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Tapering Or Calibrating, The Lady’s Not Inflating

We’ve got one central bank over here in America which appears as if its members can’t wait to “taper”, bringing up both the topic and using that…

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This article was originally published by Alhambra Investment Market Research

We’ve got one central bank over here in America which appears as if its members can’t wait to “taper”, bringing up both the topic and using that particular word as much as possible. Jay Powell’s Federal Reserve obviously intends to buoy confidence by projecting as much when it does cut back on the pace of its (irrelevant) QE6.

On the other side of the Atlantic, Europe’s central bank will be technically be doing the same thing likely at the same time. Except, Christine Lagarde said early last month on behalf of her ECB, “The lady isn’t tapering.” It was a cringeworthy reference to former UK Prime Minister Margaret Thatcher’s “the lady’s not for turning” which back in 1980 was all about radiating self-assurance in the latter’s agenda.

Make no mistake; Lagarde’s agenda is clearly to cut back on the pace of its purchasing yet weirdly she doesn’t want anyone to refer to it as “tapering.” What’s to be afraid of in a single word?

What we have done today [early Sept ’21 ECB meeting]…unanimously, is to calibrate the pace of our purchases in order to deliver on our goal of favourable financing conditions. We have not discussed what comes next.

The oft-stated compatriot to “taper” is, of course, “tantrum.” Yet, nothing of the sort is in sight in European bond markets, just the same, typical Autumn meandering drift toward modest optimism being overly hyped by an aggressively supportive (of technocracy) global media.

If Lagarde’s not nearly as outwardly sanguine about the shape of European affairs as her American counterparts are about theirs, it’s because there are more visible reasons to be. As usual, Europe lags the world and it has nothing to do with COVID. “At least” the US has its unemployment rate (and unacknowledged participation problem “somehow” worse than before 2020).

The numbers for the ECB are truly staggering – and not in any good way. Start with European inflation which if only because of Germany’s VAT tax interference in July 2020 has begun to look more like the PCE Deflator in the US. But even with blasting energy prices recently and the huge base effects created by comparisons to the German tax holiday, Europe still falls way short (apparently no equivalent of Uncle Sam’s helicopter).

The year-over-year increase in September 2021 HICP was 3.4%, highest since 2008 (not a good sign). Base effects, however, accounted for 130 bps of that rate, meaning without them the annualized gain was just more than 2%. For core prices, about half in each.

How can this possible be given the pace, level, and determination of the ECB’s LSAP’s? This is where the numbers truly are astounding, in all the wrong ways: since March ’20, PSPP (the old QE) +€284.8 billion; Corporates +€95.3 billion; and PEPP (pandemic QE) +1.396 trillion.

Nearly €1.8 trillion added in various assets purchased, and inflation rates are all about oil, nat gas, and VAT. Where are these “favorable financing conditions?”

Here’s where they are not, which just so happens to be the one place they should be:

QE in any form doesn’t actually work and never has (for more than twenty years). It has uniformly been unable to accomplish a single one of its goals through any of the three theorized channels: expectations, falling interest rates, and portfolio effects.

As to the latter of the trio, there’s absolutely no lending. Apart from panicked corporations desperate for liquidity during last year’s GFC2, loan activity to companies in Europe since has been more recessionary than inflationary.

Even overall lending (mostly to consumers) has been lackluster and clearly unaffected by QE’s, tapering QE’s, more QE’s, and now a promise to reduce QE without calling it a taper. Despite all of it, nada:

Therefore, altogether, no tantrum regardless of the taper semantics. Again, Germany bund yields have moved a small amount higher since mid-August, like UST’s, but nowhere near the BOND ROUT!!!! if anything was close to working as designed, claimed, and reported. This despite Germany, in particular, because of its VAT actions, during August recording that country’s highest HICP inflation rate since 1993.

So far as QE’s second theorized channel, low rates, see for yourself how likewise zero effect:

Like Powell, policymakers everywhere have all simply got their fingers crossed just hoping this time it, meaning recovery, sticks. At the ECB, they appear to be a touch more concerned how using the specific word “taper” might rock the boat too much and spoil the low probability.

