Where Does the Global Economy Go From Here?

[Spekulatius]

20 minutes ago, Gregmal said:

Yes sir. There was a bit of discussion here around that time period, maybe summer 2021 about just that because there was an overwhelmingly political narrative going around that no one was working because of all the free money being given out. For sure this contributes, but it’s not even close to the key variable. The key variable is what you showed. COVID was basically the last straw for a huge segment of the population that didn’t really need to be working anyway. 

yes, some people quit and never looked back. I don't think this is quite over yet either. The labor participation rate has never really recovered after COVID-19.

 

Besides that, we have lower and lower productive growth, which has been declining since the late 90's I think. The productivity numbers have been abysmal lately. Not sure what to make of this and it could be a result of supply chain disruptions.

 

 

(edit - better chart)

Edited August 31, 2022 by Spekulatius

[changegonnacome]

40 minutes ago, ERICOPOLY said:

Is the shortage of labor driven by an excess of demand or an excess of retirements?

 

Your supposition might be correct - this is economics there are puts and takes everywhere, its never quite one thing but always a multitude.

 

However @ERICOPOLY supposing you are correct and you've nailed the predominant key driver of the inflation issue.....excess demand relative to a reduced labor force that became impaired by boomers retiring in droves.

 

I'll ask you this:

 

Does it, in practical terms, matter what caused it? If what caused it, boomers retiring, isn't changing anytime soon?

 

The medicine required is the same either way, right?

 

We have excess demand relative to the productive capacity of the economy...........that labor capacity lost to retirement is NOT coming back but the demand remains.......short of forcing over 55's to un-retire by dictate. You and I have different ideas on what predominately caused the excess demand relative to the productive capacity of the economy - but the diagnosis doesn't change the symptoms or the course of treatment required, in fact one can argue that your thesis speaks to a much more permanent and sustained downshift in the aggregate productive capacity of the US economy driven by demographics which points to a much more intractable inflation problem than what I'm theorizing.

Edited August 31, 2022 by changegonnacome

[Dinar]

Could also be due to population being dumber and dumber, due to both genetics and educational system getting worse and worse.  In my co-op, a pair of Princeton educated Koreans (Harvard Law & Yale Law) - zero kids, they are both in their 40s.  Indian couple - both work for Google (two kids), white couple (he is a CEO of a large company) - 1 kid, average number of kids per family - two.  Meanwhile, porter has four kids, super has four kids, and welfare recipients in Harlem six plus?  Quality of public schools has gone down sharply, and by the way the quality of private schools as well.  I compare what my niece and nephew learn and what learned at that age in public school, and boy the quality has deteriorated sharply.  

[Dinar]

5 minutes ago, changegonnacome said:

 

Your supposition might be correct - this is economics there are puts and takes everywhere, its never quite one thing but always a multitude.

 

However @ERICOPOLY supposing you are correct and you've nailed the predominant key driver of the inflation issue.....excess demand relative to a reduced labor force that became impaired by boomers retiring in droves.

 

I'll ask you this:

 

Does it, in practical terms, matter what caused it? If what caused it, boomers retiring, isn't changing anytime soon?

 

We have excess demand relative to the productive capacity of the economy...........that labor capacity lost to retirement is NOT coming back but the demand remains.......short of forcing over 55's to un-retire by dictate. You and I have different ideas on what predominately caused the excess demand relative to the productive capacity of the economy - but the diagnosis doesn't change the symptoms, in fact one can argue that your thesis speaks to a much more permanent and sustained downshift in the aggregate productive capacity of the US economy driven by demographics which speaks to more intractable inflation than what I'm theorizing.

Of course the causes matter, because then the solutions are different.   If the issue is declining labor force participation rate, then the question is how to address it.  

[changegonnacome]

37 minutes ago, Spekulatius said:

The productivity numbers have been abysmal lately. Not sure what to make of this and it could be a result of supply chain disruptions.

 

Yeah I thought about this a a-lot. My take:

 

Marginal incremental labor like that which is being brought into the workforce now........suffers greatly from the law of diminishing returns.......it speaks to an economy that is probably operating beyond what economists call the natural rate of unemployment.......adding labor beyond this natural inflection point the productivity returns to that incremental labor begin to deteriorate with greater speed & with it goes productivity gains.

 

Appreciate your thought on the above @Spekulatius cause I've been puzzled by the same data your looking at....you think I might have a point?

 

One addition based on @ERICOPOLY 's point on excess retirements......is the boomers who've retired from the workforce, were potentially a group of highly productive people relative to labor force participants that remain & hence productivity has taken a hit as a result. Clearly its not just one thing but I think diminishing returns to labor & boomers higher than average productivity explains that data we are looking at.

Edited August 31, 2022 by changegonnacome
Added in excess retirement thesis

[changegonnacome]

20 minutes ago, Dinar said:

Could also be due to population being dumber and dumber

 

Wouldnt quite put it like that.......but this is something maybe you and I have a little more common ground on if I'm reading you right here.

