Tasting Reality: A Recipe for How We Judge

Come, pull up a chair, and let's explore something fascinating together.  Imagine the world as a vast buffet, overflowing with sights, sounds, smells, and sensations. It's a feast for the senses, but how do we choose what to savor? How do we decide which flavors to focus on and how to combine them into a satisfying experience?

It turns out, we all have a unique recipe for tasting reality, a personal filter that shapes how we perceive and judge the world around us.  Think of it as a three-course meal for the mind:

First Course: Selection -  The Art of Choosing Ingredients

Just as a chef carefully selects the finest ingredients for their dish, our minds instinctively choose what to focus on.  We can't possibly pay attention to everything, so we gravitate towards the cues and signals that resonate with us. Our past experiences, our passions, our cultural background – these all influence what catches our eye and what we deem important.  A birdwatcher might notice the flitting movement of a rare sparrow while others remain oblivious. A programmer might be drawn to the elegant lines of code that others find baffling. We're all drawn to different flavors, and that's what makes the world so interesting!

Second Course: Accentuation - Adding Spice and Flavor

Now, imagine you have a basket of fresh herbs and spices. You wouldn't use them all in equal measure, would you? You'd add a pinch of this, a dash of that, to create a unique flavor profile. Similarly, our minds accentuate certain pieces of information, giving them more weight than others. This reflects our values, our beliefs, and our individual tastes.  Someone who values security might focus on potential risks, while someone who craves adventure might emphasize the thrill of the unknown.  We each have our own way of seasoning our perceptions, adding depth and complexity to our experience of the world.

Third Course: Interpretation -  Savoring the Final Creation

Finally, the moment we've all been waiting for:  tasting the finished dish!  Our minds take all the selected and accentuated information and weave it into a coherent story. We seek to understand, to categorize, to make sense of the world around us.  This is where our individual interpretations come into play, shaping our final judgment.  Like a culinary masterpiece, our understanding of reality is a unique blend of flavors, shaped by our personal experiences and preferences.

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So, what do you think? Does this recipe resonate with you?  Have you ever noticed yourself selecting, accentuating, and interpreting information in your own unique way?  Perhaps you can recall a time when your judgment differed drastically from someone else's, even though you were both presented with the same "ingredients."

By recognizing that we all have a unique recipe for tasting reality, we can cultivate greater understanding and empathy. We can appreciate the diverse perspectives that enrich our world and avoid the trap of believing our own interpretation is the only "correct" one.  And who knows, maybe by sharing our recipes with each other, we can create something even more delicious – a shared understanding that transcends our individual tastes and biases.

The Politics of Perception: How a GDP Revision Plays Out in the Economic Arena

 The recent upward revision of the Q2 2022 GDP growth rate, shifting it from negative to positive territory, offers a fascinating glimpse into how economic data can be interpreted and utilized by different stakeholders. While seemingly minor, this technical adjustment carries significant weight in shaping narratives and influencing decision-making, particularly within the realms of monetary and fiscal policy.

It's crucial to acknowledge that the Federal Reserve, tasked with maintaining price stability and maximizing employment, is constantly monitoring GDP figures as part of its broader assessment of the economy. However, this specific revision is unlikely to trigger any immediate policy shifts. The Fed tends to focus on a wider range of indicators, including current inflation, employment data, and forward-looking projections, rather than reacting to minor adjustments in past data.

On the other hand, the political implications of this GDP revision are undeniable. For the incumbent administration, this news provides a valuable opportunity to bolster its economic credentials, especially with a potential election year on the horizon. The narrative of a robust economy, having avoided a technical recession, can be readily deployed to counter criticisms and justify existing policies. This positive optic, while potentially impactful in the short term, is likely to fade as other economic and political events take center stage.

Therefore, we can reasonably expect that some political figures will be influenced to act on this news, leveraging it to their advantage in the public sphere. In contrast, the Federal Open Market Committee (FOMC), with its more data-driven and long-term approach, is unlikely to be swayed by this specific revision. This contrast highlights the differing motivations and time horizons of these two key economic stakeholders.

In conclusion, the revised GDP data serves as a prime example of how economic information can be selectively employed to shape narratives and influence policy decisions. While the Federal Reserve maintains its focus on the bigger economic picture, the political arena is more likely to seize upon this positive development for short-term gains. Ultimately, the true impact of this revision will depend on how it interacts with other economic indicators and how effectively it is woven into the prevailing political discourse.

(Part I - End)

Fantastic Economic News

6/10/2021

Robert I. Winer, M.D.

A quick run through of the data and a few preliminary explanations for optimism

1] The GDP boom combined w fantastic job growth yet together we're not yet able to expand the economy fast enough to meet the need is the first piece of fantastic news

Let's start reviewing the metrics: payrolls have had a substantial ↑ of 1.6 million in 2021 Q1.3 to Q2.2,  and YTD ↑ 1.7% through 2021 Q2.2.

2] Retail sales, factory orders and housing sales are all moving about as fast they can but there’s not enough throughput in the economy to meet the demand. So, at present, supply is insufficient. 

