Where Does the Global Economy Go From Here?

[wabuffo]

This is a good indicator, but the YoY figures for the month are worrying, no?

 

Don't forget that the 2021 tax filing deadline was moved to May from April - so that skews comparability.  I think the Y-T-D numbers are the best measure.  Also remember that the Federal govt's fiscal year ends on Sep 30 - so y-t-d numbers represent almost two-thirds of the fiscal year.

 

The other thing to note is that year-over-year spending is down quite a bit too.  That's not too surprising since many big pandemic spending programs were one-timers in 2021.

 

The deficit has come down so much that it may now be too small and may cause deflationary pressures to emerge.   Yeah - you heard that correctly. 

 

Bill

Edited May 25, 2022 by wabuffo

[TwoCitiesCapital]

10 minutes ago, wabuffo said:

This is a good indicator, but the YoY figures for the month are worrying, no?

 

Don't forget that the 2021 tax filing deadline was moved to May from April - so that skews comparability.  I think the Y-T-D numbers are the best measure.  Also remember that the Federal govt's fiscal year ends on Sep 30 - so y-t-d numbers represent almost two-thirds of the fiscal year.

 

The other thing to note is that year-over-year spending is down quite a bit too.  That's not too surprising since many big pandemic spending programs were one-timers in 2021.

 

The deficit has come down so much that it may now be too small and may cause deflationary pressures to emerge.   Yeah - you heard that correctly. 

 

Bill

Good call out. Comparing the individual withholding and corporates line items doesn't look to bad. 

 

Has forgotten the extension for 2021 which contributes to the difference. Still think we're in for weakness by 2023, but agree its too early to be concerned now and that risk assets may rally from here. 

[Spekulatius]

May is distorted relative to 2021, because last year the tax deadline was moved from 4/15 to 5/17. I suspect that many took advantage of this extension by more than a month and paid taxes in May last year rather than April. So, I think the YTD figures are more meaningful.

 

Note that payroll taxes this month are still running at $195.4B vs $182.6B.That’s still up 7- over last year. These are total deductions based on current paychecks so a very direct indication of employment, hours worked and wages.

 

https://www.irs.gov/newsroom/tax-day-for-individuals-extended-to-may-17-treasury-irs-extend-filing-and-payment-deadline

[Spekulatius]

Found this on Reddit. Seems like this report is implying a 3-4% GDP growth headwind from real estate alone. If so, China will show barely any GDP growth this year.

https://www.yielddive.com/post/what-s-going-on-in-the-chinese-realestate-market

[Ulti]

https://podcasts.apple.com/us/podcast/what-this-money-manager-learned-traveling-in-covid/id1460047965?i=1000565092461
 

 

some fluff but interesting about the Covid shutdown and gov emphasis on local manufacturing/ also driven by the young

[Ulti]

https://modernfarmer.com/2022/06/global-wheat-supply/

[Climacus]

latest talk with Lyn Alden:

https://www.youtube.com/watch?v=O6PjUFsUM94&t=1748s

 

at the core, her thesis of persistent inflation comes down to 2 points (without Ukraine, Corona and Chinese lockdowns which worsen the effects): 

 

- underinvestment in commodities over years (due to a) low prices, b)ESG). Capex came down from 3,5% of GDP in 2014 to under 1% in 2021. She refers mainly to oil & gas but mentions also Copper and Nickel. 

- supply chain issues: globalization levels out (cheap labor in EM was deflationary in the past 25 years), part of the supply side is about to be brought back home again 

 

Im just somehow puzzled how clear it seems to her that Energy stays elevated the foreseeable future, probably the next years. I remember last year beginning of 2021 when oil was about 40-50 people discussing heavily if oil was worth an investment, highlighting the danger and volatility of commodities. Now it almost seems to be a consensus that oil will stay (after even Buffett or D. Loeb bought into oil/gas in Q1).

I don't really have a feeling how long it takes to replenish the supply side and how stable the output would be. Im just extremely puzzled it should take years for that! For a commodity everybody knows everybody needs, regardless of ESG. My naive thinking tells me it should be a matter of month and not years. I get the feeling most people in this forum also think its a longer lasting project? Maybe its already discussed in the Energy thread but I couldn't read through all of it. 

 

 

[Viking]

US 10 year bond yields are on the move again, up 25 basis points the past 10 days, and back up over 3% to 3.03% today.

 

Recent 52 week high was 3.17%. The high over the past decade was around 3.2%. So we are approaching a technically very important level. Should the 10 year move and hold over 3.2% we could see the next leg higher in interest rates. 
 

And given all assets classes tend tend to be priced off the 10 year bond, higher yields will matter. 
 

The Fed needs financial conditions to tighten. What we have seen so far is not nearly enough. Just look at the most recent stellar jobs report. House prices in the US continue to rocket higher (the biggest investment by far for most Americans). Bottom line, Fed needs financial conditions to tighten much more than where they are today. This makes for a VERY interesting set up for investors over the next 3-6 months.

