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Getting Giddy About Taper

As another central bank, the Federal Reserve, seriously contemplates tapering its latest QE, its policymaking members would do well to consider the several…

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This article was originally published by Alhambra Investment Market Research

As another central bank, the Federal Reserve, seriously contemplates tapering its latest QE, its policymaking members would do well to consider the several others who either did or thought they should. One of them, obviously, the same Fed but back in 2013. Another was the Bank of Japan early in 2018.

It was March that year and “monetary” officials gathering around Governor Haruhiko Kuroda’s confab were, as I wrote at the time, practically “giddy.” QQE may have taken five years to show itself in the form of growth and inflation, but in their collected views this seemed a plausible outcome for the first time; maybe even likely (it was in the econometric models).

Mind you, growth and inflation hadn’t actually happened yet at the point; on the contrary, these Economists (they are all Economists) were extrapolating in a straight line from “globally synchronized growth’s” minor upswell. In other words, they didn’t see anything on the horizon which might spoil the success therefore it was nearly all-clear to taper.


Wouldn’t you believe it, just two months later taper was yanked right off the table. Kuroda’s gang may not have seen anything coming, they never do (see: Dudley, Bill), but “it” came nonetheless. Japan, unbeknownst to pretty much the rest of the world (including most Japanese) actually fell into a “technical” recession by Q3 2018 – yes, just three months after the giddiness.

As I wrote in June 2018, with that recession already a forgone conclusion, the Bank of Japan’s “best and brightest” went from the very brink of what would’ve been their ultimate high to positively stumped and seriously alarmed in the eurodollar equivalent of a blink of an eye:

The Bank of Japan gathered its policymaking members in Tokyo at the end of last week. The statements released and the commentary given pursuant to it exuded a renewed darkness. When they had last met on April 26 and 27, things were already different. But the conclave before that, March 8 and 9, they were practically giddy.

What a difference a few months make, not that these Economists have any idea why.

Keep this in mind as Jay’s group moves closer to its taper. And taper itself matters nothing whatsoever, whether Japanese, American, European, etc.; basically, the same mind games to project confidence in “official” forecasts and extrapolations regardless of economic (small “e”) as well as monetary facts in every situation.

There were any number of warning signs from late in 2017 which had, you know, warned them prior to the “unexpected” recession to reconsider these more optimistic predictions; how globally synchronized growth was little more than a pipedream, never more substantial than a bumper sticker slogan.

Japan’s Cabinet Office reported last week that real GDP in Q2 2021 only partly rebounded (+0.47% q/q) from Q1’s further decline (-1.06% q/q), disappointing expectations with total estimated real output still more than 1% less than the final quarter of last year. In other words, the entire first half of 2021 has been a spectacular flop (in the same way, it needs to be said, that the first half of 2018 had been).

That’s just COVID, they say. Delta wave and renewed emergency, a spectator-less already-delayed Summer Olympics forced to miss the whole point of spectacle.

Is it really just pandemic related? Or are mainstream forecasts whistling past the graveyard of deeper, more structural weaknesses and the alarms these set off if only to be ignored each and every time?

Here’s the thing; Japan’s problems are not unique to Japan, just like they weren’t in 2018 (or 2019). And while its easy to chalk it all up to rampant disease you have to see this synchronized disappointment as potentially much more than that.

Thus, why that big French freightliner’s announcement last week should be plastered all over the internet as it is likely more meaningful (certainly more real) than every single taper projection batted around in the mainstream presses. What CMA CGM is indicating has as much to do with global demand potential going forward and how we may have already seen the best of it.

And it didn’t get close to recovery.

Despite the US goods frenzy funded by the US feds (not the Fed), production levels have not recovered. Not in Japan, Mexico, Europe, even the United States. Not just below February 2020, way, way less than when Kuroda was last so near his happiest.

This lack of recovery still only pushed shipping rates sky high because of inelasticity in supply.

But if shippers are now seeing things differently going ahead, beginning to adjust prices, with production levels still repressed, what must they be thinking about what’s really been depressing those levels this year? Delta COVID has already peaked and has turned down in much of the world.

