Fire Hydrant of Freedom
Politics, Religion, Science, Culture and Humanities => Politics & Religion => Topic started by: Crafty_Dog on October 17, 2006, 10:33:13 AM
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The Curse of Voinovich
Even if Republicans hold the Senate, the Bush tax cuts could be in trouble. If the GOP loses two to five seats, its majorities on key committees are almost certain to shrink. The biggest problem is the Senate Finance Committee -- the tax writing committee of the upper chamber. Right now, Republicans enjoy an 11 to 9 majority on the committee. That will shrink probably to 11 to 10 or 10 to 9 if Republicans lose Senate seats in November.
Here's the problem: Bill Frist is retiring and this leaves an opening on this coveted committee and next in line in terms of seniority is Ohio Republican George Voinovich. But Mr. Voinovich may be the least reliable Republican on tax votes and if he's not the worst, he's definitely in the Bottom Three. Mr. Voinovich opposed death tax repeal this year, one of only three GOP defections. He has even said that he might support a higher estate tax. Mr. Voinovich has also been wishy-washy on investment tax cuts, arguing that deficit reduction should take top priority. Says one GOP Senate staffer: "We Republicans could lose effective control of the committee with Voinovich added."
The GOP already has a problem child on the committee in Olympia Snowe of Maine. She votes often with the Democrats and has little sympathy for the supply-side agenda. In 2003, she was one of three Republicans to vote against the Bush tax cuts in the Senate.
Adding Sen. Voinovich could mean Republicans would have little chance to make the Bush tax cuts permanent -- one of the GOP's key 2007-08 agenda items. One saving grace might be that any new committee appointments will likely be decided by the new Senate Majority Leader, who almost certainly will be Mitch McConnell. Sen. McConnell could brush aside the seniority courtesy and choose a reliable supply-sider and avoid all these problems. That might be his first big test as the new chief cat herder of the Senate -- assuming it remains under GOP control.
Opinion Journal (WSJ) Political Diary
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Woof crafty,
Permanent tax cuts are DOA because even if the Republicans do not lose control of either house of Congress, they still will not have 60 votes in the Senate for cloture. There will be a lot of capital gains realization in 2007 and 2008 as many investors opt to pay the 15% tax rate ahead of possible rate hikes if the Dems control Congress and the White House. Coupled with the projected decrease in corporate profits in the second half of next year, the likely increase in selling pressure on all asset classes, stocks, real estate and commodities, increases the risk of negative economic and investment data. Also, it will create another spike in Treasury revenues that will give the 2009 Congress the incentive to spend even more.
rickn
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Delighted to have you with us Rick!
Your assessment seems quite sound to me.
With the apparent victories of the Dems looming, why is the market so sanguine?
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The triumph of the dems isn't near as close as they think it is. We'll see very soon, but the buzz we're hearing is more wishful thinking rather than solid analysis IMHO. I'm going to predict that the republicans will lose seats, but will retain majority in both the house and senate.
Now i'm crossing my fingers! :-o
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craftydog -
The markets are sanguine because they view the worst case situation as gridlock. That is not very much different than now for taxes.
I like your new improved forum.
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Please note that this subject is now on the other sub-forum.
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Well, so much for my predictive ability...... :cry:
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Goldman Sachs Loses Grip on Its Doomsday Machine
Commentary by Jonathan Weil
July 9 (Bloomberg) -- Never let it be said that the Justice Department can’t move quickly when it gets a hot tip about an alleged crime at a Wall Street bank. It does help, though, if the party doing the complaining is the bank itself, and not merely an aggrieved customer.
Another plus is if the bank tells the feds the security of the U.S. financial markets is at stake. This brings us to the strange tale of Goldman Sachs Group Inc. and Sergey Aleynikov.
Aleynikov, 39, is the former Goldman computer programmer who was arrested on theft charges July 3 as he stepped off a flight at Liberty International Airport in Newark, New Jersey. That was two days after Goldman told the government he had stolen its secret, rapid-fire, stock- and commodities-trading software in early June during his last week as a Goldman employee. Prosecutors say Aleynikov uploaded the program code to an unidentified Web site server in Germany.
It wasn’t just Goldman that faced imminent harm if Aleynikov were to be released, Assistant U.S. Attorney Joseph Facciponti told a federal magistrate judge at his July 4 bail hearing in New York. The 34-year-old prosecutor also dropped this bombshell: “The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways.”
How could somebody do this? The precise answer isn’t obvious -- we’re talking about a black-box trading system here. And Facciponti didn’t elaborate. You don’t need a Goldman Sachs doomsday machine to manipulate markets, of course. A false rumor expertly planted using an ordinary telephone often will do just fine. In any event, the judge rejected Facciponti’s argument that Aleynikov posed a danger to the community, and ruled he could go free on $750,000 bail. He was released July 6.
Market Manipulation
All this leaves us to wonder: Did Goldman really tell the government its high-speed, high-volume, algorithmic-trading program can be used to manipulate markets in unfair ways, as Facciponti said? And shouldn’t Goldman’s bosses be worried this revelation may cause lots of people to start hypothesizing aloud about whether Goldman itself might misuse this program?
Here’s some of what we do know. Aleynikov, a citizen of the U.S. and Russia, left his $400,000-a-year salary at Goldman for a chance to triple his pay at a start-up firm in Chicago co- founded by Misha Malyshev, a former Citadel Investment Group LLC trader. Malyshev, who oversaw high-frequency trading at Citadel, said his firm, Teza Technologies LLC, first learned about the alleged theft July 5 and suspended Aleynikov without pay.
‘Preposterous’ Charges
Aleynikov’s attorney, Sabrina Shroff, told the judge at the bail hearing that Aleynikov never intended to use the downloaded material “in any proprietary way” and that the government’s charges were “preposterous.”
Goldman isn’t commenting publicly about any of this, though it seems the bank’s bosses want us to believe there’s no need to worry. On July 6, Dow Jones Newswires quoted a “person familiar with the matter” saying this: “The theft has had no impact on our clients and no impact on our business.” Note that this person was so familiar with Goldman that he or she spoke of Goldman’s clients as “our clients” and Goldman’s business as “our business.”
By comparison, last Saturday, while most Americans were enjoying the Fourth of July holiday, Facciponti was in court warning of looming threats to Goldman and the financial markets.
“The copy in Germany is still out there,” the prosecutor said, according to an audio recording of the hearing. “And we at this time do not know who else has access to it and what’s going to happen to that software.”
Secret Software
“We believe that if the defendant is at liberty, there is a substantial danger that he will obtain access to that software and send it on to whoever may need it,” Facciponti said. “And keep in mind, this is worth millions of dollars.”
By “millions,” it’s unclear if that would be enough to match Goldman Chief Executive Lloyd Blankfein’s $70.3 million compensation package for 2007. Or perhaps millions means thousands of millions, otherwise known as billions.
Facciponti said the bank told the government that “they do not believe that any steps they can take would mitigate the danger of this program being released.” He added: “Once it is out there, anybody will be able to use this, and their market share will be adversely affected.” All Aleynikov would need to get the code from the German server is maybe 10 minutes with a cell phone and an Internet connection, Facciponti said.
Judge’s Ruling
The hole in Facciponti’s argument was that the government offered no evidence that Aleynikov had tried to disseminate the software during the month prior to his arrest, after he downloaded it and had left his job at Goldman. That’s the main reason the judge, Kevin N. Fox, cited in ruling Aleynikov could be released on bail.
“We don’t deal with speculation when we come to court,” Fox said. “We deal with facts.”
Meantime, it would be nice to see someone at Goldman go on the record to explain what’s stopping the world’s most powerful investment bank from using its trading program in unfair ways, too. Oh yes, and could the bank be a bit more careful about safeguarding its trading programs from now on? Hopefully the government is asking the same questions already.
(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)
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I just posted two important articles on the P&R thread "political economics" each of which makes a strong prima facie argument that CA and the US are already bankrupt.
IF we assume that a major spike in interest rates is coming, what investments will be helped? hurt? Anyone remember what happened during the Volcker interest spike of the late 70s-early 80s?
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Gold and silver and investments outside the US. Obama is going to kill the dollar off.
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Said with love, but aren't you (and I) the fellow(s) who predicted here some months ago that the DOW would hit 6,000? :lol:
That said, you may be entirely right. OTOH, I remember the vicious collapse of gold in the late 70s when interest rates sky-rocketed-- and IMHO a REAL good case can be made that such will be the case REAL soon, with a speed and viciousness that will leave non-pros like you and me in the dust.
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Yes, I am that guy. :-(
However, I will point out that there has been a substantial amount of market manipulation to inflate things beyond their actual value, yes?
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This is likely the wrong place to post this link, but it's the most appropriate I could find. It's a long piece about a gent who got in way over his head and hence started dealing with a lot of collection agencies. He's turned the experiecne into a profitable one by suing the agencies and winning. I've mixed emotions about this, having loathed the collectors I dealt with when contending with an ex's debt, though I also think this guy is something of a deadbeat. Story here:
http://www.dallasobserver.com/2010-01-21/news/better-off-deadbeat-craig-cunningham-has-a-simple-solution-for-getting-bill-collectors-off-his-back-he-sues-them/
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Yeah they guy is hiding behind the law for his debts. He is also doing a service tho', some of those debt collectors can be over the top. I had a simple debt for breaking a lease on an apartment- I gave the company my contact information so we could settle if there were issues. The first I knew there were any issues is when 2 months later I got my first phone call, it was not pleasant, and since I thought things were settled.......
About 6 months later the dust settled and I did walk away with enough money to cover the legal expenses, after I paid the debt. I learned a lot about the debt collection business, and the other connected legalities, and I never had any intent to default...........
There is so much about society today that is all about PREVENTION that ends up creating more problems than just dealing with things when they HAPPEN. Gun Laws, Airport Security, Loss Prevention, Anti-Virus, Police Curbside Manner.............
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By BRETT ARENDS
The Dow Jones Industrial Average last week ended up pretty much where it had been a little more than a week earlier. A rousing 200-point rally on Wednesday mostly made up for the distressing 200-point selloff of the previous Friday.
The Dow plummeted nearly 800 points a few weeks ago -- and then just as dramatically rocketed back up again. The widely watched market indicator is down 7% from where it stood in April and up 59% from where it was at its 2009 nadir.
These kinds of stomach-churning swings are testing investors' nerves once again. You may already feel shattered from the events of 2008-2009. Since the Greek debt crisis in the spring, turmoil has been back in the markets.
At times like this, your broker or financial adviser may offer words of wisdom or advice. There are standard calming phrases you will hear over and over again. But how true are they? Here are 10 that need extra scrutiny.
1 "This is a good time to invest in the stock market."
Really? Ask your broker when he warned clients that it was a bad time to invest. October 2007? February 2000? A broken watch tells the right time twice a day, but that's no reason to wear one. Or as someone once said, asking a broker if this is a good time to invest in the stock market is like asking a barber if you need a haircut. "Certainly, sir -- step this way!"
2 "Stocks on average make you about 10% a year."
Stop right there. This is based on some past history -- stretching back to the 1800s -- and it's full of holes.
About three of those percentage points were only from inflation. The other 7% may not be reliable either. The data from the 19th century are suspect; the global picture from the 20th century is complex. Experts suggest 5% may be more typical. And stocks only produce average returns if you buy them at average valuations. If you buy them when they're expensive, you do a lot worse.
3 "Our economists are forecasting..."
Hold it. Ask your broker if the firm's economist predicted the most recent recession -- and if so, when.
The record for economic forecasts is not impressive. Even into 2008 many economists were still denying that a recession was on the way. The usual shtick is to predict "a slowdown, but not a recession." That way they have an escape clause, no matter what happens. Warren Buffett once said forecasters made fortune tellers look good.
4 "Investing in the stock market lets you participate in the growth of the economy."
Tell that to the Japanese. Since 1989 their economy has grown by more than a quarter, but the stock market is down more than three quarters. Or tell that to anyone who invested in Wall Street a decade ago. And such instances aren't as rare as you've been told. In 1969, the U.S. gross domestic product was about $1 trillion, and the Dow Jones Industrial Average was at about 1000. Thirteen years later, the U.S. economy had grown to $3.3 trillion. The Dow? About 1000.
5 "If you want to earn higher returns, you have to take more risk."
This must come as a surprise to Mr. Buffett, who prefers investing in boring companies and boring industries. Over the last quarter century, the FactSet Research utilities index has even outperformed the exciting, "risky" Nasdaq Composite index. The only way to earn higher returns is to buy stocks cheap in relation to their future cash flows. As for "risk," your broker probably thinks that's "volatility," which typically just means price ups and downs. But you and your Aunt Sally know that risk is really the possibility of losing principal.
6 "The market's really cheap right now. The P/E is only about 13."
The widely quoted price/earnings (PE) ratio, which compares share prices to annual after-tax earnings, can be misleading. That's because earnings are so volatile -- they're elevated in a boom, and depressed in a bust.
Ask your broker about other valuation metrics, like the dividend yield, which looks at the dividends you get for each dollar of investment; or the cyclically adjusted PE ratio, which compares share prices to earnings over the past 10 years; or "Tobin's q," which compares share prices to the actual replacement cost of company assets. No metric is perfect, but these three have good track records. Right now all three say the stock market's pretty expensive, not cheap.
7 "You can't time the market."
This hoary old chestnut keeps the clients fully invested. Certainly it's a fool's errand to try to catch the market's twists and turns. But that doesn't mean you have to suspend judgment about overall valuations.
If you invest in shares when they're cheap compared to cash flows and assets -- typically this happens when everyone else is gloomy -- you will usually do very well.
If you invest when shares are very expensive -- such as when everyone else is absurdly bullish -- you will probably do badly.
8 "We recommend a diversified portfolio of mutual funds."
If your broker means you should diversify across things like cash, bonds, stocks, alternative strategies, commodities and precious metals, then that's good advice.
But too many brokers mean mutual funds with different names and "styles" like large-cap value, small-cap growth, midcap blend, international small-cap value, and so on. These are marketing gimmicks. There is, for example, no such thing as "midcap blend." These funds are typically 100% invested all the time, and all in stocks. In this global economy even "international" offers less diversification than it did, because everything's getting tied together.
9 "This is a stock picker's market."
What? Every market seems to be defined as a "stock picker's market," yet for most people the lion's share of investment returns -- for good or ill -- has typically come from the asset classes (see No. 8, above) they've chosen rather than the individual investments. And even if this does turn out to be a stock picker's market, what makes you think your broker is the stock picker in question?
10 "Stocks outperform over the long term."
Define the long term? If you can be down for 10 or more years, exactly how much help is that? As John Maynard Keynes, the economist, once said: "In the long run we are all dead."
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The 10 myths are excellent. I have become pro-mutual funds, but buying 2 or 3 similar ones is not diversification. A couple of thoughts on the topics:
We live in a debt society now. Your total savings for rainy day 'is now called 'available credit'. Tucking money away is when you buy down your debt, high interest first. Making a bold move toward security is to max up those equity credit lines while you can. I can't imagine tucking money away intentionally in a bank at 1% when you expect inflation to be 3% going possibly to the mid-teens.
My grandpa said about business, don't take on partners. The stock is a share of ownership but you share that ownership with fickle people that lean with the wind regarding their ownership and with people who buy and sell in the millisecond with realtime computer programs - not exactly teammates. I used to chase after the individual stocks. Now I would say invest in your own business if you can, where you have some control over it, or pick out a fund from a place like T Rowe Price (troweprice.com) where you can get any fraction of it in or out any day without a direct fee and yet can participate in the market with at least some level of professional management. (MHO)
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My father always told me "Keep you nut low son."
By "nut" he meant the money that had to be paid out every month regardless of how much you had coming in e.g. mortgage/rent, insurance, etc the idea being to facilitate riding out tough times.
Similarly Glenn Beck is strongly advocating self-reliance e.g. ability to grow one's own food.
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Brian Wesbury is an outstanding economist (supply side school) with a superb track record, which is why i post the following although I find it to be remarkably glib:
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Unfunded Liabilities And Cheap Stocks
Brian S. Wesbury and Robert Stein
Despite cries of "uncertainty" that reverberate through the financial markets, U.S. equities remain grossly undervalued. Risk premiums are exceedingly high. Too high!
In total, S&P 500 companies reported after-tax annualized earnings of $716 billion in the second quarter and had a market capitalization of $9.3 trillion. In other words, for every $100 in market value, the companies in the S&P 500 were generating $7.70 in after-tax profits--an "earnings yield" of 7.7%.
Comparing that earnings yield to the 10-year Treasury yield (currently 2.8%) reveals a gap of nearly five percentage points, the largest such gap since the late 1970s. And with profits expected to continue their upward climb, this gap is highly likely to increase even more in the next few quarters.
Relative to bonds, stocks are undervalued by a considerable margin. So what's holding investors back? Why are bond flows continuing to outpace equity flows?
One reason is fear of government spending. Current deficits and future deficits related to Social Security and Medicare are one reason. Every dollar the government spends must eventually be paid for by taxpayers. If these higher future taxes confiscate enough corporate profits, then the market will reflect that fact today with lower prices. So is the market discounting these costs accurately? Let's crunch the numbers.
The Trustees report for Social Security and Medicare estimates the present value of all unfunded entitlement benefits are roughly $50 trillion. On the same present value basis, this is equal to 3.8% of future GDP. In other words, rather than taxing 19% of GDP (as the Congressional Budget Office predicts for 2012-'13), total tax revenue would need to climb to 22.8% of GDP--an increase in tax revenues of 20% from everyone and everything that the federal government already taxes. In other words, a 10% tax rate will need to rise to 12%.
Of course everyone realizes that a 20% tax hike would never generate 20% more revenue. A dynamic model would forecast slower economic growth and more unemployment if the government hiked taxes by this much. This is why some are advocating benefit cuts. But, for our purpose here (analyzing the impact of paying for unfunded liabilities) we assume tax hikes are the only method used.
A 20% increase in corporate taxes as well as taxes on capital gains and dividends, would reduce total returns to shareholders by roughly 11%. This would reduce the earnings yield (currently 7.7%) to about 6.9%--more than 4 percentage points above current 10-year Treasury yields.
Don't take this the wrong way. We are certainly not advocating a massive tax hike to fix Social Security and Medicare. Raising tax rates will hurt the economy. Moving to private accounts would be our preferred solution. But the current level of fear about the costs of fixing these entitlement problems is out of proportion to reality. Things are far from perfect, but the stock market is grossly undervalued.
Brian S. Wesbury is chief economist and Robert Stein senior economist at First Trust Advisors in Wheaton, Ill. They write a weekly column for Forbes. Wesbury is the author of It's Not As Bad As You Think: Why Capitalism Trumps Fear and the Economy Will Thrive.
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It is hard to overstate how clueless and deranged some of the ideas being considered are. Note the ominous implications of the last paragraph-- is a stampede for the exits already in the pipeline?
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By SUDEEP REDDY
The Federal Reserve spent the past three decades getting inflation low and keeping it there. But as the U.S. economy struggles and flirts with the prospect of deflation, some central bank officials are publicly broaching a controversial idea: lifting inflation above the Fed's informal target.
The rationale is that getting inflation up even temporarily would push "real" interest rates—nominal rates minus inflation—down, encouraging consumers and businesses to save less and to spend or invest more.
Both inside and outside the Fed, though, such an approach is controversial. It could undermine the anti-inflation credibility the Fed won three decades ago by raising interest rates to double-digits to beat back late-1970s price surges. "It's a big mistake," said Allan Meltzer of Carnegie Mellon University, a central bank historian. "Higher inflation is not going to solve our problem. Any gain from that experience would be temporary," adding that the economy would suffer later.
Others warn that pushing inflation higher than the target could create public confusion and risk fueling financial bubbles and market instability. They say Fed policy already is weakening the dollar and as a result prompting a gold and commodity boom. "The Fed is treading upon a mine-laden path that has never been tip-toed through in this country," said Andrew Busch, a currency strategist at BMO Capital Markets.
With the Fed's target for short-term rates already near zero, inflation too low—floating between 1% and 1.5%, below Fed officials' informal target of between 1.5% to 2%—and unemployment, at 9.6%, too high, Fed officials are expected to embark on a new round of asset purchases to lower long-term interest rates.
In the past week, two Fed officials raised the option of explicitly pursuing above-target inflation for a time to offset periods in which inflation is below target. New York Fed President William Dudley suggested that if inflation were to undershoot the central bank's target by half a percentage point next year, the Fed could offset the miss with an additional half-point increase later on.
And, in an interview, Chicago Fed Charles Evans said, "It seems to me if we could somehow get lower real interest rates so that the amount of excess savings that is taking place relative to investment needs is lowered, that would be one channel for stimulating the economy."
Officials outside the Fed have proposed using higher inflation to get real interest rates down. Earlier this year, International Monetary Fund chief economist Olivier Blanchard suggested that nations doubling their inflation target to 4% from 2% wouldn't be risky.
Such a move could provide more room to support the economy at a time when central banks have cut short-term interest rates nearly to zero but still face weak economies, a scenario Japan has faced since the 1990s and the U.S. is confronting now. Axel Weber, head of the Deutsche Bundesbank, and Philipp Hildebrand of the Swiss National Bank called the proposal "severely flawed."
In a speech in 2003 when he was a Fed governor, Fed Chairman Ben Bernanke suggested that Japan attack prolonged deflation by announcing its goal of restoring the price level to the level it would've reached under moderate inflation. That approach, he explained, would lead initially to a "reflationary phase of policy" to bring prices back up to what would've been expected before the deflation.
But in a speech this summer, Mr. Bernanke said that raising medium-term inflation goals would amount to a "drastic" measure that's inappropriate for the U.S. economy. "Raising the inflation objective would likely entail much greater costs than benefits," he said. Inflation would be more volatile, bring more uncertainty and possibly create destabilizing moves in commodity and currency markets that "would likely overwhelm any benefits arising from this strategy," Mr. Bernanke said.
Mr. Dudley and Mr. Evans, however, are making a slightly different argument: They would leave the informal inflation target unchanged, but overshoot it for a time to compensate for the current undershoot.
Some economists question whether the Fed has the power to push inflation higher in today's weak economy. "Inflation expectations are not just pulled out of thin air," said William Poole, former president of the Federal Reserve Bank of St. Louis. "The time when the Fed would have a good chance of hitting a higher inflation target is exactly the time when it would not make sense to do so."
Ethan Harris, head of North American economics at Bank of America Merrill Lynch, suspects Fed officials raising this possibility are, in part, trying to push their colleagues toward more stimulative policy and reassure the public and markets that they still have the capacity to keep the economy away from the shoals of deflation and renewed recession. "I think they're worried about the perception that the Fed is out of ammunition, which is a very dangerous perception for the markets and the economy," he said.
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When the collapse comes, it'll happen faster than most imagine possible. If I owned a home in SoCal, I'd see it for whatever I could get for it and get out now.....
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Inflation on purpose? Along with a very nice luxury of so far having our debt in our own currency, we also have the power to devalue/erase our nominal obligations, in the tens of trillions... except for that the fact that it might be a violation of the oath to uphold the constitution including 'the validity of the public debt'.
I have searched and not found the exact wording of the oath of office that some of these people take, particularly Federal Reserve Chair and Governors. It is a well known fact (I think) that about 1% inflation is intentional because of deflationary fears which is why I don't think 2 or 3% is so bad with so many other factors so far out of whack, like budget, trade and employment. Still, any intentional inflation I would think is a violation of the oath of office for any public official involved.
Further I would ask, what business is it of your government to meddle in the decisions you make of whether to spend, save or invest with your after tax money in a free society?
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Doug,
Concerns about oaths of office, the constitution and free markets are soooooo pre-1/2009. Obama promised to fundamentally transform the country, this is it. Enjoy!
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GM, As a foreclosure buyer and one who rents to people on unemployment and welfare, I am in the exuberance phase of Pelosi-Obama enjoyment. I'm not sure how much more of this fun I can take.
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Doug,
As a foreclosure buyer, what happens if the real estate market never comes back? It's my opinion that indeed we are no where near the market floor, and that once the floor is found, the market will remain there for decades to come.
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Federal Reserve Chairman Ben Bernanke is a student of monetary history, so perhaps he remembers Sumner Slichter. In the 1950s, the Harvard economist made his reputation as the leader of an intellectual band that Time magazine dubbed the "limited inflationists"—the idea that some inflation was good for an economy, and that the Fed should encourage a gradual rise in prices.
In a hearing on Capitol Hill, his views drew a famous rebuke from Fed Chairman William McChesney Martin, but Slichter's ideas gained currency in the 1950s and 1960s and eventually laid the groundwork for the not-so-gradual inflation of the 1970s.
Slichter died in 1959, but he is staging a rebirth at none other than Martin's former home, the Federal Reserve. A galaxy of Fed officials has fanned out to argue for another round of "quantitative easing," or a further expansion of the Fed balance sheet to boost the economy. The "limited inflationists" are once again at America's monetary helm, promising happier days from rising prices while downplaying the costs and risks.
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.In the first QE go-around in spring 2009, financial panic was still in the air and the Fed's justification was to save us from Depression. Today, the panic is over and an economic recovery is underway. So the Fed's new justification is that growth is still too slow, unemployment is still too high and prices aren't rising fast enough.
The Fed's Open Market Committee hinted at the inflation-is-too-low argument in its statement after its September meeting, noting that "Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability."
Last week, Chicago Fed President Charles Evans went further and put a specific number on it—inflation below 2% a year is undesirable. He was joined in his case for easier money by the New York and Boston Fed Presidents, among others. The clear message is that a Fed majority has come down on the side of QE2, and markets have concluded that the central bank will return as early as November to buying hundreds of billions of dollars of assets to ensure what Mr. Evans called a need for "negative interest rates." Sumner Slichter rides again.
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We hope this experiment in re-inflating the economy works better this time, but mark us down as skeptical. There is no such thing as free money, and a second round of QE carries enormous risks for what looks to us like far too little benefit.
The theory of QE2 is that by buying Treasurys and other assets, the Fed help drive long-term interest rates down even lower than they are already. This in turn will spur more private lending and borrowing and kick-start faster growth. But we're told the Fed's own internal models suggest that a purchase of $500 billion in Treasurys would only reduce the 10-year bond by something like 15 basis points. (The 10-year yield is now 2.38%.) This in turn would increase GDP by 0.2% a year and cut the jobless rate by 0.2%. That's not much bang for a lot of bucks.
The case for QE2 assumes that the problem with the economy is merely a lack of money. But trillions of dollars are already sitting unused on bank and corporate balance sheets. The real problem isn't lack of capital but a capital strike, as businesses refuse to take risks or hire new workers thanks to uncertainty over government policy, including higher taxes and regulatory burdens. More Fed easing in this environment risks "pushing on a string," adding money to little economic effect.
Meanwhile, the costs of QE2 would be real and significant. With Congress spending as much as ever, the Fed would appear to be financing a spendthrift government almost on a dollar-for-dollar basis. This would make it even harder, and take even longer, for the Fed to extricate itself from the market for Treasurys and mortgage securities once it decided to do so. And by firing all of its ammo now amid a recovery, what would the Fed have left if we get another financial panic?
By keeping interest rates artificially low, the Fed is also contributing to a misallocation of capital and perhaps new asset bubbles. Messrs. Bernanke and Evans say they see no signs of inflation, as measured by the lagging indicator of the consumer price index.
But investors are having no trouble bidding up the price of commodities, including oil and gold. A rising price of oil will have its own negative impact on growth, as we know from the experience of $147 oil in mid-2008. A commodity price spike might well erase any benefit from the expected decline of 15 basis points in long-term bond yields.
As the protector of the world's reserve currency, the Fed also risks more global monetary disruption. The mere anticipation of QE2 has already caused Japan to pursue its own purchases of exotic assets, while Britain may do the same, as they and other countries try to avoid sharp rises in their currencies against the dollar. The European Central Bank may well have to follow, as the entire world adopts the "limited inflation" philosophy. In such a world, it's hardly surprising that gold has climbed in price against all major fiat currencies as a remaining store of value.
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With such a cost-benefit calculus, why is the Bernanke Fed still plowing ahead with QE2? Our worry is that the motivation is mainly political.
The Board of Governors and Open Market Committee are now dominated by President Obama's appointees and intellectual allies. They know that their great experiment in spending stimulus has failed to spur a durable expansion, and so they are turning in unquiet desperation to the only tool they have left—monetary easing—to rescue their policy. For them, the risks of slow growth and a 9% jobless rate going into 2012 are worse than the danger of asset bubbles or a new burst of inflation.
Which brings us back to Sumner Slichter and the limited inflationists. Amid the political and media interest in their ideas, Fed Chairman Martin appeared before the Senate Finance Committee. "There is no validity whatever in the idea that any inflation, once accepted, can be confined to moderate proportions," the father of the modern Fed thundered, in a warning that would be vindicated after his retirement in 1970. That's a warning as well for the QE Street Band.
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Let's review some of these posts. At the end of July, the WSJ article said:
"The market's really cheap right now. The P/E is only about 13...
Ask your broker about other valuation metrics...No metric is perfect, but these three have good track records. Right now all three say the stock market's pretty expensive, not cheap."
But in mid September, a supply side economist said "Despite cries of "uncertainty" that reverberate through the financial markets, U.S. equities remain grossly undervalued. Risk premiums are exceedingly high. Too high!"
So how do we determine who is right?
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He who makes the most money? :lol:
The Ride of the Keynesian Cowboys
by John Mauldin
October 8, 2010
To ease or not to ease? That is the question we will take up this week. And if we do get another round of quantitative easing (QE2), will it make any difference? As I asked last week, what if they threw an inflation party and no one came? We will take as our launching pad today's unemployment numbers, which serve to demonstrate just why the Fed may in fact be ready for some monetary shock and awe.
Teachers Don't Count?
As the jobs report came out a number of headlines trumpeted the "strong" private-sector job growth of 64,000 jobs, trying to soften the overall loss of 95,000 jobs. If you exclude the loss of census workers, the job losses were "only" 18,000. However, for the first time since December of last year, we lost jobs in a month. That is not the right direction.
"Moreover, when you adjust for the slide in the participation rate this cycle, the byproduct of a record number of discouraged workers withdrawing from their job search, the unemployment rate is actually closer to 12% than the 9.6% official posted rate in September, which masks the massive degree of labour market slack in the system. This is underscored by the broad U6 jobless rate measure, which spiked to a five-month high of 17.1% from 16.7% in August." (David Rosenberg)
Let's go to Table A-1 in the BLS website. You find that the total number of "civilian noninstitutional population" has risen by exactly 2 million over the last year to 238,322,000. That is the number of people over 16 available to work. But the actual civilian labor force has only risen by 541,000. Over the last 12 months we have added only about 344,000 jobs, according to the data from the Establishment survey, or just about a month's worth in the good old days.
Here's an interesting note I picked up while looking at employment data by age and education (with seven kids, these things are important to me!). There is a cohort that has seen its employment level rise. That would be men and women over 65. The total number of people over 65 who are employed has risen by 318,000 over the last year, accounting for nearly all the job growth (although one bit of data is from the establishment survey and the other is from the household survey, but that should be close enough for government work).
Think about that. Almost all the job growth has come from those who have reached "retirement age" (whatever that is) continuing to work or going back to work. The unemployment rate for young people 16-19 is 26%. The unemployment rate for black youth is an appalling 49%. (This is not an abstract piece of data. I have two adopted black sons, so this figure means something in the Mauldin household.) Next time you go into malls, Barnes and Nobles, fast food places, notice again the work force. These are the jobs that traditionally went to those starting out.
As my friend Bill Dunkelberg, chief economist of the National Federation of Independent Business, wrote yesterday:
"Officially, the recession ended in June, 2009 according to the National Bureau of Economic Research, historical arbiters of recession and recovery dates. But in July, 2009, Congress raised the minimum wage by over 10% and 580,000 teen jobs were lost in the second half of the year even as GDP posted growth of 4% (annual rate). This was more than double the losses in the first half of the year when GDP declined at a 4% rate and fewer workers were needed. This was one of many policies implemented or proposed by Congress that made no sense as a measure to blunt the impact of the recession. The minimum wage determines the minimum value an unskilled worker must add to a business to justify employment. Congress has made this hurdle higher and more teens find they cannot get over it. This is just one of many barriers to hiring that are institutionalized in our economy, for example restrictions in the stimulus legislation that required union labor on projects."
Let's hear it for unintended consequences.
The Rise of the Temporary Worker
17,000 jobs in the latest survey were from new temporary jobs. I caught this graph from uber data slicer and dicer Greg Weldon ( www.weldononline.com). Notice that part-time workers "for economic reasons" is the highest on record at 9.4 million. My take on this is that part-time workers are no longer a leading indicator but simply a manifestation of the new reality that employers don't want to take on the burden of a full-time employee who may not be needed or who comes with costly benefits under the new regulatory and health-care regimes.
State and local governments shed 39,000 jobs, the largest percentagewise loss since 1982. Those jobs mean something, and as state and local governments lose their stimulus money they will continue to shed jobs as they are forced to work with less revenue. Even after many places have raised taxes, revenues are down 3%. The consumption that government workers contribute to final consumer demand is just as important as that resulting from private jobs.
20% of personal income is now coming from the US government, and wages are flat. If you take into account the tax that is rising energy prices, that means many workers are falling behind the disposable-income curve.
Where Will the Jobs Come From?
Back to Dunk from the NFIB: "The percent of owners with unfilled (hard to fill) openings remained at 11% of all firms, historically a weak showing. Over the next three months, 13 percent plan to reduce employment (up 3 points), and 8 percent plan to create new jobs (unchanged), yielding a seasonally adjusted net -3 percent of owners planning to create new jobs, 4 points worse than August. The urge (based on economic factors) to create new jobs is clearly missing in the current economy and expectations for future business conditions are not supportive of job creation. Plans to create new jobs have lagged other recovery periods significantly.
"Overall, the job creation picture is still bleak. Weak sales and uncertainty about the future continue to hold back any commitments to growth, hiring or capital spending. Economic policies enacted or proposed continue to fail to address the most important players in the economy - the consumer. The President promised to continue to push his agenda for higher energy costs, few believe the health care bill will actually help them, and there is huge uncertainty about a VAT tax and the fate of the "Bush tax cuts". Deficits are at "trauma" level, incomprehensible to the average citizen. No relief, just promises that the consumer sector will be asked to pay more of their income to support government spending. This has left consumer and business owner sentiment in the "dumpster", unwilling to spend or hire."
The employment surveys mentioned above are basically completed by the middle of the month. But yesterday a Gallup poll suggested that unemployment may be headed back to over 10%, and that the latter half of September was weaker than the first half. From the release:
"The rate of those 'underemployed' - mostly part-time workers - increased slightly to 18.8 percent, suggesting that the number of workers employed part-time but seeking full-time work is declining as the unemployment rate increases. Gallup explains 'this may reflect a reduced company demand for new part-time employees.'
"This rate is likely to not be reflected by federal numbers to be released Friday, Gallup says, because the government numbers are based on conditions around the middle of September.
"Nevertheless, Gallup says the trend shows continuing high unemployment which does not help the economy, and could hurt retail sales during the holiday season.
"Gallup concludes by saying, 'The jobs picture could be deteriorating more rapidly than the government's job release suggests.'"
OK, the job picture is terrible. GDP is clearly slowing down. Consumer spending and retails sales are abysmal. Consumer credit creation is visibly falling, down for seven months in a row. Housing construction is not coming back any time soon. Commercial real estate is sick, with mall vacancy rates at almost 10%. Inflation (except in commodity and energy prices) is under 1%. The approximately 3% GDP growth we have seen the last four quarters was almost 2/3 inventory rebuilding, not a sustainable growth source.
It is pretty clear there will not be much more coming from the US government in the way of new stimulus. If you're a Keynesian and in charge of the Fed or Treasury (which is the case), what are you to do?
The Ride of the Keynesian Cowboys
The Fed is basically down to one bullet in its policy gun. It cannot lower rates beyond zero, although it can pull down longer-term rates if it so chooses. But lower rates so far have not been the answer to creating jobs and inflation. All less-subtle instruments of monetary policy have been tried. The final option is massive quantitative easing, the monetization of US government debt. As the saying goes, if all you have is a hammer, all the world looks like a nail. And after the last FOMC meeting, the markets have openly embraced quantitative easing. And for good reason: that is the talk coming from the leadership of the Fed.
Since my friend Greg Weldon has so thoughtfully collected some of the more salient parts of some recent Fed speeches, let's turn the next few paragraphs over to him.
"We note the following quotes, starting with the would-be-hero, maybe-headed-for-monetary-hell, Fed Chairman, Ben Boom-Boom Bernanke himself ...
... "'I do think that additional purchases, although we do not have precise numbers for how big the effects are, I do think they have the ability to ease financial conditions.'
"Next we note commentary that sparked Monday's extension lower in US Treasury Note yields, from New York Fed President William Dudley:
"'Fed action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long.'
"Indeed, the Fed will keep pumping, until it sees the proverbial whites-of-their-eyes, as it relates to inflation, and job growth.
"More from Dudley ...
... "'The outlook for US job growth and inflation is unacceptable. We have tools that can provide additional stimulus at costs that do not appear to be prohibitive.'
"Indeed, when we first used the word 'deflation' in the Money Monitor, back in the nineties, and into the first part of the last decade, people scoffed, as this was a word equated to 'monetary blasphemy'... and I might have been 'charged' as a 'heretic' for suggesting that, someday, the Fed would PURSUE INFLATION as a POLICY GOAL.
"Now, the New York Fed President openly states that subdued inflation is ...
... 'UNACCEPTABLE'!!!!
"Welcome to the new world order, where deflation is openly discussed, and inflation is, in fact, pursued by the Federal Reserve, as a policy goal."
Greg goes on to quote Chicago Fed president Charles Evans as favoring easing, and you can bet vice-chair Janet Yellen is on board.
But there are voices that question the need for QE2. From the Bill King Report:
"Hoenig Opposes Further Fed Easing, Warns About Prices
"Kansas City Federal Reserve Bank President Thomas Hoenig said the central bank shouldn't expand its balance sheet by purchasing more Treasury securities in an effort to spur economic growth... The Kansas City Fed official repeated his view that the Fed should raise its short-term target rate to 1 percent, then pause to assess the economy's recovery. He also rejected the idea of raising the Fed's informal inflation target above 2 percent because of concern over the possibility of falling prices.
"'I have to tell you it horrifies me,' Hoenig said, responding to an audience question. "It assumes you can fine-tune things like interest rates." 'I have never agreed to' an informal inflation target, he said. 'Two percent inflation over a generation is a big impact.'" http://www.moneynews.com/StreetTalk/HoenigOpposesFurtherFed/2010/10/07/id/372979
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And then we have a speech from Dallas Fed president Richard Fisher that he gave yesterday at the Minneapolis Economics Club. I highly recommend you take a few minutes to read it in its entirety. It is well-written and thoughtful. We need more men like him on the Fed. ( http://www.dallasfed.org/news/speeches/fisher/2010/fs101007.cfm)
Let me give you a few paragraphs (all emphasis mine!):
"... In my darkest moments I have begun to wonder if the monetary accommodation we have already engineered might even be working in the wrong places. Far too many of the large corporations I survey that are committing to fixed investment report that the most effective way to deploy cheap money raised in the current bond markets or in the form of loans from banks, beyond buying in stock or expanding dividends, is to invest it abroad where taxes are lower and governments are more eager to please. This would not be of concern if foreign direct investment in the U.S. were offsetting this impulse. This year, however, net direct investment in the U.S. has been running at a pace that would exceed minus $200 billion, meaning outflows of foreign direct investment are exceeding inflows by a healthy margin. We will have to watch the data as it unfolds to see if this is momentary fillip or evidence of a broader trend. But I wonder: If others cotton to the view that the Fed is eager to "open the spigots," might this not add to the uncertainty already created by the fiscal incontinence of Congress and the regulatory and rule-making 'excesses' about which businesses now complain?
"... In performing a cost/benefit analysis of a possible QE2, we will need to bear in mind that one cost that has already been incurred in the process of running an easy money policy has been to drive down the returns earned by savers, especially those who do not have the means or sophistication or the demographic profile to place their money at risk further out in the yield curve or who are wary of the inherent risk of stocks. A great many baby boomers or older cohorts who played by the rules, saved their money and have migrated over time, as prudent investment counselors advise, to short- to intermediate-dated, fixed-income instruments, are earning extremely low nominal and real returns on their savings. Further reductions in rates earned on savings will hardly endear the Fed to this portion of the population. Moreover, driving down bond yields might force increased pension contributions from corporations and state and local governments, decreasing the deployment of monies toward job maintenance in the public sector.
"My reaction to reading that article [what Fisher called that eye-popping headline in yesterday's Wall Street Journal: "Central Banks Open Spigot"] was that it raises the specter of competitive quantitative easing. Such a race would be something of a one-off from competitive devaluation of currencies, a beggar-thy-neighbor phenomenon that always ends in tears. It implies that central banks should carry the load for stymied fiscal authorities - or worse, give in to them - rather than stick within their traditional monetary mandates and let legislative authorities deal with the fiscal mess they have created. It infers that lurking out in the future is a slippery slope of quantitative easing reaching beyond just buying government bonds (and in our case, mortgage-backed securities). It is one thing to stabilize the commercial paper market in a systematic way. Going beyond investment-grade paper, however, opens the door to pressure on a central bank to back financial instruments benefiting specific economic sectors. This inevitably leads to irritation or lobbying for similar treatment from economic sectors not blessed by similar monetary largess.
"In his recent book titled Fault Lines, Raghuram Rajan reminds us that, 'More always seems better to the impatient politician [policymaker]. But any instrument of government policy has its limitations, and what works in small doses can become a nightmare when scaled up, especially when scaled up quickly.... Furthermore, the private sector's objectives are not the government's objectives, and all too often, policies are set without taking this disparity into account. Serious unintended consequences can result.'"
Hear. Oh, hear!
Can Fisher and Hoenig stand athwart the Keynesian tide at the Fed and get it to stop? Or for that matter, can the growing chorus of noted economists and analysts who openly question the need or wisdom of a QE2?
I doubt it. The Keynesian Cowboys are saddling their QE horses and they intend to ride. They have no idea what the end result will be. This is all a guess based on pure theory and models (like the broken money multiplier). And I really question whether the result they hope for is worth the risk of the unintended consequences (more later). As I wrote a few weeks ago:
"If it is because they don't have enough capital, then adding liquidity to the system will not help that. If it is because they don't feel they have creditworthy customers, do we really want banks to lower their standards? Isn't that what got us into trouble last time? If it is because businesses don't want to borrow all that much because of the uncertain times, will easy money make that any better? As someone said, 'I don't need more credit, I just need more customers.'"
How much of an impact would $2 trillion in QE give us? Not much, according to former Fed governor Larry Meyer, who, according to Morgan Stanley, "... maintains a large-scale macro-econometric model of the US economy that is widely used in the private sector and in public policy-making circles. These types of models are good for running 'what if?' simulations. Meyer estimates that a $2 trillion asset purchase program would: 1) lower Treasury yields by 50bp; 2) increase GDP growth by 0.3pp in 2011 and 0.4pp in 2012; and 3) lower the unemployment rate by 0.3pp by the end of 2011 and 0.5pp by the end of 2012. However, Meyer admits that these may be 'high-end estimates'.
"Some probability of a resumption of asset purchases is already priced in, and thus a full 50bp response in Treasuries is unlikely. Moreover, a model such as Meyer's is based on normal historical relationships and therefore assumes that the typical transmission mechanisms are working. For example, a drop in Treasury yields would lower borrowing costs for consumers and businesses, helping to stimulate consumption, business investment and housing. But there is good reason to believe that the transmission mechanism is at least partially broken at present, and thus the pass-through benefit to the economy associated with a small decline in Treasury yields (relative to current levels) would likely be infinitesimal." (Morgan Stanley)
It is clear, at least from the speeches I read, that if the economy continues to sputter and looks like it may fall into recession, that the need to DO SOMETHING will overwhelm all caution. Not trying the last tool in the box if the economy is rolling over is just not something that will be considered by those of the Keynesian persuasion. Never mind that Congress is getting ready to raise taxes (and has already done so in the case of Obamacare, to the tune of almost 1% of GDP!); in the face of a slowing economy, the Fed is going to step in and try to do something.
Let me be clear. We do NOT have a monetary problem. And whatever solutions we need are not monetary. This is on Congress and the Administration. The Fed needs to step aside.
Let Us Count the Unintended Consequences
Is there a chance that it could work? The short answer is, "Yes, but I doubt it." The whole purpose of QE2 is to try and get consumers and businesses spending. For a Keynesian, it is all about stimulating final consumer demand. That is tough in a world coming out of a credit crisis, where consumers are wanting to deleverage.
But what if they push a few trillion into the economy and it shows up in the stock market? Or the market just feels good that "Daddy" is doing something and runs up on its own? Can that change consumer sentiment? Will we feel like spending more? Could that be the catalyst? Maybe, but I doubt it. But you can bet your last trillion they are going to try.
It is doubtful that any QE2 that is enough to really do something in the way of reflating assets will be good for the dollar. Now, cynics might say that is the point, as a falling dollar is supposed to help our exports (and for my international readers, I get it that this is at the expense of other countries). Do we really want to open the first salvo in a race to the currency bottom? If the Fed does it, it gets legitimized everywhere.
(By the way, as I noted a few weeks ago, my call for parity for the euro and the pound is temporarily on hold. Stay tuned. We will get back to it.)
But QE2 also drives up commodity costs. Rising oil prices have the same effect on spending as a tax increase. As do rising food costs, etc.
How does one control inflation by printing money on the order of 10% or more of GDP? Is 3% ok? Do you really want to get to 4% and then have to start taking off the stimulus to get inflation under control, and push us back into recession?
You don't get inflation without a rise in interest rates. What about the increased costs of financing an ever-rising government debt? And aren't higher rates what the Fed is fighting? Talk about confusing the market.
Does the Fed really want us to get our animal spirits back up and go back in and borrow more money? Isn't too much leverage what got us into this problem to begin with? Does the Fed really want to persuade us to go out and buy mispriced assets? Should we buy stocks now in hopes that QE2 somehow finds a transmission mechanism and keeps us from recession? If it doesn't work, then all those buyers will get their heads handed to them, making matters even worse.
What if, as I think likely, the QE money simply makes a round trip back to the Fed balance sheet? Do we go for QE3? At the Barefoot Economic Summit I just attended (see more below), one very well-connected economist said he would start getting interested about QE when it approached $6 trillion. That is the number he thinks would be needed to actually have an effect. It raised a few eyebrows when he told that to David Faber on CNBC.
If the money makes a round trip back to the Fed, the markets will get spooked. All kinds of markets.
The only way I think they do not pursue QE is if the economic data in the next few months suggests the economy is beginning to heal itself. That will make the next few months worth of data more critical than usual. The stock market seems convinced that QE2 will be good for the economy and the markets, and thus bad news will be perversely considered good.
Sadly, if we go down that path I think this is going to end in tears. There are just too many unintended consequences that can reach up and bite us in our collective derrieres. I am not sanguine about 2011. I dearly, truly hope I am wrong. For your sake, gentle reader, and for my seven kids.
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Eventually even the best juggler starts dropping things.
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Indeed -- and it is a "fatal conceit" to think otherwise :wink:
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Economist Scott Grannis, of whom I have spoken quite favorably on many occasions, persuaded me of the merits of TIPs a couple of years ago. I am quite glad to report that I put a not insignificant % of my savings into them :-D
Here is POTH's take on them today-- of course, it is POTH so take the economic theory with a kilo of salt.
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http://www.nytimes.com/2010/10/26/business/26bond.html?_r=1&th&emc=th
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From MarketWatch:
The U.S. has been after China to loosen the peg on Yuan against the Dollar. So far, China has committed only to a gradual devaluation of the currency into wider free-exchange bands. That may take too long, and this move to print money to buy up assets may force China to unload currency in that peg. Even if China holds on to its Dollar horde, the impact may be the same. Where this becomes a conundrum is that China would likely unload Treasury securities along the way and it would likely buy even fewer Treasuries as a percentage of its Central Bank assets ahead. That would imply that China could keep selling and large portions of the money freshly printed just went to buy up the debt held by China.
The FOMC wants inflation a bit closer to its 2% implied target, far higher than what has been seen. With the FOMC keeping short-term rates low at near-zero and with the Treasury increasing its balance sheet by buying Treasuries, this forces investors into risk-based assets. If you can magically get inflation to 2% and short-term and intermediate-term Treasury rates are so low, what does that do to real returns on an inflation-adjusted basis? Yep, negative real rates of return...
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I think LEDs (new kind of hi tech light) are going to be a VERY strong sector and have what are for me some very large postions. The sector had a huge run up :-D and recently gave a goodly portion of it back. :cry: My belief in this hypothesis is such that I added more. Biggest position is CREE. Others are AIXG, RBCN, and PWER. Some of these are not pure LED plays.
IMHO (and I have been wrong plenty) it is still a very good time to get in on these. RBCN has been the subject of intense shorting and the shorts may be about to get stuffed worse than by a TSA groping :lol: DO YOUR OWN DILIGENCE, ONLY YOU ARE RESPONSIBLE FOR YOU.
The very savvy David Gordon writes:
"Oh, sure, I get that the bears conceded a great Q3 but wait, they say, for a terrible Q4. Except, Q4 is half-complete, and my tracking indicia show yet another phenomenal quarter. (Caveat: for a company of Rubicon’s size, teeny, one order postponement could put a serious damper on a quarter’s revenues.) So what we have is a stock in an intermediate term correction, which you and I hope and prefer to be an intermediate term base.
"While to my eye RBCN’s chart did not presage an upside “sling-shot” I would have preferred it had not reversed and declined as it has. I know one thing: granted sufficient time, RBCN will be much higher than today’s close and much higher than its all time high.
btw, a bottom is not the low trade but a process that unfolds over time.
Reply
■ says:
November 16, 2010 at 1:33 pm
What do these short traders know or are they soon to be creamed?
Stocks With Huge Short Interests (RBCN, BPI, GAP, CONN)
"Rubicon Technology, Inc. (NASDAQ: RBCN) has approximately 60% of its float sold short, as of November 9.
Rubicon is a semiconductor company, trading at just over 10 times next years earnings, so it’s not expensive at all. The company has traded in a wide range in the past year, from $13.68 to $35.90, so shares are fairly volatile.
Read more: http://www.benzinga.com/trading-ideas/long-ideas/10/11/611497/stocks-with-huge-short-interests-rbcn-bpi-gap-conn#ixzz15U20vkfE
Reply
■ dmg says:
November 17, 2010 at 4:40 am
File the question, Patrick, under “What’s wrong with this picture?”
"The shorts remain convinced that RBCN cannot, will not, sustain its revenues and earnings. Oops, but the company has to date. So the shorts argue now that its margins are unsustainable, and emphasize that everyone will see this truth in the next earnings (Q4) report. Except my channel checks show that this argument (declining margins to occur NOW) also incorrect. The initial glimmers of intermediate term bases for the group begin to proliferate — first AIXG and VECO, now CREE — grants succor to the investor. Only RBCN continues to suck swamp water. But for how much longer…?
"Imagine or pretend you are not already long the shares. Piece together the puzzle and ask yourself, “Does the decline, and possible i/t base, offer itself as opportunity to invest?” I know my answer. And I believe the market offers its clues. I gain confidence by the action of the group AND RBCN’s patterns in its larger periodicities (weekly and monthly bars).
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Although he sees things far more positively than most of us here, IMHO Scott Grannis is an outstanding economist and it is always a good idea to stay in touch with his blog.
http://scottgrannis.blogspot.com/
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The most recent Doug Casey has this pithy summary of problems not being dealt with:
"Among those issues are historic levels of debt, the long-lasting consequences of a deflating housing bubble, trillions of dollars of toxic paper on the balance sheets of banks and governments here and abroad, unsupportable trade deficits, unpayable entitlements, artificially low interest rates and the likelihood of a self-feeding interest rate death spiral, the high costs of implementing universal health care and the other large programs passed in the last two years, a negative demographic trend, persistent unemployment, and, of course, the escalating race to the bottom for the fiat currencies that is increasingly seen as the only way out for desperate governments around the globe."
Other than that, we are fine.
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Disclosure: I have what is for me a fairly substantial position in RBCN (see my post of 11/22 fopr additional details):
Kaufman Bros initiates coverage of Rubicon/RBCN with a target of $30.
Firm believes:
1) Industry overcapacity concerns are unwarranted.
2) Nearly 60% of the float in shares are short the stock, which represents nearly 15 days to cover and could be subject to a (short) squeeze.
According to Kaufman Bros, the large short interest appears to be almost exclusively hinged on potential oversupply in LED chips, particularly for LED TVs. Firm believes this concern is largely overblown as it is already being reflected in early retail reports post-Black Friday. Even more importantly, the shorts likely miss the advent of the general lighting cycle ramp in LEDs.
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I'm wondering if 2011 is going to be another Mid-Cap boom year.
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Well, I haven't a clue :lol: That said, there seems to be a lot of bullishness, perhaps too much, out there. David Gordon, whom I respect and follow, thinks a sharp reversal may be in the wind. At least my LED play AIXG is up sharply today 8-)
@all:
I have been posting Wesbury's stuff on the Political Economics thread, but I think I will begin posting it here on this thread as it really about the US economy, period.
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Personal income increased 0.3% in November while personal consumption increased 0.4% To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 12/23/2010
Personal income increased 0.3% in November versus a consensus expected gain of 0.2%. Personal consumption increased 0.4% versus a consensus expected gain of 0.5%. In the past six months, personal income is up at a 2.7% annual rate while spending is up at a 4.4% rate.
Disposable personal income (income after taxes) was up 0.4% in November and is up at a 2.1% annual rate in the past six months. The rise in November was largely due to interest income.
The overall PCE deflator (consumer inflation) increased 0.1% in November and is up 1.0% versus a year ago. The “core” PCE deflator, which excludes food and energy, was also up 0.1% in November and is up 0.8% since last year.
After adjusting for inflation, “real” consumption was up 0.3% in November (0.5% including upward revisions to prior months), is up at a 3.3% annual rate in the past six months, and at a 4.3% annual rate in the past three months.
Implications: Consumers are buying again and doing it with vigor. “Real” (inflation-adjusted) consumer spending increased 0.3% in November and is up at a 3.3% annual rate in the past six months. This is not an unsustainable or temporary buying binge. Real wages and salaries in the private sector are up at a 2.8% annual rate in the past six months; real profits for small businesses are up at a 4.7% rate. In addition, those touting a “new normal” where the real economy grows 2% or less per year are making a fundamental mistake about deleveraging. Consumer deleveraging may impede spending when the debt reduction begins; deleveraging may also impede spending when the debt reductions accelerate. But deleveraging does not hurt spending when the debt reductions slow down. If a consumer is still paying down debt but is doing so more slowly than last year, her spending increases faster than her income, not slower. On the inflation front, consumption prices are up only 1% versus a year ago but seem to be modestly accelerating, with prices up at a 1.3% annual rate in the past three months. The opposite is true if we exclude food and energy. “Core” prices are up 0.8% versus a year ago but up at only a 0.3% annual rate in the past three months. Low core inflation is the excuse the Federal Reserve is using for quantitative easing. In other news this morning, new claims for unemployment insurance declined 3,000 last week to 420,000. Continuing claims for regular state benefits fell 103,000 to 4.06 million. These figures suggest robust growth in private sector payrolls in December.
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New orders for durable goods declined 1.3% in November To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 12/23/2010
New orders for durable goods declined 1.3% in November, coming in below the consensus expected dip of 0.5%. Excluding transportation, orders increased 2.4%, beating the consensus expected gain of 1.8%. Orders are up 9.4% versus a year ago, 10.6% excluding transportation.
The overall decline in orders in November was entirely due to transportation equipment, specifically civilian aircraft/parts (which are extremely volatile from month to month). All other major categories of orders were up.
The government calculates business investment for GDP purposes by using shipments of non-defense capital goods excluding aircraft. That measure rose 1.0% in November (1.2% including upward revisions to prior months) and is up 10.4% versus a year ago. If these shipments are unchanged in December, they will be up at a 2.3% annual rate in Q4 versus the Q3 average.
Unfilled orders increased 0.4% in November and are up at a 10.4% annual rate in the past three months.
Implications: Ignore the headline decline in durable goods orders; the report was very good news for the US economy. All of the overall drop in orders was due to the transportation sector, particularly civilian aircraft, which is extremely volatile from month to month. Outside the transportation sector, every single major category of orders increased in November, with the largest gain in computers and electronics, rebounding from a steep decline last month. Meanwhile, shipments of “core” capital goods (which exclude civilian aircraft and defense) also bounced back in November, rising 1.0% in November after a 1.2% decline in October. These shipments are up 10.4% versus a year ago but the pace of the gains has slowed of late, rising at only a 3.1% annual rate in the past three months. However, we think these shipments are poised to reaccelerate. Unfilled orders for these goods (which can turn into future shipments) have increased seven months in a row. Cash on the balance sheets of non-financial companies is at a record high and corporate profits are near a record high. In this environment, business investment is heading up.
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FWIW, I'm doubling down on bearishness for 2011. I'd rather that Wesbury would be right and me be wrong though.
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I don't think people can afford to be out of the market any longer. Need to keep compounding _something_ for retirement. The easy stock bargains have recovered.
How does Wesbury's point of view complement Grannis?
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Grannis and Wesbury have similar perspectives (both are supply siders btw). David Gordon, Scott Grannis and I are part of an email group and David is a high level market player with the pay-to-enter blog www.investmentpoetry.com to which I subscribe. David, who has quite a number of remarkably prescient market calls into an excellent stock picking and timing record, thinks we are about to have a sharp downturn, and that there will be a big downturn sometime in 2011-- currently he suspects it will be around the middle of the year but reserves the right to evolve his views as time goes by.
David is a vast reader. Here is an article he shared this morning:
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Where Will the Next Economic Boom Come From?
Derek Thompson
If you want to know what industry will power the next U.S. economy, follow the money. Where are investors really looking? And where is research and experimentation really happening?
Abraxas Discala, is CEO of the Broadsmoore Group, a financial advisory and investment firm founded in 2009. He sees the future the same way many urbanists and mayors see it: It's all about alternative energy. "The Internet bubble was the last real boom. The next boom is alternative energy, getting away from our need on OPEC oil," he said. "I think it could be five or six times what the tech boom was."
China's overwhelming investment in solar energy in the last five years has been formidable, Discala said. But solar is a long term bet that isn't guaranteed to take off. "I'm more interested in coal and natural gas, where T. Boone Pickens has a phenomenal plan," he said. "The fact is, if we just turned our 18-wheelers to natural gas right now, we would reduce our dependency on oil by 50 percent."
The other space Discala sees a productivity revolution is in regenerative medicine -- where scientists create living tissue to heal illnesses or replace organs. With enough government investment at its back, technologies like stem cells and soft tissue manufacturers should have breakthroughs in the next decade that will pay off dramatically, not only in the United States, but throughout the world where foreign governments will want to buy and license our innovation.
FOLLOW THE R&D
Innovation is the key to spotting the next boom, says economist Michael Mandel. That's why he focuses on research and development investments. If you follow the R&D money, it's a clear picture. "The truth of the matter is the US in the last 10 years has put its R&D money into information technology and biosciences," he said. "That's really it. We have not really put it into energy."
Source: Mandel.
What would an infotech and bioscience economy look like? First, it could resemble a communications revolution, with telecom providers like Verizon, Internet giants like Google and Facebook, and Web services like Groupon and Mint soaking up legions of software engineers, computer support specialists, web developers and programmers. These highly skilled, highly educated, and highly paid jobs where the United States still has a competitive advantage over the rest of the world.
This would, as a National Journal reporter told me, resemble Tech Boom: Part Two, "but this time, we get it right."
THE FUTURE IS SCIENCE...
Like information technology, bioscience is a term that evokes vague visions (beakers? lab coats? titration? ... titration!). But Mandel sees it more concretely. He sees the ramp up in bioscience investment from the 1990s starting to pay off in real products with vast implications for every industry. Microcellular organism-based technology to produce energy. Bioprocessing to juice productivity on our farms. And new machines, pills and treatments to make our health care industry more efficient.
"We need a biosciences revolution because it's a direct attack on our biggest problem, which is tremendous amount of resources sucked up by health care," he said.
"Imagine if we had a pill to deal with Alzheimer's patients. Now those bodies are freed up to do other things. And those costs are freed up. That drives growth across the entire economy."
It's a compelling vision, but it raises the question: If biosciences are the future, why aren't they the present? We've been investing in the next big pharmaceutical breakthrough (cancer? AIDS? heart disease?) for two decades with frustratingly little to show for our efforts.
"For a variety of reasons it turned out that bioscience has lots of good science but not a lot of good products," Mandel acknowledged. "If we're looking for what the future looks like, there are two separate futures. One is this record of weakness could continue in which case, in which case, that's all she wrote. The other thing that could happen is it could have turned out to be a pause," he said.
"I'm betting that we'll see this bioscience drought as a pause rather than a stop."
... NOT ENERGY
The most surprising thing about Mandel's vision is his pessimism about alternative energy. At a time when almost every mayor, urbanist and government leader talking about the need to develop clean energy sources, Mandel's says the money just isn't there to build a competitive advantage for the United States.
"We have no investment in green energy R& D," he said. "We have no dynamism there. When your local university invests 70 percent in life sciences and 2 percent in energy, why put your bet on energy?"
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"The fact is, if we just turned our 18-wheelers to natural gas right now, we would reduce our dependency on oil by 50 percent"
No infrastructure to gas up. Same problem w/ electric cars.
What are the precursors to a downturn in 2011?
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"No infrastructure to gas up" [Natural gas into cars or 18 wheelers]
I love the idea of using natural gas of north American origin that burns significantly cleaner into cars and trucks in place of foreign oil. The infrastructure is one problem, also the tanks are bulkier. The demand just isn't there right now, but natural gas is far readier to be an expanded fuel source than the other snake oil investments politicians are putting us into. Honda made a home compressor that was taken off the market. Utah has stations statewide. Our state has just one - with limited hours. If you had a compressor at home that re-fuels overnight and a certain number of stations along your drive, it would work. Every building in our area has natural gas already connected. It is just a matter of investing in dispensing and compressing equipment - ahead of the demand. A battery powered car won't produce major amounts of heat or air conditioning for your drive or take a large load on the long haul. Natural gas can. Some bus companies and fleets are switching.
http://www.altfuelprices.com/stations/CNG/Utah/
(http://www.cngutah.com/images/price.jpg)
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http://gas2.org/2010/12/22/west-virginia-mcdonalds-adding-two-ev-chargers/
The first place I ever saw a redbox movie rental kiosk was at McD's. Maybe NG as well as EV chargers in the future?
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"Every building in our area has natural gas already connected. It is just a matter of investing in dispensing and compressing equipment"
Ka-BOOM! gas stations have underground tankage & fire suppression... More ways for nutjobs to blow up a city block...
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Retail sales increased 0.6% in December To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 1/14/2011
Retail sales increased 0.6% in December while sales excluding autos rose 0.5%. Both fell slightly short of consensus expectations.
Including revisions to October/November, sales were still up 0.6% in December while sales ex-autos were up 0.3%. Retail sales are up 7.9% versus a year ago; sales ex-autos are up 6.7%.
The increase in retail sales for December was led by non-store retailers (internet and mail-order), autos, gas, and building materials. The weakest category of sales was general merchandise stores (department stores).
Sales excluding autos, building materials, and gas increased 0.2% in December, but were unchanged including downward revisions for October/November. These sales are up 5.6% versus last year. This calculation is important for estimating GDP.
Implications: Despite rising less than the consensus expected, retail sales reached an all-time high in December, eclipsing the mark set in November 2007. Sales are up almost 8% in the past year and were up at a very rapid annual rate of 13% in the past three months. Overall, real (inflation-adjusted) consumer spending likely grew at about a 4% annual rate in the fourth quarter, the fastest pace since 2006. Although retail sales in December were somewhat softer than the consensus anticipated, it’s important to remember that these figures come on the heels of two great retail sales reports in a row. And remember, all this strength is coming before the Fed’s quantitative easing should be having an impact and before the tax deal in Washington is implemented. We expect sales to continue higher because earnings are up, consumers are paying down debt more slowly, and consumers’ financial obligations are now the smallest share of income since the mid-1990s. In other news this morning, business inventories increased only 0.2% in December. Inventories will be a significant drag on the growth rate of real GDP in Q4, but that leaves room for faster growth in 2011.
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OK folks, for those of us who believe interest rates are going to start really climbing, what investments do we avoid and what do we do to protect ourselves? What does a hunker down strategy look like?
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I think getting out of the dollar and into gold and silver makes sense, as well as non-perishable food, guns and ammo. I think one morning, we'll wake up to a financial earthquake that's going to take down the facade we've been living under. I think that time is soon.
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Worth noting:
What did the spike of interest rates under Volcker do to gold prices in the late 70s? It killed them.
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I'm not the oracle at Delphi, all I know is we are in an untenable trajectory. Anything that can't last forever, doesn't. Those running things now are pushing us past the point of recovery.
http://www.usdebtclock.org/
Click on that, look around, then tell me how this all gets fixed and ends well for us.
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"...interest rates are going to start really climbing, what investments do we avoid and what do we do to protect ourselves? What does a hunker down strategy look like?"
a) I am in R.E. Can't really get out. I am working on improving the quality of what I own and the intrinsic value for some future sale, as nominal values bounce and fall. Retail real estate for financed homeowners will go down proportionally with interest rates going up, because affordability is based on the monthly payment. Still there are some amazing buys out there now and in the next year in terms of cash buying distressed property. I see a fairly stable market at least here (maybe not where you are) right now, compared to the future(?), to sell quality homeowner property at some fair price. One theoretically could sell a home at today's retail, and buy at an amazing value on a distressed property to hunker down on if so inclined.
b) In the total real 'meltdown' scenario, a good friend tells me buy silver dimes instead of bars of gold or gold on paper. You might be able to buy a loaf of bread or an iodine sample with silver dimes. Show real gold and they might just kill you. Can't make change or conduct basic transactions with bullion.
c) Paper investments, I recommend a mutual fund like T Rowe Price Spectrum Income https://www3.troweprice.com/fb2/fbkweb/performance.do?ticker=RPSIX which is I think one of their more defensive funds. (I previously mentioned knowing someone managing large funds but cannot recommend their own or give out any information.) You are brave to still research companies and plan in and out strategies in a game run by pros. Even buy and hold of great companies is not foolproof. You can get in and out of a fund like the above any market day with no transaction fee. The costs (0.72%) are in the fund, not something you are charged at the beginning or end. They provide the professional management and the in and out strategies within the investment. The Spectrum series has other funds with other mixes. (I used to buy TRP's more aggressive growth stock funds - offensive strategies only.) Last time the market really tanked, the mgr of this fund was on the cover of Barrons for good performance. Regarding the future, I have no idea and certainly no inside information.
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No argument between us there.
The question presented here and now on this thread is what us regular folks are to do with our savings, investments etc to protect ourselves as best we can.
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Read point c), specific ticker listed, past performance linked. :-)
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http://www.weeklystandard.com/blogs/mandatory-spending-exceed-all-federal-revenues-fiscal-year-2011_554659.html
Mandatory Spending to Exceed all Federal Revenues — 50 Years Ahead of Schedule
9:00 AM, Mar 16, 2011 • By JEFFREY H. ANDERSON
We have now gotten to the point — as I noted yesterday — where if national defense, interstate highways, national parks, homeland security, and all other discretionary programs somehow became absolutely free, we’d still have a budget deficit. The White House Office of Management and Budget projects that in the current fiscal year (2011), mandatory spending alone will exceed all federal receipts. So even if we didn’t spend a single cent on discretionary programs, we still wouldn’t be able to balance our budget this year — let alone pay off any of the $14 trillion in debt that we have already accumulated.
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Doug:
My post was written and posted without awareness of your excellent post.
GM:
Determined to pull our heads out of the sand (or wherever else they may be) aren't you? :lol:
That is one scary factoid!!! :-o :-o :-o
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"Just because something is inevitable doesn’t make it imminent”
"The nasty things that you think are coming always take longer to arrive than you think they will, but once they get here, they make up for their tardiness by being worse than you thought they’d be."
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Well, it's kind of like living in LA, you know the big one is coming, but if you don't prepare for it and it happens, it's too late.
Gov't default and/or hyperinflation are coming.
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Japan might need cash, so it might sell its US Treasuries, or at least stop rolling them over. What would those occurrences do to "the market"?
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At the moment it appears "flight to safety" dynamics are driving rates down somewhat, but in the longer run IMHO rates will rise, which will cause rates to rise further due to the rate rise worsening our debt and deficit contradictions. I see a vicious cycle in the making. I've read pieces saying that the Fed will keep QE 2 going (will it become QE 3? 4? 6? 9?) at least through the end of the year, but at some point it must end , , , and then the chickens will come home to roost.
Of course that ignores events in the mid-east, or less buying by the Chinese (now running a trade deficit?!) and the Japanese, which may well dramatically accelerate what I see as being already in the pipeline.
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I've read that the losses (stock market? economic ? ) in Japan are running $600-800 Billion. If Japan sold that much in Treasuries, it would go a long way to reversing QE ? Or the other way around ? The Fed would take the "phantom" QE "bank reserve" money and give "real" money to the Japanese... and investors would buy some of the bills.. ?
Odd that Japan index ETFs are selling for 5% over NAV in expectation of a quick recovery.
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A mystery to me why the market is going up , , , :? :? :?
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Equity Bull or Currency Bear?
March 25, 2011 by Jeremy Jones Is it an equity bull market or a currency bear market? In U.S. dollars, the S&P 500 is up an impressive 25% since August 31, 2010, but in terms of Swiss francs and gold, the S&P 500 is up only 12% and 9% respectively. Over half of the stock market rally since August can be attributed to dollar debasement.
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Ouch!
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The Shorts Get Whipsawed by the VIX To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 3/28/2011
The VIX – a (tradable) measure of equity price volatility – tends to spike when the US equity market falls. As a result, short-sellers (who see Black Swans everywhere) like it. It has also become a popular tool for equity investors who want buy some insurance on their long positions.
In early March, Japan’s triple whammy of earthquake, tsunami, and nuclear troubles, along with ongoing political uprisings across North Africa and the Middle East caused the VIX to spike. Short-sellers were in heaven. They anticipated a significant correction, or maybe even the next leg down in what they still think is a secular bear market.
According to the Wall Street Journal (here), the VIX peaked at 31.28 on March 16 – well below the Mt. Everest-like highs of about 80 that we saw during the Panic of 2008 – but still the highest since mid-2010. Then it collapsed, falling 45% in seven trading days – its fastest seven-day swoon on record. It now stands near 18.
The shorts have been shellacked like this many times in the past two years. The reasons are simple to understand. The world is not about to come to an end. It is true that some parts of the economy, especially housing and employment, are lagging, but the rest of it is doing just fine, thank you.
And Friday’s numbers on corporate profits support the optimistic outlook. Overall profits hit a record high at the end of 2010, tracing out a perfect V-shaped recovery from the Panic of 2008 (see chart here). Profits were up at a 10% annualized rate in Q4 and up 18% from a year before.
We use a capitalized profits model to value stocks. We start by taking overall corporate profits and dividing them by the 10-year Treasury yield. Then we compare the result to the actual market in each quarter for the past 60 years and use it to find an average fair value for stocks today.
If we assume profits increase another 2% in Q1 and use a 10-year Treasury yield of 3.5%, the model gives us a fair value estimate for the Dow of 22,800. We think this is too high because we believe the Fed is holding interest rates artificially low. So, in our official model we use a 10-year T-note yield of 5%. This generates a “fair value” estimate of 16,000 on the Dow and 1715 for the S&P 500.
In other words, getting to fair value would require the US equity markets to rise 31% from Friday’s close. And that assumes no further gain in profits after Q1. We think these results are pretty robust. If we stress test for rising rates, the 10-year Treasury yield would need to rise to 6.5%, with no intervening increase in profits for the model to show equities are at fair value already.
We stand by the forecast we made at the start of the year that the Dow should hit 14,500 by year-end 2011, while the S&P 500 strikes 1575. In other words, short the shorts – equities are still cheap. And watch out for the VIX, too.
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http://reason.com/blog/2011/03/27/how-much-poorer-are-we-grim-ne
How Much Poorer Are We? Grim New Numbers
Tim Cavanaugh | March 27, 2011
You may have heard that Americans lost a lot of wealth in the first part of the great credit unwind. How much? According to a new survey from the Federal Reserve Board, Americans lost as much as 23 percent of their wealth between 2007 and 2009.
That may sound extreme, but it is close to the aggregate decline I reported on, using Fed Flow of Funds data, in 2009. At that time, it looked like somewhere between $8 trillion and $14 trillion in household net worth was lost from a peak of either $58.6 trillion or $64.4 trillion. That's a decline of either 14 percent or 22 percent.
The Fed study "Surveying the Aftermath of the Storm: Changes in Family Finances from 2007 to 2009" [pdf] suggests that higher number was close to the mark: "The mean (median) fell from $595,000 ($125,000) in 2007 to $481,000 ($96,000) in 2009." The study is a re-interview of people who took part in a 2007 Survey of Consumer Finances, and its findings confirm at a more granular level the cumulative loss of wealth reflected in the Fed’s quarterly statistics. More than 60 percent of families lost wealth over the period; about a quarter gained wealth to small degrees.
You may find the lengthy explanations of methodology less riveting than I do, but a few points jump out:
* This recession hasn't been good for economic mobility. Although there's been plenty of movement – mostly downward – in net worth, there’s been very little change in families’ positions in wealth rankings. “[T]he most common single outcome was relatively small or no change in a family’s relative position in the distribution.” Even relative upward mobility can mean little when everybody’s getting burned. “For example, 18 percent of families whose rank in the wealth distribution improved by three to ten percentile points in fact had a decline in their wealth.”
* …But it might be good for marital stability. Households without a spouse were more likely to get hitched during the two-year period than married/partnered households were likely to split up.
* When will someone think of the rich? Relatively speaking, poor households did better over the period than wealthier households: “ncome increased for families with income below the 2007 median and income fell for families with income near and above the 2007 median;” “[R]egions and age groups with the lowest median incomes in 2007 tended to experience increases in median income as well as positive dollar and percent changes;” “Families that moved up the wealth distribution by three or more percentiles tended to have lower wealth than other families;” and “There was greater variation in wealth changes for lower-income families.” (There may be some skewing because changes in wealth seem more substantial the closer you get to zero.) Again, this comports with anecdotal evidence: The difference between the Great Recession and the usual recessions is that this time even rich people got hit.
* Debt = poverty. “Across the wealth-change categories, families that moved down the wealth distribution from 2007 to 2009 by more than three percentile points tended to become more highly leveraged over this period.”
* Real estate is still the word of our undoing. “The largest percentage declines in the median values of nonfinancial assets in the SCF panel were for vehicles, primary residences and non-residential real estate.” Not surprisingly then, “losses tended to be greatest for families living in the west, a reflection in large part, of the relatively greater declines in real estate prices in that region.” Increases in real estate ownership were more than offset by increases in the share of mortgage debt. Although the decline in the equity portion Americans own of their homes is a catastrophe decades in the making, the recession accelerated this trend.
* Most of the decline came from loss of asset values rather than willful changes in the asset mix. “[T]he majority of families passively accepted changes in portfolio shares driven by changes in asset prices.” Hand up over here! In fact, I’m not even sure how you can make big changes to your mix of holdings when everything’s losing money. How can you sell when nobody’s willing to buy?
* Unemployment matters less than they want you to think. “In general, the relationship between unemployment spells and shifts of families within the wealth distribution appears weak.” Again, you read it here first.
* ...And debt matters more than they want you to think. “Median total debt increased from $70,300 to $75,600.” The ratio of total debt to assets increased in part because the assets lost value rather than conscious decisions to take on more debt. And to the extent that people did reduce debt, brute-force deleveraging doesn’t seem to have made much difference: People who were heavily leveraged in 2007 but moved up within the wealth distribution “might also include families whose principal residence had a mortgage that exceeded its value in 2007 and who had lost that home by 2009; however, the data show that this situation is a negligible element in the observed outcomes.”
* Saving is hip again. “Most families in each of the relative wealth change categories reported greater desired precautionary savings in 2009 than they had in 2007.” Certificates of deposit and retirement accounts made up a bigger portion of the asset mix in 2009, which is especially impressive considering that interest rates for consumer accounts are close to zero or negative with inflation. Of the whole asset mix surveyed, only bonds and cash-value life insurance appreciated.
* …And that’s bad news for stimulus believers. While the Fed by its nature discourages savings and both the Bush and Obama Administrations sought to spur the economy by getting people to spend stupidly, it looks like the “wealth effect” is moving in the other direction – toward fiscal caution and away from drunken sailorism: “[T]he proportion agreeing that they would spend more if their assets rose is markedly lower than the fraction agreeing they would spend less if their assets declined in value. This outcome suggests that spending responses to wealth changes may be less symmetrical than has been apparent in aggregate data.” Needless to say, the Fed sees this prudence as bad news: “The data show signs that families’ behavior may act in some ways as a brake on reviving the economy in the short run.” As recently as last Christmas, Keynesians were still hoping for a return to spending, but that didn’t really happen.
In fact, the important question is what has happened to Americans’ wealth since 2009. Real estate has obviously continued to decline, and unemployment is higher than it was at the beginning of 2009. Stock market investments have been up and down, and will be down again. You could make the case that household net worth has been essentially flat since hitting rock bottom in the beginning of 2009. We’re still worth a lot less than we were in 2007, and thanks to the Fed’s two rounds of quantitative easing, our dollars are worth less too.
So basically the only good news here is that Americans remain tough and optimistic people: “In all wealth-change groups, most families found at least something positive in their experience, and the most common response was an answer that indicated a recognition that the workers in the family had managed to keep or get a job or that their income had somehow otherwise been maintained at an adequate level.”
http://reason.com/blog/2011/03/27/how-much-poorer-are-we-grim-ne
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Quite contrary in its opinions, but several charts on this site give me pause , , ,
http://www.marketanthropology.com/p/chart-of-day.html
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http://www.theatlantic.com/business/archive/2011/04/how-safe-is-your-roth-ira/237081/
How Safe Is Your Roth IRA?
By Megan McArdle
Apr 11 2011, 9:28 AM ET241
The Roth IRA is something close to motherhood, baseball, and apple pie among America's middle class. Thus it's a rather novel sensation to see someone named Gerald Scorse, who seems to be a left-leaning tax activist, takes to the pages of the LA Times to excoriate them.
In a Roth, taxes are treated the other way around. There's no tax break on contributions. But from that point on, taxes simply vanish. As long as the account is at least 5 years old, there is no tax on any withdrawals made after age 59 1/2. There's no requirement that you make a minimum withdrawal -- after age 70 1/2, or ever.
All of which makes Roths a perfect "fiscal Frankenstein." In return for little more than ordinary upfront taxes, Congress waived untold billions in future Treasury receipts. Then, too, Roths could be a drag on the U.S. economy. Since no withdrawals are required, assets can lie idle indefinitely.
For Roth holders, the accounts become a permanent, federally sanctioned tax shelter. For America, they're a bit like toxic instruments on the nation's books. Worse, Congress has them on steroids, and President Obama wants to up the dosage.
The limit on annual Roth contributions has risen from $2,000 to $5,000. Persons over 50 can add another $1,000 to "catch up." That's a $6,000 per-year maximum, $12,000 for a married couple -- triple the original limits.
While this argument is rather novel, I doubt it will be unique. I'm less excited about Roth IRAs than most people who write about personal finance, and that's because over the years, I expect we're going to see a lot more op-eds like Scorse's. When I look at the budget problems we face, I'm skeptical that Congress is going to live up to its promise to keep its hands off that money. At the very least, I'd bet that high earners are going to see some sort of surtax on their Roth withdrawals.
Of course, I think this is true of non-Roth retirement savings as well. Ultimately, Congress is going to be faced with penalizing people who didn't save adequately for retirement by cutting their benefits, or penalizing people who did save, by raising taxes on their savings. For a lot of reasons, I expect them to err on the side of penalizing savings. This may have some very ill effects on capital formation in the US--but by the time they're making this decision, everything they do is going to have some very ill effects on something.
So why, despite all this, do I recommend higher savings? Why not consume now and force Congress to subsidize a modest existence later?
In part, I'm afraid, it's just my bourgeois ancestry speaking: decent people do not deliberately put themselves in a position where others are forced to support them--no, not even if lots of other people are doing it. But also because it's important to be financially comfortable in retirement, if you can swing it--and while Congress may penalize savers, I doubt it will actually make them worse off, on average, than people who didn't save.
"To hell with that!" say some of my commenters. "I want to enjoy my money now, when I'm young! Who cares if my old age is miserable--being old is miserable anyway!"
This sounds to me rather like the people I knew in college who didn't bother about getting themselves a career, because being 35 sucks anyway. When last heard from, several of them were using their Ivy League degrees to perform modestly remunerated administrative and clerical work. It is true that in many ways 38 is not quite as much fun as 18, starting with the fact that 18, I could raise both arms all the way over my head, and my lower back didn't bother me on long car trips. But it's still surprisingly enjoyable--especially if you have an interesting job that provides some income. While it's true that the thought of myself at 68 is still kind of horrifying, I assume that it will be considerably less horrifying if I can spend the occasional month traveling around Europe.
So I don't advise not saving. But I've started thinking about saving in ways that Uncle Sam won't be tempted to touch--like paying off your house early, maybe buying a vacation home (for cash) if you know where you're likely to want to spend a lot of time, and doing the kind of renovations that save you money in the long run--better insulation, higher-end energy-efficient appliances, etc. Paying now to lower your monthly costs later may have a better after-tax return than that "tax free" account.
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One thing about a ROTH that is never stated is very important -- even if you think an IRA and a ROTH will be a wash for your tax bracket in retirement, there is another savings. Withdrawals from a ROTH do not count as part of the normally non-taxable income which is added to your normally taxable income to figure out how much tax you pay on your Social Security. That makes a ROTH conversion worthwhile even if your tax bracket remains the same. And a reason to always fund a ROTH instead of an IRA.
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What are lucid analysts saying about increases in interest rates and inflation? And the chance of unexpected inflation? Should bond holders pre-emptively shorten their duration, or is everything priced in to the market already? Its important since the NAV of bond funds have often risen in the last couple of years, so swapping will incur some capital gains taxes.
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Interesting point about the ROTH, CL.
Concerning interest rates: Not only is Bill Gross of Pimco (considered by most the alpha dog of bonds with over $1T (!!!) IIRC) 100% out of Treasuries, my understanding he is now SHORTING them!!! :-o :-o :-o
BTW, for the record, I have long given up on the perfect market theory and now believe the market can be wrong longer than I can stay solvent.
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Its a tough market. People who are retired & depend on fixed income can get killed easily by rising rates + inflation. They need a large "bucket" for current expenses.
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Crafty posted on Dec. 23, 2010:
Grannis and Wesbury have similar perspectives (both are supply siders btw). David Gordon, Scott Grannis and I are part of an email group and David is a high level market player with the pay-to-enter blog www.investmentpoetry.com to which I subscribe. David, who has quite a number of remarkably prescient market calls into an excellent stock picking and timing record, thinks we are about to have a sharp downturn, and that there will be a big downturn sometime in 2011-- currently he suspects it will be around the middle of the year but reserves the right to evolve his views as time goes by.
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Charts and analysis worth considering
http://finance.townhall.com/columnists/mikeshedlock/2011/06/04/awful_bad_jobs/page/full/
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At the start of the year Grantham of GMO figured the market would go down around October, but recently said he thinks it will happen sooner.
I'm more of a buy, hold, rebalance index fund Boglehead than a stock trader.
I'm trying to figure out what inflation will do; I could get enough growth in bonds as long as they are not eroded by inflation.
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I brought this thread to David's attention and he is kind enough to share the following:
=============================
The stock market continues the price correction that began 2-4 May, worsened somewhat on Friday after the disappointing labor statistics released pre-opening. The S&P 500 E-min Futures/ES, now 1298, could drop to the 1285-1266 range over the course of this week.
And yet, and yet… empirical data sources – such as major sentiment surveys, put/call ratios, and liquidity measures – remain and continue to suggest that the market is closer to the end of a correction than the beginning (of one). With sentiment data in a relatively supportive position, I would continue to buy relatively strong positions and stocks that remain in respective wave-4s in anticipation of a climactic low over the next few sessions to week. iow, the market’s decline of the past 4-6 weeks, seemingly terrible on its surface, in fact nears its end on a price and time basis — and increasingly manifests as a positive pattern and setup, short and intermediate term. Frustrating short term, I am sure, but even a cursory glance would reveal the increasing abundance of long side opportunities.
A sprinkling of specifics...
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Thanks, DMG and Crafty
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The SEC just might bring civil fraud
charges<http://online.wsj.com/article/SB10001424052702303499204576389973019552548.html>
against
ratings agencies for their role in the financial crisis. Regulators are
focusing on whether S&P and Moody's failed to adequately rate the subprime
mortgages that underpinned mortgage-bond deals.
David
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The SEC just might bring civil fraud
charges<http://online.wsj.com/article/SB10001424052702303499204576389973019552548.html>
against
ratings agencies for their role in the financial crisis. Regulators are
focusing on whether S&P and Moody's failed to adequately rate the subprime
mortgages that underpinned mortgage-bond deals.
David
My first thought reading this is Chicago-style thug payback for suggesting the US might lose it's AAA status. Yes? No?
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My first reaction is that IMHO the ratings agencies acted with spectacular recklessness and that I have no problem with this.
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"My first reaction is that IMHO the ratings agencies acted with spectacular recklessness and that I have no problem with this." [SEC pursuing fraud charges against rating agencies.]
That was my first thought too. Too few people were investigated and prosecuted over the last round of widespread sleaze.
My next thought, based on distrust of Obama DOJ, we are probably pursuing the wrong people for the wrong reasons.
I have no idea on the underlying facts at this point, but agree in principle that if the truly guilty can be identified, they will deserve the full force of both civil and criminal proceedings.
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Betting on the Bad Guys
Cartoonist Scott Adams's personal road to riches: Put your money on the companies you hate the most
By SCOTT ADAMS
When I heard that BP was destroying a big portion of Earth, with no serious discussion of cutting their dividend, I had two thoughts: 1) I hate them, and 2) This would be an excellent time to buy their stock. And so I did. Although I should have waited a week.
People ask me how it feels to take the side of moral bankruptcy. Answer: Pretty good! Thanks for asking. How's it feel to be a disgruntled victim?
I have a theory that you should invest in the companies that you hate the most. The usual reason for hating a company is that the company is so powerful it can make you balance your wallet on your nose while you beg for their product. Oil companies such as BP don't actually make you beg for oil, but I think we all realize that they could. It's implied in the price of gas.
Scott AdamsI hate BP, but I admire them too, in the same way I respect the work ethic of serial killers. I remember the day I learned that BP was using a submarine…with a web cam…a mile under the sea…to feed live video of their disaster to the world. My mind screamed "STOP TRYING TO MAKE ME LOVE YOU! MUST…THINK…OF DEAD BIRDS TO MAINTAIN ANGER!" The geeky side of me has a bit of a crush on them, but I still hate them for turning Florida into a dip stick.
Apparently BP has its own navy, a small air force, and enough money to build floating cities on the sea, most of which are still upright. If there's oil on the moon, BP will be the first to send a hose into space and suck on the moon until it's the size of a grapefruit. As an investor, that's the side I want to be on, with BP, not the loser moon.
I'd like to see a movie in which James Bond tries to defeat BP, but in the end they run Bond through a machine that turns him into "junk shot" debris to seal a leaky well. I'm just saying you don't always have to root for Bond. Be flexible.
Perhaps you think it's absurd to invest in companies just because you hate them. But let's compare my method to all of the other ways you could decide where to invest.
Technical Analysis
Technical analysis involves studying graphs of stock movement over time as a way to predict future moves. It's a widely used method on Wall Street, and it has exactly the same scientific validity as pretending you are a witch and forecasting market moves from chicken droppings.
Investing in Well-Managed Companies
When companies make money, we assume they are well-managed. That perception is reinforced by the CEOs of those companies who are happy to tell you all the clever things they did to make it happen. The problem with relying on this source of information is that CEOs are highly skilled in a special form of lying called leadership. Leadership involves convincing employees and investors that the CEO has something called a vision, a type of optimistic hallucination that can come true only in an environment in which the CEO is massively overcompensated and the employees have learned to be less selfish.
Track Record
Perhaps you can safely invest in companies that have a long track record of being profitable. That sounds safe and reasonable, right? The problem is that every investment expert knows two truths about investing: 1) Past performance is no indication of future performance. 2) You need to consider a company's track record.
Right, yes, those are opposites. And it's pretty much all that anyone knows about investing. An investment professional can argue for any sort of investment decision by selectively ignoring either point 1 or 2. And for that you will pay the investment professional 1% to 2% of your portfolio value annually, no matter the performance.
Invest in Companies You Love
Instead of investing in companies you hate, as I have suggested, perhaps you could invest in companies you love. I once hired professional money managers at Wells Fargo to do essentially that for me. As part of their service they promised to listen to the dopey-happy hallucinations of professional liars (CEOs) and be gullible on my behalf. The pros at Wells Fargo bought for my portfolio Enron, WorldCom, and a number of other much-loved companies that soon went out of business. For that, I hate Wells Fargo. But I sure wish I had bought stock in Wells Fargo at the time I hated them the most, because Wells Fargo itself performed great. See how this works?
Do Your Own Research
I didn't let Wells Fargo manage my entire portfolio, thanks to my native distrust of all humanity. For the other half of my portfolio I did my own research. (Imagine a field of red flags, all wildly waving. I didn't notice them.) My favorite investment was in a company I absolutely loved. I loved their business model. I loved their mission. I loved how they planned to make our daily lives easier. They were simply adorable as they struggled to change an entrenched industry. Their leaders reported that the company had finally turned cash positive in one key area, thus validating their business model, and proving that the future was rosy. I doubled down. The company was Webvan, may it rest in peace.
(This would be a good time to remind you not to make investment decisions based on the wisdom of cartoonists.)
But What About Warren Buffett?
The argument goes that if Warren Buffett can buy quality companies at reasonable prices, hold them for the long term and become a billionaire, then so can you. Do you know who would be the first person to tell you that you aren't smart enough or well-informed enough to pull that off? His name is Warren Buffett. OK, he's probably too nice to say that, but I'm pretty sure he's thinking it. However, he might tell you that he makes his money by knowing things that other people don't know, and buying things that other people can't buy, such as entire companies.
People Love Berkshire Hathaway And That Has Done Great
I'm not saying that the companies you love are automatically bad investments. I'm saying that investing in companies you love is riskier than investing in companies you hate.
Second, take a look at Berkshire Hathaway's holdings. It's a rogue's gallery of junk food purveyors, banks, insurance companies and yes, Goldman Sachs and Moody's. The second largest holding of Berkshire Hathaway is…wait for it…Wells Fargo.
(Disclosure: I own stock in Berkshire Hathaway for the very reasons I'm describing. And my first job out of college was at Crocker National Bank, later swallowed by Wells Fargo.)
Let's talk about morality. Can you justify owning stock in companies that are treating the Earth like a prison pillow with a crayon face? Of course you can, but it takes some mental gymnastics. I'm here to help.
If you buy stock in a despicable company, it means some of the previous owners of that company sold it to you. If the stock then rises more than the market average, you successfully screwed the previous owners of the hated company. That's exactly like justice, only better because you made a profit. Then you can sell your stocks for a gain and donate all of your earnings to good causes, such as education for your own kids.
Having absorbed all of the wisdom I have presented here so far, you are naturally wondering if I have any additional investment tips. Yes, and I will put my tips in the form of a true story. Recently I bought something called an iPhone. It drops calls so often that I no longer use it for audio conversations. It's too frustrating. And unlike my old BlackBerry days, I don't send e-mail on the iPhone because the on-screen keyboard is, as far as I can tell, an elaborate practical joke. I am, however, willing to respond to incoming text messages a long as they are in the form of yes-no questions and my answer are in the affirmative. In those cases I can simply type "k," the shorthand for OK, and I have trained my friends and family to accept L, J, O, or comma as meaning the same thing.
The other day I was in the Apple Store, asking how to repair a defective Apple laptop, and decided, irrationally, that I needed to have Apple's new iPad. The smiling Apple employee said she would be willing to put me on a list so I could wait an indefinite amount of time to maybe someday have one. I instinctively put my wallet on my nose and started barking like a seal, thinking it might reduce the wait time, but they're so used to seeing that maneuver that it didn't help.
My point is that I hate Apple. I hate that I irrationally crave their products, I hate their emotional control over my entire family, I hate the time I waste trying to make iTunes work, I hate how they manipulate my desires, I hate their closed systems, I hate Steve Jobs's black turtlenecks, and I hate that they call their store employees Geniuses which, as far as I can tell, is actually true. My point is that I wish I had bought stock in Apple five years ago when I first started hating them. But I hate them more every day, which is a positive sign for investing, so I'll probably buy some shares.
Again, I remind you to ignore me.
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How can investors prepare themselves for a major Chinese slowdown?
Doubts are mounting about the health of China's property market, Beijing's ability to control inflation and the true extent of government debt. Last week, the central government disclosed that local governments owed debts equal to a quarter of gross domestic product. It's hard to imagine a large chunk of those borrowings won't turn sour.
View Full Image
Agence-France Presse
Lunch at a Chinese construction site.
All that means bets against China are attracting new attention.
Popular places to profit from a negative bet on China have gotten crowded. In recent months, some hedge funds have earned big money after borrowing shares of U.S.-listed Chinese companies, many with auditing or governance problems, in order to profit from their subsequent fall.
Several say the easy money has been made. More to the point, these stock bets aren't really a play on China's broader economic health but rather on specific company woes.
Some investors are shorting exchange-traded funds that invest in China's heavily restricted yuan-denominated "A-share" markets in Shanghai and Shenzhen—that is, selling borrowed securities to profit from their fall. But the underlying A shares are battered, with the main index off nearly 20% its post-financial crisis highs of August 2009. Hong Kong-listed Chinese shares are more accessible for shorts, some of whom have taken negative positions on the Hang Seng Index or individual stocks, but the market there for Chinese shares is also pretty beaten down.
Short Plays
Examples of how an investor can bet on a major China slowdown through currencies. If the option expires without hitting the strike price, the total investment is lost. However, investors can also sell the options before they expire. When the currency moves in the direction of the bet, the option generally rises in value.
"One-touch" options pay off a specified amount once the currency pair reaches a certain level. "European-style" options allow the investor to exchange currencies at a specified rate on a predetermined future date.
Australian Dollar One Touch
Investor buys a one-touch option that pays US$1,000,000 if the Australian dollar falls to 70 U.S. cents any time within two years from its current level of around $1.07. The option now costs about US$120,000. If the strike price is hit, the investor makes a return of about 730%.
Australian Dollar European-Style Option
Investor buys a European-style option to sell the Australian dollar at 70 U.S. cents when the option expires in two years. An option that allows the investor to sell US$10 million of Australian dollars at 70 U.S. cents now costs about US$160,000. The more the Aussie dollar falls below 70 cents by the expiry date, the greater the return.
Canadian Dollar European-Style Option
Investor buys a European-style option to buy the U.S. dollar at 1.30 Canadian dollars in two years, compared to its current level of 86 Canadian cents. It now costs about US$80,000 to buy an option for US$10 million of Canadian dollars at C$1.30 cents. The more the U.S. dollar rises above C$1.30 by the expiry date, the greater the return.
Yuan Non-Deliverable European-Style Option
Investor buys a "European-style" option to buy the U.S. dollar at 8 yuan in two years, compared to its current level of 6.46 yuan. An option that allows the investor to buy US$10 million of yuan at 8 yuan now costs about US$50,000. The more the U.S. dollar rises above 8 yuan by the expiry date, the greater the return. With non-deliverable yuan trades, no yuan actually changes hands.
Source: WSJ Research
However, there are other ways to profit from a China implosion. While stocks have sagged, currencies and commodities subject to the country's huge influence over global demand are still hovering at levels that suggest nothing is wrong.
The Australian dollar has soared 75% against the U.S. dollar from lows set during the global financial crisis, in large part because of Chinese demand for the country's iron ore, coal, gas and other resources. It remains surprisingly close to its all-time highs, even as commodity prices have fallen back.
The Canadian dollar could be another, less obvious way to play a Chinese slowdown, particularly for those feeling gloomy about the U.S. and Europe and therefore expect weak demand for Chinese exports.
Like Australia, Canada would suffer from a drop in Chinese consumption of its oil, gas and minerals. If China sees both exports and imports fall off, it will have less money to buy Canadian government debt, too. That could depress the Canadian dollar, which still trades about 27% above its financial-crisis lows against the U.S. dollar.
A bet against the Canadian dollar is a bit cheaper than one against its Australian counterpart, in part because Canadian interest rates aren't as high, a main cost factor in pricing currency bets such as swaps and options.
Then there's copper. China is the No. 1 consumer of the red metal, which is used for pipes and wires in buildings. That makes it a proxy play on Chinese real-estate. On Friday, three-month copper prices fell as low as $9,345 a metric ton in London, down from $9,429 a ton Thursday, after the release of a soft Chinese purchasing managers index.
But prices remain more than double their levels from late 2008. And the last time China's Purchasing Managers Index was at current sluggish levels of around 50, copper was closer to $7,000 a ton, notes Patrick Perret-Green, a Singapore-based strategist for Citigroup.
Bets that rely on a China slowdown rippling through the corporate world are another avenue. Hugh Hendry, who runs Eclectica Asset Management in London, has taken an unusual short-China position by buying up credit-default swaps on Japanese companies he believes would suffer from a slowdown in exports to China, now Japan's biggest trading partner.
Perhaps the longest shot is betting on a fall in China's currency. That play has recently picked up some fans willing to defy the conventional wisdom that the yuan can only go up against the dollar. Bankers say hedge funds are buying cheap positions that will score huge profits if the yuan suddenly falls. But China's currency isn't freely convertible, and Beijing retains a lot of scope— $3 trillion in currency reserves, or the equivalent of 51% of GDP—to manipulate the exchange rate if it needs to. It's easy to envision a scenario where China's economy suffers while the currency doesn't budge. As one banker put it, these bets are cheap to make for a reason.
China shorts have been on a roll for over a year now. Hedge-fund manager James Chanos took a public beating early last year for challenging China's economic fundamentals, and asserting that it was in the midst of a "credit-driven property bubble." There's a lot more people agreeing with him these days.
They may not all be right. The negative China buzz could turn out to be a passing phase, and the chance to make money as a short has passed.
Indeed, some analysts argue that Chinese stocks are so beaten down that it's time for a rally. Royal Bank of Scotland predicts the MSCI-China index could jump as much as 80% through 2012 as Beijing shifts toward growth policies ahead of a change in China's leadership next year.
China proved naysayers wrong many times in the past. Even if things turn bad, it may take longer to happen than some might think. An investor who's right at the wrong time could lose a lot of money waiting to be vindicated.
Like long-term China bulls, the shorts may need to acquire a knack for patience.
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About a year ago ? the Euro had its first bad spell due to the Greek situation.
During that time, exactly what happened in the markets? I am guessing that there was a flight to safety for the dollar and attendant downward pressure on interest rates. What happened to gold, silver, US markets?
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Crafty, Doug, Gm all,
Would the economy really tank if a debt ceiling is not raised as the crats claim?
Any one know?
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No. The debt is what is killing us. We have the money to pay our creditors (thus far) and still send out the social security checks (so far). What's going to kill us is the loss of faith in our ability to deal with the debt.
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Great question CCP. Revenues are something like 2.5 trillion. That is the start of what you have to work with if you don't raise the debt limit. Spending was supposed to be something like $3.8 trillion. In theory we would go ahead with 'essential services' governing and sending out 'checks' up to the 2.5 trillion limit which is more than a trillion of instant cuts. If Dems would agree to that they could more easily agree to just half that and still get their debt limit raised. In reality, Dems like the current governor in MN end all the things first that hurt the most to turn up the heat on his opponents because the issue to him is all political, not economic.
If we are 40% unfunded, then without tax increases or borrowing we in theory would layoff very roughly 40% of federal government workers. Those people could instantly become successful entrepreneurs... more likely they start looking like the state workers and teachers that were hanging around the state capital in Madison during the recent unrest. Also they would flood and overload local aid offices if instantly unfunded by the feds.
No, a trillion dollar 'layoff' with no phase in and no simultaneous adoption of pro-growth private sector policies I think is a prescription for chaos and unrest. I called it earlier all root canal and no pain killer. Like the frog in the water on the stove top, We need to apply the heat gradually IMHO.
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We're drifting a bit back towards budget discussion, but what I want to focus on here is what to do with my meager savings, hence the specific questions I asked.
BTW, did anyone notice Moody's warning shot across the bow? IMHO a downgrade would mean instant higher interest rates, which means the deficit instantly becomes bigger.
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Crafty,
Are you upside down on your house? If not, sell it and buy in a better place.
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Bought it in 1997 and so we are still solidly in the black. Moving out of CA is under consideration.
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Bought it in 1997 and so we are still solidly in the black. Moving out of CA is under consideration.
Your window to sell and GTFO to a better place is rapidly shrinking, IMHO. Act with urgency.
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http://dilbert.com/strips/comic/2011-07-31/
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Monday Morning Outlook
GDP: Not As Bad As It Seems To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 8/1/2011
Equities had a bad day on Friday, part of which was caused by a pretty dismal GDP
report – with a large downward revision to first quarter real growth.
Apparently, the economy grew at an anemic 0.4% annual rate, not 1.9%.
We didn’t like it either, until we realized that most of this revision was due
to fewer inventories, which, if anything, creates more room for future growth. Not
all revisions were negative. Real growth in 2010 was revised up to 3.1% from a prior
estimate of 2.8% and pre-tax corporate profits are now estimated to be 9% higher
than originally thought. After-tax profits were revised up 15%.
It turns out, at least until the next big revisions, that the recession (in 2008)
was worse and the earliest stages of the recovery in 2009 were slower. This helps
explain, for now, why the unemployment rate went so high, so fast. It also makes the
recession look more like a panic, which we believe it was.
The most consistent theme of Friday’s revisions had to do with the mix of
nominal GDP, the combination of real GDP and inflation. The report showed that real
GDP has been lower – due to the recession and early recovery – while
inflation has been higher. Nominal GDP changed little.
This must be quite jarring to the Keynesian mindset, both on monetary policy and
fiscal policy. The Federal Reserve embarked on a second round of quantitative easing
very late in 2010 and yet real growth slowed. Meanwhile, the payroll tax rate was
cut by two percentage points this year and growth nearly petered out. If loose money
and big budget deficits don’t boost real growth the Keynesian bag of tricks is
pretty empty.
More importantly, with the recession so deep and today’s growth so slow, the
Keynesian model says inflation can’t exist. But it does, even though the
jobless rate is 9.2%, manufacturing capacity utilization is still below 80% and the
economy is operating far below its potential.
It’s much easier to explain the rise in inflation with our model. The Fed has
been holding short-term interest rates near zero, which is well below the trend in
nominal GDP growth. Nominal GDP has grown 3.7% in the past year and at a 4.1% annual
rate in the past two years. Continuing ultra-low interest rates in the face of much
faster nominal GDP growth is going to keep inflation rising even if the economy
remains weak, which we do not believe will happen.
It’s not that we don’t care about the GDP report; it’s that it is
old news. The second half of the year still looks very bright. The Fed is easy,
there is some spending restraint on the way, auto production and home building are
at an inflection point, and corporate America is in a great position to invest.
This information contains forward-looking statements about various economic trends
and strategies. You are cautioned that such forward-looking statements are subject
to significant business, economic and competitive uncertainties and actual results
could be materially different. There are no guarantees associated with any forecast
and the opinions stated here are subject to change at any time and are the opinion
of the individual strategist. Data comes from the following sources: Census Bureau,
Bureau of Labor Statistics, Bureau of Economic Analysis, the Federal Reserve Board,
and Haver Analytics. Data is taken from sources generally believed to be reliable
but no guarantee is given to its accuracy.
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"Tis only a scratch".
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Worth noting that as the Deficit Continuance Bill was passed into law today, the market dove more than 264 points, to close well below 12,000. Good thing the DCB was passed to reassure the market! :roll:
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Worth noting that as the Deficit Continuance Bill was passed into law today, the market dove more than 264 points, to close well below 12,000. Good thing the DCB was passed to reassure the market! :roll:
So, easy question: what are investors going to wait for before they start placing bets again? We are interested in investing right now but nothing seems like a good bet.
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Obama's defeat.
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"what are investors going to wait for before they start placing bets again?"
Across the board, pro-growth economic policies, which means yes, 'Obama's defeat' with a mandate to do something positive, also giving Harry Reid a new 'minority leader' title, repealing Obama care, a lightening of quadruple taxation on businesses, a stable dollar policy, a regulatory environment conducive to manufacturing, hiring and building, an energy policy committed to power us with what we know up until we invent a cleaner, safer, cheaper form of sufficient energy, and a public sector scaled back (really) to a size that can be pulled by our private economic engine. Removing the cloud of certainty/uncertainty that something worse from the government is coming at you just down the pike.
If we survived this, I think any serious movement on ALL of those fronts would trigger an economic re-birth.
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Obama's defeat.
Or maybe pray for his re-election. :-D
The stock market was around 8000 when Obama came into office. Now it's around 12,000.
That's nearly a 50% increase in three years just throwing darts at the board. Pretty impressive.
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At 11,759 right now. Gold is up though.
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I guess even a clock is right twice day:
***Breakout
EZchip Announces Record Second Quarter 2011 Results; Second Quarter Revenues Increase 16% Year-Over-Year to $17.3 Million
tweet0EmailPrintCompanies:EZchip Semiconductor Ltd. Topics:Earnings Related Quotes
Symbol Price Change
EZCH 31.40 +2.29
n Wednesday August 3, 2011, 8:00 am EDT
YOKNEAM, Israel, Aug. 3, 2011 /PRNewswire/ -- EZchip Semiconductor Ltd. (NASDAQ:EZCH - News), a leader in Ethernet network processors, today announced its results for the second quarter ended June 30, 2011.
Second Quarter 2011 Highlights:
Second quarter revenues increased 16% year-over-year and 31% sequentially, reaching $17.3 million
Gross margin reached 77.9% on a GAAP basis and 80.0% on a non-GAAP basis
Net income was $4.8 million on a GAAP basis, 28% of revenues
Net income was $9.4 million on a non-GAAP basis, 54% of revenues
Operating cash flow of $9.2 million
End of quarter net cash was $121.0 million
Second Quarter 2011 Results:
Total revenues in the second quarter of 2011 were $17.3 million, an increase of 16% compared to $14.9 million in the second quarter of 2010, and an increase of 31% compared to $13.2 million in the first quarter of 2011.
Net income, on a GAAP basis, for the second quarter of 2011 was $4.8 million, or $0.17 per share (diluted), compared to net income of $2.2 million, or $0.09 per share (diluted), in the second quarter of 2010, and net income of $1.5 million, or $0.05 per share (diluted), in the first quarter of 2011.
Net income, on a non-GAAP basis, for the second quarter of 2011 was $9.4 million, or $0.33 per share (diluted), compared to non-GAAP net income of $7.1 million, or $0.26 per share (diluted), in the second quarter of 2010, and non-GAAP net income of $5.4 million, or $0.19 per share (diluted), in the first quarter of 2011.
Cash, cash equivalents and marketable securities as of June 30, 2011, totaled $121.0 million, compared to $108.5 million as of March 31, 2011. Cash generated from operations during the second quarter was $9.2 million, cash used in investing activities was $0.1 million and cash provided by financing activities (resulting from the exercise of options) was $3.4 million.
First Six Months 2011 Results
Total revenues for the six months ended June 30, 2011 were $30.5 million, a year-over-year increase of 7% compared to $28.5 million for the six months ended June 30, 2010. Net income on a GAAP basis for the six months ended June 30, 2011 was $6.2 million, or $0.22 per share (diluted), compared to net income of $5.1 million, or $0.20 per share (diluted), for the six months ended June 30, 2010. Net income on a non-GAAP basis for the six months ended June 30, 2011 was $14.8 million or $0.52 per share (diluted), compared with non-GAAP net income of $13.1 million, or $0.50 per share (diluted), for the six months ended June 30, 2010.
Eli Fruchter, CEO of EZchip commented, "The second quarter of 2011 continues our growth trend and was another record quarter for EZchip in all our financial parameters, including achieving an outstanding 54% non-GAAP net income margin. NP-4 is making good progress and we are very comfortable it will move to production during the fourth quarter.
"According to the Carrier Ethernet Equipment Analysis report recently published by Infonetics, Service Providers investment in Carrier Ethernet continues to outpace overall telecom capex, with CESR and Transport, EZchip's target markets, expected to grow to over 70% of the total Carrier Ethernet Equipment market by 2015. The result for us is that the market for our high speed NPUs is growing much faster than previously anticipated in its prior report.
"During the second quarter we also continued to make good progress with our other products that are under development, including the NP-5 and the new product in Kiryat Gat that are expected to become our growth generators when the NP-4 reaches peak revenues in several years."
Conference Call
The Company will be hosting a conference call later today, August 3, 2011, at 10:00am ET, 7:00am PT, 3:00pm UK time and 5:00pm Israel time. On the call, management will review and discuss the results, and will be available to answer investor questions.
To participate through the live webcast, please access the investor relations section of the Company's web site at: http://www.ezchip.com/investor_relations.htm, at least 10 minutes before the conference call commences. If you intend to ask a question on the call, please contact the investor relations team for the telephone dial in numbers.
For those unable to listen to the live call, a replay of the call will be available the day after the call under the 'Investor Relations' section of the website.
Use of Non-GAAP Financial Information
In addition to disclosing financial results calculated in accordance with United States generally accepted accounting principles (GAAP), this release of operating results also contains non-GAAP financial measures, which EZchip believes are the principal indicators of the operating and financial performance of its business. The non-GAAP financial measures exclude the effects of stock-based compensation expenses recorded in accordance with FASB ASC 718, amortization of intangible assets and taxes benefit (taxes on income). Management believes the non-GAAP financial measures provided are useful to investors' understanding and assessment of the Company's on-going core operations and prospects for the future, as the charges eliminated are not part of the day-to-day business or reflective of the core operational activities of the Company. Management uses these non-GAAP financial measures as a basis for strategic decisions, forecasting future results and evaluating the Company's current performance. However, such measures should not be considered in isolation or as substitutes for results prepared in accordance with GAAP. Reconciliation of the non-GAAP measures to the most comparable GAAP measures are provided in the schedules attached to this release.
About EZchip
EZchip is a fabless semiconductor company that provides Ethernet network processors for networking equipment. EZchip provides its customers with solutions that scale from 1-Gigabit to 200-Gigabits per second with a common architecture and software across all products. EZchip's network processors provide the flexibility and integration that enable triple-play data, voice and video services in systems that make up the new Carrier Ethernet networks. Flexibility and integration make EZchip's solutions ideal for building systems for a wide range of applications in telecom networks, enterprise backbones and data centers. For more information on our company, visit the web site at http://www.ezchip.com.
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements that are not historical facts and may include financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future operations, products and services, and statements regarding future performance. These statements are only predictions based on EZchip's current expectations and projections about future events. There are important factors that could cause EZchip's actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. Those factors include, but are not limited to, the impact of general economic conditions, competitive products, product demand and market acceptance risks, customer order cancellations, reliance on key strategic alliances, fluctuations in operating results, delays in development of highly-complex products and other factors indicated in EZchip's filings with the Securities and Exchange Commission (SEC). For more details, refer to EZchip's SEC filings and the amendments thereto, including its Annual Report on Form 20-F filed on March 31, 2011 and its Current Reports on Form 6-K. EZchip undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or to changes in our expectations, except as may be required by law.
EZchip Semiconductor Ltd.***
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I just came back from a very pleasant day hanging out with a good friend to see the Dow dived 500 today. Uh oh , , ,
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I just came back from a very pleasant day hanging out with a good friend to see the Dow dived 500 today. Uh oh , , ,
Quick! Somebody get Wesbury to tell us how this means things are really going good now.
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Indeed! I will be interested to see how he responds.
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Research Reports
Dow Down 500, But Fundamentals Still Strong To view this article, Click
Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 8/4/2011
Major stock market indices are down 4-5% today as investors move into
panic mode. There is no single piece of news driving the sell-off;
rather the market seems to be gathering downward momentum on its own.
Selling is creating more selling.
Like 1987, the sell-off does not appear to be driven by fundamental
factors. In fact, the fundamentals suggest the market is undervalued
and getting more so as it drops. Many investors assume (or wonder) if
the sell-off is indicating deep economic problems. However, there is no
evidence that this is true.
The Federal Reserve is still running a very accommodative monetary
policy. Money supply data shows no contraction – M1 is up 13.8%
and M2 is up 8.3% at an annual rate over the past thirteen weeks. The
Fed is holding the funds rate near zero, while nominal GDP is rising
near a 4% annual rate recently and “core” inflation is at
3%. In other words, interest rates are very low in comparison.
If you are worried about a cut in government spending –
don’t be. Federal spending in 2011 is still rising and according
to the OMB and CBO it will rise each and every year over the next 10
years. If you are worried about the size of government and think the
budget deal was terrible – you shouldn’t. Supertanker
America is turning and government spending as a share of GDP is
scheduled to fall by about 2% of GDP over the next 10 years.
Corporate earnings are rising rapidly. According to Bob Carey, First
Trust’s Chief Investment Officer, with about 80 companies left to
report, S&P 500 earnings are up 20% over last year and the S&P
500 P-E ratio (on forward earnings) is roughly 12. The market is cheap.
Economic data are not tanking. Initial claims are at 400,000 (down
from 478,000 at the end of April). Car and truck sales were up 6.9% in
July (over June) and chain-store retail sales were up 4.6% in July (from
last year) versus 2.8% year-over-year growth in July 2010. Taken
together, retail sales appear to have increased by about 0.7% in July
even though gasoline prices fell.
Yes, the ISM manufacturing index was just 50.9 in July, but that is the
24th consecutive month above 50 and is consistent with 2% or more real
GDP growth. Finally, the ADP employment report showed 114,000 new
private sector jobs in July, which was the 18th consecutive monthly
gain. In other words, there is absolutely no evidence of a recession at
this point.
This leaves us at perhaps the best explanation for the decline: European
debt problems, specifically Italy. It is clear that hot money is moving
as investors worry about money market funds and bank solvency. The euro
is falling, European bond yields are rising, US Treasury yields are
plummeting and gold is up. Italy says that it does not face imminent
default, but the market acts as if it may.
European countries have spent themselves into a corner, but correcting
this mistake will be good for long-term growth, not bad. While some
financial institutions may take losses, government debt itself is water
under the bridge. It’s a sunk cost. As a result, it has little
effect on the economy unless losses create financial contagion. With
mark-to-market accounting now fixed to allow cash flow to be used to
value assets, the odds of contagion are minimized and the cost of
immunizing America from contagion would be small when compared to 2008.
In the end, the sell-off looks as if it is more of a technical
correction in the market, not a fundamental change in direction. This
does not mean that it will end soon. Corrections run their course and
then end. We wish we could trade each and every move in the market, but
we can’t and we don’t know anyone who can. We are
investors, and the market is more undervalued right now than it was when
it opened for trading this morning.
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The black knight rides again!
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I never thought of there being an algorithim. I always thought it was random. I guess the scratch offs are different from the lotto numbers?:
****'Lucky' woman who won lottery four times outed as Stanford University statistics PhD
By Rachel Quigley
Last updated at 9:06 PM on 7th August 2011
She was called the luckiest woman in the world.
But now that luck is being called into question by some who think that winning the lottery four times is more than just a coincidental spell of good fortune.
Joan R. Ginther, 63, from Texas, won multiple million dollar payouts each time.
Luck?: Ms Ginther won four lots of vast sums on lottery scratch cards, half of which were bought at the same mini mart
First, she won $5.4 million, then a decade later, she won $2 million, then two years later $3 million and finally, in the spring of 2008, she hit a $10 million jackpot.
The odds of this has been calculated at one in eighteen septillion and luck like this could only come once every quadrillion years.
Harper's reporter Nathanial Rich recently wrote an article about Ms Ginther, which questioned the validity of this 'luck' with which she attributes her multiple lottery wins to.
First, he points out, Ms Ginther is a former math professor with a PhD from Stanford University specialising in statistics.
A professor at the Institute for the Study of Gambling & Commercial Gaming at the University of Nevada, Reno, told Mr Rich: 'When something this unlikely happens in a casino, you arrest ‘em first and ask questions later.'
Money bags: First, Ms Ginther won $5.4 million, then a decade later, she won $2 million, then two years later $3 million and finally, in the spring of 2008, she hit a $10 million jackpot
Although Ms Ginther now lives in Las Vegas, she won all four of her lotteries in Texas.
Three of her wins, all in two-year intervals, were by scratch-off tickets bought at the same mini mart in the town of Bishop.
Mr Rich proceeds to detail the myriad ways in which Ms Ginther could have gamed the system - including the fact that she may have figured out the algorithm that determines where a winner is placed in each run of scratch-off tickets.
He believes that after Ms Ginther figured out the algorithm, it wouldn’t be too difficult to then determine where the tickets would be shipped, as the shipping schedule is apparently fixed, and there were a few sources she could have found it out from.
According to Forbes, the residents of Bishop, Texas, seem to believe God was behind it all.
The Texas Lottery Commission told Mr Rich that Ms Ginther must have been 'born under a lucky star', and that they don’t suspect foul play.****
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Obama's defeat.
Or maybe pray for his re-election. :-D
The stock market was around 8000 when Obama came into office. Now it's around 12,000.
That's nearly a 50% increase in three years just throwing darts at the board. Pretty impressive.
Hmmmmm. Got anything else?
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Obama's defeat.
Or maybe pray for his re-election. :-D
The stock market was around 8000 when Obama came into office. Now it's around 12,000.
That's nearly a 50% increase in three years just throwing darts at the board. Pretty impressive.
Hmmmmm. Got anything else?
So far, I don't need anything else. Even after the recent panic selloff, under Obama that is still almost a 15% annualized return on your investment. An outstanding historical annual return. Add in dividends, and the rate of return is even higher. You were saying? :-D
By the way, if you invested money in the stock market for the duration of the Bush eight years, you lost money. A lot.
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I question your stats. So, you think Buraq's big selling point in 2012 will be his awesome economic leadership?
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The stats are right on; even more in Obama's favor if you start the calculation a couple of months after he was inaugurated. In contrast, if you invested
with Bush during his eight years, you lost 25% of your money. :-o
That said, if the economy doesn't improve over the next year Obama's re-election is in jeopardy.
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The market dived precisely when Baraq passed McCain (a pretty hideous candidate in his own right btw) in September. As a forward looking entity, the market was looking at the prospects for cap & trade, Obamacare and so much more. As C&T has been capped and it became clear that the Reps/Tea Party were going to take the house and perhaps the Senate, things improved.
Furthermore if you measure the dollar value of that increase in the DOW you need to take into account that the dollar is worth far, far less in terms of gold, silver, a basket of commodities or any other reasonable facsimile of a constant value measuring stick.
Also, as has been noted here, many/most of the most profitable companies are profitable precisely because of their overseas profits-- which they don't repatriate because of our stupidly high corp tax rate (#2 in the developed world and some 50% higher than in Europe)
Also, the Dems demogogued Bush serious efforts at reforming SS and the Dems took Congress in 2006 and that is where spending originates.
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You can spin the numbers any which way, maybe sunspots are relevant too :-D
I just compared Dow Closing to Dow Closing. Simple, easy, and straightforward.
As do most statistical comparisons.
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"As C&T has been capped and it became clear that the Reps/Tea Party were going to take the house and perhaps the Senate, things improved"
In my opinion (out of the 7 billion that exist on Earth) I would suggest the market will not really recover till the Repubs get the WH back and a majority in the Senate - although a fillibuster proof is necessary with the Dems who have proven they can/will block everything in sight.
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WOW, that was really ugly today!!!
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WOW, that was really ugly today!!!
PRESIDENT DOWNGRADE: Dow Finishes Down 634 Points. Obama’s speech certainly did nothing to slow the drop, though I suppose the White House will argue that it would have been 734 without the speech, meaning that Obama saved or created 100 Dow points . . . .
Posted at 4:42 pm by Glenn Reynolds
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Yes and that it was all due to the Tea Party that dared to hold firm against the expanding ponzi scheme.
If only they compromised instead. :roll:
If only increased taxes were included. :roll:
If only they didn't hold a gun to the heads of the "American people" who also refuse to face reality while the train goes off the edge into the grand canyon. :roll:
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I'm eager to see Buraq's economic plan to turn things around. He's been hiding it until now because it's so awesomely awesome that if it was released before now, the stock market would be at 100,000,000 and unemployment at 0.0000001%.
He didn't want anyone accidentally blinded by it's sheer brilliance.
There is no way it's tax and spend. That's like some republican myth.
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http://www.realclearpolitics.com/video/2011/08/02/debbie_wasserman_schultz_weve_really_begun_to_turn_the_economy_around.html
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CCP: I love the story about the Stanford trained statistician winning 4 million plus lotteries - "The odds of this has been calculated at one in eighteen septillion and luck like this could only come once every quadrillion years." I hate the lotteries and maybe this will disrupt some of the enthusiasm.
I can't remember what qudrillion and septinllion mean. I just remember S. Palin saying 'don't anyone tell Obama what comes after a trillion.'
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Down down 634: Are people reading these pages this year still in stocks?
Dow up 50% during the early part of the Obama administration?
Things like inaugurations or New Years make lousy benchmarks. If that is the test, Democrats in reality took control of the domestic agenda Nov 2006 / Jan 2007. Result was the end of 50 months of growth, stagnation and collapse. Then they took the White House. I would assume that the selloff of 2008 was oversold. People sold everything and had to wait 30 days plus until charts started upward to buy back in, with capital gains paid at the old rate. I would guess this rise was over-bought. Dow companies like CocaCola and McDonalds have 75-80% of their business outside Obama's jurisdiction. Did these investors know they were buying into 0.4% growth? Did they know that 90% of Obama's job growth rate ended the day Obamacare was passed. Chart below. Obama is not done. This carnage is on his watch too. I would estimate approaching 10 trillion is losses just the last 2 market days.
"By the way, if you invested money in the stock market for the duration of the Bush eight years, you lost money. A lot."
Once again, a FLAWED analysis. The market crash started with NASDAQ March 2000, 6 monthsw before the election, 9 months before the name changed on the door. The downturn was going on no matter WHO was in power, until conditions and policies changed. The attacks of 9/11/2001 were planned and happening no matter whose watch, unless someone else would have prevented it. The recovery started the day policies changed, the 2003 tax rate reductions. The recovery ended the day the policy arrow changed with the Nov 2006 election. Why lump those those 3 distinct periods together and lose all meaning to the pretend analysis?
Instead, look for peak to trough or inflection points and look for causation. Track the results to policy changes implemented or expected rather than the nameplate on the door. I would love to see a comprehensive supply-side, pro-growth package passed and signed overnight tonight (impossible). New flat and simple tax code, regulation rollback, corporate tax rolled back, loopholes gone, cap and trade scrapped, Obamacare repealed, energy projects approved coast to coast, all pending trade agreements passed, states add capital gains preferences, reform all major entitlements . Obama can take credit. Chart THAT! We could have 8% growth tomorrow IMO if people really wanted to solve this.
US Job growth following Obamacare passage:
(http://www.heritage.org/research/reports/2011/07/%7E/media/Images/Reports/2011/07/wm3316_chart1.ashx?w=500&h=718&as=1)
http://www.heritage.org/research/reports/2011/07/economic-recovery-stalled-after-obamacare-passed
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"By the way, if you invested money in the stock market for the duration of the Bush eight years, you lost money. A lot."
Once again, a FLAWED analysis.
:?
Let's keep it simple.
It's not a "FLAWED analysis. It's a simple fact.
How you want to spin it (excuse it) is up to you.
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JDN,
The asian markets are plummeting right now. How do you think we'll do tomorrow?
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A bubble was created in the market by the Fed with its insane interest rate policies and the monetization of the debt and deficit. This is not an accomplishment. It is simply creating a bigger and more disastrous reality than the housing bubble.
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JDN,
The asian markets are plummeting right now. How do you think we'll do tomorrow?
GM; I have no idea what the markets will do tomorrow. I'ld be rich if I did.
But heck, if it drops another 1000 points, you still have made more than 10% on your money annualized since Obama has been
in office. Not bad.
What i do know (FACT) is that it can continue to drop another 4000 points and the market's performance during Obama's presidency will STILL be a lot better than the market during Bush's presidency.
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Bwahahahaha! Ok JDN. Keep telling yourself that.
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Well then putting aside all the other points which you are not addressing, let us list the other facts concerning food prices un and underemployment, indebtedness per citizen and a whole clusterfcuk of other data.
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No interest in tying policies to results and results to policies? My mistake -I thought this was one of the triple digit threads.
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No interest in tying policies to results and results to policies? My mistake -I thought this was one of the triple digit threads.
What we have here is a "bitter clinger", desperately trying to hold on to "Obama as savior" delusions. We're going to see a lot of this as the welfare state dies.
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No interest in tying policies to results and results to policies? My mistake -I thought this was one of the triple digit threads.
What we have here is a "bitter clinger", desperately trying to hold on to "Obama as savior" delusions. We're going to see a lot of this as the welfare state dies.
Well then putting aside all the other points which you are not addressing, let us list the other facts concerning food prices un and underemployment, indebtedness per citizen and a whole clusterfcuk of other data.
:?
I'm the one who said unless the economy improves, i.e. jobs, Obama is in trouble.
But all your spin, excuses, and attempts to obfuscate the facts isn't relevant. I'm not addressing the issue of of "food prices, unemployment, indebtedness", or Werewolf's, or Sunspots, or Devils, only that the Stock Market is up during Obama's tenure (way up, even after today) and was down (a negative return) during Bush's.
Is that fact hard to accept?
:evil:
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Please address then the valuations of the dollar in gold, silver, commodities, and other currencies.
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Please address then the valuations of the dollar in gold, silver, commodities, and other currencies.
Ahhh new subject. Finally.
What do you want me to say? Gold is up (I rode it until 3 weeks ago and got out too early), silver is up, commodities are up, although overall inflation
is minimal. Overall, that's good right? Inflation is not an issue at this time. Yes, the dollar has fallen compared to other currencies. But you know all that.
We could talk about the growing vegetables (I am), riding motorcycles (I'm not) or a multitude of various subjects non having to do with the closing price of the Stock Market.
Let's look at it from the average American. How does the dollar affect me? Well, not much, except when I want to travel abroad or if I buy foreign goods. However, in this international world where manufacturing is rarely done at home, prices are hard to predict. For example, Japanese cars (the Yen is way up) are often made in American and other countries, so the price of the car has not risen that much.
If you are an American living in let's say MN, I don't think it affects you too much. If you are an American living in MN and exporting, well a weak dollar gives you a competitive advantage. That means more jobs in America. That's good right?
As for food prices, I know flour is up, but is that financial markets, or simply weather or disease? I don't know. Or care. Most prices are flat.
Most Americans don't know or care about the price of gold, silver or the dollar. They just want jobs. Americans aren't an international group; most as my father and brother do stay home and never travel abroad. Who cares they say if the dollar is high or low?
I'm rambling. This is not my choice of subject nor do I think it is a particularly big issue or one that most American's care about. I don't think it's a big deal (although I like to travel) the dollar is weak. And frankly, at this point, given our economy and theirs, I would rather buy dollars than Euro's. I don't even understand why the Yen is so strong given Japan's debt and their economy.
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"...How does the dollar affect me? Well, not much, except when I want to travel abroad or if I buy foreign goods."
It will affect you more than you admit.
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"If you are an American living in MN and exporting, well a weak dollar gives you a competitive advantage. That means more jobs in America..."
All expressed economic relationships include 'all other things equal' implied, if not spoken or written.
No measurable competitive advantage for exporting comes from a weak dollar if we chased the last manufacturer out more than 10 years ago with a host of other anti-competitive practices, mostly taxes and regulations. The remaining successful companies like Target and Best Buy have their products made elsewhere and make the majority of their income in other states. Even Medtronic was attacked by the latest round of new Obamacare taxation and is tanking.
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http://solutions.3m.com/wps/portal/3M/en_US/Renewable/Energy/Resources/Press_Releases/?PC_7_RJH9U52308NR50I0NISNKB32G3_assetId=1273681515461
3M to Expand Manufacturing in China for Solar Markets
St. Paul, Minn., Shanghai -- April 6, 2011 – 3M today announced—in conjunction with the Hefei High-tech Industrial Development Area--a plan to build a manufacturing site for photovoltaic solar materials and renewable energy products in Hefei High-tech Park...
The new plant, 3M Materials Technologies (Hefei) Co., will produce a variety of products at the new facility, including 3M Scotchshield Film, an advanced solar backside barrier film used in crystalline silicon solar photovoltaic modules. The project will be 3M’s ninth manufacturing facility in China.
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My intended point is the true value of the stock market e.g. if the reference point is gold, or silver, or a basket of commodities, or a basket of currencies.
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My intended point is the true value of the stock market e.g. if the reference point is gold, or silver, or a basket of commodities, or a basket of currencies.
I don't know of anyone, (present company excepted) including the investment community who "values the stock market in reference to gold, or silver, or a basket of commodities, or a basket of currencies." The bogey is always last year, the most recent quarter, or the competition.
I mean have you ever heard someone say, the Swiss Exchange is down, but that's better since their currency is stable versus the Dow which is up. but the dollar is week? Or the price of timber and corn are up, therefore the value of the Dow is intrinsically lower? :?
Or if the dollar is strong, silver is low, I should be happy that my stocks are down 25% (they were during the Bush years).
I suppose if you are a foreign investor, there is currency risk, just one risk among many others to consider, but you know that going in and/or you buy and manage currency futures to offset this risk.
So I guess I don't get your "intended point" about the "true value" of the stock market.
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"So I guess I don't get your "intended point" about the "true value" of the stock market."
This is true :lol:
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"So I guess I don't get your "intended point" about the "true value" of the stock market."
This is true :lol:
As I said, check with Wall Street; I don't think anyone else gets your point either. :-D
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I am not a big fan of short sales, which seem to greatly exaggerate volatility, especially in conjunction with the program trading which has become such a dominating % of market transactions. Also, I do not understand the basis for the claim to increased liquidity.
Four European Nations to Curtail Short-Selling
By LOUISE STORY and STEPHEN CASTLE
Published: August 11, 2011
A European market regulator announced Thursday night that short-selling of stocks in several countries would be temporarily banned in an effort to stop the tailspin in the markets.
The move may put pressure on United States market regulators to ban short sales as well. American bank stocks have been volatile all week as global investors expressed concerns that problems in Europe might cross the ocean.
The European Securities and Markets Authority, a body that coordinates the European Union’s market policies, said in a statement that short sales — negative bets on stocks — would be curtailed in France, Belgium, Italy and Spain effective Friday. There is already a temporary short-sale ban in Greece and Turkey.
“Today some authorities have decided to impose or extend existing short-selling bans in their respective countries,” the authority said. “They have done so either to restrict the benefits that can be achieved from spreading false rumors or to achieve a regulatory level playing field, given the close interlinkage between some E.U. markets.”
In France, that country’s market watchdog banned short-selling or increasing short-selling positions, effective immediately, for 15 days on 11 financial institutions. They are: the April Group, Axa, BNP Paribas, CIC, CNP Assurances, Crédit Agricole, Euler Hermès, Natixis, Paris Ré, Scor and Société Générale.
Italy and Spain imposed similiar 15-day bans covering financial shares, while Belgium's was for an indefinite period, according to statements by their market regulators.
The emergency measures are raising comparisons to the financial crisis of 2008, when the United States and many other governments banned short sales on many financial stocks.
European financial regulators have been discussing a Continent-wide ban over the last few days amid fears from governments like France that the short sales were driving a panic. Financial regulators held two conference calls on Thursday to complete the declaration, according to a government official with knowledge of the talks. Britain and Germany are among the countries that did not join the ban.
In short sales, a trader sells borrowed shares in hopes that they will decline in value before he has to buy them back to close out his loan. The difference in price is his profit, or loss.
Critics say short-selling encourages speculation and pushes stock prices down, sometimes feeding on itself in a panicked market. Advocates say it provides important information about investor views on companies, and also maintains liquidity.
Financial historians warned that the bans in 2008 did not work and that such measures were often driven more by political concerns — the need to display some form of decisive action — than by proved market theories.
“The short-sale ban really smacks of desperation,” said Kenneth S. Rogoff, a professor of economics at Harvard. “That’s their plan for solving the euro debt crisis? I mean, this isn’t going to buy them much time.”
The crisis in Europe, Mr. Rogoff said, goes far beyond falling stock prices and has more to do with the state of banks there, including banks in Italy and France. He said the sovereign debt problems were an extension of the stress on the system created by the banking crisis.
The increasing number of European governments that are banning short-selling puts United States regulators in a tricky position. Investors with negative views on bank stocks who are forced to close their negative bets in Europe might shift them to American banks.
On Thursday, stocks in the United States continued their seesaw ride, surging 4 percent, buoyed by hopeful data on initial jobless claims. The cost of insurance on several United States banks like Bank of America and Citigroup has gone up this week, according to Markit, a financial data company, indicating that investors are growing more negative on these companies.
The short-selling announcement in Europe stirred some immediate criticism.
“It is a crisis of confidence, and when you do something like this, it shows a lack of confidence, which is exactly the opposite of what you want to say to the markets,” said Robert Sloan, managing partner of S3 Partners, a firm that helps hedge funds manage relationships with their brokers.
Back in 2008, European and United States officials coordinated temporary bans on shorting financial stocks.
Hedge funds, in particular, were hurt by the ban back then because it interfered with trading strategies that paired negative bets with positive ones.
It is impossible to know whether the panic of 2008 would have been worse without the ban, which protected companies like Goldman Sachs and Morgan Stanley, but general studies of short-selling have found that bans on that activity can lead to more volatility in the market and lower trading volume, according to Andrew W. Lo, a professor at the Massachusetts Institute of Technology.
Mr. Lo said that banning short-selling also removed important information about what investors thought about the financial health of companies, and suggested that the bans served mainly political purposes.
“It’s a bit like suggesting we take heart patients in the emergency room off of the heart monitor because you don’t want to make doctors and nurses anxious about the patient,” he said.
Some investors have been anticipating for months that a short-selling ban might occur and were pre-emptively getting out of their short positions, said Mr. Sloan of S3 Partners. He also said that if there were more short-sellers in the market now, the markets might be falling less than they are. That is because as markets fall, short-sellers often close their positions to cash in profits, and to do so they have to purchase shares to cash out. The markets could use these sorts of buyers now, Mr. Sloan said.
Even with the European countries’ bans on short sales of some stocks, investors who have negative opinions on companies may still find ways to bet against them in the derivatives market, if those sorts of trades remain allowed.
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"I am not a big fan of short sales, which seem to greatly exaggerate volatility, especially in conjunction with the program trading which has become such a dominating % of market transactions. Also, I do not understand the basis for the claim to increased liquidity."
Good question and you make a number of points there. My 2 cents: Yes vehicles other than buy and hold at times may add to the volatility already in a panicked market but they do add liquidity, day in day out. Most of today's volatility IMO comes from the uncertainties that lie outside the market. In a stable efficient market with companies turning in financial results on a regular basis, the short seller provides some balance and liquidity IMO. The short seller buys and sells too, just does it in the opposite order. If Microsoft is at 25 or Google at 565 or Apple at 378 and people want to buy, someone has to sell to make that happen. The buy and hold people don't offer you that and issuing more stock is just a dilution. When you need to sell, someone needs to buy. Short selling just turns things upside down. If they want to sell first predicting a movement down, they need to buy back when they think it gets there. A floor in a sense. The scorched buy and hold player doesn't ever need to buy again.
The point of program trading dominating % of market transactions is a bigger and tougher question. Small time individuals with limited tools and knowledge playing ball with these guys better either know what they are doing or be prepared take the consequences.
Besides the school of hard knocks in stocks, a lesson came from my grandfather who said don't take on partners in business. Think of everything that goes wrong in partnerships and that is what is happening here. You share ownership in companies with people that have entirely different views, goals, reasons for being there and time frames. On the way up, that can work to your benefit. When times are tougher, they bail much faster and more decisively than you (hundredths of a second in a computer program?) and greatly damage the remaining value.
More rules on trading in this case might or might not be warranted (deck chairs on the Titanic?) but is not IMO addressing the central problems in these markets.
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Stocks get demolished
By Ken Sweet, contributing writer August 18, 2011: 4:13 PM ET
Click the chart for more market data.
NEW YORK (CNNMoney) -- Wall Street got socked on Thursday as renewed concerns about the U.S. and global economies sent major indexes plunging, pushed gold to a new high and bond yields to a record low.
Stocks were hit with bad news on multiple fronts. Morgan Stanley put out a dismal forecast for global economic growth. A key reading on U.S. housing came in worse than expected. And a report showed a significant slowdown in the domestic manufacturing sector.
70330PrintInvestors rushed to move their money into safe U.S. government bonds -- and the yield on the benchmark 10-year Treasury briefly fell below 2%.
"We had a couple days to stabilize and breathe, but you forget that it's a war zone out there and there's just too much uncertainty about the economy," said Frank Davis, director of sales and trading at LEK Securities.
