11/16/2021
What comes after "infectious greed?"; Inflation Update; Life Below Zero; Inflation & Hip Hop; Climate Fail; At Least The Banks Will Be OK; Regulation Moves Slowly; My Next Gig
Nothing new, just some updates. Glad folks liked the Zillow piece. This won’t be nearly as interesting.
What Comes After “Infectious Greed”
Nominal GDP gap back to neutral (and really quickly)
Investor expect a BOOM
And look like they’re “all in” on stocks
Because they expect 17.5% returns!
But in the words of the legendary Citi CEO Chuck Prince:
“As long as the music is playing, you’ve got to get up and dance,” he said. “We’re still dancing.
What comes after “infectious greed?”
Inflation Update
The 10 year breakeven inflation rate is 2.54%, a bit below its peak 10 years ago. In other words, the investors' best estimate of inflation in the US over the next 10 years is between 2-3%. @erikbryn
Life Below Zero
5 year bond yields moving up in line with inflation; real rate remains historically negative.
For the uninitiated, this is called “financial repression” and it will be with us for a while.
Inflation and Hip Hop
Climate Fail
We’re not going to hit 1.5C folks (the level that the scientists say will prevent the worst affects of global warming; guess we need to think about what’s even worse!)
Current policies put us on pace for roughly 3 degrees Celsius (5.4F) of warming by 2100 — a better result, but still devastating1. Many countries have vowed to slash emissions even faster. So far those promises exist mostly on paper, but if nations follow through, the world could potentially limit total warming to around 2 to 2.4 degrees Celsius by 21002.
Realistically, what do you think the odds are that countries (predominantly US, China, Europe, Russia and India) meet their commitments?
The most recent era in which the Earth was believed to have experienced temperatures of 3 C above pre-Industrial levels was the Pliocene Epoch — around 3 million years ago — according to Gavin Schmidt, director of NASA’s Goddard Institute for Space Studies. “At that time, there was almost no ice anywhere. The sea level was 20 meters (65 feet) or so higher, and forests went to the edge of the Arctic Ocean where there is now tundra,” Schmidt said.
I’m typically not Malthusian, but I hope someone can find a way to remove greenhouse gases from the atmosphere economically. Doesn’t look like we can cut our way out of trouble.
Climate Change - At Least The Banks Will Be OK
How Bad Are Weather Disasters for Banks?
Number 990
November 2021
JEL classification: G21, H84
Authors: Kristian S. Blickle, Sarah N. Hamerling, and Donald P. Morgan
Not very. We find that weather disasters over the last quarter century had insignificant or small effects on U.S. banks’ performance. This stability seems endogenous rather than a mere reflection of federal aid. Disasters increase loan demand, which offsets losses and actually boosts profits at larger banks. Local banks tend to avoid mortgage lending where floods are more common than official flood maps would predict, suggesting that local knowledge may also mitigate disaster impacts.
Gotta love Don.
Regulation Moves Slowly
My Next Job
Yes, There Has Been Progress on Climate. No, It’s Not Nearly Enough. (New York Times; Oct 25, 2021)
Ibid.