the change in GDP. If we want 2% inflation, then we need M to grow about 2% faster than GDP. Vacillating velocity means that it isn’t purely mechanical like that – the steady decline in velocity since 1997 is the only reason that inflation stayed tame despite too-fast money growth over that period – but the long downtrend in velocity is likely finished since the long decline in rates is finished. Thus, if we get money supply growth back to the neighborhood of 4%, we can get our 2-2.5% growth with restrained inflation over time.
I am not super optimistic that all of that will work out so nice and cleanly like we draw it up on the chalkboard, but I am more optimistic about it than I was two years ago. We still have some sticky inflation ahead of us, but if the Fed keeps reducing its balance sheet then eventually we will get inflation below the sticky zone and back towards ‘target’ (even though there isn’t a target per se any more).
Average Inflation or Price-Level Targeting: Where Are We Now?
One of the reasons the Federal Reserve has been slower than usual to respond to the upswing in inflation, in addition to claiming that it believes any acceleration to be ‘transitory,’ is that the FOMC cleverly changed its modus operandi a couple of years ago to focus on “average inflation targeting,” or AIT. This adjustment in policy had been debated for many years, as the Committee grew concerned that the Fed could lose credibility (ha ha) in the downward direction if it did not commit to its 2% target symmetrically. They were afraid that, if investors believed they would respond aggressively to inflation but not to disinflation, they would start to incorporate this asymmetry into their investment decisions and push the economy uncomfortably close to price stability.
Parenthetical editorial comment – the idea that the Fed needed to fight against the notion that it might be too hawkish is a head-scratcher. It is unclear how the Federal Reserve could be less dovish than it has been in practice for the last dozen years.
In any event, AIT is similar to price-level targeting, although it is more flexible in terms of the period over which the average is intended to be taken. The Fed meant to signal that it would allow a period of above-target inflation to persist, until at least the period of below-target inflation had been compensated. But again, AIT is vague about what all of this means. However, it happens to have been timely as the Fed now can evince patience with higher inflation, since there had been an extended period during which prices were “too stable.”
How are they doing?
In my recent article “CPI Forwards Show Inflation Concerns Aren’t Ebbing,” I discussed how inflation forwards could be estimated, and give a steady reading on particular points in the future. Here is what that would look like today. If we measure 2.25% target CPI growth (which is roughly 2% on PCE, given the historical spread), then from the announcement of AIT the chart below shows the actual inflation index, and what is implied about the future.
This chart would suggest that the Fed chose an inauspicious time to begin focusing on AIT, since already the undershoot from 2019 has been fully retraced and then some. Moreover, the market seems to believe that the Fed is going to have to focus on a new level, as prices will never get back down to a level implied by 2.25% from the inception of AIT.
As I said, though, the great thing about AIT (from the standpoint of a political economist) is its vagueness. If we instead take as the starting point of the average the period just after the global financial crisis, when rents were recovering at last, then you get a much more agreeable picture. Looked at this way, the market is generously giving credit to the Fed for making a perfect landing, very gradually, over the next 5-10 years.
That seems a bit too generous by half in my opinion, but the takeaway is this: even choosing an extremely long averaging period, the Fed has already used up as much slack as it had saved up. If the next year’s worth of inflation outturns deliver what I think they will deliver, then either the inflation curve is going to become increasingly inverted or the Fed will have to recognize that investors are not buying the AIT framework.
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Summary of My Post-CPI Tweets (December 2020)
Below is a summary of my post-CPI tweets. You can (and should!) follow me @inflation_guy. Or, sign up for email updates to my occasional articles here. Investors, issuers and risk managers with interests in this area be sure to stop by Enduring Investments!
- Once again, it is #CPI Day! As the summer shutdown continues to recede (even as a winter shutdown potentially looms), the data is starting to clear up a little.
- There are still huge dislocations, though, in the global supply chain and we’re seeing anecdotal evidence of that all over the place. Check out the price of polymer grade propylene if you don’t believe me. PGP1 Comdty on Bloomberg.
- Container shortages are also causing price and quantity ripples in global trade. And of course, huge amounts of money chasing these fewer goods. y/y M2 is +25% in the US. 10% in Europe. 9% in Japan.
- Often, I go into the CPI report with just a vague sense of looking at the whole number and then breaking it down. This month, I have a little different plan of attack.
- The word of the day today is “compartmentalize.” There is housing, and then there is ex-housing. Housing is one thing. There seems to be near-term pressure on rents even outside of the big cities, as delinquencies are at last rising (as many have long predicted).
- Measured rental inflation is lower (even if quoted rents aren’t) to the extent that landlords don’t expect to collect the full rent, so that’s a downward effect.
- But longer-term, housing is doing just fine – home price changes, in fact, are accelerating – so I am not concerned that rental deflation will stay around very long.
- For a discussion of housing, see my post from october 23 here: https://inflationguy.blog/2020/10/23/the-outlook-for-housing-inflation-from-here-oct-2020/
- So shelter will probably be soft though we’re due for a bounce in Lodging Away from Home. But outside of shelter, the “non-sticky” is what I really want to see. As I mentioned, there are supply chain problems out there and it’s affecting prices because it affects supply.
- Used Cars might have some more upside, though the early-summer surge looked to be past when that subcomponent declined slightly last month. But the surveys of used car prices are headed back up.
- Last month, overall core CPI was weak largely because Medical Care tanked. That was the real outlier. I’m keenly interested to see if it rebounds. It’s implausible to think that medical care prices aren’t inflating much.
- Broadly, consensus this month is for 0.1% on core and just a smidge over 1.5% y/y. No real opinion there – as I said, I’m compartmentalizing. I want to see ex-shelter.
- Do remember, as I constantly remind: the #Fed doesn’t care one bit about inflation. But if YOU do, and have interests in how to hedge/invest in the inflationary period approaching, visit https://enduringinvestments.com
- There’s a growing tide of stories about inflation, both anecdotal ones and stories of the “smart people worried” variety. And I’m seeing lots of interest in new product development in inflation space, and working on several with customers. 2021 will be busy.