At the preliminary close, the Dow Jones industrial average (INDU) dropped 418 points, or 3.7%, to close at 10,991. The blue chips fell as much as 528 points.
The S&P 500 (SPX) lost 53 points, or 4.5%, to 1,141; and the Nasdaq Composite (COMP) lost 131 points, or 5.2%, to 2,380.
At the center of Thursday's sell-off were renewed macroeconomic fears about a possibly slowing global economy.
In a gloomy report from Morgan Stanley, the investment bank slashed its global growth outlook for 2011 and 2012, adding that the U.S. and Europe are "hovering dangerously close to a recession."
"The fact that Morgan Stanley has downgraded its global growth forecast really highlights the concerns and problems facing the global economy," said Michael Hewson, market analyst at CMC Markets in London. "It begs investors to question where future growth will come from."
Trading slows afer week of market mayhem
Morgan Stanley's dire commentary was combined with four disappointing U.S. economic reports out Thursday, with investors putting a great deal of weight on the Philadelphia Federal Reserve's regional manufacturing index.
The closely watched index dropped to a reading of minus 30.7 in July, which indicates severe contraction in economic activity during the prior month. The number was far worse than expected, with economists looking for a reading of plus 0.5.
It was the worst figure for the Philly Fed since March 2009 -- when the U.S. economy was still in recession.
"The Philly Fed data was the punch in the stomach that bent this market over," Davis said.
Investors moved into traditional safe havens of U.S.-backed bonds and into gold. The price on the 10-year Treasury jumped, pushing the yield to a record low of 1.99% from 2.16% late Wednesday.
David Levy, portfolio manager with Kenjol Capital Management, call it a "panic move" into U.S. Treasuries.
Gold futures for December delivery rose $28.20 to settle at $1,822 an ounce, a new closing high (not adjusted for inflation) for the precious metal.
The VIX (VIX) -- Wall Street's so-called "fear gauge" -- jumped 35% on Thursday to a reading of 42.7. Anything above 30 is considered high fear in the market.
In other economic data, the Labor Department reported that weekly jobless claims rose by a worse-than-expected 9,000 claims to 408,000 in the week ended Aug. 13.
The National Association of Realtors said existing home sales dropped by 3.5% in July, far worse than the 2% rise that the market was looking for.
To further complicate things, the government also reported that Americans paid more for consumer goods and services in July, as inflation rose more than expected over the month.
The consumer price index, increased 0.5% in the month -- led by a 4.7% jump in gas prices from month to month. Economists expected a 0.2% rise in July, according to a survey from Briefing.com.
On Wednesday, U.S. stocks ended mixed as investors weighed the latest corporate results against global economic and debt concerns.
Euro bonds: Magic bullet for debt crisis?
World markets: European stocks plunged sharply. Britain's FTSE (FTSE) 100 fell 4.9%, the DAX (DAX) in Germany sank 6.5% and France's CAC (CAC) 40 tumbled 5.3%.
"I think we're seeing a bit of a delayed reaction to the Sarkozy and Merkel meeting earlier this week, as investors realize that policymakers are out of ideas," CMC Markets' Hewson said, noting that an unnamed bank tapped the European Central Bank's emergency liquidity fund for $500 million overnight.
Asian markets ended in the red. The Shanghai Composite fell 1.6%, the Hang Seng in Hong Kong dropped 1.3% and Japan's Nikkei shed 1.3%.
0:00 / 1:47 Bloodbath for tech stocks
Companies: Shares of Dow component Hewlett-Packard (HPQ, Fortune 500) dropped 8% after the company cut its full-year outlook and said it was looking to spin off its PC business. The company also said it was in talks to possibly purchase British software company Autonomy.
The tech giant also reported its quarterly results, posting an adjusted profit of $1.10 a share versus the $1.09 that analysts had expected.
Shares of McGraw Hill (MHP, Fortune 500) dropped 6% after a New York Times report said the Justice Department was investigating rating agency Standard & Poor's, a subsidiary, for allegedly overrating mortgage-backed securities. The mortgage securities meltdown led to the 2008 financial crisis.
The stock price for Sears Holdings (SHLD, Fortune 500) fell more than 8% after the retailer reported a disappointing quarterly loss of $1.13 per share.
Currencies and commodities: The greenback gained strength against the euro, Japanese yen and the British pound.
Oil for September delivery fell $5.20, or 6%, to $82.38 a barrel.
First Published: August 18, 2011: 9:44 AM ET
http://money.cnn.com/2011/08/18/markets/markets_newyork/index.htm?iid=Popular
The way I read all of this is that a second worldwide recession is in process.
P.C
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second post
By Hibah Yousuf @CNNMoney August 18, 2011: 9:34 AM ET
The number of first-time filers for unemployment benefits rose more than expected last week to 408,000.
NEW YORK (CNNMoney) -- The number of first-time filers for unemployment benefits rose more than expected last week and jumped back above the key 400,000 level, signaling that the job market remains stuck in the mud.
There were 408,000 initial unemployment claims filed in the week ended Aug. 13, the Labor Department said Thursday, up 9,000 from an upwardly revised 399,000 the prior week.
313PrintThe figure was higher economists' forecasts for 400,000, according to consensus estimates from Briefing.com.
Initial claims have sat above 400,000 for the last 18 out of 19 weeks. The trend began at the start of April, when high oil prices, bad weather and Japan's tsunami were weighing on businesses.
Claims barely broke below that level for the first time earlier this month, a welcome sign amid increasing concerns about an economic slowdown, only to jump right back in the latest week.
While the drop below 400,000 was a positive sign, Wells Fargo economic analyst Tim Quinlan said it is still encouraging to see that claims didn't swing too far above the significant mark in the latest week.
Still, for sustainable job growth and a lower unemployment rate, Quinlan said claims to need break into the 300,000 level and hold there consistently.
Quinlan said he expects claims could experience a drop-off soon, especially as car manufacturers return from their seasonal summer shutdown periods.
Because of the the supply disruptions resulting from the earthquake in Japan, Quinlan said most auto factories started their retooling shutdowns earlier in the year, and should be back online sooner than normal.
Overall, the four-week moving average of initial claims -- calculated to smooth out volatility -- fell by 3,500 to 402,500 in the latest week.
http://money.cnn.com/2011/08/18/news/econmy/unemployment_benefits/index.htm
P.C.
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By MATT PHILLIPS
Federal Reserve Chairman Ben Bernanke has put the financial world on notice: Brace for two more years of rock-bottom interest rates.
That is great news for borrowers, but it promises rough going for anyone seeking returns from fixed-income investments—from retirees to giant pension funds to companies sitting on record amounts of cash.
It has been almost three years since the Fed cut its key rate to almost zero, and on Aug. 9, the central bank said rates are likely to remain there until at least mid-2013. Rates for everything from Treasury bills to money-market funds are near zero. The yield on the 10-year note briefly slid below 2% last week, a level last seen in April 1950.
\Central banks traditionally use low rates to prompt more borrowing and nudge investors to seek higher returns in riskier assets like stocks, thereby boosting the broader economy.
But the benefits may not flow so easily. Consumers are showing few signs of wanting to borrow, bank and insurer profits are likely to suffer, and, with the stock market sliding, pension and other investment funds face years of low returns.
Some analysts worry the U.S. may be in for a Japan-like scenario of years of low rates, sluggish growth, and poor returns.
View Interactive
."If you do Depression-type studies, then you've seen this pattern before—or Japan," says Priya Misra, head of U.S. rates strategy at Bank of America Merrill Lynch. "Both comparisons are not great."
Consumers
For consumers, low rates mean cheap loans for everything from a new home to a new car. But with millions of people nearing the end of their working lives, low rates also portend meager returns on fixed-income investments. With the stock market well below its 2007 highs, that could be particularly painful.
"The retiree who doesn't have any debt, but relies on interest income to supplement their Social Security check, they're really feeling the squeeze from lower interest rates," says Greg McBride, senior financial analyst at personal finance website Bankrate.com.
Yields on savings vehicles such as certificates of deposit, or CDs, have fallen sharply. In 2006, the average one-year CD yielded roughly 3.78%, according to Bankrate.com. As of last week, that was down to 0.42%. Average seven-day yields on the more than $2.5 trillion in assets in money-market mutual funds are near zero, at 0.01%, according to data provider iMoneyNet. In 2007 they hovered above 4.5%.
On the flipside, mortgage rates have tumbled sharply. On Friday, Freddie Mac reported mortgage rates hit their lowest level in more than 50 years, with the average 30-year fixed-rate mortgage at 4.15%.
Banks
One of the most basic ways banks make money is by borrowing at low short-term interest rates and lending at higher long-term rates.
While short-term rates have little room to fall, longer-term rates have been in decline.
Banks try to cope by cutting what they pay depositors, but that often isn't enough. One measure showing the pressure is banks' yield on assets, which fell to 4.41% for banks with assets of more than $1 billion in the first quarter, the lowest in at least six years, according to the Federal Deposit Insurance Corp. Exacerbating the problem, demand for loans is low, and customers are still pouring in savings.
Zions Bancorporation of Salt Lake City is cutting rates by as much as two-thirds on certificates of deposit as they mature, in an effort to keep costs down while loan demand is weak.
In Ann Arbor, Mich., small mortgage lender University Bank has few takers for loans. "My customers aren't borrowing, because they are worried about the future," says Stephen Lange Ranzini, the bank's chief.
On the upside: Banks are sitting on $19 billion of unrealized gains, mainly on Treasurys and other bonds that rallied amid the economic uncertainty, according to Nomura Equity Research. But generally, the negatives outweigh the positives.
"The risk is that low interest rates will eat into profits for years," says Craig Siegenthaler, an analyst at Credit Suisse.
Companies
Low rates are a mixed blessing for corporations, which have been raising billions in the bond market at sometimes record-low rates. But companies including Apple Inc. and Google Inc. are also sitting on record amounts of cash. According to Standard & Poor's, the top 500 U.S. companies by market capitalization had almost $1 trillion in cash and cash equivalents at the end of the first quarter. Low rates mean they are earning remarkably little on that hoard.
Data-storage company Equinix Inc. keeps the majority of its $1.2 billion in cash in Treasurys, but the Redwood, Calif.-based company is getting a tiny return of 0.10%, says Chief Financial Officer Keith Taylor. In some cases, it is a negative rate after fees, he says.
In late July, Mr. Taylor began moving cash to higher-yielding assets such as commercial paper, where the company receives about 2%, he says. He is also looking at moving funds into the debt of countries like Canada.
Others are moving to take advantage of low borrowing costs. At Utah-based self-storage company Extra Space Storage, finance chief Kent Christensen's team is working to lock in the lowest interest rates he has seen in years.
Mr. Christensen says the sudden drop in interest rates has emboldened the company to quickly refinance the debt on some of its 820 storage facilities, which could save $2 million to $4 million this year.
"We have more interest and debt than we did three years ago, but we're actually paying a lower amount of interest costs than we were," he says.
Institutional Investors
Pension funds and insurance companies are among the biggest owners of bonds in the U.S., and they face serious headaches as they cut checks to retirees or pay claims to policyholders.
For many pension funds, low yields are one half of what Goldman Sachs analysts call a "double whammy" with lower stock prices. Goldman estimates that the aggregate funded status—a measure of plan assets as a share of estimated obligations—of U.S. corporate-pension plans in the Standard & Poor's 500-stock index was down to about 75% as of mid-August, from 85% at the beginning of 2011.
State pensions face a similar squeeze. The plans are shooting for a return of 8%, the median assumption of 126 plans, the National Association of State Retirement Administrators says on its website. That would be a challenge at the best of times.
Insurers are sensitive to interest rates because premiums that pour in from policyholders are mostly invested in bonds. Some insurers, like MetLife Inc., have hedging programs to help manage the situation, according to Barclays Capital. Still, "low interest rates are pressure points" across the industry, says UBS Securities insurance analyst Andrew Kligerman.
Insurers are likely to raise prices to make up for some of the lost income, though those in highly competitive parts of the property-casualty industry will find it tough to do so, analysts say. As rates have fallen over the past couple of years, some life insurers already have redesigned and repriced products, offering less-generous benefits, and some have exited product lines entirely.
The problem is worrisome enough for Moody's Investors Service to release a report Friday warning that ultralow rates for five or more years would subject some life insurers "to substantial losses that could result in downgrades, some multi-notch."
—Suzanne Kapner, Leslie Scism, Emily Chasan and Dana Mattoli contributed to this article.
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Yes, but someone living very modestly later in life on the meager interest from their accumulated savings over their lifetime, as well as someone earlier in life trying to tuck away a little from each paycheck to be self-secure in the future... these are just more examples of unprotected classes called the hated-rich who need to eat their peas, while we more importantly need to monetize trillions to fund government dependency programs.
The lesson my grandfather took the time to spell out for me with written examples of the magic of compounding interest if you save and invest does not work with a savings interest rates at 0.2% and a human life expectancy of under 10,000 years.
A google search of "republican proposal to end dual mission of the fed" took me only to stories from Nov. 2010. :-(
http://www.nytimes.com/2010/11/17/business/economy/17fed.html
The cause of our current stagnation and unemployment is not a shortage of money and the cure is not to print, ease or devalue our currency.
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Monday Morning Outlook
--------------------------------------------------------------------------------
Stocks Undervalued by 65% To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 8/29/2011
Market turmoil and a cycle of shrill headlines and worrisome “breaking news” convinced many to evacuate the equity markets. That was a mistake. The odds of recession are low, but the stock market seems to have priced one in, anyway.
We use a capitalized profits model to value stocks, dividing corporate profits by the 10-year Treasury yield. We compare the current level of this index to that from each quarter for the past 60 years to estimate an average fair-value. Not only are 10-year yields low (2.2%), but corporate profits are growing strongly. As a result, and hold onto your hats, this top down model says that the fair-value for the Dow is currently 40,000.
However, we think the Treasury market is in a bubble. So, instead of a 2.2% yield, we use a more conservative discount rate of 5% for the 10-year Treasury. This generates a “fair value” of 18,500 on the Dow and 1,940 for the S&P 500. In other words, the US equity markets are currently undervalued by about 65%.
Obviously, there are many moving parts to this model. Interest rates could go higher than 5%, profits could fall or both could happen. Profits, for example, are now 12.9% of GDP, the highest in measured history (back to 1947) except for one quarter in 1950.
So what does our model say if profits revert to the historical mean of about 9.5% of GDP? Even in that scenario, and assuming a 5% yield on the 10-year Treasury, equities are about 21% undervalued, with fair value at 1430 for the S&P 500 and 13,700 for the Dow.
The problem with this scenario is that it takes the worst of both worlds: a major decline in profits and a surge in interest rates. In the real world, a large decline in profits would normally be accompanied by a drop in bond yields. In other words, our model says the risk of investing in equities today is very low.
This is the opposite of what was happening back in 1999/2000. Back then, the market was over-valued and an ounce of gold traded for roughly 4 shares of Intel (INTC). Today it is trading for about 75 shares. Stocks look cheap and we think fears about the economy are overblown.
Yes, it would be good to trade the ups and downs of this market, but we don’t know anyone who can do that consistently. Rather, we focus on valuation, risk and reward. And right now, we believe the reward outweighs the risk by more than many people seem to believe. Fear will not disappear overnight, but the model says it is overblown and stocks are extremely attractive.
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No mention here of the unusually low margin rates , , ,
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By IANTHE JEANNE DUGAN And LIAM PLEVIN
A battle is heating up over whether investors in oil and other commodities markets should be required to lift the veil of secrecy that shrouds their trading bets.
The debate has simmered in the three years since oil prices spiked to record highs in 2008, sparking concerns that speculators were driving the move. But it intensified in recent weeks after The Wall Street Journal published confidential regulatory data that identified some of the biggest players in commodities markets, and big chunks of their positions, during that historic rally.
Unlike the stock market, there are no rules mandating public disclosure of commodities positions held by investors.
Industry groups representing traders in the market have opposed releasing any data that would expose the identities and positions of any firm or individual in the commodities markets because they say it would unfairly give away their trading strategies. They have called for a probe into how the information became public.
Others have seized on the data to push for more transparency, including the release of such information on a regular basis.
Tyson Slocum, a member of an advisory committee to the Commodities Futures Trading Commission and director of the energy group at advocacy organization Public Citizen, is leading a push to force commodities investors to publicly disclose the size and nature of their trading positions.
View Full Image
TKence France-Presse/Getty Images
The debate over the role of investors exploded again this year when oil once again topped $100 a barrel and the Obama administration in April launched an inquiry into oil-market speculation. Above, oil pumps in operation near central Los Angeles, Calif, in June.
.On Wednesday, Mr. Slocum plans to release a letter to members of Congress, as well as CFTC commissioners, seeking regular disclosure of data.
"We feel that regular disclosure of this level of data serves a crucial role in keeping markets transparent and providing critical information to decision makers and the public," Mr. Slocum said.
His group is pressing the CFTC and lawmakers to make this kind of disclosure mandatory, similar to how the Federal Reserve releases minutes of meetings within a certain time period.
Chilling Effect
Many people who buy and sell securities tied to oil, however, say that releasing the data could be harmful to their trading strategies and could prompt some to reduce their activity, having a potentially chilling effect on the market.
The Futures Industry Association has said that the release of the 2008 data "poses a serious threat" to the confidence of those in the market, who believed they were reporting their positions to regulators privately. The association said it will ask the CFTC to investigate whether any of its rules governing the handling of confidential data have been violated.
A CFTC spokesman declined to comment.
The CFTC collected the data during a "special call" in 2008, when it was attempting to figure out what was causing swings in the price of securities tied to oil. It used the data as the basis for a controversial report that concluded that supply and demand was behind the gyrations, not investors who neither produce nor consume oil on a large scale—a group critics call "speculators."
Rare View
The list contained more than 200 firms and traders, ranging from Goldman Sachs Group Inc. to Yale University to a Danish pension fund, giving a rare view into the murky world of commodities trading.
Sen. Bernie Sanders (I-Vt.), who has distributed the CFTC information, is among lawmakers pushing regulators to limit investments in oil securities by speculators.
Keeping the names private, some argue, leaves the public at a disadvantage.
Amy Myers-Jaffe, a Rice University professor who co-wrote a report questioning the CFTC's methodology for weighing the impact of speculators, said the names of commodity investors should be made public information. "The only people who don't know who's in the commodities market is the public," Ms. Myers-Jaffe said. "I wouldn't hold my deposit in a bank with a giant position in the oil market. It could change on a dime with a shift in geopolitical position," she added
The debate over the role of investors exploded again this year when oil once again topped $100 a barrel and the Obama administration in April launched an inquiry into oil-market speculation.
Oil prices have since fallen again, and settled Tuesday up 1.9%, at $88.90 a barrel. But prices remain a concern for policy makers focused on how to stimulate economic growth, because of they can act as a drag on economic activity.
Write to Ianthe Jeanne Dugan at ianthe.dugan@wsj.com and Liam Plevin at liam.plevin@wsj.com
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http://finance.townhall.com/columnists/larrykudlow/2011/09/01/interview_with_pimcos_bill_gross
I had the pleasure of speaking with Pimco's Bill Gross, one of America’s most famed investors, on CNBC’s Kudlow Report. Mr. Gross has generated big buzz over his admission that betting against U.S. debt was a mistake.
LARRY KUDLOW, host:
And most important, at the top, PIMCO's Bill Gross, one of America's most
famous and successful investors. He's generating big buzz today with his
superimportant and much talked about interview in The Wall Street Journal and
elsewhere. Mr. Gross says he has, quote, "lost sleep," end quote, over a bad
bet on Treasury rates. He acknowledged that selling all his funds, Treasury
holdings last February was a, quote, "mistake." And he went on to say, and I
quote, "We try to be very intellectually honest and honest with the public,"
end quote.
All right, for my part, I just want to say to my old friend Bill Gross that I
have nothing but admiration for his taking ownership and admitting a mistake.
We all make them. And by the way, he's setting a very good example for the
rest of us. That's just my take.
Anyway, it is always a real pleasure, especially tonight, to welcome back to
the show a special Kudlow exclusive, Bill Gross. He's founder and co-chief
investment officer of PIMCO.
All right, Bill. You admit to a big Treasury bond miss. Rates this year went
way down, not up. Can you tell us, please, why the interviews right now and
what message are you sending?
Mr. BILL GROSS: Well, I, you know, I think at PIMCO we always try and be
open with the press and the public. I mean, isn't that what voters want from
their politicians? Mohamed El-Erian, our CEO, write several op-eds a week. I
tweet daily and publish a monthly investment outlook, which came out this
morning, by the way. So we try to give an honest answer to an honest
question.
And by the way, in terms of the interview with the Journal and with the FT,
what I said was that--something that I think all bond and--bond managers would
say if they were honest. They would say, `Wish I'd own more Treasuries.' To
say otherwise would be to say something like you'd wished you bet on the Miami
Heat instead of the Dallas Mavericks. I mean, it's obvious who won, right?
KUDLOW: Obviously wrong. All right, well, anyway, you're very outspoken and
I respect you for it.
Listen, you were here--I looked back--June 8th we spoke. So what's that?
Three months ago. At that point, Bill, you repeated the call to get out of
bonds. Now the bonds rally more or less from 3 percent to 2 percent, today
they're at 2.20. What went wrong? How do you assess what went wrong with
your bond call?
Mr. GROSS: Well, first of all, I didn't say get out of bonds. I said get
out of Treasuries and move...
KUDLOW: Treasuries.
Mr. GROSS: ...and move into Canadian bonds and to Australian bonds and other
alternatives. What went wrong in terms of the Treasury call from 3 percent
down to close to 2 percent? Well, the economy slowed down dramatically. We
had a freeze-up, so to speak, in terms of Washington with the politicians and
policy options. It was recognized that fiscal stimulation, you know,
certainly wasn't going to be something undertaken for the next six to 12
months, if at all. It was recognized that the Fed was running out of policy
options and so the economy was slowing down and was--seemed to be slowing
almost permanently in terms of a 0 to 2 percent growth category.
KUDLOW: Have you basically lost confidence in the economy? You mention, I
think, in the FT article, Bill, you call it, quote, "a new normal minus." Have
you lost all confidence in our capacity to grow the economy?
Mr. GROSS: Well, no. You know, but the problem I have with the free market
capitalism, Larry, which is your philosophy, is not with the concept. In
fact, you know, PIMCO is an epitome of its historical thrust. We're very
successful and because of free market capitalism. But the problem I have is
with its apparent exhaustion in the face of three equally dynamic economic
influences. Let me mention them briefly.
First of all globalization has weakened American and developed economies by
syphoning off investment and, more importantly, jobs to emerging nations at
1/10th the wage cost. Take China, for example, Free market capitalism, in
other words, is working for China, it's working for Brazil, but it's not
working for America or Euroland.
Secondly and just briefly, free market capitalism depends on a balanced market
between labor and capital. And clearly we're reaching a point where
impoverished Main Street cannot afford to buy the goods that capitalism so
magnificently produces. So I think there's an exhaustion here in terms of
free market capitalism that has worked so well for 20 to 30 to 40, 50 years,
but now is reaching structural impediments that prevent, you know, strong
growth that we're used to.
KUDLOW: I want to come back to that towards the back end, Bill, but I just
want to narrow down for a moment. I want to drill down. According to the
reports, you are buying Treasuries. You're accumulating Treasuries. You have
a net positive exposure for the first time. Let me ask you, what if the
bond--the Treasury market has discounted a recession that doesn't happen? Are
you chasing the market? Is there a risk that the rate hikes that you foresaw
this year might still come to pass if the economy surprises on the upside?
Mr. GROSS: Well, that's possible. We read in the Fed minutes today of the
last meeting that the--that the two-year 0 percent or 25 basis point Fed funds
level is conditional, and we know that there are hawks, that there are doves,
and that should the economy recover to a 2 to 3 to 4 percent rate, that, you
know, perhaps inflation looms larger in terms of a threat. So anything is
possible. What I would say at the moment, though, is since the economy is
really moving closer to the zero level, since inflation probably will come
down gradually, you know, the Fed is at 0 percent for the next two years and
perhaps even longer than that, and that determines significantly the level of
Treasury rates in five-year space, 10-year space and even 30-year space.
KUDLOW: But, you know, it's interesting. We had Byron Wein on, a
distinguished investment guru on his own part. He predicted the S&P would
rally to 1400. OK? It's just over 1200 today, as you know, If that sort of
thing happened with better corporate profits, even consumer sentiment, which
tanked today but people are still buying washing machines and cars, retail
sales are holding up. If you had a big rally in stocks, the risk trade is
back on. That'll come out of Treasury bonds, and those could--that could
drive those bond rates back to 3 percent. You're buying bonds now. Are you
worried that there's a potential for whiplash?
Mr. GROSS: Well, I'm suggesting that the probability--that the high
probability is for interest rates to stay low for a long time. I mean, Byron
Wein basically is a a mean reversion cyclical type of--type of analyst. What
we're suggesting is that there are structural impediments to the US economy to
develop market economies that will prevent growth in the 3 to 4 percent
category.
Let me ask you, in terms of consumerism, in terms of the US consumer, if
unemployment stays at 9 percent plus and if wage gains--if real wage gains are
nonexistent, then were is the spending power coming from? It has to come from
the consumer as opposed to businesses. Businesses are waiting on the
consumer. The consumer is waiting on business. We have what we call a
liquidity trap. So what we're suggesting is not a reversion to the mean, not
a cyclical upthrust, but basically a structural impediment that produces
growth in the 0 to 2 percent category for a long time. Not just in the US,
but in Euroland, as well.
KUDLOW: All right. So let me--have you had any trouble with your fund--I
guess the Total Return Fund, because of the bond miss this year, rates went
down instead of up? Have people withdrawn from the fund? What are your
customers saying right now?
Mr. GROSS: We have a $245 billion customer base. You know, that customer
base is growing. We just got a billion dollar contribution from a large
corporation this week. There's been no lack of confidence. You know, to
suggest that a six to seven month timeframe for the PIMCO Total Return Fund,
which has produced results for the last 20, 30 or 35 years, is, you know, a
stretch of the imagination. We continue to produce fine results for our
clients.
KUDLOW: Oh, that's what everybody says. That's--everybody I talked to today
on this story said exactly what you said. Your record down through the years
has been superb.
Let me ask you this, are you still buying some corporate bonds and are you
still buying foreign bonds? You talked to me about that when you last
visited.
Mr. GROSS: Well, corporate bonds of the highest quality, yes. And that
would be A and AA-types of corporates, not high-yield bonds because they don't
do well, you know, if we near the recessionary level of 0 percent. In terms
of foreign bonds, let me just cite the comparison: a five-year Treasury in
the United States at 1 percent, actually little bit less; in Canada 1.7
percent; in Euroland 2.1 percent; in Mexico 5.4 percent; in Brazil 11 percent.
And these are countries, by the way, Larry, which have what we call clean or
dirty shirts. Mexico has half the debt of the United States. Brazil has half
the debt of the United States and has treasury reserves as opposed to
deficits. And so these are countries with higher yields and better balance
sheets.
KUDLOW: All right, last one. I'm going to come back to where you were on the
breakdown of free market capitalism, which is fair enough. I would
acknowledge that America's economy has been on the decline now for about 10
years. But I ask you, Bill, everybody is so profitable. Businesses are so
profitable, so much cash. Banks have more liquidity than they know what to do
with. Is it possible there's a buyer's strike, that there's a capital strike,
that the spending and taxing and regulatory threats out of Washington are
really the problem, not the free market capitalist system?
Mr. GROSS: Well, I'd have to say that that doesn't help. I mean, let's come
together on that point that regulation and too much of it--that taxation in
terms of the necessary reforms that probably lie ahead, you know, don't help
either in terms of the current economic environment. What I would say in
terms of corporate tax reform is, yes, let's reform taxes, let's reform
corporate taxes and let's reform individual taxes. But at the same token,
let's not lower them, because corporate taxes are 10 percent of total federal
revenues. They're at an all-time low, Larry. And to suggest that
corporations are the poor baby in this particular story, I think, is an
absurdity.
KUDLOW: All right. I'm going to leave that for the next discussion we have.
We have much more to discuss on corporate tax reform. But, Bill Gross, thank
you for your honesty. Thank you for your forthrightness.
Mr. GROSS: Thank you, Larry.
KUDLOW: And thanks for coming on tonight. I appreciate it.
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Second post of the day
Nonfarm productivity (output per hour) declined at a 0.7% annual rate in Q2 To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 9/1/2011
Nonfarm productivity (output per hour) declined at a 0.7% annual rate in the second quarter, revised down from last month’s estimate of -0.3%. Nonfarm productivity is up 0.7% versus last year.
Real (inflation-adjusted) compensation per hour in the nonfarm sector declined at a 1.4% annual rate in Q2 and is down 0.7% versus last year. Unit labor costs rose at a 3.3% rate in Q2 and are up 1.9% versus a year ago.
In the manufacturing sector, the Q2 growth rate for productivity (-1.5%) was lower than among nonfarm businesses as a whole. The faster pace of decline in productivity was mostly due to faster growth in the number of hours worked. Real compensation per hour was down in the manufacturing sector (-0.9%), but, due to a decline in productivity and higher nominal earnings per hour, unit labor costs rose at a 4.6% annual rate.
Implications: Productivity was revised down slightly for the second quarter, consistent with last week’s downward revisions for real GDP growth. Less output and the same number of hours worked means less output per hour. Productivity is up only 0.7% in the past year, but was up 4.4% in the year ending in mid-2010. This is typical of economic recoveries, where productivity surges at the very beginning of the recovery and then temporarily slows down as hours worked increase more sharply. The growth rate of productivity over the past two years has been 2.6% annualized, slightly faster than the average 2.3% pace in the past 10 years and the past 20 years. In other news this morning, new claims for initial unemployment benefits declined 12,000 last week to 409,000. Continuing claims for regular state benefits declined 18,000 to 3.74 million. However, continuing claims in the prior week were revised up by 112,000. This is the same week when the Labor Department did its monthly payroll survey. As a result, we are revising down our forecast for private sector payroll growth in August to 105,000. This is still quite respectable given a Verizon strike that temporarily took 46,000 workers off payrolls. In other recent news, the ADP national employment report, a measure of private sector payrolls, increased 91,000 in August.
================
The ISM manufacturing index declined slightly to 50.6 in August from 50.9 in July, coming in well above the consensus expected 48.5. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mixed in August. The supplier deliveries index rose to 50.6 from 50.4 and the new orders index increased to 49.6 from 49.2. The production index fell to 48.6 from 52.3 and the employment index fell to 51.8 from 53.5.
The prices paid index declined to 55.5 in August from 59.0 in July.
Implications: Despite a small decline, the ISM manufacturing index easily beat consensus expectations for August and came in above 50, signaling continued growth. The report severely undermines the view held by some that we are in a double-dip recession. Regional surveys of manufacturing, such as the Philadelphia Fed index and Empire State index, have been beaten down lately by (misleading) headlines about a potential default on US Treasury securities, financial turmoil in Europe, and large swings in the stock market. As a result, expectations were for a soft ISM report. That would have been understandable given how these surveys sometimes reflect sentiment rather than actual levels of business activity. And yet the ISM held relatively firm. The manufacturing index has now shown growth for 25 consecutive months, and correlates with 2.8% real growth according to officials at the ISM. In other news this morning, construction declined 1.3% in July. However, including huge upward revisions to prior months, construction was up 2.2%. The upward revisions were due to both home building and commercial construction. The decline in July was led by fewer home improvements and less construction of public schools. In other recent news, the Case-Shiller index, a measure of home prices in the 20 largest metro areas around the country, declined 0.1% in June (seasonally-adjusted) and is down 4.5% versus a year ago.
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First Wesbury
Non-farm payrolls were unchanged in August To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 9/2/2011
Non-farm payrolls were unchanged in August but down 58,000 including revisions to June/July. The consensus expected a gain of 68,000.
Private sector payrolls increased 17,000 in August. Revisions to June/July subtracted 3,000, bringing the net gain to 14,000. August gains were led by health care (+29,700) and professional & business services (+28,000). The biggest decline was in telecommunications (-47,300), due to the Verizon strike.
The unemployment rate remained unchanged at 9.1% in August (9.094% unrounded) from 9.1% in July (9.092% unrounded).
Average weekly earnings – cash earnings, excluding benefits – fell 0.4% in August but are up 1.9% versus a year ago.
Implications: The employment report for August was ugly but does not indicate a recession. Private-sector payrolls increased only 14,000 including revisions to June and July and wages fell. Average hourly earnings declined 0.1% and the length of the workweek dipped by 0.1 to 34.2 hours. Controlling for a Verizon strike, now over, that temporarily sidelined 46,000 workers, private payrolls would have been up 60,000 including revisions. We think August’s weakness was largely due to financial turmoil in Europe and large swings in the stock market. This has brought much uncertainty to the hiring arena. In the past year private sector payrolls have still increased 142,000 per month, and this trend will accelerate in the second half of the year as the economy continues to recover, and businesses realize a “double dip” is not going to happen. The biggest positive news in today’s report was that civilian employment, an alternative measure of jobs that includes start ups, increased 331,000 in August. In other recent news, despite Hurricane Irene, same-store chain store sales were up 4.6% in August compared to a year ago, no different than in July and much better than if the US were entering recession. Also, autos and light trucks were sold at a 12.1 million annual rate in August, as the consensus expected, down 0.8% from July but up 5% versus a year ago.
========
Now Beck:
http://www.theblaze.com/stories/august-jobs-report-released-no-jobs-added/
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Crafty,
I don't follow Wesbury but every time I read his analyses they always seem the same. I think GM alluded to this as well:
Despite any bad news there is really good news.
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Agreed, but I continue to post them because:
a) he is a good economist with a very good track record
b) we here tend strongly to the bear camp and we need to hear the bull case
c) contraryianism is often a good way to bet-- "buy when the streets are running red" etc.
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Dismal jobs data shakes Asian markets
By CHRISTOPHER LEONARD - AP Business Writers,PAUL WISEMAN - WASHINGTON (AP) — The dismal U.S. job market, which has intensified fears of another recession, may be even worse than the unemployment numbers suggest.
The shockwaves from the Labor Department report on Friday that employers stopped hiring in August have rippled around the world, sparking a steep retreat in Asian stock markets. The lack of hiring in the U.S. last month surprised investors — economists were expecting 93,000 jobs to be added. Previously reported hiring figures for June and July were revised lower.
The jobs picture may even be worse than the 9.1 percent unemployment rate suggests, because America's 14 million unemployed must also compete with 8.8 million other people not counted as unemployed — part-timers who want full-time work.
When consumer demand picks up, companies will likely boost the hours of their part-timers before they add jobs, economists say. It means they have room to expand without hiring.
Fears that the U.S. economy may be stuck in neutral, or worse, slammed Asian stocks. Japan's benchmark Nikkei 225 index fell 2 percent in midday trading to 8,771.90. Hong Kong's Hang Seng was 2.2 percent lower at 19,775.01 and South Korea's Kospi Composite Index tumbled 4 percent to 1,793.13.
"The problem is that there simply hasn't been any meaningful jobs growth, which is precisely why markets are so worried about slipping back into recession," said Ben Potter of IG Markets in Melbourne, Australia.
"The authorities have thrown a lot of stimulus at the problem and to date, it's basically done nothing," Potter said. Markets are realizing "that there probably isn't a lot more authorities can do."
The unemployed will face another source of competition once the economy improves: Roughly 2.6 million people who aren't counted as unemployed because they've stopped looking for work. Once they start looking again, they'll be classified as unemployed. And the unemployment rate could rise.
Intensified competition for jobs means unemployment could exceed its historic norm of 5 percent to 6 percent for several more years. The nonpartisan Congressional Budget Office expects the rate to exceed 8 percent until 2014. The White House predicts it will average 9 percent next year, when President Barack Obama runs for re-election.
The jobs crisis has led Obama to schedule a major speech Thursday night to propose steps to stimulate hiring. Republican presidential candidates will likely confront the issue in a debate the night before.
The back-to-back events will come days after the government said employers added zero net jobs in August. The monthly jobs report, arriving three days before Labor Day, was the weakest since September 2010. Reaction from U.S. markets won't be evident until Tuesday, when trading resumes after the holiday.
Combined, the 14 million officially unemployed; the "underemployed" part-timers who want full-time work; and "discouraged" people who have stopped looking make up 16.2 percent of working-age Americans.
The Labor Department compiles the figure to assess how many people want full-time work and can't find it — a number the unemployment rate alone doesn't capture.
In a healthy economy, this broader measure of unemployment stays below 10 percent. Since the Great Recession officially ended more than two years ago, the rate has been 15 percent or more.
The proportion of the work force made up of the frustrated part-timers has risen faster than unemployment has since the recession began in December 2007.
That's because many companies slashed workers' hours after the recession hit. If they restored all those lost hours to their existing staff, they'd add enough hours to equal about 950,000 full-time jobs, according to calculations by Heidi Shierholz, an economist at the Economic Policy Institute.
That's without having to hire a single employee.
No one expects every company to delay hiring until every part-timer is working full time. But economists expect job growth to stay weak for two or three more years in part because of how many frustrated part-timers want to work full time.
And because employers are still reluctant to increase hours for part-timers, "hiring is really a long way off," says Christine Riordan, a policy analyst at the National Employment Law Project. In August, employees of private companies worked fewer hours than in July.
Some groups are disproportionately represented among the broader category of unemployment that includes underemployed and discouraged workers. More than 26 percent of African Americans, for example, and nearly 22 percent of Hispanics are in this category. The figure for whites is less than 15 percent. Women are more likely than men to be in this group.
Among the Americans frustrated with part-time work is Ryan McGrath, 26. In October, he returned from managing a hotel project in Uruguay. He's been unable to find full-time work. So he's been freelancing as a website designer for small businesses in the Chicago area.
Some weeks he's busy and making money. Other times he struggles. He's living at home, and sometimes he has to borrow $50 from his father to pay bills. He's applied for "a million jobs."
"You go to all these interviews for entry-level positions, and you lose out every time," he says.
Nationally, 4.5 unemployed people, on average, are competing for each job opening. In a healthy economy, the average is about two per opening.
If work-force dropouts had been counted as unemployed, August's unemployment rate would have been 10.6 percent instead of 9.1 percent.
The Labor Department's report relies on data collected from surveys of households and businesses in the second week of August. That's right after Standard & Poor's removed the country's AAA credit rating and fears mounted that Europe's banking crisis could spread to the U.S. Television screens were filled with images of riots in London.
"I'm not surprised that businesses weren't doing too much hiring in that environment," Jeff Kleintop, chief market strategist at LPL Financial.
___
AP Business Writer Pamela Sampson contributed from Bangkok.
P.C.
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http://www.powerlineblog.com/archives/2011/09/world-ends-today-markets-to-close-early.php
Posted on September 6, 2011 by Steven Hayward
World Ends Today; Markets to Close Early?
The news out of Europe yesterday and this morning somehow puts me in mind of the long opening sequence in the John Landis feature film rendering of The Twilight Zone, in which Dan Ackroyd says to Albert Brooks, “You want to see something really scary?”
Are you ready?
The head of Deutsche Bank yesterday said that “It is an open secret that numerous European banks would not survive having to revalue sovereign debt held on the banking book at market levels.”
Oh goody.
And then our friends at ZeroHedge point out an even gloomier assessment out today from UBS predicting possible end-of-days kinds of stuff from the prospective collapse of the Euro:
The cost of a weak country leaving the Euro is significant. Consequences include sovereign default, corporate default, collapse of the banking system and collapse of international trade. There is little prospect of devaluation offering much assistance. We estimate that a weak Euro country leaving the Euro would incur a cost of around EUR9,500 to EUR11,500 per person in the exiting country during the first year. That cost would then probably amount to EUR3,000 to EUR4,000 per person per year over subsequent years. That equates to a range of 40% to 50% of GDP in the first year.
Were a stronger country such as Germany to leave the Euro, the consequences would include corporate default, recapitalisation of the banking system and collapse of international trade.
And that’s just in the first-page summary. Inside the main text are some wonderfully droll bits like this: “Economic modelling is not good at dealing with something as extreme as the break-up of a monetary event. It is not really what models are designed for.”
Can’t wait for Obama’s blockbuster jobs speech on Thursday. And why is Hillary still not answering her phone?
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Give us this day our daily reminder that there is a bullish case to be made.
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The ISM non-manufacturing composite index increased to 53.3 in August To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 9/6/2011
The ISM non-manufacturing composite index increased to 53.3 in August, beating the consensus expected decline to 51.0. (Levels above 50 signal expansion; levels below 50 signal contraction.)
Key sub-indexes were mixed in August, but all remain at levels indicating economic growth. The new orders index rose to 52.8 from 51.7 and the supplier deliveries index gained to 53.0 from 50.5 last month. The business activity index fell to a still strong 55.6 in August from 56.1 in July and the employment index fell to 51.6 from 52.5.
The prices paid index rose to an elevated 64.2 in August from 56.6 in July.
Implications: Today’s report on the service sector was a pleasant surprise! The stock market has been volatile of late and many are concerned about financial turmoil in Europe. As a result, the consensus expected the ISM non-manufacturing index to decline to 51.0 from 52.7 in July. This seemed to make sense as the index sometimes reflects the vagaries of business sentiment rather than actual levels of service sector output. Instead, the index climbed to a respectable 53.3 and all the major sub-components of the index were above 50, signaling continued economic expansion. Sentiment among managers may not be as dour as thought, a positive sign going forward. Looking deeper into the report, the business activity index, which has a stronger correlation with GDP growth than the overall index, came in at a still strong 55.6 in August. In addition, a composite that combines the ISM manufacturing and service indexes increased in August to 53.0 from 52.5 in July. This is simply not consistent with a recession and supports the case from “high-frequency” data that the US economy continues to grow, including unemployment claims, chain store sales, railcar loadings, auto sales, and box office receipts. On the inflation front, the prices paid index rose to an elevated 64.2 in August. We believe quantitative easing was a mistake and any more would be an even bigger mistake. Monetary policy is extremely loose, and no further monetary action is warranted. Inflation is already creeping upward.
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"Give us this day our daily reminder that there is a bullish case to be made."
- Funny! Bullish or bullshi*? Just kidding! I like Wesbury. This is not an economy in freefall. This is an economy with zero-point-something percent growth.
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This from Bloomberg earlier this summer, still true:
Stocks Cheapest in 26 Years as S&P 500 Falls, Profit Rises
http://www.bloomberg.com/news/2011-06-19/stocks-cheapest-in-two-decades-as-s-p-500-falls-with-earnings-climbing-18-.html
What's missing in this Price-Earnings-Growth ratio? Projected growth.
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Just got in. Looks like a strong day in the market. What happened?
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The trade deficit in goods and services shrank $6.8 billion to $44.8 billion in July To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 9/8/2011
The trade deficit in goods and services shrank $6.8 billion to $44.8 billion in July. The consensus expected a much larger trade deficit of $51.0 billion.
Exports increased $6.2 billion in July, led by autos/parts, oil, and widespread gains in capital goods. Imports declined $0.5 billion, with a drop in oil imports roughly offsetting a gain in autos/parts. The decline in oil imports was mostly due to lower volume, although prices fell as well.
In the last year, exports are up 15.1% while imports are up 13.6%.
The monthly trade deficit is $3.2 billion larger than last year. Adjusted for inflation, the trade deficit in goods is $1.3 billion smaller than last year. This is the trade measure that is most important for calculating real GDP.
Implications: Exports boomed in July, helping push down the trade deficit far more than the consensus expected. In fact, of the 74 economic groups that forecast the trade deficit, none thought it would be this low. Exports of autos and related parts led the way but exports also increased substantially for oil and capital goods outside the auto sector, such as telecomm equipment. We still have two months to go, but it looks like trade will make a positive contribution to real GDP growth in the third quarter, which is so far shaping up much better than the first half of the year. Meanwhile, revisions to prior months – for both trade and construction – suggest real GDP growth will be revised up slightly for Q2. Beneath the headlines, the total volume of international trade in and out of the US – imports plus exports – rebounded in July after a temporary setback in June. We expect the total volume of trade to continue on an upward trend in the second half of the year. In other news this morning, new claims for unemployment insurance increased 2,000 last week to 414,000. Continuing claims for regular state benefits dropped 30,000 to 3.72 million. These numbers are not at all consistent with a recession.
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"In the last year, exports are up 15.1% while imports are up 13.6%."
People will have to judge for themselves if the hundred year collapse of the currency was worth it. Even after $5 trillion in Obaman Keynesian stimuli, demand is stronger elsewhere?
I wonder how much of those increased exports came from Solyndra solar, electric cars and new Marxism-based battery technologies and how much came from the surviving free market players out doing the hard work in competitive private enterprise.
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I too wonder if the collapse of our currency was necessary, however on the plus side, I think much of those increased exports were a result of favorable dollar exchange rates.
Everyone I know (free market; hard working competitive private enterprise individuals) who export all love the weak dollar; it promotes sales overseas.
In contrast I know people in Japan. The strong Yen is killing them. For example, because of the strong Yen (among other reasons), Toyota just announced that they will not be exporting Camry made in Japan to American anymore. In the long run, that hurts jobs in Japan...
http://www.autoobserver.com/2011/09/toyota-to-end-camry-exports-to-us-from-japan.html
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When he was alive, Jude Wanniski made a pretty good case against the alleged benefits of competetive devlauations, but I don't feel up to trying to replicate it. For the moment I will note that another name for comp-devs is "beggar-thy-neighbor devaluations" will the purported gains being illusory in the long run; in great part because the other nations respond similarly with the net result in the case of the US due to its reserve currency role of world wide inflation-- exactly as we have seen in food and other commodities.
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JDN, I guess you either missed or disagree with my point but that is a relatively small improvement in exports - not much bang for the buck - considering the fiscal and monetary carnage that was involved to get there. Further I would add that the American consumer is also harmed by losing the option of choosing to buy a Japanese made Japanese car which traditionally held a higher value in the used market than its American made counterpart. Not only exports, but also the right to buy from elsewhere and the ability to travel reasonably overseas are economic assets. Pretty insulting to have foreigners place a low value on our currency.
Exporting was my business and a weak dollar is one factor in sales. Since the US is not a low cost producer in the first place, far more important factors are things like a climate and reputation for world leading innovation and manufacturing competitiveness that appear to have come and gone.
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Here's is today's episode in the sort of insidious nonsense triggered by beggar-thy-neighbor currency devaluations:
By NEIL SHAH and JESSICA MEAD
Norwegian and Canadian officials on Thursday criticized Switzerland's move this week to cap the rise of its currency, as the impact reverberated in currency markets world-wide.
The Norwegian krone soared against the euro after the Swiss National Bank said Tuesday that it would use "unlimited" spending to prevent the euro from falling below 1.20 francs. The move sent investors flooding into other currencies belonging to economies viewed as fiscally sound, with Norway among the top destinations.
Norwegian central bank Gov. Oystein Olsen warned investors that a strengthening krone would stifle Norway's economy by hurting exports. A swift policy response—likely lower interest rates—is in the offing if the krone keeps rising, Mr. Olsen said.
The Federation of Norwegian Industries said Thursday that the krone's strength was putting pressure on Norway's companies. "It's a serious issue when the Norwegian krone is so strong," Knut Sunde, an executive of the federation said. "We hope that the Swiss effect will fade, but we are not sure," Mr. Sunde said.
Canadian Finance Minister Jim Flaherty on Thursday said he is "concerned" about Switzerland's audacious move into foreign-exchange markets and worried it could ignite another round of so-called currency wars. Brazil's Finance Minister Guido Mantega last year began referring to the prospect of "currency wars" among countries seeking to protect their economic growth by keeping the value of their currencies down.
Mr. Flaherty said he planned to discuss the issues at this week's meeting of Group of Seven finance ministers in France.
For months, funds have flowed into Switzerland and other supposedly safe countries as investors have sought havens from Europe's financial crisis and the U.S.'s economic woes. In early August, the euro fell to near-parity with the Swiss franc, from 1.50 francs at the start of 2010.
Such flows are the latest example of floods of capital leaving the world's sluggish economies—especially the U.S. and the euro zone—and entering faster-growing economies such as Canada and Brazil.
What Norway, Sweden, Japan and other refuges have in common is big current-account surpluses, which means they rely less on international investors for financing and seem safer to investors.
Japanese officials this week quashed speculation that Japan would follow Switzerland in curbing the yen with a ceiling. However, Norway's pushback is making investors wonder again where to run when markets turn turbulent.
"Investors are saying, if you're taking away one of our safe havens, where's the next one?" said Thanos Papasavvas, an analyst at Investec Asset Management in London, which manages around $100 billion in funds. The Norwegian krone "doesn't have the liquidity and the history of the Swiss franc," he added.
Axel Merk, chief investment officer at Merk Investments LLC, a Palo Alto-Calif., currency-management fund, says investors should stop looking for a safe place to hide.
It is also possible traders' preferences for Switzerland and Japan won't change much, especially if Switzerland's intervention effort eventually fails, as many expect. The euro traded at 1.2149 francs late Thursday in New York—close enough to the ceiling to indicate there is still investor demand, traders said.
—Katarina Gustafsson and Paul Vieira contributed to this article.
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Second post of the day:
Horrendous day. Looks like we are finishing below 11,000 again.
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See you at Dw 6K or thereabouts. I'm with Soros. Though, no thanks to him.
Of course Brian W will note the surge in condom retail sales as a sign things are getting better. :roll:
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Refresh my memory please; what is Soros saying?
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Crafty,
Please see my reply #111 from Sept 7 9:51 AM on Cognitive dissonance of the left thread titled Soros. Despite multiple attempts for some reason I cannot seem to copy and past here.
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Thank you.
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http://www.telegraph.co.uk/finance/financialcrisis/8758400/European-banks-rocked-by-Greek-default-fears.html
European banks rocked by Greek default fears
Fears of a Greek default rocked European banking shares and led to warnings that US stock markets could fall more than 20pc as contagion spreads globally.
By Jonathan Sibun
10:30PM BST 12 Sep 2011
France's biggest lenders saw their shares fall more than 10pc amid fears their credit ratings will be downgraded over exposure to Greek debt, while global stock markets dropped sharply.
The FTSE saw £22bn knocked off its value, closing down 85.03 at 5129.62. The Cac-40 in France ended 4pc lower and the Dax in Frankfurt was down 2.3pc after touching its lowest point since July 2009.
In the US, the Dow Jones closed up 0.6pc at 11061.12. It was trading down 0.8pcin the afternoon, with analysts at Bank of America souring the mood further by warning that the S&P 500 – which was 1pc lower at 1145.57 – could fall as far at 910. The warning came as Bank of America announced 30,000 job cuts as it looks to adjust to tough trading conditions.
Market concerns escalated after Germany hardened its tone over bail-out loans for Greece, with Chancellor Angela Merkel backing remarks from her economy minister suggesting that an "orderly default" could no longer be ruled out.
German officials reiterated that Greece must meet bail-out terms to secure the next tranche of loans while the embattled country's deputy finance minister suggested cash could run low from next month. "We have definite manoeuvering space within October," said Philippos Sachinidis when asked how long the government would be able to pay wages and pensions.
The euro dropped to a 10-year low versus the yen and a seven-month low against the dollar as currency traders shifted their holdings to safe havens. The shift to the yen keeps alive the risk that Japanese authorities will follow the Swiss in intervening to weaken their currency.
"With the Swiss National Bank drawing a line in the sand, investors looking to exit the eurozone troubles are seeking the safety of the yen," said Jane Foley, senior currency strategist at Rabobank. The pound fell to a two-month low versus the dollar, with the yield of 10-year gilts hitting record lows of 2.198pc on safe-haven buying.
Markets braced themselves for credit rating downgrades for France's top banks, with speculation that Moody's will lower the ratings on BNP Paribas, Credit Agricole and Societe Generale. Credit Agricole shares fell 10.6pc, Societe Generale slid 10.5pc and BNP was off 12.4pc.
Societe Generale claimed its exposure to periphery eurozone debt was €4.3bn (£3.7bn), a level it labelled "declining and manageable". It said it would nonetheless speed up asset disposals and cut costs to free up capital.
BNP Paribas issued a statement in which it pointed out that Moody's had put French banks on review for downgrade as far back as June and that no rating decision had been "communicated". The bank said it had €3.5bn of exposure to Greek sovereign debt.
According to a report by the Bank for International Settlements, released in June, French banks top the list of creditors to Greek debt, with $56.7bn (£35.8bn) of exposure.
Bond yields for Europe's periphery nations were also hit hard. Italy sold €7.5bn of one-year debt at an average yield of 4.15pc, the highest level since September 2008.
Meanwhile, credit default swaps (CDS) on Greek debt – which measure the likelihood of default – soared to a record 3,650 basis points and Italian CDS broke through the 500 barrier for the first time.
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Monday Morning Outlook
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No Recession, No Panic To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 9/19/2011
Online markets (at Intrade) put the odds of a recession in the next year at 40%. The consensus of economists (in a Wall Street Journal poll) has the odds of recession at one in three. These elevated fears are hitting consumer confidence, creating political pressures and causing volatility in financial markets.
We think the actual odds of a recession are much lower than the consensus thinks. We place them at 20%, barely above the 15% that history tells us exists in any year.
Yes, real GDP growth slowed to less than 1% in the first half of 2011, versus a 2.4% average growth rate in the past two years. But, recent data on consumption and production (as Japan recovered) suggests US growth reaccelerated to the 2.5% - 3.0% range in the third quarter.
Real consumer spending – goods and services combined – looks like it’s climbing at a 1.5% to 2% annual rate in Q3. Business investment – both equipment & software and commercial construction – is up in recent months. Home building appears flat and government could be a slight drag on growth, but any weakness here should be more than offset by net exports and inventories. In other words, despite fears, there is no evidence that GDP is turning in a negative direction.
This is not a surprise. The US economy does not double-dip or slip into recession when monetary policy is loose. Our nominal GDP rule for the Fed suggests a neutral federal funds rate should be 3.0%. With the Fed now holding rates at zero, it is running an accommodative policy. With the yield curve sloping upward, it seems clear that liquidity is not a problem for the economy.
Meanwhile, income tax rates remain relatively low and are not going to rise until 2013 at the very earliest. We believe the newest proposal from the White House to raise tax rates is dead on arrival.
So, what is causing the elevated odds of recession? It appears that many worry about another Lehman-style panic. They fret that we can scare ourselves into a recession. They fear that the US will see a sudden plunge in the velocity of money, possible deflation, and frozen financial markets.
The catalyst for all this is supposedly Greece and its very real potential of default on its government debt. But as we pointed out two months ago, the five largest US banks have only $54 billion in exposure to the debts of Greece, Portugal, Italy, Ireland, and Spain, combined, versus more than $700 billion in bank capital. In the early 1980s, when Latin and South American countries were defaulting, the eight largest US banks had exposure to those countries equal to 263% of capital.
In other words, direct exposure is not a problem. So investors and some economists are worried about “counterparty risk,” with our banks coming under pressure if foreign banks with greater direct exposure become undercapitalized.
But here again, we think the fears are overblown. Does anyone seriously think Germany, France and the rest of the leading countries in Europe would not recapitalize their banks if they were on the brink of failure? Moreover, changes to mark-to-market accounting mean that illiquid markets can no longer spread mayhem like an out of control wildfire. We aren’t saying that losses won’t happen, but we don’t see how this spreads like Lehman. And in the meantime, our banks can borrow from the Federal Reserve’s discount window at nearly 0%.
We are watching high frequency data – weekly data – on railcar loadings, steel production, hotel occupancy, retail sales, box office receipts, and initial unemployment claims. Through the second week of September there is no evidence that a panic is underway. In fact, the economy continues to grow.
As a result, we do not agree with the elevated odds of a recession that so many seem to believe. We think there is opportunity in financial markets. Equity values and commodity prices (excluding precious metals) have been knocked down, while Treasury bond prices have been bid up. These market moves will reverse when the data show that recession fears have been unwarranted.
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It depends on what the meaning of is is.
"climbing at a 1.5% to 2% annual rate"
Recession is not dictionary defined but agreed widely among economists to be the term for when real growth goes negative for 2 or more quarters. By that definition, you don't know if you are already in one for a delay of more than 6 months, more like a year with revisions to numbers always coming out. Also widely agreed among economists, breakeven growth in our economy is no less than 3.0 - 3.1%. At zero to 2% growth going forward, if true, he is technically correct, but we are moving backwards and experiencing what ordinary people with their eyes and ears open would call an extended recession or worse.
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Down 490 with twenty minutes to go :-o
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The ISM manufacturing index rose to 51.6 in September To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 10/3/2011
The ISM manufacturing index rose to 51.6 in September from 50.6 in August, easily beating the consensus expected decline to 50.5. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mostly higher in September. The production index rose to 51.2 from 48.6 and the employment index increased to 53.8 from 51.8. The new orders index was unchanged at 49.6 and the supplier deliveries index rose to 51.4 from 50.6.
The prices paid index rose to 56.0 in September from 55.5 in August.
Implications: Today’s reports on manufacturing and construction show absolutely no sign of recession. Not only did the ISM manufacturing index beat consensus expectations, but it climbed to its highest level in three months. The September index reading of 51.6 shows that growth in the manufacturing sector is accelerating, not declining. An index level of 51.6 correlates with 3.2% real GDP growth according to the Institute for Supply Management, which publishes the report. Given recent market volatility and fears of potential defaults in Europe, many regional manufacturing surveys have been beaten down. But like today’s ISM report (and Friday’s Chicago PMI), we expect these manufacturing surveys to bounce back, as they often reflect sentiment rather than real business activity during times of uncertainty. In other news this morning, construction spending increased 1.4% in August, easily beating consensus expectations of a 0.2% decline. Including revisions to prior months, construction spending was up 1.2%. The largest gain in August came from state and local construction, particularly high schools and bridges. Home building rose due to both single-family construction and home improvements. A gain in commercial construction was led by power plants.
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Wesbury did the same thing during the tech crash of 2000. Talk up the economis numbers all the while tech stocks lost 90% of their value. His synopses are concise with all sorts of data and stats and numbers. With regards to the stock market these numbers are obviously worthless. I don't know what to do with them or what purpose or good they serve.
Get twenty economists in a room and they will give different ideas about where the economy is going.
His numbers don't mean anything for stock investors from where I sit.
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CCP, My advice is just read Wesbury for the facts. Statements like highest in 3 months remind me that one of my salesmen told the owner of our company that we doubled our sales last year in our division and won a national award. He was surprised to hear the reaction that two times sh*t is still sh*t. We were not their largest division.
Wesbury missed the crash of 2000, so did every other prognosticator except the ones who missed the entire runup to it. Greenspan for one called it irrational exuberance in December 1996 - the tech crash began in March 2000. Qualcomm for one went up 2400% in 1999. Anyone following the doomsayers missed that, and remember fiber optic supplier JDSU IIRC had a billion dollars in the bank and all fiber optic companies had triple digit industry growth forecasts at the time the market came down. I had my largest fiber optic contract during that time - in the re-building of Kuwait.
"Get twenty economists in a room and they will give different ideas about where the economy is going."
Yes, or worse they will all give you a forecast within a couple of percent of consensus and they will all be right or all be wrong. What I'm saying is that forecasting is done by looking out the rear view mirror. No one has a window into the future. Take the facts from Wesbury and discount the prognostications. Wesbury is only alleging something like 1% growth. Breakeven growth is something like 3.1% growth. If this economy is seriously coming out of its tailspin it would be growing at 4+% sustained growth. It isn't. Wesbury is only saying that the growth rate is not negative by accepted measurement standards. IMO, when counting the trillions of injected money diluting our currency and lowering our future standard of living, in reality we are moving backwards right now - at a frightening pace.
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The situation in Europe is having great effect on the markets here. I suggest taking a look at my two most recent posts in the Europe thread.
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The situation in Europe is having great effect on the markets here. I suggest taking a look at my two most recent posts in the Europe thread.
Just wait until Grecian state you reside in crashes. We ain't seen nothin' yet.
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My guess is that there will be tremendous capital flight to here-- which may have some short term positive effects , , , or not. I know nothing! :lol:
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My guess is that there will be tremendous capital flight to here-- which may have some short term positive effects , , , or not. I know nothing! :lol:
Sure, we may be the cleanest shirt in the hamper, although we might better be described as the healthiest guy at the hospice.
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Non-farm payrolls were up 103,000 in September To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 10/7/2011
Non-farm payrolls were up 103,000 in September and up 202,000 including revisions to
July/August. The consensus expected a gain of 60,000.
Private sector payrolls increased 137,000 in September. Revisions to July/August
added 42,000, bringing the net gain to 179,000. September gains were led by
professional & business services (+48,000), health care (+44,000), telecomm
(+38,000, due to the end of the Verizon strike), and non-residential construction
(+30,000). The biggest decline was manufacturing (-13,000).
The unemployment rate remained unchanged at 9.1%.
Average weekly earnings – cash earnings, excluding benefits – increased
0.5% in September and are up 2.1% versus a year ago.
Implications: The employment report for September shows, without a shadow of a
doubt, that the US economy is not in recession. Including upward revisions for July
and August, nonfarm payrolls increased 202,000. That easily beat consensus
expectations of a 60,000 gain and is a solid gain even if we exclude the 45,000
workers who ended a strike with Verizon. In addition, the number of weekly hours per
worker increased to 34.3 from 34.2 in August, which is the equivalent of 320,000
jobs. But the good news does not stop there. Civilian employment, an alternative
measure of jobs that factors in small business start-ups, increased 398,000. This
was enough to keep the unemployment rate at 9.1% despite a 423,000 gain in the size
of the labor force, the largest increase in more than a year. Very quietly, without
any fanfare, private sector payrolls have grown by 1.8 million in the past year,
while the workweek has lengthened and hourly cash wages are up 1.9%. A 9.1%
unemployment rate means the labor market is still far from operating at its full
potential, but it is moving in the right direction as are other data. September
chain store sales were up 5.5% versus a year ago, according to the International
Council of Shopping Centers. This includes luxury department store sales up 10.4%.
Meanwhile, core railcar loadings are up 5.7% versus a year ago, according to data
from the Association of American Railroads. Initial claims for unemployment
insurance increased 6,000 last week to 401,000. But continuing claims for regular
state benefits declined 52,000 to 3.70 million. Investors have been grossly misled
about the odds of a recession.
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By Matt Phillips
Credit SuisseLet’s get real.
Here’s an interesting chart we recently came across from Credit Suisse’s fixed income research team. We’ve all gotten somewhat used to seeing 10-year Treasury yields hovering around 2%. (They’re at 2.14%, as we write.)
But it’s important to keep in mind how just how remarkably low rates really are, especially “real rates,” which are essentially the yields on U.S. Treasurys minus some approximation of expected inflation. You can see from Credit Suisse’s chart that we’re at some of the lowest levels of real rates ever seen in the U.S.
This is important for investors to keep an eye on. Some, such as Pimco’s Bill Gross, have argued that real rates essentially show you that any bet on bonds is likely to be a losing one over the long term, as inflation eats into the fixed return of bonds.
Gross has argued that U.S. bond investors are “financially repressed” because real interest rates are negative relative to inflation. He told bond investors at a conference back in June, “You need to find something else that’s attractive.”
The question, of course, is what? And when? After all, there was no better short-term bet in the financial markets during the third quarter than loading up on long-term U.S. Treasurys. The “long” component — 10 year and over — of the Barclays Capital Treasury Index returned roughly 25% during the three months that ended in September. That was the period that saw the nominal 10-year yield fall well below 2% to levels not seen since the 1940s.
For borrowers, real interest rates this low are a great deal. In theory, they should help encourage companies and consumers to borrow. But in practice companies have tons of cash, thanks. And people who are scared about losing their job, unemployed or underwater on the mortgage aren’t interested — or able — to take advantage of these super low real rates. For what it’s worth, low real rates also helps the heavily indebted U.S. government too. But for yield-starved investors, charts like this underscore just what a tough environment they are facing.
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Data Watch
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Retail sales surged 1.1% in September To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 10/14/2011
Retail sales surged 1.1% in September (up 1.5% including revisions to July/August), easily beating the consensus expected increase of 0.7%. Retail sales are up 7.9% versus a year ago.
Sales excluding autos increased 0.6% in September (1.1% including revisions to July/August), also well above the consensus expected increase of 0.3%. Retail sales ex-autos are up 7.8% in the past year.
The increase in retail sales in September was led by autos, gas, and bars/restaurants. Most other major categories of sales increased.
Sales excluding autos, building materials, and gas were up 0.6% in September (1.1% including revisions for July/August). These sales are up 6.0% versus last year and up at a 4.8% annual rate in Q3 versus the Q2 average. This calculation is important for estimating GDP.
Implications: Today’s report on retail sales killed any remaining chance that the US is in recession. The data speak for themselves. Overall retail sales were up 1.1% in September and up at a 7.6% annual rate in the past three months. Autos led the gain in September, as supply-chain disruptions coming from Japan continue to ease. But even excluding autos, sales were up 0.6% and up at a 6.2% annual rate in the past three months. “Core” sales, which exclude autos, building materials, and gas, were also up 0.6% in September and are up at a 5.6% annual rate in the past three months. Not only do these figures show no recession, but real GDP growth in Q3 was probably the strongest in more than a year; we’re estimating an annualized 3.5% real GDP growth rate in Q3. In turn, this means we do not need to run up the federal debt further through efforts to “stimulate” the economy for the short run. Nor do we need another round of quantitative easing from the Federal Reserve. In other news this morning, prior easing by the Fed continues to show up in prices for internationally traded goods. Import prices increased 0.3% in September and are up 13.4% versus a year ago. This is not just oil: excluding petroleum, import prices were up 0.2% in September and are up 5.5% from a year ago. Export prices were up 0.4% in September and are up 9.5% from a year ago. Ex-agriculture, export prices were up 0.3% in September and 8% from a year ago. In still other news, business inventories increased 0.5% in August. The inventory-to-sales ratio remains very low, particularly at retailers.
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Retail sales surged 1.1% in September !!!!!!!!!
Oh thank goodness! Our long national nightmare is over!
Let's just focus on that isolated data point and ignore the totality of the circumstances.
:roll:
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It certainly seems we hit a nearterm bottom which of course can change tomorrow with Soros' latest rumor.
I don't recall a weirder situation wherein some companies and investors are making money hand over fist yet nearly everyone I know personally is financially worse off.
The recent drop was I think due to the concern Europe banking would collapse. Now the rumors are they are working on some sort of "deal" to kick the can down the road everything is back to hunky dorry?!
Perhaps BLoomberg can get Brian to go down to the Wall Street protesters and convince them all not to worry everything is really great.
What I screwed up country this is becoming. More then once I have senior citizen patients coming in and telling me they are glad they don't have much time left. They cannot stand what is going on.
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Giant pools of money, with no place sound and safe to invest, skittishly play momentum games.
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Monday Morning Outlook
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Solid 3.5% Growth in Q3 To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 10/17/2011
When real GDP growth barely budged in Q1 (0.4%) and sputtered in Q2 (1.3%), conventional wisdom became convinced that a recession was on its way. Many argued that unless the US “stimulated the economy” with more spending, temporary Keynesian tax cuts, or another round of quantitative easing, it was in for another recession.
We had a very different view. We suspected weakness in Q1 was overstated – after all, real GDI (gross domestic income) showed 2.4% growth in Q1. GDI and GDP are supposed to be equal. When they differ substantially, it is the income side that typically shows more accuracy. In other words, we think the weakness in Q1 will eventually get revised away.
That probably won’t happen with Q2, when the economy grew at only a 1.3% annual rate. But we have always believed that weakness in Q2 was driven by disasters in Japan and the unusually violent tornado season in the South.
With the Fed accommodative, and productivity strong, we never believed the pessimistic narrative. Conventional wisdom has been wrong. With most monthly data in, it looks like real GDP grew at a 3.5% annualized growth rate in the third quarter of 2011.
Consumption: Auto sales are up at a 11.7% annual rate in Q3 while retail sales ex-autos are up at a 4.5% rate. Services, a major part of consumption, are not up as much, but it looks like real personal consumption – goods and services combined – probably climbed at a 2.1% annual rate in Q3, contributing 1.5 points to the real GDP growth rate. (2.1 times the consumption share of GDP, which is 71%, equals 1.5.)
Business Investment: Business investment in equipment and software appears to have grown at an annualized 14% growth rate in Q3. Meanwhile, commercial construction looks to be up at a 19% rate. Combined, these two components of non-residential investment grew at about a 15% rate, which should add about 1.5 points to the real GDP growth rate. (15 times the business investment share of GDP, which is 10%, equals 1.5.)
Home Building: Residential construction appears to have grown at about a 4% annual rate in Q3. This translates into 0.1 point for the real GDP growth rate. (4 times the home building share of GDP, which is 2%, equals 0.1.)
Government: Real government purchases expanded at about a 2.5% rate in Q3, which should boost the real GDP growth rate by about 0.5 percentage points. (2.5 times the government purchase share of GDP, which is 20%, equals 0.5).
Trade: We only have data through August, but the trade deficit is down so far in Q3 and we think this should add 0.3 points on the growth of real GDP.
Inventories: As always, inventories are a wild card. At this point, we only have data on inventories through August and inflation-adjusted numbers are only available through July. To be cautious with our real GDP estimate, we assume inventory accumulation slowed slightly from the pace in Q2, resulting in a drag of 0.4 points on the real GDP growth rate.
Add-em-up, and you get 3.5% real GDP growth for Q3, with an upside risk. Not only that, but we expect more solid growth in Q4 and beyond. Anyone who has forecast an imminent recession has some explaining to do.
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We shall see. Hell, I'd love to be wrong here.
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Me too! Though if he proves right I want some credit for continuing to post him! :lol:
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Me too! Though if he proves right I want some credit for continuing to post him! :lol:
If I'm right, I want an extra ration in the soup line.
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Odd that economists use such powerful words as "real growth" to describe what of course is not real growth. It is just the formula they all accept for adjusting 'nominal growth'. Around here most people know that we have flooded multi-trillions of declining-value dollars into yesterdays numbers. The resulting inflation has already occurred, does not show up yet, but is certain to materialize in tomorrow's prices levels.
Real growth for this year by honest definition is something we will never know because we chose instead to conduct such an artificial, contrived and manipulated experiment. MHO
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" by honest definition"
Like the honest stuff coming out of Europe. Such as we have plenty of resources, lots of options, restructuring is taking place, move the bad debt into some isolated corner of the balance sheet as though it no longer exists, the US is behind the European Union, and on and on.
The attempts at maintaining confidence at the expense of honesty - well...
Think of the can in the road that has been trounced dozens of times and is so flat it looks like a pancake.
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Amid the wild swings of the past few weeks, cracks are appearing deep in the workings of the stock market that some professional investors say are making the market treacherous to trade.
Hedge-fund traders and mutual-fund managers say it has become increasingly tough to trade an individual stock without causing a big swing in its price. That's led many large investors to step back from the market instead of risking being stung by the trading difficulties.
Mind the Gap
The spread, or percentage difference between the price investors are willing to buy and sell a stock, grows as markets become more volatile.
Enlarge Image
Close..The big moves in stock indexes have caught attention. Just on Monday, the Dow Jones Industrial Average dropped 247.49 points, or 2.13%, to 11397.00. But market participants say trading conditions are much worse when they drill down to individual stocks, highlighting skittishness of investors of all stripes.
Even among some of Wall Street's most actively traded stocks, such as Apple Inc. or Netflix Inc., traders say it has been more challenging than usual to buy or sell.
The problem is a lack of liquidity—a term that refers to the ease of getting a trade done at an acceptable price.
Markets depend on there being many offers to buy and sell a particular stock, across a range of prices. But as investors have gotten nervous, many of those offers have dried up. That is causing wider-than-normal gaps between prices showing where stocks can be bought and where they can be sold—the difference between the "bid" price and the "ask" price.
Many big investors, such as hedge funds and mutual funds, which at times can act as shock absorbers for trading because they tend to trade large chunks of stocks, have been on the sidelines. Some hedge funds, for example, say they're not trading as much until they know how much money their clients will withdraw at the end of October, a deadline some clients have to inform funds of intentions to redeem money at year-end.
Enlarge Image
CloseBloomberg News
Traders at the New York Stock Exchange.
.Wall Street firms and banks, meanwhile, have significantly less appetite for taking on the risk of holding whatever it is that clients are buying or selling.
Some analysts and investors say poor liquidity and market turbulence, which has seen the Dow rise or fall by 1% or more in 14 of the past 19 trading days, will continue as long as government officials squabble on both sides of the pond, banks and others look to reduce trading risk and the global economy stays on a shaky footing.
In some ways, investors would be expected to leave the market in uncertain times, but traders say the exodus of late is striking and underscores the nervousness of market participants, and the lack of willingness of many to step in to trade.
"Liquidity will continue to be a big problem," says Patrick McMahon, co-founder of hedge fund MKP Capital. Mr. McMahon says he has noted the sharp decline in liquidity, or market depth, in recent months. And, with global banks reducing their risk exposure, they are less likely to step in and take either side of trades, Mr. McMahon says.
He says fewer investors are willing to buy or sell stocks, creating an effective vacuum.
"That's why you get 5% moves in a matter of minutes," he says. "When there are sellers, there are few buyers, creating an air pocket down."
And it's not just stock markets. Liquidity has also been sucked out of credit markets, too, traders say, from corporate bonds to mortgage-backed securities. Global banks have been reducing their exposure to riskier bonds and are less likely to step in and take either side of bond trades, Mr. McMahon says. In some cases this is spilling into the stock market, as debt investors scramble to trade there.
"Any reasonable sized selling is driving individual bond prices down quite a bit," says Jeffrey Kronthal, co-founder of hedge fund KLS Diversified in New York, who says bid-offer spreads in areas such as some residential and commercial mortgage-backed securities have more than doubled in the past month or so. "Really, no dealers are putting up capital. A lot of stuff just doesn't trade."
In the stock market, one well-known manager of a large hedge fund said he recently tried to buy $250 million of shares of Tempur-Pedic International Inc., a mattress maker with a nearly $4 billion market value. The manager, who declined to speak on the record, says he gave up after his initial order of $20 million of shares pushed prices of the stock up too far.
"You try to get something done at one level, and if you take your eye off the screen, it can move to the next level," says David Schiff, deputy head of equity trading at JPMorgan Asset Management. "There's not a lot of depth at any price point."'
To some degree there's a chicken and egg phenomenon at work. As poor liquidity begets more volatility, big investors and brokerage firms become even more wary of being active in the market. And individual investors, many of whom are out of market already, are less likely to return. Volumes, while erratic, have largely been lower in recent weeks. Some 3.7 billion shares changed hands in New York Stock Exchange composite trading on Monday, compared with this year's average of 4.4 billion.
Some traders say this kind of dynamic is what should be expected for such highly uncertain times.
"Yeah, of course it's harder to trade," the head of one mutual fund trading desk says. "You can't do things you used to be able to do four months ago, but it's a different market."
The best way to judge liquidity, some traders say, is by looking at the bid-ask spreads.
For the stocks in the Standard & Poor's 500 stock-index, spreads have been at their widest since late 2009, when markets were finally calming down from the worst of the financial crisis. The median spread on S&P 500 stocks on some days topped 0.05% of their share price on multiple days, up from an average of just over 0.03% for the first seven months of 2011, according to Credit Suisse's AES electronic trading group.
The lack of liquidity can also be seen in the spreads among actively traded stocks. On Apple, for example, the average spread has on many days been double what it was back in June, according to data compiled by T3 Trading Group. On shares of Amazon, the spread has gone from 0.03% of the share price to a spread of over 0.05% in recent weeks. The spread on Netflix shares widened to over 0.07% in September and early October from 0.05% in late June and July.
One surprising element of the fall-off in liquidity is that one key set of players actually appears to be more active in recent months: so-called high-frequency traders. These hedge funds use computer models to trade at a rapid pace. In recent years they have replaced brokerage firms as the go-betweens when investors trade stocks.
But with so many other players stepping back from the market, the liquidity that high frequency traders are providing isn't creating much of a cushion, traders say. In fact, some say they may be making matters worse.
Conditions have improved a bit over the past two weeks, says Scott Redler, chief strategic officer at T3 Trading, but overall, trading in stock such as these have "felt thinner and it's hard to get good executions. As soon as you get filled, it feels like the prices are against you."
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Pasting this from the China thread here to place it in the context of the Investing state of mind of this thread.
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http://www.forbes.com/sites/gordonchang/2011/10/16/chinas-economy-the-correction-history-will-remember/2/
The stocks of Chinese banks fell this year and were trading at price-to-book ratios that assumed these institutions would suffer substantial losses on their loan portfolios. Beijing’s sovereign wealth fund had to launch a rescue last week by announcing open-market share purchases of Chinese banks.
The move triggered a short rally, but it did not solve the fundamental problem: Credit Suisse last week said that bad debt could be as much as 60% of bank equity. The 60% figure assumes that bad loans constitute only 12% of loan portfolios, but as in the bank crisis at the end of the 1990s, questionable assets are probably multiples of this figure.
The problem for Beijing is that this time, unlike the end of 2008, it has little flexibility to dump money in the economy to restart growth and save borrowers. It already did that and has, in addition to inflation, created historically high property prices, vacant apartment buildings, and debt-swollen local government financing vehicles. Yes, increasing liquidity would aid borrowers in the short-term, but that tactic would only make the debt bomb bigger.
Beijing could take foreign currency out of its reserves to recapitalize its largest banks—as it did in early 2004—but that just pushes the People’s Bank of China, the country’s central bank, deeper into insolvency. In any event, recapitalization would buy only a little time.
The Chinese central government has, in past crises, sustained the momentum of the economy by creating circular flows of cash, using money from one state institution to bail out other ones. Yet all artificial situations eventually end. State-dominated economies have more ability to postpone the inevitable, but the corrections they suffer are often worse as a result of continual deferrals.
Like 2008, the Chinese economy is now emitting strong signals it wants to correct. Last time, Beijing, flush with cash, chose to override the market and postpone the reckoning with its “tidal-wave” spending. Now, Chinese technocrats are almost out of options.
As a result, the downturn in China this time is probably the one history remembers.
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As far as protecting your money, as I've said "guns, ammo and canned food". Seriously, tangible assets are the way to go. Owning a house free and clear is a good option.
Making money? Well, if the 500,000 real estate purchase=residency visa law goes through, I've got a ready made business plan. Much like the Hong Kongers that bought up Vancouver when HK got betrayed by the UK, Many wealthy mainlanders want US property and visas as a escape plan should China experience "troubles" in the future.
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As far as protecting your money, as I've said "guns, ammo and canned food". Seriously, tangible assets are the way to go. Owning a house free and clear is a good option.
Making money? Well, if the 500,000 real estate purchase=residency visa law goes through, I've got a ready made business plan. Much like the Hong Kongers that bought up Vancouver when HK got betrayed by the UK, Many wealthy mainlanders want US property and visas as a escape plan should China experience "troubles" in the future.
http://online.wsj.com/article/SB10001424052970203752604576641421449460968.html?mod=googlenews_wsj
HOMES OCTOBER 20, 2011.
Foreigners' Sweetener: Buy House, Get a Visa .
By NICK TIMIRAOS
The reeling housing market has come to this: To shore it up, two Senators are preparing to introduce a bipartisan bill Thursday that would give residence visas to foreigners who spend at least $500,000 to buy houses in the U.S.
The provision is part of a larger package of immigration measures, co-authored by Sens. Charles Schumer (D., N.Y.) and Mike Lee (R., Utah), designed to spur more foreign investment in the U.S.
Supporters of the bill, co-authored by Sen. Charles Schumer, say it would help make up for American buyers who are holding back.
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Foreigners have accounted for a growing share of home purchases in South Florida, Southern California, Arizona and other hard-hit markets. Chinese and Canadian buyers, among others, are taking advantage not only of big declines in U.S. home prices and reduced competition from Americans but also of favorable foreign exchange rates.
To fuel this demand, the proposed measure would offer visas to any foreigner making a cash investment of at least $500,000 on residential real-estate—a single-family house, condo or townhouse. Applicants can spend the entire amount on one house or spend as little as $250,000 on a residence and invest the rest in other residential real estate, which can be rented out.
The measure would complement existing visa programs that allow foreigners to enter the U.S. if they invest in new businesses that create jobs. Backers believe the initiative would help soak up an excess supply of inventory when many would-be American home buyers are holding back because they're concerned about their jobs or because they would have to take a big loss to sell their current house.
"This is a way to create more demand without costing the federal government a nickel," Sen. Schumer said in an interview.
International buyers accounted for around $82 billion in U.S. residential real-estate sales for the year ending in March, up from $66 billion during the previous year period, according to data from the National Association of Realtors. Foreign buyers accounted for at least 5.5% of all home sales in Miami and 4.3% of Phoenix home sales during the month of July, according to MDA DataQuick.
Foreigners immigrating to the U.S. with the new visa wouldn't be able to work here unless they obtained a regular work visa through the normal process. They'd be allowed to bring a spouse and any children under the age of 18 but they wouldn't be able to stay in the country legally on the new visa once they sold their properties.
The provision would create visas that are separate from current programs so as to not displace anyone waiting for other visas. There would be no cap on the home-buyer visa program.
Over the past year, Canadians accounted for one quarter of foreign home buyers, and buyers from China, Mexico, Great Britain, and India accounted for another quarter, according to the National Association of Realtors. For buyers from some countries, restrictive immigration rules are "a deterrent to purchase here, for sure," says Sally Daley, a real-estate agent in Vero Beach, Fla. She estimates that around one-third of her sales this year have gone to foreigners, an all-time high.
"Without them, we would be stagnant," says Ms. Daley. "They're hiring contractors, buying furniture, and they're also helping the market correct by getting inventory whittled down."
In March, Harry Morrison, a Canadian from Lakefield, Ontario, bought a four-bedroom vacation home in a gated community in Vero Beach. "House prices were going down, and the exchange rate was quite favorable," said Mr. Morrison, who first bought a home there from Ms. Daley four years ago.
While a special visa would allow Canadian buyers like Mr. Morrison to spend more time in the U.S., he said he isn't sure "what other benefit a visa would give me."
The idea has some high-profile supporters, including Warren Buffett, who this summer floated the idea of encouraging more "rich immigrants" to buy homes. "If you wanted to change your immigration policy so that you let 500,000 families in but they have to have a significant net worth and everything, you'd solve things very quickly," Mr. Buffett said in an August interview with PBS's Charlie Rose.
The measure could also help turn around buyer psychology, said mortgage-bond pioneer Lewis Ranieri. He said the program represented "triage" for a housing market that needs more fixes, even modest ones.
But other industry executives greeted the proposal with skepticism. Foreign buyers "don't need an incentive" to buy homes, said Richard Smith, chief executive of Realogy Corp., which owns the Coldwell Banker and Century 21 real-estate brands. "We have a lot of Americans who are willing to buy. We just have to fix the economy."
The measure may have a more targeted effect in exclusive markets like San Marino, Calif., that have become popular with foreigners. Easier immigration rules could be "tremendous" because of the difficulty many Chinese buyers have in obtaining visas, says Maggie Navarro, a local real-estate agent.
Ms. Navarro recently sold a home for $1.67 million, around 8% above the asking price, to a Chinese national who works in the mining industry. She says nearly every listing she's put on the market in San Marino "has had at least one full price cash offer from a buyer from mainland China."
Corrections & Amplifications
Harry Morrison bought a four-bedroom vacation home in Vero Beach in March. He first bought a home there four years ago from Sally Daley, a local real-estate agent. An earlier version of this story incorrectly said Ms. Daley sold the four-bedroom home to Mr. Morrison in March.
Write to Nick Timiraos at nick.timiraos@wsj.com
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Fear and Loathing in the Eurozone
Xcerpt from Stock World Weekly: Fear and Loathing in the Eurozone, week ahead section.
(Click here for more Stock World Weekly)
Late Thursday afternoon, Jon Hilsenrath of the Wall Street Journal, a well-known sounding board for Bernanke when he wants to give signals to the markets, reported “Federal Reserve officials are starting to build a case for a new program of buying mortgage-backed securities to boost the ailing economy, though they appear unlikely to move swiftly.” (Fed Is Poised for More Easing)
This report builds on sentiments that Federal Reserve Governor Daniel Tarullo expressed in a speech on Thursday evening. Bloomberg reported “Federal Reserve Governor Daniel Tarullo’s call for resuming large-scale purchases of mortgage bonds may boost chances the central bank will start a third round of asset buying aimed at reviving U.S. growth.
“Policy makers should move the tool ‘back up toward the top of the list’ because it would help the economy through lower mortgage costs that would boost home purchases and spending by people who refinance their home loans, Tarullo said late yesterday in a speech in New York.”
Tarullo’s speech and Hilsenrath’s article both came out on Thursday, suggesting the Fed is making an effort to broadcast its seriousness about using its tools to jump-start the moribund U.S. economy. Any large-scale program of buying bonds will essentially be another round of quantitative easing (QE3), predictably leading to increases in stock and commodity prices.
However, regarding commodity prices, one event last week may put a damper on increases in commodity prices. On Tuesday, the Commodity Futures Trading Commission (CFTC) voted to put position limits on commodity markets, as it attempts to deal with problems created by runaway speculation. Phil has repeatedly reported on the manipulation in the oil markets, with articles such as last June’s “Which Way Wedne$day - Let’s Break the $peculator$.” Tuesday’s action, while welcome, is long overdue.
The six month chart of the Dollar shows the 73 to 76 range that the Dollar traded in for five months, before it broke out in early September. Now, however, the Dollar’s impressive breakout is failing. It looks like the Dollar may return to its previous trading range. Moreover, with Bernanke and Tarullo banging the drums for more QE, market participants know that QE3 is likely to weaken the Dollar. If the inverse relationship between the Dollar and the stock market persists, the depressed Dollar is bullish for equities. This is no secret and is why hints of QE3 drive the Dollar down and prop equities up.
Europe will be the focus of the financial news again next week. German Chancellor Merkel and French President Sarkozy will try to work out a deal to give additional funding and more discretionary power to the EFSF, while simultaneously strengthening “economic integration” and capitalization of European banks, all under the auspices of implementing “economic governance of the euro area.” Achieving their goals would be historic by any measure.
A primary issue at the heart of the struggle is whether the theoretically unlimited funding of the European Central Bank (ECB) can be used to ‘backstop’ the EFSF, thereby guaranteeing sufficient capital to recapitalize banks and buy distressed bonds. While Sarkozy is a strong proponent of backstopping the EFSF with ECB funding, going so far as to abandon his wife during childbirth to travel to Frankfurt to make his case to Chancellor Merkel, his efforts were in vain. Merkel, backed by ECB President Jean-Claude Trichet, adamantly refused to consider Sarkozy’s proposal.
As the UK Telegraph noted “Europe's central bank could not be used to boost the EFSF because of a 20-year EU treaty clause forbidding the union from using its cash to save European governments. Unlike the EFSF, an ad hoc inter-governmental ‘special purpose vehicle’ based in Luxembourg, the ECB is governed by the detailed chapter and verse of European law.” According to a senior EU diplomat, “If the ECB could act like a national central bank that would make life a hell of lot easier, problem solved, but that runs up against the treaties and Germany's cult of the Bundesbank. Sarkozy was told 'game over’”(France and Germany: an unstoppable force meets an immovable object)
Indeed, the mood at this weekend’s summit in Brussels was somber. The impasse over the EFSF was overshadowed by a surprise announcement from Christine Lagarde, former French finance minister who is now chief of the International Monetary Fund (IMF). Lagarde warned that, without a default, the Greek debt crisis by itself could deplete the entire €440Bn EFSF fund. Her announcement further stated that the IMF was no longer willing to pick up a third of the total bill for rescuing Greece, estimated at €73Bn, unless European banks were prepared to write off at least 50% of Greek debt. One eurozone finance minister was quoted on Saturday as saying that the situation in Brussels was “Grim, the worst mood I have ever seen, a complete mess.” (Eurozone summit - despair and backbiting in the corridors of power)
Stock World Weekly writing and editing team, Elliott and Ilene, recently interviewed Russ Winter of Winter Watch at Wall Street Examiner. In part 1, Chaos in the Land of Oz, we established that the Fed is the Wizard, and we are living in an economic Land of Oz. This week, in part 2, we discussed the debt crisis in Europe, the too-big-to-fail (TBTF) banks, and whether there is a pathway back to Kansas. Ilene also asked Russ whether the was long or short any stocks:
Russ: Right now, I’m shorting the "Palace of Versailles" stocks, stocks like Tiffany’s, Ambercrombie-Fitch, Coach, Starbucks, that sell at rich multiples, because supposedly wealthy people are doing well. Well, rich people were losing their asses in the market in the last couple of months. If you look at the polls, rich people are just as negative as poor people now. The Palace of Versailles trade makes little sense when protesters are in front of your houses, and the stores you shop at. I try to run counter to the conventional wisdom. (Click on this link to read the full interview, Chaos in the Land of Oz, part 2)
Late Friday afternoon Phil took a “cashy and cautious” stance. He wrote, “Well that was a totally fun week. Congrats to all the bullish faithful and, of course, the $25KP players – CASH IS GOOD – enjoy the weekend!”
In contrast to Russ and Phil's more cautious positioning, Lee Adler of the Wall Street Examiner is on the cusp of potentially turning more bullish, BUT he wants to see some proof first. He wrote to subscribers of the WSE’s Professional Edition, "The market has broken a key resistance level. Unless this move whipsaws, the market could reach projections of 1280-1300 quickly. Such a breakout would in turn suggest that the 18 month 2 year cycle had entered an up phase. Unless bears mount a ferocious countermove on Monday, the likelihood is that they could be in hibernation at least through the winter months."
We have a trade idea this week from Pharmboy, who writes, “Bristol Myers Squibb (BMY, $32.56) is losing its patent protection on Plavix next year, but has a blockbuster replacement in Xarelto. The company has other interesting pipeline candidates, and a hefty 4.1% dividend yield.
I like starting a position by selling the January 2012 $31 puts for $1.10 or better.”
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Detlev Schlichter is one of the clearest thinkers I know on the subject of Austrian Economic theory applied to our current crises. Read his book, Paper Money Collapse. More more thoughts on investing in this environment, see the questions and Detlev's answers on the referenced page.
Tom
http://papermoneycollapse.com/2011/10/unstoppable-why-this-crisis-will-keep-unfolding/
Unstoppable: Why this crisis will keep unfolding
by DETLEV SCHLICHTER on OCTOBER 20, 2011 · 20 COMMENTS
Image by Salvatore Vuono
When the tectonic plates underneath society shift, confusion reigns, together with wishful thinking.
It appears that financial markets have again managed to get themselves into a state of unrealistic expectation. The European summit this coming Sunday (or the follow-up summit on Wednesday) is now supposed to bring a “comprehensive plan” to solve the European debt crisis. Of course, nothing of the sort will happen, and for a simple reason: it is impossible. Those who cherish such fanciful hopes are naïve and will be disappointed.
Let’s step back and look at the problem, which in a nutshell is this: The dominant societal model of the second half of the twentieth century – the social democratic nation state with its high levels of taxation, regulation and stifling market intervention, and thus increasingly dependent on a constantly expanding fiat money supply and artificially cheap credit –is rapidly approaching its logical endpoint everywhere, not just in Europe: excessive and unmanageable piles of debt, systemic financial fragility and weak growth.
For many, including quite a few of those demonstrating under the ‘Occupy Wall Street’ banner, this whole mess deserves the label “crisis of capitalism”. That this is nonsense I explained here. What we are witnessing is not the crisis of capitalism but the failure of statism. The present system, certainly the financial system, has very little to do with true capitalism, and if financial markets are now being demonized for their failure to go on funding political Ponzi-Schemes, than this means shooting the messenger rather than addressing, or even understanding, the root causes of the malaise. As I said, this is also a time of great confusion.
Failure of statism
The monetary madness of recent decades was only made possible by the transition from apolitical and inflexible commodity money (free-market money) towards limitless, entirely discretionary fiat money (state money). This shift was completed on August 15, 1971, when this system was also made global. What does such a monetary system logically entail?
In a complete paper money system, banks cannot be private capitalist enterprises but must be extensions of the state because the state holds the monopoly of unrestricted money creation. The banking sector is cartelized under the state central bank. To operate a bank, you need a state license that requires that you open an account with the central bank.
Photograph by M. Bartosch
In such a system, the central bank can create bank reserves out of thin air and without limit, and has thus full control over the level and the cost of such reserves. The central bank has therefore ultimate control over the funding of the banks and the availability of credit in the economy – which is now supposed to be magically freed from its natural constraint under capitalism: voluntary savings.
In such a system, it is generally assumed that the state cannot go bankrupt as it can always print more money to fund itself. It is equally assumed that the banks cannot fail and do not ever have to shrink, at least collectively, as ever more bank reserves can be made available to them – if need be at no cost, as has become – now that the system arrived at the point of ultimate excess – the global norm.
It can hardly be surprising that those who are in charge of the banks and those who are in charge of state finances have behaved for decades as if the Great Regulator of economic life, the threat of bankruptcy, was of no concern to them. Now that the system has finally overdosed on cheap credit and that the forty-year fiat-money-fed boom is over, reality is sinking in. And it comes as a shock.
There is a lot of talk of return to normality. The market has, of course, a way of returning to normality, which involves liquidating the excesses, clearing out the dislocations, defaulting what will not be repaid, and deflating prices that do not reflect real demand. Liquidation, default and deflation, however, are politically unacceptable, as they cut right to the core of our system of state-managed ‘capitalism’: the notion that the state is above the laws of economics and that it can bestow a similar immunity on its protectorates, most importantly the banks.
What’s €2 trillion among friends?
Back to the alternate reality of the policy debate in Europe. The hope of many financial market participants seems to be that the summit will reveal measures by Germany and France to erect a firewall around Greece in case it will default, that the banks will get ‘recapitalized’, and that steps will be taken toward further ‘fiscal integration’. The wish here is evidently that Big Daddy will finally step forward, that he draws a line in the sand, and says, hey, this stops here. Time out on the crisis.
There is only one problem: Nobody has the money to do it.
Two days ago the British newspaper The Guardian broke the story, unconfirmed so far, that Germany and France had agreed to a €2 trillion bailout fund. In response, equity markets around the world enjoyed a brief rally. Finally, the big bazooka had arrived.
Really? I was wondering if nobody ever heard of Brian Cowen.
He was the hapless Irish chap who in 2008 played Big Daddy himself and implemented an official government back-stop for the Irish banks. And duly bankrupted his country.
Life of Brian (Image by Maxime Bernier)
If Merkel and Sarkozy were really stupid enough to launch a €2 trillion bailout fund, it would certainly pay to go short French BTANs and German Bunds right away. Germany and France have no money to bailout anyone. All they could do is pile on more debt on the already large and ever-growing debt pile of their own. It would not take the market as long as it did in 2008, in the case of Ireland, to figure out what the endgame must look like.
But surely, everyone involved must realize that the little boy in the crowd has already pointed out that Emperor Sarkozy and Empress Merkel have no clothes. Interest spreads on French bonds have already blown out, and Moody’s has warned that France’s AAA-rating (what? Triple-A?) might come under review. Credit-default spreads on German bunds have widened of late, and the cost of insuring against the bankruptcy of the Bundesrepublik Deutschland will most certainly only go one way: up. Have I mentioned that Bunds are the short of the century, and U.S. Treasuries, too?
The whole notion of ‘ring-fencing’ Greece is, of course, absurd, as if Greece had contracted some rare contagious disease from which healthier nations, such as Italy or Spain, had to be isolated. Ongoing, endless fiscal deterioration is, however, not a virus but a self-inflicted and ultimately fatal wound that all European states, and in fact, almost all modern social democratic states are already suffering from. The difference between Greece and Germany is one of degree, not principle.
For these reasons, the idea that some form of ‘fiscal integration’ could be the solution, is equally absurd, as if pooling the finances of the already-bankrupt and the almost-bankrupt will somehow give you a community of the fiscally strong, as if you could improve the financial standing of a trailer park community, in which some inhabitants are maxed out on their credit cards while others still have some borrowing capacity left, by giving all of them a joined bank account.
So does this mean that all political options are exhausted, that default, liquidation, and deflation are now unavoidable?
It will get worse
Not so fast. There are still some options left to governments. None of them will solve the problem, all of them will make the crisis worse. All of them are scarily ugly and destructive. Of course, I expect that all will be adopted by governments soon.
Unlimited Euros!, photo by Florian K.
There is, of course, always the prospect of growing regulation and market intervention, of capital controls and the banning of short selling of government debt. I expect all of this to be enacted at some point in the not-too-distant future. Like all government intervention, it will make things worse and accelerate the demise of the system.
But the biggest of all policy mistakes is already being made, and we will get more of it, much more of it: printing ever more money ever faster.
The ECB will be forced/asked/convinced to support the market for government debt of ever more European states to an ever larger degree. Central banks and fiat money are not creations of the free market but of politics. Their role has always been to fund the state. We have already reached the point at which all major central banks are dominant buyers, frequently the largest marginal buyers, of their governments’ debt. The U.S. Fed is already the single largest holder of U.S. Treasuries, and when the just-announced second round of ‘quantitative easing’ in Britain will have been completed, the Bank of England will own almost a quarter of all outstanding Gilts. Funding the state directly with the printing press is the logical penultimate stage of the demise of the present global fiat money system, and all major economies are approaching it fast. The eurozone will be no exception. The ultimate step is loss of confidence in paper money and inflationary meltdown.
If there is one outcome from the European debt summit that I am most convinced about it is that another crucial step will be taken to accelerate the ongoing debasement of fiat money.
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WSJ:
By JEFFREY SPARSHOTT And JEFF BATER
U.S. economic growth accelerated this summer as consumers and businesses boosted spending, allaying at least for now concerns of a slide back toward recession.
DJ Newswires reporter Paul Vigna has the morning's markets preview, which includes a positive GDP report for the third quarter. Photo: REUTERS/Shannon Stapleton
Separately, new claims for unemployment benefits fell slightly last week yet remained elevated, showing that the labor market is still struggling to find its footing.
Gross domestic product, the broadest measure of all the goods and services produced in an economy, grew at an inflation-adjusted annual rate of 2.5% from July through September, the strongest performance in a year.
Economists surveyed by Dow Jones Newswires expected GDP to rise 2.7%.
The economy grew a paltry 0.4% in the first quarter and 1.3% in the second quarter of the year, sparking concerns of a new downturn. But in the third quarter, consumer spent more on durables -- goods like cars and refrigerators -- and services, while business investment surged. The first estimate of the economy's benchmark indicator showed third-quarter personal consumption expenditures up 2.4%, compared with only 0.7% in the preceding period.
"Despite negative economic headlines, we're not seeing evidence of a slowdown in demand," JetBlue Airways Corp. interim Chief Financial Officer Mark Powers said Wednesday after the company reported third-quarter earnings.
Businesses also are investing, especially in equipment and software. Nonresidential fixed investment jumped 16.3% after a 10.3% rise in the second quarter.
Federal government spending and rising exports also helped the economy, while inventory investment and falling state and local government spending dragged on growth.
Real final sales -- GDP less changes in private inventories -- increased 3.6%, compared with a 1.6% rise in the second quarter.
The pace of growth rose as businesses rebounded from natural disasters in Japan and despite uncertainty over the United States' fiscal outlook and a rolling financial crisis in Europe. The outlook for Europe brightened Thursday -- leaders there said they secured a deal to reduce Greece's debt after they labored overnight to find agreement on what they had billed as a blockbuster package to stem the Continent's debt problems.
Looking ahead, some economists are concerned that the recovery will again slow as the real estate market remains moribund, unemployment high, wages stagnant and consumer confidence low more than two years after the recession formally ended.
"Even if the economy doesn't contract, growth should remain unusually lackluster next year," Paul Ashworth, chief U.S. economist at Capital Economics, said ahead of the GDP release.
Federal Reserve officials meet Tuesday and Wednesday to discuss whether there is anything else they can or should do to spur growth. At their last meeting, in September, they voted to shift the Fed's portfolio of securities so it will hold more long-term U.S. Treasury bonds and mortgage debt than previously planned. They hope the move will lower long-term interest rates, boosting investment and spending.
Some Fed officials, though, are worried the central bank will egg on inflation. The core inflation rate--which excludes volatile moves in food and energy prices and is closely watched by the Fed--increased 2.1% from the previous quarter, the Commerce Department said. That followed a 2.3% gain in the second quarter. The overall price index for personal consumption expenditures increased by 2.4% in the third quarter, compared with a 3.3% rise over the previous three months.
Gross domestic purchase prices were up 2.0%, while the chain-weighted GDP price index increased by 2.5%.
Jobless Claims Flat
Initial jobless claims dropped by 2,000 to a seasonally adjusted 402,000 the week ended Oct. 22, the Labor Department said Thursday. In the prior week, jobless claims had decreased by 7,000 to 404,000, based on revised figures.
The four-week moving average of new claims, a more reliable indicator of the labor market's performance because it smoothes out volatile weekly figures, edged up by 1,750 to 405,500 in the latest week.
Economists surveyed by Dow Jones Newswires had forecast claims would fall by 3,000 to 400,000. Most economists believe jobless claims must fall below 400,000 for the economy to add more jobs than it is shedding. The figures released Thursday are consistent with the view that employers are reluctant to make big hires--or significant layoffs--as the economy remains stuck in a slow growth phase.
A poll of 70 corporate economists released last week showed that only 29% expect employment will increase in the next six months--the lowest number in the quarterly National Association for Business Economics survey since January 2010.
Last month the unemployment rate was stuck at 9.1%, even though U.S. employers did add jobs in September.
President Barack Obama has proposed a $447 billion package of spending initiatives and tax cuts aimed at boosting employment. That jobs bill, however, has meet resistance from Republicans in Congress who oppose new spending.
After Obama's plan was rejected as whole, Democrats have taken to trying to pass it on a piecemeal basis. Next week, the Senate is expected to take up a proposal to increase infrastructure spending for wide range of projects including bridge repairs and expanding high-speed Internet access.
Thursday's report showed the number of continuing unemployment benefits--those drawn by workers for more than a week--totaled 3,645,000 in the week ended Oct. 15. Continuing claims are reported with a one-week lag.
That number fell by 96,000 from the prior week, the lowest point since September 2008. It's not possible to know if that decrease is due to workers finding jobs or running out of benefits, a Labor official said.
The unemployment rate for workers with unemployment insurance was 2.9% for the week ending Oct. 15, down 0.1% from the week before, the new data showed.
The state-by-state breakdown in initial jobless claims, which is also released with a lag, showed the biggest rise the week ended Oct. 15 was in Wisconsin, where claims rose by 1,193. Puerto Rico also saw claims grow significantly, jumping by 1,286. The largest decline in claims was in California, down 8,942 as there were fewer layoffs in the service industry, the state reported.
Eric Morath and Andrew Ackerman
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Data Watch
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The first estimate for Q3 real GDP growth is 2.5% at an annual rate To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 10/27/2011
The first estimate for Q3 real GDP growth is 2.5% at an annual rate, exactly as the consensus expected.
The largest positive contributions to the real GDP growth rate were personal consumption, which grew at a 2.4% rate, and business investment, which grew at a 16.3% rate.
The weakest component of real GDP, by far, was inventories, which reduced the real GDP growth rate by 1.1 points.
The GDP price index increased at a 2.5% annual rate in Q3. Nominal GDP – real GDP plus inflation – rose at a 5.0% rate in Q3 and is up 4.1% versus a year ago.
Implications: Real GDP growth came in exactly as the consensus expected, but the make-up of Q3 data bodes well for the end of the year and beyond. The weakest part of today’s report was inventories, which were a drag of 1.1 points on the real GDP growth rate. Inventories are at rock bottom levels. Any boost will add to GDP in the months and quarters ahead. If we exclude inventories, final sales grew at a robust 3.6% rate. This drag from inventories is not new. In the past four quarters, while overall real GDP has grown 1.6%, final sales (which exclude inventories) have grown a much more respectable 2.4%. Private final sales, which excludes the government, shows a strong underlying growth trend: up at a 4.4% annual rate in Q3 and up 3.5% from a year ago. Business investment grew at a 16.3% rate in Q3, the fastest pace so far this year. In other words, consumer and business spending is growing much faster than those who watch consumer and business confidence data think it will, or should. Even home building was up slightly, for the third time in the past four quarters. Nominal GDP (real growth plus inflation) grew at a 5% annual rate in Q3 and is up at a 4.5% rate in the past two years. The Federal Reserve cannot possibly justify another round of Quantitative Easing based on the growth rate of nominal GDP, nor should it continue to hold short-term interest rates near zero. In other news this morning, new claims for unemployment insurance dipped 2,000 last week to 402,000. Continuing claims for regular state benefits fell 96,000 to 3.65 million, the lowest since September 2008. On the housing front, pending home sales, which are contracts on existing homes, declined 4.6% in September, suggesting a slight dip in existing home sales in October
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Monday Morning Outlook
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What's Going Right? To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 10/31/2011
Everyone knows housing is still weak. And, everyone knows jobs are growing, but not fast enough to seriously lower the unemployment rate, which stands at 9.1%.
Everyone also knows real GDP has expanded for nine consecutive quarters, at an average annual rate of 2.5%. No one is satisfied with this; but it is a recovery, not a recession.
So, how can real GDP grow when housing and employment are so weak? Something must be going right…somewhere.
Well, it turns out that the strongest part of the economy has been business investment. Equipment and software investment (Cap-Ex) has grown five times faster than GDP – 12.9% at an annual rate over the past nine quarters.
The strongest category has been transportation and related equipment (trains, planes, trucks, etc.), up 43.3% at an annual rate over nine quarters. Computers and peripheral equipment (including servers, printers, routers, etc.) are also up 26.2% at an annual rate in the past 2 ¼ years. All of this data is adjusted for inflation, and what it shows is, contrary to popular belief, businesses are spending and investing. Moreover, businesses investment is a bigger share of the economy than housing.
Consumer spending is up, too, despite weak confidence data. After adjustment for inflation, consumer spending is up 2.2% at an annual rate over the past nine quarters. In a shocker, real furniture and household durable equipment spending (refrigerators, washing machines, etc.) increased by 5.0% in the past year and now stands just 0.3% below its all-time high from late 2007. Despite weak housing, and worries about credit, household durable spending has rebounded to pre-crisis levels.
Last we looked, the only help government is giving businesses is a more rapid depreciation schedule – which is a tax incentive for investment. Yet, trillions are being spent trying to stimulate housing and employment. In other words, what government is trying to boost by spending is going wrong, but where it uses tax cuts things are looking up and going right. If government could find the courage to have faith in markets and not itself, more things would be going right.
That said…it seems clear that the economy is finding enough strength in business investment and consumption to offset the pain caused by housing and employment. We expect the scales to remain tipped toward growth in the quarters ahead and look for 3% real GDP growth in 2012.
This growth could accelerate if government spending and regulation were reduced in a significant way. Housing already looks to have found a bottom. Imagine what happens when it finally turns up? Buck up, not everything is going wrong. In fact, there are many things going right in the US economy.
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WSJ:
By JEFFREY SPARSHOTT And JEFF BATER
U.S. economic growth accelerated this summer as consumers and businesses boosted spending, allaying at least for now concerns of a slide back toward recession.
WASHINGTON (AP) -- Americans are making a little more money and spending a lot more.
Under normal circumstances, that would be a troubling sign for the economy. But a closer look at some new government figures suggests another possibility: People are saving less money because they're earning next to nothing in interest.
Saving is already difficult because of more expensive gas and food. It's even tougher because of the lower returns -- the flip side of super-low interest rates that the Federal Reserve has kept in place since 2008 to help the economy.
Critics say the Fed is punishing those who play by the rules -- those careful enough to set aside money for savings or people who built up a nest egg and are living on fixed incomes that depend on interest.
Americans spent 0.6 percent more in September, three times the increase from the previous month, the government said Friday. Spending was especially strong on durable goods -- things like cars, appliances and electronics.
At the same time, what they earned was mostly flat. Pay increased 0.3 percent, and overall income just 0.1 percent. After deducting taxes and adjusting for inflation, income fell for a third straight month.
So to make up the difference, many have cut back on savings. The savings rate fell to its lowest level since December 2007, the first month of the recession -- and right about the time the Fed started its dramatic series of interest-rate cuts.
Considering how little you can get for parking your money at a bank, it hasn't been a tough choice.
Hmmmm. I'm not feeling the Kool-aid kicking in just yet.....
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Debt committee: Market reaction a big unknown
By Jeanne Sahadi @CNNMoney November 17, 2011: 5:24 AM ET
Tax revenue continues to make a deal difficult for the congressional debt committee, co-chaired by Republican Jeb Hensarling and Democrat Patty Murray.
NEW YORK (CNNMoney) -- Given how volatile markets have become, predicting how traders will react to the congressional debt committee next week is a dicey undertaking.
Two themes emerged in conversations with stock and bond strategists. First, Wall Street never expected much from the committee, thanks to the disastrous debt ceiling debate. Second, markets don't expect lawmakers to make meaningful decisions on fiscal reform until after the 2012 election.
The committee, by law, is supposed to vote on a plan by next Wednesday.
If the panel simply approves $1.2 trillion in debt reduction -- its minimum target to stave off automatic cuts in 2013 -- the market reaction will be "a great big yawn," said Adrian Conje, chief investment officer of Balentine, an investment advisory firm.
That deal, in other words, has been factored into stock traders' considerations.
A $1.2 trillion plan is considered small relative to what's needed but it could give markets a lift if it seems to demonstrate the start of real compromise between Democrats and Republicans on revenue increases and entitlement cuts, said John Toohey, vice president of equity investments at USAA.
Debt committee: Deal or no deal, then what?
Conversely, Toohey noted, a failure by the committee to agree on a deal at all could hurt stocks.
Another potential negative for stocks: A deal that would reduce debt by $1.2 trillion but take no short-term measures to boost the economy, such as extending temporary payroll tax relief or providing another temporary extension of federal emergency jobless benefits for the long-term unemployed.
Of course, Congress can still decide to extend those measures separately before the end of the year, but a super committee proposal had been considered a possible vehicle.
"If that all goes away, that could mean a 1.5% to 2% drag on GDP growth next year," Toohey said.
It's even less clear how bonds might respond.
Traders may be disappointed if the super committee can't come to a deal or can only come to a deal worth less than $1.2 trillion. But their disappointment is likely to be offset by concerns elsewhere in the world. The same holds should a super committee failure trigger another downgrade or negative ratings action.
0:00 / 1:35 Europe's issues make U.S. look pretty good
"Global and U.S. investors will continue to be disappointed in U.S. fiscal policy but will look at Europe and Japan and not see governments with unassailable credit ratings in the future," said Steve Van Order, fixed income strategist at Calvert Investments
There is, of course, one super committee action that would make both stock and bond markets cheer: Agreement on a true "grand bargain" -- the kind of proposal that reduces debt by at least $3 trillion to $4 trillion over the next decade but is mindful of not undermining the economic recovery in the short-term.
The Holy Grail for traders? More certainty about long-term fiscal policies and the balance lawmakers will strike between spending and revenue in the future.
"Markets want less ideology and more problem-solving," Conje said. "They want clarity. They want to know the rules of the road."
Given that the two sides have yet to produce a single plan that they can at least agree to vote on, markets may have to wait a little longer.
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http://news.yahoo.com/next-financial-crisis-hellish-way-204303737.html
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The next financial crisis will be hellish, and it’s on its way
By Addison Wiggin | Forbes – Wed, Nov 16, 2011...
"There is definitely going to be another financial crisis around the corner," says hedge fund legend Mark Mobius, "because we haven't solved any of the things that caused the previous crisis."
We're raising our alert status for the next financial crisis. We already raised it last week after spreads on U.S. credit default swaps started blowing out. We raised it again after seeing the remarks of Mr. Mobius, chief of the $50 billion emerging markets desk at Templeton Asset Management.
Speaking in Tokyo, he pointed to derivatives, the financial hairball of futures, options, and swaps in which nearly all the world's major banks are tangled up.
Estimates on the amount of derivatives out there worldwide vary. An oft-heard estimate is $600 trillion. That squares with Mobius' guess of 10 times the world's annual GDP. "Are the derivatives regulated?" asks Mobius. "No. Are you still getting growth in derivatives? Yes."
In other words, something along the lines of securitized mortgages is lurking out there, ready to trigger another crisis as in 2007-08.
What could it be? We'll offer up a good guess, one the market is discounting.
Seldom does a stock index rise so much, for so little reason, as the Dow did on the open Tuesday morning: 115 Dow points on a rumor that Greece is going to get a second bailout.
Let's step back for a moment: The Greek crisis is first and foremost about the German and French banks that were foolish enough to lend money to Greece in the first place. What sort of derivative contracts tied to Greek debt are they sitting on? What worldwide mayhem would ensue if Greece didn't pay back 100 centimes on the euro?
That's a rhetorical question, since the balance sheets of European banks are even more opaque than American ones. Whatever the actual answer, it's scary enough that the European Central Bank has refused to entertain any talk about the holders of Greek sovereign debt taking a haircut, even in the form of Greece stretching out its payments.
That was the preferred solution among German leaders. But it seems the ECB is about to get its way. Greece will likely get another bailout — 30 billion euros on top of the 110 billion euro bailout it got a year ago.
It will accomplish nothing. Going deeper into hock is never a good way to get out of debt. And at some point, this exercise in kicking the can has to stop. When it does, you get your next financial crisis.
And what of the derivatives sitting on the balance sheet of the Federal Reserve? Here's another factor behind our heightened state of alert.
"Through quantitative easing efforts alone," says Euro Pacific Capital's Michael Pento, "Ben Bernanke has added $1.8 trillion of longer-term GSE debt and mortgage-backed securities (MBS)."
Think about that for a moment. The Fed's entire balance sheet totaled around $800 billion before the 2008 crash, nearly all of it Treasuries. Now the Fed holds more than double that amount in mortgage derivatives alone, junk that the banks needed to clear off their own balance sheets.
"As the size of the Fed's balance sheet ballooned," continues Mr. Pento, "the dollar amount of capital held at the Fed has remained fairly constant. Today, the Fed has $52.5 billion of capital backing a $2.7 trillion balance sheet.
"Prior to the bursting of the credit bubble, the public was shocked to learn that our biggest investment banks were levered 30-to-1. When asset values fell, those banks were quickly wiped out. But now the Fed is holding many of the same types of assets and is levered 51-to-1! If the value of their portfolio were to fall by just 2%, the Fed itself would be wiped out."
Mr. Pento's and Mr. Mobius' views line up with our own, which we laid out during interviews on our trip to China this month.
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Hard to argue with that!!! :-o :-o :-o
On a much more mundane level, , ,
Real GDP was revised to a 2.0% annual growth rate in Q3 To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 11/22/2011
Real GDP was revised to a 2.0% annual growth rate in Q3 from a prior estimate of 2.5%. The consensus had expected GDP growth to remain unchanged at 2.5%.
Inventories were revised down the most, while net exports were revised up.
The largest positive contributions to the real GDP growth rate in Q3 were personal consumption and business investment in equipment/software. By far the weakest component was inventories.
The GDP price index was unchanged at a 2.5% annual rate of change. Nominal GDP growth – real GDP plus inflation – was revised down to a 4.6% annual rate from a prior estimate of 5.0%.
Implications: Real GDP growth in the third quarter was revised down, coming in at a 2% annual rate versus a consensus expected 2.5% rate. Most major categories were only revised slightly, for example, revisions to personal consumption subtracted a tenth from GDP while trade added two tenths, but it was inventories that subtracted 0.5% from the original GDP estimate (now -1.6% versus -1.1% originally). The composition of growth was more promising for the economy going forward. Inventories are at rock bottom levels. Any boost will add to GDP in the quarters ahead. If we exclude inventories, final sales grew at a robust 3.6% annual rate. Net exports were revised up in Q3. Business investment grew at a 14.8% rate in Q3, the fastest pace so far this year. In other words, consumer and business spending is growing much faster than those who watch consumer and business confidence data think it will. Nominal GDP (real growth plus inflation) grew at a 4.6% annual rate in Q3 and is up at a 4.4% rate in the past two years. The Federal Reserve faces an uphill battle trying to justify another round of quantitative easing based on the growth rate of nominal GDP. Even zero percent interest rates are inappropriate when nominal GDP growth is this high. The most newsworthy part of today’s report is that corporate profits increased at an 8.5% annual rate in Q3 and are up 7.9% versus a year ago. Most of the increase was due to domestic firms, not the rest of the world. Profits are at an all-time record high and are the highest share of GDP since 1950. The worst part of today’s report was an unexpected downward revision in wages and salaries in Q2 and Q3. Slow growth in personal income probably reflects weak economic growth in the first half of the year, but bears watching if it persists into the fourth quarter. In other news this morning, data on chain store sales show no let up by consumers. Sales are up 2.8% from a year ago according to the International Council of Shopping Centers and 3.7% according to Redbook Research. The Richmond Fed index, a measure of manufacturing in the mid-Atlantic increased to 0 in November from -6 in October.
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http://blogs.the-american-interest.com/wrm/2011/11/25/guns-better-investment-than-gold/
November 25, 2011
Guns Better Investment Than Gold?
At least someone is making money in these difficult times. Arms dealers in Lebanon’s Bekaa Valley are making out like, well, bandits as unrest in Syria sends black market gun prices through the roof says this story in Lebanon’s Daily Star. Rocket grenade launchers appear to be the hottest investment grade item, with prices more than sextupling from $400 to $2500 in recent months. Kalashnikovs and M16s are also up sharply, with 75 percent appreciation on the Russian guns and 100 percent on the US model.
Perhaps more investments in Lebanese arms dealer funds could rescue US state and municipal pension funds; those are the kind of returns states like New York, Illinois, California and Rhode Island need to avoid massive service and benefit cuts in the years ahead.
But what this news really means, of course, is that more and more people in Syria and Lebanon are preparing for all out civil war. Religious and ethnic divides half forgotten during the long decades when the dictatorship was secure are now beginning to revive as the Assad clan looks weak.
This is the pattern I saw at work in Yugoslavia and the Caucasus twenty years ago as ethnic groups geared up to butcher their neighbors and drive them from their homes; I will never forget the night a Georgian poet asked me how much guns cost on the Istanbul black market; he was arming himself against what he called the “Abkhazian menace.”
I made a note to myself at that time: when poets buy guns, tourist season is over. They are buying them now in Damascus; something wicked this way comes.
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Barney out - market up big! :wink:
Wait till O'bamster loses in '12! 8-)
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Our market analyst CCP nails it again: Barney out - market up big! Wait till O'bamster loses in '12! :-)
Barney leaving tells us their polling does not indicate Dems will take back the House. He is not likely leaving a key committee chairmanship.
I can't imaging being invested in this market, no matter where it goes, and I can't imagine a real recovery of confidence and investment until leadership and policy direction shows change coming. OTOH as CCP points out, unbelievable growth is possible when the policy mistakes across the board begin to look like they will be corrected.
'Our best days are behind us' was a policy choice. Interest on $15 trillion won't go away, but the rest is repairable.
It wouldn't hurt Europe either if their formerly biggest export market would set an alarm, take a bath and go back to work soon.
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http://www.nytimes.com/2003/09/11/business/new-agency-proposed-to-oversee-freddie-mac-and-fannie-mae.html?pagewanted=all&src=pm
''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''
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Due to the Euro situation I have distinctly expanded my already high percentage in cash.
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A post from the TPI forum which caught my attention:
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I know this is not a financial board but I hope you will forgive me for posting a slightly off topic economics issue. Ann Barnhardt is closing down her commodity trading firm because the issues with MF Global have left her with no faith in the commodities markets. Not only did MF Global steal clients money but the commodities exchange is not living up to is responsibilities and there is no evidence of a criminal investigation of these two entities.
This is a huge deal because her customers are farmers and cattle producers the real producers. They have been so badly burnt by MF Global they will no longer trade commodities. If the real users of commodities exchange are leaving, then all that will remain at the exchange are the gamblers and fraudsters.
I do not think the MF Global story is getting the coverage it deserves in the news. This issue was caused by the problems in Europe but demonstrates lack of accounting and accountability by the largest commodity trading firm in the US. As a wise man once said "there is never just one cockroach."
Here is her letter about closing her firm down, I can not make a direct link to the sections but search for the title on her page
http://barnhardt.biz/
BCM Has Ceased Operations
Here is an audio interview with her and transcript
http://www.financialsense.com/financ...lobal-collapse
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I am not holding my breath that the MSM will investigate ties between Clinton and MFS.
Remember Chelsea is married to the kid of convicted Wall Streeter.
The Clinton legal military machine is already building their berms, moats, castles and other legal iron curtains around their beloved political saint.
The total corruption is mind boggling.
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We were just discussing water in the CA thread.
Here are 4 water based ETFs which I hold for the long term.
PHO
PIO
CGW
FIW
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http://finance.yahoo.com/blogs/breakout/fed-ruining-entire-class-investors-says-jim-rogers-153315477.html
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Fed Is “Ruining an Entire Class of Investors” Says Jim Rogers
.By Jeff Macke | Breakout – 14 hours ago.. .
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No matter what you've heard to the contrary, "there is QE3, the Fed is pumping money into the system," says legendary investor Jim Rogers, disregarding most every Federal Reserve statement over the last six months. In the attached video Rogers explains his lack of trust (read: contempt) for the Federal Reserve and Fed Chairman Ben Bernanke.
Rogers has been a critic of the Fed's quantitative easing programs and artificially low interest rates, pointing to the latter as something akin to QE3 in drag.
"They're lying to us," he says of the Fed. "One reason the markets are holding up so well is that they are printing money as fast as they can."
As asserted on Breakout regularly, the Federal Reserve is operating in an almost complete leadership void due to an unprecedented level of gridlock among the the elected politicians charged with setting fiscal policy. Unless and until the public acts on their many vows to "throw the bums out" of D.C. the Fed will be free, indeed forced, to act alone in regards to doing something to change our economic condition.
In a pyrrhic victory for America, Rogers believes things will eventually get so bad that Americans will finally vote for real change and economic progress. Alas, the measures he feels are needed to cure our economy are so harsh that those same officials will also get tossed out when voters realize just how harsh the road back to prosperity is.
Regardless of the necessary suffering, spending cuts are needed in order to save the most fiscally responsible citizens, those whose savings are funding this disaster.
"What the Federal Reserve is doing now is ruining an entire class of investors," says Rogers. By forcing rates down and keeping the economy on a flatline, he believes the Fed could cause another lost generation of investments. Suffice it to say, vaporizing those who faithfully accumulated savings over the years is no way to restore confidence in our financial markets.
Rogers isn't simply a disgruntled American patriot, he's an investor with a legendary record of success. That being the case, and having established what the depths of suffering the world is facing now, the obvious question is where Rogers is putting his money to avoid or even profit from the pain.
"I'm long commodities and currencies; I'm short emerging market stocks, U.S. technology stocks, and I'm short European stocks," Rogers tells me after pronouncing himself a terrible market timer (author's note: He's nothing of the sort). His logic behind the portfolio is that he wins if the economy turns up due to commodity scarcity. And if the economy remains weak, Rogers' short positions will more than offset his long positions.
As for gold, an investment he's been holding for years, Rogers has a mixed view.
"Gold has been up 11 years in a row," he says, adding it's "very unusual for any asset in world history and I'd expect the correction to continue." That said, he's not selling any of his gold and would look to buy weakness, depending on the global situation.
He's long select commodities and currencies, short Europe, tech and emerging markets. Is Rogers off base or is he underestimating the ability of the Fed to turn this thing around? Let us know what you think in the comment section below or visit our Facebook page.
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I really like Jim Rogers. I wish I had listened to his example and sold everything before 2008.
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UBS advice for a euro collapse: ‘tinned goods, small calibre weapons’
John Shmuel Dec 7, 2011 – 11:06 AM ET | Last Updated: Dec 7, 2011 3:47 PM ET
National Post file
A scene from the 2009 movie, The Road, based on the novel by Cormac McCarthy.
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As if there isn’t already enough eurozone doom and gloom floating around these days.
A note from UBS economist Larry Hatheway on Wednesday spells out why he and his colleagues at the bank believe a eurozone collapse would result in an “end of the world” scenario. It makes for some grim reading.
Back in September, Mr. Hatheway and colleagues Paul Donovan and Stephane Deo released a report that predicted a disastrous outcome if even one nation left the eurozone. The economists envisioned a 20% loss in gross domestic product for creditor countries (e.g. Germany) in a break up, and a 40% loss for debtor countries (e.g. Greece).
But Mr. Hatheway now says it could be much worse.
“On reflection this author, at least, feels the estimates are probably conservative — the true costs could well be higher,” he said. “That’s because once Europe (and the world economy) finds itself in depression, policy probably couldn’t arrest the decline. Broken financial systems and ruined economies are the stuff of prolonged deflation or worse.”
Mr. Hatheway goes on to say that the eurozone was “flawed from the start.” But in his view, the pain that would result from a collapse in the monetary union far outweighs the current volatility that stems from trying to save it.
“The preferred outcome is to fix what is broken,” he said.
And for those wondering why the eurozone doesn’t just kick out Greece and be done with it, Mr. Hatheway argues against that type of solution.
“Once one country leaves the eurozone, residents in other at-risk member countries would plausibly conclude their country might be next to go,” he explains. “Logic dictates they would send their wealth abroad, resulting in a run on their domestic banks, precipitating a collapse of their financial sectors and economies”
Mr. Hatheway gives some insight into how bad he thinks the global macro situation could become if the world is faced with a eurozone collapse. He says when people ask him how they should prepare for a eurozone collapse, he gives the following reply:
“I suppose there might be some assets worthy of consideration—precious metals, for example,” Mr. Hatheway said. “But other metals would make wise investments, too. Among them tinned goods and small calibre weapons.”
• Email: jshmuel@nationalpost.com | Twitter: jshmuel
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"UBS advice for a euro collapse: ‘tinned goods, small calibre weapons’ "
Nice catch there GM of another case of famous people caught reading the forum. Swiss banks come here for investment advice. Who knew?
Besides silver dimes, I wonder what the smallest pieces of gold are that one could buy, because it will be so hard to get change for bullion after the collective collapse of the currencies.
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One investment savings strategy over a long amount of time has been to have a Swiss bank account. Yes this has been used by tax evaders, but there are many legitimate reasons as well. In the case of Dog Brothers Inc. so that monies earned in Europe could be deposited in the Swiss Franc denominated account. This allowed us to avoid the transactions costs associated with converting into dollars and sending them back here to the US. Given the relatively tiny amounts of money involved with each deposit, on a percentage basis these transactions costs would be quite large and destructive to our efforts.
However, thanks to pressures from the US tax authorities, Swiss banks no longer are permitting our type of account and have shut it down. We are trying to figure out what to do next.
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One investment savings strategy over a long amount of time has been to have a Swiss bank account. Yes this has been used by tax evaders, but there are many legitimate reasons as well. In the case of Dog Brothers Inc. so that monies earned in Europe could be deposited in the Swiss Franc denominated account. This allowed us to avoid the transactions costs associated with converting into dollars and sending them back here to the US. Given the relatively tiny amounts of money involved with each deposit, on a percentage basis these transactions costs would be quite large and destructive to our efforts.
However, thanks to pressures from the US tax authorities, Swiss banks no longer are permitting our type of account and have shut it down. We are trying to figure out what to do next.
Have you looked at PayPal? Credit card only payments?
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Well, we were enjoying the appreciation of the Swiss Franc viz the dollar too :-)
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Industrial production fell 0.2% in November To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 12/15/2011
Industrial production fell 0.2% in November, falling short of the consensus expected gain of 0.1%. Including revisions to prior months, production increased 0.1%. Output is up 3.7% in the past year.
Manufacturing, which excludes mining/utilities, was down 0.4% in November. The decline was mostly due to auto production, which fell 3.5%. Non-auto manufacturing dipped 0.1%. Auto production is up 9.1% versus a year ago while non-auto manufacturing is up 3.5%.
The production of high-tech equipment declined 0.8% in November and is only up 1.2% versus a year ago.
Overall capacity utilization dropped to 77.8% in November from 78.0% in October. Manufacturing capacity use fell to 75.3% in November from 75.6% in October.
Implications: Today’s data on industrial production were mediocre, but don’t expect that to last. Production dipped 0.2% in November, but was up 0.1% including revisions to prior months, matching consensus expectations. The primary reason for the decline in November was the auto sector, which is volatile from month to month and where output fell 3.5%. In addition, high-tech production continued its recent swoon. This is due to major flooding in Thailand, one of the world’s leading producers of hard disk drives and semiconductors. Still, even excluding autos and high-tech, manufacturing production was down 0.1% in November. However, we would not read much into that small decline. During periods of economic expansion, this figure goes down about four months every year and we expect a rebound in overall production in the months ahead. Auto inventories are very thin and problems in Thailand will recede. Timely news on the manufacturing sector already shows a rebound in December. The Empire State index, a measure of activity in New York, increased to +9.5 from +0.6 in November. The Philly Fed index, a measure of activity in that region, increased to +10.3 from +3.6. Both indices easily beat consensus expectations. Corporate profits and cash on the balance sheets of non-financial companies are both at record highs. Meanwhile, capacity utilization is close to long-term norms. As a result, business investment in equipment, which is already at a record high, is likely to continue to trend upward in the year ahead, regardless of whether the federal government maintains full expensing for tax purposes in 2012.
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, , , the market has been extremely bearish for some time now. It's absolutely no secret that there are horrible things waiting to happen (e.g., eurozone defaults, Obama wins, QE3 happens, the dollar plunges, gold goes to $3500). You'd have to be brain-dead to not be extremely worried; only the crazies are excited about buying stocks these days. For heaven's sake, the 10-yr Treasury yield is at rock-bottom, historical lows, matched only by what happened during the Depression.
I think it's very difficult to forecast a big recession wipeout with any degree of certainty, when something even worse is already priced into the market.
Because if what happens turns out to be anything short of another depression, then the market is going to rally
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Real GDP growth in Q3 was revised down slightly to a 1.8% annual rate To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 12/22/2011
Real GDP growth in Q3 was revised down slightly to a 1.8% annual rate from a prior estimate and consensus expected 2.0%.
The largest downward revision versus last month’s estimate of Q3 real GDP growth was for consumer spending. Inventories were revised up slightly.
The largest positive contributions to the real GDP growth rate in Q3 were from business investment and consumer spending. The weakest component of real GDP was inventories.
The GDP price index was revised to a 2.6% annualized rate of change from a prior estimate of 2.5%. Nominal GDP growth – real GDP plus inflation – was revised to a 4.4% annual rate in Q3 versus a prior estimate of 4.6%. Nominal GDP is up 3.9% versus a year ago.
Implications: Forget about the GDP report for a moment – it told us nothing new about the economy. The big news this morning was that initial claims for unemployment benefits fell 4,000 to 364,000, the second week below 370,000 and the lowest level since April 2008, well before the collapse of Lehman Brothers. Continuing claims for regular state benefits declined 79,000 to 3.55 million, the lowest since September 2008. Based on these figures, it looks like a strong month for payroll growth in December. Some analysts have tried to dismiss the big drop in claims, focusing instead on raw data (before seasonal adjustment) which were 418,000 last week. But unadjusted claims always rise at this time of year. We find it interesting that the unrelenting pessimists ignored the raw data back in August/September when unadjusted claims fell as low as 329,000. On GDP, there is not much “news” in today’s report, showing the economy expanded at a 1.8% annual rate in the third quarter, which ended three months ago. Real GDP growth was very close to what the consensus expected. Corporate profits were revised down slightly for Q3, but still stood at a record high in Q3, and should increase again in Q4. Adding up both real growth and inflation, nominal GDP grew 4.4% at an annual rate in Q3, down slightly from the prior estimate of 4.6%. Nominal GDP is up 3.9% from a year ago, which means that a zero percent federal funds rate is too loose. The economy does not need a third round of quantitative easing, nor does it need more temporary fiscal “stimulus.” In fact, the Fed should be raising interest rates while Congress cuts spending. Using data released so far, our forecast for Q4 real GDP is 3.5-4%, while the consensus stands at 2.8%.
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Dec. 21 (Bloomberg) -- The U.S.'s AAA rating will probably be cut by Fitch Ratings by the end of 2013 unless lawmakers are able to formulate a plan to reduce the budget deficit after next year's congressional and presidential elections.
"Without such a strategy, the sovereign rating will likely be lowered," New York-based Fitch said in a statement today. "Agreement will also have to be reached on raising the federal debt ceiling, which is expected to become binding in the first half of 2013."
Fitch assigned a negative outlook on the U.S. in November after a congressional committee failed to agree on budget cuts. The rating firm forecast federal public-debt will exceed 90 percent of gross-domestic-product by the end of the decade unless the government addresses rising health and social security spending through tax increases or reductions in expenditures.
"The debt situation is a slow moving train wreck," said Jason Brady, a managing director at Thornburg Investment Management Inc., which oversees about $73 billion from Santa Fe, New Mexico. "The risks are apparent, but the benefits or strengths are also apparent. The strength of the U.S economy, the strength of the U.S financial system, is more apparent right now."
Downgrade Probability
The U.S.'s probability of a downgrade is greater than 50 percent over two years, Fitch said Nov. 28 in a statement. Standard & Poor's and Moody's Investors Service said Nov. 21 that the so-called supercommittee's inability to reach an agreement didn't merit downgrades because the inaction will trigger $1.2 trillion in automatic spending cuts.
"The high and rising federal and general government debt burden is not consistent with the U.S. retaining its AAA status even with its other fundamental sovereign credit strengths," Fitch said.
Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/12/21/bloomberg_articlesLWKO3Y0D9L35.DTL
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A e-conversation between some very smart friends of mine. As an e-conversation, the posts are in reverse chronological order.
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One huge difference between TALF and the current ECB lending program is the duration of the loans. $7.7 trillion of loans is meaningless if it merely consists of a bunch of short term TALF loans or short term repo’s conducted over a period of 3-4 years. In good times, the Fed could reach the same aggregate number over three years by averaging $210 billion per month of overnight repo’s for three years and no one would think twice about the three year total number of dollars loaned out. Also, if the Fed is buying US government debt and then selling it by a series of POMO’s, it is not inflationary because it does not increase the aggregate supply of money in the system. What is bad about this strategy is that it is taking capital that could have been used for private investment that would increase real GDP; and, instead is diverting the same dollars to fund the government debt that was mostly created in order to finance “the rescue” of those institutions deemed by the federal government as too big too fail; ie., certain banks, insurers, auto manufacturers and State/local governments. This is not inflationary. However, it is a major reason why the US economy cannot escape from its current rut. In other words, the solution has been a federal fiscal policy that has corrupted the role of the central bank. This is an inevitable consequence of the Congressional policy decision to add maintaining full employment to the Fed’s mission. It was a bad policy decision based primarily upon an obsolete theory called the Phillips Curve.
The ECB program lends at a 3 year term. Now, if in three years, the ECB has loaned $7.7 trillion to European banks, this event would be a significant statistic.
Rick
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Yes, and consider the Fed has apparently lent $7.77 trillion to banks as part of the various bailouts ... at about zero percent. Some considerable part of that money has likely been "invested" by the banks into Treasury notes at some positive rate of interest. A couple of net percent on a few trillion ... I could live with that.
Here (http://www.acting-man.com/?p=12622) is the latest "Pater" post which discusses this very point in the EU context. 500 billion euros, with all kinds of incentives to put the money right back into sovereign debt: QE through indirect means.
If this kind of leverage has been used to augment the demand for Treasury debt the situation, in my opinion, is very dangerous. All that has to happen, in that case, is for the Fed to withdraw those loans from the banks, or raise the discount rate a bit in response to CPI numbers, and demand for Treasuries could crash.
In any event, we now have a ridiculously dysfunctional capital market in the US, a dysfunctional housing market, and numerous serious distortions inflicted by government spending. The biggest boom time sectors are probably those with military or clandestine services as their only customers. This is not a healthy economy, to say the least.
Tom
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On Wed, Dec 21, 2011 at 5:01 PM, A wrote:
>>>>I don't understand how Treasury rates tell us anything in this environment. ....... The Fed, for gawd's sake, has targeted long term interest rates and spent hundreds of billions to modify the market rate. And that result gives you a sense of market opinions?
In my opinion, a true economic recovery is impossible until such time as our central bank and government stop actively distorting so many important markets. I think there are relatively few people who understand that. This is exactly what happened in the 1930s, the government continuously distorted markets ... and nothing good happened for as long as that continued. <<<<
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Hi Tom!
I think the issue is precisely as you describe it. With the Fed being such an aggressive participant, it is hard to imagine how the rates can be indicative of anything. I suspect people buy bonds because of the corrupt Fed put - expecting the Fed to support the price.
The Fed is, by now, most likely little more than a slave of circumstances. The Treasury needs more money than they collect through taxation, a lot more - and the Fed, realistically, has no choice but to make it available. I can't imagine them raising rates any time soon. No one, of course, is talking about any serious cuts in the government expenditures.
A.
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"The market has been extremely bearish for some time now." Not sure where that comes from.
From Hussman (http://www.hussmanfunds.com/wmc/wmc111212.htm):
"On the sentiment front, Investors Intelligence reports that the percentage of advisory bears dropped below 30% last week, which has historically resulted in unrewarding market outcomes when valuations have been elevated even to a lesser extent than they are today. ... Investors have eagerly accepted forward operating earnings as a basis for valuation assessments, without accounting for the fact that those earnings expectations assume profit margins about 50% above their historical norms.
And look at the Navellier report that initiated my post. There are any number of people, beginning with Bernanke, who seem to think that these central bank machinations are exactly what the world needs, and who therefore stand behind the thesis that the governments are going to somehow make everything better.
