Hello, it's Nyang. Today, I want to talk about Jackson Hole. In two days, on Friday night, we will find out what Powell will say at the Jackson Hole meeting. I saw earlier today that Nick Timiraos from the Wall Street Journal has slightly leaked some answers. So, I will mix the content from Nick Timiraos' article with various other points. First, looking at Nick Timiraos' article, there are really significant scenes described. He expressed the Jackson Hole meeting with the phrase make or break. This means it could either create opportunities or be a decisive moment that could break things. In other words, the Jackson Hole meeting could lead to improvements in the U.S. economy, but it could also be a critical moment that could derail it.

There were various stories, but the word that impressed me the most was this one. When considering the scenario, it is referred to as the Hall of Fame, which translates to 명예의 전당 in Korean. Now, finally, inflation and the war have ended, everyone. And the U.S. economy has not experienced a hard landing but a soft landing. Let's give a round of applause. Now, Chairman Powell, please go over there. It’s the Hall of Fame. You have finally entered the Hall of Fame, and we will hear whether we can raise the power of the central bank’s Hall of Fame or if, on the other hand, it is expressed like this: economic expansion does not die just because it gets older. In other words, just because the economy has been doing well for a long time does not mean it will collapse. This leads to the expression: no, this is...

It's not about dying from old age; it's about being killed. The expression is clear: it means that Yoon is being killed. These two meanings are very different, right? Ah, Powell has finally succeeded in a soft landing. Applause! It could be a hall of fame, or it could mean that Powell is attempting to kill the economy, or he might actually kill it. This is a very important moment. I'm curious about what stories will emerge from this year's Jackson Hole. 

Now, we need to talk about the past. Let's go back to August 2020. Jackson Hole always takes place in August. In 2020, at Jackson Hole, Powell brought up a term that had never been heard before: average inflation targeting. I remember thinking at that time, Wow, I had never heard of this before.

When I brought this up, it gave a huge shock to the market. Let me explain what that means. Right now, it's something you can't even imagine, but at that time, the inflation target was set at 2%. For the past 10 years, inflation had been consistently below that target, with no signs of rising. So, honestly, these days, when you invest in stocks, you pay a lot of attention to the CPI, right? Back then, we didn't look at it because inflation was always stable. So, you absolutely cannot understand this now, but at that time, there were even discussions like, Oh, we should stop fighting deflation and instead, we should wage a war against deflation. It’s hard to grasp, right? This was just four years ago. The talk about needing to wage a war against deflation was so prevalent that I believe it was then that President Williams made that statement.

He also expressed this: Ah, inflation, we have been fighting against it for 30 years, but it seems like there is no inflation. Isn't it just a ghost of inflation? Can't we do without it? Let's stop fighting and fight against deflation instead. This was the extent of the conversation. Given this context, Powell introduced the average inflation targeting framework, so let's take a look at what this means. In other words, at that time, there was a belief that there were severe deflationary pressures due to COVID-19, which is why interest rates were low and quantitative easing was continuously implemented. As a result, it seemed like prices were going to rise a bit. So, when they did rise, they said, No, no, no. Just because it increased by 2%, we are not going to raise interest rates again. We will consider the average from here to there. This means that the performance during this period is...

There were some bad apples, so even when we averaged in those with poor grades, it still exceeded 2%. Then we talked about tightening measures and aimed for an average inflation target. What was the result? As you well know, inflation didn't just hit 2%; it skyrocketed to 99%. During this time, Powell received a lot of criticism. People were asking, What is going on? You said inflation was temporary, so what is this? He faced a lot of backlash. However, from an investment perspective, this situation provided a great investment opportunity. This is because the Federal Reserve indicated that they would likely not tighten monetary policy. That's why I was genuinely excited and said we should buy stocks at that time. So, you can see the reason behind that. Anyway, these events took place in August 2020.

