Green Shoots Breed Optimism

There are green shoots in this week’s CPI and Jobless Claims reports.

  • The CPI was lower than expected. The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1 percent in May on a seasonally adjusted basis to an index level of 304.127. During the last 12 months, the all-items index increased 4.0 percent before seasonal adjustment. This was the smallest 12-month increase since the period ending March 2021.
  • The Fed paused this week, which suggests we are within 50 basis points of the top. When the fed stops raising, the economy improves and so do markets, generally six months in advance. The question is (and it’s not clear): how much damage has been done to the economy at 5-5.25%?



  • It is all about expectations – and people expect inflation to go down.
  • When Japan experienced deflation over the last few decades, they knew every month everything would get cheaper, so nobody spent money. This caused everything to be cheaper. If everybody expects inflation to be higher, they spend their money because the money becomes worth less, so they spend away, and accelerate inflation. Last month the University of Michigan consumer index for inflation showed a decline of 3.1 versus 4.2, which is a green shoot.


Economic problems:

  • Unemployment is creeping up. In the week ending June 10, the advance figure for seasonally adjusted initial claims was 262,000. The four-week moving average was 246,750. This is the highest level for this average since November 20, 2021, when it was 249,250.
  • Wage inflation continues to be too high. Real average hourly earnings for all employees increased 0.3 percent from April to May. Real average hourly earnings increased 0.2 percent, seasonally adjusted, from May 2022 to May 2023.
  • Housing costs continue to be too high. The problem with home ownership is local governments and regulations are too burdensome and too complicated. We have shortages, so changing interest rates do not affect that. Interest rates don’t impact housing when you have a shortage of between two and seven million homes in the US. There is no short-term fix.
  • Rental pricing has shifted. The overall shelter index increased 0.6 percent over the month after rising 0.4 percent in April. The shelter index increased 8.0 percent over the last year, accounting for over 60 percent of inflation. The index for rent rose 0.5 percent in May, as did the index for owners’ equivalent rent. The index for lodging away from home increased 1.8 percent in May after decreasing 3.0 percent in April.


Continued changes in the market:

  • What’s happening is market trading. The stock market is now trading at 20 percent plus for the year for the S&P, which qualifies as a bull market. That’s very constructive.
  • Interest rates have stabilized.
  • The whole AI phenomena has created an umbrella for a lot of companies – whether it’s Adobe, Nvidia, Microsoft – is given a patina. If the AI phenomena turns out to be like the iPhone or the internet, it is warranted.
  • The Cava IPO was very well received, even though it is a restaurant stock. Restaurant stocks have traditionally not been good investments.
  • One comp for Cava is Chipotle, which is a generational company that’s market value is approximately $60 billion. So, if they are like Chipotle, that’s brilliant. If they are like Sweetgreen – whose market value has gone from $50 a share to $10 a share – that’s not good. Cava doubled on the offering, which is going to create a window for other IPOs, exits for other venture groups and private equity groups, which allows for them to recycle those funds into new investments – and that’s a very constructive thing.
  • Private debt for larger transactions is available at a higher cost but provides additional liquidity.


Overall, we have moved from a period of a lot of uncertainty to much less uncertainty. And the question is: Now that interest rates have stabilized, how much damage was done to the economy? Will we have a soft landing or hard landing? If the conclusion is a soft landing, then there is going to be a lot of money made over the next 12 months. On the other hand, if it’s too hard of a landing, trouble may lie ahead.


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