I don't understand how Treasury rates tell us anything in this environment. Is there anybody buying ten year Treasuries other than central banks and leverage institutional investors -- many of them with apparent guarantees from the central bank that they will never have to take a loss? The Fed, for gawd's sake, has targeted long term interest rates and spent hundreds of billions to modify the market rate. And that result gives you a sense of market opinions?
In my opinion, a true economic recovery is impossible until such time as our central bank and government stop actively distorting so many important markets. I think there are relatively few people who understand that. This is exactly what happened in the 1930s, the government continuously distorted markets ... and nothing good happened for as long as that continued.
As Pater Tenebrarum explained in a recent post, the whole world seems to have bought into this statist/interventionist view of the economic world. Most of the disenchanted analysts, in fact, are upset not because of these interventions, but because they want a really large new QE program -- or some other extravagantly inflationist program from the central banks. It's a form of massive, delusional optimism with respect to the power and effectiveness of government intervention.
JMHO.
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"As Pater Tenebrarum explained in a recent post, the whole world seems to have bought into this statist/interventionist view of the economic world. Most of the disenchanted analysts, in fact, are upset not because of these interventions, but because they want a really large new QE program -- or some other extravagantly inflationist program from the central banks. It's a form of massive, delusional optimism with respect to the power and effectiveness of government intervention."
The concept of "globalization" includes debt and playing card monte. It is all towards the inevitable one world government.
I guess by the time thw whole thing is pushed to it's worldwide limitations and the whole wolrd economy crashes we will life on another planet and pass the ponzi scheme buck onto the aliens.
Crafty,
There is NO hope of stopping this.
I tend to blame Bush the elder for this globalization thing but I may be wrongly holding him responsible for something that was probably inevitable anyway. OTOH globalizaition of say markets and say coaperative goals like ending world hunger, protecting the environment could perhaps be done and thus globalization and the role of big government are not inextricably mixed per se.
Certainly smaller countires do not have the private sector that can take on other challenges without the goverment intervening. The larger ones could.
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Robert Wright, in his second book on evolutionary pyschology, titled "Non-Zero Sum: the logic of human destiny" argues that competitive advantage tends to adhere to increased integration.
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Robert Wright, in his second book on evolutionary pyschology, titled "Non-Zero Sum: the logic of human destiny" argues that competitive advantage tends to adhere to increased integration.
Robert "Islam is a religion of peace" Wright?
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Was the 2011 Economy a Miracle? To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 12/27/2011
The year (2011) started on a high note, and apparently, will end on one, too. What happened in the middle was frantic, noisy and bothersome.
A year ago, in late 2010, the bears had seemingly gone to sleep. The Dow Jones Industrial Average (DJIA) finished 2010 at 11,576, up 15.6% in the final four months of the year. Real GDP grew 3.1% in 2010, its fastest expansion since 2005. The unemployment rate was still high (9.4%), but private sector job growth had been positive for 10 consecutive months.
The stock market continued to roll in early 2011, with the DJIA hitting 12,810 on April 29th. Our forecast of 14,500 for the end of the year looked reachable.
And then, the wheels sort of fell off, or at least it looked like they had. Real GDP growth slowed sharply, the unemployment rate ticked higher and the stock market had a major (16%) correction. For August, both retail sales and non-farm payrolls were reported as big fat zeros.
Massive tornadoes tore up Tuscaloosa, AL and Joplin, MO. A tsunami hit Japan and a major nuclear event unfolded. Washington, DC went to war over the debt ceiling. Standard & Poor’s downgraded US Treasury debt, while Europe started to fall apart financially. The Super Committee failed to reach any kind of agreement on deficit reduction. MF Global filed for bankruptcy.
The bears woke up, turned the amplifier volume up all the way to 11, and started screaming about an imminent recession. They had a lot to scream about and they had a very receptive audience.
In August, after the weak data of the summer, Nouriel Roubini said, “The macro data…will come out worse and worse, the market will start to correct again. We’re going to a recession, we are at stall speed and we are running out of policy bullets.” In September, Lakshman Achuthan, co-founder of ECRI said the US is, “indeed tipping into a new recession. And there’s nothing that policy makers can do to head it off.” He has reiterated this call in recent months.
For some reason, bearish calls (about recession or depression) get a massive amount of coverage in the press – headlines, breaking news banners, and continued references in any story about economic data or markets for weeks or months after the call is made.
Instead of a 2011 recession, the economy slowed early, but then picked up speed as the year progressed. Real GDP grew just 0.3% at an annual rate in the first quarter, accelerated to 1.3% annualized growth in Q2, 1.8% in Q3, and the consensus puts Q4 real GDP growth at 3.5% to 4.0%. And remember those zeros in August? Revisions now show positive retail sales and employment growth in August. Not only did the economy avoid recession, but we remain confident that economic growth in 2012 will accelerate.
We look at the economy like a scale, with good things on one side and bad things on the other. Our models suggest that the good things outweigh the bad. This was true in 2009, 2010, 2011 and now 2012.
On the good (or growth) side, we place new technology, the Fed and a slightly better fiscal outlook.
The US is experiencing a wave of new technologies – the cloud, tablets, smart-phones among the most important. New oil and natural gas drilling techniques are also part of the mix. New technologies are increasing productivity and output despite the Super-Committee, S&P downgrades and European financial problems. The Fed is accommodative and federal spending is declining as a share of GDP. Combined, these developments all will boost growth.
On the bad side, government spending is too high, regulation is burdensome, and the Fed is accommodative.
Government spending may be falling as a share of GDP, but it is still very high. This limits job creation and holds back real GDP growth from its true potential. Excessive regulation does the same thing. And while an easy Fed boosts growth, it also creates inflation, which will become more of a problem in the years ahead.
Netting all this out, the scale is still tilted toward growth. New US technologies and the productivity that they create are so powerful and positive that they are overwhelming the drag from bad government policies. Compared to forecasts of recession, it’s a miracle. Look for another one in 2012.
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**If I recall correctly, Wesbury has predicted 3 of the last 0 recoveries.
http://www.reuters.com/article/2011/12/27/us-sears-sales-idUSTRE7BQ0AV20111227
(Reuters) - Sears Holdings Corp will close as many as 120 of its Kmart and Sears discount and department stores after its holiday sales slumped, sending its shares sliding more than 27 percent to their lowest level in three years.
The retailer, which is controlled by its chairman, the hedge fund manager Edward Lampert, has seen sales decline every year since the $11 billion merger of the two chains in 2005, and likely faces further closings to cut expenses, preserve cash and push back against rivals such as Wal-Mart Stores Inc and Amazon.com Inc, analysts said.
Sears also disclosed on Tuesday that it tapped its credit line to borrow cash and forecast that fourth-quarter earnings would fall by more than half.
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Arguably another case of brick and mortar vs the internet , , ,
The macro numbers are what matter.
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Arguably another case of brick and mortar vs the internet , , ,
The macro numbers are what matter.
Lucky nobody would ever cook the books to make the numbers look better than they really are.
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Several points to consider:
1. The real estate bubble is still deflating.
2. The student loan bubble is getting ready to pop. Unlike a foreclosed home, a defaulted student loan cannot be resold to reduce the loss.
3. The euro-crash.
4. The Sino-crash?
5. Iran threatening to shut down the Hormuz Strait.
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Good points all, although some (e.g. possible Sino crash) arguably not germane to Wesbury's skills as a prognosticator. Certainly the man put himself on the line against the predictions of recent months that the US was about to fall back into recession. Also his point about there being some good things on the horizon (e.g. the US becoming the Saudi Arabia of natural gas) seems sound.
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"some good things on the horizon (e.g. the US becoming the Saudi Arabia of natural gas) seems sound"
All are opposed by the current administration. Wesbury is arguing about what economic growth will be coming into the election, warning Republicans not to count on bad economic news at election time. Real recovery however hinges on a change in the policy arrow coming out of the election.
We are arguing essentially about how many tenths of a percent, within the margin of measurement error, we will be above or below 'breakeven growth' this year. Economic growth coming out of a hole this deep should be twice that, more like 6-8% of sustained growth.
Wesbury is prognosticating what to do in this environment instead of what to do about this environment, which is fine - if you are in charge of deck chairs on the Titanic.
GM's examples of what could go wrong are in addition to the general measurements posted of global stagnation. What is the US doing or proposing to do to lead the world out of this? Federalizing police and fire, defunding social security, queuing health care and further debasement of our currency? That oughtta do it.
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We Were Too Optimistic To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 1/3/2012
A year ago, we predicted 4% real GDP growth in 2011 and a 14,500 Dow by year-end. We were too optimistic.
Real GDP grew just 1.2% annualized during the first three quarters of 2011. This will climb to about 1.75% if the consensus forecast is right about Q4. The Dow finished the year at 12,218, well off its high for the year of 12,928.
This isn’t the first time we have missed a forecast, and it won’t be the last. And the good news is that our optimism actually paid off. Back in September, when the stock market had corrected by about 16% and conventional wisdom had completely bought into the idea of a double-dip recession, we held to our convictions. We begged investors to hold the line and maintain positions in stocks.
It worked. The economy avoided recession and accelerated, while the stock market had one of its best October’s ever. Those who hung in there did no worse than money market funds. Yes, already over-valued gold was up 10% for the year, while municipal and Treasury bonds had nice returns, but holding a diversified stock portfolio, especially of dividend paying stocks, did not hurt anyone.
So here we go again. For 2012, we are forecasting 3% real GDP growth and an 18% rise in broad stock market prices. We expect the Dow Jones Industrial Average to rise to 14,500, with the S&P 500 targeted for 1475.
All the reasons for our optimism are still in place. The Fed is accommodative. Government spending has peaked and is declining as a share of GDP. And the most important driver of growth – technology and productivity (Schumpeter’s creative destruction) – is robust and relevant.
We do not believe deleveraging is holding back the economy. The private sector is still paying down debt, but doing so more slowly than before. As a result, purchasing power can grow faster than income, not slower.
We do not worry about consumer confidence. We do not subscribe to the view that the US is on the cusp of a collapse in the dollar and hyper-inflation. We don’t believe that there is a fundamental weakness in the economy.
The story isn’t complicated. When government tilts toward redistribution, the growth rate of potential GDP slows down. This hurts job creation. Big government always hurts economic performance. We should have more fully accounted for this in our forecast last year.
Some will ask: Then how can you forecast 3% growth in 2012? The answer is relatively simple. 1) The Fed is even more accommodative today than it was last year. 2) Government spending will be basically flat in 2012 for the third consecutive year. 3) Technology continues to advance. These developments mean the tailwinds are stronger at the same time the headwinds are diminishing.
That’s enough reason for us to maintain our optimism for the year ahead. Let’s try it again in 2012.
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The ISM manufacturing index increased to 53.9 in December To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 1/3/2012
The ISM manufacturing index increased to 53.9 in December from 52.7 in November, beating the consensus expected gain to 53.5. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mainly higher in December, and most remain well above 50. The production index gained to 59.9 from 56.6 and the new orders index rose to 57.6 from 56.7. The employment index also increased to 55.1 from 51.8, while the supplier deliveries index remained unchanged at 49.9.
The prices paid index increased to 47.5 in December from 45.0 in November.
Implications: Great reports again today on manufacturing and construction. December data was stronger than expected and the manufacturing sector has now grown for 29 straight months. And just in case you still think a double-dip is possible, the new orders index came in at a very strong 57.6 in December. This was the third consecutive monthly increase, and suggests more growth in manufacturing ahead. The employment index was also a bright spot rising to 55.1, the highest level in 6 months. This supports our forecast for a 175,000 gain in December private sector payrolls. The one sub-index that remains weak is inventories. The reluctance of manufacturers to accumulate inventories may hold back GDP in the short term, but we view this reluctance to build inventories as temporary. On the inflation front, the prices paid index rose to 47.5 in December. A reading below 50 is a welcome sign, but we don’t expect it to last. Monetary policy is very loose and, in effect, getting looser as the economy accelerates. In other news this morning, construction increased 1.2% in November (1.1% including a slight downward revision for prior months). The gain easily beat consensus expectations of 0.5% and was led by home building (both new homes and improvements) and government projects (power plants and bridges). Commercial construction was unchanged in November. Given favorable weather for much of the country in December, look for more good construction figures a month from now.
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We Were Too Optimistic To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 1/3/2012
A year ago, we predicted 4% real GDP growth in 2011 and a 14,500 Dow by year-end. We were too optimistic.
Real GDP grew just 1.2% annualized during the first three quarters of 2011. This will climb to about 1.75% if the consensus forecast is right about Q4. The Dow finished the year at 12,218, well off its high for the year of 12,928.
Stopped clock.
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"Real GDP grew just 1.2% annualized during the first three quarters of 2011. This will climb to about 1.75% if the consensus forecast is right about Q4."
I did not realize the actual numbers were this bad.
Forecast of 3% by BW means more of the same, as he sees it. This is under break-even growth. Why would it turn around now?
Growth under pro-growth policies coming out of depths this deep should be at least 6-8%. We have done nothing in terms of addressing underlying problems in the economy. We went from moving like freight train in the wrong direction with new programs, new spending, new taxes and new regulations to gridlock. I guess that means the problem is about half solved.
The only good news in the numbers is that in 2011 we got one wasted year closer to the possibility of ending the economic policies of decline that we have chosen since Nov. 2006.
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WSJ
By BURTON G. MALKIEL
Presenting an annual investment outlook is a hazardous task. At the start of 2011, investors were warned to eschew the bond market. Pundits described the low yields of U.S. Treasuries as a "bond market bubble." In fact, if you had bought 30-year U.S. Treasury bonds at the start of the year when they yielded 4.42% and held them through 2011, when the yield had fallen to 2.89%, you would have earned a 34% return.
Meanwhile, U.S. stocks stayed flat, Europe and Japan declined by double digits, and emerging markets suffered even greater losses. Last year again demonstrated that it is virtually impossible to make accurate short-term predictions of asset returns.
But it is possible to make reasonable long-term forecasts. Let's start with the bond market. If an investor buys a 10-year U.S. Treasury bond and holds it to maturity, he will make exactly 2%, the current yield to maturity. Even if the inflation rate is only 2%, the informal target of the Federal Reserve, investors will have earned a zero rate of return after inflation.
With a higher inflation rate, U.S. Treasurys will be a sure loser. Other high-quality U.S. bonds will fare little better. The yield on a total U.S. bond market exchange-traded fund (ticker BND) is only 3%. Bonds, where long-run returns are easy to forecast, are unattractive in the U.S. and Japan, as well as in Europe, where defaults and debt restructurings are likely.
Long-run equity return forecasts are more difficult, but they can be estimated under certain assumptions. If valuation metrics (such as price-earnings ratios) are constant, long-run equity returns can be estimated by adding the anticipated 2012 dividend yield for the stock market to the long-run growth rate of earnings and dividends. The dividend yield of the U.S. market is about 2%. Over the long run, earnings and dividends have grown at 5% per year.
Thus, with no change in valuation, U.S. stocks should produce returns of about 7%, five points higher than the yield on safe bonds. Moreover, price-earnings multiples in the low double digits, based on my estimate of the earning power of U.S. corporations, are unusually attractive today.
Stocks were losers to bonds in 2011. But don't invest with a rear-view mirror. U.S. stocks, available in a broad-based index fund or ETF, are more attractive than bonds today. The same is true for multinational corporations throughout the world.
Investors in retirement, who desire a steady stream of income, can purchase a portfolio through mutual funds or ETFs tilted toward stocks paying growing dividends, with yields of 3% to 4%. And some areas of the bond market are attractive for investors who want some fixed-income investments. Tax-exempt funds that trade on exchanges (so called closed-end investment companies) that take on moderate amounts of short-term debt to increase the size of their portfolios have yields of 6% to 7%, and emerging-market bond funds have generous yields.
Emerging markets offer the best prospects for both equity and bond returns over the next 10 years. A number of fundamental factors favor the emerging economies. While Europe and the U.S. struggle with debt-to-GDP ratios of 100% or more—and Japan's ratio is 250%—the fiscal balances of the emerging economies are generally favorable, and debt ratios are low. Low debt levels encourage economic growth.
Demography also favors the emerging economies. Dependency ratios (nonworking age to working age population) are far more favorable in emerging markets. Soon Japan will have as many nonworkers as workers, and Europe and the U.S. are not far behind. Emerging markets, such as India and Brazil, will continue to have two to three workers for every nonworker. Even China, with its one-child policy, will have favorable demographics and a large potential labor force until at least 2025. Countries with younger populations tend to grow faster.
Natural-resource-rich countries will also benefit over the decade ahead. The world has a finite amount of natural resources and the relative prices of increasingly scarce resources will rise. Countries such as Brazil, with abundant oil and minerals, as well as water and arable land, will benefit from the world's increasing demand.
Emerging stock markets were among the worst performers in 2011 despite their favorable economic performance and future outlook. Hence their stock valuations are unusually attractive relative to developed markets. Historically, emerging-market equities had price-earnings multiples 20% above the multiples for the S&P 500. Today, those multiples are 20% lower. And emerging-market bonds have significantly higher yields than those in developed markets.
Much worry has been expressed about real-estate prices and construction activity in China. "It's Dubai times 1,000," says one hedge-fund manager who predicts an economic collapse. Obviously, an end to China's growth would be a significant blow to the world economy.
But parallels to the U.S. real-estate bust and the resulting damage to the economies and financial institutions of the Western world seem unwarranted. The absorption of vacant space remains extremely high in China, where hundreds of millions more people are expected to move from farms to cities. And unlike the U.S., where people bought new homes with little or nothing down, Chinese buyers make minimum down payments of 40% on a new home (and 60% on a second home).
In the U.S., savings rates fell to zero, and consumer-debt levels tripled relative to income. In China, savings rates as a percentage of income are one-third.
Most important, the government has the wherewithal and the flexibility to stimulate the economy and recapitalize banks if necessary. China has a debt-to-GDP ratio of only 17%. China's growth will slow down from the breakneck pace of the last several years. But it will continue to grow rapidly, and a meltdown of the Chinese economy is highly unlikely.
The U.S. housing bust has made the single-family home an extremely attractive investment. House prices have fallen sharply, and 30-year mortgages are available for people with good credit at rates below 4%. Housing affordability has never been better.
Whatever the specific mix of assets in your portfolio at the start of 2012, you would do well to follow one crucial piece of advice. Control the thing you can control—minimize investment costs. That is especially important in a low-return environment. Make low-cost index mutual funds or ETFs the core of your portfolio and ensure that any actively-managed investment funds you purchase are low-expense as well.
Mr. Malkiel is the author of "A Random Walk Down Wall Street" (10th ed., paper, W.W. Norton, 2012).
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Non-farm payrolls increased 200,000 in December To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 1/6/2012
Non-farm payrolls increased 200,000 in December and were up 192,000 including revisions to October/November. The consensus expected a gain of 155,000.
Private sector payrolls increased 212,000 in December. Revisions to October/November subtracted 3,000, bringing the net gain to 209,000. December gains were led by couriers/messengers (+42,000), retail (+28,000), health care & social work (+29,000), restaurants/bars (+24,000), and manufacturing (+23,000). The largest decline was for temps (-8,000).
The unemployment rate dropped to 8.5% from 8.7% in November.
Average weekly earnings – cash earnings, excluding benefits – rose 0.2% in December and are up 2.1% versus a year ago.
Implications: This is the best employment report since the start of the recovery. The labor market still has a long way to go before it gets back to normal, but the pace of improvement has clearly accelerated. Private payrolls increased 212,000 in December (209,000 including revisions to prior months). Every major category of private payrolls increased in December. Perhaps even more important was an increase in the average workweek to 34.4 hours from 34.3. That might not seem like a lot, but it translates into 320,000 jobs. In other words, had employers kept the workweek unchanged, they would have needed to hire more than 500,000 workers for the month instead of just 212,000. This is an important signal of more job gains to come. In 2011, nonfarm payrolls were up an average of 137,000 per month. We anticipate an increase around 180,000 for 2012. Some pessimists say a “birth/death” model is artificially inflating payroll gains, but December’s birth/death adjustment was -11,000, the first negative adjustment for any December in the last nine years. The other big headline for today is that the unemployment rate ticked down to 8.5% in December, the lowest since March 2009 and almost a full percentage point lower than a year ago. The December drop was due to a solid 176,000 increase in civilian employment. Although the November jobless rate was revised to 8.7% from 8.6%, that change is deceiving. Unrounded, November’s jobless rate was revised to 8.65% from 8.64%, so there was no significant change. The bottom line is that hours worked in the private sector are up 2.4% in the past year, while average hourly earnings are up 2.1%. This translates into a 4.5% gain in cash earnings (excluding fringe benefits, like health insurance). We all wish it were faster, but incomes are outpacing inflation. The pessimists banking on a weak economy in 2012 ought to re-check their assumptions.
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Nonsense Arguments About Jobs To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 1/9/2012
The better the employment reports get, the more ridiculous the assertions from those who deny the improvement.
Take Friday’s report, which was the best since the economic recovery started. Private payrolls rose 212,000, while the number of hours per worker and earnings per hour went up as well. As a result, total workers’ earnings are more than keeping pace with inflation. Even the unemployment rate went down again and is now at 8.5%, almost a full point below where it was a year ago.
These numbers are pretty good. Nonetheless, anyone who stated the obvious, and pointed out the good news, was berated by media and especially in the blogosphere. Our observation is that most of these arguments against optimism are driven by politics and border on the ridiculous.
One claim is the numbers are being manipulated by the government to help President Obama…if President Bush was in office, unemployment would be 12%.
But if the numbers are being manipulated, they’re doing a pretty poor job. Why not claim a higher growth rate for civilian employment – which usually happens anyhow in normal recoveries – which would let them show some combination of a lower unemployment rate or higher labor force participation rate? And why would they usually have to revise up their payroll numbers after the initial report each month? Wouldn’t they want the good news out as soon as possible? Of course, we point this out knowing full well that the conspiracy crowd already thinks we are part of the conspiracy.
Another argument is that the “real” unemployment rate is 15.2%, not 8.5%. This is a reference to the Labor Department’s U-6 rate, which includes discouraged workers, marginally attached workers, and those working part-time who say they want full-time jobs. But as we have explained many times before, since its inception in 1994, the “real” unemployment rate (U-6) is always, in both good times and bad, higher than the regular unemployment rate – by between 65-85%. Right now it’s 79% higher. In other words, the so called real unemployment rate tells us nothing we wouldn’t otherwise know by just looking at the regular unemployment rate.
Others are saying the unemployment rate is down only because people are leaving the labor force. This has resonated lately, because the labor force has contracted by 170,000 in the last two months. But those monthly numbers are volatile and the jobless rate is down 0.9 points from a year ago, during a period when the labor force expanded 780,000, or 0.5%.
One recent claim is that a “real” recovery would have 250,000 jobs per month. This is a made up number which means nothing other than “we aren’t there yet.” We all want more growth, not less. But, just because the number of new jobs has not reached a non-scientifically based threshold means nothing. Let’s not make up reasons to be disappointed when the numbers are getting a little bit better every month.
Some pessimists notice that this past month, a job category for couriers & messengers was up 42,000, so that shows some problems when these jobs disappear next month. But the same temporary pop in couriers & messengers happened last December and job creation accelerated this year. Moreover, don’t let that one category deflect attention from the fact that every major category of jobs increased in December, from construction and manufacturing to retail and leisure.
We get it. The job market isn’t perfect. We wish we were back at 5% unemployment right now and there are plenty of reasons to point fingers and argue that things should, and could, be better. We do that plenty. But using each monthly employment report as a pretext to put forward spurious arguments and vent about our national state of affairs, which we all knew about in the days before each report as well, suggests an attempt to politicize the economic data. And as we all know, facts and politics don’t always mix very well.
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Retail sales grew 0.1% in December To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 1/12/2012
Retail sales grew 0.1% in December (0.3% including upward revisions to October/November). The consensus expected an increase of 0.3%. Retail sales are up 6.5% versus a year ago.
Sales excluding autos fell 0.2% in December (-0.1% including upward revisions to October/November). The consensus expected an increase of 0.3%. Retail sales ex-autos are up 6.0% in the past year.
The increase in retail sales in December was led by autos and building materials. The biggest declines were for gas stations and general merchandise stores.
Sales excluding autos, building materials, and gas declined 0.2% in December. But, these sales are up at a 5.3% annual rate in Q4 versus the Q3 average. This calculation is important for estimating real GDP.
Implications: Retail sales grew less than the consensus expected in December, but are still consistent with solid economic growth. Surprisingly, autos were the strongest part of sales, which signals less discounting in that sector in December than previous reports suggest, a bullish sign of consumer demand for big-ticket items. The other strong sector for sales in December was building materials, which may have been a function of unusually warm weather in much of the country. The largest drag on December sales was at gas stations, due to lower prices at the pump. Sales were also down at general merchandise stores and for electronics/appliances, which probably reflects steep discounting amid Christmas sales competition. Overall sales are up in 17 of the last 18 months. Sales declined ex-autos, but that’s the first time in 19 months. This kind of consistent and continuous growth is very rare. Typically, retail sales have three or four negative months every year, even in good years. “Core” sales, which exclude autos, building materials, and gas, fell for the first time in 17 months, but “core” sales for Q4 were up at a 5.3% annual rate versus the Q3 average. In other recent retail news, chain store sales continue to look good, up 3.3% versus a year ago according to Redbook Research and up 2.8% according to International Council of Shopping Centers. Remember, these figures show same-store sales; total sales are up more than that. In other news this morning, initial claims for unemployment insurance increased 24,000 last week to 399,000. The four-week average is 382,000, which is much closer to the underlying trend. Continuing claims for regular state benefits rose 33,000 to 3.63 million. The economy is getting better, but it never does so in a straight line.
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By SIMON CONSTABLE
When it comes to investing, 2012 isn't the year to do nothing and just hope for the best.
Yes, there are some mammoth-sized unknowns out there that could hurt your returns. But when the biggest "what ifs" are resolved, you could also profit, if you play it right.
Here's how to tackle the five scenarios that are keeping Wall Street investors awake at night:
1 What if Europe gets worse?
No matter how much investors might desire it, Europe's economic mess just won't go away. But the big fear is that it will deteriorate even more before it gets better.
Jon Krause.
"Europe getting worse is a disaster for everything but the safest investments," says Milton Ezrati, market strategist at Jersey City, N.J.-based money-management firm Lord Abbett.
You'll know Europe's economy is imploding if you see the value of the euro fall much further. Currently, one euro buys approximately $1.29, down from $1.48 in May.
If it does get worse, then all assets will do poorly except U.S. Treasurys, U.S. government agency debt and the highest-quality corporate debt, Mr. Ezrati says.
In simpler terms, stay in investments denominated in U.S. dollars and away from those in euros or British pounds. Britain isn't part of the euro zone, but it does more business with Europe than with any other region. So a recession in Europe would hit the pound hard.
All European stock markets will likely fare poorly: If you must stay in European stocks, then Germany's stock market would be "the least worst," he says.
He adds: European stocks could look really cheap in 12 to 18 months. So savvy investors will be wise to keep some cash on the sidelines.
2 What if U.S. housing finally improves?
It's now close to five years since the housing bubble burst. When it rebounds isn't only an investment question, but of vital importance to households as well.
You'll know real estate is improving when you see rising prices in combination with greater sales volumes of housing units. For that to occur, "lots of other good things need to be happening," says Barry Ritholtz, CEO of FusionIQ, a New York-based research and asset-management company.
Notably, he says, look for a better jobs picture, with an increase in average wages. You'll also need to see people who had been living with their parents for financial reasons finally getting their own home, either buying or renting.
That would lead to an increase in so-called household formation, a vital factor for a housing recovery.
If all those things are happening, then, Mr. Ritholtz says, savvy investors will be looking beyond the obvious investment choices of home-building stocks. Instead, he says, look to companies that will prosper from an improved labor market, such as staffing firm Robert Half International (RHI), payroll processor ADP(ADP) and jobs-listing service Monster Worldwide (MWW).
3 What if the jobs recovery falters?
The long-awaited jobs recovery seems to have arrived. The unemployment rate has dropped steadily, albeit slowly, from 9.1% in August to 8.5% in December.
The big question: Can it be sustained?
If things start going backward, then "basic support for U.S. stocks will be undermined," says Art Hogan, head of product strategy at New York-based Lazard Capital Markets. "It will do an awful lot of damage to investor confidence."
You'll know the jobs recovery is in reverse by watching the unemployment claims data (released Thursdays) and the Department of Labor employment report (the first Friday of each month).
Specifically, watch for a higher unemployment rate and climbing first-time claims for unemployment insurance.
If the jobs market does falter, then stocks of companies that sell consumer staples, such as soap and food, could benefit, he says. In addition, pharmaceutical companies and electric utilities, also providers of essentials, will tend to do well, he says. You can get a basket of such stocks by purchasing the Consumer Staples Select Sector SPDR (XLP) exchange-traded fund.
4 What if there's another budget crisis?
Last summer, investors watched in horror as Congress wrestled over the government's finances. They even risked the first-ever default on U.S. debt.
Although no one wants it, a repeat performance is possible at year-end. Why? The Bush-era tax cuts are set to expire (again). Unless one party claims a decisive victory across Capitol Hill in November's election, then there will be a wrangle over whether to extend some or all of the tax cuts into 2013.
"It's always a shaky prospect when you put the fate of the U.S. economy in the hands of congressional leaders," says Ellen Zentner, senior U.S. economist at Nomura Securities in New York.
The problem: Massive uncertainty over the outcome.The bigger the differences between the two sides, the worse it will be for investors. Ms. Zentner says an impasse could cause wild swings in the stock market and the economy. So if Congress looks like it's headed for another blockbuster fight, stay safe in cash and avoid the potential gyrations of stocks.
5 What if China's economy heats up?
China's economy matters because it's the second largest in the world. Over the past decade, the communist country has grown fast, but lately it has been cooling off. The question is: What happens when it heats up again?
"As China grows so does the use of commodities," says Michael Woolfolk, senior currency strategist at BNY Mellon in New York. Specifically, he points to industrial minerals such as iron ore and copper, which are used in construction and manufacturing.
You'll know China's economy is doing better if you see a sustained rise in Chinese output. Look for gross-domestic-product growth to jump back to the double digits, from its "slow rate" of 8.9% at the end of 2011.
Many observers doubt the value of Chinese economic data. "Just take it at face value," Mr. Woolfolk says, since the trends in the data are more important.
Stocks that would likely do well include industrial miners Vale(VALE), Rio Tinto (RIO), BHP Billiton (BHP) and Freeport-McMoRan Copper & Gold (FCX).
Those investors not wanting to pick stocks might consider a specialized mutual fund, such as the $3.9 billion Vanguard Precious Metals and Mining fund (VGPMX).
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Monday Morning Outlook
Rally Not Built on Complacency To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 1/23/2012
There are three types of people involved in the prognostication business these days.
The “end of the world” types, the “it’s a slower,
post-apocalypse world” types, and the “everything is going to be
OK” types.
For a long time now, we have been saying that the “end of the world”
types are over-doing it. This is actually a dangerous stance for us to take because
the “end of the world” types can be very nasty to people who disagree
with them. The “it’s a slower world” types are more cerebral and
less nasty, but equally adamant. We, obviously, fall in the third camp.
No matter how we make our argument, and no matter how consistently the economy
grows, the doubt and fear and disbelief just won’t go away. We noticed this
recently, when conventional wisdom started to say that investors were being
“complacent” these days.
In other words, when the equity markets go down, investors are “living in
reality” and “accepting” that the economy and financial markets
just aren’t in great shape. But when the equity markets go up, they are being
schizophrenic, overly optimistic, and now some are saying “complacent.”
We couldn’t disagree more. Private sector payrolls have grown 160,000 per
month in the past year. The unemployment rate is down almost a full percentage point
from a year ago, while the size of the labor force is up (just like it was up in
2010, too). Over the past four weeks, unemployment claims have averaged 10% lower
than the same period a year ago.
Retail sales are up 6.5% from a year ago; orders for long-lasting durable goods are
up 12.1%, and auto sales are up 8.4%.
Perhaps most importantly, the long-awaited recovery in the housing sector has
finally started. Housing starts in the fourth quarter hit the highest level since
late 2008 and were up at a 32% annual rate compared to Q2. This was not all
apartment buildings; single-family housing was up at a 13% annual rate in the second
half of 2011.
Meanwhile, even after a recent rally, US equities remain incredibly cheap. Based on
trailing after-tax earnings, the price-to-earnings ratio on stocks in the S&P
500 is roughly 13.5. On future earnings it’s even cheaper.
Flipping this over, so earnings are on top and price is on bottom, the
“earnings yield” on stocks is 7.4%, compared to a 10-year Treasury yield
of only 2%. This suggests that stocks are cheap relative to bonds.
In other words, rather than being the result of complacency, craziness or stupidity,
the recent rally has a much more straightforward explanation. The economy is
growing, it’s very likely to continue to grow, and if that is the case then
stocks are grossly undervalued relative to bonds.
And the good news continues. With about 15% of the S&P 500 companies having
reported earnings for the fourth quarter of 2011, 60+% have beaten street estimates.
Notice how none of this has anything to do with a third round of quantitative easing
by the Federal Reserve. The last round of quantitative easing was essentially
useless, with banks boosting their excess reserves from $1 trillion to $1.6
trillion.
Nonetheless, bank lending is picking up and accelerated after QE2 ended. This has
helped boost the M2 measure of money (Milton Friedman’s favorite gauge), which
has also been growing faster since the end of QE2 than during it.
So far in 2012, the S&P 500 has had eleven up days versus only two down days.
That ratio probably won’t continue for the full year, but the idea that it is
unwarranted, crazy or complacent is a point of view that is supported by a decidedly
bearish set of assumptions.
Rather, it appears that the stock market is finally (or once again) beginning to
realize that the world is not ending and that the recovery is not so fragile that it
cannot last. We remain optimistic. We continue to believe that things are getting
better and we don’t feel complacent at all.
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http://mercatus.org/publication/us-sovereign-debt-crisis-tipping-point-scenarios-and-crash-dynamics
With the economy facing a sluggish recovery and debt and deficits soaring, it's no longer far-fetched to say that a sovereign debt crisis could occur in the United States. Econ Journal Watch and the Mercatus Center at George Mason University have undertaken this symposium to produce and disseminate a better understanding of what a sovereign debt crisis in the United States would look like and what might bring it about.
This symposium was edited by Daniel Klein and Tyler Cowen, and contributors include Garett Jones, Arnold Kling, Jeffrey Rogers Hummel, Joseph Minarik, and Peter Wallison. The authors were invited to speculate on possible tipping points, associated triggers, and on crash dynamics (what happens in the crisis). The authors were encouraged to imagine possible futures, not merely as financial analysts but as political economists.
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Personal income increased 0.5% in December while personal consumption was unchanged To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 1/30/2012
Personal income increased 0.5% in December while personal consumption was unchanged. The consensus expected a gain of 0.4% for income and 0.1% for consumption. In the past year, personal income is up 3.8% while spending is up 3.9%.
Disposable personal income (income after taxes) was up 0.4% in December and is up 2.3% from a year ago. Increases in private wages and salaries along with dividends and social security pushed disposable personal income higher in December.
The overall PCE deflator (consumer inflation) was up 0.1% in December. Prices are up 2.4% versus a year ago. The “core” PCE deflator, which excludes food and energy, was up 0.2% in December and is up 1.8% since last year.
After adjusting for inflation, “real” consumption was down 0.1% in December, but is up 1.4% from a year ago.
Implications: Despite surveys showing strong consumer spending in December; government data show a temporary lull, but this should not last. Purchasing power is up, even if you exclude government transfer payments. Excluding transfer payments, “real” (inflation–adjusted) personal income was up 0.4% in December and up 2.4% from a year ago. Real spending remains near record highs and will continue to move higher. Private-sector wages and salaries are up 4.6% from a year ago, which is faster than inflation. There were additional benefits paid to some social security beneficiaries in December which was due to retroactive payments to recent retirees based on a recalculation of the earnings base. In addition to the gain in wages and salaries, consumer spending is being supported by the large reduction in households’ financial obligations the past few years. Recurring payments like mortgages, rent, car loans/leases, as well as other debt service, are now the smallest share of after-tax income since 1993. Also, autos are still selling below the pace of scrappage and growth in the driving-age population. This should lead to continued demand in the auto sector in the months ahead. On the inflation front, overall consumption prices are up 2.4% in the past year, above the Fed’s supposed target of 2%. “Core” prices are up 1.8% from a year ago, the most since 2008. But, given the loose stance of monetary policy, we expect inflation to accelerate in the year ahead, both overall and for the core.
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Hi All -
This is a quick but comprehensive summary of the week/week ahead, featuring (with links to great articles by) Jesse's Americain Cafe, Chris Martenson, Russ Winter, Simon Johnson, Bruce Krasting, Zero Hedge and more. Please feel free to post, link to, share the full newsletter (attached). Thanks!! ~ Ilene
Entering the Debt Dimension
(Excerpt from Stock World Weekly)
We ended last week’s newsletter explaining why we were not betting on an announcement for more quantitative easing by the Fed, although “consensus” economists claimed to be. We argued that additional QE was unlikely, citing our friends (Bruce Krasting, Lee Adler of the Wall Street Examiner, and Jon Hilsenrath - with his direct line to Bernanke). This week, those expecting easing were disappointed; there was no mention of launching any new program for large-scale asset purchases.
But the Fed did extend the period it anticipates keeping interest rates at or near zero percent (ZIRP). (See Wednesday’s press release here) The Fed also plans to continue its program to extend the average maturity of its holdings of securities, Operation Twist, and to maintain its policy of reinvesting principal payments from its existing holdings, including mortgage-backed and Treasury securities. It is currently holding nearly $3Tn in total assets. The returns from those assets are significant, and the Fed’s balance sheet is continuing to grow even after the end of its asset purchase programs.
In response, Bill Gross (co-chief investment officer of PIMCO) tweeted that this announcement was the equivalent of “QE 2.5,” while Bruce Krasting wrote, “Well, we got an inflation target from the Fed. Basically, thinking at the Fed has been eliminated. The process has been automated. Bernanke has convinced the Fed board to adopt Core PCE as a determinate of monetary policy. So long as CPCE stays below 2%, Ben is going to have his foot planted on the monetary metal. It’s ‘full speed ahead’ according to the Chairman. He's pushed things off until 2014 - a very long time from now.”Bruce goes on to explain the major flaw in Bernanke’s reasoning, and how this decision has made him “a slave to a single dopey statistic.” (Bernanke Goes All In)
In Jesse's (of Jesse’s Cafe Americain) words:
“This statement shows a longer term commitment to de facto QE at least. The Fed does not need to further expand its balance sheet just yet, but rather deploy those funds strategically while engaging in swaps with other central banks to counter the financial risks globally.
“I suspect that before they formally announce a further expansion of their balance sheet, the Fed will go 'off-balance sheet' in the easing as financial firms are often wont to do when engaging in opaque accounting. The swaps and noncompetitive bidding for balance sheet assets may be a part of this.
“I do not object to stimulus per se, but rather this type of blunt policy that does not address or repair the problems that led to the financial bubble and collapse in the first place.”
In Jesse's view, and we agree, the “yawning gap between productive labor and mere money manipulation” needs to be closed, and hard choices are required to resolve the unsustainable concentration of both power and risk.
“Demagoguery and deception in support of the status quo seems to be the rule of the day in the financial sector and its associated professions and exclusive clubs.
“Therefore self-regulation, restraint, and reform are a thin bet to say the least. The crisis is more like to continue to expand, and the taint of corruption and crime continue to spread.” (FOMC Statement - Targets 2% Inflation - Highly Accommodative Monetary Policy Until ‘Late 2014’)
One problem with large, public programs such as QE2 is that everyone jumps into the same side of the trade, e.g., going long equites in the famous “Tepper Put” that dominated the markets while QE2 was operating (buy stocks, you can’t lose). Using more low-key, less blatant ways of injecting liquidity into the financial system, Bernanke is continuing to provide stimulus while pretending to be an inflation hawk.
On Friday, Fitch downgraded Italy, Spain, Belgium, Slovenia and Cyprus. Ireland was affirmed at BBB+, but received a negative outlook. Fitch maintained that the European leaders’ “gradualist” approach in tackling the crisis means that Europe will continue to face periodic episodes of severe financial volatility, and this will erode the governments’ ability to repay their debt obligations. “The eurozone crisis will only be resolved as and when there is broad economic recovery. It is evident that further substantial reforms of the governance of the eurozone will be required to secure economic and financial stability, including greater fiscal integration.” (Fitch downgrades 5 eurozone nations)
Chris Martenson argued that it’s time for hard decisions: “Back in the 1930's, Irving Fisher introduced a concept called the ‘debt supercycle.’ Simply put, it posits that when there is a buildup of too much debt within an economy, there reaches a point where there simply is no other available solution but to let it rewind.
“We are at that point in our economy, as are most other major economies around the world, claims John Maudlin, author of the popular Thoughts from the Frontline newsletter and the recent bestselling book Endgame: The End of the Debt Supercycle and How It Changes Everything.
“For the past several decades, excessive and increasing amounts of credit in the system have allowed us to live above our means as both individuals and nations. We've been able to have our cake and eat it, too. Now that the supercycle has ended and the inevitable de-leveraging cycle is staring us in the face, we will be forced to set priorities in a way that has been foreign to our society for over a generation.” (Chris Martenson Interviews John Mauldin: “Time to Make the Hard Decisions)
Greece has been struggling with hard decisions as it attempts to negotiate a “haircut” with creditors. Russ Winter of Winter Watch at Wall Street Examiner commented,
“I spotted some interesting commentary on the maturing March 2012 Greek bonds. After buying at 40-45 cents, it seems the hedge funds are trying to unload in a bid-less 35-cent market. The ECB has the largest stake, bought at 70 cents. This official holder’s dominance of this market, and refusal so far to participate in haircuts, is making the whole exercise futile and severely subordinating any potential non-official holder or future buyer of European sovereign debt.
“Reuters reports that the ECB is split and confused on this issue. The IMF’s Lagarde says, ‘If the level of Greece’s privately held debt is not sufficiently renegotiated, then public creditors will also have to participate.'Apparently, the IMF was also confused as this was retracted or denied. As I wrote in “Stick it to the Local Issued Bond Holders,” this is one of two serious subordination fiascos, the second being a slew of UK-law non-local issues that restrict collective restructuring actions.” (Pushing Non-Official Holders of Local-Issued European Debt into Subordination) (Zero hedge/Bloomberg chart below).
Simon Johnson warned:
“In the event of default (i) any non-official bond holder is junior to all official creditors and (ii) the issuer reserves the right to change law as needed to negate any rights of the nonofficial bond holder.
“We should not underestimate the damage these steps have inflicted on Europe’s €8.4 trillion sovereign bond markets. For example, the Italian government has issued bonds with a face value of over €1.6 trillion. The groups holding these bonds are banks, pension funds, insurance companies, and Italian households. These investors bought them as safe, low-return instruments that could be used to hedge liabilities and provide for future income needs. It was once hard to imagine these could ever be restructured or default.
“Now, however, it is clear they are not safe. They have default risk, and their ultimate value is subject to the political constraint and subjective decisions by a collective of individuals in the Italian government and society, the ECB, the European Union, and the International Monetary Fund (IMF). An investor buying an Italian bond today needs to forecast an immediate, complex process that has been evolving in unpredictable ways.” (The European Crisis Deepens)
People familiar with the story of the MF Global implosion, and the struggles of thousands of people to recover funds from the bankrupt former primary dealer, will have no trouble understanding the problems with recovering assets during bankruptcy proceedings. (MF Global Clients May Lose in $700 Million Bankruptcy Fight) For a recent update, see Zero Hedge's "3 Months After The MF Global Bankruptcy, We Find That $1.2 Billion (Or More) In Client Money Has 'Vaporized.'"
As sovereign nations in the eurozone struggle to acquire funds to service their existing debt obligations and issue new bonds, investors who might be inclined to buy those bonds are finding themselves in an increasingly hostile environment for private bondholders. Non-governmental holders of this debt are likely to find themselves on the wrong side of any negotiated settlement between private creditors and sovereign bond issuers.
Friday saw a stunning development in the Greek drama, with Reuters reporting that Germany “is pushing for Greece to relinquish control over its budget policy to European institutions as part of discussions over a second rescue package” according to a “European source.”
Tyler Durden of Zero Hedge observed, “Sure enough, earlier today Der Spiegel broke the news that the second bailout, which has yet to be re-ratified, and absent Greece meeting demands to cede fiscal sovereignty, is likely a nonstarter, would be increased to €145 billion ‘citing an unidentified official from the so-called troika.’ So whether or not this is true is irrelevant: what matters is that Spiegel released the article in the same series of posts in which it explained just why Germany has full right to demand (via European enforcement mechanisms or however) virtually anything in exchange for the ongoing endless bailout (such as: Merkel macht Wahlkampf für Sarkozy and Griechenland sträubt sich gegen EU-Aufpasser). Which means one thing only: the great propaganda spin machine is now on, and its only purpose is to provide Germany a buffer of ‘having done everything in its power’ to prevent the now inevitable Greek default. Which, incidentally, means that a Greek default is inevitable.” (Cost Of Second Greek Bailout raised To €145 Billion)
Lee Adler of the Wall Street Examiner reviewed last week’s activity by the Fed, and the potential impact on the Dollar.
“Treasury yields reached the top of the recent range and appeared headed for a breakout when along came Ben, with his mighty arms outstretched he lifts up the playing field and tilts it, and back down yields went, in spite of the big week of Treasury auctions and the market facing a big wad of new paper to settle next week. It didn’t matter. Ben gave the all clear on the carry trade for 3 more years, although I don’t know how much carry you can get when 10 year yields are less than 2%. I guess if you use enough leverage…
“We know this is going to blow up sooner or later. All we can do is watch the chart for signs. For now, the trading range that looks like a bottom in yields is intact. And so is the idea that the Fed at least, can make the market do what it wants, when it wants. But I heard that Bill Gross is loading up on Treasuries again, after missing, or being short, through the whole rally. If that’s not a sell signal, what is?...
"Federal withholding taxes, which were going bonkers, are starting to come back to earth but are still way higher than last January. We still don’t know if this is a new uptrend or just a bulge from sources unknown. The timing coincided with the massive ECB Long Term Refinancing Operation equivalent to $600 billion pumped into the world banking system all at once... Whatever the reason, the unexpected windfall for the Federal Gummit has enabled it to significantly cut the size of the debt offerings for the past month. There’s a question as to how long that good fortune will last, but for now, that’s the story."
(Lee Adler, The Mighty Ben)
Looking ahead to next week, Phil remains skeptical of the current rally. “Of course the headline in the WSJ is ‘US Economy Gathers Pace’ because, as you can see from Cramer's bullish rant last night – they're still herding all the lambs in for the slaughter at the top of the market.”
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Nonfarm productivity (output per hour) increased at a 0.7% annual rate in the fourth quarter To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 2/2/2012
Nonfarm productivity (output per hour) increased at a 0.7% annual rate in the fourth quarter, narrowly missing the consensus expected gain of 0.8%. Non-farm productivity is up 0.5% versus last year.
Real (inflation-adjusted) compensation per hour in the non-farm sector rose at a 1.0% annual rate in Q4, but is down 1.5% versus last year. Unit labor costs also rose at a 1.2% rate in Q4 and are up 1.3% versus a year ago.
In the manufacturing sector, productivity fell 0.4% at an annual rate in the fourth quarter. The decline in productivity growth was due to hours rising more rapidly than output. Real compensation per hour was up in the manufacturing sector (0.3%), and due to the fall in productivity growth, unit labor costs rose at a 1.6% annual rate.
Implications: Forget about productivity for a moment. Automakers reported January sales yesterday and they blew away consensus expectations. Autos and light trucks were sold at a 14.2 million annual rate, versus a consensus expected pace of 13.5 million. Sales were 4.6% higher than December and up 11.7% from a year ago. In fact, sales were the strongest since early 2008, even beating the temporary surge in sales in August 2009 due to cash for clunkers. Consumers don’t buy big ticket items like this when they see the economy getting worse. Also, in other news today, initial claims for unemployment insurance fell 12,000 last week to 367,000. Continuing claims for regular state benefits declined 130,000 to 3.44 million, the lowest level since late 2008. The employment picture is definitely improving and can also be seen in the report on productivity for Q4. It is not unusual for productivity growth to slow temporarily after the initial stages of an economic recovery, as firms start to hire more workers and give their workers more hours. Nonfarm productivity increased at a 0.7% annual rate in the fourth quarter. Output continues to accelerate, but the number of hours worked is catching up. On the manufacturing side, productivity fell 0.4% at an annual rate as the number of hours worked rose faster than output. Over the past few years, manufacturers have gotten very lean, being able to produce more with fewer workers. Now hours are starting to come back and output will continue to move higher as more workers are hired. Unit labor costs (how much companies have to pay workers per unit of production) rose at a 1.6% annual rate in the manufacturing sector. We believe the long-term trend in productivity growth will remain strong, part of the technological revolution since the early-1980s. The result will be higher living standards.
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A lot fo these people can work.
This definitely is one factor that skews the unemployment rate. Federal disability people have probably been advised to be lenient when assessing any given person for disability.
So many of these same people smoke some drink yet and expect a job that will pay a lot. They are only half heartedly seeking work if at all or just give lip service. They will vote Democrat.
***Disabled, but Looking for WorkBy MOTOKO RICH
Published: April 6, 2011
BATESVILLE, Ark. — Christopher Howard suffers from herniated discs in his back, knee problems and hepatitis C. As a result, Social Security sends him $574 every month and will until he reaches retirement age — unless he can find a job.
Jacob Slaton for The New York Times
Christopher Howard, 36, with his wife, Darlene. “I would feel better if I worked and made my own money,” he said.
Economix
Moving From Disability Benefits to Jobs
A study finds the earnings ceiling for those receiving disability checks from Social Security creates a “powerful disincentive to work.”
Jacob Slaton for The New York Times
Christopher Howard and his wife live on his $574 a month disability check from Social Security. He is confident he will find a job.
Though he has been collecting disability checks for three years, Mr. Howard, who is just 36, desperately wants to work, recalling dredging for gravel rather fondly and repairing cell towers less fondly.
“It makes me feel like I am doing something,” said Mr. Howard, a burly man with a honey-colored goatee. “Instead of just being a bum, pretty much.”
Programs intended to steer people with more moderate disabilities back into jobs have managed to take only a small sliver of beneficiaries off the Social Security rolls.
Yet, at a time when employers are struggling to create spots for the 13.5 million people actively looking for jobs, helping people like Mr. Howard find employment — or keeping them working in the first place — is becoming increasingly important to the nation’s fiscal health.
For the last five years, Social Security has paid out more in benefits to disabled workers than it has taken in from payroll taxes. Government actuaries forecast that the disability trust fund will run out of money by 2018.
About 8.2 million people collected disabled worker benefits totaling $115 billion last year, up from 5 million a decade earlier. About one in 21 Americans from age 25 to 64 receive the benefit, according to an analysis of Social Security data by Prof. Mark G. Duggan, an economist at the University of Maryland, compared with one in 30 a little over a decade ago. In Mr. Howard’s home state of Arkansas, the figure is one in 12, among the highest in the nation.
Along with monthly checks that are based on the worker’s earnings history, beneficiaries generally qualify for Medicare — otherwise reserved for those over 65 — two years after being admitted to the disability rolls.
There are several reasons for the increase in beneficiaries. Baby boomers are hitting the age when health starts to deteriorate, and more people are claiming back and other muscular-skeletal ailments and mental illnesses than claimed those as disabilities a generation ago. Lawyers who solicit clients on television and on the Internet probably play a role. And administrative law judges say pressure to process cases sometimes leads to more disability claims being accepted.
But given the difficult job market, some economists say they believe that an increasing number of people rely on disability benefits as a kind of shadow safety net.
The program was designed to help workers who are “permanently and totally disabled,” and administration officials say that it is an important lifeline for many people who simply cannot work at all.
But Social Security officials can take into consideration a claimant’s age, skills and ability to retrain when determining eligibility. So one question is: How many of these beneficiaries could work, given the right services and workplace accommodations? Social Security officials say relatively few.
Nicole Maestas, an economist at the Rand Corporation, has examined Social Security data with fellow economist Kathleen J. Mullen, and concluded that in the absence of benefits, about 18 percent of recipients could work and earn at least $12,000 a year, the threshold at which benefits are suspended.
Other economists say that even among those denied benefits, a majority fail to go back to work, in part because of medical problems and a lack of marketable skills.
“In an atmosphere in which there is a concern about fiscal problems, it’s always easy to point the finger at groups and say, ‘These people should be working,’ ” said Prof. John Bound, an economist at the University of Michigan, “exaggerating the degree to which the disability insurance program is broken.”
Even if claimants have more ambiguous medical cases, once they are granted disability benefits, they generally continue to collect. Of the 567,395 medical reviews conducted on beneficiaries in 2009, Social Security expects less than 1 percent to leave because of improved health.
The benefits have no expiration date, like the current 99-week limit for collecting unemployment. And because many people spend years appealing denials and building their medical case before being granted benefits, their skills often atrophy and gaps open on their résumés, making it more difficult for them to get back to work.
Beneficiaries, who also fear losing health care coverage, may view their checks as birds in the hand. “Even if you’re taking just $800 or $900 a month, that’s better than nothing,” said Bruce Growick, an associate professor of rehabilitation services at Ohio State University.
Shortly after Mr. Howard’s benefit checks started arriving, he received a four-by-six-inch card from Social Security informing him of services to help him return to work. Confused by the bureaucratic language and fearing the loss of medical coverage, he discarded it. When he called the local office, he said a staff member did not seem to know what his rights were or what help was available.
“I thought it is just better to get what we are getting,” he said.
In fact, Social Security offers disability beneficiaries some incentive to ease back into the work force. For nine months after starting a job, they can earn any amount without threatening their benefits. For another three years, if their income falls below $1,000 a month, they can immediately receive full benefits again. And they can keep Medicare coverage for eight and a half years after going back to work, something few beneficiaries may realize.
In 1999, Congress passed a law authorizing the Ticket to Work program, which offers beneficiaries practical help with a job search. Social Security also waives medical reviews for those who participate.
So far, the program has had little success. Out of 12.5 million disabled workers and those who receive benefits for the disabled poor, only 13,656 returned to work over the last two and a half years, with less than a third of them earning enough to drop the benefits.
A Social Security spokesman noted that some other beneficiaries had returned to work without using its Ticket to Work program. In 2009, 32,445 recipients left the benefit rolls because they were earning enough in jobs.
Officials say they have streamlined and simplified the Ticket to Work program. But even with more awareness, they say not enough people could go back to work to make a difference in the disability trust fund.
“We could make this program exponentially more successful and it wouldn’t be enough to dramatically improve the solvency picture,” said Michael J. Astrue, the commissioner of Social Security. “You do it because work — for people who can work — gives them dignity and improves their economic condition.”
In Batesville, a small manufacturing town about 80 miles northeast of Little Rock, Ark., Mr. Howard and his wife, Darlene, who is also out of work, scrape by on his monthly $574 check. They live in a garage behind the home owned by Mr. Howard’s parents. Inside the forest green shack, which has no running water, they have crammed some shabby furniture and a tiny galley kitchen.
Mr. Howard, who went to a community college for only six weeks and quit before becoming a certified nursing aide, landed work over the years through friends and family. One job was building and repairing cell towers in Illinois. In 2000, during a climb up a tower, Mr. Howard fell more than 20 feet before a pull cord stopped him. He quit on the spot, but ignored the back pain.
He moved back to Arkansas, met Ms. Howard and began working for a company that dredged the White River for gravel used to make asphalt and concrete. He operated 25- to 40-pound pumps, drove a forklift and repaired plant vehicles, earning $8.50 an hour, or about $22,000 a year with overtime.
The job kept him outside every day, and sometimes he fished for bass and trout on the way upriver. “I would still be doing that job if I could,” he said on a cool March afternoon as he sat in a booth at McDonald’s, sharing refills of Dr Pepper with his wife.
Six years ago, his working life came to a halt. While fixing a dump truck, he began vomiting blood. He was rushed to the hospital, where his gallbladder was removed, because of complications of the hepatitis C he had contracted from a tattoo in his early 20s.
Mr. Howard, who said he spent much of his 20s hanging out with the “wrong crowd,” admits he played a role in his poor health. “I was living pretty heavily on the weekends,” he said.
After the surgery, doctors determined he had herniated discs. He tried to go back to work but found he could not perform many tasks, like heavy lifting, and was dismissed.
His initial application for disability benefits was denied. He tried going back to work, hanging dry wall, but pain stopped him. Eventually, he hired a lawyer. After three years and three tries, he won benefits.
Last September, he met Shawn Blasczczyk, a coordinator of the Ticket to Work program with the White River Area Agency on Aging in Ash Flat, Ark., who had given a presentation at an employment office where Mr. Howard’s father worked. After learning he had some protections while searching for work, Mr. Howard decided to try.
Advocates for the disabled say Social Security makes lackluster efforts to promote the Ticket to Work program. All new beneficiaries should have an appointment to “talk to a benefits counselor about returning to work and how it will affect you,” said Lori Gentry, a care manager at the White River agency, a nonprofit that works with disabled beneficiaries. “I don’t think that is a whole lot to ask to get a monthly check.”
Some advocates recommend intervention before people receive benefits to try to help the disabled stay in jobs in the first place.
In a proposal for the Center for American Progress and the Brookings Institution’s Hamilton Project, Professor Duggan of the University of Maryland and Prof. David H. Autor, an economist at M.I.T., suggest that disabled workers be offered partial income support and services to remain in the workplace. Moreover, they advocate for employers to purchase mandatory disability insurance as they do unemployment insurance and workers’ compensation, giving them incentive to accommodate workers rather than send them to the federal benefit rolls.
Mr. Howard is bumping up against his limitations, only some of which have to do with his medical condition. Last September, Ms. Blasczczyk helped place him in a job driving seniors to doctors’ appointments, but he quit after six months because of the stress. Scrolling through job listings at McDonald’s on a recent afternoon, he noted that many required college degrees.
Still, Mr. Howard is confident he will eventually find some work. While searching, he and Ms. Howard, who is also applying for work, have quit smoking and are trying to eat healthier foods. They have joined Mr. Howard’s father in a Bible study group.
“I would feel better if I worked and made my own money,” he said. “Because that way when somebody who needs it even more than I do, the Social Security would be there for them.” ****
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Crafty: JDN raises an interesting theoretical question of import here.
JDN: "Well it seems the financial markets are impressed. [by jobs report]...
I don't look at short term moves as matter of import. Dow is lower now than when JDN wrote that - about where it began. The headline sounded positive; the deeper analysis of it over the weekend wasn't. Stocks across the global economy don't move on one reason only, contrary what headline writers say.
JDN: Dow finishes at highest since 2008, Nasdaq at highest since 2000
Away from short term hysteria we move to peak and trough analysis. Another way of saying this is that the Dow is still below levels of 4 years ago and the NASDAQ is still below levels of 12 years ago meaning net negative 'growth' over selected longer periods of time.
The Dow is NOT a measure of the US economy, it is an index of named companies operating globally. NASDAQ also. The growth rate in emerging markets is 3 times what it is in America or Europe and these companies are still free to participate in that.
When I ask friends in Dow companies like 3M how business is and they don't tell me about expanding opportunities in NYC or LA. They are shipping safety equipment as fast as they can build it to the nuclear site in Japan and expanding their manufacturing capabilities in China. Are you hearing something different?
The market correctly predicted 13 of the last 4 recessions. Tell me what the market will do in the next 6 months and that is helpful information. If you announced to the market that the government of 2009 Obamanomics will be reinstalled for the next 4+ years with Pelosi as Speaker writing more laws into healthcare and stricter CO2 bans with Al Franken casting the 60th vote in the Senate and Obama as multi-term President 'growing jobs' at this rate for as far as the eye can see, then tell me what the markets would do. :-(
Markets are up slightly since the crash because of previous over-correcting. Is it really more complicated than that?
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Very good post Doug, though in place of "overcorrecting" I would suggest the Rep recapture of the House, thus enabling blockage of the worst of Baraq has much to do with it.
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"...in place of "overcorrecting" I would suggest the Rep recapture of the House, thus enabling blockage of the worst of Baraq has much to do with it."
True. They can block more from coming but they have the power at this point to repeal almost nothing so it is a mixed bag.
Fluctuations aside, the markets are at the value of what a slow growth economy deserves. Missing in the index of existing, named, successful companies is the lack of new startups and domestic expansions that should have been taking place the last several years. Lack of new competition and creative destruction may be good for entrenched players but bad for the economic outlook overall.
Even the massively increasing regulations can be good for the profit outlook of the entrenched players (GE, Goldman Sachs etc.) but thwarting of new competition and innovation and bad for US employment and our economic outlook overall. That may explain why 'the markets' do fine under Democrat and RINO rule.
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This from Prudent Bear on the meaning of the markets performance makes sense to me.
http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10627
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http://www.mebanefaber.com/2012/02/13/obamas-budget-proposal-will-drive-fewer-companies-to-pay-dividends/
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Monday Morning Outlook
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Stocks Rising, But Still Cheap To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 2/21/2012
The stock market is on a roll. The S&P 500 has had the best start to any year since 1997, while the Dow Jones Industrial Average looks set to move back above 13,000 for the first time since May 2008.
Fears about some sort of Lehman-style financial panic in Europe are waning. While problems in the Middle East persist, this is nothing new. Moreover, analysts and investors are increasingly focused on reports that show improvement in the US economy. The Fed has not been able to justify QE3.
Maybe the best news is that investors are looking deeper into economic data, not just trading on headlines. Last week’s retail sales and industrial production reports were both lower than the consensus expected, but each came with a convincing alibi.
In the case of retail sales, the Census Bureau estimated a drop in auto sales even though reports on sales by automakers themselves, were up strongly. The markets believed the automakers.
Industrial production came in with a big fat zero for January, but a steep drop in output at utilities and mines masked a strong 0.7% increase in manufacturing, driven largely by automakers, who, even after a recent production surge are still running well behind demand, leaving dealer inventories unusually thin.
Meanwhile, regional manufacturing surveys – the Empire State index and Philadelphia Fed index – both beat consensus expectations for February and reported better employment conditions. On cue, new claims for jobless benefits hit the lowest level since early 2008. In addition, housing starts climbed, more proof that the trend in home building is now consistently upward.
The rise in equities so far this year is not just a “sugar high.” The Fed has done nothing new, while Keynesian pump-priming is on the wane. Federal spending peaked at 25.3% of GDP back in 2009. It’s still way too high, but has fallen to 23.7%. Meanwhile, despite shenanigans like the temporary payroll tax cut, federal revenue has risen from 15.1% of GDP to 15.4% in the past year. Spending is down and taxes are up. From a Keynesian perspective, fiscal policy is contractionary.
Yes, the Fed is loose and is holding interest rates down artificially. But even if we assume more normal interest rates and stable profits (with implies declining margins), stocks are very cheap. Cheap enough in our view to take us to 14,500 on the Dow and 1475 on the S&P 500 by year end 2012.
Using a capitalized-profits approach, we divide corporate profits by the current 10-year Treasury yield of 2% and then compare the current level of this index from each quarter for the past 60 years. Hold on to your hats…this method estimates a fair-value for the Dow at 46,000. But, this extremely bullish result is largely due to artificially low interest rates. Current levels on inflation are above the 10-year Treasury yield and we believe that once the Fed normalizes its policy stance interest rates will climb to much higher levels.
If we use a more realistic discount rate of 5% for the 10-year Treasury, we get a fair value of 18,800 on the Dow and 1,975 for the S&P 500.
Another potential problem is that profits have been an unusually large share of GDP – currently almost 13%. If profits revert to a historical norm of about 9.5% of GDP at the same time the 10-year Treasury yield is 5%, fair value would be 13,900 for the Dow and 1460 for the S&P 500. Just to be clear, that would be in a world where profits fall roughly 25% and interest rates more than double from their current levels. In other words, this doesn’t look like a dead cat bounce to us.
Valuations are robust and with the economic recovery re-accelerating, the bull market that started in March 2009 has much further to run.
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Monday Morning Outlook
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Don?t Bet on a Correction To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 2/27/2012
The US stock market has defied all but its most bullish friends. Last Friday, the S&P 500 closed at a 1365, its highest close since May 2008. It’s up 8.6% so far in 2012 and 24% from its low of 1099 on October 3, 2011. The NASDAQ Composite Index has performed even better – up 13.8% so far this year and 26% from the October lows.
None of this has deterred those involved in the three main branches of bearishness. The first branch is the long-term bears, who still believe that the 2008 financial crisis changed everything. It signaled a new normal of slower economic growth, deleveraging and reduced expectations.
These long-term bears think that problems in Greece, and Europe, are just the continuation of the 2008 financial crisis. Some even blame the US for causing Europe’s problems.
The long-term bears think economic problems have been papered over by government stimulus, Federal Reserve accommodation and the European bail-out. They fret that all of these economic mistakes cannot and will not cover up the crisis for much longer and that a relapse into crisis could occur.
The second branch of bearishness is a medium-term series of fears about a double-dip. These bears fret about high oil prices, inflation, deflation, weak consumer confidence, foreclosures, uncertainty about Obamacare, Dodd-Frank, the expiration of the Bush tax cuts, low interest rates, the labor force participation rate, and the list goes on and on. These bears think the economy is vulnerable to a relapse of weakness caused by just about anything.
The third branch is all about short-term trading. Many traders think the market has overdone it. They follow technical measures – valuation tools based on how far, how fast, how lopsided, how volatile a market has been. Many traders think the market is over-valued.
What is interesting is that these technically-driven traders will often argue their points by borrowing from the other branches of bearishness. For example, traders will say that the market is over-valued and high oil prices will be the catalyst to knock the economy and markets back down. They are trying to back up their technical analysis with some fundamental fear.
Nonetheless, with so many clamoring for a correction, should investors expect one? And, if so, should they trade it?
Our advice to investors is that they should ignore all this talk about a correction. Last August and September is the perfect example. The stock market was getting slammed. All three branches of the bears were standing on their hind legs, growling loudly and beating their chests. Short-sellers made tremendous profits.
But then the stock market turned around on a dime when no one expected it to. Even though the bears have remained bears, the market had a huge October and then continued on its merry way to new post-crisis highs. Investors who sold in August or September have paid a huge price.
There may be a trader who can capture all of this, but in the end, the history of America is clear. Bears make money every once in a while, but it’s the long-term bulls, who believe in the steady progress of technology and wealth creation, that make money most consistently. Don’t bet on a correction.
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LOL
This recovery is so awesome, only Wesbury and Obozo can see it!
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"but it’s the long-term bulls, who believe in the steady progress of technology and wealth creation, that make money most consistently."
I thought the same thing just before the tech crash and lost a lot.
Of course one can do index funds, berkshire hathaway stuff that was not "dotcom".
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And the NAZ is still down 40% from its peak.
That said, the fact remains that Wesbury has called the past year better than we have.
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And the NAZ is still down 40% from its peak.
That said, the fact remains that Wesbury has called the past year better than we have.
Actually, the Nasdaq is at or near an 11 year high; not bad.....
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"Wesbury has called the past year better than we have"
Absolutely.
This time.
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Ummm JDN. The NAZ peaked at 5K and last I looked sits just under 3K. That is a 40% drop.
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I would also add that when the consensus is the market is going higher that might be an indicator to sell.
In any case Webury on one hand states one cannot predict the future so long term holding is the answer.
OTOH he predicts we are going up another 20% this year.
Well, if we do I hope its after November 2 - not before.
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Personal income increased 0.3% in January while personal consumption rose 0.2% To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 3/1/2012
Personal income increased 0.3% in January while personal consumption rose 0.2%. Including revisions for prior months, income was up 1.0% and consumption up 0.4%. The consensus expected a gain of 0.5% for income and 0.4% for consumption. In the past year, personal income is up 3.6% while spending is up 3.8%.
Disposable personal income (income after taxes) was up 0.1% in January (1.1% including revisions for prior months) and is up 3.0% from a year ago. Increases in worker compensation led the way in January. Social security payments increased 2.8% (retirees finally got a COLA), but overall government transfers declined.
The overall PCE deflator (consumer inflation) was up 0.2% in January and 2.4% versus a year ago. The “core” PCE deflator, which excludes food and energy, was up 0.2% in January and is up 1.9% since last year.
After adjusting for inflation, “real” consumption was flat in January, but is up 1.4% from a year ago.
Implications: Personal income and spending were up modestly in January itself, with both rising but moving up less than the consensus expected. However, consistent with yesterday’s update on quarterly GDP and income, prior months were revised up. As a result, income was 1% higher than we previously thought, while spending was 0.4% higher. “Real” (inflation-adjusted) consumer spending was unchanged in January, just like November and December. But this recent trend is unlikely to last. Excluding transfer payments, “real” (inflation–adjusted) personal income was up 0.2% in January and up 1.9% from a year ago. Meanwhile, in the past year, real private-sector wages and salaries plus real small business profits are up 3.2% - that means this income is rising 3.2% faster than inflation. In addition to these income gains, consumer spending will be supported by the large reduction in households’ financial obligations the past few years. Recurring payments like mortgages, rent, car loans/leases, as well as other debt service, are now the smallest share of after-tax income since 1993. On the inflation front, overall consumption prices are up 2.4% in the past year, above the Fed’s supposed target of 2%. “Core” prices are up 1.9% from a year ago, the most since 2008. Given the loose stance of monetary policy, we expect inflation to accelerate in the year ahead, both overall and for the core. In other news this morning, new claims for unemployment insurance declined 2,000 last week to 351,000. The four-week average dropped to 354,000, the lowest since March 2008. Continuing claims dipped 2,000 to 3.40 million, the lowest since August 2008. These data suggest we had another month of robust payroll growth in February.
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http://www.cbsnews.com/8301-505144_162-57387655/inflation-not-as-low-as-you-think/
Over the past year, the EPI is up just over 8 percent, according to the economics group. The biggest factor: Motor fuel and transportation costs are up 21.06 percent from year-ago levels. The cost of food, prescription drugs, and tobacco also have increased faster than the government's inflation measure, rising 3.56 percent, 4.21 percent, and 3.4 percent, respectively.
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The ISM non-manufacturing composite index increased to 57.3 in February To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 3/5/2012
The ISM non-manufacturing composite index increased to 57.3 in February, beating the consensus expected decline to 56.0. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The key sub-indexes were mixed in February. The new orders index rose to 61.2 from 59.4 and the business activity index increased to 62.6 in February from 59.5. The employment index fell to a still strong 55.7 from 57.4 and the supplier deliveries index fell to 49.5 from 51.0.
The prices paid index rose to 68.4 in February from 63.5 in January.
Implications: Great news on the service sector! The ISM services index once again beat consensus expectations, coming in at 57.3, the highest level in a year. The sector has now shown expansion for 26 straight months and is growing at a very rapid rate. The business activity index, which has an even stronger correlation with real GDP growth than the overall index, boomed in February, coming in at 62.6. With the exception of one month back in early 2011, this is the highest level for the activity index since 2005. The new orders index also took off, rising to 61.2, the highest level in a year. Although the employment index fell, it still shows expansion. Pending Wednesday’s ADP Employment report, we expect this Friday’s official Labor Department report to show a gain of 240,000 in private sector payrolls. On the inflation front, the prices paid index rose to 68.4 after rising to 63.5 last month. These reports signal increasing inflation pressure and make it harder for the Federal Reserve to justify the very loose stance of monetary policy. Bottom line: with an improving pace of economic growth and more inflation, another round of quantitative easing is simply not going to happen.
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"Bottom line: with an improving pace of economic growth and more inflation, another round of quantitative easing is simply not going to happen."
So the downward spiral of the dollar will be limited to the recklessness already done. (I don't know which emoticon to follow that with.)
Wesbury has a current job with an investment house that is (mostly) non-political, but he knows that the economic answer to what is happening is political. We chose this disaster; now we argue and track tenths of a percent of low single digit growth up from the worst economy since the great depression. At this rate the economy will be hitting on all cylinders by when??
The more 'growth' we have without solving other underlying problems, the more gas prices will go up over the summer and kill off more and more industries - like travel, tourism, manufacturing, product delivery, and commuting to work. Aka: an economy 'built to last'?
Growth and inflation/devaluation occurring simultaneously without tax brackets indexed to inflation guarantees that a higher proportion of resources is moved over to the public sector - working against the possibility of sustained private sector growth.
It is hard to be optimistic about investment performance before reforms are seriously contemplated.
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http://blog.american.com/2012/03/for-99-of-americans-the-obama-recovery-has-been-no-recovery-at-all/
Click to view the charts.
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Non-farm payrolls increased 227,000 in February To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 3/9/2012
Non-farm payrolls increased 227,000 in February and were up 288,000 including revisions to December/January. The consensus expected a gain of 210,000.
Private sector payrolls increased 233,000 in February. Revisions to December/January added 42,000, bringing the net gain to 275,000. February gains were led by health care (+49,000), temps (+45,000), restaurants/bars (+41,000), professional & technical services (+34,000), and manufacturing (+31,000). The weakest sectors were department stores (-25,000), non-residential construction (-13,000), and government (-6,000).
The unemployment rate held steady at 8.3%.
Average weekly earnings – cash earnings, excluding benefits – rose 0.2% in February and are up 1.9% versus a year ago.
Implications: Another major step forward for the job market. Payrolls were up 227,000 in February (288,000 including upward revisions to prior months). Meanwhile, civilian employment, an alternative measure of jobs that includes small business start-ups, increased 428,000. Some of that gain was weather-related. The household survey shows weather kept 178,000 people away from work last month; in a typical February, this number averages 311,000. But even if we subtract the difference (133,000) from civilian employment, we’re still left with a gain of 295,000 – strongly supporting the case that the payroll data, if anything, are under-reporting improvement in the labor market. Payrolls gains have averaged 168,000 in the past year, versus a gain of 193,000 per month for civilian employment. Meanwhile, the labor force increased 476,000 in February and is up 1.3 million in the past year. As a result, the unemployment rate held steady at 8.3% in February, despite robust job gains. Total hours worked increased 0.2% in February and are up 2.7% from a year ago. That, combined, with continued increases in wages per hour, means total wages are up 4.6% in the past year, more than enough to outpace inflation (for the time being). One detail in the report might capture the improvement best: the share of unemployed who quit their prior job is up to 7.9%, the highest since late 2008. That’s what we should expect to see as attitudes about the job market improve: more workers who are confident they can leave their current position and find a better one. Meanwhile, the share of unemployed workers who are either new entrants to the labor force or re-entrants hit 36.6%, the highest since August 2008. In other recent news on the job market, initial claims for unemployment insurance increased 8,000 last week to 362,000. The four-week moving average held steady at 355,000. Continuing claims for regular state benefits increased 10,000 to 3.42 million, although the four-week average was also 3.42 million, the lowest since August 2008. The odds of another round of quantitative easing are very close to zero.
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http://blog.american.com/2012/03/the-real-unemployment-rate-its-sure-isnt-8-3/
Even if it were a legit number, the 8.3% February unemployment rate, released today by the Labor Department, would be simply terrible – and unacceptable. It would still extend the longest streak of 8%-plus unemployment since the Great Depression. The U.S. economy hasn’t been below 8% unemployment since Obama took office in January 2009. And back in May 2007, unemployment was just 4.4%.
But, unfortunately, the true measure of U.S. unemployment is much, much worse.
1. If the size of the U.S. labor force as a share of the total population was the same as it was when Barack Obama took office—65.7% then vs. 63.9% today—the U-3 unemployment rate would be 10.8%.
2. But what if you take into the account the aging of the Baby Boomers, which means the labor force participation (LFP) rate should be trending lower. Indeed, it has been doing just that since 2000. Before the Great Recession, the Congressional Budget Office predicted what the LFP would be in 2012, assuming such demographic changes. Using that number, the real unemployment rate would be 10.4%.
3. Of course, the LFP rate usually falls during recessions. Yet even if you discount for that and the aging issue, the real unemployment rate would be 9.5%.
4. Then there’s the broader, U-6 measure of unemployment which includes the discouraged plus part-timers who wish they had full time work. That unemployment rate, perhaps the truest measure of the labor market’s health, is still a sky-high 14.9%.
5. Recall that back in 2009, White House economists Jared Bernstein and Christina Romer used their old-fashioned Keynesian model to predict how the $800 billion stimulus would affect employment. According to their model – as displayed in the above chart, updated – unemployment should be around 6% today.
6. As Ed Carson of Investor’s Business Daily points out, it’s been a whopping 49 months since the U.S. hit peak employment in January 2008. The average job recovery time since 1980 is 29 months, not including the current slump.
7. And how long might it take to get back to the 4.4% unemployment rate that existed under President George. W. Bush? Well, let’s say the goal was to get back to that rate in 5 years. And let’s assume the LFP rate returns to the CBO trend. According to a jobs calculator created by the Atlanta Fed, the U.S. economy would have to generate about 225,000 jobs a month, every month, for the next 60 months to hit that target. But few economist think we’ll see sustained job growth like that, especially since it assumes the economy would avoid recession during that span.
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Several excellent and persuasive points in that.
I would also add the matter of the impending tax increases in January 2013. The Bush tax rates will expire. The holiday from the Social Security Insurance premiums (a.k.a. the dishonestly called "payroll tax") will expire. Various additional Obamacare taxes will come on stream.
This is a huge deal and I am in agreement with Art Laffer that this means that a part of what we are seeing is an anticipatory acceleration of economic activity that will be paired with an attendant decline in 2013.
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Data Watch
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Retail sales grew 1.1% in February To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 3/13/2012
Retail sales grew 1.1% in February (1.6% including upward revisions to December/January). The consensus expected an increase of 1.1%. Retail sales are up 6.5% versus a year ago.
Sales excluding autos rose 0.9% in February (1.7% including upward revisions to December/January). The consensus expected an increase of 0.7%. Retail sales ex-autos are up 6.4% in the past year.
The increase in retail sales in February was led by gas stations, motor vehicles and general merchandise stores. Most other subsectors rose as well.
Sales excluding autos, building materials, and gas rose 0.5% in February (1.0% including upward revisions for December/January). This calculation is important for estimating real GDP.
Implications: Great report on retail sales today. Sales grew a strong 1.1% in February, the fastest pace in five months. Sales are up in 19 of the last 20 months and 6.5% above where they were a year ago, easily outstripping retail inflation. Auto sales were strong and higher gas prices were a factor as well, but the gains were widespread across most sectors. For example, spending on building materials rose 1.4% in and is accelerating, up 13.8% from a year ago, but up at an even faster 26.8% annual rate over the past three months. Some of this is probably due to warm winter weather. Also important were the upward revisions for prior months. Including those revisions, overall sales were up 1.6%. And "core" sales, which exclude autos, gas, and building materials, were up 1%. Assuming that the level of retail sales for March is unchanged from February, sales will be up 6.7% at an annualized rate in the first quarter from the fourth quarter, a great sign for nominal growth. Between increasing incomes and smaller debt repayments, the US consumer is able to ramp up spending. We expect all of these trends to continue.
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I could be wrong (again :lol: ) but I am sensing that we are about to see the reversal of a decades long trend of downward interest rates.
If I am right, a lot of people will be wanting to sell bonds.
Will this money then be a source of funds flowing into equities?
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I could be wrong (again :lol: ) but I am sensing that we are about to see the reversal of a decades long trend of downward interest rates.
If I am right, a lot of people will be wanting to sell bonds.
Will this money then be a source of funds flowing into equities?
If by equities, you mean shotgun shells and dehydrated food, then yes.....
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"sensing that we are about to see the reversal of a decades long trend of downward interest rates.
If I am right, a lot of people will be wanting to sell bonds.
Will this money then be a source of funds flowing into equities?"
Oops, I am trying to quit agreeing with GM but sometimes he nails it... Yes, interest will have to go up, but nothing good in equities comes out of financial panic or collapse in the world's largest economy.
Interest rates can only be super low now if we are not selling all the bonds required to cover current deficit spending. (QE-to the umpteenth power is already/still happening.) The market force interest rate right now without central bank manipulation would be a scary high number IMHO.
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Industrial production was unchanged in February To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 3/16/2012
Industrial production was unchanged in February, but up 0.3% including upward revisions to prior months. The consensus expected a gain of 0.4%. Production is up 4.0% in the past year.
Manufacturing, which excludes mining/utilities, rose 0.2% in February but was up a very strong 0.7% including upward revisions to prior months. Auto production fell 1.2% in February while non-auto manufacturing rose 0.4%. Auto production is up 13.3% versus a year ago while non-auto manufacturing is up 4.6%.
The production of high-tech equipment fell 0.6% in February, and is down 0.8% versus a year ago.
Overall capacity utilization ticked down to 78.7% in February from a revised 78.8% in January. Manufacturing capacity use increased to 77.4% in February from 77.3% in January.
Implications: Today’s report on the factory sector was very deceptive. Industrial production was unchanged in February, much less than the consensus expected, but prior months were revised up by 0.3%. Strength in the factory sector was obscured by a 1.1% drop in mining output. In addition utility output, because of warmer weather, was unchanged. Taking out utilities and mining leaves just the manufacturing sector, which rose 0.2% in February and 0.7% including upward revisions for prior months. Higher production is making factories use higher levels of capacity. Utilization in manufacturing is now at 77.4%, the highest since March 2008 and near the 20-year average of 77.7%. As capacity use moves higher, firms have an increasing incentive to invest in more plant and equipment. Meanwhile, corporate profits and cash on the balance sheet show they have the ability to make these investments.
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Monday Morning Outlook
________________________________________
The Fed's March Madness To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 3/19/2012
With two #2 seeds going down on the same day (Mizzou and Duke), and four Ohio teams in the Sweet Sixteen, March Madness is in full swing. Nonetheless, the Federal Reserve added to the madness last Tuesday when it released its latest assessment of the economy.
After months of living in denial, the Fed finally admitted the economy has improved, while, for all intents and purposes, it also took additional quantitative easing – QE3 – off the table. The best news was that the Fed ignored the ridiculous idea of “sterilized” bond buying, which it floated in the Wall Street Journal a week ago. We can assume that idea is now dead.
The impact on the markets was dramatic – stocks rallied, bonds got crushed, and gold fell again.
For several months, many analysts argued that the only reason to buy stocks was the potential of another round of quantitative easing. If the economy wilted, they thought, the Fed would ride to the rescue, so there was no reason to get too bearish. The “Bernanke put” had replaced the “Greenspan put.”
We’ve been bullish for completely different reasons. We believe the recovery is real and sustainable and that profit growth will continue. We have also believed that stocks are undervalued. Yes, monetary policy has been accommodative, but monetary policy alone is not the driving force behind the bull market, profits are. We have never believed that Quantitative Easing (or the anticipation of QE) has driven stock prices up – if it had, price-earnings ratios would have risen, but they haven’t.
The proof is in pudding. As the odds that the Fed will embark on a new round of quantitative easing decline, the stock market has moved higher. Equity investors now realize they don’t have to pray for more Fed ease to keep the bull running.
Bonds certainly got the message. The 10-year Treasury was 1.93% a month ago, 2.03% on Monday, and then closed at 2.30% on Friday. We see this as a sign investors anticipate the Fed will start to raise short term rates before the late 2014 date it wanted markets to believe.
The expectation of less Fed accommodation is why gold got hit, dropping $56 per ounce in two days. Gold is now 12.5% below its record close on Labor Day 2011. With gold still at $1659 as we write, gold investors are still speculating on a major wave of 1970s-style inflation, but the message from the Fed is that the monetary spigot will not gush forever.
Once the Fed finally realizes that economic growth and inflation are not following the Keynesian script, rates will move higher. This won’t happen as soon as we would like, but soon enough to prevent the kind of inflation some gold investors have been hedging against. Gold bugs beware: gold prices are headed even lower.
What this means is that the best currency to be in over the next year or so is the US dollar. Yes, the Fed is loose, but everyone already knows that. It’s priced in. The issue today is whether the Fed tightens policy faster than investors previously thought. And that looks increasingly likely.
Meanwhile, Europe’s troubles are not over and neither are Japan’s. Socialist European economies are making some improvements, but debts are still high and not every country can be saved with an aid package from abroad. The European Central Bank will face great pressure over the coming year to stay easy to help Italy, for example, and that means a lower Euro. In Japan, a political consensus is forming in support of higher taxes, which means more pressure on the Bank of Japan to stay loose.
Momentum is now shifting toward the US, with some global investors looking at equity returns sweetened by currency gains. Add higher US bond yields and emerging markets should be even more willing to buy US assets.
A self-sustaining, virtuous cycle is emerging, the kind that often forms in long-term bull markets. It’s time to get on for the ride.
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"...the Fed finally admitted the economy has improved, while, for all intents and purposes, it also took additional quantitative easing – QE3 – off the table."
This is not Fed-speak but Wesbury's words. Does this mean that right now the U.S. is selling US Treasury bills, bonds, notes, IOUs in the full amount required to cover all of our trillion plus dollar per year deficit spending habit with no further monetizing of the debt? (I highly doubt it.)
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In answer to your question Scott Grannis says:
"Forget about QE3, it's not going to happen. Inflation expectations are picking up and so is the economy. The Fed would be criminally negligent to engage in another round of QE at this juncture. See my posts today for more details.
"The Fed is not monetizing an inordinate amount of debt, and you can see that in the relatively tame growth of M2. That's not to say it won't happen, just that so far, the Fed's willingness to supply liquidity has roughly matched the market's demand for liquidity. That is what the Fed is supposed to do."
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I then asked Scott:
"Thank you for helping me with me education Scott.
"So, what are the banks doing with the money they hold in reserve? Do they then tend to loan in to the US Government at a higher rate of interest? Is this what is meant by the carry trade? What happens when the banks do begin to lend to the private sector?"
He replied
"The banks hold the reserves at the Fed and the Fed pays them an interest rate that is currently 0.25%. That is better than they can get on the interbank market, where Fed funds only pay about 0.15%. So banks are apparently content with getting 0.25% on an essentially riskless instrument, instead of using the reserves to make loans (which however they are doing at a fairly brisk rate). Still, the vast majority of the extra reserves are held at the Fed where they earn interest. The Fed has been making a huge profit in the meantime by doing this (about $60 billion last year I believe, which gets handed over to Treasury), since they are effectively borrowing $1.6 trillion of bonds that yield about 2% and paying out only 0.25%"
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MD:
Thank you.
Let me see if I have this right:
The Fed gives money to the banks (Where does this money come from? The printing press?) , , , for free? The banks then are meeting their reserve requirements so the Fed (or the FDIC?) doesn’t have to take them over. Then the Fed borrows the money from the banks?!?
I am sorry to be so thick, but I really want to understand and appreciate your patience.
Somehow I have a sense of this defying the laws of gravity or supply and demand or somehow being akin to a perpetual motion machine.
What am I missing?
Could you give me a step by step of this please?
==========
SG:
The Fed has the power to "create" bank reserves in order to purchase assets (notes, bonds). Bank reserves are a liability that must be matched by assets held. The Fed bought $1.6 trillion of notes and bonds in QE1 and QE2, and "paid" for them with bank reserves.
Bank reserves can't be used to buy anything, and they only exist at the Fed. Until the Fed decided to pay interest on bank reserves, their only role was to ensure that banks' deposits were backed up by something "solid" (i.e., reserves). In order to lend an additional $10, banks had to acquire $1 of non interest bearing reserves. So they only acquired reserves if they had a reason to lend. The Fed restricted the supply of reserves and that restricted the supply of money. Now however reserves are like T-bills and thus they have some intrinsic value.
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MD:
I’m still not getting it. Let me see if I have this right:
a) The banks’ ratios were fuct;
b) The Fed gives (?!?) them reserves;
c) These reserves restore their ratios to the point where they can lend money;
d) Instead they deposit the money with the Fed for a small but guaranteed return and savers, e.g. my elderly mother or panic-stricken me, get fuct by the low/quasi-negative interest rates created by the Fed to fatten the banks;
e) The Fed puts these deposits to use , , , , somehow that means they too have a sure thing to the tune of $60B a year?
f) If the banks start lending based upon these massive reserves they got from the Fed, then there will be a credit bubble anew? Or , , , the economy will finally take off? Or , , , the Fed can take the reserves it gave the banks back?
“Somehow I have a sense of all this defying the laws of gravity or supply and demand or somehow being akin to a perpetual motion machine. What am I missing?”
SG:
hedge funds typically use leverage (sometimes lots), and they will buy and sell all sorts of assets, including bonds.
The Fed is very much like a hedge fund since they can borrow unlimited amounts of money to buy anything they want. (The Fed borrows by paying for things with bank reserves that they create.) Their cost of borrowing is determined by them (the Federal funds rate), so theoretically they could never have a negative cost of carry (i.e., never pay more than they earn on their assets). But in practice the Fed could lose on a mark to market basis because the value of the notes and bonds they own can fall, as they are now. If bond yields went to the moon, the Fed would have a gigantic mark to market loss, and if that happens, one can only speculate as to the consequences.
The Fed supplies reserves to banks in exchange for notes and bonds.
Every dollar of reserves is backed by a dollar of notes and bonds, most of them treasuries.
The risk of all of this QE has always been that it's possible that the banks could all of a sudden start making massive amounts of loans. This would require a willing banking industry and willing borrowers, of course, and so far that has not been the case.
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http://www.ruger.com/corporate/news/2012-03-21.html
, Ruger & Company, Inc. Reports Strong First Quarter Bookings
March 21, 2012
Sturm, Ruger & Company, Inc. (NYSE: RGR), announced today that for the first quarter 2012, the Company has received orders for more than one million units. Therefore, the Company has temporarily suspended the acceptance of new orders.
Chief Executive Officer Michael O. Fifer made the following comments:
The Company's Retailer Programs that were offered from January 1, 2012 through February 29, 2012 were very successful and generated significant orders from retailers to independent wholesale distributors for Ruger firearms.
Year-to-date, the independent wholesale distributors placed orders with the Company for more than one million Ruger firearms.
Despite the Company's continuing successful efforts to increase production rates, the incoming order rate exceeds our capacity to rapidly fulfill these orders. Consequently, the Company has temporarily suspended the acceptance of new orders.
The Company expects to resume the normal acceptance of orders by the end of May 2012.
The Company will announce its results and file its Quarterly Report on Form 10-Q for the first quarter of 2012 on Tuesday, May 1, 2012, after the close of the stock market.
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http://www.nationalreview.com/blogs/print/294304
The Sun Also Sets
By Mark Steyn
March 24, 2012 4:00 A.M.
I was in Australia earlier this month and there, as elsewhere on my recent travels, the consensus among the politicians I met (at least in private) was that Washington lacked the will for meaningful course correction, and that, therefore, the trick was to ensure that, when the behemoth goes over the cliff, you’re not dragged down with it. It is faintly surreal to be sitting in paneled offices lined by formal portraits listening to eminent persons who assume the collapse of the dominant global power is a fait accompli. “I don’t feel America is quite a First World country anymore,” a robustly pro-American Aussie told me, with a sigh of regret.
Well, what does some rinky-dink ’roo-infested didgeridoo mill on the other side of the planet know about anything? Fair enough. But Australia was the only major Western nation not to go into recession after 2008. And in the last decade the U.S. dollar has fallen by half against the Oz buck: That’s to say, in 2002, one greenback bought you a buck-ninety Down Under; now it buys you 95 cents. More of that a bit later.
I have now returned from Oz to the Emerald City, where everything is built with borrowed green. President Obama has run up more debt in three years than President Bush did in eight, and he plans to run up more still — from ten trillion in 2008 to fifteen and a half trillion now to 20 trillion and beyond. Onward and upward! The president doesn’t see this as a problem, nor do his party, and nor do at least fortysomething percent of the American people. The Democrats’ plan is to have no plan, and their budget is not to budget at all. “We don’t need to bring a budget,” said Harry Reid. Why tie yourself down? “We’re not coming before you to say we have a definitive solution,” the treasury secretary told House Budget Committee chairman Paul Ryan. “What we do know is we don’t like yours.”
Nor do some of Ryan’s fellow conservatives. Texas congressman Louie Gohmert, for whom I have a high regard, was among those representatives who appeared at the Heritage Foundation to express misgivings regarding the Ryan plan’s timidity. They’re not wrong on that: The alleged terrorizer of widows and orphans does not propose to balance the budget of the government of the United States until the year 2040. That would be 27 years after Congressman Ryan’s current term of office expires. Who knows what could throw a wrench in those numbers? Suppose Beijing decides to seize Taiwan. The U.S. is obligated to defend it militarily. But U.S. taxpayers would be funding both sides of the war — the home team, via the Pentagon budget, and the Chinese military, through the interest payments on the debt. (We’ll be bankrolling the entire People’s Liberation Army by some point this decade.) A Beijing–Taipei conflict would be, in budget terms, a U.S. civil war relocated to the Straits of Taiwan. Which is why plans for mid-century are of limited value. When the most notorious extreme callous budget-slasher of the age cannot foresee the government living within its means within the next three decades, you begin to appreciate why foreign observers doubt whether there’ll be a 2040, not for anything recognizable as “the United States.”
**Read it all.
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:cry: :cry: :cry:
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New orders for durable goods increased 2.2% in February To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 3/28/2012
New orders for durable goods increased 2.2% in February, coming in below the consensus expected gain of 3.0%. Orders excluding transportation rose 1.6%, almost exactly matching the consensus expected gain of 1.7%. Overall new orders are up 12.2% from a year ago, while orders excluding transportation are up 8.5%.
The gain in overall orders was led by machinery, civilian aircraft and motor vehicles. Most categories of orders showed gains in February.
The government calculates business investment for GDP purposes by using shipments of non-defense capital goods excluding aircraft. That measure increased 1.4% in February.
Unfilled orders increased 1.3% in February and are up 10.5% from last year.
Implications: New orders for durable goods were up a solid 2.2% in February, showing broad gains across many categories. Orders are up 12.2% in the past year, 8.5% excluding transportation. And remember, this is all in the very early stages of a home building recovery. As housing picks up steam, orders for durables should pick up as well. As a result, we expect more gains in the year ahead. Orders for “core” capital goods, which exclude aircraft and defense, have been running consistently above shipments for the past two years. Unfilled orders for core capital goods are at a new all-time record high and up 9.5% from a year ago. Meanwhile, monetary policy is loose, interest rates are extremely low, and businesses are reaping record profits while they already have record amounts of cash on their balance sheets. Moreover, capacity utilization at US factories is approaching its long-term norm, meaning companies have an increasing incentive to update their equipment. In other recent news on the factory sector, the Richmond Fed index, which measures manufacturing activity in the mid-Atlantic states, declined to +7 in March from +20 in February. The index has been in positive territory, signaling growth, for the past four months. On the housing front, pending home sales, which are contracts on existing homes, slipped 0.5% in February but are up 13.9% versus a year ago. The Case-Shiller index, which measures home prices in the 20 largest metro areas, was unchanged in January (seasonally-adjusted). Nine of the twenty metro areas had price increases. Home prices in Phoenix, which led the pack in January with a 2% increase, are up at a 17.6% annual rate in the past three months. Nationwide, home prices are down 3.8% from a year ago, but we expect a slight increase over the full course of 2012.
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Real GDP growth in Q4 was unrevised at a 3.0% annual rate To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 3/29/2012
Real GDP growth in Q4 was unrevised at a 3.0% annual rate, exactly as the consensus expected.
Business investment was revised up, both for equipment & software and commercial construction. Net exports and inventories were revised down.
The largest positive contributions to the real GDP growth rate in Q4 came from consumer spending and inventories. The weakest component of real GDP was government purchases.
The GDP price index was unrevised at a 0.9% annualized rate of change. Nominal GDP growth – real GDP plus inflation – was revised down slightly to a 3.8% annual rate versus a prior estimate of 3.9%. Nominal GDP is up 3.8% versus a year ago.
Implications: Real GDP growth in the fourth quarter was not revised at all from the prior estimate of a 3% annual rate. However, the mix of growth was more favorable, with business investment revised up and inventories revised down. More business investment means more productive capacity for the future; lower inventories means more room on shelves to fill in future quarters. The new information in today’s report was that corporate profits increased at a 3.5% annual rate in Q4 and are up 7% from a year ago. The gain was all due to domestic activity; profits from abroad fell in Q4. Overall profits, as well as profits from domestic non-financial companies, are both at a record high. Gains in profits and worker income suggest the economy is growing faster than the GDP numbers show. What we produce adds up to GDP, which is the report most analysts focus on. But the government also calculates gross domestic income (GDI), which is supposed to equal GDP. When there is a discrepancy, the government tends to later revise GDP toward GDI. Real GDI grew at a 4.3% annual rate in Q4 and was up 2.4% in the past year, easily beating real GDP of 1.6% in 2011. This suggests growth in 2011 was probably better than 1.6%. It would also help explain why the unemployment rate has been dropping faster than one would expect given modest GDP growth. Meanwhile, nominal GDP was up at a 3.8% rate in Q4 and up 3.8% in the past year, which means that a zero percent federal funds rate is too loose and quantitative easing is not needed. In other news this morning, new claims for jobless benefits declined 5,000 last week to 359,000. Continuing claims for regular state benefits fell 41,000 to 3.34 million. These figures are consistent with a gain of about 200,000 in March payrolls.
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http://www.ruger.com/corporate/news/2012-03-21.html
, Ruger & Company, Inc. Reports Strong First Quarter Bookings
March 21, 2012
Sturm, Ruger & Company, Inc. (NYSE: RGR), announced today that for the first quarter 2012, the Company has received orders for more than one million units. Therefore, the Company has temporarily suspended the acceptance of new orders.
Chief Executive Officer Michael O. Fifer made the following comments:
The Company's Retailer Programs that were offered from January 1, 2012 through February 29, 2012 were very successful and generated significant orders from retailers to independent wholesale distributors for Ruger firearms.
Year-to-date, the independent wholesale distributors placed orders with the Company for more than one million Ruger firearms.
Despite the Company's continuing successful efforts to increase production rates, the incoming order rate exceeds our capacity to rapidly fulfill these orders. Consequently, the Company has temporarily suspended the acceptance of new orders.
The Company expects to resume the normal acceptance of orders by the end of May 2012.
The Company will announce its results and file its Quarterly Report on Form 10-Q for the first quarter of 2012 on Tuesday, May 1, 2012, after the close of the stock market.
http://seriousgun.com/ammunition-sales-soaring/
April 2, 2012
Ammunition Sales Soaring
It’s not just firearms anymore. Ammunition sales are skyrocketing and one of the firms making a huge dent in the pockets of customers is Federal:
Federal Cartridge is the centerpiece of Alliant Techsystems’ commercial division, whose plants nationwide make 21 brands of ammunition and accessories like holsters for non-military customers.
For the last few years, commercial ammunition has been Alliant’s fastest-growing business, fueled in part by Americans’ increased concern over their safety and fears that stricter gun control laws could be ahead, company officials say. The segment’s performance has helped Alliant offset declines in its aerospace and defense segments due to federal budget cuts and the end of the U.S. war in Iraq.
Ammunition is a safe, economic security blanket.
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One liberal who is honest and makes sense:
http://www.usnews.com/opinion/mzuckerman/articles/2012/04/20/mort-zuckerman-president-obamas-economic-programs-have-failed
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That was really depressing , , ,
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"... in 2010, months into our recovery, growth was about 3 percent, followed by 1.7 percent growth in 2011. The rate for 2012 could be about 2 percent—below the 3.4 percent throughout the postwar period."
It should be 4.5% or greater with this much idle capacity. Growth below 'break-even growth' is not growth in my book.
"private sector hiring through June 2011 was 10 times slower following the passage of President Obama's healthcare bill compared to the prior 16 months."
Unemployment is twice what it should be. You don't ever get it back at this growth rate. The federal budget - same thing. We do not have the internal strength to handle the next external shock. Another term of this and we might jeopardize our economy for more than a century.
We don't need an election win. We need a win with a real mandate for change.
The world does not have a contingency plan for American collapse.
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Speaking of idle capacity, IIRC I have been reading of capacity utilization being rather high, with univested profits sitting on the sidelines.
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"Speaking of idle capacity, IIRC I have been reading of capacity utilization being rather high, with univested profits sitting on the sidelines."
Yes. I was referring more generally to the quantity of money and workers on the sidelines, not the utilization of factories already built.
Productivity of employed workers I think is at record highs. Improving with each new layoff.
I read in some commentary yesterday we need to be starting 1 million new businesses per year and the current number is 400,000. A couple years back I posted analysis that we need to be starting a certain number(150?) of companies every year that will grow to a billion dollars, bringing with them the employment that entails and the wealth it creates. Instead we demagogue wealth and business, hire new IRS agents to address 'healthcare' and tell our young to go into social work.
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This may or may not be the company, but this is where I'd look at investing! Do your due homework before spending a penny.
http://www.planetaryresources.com/
Redefining natural resources.
Planetary Resources is establishing a new paradigm for resource discovery and utilization that will bring the solar system into humanity’s sphere of influence. Our technical principals boast extensive experience in all phases of robotic space missions, from designing and building, to testing and operating. We are comprised of visionaries, pioneers, rocket scientists and industry leaders with proven track records on—and off—this planet.
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GM,
Do you mean personal investing or for the future of the US?
I guess one could invest in something like this for their descendants.
Of course I might live to 200 years old. :-D
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Both, perhaps. Our future, if we are to have one, is to be a spacefaring species. There is a near infinite supply of raw materials in space, and the people who make that happen will make Bill Gates look like a minimum wage worker.
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New orders for durable goods fell 4.2% in March
Data Watch
New orders for durable goods fell 4.2% in March To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein - Senior Economist
Date: 4/25/2012
New orders for durable goods fell 4.2% in March, coming in well below the consensus
expected decline of 1.7%. Orders excluding transportation fell 1.1%, also coming in
well below the consensus expected gain of 0.5%. Overall new orders are up 2.7% from
a year ago, while orders excluding transportation are up 5.0%.
The decline in overall orders was mostly due to civilian aircraft, although most
other categories of orders declined as well.
The government calculates business investment for GDP purposes by using shipments of
non-defense capital goods excluding aircraft. That measure increased 2.6% in March
and was up 1.7% at an annual rate in Q1 versus the Q4 average.
Unfilled orders were flat in March but are up 9.7% from last year.
Implications: New orders for durable goods fell an ugly 4.2% in March, the most in
three years, showing broad losses across many categories. A 48% drop in civilian
aircraft orders led the way, which was expected. However, despite the decline in
March, the underlying trend remains favorable, with overall orders up 2.7% in the
past year and 5% excluding transportation. Don’t forget that orders are
extremely volatile from month-to-month and the data we are seeing now reflect the
very early stages of a home building recovery. As housing picks up steam, orders
for durables should pick up as well. As a result, we expect gains in the year
ahead. The details of the report were not as bad as the headline. Shipments of
“core” capital goods were up 2.6% in March, hitting a new record high,
and are up 7.2% from a year ago. Meanwhile, orders for core capital goods continue
to outpace shipments, as they have for the past two years, meaning business
investment will keep moving upward. Unfilled orders for core capital goods are at a
new all-time record high and up 9.7% from a year ago. Monetary policy is loose,
interest rates are extremely low, and businesses are reaping record profits while
they already have record amounts of cash on their balance sheets. Moreover,
capacity utilization at US factories is approaching its long-term norm, meaning
companies have an increasing incentive to update their equipment. In other words,
the large decline in new orders for March does not change our forecast for a
continued recovery.
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Hard to describe what ChangeWave is as an investment newsletter. I'm not that impressed with it for picking/timing stocks, but I think it quite good in the material which is the subject of this issue:
========================
April U.S. Consumer Spending Report
Consumer Spending Holds Steady this Month Even as Confidence and Expectations Drop
Jean Crumrine and Paul Carton
Overview: After major upticks over the previous two months, the U.S. consumer
spending growth rate is simply holding steady for April according to the latest
ChangeWave survey results. However, durable goods, household repairs, and autos
are seeing spending improvements. ChangeWave Research is a service of 451
Research.
On a more cautious note, the April 3 – 16 survey of 2,541 consumers
points to a decline in consumer confidence and expectations. And while
inflation and gas prices appear to be stabilizing, the survey shows
consumers are still changing their habits due to the price increases
they’ve encountered in previous months. Travel and vacation spending
have been particularly hard hit.
On the home entertainment front, Apple (AAPL) and Amazon (AMZN) continue to
outperform while Best Buy (BBY) has hit a new all-time low. Among the
major retailers there are few notable signs of change this month.
Whether the sideways growth we’re seeing in April is a temporary
respite before spending heads up again or is the beginning of a new
consumer slowdown is uncertain at this point. While spending remains
unchanged this month, the overall outlook is certainly more mixed.
Consumer Spending Holds Steady
A total of 34% of U.S. respondents now say they'll spend more over the next 90
days than they did a year ago – up 1-pt since the previous ChangeWave
survey in March. Another 26% say they'll spend less, which is 1-pt worse than
previously.
Putting the Findings in Context. As the following chart shows, after upticks
in three of the past four surveys there is no net change this month.
Note that a year ago we also saw consumer momentum flatten out in April,
followed by four consecutive months of decline.
Historically, ChangeWave’s monthly consumer spending surveys have
proven highly accurate indicators of the directional movement of the S&P
500 Index and the overall U.S. economy.
The following chart shows ChangeWave’s U.S. Consumer Behavioral Data
since May 2007 collapsed into a single line (i.e., % of consumers spending
More over the next 90 days minus % spending Less). We have compared the
ChangeWave U.S. Consumer Behavioral Data with the movement of the S&P 500
index:
As the chart shows, ChangeWave’s U.S. Consumer Behavioral Data has been
an accurate indicator of the direction of the S&P 500 Index and the
overall U.S. economy throughout one of the most volatile economic periods of
the last 75 years.
A Drop in Consumer Expectations and Confidence
Consumer expectations with regards to the overall direction of the economy
are showing a downtick for the first time in eight months, while confidence
is registering its second consecutive monthly decline.
Consumer Expectations. A total of 26% now believe the overall direction of
the economy will worsen over the next 90 days, which is 3-pts more than
previously. And while 31% still think it will improve, that’s 4-pts
worse than previously.
Stock Market Confidence. Nearly one-in-three (32%) now say they’re
Less Confident in the U.S. stock market than they were 90 days ago –
8-pts worse than in March. Only 25% say they’re More Confident –
down 11-pts from previously. All-told, we’ve seen a huge net 27-pt
decline over the past two months.
Respondents were also asked about their investing plans going forward, and
the rate of money inflow into U.S. Stocks (+6; down 7-pts) has slowed since
last month. Non-U.S. Stocks (-1; down 3-pts) are once again registering a
money outflow.
The Impact of Higher Energy Costs
Higher energy costs and inflation continue to weigh upon consumers, but there
are some signs of stabilization.
Among consumers who are spending less, Inflation (40%) remains a top reason
why – up another 1-pt since March. Higher Energy Costs (30%; up 1-pt)
is also a top reason for why consumers are spending less, but after a huge
leap last month that does appear to be leveling off.
We also looked at the impact of rising gas prices on actual consumer behavior.
Coping With Higher Gas Prices: Consumers Cut Back on Travel
A total of 36% now say rising prices at the gas pump have caused them to make
changes to their normal routine – up 8-pts since March.
Among this group, we're seeing a serious cutback on normal travel-related
activity, with more than four-in-five (83%) saying they're Consolidating
Multiple Errands into One Trip. And while 43% also report they're Eating Out
Less, other travel-related changes include Working More From Home (22%),
Walking and Riding Bikes More Often (15%), Taking Fewer Long Vacations and
More Weekend Trips (11%), and Changing the Way They Commute to Work (11%).
We asked respondents whether the rise in gas prices has affected how much they
drive.
A total of 8% of consumers now say rising gas prices are Very Much affecting
how much they drive, 2-pts more than a month ago. Another 53% say rising gas
prices are Modestly affecting how much they drive – up another 3-pts
since March.
Has the rise in gasoline prices affected how much you drive?
Despite these increases, the current results are still well below the impact
we saw at the peak of the surge in energy prices back in July 2008, when 12%
said rising gas prices were Very Much affecting how much they drive and 64%
Modestly affecting how much they drive.
We also asked consumers to tell us the impact energy costs are having on their
discretionary spending.
What effect - if any - are energy costs (i.e., gasoline, heating oil, natural
gas, electricity) currently having on your discretionary spending plans for
the next 90 days?
A total of 10% say their discretionary spending will be Much Lower due to
energy costs, which is the same as in March. Another 40% say their
discretionary spending will be Somewhat Lower going forward – a 2-pt
improvement.
Importantly, the impact of rising energy costs on discretionary spending is
considerably less than when oil prices were peaking at $150 per barrel back
in July 2008. Here’s a comparison of the current survey results with
our July 2008 findings:
Individual Spending Categories
In one of the most encouraging findings, a handful of individual spending
categories are showing an uptick, led by durable goods, household repairs/
improvements and autos.
Durable Goods is registering its best reading in 17 months, with 13% saying
they’ll spend more over the next 90 days compared to 20% less – a
3-pt improvement from last month.
For Household Repairs/Improvements this is the fourth consecutive monthly
uptick – with 36% of respondents now saying they’ll spend more
compared to just 13% less – also a net 3-pt improvement since March.
Spending on Automobiles has improved 1-pt since March, and is tied with its
best reading in more than a year.
In terms of other categories, Restaurants and Travel/Vacation are each down
2-pts, while Consumer Electronics has declined 3-pts this month.
Retailer Trends
After its explosive jump a month ago, Apple (AAPL) remains unchanged at its
all-time high in the Home Entertainment retail sector, with nearly
one-in-four (23%) saying they’ll shop there for home entertainment and
computer networking products in the next 90 days.
While Amazon (AMZN; 44%) has experienced a slight 1-pt decline in the home
entertainment market, it’s still the overall leader in this space and
only 3-pts below its best ever reading during the recent holiday season.
Best Buy (BBY; 28%) has declined 1-pt since March to a new all-time low in a
ChangeWave survey.
Amazon and Online Shopping. Recent ChangeWave surveys have shown
Amazon’s momentum can be attributed to multiple factors, including the
rapid consumer shift to online shopping and the successful market launch of
the Kindle Fire Tablet device.
In the current survey we asked shoppers where they’ll be spending their
online shopping dollars over the next 90 days, and we find Amazon continues
to dwarf all other major online retailers in terms of online spending going
forward.
We want to learn more about how Alliance members will be spending their
online shopping dollars over the next 90 days. For each of the following
websites, please tell us if you will be spending more money, about the same
amount, or less money over the next 90 days compared with the previous 90
days.
A total of 19% of respondents say they’ll spend more money online at
Amazon.com vs. just 6% less – a net 4-pts better than three months ago.
Major Retailers. The spending picture for April is mostly flat for the major
retailers, with a couple of exceptions.
Costco (COST) is registering a 1-pt uptick and continues to lead in terms of
overall spending growth.
Bloomingdale’s (M) also shows a slight 1-pt improvement.
Bottom Line: The overall consumer spending growth rate held steady this month
– although durable goods, household repairs and autos managed to
register upticks.
On a down note, the survey shows a decline in consumer confidence and
expectations. And even as concerns over inflation and higher gas prices
appear to be stabilizing, consumers are still changing their behavior because
of the price increases experienced in previous months.
Whether the sideways movement we’re seeing in April is temporary before
spending heads up again or is the beginning of a new consumer slowdown, the
overall outlook is far more mixed than previously.
Summary of Key Findings
U.S. Consumer Spending Holds Steady in April...
• 34% of U.S. respondents say they'll spend More Money over
next 90 days than they did a year ago – up 1-pt since
March
• Only 26% say they'll spend Less Money – but that's
1-pt worse
• There has been no net change since last month
Individual Spending Categories With Momentum
• Durable Goods (+3)
• Household Repairs (+3)
• Autos (+1)
Other Categories
• Travel Vacation (-2)
• Restaurants (-2)
• Consumer Electronics (-3)
...But Confidence and Expectations Decline
Consumer Expectations
• 26% believe the overall direction of economy will worsen
over next 90 days, 3-pts more than previously
• 31% think it will improve, which is 4-pts worse than
previously
Confidence in Stock Market
• 32% now say they're Less Confident in the U.S. stock
market, an 8-pt jump since March
• Only 25% say they're More Confident – down 11-pts
• Money inflow into U.S. Stocks (+6; down 7-pts) has
slowed; Non-U.S. Stocks (-1; down 3-pts) are again registering a
net money outflow
Inflation and Higher Energy Costs
• Inflation (40%) is up 1-pt as a reason why consumers say
they're spending less
• Another 30% say Higher Energy Costs is a key reason why
they're spending less – up just 1-pt since last month
Retail Store Trends
• Costco (up 1-pt)
• Bloomingdale's (up 1-pt)
• Other major retailers are mostly flat for April
Home Entertainment Shopping
• Apple (23%) remains unchanged at its all-time high
• Amazon (44%) is down 1-pt -but is only 3-pts below its
December all-time high
• Best Buy (23%) down 1-pt to a new ChangeWave low
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In progress. Gigantic fortunes to be made (never by me):
The third industrial revolution
The digitisation of manufacturing will transform the way goods are made—and change the politics of jobs too
Apr 21st 2012 | from the print edition
..
THE first industrial revolution began in Britain in the late 18th century, with the mechanisation of the textile industry. Tasks previously done laboriously by hand in hundreds of weavers’ cottages were brought together in a single cotton mill, and the factory was born. The second industrial revolution came in the early 20th century, when Henry Ford mastered the moving assembly line and ushered in the age of mass production. The first two industrial revolutions made people richer and more urban. Now a third revolution is under way. Manufacturing is going digital. As this week’s special report argues, this could change not just business, but much else besides.
A number of remarkable technologies are converging: clever software, novel materials, more dexterous robots, new processes (notably three-dimensional printing) and a whole range of web-based services. The factory of the past was based on cranking out zillions of identical products: Ford famously said that car-buyers could have any colour they liked, as long as it was black. But the cost of producing much smaller batches of a wider variety, with each product tailored precisely to each customer’s whims, is falling. The factory of the future will focus on mass customisation—and may look more like those weavers’ cottages than Ford’s assembly line.
In this section
»The third industrial revolution
Cristina scrapes the barrel
Beyond battlefield medicine
Flip back please
Never again?
Reprints
--------------------------------------------------------------------------------
Related topics
China
Technology
Science and technology
Digital Fabrication
Henry Ford
Towards a third dimension
The old way of making things involved taking lots of parts and screwing or welding them together. Now a product can be designed on a computer and “printed” on a 3D printer, which creates a solid object by building up successive layers of material. The digital design can be tweaked with a few mouseclicks. The 3D printer can run unattended, and can make many things which are too complex for a traditional factory to handle. In time, these amazing machines may be able to make almost anything, anywhere—from your garage to an African village.
The applications of 3D printing are especially mind-boggling. Already, hearing aids and high-tech parts of military jets are being printed in customised shapes. The geography of supply chains will change. An engineer working in the middle of a desert who finds he lacks a certain tool no longer has to have it delivered from the nearest city. He can simply download the design and print it. The days when projects ground to a halt for want of a piece of kit, or when customers complained that they could no longer find spare parts for things they had bought, will one day seem quaint.
Other changes are nearly as momentous. New materials are lighter, stronger and more durable than the old ones. Carbon fibre is replacing steel and aluminium in products ranging from aeroplanes to mountain bikes. New techniques let engineers shape objects at a tiny scale. Nanotechnology is giving products enhanced features, such as bandages that help heal cuts, engines that run more efficiently and crockery that cleans more easily. Genetically engineered viruses are being developed to make items such as batteries. And with the internet allowing ever more designers to collaborate on new products, the barriers to entry are falling. Ford needed heaps of capital to build his colossal River Rouge factory; his modern equivalent can start with little besides a laptop and a hunger to invent.
Like all revolutions, this one will be disruptive. Digital technology has already rocked the media and retailing industries, just as cotton mills crushed hand looms and the Model T put farriers out of work. Many people will look at the factories of the future and shudder. They will not be full of grimy machines manned by men in oily overalls. Many will be squeaky clean—and almost deserted. Some carmakers already produce twice as many vehicles per employee as they did only a decade or so ago. Most jobs will not be on the factory floor but in the offices nearby, which will be full of designers, engineers, IT specialists, logistics experts, marketing staff and other professionals. The manufacturing jobs of the future will require more skills. Many dull, repetitive tasks will become obsolete: you no longer need riveters when a product has no rivets.
The revolution will affect not only how things are made, but where. Factories used to move to low-wage countries to curb labour costs. But labour costs are growing less and less important: a $499 first-generation iPad included only about $33 of manufacturing labour, of which the final assembly in China accounted for just $8. Offshore production is increasingly moving back to rich countries not because Chinese wages are rising, but because companies now want to be closer to their customers so that they can respond more quickly to changes in demand. And some products are so sophisticated that it helps to have the people who design them and the people who make them in the same place. The Boston Consulting Group reckons that in areas such as transport, computers, fabricated metals and machinery, 10-30% of the goods that America now imports from China could be made at home by 2020, boosting American output by $20 billion-55 billion a year.
The shock of the new
Consumers will have little difficulty adapting to the new age of better products, swiftly delivered. Governments, however, may find it harder. Their instinct is to protect industries and companies that already exist, not the upstarts that would destroy them. They shower old factories with subsidies and bully bosses who want to move production abroad. They spend billions backing the new technologies which they, in their wisdom, think will prevail. And they cling to a romantic belief that manufacturing is superior to services, let alone finance.
None of this makes sense. The lines between manufacturing and services are blurring. Rolls-Royce no longer sells jet engines; it sells the hours that each engine is actually thrusting an aeroplane through the sky. Governments have always been lousy at picking winners, and they are likely to become more so, as legions of entrepreneurs and tinkerers swap designs online, turn them into products at home and market them globally from a garage. As the revolution rages, governments should stick to the basics: better schools for a skilled workforce, clear rules and a level playing field for enterprises of all kinds. Leave the rest to the revolutionaries.
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Very good piece. I am going to paste in on Economics or maybe create a Technology thread on SCH.
The ISM manufacturing index increased to 54.8 in April To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 5/1/2012
The ISM manufacturing index increased to 54.8 in April from 53.4 in March, coming in well above the consensus expected 53.0. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity all increased in April and most remain well above 50, signaling growth. The production index rose to 61.0 from 58.3 and the employment index increased to 57.3 from 56.1. The new orders index also gained to 58.2 from 54.5. The supplier deliveries index rose to 49.2 from 48.0.
The prices paid index was unchanged at 61.0 in April.
Implications: Manufacturing was much stronger than expected in April, with the ISM report beating the estimate of every single one of the 79 forecasting groups polled by Bloomberg. At 54.8, April’s reading was the highest in ten months and has now remained above 50 for 33 straight months. And just in case you still think a double-dip is possible, the new orders index, came in at a stellar 58.2, the highest in a year, suggesting more growth in production ahead. The employment index rose to 57.3, the highest level since June last year, and is consistent with our view of private payrolls rising 175,000 in April. The index level for inventories dropped to 48.5 and is once again contracting. The reluctance of manufacturers to accumulate inventories may hold back GDP in the short term, but we view this reluctance as temporary and indicative of better future growth. On the inflation front, the prices paid index remained at an elevated 61.0 in April. Given the loose stance of monetary policy, this index should move higher in the year ahead. In other news this morning, the Census Bureau reported that construction spending increased 0.1% in March, although it dipped 0.1% including revisions to prior months. The slight increase in March itself was a combination of a 0.7% increase in private construction, while government projects fell 1.1%. The rise in private construction was a due to single-family homes and office buildings; the drop in government projects was led by public colleges.
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A Copernican revolution is under way in the global market for corporate bonds.
A system that once revolved around banks willing to "make a market" by matching bids and offers for thousands of fixed-income securities is being overhauled. Wall Street institutions, known as dealers, are being pushed away from the center of the fixed-income galaxy by regulations, market turmoil and financial constraints.
Investors, high-frequency traders and exchange operators are scrambling to replace them in this enormous universe; companies around the world issued more than $1.5 trillion of bonds last year, according to Dealogic.
The battle for the future of fixed-income markets will play a part in shaping the "new Wall Street" of the postcrisis era. The outcome will have a profound impact on companies' ability to raise debt, investors' trading costs and financial groups' profitability.
Banks for decades have placed themselves at the crossroads of buyers and sellers, charging a fee for putting them together. To smooth the process, they would stock up on bonds, which are more difficult to find than shares because they come in a mind-boggling array of issue dates, maturities and interest rates. That way, if a buyer or seller wasn't forthcoming, banks could step in and take the other side of the trade.
The Street's service was akin to the one provided by a wine merchant: Banks held bonds of different vintages in their cellars, or balance sheets. When customers came along, they delivered the bond and charged them for holding it in a safe place. The deals were bilateral, over the phone and not public, but investors felt safe in the knowledge that dealers were there.
This system is being threatened by three forces: the "Volcker rule" that will ban U.S. banks from trading on their own account, more stringent capital requirements, and regulatory efforts to inject more transparency into bond and derivative trading.
The result has been a collapse in the amount of bonds held in Wall Street's cellars. Dealers' inventories of corporate bonds nearly halved in the past 12 months, according to Tabb Group, to around $47 billion, their lowest level in a decade and some 22% below the crisis-time nadir. Wall Street is dumping bonds like there is no tomorrow, starving the market of liquidity.
With banks less willing to make a market and lubricate the system, trading costs have spiked. A large fund manager estimated the gap between the price to buy and sell the bonds for investment-grade bonds has risen nearly 40% since 2007. The corollary is clear: As trading expenses rise, so will the interest rates demanded by investors, eventually increasing borrowing costs for companies.
The lure of juicy revenues and the need to replenish lost liquidity is prompting other players to try to fill the void.
Investors, for one, are trying to trade with one another. The most visible attempt has been the "Aladdin" trading platform being tested by BlackRock Inc., BLK -0.61%which aims to directly match buyers and sellers among pension funds.
Exchange operators and banks have also set up electronic marketplaces to trade bonds without a middleman. And some hedge funds and high-frequency traders are considering setting up old-fashioned phone-based market-making units.
The problem with bonds is that they don't lend themselves to electronic exchanges like, say, stocks and currencies, because of their diversity and relative lack of liquidity. Trading General Electric Co.'s shares is easy, but how about finding exact matches of buyers and sellers for each of GE's 200-plus bonds? Indeed, of the 19,000-plus bonds that traded in the U.S. last year, less than 2% traded every day.
Furthermore, if fund managers are to be persuaded to reveal bids and offers in an open forum, such as BlackRock's platform or an electronic exchange, they will need to believe that the trades will be executed quickly and that declaring an interest in buying or selling won't cause prices to move against them.
Unless someone ensures a smooth functioning of the market, the new initiatives will never take off.
In the long run, perhaps, markets will consolidate around fewer bonds. But in the current fragmented environment, and with liquidity being drained by a shrinking Wall Street, investors and companies have to contend with higher prices and more cumbersome trading.
The revolution in the constellation of fixed-income traders has begun. But as Copernicus knew all too well, the new order, with its bright stars and dying planets, won't be known for quite some time.
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GM scores a three pointer against Wesbury:
http://www.cnbc.com/id/47337188
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Washington's can-kickers are lacing up their boots, increasingly confident they will be playing a familiar sport come November. It may turn out to be a dangerous game of chicken instead.
Enlarge Image
CloseREUTERS
Federal Reserve Chairman Ben Bernanke
.The federal budget is headed in less than eight months for what Federal Reserve Chairman Ben Bernanke calls "a massive fiscal cliff." Yet stock markets seem to be operating under the assumption that a postelection, lame-duck Congress will take the sting out of expiring tax cuts and spending restrictions.
It might even seem that economic data are raising the odds of that happening. Following two months of disappointing jobs data, the release Thursday of April budget data from the Treasury Department is expected to see the first monthly surplus in 3½ years. The Congressional Budget Office forecasts it will come in at some $58 billion. Meanwhile, the rolling, 12-month deficit, while still massive at $1.15 trillion, would be the lowest since May 2009.
But a positive budget number would be an island in a sea of red ink caused by the timing of receipts and payments. Another $450 billion or so in deficits are projected for the remaining five months of fiscal 2012, ending in September.
In other words, no improvement is seen between now and then. This will make it difficult to postpone most of the looming budget changes, barring the unlikely event comprehensive reforms of entitlements and popular middle-class tax breaks are agreed upon.
.Equity and debt markets seem diametrically opposed in handicapping the situation. Treasury yields are negative after inflation—hardly a sign of robust growth ahead funded by yet-more government spending.
But equity investors seem unfazed by the economic hit posed by the combined expiring measures, equal to about 4% of gross domestic product. That would result in recession, upending equity analysts' forecasts, which currently predict corporate revenue rising slightly faster in 2013 than this year. That depends on decent economic growth, less likely with austerity.
Of course, much hinges on politics. Citigroup Inc. C -2.78%executive and former Obama budget chief Peter Orszag lamented recently that the most likely option is that no compromise is reached, allowing all the measures to expire.
Equity investors must hope he is wrong or, come January, they'll be kicking themselves.
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A newsletter is touting CVD Equipment Corp. (CVV).
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The trade deficit in goods and services came in at $51.8 billion in March To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 5/10/2012
The trade deficit in goods and services came in at $51.8 billion in March, larger than the consensus expected deficit of $50.0 billion.
Exports increased $5.3 billion in March, led by fuel oil and a widespread gain in capital goods. Imports increased $11.7 billion, led by consumer goods, oil, autos, and computers.
In the last year, exports are up 7.3% while imports are up 8.4%.
The monthly trade deficit is $5.8 billion larger than a year ago. However, adjusted for inflation, the trade deficit in goods is $1.6 billion larger than last year. This is the trade measure that is most important for measuring real GDP.
Implications: Imports and exports both rose to new record highs in March, but imports increased more than exports, so the trade deficit expanded. Not only was the level of imports the highest on record, but the increase in imports was the most for any month on record, in part a result of a bounce back in shipments from China following Lunar New Year celebrations. The best news in today’s report was that exports to Europe, including the Euro area, hit a new all-time record high. (This is true even if we exclude Germany.) The large depreciation in the exchange value of the dollar in the past decade means the US is a much more attractive place from which to export. That’s why many foreign automakers are increasingly using the US as an export hub. Because productivity is so high, unit labor costs are low in the US relative to other advanced economies. Nonetheless, reviving US consumers still like imported goods, which will boost imports. On net, trade was a neutral factor for real GDP in Q1, but should be a slight drag on growth in Q2. In other trade news today, import and export prices reflect the recent lull in inflation. Import prices were down 0.5% in April and are up only 0.5% from a year ago. Excluding oil, import prices were unchanged in April and are up 0.7% in the past year. Prices for exports are similarly quiet, with overall prices up 0.7% in the past year and 1.2% excluding agriculture. However, given the stance of monetary policy, we expect these products to show more inflation later this year. In the labor market, new claims for unemployment insurance dipped 1,000 last week to 367,000. Continuing claims for regular state benefits fell 61,000 to 3.23 million, the lowest since July 2008. These figures suggest faster payroll growth in May then in March/April.
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Monday Morning Outlook
________________________________________
The Plow Horse Rolls On To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 5/21/2012
Turn on the television, pick up the newspaper, search the Internet and you will find story after story about Greece, JP Morgan, austerity, the labor force, student loans, California, the G-8, or the Facebook IPO. Just about every bit of the coverage is negative.
Replace that list with Tunisia, Egypt, China, oil prices, foreclosures, deleveraging, and Ireland; or Dubai, tsunami, earthquake, copper, Baltic Freight Index and Portugal…and you get the picture. For three years, the news has been relentlessly bearish.
And yet, amid all this, our “plow horse economy” keeps moving forward – through the stumps and rocks and mud. It’s certainly not I’ll Have Another, who, with one more win, can take the Triple Crown – a measure of strength, courage and greatness. But it ain’t headed for the glue factory either.
Consumer spending is at a record high (whether measured on a real or nominal basis). Retail sales were up in April for the 21st time in the past 22 months. In terms of consistency, this rivals the 1998-99 streak of 16 straight monthly gains, a period everyone looks back on as a boom. Real (inflation-adjusted) retail sales are up 4% from a year ago. If this is the new normal, let’s have more of it.
Private payrolls are up 26 consecutive months, hours of work are rising, and consumers’ financial obligations are the smallest share of income since 1984. No wonder sales of autos and light trucks are up almost 10% from a year ago.
Meanwhile, business investment is soaring. While overall industrial production is up a robust 5.2% from a year ago, the production of business equipment is up a stellar 12%. This is why we believe productivity growth, which has slowed down the past couple of years, is destined to get a second wind.
Capacity utilization hit 79.2% in April, equal to the average of the past twenty years. What this means is that firms have an increasing incentive to build out capacity by investing in plant and equipment. At the same time, profits and balance sheet cash are at record highs. In other words, prospects in the business sector look good.
And, despite all you hear about banks not lending, commercial and industrial loans are up 13.6% in the past year. The story about banks not lending to companies is getting very stale, the bottom for these loans dates back to late 2010.
And to top it all off, housing is clearly on the mend. Starts are up 30% from a year ago. Every major region of the country shows growth in the past twelve months, for both single-family and multi-family homes. Residential investment (home building) has been a positive factor for real GDP growth in each of the past four quarters and looks poised to do it again in Q2.
What we have on our hands is a sustainable, self-reinforcing economic recovery. It could be better. What’s holding it back is bad policy choices coming out of Washington, DC. Government spending is robbing the economy of potential and uncertainty about future taxes and regulation is a wet blanket.
Amazingly, the plow horse keeps moving forward. That’s the real news here - unending pessimism being defeated by the American entrepreneurial spirit.
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From Wesbury yesterday:
"What we have on our hands is a sustainable, self-reinforcing economic recovery. It could be better. What’s holding it back is bad policy choices coming out of Washington, DC. Government spending is robbing the economy of potential and uncertainty about future taxes and regulation is a wet blanket.
Amazingly, the plow horse keeps moving forward. That’s the real news here - unending pessimism being defeated by the American entrepreneurial spirit."
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I did not see where we have overall growth yet above breakeven levels. I do not see any projection of current growth rates that ever grows us out of the current deficit and debt crisis. Other than a potential electoral shift next Nov sending key people packing, I do not see any movement whatsoever on any of the "bad policy choices coming out of Washington, DC". Government spending is projected to keep growing, "robbing the economy of potential". Uncertainty about future tax rates is a certainty through summer and fall and longer unless the election is decisive one way or the other. Regulations at this point in time are scheduled to keep getting worse.
Regarding the entrepreneurial spirit, we are starting hundreds of thousands fewer new businesses today than we could or should be.
Decline / stagnation is a choice.
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Bringing this post forward:
http://dogbrothers.com/phpBB2/index.php?topic=1467.msg41884#msg41884
Political Economics - What grows an economy?
« Reply #811 on: October 21, 2010, 08:25:47 AM »
“The single most important contributor to a nation’s economic growth is the number of startups that grow to a billion dollars in revenue within 20 years.”
The U.S. economy, given its large size, needs to spawn something like 75 to 125 billion-dollar babies per year to feed the country’s post World War II rate of growth. Faster growth requires even more successful startups.
http://blogs.forbes.com/richkarlgaard/2010/10/20/what-grows-an-economy/?boxes=opinionschanneledito
Current policy is to stop this from happening.
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Any thoughts?
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Ummm , , , what happened?
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http://www.youngresearch.com/authors/recession-pending-this-indicator-says-so/?awt_l=PWy8k&awt_m=3au.bOMII0zlu1V
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Retail sales declined 0.2% in May, up 5.3% versus a year ago To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 6/13/2012
Retail sales declined 0.2% in May, matching consensus expectations, but were down 0.8% including downward revisions for March/April. Retail sales are up 5.3% versus a year ago.
Sales excluding autos declined 0.4% in May versus a consensus expectation that they would be unchanged. Retail sales ex-autos are up 4.3% in the past year.
The decline in retail sales in May was led by gas and building materials. The largest gains were for autos and non-store retailers (internet/mail-order).
Sales excluding autos, building materials, and gas were unchanged in May (-0.4% including downward revisions for March/April). This calculation is important for estimating real GDP. Even if these sales are unchanged again in June, they will be up at a 2.1% annual rate in Q2 versus the Q1 average.
Implications: Retail sales were relatively soft in May, but do not signal a broader economic slowdown. Given the financial problems in Europe, some downbeat analysts are eager to fit every negative piece of news about the US economy into that framework. Instead, we think the tepid sales reports of the last couple of months are caused by much more mundane factors. The leading cause of the decline in May was a steep drop in gas prices. Excluding sales at gas stations, retail sales rose 0.1%. The second weakest category of sales in May was building materials, which fell 1.7%. This past winter was unusually mild. As a result, home construction (on a seasonally-adjusted basis) picked up quickly during that period and so did retail sales related to that construction. Now, those kinds of sales are reverting toward the underlying trend, which is still up 5.3% from a year ago. In addition, a combination of the mild winter, which made it easy to shop, and the earliest Easter in the past few years, may be skewing the seasonal adjustment factors in the Spring, making sales look good through March and worse – temporarily – in April/May. Regardless, “core” sales, which exclude autos, building materials, and gas, were essentially unchanged in May (+0.02%) and have only dropped once in the past twenty-two months, a remarkably consistent record of sales gains. Even if these sales are unchanged in June, they will be up at a 2.1% annual rate in Q2 versus the Q1 average, which is also what we are estimating for the growth of “real” (inflation-adjusted) personal consumption in Q2 (including goods and services). Don’t be fooled by statistical noise. The US economy continues to grow.
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"The recent economic crisis left the average American family in 2010 with no more wealth than in the early 1990s, erasing almost two decades of accumulated prosperity, reducing their net worth by almost 40%."
It's the middle class that seems to be paying the most. The rich?
"In the words of Warren Buffett, "There's class warfare, all right, but it's my class, the rich class, that's making war, and we're winning."
http://www.latimes.com/news/opinion/commentary/la-oe-kinsley-column-20120614,0,1109673.story
http://www.cnn.com/2012/06/14/opinion/carville-middle-class/index.html?hpt=hp_bn7
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"...reducing their net worth by almost 40%."
It's the middle class that seems to be paying the most. The rich?"
JDN, It's hard to follow your implied logic or stated question, but I will answer you anyway.
This is not about paying taxes, but the policy that triggered the collapse was an impending tax increase aimed at the rich, code-named 'letting the Bush tax cuts expire for the wealthiest Americans'.
Even though at year end the tax increase on the rich never in fact happened, it triggered an asset sell-off that we now know destroyed 40% of the wealth for people that were NOT targeted by the policies of the Pelosi-Reid congress and the incoming Obama administration in fall or 2008.
The 99% so to speak lost jobs, lost income and lost value in their existing investments including their homes, while the 1% who were targeted pulled back and are for the most still rich and doing okay.
Conclusion: We live in an interconnected economy. You can not target one group for punishment/confiscation, especially investors, capitalists, job creators without also hurting yourself and your family and your neighbors.
As to Buffet's meaningless words: "it's my class, the rich class, that's making war, and we're winning": NO. These policies came from the elected class and they were (ill-advisedly) supported by 53% (roughly) of the lower income 99% in 2006 and 2008. The 1% have great influence but no real political power in a representative republic.
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Data Watch
________________________________________
Industrial production declined 0.1% in May To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 6/15/2012
Industrial production declined 0.1% in May, coming in short of the consensus expected gain of 0.1%. Production is up 4.7% in the past year.
Manufacturing, which excludes mining/utilities, declined 0.4% in May but was down 0.2% including upward revisions to prior months. Auto production fell 1.4% in May while non-auto manufacturing fell 0.3%. Auto production is up 25.0% versus a year ago while non-auto manufacturing is up 3.8%.
The production of high-tech equipment rose 0.5% in May, and is up 0.8% versus a year ago.
Overall capacity utilization moved down to 79.0% in May from 79.2% in April. Manufacturing capacity use fell to 77.6% in May from 78.0% in April.
Implications: Overall industrial production dipped 0.1% in May. Manufacturing, which excludes mining and utilities, fell 0.4 percent. Both figures came in slightly below consensus expectations. However, industrial production is still up 4.7% from a year ago, growing more than twice as fast as the overall economy. The data we watch most closely is manufacturing production ex-autos. This figure fell 0.3% in May, but has risen in 9 of the last 11 months. That’s a very good track record, given that manufacturing ex-autos usually falls three or four times a year even during normal economic expansions. In other words, it is much too early to read anything significant into the slippage in production in May. Given low inventories, particularly in the auto sector, we don't expect any persistent stagnation. Although capacity utilization declined in May, it is still up substantially from a year ago. As a result, companies have an increasing incentive to build out plant and equipment. Meanwhile, corporate profits and cash on the balance sheet show they have the ability to make these investments. In other news today, the Empire State index, a measure of manufacturing activity in New York, fell to +2.3 from +17.1 in May. This suggests growth continued in June, but at a slower pace than in May. However, these kinds of surveys are also influenced by corporate sentiment rather than actual activity, and, given news out of Europe, we would not be surprised if this were having a negative effect.
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second post
Patriot Post
Around the Nation: Corporations Aren't Hoarding Cash After All
The Federal Reserve issued a report this week on the amount of cash held by U.S. corporations, and it amounts to about half a trillion dollars less then previously thought. Non-financial corporations still hold $1.74 trillion in liquid assets, an unprecedented amount. But as The Wall Street Journal's Ben Casselman writes, "Perhaps more significant than the number itself, however, is how the revision affects the trend. Before the revision, the Fed showed corporations continuing to accumulate cash, with liquid assets rising nearly every quarter since the recession ended and reaching a record $2.2 trillion at the end of last year. Now, however, it appears corporate cash piles grew rapidly through 2009, then leveled off. Companies aren't spending their cash, but they aren't holding more of it, either."