- OK, let’s see what the BLS has in store for us this month. Good luck. And in case I forget to say it later, Happy Holidays. Now let’s light this candle!!
- Core CPI +0.22%, higher than expected. y/y at 1.647%…rounded to 1.6%, but almost ticked up to 1.7%. But remember: let’s compartmentalize. See the breakdown.
- Just a quick glance tells me this will be interesting. Used Cars, a usual suspect when we’re above consensus, wasn’t it. -1.28% m/m, which means next month probably it adds. And rents were soft.
- Owners’ Equivalent Rent was +0.03% m/m, dropping the y/y to 2.28% from 2.50%! That’s a huge drop. Primary Rents +0.04%, y/y foes to 2.45% from 2.67%. Also huge. All of that temporary though.
- Lodging Away from Home did rebound as expected: +3.93% on the month. So total housing was 0.27% m/m, even though the big pieces belly-flopped.
- And Medical Care was down again, -0.13% m/m. So what was UP??
- Well, airfares were +3.5% m/m. Motor Vehicle Insurance rebounded 1.2% m/m after falling last month.
- Core Goods inflation rose to 1.4% y/y. Core services was flat at 1.7%. You’re looking at supply chain and classic too-much-money-chasing-too-few-goods.
- Core ex-shelter rose to 1.47%, reversing the deceleration from last month. Still not terribly high, but heading the wrong way.
- Shelter, and core ex-shelter. Outside of shelter, there’s no sign that covid is causing anything that looks like deflation or even disinflation.
- Apparel was +0.92% on the month, which is a whopper and a part of the ‘how is this happening’ story, even though it’s only 2.8% of the CPI.
- Biggest declines on the month were jewelry and watches (-14.5% annualized) and used cars and trucks (-14.4% annualized). But there’s a long list of categories annualizing over 10%:
- Motor Vehicle Insurance (13.8%), Footwear (17.6%), Men’s/Boys Apparel (28.5%), Misc Personal Goods (+31.9%), Public Transportation (+34.4%), Infants’/Toddlers’ Apparel (+51.3%), Lodging AFH (+58.9%), Car/Truck Rental (+66.8%).
- So here’s the thing. Because there were small categories with BIG rises and big categories with small declines, the “average” CPI is exaggerated. Median CPI in fact should be very soft, maybe even +0.04% this month. And Median y/y should fall, pretty sharply even.
- To be sure, if the skewness goes from being on the downside where it’s been for years, to being on the upside – that’s partly what inflation looks like. More on this later when I show distribution stuff.
- Appliances inflation, part of that core goods component, continues to accelerate. CPI for Major Appliances is now +17.2% y/y, which you probably know if you’ve been remodeling.
- The overall Housing subcomponent inflation rose to 2.00% y/y from 1.95%. But that’s despite big drops in primary and owners’ equivalent rent. BECAUSE of things like appliances, tools, housekeeping supplies, furniture…all up.
- As noted, a big part of the “small categories, big changes” came from apparel subcategories. But here’s the overall apparel category. Not exactly terrifying (this is price level, not inflation). The price of clothing is back to roughly what it was in the late 1980s.
- Totally have skipped over medical care so far. At least we saw increases in some categories although it remains…improbably soft. Medicinal Drugs -0.19% m/m. Doctors’ Services +0.13% m/m. Hospital Services +0.33% m/m. I still don’t buy it.
- Skipping back to rents – the decline is getting to the implausible level. Again, this isn’t really quoted rents – this is being caused by rent delinquencies.
- It’s really, really important to remember that home prices don’t follow rents, rents follow home prices (usually). With home prices shooting higher, rents will not keep decelerating. These are substitutes. Over time they move together.
- So, this distribution is starting to look different. Tails are starting to extend to the high side while the big middle is temporarily moving left b/c of rents.
- But having the long tail on the upside, which will cause median CPI to eventually be BELOW core instead of above it as it has been for years, is part of what inflation looks like. Kernels popping.
- I’m going to do the four-pieces charts, then the perceived inflation index, then wrap up.
- I see we have a number of new joiners this month so to set up the “four pieces” charts: this is just one way of slicing the data into reasonable categories so that each piece is around one quarter of CPI. Food & Energy, Core Goods, Core Services ex-Shelter, and Shelter.
- Piece 1: Food & Energy. About 20% of CPI.
- Piece 2, core goods, also about 20%. Talked about this earlier. This is supply chain disruption, and money chasing goods. Appliances. Furniture. But not medicines, weirdly.
- Core services less Rent of Shelter – weak, as Medical Care Services is weirdly soft. I really don’t understand this. Some of it is auto insurance, which is soft because people aren’t driving as much, but this just seems odd.
- Rent of Shelter, 1/3 of CPI and a plurality of core CPI. This is where you’ll see really strident arguments on both sides over the next month. But remember, it’s largely about delinquencies. If there’s another stimulus and folks get current on rent, this will reverse.
- Perceived inflation still running about 1.1% above core inflation.
- So to wrap up: Core surprised to the upside, because of large changes in small categories like apparel, furniture, and appliances. This means median CPI, which we pay more attention to, will be softer this month.
- Compartmentalizing: rents continue to be soft, but I don’t think they’ll stay that way. Core goods are clearly pushing higher in a way they haven’t for years, and everyone sees this especially during the shopping season. People don’t shop for services for Christmas.
- Core services, even ex-shelter, remain curiously weak. Softness in medical care remains a conundrum to me.
- Bottom line is that this upside surprise isn’t as alarming as it could be, in the same way last month’s downside surprise wasn’t really helpful to deflationistas. But the kernels popping to the high side is an interesting phenomenon that is becoming more common.
- That might be related to the COVID economy, or it might be a shift to an inflationary price dynamic from the disinflationary price dynamic we’ve seen for decades, where the middle is steady but we get occasional downside tails from price-cutting.
- Time will tell. However, there is nothing here to make Fed governors wake up early to catch the next CPI. They don’t care about inflation, and it will be a while before it gets on their radar screens. By the end of 2021, maybe.
