US Fixed Income Markets vs. Rest of World
The U.S. fixed income markets are the largest in the world, comprising 40.0% of the $114 trillion securities outstanding across the globe, or $46 trillion (as of 2Q20). This is 2.0x the next largest market, the EU. U.S. market share has averaged 38.6% over the last 10 years, troughing at 36.3% in 2011 and peaking at 40.9% in 2015. – sifma
As the coronavirus crisis reshapes supply and demand, chip companies are scrambling. And if there’s an industry that can’t simply ramp up production in a hurry, or ask clients to do without their product for a while, or shift around parts of their manufacturing rapidly, it’s the chip industry.
Here’s a look at how chips became the “oil of the digital age” – and the geopolitical complications surrounding their supply. – DW News
Couldn’t decide on the title of this post: Republicans Attack Dogs or Republican Attack Dogs? Went with the former to mock the SOS from the GOP. Same MO different President.
It’s not surprising that a man called Saint Bernard once said, “Love me, love my dog” in a sermon. After all, dogs have long been the world’s most popular pet.
But now, the meanies at conservative media giant Newsmax have refused to throw man’s best friend a bone, attacking President Joe Biden’s dog, Champ, in a Friday segment. Host Greg Kelly felt the need to lift his leg and woof on the dog’s appearance, saying that Champ “looks a little rough,” and “needs a bath, a comb, and some loving care,” adding that he looks like he’s “from the junkyard.” – Deadline
Joe Cool is way too cool to take the bait and has bigger issues to worry about.
Does Mess With Fala
Not President Roosevelt however. When Republicans messed with Fala, not only did FDR reel them in, he turned them into political dog chow. No wonder #32 was elected to four consecutive terms.
Dogs Always Have The Last Laugh
The Party of Lincoln, which has morphed into the Party of QAnon, Ted Cruz, Matt Gaetz, and Jim Jordan should be careful who they are pissing on, lest they be…ya’ know…and it is coming.
A Man And His Dog
We leave you with this moving photo of a man and his dog, which really touched us at the time it was taken.
Starting to hear lots of talk about inflation these days, something we have been seeing in the pipeline for the past six months.
Input price inflation accelerated to a near-decade high in January. Costs increased to the greatest extent since April 2011, reflecting stronger rises in both the manufacturing and service sectors. This was partly passed on to clients in the form of higher charges, the main factor underlying the steepest rise in output prices for 27 months. – JPMo Global PMI, January
We’ve crunched a boatload of numbers over the past few days. Sit back and enjoy.
What Deflation?
Since 1957, 888 monthly observations of the Consumer Price Index, there have only been 106 monthly negative prints and only 12 negative monthly prints on Core CPI (excluding food and energy). Monthly year-on-year inflation has only printed 40 times on the main CPI and Core CPI has never printed a negative year-on-year number.
You read that right, never.
Three Consecutive Negative Monthly Prints Are Rare
Three consecutive negative monthly CPI prints are rare, only 15 times for main CPI and just once for Core, which happened just recently after the COVID shock.
The Coming Base Effect
The following FRED chart of the Consumer Price Index illustrates how it bottomed last May after the COVID shock, which is going to set up for some very high year-on-year CPI inflation prints by mid-year. In part, because of the lower base but also the surprisingly quick snapback in the price index after the government temporarily shut off the lights and the Fed turned on the printing press.
We have constructed in the following chart a couple paths for CPI inflation in 2021, one based on an average 0.3 percent monthly rate, which takes the year-on-year inflation rate to 4.1 percent by May, which is sustained and translates to a core CPI of 3.5 percent. Given what we currently see in the PMIs, including major problems in the global supply chain, and the excess stimulus already in the system, a 0.3 percent monthly CPI may be too stingy.
A Different Kind Of Economic Shock
We also think very few understand the current economic situation and that this crisis is unlike those in the recent past. The labor force and employment problems are not so much the result of too little demand but a forced reduction in supply due to the COVID restrictions. More than 70 percent of the 10 million jobs that have been lost and have not been recovered are in three sectors: 1) leisure and hospitality; 2) education and health services, and 3) government.
Once COVID begins to fade – it has already started – and the economy opens fully, pent-up demand, especially for leisure and hospitality will be huge, and with capacity already reduced in this area, hiring will rebound sharply and so will prices.
Why Are Average Hourly Earnings (AHE) Spiking?
While crunching the numbers, we also found an interesting anomaly with AHE, which is now running at multi-year highs. We have warned many times on this site about going deeper with the macro data and the problems of averaging.
Though we have not engaged in much second-order thinking or analysis on this issue — you don’t pay us enough to do so — we are pretty certain the spike in earnings is the result that most of the job losses have been in the lower-paying service sector, such as leisure and hospitality. If, for example, all the sub .250 hitters on the Yankees are given their walking papers, the team batting average naturally goes up. The same goes for the macro.
We are also kind of amazed that those soaking up the sun at the genius bar on bubble vision are not using the “spike in AHE” as a rationale to justify the market’s irrational and outrageous valuations. Maybe they will or already have?
Market Impact
Personally, I have given up on the market, which has become almost farcical, well, not even almost. One would think that if inflation is rising the Fed’s hands will be tied and there is a risk they may panic, or the bond market will panic first, which could send risk markets into a tailspin. But that’s too rational.
We also know that we mortal humans tend to think linearly but markets, the economy, and society move forward on a nonlinear trajectory. In other words, it impossible to predict the future, especially when it comes to timing.
Nevertheless, we still hold to the instruments and signals that have guided us in the past and continue to heed the words of one of our heroes,
In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could. – Rudiger Dornbusch
Sweet Carol K.
