The final days of August are upon us with a week that ends with a Jobs/ Payrolls Friday report. Before we get there 2Y is up over 4bps to 5.10% and the 10Y is flat, trading at 4.24%. It will be a busy data week and labor disputes remain something to watch with UAW, actors and writers, etc.
With J-Hole behind us, while Powell gets all the hype, there were other speakers. To start here's a quick recap of Lagarde at J-Hole: (1) there may be some fundamental changes in economic relationships, so understanding policy transmission can be more difficult in today's changing world (2) three major changes are changes to labor markets, with remote work and AI, the green energy transition and geopolitics (3) these shifts may lead to more supply side disruptions in the economy as well as increasing investment needs which may lead to relative price changes amongst sectors (4) confronting this changing world monetary policy will need to continue to ensure price stability while being flexible.
I can't say I read all of the J-Hole papers (not good beach reading), but at a high level here's what I saw upon a cursory review (not all inclusive and take this summary with a grain of salt): (1) a paper by Ma and Zimmerman positing that monetary policy may impact innovation (tight monetary policy may impact innovation negatively with higher cost to future growth) and therefore may not be long run neutral (2) a paper by Duffie on deficits and how structurally dealer balance sheets may not be able to accommodate the increase in the size of the Treasury market (3) a handout by Jones that seems to ponder if we're running out of ideas and therefore poised for lower growth - will AI come up with ideas for us? (4) a handout by Richardson on the job market for nurses and teachers where demand outstrips supply (5) a paper by Eichengreen on how high debt and deficits are here to stay and could lead to financial repression and some difficult "medicine"
It's a busy week that starts with a double auction day today with both the 2Y and 5Y being auctioned at 1pm.
Tue: JOLTS, home prices, 7Y note
Wed: ADP, GDP (2nd read), pending home sales
Thur: PCE, Income and Spending, Jobless claims
Fri: Jobs Day! ISM Manufacturing
XTOD: Everybody knows the inflation target is ACTUALLY 3.14159265359
XTOD: Yesterday, I trolled Larry Summers, as I thought his graph was more misleading than helpful. But I fully agree with the major points of his WAPO column today: Inflation is still too high, unemployment very low, and deficits too large.
XTOD: Mark Cuban said that after investing nearly $20 million in 85 startups on “Shark Tank,” he’s taken a net loss across all of those deals combined.
XTOD: I cannot believe Bob Barker lived as close to 100 as possible without going over.
XTOD: For the sake of argument, can we consider an alternative to the current narrative on rates, literally the semantics: the explicitly pessimistic "raise them until something breaks" or the ominous sounding "higher for longer"? How about "properly pricing risk," "correcting mistaken capital allocation", or even the pedantic but true "getting all those formulas in the finance books to actually work?" Yes, the inversion of the curve/high near-term rates is real/has negative implications for businesses & consumers, has created issues for bank balance sheets (1.5% paper now at 4%), & managing inflation is a challenge for all. But the 10 year at 4% is a whole lot healthier & "normal" for financial decision making than 1.5%. By a lot. It will lead to less speculation & to less misallocation of capital. So, here's 😃 😀 😃 for rates closer to where they ought to be after too many years of distortionary rate levels expressed in comforting but misleading phrases.
XTOD: I’m bullish on organizations that help people live their ordinary lives well over the next few decades: who to call when someone dies, teaching adults how to cook, curating the best of music and literature, how to manage content and take paid time off. All these things and more.
https://twitter.com/Stimpyz1/status/1695159179533750435?s=20
https://twitter.com/ojblanchard1/status/1695515081302217072?s=20
https://twitter.com/lukeburgis/status/1694567173769839040?s=20
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