And because of consumers optimism (declining covid rates and opening of retail, restaurants, entertainment, sports, etc.) combined with money to spend in a system performing as best as it can, expect continued consumer prices to rise for at least through 2021 Q3.

2] w inflation-adjusted annualized GDP @ 5.3% YTD through 2021 Q2.2, we're performing at the typical growth rate of Emerging Market Economies. Here I'll go out on a little limb and suggest that a boom could come to the Mississippi River Region, particularly IOWA, MISSOURI AND THE STATES TO THEIR WEST: NEBRASKA AND KANSAS Why? Great transportation that's cost effective, relatively speaking an eager and competent labor force, open space to expand, ready markets in the midwest and south, and a national will and regional desire to re-shore manufacturing in light of the various shortages during the height of Covid. My sense is a ten-yr. window of big growth in the above mentioned areas. Here's a map 

Nebraska highlighted

⟻

Mississippi River Border

⟻

3] MORE GOOD NEWS: Current U.S. Labor Bureau metrics show we’re hitting a home run in productivity ↑ at a  remarkable 4.1%  – 

𝚫 T ^{Q1 2021 comp. to Q1 2020} 

And this is more impressive since the productivity change measurement begins from the pre-Covid period — it’s a fantastic sign for the United States and a strong reason to believe that American ingenuity has once again risen to the occasion during a period of extreme adversity. 

Productivity is here calculated by utilizing the spread between the 5.3% GDP and job numbers.

Drilling down on the numbers (kudos to WSJ's Greg Ip for his recent article) a typical transitional recovery period of the 𝚫 between economic recession and expansion is: a] slowness to cut jobs, b] slowness to begin new hires, and c] decline in productivity w slowness in the velocity of improving metric. 

Instead OUR "ABC" has been "fast-fast-fast." How about that for more good news?  

It seems to me that the data presents good evidence that we’re in the beginning of a new significant economic expansion and urges me to say that our questions should now be: 

1 How fast will it be? 

2 How deep will it go? and 

3 How long will it last. 

The data right now support a reasonable expectation of a 3-5  yr. expansion at a minimum.

Thus far the U.S. population “on the ground” as a whole is “feeling” the numbers. 

People seem to want to get ahead of the numbers and they’re starting to run to buy.  People are feeling the tremendous optimism and have become bolder to ask for wage increases and signing bonuses. More feel it's a time to get in on the economic gains that’s are beginning. 

It seems to me that it's highly likely that in next 12-36 months they’ll be continued job growth as well as a simultaneous new and sustained demand in the robotic industry to supply manufacturer, which will further increase the gains we've seen in productivity.

All of this has created a tremendous national optimism at a time when we’ve experienced devastating loss of life and suffering of mind and body. May the good news continue! 

 2020 Dec. Jobs Report

U.S. employers ↓ 140,000 jobs 

Unemployment rate no 𝚫 at 6.7%

 

Employment ↓ is the first time since 2020 Apr. 

    Is this good or bad news?

Facts about the 2020 Dec. Numbers

Negatives

1] leisure and hospitality (restaurants, hotels, and amusement parks) ↓’d 498,000, 

2] ≈ ↓ of 700K in California

3] Temporary layoffs ↑ 277K

Positive offsets

1] Construction ↑ 51K

2] Manufacturing ↑38K 

3] Retail trade ↑ 121K

Other

1] Permanent layoffs fell ↓’d 348K

CONCLUSION

The current total loss of 140K stems from new Covid restrictions on activity enacted during the current surge in disease activity and there are signs that we have already began the early start of a positive growth business cycle.

 2 Weeks of Stock Gains: Are we entering “the period of cyclicals”? 

(11/14/2020)

Saturday

S& P 500 𝚫 T^week to a new record as investor optimism perhaps over a 90% effective Covid-19 vaccine led to a perception of ↑ hope of an economic recovery in 2021.

$ 𝚫 T^week:  outflow from cash and bonds ⓦ inflows to cyclicals, small caps, and high yield bonds.

Those investors who were on the sidelines this week

These investors rationalize that if Covid infection levels ↑over the next few weeks – which statistically I believe is highly likely – then not investing in these asset markets is smart since the facts on the ground will show ↑’d volatility reflecting investor perceptions of ↑’d short-term systematic financial risk in these markets.

Does this herald a change in investor stock exposure to: ↓ tech, and  ↑cyclicals (economically sensitive stocks)

Cyclical movement reflects a future hope or despair of a  categorical idea; certain stocks will reliably move ↑ or ↓ depending on ↑ or ↓ of GDP. 

Interest Rates / Inflation Outlook

10-year Treasury notes  Yield 𝚫 T^week  ↑’d from .83% to 0.89%.  .69% @ T ^{end of Sep} and .88% @ T ^{end of Oct}

The trend is up, suggesting that in the short-term a hedge  may possible 

Aspirational Equity Trend 

Period 1 (Past to Present): 2020 Mar: T⁻¹ to 2020 Nov: T° ↑tech

Period 2 (Present to Future): 2020 Nov: T° to Q2 2021 T¹ ↑cyclicals

This is a technical backcasting of the market trend beginning from 2020's stock market recovery point in 2020 Mar. Forecasting is a hoped-for trend for ↑ of equity prices in certain assets coincident with a post-Covid GDP recovery.

