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Federal Reserve balance sheet reduction monitor, 2/23/2018

The Federal Reserve’s balance sheet reduction plan calls for selling treasury, agency and mortgage-backed securities starting in 2017Q4. The rate of selling is $30 billion per quarter in 2017Q4 and increases by $30 billion per quarter until it hits $150 billion per quarter. One can keep track of their progress by monitoring the H41 filings.

Here are the results thus far:

Quarter to Date Treasury Agency+MBS Total
12/27/17 2454219 1769317 4223536
2/14/18 2432066 1773689 4205755
Change -22153 +4372 -17781
% of Goal Achieved 105% -31% 50%

 

Since Inception Treasury Agency+MBS Total
9/27/17 2465427 1774917 4240344
2/14/18 2432066 1773689 4205755
Change -33361 -1228 -34589
% of Goal Achieved 87% 5% 54%

 

Inflation monitor as of 2/21/2018

Inflation has been trending downwards for decades. We think the following factors have created this long-term trend:

  • an aging population that buys less
  • wage competition from third-world countries, due to globalization.

With talk of border taxes and rolling back globalization (at least partially), plus massive fiscal stimulus, can we assume that the downward inflation trend will continue from here? We don’t know, but we intend to track the numbers. This post reviews a wide range of market-based and statistically derived measures of inflation.

Recent indicators suggest accelerating of inflation.

Our takeaway: the annual rate of inflation is probably 1.75%-2.75%.

Backward-Looking Measures

Consumer Price Index (CPI) – changes

The CPI is calculated by the government. More than a few investors view the index with a degree of skepticism.

CPI: +2.08%

Median CPI: +2.56%

Core CPI: +1.80%

PCE deflator: +0.80%

GDP deflator: +1.36%

Sticky CPI: +2.18%

Trimmed Mean PCE: +1.81%

Producer Price Index (PPI) – changes

The PPI is calculated by the government. Some investors regard it with suspicion:

Finished Goods: +3.00%

Wages

Wages are very important because they account for such a large portion of the cost of goods and services.

Average hourly earnings: +2.85%

An increase in average hourly earnings does not translate into an equal amount of inflation. Increases in productivity can offset (entirely or partially) the inflationary effect of higher wages.

Purchasing Manager’s Index

The Institute for Supply Management publishes the results of a monthly survey of their members, including a price diffusion index. A diffusion index doesn’t tell us the rate of inflation, but rather what percentage of the survey respondents are seeing prices go up or down.

The survey results suggest no significant inflationary pressures.

Manufacturing Prices: 72.7

Services Prices: 61.9

Forward-Looking Measures

Treasury Inflation Protected Securities

In addition to ordinary bonds, the U.S. Treasury issues inflation-protected securities (TIPS). By comparing the yields, one can infer the inflation forecast of the capital markets.

Ordinarily one should assign high credibility to this type of information. However, caution may be appropriate given extensive central bank manipulation of the credit markets.

Five Year Forecast: +1.98% per annum (5Y Treasury Yield5Y TIPS Yield)

Ten Year Forecast: +2.11% per annum (10Y Treasury Yield10Y TIPS Yield)

5-Year, 5-Year Forward Inflation Expectation Rate

Inflation expected from 5 years from now to 10 years from now: +2.24%

Michigan Consumer Sentiment

1-Year Expected Rate of Inflation: +2.7

5-Year Expected Rate of Inflation: +2.5

ECRI U.S. Future Inflation Gauge

ECRI +0.7

Trend-based indicators

Crude Oil: Uptrend = inflationary pressure

Copper: Uptrend = inflationary pressure

U.S. Dollar: Downtrend = inflationary pressure

Federal Reserve balance sheet reduction monitor, 2/16/2018

The Federal Reserve’s balance sheet reduction plan calls for selling treasury, agency and mortgage-backed securities starting in 2017Q4. The rate of selling is $30 billion per quarter in 2017Q4 and increases by $30 billion per quarter until it hits $150 billion per quarter. One can keep track of their progress by monitoring the H41 filings.

In the most recent week, the Federal Reserve bought more than $11 billion, perhaps to inject liquidity into volatile markets.

Here are the results thus far:

Quarter to Date Treasury Agency+MBS Total
12/27/17 2454219 1769317 4223536
2/7/18 2436173 1776318 4212491
Change -18046 +7001 -11045
% of Goal Achieved 98% -57% 36%

 

Since Inception Treasury Agency+MBS Total
9/27/17 2465427 1774917 4240344
2/7/18 2436173 1776318 4212491
Change -29254 +1401 -27853
% of Goal Achieved 82% -6% 47%

 

Federal Reserve balance sheet reduction monitor, 2/12/2018

The Federal Reserve’s balance sheet reduction plan calls for selling treasury, agency and mortgage-backed securities starting in 2017Q4. The rate of selling is $30 billion per quarter in 2017Q4 and increases by $30 billion per quarter until it hits $150 billion per quarter. One can keep track of their progress by monitoring the H41 filings.

Here are the results for this quarter:

Date Treasury Agency+MBS Total
12/27/17 2454219 1769317 4223536
2/7/18 2436192 1765134 4201326
Change -18027 -4183 -22210
% of Goal Achieved 115% 40% 85%

Here are the results since inception:

Date Treasury Agency+MBS Total
9/27/17 2465427 1774917 4240344
2/7/18 2436192 1765134 4201326
Change -29235 -9783 -39018
% of Goal Achieved 89% 45% 71%

 

Federal Reserve balance sheet reduction monitor, 2/5/2018

The Federal Reserve’s balance sheet reduction plan calls for selling treasury, agency and mortgage-backed securities starting in 2017Q4.  The rate of selling is $30 billion per quarter in 2017Q4 and increases by $30 billion per quarter until it hits $150 billion per quarter.  One can keep track of their progress by monitoring the H41 filings.

