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The Economy Is On A Sugar High, With 28 Million Unemployed – Forbes



Last week, interest rates moved slightly lower, with the 10-year T-Note falling about 7 basis points from 0.71% to 0.64%, a retracement of 37% toward the 0.51% August 4 low. Like its brethren, the 30-year T-Bond fell 10 basis points from 1.45% to 1.35%, a 38% retracement to the 1.19% low (also August 4). Some of the up-move had to do with the “Inflation Scare” discussed in last week’s blog. But most of the up-move was the result of the sheer volume of new debt coming to market. When a Treasury auction doesn’t go so well (Reuters Headline: “U.S. sells $25 bln 20-year bonds to tepid demand”), rates naturally rise. So, why the re-emergence of the downtrend?

Some of it may be related to the growing recognition that we have yet to see the worst of the Recession, and when we do, the Fed will have little choice but to print more money. The chart below, which shows retail sales making a new high (with 28 million people still unemployed) is all you really need to know. The April $1,200 stimulus checks and the extra $600/week of unemployment benefits actually grew personal income (PI) at a $2.2 trillion annual rate (12% annualized growth). And, as I write, we are still awaiting the next installment from Congress.

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At the same time as retail sales and PI were smashing records, the savings rate established some new records of its own, currently standing at 19% of PI. Consumers haven’t taken any vacations lately. Nor have they gone to many restaurants. In fact, most leisure activities have been curtailed. Thus, the rise in the savings rate. What we do see, however, is a significant rise in spending on home improvements (look at HD, and LOW revenues and earnings). And the one sector of the economy that is doing well is new home construction, especially in the suburbs (Housing Starts +22.6% in July!). 

There have been discussions in the economics blogosphere about where the Fed’s balance sheet will get to when the real bite of the Recession is felt. As of August 19, the size of that balance sheet is $7.01 trillion. For context, it was $3.76 trillion a year ago on August 21, 2019 (which was still bloated from the ’08-’09 Recession). That’s an 86% ($3.25 trillion) expansion. It appears that the Fed will re-double that effort when the chips are down. Some of the bloggers say that the balance sheet will have to top $10 trillion, i.e., $3 trillion more. Doing the math, for every $1 trillion added to the money supply (Fed’s balance sheet), the annual growth in M2 rises about 7 percentage points. As of August 19, the Y/Y growth in M2 was 22.4%. Adding another $1 trillion puts that growth rate near 29%, and $1 trillion after that puts it at 36%. A third $1 trillion ramps it up to more than 42%! The table below, from my blog of two weeks ago, shows the rate of money growth in the world’s more important economies. None of these economies show money growth even close to the U.S.’s, much less what it may turn out to be when the Fed expands its balance sheet to cope with the real, but belated, Recession impacts. 

Gold is priced in dollars. There is a very strong relationship between its value and the value of the dollar (see chart). Imagine how fast the value of the dollar will fall and the (dollar) value of gold rise if the U.S. money stock grew 42% while the rest of the world continued to expand their money stocks at the rates shown in the table. The scariest issue here is the possibility that the world no longer uses the dollar as the reserve currency!

What’s the Fed Thinking?

In the minutes of the recently held Fed meetings (July), the Fed chiefs indicated that it would continue to expand its balance sheet, as needed. This was no surprise. Discussed at the meeting was a strategy of pegging the Treasury yield curve (i.e., pegging rates for the 1, 2, 5, 10, 20 and 30-year securities). In the minutes, the Fed indicated that it was not going to implement this strategy at this time. When that was revealed last Wednesday, there was a brief back-up in yields. 

But, the real kicker was the Fed’s view on the economic outlook. The Fed gave two scenarios, both of which are given an equal probability. In all of my many years of Fed watching, I have never seen them gravitate toward a pessimistic scenario or come off as a worried bunch. But they did in July. In this scenario, the virus has a second wave, more businesses close, GDP falls again, unemployment rises, and deflation prevails. 

And their view on the recent upward move in the CPI (i.e., the “Inflation Scare”) is that the negative impact of the pandemic on aggregate demand more than offsets upward price pressures due to supply issues. Well, at least for now. (My comment: The money creation, supply issues and some demand improvement will eventually lead to inflation.)

