Where Does the Global Economy Go From Here?

[Castanza]

On 9/28/2022 at 5:47 PM, ERICOPOLY said:

With all this talk of high grocery bills.  Chicken drumsticks can be had for $1.19 a pound.  That's not much at the end of the day.

 

https://www.walmart.com/ip/Freshness-Guaranteed-Fresh-Chicken-Drumsticks-5-lb/613823324?fulfillmentIntent=Pickup&athbdg=L1600

 

 

 

Just got a side of beef processed.  Came out to 2.65/lb 

 

Hunting licenses are $20 General + $17 Archery + Doe tag $7.  Got a doe this past Saturday for Archery. Price of meat goes down the more you game harvest. If you process it yourself you're looking at $.30-.50 cents per pound. If you pay to get it done you're right around $1-1.50/lb. 

 

I don't think I'll have to buy meat for at least two years at this point. 

[Blugolds]

3 hours ago, Castanza said:

 

Just got a side of beef processed.  Came out to 2.65/lb 

 

Hunting licenses are $20 General + $17 Archery + Doe tag $7.  Got a doe this past Saturday for Archery. Price of meat goes down the more you game harvest. If you process it yourself you're looking at $.30-.50 cents per pound. If you pay to get it done you're right around $1-1.50/lb. 

 

I don't think I'll have to buy meat for at least two years at this point. 

 

Same, between bow, gun, muzzleloader, antlerless bonus tags a motivated hunter can put 5+ deer in the freezer this year..I usually do half that and it ends up as burger, steaks, and bacon (venison 50/50 with pork butts from Costco), summer sausage, brats etc the cost is about as close to free as you can get and that includes the initial investment of commercial grade/quality processing equipment ie. grinder, mixer, stuffer, vacuum chamber sealer. A personal favorite is canned venison. Chunks in pint/quart jars, 1t salt, beef bullion cube and a splash of beef broth, drop in pressure cooker for 90 minutes and you have a jar of deliciousness that doesn’t need to be refrigerated even, lasts for years and is the best tasting most tender quick meal you’ve ever had. 

 

Not everyone enjoys processing, but personally I would rather spend an afternoon in the garage with the game on, cracking a beer and cutting up meat than going to the grocery store and fighting the crowds and thats the honest truth. 

 

Im off the next two weeks, heading up to the cabin tomorrow to sit in the woods for a while, my favorite time of year. 

[Castanza]

30 minutes ago, Blugolds11 said:

 

Same, between bow, gun, muzzleloader, antlerless bonus tags a motivated hunter can put 5+ deer in the freezer this year..I usually do half that and it ends up as burger, steaks, and bacon (venison 50/50 with pork butts from Costco), summer sausage, brats etc the cost is about as close to free as you can get and that includes the initial investment of commercial grade/quality processing equipment ie. grinder, mixer, stuffer, vacuum chamber sealer. A personal favorite is canned venison. Chunks in pint/quart jars, 1t salt, beef bullion cube and a splash of beef broth, drop in pressure cooker for 90 minutes and you have a jar of deliciousness that doesn’t need to be refrigerated even, lasts for years and is the best tasting most tender quick meal you’ve ever had. 

 

Not everyone enjoys processing, but personally I would rather spend an afternoon in the garage with the game on, cracking a beer and cutting up meat than going to the grocery store and fighting the crowds and thats the honest truth. 

 

Im off the next two weeks, heading up to the cabin tomorrow to sit in the woods for a while, my favorite time of year. 

 

I usually end up going all ground except for the tenderloins with venison. I haven't tried the jarred meat yet but I have heard it's good. Maybe I'll consider it this year if I have time. Nothing more tender than a first year doe fed on alfalfa. Free range 100% organic right there. I'm to the point where I'm taking kill orders  nowhere to put them currently so unless I see a wall hanger I don't think I'll be taking anymore this year. 

[Parsad]

Larry Summers isn't the only one warning:

 

https://finance.yahoo.com/news/worse-damage-financial-crisis-2008-213208344.html

 

That being said...this is totally self-inflicted...by all global nations.  No one was saying, "Hey, let's pay the bill now!  We don't need a decade of cheap money."  Well, time to pay the piper...for all nations! 