The Fed's finding puts a significant dent in Barack Obama's claim that corporations are just "sitting on the sidelines" and refusing to invest in the economy.
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Some thoughts on subject though the author does have a very baby face :-o
http://www.thedailybeast.com/articles/2012/06/21/how-the-supreme-court-s-health-care-ruling-will-move-the-markets.html
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The point that overturning Obamacare could be very good for the economy and the market seems plausible to me.
The Second Step: Supreme Court To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 6/25/2012
Step Two of our Four Steps to Recovery will happen sometime this week. The wait for the Supreme Court to issue its decision on whether President Obama’s health care reform law is constitutional is almost over.
“Obamacare” is the president’s signature legislative achievement. His legacy largely hinges on how the case is decided. If the law is fully upheld and if the president wins re-election, the odds of fully implementing the law go way up. In combination, these two events would codify the US’s move toward a cradle-to-grave social welfare state (emulating much of Europe). This would reduce the growth potential of the US economy and further diminish price-earnings ratios.
As of right now, before the Court issues its decision, we think this combination is highly unlikely. Much more likely is the Court striking down the mandate to buy health insurance as well as other parts of the law that go with the mandate, like the requirement that insurance companies cover all applicants, with no price difference based on health status.
It is entirely possible the Court strikes down the entire law. Oral arguments suggested that the Court understood striking down a major feature of the health care law and letting the rest stand would, in effect, re-write the law in a way Congress never intended. In other words, striking down all the law could be a more restrained decision than striking down just part of it.
If the Court lets most of the law stand, the voters would still get a chance to throw out the rest. Right now, 61% of Americans oppose the mandate, while at the same time supporting other parts of the bill. A new Senate and House, and possibly a new President could use the same special budget procedures that were used to enact Obamacare to repeal what was left. Even if the GOP does not sweep all races, the law is so unpopular that many parts of it could likely change.
In other words, right now the path to getting the law fully implemented is very narrow. Equity markets do not seem to realize this. Neither do businesses that seem to be holding back on investment and hiring decisions temporarily because the Supreme Court ruling is so close. If the Court starts the ball rolling by declaring the mandate unconstitutional, look for the economy and stock markets to take a sharp turn for the better.
Supporters of bigger government and higher taxes have lusted after a federally-dominated national health care system for multiple generations. Losing now, after they had a supportive president and a filibuster-proof majority in the Senate would be demoralizing.
By contrast, the advocates of smaller government and lower taxes would have the winds at their backs. It would be the second step of what we are calling the Four Step Process to Recovery. The first step was Governor Scott Walker’s recent victory in Wisconsin. Although many governors of both major parties have taken on government unions, the unions decided to make Walker the poster child and lost badly.
So, step two would highlight a shift in the direction of the American political environment.
In the late 1960s and 1970s, the Great Society programs of President Johnson moved the US to a bigger government. Equity markets went nowhere for 17 years. Then government shrank substantially under Reagan and Clinton, and equities soared once this process got underway.
The stage is being set for government to shrink once again. And, if so, equities are exactly the place to be.
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Capacity utilization has always been something I have thought worthy of attention-- Marc
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Data Watch
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New orders for durable goods increased 1.1% in May To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 6/27/2012
New orders for durable goods increased 1.1% in May, beating the consensus expected gain of 0.5%. Orders excluding transportation rose 0.4%, coming in slightly below the consensus expected gain of 0.7%. Overall new orders are up 4.6% from a year ago, while orders excluding transportation are up 3.8%.
The gain in overall orders was led by machinery and aircraft, while other categories of orders were mixed.
The government calculates business investment for GDP purposes by using shipments of non-defense capital goods excluding aircraft. That measure rose 0.4% in May. If these shipments are unchanged in June, they would still be up at a 1.7% annual rate in Q2 versus the Q1 average.
Unfilled orders were flat in May but are up 8.3% from last year.
Implications: New orders for durable goods rose more than the consensus expected in May, up 1.1%, and the underlying trend remains favorable, up a healthy 4.6% in the past year. The gain in May was mostly due to the transportation sector, which is very volatile from month to month, but orders were still up 0.4% even excluding transportation. We expect this number to pick up steam over the rest of the year. Unfilled orders (ex-transportation) are up 9.1% in the past year and are now at record highs. Also, we are in the early stages of a home building recovery. As housing continues to improve, orders for durables should pick up as well. Shipments of “core” capital goods (which exclude defense and aircraft) rebounded in May after dropping steeply in April. These shipments have dropped in the first month in nine of the past ten quarters, with a rebound in the following two months. So if the trend continues we should see this number higher in June. Business investment should continue to grow. Monetary policy is loose, interest rates are extremely low, and profits are at record highs while companies have record amounts of cash on their balance sheets. Moreover, capacity utilization at US factories is approaching its long-term norm, meaning companies have a growing incentive to update their equipment. In other recent manufacturing news, the Richmond Fed index, a measure of factory activity in the mid-Atlantic, declined to -3 in June from +4 in May. A negative reading, suggesting some contraction, is not good, but the index was -10 in August last year while the US economy was still growing. In other words, the decline does not signal a recession. Meanwhile, the housing market shows marked improvement. The Case-Shiller index, which measures home prices in the 20 largest metro areas, increased 0.7% in April (seasonally-adjusted), with 17 of the 20 metro areas showing price increases. Although prices are still down 1.9% from a year ago, they are up at a 6.2% annual rate in the past three months.
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Data Watch
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The ISM manufacturing index declined to 49.7 in June To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 7/2/2012
The ISM manufacturing index declined to 49.7 in June from 53.5 in May, coming in well below the consensus expected 52.0. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
Most major measures of activity fell in June. The new orders index fell to 47.8 from 60.1, the production index fell to 51.0 from 55.6, and the employment index declined to 56.6 from 56.9. The supplier deliveries index ticked up to 48.9 from 48.7.
The prices paid index dropped to 37.0 in June from 47.5 in May.
Implications: For the first time since mid-2009, the ISM Manufacturing index came in below 50, signaling contraction in the factory sector. However, it’s important to keep in mind that when financial strains, such as recent news out of Europe, push down consumer confidence, it also often pushes down the ISM index as well. In other words, today’s below-50 ISM index does not signal a recession and probably underestimates actual business activity in the factory sector. Notably, the employment index fell only slightly, to a still robust 56.6. On the inflation front, the prices paid index plummeted to 37.0 in June, the lowest level since April 2009, reflecting the steep recent drop in energy prices and other commodities. Given the loose stance of monetary policy, we expect the ISM index to soon rebound, both for activity indicators as well as prices. For the time being, though, today’s ISM report is consistent with our forecast that real GDP grew at about a 1.5% annual rate in Q2. In other news this morning, the Census Bureau reported that construction spending increased 0.9% in May, easily beating the consensus expected gain of 0.2%. The gains in May were led by housing, which was up 3%. Commercial construction was up 0.4%, led by manufacturing facilities. Government projects fell, largely due to less school construction.
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The ISM non-manufacturing index declined to 52.1 in June To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 7/5/2012
The ISM non-manufacturing index declined to 52.1 in June, coming in below the consensus expected 53.0. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The key sub-indexes were mostly lower in June but all remained above 50, signaling expansion. The new orders index declined to 53.3 from 55.5, the business activity index fell to 51.7 in June from 55.6, and the supplier deliveries index declined to 51.0 from 53.0. The employment index rose to 52.3 from 50.8.
The prices paid index dropped to 48.9 in June from 49.8 in May.
Implications: The service sector continued to grow in June but at a slower pace, with the ISM service sector composite coming in at the lowest level since early 2010 and the sub-index for business activity at the lowest level since late 2009. We think the bad financial news coming out of Europe may be holding down the index relative to actual levels of activity, but also note that, at just above 50, the indexes are consistent with other data suggesting real GDP growth of 1% to 1.5% in Q2. Notably, however, the employment index strengthened to 52.3 from 50.8, suggesting service sector firms do not anticipate persistent weakness. It also helps confirm other recent positive data on the labor market (discussed below). On the inflation front, the prices paid index fell to 48.9. This is consistent with other indicators showing a temporary moderation in inflation. However, given the loose stance of monetary policy, we don’t expect the lull to last. In other recent news, two good reports on the labor market earlier today. The ADP employment report showed an increase of 176,000 private sector jobs in June, easily beating the consensus expected 100,000. New claims for jobless benefits declined 14,000 to 374,000, the lowest level in six weeks. Continuing claims increased 4,000. These indicators suggest tomorrow’s official Labor Department report will show a 120,000 increase in nonfarm payrolls and a 130,000 gain in private payrolls. In other recent news, autos and light trucks were sold at a 14.1 million annual rate in June, better than the consensus expected, up 2.2% from May and up 22% from a year ago. No matter how they answer surveys about how they feel, American consumers are behaving like they’re more confident. No sign of a recession in any of these numbers.
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Wesbury:
"the indexes are consistent with other data suggesting real GDP growth of 1% to 1.5% in Q2."
"No sign of a recession in any of these numbers."
I notice that Brian Wesbury and all other economists or economic reporting firm or agency do not use CBO / OMB / Washington DC baseline budgeting rules for GDP reporting. A question for Wesbury (or Scott Grannis etc.): If they were required to adjust GDP reporting for 'baseline growth', then what would be magnitude of the economic growth or contraction we are currently experiencing?
My math:
Baseline (breakeven) growth = 3.1%
Current 'real' GDP = 1.9% (or 1.0 or 1.5%)
Current growth deficit is between 1.2% and 2.1%.
At this rate of growth (contraction), we have full employment and a balanced budget ... ... ... NEVER!
Corrections to this and other opinions requested.
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I'm not clear on your point here. I think I know what baseline budgeting is, but what is "baseline growth"? How is that "breakeven"?
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Separately, here this from Wesbury. Seems like a relevant point to me , , ,
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Business Investment Dwarfs Housing
Since 2008, the market punditry has focused on housing, housing and housing. Business news channels have housing experts who report on every housing number as if it were the golden key to all economic activity. People say “we can’t have a recovery without housing.” Conventional wisdom has an obsession with housing.
We find this somewhat understandable. Housing was the crisis. Housing is important. Building homes creates jobs, houses represent personal wealth, mortgages are typically the largest single debt of individuals. We get it.
At the same time we think all this focus on housing is misplaced…at least when it comes to analyzing the economy. Business investment is much more important and the economy has recovered even though housing has been in the doldrums for a long time.
Home building was just 2.2% of GDP in 2011 and houses do not create future wealth. Business investment in equipment and software was 7.4% of GDP in 2011 and this investment is what drives productivity and profits. Business investment creates wealth; houses are where we put wealth.
Investment Is Booming
Businesses invest in three different things – structures, inventory and “equipment and software.” Business structures, like housing, were overbuilt and have yet to recover. Business inventories plummeted by about $200 billion in 2008 and 2009, and have recovered most of that, but not all. But business investment in equipment and software has boomed. In fact, it’s at an all-time record high in both nominal and real terms.
Business investment in equipment and software, fell from $1.12 trillion at an annual rate in Q4-2007 to $890.5 billion in Q2-2009, a drop of 22%. But then, after mark-to-market accounting rules were fixed, businesses turned on the investment engines in a big way. Investment has increased at a 10.8% annual rate since then, up 11 consecutive quarters and now stands at $1.18 trillion. Businesses have invested $2.3 trillion in the past two years.
During those same two years, investment in housing has been just $690 billion. In other words, if you want to understand why the economy has grown, look at business investment in equipment and software, not housing. In fact, anyone who focused too much on housing would have remained much more bearish about the economy than they should have.
Business investment, in the cloud, smartphones, tablets, new machinery, drilling and fracking equipment, railcars, drugs, and telecommunications raises productivity and lifts profitability. This is what creates growth. And that’s what the conventional wisdom missed in recent years.
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Aren't we in fact moving backwards based on population growth and other factors when reported GDP 'growth' is this low. If economists made the economic and demographic adjustments that government spending budgets are required to use, then Obamanomic growth would be at prolonged negative levels, fitting the rough definition of a recession we are allegedly not in.
My view is the economists with their generally accepted measurements and definitions are parsing words pretty carefully to say this backward moving economy is not in recession.
Call it stagnation, malaise or stuck, but the tide is not rising, much less lifting all boats. MHO.
Put it this way: While we were mostly not in recession by these measurements, we lost 40% of our wealth! There is something wrong with this picture.
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Non-farm payrolls increased 80,000 in June To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 7/6/2012
Non-farm payrolls increased 80,000 in June (79,000 with a tiny downward revision to April/May). The consensus expected a gain of 100,000.
Private sector payrolls increased 84,000 in June. Revisions to April/May added 21,000, bringing the net gain to 105,000. June gains were led by temps (+25,000), bars/restaurants (+15,000), health care (+13,000), and manufacturing (+11,000). The weakest sector was education (-10,000).
The unemployment rate remained unchanged at 8.2%.
Average weekly earnings – cash earnings, excluding benefits – were up 0.3% in June and up 2.0% versus a year ago.
Implications: The plowhorse economy keeps moving forward, but seems to have hit some clay. Improvement in the labor market remained tepid in June, suggesting the slowdown in job creation in the past few months may be more than just a hangover from an unusually mild winter, when job creation averaged 250,000 per month. Payrolls have expanded only 75,000 per month the past three months, 91,000 in the private sector. One possibility is that some firms have been waiting for the Supreme Court ruling on health care, which could have given them clarity on the cost of hiring. However, with the Court letting the law stand, these firms now have to wait for the election, which means this headwind will remain in place. However, much of the data in today’s report was better than the headline payroll number. Civilian employment, an alternative measure of jobs that includes small business start-ups, grew 128,000 in June and is up an average of 235,000 in the past year. This easily beats the average of 148,000 for nonfarm payrolls. Traditionally, when civilian employment grows faster than payrolls, payrolls tend to accelerate. Also, total hours worked hit a new high for the recovery and are up 2.1% versus a year ago. Combined with gains in average hourly earnings, total cash earnings (which do not include fringe benefits) are up 4.1% from a year ago. With consumer prices up only about 1.5% from a year ago, these wage gains mean workers have growing purchasing power. The unemployment rate stayed at 8.2% in June, with the labor force growing 156,000. In the past year, the labor force is up 1.5 million, while the unemployment rate has dropped 0.9 percentage points. The U-6 unemployment rate, which includes discouraged workers and part-time workers who say they want to work full-time, ticked up to 14.9% in June. Usually the U-6 unemployment rate is about 75% higher than the official unemployment rate. Right now it’s 82% higher, which is still within the normal historical range. The bottom line is that there is plenty of information in today’s report to support anything from mild pessimism to mild optimism. Given loose monetary policy and a recovering – and labor intensive – housing industry, we think payroll growth will pick up in the second half of the year.
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Monday Morning Outlook
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Unemployment a Secular Problem To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 7/9/2012
Last Friday’s employment report was a Rorschach test for economists. (You know, show an inkblot and find the obsession.) It’s not a surprise that the response to the report was pessimistic. We heard all kinds of rhetoric, including a new one - “Zombie Economy.”
A Zombie is an “animated corpse brought back to life by mystical means.” We think the pundits who dreamed this one up are saying stimulus brought the economy back to life, barely. And they think this fits recent soft payroll data. Payroll gains have slowed to 75,000 per month in Q2 from 226,000 per month in Q1. The jobless rate seems stuck around 8.2%.
But there was some better data, too. Private payrolls did rise – for the 28th straight month – and the jobless rate is stable, not rising as it would in a recession. Moreover, the same slowing in jobs data happened at about the same time last year, which suggests some problems with seasonal adjustments. On a not-seasonally-adjusted basis, the US added 815,000 new jobs in June, which is a very active Zombie.
Civilian employment, an alternative measure of job creation that includes small business start-ups rose 128,000 in June. In addition, total hours worked in the private sector hit a new high for the recovery.
The Zombie label is a misnomer, this economy is not the walking dead…it never really died; it’s the same economy, but it is carrying a heavier burden. Investors, analysts, and economists are comparing today’s jobless rate to recent cycles. The boom of the 1980s brought the jobless rate down to 5.0%, in the dot.com era of the 1990s it fell to 3.9%, and during the housing bubble of the 2000s unemployment fell to 4.4%.
They should be comparing it to Europe’s sustained high level of joblessness in recent decades or to the US in the 1970s. The unemployment rate is high today because of secular, or long-term, issues, not cyclical, short-term issues.
Government spending, regulation and taxation, including the anticipation of Obamacare, are weighing on economic activity and pushing up the unemployment rate. It’s like putting a 250 lb. jockey on a race horse or making a Plow Horse move through clay. Government was big in the 1970s which boosted unemployment. Government shrunk in the 1980s and 1990s and unemployment fell.
In recent years federal spending has climbed to about 25% of GDP – the highest on record absent a full-mobilization war, like World War I or II. As long as government remains this large – and it will if health care reform is not overturned by the voters this November – no one should reasonably expect the jobless rate to go down anywhere near prior lows.
In other words, we take the secular side of the recent debate. We believe high unemployment is here because government is too big. Not surprisingly, many government officials, including IMF chief, Christine Lagarde, argue that high unemployment is a cyclical issue that can be fixed by stimulus. They urge more spending and more Fed ease.
But, this makes no sense. If government takes money from business to spend on highways or solar energy, jobs are created. However, the money can’t be used twice, and the private sector is smaller and has fewer jobs. If government is more productive with its funds than the private sector then the economy wins. But history shows that when government is big, unemployment is higher than when government is small.
And when government is big, even monetary policy cannot boost growth for long. In 1979, the Fed drove unemployment down to 5.6%, but created double-digit inflation in the process. It wasn’t until the 1980s, when government spending was reduced as a share of GDP, tax rates were cut, and the Fed tightened, that unemployment fell permanently.
If the IMF and global politicians want lower unemployment and faster growth, they need to stop stimulating and start cutting. Lower marginal tax rates, freer trade, and a smaller welfare state are the answer. Until then, be happy with a Plow Horse. It ain’t a race horse, but it ain’t a Zombie either.
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http://www.ftportfolios.com/Commentary/EconomicResearch/2012/7/10/its-not-a-zombie-economy
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Retail Sales Declined 0.5% in June Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 7/16/2012
Retail sales declined 0.5% in June, coming in below the consensus expected gain of 0.2%. Sales were down 0.8% including revisions for April/May. Retail sales are still up 3.8% versus a year ago.
Sales excluding autos declined 0.4% in June versus a consensus expectation that they would be unchanged. Retail sales ex-autos are up 3.0% in the past year.
The decline in retail sales in May was led by gas, autos, and building materials. The largest gain was non-store retailers (internet/mail-order).
Sales excluding autos, building materials, and gas were down 0.1% in June (-0.3% including downward revisions for April/May). This calculation is important for estimating real GDP. These sales were up at a 1.1% annual rate in Q2 versus the Q1 average.
Implications: Retail sales slowed again in June, falling for the third month in a row. The leading cause of the decline in June was a steep drop in gas prices, which is not a cause for concern. Auto sales also declined, but this stands in contrast to industry figures on unit sales in June, which showed an increase of 2.3%. The underlying trend in auto sales has been upward and we expect the trend to reassert itself over the next few months. Building materials also dropped in June, but weakness over the past three months is a by-product of unusual strength this winter, when the weather was unusually mild. Given the turn in home building, purchases of building materials will be heading up soon. The biggest negative in today’s report was that “core” sales, which exclude autos, building materials, and gas, were down slightly (-0.1%) for the second time in three months. However, these sales were still up at a 1.1% annual rate in Q2 versus the Q1 average. Factoring in consumer spending on services as well as inflation, we are forecasting that overall “real” (inflation-adjusted) consumer spending was up at a 1% - 1.5% annual rate in Q2. The retail sales report adds to the case that the economy grew at a slow pace in Q2, but it is not in another recession or about to fall into one. Bolstering the case for an acceleration in the second half, the Empire State index, which measures manufacturing activity in New York, increased to +7.4 in July from +4.0 in June. The index for employment rose to a very strong +18.5 from +12.4.
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second post of the day
Monday Morning Outlook
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Stocks are Really Cheap To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 7/16/2012
America’s equity markets have rallied sharply since last October, with the S&P 500 up 22%. Nonetheless, the stock market has been stuck in a range for 18 months, with the Dow Jones Industrials Average trading between 10,650 and 13,280, well below the October 2007 high of 14,165.
Financial markets have priced in all kinds of bad things – a fiscal cliff, slower earnings growth, a potential recession, and big government. Along with range-bound stocks, the 1.5% 10-year Treasury yield seems to confirm this.
But, we think these markets are overly pessimistic. We don’t buy the fears about the fiscal cliff. Regardless of the outcome of the election, most likely, the 2001/03 tax cuts will end up getting extended another year or two, while military spending cuts get postponed. And, if anything, cutting non-defense spending would spur growth.
We are more sympathetic with fears about prolonged slow economic growth and the burden of big government. If they remain an issue, the market would be correct to expect less in the way of future after-tax profits. Slower economic growth would boost deficits, while unchecked government spending would increase the odds of higher future taxes.
But the stock market is significantly undervalued already. If the future turns out to be less dour, investors should look out above.
We use a capitalized-profits model to find the fair-value of equities. We divide corporate profits by the current 10-year Treasury yield (1.5%), and then compare the current level of this index to each quarter for the past 60 years. This method estimates a fair-value for the Dow at an absurdly high 63,000. Yes, you read that right, that’s almost five times the current level.
Obviously, this seems crazy. We agree. It’s a result of using artificially low long-term interest rates. So, we adjust the model and assume the appropriate 10-year Treasury yield would be in the 4% to 5% range. Using a more conservative discount rate of 5% gives us a fair value of 18,700 on the Dow and 1,985 for the S&P 500.
Alright, that seems more reasonable. But what if record high corporate profits – about 13% of GDP – revert to their historical norm of about 9.5%, at the same time the 10-year Treasury yield moves to 5%? If that happened, the fair value of the Dow would be 13,900 and for the S&P 500 it would be 1475. In other words, if profits fall roughly 25% and interest rates more than triple from current levels, broad stock market indices are still undervalued.
None of this means the stock market is going to rally today, or this week, or even over the next year. What it means is that the upside risks for stocks are much greater than the downside risks. The capitalized profits model says clearly that the stock market is currently discounting a very bleak future.
If, like us, you believe there are dangers in the years ahead, but that US growth will push profits higher over time and that the odds of a positive turn in fiscal policy are real, then equities are really cheap.
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Industrial Production Rose 0.4% in June
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 7/17/2012
Industrial production rose 0.4% in June (0.1% including revisions to prior months) versus a consensus expected gain of 0.3%. Production is up 4.6% in the past year.
Manufacturing, which excludes mining/utilities, rose 0.7% in June (0.3% including downward revisions to prior months). Auto production rose 1.9% in June while non-auto manufacturing gained 0.5%. Auto production is up 26.3% versus a year ago while non-auto manufacturing is up 4.1%.
The production of high-tech equipment rose 0.2% in June, but is down 0.8% versus a year ago.
Overall capacity utilization moved up to 78.9% in June from 78.7% in May. Manufacturing capacity use rose to 77.7% in June from 77.3% in May.
Implications: No sign of a recession in today's numbers. Overall industrial production rose 0.4% in June. Manufacturing, which excludes mining and utilities, rose a very strong 0.7%. Industrial production is up 4.6% from a year ago, growing more than twice as fast as real GDP – so much for the idea that manufacturing is lagging. The data we watch most closely is manufacturing production, excluding the auto sector. This rose 0.5% in June, and has risen in 10 of the last 12 months. That’s a very good track record, given that manufacturing ex-autos usually falls three or four times a year even during normal economic expansions. In other words, the economy looks to be stirring out of the soft patch, not stagnating further. The report stands in stark contrast to the national ISM manufacturing survey that said manufacturing contracted in June. We attribute that gap to negative sentiment – Europe, energy and politics. Given low inventories, particularly in the auto sector, we expect production to keep growing. Capacity utilization rose to 78.9 in June and it is still up substantially from a year ago. As a result, companies have an increasing incentive to build out plant and equipment. Meanwhile, corporate profits and cash on the balance sheet show they have the ability to make these investments. In other news, the NAHB index, a measure of homebuilder confidence, increased to 35 in July, the highest level in over five years and the largest monthly gain in almost a decade. The plow horse economy continues to move forward.
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As always, Scott Grannis makes his case very well.
http://scottgrannis.blogspot.com/
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Monday Morning Outlook
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Slow in Q2, But No Recession To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 7/23/2012
We estimate real GDP grew at only a 0.9% annual rate in Q2. The Plow Horse Economy hit a tough spot, but it hasn’t hit the wall. In Q1-2011, real GDP grew at just 0.4% at an annual rate, but then accelerated again.
In other words, this is not the end of the world. It’s not a recession. The economy is still growing. It could grow faster if the US made better public policy choices. Under both President Bush and Obama, government spending grew. Our Plow Horse has had a heavy load to pull. In economic terms, potential GDP is lower, while unemployment is higher, than it would have been without the growth in government spending.
We expect real GDP to pick up in the second half of the year, with the improvement tilted toward the fourth quarter. In other words, we do not expect either a surge or collapse in economic data to influence the election in November. What the voters see is what they get: pockets of entrepreneurial brilliance offset by the weight and uncertainty of government spending, regulation, and taxes.
Here’s our “add-em-up” calculation of real GDP growth in Q2, component by component.
Consumption: Auto sales fell at a 35% annual rate in Q2, while “real” (inflation-adjusted) retail sales ex-autos declined at a 2.1% rate. However, services make up about 2/3 of personal consumption and they grew in Q2. So far, it looks like real personal consumption of goods and services combined, grew at a 1.1% annual rate in Q2, contributing 0.8 points to the real GDP growth rate. (1.1 times the consumption share of GDP, which is 71%, equals 0.8.)
Business Investment: Business investment in equipment and software and commercial construction grew at an annualized 4% rate in Q2. This should add 0.4 points to the real GDP growth rate. (4 times the business investment share of GDP, which is 10%, equals 0.4.)
Home Building: Residential construction is headed for its fifth straight positive contribution to real GDP. The growth is still led by apartment buildings, but single-family construction is also on the mend, and the pessimists can no longer say it’s a temporary blip from unusually mild winter weather. Home building appears to have grown at about a 13% annual rate in Q2. This translates into 0.3 points for the real GDP growth rate. (13 times the home building share of GDP, which is 2.3%, equals 0.3.)
Government: Military spending continues to decline and state/local government construction is still under pressure from budget cuts. On net, real government purchases shrank at about a 0.5% rate in Q2, which should subtract about 0.1 percentage points from real GDP growth. (-0.5 times the government purchase share of GDP, which is 20%, equals -0.1).
Trade: At this point, the government has only reported trade data through May. On average, the “real” trade deficit in goods has grown compared to the Q1 average. Also, in the last few years, seasonal adjustment factors for oil have made the Q2 trade deficit look larger in the GDP accounts than in the monthly Census data. As a result, we’re forecasting the trade sector subtracted 0.7 points from the real GDP growth rate.
Inventories: As always, inventories are the wild card. We only have “real” inventory figures through April, when they were up at a solid pace. Nominal inventories were up at a moderate pace in May and we’re assuming another moderate gain in June. This should generate a very small addition of 0.2 points to the real GDP growth rate in Q2.
Add-em-up and you get 0.9% real GDP growth for Q2. It’s nothing to write home about – just another Plow Horse report. For now, despite all kinds of stumbling blocks, the US economy just keeps plodding along.
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Taking on Wesbury spin, not the messenger. ) I always appreciate his data. Unbelievable that he still has something positive to say at 0.9% growth.
FWIW, apartment building construction growth means some construction jobs but also during a foreclosure epidemic means roughly that for each unit or two built a foreclosed home may never be sold. Homes that are torn down and not replaced destroy the tax base in the most fiscally troubled municipalities. Translation: worse than a zero sum game because the losing sector still needs a bailout.
He says Plow Horse Economy, I say a 'you reap what you sew' economy.
Actually his plow horse characterization matches my 'wagon' analogy. Some people pull the wagon and some people ride. Some of the very poorest, some of the handicapped and some of the elderly can't pay all of their own way and some some who are capable need a hand up for a short time. When we started accepting that 50% can ride and half of the rest are kids, the load got too heavy what is left of private enterprise to pull. The Dem answer to that: let 99% ride; 1% can pull.
Regarding the US economy and investments, sell.
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What caused the crash of September 2008?
Conventional wisdom is that the housing bubble caused the crash. But we had versions of a housing bubble for a decade leading up that crash. What caused the crash? Greed caused the crash? No. Greed (self interest) is constant, the crash had specific timing.
It was (IMHO) the impending tax increases. (As I have written before) Investors needed to not only sell their assets before 12/31/2008 to capture gains at the old rate, but they also needed to sell them before the other investors sold off or else there is little or no profit to tax anyway. And the panic began.
September is when people start paying attention for elections and for year end. This year we face the same fiscal cliff as 2008, just fewer gains and investments to sell off. All economists say you don't raise tax rates in a recession because of the damage it will cause, yet for all practical purposes, that is what's coming.
Former NH Gov. and Sen. Judd Gregg spells this out better at:
http://thehill.com/opinion/columnists/judd-gregg/239387-opinion-heading-toward-a-sept-surprise
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Its a good point you are making Doug but I would rephrase it thusly:
There was a bubble, with housing and artificially interest rates at its center. Obama passed McCain in the polls pretty much exactly when the market tanked, so that seems good circumstantial evidence to me that his programs and taxes triggered the rush for the exits, but I would call that the pin that popped the bubble. As cap and trade failed, the stock market partially recovered.
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Agreed. There was both a bubble and a pin that popped it. There was both the economic threat of the incoming administration and also the economic damage of an anti-growth congress in power headed for certain reelection. (Obama was part of that too.)
The current fiscal cliff scheduled for year end is estimated to be a two million job killer in 2013, a little less than we lost in 2008-2009. The other name for this policy feature called fiscal cliff should be recession-guarantee. Cancelling it at the last moment again does not undo damage already occurring and certain to accelerate. Somebody (Bill Clinton?) needs to talk to the President (and the Dem Senate) about fixing it right now or this will become a career-ending move for the President. 40 consecutive months of unemployment above 8% and now he has set the table for a standoff that will guarantee a downturn on the home stretch of his one shot at reelection.
When investors see tax rates rising and job losses in the millions coming (aka recession) the instinct is to sell, with or without a bubble.
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The First Estimate for Q2 Real GDP Growth is 1.5% at an Annual Rate To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 7/27/2012
The first estimate for Q2 real GDP growth is 1.5% at an annual rate, almost exactly the 1.4% the consensus expected.
The largest positive contribution to the real GDP growth rate was personal consumption, followed by business investment in equipment & software.
The weakest components of real GDP were net exports and government purchases, each of which reduced the real GDP growth rate by 0.3 points.
The GDP price index increased at a 1.6% annual rate in Q2. Nominal GDP – real GDP plus inflation – rose at a 3.1% rate in Q2 and is up 3.9% from a year ago.
Implications: The plow horse economy rolls on, with real GDP growth still hovering in a tepid limbo, rather than strong growth or recession. Real GDP grew at a 1.5% annual rate in the second quarter, right in-line with consensus expectations. We’ve been tracking real “private” GDP (real GDP excluding government purchases), which grew at a 2.2% annual rate in Q2 and is up 3.3% in the past year. The brightest spot in the report was that home building increased at a 9.7% annual rate in Q2, the fifth consecutive quarterly increase. Today’s report included “benchmark” revisions to GDP data over the past few years, including upward revisions to the pace of growth in 2009 and 2011 and a downward revision to 2010. So for example, as of yesterday the government was saying real GDP only grew 2% in the year ending in the first quarter; now it shows growth of 2.4% in the same period. Corporate profits were revised down for the past few years, all due to domestic firms. However, the growth rate of profits in the past year was revised upward. Meanwhile, labor compensation, particularly fringe benefits, were revised upward. In terms of income, about 0.5% of the economy was shifted from corporate profits to worker compensation. More immediately relevant to policymakers, we find no justification for a third round of quantitative easing in today’s report. The benchmark revisions moved nominal GDP slightly upward and that figure is up 3.9% in the past year and up at a 4% annual rate in the past two years. These are not that far from the Federal Reserve’s long-run outlook of a 4.5% growth rate for nominal GDP and much too fast for a short-term interest rate target near zero percent. Getting the economy growing faster requires changes to fiscal and regulatory policy, not monetary policy.
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Investing in gold only makes sense if you could later trade it for a tangible currency. However the world has no stable tangible currency anymore. Therefore I cant see gold as a great investment. At least not now. Your best investment is in skills. Just my opinion, but Im interested in any ideas that are counter to this. I would love to be wrong.
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Why the Long Face? To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 8/6/2012
Back in early 2009, the University of Chicago Booth School of Business and the Northwestern University Kellogg School of Business teamed up to create the Financial Trust Index. The latest readings from July 2012 show that just 21% of Americans trust the financial system and only 15% trust the stock market.
For many, this negativity is understandable. The stock market is still below levels it reached in 2000, housing prices are still down and many people just cannot shake off the fear that was created in the 2008/09 Panic.
But, the lack of trust must be about more than this. Since the bottom for equities on 3/9/2009, when the Booth/Kellogg survey found just 13% trust in the stock market, the S&P 500 is up 120%, with dividends included. More importantly, the S&P 500 index is up more than 1100% in the past 30 years.
In addition, real GDP has been growing now for 12 consecutive quarters, private payrolls have climbed for 29 consecutive months and housing has clearly turned a corner. Yes, there have been slow patches (in 2010, 2011 and 2012), but in each case, even this year, the economy picked up again without falling into recession.
In other words, the negativity (the lack of trust) seems excessive. It is ignoring the good parts of the past and focusing on the bad parts.
Or, maybe there is another explanation. Right now the political fog is so thick that you can cut it with a knife. And, because politicians find it effective to scare people into voting for them over the other guy, our political leaders and their spokesmen and women are very busy trying to find things to make us worry about.
For example, last Friday, it was reported that payroll employment rose 163,000 in July, which was much better than expected and a sign that a recession is still unlikely.
Nonetheless, the political spinmiesters focused on every negative piece of the jobs data they could find. The unemployment rate rose to 8.3% and if we add discouraged workers, it was 15%. The labor force participation rate, which the bears ignored in the past few months, fell in July. The sky is falling they said.
And when the right side of the political equation says all these negative things, the left side says another Great Depression is coming unless the US government spends more money or the Fed prints more money.
So, the average investor reacts with fear when leaders everywhere are bashing the economy and telling everyone that will listen that the world is about to come to an end if their plans aren’t followed immediately.
Don’t get us wrong, our models clearly show that the economy could, and would, do better if government spending were reduced as a share of the economy. Moreover, uncertainty over regulations, new healthcare laws and the potential of future tax hikes are also holding growth down and unemployment up. But that doesn’t mean that the economy is about to fall into recession or the stock market is about to collapse.
We expect the economy will continue to expand, earnings will continue to grow and stock prices will continue to rise.
The reason for our optimism is relatively simple. Technology, driven forward by the relentless spirit of entrepreneurs that don’t let political fears stop them, continues to raise productivity. This is happening despite what we think is wrong-headed fiscal policy.
In addition, the Fed is not tight, which is the number one cause of recession. We do not expect the Fed to pull the trigger on QE3, but quantitative easing was never necessary for growth. The Fed’s near 0% federal funds rate is enough and always has been.
In the end, the way for investors to avoid mistakes in this environment is to watch the data and avoid the political spin. The economy is not great, but with so few people trusting the market and financial system, opportunities abound. If the market can hang in there with so little support, imagine what happens if fiscal policies turn for the better.
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Trade Data Boosts GDP to 2.5%
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 8/9/2012
The trade deficit in goods and services came in at $42.9 billion in June, much lower than the consensus expected $47.5 billion. Exports increased $1.7 billion in June, while imports declined $3.5 billion. The gain in exports was led by consumer goods while the fall in imports was led by oil. In the last year, exports are up 7.1% while imports are up 2.2%.
The monthly trade deficit is $7.4 billion smaller than a year ago. Adjusted for inflation, the trade deficit in goods is $6.3 billion smaller than last year. This is the trade measure that is most important for measuring real GDP.
Implications: The trade deficit shrunk much more than expected in June, a result of an increase in exports and another oil-led decline in imports. Exports are now at all-time record highs and do not show any clear signs of slowing due to the financial situation in Europe or a slowdown in China. Exports of goods to the Euro area are up 6.3% in the past year while exports of goods to China are up 10.2%. For GDP purposes, today's figures were much stronger than the government assumed when estimating Q2 real GDP growth. Along with better numbers on construction and inventories, we now estimate an upward revision to about 2.5% for Q2 from an original government report of 1.5%. Meanwhile, increasing energy production in the US is having large effects on trade with other countries. Real (inflation-adjusted) oil exports have tripled since 2005, while real oil imports are down substantially. As a result, the real trade deficit in oil has been cut almost in half in the past several years and is the smallest since at least the early 1990s. The US trade deficit is also caught between two powerful opposing forces. On one side, the large depreciation in the foreign exchange value of the dollar in the past decade means the US is a much more attractive place from which to export. Many foreign automakers are now using the US as an export hub and companies that had previously placed operations abroad are now moving them back home. The level of productivity is high, so unit labor costs are low in the US relative to other advanced economies. However, the resilient US consumer still likes imported goods. We think the trade sector will be, on average, a small negative for real GDP growth in the year ahead. This is the normal outcome when the US economy is growing. In other news this morning, new claims for jobless benefits declined 6,000 last week to 361,000. Continuing claims for regular state benefits rose 53,000 to 3.33 million. These figures are consistent with more moderate payroll growth in August. No boom, no recession. Just a plow horse rolling on.
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"exports are up 7.1% while imports are up 2.2%"
This is measured good news. Both are up from abysmal levels. 2.2% (flat) imports is a sign of consumptive malaise. 7% growth in exports means we still can compete and sell on the world market so maybe it really still is worth turning around the anti-business climate in this country.
"Two (and a half) years ago, President Obama popped a surprise into his State of the Union address: His administration would double American exports in five years, helping to create two million jobs." http://www.nytimes.com/2012/01/21/business/us-on-track-to-meet-goal-of-higher-exports.html
No, we aren't on track to do that. NY Times said we are growing exports at 16%/yr as of last January.m That fell to 7% in just 6 months??
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"Exports are now at all-time record highs and do not show any clear signs of slowing due to the financial situation in Europe or a slowdown in China."
Hard to criticize that--except to note that it undercuts the argument that the US economy is slowing down because of Europe.
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"Exports are now at all-time record highs and do not show any clear signs of slowing due to the financial situation in Europe or a slowdown in China."
Hard to criticize that--except to note that it undercuts the argument that the US economy is slowing down because of Europe.
True. Also undercuts the claim that exports are up because of the President's policies. The increase according to the original story comes oil and energy production, but that occurred outside of limits the Obama administration placed blocking deep sea drilling, ANWR Alaska still blocked, one pipeline blocked, one closed, and drilling limits on federal lands.
The only sign of economic health came from an industry the President sought to take down.
Like Rush Lombaugh said, "I hope he fails" [to destroy the country].
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New orders for Durable Goods Increased 4.2% in July, Easily Beating the Consensus
Expected 2.5%
Data Watch
New orders for Durable Goods Increased 4.2% in July, Easily Beating the
Consensus Expected 2.5% To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 8/24/2012
New orders for durable goods increased 4.2% in July, (4.5% including upward
revisions to June) easily beating the consensus expected gain of 2.5%. Orders
excluding transportation declined 0.4%, (-1.1% including downward revisions to June)
falling short of the consensus expected gain of 0.5%. Overall new orders are up 4.9%
from a year ago, while orders excluding transportation are down 0.3%.
The gain in overall orders was led by civilian aircraft and motor vehicles.
The government calculates business investment for GDP purposes by using shipments of
non-defense capital goods excluding aircraft. That measure was flat in July, but up
0.5% including upward revisions to June, and was up at a 5.4% annual rate in Q2
versus the Q1 average.
Unfilled orders were up 0.8% in July and are up 8.0% from last year.
Implications: Overall new orders were up big in July, but the underlying details of
the report suggest some hesitation in business investment. Durable goods orders rose
4.2% in July and were revised higher for June, but all of the gain was due to the
volatile transportation sector, including civilian aircraft and autos. Meanwhile,
industrial machinery fell for the second month in a row and is down 11.1% from a
year ago. Although unfilled orders for durable goods were up 0.8% in July, unfilled
orders for “core” capital goods were down for the second month in a row.
On the brighter side, shipments of “core” capital goods, which excludes
defense and aircraft were unchanged in July, but were revised higher in June and are
up 6.2% in the past year. Believe it or not, the flat reading in July is not a
surprise. Core shipments have dropped in the first month in 9 of the past 11
quarters, with a rebound in the following two months. The declines in machinery and
unfilled “core” capital goods orders show that some companies may be
postponing purchases until after the election. If this slowdown in purchases
continues, expect a rebound after the election when companies have a better gauge of
future policy. Monetary policy is loose, corporate profits are close to record
highs, balance sheet cash is near a record high (earning almost zero interest), and
we are in the early stages of a home building recovery. Moreover, capacity
utilization at US factories is approaching its long-term norm, meaning companies
have a growing incentive to update their equipment.
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Obama's Fiscal Swan Dive .
Article Comments (23) more in Political Diary | Find New ».
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By STEPHEN MOORE
Wall Street analysts are warning about the negative impact of the federal tax time bomb on stocks. Their advice: Sell your equities now and pay lower taxes on stock gains than Uncle Sam will charge in 2013 if President Obama is re-elected.
Under Mr. Obama's plan, which takes effect automatically unless the tax hike is called off, the capital gains tax rate rises to 23.8% from 15%; and small-business profits are taxed at just over 40%, up from 35% now. Selling stocks immediately or pulling profits out of a firm before 2013 can make good business sense, advisers are urging clients.
Another reason to sell now, some economists argue, is that the stock market could tumble if investors become convinced that Mr. Obama will win the election. One of the top analysts on Wall Street, David Malpass, told his clients this week: "The year-end tax increase, which [the Congressional Budget Office] now projects will cost the private sector $5.2 trillion over ten years, is scheduled to hit not only income but also capital through the big tax increases on capital gains and dividends. Increases in the taxation of capital cause a direct and immediate reduction in asset prices, which we think will fall materially if the probability of the tax increase rises."
James Pethokoukis of the American Enterprise Institute notes that the Obama tax increase for 2013 would take 3.5 percent from GDP next year, which is twice as high as any tax increase in nearly a half-century. The previous high was LBJ's Vietnam War surtax, which cost the economy 1.7 percent of GDP. He calls this the "fiscal drag" effect of Mr. Obama's spending policies. Even the CBO report issued this week predicts that taxes as a share of GDP will rise to 18.4% from 15.7% of GDP.
Reagan economist Arthur Laffer says the effect of the 2013 tax increase will be to cause "an acceleration of economic activity at the end of this year ahead of the higher tax rates, then a big decline in output in 2013. It's going to be very bad." This kind of behavior—accelerated bonuses, for example—is what happened in 1993 before Bill Clinton's tax hikes.
Many investors don't believe the tax time bomb will ever detonate no matter who wins the election, and they may be right. Mr. Obama extended all Bush tax cuts after the 2010 elections. Even CBO is warning of a recession if Washington jumps. But in a statement to reporters earlier this week, White House press spokesman Jay Carney showed no signs of a backing down and reiterated Mr. Obama's commitment to raising tax rates next year on "the top 2 percent."
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http://live.wsj.com/video/pimco-gross-death-of-equities-is-imminent/D1524907-6F28-41CA-9F82-97B602C3F5EC.html?mod=wsj_blog_tboleft#!D1524907-6F28-41CA-9F82-97B602C3F5EC
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The ISM Manufacturing Index Declined to 49.6 in August from 49.8 in July To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 9/4/2012
The ISM manufacturing index declined to 49.6 in August from 49.8 in July, coming in below the consensus expected 50.0. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mostly lower in August. The new orders index declined to 47.1 from 48.0, the production index slipped to 47.2 from 51.3 and the employment index dipped to 51.6 from 52.0. The supplier deliveries index rose to 49.3 from 48.7.
The prices paid index rose to 54.0 in August from 39.5 in July.
Implications: The ISM manufacturing index came in below 50 for the third month in a row. On its face, this suggests a contraction in the factory sector. However, as we’ve been repeating the past few months, it’s important to keep in mind that when financial strains (such as news out of Europe) and uncertainty out of Washington push down consumer confidence, it also often pushes down the ISM index as well. In other words, recent sub-50 ISM reports do not signal a recession and probably underestimate actual business activity in the factory sector. This view is supported by looking at the manufacturing group in industrial production. Even though the ISM manufacturing index contracted in June and July, manufacturing output rose in both months. Early signs suggest continued growth in August. Notably from today’s report, although the employment index fell to 51.6 it continues to show expansion. On the inflation front, the prices paid index rose to 54.0 in August from 39.5 in July, reflecting a bounce back from the recent steep drop in energy prices and other commodities. In other news this morning, the Census Bureau reported that construction fell 0.9% in July, coming in below the consensus expected gain of 0.4%. The decline in July was led by home improvements, which are still up 15% from a year ago. Commercial construction also declined in July, led by power plants and manufacturing facilities. However, both of these categories are up around 20% from a year ago.
Monday Morning Outlook
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Still No Recession in Sight To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 9/4/2012
Real GDP in the US has grown 2.3% in the past year, a mediocre rate of growth, little different than its 2.2% average since mid-2009, when the recovery officially began. It’s what we call the Plow Horse economy and we expect it to continue plodding along, at least through this fall.
We expect this for both “macro” and what we could call “micro” reasons – both the “big picture” and the “details.”
Take the big picture. Loose monetary policy, relatively low marginal tax rates (still!), and technological advances support growth. Entrepreneurs are relentlessly pursuing business opportunities that few could even imagine only a decade ago. This could, and should, create a boom.
But all of these factors combined are not going to get us to rapid and persistent economic growth – 4% plus – without more freedom. The US government grew by leaps and bounds in the past decade, and the extra spending and threat of higher future taxes – not the remnants of the financial crisis – are stifling growth, holding us back in mediocrity.
The micro details also suggest some optimism about the economy. Payrolls are expanding and wages are growing. Private sector payrolls are up 160,000 per month in the past year, while cash wages per hour are up 1.7% during that same time period.
Meanwhile, consumers’ financial obligations – recurring payments like mortgages, rent, car loans/leases, student loans, credit cards – are now the smallest share of income since 1993. As a result, consumer spending has more room to grow. (And it’s not just iPads. Look for solid reports later today on August sales of cars and trucks.)
Home building might provide the perfect picture of the economy right now. Housing starts are up more than 20% from a year ago, while every other piece of housing related news has turned the corner. This is the sector that pessimists argued must recover to have a real broad economic recovery. The only problem is that residential construction is such a small share of GDP – less than 2.5% of the economy. So, even as housing rebounds rapidly, it is only adding a couple of tenths to the growth rate of overall real GDP.
That won’t last forever. Eventually, housing will have gathered enough momentum to make a bigger difference for the overall economy. But, for the time being, there’s only so much it can do.
The bottom line right now is that the US economy looks a lot like France. No, not the French economy today which is teetering on the brink of recession. We mean the French economy of the past generation, which has averaged real GDP growth of around 2% and unemployment of 8%.
In order to accelerate and turn back into the United States of the 1980s and 1990s, rather than the Plow Horse Economy of today, it will take a change in the direction of policy. We think the pendulum is swinging, but nothing is for sure. The good news, we suppose, is that growth continues even though it’s slow and plodding.
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Positive Signs Emerge for Job Market .
By KATHLEEN MADIGAN, SARAH PORTLOCK and ERIC MORATH
Private businesses added more workers than expected in August, according to a report released Thursday, while unemployment claims fell for the first time in four weeks, positive signs for the labor market ahead of Friday's monthly jobs report.
Private-sector jobs in the U.S. increased by 201,000 last month, according to a national employment report calculated by payroll processor Automatic Data Processing Inc. and consultancy Macroeconomic Advisers.
The August number was well above the 145,000 expected by economists. The July estimate was revised to 173,000 from the 163,000 reported last month.
The ADP survey tallies only private-sector jobs. The Bureau of Labor Statistics' nonfarm-payroll data, to be released Friday, include government workers, whose ranks have been falling in recent years as state and local governments have cut staff to close budget gaps.
Economists surveyed by Dow Jones Newswires expect total nonfarm payrolls increased by 125,000 in August, and the jobless rate is projected to remain at 8.3%.
Forecasters are unlikely to change their projections for Friday's payrolls, in part because ADP has had big misses in recent months. For June employment, for example, ADP originally estimated 176,000 new jobs, but the total original gain was only 80,000.
The latest ADP report showed large businesses, with 500 employees or more, added 16,000 employees in August, while medium-size businesses added 86,000 workers and businesses that employ fewer than 50 workers hired 99,000 new employees.
Service-sector jobs increased by 185,000 in August, while factory jobs increased by 3,000.
ADP, of Roseland, N.J., says it processes payments of one in six U.S. workers. St. Louis-based Macroeconomic Advisers is an economic-consulting firm.
Meanwhile, initial jobless claims were down 12,000 to a seasonally adjusted 365,000 in the week ending Sept. 1, the Labor Department said Thursday. Economists surveyed by Dow Jones Newswires expected 370,000 new applications for jobless benefits last week.
Claims for the week ending Aug. 25 were revised up to 377,000 from an initially reported 374,000. Unemployment claims are a measure of layoffs.
The four-week moving average of claims—which smooths out weekly data—grew by 250 to 371,250.
Friday's monthly jobs data could spur the Federal Reserve to take steps to stimulate the economy. The central bank has said it is monitoring the employment situation, and Chairman Ben Bernanke last week signaled in a speech in Jackson Hole, Wyo., that the Fed is considering another bond-buying program.
The Fed's policy makers next meet formally on Sept. 12 and 13.
The jobless numbers will be also closely watched by voters, with the report coming on the heels of the Democratic National Convention in Charlotte, N.C. The president and his allies argue their policies have led to consistent job creation, but Republicans have blamed the administration for a still-high jobless rate.
A Labor Department economist said Thursday that there was nothing unusual about the weekly data, adding that there was no indication Hurricane Isaac, which hit Louisiana last week, affected the numbers.
The report showed the number of continuing unemployment benefit claims—those drawn by workers for more than a week—dropped by 6,000 to 3,322,000 in the week ending Aug. 25. Continuing claims are reported with a one-week lag.
The number of workers requesting unemployment insurance was equivalent to 2.6% of employed workers paying into the system in the week ending Aug. 25. The rate has remained constant since mid-March.
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Research Reports
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The ISM Non-Manufacturing Index Increased to 53.7 in August, Easily Beating the Consensus Expected To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 9/6/2012
The ISM non-manufacturing index increased to 53.7 in August, easily beating the consensus expected 52.5. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The direction of the key sub-indexes was mixed in August but all were above 50. The supplier deliveries index gained to 51.5 from 49.5 and the employment index rose to 53.8 from 49.3. The business activity index declined to 55.6 in August from 57.2 and the new orders index fell to 53.7 from 54.3.
The prices paid index rose to 64.3 in August from 54.9 in July.
Implications: Solid news on the economy coming from multiple reports today. After hitting some clay in the second quarter, the plow horse economy looks to have picked up a little speed in Q3. The ISM services index came in higher than the consensus expected in August, signaling a combination of some acceleration in that sector and an abatement of negative sentiment regarding Europe. The sub-index for business activity – which has a stronger correlation with economic growth than the overall index – remains at a healthy 55.6 and the employment sub-index rose to 53.8 after slipping below 50 in July, great news. This is consistent with reports on the labor market out today (mentioned below). On the inflation front, the prices paid index rose to 64.3 and is consistent with our view that the recent lull in inflation is temporary given the loose stance of monetary policy. In other news this morning, the ADP Employment index, a measure of private-sector payrolls, increased 201,000 in August, the largest gain in 2012. Initial claims for unemployment insurance dropped 12,000 last week to 365,000, while continuing claims for regular state benefits declined 6,000 to 3.32 million. Based on these figures, as well as the Intuit small business report, we are revising our final forecast for tomorrow’s official payroll report to 130,000, both nonfarm and private. The unemployment rate should hold at 8.3%.
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Data Watch
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Non-Farm Payrolls Increased 96,000 in August To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 9/7/2012
Non-farm payrolls increased 96,000 in August (55,000 with downward revisions to June/July). The consensus expected a gain of 130,000.
Private sector payrolls increased 103,000 in August (83,000 with downward revisions to June/July). August gains were led by restaurants & bars (+28,000), professional & tech services (+27,000), and health care (+17,000). The weakest sector was manufacturing (-15,000).
The unemployment rate fell to 8.1% from 8.3%.
Average weekly earnings – cash earnings, excluding benefits – were unchanged in August but up 1.7% from a year ago.
Implications: Today’s labor market report was disappointing. Payrolls continued to grow in August, but at a slower pace than the consensus expected, up only 55,000 including revisions to prior months. This does not mean the economy is going back into recession; it just means we’re not breaking out of the modest “plow horse” growth path of the past couple of years. In our view, a breakout requires a change in public policy on taxes, spending, and regulation. Some firms are waiting until the election to decide whether to invest, whether to hire, and how much. Sometimes, the details in a report show better growth than the payroll headline, but not his time. Civilian employment, an alternative measure of jobs that includes small business startups, declined 119,000. Although the unemployment rate fell to 8.1%, the drop was due to the labor force declining by 368,000. The labor force participation rate dropped to 63.5%, the lowest since 1981. (Note: the labor force is still up 720,000 from a year ago even as the jobless rate is down a full percentage point.) The news on hours and earnings were also soft. Average weekly hours were revised down for July and unchanged in August; average hourly earnings were flat in August as well. Still, a proxy for consumer purchasing power – total cash earnings, which excludes fringe benefits – are up 3.8% from a year ago, so we expect consumer spending to keep growing. One thing to keep in mind, is that we have seen similar job reports before at a similar time of year. Private payrolls grew at an average pace of 261,000 from February to April 2011 before averaging 109,000 in the four months through August 2011. This year, private payrolls grew an average of 226,000 in the first quarter before slowing to an 111,000 pace in the past four months. In other words, some of the fluctuations in job creation appear to be seasonal. Another example is auto manufacturing, up 14,000 in July but down 8,000 in August, following a similar pattern as last year. If these patterns continue to hold, expect a stronger jobs report next month. The big question is what all this means for next week’s meeting at the Federal Reserve. We still think a third round of quantitative easing would be a mistake; the economy needs better fiscal and regulatory policy, not more excess reserves in the banking system. But today’s news gives Chairman Bernanke no reason to change his “grave” concern about the labor market or support for QE3.
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Bonds—Heading From Bull Market to Bubble? .
By BRETT ARENDS
Ben Bernanke's latest announcement may provide a short-term boost to America's love affair with bonds—but at the risk of longer term pain.
The Fed chairman last week unveiled a new program of easy money to help kick start the economy. He will, in layman's terms, print money and use it to buy bonds, hoping to drive down interest rates and boost economic activity. It's the third time he's done this since 2009. He says he is willing to continue the latest program until it works.
Americans are already buying up all the bonds they can get. So far this year, we've pumped $220 billion into bond funds, even while yanking $80 billion out of equity funds, according to the Investment Company Institute. In the four years since Lehman Brothers imploded, we've poured $900 billion into bond funds, while withdrawing $410 billion from equities.
No wonder Bill Gross, the money manager at Pacific Investment Management (Pimco), recently announced the death of the cult of equity. Mr. Gross, one of Wall Street's most-watched figures, said that investors were finally giving up on the siren song of the 1990s, when "stocks for the long run" was deemed a guaranteed ticket to wealth.
An investor today, he noted, "can periodically compare the return of stocks for the past 10, 20 and 30 years, and find that long-term Treasury bonds have been the higher returning and obviously 'safer' investment than a diversified portfolio of equities."
Any mom-and-pop investor knows the feeling. Bonds are up across the board. Vanguard's Total Bond Market Index Fund has returned 20% in three years and nearly 40% over five.
Wonderful news, yes.
But there's a catch.
Bonds are like a seesaw. When the price goes up, the yield goes down. And bond investors today may be making the same errors that people made with stocks in the late 1990s. They may be mistaking rising prices as a sign of safety, when they are really a sign of rising risk. They may be mentally extrapolating past performance into the future.
They may also be slaves to the mindless box-ticking known as "modern portfolio theory." In the 1990s, baby boomers were urged by Wall Street to have all their money in stocks "for growth." Now the boomers, nearing retirement, are being told to have all their money in age-appropriate bonds for "safety and income."
Price? Valuation? Who cares?
Ask Mr. Gross. Yes, he said the cult of equity was dead. But in the same investment letter he offered a serious caution to bond investors, too. "With [long-term] Treasurys currently yielding 2.55%," he wrote, "it is even more of a stretch to assume that long-term bonds—and the bond market—will replicate the performance of decades past."
No kidding. Do the math.
Bonds have typically returned less than 2% a year when measured in real, inflation-adjusted dollars, according to research by Elroy Dimson, Paul March and Mike Staunton at the London Business School.
Today the 10-year Treasury yields 1.8%, the 30-year, 3%. Good luck squeezing 2% plus inflation, or anything like it, out of that.
At these levels, government bonds can only match past returns in real dollars if we get serious price deflation. That almost never happens. Since Pearl Harbor, U.S. prices have fallen in just three, isolated years. In the average year, they've risen about 4%. Someone buying long-term bonds yielding 1.5% or 2%, and then seeing consumer-price inflation of 4% a year, will be on the losing end of the bet.
Treasury inflation-protected securities, or TIPS, offer a yield automatically adjusted for inflation. Today, TIPS of up to 20 years' maturity lock in real yields of zero percent a year or less. The five-year TIPS promises to lose 1.6% of your purchasing power ever year. Some deal.
Corporate bonds always yield more than government bonds, to account for risk. But the spreads are unappealing. Even riskier investment-grade bonds yield only about 3.5% on average, reports data service FactSet.
Investors these days are much wiser about stocks than they were in the 1990s. They know all that talk about big guaranteed returns was misleading because, historically, those returns came in waves. Stock investors made their money in the 1920s, in the 1950s and 1960s, and in the 1980s and 1990s. In other periods, they made very little. The period since 2000 has been one of those times.
Investors also need to understand that the same is true of bonds. According to London Business School research, most of the real, inflation-adjusted returns from U.S. bonds over the past 100 years came in just two eras: the 1920s and 1930s, and since 1981. In other periods, bondholders fared far worse. In the 1970s, long-term bonds were such a poor investment that they became known as "certificates of confiscation."
Waves come and go. The current bull market in bonds must end in due course. Maybe the risk is down the road. It won't come until inflation or interest rates rise. So far, the economy remains sluggish, real unemployment is disturbingly high and inflation is minimal (although at 1.4% it still remains high enough to eat nearly all the interest from your 10-year Treasurys).
Nonetheless, the risk remains. Sooner or later investors will face either a loss of money, or at best meager returns.
It's easy to dismiss the warnings today. Those who have been cautioning about bonds for the past few years have been left looking foolish. A bubble, longtime Wall Street observer Jim Grant noted dryly last year, could be called a bull market that the commentator missed.
Yet this has happened before. Many who warned about stocks in the 1990s were too early. Jeremy Grantham, chairman of Boston investment firm GMO, recalls losing swathes of clients before the bubble popped. Today, his firm warns against U.S. bonds, which it considers an even worse deal than stocks.
In the past five years, index funds tracking longer-term Treasury bonds have risen by a fifth or more in price. If and when the bond bull market ends, funds may retrace those steps. That would be a big fall.
As a rule, a new 10-year Treasury bond with a 1.8% yield would be expected to fall nearly 10% in price if interest rates rose by one percentage point.
The paradox of government policy is that it leaves you so few places to hide. You can still find the occasional blue-chip stock yielding more than Treasurys, such as Johnson & Johnson JNJ +0.25%(JNJ), H.J. Heinz HNZ -0.05%(HNZ) and Pfizer PFE -0.21%(PFE). An equity-income mutual fund that is light on financials, such as Vanguard Equity Income Fund (VEIRX), offers a basket of them. It yields 3%.
But such stocks are getting harder to find. Investors worried about the prospects of bonds may also hold a bit more cash and wait for better entry points.
Sometimes, the "best" option may just be the one that's least bad.
Write to Brett Arends at brett.arends@wsj.com
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I am no prognosticator, but... I don't see a path for avoiding a market collapse in 2012.
Capital gains taxes on the rich will triple if Obama is reelected and his agenda is implemented. It is the end of productive investment as we once knew it.
If there is a complete Republican sweep in 6 weeks, there is still no mechanism available in 2012 to avoid this before swearing in a new President, House and Senate. No matter what detail candidate Romney espouses, the sausage making of new policy must necessarily go through a divided senate.
The tax rate on the least rich of the working people who pay income tax will go up 50% (from 10 to 15%) under current policy if nothing is done, and nothing is being done. The percentages are lower for higher brackets, but the dollar amounts are larger.
If you buy and hold publicly traded stocks, good for you (as Elizabeth Warren says), but you share ownership in these companies with other people who use other strategies and timeframes for ownership and selling. Good management and profitable returns can not prevent market value corrections in the short run.
The business climate for startup companies is a disaster, but if you have investments with accumulated capital gains over this relatively good market for established, publicly traded companies, you will need to capture those gains (sell) before the end of the year in order to pay the tax before rate increases set in automatically.
Unfortunately, everyone else in the US market is in that same conundrum, so you need to sell before them too or else there will be no gains to capture, just panic selling. I would start selling by mid-September if I were you (today is the 24th) if not sooner. (
Investment pullback and market losses tend to spill over into employment and income losses, we recently learned, hurting future business prospects.
This is not 2008 exactly because housing and financial markets already went through some correction, but the fiscal cliff sure looks familiar.
Today at this writing the markets are up slightly. If it closes down slightly, that would make 4 days in a row and talk of real pessimism at some point could begin.
Please post in detail the error of my thinking - or learn to live with your losses. - Doug
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Well said, Doug. Like I've said before, invest in metals....
If Romney and Ryan are elected and manage to rescue the America that we've known, it'll be up there with walking on water as far as miracles go.
I am no prognosticator, but... I don't see a path for avoiding a market collapse in 2012.
Capital gains taxes on the rich will triple if Obama is reelected and his agenda is implemented. It is the end of productive investment as we once knew it.
If there is a complete Republican sweep in 6 weeks, there is still no mechanism available in 2012 to avoid this before swearing in a new President, House and Senate. No matter what detail candidate Romney espouses, the sausage making of new policy must necessarily go through a divided senate.
The tax rate on the least rich of the working people who pay income tax will go up 50% (from 10 to 15%) under current policy if nothing is done, and nothing is being done. The percentages are lower for higher brackets, but the dollar amounts are larger.
If you buy and hold publicly traded stocks, good for you (as Elizabeth Warren says), but you share ownership in these companies with other people who use other strategies and timeframes for ownership and selling. Good management and profitable returns can not prevent market value corrections in the short run.
The business climate for startup companies is a disaster, but if you have investments with accumulated capital gains over this relatively good market for established, publicly traded companies, you will need to capture those gains (sell) before the end of the year in order to pay the tax before rate increases set in automatically.
Unfortunately, everyone else in the US market is in that same conundrum, so you need to sell before them too or else there will be no gains to capture, just panic selling. I would start selling by mid-September if I were you (today is the 24th) if not sooner. (
Investment pullback and market losses tend to spill over into employment and income losses, we recently learned, hurting future business prospects.
This is not 2008 exactly because housing and financial markets already went through some correction, but the fiscal cliff sure looks familiar.
Today at this writing the markets are up slightly. If it closes down slightly, that would make 4 days in a row and talk of real pessimism at some point could begin.
Please post in detail the error of my thinking - or learn to live with your losses. - Doug
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http://www.amazon.com/How-Survive-End-World-Know/dp/0452295831/ref=sr_1_2?s=books&ie=UTF8&qid=1348612567&sr=1-2&keywords=rawles+james+wesley
Book Description
Release Date: September 30, 2009
The definitive guide on how to prepare for any crisis--from global financial collapse to a pandemic.
It would only take one unthinkable event to disrupt our way of life. If there is a terrorist attack, a global pandemic, or sharp currency devaluation--you may be forced to fend for yourself in ways you've never imagined. Where would you get water? How would you communicate with relatives who live in other states? What would you use for fuel?
Survivalist expert James Wesley, Rawles, author of Patriots and editor of SurvivalBlog.com, shares the essential tools and skills you will need for you family to survive, including:
* Water: Filtration, transport, storage, and treatment options.
* Food Storage: How much to store, pack-it-yourself methods, storage space and rotation, countering vermin.
* Fuel and Home Power: Home heating fuels, fuel storage safety, backup generators.
* Garden, Orchard Trees, and Small Livestock: Gardening basics, non-hybrid seeds, greenhouses; choosing the right livestock.
* Medical Supplies and Training: Building a first aid kit, minor surgery, chronic health issues.
* Communications: Following international news, staying in touch with loved ones.
* Home Security: Your panic room, self-defense training and tools.
* When to Get Outta Dodge: Vehicle selection, kit packing lists, routes and planning.
* Investing and Barter: Tangibles investing, building your barter stockpile. And much more.
How to Survive the End of the World as We Know It is a must-have for every well-prepared family.
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http://www.businessinsider.com/deutsche-bank-issues-a-terrible-warning-on-the-health-of-the-global-financial-system-2012-9
DEUTSCHE BANK: Western Economies Are Screwed, And Investors Face A 'Disturbing Paradox'
Matthew Boesler | Sep. 20, 2012, 12:54 PM Wikimedia Commons
In a new report entitled Gold: Adjusting For Zero, Deutsche Bank analysts Daniel Brebner and Xiao Fu paint an incredibly dark picture of the bind the global economy is in right now.
Brebner and Xiao are pretty frank about how levered up the financial system is at the moment, and they warn that the next shock will be totally involuntary and unexpected.
Here is what the analysts have to say about how upside down the world is right now and the risks looming on the horizon:
We believe the balance of 2012 could remain challenging for investors, given the many negative indicators and warning signs. Certainly extremes in leverage in the Western economies and questions regarding growth in China present investors with a worrying post-2012 future. However, in our view there are nearly zero real choices available to global policy makers.
Read more: http://www.businessinsider.com/deutsche-bank-issues-a-terrible-warning-on-the-health-of-the-global-financial-system-2012-9
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GM: Please know that there are three threads dedicated to Survival issues :-)
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Thanks GM but I was fishing for someone to show where I was wrong. )
Had dinner with execs of the biggest multi-national here, picked up that they are looking at Europe for trouble, which means more trouble than what we all already know and on a scale to have repercussions here. I mentioned my expectation of collapse-here-now and in a scary way heard no disagreement there either.
I wish no economic decline on anyone but maybe we will get a new awareness of policy bungling get and a new government out of it. The fiscal cliff in Washington is a refusal to cut spending during a 4th straight trillion dollar deficit and an insistence on raising tax rates when we know that will make things worse. There are mountains of new taxes and regulations coming, Europe is on the brink, China: who knows, economic reports are coming from the failed recovery summer 3.0 just ended, and more Obamacare mandates kicking in. There are way too many more shoes possible to drop on this eggshell economy and no positive seeds have been planted in years to cause an upward turn.
Markets down only a smidgen over the last 5 days so my prediction so far is wrong. We will see.
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Markets down only a smidgen over the last 5 days so my prediction so far is wrong.
It's just a matter of when, not if. The later, the better as there is more time to prepare, but I doubt we have much time left at this point. The global house of cards is teetering and the powers that be are out of tricks.
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New Orders for Durable Goods Plummeted 13.2% in August To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 9/27/2012
New orders for durable goods plummeted 13.2% in August (-13.9% including revisions to July), coming in well below the consensus expected decline of 5.0%. Orders excluding transportation fell 1.6% (-2.2% including revisions to July), falling short of the consensus expected gain of 0.2%. Overall new orders are down 6.7% from a year ago, while orders excluding transportation are down 1.1%.
The decline in overall orders was led by a massive drop in civilian aircraft. Orders for motor vehicles and machinery also fell substantially.
The government calculates business investment for GDP purposes by using shipments of non-defense capital goods excluding aircraft. That measure was down 0.9% in August (-1.5% including revisions to July).
Unfilled orders were down 1.7% in August but are up 5.4% from last year.
Implications: Very ugly report today on durable goods. New orders fell 13.2% in August, the largest decline since January 2008. Most of the drop was due to the very volatile transportation sector. Orders for civilian aircraft fell 101.8% from a month ago – yes, that means civilian aircraft orders were actually negative for the month on a seasonally-adjusted basis! – and autos were down a sharp 11% as well. (The drop in autos makes up for the 12% surge last month; both up and down are due to changes in the timing of summer factory retooling.) But even apart from aircraft and autos, the report was still weak. Orders ex-transportation were down 1.6%, led by a 4.7% decline in machinery. Machinery orders are now down 10.1% from a year ago. Shipments of “core” capital goods, which exclude defense and aircraft, were down 0.9% in August. This is troubling as core shipments usually fall in the first month of each quarter and then rebound in the last two months. So far, the rebound hasn’t happened. The bottom line is that both the headline and underlying details suggest hesitation in business investment. We think some companies are postponing purchases of big ticket items until after the election, in the hopes of more clarity, and improvement, in public policy. If so, expect a rebound after the election. Monetary policy is loose, corporate profits are close to record highs, balance sheet cash is at a record high (earning almost zero interest), and we are still in the early stages of a home building recovery. All of these indicate more business investment ahead. In other news this morning, pending home sales, which are contracts on existing homes, declined 2.6% in August. Given this data and the large surge in existing home sales in August (counted at closing), expect a pullback in existing home sales in September. However, sales will still be up around 8 - 10% from a year ago.
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Bad news for Wesbury, Bernanke went to the plowhorse's stable with a QE-I shotgun and now a truck from the glue factory just pulled up....
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GM: Please know that there are three threads dedicated to Survival issues :-)
Hey, if at this point you aren't investing in bullets, beans and bandages to some degree, you are setting you and yours up for very bad things.
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GM for the win.
Retail sales declined 0.2% in May, up 5.3% versus a year ago To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 6/13/2012
Retail sales declined 0.2% in May, matching consensus expectations, but were down 0.8% including downward revisions for March/April. Retail sales are up 5.3% versus a year ago.
Sales excluding autos declined 0.4% in May versus a consensus expectation that they would be unchanged. Retail sales ex-autos are up 4.3% in the past year.
The decline in retail sales in May was led by gas and building materials. The largest gains were for autos and non-store retailers (internet/mail-order).
Sales excluding autos, building materials, and gas were unchanged in May (-0.4% including downward revisions for March/April). This calculation is important for estimating real GDP. Even if these sales are unchanged again in June, they will be up at a 2.1% annual rate in Q2 versus the Q1 average.
Implications: Retail sales were relatively soft in May, but do not signal a broader economic slowdown. Given the financial problems in Europe, some downbeat analysts are eager to fit every negative piece of news about the US economy into that framework. Instead, we think the tepid sales reports of the last couple of months are caused by much more mundane factors. The leading cause of the decline in May was a steep drop in gas prices. Excluding sales at gas stations, retail sales rose 0.1%. The second weakest category of sales in May was building materials, which fell 1.7%. This past winter was unusually mild. As a result, home construction (on a seasonally-adjusted basis) picked up quickly during that period and so did retail sales related to that construction. Now, those kinds of sales are reverting toward the underlying trend, which is still up 5.3% from a year ago. In addition, a combination of the mild winter, which made it easy to shop, and the earliest Easter in the past few years, may be skewing the seasonal adjustment factors in the Spring, making sales look good through March and worse – temporarily – in April/May. Regardless, “core” sales, which exclude autos, building materials, and gas, were essentially unchanged in May (+0.02%) and have only dropped once in the past twenty-two months, a remarkably consistent record of sales gains. Even if these sales are unchanged in June, they will be up at a 2.1% annual rate in Q2 versus the Q1 average, which is also what we are estimating for the growth of “real” (inflation-adjusted) personal consumption in Q2 (including goods and services). Don’t be fooled by statistical noise. The US economy continues to grow.
http://www.aei-ideas.org/2012/09/its-all-unraveling-is-this-the-last-quarter-the-recovery/
Pethokoukis
‘It’s all unraveling’ | Is this the last quarter of the recovery?
James Pethokoukis | September 27, 2012, 1:04 pm
Image Credit: Editor B (Flickr) (CC BY 2.0)
Has the U.S. economy turned a corner? Yes, and then another corner and now it’s going backward. A slew of bad economic data today. A taste of what economists are saying:
– It’s all unraveling this morning. OK in the US jobless claims fell and the consumer comfort index improved. But the downward revision to GDP and the chillingly large drop in Durable goods orders is enough to send chills up your spine. Yes, aircraft and defense orders were the bulk of the weakenss. But nothing there is reassuring. Have the NFL’s replacement officials been collecting economic data? Please tell me it is so. – Economist Robert Brusca
– Durable goods headline looks like an F, details look like a D. … The latest durable goods data point to some downside risk to our GDP forecast for the third quarter, though we are leaving our GDP forecast at 1.5%. – JPMogan
– … there is growing risk that a 2013 tax shock could push the economy into recession (and there is little the Fed can do to offset the fiscal shock). – RDQ Economics
– Today’s U.S. reports included a disastrous August durable goods … the ex-air equipment orders data are now tracking a recession trajectory, which may reflect fiscal cliff uncertainty that will eventually be reversed, but which send a notable red-flag for U.S. growth. … We lowered our 1.5% GDP growth forecasts for both Q3 and Q4 to 1.4% … – Action Economics.
– A trend weakening in core business investment outlays deserves the most attention. – Citi
Then we have this recession forecast from Strategas Research:
(http://www.aei-ideas.org/wp-content/uploads/2012/09/092712strategas31.jpg)
If the above forecast is correct, the National Bureau of Economic Research might wind up declaring that the U.S. economy slipped back into recession in late 2012 even though the economy was actually not yet contracting at that point. (Here is my post from earlier on why we are in the recession red zone.)
And if that happens, economic historians might well shove aside the weak three-year recovery and call the entire 2007-2013 period the Long Recession or some such. I already have been, just like the 1980-82 period was a long recession, two downturns sandwiching a brief recovery.
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Personal income increased 0.1% in August To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 9/28/2012
Personal income increased 0.1% in August, coming in slightly below the consensus expected gain of 0.2%. Personal consumption rose 0.5%, exactly as the consensus expected. In the past year, personal income is up 3.5%, while spending is up 3.6%.
Disposable personal income (income after taxes) was up 0.1% in August and is up 3.3% from a year ago. The gain in income in August was led by dividends, which are up 7.6% from a year ago, and small business income, which is up 4.1% in the past year.
The overall PCE deflator (consumer inflation) was up 0.4% in August and up 1.5% versus a year ago. The “core” PCE deflator, which excludes food and energy, rose 0.1% in August and is up 1.6% in the past year.
After adjusting for inflation, “real” consumption was up 0.1% in August and is up 2.0% from a year ago.
Implications: The plow horse economy continues to push through the mud at the same modest pace. Consumer spending grew a healthy 0.5% in August, with consumers picking up more nondurable goods, probably a reflection of aggressive “back-to-school” buying. “Real” (inflation-adjusted) personal consumption was up 0.1% and, despite downward revisions to prior months, is 2% higher than a year ago. Respectable, but far from spectacular. Income gains were tepid in August, with disposable (after-tax) income up only 0.1%. However, real disposable income is up 1.8% from a year ago, which is enough to keep pushing consumer spending higher. Income gains are not due to artificial support from government transfers, which declined 0.1% in August. Real (inflation-adjusted) transfers are up only 1.2% in the past year, while real private-sector wages and salaries are up 2.9%. In other words, transfers are now holding down the growth rate of income. However, households’ financial obligations – recurring payments like mortgages, rent, car loans/leases, as well as other debt service – are now the smallest share of income since 1984. This allows consumers to stretch their income gains further. On the inflation front, overall consumption prices were up 0.4% and the core PCE, which excludes food and energy, was up 0.1% in August. Overall prices are up 1.5% in the past year while core prices are up 1.6%. Both are below the Federal Reserve’s target of 2%, but they are awfully close for a central bank with a very loose monetary policy. Expect higher inflation in the year ahead. In other news this morning, the Chicago PMI, which measures manufacturing activity in that region, fell to 49.7 in September from 53.0 in August, the lowest level since September 2009. Given this report as well as other data, we forecast that the ISM Manufacturing report will come in at 49.7 for September, up only slightly from 49.6 in August.
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More famous people caught reading the forum.
Economic Signals Point to a 2013 Recession
By DAVID MALPASS
Data released this week by the Commerce Department waved bright red recession flags—orders for durable goods fell 13.2% in August and inflation-adjusted personal income fell 0.3%. President Obama is asking for more time to allow the lackluster recovery to pick up steam. His plan is to move the economy "forward" by keeping the current policy framework in place and adding higher tax rates on income and capital gains. But the new Commerce Department numbers, combined with his stay-the-course approach, point to recession in 2013.
http://online.wsj.com/article/SB10000872396390443816804578000484118713060.html?mod=WSJ_Opinion_LEFTTopOpinion
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Recession Risk Rising To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 10/1/2012
Economic forecasting was relatively easy from the end of World War II until the middle of the prior decade. Most of the time, you could just focus on monetary policy.
When the federal funds rate was much lower than the growth of nominal GDP – real GDP growth plus inflation – then the Federal Reserve was too loose and nominal GDP growth would go up. When the Fed kept the funds rate above nominal GDP growth, it was tight and nominal GDP growth would slow, raising recession risk and reducing inflation.
But then came the last recession, which had nothing to do with the Fed being too tight. Instead, falling home prices and mark-to-market rules rendered some major banks under-capitalized. A pure financial panic ensued, the likes of which we had not seen for 100 years. Consumers and businesses clung to as much cash as possible. As a result, the velocity of money – the speed with which money circulates through the economy – plunged.
But what if this was not a one-time event? What if we are now in a new era where shifts in the velocity of money often dominate the economic effects of changes in the money supply?
We are not saying this is definitely the case, but it now appears more plausible. And, if so, forecasting the economy just got a great deal tougher. Not just for the next few years, but, perhaps, for a generation. In this environment, we have to pay attention to data like we’ve seen in the past few weeks, including a 1.2% drop in industrial production (IP) and a 13.2% plunge in new orders for durable goods.
Both reports are likely the result of extenuating circumstances. For IP, output at mines, utilities, and automakers – all of which are very volatile – fell sharply. And, although manufacturing ex-autos declined 0.4%, it could have been due to hurricane Isaac or just statistical noise. With durable goods, almost all the drop was in the volatile transportation sector. But machinery, which is usually more stable, is down 10% from a year ago, something that almost never happens except when the economy is in a recession or on the verge of one.
Right now, we are forecasting 1.5% real GDP growth for Q3. But, given the drought, a much lower number – even below zero – cannot be casually dismissed. And if that happens, we have to recognize the chance of another plunge in monetary velocity, particularly given financial fears about Europe.
As a result, we are raising our odds of recession to 25%, the highest since mid-2009. Our base case is still modest growth, but the odds of a downturn are no longer very slim, like we said they were (correctly) during the soft patches of 2010 and 2011.
If a recession happens, it will not be the result of the typical causes: tight money, tax hikes, or protectionism. Instead, it would be our new nemesis, “uncertainty,” leading to a decline in velocity.
In our view, at the heart of the recent uncertainty is a massive growth in government spending and debt, and the fear of large future tax hikes if we stay on this path. Potential tax hikes are changing the risk-reward calculation of every business in America. In a few months, we should know how much of this potential will become reality.
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second post of morning
Rally fuelled by more realistic valuations
By Peter Oppenheimer
Amid all the angst over Spain’s banking and fiscal crisis, the relative buoyancy of financial markets has passed almost unnoticed.
Such optimism in the markets may seem at odds with the stream of economic and budget gloom. But, in fact, the rally has been underway for some time. Despite the obvious headwinds of economic stagnation, the slowdown in the US and Chinese economies, and the repeated speculation that the euro system may be about to collapse, equities have been among the strongest performing asset classes in the year to date. The MSCI World index has risen 14 per cent, the Stoxx Europe 600 is also up 14 per cent while US Treasuries have returned 4.5 per cent (all in US dollar and total return terms).
One of the major explanations for these different returns comes down to valuation. After years of de-rating, equities may have reached a point where they have more than adequately reflected the economic stresses and risks brought on by the financial crisis. At the same time the relentless decline in interest rates over the past three decades has pushed up the price of many government bonds to levels that no longer offer attractive returns to maturity.
Both the de-rating of equities (from unrealistic highs during the late 1990s technology bubble) and the re-rating of bonds (as inflation continued to surprise on the downside) were necessary given the starting points. The onset of the financial crisis has merely extended and exaggerated these trends as investors have become increasingly sceptical about the ability of economies to grow as they struggle with record amounts of debt.
The European sovereign debt crisis is the most recent in a long line of problems to have emerged as the huge global savings and investment imbalances have begun to unwind over the past five years. The European Central Bank’s bond purchase proposal in August has helped to reduce some of the systemic risks associated with the debt crisis by finding a way to break the intractable political cycle which was acting as an obstacle to a workable solution.
It is clear that a fall in the equity risk premium (the additional rate of return investors require for investing in equities over and above what they can get on a relatively risk-free asset like bonds) has been the main driver behind the rally in risky assets since July. In July the equity risk premium was as high as 9 per cent. Over the past two months it has fallen to 8 per cent on our estimates. This is still very high by historical standards: the long run average is close to 4 per cent. It is not surprising that the ERP remains unusually high, given the current macro dislocations, but our estimate of the appropriate level of the ERP is around 6.75 per cent.
We estimate a 1 per cent fall in the ERP, all else being equal, is worth about 20 per cent on the broad European equity indices. Although some of this may be achieved via a further rise in “risk free rates”, such as for German Bunds, there still appears room for a further moderation of about 50 basis points over the coming months.
From a political perspective the main risks may be shifting to the US given the impending “fiscal cliff” that the US is likely to reach by mid-February. Should Congress not act, the government would be forced into a drastic reduction in expenditures, pushing the economy into a recession that is not being priced into equity markets.
The other key driver for markets will be economic activity. Recent data suggest that the momentum of the global economy and, therefore, corporate profits remain moribund but is probably not deteriorating.
On the positive side, many central banks have increased their support through a range of policy actions aimed at kick-starting growth. While there is a debate about the effectiveness of these policies, at least it is something. Growth is unlikely to be strong in 2013, but risky assets typically perform well when the momentum and growth rate of the global economic cycle start to improve even if growth levels remain subdued. So far, such an improvement does not appear priced in.
While these issues will determine the trajectory and volatility in markets over the remainder of the year, the longer term prospects are more positive, at least for equities. Ultimately, what is most important is not just the pace of economic activity and corporate profit or dividend growth, but the outcome relative to the expectations priced in.
After years of de-rating to correct the over-optimistic expectations of the late 1990s, the uncertainty associated with savings and investment rebalancing have left valuations at levels that imply an unrealistically negative scenario, as long as the worst political tail risks can be contained. That is still the “investable opportunity”.
Peter Oppenheimer is chief global equity strategist at Goldman Sachs
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Recession Risk Rising
"...Right now, we are forecasting 1.5% real GDP growth for Q3. But, given the drought, a much lower number – even below zero – cannot be casually dismissed..."
This is 3rd quarter starting today, so translated that means the recession may already have started.
Brian Wesbury appears Fridays on the Hugh Hewitt radio show http://townhall.com/talkradio/. On the radio I find him to be quite a bit more open about his policy opinions than he is in these First Trust articles.
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The ISM manufacturing index rose to 51.5 in September To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 10/1/2012
The ISM manufacturing index rose to 51.5 in September from 49.6 in August, coming in well above the consensus expected 49.7. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were all higher in September and most were above 50. The new orders index gained to 52.3 from 47.1. The production index rose to 49.5 from 47.2 and the employment index increased to 54.7 from 51.6. The supplier deliveries index rose to 50.3 from 49.3.
The prices paid index increased to 58.0 in September from 54.0 in August.
Implications: Welcome news on manufacturing today. After three straight months below 50 – signaling contraction – the ISM manufacturing index came in above 50, easily beating consensus expectations for September. According to the Institute for Supply Management, a level of 51.5 is consistent with real GDP growth of 3%. For the third quarter as a whole, the ISM index averaged 50.3, which is consistent with a growth rate of 2.6%. However, these data only cover the manufacturing sector, and so don’t correct for the impact of the drought in the farm sector. As a result, we see today’s data as consistent with our forecast that real GDP expanded at a 1.5% annual rate in Q3. The best news in today’s report was that new orders bounced back into positive territory and the employment index rose to 54.7, the strongest sub-index within the overall ISM. On the inflation front, the prices paid index rose to 58.0 in September from 54.0 in August. We expect prices to continue to gradually move higher. In other news this morning, construction declined 0.6% in August, but was up 0.3% including revisions to prior months. The decline in August was due to less commercial construction, particularly power plants. Home construction was up 0.9% in August, led by new 1-family homes. The construction of new homes – 1-family and multi-family, combined – is up 11 months in a row and up 24% from a year ago.
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Even though this comes from Pravda on the Hudson, I must say that this makes sense to me:
A Speed Limit for the Stock Market
By ROGER LOWENSTEIN
Published: October 1, 2012
IMAGINE if the stock market were hijacked by computers that executed trades in a fraction of the time that it takes to blink. Since no mere mortal could understand the “thinking” behind such nanosecond trading, ordinary investors — even longtime institutional traders — would have little clue as to why any company’s share price was moving up or down in any moment. The values of well-established corporations would sometimes swing wildly from one second to the next and we slow-reacting, human investors wouldn’t know why.
You don’t really have to imagine this. This is how our stock markets function today. Some 50 percent to 70 percent of all trading is done by “traders” who live in server parks, are nourished by direct current and speak only in binary pulses.
Several other countries are starting to regulate this high-frequency trading, or H.F.T. But in the United States, the deep-seated bias toward “liquidity” — the notion that more volume will always make it easier for investors to buy and sell shares — has discouraged regulators from taking action.
Lately, though, after several well-publicized market blowups traced to H.F.T., officials are having second thoughts. In late September, the Senate banking committee held a hearing on the issue, and the Securities and Exchange Commission is getting into the act with a panel discussion today. Even Wall Street veterans have begun to question whether a market flooded with speed demons is good for society.
The purpose of financial markets, remember, is not to provide a forum for split-second trading. If you want to gamble, go to Las Vegas. Markets exist to provide some minimal level of liquidity, so that long-term investors have the confidence to invest. And they exist so that companies and investors can discover how much an ownership position in, say, Apple is worth. When Apple stock goes up, it sends a signal to other firms to invest in the same or similar technologies. Thus does a capitalist society allocate resources.
A well-functioning market can accommodate some hyperactive turnstile traders as long as it has enough legitimate investors — people who are thinking about the outlook for companies down the road.
The reason that market squares like me harp on the long term isn’t because we’re technologically illiterate. It’s because, again, society relies on the market to allocate capital. If market signals are based on algorithms that become outmoded in a nanosecond, we end up with empty factories and useless investment.
How much effort do high-speed traders devote to analyzing the future prospects of Apple? Precisely none. Their aim is only to exploit tiny price discrepancies that disappear in milliseconds.
Incredibly, we have let capital formation become subordinate to traders on electronic steroids — with some hedge funds setting up their servers just inches away from stock exchange servers to get a jump on other steroid-crazed traders. David Lauer, a former trader, told the Senate panel that high-speed technology was “a destructive force in the market” with “no social benefit.”
He’s right. The “liquidity” H.F.T. provides is long past the point of being helpful. When high-speed trading was new, trading costs for all investors seemed to dip, but that trend has stopped, suggesting a point of diminished returns. Volume on the New York Stock Exchange now is four times the level it was in 1999 — a year with so much excess liquidity that it witnessed the greatest stock market bubble in history.
And in exchange for providing the markets with more liquidity than they need, H.F.T. is creating a problem of a potentially enormous scale. It’s not just that such trading is unfair to traditional investors who, obviously, cannot take advantage of price movements they cannot see. (The truth is, parlor investors who try to beat the pros at short-term trading have always been easy fodder for Wall Street.) The greater concern is that it will subject markets to more destabilizing crashes and that prices will come to reflect the “judgments” not of investors, but of high-speed robots.
We’ve seen evidence of that already. In May 2010, several publicly traded companies briefly lost nearly $1 trillion of market value in a so-called “flash crash” that the S.E.C. said was triggered by a single firm using algorithms to rapidly sell 75,000 futures contracts. Unless something is done, the markets will grow only more volatile and less responsive to investment values.
Lawmakers in Germany, Australia and other countries are proposing to address the problem by imposing new restrictions on high-speed traders, and considering options like erecting superfast shutdown switches that might be able to cordon off damage in a crisis. But the better way to discourage this excessive, short-term market myopia is to take a page from anti-tobacco efforts: let high taxes discourage the antisocial behavior.
We already encourage long-term investing by taxing capital gains on investments held for more than a year at a rate of just 15 percent — in contrast to short-term capital gains, which are assessed at much higher rates. We could simply fine-tune that incentive even more. Intraday trades should be taxed at 50 percent. And “investments” that mature in 60 seconds should be regarded as, in effect, electronic errors — with any profit going to the government. This will greatly reduce high-speed trading and divert its remaining gains to the public.
Roger Lowenstein, an outside director of the Sequoia Fund, is writing a book about the origins of the Federal Reserve.
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Even though this comes from Pravda on the Hudson, I must say that this makes sense to me:
I agree in concept. Regulating the markets for both efficiency and to maintain a level playing field is the legitimate function of the SEC.
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The ISM Non-Manufacturing Index Increased to 55.1 in September To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 10/3/2012
The ISM non-manufacturing index increased to 55.1 in September, easily beating the consensus expected 53.4. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The direction of the key sub-indexes were mixed in September but all were above 50. The business activity index gained to 59.9 from 55.6 and the new orders index rose to 57.7 from 53.7. The employment index declined to 51.1 in September from 53.8 while the supplier deliveries index remained unchanged at 51.5.
The prices paid index rose to 68.1 in September from 64.3 in August.
Implications: Solid news on the economy coming from multiple reports yesterday and today. The ISM services index came in at 55.1, higher than the consensus expected in September, signaling a combination of some acceleration in that sector and an abatement of negative sentiment regarding Europe. This is the best reading on the index since March. The sub-index for business activity – which has a stronger correlation with economic growth than the overall index – soared to 59.9, the best reading since February. On the inflation front, the prices paid index rose to 68.1. This is consistent with our view that the recent lull in inflation is temporary given the loose stance of monetary policy. In other news this morning, the ADP employment index, a measure of private sector payrolls, increased 162,000 in September, narrowly beating consensus expectations. The report was consistent with our forecast that Friday's official Labor report will show payroll gains of 115,000 nonfarm (including government) and 150,000 private. In other recent news, automakers reported car and light truck sales at a 14.96 million annual rate in September, up 3 percent from August, 14 percent from a year ago, and the fastest pace since early 2008.
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Orders placed with U.S. factories fell in August by the most in more than three years, signaling that slowdowns in business investment and exports restrained the economic expansion.
The 5.2 percent decrease in bookings was the biggest since January 2009. Demand for durable goods dropped 13.2 percent.
http://www.bloomberg.com/news/2012-10-04/orders-to-u-s-factories-plunged-in-august-on-planes-computers.html
http://www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf
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Is this visible to folks here?
http://www.youngresearch.com/researchandanalysis/economy-researchandanalysis/stimulus-fading-new-orders-falling/?awt_l=PWy8k&awt_m=3fnjvKtv4izlu1V
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Thelma, Louise and the Fiscal Cliff To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 10/8/2012
Everyone knows it’s coming. Thelma and Louise are about to drive off the cliff, in one last climatic scene of independence and stupidity. You don’t have to rent the DVD because our very own federal government is heading toward the fiscal cliff. It should be spectacular.
If a new budget agreement can’t be reached by the end of this year or early next year, federal spending gets automatically trimmed – sequestered – by $70 billion through September 30, 2013, about half of it from the defense budget. In perspective, government spending will be about $2.7 trillion from January to September 2013. So, we’re only talking about 2.6% of total spending – or 0.6% of GDP – over the last nine months of the fiscal year, which ends September 30.
No doubt this world hurt defense contractors and other recipients of government business and aid. But spending crowds out the private sector, so cutting spending by this little and showing that Washington is starting to get its fiscal house in order would probably have a positive effect on GDP, even in the short-term. Spending was cut about this much at the end of the first Iraq War in 1991, and the economy grew.
What concerns us more is the tax side of the fiscal cliff. These include (1) the end of the 2% payroll tax break of the past two years - $120 billion in extra revenue per year. (2) A new extra 3.8% tax on dividends, capital gains, and interest income and a 0.9% Medicare tax on high earners - $25 billion/yr. (3) lower thresholds for the Alternative Minimum Tax - $100 billion-plus. (4) A return to the 2000 tax rates on income, dividends, and capital gains, including a top official rate of 39.6% on ordinary income and dividends and 20% on capital gains - $150 billion-plus.
Right now, we see the odds of a recession at 25%. However, if all of these tax hikes happen at once, our odds of recession would have to go up considerably.
Our best guess is that the 2% payroll tax cut won’t be extended again. That, by itself, is not cause for much concern. Personal income is up $460 billion in the past year, so workers have enough income growth to absorb a reversal of the payroll tax cut and still increase their purchasing power. The economic expansion would survive.
The real threat is a simultaneous impact on investment and work effort from higher marginal tax rates on ordinary income, dividends, and capital gains combined with the unsettling impact on consumers and investors of losing a significant portion of their expected cash flow. As we wrote last week, we may be living in an era in which the economic cycle is more dominated by shifts in monetary velocity and the risk of a panic. If so, a major and sudden shift in tax burdens could be a cause for recession even if the supply-side effects on incentives are relatively small.
These tax hikes would not only damage the supply-side of the economy, but would subtract hundreds of billions of dollars of income from the private sector. Both sides of the political aisle understand this, which is why, in the end, we are still confident some agreement will be reached (as it was in 2010) regardless of the outcome of the election.
We do not expect an agreement before the election; the chances of that are extremely low. And we don’t expect a very quick agreement afterward; both parties have an incentive for brinksmanship to drive the best possible bargain for their supporters. Instead, get ready to wait until the waning days of any lame duck session, and watch the signals coming from the proverbial smoke-filled rooms for an agreement.
We do not expect tax rates to rise anywhere near high enough to cause a recession. Our base case remains that the US will continue to grow right through 2013. The Plow Horse will plow on despite the fiscal cliff. The stock market “gets” that and that’s why it’s going up despite the threat of the fiscal cliff.
Let the credits roll.
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Someone has to break it to Wesbury that the glue factory already carted the plow horse away
Thelma, Louise and the Fiscal Cliff To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 10/8/2012
Everyone knows it’s coming. Thelma and Louise are about to drive off the cliff, in one last climatic scene of independence and stupidity. You don’t have to rent the DVD because our very own federal government is heading toward the fiscal cliff. It should be spectacular.
If a new budget agreement can’t be reached by the end of this year or early next year, federal spending gets automatically trimmed – sequestered – by $70 billion through September 30, 2013, about half of it from the defense budget. In perspective, government spending will be about $2.7 trillion from January to September 2013. So, we’re only talking about 2.6% of total spending – or 0.6% of GDP – over the last nine months of the fiscal year, which ends September 30.
No doubt this world hurt defense contractors and other recipients of government business and aid. But spending crowds out the private sector, so cutting spending by this little and showing that Washington is starting to get its fiscal house in order would probably have a positive effect on GDP, even in the short-term. Spending was cut about this much at the end of the first Iraq War in 1991, and the economy grew.
What concerns us more is the tax side of the fiscal cliff. These include (1) the end of the 2% payroll tax break of the past two years - $120 billion in extra revenue per year. (2) A new extra 3.8% tax on dividends, capital gains, and interest income and a 0.9% Medicare tax on high earners - $25 billion/yr. (3) lower thresholds for the Alternative Minimum Tax - $100 billion-plus. (4) A return to the 2000 tax rates on income, dividends, and capital gains, including a top official rate of 39.6% on ordinary income and dividends and 20% on capital gains - $150 billion-plus.
Right now, we see the odds of a recession at 25%. However, if all of these tax hikes happen at once, our odds of recession would have to go up considerably.
Our best guess is that the 2% payroll tax cut won’t be extended again. That, by itself, is not cause for much concern. Personal income is up $460 billion in the past year, so workers have enough income growth to absorb a reversal of the payroll tax cut and still increase their purchasing power. The economic expansion would survive.
The real threat is a simultaneous impact on investment and work effort from higher marginal tax rates on ordinary income, dividends, and capital gains combined with the unsettling impact on consumers and investors of losing a significant portion of their expected cash flow. As we wrote last week, we may be living in an era in which the economic cycle is more dominated by shifts in monetary velocity and the risk of a panic. If so, a major and sudden shift in tax burdens could be a cause for recession even if the supply-side effects on incentives are relatively small.
These tax hikes would not only damage the supply-side of the economy, but would subtract hundreds of billions of dollars of income from the private sector. Both sides of the political aisle understand this, which is why, in the end, we are still confident some agreement will be reached (as it was in 2010) regardless of the outcome of the election.
We do not expect an agreement before the election; the chances of that are extremely low. And we don’t expect a very quick agreement afterward; both parties have an incentive for brinksmanship to drive the best possible bargain for their supporters. Instead, get ready to wait until the waning days of any lame duck session, and watch the signals coming from the proverbial smoke-filled rooms for an agreement.
We do not expect tax rates to rise anywhere near high enough to cause a recession. Our base case remains that the US will continue to grow right through 2013. The Plow Horse will plow on despite the fiscal cliff. The stock market “gets” that and that’s why it’s going up despite the threat of the fiscal cliff.
Let the credits roll.
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Yes, this could go many places, but I think it's best here.
http://www.forbes.com/sites/greatspeculations/2012/10/08/hyperinflation-hits-iran-like-weapon-of-mass-destruction/
Hyperinflation Hits Iran Like Weapon Of Mass Destruction
Addison Wiggin, Contributor
Tehran, Iran
“Better buy now,” advised the rice merchant in Tehran. The retired factory guard took him up on the advice, buying 900 pounds of the stuff to feed his extended family for the next 12 months.
“As I was gathering my money,” the retiree told The New York Times, he got a phone call. “When he hung up, he told me prices had just gone up by 10%. Of course, I paid. God knows how much it will cost tomorrow.”
Iran’s currency, the rial, collapsed 40% last week under the pressure of Western sanctions and homegrown blundering. We’re not sure if Iran is in hyperinflation, as Cato Institute researcher Steve Hanke asserted in Friday’s 5 Min. Forecast, but at the very least they’re on the cusp.
Austrian economists describe three stages of inflation. In the first stage, people still hang onto their money, expecting prices to come down. In the second stage, people part with their money to stock up on goods before prices rise again. In the final hyperinflationary stage, people buy anything they can get their hands on — even if they don’t need it — because the goods are more valuable than the currency.
As we said on Thursday, Iran today is looking more and more like Iran during the 1978-79 revolution. Now there’s corroboration from someone who lived through those days.
“The new government wanted to prevent flight capital from leaving the country,” recalls Chicago-based derivatives specialist Janet Tavakoli, who married an Iranian while in college.
“In the panic to leave the country with some of their wealth,” she wrote in her 1998 book Credit Derivatives, “citizens found that although there was an official exchange rate of 7 tomans (10 rials) to the U.S. dollar, there was no means to convert money. Banks were closed much of the time. The government put a further restriction on conversion of currency. Citizens could take only $1,000 in U.S. currency out of the country and could take only a suitcase of clothing. The idea was to prevent citizens from taking valuable carpets, now labeled national protected works of art, out of the country.”
“Before a currency goes into free fall,” she writes now at Huffington Post, “its value can be chipped away while a distracted population fails to notice that the currency buys cheaper-quality clothing and less food in a package at a grocery store. That’s the current situation with the U.S. dollar.” You can see the visible effects of dollar weakening via a multi-year chart of the GLD or the UUP.
Iran, she says, is far beyond that stage. Where it leads this time, we have no idea but it’s nowhere good.
Cheers,
Addison Wiggin
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http://finance.yahoo.com/blogs/breakout/real-fiscal-cliff-much-bigger-think-warns-peter-131010466.html
The Real Fiscal Cliff Is Much Bigger Than You Think, Warns Peter Schiff
By Jennifer Carinci | Breakout – Wed, Oct 10, 2012 9:10 AM EDT
The warning from the International Monetary Fund's World Economic Outlook released yesterday was loud and clear: "Growth would stall in 2013 with the full materialization of the (fiscal) cliff…" Many large regions, including the entire world, saw growth forecasts cut by the IMF. But the world economists warned America's economic problems are home grown.
They predict the U.S. will continue its tepid growth rate of near 2% if the fiscal cliff is averted. On the flip side, if we go over the cliff, the IMF predicts the automatic spending cuts and tax hikes due to set in at year-end would take more than 4% out of the GDP rate for 2013, tipping us back into recession.
Washington may not be reacting, but Peter Schiff, President & CEO of Euro Pacific Capital and author of "The Real Crash" is. He's been beating the drum on America's fiscal crisis, but it's not necessarily the year-end cliff that could lead us into the next disaster.
"It's not because we go over this phony fiscal cliff, it's probably because we don't go over that one because the government cancels the spending cuts, cancels the tax hikes, and instead we end up going over the real fiscal cliff further down the road," he says.
By kicking the can down the road, Schiff believes interest rates will spike and we won't be able to afford to pay the interest on the enormous amount of debt that we have. "In fact, the real fiscal cliff comes when our creditors want their money back, and we don't have it," he states.
Schiff says QE3 can only take us so far and the Federal Reserve's money printing will do so much destruction to the dollar through inflation, that we'll see a currency collapse like never before, which will force a dramatic and painful new way forward.
"Our economy is so screwed up from years and years and years of bad monetary and fiscal policy that it's going to be painful to correct that problem. But we have to do it," he says. "We can't keep avoiding the pain and in the process making the problem worse, because then we're just going to have even more pain in the future to fix an even bigger problem."
For what it's worth, the IMF does back the Fed's latest round of quantitative easing:
"The recent measures by the Federal Reserve on additional quantitative easing and the extension of its low-interest-rate guidance until mid-2015 were timely in limiting downside risks. Monetary policy needs to remain accommodative while the government and household sectors continue to consolidate."-IMF World Economic Outlook
The Fed must stop printing money and politicians must create a real fiscal plan with budget cuts, tax reform and ultimately deficit reduction to avoid Schiff's predicted doomsday scenario. And it's not going to feel good. He likens the pain of money withdrawal to that of an addict in detox.
"If we address these imbalances and let the economy restructure, people are going to lose their jobs in some sectors, some investors are going to lose money, it's going to feel bad for a lot of people for a short period of time, but it will be very constructive pain," he says. "The only way around this is to stop the presses, let interest rates go up, and they're going to have to go way up, and let the chips fall where they may."
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IMHO a good case can be made for the IMF being a contra-inidcator.
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Tempted to put this in the Economics thread on SCH but well, here it is here:
25 Year Anniversary
• by Doug Noland
• October 19, 2012
I spent a memorable October 19, 1987 in front of Quotron and Telerate screens as a Treasury analyst at Toyota’s U.S. headquarters in Torrance, California. After ending my stint as a Price Waterhouse CPA and heading south, I was introduced to the financial markets and macro analysis in 1986. It was impassioned love at first sight.
And 1987 simply could not have been a more fascinating environment for learning. Global currency and fixed income markets were in disarray. The dollar index, which had traded above 160 in March of 1985, had fallen below 100 by January of ’87. Bond yields, after beginning the year at 7%, were above 8% by May, and over 9% in September before jumping to 10.2% in mid-October. Stock markets were increasingly unstable, as speculative excess gained a foothold. At its August ’87 high, the S&P500 was sporting a frothy 39% y-t-d gain.
There were a few good articles this Friday commemorating the 25 year anniversary of “Black Monday.” I particularly appreciated Floyd Norris’ “A Computer Lesson Still Unlearned,” from the New York Times. Bloomberg (Nina Mehta, Rita Nazareth, and Whitney Kisling) did nice work with “Black Monday Echoes as Computers Fail to Restore Confidence.” I’ll take a different tack, focusing more on that period’s extraordinary macro backdrop – one that is highly relevant to today’s even more extraordinary backdrop.
Portfolio insurance played an important role in the precipitate sell orders that overwhelmed and helped crash the market. It was, however, a festering macro backdrop that had set the stage. Importantly, global stock markets had turned highly speculative, having diverged from troubling fundamentals. Global financial and economic imbalances had become a major issue. The U.S., West Germany, the UK, France and Japan had agreed in the September 1985 “Plaza Accord” to take measures to devalue the over-extended dollar. By early 1987, the dollar was seemingly trapped in a downward spiral. “G6” (including Canada) countries reconvened in February 1987 (“Louvre Accord”) to try to stabilize global markets and halt the dollar’s fall. The West Germans and others were worried that the U.S. was pointing fingers at its trading partners instead of addressing its own economic maladies.
The “twin deficits” were a major concern. The U.S. fiscal situation had deteriorated significantly during the 1981/82 recession. Our nation’s fiscal position then did not improve as expected by 1986, with the federal deficit still running at close to 5% of GDP. The U.S. trade balance had deteriorated in tandem. After running an almost balanced position for the period 1979-1982, the U.S. Current Account began to spiral out of control. Our Current Account deficit jumped to $39bn in 1983, $94bn in 1984, $118bn in 1985, and $147bn in 1986. By 1987, the U.S. was running quarterly Current Account shortfalls the size of its annual deficit from only four years earlier.
Credit excesses were certainly not limited to government finance. Total Non-Financial Debt expanded 14.8% in 1984, 15.6% in 1985 and 15.6% in 1986. The Credit boom was broad-based, with Federal, State & Local, Household, and Corporate debt all expanding at double-digit rates throughout the period. Financial Sector Credit Market Debt was exploding, with growth of 17.5% in ’84, 19.3% in ’85, and 26.2% in ’86. Importantly, this growth reflected the commencement of a historic expansion of non-bank Credit, led by (Agency/GSE) MBS and ABS, along with finance company and (“captive finance”) corporate borrowings.
The market and U.S. economic environments troubled Toyota executives back in 1987. They were also plenty worried about Japan. Japanese policymakers were under intense American pressure to stimulate their economy in order to remedy their widening trade surplus with the U.S. After beginning 1986 at about 13,000, Japan’s Nikkei equities index surpassed 26,000 in the autumn of 1987. The Japanese real estate balloon was also rapidly inflating, even as consumer prices remained well contained. Toyota officials were increasingly worried that loose monetary policy and other stimulus measures had fostered a dangerous Bubble in Japan. The 1987 crash proved but a minor setback for the Japanese Bubble, as “terminal phase” excesses in 1988 and 1989 sealed Japan’s fate. The Nikkei ended 1989 at 38,916. The Nikkei closed Friday, some 23 years later, at 9,003.
I’ve often contemplated where I might “officially” pinpoint a starting point for the prolonged U.S. and global Credit Bubble. There is strong justification for choosing the early eighties, on the back of that period’s explosions in U.S. federal debt, non-bank Credit creation, and destabilizing Current Account Deficits. I’ll instead propose October 20, 2012 as the 25 Year Anniversary of the Great Credit Bubble. It was, after all, 25 years ago, on the Tuesday following “Black Monday,” that a statement changed history: “The Federal Reserve, consistent with its responsibilities as the Nation’s central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system.”
There were myriad critical issues that needed immediate attention by 1987 - and certainly in the Crash’s aftermath: the root cause of problematic market distortions, including excessive speculation and new derivatives strategies (i.e. “portfolio insurance”); excessive system Credit expansion, especially the rapid growth of non-traditional Credit creation; federal deficits and attendant Current Account Deficits that had begun to fuel dangerous global imbalances, including the Bubble engulfing our important ally and trading/financing partner in Japan.
Yet, the fixation at the Federal Reserve and Washington was with the markets and the imperative of ensuring no repeat of the Great Depression. The Greenspan Fed was willing to overlook serious fundamentals issues and instead ensure that market participants were emboldened by the Fed’s liquidity backstop. Besides flooding the system with liquidity (concurrent with other measures), the Fed cut rates in the months following the Crash (from 7.25% before the crash to 6.5% in February ’88). After surging above 10% in October of ’87, 10-year Treasury yields dropped to almost 8% in early ’88. Financial conditions remained loose and the markets (and speculation) bounced right back. Total Non-Financial Debt growth remained strong (9.1% in both ’87 and ’88). Importantly, Federal Reserve largess ensured that areas of fledgling excess throughout the system actually gained critical momentum. These included the Drexel Burnham junk bond scheme, the Wall Street “Gordon Gekko” M&A boom, and real estate lending excesses, especially on both coasts.
When this Bubble phase eventually burst in the early-nineties, eighties period excesses were referred to as “the decade of greed.” In the name of fighting the scourge of deflation and depression, the Greenspan Fed responded even more aggressively. The Fed went from guaranteeing marketplace liquidity to ensuring a steep yield curve (short-term rates pegged significantly below market bond yields). This (manufactured borrow short/lend long "carry trade" profits) worked like magic to recapitalize a banking system deeply impaired from the late-80’s Credit boom. It also provided spectacular returns for financial speculators and essentially unleashed the modern era of hedge funds and leveraged speculation, of which there has been no turning back.
Furthermore, the Fed’s activist market interventions/manipulations spurred rampant growth in non-bank Credit, including MBS, ABS, GSE balance sheets, “repos” and securities finance, and Wall Street finance more generally. Indeed, the Fed’s statement the day following the ’87 Crash proved a seminal inflection point for finance and the global economy. Amazingly, the Greenspan Federal Reserve even became outspoken proponents of New Age finance, including derivatives, hedge funds and Wall Street risk intermediation. And the leverage speculating community, global derivatives and securities trading, and the proliferation of unconstrained marketable debt instruments changed the world.
The Greenspan Fed’s 1987 promise of market liquidity was the precursor for today’s zero rates, the Fed’s almost $3 TN balance sheet, and recent promises of “open-ended” quantitative easing (QE). Over the years – and through every crisis – the Fed became only more zealous activists supporting the uninterrupted expansion of marketable debt. The bigger the securities markets – and the more dominant the leveraged speculators – the more Fed policy revolved around ensuring a favorable liquidity and rate backdrop for unending leveraging and speculating.
Especially after the ’87 Crash, the Federal Reserve and other regulators should have moved decisively to nip the derivatives boom in the bud, especially in the area of the dynamic hedging (i.e. selling S&P500 futures into a rapidly falling market to hedge market insurance derivatives written) of myriad market risks. “Black Monday” provided unequivocal evidence of the serious flaws and dangers associated with the premise of “liquid and continuous” markets – an assumption that is really the foundation for contemporary derivative hedging strategies. Instead of the Crash destroying this market fallacy, the Fed’s day-after statement validated the view that derivative contracts could be written and risk-strategies pursued on the belief that policymakers would be there to counterbalance market illiquidity and neutralize “tail risks” and system shocks. This fundamentally changed finance, the pricing and trading of risk instruments, and risk-taking more generally. The unprecedented proliferation of market risk insurance took the world by storm and played a pivotal role in runaway Credit excesses and associated global imbalances and economic distortions.
The Fed’s statement on October 20, 1987 commenced 25 years of serial (and escalating) booms and busts around the world. We’re nowadays in the midst of “melt-up” Credit debasement, a “blow-off” top in global speculative excess, and complete policy capitulation in hope of holding the downside of the global Credit cycle at bay. For a few years now, I’ve referred to the “global government finance Bubble” as the granddaddy of them all. What started as excesses at the fringes of U.S. bank and junk bond finance back in the late-eighties eventually made its way to terminally infect Treasury and related debt at the core of our entire monetary system. Global excesses, having fueled precarious Bubbles in Japan, SE Asia, Europe and the emerging economies over the years, afflicted China with its estimated population of 1.3 billion. Today’s historic Bubble phase risks the loss of market trust in sovereign debt. The current global “inflationist” policy regime risks being completely discredited. And the historic Chinese Bubble risks a precarious post-Bubble day of reckoning.
Unlike the 80’s and 90’s, there’s no longer any attempt at a coordinated strategy to deal with global excesses and imbalances. Policymakers have thrown in the towel - and these days have no strategy beyond reflation and Bubble perpetuation. U.S. policymakers pay little more than lip service to incredible federal deficits. This, however, is actually more than is paid to the massive Current Account Deficits that have been the root cause of now deep structural global imbalances and economic impairment. More than 25 years later, our nation’s policy prescription for unmatched global imbalances is even looser monetary policy and added stimulus for all nations, everywhere, all-the-time.
And the way I see it, the Fed, ECB and global central bankers today fight a losing battle. The mountain of global debt, securities, and derivatives, along with this destabilizing global pool of speculative finance, just inflate larger by the year – and after each policy response. And the more outrageous the policy measures implemented to try to resolve each crisis, the more these desperate measures further inflate the global Bubble. Ironically, the ongoing assurances of central bank liquidity seem to ensure an eventual crisis beyond the liquidity capacity of central banks. Happy 25th Anniversary, you aged and ornery Credit Bubble. They’ll be reading, writing about and studying you for at least the next century.
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Are people still in the market with another correction coming? If nothing is done, capital gains tax rates go up at the end of the year by 33-50%, and nothing is being done. If Obama wins, under his plan they go up by as much as triple. This doesn't affect you? If everyone but you sells, the value of your stock will go down - significantly. MHO.
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I'm not sure it Romney can stop the crash, but with Buraq it's a done deal.
We are going to live through interesting times.
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Emotionally at this point in time I am a bear. However, based upon my track record in recent years, I have come to view myself as a counter-indicator :lol: :cry:
If Romney wins, Obamacare is done for. That is a BFD.
If Romney wins, the fiscal cliff is going to be handled quite differently and that too is a BFD.
If Romney wins, Bernanke will become unemployed and that too is a BFD.
There's money on the sidelines, lots of it. If Romeny wins, it comes to play. That too is a BFD.
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All that is true. I don't think it will be enough. I really hope I am wrong.
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I see a big win for Romney but there is also a real chance that Obama wins, with a Dem Senate, keeps Obamacare, lets tax rates go up, restarts the carbon war plus the not yet mentioned war against fracking, and kills off all growth. That's a lot of uncertainty. There could be recounts too, with either outcome.
Assume Romney wins, R's take the Senate and keep the House. If they can enact the agenda then I am bullish bigtime on the long term - but not without turmoil in the short term.
If they get it passed in March and make it retroactive to Jan. 1, that leaves months of unknowns starting now. There will be a fight after the election over temporary tax rate extensions. How does that end? When does it end? Nobody knows, I think it was Dec 24 last time. Dems in the Senate could block things next year; some bills don't need 60 votes.
The market is up this year and up since the bottom in 2008. People have profits to take before the year-end rate-hike possibility, and they have to sell before others do. They can buy back into other stocks if they are bullish but widespread selling presents an opportunity for a downward spiral.
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Data Watch
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New Orders for Durable Goods Jumped 9.9% in September To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 10/25/2012
New orders for durable goods jumped 9.9% in September (10% including revisions to August), coming in above the consensus expected gain of 7.5%. Orders excluding transportation increased 2.0% (1.5% including revisions to August), easily beating the consensus expected gain of 0.9%. Overall new orders are up 2.5% from a year ago, while orders excluding transportation are down 1.6%.
The rise in overall orders in September was led by a massive rebound in civilian aircraft, although ex-transportation orders were up as well. Machinery orders were up 9.2%, but are still down 6.0% from a year ago.
The government calculates business investment for GDP purposes by using shipments of non-defense capital goods excluding aircraft. That measure was down 0.3% in September (-0.8% including revisions to August) and was down at a 4.9% annual rate in Q3 versus the Q2 average.
Unfilled orders were up 0.2% in September and are up 4.7% from last year.
Implications: Orders for durable goods bounced back sharply in September after a steep drop in August. Both the drop last month and now the rebound were mostly due to extreme moves in the always volatile aircraft orders. However, taking out the transportation sector, orders were still up 2% in September, led by a 9.2% rebound in machinery. That’s the good news. The bad news is that machinery orders are still down 6% from a year ago. Meanwhile, shipments of “core” capital goods, which exclude defense and aircraft, were down 0.3% in September, the third straight monthly decline. Core shipments usually fall in the first month of each quarter and then rebound in the last two months. This time, the rebound didn’t happen. These figures suggest a temporary hesitation in business investment, not recession. We think some companies are postponing purchases of big ticket items until after the election, in the hopes of more clarity, and improvement, in public policy. If so, expect a rebound after the election. Monetary policy is loose, corporate profits are close to record highs, balance sheet cash is at a record high (earning almost zero interest), and we are still in the early stages of a home building recovery. All of these indicate more business investment ahead. In other news this morning, initial claims for unemployment insurance declined 23,000 last week to 369,000. Continuing claims for regular state benefits declined 2,000 to 3.254 million. These figures and other recent data are consistent with a payroll gain of about 120,000 in October, both nonfarm and private. In other news this morning, pending home sales, which are contracts on existing homes, increased 0.3% in September after a 2.6% decline in August. These figures suggest existing home sales (counted at closing) should be roughly unchanged in October.
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Velocity, Uncertainty & the Economy To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 10/29/2012
Recently we lifted our recession odds to 25% from 10%. For some, this was worrisome. In recent weeks we’ve been asked, “If you guys get a little bearish on the economy, after being bullish for so long, shouldn’t I get really nervous?” Our answer to this question is “no.”
Our base case (75%) is the economy continues to grow. Not gangbuster growth; more plow horse data, such as the 2% real GDP growth for Q3 and what we expect to be a workmanlike 120,000 increase in payrolls for October.
We were focused on the potential for a drop in velocity – the turnover rate of the money supply. To put this in plain English, the M1 money supply (cash and checking accounts) stands at $2.4 trillion; M2 (M1 plus savings deposits, short-term time deposits, and retail money market funds), is $10.1 trillion. And, in the past year, total spending in the economy (nominal GDP) has been $15.5 trillion.
Velocity measures how often each dollar is spent. Dividing GDP by M1 shows that every dollar of M1 is spent 6.6 times while every dollar of M2 is spent 1.5 times. Both are down significantly in recent years (and even in recent quarters), partly because of quantitative easing which has artificially boosted M1 and M2 without any kick to GDP growth.
Milton Friedman postulated that velocity was either stable or grew at a stable rate. However, a panic – like the US had in 2008/2009 – obviously can cause a decline. And it is also apparent that quantitative easing, which boosts excess reserves held at the Fed, can also lead to a decline in the amount of GDP supported by a certain amount of money.
Despite the recent decline in velocity, the economy should continue to grow. Productivity and wealth gains from new technology (the cloud, smartphones, tablets, fracking,…etc.) are pulling the economy along against the headwinds of excessive government spending and regulation. The economy is growing slowly, not because of the recent financial crisis, but because of policy mistakes from Washington, DC.
Nonetheless, uncertainty has reached a crescendo. The election coming in just 8 days and the “Fiscal Cliff” at year end have created an environment that tilts measures of risk and reward for business leaders. The results include weak industrial production, new orders, and business investment. While we don’t expect this to lead to a recession, with velocity in play and uncertainty so high, the risks are real.
So far, weaker business investment is being offset by a stronger housing market, which means the economy is likely to avoid any dip in activity. We anticipate that the pullback in business activity will be reversed once the fog of uncertainty clears. Look for stronger growth in 2013.
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Wesbury is right on the money with his key point here. Velocity is the key determinant of what is wrong and what needs to improve and uncertainty is at the heart of it. Worse than high tax rates we have total uncertainty about future tax rates. No investor can make any calculated decision. No company can know their after tax return on investment for all the plant building and expansion decisions that are not being made right now. Pull back, sit still and wait is the only logical choice which means, generally, no new jobs.
I've mentioned that Wesbury is more candid about his political views on right wing radio (Friday Hugh Hewitt show for one) than he is writing for the investment house. Wesbury thinks Romney is going to win and that will be good for the economy. So do I, but my uncertainty level is 50% or more.
What he means by plowhorse economy is that the American private sector is strong but pulling this awfully burdensome load, the American public sector, including all the transfer payments.
If you believe recovery depends on a change of course and the change of course depends on knowing the result especially President and Senate on which the change of course depends, how can you know or predict the economic outlook?
"Recently we lifted our recession odds to 25% from 10%."
Right. What that means is that we are headed into a recession - or we aren't. You can base your investment decisions on that secure knowledge.
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Data Watch
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Personal Income Increased 0.4% in September, Personal Consumption Rose 0.8% To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 10/29/2012
Personal income increased 0.4% in September, matching consensus expectations. Personal consumption rose 0.8%, coming in higher than the consensus expected 0.6%. In the past year, personal income is up 3.9%, while spending is up 3.8%.
Disposable personal income (income after taxes) was up 0.4% in September and is up 3.6% from a year ago. The gain in income in September was led by private wages and salaries, small business income, and government transfer payments.
The overall PCE deflator (consumer inflation) was up 0.4% in September and up 1.7% versus a year ago. The “core” PCE deflator, which excludes food and energy, rose 0.1% in September and is up 1.7% in the past year.
After adjusting for inflation, “real” consumption was up 0.4% in September and is up 2.1% from a year ago.
Implications: A good report on the consumer today shows the plow horse economy continues to push through the mud and clay. Consumer spending grew a healthy 0.8% in September, the biggest monthly gain since February. “Real” (inflation-adjusted) personal consumption was up 0.4% and is 2.1% higher than a year ago. Respectable, but far from spectacular. Income gains were also solid in September, with disposable (after-tax) income up 0.4%, the highest monthly increase since March. Real disposable income is up 1.9% from a year ago, which is enough to keep pushing consumer spending higher. The lion’s share of the income gains in September was due to worker compensation. Government transfers also added about a quarter of the gain, rising 0.5% in September, but this was after a decline in transfers in August. Government transfers are up 3.3% in the past year, while private-sector wages and salaries are up 4.6%. In other words, transfers are now holding down the growth rate of income. One factor that will help maintain spending growth in the year ahead is that households’ financial obligations – recurring payments like mortgages, rent, car loans/leases, as well as other debt service – are now the smallest share of income since 1984. This allows consumers to stretch their income gains further. On the inflation front, overall consumption prices were up 0.4% and the core PCE, which excludes food and energy, was up 0.1% in September. Overall prices and core prices are both up 1.7% in the past year, versus the Federal Reserve’s target of 2%. This is awfully close for a central bank running a very loose monetary policy. Expect higher inflation in the year ahead
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"Expect higher inflation in the year ahead"
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Umm , , , when the DOW was at 6500 you and I were calling for it to go to 6000. That was 100% ago. :oops: :oops: :oops: OTOH Wesbury got it right :oops: :oops: :oops:
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Faber: Market To Drop 20% Now, 50% Later, Complete Global Societal Collapse In 5 Years
November 13th, 2012
The markets are going to go into meltdown soon so expect stocks to lose 20 percent of their value, Marc Faber, author of the Gloom, Boom and Doom report told CNBC on Tuesday.
“I don’t think markets are going down because of Greece, I don’t think markets are going down because of the “fiscal cliff” – because there won’t be a “fiscal cliff,” Faber told CNBC’s “Squawk Box.”
“The market is going down because corporate profits will begin to disappoint, the global economy will hardly grow next year or even contract, and that is the reason why stocks, from the highs of September of 1,470 on the S&P, will drop at least 20 percent, in my view.”
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Faber argued that the “fiscal cliff,” a rise in taxes and automatic spending cuts, would actually involve some minor tax increases in “five years’ time” and some spending cuts “in 100 years.”
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Faber told CNBC that central bank stimulus was useless and the implosion of markets was the only way to restructure the financial system.
“I think the whole global financial system will have to be reset and it won’t be reset by central bankers but by imploding markets – either the currency [markets, debt market or stock markets.”
“It will happen — it will happen one day and then we’ll be lucky if we still have 50 percent of the asset values that we have today.”
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Read more at http://investmentwatchblog.com/faber-market-to-drop-20-now-50-later-complete-global-societal-collapse-in-5-years/
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Umm , , , when the DOW was at 6500 you and I were calling for it to go to 6000. That was 100% ago. :oops: :oops: :oops: OTOH Wesbury got it right :oops: :oops: :oops:
I bet I have a better track record than Wesbury over time. I can repost how Wesbury wrote that the 2008 financial crisis was no big deal, if you like.
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WSJ falls behind on its reading of the forum. Just now catching up on the coming crash: http://www.marketwatch.com/story/retiring-on-the-edge-of-the-fiscal-cliff-2012-11-13
Summarizing this long piece: Sell. Take point 1 for example, "Set aside 12 months of living expenses". A full year of expenses in cash ought to get most people out of the market. What is the downward price momentum after every investor sells off a full year's salary worth of equities?
Point 2, "Rebalance assets" also means sell equities. So does point 3,
"Strategic asset allocation", point 4 "Avoid dividend-paying stocks", and especially point 6, "Harvest long-term capital gains", all equal sell. Expect a GDP decline of 5% if the fiscal cliff cuts all materialize. Who has been saying that? These guys (WSJ/Marketwatch) have no shame in re-publishing our material.
Current environment is more like a “storm watch” rather than a “storm alert”. Really? Maybe today or tomorrow Obama, Pelosi, Schumer and the House Republicans will all come together with a great big, budget balancing, free enterprise expanding deal (and the Vikings might win the Super Bowl). To their credit, the piece was written before the Pres. started launching rockets and missiles at his opposition in yesterday's press conference.
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Retiring on the edge of the fiscal cliff
10 ways to protect your retirement savings
By Robert Powell, MarketWatch
One of the biggest risks that retirees and pre-retirees face is that of taxes; not just paying them but the risk that tax policy will change and throw a big wrench into one’s plans.
Well, that risk—in the form of the fiscal cliff—is now upon us and retirees and pre-retirees must now develop a plan of action for their portfolio should all, some, or none of the scheduled tax changes and spending cuts become a reality on Jan. 1.
“The ‘fiscal cliff’ may affect retirees, pre-retirees and the economy as a whole unless Congress acts,” said Thomas DiLorenzo, manager in the Employee Financial Services group at Ernst & Young LLP.
According DiLorenzo, increased taxes—higher income, higher dividend, and capital gains tax rates—are the primary personal finance concern as the Bush-era tax cuts are set to expire for all individuals. Among the changes:
Marginal tax rates will rise from 10%, 15%, 25%, 28%, 33% and 35% in 2012 to 15%, 28%, 31%, 36% and 39.6% in 2013.
The 15% maximum long -term capital gains rates will revert to 20% and qualified dividend rates will increase from 15% to being taxed at an individual’s marginal tax rate.
Earned income tax credit, child tax credit, and the American Opportunity credits will all be reduced.
Itemized deductions and personal exemptions will become subject to phaseout.
Estate and gift tax exemption will drop from $5.12 million to $1 million and the top estate tax rate will go from 35% to 55%.
And while not part of the Bush tax cuts, the 2% FICA tax reduction that has been in place for the past two years would also expire at the end of this year.
In addition, the lower Alternative Minimum Tax (AMT) exemption that is currently in place for 2012 would result in many more individuals being subject to the AMT if the exemption amount is not increased as it has been in previous years..
While there is still time for Congress to take action and every individual’s situation will be different depending upon their facts and circumstances, experts including DiLorenzo said retirees and pre-retirees ought to consider the following given that the fiscal cliff might become a reality.
Read related story, 5 fiscal-cliff tax moves for retirement savers.
Set aside 12 months of living expenses
Things might get a little bumpy as we approach the fiscal cliff. So, Stephen Smith, a vice president at Noesis Capital Management, recommends that retirees and pre-retirees set aside 10 to 12 months of living expenses in a money-market fund. “That should provide a cushion so that their investment portfolio can be managed according to their respective time frame and circumstances, with less regard for volatility over a six-month period,” he said.
Rebalance assets
In the event that we do go over the fiscal cliff for more than just a few weeks of 2013, “the ramifications could be quite significant,” according to a UBS Wealth Management Report.
So retirees and pre-retirees might consider how they will allocate their assets given any number of scenarios that could play out as we near the fiscal cliff.
In a worst-case scenario, for instance, UBS reports that there will be severe double-digit losses for U.S. and cyclical non-U.S. equities; U.S. Treasuries and highly-rated non-U.S.-government bonds will rally and credit spreads will spike across the board; the U.S. dollar and other safe-haven currencies will rally; and there will be severe double-digit declines in the broad commodity indexes, with energy and base metals being the most affected.
In its report, UBS outlined four other possible scenarios, including a scenario where lawmakers design a best-case grand bargain that avoids the fiscal cliff. In this scenario, UBS predicts that there will be a rally in stocks, fueled by multiple expansion and stronger earnings growth; Treasury yields will rise modestly, but remain low; the U.S. dollar will rise; and commodities won’t fall.
Others, however, have a different point of view. “Although tax policy for 2013 remains highly contingent on the outcome of U.S. Presidential elections—we think that most likely scenarios continue to favor our themes of preferring large cap over small cap and dividend payers/growers over non-payers,” said Lisa Shalett, CIO and head of Investment Management and Guidance for Merrill Lynch Wealth Management.
Strategic asset allocation
While many agree that you need to develop a plan for the best- and worst-case scenarios, some suggest that you consider what’s called strategic asset allocation.
“Investors should, in my view, one, have a plan for what to do if valuation levels in the current stock market go up or go down substantially; and two, adhere to that plan—strictly,” said Ron Rhoades, assistant professor at Alfred State College and the president of ScholarFi Inc.
According to Rhoades, the current valuation level of the overall U.S. stock market is currently slightly below normal levels seen over the past 30 years, perhaps 0% to 10% below mean valuation levels. “Given the substantial rise in equities which has occurred this year, and the macroeconomic risks present, a prudent investor might desire to ‘take gains off the table’ at present,” he said. “This would be done by selling longer-duration bonds and/or equities, and reinvesting in short-term bond funds or CDs. This would serve to minimize the risk present in a downturn.”
Rhoades is not suggesting that investors time the market with tactical asset allocation. Rather, he suggests “adopting a prudent long-term strategic asset allocation and undertake tax-efficient rebalancing of the portfolio on a periodic, perhaps quarterly or semiannually, basis…This forces the investor to ‘sell high’ and ‘buy low’—to a degree.”
Tactical moves
For investors with significant equity positions in their portfolio who might not want to reduce that allocation, Jeff Witt, the director of research at Private Asset Management, recommends buying longer-term put options on the S&P 500 index as a type of “insurance” for your portfolio. “Investors could also look at buying the VIX Index (either through Futures contracts or ETFs), which has traditionally been negatively correlated with the broader market,” he said. “These investments could lessen the impact of a potential pull back in the equity market, should one occur.”
For fixed-income investors, Witt said higher taxes should make tax-exempt municipal bonds relatively more attractive. “Therefore, for taxable accounts, repositioning a portfolio toward a higher concentration of municipal bonds might make sense,” he said.
Roger Aliaga-Diaz, an economist at Vanguard said in a recent webcast that investors should not move out of fixed-income assets. “You want to hold part of your portfolio in fixed income, only because of this low correlation to equities,” he said. “Only because in the situation like a fiscal cliff you would see the bond part of your portfolio really to buffer and to push in the impact on the more risky part.” Read the transcript of Aliaga-Diaz’ webcast.
Avoid dividend-paying stocks?
Others, meanwhile, say that retirees and pre-retirees need to rebalance their portfolios for the coming fiscal cliff, but suggest avoiding dividend-paying stocks.
“Normally in a down economy, investors might want a defensive stock with a high dividend,” said Lukas Dean, an assistant professor at William Paterson University. he said. “But with dividend rates taking such a significant increase, it is doubtful that investors will be as prone to turn that traditional safe haven.”
Witt is of the same opinion. “Should the Bush tax cuts be allowed to expire, the tax rate on dividends will increase,” he said. And that would make dividend-paying stocks relatively less attractive to income investments such as master limited partnerships and high-yield bonds. “We believe the utility and telecommunication services sectors are most at risk, as these sectors traditionally have high yields and relatively low growth rates,” Witt said. “Furthermore, both appear to be trading at fairly stretched valuations.”
Asset location
Experts often recommend that you not only make sure your assets are allocated based on your investment goals, but that those assets are also located in the right types of accounts. So, DiLorenzo recommends reviewing which assets you hold in your taxable and tax-deferred accounts and shuffling things around if need be. Move, for instance, the most tax-sensitive investments—dividend-paying stocks and fixed-income securities—from taxable to tax-deferred accounts, and move investments such as growth stocks that don’t pay a dividend from tax-deferred account to a taxable account. Doing so will improve your after-tax wealth and income.
In short, you want to optimize your use of tax-deferred account such as IRAs, 401(k)s and populate them with the most tax-sensitive (ordinary income) instruments,” said Shalett.
Speaking of trying to create tax-efficient income, Shalett also suggests using more tax-efficient investments and accounts, such as single stocks, separately managed accounts, and ETFs
Harvest long-term capital gains
Shalett also recommends rebalancing your portfolio before year-end with an eye toward tax management and harvesting of losses vs. gains, especially long-term gains. Selling assets that qualify for long-term capital gain treatment in 2012 will lock in the maximum 15% long-term capital gains rate, said DiLorenzo.
According to Paul Mauro, the managing partner of Legacy Financial Advisors, Inc. what moves you make with your portfolio will depend also on your level of income, not just your assets. So for instance, taxpayers who are in the 15% tax bracket and who would qualify to pay 0% on long-term capital gains might consider selling, for instance, their second home, assuming of course they have a gain on the property.
Prepare for a recession?
To be sure, it’s wise to prepare your prepare your portfolio for the coming fiscal cliff. But it’s also wise to contemplate what might happen to the economy and prepare for that as well.
It will be up to this postelection session of Congress to address this issue, according to a recent report by Jeff Applegate, the chief investment officer of Morgan Stanley Wealth Management.
What’s more, Applegate reminds us that the Congressional Budget Office has warned that failure to reduce the fiscal drag risks recession in 2013 and that Moody’s has warned that the US credit rating is at risk for another downgrade.
“Postelection, we think an agreement will take place to significantly mitigate and delay the fiscal cliff,” he said. “We expect most or all of the tax cuts will be extended for a year, but extended jobless benefits and payroll-tax reductions will lapse. We also expect Congress to override planned defense-spending cuts that are built into the automatic sequester. In all, a fiscal drag of 1% to 2% of GDP seems most likely to us, as opposed to the estimated 5% if all the cutbacks take effect.”
And lessening the drag reduces the near-term risk of recession, he said.
Don’t make bad decisions
“People are well aware of the potential problems because of the fiscal cliff,” said Gary Thayer, the chief macro strategist at Wells Fargo Advisors. “People need to understand what’s at stake. But we can’t predict the outcome yet.”
With the election over, however, Thayer said, there will be some better guidance. “Prior to the election, there was just a lot of speculation because neither party was really putting out substantive proposals until they knew there’s a chance that they can get something enacted.”
For the record, Thayer doesn’t think the worst-case situation is going to happen. “So, we are not telling people to panic or get too defensive,” said Thayer. “If the worst-case scenario doesn’t happen, the prospects for the economy remain favorable. But we can’t say for sure what’s going to happen. Right now things are sort of in limbo.”
Thayer likens the current environment to a “storm watch” rather than a “storm alert.”
“We don’t want to say that this is going to happen, but if there’s a storm watch, you pay attention but you don’t necessarily go to the basement,” Thayer said. “You don’t want to be making decisions about something that may not happen.”
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http://etfdailynews.com/2012/11/13/peter-schiff-thanks-to-federal-reserve-policies-like-qe3-were-all-screwed/
Peter Schiff: Thanks To Federal Reserve Policies Like QE3; We’re All Screwed
November 13th, 2012
Zeiler: U.S. Federal Reserve policies like QE3 are building up to an inflationary catastrophe, says economic expert Peter Schiff.
Schiff, the CEO and Chief Global Strategist of Euro Pacific Capital, made his remarks about the dire consequences of excessive quantitative easing in a video interview on Yahoo! Finance’s Breakout.
Schiff said he has dubbed the Fed’s third round of bond-buying, known as QE3, “Operation Screw” because “everybody’s pretty much screwed if they own dollars.”
He warned that the Fed can only continue its policies of buying U.S. Treasuries and mortgages by printing more money, and printing more money inevitably will drive much higher inflation.
“The Fed is now promising to print $85 billion a month,” Schiff said. “That’s over a trillion dollars a year. And I think that’s just their opening bid.”
QE3 Not “Inflation-Neutral’
Schiff, who is best known for predicting the collapse of the housing bubble and the 2008 financial crisis in his 2007 book “Crash Proof,” laughed at the claim made by Fed Chairman Ben Bernanke that QE3 is “inflation-neutral.”
“He’s lying,” Schiff said. “It is not inflation-neutral. It is the very definition of inflation. The government tries to mask how bad inflation is by giving us phony numbers that purport to measure it with the CPI or PCE or whatever Ben Bernanke wants to point to, but the reality is prices are already going up.”
Inflation isn’t running rampant now, he said, only because all that new Fed money hasn’t worked its way to the consumer yet.
