Macroeconomics

Snippets on the big picture.

Macroeconomics

Africa

  • Starting with cliches is a good way to start this fantastic piece on Africa.
  • It covers everything from demographics to key venture players to opportunities.
  • Well worth a read for those interested in this continent.
  • Let this map just sink in.
  • There are 1.2bn people in Africa, a number that will double in 30 years to 2.4bn.
  • Roughly 50% will be under 25 years old. The staggering stats go on.
Macroeconomics

UK Housing Affordability Pt 2

  • “However, house prices are close to a record high relative to average incomes. This is important because it makes it even harder for prospective first time buyers to raise a deposit. For example, a 10% deposit is over 50% of typical first time buyer’s income. A potential buyer earning the average wage and saving 15% of take home pay would now take five years to raise a 10% deposit.”
  • Nationwide House Price Index June 2021.
Macroeconomics

UK Housing Affordability Pt 1

  • “Despite the increase in house prices to new all-time highs, the typical mortgage payment is not high by historic standards compared to take home pay, largely because mortgage rates remain close to all-time lows – in fact, on this measure affordability remains broadly in line with its long run average, as shown in the chart“
  • Nationwide House Price Index June 2021.
Macroeconomics

Rosenberg Slides

  • Good slide deck from David Rosenberg.
  • It is interesting because it goes against a lot of consensus views.
  • (1) The demand boost is largely temporary (fiscal stimulus) and will start to subside e.g. consumer discretionary was actually up last year.
  • (2) Supply will eventually catch up (lumber production +20%, booming semiconductor exports Taiwan/Korea, lots of full container ships at US ports).
  • Inflation depends largely on the labour market and that still has considerable slack (U-6 rate is 11% vs. 8% pre-Covid, slide 79 Atlanta Fed Wage Tracker is benign).
  • Things like commodities (China is delevering anyway) and ISM diffusion indices (see chart) don’t drive inflation.
  • Have a look and make up your own mind.
Macroeconomics

US Inflation Peaking?

  • A useful inflation tracking index (consisting of seven measures of inflation) that is both more timely and overcomes the challenges of each individual measure.
  • The latest update (7th June) – pictured – suggests inflation could be peaking.
  • For the first time this year the mean and median are holding steady.
Macroeconomics

US Labour Market

  • A big debate is going on about the tightness of labour markets in the US.
  • This chart from Pantheon Macro is instructive – 5 million people are missing from the labour force.
  • By Q3 factors holding individuals back will fade – enhanced unemployment benefit will expire (6th Sep) and all childcare/schools will likely be open.
  • Near term however we have lots of evidence of tightness (signing bonuses, rising wages) and the Fed is taking notice.
Macroeconomics

Inflation Debate

  • There is a considerable debate raging right now on the future level of inflation, exacerbated by the consensus busting April CPI print (here, here and here).
  • This piece, written by economists, is worth reading.
  • It proposes looking at median CPI to construct the Phillips curve, as it better reflects macroeconomic conditions.
  • The resulting relationship is stable pre- and post-pandemic and suggests, under bullish unemployment scenarios, that implied core PCE could hit 1.8-2.3% by 2023, “broadly consistent with the Fed’s average inflation targeting strategy with inflation modestly overshooting its long-term level following a number of years of undershooting it.“
  • They also don’t see, unlike others, temporary government spending causing an unanchored inflationary spiral given a better communication framework from the Fed and positive supply side effects of infrastructure spending.
Macroeconomics

Hoisington Q1

  • If you want to read something that is totally in the face of current market expectations of inflation this is the piece.
  • It comes from Hoisington Investment Management – long time bulls on long term treasuries.
  • “Contrary to the conventional wisdom, disinflation is more likely than accelerating inflation. Since prices deflated in the second quarter of 2020, the annual inflation rate will move transitorily higher. Once these base effects are exhausted, cyclical, structural, and monetary considerations suggest that the inflation rate will moderate lower by year end and will undershoot the Fed Reserve’s target of 2%. The inflationary psychosis that has gripped the bond market will fade away in the face of such persistent disinflation.“
Macroeconomics

House Prices and Inventory

  • Useful chart from the excellent Calculated Risk blog.
  • “This graph shows existing home months-of-supply (from the NAR) vs. the seasonally adjusted month-to-month price change in the Case-Shiller National Index (both since January 1999 through February 2021).“
  • Simply put if inventory is high prices decline, if months of supply is low they rise.
  • Months of supply in March is 2.1. Prices are rising strongly.
Macroeconomics

Savings Rate

  • “Observation of history also supports the notion that the saving rate is unlikely to sharply undershoot its pre-pandemic value. Consider the experience around World War II. During the war, the saving rate spiked as production and purchases of consumer goods and spending on leisure services were curtailed. At the conclusion of the war, despite the release of pent-up demand as returning service members married and started families, the saving rate declined to a level above its pre-war average and then trended higher for several years. Our forecast features a broadly similar result. The return of the normal relationship between spending, income, and wealth does not imply an undershoot of the saving rate. Without such an undershoot, the path of consumer spending, while strong, does not launch the economy into an inflationary boom.“
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