US Economic News

[specuvestor]

The argument that US cannot be constant deficit has been raised since Breton Wood. Nobody else can spend what US deficit indicates simply because USD is massively ⅔ dominant in reserve currency and >90% FX involved USD which will hold up the demand. Until people lose faith in USD or trade volume % in USD goes down this worry will continue with no consequence like the sun eventually engulfing earth.

That’s why Russia was leading in asking nations to sell US securities during GFC to undermine the faith, which China didn’t follow. Will Petro$ breakdown will be the next thing to watch.

[Behappyalways]

On the issue that Fed cannot raise the interest rates too high else the US will not be able to service their debts ...


https://mobile.twitter.com/biancoresearc...8366746624



Used-Car Prices Reaccelerate With Biggest February Gain Since 2009
https://www.zerohedge.com/markets/used-c...-gain-2009

[Big Toe]

This debt ceiling is quite interesting. Neither party is willing to make meaningful cuts on spending/increase taxes to upset the populous, which means kicking the can down the road. As it is a long road, they can probably kick it for a long time. The average interest rate paid on debt is still very very low due to a decade of low interest rates( hikes are only a recent thing). Interest on debt is just under 7% of US budget(about the size of SG GDP) but certainly will rise. In the longer term, as there is no way the economy can grow fast enough to fund their spending habits, it would mean tax hikes and budget cuts in the foreseeable future. It is almost a certainty that well-to-do individuals and companies will be the ones bearing most of the hikes.

Akin to one very wealthy man with great/constant income but lacking discipline to lower his debt and curb his free-spending ways.

[brattzz]

the whole world is in this debt fueled growth... with massive printing among the biggest economies, there can be no stoppages of this... US can try, but there is simply no end to this... US's debts will continue to spike,

rest of the world economies will follow US's lead, and continue to expand their debts...

We see no reset in sight! :O

[CY09]

https://www.cnbc.com/2023/03/10/silicon-...pened.html

A bank run has resulted in the bank selling off its US treasury bonds at realised losses due to the constant Fed Fund Hikes. The next question is how much of each bank's porfoilo are sittng on unrealised losses due to the Fed rate hikes, should there be a move to withdraw deposits, banks may be forced to realised losses, pushing them to negative equity

[weijian]

https://www.cnbc.com/2023/03/10/silicon-...pened.html

A bank run has resulted in the bank selling off its US treasury bonds at realised losses due to the constant Fed Fund Hikes. The next question is how much of each bank's porfoilo are sittng on unrealised losses due to the Fed rate hikes, should there be a move to withdraw deposits, banks may be forced to realised losses, pushing them to negative equity

It's probably more nuanced than that. I thought this article has a good summary (at least for me who is an outsider to all the workings of the US financial system).

But the demise of SVB does largely explain why certain companies that manages assets (eg. Great Eastern) hasn't been doing very well in terms of stock price and looking really cheap.

The Demise of Silicon Valley Bank


Silicon Valley Bank was never subjected to the Federal Reserve’s LCR requirement – even as the 16th largest bank in America, it was deemed too small. It’s a shame. Regulation is not a panacea since banks are paid to take risk

https://www.netinterest.co/p/the-demise-...alley-bank

[weijian]

An healthy sign that the Authorities come in to backstop and pre-empt contagion.

In theory, your deposits are only insured up to XXX by the FDIC but in practice, all your deposits are insured.

US says all SVB deposits safe, creates new backstop for banks

SVB depositors “will have access to all of their money starting Monday, Mar 13”, the government said in a statement, adding that taxpayers won’t be responsible for any losses associated with SVB’s resolution.

In a sign that the situation had worsened, the government also said Signature Bank was closed by New York state financial regulators on Sunday and all depositors there will also have access to their money on Monday.

https://www.businesstimes.com.sg/interna...stop-banks

[Behappyalways]

Illiquidity and not QE. As banks tighten, economic activities will further slow down....


As for the Banks - this will actually stop the Banks from lending and they will tighten their lending standards, so that they can increase liquidity organically from loans that get repaid. Goldman Sachs forecasts lending standards will tighten substantially after this.

https://www.zerohedge.com/markets/fed-ba...ndow-surge

https://www.ayeshatariq.com/p/the-feds-s...-window-is

[Behappyalways]

Which Countries Hold The Most US Debt?
https://www.zerohedge.com/markets/which-...st-us-debt

[specuvestor]

US real interest rate is more or less zero now and I expect the real interest rate to go to 2% by end of the year. Mild recession that the market is expecting since last year is probably around the corner which will challenge the Fed whether to keep to 2% real rates.

How would we position or VB follows Buffett not going to second guess interest rates?