The Economy

Recent data show some slight improvements in the high frequency data. For example, OpenTable restaurant bookings are slightly higher in mid-August than they were in mid-July (but, still, down more than -50% from their February levels), and TSA passenger counts are up, as are the retail sales and housing starts alluded to earlier. But, as explained, we are still living on the sugar high of free money, and it appears more is on its way. The real economic consequences come when the helicopter money stops. 


As expected, August showed some deterioration in the weekly state Initial Claims (IC) data (week of August 15). IC rose +53k (not seasonally adjusted- NSA) from +839k to +892k, as businesses, now well past any PPP requirements and realizing that the nascent recovery has flattened, continue to lay workers off. These ICs must fall toward their more normal 100k-200k levels for the economy to regain its swagger.

But there was some good news on the employment front, albeit not covered by the business news media! State Continuing Claims (CC) data (week ended August 8) fell -936k (NSA) from 15.201 million to 14.265 million, as some businesses were allowed to re-open. Despite the fall, this number is still mind-bogglingly high! For context, a year ago, this number was 1.619 million (about 11% of the current level). 

Unlike the state numbers, the Pandemic Unemployment Assistance (PUA) (the supplemental program created by the CARES Act to aid the self-employed and independent contractors not eligible for the state unemployment programs) new weekly Initial Claims (IC) (week ended August 15) rose +53k from 490k to 543k. The PUA Continuing Claims (CC) data has a 2-week lag, so the latest data there are for the last week of July (week ended August 1). In that week, PUA CC rose +502k, from 10.723 million to 11.225 million. The combined state and PUA data (lagged back to August 1) still shows 28.1 million people unemployed.

The conclusion here is that employment is still a mixed bag. The mid-August state data does show hope. As seen in the chart, the downtrend in the unemployment levels continues.

Bankruptcies (BKs)

Below is an update to the weekly BK chart that I have included in this blog for the past few months. The annual BK rate reached 275 in mid-August (publicly traded companies from the Bloomberg database). As of August 20, the annual rate stood at 273. For context, in 2019 there were 139 BKs of publicly traded companies, and there were 118 in 2018. I expect this rate to accelerate when the helicopter funding ends.


  • The economy remains on a free-money induced sugar high;
  • The consequences of the Recession are still “down the road;”
  • When those consequences do present themselves (rising BKs, stubborn unemployment, foreclosures, loan losses, evictions…), the Fed will have no choice but to print more money;
  • The result is that the intermediate term prospect is for continued dollar weakness vis-á-vis other currencies;
  • That means rising gold prices and ultra-low interest rates.

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Tech lifts world stocks as economy back in focus –



By Danilo Masoni

MILAN (Reuters) – World shares stabilised and the dollar rose on Wednesday with overnight gains of stay-at-home Wall Street tech champions helped balance concerns that new restrictions to counter resurging coronavirus infections will hurt economic recovery.

First indications from global surveys about economic activity in September gave a gloomy picture for Europe with rising COVID-19 infections leading to a downturn in services.

MSCI world equity index .MIWD00000PUS>, which tracks shares in 49 countries, was 0.2% higher by 0821 GMT, while the pan-European STOXX 600 .STOXX> benchmark rose 1.1%.

Tech shares were the strongest gainers in Europe following a rally overnight in big U.S. tech stocks Amazon , Microsoft , and Apple .

“This strong performance on the part of U.S. stocks is likely to translate into a similarly positive open for European stocks,” said Michael Hewson, analyst at CMC Markets in London.

“However there is rising concern that in light of surging infection rates across Europe, and the beginnings of a rise in hospitalisations, that the economic rebound from the lockdown lows is set to finish the year with a whimper,” he added.

The PMI survey showed euro zone business growth ground to a halt this month as the service industry shifted into reverse, knocked by a resurgence in coronavirus cases that pushed governments to reintroduce restrictions.

French business activity slowed to a four-month low in September, while Germany’s private sector continued to recover from the coronavirus shock.

Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS> rose 0.2% for its first gain this week, but the mood was hardly bullish. Japan’s Nikkei .N225> returned from a two-day holiday to slip 0.1%.

Nasdaq futures remained near Tuesday’s highs, up 0.1%. S&P 500 futures were 0.3% higher.

In foreign exchange markets, the standout mover was the gaining dollar, which was up 0.10% against a basket of six major currencies .DXY> at its highest level since July 27.

