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Good Friday Morning! Especially to Indianapolis Colts owner Jim Irsay, who decided to comment on the controversy in the NFL around running backs not being worth full contracts. Irsay tweeted, “NFL Running Back situation- We have negotiated a CBA, that took years of effort and hard work and compromise in good faith by both sides..to say now that a specific Player category wants another negotiation after the fact, is inappropriate. Some Agents are selling ‘bad faith’.“
Notably, Irsay and the Colts are on the line for cutting a contract for their star running back, Johnathan Taylor. Everyone saw this tweet as a shot at Taylor, his agent, and the broader RB discussion. And Taylor’s agent saw this comment as poisoning the well. As a Titans fan, I will laugh very hard if Irsay chases away another star from his team. He failed Andrew Luck and looks interested in doing the same with Taylor. I wish him all the best in his social media commentary.
More broadly, we’ll see a shift on this issue in a few years. At the college level, NIL deals are changing the economics for star players. These guys are leaving college as multi-millionaires. Eventually, we’ll see a star rookie RB hit the NFL, already armed with cash. That rookie will have a star season and then demand a new contract while sitting out until he gets a new contract. The player will have all the leverage, and the NFL / NFLPA will be put in a tricky spot with how the current CBA is worded. It’s one of the ramifications of the stats nerds changing the game and devaluing running backs — but it also means you’ll see players with leverage fight back.
Moving on to the topic of this newsletter, I’m going to dive into the economic data, go through where we are, what the outlook is, and look at past predictions of recession and more — links to follow.
Quick hits:
- Bud Light’s parent company Anheuser-Busch InBev is laying off 2% (~400) of its 18,000 workforce amid continuing slumping sales of the Bud Light brand. The layoffs come a week before Anheuser-Busch InBev is set to release Q2 earnings next week, which is heavily impacted by the continuing protest. While the corporate press release of the layoffs didn’t mention the boycott, the WSJ said the layoffs were concentrated in “corporate and marketing roles at major U.S. offices, including St. Louis, New York, and Los Angeles.” Marketing taking this on the chin suggests this is directly aimed at the boycott issues. These layoffs are in addition to other marketing executives who were forced onto a “leave of absence.” The NYPost, speaking to a source, said, “To my understanding, if we publicly announced the word ‘fire,’ it opens up the potential for them to sue us. That’s why we said leave of absence.” All eyes turn to the Q2 earnings report release on August 2nd.
- A whistleblower testified before Congress about executive branch agencies hiding classified information on UFOs from Congress. This whistleblower, along with reports released around him, has generated a lot of buzz in DC regarding the potential for aliens to exist. While I enjoy science fiction as much as anyone and am re-watching Star Trek: TNG for the umpteenth time, I’m keeping my powder dry on this one. I tend to side with Ross Douthat, who wrote, “This whistleblower’s mere existence is evidence of a fascinating shift in public UFO discourse. There may not be alien spacecraft, but there is clearly now a faction within the national security complex that wants Americans to think there might be alien spacecraft, to give these stories credence rather than dismissal.” (if the NYT paywall blocks you, the internet archive has it here). Part of my doubt here is that UFO sitings are overwhelmingly in the United States, not in other countries. While I’m fully aware America is the greatest country ever, it makes less sense for aliens to understand that point. To me, it suggests a cultural bias toward believing mysterious events are UFOs instead of other phenomena. As a legal matter, executive branch agencies hiding things from Congress is the real story — which must be uncovered.
- The NYPost did a write-up on a new influencer account on social media, doing the usual thirst trap photos involving bikinis and other such stuff. Why the write-up? The woman in the pictures isn’t real. She’s entirely AI-generated, her name is Milla Sofia, and she’s designed for advertising. She also has tens of thousands of fans. In semi-related news, a Kroger grocery store near me in one of the wealthiest neighborhoods is moving to self-checkout only. Additionally, Hardees is rolling out drive-thru AI Chatbots to take orders in their lines. You can watch a WSJ test the system here; they worked well. The Hardees system is partially designed on the voice-to-text tech in your smartphone but also utilizes ChatGPT for other functions. After watching that WSJ video, a Nashville sports reporter said they’d just used the Hardees system, which worked perfectly. AI is reshaping the world much faster than people understand.