If it had been two years later, we would have seen a completely changed situation. Let's talk about what was said in August 2022. There was a specific expression used: stay at it. This means to endure or to hold on. You may remember the former Federal Reserve Chairman Paul Volcker from the 1980s. He used this expression while fishing near Jackson Hole, saying that if you want to catch a big fish, you need to wait and be patient. 

In 1979, Volcker faced an interest rate of 11.5%. He raised it to over 20%. So, think about it: with a benchmark interest rate exceeding 20%, the market interest rates would have been around 30%, and inflation was at 10%. It was complete chaos.

그때였고요. 이렇다 보니까 볼커에 대한 비판 여론이 정말 장난이 아니었습니다. 너 때문에 나 다 죽겠다. 너 때문에 나 회사가 찔렸고, 나 때문에 농사도 안 되고, 나 지금 막 물건도 안 팔리고, 나 죽겠다. 그러면서 볼커에게 금리 좀 그만 올려라. 나 죽겠다, 나 죽겠어.라고 하면서 난리가 났었는데, 볼커 의장은 그때 뭐라고 얘기했냐면 Keep at it. 그래서 인플레이션을 잡아야 돼.라고 얘기를 했다는 거죠. 그러니까 이 얘기를 파월이 했습니다. 제가 웃는 이유가 뭐냐면, 저 불과 2년 전에 Keep it 해놓고, 잠깐만 2년 후에 Keep it 이렇게 얘기했는데, 이것도 정말 웃겼던 게 이때 당시 파월 의장의 그 연설은 5분 스피치가 있었어요. 무슨 말이냐면 그 전에는 파월이 잠깐만.

If I say this, you might think, Oh, that's not it. No, that's not it. Oh, this is not it either. Ah, really, I need to explain this in detail. Powell at the Jackson Hole meeting, just like we are waiting for Jackson now, we were waiting for Jackson back then too. He just spoke for five minutes and said, Keep at it. When we asked questions, he just said, Keep at it, and walked out. His serious expression when he left caused the stock market to drop by 3%, and it was quite chaotic. I really remember feeling frustrated about that.

Now, when you look at the chart, what do you think? In August 2020, inflation was driven up by AI, and in 2020, he showed a strong will to control inflation while talking about taking action. It’s been a back-and-forth situation.

It seems that the key point to observe is whether this person can indeed be inducted into the Hall of Fame. In that context, the core issue will be what Powell will say at the Jackson meeting coming up in two days in August 2024. According to an article by Nick Timiraos, it seems that he will express a somewhat conservative opinion regarding the U.S. economy. However, the market's current focus is not on inflation but rather on the unemployment rate. Therefore, it is crucial to discuss what he will say about the unemployment rate. I would like to delve into this topic in detail today. Recently, I have a friend who is like a brother to me, named Goolsbee. He is really the kind of person among the Federal Reserve members who warmly embraces those of us who invest in stocks, so I consider him my brother. He recently said that the experiment is...

This is how it works: it rises like a rocket and then falls like a feather. This means that when the unemployment rate goes up, it does so at a very fast pace, like a rocket. So, the unemployment rate might be at a certain level right now, but we need to be alert and quickly lower interest rates. What are we even talking about? What I want to emphasize is that the unemployment rate tends to rise rapidly once it surpasses a certain level. If you think about it intuitively, it goes like this: if the boss next to you lays off employees, you might think, Oh, should I lay someone off too? This kind of contagion leads to a very rapid increase in layoffs, which seriously cools down the economy. So, what are we going to say about the U.S. economy?

This is very important. Regarding the unemployment rate, the unemployment rate announced last month was 4.3%, which has brought a lot of attention to the so-called shop rule. It was said that if the unemployment rate rises more than 0.5% above the existing average data, it indicates a recession. There have been various discussions about the reliability of this indicator, and many of you may have heard that we shouldn't pay attention to it because it is a lagging indicator. While watching that video, I noticed that Kyung-hwan Ma, who runs a YouTube channel, mentioned that we should look at something other than the shop rule. The name of that rule is the Josh rule. To understand this rule, you need to know that there are two types of unemployment rates: good unemployment and bad unemployment. You should be aware that there is a distinction between the two. However, the good unemployment rate...

