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Hutchins Roundup: Healthcare utilization, US liabilities, and more 

What’s the latest thinking in fiscal and monetary policy? The Hutchins Roundup keeps you informed of the latest research, charts, and speeches. Want…

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This article was originally published by Brookings

By Manuel Alcalá Kovalski, Sophia Campbell, Nasiha Salwati, David Wessel

What’s the latest thinking in fiscal and monetary policy? The Hutchins Roundup keeps you informed of the latest research, charts, and speeches. Want to receive the Hutchins Roundup as an email? Sign up here to get it in your inbox every Thursday. 

Higher provider payments increase primary care for low-income and disabled Medicare beneficiaries   

Low-income and disabled patients covered by Medicaid and Medicare—so called “dual-eligibles’’— are significantly less likely to use primary care services than other Medicare beneficiaries, despite facing lower out-of-pocket costs and having generally poorer health. Marika Cabral of the University of Texas at Austin, Colleen Carey of Cornell, and Sarah Miller of the University of Michigan find evidence that this gap is not driven by lower demand for primary care but rather by lower supply, reflecting the fact that health care providers receive lower payments for treating dual-eligible patients. (Providers are not permitted to charge dual-eligible beneficiaries for Medicare’s cost-sharing but receive only a partial or no payment from state Medicaid programs to offset this loss.) Using Medicare and Medicaid administrative data from 2010 through 2014, the authors show that a mandated increase in Medicaid’s payments to providers increased annual primary care services for dual-eligible beneficiaries by 6.3%, nearly closing the gap in use of primary care services between dual-eligible patients and other Medicare beneficiaries. The effects are particularly large for beneficiaries who are young, white, or live in an area with numerous primary care providers. These findings are “direct evidence that providing unequal payments for identical services rendered to low-income versus high-income individuals leads to under-provision of services to low-income individuals,” the authors say.  

US liabilities to China may be larger than indicated by official statistics  

Flows of foreign capital into the U.S. housing market are not measured in the U.S. balance of payments data but instead are subsumed into the statistical discrepancy. William Barcelona, Nathan Converse, and Anna Wong from the Federal Reserve Board of Governors show that unmeasured capital inflows categorized as statistical discrepancy move extremely closely with inflows of money from China into U.S. housing markets. They estimate that the value of Chinese holding of U.S. residential housing stock ranges from $170 to $344 billion, meaning that the measured net U.S. liability position with China could be understated by that much. Moreover, they find that house prices in areas heavily exposed to Chinese buyers have risen faster than similar areas with low exposure to Chinese capital inflows. This price gap tends to widen following periods of economic stress in China, suggesting that Chinese households view U.S. housing as a safe haven asset.  

Disparities in income per capita have been narrowing across countries in recent years 

Studies in the 1990s found that rich countries tend to grow faster on average than poor countries, meaning that the income gap between rich and poor countries widens over time. Using data on per capita income by country from 1960 to 2015, Michael Kremer of the University of Chicago, Jack Willis of Columbia, and Yang You of the University of Hong Kong find that this trend has reversed—since the early 2000s, poor countries have grown faster than rich ones, or, in other words, incomes have been converging. The authors estimate that, on average, the disparities in GDP per capita across countries narrowed at an annual rate of 0.7% over the 2000-2015 period. This convergence reflects both slower growth in the richest countries and faster growth in the poorer ones. Examining the reasons for the shift from divergence to convergence, the authors find more convergence in the underlying determinants of growth—including human capital, government policy, and culture. They also find that some of these factors tended to become less predictive of growth over time. “Perhaps policies and institutions used to matter [for growth] when there were large differences across countries, but now that they have converged, any remaining differences matter less,” the authors suggest. The findings are descriptive rather than causal, they caution, and should not be extrapolated to future trends without further research.   

Chart of the week: The cost to ship containers from Asia to the US has soared in recent months  

 

Quote of the week:  

“[W]e still see inflation moderating in the next year, but it will take longer to decline than originally expected. If energy prices keep rising or supply constraints persist, inflation may remain higher for longer than we currently anticipate. This could feed into higher wages and subsequently higher prices. But so far, we see no evidence of this in the data for negotiated wages. We do see wage growth next year potentially rising somewhat more than this year, but the risk of second-round effects remains limited. Overall, we continue to foresee inflation in the medium term, remaining below our new symmetric 2% target,” says Christine Lagarde, President of the European Central Bank. 

“Regarding policy interest rates, in our forward guidance we clearly articulated the three conditions that need to be satisfied before rates will start to rise. Despite the current inflation surge, the outlook for inflation over the medium term remains subdued, and thus these three conditions are very unlikely to be satisfied next year … At a time when purchasing power is already being squeezed by higher energy and fuel bills, an undue tightening of financing conditions is not desirable, and would represent an unwarranted headwind for the recovery.” 


