Interesting TACs of the Week (January 9 – January 15, 2021)

3. FDR vs. Biden

Since January 2016, our expectation has been that President Trump would act like FDR with an infrastructure program in his second term. After the November 2020 election, our hope was that President elect Biden would take the counsel of Democrats like Sherrod Brown to launch an infrastructure stimulus to generate jobs.  

As David Rosenberg had put it a few days before in the Doubleline roundtable,

• “I wouldn’t call it a fiscal stimulus; it is basically an income transfer ; … it is not going to the unemployed; it is not targeted …. nothing in the fiscal side to get a productivity payback,… FDR realized that the best way to keep people engaged was to actually give them a job, any job; … we need to avoid a permanent impairment of the job market … we continue to pay people to NOT work…“

The small business sector drives job growth in America and how are they doing? Gundlach pointed out that “29% of small businesses that were open on year-end 2019 are shut down“. 

And what is their biggest concern?

• David Rosenberg@EconguyRosie – Jan 12 – NFIB index shows future tax hikes as #1 concern for 21% of small biz owners. All myopic Mr. Market sees is massive gov’t spending – a near-record low 2% cite inflation as the top worry – yet, the Treasury mkt has been scared off by this phantom (not the first time; not the last).

How do they feel now after Mr. Biden said “everybody has to pay their fair share“, the code-words for higher taxes? 

What choice does the Biden team have except, as Jim Bianco said in the Roundtable, “.. keep it up until we have an adverse reaction. I think that is inflation“. 

The other way to look at it is what Robert Tipp of PGIM said on Friday to Tom Keene of BTV:

• “… that reflation trade has kinda moved to an extreme; we were at 50 bps breakeven; now we are at 2%; that kind of swing in breakevens happens infrequently; … the bond market has priced in an optimistic future that is unlikely to happen ; what they are missing is a secular tide that is continuously moving in one direction – that is towards shrinking workforces … the demographics are now worse and they are accelerating …. you are into that demographic headwind; you are going into a world that is more damp … it is a deflationary not inflationary backdrop … “

Now focus on the $15 average wage the Biden plan demands and ask yourselves what does that do to jobs in the sector that needs jobs the most – blue collar jobs.  Don’t Amazon, McDonalds et al accelerate the replacement of human workers with robotic workers? Isn’t this the opposite extreme of the ancient Henry Ford dictum of viewing the employee as a customer?

Why didn’t the Biden team propose a plan to pay at least part of salaries of workers in blue collar jobs to encourage companies to hire more workers? Why didn’t the Biden team propose a real infrastructure plan to repair bridges, airports and other 4-th world infrastructure in America? Heck, even the bullish Ed Hyman said in the Doubleline Roundtable that we “need wages to pick up for inflation to pick up“. 

Frankly, we suspect that the Biden team is beginning to panic at what they might be facing with the economy and discontent. That may be why they didn’t take the time to come with a sensible plan that would help create/save jobs & provide income to people who need it. They look & sound as if they are panicked at the prospect of American people expressing buyer’s remorse. That may be why, all of a sudden, Democrats, including Cuomo, are asking aloud whether lockdowns are actually hurting the economy rather than preventing spread of CoronaVirus. 

David Rosenberg made an interesting claim in the Doubleline Roundtable. He postulated that “home country inflation is increasingly dependent on global inflation“.

That’s good, right? Every FinTV anchor is praising the growth in China. Even bullish Ed Hyman of ISI said China’s growth is going to be 8%. Unfortunately he added ” but their inflation is going to be zero“. David Rosenberg warned that “China is about to deflate and it is the hottest economy in the world“. And the Bear Traps Report says “China’s credit growth is slowing …. implying a credit down-cycle in the coming months“. What does that do to goods inflation in America?

But the above is only half of the bad story. Bear Traps Report states,

• “China raises its 2020/21 import forecast for corn to 10 mmt and soybeans to 98.1 mmt. That is an increase of 3 mmt for each. China is recognizing that they will import more corn/soy than they previously stated. Doesn’t necessarily mean demand has increased from previous market expectations, because most people are using higher numbers anyway.”

And Reuters reports that

• “In December, the world’s biggest rice importer China started buying Indian rice for the first time in at least three decades due to tightening supplies from Thailand, Myanmar and Vietnam and an offer of sharply discounted prices.”

And, in a strange & scary twist, the main theme of the Reuters article is that

• “Vietnam, the world’s third biggest exporter of rice, has started buying the grain from rival India for the first time in decades after local prices jumped to their highest in nine years amid limited domestic supplies, four industry officials told Reuters.”

This is not merely an Asian story as Reuters adds,

• “The shrinking supplies will heighten concerns about food insecurity with sub-Saharan Africa among the areas where import demand has been increasing due partly to population growth. … Chronic and acute hunger is on the rise, impacting vulnerable households in almost every country, with the COVID-19 pandemic reducing incomes and disrupting supply chains, according to the World Bank.”

What about America & the money payments based stimulus? Gundlach said in the Doubleline Roundtable:

• “inflation in food could be pretty serious; we have already seen some pretty serious bottoming in parts of the commodities market …. looks like a convincing reversal; when food prices begin to go up, that becomes a direct problem with the happiness of people who are getting government payments; … you almost have to keep upping the ante & it is not a solution; its not an end game …. when food inflation picks up …. homeless encampments in Southern California have exploded …. “

The saddest aspect is the impact on children:

 

Moving to Latin America, Bear Traps Report informs that Brazil food prices are soaring:

• Food prices soar and Brazil grapples with highest inflation since 2016 – Brazil’s benchmark inflation index rose by 4.52 percent last year, the highest level since 2016. Brazil Selic pressures.
• Brazil: Food prices +14%, highest since 2002 and accounting for more than half of overall rise. Monthly inflation rate in December 1.35%, highest since 2003.

We all know about what copper has been doing. What about Ag prices, you ask?