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Humans After All

Humans After All

By Stefan Koopman, Rabobank Senior Macro Strategist

Even though it would have been tempting to have a lie-in this morning…

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Humans After All

By Stefan Koopman, Rabobank Senior Macro Strategist

Even though it would have been tempting to have a lie-in this morning and simply commission a disembodied super brain to write another AI-powered Daily for me, I also realize this is not a sustainable way to earn a living. Therefore, today's note is solely the fruit of a sometimes chaotic and always fallible human mind. Or perhaps not... how can you tell? After all, if AI truly functions as a second brain, and not just a perfectly logical computer, then it too must make mistakes and fall into obvious fallacies from time to time.

China announced further easing of its Covid measures today, a sign the Chinese government is moving away from its strict zero-Covid approach following waves of widespread demonstrations. This ‘refining’ of the zero-Covid strategy can be seen as a cautious and very gradual approach towards a new way of dealing with the virus. Human beings are social creatures after all; you can’t indefinitely keep a ball submerged under water.

Having said that, we still expect that Covid will continue to force cities into intermittent lockdowns for at least until the next plenary session of parliament in March and possibly for the whole of 2023. There is a clear risk that more acute changes to China’s Covid policies would lead to chaos in the healthcare system, amongst others. In our view, we would first need to see significantly higher vaccination rates amongst the elderly and more stockpiles of medicines and equipment before the government will decide to fully open up the economy again. If the restrictions were to be lifted sooner and, above all, more dramatically than we expect, this would lead to an upward revision of our growth projections and a downward adjustment of our USD/CNY forecast.

The decisions to ease some of the restrictions didn’t encourage investors to take on risk, as China’s trade data were underwhelming this morning and clearly underlined why China urgently needs to focus on domestic sources of growth. Exports to the US, the EU and Japan used to be a bright spot in China’s performance this year, but these are now down 8.7% y/y, with shipments of consumer goods and electrical products even seeing double-digit declines.

With imports down 10.6% y/y too, predominantly due to structurally weak consumer demand, China realized another extremely wide monthly trade surplus of nearly USD 70 billion. We have seen some massive Chinese surpluses throughout the pandemic, but an annual trade surplus of around USD 890 billion (roughly equal to Dutch GDP!) simply isn’t sustainable and it surely isn’t a sign of economic strength. With inflationary pressures in the prices of tradable goods and commodities now easing, a rise in Chinese domestic consumption and investment would be highly welcomed by the rest of the world.

Back to markets, where there was some continued slippage in the spread between 2- and 10-year USTs, leading to a fresh inversion high of 83 bps. Of course it reminded us all there is a recession ahead of us –even those who thought Powell was dovish last week– nudging investors to gradually de-risk their portfolios and to send the S&P 500 down for the fourth time in this month’s fourth trading day. The greenback benefited, falling below EUR/USD 1.05 again, and WTI fell to $74. Yes, oil is now down on a year-to-date basis. We’re also near the $67-$72 range at which president Biden promised to purchase oil to refill the US’s Strategic Petroleum Reserve and near levels that could prompt a stronger OPEC response than we have seen so far.

The time lags between 2s-10s inversion and a recession are varying and rather long. But if history is any guide, we can deduct two things: the greater the inversion’s magnitude, the longer it tends to persist and the deeper the Fed eventually can cut. These are logical tautologies, but rest assured this will shape investors’ narratives in 2023. We’re humans after all.

Our own economic forecasts point at a US recession in the second half of next year. Recessions are usually the times when the Fed releases its grip on the short-end, allowing curves to rapidly re-steepen. This re-steepening is usually the true real-time yield curve indicator of a recession. However, with core inflation readings at stubbornly high levels, and feeling a lagged but decidedly upward push from shelter inflation for months to come, 2023 might set us up for an interesting environment in which a recession does not necessarily portend such a re-steepener.

We think the Fed is serious in its proclamation to keep rates higher for longer, as it seeks to fully pull out the roots of inflation. Investors know this as well, but such messages have a tendency to fall on deaf ears. This was especially apparent after Powell’s speech last week, when investors pretended to listen, but wilfully ignored the more important parts of his warning that it may take a while before inflation really is out of the system. The market continues to position for deep cuts to happen soon after rates are expected to peak this spring; we believe that disinversion is something that may remain absent throughout 2023.

In the United Kingdom, mortgage lender Halifax reported this morning that their metric of house prices fell 2.3% m/m in November, with annual price growth slowing to 4.7%. Even as housing markets were already expected to slow down after the pandemic, the rather steep drop is a direct consequence of the sudden acceleration in mortgage rates. While it is likely that those rates have for now peaked, as the mini-Budget’s political risk premium has vanished, the housing market should continue to cool.