 

I look around and I see a generation of young (mainly males) in their late teens/early 20's, even older......apathetically doom scrolling TikTok, playing video games till 4am & smoking ridiculous amounts of genetically modified 'super' dope with levels of THC that would knock Willie Nelson on his ass. These folks, I can assure you, are not particularly productive employees.

 

This is not a good mix for an economy with not so great demographics in that age cohort & then you can add in the public school system failing kids from modest to middling backgrounds where private schools & personal tutors are just not even in the picture.

 

P.S.- what did the CCP call video games......opuim for the soul.....this is something me and the CCP agree on!

Edited August 31, 2022 by changegonnacome

[Gregmal]

I just the think notion that basically inflation is now solely defined as a strong job market is beyond anything we can fathom and while I don’t think this is the case, but if the Fed people believe this…my goodness. It’s like what, in order for the world to be the way these people want it we need to be in a perpetual recession/depression lol?

[ERICOPOLY]

25 minutes ago, changegonnacome said:

 

Does it, in practical terms, matter what caused it? If what caused it, boomers retiring, isn't changing anytime soon?

 

The medicine required is the same either way, right?

 

 

The dosage of the medicine will need to be heavier if the driver of the labor shortage is excess retirements.

[changegonnacome]

Just now, ERICOPOLY said:

The dosage of the medicine will need to be heavier if the driver of the labor shortage is excess retirements.

 

Yeah the more I think about it, your right......it requires significantly more intervention on the part of the FED

[ERICOPOLY]

When 20 million lost their jobs, productivity soared at an annualized rate of 11.2% in Q2 2020.

 

It stands to reason that a reversal will happen when the jobs are added back.

 

https://www.bls.gov/osmr/research-papers/2022/ec220010.htm#:~:text=On the tail of these,average hourly wage increased sharply.

[crs223]

40 minutes ago, changegonnacome said:

forcing over 55's to un-retire by dictate

 

you don't need a dictate.  if too few people are working, supply-and-demand would force un-retirement.

 

taken to the extreme, if everyone suddenly retired, there would a shortage of workers.  as a result prices of everything would skyrocket.  resulting in people coming out of retirement just to pay the bills.

 

[ERICOPOLY]

Move the milestone again on when Social Security benefits begin.

 

Let in a bunch of immigrants.

[changegonnacome]

27 minutes ago, ERICOPOLY said:

Move the milestone again on when Social Security benefits begin.

 

Let in a bunch of immigrants.

 

Agree - social security I think is politically impossible.....doesn't help that US life expectancy is actually falling unlike lots of place in the world....... European countries retirement ages are nudging towards being increased the argument being that life expectancy has greatly increased since the concept of retirement settled on age 65 in the 1960's.....and you had expectancy to life another maybe ten years max on average. This dialogue is happening in Europe and its gaining acceptance as reasonable in light of serious gains in life expectancy. This conversation falls apart if your country has stagnant or declining life expectancy.

 

Yeah agree on immigration......do an audit of where the labor shortages are, quantify them......then run a process to get the best qualified suitable candidates from overseas with requirement that these programs have clearly defined ON/OFF switch, that are linked to some aggregate mix of the unemployment rate, labor force participation rate & inflation.....this though NEEDS to be a number, not some politicians/ bureaucrats view of whether the program should be ON or OFF...the immigration spigot gets must be turned OFF once this number is breached.

Edited August 31, 2022 by changegonnacome

[ERICOPOLY]

2 minutes ago, changegonnacome said:

 

Agree - social security I think is politically impossible.....

 

They would need to offer a bonus, perhaps an increased annual benefit, if workers voluntarily deferred retirement beyond age 67.  They already have such an incentive to work to 67 (full annual benefit) instead of 62 (reduced annual benefit).

 

 

[changegonnacome]

1 hour ago, crs223 said:

as a result prices of everything would skyrocket.  resulting in people coming out of retirement just to pay the bills.

 

 

Yep agree - falls in 401k, IRA's, home values + rising prices driving negative wealth effects...that will make some retirees un-retire........another lever the FED has via financial instruments that can increase the labor force......SPY @ 3,000 will potentially bring a tonne of retirees back to the workforce as their withdrawal rate starts to tell them they DONT have enough to get to 85 or whatever 

Edited August 31, 2022 by changegonnacome

[changegonnacome]

2 minutes ago, ERICOPOLY said:

They would need to offer a bonus, perhaps an increased annual benefit, if workers voluntarily deferred retirement beyond age 67.  They already have such an incentive to work to 67 (full annual benefit) instead of 62 (reduced annual benefit).

 

 

Wasn't aware of that - yep much easier to achieve politically if you add an incentive cheque but end up with the same result...more workers, working for longer

[ERICOPOLY]

Just now, changegonnacome said:

 

Yep agree - falls in 401k, IRA's, home values + rising prices driving negative wealth will make some retirees un-retire........another lever the FED has via financial instruments that can increase the labor force......SPY @ 3,000 will bring potentially bring a tonne of retirees back to the workforce as their withdrawal rate starts to tell them they DONT have enough to get to 85 or whatever 

 

I think you are right.  An asset bubble encourages early retirement and popping it encourages a swift reversal.

