De-Globalization, Pandemic Policymaking, & Antitrust. (12-14 to12-21)
In this week we will be looking at 7 separate newsletters for our macro recap.
We strive to incorporate as many independent views into this newsletter. We want to identify & synthesis this data for our audience, allowing you to get an understanding from a high level what is happening, then be able to quickly dig into the details of the newsletters linked below.
Let's Dive In!
Newsletter: Stenos Signals
Article: The Great Game #5 - China and the Anti-Western Axis.
Link: https://andreassteno.substack.com/p/the-great-game-5-china-and-the-anti
Here are the top takeaways from this article:
The deglobalization trend has picked up during 2022, with Europe stopping its gas imports from Russia and the US looking to reshore its microchip manufacturing.
This has strengthened the position of OPEC countries, who now include Russia, and increased the importance of traditional energy sources such as oil.
China has signed a 30-year Strategic Partnership Agreement with Saudi Arabia, which includes plans for joint economic development and bars interference in domestic affairs by either nation.
This Agreement is part of China's wider efforts to create a market where the Yuan is used as the main currency, instead of the US Dollar.
China has also recently signed a comprehensive cooperation agreement with Iran, another key player in the global oil market.
These actions by China are part of a wider trend of countries in the Southern Hemisphere rejecting the American-led world order.
Newsletter: The Lens
Article: Policymaking in a Pan(dem) ic.
Link: https://stephaniekelton.substack.com/p/policymaking-in-a-pandemic
Here are the top takeaways from this article:
In 2016, then-Fed Chair Janet Yellen said that fiscal policy has traditionally played an important role in dealing with severe economic downturns.
Yellen noted that a wide range of possible fiscal policy tools and approaches could enhance the cyclical stability of the economy.
Around the same time, San Francisco Fed President John Williams said that if Congress could come up with better fiscal policy, it would take pressure off of the Fed to have to use other methods (like quantitative easing) to stabilize the economy.
The 2007/08 financial crisis showed that when Congress doesn't provide enough fiscal support during an economic downturn, it can lead to devastating effects on the labor market.
In 2020/21, Congress delivered three substantial pieces of legislation that actively supported the economy with around $5 trillion in additional spending.
This helped to avoid an anemic recovery like the one following the 2007/08 crisis, and restored full employment in a much shorter timeframe.
Newsletter: Apricitas Economics
Article: The 2023 Macro Outlook.
Link: https://www.apricitas.io/p/the-2023-macro-outlook
Here are the top takeaways from this article:
The macroeconomy is now largely dependent on how quickly inflation slows down, and there is a great deal of uncertainty surrounding what will happen.
There are three possible outcomes for next year: a hard landing where inflation only decreases after a recession, a soft landing where growth slows but inflation decreases as well, or no landing where inflation stays above the Federal Reserve's 2% target.
The odds of a recession in the next year have decreased since earlier this summer, but a significant economic slowdown is still the most likely outcome.
Inflation expectations have fallen dramatically, but businesses still expect high levels of inflation.
Interest rates are highly volatile and are expected to continue to be so.
The yield curve inversion indicates that markets expect the Fed to cut rates soon, which usually happens before a recession.
Newsletter: BIG
Article: Get Antitrust Legislation Done, Chuck Schumer.
Link: https://mattstoller.substack.com/p/get-antitrust-legislation-done-chuck
Here are the top takeaways from this article:
The Senate Majority Leader promised to pass antitrust legislation three years ago, but has yet to follow through.
The legislation would have a major effect on competition and monopoly power, and this is the last chance to pass it for a few years.
Schumer is under pressure from both sides, with some wanting to pass the legislation and others (such as big tech companies) not wanting it to pass.
It is now up to Schumer to decide whether to include the antitrust legislation in the omnibus government funding bill.
If he does so, it is likely to pass, as even those opposed to it realize that it is not worth shutting down the government over.
This is a crucial decision that will have major implications for monopoly power in the United States.
Newsletter: Stay At Home Macro
Article: Ban the Phillips Curve.
Link: https://stayathomemacro.substack.com/p/ban-the-phillips-curve
Here are the top takeaways from this article:
The Fed raising interest rates is the primary policy tool to fight inflation, but this has caused problems for many people in the US.
Larry Summers is critical of the relief efforts, claiming that a severe recession and massive rate hikes are necessary to get inflation down.
Macroeconomists have learned that the Phillips Curve is not always accurate, and that there are many factors that can influence inflation and unemployment.
The practical application of the Phillips Curve is difficult, because there are many different types of shocks that can affect the economy.
The Fed jacking up interest rates to destroy demand is undermining policies from Congress and the White House to make our country more resilient and productive.
Banning the Phillips Curve would be beneficial because it would cost us dearly if we continue to use it.
Newsletter: The Macro Compass
Article: Don't Fight The Fed.
Link: https://themacrocompass.substack.com/p/dont-fight-the-fed
Here are the top takeaways from this article:
The Federal Reserve is meeting to discuss the implications of recent economic data for markets and the latest CPI print showed ex-housing core services pricing cooling further, leading markets to believe that the Fed is pivoting to a more dovish stance.
However, Fed chair Powell believes that the labor market is still strong and does not warrant loosening of monetary policy.
Powell is setting policy based on past data rather than forward-looking indicators, which could lead the US into a recession.
The bond market understands that if the Fed tightens financial conditions too much, it will cause a recession.
Powell is not considering raising the inflation target, as he believes that doing so would damage the Fed's credibility.
In an average recession, the Fed cuts interest rates by 300-400 basis points, and earnings drop by 30%.
Newsletter: The Trader's Brief
Article: The Weekly Beat: 19 December 2022.
Link: https://intertemporal.substack.com/p/the-weekly-beat-19-december-2022
Here are the top takeaways from this article:
The Federal Reserve's current policy stance is similar to the one used in the 1970s, when inflation was a major issue.
Chairman Powell has stated that the Fed plans to slow down rate increases and that a recession is not necessary to rebalance the economy.
However, the market does not appear to be convinced by Powell's words, and there is a possibility that the Fed could find itself behind the curve if inflationary pressure starts to ease.
Gold prices have been unexpectedly resilient in the face of rising real rates.
In Canada, bond yields are signaling to the central bank that a policy error has occurred.
In the United States, yields at the long end of the curve have been locked together.
Thanks For Reading!
If you find value in this newsletter and want to make sure you don't miss any important updates, you should definitely consider subscribing. By subscribing, you'll be the first to know about new articles and special offers.
So don't wait - hit the subscribe button now and join our community of informed readers.
If you have any newsletters you wish to see in our lineup, please reach out and let us know. We will continually look to incorporate more sources to our weekly wrap-up