- Thanks for tuning in. I will post a summary of this string of tweets at http://mikeashton.wordpress.com in a half hour or so. Please stop by and peruse the blog, or better yet come by https://enduringinvestments.com and drop me a note so we can talk about how to work together. Happy holidays!
This was a really different CPI in a number of ways. For one thing, Apparel actually contributed to the upside. The number of core goods categories – small ones – showing large price increases is really unusual, and fascinating. Some of this is clearly temporary: the global supply of shipping containers is all in the wrong places, and there aren’t enough of them anyway, and this is causing sharp increases in shipping costs, delays in shipping, and therefore shortage in end product markets. This would ordinarily be merely inconvenient, but pressing against that shortage of many sorts of consumer goods is a large increase in the amount of money. When helicopters drop a few thousand dollars in everyone’s pocket and many of them run out to spend it, but the shelves are sparse – you get price increases. I am not sure this is as temporary as we want to think. In the initial helicopter drop, a lot of that money was saved at least temporarily, and money velocity fell. But that was partly because we were all shut-ins; we’re also finding out it was partly because there weren’t enough products to buy. I think we’re going to continue to see that money come gradually out of savings and into spending, and I am not sure the global supply chain can keep up yet.
We aren’t yet seeing the broad inflationary pressures. Obviously, rents are soggy but core services in general are weak. I don’t think that will persist; I wonder how much is due to the hangover from the lockdowns. But the lengthening of the upside tails is one characteristic of an inflationary process. I wrote about this recently in “Are the Inflation Kernels Starting to Pop?” and that’s worth a quick read. It has been a long time since we have seen a true inflationary process even when we’ve seen occasional accelerations in inflation itself, so we tend to forget. When inflation is rising at 4%, it doesn’t mean the price of everything we buy is going up at a uniform 4% per year. What actually happens is that prices are sticky, then they jump. This happens for a number of reasons, such a “menu costs” (the cost of reprinting menus, back when that was a thing), and the fact that you have to explain to customers why prices are changing so you do it as infrequently as possible. So what happens is that the price of a particular item goes up 0%, then 0%, then 12%. When that happens, median inflation is below core inflation, because the long upside tails pull up the average. When instead we are in a disinflationary environment, prices go up 2%, then 2%, then get a price cut of 6%. In that case, median inflation will be above core inflation, because the long downside tails pull down the average.
So even though core CPI has been below median for a generation, that isn’t guaranteed. In fact, it’s a possible indicator. Look at the following chart. For years, median CPI had been below core, during an inflationary period. In 1994-5, the positions reversed and they’ve been that way basically ever since.
Obviously, core CPI is still below median CPI. But when the Cleveland Fed reports it today, Median CPI is going to decelerate quite a bit. I don’t think Median is going to keep going down – I think it, and core, are going to go up from here and probably for quite a long time. My point though is that these long tails to the upside are interesting, and worth noting. And if Core CPI crosses above Median over the next few months and quarters, then look out.
Whither (Wither?) Profits
Surprisingly, markets are treading water here. The dollar, interest rates, and stocks are all oscillating in a narrow range. In some ways, this is surprising. It does not shock me that interest rates are fairly boring right now, with the 10-year yield trading almost exclusively within 25bps of 2% since November. Market participants are divided between those who see the Fed’s cessation of QE as indicative that prices should decline to fair market-clearing levels (that is, higher yields) and those who see weakness economically both domestically and abroad. There is room for confusion here.
I am similarly not terribly shocked that the dollar is consolidating after a long run, especially when part of that run was fueled by the popular delusion that the Federal Reserve had suddenly become extremely hawkish and would preemptively hike rates before convincing signs of inflation arose. I am hard-pressed to think of a time when the Fed pre-emptively did anything, but that was the popular belief in any event. Now that it is becoming clear that a hike in rates in June is about as likely as the possibility that the Easter Bunny will deliver eggs at the same time, dollar traders who were relying on widening interest rate differentials are pausing to take stock of the situation. I will say that it certainly seems plausible to me that the dollar’s rally will continue for at least a little while, due to the volatility coming our way as the Greek drama plays out, but the buck is not an automatic buy either. Money growth in the U.S. continues to outpace money growth in most other economies (see chart, source Bloomberg), although it is a much closer thing these days.
An increase in relative supply, if the demand curves are similar, should provoke a decrease in relative price. Unless you believe that the Fed isn’t just going to increase rates but is also going to shrink its balance sheet so that money growth abates eventually, it is hard to envision the dollar launching continuously higher. More likely is that as more and more currencies see their supplies increase, the exchange rates meander but the whole kit-and-kaboodle loses ground to real assets.
One of those real assets is housing. An underpinning to my argument, for several years running now, that core prices were not going to be deflating any time soon was the observation that housing prices (and hence rents, with a lag) have been rising rapidly once again. The deceleration in the year/year growth rates in 2014 was a positive sign, but the increase in prices in 2012 and 2013 is still pressing rents higher now and any sag in rents is yet to be felt. However, today’s release of FHA price index data as well as the Existing Home Sales report suggests that it is premature to expect this second housing bubble to unwind gently. The chart below is the year/year change in the median price of existing homes (source: Bloomberg). The recent dip now seems to have been an aberration, and indeed the slowdown in 2014 may have merely presaged the next acceleration higher.
And that bodes ill for core (median) price pressures, which have been steady around 2.2% for a while but may also be readying for the next leg up. Review my post-CPI summary for some of the fascinating details! (Well, fascinating to me.)
This doesn’t mean that I am sanguine about growth, either domestic or global, looking forward. I thought we would get out of 2014 without a recession, but I am less sure about 2015. Europe is going to do better, thanks to weaker energy and a weaker currency (although the weaker currency counteracts some of the energy weakness), but the structural problems in Europe are profound and the exit of Greece will cause turmoil in the banks. But US growth is in trouble: the benefit from lower energy prices is diffuse, while the pain from lower energy prices is concentrated in a way it hasn’t been in the past. And the dollar strength pressures company earnings, as we have seen, on a broad basis. And that’s where it is a little surprising that we are seeing water-treading. It gets increasingly difficult for me to figure out what equity buyers are seeing. Profits are flattening out and even weakening, and they are already at a very high level of GDP so that any economic weakness is going to be felt in profits directly. Furthermore, I find it very interesting that the last time actual reported profits diverged from “Kalecki Profits” corresponded to the last equity bubble (see chart, source Bloomberg).
