In this latest issue of my weekly podcast, I look at the mixed equities performance last week (U.S. up, Rest of World down), alongside a fall in the 10Y yield and a flattening yield curve. The markets are fixated on the on-again, off-again China deal: Will Trump make up his mind? We review some of the reasons why he has not yet made up his mind. Yet the suspense seems unbearable. A single optimistic comment by White House adviser Larry Kudlow (along with an as-expected retail sales release) was enough to send markets soaring upward on Friday afternoon.
Amazingly, markets could care less about the on-the-ground negative signal issuing from the real economy, namely, the very poor October number for industrial production. But even if markets did not notice, forecasters did. Both the NY and Atlanta Feds both revised their nowcasts for Q4 GDP down to near-zero.
We take a look at Fed Chairman Powell's testimony before the House Budget Committee. In that testimony, Powell raised serious questions about Congress's willingness or even capacity to provide fiscal stimulus when it really matters--i.e., come the next recession. Powell's questions coincided perfectly with a new Treasury report showing the federal deficit in October running an astonishing 34% higher than last October. The deficit in FY 2020 is due to weigh in at over 5.0% of GDP, despite the U.S. economy running above capacity. Nobody is talking about it. Just what planet are we living on?
Meanwhile, the Fed's brainy new Vice-Chairman Richard Clarida gave a substantive speech in Zurich on the likely future of long-term bond yields. We review Clarida's analysis, in particular his provocative assessment of the role of risk-parity portfolios in lowering the term premium.
China just had a terrible week: YoY industrial production turned in its fourth disappointing month in a row; and the PPI is declining even while consumer prices are accelerating and food prices are soaring. The Shanghai index has fallen by 3.5% in the last 8 market days. Europe trudges on, with industrial production still declining but GDP stabilizing at a barely positive (0.2% QoQ) rate.
In politics, things are looking up for Boris Johnson. His odds of retaining his Prime Ministership following the upcoming UK general election on December 12 are being priced at around 80%.
Things aren't looking quite so good for the Democrats in Washington, DC. The impeachment hearings (now public) are not connecting with undecided voters. Many party leaders are anxious lest a too-radical Democratic candidate loses to Donald Trump in 2020. This persuaded Michael Bloomberg to enter the race two weeks ago and Deval Patrick to enter the race last week. Good luck. This year, it appears that Democratic voters are just as intent on nominating a populist as the Republicans were back in 2016.
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