Category Archive: 5) Global Macro

Latest Thoughts on the US Economic Outlook

The US economy is starting to show cracks from the ongoing trade war. While we do not want to make too much from one data point, we acknowledge that headwinds are building whilst US recession risks are rising.

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Big Difference Which Kind of Hedge It Truly Is

It isn’t inflation which is driving gold higher, at least not the current levels of inflation. According to the latest update from the Bureau of Economic Analysis, the Federal Reserve’s preferred inflation calculation, the PCE Deflator, continues to significantly undershoot. Monetary policy explicitly calls for that rate to be consistent around 2%, an outcome policymakers keep saying they expect but one that never happens.

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Drivers for the Week Ahead

We remain dollar bulls; this is an important data week for the US. Final August eurozone manufacturing PMIs will be reported Monday; UK reports August PMIs this week. RBA meets Tuesday and is expected to keep rates steady at 1.0%; BOC meets Wednesday and is expected to keep rates steady at 1.75%.

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Labor Day Reflections on Retirement and Working for 49 Years

What happens when these monstrous speculative bubbles pop? Let's start by stipulating that if I'd taken a gummit job right out of college, I could have retired 19 years ago. Instead, I've been self-employed for most of the 49 years I've been working, and I'm still grinding it out at 65.

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GDP Profits Hold The Answers To All Questions

Revisions to second quarter GDP were exceedingly small. The BEA reduced the estimate by a little less than $800 million out of nearly $20 trillion (seasonally-adjusted annual rate). The growth rate therefore declined from 2.03502% (continuously compounded annual rate) to 2.01824%.

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Dear Trump Advisors: Prop the Market Up Now and Lose in 2020, or Let the Market Crash and Win in 2020

One of the more reliable truisms is that Americans vote their pocketbook: if their wallets are being thinned (by recession, stock market declines, high inflation/stagnant wages, etc.), they throw the incumbent out, even if they loved him the previous year when their wallets were getting fatter. (Think Bush I, who maintained high approval ratings but ended up losing the 1992 election due to a dismal economic mood.)

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Monthly Macro Monitor: Market Indicators Review

The Treasury market continues to price in lower nominal and real growth. The stress, the urgency, I see in some of these markets is certainly concerning and consistent with what we have seen in the past at the onset of recession. The move in Treasuries is by some measures, as extreme as the fall of 2008 when we were in a full blown panic.

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The Fantasy of Central Bank “Growth” Is Finally Imploding

It was such a wonderful fantasy: just give a handful of bankers, financiers and corporations trillions of dollars at near-zero rates of interest, and this flood of credit and cash into the apex of the wealth-power pyramid would magically generate a new round of investments in productivity-improving infrastructure and equipment, which would trickle down to the masses in the form of higher wages, enabling the masses to borrow and spend more on...

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Japan: Fall Like Germany, Or Give Hope To The Rest of the World?

After trading overnight in Asia, Japan’s government bond market is within a hair’s breadth of setting new record lows. The 10-year JGB is within a basis point and a fraction of one while the 5-year JGB has only 2 bps to reach. It otherwise seems at odds with the mainstream narrative at least where Japan’s economy is concerned.

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Emerging Markets: FX Model for Q3 2019

The broad-based dollar rally remains intact despite the market’s overly dovish take on the Fed. We still believe markets are vastly overestimating the Fed’s capacity to ease in 2019 and 2020. What’s clear is that the liquidity story is not enough to sustain EM. MSCI EM FX is on track to test the September 2018 low near 1575 and then the April 2017 low near 1568.

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Definitely A Downturn, But What’s Its Rate of Change?

The Chicago Fed’s National Activity Index (NAI) fell to -0.36 in July. That’s down from a +0.10 in June. By itself, the change from positive to negative tells us very little, as does the absolute level below zero. What’s interesting to note about this one measure is the average but more so its rate of change.

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Dollar Firm as Markets Calm

Market sentiment has improved after President Trump said China has asked to restart trade talks. PBOC fixed the yuan basically flat and firmer than what models suggested. The G-7 summit wraps up today with little to show for it. We believe the Chicago Fed National Activity Index remains the best indicator to gauge US recession risks. Germany July IFO business climate came in weaker than expected

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Monthly Macro Monitor: Does Anyone Not Know About The Yield Curve?

The yield curve’s inverted! The yield curve’s inverted! That was the news I awoke to last Wednesday on CNBC as the 10 year Treasury note yield dipped below the 2 year yield for the first time since 2007. That’s the sign everyone has been waiting for, the definitive recession signal that says get out while the getting is good.

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The Benefits of a Profoundly Shattering Recession

Does anyone really think The Everything Bubble can just keep inflating forever? What do I mean by a profoundly shattering recession? I mean, a systemic, crushing recession that can't be reversed with central bank magic, a recession that only deepens with time. The last real recession was roughly two generations ago in 1981; younger generations have no experience of a profound recession, and perhaps older folks have forgotten the shock, angst and...

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DM Equity Allocation Model For Q3 2019

We recently introduced our Developed Markets (DM) Equity Allocation model. Building on the success of our EM model, this new framework extends our analysis to cover 24 DM equity markets. Our analysis is meant to assist global equity investors in assessing relative sovereign risk and optimal asset allocation across countries within the DM universe.

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Germany’s Superstimulus; Or, The Familiar (Dollar) Disorder of Bumbling Failure

The Economics textbook says that when faced with a downturn, the central bank turns to easing and the central government starts borrowing and spending. This combined “stimulus” approach will fill in the troughs without shaving off the peaks; at least according to neo-Keynesian doctrine. The point is to raise what these Economists call aggregate demand.

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Our Wile E. Coyote Federal Reserve

Whatever the Fed chooses to do, it's already failed.. Wile E. Coyote has gotten a bad rap: in all fairness, his schemes are ingenious, if overly complicated, and it's not his fault that the Acme detonator misfires or the Road Runner doesn't respond as predicted. Every set-up to nail the Road Runner should work. That it fails and leaves him suspended over the cliff for a woefully brief second to intuit his impending doom really isn't his fault.

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Dollar Firm Ahead of Jackson Hole

FOMC minutes were not as dovish as many had hoped; bond and equity markets are set up for a big reset. Today sees the start of the annual Fed symposium in Jackson Hole; the US reports a slew of data. Markit flash eurozone August PMI readings were reported; ECB publishes the account of its July 25 meeting.

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Brazilian real stands out in EM currency scorecard

Prospects for emerging-market currencies look cloudy. The currencies of countries with sound external buffers and limited exposure to global trade should fare relatively better than others.In recent months, the global environment has become more challenging for EM currencies. Trade tensions have increased and are weighing on economic activity. Commodity prices have also fallen.

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That Can’t Be Good: China Unveils Another ‘Market Reform’

The Chinese have been reforming their monetary and credit system for decades. Liberalization has been an overriding goal, seen as necessary to accompany the processes which would keep the country’s economic “miracle” on track. Or get it back on track, as the case may be. Authorities had traditionally controlled interest rates through various limits and levers.

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