Thursday, 12 October 2017

Macro and Credit - Anatomy of Criticism

"Criticism may not be agreeable, but it is necessary. It fulfils the same function as pain in the human body. It calls attention to an unhealthy state of things." - Winston Churchill

Watching with keen interest, the continuation of the beta rally in both equities and credit, while looking at the weakening of the US duration trade on renewed discussions on tax reforms in the US as well as most recent macro data, when it came to electing this week's title analogy, given the growing change of narrative coming from our central bankers, we reminded ourselves of Canadian literary critic Northrop Frye's work entitled "Anatomy of Critiscim" from 1957. In Frye's Anatomy of Criticism, he deals extensively with what he calls myths of Spring, Summer, Fall, and Winter:
  • Spring myths are comedies, that is, stories that lead from bad situations to happy endings. Shakespeare's Twelfth Night is such a story and QE 1 as well in addition to the suspension of mark to market accounting rules. and other supports provided by our "Generous gamblers" aka our central bankers.
  • Summer myths are similarly utopian fantasies such as Dante's Paradiso or Universal Basic Income, or incredible valuation levels for Aramco's upcoming IPO.
  • Fall myths are tragedies that lead from ideal situations to disaster. Compare Hamlet, Othello, and King Lear and the movie Legends of the Fall, or the referendum in Catalonia, or the ongoing face-off with North Korea.
  • Winter myths are dystopias; for example, George Orwell's 1984, Aldous Huxley's Brave New World, and Ayn Rand's novella Anthem and the rise of the robots, including the spying of individuals through social networks and other means.
In similar fashion, all human narratives have certain universal, deep structural elements in common. Same things goes with credit and business cycle, no exception there. Our credit criticism in various musings have illustrated a rising unhealthy state of things to paraphrase Churchill. As we pointed out as well more recently, the beta rally is still going strong towards 11 that is, in true Spinal Tap fashion. After all records have to be broken on the way up as well as on the way down. But, contrary to the perma-bear crowd, we still think this rally has some more steam to go, given current financial loose conditions we are seeing, hence the outperformance of the beta play such as the CCC High Yield credit bucket this year. Of course there is always the exogenous risk factors at play, which could indeed spark some repricing in the on-going rally. We had the BREXIT, the Trump rally and now we have the on-going political tussle in Spain which we have decided to coin "FRACASTONIA" but we ramble again...Anyway, from a financial markets point of view in the coming weeks is the rising change of narrative from central bankers. Like in Disney's movie Fantasia, it's looks to us that our sorcerer's apprentice is starting to think it's liquidity injection via his magic broom is getting a little bit out of control, and for this little guy, financial stability matters, and matters a lot.

Dear readers, we would like to apologize for the lack of posting recently, but we have been travelling hence our difficulties in putting our thoughts down in our usual weekly fashion. In this week's conversation, we would like to look at if in credit, carry is still the trade du jour, or put it simply, is it still "beta max". Also from a macro perspective, we will look again at inflation from an autocorrelation problem perspective.