Here are the results for this quarter:

Date Treasury Agency+MBS Total
12/27/17 2454219 1769317 4223536
1/31/18 2436211 1765134 4201345
Change -18008 -4183 -22191
% of Goal Achieved 139% 49% 103%

Here are the results since inception:

Date Treasury Agency+MBS Total
9/27/17 2465427 1774917 4240344
1/31/18 2436211 1765134 4201345
Change -29216 -9783 -38999
% of Goal Achieved 97% 49% 78%

 

Federal Reserve balance sheet reduction monitor, 1/5/2018

The Federal Reserve’s balance sheet reduction plan calls for selling a total of $10 billion per month of treasury, agency and mortgage-backed securities starting in 2017Q4. One can keep track of their progress by monitoring the H41 filings.

With the 2017Q4 results in, they apparently have not met their self-determined goal despite aggressively selling assets in the last two weeks:

Date Treasury Agency+MBS Total
9/27/17 2465427 1774917 4240344
1/3/18 2448208 1769320 4217528
Change -17219 -5597 -22816
12/31/17 Goal -18000 -12000 -30000
% Achieved 96% 47% 76%

According to the Federal Reserve’s plan, the rate of selling in 2018Q1 is supposed to double the rate of 2017Q4.  We will of course monitor their progress.

What we are reading on 1/2/2018

Here’s what we are reading today. We do not necessarily agree with the opinions expressed therein and we disavow any actual or implied investment advice therein. In no particular order: 
Disaster on the Horizon: The Price Effect of Sea Level Rise
Big Tech Health Care
Friends and Aging
Science Based Strategies for Boosting Happiness
Gyms Ditch Machines To Make Space For Free Weights
Home For The Holidays, Get Off The Couch
Domain Dependence
Online Holiday Shopping Returns
How To Read More
Charitable giving after tax reform
MLPs Glimpse Daylight
The Returns To Value Strategies When Valuation Spreads Are Wide
Visualizing The Net Worth Of Americans By Age
Prepare For Recession
Real Estate and Private Equity may be Technology’s Next Victims
Easy Way To Save Money
Quit Bad Habits
The latest from Mutual Fund Observer
Academic Research Insight: Predicting Long Run Stock Returns? It’s All About the Payout.
Weighing the Week Ahead: What Should Worry Investors in 2018?
Five Questions for the Fed in 2018
Momentous Change in US Natural Gas, with Global Impact
US Dollar Refuses to Die as Top Global Reserve Currency
The Dreaded “Flattening Yield Curve” Meets QE Unwind
Peak Good Times? Stock Market Risk Spikes to New High
5 Ways To Boost Results With Growth Hacking Techniques
7 Ways to Ask for a Favor – and Get It!
Which New Year’s Resolutions Are Most Likely to Stick?
How to Highlight Job Skills on a Resume
The lower your social class, the ‘wiser’ you are, suggests new study
The Only Way to Keep Your Resolutions
3 Myths About Your Teen’s Bad Attitude

What we are reading on 12/18/2017

Here’s what we are reading today. We do not necessarily agree with the opinions expressed therein and we disavow any actual or implied investment advice therein. In no particular order:
On Finding a Job in Finance
Switzerland is Prepared for Civilizational Collapse
Brag Wisely
Nurture Counts As Much As Nature In Success
The Data Or The Hunch
Tesla and the Trucking Industry
Why Highly Intelligent People Suffer More Mental And Physical Disorders
The Best Gadgets Of 2017
RSS Reader News Sources Poll
A 64% Decline? Really?
Abolish the penny?
Is Renter Nation Dead? Single-Family Housing Starts, Permits Highest Since 2007
Three Delusions
CalPERS adopts new asset allocation increasing equity exposure to 50%

Federal Reserve balance sheet reduction monitor, 12/15/2017

Perhaps printing money is an addiction that is too hard to quit.

The Federal Reserve’s balance sheet reduction plan calls for selling a total of $10 billion per month of treasury, agency and mortgage-backed securities starting in 2017Q4.  One can keep track of their progress by monitoring the H41 filings.

The results thus far are underwhelming.  With 82% of the quarter complete, they have met just 5% of their goal.  They have made some progress selling treasuries but have been adding to their holdings of Agency and Mortgage-Backed Securities.

Trading volume tends to fall off in the last two weeks of the year.  At this point, the odds of the Fed achieving anything close to its selling objectives seems vanishingly small.

Date Treasury Agency+MBS Total
9/28/17 2465427 1774917 4240344
12/14/17 2454256 1784628 4238884
Change -11171 9711 -1460
     12/31/17 Goal -18000 -12000 -30000
     % Achieved 62% -81% 5%

What we are reading on 12/12/2017

Here’s what we are reading today. We do not necessarily agree with the opinions expressed therein and we disavow any actual or implied investment advice therein. In no particular order:
Stoicism Reveals 4 Rituals That Will Make You Confident
Beyond All Expectations
Treasury 10yr-2yr Yield Spread Continues To Slide
When Does Work Actually Get Done
Its Time To Get Real With Your Investment Portfolio
A 10-year Glimpse Into the Future
The Science Of Killing A Bad Habit
8 Ideas for Financial Planning in a Low-Return Environment
Beware of the Surprise Departure of Independent Directors!
Momentum and Market Anomalies
Is the Endowment Tax a Trojan Horse?
Is tax reform falling apart?