Weekend Reads: The Troll Economy in Seven Charts
By troll economy, I mean that of the United States of America, of course.
Anybody who doesn’t think the United States is a special place has never tried real barbecue (BBQ). But BBQ’s just the beginning. Let’s start with geopolitics. As the excellent book The Accidental Superpower notes, most Americans have no grasp of the bounty they are blessed with. Author Peter Zeihan, who will be speaking at the 69th CFA Institute Annual Conference in May, points out that the United States just happens to have the world’s best piece of arable land — the American Midwest — located conveniently amid the world’s largest navigable network of waterways.
If you forget every other nice thing you know about the United States but remember that, you still walk away thinking the country is disproportionately blessed by good fortune. Add to that some simple observations about US ports — the Chesapeake Bay alone “boasts longer stretches of prime port property than the entire continental coast of Asia from Vladivostok to Lahore” — and you can’t help but feel pretty positive about the country’s long-term competitiveness.
— Ben Casselman (@bencasselman) March 4, 2016
And that competitiveness has come again to troll those who have forecast the imminent death of US economic expansion, fueled as it may be by monetary voodoo and financial engineering. New data released on Friday add just another piece of color to a picture that is far from bleak.
The Unemployment-to-Population Ratio Fell Two-Tenths of a Percent on Strong Household Survey Hiring: pic.twitter.com/GyKHrQ6yEJ
— Michael McDonough (@M_McDonough) March 4, 2016
It’s also an objective reality that the workers who have been on the sidelines are re-entering the labor force, at least to some degree.
And though wages haven’t grown yet, there’s ample reason to believe they should (and will).
— Sloane Ortel (@sloaneortel) February 26, 2016
But the economy is not the market, and this rosy picture hasn’t (yet) translated into what matters most for investors: growth. We can talk about the gap between expectations and performance — and there are some positive stories there — but the fact remains that revenues are not growing in aggregate.
Take a look at the last big piece I did — “34 Charts: This Time Is Different” — to get some more color there.
But let’s all close our eyes for a minute and think about what it might mean to live in a world where Americans who want jobs have them and their wages start growing.
If it quacks like a duck…. pic.twitter.com/tnCTkJXjBN
— Sloane Ortel (@sloaneortel) March 4, 2016
And the word gets out about this thing called inflation. At just such a time, it would be convenient to remember a thing called the Phillips Curve, which suggests that wage inflation will accelerate as unemployment continues to fall.
— jeroen blokland (@jsblokland) March 4, 2016
In just such a circumstance, it’s likely that current projections about the path of rate hikes by the US Federal Reserve will be seen as impossibly dovish, unless of course the Fed chooses to ignore its long-time targets: 5% unemployment and 2% inflation.
Why might it do that? Perhaps it will focus on the still-tepid global economy. Vice chair Stanley Fischer insists the Fed must look beyond its borders but also remember that it is not the world’s central bank.
In either circumstance, America could frustrate the rest of the globe. A Fed that’s forced towards hawkishness as domestic job gains and inflation continue to materialize would be a headwind to the rest of the world unless it follows suit.
— jeroen blokland (@jsblokland) March 4, 2016
That might happen! But we’re still a long way from any sort of conclusive directional proof. It’s also hard to imagine a Fed that ignores rapidly increasing inflation and a tightening labor market in deference to global growth risks for very long. Especially if you take a moment to consider the current domestic political climate.
In any case, an imminent recession does not seem to be in the cards for the United States. No reason not to stay vigilant — these things revert quickly — but the immediate risks are elsewhere. What if the troll economy forces rates upward unexpectedly and well before the rest of the world is ready? That’s the risk I’d ponder as you head off for the weekend.
Check Out These Papers
- “What Makes US Government Bonds Safe Assets?” They’re the only game in town. (National Bureau of Economic Research)
- And what happens when there aren’t enough safe assets? A “safety trap” recession. (National Bureau of Economic Research)
- Unusual news is predictive of market volatility. (Social Science Research Network)
- What’s the difference between a good boom and a bad boom? (National Bureau of Economic Research)
- Turns out some financial firms “specialize” in misconduct. (Social Science Research Network)
Discussions Worth a Look
- My colleague, Svi Rosov, CFA, speaks with Horace Dedieu about disruption. (Market Integrity Insights)
- Jamie Dimon on the future of finance. (Bloomberg)
- The world: not terrible! So says a number of C-suite executives. (Enterprising Investor)
- Yours truly in conversation with long-time Enterprising Investor contributor David Schawel, CFA. (CFA Institute)
- Stephen Wolfram on Artificial Intelligence (AI) and the future of civilization. (Edge)
- The Iditarod has a problem this year: no snow! (Huffington Post)
- A Twitter bull on Twitter: It’s irreplaceable. (AVC)
- The barter economy: just a myth that keeps getting repeated? (The Atlantic)
- Thankfully, dog ownership is optional. (Mr. Money Mustache)
- A novelist applies for a job in the CIA. (Lapham’s Quarterly)
- The excellent Damon Beres on how machine learning in elections could bring about the death of free will. (Huffington Post)
- Does the free market reward fraud? (Evonomics)
- Refugees in Germany are buying one-way plane tickets home. (Los Angeles Times)
- A contemporary neoconservative manifesto. (New Republic)
- A look inside the “The Clinton System” (The New York Review of Books)
Many thanks for reading! For fun this week, I also made you a playlist. I hope you enjoy the first (and maybe only) edition of Weekend Beats.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
Image credit: ©iStockphoto.com/Christian Mueller