Yesterday’s climbdown by the Federal Reserve on both interest rate policy and balance sheet reduction was not enough to satisfy the market’s disquiet about the US economy. Equity markets sold off and US Treasury yields rallied as the inversion in the middle of the yield curve steepened. What’s driving this is renewed concerns about the real economy. And ultimately, the Fed may have not proven itself dovish enough yesterday. Some thoughts below
The real economy
The big question now is whether the US economy has bottomed. And while I don’t think we can answer that question until April, some of the recent data have been positive on that score. But the data are mixed at best.
For example, today’s jobless claims number showed a 4-week average of 225,000, bang inline with the year ago

I want to get to the Fed decision later today. But, before that, let me update you on Brexit under the rubric "Brexit as Europe’s Lehman moment". I am thinking of it this way because many policy makers want to avoid the political and economic fallout of a no-deal Brexit, but are unable to climb down…

Very quick here on Brexit.
British Prime Minister Theresa May has now submitted a formal request to the EU to extend the Article 50 time period to June 30th. The reason for the extension is that Britain has nearly run out of time, and it is clear her deal cannot get over the line. So, she needs mor…

This is a follow-on to yesterday’s post, where I argued that we are in a holding pattern regarding the thesis that global growth deceleration has ended. The equity markets are positioned as if that thesis is true. But the bond markets show greater caution.
The key is that both markets have rallied….

No major catalysts in either directionRight now, there are no major stories that I think will have any meaningful near-term impact on asset markets. We’re definitely still in  a risk-on market phase. And ostensibly, this is largely because we are poised for a growth re-acceleration rather than simp…

Real quick here.
I saw the jobless claims data today and thought they looked pretty good. But, I decided to go back to my 2008-2009 practice of sifting through the raw data for both initial claims and continuing claims. The numbers weren’t nearly as good. And, continuing claims look downright ugly….

Thinking about JapanificationTwo FT articles and a discussion at Real Vision precipitated this post. On Monday, I had a conference call with a few markets-oriented colleagues at Real Vision, where I am an editor and program presenter. And one topic that came up in the face of the about-face by the …

Equities continued their rally today, both in the US and globally. While the US rally was impeded by bad news for Boeing, the S&P 500 did eke out a gain on the back of a rally in tech. Cisco, for example, is up 29% since it bottomed on Christmas Eve, hitting 6 52-week highs in the process. And t…

It took the dramatic downshift in non-farm payrolls today for people to wake up to the drip-drip of weak jobs data coming out of the US. This put the equity market into a funk and caused bond yields to sink back to where they were on February 27th before the economic bulls took over. The question now is not whether there has been slowing. The question is whether that slowing will continue. Quick thoughts below
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The jobs report
Since I am writing this at the end of the business day instead of the morning, I am going to gloss over the numbers and get to the analysis as

ECB stimulusThe biggest development today was the ECB’s announcement that it is reversing its stance on stimulus and offering new bank loans:The European Central Bank signaled a major policy reversal Thursday, flagging plans for fresh measures to stimulate the eurozone’s faltering economy less tha…

The February 2019 Non-Manufacturing ISM data were very bullish. Both the headline and the major subindices showed a lot of strength. And for me that indicates the 0.3% number on the Atlanta Fed GDPNow tracker will move up markedly as more data become available. Some expanded thoughts belowIs this r…

Stalled outYou probably saw this but the Atlanta Fed came out with its first Q1 GDPNow estimate. And it’s starting at a 0.3% level. Here’s the chart.
GDPNow is a nowcast. So it can change dramatically. And it isn’t always very close to the eventual GDP growth number. But, 0.3% is about as low as …

In the last few weeks, I’ve been seeing a lot of buzz about Modern Monetary Theory aka MMT. And most of what I’m seeing is reductionist to the point of absurdity. When I see critics of MMT talking about it, they’re mostly using MMT as a shorthand for saying ‘unbridled fiscal expansion without any concern for deficits’.  I think this has been a very poor and uninformed debate. My guess is that it’s been sparked by the public policy views of people like Alexandria Ocasio-Cortez, given the objections some people have to her as a political figure. I could be wrong. But, as someone who’s been following this evolving conversation for several years, I thought I’d tell you how I see it.
My introduction to MMT
Before I start in, let me tell you where I’m coming at this from. I have a lot

