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2021-07-23

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Volatility Beckons After Warp-Speed Recovery

The record-quick Covid recession and rebound raises the question of whether we’re really in a new ec

Volatility Beckons After Warp-Speed Recovery

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{"i18n":{"language":"zh_CN"},"data":{"magic":2,"id":175215167,"tweetId":"175215167","gmtCreate":1627034119359,"gmtModify":1631886472272,"author":{"id":3587081359050751,"idStr":"3587081359050751","authorId":3587081359050751,"authorIdStr":"3587081359050751","name":"NewBroker","avatar":"https://static.tigerbbs.com/679a269dd89a977b366ead874b584a66","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":8,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body>Comment</body></html>","htmlText":"<html><head></head><body>Comment</body></html>","text":"Comment","highlighted":1,"essential":1,"paper":1,"likeSize":9,"commentSize":1,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/175215167","repostId":1123663609,"repostType":4,"repost":{"id":"1123663609","kind":"news","pubTimestamp":1627033420,"share":"https://www.laohu8.com/m/news/1123663609?lang=&edition=full","pubTime":"2021-07-23 17:43","market":"us","language":"en","title":"Volatility Beckons After Warp-Speed Recovery","url":"https://stock-news.laohu8.com/highlight/detail?id=1123663609","media":"Bloomberg","summary":"The record-quick Covid recession and rebound raises the question of whether we’re really in a new ec","content":"<blockquote>\n The record-quick Covid recession and rebound raises the question of whether we’re really in a&nbsp;new economic cycle. The answer matters&nbsp;for financial markets.\n</blockquote>\nBlink and You Missed It\nThe most startling announcement this week concerned news that was more than a year old. In the U.S., the recession driven by the Covid-19 shutdown ended in April 2020. It only lasted two months. So said theNational Bureau of Economic Research,&nbsp;and it’s a reasonable judgment. It also means that this recession wasby far the shortest on record, as well as the deepest if judged by the increase in unemployment:\n<img src=\"https://static.tigerbbs.com/8ea1b9d605f76d9f1433630d20baaa35\" tg-width=\"1639\" tg-height=\"864\" referrerpolicy=\"no-referrer\">As the deepest recession on record, it makes sense to say that a new economic cycle started in May last year. As the shortest, it’s questionable whether we should regard it as anything more than a transitory (that word again) blip. According to the latest forecast from the Congressional Budget Office, the output gap (the distance between the economy’s actual and potential production) will be eliminated by the end of this year. This chart is from Jitesh Kumar of Societe Generale SA:\n<img src=\"https://static.tigerbbs.com/e104d6ca896ce5837a5c44a42b19ea11\" tg-width=\"526\" tg-height=\"281\" referrerpolicy=\"no-referrer\">This is such a dramatic recovery that it raises the issue of whether we should call it a new cycle. Here is&nbsp;the same chart&nbsp;after removing the V-shaped months when Covid took over:\n<img src=\"https://static.tigerbbs.com/c0ad358a9067c13bb1b2a80befab06be\" tg-width=\"533\" tg-height=\"279\" referrerpolicy=\"no-referrer\">Cognitive dissonance begins. How do policymakers handle&nbsp;this? And how should investors? To further complicate things, the U.S. is in a completely different place from the rest of the developed world. No other leading economy is on course to eliminate its output gap this year, and only Canada will manage to do it by the end of next year, according to IMF estimates graphed by Jim Reid of Deutsche Bank AG:\n<img src=\"https://static.tigerbbs.com/525e3ce925853b8037f6d2da41a10363\" tg-width=\"800\" tg-height=\"418\" referrerpolicy=\"no-referrer\">\nThat would imply that the U.S. should be tightening monetary policy much earlier than anyone else, and that the dollar should strengthen. That would help to douse U.S.&nbsp;inflation, but put pressure on emerging markets. As Kumar shows, the Fed’s interest rates, relative to current core inflation and taking account of asset purchases, are the easiest they have ever been. That is almost impossible to justify if the economy is really only in the interrupted final stage of an expansion that started more than a decade ago:\n<img src=\"https://static.tigerbbs.com/0d235af9604ad7a6b17dd82cdd0c5f32\" tg-width=\"600\" tg-height=\"320\" referrerpolicy=\"no-referrer\">\nThe speed of the recovery matters to financial markets. If the economy is growing but more slowly (in other words, the second derivative has changed), that is usually the cue for stock markets to slow down. If we’re in the late stages of a long cycle, it need not be long until the first derivative shifts. Larry Hatheway of Jackson Hole Economics summed up the problem thusly:\n<blockquote>\n Simply put, the fundamentals have shifted. After six months of congruent first and second derivatives, divergence has arrived. An inflection point is upon us. Growth is high, but decelerating.