Category Archive: 5) Global Macro

Industrial Symmetry

There has always been something like Newton’s third law observed in the business cycles of the US and other developed economies. In what is, or was, essentially symmetry, there had been until 2008 considerable correlation between the size, scope, and speed of any recovery and its antecedent downturn, or even slowdown. The relationship was so striking that it moved Milton Friedman to finally publish in 1993 his plucking model theory he had first...

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Retail Sales: Extra Day Likely, no Meaningful Difference

Retail sales comparisons were for February 2017 skewed by the extra day in February 2016. With the leap year February 29th a part of the base effect, the estimated growth rates (NSA) for this February are to some degree better than they appear. Seasonally-adjusted retail sales were in the latest estimates essentially flat when compared to the prior month (January). That leaves too much guesswork to draw any hard conclusions.

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Emerging Markets: What has Changed

The PBOC increased the rates it charges for OMO and MLF by 10 bp. Indian Prime Minister Modi’s BJP won elections in the state of Uttar Pradesh. Czech central bank broached the possibility of a koruna cap exit later than mid-2017. Kuwait became the first OPEC member to call for extended output cuts.

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Further Unanchoring Is Not Strictly About Inflation

According to Alan Greenspan in a speech delivered at Stanford University in September 1997, monetary policy in the United States had been shed of M1 by late 1982. The Fed has never been explicit about exactly when, or even why, monetary policy changed dramatically in the 1980’s to a regime of pure interest rate targeting of the federal funds rate.

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Global Asset Allocation Update

There is no change to the risk budget this month. For the moderate risk investor, the allocation between risk assets and bonds is unchanged at 50/50. The Fed spent the last month forward guiding the market to the rate hike they implemented today. Interest rates, real and nominal, moved up in anticipation of a more aggressive Fed rate hiking cycle.

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Now That Everyone’s Been Pushed into Risky Assets…

If we had to summarize what's happened in eight years of "recovery," we could start with this: everyone's been pushed into risky assets while being told risk has been transformed from something to avoid (by buying risk-off assets) to something you chase to score essentially guaranteed gains (by buying risk-on assets).

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China Starts 2017 With Chronic, Not Stable And Surely Not ‘Reflation’

The first major economic data of 2017 from China was highly disappointing to expectations of either stability or hopes for actual acceleration. On all counts for the combined January-February period, the big three statistics missed: Industrial Production was 6.3%, Fixed Asset Investment 8.9%, and Retail Sales just 9.5%.

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Mugged By Reality; Many Still Yet To Be

In August 2014, Federal Reserve Vice Chairman Stanley Fischer admitted to an audience in Sweden the possibility in some unusually candid terms that maybe they (economists, not Sweden) didn’t know what they were doing. His speech was lost in the times, those being the middle of that year where the Fed having already started to taper QE3 and 4 were becoming supremely confident that they would soon end them.

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Bi-Weekly Economic Review

The Federal Reserve is widely expected to raise interest rates again at their meeting next week. They obviously view the recent cyclical upturn as being durable and the inflation data as pointing to the need for higher rates. Our market based indicators agree somewhat but nominal and real interest rates are still below their mid-December peaks so I don’t think a lot has changed.

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Earnings Update – A Poor Sort of Memory

“I don’t understand you,’ said Alice. ‘It’s dreadfully confusing!’ ‘That’s the effect of living backwards,’ the Queen said kindly: ‘it always makes one a little giddy at first–‘ ‘Living backwards!’ Alice repeated in great astonishment. ‘I never heard of such a thing!’ ‘–but there’s one great advantage in it, that one’s memory works both ways.’ ‘I’m sure mine only works one way,’ Alice remarked. ‘I can’t remember things before they happen.’...

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Emerging Markets: Preview of the Week Ahead

EM FX ended last week on a firm note despite the strong US jobs data, with the dollar succumbing to some “buy the rumor, sell the fact” price action.  We think the dollar should recover as the week begins, as it seems risky to be short/underweight dollars going into the FOMC meeting.  With the Fed poised to hike 3 or perhaps 4 times this year, we don't think EM FX can continue to rally the way it has so far this year.

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The Next Domino to Fall: Commercial Real Estate

Just as generals prepare to fight the last war, central banks prepare to battle the last financial crisis--which in the present context means a big-bank liquidity meltdown like the one that nearly toppled thr global financial system in 2008-09.

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Do Record Debt And Loan Balances Matter? Not Even Slightly

We live in a non-linear world that is almost always described in linear terms. Though Einstein supposedly said compound interest is the most powerful force in the universe, it rarely is appreciated for what the statement really means. And so the idea of record highs or even just positive numbers have been equated with positive outcomes, even though record highs and positive growth rates can be at times still associated with some of the worst. It...

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Payrolls Still Slowing Into A Third Year

Today’s bland payroll report did little to suggest much of anything. All the various details were left pretty much where they were last month, and all the prior trends still standing. The headline Establishment Survey figure of 235k managed to bring the 6-month average up to 194k, almost exactly where it was in December but quite a bit less than November. In other words, despite what is mainly written as continued “strength” is still pointing down...

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Time, The Biggest Risk

If there is still no current or present indication of rising economic fortunes, and there isn’t, then the “reflation” idea turns instead to what might be different this time as compared to the others. In 2013 and 2014, it was QE3 and particularly the intended effects (open ended and faster paced, a bigger commitment by the Fed to purportedly do whatever it took) upon expectations that supposedly set it apart from the failures of QE’s 1 and 2. This...

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Are Central Banks Losing Control?

If you want a central banker to choke on his croissant, read him this quote from socio-historian Immanuel Wallerstein: "Countries (have lost the ability) to control what happens to them in the ongoing life of the modern world-system."

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No Paradox, Economy to Debt to Assets

It is surely one of the primary reasons why many if not most people have so much trouble accepting the trouble the economy is in. With record high stock prices leading to record levels of household net worth, it seems utterly inconsistent to claim those facts against a US economic depression.

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Emerging Markets: What has Changed

North Korean banks subject to international sanctions have been banned from using Swift. Korea’s Constitutional Court upheld Parliament’s motion to impeach President Park. Singapore eased some property market curbs after a three-year decline in home prices. Egypt partially reversed a cut in bread subsidies. Nigeria’s President Buhari returned to the nation after spending nearly two months in the UK. Moody’s moved its outlook on Argentina’s B3...

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Same Country, Different Worlds

To my mind, “reflation” has always proceeded under false pretenses. This goes for more than just the latest version, as we witnessed the same incongruity in each of the prior three. The trend is grounded in mere hope more than rational analysis, largely because I think human nature demands it. We are conditioned to believe especially in the 21st century that the worst kinds of things are either unrealistic or apply to some far off location nowhere...

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US Trade Skews

US trade statistics dramatically improved in January 2017, though questions remain as to interpreting by how much. On the export side, US exports of goods rose 8.7% year-over-year (NSA). While that was the highest growth rate since 2012, there is part symmetry to account for some of it.

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