Edited June 6, 2022 by Viking

[Viking]

10 hours ago, Climacus said:

latest talk with Lyn Alden:

https://www.youtube.com/watch?v=O6PjUFsUM94&t=1748s

 

at the core, her thesis of persistent inflation comes down to 2 points (without Ukraine, Corona and Chinese lockdowns which worsen the effects): 

 

- underinvestment in commodities over years (due to a) low prices, b)ESG). Capex came down from 3,5% of GDP in 2014 to under 1% in 2021. She refers mainly to oil & gas but mentions also Copper and Nickel. 

- supply chain issues: globalization levels out (cheap labor in EM was deflationary in the past 25 years), part of the supply side is about to be brought back home again 

 

Im just somehow puzzled how clear it seems to her that Energy stays elevated the foreseeable future, probably the next years. I remember last year beginning of 2021 when oil was about 40-50 people discussing heavily if oil was worth an investment, highlighting the danger and volatility of commodities. Now it almost seems to be a consensus that oil will stay (after even Buffett or D. Loeb bought into oil/gas in Q1).

I don't really have a feeling how long it takes to replenish the supply side and how stable the output would be. Im just extremely puzzled it should take years for that! For a commodity everybody knows everybody needs, regardless of ESG. My naive thinking tells me it should be a matter of month and not years. I get the feeling most people in this forum also think its a longer lasting project? Maybe its already discussed in the Energy thread but I couldn't read through all of it. 

@Climacus oil is the new tobacco. It is hated and it will only get worse from here (climate change is real). Given that reality why would any oil and gas company put significant money into a new project with a payout more than 12 months out?
 

ESG is firmly in the drivers seat - and it is a complete hot mess / terrible joke. Bottom line, high oil and gas prices are likely structural at this point. The interesting question is how high do they go? 10 years ago they went to $150. So +$200 looks like a reasonable and conservative estimate at some point over the next couple of years. Especially if inflation moderates and global economic growth picks up the next couple of years.

[cubsfan]

^^^ Gonna get interesting with these energy prices. Americans know that Biden screwed the 

pooch by not allowing drilling/exploration - at the same time as begging Venezuela, Iran, etc

for more oil.  But, hey, let's not get it from Canada, right?

 

Not sure when it will blow sky high - before mid-terms? or After?

 

The Climate Change morons are in charge - for now..

 

 

[Gregmal]

Nah it’s good. Just see what the elites are doing and go with it. Buy real assets, buy oil, and short everything else. Then laugh at those who are getting what they voted for and now don’t like it.

[Viking]

Pretty much every government has completely messed up with their solutions to climate change and for many years. The big problem is ESG is now the accepted wisdom/paradigm that CANNOT be questioned.  “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so. “ – Mark Twain

 

The bigger problem is climate change is real. So we will stumble along some more until some event(s) happen that provide the proper clarity. But this will likely be some time away… and most people won’t give a shit until it hits them square between the eyes (and for some even that won’t do the trick :-).

—————-

tobacco is a great parallel… look how it took for the general public to ‘believe’ the science and for politicians to do the right thing… and it is still a work in progress…

—————-

Dr. Peter Venkman : This city is headed for a disaster of biblical proportions.

Mayor : What do you mean, "biblical"?

Dr. Raymond Stantz : What he means is Old Testament, Mr. Mayor, real wrath of God type stuff.

Dr. Peter Venkman : Exactly.

Dr. Raymond Stantz : Fire and brimstone coming down from the skies! Rivers and seas boiling!

Dr. Egon Spengler : Forty years of darkness! Earthquakes, volcanoes...

Winston Zeddemore : The dead rising from the grave!

Dr. Peter Venkman : Human sacrifice, dogs and cats living together... MASS HYSTERIA!

Mayor : All right, all right! I get the point!

Edited June 6, 2022 by Viking

[cubsfan]

^^^ Well, let's not exaggerate here.

 

Climate change has been happening for millions of years. You think it's from fossil fuels, but

that is only your opinion. Fossil fuels have done more good for the world than anything.

 

Climate change may or may not be able to be controlled by humans. No one knows.

So you ditch fossil fuels with the result of impoverishing billions of people. Meanwhile

you can't prove that global warming is the result of fossil fuels.

 

That's exactly why they are climate change morons. And hypocrites to boot.

[Gregmal]

Climate change is just an excuse to tax and allocate taxpayer funds towards utterly ridiculous stuff without having to be accountable. Even now, you have $5-7 gas across the country, and the solution supposedly is “why don’t you own an EV?”. Imposing sanctions on an ultra resource rich Russia was just too good to be true for these folks. 

[adesigar]

I think there should be a minimum $10 per gallon tax on petrol/diesel. That would solve a lot of US problems in just a few years. But the Climate change is fake news morons will rather burn the planet before giving up their gas guzzlers.

