Nueva Democracia: SEP 13 2021 ND SIT EC y POL Part 1

SEP 13 2021 ND SIT EC y POL Part 1

ND denounce-neoliberal debacle y propone State-Social + Capit-compet in Eco

ZERO HEDGE ECONOMICS

Neoliberal globalization is over. Financiers know it, they documented with graphics

Authored by John Mauldin via MauldinEconomics.com,

"..I fear we have consumed all the wiggle room. Now we need everything to go exactly right... and I have serious doubts it will..."

Yes, we’ve learned to cope. We’re making adjustments but still a long way from normal. Much like the COVID-19 disease itself, the economy endured a severe acute phase followed by a chronic “long COVID.” The ongoing symptoms are less severe but still problematic.

Today we’ll explore all this and consider the possibilities. Longtime readers know I call the shots as I see them. Maybe I’m wrong but I fear we have consumed all the wiggle room. Now we need everything to go exactly right… and I have serious doubts it will.

WEAKER EXPANSIONS

This year’s economy is built on top of last year’s, which was on top of the year before, and on back. It’s an iterative process. Nothing, not even COVID, wipes out the past. We keep feeling its effects.

So before we talk about future growth, let’s look back. I have said many times GDP has serious flaws as a growth measure, but it’s what we have. The bars in this chart are real GDP growth by quarter back to 1990, at a seasonally adjusted annualized rate. The gray vertical bars are recessions, of which there were 4 in this period.

See Chart:

https://cms.zerohedge.com/s3/files/inline-images/Image_1_20210910_TFTF.png?itok=3I-C55Qg

COVID was nowhere on the radar screen when I wrote that. A few weeks later it made the Fed intensify an already-loose policy stance while Congress passed gargantuan spending bills that sent the debt even further skyward.

These had initially beneficial effects, as seen in recent GDP numbers. The question now is how long those effects will last.

BACK ON ITS OWN

Hindsight is always 20/20. It’s easy to look back and say governments overreacted in the initial COVID crisis, both with economically harmful protective measures and added spending to mitigate that harm, but there was much we didn’t know at the time. I think they were right to err on the side of caution. The first massive stimulus was necessary; subsequent rounds were more questionable.

Necessary or not, the spending was truly staggering. Here’s a chart comparing the inflation-adjusted per-capita spending with two previous crises. In fiscal terms, we just lived through the equivalent of two New Deals. And instead of 10 years, it happened in less than two.

See Chart:

https://cms.zerohedge.com/s3/files/inline-images/Image_2_20210910_TFTF.png?itok=j8PrA6KU

The scale and speed of this spending explains much, if not most, of the recent GDP growth. Putting an extra $14 trillion on top of normal government spending into a $20 trillion economy is a massive sugar high. It wasn’t a free lunch by any means; the national debt went up accordingly. But it still had a short-term stimulus effect.

The stimulus effect is now ending. The last round of $1,400 payments is either spent or banked. The extended and enhanced unemployment benefits ended this week in the states that hadn’t already canceled them. The small businesses who received payroll support are reaching the end of their rope.

Lucky for us, unlike some real-time data sets started after the pandemic, Burning Glass also provides weekly data job postings baselined in January 2020. That gets us from the JOLTS July data to The Conference Board’s August data to the week ended September 3rd, depicted in the bottom two charts above. In the aggregate, job postings are UNCH, up 0.1% (light blue line). But it’s the slicing and dicing by industry and educational attainment that’s most edifying. After peaking at +34.1% in the week ended June 11th, postings in Financial Activities (red line) are up a scant 0.7%. Meanwhile, after peaking in the week ended May 14th, openings for those with Extensive education (yellow line) are down by 17.7%, a level last seen in February. At the opposite end of the spectrum, postings for those with Minimal education (purple line) are still up 30.1%; BUT they’re well off their July 16th peak of +75.1%. Leisure & Hospitality openings (orange line) peaked that same week at +46.5%; they’ve since fallen to +13.4%.

See Charts

https://cms.zerohedge.com/s3/files/inline-images/Image_3_20210910_TFTF.png?itok=evRZa2VA

I find this simply astounding. Job postings requiring extensive education are down 17% and job postings requiring minimal education are up 30%. This isn’t the world we told our children about when we urged them to get college degrees. Other statistics show there is a great deal of complacency in the job search market among the unemployed. This is most strange given the higher wages being offered, etc.

Workers are clearly looking not just for higher wages but for better working conditions and higher wages. I’m not sure that will change for quite some time. We are in a wage-price spiral. Every region in this week’s Federal Reserve Beige Book highlighted the increased cost of labor. One line stuck out to me: A hotel firm raised the wages for their cleaning staff to $15 an hour. They noted the current staff was very pleased with the raise but it attracted no new workers.

