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Full script:
Good day, ladies and gentlemen!
Welcome to our Singapore Macro Strategist channel!
Our first webcast topic is, “Is the current inflation transitory or long-term?”. We are doing this topic because the US FED will be convening its FOMC meeting on 15-16 June 2021 and it is appropriate to share our opinions now.
Before we start the ball rolling, we would like to give a brief introduction about ourselves, our purposes, and our credentials.
Singapore Macro Strategic channel is created by a Singapore-based company to present Singapore perspectives and analyses for international economics, finances, politics, and current affairs that are relevant to our daily lives. We strive to interpret and analyse data, information, and issues to the best of our knowledge and abilities so as to proffer accurate conclusions and correct outcomes for our audiences.
Our chief macro strategist is a financial veteran who has proven his exceptional analytic skills on our blog and we will be highlighting some of his successes for major events from the recent past.
Major events (not in chronological order) predicted on our blog :
1. 2020 US presidential election: Joe Biden was predicted to win the US presidential election on 9 October and he did become the US president later.
2. 2020 US recession: A US recession was predicted to happen after Q1 2020 on 19 August 2019, and NEBR announced in June 2020 that the US was officially in a recession.
3. 2021 US inflation: US inflation was predicted to happen in the first half of 2021 on 15 October 2020, and the US announced a 2.6% inflation in April 2021.
4. 2020 US financial market predictions on 7 March:-
(a) US FED was short of USD in the repo market – New York FED expanded its repo operations twice in March 2020 after our blog post.
(b) US Treasury department was flushed with cash – US treasury department announced in August 2020 it was awash with US$1.8T cash.
(c) Massive credit rating downgrades were coming – The big credit-rating firms started to issue their credit rating downgrades after our blog post.
5. 2019 FOMC predictions based on 4 interest rates analyses:-
(a) US FED was predicted on 30 April 2019 to maintain status quo – The US FED announced it put its interest rates on hold in May 2019.
(b) US FED was predicted on 5 June 2019 to cut its rates – The US FED announced it cut its interest rates in July 2019.
(c) US FED was predicted on 6 September 2019 to cut its rates – The US FED announced it cut its interest rates in September 2019.
Next, what is the role of a macro strategist in the lives of ordinary people?
Well, as the sayings go, “A rising tide can lift all boats.” and “A receding tide can unsettle the financial market.”.
As a macro strategist, we can provide macro views and opinions for ordinary people to capitalize on the opportunities and also avoid the unnecessary risks created by global events.
Without further ado, we shall proceed with the topic today.
The US has been telling the world that the US inflation is transitory and will settle down in a few months.
How true is the US statement?
We believe staunchly that a man is defined by his actions and not by his words because actions speak louder than words. Therefore, we believe in what people do rather than what they say.
Let’s take a look at what USTR Katherine Tai and Treasury Secretary Janet Yellen did.
Katherine Tai called China Liu He in late May 2021 and followed by her boss (Janet Yellen) in early June 2021. Why did both of them call China when the US had the upper hand?
Their actions had revealed the true economic condition in the US. If the US inflation was really as transitory as it was proclaimed to be, they could have just waited it out without calling China. Furthermore, they also revealed that the US didn’t have the upper hand in the US-China trade war because they called Liu He during his office time (daytime) which meant that both of them were still working at night in the US.
The recent June inflation report for May 2021 showed that the US was having decades high inflation of 5% and Yellen, who was privy to the information, had to call Liu He for a discussion. Although nothing was mentioned about tele-conversation, we had predicted on 4 June 2021 on our blog that the call was about a trade truce that involved partial or full removal of US-China trade tariffs. The removal of such tariffs will reduce the inflationary pressure in the US immediately and help to prevent a financial crisis in 2022.
Subsequently, China initiated the US playbook after the US-China tele-conversation by releasing a communique about global inflation. We believe this will lay the groundwork for US-China tariff removal.
The latest US inflation report showed that used cars & trucks, and airfares pushed up the inflation rate significantly. However, the US residential market will provide the oomph for higher inflation in the second half of 2021.
Currently, the US FED is buying US$40B mortgage-backed securities and US$80B US treasuries on a monthly basis for its quantitative easing program.
What will likely be the US FED action to curtail US inflation?
Since the US financial institutions are able to repackage these assets (cars and houses) loans into mortgage-backed securities (MBS) and out-source their risks by selling the MBS to the US FED, the FED will likely stop buying these MBS ($40B per month) to curtail their risky lending behaviours. Consequently, these financial firms will become more prudent in their lending which will impede risky consumer spendings and reduce inflation.
Simultaneously, the US treasury market is developing a bubble because of the US quantitative easing program (US$80B per month). Therefore, the US will also terminate the treasury purchases later to prevent a treasury crisis.
Thus, the upcoming FOMC meeting has significant implications because it will reveal the US position on US inflation and its impending actions which will impact the global financial market.
Last but not least, we believe that the US won’t increase its interest rates in 2021 because it has accumulated debts that are bigger than the GDP of China in less than 2 years.
The US stimulus packages under Trump and Biden:-
Trump (2020):
1. $2.2T Cares Act
2. $2.3T Omnibus Act
3. $3T Heroes Act
4. $484B Coronavirus Bill
Biden (2021):
1. $1.9T American Rescue Plan
2. $2.7T American Jobs Plan
3. $2.3T American Infrastructure Plan (under negotiation)
4. $1.8T American Family Plan
The US has increased its debts by US$16.7T in 2020 & 2021 insofar.
OK, we have come to the end of our webcast now. Please feel free to give us your constructive comments for our first webcast under the comment section. Please don’t forget to give us a like before your leave. Thank you for watching our webcast and goodbye!
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