The Brookings Institution is financed through the support of a diverse array of foundations, corporations, governments, individuals, as well as an endowment. A list of donors can be found in our annual reports published online here. The findings, interpretations, and conclusions in this report are solely those of its author(s) and are not influenced by any donation. 

 








Author: mmaydani

Economics

Weekly Market Pulse: Discounting The Future

The economic news recently has been better than expected and in most cases just pretty darn good. That isn’t true on a global basis as Europe continues…

The economic news recently has been better than expected and in most cases just pretty darn good. That isn’t true on a global basis as Europe continues to experience a pretty sluggish recovery from COVID. And China is busy shooting itself in the foot as Xi pursues the re-Maoing of Chinese society, damn the economic costs. But here in the US, the rebound from the Q3 slowdown is in full bloom. Just last week we had pending home sales, ADP employment, both ISM reports, jobless claims, Challenger job cuts, the unemployment rate and factory orders all better than the pundits’ expectations. I didn’t list the official employment report (establishment survey) because the headline was less than expected but there were some obvious seasonal adjustment issues with that report. And there was a lot of very good news in the household report that more than offset any disappointment in the number of jobs part of the report. There are still a lot of reports to go before the end of the quarter but right now the Atlanta GDPNow page is showing 9.2% GDP growth for Q4 based on the quarterly data released to date. The economy certainly looks like it is on solid ground right now.

So, why in the world are bonds rallying like a Bored Ape NFT  Bitcoin  natural gas crude oil  a cruise line stock Chinese tech stock  a vaccine stock? The 10 year Treasury yield fell 10 basis points on Friday after the payroll report. Well, actually that isn’t accurate. Right after the employment report at 8:30 the yield rose and peaked at 9:30 at about 1.47%. But yields fell relentlessly for the rest of the day, closing at about 1.35%. Short term rates have been rising due to anticipation of Fed policy but the long end is in full on conundrum mode. The result is a yield curve (10/2) that has flattened all the way back to where it started the year. The 10 year yield peaked in the spring around 1.75% and except for a brief pop higher from August to October, it has been downhill every since. TIPS yields have been even more pessimistic with the 10 year yield still less than 10 basis points from its all time low.

The fact that the current economic data is quite good while the bond market points to something less positive is actually not that odd. The movements in bond markets today are not – mostly – about the economic data being released today. The incoming data obviously has some impact but really what bond market players are trying to do is look ahead to next year. The time frame of that focus – 6 months, 9 months or 12 months ahead – shifts based on events but it is always some point in the future. And those expectations about the future are shaped by past experience and unexpected events.

So, why is this happening? What is it that bond traders see that has them marking down future growth? If you’ve been reading my commentaries for any length of time you won’t be surprised when I say I don’t know. There are a lot of things that influence bond traders, some of them having nothing to do with what is going on the US economy. European investors may buy US Treasuries because the yield, while miniscule, is higher than they can get at home. But in general, as I’ve said many times, we take bond yields at face value. If bond yields are falling, that means growth expectations are falling. More recently the drop in nominal bond yields has been mostly about falling inflation expectations but the fact that TIPS yields remain near their all-time lows tells you that investors are still on edge about rising prices. But the bottom line is that we can never know what is in the minds of millions of investors making decisions about whether to buy or sell bonds. It is obvious though that if investors are buying 10 year Treasuries at a big negative real yield their expectations about future growth aren’t very good. And that was true even when the 10 year was trading at 1.75%. It’s just gotten worse recently.

The emergence of a new variant of COVID may have had an impact recently but yields were falling well before that became news. I would venture a guess that omicron, by itself, is not the cause of more economic pessimism but it may have caused a reassessment of the time line for COVID. I think a lot of people were thinking that Delta was the final wave and now, suddenly, we’ve got another one. It has certainly caused me to think about whether we’ll be dealing with COVID – and more importantly the political response to it – for a long time to come. We don’t know how the omicron variant is going to play out yet but cases are rising and investors may just be taking pre-emptive action, selling stocks and buying bonds. But that is just a guess.

It could also be that the market is starting to price in a Fed policy error which would certainly be consistent with past experience. The last three Fed Chairpersons haven’t exactly been maestros and the one who originally had that title was also the one who couldn’t figure out why bonds were rallying while he hiked short rates (Greenspan’s “conundrum”). Policy errors are the Fed’s default mode; the surprise would be if they actually got something right. I have to say though that assuming economic harm from the end of QE requires a more positive view of the impact of QE than I can muster. That is unless you assume that ending QE will negatively impact risk assets and that will negatively impact the economy. In our current speculative state, that may be more true than in the past so I won’t discount it completely.