 

Cheers!

[Spekulatius]

Economy seems fine. 2.6% growthin Q3 2-2022.

 

The last two quarters contraction was clearly a result of lapping tough comps (6-7% growth in 2021):

 

 

 

Edited October 27, 2022 by Spekulatius

[mattee2264]

Mostly reflects a narrowing trade deficit caused by strong dollar and consumers cutting back on imports. 

That is pretty low quality growth because exports will obviously suffer if the ROW goes deeper into recession or substitutes away from US goods and if consumers are cutting back on imports it won't be long before they start cutting back on services (which tend to be produced domestically). 

 

 

[TwoCitiesCapital]

25 minutes ago, mattee2264 said:

Mostly reflects a narrowing trade deficit caused by strong dollar and consumers cutting back on imports. 

That is pretty low quality growth because exports will obviously suffer if the ROW goes deeper into recession or substitutes away from US goods and if consumers are cutting back on imports it won't be long before they start cutting back on services (which tend to be produced domestically). 

 

 

 

This. The consumption figure continues to decelerate. Inventories continue to be a drag.

 

The only thing really holding this up was energy exports to Europe to replace Russian supply. That's still a net benefit to the US, but only the energy sector. Everything else is struggling and it seems the market is taking note.

 

Look at what the 10-year yield did today - the market does not view this positively and for good reason. 

 

 

 

[maxthetrade]

The 10-Year minus 3-Month Treasury has turned negative. I think there always followed a recession when this happened. Sample size is pretty small though.  

 

[Gregmal]

Amazon?

 

[TwoCitiesCapital]

2 hours ago, maxthetrade said:

The 10-Year minus 3-Month Treasury has turned negative. I think there always followed a recession when this happened. Sample size is pretty small though.  

 

 

The actual signal will be when the Fed starts cutting and uninverts the curve.  Notice all the gray bars occur when it's positively sloped AFTER the inversion 

[mattee2264]

The funny thing is that if you look historically (e.g. dot com bubble and GFC) bear markets generally bottom a year or two after the Fed STARTS easing. 

 

But this bear market rally seems in part to be triggered by belief that the Fed will follow the suit of other central banks e.g. Canada, Australia and start slowing the pace of rate increases and a pause or even a pivot is much closer.

 

Maybe this time things are different because market participants are much more conditioned to respond to market liquidity rather than fundamentals and more willing than historically to look through recessions. 

 

But I suspect that earnings are going to determine the remainder of the bear market and while a recession will allow the Fed to take the foot off the gas it won't be able to ease to the same extent it did in previous recessions because of the stagflationary backdrop and that is a major negative for markets. 

[UK]

https://www.bloomberg.com/news/articles/2023-01-04/pioneering-yield-curve-economist-sees-us-able-to-dodge-recession?srnd=premium-europe

 

“My yield-curve indicator has gone code red, and it’s 8 for 8 in forecasting recessions since 1968 — with no false alarms,” Harvey, now a professor at Duke University’s Fuqua School of Business, said in a interview Tuesday.  “I have reasons to believe, however, that it is flashing a false signal.”

 

One of the reasons is the fact the yield curve-growth relation has become so well known and widely covered in popular media that now it impacts behavior, he said. The awareness induces companies and consumers to take risk-mitigating actions, such as increasing savings and avoiding major investment projects — which bode well for the economy. 

 

Another boost to the economy is coming from the job markets, where the current excess demand for labor means laid-off workers will likely find new positions more quickly than usual. In addition, he said, given the largest job cuts so far have been in the tech sector, those highly skilled recently fired workers are also not apt to be unemployed for very long.

Harvey’s model was linked to inflation-adjusted yields and he said the fact inflation expectations are inverted — meaning traders see price pressures easing through time — also eases odds for a recession ahead. “When you put all this together it suggests we could dodge the bullet,” Harvey said. “Avoiding the hard-landing — recession — and realizing slow growth or minor negative growth. If a recession arrives, it will be mild.”