It’s not what you see that matters; you see tons of ECB action now an unrelated pickup in HICP. What you don’t see is the basis for actual inflation, and thus why you also won’t see Lagarde display much confidence in tapering. Calibrating indeed.






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UK Faces ‘Plan B’ Peril: COVID Multiplies The Economic Threat

UK Faces ‘Plan B’ Peril: COVID Multiplies The Economic Threat

Authored by Bill Blain via MorningPorridge.com,

“T’was the best of times,…

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UK Faces ‘Plan B’ Peril: COVID Multiplies The Economic Threat

Authored by Bill Blain via MorningPorridge.com,

“T’was the best of times, t’was the worst of times …”

The risks of Plan B and a further Covid Lockdown are multiplying. It will clearly impact markets, but the real economic effects of Covid combined with energy costs, supply chains and bleak company earnings forecasts may be pushing us towards stagflation anyway.

“How to address the biggest economic shock in 300 years?” asked UK Chancellor Rishi Sunak while doing his pre-budget politicking last week. Whatever you believe or don’t believe about Covid, Sunak is quite right to consider it at the centre of the on-going economic crisis. Markets should factor that reality accordingly – which boils down to a very simple question: how much will Covid force Central Banks and Governments to act to stabilise the global economy?

This week pay attention to the UK Budget on Wednesday on how Chancellor Sunak addresses the ongoing critical-care needs of the UK by stepping away from his previous “policy-mistake” sounding mention of austerity spending cuts and tax-rises to make noises about increased “levelling out” spending. Hanging over everything will be the question – how much more economic pain could Covid inflict?

It’s a tough question.  A new lockdown would be economic suicide. The UK government plans to ride it out – but the history of the last 19 months says they won’t hesitate to make a U-Turn and institute Plan B if they think their credibility is on the line if the numbers of infections surge and the health service looks swamped. That’s a potential trade: should you sell UK stocks now on the likelihood the government will panic? (And buy-them back almost immediately as the Bank of England stops the noise about a rate cut and QE taper.)

But… another question is how much will rising infection numbers cause the economy to contract anyway? How much has confidence already been dented?

Here in Blighty, It’s a tale of two headlines:

Daily Mirror: Fears of new lockdown Christmas as scientists warn tougher Covid measures needed NOW.

Daily Telegraph: Coronavirus cases to slump this winter, say scientists.

The papers looks like it boils down to a political split – which may reflect the UK’s national pride in our venerable National Health Service. How much we are prepared to sacrifice to protect the sacred cow of the NHS has become a badge. The left-leaning, Labour supporting Daily Mirror is peddling one set of scientific views, while the daily journal of the Conservative Party, the Torygraph, finds another set of white-coats to quote.

What does the threat of Plan B or further lockdowns mean for the UK economy? A quick glance round the motorway service stations we stopped in yesterday shows many more people wearing masks, and I’ll be interested in how many people start working from again as the perceived threat level rises.

I wonder how rationally people consider the pandemic. The vector for the rise in infections is schoolchildren being children – their interactions will diminish this week due to mid-term holidays. Back in September, a British Medical Journal report (How is vaccination affecting hospital admissions and deaths?) said 84% of hospital admissions before July had not been vaccinated, although rates of vaccinated infections were rising – their conclusion was simple: unvaccinated people are 3 times as likely to go to hospital and 3 times more likely to die. There is a broad consensus the efficacy of vaccines wanes after 5-6 months – hence booster shots.

Maybe the best way to move forward is the Swedish solution of taking personal responsibility to rising infection numbers? However, research in the Guardian earlier this year suggests that strict-lockdown Denmark and easy-going Sweden experienced similar levels of economic dislocation, but Sweden suffered a death rate 5 times higher than Denmark! It’s down to behaviour – Sweden kept the schools, offices, shops and pubs open, but people got careful, stopped going out and kept the kids at home anyway.

As the supply chain crisis continues, and energy prices go through the roof, we already know it’s going to be a tough holiday season – retailers warning of toy shortages and price hikes on scarce Turkeys. It impacts consumer behaviour – we all want to spend, but if we can’t because of rising prices and falling incomes, and it feels dangerous to do so – then what effect does that have on spending patterns? It’s got to be negative.