“Kalecki Profits” is a line that computes corporate profits as Investment minus Household Savings minus Government Savings minus Foreign Savings plus Dividends. Look up Kalecki Profit Equation on Wikipedia for a further explanation. The “Corp Business Prof After Tax” is from the Federal Reserve’s Flow of Funds Z.1 report and is measured directly. The implication is that if companies are reporting greater profits than the sum of the whole, then the difference is suspect. For example, leverage: by increasing financial leverage, the same top line creates more of a bottom line (in either direction). The chart below (source: Federal Reserve; Enduring Investments analysis) plots the 1-year percentage change in business debt outstanding (lagged 2 quarters to center it on the year in question) versus the difference between the two lines in the prior chart.
We might call this “pretty cool,” but in econometrics terms this is merely an explanatory relationship. That is, it doesn’t really help us other than to help explain why the two series diverge. It doesn’t, for example, tell us whether Kalecki profits will converge upwards to reported profits, or whether reported profits will decline; it doesn’t tell us whether it is a decline or deceleration in business debt outstanding that prompts that convergence or whether something else causes both things to happen. I think it’s unlikely that the divergence in the two profit measures causes the change in debt, but it’s possible. I will say that this last chart makes me more comfortable that the Kalecki equation isn’t broken, but merely that it isn’t capturing everything. And my argument, for what it is worth, would be that business leverage cannot increase without bound. At some point, business borrowing will decline.
It does not look like that is happening yet. I have been reading recently about how credit officers have been declining credit more frequently recently. That may be true, but it isn’t resulting in slower credit growth. Commercial bank credit growth, according to the Fed’s H.8 report and illustrated below, continues to grow at the fastest y/y pace since well before the crisis.
If credit officers are really declining credit more often than before, it must mean that applications are up, or that the credit is being extended on fewer loans (that is, to bigger borrowers). Otherwise, we can’t square the fact that there’s rapid credit growth with the proffered fact that credit is being declined more often.
There is a lot to sort through here, but the bottom line is this: I have no idea what the dollar is going to do. I am not sure what the bond market will do. I have no idea what stocks will do. But, if I have to invest (and I do!), then in general I am aiming for real assets and avoiding financial assets.
The Answer is No
What a shock! The Federal Reserve as currently constituted is dovish!
It has really amazed me in recent months to see the great confidence exuded by Wall Street economists who were predicting the Fed will begin tightening by mid-year. While a tightening of policy is desperately needed – and indeed, an actual tightening of policy rather than a rate-hike, which would do many bad things but not much good – I was surprised to see economists buying the line being put out by Fed speakers on this (and I took issue with it, just last week).
Yes, the Fed would like us to believe that they stand sentinel over the possibility of overstaying their welcome. Their speeches endeavor to give this impression. But it is easy to say such a thing, and to believe that it should be said, and a different thing altogether to actually do it. Given that the Fed’s “preferred” inflation measure is foundering; market-based measures of inflation expectations were in steady decline until mid-January; the dollar is very strong and global economic growth quite weak; and other central banks uniformly loose, in my view it seemed that it would have required a historically hawkish Federal Reserve to stay the course on a mid-year hiking of rates. Something on the order of a Volcker Fed.
Which this ain’t.
Today the minutes from the end-of-January FOMC meeting were released and they were decidedly unconvincing when it comes to steaming full-ahead towards tightening policy. There was a fairly lengthy discussion of the “sizable decline in market-based measures of inflation compensation that had been observed over the past year and continued over the intermeeting period.” The minutes noted that “Participants generally agreed that the behavior of market-based measures of inflation compensation needed to be monitored closely.”
This is a short-term issue. 10-year breakevens bottomed in mid-January, and are nearly 25bps off the lows (see chart, source Bloomberg).
To be sure, much of this reflects the rebound in energy quotes; 5-year implied core inflation is still only 1.54%, which is far too low. But we are unlikely to see those lows in breakevens again. Within a couple of months, 10-year breakevens will be back above 2% (versus 1.72% now). But this isn’t really the point at the moment; the point is that we shouldn’t be surprised that a dovish FOMC takes note of sharp declines in inflation expectations and uses it as an excuse to walk back the tightening chatter.
The minutes also focused on core inflation:
“Several participants saw the continuing weakness of core inflation measures as a concern. In addition, a few participants suggested that the weakness of nominal wage growth indicated that core and headline inflation could take longer to return to 2 percent than the Committee anticipated.”
As I have pointed out on numerous occasions, core inflation is simply the wrong way to measure the central tendency of inflation right now. It isn’t that median inflation is just higher, it’s that it is better in that it marginalizes the outliers. As I pointed out in the article last Thursday, Dallas Fed President Fisher seemed to be humming this tune as well, by focusing on “trimmed-mean.” In short, ex-energy inflation hasn’t been experiencing “continuing weakness.” Median inflation is near the highs. Core has been dragged down by Apparel, Education and Communication, and New and used motor vehicles, and these (specifically the information processing part of Education and Communication, not the College Tuition part!) are among the categories most impacted by dollar strength. Unless you expect dramatic further dollar strengthening – and remember, one year ago there were still many people who were bracing for a dollar plunge – you can’t count on these categories continuing to drag down core CPI.
Again, this isn’t the current point. Whether or not core inflation heads higher from here to converge with median inflation (which I expect to head higher as well), and whether or not inflation expectations rise as I am fairly confident they will do over the next few months, the question was whether a Fed looking at this data was likely to be gung-ho to tighten policy in the near-term. The answer was no. The answer is no. And until that data changes in the direction I expect it to, the answer will be no.
Dog Bites Man: Markets Still Not Making Sense
The Employment number these days is sometimes less interesting than the response of the markets to the number over the ensuing few days. That may or may not be the case here. Thursday’s Employment report was stronger than expected, although right in line with the sorts of numbers we have had, and should expect to have, in the middle of an expansion.