\n</blockquote>\n<blockquote>\n When the first and second derivatives fall out sync, investors become less certain. Bulls and bears tussle. Market gyrations become more pronounced. Leadership shifts, and then shifts again.\n</blockquote>\n<blockquote>\n In short, volatility and dispersion increase. That’s the calculus of first and second derivatives.&nbsp;We should probably get used to it.\n</blockquote>\nInflation and Transience\nSome more comments on the debate are in order. Our ongoingindicators&nbsp;should be useful on this. One point made by Albert Edwards, also of SocGen, is interesting. Although famously bearish, he suggests that there is reason not to be too worried about inflation. Core inflation, excluding food and fuel, normally proceeds in line with the median —&nbsp;the level of inflation for whichever component happens to be in the middle. That relationship has broken down, and the median continues to give comfort:\n<img src=\"https://static.tigerbbs.com/95525582d8208c1e4e6f428449531997\" tg-width=\"600\" tg-height=\"304\" referrerpolicy=\"no-referrer\">\nAt the very least, this is a sign that something unusual is afoot. However, Edwards also cites more disquieting data for “cyclical” inflation that show, again, how behavior in this cycle is different from those that precede it. If we split “core” inflation into cyclical and non-cyclical elements, a normal recession leads to sharp falls in the cyclical measure. This recession has led to no decline at all.\n<img src=\"https://static.tigerbbs.com/44799ae941e301646fa6d9ab7873e611\" tg-width=\"600\" tg-height=\"315\" referrerpolicy=\"no-referrer\">\nIf the economic cycle isn’t pushing inflation down, there is no need for monetary easing, which indeed could drive prices up.&nbsp;That is concerning.\nThen there is the issue of what time period people have in mind when they say that inflation will be “transitory.” The base effects caused by last year’s collapse and subsequent rally in commodity prices won’t correct until next year. This chart is from Stonex Group Inc.’s Vincent Deluard, and shows the year-on-year inflation in gasoline and&nbsp;broader commodities if prices just stay where they are:\n<img src=\"https://static.tigerbbs.com/7b079f226c736be0c68f82c1edb61c4a\" tg-width=\"800\" tg-height=\"188\" referrerpolicy=\"no-referrer\">Queer as Folk\nWhat are people going to do? Economics isn’t like the physical sciences. Its laws must be refracted through numerous individual human decisions. The pandemic, and the lightning-quick recession and recovery, may have changed psychology and thus economic responses, but we don’t know yet.\nOne critical question concerns consumers. They are sitting on lots of cash. Are they going to spend it? If they do, that will be good for growth, but will tend to confirm the warnings of inflationistas. If they don’t, then the U.S. and Europe could find their economies growing ever more constipated, like Japan’s.\nGeorge Saravelos of Deutsche Bank drew this chart from the latest University of Michigan survey of consumers. One question is whether they think it’s a good or a bad time to buy a large household item. Generally, if you think there’s inflation coming, you want to buy now. If you think we’re mired in deflation, you want to defer. And stunningly, even though headline inflation is the worst in three decades, fewer people want to buy now than at any time since the survey started, five decades ago. Even more than at the worst of the global financial crisis, U.S. consumers on this evidence appear to be braced for deflation.\n<img src=\"https://static.tigerbbs.com/e16c89b29716d62397c6f88846381f2c\" tg-width=\"800\" tg-height=\"521\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\">\nSuch behavior can easily be a self-fulfilling prophecy. And the experience of past pandemics is that people are noticeably more conservative in spending habits for years afterwards. Maybe that will hold true.\nThat leads to another critical question. Will workers push for higher wages? Again, the evidence of past pandemics is that they do —&nbsp;and after many years of stagnant wage growth across the West, there would be much justification for doing so. Two good measures of workers’ confidence suggest unequivocally that employees are behaving as though they hold all the cards, even though unemployment is staying disappointingly high. The National Federation of Independent Business’ index of employers finding jobs hard to fill hit an all-time high in May, and barely declined in June. Meanwhile the quit rate, the proportion of people voluntarily leaving their job without another to go to, reached the highest in its 20-year history. It dropped last month, though is still at a level never seen before this year. The measures suggest that workers really are going to push for higher wages —&nbsp;which would be good for social cohesion, and not for inflation:\n<img src=\"https://static.tigerbbs.com/169b6a5f0d1db542095ac6d1757c70b0\" tg-width=\"800\" tg-height=\"450\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\">\nWill this happen? Again, it will depend on millions of personal decisions. Butsome fascinating research from the Becker Friedman Institute for Economicsat the University of Chicago suggests that working from home is going to last, and is giving people a stronger incentive to play tough. In a wide survey, they found 6% of workers would quit instantly if their employers said they had to be back in the office five days per week next month:\n<img src=\"https://static.tigerbbs.com/3d7b16fe305edea552ad9fecea51de2f\" tg-width=\"800\" tg-height=\"544\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\">\nEmployees are still hoping to work from home 2.35 days per week once the pandemic is over. This is coming down, but is still far in excess of employers’ plans to permit 1.2 days per week.