We’re seeing the supply chain effects beginning to hit corporate results – an increasing number of firms have been giving lacklustre holiday earnings guidance. Intel took a spanking last week on the back of expectations of a downbeat outlook. Snap got pummelled on the back of a disappointing Q3 number. This week is big for Big Tech earnings – and names from Apple to Amazon could be pummelled by supply chain shortages and the problems these cause meeting holiday demand.

Headlines about a downbeat Apple sales forecast have consequences – not just in making global consumers a little more depressed about the future.

The very first thing junior economists learn about is multiplier effects – on consequences as lay-people call them. A company finds it can’t get it full allocation of Christmas units to sell so it cuts advertising, cuts stuff overtime and starts planning to cut investment in new plants, warehouses and future spending. Repeat over the whole economy, and with everyone with less in their pockets… as “transitory” inflation feels increasingly permanent, and you’ve got a perfect recipe for stagflation.

I often get accused of being a misery-guts and far too negative about the state of the global economy. My own market mantras include the classic: “Things are never as bad as you fear, but never as good as you hope”.

Think about that for a moment. Covid caused the greatest economic downspike in 300 years, but the actions of swift government interventions to prop up commerce and fuel consumer spending kept the global economy functional, but wobbly. The markets quickly began to anticipate recovery and upside – yet these remain vulnerable to the news and perceptions around this Coronavirus.

Covid fears are multiplying again. Renewed Covid instability on the back of lockdown news from China, Europe, Australasia, wherever, will continue to roil markets. Supply chains remain fractured and the consequences of the virus effects on the global economy will continue.

Get used to it…

Tyler Durden
Tue, 10/26/2021 – 03:30



Author: Tyler Durden

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Economics

The Gaslighting Of America

The Gaslighting Of America

Authored by Bob Weir via AmericanThinker.com,

I remember a comedy skit several years ago in which a woman comes…

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The Gaslighting Of America

Authored by Bob Weir via AmericanThinker.com,

I remember a comedy skit several years ago in which a woman comes home unexpectedly and finds her husband in bed with another woman.  Shocked, she demands to know who the woman is and why her husband is doing this.  The couple get out of bed and start getting dressed as the man says to his wife, “Honey, what are you talking about?” The wife, perplexed at the question, says, “I’m talking about that woman!”  Meanwhile, the other woman, now fully dressed, heads for the door.  The husband says, “What woman?  Honey, are you feeling okay?  There’s no woman here.”  Feeling dazed and confused, the wife begins to question her own sanity.

That’s a pretty good example of what the Biden administration is pulling on the psyche of the American people.  

What they’re doing is not merely “spin,” which has become SOP whenever a political party does a clever sales job on the public in order to keep certain facts from them.  No, this is much more than shrewd marketing; this is blatantly lying in the public’s face and telling them they’re crazy if they believe their own eyes.  

When we look at videos showing thousands of migrants coming across our southern border with impunity, while Biden and his cohorts tell us they have the situation under control, we’re being gaslighted.

When thousands of Americans and Afghan allies are abandoned to be tortured and killed by Taliban terrorists, while Biden’s press secretary, Jen Psaki, tells us the war ended successfully, we’re being told not to believe what we’re seeing.  

President Trump made our country energy independent, only to have his success overturned by Biden on day one of Biden’s presidency.  That forced our country to once again be dependent on foreign oil.  Biden said his action would help protect the environment.  We scratch our heads and wonder how it makes sense to ship millions of barrels of oil on cargo ships from thousands of miles away, only to be used the same way it was used when it was processed here.  

Does foreign oil have less environmental effect than American oil?

When Biden proposes a $3.5-billion “infrastructure bill” that is heavily weighted toward social engineering and radical “Green New Deal” initiatives, we’re told that everything is infrastructure.  

We’re also told that the massive spending bill will cost “zero dollars” because the new taxes will be assessed only on the wealthy.  