Might the same be true of global demand no matter how counterintuitive to the narrative?

If there is a small difference between Powell’s possible taper and Kuroda’s hypothetical a few years back, it’s only that Jay hasn’t yet been, and probably won’t be, very giddy about it. That’s just personality rather than more data and evidence. They both extrapolate if the one emotionless.

Their ultimate chances, though, more and more they seem about the same.


US Meat Prices To Remain Elevated Amid Depleted Reserves

US Meat Prices To Remain Elevated Amid Depleted Reserves

Beef, pork, and chicken in US cold storage warehouses have yet to recover from pandemic…

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US Meat Prices To Remain Elevated Amid Depleted Reserves

Beef, pork, and chicken in US cold storage warehouses have yet to recover from pandemic lows and could continue to support higher prices. 

New United States Department of Agriculture (USDA) data shows beef reserves dropped 7.7% from a year ago in August, poultry supplies fell 20%, and pork plunged 44% to their lowest levels since 2017, according to Bloomberg

Jim Sullivan, commercial director for Stable USA, said low meat inventories would suggest meat prices will stay elevated. 

"Prices remain very elevated compared to seasonal expectations," Sullivan said. 

Soaring supermarket prices have been on the radar of the Biden administration as working-poor families allocate a high percentage of their incomes to basic and essential items. Higher food inflation eats away their wages and is why Biden recently increased SNAP benefits by a quarter

Earlier this month, the Biden administration finally addressed inflation as a concern but didn't blame the trillions of dollars in fiscal and monetary policies and labor shortages on increased food inflation but instead placed responsibility on meatpackers. 

White House National Economic Council Director Brian Deese said "pandemic profiteering" food companies are driving up supermarket costs for Americans. This is nothing more than a blame game and failed government policies that have not just increased food prices but have left supply chains reeling due to stimulus checks that disincentivized workers from working. 

New data of low meat supply at US cold storage facility is more bad news for the Biden administration, who will have to develop a new narrative about why meat prices aren't going down. If food inflation remains elevated into early next year, Americans might vote with their wallets during next year's midterms. 

Tyler Durden Thu, 09/23/2021 - 20:00
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Where Do Monetarists Think the PCE Price Level Is Going To?

From an email from Tim Congdon, at the International Institute for Monetary Research (9/20): I suggest that a more plausible figure for end-year PCE annual…

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From an email from Tim Congdon, at the International Institute for Monetary Research (9/20):

I suggest that a more plausible figure for end-year PCE annual inflation is between 5½% and 6%. (The consumer price index – up by 4.5% in the first seven months of 2021 – may finish the year with a rise somewhere in the 6½% – 7½% area.)

The conclusion is based on the following reasoning:

In the background here is the huge overhang of excess money balances. In the year to mid-May 2021 the M3 measure of broad money increased by 35%. The evidence over many decades is that – in the medium term – the growth rates of money, broadly-defined, and nominal gross domestic product are similar. So – unless that 35% number is now followed by a big contraction in the quantity of money – the US economy will continue to be affected by two conditions, specifically,

• ‘too much money chasing too few assets’, and
• ‘too much money chasing too few goods and services’.

Of course the two conditions are interrelated and also interact with each other. Our research emphasized last year that rapid money growth was likely to boost asset prices first, and that has been right. (Incidentally, to attribute the behaviour of the prices of US tech stocks to bottlenecks and supply shortages would be daft. Does one have to say these things?)

What’s the implied path of the PCE deflator, relative to nowcasts and forecasts? See Figure 1, where I’ve used the mid-point of Congdon’s forecast (5.75% December y/y), shown as the red square.

Figure 1: Personal Consumption Expenditure deflator (black), Congdon midpoint forecast (red square), Cleveland Fed nowcast as of 9/23 (sky blue +), Survey of Professional Forecasters August median forecast (green line), FOMC 9/22 projections (blue square). Source: BEA, Cleveland Fed, Philadelphia Fed/SPF, Federal Reserve, and author’s calculations.

The FOMC median forecast is surprisingly similar to the Survey of Professional Forecasters’ median forecast from the preceding month (mid-August). The FOMC members then still perceive a deceleration in inflation in the last half of 2021.

