December 2016

This month’s Longbrake letter consists of two parts. Part I is a final assessment of observations Bill made a year ago about how the U.S. and global economies might fare in 2016. As one might expect, Bill’s track record is mixed. The U.S. and global economies are dynamic and ever changing. Some trends are foreseeable. But, governmental policy intervention, whether it be political or economic, can alter outcomes and set in motion feedbacks that significantly affect economic developments. In this respect, 2016 was no different from any previous year. Part I also includes commentary about key U.S. and global economic and political developments that seem possible, perhaps likely, in 2017, along with a list of possible risks that could derail expected developments. Part II of December’s Longbrake letter explores a 10-year economic outlook for a variety of measures of economic activity and compares four of Bill’s scenarios with projections of other professionals including the Congressional Budget Office.

Read the 2016 Assessment | Read the Outlook 

November 2016

In a stunning surprise, Donald Trump was elected to be the next president of the U.S. Bill Longbrake explains in this month’s letter that Trump’s success should not have come as a surprise. A majority of Americans have become increasingly dissatisfied with changes in America’s social, political and economic fabric, which many view as demeaning the value and dignity of their work and undermining the opportunity to live the American dream. In this context, “Make America Great Again,” resonated. Longbrake notes the markets’ euphoric response to the anticipated economic benefits of aggressive fiscal stimulus, but cautions that uncertainty has increased and with it the odds for recession. Bill summarizes the probable domestic and international impacts of Trump’s election and examines the economic impacts of several fiscal stimulus options.

November Letter.

October 2016

If one only listened to the consensus, one would be optimistic, notwithstanding the ugly US presidential contest, that the US economy is moving forward steadily with strong employment, low inflation, and low interest rates. In this month’s letter, Bill Longbrake takes a more critical look at recent data and discusses the consequences of years of aggressive and market-intrusive monetary policy, which leads him to a much different and more troublesome outlook. According to one well-respected economic research firm, there is now a 50-50 chance of recession in the next 12 months. The strong third quarter real GDP report was a mirage that hid a steady six-quarter long deterioration in growth momentum.

October Letter. 

September 2016

In previous letters Bill Longbrake has discussed the growing imbalances in the global economic and political fabric. Because there is much at stake the established political and financial elite have an enormous vested interest to maintain stability at all costs. To date they have been successful. But, let there be no doubt that events are gradually undermining the foundation of the old order. In this month’s letter Bill examines US productivity, a much too neglected topic but one that is key to real economic growth and our society’s well-being in the long run. The course we are on is unhealthy but not inevitable.

September Letter. 

July-August 2016

Britain’s vote to leave the European Union is already having negative consequences in the U.K., but the rest of the world  has yawned and “risk-on” animal spirits are back in vogue as the U.S. stock and bond markets hit all-time highs.  Otherwise not much has changed in the U.S. Productivity and economic growth remain weak and inequality is worsening, but employment growth is strong. Populism and nationalism increasingly is impacting politics in the U.S. and other countries. In the July-August letter, Bill Longbrake discusses the policy flaws embedded in neoliberalism, which espouses free movement of capital and fiscal austerity. He also explains why interest rates are very low and are likely to remain so for a very long time. Special topics include Italy’s banking crisis, Japan’s revamping of Abenomics, and unexpectedly large inventory destocking in the U.S.

July-August Letter.

June 2016

The US and global economies are marking time while imbalances continue to build slowly. But, there were two surprising, and not necessarily related, events in June – the US May employment report was dismal; the Federal Open Market Committee (FOMC) slashed interest-rate projections. In this month’s letter Bill Longbrake explains why neither of these developments is all that surprising. Slower employment growth and low interest rates are here to stay. He believes that the FOMC’s interest rate projections are still too high.

June Letter. 

May 2016

In this month’s letter Bill Longbrake explains why he is putting his “Recession Watch” on the shelf for the time being. He summarizes why recent policy intervention has been successful in papering over significant global imbalances. But, he goes on to explain why policy has been palliative, not curative. Longbrake also examines the rise of populist movements across the globe, including the United States, and their genesis in the 2008 global financial crisis and subsequent policy responses. The remainder of this month’s letter provides updates on GDP, employment, inflation, productivity, financial conditions, and monetary policy in the U.S.

May Letter. 

April 2016

In this month’s letter, Bill Longbrake shares his worries about global economic and political trends along with summaries of similar concerns expressed in the International Monetary Fund’s World Economic Outlook and by the editor-in-chief, Zanny Beddoes, of The Economist. He also explores reasons for the surprising strength of Donald Trump and Bernie Sanders in this year’s presidential campaign. In addition to regular updates about the U.S. economic outlook, he provides a review of a recently published book, The Smartest Places on Earth, by Antoine van Agtmael and Fred Bakker, which describes how brain-belts that are emerging in the U.S. and Europe will reverse the global competitive advantage held in recent years by emerging economies.

April Letter

March 2016

Bill Longbrake initiated a “Recession Watch” in last month’s letter. He was explicit, however, that a watch only means that the possibility of recession has increased, not that it is necessarily likely to occur any time soon. Thanks to the Federal Reserve once again galloping to the rescue and the decline in the value of the dollar markets have stabilized, financial conditions have eased, and eager risk-taking is once again in vogue. Does this mean that fundamental global imbalances have dissipated? Bill believes little has changed. Optimists were ready to take advantage of extreme oversold market conditions and all they needed to swing into action was policy reassurance. What seems to be supporting stock prices and optimism is belief that monetary policy will cure all that ills the economy. Is that belief well founded? We shall see. In the meantime, Bill’s “Recession Watch” continues, but as of this time an actual recession does not appear to be an imminent threat.

March Letter.

February 2016

In this month’s letter, Bill Longbrake explores the possibility of recession commencing some time during the next few months and initiates a “Recession Watch.” In recent weeks several developments emerged more or less at about the same time which spooked global financial markets. Are these developments the forerunner of worse to come, including a U.S. recession? Or, is the market overreacting to “temporary” shocks? Will policymakers be able to defuse anxiety? From the vantage point of the present it’s difficult to discern where the U.S. and global economies are headed and just how fragile global financial markets really are. Regardless of whether recession is imminent, substantial global economic and financial imbalances exist. Bill examines these imbalances and comments on how they might evolve and impact the global economy and financial markets.

February Letter.

January 2016

In this month’s letter Bill Longbrake extracts discussions of major topics that were included in various 2015 letters. These discussions explained and examined deep-seated trends which continue to evolve and shape global economies, markets, social systems and political governance. He provides additional commentary and updates on each topic, which are identified in bold italicized print. Developments in the United States receive the most attention, but because we are increasingly interconnected globally what occurs elsewhere has impacts on what happens in the United States

2015 Review.

Markets began 2016 with a massive anxiety attack about the threat of a collapse in global growth. In this month’s letter Bill Longbrake explores whether recent developments are a forerunner of worse to come, including a U.S. recession? Or, is the market overreacting to “temporary” shocks? Part of the difficulty in assessing prospects has to do with the unprecedented and aggressive monetary policy intervention of central banks in all major developed economies to force down interest rates in an attempt to stimulate demand and increase inflation. Academic theories are supportive of these policies. But, the theories may turn out to be deeply flawed or flat out misguided. It’s a huge bet! The consequences could be quite dire, if the bet turns sour.

January Letter.

Robert H. Smith School of Business
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