Then, to add more consternation to a public getting groggy trying to keep up with twelve-digit numbers, Biden and his accomplices want another $80 billion for the IRS so its agents can check into every bank account that has transfers of $600 or more.  As if the IRS weren’t already a liberty-crushing organization, Biden wants to provide it with more ammo to use against those who oppose him.  Nevertheless, we’re told it’s going after only tax cheats.  Why would these people need $80 billion more to do what they’ve always done?  Don’t ask, lest you get audited for questions they don’t want asked.

When the supply chain of cargo ships, carrying about a half-million shipping containers filled with goods from all around the globe, are stalled in the waters outside major American port cities, we’re told by White House chief of staff Ron Klain that it’s just “high-class problems.”  

In other words, only the wealthy are waiting for the goods to arrive at stores.  Moreover, Jen Psaki mocks it as the “tragedy of the treadmill that’s delayed” — another elitist poking fun at the reasonable expectations coming from the working class.

The list of gaslighting incidents is growing longer than Pinocchio’s nose. 

Each time we are faced with another destructive lie, our attention is diverted to the latest Trump investigation or the probe of one of his supporters.  Keeping the January 6 imbroglio alive is one of those diversions.  The radical left has come to power by a sinister display of distractions from reality.  A major part of that distraction is using accusations of racism to muzzle opposition.  Most people will cower in fear of such labeling, even when they know in their hearts it’s not true.  That’s precisely what makes the accusations so useful to those who seek power through intimidation and distortion of reality.  

President Trump called out situations for what they are, without the odious and murky filtration of political correctness.  That’s why the entrenched powers of Deep State corruption despised him.  

Now we’re stuck with a president who says “what inflation?” as we pay higher prices than ever at the gas pump and the supermarket.  I seriously doubt that shoppers are questioning that reality.

Tyler Durden
Mon, 10/25/2021 – 21:10

Author: Tyler Durden

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Economics

The U.S. Budget Deficit

#CKStrong The U.S. Treasury findly released their monthly statement on Friday, which closed the books on the government’s 2021 fiscal year (October to…

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#CKStrong

The U.S. Treasury findly released their monthly statement on Friday, which closed the books on the government’s 2021 fiscal year (October to September).  The deficit came in at $2.8 trillion (12.0 percent of GDP, based on our Q3 GDP estimate) , a bit lower than FY 2020’s $3.1 trillion (14.8 percent of GDP).  Those are some massive deficits, folks. 

 

U.S. Deficit Larger Than 95 Percent Of Global Economies

In fact, the FY 2021 deficit was larger than Italy and Canada’s economy, bigger than 185 of the 192 country economies in the lastest IMF database.  Take a look at the peak 12-month deficit of $4.1 trillion in March.  The March deficit would have made the G5. 

This image has an empty alt attribute; its file name is usg_deficit_3.png

Financing The COVID Deficit

How can the U.S. Treasury finance $5 trillion in borrowing over the past 18-months without spiking global interest rates, crowding out investment and other asset markets, and tanking asset prices?   They can’t.  

The table below breaks down the financing in several different measures.  Check it out.

The bottom line is that 23 percent of the COVID deficit borrowing has been financed by an increase in Treasury bill issuance, easy given the mass excess liquidty on the short-end where the Fed is soaking up over a trillion with overnight reverse repos in order to keep short-term rates postives.  Most of that liquidity, by the way, was created from QE.   

Of the remaining $4.1 trillion of non T-Bill debt issuance, 75 percent was taken down by the Fed, albeit indirectly.   

No Judgement

There you have have it, folks, T-Bills and the Fed have financed the bulk of the COVID deficit and debt buildup.   No judgment, but policymakers are now going to have engineer a soft landing in the economy and asset markets as we approach a fiscal cliff to normalize the budget deficit and tighten up monetary policy. 

We are not throwing stones as they saved the world from a global economic castasophe.

We do criticize their continued irresponsible policies as inflation rages and stagflation sets in.  It’s not wise, in our experience, to try and monetize supply shocks.  We learned that hard and painful lesson by doing so with the OPEC oil shocks.  

Narrow window for a soft landing.  Stay tuned. 

Email us or comment if you have questions.  








Author: macromon

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