I have a number of threads to address here. The first is that we got two big pieces of economic data out of the US this morning, one backward looking and the other coincident or forward looking. And I want to break down. My overall take is that the data confirm my view that the US is decelerating, n…

May’s stalling tactic hasn’t workedIn the two months since British Prime Minister Theresa May decided to postpone a Parliamentary vote on her deal with the EU, I have been predicting she would be forced to delay implementation of Article 50 withdrawal. And yesterday, she finally admitted as much, g…

For the past several years, I have been trying to write more about outcomes and less about theories and policy prescriptions. But, like anyone, I have a core set of beliefs on economics and a lot more.
Economics is not a science; it is a social science, deeply intertwined with the human condition, …

A detour to the other side of the pondI have two big picture issues on my mind this morning. The first is the US economy and the US policy response. I think the Neil Irwin piece in the New York Times encapsulates a lot of the thinking on the fiscal front here. I sent him a note, telling him I thoug…

It’s news Friday time. Like last week, I want to switch things up a bit and focus on the news. I am going to present a news story. And then I am going to expand on it, riffing off it and giving you ‘my take’ on the story. Hopefully, this will highlight some things being left unsaid.
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The Minotaurs
Being a unicorn — a private company worth a billion dollars — isn’t cool. You know what’s cool? Raising a billion dollars. Just yesterday, food delivery company DoorDash announced $400

My recent experience with taxis
On my way into Manhattan from LaGuardia Airport on Monday night, I noticed an app symbol for Curb on the payment box in my taxi. The box said I could pay for the ride with this app. So while I was in transit, I downloaded the app, registered on the site, and linked to the number on the taxi’s payment box, which was its unique Curb ID. When the taxi ride ended, I simply got out of the taxi and went on my merry way.
Taxis have upped their game. The ride experience, the courtesy of drivers, the cleanliness of taxis, everything about the rides, is improved. And I have noticed this right across cities in the US, where shared-ride apps like Uber, Lyft and Via are active. After my experience with Curb on Monday, I saw a bunch of taxis idling on 8th

Earnings were boosted by corporate tax cuts in the past year. And earnings growth has been buoyed by significant corporate releveraging. But 2019 is looking challenging for companies now and the chart below shows you why.

While earnings growth came down during the period of market jitters in October through December, earnings are expected to contract. Here’s the New York Times’ Stephen Grocer:
Fears of a looming United States recession have subsided, with investors taking comfort that the Federal Reserve will continue to support economic growth.
But warning signs keep flashing about the shaky fundamentals of the economy and therefore the stock market. The latest alarm bell is that Wall Street analysts are slicing their forecasts for how much big companies will earn in the

Earnings were boosted by corporate tax cuts in the past year. And earnings growth has been buoyed by significant corporate releveraging. But 2019 is looking challenging for companies now and the chart below shows you why.
While earnings growth came down during the period of market jitters in Octo…

Recalling "Trump Unchained"It started with the sacking of his Secretary of State Rex Tillerson in March 2018, almost a year ago. US President Donald Trump has gradually but forcefully unchained himself from moderating influences in his administration. And in that time period, he also seen very little defection from Republican allies, giving him every reason to believe he can govern as he sees fit.
We can look back with certainty that this is what’s happening. For example, this is how I put the…

Recalling “Trump Unchained”
It started with the sacking of his Secretary of State Rex Tillerson in March 2018, almost a year ago. US President Donald Trump has gradually but forcefully unchained himself from moderating influences in his administration. And in that time period, he also seen very little defection from Republican allies, giving him every reason to believe he can govern as he sees fit.
We can look back with certainty that this is what’s happening. For example, this is how I put the Tillerson move at the time:
The dismissal of Rex Tillerson as Secretary of State and the way it was handled mark a clean break. Gary Cohn was already out as his economic adviser. But it was the Tillerson fiasco that made plain Trump is cleaning house. He is purging all vestiges of