\n<img src=\"https://static.tigerbbs.com/2490bf3fe71ddef3e56f5eb51c919d12\" tg-width=\"800\" tg-height=\"542\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\">\nThe latest initial jobless claims numbers, produced weekly and very noisy, showed a surprising increase in the number of people signing on. It’s a strange labor market, to say the least; the pandemic, and working from home, may yet prove to have changed preferences profoundly.\nDelta Blues\nThe delta variant should worry all of us. But how much should it affect the economy or financial markets? Probably not that&nbsp;much, though a lot depends on how optimistic your assumptions were.\nIt’s clear that the variant is very infectious. In the U.K., the developed country where delta first made landfall, this wave has caused as many infections as the one that preceded it. The critical difference is that it has claimed far fewer lives. This chart, from the great newsletter produced by Whitney Tilson of Empire Financial Research, shows that vaccinations have severed the link between&nbsp;infections and deaths:\n<img src=\"https://static.tigerbbs.com/0b524e3b050f0d3d708a041fa06f320b\" tg-width=\"800\" tg-height=\"439\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\">\nHowever, this doesn’t mean that delta has been costless. U.K. deaths are increasing fast, looked at on a log scale.&nbsp;With an unvaccinated population to feed on, there is every reason to assume that delta would have been more lethal than earlier waves:\n<img src=\"https://static.tigerbbs.com/3cfc8142fccf32f5d4ee85ff155a14c7\" tg-width=\"800\" tg-height=\"701\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\">\nThankfully, the U.K. is widely vaccinated, while most of continental Europe has similar levels.&nbsp;Thus, even as delta leads to rising infections, the return to something like normality continues. As this chart from Mitsubishi UFJ Finance Group Inc. shows, restrictions have been largely lifted across Europe and even,&nbsp;controversially, in the U.K.\n<img src=\"https://static.tigerbbs.com/186a94c7a46216292acfebc72d1545fa\" tg-width=\"800\" tg-height=\"710\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\">\nMore importantly, actual mobility is also back to something close to normal (although it has declined in the U.K.):\n<img src=\"https://static.tigerbbs.com/939eb8d6d09a4d271ac3a04caf089c60\" tg-width=\"600\" tg-height=\"510\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\">\nDelta, on this basis, should lead investors to trim their forecasts at the margin. It doesn’t appear capable of driving a fresh downturn on its own. The same isn’t true of many emerging markets.\nFor investors, the imponderable is what to do about the U.S., where vaccination has become a political issue. This chart from Tilson shows how vaccination rates vary with states’ political allegiance:\n<img src=\"https://static.tigerbbs.com/8eaabd4633149dbc7b3c0095366009f5\" tg-width=\"800\" tg-height=\"486\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\">\nBilal Hafeez of Macro Hive offers a similar graphic, this time with vaccination rates on one axis and test positivity rates on the other. Vaccinations mean fewer infections, and in the current American political reality this means fewer infections in blue states, and more in red states:\n<img src=\"https://static.tigerbbs.com/ac20fa6a2ecd99373dfd265d3b29be70\" tg-width=\"400\" tg-height=\"371\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\">\nThere are plenty of American states, then, which have a big enough unvaccinated population for delta to have a serious medical impact. The following chart, from Oliver Brennan of TS Lombard of London, maps vaccination rates against current increases in infections:\n<img src=\"https://static.tigerbbs.com/724a04b7bfe66731ea002244e701087c\" tg-width=\"800\" tg-height=\"403\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\">\nArkansas gives cause for great human concern. But to be cold-blooded about this, most of the states at the right of the chart are relatively small. And what matters for economic growth isn’t the death toll or hospitalizations but the impact on economic behavior. Brennan suggests that red states, where risk is greatest, won’t do anything to impede activity. Thus the economic impact should be more limited. Meanwhile, the biggest blue states tend to be highly vaccinated and already&nbsp;economically