Where you can find me this week
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The ‘X’ Factor: Elon Musk’s Ambitious Vision for Twitter – Conservative Institute
The China Century Hits Reality: Demographic Crisis Looms – Conservative Institute
Oppenheimer Reminds Us that America Was Right to Use the Bomb – Conservative Institute
Inflation, the Federal Reserve, hard and soft landings: Where are we in the fight against inflation?
It was a week of economic data. The Federal Reserve raised rates again by 0.25% to an overall rate of 5.25 – 5.5%. Also, GDP for Q2 showed a growth of 2.4% over that time frame, defying expectations and lowering the odds of recession across the board. Greg Ip summed it up well in his WSJ column headlined, “Could a Recession Still Be Years Away? Steady Growth, Moderating Inflation Improve Odds of Extended Expansion: If Fed achieves a soft landing, history suggests the economy could keep growing four or five more years.“
He writes: “Economic expansions don’t die of old age, economists like to say; they are murdered by the Federal Reserve. No wonder, then, that as the Fed has raised interest rates 5.25 percentage points since early last year, including a quarter point Wednesday, forecasters have predicted a recession was imminent. But they have postponed the recession’s start date as growth remains steady.”
I wrote the recession would start back in 2021. That was obviously wrong, even if it did call the market top. I wasn’t alone in this, with the cause of a recession shifting over that time. CNBC wrote in its coverage, “Economists have expected the Fed rate increases to lead to a credit contraction that ultimately takes the air out of the growth spurt over the past year. The Fed has hiked 11 times since March 2022, the most recent coming Wednesday with a quarter-point increase that took the central bank’s key borrowing rate to its highest level in more than 22 years.”
It’s worth asking whether the recession thesis remains accurate and observing where we are. The short version is this: I think the recession thesis is still operative, but the risk channels that push it have changed. In 2021 – 2022, it was believed the Fed would never be able to get to high enough rates to halt inflation before a recession kicked in. That ended up being wrong for a variety of reasons.
The Federal Reserve restated the obvious in its statement for this month: “Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.”
The Fed still has a target of 2% inflation, and it wants to ensure that when it relaxes its stance against inflation, the problems driving this inflationary period are gone. We’re in the “higher for longer” scenario that Jerome Powell and the Fed laid out last year. As long as the economy and markets remain strong, rates will stay high to keep a damper on demand and inflation.
You might ask, why does everyone expect a recession? Grep Ip answers that in his piece: “The Fed has never pulled off a soft landing when inflation was so far above its goal and the labor market this overheated.” The soft landing scenario is where the Fed kills inflation with no real economic damage to the rest of the economy. If we go through this without a recession, it’d be a first for the Federal Reserve.
In other words, expecting a recession, which is what most people have done, is not a doom-and-gloom mindset. It’s expecting the Fed to do what it’s always done in these situations, which was to trigger a recession. If you follow Powell’s comments and press conferences over the last year, he’s hinted multiple times that a recession was possible.
The argument against a recession has to pivot on: “This time is different.” Greg Ip provides the ammo in both directions:
Still, there is a plausible case this time is different. In the past, inflation was usually caused by excess demand. This time, a bigger culprit is disrupted supply—of goods, transportation, commodities, labor—in the wake of the pandemic and Russia’s invasion of Ukraine.
Supply is returning. Vehicle production, previously held back by a shortage of semiconductors, soared 20%, annualized, in the second quarter. This enabled businesses to sharply boost investment in equipment, even as prices for that equipment fell for the first time in two years.
Meanwhile, robust demand for workers has been met by a surge in supply: The share of the population aged 25 to 54 either working or looking for work—the participation rate—is now higher than before the recession.
And despite tight labor markets, a wage price spiral isn’t yet apparent. Unlike before 1981, the public’s long-term expectations of inflation are stable, at around 2% to 3%.
On the negative side, structural factors that restrained costs in past decades have reversed: Thanks to geopolitical tensions and protectionism, globalization has gone into reverse, and aging populations have sapped labor-force growth. Maybe artificial intelligence will supercharge productivity, but for now that is purely hypothetical.
These forces mean that even if the Fed gets inflation down without killing the economy in the coming year, the stay of execution isn’t guaranteed to last.
If we achieve the fairy-tale ending on this, history will carefully study how to recreate this solution in other inflationary environments. It’s easy to bet against that happening because it’s never happened.
