Who will respond?

November 9-15, 2024

Big news. According to October data, US industrial output is -0.3% per year, the 4th consecutive monthly decline:

Capacity utilisation (77.1%) is also at a 7-year low, not counting the Covid slump, which suggests that this decline is stable and long-term:

If we take into account that inflation is underestimated by approximately 5-8% (the “Summers” range and our estimate), then, on an annual basis, we can estimate the decline over 10 months at approximately 0.5% per month. This is an optimistic estimate. The pessimistic estimate is 0.8%, which is already very close to the indicators of the 1930-32 crisis, which led to the “Great” depression of the 1930s.

It is more difficult to give an assessment for GDP, since it is an accounting indicator and various fictitious financial assets play a large role in its components. Which are extremely easy to inflate to the sky. And emission too. But precisely because GDP should fall more slowly than industry, we get about 0.3% decline per month for GDP and -0.8% per month for industry as an optimistic estimate. And the pessimistic -0.5% and -0.8% respectively… Frankly, it is a gloomy picture.

It is necessary to say separately why these figures are important right now. The thing is that Trump is coming and the monetary authorities must somehow report to him. Powell has already said that Trump cannot fire him and this is precisely evidence that he understands that he will have to answer. In the end, there are other methods besides firing, even if not entirely legal, but very effective. Well, besides, there are many others there besides Powell. So, even they could not push through a demonstration of economic growth …

Macroeconomics: Chinese data is again generally disappointing, despite fresh stimulus. The drop in foreign direct investment, although slowing slightly, remains huge (-29.8% per year):

Fixed capital investment +3.4% per year, one of the worst indicators in history:

Industrial production slowed to +5.3% per year:

Retail accelerated to 8-month high +4.8% y/y (but only due to one-off events):

Housing prices (-5.9% per year) are falling at the fastest rate since the 2015 anti-record (-6.1%):

Finally, yuan loans are +7.8% per year, the worst performance in the 27 years of data collection:

Eurozone industrial production -2.8% y/y, 9th consecutive negative and 16th in the last 17 months:

The same observation applies here as for the US economy, except that the underestimation of inflation is stronger. But a 0.5% decline per month is almost certain.

The assessment of the current situation in the survey of economic sentiment in Germany (from ZEW) is the worst since the peaks of Covid, and before that – since May 2009:

India’s wholesale food prices (+11.6% y/y) are just off their 11-year peak (+11.8%) in 2022:

UK jobless claims have risen (month-on-month) for 7 months in a row and 13 of the last 14 months:

Bitcoin prices are rising, it continued to rally and has already reached $93,500:

Which in itself speaks of the risks in the global dollar system. Well, who is to blame, as they say, we have been warning them for over 20 years.

A similar situation with natural gas in the EU, it is the most expensive in a year, from the lows of late winter the price has doubled:

The same picture in Britain:

And winter is just beginning…

The Central Bank of Mexico cut the rate by 0.25% to 10.25% –

Main conclusions. From the point of view of the logic expressed in the first section of the Review, it is interesting to see what Powell said in his last speech this week:

“▪️The Fed doesn’t need to rush to cut interest rates, the economy is fine.

▪️We will continue to fight inflation.

▪️I expect inflation to continue to decline toward the 2% target, perhaps unsustainably.

▪️The labor market has cooled to the point that it is no longer a source of significant inflationary pressure.

▪️Recent US macro data (PPI) are surprisingly GOOD.

▪️The labor market is stable, inflation is on a steady path to 2%.

▪️The Fed’s monetary policy will depend on the economic situation.

▪️The economic strength of the US gives the Fed the opportunity to approach interest rate decisions cautiously.

▪️The risks to the Fed’s dual mandate (inflation/labor market) are balanced.

▪️Cutting rates too quickly could HARM the fight against inflation.

▪️Cutting rates too slowly could unduly weaken economic activity and employment.

▪️US GDP grew by more than 3% last year and is growing at a solid pace this year.

▪️The Fed’s independence means that our monetary policy decisions cannot be overturned or revised by an outside agency or government.

▪️We do NOT think about the well-being of any political party when making our decisions.

▪️It is too early to judge what consequences Donald Trump’s policies will have.

▪️When it comes to fiscal policy, it takes a long time to pass new bills.

▪️The Fed will have time to react to changes in fiscal policy.

▪️We will be careful with the Fed’s monetary policy change, everything depends on US macro data.

▪️We need to solve the US government debt problem as soon as possible.

▪️If events occur that threaten US financial stability, the Fed can take emergency measures.

▪️There is very positive productivity growth, I think it will continue.

▪️If US macro data allows us to cut the rate more slowly, this will be a reasonable decision.

▪️We will cut the Fed rate if necessary.”

There is nothing much to comment on here, unless you pay attention to the fact that Powell focused on his “independence” and shifting the blame to the Ministry of Finance (government debt). Talk about inflation and the labor market is ridiculous, but since Powell has said this many times, it is impossible to retract these words. In general, “grandpa is old, he doesn’t care”, he behaves like an old bureaucrat on the threshold of retirement, reminding only that he does not bear responsibility for the past.

This picture from the IMF looks very curious. It is clear that it is compiled within the framework of the same statistical distortions that are characteristic of both the US and the European Union (they have the same methods, approved by the IMF).

What is the point of it? It shows two main effects. The first is the accelerated decline of the economy in the European Union due to the loss of some markets due to the crisis (consumers have less money) and the loss of cheap resources from Russia.

The second is the increased ability of the United States to pump up the economy with emissions and transfer fictitious financial assets into GDP (the main financial markets are in the United States).

It is quite possible that the real picture looks different, although, of course, the European Union is lagging behind the United States. But in any case, since this picture is legalized in the political field, the EU authorities in general and the leaders of this union in particular need to do something. It is possible that, since the authorities do not understand the real reasons, their actions will not be entirely adequate. Well, they have already started to get nervous. By the way, we note that blaming everything on Putin is a counterproductive method. Since it will not fix anything, and some things may get worse.

Well, we wish our readers not to worry too much about the whims of politicians in the economic sphere, since falling markets are more favorable for obtaining income than growing ones. If, of course, you understand what is happening to them. Which is what we suggest doing during the work week following the weekend!