The Fed Delivers a Baby, Gold Jumps

Link: https://mishtalk.com/economics/the-fed-delivers-a-baby-gold-jumps

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The Fed Delivers a Baby

Actually, it was obvious 7 months ago that it was time to move away from “emergency” conditions.

The Fed decided to deliver a baby instead. 

In two more months, the Fed will finally finish tapering. Then we see what kind of baby steps the Fed makes. 

Author(s): Mike Shedlock

Publication Date: 11 Jan 2022

Publication Site: Mish Talk

Bonds are the key to reining in runaway municipal pension plans

Link: https://thehill.com/opinion/finance/588537-bonds-are-the-key-to-reining-in-runaway-municipal-pension-plans?rl=1

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In what is the product of the sustained low-rate environment, many municipalities are considering addressing their pension position through bonds. This should be encouraged by policymakers and explored by pension systems.  

Bond markets are offering municipalities the opportunity to exchange discount rates of 6, 7 and sometimes even 8 percent for bonds with yields below 3 percent. The spread between the discount rate and the bond yield is the root of the appeal of pension obligation bonds. 

Author(s): Eric J. Mason

Publication Date: 6 Jan 2022

Publication Site: The Hill

Bond Yields Surge to Start 2022, What’s Ahead?

Link: https://mishtalk.com/economics/bond-yields-surge-to-start-2022-whats-ahead

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I find the prospect of 7 rate hikes in 2022 more than a bit amusing.  Here’s a good way of looking at things.

0 to 2 hikes: 33.8%

3 hikes: 30.2% 

4 or more hikes: 36.0%

The median projection is now a bit more than 3 hikes this year. 4 and 2 rate hikes are at nearly equal odds, but 5, 6, an 7 hikes rated a combined 13% vs 0 to 1 hike at a combined 10.8%

The change in rate hike odds today reflect the surge in yields that also happened today.

Author(s): Mike Shedlock

Publication Date: 3 Jan 2022

Publication Site: Mish Talk

The Fed’s Doomsday Prophet Has a Dire Warning About Where We’re Headed

Link:https://www.politico.com/amp/news/magazine/2021/12/28/inflation-interest-rates-thomas-hoenig-federal-reserve-526177

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In May of 2020, Hoenig published a paper that spelled out his grim verdict on the age of easy money, from 2010 until now. He compared two periods of economic growth: The period between 1992 and 2000 and the one between 2010 and 2018. These periods were comparable because they were both long periods of economic stability after a recession, he argued. The biggest difference was the Federal Reserve’s extraordinary experiments in money printing during the latter period, during which time productivity, earnings and growth were weak. During the 1990s, labor productivity increased at an annual average rate of 2.3 percent, about twice as much as during the age of easy money. Real median weekly earnings for wage and salary employees rose by 0.7 percent on average annually during the 1990s, compared to only 0.26 percent during the 2010s. Average real gross domestic product growth — a measure of the overall economy — rose an average of 3.8 percent annually during the 1990s, but by only 2.3 percent during the recent decade.

The only part of the economy that seemed to benefit under quantitative easing and zero-percent interest rates was the market for assets. The stock market more than doubled in value during the 2010s. Even after the crash of 2020, the markets continued their stellar growth and returns. Corporate debt was another super-hot market, stoked by the Fed, rising from about $6 trillion in 2010 to a record $10 trillion at the end of 2019.

Author(s): Christopher Leonard

Publication Date: 28 Dec 2021

Publication Site: Politico

Year-End 2021 Capital Markets Wrap-Up

Link:https://content.naic.org/sites/default/files/capital-markets-special-report-YE%202021%20wrap%20up.pdf

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The U.S. economy has made a solid recovery as COVID-19 vaccinations were made increasingly
available, social distancing began to ease, and businesses gradually reopened.
The International Monetary Fund (IMF), among other forecasters, expects the U.S. economy to
grow by about 6% in 2021, after contracting about 3.4% in 2020.
• Inflation reached a 39-year high of 6.8% in November following a strong rebound from the COVID19-induced recession.
• The ‘stronger for longer’ inflation rates prompted the Federal Reserve to accelerate the tapering
of its asset purchases and to suggest the likelihood of three rate hikes in 2022.
• The 10-year U.S. government bond yield has generally ranged between 1.3% and 1.7% in 2021,
increasing from less than 1% in 2020, due in part to fiscal stimulus aiding in economic recovery.
• Credit spreads have been muted in 2021 given robust global economic growth, favorable funding
conditions, and overall solid corporate performance despite higher costs and supply disruptions.
• Global stocks have achieved relatively high returns; in the U.S., the Standard & Poor’s (S&P) 500
posted seven record closing highs in November alone.
• The price of oil reached a seven-year high of $85 per barrel in 2021 as demand for oil normalized
while the global supply market tightened.

