Global Macro Monitor

President Biden has fully recovered from the downturn in his election prospects, as observed in the prediction markets after the Special Counsel described him as a “sympathetic, well-meaning, elderly man with a poor memory.”

The rebound coincides with the recent poll in Pennsylvania giving him a 10-point lead over the former president,

The good news for President Joe Biden comes in the form of a two-horse race against former President Donald Trump. After landing within the margin of error against the 45th president in February, the 46th president has more than doubled the 4.0% margin of error (MOE) in this survey with a 48-38% percent advantage. An additional 13% favored “someone else,” while just 1% indicated that they did not know. – PoliticsPA

However, when third-party candidates are considered, Biden’s lead narrows to within the margin of error.

We have no doubt the former president will try to conflate today’s market volatility, which we expect to continue, with Biden’s rising poll numbers – “the market is tanking because it’s anticipating a Biden victory in November” – for example. 

We also expect geopolitical events to continue to heat up, as the markets began to price in today.   

Rising gas prices are political death, so look for the shenanigans by the bad actors in foreign lands who would like to see Trump win to continue. 

Gold Price

In our March 9th post,  What’s Up With the Gold Price?, we dismissed the notion the rise in the gold price could be solely attributed to expected Fed rate cuts and offered up the following,  

Nobody knows for sure, but our best guess is it’s a safe haven play with expected domestic and geopolitical instability to increase as the year progresses.   Stay frosty, folks.  

Today, the market woke up. 

In my early teens, I befriended a Cy Young Award-winning pitcher from the Dodgers who eschewed the celebrity culture of autograph signing. He would often advise young fans to seek autographs from their teachers instead, arguing that educators play a more pivotal role in their lives than sports figures. He wasn’t very popular because of that stance, but his perspective was profoundly insightful.

The question arises: who holds greater significance in our society, a teacher who instructs first-graders in reading or a social media influencer? Educators, especially those teaching fundamental skills like reading, contribute extensively to society beyond the immediate impact on each student. They provide numerous positive externalities that enhance our communal life. The value of a well-educated population is a public good, an essential element for the foundation of a functional society.

The Economic Policy Institute, a left-leaning think tank, calls this difference the “teacher pay penalty.” EPI calculated that, in 2022, teachers earned only 74 cents on the dollar compared with comparably educated professionals. The right-leaning Hoover Institution reached a similar conclusion in its 2020 report on educator compensation, showing that, even adjusting for factors such as talent and experience, “teachers are paid 22 percent less than they would be if they were in jobs in the U.S. economy outside of teaching.” – Washington Post

This is a must-view, folks.

One of the most important Collective Illusions we’ve ever discovered has to do with the way that people define a successful life. It turns out the vast majority of the American public believes that most people in the country care about wealth, status, and power when, in fact, the opposite is true. The vast majority of the American public is focused on a more personal fulfillment orientation but our kids are paying an incredible price because they do not understand that this is an illusion.  They try to chase fame because they believe that’s what other people will recognize as success.

We have incorporated several AI-focused ETFs into our equity table.

Additionally, observe the trend in financial conditions as indicated by the Chicago Fed’s National Financial Conditions Index, detailed in the commodities table. The index’s current reading of -0.53 – measured on March 15 and should be a few points easier for March 22, given this week’s market performance –  signifies the easiest financial conditions since January 2022, a few months prior to the Fed’s interest rate hikes were initiated in March 2022. These lenient monetary conditions are facilitating economic performance that is consistently surprising to the upside,  and allowing financial assets to rip.

This dynamism complicates the Fed’s job. Market anticipation continues to revolve around the first rate cut, but given the prevailing financial conditions, the wait is likely to continue.   

Waiting on Jay Po?   Prepare to keep waiting. 

The diverging relationship between economic performance and political success in the U.S. highlights a shift from the past, where a strong economy positively impacted incumbent approval ratings. President Biden’s approval ratings remain unaffected despite recent economic improvements, suggesting a decoupling of economic sentiment and political fortunes. This phenomenon, which contrasts with stable economic-political linkages in Europe, is attributed to the U.S.’s heightened partisan divide, where political allegiance increasingly dictates economic perception, challenging the traditional belief that “It’s the economy, stupid” in American politics.

Key Points:

• President Clinton’s political advisor, James Carville, highlighted the economy’s role in political success during 1992 presidential campaign with assertion, “It’s the economy, stupid.”
• Voter sentiment has traditionally linked to economic performance, affecting incumbent party success.
• Recent trends show a disconnect between the U.S. economy’s health and President Biden’s approval ratings.
• The COVID-19 pandemic and inflation crisis may have influenced this anomaly, yet the shift predates these events.
• Research indicates a decoupling of economic sentiment and presidential approval in the U.S. since Obama’s tenure.
• This phenomenon seems unique to the U.S., with European governments’ popularity still tied to economic conditions.
• U.S. political polarization may explain the decoupling, with partisan views influencing economic perceptions.
• Studies suggest that political biases skew individual economic assessments (confirmation bias) impacting presidential approval.
• The current U.S. political climate suggests economic policy impact on electoral decisions is diminishing.
• Contrasts with Europe, where economic sentiment is more uniform across political lines, suggesting a more rational political-economic relationship.

Source: Financial Times

A Bloomberg article from this morning offered an excellent array of charts detailing the shifts in interest payment flows amid rising rates. The historical anomaly was both surprising and contradicted our priors.

10 Key Points:

1. Historical Anomaly: This is the first time in the last fifty years that a Federal Reserve rate hike cycle has led to a significant drop in household net interest income.
2. Interest Expense Increase: Since the Fed began raising rates in March 2022, Americans’ annual interest expenses on debts like mortgages and credit cards have surged by nearly $420 billion.
3. Interest Income Lag: The increase in interest income during the same period was only about $280 billion, resulting in a net decline in household interest income, a departure from past trends.
4. Consumer Debt Influence: The recent rate hikes impacted household finances more because of a higher proportion of consumer credit, which adjusts more quickly to rate changes, increasing interest costs.
5. Banks and Savers: Banks have been slow to pass on higher interest rates to depositors, and the prolonged period of low rates before 2022 may have discouraged savers from actively seeking better returns.
6. Shift in Wealth: There’s been a shift from interest-bearing assets to stocks, with dividends surpassing interest payments as a source of unearned income during the pandemic.
7. Distributional Discrepancy: Higher interest rates benefit wealthier individuals who own interest-earning assets, whereas lower-income earners face the brunt of increased debt servicing costs, exacerbating economic inequality.
8. Job Market Impact: Typically, Fed rate hikes affect households through the job market, as businesses cut costs, potentially leading to layoffs or wage suppression, though this hasn’t occurred yet in the current cycle.
9. Economic Impact: The distribution of interest income and debt servicing means that rate increases transfer money from those more likely to spend (and thus stimulate the economy) to those less likely to increase consumption, potentially dampening economic activity.
10. No Immediate Relief: Expectations for the Fed to reduce rates have diminished, indicating that high-interest expenses for households may persist.