You may not understand what it means to have both good and bad unemployment rates. The unemployment rate refers to the proportion of people who want to work but cannot find a job among those who have raised their hands to say, I want to work. Therefore, there are good unemployment rates and bad unemployment rates. First, let me explain bad unemployment rates. Bad unemployment rates refer to people who want to work but cannot find a job; in other words, these are individuals who were previously employed but have been laid off. As the number of people being laid off increases, the unemployment rate rises. 

There is also a good unemployment rate. This good unemployment rate is a bit complex to think about because it is influenced by various factors simultaneously. You might wonder where the good unemployment rates come from. Let me illustrate this with a diagram. Let's consider a scenario where there are 50 people who want to work.

There is a world where five people are unable to work, resulting in an unemployment rate of 10%. Initially, the number of people wanting to work increases significantly. So, let's say this number reaches 100. Among the 50 new entrants, 15 people are unable to find jobs. Therefore, with the five original individuals and the 15 new ones who can't find work, we have a total of 100 people, out of which 20 are unemployed. This leads to an unemployment rate of 20%. In other words, when new individuals who want to work enter the market and are unable to find jobs, it causes an increase in the unemployment rate. The rise in unemployment here is not due to layoffs but rather represents a positive increase in unemployment. To understand this situation, it is important to analyze whether it is a good or bad experiment, rather than just focusing on the good unemployment rate.

We need to check how the bad unemployment rate is moving in order to make accurate predictions. This was mentioned by Mr. Park Young-hwan on his YouTube channel, so I encourage you to take a look at the details there. In conclusion, when it comes to the sharp rule, there is no predictability. However, whether we look at it from the perspective of bad unemployment rates or overall conditions, the current situation is not good. Based on this criterion, we can summarize that the economic situation is unfavorable, so we need to be cautious.

Now, with the Jackson Hole meeting approaching, let's consider what would be the best scenario for Powell's statements at this meeting. First, I think he should evaluate the economy as moderately unfavorable. The challenge with saying moderately is that if he states it's too bad, the stock prices will drop.

We need to clearly state that the economy is not doing well because if we say too many positive things, people might think interest rates won't go down. There are various issues, including unemployment rates, that indicate the economy is struggling. I believe we should emphasize the possibility of a 25 basis point rate cut rather than a 50 basis point cut, which I think is nearly impossible at this point. It's important to reassure the members of the National Assembly about this possibility. Lastly, we need to show a clear willingness to cut rates so that we can remain somewhat free from political influence. It is essential to send a strong signal that while the economy is not currently in a bad state, there is a possibility it could worsen, which necessitates a rate cut. Conversely, I think the stock market might be negatively affected if we continue to discuss the economy in a negative light.

I think it's a situation where we can't say things are too bad. Therefore, we need to ensure that concerns about an economic recession do not grow again, even though the economy is not doing well. This is why we need to lower interest rates. Powell has stated that regardless of who it is, he will make decisions about interest rates without political influence. In the past, there was some inconsistency, but he is now saying this, and I hope that the day will come when Chairman Powell is inducted into the Hall of Fame. Let's not do that. Today, we talked about the Jackson Hole meeting, and I hope you found it interesting. In fact, there have been many ups and downs within this context. I hope this Jackson Hole meeting will be a positive event, and I will take my leave here. This has been Kwon Ha.

[그냥효] 세계 경제의 운명이 내일밤 결정됩니다.

효친님들을 위한 바이사이드 애널리스트 이효석 매니지스트입니다. 
운용 경험을 살려서 변화된 세상에서 생존을 위한 투자전략을 리서치하고 있습니다.
비즈니스/광고/협업 문의 : contact@hs-academy.kr


[그냥효] 세계 경제의 운명이 내일밤 결정됩니다.

Scripts