I wanted to switch things up a bit for today’s post and focus in the news. What I am going to do is present you with news as presented by traditional media. And then I am going to give you ‘my take’ on the story. Hopefully, this will highlight what is being unsaid or offer analysis that’s not being provided.
Retail sales
Big banks are busy lowering their Q4 GDP estimates after the huge miss on retail sales yesterday. I’ve seen Morgan Stanley and Barclays both lower their numbers. But, as I wrote yesterday, I believe this is a one-off that might even be revised up. None of the other data corroborate such a large drop. Moreover, the sale of heating oil is part of non-store retailers. That’s the category that includes internet sales, which was down 3.9%. December saw a big drop in

I wanted to switch things up a bit for today’s post and focus in the news. What I am going to do is present you with news as presented by traditional media. And then I am going to give you ‘my take’ on the story. Hopefully, this will highlight what is being unsaid or offer analysis that’s not being provided.
Retail sales
Big banks are busy lowering their Q4 GDP estimates after the huge miss on retail sales yesterday. I’ve seen Morgan Stanley and Barclays both lower their numbers. But, as I wrote yesterday, I believe this is a one-off that might even be revised up. None of the other data corroborate such a large drop. Moreover, the sale of heating oil is part of non-store retailers. That’s the category that includes internet sales, which was down 3.9%. December saw a big drop in

The Federal Reserve’s about-face on rates between December and January looks a lot more rational in the context of the US economic data released today. We saw US retail sales unexpectedly fall in December, posting the worst drop in nine years. It was the biggest miss versus consensus since March 2009 too. These figures were delayed a month by the government shutdown. And so, the huge miss tells us we are behind the curve in understanding the state of the US economy.
At the same time, elevated initial jobless claims numbers were released. And I have been telling you that these numbers have been rising of late. It is a red flag for me. So, this latest data point is worrying.
Retail sales
Late in 2018, I was telling you I expected good numbers from the holiday sales season. And all

The Federal Reserve’s about-face on rates between December and January looks a lot more rational in the context of the US economic data released today. We saw US retail sales unexpectedly fall in December, posting the worst drop in nine years. It was the biggest miss versus consensus since March 2009 too. These figures were delayed a month by the government shutdown. And so, the huge miss tells us we are behind the curve in understanding the state of the US economy.
At the same time, elevated i…

Obama’s missed opportunity
In 2009 and beyond, the Obama Administration had a unique opportunity to not just recalibrate, but to replace the existing economic paradigm. They didn’t do that, largely because Obama and his closest policy advisors were establishment figures who supported the prevailing economic model.
We’re talking about people like Tim Geithner and Larry Summers. But there were many others, mostly drawn from the Washington establishment. Their goal was to right the ship and prevent an economic catastrophe by recapitalizing the banks and getting credit flowing again, adding fiscal stimulus only in the beginning as a jump start. With Obama, there was never going to be an overhaul like Roosevelt’s New Deal.
Obama was successful in all of this — much more successful

Obama’s missed opportunityIn 2009 and beyond, the Obama Administration had a unique opportunity to not just recalibrate, but to replace the existing economic paradigm. They didn’t do that, largely because Obama and his closest policy advisors were establishment figures who supported the prevailing economic model.
We’re talking about people like Tim Geithner and Larry Summers. But there were many others, mostly drawn from the Washington establishment. Their goal was to right the ship and preven…

The post this morning on the evolving strategy of Germany’s SPD was actually yesterday’s post. I didn’t get a chance to write it because I went to bed super early. So I am going to write a short piece for today’s post focussing on Japan, Europe and the US.
The Fed’s backpedalling
I think you know my mantra on the Fed by now. But let me boil it down as simply as I can because, in my role as editor at Real Vision, I am seeing a steady flow of market people talking about the Fed in ways I disagree with. And the sense I get is that people who work in the market tend toward a self-referential framing when thinking about policy. And they see the Fed and other central banks acting or not acting based upon the state of asset markets, rather than on employment and inflation.
I see it