0/ Ben Bernanke spoke in a fireside chat on inflation, the real economy, monetary policy, etc... Re: inflation he notes Economists / Fed have revised their inflation forecast higher. "There is a very substantial transitory component, looking at base effects; used cars, airfares /
1/ hotel prices that dropped dramatically in '20 are coming up to more normal levels. There are bottleneck supply issues, chips not being able to produce cars, a commodity price jump that's not sustainable or won't continue to provide an inflationary shock, etc... Other pot'l
2/ transitory effects are the labor market. Including trend, Fed is still ~10M jobs short from pre-pandemic rate, yet participation rate hasn't moved since last summer, a lot of vacancies, there is a supply effect coming from labor market which is no doubt transitory. Parents
3/ without childcare or school, many people cautious going back to work given virus & 1/2 vaccinated, unemployment insurance is still there."

Despite fact that monetary & fiscal policy are quite expansionary we won't see 4-5% inflation going forward. There are risks of inflation
4 / continuing above target levels for a while. 1) On labor supply we expect people to go back to work as UI runs out / people go back to school / virus fears assuage there are longer term trends re: labor supply (retirements, people rethinking what they want to do, reallocation,
5/ etc..) it may take a while before we have labor supply factors pre-pandemic + demographic factors 2) Rents- most components of inflation seem transitory but residential rents could be more persistent. House prices have gone up a lot & will presumably hit the rent component
6/ which is important to core inflation 3) The big wildcard is if inflation expectations were firmly at target. If businesses see inflation above target we need to see if inflation expectation drift upward where they ask for wage increases & see price pressures.
7/ Two broad types of indicators Fed will look at: (i) Trend mean inflation which cuts out outliers; looking in detail at components to see if its broad based / evident throughout economy or a function of a few categories (ii) Purpose of FAIT (Flexible Average Inflation) is to
8/ anchor expectations at 2%. Concern before was inflation expectations were too low, need inflation expectations at target. Like to see medium-to-long term expectations around 2%. Long-term bond rates do not seem concerned w/ inflation
9/ Fed will look at various confidence surveys, break-evens in TIPS market (not perfect measures due to liquidity + risk premia mixed in) but not seeing inflation expectations particularly concerning as being too high. Those B/E are related to CPI & Fed looks at PCE (which is a
10/ bit lower), Survey of Professional Forecasters trying to put together all information they can find, they have been accepting of Fed's view that inflation will be temporary & back to 2%. We don't have a perfect measure, inflation is affected by things other than expectations
11/ but the Fed believes expectations are very critical and want to get expectations up to target and anchored at target breaking out of disinflationary psychology prior to pandemic.
12/ Bernanke sees core PCE 2.3%-2.4% next couple of years, by '23 expect them to be very early stages of tightening & it could be very several years to get back to 2.0%. He sides w/ the Fed that we won't see 1970 style inflation but instead something slightly to the north of
13/ target. Fed wants to see some modest inflation & he believes they will be successful in getting it in low 2.0%s for a time before getting it down to 2.0%.

People forget 1990s inflation averaged 3.0% over that whole decade (which most people remember fondly economically).
14/ "2.0% target is arbitrary frankly, but Fed has set a 2.0% target think goal is mid-2.0% for 1-2 year and come down to 2.0%. Persistent 3.0% inflation would produce anxiety as it would question credibility (given 2.0% target). "
15/ On economic growth- "Growth won't be 8% next year. Constraints on supply side that will persist (retirement, aging work force, etc...) some indications that productivity will improve, productivity #s have been strong. People working form home, shopping online, saves trips /
16/ commuting time. Forces in both directions labor supply side / productivity side. Seeing a re-allocation of economy. A lot of people working in one industry (particularly service) are looking to move into another sector.

Very unusual situation where unemployment & job
17/ vacancies are extremely high, very hard to find workers despite very many people not working. Near-term risk of growth slowing just because monetary / fiscal policy can't sustain 8% growth indefinitely. New concerns about virus & delta variant. Part of what markets are
18/ responding to are a # of downside risks still out there that will effect economy if not indefinitely but for next year or two.

A lot of cash out there. $1.9T American rescue plan, $2.0T+ in savings, part of which is because people couldn't spend, a lot of tinder out there,
19/ a lot of unspent cash. Consumer spending has been stronger which is part of reason for higher inflation. Total amount of cash will be spent this year, next year or held for long-term. If they spend a lot this year will create headwinds in future in terms of next year spending
20/ capacity & longer-run capabilities. As people spend this money savings rate needs to go down. Despite the fact we had a bad recession people's income rates didn't fall. As income drops & they spend residual $$ expect savings rate to fall either back to normal or even below
21/ normal for a time. Bernanke highlighted that the evolution of virus itself & vaccinations has been single most important factor. A lot of this depends on if we have new shutdowns, if our trading partners return to normal state, if service industry returns, or not, etc...
22/ Longer-Term- Growth depends on labor force growth; #s have been disappointing in terms of people coming back + demographic factors (aging population, lower immigration) another factor is productivity and there there are factors in both directions. We learned how to WFH, avoid
23/ business trips, online shopping, telehealth, important medical & technological innovations, which are positive. Also some negative forces where we might be afraid of if not this virus, the next one, looking to maintain social distancing, etc.. which cost money, makes retail
24/ less efficient, etc...another negative is supply chain & globalization. We learned its not good America is dependent upon other countries for prescription drugs, etc.

Expect to see globalization slowdown with more production at home, which has benefits but likely net reduces
25/ productivity. Still think this is a ~2.0% economy.