As the chart illustrates, we have been running at about the rate of 200k per month for the last several years, averaged over a full year. I first pointed out last year that this is about the maximum pace our economy is likely to be able to sustain, although in the bubble-fueled expansion of the late 1990s the average got up to around 280k. So Thursday’s 288k is likely to be either revised lower, or followed by some weaker figures going forward, but is fairly unlikely to be followed by stronger numbers.
This is why the lament about the weak job growth is so interesting. It isn’t really very weak at all, historically. It’s merely that people (that is, economists and politicians) were anticipating that the horrible recession would be followed by an awe-inspiring expansion.
The fact that it has not been is itself informative, although you are unlikely to see economists drawing the interesting conclusion here. That’s because they don’t really understand the question, which is “is U.S. growth unit root?” To remember why this really matters, look back at my article from 2010: “The Root of the Problem.” Quoting from that article:
“what is important to understand is this: if economic output is not unit root but is rather trend-stationary, then over time the economy will tend to return to the trend level of output. If economic output is unit root, then a shock to the economy such as we have experienced will not naturally be followed by a return to the prior level of output.”
In other words, if growth is unit root, then we should expect that expansions should be roughly as robust when they follow economic collapses as when they follow mild downturns. And that is exactly what we are seeing in the steady but uninspiring job growth, and the steady if not-unusual return to normalcy in the Unemployment Rate (once we adjust for the participation rate). So, the data seem to suggest that growth is approximately unit root, which matters because among other things it makes any Keynesian prescriptions problematic – if there is no such thing as “trend growth” then the whole notion of an output gap gets weird. A gap? A gap to what?
Now, it is still interesting to look at how markets reacted. Bonds initially sold off, as would be expected if the Fed cared about the Unemployment Rate or the output gap being closed, but then rallied as (presumably) investors discounted the idea that the Federal Reserve is going to move pre-emptively to restrain inflation in this cycle. Equities, on the other hand, had a knee-jerk selloff on that idea (less Fed accommodation) but then rallied the rest of the day on Thursday before retracing a good part of that gain today. It is unclear to me just what news can actually be better than what is already impounded in stock prices. If the answer is “not very darn much,” then the natural reaction should be for the market to tend to react negatively to news even if it continues to drift higher in the absence of news. But that is counterfactual to what happened on Thursday/Monday. I don’t like to read too much into any day’s trading, but that is interesting.
Commodities were roughly unchanged on Thursday, but fell back strongly today. Well, a 1.2% decline in the Bloomberg Commodity Index (formerly the DJ-UBS Commodity Index) isn’t exactly a rout, but since commodities have been slowly rallying for a while this represents the worst selloff since March. The 5-day selloff in commodities, a lusty 2.4%, is the worst since January. Yes, commodities have been rallying, and yet the year-to-date change in the Bloomberg Commodity Index is only 2% more than the rise in M2 over the same period (5.5% versus 3.5%), which means the terribly oversold condition of commodities – especially when compared to other real assets – has only barely begun to be corrected.
I do not really understand why the mild concern over inflation that developed recently after three alarming CPI reports in a row has vanished so suddenly. We can see it in the commodity decline, and the recent rise in implied core inflation that I have documented recently (see “Awareness of Inflation, But No Fear Yet”) has largely reversed: currently, implied 1 year core inflation is only 2.15%, which is lower than current median inflation – implying that the central tendency of inflation will actually decline from current levels.
I don’t see any reason for such sanguinity. Money supply growth remains around 7%, and y/y credit growth is back around 5%. I am not a Keynesian, and I believe that growth doesn’t matter (much) for inflation, but the recent tightening of labor markets should make a Keynesian believe that inflation is closer, not further away! If one is inclined to give credit in advance to the Federal Reserve, and assume that the Committee will move pre-emptively to restrain inflation – and if you are assuming that core inflation will be lower in a year from where it (or median inflation, which is currently a better measure of “core” inflation) is now, you must be assuming preemption – then I suppose you might think that 2.15% core is roughly the right level.
But even there, one would have to assume that policy could affect inflation instantly. Inflation has momentum, and it takes time for policy – even once implemented, of which there is no sign yet – to have an effect on the trajectory of inflation. Maybe there can be an argument that 2-year forward or 3-year forward core inflation might be restrained by a pre-emptive Fed. But I can’t see that argument for year-ahead inflation.
Of course, markets don’t always have to make sense. We have certainly learned this in spades over the last decade! I suppose that saying markets aren’t making a lot of sense right now is merely a headline of the “dog bites man” variety. The real shocker, the “man bites dog” headline, would be if they started making sense again.
The Fed’s “Own Goal”
As we wait to see whether the Fed slants its statement ever-so-slightly to the hawkish side or ever-so-slightly to the dovish side (not to mention whether Chairman Yellen repeats her blunt performance in the presser), it is probably worth a few moments to think about what the Fed ought to do.
Yesterday’s inflation figures, viewed in isolation, might be perceived as a one-off bad figure. I pointed out yesterday some reasons that this would be an unfortunate error. Keep in mind that anything the Fed does to address monetary policy will take some time to impact an economic process with momentum. That is to say that even if the Fed tightened today, core inflation over 3% is probably still going to happen. The real question is how high inflation goes, and how long it stays there. There is no longer any question about whether inflation is rising. (This has actually been true for a while, but people who were focused on core rather than median and didn’t look at the particulars of inflation, as well as those who focus on the “output gap” as preventing any possibility of inflation, have been able to ignore the signs for a while).
As an aside, the “output gap” crowd – who expected deflation in 2009-10, and didn’t get it, and now expect disinflation, but aren’t getting it – aren’t defeated yet. They’ll simply re-define the gap to fit the data, I am sure. When you get to choose your own observations and change the model to fit the observations, science is easy.
