Monday, November 23, 2020

Morning Note: How To Tell Good From Bad Economists

Optimism pretty much reigns globally this morning, as positive news on Astrazeneca's vaccine added to recent promising reports from Pfizer and Moderna, and the readings from purchasing manager surveys (PMIs) say business, particularly among global manufacturers, is picking up notably, as are costs, per our view on inflation going forward.

Here's from the U.S.'s service sector survey:

“Service providers indicated a steep rise in input costs midway through the fourth quarter, with rising supplier prices and wage growth pushing the rate of inflation to the fastest on record. Firms were able to partially pass on higher costs to clients, however, through a survey record rise in output charges.”

And here's from manufacturing's:

“The rate of input price inflation picked up to the fastest since October 2018, as demand for inputs increased once again and amid a record breaking deterioration in vendor performance. Higher supplier prices were passed on to clients in part, however, through the sharpest rise in charges for over two years.”

HT Peter Boockvar 

Only 3 of the Asian markets we track closed lower overnight. Europe's mostly higher as well (although none of its markets by a lot), with 11 of the 19 bourses we follow in the green this morning. U.S. major averages have been all over the place so far this session. As I type: Dow up 118 (0.40%), S&P 500 flat (+0.02%), Nasdaq down 0.31%, Russell 2000 up 1.48%.

The VIX (SP500 implied volatility) is down 0.17%. VXN (Nasdaq vol) -- expressing worry over tech this morning -- is up 4.46%.

Oil futures are up 1.34%, gold and silver are getting hammered, down 2.11% and 3.21% respectively, copper futures are down 1.46% and the ag complex is up 0.84%.

The 10-year treasury is up (yield down) and the dollar is catching a nice bid, up 0.22%.

Call it flat for our core portfolio this morning. While our energy, banks, financials, industrials and ag commodities exposures are nicely in the green, silver, gold, base metals, the yen and tech stocks are the offsetting drags. As I type our core mix is off 0.07%.

I'll leave you this morning with the following from one of the first books I read on economics. The latter two quotes have stuck with, and inspired, me ever since:

“...all loans, in the eyes of honest borrowers, must eventually be repaid. All credit is debt. Proposals for an increased volume of credit, therefore, are merely another name for proposals for an increased burden of debt. They would seem considerably less inviting if they were habitually referred to by the second name instead of by the first.”

“The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”

"The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences." 

-- Henry Hazlitt, Economics in One Lesson 

Have a great day!


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