 

 

Edited January 5, 2023 by UK

[TwoCitiesCapital]

10 hours ago, UK said:

https://www.bloomberg.com/news/articles/2023-01-04/pioneering-yield-curve-economist-sees-us-able-to-dodge-recession?srnd=premium-europe

 

“My yield-curve indicator has gone code red, and it’s 8 for 8 in forecasting recessions since 1968 — with no false alarms,” Harvey, now a professor at Duke University’s Fuqua School of Business, said in a interview Tuesday.  “I have reasons to believe, however, that it is flashing a false signal.”

 

One of the reasons is the fact the yield curve-growth relation has become so well known and widely covered in popular media that now it impacts behavior, he said. The awareness induces companies and consumers to take risk-mitigating actions, such as increasing savings and avoiding major investment projects — which bode well for the economy. 

 

Another boost to the economy is coming from the job markets, where the current excess demand for labor means laid-off workers will likely find new positions more quickly than usual. In addition, he said, given the largest job cuts so far have been in the tech sector, those highly skilled recently fired workers are also not apt to be unemployed for very long.

Harvey’s model was linked to inflation-adjusted yields and he said the fact inflation expectations are inverted — meaning traders see price pressures easing through time — also eases odds for a recession ahead. “When you put all this together it suggests we could dodge the bullet,” Harvey said. “Avoiding the hard-landing — recession — and realizing slow growth or minor negative growth. If a recession arrives, it will be mild.”

 

 

 

I'm not sure it actually impact behavior a ton - EVERY time it happens all I hear from people is why this time is different or why it should be ignored because it can take up to 18-24 months 

 

Even on this board we have a ton of people willing to look past contracting PMIs, falling home prices, cratering leading indicators, inverted yield curves, and etc to continue to be fully invested in equities.

 

I think the real impact of the inverted yield curve is it kills credit creation. Banks aren't in the business of paying higher rates on deposits than they receive on loans. Credit creation slowly grinds to a halt when curves are inverted and money in circulation shrinks. That has a real impact on real business activity.

[Spekulatius]

On 1/4/2023 at 11:41 PM, UK said:

https://www.bloomberg.com/news/articles/2023-01-04/pioneering-yield-curve-economist-sees-us-able-to-dodge-recession?srnd=premium-europe

 

“My yield-curve indicator has gone code red, and it’s 8 for 8 in forecasting recessions since 1968 — with no false alarms,” Harvey, now a professor at Duke University’s Fuqua School of Business, said in a interview Tuesday.  “I have reasons to believe, however, that it is flashing a false signal.”

 

One of the reasons is the fact the yield curve-growth relation has become so well known and widely covered in popular media that now it impacts behavior, he said. The awareness induces companies and consumers to take risk-mitigating actions, such as increasing savings and avoiding major investment projects — which bode well for the economy. 

 

Another boost to the economy is coming from the job markets, where the current excess demand for labor means laid-off workers will likely find new positions more quickly than usual. In addition, he said, given the largest job cuts so far have been in the tech sector, those highly skilled recently fired workers are also not apt to be unemployed for very long.

Harvey’s model was linked to inflation-adjusted yields and he said the fact inflation expectations are inverted — meaning traders see price pressures easing through time — also eases odds for a recession ahead. “When you put all this together it suggests we could dodge the bullet,” Harvey said. “Avoiding the hard-landing — recession — and realizing slow growth or minor negative growth. If a recession arrives, it will be mild.”

 

 

Yield curve is deeply inverted now. So far, its 5/5 while I have been "watching" markets predicting recessions:

 

Edited January 13, 2023 by Spekulatius

[changegonnacome]

On 1/5/2023 at 10:20 AM, TwoCitiesCapital said:

Credit creation slowly grinds to a halt when curves are inverted and money in circulation shrinks. That has a real impact on real business activity.

 

& thats the point - the Fed hits in order & sequence

 

(1) Financial instruments via money supply tightening/QE/QT

(2) Credit creation via Fed funds

(3) Income/Spending via a fall in no.2 

 

 

the Fed can only directly control the money supply (QE/QT) but this only effects financial assets, not "real" assets like cars for example....they print cash,  buy a bond and a financial market participant swaps one financial instrument  the bond (treasury or MBS) for cash from the Fed then most likely turns around and buys another financial instrument ordinarily further out the risk curve (high yield, perhaps even equities).