[cubsfan]

^^^ That's the US Marxist ideology at it's finest - you get Biden's new medal "Hero of Woke America".

 

You'll solve lots of problems, while destroying millions of lives - mostly the poor. Don't worry

about the SUV and private jet crowd - they can afford the $10 gas.

Edited June 6, 2022 by cubsfan

[Gregmal]

That’s the whole thing, whether you want it or not, it’s largely lower income, city and rural folks who get destroyed by these policies. Just like with COVID restriction, the politicians and the elitists not only remain immune from the pain, but they profit off it.

[adesigar]

Guess what people in 3rd world countries earning a fraction get by with paying more for Gas than people in the US. 
 

Tax the gas in the US to force alternatives and you solve Americas obesity, healthcare expenses, noise and air pollution, public transport, infrastructure issues, dependence on foreign oil, funding of countries like Venezuela, Russia, Middle East who rely on petroleum revenue and yes also reduction in greenhouse gases. 
 

 

Edited June 6, 2022 by adesigar

[cubsfan]

^^^^ You forgot the best part - you destroy millions of lives in the process and it's no skin 

off your back because you can afford it. Spoken like the Party of Davos.

 

 

[Blugolds]

No opinion on Climate change really, I think that its pretty obvious that we pollute and that it is detrimental to the environment, no arguments there, as to exact cause and effect I cant say and when I try to look into it more, I find equally strong opposing views. So I would say I’m open minded but neutral. 

 

I also think there are pretty obvious methods to reduce the amount of pollutants. Many other countries are significantly better than the US at doing so. 

 

What DOES surprise me is that often the same group that is anti-fossil fuel group is ALSO the group who is anti-nuclear and anti rail…the NIMBY crowd.

 

Nuclear is so obvious from a cost, safety, output, scale perspective that it is IMO a no brainer. Interestingly enough there is also mixed articles and viewpoints on if the grid could actually handle the majority of cars being EV. Something like 1,100 Twh needed…regardless I have watched some discussions from some in the space that say we wont get there with wind/solar and nuclear is the only viable option. 

 

I don’t foresee the US investing in building out a significant passenger rail system in the US like there is in Europe..I could travel all over Europe with a rail pass for dirt cheap, not an option here in the states. And I don’t foresee a politician pounding the table to get the US nuclear abilities on par with France for instance…those aren’t popular topics, much easier to paint a rose picture of solar grids and wind farms and talk about going green..without a clear cut logical and viable plan to do so. 

 

LIke everything in politics/gov everything is reactionary and knee-jerk, no smooth intelligent transitions, draw a line in the sand and you’re either with us or against us, we don’t need a discussion, we (our side) has decided that this is the course of action we are going with, right or wrong (and the side doesn’t matter cause they both do it). 

 

 

 

 

[cubsfan]

^^^ Absolutely right. Try getting nuclear past these politicians: safe, efficient, reliable - don't need 

the wind to blow or the sun to shine.  The US could learn a thing or two from France.

[adesigar]

16 minutes ago, cubsfan said:

^^^^ You forgot the best part - you destroy millions of lives in the process and it's no skin 

off your back because you can afford it. Spoken like the Party of Davos.

 

 

Like I said billions of people earn less and pay more and do more than absolutely fine. Some people just parrot the drivel they hear on Faux News.

[cubsfan]

No - some people are just plain dumb. They don't do absolutely fine.

 

You want the USA to go back to 3rd world status,

where millions of children die in childbirth and don't have enough to eat. Affordable fossil

fuels insure that agriculture, fertilizers and healthcare systems are affordable and safe.

 

That's the Al Gore view: Collateral Damage for the Climate Change Cause. Everyone but me.

 

IF I didn't know you were such a smart guy - I'd swear you just don't care. But I'm sure you do.

 

 

 

 

[Gregmal]

It’s not apples to apples because here people have been indoctrination and materialized. You give someone in Africa or India the stuff we see poor folks with here and they’re ecstatic. You give folks here the same lifestyle middle class folks in those countries have and they’re crying like babies. The notion of entitled to things like smart phones, restaurant(even QSR) food, and above bare bones price clothing in America is crazy. You have entire villages in Mexico working in avocado farms so Americans can eat at Chipotle or get their toast at Starbucks. 
 

It’s all about the system and what’s in place. The existing system here doesn’t allow for this “climate” saving solution overnight without severely damaging most of the country. And again we ask why? What’s the point? No politician or anyone even really outside of Elon Musk has come close to presenting anything legit and even there, Musk has incinerated capital with his venture. California and NY are the best examples. Take, take, take…where are the results? There’s never any results. It s always just “let’s stop using plastic bags”…and that’s it

[cubsfan]

^^^ It's Woke America in action. Every right/wrong can be legislated - just give the Party Masters

more money and power for themselves. Gov can solve everything.

 

But you're right about the brainwashing and indoctrination. The Woke crowd is a mile wide and an inch deep.