What concerns me about the Fed’s next steps here, and the state of the debate, is that the Federal Reserve seems overly focused on the level of interest rates, and how to adjust them, and not on the level of reserves or controlling the transactional money supply. For example, recently the IMF published a paper arguing that central banks should raise the long-term inflation target from 2% to 4% because with a 2% target it is too easy to get deflation and have interest rates pinned at zero, leaving the central bank powerless to stop deflation. It seems not to matter to the author that Japan only recently proved that it is money, and not interest rates, that matter when they were able to get out of deflation with an aggressive QE. And, after all, “Helicopter” Ben made the point years ago that deflation is easy to prevent if only the Fed prints money.
So the cult of interest rate manipulation concerns me. Another, and more influential, example (because after all, no one really believes the central bank will start targeting 4% inflation) is in the publication recently of “Monetary Policy with Abundant Liquidity: A New Operating Framework for the Federal Reserve,” co-authored by Brian Sack and Joseph Gagnon. Dr. Sack used to be head of the Fed’s Open Markets Desk, so his opinions have some weight in the institution. In this policy brief, he and his co-author suggest ways that the Fed could raise rates even without reducing the amount of excess reserves in the system. Their approach would, indeed, succeed in moving interest rates. But the proposal, in the authors’ words, “appropriately ignores the quantity of money.”
Considering that it is the quantity of money, not its price, that impacts inflation – as hundreds of years of monetary history have proven beyond any educated doubt – this is a frightening view. We are always looking for where the next policy error will come from; this is certainly a strong candidate.
There is a crucial misunderstanding here, and it is unfortunately a fundamental tenet of the interest rate cult. Interest rates are not the cause of money supply changes, but the result of them. The way the Fed operates tends to cause this confusion, because the Fed seems to adjust interest rates. But that is not in fact what happens. The Desk actually adjusts the level of reserves in the system, and reads the interest rate as an indication of whether reserves are at the right level (or at least, this was the way it used to be done, before the “environment of abundant liquidity”). The confusion has gradually developed, and the institution has contributed to the confusion by gradually altering its policy statements to obfuscate what is actually going on. The domestic policy directive of February 1989 said in part:
“In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions…somewhat greater reserve restraint would, or slightly lesser reserve restraint might, be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from December through March at annual rates of about 2 and 3½ percent, respectively.”
Notice that the main focus here is how pressure on reserves leads to money supply growth. By 1994, the Fed was drawing the line to interest rates more explicitly. The press release following the February 4th, 1994 meeting said in part:
“Chairman Alan Greenspan announced today that the Federal Open Market Committee decided to increase slightly the degree of pressure on reserve positions. The action is expected to be associated with a small increase in short-term money market interest rates.”
The Federal Reserve eventually stopped talking about “reserve positions,” although that continued to be how interest rates were managed in fact. Here is what the Fed was saying in January 2007:
“The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.”
Now, of course, the Fed not only sets the current level of interest rates but also gives us an expected path.
But again, even when the Fed was talking about the interest rate target, the Fed actually managed interest rates by managing reserves. By doing large system repos or matched sales, the supply of reserves was managed with respect to what the Fed thought the demand for reserves (which is unobservable in real time) was. If the resulting interest rate was too low or too high, then they added or subtracted to the supply reserves. And thus we get to the point that is crucial for understanding how monetary policy is conducted: the interest rate is a measurement of the pressure on reserves.
Interest rates, in other words, are like a thermometer that measures the temperature in the body. The doctor plies his trade on a feverish patient with an eye on the thermometer. He can’t see the microbes and antibodies, but the thermometer tells him (her) if he (she) is winning. In exactly the same way, the level of short-term interest rates tells the Fed if they have too many reserves or too few. But suppose the doctor lost sight of the real purpose of treatment? Suppose the doctor said “wow, this would be so much easier if I just put a little dial on the thermometer so that I could control the reading directly! Then I could just set it to the right temperature and I would be done.” We would all recognize that doctor as a quack, and the patient would probably die.
This approach, though, is what the Sack/Gagnon paper proposes. We want to control the temperature, so let’s introduce a thermometer that allows us to control the temperature! But this is wrong, because it is the reserve position that is critical to control; it is that which is out of control at the moment due to the presence of copious excess reserves; and the fact that the Fed can simply set the interest rate is irrelevant. (Why do we need a Fed? Why not have Congress set the legal interest rate at the “appropriate level” so that the Fed doesn’t even need to do open market operations?)
The Sack/Gagnon plan will clearly permit the movement of interest rates to wherever the Fed wants them to be. But it will not solve the root problem, which is that the level of required reserves is essentially out of the Fed’s control – which means the size of the money supply is out of its control as well. Excess reserves will continue to leak into transactional money, and inflation will continue to rise. Here is your error. The Fed is about to score an “own goal.”
The Boredom Always Ends
After fairly boring trading through the first half of the month, the equity market has shot to new highs over the last few sessions. Could it be mere boredom on the part of investors, who are seeking more excitement?
Stocks have been expensive for a while, with Shiller P/Es near 25, yet the battle cry among bulls has been “but look, the trailing P/E is still low.” Although the trailing P/E recently has incorporated earnings that represented unusually high margins (see chart, source Bloomberg), the “see no evil” crowd brushed that complaint aside. But now, the trailing P/E ratio of the S&P 500 is at 17.6, and at 18.7 before the write-off of “extraordinary items” (which, while extraordinary for any given company in a given year, are not extraordinary for the index of a whole, which always has some of these write-offs).
So it isn’t as if the equity market is now rising because earnings have been rising and prices are just catching up. The trailing P/E is now at a level slightly higher than it was prior to the 2007 top, and on par with the levels of the Go-Go Sixties prior to the malaise of the 1970s (see chart, source Bloomberg). Let us not forget that earnings quality isn’t what it once was, either. And again: I am not a fan of a 1-year trailing P/E; I am merely pointing out that even this bullish argument is going away.
To be sure, trailing P/Es aren’t at the pre-crash levels of 1987 or 1999 – but, again, let us recall that margins are at cyclical highs, so that if we look at the S&P price/sales ratio, we again get a disturbing view that has equity valuations higher than at any time other than the 1999 bubble run-up. (See chart, source Bloomberg – note that Bloomberg history for this series only goes back to 1990.)
