Economic Updates, Advisor Training, Bull and Bear Tim Pierotti, Chief Investment Officer Economic Updates, Advisor Training, Bull and Bear Tim Pierotti, Chief Investment Officer

The Myth of the Deficit Myth

Stephanie Kelton's book, The Deficit Myth, challenges the belief that deficits matter, arguing that as a sovereign nation, we will never run out of money. However, the current state of the US economy, with low potential GDP and tight labor markets, suggests that deficits do matter, and measures need to be taken to reduce them and balance monetary policy.

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Advisor Training, Economic Updates Tim Pierotti, Chief Investment Officer Advisor Training, Economic Updates Tim Pierotti, Chief Investment Officer

Let’s Hope Cathie is Right

Last week Tim was one of two keynote speakers at a financial services conference along with Cathie Wood, CEO of ARK Invest. Cathie, a notable investor in disruptive tech, has said “AI is going to produce the most massive productivity increase in history. The productivity gains are going to be astounding and shocking.” Tim discusses the importance of productivity gains if the US is going to be able to manage the current debt and deficit challenges.

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Advisor Training, Economic Updates Tim Pierotti, Chief Investment Officer Advisor Training, Economic Updates Tim Pierotti, Chief Investment Officer

Liquidity and Wages

I thought I would share the two charts that I think are most important to what is going on with equity markets and with the Fed. The top chart shows the correlation of the S&P and the Fed balance sheet. As I wrote last week, the markets love a bailout. The economy has clearly slowed through the first quarter. Credit availability is sharply contracting and earnings estimates for the S&P in Q1 are expected to decline by 7% y/y. So why are risk assets rallying? I think this chart tells you all you need to know. I would also add that when so many macro investors (Hedge Funds) are positioned short, that creates a bid under the market as those entities have to cover their short positions to manage risk as the market rises.

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Advisor Training, Economic Updates Tim Pierotti, Chief Investment Officer Advisor Training, Economic Updates Tim Pierotti, Chief Investment Officer

Quick Thoughts on OPEC, ISM’s, GDP and Liquidity in 400 Words

Goldman’s Head of Commodity Research said yesterday, “OPEC’s pricing power is the highest it’s ever been.” The Saudi’s want oil in the $90 to $100 range. They see demand weakening globally, so they cut production. Importantly, they aren’t worried about losing global market share because US shale production is no longer the threat it had been due to shale’s declining productivity and declining rate of resource investment.

The China demand recovery hasn’t materialized like the oil bulls hoped. Makes sense given the property sector is already overbuilt and and the Chinese export economy isn’t getting any help from slackening European and the US demand.

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