If you’d like to read this issue on my website, click here! If you’d like to sign-up, and receive this in your inbox each week, click here! Read past issues here.
Good Friday Morning! Especially to the schedule writers at the SEC for creating incredible matchups for the 2024 college football season. I don’t know what Oklahoma did to make them mad, but their draw was awful. Also, Florida looks like they’re bound to suffer during the 2024 season. I’m looking forward to Matt Mitchell’s SEC Roll Call reaction video to it, which I know will be hilarious.
This week, I’m hitting on a combo of revenge surgeries, inflation, and the banks having their hands in the cookie jar. It’ll make more sense below – links to follow.
Quick hits:
- Bud Light lost its title as the top-selling beer in the US, surpassed by Modelo Especial. Before the controversy, Bud Light hovered above a 10% market share. Since then, they’re barely above 7% and continue to ebb. Modelo leads with an 8.4% market share, with Coors Lite and Miller Lite at just above 6% and 5%, respectively. Bud Light has held that top spot for American beers since 2001. Viral images continue circulating the internet of Bud Lite stands at empty sports stadiums, while other brands have long lines. If you believe this is a storm that will pass over, some analysts see this as a buying moment for Bud Lite’s parent company stock – but they admit it’s a “nerve-wracking decision.”
- The Trump indictment saga is even worse than reported when I wrote last week. There are two unavoidable conclusions. First, Trump’s conduct is what got him here. If the indictment is proven true, and it sounds like they have recordings, he was openly flouting classified documents at dinners and events with friends and family. As Jeffrey Blehar notes at National Review, “There aren’t merely claims, there are evidentiary submissions, including remarkable photographs and excerpts of recorded conversations.” Andrew McCarthy has written multiple columns laying out the depth of the argument, as has Dan McLaughlin. Jonathan Turley called this an “existential threat” for Trump – notably, these are all conservative attorneys.
- The second component of the Trump indictment is that separating the hard, legal facts and case from the raw political reality is impossible. Obama/Comey refused to go after Clinton, and Biden declined to have the DOJ go after himself or any other previous president for the same actions except for the current challenger, Donald Trump. The political motivation could not be more readily apparent. It colors everything and everyone. The problem is that Trump made it possible when he knew everyone was looking for an opening. The WSJ Editorial Board summed it up well, “The document indictment is misguided, but he made it easier for his enemies, as he always does.” Trump was, in particular, enraged at Karl Rove’s column in the WSJ on the topic. But it’s hard to disagree with Rove’s conclusion: “Even so, the case will further tear our country apart, as it has a heavy impact on the presidential campaign and—wrongly—undermines confidence in our justice system. The blame for this calamity rests solely on Mr. Trump and his childish impulse to keep mementos from his time in the Oval Office, no matter what the law says.” My only point of disagreement is on the federal justice system – which has proven it needs a complete turnover.
Where you can find me this week
Please subscribe, rate, and review my podcast on iTunes, Spotify, or Google Play — the reviews help listeners, and readers like you find me in the algorithms. Make sure to sign up for the Conservative Institute’s daily newsletter.
[06/12/2023] Newsom and Harris jockey for the White House – Conservative Institute
[06/16/2023] Rejecting the Prisoner of History – Revisiting Reagan’s 1980 landslide – Conservative Institute
Revenge Surgeries, Core Inflation, and Emergency Fed Loans.
If you read them long enough, one thing that happens with the preeminent newspapers is them coining new terms that describe everything in a story. This week, we got one of those from the Wall Street Journal: “Revenge Surgeries.”
The term was created because healthcare insurance company stocks took a beating this week after UnitedHealth Group “warned of higher medical costs as older Americans start to catch up on surgeries they delayed during the Covid-19 pandemic.” The WSJ described the breaking news like this:
Call it revenge surgery. For the past three years, seniors on Medicare waited out the pandemic, avoiding elective procedures like knee and hip replacements if they could. The slowdown in procedures lasted so long that some Wall Street analysts and insurance executives started to think that there might never really be a big rush back to the system, with one analyst observing, back in the fall of 2022, that “we would have seen it by now.”
