Everything Changes

Except all the things staying the same

Author

Tim Vollans
February 01, 2024 • Estimated Reading Time: 5 minutes

💡 The Lightbulb
Layoffs On The Rise

Re-balancing or Re-cession

Today’s US Challenger job cuts release came in at double the prior figure:

The second largest monthly layoff announcements since 2009.

Just as concerning, hiring plans are ‘the lowest on record’.

It’s just one data point though, and the majority of the layoffs were in the finance & tech sectors.

There’s plenty of fat to trim as those sectors hired aggressively during the post-pandemic mini-boom.

It still looks more like a re-balancing than a re-cession.

Famous last words?

The layoff number jump lines up with a seemingly endless stream of corporate layoff announcements to start the year.

We mentioned UPS, PayPal & others towards the end of yesterday’s note.

Now we can add another 3,500 from Deutsche Bank to the list.

Deutsche Bank said on Thursday it would cut 3,500 jobs, buy back shares and pay dividends, in its latest pitch to investors that its turnaround remains on track.

That’s around 4% of their 90,000 global workforce.

Initial jobless claims popped a little higher again today, but remain at low levels.

Tomorrow’s US employment report is still the marquee event of the week.

⚡ The Spark
Everything Changes

Everything stays the same

The market still can’t figure out if things are different to how they were before.

Can’t decide between a new permanent era of higher inflation & higher economic growth, or just a return to the old, pre-pandemic world.

While the debate around the Fed centres on cuts starting in March or May, there’s a much bigger, more important question to address.

Has the growth rate of the economy actually changed?

That thing economists call the ‘neutral rate’ or r*.

The natural rate of interest, or the real interest rate that would prevail when the economy is operating at its potential and is in some form of an equilibrium

For all their bluster, economists can’t agree on what the actual potential growth rate of the economy is.

It’s more of a ‘best guess’ measure, which is becoming more important when considering these monetary policy debates.

To put a finer point on it, if you believe that all of this is essentially pandemic distortions working their way through the economy, then it’s only a matter of time…

Which is quite comforting. Back to a world of knowns.

If the economic structure genuinely has changed, then the market is more likely to jitter and become more volatile because EVERYTHING WE THOUGHT WE KNEW IS IN DOUBT.

Without actually saying it, the biggest market debate right now is all about the ‘neutral rate’:

This is an excellent, thought-provoking thread from EMH.

If there’s a new normal for the overall productivity of the economy, the era of zero interest rates could genuinely be in the rear view mirror.

🧠 The Big Brain
Truth Under The Surface

Dealing with doubts

Everyone loves being right. They’ll tell you how right they were, rub it in your face, and smugly smother you in smugness.

I was right the other day. In public.

It happens surprisingly often.

It doesn’t matter. Nobody should care.

Being right is the easy part.

The private battle to take money from these markets matters more.

Being right can help sometimes. Other things are way more important.

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