 

Anyhow you can see how the Fed 'put' and its transmission mechanism works very well flooding liquidity into financial instruments with relative speed, ease & directness......the Fed put is so attractive as a tool because it works so quickly........the real economy is different..........to effect it as a Central Bank, you need to hit the two source of funds available in the real economy to transact not for financial instruments this time but REAL goods and services......those two sources of funds to buy say a new car are either  (1) Credit or (2) income/spending..........in some respects to get to No.2 income/spending....the Fed in a derivative manner has to go through (1) the credit creation channel first........and because credit becomes spending in the real economy.....and because one persons income is actually somebody else's spending eventually you get to a situation where the Fed.....first reduces credit creation but then by extension starts a chain reaction of failing spending/incomes....falls in income which manifest in unemployment & eventually a recession.

 

An inverted yield curve as @TwoCitiesCapital quite rightly points out is EXACTLY what the Fed wants.....it wants to whack credit creation such that spending......and then eventually incomes get whacked.

 

We've clearly seen the decline in credit creation for new homes and now it seems autos too.......so we are clearly firmly at the No.2 point with the most highly sensitive products hit first.......unemployment has held up but once it starts to go up.....what you are looking at in real time is actually like starlight - its an echo of a hypothetical credit creation event that did NOT occur a number of months ago.....these are the long and variable lags central banks talk about.......Sahm's rule suggests once the first 0.5 uptick of unemployment occurs above the 12M average low.....the unemployment rate goes on to complete a full 2 percentage point move up.........makes total sense in some respect the other 1.5 move got baked in the cake months ago as other credit creation events didn't occur and a historical spending 'hole' opens up in the economy and absent a time machine nobody can do jack shit about a loan that didn't get made six months ago.......its credit spilt milk.......rising unemployment in a very real sense then is the trickle down effect of loans that never got created......and this is ultimately why 'soft landings' are so rare........you want unemployment to go up to slow inflation/economy.......but at the time your actually raising rates your never quite sure exactly how much future unemployment your creating at the time.........and when unemployment does show up its only the months that follow that reveal how much joblessness you actually created in the past......and invariably you usually create a little too much given your fumbling in the dark......and in this particular instance the Fed it seems has signposted its willingness to create a little too much via its speed/aggressiveness, as opposed to too little given the stakes.

 

When unemployment does show up............and I firmly believe it will.......and without sounding callous its going to be very curious to see the concentration/scale of jobless claims their unprecedented rate moves in 22 have created in 2023...one might expect in response unprecedented month over month rises in jobless claims at some point mirroring their earlier moves.

[Red Lion]

18 hours ago, changegonnacome said:

 

& thats the point - the Fed hits in order & sequence

 

(1) Financial instruments via money supply tightening/QE/QT

(2) Credit creation via Fed funds

(3) Income/Spending via a fall in no.2 

 

 

the Fed can only directly control the money supply (QE/QT) but this only effects financial assets, not "real" assets like cars for example....they print cash,  buy a bond and a financial market participant swaps one financial instrument  the bond (treasury or MBS) for cash from the Fed then most likely turns around and buys another financial instrument ordinarily further out the risk curve (high yield, perhaps even equities).

 

Anyhow you can see how the Fed 'put' and its transmission mechanism works very well flooding liquidity into financial instruments with relative speed, ease & directness......the Fed put is so attractive as a tool because it works so quickly........the real economy is different..........to effect it as a Central Bank, you need to hit the two source of funds available in the real economy to transact not for financial instruments this time but REAL goods and services......those two sources of funds to buy say a new car are either  (1) Credit or (2) income/spending..........in some respects to get to No.2 income/spending....the Fed in a derivative manner has to go through (1) the credit creation channel first........and because credit becomes spending in the real economy.....and because one persons income is actually somebody else's spending eventually you get to a situation where the Fed.....first reduces credit creation but then by extension starts a chain reaction of failing spending/incomes....falls in income which manifest in unemployment & eventually a recession.