  • Macro - Inflation has an autocorrelation problem.
  • Credit - Beta max? Don't get "carried" away.
  • Final chart - A structural weakness in the labor market
  • Macro - Inflation has an autocorrelation problem.
While we recently took many potshots at the Phillips Curve "cult members" and discussed also the change in markets fundamentals such as globalization and demographics which have to some extent weighted on the efficiency of the Fed's model, we would like to look at additional reasons why the Fed continues to deviate from its 2% inflation mandate and what it entails. On that subject we read with interest Wells Fargo's take from their note from the 3rd of October entitled "Is There an “Invisible Hand” Behind the 2 Percent Inflation Target Rate?":
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” - Mark Twain
Executive Summary 
The Federal Open Market Committee’s (FOMC) 2 percent inflation goal is often targeted by adjusting the FOMC’s monetary policy stance. The implicit assumption (or the invisible hand) behind the 2 percent inflation target is that the inflation rate is mean-reverting at the 2 percent rate. However, this assumption requires further inspection and raises questions regarding the possibility that the inflation rate would deviate from the target rate. Moreover, what is the behavior of above-/below-target inflation? Are these deviations temporary or permanent in nature? 
An inflation target plays a critical role in the FOMC’s monetary policy decision making process. Therefore, testing, instead of assuming, to determine if the PCE inflation rate is mean-reverting is crucial for decision-makers.
Our statistical analysis suggests that the PCE inflation rate may be mean-reverting, although the evidence is tenuous. So, can we assume inflation is mean-reverting, and what level of confidence do we have? A mean-reverting series, by definition, can fluctuate from its mean but eventually returns to some average value. The next challenge is to estimate the pace of adjustment. That is, how long does it take the inflation rate to return to the target rate after deviating from it? And does the PCE inflation series have a persistence/autocorrelation problem? 
Why is persistence/autocorrelation of the inflation rate a concern for decision-makers? Inflation persistence has crucial policy implications as a consistently below-/above-target inflation rate would suggest an accommodative/restrictive monetary policy for an extended period of time, all else constant. Therefore, a very slow pace of monetary policy normalization would be a possible result if below-target inflation persists for an extended period of time. 
To Anticipate the Results 
Our analysis indicates that inflation has an autocorrelation problem. Put differently, when the inflation rate deviates from the target rate, inflation takes a long period to get back to the 2 percent target rate. One major reason is that the current inflation rates are highly correlated with the past values (coefficients are very high, close to one). Therefore, the inflation rate would take a longer time to get back to the target rate than if autocorrelation were not present. For example, during the period from November 2008 to August 2017, the inflation rate was below the 2 percent target for 86 out of 106 months. 
Furthermore, persistently low inflation may not only affect interest rates but also other variables. One of them is the unemployment rate, as the Phillips curve suggests an inverse relationship between the unemployment rate and inflation. The recent debate about the Phillips curve status is reflective of the characteristic that the original Phillips curve does not allow for an autocorrelation problem. Persistently low inflation may also explain part of the slower wage growth in recent years. Low inflation rates may reduce business production and their ability to raise prices, and, thereby, may affect profit margins in a low-productivity economy. The wage-price spiral may have lost its speed as well.
Source: U.S. Department of Labor and Wells Fargo Securities 
The 2 Percent Inflation Target Rate: Is Inflation Mean-Reverting? 
Statistically, if a series is mean-reverting then that series will move around its mean (the FOMC is assuming the 2 percent is the mean) and deviations from the mean (higher/lower inflation periods) are temporary in nature. As a policy model, the FOMC’s 2 percent target assumes, implicitly, the inflation rate is mean reverting. 
We live in a constantly changing world and need to test, instead of assume, that the PCE inflation rate is mean-reverting. We apply a unit root test (ADF test) to find out if the inflation rate is mean-reverting.1 The PCE deflator (year-over-year percent change) is the preferred inflation measure of the FOMC, and, thereby, we utilize that series in our analysis, Figure 1.
For the 1984-2017 period, we find the inflation rate is mean-reverting and the mean is 2.3 percent. In the next step, we apply the state space approach to test the possibility of a structural break in the inflation rate series. If we find a structural break in the inflation rate and the break coefficient is positive (negative), then that indicates the inflation rate has shifted upward (downward) since the break date. We found two breaks—one positive and the other negative. Both breaks represent the price swings during of the 2008-2009 financial crisis. Therefore, the inflation path temporarily shifted and then returned to the long run average—a typical behavior of a mean reverting series.
Autocorrelation: When Slow and Steady May Not Be Enough to Win the Race 
If a series is mean-reverting, the fluctuations from the mean are temporary—but fluctuations still exist. Thus, while inflation rates may deviate from the mean, it is crucial to find out the pace of adjustment. How long does it take inflation to get back to the mean? PCE inflation persistently above or below the 2 percent target rate is not ideal for the FOMC. Both of these scenarios would ask for an extended period of a particular monetary policy stance. One way to test if the inflation rate series has a persistence problem is to test for an autocorrelation. The inflation data having an autocorrelation problem would indicate that the farther the inflation rate deviates from the target rate, the longer the inflation rate would take to return to the 2 percent target rate.
We estimate autocorrelation functions (ACFs), and the estimated correlation coefficients are nonzero, statistically, for first 12 lagging months, Figure 2. Furthermore, if the estimated coefficients are non-zero then that indicates the underlying series has the autocorrelation problem. We found that the PCE inflation series is autocorrelated, which indicates current inflation rates are highly correlated with its past values (coefficients are very high, close to one). Therefore, the inflation rate would take a longer time to get back to the target rate. During the period from November 2008 to August 2017, the inflation rate was below the 2 percent target for 86 out of 106 months.
This gives reason for the market’s expectation that the pace of monetary policy adjustment would be gradual as well. 
Why is the persistence/autocorrelation of the inflation rate noteworthy for monetary policy decision-makers? Inflation persistently below the target would indicate an accommodative monetary policy for an extended period of time, all else constant. Therefore, a very slow pace of the monetary policy normalization is a possible result of persistently lower inflation
Final Thoughts: The Invisible-hand may need a Boost 
The mean-reverting along with lack of autocorrelation/persistence assumptions may be the ‘invisible hand’ behind the 2 percent target rate. However, our findings of autocorrelation suggest the invisible hand may need a boost. Moreover, the autocorrelation/persistence problem has broader implications for decision makers, as persistently lower inflation may not only affect interest rates but also other variables. One of them is the unemployment rate, as the original Phillips curve does not anticipate an autocorrelation problem, Figure 3.

