Speaking of the hottest topic recently, it must be the A-share bull market. But after a few days of carnival in the bull market, more and more people are beginning to question the health of this bull market. But in fact, in today's sensitive and turbulent period, any good news will be chewed up and studied repeatedly. No, the recent signs of recovery in the U.S. economy have been questioned again.
More and more people are beginning to believe that the current rebound of the US economy is almost entirely supported by newly issued currencies, and everything is still on the verge of crisis.
Not only that, there are also people who are worried about If the market is not ready for the next money supply boom, the currently stable economic order will be disrupted again. Inflation and deflation are both expected.
01 Everything is still on the brink of crisis
Judging from recent economic data or US stock performance, it is not difficult to find that signs of recovery have begun to appear (US President Trump has long shouted the slogan of the greatest recovery in American history). However, if you pay attention to the recent economic analysis articles on the Jinshi reference page, you are likely to come to the opposite conclusion-the road to economic rebound in the future may be difficult.
Some people may think that this phenomenon seems inconsistent, but in fact it is not surprising. In the context of excessive currency issuance, all assets can receive sufficient financial support, and all fields and industries on the edge of the cliff can be supported with stimulus packages.
is correct. Although many "surface data" have become better, everything is still on the verge of crisis. The three most noteworthy crises are: employment crisis, banking industry capital crisis, and the upcoming cash cliff that the American people will face.
Among these crises, the one that everyone is most familiar with is undoubtedly the employment crisis . After all, every month we experience "harassment" of multiple employment data such as non-farm payrolls and the number of initial unemployment benefits.
Last Thursday’s non-farm payrolls report delivered more good news, but it also showed how much “permanent” damage the epidemic has caused to the U.S. labor market.
data shows that the number of permanently unemployed people increased by 544,000 in April, 295,000 in May, and 588,000 in June. A total of 1.427 million new permanently unemployed people were added in the three months.
In other words, employment growth is naturally a good thing, but more important is the speed of employment growth. Because as the labor market slumps for longer and longer, the number of permanent unemployed people will increase, and it will take longer to return to the expected effects in the future.
Judging from the current situation, compared with the speed of decline, the rebound speed of the job market is not ideal, and the trauma has been quite serious. San Francisco Fed President Mary Daly even bluntly said that after the epidemic is over, the U.S. job market and overall economic conditions may take five years to return to normal.
The second thing we will talk about below is the nightmare that global central banks once had-the banking capital crisis.
Some people may be confused. Obviously, compared with the financial crisis in 2008, today's banking industry seems to be quite reliable.
Thanks to the long-term efforts of regulators (after the crisis, regulators increased the transparency of bank capital and conducted regular stress tests on it), today's banking industry is no longer a runaway train dragging the global economy off a cliff, but a clear engine of stability. Not only did banks not collapse, they actively assumed responsibilities such as issuing loans and protecting deposits.
But behind this reassuring appearance, new trouble may be brewing. As time goes by and regulators enact more de-stressing policies for the banking industry, the stress tests that have restricted banks for years appear to have been relaxed, and the once strictly required risk levels have become less transparent, and more and more people are beginning to worry that everything will be "repeated" (this comment comes from former Federal Deposit Insurance Corporation Chairman Sheila Bair and Thomas Hoenig).
Is this conjecture true? Perhaps you can refer to these words of Dalio, the founder of Bridgewater Associates:
The market has become so ridiculous. The market is no longer free, but just a plaything of the central bank. The massive amounts of cash released by the Federal Reserve masked many problems in the banking industry and other areas. It also allowed U.S. stocks to remain close to record highs and credit markets to run smoothly in the midst of one of the worst crises in history.
The last crisis is also the most common and most harmful crisis, which is the cash cliff that the American people are about to face.
In the past few months, the sudden epidemic has caused a large number of unemployment, and a large part of the American people are almost completely dependent on relief. However, a significant amount of funding will expire or be threatened in a short period of time, such as:
The $600 weekly unemployment insurance will expire on July 31. Of the $290 billion in stimulus checks, $270 billion has been distributed. There is no further expansion of funding for the Paycheck Protection Program (PPP). The "Anti-Epidemic Act" allocates $150 billion to state and local governments, but the government revenue crisis is still intensifying.
Officially taking this issue into consideration, 153 "left-leaning" economists recently signed a letter calling on U.S. policymakers to continue direct cash payments to Americans until the economy improves. They wrote in the letter:
"The first round of direct cash payments is life-saving money to help some people get through a few weeks of hardship. Even after businesses reopen and the employment situation begins to pick up, the economy will still be significantly affected. If people have no money to spend, demand will continue to stagnate."
