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Tag: Barry Knapp

Season 3, Episode 1: The Biden Administration and Risks to Global Growth

With Barry Knapp, Ironsides Macroeconomics

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Barry Knapp of Ironsides Macroeconomics rejoins the podcast to discuss his view on “policy tremors” that could upend economic and risk asset growth in 2021.

(Barry’s dog Oliver makes a brief appearance as well).

Content
(Spotify users can skip directly to the segment by clicking on the timestamp)
  • The current reflation theme is part of a recovery from what was actually a two-year recession in global manufacturing, trade, and capital spending (4:19);
  • The Federal Reserve will initially be pleased with rising inflation, having slayed the deflation boogeyman. This will eventually morph into discomfort (first from regional bank presidents) and concerns that inflation is moving “too far, too fast” (11:43);
  • Once this happens, Fed officials will begin discussing “policy normalization” and real rates will start to move, triggering a risk-off event (13:19);
  • The Georgia elections the first week of the year were a kind of “sneak preview” of this event, but look to mid-year for the real McCoy (16:37);
  • Another important indicator: Watch house prices through the spring selling season (20:40);
  • Two details of President-elect Biden’s $1.9 trillion stimulus proposal that are not fully appreciated by the market (21:41);
  • The Democrats will likely ask for more than Republicans are willing to give, triggering reconciliation that would be a rude awakening for the market (28:38);
  • If the $1400 stimulus checks go through it may lead to another “speculative blow off” (30:50);
  • There is no indication President-elect Biden is willing to roll back tariffs on China, though he could re-engage in TPP. But anybody expecting a broader unwinding of the trade war “is pretty off-base” (33:00);
  • Look for further USD weakness, particularly against the yen and the euro (37:57);
  • Favorite asset classes for 2021 (41:09)
More About The Guest
Not intended as investment advice.
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Contrarian Calls, Revisited: Barry Knapp on Yield Curve Inversion

What Was Said

In this podcast’s pilot episode last April, economist Barry Knapp of Ironsides Macroeconomics discussed the economic news of the day: the 3-month/10-year yield curve inversion.

The conventional wisdom at the time was that the yield curve inversion would lead to recession in the U.S.

But there had been numerous “false positives” from the yield-curve indicator in the past, Knapp said: 1966, 1998, and 2005. “There was no evidence that the inversion of the yield curve was really having any demand side effects on the actual availability of credit,” he said at the time. “It’s not debilitating for growth.”

The U.S. consumer remained healthy as households continued to delever from the excesses of the 2008 financial crisis. “The savings rate is high, income growth is picking up,” Knapp said. While global exports were slowing, this was “not enough of a shock to drive the U.S. into a recession.”

Additionally, there were reasons to believe the inversion wouldn’t last long. The Federal Reserve was indicating that its next Treasury-buying initiatives were more likely to lead to a steepening of the curve.

Knapp was bullish on bank stocks, having upgraded his view in 2017. He also liked U.S. small caps, expecting a rally on domestic demand.

What Happened

Ten months later, there are no signs of recession for the U.S. economy. Financial stocks have done well, judging by the SPDR S&P Bank ETF (KBE), which is up more than 14% in the intervening months:

Small caps have also done well, with the iShares Core S&P Small-Cap ETF (IJR) gaining more than 11%:

The 3 month/10 year yield curve stayed inverted for a few months before steepening. It has since inverted again, though this time few economists are calling for a recession.

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Season 1, Episode 16: No Ill Effects from Yield Curve Inversion for US Economy

The 2-year/10-year yield curve inversion is a bad sign for the global economy, but less so for the U.S., says Barry Knapp

Barry Knapp of Ironsides Macroeconomics joins the podcast to discuss the 2-year/10-year yield curve inversion. The gauge is viewed as a harbinger of recession and while global trade has clearly slowed, the U.S. economy should not necessarily see any ill effects in the immediate future, says Knapp.

Content:

The 3-month/10-year yield curve versus the 2-year/10-year (2:52), for historical precedence see Japan in the early 2000s (7:50), recession in global trade but not in the U.S. (8:42), positives for the U.S. economy (13:00).

For more information on our guest: https://ironsidesmacro.substack.com/

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