2017

The post-Trump surge in confidence may now be peaking as it must without immediate monetary easing – in contrast to the ongoing monetary tightening. We have already shown that the ISM and Markit PMIs recently have  not been very good indicators of actual activity. We merely note today that the Markit Services ISM fall back picked up in mid-December was confirmed and that the ISM Non-Manufacturing (Services) ISM merely maintained its elevated level. The latter survey showed a rise in New Orders but lower Employment intentions, suggesting a lack of trust in those New Orders continuing. The possibly less good outlook for employment… Read More

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Monetary straitjackets are not easy to take off

Faster inflation is expected given the trends in breakeven inflation rates. Bond yields have risen as rate expectations have risen in a sort of arms race between expected inflation and expected rate rises to calm the expected inflation. This is only partly driven by expectations of economic trends, a related part is the expected liquidity impact of higher supply of bonds to fund the fiscal policies themselves. This powerful cocktail drives down bond prices independent of inflation expectations. Our market-influenced NGDP Forecast is not yet showing faster nominal growth. (Please take out a free trial or subscribe to see our proprietary chart… Read More

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FOMC Minutes: In the shadow of Trump

That´s clear: In their discussion of their economic forecasts, participants emphasized their considerable uncertainty about the timing, size, and composition of any future fiscal and other economic policy initiatives as well as about how those polices might affect aggregate demand and supply. Several participants pointed out that, depending on the mix of tax, spending, regulatory, and other possible policy changes, economic growth might turn out to be faster or slower than they currently anticipated. However, almost all also indicated that the upside risks to their forecasts for economic growth had increased as a result of prospects for more expansionary fiscal… Read More

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ISM Manufacturing – Not much light, just a little heat!

The ISM Manufacturing PMI came in higher than expected at 54.7 versus 53.6 expected. Stocks, the Dollar and Long-term Yields showed strong immediate reaction. That, however, did not last long, with prices/yields floating back down. Was the better-than-expected rise in the ISM index a confirmation that the economy´s muscles are flexing, as some think, or just an automatic reaction to the weakening that took place between mid-2014 and mid-2016? As we argued one month ago, it´s more likely the latter. Why do we believe there´s no recovery? The simplest and most direct explanation is because this expansion has exhibited low… Read More

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Lovely Headline: “The balance of evidence suggests the U.S. is not in a recession.”

That wasn’t a sure bet when the year was young. Over the first half of 2016, various indicators pointed to a possible recession in the not-too-distant future: sharp declines in stock markets and a slowdown in job creation, falling corporate profits and contraction in the factory sector, stalled temp hiring and decelerating car sales. But as 2017 approaches, most—though not all—of those yellow warning lights have turned green again. This alternative headline “The balance of evidence suggests the U.S. is not in a recovery” much better reflects the spirit of the time. It is clearly visible in the chart. Note that “warning lights” move from yellow to green and… Read More

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Cooling down

During the month of December, the “Trump-jump” observed following the November 8 election cooled down. The charts for Bonds, Stocks, Inflation Expectations and the Dollar illustrate. Those moves are consistent with expectations of higher growth and somewhat higher inflation, brought about by market participants focusing on talks of supply-side reforms (deregulation) and increases in government spending (infrastructure). As the weeks progressed and cabinet appointments announced, the “negative side” of possible Trump changes, things like protectionism and China-bashing, invited a pause. There was also the “Fed factor”, sending a slightly more hawkish message following the December 14 FOMC Meeting. Note in… Read More

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The PCE Chain-type Price Index Standard

Believe it or not, there are still people worried about inflation, about the US dollar losing its value. It is not hard to find articles where complaints about how the dollar has “lost its value” since 1913, 1936 or 1972, various points where the dollar was gradually shifted toward its modern “fiat” standard. Yes, the dollar is a fiat currency. The US Treasury gives no guarantees to redeem dollars for any commodity. In fact, the US Treasury does not even make dollars anymore! The Fed does. Yet it is manifestly not true that the dollar isn’t in a de facto… Read More

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