Congdon’s forecast looks plausible given the August PCE deflator nowcast (and even more using the September). However, it’s far outside of the range projected by the FOMC, as shown in Figure 2, which includes the high/low inflation forecasts.

Figure 2: Personal Consumption Expenditure deflator (black), Congdon midpoint forecast (red square), Cleveland Fed nowcast as of 9/23 (sky blue +), FOMC 9/22 projections (blue square), high and low forecasts (dark blue +). Source: BEA, Cleveland Fed, Federal Reserve, and author’s calculations.

In other words, the monetarist view (if I can use Congdon’s view as a proxy) differs from both a mixed bag of mainly mainstream economists (proxied by the Survey of Professional Forecasters) and policymakers (the FOMC).

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US stocks march on, lifted by business optimism

Benchmark US indices closed higher for the second consecutive day on Thursday September 23 lifted by positive sentiments from Fed s economic outlook…

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Benchmark US indices closed higher for the second consecutive day on Thursday, September 23, lifted by positive sentiments from Fed’s economic outlook.

The S&P 500 was up 1.21% to 4,448.98. The Dow Jones rose 1.48% to 34,764.82. The NASDAQ Composite rose 1.04% to 15,052.24, and the small-cap Russell 2000 was up 1.82% to 2,259.04.

Traders ignored the weak unemployment data released by the Labor Department on Thursday, which showed new jobless benefits claims rose by 16,000 to 351,000 in the week ended Sep 18.

Economists consider the rise in benefits claims to be because of Hurricane Ida and forest fires and not due to flawed policy action. On Wednesday, the Fed said that it might start withdrawing stimulus support from November. The statement raised confidence in the economic recovery.

Financial stocks were among the top movers on S&P 500 Thursday, while energy and real estate stocks declined. Stocks of BlackBerry Limited (BB) rose 12.08% a day after reporting quarterly results. Its revenue rose to US$175 million in Q2, FY21, from US$174 million in the year-ago quarter.

Accenture plc (ACN) stock jumped 2.63% after reporting its fourth-quarter results. Its net income was up US$1.43 billion from US$1.30 billion in the same quarter of the previous year., Inc. (CRM) stock rallied 7.38% after it raised the full-year revenue guidance. It expects its FY 2022 revenue to be US$26.35 billion, up from its earlier forecast of US$26.3 billion.

In the energy sector, Exxon Mobil Corporation (XOM) rose 3.58%, Chevron Corporation (CVX) gained 2.51%, and ConocoPhillips (COP) gained 2.45%. Kinder Morgan, Inc. (KMI) and EOG Resources, Inc. (EOG) advanced 2.51% and 2.76%, respectively.

In the consumer discretionary sector, Nike, Inc. (NKE) increased by 1.26%, Starbucks Corporation (SBUX) gained 1.25%, and General Motors Company (GM) rose 2.24%. Ross Stores, Inc. (ROST) and Hilton Worldwide Holdings Inc. (HLT) ticked up 1.62% and 4.30%, respectively.

In financial stocks, Berkshire Hathaway Inc. (BRK-B) rose 1.65%, JPMorgan Chase & Co. (JPM) jumped 3.35%, and Bank of America Corporation (BAC) rose 3.79%. Wells Fargo & Company (WFC) and Morgan Stanley (MS) jumped 1.58% and 2.86%, respectively.

Also Read: Top five communication stocks that rode the Q2 rebound

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US stock indices closed higher on Sep 23 on positive economic outlook.

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Futures & Commodities

Gold futures were down 2.05% to US$1,742.40 per ounce. Silver decreased by 1.71% to US$22.515 per ounce, while copper fell 0.48% to US$4.2317.

Brent oil futures increased by 1.38% to US$77.24 per barrel and WTI crude was up 1.37% to US$73.22.

Bond Market

The 30-year Treasury bond yields was up 5.04% to 1.941, while the 10-year bond yields rose 7.71% to 1.434.

US Dollar Futures Index decreased by 0.39% to US$93.100.

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