“So now we sit back and wait to see if Congress delivers.”
- Stephanie Kelton, following the Fed’s Policy Framework Shift
A primary pitfall for young writers is the presumption of knowledge on behalf of the reader.
A primary pitfall for young analysts is trying to boil the ocean on every analytical rep.
As you get older, you invariably and progressively build core short positions in ocean boiling, wheel reinvention and posthumous equine beating.
I’ve been curating and contextualizing every high-frequency domestic macro release for our team internally for over a decade.
Somewhere along the way the demand from those included on the external distribution was large enough that we just started formally publishing the internal/informal blog style data reviews.
Email if you want/aren’t on that distribution.
My hurdle criteria has always been exceedingly simple:
- Does it effectively distill out what matters, quantitatively?
- Does it effectively contextualize what’s incremental within the bigger picture?
- Is it silly/snarky/clever enough to amuse myself?
If you want extemporaneous and entertaining content delivery: Nobody does it better than KM.
If you want encyclopedic knowledge and a world class analytical density quotient (insight per written/spoken sentence): my partner on the Housing side, Josh Steiner @HedgeyeFIG, remains your favorite analysts favorite analyst.
If you want high-frequency, mildly amusing run-on sentences to keep you properly macro immersed ….. well, I know a guy.
Skill set diversity is, of course, why you have a team.
Find what you bring to the table … then pull up a chair.
Back to the Global Macro Grind ….
There’s always a healthy tension in attempting to simultaneously optimize the output with respect to the criteria above and in a format that can be effectively consumed in ~90 seconds.
Here is some of yesterday’s attempt:
PENDING HOME SALES | "Trivial" & "Wrong" Aren't Synonyms
Pending Home Sales in July rose +5.9% M/M while accelerating to +15.5% Y/Y in July. At 122.1 on the Index, signed contract activity was the highest in 15 years (since Oct 2005). Serious academic types have an abstruse technical term for such phenomenon: en fuego.
An unfortunate impediment to the perpetual ascent of parabolic demand curves in high-ticket, illiquid markets is that you can’t, generally, buy something that isn’t for sale.
While the resurgence in housing demand has been wholly epic and still carries some prospective upside – and while we never like to let pesky abstractions like facts and math get in the way of a good narrative - beneath the surface of escape velocity purchase demand is the burgeoning gravity associated with acute supply conditions.
That further acceleration in demand growth amidst ongoing, lower all-time lows in inventory becomes increasingly constrained as volume pushes further north towards cycle and multi-decade highs is fairly trivial … but, here, we’d gently remind you that ‘trivial’ and ‘wrong’ are rarely synonyms.
In any case, we’re not quite breaching a critical threshold on that imbalance yet, but the underlying constraint is building and it seemed worthwhile to offer some quasi-fabricated wetness to the ubiquitous ebullience currently blanketing domestic housing.
Nearer-term, with Mortgage Purchase Applications and signed contract activity up +65% and +77%, respectively, off trough, the risk remains to the upside for EHS with the increase in closed transaction volume only up +49% through reported July data.
JOBLESS CLAIMS | THE MILLION CLAIMS MARCH
The 1M Initial Claims march soldiers on as the pandemic plunge in employment pushes into its 24th week.
At some point large number gravity will drag the totals lower as you invariably begin to run out of people to fire …. although that week isn’t this week and with second round layoffs percolating many will own the dystopian distinction of being laid off more than once.
A few quick bigger picture highlights:
- As a reminder on a basic filtering of the weekly data … Initial State Claims and continuing PUA claims both overstate the level of job loss (due to multiple filings and catch up effects associated with backlogged claim processing). On the other side, however, continuing or total claims understates the magnitude of impact to aggregate consumption capacity as it doesn’t capture reduced hours or those who don’t qualify for UI benefits.