Now, with the worst of the pandemic behind us, seniors are coming back to the healthcare system with a vengeance. The number of procedures being performed is high enough that the parent company of the nation’s largest health insurer, UnitedHealth Group, warned investors Tuesday that it would see pressure on medical costs, reducing profitability.
That’s right – the impact of the pandemic continues to ripple across the broader economy. We might be back to normal by the end of the decade. WSJ pointed out from interviews that “Management also noted it is incorporating the higher medical costs into Medicare Advantage plan bids for 2024. In other words, insurance executives don’t see this trend disappearing anytime soon.”
Like most things related to the pandemic, health insurance companies hope to weather this storm without changing too much. If they can just let this water all pass under the bridge, everything will be alright.
They’re not the only ones thinking like that: so is the Federal Reserve.
The Fed paused its rate hiking regiment after ten consecutive meetings where it raised rates at a historic pace. Everyone calls this a “hawkish pause” because the Fed left more rate hikes on the table. At the WSJ, the Fed Whisperer Nick Timiraos led his story with this line: “Federal Reserve officials agreed to hold interest rates steady after ten consecutive increases but signaled they were prepared to raise rates next month if the economy and inflation don’t cool more.”
That last line is noteworthy: “if the economy and inflation don’t cool more.” I’ve pointed out for a while that the express goal of the Fed, as they see it, has been the total cooldown of the economy to induce job losses. The Fed believes that if they don’t crush the labor market some, they won’t fix inflation. For the longest time, the Fed has just tried to get inflation to come down – which it has on a headline basis.
The question for the Fed now is this: is inflation solved?
This is something mainstream discourse misses when analyzing the Fed. It’s not just that they want to bring the inflation rate down; that was a first-level concern. The question they have to figure out now is whether the underlying inflation drivers are gone.
Fed Chair Jerome Powell wants to be like Paul Volker, who crushed inflation in the 1980s, and that issue never returned. Before Volker, inflation raged in the United States for ~15 years. In 2021, the Fed believed inflation was transitory, so they didn’t act. Then it became clear that inflation had become more systemic and required Fed intervention (and less Congression/White House spending, but you can’t have everything).
With a pause, the Fed wants to see if inflation’s trajectory also pauses or continues to come down. Because if the Fed reverts us to the pre-inflation economic playbook, demand could skyrocket, and we get a return of inflation. On the one hand, we have revenge surgeries; on the other, we have revenge inflation.
The positive case for this says that the supply-chain issues are fixed, and supply is easing across the board, which should cool prices. The negative case says that the drivers of long-term inflation are shifting, and the Fed has more work to do.
CNBC had this to say on the core inflation picture:
While the rate of inflation is declining, it’s not yet clear whether it will drop to the Federal Reserve’s target of 2% anytime soon.
That’s because core inflation — which excludes volatile food and gas prices — remains high at a year-over-year rate of 5.3%. In May, core inflation rose by 0.4%, following steady monthly increases averaging 0.4% so far in 2023.
Core inflation is a very broad measure of most goods and services in the CPI. It’s also considered to be a barometer of “sticky” inflation, since core prices change more slowly than other measures, like gas prices.
As such, it tends to be a better underlying gauge of where inflation is headed. And right now, it looks like overall inflation isn’t going anywhere.
It’s a common theme so far. Surgeries aren’t going away, nor is inflation.
Another thing that’s not going away either is emergency loans from the Fed to the banks.
After the failure of Silicon Valley Bank, the Federal Reserve created a new emergency program: the Bank Term Funding Program (BTFP). Long story short, it allowed the Fed to provide an extra line of credit to the banks to keep them liquid (read more here if you’re curious). The amount of funding the Fed provides through this is transparent, with a week lag to the data.
Every week, we learn how much emergency lending the Fed did through this program. In the immediate fallout of the SVB collapse, there was a ton of lending, as you might imagine. That continued right up through the collapse of First Republic. After First Republic got bought out by JPMorgan, emergency lending dropped from more than $150 billion a week to around $75 billion.
