Taking Heat: Tragic Wildfires Hit Insurers, AMD Downgraded, Fed Heads Cause Confusion
Also, today is Jobs Day and here's what I expect to see.
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The good news is that southern California firefighters have apparently made some progress in fighting these wildfires that have destroyed multiple Los Angeles area neighborhoods, thanks to winds that died down, at least to a degree, on Thursday. Those winds, which picked up again overnight, are projected to weaken further on Friday. While chaos and panic have certainly been pervasive, an evacuation order that was meant for a small area on Friday was accidentally sent to 10 million of the 12.5 million people or so that live in Los Angeles and its suburbs and then retracted.
The numbers are staggering, even as they are not final, and maybe nowhere close to final. Several of the up to seven wildfires running through the area are still said to be less than a majority percentage contained. More than 30,000 acres have been scorched. Something like up to 180,000 people are out of their homes, many of those permanently. Economic losses are estimated at a minimum of $135 billion. That estimate has gone up from more than $50 billion and $10 billion in just a couple of days. Who knows where that number ends?
JP Morgan JPM estimates that hits to insurers could top $20 billion. For those thinking about stocks, Allstate ALL, Chubb CB and Travelers TRV will all likely be impacted as according to JP Morgan, these are the publicly traded insurance carriers most exposed to homeowners in the state of California. Area real estate experts expect local rents to surge as demand will suddenly increase just as supply has suddenly and significantly dwindled.
Supposedly, at least 20 people have been arrested for looting, though there are reports of hundreds of looters going through evacuated neighborhoods while the police are busy elsewhere and unable to respond. Worst of all, the known death toll from these fires is now up to 10, according to the Associated Press, which I read about at Bloomberg News in an article on Thursday evening. It will be a miracle if that number does not rise from there.
As always, we pray for the repose of the souls lost, and for the strength that will be needed by yet another community negatively impacted by a natural disaster. There may be a time for political finger pointing and I too can get caught up in that, as a dear friend has pointed out. This is not that time. This is a time for goodwill and maybe even more than goodwill if people are able or of means. God bless you all.
Jobs Day
Today is December Jobs Day as the Bureau of Labor Statistics will report the results of two labor market surveys at 8:30 a.m. ET. My expectations are below. I am looking for seasonally adjusted non-farm payroll growth of 152,000, which as far as I can tell, is a little below consensus. I am also looking for 4% wage growth, 4.2% unemployment and about 7.9% underemployment, all roughly at consensus as the economy absorbs increased participation.
On Wednesday morning, the ADP Employment Report that does not always agree with the BLS numbers, showed just 122,000 private payroll positions created in December. The ADP estimates appear to have been far more accurate than the monthly BLS data for about two years now, or ever since ADP revised their formula. The hint there for the BLS would be to revise either data collection or adjustment methods, probably both. There is definitely a need for the monthly data to not require embarrassingly large revisions after first being released.
Just as important from a monetary policy perspective, as the labor market data, will be the advance release of the University of Michigan's Consumer Sentiment Survey for the month of December. There may be moderate improvement in the headline number from November. That's fine. That's also not what Fed officials will be watching. The focus will be on both the survey's results for one year out and five years out consumer inflation expectations. Those expectations are expected to have surged since November to 3% from 2.8% and to 3.2% from 3% (That's surging in our world) respectively.
Heads Up: AMD Downgrade!
I just happened to be looking at my screen this morning as the headline flashed that Goldman Sachs five star rated (at TipRanks) analyst Toshiya Hari had downgraded Advanced Micro Devices AMD from "Buy" to "Neutral," which is a hold-equivalent. Hari also took his target price down to $129 from $175. Hari sees AMD able to take further share from Intel INTC across PC and traditional servers but also sees rising competition for custom processing units from Arm Holdings ARM. Hari also sees competition in the accelerated computing space only intensifying.
Birds of Different Fed-thers ...
Fed Funds futures trading in Chicago are still pricing in a 95% likelihood that the Federal Open Market Committee stands pat on Jan. 29. This market is pricing in just one cut of a quarter-percentage point for all of 2025 and that cut will come in June. Of course, this is an evolving market and how funny it is that with equity markets closed on Thursday in observance of the passing of former U.S. President Jimmy Carter that from the realm of Fed officials, a group largely quiet since well before the holiday season, came pouring out of their holes in an attempt to be ahead of the jobs numbers.
