EPB Macro Research | Free Research

Fiscal Stimulus: The Economy's Third Strike Apr 14, 2021

Executive Summary

  • Interest rate policy has failed to generate an increase in the growth rate of real GDP per capita.
  • After interest rates reached the zero-bound, expansionary monetary policy in the form of Quantitative Easing was tried, and the results have proven ineffective.
  • After failed attempts to stimulate real GDP growth through interest rate policy and monetary policy, we are now attempting to generate lasting economic activity through fiscal policy.
  • Decreases in the marginal revenue...
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Initial Conditions For Inflation: 1940s, 1970s & 2020s? Mar 19, 2021

Executive Summary

  • A period of aggressive monetary and fiscal support has ushered in a consensus view of sustained inflation.
  • Today's initial conditions are far different from the start of the last two inflationary episodes in the 1940s and 1970s.
  • Inflationary pressure will emerge over the next couple of months, but transitory/cyclical inflation and sustained inflation are different.
  • Without a clean balance sheet, high real GDP growth, or a boom in demographics, sustained inflation will be...
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The Money Supply Mystery Mar 03, 2021

Executive Summary

  • Broad money supply has surged to record levels in the United States, causing inflation fears and overstated claims citing the US Dollar demise.
  • A money-centric view of the economy ignores our economic system's foundation, which states that money has an equally important counterpart - velocity.
  • It has become fashionable to denounce velocity as a measure of our economic and monetary system, but that still does not change what the measure of velocity is telling us.
  • Today's...
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'Taper' Tantrum 2.0 Feb 22, 2021

Executive Summary

  • Interest rates are rising with a speed that is being referred to as the "taper tantrum 2.0"
  • Are yields really rising due to an expectation of the Fed reducing the size of its balance sheet? No.
  • Yields are increasing because growth and inflation expectations are rising, combined with an uncertain regulatory backdrop adding fuel to an existing trend of higher interest rates.
  • The direction of interest rates (higher) is correct, but the speed is likely an overshoot, something...
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Reflationary Momentum Has Not Subsided Feb 02, 2021

Executive Summary

  • Cyclical equities continue to outperform large-cap "defensive" equities.
  • The Treasury curve is bear steepening as long-term yields rise and short-term yields remain flat-to-down.
  • Leading indicators of cyclical inflation pressure continue to point higher, which will pressure long-term bonds and support cyclical equities.
  • Corporate credit spreads highlight the exuberance and lack of caution in risk-assets.
  • While cyclical growth and inflation indicators remain higher, risk...
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The Role Of Gold In Your Portfolio Feb 02, 2021

Executive Summary

  • Gold plays a critical role in preserving wealth and should be considered in a context beyond a securities portfolio.
  • The long-history of gold and correlation to real interest rates makes gold a sound proxy on the price of money.
  • Gold also serves a separate role in a diversified securities portfolio, outpacing risk assets during large declines in real interest rates.
  • Investors should consider "linking" or "backing" a percentage of net wealth in gold, in addition to the...
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Unintended Consequences Feb 01, 2021

Executive Summary

  • Short-term interest rates are coming under pressure in a fashion that will require the Federal Reserve to defend the zero-lower-bound.
  • Rapid growth in total banking reserves will cause banks to lower the rate on some deposits to limit their balance sheet growth, which comes at a cost.
  • The demand for Treasury bills from money market funds and the Federal Reserve will outweigh the limited supply of new bills in 1H 2021 due to an overfunded TGA.
  • The Federal Reserve will be...
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