“Inflation enters the market in different ways,” Schiff explained. “It goes through the banks, it goes through housing, it goes through stocks. Sometimes it takes a distorted path before it ultimately ends up in consumer prices.”
As proof that a major bout of inflation is lurking around the corner, he noted that gold prices have more than doubled since the Federal Reserve launched QE1, QE2 and now QE3. Rising gold prices indicate a weakening dollar.
“That’s a pretty good barometer of what’s going on,” Schiff said.
Peter Schiff: We’ll Be Standing in Line for Everything
When QE3-fueled inflation finally does strike, Schiff said, the impact will hit Americans hard.
“Ultimately, I think we’re going to see prices skyrocketing,” he said. “And I think we’re going to get shortages.”
Schiff said the long gasoline lines in New York and New Jersey in the aftermath of Hurricane Sandy are a taste of what’s in store for the broader U.S. economy when inflation takes off.
“They won’t let gas stations raise prices because they’ll prosecute them for price gouging,” he said. “So as a result, people have to wait in line five hours for gas.
“When prices start to skyrocket as a result of the inflation the Fed’s creating, you’re going to see price controls imposed on a whole bunch of products,” Schiff said, “which means we’re going to be standing in line for just about everything.”
The last time the U.S. government imposed price controls to combat inflation was during the administration of President Richard Nixon in 1971.
The effort failed spectacularly, leading to product shortages and only temporarily suppressing price increases, which resumed with a vengeance after the controls were lifted.
Whether U.S. President Barack Obama heeds this lesson from history or elects to use the discredited tool of price controls to assuage a citizenry irate over high inflation remains to be seen.
But in any event, Peter Schiff thinks the Fed’s QE3 already has guaranteed a big jolt of inflation.
“It’s only a matter of time before you see the increase in consumer prices,” Schiff said. “It’s like you’re standing on a train track and you can see a light, and you can hear a whistle. Get off the track because the train is coming. Don’t stand there until you get hit by it.”
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The Consumer Price Index (CPI) was up 0.1% in October To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein - Senior Economist
Date: 11/15/2012
The Consumer Price Index (CPI) was up 0.1% in October, exactly as the consensus expected. The CPI is up 2.2% versus a year ago.
"Cash" inflation (which excludes the government's estimate of what homeowners would charge themselves for rent) also rose 0.1% in October and is up 2.2% in the past year.
Energy prices slipped 0.2% in October while food prices rose 0.2%. The "core" CPI, which excludes food and energy, was up 0.2% in October and is up 2.0% versus a year ago. The consensus expected gain of 0.1% in October.
Real average hourly earnings – the cash earnings of all employees, adjusted for inflation – were down 0.2% in October and are down 0.7% in the past year. Real weekly earnings are down 0.6% in the past year.
Implications: Forget about consumer prices for a moment. The big economic news this morning was in the labor market, where initial jobless claims jumped 78,000 last week to 439,000 and continuing claims soared 171,000 to 3.33 million. If these numbers came out of nowhere, it would mean very bad news for the economy. Instead, the spike in claims is due to Hurricane Sandy. Based on the aftermath of Hurricane Katrina, expect claims to remain elevated for one more week and then move back down to the "pre-Sandy" range over the following four to six weeks. However, Sandy will likely affect the payroll survey for November, where our very early estimate is zero gain for the month. On the inflation front, consumer prices were up only 0.1% in October, as the consensus expected. However, the unrounded figure was 0.146%, so it was within a hair of being reported as 0.2%. "Core" prices, which exclude food and energy, were up 0.2%. The overall CPI is up 2.2% in the past year while the core is up 2%. Neither figure sets off alarm bells. But both are hovering right near the Federal Reserve’s target of 2% and yet the stance of monetary policy is still loose, suggesting inflation will move upward over the foreseeable future. Look for housing, which makes up about 30% of the CPI, to be a large contributor to higher inflation in the next few years. It’s important to recognize that inflation getting above the Fed’s stated objective will not change the Fed’s monetary policy anytime soon. The Fed is focused on the labor market and is likely to let inflation exceed its long-term target for a prolonged period of time. In other news this morning, the Empire State index, which measures manufacturing sentiment in New York, increased to -5.2 in November from -6.2 in October. The Philadelphia Fed index, another measure of regional manufacturing sentiment, declined to -10.7 in November from +5.7 in October. One explanation of the difference could be Sandy's proximity to Philadelphia as opposed to much of New York’s manufacturing being upstate and largely unaffected by the storm.
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second post:
I've been increasing my percentage of cash. On Friday I even sold a substantial (and substantially underwater) position in CREE, in which I continue to believe-- this to raise more cash and to have an offset to the gains my sales have triggered.
In order to avoid wash sale issues I will have to wait at least 30 days to get back in.
I hate having to play these timing games , , ,
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Investment Falls Off a Cliff
U.S. Companies Cut Spending Plans Amid Fiscal and Economic Uncertainty.
by SUDEEP REDDY and SCOTT THURM
U.S. companies are scaling back investment plans at the fastest pace since the recession, signaling more trouble for the economic recovery.
Half of the nation's 40 biggest publicly traded corporate spenders have announced plans to curtail capital expenditures this year or next, according to a review by The Wall Street Journal of securities filings and conference calls.
Nationwide, business investment in equipment and software—a measure of economic vitality in the corporate sector—stalled in the third quarter for the first time since early 2009. Corporate investment in new buildings has declined.
At the same time, exports are slowing or falling to such critical markets as China and the euro zone as the global economy downshifts, creating another drag on firms' expansion plans. Corporate executives say they are slowing or delaying big projects to protect profits amid easing demand and rising uncertainty. Uncertainty around the U.S. elections and federal budget policies also appear among the factors driving the investment pullback since midyear. It is unclear whether Washington will avert the so-called fiscal cliff, tax increases and spending cuts scheduled to begin Jan. 2.
Companies fear that failure to resolve the fiscal cliff will tip the economy back into recession by sapping consumer spending, damaging investor confidence and eating into corporate profits. A deal to avert the cliff could include tax-code changes, such as revamping tax breaks or rates, that hurt specific sectors.
President Barack Obama called a number of business executives over the weekend, including Warren Buffett, Apple Inc. Chief Executive Tim Cook and J.P. Morgan Chase's James Dimon, to promote his solution to the looming budget crisis. All sides in Washington, in a departure from a year of deep divisions, have pledged to work together and compromise to avoid going over the cliff.
"The whole world is looking for stability and clarity from the United States," said David Seaton, chief executive of Fluor Corp., a large engineering and construction firm. If uncertainty isn't removed, he said, "people will sit on their war chests of cash and return it to shareholders. You'll have a retarded growth trajectory."
Should the White House and Congress strike a deal to avoid the fiscal cliff, the economy could get a boost. "You might very well get a burst of pent-up demand coming at the start of next year," said Paul Ashworth, chief U.S. economist at Capital Economics, a consultancy.
"Given the timing of the drop-off in business investment," he said, "you have to think it's not just a coincidence with the timing of the fiscal cliff."
Unless the business investment slowdown reverses quickly, it could weigh further on growth prospects and the stock market.
Collectively, the members of the Standard & Poor's 500-stock index spent $580 billion on plants and equipment in 2011, according to calculations by the Journal from data supplied by S&P Capital IQ. Spending has run ahead of that pace throughout the year but has slowed in recent months. The latest retrenchment includes such household names as Wal-Mart Stores Inc., Ford Motor Co., Boeing Co., Intel Corp. and Walt Disney Co.
During the 2007-09 recession, businesses cut back sharply on all kinds of spending. But investment helped propel the recovery, growing faster than the rest of the economy from the second half of 2009, once the recession ended, through the first half of this year. That helped many companies boost productivity and profits without adding new workers.
The Fiscal Cliff
If Congress doesn't reach a budget deal, the U.S. will see across-the-board spending cuts and tax increases for nearly everyone beginning in January 2013. Follow all of the Journal's coverage in The Fiscal Cliff stream .
The pattern changed in the third quarter, when business investment fell at a seasonally adjusted annual rate of 1.3%, according to a preliminary estimate from the Commerce Department. The latest drop included a decline in investment in structures, such as buildings, at a 4.4% annual rate. Investment in equipment and software stalled after growing at a roughly 5% annual pace in the first six months of the year.
"We have really not seen tailwinds to the economy," said OfficeMax Inc. chief executive Ravi Saligram. "When that happens, American businesses focus on productivity. You always prepare for the worst and if things get better, that's great."
The slowdown in capital spending contrasts with a rebound in U.S. consumer spending and confidence, which has returned to a five-year high. Meanwhile, the latest survey by the Business Roundtable, which tracks expectations for sales and investment among its big-company CEOs, found the worst sentiment about the economic outlook in three years.
Consumers may be taking their cues from signs of stronger job growth, lower fuel prices and an improving housing market. Businesses, on the other hand, appear more worried about the future, as profit growth and the global economy slow and the outlook for U.S. government policies remains murky.
The mood appears better among small businesses than large corporations. A survey by the National Federation of Independent Business in October found an uptick in capital spending among small businesses. While overall sentiment among small businesses remains below its prerecession average, it has been resilient in recent months.
Snap-on Inc., which makes equipment for auto technicians, reports healthy investment among the 800,000 small businesses it serves across the U.S. "Their confidence is fair and reasonable," said Snap-on CEO Nicholas Pinchuk. "As you move up to bigger companies, their foresight becomes broader and their confidence starts to erode."
Slower global economic growth also is contributing to the investment slowdown. China for example, has reduced demand for coal and other minerals, slowing orders for earth-moving and other equipment from Caterpillar Inc.
At the start of the year, Caterpillar expected to spend $4 billion building and expanding factories in Illinois, North Carolina, Texas, China and Thailand, among others. Last month, Caterpillar said it wouldn't reach that target, and expects capital spending to fall next year.
In technology, Intel is facing lower demand for its semiconductors. Intel last month said it would shift idle factory space and equipment into producing its newest chips, reducing its capital spending this year to roughly $11.3 billion, from an earlier projection of $12.5 billion. Chief Financial Officer Stacy Smith told investors last month that spending could fall again next year.
Other semiconductor companies buying less new equipment include Texas Instruments Inc. and Harris Corp., which has cut capital spending by 46% so far this year, to $44 million from $82 million. Apple said it planned to spend $10 billion on new stores and equipment in the current fiscal year ending Sept. 30, 2013, down from $10.3 billion in the 2011-2012 fiscal year.
Among the companies cutting capital-spending targets, the biggest concentration is in the energy industry, where natural-gas prices are near record lows. Devon Energy Corp. spent $6.2 billion in the first nine months of this year, up 13% from the same period last year, with boosted spending on oil projects. But capital spending next year will be "significantly less than 2012," particularly in acquiring new leases, Devon chief executive John Richels told analysts.
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Second post of the day
Why We're Investing in America
The Carlyle Group sees safety and growth right at home, in a world where both are in short supply..
Article Stock Quotes Comments (9) more in Opinion | Find New $LINKTEXTFIND$ ».
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By WILLIAM E. CONWAY JR.
Since co-founding the Carlyle Group CG +1.02%in 1987, I have had the honor to invest in almost every region of the world, from Shanghai to St. Louis, Sweden to sub-Saharan Africa. Over these 25 years, different regions have stood out at different times as attractive places to deploy capital.
A decade ago, China was the most attractive place to invest. It was one of the largest emerging markets, so Carlyle opened offices, hired investors, and deployed capital there. But the world is different today than it was 10 years ago. China is no longer emerging but emerged, and while it remains an attractive place to invest, its emergence yields new challenges (GDP slowing to below 7% from 10%) as well as new opportunities (investment driven by a rising middle class).
Today we find ourselves in a world of no return. With government bonds paying next to nothing and the yield on high-grade corporate bonds at historic lows, investors are seeking safety in addition to growth. The United States offers a powerful combination of the two.
The U.S. is characterized by inherent attributes that are often taken for granted: freedom, the rule of law, confidence in regulatory agencies. America has admired universities, the deepest and most-liquid capital markets, peerless medical systems, and pockets of innovation such as Silicon Valley—all of which, though not perfect, are highly advanced and function smoothly.
Nowhere on the globe can my firm invest in companies with as much confidence as we do in the U.S. And while we take comfort in the long-term safety of U.S. assets, we also see opportunities for growth. This is because of a combination of very low interest rates, a strengthening housing market and significant domestic energy discoveries.
The high-yield market has become a low-yield market, with cheap credit available to promote investment. Incredibly low interest rates are good for our private-equity transactions, for corporations refinancing debt, for home buyers and for auto sales.
The housing market is improving, although investors see a different type of housing boom than before the financial crisis. Then, housing prices appreciated and consumers used home-equity loans like credit cards, driving up consumer spending. Today, the housing boom is grounded in real, sustainable investment in new and existing housing, compensating for underinvestment over the past five years.
Meanwhile, the discovery and production of new sources of crude oil and shale gas is lowering energy prices, jolting the U.S. into a new energy revolution. This development will lower costs and drive growth in U.S. manufacturing.
As other nations evolve to promote freedom, improve education, protect the rights of their citizens, enforce the rule of law, advocate transparency and stamp out corruption, they can and will compete with the U.S. not only in innovation, but in the quality of products and services sold. This competition will be good, not bad, for America, driving efficiencies and lowering prices.
In the first three quarters of 2012, Carlyle committed to invest $4.4 billion in equity in the U.S. ($4.2 billion in the rest of the world), with almost two-thirds of that in America's industrial or manufacturing sectors. Last year we also deployed the majority of our capital in the U.S.—$6.6 billion, compared with $4.7 billion in the rest of the world.
Many in America and beyond have been paralyzed by fear of the fiscal cliff, frustrated with Washington's partisanship, mesmerized by the presidential election or stunned by the post-Great Recession recovery. Any way you look at it, though, now is a great time to invest—and there is no better place than America.
Mr. Conway is co-founder and co-CEO of the Carlyle Group.
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The Cliff Ain't So Bad
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 11/19/2012
Last week, fresh off the election, it looked like Democrats and Republicans could quickly forge a bipartisan agreement to avoid the fiscal cliff. President Obama was talking about raising taxes but wasn’t wedded to higher tax rates. Meanwhile, Speaker Boehner put higher revenue on the table, as long as tax rates did not go up.
So they could have extended all the tax cuts just one more year – the “Bush” tax cuts dating back to 2001/03 as well as the payroll tax cut – and then gone to work on proposals like the Simpson-Bowles long-term budget plan. Or, in the alternative, they could have kept all income tax rates where they are, including a top rate of 35%, and raised tax revenue from the upscale by limiting itemized deductions.
Instead, President Obama is now asking for $1.6 trillion in higher taxes over ten years, which, in combination with pushback against tighter limits on itemized deductions, requires higher tax rates. In fact, Keith Hennessey, former head of the National Economic Council, thinks Obama and Boehner never meant the same thing when they were talking about tax rates. Boehner meant not lifting tax rates above today’s top rate of 35%; he thinks Obama meant not lifting the top rate above the 39.6% where it was already scheduled to go next year.
As a result, it now looks like a toss-up whether we hit January 1 without an agreement. So get ready for the doomsaying punditry to go crazy over the next few weeks.
By contrast, we do not think there is anything special about January 1. Most firms issue their first paychecks of the year on or after January 15th, and would have until that time to change withholding. Taxes on capital gains and dividends earned in 2013 are not due until April 2014. The Alternative Minimum Tax has to be “patched” for 2012, but those who owe AMT generally wait until March or April to pay their taxes.
In the end, we still think an agreement is highly likely because an uninterrupted dive off the fiscal cliff would cause a recession. In the end that agreement will likely contain some higher tax rates for investors. The official tax rates for capital gains and dividends would probably end up at around 20%. Extra taxes in the health care law would make the effective rate 23.8% on higher incomes.
Higher taxes on investors would certainly not be good news, but it would also not be a reason to panic or flee from the stock market. From the end of 1986 through the end of 1996 the S&P 500 went up 12% per year, excluding dividends, and the total return was 15% per year. Yes, that includes a huge rally in 1995-96, but it also includes the crash in 1987.
And during that entire period, the capital gains tax rate was 28% and the top tax rate on dividends (treated as regular income) went from 28% to 31% to 39.6%. In other words, higher tax rates on investment than we are likely to get next year did not prevent a bull market.
What really mattered during this timeframe was that the size of government was shrinking. Federal spending fell from 22.5% of GDP to 20.2%. At the time, it was the largest drop in any ten-year period since the wind-down after World War II. Ultimately, it’s the government spending that matters because spending redirects resources from the more productive private sector to the less productive government sector.
Given the election and the inevitable implementation of the health care law, we don’t expect a significant reduction in government spending. Nonetheless, agreement on the fiscal cliff is likely to trim government at the margin – even though it will be far less than we think is necessary.
Despite all this, as we recently explained (link to November 5 MMO), based on earnings and interest rates, the stock market is cheap. This is true, even if interest rates were to rise. It is entirely plausible that some investors end up playing the fiscal cliff negotiations exactly right – selling recently as the fear rose and then buying before the market rises on an agreement. But this kind of perfect trading is rare. More likely, investors playing the cliff will wait too long and be underexposed to equities when the rally starts. We don’t know how to trade these things. Instead, when equities are undervalued, it’s better to stay invested all along.
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Real GDP Revised to a 2.7% Annual Growth Rate in Q3 from a Prior Estimate of 2.0%
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 11/29/2012
Real GDP was revised to a 2.7% annual growth rate in Q3 from a prior estimate of 2.0%. The consensus had expected a revision to a 2.8% annual rate.
Inventories and net exports were revised up, while personal consumption and business investment were revised lower.
The largest positive contributions to the real GDP growth rate in Q3 were personal consumption, inventories and government. The weakest component was business investment.
The GDP price index was revised lower at a 2.7% annual rate of change. Nominal GDP growth – real GDP plus inflation – was revised up to a 5.5% annual rate from a prior estimate of 5.0%.
Implications: The most newsworthy part of today’s GDP report is that corporate profits increased at a 14.8% annual rate in Q3 and are up 8.7% versus a year ago. Profits are now back at an all-time record high. Real GDP growth in the third quarter was revised up substantially, coming in at a 2.7% annual rate versus an original estimate of 2.0%. Despite a better growth number, the lion’s share of the increase was due to higher inventories. So, although the overall number came in much better than the prior estimate, the composition of growth was less promising for the economy going forward. In fact, real personal consumption growth is now estimated at 1.4%, down from the 2.0% originally thought. If we exclude inventories, final sales grew at a 1.9% annual rate. What we have here is another plow horse GDP report. Nominal GDP (real growth plus inflation) is up 4.2% from a year ago and grew at a 5.5% annual rate in Q3, the fastest growth since mid-2007. These figures suggest further quantitative easing is not helpful. Even zero percent interest rates are inappropriate when nominal GDP growth is this high. Despite that, it looks like the Fed may ramp up the expansion in the balance sheet in 2013. In other news this morning, new claims for jobless benefits declined 23,000 last week to 393,000 as disruptions from super storm Sandy are starting to recede. Continuing claims for regular state benefits declined 70,000 to 3.29 million. Also this morning, pending home sales, which are contracts on existing homes, rose 5.2% in October. Look for higher existing home sales in the coming month.
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Watch
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Nonfarm Productivity Rose at a 2.9% Annual Rate in the Third Quarter To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 12/5/2012
Nonfarm productivity (output per hour) rose at a 2.9% annual rate in the third quarter, revised up from last month’s estimate of 1.9%. Nonfarm productivity is up 1.7% versus last year.
Real (inflation-adjusted) compensation per hour in the nonfarm sector fell at a 1.4% annual rate in Q3 but is up 0.1% versus last year. Unit labor costs declined at a 1.9% rate in Q3 but are also up 0.1% versus a year ago.
In the manufacturing sector, the Q3 growth rate for productivity (-0.7%) was substantially lower than among nonfarm businesses as a whole. The slower pace in productivity growth was due to hours remaining unchanged while output fell. Real compensation per hour was up in the manufacturing sector (0.1%), and due to the decline in output, unit labor costs rose at a 3.2% annual rate.
Implications: Productivity was revised up substantially for the third quarter, consistent with last week’s upward revision for real GDP growth. Output was revised up while the number of hours worked stayed the same, which means more output per hour. Productivity is up 1.7% in the past year, versus an average annual growth rate of about 2% over the past couple of decades. However, we do not think this means the productivity revolution has come to an end. It is not unusual for productivity to surge at the very beginning of a recovery and then temporarily slow down as hours worked increase more sharply. We believe the long-term trend in productivity growth will remain strong, due to a technological revolution centered in computer and communications advances. In fact, Q3 productivity rose at the fastest rate in two years. It’s nothing to write home about, but it’s consistent with a plow horse economy. In other news this morning, the ADP employment index, which measures private sector payrolls, increased 118,000 in November. Plugging all these figures into our employment models suggests Friday’s official Labor Department report will show a 75,000 gain in payrolls, both nonfarm and private. We may tweak this forecast one more time, though, when we get tomorrow morning’s report on unemployment claims.
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Non-Farm Payrolls Increased 146K in November, Easily Beating the Consensus Expected 85K To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 12/7/2012
Non-farm payrolls increased 146,000 in November, easily beating the consensus expected 85,000. Revisions to September/October subtracted 49,000, bringing the net gain to 97,000.
Private sector payrolls increased 147,000 in November (146,000 with revisions to September/October). November gains were led by retail (+53,000), professional & business services, including temps, (+43,000), leisure & hospitality (+23,000), and health care (+20,000). Government payrolls declined 1,000.
The unemployment rate fell to 7.7% (7.746%) from 7.9% (7.876%).
Average weekly earnings – cash earnings, excluding benefits – were up 0.1% in November and up 1.7% from a year ago.
Implications: Nonfarm payrolls increased a solid 146,000 in November, beating the gain predicted by all 91 economic groups that made a forecast. Obviously, super storm Sandy didn’t have as much impact as everyone thought. Although payrolls were revised down 49,000 for September/October, almost all of that downward revision was for government, not the private sector. Payroll gains have averaged 157,000 per month in the past year, so despite Sandy we ended up right near the trend. Given today’s technological advances, we should be doing much better, more like 300,000 jobs per month like in the 1990s. What’s holding us back from much faster gains is the huge increase in the size of government, particularly transfer payments, over the past several years. Civilian employment, an alternative measure of jobs that includes small-business startups, declined 122,000 in November, but this series is volatile from month to month and follows a gain of 1.3 million in September/October. Similarly, the labor force dropped 350,000 in November after a gain of one million in the past two months. As a result of the drop in the labor force, the unemployment rate fell to 7.7% (7.746% unrounded). However, the trend decline in unemployment is not due to a shrinking labor force. The labor force is still up one million in the past year while the jobless rate is down a full percentage point. Other figures from today’s report were mixed. Total hours worked were up 0.2% in November and 1.8% from a year ago. Average hourly earnings were up 0.2% in November and 1.7% from a year ago. As a result, total cash earnings (based on earnings and hours) are up 3.5% from a year ago (about 1.7% when adjusted for inflation), so consumers have room to increase spending. The bottom line remains that today’s report shows a continuation of the plow horse economy. In other recent news on the labor market, initial unemployment claims dropped 25,000 last week to 370,000. Continuing claims for regular state benefits dropped 100,000 to 3.21 million. These figures suggest payrolls will expand in December at a pace at or above the recent trend.
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http://pjmedia.com/tatler/2012/12/07/the-real-unemployment-rate-14-4-percent/
The Real Unemployment Rate: 14.4 Percent
by
Bridget Johnson
December 7, 2012 - 8:29 am In the wake of today’s Labor Department numbers, the Senate Republican Policy Committee said the real unemployment rate is not 7.7 percent, but 14.4 percent for November.
The “real” number of unemployed Americans is 22.7 million, Sen. John Barrasso’s (R-Wyo.) committee said in a release. “These are people who are unemployed (12.0 million), want work but have stopped searching for a job (2.5 million), or are working part time because they can’t find full time employment (8.2 million).”
“The difference from when President Obama took office is 475,000 more Americans unemployed or underemployed,” the committee continued.
“The labor force participation rate is 63.6 percent, a decline of 0.2 percentage points or 350,000 people. If the labor force participation rate were the same as when the President took office, the unemployment rate would be 10.7 percent. …The number of Americans searching for work for more than 27 weeks is 4.8 million, a decrease of 200,000 from October. The average number of weeks a worker is unemployed is 40.0 weeks — double from when President Obama took office.”
Still, Democrats in the upper chamber declared the report to be positive news.
“There is no doubt our economy is moving in the right direction,” said Senate Majority Leader Harry Reid (D-Nev.). “The only question is whether Republicans will jeopardize the progress made so far by forcing a $2,200 tax hike on middle class families, or initiating another destructive fight over the debt ceiling.”
“Despite the critics and naysayers who want to say otherwise, today’s announcement that the US economy has added 146,000 jobs and unemployment fell to 7.7% is yet another positive sign of economic growth,” said Sen. Mark Begich (D-Alaska). “This is great news for Alaska families just before the holidays. I also hope this serves as a reminder to those who are playing politics with the middle class tax cuts of just how far we have come and why can’t turn back now. We must keep moving forward.”
Bridget Johnson is a career journalist whose news articles and opinion columns have run in dozens of news outlets across the globe. Bridget first came to Washington to be online editor at The Hill, where she wrote The World from The Hill column on foreign policy. Previously she was an opinion writer and editorial board member at the Rocky Mountain News and nation/world news columnist at the Los Angeles Daily News. She has contributed to USA Today, The Wall Street Journal, National Review Online, Politico and more, and has myriad television and radio credits as a commentator. Bridget is Washington Editor for PJ Media.
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Too bad Romney didn't have this datum as a centerpiece in his campaign , , ,
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Gee, I'm sure the professional journalists BD is a fan of would feature it in a prominent manner, right ?
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BD's intellectual integrity has my 100% respect, but I do think that occasionally, superbright and super-educated fellow that he is (and esteemed member of this forum) he is taken in by the pravdas, just as occasionally I get taken in by bombast.
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BD is a smart guy of good will, IMHO. I'm amazed that I have to debate the well documented corruption of the MSM-DNC with him.
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The Trade Deficit in Goods and Services Came in at $42.2 Billion in October To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 12/11/2012
The trade deficit in goods and services came in at $42.2 billion in October, smaller than the consensus expected $42.7 billion.
Exports fell $6.8 billion in October, while imports declined $4.8 billion. The decline in exports was led by soybeans, civilian aircraft and petroleum products. The fall in imports was led by cell phones and other household goods, pharmaceutical preparations and computer accessories.
In the last year, exports are up 1.0% while imports are down 0.8%.
The monthly trade deficit is $3.5 billion smaller than a year ago. Adjusted for inflation, the trade deficit in goods is unchanged from a year ago. This is the trade measure that is most important for measuring real GDP.
Implications: The trade deficit came in smaller than the consensus expected in October and was revised smaller for September. However, the reason for the decline is not such great news as both exports and imports contracted. The total volume of US international trade appears to have leveled off over the past several months. A year ago, exports were up 11.5% from the prior year (October 2010 to October 2011). But in the past 12 months, exports are up only 1.0%. Financial and economic problems in Europe may be playing a role. Exports to the Euro-area were up 7.5% in the year ending in October 2011, but in the past year they are down 8.7%. However, we also see a similar pattern of slower export growth with Canada, Central/South America, and the Pacific Rim. Two notable exceptions, where our export growth has improved in the past year, are to Africa and India. Long-term, beneath the headlines, higher energy production in the US is having large effects on trade with other countries. Real (inflation-adjusted) oil exports have tripled since 2005, while real oil imports are down substantially. We expect the trade sector will be a small negative for real GDP growth in 2013. This is a normal pattern when the US economy is expanding.
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The US economy is expanding? :roll:
Why not highlight Krugman as well?
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http://hotair.com/archives/2012/12/11/surprise-investors-shifting-resources-to-avoid-tax-hikes-next-year/
Surprise: investors shifting resources to avoid tax hikes next year
posted at 9:21 am on December 11, 2012 by Ed Morrissey
Remember the difference between static and dynamic tax analysis? The former posits that tax changes produces no change in market behavior, so that hiking taxes by 10% gets you 10% more in revenue. The latter assumes that changes in tax codes forces markets to adapt, so that rate hikes risk lowering revenues, and lowering rates in certain ways can produce a better revenue stream, especially over the long run. Republicans favor the latter analytical method, while Democrats insist that tax cuts “cost” revenue opportunities and cause deficits.
Which is correct? Well, the Washington Post reports on a lot of dynamic activity in advance of the fiscal cliff:
As lawmakers struggle to agree on a plan to avert the series of tax increases looming next year, many investors are taking preemptive action to get out of harm’s way.
Americans are moving to sell investment homes, off-load stocks, expand charitable donations and establish tax-sheltering gifts before the end of the year. Financial advisers and accountants say people are trying to avoid the higher taxes that will take effect in 2013 if Washington does not avert the “fiscal cliff.”
For the nation’s top earners, who as a group make a large share of their incomes through investment returns, those moves could have a major impact on their tax bills.
“We are seeing a lot of questions about what assets to sell,” said Debbie Haines, a partner at CST Group, a Reston accounting firm. “A lot of people are wanting to liquidate stocks that have a gain. A lot of people are harvesting their capital gains. There is also some concern that itemized deductions will be cut, and some people who are charitably inclined are thinking about making bigger donations this year.“
Also, with the tax laws covering gifts set to tighten significantly, several Washington area estate lawyers say they are facing a rush of people interested in establishing trusts that under current law allow a couple to protect more than $10 million in assets from the tax man. Impending changes in the law could reduce the gift exclusion to $1 million for an individual or $2 million for a couple.
Of course, the Washington Post isn’t exactly a newcomer to dynamic analysis. On Friday, the Associated Press reported that the Post has decided to pay dividends this year instead of next to shield investors from the fiscal cliff:
The Washington Post Co. will pay its 2013 dividends before the end of this year to try to spare investors from anticipated tax increases.
The media and education company said Friday that its dividend of $9.80 per share is payable Dec. 27 to shareholders of record as of Dec. 17. The payout is instead of regular quarterly dividends next year.
Washington Post is the latest company to move up its quarterly payout or issue a special end-of-year payment to protect investors from potentially having to pay higher taxes on dividend income starting in January.
All of this comes in advance of the tax hikes that everyone is pretty sure will be coming. What will happen when those rate hikes take place — especially on capital gains, which drive later investment? Investors will be less willing to turn over that capital, since they will pay a higher price in taxes while the risk either remains the same or gets worse on putting the capital into new investments. The wealthy will seek more shelter rather than investment opportunities.
As the Post reports in its article, the people who don’t have that kind of flexibility are the middle- and working-class earners, whose income comes solely from wages earned by the opportunities driven by risk-taking behavior. Not only will that mean higher taxes, but fewer opportunities to earn money thanks to the depressing impact of tax hikes, which at the same time won’t deliver the kind of revenues promised by their proponents because of the market-behavior changes that even the Post demonstrates.
Dynamic analysis in this case predicts stasis in the Obamanomics stagnation.
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Because Krugman is an incoherent idiot and Wesbury, agree or disagree, is not.
Indeed, it being a mystery to me why the market is as strong as it is, it seems to me that staying tapped into alternative views from solid folks such as Wesbury (who has a superior record as a prognosticator going back many years) is a good thing.
As for the forestalling discussed in the piece you post, I agree it is going on-- which makes the market's solidity all the more puzzling to me.
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usdebtclock.org
This is expanding. Oh, and so is inflation.
Know what isn't? The US and global economies.
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With apologies to David M. Gordon, I am not a prophet, nor do I profit. Instead of always wrong and never in doubt, I seem to be always wrong and always in doubt. I used to believe that the market was efficient, now I believe it can be wrong longer than I can stay solvent. My assumptions are shattered. Nothing makes sense.
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The old rules no longer apply. We are through the looking glass and we are about to live through things that would make Hunter S. Thompson get sober.
"When the going gets weird, the weird go pro".
Tangible goods, metals (like guns, ammo and canned food). There is your investment strategy for what's coming.
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I'm working on it , , ,
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Lucky enough, there may be a lot of demand in the future for skull crushing and throat cutting skills.
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"Because Krugman is an incoherent idiot and Wesbury, agree or disagree, is not."
Krugman is an award winner. Someday I will read his more serious academic works. As a columnist he is nut from my point of view. Deserves posting only to counter his view or be aware of what the others are reading.
Wesbury's context on the board I think is perfect. He posts good data, better than you find almost anywhere else. PP found defects in his housing sources. Mostly the objection is that he puts positive spin on some pretty dismal numbers, and here he gets called out for that.
Trade deficit is a misnomer and sometimes a contrary indicator. Both imports and exports are good in a free economy and they don't have to be identical. There are many other factors.
"...mystery to me why the market is as strong as it is..." - Likewise for me. But who knows about tomorrow or year end or 2013 unless there is some foundation of economic growth laid that we can't see.
Wesbury calls it the workhorse economy. I used to just say there are people pulling the wagon and people riding in it. Enough forces are still in place to keep trudging forward this far, but everyday we have more people riding and fewer people pulling. What could possibly go wrong?
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FWIW I hesitate to speak on his behalf, but David Gordon thinks the market is entering a bull phase.
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Crafty,
ON DMG, a "bull?"
with taxes going up?
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I don't get it, but his track record is a lot better than mine , , ,
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http://globaleconomicanalysis.blogspot.com/2012/12/apple-to-relaunch-manufacturing-in-us.html
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http://globaleconomicanalysis.blogspot.com/2012/12/apple-to-relaunch-manufacturing-in-us.html
Apple has caught some very bad PR for manufacturing trendy devices 100% in China. Growing 200 jobs here for older products ought to fix that.
Labor costs are not the critical factor in robotic ("lights out") manufacturing.
Meanwhile liberal-run Google is caught with its offshore pants down, 2 links and a quote:
http://www.washingtonpost.com/business/economy/google-revenues-sheltered-in-no-tax-bermuda-soar-to-10-billion/2012/12/11/0e533bf0-43d7-11e2-9648-a2c323a991d6_story.html
http://online.wsj.com/article/SB10001424127887324024004578173193485975674.html
"As for Google's Bermuda billions, they are chiefly a testament to the economic insanity of America's corporate-tax system. Under the U.S. tax code, American corporations are liable for tax made on world-wide profits—but only if they repatriate those overseas profits to the U.S."
Tax and regulatory excesses don't cost jobs?
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Industrial production rose 1.1% in November coming in well above the consensus expected gain of 0.3%. Production is up 2.5% in the past year.
Manufacturing, which excludes mining/utilities, rose 1.2% in November. Auto production increased 4.6% in November while non-auto manufacturing rose 0.9%. Auto production is up 16.6% versus a year ago while non-auto manufacturing is up 1.6%.
The production of high-tech equipment fell 0.2% in November and is down 1.6% versus a year ago.
Overall capacity utilization moved up to 78.4% in November from 77.7% in October. Manufacturing capacity use rose to 76.6% in November from 75.9% in October.
Implications: Production surged 1.1% in November, rising the most in two years and fully rebounding from October’s Sandy-related drop. Putting October and November together, production is up at a 2.5% annual rate in the past two months, the same growth rate as in the past year. Manufacturing boomed in November, growing 1.2%. The gain was led by auto production which increased 4.6%, the largest monthly gain since January. Expect continued gains over the next few months as consumers replace vehicles ruined by the storm. Manufacturing outside the auto sector – what we like to follow to reduce “statistical noise” – rose 0.9%, but is up only 1.6% from last year. This is consistent with a plow horse economy. Capacity utilization rose to 78.4% in November, the highest level since March, and still remains higher than the 20-year average of 77.7%. This means companies have an incentive to build out plant and equipment. Meanwhile, corporate profits and cash on the balance sheet show they have the ability to make these investments. However, if policymakers fail to resolve the “fiscal cliff” well into 2013, the risk of a mild recession would go up substantially. Our best guess is that some agreement will be made by very early in January, either a “bare-bones” agreement like the bill the Senate passed last July or a broader one. The Senate bill includes a one-year extension of income tax cuts for earnings below $250,000 per year, a capital gains and dividend tax rate of 20% (23.8% including the extra tax in the Obamacare bill on high-income tax payers), and a “patch” for the Alternative Minimum Tax for 2012. However, with so many issues – like the sequester, estate tax, and debt limit – left unaddressed, the two sides would be have to start bargaining again in January.
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Personal Income Up 0.6% in November, Personal Consumption Up 0.4% To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 12/21/2012
Personal income was up 0.6% in November, easily beating the consensus expected gain of 0.3%. Personal consumption was up 0.4%, matching consensus expectations. In the past year, personal income is up 4.1% while spending is up 3.5%.
Disposable personal income (income after taxes) was up 0.6% in November and 4.0% from a year ago. Gains in private wages & salaries as well as interest income led the way in November.
The overall PCE deflator (consumer inflation) was down 0.2% in November but up 1.4% versus a year ago. The “core” PCE deflator, which excludes food and energy, was unchanged in November and is up 1.5% in the past year.
After adjusting for inflation, “real” consumption increased 0.6% in November and is up 2.1% from a year ago.
Implications: After getting clobbered by Sandy in October, income and consumer spending rebounded sharply in November. Incomes increased 0.6% for November (+0.7% including upward revisions for prior months). The gains in the months ahead are not likely to be quite so strong but should continue. In the past year, incomes are up 4.1% and private-sector wages & salaries are up 4.3%. In other words, income gains are not artificially supported by government transfer payments. Led by durable goods like autos, consumer spending was up 0.4% in November (+0.5% including revisions to prior months) and is up 3.5% in the past year. “Real” (inflation-adjusted) spending was up 0.6% in November (+0.8% including revisions to prior months) and up 2.1% versus a year ago. One of the reasons real spending was so strong was that, consistent with the drop in the CPI for November, overall personal consumption inflation was negative as well, with prices falling 0.2%. This measure of inflation, known as the PCE deflator, is the Federal Reserve’s favorite measure of overall prices and is up only 1.4% versus a year ago, which is less than the Fed’s target of 2%. However, given the loose stance of monetary policy, look for inflation to move above the Fed’s target in 2013. Before today’s economic reports, we had been estimating a real GDP growth rate of only 0.5% for the fourth quarter; today’s data now have us tracking 1%. If we get a last minute political deal on the “fiscal cliff,” we expect real GDP growth in the 2.5% to 3% range next year. That includes boosts from farm inventory replenishment after this year’s drought, as well as Sandy-related rebuilding on the East Coast. However, if we fall over the cliff for a prolonged period and there is no deal at all, growth in 2013 is likely to be roughly half that pace with more weakness in the first half of the year.
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New Orders for Durable Goods were Up 0.7% in November, Up 1.4% Including Revisions to October To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 12/21/2012
New orders for durable goods were up 0.7% in November (+1.4% including revisions to October), beating the consensus expected gain of 0.3%. Orders excluding transportation increased 1.6% (+1.7% including revisions to October), easily beating the consensus expected decline of 0.2%. Overall new orders are up 0.8% from a year ago, while orders excluding transportation are up 0.4%.
New orders for durable goods were up in almost every major category in November, led by motor vehicles/parts and industrial machinery. The lone downward exception was aircraft.
The government calculates business investment for GDP purposes by using shipments of non-defense capital goods excluding aircraft. That measure was up 1.8% in November (+2.5% including revisions to October). If these shipments are unchanged in December, they will be up at a 4.8% annual rate in Q4 versus the Q3 average.
Unfilled orders were up 0.1% in November and are up 3.3% from last year.
Implications: The plow horse economy continues to move forward. Orders for durable goods came in much better than expected in November as companies seem to be gaining more confidence. Although overall new orders were up only 0.7%, they were up 1.6% excluding the always volatile transportation sector. In particular, machinery orders, which fell rapidly this summer, were up 3.3% in November and have risen dramatically – at a 75.8% annual rate – in the past three months. Now, despite the summer’s weakness, machinery orders are up 1.1% from a year ago. Meanwhile, shipments of “core” capital goods, which exclude defense and aircraft, were up 1.8% in November and were revised up for last month. Core shipments usually fall in the first month of each quarter and then rebound in the last two months. That has not happened in the fourth quarter despite all the economic uncertainty that remains surrounding public policy. That uncertainty will continue in the near term as lawmakers try to hash out an agreement to avoid the “fiscal cliff.” If no deal is reached for a prolonged period, orders for durables are going to fall early in 2013 as the economy weakens, before rebounding later in 2013. If a fiscal deal is reached, we expect a continuation of the recent upward trend in orders and shipments. Monetary policy is loose, corporate profits and balance sheet cash are at record highs (earning almost zero interest), and the recovery in home building is picking up steam. All of these indicate more business investment ahead.
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http://www.washingtontimes.com/news/2012/dec/25/trade-deficit-heading-for-surplus/
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This eery piece follows the mortgage discussion, only larger and wider. Bonds are investments that gamble on both inflation and interest rates. Interest rates today are a quasi-government (Fed) manufactured product, not the result of aggregate savers and lenders finding an equilibrium. Inflation of our currency is happening today in front of our eyes; the price consequences, as of now, are not. A liberal friend forwarded this to me earlier. I responded to him: "Who is the buyer of this foolish investment? We are." (I gave him 3 links showing the Fed is buying 70% to 90% of our debt.) "When no one (else) buys these worthless bonds, it means we all just did. If balancing the budget is hard now, try doing it in 2017! " He responded, "That's right. Pretty extreme times."
Scary stuff when opposite sides see the same freight train headed straight towards us.
HIGH AND LOW FINANCE
Reading Pessimism in the Market for Bonds
By FLOYD NORRIS
Published: December 27, 2012
“Certificates of Confiscation.”
In September 1981, during a lengthy bond bear market, Wall Street was telling The New York Times that bonds were a bad investment. A bull market soon followed.
Three decades ago, that was what some people said bonds really were. The interest the bond paid would not be enough, they said, to offset the declining value of dollars as inflation added up. The “real” — after-inflation — bond yield would be negative.
That was just as the great bull market in bonds began. Bonds were great investments, and the bond bears turned out to have been dead wrong.
Now we have come full circle. The government is selling bonds that are absolutely, positively guaranteed to not pay enough to offset inflation over the coming years. It is even possible that someone who bought a new Treasury security that will be issued on Monday will end up getting fewer dollars back than he or she invested — interest and principal combined — between now and when the bond matures in 2017.
The securities are inflation-protected Treasury notes. If inflation ticks up significantly over the coming years, investors will get back more dollars than originally invested. But not enough to come close to keeping up with inflation. If there is no inflation, they will get back less than they invested.
When those securities were auctioned last week, buyers agreed to accept a real yield of negative 1.496 percent. It takes a lot of pessimism — about the economy and the future of the United States — to think an investment certain to lose money is an investment worth making.
The great bear market in bonds, both corporates and governments, lasted 35 years, from 1946 to 1981. The bull market lasted about 30 years. A new bear market almost certainly has begun.
If that is true, those seeking a little income now by going out the yield curve will come to rue the decision. They will get the promised interest, but as market interest rates rise, the price of those bonds will decline and decline and decline.
On Oct. 26, 1981, which can be dated as the bottom of the great bond bear market, the yield on 30-year Treasury bonds rose to 15.21 percent. On that date, a Treasury bond issued in 1970 and scheduled to mature in 2000 was quoted at less than 56 percent of face value. It had a coupon of 7.875 percent, but that was not deemed enough to compensate investors for the risk.
At market extremes, it is often worth analyzing what has to be true for a given investment to be a good, or bad, value. Back in 1981, you had to assume that inflation would not only remain in double digits for decades, but that it would also continue to rise, for a newly issued Treasury bond to turn out to be a bad investment. Yet many investors assumed it would be. After all, a lot of people on Wall Street in 1981 could not remember a time when bonds were good investments.
A few weeks before rates peaked, Seth Glickenhaus, an experienced bond trader and head of Glickenhaus & Company, an investment advisory firm, spoke the conventional wisdom when he said, “Anyone who buys a bond today to hold for more than five years is out of his mind.”
Michael Gavin, the head of United States asset allocation for Barclays, pointed out this month that over the past 30 years an investor who stayed invested in American, or British, 10-year government bonds would have earned more than 5 percent a year over inflation.
“It does not require advanced market math to understand that returns like these are no longer remotely plausible,” he wrote. “But they say that fish don’t know that they live in water — until they are removed from it — and we wonder if some of the many market participants whose entire professional experience has been conditioned by the financial backdrop created by the bond market rally might underestimate some consequences of its termination.”
Even if rates stay where they are for the next five years, and investors collect the interest coupons, he said, “bonds will be transformed from wealth creators into wealth destroyers.”
Or at least they will be unless there is severe deflation. For that is the only situation that will allow today’s new long-term bonds to turn into good investments.
Is that possible? To think it is likely, you pretty much have to assume that economic growth is a thing of the past in both the United States and Europe. It is not an optimistic outlook.
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Guns, ammo and food are the hot investments now.
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It's my understanding that USGI magazines (AR/M16) that were 10 bucks last month are going for fifty now on eBay. My local gun store has two used ARs for sale. Both selling for 2300 a piece.
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Pravda on the Hudson's take on the possibility of rising interest rates:
http://www.nytimes.com/2013/01/01/business/big-in-2012-but-the-future-is-hazy-for-bonds.html?nl=todaysheadlines&emc=edit_th_20130101
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Non-Farm Payrolls Increased 155,000 in December To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 1/4/2013
Non-farm payrolls increased 155,000 in December, almost exactly matching the consensus expected 152,000. Revisions to October/November added 14,000, bringing the net gain to 169,000.
Private sector payrolls increased 168,000 in December (206,000 with revisions to October/November). December gains were led by education & health care (+65,000), restaurants & bars (+38,000), construction (+30,000), and manufacturing (+25,000). Government payrolls declined 13,000.
The unemployment rate was unrevised at 7.8% (7.849%).
Average weekly earnings – cash earnings, excluding benefits – were up 0.3% in December and up 2.1% from a year ago.
Implications: The headlines for today’s employment report were almost exactly what the consensus expected, showing continued modest improvement in the labor market. The details in the report were better news. Nonfarm payrolls rose 155,000 in December, versus an average of 153,000 in both 2011 and 2012. Meanwhile, private payrolls gained 168,000 while being revised higher for October and November. Including those revisions, private-sector payrolls were up 206,000. Given today’s technological advances, we should be doing much better, more like 300,000 jobs per month as in the 1990s. What’s holding us back from much faster gains is the huge increase in the size of government, particularly transfer payments, over the past several years. Civilian employment, an alternative measure of jobs that includes small-business startups, gained only 28,000 in December but was up 192,000 per month in 2012, faster than payroll growth and indicative of an acceleration in payroll growth in 2013. The unemployment rate was unrevised at 7.8% while the labor force grew by 192,000. In the past year, the labor force is up 1.4 million while the jobless rate is down 0.7 percentage points. The best news in today’s report was on hours and wages. Total hours worked were up 0.4% in December and 2% from a year ago. Average hourly earnings were up 0.3% in December and 2.1% from a year ago. As a result, total cash earnings (based on earnings and hours) are up 4.1% from a year ago (and about 2.3% when adjusted for inflation), so consumers have room to increase spending. In other recent news on the labor market, initial unemployment claims increased 10,000 last week to 372,000. The four-week average is 360,000. Continuing claims for regular state benefits were up 44,000 to 3.25 million. In other news, sales of autos and light trucks came in at a 15.4 million annual rate in December. Although 1% below the pace in November, vehicle sales beat consensus expectations and are up 13% from a year ago. The plow horse recovery continues.
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'Our own' Scott Grannis is one of the top links over at Real Clear Markets "Off the Street" today, Jan 7 2013.
Give him a click.
http://www.realclearmarkets.com/off_the_street/
10 things growing rapidly
10 charts that show growth in spite of the Obama assault on the economy. Much of it has already been posted on the board. Give credit to Scott who takes the time to explain how much better things would be with pro-growth policies. His charts are more honest than most in that they show current growth within the context of greater growth in earlier years.
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Long Treasurys Wipe Out a Year's Worth of Yield in One Week .
By PATRICK MCGEE
Long-term Treasurys, considered among the safest assets in the investment world, lost 3.07% of value in the early days of 2013—more than wiping away their annual 3% yield in one week.
The dynamic underscores what BlackRock calls "the danger in safety" and highlights the perils of buying even the best-rated investments in an era of rock-bottom rates.
"The first couple of days of the year have been a warning sign for interest rates," said Tim Gramatovich, co-manager of the AdvisorShares Peritus High Yield HYLD +0.18%exchange-traded fund.
After Congress found some common ground on taxes last week, assets perceived as risky soared, and safer investments lost value. That caused bond yields, which move inversely to price, to rise. An index of Treasury bonds that mature in 20 or more years, as calculated by Barclays, BARC.LN 0.00%fell over the first three sessions of 2013. Monday's small rise in Treasurys, pushing down yields, trimmed the losses, but it is still down 2.81%.
For cautious investors not willing to bet on corporate bonds or equities, handing cash to Uncle Sam is often an alternative. How much they lose when interest rates rise depends largely on the bonds' duration.
The general rule on duration is that, for every percentage point that interest rates rise, a bond or bond fund will lose the equivalent of its duration in price. A bond with a duration of five years will lose 5% for every percentage point that rates go up. Thus, bonds with longer durations are more exposed to this risk.
Lower-rated bonds are more insulated from rising interest rates, because the offsetting factor, the yield, is higher. For instance, long-term corporate bonds lost 1.24% of value last week, but, with a yield of 4.51%, the effects aren't as dramatic. Higher-rated bonds don't have that cushion.
Some investors expect the theme of rising rates to be repeated throughout the year, albeit at a slower pace. Treasury prices fell last week on a deal over the fiscal cliff that pulled money into stocks, although some say the looming debate over the U.S. debt ceiling could, ironically, add to demand for Treasurys as a safe haven if fears about a U.S. credit downgrade intensify as a result.
Treasurys also were hit last week by worries that the Federal Reserve could end its bond-buying program earlier than many investors expect. The central bank has become the largest single buyer of U.S. Treasurys through its so-called quantitative easing program.
"Last week is probably a fast-track of what will happen this year," said Wade Balliet, senior vice president at Bank of the West, a subsidiary of BNP Paribas BNP.FR +1.86%that manages $10 billion. "We anticipate rates going high this year, but not as rapidly as they climbed last week."
Indeed, a mid-December survey of the Federal Reserve's 21 primary dealers found the median forecast is for the 10-year yield to rise to 2.25% by the end of 2013, largely because they expect the economic recovery will accelerate in the second half of the year.
Monday, the benchmark 10-year yield fell for the first time in five sessions, losing 0.01 percentage point to 1.904% as its price rose 3/32.
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http://www.nationalreview.com/corner/337701/stewart-v-krugman-jonah-goldberg#
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Very funny and Goldberg has it about right. Of course Stewart is not really mocking leftism, just one bizarre idea by a leftist. Maybe in other shows, but here he is not mocking the idea that 16.4 trillion isn't enough debt and he isn't mocking the fact that the trillion dollar coin in concept is already our policy for financing our deficits; we are only borrowing back a fraction of the money we are printing.
In a different circumstance, can anyone imagine the Stewart type comedy shows if the trillion dollar coin proposal in lieu of honoring our debt limit had been put forward by a VP or Secretary of Treasury Sarah Palin?
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Wesbury, who far outperformed us in 2012, makes his predictions for 2013
http://www.ftportfolios.com/Commentary/EconomicResearch/2013/1/15/2013-economic-forecast
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Ignore the GDP Headline To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 1/22/2013
Next week, Fourth Quarter Real GDP will be released. Our forecast of 0.9% annualized growth, if correct, will encourage the pessimists to continue fretting about the economy in the year ahead. But we will ignore that dour response. Beneath the surface of the report will be evidence that the plow horse economy is picking up some steam.
If we are correct with our forecast, Q4 will be the weakest quarter of growth since early 2011 and it will be a noticeable dip from the 3.1% rate in Q3. Nonetheless, the headline will be misleading because the primary cause of the slowdown will be inventories.
The crop-damaging drought the US experienced this summer, which cut the amount of crops harvested in the fall, led to large drop in inventories. Meanwhile, after non-agriculture companies lifted inventories in Q3, many seem to have reversed that process during Q4.
We suggest looking at real final sales (real GDP excluding inventories), which we expect to grow at a more respectable 2.2% annual rate. If so, real final sales would also be up 2.2% in all of 2012, the fastest pace since 2007. More importantly, when we narrowly focus on consumer spending, business investment, and home building, we get a healthy growth rate of 3.4% in Q4. This leaves out government, inventories and trade.
We are still a far cry from the consistent rapid economic growth of the 1980s and 1990s, when public policy was moving in the direction of smaller government, but it’s nothing to sneer at and it certainly isn’t a sign of recession. Looking ahead, we see a modest acceleration of economic growth in 2013, the result of a loose monetary policy, the downstream effects of a housing recovery, and a replenishment of farm inventories, offsetting the negative effects of the recent tax hike.
Here’s our “add-em-up” calculation of real GDP growth in Q4, component by component.
Consumption: Sales of cars and light trucks were up at a 16% annual rate in Q4, while “real” (inflation-adjusted) retail sales ex-autos were up at a 2.6% rate. However, services make up about 2/3 of personal consumption and they grew at about a 1% rate. So far, it looks like real personal consumption of goods and services combined, grew at a 2.3% annual rate in Q4, contributing 1.6 points to the real GDP growth rate. (2.3 times the consumption share of GDP, which is 71%, equals 1.6.)
Business Investment: Business investment in equipment & software looks like it grew at a 5.5% annual rate in Q4 while commercial construction was unchanged. Combined, they grew at 4% pace, which should add 0.4 points to the real GDP growth rate. (4 times the business investment share of GDP, which is 10%, equals 0.4.)
Home Building: Construction activity is still relatively low compared to several years ago, so you have to be careful how you talk about this sector. What’s important to recognize is the growth rate for residential construction is fantastic. And it’s not just apartment buildings anymore. Single-family construction is rebounding sharply. Home building appears to have grown at a 28% annual rate in Q4, the fastest pace since the early 1980s. This translates into 0.7 points for the real GDP growth rate. (28 times the home building share of GDP, which is 2.5%, equals 0.7.)
Government: Military spending grew in Q4 but no more than it usually does. Meanwhile, state/local government construction is up only slightly from the prior quarter. On net, real government purchases shrank at about a 1% rate in Q4, which should subtract 0.2 percentage points from real GDP growth. (-1 times the government purchase share of GDP, which is 20%, equals -0.2).
Trade: At this point, the government has only reported trade data through November. On average, the “real” trade deficit in goods has grown compared to the Q3 average. As a result, we’re forecasting the trade sector subtracted 0.3 points from the real GDP growth rate.
Inventories: As we already discussed, this summer’s drought in the farm sector suppressed farm inventories this fall. Other companies appeared to slow the pace of inventory accumulation after a brief pick up in Q3. We are assuming inventories cut 1.3 points from the real GDP growth rate in Q4.
Add-em-up and you get 0.9% real GDP growth for Q4. This headline may scare some investors away. But if you focus on the details, you’ll see slightly smoother skies ahead.
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Firms Keep Stockpiles of 'Foreign' Cash in U.S. .
By KATE LINEBAUGH
There's a funny thing about the estimated $1.7 trillion that American companies say they have indefinitely invested overseas: A lot of it is actually sitting right here at home.
Some companies, including Internet giant Google Inc., GOOG +6.44%software maker Microsoft Corp. MSFT +1.25%and data-storage specialist EMC Corp., EMC +0.72%keep more than three-quarters of the cash owned by their foreign subsidiaries at U.S. banks, held in U.S. dollars or parked in U.S. government and corporate securities, according to people familiar with the companies' cash positions.
In the eyes of the law, the Internal Revenue Service and company executives, however, this money is overseas. As long as it doesn't flow back to the U.S. parent company, the U.S. doesn't tax it. And as long as it sits in U.S. bank accounts or in U.S. Treasurys, it is safer than if it were plowed into potentially risky foreign investments.
In accounting terms, the location of the funds may be just a technicality. But for people on both sides of the contentious debate over corporate-tax reform, the situation highlights what they see as the absurdity of rules that encourage companies to engage in semantic games, legal gymnastics and inefficient corporate-financing methods to shield profits from U.S. taxes.
The cash piling up at the nation's biggest corporations will get renewed attention in the weeks ahead, as companies report their fourth quarter and 2012 earnings. Tuesday's reports included updates from Google, which saw its stockpile of cash increase to $48.1 billion from $44.6 billion a year earlier, as well as results from Johnson & Johnson JNJ +0.18%and DuPont Co. DD -0.42%
The fact that much of the money already is in the U.S. also undermines a central argument made by companies seeking tax relief to bring home money they have earned abroad, tax experts and lawmakers say: That the cash is languishing overseas when it could be invested to the benefit of the U.S. economy.
Edward Kleinbard, a professor at the University of Southern California's Gould School of Law and a former chief of staff for Congress's Joint Committee on Taxation, said there is a misperception that companies' excess cash is inaccessible, "somehow held in gold coins and guarded by Rumpelstiltskin."
"If it is a U.S.-dollar asset, that means ultimately it is in the U.S. economy in some fashion," he adds. "Where it is not is in the hands of the firm's shareholders."
The U.S. is the only major economy whose tax authorities claim a share of a domestic company's profits no matter where those profits are earned. But auditors don't require the companies to account for possible taxes on foreign earnings as long as they declare that the funds are permanently invested overseas. The upshot: American companies have a strong incentive to find ways of earning most of their profit overseas and keeping it in the hands of foreign units.
Recently the Securities and Exchange Commission has pressed companies to disclose how much tax they would owe if those funds were transferred to the U.S. parent. The idea is to give shareholders a better picture of how much cash would be available if the funds were repatriated.
U.S. companies are lobbying Congress to replace the current corporate-tax system with one that would tax only their domestic profits. Barring that, some say they would accept a tax on their repatriated earnings that is below the country's current corporate-tax rate of 35% so they could use the funds to pay dividends, buy back shares or otherwise put it to work in the U.S.
Out of EMC's $10.6 billion in cash holdings at the end of September, $5.1 billion was held overseas, according to its regulatory filings. Physically, however, more than 75% of these foreign earnings were stashed in the U.S. or in U.S. investments, according to a 2011 Senate report, whose figures the company confirmed.
"One of the major reasons that U.S. companies' foreign subsidiaries reinvest earnings in U.S.-dollar-denominated investments is to avoid gains and losses from changes in foreign-exchange rates," EMC spokeswoman Lesley Ogrodnick wrote in an emailed response to questions about the company's cash holdings.
EMC isn't alone. About 93% of the $58 billion in cash held by Microsoft's foreign subsidiaries is invested in U.S. government bonds, U.S. corporate bonds and U.S. mortgage-based securities, according to SEC filings. Most of that is in accounts in the U.S., according to a person familiar with the matter. In total, Microsoft had a cash stockpile of $66.6 billion, according to its filings.
The funds held by Microsoft's foreign subsidiaries are "deemed to be permanently reinvested in foreign jurisdictions," the company said in its filings. "We currently do not intend nor foresee a need to repatriate these funds."
Most of the $29.1 billion in cash and investments that Google said in an October securities filing that it plans to "permanently reinvest" outside the country is held in accounts or investments in the U.S. The same is true for most of the foreign earnings of software maker Oracle Corp., ORCL +0.19%according to the Senate report.
"If you are a U.S. company, you would have a bias to leave it in dollars, rather than taking the foreign-exchange exposure," said Fredric G. Reynolds, the former chief financial officer of CBS Corp. "No CFO wants to miss" an earnings estimate "because you happened to take a foreign-exchange hit," he said.
Sizable U.S.-dollar accounts are often owned by U.S. companies' foreign subsidiaries in tax havens like Ireland, the Cayman Islands and Singapore. But the accounts ultimately are U.S. accounts, regardless of where they are opened; a foreign bank typically will hold dollar deposits in a so-called correspondent bank in the U.S.
"The balances are in the U.S., but they are controlled from outside the U.S.," said Thomas Deas, vice president and treasurer of Philadelphia-based chemical producer FMC Corp. FMC -0.60%and chairman of the National Association of Corporate Treasurers.
Auditors and the SEC expect companies to account for a possible tax hit if there is any risk their subsidiaries might one day pay funds from foreign earnings to the U.S. parent. Few companies provide for that possibility, however.
Getting around it is simple: a company officer, typically the CFO or the treasurer, declares to the company's auditors that the funds have been permanently or indefinitely invested overseas. Auditors generally won't challenge the declaration, financial experts say, as long as a company's behavior is consistent and it doesn't repeatedly repatriate funds earmarked for foreign investments.
There is little reason not to formally commit funds overseas. Foreign markets offer the best growth prospects for many U.S. companies, and the funds may be needed there to build factories, develop new products or make acquisitions. Plus, the designation can be changed in an instant if the company is prepared to accept the tax bite. United Technologies Corp., UTX +0.42%for instance, used $4 billion of such "permanently" reinvested funds held by foreign subsidiaries to help pay for last year's acquisition of Goodrich Corp.
Companies say the U.S. corporate tax rate is so high that it doesn't make financial sense to bring more cash back than necessary. Even if much of the money already is here and available to be lent out by U.S. banks, companies argue that it isn't available to them to use as they please, such as distributing it to shareholders through dividends and buybacks.
Many executives still hold out hope for a broad overhaul of the corporate tax code. If lawmakers do take up the matter, figuring out how to collect taxes on earnings accumulated outside of the U.S. is expected to be front and center. The challenge would be in devising a system that raises revenue by setting the rate low enough that companies opt to pay the tax rather than continue to pile up an estimated $300 billion a year beyond Uncle Sam's reach.
The Senate's Permanent Subcommittee on Investigations looked into the issue in 2011 and concluded a temporary tax break on foreign earnings wasn't warranted. "The presence of those funds in the U.S. undermines the argument that undistributed accumulated foreign earnings are 'trapped' abroad," the committee said in its report.
Even so, the repatriation issue has distorted companies' capital structures, said Alan Shepard, an analyst at Madison Investment Advisors, which manages about $16 billion in assets. In some cases companies could lower their debt if they repatriated their cash, but don't because of the tax consequences, he said. "And the money is effectively just across the street here in the U.S."
Oracle derives about half of its revenue from the U.S. but keeps more than three-quarters of its cash and short-term investments—or $26 billion—in the hands of its foreign subsidiaries.
During its 2012 fiscal year, the company said it "increased the number of foreign subsidiaries in countries with lower statutory rates than the rate used in the United States, the earnings of which we consider to be indefinitely reinvested outside the United States."
If those funds were brought home and subject to U.S. income tax, Oracle estimated it could owe about $6.3 billion at the end of its fiscal year in May.
Low interest rates at home have allowed U.S. companies to borrow cheaply, helping them avoid tapping their foreign-held cash. Late last year Oracle raised $5 billion in its first debt sale in two years. It is paying an interest rate roughly two-thirds of a percentage point above Treasurys for the 10-year bonds, about 2.5% at the time. The company said the proceeds could be used to buy back stock, repay debt or pay for acquisitions.
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http://www.traderplanet.com/commentaries/view/163253-the-dow-theory-is-useless-today-here-s-why-djia/
The Dow Theory Is Useless Today: Here's Why $DJIA
by Jason LeavittJanuary 23, 2013
Wall St. is full of theories attempting to explain price movement after the fact or predict price movement before it happens. The Dow Theory is one such theory, but for reasons discussed below, I believe the theory's relevance is long past, and in today's form, is utter garbage.
Generally speaking, the Dow Theory attempts to gauge the health of the economy using the movement of the Dow Industrials and the Dow Transports. More specifically it states the movement of the Industrials and the Transports must confirm each other or a trend change is likely to take place.
The Industrials make products; the Transports ship products. If the Industrials make a new high but the Transports do not, it's a sign companies are making products but not shipping them - not good. If the Transports makes a new high but the Industrials does not, it's a sign products are being shipped, but companies are cutting back on production - also not good. The theory makes sense - that the movement of one must confirm the other or else the divergence signals a reversal - but it also makes many assumptions. And it's these incorrect assumptions that render the theory nothing more than something technical analysts and newsletter writers use to sell "stuff" to the public.
Here are my reasons the Dow Theory is useless today.
1) The Dow Jones Industrial Average is not an industrial average
The first Dow Index was comprised of industrial companies that made physical products, so the movement of the average was a pretty good indicator of products being produced. But this isn't the case today because many Dow components don't make anything.
JP Morgan, Bank of America, American Express, AT&T, Verizon, Travelers, UnitedHealth Group - these companies do billions of dollars of business every year without making or shipping a single product. Even IBM is mostly a services company, and although Microsoft can put their software on CDs and ship them, this isn't how the bulk of their revenue is generated.
So, the Dow isn't an industrial average anymore because many companies make billions of dollars without relying on the transports for shipping. Right here, the link between the two indexes breaks down.
If the Dow Theory assumes industrial companies make products and the transports ship them, the entire theory breaks down when non industrial companies were added to the Dow.
2) The Dow Industrials and Dow Transports are price weighted.
The theory assumes the prices quoted at the end of every day are an accurate reflection of the stocks that comprise each index, but because of the way the indexes are calculated, an argument can be made this isn't the case.
Price-weighting means the influence a stock has on the movement of the parent index is directly proportional to the stock's price, i.e. higher-priced stocks have a greater influence on the index's movement than lower-priced stocks. This means Chevron (CVX) has greater influence than ExxonMobil (XOM) even though XOM is almost twice as big.
General Electric (GE) is the fifth largest Dow stock but because it's the sixth cheapest, its influence is underweighted. Microsoft (MSFT) is four times bigger than Caterpillar (CAT), but since CAT is three-and-a-half times more expensive, it's much more influential. UPS (UPS) is twice as big as FedEx (FDX), but since FDX is more expensive, it exerts a greater force on the parent index.
Even if the Dow Industrials only contained industrial companies, it can be argued that permitting the smaller stocks to "do more of the talking" results in an index that isn't a true reflection of the economy's health.
Because the indexes are price-weighted and do not consider market cap or other variables, they are calculated such that the results aren't a true reflection of "what's going on."
3) The theory does not consider volume.
Volume in the market equates to votes. The more volume, the more traders/investors are in favor of the price move. Basic technical analysis says volume must confirm a move, but the Dow Theory, as it's interpreted today, makes no mention of volume.
At the time of this writing, JP Morgan (JPM) and DuPont (DD) were trading at the approx. the same level; so generally speaking, they have the same influence on the Industrials. This means, on any given day, if DD is up 20 cents and JPM is down 20 cents, the net effect would be a wash because the movement of the two stocks would cancel each other out. But shouldn't one consider the fact that JPM trades 23 million shares/day while DD trades only 6 million?
At $45, $1.04 billion worth of JPM stock will change hands but only $270 million will change hands with DD. Equal and opposite movements of each stock should not cancel each other out. JPM should have more influence because more "money" is traded, but that's not the case.
Because the calculations of the indexes do not consider volume or the amount of dollars that change hands, the movement of the Averages is not a true assessment of the "voting" that is taking place.
4) Inefficiencies in shipping blur the purity of the theory.
The original Dow Transports were all railroads which transported massive quantities of goods. This resulted in a fairly fixed and low per-unit shipping charge. If the transports were bid up, very likely more products were being shipped. But this isn't the case today because the per-unit shipping charge has increased dramatically due to our inefficient shipping methods.
Instead of having a truckload of widgets shipped to a store (at a cost of $0.25 each), an individual widget can now be shipped directly to your mailbox for $5. This works to increase the profits for the transports, which is then reflected in higher stock prices for the transports, but isn't necessarily indicative of increased business for the producers.
And what about the resale of products? A single item may be shipped several times; a $25 book may accrue $20 in shipping charges over time. Rallying transport stocks are supposed to suggest economic growth via the shipping of products, but this isn't the case when the same item is inefficiently shipped over and over.
The inefficient manner in which products are shipped messes up the purity of the theory. A strong transports group isn't necessarily a sign of business expansion.
5) Wal-Mart ships its own products.
Wal-Mart is the largest retail store in the world, so if business is going well, it will be reflected in the Transports Average because, after all, many boats, trucks and trains are used to get their products to market, right?
Wrong!
Wal-Mart ships most of its own goods. They have more than 5,600 tractor trailers, 6,900 truck drivers and 60 distribution centers in 28 US states. But even though Wal-Mart is technically one of the world's largest shipping companies, it's not a component of the Dow Transports. Is the Dow Transports a true reflection of the movement of products if the largest retail store in the world can ship hundreds of billions of dollars worth of goods but not have this movement reflected in the Transports Average?
The Dow Transports is not a good reflection of the movement of products because it doesn't take into consideration the movement of products flowing through Wal-Mart.
6) The theory does not take into consideration stock splits.
This is related to item #2 above. Since the indexes are price-weighed, the exact time a stock splits will greatly influence whether an index makes a new high or low. Doing a 2-for-1 or 3-for-1 stock split doesn't change anything about a company. The company is still valued the same; the dividend yield is the same; earnings per share is still the same; business has not increased or decreased. There is no material change in the company other than the stock price. But the company then has much less influence on the movement of its parent index, and if the split takes place at exactly the "wrong time," it could influence whether the parent index makes a higher high or lower low.
Stocks splits are a marketing tool companies use to tinker with their stock prices. The fact that this activity actually influences the movement of the indexes has to make you wonder if accurate readings of the indexes are possible.
7) Other
There are other reasons such as the fact that the transports often make money via fuel surcharges, so a rallying stock is not a guarantee the underlying company is shipping more products.
KEY TAKEAWAY
Wal-Mart can ship billions of dollars in products and have no influence on the movement of the Transports. Massive companies like Microsoft have much less influence than much smaller companies like DuPont. Heck, the theory breaks down right at the beginning when one realizes the Dow Industrials isn't even an industrial average, and it breaks down even further when one considers how the indexes are calculated in the first place.
Sorry, the Dow Theory doesn't work on paper for the reasons explained above, and it doesn't work in practice (beyond the scope of this write-up).
Just as many of the economic numbers released by the government were invented solely so analysts could write reports and sell "stuff" and promote "things" to the public, the Dow Theory is nothing more than something for technical analysts and newsletter writers to talk about so they can sell more "stuff" because if you actually think about it, the Dow Theory is of little use today.
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New Orders for Durable Goods Up 4.6% in December To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 1/28/2013
New orders for durable goods were up 4.6% in December (+4.4% including revisions to November), easily beating the consensus expected gain of 2.0%. Orders excluding transportation increased 1.3% (+1.0% including revisions to November), beating the consensus expected gain of 0.8%. Overall new orders are up 0.2% from a year ago, while orders excluding transportation are down 2.8%.
New orders for durable goods were up in almost every major category in December, led by defense aircraft, civilian aircraft and primary metals. The lone downward exception was electrical equipment.
The government calculates business investment for GDP purposes by using shipments of non-defense capital goods excluding aircraft. That measure was up 0.3% in December (+0.5% including revisions to November). These shipments were up at a 5.2% annual rate in Q4 versus the Q3 average.
Unfilled orders were up 0.8% in December and are up 2.3% from last year.
Implications: The plow horse economy continues to move forward. Orders for durable goods came in much better than expected in December as companies look to be gaining more confidence. Overall new orders boomed 4.6% driven by strong gains in the transportation sector particularly in aircraft, but are only up 0.2% from a year ago. If you exclude the always volatile transportation sector, orders were still up a solid 1.3%. Meanwhile, shipments of “core” capital goods, which exclude defense and aircraft, were up 0.3% in December and were revised up for last month. Core shipments, which the government uses to calculate business investment for GDP were up at a 5.2% annual rate in Q4 verses the Q3 average. Core shipments usually fall in the first month of each quarter and then rebound in the last two months. This did not happen in Q4, as these core shipments actually increased in each of the past three months. This has only happened one other time in the past five years! A great sign, especially with all the uncertainty businesses had to deal with towards the end of 2012 in regards to the “fiscal cliff.” Now that a fiscal deal is reached, we expect a continuation of the recent upward trend in orders and shipments. Monetary policy is loose, corporate profits and balance sheet cash are at record highs (earning almost zero interest), and the recovery in home building is picking up steam. All of these indicate more business investment ahead. In other news this morning, pending home sales, which are contracts on existing homes, fell 4.3% in December. Given this data, expect a small decline in existing home sales in January.
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New Orders for Durable Goods Up 4.6% in December, meanwhile....
US debt headed toward 200 percent of GDP even after 'fiscal cliff' deal
By Vicki Needham - 01/29/13 12:15 PM ET
The nation's long-term fiscal outlook hasn't significantly improved following the recent agreement between Congress and the White House over tax and spending issues, according to a new analysis.
The "fiscal cliff" deal, combined with the debt-limit agreement of August 2011, only slightly delays the United States reaching debt-to-gross domestic product levels that would damage the economy and risk another fiscal crisis, according to a report from the Peter G. Peterson Foundation released on Tuesday.
The agreement "may have prevented the immediate threats that the fiscal cliff posed to our fragile economic recovery, but we haven’t remotely fixed the nation’s debt problem," said Michael A. Peterson, president and COO of the Peterson Foundation.
"The primary goal of any sustainable fiscal policy is to stabilize the debt as a share of the economy and put it on a downward path, and yet our nation is still heading toward debt levels of 200 percent of GDP and beyond," he said.
The report concludes that the recent round of deficit-reduction measures won't make major improvements because they fail to address most of the major contributors to the debt and deficit, including rapidly rising healthcare costs.
The analysis suggests that lawmakers take action quickly to ensure that the nation is on a sustainable fiscal path.
At a House Ways and Means Committee hearing last week, lawmakers and budget experts agreed that rising healthcare costs, such as Medicare, must be addressed this year as part of efforts to overhaul the tax code and entitlement programs.
"Until spending in those areas is reduced, tax revenues are increased, or policymakers implement a combination of both, the United States will continue to have a severe long-term debt problem," the report said.
"Reforms should be implemented gradually, and fiscal improvements must be achieved before our debt level and interest payments are so high that sudden or more draconian reforms are required to avert a fiscal crisis."
The latest deal that stopped income tax increases for those making $400,000 a year or less may have only improved the burgeoning debt situation by a year.
Scheduled spending cuts from the 2011 budget deal, combined with the fiscal cliff agreement, put the debt on track to reach 200 percent of GDP by 2040, five years later than was projected prior to the passage of the two deals.
The recent deficit-reduction measure gave the nation an additional year before hitting that 200 percent threshold, the report showed.
Sequestration does not improve the outlook much, either.
Even if the budget sequester is fully implemented, federal debt would still reach 200 percent of GDP within about 28 years.
On top of that, the debt will continue to grow between now and 2022, and will accelerate significantly after that.
Debt is now projected to grow from 72 percent of GDP in 2012 to 87 percent in 2022, down only slightly from the 90 percent that was estimated before passage of the most recent deal.
Many economists suggest keeping debt at or below 60 percent of GDP, with research showing that economic growth slows for countries that have debt levels exceeding 90 percent of economic growth.
"Americans shouldn’t be under any false impression that our debt problems are behind us," Peterson said.
"And because it takes years to implement policies fairly and gradually, we need to make decisions now, before we are forced by markets to take severe action that hurts our economy and our citizens."
Read more: http://thehill.com/blogs/on-the-money/economy/279857-report-fiscal-outlook-not-improved-by-debt-deal
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4th quarter 'growth' is negative. Wesbury apologizes, resigns. First Trust in talks with our own G M.
Who knew... that if you choose anti-growth policies at every decision point, at some point you will have no growth. Even zero growth against this policy mix shows the amazing resilience of the American economy. I wonder what shock in the 4th quarter (Nov. 6) could have sent this plowhorse momentum into a tailspin... Any lesser country would have collapsed by now. I don't get the part of 'shock', 'surprise' and 'unexpected' that mixes into the coverage.
http://www.cnbc.com/id/100419252
http://www.nbcnews.com/business/economywatch/us-economy-contracts-first-time-3-1-2-years-1B8174851
http://online.wsj.com/article/SB10001424127887324156204578273611039517142.html?mod=WSJ_hpp_LEFTTopStories
http://newsbusters.org/blogs/noel-sheppard/2013/01/30/rick-santelli-responds-negative-gdp-report-we-are-now-europe#ixzz2JTHtLTJv
If the numbers hold up to revisions and if it contracts a second quarter in a cold winter that has one month already gone, they won't call it a recession, they will call it The _____ Recession, and the middle name won't be Bush.
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"4th quarter 'growth' is negative. Wesbury apologizes, resigns. First Trust in talks with our own G M."
ROTFLMAO
The First Estimate for Q4 Real GDP Growth is -0.1% at an Annual Rate To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 1/30/2013
The first estimate for Q4 real GDP growth is -0.1% at an annual rate, much lower than the 1.1% the consensus expected. Real GDP is up 1.5% from a year ago.
The largest negative drags on the Q4 real GDP growth rate, by far, were government and inventories, which subtracted a combined 2.6 points.
Personal consumption, business investment, and home building were all positive in Q4, growing at a combined rate of 3.4% annualized.
The GDP price index increased at a 0.6% annual rate in Q4. Nominal GDP – real GDP plus inflation – rose at a 0.5% rate in Q4 and is up 3.3% from a year ago.
Implications: As we said in last week’s MMO: ignore the GDP headline, which was likely to be weak, but misleading. As it turns out, the headline was even weaker than we thought, coming in (slightly) negative for the first time since 2009 and lower than any forecast from the 83 groups making a prediction. We thought inventories would subtract 1.3 points from the GDP growth rate and got that exactly right; but government purchases also subtracted 1.3 points from the growth rate of real GDP, due to the largest drop in defense (relative to GDP) since the wind-down in Vietnam in 1973. The reason the real GDP contraction at a 0.1% annual rate is misleading is that the key components of GDP – personal spending, business investment, and home building – were all rising and came in at a combined 3.4% annual growth rate, exactly as we forecast. Reductions in inventories and government purchases may hurt in the short run, but looking ahead to 2013 we think these cuts are a positive: lower inventories mean more showrooms and shelves to be stocked; less government means lower deficits and the potential for lower taxes (or fewer future tax hikes). For now, we maintain our forecast that real GDP will grow in the 2.5% to 3% range in 2013, but think the risk of an upside surprise modestly outweighs risks to the downside. Despite a slight contraction in real growth and soft nominal GDP growth of 0.5%, these data still don’t justify the current round of quantitative easing. Nominal GDP is still up 3.3% in the past year, much too fast for a short-term interest rate target near zero. In other news today, the ADP employment index showed a private payroll gain of 192,000 in January. As a result, we are raising our forecast for Friday’s official employment report to a 160,000 gain in nonfarm payrolls. On the housing front, the Case-Shiller index, a measure of home prices in 20 major metro areas, showed a 0.6% gain in November and is up 5.5% in the past year. Recent price gains are led by San Diego, San Francisco, Atlanta, and Las Vegas.
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So other than the offsetting factors that brought it to zero, we had 3.4% growth. In a mixed results, zero growth quarter, Wesbury is able to point to things that went up. Sounds like cherry picking. Next quarter I expect good growth too, except for all those one-time things that keep bringing it back to zero.
If we would start by admitting the 1.1% expectation is essentially nothing, then the zero result might not be so shocking.
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http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/1/29_%28Hong_Kong%29_Kaye_-_We_Will_See_A_Global_Financial_Meltdown.html
“Right now there has been so much intervention and manipulation by central banks to create an atmosphere of financial repression, artificially low and suppressed interest rates, that the stock of debt, so far, has been serviceable. It’s been serviceable because interest rates are so unbelievably low.
This is not a natural condition. This is what investors need to understand. This is not a natural state of the world. And as we return, which we ultimately will, to a more normal state of the world, once again we will be staring at a very high likelihood of a global financial meltdown.
The only way that could be avoided would be an actual acceleration of the money printing that’s already taking place, and I don’t have to tell you what that would do to the price of gold.”
Eric King: “The governments are running a Ponzi scheme. We have the insolvent financing the insolvent in Europe. This goes to your point that there is going to be another meltdown in front of us. What could set this (financial system) into meltdown mode?”
Kaye: “All we need is for the Fed to live up to its promise that it has an exit strategy. I’m here to say that they don’t have an exit strategy. There isn’t an exit. A return to a normalization of interest rates, a withdrawal by the Fed and other central banks in their efforts to monetize debt and artificially suppress interest rates, as soon as that ceases, the system itself will freeze up just as it did a few years ago.
The reason it will freeze up is the system can’t handle anything close to what would be considered historically normal interest rates. The stock of debt globally at that stage cannot be serviced. So the system, inevitably, will break down. The problem this time is likely to be much worse than it’s ever been in the past because the debt bubble has never been this big at any point in the past.”
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Data Watch
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Personal Income Up 2.6%, Consumption Up 0.2% in December To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 1/31/2013
Personal income was up 2.6% in December, easily beating the consensus expected gain of 0.8%. Personal consumption was up 0.2%, coming in below the consensus expected 0.3%. In the past year, personal income is up 6.9% while spending is up 3.6%.
Disposable personal income (income after taxes) was up 2.7% in December and up 7.0% from a year ago. The gain in December was mostly due to dividends.
The overall PCE deflator (consumer inflation) was unchanged in December but up 1.3% versus a year ago. The “core” PCE deflator, which excludes food and energy, was also unchanged in December but is up 1.4% in the past year.
After adjusting for inflation, “real” consumption increased 0.2% in December and is up 2.2% from a year ago.
Implications: Personal income boomed 2.6% in December (3% including upward revisions to November), the largest monthly gain since December 2004. Like in 2004, the gain was due to dividends. Back then, Microsoft paid a large special dividend; this time around, many companies shifted dividends into December so shareholders could avoid higher taxes in 2013. Given the tax hike on ordinary income, we would have expected a spike in private-sector wages & salaries as well. Back in late 1992, private wages & salaries jumped 7.2% in December in anticipation of higher taxes under President Clinton. This time around, private wages & salaries were up 0.8%, a strong gain, but nowhere near 1992. Regardless, due to the spike in overall income, expect a large decline next month to bring us back toward a more plow-horse-like trend. Led by durable goods like autos, consumer spending was up 0.2% in December and is up 3.6% in the past year. “Real” (inflation-adjusted) spending was also up 0.2% in December and up 2.2% versus a year ago. Personal consumption prices were flat in December. This measure of inflation, known as the PCE deflator, is the Federal Reserve’s favorite for overall prices and is up only 1.3% versus a year ago, less than the Fed’s target of 2%. However, given the loose stance of monetary policy, look for inflation to move above the Fed’s target in 2013. In other news this morning, new claims for jobless benefits rose 38,000 last week to 368,000. Continuing claims for regular state benefits increased 22,000 to 3.20 million. These figures are consistent with our forecast of a nonfarm payroll gain of 160,000 for January. The Chicago PMI, which measures manufacturing sentiment in that region, increased to 55.6 in January from 50.0 in December. Despite yesterday’s negative report on Q4 real GDP growth, we are nowhere close to recession.
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Data Watch
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The ISM Manufacturing Index Rose to 53.1 in January from 50.2 in December To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 2/1/2013
The ISM manufacturing index rose to 53.1 in January from 50.2 in December, coming in well above the consensus expected 50.7. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mostly higher in January and all remain above 50. The new orders index rose to 53.3 from 49.7 and the production index increased to 53.6 from 52.6 while the employment index gained to 54.0 from 51.9. The supplier deliveries index ticked down slightly to 53.6 from 53.7.
The prices paid index rose to 56.5 in January from 55.5 in December.
Implications: The new year starts with a solid report on manufacturing sentiment as the ISM manufacturing index surprised to the upside in January rising to 53.1, the best reading since April. According to the Institute for Supply Management, a level of 53.1 is consistent with real GDP growth of 3.4%. More likely, today’s data is consistent with what will be roughly 2.5% real GDP growth in Q1. We expect manufacturing to continue to improve over the coming months as the negative effects of policy uncertainty and Sandy continue to subside. The best news in today’s ISM report was that the employment index rose, coming in at 54.0, the highest level since June. Also, the new orders index showed expansion again and moved to the highest level since May. Despite the softness shown in some regional manufacturing surveys, the overall manufacturing sector looks to be doing just fine. On the inflation front, the prices paid index rose to 56.5 in January from 55.5 in December. We expect prices, and inflation, to continue to gradually move higher. In other news this morning, construction increased 0.9% in December (+2.2% including revisions for prior months). The gain in December was due to home building (particularly home improvements) as well as commercial construction (led by power plants, manufacturing facilities, and higher education buildings). Home building is up 24% from a year ago while commercial construction is up 8%. Look for continued gains in these categories in the year ahead.
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http://pointsandfigures.com/2013/02/03/we-are-all-going-to-die-from-inflation-says-bill-gross/
We Are All Going To Die From Inflation Says Bill Gross
Posted by Jeff Carter on February 3rd,
They say that time is money. What they don’t say is that money may be running out of time.
There may be a natural evolution to our fractionally reserved credit system that characterizes modern global finance. Much like the universe, which began with a big bang nearly 14 billion years ago, but is expanding so rapidly that scientists predict it will all end in a “big freeze” trillions of years from now, our current monetary system seems to require perpetual expansion to maintain its existence. And too, the advancing entropy in the physical universe may in fact portend a similar decline of “energy” and “heat” within the credit markets. If so, then the legitimate response of creditors, debtors and investors inextricably intertwined within it, should logically be to ask about the economic and investment implications of its ongoing transition.
But before mimicking T.S. Eliot on the way our monetary system might evolve, let me first describe the “big bang” beginning of credit markets, so that you can more closely recognize its transition. The creation of credit in our modern day fractional reserve banking system began with a deposit and the profitable expansion of that deposit via leverage. Banks and other lenders don’t always keep 100% of their deposits in the “vault” at any one time – in fact they keep very little – thus the term “fractional reserves.” That first deposit then, and the explosion outward of 10x and more of levered lending, is modern day finance’s equivalent of the big bang. When it began is actually harder to determine than the birth of the physical universe but it certainly accelerated with the invention of central banking – the U.S. in 1913 – and with it the increased confidence that these newly licensed lenders of last resort would provide support to financial and real economies. Banking and central banks were and remain essential elements of a productive global economy.
But they carried within them an inherent instability that required the perpetual creation of more and more credit to stay alive. Those initial loans from that first deposit? They were made most certainly at yields close to the rate of real growth and creation of real wealth in the economy. Lenders demanded that yield because of their risk, and borrowers were speculating that the profit on their fledgling enterprises would exceed the interest expense on those loans. In many cases, they succeeded. But the economy as a whole could not logically grow faster than the real interest rates required to pay creditors, in combination with the near double-digit returns that equity holders demanded to support the initial leverage – unless it was supplied with additional credit to pay the tab. In a sense this was a “Sixteen Tons” metaphor: Another day older and deeper in debt, except few within the credit system itself understood the implications.
Economist Hyman Minsky did. With credit now expanding, the sophisticated economic model provided by Minsky was working its way toward what he called Ponzi finance. First, he claimed the system would borrow in low amounts and be relatively self-sustaining – what he termed “Hedge” finance. Then the system would gain courage, lever more into a “Speculative” finance mode which required more credit to pay back previous borrowings at maturity. Finally, the end phase of “Ponzi” finance would appear when additional credit would be required just to cover increasingly burdensome interest payments, with accelerating inflation the end result.
Minsky’s concept, developed nearly a half century ago shortly after the explosive decoupling of the dollar from gold in 1971, was primarily a cyclically contained model that acknowledged recession and then rejuvenation once the system’s leverage had been reduced. That was then. He perhaps could not have imagined the hyperbolic, as opposed to linear, secular rise in U.S. credit creation that has occurred since as shown in Chart 1. (Patterns for other developed economies are similar.) While there has been cyclical delevering, it has always been mild – even during the Volcker era of 1979-81. When Minsky formulated his theory in the early 70s, credit outstanding in the U.S. totaled $3 trillion. Today, at $56 trillion and counting, it is a monster that requires perpetually increasing amounts of fuel, a supernova star that expands and expands, yet, in the process begins to consume itself. Each additional dollar of credit seems to create less and less heat. In the 1980s, it took $4 of new credit to generate $1 of real GDP. Over the last decade, it has taken $10, and since 2006, $20 to produce the same result. Minsky’s Ponzi finance at the 2013 stage goes more and more to creditors and market speculators and less and less to the real economy. This “Credit New Normal” is entropic much like the physical universe and the “heat” or real growth that new credit now generates becomes less and less each year: 2% real growth now instead of an historical 3.5% over the past 50 years; likely even less as the future unfolds.
http://2.bp.blogspot.com/-opUWcy319ew/T9IdrQkhuHI/AAAAAAAABJI/6DQuKjxRoMw/s1600/Total+Credit+Market+Debt+Outstanding.png(http://2.bp.blogspot.com/-opUWcy319ew/T9IdrQkhuHI/AAAAAAAABJI/6DQuKjxRoMw/s1600/Total+Credit+Market+Debt+Outstanding.png)
Not only is more and more anemic credit created by lenders as its “sixteen tons” becomes “thirty-two,” then “sixty-four,” but in the process, today’s near zero bound interest rates cripple savers and business models previously constructed on the basis of positive real yields and wider margins for loans. Net interest margins at banks compress; liabilities at insurance companies threaten their levered equity; and underfunded pension plans require greater contributions from their corporate funders unless regulatory agencies intervene. What has followed has been a gradual erosion of real growth as layoffs, bank branch closings and business consolidations create less of a need for labor and physical plant expansion. In effect, the initial magic of credit creation turns less magical, in some cases even destructive and begins to consume credit markets at the margin as well as portions of the real economy it has created. For readers demanding a more model-driven, historical example of the negative impact of zero based interest rates, they have only to witness the modern day example of Japan. With interest rates close to zero for the last decade or more, a sharply declining rate of investment in productive plants and equipment, shown in Chart 2, is the best evidence. A Japanese credit market supernova, exploding and then contracting onto itself. Money and credit may be losing heat and running out of time in other developed economies as well, including the U.S.
(http://media.pimco.com/PublishingImages/IO_Feb2013_Fig2.jpg)
Investment Strategy
If so then the legitimate question is: How much time does money/credit have left and what are the investment consequences between now and then? Well, first I will admit that my supernova metaphor is more instructive than literal. The end of the global monetary system is not nigh. But the entropic characterization is most illustrative. Credit is now funneled increasingly into market speculation as opposed to productive innovation. Asset price appreciation as opposed to simple yield or “carry” is now critical to maintain the system’s momentum and longevity. Investment banking, which only a decade ago promoted small business development and transition to public markets, now is dominated by leveraged speculation and the Ponzi finance Minsky once warned against.
So our credit-based financial markets and the economy it supports are levered, fragile and increasingly entropic – it is running out of energy and time. When does money run out of time? The countdown begins when investable assets pose too much risk for too little return; when lenders desert credit markets for other alternatives such as cash or real assets.
REPEAT: THE COUNTDOWN BEGINS WHEN INVESTABLE ASSETS POSE TOO MUCH RISK FOR TOO LITTLE RETURN.
Visible first signs for creditors would logically be 1) long-term bond yields too low relative to duration risk, 2) credit spreads too tight relative to default risk and 3) PE ratios too high relative to growth risks. Not immediately, but over time, credit is exchanged figuratively or sometimes literally for cash in a mattress or conversely for real assets (gold, diamonds) in a vault. It also may move to other credit markets denominated in alternative currencies. As it does, domestic systems delever as credit and its supernova heat is abandoned for alternative assets. Unless central banks and credit extending private banks can generate real or at second best, nominal growth with their trillions of dollars, euros, and yen, then the risk of credit market entropy will increase.
The element of time is critical because investors and speculators that support the system may not necessarily fully participate in it for perpetuity. We ask ourselves frequently at PIMCO, what else could we do, what else could we invest in to avoid the consequences of financial repression and negative real interest rates approaching minus 2%? The choices are varied: Cash to help protect against an inflationary expansion or just the opposite – long Treasuries to take advantage of a deflationary bust; real assets; emerging market equities, etc. One of our Investment Committee members swears he would buy land in New Zealand and set sail. Most of us can’t do that, nor can you. The fact is that PIMCO and almost all professional investors are in many cases index constrained, and thus duration and risk constrained. We operate in a world that is primarily credit based and as credit loses energy we and our clients should acknowledge its entropy, which means accepting lower returns on bonds, stocks, real estate and derivative strategies that likely will produce less than double-digit returns.
till, investors cannot simply surrender to their entropic destiny. Time may be running out, but time is still money as the original saying goes. How can you make some?
(1) Position for eventual inflation: The end stage of a supernova credit explosion is likely to produce more inflation than growth, and more chances of inflation as opposed to deflation. In bonds, buy inflation protection via TIPS; shorten maturities and durations; don’t fight central banks – anticipate them by buying what they buy first; look as well for offshore sovereign bonds with positive real interest rates (Mexico, Italy, Brazil, for example).
(2) Get used to slower real growth: QEs and zero-based interest rates have negative consequences. Move money to currencies and asset markets in countries with less debt and less hyperbolic credit systems. Australia, Brazil, Mexico and Canada are candidates.
(3) Invest in global equities with stable cash flows that should provide historically lower but relatively attractive returns.
(4) Transition from financial to real assets if possible at the margin: Buy something you can sink your teeth into – gold, other commodities, anything that can’t be reproduced as fast as credit.
(5) Be cognizant of property rights and confiscatory policies in all governments.
(6) Appreciate the supernova characterization of our current credit system. At some point it will transition to something else.
We may be running out of time, but time will always be money.
Speed Read for Credit Supernova
1) Why is our credit market running out of heat or fuel?
a) As it expands at a rate of trillions per year, real growth in the economy has failed to respond. More credit goes to pay interest than future investment.
b) Zero-based interest rates, which are the result of QE and credit creation, have negative as well as positive effects. Historic business models may be negatively affected and investment spending may be dampened.
c) Look to the Japanese historical example.
2) What options should an investor consider?
a) Seek inflation protection in credit market assets/ shorten durations.
b) Increase real assets/commodities/stable cash flow equities at the margin.
c) Accept lower future returns in portfolio planning.
Enjoy the Super Bowl while you think about the Supernova of Debt. I doubt CBS News will ask Obama a tough question that he can’t dodge about this. Maybe they can go back and ask President Bush-since it’s his fault. He started it.
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Thanks for the link Instapundit
Tip of the hat to the guys at Powerline. Hope they don’t pass the Snowbird Tax on you.
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By ROMAIN HATCHUEL
All around the world, wary investors still don't know whether to trust the quantitative-easing programs of aggressive central bankers or to question the viability of this unprecedented monetary stimulus. Amid the uncertainty, the question is what assets can, over several years, survive the possibility of burst bubbles, subpar growth and soaring inflation. For answers, consider an unlikely investment manual: the U.S. Declaration of Independence.
That inspiring document proclaims life, liberty and the pursuit of happiness as man's most sacred natural rights. Although these concepts may seem abstract to investors, they can provide useful guidelines for investing in uncertain times.
As applied to investing, "life" signifies those things that are essential to existence—namely food, shelter and other prime necessities. Regarding shelter, obviously not all home values can resist economic and financial shocks, as demonstrated by the housing markets in the U.S., let alone in Ireland and Spain. But property prices in highly sought-after locations tend to experience limited downside, or even to appreciate, regardless of the overall state of the economy.
Witness the resilience of London's real-estate market. Prices in its most coveted borough, the City of Westminster, fell less than 15% from their 2008 highs and are now up as much as 26% from their pre-crisis levels, despite Great Britain's multiple-dip recession. Similar (though not as spectacular) patterns have been observed in Paris, New York and other large cities.
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Associated Press
A portrait of Thomas Jefferson in 1805 by artist Rembrandt Peale.
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With regard to food and household goods, a look at the S&P 500 shows that while the index posted a total return of 8.59% for the five years ended December 2012, the sub-indices for packaged foods, household products, megaretailers and home improvement rose respectively 55.25%, 18.32%, 65.14% and 128.05%. Food commodity prices also rose by more than 22% over the same period, according to the International Monetary Fund. With world population projected by the United Nations to grow by more than two billion, or 30%, over the next four decades, food and household goods are going to remain in high demand.
But populations don't grow evenly, which leads to a second significance of "life" as an investment principle: demographics. Prudent investors may want to think twice before making long-term commitments in countries such as Japan, where the U.N. estimates the population could shrink by 16 million to 28 million (or 13% to 22%) by 2050. Even if Japan remains one of the world's leading exporters, its domestic economy is bound to suffer the consequences of this demographic collapse.
Now how does "liberty" link to safe investment? In troubled times, markets will always pay a higher price to countries where the rule of law, sensible governance and democracy reign. This liberty premium is seen even during relatively calm periods. Venezuela and Lebanon have the same credit rating, but on similar five-year maturities Venezuela currently borrows money at more than 9% interest, while Lebanon (even with its political difficulties) funds itself at 4.8%. The way Argentina last year expropriated a 51% stake in YPF, the largest local energy company, from the Spanish conglomerate Repsol, REP.MC +2.40%is a reminder that political risk is real when it comes to investing.
Then there is the pursuit of happiness, which should be a reason for optimism. Even in times of hardship, man tends to cling to life's small pleasures, at least those he can afford. As the S&P 500 shows, over the past five years the sub-indices for soft drinks, movies and entertainment, and restaurants have outperformed the broader index with respective returns of 24.26%, 49.97%, and 94.26%. Coca-Cola, KO +1.37%Disney DIS +0.57%and McDonald's MCD +0.77%delivered returns ranging from 37% to 75%.
Thomas Jefferson is deservedly revered for having written the first draft of America's founding document, but in doing so he also inadvertently established some guiding principles for investors. Those who believe that the world is still on a dangerous path should remember his powerful words as they make long-term investment decisions.
Mr. Hatchuel is managing partner of Square Advisors, LLC, a New York-based asset management firm.
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second post of morning:
By DANIEL GORFINE
AND BEN MILLER
A tectonic shift is under way in how companies raise money—and it will have a profound impact on U.S. investors and markets. According to the Securities and Exchange Commission's most recent estimates, businesses have been raising more funds through private transactions than through debt and equity offerings registered under the securities laws and offered to the general public.
Overall public debt and equity issuances fell by 11% between 2009 and 2010, to $1.07 trillion, while private issues rose by 31%, to $1.16 trillion. This shift, which has been driven by the rising costs of public-market participation and regulation, will likely accelerate when the SEC implements reforms in the Jumpstart Our Business Startups Act, which the president signed into law last April.
The crowdfunding provisions in the JOBS Act are intended to democratize investment opportunities using the Internet and have attracted the most public attention. But another part of the law may have the most impact.
Here is the background. U.S. securities laws have a private-market exemption, called Regulation D, that allows companies to sell securities to accredited investors with high net worth (essentially more than $1 million excluding a home). The exception means the companies don't have to go through the SEC's costly and time-consuming registration and reporting requirements for public offerings. The securities can also be resold to financial institutions that hold a required minimum value of securities investments.
But the securities laws have also banned general solicitations for these private-market offerings—and Title II of the JOBS Act lifts this ban. This means that a company, investment fund or seller now can publicize its offerings via the Internet or traditional advertising media, as long as the ultimate investors are accredited or qualified institutional buyers.
One of the most significant advantages that public markets have held over private markets is the ability to generate substantial market liquidity by advertising to a wider public. Once the SEC implements the legislation, that advantage will gradually fade away.
Until the JOBS Act, Regulation D effectively allowed companies and funds to raise capital only from investors with whom they already have a pre-existing relationship. So money typically flowed into a deal through broker-dealers or arbitrary social networks. This process shuts out a wide swath of prospective investors and, thanks to the lack of a robust trading market, results in lower prices for the securities.
By rolling back the ban on general solicitation, fund offerings and resales of unregistered securities can now flow through vast Internet-based broker-dealers and other finance networks, potentially giving a steroid shot to private capital markets.
According to the Angel Capital Association, there are 8.6 million accredited investors nationwide, of which only 3.1% currently invest in business startups through private markets. The large pool of untapped investors and capital may result simply from a shortage of information regarding investment opportunities or concerns over private market liquidity.
Thanks to the JOBS Act, private capital markets will enjoy increased transparency and therefore greater efficiency. They will also likely experience substantial new capital inflows due to the widespread advertising of offerings. If high-quality companies and funds have access to broad and deep pools of capital in private markets, then the question becomes why many of them would bother with the regulatory compliance and shareholder-management costs of public markets.
We anticipate a paradigm shift in how companies raise money, as they increasingly shun the highly regulated, costly and volatile public markets in favor of now deeper and more efficient private markets. This could be a boon for capital formation.
But it could also mean fewer investment opportunities for the general public. The most promising companies may delay or never file IPOs and instead seek capital on private exchanges not accessible to those who don't qualify as accredited investors—which is 97% of the U.S. population. Meanwhile, novice accredited investors may be bombarded with solicitations for private placement opportunities, without some of the regulatory oversight provided in public markets.
For lawmakers and regulators, however, perhaps the lessons from the success of private markets can help with a reform of public securities regulations, many of which were written nearly a century ago and, at least in part, are the reason for the continuing privatization movement.
Mr. Gorfine is legal counsel and director for financial markets policy at the Milken Institute. Mr. Miller is co-founder of Fundrise, an investment platform that enables direct investment in local real estate and businesses.
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The ISM non-manufacturing index declined to 55.2 in January
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 2/5/2013
The ISM non-manufacturing index declined to 55.2 in January, coming in slightly above the consensus expected 55.0. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The direction of the key sub-indexes was mixed in January, but all remain above 50. The new orders index declined to 54.4 from 58.3 and the business activity index fell to 56.4 from 60.8. The employment index rose to 57.5 in January from 55.3 while the supplier deliveries index increased to 52.5 from 48.5.
The prices paid index rose to 58.0 in January from 56.1 in December.
Implications: A very solid, plow horse-like, report on the service sector today as the ISM non-manufacturing index showed expansion for the 37th consecutive month, slightly beating consensus expectations, coming in at 55.2. Although the new orders sub-index and the business activity sub-index – which has a stronger correlation with economic growth than the overall index – declined in January, they still remain at healthy levels. The biggest surprise from today’s report was that the employment sub-index surged again in January coming in at 57.5, the best reading since February 2006. This is a good sign for the economy moving forward. On the inflation front, the prices paid index rose to 58.0 and remains elevated. Given the loose stance of monetary policy, inflation should continue to move higher over the coming years. Today’s report, along with other data we have received this week, show the economy is doing just fine and will continue to plow ahead through 2013.
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It's nice to know that even if the earth is hit by a meteor that wipes out 90% of humanity, Wesbury will find a way to shoehorn "plowhorse" into his last bit of prose.
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http://www.ftportfolios.com/blogs/EconBlog/2013/2/4/the-pessimists-are-losing
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http://www.ftportfolios.com/blogs/EconBlog/2013/2/4/the-pessimists-are-losing
Really?
USdebtclock.org
Let me know when the numbers start spinning backwards. Don't be fooled by the funny money distorting the market.
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The Stock Rally That Isn't
Comparing the performance of equities to that of commodities—and the U.S. dollar—reveals the real story..
By RICH KARLGAARD
WSJ
Stocks have finally learned to love President Obama, or so it would seem. This is welcome news, because the start of the affair was awkward. At his first inaugural address on Jan. 20, 2009, Mr. Obama declared: "The state of our economy calls for action: bold and swift." Stocks swiftly sank 5%. Stocks continued to drop for another eight weeks, hitting bottom with a satanic S&P 500 interday low of 666 on March 9, 2009.
Now stocks are flirting with all-time highs, up 88% since Mr. Obama took office and 124% since the lows of March 2009. So shall stock pickers canonize Mr. Obama alongside Ronald Reagan and Bill Clinton?
Not yet. The Obama rally has nothing in common with the 1982-2000 boom. It is much more a replay of the Gerald Ford-Jimmy Carter rally of 1974-80, which was a flight of the U.S. dollar into stocks, commodities, real estate—anything but the weakening greenback.
In December 1974, the S&P 500 hit a low of 67, having fallen 45% over the previous 23 months. The 1973-74 crash coincided with a recession that produced unemployment of 10% and a collapse in American confidence, led by President Richard Nixon's resignation in August 1974 and a worsening situation in Vietnam.
Six years later, in December 1980, the S&P 500 was at 136, a gain of 103%. But over those six years gold rose in value by 182%, oil by 270% and silver by 340%. Nearly every other commodity similarly outpaced the stock gains during the supposed Ford-Carter rally.
The Obama-era stock rally is stronger compared with commodities than was the Ford-Carter rally, but not by much. With the S&P 500 up 124% over the past four years, gold is up 88%, oil 106% and silver 167%.
What does a genuine stock rally look like? For that, see the August 1982 to January 2000 boom, during which the S&P 500 soared 1,194% while gold dropped in value by 35%, oil by 23%, and silver by 17%. Stocks way up. Commodities down.
The difference between illusory stock rallies and the real thing is stark. During the Ford, Carter and Obama years, the weakening U.S. dollar drove investors out of cash. In the Reagan, Bush 41 and Clinton years, Americans benefited from a strong dollar, while stocks (and bonds) wildly outperformed commodities.
The other major difference here is growth. The annual increase in the nation's gross domestic product under Reagan-Bush-Clinton averaged 3.6%. Under Mr. Obama, annual GDP growth is sputtering along at less than half of the Reagan-Bush-Clinton rates.
Where do stocks go from here? Bears fret that stocks have outpaced weak economic growth and therefore are overvalued. The silver lining is that stocks haven't really done that well since March 2009, despite the nominal 124% gain. They could do better—a lot better—if America's tax, regulatory and monetary policies were shaped to provide a 1982-2000 tailwind.
Leftward pundits prefer to think that the stock market is a casino unrelated to the deeper prosperity of the country. But periods like the 1980s and '90s show what can happen when investors put capital into ideas and innovation and thus into the hands of inventors, entrepreneurs and producers. By contrast, during periods when commodities are rising faster than stocks, investors prefer inert objects like gold to real innovation, invention and production.
When Washington gurus crow these days about the Obama stock rally, they might consider whether slightly beating Gerald Ford and Jimmy Carter is the best they can do.
Mr. Karlgaard is publisher of Forbes.
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Nonetheless, I'd be a less poor man than I am had I listened to Wesbury instead of me , , , :cry:
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Are Wages About to Start Rising?
WSJ
Computer programmers are among the professions where wages have grown.Computer programmer, accountant, mechanical engineer: If you had kids in college these last few years, you probably encouraged them to enter fields of study that landed them in one of those jobs, which were among the strongest bets in a weak labor market.
Yet despite the steady demand for—and low jobless rates among—these professionals during the recession and the first years of recovery, those fields experienced little wage growth between 2007 and 2011, according to data from the Labor Department.
That’s finally starting to change. Earnings for those three occupations and a number of others cited in various surveys gauging the “war for talent” started to experience notable growth in 2012, the government data shows.
Wages rose 3.4% from 2011 to 2012 for full-time workers in computer and mathematical occupations, 5.1% for accountants and auditors, 7.5% for electrical engineers, and 4.4% for mechanical engineers.
For full-time workers in all professions, earnings rose just 1.6%. These figures all come from the DOL’s Bureau of Labor Statistics, which recently released earnings information for approximately 500 occupational categories.
The hope is that rising wages will spread beyond these fields into the broader job market, in which many fields have failed to keep pace with inflation. “It’s a statistic you want to watch,” said Kevin Hallock, director of Cornell University’s Institute for Compensation Studies.
Since professionals often negotiate higher salaries when they leave one employer for another, the findings support other BLS statistics showing that turnover is on the rise—a very good sign for the job market.
Brandon Hilkert, a 32-year-old software engineer who lives near Philadelphia, saw his salary jump from $90,000 to $110,000 in January when he left Meeteor, a social-networking startup that recently shut down, for PipelineDeals, a more established technology firm with offices in Wayne, Pa. and Seattle.
“It was risky to work for a start-up,” he says, adding that he took a pay cut and gave up his healthcare benefits to join Meeteor in 2010. Now, with a new baby at home, the benefits and extra income at his new job add up to greater peace of mind. “It was definitely the right decision for my current situation,” he says.
Since the BLS examines so many occupations, its data offers a fairly general view of earnings trends.
But looking deeper into these favored professions confirms the trends.
Technology professionals have been in especially high demand over the last few years, particularly in areas such as mobile app development and big-data analysis. A salary survey of 15,049 workers released last month by Dice, a tech-industry career site, found that tech salaries rose 5.3% to $85,619 in 2012, up from $81,327 in 2011 – the biggest increase in more than a decade.
Tech salaries were flat for the first three years of the recession and recovery, according to previous Dice surveys. They rose slightly in 2011, but that gain was driven by Silicon Valley and New York, markets with above-average pay. “Now we’re seeing salaries going up across the board,” said Scot Melland, CEO of Dice parent Dice Holdings, Inc.
In engineering, greater competition for professionals led to 2012’s rising pay. For the last three or four years, “Companies were able to meet demand by asking for more out of their present workforce or exporting some functions outside the U.S.,” said Thomas Loughlin, executive director of ASME, formerly known as the American Society of Mechanical Engineers. But those strategies have hit a “saturation point,” he added, and firms now are adding more engineers.
From 2009 to 2011, median incomes were flat or down even in key fields such as mechanical, chemical and electronic engineering. But incomes in all three occupations rose in 2012, by 13.5%, 3.4%, and 5.7%, respectively, according to ASME’s most recent salary survey.
For job seekers across the occupational spectrum, bigger paychecks for the most sought-after workers could signal higher turnover and faster wage growth throughout the economy.
“The high skills in the economy are the canary in the mine,” said Melland. “When you see salaries shifting here, it’s probably a precursor to a wider phenomenon.”
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second posts:
As Wesbury points out there are some powerful positive forces at work right now:
1) Tremendous decline in natural gas costs, with powerful prospects for more good things to come
2) shale oil
3) 3D printing
4) the Cloud
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Investors Business Daily says worst growth in 60 years! Who predicted 0% growth? Moving forward requires greater than 3% growth. 0.8% long term growth is more like a corpse lying in a morgue than a plowhorse working in a field.
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Obama's first term, however, puts the paltry level of growth during Bush's second term in a newly favorable light. According to the BEA (Bureau of Economic Analysis), average annual real GDP growth during Obama's first term was a woeful 0.8%.
http://news.investors.com/ibd-editorials-viewpoint/021213-644194-obama-growth-record-is-worst-in-60-years.htm#ixzz2KuQGawCt
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0.8% growth over his entire first term. Worst in modern history. Pathetic.
Prospects for the future under current policies: More of the same, best case.
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The U.S. Economy is now Dangerously Detached from Reality
Brandon Smith - www.alt-market.com - February 8, 2013
Recently I was asked to give a presentation on the current state of the global economy to a local group of concerned citizens here in Northwest Montana. I was happy to oblige but when composing my bullet points I realized that, in truth, there were no legitimate economic numbers to examine anymore. You see, financial analysts have traditionally used multiple indicators of employment, profit, savings, credit, supply, and demand in their efforts to divine the often obscured facts of our financial system. The problem is, nearly every index we used in the past, every measure of capital flow and industry, is absolutely useless today.
We now live in an entirely fabricated fiscal environment. Every aspect of it is filtered, muddled, molded, and manipulated before our eyes ever get to study the stats. The metaphor may be overused, but our economic system has become an absolute “matrix”. All that we see and hear has been homogenized and all truth has been sterilized away. There is nothing to investigate anymore. It is like awaking in the middle of a vast and hallucinatory live action theater production, complete with performers, props, and sound effects, all designed to confuse us and do us harm. In the end, trying to make sense of the illusion is a waste of time. All we can do is look for the exits…
There is some tangible reality out there, but it is difficult to find, and there are few if any mainstream numbers to verify. One has to remember always that the fundamental world of money and trade revolves around real people and real circumstances. No matter how corrupt our economic system is, as long as there are human beings, there will always be supply and demand that cannot be hidden. We have to look past the “official numbers” and look at the roots of trade. Where has demand fallen? Where has supply diminished? Where are the tangible goods and needs and how have they changed?
Let’s first start with the mainstream version of our system, looking at each aspect of the economy that no longer represents the truth of our situation…
Employment, Savings, And Debt
Much of this information is old news to those of us in the Liberty Movement, who tracked the progress of the global collapse long before the general public even knew of its existence. However, it is useful to take a step back and look at the basic picture every once in a while.
According to numbers issued by the Department of Labor, weekly unemployment reports have dropped to a five year low, and the overall unemployment rate is holding at 7.9%. This would seem to be a vast improvement over the dreadful bloodletting in the system only a few years ago. Has the private Federal Reserve and the Obama Administration really done it? Have they turned back the tide on the greatest fiscal crisis the U.S. has seen since the Depression?
No. They haven’t.
They have only changed how the data is disseminated to the public. In order to understand how the employment statistics con is being engineered, it is important to understand the difference between “Adjusted” and “Unadjusted” numbers.
Labor Department data is “seasonally adjusted”, using a series of statistical assumptions including something called “Trend Cycle Analysis”. Trend Cycle Analysis is, basically, a sham, but a sham put together in a very complex and confusing manner. If you ask a mainstream economist what it is, you’ll likely get a three hour long dissertation filled with financial babble and very little concrete explanation. So let me break it down as simply as I can…
Imagine that you are going to estimate how much profit you plan to make in a particular month, but you don’t just consider your current pay rate and pop it into a calculator; you also throw in the possibility of a few pay raises, an inheritance from a grandma who might kick the bucket, and, your exaggerated expectations of the entire year’s profit on top of that. You may also take into account future bad weather, a mugging, a nuclear war….whatever. All hypothetical situations not based in reality. Basically, you decide that a particular trend in your income is inevitable, then, mold your statistical analysis around that assumption.
When your real profit numbers come in (the unadjusted numbers) and they do not meet your expectations, you simply change them according to what you believe SHOULD have happened. If you insist that your profits are going to go up for the year, and they go down for a couple months instead, you change the variables you use to calculate the statistical average so that the results match your expectations, assuming that it will all balance out in the end.
Now, this sounds utterly insane for the common person out there trying to make a living. If you ran your household this way, without accepting the cold hard unadjusted numbers in front of you, you’d find yourself broke and on the street in no time. Unfortunately this is EXACTLY how our government handles most financial data; by coming to a final conclusion before hand, and then forcing the numbers to fit that conclusion.
This is why in February of 2013, “adjusted” first week unemployment rate was reported at 366,000 – a 5000 person drop from the week before. A seeming improvement in the trend. But, unadjusted numbers came in at 386,176 – a 16,000 person spike from the week before. When one examines real unemployment numbers, he finds that the divergence between the adjusted and unadjusted statistics is growing larger with each passing quarter. That is to say, the contradiction is becoming so blatant between the hard numbers and the Labor Department’s fantasy numbers that one must question whether or not the government is lying to us outright about the state of the economy (hint – they are lying).
These same methods are used by the government to calculate progress in the housing market, disposable income, etc.
The claim of “recovery” in the jobs market simply doesn’t jive with other indicators, like 2012 Christmas retail, which had the worst showing since the crash in 2008 (and these are still mainstream numbers!):
http://www.foxnews.com/us/2012/12/26/us-holiday-retail-sales-growth-weakest-since-2008/
Average household savings continue to scrape the bottom of the barrel, indicating that the public is not spending or withholding cash. They are simply broke:
And the overall GDP of the U.S. contracted in the fourth quarter of 2012 for the first time in three years (again, according to official numbers, meaning the reality is much worse):
http://money.cnn.com/2013/01/30/news/economy/gdp-report/index.html
The downturn in consumption and industry also seems to be supported by the Baltic Dry Index, a measure of global shipping and rates. The BDI has fallen to near historic lows THREE TIMES in the past year, which to my knowledge, has never happened before. In the past, the BDI has been a strong prophetic indicator of future market volatility. Usually, around a year after a severe decline in the index, a dangerous economic event takes place. The BDI made its first sharp drop to all time lows at the end of January 2012, exactly a year ago.
U.S. household debt was recently reported to have fallen to a 29 year low, but the ratio used by the Federal Reserve applies a statistic for disposable income that is derived from the Trend Cycle boondoggle method. While markets cheer, the truth is, the only reason household debt obligations have fallen at all is because bank lending and credit issuance remains frozen. Consumer debt falls when there is no money to borrow. In fact, the Federal Reserve actually pays large banks NOT to lend to the public; an activity which was exposed by Dennis Kucinich in 2009 on the House Committee on Oversight and Government Reform. An activity that continued through 2012:
http://economix.blogs.nytimes.com/2012/07/31/the-fed-should-stop-paying-banks-not-to-lend/
Keep in mind, one of the primary arguments the Federal Reserve used when promoting the bailout concept was that it would “free up credit markets” so that lending could pick up again and fuel a recovery, and yet, at the same time, they were paying banks to NOT lend.
Meanwhile, the supposed job recovery has produced an astonishing increase in welfare recipients in the U.S., including a record 46 million Americans on foodstamps (approximately 15% of our population):
http://www.nbcnews.com/business/report-15-americans-food-stamps-980690
If we are to apply any “trend” to our calculations on overall economic health, then we should include the extreme level of government handouts, and poverty levels which are now at all time highs. The facts are undeniable; the number of people who have much less than they did in 2008 has grown. How then could the U.S. be considered “in recovery”?
National Debt And The Fiat Lie
With the Dow Index hovering near highs of 14,000 our system truly looks to be on a rocket ship to pre-2008 money market bliss. In a mere five years we have returned to equity spikes that stagger the mind and the wallet. At least, that’s how it all appears…
What needs to be taken into account, though, is the amount of fiat money being created by the Federal Reserve, and how much of that printed pixie dust currency is fueling our magical flight to Neverland. Since 2008, our official national debt has increased from $10 trillion to $16.4 trillion, and some estimate $17 trillion to $18 trillion by the end of 2013 (unless, of course, a collapse occurs). Which means our national debt, which took decades to reach the $10 trillion mark, will have nearly doubled in only six years!
So, what has a doubling of our national debt in such a short span of time bought us? Well, credit markets remain frozen, property markets remain stagnant, poverty is at historic levels, welfare recipients are at epic highs, and consumer activity and GDP is back at 2008 lows. Where did all that printed money go? Where was it spent? To answer that question, we only need to find what area of the economy has seen the most positive (or fantastical) activity. What sector is seeing a massive boost while the rest tumbles?
I suggest that a large portion of QE1 through QE3 has gone to prop up the stock market, and nothing else. I suggest that American taxpayers are fronting the bill for the equities bonanza we see today. I suggest that the Dow is being used as a Red Herring to distract the populous for as long as possible while real assets are being snapped up and hoarded by international banks and foreign entities. I suggest that we are being leached dry and that the parasites are almost ready to move on…
When will it all end? Perhaps sooner than many people think. The decision by D.C. to delay talks on the so-called “Fiscal Cliff” until March may not be coincidence. Extensive cuts in federal spending are absolutely necessary and cannot be dismissed forever, but, because the last vestiges of our system that still operate do so through government money, such cuts will cause immediate damage to the economy, including possible default and dollar devaluation. Refusal to make cuts will result in credit downgrades, currency inflation, and a loss of the greenback’s world reserve status. There is no “right” way out of this quandary.
When this collapse is initiated, it would certainly behoove all parties involved, including central banks, international banks, and criminal politicians, to have a scapegoat handy for the citizenry to direct their rage at.
Event Horizon Economics
An “Event Horizon” in physics is a moment or singularity in spacetime at which a gravitational pull becomes so great that there is no way to escape it. It is a point of no return. I believe America’s economy has reached its own Event Horizon. Our system is now entirely fiat driven, with very little or no true economy left. Without constant injections from the Fed, and perpetually low interest rates, the country would implode tomorrow. This is not recovery. Actually, I’m not sure what to call it.
Today, independent economic analysts cannot look to the numbers to determine future trends. Most are fake, and the rest are ugly, and I’m not sure much else can be said in their regard. Instead, we must now look to events, rather than statistics, because our country has been maneuvered into a position of utmost frailty. Like an avalanche shelf waiting for that perfectly timed disturbance to trigger its roaring collapse. All that is needed is a macro-crisis, and it is no great feat for such a thing to be created in our tension filled global environment.
War in Syria and Iran leading to a tripling of energy prices. Sanctions and strife with North Korea leading to Chinese economic retribution. Conflict between China and Japan, again leading to Chinese economic warfare and perhaps real warfare. An opportune “cyber attack” which could be used as an excuse for a market crash and even an internet shutdown. A “political impasse” between Reps and Dems which leads to a default of U.S. credit. Any one of these catastrophes could easily occur (with a little nudge from some well placed people) and feed a wider global tragedy. The important thing to remember is that while this event will be blamed for the breakdown, it was international banks, the Federal Reserve, and elements of our own government that made the domino effect possible. They put the pieces in place. The act that knocks them over is secondary.
I have spent the past seven years writing about “potential” threats to our overall system, but these dangers were always just beyond our sight. Just around the corner. Today, it is as if the journey is over, and all those threats have materialized right before my eyes as real, and imminent. I am watching that which I warned of come to fruition, and this is certainly not a pleasant thing. What is valuable, though, is what we have all done in the Liberty Movement with the time that we had. From when I began writing for the movement until now, I have seen an overwhelming increase in public awareness. It may not be obvious to newer activists, but it is there all the same. While we still face disparaging odds, and millions upon millions of oblivious bystanders, there is, amidst these darker moments, a steadfast community of free men and women forming. I have full faith in the future. Much more so than I ever did before. Our economy may be detached from reality, but our endeavors as individuals will not be. Our resolve will be the great game changer. Not fiscal calamity.
You can contact Brandon Smith at: brandon@alt-market.com
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Industrial production declined 0.1% in January To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 2/15/2013
Industrial production declined 0.1% in January, coming in below the consensus expected gain of 0.2%. Production is up 2.1% in the past year.
Manufacturing, which excludes mining/utilities, declined 0.4% in January. Auto production fell 3.2%, while non-auto manufacturing declined 0.1%. Auto production is up 7.5% versus a year ago while non-auto manufacturing is up 1.3%.
The production of high-tech equipment fell 0.1% in January, and is down 2.2% versus a year ago.
Overall capacity utilization slipped to 79.1% in January from 79.3% in December. Manufacturing capacity use fell to 77.6% in January from 78.0% in December.
Implications: Industrial production declined slightly in January with overall output down 0.1% and manufacturing falling 0.4%. But the “big story” in today’s report was the large upward revisions for November/December. Including revisions for prior months, both overall production and manufacturing were up 0.5%. In addition, the upward revisions to production pushed capacity utilization in December to the highest level since 2005. It was only from that near-term peak that capacity use ticked down in January. Two factors might explain the dip in production in January itself: first, normal month-to-month volatility; second, some privately-held firms pushing production out the door before year-end so they could book revenue before higher tax rates took effect on January 1. Even including the decline in January, production has accelerated considerably in the past three months, with overall production up at a 6.8% annual rate and manufacturing up at a 10.1% annual rate. In the past year auto production is up 7.5%, while manufacturing ex-autos is up a slower 1.3%. We expect the gap between those two growth rates to narrow considerably in 2013, with slower growth in autos and faster growth elsewhere in manufacturing. Capacity utilization fell to 79.1% in December, only slightly below the average of 79.2% in the past 20 years. Continued gains in production will push capacity use higher, which means companies will have an increasing incentive to build out plant and equipment. Meanwhile, corporate profits and cash on the balance sheet show they have the ability to make these investments. In other news today, the Empire State manufacturing index, a measure of factory sentiment in New York, increased to +10.0 in February from -7.8 in January. The index is now the highest since last May. In other recent news, new claims for unemployment insurance fell 27,000 last week to 341,000. Lately, claims have been bouncing wildly around a four-week moving average of 353,000. Continuing claims for regular state benefits fell 130,000 to 3.11 million. These figures are consistent with continued moderate payroll growth in February.
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"Industrial production declined 0.1%"
"Manufacturing, which excludes mining/utilities, declined 0.4% in January. Auto production fell 3.2%, while non-auto manufacturing declined 0.1%."
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A Plowhorse can't pull a plow backwards. The plowhorse analogy implies a very strong horse pulling a very heavy load at very slow, consistent pace. But we aren't pulling a fixed load with a fixed force. A good part of our load consists of people who could be helping us pull.
The wagon analogy reflects that. The wagon has the productive people pulling it up a slight incline and it has the oldest, poorest and weakest among us riding if they are unable to help pull or even walk alongside without assistance. The slight incline is the actual cost of governing, keeping the courts open, police, roads, etc.
The puller to rider ratio for the wagon shifts dramatically with every policy change. When everyone who can pulls a little the wagon goes along quite easily and effortlessly. But we take the strongest pullers and tie ropes at varying tensions around their arms and legs, and som duct to at least partially block their breathing. We take the able bodied who aren't pulling much and tell them they are no help and can ride if they choose, a 34 million person shift in 4 years. We take riders who are rested and ready to help pull, instead we pay them to keep riding. At some point we wonder how the slight incline has become an unbearable slope. We stall out and maybe slip backwards a little - until we recognize what is wrong and correct it.
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And by the way, the Fed has not been "creating money" in any more significant amounts than it has for the past 20 years. The Fed has essentially been swapping bank reserves for Treasuries and MBS. That's it. Bank reserves are not "money." This chart is proof that the amount of "money" in the economy has not expanded by any unusual amount. The recent increase in M2 has been driven almost exclusively by an increase in money demand that the Fed has simply accommodated. That is not inflationary
— Scott Grannis
(http://www.dogbrothers.com/kostas/M2_money_supply.jpg)
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The Fed has been "monetizing" the debt at a rapid pace. While this graph shows the Federal Reserve's definition of money supply, it does not take this into account. Which is like trying to calculate the trajectory of a rocket to the moon without taking into account the forces of gravity. It's a joke.
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The Fed has been "monetizing" the debt at a rapid pace. While this graph shows the Federal Reserve's definition of money supply, it does not take this into account. Which is like trying to calculate the trajectory of a rocket to the moon without taking into account the forces of gravity. It's a joke.
:roll:
Aside from food, gas, and electricity, we've hardly seen inflation.
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G M - that is because this money is being held by banks. When it enters circulation and the Fed stops keeping interest rates close to zero, watch out.
I think the smartest strategy right now is to stock up on essentials, and put most of your liquid assets into gold and silver bullion. Call me crazy - but this insanity cannot continue indefinitely without causing a financial collapse.
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Milton Friedman had a license plate that said: MV=PQ, contending that each of four very important but difficult to measure variables are all intrinsically tied to each other, either proportionally or inversely. The money supply times the velocity of money equals the total value of all the goods and services in the economy.
We are getting information that the Fed is monetizing 3/4 of trillion dollars a year in 'debt' that is neither collected in tax revenues nor borrowed in a market by a willing participant. That new money is entering the economy by way Treasury checks at a rate of $24,000 per second? What could possibly go wrong?
Money is up and velocity is down from where it could be or should be. With flat demand and no growth, prices look relatively stable. (Unless as G M says if you have been to a gas station or grocery store lately, or healthcare or education or property taxes or anything else we have to pay for.)
Inflation is the increase in dollars relative to output, clearly we are doing that. Consumer price increases are not tied to money but money times velocity, if you buy Friedman's thinking.
Obj wrote: "that is because this money is being held by banks. When it enters circulation and the Fed stops keeping interest rates close to zero, watch out."
A bank reserve is money sitting still whether you count it or not. Yes, if it were to invested and moving full speed in a fractional reserve system, it would grow in multiples. The key to preventing or at least postponing a price spiraling crisis is our commitment to no-growth, anti-investment/employment policies. What a miserable web we wove.
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http://www.youngresearch.com/authors/ejsmith/this-stock-rally-is-a-dud/?awt_l=PWy8k&awt_m=3YU1fYPCXazlu1V
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The article stops short of specifically suggesting the best way to invest assuming his thesis is correct that we are more of a stagflation period and not bull market.
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The ISM Non-Manufacturing Index Increased to 56.0 in February
Data Watch
The ISM Non-Manufacturing Index Increased to 56.0 in February
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 3/5/2013
The ISM non-manufacturing index increased to 56.0 in February, beating the consensus
expected dip to 55.0. (Levels above 50 signal expansion; levels below 50 signal
contraction.)
The direction of the key sub-indexes was mixed in February, but all remain above 50.
The new orders index rebounded to 58.2 from 54.4 and the business activity index
rose to 56.9 from 56.4. The employment index slipped to 57.2 in February from 57.5
while the supplier deliveries index declined to 51.5 from 52.5.
The prices paid index rose to 61.7 in February from 58.0 in January.
Implications: Today’s ISM Services report shows improving sentiment by
companies in that sector. This upside surprise, in combination with the positive
surprise with last week’s ISM Manufacturing report, severely undermines the
theory that fear about the federal spending sequester is hurting the economy. If
anything, fear-mongering should have more of an effect on surveys like these than on
actual economic activity. So if these surveys haven’t been beaten down,
it’s very unlikely the economy is slowing. The ISM Services index rose to 56.0
in February from 55.2 in January, hitting the highest level in a year and beating
consensus expectations that it would slip slightly to 55.0. The report is the 38th
consecutive reading above 50, signaling expansion. The business activity index,
– which has a stronger correlation with economic growth than the overall index
– rose to 56.9. On the inflation front, the prices paid index rose to 61.7,
the highest in five months. Given the loose stance of monetary policy, inflation
should continue to move higher over the coming years. Other recent economic news has
also been good. According to Autodata, cars and light trucks were sold at a 15.4
million annual rate in February, up 0.6% from January and 6.1% from a year ago. With
the exception of the temporary surge in sales in November after Superstorm Sandy
– the storm postponed some sales from October into November – this was
the fastest pace of auto sales since the end of 2007. Along with other data, these
figures suggest a growth rate of 2.0 – 2.5% in real personal consumption in
Q1. Meanwhile, we’re still forecasting 2.5% real GDP growth for Q1. Again,
still no sign of a weakening consumer or economy due to either the fiscal cliff deal
or supposed concerns about the federal spending sequester.
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second entry:
http://www.businessinsider.com/dow-jones-idiot-maker-rally-2013-3#
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This guy Wesbury can throw out all the statistics he wants. He is straining very hard to find a silver lining in my opinion. Plenty of other economic indicators are extremely poor - for instance - the number of working-age males actually in the work force. He also fails to address the staggering debt we continue to pile up, which in my opinion makes an economic collapse inevitable. Wesbury's analysis defies gravity. It is contrary to everything I see in my daily work with 100s of small businesses who buy accounting software. The overwhelming majority of businesses with fewer than 100 employees are struggling to stay in business and cutting costs to the bone. Obamacare will force them to lay off workers. Not to mention what happens if the minimum wage in fact gets raised to $9.00/hour. This economy is on the proverbial water slide to hell, and no amount of strained sugar-coating will convince me otherwise.
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Again, I am not suggesting that his data that I am citing means that we are not in grave danger!
My point is this:
Many of us here, very much including me who has made this point with vigor many times, have suggested that when interest rates turn up that the cost of financing the debt and the deficit would increase so much so as to trigger the inflationary spiral we fear. Here Wesbury makes an informed reasoned case to the contrary.
Also, many of us here, very much including me, have thought that Federal spending has continued in the neighborhood of 24-25% of GDP compared to the post WW2 average of about 20%. I have used this datum in conversations with folks of other persuasions. I need to know that this number is no longer accuarate.
Fed spending as a % of GDP is one of the most fundamental indicators that there is and a decline of 2-3% in relatively short order is significant. But for this Wesbury piece, I would not have known this. Why is it that my readings, which are considerably more extensive than most, did not apprise me of this but for the Wesbury piece?
Similarly, in conversation I have used the deficit as a % of GDP as a fundamental indicator. I knew it peaked around 11% and until the Wesbury piece figured it to have declined to about 8-9%, only to learn that it is 5-6%-- a number which was also hit in the Reagan years IIRC. Again, but for this Wesbury piece, I would not have known this. Why is it that my readings, which are considerably more extensive than most, did not apprise me of this but for the Wesbury piece?
What happens if this trend continues for another two years or so and we are down to the promised land of fed spending 20% of GDP and the deficit and rather reasonable 3% and armageddon has not hit yet? IMHO we need to reflect upon this.
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I don't think anyone is rooting for apocalypse. As far as those number Wesbury cites, what's the source? I can't imagine how they could be true with record levels of federal spending going on.
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Crafty makes great points and poses tough questions.
For starters one might ask before getting irrationally exuberant, what part of GDP growth at 1%/yr is propped up by $4T? of dollar expansion that cannot continue indefinitely?
On allegedly absent inflation, I would warn there is an important distinction between inflation, the dilution of our dollar, and the price increases that tend to follow. The delay of spiraling price increases is due in my view to the continuing weakness of demand, the sputtering velocity of money. That continues to work only as long as policies and circumstances keep the economy relatively stagnant. So far, so good. (
GM wrote: "As far as those number Wesbury cites, what's the source? I can't imagine how they could be true with record levels of federal spending going on."
http://www.whitehouse.gov/omb/budget/Historicals
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/hist01z1.xls
http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/hist01z2.xls
Look back to fiscal year 2007 when the budget was most recently closest to balanced (deficit=160B). Spending was below 20% of GDP while tax receipts had just grown 44% in 4 years following the tax rate cuts being fully implemented in 2003. Enter the election the Dem majorities of Pelosi-Reid-Obama-Biden-Hillary-Ellison et al promising to move us off that path. Employment growth ended. Investors and employers got scared. Overpriced, overvalued homes started to become unaffordable. Failingmortgages failing brought down financial markets.
Spending went from 2.7T in FY2007 to 3.8T in FY2012 and 2013, a 40% increase in 5 years.
Now we have effectively a zero increase in spending, but only after making all that temporary-emergency spending permanent while retreating from two wars and having budget restraint fights every few months. With spending at a plateau and perhaps 1% consistent real growth in GDP, spending as a % of GDP ticks down a point at a time to still above 22% of the economy just before the BIG new programs kick in.
Crafty wrote: "What happens if this trend continues for another two years or so and we are down to the promised land of fed spending 20% of GDP and the deficit and rather reasonable 3% and armageddon has not hit yet? IMHO we need to reflect upon this."
How can this trend continue? Repeal Obamacare or believe it won't cost much? Expect GDP growth to shoot up in the face of new taxes and regulations?
Last time the budget was balanced, spending was at 18.2% of GDP, not 23.3% where we are right now (according to the tables) or the 20% historical average that includes all the big deficit years. Revenues are still only coming in at 17.8%. That tells me spending is still 30% higher we can afford just before the world's largest entitlement takes effect.
These facts may make others optimistic, but not me.
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GM: Agree or disagree with Wesbury's conclusions, he has been around for quite some time and has a track record. I believe the man to be honest and quite capable in his compilation of data.
Good contributions from Doug. If we are not to be left answerless, as Hannity was the other night with Googlesby/Oglesby? we need to have our thinking in place , , , and if there are places we need to adjust our thinking, then we need to do so; after all, we search for Truth.
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Crafty -
I don't disagree with your essential point about seeking Truth. However, having a track record and being honest doesn't change the fact that, as Aristotle so aptly put it: "A is A." Wesbury's analysis of this economy flies in the face of reason. He may be honest, but if so, he is deluding himself.
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In this moment I was simply addressing GM's frontal assault on the credibility of his numbers.
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Wesbury is selling a product. In evaluating anything, it's crucial to look at the source documents.
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Fair enough GM, but given the overwhelming volumn of data with which we are deluged, I feel that at some level there comes a point at which one makes a decision that certain people are capable, credible, and honorable.
I have followed Wesbury for many years now and although many legitimate challenges can be made to his conclusions (e.g. as you have done) for me he is someone whom I respect. Similarly Scott Grannis.
I would add that there are people with whom I often agree that I do NOT grant that they are capable, credible, and honorable e.g. Sean Hannity. IMHO Hannity, though he often does good work, is often a bloviating windbag in love with the sound of his own voice and possessed of very poor listening skills.
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http://blogs.wsj.com/marketbeat/2013/03/06/the-pros-who-called-the-bottom/?mod=djemTMB_h
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http://blogs.wsj.com/marketbeat/2013/03/06/the-pros-who-called-the-bottom/?mod=djemTMB_h
The stock market couldn't possibly be distorted by QE-infinity, could it?
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Of course it can-- and has!
Still, the question presented is "Would you rather profit or be a prophet?" (David Gordon)
I would also proffer the notion that one of the key variables is fed spending as a % of GDP. Its decline, of which we have become aware thanks to Wesbury, is a strong positive.
Also, when the bottom was hit, cap & trade was a real possibility, and as a forward looking mechanism the market reflected this. Its political defeat was a genuine positive for the market.
In other words, the Fed has not been the only variable at play here.
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I still don't buy Wesbury's claim. With the massive increases in federal spending, GDP would have to have grown even more massively, right?
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A fair question.
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"GDP would have to have grown even more massively, right?"
Not so much.
"real median household incomes declined 1.5% in 2011"
http://www.guardian.co.uk/commentisfree/2013/mar/06/sequester-republicans-help-rich-hurt-poor
Here is Wesbury predicting 4% GDP growth in July 2009. (I wonder what G M predicted...)
16 Jul 2009 09:10 AM
Investors can expect to see a 4 percent growth in gross domestic product, say Brian Wesbury and Robert Stein."When we tell people this forecast, we often get looks as if we are out of our minds, and those are just the polite responses," they told Forbes Magazine... "Adding up all these factors leaves us with an average expected real GDP growth rate of 4.2 percent. We get there with what we think are very conservative estimates on consumption and business investment,’’ they say.
http://www.moneynews.com/StreetTalk/gross-domestic-product/2009/07/16/id/331605#ixzz2MuaFfSbI
Here is Investor's Business Daily reporting actual growth for that period, 4 years later, at 0.8%:
"0.8% growth over his entire first term." "Worst in modern history." "It was barely a quarter of the tally achieved under President Carter."
http://news.investors.com/ibd-editorials-viewpoint/021213-644194-obama-growth-record-is-worst-in-60-years.htm#ixzz2KuQGawCt
The equities market went up because:
1) QE dollar injection
2) Zero interest rates due to Fed interventions and injections removed all other investment choices, savings, bonds, etc.
