Are my daily economic updates best read from the bottom up?
Friday featured the Chinese property market bailout. It's been a good month for equities. The week ahead is light on economic data so Fedspeak and the Minutes of the FOMC meeting will likely be the highlights as will Nvidia earnings.
Mentioned in Friday's post, the recent Blanchard and Bernanke paper on the last mile of inflation seemed to advocate a very Phillip's Curve dominate mentality, that unemployment will have to rise before inflation can return to target. I thought this post from NGDP Targeting proponent Marcus Nunes, citing comments from economist George Selgin, laid out some interesting thoughts in retort to Blanchard and Bernanke. You be the judge of the merits of the arguments.
4.83% on 2s and 4.42% on 10s is where we start the week in fixed income.
On the week ahead:
Monday & Tuesday: Fedspeak
Wednesday: Existing Home Sales, FOMC Minutes
Thursday: Jobless Claims, flash PMI's, New home sales
Friday: Durable Goods, consumer sentiment and Waller
XTOD: 1. Tweet triggered by some of the discussion following the publication of my new paper with Ben Bernanke. To clarify an important point. Finding that pre-pandemic era inflation was mostly due to relative price movements, especially the relative price of commodities, and that the labor market played a limited role, does not settle the issue of the role of aggregate demand and monetary policy in generating the inflation. 2. It may well be that part of the increase in commodity prices reflected higher world demand for commodities, triggered in part by lose monetary and fiscal policy, in particular but not only US fiscal policy. 3. Indeed, if one believes that individual commodity prices reflect a common aggregate demand component together with largely commodity specific supply shocks, one can use a principal component analysis to extract this common aggregate demand component. We did this in Bernanke Blanchard 2023. https://shorturl.at/s9IGs , Figure 5. The conclusion that it indeed played an important role, at least until the end of 2022.
XTOD: GOLDMAN'S PASQUARIELLO: ".. a handful of the biggest money managers I know have recently made strong arguments for ongoing durability in the US economy. if there’s a common thread across them, it’s the momentum behind spending on AI, infrastructure, onshoring and defense. I agree with the broad thesis and will register that GS is calling for Q2 GDP growth of 3.2%, while the
@AtlantaFed is predicting 3.6% .. it stands in contrast to the ongoing pessimism I see in the press and hear on the street (specifically regarding the consumer, which I don’t agree with)."
XTOD: 7/7 When the Fed starts cutting rates at an all-time high, the stock market is signaling that the Fed is not restrictive and/or inflation is not a problem. If the market thought the Fed was restrictive and/or inflation was a problem, it would not be at a new high. So, when easier money comes, stocks boom. But when stocks are not at an all-time high, the market signals a problem. Easy money is either not a fix or contributes to that problem, like spurring inflation. In this case, stocks struggle to break even. Finally, if the Fed cuts a year before a recession, the signs of a recession were most likely evident, like an inverted yield curve in 2019, crashing housing prices in 2007, or the tech stocks deflating in 2001. In this case, the Fed cut attempts to reverse this trend (read: panicking to stop the recession), and it is unsuccessful. Conclusion The problem with thinking rate cuts would produce lower spending is rooted in the belief that rate cuts are like candy raining down from the sky. Rate cuts only produce pleasure and never pain. So, cut rates, watch inflation fall, and stocks can boom. It is not that simple. If markets do not believe interest rates are a problem, cutting them could produce an adverse outcome. In this case, stocks might boom and supercharge inflation via a demand-driven wealth effect. Right now, the markets do not yet see inflation as completely stamped out. Cutting rates could spur fears of more inflation and drive interest rates higher.
XTOD: It takes a special kind of elite intelligentsia to suggest that rate cuts would ease inflation.
An out-of-control externally funded fiscal deficit drove inflation skyward, inflation is now becoming embedded in expectations, and the “contrarian” position is that the central bank should be dovish to — tame inflation. Spiking interest payments that jack the Gini coefficient and raise inequality because the 0.1% collect rates while peasants pay them is not inflation. It’s Brazilification. You know how I have mentioned over and over on recent podcasts that the US asset mgmt industry has absolutely zero knowledge or concept of EM-ification and what this means for assets? Consider this clip Exhibit A.
Behold your financial leaders in action, ladies and gentlemen….the CIO of fixed income at the world’s largest asset manager. FIXED INCOME!
Rieder has zero concept what he is signing up for. If he is indeed representative of intelligent financial leadership in America, I know *exactly* what to do with all this, and I’m here for it.
XTOD: "Margin of safety—you can also call it room for error or redundancy—is the only effective way to safely navigate a world that is governed by odds, not certainties. And almost everything related to money exists in that kind of world." — Morgan Housel
XTOD: There are 4 types of wealth:
1. Financial wealth (money)
2. Social wealth (status)
3. Time wealth (freedom)
4. Physical wealth (health)
Be wary of jobs that lure you in with 1 and 2, but rob you of 3 and 4.
XTOD: “Sometimes when I reflect on all the beer I drink, I feel ashamed. Then I look into the glass and think about the workers in the brewery & all of their hopes and dreams. If I didn't drink this beer, they might be out of work and their dreams would be shattered"
Babe Ruth
https://x.com/ojblanchard1/status/1791816404506747199
https://x.com/carlquintanilla/status/1791436133668135307
https://x.com/biancoresearch/status/1791842321295626720
https://x.com/PauloMacro/status/1791911847148310603
https://x.com/InvestingCanons/status/1791469397229367612
https://x.com/JamesClear/status/1017384660912037888
https://x.com/Jimfrombaseball/status/1791839731866575339
No comments:
Post a Comment