But again, where I’ve shifted is this. If the economy remains strong, the Fed will worry about lowering rates and loosening credit conditions because there’s the possibility inflation will go back up. Higher for longer increases pressure on tighter credit conditions, which are a precursor to recessions. In short, the longer rates are high like this, the more odds increase of something breaking.
Everything in the economy may be strong enough to withstand this pressure for an extended time. But it’s also possible that we’re getting a delayed reaction to these higher rates, and the economic system is still absorbing them.
For instance, car loan rejections have shot up. USA Today reports, “The Federal Reserve said the rejection rate for auto loans in June rose to 14.2% from 9.1% in February, the last time the survey was taken. That was the highest level since this data was first collected in 2013 and for the first time, exceeded the application rate.” Additionally, the number of car loans in severe delinquency (no payment for 90+ days) is the highest since 2006.
I’ve written about the commercial real estate sector, but it’s cracking too. Delinquencies in that industry have gone up for four straight months. We’ve already seen a few fire sales in commercial real estate. On the residential side, the WSJ reports that the luxury real estate market is getting hit hard.
Is this a sign of a recession by itself? Of course not. But it is a sign of the “higher or longer” tight credit conditions the Federal Reserve monitors. How long can credit conditions remain this high? Consumer spending is strong, but sectors reliant on credit are feeling the pain.
As it stands, the economic data is good. There’s no doubting that point. The question is two-fold: how long does the Fed keep us here, and can the economy remain strong if we stay at this point? If we get the unicorn event, we need to acknowledge what a rarity it is when that occurs. We’d be witnessing nothing short of a miracle, and the Federal Reserve will deserve credit for managing the crisis. Jerome Powell would be seen in a better light than Paul Volcker.
I get the urge to cheer for a soft landing. That’s where the data points right now. But it’s also true we’re not out of the woods. The Fed understands that too, which is why they’re still talking about more rate hikes. The Fed doesn’t believe inflation is fixed, and that’s with everyone cheering for the arrival of a soft landing.
When the Fed believes inflation is fixed and rates can come down, that’s when you can breathe a sigh of relief.
Links of the week
Trump says his lawyers have met with prosecutors ahead of possible 2020 election indictment – AP
Breaking Unions With the Language of Diversity and Social Justice – The Intercept
The Covid Lab-Leak Deception: Scientists who signed a paper claiming a natural origin turn out not to have believed it themselves. – Matt Ridley and Alina Chan, WSJ
‘Oppenheimer’ reignites the bomb debate — but there’s no question Truman was right – Bob McManus, NYPost
Yellow, the third-largest LTL trucking company, tells sales staff company will file bankruptcy Monday – FreightWaves
ESPN held talks with NBA, NFL and MLB in search for strategic partner, sources say – CNBC
The real scoop on Bidenomics: Corruption, tax evasion and Hunter – Miranda Devine, NYPost
America Is Struggling to Safeguard Water Supply From Hackers, New EPA Data Shows – The Messenger
As McConnell Tries to Convey Business as Usual, His Future Is in Doubt – DNYUZ
Formed to combat Olympic sex abuse, SafeSport center is struggling 6 years after opening – AP
Sudden cardiac arrest is a basketball problem – Henry Abbott
VIDEO – Why China is Shrinking VERY Fast
VIDEO – Why We Can’t Have Small Trucks Anymore – Blame the EPA – All Cars with Jon
Threads’ Daily Active Users Fall By Staggering 70% – Petapixel
Gene therapy eyedrops restored a boy’s sight. Similar treatments could help millions – AP
Twitter Thread(s) of the week
Prometheus Research on why the Recession hasn’t materialized.
Satire of the week
House Panel Didn’t Expect UFO Whistleblower To Just Dump Alien On Table Like That – Onion
Secret Service Says Eight-Ball Of Cocaine Found In Courtroom Chair Hunter Was Sitting In Probably Left By Tour Group – Babylon Bee
‘I Love Summer,’ Says Woman Who Loves Air Conditioning – Reductress
World Ticket Selling Monopoly Promises To Crack How To Sell Tickets Eventually – Waterford Whispers News
Every Stephen King Novel Ranked by How Close It Comes to the Horror of Living in Maine – The Hard Times
AI-Generated Black Mirror Episode Strangely Upbeat – The Hard Drive
Thanks for reading!