Finally, I am thankful to my partner at GMM, Carol K., who has taught me “you have got to ride the gravy train as long as it lasts.” I guess you can tell who is making the money at the Global Macro Monitor. Keep fighting, CK.
Appendix
O.M.G!
Carpet bombing the economy with stimulus and liquidity is a huge mistake and will end in a river of tears, in my opinion. Surgical strikes to help the sectors most in need, please.
Inflation is always and everywhere a monetary phenomenon. – Milton Friedman
Sen. Patrick Leahy (D-Vt.), who is set to preside over the impeachment trial of former President Trump, was taken to the hospital Tuesday, his office said in a statement.
Leahy, 80, “was not feeling well” in his Capitol office and examined by the attending physician, said David Carle, a spokesperson for the Vermont senator. – The Hill
Suppose Senator Leahy has to relinquish his duties or retire for health reasons (we certainly hope not). In that case, Senator Diane Feinstein of California (San Francisco) will become president pro tempore of the Senate, third in line to presidential succession.
Think about that, the first three government officials in the line of succession to the presidency will be women from San Franciso, as will be the fifth in line.
Four for five is incredible and only a matter of time before the QAnon shamans see pink elephants in the clouds and conspiracies in the line of succession.
Stay tuned.
We think so. The daily new case curves are turning down and though the death curve will lag for a few weeks, it will also start to turn down soon.
Thank, God, we can see the light at the end of the tunnel.
Back to normal? Far from it.
In recent days, coronavirus cases have been dropping steadily across the United States, with hospitalizations falling in concert. But health officials are growing increasingly concerned that quickly circulating variants of the virus could cause new surges of cases faster than the country is managing to distribute Covid-19 vaccines.
…“We’re definitely on a downward slope, but I’m worried that the new variants will throw us a curveball in late February or March,” said Caitlin M. Rivers, an epidemiologist at the Johns Hopkins Bloomberg School of Public Health.
Nationwide, new coronavirus cases have fallen 21 percent in the last two weeks, according to a New York Times database, and some experts have suggested this could mark the start of a shifting course after nearly four months of ever-worsening case totals. – NY Times
h/t Carol K.
The following video was really touching and reveals the divergent path of the two GOATs. Can there be two GOATs? See the tables below.
One, facing retirement, seems to be dealing with the reality by playing catch with his kids for what might be the last time as an NFL player on his home field. The other, most likely on his way to his 10th Super Bowl and 7th World Championship but gotta get through Aaron Rodgers and Cheeseheads first.
Long Tom Brady.
Comparative presidential stock market returns are always interesting and makes for good political fodder but pretty meaningless. I am not arguing policies don’t matter but the initial conditions or valuation when a president takes office has, in the past, seemed to matter the most on how the market does during that president’s term. Context, baby.
President Obama, for example inherited a collapsing stock market, which bottomed about 7 weeks after he took office. Bush #43 inherited the dot.com bubble, which began to collapse about nine months before he took over, and then existed office with a collapsing credit bubble, handing the Great Financial Crisis (GFC) off to President Obama.
Trump took office with record high valuations and commenced to pump the market higher with his tweets, a China trade deal coming soon meme, and beating the Fed into submission to drive interest rates to zero. Add to that the trillions and trillions and trillions of dollars in rescue and COVID stilumus packages, which drove monetary and fiscal policy in his last year in office, and here we sit.
Moreover, Hoover’s stock market really distorts the average for the Republicans. But hey, it’s politics not purity, no? But so does Silent Calvin Coolidge’s bubble. As does Clinton’s.
Given the intial valuation of a 180 percent stock market capitalization to GDP, either Joe Biden will be the first Demcorat with an negative stock market or the country is heading toward hyperinflation. When you figure that out let us know.
Election Day or Inauguration Day?
By the way, the last time Carol K. posted the following table we had some pushback on when should the clock start ticking to measure presidential returns: a) Election day, or b) the Inaugural?
We took a look at the data and found it actually makes the Democrats average look better. Sorry, Republicans. In fact, it even hurts Trump’s stock market return as we suspect that is what motivated the pushback.
The Dow 7.63 percent runup from Election Day to Trump’s inauguration was eclipsed by the recent 11.07% increase in the Dow from November 4th to the night before the Biden admistration took power.
2oth Amendment
A problem also arises when trying to nomarlize the lame duck period — from the election to the new president taking office. Prior to 1933, a new president wasn’t swown in until March 4 as is stated in the Constitiuion. It took an amendment to shorten the lame duck period.
The Twentieth Amendment (Amendment XX) to the United States Constitution moved the beginning and ending of the terms of the president and vice president from March4 to January 20, and of members of Congress from March4 to January 3. It also has provisions that determine what is to be done when there is no president-elect. The Twentieth Amendment was adopted on January 23, 1933.[1]
The amendment reduced the presidential transition and the “lame duck” period, by which members of Congress and the president serve the remainder of their terms after an election. The amendment established congressional terms to begin before presidential terms and that the incoming Congress, rather than the outgoing one, would hold a contingent election in the event that the Electoral College deadlocked regarding either the presidential or vice presidential elections. – Wikipedia
CAAG
It is interesting to see the Dow’s compounded average annual price return (not including divies) is only 5.54 percent since 1901. Makes sense as our priors are that is about the average growth rate of nominal GDP during the same period.
That is why we view the times we now live as an anomaly and not sustainable.
Sorry to burst your bubble but perpetual annual 10-15 percent stock market returns are not a Constitutional right nor an entitlement.
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