Now, some observers will draw exaggerated offense to the notion that stocks might be priced for somewhat poor forward returns, and insist that the recent rally in bonds means that the ratio of the “Earnings yield” to bond yields is merely being maintained. Aside from the fact that this “Fed model” is explanatory rather than predictive (that is, it helps explain why prices are high, while not suggesting they will remain high…and indeed, rather suggesting the opposite as future returns are inversely correlated with the P/E of the starting point of the holding period), we also can’t give credit for the equity rally to the bond market rally this year from 3% 10-year yields to 2.50% yields without simultaneously asking why investors didn’t sell stocks when yields rose from 1.70% to 3% last year.
Admittedly, I was probably saying roughly the same thing at this point last year. Sour grapes? No, it just concerns the question of investing rules versus trading rules. In other words: I’m not telling you how to vote; I’m telling you how to weigh. Nothing has changed valuation-wise since last year, other than the fact that the market as a whole is growing more expensive.
On the “good news” front, corporate credit growth has been re-accelerating again. This is somewhat of a sine qua non for faster economic growth. We had seen decent credit growth in 2011 and into 2012, but when QE3 kicked off loan activity had ebbed. But now quarterly growth in commercial credit is nearing a 10% annual rate (see chart, source Board of Governors), something that hasn’t happened since the beginning of 2008 – other than for a brief spike around the crisis itself.
While this is good news, it is not unmitigated good news considering that the Federal Reserve as yet has no viable plan for exiting QE before all of those horses leave the barn. One of the biggest concerns, in terms of a risk of unpleasant surprise, is that few seem to be giving the inflation risk much thought, either in markets where 10-year inflation swaps float in the middle of the 2.40%-2.60% range they have occupied for the last twelve months, or in policymaker circles. This is on my mind today because I was reading an article published on the BLS website entitled “One hundred years of price change: the Consumer Price Index and the American inflation experience” and ran across this passage:
“Why the return of inflation when it seemed to be guarded against and feared? One possibility is a change in the perspective of policymakers. Some have argued that inflation was tempered in the 1950s by a Federal Reserve that, believing that inflation would reduce unemployment in the short term but increase it in the long term, was willing to contract the economy to prevent inflation from growing. By the 1960s, however, the notion of the Phillips curve, a straightforward tradeoff between inflation and unemployment, ruled the day. Citing the curve, policymakers believed that unemployment could be permanently reduced by accepting higher inflation. This view led to expansionary monetary and fiscal policies that in turn led to booming growth, but also inflationary pressures. However much policymakers professed to fear inflation, the policies they pursued seemed to reflect other priorities. The federal government ran deficits throughout the 1960s, with steadily increasing deficits starting in 1966.
Aside from the dates, it strikes me that this paragraph could have been written today. The Phillips Curve, now “augmented,” is still a key tool in the Fed economist’s toolkit even as responsible control of the money supply is deemed passé. As for accepting higher inflation the FOMC changed its inflation target a couple of years ago to be 2% on the PCE, which was implicitly a bump higher from the previous 2% CPI target since PCE is normally 0.3% or so below CPI, and various officials have mooted the idea of letting price increases exceed that rate “for a time” since expectations are well-grounded. And then, of course, you have economists like Krugman arguing for a higher inflation target. Not that we ought to pay any attention to Krugman, but somebody invited him to speak at that conference and that suggests he still has credibility somewhere.
I must say that I don’t believe in an end to history, in which a permanent and pleasant equilibrium exists in capital markets and economies, which both can continue to expand at a reasonable pace with low and fairly stable inflation and interest rates and generous profit margins. If I did believe in such a thing, then I might think that we had arrived; and then perhaps I would see equity multiples and bond yields as reasonable and sustainable. But I do not, because I have already lived through three periods where the VIX was in the 10-12 range: in the 1990s, in 2005-2007, and in 2013-2014. The first two periods produced very exciting finishes. The boredom always ends, and usually abruptly.
Evaluating the New Kid
Part of the assessment of a new Federal Reserve Chairman always involves trying to figure out if the new person says particular things because they are wily, and cagey, or because they don’t really have a good idea of what they’re doing.
For example, when Chairman Bernanke said on “60 Minutes” that he was “100 percent” certain that the Fed could stop inflation from happening, some people thought he was being clever and projecting the great confidence that investors presumably needed to hear from the Fed Chairman at that time. I didn’t buy that, and rather thought that anyone associated with real-life financial markets (as opposed to models) would never attach a 100% probability to anything, and certainly not something that had never been tried. Subsequent events showed that the latter was probably closer to the truth, as the Fed went from reassuring the world that it could exit whenever it was warranted, to claiming that no exit – in the sense of needing to reduce its balance sheet – was necessary. That transition in message was largely due to the slowly-developing realization that in the real world, you can’t sell $2 trillion of securities as easily as you can buy them when the Treasury is going the same way.
We are going through a similar process of “market vetting” with Yellen. Her decision to stay the course on the taper – which is surely the right course – could be wise, or it could simply be that she doesn’t make decisions very quickly. It isn’t clear right now which of these is the case.
However, I find her recent talk about inflation to be disturbing. Yes, of course we all know that she is a dove. And, given her historical record on monetary policy topics, I don’t expect her to be as concerned as others (such as Allan Meltzer in today’s Wall Street Journal) are about the prospects for inflation – in other words, I expect her to be late and slow to respond. And that theme got no lack of support today, when Yellen remarked in testimony before the Joint Economic Committee, that “In light of the considerable degree of slack that remains in labor markets and the continuation of inflation below the Committee’s 2 percent objective, a high degree of monetary accommodation remains warranted.” Certainly, that is no surprise, and neither is her assertion (scary though it be) that “In particular, we anticipate that even after employment and inflation are near mandate-consistent levels, economic and financial conditions may, for some time, warrant keeping the target federal funds rate below levels that the Committee views as normal in the longer run.”
