Millennial Macro

The purpose of this post is to understand the conditions that led up to the two most recent major cyclical economic and financial market tops in order to determine whether or not they are present today.  However, what the following does not seek to do is provide a short-term macro market outlook.  Nor does it attempt to predict the trajectory of the ongoing recovery from the Global Recession.  The goal is to simply determine whether or not today's macro environment is similar to that of the prior two cyclical turning points. Most importantly, this analysis is not a substitute for sound risk management.

Depending on the state of the economy, tax cuts that further concentrate income and wealth by primarily benefiting the affluent could either promote or inhibit an increase in economic activity. To determine which path is most likely to transpire, one would need to understand the answers to the following three questions. 1.  Is desired investment greater than actual investment?  In other words, is a lack of funding specifically preventing the private sector on aggregate from boosting capital expenditure to their desired levels? 2.  Will tax cuts for the (super) wealthy be funded via higher taxes or spending cuts that predominately fall on the middle class and poor or will they be funded by greater treasury issuance? 3.  Will monetary policy seek to offset the effects of fiscal expansion?  How would financial markets react in response to the Fed?

The treasury yield curve continues to flatten as long-term yields lag the rise in short-term rates.  

Given the cryptocurrency mania, it felt necessary to express a few thoughts on the matter.  The following uses the article,  Will cryptocurrencies trash cash? 'Fedcoin' could do it , as means to explore the topic. 

S low and steady (muddle through) economic activity Real GDP and nominal GDP respectively increased by 2.08% (YOY) and 3.71% (YOY) in Q2 2017.  Both of these figures have averaged a little over this since Q1 2010.

Given enough time has a past since the BOJ really began to push the envelop in terms of unorthodox aggressive monetary experimentation, the following post uses Bernanke's recent speech ( Some reflections on Japanese monetary policy ) as a jumping off point to review developments in Japan.  Seeing as Japan could be a precursor for what may be yet to come in the rest of the developed world that still struggles with subpar growth, low interest rates, and a lack of inflation, the BOJ's monetary evolution bears watching. 

The May 2016 post, The Dollar and Treasury Yields in Limbo: Three Possible Scenarios , sought to work through potential scenarios involving the US dollar and treasury yield curve.  The three possible outcomes were: 1)  Global Reflation and Currency Convergence The 10 year yield breaks above 2% and tests 2.5% or greater. The dollar index definitively loses $93 support in a downtrend that marking $100 as at least an intermediate term top. 2).  US growth rebounds relative to the rest of the world The 10 year yield remains near the current range or breaks below 1.55%. The dollar either continues to consolidate between $100 and $93 or trades above $100. 3).  Risk aversion and Panic The 10 year yield trades below 1.55% as it trends towards the 2015 low of sub 1.4%. The dollar index remains range bound or breaks $93 support in a correction before resuming the prior uptrend. Although 2016 began with a fit of risk aversion, once this mood past the trend for ...