(Bloomberg Economics)
OUR TAKE: Headline CPI inflation that came in slightly below expectations in March will provide a bit of relief for the Fed. But still-elevated core prices show inflation remains sticky, and recent OPEC+ production cuts suggest the good news on headline inflation is likely to be short-lived. 
Shelter should provide a strong disinflationary push over the summer. Even so, given ongoing strength in the labor market and the OPEC+ cuts — as well as pressure from labor-intensive services industries — we expect the FOMC to hike rates by another 25 basis points when it meets next month.
Headline CPI rose 0.1% in March — down from 0.4% in February — slightly below our and the consensus expectation of 0.2%. Year over year, headline CPI rose 5.0% (vs. 6.0% in February), also slightly below our and the consensus forecast of 5.1%.
Core prices rose 0.4% month on month and 5.6% in year-on-year terms, compared to 0.5% and 5.5%, respectively, in February. Both core figures matched our and the consensus forecasts. This was the first time year-over-year core was higher than the headline since January 2021, suggesting the Fed will need to maintain a higher-for-longer posture to sustainably rein in inflation.
Core-goods prices ticked up 0.2% in March (vs. 0.0% in February), and the year-over-year rise (1.5%) was the fastest since December. Prices of new vehicles rose 0.4%, while prices of used cars and trucks dropped 0.9%.
Core services rose 0.4% in March, and the year-over-year rate of 7.1% — while still elevated — was the smallest increase since December. The increase in core services comes mainly from shelter prices, which rose 0.6% over the month and 8.2% over the past year.
CPI inflation remains elevated for core services ex-housing, with prices rising 5.8% year on year. The data indicate ongoing price pressure in labor-intensive services industries, suggesting the Fed will need to cool the labor market to get inflation under control.

December CPI came in at 6.5% vs my expectation of 5-5.9% by Dec22. The fluke Aug CPI disrupted the trend and the Fed had hiked more than I expected (fed funds rate to peak 4.5-5%)

Nonetheless it looks like the Fed rates will peak around 5-5.25%. That means Real interest rate will be about zero by April ie CPI to decline to 5% and real interest rate will be 1-2% by August ie CPI will go below 4% by Aug assuming Fed Fund rates maintain at 5-5.25% level

The key would then be if the Fed will cut rates in 3Q, faster than what they indicated and possibly in the face of recession. This is the roadmap I am seeing. Who will blink first?

Bearish if CPI is 5-6% end of the year. How full is your glass

Looks like it will be 50bp hike in Sept and 25bp in Nov vs my hope of 50 in July and 25 in Sep for soft landing scenario. Mild recession in 2Q or 3Q should be expected now rather than soft landing. CPI will be below 2% by then. Million dollar question is whether market forecasts this 12 months ahead with the 20-33% decline

(Bloomberg) -- Two bond market giants are diverging on whether the Federal Reserve is doing enough to tame inflation in the aftermath of the central bank’s interest-rate increase on Wednesday.
In one corner, there’s Scott Minerd, the chief investment officer of Guggenheim Partners, which oversees more than $325 billion. He said the Fed’s guidance that it will likely move more slowly through the rest of the year won’t help bring down price growth. He sees inflation ending at still-hot levels this year at between 5% and 6% -- well above the central bank’s target. 
DoubleLine Capital CIO Jeffrey Gundlach, by contrast, said this week’s unanimous decision to raise its benchmark lending rate by another 75 basis points means the Fed is no longer “behind the curve.”

^^ I think it will trend towards 5% by year end but will it be 5.1% or 5.9% I'm not sure. I try to be roughly right than precisely wrong. Inflation is a lagging indicator: the conundrum of low inflation despite QE has come roaring back with Biden's fiscal package when supply chain was tight. this >8% has roots a year ago. PS on gold context do note that Bretton Wood ended in 1971.

I don't think we will go QT again within next 12 months but Burry's view is inline with what I'm thinking as well. If Fed is credible I suspect they should pause or reduce to 25bp hike by September. Powell doesn't have a good track record though

https://www.investing.com/news/stock-mar...SI-2841333

Market corrected sharply on 75bp hike and if July Fed hikes 50bp, market will already be relieved, but still an uphill as we stare at 2Q23 recession.

Freight rates and hard commodity are already coming off. Watch 29th June PCE and June CPI numbers that if it comes off the central thesis remains, except no idea whether Fed will gen-chiong even with CPI trending towards 5% by end of year.

US inflation is likely to peak YoY in 2Q22 because of the higher base in 2021 with Powell's famous Transient comment... Market is already looking to Fed hiking 50bp in June and July so recession coming in 2Q23. That's probably baked in by the markets. That's like 200bp hike within 6 months plus QT. Compare that with BoE 4 hikes that started in Dec21 with the FTSE relatively flat (excluding GBP depreciation) and we can see how Powell lost the script AGAIN

The concern is whether they will hike 50bp again in Sept or 75bp prior as Fed might be concerned of CPI sticky at 2-5% even as CPI likely to trend towards 5% by Dec 2022. If Fed hikes 25bp or stay in Sept and decided to wait and see I think markets will be relieved. But I'm concern about how clueless Powell can be.