On Monetary Policy- Agreed on FAIT framework unanimously. First they will taper QE an announcement likely by end of year, will be followed by in '23 a slow increase in policy rate which will be consistent with inflation
26/ overshooting 2.0% target for a time. Policy is designed to depend on outcomes not forecasts. Won't start tightening until they see inflation exceed 2.0% target

On tapering- given what's happening in economy not much support in FOMC committee for delaying well into next year.
27/ Better off than in '13 as markets have seen this. They've been very clear that a tapering in QE is not the same thing as beginning to raise rates; they've been effective at communicating that.

Adopted a tool they could've used in 2013, where the Fed actually bought
28/ Treasuries last March, can do that if Treasury market becomes excessively volatile.

Fed is buying $120B/month total, tapering in '13 was $10B/meeting, think its a year-long process so a $10B/month reduction. Communication that rate increase won't happen until end of taper
29/ which pushes into '23. In terms of mix not a strong view. Buying $80B UST & $40B of MBS. Argument to be made for slowing MBS sooner (mortgage are low & house prices have risen quickly). Unlike '13 QE they are buying across the curve too. Think they taper in a even handed way
30/ On Digital Payments / CBDCs / Stablecoins- While $BTC has succeeded as a speculative asset he does not think it is a currency & thinks there are significant regulatory issues. CBDCs are likely to come part of payment system, don't need blockchain just digital aspect
31/ enabling rapid transfer of value. Fed is in no hurry to introduce CBDC & does need Congressional approval, will eventually see something like that in conjunction with banking system. Stablecoins need to figure out KYC / AML & backing considerations

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More from @JohnStCapital

14 Jul
0/ $BAC CEO Brian Mohynihan on spending: "We are halfway through the year & total payments are $1.8T or ~60% of last year's level (which was a record).

Total BAC consumer SMB payments set a 4th quarterly consecutive record, reaching $976B, +41% YoY & +23% over '19.
1/ "Spending accelerated as COVID vaccinations increase, business reopen & domestic travel increase. Combined spend at retailers & services comprises over 50% of debit & credit card spending, a portion of the total spend +27% vs 2Q19.
2/ As of mid-June, domestic airline purchases were +8% vs '19 while int'l airline purchase on their cards are still down ~40%, showing the difference of the progress in United States versus other places (relevant for $V).
Read 6 tweets
14 Jul
0/ A new report out of @PitchBook & NVCA on the venture ecosystem; 2021 is on track to be a record year with $150B raised YTD, or 90%+ of last year’s previous record total ($164.3B)
1/ Mega-deals of $100M+ have already hit a new high-water mark with 198 deals closing in 2Q, & YTD total of $85.5B across 385 deals, surpassing 2020's record.
2/ No surprise given all of the Tiger / Coatue / Altimeter headlines but crossover investor participation is at unprecedented levels with 1H21 seeing $63.5B invested across 524 deals (well on track to cross $100B this year).
Read 7 tweets
13 Jul
0/ On whether or not $JPM would be disintermediated by FinTech co's Jamie Dimon said, "I think we have huge competition in banking & shadow banking, fintech & big tech...obviously, there's always a changing landscape, we have brands & capability & products & services & market
1/ share and profitability. I think some of these competitors are going to do quite well. I think a lot of them will succeed over time. But that's called good old American capitalism. I'm quite comfortable we'll do fine."
2/ On $GS earnings they highlighted "Based on our opening expectations of that business, we have had to put less rate on deposits to attract customers. It's turning out that the user interface & the engagement w/ the corporate client set just in terms of what we're offering by
Read 4 tweets
12 Jul
0/ The @DriveWealth team just published their 2Q Global Retail Trends report:
-1H21 trading volume surpassed FY20
-95% of trades placed had fractional component (think $SQ, @RevolutApp @monzo)
-$250 avg trade size in 2Q21
-Retail invested a record $28B in cash in June.
1/ Not a surprise given investor base but younger investors have fueled new account growth
-Under 40 was 73% in 2Q21, 77% in 1Q21
-Under 30 was 41% in 2Q21, 49% in 1Q21
-32% of people in the US said the pandemic inspired financial discipline
-33% said they will increase investing
2/ Geographically they saw a 62% increase in LatAm investor deposits, while inflows from APAC outpaced EMEA & US investors
Read 13 tweets
8 Jul
0/ Great podcast with @velez_david & @patrick_oshag discussing not just what David & the @nubank team have done building the world's largest digital bank (40M customers), but the LatAm startup ecosystem at large, raising money from Berkshire, disrupting incumbents, & culture
1/ Across LatAm the largest companies are often banks; in Brazil 5 of the top 10 companies are banks. David highlights that over the last 20 years Brazilian Banks have earned an ROE of ~20-30% sometimes 10x what you'd see in the US & Europe through volatile macro cycles
2/ It was in 2012 where the smartphone penetration was starting to grow very fast in Brazil & he got excited about the opportunity to deliver financial services to anyone via their phone; in a region where 250M+ people are unbanked & many more underbanked
Read 20 tweets
6 Jul
0/ We've seen a number of S1s filed for FinTech IPO's recently including $HOOD $MQ $GLBE $DLO. The co's / their advisors pay for / commission industry reports which we get to be slight beneficiaries of regarding broader macro data points / projections

A few highlights...
1/ Re: $HOOD

"30% of retail investors in the US place orders using a mobile app, according to 2018 FINRA surveys. That number grows to 59% when looking solely at participants aged 18-34."

"Retail investing now comprises roughly 20% of U.S. equity trading volume, doubling in
2/ the decade from '10 to '20."

"~60% of all Americans still do not have investments outside of their retirement accounts, and, an even greater % of young adults aged 18-29—68%—have no money invested in the stock market at all.
Read 34 tweets

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