Everyone assumed that would continue to drift down because First Republic was the big draw on that resource. Except the lending hasn’t stopped; in fact, it’s drifting back up. In the last two weeks, Fed lending via BTFP has drifted back above $100 billion per week.
There are two general schools of thought here: 1) banks are weaker than the Fed or Treasury is letting on, and regional banks are drawing on more lending to survive. 2) Banks have decided to use the generous terms from the Fed to use this lending program to enrich themselves further.
Because there’s no way to see which banks are getting this funding or what they’re doing with it, it’s anyone’s guess as to which one. I lean towards the second option because we’ve seen such a surge in investment dollars flowing into AI stocks, boosting seven specific tech stocks into the stratosphere. And also because this is the same playbook the banks used after the Great Recession. The banks used quantitative easing to enrich themselves because the Fed has never understood human nature.
Revenge surgery, revenge inflation, and revenge of banks engorging themselves.
Everyone asks the same question: are the broader issues causing inflation fixed? On the one hand, the headline numbers (and even those models built with real-time data) suggest that inflation is solved. On the other hand, we’re still watching disruptions trickle through the broader economy, providing continual surprises for everyone.
Returning to the surgeries section, a simple supply/demand answer to the healthcare issue is to build more facilities and hire more surgeons and doctors. That would certainly solve the problem in front of us. Still, most long-term planners would see the profits of the healthcare industry plummet, making this a poor decision.
It’s also easier said than done. First, building a new medical facility is somewhere between Sisyphus’ rock and an act of God. There are a variety of factors behind this, but they remain. However, the second point is harder to fix: even if you had the facility, you’d have to staff it. And staffing anything like that is difficult, especially with so many nurses fleeing the profession.
There’s a similar story to inflation. The Fed wants 2% inflation. They’re being fought by increasing core inflation, driven by the services sector. The only real way to drop inflation in this segment is to induce a recession (at least in the Fed’s mind). The “soft landing” hypothesis says we don’t need a recession to get 2% inflation – and maybe so. But that’s only half the equation; does the Fed believe inflation is fixed if we achieve a soft landing?
That’s more challenging to measure. As is estimating how many revenge surgeries people are getting or what the banks are doing with increasing amounts of emergency lending. We may not know the answer now, but we’ll find out eventually. That’s the thing about revenge, or in this case, the consequences of policy decisions. There’s always some fallout.
Links of the week
First People Sickened By COVID-19 Were Chinese Scientists At Wuhan Institute Of Virology, Say US Government Sources: The three scientists were engaged in “gain-of-function” research on SARS-like coronaviruses when they fell ill – Michael Shellenberger, The Public
The Truth about Covid’s Origin Is Coming Out – Jim Geraghty, National Review
Stunning reporting: Inside North Korea: “We are stuck, waiting to die” – BBC
US government agencies hit in global cyberattack on file sharing program MOVEit – CNN
Energy Department among federal agencies breached by Russian ransomware gang over MOVEit program – AP
Massive hack of Oregon DMV system puts estimated 3.5 million driver license and ID card info at risk, officials say – Oregon Live
Despite Comey Assurances, Vast Bulk of Weiner Laptop Emails Were Never Examined – RealClearInvestigations
Reality Is Broken. We Have AI Photos to Blame: Adobe Firefly, Midjourney, FaceApp, and Try It On are leading AI’s crazy photo-software revolution – Joanna Stern, WSJ
Twitter Thread(s) of the week
Thoughtful thread on realism in American foreign policy.
Satire of the week
Two Still Dead In Mausoleum Collapse – Onion
King Solomon Lovingly Assures Wife She’s One In A Thousand – Babylon Bee
White paper about white papers printed on white paper: Seriously. And someone actually thinks you’ll read it. – Duffel Blog
How to Be With Someone Who Truly Sees You by Dating the Only Person Who Made It to the End of Your Instagram Story – Reductress
Not Enough Coke In Colombia To Get Don Jr. Through This One – Waterford Whispers News
Thanks for reading!