3) economic growth elsewhere
4) and yes, the US economy trudged forward, did not collapse
What would 'the market' be at today had the Fed not bought 70% of our debt, had interest rates been at market levels, rising until enough capital went to buy Treasury bonds to pay for our massively deficit spending?
Wesbury was called out by PP for some housing numbers but generally he is as accurate a source as is available for these commonly quoted measures. The measures themselves have many inaccuracies but that is another matter.
Actual numbers, best that I can find:
Federal Spending in Trillions
2.7 3.0 3.5 3.5 3.6 3.5
FY2007 FY2008 FY2009 FY2010 FY2011 FY 2012
GDP in Trillions:
14.0 14.3 14.0 14.5 15.1 15.7
Spending % of GDP:
19.3% 21.0% 25.0% 24.1% 23.8% 22.3%
The big jump in spending was at the end of 2008, mostly in fiscal year 2009, partly under Bush in the transition and partly under Obama, all under a Dem congress. The big growth of spending from the Pelosi-Reid congress beyond the alleged stimuli was mostly Obamacare beginning in 2014, not shown in these numbers. Spending growth stopped in the Boehner-McConnell budget fights with Obama. (Did Crafty know that? :-) ) The growth in GDP is at slow plowhorse speed, artificially propped up by QE at the Fed, authorized by the 'dual mission' legislation of Humphrey-Hawkins of 1978.
The real point I see in these numbers is this - do we realize how quickly we could have grown out of this mess with pro-growth policies? As Wesbury recognized in 2009 real growth in GDP of 4% was certainly possible. Run these percentages with those GDP growth numbers!
It is a strange political irony that pro-growth Republican policies will finance far more goodies and freebies for the dependent class constituencies than the economically stagnant, class warfare policies of the Dems.
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Numbers above from different sources below. Fiscal years and calendar years don't match up. Use with caution.
http://www.bea.gov/national/index.htm#gdp
http://www.usgovernmentspending.com/federal_budget_estimate_vs_actual_2012
http://www.ftportfolios.com/retail/blogs/economics/index.aspx
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You don't need to be a meteorologist to tell when someone is pissing on your leg as they tell you it's raining.
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EXACTLY, GM. Obviously these people trying to put a smiley face on this economy HAVE a job, and are either completely out-of-touch with what is going on around them, completely ignorant with regard to Obama's intentions, or have some incentive to try to "talk up" the economy. I've said it before - but it is blindingly obvious to me - in my conversations with small business owners across this country every day as part of my job - that things are NOT getting better, and they are NOT GOING to get better until this administration is gone.
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Inspired by Doug
http://money.cnn.com/2009/12/28/news/economy/wesbury_q_and_a/index.htm
Mr. Sunshine's happy economic outlook
By Chris Isidore, CNNMoney.com senior writerDecember 28, 2009: 10:12 AM ET
NEW YORK (CNNMoney.com) -- Economics is known as the dismal science, but not every economist is a pessimist.
Brian Wesbury might be one of the more optimistic forecasters out there. He's proud of being dubbed "Mr. Sunshine" by well-known short-seller Doug Kass. The chief economist at First Trust Advisors, a Chicago asset manager, Wesbury has one of the most bullish assessments on the economy. His new book trumpets that optimism in its title: "It's Not As Bad As You Think."
Economist Brian Wesbury, aka Mr. Sunshine
Wesbury predicts economic growth of 5% or more in the last three months of this year, nearly twice the average forecast, followed by at least 4.5% growth in 2010.
He sees job growth returning as soon as December of this year. Unemployment, now at 10%, will fall to about 8.5% by the end of 2010, he believes. That's about a percentage point better than most economists' estimates. In 2011, he says, the rate will drop to about 7%.
He's bullish on housing, too: He says things are improving so fast in real estate that by the third quarter of 2010, there could be a seller's market for new homes.
Wesbury maintains this rosy view even though he believes government action to rescue the economy hurt more than it helped.
He blames the financial meltdown not on lack of government oversight, but on mark-to-market accounting, which required banks and Wall Street firms to value the assets on their balance sheet at current market prices. Those rules, which caused massive losses when the housing bubble burst, were significantly loosened earlier this year. That easing, he argues, was the key to reopening the flow of credit and reviving the economy.
Despite his policy worries, he believes the economy can overcome the headwinds caused by government intervention to post solid growth. Here now is a question-and-answer session with Mr. Sunshine, Brian Wesbury.
How quickly do you think we'll start to see substantial job growth of 200,000 or more needed to help lead to a sustained decline in unemployment?
Typically when you are in a V-shape kind of recovery, that happens pretty quickly. I expect by very early spring or late winter we'll be seeing significant job growth. Retail sales are up at an annualized rate of 7% in the last six months. Manufacturing output is up 8%. Inventories are very low. What that means is I think we've fallen behind, companies have waited almost too long to try to catch up, so we'll see this thing accelerate pretty quickly.
What are the primary drivers you see behind that kind of growth?
Easy money by the Fed, pent-up demand, that's two of the factors. Mostly, we're rebounding from a panic. But look at the pent-up demand for cars, for houses. We're only starting 550,000 houses at an annualized rate. Just population growth alone says you need about 1.5 million a year. We're down to about a seven months' supply. That means if builders don't start right now, by the third quarter of next year there will be shortages of housing.
Do you believe that TARP and stimulus and the other money that the government has pumped into the economy has hurt the recovery?
It made people believe that we have to have government save the economy. I don't believe that. The Fed created the bubble. There's no doubt about it. Then the question is how do you deal with those problems, do you let the market deal with them or the government deal with them? We let the government deal with them. But nothing turned the economy and market around until we changed mark-to-market rules. That's when banks were able to start raising money, that's when stocks started to go up.
Is it difficult to be an optimistic supply-side economist at a time that even Arthur Laffer, the dean of supply-side economists, is writing a book called "The End of Prosperity"?
I'm not having any difficulty. What I find interesting is how negative many conservatives are. I'm a short-term bull on the economy. I'm a long-term worrier. You can worry about the policies, you fight against them, but you should be long stocks at the same time, because they're undervalued, and the economy is going to come back strong.
If we get strong growth in 2010, are you worried that it will be taken as an affirmation of the kind of government intervention in the economy that you decry?
Yes. I want to always see the economy do well. What I don't want is people to take the wrong lessons from this. That's why I think conservatives are making a huge mistake right now arguing that just Obama breathing every day will cause the stock market to go down and you should buy gold and head to the hills. The economy is bouncing back, it's going to be stronger than people think. That's only going to make it easier for (conservatives') political opponents to argue that they saved the day by spending lots of money.
In your book you try to strike down a number of generally accepted economic problems that you argue are overstated. Do you think that reports about continued tight credit for both consumers and small businesses are overstated? How can the economy see the kind of growth you're expecting if credit is so tight?
It's absolutely true that credit is tighter than it was, but it's not the sort of thing that will stop the economy. Money is like a flood. You can try to stop the water, but it is always going to find its own level somewhere. When the Fed prints this much money, it's going to find its way into the system. We're seeing the same kind of reduction of credit we've seen in other recessions in the past, and none of those stopped the recovery.
Isn't it tough to argue that you're not a starry-eyed optimist since you go to almost every Northwestern University football game and you're counting on your Chicago Cubs to end a century-long drought and win the championship this year?
Every year I predict they're going to the World Series. That way I know I'm going to be wrong about one thing. We hope that the long history is eventually broken. So this is my counter-cyclical nature. I'm an optimist on the economy and the long history of the economy shows I'm usually right. But I guess the Northwestern Wildcats and the Cubs usually don't fulfill my dreams.
Interview has been condensed and edited.
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BTW, GM we see in another thread a post today of a chart of a dramatic drop in military spending. Could that explain the data from Wesbury that you find difficult to credit?
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What part of the DOW's rise is just the dollar devaluing, all of it and then some? Wesbury at First Trust and other securities companies like to look back at rising periods of the DOW. Let's look back further and compare blue chip stocks with gold and silver instead of money:
The Dow on Gold's terms: (http://www.marketoracle.co.uk/Article39400.html)
During January 2000 gold traded at an average price of $284.32
January 2000 the Dow was 10,900
10,900/$284.32 per ounce = 38.33 gold ounces to buy the Dow
Today [Mar 09, 2013] gold is trading at $1570.90 while the Dow Jones (DJIA) continues to break records, up another 30 points as I write to 14,284.
14,284/1570.90 = 9.09 ozs of gold to buy the Dow today.
38.33/9.09 = 4.2
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(Doug) If you bought gold instead of Dow Jones stocks at the start of year 2000, you could keep 3/4 of your gold and buy the same quantity of the same stocks today with just 1/4 of your gold.
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The Dow on Silver's terms:
During January 2000 silver averaged $4.95 oz
January 2000 the Dow was 10,900
10,900/$4.95 per ounce = 2202 silver ounces to buy the Dow
Today silver is trading at $28.62, the Dow is 14,284.
14,284/28.62 = 499 ozs silver to buy the Dow.
2202/499 = 4.4
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(Doug) If you bought silver instead of the Dow at the start of year 2000, you could keep 3/4 of your silver and buy the same stocks today with just 1/4 of your silver.
One moral of the story is that hindsight conclusions are highly dependent on the timeframe and measuring stick selected.
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This recovery compares poorly with all previous ones since 1948. Why?
(http://www.theblaze.com/wp-content/uploads/2013/03/untitled.png)
http://www.npr.org/blogs/money/2013/02/15/172116698/the-scariest-job-chart-ever-isnt-scary-enough
More detailed graph with lines labeled:
http://media.npr.org/assets/img/2013/03/08/employrecfeb2013_custom-0b0541f7aa3b6c2d0eca91666dd078aa4cbfe1e6-s40.jpg
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Investors Business Daily / Bureau of Labor Statistics:
(http://www.investors.com/image/ISShlf_130311.png.cms)
http://news.investors.com/ibd-editorials/030813-647381-job-growth-outpaced-by-growth-in-nonworkers.htm
More Are Quitting the Workforce Than Getting Jobs
While the country gained 236,000 jobs, the ranks of those not in the labor force — people who don't have a job and stopped looking — swelled by 296,000.
Looked at another way, just 58.6% of Americans work today, down from 60.6% when Obama took office. The average over the previous two decades was 63%.
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Nice work Doug.
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OTOH, there's this:
. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 3/11/2013
In October 2012, we raised our recession odds from 10% to 25%. We saw an increase in uncertainty and fear over the election and the fiscal cliff as having the potential to cause a drop in velocity. Panics (falling velocity) are rare. As a result, our base case (75% odds) was for a 2.5% to 3% increase in real GDP for 2013. Real GDP increased just 0.1% in Q4, but now it appears the Plow Horse is starting to trot a little.
The ISM Manufacturing index jumped to 54.2 and the ISM Services index hit 56.0 for February. These indexes often pick up sentiment, so, it would not have been surprising if fears about the spending sequester had caused them to temporarily underestimate growth.
In addition, with the exception of the one-month surge after Superstorm Sandy, sales of autos and light trucks are the fastest since 2007. And now the latest employment report shows a very solid increase of 236,000 in nonfarm payrolls, a longer workweek, and the jobless rate slipping to 7.7%.
With February data so strong, forecasters have increased expectations for 2013. Bill Gross, at PIMCO, who was forecasting around 1.5% real GDP growth as recently as December, has now joined the club at 3%.
This optimism is not lost on the equity market. Stocks have surged with the S&P 500 hitting our year-end 2012 forecast of 1475 just two weeks behind schedule, in mid-January.
Today, the Dow is just 7.5% from 15,500 and the S&P 500 is just 9.5% from 1700 – our year-end 2013 targets. We won’t rule out a correction, but don’t know how to trade it and think investing is a game of patience, not trading.
One thing we have noticed is that the better things get, the more the economic naysayers have to twist and spin to make good news actually look bad and generate a negative spin. The latest obsession is that the number of people “not in the labor force” (NLF) is at a record high. This is true, but we don’t think it means much at all. What the naysayers don’t mention (or, maybe don’t even know) is that the NLF number is usually at a record high.
Given the general upward trend in the population, anytime the labor force participation rate is either unchanged or falling, NLF must go up. In fact, with enough population growth, NLF can go up even when the participation rate goes up slightly! NLF was at a record high in the year 2000 when the jobless rate was below 4%; it was at a record high in 2007 when the jobless rate was 4.5%. But now the record high in people not in the labor force is supposed to signal an economy teetering on the brink of catastrophe. Give us a break!
All this really means is that the labor force participation rate is falling. But, as we’ve pointed out before, most of the decline is consistent with the aging of the population.
Monetary policy is loose, corporate profits and cash are at record highs, and the housing market is in a full blown recovery. New advances in technology (fracking, the cloud, 3D printing) continue to boost wealth and our recession odds are back down to 10%. We look for continued growth and higher stocks in 2013. The Plow Horse is trotting for the time being.
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My stellar opinion of Wesbury keeps slipping: "Real GDP increased just 0.1% in Q4 2012". - A steady trot? Not really.
"jobless rate slipping to 7.7%": - More people left the workforce than found jobs.
The labor force participation decline is largely demographic? Okay, then what positive force offsets that?
"Stocks have surged with the S&P 500 hitting our year-end 2012 forecast of 1475 just two weeks behind schedule, in mid-January." - From this thread: If you bought gold instead of Dow Jones stocks at the start of year 2000, you could keep 3/4 of your gold and buy the same quantity of the same stocks today with just 1/4 of your gold. Stocks have surged is a rear view mirror indicator.
He mixes his lipstick-on-a-pig view of the US economy with optimism for the index of global companies. Hard to draw conclusions from that. We must admit that if this market held up through the Obama reelection, the fiscal cliff, at least two tax increases on the people own the most stocks, and 0.1% quarterly growth, then it should handle spending restraint and a country coming into spring and summer - until some external shock hits and selling panic ensues.
The market I believe will continue to go up or hold fairly constant - right up until it starts to go down again. :wink:
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He's predicted 15 of the last 0 recoveries.
Plow horse? His analysis smells more like a feedlot.
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"then it should handle spending restraint"
Umm , , , in that we are not Keynesians here, may I suggest that the budget cuts are a contributory cause to the market going up?
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"then it should handle spending restraint"
Umm , , , in that we are not Keynesians here, may I suggest that the budget cuts are a contributory cause to the market going up?
If this slightly more than 2% cut in the rate of growth of federal spending caused this, then an actual 5% cut should have the market at 28000, yes?
Or, it could be all the QE-Infinity funny money distorting things.....
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http://blogs.telegraph.co.uk/finance/thomaspascoe/100023182/the-gap-between-rich-and-poor-will-continue-to-grow-until-we-give-up-on-qe/
The gap between rich and poor will continue to grow until we give up on QE
By Thomas Pascoe Economics Last updated: March 5th, 2013
Monopoly money means that it's more of a rich man's world than ever.
The world's rich are getting richer. The Forbes billionaire list was published this morning (there are now 1,426 of them globally in dollar terms, with 210 new entrants in the last year), and collectively they are $800bn richer than they were a year ago. Each billionaire is, on average, $100m richer than in 2011, with an average wealth of $3.7bn.
It can hardly be a surprise. Across the world, stock markets are booming (Dow futures indicate it will open today around the 14,170 mark, a new record). Bond prices are also strong in developed markets despite those same sovereigns usually being mired in a debt crisis. At the same, no major currency has collapsed, thanks to the cancellation effect of simultaneous Western devaluation, and commodities (WTI crude is perhaps the exception), have looked fairly stable, even though the bull run has stopped. In short, if you have any asset base at all, you had to be quite special to have lost money in the last year.
Strong stocks and strong bonds are an unusual mix. Theoretically and historically, money has washed from one to the other causing rises and falls along the way. What is unusual about the present climate is that so much money has been created by central banks that there is sufficient available to create a bubble in, well, everything.
This has a lot to do with how QE operates. Unlike straight money printing, it is designed to transfer money to banks, not to the consumer or to the government. The banks swap their existing government bonds for newly printed money. In theory, the banks now lend this cash on the high street to consumers and businesses. In reality, that has been a problem. Burnt by the financial crisis, banks have imposed tougher lending criteria at a time when creditworthiness is impaired. As such, they cannot lend. Instead the money ends up in the trading account. It gets spent on financial instruments in proportion to the greed (equities) or fear (bonds) of the institution in question. The main reason that QE has not been catastrophically inflationary is that so little of it has filtered down to the high street. For the most part, it has simply pushed up values across the board in the financial markets.
In short, if you came into this last year owning assets, you will have done well. Of course, whether protecting asset prices come what may is a good or useful thing for a central bank to be doing is another thing altogether.
While those at the top have done well from the magic money mountain that was summoned into being by QE, those who have done badly are those with relatively fixed wages and no assets. As the nominal price of assets increases, and wage growth lags inflation, the distance between the renting class and the owning classes grows greater still.
Even if living standards do level out eventually, or even match the OBR's three year projection (4pc wage growth, 2pc inflation) it is worth remembering that inflation is a net cost (we pay it on our salaries after tax), while wage rises are gross benefits (we lost a large part of the gain to tax before it hits our account). Any wage rise will need to be well above inflation to sustain living standards.
For the asset wealthy, however, this is less of a problem. The same money printing which causes inflation in the real economy also props up asset prices. Inflation of 3pc per year is less onerous when the FTSE is making 6pc a year, as it was last year.
Despite uprating in line with CPI inflation, those hit hardest of all are likely to be those who rely on state benefits – from pensions downwards. For all sorts of reasons, CPI is acutely useless at capturing true inflation (the substitution effect and qualitative dilutions see to that). Tullet Prebon have put actual inflation at 7.8pc in 2011, and 3.7pc in 2012, as against 2.8pc CPI and 1.7pc wage growth in each. Given that since 2007, British wages are up 10pc, but food is up 29.8pc, power is up 46.3pc and petrol is up 56.5pc, this seems an understatement. If you have both a fixed income and increases are strictly tied to CPI then you have experienced a very significant fall in living standards since the crisis began.
None of this is written in the socialist perspective, implying that the problems of the poor can only be solved by confiscation from the rich, or that any advantage gained by one section of society is a cost to another. Nor is it written in the point of view, prevalent on the internet, which insists that such machinations constitute a deliberate robbery of the poor by shadowy figures hell bent on a new feudalism. It is simply the case that in financial policy, particularly, we seldom think through the consequences of our actions. Very clever men have a capacity for very great mistakes which often elude simpler souls. Western money printing is slowly burning the bridges between rich and poor. Whatever the economic benefit (and I am dubious there), it is worth considering that there is a significant social cost.
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Why America's middle class is losing ground
By Tami Luhby @CNNMoney March 5, 2013: 11:51 AM ET
NEW YORK (CNNMoney)
When Debbie Bruister buys a gallon of milk at her local Kroger supermarket, she pays $3.69, up 70 cents from what she paid last year.
Getting to the store costs more, too. Gas in Corinth, Miss., her hometown, costs $3.51 a gallon now, compared to less than three bucks in 2012. That really hurts, considering her husband's 112-mile daily round-trip commute to his job as a pharmacist.
Bruister, a mother of four, received a $1,160 raise this school year at her job as an eighth-grade computer teacher. The extra cash -- about $97 a month, before taxes and other deductions -- isn't enough for her and her husband to keep up with their rising costs, especially after the elimination of the payroll tax break. Its loss shrunk their paychecks by more than $270 a month.
"If you look at how much prices are going up, you get in the hole really quick," Bruister said. "It's a constant squeeze."
In the wake of the Great Recession, millions of middle-class people are being pinched by stagnating incomes and the increased cost of living. America's median household income has dropped by more than $4,000 since 2000, after adjusting for inflation, and the typical trappings of middle-class life are slipping out of financial reach for many families.
Families with young kids are struggling to afford childcare and save for the ever-climbing costs of college. Those nearing retirement are scrambling to sock away funds so they don't have to work forever. A weak labor market means that employed Americans aren't getting the pay raises they need to keep up -- especially with big-ticket items such as health care eating away at their paychecks.
Economists say it boils down to two core problems: jobs and wages. The traditional "middle-class job" is disappearing.
Mid-wage occupations such as office managers and truck drivers accounted for 60% of the job losses during the recession, but only 22% of the gains during the recovery, according to a National Employment Law Project analysis of Labor Department data. Low-wage positions, on the other hand, soared 58%.
Uncertainty and insecurity are weighing down the middle class, even those who haven't had a break in employment. More than 40% of those surveyed in a recent Rutgers University study said they were "very concerned" about job security.
They're also not very optimistic about the near future. Fewer than one-third believe that economic conditions will improve next year, and an equal number think they will get worse, according to the Rutgers survey, conducted by the university's Heldrich Center for Workforce Development. Only 19% believe that job, career and employment opportunities will be better for the next generation.
The survey's title sums it up: "Diminished Lives and Futures: A Portrait of America in the Great-Recession Era."
Dan Heiden of Eagan, Minn., embodies that life. Before 2007, the union supermarket worker owned an apartment and socked away funds in the bank and in a retirement account.
Then the store cut his hours.
"The economy tanked," said Heiden, who now works no more than 30 hours a week. "They aren't hiring full-time any more because they can pay less."
The 37-year-old had to sell his apartment and move into his parents' basement. He has also curtailed his social life, eating out less and hanging out with friends at their homes instead of going to bars. He's depending more on credit cards and is no longer able to save much for retirement.
"Luckily, I don't have a family, because then it would be a tighter squeeze," Heiden said. "I just pray and hope the economy turns around."
Related: Calculate your cost of living in another city
Full-time employment is one casualty of the recession. The number of people working part-time for economic reasons -- meaning that they would like longer hours but can't find work -- has soared to nearly 8 million, up from 4.8 million five years ago.
Those with full-time jobs are also feeling the pressure.
Take Lois Karhinen, 55, who has been working since she was a teen. A state employee in New York, she's worried she and her husband won't have enough money saved by the time she wants to retire in 11 years.
Her husband is a government contract worker, and they fear his job could disappear any day. Their income has taken a hit because she has been furloughed several days since 2011. At the same time, her health insurance payments, union dues and other expenses have gone up.
The couple is no longer able to cover all of their monthly expenses -- including the mortgage, car loans, home repair loans and student debt -- with their paychecks alone.
"I watch every month our savings deplete," said Karhinen, who lives in Queensbury, N.Y. "I'm realizing we're not young enough to save a lot."
The downturn in the housing market also hurts. The couple bought their house in 2006, hoping it would serve as an investment and help support their retirement. But now, they would only break even if they sold it, she says -- if they were lucky.
The mortgage crisis "hollowed out" the middle class, said Tamara Draut, vice president of policy and research at Demos, a public policy research organization. Much of their wealth is tied into home values, but national home prices are still 29% below their mid-2006 high, according to S&P Case-Shiller.
That means some folks have lost all their home equity and may never get it back. Others can't take out loans to finance repairs, college for the kids and other expenses.
There's one more big squeeze hitting households: health care. Since 2002, insurance premiums have increased 97%, rising three times as fast as wages, according to Kaiser Family Foundation/Health Research & Educational Trust.
In Mississippi, Bruister now has an $1,800 deductible, compared to $500 a few years ago. When she goes to the doctor, the bill typically tops $100 -- so she tries to avoid going.
"Health care for me has turned into more of a luxury item," said Bruister, 52. "I go every year for the checkups my insurance pays, but after that you just tough out the other illnesses."
Economists say they don't expect much improvement for the middle class any time soon. The recession is officially over, but the recovery is fragile, and its gains aren't evenly spread. Between 1993 and 2011, the top 1% of America's earners saw their income soar by 58%, while everyone else only got a 6% bump.
That's making it even harder for most households to get ahead.
"The middle class was always synonymous with economic security and stability," Draut said. "Now it's synonymous with economic anxiety."
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On the whole, fair points gents AND Wesbury has whipped our collective ass on market projections.
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It's kind of like a guy that jumps from the Empire State Building. Halfway down and everything seems to be going fine....
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Well, I'd be damn near 100% ahead of where I am now if I hadn't listened to me , , ,
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"then it should handle spending restraint"
Umm , , , in that we are not Keynesians here, may I suggest that the budget cuts are a contributory cause to the market going up?
Poorly expressed in my post, but I strongly agree. If the market survived the bad things that happened, it can handle the good like a surprising dose of govt spending restraint.
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Well, I'd be damn near 100% ahead of where I am now if I hadn't listened to me , , ,
Hindsight not being 20/20...
If you knew in advance 4 years ago that the growth rate coming out of the worst economy in memory would be 0.8% dropping to 0.1% in the last quarter, if you knew Europe would be in near collapse, if you knew we would leave two wars without real victory, that we would be under heavy cyber-attacks from China who is still supporting North Korea while they go nuclear and threaten to hit America, if you knew Russia would return to a Soviet-like stance, with Putin stronger than Brezhnev and Obama more eager than Carter to give away American defense, if you knew of the unrest in nuclear armed Pakistan and that Iran was a minute away from going nuclear too, the Muslim Brotherhood running Egypt, civil war in Syria, if you knew we would get hit with another deadly embassy attack this time in Libya, if you knew the trillion dollar deficits would go on for 4 years and counting, that we wouldn't even sell bonds to cover our debt, workers leaving the labor force exceed all new jobs coming back and that the Fed would be diluting our dollar by trillions, that U6 unemployment figured at the old labor participation rate would be 20%, that Obama would be reelected and taxes would be raised on the rich and the poor...
If you knew all that, except for the rise in the Dow, perfectly in hindsight, would you have gone all-in to the stock market?
If you add to the above that the Dow has already gone up for all this time yet we still have all this hanging over us plus Obamacare kicking in, steep tax hikes in largest state, amnesty next, and the lowest business startup rate in our history, would you go all in now?
Or would a rational person be a little bit skeptical?
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First I must say that I may have overstated things a bit in a moment of emotion; more like 50%, but still the point remains. Wesbury has called quite a bit better than we have on the market-- which is one of the key themes of this thread.
That said, the questions you ask are excellent, yet the specifics you cite can be turned around to make Wesbury's predictions in the face of our bearish broodings here and elsewhere all the more impressive.
Frankly, at this point I utterly lack confidence in my opinions about the market. Is it that I have been and am wrong? Or is it,as the old sayng goes, that the market can stay wrong longer than I can stay solvent?
Also, and here I drift from the them of this thread to address a few of the specifics you cite, it is not yet clear how things will play out. Read my post of Stratfor today in the Iraq thread; are there not hints of some balances of powers therein? Is there not huge progress from what Iraq was under Saddam Hussein? As we return to a multi-polar world after our unilateral moment, can we really say that our efforts in Iraq were a waste in comparison to what would be in the absence of our having taken action?
Given the utter incoherence of the Bush strategy in Afpakia, can we really say that our bluster-covered from Afpakiaa is an error? Though Baraq's promises and decisions were incoherent as well, who amongst us here advocated the dedication necessary to bring Afghanistan into the modern world? Would you want your son going to fight that war?
Any answers to these rhetorical questions should be made on the relevant threads, not here please :lol:
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Good points. Just saying that in total there is plenty of trouble brewing out there. We lived through a pretty big crash or two. Hard to carry that experience and face the current scenario with no fear or doubt.
Everyone leaves money on the table when we measure exact trough to peak. That is not a fair measurement. Anyone all-in since the summer of 2009 was probably in for the losses of 2008 as well.
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Your words are kind, but I am comparing where I was at the last peak to where I am now.
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Retail Sales Increased 1.1% in February To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 3/13/2013
Retail sales increased 1.1% in February, easily beating the consensus expected 0.5%, and are up 4.6% versus a year ago.
Sales excluding autos were up 1.0% in February (1.2% including revisions for December/January), beating the consensus expected 0.5%. Sales ex-autos are up 3.9% in the past year.
The gain in sales in February was led by gas, autos, and non-store retailers (internet/mail-order). The largest declines were for restaurant/bars and furniture.
Sales excluding autos, building materials, and gas were up 0.4% in February. Even if unchanged in March, these sales will be up at a 4.5% annual rate in Q1 versus the Q4 average.
Implications: So much for the theory that the end of the payroll tax cut was going to kill the consumer. Instead of being focused on relatively small changes in tax policy, analysts need to focus on the very loose stance of monetary policy, which is now gaining traction. Overall retail sales increased the most in five months in February and were revised up for January. Yes, much of the gain was due to higher gas prices, but even “core” sales, which exclude autos, building materials, and gas, rose a healthy 0.4% in February. These figures are consistent with our forecast that both real GDP growth and real (inflation-adjusted) consumer spending increase at about a 2.5% annual rate in Q1, a noticeable acceleration from the end of last year. For 2013, we still expect two major themes to play out for the consumer: first, an acceleration in consumer spending growth despite the recent tax hike; second, a transition away from growth in auto sales and toward other areas, like furniture, appliances, and building materials. Consumer spending should accelerate because of continued growth in jobs, hours, and wages. In addition, households have the lowest financial obligations ratio since the early 1980s. (The share of after-tax income they need to make recurring monthly payments, such as mortgages, rent, car loans/leases, as well as debt service on credit cards, student loans and other lending arrangements.) Meanwhile, the upturn in home building in the past 18+ months means more rooms for appliances, electronics, and furniture. In other news this morning, import prices were up 1.1% in February. The gain was all due to oil; import prices excluding petroleum were unchanged. In the past year, import prices are down 0.3% overall and up 0.3% ex-petroleum, so little change. Export prices were up 0.8% in February and up 1.5% versus a year ago. Farm products are leading the rise in export prices. Ex-agriculture, prices were up 0.6% in February and are unchanged in the past year. We still expect more inflation in the trade sector in the year ahead due to loose monetary policy.
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"I am comparing where I was at the last peak to where I am now"
That makes sense. A share of a global company is not entirely a dollar (or any other currency) based asset. You are buying in a sense a piece of their market share in a global industry. That involves plenty of risk but is better than holding dollars guaranteed to go down in value while earning 0% interest. The post calculating the Dow in gold terms or silver instead of dollars illustrates that we aren't really moving forward, just trying to slow the rate of moving backward. For me it is real estate. By buying low, buying smart and adding value i believe I can still yield after-inflation appreciation of zero over the long run which is sadly better than most dollar-based assets.
Wesbury closes with: "We still expect more inflation in the trade sector in the year ahead due to loose monetary policy."
For an eternal optimist, that is quite a candid warning.
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G M posted yesterday: Why America's middle class is losing ground
'milk up 70 cents from what she paid last year' - plus gas up 50 cents.
G M, Core CPI 'excludes goods with high price volatility, such as food and energy'. Those prices didn't go up for her, they are just "volatile".
Payroll tax rate went up too, I wonder where they figure that in the consumer price index.
"Full-time employment is one casualty of the recession"
Full time employment is a casualty of Obamacare as well. Companies no longer expected to hire full time or pay benefits should mean stocks going up even further.
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http://www.nationaljournal.com/next-economy/solutions-bank/why-the-trader-joe-s-model-benefits-workers-and-the-bottom-line-20130319
From the article:
Many employers believe that one of the best ways to raise their profit margin is to cut labor costs. But companies like QuikTrip, the grocery store chain Trader Joe’s, and Costco Wholesale are proving that the decision to offer low wages is a choice, not an economic necessity. All three are low-cost retailers, a sector that is traditionally known for relying on part-time, low-paid employees. Yet these companies have all found that the act of valuing workers can pay off in the form of increased sales and productivity.
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Watch Wesbury's plow horse run!
http://www.washingtonpost.com/national/food-stamps-put-rhode-island-town-on-monthly-boom-and-bust-cycle/2013/03/16/08ace07c-8ce1-11e2-b63f-f53fb9f2fcb4_story.html
Food stamps put Rhode Island town on monthly boom-and-bust cycle
View Photo Gallery — Rhode Island town relies on food stamps: In Woonsocket, R.I., a third of the residents use SNAP, formerly known as food stamps, to pay for groceries. That means the businesses in the struggling town also rely on the program to survive.
By Eli Saslow,
Published: March 16
WOONSOCKET, R.I. – The economy of Woonsocket was about to stir to life. Delivery trucks were moving down river roads, and stores were extending their hours. The bus company was warning riders to anticipate “heavy traffic.” A community bank, soon to experience a surge in deposits, was rolling a message across its electronic marquee on the night of Feb. 28: “Happy shopping! Enjoy the 1st.”
In the heart of downtown, Miguel Pichardo, 53, watched three trucks jockey for position at the loading dock of his family-run International Meat Market. For most of the month, his business operated as a humble milk-and-eggs corner store, but now 3,000 pounds of product were scheduled for delivery in the next few hours. He wiped the front counter and smoothed the edges of a sign posted near his register. “Yes! We take Food Stamps, SNAP, EBT!”
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State residents who receive SNAP
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“Today, we fill the store up with everything,” he said. “Tomorrow, we sell it all.”
At precisely one second after midnight, on March 1, Woonsocket would experience its monthly financial windfall — nearly $2 million from the Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps. Federal money would be electronically transferred to the broke residents of a nearly bankrupt town, where it would flow first into grocery stores and then on to food companies, employees and banks, beginning the monthly cycle that has helped Woonsocket survive.
Three years into an economic recovery, this is the lasting scar of collapse: a federal program that began as a last resort for a few million hungry people has grown into an economic lifeline for entire towns. Spending on SNAP has doubled in the past four years and tripled in the past decade, surpassing $78 billion last year. A record 47 million Americans receive the benefit — including 13,752 in Woonsocket, one-third of the town’s population, where the first of each month now reveals twin shortcomings of the U.S. economy:
So many people are forced to rely on government support.
The government is forced to support so many people.
The 1st is always circled on the office calendar at International Meat Market, where customers refer to the day in the familiar slang of a holiday. It is Check Day. Milk Day. Pay Day. Mother’s Day.
“Uncle Sam Day,” Pichardo said now, late on Feb. 28, as he watched new merchandise roll off the trucks. Out came 40 cases of Ramen Noodles. Out came 230 pounds of ground beef and 180 gallons of orange juice.
SNAP enrollment in Rhode Island had been rising for six years, up from 73,000 people to nearly 180,000, and now three-quarters of purchases at International Meat Market are paid for with Electronic Benefit Transfer (EBT) cards. Government money had in effect funded the truckloads of food at Pichardo’s dock . . . and the three part-time employees he had hired to unload it . . . and the walk-in freezer he had installed to store surplus product . . . and the electric bills he paid to run that freezer, at nearly $2,000 each month.
Pichardo’s profits from SNAP had also helped pay for International Meat Market itself, a 10-aisle store in a yellow building that he had bought and refurbished in 2010, when the rise in government spending persuaded him to expand out of a smaller market down the block.
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Monday's WSJ:
Mortimer Zuckerman: The Great Recession Has Been Followed by the Grand Illusion
Don't be fooled by the latest jobs numbers. The unemployment situation in the U.S. is still dire.
The Great Recession is an apt name for America's current stagnation, but the present phase might also be called the Grand Illusion—because the happy talk and statistics that go with it, especially regarding jobs, give a rosier picture than the facts justify.
The country isn't really advancing. By comparison with earlier recessions, it is going backward. Despite the most stimulative fiscal policy in American history and a trillion-dollar expansion to the money supply, the economy over the last three years has been declining. After 2.4% annual growth rates in gross domestic product in 2010 and 2011, the economy slowed to 1.5% growth in 2012. Cumulative growth for the past 12 quarters was just 6.3%, the slowest of all 11 recessions since World War II.
And last year's anemic growth looks likely to continue. Sequestration will take $600 billion of government expenditures out of the economy over the next 10 years, including $85 billion this year alone. The 2% increase in payroll taxes will hit about 160 million workers and drain $110 billion from their disposable incomes. The Obama health-care tax will be a drag of more than $30 billion. The recent 50-cent surge in gasoline prices represents another $65 billion drag on consumer cash flow.
February's headline unemployment rate was portrayed as 7.7%, down from 7.9% in January. The dip was accompanied by huzzahs in the news media claiming the improvement to be "outstanding" and "amazing." But if you account for the people who are excluded from that number—such as "discouraged workers" no longer looking for a job, involuntary part-time workers and others who are "marginally attached" to the labor force—then the real unemployment rate is somewhere between 14% and 15%.
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Corbis
Other numbers reported by the Bureau of Labor Statistics have deteriorated. The 236,000 net new jobs added to the economy in February is misleading—the gross number of new jobs included 340,000 in the part-time, low wage category. Many of the so-called net new jobs are second or third jobs going to people who are already working, rather than going to those who are unemployed.
The number of Americans unemployed for six months or longer went up by 89,000 in February to a total of 4.8 million. The average duration of unemployment rose to 36.9 weeks, up from 35.3 weeks in January. The labor-force participation rate, which measures the percentage of working-age people in the workforce, also dropped to 63.5%, the lowest in 30 years. The average workweek is a low 34.5 hours thanks to employers shortening workers' hours or asking employees to take unpaid leave.
Since World War II, it has typically taken 24 months to reach a new peak in employment after the onset of a recession. Yet the country is more than 60 months away from its previous high in 2007, and the economy is still down 3.2 million jobs from that year.
Just to absorb the workforce's new entrants, the U.S. economy needs to add 1.8 million to three million new jobs every year. At the current rate, it will be seven years before the jobs lost in the Great Recession are restored. Employers will need to make at least 300,000 hires every month to recover the ground that has been lost.
The job-training programs announced by the Obama administration in his State of the Union address are sensible, but they won't soon bridge the gap for workers with skills in science, technology, engineering and mathematics. Nor is there yet any reform of the patent system, which imposes long delays on innovators, inventors and entrepreneurs seeking approvals. It often takes two years to obtain the environmental health and safety permits to build a modern electronic plant, a lifetime in the tech world.
When employers can't expand or develop new lines because of the shortage of certain skills, the employment opportunities for the less skilled are also restricted. To help with this shortage, the administration's proposals for job-training programs do deserve support. The stress should be on vocational training, postsecondary education and every program that will broaden access to computer science and strengthen science, technology, engineering and math in high schools and at the university level.
But the payoffs from these programs are in the future, and it is vital today to increase the number of annual visas and grants of permanent residency status for foreigners skilled in science and technology. The current situation is preposterous: The brightest and best brains from all over the globe are attracted to American universities, but once they get their degrees America sends them packing. Keeping these foreigners out means they will compete against us in the industries that are growing here and around the world.
More at the link: http://online.wsj.com/article/SB10001424127887323393304578364670697613576.html?mod=opinion_newsreel
Mr. Zuckerman is chairman and editor in chief of U.S. News & World Report.
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Well I have no idea what Mort Zuckerman is talking about that foreigners coming here for education are not staying her.
Here in NJ the entire health field, technology IT, university system is plumb with people from Asia, and Africa. So what is he talking about.
These people are hungrier than those of us who are born here. Except for the children of these foreigners who are often taught the value of extraordinary hard work compared to us who are taught to expect handouts.
Unfornutately many of these same people who work like demons are also Democrats. It seems the Asians are thus since after the civil rights acts of the 60's. While many believe in work ethic they also believe they have been wronged by the Whites, I guess.
And many do come from countries where votes are bought like the Crats do here.
Combine that with a Republican party that apparently protects labor coming here because this helps keep wages down and we have a perfect storm.
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"I have no idea what Mort Zuckerman is talking about that foreigners coming here for education are not staying here."
http://www.law.harvard.edu/programs/lwp/people/staffPapers/vivek/Vivek_Losing_the_best_and_brightest.pdf
http://www.kauffman.org/newsroom/foreign-national-students-in-united-states-plan-to-return-to-native-countries.aspx
The studies confirm both sides. Plenty are staying. Most at the highest technology levels are planning to leave.
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The Dow Jones and Standard & Poor’s 500 indexes reached record highs on Thursday, having completely erased the losses since the stock market’s last peak, in 2007. But instead of cheering, we should be very afraid.
Over the last 13 years, the stock market has twice crashed and touched off a recession: American households lost $5 trillion in the 2000 dot-com bust and more than $7 trillion in the 2007 housing crash. Sooner or later — within a few years, I predict — this latest Wall Street bubble, inflated by an egregious flood of phony money from the Federal Reserve rather than real economic gains, will explode, too.
Since the S.&P. 500 first reached its current level, in March 2000, the mad money printers at the Federal Reserve have expanded their balance sheet sixfold (to $3.2 trillion from $500 billion). Yet during that stretch, economic output has grown by an average of 1.7 percent a year (the slowest since the Civil War); real business investment has crawled forward at only 0.8 percent per year; and the payroll job count has crept up at a negligible 0.1 percent annually. Real median family income growth has dropped 8 percent, and the number of full-time middle class jobs, 6 percent. The real net worth of the “bottom” 90 percent has dropped by one-fourth. The number of food stamp and disability aid recipients has more than doubled, to 59 million, about one in five Americans.
So the Main Street economy is failing while Washington is piling a soaring debt burden on our descendants, unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nation’s bills. By default, the Fed has resorted to a radical, uncharted spree of money printing. But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.
When it bursts, there will be no new round of bailouts like the ones the banks got in 2008. Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth.
THIS dyspeptic prospect results from the fact that we are now state-wrecked. With only brief interruptions, we’ve had eight decades of increasingly frenetic fiscal and monetary policy activism intended to counter the cyclical bumps and grinds of the free market and its purported tendency to underproduce jobs and economic output. The toll has been heavy.
As the federal government and its central-bank sidekick, the Fed, have groped for one goal after another — smoothing out the business cycle, minimizing inflation and unemployment at the same time, rolling out a giant social insurance blanket, promoting homeownership, subsidizing medical care, propping up old industries (agriculture, automobiles) and fostering new ones (“clean” energy, biotechnology) and, above all, bailing out Wall Street — they have now succumbed to overload, overreach and outside capture by powerful interests. The modern Keynesian state is broke, paralyzed and mired in empty ritual incantations about stimulating “demand,” even as it fosters a mutant crony capitalism that periodically lavishes the top 1 percent with speculative windfalls.
The culprits are bipartisan, though you’d never guess that from the blather that passes for political discourse these days. The state-wreck originated in 1933, when Franklin D. Roosevelt opted for fiat money (currency not fundamentally backed by gold), economic nationalism and capitalist cartels in agriculture and industry.
Under the exigencies of World War II (which did far more to end the Depression than the New Deal did), the state got hugely bloated, but remarkably, the bloat was put into brief remission during a midcentury golden era of sound money and fiscal rectitude with Dwight D. Eisenhower in the White House and William McChesney Martin Jr. at the Fed
Page 2 of 4)
Then came Lyndon B. Johnson’s “guns and butter” excesses, which were intensified over one perfidious weekend at Camp David, Md., in 1971, when Richard M. Nixon essentially defaulted on the nation’s debt obligations by finally ending the convertibility of gold to the dollar. That one act — arguably a sin graver than Watergate — meant the end of national financial discipline and the start of a four-decade spree during which we have lived high on the hog, running a cumulative $8 trillion current-account deficit. In effect, America underwent an internal leveraged buyout, raising our ratio of total debt (public and private) to economic output to about 3.6 from its historic level of about 1.6. Hence the $30 trillion in excess debt (more than half the total debt, $56 trillion) that hangs over the American economy today.
This explosion of borrowing was the stepchild of the floating-money contraption deposited in the Nixon White House by Milton Friedman, the supposed hero of free-market economics who in fact sowed the seed for a never-ending expansion of the money supply. The Fed, which celebrates its centenary this year, fueled a roaring inflation in goods and commodities during the 1970s that was brought under control only by the iron resolve of Paul A. Volcker, its chairman from 1979 to 1987.
Under his successor, the lapsed hero Alan Greenspan, the Fed dropped Friedman’s penurious rules for monetary expansion, keeping interest rates too low for too long and flooding Wall Street with freshly minted cash. What became known as the “Greenspan put” — the implicit assumption that the Fed would step in if asset prices dropped, as they did after the 1987 stock-market crash — was reinforced by the Fed’s unforgivable 1998 bailout of the hedge fund Long-Term Capital Management.
That Mr. Greenspan’s loose monetary policies didn’t set off inflation was only because domestic prices for goods and labor were crushed by the huge flow of imports from the factories of Asia. By offshoring America’s tradable-goods sector, the Fed kept the Consumer Price Index contained, but also permitted the excess liquidity to foster a roaring inflation in financial assets. Mr. Greenspan’s pandering incited the greatest equity boom in history, with the stock market rising fivefold between the 1987 crash and the 2000 dot-com bust.
Soon Americans stopped saving and consumed everything they earned and all they could borrow. The Asians, burned by their own 1997 financial crisis, were happy to oblige us. They — China and Japan above all — accumulated huge dollar reserves, transforming their central banks into a string of monetary roach motels where sovereign debt goes in but never comes out. We’ve been living on borrowed time — and spending Asians’ borrowed dimes.
This dynamic reinforced the Reaganite shibboleth that “deficits don’t matter” and the fact that nearly $5 trillion of the nation’s $12 trillion in “publicly held” debt is actually sequestered in the vaults of central banks. The destruction of fiscal rectitude under Ronald Reagan — one reason I resigned as his budget chief in 1985 — was the greatest of his many dramatic acts. It created a template for the Republicans’ utter abandonment of the balanced-budget policies of Calvin Coolidge and allowed George W. Bush to dive into the deep end, bankrupting the nation through two misbegotten and unfinanced wars, a giant expansion of Medicare and a tax-cutting spree for the wealthy that turned K Street lobbyists into the de facto office of national tax policy. In effect, the G.O.P. embraced Keynesianism — for the wealthy.
The explosion of the housing market, abetted by phony credit ratings, securitization shenanigans and willful malpractice by mortgage lenders, originators and brokers, has been well documented. Less known is the balance-sheet explosion among the top 10 Wall Street banks during the eight years ending in 2008. Though their tiny sliver of equity capital hardly grew, their dependence on unstable “hot money” soared as the regulatory harness the Glass-Steagall Act had wisely imposed during the Depression was totally dismantled.
Within weeks of the Lehman Brothers bankruptcy in September 2008, Washington, with Wall Street’s gun to its head, propped up the remnants of this financial mess in a panic-stricken melee of bailouts and money-printing that is the single most shameful chapter in American financial history.
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There was never a remote threat of a Great Depression 2.0 or of a financial nuclear winter, contrary to the dire warnings of Ben S. Bernanke, the Fed chairman since 2006. The Great Fear — manifested by the stock market plunge when the House voted down the TARP bailout before caving and passing it — was purely another Wall Street concoction. Had President Bush and his Goldman Sachs adviser (a k a Treasury Secretary) Henry M. Paulson Jr. stood firm, the crisis would have burned out on its own and meted out to speculators the losses they so richly deserved. The Main Street banking system was never in serious jeopardy, ATMs were not going dark and the money market industry was not imploding.
Instead, the White House, Congress and the Fed, under Mr. Bush and then President Obama, made a series of desperate, reckless maneuvers that were not only unnecessary but ruinous. The auto bailouts, for example, simply shifted jobs around — particularly to the aging, electorally vital Rust Belt — rather than saving them. The “green energy” component of Mr. Obama’s stimulus was mainly a nearly $1 billion giveaway to crony capitalists, like the venture capitalist John Doerr and the self-proclaimed outer-space visionary Elon Musk, to make new toys for the affluent.
Less than 5 percent of the $800 billion Obama stimulus went to the truly needy for food stamps, earned-income tax credits and other forms of poverty relief. The preponderant share ended up in money dumps to state and local governments, pork-barrel infrastructure projects, business tax loopholes and indiscriminate middle-class tax cuts. The Democratic Keynesians, as intellectually bankrupt as their Republican counterparts (though less hypocritical), had no solution beyond handing out borrowed money to consumers, hoping they would buy a lawn mower, a flat-screen TV or, at least, dinner at Red Lobster.
But even Mr. Obama’s hopelessly glib policies could not match the audacity of the Fed, which dropped interest rates to zero and then digitally printed new money at the astounding rate of $600 million per hour. Fast-money speculators have been “purchasing” giant piles of Treasury debt and mortgage-backed securities, almost entirely by using short-term overnight money borrowed at essentially zero cost, thanks to the Fed. Uncle Ben has lined their pockets.
If and when the Fed — which now promises to get unemployment below 6.5 percent as long as inflation doesn’t exceed 2.5 percent — even hints at shrinking its balance sheet, it will elicit a tidal wave of sell orders, because even a modest drop in bond prices would destroy the arbitrageurs’ profits. Notwithstanding Mr. Bernanke’s assurances about eventually, gradually making a smooth exit, the Fed is domiciled in a monetary prison of its own making.
While the Fed fiddles, Congress burns. Self-titled fiscal hawks like Paul D. Ryan, the chairman of the House Budget Committee, are terrified of telling the truth: that the 10-year deficit is actually $15 trillion to $20 trillion, far larger than the Congressional Budget Office’s estimate of $7 trillion. Its latest forecast, which imagines 16.4 million new jobs in the next decade, compared with only 2.5 million in the last 10 years, is only one of the more extreme examples of Washington’s delusions.
Even a supposedly “bold” measure — linking the cost-of-living adjustment for Social Security payments to a different kind of inflation index — would save just $200 billion over a decade, amounting to hardly 1 percent of the problem. Mr. Ryan’s latest budget shamelessly gives Social Security and Medicare a 10-year pass, notwithstanding that a fair portion of their nearly $19 trillion cost over that decade would go to the affluent elderly. At the same time, his proposal for draconian 30 percent cuts over a decade on the $7 trillion safety net — Medicaid, food stamps and the earned-income tax credit — is another front in the G.O.P.’s war against the 99 percent.
Without any changes, over the next decade or so, the gross federal debt, now nearly $17 trillion, will hurtle toward $30 trillion and soar to 150 percent of gross domestic product from around 105 percent today. Since our constitutional stasis rules out any prospect of a “grand bargain,” the nation’s fiscal collapse will play out incrementally, like a Greek/Cypriot tragedy, in carefully choreographed crises over debt ceilings, continuing resolutions and temporary budgetary patches
Page 4 of 4)
The future is bleak. The greatest construction boom in recorded history — China’s money dump on infrastructure over the last 15 years — is slowing. Brazil, India, Russia, Turkey, South Africa and all the other growing middle-income nations cannot make up for the shortfall in demand. The American machinery of monetary and fiscal stimulus has reached its limits. Japan is sinking into old-age bankruptcy and Europe into welfare-state senescence. The new rulers enthroned in Beijing last year know that after two decades of wild lending, speculation and building, even they will face a day of reckoning, too.
THE state-wreck ahead is a far cry from the “Great Moderation” proclaimed in 2004 by Mr. Bernanke, who predicted that prosperity would be everlasting because the Fed had tamed the business cycle and, as late as March 2007, testified that the impact of the subprime meltdown “seems likely to be contained.” Instead of moderation, what’s at hand is a Great Deformation, arising from a rogue central bank that has abetted the Wall Street casino, crucified savers on a cross of zero interest rates and fueled a global commodity bubble that erodes Main Street living standards through rising food and energy prices — a form of inflation that the Fed fecklessly disregards in calculating inflation.
These policies have brought America to an end-stage metastasis. The way out would be so radical it can’t happen. It would necessitate a sweeping divorce of the state and the market economy. It would require a renunciation of crony capitalism and its first cousin: Keynesian economics in all its forms. The state would need to get out of the business of imperial hubris, economic uplift and social insurance and shift its focus to managing and financing an effective, affordable, means-tested safety net.
All this would require drastic deflation of the realm of politics and the abolition of incumbency itself, because the machinery of the state and the machinery of re-election have become conterminous. Prying them apart would entail sweeping constitutional surgery: amendments to give the president and members of Congress a single six-year term, with no re-election; providing 100 percent public financing for candidates; strictly limiting the duration of campaigns (say, to eight weeks); and prohibiting, for life, lobbying by anyone who has been on a legislative or executive payroll. It would also require overturning Citizens United and mandating that Congress pass a balanced budget, or face an automatic sequester of spending.
It would also require purging the corrosive financialization that has turned the economy into a giant casino since the 1970s. This would mean putting the great Wall Street banks out in the cold to compete as at-risk free enterprises, without access to cheap Fed loans or deposit insurance. Banks would be able to take deposits and make commercial loans, but be banned from trading, underwriting and money management in all its forms.
It would require, finally, benching the Fed’s central planners, and restoring the central bank’s original mission: to provide liquidity in times of crisis but never to buy government debt or try to micromanage the economy. Getting the Fed out of the financial markets is the only way to put free markets and genuine wealth creation back into capitalism.
That, of course, will never happen because there are trillions of dollars of assets, from Shanghai skyscrapers to Fortune 1000 stocks to the latest housing market “recovery,” artificially propped up by the Fed’s interest-rate repression. The United States is broke — fiscally, morally, intellectually — and the Fed has incited a global currency war (Japan just signed up, the Brazilians and Chinese are angry, and the German-dominated euro zone is crumbling) that will soon overwhelm it. When the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is.
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When was the last time David stockman ever got anything right? If he says anything coherent and sensible here it is that our problems have to do with too much government spending. Well, duh. All the rest of his rant is incoherent.
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When it comes to assessing the economy's potential for growth, I believe it is perfectly reasonable, if not compelling, to give growth the benefit of the doubt—to have a presumption of growth. Here are some reasons:
The U.S. economy is still one of the world's most dynamic
The majority of the U.S. economy is still a market economy
Markets are what drive growth; they reward innovation and hard work
Thanks to market pricing, the economy continuously adjusts to changing conditions
The majority of people still want to be better off; that requires work, saving and investing
There is no reason to think that we have exhausted the potential for technological advances that improve worker productivity
People continue to innovate and invent
The population continues to expand
It is beyond question that many sectors of the economy are improving on the margin
The Fed has not expanded the money supply willy-nilly, because inflation remains relatively low four years after QE1 began
In the long history of the U.S. economy, growth is the rule, and recessions (negative growth) the exception
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A friend writes:
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Received this blog/ article from a colleague's friend. The author is a retired Merrill Lynch broker and now is in Pakistan as a US representative of sorts. Curious what all you think?
”With Cyprus, we have evidence that "The camel's nose is under the edge of the tent." The outright confiscation of bank funds above insured levels of 100,000 Euros, has set the stage for governments everywhere to confiscate wealth in order to push off the day of debt reckoning. The paradox is that the results might bring down the price of gold in the short and medium term in US dollars. Perhaps for several year's.
Money is starting to fly out of the club Med countries. If creditors like Germany, can demand that I as a depositor lose 40-60% of my funds because of toxic government loans, then where do I run? Gold is the answer for part of the world. As the EU and Britain go down, they'll pull funds and buy metals, but metals are not very liquid and have high commissions buying and selling. That means slow motion foreign bank runs will buy dollars which will flood into US Treasuries, and the Fed will be able to shove trillions more US debt out the door in an attempt to maintain the economy and yet not generate inflation. As other economies collapse, and bank funds are confiscated in Europe, savings will stream into the dollar and treasuries, and for a time, as the rest of the world devalues, gold will go up in their currencies, and probably down in ours.
The dollar, as refuge of last resort, will grow stronger and stronger even as our national debt explodes more than it is right now. The old adage is that if something cannot continue, it stops. And when the turn comes, US interest rates will explode with inflation, and gold, which could drop lower, will also rocket as people wake up to the fact that the strong dollar is a false front where demand has been irrationally pushed to astronomical heights by international incompetence and theft.
Cyprus is the first tent of cards at the very peak of the financial house, to fall. The amount stolen from depositors is tiny. Perhaps six billion Euros. But the damage to confidence in that country will be massive, as money scurries out, never to return. It will take a miracle for them to remain in the EU. When the same pressures finally kill Greece, can Italy be far behind? Spain? The world's richest 5% are scrambling into dollars, and as the Euro goes down, the money going into gold might be enough to make it go up or stay the same in terms of dollars.
But if 15% of Europe's excess wealth runs to gold, and 70% runs to treasuries, with the last 15% put in mattresses and elsewhere, my guess is that treasuries will win temporarily, and gold will go down in terms of dollars. The trick will be knowing when the bulk of the world awakens from a trance, and realizes the treasuries are just paper and promises, like everywhere else. I never really thought I'd live to see it, but it's time to really batten down and ready for the storm. Bernanke will pull out all the stops, but I just can't see it going another three or four years.
Of course, his pumping 85,000,000,000 a month into the economy is pushing stocks and assets higher and higher, so another crash is right around the corner there as well. The MOMENT he signals a stop or slowdown, the market crashes, but the beauty is that if the rest of the world is collapsing first, he doesn't HAVE to stop, because the rich in the EU countries will suck up all the US debt and promises.
There is no way to determine when "irrational exuberance" comes to an end, and it could be that the Dow will hit 20,000 and suck more money out of gold, forcing it down to $1,000 an ounce. If it does, buy more. If silver drops from $28 to $20, load up. I know I will. The whirlwind is coming, guys, and the banking theft in Cyprus is just a cool breeze hinting at its approach”
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Sounds like good advice to me.
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"The care of human life and happiness, and not their destruction, is the first and only legitimate object of good government." --Thomas Jefferson
Employers added 88,000 jobs in March, according to the latest unemployment report from the Labor Department. That's down from the 196,000/month average over the last six months. Yet miraculously, the headline unemployment rate dropped from 7.7 percent to 7.6 percent. As with previous drops, however, that's because a staggering 663,000 people simply left the workforce in March and gave up looking for a job. A record 90 million Americans are no longer even seeking employment.
Since the "surprise" drop in unemployment the month before Obama was narrowly re-elected last year, he has focused only on the unemployment number. However, given that his agenda is now to raise even more taxes and further expand government programs and regulations, Obama will insist that even though that number ticked down, it would have been substantially lower if not for the Republican Sequester.
His apologists -- namely economic adviser Austan Goolsbee and the Associated Press -- wasted little time in advancing this line of blame. Goolsbee said, "Now you're going to, interestingly, start seeing a lot of discussion about maybe the sequester's a bigger deal than people thought it was." The AP argued, "The weakness may signal that companies were worried last month about steep government spending cuts that began on March 1."
Obama certainly won't focus on the fact that the lower unemployment numbers mask the more important number that reflects his failed economic policies. The most significant economic news in March is, again, the record number of Americans who are no longer looking for work, and that number has gone up every month in the last two years. The labor participation rate has dropped again, from 63.5 percent to 63.3 percent -- the worst since the height of the Carter malaise in 1979.
Some other numbers: The U-6 unemployment rate (a broader measure) fell from 14.3 percent to 13.8 percent, the lowest since before Obama took office. But, if labor participation was the same as in March just one year ago, the headline unemployment rate would be 8.3 percent. If it remained the same as in January 2009, the rate would be 10.9 percent. (This number should be a regular talking point for our side i.e. that with the same participation rate, unemployment is 3% higher than as reported)
Finally, the Obama budget is due to be released next Wednesday. Look for him to use these disappointing jobs numbers as leverage to call for more government "stimulus."
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Second post of the morning:
Non-Farm Payrolls Increased 88,000 in March, Below the Consensus Expected 190,000 To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 4/5/2013
Non-farm payrolls increased 88,000 in March, well below the consensus expected 190,000. Including revisions to prior months, nonfarm payrolls were up 149,000.
Private sector payrolls increased 95,000 in March, also well below consensus expectations. The largest gains were for professional & business services (+51,000) and education & health care (+44,000). Government payrolls declined 7,000.
The unemployment rate fell to 7.6% (7.574%) in March from 7.7% (7.736%) in February.
Average weekly earnings – cash earnings, excluding benefits – were unchanged in March but up 1.8% from a year ago.
Implications: Get a grip. The report on the labor market is not strong, but it’s not the very weak one many are saying. The most absurd commentary is that the federal spending sequester is hurting. Excluding the Post Office, which is not affected by the sequester, government jobs were up 5,000 in March versus an average decline of 4,000 per month in the past year. The key negative today is that nonfarm payrolls only grew 88,000 in March, substantially below consensus expectations. But including upward revisions to prior months, the net gain was a respectable 149,000. (Nonfarm payrolls are up 159,000/month in the past year.) Meanwhile, average weekly hours ticked up to 34.6 from 34.5, the equivalent of 330,000 jobs. As a result of the longer workweek, total hours worked increased 0.3% in March and are up 2.1% from a year ago. Average hourly earnings were unchanged in March, but still up 1.8% from a year ago. As a result, total cash earnings are up 3.9% from a year ago, or about 2.2% when adjusted for inflation. Ironically, it was the household survey, which generated the best headline, where the details were the weakest. The unemployment rate dipped to 7.6% in March, a new recovery low. But it was due to a 496,000 drop in the labor force while civilian employment, an alternative measure of jobs that includes small business startups, declined 206,000. Departures from the labor force pushed the participation rate down to 63.3%, the lowest since 1979. Keep in mind, however, that monthly changes in the labor force are volatile and in the past year the jobless rate has dropped 0.6 percentage points while the labor force is up 219,000. In other words, the downward trend in the jobless rate isn’t due to a shrinking labor force. The big question is how the Federal Reserve reacts. It says a jobless rate of 6.5% could get it to raise rates. But, today’s report undercuts its projection we won’t reach 6.5% until mid-2015; it supports our case for mid-2014. Some comments suggest an alternative indicator is the share of unemployed who have quit their old job before they have a new one, a sign of confidence. But the quit rate rose in March to 8.4%, so the Fed may have to look elsewhere if it wants an excuse not to raise rates in 2014. Obviously, the labor market is very far from perfect. The unemployment rate is way too high and payroll growth too slow. What’s holding us back is the huge increase in government, particularly transfers, over the past several years. Despite that, the plow horse economy keeps moving forward.
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"if labor participation was the same as in March just one year ago, the headline unemployment rate would be 8.3 percent. If it remained the same as in January 2009, the rate would be 10.9 percent."
Still, we are just comparing with an already crashed economy. To just get back to where we were when the Pelosi-Reid-Obama nightmare began, we would need unemployment below 4% measured by today's low standards.
Which Obama policies aim to fix this? None of them do. The policies are all aimed at slow growth or making things worse. Raising tax rates on employers. Raising the bar for hiring the unskilled to their first job. Starting a massive new entitlement. Blocking an energy pipeline. Hiring 16,000(?) new IRS employees? Blocking reform of existing entitlements. Presenting budgets 5 years into this that never balance. Strangulating the financial sector. And keeping up the class warfare drumbeat instead of pulling the nation together. When did any of these awful policies ever grow an economy or reduce unemployment?
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Wesbury is moving from apologist to humorist.
"payrolls increased 88,000 in March, well below the consensus expected 190,000"
- Less than half the 'breakeven rate'. About a third of 'expectations'. Moving backward instead of forward. Who knew?
"the labor market is very far from perfect"
- Understated?! I have an image of him saying this with his head down, paying off abet he lost to G M.
Russia has a 13% flat tax, lower unemployment and twice the growth rate. Shame on us.
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As Rush Limbaugh succinctly put it on his radio show this afternoon: "Folks, we are living in a dying country. There is just no other way to interpret this data. At least in 1979, which was the last time the labor participation rate was this low, we had an election in 1980 that turned things around. That didn't happen this time. We had a chance back in November to stop this and reverse course, and the American voters blew it."
Any economist who looks at this data and says that the economy is improving is either in complete denial or is lying:
www.zerohedge.com/news/2013-04-05/people-not-labor-force-soar-663000-90-million-labor-force-participation-rate-1979-le
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Stockman's Sky is Falling To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 4/8/2013
Last week, The New York Times published former Reagan OMB Director David Stockman’s “sky is falling” critique of the current economy and financial markets. State Wrecked: The Corruption of Capitalism in America. Stockman says the US is broke – “fiscally, morally, intellectually” – and says “When the latest bubble pops, there will be nothing to stop the collapse….” He says investors should sit in cash.
The piece instantly achieved rock-star status. “What do you think of Stockman’s piece? He’s not a liberal…he’s a conservative…so, isn’t this something I should take seriously? Stockman isn’t a nutcase; shouldn’t we run for the hills now?”
The funny thing is that we agree with much of what Stockman writes. Government is too big. The Fed is making mistakes. TARP, QE, stimulus, the auto/union bailouts, and other government action were a mistake. We also agree that “there was never a remote threat of Great Depression 2.0 or of a financial nuclear winter.” If Hank Paulson and George Bush “stood firm” the crisis “would have burned out on its own.”
None of this is new, except for the part about the crisis not threatening a depression. Stockman really didn’t say anything that @ZeroHedge, Rick Santelli, Peter Schiff, Glenn Beck, Ron Paul, or a host of other free-market (and short-selling) types haven’t argued for the past four years.
The piece could have been written in 2012, or 2011, or 2010. It could even have been published in March 2009. After all, nothing new has really happened. Congress and the President were spending too much back then and still are today. The Fed was printing money rapidly in 2009 and still is today. Deficits were huge then, and still are today.
Yet, for four years, economic data have been consistently and relentlessly positive – not booming, but positive. And for four years, corporate profits and market capitalization have climbed substantially. The S&P 500, including reinvested dividends, is up more than 150% since March 9, 2009, while corporate profits have more than doubled from the bottom. Real GDP has expanded for 15 consecutive quarters. Real consumption and real business fixed investment in equipment and software are both at all-time record highs. All of this is hard evidence that something good is happening.
But Stockman says the economy and Wall Street are, “inflated by an egregious flood of phony money from the Federal Reserve, rather than real economic gain.”
And this is where we fundamentally disagree. Despite all the arguments by the free-market, politically-motivated, short-sellers, positive developments are taking place. Right now…today. New inventions – the cloud, tablets, fracking, smartphones, 3D-printing, telecommunications, and on and on – are adding wealth, creating jobs, boosting profits and connecting the global economy at a rapid clip. The government didn’t generate any of these.
Yes, there are people caught in the web of government over-spending and crippling-regulation. Yes, the Fed has created too much fiat currency. Yes, big government is creating a large class of people who think living off the government is a right. But, the market is still working. Banks are not transmitting the Fed’s largesse; M2 is growing at a modest clip. Moreover, new technology is creating massive opportunities for those who grasp its power.
In other words, the sky is falling at the same time the sky is the limit. We don’t disagree with Stockman’s warning, but we completely disagree with his investment advice. Today, cash is a place for those with no faith at all in markets. Taking just the last several years of policy mistakes, the US may be on a course for Armageddon. But that ignores some major policy gains in the past 30+ years. Armageddon, if it ever comes, is a very long way off, nowhere close to the foreseeable future.
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http://market-ticker.org/akcs-www?post=219400
The Chart That Will Crash The Market
The screeching coming from CNBS and elsewhere this morning is amusing.
There's only one chart that matters, and it will, when recognized, blow up the stock market -- sending it down 50% or more.
It's this one:
(http://market-ticker.org/akcs-www?get_gallery=4044)
That's it. And the ADP report this morning is showing the pathway to recognition, as construction has stalled and the destruction of job creation in small and mid-sized businesses exposed to Obamacare will finish it off.
I continue to maintain that we're in a time very similar to 2007, when the facts were on the table. Banks paying dividends with money they didn't have. Hedge funds that blow. Bubbles in crazy places, then housing, this time in subprime car lending, student loans and even Bitcon.
The transports are telling you that all is not well. CAT is confirming it. Copper is warning that we're in deep trouble internationally, and irrespective of the claim that "America benefits from everyone else's pain" that's only partially true -- in the end earnings are what drive stock prices, and the red flags are waving at warp speed on earnings.
To go along with this are rail car loadings. The trouble here is that baseline is in a serious downtrend -- and after halting its decline from 2008 to 2009 over the last year it has slid severely once more. There will be those who argue that this is "no big deal"; I disagree.
At the end of the day the premise behind the Fed's intervention in the market is that "cheap money" promotes hiring through an indirect process. But inherent in that process is a belief that the economic model from 1980 to 2007 can be restarted -- a model predicated on ever-larger amounts of leverage in the economy. That model had positive feedback that came from the bond market rally from 1980 to 2008 as well with yield compression helping to fuel the fire.
More than five years into this experiment the results are clear: It doesn't work.
I believe that by the time we get to the end of the year we will be looking back at these signs and asking "what the hell was I thinking?"
Credit expansion is not going to restart because it can't -- we have reached the terminus of that economic model, like it or not.
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http://www.cnbc.com/id/100622802
Why US Jobs Market Is Going to Get a Lot Worse
Published: Monday, 8 Apr 2013 | 4:44 AM ET
By: Matt Clinch
News Assistant
Weak U.S. jobs data on Friday confirmed the worst trading week this year for European and U.S. stocks, and now analysts are warning that investors should brace for further trouble ahead as fiscal tightening begins to take its toll.
Friday's jobs report came in well below expectations, raising concerns that the recovery in the world's largest economy is weakening. March's participation rate was at its lowest since 1979, according to the U.S. Bureau of Labor Statistics. Just 88,000 jobs were added to the economy last month, although the unemployment rate fell to 7.6 percent from 7.7 percent in February.
"In the labor market, at least, we see a real risk of even worse news down the line," Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors said in a research note on Monday.
(Read More: US Job Creation Plunges, but Rate Drops to 7.6%)
Weakening labor demand, not rising layoffs, is the key problem with the U.S. economy, according to Shepherdson. The weakening demand is mostly coming from smaller firms that are below the radar of the Institute for Supply Management (ISM) survey, which reflects national factory activity.
The National Federation of Small Business job survey has done a decent job in foreshadowing movements in payrolls in recent years, according to Shepherdson, and it's this report—due to be released on Tuesday—that's warning of troubled waters ahead, he said.
"While actual job creation appears to be rising, plans to create jobs [in March] took a dive, falling 4 points to a net zero percent of small employers who plan to increase total employment. It seems that the stamina for growth is waning," William C. Dunkelberg, chief economist for the NFIB said in a press release last week.
Looking at the figures, Pantheon's Shepherdson said there could be a degree of respite in the official employment numbers for the next couple of months, before a distinct change.
(Read More: Unemployment Rate Dip Offers Little Reason to Celebrate)
"The outlook then turns bleaker again. The survey does not signal an outright decline in payrolls over the next few months, but we cannot be sure it has bottomed out yet," Shepherdson said.
He cited fiscal tightening as the major reason behind the reverse. At the start of the year, the payroll tax that funds Social Security was raised two percentage points to its 2010 level of 6.2 percent. This was the largest component of tax increases approved by Congress in the resolution of the "fiscal cliff" that many believe will cause a significant hit to U.S. growth.
"You can't take more than 1.5 of GDP (gross domestic product) out of the economy more or less overnight and expect nothing bad to happen," Shepherdson said. "Markets—especially the Treasury market—are having a rethink of the fiscal-tightening-doesn't matter-much hypothesis. Good. It never made any sense."
U.S. equities responded negatively on Friday to the soft jobs data, government bond yields fell with the benchmark 10-year Treasury falling to its lowest yield so far this year. The dollar also depreciated against European currencies in response.
(Read More: Job-Seeking Teens Might Get a Break This Summer)
"The data support our view that the strong U.S. data flow in January and February is likely to give way to weaker data in (the second quarter), as fiscal headwinds are reflected in slower growth in demand, activity, and employment," Barclays said in a research note on Monday. "Although we have recently raised our forecast of (first quarter) GDP growth to 3.5 percent, which matches our latest tracking estimate for the quarter, we have kept our (second quarter) forecast at 1.5 percent."
—By CNBC.com's Matt Clinch
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I got a missive from Wesbury today saying "Don't worry about the bad numbers that will be coming out on Friday".
http://www.ftportfolios.com/blogs/EconBlog/2013/4/9/dont-get-spooked-by-weak-sales-on-friday
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In his Stockman reply in particular, Wesbury has reduced his optimism argument down to just investments. These indexes with a relatively small number of named companies that already do most of their business outside of the U.S. are not in imminent danger of total collapse - yet - in Wesbury's opinion.
Wesbury agrees at least in part with the warnings: "Yes, there are people caught in the web of government over-spending and crippling-regulation. Yes, the Fed has created too much fiat currency. Yes, big government is creating a large class of people who think living off the government is a right."
G M's piece regarding the jobs market can not change Wesbury's mind. Wesbury's argument that the investment outlook is good comes from a rear view mirror observation that the (stock) market has already been doing well while the labor market was doing horribly.
The unknown is this: How long and how far can these things run in opposite directions?
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It didn't take much effort today to discover that Wesbury is a member of the Academic Advisory Council of the Federal Reserve Bank of Chicago. So - he certainly has an incentive to make the Fed look good. That in itself makes his pronouncements suspect in my opinion.
Further - He appears to have been wrong on almost every one of his predictions over the last 3 years. Want proof? Take a look at this CNN interview with him from December of 2009:
http://money.cnn.com/2009/12/28/news/economy/wesbury_q_and_a/
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Doug:
Nice catch!
Obj:
Good research and certainly a big ouch for that one, but OTOH his record on predicting the market far exceeds this forum's record.
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I got a missive from Wesbury today saying "Don't worry about the bad numbers that will be coming out on Friday".
http://www.ftportfolios.com/blogs/EconBlog/2013/4/9/dont-get-spooked-by-weak-sales-on-friday
(http://www.sam-shepard.com/deadhorse5x.jpg)
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G M, I wonder what the life expectancy is for a plow horse that works year-round, around the clock, pulls more than 2X its OSHA rated load, and replenishes only a fraction of the calories it consumes.
Lucky for the Obama economic team the expression is only a metaphor referring to people. Abuse far milder than this of an animal would be prosecuted.
http://www.aphis.usda.gov/animal_welfare/hp/
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The 5% growth prediction in 2009 is bizarre in the context of Wesbury opposing the policies of Pelosi-Reid-Obama as the opposite of what is conducive to growth. A "V-shaped recovery", it was not.
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Meanwhile the Dow just closed at a new record high.
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Crafty,
With all due respect, most of us here are not concerned with the short-term direction of the stock market, but with the overall condition of the economy, which Wesbury, as demonstrated in my earlier post, has failed miserably to predict. The stock market is being helped tremendously IN THE SHORT TERM, by the Fed's monetary and interest-rate policy. Wesbury has a clear incentive to promote a rosy view, as he advises the Fed. As I told you in a previous conversation, this stock market defies all rationality. It is NOT supported by fundamentals. It is being pushed up by Fed policies and by the fact that other investment vehicles, due to extremely low interest rates, are poor alternatives to this irrational market at the moment. This cannot last, and will eventually come crashing down. Frankly, I have zero confidence in "Mr. Sunshine's" prognostications at this point.
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Ah, but what is the title of this thread? " , , , the stock market and other investment/savings strategies".
:-)
Therefore it seems relevant to me to note that most of us have missed a market that has gone from 6,500 to nearly 15,000. That is a REALLY big miss, and we need to Acknowledge it and address it!
As I see it, there are three basic answers possible here that can be proffered alone or in blend with the others:
1) As you write, this is a Fed induced bubble;
2) The US is a "less bad" option than other countries and money that would usually be elsewhere is coming here;
3) There are good things happening e.g. the dramatic decline of natural gas prices and the prospects for the US becoming an energy powerhouse on the world scene, technology (the cloud, 3d manufacturing, etc)
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http://seekingalpha.com/article/1331871-from-660-to-390-not-sufficient-but-necessary-fuel-for-a-sustainable-bull-market
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"Ah, but what is the title of this thread? , , , the stock market and other investment/savings strategies."
I find myself co-mingling these topics - as does Wesbury. We now know that the market can go up dramatically during the worst recovery in history, and yes, we missed it.
The lesson from the rear view mirror is that (assuming one had money available) we should have been buying at 6500 and any other point along that path - had we known. But looking backward does not mean we should be buying at 15,000.
Each investor can assess for themselves when it has all gone up too far too fast, or when it is the day before a real correction.
Last evening I asked a friend who manages investments at a major institution what they are advising at this point. He said they are emphasizing "balance" in the portfolios, and saying hold (versus buy or sell). Beyond his words my sense was extreme caution and certainly not exuberance as this market surpasses all expectations.
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Following link is an interesting piece addressing the question of what you should have done at DOW 6500 or even half way down from its previous peak: http://www.rbcwm-usa.com/resources/file-686836.pdf The answer was to buy in a bear market, using a case study of 1973-1974, and now 2008-2009. Is the corollary of that wisdom to sell in a bull market, or as we thought in 1999, is this time different?
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see the most recent entries by Scott. Some serious quality stuff here gents, and plenty of it is at variance with our thinking here.
http://scottgrannis.blogspot.com/
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The following could fit in a number of threads here:
http://www.atimes.com/atimes/Global_Economy/GECON-04-080413.html
Like Scott Grannis, it makes points we need to consider.
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Monday Morning Outlook
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Keynes And Retail Sales To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 4/15/2013
No, just because retail sales fell 0.4% in March does not mean Keynes was right. Sequestration did not cause the decline. Nor did the end of the temporary 2% payroll tax cut, back in January, cause it either.
As you can probably guess, we find these arguments without merit. Early last week we posted on our blog an analysis showing that the last three times Easter was so early and occurred in March, the actual report on retail sales has come in well below what our models were projecting. (Link) As a result, we trimmed our forecast for overall sales to -0.1%.
The actual report was -0.4%, which, statistically, is barely different than -0.1% for this data series. So, even though our revised forecast was still higher than the actual, we are not overly concerned about the decline. In other words, we think an early Easter is the key culprit behind the soft retail report for March – not some external government influence.
But even if you take the sales report at face value, it’s not evidence that the trajectory of economic growth has changed course. Last April and June, retail sales slumped by more than they did last month. But there was no payroll tax hike or major cut in spending.
In fact, volatility in sales data is normal. Between 2003 and 2006, a period of relatively strong growth lasting 48 months, retail sales dropped 0.4% or more in eleven different months. In other words, there is a very strong case that this is just normal statistical noise – possibly driven by seasonal factors.
To jump to any other conclusion is what Keynesians always try to do. They want to tie every drip, drop and dribble of economic activity to something the government has done. But, this is nonsense. And part of their problem is that what was supposed to happen when government spending soared and monetary policy got easy didn’t happen.
The economy never boomed; instead, it’s been a Plow Horse economy with moderate growth and a gradual decline in joblessness. We think big government has held back the economy and temporary tax cuts have nothing to do with creating sustained real growth. The sequester itself is good for the economy, because it means the private sector will grow relative to government. As a result, we take recent signs of economic weakness as a head fake.
Despite weak retail sales in March, consumer price inflation should be quiet for the month, and so we estimate that real (inflation-adjusted) consumer spending was up at a 2.3% annual rate in Q1. To put this in perspective, real spending is up 2% in the past year. Once again, no evidence of the higher payroll taxes taking a toll.
The same goes for the argument that the prior week’s reports on employment and manufacturing show the effect of higher payroll taxes. Private payrolls are up 171,000 per month so far this year and total hours worked up at a very solid 2.9% annual rate. Companies are hiring, but they are even more inclined than usual to increase hours for the workers they already have on staff. That suggests the health care law is a bigger problem than the payroll tax.
Yes, the ISM manufacturing index fell to 51.3 in March from 54.2 in February, but the index still signals growth and was 49.9 late last year.
None of this is to say that the economy will grow at exactly the same speed all year long. It won’t. Month to month variation is completely normal. But taking all of the data we’ve seen so far into account, it looks like real GDP grew at a 3% annual rate in Q1 and looks set to grow at about that rate again in Q2. After two years of roughly 2% real GDP growth, these are hardly the kind of numbers that say sequestration or the end of a temporary tax cut are hurting consumers.
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Respectfully, as I stated before - I have zero faith in Wesbury's analysis or predictions for two reasons:
1) He advises the Federal Reserve Bank of Chicago, and therefore has a strong incentive to make that institution look good.
2) He has a horrible track record going back at least to 2009 - as evidenced by the interview from that year I posted earlier.
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The Assault On Gold
Paul Craig Roberts
April 4, 2013
For Americans, financial and economic Armageddon might be close at hand. The evidence for this conclusion is the concerted effort by the Federal Reserve and its dependent financial institutions to scare people away from gold and silver by driving down their prices.
When gold prices hit $1,917.50 an ounce on August 23, 2011, a gain of more than $500 an ounce in less than 8 months, capping a rise over a decade from $272 at the end of December 2000, the Federal Reserve panicked. With the US dollar losing value so rapidly compared to the world standard for money, the Federal Reserve’s policy of printing $1 trillion annually in order to support the impaired balance sheets of banks and to finance the federal deficit was placed in danger. Who could believe the dollar’s exchange rate in relation to other currencies when the dollar was collapsing in value in relation to gold and silver.
The Federal Reserve realized that its massive purchase of bonds in order to keep their
prices high (and thus interest rates low) was threatened by the dollar’s rapid loss of value in terms of gold and silver. The Federal Reserve was concerned that large holders of US dollars, such as the central banks of China and Japan and the OPEC sovereign investment funds, might join the flight of individual investors away from the US dollar, thus ending in the fall of the dollar’s foreign exchange value and thus decline in US bond and stock prices.
Intelligent people could see that the US government could not afford the long and numerous wars that the neoconservatives were engineering or the loss of tax base and consumer income from offshoring millions of US middle class jobs for the sake of executive bonuses and shareholder capital gains. They could see what was in the cards, and began exiting the dollar for gold and silver.
Central banks are slower to act. Saudi Arabia and the oil emirates are dependent on US protection and do not want to anger their protector. Japan is a puppet state that is careful in its relationship with its master. China wanted to hold on to the American consumer market for as long as that market existed. It was individuals who began the exit from the US dollar.
When gold topped $1,900, Washington put out the story that gold was a bubble. The presstitute media fell in line with Washington’s propaganda. “Gold looking a bit bubbly” declared CNN Money on August 23, 2011.
The Federal Reserve used its dependent “banks too big to fail” to short the precious metals markets. By selling naked shorts in the paper bullion market against the rising demand for physical possession, the Federal Reserve was able to drive the price of gold down to $1,750 and keep it more or less capped there until recently, when a concerted effort on April 2-3, 2013, drove gold down to $1,557 and silver, which had approached $50 per ounce in 2011, down to $27.
The Federal Reserve began its April Fool’s assault on gold by sending the word to brokerage houses, which quickly went out to clients, that hedge funds and other large investors were going to unload their gold positions and that clients should get out of the precious metal market prior to these sales. As this inside information was the government’s own strategy, individuals cannot be prosecuted for acting on it. By this operation, the Federal Reserve, a totally corrupt entity, was able to combine individual flight with institutional flight. Bullion prices took a big hit, and bullishness departed from the gold and silver markets. The flow of dollars into bullion, which threatened to become a torrent, was stopped.
For now it seems that the Fed has succeeded in creating wariness among Americans about the virtues of gold and silver, and thus the Federal Reserve has extended the time that it can print money to keep the house of cards standing. This time could be short or it could last a couple of years.
However, for the Russians and Chinese, whose central banks have more dollars than they any longer want, and for the 1.3 billion Indians in India, the low dollar price for gold that the Federal Reserve has engineered is an opportunity. They see the opportunity that the Federal Reserve has given them to purchase gold at $350-$400 an ounce less than two years ago as a gift.
The Federal Reserve’s attack on bullion is an act of desperation that, when widely recognized, will doom its policy.
As I have explained previously, the orchestrated move against gold and silver is to protect the exchange value of the US dollar. If bullion were not a threat, the government would not be attacking it.
The Federal Reserve is creating $1 trillion new dollars per year, but the world is moving away from the use of the dollar for international payments and, thus, as reserve currency. The result is an increase in supply and a decrease in demand. This means a falling exchange value of the dollar, domestic inflation from rising import prices, and a rising interest rate and collapsing bond, stock and real estate markets.
The Federal Reserve’s orchestration against bullion cannot ultimately succeed. It is designed to gain time for the Federal Reserve to be able to continue financing the federal budget deficit by printing money and also to keep interest rates low and debt prices high in order to support the banks’ balance sheets.
When the Federal Reserve can no longer print due to dollar decline which printing would make worse, US bank deposits and pensions could be grabbed in order to finance the federal budget deficit for couple of more years. Anything to stave off the final catastrophe.
The manipulation of the bullion market is illegal, but as government is doing it the law will not be enforced.
By its obvious and concerted attack on gold and silver, the US government could not give any clearer warning that trouble is approaching. The values of the dollar and of financial assets denominated in dollars are in doubt.
Those who believe in government and those who believe in deregulation will be proved equally wrong. The United States of America is past its zenith. As I predicted early in the 21st century, in 20 years the US will be a third world country. We are halfway there.
Article printed from PaulCraigRoberts.org: http://www.paulcraigroberts.org
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Respectfully, as I stated before - I have zero faith in Wesbury's analysis or predictions for two reasons:
1) He advises the Federal Reserve Bank of Chicago, and therefore has a strong incentive to make that institution look good.
2) He has a horrible track record going back at least to 2009 - as evidenced by the interview from that year I posted earlier.
I take his opinions with a grain of salt, but the Wesbury posts also contain facts in the sense of reported economic figures, and it is good to hear opposing opinions explained.
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A couple of problems with your analysis:
1) He has been criticizing the Fed. He is a supply sider and support for the Fed is based upon Keynesianism
2) Yes he made a bad call in 2009, but he has soundly outperformed all of us as a market prognosticator since then.
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Well, that was one hideous day in the market today , , , :cry: :cry: :cry:
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Crafty,
Time will tell if Mr. Wesbury, aka 'sunshine,' is correct or those of us who take a much more dismal view of our current economic situation. Again - I am not talking only about the stock market.
1) In a global sense, Wesbury is downplaying the actions of the Fed and taking the position that it really doesn't matter how much money they print. In this sense he is covering for them.
2) Look back on that interview with him I posted earlier. I'd say that is a far cry from "A bad call." More like - he got it all wrong.
I won't argue the point any longer. Evidently you have decided that Wesbury's analysis (of the state of the U.S. economy) has validity. I respectfully disagree.
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Forgive me for getting in the last word , but he is not saying it does not matter how much money the Fed prints. He says it is printing too much.
Feel free to continue disagreeing with him and whenever you want-- this is not an echo chamber here.
I don't know whether I agree with him or not, but I think Scott Grannis and he provide an important, articulate perspective of which it is to our benefit to be aware.
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Data Watch
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Industrial Production Rose 0.4% in March To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Senior Economist
Date: 4/16/2013
Industrial production rose 0.4% in March, beating the consensus expected gain of 0.2%. Including revisions to prior months, production was up 0.5%. Production is up 3.5% in the past year.
Manufacturing, which excludes mining/utilities, declined 0.2% in March but was unchanged including upward revisions to prior months. Auto production rose 2.9% in March, while non-auto manufacturing declined 0.3%. Auto production is up 10.2% versus a year ago while non-auto manufacturing is up 1.9%.
The production of high-tech equipment rose 0.2% in March, and is up 2.7% versus a year ago.
Overall capacity utilization increased to 78.5% in March from 78.3% in February. Manufacturing capacity use declined to 76.4% in March from 76.6% in February.
Implications: The Plow Horse economy continues. Industrial production rose 0.4% (+0.5% including revisions to prior months) and now stands at the highest level since March of 2008, very close to an all-time record high. However, on net, all the gain in March was due to higher output at utilities, the result of the relatively cold weather throughout much of the country. Manufacturing production declined 0.2% (unchanged including revisions to prior months) led by a 2.7% drop in primary metals. Auto production was up 2.9%. Next month, expect the reverse of what we had this month, with a rebound in manufacturing but a drop in utilities. The best way to check today’s report is to look at the underlying trend, which is still upward. Overall production is up 3.5% in the past year while manufacturing is up 3%. The autos sector has led the manufacturing gains, up 10.2% in the past year, but even manufacturing outside the auto sector has done OK, up 1.9% in the past year. We expect the gap between those two growth rates to narrow considerably in 2013, with slower growth (but still growth!) in autos and faster growth elsewhere in manufacturing. Capacity utilization rose to 78.5% in March, close to the average of 79.0% in the past 20 years, and the highest percent of capacity since 2008. Continued gains in production will push capacity use higher, which means companies will have an increasing incentive to build out plant and equipment. Meanwhile, corporate profits and cash on the balance sheet are at record highs, showing they have the ability to make these investments. In other news yesterday, the Empire State index, a measure of manufacturing sentiment in New York, declined to +3.0 in April from +7.0 in March. However, the index still suggests growth.
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http://www.ftportfolios.com/Commentary/EconomicResearch/2013/4/18/post-traumatic-stress-disorder
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Here is my frank assessment of Wesbury: He lives in his own little universe of economic statistics, most of which are provided by the Federal government, and are severely distorted deliberately in this administration's favor. Of what significance is it that his charts and graphs show a recovering economy when the cold, hard evidence that there NEVER HAS BEEN A RECOVERY is plain to see all around us? I don't know if this guy truly believes this B.S. he is peddling, or if he is acting in what he believes is his own interest, without regard to truth. Having worked in the financial industry (banking) and met with investment bankers and advisors countless times during my tenure there (right out of college in the 1980's) I can tell you categorically that the majority of these economic prognosticators are nothing more than professional bullshit artists. It's quite evident when you look at their records over a long period of time. Wesbury is no different in that respect - in my educated opinion.
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Fair enough.
At the same time Wesbury and Grannis (who is retired now btw and thus immune to any allegations of knowing on which side his bread is butered) offer us a different perspective than ours-- and ours has questions it does not really answer too. Therefore I offer Wesbury and Grannis so that we may ask ourselves good questions.
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Partial agreement with Obj:
"Here is my frank assessment of Wesbury: He lives in his own little universe of economic statistics,"
- true, (they all do)
"most of which are provided by the Federal government,"
- true
and are severely distorted deliberately in this administration's favor.
- No, IMO. Most important economic statistics like the unemployment rate and the poverty rate are flawed measurements, but there is usually trend information to be learned from the movement in these measures.
"the cold, hard evidence that there NEVER HAS BEEN A RECOVERY"
- What did Clinton say, it depends on what the meaning of is is. We've had something like 37 months of job growth since the bottom, a recovery in name only. We've also lost 20% of our wealth that will never come back under the current stagnation agenda. I agree with you, that to recover means to fully recover - to at least get back to where we were. It is spin (BS?) to confuse recovery with pathetic, partial, upward movements.
My take from Wesbury or reading any of them is to read for the facts only, put the facts in context, and ignore the spin and take the analysis with active skepticism. I don't hold economists accountable for knowing the future. I judge them by how well they can analyze and explain what has already happened.
The 2009 Wesbury prediction of 5% was absurd, but based on a history of v-shaped 'curves' coming up from a drop that severe. He seemed to ignore the fact that most of the forces pushes us downward were still acting to push us downward. He coined the phrase plowhorse economy later to acknowledge the heavy load we are pulling.
Remember this: At the beginning of 2008, Wesbury, a supply sider, warned Republicans they would not win the election if they relied on a bad economy alone to defeat President Obama. He was right. The economy was stalled, but good enough for the incumbent to win all battleground states.
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‘Hack Crash’: Fake Tweet Shows Pitfalls of Algo-Driven World
By Steven Russolillo
A fake tweet is apparently all it takes these days to briefly send financial markets into disarray.
“Selling begets selling. It’s just the reality of the algo-driven world we live in,” said Seth Setrakian, co-head of domestic equities at First New York Securities, a brokerage firm. “It’s an environment when you act first and ask questions later.”
Stocks briefly plunged after a tweet from the Associated Press’s Twitter account claimed that there were two explosions in the White House and that President Barack Obama had been injured. Markets quickly swung back after the AP said on its corporate website that its account had been hacked. The White House confirmed that there had been no incident.
But the damage had been done. The Dow Jones Industrial Average dropped 145 points between 1:08 p.m. EDT and 1:10 p.m., following the fake tweet.
The Dow recently rose 136 points in the final trading hour, led higher by DuPont DD +4.13% Bank of America BAC +2.99%, Travelers and Intel. Those stocks had been among the biggest gainers prior to the brief plunge.
“Things appear to be back to normal now, but when you have some seismic event happen like this, you start second guessing everything,” Setrakian said. “It just goes to show how jittery the market is and how fragile investor confidence is right now.”
Jonathan Krinsky, chief technical market analyst at Miller Tabak & Co. called the episode the “hack crash,” playing off the Flash Crash on May 6, 2010 that wiped almost 1,000 points off the Dow in a matter of minutes before it rebounded.
“The initial move appears to be purely emotional and machine driven,” he said. “We would not be surprised to see some profit taking as we head into the close.”
The episode also raises questions about the reliability of Twitter as a source of information. Earlier this month, federal securities regulators blessed the use of social-media sites, such as Facebook FB +0.04% and Twitter, to broadcast market-moving corporate news.
“This should certainly makes people wary about information coming across Twitter,” said Dave Lutz, a managing director at Stifel, Nicolaus & Co. in Baltimore. “A human at the keyboard can be a lot more cool-headed about this stuff than the machines reading the headlines.”
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Drop in Borrowing Squeezes Banks
Businesses Hoarding Cash Is the Latest Blow to Lenders; 'We Didn't Expect the Wall We Hit'.
By DAN FITZPATRICK and SHAYNDI RAICE
U.S. companies are pulling back on borrowing, which could put a drag on the limping U.S. economy and make it even harder for banks to break out of their long slump.
Outstanding loans by the biggest banks to U.S. companies declined 9% in the first two weeks of April compared with the end of March, according to Federal Reserve data. The slip followed a 2.7% rise in the first quarter, the smallest quarterly gain in two years.
Bankers and corporate executives said the reluctance is a sign of uncertainty about rising health-care costs, fear of another economic downturn and a brutal winter in the Midwest that delayed new investment. Companies also rushed to borrow and spend late last year ahead of anticipated tax increases.
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Business owners "feel very, very hesitant to invest," and the economy is "struggling to get solid footing," but "we didn't expect the wall we hit," BB&T Corp. BBT -0.03%Chairman and Chief Executive Kelly King said last week. Outstanding business loans by the Winston-Salem, N.C., bank, the nation's 12th-largest by assets, were flat in the first quarter. "I think all of us are trying to figure out what happened."
Some executives said they are focusing on bolstering their cash hoards. R. Neil Williams, chief finance officer of financial-software provider Intuit Inc., INTU +0.98%said during the company's first-quarter-earnings call with analysts that "the plan going into this year was to let our cash position build up a bit from where we ended last year," after paying down half of the company's long-term debt in 2012.
New Clogs in Lending Pipeline
Outstanding commercial loans fell for many large and small banks in the first quarter of 2013 as business owners become more reluctant to borrow. The shift threatens one of the few bright spots for the U.S. banking industry and raises questions about the strength of the economic recovery. See a table of banks and their outstanding commercial loans.
At year-end, the nation's 7,000 banks had about $1.5 trillion in loans to large and medium-size businesses, or 20% of all bank loans, according to the Federal Deposit Insurance Corp. Outstanding loans reflect how much is owed on loans and lines of credit, and the numbers are widely considered a bellwether of borrower demand.
The recent slowdown is especially disconcerting because demand for other types of loans is cooling, too. Consumer lending dipped in the first quarter as the recent surge in mortgage borrowing ebbed. As a result, total loans fell 0.6% in the first quarter at the biggest U.S. banks and 0.2% at the smaller banks, according to Federal Reserve data compiled by Barclays BARC.LN -1.09%PLC analysts.
The drop in lending could turn around. New data showing commercial loans through the third week of April are due Friday, and economists say the slowdown might not persist for the rest of the year. Some companies, meanwhile, are turning to fixed-rate bonds instead of bank loans as a way of accessing debt.
Still, economists watch commercial loans closely, because borrowing by big companies has a huge ripple effect on the economy.
"It's not a good sign if loan growth is slowing," said Gus Faucher, a senior economist with PNC Financial Services Group Inc. PNC -0.55%While he said he wasn't worried about an imminent recession, he warned that "lending is important in keeping the economy going in order to allow businesses to expand."
The lending slowdown is placing more pressure on U.S. banks, already struggling to make money amid rock-bottom interest rates, new rules and a backlash on fees. If the slowdown lasts, some lenders might be forced to cut costs or get more aggressive on loan pricing as they look to poach clients from rival banks.
"Customers have a great deal of cash," and "they are sitting on the sidelines with that cash," said David Bochnowski, chief executive of Northwest Indiana Bancorp's Peoples Bank. "Until they really sense that demand is going to be in place, they are reluctant to expand."
Commercial-loan demand at the Munster, Ind., bank, with $691 million in assets and 12 branches, fell as businesses delayed construction amid a harsh winter that left snow on the ground last week. In a belt-tightening move last summer, Mr. Bochnowski put up signs in the bank's headquarters reminding employees to turn off the lights if no one else is in the building.
Ryan Alovis, chief executive of ArkNet Media Inc., a Valley Stream, N.Y., company that owns e-commerce sites such as LensDirect.com, said small businesses are more cautious about taking on more debt because health-care costs could rise with new laws that have been put in place. "Now it's a real issue," Mr. Alovis said. "It's really happening." ArkNet Media uses a credit line, but Mr. Alovis said he doesn't push it to the "edge" and that he won't take out new loans.
Phillip Dye, vice president at the five-man commercial-architecture firm Larsen Dye Associates Architects in Irving, Texas, said his firm isn't expanding, because his clients are worried about the economy. "None of them are going for loans," he said. "They do not want to endanger their businesses by going into a loan situation." The same goes for Larsen Dye, he said: "We're holding steady."
The pullback was more severe for the largest U.S. financial institutions, according to the Fed data. But the financial institutions that posted commercial-loan declines ranged in size from Wells Fargo WFC +0.03%& Co., the nation's fourth-largest lender, to the four-office Greater Sacramento Bancorp, GSCB -0.91%according to data from SNL Financial.
Comerica Inc., CMA -0.33%a Dallas bank with more than 60% of its $45 billion in loans tied up in businesses, saw its commercial loans outstanding drop 3.4% in the first quarter, according to SNL.
"A lot of our commercial customers are just hoarding their cash," said Bill Martin, chief executive and chairman of Bank of Sacramento, a unit of Greater Sacramento Bancorp that saw commercial loans outstanding drop 13% in the first quarter from the fourth quarter of 2012. "They're not expanding. They're not buying new equipment. There's still a lot of fear."
A Comerica spokesman attributed the drop in commercial loans in the first quarter to "strong seasonal growth we had going into the end of the year."
Wells Fargo Chief Financial Officer Timothy Sloan told analysts April 12 that "I wouldn't jump to any conclusions about loan growth in the industry in the first quarter," because the period is typically slower, and activity in the fourth quarter was "extremely high."
Some borrowers said banks remain reluctant to lend or are chasing the same supersafe borrowers, causing total loans to decline. Only 7% of banks that responded to a Fed loan-officer survey in January said they had eased credit standards on new loans to large and medium-size businesses.
Retailer J.C. Penney Co., JCP +7.12%for example, secured an $850 million revolving credit facility last week after struggling to find funding.
Some smaller borrowers are experiencing similar troubles. Dan Horn, chief executive of Palm Communities, a housing developer in Irvine, Calif., said the loan process has become more complicated.
"We're getting loans, but the documentation has doubled," he said. "The underwriting has gotten horrendous."
But any optimism among businesses heading into 2013 has begun to fade, said Mr. Martin, the banker in Sacramento.
"People lose heart," he said. "There's a lot of that."
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Drop in Borrowing Squeezes Banks
"we didn't expect the wall we hit,"
..."I think all of us are trying to figure out what happened."
Unexpected? Trying to figure out what happened?? Someone thought killing off businesses wouldn't affect the banks that rely on the business of businesses? Did the people who didn't expect a business investment pullback not know about these new regulations, during a recession, to implement one new program alone, or that they would have a negative impact on commerce and commercial lending?
(https://pbs.twimg.com/media/BFGcd8oCUAEEc7k.jpg)
Obamacare's new regulations. Is THIS what Madison had in mind?
http://www.mcconnell.senate.gov/
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The ISM Manufacturing Index Declined to 50.7 in April
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 5/1/2013
The ISM manufacturing index declined to 50.7 in April from 51.3 in March, coming in above the consensus expected 50.5. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mixed in April but all remain above 50. The new orders index rose to 52.3 from 51.4 and the production index increased to 53.5 from 52.2, while the supplier deliveries index rose to 50.9 from 49.4. The employment index slipped to 50.2 from 54.2.
The prices paid index dropped to 50.0 in April from 54.5 in March.
Implications: Another plow horse report today for manufacturing. The ISM manufacturing index declined to 50.7, slightly better than consensus, and is still showing expansion in the factory sector. According to the Institute for Supply Management, an index level of 50.7 is consistent with real GDP growth of 2.7% annually. Both new orders and production have picked up in the past three months, a good sign going forward for further manufacturing gains. The worst news in today’s ISM report was that the employment index declined to 50.2, the lowest level since November 2012, confirming our forecast that the manufacturing sector probably lost jobs in April (we think 10,000) which will be reported in Friday’s Employment report. On the inflation front, the prices paid index declined to 50.0 in April from 54.5 in March. Given loose monetary policy, we expect inflation to gradually move higher. In other news this morning, the ADP Employment index, which measures private payrolls, increased 119,000 in April. This is a bit softer than the consensus expected gain of 150,000. But plugging today’s report into our payroll models suggests a gain of 170,000 nonfarm and 180,000 private. The official Labor report will be released Friday morning. In still other news this morning, construction declined 1.7% in March (-3.2% including revisions to prior months), well short of the consensus expected gain of 0.6%. Time will tell, but for now, it appears that unusually cold March temperatures held down building activity. Despite the weather, home building continued to grow in March. However, commercial construction declined 1.5% and government construction fell 4.1%, the steepest drop in more than a decade. The Case-Shiller index, which measures home prices in the 20 largest metro areas, increased 1.2% in February (seasonally-adjusted) and is up 9.3% from a year ago. The gain in February was the largest for any month since the peak of the housing boom in 2005. Recent price gains have been led by Las Vegas, Phoenix, San Francisco, and Los Angeles.
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UNEMPLOYMENT - The U.S. Bureau of Labor Statistics reported Friday that the U.S. economy created 165,000 jobs in April and the unemployment rate fell to 7.5 percent from 7.6 percent.
• The U-6 underemployment rate, which includes total unemployed, plus all unemployed persons who are available for work and have looked for work in the past year, plus total employed part time for economic reasons, increased to 13.9 percent from 13.8 percent in March.
• The April unemployment rate for blacks was 13.2 percent and 9.0 percent for Hispanics.
• The U-3 unemployment rate would be 10.9 percent of the labor force participation rate was the same as in January 2009
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Monday Morning Outlook
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The QE-xcuse To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 5/6/2013
The higher the stock market goes, the more the bears argue that it’s all about easy money from the Federal Reserve. The “QE-xcuse” – says Wall Street is flying high on a wave of new money from Quantitative Easing.
But, this explanation is getting long in the tooth. The S&P 500 and the Dow Jones Industrial Average both reached all-time record highs last Friday, up 161% and 156%, respectively, from their lows of four years ago.
The last time stocks had such sharp and sustained gains near these levels was in the late 1990s when optimism was rampant. Then, the psychology was the opposite. Stocks were over-valued, but talking heads were unwilling to say anything even remotely negative.
When equity indices were hitting records in 1999, after-tax economy-wide corporate profits were just $600 billion. Last year, in 2012, they were $1.5 trillion. Nonetheless, the Pouting Pundits of Pessimism are pounding the podium and spewing pessimistic pabulum on a daily basis. Every tick higher in stocks seems to create even more anger, cynicism and disbelief.
All the talking heads have to do is say “QE” and it seems every viewer/reader has been trained to understand that, “the stock market is going up because the Fed is buying bonds.” They say the market is riding a “sugar high” of new money.
But, it doesn’t stop there. It gets curious-er and curious-er the deeper we dig into the mindset of these bears. The very same people who argue the rise in stocks is phony-baloney-money-printing are also saying that the economy is about to tank and fall into a double dip recession. And, some are now talking about the rising spectacle of deflation.
This defies logic. How can money boost stocks, but not the economy or inflation? This is a mistake in monetary logic. If money were so easy then the economy, inflation and stocks would be lifted together.
But, the pouting pundits never let logic get in the way of a really scary story. For them, nothing can be good. And if it is good, it’s either phony or a lie. For example, if the unemployment rate comes down, or if jobs are created, they start arguing that the Labor Force Participation Rate is falling or the “real” unemployment rate is really much higher. When the data doesn’t cooperate they accuse the government of being wrong or lying.
We don’t claim to have a lock on the truth. As forecasters we know that we will be wrong on occasion and we don’t expect everything to go our way.
What we attempt to do is provide an explanation that is based on fact and not emotion. We want our forecast based on a consistent model, not piecemeal beliefs based in political ideology.
So, let’s build a story that holds together.
1. The Fed is easy, but not as easy as many think. The monetary base has grown roughly 25% annualized since QE started, but M2 money supply is up just 6% annualized during that same period. The difference is sitting idly on bank balance sheets as excess reserves.
2. Government spending and regulation have increased sharply since 2000, but spending has been reduced from 25% of GDP to 22% in the past three years.
3. The stock market – based on a capitalized profits model – is undervalued by at least 25%.
4. New technology – the cloud, smartphone, tablet, fracking, 3-D printing, etc. – is boosting productivity, efficiency and profits.
5. The collapse of 2008/09 was a case of government failure, not market failure. Mark-to-market accounting and TARP were huge mistakes.
We believe new technology is so powerful that it has been able to create new wealth and growth despite the increased size and scope of government. In other words, the Plow Horse recovery is not a case of a “new normal” – where the economy grows slowly after a financial crisis. Instead, new technology is offsetting the cost of government, and the net effect is 2% to 3% real GDP growth.
We also believe the Fed is easy, but not as easy as conventional wisdom believes. This explains two things – why inflation hasn’t surged and also why a recession is not likely. A relatively easy Fed and new technology will continue to boost growth and inflation in the quarters ahead.
Finally, stocks are cheap. They are rising because that’s what cheap things do. We don’t need a QE-xcuse to explain the markets or the economy. Be wary of those who do.
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A different view:
Part time is replacing full time employment because of Obamacare.
http://www.realclearmarkets.com/articles/2013/05/06/why_fridays_jobs_report_was_ominous_100301.html
May 6, 2013
Why Friday's Jobs Report Was Ominous
By Louis Woodhill Forbes contributor / Real Clear Markets
Excerpts:
"The April jobs numbers describe a mass replacement of full-time workers with part-time employees, coupled with a fall in the length of the average workweek. This happens to be precisely what you would expect, given the perverse incentives baked into Obamacare, which took effect on January 1."
"During April, the FTE jobs ratio fell for the fifth month in a row, to 53.09." (Now that jobs are part time, the totals are measured in 'full time equivalent'.)
"there also has never been a case where the FTE jobs ratio fell for five months in a row and a recession did not follow."
"If labor force participation had remained at the level it was when Bush 43 left office, April's unemployment rate would have been reported at 10.9%." (Confirming Crafty's recent post.)
"During the first 76 months of the Reagan recession/recovery, the value of the dollar in terms of gold actually went up by 6.47%. During the equivalent period of [this] recession/recovery, the gold value of the dollar fell by 56.9%."
"The dollar debasement under Bush 43 and Obama has been driven by three rounds of the Federal Reserve's "quantitative easing" (QE), which have produced a massive (and completely unprecedented) 257.19% increase in the monetary base."
"The recent five-month decline in the FTE jobs ratio coincides exactly with Ben Bernanke's QE3."
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Very cogent.
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http://cnsnews.com/blog/joe-schoffstall/record-number-households-food-stamps-1-out-every-5
Record Number of Households on Food Stamps-- 1 out of Every 5
April 25, 2013
By Joe Schoffstall
The latest available data from the United States Department of Agriculture (USDA) shows that a record number 23 million households in the United States are now on food stamps.
The most recent Supplemental Assistance Nutrition Program (SNAP) statistics of the number of households receiving food stamps shows that 23,087,886 households participated in January 2013 - an increase of 889,154 families from January 2012 when the number of households totaled 22,188,732.
The most recent statistics from the United States Census Bureau-- from December 2012-- puts the number of households in the United States at 115,310,000. If you divide 115,310,000 by 23,087,866, that equals one out of every five households now receiving food stamps.
As CNSNews.com previously reported, food stamp rolls in America recently surpassed the population of Spain. A record number 47,692,896 Americans are now enrolled in the program and the cost of food stamp fraud has more than doubled in just three years.
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Jim Rogers: ‘Race To Insanity’ Producing ‘Artificial’ Market Gains
Wednesday, 24 Apr 2013 01:32 PM
By Michelle Smith
With central banks printing like never before, legendary investor Jim Rogers warns that markets and economies are likely to get hurt in the aftermath.
“This is the first time in recorded history where nearly all the central banks in all countries are pumping out lots of money, debasing their currencies, printing money. I've never seen this in history, and now we've got everybody — or nearly everybody — doing it,” he told Money Morning.
Japan's central bank dominated headlines when it announced an unprecedented stimulus program that devalues the yen. This action was said to be an effort to battle deflation.
Central bank policies that weaken national currencies are seen as competitive. When other nations do not follow suit, they essentially become less competitive because a weaker currency results in cheaper exports.
Countries’ efforts to competitively weaken their currencies is commonly called the race to the bottom.
Rogers told Money Morning that instead it is a “race to insanity.”
While the gains in the U.S. and Japanese stock markets may be euphoric now, Rogers warns that they are “artificial” and likely to lead to pain.
“The central banks are determined to keep printing money. But, underneath that, eventually there are going to be more and more skeptics. I'm not going to be the only one. And more and more people will start heading for the door. And by the time they stop, printing the damage may already have been done to the markets,” Rogers noted.
But similar statements have often raised the comeback question — when will the stimulus stop? Many argue that there is little reason for investors to be concerned about that now if it will happen much later.
Even Rogers admits that though the market gains are artificial, the bubble may not burst anytime soon. Investors could continue to see soaring markets for some time.
Central banks’ policies could cushion any sell off, he explained to Money Morning. But ultimately, the ending is still a bad one — the results of that type of distortion could be a “slow-speed crash,” not only for the markets, but also for the broader economies.
Read Latest Breaking News from Newsmax.com http://www.moneynews.com/InvestingAnalysis/Rogers-US-Japan-markets/2013/04/24/id/501187
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http://money.cnn.com/2013/04/26/news/economy/gdp-report/index.html?iid=SF_E_Lead
U.S. economy revved up, but it's probably temporary
By Annalyn Kurtz
@AnnalynKurtz April 26, 2013: 11:36 AM ET
NEW YORK (CNNMoney)
The U.S. economy accelerated at the beginning of the year, but don't get too excited. Economists aren't very optimistic that trend will continue in the months ahead.
Gross domestic product -- the broadest measure of economic output -- rose at a 2.5% annual pace in the first three months of the year, driven largely by a pick-up in consumer spending, the Commerce Department said.
Consumer spending, which alone accounts for roughly two-thirds of GDP, rose at a 3.2% annual pace, the fastest pace since the end of 2010.
At first glance, that's pretty remarkable, since most workers saw their take-home pay drop in January, following the end of the payroll tax cut.
But the data also shows that consumers funded that spending in part by saving less. Americans saved an average of 2.6% of their disposable income in the first quarter, down from 4.7% at the end of 2012.
"Households are drawing down savings, and they are borrowing to continue spending," said Steve Cunningham, director of research and education for the American Institute for Economic Research. "That won't last forever."
What were people buying? Primarily, more services. That too could be partly temporary in nature.
Americans spent more on housing and utilities, which rebounded after slumping following Hurricane Sandy in the prior quarter. This March was also the coldest since 2002, a weather patten that boosted the demand for heating.
Consumer spending on durable goods like autos also contributed to stronger economic growth, but to a lesser extent.
On the business side, investment in equipment and software added slightly to growth. An even bigger boost, however, came as businesses restocked their shelves and warehouses after drawing down their inventories in the fourth quarter. That effect is also likely to be temporary, Cunningham said.
Related: The global economy is losing steam
Meanwhile, cuts in government spending, mainly related to defense, dragged on the economy in the first quarter.
The last two quarters marked the biggest six-month contraction in the federal government's economic activity since the months following the Korean War, which ended in 1953, noted Paul Ashworth, chief U.S. economist of Capital Economics.
Spending by federal, state and local governments is now lower than it was in mid-2007, before the recession began.
Given the fiscal squeeze, Ashworth said it's rather impressive that the economy still grew 2.5% in the first quarter. Since the recovery began in mid-2009, the economy has grown an average of 2.1% a year. Once you strip out the government's spending, though, that growth looks more like 3.1%.
"It's becoming more and more clear that the public sector is the real thing holding the economy back now," he said.
Public-sector cutbacks are likely to continue dragging on the economy through the rest of the year as the federal government alone cuts $85 billion over a seven-month period.
Economic growth isn't likely to be as strong in the second quarter. Other economic data already shows the economy may have lost some steam starting in March.
Job growth slowed, retail sales slumped and the manufacturing sector showed signs of weakness.
Overall, the first quarter GDP report was a bit of a letdown. Economists had been expecting the economy to grow at an even stronger rate of 2.8%.
"Even this weaker-than-hoped-for growth rate exaggerates the true underlying momentum in the economy," said Chris Williamson, chief economist at Markit.
U.S. stocks were mixed Friday morning, following the report.
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http://news.investors.com/economy/050313-654674-retail-workweek-3-year-low-on-obamacare.htm
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http://news.investors.com/economy/050313-654674-retail-workweek-3-year-low-on-obamacare.htm
The economy is Wesbury-riffic!!!
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It's Not That Bad Out There To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 5/13/2013
Certain things, like the sun rising, or the tides shifting, can be counted on. It’s also true that when government shrinks as a share of GDP, things start to pick up.
For the past three years, gridlock in Washington has held total spending by the federal government basically flat. This means federal spending has fallen from more than 25% of GDP to 22%, creating more room for the private sector.
Contrary to popular Keynesian thinking, this means entrepreneurship will have a more pronounced, and positive, economic impact on the economy. In other words, the “end of the world” trade, which hasn’t really worked in the past four years is becoming more dangerous. We expect gold to fall, while bond yields, the dollar, and stock prices rise.
We don’t disagree with the angst of many over deficits and debt, but things are rapidly getting better. Tax revenues are up sharply and we are forecasting a budget deficit of about $725 billion, or 4.5% of GDP, this year. In 2014 and 2015, we expect deficits of near 3% and below 2%, respectively. This is not magic. It’s what happens when spending is contained.
It’s not that deficits matter all that much; but it’s a sign of how wrong the pessimists can be. And the same thing is happening in markets. The “smart guys” at hedge funds have been short the dollar and stocks, while long gold and bonds. But, in the past year, this trade has not worked.
And the fundamentals suggest this trade will continue to be a loser. We think stocks and growth are still underappreciated.
Gold is well above fair value. Comparing its value to oil, corn, copper, M2, nominal economic growth or even the monetary base suggests that it is worth somewhere between $800 and $1,100 an ounce today. We’re forecasting further declines in gold over the next 12 months. It probably won’t be a bloodbath, but it’s not the asset to be long.
The same goes for bonds. At the start of the year, we were forecasting a 10-year Treasury yield of 2.85% at year end. Historically, this would have been an outsized jump in yields, especially if the Fed does not move to tighten. A more sanguine forecast of 2.4% still means capital losses.
Even if you think the Fed won’t raise rates until 2015, yields are too low. If the Fed held short-term rates near zero for two years and then hiked them to 4% over the next two years and held them there, the average funds rate for the next decade would be 2.8%. Slap a premium of 0.5% on this for the 10-year Treasury and a yield of 3.3% is the result.
Meanwhile, despite a sharp increase in equity prices recently, the S&P 500 still has a generous earnings yield of 6%. Stocks are still cheap and we expect further increases. In other words, not letting the conventional wisdom get you down has been, and will continue to be, the profitable trade.
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I have only one response to Wesbury's inane arguments, and it doesn't take a degree in economics to understand: Who are you going to believe - your own experience and what you see going on all around you, or what some pinhead economist tells you SHOULD be happening? I believe my own eyes and ears. I speak to small business people all over the country every day, and I have yet to hear from ANY of them that business is picking up, let alone booming. On the contrary, they tell me they are struggling, have been forced to lay off multiple employees, and don't see any light on the horizon. In short, business is NOT getting better - it is continuing to get worse. I also see dozens of completely empty strip malls within 10 miles of my location here in metro Atlanta. Many of them were thriving 5 years ago. Foreclosures here remain extremely common. In other words, I don't believe someone who tells me it is raining when I see with my own eyes that he is pissing on my leg.
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Exactly.
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http://finance.yahoo.com/blogs/breakout/payroll-data-plough-horse-recovery-continues-westbury-145748548.html
This month's edition of the Most Important Number Ever came out better than expected, sending stocks to all-time highs and pushing the S&P 500 (^GSPC) over 1,600 for the first time ever. The move was driven by Non-Farm Payrolls (NFP) coming in at a better than expected 165k vs official estimates of 140k and unofficial expectations that were much worse than that.
Brian Wesbury of First Trust Portfolios says the numbers were consistent with the glacial pace of the recovery investors have come to expect. "We've described it as the plough horse economy," Westbury explains in the attached video. "We have the Kentucky Derby this weekend, [but] this horse is not going to win the Kentucky Derby. Not even close."
After a spate of weak data heading into the non-farm payrolls release, analysts were expecting evidence that the recovery was ready for the glue factory. Pessimists have been expecting the economy to drop back into a recession at any moment since the March 2009 stock market lows. When mediocrity is a pleasant surprise, the odds favor a bullish reaction to data.
The fly in the ointment was labor participation. At 63.5%, the number of Americans opting out of the labor market is stuck at levels last seen more than 30 years ago. Wesbury thinks the participation is a function of an aging population coupled with some unknowable expansion in the so called "grey market" jobs where workers are paid in cash or trade to avoid taxes.
Although "we're not booming," Wesbury concludes this isn't an economy that's "going to fall back into another recession" either.
For at least the moment that's good enough for the stock market.
Click on the link to read the comments
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We have missed you Obj, good to have you with us once again.
You raise well the points of the other side of the coin.
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When an economy is humming, there are lots of job openings and low unemployment. When the economy is malfunctioning, there are few openings and unemployment is high. The regular relationship between job openings and unemployment is called the Beveridge Curve.
• According to the American Enterprise Institute's Kevin Hassett, it has been almost four years since the end of the recent recession, but the U.S. has yet to return to its previous levels of unemployment. The shift in the Beveridge curve suggests that it may never do so.
• In February 2013, the job-openings rate (unfilled jobs as a percentage of total jobs) was 2.8, a rate that would have corresponded with an unemployment rate of about 5.2% on the Beveridge curve from 2001 through August 2009. The unemployment rate in February, however, was 7.7%—almost two and a half points higher.
• Hassett argues the shift is mainly explained by a) the more than doubling of long-term unemployment from pre-recession levels, and b) the now-documented reluctance of business to hire folks who’ve been out of work for more than six months.
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Continuing with my presentation of an opposing point of view:
Industrial Production Declined 0.5% in April To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 5/15/2013
Industrial production declined 0.5% in April, coming in below the consensus expected decline of 0.2%. Including revisions to prior months, production was down 0.8%. Production is up 1.9% in the past year.
Manufacturing, which excludes mining/utilities, declined 0.4% in April (-0.5% including downward revisions to prior months). Auto production declined 1.2% in April, while non-auto manufacturing declined 0.3%. Auto production is up 5.2% versus a year ago while non-auto manufacturing is up 1.1%.
The production of high-tech equipment rose 1.0% in April, and is up 2.0% versus a year ago.
Overall capacity utilization declined to 77.8% in April from 78.3% in March. Manufacturing capacity use declined to 75.9% in April from 76.3% in March.
Implications: Not a pretty report for industrial production in April. Output at factories, mines, and utilities, fell 0.5%, the largest decline in 8 months (-0.8% including revisions to prior months). Worse, the drop can’t be attributed to the volatile mine and utility sectors; manufacturing production declined 0.4% (-0.5% including revisions to prior months). However, we believe the report is an outlier and expect a rebound next month. Production is up 1.9% over the past year and up at a 2.5% annual rate over the past three months, exactly what we would expect in a plow horse economy. The autos sector has led the manufacturing gains, up 5.2% in the past year, but even manufacturing outside the auto sector has done OK, up 1.1% in the past year. We expect the gap between those two growth rates to narrow considerably in the year ahead, with slower growth (but still growth!) in autos and faster growth elsewhere in manufacturing. Capacity utilization fell to 77.8% in April, not far off from the average of 79.0% in the past 20 years. Continued gains in production should push capacity use higher, which means companies will have an increasing incentive to build out plant and equipment. Meanwhile, corporate profits and cash on the balance sheet are at record highs, showing they have the ability to make these investments. In other news today, the Empire State index, a measure of manufacturing sentiment in New York, declined to -1.4 in May from +3.0 in April. On the housing front, the NAHB index, which measures confidence among home builders, rose to 44 in May from 41 in April. The indexes for future sales, foot traffic, and current sales all increased, another sign that the housing market continues to recover.
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Wesbury makes his prediction. I'd like to invite each of us to make his own :evil:
Monday Morning Outlook
________________________________________
Still Bullish To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 5/20/2013
Like Rip Van Winkle, imagine you went to sleep on October 9, 2007 and didn’t wake up until yesterday. On 10/9/2007, equities were at record highs: 14,165 for the Dow Jones Industrial Average and 1,565 for the S&P 500.
You slept right through a housing bust, a financial panic, the deepest recession since the Great Depression, the passing (and upholding) of Obamacare, multiple bouts of debt-limit brinksmanship, two fiscal cliffs, the European financial “crisis,” a tsunami in Japan, the BP oil fiasco, and a long list of other media-obsessions over the past 67½ months.
You woke up, and the Dow and S&P 500 were up 8.4% and 6.5%, respectively, from when you fell asleep, with both at new record highs. Including dividends, the S&P 500 has returned 3.3% per year since you went to sleep, while consumer prices rose 2% per year and short-term rates averaged 0.5%.
Now…imagine that no one would tell you what happened in the past six years. All you could do was compare current market data to what it was when you fell asleep. Would you buy equities, or sell them?
Corporate profits rose 34% during the deep sleep, so Price-to-Earnings (P-E) ratios are lower. Short-term interest rates were 4%, now they are near zero; yields on long-term Treasury notes were 4.5% back then, and now below 2%. Gold has jumped from $740 per ounce to $1,350; oil from $73 per barrel to $96.
In a nutshell, relative to fixed income and commodity markets, equities look significantly cheaper today than they did in 2007. There is even more reason to buy.
The unemployment rate was only 4.7% when you fell asleep: now it’s 7.5%. Believe it or not, that is good news. Historically, high unemployment means things are going to get better, while periods of low unemployment suggest things are about to get worse. We get the flu when we feel good; we get over it when we feel bad.
It was this focus on fundamentals that motivated our forecast that equity values would rise this year. At the beginning of 2013, we forecast the Dow at 15,500 and S&P 1700 by year-end. We felt that this higher-than-consensus forecast was realistic and, yet, conservative. We’ve been proven right. Equities have gone up even faster than we thought and we see no reason the bull market won’t continue.
As a result, we are raising our forecast. We now expect a year-end Dow of 16,250, with the S&P 500 at 1,765, a respectable gain of 5.8% from Friday’s close. That’s an annualized gain of almost 10% for the rest of the year, with dividends boosting the total return to 12% annualized.
This would boost the 2013 return for the Dow to 24%, the most for any year since 2003. So even though bearish forecasters are saying the 2013 increase in equity prices is “insane,” it is actually well within historical norms.
We use a capitalized-profits model to find fair-value for equities. We divide corporate profits by the current 10-year Treasury yield (1.95%), and then compare the current level of this index to each quarter for the past 60 years. This method gives us a fair-value for the Dow of 48,000 – three times the current level. Obviously, this is crazy.
But it’s what happens when the Fed holds interest rates at artificially low levels. So, we adjust by using a 10-year Treasury yield of 4.5% - the same as the Federal Reserve’s estimate of long-term growth in nominal GDP (real GDP growth plus inflation). Using 4.5% as our discount rate suggests a much more reasonable fair value of 21,000 on the Dow and 2,250 for the S&P 500.
But what if record high corporate profits –12.7% of GDP – revert to their historical norm of about 9.5%, at the same time the 10-year Treasury yield moves to 4.5%? If that happened, the fair value of the Dow would be 15,650, and the S&P 500 would be 1700. In other words, if profits fall 25% and interest rates more than double, broad stock market indices are still slightly undervalued. That said, this scenario is highly unlikely. If rates are rising, it will most likely be because the economy is doing well, which means corporate profits will not collapse.
This does not mean markets will rise in a straight line. Volatility is part of life. But, if you can find a way to sleep through the next few years, and be long equities at the same time, you should wake up wealthier. Stay bullish.
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Wesbury makes his prediction. I'd like to invite each of us to make his own :evil:
A fair challenge. Crafty, what say you?
Personally, I will decline to predict the market. We know that the indices of big, cronied-up companies can prosper while America fails.
On the larger question (not asked), the movement of the economy, I will say that if the economic policies will be more of the same, the results will be more of the same - best case.
Quantifying: My understanding is that benchmark for breakeven growth for the U.S. economy is normally around 3.1%. Rapid growth coming out of a severe downturn with pro-growth policies should be more like 7.75%, see the Reagan recovery. My prediction is that nationwide economic growth will be no more than 3.1%, snail's pace growth, until policies change. I predict that general economic conditions will not return to the levels before Pelosi-Reid-Obama took majorities in congress, of real unemployment 4.6% nationally and 3% in our metro for example, EVER, until policies change.
Can a shrewd investor make money anyway? Yes. Can a generation of new grads with closed off opportunities, told by their President to lower their ambitions, ever get back what they lost with the current focus on destructive economic policies? I don't see how.
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Based upon my track record in the market, I am a counter indicator. I no longer take myself seriously. :lol: :cry:
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http://www.marketwatch.com/Story/story/print?guid=3BDA6EE6-C248-11E2-BA61-002128040CF6
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OTOH here´s Wesbury :-D
New Orders for Durable Goods Increased 3.3% in April
Data Watch
New Orders for Durable Goods Increased 3.3% in April To view this article,
Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 5/24/2013
New orders for durable goods increased 3.3% in April (3.0% including revisions to
prior months), coming in well above the consensus expected gain of 1.5%. Orders
excluding transportation increased 1.3% (1.0% including revisions to prior months),
also well above the consensus expected 0.5% gain. Overall new orders are up 2.4%
from a year ago, while orders excluding transportation are up 0.9%.
All major categories of orders rose in April, led by aircraft, autos, and
computers/electronics.
The government calculates business investment for GDP purposes by using shipments of
non-defense capital goods excluding aircraft. That measure declined 1.5% in April
(-0.1% including revisions to prior months). If unchanged in May and June, these
shipments will be down at a 2.5% annual rate in Q2 versus the Q1 average.
Unfilled orders rose 0.3% in April and are up 2.0% from last year.
Implications: A very solid report out on durable goods this morning. New orders for
durables rose 3.3% in April, with all major categories of orders up for the month.
The largest gains were in the transportation sector – aircraft and autos
– which is extremely volatile. However, orders were still up 1.3% excluding
transportation, much better than the consensus expected. The worst news in the
report was that shipments of “core” capital goods, which exclude defense
and aircraft, were down 1.5% in April. This suggests business investment in
equipment will be tepid in Q2, consistent with our forecast of 2.5% real GDP growth
for the quarter. But new orders for core capital goods increased 1.2% in April and
unfilled orders were up 0.9%. This hints at an acceleration in business investment
beyond Q2. We expect orders to continue to trend upward over the next several
months. Monetary policy is loose and, for Corporate America, borrowing costs are low
and balance sheet cash and profits are at a record high. Meanwhile, the obsolescence
cycle and higher capacity use should goad more firms to replace and build-out their
capital stock. In addition, the recovery in home building should generate more
demand for big-ticket consumer items, such as appliances. The bottom line is that
today’s report shows the Plow Horse economy is moving along just fine and may
even be starting to pick up its gait.
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Wesbury has predicted 12 of the last zero recoveries.
:roll:
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And you predicted a 6000 DOW and incipient disaster all the way from 6500 to 15,000 plus :evil:
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The stock market alone is NOT a barometer for the health of the economy as a whole. This is lost on MANY people.
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And you predicted a 6000 DOW and incipient disaster all the way from 6500 to 15,000 plus :evil:
Record levels of poverty in America, are you sure the disaster hasn't happened?
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We are in agreement that the situation is dire for dramatic numbers of Americans.
However in this moment that is NOT th point. I posted Wesbury in response to a prediction of market collapse. Yes?
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Listening to Wesbury about the economy is like listening to the commentary from a Three card Monte dealer.
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We lost 12% of our economy per year to the failure of the policies still in place. Instead of making up for lost ground we have been growing at half the rate that we should have been for 4 years, digging that hole deeper. In 6 years since Pelosi-Reid-Obama policies became the direction of the country and the law of the land that makes a total loss of economic activity of approximately 50 trillion dollars over 6 years. Real unemployment, black unemployment, number of people in need of food assistance, etc., all doubled. We can spin that failure any way we want.
Washington (CNN) - Two-thirds of Americans say that the nation's economy is in poor shape
http://politicalticker.blogs.cnn.com/2013/05/24/poll-how-do-you-rate-the-economy/
http://dogbrothers.com/phpBB2/index.php?topic=1467.msg61857#msg61857
The market for crony companies operating globally in a Fed tampered environment went up enormously and we missed it. Like the lottery and a Kentucky Derby longshot, I could not place that bet. The losers were the small operators, startups that never started, a generation of new grads, and the millions who left the workforce unwillingly.
The other negative is that of the 50% who will pay in, every family of four just added the debt of a median house without getting the house.
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Agreed!
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http://www.creebulb.com/
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Closing in on a 200% gain with CREE!!! :-D :-D :-D
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Have you tried the lightbulb yet? I still use halogens.
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moved to the Economics thread on SCH because it deals with econ theory,-- Marc
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Is QE Really THAT Important?
Monday Morning Outlook
Is QE Really THAT Important? To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 6/3/2013
As the Chicago Blackhawks started their seven game conference championship (final
four) series with the Los Angeles Kings, the national sports punditry had decided it
was going to be hard for the Hawks to advance to the final round of Stanley Cup
play.
LA is just too big and punishing, they said. In Biblical terms (as in Numbers 13),
the punditry had crossed over into the Promised Land, taken one look at the giants
over there and decided it was too scary to go fight them.
In the more mundane world of hockey, thank goodness the players didn’t listen
to the fearful punditry. The Blackhawks have dominated – winning both games by
a combined score of 6-3. As of right now, it is hard to imagine the series going
more than five games. Chicago is faster and deeper than LA and Chicago’s goal
tending is better.
The same thing is happening in the economy. The punditry has decided that anything
good happening is actually bad. It is all just a sugar high – based on
Quantitative Easing and government stimulus – and that talk of winding down or
tapering QE is negative. So the latest fear is that any good data on growth is
actually bad, because it means the Fed will wind down QE. They say “the
economy can’t possibly grow on its own – without support from the Fed
and Ben Bernanke.”
But the Fed did not invent fracking, or the cloud, or the smartphone, or 3-D
printing. QE has not lifted Price-to-Earnings ratios. Corporate profits, which the
Fed does not control, have risen in tandem with stock prices.
Yet, every time equities sell off, as they did last Friday, when the Dow Jones
Industrial Average fell 209 points and the S&P 500 dropped 23.7, or 1.4%, the
punditry said it was a clear sign that the “sugar high” of QE was losing
its magic and that equities couldn’t possibly keep rising if tapering was on
its way.
But, with all of this, we still view the world in the same way we have for the past
four years. A “V-shaped” recovery has now given way to a
“checkmark” recovery. The right side is longer and higher than the left
side. The declines due to the crisis are behind us and cyclical stocks are starting
to lead the market; QE is not the driving force behind these gains and the end of QE
will not bring them to an end.
Stay confident, believe in the underlying technology and fundamentals and
don’t let the punditry put fear in your heart by saying the good times cannot
possibly last or be true.
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Wesbury: "The punditry has decided that anything good happening is actually bad."...
"don't let the punditry put fear in your heart by saying the good times cannot possibly last or be true."
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U.S. manufacturing index for April unexpectedly declines - hits a 4 year low
http://www.washingtonpost.com/business/economy/us-manufacturing-index-for-april-unexpectedly-declines/2013/06/03/6aa12ce6-cc8a-11e2-8845-d970ccb04497_story.html
Ooops. Now which side of punditry needs to spin?
Wesbury's rosy scenario outlook seems to only apply to the existing company indices - companies generally connected to the regulators, operating globally, that happen to still be listed on U.S. exchanges. Startups still suck. Employment sucks. Tax rates are up, state and federal. Welfare rolls are up. Regulations are still exploding. Inner cities are still in shambles. Refineries are closing. Obamacare 2014 is creating enough business uncertainty to make up for most positive forces. Growth in Asia is fizzling. Europe is dismantling. I think I'll buy 100 shares...
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Famous people caught reading the forum? AEI comes to the defense of my previously unsubstantiated claim that in the face of our unprecedented regulatory climate, the business startup rate is the worst in our nation's history. I'm not talking about LLCs filed for existing assets or one person operations, but referring to the dearth of real entrepreneurs risking real capital to give birth to new businesses that hire new employees. Implementation of Obamacare is one more step taking us further from having a dynamic economy with full employment and full time employees. Meanwhile, Wesbury dwells on the performance of the unchallenged, entrenched companies with their teams of regulatory compliance officers replacing innovation in the pursuit of zero-sum profits. Good luck America.
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Where are the entrepreneurs? More evidence the very heart of the US economy is failing
James Pethokoukis | June 3, 2013 AEI
(http://www.aei-ideas.org/wp-content/uploads/2013/02/021313jobs-600x373.jpg)
America makes a grievous error if it dismisses the weak economic expansion — this month marks the fourth anniversary of the end of the Great Recession – as nothing more than the expected aftermath of a deep downturn and financial crisis. Sluggish GDP growth and yet another “jobless” recovery point to a secular problem rather than merely cyclical forces at work.
The US entrepreneurial spirit may be faltering. Check out these data points from The Wall Street Journal: a) In 1982, new companies made up roughly half of all US businesses, according to census data. By 2011, they accounted for just over a third; b) from 1982 through 2011, the share of the labor force working at new companies fell to 11% from more than 20%; c) Total venture capital invested in the US fell nearly 10% last year and is still below its prerecession peak, according to PricewaterhouseCoopers.
(http://i603.photobucket.com/albums/tt114/dougmacg/55914ef3-5be0-4be2-87da-91fba7b713d9_zps9aa85484.jpg)
New companies are best at creating what business guru Clayton Christensen has termed “empowering innovation” (creating new consumer goods and services) as opposed to process innovation (creating cheaper, more efficient ways to make existing consumer goods and services). Empowering innovation produces new jobs, while efficiency innovation eliminates them, often through automation.
Don’t let Apple and Google and Facebook fool you. Right now, Christensen wrote in The New York Times last year, “efficiency innovations are liberating capital, and in the United States this capital is being reinvested into still more efficiency innovations. In contrast, America is generating many fewer empowering innovations than in the past.”
Not only do we need a vibrant entrepreneurial ecosystem so startups can flourish and generate disruptive innovation, these new entrants raise the competitive intensity for established players to become more innovative. In other words, explains banker and entrepreneur Ashwin Parameswaran, “unless incumbent firms face the threat of failure due to the entry of new firms, product innovation is unlikely to be robust. The role of failure in fostering product innovation has sometimes been called the ‘invisible foot’ of capitalism.” Big business must be subject to maximum competitive intensity.
In the WSJ piece, reporter Ben Casselman offers several possible causes for the decline in risk taking from the aging of the US population to rising health care costs to increased state and local licensing requirements: “One recent study found that roughly 29% of U.S. employees required a government license or certificate in 2008, up from less than 5% in the 1950s.” Parameswaran thinks Washington’s backstop of “too big to fail” banks play a role by encouraging the financial sector to take on macroeconomic risk of the sort the Federal Reserve worries about (housing, derivatives) rather than lending to small business or new firms. Another factor could be restrictive land-use regulations that prevent our most productive cities from being as populous as they could be. And Christensen sees schools at all levels failing to teach the “skills necessary to start companies that focus on empowering innovations.”
US workers need America to be as entrepreneurial and innovative as possible. So does the global economy. But right now we are taxing capital, educating kids, regulating banks, and managing cities in ways that are crippling America’s greatest economic asset.
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Both of those are strong responses Doug.
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*****June 5, 2013, 1:13 p.m. EDT
Madoff, other felons say markets are unfair
By Ronald D. Orol, MarketWatch
WASHINGTON (MarketWatch) — Faced with a rash of insider trading in the markets, federal prosecutors and securities regulators in recent years have stepped up efforts to crack down on violations.
But insider trading and market fraud persist, perhaps at epidemic levels. Even though the Securities and Exchange Commission has brought more insider-trading actions in the past three years than in any three-year period in the agency’s history, and even though the U.S. attorney in New York City has convicted 73 people in insider-trading cases since 2009, the crime remains all too common.
Bernie Madoff.
That’s what MarketWatch found in a series of interviews with people convicted of insider trading and fraud. These felons painted a picture of an unfair market driven by widespread cheating that favors those with privileged information and expensive technology. The cheating also hurts individual investors and retirement savers trying to follow the rules of the road and produces a deeply unfair market environment.