I’m not too keen when the Chairman basically promises to keep interest rates below neutral levels even when unemployment and inflation are at normal levels; that’s essentially a promise to raise inflation to a level higher than the Fed’s longer-term goal. Moreover, I am also unsure still whether the Chair is fully informed with respect to the current level and trajectory of inflation itself. It is soothing to hear her acknowledge that “inflation will begin to move up toward 2 percent” (headline inflation will exceed that level eight days from now, and median inflation is already above that standard so this isn’t a difficult projection for an economist) but Dr. Yellen seems to be unaware that the main reason that core PCE and CPI inflation is below 2% today is due to the fact that in April of last year, Medicare slashed prices paid to doctors due to sequester-induced cuts. Bernanke has noted this previously, and it isn’t exactly a state secret…then again, come to think of it state secrets aren’t what they used to be. But talking about persistent inflation below 2%, when there is very little chance of that, makes me wonder whether she’s really attuned to what is happening with prices. CPI and PCE are not the right indicators to be looking at right now – a point also made clearly by the deviation over the last year of PriceStats inflation from CPI inflation (see chart, source PriceStats).
If it were Bernanke talking, we would assume that he knows where the numbers actually are and is just trying to talk the market to his way of thinking. Greenspan was a notorious numbers wonk so there is no doubt that he would know the context of what he’s talking about. But with the new Chair, we don’t really know. It may be that, since she knows she’s keeping rates down for a long time regardless of what happens, she isn’t getting too fine about the details right now. Or it may be that she is alarmed and doesn’t want to let on (I doubt this). It might even be that she doesn’t really know much about inflation, and given her past remarks on the subject of LSAP and policy stimulus – linked to above – that is a possibility we cannot truly refute at this point.
The Fed is already a year or more behind schedule when it comes to removing accommodation in time to prevent an uptick in inflation. I am looking for evidence that they know that inflation will not arrest the moment they decide they are concerned, but I can’t find it. This should worry us all.
Two Types of People?
Investors have learned the same wrong lessons over the last couple of years that they learned in the run-up to 2000, evidently. I remember that in the latter part of 1999, every mild equity market setback was met immediately with buying – the thought was that you had to jump quickly on the train before it left the station again. There was no thought about whether the bounce was real, or whether it “made sense”; for quite a number of them in a row, the bounce was absolutely real and the train really did leave the station.
Then, the train reached the end of the line and rolled backwards down the mountain, gathering speed and making it very difficult to jump off. I remember getting a call from my broker at the time, recommending Lucent at around $45 – quite the discount from the $64 high. I noted that I was a value investor and I didn’t see value in that stock, and to not call me again until he had a decent value idea. He next called with a recommendation later that year, with a stock that had just hit $30…a real bargain! And, as it turned out, that stock was also Lucent. The lesson he had learned was that any stock at a discount from the highs was a “value” stock. (Lucent ended up bottoming at about $0.55 in late 2002 and was eventually acquired by Alcatel in 2006).
This lesson appears to have been learned as well. On Thursday and Friday a furious rally took stocks up, erasing a week and a half of decline. This happened despite the fact that Friday’s Employment number was just about the worst possible number for equities: weak enough to indicate that the December figure was not just about seasonal adjustment, but represented real weakness, but nowhere near weak enough to influence the Federal Reserve to consider pausing the recent taper. We will confirm this fact tomorrow, before the market open, when new Fed Chairman Janet Yellen delivers the Monetary Policy Report (neé Humphrey-Hawkins) testimony to the House Financial Services Committee (her comments to be released at 8:30ET). While I believe that Yellen will be very reluctant to raise rates any time soon, and likely will seize on signs of recession to stop the taper in its tracks, she will be reluctant to be a dove right out of the gate.
And that might upset the apple cart tomorrow, if I’m right.
I have been fairly clear recently that I see a fairly significant risk of market volatility to come, both on the fixed-income side but especially on the equity side. I think stocks are substantially overvalued and could fall markedly even without any important change in the underlying economic dynamics. But there is actually good news which should be considered along with that fact: when markets were last egregiously overpriced, financial institutions were also substantially more-levered than they are today. The chart below (source: Federal Reserve) shows that as a percentage of GDP, domestic financial institutions are about one third less levered than they were at the 2008 peak.
Now, this exaggerates the deleveraging to some extent – households, for example, appear to have deleveraged by about 20% on this chart, but the actual nominal amount of debt outstanding has only declined from about $14 trillion to about $13.1 trillion. Corporate entities have actually put on more debt (which made sense for a while but probably doesn’t now that equity is so highly valued relative to earnings), but in terms of a percentage of GDP they are at least not any more levered than they were in 2008.
The implication of this fact is some rare good news: since the banking system has led the deleveraging, the systemic risk that could follow on the heels of a significant market decline is likely to be much less, at least among U.S. domestic financial institutions. So, in principal, while it was clear that a decline in equity and real estate prices in 2007-2008 would eventually cause damage to the real economy as the financial damage was amplified through the financial system, this is less true today. We can, in other words, have some reasonable market movements without having that automatically lead to recession. The direct wealth effect of equity price movements is very small, on the order of a couple of percent. It’s the indirect effects that we have to worry about, and the good news is that those indirect effects are smaller now – although I wouldn’t say those risks are absent.
Now for the bad news. The bad news is that significant market volatility – say, a 50% decline in stock prices – would likely be met with “help” from the federal government and monetary authorities. It is that help which likely would hurt the economy by increasing business uncertainty further. It is probably not a coincidence that the last couple of months, which correspond to the implementation of the Affordable Care Act, have led to some weaker growth figures. Whether change is perceived as positive or negative, it’s the constant changing of the rules – and especially now that these rules are increasingly changed by executive fiat without the moderating influence of Congress (I never thought I would write that) – that damages business confidence.
In other words, I wouldn’t be concerned about the direct economic effect of a 50% decline in equity prices; but I would be concerned if such a decline led to meddling from the Fed, the Congress, or the White House.
While investors learned the hard lessons after 2000 and 2008 about the wisdom of automatically buying dips, they eventually forgot those lessons. But that makes them almost infinitely smarter than policymakers, who have refused to learn the obvious lesson of the last few years: your ministrations do little to help, and most likely hurt. So, maybe it really is true that there are two types of people: those who listen to everybody, and those who listen to nobody. The former become investors, and the latter enter government service!