- Approximately 30 states have been approved for reinstated and reduced enhanced unemployment benefits sourced from the (very) finite $44B in disaster relief funds from FEMA. Only a couple have begun disbursing those funds and while benefits will be backdated upon approval, funds are only expected to last a matter of weeks with recipients receiving 30% less than the prior enhanced benefits, at best, and -66% to -100% less at worst (see last weeks note for a fuller review).
- The rolls of those unemployed for 26+ weeks is progressively building (i.e. in the millions and rising) – those individuals will be rolling out of benefit eligibility and at increasing risk of structural unemployment/disaffection/hysteresis.
- The decrement in enhanced unemployment benefits is occurring amidst a backdrop in which PPP funds have been exhausted (and a majority of small businesses have indicated acute risk of failure/closure if spending doesn’t fully renormalize by ~year-end) and alongside the rolling expiry of loan forbearance programs (where deferred loan payments have had the opportunity to be diverted to other discretionary spending) - both of which remain discrete risks to ongoing, durable recovery in the consumption economy.
The structural damage and scarring continue to take shape even as the labor market wounds remain very much open. Although the huddled and unemployed masses can bask in the sweet solace that Bezos is now worth $200 Billion … which will, of course, “trickle down”, without doubt.
IT'S ALL ABOUT THE FLOW, BRO!
The industry calls it good “flow”. We call it macro immersion – a dynamic state of awareness that allows you digest marginal changes and internalize evolving macro dynamics in the 90 seconds it took to read the above.
If you were left unsatiated by the above and how it fits into the bigger picture, it may be symptomatic of an immersion deficit.
I get it. Everyone operates with a real or perceived time deficit, but taking the few minutes, daily, to follow the macro flow is infinitely more efficient than having to backfill a contextual hole after the fact on every macro shift of consequence.
Coming back to our Headline quote, can you understand the broader implications of Powell’s announcement without that immersion?
Can you even know what questions to ask ….
- Does a remixed policy framework which promises lower for longer & will countenance higher inflation even practically matter when the market is projecting sub-2% inflation for the rest of my career and not pricing in rate hikes for years anyway?
- Does a knee-jerk higher in the long end and a steepening curve presage a fundamental shift in the policy-market communication and feedback loop for markets that – by virtue of progressive and metastasizing interventionism – are increasingly become policy variables?
- To the extent $USD and real yields down, inflation expectations up & nominal yields flat to down (on other side = gold up, crude/commodities) are all discrete policy objectives, then the fed was explicitly attempting to engineer QUAD 3 (masquerading as an attempt at Quad2/Reflation). Does the policy shift ultimately undermine that effort?
- Given emerging structural damage and all-time highs in corporate leverage, can the economy really absorb some measure of a rate shock on the long-end? ….
- … and, then, how far is too far on rates before it feeds back negatively on the growth outlook (and reverses on itself) and/or the Fed actively pursues yield curve control? …
- …. And if that is the defining reality, can we really ever have anything more than a fleeting pro-cyclical rotation?
Is it ironic that phonetic is not spelled phonetically? … and can a Gen-X’er not help but feel old now that Macaulay Culkin is officially 40 years old?
A lot to immerse yourself in to close out August as the sun sets on a historic summer and looks to rise on a potentially historic policy shift.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.56-0.76% (bearish)
SPX 3 (bullish)
RUT 1 (bearish)
NASDAQ 11,032-11,735 (bullish)
Tech (XLK) 114.22-123.64 (bullish)
REITS (XLRE) 35.24-36.75 (bullish)
Utilities (XLU) 58.43-60.85 (bullish)
Financials (XLF) 24.12-25.40 (bearish)
Shanghai Comp 3 (bullish)
Nikkei 220 (neutral)
VIX 21.53-27.52 (bearish)
USD 92.08-93.51 (bearish)
Oil (WTI) 42.03-43.70 (bullish)
Nat Gas 2.28-2.77 (bullish)
Gold 1 (bullish)
Silver 25.99-28.40 (bullish)
Copper 2.85-3.05 (bullish)
Have a great weekend,
Christian B. Drake
Macro Analyst