There Was a Hawk
Federal Reserve Gov. Michelle Bowman, who is known for her hawkish views and with the retirements of Cleveland's Loretta Mester and Kansas City's Esther George, has become a leader on that side of the football and spoke on Thursday before the California Bankers Association, who may have had other concerns on their minds.
Bowman said, "The rate of inflation declined significantly in 2023, but this progress appears to have stalled last year with core inflation still uncomfortably above the committee's 2% goal. I continue to prefer a cautious and gradual approach to adjusting policy."
Bowman added, "I also continue to be concerned that the current stance of policy may not be as restrictive as others see it."
Well, Michelle ... that makes two of us. Elect me president and I'll likely nominate Bowman for Fed Chair.
There Was an Owl or Maybe a Chicken
Richmond Fed Pres. Tom Barkin, who voted on policy in 2024, but will not in 2025, spoke to the Virginia Bankers Association on Thursday. Barkin said, "There is no question in my mind that as a lot more federal debt comes onto the market, that it is at times overwhelming the demand, and that is what creates the increase in yields. I don't think it is inflation; I think it is term premium. And the term premium has something to do with risk - but I sense it has something to do with the balance of supply and demand in the long end."
C'mon, Barkin: Call a spade a spade. Reckless fiscal policy and poor management of the debt-load at the Treasury Department are what has caused both inflation and instability from the belly of the yield curve on out to the deep end of the pool. We know you know better, Tom. Stop trying to sound smart without pointing fingers. Bok, Bok, Bok...
We Had Pragmatists
No, pragmatists are not birds, but they do make for good central bankers. On Thursday, Boston Fed Pres Susan Collins, who will vote on policy in 2025, said: "On balance, the December cut provided some additional insurance to preserve healthy labor market conditions while maintaining a restrictive policy stance that is still needed to sustainably restore price stability."
Elsewhere, Kansas City Fed Pres Jeffrey Schmid, who will also vote in 2025, said: "With inflation close to target and growth showing continued momentum, I believe we are near the point where the economy needs neither restriction nor support and that policy should be neutral." Schmid then added some music to my ears: "Shrinking our footprint will lessen our distortion of asset prices."
Then, There Was a Dove
There was a dove, who used to be a pragmatist. Philadelphia Fed Pres Patrick Harker, who does not vote on policy in 2025 said, "I still see us o a downward policy rate path. Looking at everything before me now, I am not about to walk off this path or turn around." (That path being one of easing policy) Harker added, "But the exact speed I continue to go along that path will be fully dependent upon the incoming data."
Yeah, right. Harker went on to say on rates, "We can stay where we are for a little bit - probably not long."
Yikes. Thankfully, Harker is set to retire at the end of June.
Economics: Employment Situation (All Times Eastern)
8:30 a.m.
Non-Farm Payrolls: Expecting 152K, Last 227K.
Unemployment Rate: Expecting 4.2%, Last 4.2%.
Underemployment Rate: Expecting 7.9%, Last 7.8%.
Participation Rate: Expecting 62.7%, Last 62.5%.
Average Hourly Earnings: Expecting 4.0% y/y, Last 4.0% y/y.
Average Weekly Hours: Expecting 34.3, last 34.3 hours.
Other Economics (All Times Eastern)
10:00 - U of M Consumer Sentiment (Jan-adv): Expecting 74.5, Last 74.0.
10:00 - U of M One Year Inflation Expectations (Jan-adv): Expecting 3.0%, Last 2.8%.
10:00 - U of M Five Year Inflation Expectations (Jan-adv): Expecting 3.2%, Last 3.0%.
1:00 p.m. - Baker Hughes Total Rig Count (Weekly): Last 588.
1:00 - Baker Hughes Oil Rig Count (Weekly): Last 482.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: STZ (3.32), DAL (1.74), SNX (3.05), WBA (.37)
At the time of publication, Guilfoyle was long AMD, INTC equity.
