“It’s essential we move with urgency … we risk missing the obligation to redress deeper structural problems.”
- Janet Yellen
Moore’s law describes the temporal evolution in computing capacity, stating that computing power should double roughly every two years while the cost of computing power gets halved.
Moore’s law is really Moore’s empirical extrapolation whose time has now (probably) reached its terminal end.
Fear not, dear friend, for another’s time has come.
Running parallel in the shadow of Moore’s law has been its lesser known macro counterpart whose ascendency has been no less dramatic or impactful: Moarr’s Law
Moarr’s Law now occupies the exponential curve throne. She requires only that you bend the knee.
Moarr’s Law simply states that policy stimulus must be doubled every 18 months in accordance with the empirical requirement that central bank accommodation be sufficient to fully subsume the prior cycle and any of the outcroppings, imbalances or misallocations associated with it, along with providing a fresh stimulatory impulse of sufficient magnitude.
Whether the post-GFC journey to our current ZIRP’ian/NIRP’ian surreality equates to a terminal dead-ending of stimulatory monetary policy capacity remains debatable, but it’s certainly not the terminal end for attempted policy innovation.
Yellen has been chosen to captain the soft Fed-Treasury merger and shepherd the further evolution of Moarr’s law
Will the merger bring monetization harm-ony or just harm?
We’ll find out, but the answer probably carries some discrete duration sensitivity (hint: the early year(s) of MMT-esque policy coordination are likely to invite euphoric assessments)
*Note: I didn’t make up the Moarr’s Law bit. That beauty randomly crossed my twitter feed some months ago so shout to whoever captained that macro-linguistic gem.
Back to the Global Macro Grind …..
It’s Friday, my COVID-fatigue is deepening, and it feels like we’ve been mired in the Quad3/Quad4 quagmire for eternity.
So, as we bask in the reflationary embrace of impending Quad 2, I’m going to go full rainbows, mermaids and ice cream with the narrative here this morning and purposefully paint the consumption outlook using a brush with hair harvested from virgin unicorns – the angelic progeny of bliss and Morgan Freeman’s voice, raised in organic, manicured pastures fertilized with serenity and childhood innocence.
Ha!
Now, let’s indulge in the following macro procession:
|
Current conditions cultivate a backslide in activity into year-end but also setup an even easier base effect dynamic, both sequentially and Y/Y in 2021 → A bipartisan stimulus “down payment” helps assuage the more acute concerns around the impending income cliff and a negative macro spiral → realized vol continues to drift lower, supporting flows and further re-leveraging from vol sensitive strats in a virtuous, self-referential loop → The Fed announces WAM extension, constraining the threat of a more meaningful backup in nominal long-rates, maintaining pressure on real rates and helping to sustain record easiness in financial conditions → the Biden/Yellen inauguration is chased by the vaccine inauguration → paving the way for a further step function increase in employment, a prospective easing in supply chain bottlenecks and a reversion lower in pandemic related goods inflation → easy comps and an acceleration in aggregate private sector income growth associated with employment gains drive an acceleration in collective consumption capacity → the organic acceleration in income growth is further amplified by a decrease in the savings rate and a drawdown in the cumulation of excess savings resulting in a domestic household spending juggernaut. |
Wow, that is some sirenic sh*t right there!
You could almost imagine the bullish seduction serving to drive some crazy market dynamics …. Like all-time high valuations, all-time high call option activity, or a macabre surreality like simultaneous ATH’s in equities and Covid related deaths.
I’m tempted to just hard stop the missive here this morning, but it’s jobs day and there is blocking and tackling to do in terms of contextualizing the related, high-frequency domestic macro data. So, quickly …
Jobless Claims: In short, Holiday related distortions challenged a clean or convicted read on underlying trend in yesterday’s data. However, there was some notable bigger-picture context. Here’s the open link (Distortions & Distractions | Jobless Claims) to the note we published yesterday (we curate and contextualize all the domestic macro data for institutional and macro pro subscribers daily) if you’re interested in the fuller context.
ISM Services: One might reasonably expect services activity to backslide alongside a parabolic increase in COVID hospitalizations and the associated reinstitution of large-scale containment and shutdown initiatives.
Of course, “Reasonable” and “Right” aren’t necessarily synonyms. Particularly in market space.
While the ultra-high frequency alt data and the preponderance of Fed Regional Surveys have flashed softening alongside the COVID re-intensification, the Market Services PMI for November notched a multi-year high with the Employment Subindex posting record strength. The ISM Services Employment Index followed suit, rising +1.4 pts to 51.5.
If you’re keeping score:
- Decreasing/Worsening: Jobless Claims, ISM Manufacturing Employment, Homebase Small Business Employment and Hours Worked, Paychex/HIS Markit Small Business Employment index, Employment series in select Fed Regional Surveys, Census Pulse Survey on Employment/Income expectations
- Increasing/Improving: Markit Services PMI Employment, ISM Services PMI employment, ADP employment, Employment series in select Fed Regional Surveys
- Wild-card: The roll-off of approximately -100K in Temporary Census works will continue to drag on Headline NFP and the pace of gains will continue to moderate while carrying downside risk the next couple months.
Got that?
Of course not. But that is also probably the point….
For forward looking and policy backstopped markets inoculated by the prospect of a vaccine, a tangible timeline for distribution and a return to relative normality …. sufficiently equivocal is, well, sufficient for equities to persist in their reflationary optimism, for now.
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.81-0.98% (neutral)
UST 2yr Yield 0.15-0.18% (neutral)
SPX 3 (bullish)
RUT 1 (bullish)
NASDAQ 11,891-12,534 (bullish)
Tech (XLK) 120.90-126.72 (bullish)
Energy (XLE) 35.56-40.87 (bullish)
Utilities (XLU) 62.03-64.65 (bearish)
Gold Miners (GDX) 33.01-36.76 (bearish)
Shanghai Comp 3 (bullish)
Nikkei 254 (bullish)
DAX 13037-13419 (neutral)
VIX 19.53-23.66 (bearish)
USD 90.42-92.23 (bearish)
Oil (WTI) 42.49-47.06 (bullish)
Nat Gas 2.43-3.05 (bullish)
Gold 1 (bearish)
Copper 3.27-3.58 (bullish)
Have a great weekend,
Christian B. Drake
Macro Analyst