While the recent stock market sell off has been generally blamed on the emergence of the omicron variant the bond market says it is more likely that investors are starting to question the long term growth outlook. With Fed policy now turning more restrictive – that is how most people see the end of QE even if we at Alhambra don’t  – attention may be turning to the fiscal and regulatory side of the growth equation. On that front I see little in the pending legislation that directly addresses our long-standing economic shortcomings. There is also the small matter of the ongoing upheaval in China which seems to have the potential for a large – negative – impact on the global economy. China, in my opinion, is looking more every day like Japan at the end of the 1980s. That isn’t necessarily negative for the rest of the global economy – just as the end of Japan’s boom wasn’t – but it adds an element of uncertainty that didn’t exist until recently.

As for the pullback in stocks, it has actually been going on longer and is deeper than the averages show. Only 41% of the stocks in the S&P 500 are currently trading above their 50 day moving average compared to 92.5% in April and 76% as recently as a couple of weeks ago. Only 60% are above their 200 day moving average, a number that was 97% in the spring. It has been a small number of large company stocks holding up the averages and they’ve started to join the rest since Thanksgiving. I wouldn’t get too negative too quickly though. Many of the sentiment measures I watch are getting to levels where we would normally expect a rally. Even if this is the top of this incredible bull run it won’t happen overnight. It takes time to change behavior and right now everyone has been trained to buy every dip. That won’t change easily but it will change eventually. For now, I am staying cautious with our allocations, holding a larger than normal level of cash.

The bond market is offering a warning about future growth but remember it is just a warning. The bond market, like any market, is not infallible and the economy may not perform as badly as bond traders currently expect. We don’t know what the omicron variant means yet; it could well mark the beginning of the end of the pandemic rather than just another bad chapter. We also don’t know the impact of future Fed policy; could it be that ending QE is actually a positive for the economy? Maybe. We also don’t know how the changes in China will impact the global economy, how other countries may change in response. I am contrarian enough to wonder if Japan might not be the major beneficiary of China’s demise as they move to reassert themselves – militarily and economically – in the region. By the way, if you want to know what is behind the recent moves in China, you should probably read up on Wang Huning. His influence is all over Xi’s moves against their big tech companies and I’d bet there is a lot more to come.


The economic environment is unchanged: Falling growth, rising dollar

 

As I said above, the current economic data isn’t the problem. It is the future the bond market is worried about.

A light week of data ahead but the JOLTS report will be interesting as always.

 

 

The only major asset class in the plus column last week was, of course, bonds. Real estate is also rate sensitive and ended the week basically flat. Small caps have been the big losers in this correction another indication that the correction is about economic growth. Interesting that EM stocks managed to stay green for the week, mostly due to, oddly, Latin America. I’m not sure I have a good reason for that other than that those stocks had been killed already. Value outperformed last week but still lags growth by a small amount.

 

Utilities managed to eke out a gain last week while most everything else was down. Gold was flat on the week and is up over the last month as growth concerns have emerged. The VIX hit 35 last week which is fairly high based on history.

 

All markets look to the future, discounting the consensus view of millions of traders and investors. The wisdom of the crowd is always shifting though; the current market is just a moment in time. I’ve said many times over the last year that there is lot we don’t know about the post-COVID economy and that is still true. The view of the bond market carries a lot of weight but it can only reflect the knowledge and best guesses of its participants. As we learn more about the changes that COVID has wrought, today’s consensus may prove too pessimistic. I sure hope so.

Joe Calhoun

 






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Didi, Alibaba, Evergrande Crush Traders: What To Watch In China

Didi, Alibaba, Evergrande Crush Traders: What To Watch In China

By Sofia Horta e Costa, Bloomberg analyst and reporter

For traders, all the…

Didi, Alibaba, Evergrande Crush Traders: What To Watch In China

By Sofia Horta e Costa, Bloomberg analyst and reporter

For traders, all the bad China news is hitting at once — just as concern over U.S. tapering deflates the most speculative investments globally.

Beijing’s demand that Didi delist its U.S. shares helped trigger the biggest plunge in the Nasdaq Golden Dragon China Index since 2008 on Friday. Alibaba, whose mysterious slump last week was already drawing attention, sank to its lowest level since 2017. The same day, Evergrande said it plans to “actively engage” with offshore creditors on a restructuring plan, suggesting it can no longer keep up with debt payments. That’s as stress returns to China’s dollar junk bond market, with yields above 22%. Evergrande bonds trade near 20 cents on the dollar.

The developments highlight the risks in betting that Chinese assets have already priced in negative news. HSBC, Nomura and UBS all turned positive on the nation’s stocks in October, citing reasons including cheap valuations and receding fear of regulation from Beijing. T. Rowe Price Group and Allianz Global Investors were among money managers taking advantage of the recent turmoil to add Chinese developer bonds.