open. This is activity data for California, Texas and New York:\n<img src=\"https://static.tigerbbs.com/e16bf28a8708693abf0771f7b639d75c\" tg-width=\"800\" tg-height=\"660\" referrerpolicy=\"no-referrer\" width=\"100%\" height=\"auto\">\nBrennan’s assessment is as follows:\n<blockquote>\n The economic impact will take place when (a) a large share of the US economy is affected by rising cases and (b) policymakers’ response is to tighten restrictions and lockdowns. And, for US states, the latter has become a lightning rod of the culture war. The key point here is that (a) it is mostly red states currently suffering resurgent waves and (b) it is unlikely that a red state will enter another lockdown. So, while it is right to worry about Florida and other states where cases are exploding, for our investment process we should focus on California, Texas and New York – three states that, combined, make up one-third of US economic activity. Since Texas is a red state, we do not expect it to reimpose any type of restrictions; California and New York both have more than 50% of their adult population fully vaccinated which means the delta wave should not be critical.\n</blockquote>\nThis doesn’t mean we don’t need to worry. If delta gets a foothold in a lightly vaccinated state, as it has in the U.K., economic activity will decline without formal lockdowns. Even Texans would be more careful. So far, the U.K. resurgence has had only a muted effect. If that pattern is repeated in the U.S., then delta could affect the second derivative (slowing growth). It’s hard to see it leading to an outright decline, so the risk of another lightning-quick recession is minimal.","source":"lsy1584095487587","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Volatility Beckons After Warp-Speed Recovery</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nVolatility Beckons After Warp-Speed Recovery\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-07-23 17:43 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://www.bloomberg.com/opinion/articles/2021-07-23/market-volatility-beckons-after-warp-speed-covid-recovery?srnd=opinion>Bloomberg</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nThe record-quick Covid recession and rebound raises the question of whether we’re really in a new economic cycle. The answer matters for financial markets.\n\nBlink and You Missed It\nThe most startling ...\n\n<a href=\"https://www.bloomberg.com/opinion/articles/2021-07-23/market-volatility-beckons-after-warp-speed-covid-recovery?srnd=opinion\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"SPY":"标普500ETF",".DJI":"道琼斯",".IXIC":"NASDAQ Composite",".SPX":"S&P 500 Index"},"source_url":"https://www.bloomberg.com/opinion/articles/2021-07-23/market-volatility-beckons-after-warp-speed-covid-recovery?srnd=opinion","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1123663609","content_text":"The record-quick Covid recession and rebound raises the question of whether we’re really in a new economic cycle. The answer matters for financial markets.\n\nBlink and You Missed It\nThe most startling announcement this week concerned news that was more than a year old. In the U.S., the recession driven by the Covid-19 shutdown ended in April 2020. It only lasted two months. So said theNational Bureau of Economic Research, and it’s a reasonable judgment. It also means that this recession wasby far the shortest on record, as well as the deepest if judged by the increase in unemployment:\nAs the deepest recession on record, it makes sense to say that a new economic cycle started in May last year. As the shortest, it’s questionable whether we should regard it as anything more than a transitory (that word again) blip. According to the latest forecast from the Congressional Budget Office, the output gap (the distance between the economy’s actual and potential production) will be eliminated by the end of this year. This chart is from Jitesh Kumar of Societe Generale SA:\nThis is such a dramatic recovery that it raises the issue of whether we should call it a new cycle. Here is the same chart after removing the V-shaped months when Covid took over:\nCognitive dissonance begins. How do policymakers handle this? And how should investors? To further complicate things, the U.S. is in a completely different place from the rest of the developed world. No other leading economy is on course to eliminate its output gap this year, and only Canada will manage to do it by the end of next year, according to IMF estimates graphed by Jim Reid of Deutsche Bank AG:\n\nThat would imply that the U.S. should be tightening monetary policy much earlier than anyone else, and that the dollar should strengthen. That would help to douse U.S. inflation, but put pressure on emerging markets. As Kumar shows, the Fed’s interest rates, relative to current core inflation and taking account of asset purchases, are the easiest they have ever been. That is almost impossible to justify if the economy is really only in the interrupted final stage of an expansion that started more than a decade ago:\n\nThe speed of the recovery matters to financial markets. If the economy is growing but more slowly (in other words, the second derivative has changed), that is usually the cue for stock markets to slow down. If we’re in the late stages of a long cycle, it need not be long until the first derivative shifts. Larry Hatheway of Jackson Hole Economics summed up the problem thusly:\n\nSimply put, the fundamentals have shifted. After six months of congruent first and second derivatives, divergence has arrived. An inflection point is upon us. Growth is high, but decelerating.