Control Panel: Increasing risk of stagflation

Investment Analysis Clubs Macro Economic Trends and Risks
1

Many actions of the new Trump administration have dramatically increased economic risk and uncertainty. These include deporting undocumented workers and beginning a trade war on important trading partners who are bound to retaliate.

A Chill Sets In for Undocumented Workers, and Those Who Hire Them

Fearing roundups, many immigrants are staying home. Construction, agriculture, senior care and hospitality employers say labor shortages will worsen.
By Rebecca Davis O’Brien and Miriam Jordan, The New York Times, March 9, 2025

…
Fear has gripped America’s undocumented workers. Many are staying home.

The impact is being felt not only in immigrant homes and communities, but also in the industries that rely on immigrants as a source of willing and inexpensive labor, including residential construction, agriculture, senior care and hospitality. American consumers will soon feel the pain.

“Businesses across industries know what comes next when their work force disappears — restaurants, coffee shops and grocery stores struggling to stay open, food prices soaring, and everyday Americans demanding action,” said Rebecca Shi, chief executive of the American Business Immigration Coalition.

An estimated 20 percent of the U.S. labor force is foreign born, and millions of immigrant workers lack legal immigration status… In construction, up to 19 percent of all workers are undocumented…low-skilled labor for poultry plants, warehouses and manufacturing…farm labor…long-term care for older adults and people with disabilities… [end quote]

The trade war will hit essential levels of the economy from energy to consumer goods to construction and manufacturing inputs. The war on immigrants will hit many essential jobs that American workers won’t do at all, certainly not for the low wages accepted by immigrants.

This will slow the economy and raise costs at the same time. Stagflation.

I wrote earlier this week about an economic cold front approaching. This post has several comments and links so I don’t have to post them again.

The Fear & Greed Index is in Extreme Fear. The risk panel is strongly risk-off as SPX is falling while the 10 year Treasury price is rising. VIX has risen (though not yet to crisis level). Bullish percent has dropped. The Naz has dropped. USD has dropped back into its channel beginning in 2023.

Gold and copper are both rising. Oil is stable in its channel but natgas is rising.

The stock market is still in a bubble. The small drop in the indexes just blew a little froth off the top and aren’t yet a substantial so-called “correction.”

Stock investors are responding to these fears by shifting away from the high-flying “Magnificent 7” to dividend-yielding stocks in addition to gold and U.S. Treasuries.

https://www.wsj.com/finance/stocks/dividend-stocks-market-swings-strategy-d8301d88?mod=hp_lead_pos3

The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2025 is -2.4 percent on March 6, up from -2.8 percent on March 3. After recent releases from the Institute for Supply Management, the US Bureau of Economic Analysis, and the US Census Bureau, the nowcasts of first-quarter real personal consumption expenditures growth and real gross private domestic investment growth increased from 0.0 percent and 2.5 percent, respectively, to 0.4 percent and 4.8 percent, while the nowcast of the contribution of net exports to first-quarter real GDP growth fell from -3.57 percentage points to -3.84 percentage points.

While the Atlanta Fed’s model has correctly predicted higher GDP growth than the “Blue Chip Consensus” it is now well below that consensus.

The Cleveland Fed’s Inflation Nowcasting predicts Quarterly annualized percent change of CPI for 1Q25 will be 3.91%, with no drop in CPI or PCE (regular and core).

All inflation measures are well above the Federal Reserve’s 2% target. Fed Chair Powell reiterated this week the FOMC’s intention to hold steady on the fed funds rate as long as the labor market and economy are strong. As usual, speculators are front-running the Fed and predicting more fed funds cuts in 2025 instead of listening to Powell. This always leads to market volatility when they are disappointed.

Financial conditions are still very loose but have tightened slightly in the past week. The Chicago Fed’s National Financial Conditions Index (NFCI) provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets, and the traditional and “shadow” banking systems. This has a greater impact on commercial and consumer borrowing than the Treasury yields.

The METAR is for increasing cloudiness trending toward rain. A cold front is moving in. It’s not clear yet whether the rain will be relatively calm or whether the increasing uncertainty of constantly-changing economic stress from the administration will cause a sudden storm in the markets.

Wendy

https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

15 Likes
2

This is an interesting impact. Even if deportations are low or not large, the economic impact could still be meaningful if these communities hunker down and reduce their economic activity.