“Risk aversion on the back of new COVID-19 infections affecting Europe more directly remains an important factor this week,” UniCredit strategists said in a note. “This means that the USD is likely to remain firm in its role as preferred safe-haven currency.”

Meantime the euro hit a seven-week low and was last down 0.12% at $1.1693, on concerns about coronavirus infections and after the tepid European surveys.

Commodities were also weighed down by the robust dollar and worries linked to economic impact of a second wave of COVID-19.

“A resurgence in cases could prove to be a stumbling block for the demand recovery, although any lockdowns moving forward are likely to be more targeted and localised,” said ING commodity strategists Warren Patterson.

Brent crude futures were last down 0.2% at $41.64 a barrel and U.S. crude futures slipped 0.3% to $39.69.

Gold prices touched a six-week low as the dollar strengthened. Spot gold fell 1.2% to $1,875.7 per ounce.

In bond markets, Italy’s 30-year bond yield fell to a record low as the country’s debt remained supported after local elections reduced the risk of a snap election.

U.S. bonds were steady, with the yield on benchmark 10-year U.S. debt US10YT=RR up less than one basis point at 0.6724%

(Additiona reporting by Tom Westbrook in SINGAPORE; Editing by Tomasz Janowski)

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Italy’s Chance of a Lifetime for Economy Could Yet Be Squandered – Yahoo Canada Finance



Italy’s Chance of a Lifetime for Economy Could Yet Be Squandered

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(Bloomberg) — No Italian government has ever had so much cash at its disposal as Prime Minister Giuseppe Conte — enough possibly to transform the region’s laggard economy.

But if that fiscal hoard swelled by European Union rescue funds and central bank-backed cheap borrowing is spent unwisely, it could become the biggest missed opportunity of a generation.

Avoiding that outcome is the test confronting Conte and his finance minister, Roberto Gualtieri. While targeting a revamp of the economy, they face pressure to throw funds at protecting existing jobs rather than investing in new ones, expanding the role of the state despite a troubled history of such policies in the country.

“In Italy, too many people think that any kind of public expenditure can boost output,” said Riccardo Puglisi, economics professor at the University of Pavia. “This increases the risk that recovery-fund money is not used properly and efficiently.”

The fiscal windfall that Italy’s governing class is about to sink its teeth into is staggering. Gone are the days of haggling over 0.1% budget deviations with Brussels officials concerned about burgeoning borrowings that are now well on the way to exceed 150% of gross domestic product.

The country stands ready to receive as much as 209 billion euros ($248 billion) in EU aid funded by jointly issued debt to help its post-coronavirus reconstruction.

Further bolstering its public finances are European Central Bank efforts to keep borrowing costs low. That help allowed Conte to spend 100 billion euros in stimulus on a battered economy that analysts anticipate may contract as much as a 10th this year. The yield on Italian 10-year bonds has more than halved since the peak of the pandemic in mid-March.

Deep Pockets

“Italy will have billions in its pockets,” said Paolo Pizzoli, a senior economist at ING Bank. The government “needs to show it is not only able to access European Union funds, but also to focus spending effectively to ultimately boost growth.”

With strict strings attached to EU money, officials intend to use it to boost growth to at least 1.6% a year and increase employment by 10 percentage points from the 2019 tally of 63.5% to bridge the gap with regional peers, according to draft guidelines seen by Bloomberg.

The plan is to invest in digitalization, a unified ultra-broadband network, innovation, education, more efficient infrastructure, a green economy, and also reforms of the judicial system and state bureaucracy.

“It’s a once-in-a-lifetime opportunity to exit a long period of stagnation,” Gualtieri told lawmakers last week.

That ambitious growth agenda is pulling in one direction, while the government’s own spending plans for the rest of its budget are pulling in another. Conte’s coalition of the left-wing Democratic Party and the populist Five Star Movement — newly emboldened after holding its ground in local elections this week — is increasingly tending toward state aid and government intervention.

The premier has pushed for the creation of a single broadband network company, halting the sale by Telecom Italia SpA of a minority stake in its network. He has also pressured the Benetton family’s Atlantia holding company to sell its 88% stake in toll road operator Autostrade per l’Italia. Meanwhile Gualtieri has publicly favored a sale of the Italian Stock Exchange and its MTS bond market to a European company.