\n\n\nWhen the first and second derivatives fall out sync, investors become less certain. Bulls and bears tussle. Market gyrations become more pronounced. Leadership shifts, and then shifts again.\n\n\nIn short, volatility and dispersion increase. That’s the calculus of first and second derivatives. We should probably get used to it.\n\nInflation and Transience\nSome more comments on the debate are in order. Our ongoingindicators should be useful on this. One point made by Albert Edwards, also of SocGen, is interesting. Although famously bearish, he suggests that there is reason not to be too worried about inflation. Core inflation, excluding food and fuel, normally proceeds in line with the median — the level of inflation for whichever component happens to be in the middle. That relationship has broken down, and the median continues to give comfort:\n\nAt the very least, this is a sign that something unusual is afoot. However, Edwards also cites more disquieting data for “cyclical” inflation that show, again, how behavior in this cycle is different from those that precede it. If we split “core” inflation into cyclical and non-cyclical elements, a normal recession leads to sharp falls in the cyclical measure. This recession has led to no decline at all.\n\nIf the economic cycle isn’t pushing inflation down, there is no need for monetary easing, which indeed could drive prices up. That is concerning.\nThen there is the issue of what time period people have in mind when they say that inflation will be “transitory.” The base effects caused by last year’s collapse and subsequent rally in commodity prices won’t correct until next year. This chart is from Stonex Group Inc.’s Vincent Deluard, and shows the year-on-year inflation in gasoline and broader commodities if prices just stay where they are:\nQueer as Folk\nWhat are people going to do? Economics isn’t like the physical sciences. Its laws must be refracted through numerous individual human decisions. The pandemic, and the lightning-quick recession and recovery, may have changed psychology and thus economic responses, but we don’t know yet.\nOne critical question concerns consumers. They are sitting on lots of cash. Are they going to spend it? If they do, that will be good for growth, but will tend to confirm the warnings of inflationistas. If they don’t, then the U.S. and Europe could find their economies growing ever more constipated, like Japan’s.\nGeorge Saravelos of Deutsche Bank drew this chart from the latest University of Michigan survey of consumers. One question is whether they think it’s a good or a bad time to buy a large household item. Generally, if you think there’s inflation coming, you want to buy now. If you think we’re mired in deflation, you want to defer. And stunningly, even though headline inflation is the worst in three decades, fewer people want to buy now than at any time since the survey started, five decades ago. Even more than at the worst of the global financial crisis, U.S. consumers on this evidence appear to be braced for deflation.\n\nSuch behavior can easily be a self-fulfilling prophecy. And the experience of past pandemics is that people are noticeably more conservative in spending habits for years afterwards. Maybe that will hold true.\nThat leads to another critical question. Will workers push for higher wages? Again, the evidence of past pandemics is that they do — and after many years of stagnant wage growth across the West, there would be much justification for doing so. Two good measures of workers’ confidence suggest unequivocally that employees are behaving as though they hold all the cards, even though unemployment is staying disappointingly high. The National Federation of Independent Business’ index of employers finding jobs hard to fill hit an all-time high in May, and barely declined in June. Meanwhile the quit rate, the proportion of people voluntarily leaving their job without another to go to, reached the highest in its 20-year history. It dropped last month, though is still at a level never seen before this year. The measures suggest that workers really are going to push for higher wages — which would be good for social cohesion, and not for inflation:\n\nWill this happen? Again, it will depend on millions of personal decisions. Butsome fascinating research from the Becker Friedman Institute for Economicsat the University of Chicago suggests that working from home is going to last, and is giving people a stronger incentive to play tough. In a wide survey, they found 6% of workers would quit instantly if their employers said they had to be back in the office five days per week next month:\n\nEmployees are still hoping to work from home 2.35 days per week once the pandemic is over. This is coming down, but is still far in excess of employers’ plans to permit 1.2 days per week.