Insights

Top News:

8/10: Dubious legality aside, the U.S. administration took executive actions to ostensibly break political impasse over additional coronavirus relief.

 

8/11: U.S. wholesale costs rose more than expected in July, even though inflationary pressures remain tame.  Since peaking in late July, the five-day average of new Covid cases has slowed to 45K/day in the U.S.

 

8/12: U.S. consumer prices increased more than expected in July.  Nevertheless, the 1.6% annual increase is unlikely to trigger any Fed tightening.  The U.S. has expanded its vaccine deal with Moderna, conceivably delivering up to 500 million doses. Across the Atlantic, the U.K. registered a Q2 GDP contraction of 20.4%, officially sinking into a recession.

 

8/13: New weekly jobless claims fell below the 1 million mark for the first time since March, while continuing claims decreased to approximately 15.5 million.

 

8/14: Hopes for a break in the Congressional deadlock over additional fiscal relief were dashed as the Senate adjourned until September.  Meanwhile, U.S. retail sales, excluding auto, rose more than expected last month.  Separately, in July, industrial production rose in China while retail sales remained anemic, prompting concerns over the recovery paths for other countries.

 

Heard on the Street:

“The 1920s ended with a stock market meltup followed by a meltdown. The 2020s may already be seeing a meltup, begun on March 23. We live in interesting, though not unprecedented, times. The Roaring 1920s could be a precedent for the Roaring 2020s. As Mark Twain observed: ‘History doesn’t repeat itself, but it often rhymes.’”

— Ed Yardeni of Yardeni Research on 8/12/2020

 

“The labor market continues to improve, but unemployment remains a huge problem for the U.S. economy.  The number of people filing for unemployment insurance, both regular and PUA benefits, continues to steadily decline as layoffs abate. But job losses remain extremely elevated, far above their pre-pandemic level.”

— Gus Faucher, chief economist at PNC Financial Services, as quoted by CNBC on 8/13/2020

 

Longer Game:

Can central banks inject unlimited liquidity into financial systems?  Randy Kroszner, a former voting member of the Fed, noted that, “There is no limit on the ability of a central bank to create reserves, as long as someone is willing – or through government edicts, forced – to take them … The key question is the impact of that reserve creation on money supply and the demand for money.”

 

The Federal Reserve is experimenting and researching the feasibility of a digital currency.

 

Bonus:

Recent improvement in U.S. infection trends has been called into question: While the seven-day new case average has declined 19%, testing fell as well by 12% since 7/28.