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Thoughts From The Divide - Archive

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ECB Tumult - November 5, 2019

In addition to former central bankers, there are signs that “even the staunchest defenders of negative rates are getting wary”. Central bankers are coming around to the idea that they need to work in conjunction with fiscal policy, but such cooperation could hurt their independence. Hungarian central bank governor Gyorgy Matolcsy argues that the euro is “a trap”, citing recent research on the damage done by the introduction of the euro on some member economies.

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Uncertainty - October 28, 2019

The Dallas Fed’s latest Manufacturing Survey results indicate more optimism, though the respondents saw “a lot of uncertainty”. The Conference Boards Consumer Survey showed consumers have dimming expectations, but “there are no indications” holiday spending will be hurt. Jamie Dimon and others may trumpet the strength of the U.S. consumer, but banks are building their buffers against delinquent consumer loans.

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U.S. -China Relations- October 22, 2019

Huawei’s role in advancing Chinese economic strength and how it could eventually “eliminate America’s advantage in signal intelligence. China’s overall strategy is “to have everybody in the world pay rent… make everyone a tenant farmer”. All hope is not lost for the U.S. as our system allows for greater innovation

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Freight's Deteriorating Perspective - October 15, 2019

Cass’s latest Freight Index Report is “signaling an economic contraction”, indicating a “growing risk that GDP will go negative”. Cass’s data isn’t exact on the timing, and while GDP “may be negative” in Q3, “continued weakness… should result in a negative Q4 GDP. Recent trucking data also shows the industry is under strain, with jobs being “slashed” and bankruptcies up significantly over last year

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Talk, Beliefs, and Feelings - October 8, 2019

Though the NFIB data “shows no sign of a recession”, “mumblings about a coming recession… are becoming more prevalent, and this is contagious”. Robert Shiller shares the NFIB’s concerns and believes there is a “risk” that we “talk ourselves into a recession”. A BIS report on unconventional monetary policy further highlights the importance of beliefs, arguing that the effectiveness of policies depends on “the public’s belief about their effectiveness”.

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Liquidity and Labor - October 1, 2019

Zoltan Pozsar of Credit Suisse warned of potential problems in the dollar funding market before the Fed began its repo operations and is concerned that it needs to deliver deep rate cuts or potentially face “a fresh liquidity crisis”. Sylvain Leduc and Zheng Liu from the San Francisco Fed study the effects of automation on the labor share, concluding it has weakened “workers’ bargaining power”. Jonathan Tepper looks at workers and wages from a broader perspective in an oldie but goodie covering everything from mergers to CEO pay.

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Bank Margins and Apple - September 24, 2019

Philip Molyneux, Alessio Reghezza, and Ru Xie studied over seven thousand banks, unsurprisingly finding “that bank margins and profits fell in NIRP-adopter countries compared to countries that did not adopt the policy”. Cleveland Fed’s Joseph Haubrich and Tristan Young find that as the low rate environment has hurt bank interest income, they have relied on increasing service fee. Apple is facing negative sentiment as Chinese buyers opt for domestic companies, but they did receive an exclusion from Trump’s tariffs despite a tweet to the contrary.

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September 17, 2019 - Central Bank Hullabaloo

More voices are being added to those questioning if central banks have “exhausted” their classical tools. Mario Draghi thinks fiscal policy needs to “take change”. The Fed was forced to step into repo markets as rates jumped for banks trying to borrow money or collateral.

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Low Rate Pushback - September 10, 2019

Central banks are meeting in the coming weeks to determine how much they will cut rates. Lower rates are causing some pushback from banking officials. Even Japanese bankers are pushing back against negative rates. John Hempton explains why banks might be right to push back about negative rates.

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Chinese Liquidity, EM Debt, and Slowing ISM - September 3, 2019

Cracks are starting to show in China’s economy as a bank suspends dividend payments. Research from the NBER documents China’s transformation into the world’s largest creditor and what it means for debt sustainability in other countries. The latest ISM data shows the economy is contracting and Consumer Sentiment indicates that consumers are feeling the effects of tariffs.

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