Author(s): : Jennifer Johnson and Michele Wong

Publication Date: 22 Dec 2021

Publication Site: NAIC Capital Markets Bureau Special Reports

I come to bury Build Back Better, and dance on its grave

Link:https://marypatcampbell.substack.com/p/i-come-to-bury-build-back-better

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Productivity gains in consumer electronics have not been able to exceed the erosion of the currency’s value.

Bills such as Build Back Better are just a piece of the reason — we have more coming. We have a huge demographic issue, and a huge Social Security and Medicare bill not yet paid. Shoveling out more money and writing more IOUs will not help matters.

So, RIP, BBB. Please stay dead.

Author(s): Mary Pat Campbell

Publication Date: 21 Dec 2021

Publication Site: STUMP at substack

Omicron Is an Economic Threat, but Inflation Is Worse, Central Bankers Say

Link:https://www.nytimes.com/2021/12/16/business/economy/omicron-inflation.html

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Facing surging inflation, three of the world’s most influential central banks — the Federal Reserve, Bank of England and European Central Bank — took decisive steps within 24 hours of each other to look past Omicron’s economic uncertainty.

On Thursday, Britain’s central bank unexpectedly raised interest rates for the first time in more than three years as a way to curb inflation that has reached a 10-year high. The eurozone’s central bank confirmed it would stop purchases under a bond-buying program in March. The day before, the Fed projected three interest rate increases next year and said it would accelerate the wind down of its own bond-buying program.

….

Aside from Omicron, the central banks were running out of reasons to continue emergency levels of monetary stimulus designed to keep money flowing through financial markets and to keep lending to businesses and households robust throughout the pandemic. The drastic measures of the past two years had done the job — and then some: Inflation is at a nearly 40-year high in the United States; in the eurozone it is the highest since records began in 1997; and price rises in Britain have consistently exceeded expectations.

….

The Federal Reserve and Bank of England are worried about the persistence of high inflation. For the European Central Bank, inflation in the medium term is too low, not too high. It is still forecasting inflation to be below its 2 percent target in 2023 and 2024. To help reach that target in coming years, the central bank will increase the size of an older bond-buying program beginning in April, after purchases end in the larger, pandemic-era program. This is to avoid “a brutal transition,” Ms. Lagarde said.

Author(s): Eshe Nelson

Publication Date: 16 Dec 2021

Publication Site: New York Times

Major Divergences: ECB Says No Hikes in 2022, Fed Sees 3 Hikes, BOE Hiked Today

Link:https://mishtalk.com/economics/major-divergences-ecb-says-no-hikes-in-2022-fed-sees-3-hikes-boe-hiked-today

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How many rate hikes are coming? The Fed thinks 6 by the end of 2023. I am unconvinced the Fed gets in any hikes in 2022 and certainly not 6 by the end of 2023.

These ridiculous predictions assume there will not be another recession in “the longer run”. 

Central banks like to pretend they will hike, but by the time comes, they have delayed so long they find an excuse to no do so. 

Possible excuses: A recession, stock market plunge, another pandemic, global warming, global cooling, or an asteroid crash. 

Central banks will find some excuse to delay hikes. But the most likely excuse is a recession or stock market crash. 

Author(s): Mike Shedlock

Publication Date: 16 Dec 2021

Publication Site: Mish Talk

Covid Spurs Biggest Rise in Life-Insurance Payouts in a Century

Link:https://www.wsj.com/articles/covid-spurs-biggest-rise-in-life-insurance-payouts-in-a-century-11639045802

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The Covid-19 pandemic last year drove the biggest increase in death benefits paid by U.S. life insurers since the 1918 influenza epidemic, an industry trade group said.