MarketWatch reporters conducted a series of in-depth interviews with ex–investment brokers and others who lost their trading licenses and are either in prison serving multiyear sentences or have done their time in the slammer and now advise others on what not to do.
The results were discouraging.
MarketWatch found that insider trading may be one of the most common crimes on Wall Street and one of the least prosecuted. And that was only the beginning. MarketWatch discovered that the problem for retail investors goes far beyond a failure of regulators to identify insider-trading violations.
The financial criminals we spoke with said that not only do many investors routinely skirt insider-trading laws, but the explosion of computerized high-speed trading in recent years has made the situation even more unfair for the retail investor.
Those retail investors should be careful when relying on audited financial statements because accounting fraud continues unabated, according to one interview. Accounting-fraud cases are complex, and regulators don’t have the resources to enforce the law effectively, according to one felon.
As one fraudster put it to MarketWatch, the Securities and Exchange Commission has roughly 4,000 employees to regulate the financial industry while there are 35,000 cops in New York fighting blue-collar crime.
Insider trading may be one of the most common crimes on Wall Street and one of the least prosecuted.
Bottom line: The markets aren’t fair for retail investors. Regulators at the U.S. attorney’s office declined to comment. However, Daniel Hawke, chief of the SEC enforcement division’s market abuse unit, defended the agency’s actions, arguing that it is difficult to identify how much insider trading is going on that regulators aren’t catching.
He said felons behind bars are not going to be credible witnesses because, having been successfully prosecuted, these are people with an ax to grind against the government.
“There was blatant deception implicit in their crimes,” Hawke said. “I don’t think it is credible for someone convicted of insider trading or securities fraud to talk about the ineffectiveness of the government in investigating or prosecuting insider trading.”
Nevertheless, MarketWatch spoke with four ex-brokers, three of whom are in prison with years to go on their sentences and a fourth who is out of prison and advises others about to enter custody.
To get a perspective on the world of accounting fraud, MarketWatch also spoke with a former chief financial officer of a publicly traded company behind a well-known criminal enterprise.
Among them was the poster child for brokers-turned-felons: Bernie Madoff. The perpetrator of a $50 billion Ponzi scheme — the largest in history — explained that retail investors can avoid being scammed by fraudsters like him by putting money in an index fund. (If only he had offered that advice earlier.)
On a smaller scale, MarketWatch spoke with the so-called Bernie Madoff of New Jersey, an ex-broker who is now behind bars for running a Ponzi scheme. He said insider trading is impossible to stop and that retail investors will never be able to compete with the pros unless they splash out for sophisticated, and expensive, trading tools.
An ex–New York stockbroker and hedge-fund manager currently serving 16 years for defrauding investors said insider trading is a black hole that leaves regulators in the dark. A former Wall Street broker who spent 12 years as a broker at big New York investment banks before pleading guilty to wire fraud says no one on Wall Street can be successful without cheating.
For a different perspective MarketWatch turned to a felon and former chief financial officer of Crazy Eddie Inc., a criminal business passing itself off as a New York electronics retailer in the 1980s. This felon explains why he thinks “audit” is a fraudulent term.
Ronald D. Orol is a MarketWatch reporter based in Washington. Follow him on Twitter @rorol.*****
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VVUS drug qsymia - the launch has been a dismal failure for a drug that should be a semi-blockbuster. It still has to be specially ordered. It is not perfect. But it is clearly the most effective weight loss drug (combination) approved by the FDA. Belviq, Arena's drug - a safer version of desfenfluramine - is probably ok too though it is only one half as effective - maybe a five percent total weight loss. Qsymia can be up to 10-12 % at maximum dosage. I own neither stock. I am contemplating VVUS. I agree with the major shareholder who is trying to get the entire board of directors replaced. Or they need to team up with a major pharma that has the skill, talent, sales and marketing prowess to get the drug prescribed more. Their are two generic alternatives to the qsymia combination which will cut into sales. The dosages are not equivalent though.
http://seekingalpha.com/article/1483911-vivus-fighting-3-front-war?source=yahoo
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Watch the employment rate, now below 60%, not the unemployment rate which headlines U3. The number receiving food stamps is up by 39% since 2009. U3 only includes Americans actively seeking work.
The Hidden Jobless Disaster
At the present slow pace of job growth, it will require more than a decade to get back to full employment defined by prerecession standards.
By EDWARD P. LAZEAR WSJ June 6, 2013 (excerpt)
...
Yet the unemployment rate is not the best guide to the strength of the labor market, particularly during this recession and recovery. Instead, the Fed and the rest of us should be watching the employment rate. There are two reasons.
First, the better measure of a strong labor market is the proportion of the population that is working, not the proportion that isn't. In 2006, 63.4% of the working-age population was employed. That percentage declined to a low of 58.2% in July 2011 and now stands at 58.6%. By this measure, the labor market's health has barely changed over the past three years.
(http://si.wsj.net/public/resources/images/ED-AQ855A_Lazea_G_20130605190606.jpg)
Second, the headline unemployment rate, what the Bureau of Labor Statistics calls "U3," uses as its numerator the number of individuals who are actively seeking work but do not have jobs. There is another highly relevant measure that captures what is going on in the economy. "U6" counts those marginally attached to the workforce—including the unemployed who dropped out of the labor market and are not actively seeking work because they are discouraged, as well as those working part time because they cannot find full-time work.
Every time the unemployment rate changes, analysts and reporters try to determine whether unemployment changed because more people were actually working or because people simply dropped out of the labor market entirely, reducing the number actively seeking work. The employment rate—that is, the employment-to-population ratio—eliminates this issue by going straight to the bottom line, measuring the proportion of potential workers who are actually working.
During the past three decades the relation between unemployment and employment has been almost perfectly inverse. (See the nearby chart.) When the employment-to-population ratio rises, the unemployment rate falls. When the unemployment rate rises, the employment-to-population ratio falls. Even the turning points are aligned. Consequently, the unemployment rate has been a very good proxy for the employment rate. But that relationship has completely broken down during the most recent recession.
While the unemployment rate has fallen over the past 3½ years, the employment-to-population ratio has stayed almost constant at about 58.5%, well below the prerecession peak. Jobs are always being created and destroyed, and the net number of jobs over the last 3½ years has increased. But so too has the size of the working-age population. Job growth has been just slightly better than what it takes to keep the employed proportion of the working-age population constant. That's why jobs still seem so scarce.
The U.S. is not getting back many of the jobs that were lost during the recession. At the present slow pace of job growth, it will require more than a decade to get back to full employment defined by prerecession standards.
The striking deficiency in jobs is borne out by the Bureau of Labor Statistics' Job Openings and Labor Turnover Survey. Despite declining unemployment rates, the number of hires during the most recent month (March 2013) is almost the same as it was in January 2009, the worst month for job losses during the entire recession (4.2 million then, 4.3 million now).
Why have so many workers dropped out of the labor force and stopped actively seeking work? Partly this is due to sluggish economic growth. But research by the University of Chicago's Casey Mulligan has suggested that because government benefits are lost when income rises, some people forgo poor jobs in lieu of government benefits—unemployment insurance, food stamps and disability benefits among the most obvious. The disability rolls have grown by 13% and the number receiving food stamps by 39% since 2009.
These disincentives to seek work may also help explain the unusually high proportion of the unemployed who have been out of work for more than 26 weeks. The proportion of unemployed who are long-termers reached 45% in April 2010 and again in March 2011. It is still above 37%. During the early 1980s, when the economy experienced a comparable recession, the proportion of long-term unemployed never exceeded 27%.
The Fed may draw two inferences from the experience of the past few years. The first is that it may be a very long time before the labor market strengthens enough to declare that the slump is over. The lackluster job creation and hiring that is reflected in the low employment-to-population ratio has persisted for three years and shows no clear signs of improving.
The second is that the various programs of quantitative easing (and other fiscal and monetary policies) have not been particularly effective at stimulating job growth. Consequently, the Fed may want to reconsider its decision to maintain a loose-money policy until the unemployment rate dips to 6.5%.
Mr. Lazear, chairman of the president's Council of Economic Advisers from 2006-2009, is a Hoover Institution fellow and a professor at Stanford University's Graduate School of Business.
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Anyone know if any business actually has been successful over the longer haul with type of investment support?
http://en.wikipedia.org/wiki/Crowd_funding
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I have no opinion on this but perhaps of interest
http://advisorperspectives.com/newsletters13/pdfs/Gundlach-Dont_Sell_Your_Bonds.pdf
<<Don’t sell your bonds just yet, according to Jeffrey Gundlach. Global economic
growth is slowing, he said, and the U.S. will be competing for a larger slice of a
shrinking worldwide pie. A weaker economy dims the prospects for higher interest
rates. The benchmark 10-year Treasury yield – currently 2.08% – will be 1.70% by the
end of the year, according to Gundlach, providing profits for holders of long-term
bonds.>>
Much data in the deck linked within:
http://advisorperspectives.com/newsletters13/pdfs/TR-Core_Webcast_Slides.pdf
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Interest costs up 32% in one month. Much more to come. We all know that. If we are comparing to Paul Volcker's time, there is a potential for interest rates to go up 10 points (or more) with interest on the debt consuming more over half of all revenues. I would call that a 'workhorse economy'. Did ANYONE see this coming?
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National Debt Could Skyrocket As Interest Rates Rise
Paying off the national debt just got a bit more dangerous, and potentially a lot more expensive.
The interest rates on federal debt began climbing last month, jumping from 1.66 percent on a 10-year U.S. Treasury note at the start of May to a stunning 2.2 percent on Tuesday.
That 54-basis point increase looks small to the casual eye. But if it continues, the higher yield could increase by billions of dollars how much money the federal government spends to service the $16.7 trillion national debt.
http://www.thefiscaltimes.com/Articles/2013/06/13/National-Debt-Could-Skyrocket-as-Interest-Rates-Rise.aspx#page1
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"Did ANYONE see this coming?"
Ummm , , , why yes I believe it has been mentioned around here a time or three , , ,
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The One Chart That Shows Just How Stuck Our Economy Is
By Matt Berman
June 12, 2013 | 2:39 p.m.
The U.S. jobs picture is bleaker than the most recent jobs reports may make you think. The economy added 175,000 jobs last month, but at the rate things are going, it would take almost a decade to get back to prerecession employment levels. A Job Openings and Labor Turnover Survey report released Tuesday by the Bureau of Labor Statistics digs in on the bad news: The number of job openings in the U.S. actually fell by 118,000 in April to 3.8 million.
How bad can 3.8 million job openings be? The Economic Policy Institute looks at the number and sees that "the main problem in the labor market is a broad-based lack of demand for workers—and not, as is often claimed, available workers lacking the skills needed for the sectors with job openings." To bolster this point, they put forward this chart:
(http://www.epi.org/files/2013/JOLTS-Fig-A-61113.png)
In every industry, the number of unemployed workers outpaces the number of job openings. To state the obvious: To get that disparity to dramatically shrink, we've got a long way to go.
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Two more downgrades to the U.S.’s credit rating on the way: Analyst
Matthew Boesler, Business Insider | 13/06/12 | Last Updated: 13/06/12 12:43 PM ET
More from Business Insider
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BloombergThe Bank of America Merrill Lynch strategist says the downgrades could actually catch the market by surprise. .
Monday, credit rating agency Standard & Poors revised its credit rating outlook on U.S. sovereign debt to “stable” from “negative.”
In 2011, S&P was the first of the three major rating agencies to strip the U.S. of its AAA rating (currently, it has the U.S. at AA+).
BofA Merrill Lynch interest rate strategist Priya Misra warns clients in a note that the other two major raters, Moody’s and Fitch, will probably also strip the U.S. of its AAA rating sometime this year – and, believe it or not, the downgrades could actually catch the market by surprise.
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Misra writes:
Expect Moody’s and Fitch to downgrade later this year
We continue to believe that Moody’s and Fitch are more likely than not to downgrade the US one notch this year, which would put them in line with S&P. Based upon their reports and our own analysis, to maintain AAA status, Moody’s and Fitch would need to see approximately US$1tn in additional deficit reductions over the decade – on top of the existing full sequester – to produce medium-term stabilization, followed by a decline in the US debt/GDP ratio.
CBO’s GDP estimates are likely optimistic relative to rating agency assumptions. Even if Moody’s and Fitch agree with CBO’s deficits, a 4% nominal GDP growth assumption beyond 2013 would result in debt-to-GDP declining to 73.2% before rising again.
Market implications
To the extent that US downgrade risks are still at play for the market, the removal of S&P from the rating story is a positive for Treasury rates, relative to swaps and spread products in general. But we do not think the market is fully pricing in a Moodys/Fitch single-notch downgrade this year. While the surprise factor of a Moody’s move this summer would be quite mild relative to the S&P downgrade in August 2011, we think it could catch the market off guard, given the recent improvements on the deficit front. We believe a downgrade would result in a steeper 5s-30s curve, tightening of swap spreads and a marginal underperformance of Treasuries with respect to corporates and MBS.
Yesterday, the S&P announcement did seem to have a marginal impact on markets, at least in the morning.
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Data Watch
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Retail Sales Increased 0.6% in May, Above the Consensus Expected Gain of 0.4% To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 6/13/2013
Retail sales increased 0.6% in May, coming in above the consensus expected gain of 0.4%. Sales are up 4.3% versus a year ago.
Sales excluding autos rose 0.3% in May, matching consensus expectations. These sales were up 0.6% including revisions to prior months and are up 3.4% in the past year.
The increase in sales in May was led by autos and grocery stores. There were no major gains or losses in other categories.
Sales excluding autos, building materials, and gas rose 0.3% in May but were up 0.6% including revisions to prior months. Even if unchanged in June, these sales will be up at a 2.6% annual rate in Q2 versus the Q1 average.
Implications: So much for the theory that the federal spending sequester or end of the payroll tax cut was going to kill the consumer. Sales were up 0.6% in May and are up at a 3.8% annual rate since the beginning of the year. With consumer prices up at an annual rate of only about 0.6% since the start of the year, “real” (inflation-adjusted) sales are up at more than a 3% annual rate. “Core” sales, which exclude autos, building materials, and gas, rose 0.3% in May and 0.6% including upward revisions to prior months. Other analysts, who had been forecasting roughly 1.5% real GDP growth in Q2 are reacting to this report by marking up their forecasts; we’re holding steady where we’ve been all along, at 2.5%. Nonetheless, this growth is nothing to write home about – it’s still Plow Horse growth – but much better than many analysts were projecting at the beginning of the year. For the rest of 2013, we still expect two major themes to play out for the consumer: first, an acceleration in consumer spending growth versus the past couple of years despite higher taxes and the sequester; second, a transition away from growth in auto sales and toward other areas, like furniture, appliances, and building materials. Consumer spending should accelerate because of continued growth in jobs, hours, and wages. In addition, households have the lowest financial obligations ratio (debt service plus other recurring monthly payments) since 1981. In other news this morning, new claims for unemployment insurance declined 12,000 last week to 334,000. Continuing claims ticked up 2,000 to 2.97 million. Plugging these figures into our employment models suggests a solid nonfarm payroll gain of 185,000 in June. On the inflation front, no sign that loose monetary policy is having an effect yet on trade prices. Import and export prices fell in May, both for overall and core measures and are also down from a year ago. An easy Fed will eventually generate higher inflation figures, but those numbers certainly aren’t here yet.
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Another beautiful call from David Gordon.
Although my timing in getting in was not perfect, I have done very nicely in a short amount of time.
Question presented now is whether to take the money and run or let it ride as a longer term play.
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Crafty,
What do you think about DDD or SSYS the two bigger names in the space?
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Huh?
I know nothing!
I just slip streamed behind David!
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:-o :-o :-o
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:-o :-o :-o
Hoping not to mis-characterize Wesbury, Bernancke and others, let's make sure I have this right.
1. The market was not up because of quantitative expansion.
2. All money created so far stays in the market to the tune of trillions of dollars.
3. We will keep expanding the money supply for many more months, 100s of billions more.
4. Yet the mere hint that the excessive creation of new dollars will ever end puts the market in a tailspin.
Did we really not know this artificial injection of dollars would end someday, one way or another?
Murphy's Law must apply when Fed Chiefs talk to the market. Alan Greenspan tried to talk the market down with his famous "irrational exuberance" speech in 1996 and the market continued up for 5 more years. Ben Bernancke says that in a half year we may slow this most responsible 'temporary stimulus' and the market implodes.
Who knew? :wink:
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Is everyone ready for interest rates to go up?
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I gather that Chinese banking issues had quite a bit to do today with a world-wide sell-off.
BTW, shouldn't we be rather pleased that the Fed is finally making noise about diminishing its war on savers?
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BTW, shouldn't we be rather pleased that the Fed is finally making noise about diminishing its war on savers?
You are right, but the war against savers was successful. There aren't any savers anymore. A dollar saved isn't necessary for a dollar to be available for lending in this economy and we have government to turn to on a rainy day or unexpected hardship. Just like work isn't tied to pay anymore, or fatherhood to responsibility, welfare to stigma, and so on. If you want a better reward, hire a better lobbyist.
The interest rate was the balance point between borrowers and lenders, a market based, economic equilibrium. Now interest rates are contrived, artificial and low. A generation has no idea what the power of compound interest means. Try compounding 0.01% over 10 years while it loses 3-4% per year in value and show a young person how they benefited by not spending. Even the (Keynesian mostly) economists tell us saving is bad for the economy - it takes from consumption. [I don't agree!]
Next we will want to bring back old ideas like reward for hard work, abstinence, delayed gratification, personal responsibility? Balanced budgets? Property rights?! Keeping the fruits of our labor? Crazy talk!
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Doug captures it exactly.
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Meredith Whitney is out with a new book on the emerging markets in the USA....Yash
Experiencing "Emerging Market" Growth
BY FS STAFF06/20/2013
•
Meredith Whitney joins the Financial Sense Newshour to discuss how central corridor states like Texas, Colorado, and North Dakota will start to become the new engines of growth for the US economy. On the other hand, she warns, states with high taxes and large overhangs of debt, like California, may see stagnant growth for years to come.
How this will play out and what it means for everyday Americans, depending on which state they live in, is the focus of her new book, “Fate of the States: The New Geography of American Prosperity.”
Although some might claim that states like Kansas and South Dakota will never have the appeal of New York or sunny California, Whitney basis her long-term projections for a massive demographic shift within the country on what she says is emerging-market like growth in the central corridor due to low taxes, business friendly regulation, and cheap energy.
“You have a really powerful wave of onshoring going on in the United States,” Meredith says. “The energy revolution of cheap oil and gas because of shale technology…is making the US so competitive from a standpoint of manufacturing that more American businesses—40% plus percent of American businesses—are now building in the US that previously would’ve been offshored; and non-US businesses are moving more of their production to the US. So, [they’re] building new facilities and that’s creating incredible job opportunities and unemployment rates that are, literally, half the unemployment rates on the coast. So, there’s a pro-cyclicality to that and you have great, what I call, emerging markets' growth in some parts of the country and real stagnation in other parts of the country. So, it’s really a tale of two economies.”
Further sealing the deal is what she describes in her book as a “negative feedback loop from hell,” where states that are suffering with large debt overhangs and dwindling tax revenues don’t have the money to pay or invest in things like infrastructure, education, and public safety. As those services begin to deteriorate overtime, states will be forced to raise taxes, which only reinforces the decline.
“If you’re buried in debt, all you’re doing is paying off that debt and you’re not investing.” For example, “If you think about California, it’s not just the debt that they took on from their municipal debt, it’s the debt they took on from underfunding their pensions; and both of those types of debt, the municipal debt and the pension debt, have the constitutional backing of taxpayers. So, in an environment when California should be doing everything it can to keep businesses, to attract jobs, what does it do? It raises taxes and drives more businesses and more jobs out of the state. So, they are in an impossible situation.”
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This could go on the Banking, interest rate, gold/silver thread too, but I am going to put it here because of the possible connection between the DOW and what is happening in China:
Again, my ego impels me to remind of how many times I have warned of this coming :lol:
http://blog.foreignpolicy.com/posts/2013/06/21/say_hello_to_chinas_brewing_financial_crisis
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Back to Normal To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 6/24/2013
Market behavior – especially since Fed Chair Ben Bernanke mentioned QE tapering – has been relatively dramatic. Not unprecedented, but dramatic. By contrast, the reaction of the punditry has been way over the top.
If the Fed were a baby, last week’s move was the equivalent of crawling. It “announced” it was maybe, sorta, kinda, thinking about ending QE sometime in the next year. This isn’t even a baby step, but some who used to complain about easy money now complain the Fed is sprinting toward tightening and are mad that the Fed is apparently disrupting bull markets in stocks and bonds. But fearing an end to QE is giving QE too much credit in the first place. While the conventional wisdom says QE artificially held down interest rates, boosted stock prices, and/or risked hyper-inflation, we don’t believe any of this.
First, we don’t think QE actually works.(Yes!) Yes, the monetary base has jumped dramatically, but the M2 measure of money is still growing along its long-term 6% trend. (as noted by Scott Grannis)
Second, QE itself has not lifted asset prices. Price-earnings ratios are lower today than they were in 2008 when QE started (I did not know that. This seems to me a very pertinent datum) and long-term bond yields are low because the Fed has promised to hold short-term rates down near zero. If the Fed says it will hold the funds rate near zero for three years, then the 3-year Treasury yield will be near zero, too.
Third, gold was massively overvalued,( apoint of which I have warned. Gold is down now some 35+% or so from its peak) driven up by overwrought predictions of hyperinflation. (Anyone here want to stand behind the prediction made here in this regard?) Some investors were obsessed with the monetary base and ignored that the vast bulk of QE ballooned excess reserves held by banks, which does not boost the money supply. (This seems a fair criticism to me)
Fourth, moderate “Plow Horse” economic growth is not due to QE, but a combination of new technologies – fracking, 3D-printing, the cloud, smartphone, and tablet – being offset by the burden of big government spending and regulation, which work against growth. It’s not all a “sugar high.” (Again, Keynesianism does not work; but for Baraq and Bernanke we would be doing much better-- we survive thanks to the private sector)
Finally, the Fed has changed nothing so far. Nada, zero, zilch. It’s still buying $85 billion in bonds every month – the same as the last several months. Everyone knew the Fed would say it, then slow it, then stop it,…and only then raise interest rates and unwind it. And each will only happen when the Fed thinks the economy can handle it. In other words, all these fireworks are a little overwrought.
The acceleration in market moves in recent days, other than for stocks, is not all that surprising. Gold and bonds have been overvalued and stocks have been cheap. Compared to a year ago, asset values have moved exactly like the fundamentals say they should have.
But those who have based their entire economic narrative on Fed action and QE are now adrift. Hyper-inflation has not appeared and the economy is doing OK. In other words, the whole “sugar high” theory is not working. (Seems a lucid argument to me)
Bond yields are probably on their way higher. During past easing cycles, the spread between the 10-year Treasury and the Fed funds rate has been above 3.5%; currently it’s 2.4%.
Some worry that these higher bond yields mean lower stock prices and weaker housing activity and a slowdown in the economy. But, we use a 4.5% Treasury yield as a discount rate in our stock models and these models still say stocks are still undervalued. We do not believe the recent drop in stock prices is a long-term move and expect equities to move higher in the months ahead. (His record on predicting the market is better than ours , , ,)
The same holds true for the economy. The US economy has grown just fine with much higher real yields than exist today. The bottom-line is that fears over the Fed are misplaced and an over-reaction.
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This is the new normal? Trillions of wealth lost never recovered? New growth line far below the old growth line? Approaching a majority of adults who won't participate in the workforce. Combined tax rates jumping past the 50% mark. Regulations worse than ever. Industries nationalized. Downgraded credit rating. Other countries looking for a new, world currency. We are unable to sell our own bonds. America's interests in foreign Policy ignored around the world. Wesbury is right. This IS the new normal.
Wesbury: "...fearing an end to QE is giving QE too much credit in the first place."
An injection rate of $85 BILLION A MONTH is not a serious drug habit? If it wasn't having an effect, why are they doing it?
"we don’t think QE actually works. Yes, the monetary base has jumped dramatically, but the M2 measure of money is still growing along its long-term 6% trend."
Money expansion HAS hit the money supply, apologies for the redundancy, but it has not hit velocity, because money shortage, since at least 2009, has had nothing to do with why this economy is stuck with its parking brake on.
"Everyone knew the Fed would say it, then slow it, then stop it,…and only then raise interest rates and unwind it. And each will only happen when the Fed thinks the economy can handle it."
In other words this Plowhorse-strength economy cannot stand on its own hoofed feet, according to the top decision makers today, with the market concurring.
I am stuck with my conclusion that the ability of big companies to continue to make big money in collusion with big government keeping out under-financed startups through over-regulation tells us shockingly little about where the US economy is heading.
If Republicans were in charge, people would be furious about these high profits of established companies thinning their workforces that he refers to.
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Doug:
I think there is a distinction here to be made between the actual economy and the market.
As far as real people living in the real world go, we are in complete agreement.
That said, I think Wesbury is looking more at the stock market and where it is headed.
"If it wasn't having an effect, why are they doing it?"
Because they are economic illiterates. Because of the power it gives them.
Concerning velocity, that certainly is a key point. However, if Wesbury and we are right that this is a plow horse/stagnant economy and if Wesbury and we are right that Keynesian stimulus does not work and if the Fed begins draining reserves, then maybe the result will be somewhere short of the apocalypse.
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Your points are valid and well received. Wesbury and I both blur the distinction between the market and the economy. When he starts spinning that things other than 'the market' are doing fine economically, I like to get back up on my soapbox and offer the other side of it. Apocalypse or not, the under-performance of this economy, caused by unnecessarily harmful policies, is a human tragedy.
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http://www.upi.com/Business_News/2013/06/20/Many-firms-indicate-pre-recession-workforce-levels-are-history/UPI-36981371758288/
Many firms indicate pre-recession workforce levels are history
Published: June 20, 2013 at 3:58 PM
CHICAGO, June 20 (UPI) -- Results of a recent survey indicate many of the jobs lost in the last recession are not returning now or ever, a private U.S. employment firm said Thursday.
The survey conducted by outplacement firm Challenger, Gray & Christmas involved employers who had eliminated jobs during the recession. The intent was to find out how many jobs have already been recreated, how many are returning in the future and how many might be lost forever.
To start, 53 percent of the human resources executives who responded to the survey indicated that their firms had cut jobs during the December 2007 to June 2009 recession, the firm said.
That said, 82 percent of respondents indicated that they had hired new workers since January 2010.
Of those who have hired workers, 33 percent indicated some of the laid off workers had returned to work and 67 percent indicated that they have built up their workforce starting "from scratch," the outplacement firm said.
In addition, 43 percent of the human resources executives who have returned to hiring indicated their workforces had returned to or surpassed pre-recession levels and 15 percent indicated they intended to return to pre-recession levels in time.
But 43 percent indicated their peak number of workers was in the past. Those executives indicated their firms had no intention bringing their workforce back to pre-recession levels, Challenger, Gray & Christmas said.
Those human resource executives represent a lot of lost jobs. The recession officially ended in June 2009, but the shrinking of the national workforce continued for another seven months, eventually accounting for 8,736,000 lost jobs, National Bureau of Economic Affairs data indicates.
"What we have come to know as 'the jobless recovery' may be the new post-recession norm, as employers rebuild their workforces from scratch, take more time to vet candidates, and find ways to operate with fewer workers," said Chief Executive Officer John Challenger.
"To put that in perspective ... basically, every one of the 8,030,000 jobs created between August 2003 and January 2008 plus another 700,000 were wiped out," Challenger said.
Challenger, however, said jobs were being added to the economy at a faster pace than in the previous two recessions.
The problem is that the job losses were huge.
"It is just taking longer to rebuild due to the fact that we started in a much deeper hole," Challenger said.
Read more: http://www.upi.com/Business_News/2013/06/20/Many-firms-indicate-pre-recession-workforce-levels-are-history/UPI-36981371758288/
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http://www.mybudget360.com/two-income-trap-and-inflation-two-household-incomes-us-inflation/
Inflation in the United States is largely seen as a built in part of our economy. People take it for granted as if this was simply the order of things. Yet our central banking system has inflated our debt based financial system and subsequently, the value of money has eroded. For example, most items that are financed through debt have increased dramatically during a time when household income has reverted to inflation adjusted levels of the 1990s. The cost of inflation is hidden of course from the eyes of the public as to not shock people into action. Playing with interest rates, a car that once cost $20,000 is now going for $30,000 but the monthly payment has remained the same thanks to the Fed’s unrelenting push to lower interest rates. There is a cost to all of this of course. If it were so simple to fix an economy, the Fed would simply send unlimited debit cards to each and every American. Inflation is a threat to the economy from the perspective that it destroys the purchasing power of working and middle class Americans, those with limited access to debt. In our economy, debt provides access to real assets and those with the most access to debt (banks) can lock into the larger share of assets (i.e., banks now buying up thousands of rental properties). Is inflation a main culprit in the two income trap?
READ it all.
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"Apocalypse or not, the under-performance of this economy, caused by unnecessarily harmful policies, is a human tragedy."
To this I would add the destruction of savings as a result of the war on savers, the millions who have lost jobs that will never come back, etc. I know you already know this, I merely take a moment to say it out loud.
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Some Unemployed Keep Losing Ground
By BEN CASSELMAN
The recession ended four years ago. But for many job seekers, it hasn't felt like much of a recovery.
Nearly 12 million Americans were unemployed in May, down from a peak of more than 15 million, but still more than four million higher than when the recession began in December 2007. Millions more have given up looking for work and no longer count as unemployed. The share of the population that is working or looking for work stands near a three-decade low.
The recession ended four years ago. But for many job seekers, it hasn't felt like much of a recovery. Economy reporter Phil Izzo joins MoneyBeat.
Yet the job market is recovering. The unemployment rate has fallen to 7.6% from a peak of 10%. Employers have created 5.1 million jobs since the end of the recession and 6.3 million jobs since the labor market bottomed out in early 2010. And for all the attention on monthly ups and downs, job growth has held to a fairly steady pace of about 175,000 jobs a month over the past two years.
The trouble is that the pace is still far too slow to fill quickly the huge hole created by the recession. Even if the rate of hiring doubled, it would take more than three years to get employment back to its prerecession level, after adjusting for population growth, according to estimates from the Brookings Institution's Hamilton Project.
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"At 175,000 jobs per month, we're years away," said Adam Looney, a Brookings economist. "It just sort of speaks to how far we fell during the recession and how slow we've been to recover."
Economists have offered a range of explanations for the slow pace of job growth: uncertainty about government policies, a shortage of workers with the skills companies need, and budget cuts that have reduced public-sector payrolls by more than 700,000 since the recession ended. But most economists say the main reason is simple: Economic growth has been far too slow to spur much job growth. Companies have stopped cutting jobs—layoffs have fallen below their prerecession level—but actual hiring has been much slower to rebound. Recent market turmoil, combined with signs of slowing growth in China and other emerging economies, could exacerbate that caution, leading executives to delay planned hires.
Previously
Slow-Motion U.S. Recovery Searches for Second Gear (06/25/13)
Beneath the surface, there are signs the job market is splitting into two. Close to 25% of the short-term unemployed—those out of work for six months or less—find jobs each month, a figure that has shown steady improvement since the recession, though it remains below its long-term average of 30%.
The nation's 4.4 million long-term unemployed haven't seen similar gains. Only about 10% of them find jobs each month, a number that has hardly budged in the past two years. In a recent experiment, economist Rand Ghayad sent out mock résumés for about 600 job openings; those that showed six months or more of unemployment generated far lower response rates from employers, regardless of the other skills or experience.
"Once you are long-term unemployed, nobody calls you back," Mr. Ghayad said.
Ken Gray has experienced that frustration firsthand. In January 2011, Mr. Gray's wife died after a battle with ovarian cancer; three months later, he was laid off from his job as an account manager at AT&T, T +1.65% where he had worked for more than 20 years. Still grieving from the loss of his wife, Mr. Gray says he was slow to turn his full attention to his job search. By the time he did, the Chicago resident was long-term unemployed, and he has struggled to get prospective employers even to respond to his applications.
"You just feel so discouraged," Mr. Gray said. "You ask yourself what's the sense in sending a résumé if you don't hear anything."
Now 59 years old, Mr. Gray has been living off his dwindling savings since his unemployment benefits expired last year. He says he remains determined to find work. But long-term job seekers are twice as likely to leave the labor market as to find jobs, and many experts worry that many of them will never return to work. That could create a class of permanently unemployed workers and leave lasting scars on the economy.
"Once people reach a point where they no longer consider themselves employable…it is very difficult to pull them back," said Joe Carbone, president of WorkPlace, a Connecticut workforce-development agency that has developed a program targeting the long-term unemployed. "We are losing thousands of people a day. This is like an epidemic."
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"OK folks, for those of us who believe interest rates are going to start really climbing, what investments do we avoid and what do we do to protect ourselves? What does a hunker down strategy look like?"
For most, the question is what debt to get out of. How many dollars and how many people are still owing on adjustable mortgages and equity lines of credit? That effect equals a cut in pay and a cut in disposable income, offset by what that is happening positively? (strike 1)
"Some 12 million Americans still can't find work, real wages have fallen for five years, three-fourths of Americans now live paycheck to check, and the economy continues to plod along four years into a quasi-recovery. "
- Today's WSJ editorial on the Carbonated President. He will intentionally increase our energy costs in all ways that he can through the Executive Branch acting alone. "That effect equals a cut in pay and a cut in disposable income, offset by what that is happening positively?" - Same as the effect of higher interest costs on household debt. (strike 2)
Back to the blurred distinction between the market and the economy, there is quite a bit of news lately about trouble with investments in emerging markets where these multi-national companies have been going to grow their profits beyond what the struggling US economy can sustain. (strike 3)
http://online.barrons.com/article/SB50001424052748704382404578565131728508590.html
Barron's: Emerging Markets: More Pain Coming
Stocks, bonds and currencies in emerging markets have plummeted in recent weeks, and the charts suggest they have farther to fall.
No, I don't have crisis investment advice better than to tell most people to vote differently.
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Guns, ammo, canned food and buy gold and silver on the dips.
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The ISM Manufacturing Index Increased to 50.9 in June To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 7/1/2013
The ISM manufacturing index increased to 50.9 in June from 49.0 in May, beating the consensus expected 50.5. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mostly higher in June. The new orders index rose to 51.9 from 48.8 and the production index jumped to 53.4 from 48.6. The supplier deliveries index increased to 50.0 from 48.7. The one negative exception was the employment index which declined to 48.7 from 50.1.
The prices paid index increased to 52.5 in June from 49.5 in May.
Implications: The ISM index, a measure of manufacturing sentiment around the country, rebounded from last month’s drop, beat consensus expectations, and moved back into territory signaling expansion in the factory sector. The overall index rose to 50.9. The best news in today’s report was the gain in the new orders index to 51.9, suggesting faster growth ahead. According to the Institute for Supply Management, an index level of 50.2, which was the average for the second quarter, is consistent with real GDP growth of 2.5% annually. We think other data signal a real GDP growth rate very close to that figure. The weakest part of today’s report was for employment; that index declined to 48.7, suggesting another decline in manufacturing payrolls in June. Oddly, this is the second month in a row where the national ISM moved in the opposite direction as the Chicago PMI. Usually these two measures move in the same direction. The gap may be due to a transition in which sectors are performing the best. For example, furniture manufactures reported the strongest growth in June while transportation equipment makers were among the slowest growers. Sales for autos are already close to where they should be based on fundamentals (the driving-age population and scrappage), and we had been anticipating a transition by consumers toward slower growth in auto sales and faster growth in other sectors. On the inflation front, the prices paid index increased to 52.5 in June from 49.5 in May. Given loose monetary policy, we expect these inflation readings to remain above 50. In other news this morning, construction increased 0.5% in May, almost exactly what the consensus expected. The gain in May was due rising state & local construction (particularly transportation hubs and water supply) as well as home building; commercial construction declined in May (particularly manufacturing plants and communications facilities). Overall, today’s data are certainly no justification for euphoria, but aren’t a reason to panic either. What we have here is more data consistent with the Plow Horse economy.
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Ben Bernanke’s Real Message for Gold Investors, Translated by John Williams
June 24th, 2013
Don’t fall for propaganda from the Federal Reserve about tapering quantitative easing, says ShadowStats editor John Williams in this interview with The Gold Report. His corrected economic indicators show the U.S. is nowhere near a recovery and the Fed will have to increase rather than decrease bond buying to prop up the banks and push off inevitable dollar debasement. That could be very bad for savers, but good for gold.
The Gold Report: On Wednesday, the Federal Reserve hinted that it might begin tapering quantitative easing by the end of the year based on signs of an improving economy. Gold immediately dropped from $1,347 an ounce ($1,347/oz) to $1,277/oz, a 7% decline and the lowest price in more than two years. The Dow Jones Industrial Average and NASDAQ were also off more than 2%. You called this “jawboning” and said that due to stresses in the banking system the Fed would be obliged to continue bond buying. Why would the central bank threaten to cut off the flow if it didn’t plan to do it?
John Williams: All the hype over the Fed’s so-called tapering is absolute nonsense. Fed chairman Ben Bernanke said the Fed’s pulling back of quantitative easing was contingent on the economy recovering in line with the Fed’s relatively rosy projections. He also indicated, however, that if the economy worsened, he would expand quantitative easing. When you consider that the official Fed projections are grossly optimistic, the conclusion is that we will have more, not less, bond buying from the government.
The jawboning was a multifaceted attempt to placate the Fed’s critics, while soothing the stock and bond market jitters at the same time. The comments, however, hammered equities and bonds, as well as gold. The negative impact on gold likely would have been viewed as a positive result by the Fed.
The banking system nearly collapsed in 2008. The federal government and Federal Reserve took extraordinary measures to keep the financial system from imploding. Those actions prevented an immediate systemic collapse, but they did very little to resolve the underlying problems. I contend that we’re still in recession, with the economy deepening into a renewed downturn. At the same time, the banking system solvency problems continue. Little has changed in the last five years.
The purported nature of the quantitative easing is a fraud on the public. While Bernanke describes the extraordinary accommodation in terms of trying to stimulate the economy, lowering the unemployment rate and attaining sustainable economic growth in the context of mild inflation, those factors are secondary concerns for the Fed. The U.S. central bank’s primary function always has been to assure banking system solvency and liquidity. All the easing efforts have been aimed at the banking system. The flood of liquidity spiked the monetary base, but it has not flowed through to the money supply and ordinary people.
Simply put, the Fed is propping up the banking system. Bernanke is using the cover of a weak economy to do that because the concept is not politically popular, but it’s what the Fed has to do because the underlying system is just as broken today as it was in 2008.
TGR: Let’s go back to your statement that the economy is doing worse rather than better. Didn’t positive housing start statistics and consumer confidence numbers just come out? How do you know if the economy is getting better or worse?
JW: Housing starts are still down 60% from their peak. Based on the first two months of the second quarter, housing starts are on track for a quarter-to-quarter contraction, a rather substantial one. Industrial production also is on track for a quarterly contraction. These indicators easily could foreshadow a contraction in the current quarter’s gross domestic product (GDP). The underlying economic issues remain, as in 2008, with structural constraints on consumer liquidity and banking system stability. With those ongoing, fundamental weaknesses, there has been no basis whatsoever for the purported economic activity since 2009, or for a recovery pending in the near term.
The consumer directly drives more than 70% of GDP activity. Indirectly, the consumer impacts the balance of the economy. To have sustainable growth in consumption, there needs to be sustainable growth in liquidity, reflected in income and, ideally, supported by credit. Instead, household income is shrinking and traditional consumer credit is heavily constrained.
Headed by two former senior Census Bureau officials, SentierResearch.com publishes monthly estimates of median household income adjusted for the government’s headline CPI inflation number. Those numbers show that household income plunged toward the end of the official economic downturn. Officially, the recession went from the end of 2007 to the middle of 2009, but the reality is that household income kept plunging after the middle of 2009. It hasn’t recovered. Right now, it’s flat and bottom-bouncing at the low level of activity for the cycle.
If you look at those numbers on an annual basis, again adjusted for headline CPI inflation, median household income in 2011 (latest available) is lower than it was in the late 1960s and early 1970s. The consumer here is in severe trouble. You can’t have inflation-adjusted or real growth in consumption without real growth in income. Income drives consumption. That’s basic.
You can buy a little extra consumption through debt expansion. The consumer in the precrisis era tended to maintain his or her standard of living by borrowing from the future. Recognizing a developing liquidity squeeze, then-Fed Chairman Alan Greenspan encouraged the consumer to take on as much debt as possible. In the decade prior to the 2008 panic, the bulk of economic growth was fueled by debt growth, not income growth. For the consumer, the credit crisis dried up everything except federally issued student loans, and those don’t buy washing machines and houses.
If you don’t have income growth or credit availability, that takes a toll on consumer confidence. Usually consumer sentiment follows the tone of the popular press on the economy, and monthly movement in the different consumer measures can be quite volatile. Despite the happy hype of recent headline monthly gains in consumer confidence, the news doesn’t have much relevance to our being out of economic trouble. Consumer confidence plunged starting in 2006 and we’ve been bottom-bouncing ever since. Current levels are consistent with numbers seen during the depths of the worst recessions in the post-World War II era. We’re still at recession levels in consumer confidence; those measures have not shown the full recovery that has been reported in the GDP.
Official GDP reporting shows that the economy turned down right after the end of 2007, plunged through 2008 into the middle of 2009, and then started turning higher and has continued higher ever since. If you believe the GDP numbers, the economy fully recovered as of the fourth quarter of 2011, regaining its prerecession highs, and has continued to expand ever since. No other economic series confirms that pattern.
The big issue in the reporting of the GDP is with the inflation-adjustment process. The government in the last several decades has changed its inflation estimation methodologies to lower the reported rate of inflation. In the case of the CPI adjustments, it’s has been trying to cut budget deficits by using a lower inflation rate to calculate cost of living adjustments for Social Security. A number of the changes to CPI reporting also affected estimates of the GDP’s implicit price deflator, the inflation measure used to remove the effects of inflation from the GDP calculations.
If you correct for the understatement of GDP inflation, the accompanying overstatement of economic growth reverses, showing that the GDP started to turn down in 2006, plunged into 2009 and has been bottom-bouncing along with other indicators, including housing starts, median household income and consumer confidence measures, and along with reporting of other series corrected for inflation overstatement, particularly industrial production and real retail sales. Other real world business indicators, including corporate sales of consumer products, are showing the same pattern of plunge and bottom-bouncing, as opposed to plunge and recovery. The reality is that the economy is weak and it’s going to get weaker.
We haven’t seen a recovery and that is why the Fed won’t end quantitative easing. Any talk of tapering is pure propaganda to placate global markets on the U.S. dollar, trying to hit gold and maybe get a sense of how the markets would respond to an actual withdrawing of quantitative easing.
TGR: We saw the response loud and clear on Thursday.
JW: Yes, the stock market is like a drug addict and Bernanke’s been the drug dealer, pushing direct liquidity injections.
TGR: The market came back a little bit on Friday. Do you think the plunge was just a temporary knee-jerk reaction and things will be back to their upward trajectory in no time?
JW: The stock market is irrational. It’s heavily rigged with big players manipulating it, and with the President’s Working Group on Financial Markets taking actions to prevent “disorderly” conditions in the equity market, as well as other markets. I would tend to avoid the stock market. Gold took a big hit, too, but the underlying fundamentals remain extraordinarily strong for gold. This is not a situation where everything’s right again with the world and the Fed is going to pull back from debasing the dollar. If anything, the Fed is going to have to move further into dollar debasement. That is what Bernanke was saying. If the economy doesn’t recover we’ve got to expand the easing. He is propping up the banking system under the cover of propping up the economy. Nothing that he is doing is helping the economy.
TGR: You called the dollar “a proximal hyperinflation trigger” and said that “gold is the primary and long-range hedge against the upcoming debasement of the dollar irrespective of any near-term price gyrations.” Yet the dollar seems to be stronger than ever. What would trigger the dollar-selling panic that you have predicted by the end of the year?
JW: A visibly weaker economy could have a devastating impact on the dollar. It would force Bernanke to expand rather than contract quantitative easing. That would result in heavy selling pressure against the dollar and a spike gold prices.
At present, there are four major factors out of whack between market perceptions and the fundamental, underlying reality. These misperceptions will tend to shift toward reality, and a confluence of these factors would be devastating to the U.S. currency.
At the top of the list, at the moment, is Fed policy, which we’ve been discussing. My contention is that the Fed is locked into quantitative easing. It can’t escape it.
A close second are U.S. fiscal conditions and long-range sovereign insolvency risks. Fiscal issues should come to a head after Labor Day, when the government runs out of room with all its current bookkeeping finagling so as not to exceed the debt ceiling. Prospects for a meaningful resolution of the fiscal problems remain nil. In the summer of 2011, the market reaction to the government’s fiscal inaction was clear: Heavy dollar selling and gold buying came out of that.
The third factor, again, is the economy being a great deal weaker than consensus expectations, based on the indicators I outlined. As weakening business conditions become more evident in the popular economic releases, that should be a large negative for the dollar. Aside from increasing speculation as to increased Fed easing, it also would have a negative impact on the federal budget forecasts going forward. Economic growth of 4% projected for 2014 is not going to happen. The deficit will explode, and, again, that is very bad for the dollar.
Finally, developing scandals in Washington have the potential to hit the dollar hard. The press has started raising questions about a number of cover-ups. I was involved in the currency markets during the Watergate era. I can tell you that on a day-to-day basis, as the scandal began to unfold, whenever the news was bad for President Nixon, the dollar took a hit. Anything that questions the stability of the government is a big negative for the dollar.
All of these factors work in conjunction with each other. That is why I am predicting a massive decline in the dollar at some point this year, which will spike inflation, certainly spike gold prices and will lead us into the very high inflation environment that will provide the basis for actual hyperinflation in 2014. It’s not just current government actions. It’s series of circumstances that have evolved over decades into a developing crescendo of dollar debasement or inflation.
TGR: You recently wrote that we’re approaching the endgame based on volatility in equities, currencies and monetary precious metals of gold and silver. What will that endgame look like? And how will we know if we are in it?
JW: Primarily I would look at the U.S. dollar as an indicator, when very heavy, consistent, massive selling of the U.S. dollar and dollar-denominated assets begins. As the selling becomes heavier, pressure to remove the dollar from its current world currency reserve status should become unstoppable. I would take that as a sign that we are moving into the position that will set the stage for the hyperinflation.
TGR: Whatever happens in the economy, it sounds as if Bernanke’s days will be numbered. What could that mean for economic policy and Federal Reserve actions? And what advice do you have for whoever takes his place?
JW: I wouldn’t want to be the person who takes his place. Bernanke is a very smart and generally well-intentioned individual who’s in a situation that was not of his creation, but one that he has been trying, with great difficulty, to extricate the Fed from. The Fed doesn’t have any real options here. The best it can do is continue to buy time.
There’s nothing the Fed can do that will stimulate economic activity, except possibly to raise interest rates. Low interest rates are actually negative for economic activity at this point. They constrain loan growth. With higher interest rates, banks have the ability to make more of a profit margin on their lending. The greater the profit margin, the greater the ability to lend to perhaps less qualified borrowers, to take a little more credit risk, but with that also comes loan growth. That helps fuel economic activity. It might even cause the money supply to pick up. The biggest constraint on bank lending, though, remains the still-troubled nature of the banking industry.
Separately, low interest rates devastate the finances of those trying to live on a fixed income. It used to be you could go invest your money in a CD and make a positive return, after inflation, and your money was safe, at least within the insured limits of the banking system. That’s not the case anymore. Domestically, there is no safe investment where you can beat the rate of inflation. Government policies are driving savers into riskier investments, such as the highly unstable stock market.
TGR: So you think by default we will have a continuation of the current policies?
JW: Yes, effectively. The Federal Reserve board has run along with the program, moving in accord with the government to save the financial system. Back in 2008, it could have let the banking system fail. Understandably, though, the Fed and the federal government decided to save the system at all costs. That meant spending, creating, lending and guaranteeing whatever money was needed. Whatever had to be done they did. They prevented the system from collapsing, pushing the problems down the road. Now all those problems again are coming to a head. With many of the same risks in the system today, as in 2008, there is potential for another panic. The Fed has to keep easing here to maintain liquidity in the banking system. The U.S. central bank does not have a choice in the matter.
TGR: It sounds as if there isn’t a lot that Bernanke’s replacement could do. Would your only advice be don’t hold a lot of press conferences?
JW: That would be a big plus. If there’s bad news, basically the central banker has to lie. If he or she says, “The banks are going to collapse,” or “The economy is going to hell,” that will move the process along in a self-fulfilling negative cycle. Accordingly, central bankers often attempt to put false a positive spin on things. Having a Fed chairman hold press conferences is actually something relatively new. “Jawboning” was one tool Bernanke thought he could use to influence the economy and market behavior. That’s deliberate policy, but it has problems, as we saw on Wednesday. The tradition for Fed chairmen has been to keep remarks to the minimum, whenever possible.
TGR: Sounds like some very good advice. Thank you for your time.
JW: Thank you.
Walter J. “John” Williams has been a private consulting economist and a specialist in government economic reporting for more than 30 years. His economic consultancy is called Shadow Government Statistics (shadowstats.com). His early work in economic reporting led to front-page stories in The New York Times and Investor’s Business Daily. He received a bachelor’s degree in economics, cum laude, from Dartmouth College in 1971, and was awarded a master’s degree in business administration from Dartmouth’s Amos Tuck School of Business Administration in 1972, where he was named an Edward Tuck Scholar.
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Feldstein argues that the Fed should start to taper off now the QE program, not because the economy is healthy, but because they aren't working and the 'risks' that policy brings are growing. Perhaps a monetary thread issue, but I quote him for the following spin-free, US economic data relevant to discussions here. If the economy is in a stall, what other than QE was driving the market up?
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Over the past year, unemployment has declined to 7.6% from 8.2%. However, there has been no increase in the ratio of employment to population, no decline in the teenage unemployment rate, and virtually no increase in the real average weekly earnings of those who are employed. The decline in the number of people in the labor force in the past 12 months actually exceeded the decline in the number of unemployed.
These poor labor-market conditions are unlikely to improve in the coming months. ... [The growth rate was] less than 2% in 2012, 1.8% in the first quarter of 2013, and a likely 1.7% in the second quarter [just ended]..."
Today's WSJ: http://online.wsj.com/article/SB10001424127887324436104578579182412751550.html?mod=WSJ_Opinion_LEADTop
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Might I add, if the economic growth rate nationwide is roughly zero during this boom in oil and natural gas (due to fracking) with the related containment on the cost of energy for businesses, manufacturing and consumers, please imagine what the health of the economy is if we put our only growth sector in handcuffs.
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http://www.washingtontimes.com/news/2013/jul/3/immigrants-account-for-all-job-gains-since-2000/
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This question is not answered. Where do we draw the line. I noted in previous post that we could probably easily replace the entire US workforce including all blue collar and some white collar workers by simply opening up borders to any one willing for a bit less.
The result is wages keep being driven down. As it stands now 75% of the nation cannot afford even putting a dime away into savings. While we are all marketed to death by a consumer economy all day long.
This is why I think whoever has good answers (or believable) to this fundamental problem facing most Americans can easily win an election.
Yeah Rubio can try to curry favor with this Drudge reported bill he is going to propose making abortion illegal after 20 months. Obviously to try to win back some love from conservatives he just squandered. But to think this is going to win in 2016. At least some of the talking heads on radio are waking up. The politicians in DC are another story.
I like Rubio. He is not ready for big time national politics.
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"I like Rubio. He is not ready for big time national politics."
Agreed.
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"I like Rubio. He is not ready for big time national politics."
Agreed.
He's done a lot to seriously damage himself in my eyes.
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http://www.powerlineblog.com/archives/2013/07/is-the-united-states-the-brokest-nation-on-earth.php
Is the United States the Brokest Nation on Earth?
One of the problems with an administration as comprehensively awful as Barack Obama’s is that people can’t keep track of all the crises. His foreign policy has collapsed, the economy is on life support, unemployment and poverty are at record-breaking levels, scandals pile one upon another. And–oh yes, don’t forget–the country is $17 trillion in debt.
Mark Steyn refers to the U.S. as the brokest nation in history, and in purely quantitative terms–$17 trillion–the proposition is not debatable. But Cato’s Dan Mitchell takes the analysis a step further. This chart, from the Organization for Economic Cooperation and Development, suggests that the U.S. is in worse fiscal condition than any developed country other than Japan and New Zealand. Greece? We should be so lucky!
(http://2-ps.googleusercontent.com/h/www.powerlineblog.com/admin/ed-assets/2013/07/832x588xoecd-long-run-fiscal-imbalance.jpg.pagespeed.ic.2IHuFPl_Ld.jpg)
But Dan isn’t crazy about this measure of fiscal ineptitude:
I’ve never been happy with these BIS and OECD numbers because they focus on deficits, debt, and fiscal balance. Those are important indicators, of course, but they’re best viewed as symptoms.
The underlying problem is that the burden of government spending is too high. And what the BIS and OECD numbers are really showing is that the public sector is going to get even bigger in coming decades, largely because of aging populations. Unfortunately, you have to read between the lines to understand what’s really happening.
But now I’ve stumbled across some IMF data that presents the long-run fiscal outlook in a more logical fashion. As you can see from this graph (taken from this publication), they show the expected rise in age-related spending on the vertical axis and the amount of needed fiscal adjustment on the horizontal axis.
In other words, you don’t want your nation to be in the upper-right quadrant, but that’s exactly where you can find the United States.
(http://1-ps.googleusercontent.com/h/www.powerlineblog.com/admin/ed-assets/2013/07/789x686ximf-future-spending-adjustment-needs.jpg.pagespeed.ic.8c7VRpbxb8.jpg)
Yes, Japan needs more fiscal adjustment. Yes, the burden of government spending will expand by a larger amount in Belgium. But America combines the worst of both worlds in a depressingly impressive fashion.
So thanks to FDR, LBJ, Nixon, Bush, Obama and others for helping to create and expand the welfare state. They’ve managed to put the United States in a worse long-run position than Greece, Italy, Spain, Portugal, France, and other failing welfare states.
Well, some of those individuals have contributed more than others. But let’s not forget that no president has the power to spend a nickel: all appropriations come from Congress. In truth, a corrupt bargain has been struck between the political class and a majority of voters–fluctuating, often reluctant, occasionally remorseful, but always enough to send big spenders back to Washington. So far, there is no sign that the out-of-control locomotive that is the product of this corrupt bargain can be deflected until it has flown off the cliff. At which point, of course, it will be too late.
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Non-Farm Payrolls Increased 195,000 in June, Beating the Consensus Expected 165,000 To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 7/5/2013
Non-farm payrolls increased 195,000 in June, beating the consensus expected 165,000. Including revisions to prior months, nonfarm payrolls were up 265,000.
Private sector payrolls increased 202,000 in June (+262,000 including revisions to prior months), beating the consensus expected 175,000. The largest gains were for restaurants & bars (+52,000), retail (+37,000), and administrative (+36,000, including temps). Government payrolls declined 7,000.
The unemployment rate remained at 7.6% (7.557% unrounded).
Average weekly earnings – cash earnings, excluding benefits – were up 0.4% in June and are up 2.2% from a year ago.
Implications: Very good report on improvement in the labor market, with job growth and wage growth both beating consensus expectations. Nonfarm payrolls increased 195,000 in June and were up 265,000 including revisions to prior months. Government payrolls are still shrinking, so all of the gains were in the private sector. The labor market once again forcefully rejected the theory that the sequester is hurting the economy. Since the sequester went into effect, nonfarm payrolls are up an average of 183,000 per month versus 132,000 for the same four months (March – June) a year ago. Although the unemployment rate stayed at 7.6%, the “unrounded” figure was 7.557% (so, very close to a 7.5% headline). Civilian employment, an alternative measure of jobs that includes small-business start-ups, rose 160,000, while the labor force was up 177,000. Total hours worked were up 0.2% in June, revised up for May, and up 2.5% in the past year. In combination with a 2.2% gain in average hourly earnings in the past year, total cash earnings are up 4.7%. After adjusting for inflation, these earnings are still up 3%+ from a year ago. In other words, workers are generating more purchasing power, consistent with our view that consumer spending will accelerate over the next couple of years. Another positive detail in the report was that the share of voluntary job leavers among the unemployed hit 8.8%, the highest since 2008. A higher share of job leavers shows workers are getting more confident about future of the labor market. The negative details were that the household survey, which generates the civilian employment numbers, says all of June’s job gains were among those age 20-24 (particularly women) and for part-timers. It also showed that the job gains were concentrated among multiple job holders. Given the volatility in these data series, we would not put too much emphasis on one month’s worth of data. However, it’s consistent with the large payroll gains for retail as well as restaurants & bars and probably shows some firms who would be hiring full-timers are hiring part-timers to avoid Obamacare. The big financial market question is how the Federal Reserve reacts to today’s report. We think the numbers support the case that it will announce a tapering of its asset purchases in September. Obviously, the labor market is far from perfect. What’s holding us back is the huge increase in government, particularly transfer payments, over the past several years. Despite that, entrepreneurs and workers are gritting out a recovery and the Plow Horse economy keeps moving forward.
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Patriot Post:
Jobs Report for June
On the surface, there was some good news in June's jobs report, with 195,000 jobs created. But the headline unemployment rate remained at 7.6 percent, while the U-6 rate -- a more complete measure that includes those who have given up looking for work -- jumped significantly from 13.8 percent to 14.3 percent.
Hot Air's Ed Morrissey put it in perspective: "Even if the jobs [numbers] weren't 'weak,' it's still a stagnation result. The American economy needs to add 150,000 jobs a month just to keep up with population growth. At this pace, it would over 22 months just to make up for the million people who joined the discouraged-worker ranks over just the past year. It would take more than seven months just to make up for the number of people who moved into the involuntary part-time ranks this month alone. We're still mired in the Great Stagnation, and will be until we start getting consistent job-creation reports at the 300K level."
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I agree that Wesbury has degraded to the point where he needs to be posted with a contrary opinion or spin in order for what he presents to be informative. It is quite a miss in my view that he would write an update about improved employment when both U6 and full time jobs are down.
Is not U6 a better and broader measure? Patriot Post: "...while the U-6 rate -- a more complete measure that includes those who have given up looking for work -- jumped significantly from 13.8 percent to 14.3 percent"
Hours worked are 'up' 0.2%. We will return to our previous growth line at this pace - never.
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Investors Business Daily today: A Solid Jobs Report? No, This Is a Crisis
Employment: From the media to Wall Street, June's jobs report is being spun as a major positive, a sign the economy is getting back on track. Maybe the pundits should look at the actual numbers, which are abysmal.
To hear some of them, the 195,000 payroll jobs added for the month while the unemployment rate stayed at 7.6% were a big deal. One investment house called it a "very good report." Another termed it "solid."
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Really? Let's take a little closer look at the numbers.
The total number of payroll jobs in the economy, at 135.9 million, is still 1.6% below 5-1/2 years ago, when the recession began. We're not even back at scratch.
At June's pace of 195,000 new jobs a month, it will take 11 months to get back to where we were in 2007. If you factor in monthly growth of 120,000 in the labor force, that will barely make a dent in unemployment.
In short, this jobs recovery isn't solid. It's pathetic.
It's even worse when you consider all of the net addition to June jobs - repeat, all - were part time. Compared with the 360,000 part-time positions created, full-time employment shrank by 240,000.
Year to date, only 130,000 full-time jobs have been added to our economy. The rest of the jobs - 557,000 - have been part time.
And tucked deep into the jobs report was this little tidbit: The underemployment rate, which measures those working in a job for which they're overqualified, or working part-time when they really want full-time work, shot up from 13.8% to 14.3%.
This isn't a solid jobs report. It's a crisis.
A new report from McKinsey & Co. says 45% of college graduates today have jobs that don't require college degrees. A generation of young, educated workers - our future human capital - is being wasted on waiting tables and selling shoes.
And those are the young people who can get jobs. The unemployment rate for 18- to 29-year-olds stands at 16.1%, with 1.7 million having dropped out of the labor force entirely.
Why is this happening?
Certainly five years of "stimulus" by President Obama and quantitative easing by the Federal Reserve haven't helped. And thousands of pages of new regulations, higher taxes on entrepreneurs and a deep philosophical antipathy toward healthy free markets by this administration have made businesses wary of hiring.
The No. 1 culprit, though, is ObamaCare. The added costs this monstrous piece of legislation has imposed on employers of full-time workers encourages them to hire only part-timers, who get few benefits and no health care.
So don't count us among those singing the praises of the latest employment numbers. From this vantage point, they look like more of the same: mediocrity.
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I post Wesbury with some regularity because IMHO he is a quality economist with a strong track record. Yes, yes, I know the examples of his screw ups that have been posted here, but anyone is in the game and actually making measurable predictions is going to miss sometimes. As our own record here amply shows, we need to consider additional points of view. Like Scott Grannis, Wesbury is a supply sider and the supply side school gets much right that others get wrong. IMHO his posts here force us to think, define our terms, and question our assumptions in a way that is healthy for us.
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I agree with you 100% on the value of reading Wesbury in addition to the doom and gloom out there. I am pointing out the converse, Wesbury's optimism alone without the opposing doom and gloom would also leave one misinformed. He hinted only subtly at the trouble with Obamacare indicated in the numbers and gave no clear signal that full time and broader unemployment is actually worsening.
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Agreed :-)
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Obamacare and Stocks To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 7/8/2013
For much of the past four years, we have felt like psychologists who constantly must help hypochondriacs over their fear of one thing after another. There is no reason to remind everyone of “the list” – it’s been endless, but the stock market and the economy have moved consistently higher despite these fears.
So now that most everyone sees a relatively stable recovery, there are two things that seem to strike fear into investors’ hearts – the tapering of the Fed’s bond buying program and Obamacare. We dealt with tapering a couple of weeks ago (see Back to Normal on June 24), so now let’s tackle Obamacare. The fear is that the new law is going to make it more expensive to hire, boost overall business costs, reduce profits, and grow government.
The law has already raised taxes and, if left untouched, will do so again as some companies dump relatively low-wage workers onto the government-run exchanges where they can get generous taxpayer-financed subsidies for health insurance. The original bill underestimated this cost.
Meanwhile, if the law is fully implemented under the current Administration, the government would make companies provide a very generous set of benefits in order to avoid fines, including more coverage of relatively minor everyday expenses that should not be covered by insurance at all.
We believe this is the opposite direction in which healthcare reform should be headed. We would rather see less government interference in the healthcare marketplace, more direct consumer interaction and fewer third party payers. True insurance should be for catastrophic situations.
Putting our disagreement aside, there is a huge difference between thinking Obamacare is a bad law and believing it will wreck the economy and tank the stock market.
In fact, the law faces major obstacles and problems that threaten its very existence. Already, the Obama team concedes difficulty in implementing the law, deciding to postpone for a full year, until 2015, the fines it was going to impose on companies with 50+ full-time workers if they don’t offer enough insurance. Pretty amazing, eh? The law was clear about the starting date, but, oh well.
The Administration says it was responding to business requests for more time, but it really looks and smells like they believe the plan is a bad idea. Even left-wing blogger Ezra Klein, says the delay should be permanent.
Meanwhile, many small and medium-sized companies can maneuver to avoid the burdens of the law, by hiring more part-timers instead of full-timers to avoid hitting the 50 worker level.
In addition, many states are rejecting the Medicaid expansion offered in the law, even though the federal government would pay for almost all of it. These rejections will reduce the cost to federal taxpayers and leave the states that have rejected the expansion more nimble when some future Congress uses expedited budget procedures to curtail or even repeal the Medicaid expansion.
In the end, we think investors have already priced in the negative effects of Obamacare. Now, over the next few years, investors will have a chance to price in the positive effects of Obamacare being much tougher to implement, and more likely to be watered-down or eventually repealed.
Free markets work, in part, because they aggregate the wisdom of crowds in ways socialist planners never can. We still have faith that our democratic process will use the wisdom of the next few years to substantially change the law enacted three years ago.
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"The economy lost 240,000 full-time workers last month, according to the more volatile household survey, while gaining 360,000 part-time workers. In other words, the entire increase in the household measure of employment was accounted for by persons working part-time for economic reasons. The underemployment rate surged to 14.3% from 13.8%. ... There are 28 million part-time workers in US vs. 25 million before the Great Recession. There are 116 million full-time workers in US vs. 122 million before the Great Recession. In other words, 19% of the (smaller) US workforce is part time vs. 17% before the Great Recession. Some context: Even at 195,000 jobs a month, the US would not, according to Brookings, return to pre-Great Recession employment levels until 2021. ... Oh, there are some positives. Private-sector jobs were up 202,000. Since the sequester took effect, total nonfarm jobs are up an average of 183,000 per month versus 132,000 for same four months a year ago. ... The labor force participation rate, while still low, has risen two months in a row. ... Fine. While the labor market may be improving enough for the Fed, for American workers the Long Recession continues." --columnist James Pethokoukis
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Wesbury post combined with a James Pethokoukis clarification, nice balancing act!
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Previously in the thread, "Doug: I think there is a distinction here to be made between the actual economy and the market."
Doug: "Wesbury and I both blur the distinction between the market and the economy."
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Wesbury today: "stock market and the economy have moved consistently higher"
Doug (now): The stock market moved way up; the economy has not hit first gear. All job growth is immigrant. All job growth is part time. Taxes on capital are up as much as 60% federal and 30% state, and there are now over 170,000 pages of federal regulations. Hooray? No, good luck!
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101M Get Food Aid from Federal Gov’t; Outnumber Full-Time Private Sector Workers
July 8, 2013 - 11:32 AM
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By Elizabeth Harrington
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61 19
(AP File Photo)
(CNSNews.com) – The number of Americans receiving subsidized food assistance from the federal government has risen to 101 million, representing roughly a third of the U.S. population.
The U.S. Department of Agriculture estimates that a total of 101,000,000 people currently participate in at least one of the 15 food programs offered by the agency, at a cost of $114 billion in fiscal year 2012.
That means the number of Americans receiving food assistance has surpassed the number of full-time private sector workers in the U.S.
According to the Bureau of Labor Statistics (BLS), there were 97,180,000 full-time private sector workers in 2012.
The population of the U.S. is 316.2 million people, meaning nearly a third of Americans receive food aid from the government.
Of the 101 million receiving food benefits, a record 47 million Americans participated in the Supplemental Nutrition Assistance Program (SNAP), commonly known as food stamps. The USDA describes SNAP as the “largest program in the domestic hunger safety net.”
The USDA says the number of Americans on food stamps is a “historically high figure that has risen with the economic downturn.”
SNAP has a monthly average of 46.7 million participants, or 22.5 million households. Food stamps alone had a budget of $88.6 billion in FY 2012.
The USDA also offers nutrition assistance for pregnant women, school children and seniors.
The National School Lunch program provides 32 million students with low-cost or no-cost meals daily; 10.6 million participate in the School Breakfast Program; and 8.9 million receive benefits from the Woman, Infants and Children (WIC) program each month, the latter designed for low-income pregnant, breastfeeding, and postpartum women, as well as children younger than 5 years old.
In addition, 3.3 million children at day care centers receive snacks through the Child and Adult Care Food Program.
There’s also a Special Milk Program for schools and a Summer Food Service Program, through which 2.3 million children received aid in July 2011 during summer vacation.
At farmer’s markets, 864,000 seniors receive benefits to purchase food and 1.9 million women and children use coupons from the program.
A “potential for overlap” exists with the many food programs offered by the USDA, allowing participants to have more than their daily food needs subsidized completely by the federal government.
According to a July 3 audit by the Inspector General, the USDA’s Food Nutrition Service (FNS) “may be duplicating its efforts by providing participants total benefits in excess of 100 percent of daily nutritional needs when households and/or individuals participate in more than one FNS program simultaneously.”
Food assistance programs are designed to be a “safety net,” the IG said.
“With the growing rate of food insecurity among U.S. households and significant pressures on the Federal budget, it is important to understand how food assistance programs complement one another as a safety net, and how services from these 15 individual programs may be inefficient, due to overlap and duplication,” the audit said.
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Why Individual Investors Are Fleeing Stocks
High-frequency trading, flash crashes, policy uncertainty. There are ways to fix this.
By CHARLES SCHWAB AND WALT BETTINGER
Our firm was founded 40 years ago on the belief that all Americans should have the opportunity to invest in the stock market with the same advantages available to institutions and the big guys. But looking at our capital markets today, we should all be concerned. It's becoming increasingly difficult for individual investors to compete on a level playing field. The system seems rigged against them. And they are responding by walking away.
A Gallup survey conducted in April found that just 52% of Americans were invested in "an individual stock, a stock mutual fund, or in a self-directed 401(k) or IRA." This is the broadest ownership of capital in the world, but it is down from a Gallup-survey high of 67% in June 2002. That's not good for individuals, and it's not good for the country.
Investors are the lifeblood of the economy. They provide the capital that spurs job creation, innovation and entrepreneurship. No one will benefit if individual investors stop participating in the markets. But that is what's happening at a troubling rate. Here are some reasons for that trend—and our recommendations for restoring balance:
• High-frequency traders are gaming the system. Using sophisticated algorithms, high-frequency traders can trade stocks in an instant. Some flood the market with orders, then cancel 90% or more once they've glimpsed the state of the market and gleaned an advantage. Almost all "co-locate" their computer servers as physically close as possible to those of the exchanges to cut down the travel time of information by microseconds and then trade on that tiny speed advantage.
Acknowledging this new, high-speed environment, last September the Securities and Exchange Commission levied a $5 million fine on the New York Stock Exchange—the first ever against a U.S. exchange by the regulator—for providing stock-price quotes and other data to certain firms just moments ahead of the public. As Robert Khuzami, then director of the SEC's Division of Enforcement, said at the time: "Improper early access to market data, even measured in milliseconds, can in today's markets be a real and substantial advantage that disproportionately disadvantages retail and long-term investors."
It was a watershed moment, but regulators need to do more to ensure that all professional traders are playing by the same rules as the rest of us. A penalty on excessive cancellations, rigorous enforcement of rules regarding information access, and a top-to-bottom study of the NYSE's 40-year-old Market Data System would be good places to start.
• Glitches and errors plague the markets. From the "flash crash" of 2010 to the glitch-riddled Facebook FB -0.50% IPO in 2012 to the market-wide shutdown when Hurricane Sandy hit New York, individuals are losing confidence in the integrity of the system. In April, a Twitter hoax claiming President Obama had been injured in an explosion at the White House sent the market spiraling downward in seconds, with computer-driven trades flooding the market the instant the false news hit the wires.
Markets have always been affected by misinformation, but the speed with which high-frequency traders react to false stories is alarming. In this age of technological innovation and rapid-fire information dissemination, investors need to be confident that markets can keep up.
Regulators have been slow to respond to the epidemic of market glitches large and small. Stronger steps—such as imposing "kill switches" to stop trading in a stock when a problem occurs—need to be taken to ensure that systems can detect and isolate a problem before it spreads across the market.
• Tax policies here and abroad discourage investors. In the U.S., tax rates on capital gains and dividends went up for some investors in 2013, compounding a new surtax on investment income for wealthier taxpayers that went into effect this year as part of the new health-care law. While we support the goal of increasing health-care coverage for all Americans, doing so on the backs of investors seems shortsighted.
Overseas, a financial transaction tax is under consideration in several European countries. It's another tax on investors. Thus far, the Obama administration, to its credit, has been steadfast in its opposition to such a tax in the United States. But some in Congress see a tax on investors as a potential boon to the Treasury. As lawmakers debate tax reform, they should encourage investing, which boosts savings, rewards the good ideas of entrepreneurs and stimulates the economy.
• The retirement savings system is under attack.Private savings for retirement has played a critical role in supplementing safety-net programs by helping millions of Americans prepare for their futures. But instead of being celebrated, the laws that better enable people to take care of themselves are facing criticism and calls for drastic change.
President Obama's recent budget would set an arbitrary cap on the total amount of retirement savings an individual can accumulate in tax-advantaged retirement accounts. Reducing contribution limits to employer-sponsored 401(k) plans and individual retirement accounts is openly discussed on Capitol Hill. Some are even calling for the entire system to be replaced with one run by the government.
The system we have is not perfect. But instead of hindering it or scrapping it altogether we should be enacting policies that make it easier for employers of all sizes to offer employees a savings plan, encouraging market-based innovation, and making a concerted national effort to educate America's workers on how to maximize retirement plans, particularly with low-cost investment choices.
If policy makers in Washington embrace these goals, individual investors will regain the confidence that someone is fighting for them. Confidence and participation in the markets will rise, and the economy and average individual investors will benefit.
Mr. Schwab is the founder and chairman of the Charles Schwab Corporation. Mr. Bettinger is the company's president and chief executive officer. SCHW -2.03%
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Retail Sales Increased 0.4% in June To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 7/15/2013
Retail sales increased 0.4% in June, coming in below the consensus expected gain of 0.8%. Sales are up 5.7% versus a year ago. Sales excluding autos were unchanged in June, coming in short of consensus expectations. These sales were up 0.1% including revisions to prior months and up 4.5% in the past year.
The increase in sales in June was led by autos and non-store retailers (internet and mail-order). The largest declines were for building materials and restaurants & bars.
Sales excluding autos, building materials, and gas rose 0.1% in June. These sales were up at a 2.6% annual rate in Q2 versus the Q1 average.
Implications: Whatever happened to all the analysts who thought the sequester or fiscal cliff deal was going to kill the consumer? Despite their predictions of doom and gloom, we got another plow horse report on retail sales today. Although sales came in short of consensus expectations, they were up 0.4% in June and are up 5.7% since last year. With consumer prices up about 1.6% since a year ago, “real” (inflation-adjusted) sales are up more than 4% in the past year. The details of the report are favorable for future months. The largest drag on sales in June was building materials, which fell 2.2%. Given the rebound in housing, these sales should bounce back in the next couple of months. “Core” sales, which exclude autos, building materials, and gas, rose 0.1% in June, the twelfth consecutive gain. There was nothing in today’s report to write home about, but it is growth and much better than many analysts were projecting at the beginning of the year. For the rest of 2013, we still expect two major themes to play out for the consumer: first, an acceleration in consumer spending growth versus the past couple of years despite higher taxes and the sequester; second, a transition away from growth in auto sales and toward other areas, like furniture, appliances, and building materials. Consumer spending should accelerate because of continued growth in jobs, hours, and wages. In addition, households have the lowest financial obligations ratio (debt service plus other recurring monthly payments) since the early 1980s. In other news this morning, the Empire State index, a measure of manufacturing activity in New York, rose to +9.5 in July from +7.8 in June. This suggests a pickup in growth in July. Given today’s data on sales and inventories, it now looks like real GDP grew at about a 1.5% annual rate in Q2, just about the average growth rate for the past year.
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http://www.reuters.com/article/2013/07/15/us-business-inventories-idUSBRE96E0FV20130715
Business inventories barely rise in May
WASHINGTON | Mon Jul 15, 2013 10:04am EDT
(Reuters) - Business inventories rose marginally in May as sales rebounded, adding to a raft of data that have pointed to a sharp slowdown in economic growth in the second quarter.
The Commerce Department said on Monday inventories edged up 0.1 percent after rising by a revised 0.2 percent in April.
Economists polled by Reuters had forecast inventories unchanged in May after a previously reported 0.3 percent gain.
Inventories are a key component of gross domestic product changes. Retail inventories, excluding autos - which go into the calculation of GDP - increased 0.3 percent after rising by the same margin in April.
Business are being cautious about restocking against the backdrop of lackluster domestic demand. The report suggested inventories will be less of a boost to GDP this quarter.
The business inventories report comes in the wake of data this month showing a sharp widening in the trade deficit, which prompted economists to slash their second-quarter GDP estimates.
Inventories added more than half a percentage point to first-quarter GDP growth, which advanced at a 1.8 percent annual rate. Estimates for growth in the April-June period currently range as low as a 0.5 percent pace.
Business sales increased 1.1 percent in May after being flat the prior month. At May's sales pace, it would take 1.29 months for businesses to clear shelves, down from 1.30 months in April.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
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http://www.cnbc.com/id/100882341
Inflation rears its head in June as producers hike prices
Published: Friday, 12 Jul 2013 | 8:35 AM ET
Tim Boyle | Bloomberg | Getty Images
A worker assembles window frames at Crystal Windows & Doors IL Manufacturer in Chicago, Illinois.
U.S. producer prices rose more than expected in June, pointing to an apparent increase in inflationary pressures that could make the Federal Reserve more comfortable about reducing its monetary stimulus.
The Labor Department said on Friday its seasonally adjusted producer price index increased 0.8 percent last month.
A Reuters survey of economists had forecast prices received by the nation's farms, factories and refineries rising 0.5 percent last month.
A jump in gasoline prices fueled much of the increase and could weigh on consumers by leaving them less money to spend on other things.
However, a gauge of underlying inflation pressures pointed to a little more vigor in the economy. So-called core producer prices, which strip out volatile energy and food costs, rose 0.2 percent last month, boosted by a 0.8 percent increase in the price of passenger cars. Economists had expected core prices to rise 0.1 percent.
The 12-month reading for core inflation at the wholesale level rose to 1.7 percent from 1.6 percent. That actually could be good news for the economy because rising core inflation could be a signal of firming demand from consumers.
That in turn could make policymakers at the Fed more confident about recent assertions that the economy was strengthening quickly enough for the U.S. central bank to begin reducing its bond-buying stimulus program by the end of the year.
Inflation has drifted to considerably low levels in recent months, and some Fed policymakers argue the bond-buying program should continue at full steam until inflation firms.
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http://blogs.wsj.com/economics/2013/07/15/check-please-restaurant-spending-plummets-in-june/
Check Please? Restaurant Spending Plummets in June
By Eric Morath
Sales at U.S. restaurants and bars took the largest one-month tumble since the recession, a possible source of concern for an industry that has been a jobs engine.
Adrian Fussell for the Wall Street Journal
Food-service sales fell 1.2% in June, the largest decline since February 2008, the Commerce Department said Monday. Restaurant sales fell in May as well.
From a year earlier, sales in the category are up 3.1%, a slower pace than the 5.7% gain for overall U.S. retail spending.
Restaurants and bars account for only 11% of total retail sales. But spending at those locations is largely discretionary and could signal Americans’ confidence in the economy. Meals out can be skipped more easily than trips to the gasoline pump or grocery store.
A continued slowdown in spending on dining could be worrisome for the labor market, too. The restaurant and bar industry has driven a disproportionate share of employment growth over the past three months, accounting for more than a fourth of all new jobs. It now accounts for nearly 1 in 10 jobs in America.
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Concerning inventories: My understanding is that rising inventories is a leading indicator of a downturn i.e. more is getting produced than demanded.
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More Plow Horse in Q2 To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 7/22/2013
Forecasting economic growth for the second quarter of the year is always precarious. The reason is that the initial report on the second quarter is when the government goes back and makes revisions to GDP for the past several years. This time around, it’s particularly iffy because the government – for the very first time – is going to start accounting in GDP for the value of R&D spending by companies.
Putting these obstacles aside, we’ve been calling the economy a Plow Horse for the last couple of years and, at the end of the month, it looks like we’ll be getting yet another Plow Horse report for second quarter economic growth.
The data we are confident about are consumer spending, business investment, and home building. Combined, these parts of real GDP appear to have grown at a 1.6% annual rate in Q2. The other components of real GDP – the ones we are less confident about – inventories, government purchases, and trade should, on net, pull the overall economic growth rate down slightly, to 1.5%.
This a little bit slower than we had been expecting a couple of months ago, but we still anticipate an acceleration of growth later this year. So do private companies, which added 199,000 jobs per month to payrolls in Q2.
Once again, the reason we have a Plow Horse economy, and not a Race Horse economy, is that the huge increase in the size and scope of the federal government over the past several years is weighing on entrepreneurs. Still, it hasn’t completely smothered innovation and risk-taking, and so we’re left with plodding economic growth that would be so much faster if not for the burden of government.
Here’s our “add-em-up” calculation of real GDP growth in Q2, component by component.
Consumption: Sales of cars and light trucks were up at a 2% annual rate in Q2, while “real” (inflation-adjusted) retail sales ex-autos were up at a 1.5% rate. Services make up about 2/3 of personal consumption and they grew at about a 1.1% rate. So far, it looks like real personal consumption of goods and services combined, grew at a 1.3% annual rate in Q2, contributing 0.9 points to the real GDP growth rate. (1.3 times the consumption share of GDP, which is 71%, equals 0.9)
Business Investment: Business investment in equipment & software looks like it grew at a 2.7% annual rate in Q2 while commercial construction was down at a 3.4% pace. Combined, with equipment carrying a heavier weight than construction, they grew at a 1.2% pace, which should add 0.1 points to the real GDP growth rate. (1.2 times the business investment share of GDP, which is 10%, equals 0.1)
Home Building: The housing rebound continued in Q2, led by new home construction, and looks like it grew at an 11% annual rate. This translates into 0.3 points for the real GDP growth rate. (11 times the home building share of GDP, which is 2.7%, equals 0.3)
Government: Military spending shrank in Q2 (but less than in Q1) and state & local government construction projects appear to have picked up. On net, we estimate real government purchases grew at a 0.5% rate in Q2, which should add 0.1 percentage points to real GDP growth. (0.5 times the government purchase share of GDP, which is 19%, equals 0.1)
Trade: At this point, the government has only reported trade data through May. On average, the “real” trade deficit in goods has grown substantially compared to the Q1 average. As a result, we’re forecasting the trade sector subtracted 0.9 points from the real GDP growth rate.
Inventories: Inventory accumulation slowed substantially late last year, in part due to a drought in the farm sector. But inventory growth picked up in Q1 and we expect the rebound to continue in Q2, particularly when adjusted for what we think are (temporary) declining inventory prices for the quarter. As a result, we’re assuming inventories add a full 1 percentage point to the real GDP growth rate in Q2.
Add-em-up and you get 1.5% real GDP growth for Q2. Once again, no economic boom, but no recession either. No one bets on a Plow Horse, but it does deserve respect.
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From the front page of today's WSJ:
By
BEN CASSELMAN
CONNECT
The long-anticipated acceleration in the U.S. economy has been put on hold once again.
With second-quarter earnings season in full swing, one thing is becoming apparent: earnings growth is weak and revenue growth is weaker, and that’s a reflection of an economy that is slowing down. Ben Casselman discusses on MoneyBeat. Photo: AP.
Disappointing economic and corporate-earnings reports in recent weeks have dashed hopes that the U.S. was at last entering a phase of solid, self-sustaining growth. Instead, while economists expect a modest second-half pickup in growth, few are predicting the kind of substantial rebound needed to quickly bring down unemployment, raise wages and insulate the U.S. from economic threats abroad.
There also are signs that consumers—whose spending has helped prop up the economy for much of the past year—are beginning to tighten their belts. Retail sales grew a paltry 0.4% in June, Commerce Department figures showed, and would have been even worse if higher gasoline prices hadn't forced drivers to spend more at the pump.
"This year is proving to be more challenging than we had originally planned," Howard Levine, chairman and chief executive of discount retailer Family Dollar Stores Inc., told investors earlier this month. "The consumer is just more challenged than we had anticipated."
Sales at restaurants—a key source of recent job growth, adding more than 150,000 positions over the past three months—tumbled last month, suggesting consumers could be pulling back on discretionary spending.
The unsteady economy, both in the U.S. and internationally, is affecting companies' bottom lines—results have been mixed as firms begin reporting second-quarter earnings. Industrial giant General Electric Co. GE +0.40% reported lower global revenues but higher profit and said sales in Europe had "stabilized." Appliance maker Whirlpool Corp. WHR +2.03% posted sharply higher profits, but earnings in the technology-sector have generally fallen short of expectations.
The Federal Reserve is watching the data closely as it decides when to begin winding down its $85 billion-a-month bond-buying program. Many Wall Street analysts expect that process to begin at the Fed's mid-September meeting. But in Senate testimony on Thursday, Fed Chairman Ben Bernanke said it was too early to make a decision and reiterated that the timeline will depend on how the economy performs in coming months, warning that the economy "remains vulnerable to unanticipated shocks."
Economists now believe the economy grew at an annualized rate of just 1.5% in the second quarter, according to The Wall Street Journal's latest survey of forecasters. The economists have become markedly more pessimistic since June, when they estimated a 1.9% pace for second-quarter growth, and several forecasters now believe the growth rate fell below 1% for the second time in the past three quarters.
Such false dawns have been a recurring theme in a recovery filled with rosy projections that last only until the next crisis or unforeseen roadblock appears. Some experts said the latest disappointments should come as little surprise: Exporters and manufacturers have been hit hard by weak overseas economies, consumers are still adjusting to tax increases that kicked in early this year, and government spending has fallen due to the "sequester" budget cuts.
"I don't see these numbers as being surprisingly lousy," said Tara Sinclair, a George Washington University economist. "I would rather say that the forecasts we saw earlier were overly optimistic."
Not all the news is so grim. The housing market continues to show signs of recovery despite a recent rise in mortgage rates and a slowdown in home building in June. Measures of consumer confidence have generally stayed high despite recent financial-market gyrations. And critically, the slowdown elsewhere in the economy hasn't yet led to a pullback in hiring, which has held steady at about 200,000 new jobs per month in the first six months of the year.
Economists aren't sure what explains the seeming disconnect between hiring and economic growth. One possibility: Employers held off on hiring amid last year's economic uncertainty and are now trying to catch up.
That is what happened at Fastenal Co. The Winona, Minn., seller of bolts, screws and other industrial and construction supplies was slow to hire last year, which left the company without enough salespeople, according to CEO Will Oberton. Now the company is making up for lost time, hoping to hire 100 to 150 people a month for the rest of the year.
"We got behind on hiring people, or actually we threw the brake on a little bit," Mr. Oberton said. "We need to add the people even if the economy is slow."
But the hiring doesn't suggest Fastenal sees evidence of an economic rebound. "We aren't seeing any signs, or even any anecdotal stuff," Mr. Oberton said. "It seems like we've been bouncing along for quite some time."
That kind of catch-up hiring can't continue indefinitely. At some point, either growth has to pick up or hiring will slow.
Economists do expect modestly faster growth in the second half of the year: at a 2.4% annual rate in the third quarter and 2.7% in the fourth, according to the Journal survey. But even if those projections hold up, that would suggest another year of anemic growth around 2%, not enough to bring down unemployment quickly.
And the projections may not hold: Ian Shepherdson, chief economist of the research firm Pantheon Macroeconomics, noted that the U.S. is expected to run up against its congressionally mandated borrowing limit sometime this fall. Another round of debt-ceiling brinkmanship, Mr. Shepherdson said, could lead small businesses in particular to pull back hiring.
"While I think the third quarter will be better than the second, I'm nervous about the fourth," Mr. Shepherdson said.
Others are more optimistic. Joseph LaVorgna, chief U.S. economist for Deutsche Bank in New York, pointed to several factors that suggest the economy is on firmer footing than it has been in years: stronger household balance sheets, a rebounding housing market and some early signs that state and local governments are hiring again after years of cuts.
But Mr. LaVorgna said that after years of false starts, he doesn't blame Americans for greeting such claims with skepticism. "There is still a leap of faith," he said. "It seems like we always have an excuse or a reason to explain why the economy's weak."
Write to Ben Casselman at ben.casselman@wsj.com
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http://finance.yahoo.com/blogs/breakout/crude-oil-fast-furious-rise-hit-consumers-hard-123644491.html
Crude Oil’s Fast & Furious Rise Will Hit Consumers Hard, Warns Kilburg
By Jeff Macke | Breakout – Fri, Jul 19, 2013 8:36 AM EDT
While most of the trading universe was preoccupied with other things the price of crude oil has been ripping higher in an almost straight line. KKM Financial CEO and founder Jeff Kilburg says Americans aren't going to be able to ignore the spike for long.
In early trading Friday WTI crude oil tacked on another dollar, topping $109 a barrel, and racing to break $110 for the first time in multiple years. A close here would mark the second straight week of multiple percentage point gains.
"We're seeing oil prices unfortunately rise and that's going to mean pain at the pump," Kilburg told Breakout from the floor of the CME. "On July 1st crude was trading $96, now we interject some Egyptian turmoil and people are really scared."
Traders are frightened not just because many of them missed the move but they've been shorting crude during the rally. As WTI rallies those same traders are taking off the short position by purchasing upside calls or get long in other ways, all of which adds fuel to the rally.
The fundamentals are in the bears' corner as Kilburg sees it. Demand is weakening, global headwinds are picking up, and the dollar is relatively stable regardless of Bernanke's apparent best efforts to weaken it. He believes the price could move as high as $110, but any stability in Egypt could send it right back to the $90s in a hurry.
Even a drop in crude oil prices might not be enough to save motorists from price increases at the pump. Gas prices are suddenly on the rise but in this case it's not entirely the fault of "evil speculators" or Big Oil. The problem instead stems from Washington DC's devotion to the failed alternative fuel that is Ethanol.
Research suggests the net impact of growing corn as a raw ingredient for a gasoline blend is wildly inefficient, but politicians are considering raising the mix anyway. As the blend of ethanol to gas moves from 10% to 15% over the next few years, prices for refiners will increase. Refiners will pass the expense on to consumers. They're businesses that are accountable to shareholders, while the politicians answer to lobbyists.
DC and refiners are fighting over who is most to blame for the rising cost of converting crude into gas but the fact remains the refining process is becoming more expensive and consumers are going to pay for some of it.
For traders short crude a price break can't come soon enough. For drivers filling their tanks there is a the distinct possibility that gas prices will go up because of crude oil, but won't come back down because of DC.
"The additional cost to produce ethanol which will be blended with gasoline will come back to consumers," warns Kilburg. "It will hit us."
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Well, if the global economy is going down, then why is oil going up? Isn't that a sign of a recovering economy?
Anyway, isn't the effect of "shorts" covering to drive up prices?
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The global economy isn't going up, but the ME is on fire.
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I'm not seeing any immediate threats to oil supplies but on the whole you may be right , , ,
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http://legalinsurrection.com/2013/07/dont-let-motor-city-madness-make-you-forget-about-californias-bankrupt-cities/
Don’t let “Motor City Madness” make you forget about California’s bankrupt cities!
Posted by Leslie Eastman Monday, July 22, 2013 at 11:00am
Bryan Jacoutot ably explored the core reason for the Motor City’s recently fiscal crash: unfunded liablities.
As a former citizen of the Detroit area, I simply shake my head, as the city’s race-based politics and poor business environment caused me to flee to the Golden State over 20 years ago. Subsequently, the continued devastation caused by the entrenched Democratic oligarchy is such that it makes a Somali exile long for his home country:
(http://legalinsurrection.com/wp-content/uploads/2013/07/Legal-Insurrection-02-Tweet.png)
However, as a Californian, I really have nothing to crow about. Several of our cities have filed for bankruptcy, for the same set of reasons plaguing Detroit. In fact, the population of the two larger cities combined (Stockton and San Bernardino) is 500,000 plus — so the scale is on-par with that of Motown’s money wreck.
I am following the developments closely. Interestingly, Stockton is putting a sales-tax measure on the ballot to a potential solution. Good luck with that!
Michigan Circuit Court Judge Rosemary Aquilina ordered Detroit’s bankruptcy filings be withdrawn because they violate state law guaranteeing that pensions must be paid to public employees. Additionally, the judge specifically cited President Obama’s corporate bailout during her remarks on the decision, further ordering that a copy of her declaratory judgment be sent to the White House.
John Sieler of CalWatchdog notes how the ruling and attitude may impact California:
If Obama intervened in Detroit, he would have to intervene across the country, setting a new precedent of the federal government bailing out cities. And if that happened, you would see dozens, maybe hundreds, of cities declaring bankruptcy as a way to get federal funds. Thousands of cities everywhere, even financially sound ones, would become even more fiscally reckless, especially on pensions, assuming that, no matter what happened, the feds would bail them out.
Such bailouts soon would amount to hundreds of billions of dollars, goosing the already immense federal debt of $16.7 trillion.
And even if the president wanted to blow billions on municipal bailouts, the U.S. House of Representatives now is controlled by Republicans who wouldn’t cooperate. As a start, they wouldn’t bail out a city that voted 98 percent Democratic in the last election. And Republicans also wouldn’t want to bail out workers whose unions continually attack Republicans, while manipulating the system to push public employee pay and benefits to unsustainable levels.
As to the GM bailout, the latest estimate was that its final cost to taxpayers will be $25 billion. Just letting the normal bankruptcy proceedings go forward would have saved that money, while still reorganizing the company, albeit on terms not as favorable to the UAW and Democratic political ambitions.
Gov. Snyder’s office is appealing Aquilina’s decision and no doubt will prevail in the state’s own circuit court, which understands federal precedence in bankruptcy cases. Even if it loses there, the bankruptcy court will decide the case.
For California, this new Detroit drama will confirm that federal bankruptcy courts can set aside state constitutional protections on pensions.
In contrast, lawyers for the city of San Bernardino just asked a bankruptcy judge to set aside the objections of two public employees’ pension funds and rule that the California city is eligible for Chapter 9 protection.
Let’s hope our federal government forces the states to address these cases with sensible bankruptcy plans, and not by printing “Obama Money” to solve a massive crisis decades in the making.
[youtube]http://www.youtube.com/watch?v=_Ojd13kZlCA&safety_mode=true&persist_safety_mode=1&safe=active[/youtube]
http://www.youtube.com/watch?v=_Ojd13kZlCA&safety_mode=true&persist_safety_mode=1&safe=active
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GM:
This addresses the matter of oil prices that we were discussing yesterday.
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Ethanol mandates driving spike in gas prices
Published by: Herman Cain
Consequences.
Have you noticed that gas prices are soaring again? The media and the left will follow their usual formula of blaming greedy big oil or their other typical talking points, but David Lutz, head of ETF trading at Stifel, Nicolaus says it’s yet another case of a government mandate resulting in unanticipated consequences.
"As a result of the 2005 Clean Air Act, refiners need to blend a certain amount of ethanol into gasoline every year, and every year the amount they blend in goes higher and higher," Lutz told the investment reporting firm Breakout. It’s not that expensive to comply with the mandate when consumption of gas is high, but when it goes down, the cost of compliance soars. Lutz estimates that half the current price spike can be attributed directly to compliance with the ethanol mandate.
What’s this? It’s another example of a government mandate presenting unintended consequences. When Obama took office, the average price of gas was $1.85 per gallon. It is now double that. We’ve talked before about the Obama Administration’s reluctance to approve drilling on federally owned lands, which would add to the supply in the market and drive down prices. Now it’s clear that it’s not only what we’re not doing – drilling everywhere we can – it’s also what the government is doing, mandating the ethanol content and adding costs to the production of fuel.
It’s yet another case of a government mandate coming with unintended consequences, which should sound familiar to anyone who’s following the unfolding of ObamaCare. We’re already seeing higher insurance premiums, job losses and impacts on the availability of care, not to mention much higher implementation costs than we were told to expect.
Why? Because markets react to government mandates, and players in the market make adjustments to mitigate harm to them. Every time the government imposes a mandate, it acts as though none of this will happen, then acts shocked when it does.
It’s hard to get rid of ethanol mandates because Iowa benefits from them, and no presidential candidate wants to upset people in Iowa. But every time you purchase a tank of gas, you’re paying for them.
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I'm sure that's part of it.
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Two Americans Added to Food Stamp Rolls for Every Job Administration Says It Created
July 23, 2013 - 1:21 PM
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By Gregory Gwyn-Williams, Jr.
White House Press Secretary Jay Carney said yesterday that the Obama administration has pulled the nation from the depths of the "Great Recession" with the creation of 7.2 million private sector jobs.
"And what is absolutely true is that we have come a long way since the depths of the Great Recession. We've created over 7.2 million private sector jobs," Carney told reporters at a press briefing.
Here's what Mr. Carney didn't say:
Since February of 2009, the first full month of Obama's presidency, 9.5 million Americans have dropped out of the labor force. Nearly 90 million Americans are not working today!
That means that 1.3 Americans have dropped out of the labor force for every one job the administration claims to have created.
There are 15 million more Americans on food stamps today than when Obama assumed office.
At the end of January 2009, 32,204,859 Americans received aid from the Supplemental Nutrition Assistance Program. As of April 2013, there were 47,548,694 Americans on food stamps.
That means that more than two Americans have been added to the food stamp rolls for every one job the administration says it has created.
Under Obama, 1.6 million more Americans are collecting disability insurance. In February 2009, 9,334,369 Americans received disability payments. Today, that number is 10,953,733.
.. - See more at: http://www.cnsnews.com/mrctv-blog/gregory-gwyn-williams-jr/two-americans-added-food-stamp-rolls-every-job-administration
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By JON HILSENRATH and KRISTINA PETERSON
As the U.S. emerged from recession in the summer of 2009, Janet Yellen, then president of the Federal Reserve Bank of San Francisco, took a grim view of the economy's prospects.
A WSJ analysis of more than 700 economic predictions between 2009 and 2012 by Fed policymakers shows doves, particularly Janet Yellen, have been the most prescient, while inflation hawks lagged the pack. Jon Hilsenrath explains. Photo: AP.
"I expect the pace of the recovery will be frustratingly slow," she said in a San Francisco speech. A month later, addressing fears that money flooding into the economy from the Federal Reserve would stoke inflation, Ms. Yellen said not to worry in a speech to Idaho bankers: High unemployment and the weak economy would tamp wages and prices.
Others at the Fed spoke forcefully in the other direction. Unless the central bank reversed the easy money course, Philadelphia Fed President Charles Plosser warned in December 2009, "the inflation rate is likely to rise to levels that most would consider unacceptable."
Ms. Yellen was proved right.
Predicting the direction of the U.S. economy with precision is impossible. But the Fed must forecast growth, inflation and unemployment to guide its decisions on interest rates. Central bank miscalculations—when the Fed pushed interest rates too low or too high—have historically turned problems into catastrophes, fueling the Great Depression, for example, and the wealth-eroding inflation of the 1970s.
The Wall Street Journal examined more than 700 predictions made between 2009 and 2012 in speeches and congressional testimony by 14 Fed policy makers—and scored the predictions on growth, jobs and inflation.
The most accurate forecasts overall came from Ms. Yellen, now the Fed's vice chair. She was joined in the high scores by other Fed "doves," policy makers who wanted aggressively easy money policies to confront a weak U.S. economy and low inflation. Collectively, they supported Fed Chairmen Ben Bernanke's strategy to pump money into the U.S. economy.
The least accurate forecasts came from central bank "hawks," those who feared Fed policies would trigger rising inflation.
Examining such predictions is more than a parlor game. Fed forecasts are important now because the central bank is near a turning point that will have a substantial impact on the U.S. economy.
Fed officials are considering whether to scale back an $85-billion-a-month bond-buying program this year, a move that could pull stock prices down and send interest rates higher.
If the Fed believes growth and hiring will pick up—and inflation will rise to a more normal 2%—the central bank will start to pull back on the purchases.
More
But if forecasts are wrong—if the Fed overestimates the economy's strength and pulls back too soon, for example—then economic growth could falter, stalling an incipient housing recovery and fueling the jobless rate.
"We should be keeping track of these forecasts and having some accountability," said Mark Gertler, a New York University economist who reviewed the Journal analysis.
Of course, forecasting ability doesn't always translate into wise central bank leadership. Arthur Burns, who led the Fed during the high inflation of the 1970s, was known for his forecasting prowess.
But New York Fed President William Dudley said forecasting errors have had serious consequences. "We were consistently too optimistic about growth over the 2009-2012 period," he said in a May speech. "As a result, with the benefit of hindsight, we did not provide enough stimulus."
Richard Fisher, the Dallas Fed president and another high scorer, took a different view. He has said slow growth was evidence the Fed's easy money medicine wasn't working and the economy needed less of it.
Who Has the Clearest Crystal Ball?
The Fed issues a quarterly forecast based on the views of its 12 regional Fed bank presidents and seven Fed governors. Over the past four years, these forecasts included errors, mostly from overestimating the economy's strength. None of the Fed forecast reports indicate who said what.
To evaluate the performance of individual Fed officials, the Journal looked at texts of speeches and congressional testimony. Forward-looking comments about the economy were rated for accuracy.
The Journal gave a mark ranging from -1.0—far off the mark—to 1.0—nearly perfectly correct—for each comment and averaged the total. A final score of zero showed someone was wrong as often as correct.
The analysis was shared with the Fed policy makers. Five of the 19 policy makers weren't ranked because they hadn't been at the Fed long enough or hadn't spoken publicly enough about the economy.
Ms. Yellen and Mr. Dudley—both in Mr. Bernanke's inner circle—ranked first and second in the Journal analysis. Both predicted slow growth and low inflation over the past four years. Ms. Yellen had the highest overall score in the Journal's ranking, 0.52. Mr. Dudley scored 0.45.
The lowest scores were tallied by Mr. Plosser, -0.01; St. Louis Fed President James Bullard, 0.00; Richmond Fed President Jeffrey Lacker, 0.05, and Minneapolis Fed President Narayana Kocherlakota, 0.07.
Investors who closely follow every comment by Fed officials don't appear to distinguish policy makers by the accuracy of their economic forecasts.
Macroeconomic Advisers LLC, a research firm, determined Mr. Plosser, Mr. Bullard and Mr. Lacker consistently moved markets more than Ms. Yellen. Messrs. Plosser, Lacker and Bullard and Ms. Yellen declined to comment for this article.
Forecasts by Fed officials depend on their view of how the economy works. Ms. Yellen, for instance, places great weight on the role of economic slack—high unemployment or idle factories—in driving inflation. Lots of slack, she has argued, holds down inflation. On the other hand, prices are more likely to rise when there are few available workers and factories are operating near capacity in this view.
"With slack likely to persist for years, it seems likely that core inflation will move even lower," Ms. Yellen said in September 2009. Her views warrant scrutiny because she is a candidate to succeed Mr. Bernanke when his term ends in January.
Mr. Dudley did especially well forecasting growth. Some Fed officials believed the current recovery would behave like past recoveries and the economy would, for a while, grow faster than its long-term trend of 3.2%.
[image]
But in May 2010, Mr. Dudley returned to his alma mater, New College of Florida, with a grim counter argument during a commencement address.
"The recovery is not likely to be as robust as we would like for several reasons," he said, pointing to the fragile banking system and the debt weighing down many households. He declined to comment for this article.
Other Fed officials, including Mr. Bernanke consistently predicted that faster growth was just around the corner.
"Although the pace of recovery has slowed in recent months and is likely to continue to be fairly modest in the near term, the preconditions for a pickup in growth next year remain in place," Mr. Bernanke said in October 2010, just before launching a bond-buying program. Growth slowed the following year.
Mr. Bernanke finished in the middle of the pack in the Journal's analysis, in part because he often relayed the consensus of Fed officials. He declined to comment for this article.
Luck also played a role in forecasts. In 2011, for instance, the economy looked like it was moving to faster growth when a tsunami struck Japan, disrupting the global economy.
The Fed's hawks had some of the worst forecasters. Mr. Plosser overestimated growth, while Mr. Bullard, Mr. Lacker and Mr. Kocherlakota warned of looming inflation. Their forecasts were wrong almost as often as they were correct.
While Ms. Yellen focused on the impact of slack on inflation, some hawks focused on money. The late Milton Friedman, the Nobel Prize-winning University of Chicago economist, said inflation was always and everywhere a byproduct of monetary policy: Prices only shoot higher when a central bank pumps too much money into the economy.
Hawks worried the Fed's decision to pump trillions of dollars into the U.S. financial system after the crisis would result in fast-rising prices. They sometimes couched their worries as risks, rather than predictions. In 2009, for instance, Mr. Bullard warned that the Fed's bond-buying programs had created a "medium-term inflation risk."
"The hawks have been issuing warnings, but there has been no sign of the things they've been warning against," said Martin Eichenbaum, an economist at Northwestern University and a Fed dove.
Mr. Kocherlakota of the Minneapolis Fed changed his hawkish views in 2012. "Inflation is not coming in as hot as I expected," he said in an interview last year. "You have to learn from the data." He declined to comment for this article.
Mr. Bullard changed his focus at times. In 2010, and again more recently, he signaled concern about inflation getting too low. A St. Louis Fed spokeswoman said the Journal analysis failed to account for the role Mr. Bullard's warnings played in formulating policies that helped to prevent inflation from getting too high or too low.
Some of the Fed's best forecasts came from noneconomists, including Fed governor Elizabeth Duke and Atlanta Fed President Dennis Lockhart—former bankers—and Mr. Fisher, a former investment manager. Some of the Fed's most brilliant Ph.D.s, including Mr. Kocherlakota, generated the most subpar scores.
Economists generally rely on economic models based on past behavior. These models are used heavily by the staff at the Federal Reserve Board in Washington and at regional Fed banks. But the recession and the current recovery were unlike most past cycles.
"The models have been wrong," Mr. Bullard, one of the Fed's many Ph.D. economists, said in an interview with the Journal in November.
James Hamilton, an economist at the University of California at San Diego who also reviewed the Journal's analysis, warned against betting that the doves' recent winning streak would continue.
"This was a period of subpar GDP growth and low inflation," he said. "Whether these same individuals would also prove to be better forecasters during a period of strong GDP growth and rising inflation is difficult to determine on the basis of the last four years."
One reason the hawks have been wrong about inflation is that the money the Fed has pumped into the financial system has tended to sit at banks without being lent to customers.
Economists say it is possible inflation can still catch fire if banks lend more aggressively and money starts circulating more widely.
If that happens, Mr. Eichenbaum said, the hawks would be proven right and "everybody else is going to look real bad."
—Michael R. Crittenden contributed to this article.
Write to Jon Hilsenrath at jon.hilsenrath@wsj.com and Kristina Peterson at kristina.peterson@dowjones.com
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Second post
Get Ready for a Wild Week To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 7/29/2013
Weeks with lots of data are always interesting; but this one will be more wild than most.
Wednesday is the initial report on Q2 GDP and we expect a pretty tepid growth rate of 1.2%, which is down slightly from last week when we thought 1.5%. But this quarter government statisticians will do benchmark GDP revisions. Data will change, in some cases all the way back to 1929. So, we wouldn’t be surprised by any number between 0% and 2.5%
Over the past few years of recovery, real economic growth has often lagged our expectations, in large part due to shortfalls in business investment and inventories. This quarter could be similar. But recent numbers signal a turnaround. In the past three months, orders for “core” capital goods (ex-defense, ex-aircraft) are up at a 17% annual rate. Hiring has also accelerated. We expect any weakness in Q2 to reverse in Q3 and Q4, with growth rising to 3%+ in the months ahead.
All this may be lost as reporting on Wednesday will probably focus on the revisions to GDP data. The biggest change is treating R&D spending as a form of investment, just
like buying equipment. The theory is that it expands the stock of knowledge, which is then used to discover or develop new products. A similar change is being made for art that lasts more than a year, like movies, books, or hit TV shows. (One day, they’ll include homemaking, which counts when we hire someone, but not when we do it ourselves!). The net effect of these revisions will be to boost the level of GDP by about 3%.
So with the top-line level of real GDP revised up, get ready because some portion of those who don’t like the president will claim this is part of a conspiracy to make the economy look better than it actually is.
We’re certainly no fans of many recent policy actions, and we can debate these changes to GDP data, but suggest you tune out the conspiracy-mongers. The changes have been considered for many years and just as easily could have been made under a President Romney…except then it would be different people claiming conspiracy.
The most important thing to know is that the revisions don’t actually change our current standard of living; they just use a different number to describe it. It’s like back when they changed the SAT so you could get a higher score even with the same number of wrong answers. You’re no smarter than you were before, you just have a higher score.
The data alone should make this a wild week in the markets; don’t let nutty theories make it any wilder.
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http://nationalinterest.org/commentary/america-detroit-8789
America as Detroit
Jay Zawatsky
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July 29, 2013
The malignant cancer cells oozing from the petri dish of progressive policy known as the City of Detroit are soon to metastasize throughout the body politic. The disease, which has been described by Mark Steyn as the “malign alliance between a corrupt political class, rapacious public-sector unions, and an ever more swollen army of welfare dependents,” will first lay low other formerly great American cities. Newark, Oakland, Cleveland and Los Angeles initially come to mind. But the same fate awaits nearly every other large municipality ruled for generations by so-called progressive thinkers.
Once U.S. cities have danced to Motown’s latest bankruptcy beat, it will be the rest of America’s turn to confront unfunded liabilities. In the case of Detroit, fully half of what the city owes—$9 billion out of Detroit’s unpayable $18 billion—is the unfunded pension liabilities to retired public employees and those still on the city’s payroll.
But wait. $9 Billion? $18 Billion? Those amounts are mere rounding errors in the context of the U.S. budget deficit and aggregate national debt. Former Obama car czar Steve Rattner opined recently in the New York Times that “the 700,000 remaining residents of the Motor City are no more responsible for Detroit’s problems than were the victims of Hurricane Sandy for theirs, and eventually Congress decided to help them.”
But Detroit’s fiscal problems are not a natural disaster. Indeed, the city’s economic and social problems are what Secretary of Homeland Security Janet Napolitano might have called a “man-caused” disaster. Rattner even obliquely acknowledges that free will was behind Detroit’s disaster. The six words preceding his plea for a second, smaller Detroit bailout (GM was the first) were “ut apart from voting in elections...”
That is the rub. There is, there never has been, and there never will be a free lunch. Yet Americans have been voting themselves money since LBJ’s Great Society. According to the Federal Reserve, the nation’s unfunded liabilities stand at over $125 trillion, including Medicare ($86.6 trillion), prescription drugs ($21.8 trillion) and Social Security ($16.4 trillion), which amount does not include the $16.8 trillion current U.S. Treasury debt. These entitlement programs were sold to the public as “pay as you go” and were supposed to build surpluses to balance already known future demographic shifts. But leaders in both major parties invaded these programs’ current income (from payroll taxes) to win votes by financing discretionary programs such as farm supports, food stamps, weapon systems, student loans, housing-loan guarantees, green-energy subsidies and literally hundreds of other spending initiatives—all for political constituencies capable either of making contributions or putting political boots on the ground.
Politicians, particularly with the IRS as unpopular as it is today, know that they cannot raise taxes any further, even on that “fellow behind the tree,” as Senator Russell Long famously quipped. Congress also knows that with a Federal Reserve as compliant as Chairman Bernanke’s, there is no current restraint on borrowing. Both parties assume that the Fed simply will print up sufficient digital dollars to purchase any federal IOUs that cannot be sold. For fiscal year 2013, that has been $540 billion, the price tag for nearly all nonmilitary discretionary spending.
But the final reckoning is approaching. When Bernanke merely hinted that the Federal Reserve’s $85 billion per month of debt monetization might be “tapered” back, even by a little, the stock market swooned. Mortgage rates jumped dramatically. This rate increase threatened the so-called “housing recovery,” which is nothing more than a reinflation of the housing bubble originally pumped up by the Federal Reserve’s last attempt to prevent the markets from cleaning out the aggregated malinvestment since former Fed chairman Alan Greenspan rescued the market in 1987. The Fed then spent the better part of two weeks explaining away and backing off from its “taper” talk.
The Fed cannot taper—not today, not ever. Tapering would mean that the economy has reached self-sustaining growth. But the economic recovery, hamstrung by increased regulatory initiatives in finance, healthcare and energy, as well as higher taxes on job creators and increased subsidies to politically favored but unproductive industries (for example, low-rate student loans despite bleak job prospects for many graduates), is the weakest since 1948.
In eight out of the ten recoveries since World War II, employment was 5–7 percent higher by this point after the end of the recession than it had been at its previous peak. By that measure, the U.S. should have 10 million more jobs now than in 2007. In none of those ten recoveries were there fewer jobs than at the previous peak. Today, more than 60 months after the previous peak, there are 3 million fewer jobs. And with the ratio of full time jobs to part time jobs having fallen from nearly 5 to 4.2, the quality of the jobs that have been created is substantially poorer than in past recoveries.
Without free money, Wall Street would crash, the economy would fizzle fast, and economic progressives could lose their hold on power. But backed by substantial parts of the media and unions, the current regime will never let that happen. So be prepared for fewer and lower quality jobs, increasing federal debt, small businesses scaling employees back to part-time to avoid Obamacare mandates, debt monetization and financial repression (including no yield for savers).
In 1960, before the Great Society, Detroit was the wealthiest city per capita in America among cities with more than two hundred thousand residents. In those years, the United States was the world’s largest creditor nation. Today, Detroit is the poorest city per capita in America among cities with more than two hundred thousand residents. Today, the United States is the world’s largest debtor nation.
Welcome to Detroit, America.
Jay Zawatsky is the CEO of havePower, LLC (a natural gas infrastructure developer) and a professor of business, economics, and finance at Montgomery College in Rockville, Maryland.
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http://business.financialpost.com/2013/07/26/debt-eurozone-imf/
IMF fears Fed’s stimulus tapering could reignite euro debt crisis
Ambrose Evans-Pritchard, The Telegraph | 13/07/26 | Last Updated: 13/07/26 7:48 AM ET
More from The Telegraph
The tapering of stimulus by the U.S. Federal Reserve risks reigniting Europe’s debt crisis and pushing weak countries into a “debt-deflation spiral”, the International Monetary Fund has warned.
It's about time Europe's crisis states formed a debtors' cartel
Comment: The peoples of southern Europe could at any time confront their creditors with a stern ultimatum. Either you change the entire structure of eurozone crisis policy or we take long-overdue steps to protect our societies against mass unemployment and to protect our industrial base. Keep reading . . .
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“The macro-economic environment continues to deteriorate. Recovery remains elusive,” said the IMF in its annual health check on the eurozone. “Growth has weakened further and unemployment is still rising. Mounting social and political tensions pose an increasing threat to reform.”
The report said the onset of a new tightening cycle in the US has already pushed up global bond yields, and this may have further to run. “It could lead to additional, and unhelpful pro-cyclical increases in borrowing costs within the euro area. Financial market stresses could quickly reignite,” it said.
The Fund said the European Central Bank must take offsetting action to prevent “a vicious circle setting in”, ideally by cutting interest rates, introducing a negative deposit rate, and purchasing a targeted range of private assets.
It should launch “credit easing” policies to alleviate the lending crunch in Spain, Italy, and Portugal, where borrowing costs for firms are 200 to 300 basis points higher than in Germany, with small businesses struggling to raise any money at all.
Related
Why Greece could be in more trouble than its lenders think
Europe begins emergence from recession as manufacturing expands for first time in two years
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The report came as ECB data showed that loans to the private sector fell by euros 46-billion (pounds 40-billion) in June, after falling by euros 33-billion in May. The annual rate of contraction has accelerated to 1.6pc.
Growth of the M3 broad money supply is also fizzling out. There has been almost no rise in M3 since October 2012. “Today’s figures put serious question marks over the strength of the nascent recovery,” said Martin van Vliet from ING. The data are at odds with the recent rebound in industrial output and rising PMI manufacturing surveys.
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The IMF said the eurozone economy would shrink by 0.6% in 2013. It is expected to grow by 0.9% next year, but this is too little to make a dent on unemployment, or to stabilise debt levels. “There is a high risk of stagnation, especially in the periphery. Such an outcome could push the periphery toward a debt-deflation spiral,” it said.
The report said that it may take years to unwind the credit excesses of the early EMU years. “Historically, almost all of the run-up in household debt tends to be reversed. But in the euro area, the reduction in debt-to-GDP ratios has barely started, and the boom was more pronounced.”
The Fund called on eurozone leaders to deliver on pledges for a banking union and resolution fund capable of “swift decisions”. While polite in tone, the authors appear exasperated by “incomplete or stalled delivery of policy commitments”.
“The hurdle for reaching a collective agreement is always high. Building political support for such decisions can take considerable time, especially when they involve thorny issues such as burden-sharing or ceding national control. Making swift progress on completing the banking union and moving toward greater fiscal integration are proving exceedingly difficult.”
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Wesbury, eating crow so artfully:
"Wednesday is the initial report on Q2 GDP and we expect a pretty tepid growth rate of 1.2%, which is down slightly from last week when we thought 1.5%...
Over the past few years of recovery, real economic growth has often lagged our expectations, in large part due to shortfalls in business investment and inventories. This quarter could be similar."
Brian Wesbury, this economy sucks. Real growth 'lagged your expectations' because you underestimated the accumulated damage done by anti-growth policies, not because of one line item here or there on a balance sheet.
When investment is punished, one will see 'shortfalls' of it. Labor requires capital and capital requires labor. In a free country, each person can provide either or both. In a sinking ship, you will see opportunities to provide neither.
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The First Estimate for Q2 Real GDP Growth is 1.7% at an Annual Rate To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 7/31/2013
The first estimate for Q2 real GDP growth is 1.7% at an annual rate, beating the 1.0% the consensus expected. Real GDP is up 1.4% from a year ago.
The largest positive contributions to the Q2 real GDP growth rate were consumer spending and business investment. The largest drag, by far, was net exports.
Personal consumption, business investment, and home building were all positive in Q2, growing at a combined rate of 2.6% annualized. Combined, they are up 2.4% in the past year.
The GDP price index increased at a 0.7% annual rate in Q2. Nominal GDP – real GDP plus inflation – rose at a 2.4% rate in Q2 and is up 2.9% from a year ago and up at a 3.7% annual rate from two years ago.
Implications: Real GDP grew at a 1.7% annual rate in Q2, beating consensus expectations, but staying at a Plow Horse pace. We like to focus on real GDP growth outside of government, trade, and inventories and that measure grew at a moderate 2.6% pace in Q2. The more interesting news came from “benchmark revisions” some of which went back to 1929. Those revisions show the Great Recession was still big, but not quite as steep. New data also show the economy has grown slightly faster in the past three years (2010-12): 2.2% versus 2.0%. We’re now estimating real GDP growth will pick up in the second half of the year and grow about 3% in 2014. The Federal Reserve meets later today and nothing in the GDP report supports the case for aggressive monetary ease. Nominal GDP – real GDP plus inflation – is up at a 3.7% annual rate in the past two years, very close to the average of 3.9% per year over the past 10 years. This is too fast for a short-term interest rate target near zero and suggests a quick end to quantitative easing would not hurt the economy. We expect the Fed to announce tapering in September and announce the end of quantitative easing in March. In other news today, the ADP employment index says private payrolls increased 200,000 in July. Plugging this data into our models suggests the official Labor report (released Friday) will show a gain of 155,000 nonfarm and 159,000 private. The Chicago PMI, a regional measure of manufacturing sentiment, increased to 52.3 in July from 51.6 in June. Recent news on housing has been very good. The Case-Shiller index, which measures home prices in 20 key metro areas, showed a gain of 1% in May and 12.2% from a year ago. Recent gains have been led by San Francisco, Las Vegas, San Diego, and Detroit (yes, Detroit!). Pending home sales which are contracts to buy existing homes, declined 0.4% in June after rising 5.8% in May. These figures, combined, suggest a rebound in existing home closings in July.
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Non-Farm Payrolls Increased 162,000 in July To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 8/2/2013
Non-farm payrolls increased 162,000 in July versus a consensus expected 185,000. Including revisions to prior months, nonfarm payrolls were up 136,000.
Private sector payrolls increased 161,000 in July (+135,000 including revisions to prior months), lagging the consensus expected 195,000. The largest gains were for retail (+47,000), restaurants & bars (+38,000), and professional & business services (+36,000, including temps). Government payrolls ticked up 1,000.
The unemployment rate declined to 7.4% (7.390% unrounded) from 7.6% (7.557% unrounded).
Average weekly earnings – cash earnings, excluding benefits – declined 0.1% in July but are up 1.9% from a year ago.
Implications: A Plow Horse report on improvement in the labor market in July, with some good data, some soft data, and some numbers right in the middle. The best news was that the unemployment rate dropped to 7.4%, the lowest since December 2008. Civilian employment, an alternative measure of jobs that includes small business start-ups, rose 227,000, helping push the jobless rate down. However, the jobless rate also dropped because of a 37,000 decline in the labor force. We don’t think the decline in the labor force is going to continue and expect the jobless rate to decline in the year ahead even as the labor force starts growing again. That’s been the trend over the past year, as the unemployment rate has dropped 0.8 points while the labor force has increased 686,000. The so-so data in today’s report was a below-consensus 162,000 increase in payrolls, only 136,000 including revisions to prior months. Notably, the two strongest sectors were retail (+47,000) and restaurants & bars (+38,000). In the past year, retail has added more jobs than in any year since 2000; restaurants & bars than in any year since at least 1990. This suggests employers, when possible, are hiring more part-time workers to avoid Obamacare. The worst news in today’s report was a slight decline in total hours worked as well as wages per hour. Still, in the past year, hours are up 2.1% while wages per hour are up 1.9%, for a 4% gain in total cash earnings in the past twelve months. After adjusting for inflation, these earnings are still up 2% from a year ago. In other words, despite July, the trend is for workers generating more purchasing power. The labor market once again forcefully rejected the theory that the sequester is hurting the economy. Since the sequester went into effect, nonfarm payrolls are up an average of 173,000 per month versus 136,000 for the same four months (March – July) a year ago. The big financial market question is how the Federal Reserve reacts to today’s report. We think the numbers support the case that it will announce a tapering of its asset purchases in September. And we still expect an end to quantitative easing announced in March 2014. Obviously, the labor market is far from perfect. What’s holding us back is the huge increase in government, particularly transfer payments, over the past several years. Despite that, entrepreneurs and workers are gritting out a recovery and the Plow Horse economy keeps moving forward.
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"Despite that, entrepreneurs and workers are gritting out a recovery and the Plow Horse economy keeps moving forward."
Good grief. Entrepreneur is a noun in need of a past tense form for proper usage. How does pure spin hold up to facts?
"Over the past year, real GDP has grown by only 1.4 percent, with inflation at 1.5 percent, according to revised GDP reports. Nominal GDP growing at only 2.9 percent is virtually a post-WWII low. It’s a rate that’s more appropriate for recessions than recoveries."
http://www.nationalreview.com/article/354989/summerss-end-larry-kudlow
1.4% real growth when breakeven growth used to be considered 3.1% means economic decline. Real startup rates are at all time lows.
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Patriot Post:
If creating jobs is Obama's focus, he needs glasses. As usual, headline numbers look good -- unemployment dropped to 7.4 percent in July from 7.6 percent in June. But the underlying data is not at all good. The number is only ticking downward due to attrition, not job creation. Though the economy added 162,000 jobs, a third of them were in retail (read: part-time), while construction lost 6,000 jobs. Numbers for May and June were revised downward, hours and earnings declined (while Obama's tax hikes take a bite out of paychecks), and the number of people who gave up looking for work increased. If labor participation remained what it was in 2009, unemployment would be 10.7 percent.
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The bull market is starting to look like a stampede.
After taking more than 13 years to climb to 1600 from 1500, the S&P 500 index of big U.S. stocks didn’t even take 13 weeks to add the next 100 points. On Thursday, just 90 days after rising above 1600, the S&P 500 closed at 1706.87, the 24th time it has hit an all-time high this year; on Friday, both the S&P 500 and the Dow Jones Industrial Average again set record highs.
Counting dividends, the S&P 500 is up 177% since the lows of March 2009—and many investors can’t stand watching anymore. After years of withdrawals, money is finally coming back into U.S. stock funds, with more than $7.5 billion pouring in last month, according to the Investment Company Institute, a trade group.
Some investors undoubtedly are telling themselves, “I’ll know when it’s time to get out” or “I’m a long-term investor, so a short-term drop in the market won’t bother me.”
When stocks are going up, it’s easy to imagine that you will stick to your plan when stocks go down. And it’s hard to imagine that in the next market panic, the heat of the moment could reduce your resolutions to ashes.
A new study sheds light on why people who “precommit” to structured decisions that lock them into a plan are better able to stay the course than those who rely on willpower alone—and how precommitting might be rewarding in itself.
In the research, just published in the journal Neuron, a team of neuroscientists based in England, Germany and Switzerland sought to learn more about what enables people to wait longer for a larger reward instead of grabbing a smaller profit sooner.
When Ulysses asked to be tied to the mast to resist the song of the sirens, he was precommitting to stay put no matter what—because he knew his willpower might weaken at the worst possible time.
Investors can tie themselves to the mast, too, with structures that lock you into a decision and impose a cost if you change course—mutual funds with redemption fees to deter short-term trading, certificates of deposit with penalties for early withdrawals or “dollar-cost averaging” plans that automatically sweep a fixed amount from your bank into a fund every month.
In the study, participants sometimes relied on willpower alone to wait longer for a larger reward. Sometimes the same participants could precommit by choosing to make the smaller, earlier prize unavailable—and unable to tempt them as they waited for the larger reward.
For the 78 men in the study, aged 18 to 35, the rewards were glimpses at photos of scantily clad women; some (the “larger” rewards) were more attractive than others (the “smaller” rewards). Images of the opposite sex, many experiments have shown, activate the same areas of the brain that respond to financial gain.
Unsurprisingly, the men were much less likely to defer gratification when they relied only on willpower than when they chose to precommit.
Another result was surprising. When men who found it “quite difficult” to wait for the larger reward chose to precommit, says Molly Crockett, a neuroscientist at University College London who led the study, brain scans showed intense activation in the reward circuitry of their brains.
“Protecting yourself against the possibility that you might turn out to be weak-willed,” she says, may have a “subjective value” to the human brain.
So if you are considering an entry—or return—to the stock market, ask yourself if you are ready to precommit to it.
You could buy a fixed amount every month in a dollar-cost-averaging plan; sign an investing contract, witnessed by family or friends, stipulating how long you will hold your investments; name the account after a goal, such as saving for college or retirement; or craft a checklist that spells out the only conditions under which you would sell.
If you aren’t willing to tie yourself to the mast, you almost certainly don’t belong in stocks at all at this point—since the course may well be far rougher in the future than it recently has been. And your willpower, no matter how firm you think it is, will probably fail you when the market takes a bad drop.
As “Adam Smith” said of the stock market in his classic book “The Money Game”: “If you don’t know who you are, this is an expensive place to find out.”
– Write to Jason Zweig at intelligentinvestor@wsj.com, and follow him on Twitter:@jasonzweigwsj
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second post
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Personal Income Increased 0.3% in June To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 8/2/2013
Personal income increased 0.3% in June, coming in slightly below the consensus expected gain of 0.4%. Personal consumption rose 0.5%, exactly as the consensus expected. In the past year, personal income is up 3.1% while spending is up 3.3%.
Disposable personal income (income after taxes) increased 0.3% in June and is up 1.9% from a year ago. The gain in income was primarily driven by private wages & salaries and interest/dividends.
The overall PCE deflator (consumer prices) rose 0.4% in June and is up 1.3% versus a year ago. The “core” PCE deflator, which excludes food and energy, was up 0.2% in June and is up 1.2% in the past year.
After adjusting for inflation, “real” consumption increased 0.1% in June and is up 2.0% from a year ago. Real spending was up at a 1.8% annual rate in Q2 versus the Q1 average.
Implications: Another month, another Plow Horse report on income and spending. Income grew 0.3% in June and is up 3.1% from a year ago. Adjusting for inflation, real income is up 1.8% from a year ago. These gains are not being artificially supported by government transfers; excluding transfers – such as Medicare, Medicaid, Social Security, and unemployment insurance – real personal income is still up 1.7% from a year ago. Despite what some pundits are saying, there is still no evidence that the end of the payroll tax cut or federal spending sequester is hurting consumers. Real consumer spending is up 2% from a year ago; at the same time last year, real spending was up 2.2% over the prior year, not much difference. We expect further gains in both income and spending over the remainder of the year. Job growth will continue and, as the jobless rate gradually declines, employers will be offering higher wages. Meanwhile, consumers’ financial obligations are hovering at the smallest share of income since the early 1980s. (Financial obligations are money used to pay mortgages, rent, car loans/leases, as well as debt service on credit cards and other loans.) On the inflation front, the Federal Reserve’s favorite measure of inflation, personal consumption prices, was up 0.4% in June, while core consumption prices were up 0.2%. Overall consumption prices are up only 1.3% in the past year while core prices, which exclude food and energy, are up only 1.2%. Both are below the Fed’s 2% target. However, we think these price measures will be noticeably higher by year end. In other news yesterday, cars and light trucks were sold at a 15.7 million annual rate in July, down 1.8% from June but up 11.2% from a year ago. At present, we’re forecasting that real consumer spending will grow at a moderate 2% - 2.5% annual rate in the third quarter.
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The Wesbury Plowhorse economy
(http://www.realclearpolitics.com/cartoons/images/2013/08/01/gary_varvel_new_gary_varvel_for_08012013.gif)
http://www.realclearpolitics.com/cartoons/cartoons_of_the_week/index.htmlqqq
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Monday Morning Outlook
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Politicizing the Economy To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 8/5/2013
If we were put in charge of the world, if we had complete control of fiscal and monetary policy, we would change things.
But we aren’t in control. And complaining gets us nowhere. Our job is to keep investors informed and to share our best thinking about where the economy and financial markets are headed.
We won’t always be perfect. We have made mistakes in the past and we will make them in the future. When we are wrong, we will say so, and when we are right, we will try to remember when we were wrong.
At the same time, we will attempt to figure out why we were wrong. For example, we thought the US would avoid a recession in 2008 – we wrote it, we said it on TV, we gave speeches about it. We were wrong. Unfortunately, we thought there was no way that the government would allow mark-to-market accounting (M2M) to remain in place.
We think this was our mistake. It was so clear to us that M2M was the problem, but the Paulsen Treasury and Bernanke Fed did not see it that way. The result: TARP and QE.
Both TARP and QE were mistakes. In the six months after TARP was passed and QE first went into effect, the S&P 500 fell an additional 40%. The stock market did not bottom until overly rigid M2M accounting rules were fixed in March/April 2009. That’s when the economy and the stock market reversed course. This wasn’t a coincidence.
We also don’t subscribe to the Reinhardt-Rogoff thesis, that economic growth is always slow after financial crises. We believe the only reason this appears to be true is because governments often grow and make major mistakes during and after financial crises. It is the growth of government and major policy mistakes that hold the economy back, not the crisis itself. In other words, we are not surprised by the relatively slow recovery, but we completely disagree with the conventional wisdom about why it is so.
The real drivers of growth, the real creators of wealth have nothing to do with most of what people are talking about today. It’s not about deleveraging and QE, rather it’s about Entrepreneurs versus government.
New ideas, innovation, creativity, and surprises, drive growth. And these days, innovation is amazing. Fracking, the Cloud, Smartphone, Tablet, 3-D printing…all these, plus more, boost productivity, profits and opportunity. And they are doing so in spite of what we think are policy mistakes.
This puts us on the wrong side of both political parties. The Right, who superficially understand supply-side thinking, see a recession around every corner and argue day and night that the economy is awful, terrible, or inches from another recession. It’s all because of Barrack Obama. The Right wants a recession to prove that government is too big.
The Left blames capitalism for the crisis, hates the Sequester and always wants more government, so it also wants to spin the economy in a negative light. The Left wants more spending and will argue that the economy needs it.
We weren’t surprised when both the front page and the editorial page of the Wall Street Journal argued that the July employment data were evidence of an economy in trouble.
We, on the other hand, look at the July data and are kind of amazed. Forty-one months of consecutive gains in private sector payrolls! And Q2 GDP, even at 1.8% growth, seems almost miraculous, given tax hikes, Obamacare, Dodd-Frank, QE, and Sequester politics.
We aren’t arguing it’s a boom, but it certainly isn’t a bust either. We call it the Plow Horse economy, and we are not shocked that corporate profits have been beating the consensus 2/3rds of the time for the past 4 years. And, for the record, since QE money creation is boosting “excess reserves,” and not M2, and since government spending has been falling as a share of GDP, we don’t believe it’s all a sugar high, either.
What we are trying to say is: “our narrative” is different from the “politicized narrative.” This means our narrative is attacked from both sides. We have been called “friends of Obama” and “right wing extremists” on the same day.
Others don’t miss a chance to say “First Trust missed the recession of 2008” as if this proves we don’t understand what’s going on today. But when we step back, especially after a 177% total return for the S&P 500 since March 2009, and a 4.8% annualized return since 12/29/2007, we think the naysayers are allowing their political views to bias their economic/market forecasts. We try really hard not to do that. What we want to do is help investors make better decisions.
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http://hotair.com/archives/2013/08/05/part-time-jobs-account-for-97-of-2013-job-growth/
Part-time jobs account for 97% of 2013 job growth
posted at 9:21 am on August 5, 2013 by Ed Morrissey
Being on vacation last week meant that I missed the jobs report for July, which turned out to be as unremarkable as most of those in the four-plus years of the so-called economic recovery. The media reports I did catch while on the cruise focused mainly on the fact that the jobs added in July missed the expectations of analysts, and not on the fact that adding only 162,000 jobs meant another extension of stagnation, as the US economy needs ~150,000 jobs added each month just to tread water, thanks to population growth. That’s not even a decent maintenance number, let alone the kind of job growth needed to put the chronically unemployed back to work.
The media reports also missed another trend in job reports, one caught by a former chief of the Bureau of Labor Statistics and reported by McClatchy’s Kevin Hall this morning. Almost all of the job growth this year came in part-time work — and when we say “almost all,” we mean 97% of it:
The unemployment rate is measured by the separate Household Survey, and it fell two-tenths of a percentage point to 7.4 percent, its lowest level since December 2008. That’s due in part to slow growth in the labor force. The jobless rate is based on a sample of self-reporting from ordinary people across the nation, and it’s the Labor Department measure that shows a very troubling trend in hiring.
“Over the last six months, of the net job creation, 97 percent of that is part-time work,” said Keith Hall, a senior researcher at George Mason University’s Mercatus Center. “That is really remarkable.”
Hall is no ordinary academic. He ran the Bureau of Labor Statistics, the agency that puts out the monthly jobs report, from 2008 to 2012. Over the past six months, he said, the Household Survey shows 963,000 more people reporting that they were employed, and 936,000 of them reported they’re in part-time jobs.
“That is a really high number for a six-month period,” Hall said. “I’m not sure that has ever happened over six months before.”
And Hall says there has to be something driving that kind of trend, and thinks he knows what it is:
“There is something going on if such a large share of the hiring is part time,” Hall said. …
Hall speculated that the implementation of the Affordable Care Act, shorthanded as Obamacare, might be resulting in employers shifting workers to part-time status to avoid coming health care obligations.
“There’s been so much talk about the effects of Obamacare on part-time work,” he said. “This is such an unusual thing to see.”
Forbes’ Chris Conover wrote about this trend last week, before the BLS published the July jobs report:
Denialism may be too strong a term.[1] But there seem to be a lot of people arguing that Obamacare has little or nothing to do with the rise in part-time employment. Some deny the rise is even happening, while others are content to deny that Obamacare is the culprit. Admittedly, it takes a little detective work, but if we systematically review the available empirical evidence in an even-handed fashion, the conclusion seems inescapable: Obamacare is accelerating a disturbing trend towards “a nation of part-timers.” This is not good news for America. …
Ratio of New PT Workers to New FT Workers Explodes in 2013. For the most part, an examination of metrics measured in millions (e.g., involuntary PT workers or total PT workers) masks what is really going on. A much better sense is given by comparing the changes in PT employment to the changes in FT employment. Because the monthly Current Population Survey are so volatile, it is easier to see what is going on by calculating an average monthly figure for each calendar year to get a sense of whether the number of PT or FT is rising or falling. We only have six months of data for 2013, but this method allows us to compare the average monthly count for the year to date with the average monthly count from prior years on an apples-to-apples basis. We can then calculate the ratio of new PT workers in an average month to new FT workers in an average month. Obviously this ratio will turn negative in years that either FT or PT workers have declined on average. So over the past decade, there’s only 4 other years with which to compare the 2013 experience.
(http://media.hotair.com/wp/wp-content/uploads/2013/08/forbes-pt-ft.jpg)
What should immediately be obvious to even someone without a shred of statistical training is how deviant the 2013 experience is compared to the past. For every new FT job added to the economy, there were 4.3 PT jobs added! In most (non-negative) years, the ratio is the reverse: that is, there are typically 5 FT jobs added for every new PT job. Even in 2004—the year with the second-highest ratio during this time-frame–there were 2 FT jobs for every PT job, yielding a ratio of 0.5. Even if growth in PT vs. FT workers reverted to its historic pattern for the balance of 2013, the year’s average monthly ratio still would be four times as large as the 2nd highest ratio from 2004.
The July report only confirms that trend. Only 92,000 full-time jobs were created, while 172,000 part-time jobs got filled (not net numbers). The only major influence in 2013 that differs from the preceding three years of the recovery is the impending ObamaCare mandate on employers, which the Obama administration will try to postpone for a year. The data shows that businesses have already begun to react by minimizing their risk and costs through part-time employment, thanks to the perverse incentives set up by the ACA, and that this will continue as long as the mandate exists.
Maybe that’s why it’s so difficult to find ObamaCare defenders these days — at least unpaid ones. OFA tried to stage a rally in Centreville, Virginia yesterday, but only one person bothered to attend, and even the organizer took a powder after less than a half-hour on the job:
That means gatherings like today’s in Centreville — although the slow start here is probably not what OFA organizers had in mind. After a scheduling snafu over the start time, a few people showed up and left before it actually started. Just one volunteer stayed to help work the phone bank for the health law, and the event’s organizer bolted after 20 minutes — although he was bound for another Obamacare event, a house party.
Another part-time worker, eh?
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FWIW the number I saw elsewhere was that 75% of the jobs "created" this year were part-time, not 97%.