A lack of transparency is adding to nervousness. Didi’s delisting notice comprised just 127 words. There were no details of how and when a move to Hong Kong would work. Evergrande’s statement was barely longer, and made no mention of whether the embattled developer would meet upcoming debts, including two interest payments due Monday. The Economic Daily said Premier Li Keqiang’s comments about a potential reserve ratio cut doesn’t indicate China will ease monetary policy.

There’s no shortage of symbolism. Alibaba, the largest-ever Chinese listing in the U.S. and the country’s most valuable company less than 14 months ago, has lost about $555 billion in value since its 2020 record. Its ADRs trade at record low valuations. (The company just replaced its CFO.) Didi, which was China’s second-largest U.S. listing — is being yanked at the request of the government. That comes as regulators in both countries put pressure on Chinese firms listed in the U.S.

December is shaping up to be a testing time, just as traders around the world look to book profits after a frenzied year. Along with the plunge in Chinese equities and concern over what’s next for Evergrande, another developer Kaisa is on course for default this week unless it can reach a last-minute agreement with creditors to delay payment. The firm has $11.6 billion in outstanding dollar debt, making it the nation’s third-largest issuer of such notes among property firms.

Tyler Durden
Sun, 12/05/2021 – 22:37




Author: Tyler Durden

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Economics

Bull market over? Crypto traders turn fearful after Saturday’s flash crash

The overall crypto market remains at its lowest level in two months following Saturday’s flash crash, while by one measure … Read More
The post Bull…

The overall crypto market remains at its lowest level in two months following Saturday’s flash crash, while by one measure the market is more fearful than any time in the past four and a half months.

The Crypto Fear and Greed Index was at 16, meaning “extreme fear,” its lowest level since late July.

The total crypto market stood at US$2.25 trillion this morning, down 1.4 per cent from yesterday and its lowest level since October 6, excluding the last two days.

Two months of sideways action?

Aussie crypto-trader Kyle Stagoll, the administrator of the Crypto Paradox Facebook group, told Stockhead that he thought where the market headed next depended a lot on the US Federal Reserve and its chairman Jerome Powell and his talk of tapering the monetary stimulus measures.

“Crypto and Bitcoin is a risk asset and is affected by the macro cycle which atm (at the moment) is fairly uncertain,” he said in a message.

“My trading plan atm is expecting a full 60-day cycle going sideways in accumulation similar to the action we had in June and July this year.”

“Strong chance of a sweep of the lows of 42k which would create a lot of panic and perfect chance for funds and bigger fish to scoop up retail panic sells. Then we could see a rally around the start of February.”

Bitcoin breaking out above $60,000 would invalidate this scenario, Stagoll warned, and there’s also “the potential we have already entered a bear market.”

Weekend sell-off

On Saturday, the market fell from $2.59 trillion at 1am AEDT to $2.35 trillion at 3.25pm – and then plunged all the way down to $1.92 trillion in the space of 45 minutes.

Hundreds of thousands of overleveraged traders were rekt, with $2.09 billion in positions liquidated, according to Coinglass.

At 11.50am AEDT on Monday, Bitcoin was trading at US$48,607, down 0.8 per cent from 24 hours ago and down 15.7 per cent from seven days go. It fell from US$56,000 on Friday to as low as $42,000 on Binance during the flash-crash.

Ethereum was changing hands at US$4,119, up 0.3 per cent from yesterday and 5.0 per cent from a week ago.

‘Pretty ugly’

Perth-based Thinks Markets analyst Carl Capolingua told Ausbiz TV this morning that it was difficult to pinpoint a reason for the selloff, naming as possibilities everything from Evergrande’s restructuring to fears of the Omicron variant to the Federal Reserve taking a more hawkish stance.

“The bottom line is what we see on the screen, which is pretty ugly,” he said.

The sell-off really damaged the trend-line for Bitcoin, Capolingua said, while the bounce for Ethereum was “so much better. I mean, so much better than Bitcoin. And that trend is still pretty much intact.”

Ethereum was trading for 0.085 BTC, its highest level since May 2018.

Most coins in red

Over 80 of the top 100 coins were in the red, compared to where they were Sunday.

Coinmarketcap

Cosmos (ATOM) had been the biggest loser among the top 100 coins in the past 24 hours, falling 14.0 per cent to US$23.59.

Immutable X, Fantom, The Sandbox, Qtum, Gala Games, Harmony and IoTeX were all down by between 12.8 and 11.5 per cent.

Most top 100 coins were also in the red for the week, with notable exceptions including Terra (LUNA), up 28.7 per cent; Polygon (MATIC), up 18.0 per cent, and Stacks, 13.4 per cent.

Ankr had been the biggest loser among top 100 coins for the past seven days, falling 37.0 per cent. Kadena, Loopring, Qtum, Harmony, Immutable X, Thorchain and Gala Games had all dropped by more than a third.

The post Bull market over? Crypto traders turn fearful after Saturday’s flash crash appeared first on Stockhead.




Author: Derek Rose

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