 

An inverted yield curve as @TwoCitiesCapital quite rightly points out is EXACTLY what the Fed wants.....it wants to whack credit creation such that spending......and then eventually incomes get whacked.

 

We've clearly seen the decline in credit creation for new homes and now it seems autos too.......so we are clearly firmly at the No.2 point with the most highly sensitive products hit first.......unemployment has held up but once it starts to go up.....what you are looking at in real time is actually like starlight - its an echo of a hypothetical credit creation event that did NOT occur a number of months ago.....these are the long and variable lags central banks talk about.......Sahm's rule suggests once the first 0.5 uptick of unemployment occurs above the 12M average low.....the unemployment rate goes on to complete a full 2 percentage point move up.........makes total sense in some respect the other 1.5 move got baked in the cake months ago as other credit creation events didn't occur and a historical spending 'hole' opens up in the economy and absent a time machine nobody can do jack shit about a loan that didn't get made six months ago.......its credit spilt milk.......rising unemployment in a very real sense then is the trickle down effect of loans that never got created......and this is ultimately why 'soft landings' are so rare........you want unemployment to go up to slow inflation/economy.......but at the time your actually raising rates your never quite sure exactly how much future unemployment your creating at the time.........and when unemployment does show up its only the months that follow that reveal how much joblessness you actually created in the past......and invariably you usually create a little too much given your fumbling in the dark......and in this particular instance the Fed it seems has signposted its willingness to create a little too much via its speed/aggressiveness, as opposed to too little given the stakes.

 

When unemployment does show up............and I firmly believe it will.......and without sounding callous its going to be very curious to see the concentration/scale of jobless claims their unprecedented rate moves in 22 have created in 2023...one might expect in response unprecedented month over month rises in jobless claims at some point mirroring their earlier moves.

 

I find your analysis very thought provoking and insightful on the macro. Thank you. 

[UK]

 

[UK]

 

[Gamecock-YT]

"Mild Recession" is the new "Transitory"

[Spekulatius]

2 hours ago, Gamecock-YT said:

"Mild Recession" is the new "Transitory"

LOL. I also look forward from the discussion moving  from inflation to deflation. Mr Market is always on the move.

[Gregmal]

Economic hurricane to mild recession in 4 weeks?

[UK]

I like/share Dimons view: war is a unknown worry, everything else is like weather forecasts:)

[Spekulatius]

This is going to be interesting to watch. The inflation in Japan is picking up steam - the latest print was 4.2%. It’s interesting because they didn’t have inflation even past the epidemic until now.

https://finance.yahoo.com/news/1-consumer-inflation-japans-capital-234353233.html

[mattee2264]

On 1/20/2023 at 8:16 AM, Gamecock-YT said:

"Mild Recession" is the new "Transitory"

 

I think this could be how it turns out. So far the economy is holding up pretty well so it looks like we are getting disinflation and a soft landing which is incredibly bullish. But it could be that a hard landing has been postponed until later in 2023 or even early 2024. Also as the Fed is well aware you shouldn't count your chickens too soon when it comes to taming inflation and China coming back online will reverse commodity price disinflation and there are going to be a lot of wage increases coming through in January. Leading indicators are still very worrying and it is possible markets are being lulled into a false sense of security by the relatively soft historic data. 

[Gamecock-YT]

43 minutes ago, mattee2264 said:

 

I think this could be how it turns out. So far the economy is holding up pretty well so it looks like we are getting disinflation and a soft landing which is incredibly bullish. But it could be that a hard landing has been postponed until later in 2023 or even early 2024. Also as the Fed is well aware you shouldn't count your chickens too soon when it comes to taming inflation and China coming back online will reverse commodity price disinflation and there are going to be a lot of wage increases coming through in January. Leading indicators are still very worrying and it is possible markets are being lulled into a false sense of security by the relatively soft historic data. 

 

Yeah, when the consensus is 'mild recession', you can count on it being something else. Plus have you ever heard someone in the public domain prognosticate we're going to have a bad recession?