A persistently low inflation rate may also explain part of the slower wage growth in recent years. The persistently low inflation rate may reduce business production and their ability to raise prices and thereby may affect profit margins in a low-productivity era. The wage-price spiral may have lost its speed as well. Therefore, the invisible hand behind the inflation rate may need a boost." - source Wells Fargo
So on top of structural headwinds mentioned while criticizing the Phillips Curve model aka the Norwegian Blue parrot, inflation does suffer from an autocorrelation problem as well it seems. Furthermore, there has been rising discussions surrounding a potential return of inflation in recent weeks, not only on the blogosphere, but, as well from the sell-side. Concerns of the tightness in certain labor markets in Developed Markets (DM), make some sell-side pundits wonder if inflation could not make an unexpected return. Despite the low inflation conundrum discussed in various musings of ours, we do think that the change of the narrative from our central bankers is more a case of loose financial conditions than anything else. Regardless of the undershoot of the Fed's inflation mandate, we do think that Financial Stability matters more, when it comes to their rising discomfort with valuation levels reached in many asset classes. This is an important point put forward by Bank of America Merrill Lynch in their Liquid Insight notes from the 6th of October entitled "Jobs and FX":
"When central banks ignore low inflation 
Since the latest USD rally started in mid-August, the only currencies that have done even better than the USD are GBP and CAD. In all three cases, the respective central banks surprised markets with a hawkish turn, either hiking, as in the case of the BoC, or effectively announcing that a hike was on the way, as in the case of the Fed and the BoE. In all three cases, the real reason was not inflation concerns: UK inflation is above the BoE’s target, but mostly because of the sharp GBP drop since the Brexit referendum. Concerns that the labor market was getting too tight was the main reason, in our view, possibly leading to inflation pressure in the future. 
This suggests to us that many G10 central banks may either believe inflation is temporarily low, or that available inflation measures are missing something important. In Don’t fight the central banks when they want to do the right thing we argued that the Fed and most likely other central banks are also concerned about asset price bubbles and that they would take advantage of the “good times” to normalize policies, despite low inflation. It may not be their job to call a bubble, but it would also be irresponsible to allow bubbles to form. Leaning against the wind may be a good compliment to macro prudential measures, which have proved to have a mixed record anyway. 
Inflation could still surprise to the upside. The Phillips curve has lost its appeal, but the gap between labor markets and inflation is the widest it has been in recent decades (Chart 1). 
Some indicators suggest US inflation is not that low, with an index including a larger basket of goods suggesting US inflation is high and rising (Chart 2). 
Global monetary policies remain very loose in any case. A simple Taylor rule suggests that global monetary policies have never been looser than today in recent decades, with all G10 central banks having loose policies (Chart 3 and Chart 4).

Monetary policies have a long way to tighten before they become tight.
At the same time, while in recent years G10 central banks were involved in a form of a currency war, this has changed more recently. We believe Fed tightening—hikes and unwinding of its balance sheet—creates more room for other central banks to adjust their policies to a stance more consistent with their domestic conditions, without being concerned that their currencies may overshoot. 
Labor markets and FX valuations 
We are trying to assess possible inflation pressures by looking at the extent to which G10 labor markets are tight. Even if the Phillips curve is flat, or at least more flat than it used to be, recent central bank focus on labor market constraints suggests to us that the answer on which central banks are likely to move next may be in the labor market.
To do so, we do not have to know the natural rate of unemployment, which is difficult to estimate in practice. Instead, we look at the difference between the latest unemployment rate from the lowest level since 1980. It is reasonable to assume the smaller this gap, the tighter the labor market, and the more likely the central bank may want to tighten policies.
We then compare labor market tightness with valuation of G10 currencies. We also take a simple approach in FX valuation, by considering the z-scores of real effective exchange rates from their 20-year averages. Currencies that deviate the most from their historical average are likely to be the most misaligned. The results could provide insights on which G10 FX crosses could perform well in the medium term because of central bank policies, keeping everything else constant.
The Chart of the Day shows the results from this analysis, as follows:

  • GBP/CHF has the most upside potential. The UK labor market is the tightest in G10, with the unemployment rate at an all-time low. At the same time, GBP is the most undervalued G10 currency. On the other hand, unemployment remains historically high in Switzerland, while the CHF is overvalued. Of course, Brexit uncertainty is what is keeping GBP weak. Still, our results suggest GBP/CHF has the most potential to appreciate in G10 if the BoE starts a hiking cycle, or if the UK and the EU agree on a Brexit transition. EUR/GBP will also weaken in this case, as the Eurozone has the highest unemployment rate compared with its own history.
  • CHF/JPY could weaken. The cross is overvalued, while the labor market in Japan is tighter than in Switzerland. This is consistent with our bearish CHF outlook.
  • The Scandies could do well against the Antipodeans. SEK and NOK are historically cheaper and with tighter labor markets than AUD and NZD. Our results also support buying CAD against AUD and NZD.
  • The outlook for EUR/USD is mixed based on this analysis. Although the Eurozone has much higher unemployment than the US, EUR/USD is somewhat undervalued. This is consistent with our projections, expecting EUR/USD to weaken slightly more, to 1.15, by end-2017, but appreciate back to 1.19 in 2018.
  • Similarly, our analysis suggests balanced risks for USD/JPY, with the US labor market tighter than in Japan, but USD/JPY overvalued.
  • EUR/JPY on the other hand could weaken, as Japan’s labor market is tighter than in the Eurozone, while EUR/JPY is historically strong. However, this analysis does not take into account the ECB constraints, which are likely to force early QE tapering next year. If the BoJ remains committed to its loose monetary policies, EUR/JPY could even appreciate more—for these reasons, long EUR/JPY was one of our high conviction year-ahead trades for 2017. 
Bottom FX line 
Our analysis suggests possible surprises from central banks in G10 as they focus more on labor market conditions, despite low inflation, could support GBP against CHF and EUR, with the caveat of downside risks from Brexit negotiations. They could also support the Scandies, CAD and JPY against the Antipodeans, and could also be bearish for CHF/JPY. 
Although our results are mixed for the USD, as the US labor market is tight but the USD is not historically weak, we would argue the Fed will continue leading the normalization process, which should keep the USD supported. In any case, the USD is not far from its historical average, suggesting it could appreciate more in the short term. We expect Fed tightening to create more room for other central banks to follow, without being concerned that their currencies could overshoot. This suggests to us that the trigger to position for monetary policy divergence in G10 FX could be provided by the December Fed hike, particularly if markets move closer to the Fed’s dot plot for next year. Progress in US tax reform could have a similar impact, although with a much stronger USD
appreciation, in our view. " - source Bank of America Merrill Lynch
While we agree with Bank of America Merrill Lynch's view that the Fed and other central banks are also concerned about asset price bubbles, when it comes to USD strength, we have already seen a significant rally in a short period of time. A cause for concern we think, from an "Anatomy of Criticism" perspective lies in the growing trade war rhetoric between several countries. This would not be supportive of the USD dollar, on the contrary. While everyone is focusing on the US tax reform, we do think that it will be essential to monitor possible growing tensions in global trade in the months ahead.

When it comes to asset price bubbles, we also think that we continue to be on a trajectory of going to 11 that is, in true Spinal Tap fashion when it comes to valuation levels. We might have been overly defensive credit wise when it comes to the performance of the beta space and in particular the CCC High Yield bucket. It remains to be seen how long this game is going to continue. In the meantime flows remain supportive and the change in the narrative from our central bankers is yet to be perceived  as a meaningful threat by the investors crowd.