Private consumption will respond to this, as banks naturally tighten their borrowing standards in a declining market. There is also a perceived wealth effect at play: property is the most dominant component of wealth for a typical household in the UK (making up for 36% of total household wealth, but 52% for median household wealth), and there is a historically strong correlation between house prices and consumption, in particular for the cohort of older households who are homeowners. With this cohort becoming an increasing fraction of the population, private consumption may become more sensitive to declines in house prices than in previous cycles.

Tyler Durden Wed, 12/07/2022 - 13:25

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Government

Federal Food Stamps Program Hits Record Costs In 2022

Federal Food Stamps Program Hits Record Costs In 2022

In early January, The Wall Street Journal Editorial Board warned that one peril of a…

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Federal Food Stamps Program Hits Record Costs In 2022

In early January, The Wall Street Journal Editorial Board warned that one peril of a large administrative state is the mischief agencies can get up to when no one is watching.

Specifically, they highlight the overreach of the Agriculture Department, which expanded food-stamp benefits by evading the process for determining benefits and end-running Congressional review.

Exhibit A in the over-reach is the fact that the cost of the federal food stamps program known as the Supplemental Nutrition Assistance Program (SNAP) increased to a record $119.5 billion in 2022, according to data released by the U.S. Department of Agriculture...

Food Stamp costs have literally exploded from $60.3 billion in 2019, the last year before the pandemic, to the record-setting $119.5 billion in 2022.

In 2019, the average monthly per person benefit was $129.83 in 2019, according to the U.S. Department of Agriculture. That increased by 78 percent to $230.88 in 2022.

Even more intriguing is the fact that the number of participants had increased from 35.7 million in 2019 to 41.2 million in 2022...

All of which is a little odd - the number of people on food stamps remains at record highs while the post-COVID-lockdown employment picture has improved dramatically...

Source: Bloomberg

If any of this surprises you, it really shouldn't given that 'you, the people' voted for the welfare state. However, as WSJ chided: "abuse of process doesn’t get much clearer than that."

In its first review of USDA, the GAO skewered Agriculture’s process for having violated the Congressional Review Act, noting that the “2021 [Thrifty Food Plan] meets the definition of a rule under the [Congressional Review Act] and no CRA exception applies. Therefore, the 2021 TFP is subject to the requirement that it be submitted to Congress.” GAO’s second report says “officials made this update without key project management and quality assurance practices in place.”

Abuse of process doesn’t get much clearer than that. The GAO review won’t unwind the increase, which requires action by the USDA. But the GAO report should resonate with taxpayers who don’t like to see the politicization of a process meant to provide nutrition to those in need, not act as a vehicle for partisan agency staffers to impose their agenda without Congressional approval.

All of this undermines transparency and accountability for a program that provided food stamps to some 41 million people in 2021. The Biden Administration is using the cover of the pandemic to expand the entitlement state beyond what Congress authorized.

The question now is, will House Republicans draw attention to this lawlessness and use their power of the purse to stop it to the extent possible with a Democratic Senate.

And don't forget, the US economy is "strong as hell."

Tyler Durden Sat, 01/28/2023 - 09:55

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Spread & Containment

A Royal Caribbean Cruise Line Adult Favorite Has Not Come Back

The cruise line has almost fully returned to normal after the covid pandemic, but one very popular activity hasn’t been brought back.

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The cruise line has almost fully returned to normal after the covid pandemic, but one very popular activity hasn't been brought back.

In the early days of Royal Caribbean Group's (RCL) - Get Free Report return from its 15-month covid pandemic shutdown, cruising looked a lot different. Ships sailed with limited capacities, masks were required in most indoor areas, and social distancing was a thing.

Keeping people six feet apart made certain aspects of taking a cruise impossible. Some were made easier by the lower passenger counts. For example, all Royal Caribbean Windjammer buffets required reservations to keep the crowds down, but in practice that system was generally not needed because capacities were never reached.

Dance parties and nightclub-style events had to be held on the pool decks or in larger spaces, and shows in the big theaters left open seats between parties traveling together. In most cases, accommodations were made and events more or less happened in a sort of normal fashion.

A few very popular events were not possible, however, in an environment where keeping six feet between passengers was a goal. Two of those events -- the first night balloon drop and the adult "Crazy Quest" game show -- simply did not work with social-distancing requirements.

One of those popular events has now made its comeback while the second appears to still be missing (aside from a few one-off appearances).

TheStreet

The Quest Is Still Mostly Missing

In late November, Royal Caribbean's adult scavenger hunt, "The Quest," (sometimes known as "Crazy Quest") began appearing on select sailings. And at the time it appeared like it was coming back across the fleet: A number of people posted about the return of the interactive adult game show in an unofficial Royal Caribbean Facebook group.