DANGEROUS ASSUMPTIONS

One serious downside risk is inflation. Economists talk about “nominal” and “real” GDP, the latter of which is adjusted for inflation. Higher inflation pushes real GDP lower. An economy showing 4% nominal growth and 1% inflation would have 3% real growth. Not so bad. But if nominal growth stays exactly the same but inflation rises to 4%, real growth would be 0%.

It gets worse. If nominal growth falls just a little, say from 4% to 3%, then a 4% inflation rate would push real growth down to -1% recession territory. A little bit of inflation can amplify a mild setback into a serious one in real terms.

I mentioned the 4% inflation rate because that is exactly where we are when we look at PCE (Personal Consumption Expenditures) inflation, the Fed’s favorite measure.

See Chart:

https://cms.zerohedge.com/s3/files/inline-images/Image_4_20210910_TFTF.png?itok=GGclyFdY

Despite that, the FOMC projects inflation falling toward 2% within just a few months, and below 3% today. Oops:

See Chart:

https://cms.zerohedge.com/s3/files/inline-images/Image_5_20210910_TFTF.png?itok=66ypE-8j

CPI has run well north of 5% over the last six months. The Atlanta Fed’s wage growth tracker is now at 3.9% on its way to 4%. Newsweek reports national average apartment rents rose about 9.2% in this year’s first half. The average apartment in the US now costs $1,200 per month.

These things aggravate each other, too. Inflation pushes input costs (wages, materials, rent, etc.) higher. This can reduce output, and result in lower nominal GDP if common across the economy. With the Fed likely to reduce its asset purchases slowly, if at all, extended inflation in the 3% or higher range is entirely possible, and maybe likely, at least for the next year or so. (I am still in the long-term deflation/disinflation camp, but I also optimistically asCchartsumed the Federal Reserve would lean into inflation and take its foot off the gas pedal.)

This is only now beginning to show up in growth forecasts. We see it first in the non-subjective models that react faster than human forecasters. Here’s the Atlanta Fed’s GDPNow forecast as of Sept. 2. Notice how the green line (their model) turned down in late August. I expect it to turn down even more by the end of September. The Blue Chip consensus runs a little behind but I doubt it will retreat as fast. Then again, they are more often wrong than not, nearly always to the upside.

See Chart:

Evolution of Atlanta Fed GDP now real GDP estimate for 2021

https://cms.zerohedge.com/s3/files/inline-images/Image_6_20210910_TFTF.png?itok=SiLNVJi7

Source: Federal Reserve Bank of Atlanta

Last week’s Human Capital Losses letter outlined why as many as 4 million people may no longer be considered part of the labor force, at least for now. That is almost 3% of the total labor force and since GDP is the number of workers times productivity it can be expected to be a 3% drag on GDP starting with the fourth quarter, unless an enormous amount of people come back to work. It’s certainly not in the data yet.

COVID has had labor force effects we are still struggling to understand. Whether it’s early retirements, health concerns, long COVID disability, a doubling of the number of homeschooling families, excessive government benefits, or (more likely) some blend of all those and more (like preexisting demographic trends), worker shortages limit output. RISING PRODUCTIVITY CAN OFFSET SOME OF THIS, BUT NOT ALL. AND MAYBE NOT FAST ENOUGH TO AVERT ANOTHER RECESSION.

Other things could help, too. We see significant new demand for certain products and services, as well as desire to rebuild inventory. Those would be positive for GDP. But they’re not assured and it is not clear how much they would help. Businesses are struggling to adjust.

THE HUMAN INFRASTRUCTURE WRENCH IN THE GEARS

This is where I will get into trouble. The current $3.5 trillion infrastructure bill IF PASSED as proposed would be a massive blow to the economy. You can’t raise taxes to the extent this proposal would and not expect a negative impact. And those are just the major tax increases. There are hidden cost increases all throughout the legislation.

Senator Manchin has said he will not support a bill of that size. Senator Sinema has also indicated she will not. My Washington sources say there is a number somewhere between $1 trillion and $1.5 trillion they might accept, which would raise capital gains and corporate taxes (along with personal taxes on higher incomes) to pay for the expenditures.

To further the plot, the government will run out of borrowing authority in the next month or two unless Congress raises or suspends the debt ceiling. It may end up being part of the infrastructure reconciliation bill. I have no idea how that would work out, but we will know soon.

