- 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
Snippets on the big picture.
China Credit Impulse
- China’s credit impulse leads global manufacturing PMIs by 12 months.
- It just rolled over.
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.
Inflation Mentions
- Companies are mentioning inflation an awful lot.
Truck Tonnage
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.“
Korean Exports
Indicators
- Coincident and leading indicators are at or near all time highs.
- Most are positive while others (debt, deficits, equity valuations, margin debt and supply shortages) are worrying.
- Source.
China Singles’ Day
- Singles’ day GMV in China dwarfs all US holiday retail events combined.
- Source.
Future of Cities
- A really brilliant interview with Enrico Moretti, a researcher in labour and urban economics.
- He makes two points on the future of post-pandemic cities, which, due to agglomeration effects he sees as bright.
- There will be two forces – the first as employers accept some working from home, workers will accept a longer commute if it is less frequent, thereby growing the size of cities and hence the amenities they support.
- This process will also lighten the load on the urban core – thereby making it more attractive.
- Which force will win out is yet to be seen.
Financial Risk Perception by Country
- US stands out from other countries when it comes to perception of the benefit/risk from financial investing.
UK Retail
- Nearly 11,000 stores (defined as retail, restaurant and leisure premises) permanently disappeared from UK retail landscape last year.
- This is largely coming from chain stores (-9,877) with the independent market shrinking only (-1,442).
- The article does say that many more remain temporarily closed so the full impact is not clear.
Mortgage Payments
- Alternative way of looking at the US housing market – suggesting it isn’t as frothy as it seems.
- Adjusted for inflation and interest rates, using median house prices and a 20% downpayment the monthly mortgage payment in the US has actually come down over time.
- This is especially so if you adjust for the “quality” of the median house.
JPM Q1 2021 Slide Deck
- Comprehensive slide deck – Guide to The Markets – Q1 edition.
- Worth a flick.
Biggest Tail Risk
- For first time in months Covid is no longer the biggest risk cited by fund managers in the BAML Survey.
- Interesting chart of what does get mentioned over time.
Inflation Extrapolation
- Nice chart from KKR showing how investors in the 2000s have over-extrapolated the persistence of early cycle inflation.
- The reason this happens is early cycle pops in commodity prices and disposable incomes don’t flow through to core consumer prices.
- Consumer goods themselves are also only a quarter of core CPI.
- See page 17 of the report for details.
Early Cycle
- Nice chart from an excellent KKR March macro report.
- It shows that from being late-cycle at the end of 2019 most indicators reset back to early-cycle.
Buying without Seeing
- Staggering chart showing that 63% of respondents on property site Redfin made an offer on a home without seeing it.
Inflation pt 2
- Most indicators suggest inflation is heading higher in 2021, though there is some disagreement (here).
- Here is one more from Nordea to add to the list.
- The bank argues overshooting inflation will be harder to defend in an average inflation targeting regime than when it is below target.
- The Fed and the market, as we wrote before, need to discern whether this is transitory or persistent.