  • Credit - Beta max? Don't get "carried" away.
Whereas we continue to witness a significant mountain of negative yielding assets globally, the credit mouse trap has been set by our central bankers. For investors starved of safe yield, anecdotally we even have seen Investment Grade investors with no choice but to reach out for more duration and more credit risk. No wonder they have gone for higher quality high yield, causing the BBs rating bucket to return a very decent 6.8% YTD. At the same time, low volatility and minimal credit losses, have led CCCs  credit canary to reward handsomely credit investors with a YTD of 9.8% according to Bank of America Merrill Lynch. The current low interest rates volatility is providing a "goldilocks" environment for credit. Unless there are some meaningful exogenous factors that come into play, it seems to many that the game of "carry" appears to be "bulletproof". 

As we pointed out in recent musings, no doubt to us that we will go to 11, valuation wise in true Spinal Tap fashion. On the subject of valuation for credit we read with interest Deutsche Bank's Credit Strategy note from the 20th of September entitled "Is Carry Still King?":
"Valuations even more stretchedThe performance seen through the summer has only served to make credit appear to be even more expensive as we head towards Q4. Figure 2 (left) updates our often used analysis highlighting where current spreads rank relative to their own histories for a broad selection of credit indices. As we stand all but two of the analysed indices are at a spread level tighter than the median. For EUR HY, spreads are at levels where they have been tighter less than about 15% of the time through history. It is not quite so extreme for IG but non-financial BBBs across all currencies are around the cusp of the tightest quartile. Looking at the right hand chart, which is focused on the rank history for EUR non-financials, we can see that we reached even tighter spreads in early August. 

In Figure 3 we look at EUR IG and HY non-financial spread histories to get a sense of where current spreads sit relative to levels going all the way back before the financial crisis. As can be seen, the current HY/IG spread ratio is near a record low and we continue to see HY valuations as stretched at an absolute level as well as relative to IG. Nevertheless, we are also cognizant of the fact that at the current stage of the economic cycle stretched valuations can persist for a while. Overall, we think HY would be more vulnerable in a sell-off following its recent outperformance.

Spreads supported by positive economic momentum 
In general, there's no doubting that across the credit spectrum valuations appear expensive. However continued performance has been supported by the solid macro backdrop. In particular European macro data have generally been strong in recent weeks/months. In Figure 4 we show our economists' SIREN monitors looking at indices summarising both economic growth momentum and macro surprises.

(For more information on these monitors, please see the relevant section in DB Focus Europe, available at The SIREN Momentum index has been in a new, higher range in the last six months, consistent with close to 2.5% annualised GDP growth. At the same time the SIREN Surprise index has also improved since the middle of the year, edging back into positive territory.
In addition to the supportive macro data we have also continued to operate against a backdrop of low volatility which tends to keep spreads tight. Measures of market volatility remain at the lower end of ranges and as such we couldn't entirely rule out some further spread compression. Updating our simple spread model looking at where implied equity, rates and FX volatility suggest that while HY spreads are broadly in line with the volatility-implied levels, for IG an argument can be made that spreads could get even tighter. But at the very least the charts suggest that if we don't see a meaningful move higher in volatility then spreads are likely to remain close to the current relatively tight levels. 

Will technicals provide some headwinds? 
Obviously, central banks remain a key driver of asset prices and in EUR credit, the ECB CSPP remains a powerful force keeping spreads in check. While we do expect the ECB to announce a further trimming of the overall QE programme on 26 October, we expect them to err on the side of caution given the absence of inflationary pressures. The ECB's exit from the bond market is likely to take place over an extended period of time even if the economy evolves according to their forecasts. While we do expect the negative technicals of a QE taper to lead to moderate widening of spreads, as long as economic fundamentals continue to be strong we would not expect a meaningful sell-off in credit." - source Deutsche Bank
Indeed, central banks remain the key driver of asset prices, hence the importance to track the change in their narrative. Both the Fed and the ECB will probably reduce the alcohol content of the credit punch bowl at a very slow pace.