I’m not really making a prediction here. These labor issues, inflation, and legislative maneuvering create a great deal of uncertainty. COVID and so much more will all be impacting the economy over the next few months. The market is currently priced for perfection. And admittedly, S&P 500 profits are through the roof. A lot of good is happening at the same time all of these issues are coming into play. If the problems I highlighted above are resolved in a positive manner, we could see the market explode to the upside.

My point is it’s exceedingly dangerous to assume the recent strong growth will continue into 2022 and beyond. COVID’s economic impact will remain significant but diminish as we all learn to deal with it. We are either going to return to the previous trends, which weren’t great, or see new trends form. If the latter, they could be different but not necessarily better.

These potential problems could develop into actual problems and recessionary conditions. The economy is way too close to stall speed. If the engines stop turning, your portfolio needs to be ready.

I am increasingly concerned that the Fed is toying with inflation and the economy could slow down more than they currently project. They are roughly projecting 2–3%+ growth and slightly above 2% inflation. That would be a very good outcome. BUT I am more worried they are wrong, as they have often been in the past, and WE’LL GET THE WORST OF BOTH WORLDS: HIGHER INFLATION AND LOWER GROWTH—IN A WORD, STAGFLATION.

….

SOURCE: https://www.zerohedge.com/economics/return-stagflation

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RABO: MARKETS ARE CONFUSED AND UNHAPPY. ALPHA OR DELTA? INFLATION OR DEFLATION

It’s all about political calls at this point – just not Friday’s Biden-Xi call; and hopefully not about the call to arms.

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TOP TAX RATE IN NYC WOULD BE 61.2%, 59.7% IN CALIFORNIA UNDER HOUSE DEMS' NEW TAX PLAN

"Democrats want to take the current rate of 21% and raise it to 26.5%, higher than communist China’s 25% and higher than the developed world average of 23.5%..."

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OIL SURGES TO 5 WEEK HIGH AS BOFA SEES CRUDE HITTING $100 IN A "VERY COLD WINTER"

"The oil market deficit this winter could easily exceed 2mn b/d and our $100/bbl oil target for the middle of next year could quickly be rolled forward six months."

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LITECOIN DUMPS, CRYPTOS SLIDE AFTER WALMART CONFIRMS PRESS RELEASE WAS FAKE

by Tyler Durden

...a Walmart spokesperson confirmed the press release is not authentic.

Update (1345ET): Walmart has finally issued an official statement denying the fake press release's premise:

Walmart was the subject of a fake news release issued on Monday, Sept. 13,

Walmart has no relationship with Litecoin. issued Sept 13, 2021, over GlobeNewswire.

And finally, we note that Litecoin’s verified Twitter account deleted a tweet that linked to a press release announcing a partnership between Litecoin and Walmart.

See Chart:

The end results is Litecoin tumbling back to earth...

https://cms.zerohedge.com/s3/files/inline-images/bfmFCE8.jpg?itok=VvQnCVOt

CNBC reports that a Walmart spokesperson confirmed the press release is not authentic.

The company is trying to learn more about the news release, which the spokesperson said "isn't real."

Update (0935ET) Litecoin is up

In another indication of the mainstream adoption of cryptocurrencies, giant retailer WalMart has announced a partnership with Litecoin. The eCommerce giant intends to give its millions of shoppers across the world an opportunity to seamlessly make payments with cryptocurrencies.

See Chart:

Litecoin is spiking on the news

https://cms.zerohedge.com/s3/files/inline-images/bfm5969.jpg?itok=ADW3AJ1u

BUT:

As we detailed earlier, after a chaotic and choppy weekend, BITCOIN HAD SLID BACK BELOW the somewhat magical 'Maginot Line' of $45,000 amid a flurry of headlines.

See Chart:

BITCOIN

https://cms.zerohedge.com/s3/files/inline-images/bfmA19.jpg?itok=J1tFXAuH

As a reminder:

MicroStrategy sold the first ever junk bond to fund Bitcoin purchases in June. Its $500 million of bonds due in 2028 have risen since then to over 102 cents on the dollar, according to Trace pricing data.

….

SOURCE: https://www.zerohedge.com/crypto/cryptos-slide-majority-korean-exchanges-shut-coinbase-issues-bonds-boost-balance-sheet-mstr

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MEANWHILE, BACK IN THE REAL WORLD...

The market is worrying about the potential of

an OCTOBER CRASH, but what might trigger it?

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US DOMESTIC POLITICS

Seudo democ duopolico in US is obsolete; it’s full of frauds & corruption.

PANEL OF SCIENTISTS DETERMINES MOST PEOPLE DON'T NEED BOOSTERS; MODERNA PLUMMETS

"None of the studies has provided credible evidence of substantially declining protection against severe disease..."

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