Monthly Analyses

What do markets believe?

The November 2016 election gave “birth” to the “reflation story”. There was a lot of excitement, with long-term yields, the dollar, stocks and inflation expectations all rising. But this is illusory. Since mid-2014, the economy was testing new depths. Soon after Janet Yellen took the helm, the Fed embraced the “tightening talk”. In late 2015,

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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

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The month of Trump

The market moves since election day are big, but not new. They are mostly the acceleration of a trend that was under way since mid-year. But the acceleration is telling us something about the President-elect. According to Mark Lilla, a Columbia University political scientist and historian and author of “The Shipwrecked Mind: On Political Reaction”

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This was never just a recession

Maybe to start with, but not for long. What does a recession look like? Take, for example, the 1981/82 recession, which was deep. Real output falls strongly, but reverts to the long-term trend. The present cycle looks very different. Real output also fell strongly, but never recovered. That´s what happens when the outcome is a

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The calm before the storm?

September was a very boring month. At months’ end, asset prices remained about the same as they were in the beginning, with intra month fluctuations being almost perfectly offset.   August 31 September 30 S&P 500 2170.95 2151.13 Dollar Index 86.77 86.37 10-yr Yield 1.57 1.59 At the beginning of September, the probability of a

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In the early part of the month there were tentative signs that the Fed would do something.  Bill Dudley, of the New York Fed, recognized that growth was weak and monetary policy only moderately accommodative. On August 15, John Williams of the San Francisco Fed published “Monetary Policy in a Low R-star World”: [M]onetary policy

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Someone once said “humans are pattern-seeking story-telling animals”. That´s true in general and for economists in particular. At times like the present, when uncertainty is high and sentiment volatile, trying to “pin-down” where we are and get some indication of where we are going is a useful endeavor, even if the suggested outcomes are not

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During the month of January, we heard the word “recession” quite a bit. Just google “US recession in 2016” for a sample. Maybe the Fed´s blunder in raising the Fed Funds rate in December 2016 was the “sentiment trigger”. As Narayana Kocherlakota said recently: The FOMC’s current policy framework goes back to at least mid-2013.

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