There is analogy from ecology. The presence of a predator reduces prey activity and thus has an impact without any actual prey consumption. Eg, the deer isn’t out feeding in the best meadows because the wolves are nearby. And then there is the resultant ecological impacts: less nutrition for the deer population, less grazing pressure on the grasslands, etc

I am guessing we are already in a recession.

8 Likes
3

Yes

and weakening demand will mean deflation. The inflation numbers this month will come in lower in all likelihood but the exact timing is a fool’s errand. Economic indicators are fuzzy things.

1 Like
4

One of those narratives thrown out on bubblevision, for decades was “this is a market of stocks, not a stock market”.

The trick is discovering which sectors are favored by TPTB, and which are not.

Only apparently favored sectors are armaments, and oil and gas. While the trade war rages with Canada and Mexico, nothing but crickets with Japan. Why? The Japanese PM was in DC in a quick hurry, to agree to buy large amounts of USian fuel, invest heavily in the US fuel industry, and buy a pile of arms. Same thing with India: commitment to buy a lot of US weapons and fuel, even though the Persian Gulf is much closer.

The US weapons may become a harder sell, as the US is proving to be an unreliable supplier of ammo and spare parts. So that brings us down to fuel.

Outside of that, I haven’t a clue. Most of my loot is in consumer non-durables, and electric utilities, all paying a nice divi.

Steve

3 Likes
5

The premium pricing is slinking away from the US markets for years to come. Most of you won’t be alive when it perks up again into premium territories 2 st deviations above the long term value trend line in equities.

6

Speak for yourself son. :^) I plan on cracking 100.

As said before, who prospers, and who does not, depends on favor with the regime. Ford Motor was first in line with a $1M check for the inauguration but they aren’t getting what they want. The CEO is crying that he wants big tariffs on Korean and Japanese cars, not on his Mexican cars and Chinese parts, but he isn’t getting it. Japan seems to have drawn a free pass. According to the news Friday night, the South Korean court is about to render a verdict on President Yoon. If he is tossed, it will be a few months before they elect a new President to do an "arty’ deal. TIG clearly expects Korea to sign on to a deal like Japan’s.

Seems that Yoon was let out of prison, but the court’s deliberations are ongoing.

Steve

1 Like
7

What does that leave daddio?

I see a possible 30-plus years ahead.

We might offend someone if we can keep this up.

Andy?

:rolling_on_the_floor_laughing:

8

Layoffs are mounting, hiring is slowing, consumer confidence is eroding and inflation is picking up speed. Although all of those things would almost certainly be happening if former Vice President Kamala Harris had won the election, the uncertainty that President Donald Trump’s economic policy has unleashed is exacerbating those problems.

5 Likes
9

There is a huige difference between risk and uncertainty. Risk can be calculated and uncertainty just makes you feel very uncomfortable, but is not quantitative - and therein lies the problem. There is a lack of transparency and predictability regarding the results of recent and likely actions by the US government’s current custodians and the stoock market is likely going to be disappointed if the metrics don’t become clear.

Jeff

8 Likes
10

There will never be any metrics from this administration. Metrics mean they could be held to fulfilling what they said would happen. They know their plan is to crash the US economy and try to damage international trade. What it takes to accomplish their objective is far more devastating to the US economy than anything else. So they refuse to even begin to discuss it except in the vaguest terms.

2 Likes
11

So, in the absence of them working on behalf of a foreign power, the major advantage of crashing the economy would be so that they could pick up assets at pennies on the dollar? I’m not sure what the advantage of trashing international trade would be except to isolate the country from those who might help?

Just wondering what the long-game might be?

Jeff

2 Likes
12

Oligarchy?

16 17 18 19 20

4 Likes
13

The entire strategy is to cut the govt at any cost–illegally is just fine with them (until a different President takes over). THEN we see lawsuits up the XYZ claiming multiple “unconstitutional exercises of non-existent powers because they are not vested in the President by the US Constitution”.

14

Read up on Chris Yarvin and the Dark Enlightenment.

2 Likes
15

Or, if it all does not become quite as terrible as is likely, they stimulate us extremely in time for roaring economy low inflation at next Prez election, and claim Trump is a GENIUS!. (Yes we’ve heard that before).

16

The simplest explanation is usually best. They are clearly working on behalf of a foreign power. None of their actions benefit the United States.

6 Likes