Some Quick & Easy Common Cents for May 18th

May 18, 2018, by John Norris

There is an old expression: “if it seems too good to be true, it probably is.” We all know this, and have all forgotten it at least once in our lives. Something for nothing (or with very little effort) is powerful catnip indeed, even if we all know there really aren’t many good substitutes for hard work, preparation, and a willingness to fail.

This is what makes the recent economic data somewhat concerning to me.

There has been virtually nothing in any of the recent reports to give me significant pause. The numbers look good, really good for this point in the: 1) economic cycle, and; 2) Fed rate hike cycle. It begs the question: “can the economy accelerate when the yield curve flattens?” Okay…the yield curve has widened out a smidgeon (overnight to 30-year) thus far in 2018, but is still much tighter than it was at the start of 2017, much.

Could recent changes to the tax code make this time ‘different’ than last? Could an uptick in overall global economic growth make the slope of the US yield curve less important? Have we seen nothing short of a miracle, as the Fed unwinds the quantitative easing programs, raises the overnight rate, AND the economy surges forward. The answers are perhaps, could be, and so it would seem.

Take your pick. However, and there is always however with me.

Last night, I had the great privilege of watching the Orioles vs. Red Sox in Fenway. During the bottom of the first inning, I turned to my co-workers with me and emphatically said: “this next guy is definitely going to get a hit…a single.” As anyone who follows the game knows, a good batter only hits safely about 30% of the time. So, predicting a hit during a particular at bat is a bad bet, particularly since the league batting average is generally only around .250. Since singles make up about 64% of all hits in the majors (at least in 2017), the math works out to be: .25 * .64 = 16%. That is what the chance of a single is per at bat in a MLB game.

This would seem like a sucker’s bet, and I wish they would have called me out. But it wasn’t, and they didn’t…unfortunately.

You see, the scoreboard said this particular Red Sox player had hit safely an amazing 13 times in 20 plate appearances against the Oriole on the mound. Of those, he had 2 doubles and no other extra base hits. So, the likelihood of a single was closer to 55%, as opposed to 16%. For good measure, he had walked a couple of times as well, making the on-base percentage even higher. By baseball standards, the guy in the batter’s box pretty much ‘owned’ the pitcher.

Of course, past performance is not indicative of future results and there is more to statistics than what I have put forth. However, the odds were more in my favor than they would be under ordinary circumstances. Care to guess what happened next? That is right; a single to right center field.

Trust me, my co-workers weren’t as impressed as I was. In fact, I don’t think they cares. Come to think of it, I am not sure they were even paying attention to me.

I go through all of this for a reason: the odds are we are not as the start of the economic cycle. What’s more, the odds are the Fed will probably keep raising the overnight lending target, flattening the yield curve in the process. In doing so, borrowing and lending will slow, somewhat. This will cause the economy to cool, again, somewhat.

Those are the odds, regardless of everything else currently happening. No matter how it feels or seems too good to be true right now. Yeah, this time does feel a little unusual for where we are and the longevity of this economic expansion, at least as I type. Different? Well, I tend to use that word somewhat sparingly in these situations. It seems every time I say ‘this time is different,’ I find out it really isn’t.

So, let me end this quick note today by saying: May has felt and looks great, and I should probably just let well enough alone for now. However, the odds are I won’t.