2024 is upon us. I wanted to start the year with a list of words and phrases that I think can be retired and I don't want to hear used in 2024, however, I've been a bit under the weather and didn't get too far. Feel free to create your own list or add words in the comments:
- "Data-dependent" - as it relates to the Fed or really any business decision, of course the decision was data-dependent. Until you can show me the time that no data was considered at all, this phrase should be retired. How many times did you hear the Fed's decisions are now "data-dependent". Come on, that implies the previous decisions considered no data. The Fed employees thousands of researchers and economist who run models using data, everything they do is data-dependent.
- "Reimagine" - I thought this one was slowly fading from the vernacular, but I feel like I saw a reemergence late in the year. Enough imagining, if you can identify the problem and know a good solution, just make a meaningful change to the thing.
We finished 2023 with stocks (9 straight winning weeks) and bonds rallying post the December 13th FOMC meeting and the market pricing in nearly 7 rate cuts for 2024 and equity strategist revising their S&P targets higher. The consensus seems to be pricing in a "soft landing", a phrase for which there is no consensus as to it's meaning and as to whether and when it is achieved. Economist of different stripes continue to argue over whether this period of inflation was "transitory".
Holiday travel and spending seemed strong and Atlanta Fed's wage growth tracker shows wages tracking 5.2% higher than the prior year and that's before we head into raises and bonus season. If wages continue to rise at a 5% clip, it would seem that it could create challenges for further disinflation, especially if the Fed begins to cut rates without unemployment rising.
If you are looking for narratives that run counter to the current consensus calling for lower yields there are a handful out there, one of which is Canadian economist William White's "new age of scarcity" prediction. White, who worked at the BIS with Claudio Borio, has been writing about how the world is transitioning from what he calls an "age of plenty" to an "age of scarcity". He points to:
- The period from the 80's through 2020 as being characterized by positive supply shocks that lowered inflation and increased growth.
- He sees 5 area's where previously positive supply-side forces are now working in reverse:
- Globalization - at present countries are de-risking supply chains, engaging in protectionism, all reversing trends that began with the break up of the Soviet Union and the opening up of China's economy.
- Labor Markets - at present the global labor market is shrinking and labor participation is falling, as well as evidence of global skills mismatches.
- Production Processes - moving from efficiency to resiliency.
- Energy and Natural Resources - decarbonization and the need for new metals for electrification will be costly.
- Digitalization - White believes it too early to tell whether there will be meaningful productivity gains from AI and other new technologies.
White further posits that the challenges associated with each of the aforementioned supply shocks will likely be met by increased expenditures by governments that will increase demand. In summary he believes economies will face higher inflation and higher real rates for much longer than most expect.
I have no clue what views will be right in 2024, but I'm going to guess that the advice Paul Volcker left in his 2018 biography, "Keeping At It", may not be entirely lost on JPOW. That advice is:
"A lesson from my career is that such successes [in maintaining low inflation] can carry the seeds of its own destruction. I've watched country after country, faced with damaging inflation, fight to restore stability. Then, with victory in sight, the authorities relax and accept a "little inflation" in the hope of stimulating further growth, only to se the process resume all over again."
On the week ahead, the most attention will be on Friday's Jobs Report, but we'll also get JOLTS and FOMC Minutes on Wednesday and ISM data on both Wed and Fri.
XTOD: Compare 2020 to 2023. Use Phillips curve if you like. Supply is the same. Inflation is the same. Inflation expectations are the same. UE is the same. Real demand is largely the same (people don’t drastically change their lifestyle in a few years). The only thing left is the supply of currency, which went up massively during Covid. The most obvious answer is fiscal impulse driven by deficit spending. If you don’t fix the rate of deficit spending you will not fix inflation. Deficit spending declined after the huge fiscal impulse but is accelerating again. Yellen will want JPOW to print money to finance the debt, and JPOW will want yellen to issue duration to finance the debt. So 2024 is either more inflation or much higher rates. I would like a supply shock theorist to address this because I genuinely don’t understand how this can be ignored.
XTOD: So... Jamie Dimon, who has called bitcoin a "hyped up fraud", "worse than tulips", etc, is going to be the Authorized Participant for the biggest bitcoin ETF soon to be approved by @GaryGensler
, and run by the Fed's shadow money manager Couldn't make this up
XTOD: ....Future historians will marvel at all this. It will seem obvious by 2033, if not sooner, that the pax americana faced a well-coordinated challenge from China, Russia, Iran and North Korea in the early 2020s. The first move was the invasion of Ukraine. The second was the war of Iran’s proxies against Israel. The third will most likely be a Chinese challenge to American primacy in the Indo-Pacific, perhaps — if Xi Jinping is bold — a blockade of Taiwan. 7/10....The pax americana seems to be ending. The fate of Ukraine — of Israel and Taiwan, too — hangs in the balance. I cannot say I am surprised. It was always very likely that the overreach of the Global War on Terror would be requited in this way: with a resurgence of isolationism.
XTOD (this was a pretty epic and long retort to some comments made by OpenAI's Emmett Shear): Emmett, Emmett, Emmett. I'm not "accusing you of socialism". I'm pointing out that you just articulated the single most Bolshevik idea ever suggested since an unemployed German intellectual, living off das kapital gains, wrote a book demanding that all investors should be murdered during a mass armed robbery. https://x.com/Devon_Eriksen_/status/1739993013638623537?s=20