Juggling Dynamite

The COVID-19 pandemic has exacerbated the deflationary trends of falling birth and longevity rates, especially in the world’s largest consumer nation–America.  The effects will last for years.

Life expectancy in the U.S. fell by 1.5 years in 2020, the biggest decline in decades, as Covid-19 killed hundreds of thousands and exacerbated the rise in drug overdoses, homicides and some chronic diseases. Life expectancy decreased an average of 0.22 years in other peer countries between 2018 and 2020.

U.S. longevity had been largely stagnant since 2010, declining in three of those years, due in part to an increase in deaths from drug overdoses. Heart disease-largely caused by diet and lifestyle–remains the nation’s leading killer.  See the WSJ U.S. Life expectancy–the biggest decline in generations:

The full toll of the pandemic has yet to be seen, doctors and public-health officials said. Many people skipped or delayed treatment last year for conditions such as diabetes or high blood pressure, and endured isolation, stress and interruptions in normal diet and exercise routines…

The pandemic also had an effect on births, as the number fell last year to the lowest level in more than four decades, continuing a fertility slump and likely showing that the spread of a deadly virus dissuaded some women from pregnancy.

Born of inflation mania and rampant speculation, the latest downturn in risk markets has been telegraphed by declining global inflation expectations (below since 1995) and falling Treasury yields since the end of March 2021.

As noted in my partner Cory Venable’s chart from the end of June (below), the US 10-year Treasury yield broke under 1.50% last month, down from 1.74% on March 31st.  With a rapid move to 1.20% yesterday, our yield target of sub-1% remains probable (green box area) as goods spending subsides from a COVID-fevered pitch.

Canadian Treasury yields follow suit, with Canada’s 10-year yield closing at 1.147 yesterday from 1.417 last month and 1.67 on March 19th.  Cory’s end of June chart below highlights our sub-1% yield target here as well (yellow band) as government bonds rise.

This is about growth/inflation expectations and risk assets that have wildly overshot all reasonable financial prospects.

Economist David Rosenberg said he agrees with North American monetary policymakers on one thing: concerns about runaway inflation are overblown. Here is a direct video link.

Government bonds and the US dollar are soaring today as risk markets tank across the board.  Deflationary forces are taking the upper hand once more.  Just the facts:

“Industrial production is lower now than in March 2008…we may want to start connecting the dots between what happened in 2008 and what’s happening now and viewing it as one longer-term episode where we still have to fix what’s wrong.”

Carl Weinberg, chief economist and managing director at High-Frequency Economics, warns of a global slowdown that could end up in a recession.   Here is a direct video link.