https://bondvigilantes.com/wp-content/uploads/2024/05/1-cracks-in-the-armour-1024x576.png Consumption spending accounts for approximately two-thirds of the US economy. It is vital that we understand the dynamics of the consumer because if the consumer falters, so does the US economy, which has far-reaching consequences. The surprising resilience of the US consumer in the face of a pandemic and then rising interest rates has surprised many. This resilience is a function of multiple factors, including a strong labour market, accumulated savings, wage growth, and government support, to name a few ..read more

https://bondvigilantes.com/wp-content/uploads/2024/05/4-is-the-us-economy-really-that-different-1024x576.png With the exception of the US, the rate-cutting cycle is still alive and well. Switzerland and Sweden have recently kicked off the easing cycle with their first rate cuts. Last week, the Bank of England sounded more dovish than expected, suggesting they are also close to cutting rates, and that rate cuts might be sharper than expected. The European Central Bank is also signalling rate cuts this year. But are these economies really that different from the US? The general belief is that in ..read more

https://bondvigilantes.com/wp-content/uploads/2024/05/1-inflation-is-still-moving-in-the-right-direction-slowly-but-surely-1024x576.png The disinflationary process appears to be back on track. After some higher-than-expected reports, US inflation has finally come in slightly lower than expected. Headline inflation has decreased to 3.4% YoY compared to the previous reading of 3.5%, while core inflation stands at 3.6%, the lowest level in the past three years. There are two key themes worth highlighting: Rents and car insurance continue to play a significant role. Similar to the previous month ..read more

https://bondvigilantes.com/wp-content/uploads/2024/05/1-oil-a-global-tax-1024x576.png Few commodities wield as much influence in the intricate web of global economics as oil. Oil is pivotal in driving economic growth and development as the primary energy source for transportation, manufacturing, and countless other sectors. However, beneath its surface lies a hidden truth: oil can act as a tax on growth, imposing significant costs on economies worldwide.  The Economic Impact of Oil Prices Oil prices have a profound impact on virtually every aspect of the economy: 1. Cost of Production: F ..read more

https://bondvigilantes.com/wp-content/uploads/2024/05/1-em-sovereigns-higher-financing-needs-1024x576.png A couple of weeks ago, the International Monetary Fund (IMF) released its usual semi-annual World Economic Outlook update. While the whole process of forecasting has seemingly become increasingly difficult in recent years (partly due to inherently unpredictable crisis events), the IMF’s views retain their gravitas of authority. One can agree or disagree with them, but nonetheless they continue to serve as a point of reference, especially for emerging market countries – for which there is l ..read more

https://bondvigilantes.com/wp-content/uploads/2024/05/1-if-we-are-all-dead-in-the-long-term-does-it-even-matter-1024x576.png The IMF recently released their latest World Economic Outlook, subtitled “Steady but Slow”, which nearly characterises the prevailing macroeconomic wisdom that global growth is tepid but without drama, and will remain pretty much like this over their five year forecast horizon. The IMF note that growth would have been weaker still if it were not for US fiscal largess, where the deficit is still running at 6% of GDP and expected to remain there in coming years. If Trump r ..read more

https://bondvigilantes.com/wp-content/uploads/2024/04/30-year-gilt-yield-1024x576.jpg With interest rates having moved meaningfully higher over the last two years, fixed income investing has moved front and centre for investors. A favourite bond has been the low coupon 2061 maturity (UKT 0.5 2061). Why is this? Firstly, the low coupon and long maturity means the bond has a very high duration (29 years). Duration is a measure of a bond’s sensitivity to changes in interest rates. A textbook would say that for a given change in interest rates, say 1%, a bond with a duration of seven would see its ..read more

https://bondvigilantes.com/wp-content/uploads/2024/04/1-gold-prices-1024x576.png Renowned for its role as a hedge against economic uncertainty and inflation, gold has long captivated investors. One key factor influencing gold’s price is the relationship between real yields and inflation. Over the long term, gold has protected one against the pernicious effects of inflation and remains a powerful diversifier within an investment portfolio: Source: M&G, Bloomberg, 23 April 2024 Real yields, also known as inflation-adjusted yields, represent the return on an investment after accounting for ..read more

https://bondvigilantes.com/wp-content/uploads/2024/03/1-100-days-of-milei-1024x576.png As Franklin D. Roosevelt took to power in 1933, the USA had just entered the fourth year of its Great Depression. Faced with such significant economic turmoil, Roosevelt had little choice but to begin implementing structural reforms within a very short timeframe, not just to galvanize the economy, but also to stamp his authority having just been elected to his country’s greatest position of power. Thus, the concept of a president’s ‘first 100 days’ was born. Javier Milei, Argentina’s newly elected president ..read more

https://bondvigilantes.com/wp-content/uploads/2024/03/1-the-great-escape-of-uk-unemployment-reporting-1024x576.png The Bank of England Monetary Policy Committee potentially has a problem: it requires data to make its labour market forecasts and assessments, but the unemployment statistics have become increasingly unreliable. This is because the Labour Force Survey participation rate (on which the unemployment figures are based) has fallen below 50% since 2018 and has been as low as 15% recently[1]. What is the solution to this difficult measurement problem? An answer can be found in the classi ..read more