[changegonnacome]

22 minutes ago, ERICOPOLY said:

I think you are right.  An asset bubble encourages early retirement and popping it encourages a swift reversal.

 

Right and probably smaller amount but not insignificant number of young adults who, on paper in 2021/22, felt very wealthy when the quoted value of their shitcoins, crypto, NFTs & Tesla was speeding towards da moon......go look on YouTube you'll find them making plans to retire in just 18 months time............to them working for a living probably felt like something your grandpa used to have to do back in the day, not for these kids  What did they used to say on Twitter - "have fun, staying poor" 

 

I think at this point with even a modicum of recent hindsight I think its becoming irrefutable that 2020/21 was an asset bubble in the US to rival any of the great ones of the past 1999, 1929........but it aint over.....go look at the valuations for Lucid & Nikola......just because something is down 80% doesn't, mean it cant drop another 80%......now be careful out there .......bear market rallys can rip your face off like we saw in June/July but valuations IMO are starting re-enter earths orbit from their recent trip to da moon and so you can still pick your spots to be short & do well.

[ERICOPOLY]

4 minutes ago, changegonnacome said:

now be careful out there .......bear market rallys can rip your face off like we saw in June/July

 

I have been using SPY puts as a brake on my long portfolio, rather than as a mint-making opportunity.  I then just add to my long shares as these puts become ATM.

[changegonnacome]

3 minutes ago, ERICOPOLY said:

I have been using SPY puts as a brake on my long portfolio, rather than as a mint-making opportunity.  I then just add to my long shares as these puts become ATM.

 

Samesy, kind of - I hold a predominately long portfolio with a non-US bias for now....you might read my messages and think I'm all cash & with a massive short book......I'm not.........my short positions are designed hopefully to allow me to potentially have spare cash to buy more of what I like & already own, as the price of the things I like/know go down further due to the broad market beta.......so my shorts will hopefully puke cash when the cash is most needed.......I really do think that there will be March 2020-esque opportunities in US markets in the next 12-18 months SPY 3000 is a real possibility IMO but I cant be certain (so I'm not selling what I like and what I know & understand because I could be wrong) & I'm running a relatively conservative short book with that in mind. Both combined should allow me some incremental liquidity when the time comes and then I'll consider going on margin too if things get disgustingly cheap.

[SharperDingaan]

Couple of points ...

 

Age discrimination is rampant,  and boomers get retired because they are both too expensive and too old, relative to their younger replacement. As long as the environment isn't changing, this can be done in scale, and it will raise productivity per $ spent - but it comes at the expense of resiliency. Change happens, and you don't have experience, what you gonna hear when you call? I'm retired! 

 

Retirees are available, but they don't need the money, and they aren't there to absorb a companies operational scheduling risk. Minimum wage means McDonalds no think, no responsibility, and reliable scheduled hours. No one is going to boost your store, or suggest where obvious improvements could be made, if they aren't going to get a bonus for it. All you have to offer is a dead-end job with no future - been there, done that, I'm retired, not stupid!

 

Most operational managers are utter shite at the people skills, and in the US it has now begun to bite. Retirees prefer to work for old geezers/other retirees, they demand respect and speak their minds, and they make for a very resilient workforce. Strong backs, and machinery are easy to hire - experience and finesse not so much!  

 

The labour is there, the problem is that most of the employers don't want to hear it.

When you cant get the labour at the price you're willing to pay, the market is telling you that you don't have a business. Joe Sixpack needs to either shut down the fast food stand/car wash, or do the burger flipping/car washing himself. When Joe can't move on ....

 

SD

 

 

Edited August 31, 2022 by SharperDingaan

[crs223]

3 hours ago, ERICOPOLY said:

 

I think you are right.  An asset bubble encourages early retirement and popping it encourages a swift reversal.

 

Even if there is no asset bubble.  Even if everyone has tons of paper cash under the mattress without any financial instruments. If everyone retires, prices will go up, and people will have to un-retire to pay the bills.

[Dinar]

Could not agree more with SD, most managers treat their workers like garbage, and it shows!

[Gregmal]

6 minutes ago, Dinar said:

Could not agree more with SD, most managers treat their workers like garbage, and it shows!

Being in the office is largely driven by power dynamics and serves many purposes but the biggest is the egos of the higher ups. 

[ERICOPOLY]

“During the pandemic, a lot of people had reasons to retire and the way that markets evolved allowed them to retire,” says Miguel Faria-E-Castro, a research economist at the Federal Reserve Bank of St. Louis.

 

 

Faria-E-Castro: ...  The fact that they didn’t want to get sick and the fact that they had to care for loved ones, and on top of that, the way that markets evolved allowed them to retire because all of those very high asset returns lead to historically high increases in net worth, on average, for U.S. households.

Hasenstab: If these asset valuations change, how could that affect those who have recently retired?

Faria-E-Castro: In principle, these Wealth Effect it works both ways, so it works both when asset valuations go up and when they go down, but it’s hard to say at this point.

Hasenstab: So some of these recent retirees could re-enter the workforce?

Faria-E-Castro: Yes, they could.

 

https://www.stlouisfed.org/timely-topics/retirements-increased-during-pandemic