While we advise for caution, the continuation of the rally in all things beta seems to be pointing towards the development of a state of euphoria. As long as the narrative of our generous gamblers doesn't meaningfully change or some exogenous factors comes into play (Catalonia aka "Fracastonia", North Korea and more...) it seems we are surely going to move towards the 11 level. After all records are meant to be broken. In this high stake poker games, it seems the margin for error is smaller by the day, we would rather tone down the enthusiasm and continue building some defenses. One could opine that given the on-going goldilocks period for credit thanks to low interest rates volatility, one should continue to play the "beta max" game as posited by Société Générale in their Credit Strategy Weekly note from the 29th of September entitled "Only a shock can shake credit":
"Only a shock can shake credit 
Into the last stretch of what has been another good year: The last quarter of the year is upon us, and so far the performance has been fairly healthy across the various credit asset classes. After surpassing all major political tests, there remains one hurdle in the form of the ECB meeting in late October. The risk is that the central bank announces a rapid withdrawal of QE support that disrupts the markets. Even a slow withdrawal is likely to be enough to push sovereign risks higher and put pressure on credit spreads, even if we believe that CSPP will be the last programme to be altered. At best, the ECB will simply announce an extension, and in that case it’s plain sailing until the end of the year. But a tapering announcement is not improbable, and in that sense we prefer to reduce duration, as we expect the credit curves to steepen. 
High beta sectors remain the place to be: Tapering or no tapering announcement, the higher beta sectors (AT1 CoCos, sub insurance, Tier 2 bonds and corporate hybrids) remain the better investment alternatives on both sides of the Atlantic, in our view. If there is no tapering, the high beta sectors, names and bonds will outperform given the higher carry and tightening potential. But if tapering does come and we see yields on a rising trend, then these sectors are likely to be the more volatile, but the higher breakevens will provide a better cushion and ultimately a better performance than low beta, low yielding, high rated and long maturity bonds." - source Société Générale
Whereas macro data continues to be supportive, from an "Anatomy of Criticism" perspective, only a change in the narrative from our "Generous Gamblers" constitute the largest threat to the investors crowd. The herd mentality continues to be strong in playing the beta game. When it comes to US Investment Grade Credit as shown by Bank of America Merril Lynch in their Situation Room report from the 11th of October entitled "New post-crisis tights" we are going to 11 in a Spinal Tap fashion:
"On Tuesday our benchmark US high grade index reached the tightest level at 103bps since the financial crisis. This follows the previous spread market peak over three years ago, when spreads bottomed out at 106bps on June 24, 2014 (Figure 1).

Here we update our analysis on where spreads stand currently relative the prior market peak in 2014 (see Vs. post-crisis tights). One factor contributing to tighter spreads currently are the large downgrades to high yield in 2015, mostly among EM credits. With many wider issuers out of the high grade index, EM spreads are now 40bps tighter than in June 2014, while DM issuer spreads are actually 3pbs wider." - source Bank of America Merrill Lynch
Thanks to low rate volatility, the carry game enables all sort of beta plays. Unfortunately, it is getting late in the game and central bankers have started to lower the volume in the credit binge party. You have been warned.

Whereas the latest job report was a miss, for our final chart, there is more to the low inflation story and its coming in the US from structural issues preventing an acceleration in wages increases and it has to do with the labor market.

  • Final chart - A structural weakness in the labor market
We won't go through again all the arguments we have put forward for the Fed's broken Phillips Curve model, hopefully we have put that Norwegian Blue parrot to rest, no offense to the cult members out there. What is we think more interesting from a US macro perspective is that there is a structural weakness in the US labor market which, as pointed out by Wells Fargo in their report from the 6th of October entitled "Taking the Long View Over the Short Run Dip". The Beveridge curve shows that the mean duration of unemployment remains stubbornly high:
"Structural Problems Persist: Drag on GrowthFor any given unemployment rate (labor supply), the vacancy rate (job openings) remains wider than in the previous expansion (bottom graph), however the slack is gradually tightening. 

This Beveridge Curve signals a structural weakness in the labor market which is confirmed by several labor market survey indicators. Compared to a year ago, the unemployment rate for those without a high school education and with a high school diploma remains higher than the unemployment rate for those with some college. The mean duration of unemployment rate remains at 24.4 weeks which is higher than any level since 1982. Finally, the prime age labor force participation rate has risen over the last year but remains far below the level of participation since 1990." - source Wells Fargo
If inflation remains low, is also due to the fact that the prime age labor force participation rate hasn't been repaired and is still pretty much impaired. Fed minutes show concern that low inflation is not transitory. Whereas the Fed finds it mysterious that inflation is still so low, we don't. Maybe the Fed should start their own "Anatomy of Criticism" after all, but we ramble again...

"The true mystery of the world is the visible, not the invisible." -  Oscar Wilde

Stay tuned!

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