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Thoughts From The Divide - Archive

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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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Economic Curves and U-Turns - August 27, 2019

The 2s-10s curve his back on the radar as it inverted before the latest Trump tweets and Jackson Hole, but research from the NY Fed finds the 10year - 3month spread to be a netter recession predictor. Larry Summers, the San Francisco Fed, and Bill Dudley all surprised us this week as they made U-turns from their precious positions on various economic topics including QE, negative rates, and Fed independence.

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Challenging the Status Quo - August 20, 2019

The domestic status quo is shifting: CEO’s are reconsidering the purpose of a corporation, Big Tech is under antitrust investigation, and Big Pharma faces backlash from those affected by the opioid crisis. The international economic and political picture continues to be unruly with surprising and turbulent political developments adding to gloomy growth outlooks.

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Small Businesses and Negative Rates - August 13, 2019

While doom and gloom is making headlines, “the small business sector remains exceptional”, though difficulty finding workers continues to hinder growth. As negative rates make headlines, Alan Greenspan assure us “it’s not that big of a deal” and argues that current dynamics “won’t last long”.

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Labor Pressure and Housing - August 6, 2019

Amid trade tweet turmoil, the latest JOLTS data is a source of relative calm, with “little changed” used 20 times and Job Openings continuing to outnumber Total Unemployed. The housing market is feeling the heat from the labor market as shortages across construction occupations are at record levels and continue to cause problems for affordability.

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Monetary Policy Pushback - July 30, 2019

Ruchir Sharma, Chief Global Strategist at Morgan Stanley reminds us that central banks can’t dictate where the money they print goes, and warns that easy money could set the stage for a market collapse. D.L. Thornton, ex-Vice President of the St. Louis Fed argues that low rates have failed to spur economic growth and have harmed sectors of the population

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Fed Froth and Leveraged Loans - July 23, 2019

We take a look at mixed regional Fed data with their positive future outlook and the Bank of England’s concerning look into leveraged loans.

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Freight's Perspective and Asset Purchases - July 16, 2019

We review the Cass Freight Index is “ signalling economic contraction” as indicators across sectors and geographic flash warning signs. and James Hamilton of UC San Diego warns that one of the unconventional tools that Powell and other central bankers rely on is less effective than its users believe.

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Know Thy Nominee - July 8, 2019

Judy Shelton and Christopher Waller’s nomination to the Federal Reserve board leads us to dig into their pasts for clues to their policy views. Christine Lagarde is also a newly minted nominee, up for the presidency of the ECB, and though she is not an economist, has spent some time in the monetary policy trenches.

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"Against" and "For" MMT - July 2, 2019

James Meadway argues that beyond the danger of inflation and issues of democracy surrounding MMT, it is just a simplistic solution to complex problems. Thomas Fazi and Bill Mitchell rebut Meadway’s points, arguing not only that MMT is a lens to understand how the monetary system “already works”, but also a way to “imagine truly transformational politics”.

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Dallas Data Deluge - June 25, 2019

Dallas Fed Manufacturing Data Disappoints, Dallas Fed President Robert Kaplan gave a speech warning about the potential problems arising from tariffs and trade uncertainty, but the silver lining out of Dallas was research showing wages might be growing faster than reported.

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Central Bank Scorecard - June 18, 2019

Leika Kihara chronicles the path of Haruhiko Kuroda and finds that the monetary experiments implemented by the BoJ has failed. Also, Eric Sims and Jing Cynthia Wu develop a model that draws conclusions from unconventional monetary policy tools.

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Interest Rates Re-Examined - June 12, 2019

A number of commentators, including Warren Mosler and Jim Chanos, found fault with the monetary policy framework espoused by Ken Rogoff. They explain why central bankers have “got it backward” and why “the Fed itself” is behind some of the dynamics they are fighting.

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Unconstrained Negative Interest Rates - June 4, 2019

In “The Case for Implementing Negative Interest Rate Policy” Kenneth Rogoff & Andrew Lilley probe the limitations of monetary policy tools and examine the steps necessary to implement deeply negative interest rate policy.

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