02 Prophecy: The United States is not ready for the money supply boom
The above paragraph also explains well "what the Federal Reserve and the US government will do next." Now, observers from all walks of life have reached a consensus. If we want to continue to leverage the "recovery", the medicine cannot be stopped, and the double act between the Federal Reserve and the US government must continue:
The government must continue to send money to supplement scarce liquidity in the market. The Fed must continue to print money to fill the big hole dug by the former.
Obviously, under the pressure of the crisis, fiscal, monetary and prudential policies have shifted to the direction of boosting employment and the economy, instead of being guided by anti-inflation and anti-deficit, and the high currency growth situation is likely to continue.
It is precisely for this reason that more and more people are beginning to worry about If the market is not ready for the next money supply boom, whether the currently stable economic order will be disrupted again.
Among the expectations of traders and economists, perhaps the hottest topic is: Under the dual impact of the economic impact brought by the epidemic and the subsequent monetary and fiscal stimulus measures, will we see hyperinflation or deflation in the next few quarters? Let’s take a brief look at below.
Prophecy 1: Inflation
It seems not difficult to understand that some investors will support the expectation of hyperinflation. Here are some of the arguments they most often mention.
1. In some industries, the supply impact caused by the epidemic cannot be ignored.
2. Under the influence of the easing cycle, the public and private debt of countries around the world is on the rise , especially the United States.
3. The epidemic may impact the process of globalization, increase populism, and increase international economic and trade frictions. is structurally an inflation driver.
4. If productivity falls, corporate profit margins will be squeezed. In order to offset this impact, companies may choose to actively increase prices.
5. In addition to policies that clearly support higher inflation, such as the US fiscal compensation package, weekly unemployment benefits are also higher than the median for low-income people. In theory, 's relatively high benefits should cause low-income workers to demand higher wages when rehired.
Supporters of this view also believe that the Fed's unlimited quantitative easing will cause its balance sheet to surge, and the increase in base money will trigger inflation, especially for asset prices, of which the bull market in US stocks is the best example.
Prophecy 2: Deflation
For those who support deflationary expectations, at first glance, the current fundamentals do have many factors supporting inflation, but many of them are actually invalid .
Take the most hotly discussed money printing operation as an example. Supporters of deflationary expectations counter that when the Fed engages in quantitative easing, asset purchases are made by crediting newly formed bank reserves. However, this only increases the monetary base, not the money supply directly, which is where money/cash is actually created.
In fact, it is not uncommon for the money supply to surge during a deflationary recession, but the higher money supply is often easily offset by a collapse in the velocity of money. In other words, Hyperinflation is unlikely to occur unless the money turnover rate at least stabilizes.
Obviously, in the current environment where demand has dropped significantly, this assumption is unrealistic.
In addition to the money supply, they also gave some other reasons to support deflation.
1. First of all, oil prices may remain low for a long time, and energy accounts for 6.3% of the weight of the U.S. CPI basket. Therefore, in addition to affecting long-term inflation expectations, the drop in oil prices will also have a huge direct drag on the overall CPI.
2. Unanchored inflation expectations will drag down spot inflation. Although long-term inflation expectations have recovered somewhat after their collapse in mid-March, a level of around 1.75% still effectively means that the long-term average will be 0.25% below target.
3. The collapse of economic activity will lead to a sharp decline in output and a hemorrhage in the labor market, which will put downward pressure on capacity utilization and prices.
4. Wage growth is weak. The Federal Reserve's Beige Book or NFIB small business survey for April showed that no region reported upward pressure on wages. Instead, most agents expect wage softening and pay cuts.
5. Wages are often tied to the services sector, which has been hardest hit. Therefore, in the next few quarters, services, which account for about 75% of the CPI basket, may "replace the role of commodities" and become a force in suppressing inflation.
6. Finally, they believe there will be some structural disinflationary trends ahead. These include the slowdown in population growth, the increase in unproductive debt (the impact of fiscal austerity policies in the second half of the crisis), etc.
In fact, no one can really see clearly where the future will go. The impact of the epidemic has also dealt a heavy blow to market confidence, which is one of the main reasons why any good news can be interpreted in the opposite direction.
So in your opinion, can the U.S. economy rebound quickly? Do the recent signs of improvement represent the actual situation of the U.S. economy?
Source: Jinshi Data