\n\nThe latest initial jobless claims numbers, produced weekly and very noisy, showed a surprising increase in the number of people signing on. It’s a strange labor market, to say the least; the pandemic, and working from home, may yet prove to have changed preferences profoundly.\nDelta Blues\nThe delta variant should worry all of us. But how much should it affect the economy or financial markets? Probably not that much, though a lot depends on how optimistic your assumptions were.\nIt’s clear that the variant is very infectious. In the U.K., the developed country where delta first made landfall, this wave has caused as many infections as the one that preceded it. The critical difference is that it has claimed far fewer lives. This chart, from the great newsletter produced by Whitney Tilson of Empire Financial Research, shows that vaccinations have severed the link between infections and deaths:\n\nHowever, this doesn’t mean that delta has been costless. U.K. deaths are increasing fast, looked at on a log scale. With an unvaccinated population to feed on, there is every reason to assume that delta would have been more lethal than earlier waves:\n\nThankfully, the U.K. is widely vaccinated, while most of continental Europe has similar levels. Thus, even as delta leads to rising infections, the return to something like normality continues. As this chart from Mitsubishi UFJ Finance Group Inc. shows, restrictions have been largely lifted across Europe and even, controversially, in the U.K.\n\nMore importantly, actual mobility is also back to something close to normal (although it has declined in the U.K.):\n\nDelta, on this basis, should lead investors to trim their forecasts at the margin. It doesn’t appear capable of driving a fresh downturn on its own. The same isn’t true of many emerging markets.\nFor investors, the imponderable is what to do about the U.S., where vaccination has become a political issue. This chart from Tilson shows how vaccination rates vary with states’ political allegiance:\n\nBilal Hafeez of Macro Hive offers a similar graphic, this time with vaccination rates on one axis and test positivity rates on the other. Vaccinations mean fewer infections, and in the current American political reality this means fewer infections in blue states, and more in red states:\n\nThere are plenty of American states, then, which have a big enough unvaccinated population for delta to have a serious medical impact. The following chart, from Oliver Brennan of TS Lombard of London, maps vaccination rates against current increases in infections:\n\nArkansas gives cause for great human concern. But to be cold-blooded about this, most of the states at the right of the chart are relatively small. And what matters for economic growth isn’t the death toll or hospitalizations but the impact on economic behavior. Brennan suggests that red states, where risk is greatest, won’t do anything to impede activity. Thus the economic impact should be more limited. Meanwhile, the biggest blue states tend to be highly vaccinated and already economically open. This is activity data for California, Texas and New York:\n\nBrennan’s assessment is as follows:\n\nThe economic impact will take place when (a) a large share of the US economy is affected by rising cases and (b) policymakers’ response is to tighten restrictions and lockdowns. And, for US states, the latter has become a lightning rod of the culture war. The key point here is that (a) it is mostly red states currently suffering resurgent waves and (b) it is unlikely that a red state will enter another lockdown. So, while it is right to worry about Florida and other states where cases are exploding, for our investment process we should focus on California, Texas and New York – three states that, combined, make up one-third of US economic activity. Since Texas is a red state, we do not expect it to reimpose any type of restrictions; California and New York both have more than 50% of their adult population fully vaccinated which means the delta wave should not be critical.\n\nThis doesn’t mean we don’t need to worry. If delta gets a foothold in a lightly vaccinated state, as it has in the U.K., economic activity will decline without formal lockdowns. Even Texans would be more careful. So far, the U.K. resurgence has had only a muted effect. If that pattern is repeated in the U.S., then delta could affect the second derivative (slowing growth). It’s hard to see it leading to an outright decline, so the risk of another lightning-quick recession is minimal.","news_type":1},"isVote":1,"tweetType":1,"viewCount":140,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":7,"xxTargetLangEnum":"ORIG"},"commentList":[],"hasMoreComment":false,"orderType":2}

Volatility Beckons After Warp-Speed Recovery

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