The government wants the state-backed lender, Cassa Depositi e Prestiti, to take stakes in all three enterprises, and it has also set up a new publicly controlled company to run failed airline Alitalia SpA. Italy has seen such measures before, but not for a while.

Not the Solution

“The successful Italian economy of the 1950s, which was a mixed system — with strong government involvement in companies through a vehicle called IRI — worked for a time but degenerated quickly into cronyism and wasting public funds,” said Giovanni Orsina head of LUISS University’s School of Government in Rome. “Regenerating that system for all the wrong reasons is not the solution.”

The Institute for Industrial Reconstruction — known as IRI — was a state company established by the fascists in 1933. It helped rebuilding after the war, constructing roads and the phone network, and was once Italy’s biggest employer.

If Cassa Depositi becomes a revamped version of that, it would ultimately turn back the clock, reversing decades of economic policy since IRI was dissolved during a sell-off of assets in the 1990s.

“We hope the government will use the funds to boost competitiveness with a market approach rather than acting as a nanny state,” said Paolo Magni, parter at Alpha Group, a private equity fund with 2 billion euros of assets under management in Italy.

For Orsina, such an outcome would prolong Italy’s history of failing to deliver on economic reforms, hampered by special interests and a political cycle with frequent elections.

“Politicians gain very little from long-term planning and very much from spending on solutions that increase their power and popularity,” he said. “The country is condemned to short-termism.”

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GUEST OPINION: Trails can stimulate the economy in Atlantic Canada – SaltWire Network



There are many things that this pandemic will have taught us, however for many it has reinforced the value of trails and greenspaces.

As a trail professional of nearly 20 years I’ve always valued trails and greenspaces, however in this fast-paced world with ever-changing technologies, many people began to take the great outdoors for granted.

With limited activities to do during the pandemic and many people stuck in the house most of the day, the opportunity to get outside and breathe some fresh air is now becoming something that is vital for their well-being.

These days I’m inundated by Facebook posts, tweets or Instagram posts of people relishing in the outdoors and thankful to have access to trails and greenspaces. As we begin to become accustomed to a new normal, it’s time for us as a society to start thinking about getting back to some of the more simple things in life and how these things can act as both a social and economic catalyst for communities. Many of these things don’t need to be complicated, but can have a tremendous impact as we begin to come back from the ramifications of COVID-19.

One of these opportunities is to foster the development of a trail economy. Many countries have capitalized on the trail economy; however Canada and Atlantic Canada have not come close to realizing the potential it has in developing a strong economy based on greenway trails. The trail economy is the idea of generating both indirect and direct revenue through the development and promotion of trails as a product.

This however is not a “build it and they will come” scenario; it requires significant engagement between trail managers working hand in hand with outfitters, business owners and community leaders to ensure that there is a strong integration between all stakeholders. What it doesn’t require, however, is significant investment of funds to get these relationships developed.

Prince Edward Island is perfectly positioned to take advantage of the trail economy and is in a unique position as an established tourist destination. The Island is well known for their hospitality and many people consider P.E.I. as a premier vacation destination.

The Confederation Trail provides tourists and residents alike with a 450-km trail that spans the province and provides access to many of the most scenic coastal regions on the Island. A feature that the Confederation Trail has over many of its counterparts is the relative short distance between communities thus allowing trail tourists with good access to food and beverage, accommodation and other critical amenities to ensure that they have a memorable experience.

It’s now time for these communities and the provincial government to take advantage of this feature and ensure that they are properly equipped to take on the task of welcoming these tourists to their beautiful towns and villages. The development of programs such as Trail Towns, where the business community and other key stakeholders work together to assess their attributes and work together to fill in their service gaps in the next key step of the development of the Confederation Trail as a tourism product.

Trails and greenspaces connect us to the land, the people and histories of our communities. With many people staying close to home this year and perhaps in the years to come, let’s take this time to get better connected, learn more about the region, create a stronger and healthier population and a more vibrant economic outlook for Atlantic Canada.

Jane Murphy-McCulloch is a principal at Terminus Consulting and was national director of Trail with the Trans Canada Trail, developing 10,000km of land and water trail along with road cycling infrastructure to ensure the successful connection to the national trail system in 2017.

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