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Performance for the Week

Dow ↑ 4.1% 𝚫 T^week close @ 29479.81.

S& P 500 ↑ 2.2% 𝚫 T^week close @ 3585.15, first record close since 2020 Sep. ↑in all 11 sectors of the S& P, best-performing assets were in energy and industrials

Nasdaq ↓0.6% 𝚫 T^week close @ 11829.29 (↑tech weighting)

Dow to Nasdaq 𝚫 T^week highest since 2002

𝚫 T^week biggest loss 

2020 stay-at home stocks that have ↑’d during lockdowns: Zoom Video Communications ↓ 19%.

Tech: Amazon. com and Facebook ↓ > 5% 

𝚫 T^week biggest gain

Chevron ↑17%, best week since 2008

Walgreens Boots Alliance (pharmacy chain) ↑14%.

Russell 2000 (small caps) ↑13% 𝚫 T ^{current month}.  𝚫 T ^Nov (close of the current month was first record close in more than two years).

Part I: Financial Speculations on the Fed, Stimulus, and in Part II – the pricing-in of Post-Election Markets

(11/6/2020)

Friday

Financial Doing, Boulder, CO – Robert Winer, M.D.

↓ = less, decreasing

↑= more, increasing

***

Fed supportive monetary policy 

It has remained status quo and the Fed still calls for Congressional stimulus ASAP.  This week Fed’s policy-setting committee didn’t change its tune. The relevant current policies are:

1 keeping overnight interest rates about zero% with change based on thresholds metrics that show: 

a] tight labor markets to the point where factories and service can't get employees that they easily could accommodate into their workforce 

b] inflation => 2%. 

2 keeping their weekly purchase of Treasurys and mortgage-backed securities at their current duration average of about 6 years.

Election update and its possible economic consequences.

1 Fiscal Policy: Stimulus in Congress

77 year-old Senate Majority Leader Mitch McConnell, re-elected in Nov. 2020 for a new 6 year term gave a “should” shout-out: Congress should pass a relief package this year. He’ll negotiate it behind closed doors with returning House Majority Leader – Speaker Nancy Pelosi.

It’s likely that McConnell will get unanimous support from his own Senate caucus members. A symbolically pertinent enough ↓’d amount stimulus package will be passed. It will be a small amount higher than what the Republicans were will to give before election but significantly below what the Democrats wanted. Nevertheless to keep people happy, there will be another round of stimulus checks to households.

The political cost to Democrats will be such that they won’t go to the mat to wait for the Jan 2021 Georgia Senate runoffs which possibly could help them regain a Senate majority, but if it does go to a runoff, it could push Republicans’ to a $↑from where they are now. 

2 Monetary Policy: Fed future action

The Fed hasn’t but could pledge to keep buying bonds until certain criteria are met. This is its policy for short-term near-zero rate markets..

The Fed hasn’t but could pledge to change its bond portfolio duration by purchasing longer-duration securities. The disadvantage would be that it could keep long-term interest rates ↓for longer period and prevent inflation targets from being met. 

U.S. Market of 2010-2019 was on top, and no other developed country came close. Will it continue 2020-2019?

Excluding the 2020 Covid (which is a very big if), globally over 2010-2019, U.S. stock performance was number 1 with everywhere else way behind. This correlates with the following in the U.S.:

1] the outperformance of its GDP compared to most other developed countries. 

2] leadership in new disruptive technologies. 

3] banking systems repaired after the 2008 recession more quickly than in Europe. 

4] company earnings have dramatically risen, even with the $US dollar rising against the Euro and Yen

1 Will U.S. fundamental economic advantage over developed countries continue into the next decade? 

Global low growth, low inflation. This will also affect the U.S. more in the next decade than in the past one, but a positive differential will persist.

2 Will the U.S. premium on valuation remain in place?

Valuation premiums of very large U.S. tech companies (Apple, Amazon, Facebook and Alphabet) will be impacted by political factors of regulation, but will remain in effect in the next decade, but at a reduced level.

Last decades outperformance positives were in:

1] industrials, consumer discretionary and financials; 

2] tech companies

3] the strong dollar

The U.S. market valuations now exceed the eurozone, U.K., Japan or emerging markets: a] forward P/E ratios for Japan and emerging markets fell over the decade. b] Price-to-book multiples in the U.S. have also risen higher proportionately.

3 Will negatives relating to the Political Aspects of Trade drag down our market edge?

Yes. Foreign regulators now pay more attention to profits made by the largest U.S. companies, leaving U.S. companies more vulnerable as objectively since 2012 profits from overseas proportionately outperform profits from domestic sources.

Anti-global sentiment is growing in Europe.