It first appeared during a Wonder of the Seas transatlantic sailing.

Since, then its appearances continue to be spotty and it has not returned on a fleetwide basis. This might not be due to any covid-related issues directly, but covid may play a role.

On some ships, Studio B, which hosts "The Quest," has been used for show rehearsals. That has been more of an issue with the trouble Royal Caribbean has had in getting new crew members onboard. And while that staffing issue has been improving, some shows may not have had full complements of performers, so using the space for rehearsal has been a continuing need.

In addition, while covid rules have gone away, covid has not, and ill cast members may force the need for more rehearsals.

Royal Caribbean has not publicly commented on when (or whether) "The Quest" will make a full comeback

Royal Caribbean Balloon Drops Are Back   

Before the pandemic, Royal Caribbean kicked off many of its cruises with a balloon drop on the Royal Promenade. That went away because it forced people to cluster as music was performed and, at midnight, balloons fell from the ceiling.

Now, the cruise line has brought back the balloon drop, albeit with a twist. The drop itself is appearing on activity schedules for upcoming Royal Caribbean cruises. Immediately after it, however, the cruise line has added something new: "The Big Recycle Balloon Pickup."

Most of the dropped balloons get popped during the drop. Previously, crewmembers picked up the used balloons. Now, the cruise line has made it a "fun" passenger activity.

"Get environmentally friendly as you help us gather our 100% biodegradable balloons in recycle baskets," the cruise line shared in its app. 

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Spread & Containment

What’s Still Missing on Royal Caribbean Cruises Post Covid

The cruise line has almost fully returned to normal after the covid pandemic, but one very popular activity hasn’t been brought back.

Published

on

The cruise line has almost fully returned to normal after the covid pandemic, but one very popular activity hasn't been brought back.

In the early days of Royal Caribbean Group's (RCL) - Get Free Report return from its 15-month covid pandemic shutdown, cruising looked a lot different. Ships sailed with limited capacities, masks were required in most indoor areas, and social distancing was a thing.

Keeping people six feet apart made certain aspects of taking a cruise impossible. Some were made easier by the lower passenger counts. For example, all Royal Caribbean Windjammer buffets required reservations to keep the crowds down, but in practice that system was generally not needed because capacities were never reached.

Dance parties and nightclub-style events had to be held on the pool decks or in larger spaces, and shows in the big theaters left open seats between parties traveling together. In most cases, accommodations were made and events more or less happened in a sort of normal fashion.

A few very popular events were not possible, however, in an environment where keeping six feet between passengers was a goal. Two of those events -- the first night balloon drop and the adult "Crazy Quest" game show -- simply did not work with social-distancing requirements.

One of those popular events has now made its comeback while the second appears to still be missing (aside from a few one-off appearances).

TheStreet

The Quest Is Still Mostly Missing

In late November, Royal Caribbean's adult scavenger hunt, "The Quest," (sometimes known as "Crazy Quest") began appearing on select sailings. And at the time it appeared like it was coming back across the fleet: A number of people posted about the return of the interactive adult game show in an unofficial Royal Caribbean Facebook group.

It first appeared during a Wonder of the Seas transatlantic sailing.

Since, then its appearances continue to be spotty and it has not returned on a fleetwide basis. This might not be due to any covid-related issues directly, but covid may play a role.

On some ships, Studio B, which hosts "The Quest," has been used for show rehearsals. That has been more of an issue with the trouble Royal Caribbean has had in getting new crew members onboard. And while that staffing issue has been improving, some shows may not have had full complements of performers, so using the space for rehearsal has been a continuing need.

In addition, while covid rules have gone away, covid has not, and ill cast members may force the need for more rehearsals.

Royal Caribbean has not publicly commented on when (or whether) "The Quest" will make a full comeback

Royal Caribbean Balloon Drops Are Back   

Before the pandemic, Royal Caribbean kicked off many of its cruises with a balloon drop on the Royal Promenade. That went away because it forced people to cluster as music was performed and, at midnight, balloons fell from the ceiling.

Now, the cruise line has brought back the balloon drop, albeit with a twist. The drop itself is appearing on activity schedules for upcoming Royal Caribbean cruises. Immediately after it, however, the cruise line has added something new: "The Big Recycle Balloon Pickup."

Most of the dropped balloons get popped during the drop. Previously, crewmembers picked up the used balloons. Now, the cruise line has made it a "fun" passenger activity.

"Get environmentally friendly as you help us gather our 100% biodegradable balloons in recycle baskets," the cruise line shared in its app. 

Read More

Continue Reading

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