Death-benefit payments rose 15.4% in 2020 to $90.43 billion, mostly due to the pandemic, according to the American Council of Life Insurers. In 1918, payments surged 41%.

The hit to the insurance industry was less than expected early in the pandemic because many of the victims were older people who typically have smaller policies. The industry paid out $78.36 billion in 2019, and payouts have typically increased modestly each year.

….

In the 1918 flu pandemic, the number of U.S. deaths reached about 675,000, with mortality high in people younger than 5 years old, 20 to 40 years old, and 65 years and older, according to the CDC’s website.

The ACLI’s data show two other years, both in the 1920s, when year-over-year increases topped 15%, when there also were influenza epidemics, said Andrew Melnyk, the ACLI’s vice president of research and chief economist.

Author(s): Leslie Scism

Publication Date: 9 Dec 2021

Publication Site: Wall Street Journal

Millions of workers retired during the pandemic. The economy needs them to “unretire,” experts say.

Link:https://www.cbsnews.com/news/retirement-covid-pandemic-unretire-labor-shortage/

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An economist will tell you it’s a hot labor market: A record number of people quit their jobs in September, and the U.S. is seeing record job openings as the economy chugs back to life from the coronavirus pandemic. The pandemic drove millions of workers into early retirement — and experts say they could be key to reviving the economy.

The number of people who retired rose much faster than the typical pace during the pandemic. More than 3 million additional people retired compared with normal, a Federal Reserve Bank of Saint Louis analysis found. Meanwhile, the economy is still down nearly 4 million jobs from before COVID-19.

“40% of the older workers that were pushed out of the labor market because they were unemployed, they were laid off, they were fired during the pandemic, 40% of them were permanent job losers and most of them said OK, I’m not just a discouraged worker, I’m not a long-term unemployed, I’m going to tell the [Labor Department] survey I’m retired,'” said Teresa Ghilarducci, labor economist and professor at The New School.

….

But even if retirees return to work at the average pre-pandemic pace, it will take more than two years to bounce back from the recent surge in retirements, the Federal Reserve Bank of Kansas found.

Last month, employment among workers 55 and older increased while unemployment dropped slightly. Older workers are typically more likely to face long-term unemployment than younger workers. While long-term unemployment among older workers changed little last month, it has declined in recent months. Older Americans coming out of retirement might not be returning to the same landscape.

Author(s): Sarah Ewall-Wice

Publication Date: 8 Dec 2021

Publication Site: CBS News

How Many People in NYC Are At Risk of Losing Their Job Over the Mayor’s Vaccine Mandate?

Link:https://mishtalk.com/economics/how-many-people-in-nyc-are-at-risk-of-losing-their-job-over-the-mayors-vaccine-mandate

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NYC Vaccination Data shows that at most, 18.3% of New Yorker residents are theoretically impacted, but not all of them work.

….

That is less than half of the population of the city. Factoring in the vaccination rate, about 9% of the entire city is at risk of losing their jobs.

Thus Borelli is wildly off on his percentages.

I am not at all defending mayor de Blasio. Indeed, I heavily blasted him in New York City Mandates Vaccinations, Please Be Ready With Your Vaccine Card.

I am just in search of more accurate numbers.

Author(s): Mike Shedlock

Publication Date: 8 Dec 2021

Publication Site: MishTalk

Stress Testing in Sacramento

Link:https://mailchi.mp/5ac903164813/stress-testing-in-sacramento-6602594

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In January the Department Of Finance will issue the Governor’s Budget for 2022-23. No section will be more important than the Stress Test, which forecasts revenue losses in the event of a stock market decline such as in 2001-3 and 2008-9.

Last January, the Governor’s Budget forecast revenue losses of $100 billion. Just two years earlier, the 2019-20 Governor’s Budget forecast losses of $50 billion. That makes sense because, as DOF explains, “the higher levels and valuations in the stock market increase the risk of a large stock market drop leading to a large decline in capital gains revenues” on which California is extraordinarily dependent.

….

Schools and other services need predictable annual funding. You should build reserves to the levels predicted by stress tests.

Author(s): David Crane

Publication Date: 5 Dec 2021

Publication Site: Govern for California (Mail Chimp)