The COVID-19 recession brought to the fore some very unusual and puzzling patterns between different macroeconomic aggregates, with supply side bottlenecks and shortages, record consumer inflation and the unusual coexistence of an unusually tight labour market altogether with record labor slack. The COVID recession itself lasted only two months according to the NBER’s Business Cycle Dating Committee. The fiscal and monetary response to the pandemic has corrected some of its most dire human and economic consequences but it has also led to new imbalances and it has magnified some of the imbalances that existed prior to the pandemic. The combined impact of all these imbalances, direct and indirect effects of the pandemic on supply and demand have shaped a very peculiar COVID-19 related business cycle, giving rise to what one might call “the COVID-19 conundrum”.
Hydrogen as a feedstock for the petrochemical industry Since the first demonstrations of water electrolysis some two hundred years ago, Hydrogen has witnessed many false dawns. As recorded by the International Energy Agency (IEA) in its landmark report on the Future of Hydrogen, commissioned by the Japanese Presidency of the G20 in June 2019, hydrogen […]
What are the key challenges for the US-China relationship with a Biden Administration? MEDays Talk Discussion between Prof. Yong Wang, Andrew Leung and Alexandre Kateb
Revisiting George Kennan’s Containment Argument In February 1946, George Kennan, then an American diplomat in Moscow, sent his famed “Long Telegram“, which predicted the Soviets would only respond to force and that the best way to handle them would be through a long-term strategy of containment. The content of this telegram was later published by George […]
The 2020 US presidential election will probably be remembered as one of the most tense electoral contests in the nation’s history. Not only because it happens amid a global pandemic to which Americans paid a heavy human and material price. Political and social polarization is arguably at its highest level in the Land of the Free. There are many […]
The Congressional Budget Office published this week its annual Long-Term Budget Outlook presenting its projections of what federal deficits, debt, spending, and revenues would be for the next 30 years if current laws governing taxes and spending generally did not change. Federal deficits are projected to increase from 5% of gross GDP in 2030 to 13% by 2050. The projected budget deficits would boost federal debt to 104% of GDP in 2021, to 107% of GDP – the highest in US history – in 2023, and to a whopping 195% of GDP by 2050.
Professional Investors are familial with the Fama-French Factor model developed by Nobel Prize Laureate Eugene Fama with his colleague Kenneth French in the 1990s. According to this model, the expected return on a stock is the combination of the general equity market premium – the so-called beta of the single risk factor model – to which they added a “size premium” – on the premise that small cap stocks are expected to generate higher returns than large caps – and the value premium which is a reflection of a stock’s lower valuation compared to other stocks which trade higher on the basis of their expected earnings. This academic theory is at the heart of the so-called “smart beta” strategy based on ETFs – Exchange Traded Funds – which seek to replicate an exposure to the risk factors identified by Fama-French and by other pundits. However, since the beginning of the year, here have been a puzzling disconnect between “Growth stocks” and “Value stocks”.
From its latest moves, it appears that the Federal Reserve has two important messages for the markets and for everyone else. 1. Don’t fight the Fed. 2. Don’t expect any guidance from the Fed.
These two messages are two facets of the same “puzzle and conquer” strategy that seeks to provide support to the economy and to the markets while preventing the spread moral hazard and the build-up of self-fulfilling market bubbles. This strategy is risky as it may err on either side by untertaining a haze of uncertainty over its course of actions. However, it is probably the best strategy as long as the macro outlook and the fiscal side of the policy mix equation remain difficult to project.
Rare earhs could become a focal point in the coming trade battles following the scraping of that agreement. Several initiatives like Sen. Ted Cruz ORE legislation and Commerce Sec. Wilbur Ross inquiry into vanadium imports support this claim. We explain why the Battle for rare earths is a the heart of a reshaping of globalisation and an acceleration of the technology race in the wake of the coronavirus crisis.
Our nowcasting model shows that US GDP might fall by -29% in 2Q 2020 and that unemployment might take up to three years to return to its pre-crisis levels. These results cast additional shadows over the assumption of a V-shape recovery for the US economy, which has already been abandoned by the Federal Reserve.