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This Rally Has Been Based on a “Fantasy,” Says Peter Schiff
By:
Lauren Lystrer
Source:
Yahoo Finance
June 6, 2013
Markets are slightly higher in the U.S., the day after the second-largest point decline of 2013 for the Dow Jones Industrial Average (^DJI), according to the Wall Street Journal. The Dow dropped 216.95 points or 1.4% to below 15,000, while the S&P 500 (^GSPC) fell 1.4% and the Nasdaq (^IXIC) composite fell 1.3%.
So what happened?
Some reports blame it on concern over wild swings in Japanese stocks and rising expectations that the Federal Reserve may be moving closer to scaling back its easy money bond buying policies.
But if the stocks had closed in the green yesterday, it’s easy to picture the explanations about how a weak ADP Private Payroll report made investors more confident that Fed “Taper Talk” has come too early and is on hold for now, thus restoring confidence easy money will continue to flow. Also, late last month U.S. investors shrugged off a 7 percent sell off in Japanese stocks, as USA Today notes.
As opposed to trying to figure out why the market fell, “maybe the better question is why has it been rallying all these days or weeks or months,” Peter Schiff tells The Daily Ticker in the accompanying interview. He’s CEO and chief global strategist of Euro Pacific Capital and chairman of Euro Pacific Precious Metals.“
I think Wall Street has been trying to convince itself that despite the data, the U.S. economy is actually recovering,” says Schiff. “And I think over the last several weeks so many data points have come in to disappoint this fantasy of an economic recovery, that I think maybe it’s finally starting to set in.”
Schiff points to weaker than expected ISM manufacturing data showing the largest contraction in four years as an example.
Schiff also points to the fear of rising interest rates in a weakening environment and concern that even if the Fed is printing money it’s not going to overcome that.
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Continuing the conversation with this from the other side:
http://www.ftportfolios.com/Commentary/EconomicResearch/2013/8/5/all-roads-lead-to-profits
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Continuing the conversation with this from the other side:
http://www.ftportfolios.com/Commentary/EconomicResearch/2013/8/5/all-roads-lead-to-profits
:roll:
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http://www.breitbart.com/Big-Government/2013/08/04/Study-U-S-Debt-Obligations-70-Trillion
Study: U.S. Debt Obligations $70 Trillion
by Wynton Hall5
A new study by University of California-San Diego economics professor James Hamilton finds that the United States has over $70 trillion in off-balance sheet liabilities--an amount nearly six times the on-balance-sheet debt figure.
The Treasury debt outstanding is $16.74 trillion. Of that, $4.84 trillion is money the U.S. owes itself. For that reason, explains Matt Phillips of Quartz, “many analysts tend to focus on the $11.91 trillion in debt that is publicly available to be traded.”
Hamilton’s study, however, examined the federal liabilities that are not included in the government’s officially reported numbers. Specifically, he examined the federal government’s “support for housing, other loan guarantees, deposit insurance, actions taken by the Federal Reserve, and government trust funds.”
Not surprisingly, Hamilton found that Medicare and Social Security represent the bulk of future U.S. debt obligations, coming in at $27.6 trillion and $26.5 trillion respectively.
The study's $70 trillion debt estimate may actually be overly optimistic. Boston University economics professor Laurence J. Kotlikoff, who served on President Ronald Reagan’s Council of Economic Advisers, says the nation’s true debt obligations are three times that figure.
"If you add up all the promises that have been made for spending obligations, including defense expenditures, and you subtract all the taxes that we expect to collect, the difference is $211 trillion. That's the fiscal gap," Kotlikoff told National Public Radio. "That's our true indebtedness."
Hamilton concedes that other scholars may arrive at different figures.
“Some may argue that the current off-balance-sheet liabilities of the U.S. federal government are smaller than those tabulated here; others could arrive at larger numbers," writes Hamilton. "But one thing seems undeniable—they are huge.”
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A nice job of balance and presenting both sides on the forum. As always, Wesbury makes some valid and worthwhile points. I like his honesty admitting that he missed the last crash, consistently over-estimates growth in the slow cycles and as an investment house economist he fully intends to miss the next crash when it again rears its ugly head. He cherry picks an S&P rise of 177% as if anyone including himself ever called the exact bottom or top of any market swing. Without stating explicitly that the S&P is a collection of established companies that operate globally and mostly benefit from the over-regulaiton that freezes out competition, he hints around at the fact that this economy is currently producing virtually no startups capable of continuing our economic growth.
I agree with Wesbury that if you have the benefit of looking at your investments in the rear view mirror, you should have been fully invested during upswings. Implied is to also be all-out of long positions during downswings. Good luck with that.
FYI to Wesbury: "Fracking, the Cloud, Smartphone, Tablet, and 3-D printing" are NOT new ideas. Fear of a no-growth, declining workforce, capital punished economy collapsing under the weight of liabilities of $70 trillion, rapidly increasing tax rates and 174,545 pages of federal regulations is not "wanting a recession to prove that government is too big".
Wesbury inadvertently nails the whole question: "The real drivers of growth, the real creators of wealth ... it’s about Entrepreneurs versus government." Who does a reasonable person think is winning the battle of entrepreneurs versus government? Hint at the answer is above, liabilities of $70 trillion, rapidly increasing tax rates and 174,545 pages of federal regulations, while the rate of real startups is at an all time low.
Paraphrasing the WSJ, the President doesn't know or won't admit that the private sector has to create wealth before government can redistribute it.
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http://blogs.the-american-interest.com/wrm/2013/08/06/chicagos-pensions-crisis-in-black-and-white/
August 6, 2013
NYT: Chicago The Next Detroit
How much trouble is Chicago in? According to the New York Times front page this morning, this much trouble:
The pension fund for retired Chicago teachers stands at risk of collapse. The city’s four funds for other retired city workers are short by $19.5 billion. At least one of the funds is in peril of running out of money in less than a decade. And starting in 2015, the city will be required by the state to make far larger contributions to the funds, which could leave it hundreds of millions of dollars in the red—as much as it would cost to pay 4,300 police officers to patrol the streets for a year.
“This is kind of the dark cloud that’s coming ever closer,” Mr. Emanuel said in a recent interview, adding that he had no intention of raising his city’s property taxes by as much as 150 percent—the price tag, he says, that it might take to pay such bills. “That’s unacceptable.” [...]
Among the nation’s five largest cities, Chicago has put aside the smallest portion of its looming pension obligations, according to a study issued this year by the Pew Charitable Trusts. Its plans were funded at 36 percent by the end of 2012, city documents say. Federal regulators would step in if a corporate pension fund sank to that level, but they have no authority over public pensions.
That 2015 mandatory increase? $1 billion.
The fact that the Times is giving Chicago’s long-festering mess such prominent coverage this morning is a testament to how Detroit’s thunderous collapse has made all these sorts of previously over-the-horizon problems seem a lot closer and menacing. Also prominently featured in the article is the blue civil war simmering beneath the surface: public unions are squaring off against Mayor Rahm Emanuel, who has threatened to increase retirement ages and freeze inflation adjustments to union benefit plans in order to help cushion the impact of those approaching mandatory increases in the city’s outlays.
The article’s best quote goes to another close Obama aide who’s running against Governor Pat Quinn in next year’s elections, William M. Daley: “Anyone who thinks that this is just a problem on paper, those are the same people who looked at Detroit 20 years ago and said, ‘Don’t worry about it, we can handle it.’” We’re glad to see that at least a couple of the cogs in Chicago’s long-ruling Democratic machine have awoken to the crisis at the city’s doorstep. Better late than never.
The one unspoken question: can Obama stand idly by if his hometown starts going down the tubes on his watch?
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http://www.ftportfolios.com/Commentary/EconomicResearch/2013/8/6/qe,-stock-buybacks,-and-pe-ratios
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(http://3-ps.googleusercontent.com/h/www.powerlineblog.com/admin/ed-assets/2013/08/584x416xBQ62ovOCcAAE5E7.jpeg.pagespeed.ic.uHMrctpw6H.jpg)
The S&P index of entrenched companies operating globally going up 177% is not evidence that the plowhorse economy is stronger and healthier than we think.
Is there any chance that interest rates artificially set at zero, moving all money to equities, quantitative easing, flooding 85B/mo. into the market, and over-regulation, locking out all new competition, had anything to do with stocks going up while the rest of America and the world are all stuck in stagnation?
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http://www.powerlineblog.com/archives/2013/08/welcome-to-the-recovery.php
Is it possible that the U.S. economic recovery is currently, at this very moment, moving at the fastest pace at which it will ever move? (under these policies)
The BEA GDP growth figure for 2Q13 was +1.7% http://www.bea.gov/newsreleases/glance.htm, meaning that the United States economy grew 0.425% over that period. That is about half of what we might like. Bill Gross at PIMCO, among others, has been advancing the proposition that this low-or-no growth is the “new normal” for the United States http://www.pimco.com/EN/Insights/Pages/Gross%20Sept%20On%20the%20Course%20to%20a%20New%20Normal.aspx.
My prediction [Joe Malchow, Powerline] is that his 2009 missive by that title will be remembered for a very long time. His post-election letter questioned “Retrain, rehire into higher paying and value-added jobs? http://www.pimco.com/EN/Insights/Pages/Strawberry-Fields-Forever.aspx That may be the political myth of the modern era. There aren’t enough of those jobs. A structurally higher unemployment rate of 7% or more is the feared ‘whisper’ number in Fed circles.”
All manner of things change in a low-or-no growth economy, especially the relative attractiveness of predation as an economic modality. Over a sufficient period of time, this transforms the great lie of liberalism–that your neighbor’s success is the cause of your poverty–into a terrible truth. We aren’t there yet. The consensus among the money managers I know (and the ones I overhear in the cafes of Palo Alto) is that we are still in a tepid recovery, slowly climbing our way back to our historical growth metrics. But what if this is as good as it gets?
Here is a chart just published by Ashok Rao:
(http://2-ps.googleusercontent.com/h/www.powerlineblog.com/admin/ed-assets/2013/08/580x348xunemploychange-600x360.png.pagespeed.ic.uqSBXV4o5v.jpg)
This chart helps us see the second order of number of unemployeds–i.e., not the number of people unemployed, nor the change in the number of people unemployed, but the rate of improvement in the change of the number of people unemployed. As you can see from the shaded areas, which are recessions, what happens as a recession is ending and the U.S. is returning to growth is that the number of unemployeds falls, and falls at a faster rate. It then seems to normalize, somewhat, at a negative rate, during which periods we have good, solid growth. Crucially, the rate of improvement in the number of unemployeds never gets too fast. Over the last forty years it seems to be negative-bounded at -10%. What that means is that there is very little precedent for our current “recovery” to become any more furiously ebullient than it already is. It would mean that our labor market is now adjusted.
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The Trade Deficit in Goods and Services Came in at $34.2 Billion in June To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 8/6/2013
The trade deficit in goods and services came in at $34.2 billion in June, much smaller than the consensus expected $43.5 billion.
Exports rose $4.1 billion in June, led by gains in fuel oil, jewelry, and petroleum products. Imports declined $5.8 billion, led by consumer goods (such as cell phones), fuel oil, and petroleum products.
In the last year, exports are up 3.2% while imports are down 1.0%. Petroleum imports are down 12.6% from a year ago, while non-petroleum imports are up 0.4%.
The monthly trade deficit is $8.2 billion smaller than a year ago. Adjusted for inflation, the trade deficit in goods is $3.4 billion smaller than a year ago. This is the trade indicator most important for measuring real GDP.
Implications: The trade deficit in June narrowed to the lowest level since October 2009, as virtually all major categories of exports were up in June, while most major categories of imports were down. The trade deficit came in much smaller than the government estimated when it released GDP figures last week. As a result, the trade sector, which was originally estimated to be a drag of 0.8 points on real GDP growth, now appears to have had zero net effect on Q2 real GDP. For this reason we now believe real GDP grew at a 2.5% annual rate in Q2 versus the government’s original estimate of 1.7%. The big story here is what is happening to energy production in the US. The US has been experiencing a boom in energy production and exports over the past few years because of the technological advances in horizontal drilling and fracking, meaning a larger share of what we consume is produced domestically. In turn, we are importing much less. In fact, exports of petroleum products are up 11.2% over the past year while imports of petroleum products are down 12.6%. We expect this trend to continue and have a major impact on the trade picture. Led by fuel oil and petroleum products total exports reached an all-time high in June. This is happening despite a drop in exports to the European Union which are still down 1.7% from a year ago, but we expect positive gains over the coming year as the European Union starts to recover. Sales to the Pacific Rim are up 1.7% and sales to South/Central America are up 3.3%. We have been arguing for years now that technological advances, not just in energy, are driving growth, so this June trade number is just the kind of positive surprise we have been expecting. As we said above, look for an upward revision to Q2 GDP.
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The ISM Non-Manufacturing Index Rose to 56.0 in July
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 8/5/2013
The ISM non-manufacturing index rose to 56.0 in July, coming in well above the consensus expected 53.1. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The key sub-indexes were mostly higher in July, and all remain above 50. The new orders index rose to 57.7 from 50.8 and the business activity index increased to 60.4 from 51.7 while the supplier deliveries index gained to 52.5 in July from 51.5. The exception was the employment index, which declined to 53.2 from 54.7.
The prices paid index rose to 60.1 in July from 52.5 in June.
Implications: Just like its manufacturing sister report, the ISM service report boomed in July easily beating not only consensus expectations but the predictions from all of the 84 economics groups that made a forecast. Both reports signal a pickup in economic growth in Q3. The ISM service report expanded at the fastest pace in five months. The business activity index, – which has a stronger correlation with economic growth than the overall index – boomed to 60.4, while the new orders index also showed notable growth to 57.7. The only disappointing part of today’s report was the employment index which fell to 53.2. We expect this measure to move higher in coming months as more hiring occurs as companies see higher production in the future (which the business activity index is showing). On the inflation front, the prices paid index rose to 60.1 in July from 52.5 in June. Given loose monetary policy, we expect this measure to remain elevated over the coming year. Pessimistic analysts have been touting the end of the payroll tax cut and the federal spending sequester as reasons to expect weaker economic growth. But the truth, from looking at the data so far, is little to no significant impact from these events on the consumer or economy, and we do not think there will be. What we have here is a Plow Horse Economy that looks like it may be starting to trot.
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Brian Wesbury (with italics added): "What we have here is a Plow Horse Economy that looks like it may be starting to trot."
Plow horses don't trot, especially when pulling a load heavier than themselves.
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"The number of people receiving federally subsidized food assistance today exceeds the number of full-time, private-sector working Americans."
http://www.realclearpolitics.com/articles/2013/08/08/when_will_they_see_that_this_is_one_bad_recovery__119543.html#ixzz2bU2ISpAn
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Economics to Wesbury sometimes becomes art over science. But plow horses, even as a figure of speech, operate under the laws of Newtonian Physics where they measure 'work done', not results spun.
(http://upload.wikimedia.org/math/3/c/f/3cfc2c29eaa08d3c014a19bb46f60c8d.png)
The Workforce Participation Rate is up 0.1% since hitting the lowest point in our history since the time that women widely entered the workforce. Was he tempted to call this upsurge a 'canter'??
The private sector will trot when the load it is pulling becomes manageable. Neither spin not optimism will not overcome the laws of physics.
"The Right wants a recession to prove that government is too big."
If a huge boulder is hanging in the air directly over my family or neighborhood, expressing an awareness of gravity is not the same as wishing for it to fall.
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http://www.theblaze.com/stories/2013/08/09/dr-doom-predicts-get-ready-for-a-1987-style-crash/
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http://www.theblaze.com/stories/2013/08/09/dr-doom-predicts-get-ready-for-a-1987-style-crash/
A market correction of this sort seems just as likely to me as the Wesbury scenario that things just keep plowing forward, especially if the market sees a good likelihood of artificial stimuli ending. Calling the timing of it is always dubious.
170 of the S&P 500 are already tanking. The largest of the politically connected, crony companies are still holding up the growth in this market.
Note President Obama's comment that commitment to 'dual mission' of the Fed is central to his Fed Chair pick . He wants this sick and stalled economy under his watch propped up to maintain its 1% growth rate for the duration, no matter the long term cost. Maybe we can go that far before crashing and maybe we can't.
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http://money.msn.com/bill-fleckenstein/post--too-easy-money-makes-market-too-risky
Too-easy money makes market too risky
The liquidity-fueled rally of the past 9 months is easy to like. But recent history tells us higher prices based on easy money carry extreme dangers, so a violent drop could lie ahead.
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Retail Sales Increased 0.2% in July To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 8/13/2013
Retail sales increased 0.2% in July, (+0.4 including revisions to prior months) versus a consensus expected gain of 0.3%. Sales are up 5.4% versus a year ago.
Sales excluding autos were up 0.5% in July, coming in above consensus expectations of 0.4%. These sales were up 0.4% including revisions to prior months and up 4.0% in the past year.
The increase in sales in July was led by food and beverage stores, gas stations, and restaurants/bars. The largest decline was for autos.
Sales excluding autos, building materials, and gas rose 0.5% in July but were up 0.4% including revisions to prior months. If unchanged in August/September, these sales will be up at a 2.5% annual rate in Q3 versus the Q2 average.
Implications: Retail sales have increased for four straight months. Whatever happened to all the analysts who thought the sequester or fiscal cliff deal was going to kill the consumer? Despite their predictions of doom and gloom, we got another plow horse report on retail sales today. Sales came in almost exactly as the consensus expected, up 0.4% including revisions to previous months, and are up 5.4% since last year. With consumer prices up about 2% since last year, “real” (inflation-adjusted) sales are up about 3.4% in the past year. “Core” sales, which exclude autos, building materials, and gas, rose 0.5% in July the largest monthly increase this year and the 13th consecutive monthly gain. There was nothing in today’s report to write home about, but it is growth and much better than many analysts were projecting at the beginning of the year. For the rest of 2013, we still expect two major themes to play out for the consumer: first, an acceleration in consumer spending growth versus the past couple of years despite higher taxes and the sequester; second, a transition away from growth in auto sales and toward other areas, like furniture, appliances, and building materials. Consumer spending should accelerate because of continued growth in jobs, hours, and wages. In addition, households have the lowest financial obligations ratio (debt service plus other recurring monthly payments) since the early 1980s. In other news this morning, the trade sector continues to show subdued prices. Import prices were up 0.2% in July and are up only 1% in the past year. All of these small gains are due to oil. Ex-petroleum, import prices were down 0.5% in July and are down 0.7% in the past year. Export prices slipped 0.1% in July and are up only 0.4% in the past year. Excluding farm products, export prices were unchanged in July and exactly the same as a year ago.
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http://www.theblaze.com/stories/2013/08/09/dr-doom-predicts-get-ready-for-a-1987-style-crash/
Top technician: Yes, 2013 does look like 1987
OPTIONS ACTION, ALEX ROSENBERG, BUSINESS NEWS
CNBC.com | Monday, 12 Aug 2013 | 1:47 PM ET
Marc Faber frightened the market with his call that 2013 is looking a lot like 1987. But while the Gloom, Boom & Doom Report publisher has been quite bearish for some time, one top technician now says that the charts back up the unsettling comparison Faber made on Thursday.
(Read more: Marc Faber: Look out! A 1987-style crash is coming)
Carter Worth of Oppenheimer starts out with a simple premise: "Tops have a look and feel over and over and over."
Citing the same warning sign Faber pointed to, Worth said on Friday's "Options Action" that a top tends to come "as breadth starts to wane—and then the trouble ensues." With that in mind, he took to the charts to compare the current market action to the charts leading up to historical tops in the market.
Worth's first comparison is to the two years leading up to May 2011, when the market dropped on the S&P downgrade of the U.S. credit rating.
Worth notes the similarity between that chart and today's, noting that in 2011: "Basically we plunged, from May to August, about 20 percent." He added: "Now that's a fairly benign thing—20 percent—but it's the shape and look of the ascent that precedes the drop that's important."
Building on his case, Worth noted a similarity between August 2011 to August 2013, and the two years leading up to the decline of 1968.
"In 1968, we had a very similar two-year trajectory, just like the one we're in now, and then the trouble started," Worth said, presenting another chart that looks strikingly similar to our present situation. "In this case, it was in December of 1968, and over the next 18 months, we dropped 40 percent," he said.
Worth then looked at the chart of the two years leading up to the infamous crash of 1987.
Of all the periods that Worth looked at, 1987 is "the one that's the most correlated" with the current market—"it's running at a 96 percent correlation," he said.
Given that in 1987, the S&P fell some 40 percent in three months, Worth finds this correlation very troubling.
"Does it have to play out that way? No," he said. "But it really does speak to: What is one playing for by staying long? Is it asymmetrical risk-reward?"
In Worth's view, the risk-reward is indeed highly skewed. "Upside is limited, and by staying in, you embrace or prospectively take the punishment that is coming," he concluded.
(Read more: Siegel: Keep buying—you 'can't lose')
Dan Nathan of RiskReversal.com is of the same mind. "You probably have a few percent to the upside, but you could potentially have a really sharp down-10-percent move," Nathan said.
Of course, given what the market did in 1987 after topping out, perhaps a decline of just 10 percent would leave some investors thankful.
—By CNBC's Alex Rosenberg. Follow him on Twitter: @CNBCAlex.
URL: http://www.cnbc.com/100956742
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http://www.theblaze.com/stories/2013/08/09/dr-doom-predicts-get-ready-for-a-1987-style-crash/
http://money.msn.com/bill-fleckenstein/post--too-easy-money-makes-market-too-risky
Too-easy money makes market too risky
The liquidity-fueled rally of the past 9 months is easy to like. But recent history tells us higher prices based on easy money carry extreme dangers, so a violent drop could lie ahead.
By Bill_Fleckenstein Fri 10:10 AM
There is not much one can say to make sense out of the maniacal rise we have seen in the stock market since last fall, other than to note that the third and fourth rounds of bond buying by our Federal Reserve (aka QE3 and QE4) have boosted stock prices 20 to 25%.
Beneath the surface, however, stocks are a house of cards. Simply because prices are rising as a consequence of the massive liquidity injected by the Fed (and the Bank of Japan) – combined with "professionals" running other people's money who are terrified of not keeping up with the averages – does not mean that participating in the stock market at the moment is something that anyone who is sane ought to do.
The wrong kind of royal flush
Even so, resisting the siren song of apparently easy money is difficult, and most people eventually get sucked in. This is shown by the latest mutual fund statistics, which show that people are taking money out of bond funds and pushing it into stock funds.
It is not knowable when this maniacal rise in equity prices will come to an end. As I have stated many times, either the market has to exhaust itself, some sort of catalyst has to come into play or something has to stop the Fed. Obviously, the only thing that can take away the printing press is the bond market, and that will take some time.
As for "tapering," if the Fed tries to cut back its bond buying, my guess is that Wall Street would throw a fit and stock prices would tank, which would also hurt the economy. And if Fed Chairman Ben Bernanke and his colleagues are paying attention to the job market, nothing is occurring there to make them want to taper. Thus, I continue to think tapering is very unlikely.
He's just covering his basis
Perhaps Bernanke has an ulterior motive and wants to do a bit of tapering, if only to try to create the illusion that he's capable of being "tough." But I really can't speculate about that. I do know that printing money does not boost the economy or create jobs. All it does is misallocate capital, increase risk and precipitate inflation.
Meanwhile, many of those who were crushed in the stock and real-estate busts think we are in a Goldilocks (i.e., perfect) environment. In fact it is actually still 2009, just with much higher stock prices and a somewhat healthier banking system, thanks to taxpayer money and the fact that the Fed is stealing from savers via artificially low interest rates to give the proceeds to banksters. All in all, the financial environment is literally a house of cards built on runaway speculation.
Burning Japanese
Tuesday night, Japan was the scene of a fair amount of red ink, as its equity market lost about 4%, though the yen was quite strong. At least for the time being, those seduced into playing the easy-money game in Japan are seeing their financial dreams complicated by the fact that so many are all on the same side of the page. That problem will present itself in America at some point; we just don't know when.
Parenthetically, I think most people look at the fundamentals of the yen and say, "Wow, there is a currency that ought to decline." But in fact it has been rallying for the past month against the dollar, despite talk of tapering, and we can make the same comparison to the euro. I find it interesting that everyone can see the flaws in the yen and euro, yet for a while now those currencies have been doing better than the dollar, which so many people seem to think is still a sound currency. In any case, what this more likely illuminates is the wackiness of what transpires in financial markets in a world saturated with QE-created liquidity.
I am not the only one who thinks that beneath the shiny veneer of rising stock prices, the investing landscape has become fraught with risk. Many longtime successful investors do, as well. In his most recent newsletter, my good friend Fred Hickey shared a quote from Seth Klarman, founder of Baupost Group, that I found particularly timely and poignant. Klarman described the current investment environment as "… harder than it has been at any time in our three decades of existence … the underpinnings of our economy and financial system are so precarious that the unabating risks of collapse dwarf all other factors."
I suggest everyone read those two points a couple of times.
When the best offense is defense
At some point, the stock market will decline violently in a short space of time and there will be economic carnage in its wake. I continue to think that the computers that run so much money will eventually get loose on the downside at some point as the underlying economic and financial risks of the world rear their ugly heads. (Read “Every day, another flash crash” for more on those computers.)
Could it be two years from now? Yes, in theory, though I seriously doubt this can go on that long. I suspect the next nine months could be very pregnant – no pun intended.
In any case, folks need to be prepared for some serious carnage, even though the timing is not yet predictable.
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Even if they are all wrong, there seem to be a lot of articles coming out about an impending downturn. Not to feed the frenzy, but this one is called...
10 Reasons the Market Has Peaked
by Doug Kass, President of Seabreeze Partners Management Inc.
http://www.thestreet.com/story/12007604/1/kass-10-reasons-the-market-has-peaked.html?kval=dontmiss
1. Rising interest rates pose more of a threat to growth than many believe. At the core of my pessimism is that the U.S. economy will not likely be able to hold up in the face of an increase in interest rates and a higher cost of capital. The Fed's four-year-plus strategy of quantitative easing is growing increasingly more ineffective -- it has neither created jobs nor stimulated innovation. (Apparently, the San Francisco Fed now agrees.) Kick-starting asset prices and the production of economic growth of only 2% (in real terms) underscore the failure of trickle-down monetary policy and simply do not guarantee a self-sustaining recovery that will continue under its own momentum.
As I have previously written, the stock market, the consumer and the corporate and public sectors are addicted to low interest rates.
To date, the market has comfortably absorbed a doubling in the five-year U.S. note yield and a 110-basis-point increase in the 10-year U.S. note yield. The next rise in rates, however, will likely exact more of an economic and market toll (particularly on housing).
If you don't think the market is the beneficiary of quantitative easing and you think tapering is nonevent, consider that the Fed has printed $600 billion of new money this year. This has generated only a 1.5% increase in GDP or $300 billion this year. But thus far in 2013, there has been a 20% rise in the value of U.S. stocks -- that is a rise of $3.5 trillion (on a base of $20 trillion total market value). So, a change of policy (i.e., tapering), is more significant and impactful than most argue.
The "taper is not tightening" argument is semantics because less asset purchases equals less accommodation. Moreover, it is now the markets that have tightened policy over the last two months, as the Fed has begun to lose control of rates. (Note: The yield on the 10-year U.S. note resides at 2.66% this morning, only a few basis points from the recent high yield. In my judgment we are close to the line in the sand, where rates will adversely impact economic activity.)
2. Economic fragility. The recent data indicate that the domestic economy is growing moderately but steadily, but job growth is weak in quality, retail sales seem to be stalling, automobile sales have essentially flatlined since November 2012, and housing appears to be pausing (as measured by lower purchase applications, slowing traffic, reduced order books and rising cancelations).
I challenge anyone (excluding the economic perma-bulls) to say (with confidence) that the U.S. economy is at escape velocity. I don't believe it is self-sustaining without the benefit of continued quantitative easing. As expressed earlier, any further increase in interest rates will be a headwind to growth.
3. The economic prospects for China, the straw that stirs the drink of global growth, are uncertain. I am not only suspect of publicly stated China growth rates but I am increasingly concerned with the rapid pace of credit growth, which has been increasingly sourced from the more risky and less transparent Chinese shadow banking sector.
China's credit growth relative to its GDP growth has been too rapid, so the country's leadership is committed to slowing credit. This raises the risk of a banking crisis and subpar (5% or less) real economic growth.
This downturn in growth will likely have a systemic financial impact on China's banking industry (which could feed into non-Chinese banks), global economic growth and on the pricing of risk assets. (Note: I would recommend both Goldman Sachs' recent "Top of Mind" and Hedgeye's Moshe Silver's column in this week's Fortune for lengthier discussions of this issue.)
4. An expected 2013 tapering is likely a policy mistake. I anticipate a September tapering despite the economy still growing at less than its potential. In listening to the Fed fiesta over the past month, it appears that most Fed members want out of quantitative easing for two basic reasons: 1. It is increasingly clear that QE is having a reduced or more marginal impact on growth; and 2. it is also clear that some feel exiting a $4 trillion balance sheet will be a challenge.
This could be a policy error, especially if consensus and Fed economic projections are wrong-footed, as I think they are. If I am right, investors will begin to see tapering as premature relative to economic activity. Though tapering has been well-telegraphed and should start moderately -- let's say a $15-billion-per-month reduction from $85 billion -- if I have to quantify, I would guess that the S&P falls maybe up to 50 points in anticipation of it.
I recognize that though tapering lies ahead, tightening does not. That said, corrections can occur anytime, despite quantitative easing and despite zero interest rates as far as the eyes can see. Look at the weakness in the Nikkei. The hedge fund community's favorite regional stock market is almost 10% off its high despite even more expansive quantitative easing than in the U.S.
5. The Fed head selection represents a more significant market event than consensus believes. My money is on Larry Summers. The selection of Summers (the favorite) or Geithner (a very long shot) could cost the S&P something like 50 points, while the selection of Kohn or Yellen (second favorite) could be a marginal positive for the markets.
Though Summers has broad experience and is intellectually gifted, he would probably be difficult to work with, and the reduced transparency in a Summers-led Fed would likely increase asset price volatility. Both Yellen and Kohn are as qualified intellectually/academically and understand the workings of the Fed as they have been there forever. Also, they are highly respected by the other Fed members.
6. Politics will return to the front burner in the coming months. The September-October political agenda is lengthy, including the debt ceiling, government spending and immigration, tax and government-sponsored enterprise reform.
Though market participants have become inured to the nonsensical rhetoric, a lengthy fight and impasse could again weigh on consumer and corporate confidence as it has previously.
7. The bull market is long in the tooth. We now lie almost 54 months from the generational low of March 2009. Over the past six decades, the average bull market has been about 43 months, the longest bull markets have lasted 56 and 60 months. (Note: The longest bull streaks didn't face the structural economic headwinds that we face today; they had long runways of growth and technological innovation ahead of them.)
Moreover, the intermediate leg of the bull market, which commenced in November 2012, has already climbed by almost 30% in only eight months.
8. Changing leadership seen as a negative. As I recently wrote, sector/group leadership changes are typically a negative sign for markets. (And, as Jim Cramer suggested on Real Money yesterday, "It's hard to find leaders.")
Former market-leading financials (Financial Select Sector SPDR (XLF) is -4% off its high), housing (the most distributional pattern, with the iShares U.S. Home Construction ETF (ITB) -18% off its high), health care and biotech (iShares Nasdaq Biotechnology Index Fund (IBB) is -4% off high) sectors are all extended and in recent weeks have begun to show signs of lost momentum, underperformance and possibly distribution. At the same time, materials have improved, but few others have, suggesting that a broader-based (and healthier) sector rotation is not yet in place.
9. Breadth weakens. Though most indices are within 1% of an all-time high, new peaks have not been confirmed by breadth or by new 52-week highs since mid-July. This is particularly true with regard to NYSE (all issues) breadth, which includes a number of bond-equivalent stocks/ETFs. The same non-confirmation has developed in the Nasdaq Composite and S&P 600 indices. Relatedly, the McClellan Summation Index has rolled over (Hat tip, Chuck Berry!) and could go down further before even reaching a moderate oversold status.
10. Valuations are stretched. As I expect only 2%-4% growth in S&P earnings for 2013 and 2014, any further stock price gains are very dependent on improving valuations and multiple expansion.
S&P profit forecasts are for $107 a share for 2013, $110 a share for 2014, and $114 a share in 2015. Given these estimates and given the deep structural global economic issues (disequilibrium in the U.S. jobs market, continuing deleveraging, etc.) I deem an appropriate/reasonable P/E as between 14x to 15x (slightly under the five-decade average of 15.2x), a contraction in valuations from current levels
Finally, let's look at the "Shiller P/E ratio." My friend/buddy/pal FT Advisors' Brian Wesbury recently wrote the following:
In terms of market calls, few academics or economists can match Yale University economics professor Robert Shiller. In his 2000 book, Irrational Exuberance, he argued that 10-year averages of corporate earnings smoothed out the ups and downs of the business cycle. Then, using this "cyclically adjusted" level of earnings and comparing it to current stock prices, he claimed to generate a better version of the P/E ratio. Shiller's timing couldn't have been better. The "Shiller P/E ratio" was at an all-time high in 1999-2000, a clear signal of overvaluation and a reason to sell.
Today, Shiller's valuation work says that stocks are back to being in overvalued territory.
At the end of July, Shiller's ratio was 23.8, the highest since 2008.
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Scott Grannis took on Shiller argument and successfully deconstructed it IMHO (though I forget the details :lol: )
"1. Rising interest rates pose more of a threat to growth than many believe. At the core of my pessimism is that the U.S. economy will not likely be able to hold up in the face of an increase in interest rates and a higher cost of capital."
The argument here, and elsewhere in the piece, is Keynesianism. I am of the opinion that the low interest rate policy not only FAILED but was COUNTER PRODUCTIVE. Therefore does it not follow that its cessation is a nullity or even a good thing? Albeit not necessarily for the market!!!
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" I am of the opinion that the low interest rate policy not only FAILED but was COUNTER PRODUCTIVE. Therefore does it not follow that its cessation is a nullity or even a good thing? Albeit not necessarily for the market!!!"
It was an artificial stimulus. Yes, it was counter-productive and it failed because it didn't address the underlying problems. It stimulated some things at the expense of other things, distorted incentives and diverted resources from best use. Still, the beginning of the end of the monetary injection will most likely trigger the market downward in the short run as we may already be seeing.
Rising interest rates means that equities have to compete with other, safer places to tuck money, such as bonds, CDs, Treasuries, etc. instead of being the only category offering a possible return.
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Yes.
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The Games the Fed Plays With Your Investments
Judging the value of your portfolio is a lot more work these days than opening your account statement.
By DAVID C. PATTERSON
Federal Reserve Chairman Ben Bernanke is playing games with your investments. The Fed's quantitative-easing program and near-zero interest rate policy is explicitly aimed at (among other things) raising asset prices to create a "wealth effect" that will bring about more confidence and spending, which will support the economy and, in turn, the market.
The Fed's game isn't that easy to win, however. Since everyone knows what the Fed is doing, its actions are highly anticipated and "discounted" by the market, to the extent that when they actually occur they may have no effect on prices at all. Worse, they may have the opposite of the intended effect. This can happen if an "accommodative" move is judged to be a tad less so than was expected, sending the market down rather than up.
The Fed, of course, must take this possibility into account, since its whole wealth-effect strategy depends on market reaction. It may therefore have to make the move a little more accommodative, lest it disappoint.
But the market understands this also, and may have anticipated this second-order adjustment, a possibility that the Fed in turn must assess in deciding whether to make it. Mind you, "the market" isn't one person, but a very large number of different actors, each trying to anticipate how all the others will behave.
The process can at some point turn powerfully negative, if the monetary stimulus stops, or is expected to stop, or becomes ineffective—which it will if it is expected to become ineffective, because it is only effective based on what the market expects.
If your head is spinning by now, join the club. The conditions are those of a classic "game" in the language of game theorists. The job of that profession (which includes several Nobel Prize winners) is to predict and if possible handicap the possible outcomes of such games. You don't have to be much of a theorist to see that the number and volatility of outcomes increases geometrically with each new player, especially one as powerful and manipulative as the Fed.
And you don't need a theory at all to notice that the market has been regularly moving in the "wrong" direction: Bad news is good news, and vice versa, because it isn't the news itself that matters, but how the Fed will react to it—or, more accurately, how the market thinks it will react.
Price and value have a weak relationship at best on Wall Street, and the Fed seems intent on bringing about a complete divorce, by manipulating and generally inflating price, and by simultaneously undermining value.
Value, to make any sense for investment assets, must make some reference to why we hold the assets. Generally speaking, it isn't for the ability to convert them to cash, in bulk and on short notice, but to generate a cash flow, or income stream, that continues reliably over some lengthy if not indefinite period and preserves its purchasing power. Value for this purpose would be the size of such a cash flow that the assets can support.
The Fed's aggressive suppression of interest rates, while raising the price of bonds, has correspondingly destroyed their value. A 10-year Treasury bought today at a 2% yield would pay 1.2% net of tax (current top federal rate only), for an annual loss of .8% against the 2% rate of inflation that the Fed is aiming for. The loss would be greater against the higher rate that the Fed says it may tolerate, and greater still against the rate that many investors think they are really facing in their expenses.
Stocks have a better record of supporting lifestyles over long periods, but that ability also depends on their price level at the starting point. You might think that a draw of, say, 3% from a diversified equity portfolio would produce a cash flow that sustained its purchasing power over time. Yet looking at all 10- or 15-year, quarter-to-quarter periods since the start of the S&P index in 1926, this was true only about 60% of the time. Unless it is justified by real profit growth, higher price just means lower sustainable draw.
Higher prices logically mean lower value (more money having to be paid for the same thing), but they tend to correct themselves for just that reason: Wanting better value, people stop paying the higher price.
The rules are different in the game the Fed is playing. If the price of investment assets is going up, not because of improved economic conditions—creditworthiness of debtors, profitability of companies, real demand for commodities—but rather because the Fed has decreed that they shall go up, the natural, corrective effect is subverted, at least for as long as the Fed has credibility. In this respect there is no difference between prices on the stock market and in other markets: Engineered inflation is self-feeding rather than self-correcting, until it isn't. We saw this play out to disastrous effect in the housing market as low mortgage rates pushed home prices ever higher until they collapsed in 2007-08.
All in all, judging the value of your investment portfolio is a lot more work these days than opening your account statement. The more people do that work, of course, the less stimulated they will feel about spending, and the more futile will be Fed policy and its supposed "wealth effect."
Meanwhile, painful as it is to hold cash, it might pay to keep some handy as the game plays out. The Fed is a powerful but uncertain player. When it steps away, the turmoil may be more painful still, but will set the stage for a return of true value determined by market forces.
Mr. Patterson is chairman and CEO of Brandywine Trust Group LLC
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Good Luck Unwinding That
Submitted by Tyler Durden on 08/15/2013 20:08 -0400
• Across the Curve
• Ben Bernanke
• Bond
• Budget Deficit
• Gross Domestic Product
• Japan
• Reserve Currency
A few months ago, when discussing the most pertinent topic for Bernanke and his merry central-planning men we said that "with every passing week, the Fed's creeping takeover of the US bond market absorbs just under 0.3% of all TSY bonds outstanding: a pace which means the Fed will own 45% of all in 2014, 60% in 2015, 75% in 2016 and 90% or so by the end of 2017 (and if the US budget deficit is indeed contracting, these targets will be hit far sooner). By the end of 2018 there would be no privately held US treasury paper. Still think QE can go on for ever?" What followed was 3 months of heated debate on whether the Fed will or will not taper which for some reason were focusing on the wrong thing - the economy. Ironically, how the economy is doing has nothing to do with the Fed's decision, which is entirely decided by the increasing shortage of private sector "quality collateral" i.e., bonds.
How big is this shortage? As noted above, the Fed's literally absorbs ~0.3% of the bond market each week. And according to the most recently released Fed balance sheet data, this is indeed the case. According to SMRA calculations, the Fed owned about 31.47% of the total outstanding ten year equivalents. This is above the 31.24% from the prior week, and higher than the 30.99% from the week before - a rate of increase almost in line with what we predicted.Inversely this means that the percentage of ten-year equivalents available to the private sector decreased to 68.53% from 68.76% in the prior week. Long story short, the Fed just soaked up 0.23% of the bond market in one week and half a percent in two weeks, a ratio that will only increase in time, and unless there is a taper, may reach 0.5% per week.
At that level of bond market "takeover", the liquidity in what was once the world's most liquidity bond market, already lamented by the TBAC as we showed earlier this week, will evaporate entirely and the daily bond halts that were a norm in Japan in April and May will promptly come to the US. Only at that point, unlike the BOJ which had the Fed to fall back on, there will be no Plan B, as the opportunity cost of an illiquid bond market is the reserve currency status of the dollar and the credibility of the Fed - the two are interchangeable. Which also means the future of the entire global fiat system will be on the brink.
Which brings us to the point of this post.
Clueless economists and pundits are happy to trot out every now and then a chart showing the ratio of the Fed's balance sheet to GDP, which supposedly is meant to indicate that the Fed owning 20% of US GDP on its books is normal.
What said clueless economists never seem to grasp is that a Fed whose balance sheet is full of 3 month bills is completely diffrerent than a Fed whose balance sheet is full of 30 Year bonds. And the best way to represent that is by showing the 10 Year equivalent holdings of the Fed.
Presenting Exhibit A: the Fed's balance sheet represented in the form of 10 Year equivalent holdings.
The long-term average is ~4%. As noted above, it just hit 31.47% this week. And even with a taper (especially since the untaper will be just around the corner once the market crashes and the Fed has no choice but to jump right in), we fully expect that the Fed will hit its current SOMA limit of 70% of any and every CUSIP across the curve by 2016.
Take one look at the chart above, and extrapolate it reaching twice as high.
And then imagine how this Mt. Everest of 10 Year equivalents will be unwound.
Good luck with that.
This is the chart:
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/08/10%20Yr%20Equivalents.gif
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Scott Grannis thinks the numbers in the preceding piece are quite inaccurate.
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Scott Grannis thinks the numbers in the preceding piece are quite inaccurate.
"According to SMRA calculations, the Fed owned about 31.47% of the total outstanding ten year equivalents. This is above the 31.24% from the prior week, and higher than the 30.99% from the week before"
"with every passing week, the Fed's creeping takeover of the US bond market absorbs just under 0.3% of all TSY bonds outstanding: a pace which means the Fed will own 45% of all in 2014, 60% in 2015, 75% in 2016 and 90% or so by the end of 2017 (and if the US budget deficit is indeed contracting, these targets will be hit far sooner). By the end of 2018 there would be no privately held US treasury paper. Still think QE can go on for ever?"
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The point is not that this will happen. It won't. The point is that this course will change. It has to.
Separate from the fact that the amount and percentage is increasing, it is remarkable that debt is not debt. We owe ourselves a very significant and increasing portion of that total.
First, we borrow in our own currency, a luxury most countries don't have. It allows us to pay back, actually issue replacement debt, in devalued dollars that we never pay back, but replace again in devalued dollars. A free lunch of sorts - if you believe in that sort of thing. Now it turns out, well exposed on these pages, that we don't even pretend to borrow the actual amounts of our budget shortfalls from anyone. We just sort of invent the money. We get to spend the money, inject it with all the multipliers into the economy (keeping for time from falling below zero growth), and never even borrow it much less worry about paying it back. We magically 'buy' the debt with nothing but electronic entries, not by selling off national parks or federal office buildings. Then we point to poorly measured M-2 or M-nonsense indices and say that the money supply and the price level didn't even go up. Just more free lunch!
Problem is that we know there is no free lunch, just an accounting puzzle. The costs of these massive free lunches are out there lurking, whether Bernancke, Wesbury, Grannis, or any of us can immediately or demonstrably point to them or not.
The point of liberal governance, and Wesbury's plowhorse theory as well, is that our private sector is so strong that none of these impending certainties - funny money catching up with us, rising interest rates catching up with us, rising tax rates catching up with us, massive regulatory state catching up with us, lowered workforce participation rate and expanding disability and food stamp loads catching up with us, historically low rates of real business start ups, Obamacare's impending burden on employers, or just the market rising faster than the economy for 5 years and counting - not one of these things nor all of them combined will ever bring it all down.
I don't buy it.
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Walmart Earnings Disaster Exposes a Collapsing Economy: Davidowitz
.By Jeff Macke | Breakout – Thu, Aug 15, 2013 10:24 AM EDT..
Walmart (WMT) reported earnings of $1.24 a share this morning on revenues of $116.2 billion. Analysts had been expecting $1.25 on $118.5 billion. Sales in stores open more than a year declined 0.3%. Walmart also guided lower for the full year citing a "challenging sales and operating environment." The stock is off sharply and at risk of going negative for the last 52 weeks.
Those are the numbers, but not the whole story. Walmart is the thermometer of the American economy. Disregard the government data. Jobs and GDP and all the rest are at best inaccurate measures of the economy and at worst flat out corrupt. Walmart is capitalism writ large. The entire organization is focused on nothing but selling goods and services to Americans. It may be an empire in decline, but Walmart sells more than $1 billion worth of merchandise per day in a bad quarter. When Walmart misses estimates, it can only mean one of two things: either Walmart or the American economy is weaker than anyone thought.
Related: 3 Signs Walmart's Best Days Are Behind It
"Walmart is a terrific operator... They didn't suddenly become stupid," says says Howard Davidowitz, one of the top retail minds in the country. "The economy is in collapse. That's what's going on."
Davidowitz points out that Walmart isn't just a store for the downtrodden. They have 150 million customers which collectively spent less in Walmart stores than in the same period last year. Davidowitz says another 50 million customers shop at Target (TGT), which he also expects to have negative comp stores sales when it reports next week.
Don't forget that Macy's (M) also missed expectations yesterday. Three makes a trend. The GDP data is positive and the employment data says things are improving gradually. Either the best merchants in America forgot how to sell, Americans stopped consuming beyond their means, or the economy is turning south, not getting better.
Related: Macy's Miss Another Sign Retail Isn't the Place to Be: Hoenig
"I don't think we're in a recession right now, but I think there's a 50 percent chance we'll be in one next year," Davidowitz shouts, and there's nothing the government is going to be able to do about it. "We've spent all the money, we've borrowed all the money, and we're in the tank."
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My CREE took a big hit due to missing earnings. I'm out for now with my gains. This may prove to be an error but the price earning ratio was real high and CREE previously has been up to 80 before dropping to 20 before going back up to over 70. Unfortunately I need to be more risk averse than I perceive holding CREE to be at this point.
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http://finance.fortune.cnn.com/2013/08/19/stocks-valuation-eva/?iid=HP_LN
A sobering gut check for the market
By Shawn Tully, senior editor-at-large
August 19, 2013: 8:51 AM ET
What a rigorous metric called "EVA" says about the value of stocks. Hint: it ain't pretty.
FORTUNE -- Forget P/Es. Trailing, forward, westward, or eastward, the venerable price-earnings ratio tells you little more about the value of a company than its marketing budget. Or (ugh!) its "consensus analyst rating."
The best measure of how companies perform for shareholders is a wonkish tool called Economic Value Added, or EVA. The advantage of EVA is that it corrects the gap, so to speak, in regular GAAP accounting by gauging what's really important: whether shareholders are getting returns superior to what they'd garner putting their money in another, equally risky stock or index fund.
According to EVA, a company only truly enriches investors when it exceeds the return that the market already expects from similar stocks. When it beats that bogey, it's truly making money for you. When it falls short, it's a loser -- even if its official earnings numbers look good.
MORE: Why is Bernanke's Fed dragging its feet on bank regulations?
EVA's big innovation is imposing a charge for all the capital that companies deploy to generate profits. Under GAAP, an auto or soft drink manufacturer can keep raising earnings per share by piling cash into expensive acquisitions or modestly profitable new plants. Sure, the interest on the debt used for those investments gets lopped off earnings. What's deceiving is that companies pay no charge for their biggest source of capital: the equity raised from shareholders and invested on their behalf in retained earnings. That's money you could put somewhere else and earn interest on it. So shareholders should make sure they're being properly compensated for that investment.
EVA presents the real picture of that shareholder compensation by placing a stiff fee -- equal to the prevailing cost-of-capital -- on every dollar of equity sitting on the company's balance sheet. In the EVA mindset, the only true profit is "economic profit," the cash generated after paying the full capital charge. Generating EVA is like shooting under par, or at least beating your handicap, in golf. It's a mark of superior performance. And producing big, consistent gains in EVA is the driver and hallmark of great stocks, from Wal-Mart (WMT) to Amazon (AMZN).
The consulting firm Stern Stewart pioneered EVA in the 1990s, winning such devotees as legendary Coca-Cola (KO) chief Roberto Goizueta. Firm co-founder Bennett Stewart now champions EVA as CEO of EVA Dimensions, which sells software and data that companies use to do this rigorous valuation analysis, and produces original equity research for big institutional money managers.
So what does EVA say about the stock market now? Well, it ain't pretty.
MORE: Why car companies can't win young adults
Since the recovery began in late 2009, according to an exclusive EVA Dimensions analysis done for Fortune, U.S. companies delivered gigantic increases in EVA that took the figure from extremely depressed depths to its highest level in fifteen years.
Two numbers are critical in determining EVA. The first is return on capital. It's simply the ratio of earnings to total capital. (EVA uses a special definition of earnings that includes capitalizing R&D and restructuring costs.) The more a company can drive sales higher and restrain costs, without deploying loads of new investment, the higher its return on capital. And that's just what happened in the early part of the recovery. The nation's return on capital jumped from 7% in late 2009 to almost 10% by the start of 2012 for non-financial companies -- a good performance (though honestly, no better than the number reached at the peak of previous cycles).
What really spurred this rise in EVA was the Fed, as it orchestrated the historic decline in interest rates. That campaign, in turn, drove the cost of capital -- which includes the special charge for equity -- to astoundingly low levels. From mid-2009 to mid-2013, the cost of capital shrunk from 7% to just over 5%. As a result, the "spread" between what companies earned on their capital, and what they paid for that capital expanded to startling highs. Through mid-2013, the spread stood at an extraordinary 4 points, a 15-year high. Multiply the spread times the total capital employed by the company (equity and debt), and you get EVA.
MORE: The gray art of not quite insider trading
So the huge spread meant huge economic profit. (That's good!) And that sumptuous economic profit is the catalyst for the explosion in stock prices that started in early 2009.
But today, both factors are reversing course, with potentially disastrous consequences for investors. Since mid-May, the rate on 10-year Treasury bonds has jumped from 1.6% to 2.8%. That's lifted the cost of capital by about as much, from a low of 5.2% to around 6.3%. The less-known issue, which EVA Dimensions' data shows vividly, is that profitability is also dropping sharply. Since 2011, return on capital has fallen to around 8.9% for non-financials, a decline of 1.1 points. It's as if stocks were caught between two powerful pincers that are now inexorably narrowing.
The sudden fall in the return on capital has two sources, and they're likely to remain on a downward track. First, companies were extremely successful in lowering costs during both the downturn and the recovery, chiefly through workforce reductions. In 2006, U.S. employers had 3.5 workers for every $1 million in sales. Today, 2.6 workers produce every $1 million in revenues. Corporate overhead has fallen from almost 13% of revenues in the early 2000s to a 15-year low of 11%. "Expenses may remain stable, but it's clear companies have run out of room to make major cost reductions," says Robert Corwin of EVA Dimensions.
Second, corporations are suffering a shocking drop in sales growth. Since the second half of 2011, sales growth has gone from chugging at an annual pace of nearly 12% to trudging at a paltry 2.5%. Creeping revenues inevitably lead companies to invest less in their future growth and operations. When companies don't see folks crowding the stores or showrooms, they curb spending for expansion and improvements. Growing sales and new investment are crucial to boosting EVA, and both sales and investment are expected to remain soft for some time. Capital growth can also boost EVA, but it too is likely to be weak going forward.
MORE: Telltale signs your star employees are job hunting
That creates a virtually insurmountable problem. The only way that stock prices can surmount the tide of a rising cost of capital is if the return on capital -- the profitability generated mainly from rising sales -- rises even faster. By contrast, if the cost of capital keeps going up, and the return on capital continues to tumble (or even stay steady), stock prices are bound to fall.
The sharp fall in interest rates through the first half of 2012 masked the problem. Now it's fully apparent. "Over the past eighteen months, the EVA of U.S. companies was sustained by the falling cost of capital, not rising profitability," says Corwin. "The current state of zero profitability increases won't cut it."
Investors are hardly naïve. Right now, although PE ratios are high by some measure, the EVA methodology shows that the market is the most pessimistic it has been about growth expectations in the past fifteen years, with the exception of the 2008-2009 crash. The rub is that investors may not be pessimistic enough.
MORE: Stocks headed for 2nd straight losing week
Just how big is the potential drop? Corwin isn't making any predictions. But he did provide Fortune with a series of forecasts showing what would happen given various changes in the cost of capital and profitability. Let's assume that the 10-year Treasury bond returns to a reasonably normal level of 4.5%. That would drive the cost of capital from the current level to around 7%. Even if the return on capital remained steady at the current 8.9%, stock prices would drop by 25%.
It may not happen. Companies could find new ways to enhance their profitability. But don't bet against EVA.
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http://www.marketwatch.com/story/fed-tapering-the-math-investors-need-to-know-2013-08-15
Fed tapering: The math investors need to know
Commentary: What ‘normal’ interest rates would do to stock valuations
By Brett Arends
In October, 2007, just before the crash, the stock market put on one last surge to new highs. Even though it was clear there were icebergs all around — and indeed several ships were already taking on water and listing heavily — the participants in the market decided to party One Last Time.
My excellent friend Peter Bennett, a money manager in London who has called most of the big market moves over the past 15 years, sent a missive to his clients with a powerful one-word headline: “Farce.”
Click to Play Fed tapering of bond-buying looks more likelyEconomists say economic growth is likely good enough for the Fed to pull back on its stimulus later this year. Photo: AP
Well, here we are again. I am not so bold as to predict what is going to happen over the next few months, but the situation on Wall Street brings that word to mind yet again.
In the past two months bonds have slumped, long-term interest rates have surged, and yet the Dow Jones Industrial Average and the Standard & Poor’s 500 have been hitting new highs.
Farce.
I don't offer crystal-ball gazing, hocus-pocus or any other associated magic or marketing shtick. I can only offer some basic math, basic common sense (I hope) and the perspective of someone who’s first discipline was neither management nor science but history.
In a nutshell: Federal Reserve “tapering” — the winding down of “quantitative easing,” and the normalization of interest rates — changes absolutely everything in the markets.
The bond markets already know this. The stock market doesn’t. Investors need to understand the math. Most of them don’t, and Wall Street isn’t going to tell them.
So let’s do the numbers, shall we?
As recently as May, as a result of the policies of the Federal Reserve, the basic interest rate which underpins financial markets — the interest rate on the 10-year Treasury note — was as low as 1.6%. Today it’s already risen to 2.7%. Furthermore, history says the interest rate has typically fluctuated around 2% above inflation. Over time, that’s what people who’ve been willing to own ten-year Treasury bonds have expected as an average return on their money. As the bond market currently predicts inflation of about 2.5% over the next decade, we can estimate that when the Fed stops rigging interest rates and they go completely back to normal, the rate on the ten-year would probably be around 4.5%.
Now let’s look at what that means for stocks.
When you buy shares in the stock market, you are purchasing the right to a stream of dividends stretching out into the far distant future (forever, at least in theory). You’re buying the right to all those lovely dividends from Exxon /quotes/zigman/203975/quotes/nls/xom XOM -0.10% and General Electric /quotes/zigman/227468/quotes/nls/ge GE -0.55% and Wal-Mart /quotes/zigman/245476/quotes/nls/wmt WMT -0.48% and Coca-Cola /quotes/zigman/222647/quotes/nls/ko KO -0.34% and Procter & Gamble /quotes/zigman/238894/quotes/nls/pg PG -0.08% and so on. Although you won’t claim those dividends forever, because you aren't immortal, you can claim them for as long as you like. And when you no longer want any more you can sell the stock, with its claim on all the subsequent dividends, to someone else. And so on.
Imagine a share of stock that will pay you $100 in dividends every year for the next, say, 100 years. How much is that worth in today’s money? How much would you pay for that stock? To know the value, you have to apply a relevant “discount rate” — in layman’s terms, and with some oversimplification, you have to know what interest rate you could get on the money if you didn’t buy the stock.
In May, you knew you could earn 1.6% a year, at least for the next 10 years, if you left your money in ten-year Treasury notes. Applying a 1.6% discount rate to our stream of $100 dividends produces a value of $4,972. In other words, that’s how much that theoretical stock would be worth, in today’s money, if we use a discount rate of 1.6%.
Hike that discount rate to 2.7% — the interest rate on the Treasury note today — and that value collapses by nearly a third, to $3,445. Hike the discount rate to 4.5% — a normal rate on the Treasury — and the value halves to $2,240.
To put this in very simple logic: The Federal Reserve has been suppressing interest-rates to boost the economy. That suppression artificially hiked the value of the stock market, by a simple mathematical equation. Now that suppression is coming to an end, interest rates can be expected to rise. That rise ought — again, by a simple mathematical equation — to reduce the value of the stock market. Dramatically.
You can play with the numbers. I’ve applied different discount rates, adding in an ‘equity risk premium’ for the extra return stock-market investors want to earn above risk-free Treasury bonds. I’ve assumed the stream of dividends will grow year after year. None of that changes the direction of the math. (Indeed, if we assume dividends will rise over time, which seems reasonable, the math gets even worse — higher interest rates reduce the valuations by even greater amounts). Taking the ten-year Treasury rate from May’s 1.6% to a “normal” 4.5% adds about three percentage points to the discount rate. Mathematically, that can slash the valuation of the stock market by 30% to 50% under basic financial calculations.
Or let me approach this from another angle. It is no secret that many investors, horrified at the pitifully low interest rates they have been able to earn from bonds and certificates of deposit, have gone to the stock market in search of higher yields. It isn’t always a bad idea, but, as ever, the critical factor is the price you pay.
Using FactSet, I ran a screen of stocks in the Standard & Poor’s 1500 index — a broad index of large and medium-size companies.
Back in May, as noted earlier, ten-year Treasury notes were paying 1.6%. In the S&P 1500, there are 527 companies offering higher dividend yields — about one in three.
Today an investor can earn 2.7% from a ten-year Treasury. How many stocks can beat that? Just 267 — or half as many.
And if rates go to a “normalized” 4.5%, how many stocks will be able to beat that? According to FactSet, just 58 stocks out of 1500 offer a higher dividend yield. In other words, if an income investor’s hurdle rate rises from 1.6% to 4.5%, the number of stocks with dividend yields that can jump over it collapses by 90%.
The bond market has already started waking up to the new math. But the stock market just parties on. Farce.
Brett Arends is a MarketWatch columnist. Follow him on Twitter @BrettArends.
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http://www.cnbc.com/id/100928652
The most important number for the market: 2.75%
Published: Wednesday, 31 Jul 2013 | 12:33 PM ET
By: Alex Rosenberg | CNBC Producer
BofA Technician: Yields will spike, and stocks will suffer
Tuesday, 30 Jul 2013 | 1:02 PM ET
MacNeil Curry, BofA's head of technical strategy, believes the 10-year yield is going to 3.5 percent. That could spell trouble for cyclical stocks, with CNBC's Jackie DeAngelis and the Futures Now Traders.
Round integers like 1,700 on the S&P 500 are well and good, but savvy traders have their minds on another number: 2.75 percent
That was the high for the 10-year yield this year, and traders say yields are bound to go back to that level. The one overhanging question is how stocks will react when they see that number.
"If we start to push up to new highs on the 10-year yield so that's the 2.75 level—I think you'd probably see a bit of anxiety creep back into the marketplace," Bank of America Merrill Lynch's head of global technical strategy, MacNeil Curry, told "Futures Now" on Tuesday.
And Curry sees yields getting back to that level in the short term, and then some. "In the next couple of weeks to two months or so I think we've got a push coming up to the 2.85, 2.95 zone," he said.
(Read more: US Treasurys widen losses after data hints at less stimulus)
Jim Iuorio, the managing director of TJM Institutional Services and a CNBC contributor, thinks the old highs for the 10-year yield are in the cards, but he says that's because of expectations about what Federal Reserve Chairman Ben Bernanke might be thinking.
"The chairman wants to control volatility by sending rates up to a higher level, but he wants to control the rate at which they go higher. The spike up to 2.75 that happened three weeks ago alarmed him," Iuorio said. "Now the market thinks he's ready to start opening the door a little further. So we're headed back to those old highs."
(Read more: Why I'm selling bonds ahead of the Fed)
Getty Images
A trader works in the S&P 500 options pit at the Chicago Board Options Exchange.
Curry reiterates that pace is an important component of how the market responds to a rise in yields. He said the market will be much more anxious if the bump "transpired on the backdrop of an acceleration to the topside, as opposed to a gradual push higher."
Indeed, stocks didn't sell off when the 10-year yield hit 2.75 percent in early July. But when yields rose from 2.1 percent to 2.7 over the course of one taper-obsessed week in June, the market dropped rapidly.
Either way, iiTrader CEO Rich Ilczyszyn says the trend is loud and clear. "This chart clearly shows that the market is poised for some type of tapering, and yields will go higher," Ilczyszyn said.
So while the market might fret over higher yields, these traders believe the charts are already sending stocks the memo that they're coming soon.
—By CNBC's Alex Rosenberg. Follow him on Twitter: @CNBCAlex.
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Brian Wesbury: "The Right wants a recession to prove that government is too big."
No. More like we see a giant boulder over our head and believe in gravity.
New home sales plunge 13.4%
Tim Mullaney, USA TODAY 4:17 p.m. EDT August 23, 2013
Sales of new homes plunged in July. The seasonally adjusted annual sales pace of 394,000 missed analysts' expectations of 487,000.
http://www.usatoday.com/story/money/business/2013/08/23/new-home-sales/2691323/
The last 4 years were the worst 4 years of the last 60 years: http://www.census.gov/construction/nrs/pdf/stageann.pdf
Mortgage rate went up to 4%! Maybe it just affected homes...
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U.S. durable goods post largest drop in nearly a year
(Reuters) - Orders for long-lasting U.S. manufactured goods recorded their biggest drop in nearly a year in July and a gauge of planned business spending on capital goods tumbled, casting a shadow over the economy early in the third quarter.
The Commerce Department said on Monday durable goods orders dropped 7.3 percent as demand for goods ranging from aircraft to computers and defense equipment fell.
That was the biggest decline since last August and snapped three consecutive months of gains.
http://www.reuters.com/article/2013/08/26/us-economy-durables-idUSBRE97P0FL20130826
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The Plowhorse Trot? Or is it what Neil Young said about one of his songs, "This one starts off kinda slow - and then fizzles out altogether."
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"U.S. stocks edged higher in light volume on Monday after a steep drop in orders for long-lasting manufactured goods pushed back expectations the Federal Reserve will soon begin to wind down its economic stimulus."
http://www.reuters.com/article/2013/08/26/us-markets-stocks-idUSBRE9770GZ20130826
Just clarifying here. Bad economic news drives the market higher because it means the Fed cannot back off its easy money / artificial stimulation policy, but ... easy, fake money has nothing to do with why the market has outperformed all logic and reason over the last 4 years. Got it.
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Doug:
You are supporting your analysis well.
That said, light volume days are usually insignificant and the market reporters description of the whys of the day may or may not be correct. It may just as well be currency flows from overseas markets anticipating higher interest rates and better growth here in the US see e.g. my post a little while ago in the money, currency, gold, silver thread.
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New Orders for Durable Goods Dropped 7.3% in July
Data Watch
New Orders for Durable Goods Dropped 7.3% in July To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 8/26/2013
New orders for durable goods dropped 7.3% in July (-7.2% including revisions to
June), coming in well below the consensus expected decline of 4.0%. Orders excluding
transportation slipped 0.6% (-0.4% including revisions to June). The consensus
expected a gain of 0.5%. Overall new orders are down 0.3% from a year ago, while
orders excluding transportation are up 5.9%.
The drop in overall orders was led by a massive fall in civilian aircraft, along
with a dip in computers/electronics.
The government calculates business investment for GDP purposes by using shipments of
non-defense capital goods excluding aircraft. That measure declined 1.5% in July. If
these shipments are unchanged in August and September they will be down at a 5.3%
annual rate in Q3 versus the Q2 average.
Unfilled orders rose 0.4% in July and are up 4.3% from last year.
Implications: Get a grip. Today’s weak report on durable goods is not the end
of the world. The details show the economy is still a plow horse. Why
shouldn’t you be worried when orders for durables plummet 7.3%? First, the
durables report is notoriously volatile. Orders dropped roughly 13% in August 2012
and about 6% twice earlier this year, in January and then again in March, with no
recession. Second, the drop in orders in July was mostly due to civilian aircraft, a
category which is likely to rebound sharply in the coming months. Orders excluding
transportation were down, but only 0.6%. The most worrisome sign in the report was
that shipments of “core” capital goods, which exclude defense and
aircraft, fell 1.5% in July and are up a tepid 0.8% from a year ago. As a result,
with modest business investment in equipment, it now looks like real GDP growth in
the third quarter is coming in at roughly a 1.5% annual rate. Once again, more plow
horse. The good news in the report was that unfilled orders were up again, hitting a
new record high, and are accelerating, with growth at a 16% annual rate in the past
three months. The news on unfilled orders supports our optimism about an eventual
acceleration in business investment. Monetary policy is loose and, for Corporate
America, borrowing costs are low and balance sheet cash and profits are at or near
record highs. Meanwhile, the obsolescence cycle should goad more firms to update
their capital stock. In addition, the recovery in home building should generate more
demand for big-ticket consumer items, such as appliances. That’s why Home
Depot is doing so well. The bottom line is that today’s report is not the
start of a new negative trend. Expect more plow horse growth in the months ahead.
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Very funny Crafty.
He quotes the same numbers I did: "New Orders for Durable Goods Dropped 7.3% in July". Then the obligatory Obama-like straw man argument: "Today's weak report on durable goods is not the end of the world." Oh, good grief, who said it was - based on one monthly report. How about based on the policies of failure. "First, the durables report is notoriously volatile." Of course it is, then why are we fixated on these reports, and touting them when they are up? 'If you take out the sectors that were sharply down(civilian aircraft), the report isn't so bad.' Hmmm, OK. Civilian aircraft is "likely to rebound sharply", yet it "looks like real GDP growth in the third quarter is coming in at roughly a 1.5% annual rate." Then the rest of the economy is dormant or worse? "The recovery in home building should generate more demand for big-ticket consumer items, such as appliances." - Huh?? It was the worst 4 years of the last 60 years, and down again last month! "Monetary policy is loose (because the economy still stuck in neutral) and, for Corporate America, borrowing costs are low (because the Fed is printing the money and companies are SCARED TO DEATH those costs are going up) and balance sheet cash and profits are at or near record highs(already factored into current prices). Meanwhile, the obsolescence cycle should goad more firms to update their capital stock. WHAT?? Companies are trimming their full time payrolls because of Obamacare and will need fewer machines to support fewer employers. Right?
"The details show the economy is still a plow horse." A plowhorse doesn't trot, pull backwards or behave "notoriously volatile". A 1.5% growth gets us out of this funk - NEVER. I think we all agree this economy sucks and are just arguing over word usage to describe what we all see. Back to you, Brian. )
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Wesbury: Pissing on your leg and telling you the plowhorse is making it rain.
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http://www.cnbc.com/id/100987924
The 5% recovery: Why most are still in recession
Published: Monday, 26 Aug 2013 | 12:22 PM ET
By: Jeff Cox | Senior Writer
People looking for work stand in line to apply for a job during a job fair in Miami on May 2.
How strong the economic recovery has been since the Great Recession ended in 2009 probably depends on viewpoint.
For those in the top 5 percent, the recovery has been pretty good.
As for the other 95 percent, well ... maybe not so much.
Post-financial crisis wealth disparity has been well-chronicled.
What housing recovery?
Shari Olefson, author of "Foreclosure Nation," and Tanya Marchiol, CEO of Team Investments, discuss the decline in recent housing data and what it indicates about the recovery.
Federal Reserve Gov. Sarah B. Raskin drew widespread attention with this speech in April that showed how poorly the lower income levels have fared during the recovery, particularly because those demographics have their wealth concentrated in housing and are hit far more severely by falling prices.
The unemployed in lower-income groups also take a hit because they have a more difficult time finding jobs that pay at a rate commensurate with the positions they lost.
(Read more: Jobless picture is worse than you think: Gallup)
Finally, history has shown that highly accommodative monetary policy widens income disparity by awarding speculators and penalizing savers. While the S&P 500 is up nearly 150 percent since the March 2009 lows, that's most helped those heavily invested in stocks.
The University of California, Berkeley has produced some seminal research on this topic.
But this series of charts, put together by Charles Hugh Smith at oftwominds.com, helps put the sharply skewed recovery into perspective.
(Read more: Ugly durables numbercomplicates the taper debate)
He uses a handful of metrics to show that, despite the climb in gross domestic product and other data points, the recovery has not made its way through the economy.
Those points are: full-time employees as a percentage of the population; median household income (down 7.2 percent); real personal income less transfer receipts (government payments); and overall income disparity, which has yawned over the past decade.
The conclusion isn't pretty:
Huge leaps in the income and wealth of the top 5 percent mask the decline of income and wealth of the bottom 95 percent. Average all wealth and income and it appears that the economy is expanding to the benefit of all, when it fact only the top 5 percent have escaped the recession; the recession never ended for the bottom 95 percent.
And there's more:
An even better way to create an illusory expansion is to simply not measure trends that would reveal a deepening recession. For example, what percentage of student loans are purposefully taken out as a substitute for income, i.e. used to pay basic living expenses rather than education? Anecdotally, there is plentiful evidence that a great many people are signing up for one class at the local community college in order to get a student loan to live on.
Finally, Smith lays waste to the idea that more expansionist monetary policy from the Fed and further "stimulus" from the government through deficit spending will make things any better:
(Read more: What's really going on in housing)
Things are falling apart—that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand.
—By CNBC's Jeff Cox. Follow him
@JeffCoxCNBCcom
on Twitter.
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Obviously Wesbury is in the top 5%.
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The Wesbury theory is that the economy keeps plowing forward, no matter how bad the wrong headed policies get, Obamacare, tax rate increases, no problem. The indices of established companies measured in recently printed dollars do not tell the whole story. This chart tells us what portion of the adults in the country participate in the workforce since the onslaught of the Pelosi-Reid-Obama nightmare. Each half point means more than a million more are no longer working, and likely on the receiving end. Hardly a recovery in my view:
(http://graphics8.nytimes.com/images/2013/08/27/business/economy/27economix-participation-2007/27economix-participation-2007-blog480.jpg)
Source: BLS / NY Times
More people left the workforce than found a new job—by a factor of nearly three (in the plowhorse economy). 22 million Americans are unemployed or underemployed.
http://online.wsj.com/article/SB10001424127887323740804578601472261953366.html
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Real GDP Was Revised to a 2.5% Annual Growth Rate in Q2 To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 8/29/2013
Real GDP was revised to a 2.5% annual growth rate in Q2 from a prior estimate of 1.7%. The consensus had expected 2.2%.
The largest source of the upward revision was net exports, with commercial construction and inventories also revised up. Business investment in intellectual property and government purchases were revised down.
The largest positive contributions to the real GDP growth rate in Q2 were personal consumption and inventories. The weakest component was government purchases.
The GDP price index was revised up to a 0.8% annual rate of change from a prior estimate of 0.7%. Nominal GDP growth – real GDP plus inflation – was revised up to a 3.2% annual rate from a prior estimate of 2.4%.
Implications: Upward revisions for net exports pushed the government’s estimate of real GDP growth noticeably higher in Q2, to 2.5% from an original report of 1.7%. But the best news today was that corporate profits grew at a 16.4% annual rate in Q2 and are up 5% from a year ago. The one negative signal in the GDP revisions was that inventories were revised higher in Q2, which suggests slower overall growth in Q3, in the 1% - 1.5% range. Either way, today’s report is consistent with continued plow horse economic growth. Excluding government purchases, real GDP grew at a healthy 3.3% annual rate in Q2. Nominal GDP (real growth plus inflation) is up 3.1% from a year ago and up at a 3.8% annual rate in the past two years. These figures continue to signal that a federal funds rate of essentially zero makes monetary policy too loose. In other news this morning, new claims for jobless benefits declined 6,000 last week to 331,000. Continuing claims slipped 14,000 to 2.99 million. Eight days away from the official Labor report, our payroll models are signaling an August gain of 157,000 nonfarm, 160,000 private (with upward revisions over subsequent months). Earlier this week, the Richmond Fed index, a survey of mid-Atlantic manufacturers, spiked up to +14 in August from -11 in July. On the housing front, the Case-Shiller index, a measure of home prices in 20 major metro areas, rose 0.9% in June (seasonally-adjusted) and is up 12.1% in the past year. Recent gains have been led by San Diego, Las Vegas, San Francisco, Los Angeles, and Miami. Pending home sales, which are contracts on existing homes, declined 1.3% in July. Recent data on pending home sales suggest existing home sales, which are counted at closing, will drop about 2.5% in August. But this follows a 6.5% surge in July and sales would still be at very high levels relative to the last few years. As a result, we don’t see it as a sign that the recent rise in mortgage rates is going to generate a “double-dip” in housing.
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Good investment advice today from the WSJ:
(http://s.wsj.net/public/resources/images/ED-AR193_PNS090_NS_20130902212801.jpg)
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I know Wesbury can be fairly criticized on a number of points, but I think some of us are a tad unfair to him because he is less apocalyptic than most of us. That he sees positives that some of us do not, does not mean he approves of the negatives that His Glibness generates.
Anyway, four years from energy independence is a real big fg deal as far as I am concerned!
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The trade deficit in goods and services came in at $39.1 billion in July To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Dep. Chief Economist
Date: 9/4/2013
The trade deficit in goods and services came in at $39.1 billion in July, slightly larger than the consensus expected $38.6 billion.
Exports declined $1.1 billion in July, due to capital goods (such as aircraft) and consumer goods (such as jewelry and gem diamonds). Imports rose $3.5 billion, led by oil and autos.
In the last year, exports are up 3.3% while imports are up 0.8%. Petroleum imports are down 0.9% from a year ago, while non-petroleum imports are up 1.3%.
The monthly trade deficit is $4.3 billion smaller than a year ago. Adjusted for inflation, the trade deficit in goods is $1.2 billion smaller than a year ago. This is the trade indicator most important for measuring real GDP.
Implications: After shrinking sharply in June, the trade deficit widened in July. In July, imports rose, while exports slipped slightly. Over the past year, total exports are up 3.3% and total imports are up a smaller 0.8%. Behind these short-term gyrations, the biggest story in the trade sector is US energy production due to horizontal drilling and fracking. Since July 2007, overall petroleum exports are up 276%. Petroleum imports are up 27% in those same six years, but have fallen by 14.9% since April 2010. If current trends continue, and the US fixes its pipeline and refinery issues, the US will be running a petroleum trade surplus within four years. Translated: This means energy independence. Simply amazing. We also notice that total exports to the European Union are up 8.7% from a year ago, which is consistent with other recent data suggesting the EU as a whole is coming out of its recession. Sales to the Pacific Rim are up 0.8% and sales to South/Central America are up 12.7%. We expect more gains in exports in the year ahead. Usually, when the US economy is growing, the trade deficit tends to expand relative to the overall size of our economy. However, given higher energy production, the trade deficit is much less likely to expand like that anytime soon and will more likely than not add to real GDP growth in Q3. In the meantime, today’s data suggest the trade sector will subtract 0.1 percentage points from the real GDP growth rate in Q2, versus a government estimate last week that it had a neutral impact. As a result, it looks like real GDP grew at a 2.6% annual rate in Q2.
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BTW gents, David Gordon, a name known to some of you, is quite bullish.
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The ISM Non-Manufacturing Index Rose to 58.6 in August To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 9/5/2013
The ISM non-manufacturing index rose to 58.6 in August, coming in well above the consensus expected 55.0. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The key sub-indexes were all higher in August, and all remain above 50. The new orders index rose to 60.5 from 57.7 and the business activity index increased to 62.2 from 60.4 while the supplier deliveries index gained to 54.5 in August from 52.5. The employment index rose to 57.0 from 53.2.
The prices paid index declined to 53.4 in August from 60.1 in July.
Implications: The ISM service report exploded higher in August, beating the forecast from all of the 84 economics groups that made a prediction and coming in at the highest level since December 2005. The business activity index, – which has a stronger correlation with economic growth than the overall index – boomed to 62.2, while the new orders index also showed notable growth to 60.5. Even the employment index showed strong growth to 57.0. We expect this measure to remain at elevated levels in the coming months as companies hire more in response to better economic growth (which the business activity index is showing). On the inflation front, the prices paid index fell to 53.4 in August from 60.1 in July. Given loose monetary policy, we expect this measure to move upward over the coming year. In other recent news, Americans bought cars and light trucks at a 16.1 million annual rate in August, an increase of 1.8% over July, 11.1% versus a year ago, and the fastest pace since September 2007. Pessimistic analysts have been touting the end of the payroll tax cut and the federal spending sequester as reasons to expect weaker economic growth. But the truth, from looking at the data so far, is little to no significant impact from these events on the consumer or economy, and we do not think there will be. What we have here is a Plow Horse Economy that looks like it may be starting to trot.
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Non-Farm Payrolls Increased 169,000 in August vs Consensus Expected 180,000 To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 9/6/2013
Non-farm payrolls increased 169,000 in August versus a consensus expected 180,000. Including downward revisions to prior months, nonfarm payrolls were up 95,000.
Private sector payrolls increased 152,000 in August (+116,000 including revisions to prior months), lagging the consensus expected 180,000. The largest gains were for retail (+44,000), health care (+33,000), and restaurants & bars (+21,000). Government payrolls rose 17,000.
The unemployment rate declined to 7.3% (7.278% unrounded) from 7.4% (7.390% unrounded).
Average weekly earnings – cash earnings, excluding benefits – increased 0.2% in August and are up 2.2% from a year ago.
Implications: Something for everyone in today’s report. Data that was weaker than the consensus expected (the payroll report) had strong details, while data that was stronger than expected (the unemployment rate) had weak details. Nonfarm payrolls increased 169,000 in August but only 95,000 including downward revisions to June/July. Very mediocre. However, average weekly hours ticked up and, as a result, total hours worked were up 0.4% in August. If the number of hours per worker were unchanged, a 0.4% gain in total hours would mean a 450,000 gain in payrolls. So we don’t think today’s report indicates a lack of demand for labor. The unemployment rate dropped to 7.3%, the lowest so far this recovery, but it was the result of a 312,000 drop in the labor force. Civilian employment, an alternative measure of jobs that includes small business start-ups, declined 115,000. As a result, the labor force participation rate fell to 63.2%, the lowest since 1978. It’s important to note, however, that the population keeps increasing, so even though the participation rate is so low, the labor force itself is up 718,000 in the past year even as the unemployment rate has dropped 0.8 points. One recent debate is about part-time work. Through July, part-timers were up 692,000 so far this year, a very large share of job gains in 2013. However, part-timers were down 123,000 in August. Either way, we think part-time data need to be handled carefully given volatility. We prefer looking at it over periods of a year. In the past twelve months, part-timers have increased 253,000, which is only 13% of all job gains. However, we can’t help but notice that some of the largest recent payroll gains have been in sectors that lend themselves to part-time jobs. Retail, restaurants & bars, combined, now make up the largest share of private payrolls on record (going back to 1990) with a recent surge that started in April. Only time will tell for sure, but it’s hard to believe Obamacare has nothing to do with this. Firms in these sectors may be adding more jobs as a result, but doing it with part-time work. In terms of consumer spending, in the past year hours are up 2.4% while wages per hour are up 2.2%, for a 4.6% gain in cash earnings. After adjusting for inflation, these earnings are up 3% from a year ago, so workers are generating more purchasing power. The big question is how the Federal Reserve reacts to today’s report. We think the numbers still support tapering in September. Obviously, the labor market is far from perfect. What’s holding us back is the huge increase in government, particularly transfer payments, over the past several years. Despite that, entrepreneurs and workers are gritting out a recovery and the Plow Horse economy keeps moving forward.
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THE FOUNDATION
"This gave me occasion to observe, that when Men are employ'd they are best contented." --Benjamin Franklin
ECONOMY
Recovery Bummer
At first blush, today's jobs report once again seems to contain good news: 169,000 jobs added and unemployment dropping a tenth of a point to 7.3%, the lowest since December 2008. But beware what we call the "headline" numbers. The Leftmedia employes them to bolster the sorry record of their man in the White House.
Digging deeper, we find trouble quickly. July numbers were revised down from 162,000 to just 104,000, and June was revised down for the second time. The unemployment rate fell once again only because so many people are giving up looking for work -- 312,000, or nearly twice the number who found work -- and they aren't counted in the report. The labor participation rate fell to 63.2%, the lowest since Jimmy Carter's malaise days of August 1978. If labor participation remained at the same level it was in January 2009, the headline unemployment rate would be 10.8%. It would be 7.7% if participation was the same as just one year ago.
As for the U-6 fuller measure, Hot Air's Ed Morrissey observes that it "dropped from 14.0% to 13.7%, its lowest level in five years." But, he warns, "[T]hat has to do with the shrinking workforce, too. In order to be counted in U-6, workers have to be at least marginally attached to the labor force. That's defined as 'those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months.'"
Meanwhile, Barack Obama and his crack shot economic team promised that if we just passed the "stimulus" unemployment would be 5% by now.
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http://www.theblaze.com/stories/2013/09/06/u-s-unemployment-nuges-down-slightly/
Unemployment rate is 10.8%
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Industrial Production Rose 0.4% in August To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 9/16/2013
Industrial production rose 0.4% in August and a higher 0.5% including revisions to prior months, basically matching the consensus expected 0.5% gain. Production is up 2.7% in the past year.
Manufacturing, which excludes mining/utilities, rose 0.7% in August (0.6% including revisions to prior months). Auto production increased 5.2% in August, while non-auto manufacturing was up 0.3%. Auto production is up 8.4% versus a year ago while non-auto manufacturing is up 2.1%.
The production of high-tech equipment rose 1.7% in August, and is up 9.9% versus a year ago.
Overall capacity utilization rose to 77.8% in August from 77.6% in July. Manufacturing capacity use gained to 76.1% in August from 75.7% in July.
Implications: A strong report today coming out of the industrial sector after a few soft months. Industrial production rose 0.4% in August, was revised up for prior months, and is up a plow horse-like 2.7% from a year ago. Taking out mining and utilities gives us manufacturing. This measure was up an even faster 0.7% in August, and up 2.9% from a year ago. Notably, the recent acceleration of output is being led by business equipment rather than consumer goods, which signals a potential pick up in productivity growth in the year ahead. We expect continued gains in production as the housing recovery is still young and demand for autos and other durables remains strong. Over the past year, the auto sector has led the manufacturing gains, up 8.4%, but even manufacturing outside the auto sector has done OK, up 2.1%. We expect the gap between those two growth rates to narrow in the year ahead, with slower growth (but still growth!) in autos and faster growth elsewhere in manufacturing. Capacity utilization increased to 77.8% in August and remains not far from the average of 79% in the past 20 years. Gains in production in the year ahead should push capacity use higher, which means companies will have an increasing incentive to build out plants and equipment. Meanwhile, corporate profits and cash on the balance sheet are at record highs, showing companies have the ability to make these investments. In other manufacturing news this morning, the Empire State index, a measure of manufacturing in New York, declined to +6.3 in September from +8.2 in August. This is a little below consensus expectations but shows continued growth.
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"Industrial production...is up a plow horse-like 2.7% from a year ago. "
Two problems with 2% growth:
1) Since the trajectory is below break even growth, the point where we will have outgrown the current malaise at this rate is - never.
2) With growth rounding to zero and negative growth considered catastrophic we are perhaps one more external economic shock away from disaster.
Other than that, things look okay ...
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Nonetheless, David Gordon is calling a strong bull market.
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Nonetheless, David Gordon is calling a strong bull market.
I very much respect his opinion on stocks, but I don't see anyone predicting the economy move forward much better than it is without changing policies. Even the optimist Wesbury predicts plowhorse growth and then he defines that in the 2%, sub-breakeven range. So the contention continues between the US economy and the strategies for investing, both are part of this thread. Corporate profits (of established companies helped by regulations blocking out competition) are high. Real startups, hiring, workforce participation, global economic growth and nearly all other indicators are low and stuck.
How high will these profits and stock prices go without real growth? I don't know.
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Doesn't Government Lie?
By Brian Wesbury, Bob Stein - First Trust Advisors
17 September 2013
Like a Plow Horse, the US economy keeps plodding along – GDP and payrolls keep growing. This confounds many pessimistic, debt-focused, perma-bear investors, who fall back on the belief that anything good must simply be a lie.
They claim the government is lying about jobs, lying about debt, lying about everything. Some of this is about the Obama Administration, but some of it is just general distrust. Even if there’s no direct White House link, the pessimists argue that federal bureaucrats are in on the con.
We can understand some doubt about the veracity of the government, but the evidence supposedly proving that the government is lying shows that many people misunderstand the data. Exhibit A is the argument that government is lying about the federal debt – it has been stuck at $16.74 trillion since May, despite continued budget deficits.
But this isn’t a lie; it’s just the way the accounting works. The US hit the debt ceiling in May and cannot issue any new debt, on net. So, in order to fund spending in excess of revenue, it’s borrowing from federal worker retirement systems and issuing IOUs, which don’t count toward the official debt. This is not the first time the government has done this, and it’s happened under both Republicans and Democrats. All of it is recorded, it’s not hidden. It’s not a lie.
Another claim is that any gains in employment should be discounted because it’s mostly part-time work. So far this year, 66% of the increase in employment has been part-time. Ironically, those who say we can’t trust government data are willing to put aside their qualms when they find data like this.
But this is a mistaken view as well. Figures on part-timers are extremely volatile from month to month, so it’s important to use these numbers over periods of at least a year. Part-timers plummeted 316,000 in the last four months of 2012, so focusing on just the eight months this year skews the results. In the past 12 months (including late 2012), part-timers have only made up 13% of job gains, which is less than usual.
Another claim is that the official unemployment rate of 7.3% is hiding discouraged workers and part-timers who want to work full-time. Including them pushes the “true” unemployment rate to 13.7%.
However, this more expansive definition of joblessness, also known as the U-6 unemployment rate, is down from a peak of 17.1% in 2009. Like the official unemployment rate, the U-6 also comes from the government and dates back to 1994. Since then, whether in good times or bad, it has generally been about 80% higher than the official rate. Right now, it’s 88% higher, a little more than usual.
The bottom line is that the labor market is making progress but still far from operating at its full potential, which is the same exact message sent by the overall unemployment rate.
But the final nail in the coffin of government data conspiracy theories is that not all the reports are from the government. The two surveys from the Institute for Supply Management – one on manufacturing, the other on services – as well as auto sales, all show steady economic growth. Over the past four years, a composite of the two ISM indexes has averaged 54.2, the same as it did in 2001-05, when real GDP growth averaged 2.8%. This time around, real GDP growth has averaged 2.2%. Auto sales, compiled by the automakers themselves, show a gain of 11% in the past year. In other words, private data has been better than the government reports.
A healthy dose of skepticism is usually a good thing. But there’s a big difference between reasoned skepticism and a case of denial designed to postpone confronting comfortable theories that haven’t worked. The economy could be much better if government got out of the way, but it stopped getting worse more than four years ago.
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http://www.gallup.com/poll/164363/americans-struggle-afford-food.aspx
More Americans Struggle to Afford Food
Americans' overall access to basic needs is close to record-low
by Alyssa Brown
WASHINGTON, D.C. -- More Americans are struggling to afford food -- nearly as many as did during the recent recession. The 20.0% who reported in August that they have, at times, lacked enough money to buy the food that they or their families needed during the past year, is up from 17.7% in June, and is the highest percentage recorded since October 2011. The percentage who struggle to afford food now is close to the peak of 20.4% measured in November 2008, as the global economic crisis unfolded.
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Maybe Wesbury was too busy hawking the recoveries that never happened to read about fast and furious, Benghazi, the IRS and NSA scandals and the many others too numerous to mention.
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Maybe Wesbury was too busy hawking the recoveries that never happened to read about fast and furious, Benghazi, the IRS and NSA scandals and the many others too numerous to mention.
Of course Wesbury is talking about the economic data - mostly. "Many pessimistic, debt-focused, perma-bear investors...claim the government is lying about jobs, lying about debt, lying about everything".
But then he gives unemployment as an example, then shows how U3, the most widely reported measure, is a deception. Then he quotes U6 which is EIGHTY EIGHT PERCENT HIGHER, but that is a deception too, not taking at all into account FIVE MILLION PEOPLE WHO LEFT THE WORKFORCE. Not mentioned are the poverty figures which are a deception, CPI which is a poor measure, baseline budget cuts which ARE a lie, etc. etc.
"The economy could be much better if government got out of the way, but it stopped getting worse more than four years ago."
- Maybe yes, maybe no. Are unfunded liabilities higher or lower now than 4 yrs ago? Are marginal tax rates higher or lower? Do we have more over-regulation or less over-regulation? Is Obamacare, passed 4 years ago, a plus or a minus for the outlook for investment and hiring? 99% of the people aren't moving ahead and don't have more money in their pocket after 4 years of steady improvement. Who is he really zooming?
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This thread has as its subject matter the economy and the stock market. The two of them are definitely different things. We tend to talk about the economy, Wesbury tends to talk about the market.
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This thread has as its subject matter the economy and the stock market. The two of them are definitely different things. We tend to talk about the economy, Wesbury tends to talk about the market.
We come at it from different directions but I believe we were directly addressing specific points that Wesbury made.
One of his central points is that stocks are not up just because of QE and artificial stimulus. But when Bernancke announced 'tapering' the market started down and when the Fed reversed course and said massive quantitative stimulus will continue, because of the weakness in the economy, the market surged forward. Hmmm.
David Gordon and the bulls will make massive money in the short run off of an economy propped up and distorted by a house of cards. That does not change the fact that a day of reckoning will come and one should be ready. So both the bulls and the bears are right with different time frames.
Wesbury has never been accused of the 'famous person caught reading the forum' charge, but I would like someone to explain how far and how long the market can run in direct opposition to the realities of the economy. Wesbury is saying the economy is fine in the face of stagnation and turmoil. The Fed is saying otherwise, and then applying the wrong solution to the wrong problem, creating noise and a bouncing soup pot. Fed feeding is how we got the last bubble and crash. But history does not repeat itself we are told. This time things will just go up and up with no consequence.
http://www.cbsnews.com/8301-505123_162-57603445/with-economy-weak-fed-delays-move-to-withdraw-stimulus/
With economy weak, Fed delays move to withdraw stimulus
http://money.cnn.com/2013/09/18/investing/stocks-markets/index.html
Dow, S&P hit record after Fed holds off on taper
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(http://s.wsj.net/public/resources/images/ED-AR344_PNS100_NS_20131008165802.jpg)
A picture equals a thousand Wesbury words. :wink:
The Plowhorse's strength is matched against the load it is pulling. Currently 144 million (45%) of 317 million Americans work, 55% don't. That ratio is getting worse. More than 90 million Americans, 16 and up, are now not working, soon to pass 100 million if our economic policies continue or worsen. Only 11 million of 90 million, 16 and up, not working count as "unemployed", hence the 7.3% figure.
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How Stock Prices Impact Fundamentals
• Posted by Ivanhoff
• on October 4th, 2013
George Soros is known as the “man who broke the Bank of England” in the early 1990s, but his main contribution to the financial world is the theory of reflexivity, which claims the following:
• Prices aren’t objective; they’re based on people’s biased perceptions of the future;
• Biased perceptions define people’s buys and sells, so perceptions will influence prices;
• Prices impact perceptions and fundamentals too; therefore perceptions could impact fundamentals.
Soros’s reflexivity theory is also a common-sense explanation of why trends exist and why price momentum could be an excellent equity selection filter.
What happens when the price of a stock makes a new all-time high?
1) The market is considered a feedback mechanism. When prices go up, people assume that their initial investment thesis is right and their expectations justified. They buy more and are joined by even more people wanting to participate in the trend. The fear of missing out is ruling market’s behavior.
2) Higher stock prices mean happy shareholders. Since the manager of our company has made his investors a lot of money, he receives a lot of good faith and patience for future experiments. This manager could make a lot bolder moves and he is given more time to be right.
We have all seen the incredible faith that Amazon’s shareholders have in Jeff Bezos. 16 years after its IPO, Amazon still losses money on the occasional quarter, because it invests heavily in new projects. Amazon missed Wall Street’s earnings expectations in four of its last five reports. Any other stock would have been killed for missing estimates so many times. Not Amazon. Its stock climbed 50% in the past year and a half.
Management is an important part of the fundamentals of one company. When investors trust and believe management, they are willing to give his/her company a lot higher P/E multiple, and for a good reason. Investors tend to trust managers that make them money.
3) The company could use its appreciated stock as a currency in order to acquire smaller competitors and the best human talent in its respective field, which makes it a lot stronger, functionally and operationally. We see how Google is scooping up many of the best engineers in the world. We see how Salesforce is incredibly active on the acquisition field. Better people, new and better products, less competitors are all factors that actually improve company’s fundamentals and they could be all derived from higher stock prices. The improved fundamentals attract a completely new set of buyers, which props the prices even higher.
And all of this could be started with just a good story about a better future. This is how perceptions become a reality.
Prices change when expectations change and expectations change when prices change. A good story that could capture the imagination could change expectations. The dream of future profits is what excites people, not the reality.
This is how momentum works, but the process does not last forever. People’s expectations about the future don’t always come true. The market constantly tries to discount events that have not happened yet. As a result, it will sometimes discount events that will never happen. The market is forward looking, but in the same time it is constantly looking for a feedback: in short-term perspective from price; in longer-term perspective – from fundamentals.
Sometimes, expectations turn into a self-fulfilling prophecy and end up impacting fundamentals. More often than not, the discounted future is way too optimistic or pessimistic. It is human nature to over-discounts identified risks and opportunities. When the market realizes that it is not right, it just gaps in the other direction and starts the process of correcting its mistake – that process is usually a lot more violent and quicker.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
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http://seekingalpha.com/article/1737312-led-bulb-wars-cree-vs-wal-mart?source=email_rt_article_readmore
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Notable and quotable regarding the market and economic doomsayers:
It is tempting to dismiss...pessimism as yet another case of the boy who cried wolf. It is worth remembering, however, that the wolf does show up at the end of the story.
http://object.cato.org/sites/cato.org/files/pubs/pdf/pa737_web_1.pdf
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Fair point :-o
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Monday Morning Outlook
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Smaller Government Won! To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 10/21/2013
Well, New York City is not underwater, China did not sell bonds, oil did not stop flowing in the Bakken or Eagle Ford, the Cloud is still wherever it is, or was, the US stock market did not collapse, and the earth is still rotating on its axis. Democrats are still mad at Republicans, who are still mad at the Tea Party, who still fret about the path of fiscal policy.
In other words, nothing changed in the past three weeks…or, did it?
We subscribe to the “politics is backwards’ school of thought and if you want to know why the S&P 500 hit a new high on Friday, you should try to understand how that thought process works.
Think back to 1995/96 - the last government shutdown. Conventional wisdom says President Bill Clinton pounded Newt Gingrich and the Republicans like Baylor pounded Iowa State this past weekend (71-7). That’s what the polls said. Newt was done, finished, kaput, and Clinton got his mojo back.
But…is this really what happened? President Clinton signed welfare reform in 1996, and a year later, he agreed to a cut in the capital gains tax rate. These were Republican, free market-type, ideas, not liberal Democrat, ideas. So…who won?
Politics follows the laws of physics sometimes. Every action has an equal and opposite reaction – or – you can’t have tons of noise without some blowback.
What is really happening is that for 48 years, taxpayers have been pushing receipts into the federal purse at a rate of about 18% of GDP. Now, that same generation is expecting to take out much more than that over their lifetimes in Social Security, Medicare, Medicaid and other federal programs. Unless the US gets serious with reform, federal spending will go to 30% of GDP in the decades ahead.
This thought belongs to Stanley Druckenmiller. We give him full credit, but also want to take it a step further.
The argument isn’t all about generational politics. It’s about the dead-end of the status quo. The shutdown and debt ceiling fights are just the beginning. Like Detroit, Greece, Italy, Spain, Illinois, and many others, the US has made promises that are probably impossible to meet, not just to today’s older workers when they retire, but even to future workers for their retirements. Who seriously thinks the retirement age can stay around 65 as life expectancy keeps going up?
As a result, there will be changes that reduce the long-run path of government spending. It’s not for nothing that the Sequester happened, and it’s not for nothing that no one cares. The US is on an inevitable path toward smaller government than what’s currently projected for the future.
The numbers are the first reason, but there is a second, and more important, reason, too. The US government has become so large and cumbersome that it cannot possibly keep up with the dynamism of the tech-driven, rapidly-moving, private sector. The government tries to use technology to centralize, but tech is designed to decentralize. Problems with ACA websites are not just technical, they’re about information.
Government can’t master or control information (i.e. markets) because it does not allocate resources in an efficient manner. As the world becomes more efficient, the inefficient are crushed. Sorry Blackberry. Sorry Post Office. Sorry Crown Books. Sorry Big Government, which either must get more coercive, or smaller. We’re betting on smaller. That’s why stocks are up. And, we expect them to keep going up.
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Industrial Production Rose 0.6% in September To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 10/28/2013
Industrial production rose 0.6% in September, coming in above the consensus expected 0.4% gain. Production is up 3.1% in the past year.
Manufacturing, which excludes mining/utilities, rose 0.1% in September (unchanged including revisions to prior months). Auto production increased 2.0% in September, while non-auto manufacturing was unchanged. Auto production is up 11.2% versus a year ago while non-auto manufacturing is up 2.0%.
The production of high-tech equipment declined 0.7% in September, but is up 7.3% versus a year ago.
Overall capacity utilization rose to 78.3% in September from 77.9% in August. Manufacturing capacity remained at 76.1% in September.
Implications: Another solid report coming out of the industrial sector, although the strong headline was tempered by some mixed details. Industrial production rose 0.6% in September, the largest monthly increase since February, and is at the highest level since March 2008. However, taking out mining and utilities gives us manufacturing. This measure, although up a respectable 2.7% in the past year, was up only 0.1% in September. The gain in manufacturing in September was all due to soaring auto output, up 2% in September; non-auto manufacturing was unchanged. Notably, the recent acceleration of output is being led by business equipment rather than consumer goods, which signals a potential pick up in productivity growth in the year ahead. We expect continued gains in production as the housing recovery is still young and demand for autos and other durables remains strong. Over the past year, the auto sector has led the manufacturing gains, up 11.2%, but even manufacturing outside the auto sector has done OK, up 2%. We expect the gap between those two growth rates to narrow in the year ahead, with slower growth (but still growth!) in autos and faster growth elsewhere in manufacturing. Capacity utilization increased to 78.3% in September and remains not far from the average of 79% in the past 20 years. Gains in production in the year ahead should push capacity use higher, which means companies will have an increasing incentive to build out plants and equipment. Meanwhile, corporate profits and cash on the balance sheet are at record highs, showing companies have the ability to make these investments. In other news this morning, pending home sales, which are contracts on existing homes, fell 5.6% in September, suggesting a drop in existing home closings in October. Even with this decline, however, we expect existing home sales to still be up 10% versus a year ago.
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The move to using clean domestic natural gas for transportation including cars and freight trucks is certain, except for all of the ways that government can potentially screw it up. Natural gas burns cleaner in terms of pollution emissions and in terms of CO2 emissions than gasoline or diesel. Over the road trucks haul nearly 70% of our freight. Solar and wind will not get you there. The limiting factor is availability.
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Truck stop chain TravelCenters of America (TA) has partnered with Shell (RDS.A) to add liquefied natural gas (LNG) fuel lanes at 100 different facilities across the United States. Clean Energy Fuels (CLNE) has partnered with private truck stop giant Pilot Flying J to embark on a mission to provide as many as 150 facilities with a natural gas solution.
The collaboration of Cummins (CMI) and Westport Innovations (WPRT) is leading the way with new engine designs that run on natural gas. Westport develops the technology while Cummins manufacturers the equipment.
The biggest risk to investing in the evolution of the natural gas engine via Cummins, Westport Innovations, and Clean Energy Fuels is that all three companies are so linked to each other's successes and failures.
More at link, free registration required.
http://seekingalpha.com/article/1776952-3-ways-to-play-the-natural-gas-engine-rollout?source=google_news
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More #PlowHorse in Q3 To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 11/4/2013
Despite the shutdown, the sequester, talk of tapering, and meteors in the night sky, the US economy just keeps plowing along. Reported later this week, we expect Q3 real GDP grew right on trend at a 1.9% rate – another, #PlowHorse report.
It’s somewhat slower than we expected at the start of the year, but we still expect an acceleration in 2014-15 given loose monetary policy, a downward trend in government spending (relative to GDP), explosive new technology, record high corporate profits, and a forceful housing recovery.
Here’s our “add-em-up” calculation of real GDP growth in Q2, component by component.
Consumption: Auto sales were up at a 5% annual rate in Q3, while “real” (inflation-adjusted) retail sales ex-autos were up at a 1.4% rate. But services make up about 2/3 of personal consumption and, on a real basis, they appear to be unchanged. As a result, it looks like real personal consumption of goods and services combined, grew at a 1.3% annual rate in Q3, contributing 0.9 points to the real GDP growth rate (1.3 times the consumption share of GDP, which is 69%, equals 0.9).
Business Investment: Business equipment investment shrank at a 1.5% annual rate in Q3 while commercial building expanded at a 10% pace. Assuming R&D grew at a trend 2.5% rate, overall business investment grew at a 2.3% rate, which should add 0.3 points to the real GDP growth rate (2.3 times the 12% business investment share of GDP equals 0.3).
Home Building: The housing rebound continued in Q3, growing at about a 6.5% annual rate. This translates into 0.3 points for the real GDP growth rate (6.5 times the home building share of GDP, which is 3%, equals 0.2).
Government: Military spending picked up in Q3 and state/local government construction projects have turned the corner. On net, we estimate real government purchases grew at a 1% rate in Q3, which should add 0.2 percentage points to real GDP growth (1 times the government purchase share of GDP, which is 19%, equals 0.2).
Trade: At this point, the government only has trade data through August. On average, the “real” trade deficit in goods has contracted compared to Q2. As a result, we’re forecasting net exports added 0.2 points to the real GDP growth rate.
Inventories: With data only through August, it appears companies were accumulating inventories slightly faster in Q3 than Q2, adding 0.1 point to the real GDP growth rate.
Add-em-up and you get 1.9% for Q3. The economy ain’t gonna win any races, but it ain’t keeling over and dying either.
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It’s somewhat slower than we expected at the start of the year, but we still expect an acceleration in 2014-15 given loose monetary policy, a downward trend in government spending (relative to GDP), explosive new technology, record high corporate profits, and a forceful housing recovery.
Actual growth was lower than forecasts for this year, but for next year we expect forecasts to be higher than actual growth.
On that forceful housing recovery: http://www.reuters.com/article/2013/10/21/us-usa-economy-housing-idUSBRE99K0GC20131021 "U.S. existing home sales fall, price appreciation slows". "A combination of high home prices, barely rising salaries and higher mortgage rates was hurting affordability, which hit a five-year low in September."
In other news, what will be the 'wealth effect' of people finding out their healthcare cost is doubling? A #PlowHorseChristmas retail season?
Without much fanfare, Wesbury has dropped the words "trot", canter and gallop from his #PlowHorse posts.
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The ISM Non-Manufacturing Index Rose to 55.4 in October To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 11/5/2013
The ISM non-manufacturing index rose to 55.4 in October, coming in well above the consensus expected decline to 54.0. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The key sub-indexes were mixed in October, but most remain above 50. The business activity index rose to 59.7 from 55.1 and the employment index grew to 56.2 from 52.7. The new orders index slipped to 56.8 in October from 59.6 while the supplier deliveries index declined to 49.0 from 50.0.
The prices paid index declined to 56.1 in October from 57.2 in September.
Implications: Well, despite all the grumbling out of Washington and from pundits claiming that the partial government shutdown would have significant effects on the economy, the private sector shrugged it off and continued to plow along. The ISM services report came in at a very healthy 55.4 in October, easily beating consensus expectations. The business activity index – which has a stronger correlation with economic growth than the overall index – boomed to 59.7. The employment index also showed good improvement rising to 56.2 in October. The most disappointing part of the report was that the new orders index pulled back, but even with the decline it remains at a robust 56.8 in October from 59.6 in September. On the inflation front, the prices paid index declined to 56.1 in October from 57.2 in September. Still no sign of inflation, but given loose monetary policy, we expect this measure to move upward over the coming year. The Federal Reserve has been far too easy for far too long. In other recent news, cars and light trucks were sold at a 15.2 million annual rate in October, below consensus expectations and down 0.3% from September. Sales are up 5.8% from a year ago, but sales in October 2012 were depressed along the east coast due to Superstorm Sandy, so a 5.8% gain from last year is not impressive. Looks like consumers may be transitioning away from gains in auto sales and more toward appliances and furniture. Auto sales should still trend upward in the next year or so, but not as quickly as in the past few years.
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Nonfarm Productivity Increased at a 1.9% Annual Rate in Q3 To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 11/14/2013
Nonfarm productivity (output per hour) increased at a 1.9% annual rate in the third quarter, versus a consensus expected gain of 2.2%. Non-farm productivity is unchanged versus last year.
Real (inflation-adjusted) compensation per hour in the non-farm sector declined at a 1.3% annual rate in Q3 but is up 0.3% versus last year. Unit labor costs declined at a 0.6% rate in Q3 but are up 1.9% versus a year ago.
In the manufacturing sector, productivity was up at a 0.4% annual rate in Q3, slower than among nonfarm businesses as a whole. The slower gain in manufacturing productivity was mainly due slower growth in output. Real compensation per hour was down at a 0.9% annual rate in the manufacturing sector, while unit labor costs increased at a 1.3% rate.
Implications: Nonfarm productivity increased at a Plow Horse-like 1.9% annual rate in Q3, with hours continuing to increase at a healthy clip and output climbing even faster. However, productivity is unchanged versus a year ago and up at only a 1% annual rate in the past two years. At this point, we still don’t think the recent slow growth in productivity is anything to get concerned about. Productivity surged rapidly in 2009 as it often does very late in a recession and early in a recovery. Including that surge and the slow growth in productivity since then, it’s grown at a respectable 1.9% annual rate. In addition, we suspect the government is having a hard time measuring production in the increasingly important service sector, which means both output growth and productivity growth are higher than the official data show. (For example, do the data fully capture the value of smartphone apps, the tablet, the cloud,…etc.?) Note that on the manufacturing side, where it’s easier to measure output per hour, productivity is up at a 1.8% annual rate in the past two years. From 1973 through 1995, overall productivity growth averaged 1.5% per year. Since then it’s averaged 2.3%. Despite slower productivity growth in the past few years, we think the long-term trend is still strong, a result of the technological revolution that began in the 1980s. We anticipate an acceleration in productivity growth over the next two years. The declining unemployment rate and faster growth in wages should create more pressure for efficiency gains, while the technological revolution continues to provide the inventions that make those gains possible.
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The Trade Deficit in Goods and Services Came in at $41.8 Billion in September To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 11/14/2013
The trade deficit in goods and services came in at $41.8 billion in September, larger than the consensus expected $39.0 billion.
Exports declined $0.4 billion in September, with declines in gold, gems, and fuel, offsetting a large gain in soybeans. Imports increased $2.7 billion, largely due to crude oil, cell phones & other household goods, and autos.
In the last year, exports are up 1.1%, led by a 6.8% gain in petroleum exports. Imports are up 1% in the past year, held down by a 4% decline in petroleum imports.
The monthly trade deficit is $0.2 billion larger than a year ago. Adjusted for inflation, the trade deficit in goods is $1.7 billion larger than a year ago. This is the trade indicator most important for measuring real GDP.
Implications: The trade deficit expanded in September, coming in larger than consensus expectations and larger than the government assumed when it calculated its first report on Q3 real GDP growth. As a result, it now looks like real GDP grew at a 2.6% annual rate in Q3 versus the 2.8% reported a week ago. Putting aside these short-term gyrations, the big trade story remains energy, driven by horizontal drilling and fracking. Petroleum product exports are more than seven times higher than they were in September 2007. During these same six years, petroleum product imports are only up 32%. If these trends continue and the US fixes its pipeline and refinery issues, the US will be a net petroleum product exporter by 2018. Usually, when the US economy is growing, the trade deficit tends to expand relative to the size of our economy. However, given recent energy trends, the trade deficit is much less likely to expand like that anytime soon. Along with plow horse economic growth, the trade deficit has been in a gradual shrinking trend for the past two years. In broader economic news, initial claims for unemployment insurance slipped 2,000 last week to 339,000. Continuing claims were unchanged at 2.87 million. It’s early, but we’re now forecasting November payroll gains of 155,000 for the private sector.
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Wesbury from the Monetary thread yesterday regarding quantitative madness:
"It’s created uncertainty at an unprecedented level."
That caveat should be included with all of these continuing, low growth forecasts.
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This list is kind of depressing. All entrenched players, no startups or innovators. I guess that makes sense from a guy who favors stomping out startups and innovation by way of the Buffet economic plan.
http://www.usatoday.com/story/money/markets/2013/11/17/warren-buffett-s-10-favorite-stocks/3614505/
10. Goldman Sachs (GS)
9. DIRECTV (DTV)
8. U.S. Bancorp (USB)
7. Exxon Mobil (OXM)
6. Wal-Mart (WMT)
5. Procter & Gamble (PG)
4. American Express (AXP)
3. International Business Machines (IBM)
2. Coca-Cola (KO)
1. Wells Fargo (WFC)
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[youtube]http://www.youtube.com/watch?v=63FMs504dpY&safe=active[/youtube]
http://www.youtube.com/watch?v=63FMs504dpY&safe=active
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The ISM Manufacturing Index Increased to 57.3 in November To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 12/2/2013
The ISM manufacturing index increased to 57.3 in November from 56.4 in October, easily beating the consensus expected 55.2. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mainly higher in November and all remain well above 50. The new orders index increased to 63.6 from 60.6, while the production index increased to 62.8 from 60.8. The employment index rose to 56.5 from 53.2. The supplier deliveries index declined to 53.2 from 54.7 in October.
The prices paid index declined to 52.5 in November from 55.5 in October.
Implications: The ISM index, a measure of manufacturing sentiment around the country boomed in November coming in at the highest level since April 2011, easily beating consensus expectations, and rising for the sixth consecutive month. According to the Institute for Supply Management, an overall index level of 57.3 is consistent with real GDP growth of 4.7% annually. We don’t expect real GDP to grow anywhere near that pace in Q4, but we do expect much faster growth in 2014. The new orders index boomed to 63.6 in November, coming in at the highest level since early 2011. The employment index moved higher to 56.5 from 53.2, the highest level since April 2012. This is consistent with the plow horse growth we have been getting out of the labor market over the past few years and signals another positive report on payrolls this Friday. On the inflation front, the prices paid index declined to 52.5 in November from 55.5 in October. Still, little sign of inflation, but we don’t expect this to last given loose monetary policy. In other news this morning, construction increased 0.8% in October, led by government projects, such as schools. Nonetheless, revisions to prior months and delayed data due to the partial government shutdown show some weakness, especially in home building, during September and August. We expect that weakness to be temporary. New home construction is up 20.8% from last year while home improvements are up 13.2%. Population growth and scrappage should generate enough demand for new housing that similar gains unfold in the year ahead. The Plow Horse Economy continues to move forward.
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The unemployment rate is really at 11%. You say collapse, I say depression.
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GM,
It is only a depression to those people who are feeling and living the pain. To guys like Wesbury it really is just a semantics game.
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At this Plowhorse growth rate, we will grow out of this economic funk, ... um ... never.
"New home construction is up 20.8% from last year." Stated differently: Except for the other Obama years, this year was the worst year since data has been kept in the US. We had more new home construction during the Jimmy Carter years at 22% interest rates than we do now.
http://www.census.gov/construction/pdf/bpann.pdf
Wesbury 9-5-2013: "What we have here is a Plow Horse Economy that looks like it may be starting to trot."
Wesbury 12-2-2013: "The Plow Horse Economy continues to move forward." (not 'starting to trot'?)
Plowhorses don't trot; they just pull heavy loads until they die. A pretty good analogy, come to think of it.
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The ISM Non-Manufacturing Index Declined to 53.9 in November To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 12/4/2013
The ISM non-manufacturing index declined to 53.9 in November, coming in below a consensus expected increase to 55.5. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The key sub-indexes were mainly lower in November, but all now stand above 50. The business activity index declined to 55.5 from 59.7 and the employment index declined to 52.5 from 56.2. The new orders index slipped to 56.4 in November from 56.8. The supplier deliveries index was the sole gainer rising to 51.0 from 49.0.
The prices paid index declined to 52.2 in November from 56.1 in October.
Implications: Unlike the manufacturing sector, which showed strong acceleration in November, the service sector continued to grow in November, but at a slightly slower pace. The ISM services report came in at a healthy 53.9 in November, slightly below consensus expectations but showing expansion for a 47th consecutive month. The business activity index – which has a stronger correlation with economic growth than the overall index – declined to 55.5. The employment index also declined in November, slowing to 52.5 but remaining above 50.0 for a 16th consecutive month. The new orders index pulled back slightly in November, but even with the decline it remains at a strong 56.4. On the inflation front, the prices paid index declined to 52.2 in November from 56.1 in October. Still no sign of inflation, but given loose monetary policy, we expect this measure to move upward over the coming year. The Federal Reserve has been far too easy for far too long. Today’s report, along with other data we have received this week, show the economy is doing just fine and will continue to plow ahead through the end of 2013.
"Plow horses don't trot; they just pull heavy loads until they die."
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Real GDP was Revised to a 3.6% Annual Growth Rate in Q3 To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 12/5/2013
Real GDP was revised to a 3.6% annual growth rate in Q3 from a prior estimate of 2.8%. The consensus had expected a revision to a 3.0% annual rate.
On net, inventories accounted for all the upward revision in real GDP. Net exports were revised down.
The largest positive contributions to the real GDP growth rate in Q3 were inventories and personal consumption. No component was a drag on growth, although business investment in equipment was unchanged.
The GDP price index was revised higher to a 2.0% annual rate of change. Nominal GDP growth – real GDP plus inflation – was revised up to a 5.6% annual rate from a prior estimate of 4.8%.
Implications: Forget the good headline real GDP number for a moment. The best news in today’s report was that corporate profits increased at a 7.5% annual rate in Q3 and are at a new all-time record high. Ultimately, high profits are why we still think equities are substantially undervalued and today’s data supports further gains in equities in the year ahead. Today’s attention-grabbing headline was an unexpectedly large upward revision to real GDP growth, to a 3.6% annual rate in Q3 versus an original report last month of 2.8%. However, all of the upward revision, on net, was due to inventories. As a result, don’t be surprised if real GDP grows at a rate of about 0.5% in Q4 even though personal spending accelerates. The bottom line is that the underlying pace of growth remains about 2%, but should pick up next year. Nominal GDP (real growth plus inflation) was revised up to a 5.6% annual rate in Q3 from a prior estimate of 4.8%. Nominal GDP is up 3.3% from a year ago and up at a 4% annual rate in the past two years. These figures suggest further quantitative easing is not helpful. Even zero percent interest rates are inappropriate when nominal GDP is growing at this pace. In other news this morning, new claims for jobless benefits declined 23,000 last week to 298,000. Continuing claims for regular state benefits declined 21,000 to 2.74 million. Claims are often volatile around Thanksgiving, so expect some rebound in claims next week. Regardless, plugging these figures into our models generates final forecasts for November of a 200,000 gain in nonfarm payrolls and a 197,000 gain in private payrolls. We also expect the jobless rate to slip to 7.2% from last month’s report of 7.3%.
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Non-Farm Payrolls Increased 203,000 in November To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 12/6/2013
Non-farm payrolls increased 203,000 in November, beating the consensus expected 185,000. Including upward revisions to prior months, nonfarm payrolls were up 211,000.
Private sector payrolls increased 196,000 in November (+216,000 including revisions to prior months), beating the consensus expected 180,000. The largest gains were for education & heath (+40,000), professional & business services (+35,000, including temps), transportation & warehousing (+31,000), and manufacturing (+27,000). Government payrolls increased 7,000.
The unemployment rate dropped to 7.0% (7.023% unrounded) from 7.3% (7.280% unrounded).
Average weekly earnings – cash earnings, excluding benefits – increased 0.2% in November and are up 2.0% from a year ago.
Implications: The labor market surprised to the upside in November, showing a lack of damage from the government shutdown. Nonfarm payrolls grew 203,000 in November after gaining 200,000 in October. Private-sector payrolls expanded 196,000 in November after gaining 214,000 in October. The big negative for October was a 735,000 drop in civilian employment, an alternative measure of jobs that includes small business start-ups and which is measured at a different time of the month than the payroll survey. That figure rebounded 818,000 in November. Largely as a result, the unemployment rate dropped to 7%, a new low for the recovery. However, after dropping 720,000 in October, the size of the labor force only rebounded 455,000 in November and is still below year-ago levels. This suggests the potential of a further rebound in the labor force in December/January, which may push the jobless rate back up slightly (or prevent it from falling further) in the short-term. Apart from the good headlines – better than expected payrolls and a large drop in the jobless rate – the details of the report were also good. Total hours worked increased 0.5% and are up 2.4% from last year. Average hourly earnings rose 0.2% and are up 2% versus a year ago. Combined, this means total cash earnings are up 4.4% in the past year, or about 3.2% adjusted for inflation. This is more than enough for workers to keep pushing up spending, particularly in an environment where consumers’ financial obligations are low relative to income. Also, once again a new report destroyed one of the recent negative stories about the job market. Part-time employment dropped for the fourth month in a row and is now down 137,000 from a year ago. The labor market could and would be doing better with a better set of public policies. But it is still improving. In the past year nonfarm payrolls have grown at an average monthly rate of 191,000 while civilian employment is up 82,000 per month. Over time, we expect these two rates of job growth to converge and think the pace of growth in civilian employment is likely to accelerate.
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Personal Income Declined 0.1% in October, Personal Consumption Rose 0.3% To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 12/6/2013
Personal income declined 0.1% in October, coming in below the consensus expected 0.3% gain. Personal consumption rose 0.3%, beating the consensus 0.2% gain. In the past year, personal income is up 3.4% while spending is up 2.8%.
Disposable personal income (income after taxes) declined 0.2% in October but is up 2.6% from a year ago. The decline in income in October was driven by a drop in farm income and personal dividend income.
The overall PCE deflator (consumer prices) was unchanged in October but is up 0.7% versus a year ago. The “core” PCE deflator, which excludes food and energy, was up 0.1% in October and is up 1.1% in the past year.
After adjusting for inflation, “real” consumption was up 0.3% in October and is up 2.1% from a year ago.
Implications: Another Plow Horse report on income and spending in October shows the consumer is doing just fine. This report is one more nail in the coffin for the supposed concerns about the partial government shutdown in October affecting consumer spending for the month. Spending rose 0.3% overall, absolutely unaffected from the drama out of Washington. Although income fell 0.1% in October, this comes after eight consecutive months of gains, and most of the decline was due to farm income which has been very volatile. Wages and salaries continued to grow and are up 3.2% from a year ago. Income growth has accelerated over the past three months, growing at a 3.7% annual rate versus a 3.4% gain the past year. Despite all the hand-wringing by pundits at the beginning of the year, there is still no evidence that the end of the payroll tax cut or federal spending sequester hurt consumers. We expect further gains in both income and spending over the remainder of the year and into 2014. Job growth will continue and, as the jobless rate gradually declines, employers will be offering higher wages. Meanwhile, consumers’ financial obligations are hovering at the smallest share of income since the early 1980s. (Financial obligations are money used to pay mortgages, rent, car loans/leases, as well as debt service on credit cards and other loans.) On the inflation front, the Federal Reserve’s favorite measure of inflation, the personal consumption price index, was unchanged in October. Core consumption prices were up 0.1%. Overall consumption prices and core prices, which exclude food and energy, are up 0.7% and 1.1% respectively in the past year. Both are well below the Fed’s 2% target. However, we think these price measures will move higher over the next year. QE was a mistake. The sooner the Fed starts to taper, the better.
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Scott Grannis's track record on the market is better than any of us here:
http://scottgrannis.blogspot.com/2013/12/corporate-profits-just-keep-on.html
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Scott Grannis's track record on the market is better than any of us here:
http://scottgrannis.blogspot.com/2013/12/corporate-profits-just-keep-on.html
Funny, anyone noticing the panicked retailers cutting prices as we have another plowhorseriffic Christmas season?
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Pessimists Get Desperate To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 12/9/2013
Payrolls keep growing. Economic data stays positive. The stock market makes new highs. It’s been consistent for nearly five years. And so has the pessimism. In fact, the pouting pundits of pessimism get more determined each month, trying to prove that things are really bad out there.
We really do tip our hats to those who dive deeply into the details of job reports – even though they don’t really understand the data – to find that one nugget of negative information that will boost hits on their webpages and get them retweeted.
For example, the jobs report on Friday was one of the best of the last few years, with nonfarm payrolls up 203,000, while wages rose, total hours worked increased 0.5%, and the unemployment rate finally sank to 7%. Nonetheless, after digging through every line of the report, some pessimists found their talking point. Guess what? A whopping 41% of the job gains in November were from government.
They didn’t exactly lie, but the data point is misleading and meaningless. The number came from the Household Survey’s civilian employment data – a separate survey with a much smaller sample size than the payroll survey. This data said the US gained 818,000 jobs in November and that 338,000 of them were government jobs – voilà, 41%.
But, there was a partial government shutdown in October. That shutdown did not affect the payroll survey but did affect the household survey, which is timed differently. So, the data needs to be looked at over two months, not one.
In October, overall civilian employment fell 735,000 with a 507,000 drop in government jobs. Looking at the two months together, shows that total employment was up 83,000 while government jobs were down 169,000. In other words, the trend in government jobs continues to be down, including a drop of 534,000 in the past year according to the household survey.
Several months ago, these same pundits invented another Black Swan-style crisis when they claimed part-time jobs were dominating any job gains the US was experiencing.
Have you ever wondered why you don’t hear that theory anymore? Because part-time jobs have plummeted in the past four months and are now lower than they were last year even as total jobs are up. These politically motivated scare tactics are getting very annoying. We spend lots of time chasing down, and proving wrong, these erroneous claims. Worried investors should be spending more time finding opportunity.
We are not saying the labor market is perfect. The US should be gaining 350,000 jobs per month. But the monthly reports are relevant because they tell us about the direction of the economy, and that is clearly Plow Horse positive.
Another recent gripe is that economic growth in Q3 was all due to inventories. It’s true the upward revision of real GDP growth to a 3.6% annual rate was due to inventories. But real GDP was still up at a 2% rate even without inventories, the same Plow Horse trend of the past few years.
And, in spite of Keynesians fears that the partial government shutdown and Sequester were supposed to hurt the economy, the data once again prove that John Maynard had it wrong. On Friday, it was reported that real (inflation-adjusted) consumer spending grew at a 3.8% annual rate in October, the fastest pace for any month so far this year.
And for November, look out above. Automakers reported they sold cars and light trucks at the fastest pace since 2007, so it looks like November is going to be another solid month for consumer spending, once again destroying the theory that the fiscal cliff deal, or the Sequester, or the shutdown was going to kill the consumer.
We expect further solid job reports in the months ahead, showing continued improvement in the labor market. Rest assured, however, that after each report someone, somewhere, will find a way to twist the numbers until they scream. They won’t outright lie with the data, but they will send many investors off on a wild goose chase looking for a recession that doesn’t exist.
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Wesbury: the same Plow Horse trend of the past few years
G M: "Should crosspost that under the latest Webury drivel."
_______________________________________________
Excerpt from Political Economics, by request:
http://www.dailyherald.com/article/20110804/news/708049975/
Food stamp use nearly doubles in suburbs
The Sharp Rise in Disability Claims
http://www.richmondfed.org/publications/research/region_focus/2012/q2-3/pdf/feature3.pdf
http://cnsnews.com/news/article/terence-p-jeffrey/90609000-americans-not-labor-force-climbs-another-record
90,609,000: Americans Not in Labor Force Climbs to Another Record - See more at: http://cnsnews.com/news/article/terence-p-jeffrey/90609000-americans-not-labor-force-climbs-another-record#sthash.jTKlYqis.dpuf
Women leaving the U.S. workforce in record numbers
http://www.catholic.org/business/story.php?id=46145
Unemployed women hit an all-time historical high of 53,321,000, according to the Bureau of Labor Statistics.
http://www.nbcnews.com/id/11098797/#.Uqc8ZH8v1hs
U.S. savings rate hits lowest level since 1933
http://www.zerohedge.com/news/2013-03-29/us-savings-rate-near-record-low-capita-disposable-income-below-december-2006-level
http://dailycaller.com/2012/06/07/sessions-food-stamp-spending-up-100-percent-since-obama-took-office/
(http://dailycaller.com/wp-content/uploads/2012/06/Food-stamp-spending.jpg)
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The cognitive dissonance of Wesbury:
Consumer spending grew over 3% the highest in some time. What about consumer debt being the highest in some time? Any connection:
http://www.money-zine.com/financial-planning/debt-consolidation/consumer-debt-statistics/
"We really do tip our hats to those who dive deeply into the details of job reports – even though they don’t really understand the data – to find that one nugget of negative information that will boost hits on their webpages and get them retweeted"
My hat tip to an economist who has been a ceaseless bull for 15 straight years.
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Two 2013 Nobel Winners Sound Alarm
Tuesday, December 10, 2013 5:05 PM
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From: "Outsider Club" <ww-eletter@angelnexus.com>To: "craig price" <super65.intell@yahoo.com>
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Two 2013 Nobel Winners Sound Alarm
By Adam English | Tuesday, December 10th, 2013
As you're reading this, some of the world's best and brightest are in Stockholm, Sweden to accept their Nobel prizes in recognition of their brilliance and ground-breaking work.
Two of them are bringing very deep concerns about a coming crash with them.
Robert J. Shiller, Eugene F. Fama, and Lars Peter Hansen will take the stage to receive their awards for analyzing asset prices in finance and the markets.
Both Shiller and Fama — two men with profoundly different views — have recently been peppered with questions about the economy and markets.
Neither like what they see, and what they discussed touches on the short-sighted manipulation of assets from real estate to stocks and bonds.
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Speculative Bubble
Robert Shiller won his prize by compiling and analyzing long-term housing sale information in the U.S., probably for the first time ever. From the data, he drew some strong conclusions. Here is a short list:
•There is no continuous uptrend in home prices in the U.S.
•Home prices show a strong tendency to return to their 1890 level in real terms
•Changes in home prices bear no relation to changes in construction costs, interest rates, or population
Yet people consistently make the error of getting into real estate because prices rise in nominal figures that are not adjusted for inflation or other factors.
The U.S. Census has proof of this going back for over fifty years. Since 1940, it has asked homeowners to estimate the value of their homes. The estimates average out to a 2% appreciation per year in real terms. The actual increase is 0.7%.
Housing sales have been strong. Existing homes are scarce, houses stay on the market for less time and prices are way up in the hardest-hit markets. It looks healthy on the surface, but it is a mirage.
Cash-only transactions have dominated the market, peaking at 60% back in May of this year and drifting down to 30% in recent months. 15-20% is average and reasonable.
Families do not pay cash. Wealthy private and large institutional investors use cash to speculate on rising values while pocketing rental income.
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On CNBC two weeks ago, in response to hedge funds and institutional investors claiming they are long-term investors, Shiller had this to say:
...[Housing investors] are not. I think what they've learned... there is short-run momentum in the housing market, and so they know how to play momentum, but as soon as it looks like it's weakening, they'll exit.... we can't trust momentum...
How can these guys not notice how fast home prices have been going up and the fact that historically momentum is a much better play in housing than it has been in the stock market? So I'm pretty sure this is on their minds. They are not going to say this, I guess. They're not going to say they're going to dump them.
I wholeheartedly agree. Wealthy private and institutional investors are funneling unprecedented asset price gains and unfettered access to easy credit with bargain bin interest rates into home purchases.
They'll keep hyping the market until a bitter end is in sight, capture short-term gains, and leave a new batch of families indebted for life.
"Bubbles Look Like This"
Shiller was back in the press earlier this month talking about stocks as well. Talking with German news service Der Spiegel, he stated that he believes sharp rises in equity and property prices could lead to a dangerous financial bubble and may end badly.
As he told the magazine, "...in many countries stock exchanges are at a high level and prices have risen sharply in some property markets."
"I am most worried about the boom in the U.S. stock market. Also because our economy is still weak and vulnerable," he said. "Bubbles look like this. And the world is still very vulnerable to a bubble."
Of course, the Fed doesn't see a bubble forming and is not weighing the concerns of Shiller and many other prestigious economists in their deliberations over quantitative easing.
If you're like the Fed and just look at price to earnings multiples, everything looks just fine.
However, earnings are looking good on the surface because profit margins are roughly 70% above their historic norms. If you take a look at the stock market over the past century, you'll see that profit margins inevitably return to the norm and negatively impact future earnings growth for years afterwards.
The median price to revenue ratio in the S&P 500 is now higher than it was in 2000. When profits return to normal, an abnormally large proportion of revenue will disappear and expose extremely high valuations.
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Robbing Peter to Pay Paul
In real estate and the stock market, we can trace this growing asset bubble back to the Fed, along with government debt and policies.
It even applies to the bond market. Government debt is ballooning due to unfunded spending and entitlement programs. Manipulation of interest rates and a steady flow of easy money is driving massive inflows into risky corporate and junk bonds.
Some of the worst — payment in kind bonds that allow borrowers to repay interest with more debt — have jumped from $6.5 billion in 2012 to $16.5 billion this year.
This has Eugene Fama, who normally voices skepticism about the existence of asset bubbles at all, concerned about a debt-fueled crash.
Saturday he told Reuters: "There may come a point where the financial markets say none of their debt is credible anymore and they can't finance themselves. If there is another recession, it is going to be worldwide."
As for the exuberance over the last job report he said, "I am not reassured at all. The jobs recovery has been awful. The only reason the unemployment rate is 7%, which is high by historical standards in the U.S., is that people gave up looking for jobs. I just don't think we have come out of [recession] very well."
The simple fact of the matter is you can't rob Peter to pay Paul. Adding easy credit and cash into bloated asset markets, along with corporate and government debt, is not worth creating confidence in the market and out-sized gains for a select few.
The only silver lining is that so much value was stripped from real estate and the stock market five years ago — mostly from the lower and middle classes — that we won't see the same 60% losses. However, the longer the situation persists, the worse it becomes.
Of course, many won't see a loss at all. They aren't working. The number of employable Americans rose 2.4 million over the last year while the official labor force shows a 25,000-person drop.
Yet the Fed, other central banks and governments continue to manipulate the free market and strip future growth and earnings. Entrenched financial institutions and politicians continue to enrich themselves to maintain their wealth and power at our expense.
Hopefully, the research Nick Hodge has been doing is true and a Fourth Turning is right around the corner.
Take Care,
Adam English
Adam English
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Initial Jobless Claims Rise | 12/12/13
Seasonally adjusted initial jobless claims increased 68,000 to 368,000 for the week ended Dec. 7, 22% higher than a revised figure released a week earlier.
http://www.thestreet.com/story/12153114/1/initial-jobless-claims-rise-bucking-latest-trends.html
Monday morning Wesbury will explain this.
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Third-Quarter U.S. Growth Revised Up to 4.1% Rate
The United States economy grew at an astonishing 4.1 percent annual rate, the federal government said Friday in its third and final revision of gross domestic product for the third quarter.
The rate was the fastest in almost two years.
The Commerce Department said business spending was stronger than it originally thought, leading to the revision up from 3.6 percent. Economists had expected the final estimate of growth to be unchanged from that 3.6 percent.
READ MORE »
http://www.nytimes.com/2013/12/21/business/economy/third-quarter-us-growth-at-4-1-rate-in-new-estimate.html?emc=edit_na_20131220
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Margin Debt Hits Yet Another New High
http://blogs.wsj.com/moneybeat/2013/12/23/margin-debt-hits-yet-another-new-high/?mod=WSJ_Opinion_LatestHeadlines,
Last month, investors borrowed $423.7 billion against their portfolios, exceeding October’s record of $412.4 billion
Margin-debt levels rose 2.7% from the prior month. The gain coincided with the Dow Jones Industrial Average’s 3.5%.
Rising levels of margin debt are generally seen as a measure of investor confidence
-------------------------------
I wonder what would be considered synonyms for confidence in something you don't really know or have any control over...
idiocy, foolhardiness?
Interesting also that this falls into the category of unintended consequences for artificially and absurdly low interest rates. What could possibly go wrong?
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Personal Income Rose 0.2% in November, Personal Consumption Rose 0.5% To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 12/23/2013
Personal income rose 0.2% in November, coming in below the consensus expected gain of 0.5%. Personal consumption rose 0.5%, matching consensus expectations, but was up 0.9% including revisions to prior months. In the past year, personal income is up 2.3% while spending is up 3.5%.
Disposable personal income (income after taxes) increased 0.1% in November and is up 1.5% from a year ago. The gain in income in November was driven by gains in wages and salaries and personal dividend income. Farm income fell in November.
The overall PCE deflator (consumer prices) was unchanged in November but is up 0.9% versus a year ago. The “core” PCE deflator, which excludes food and energy, was up 0.1% in November and is up 1.1% in the past year.
After adjusting for inflation, “real” consumption was up 0.5% in November (up 0.9% including revisions to prior months) and is up 2.6% from a year ago.
Implications: Spending surged in November and was revised up in September and October, back when the media was obsessed with stories of how a partial government shutdown was going to hurt consumer spending. In the past six months, consumer spending is up at a 4.8% annual rate; in the past three months, it’s up at a 5.1% rate. We need to keep this in mind the next time politicians and pundits try to scare the public about lower government spending. Plugging these data into our models suggests “real” (inflation-adjusted) spending, will be up at a 4% annual rate in Q4 versus the Q3 average. Factoring in a potential slowdown in inventory accumulation, it now looks like real GDP is growing at a 2% annual rate in Q4. Personal income rose 0.2% in November, which was less than the consensus expected. But farm income, which can be volatile, fell again in November, holding the overall number down. Income is up a tepid 2.3% versus a year ago. But income gains were very strong late last year, temporarily making year-ago comparisons look weak. In the meantime, private-sector wages & salaries continue to grow and are up at a 3.9% annual rate in the past six months. Expect both income and spending to keep growing. Job growth will continue and, as the jobless rate gradually declines, employers will offer higher wages. Meanwhile, consumers’ financial obligations are hovering at the smallest share of income since the early 1980s. (Financial obligations are money used to pay mortgages, rent, car loans/leases, as well as debt service on credit cards and other loans.) On the inflation front, the Federal Reserve’s favorite measure of inflation, the personal consumption price index, was unchanged in November. Core consumption prices were up 0.1%. Overall consumption prices and core prices, which exclude food and energy, are up 0.9% and 1.1% respectively in the past year, both below the Fed’s 2% target. However, we think inflation will move higher over the next year. QE was a mistake; the sooner it’s over the better.
========================
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New Orders for Durable Goods Rose 3.5% in November To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 12/24/2013
New orders for durable goods rose 3.5% in November, beating the consensus expected 2.0% gain. Orders excluding transportation increased 1.2%, beating the consensus expected gain of 0.7%. Including revisions to October, overall orders rose 4.4% and orders ex-transportation rose 1.5%. Orders are up 10.9% from a year ago, while orders excluding transportation are up 6.1%.
The gain in overall orders was led by civilian aircraft, autos, and machinery.
The government calculates business investment for GDP purposes by using shipments of non-defense capital goods excluding aircraft. That measure increased 2.8% in November. If unchanged in December, these shipments will be up at a 7.5% annual rate in Q4 versus the Q3 average.
Unfilled orders were up 1.0% in November and are up 7.8% from last year.
Implications: An early Christmas present came in the shape of the November durable goods report today. New orders surged by 3.5%. Much of the gain was in the transportation sector – particularly civilian aircraft – which is extremely volatile month to month. Excluding transportation, orders were still up a very healthy 1.2%, led by a 3.8% surge in industrial machinery. Shipments of “core” capital goods, which exclude defense and aircraft, rose 2.8% in November and, if this measure is unchanged in December, will be up at a 7.5% annual rate in Q4 over Q3. Plugging these figures into our models for real GDP lifts our forecast for Q4 to a 2.3% annual rate. Both consumer spending and business investment appear to be rising at the fastest pace all year. If accurate, real GDP will be up 2.5% in 2013 (on a Q4/Q4 basis), the best since 2010. We expect faster growth of around 3% in 2014. Other great news in today’s report was that unfilled orders for core capital goods rose 1% in November, hitting a new record high. The news on unfilled orders supports our optimism about business investment. Monetary policy is loose and, for Corporate America, borrowing costs are still relatively low and balance sheet cash and profits are at or near record highs. Meanwhile, the obsolescence cycle should get more firms to update their capital stock. In addition, the recovery in home building should generate more demand for big-ticket consumer items, such as appliances. The Plow horse looks set to trot in 2014. Merry Christmas!
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Plow Horse, Trotting To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 12/30/2013
What a year 2013 has been. Remember how it started, with the media hyperventilating over the “fiscal cliff” deal and spending sequester? The vast majority of economists, pundits and politicians believe in Keynesian economics. So, it’s not surprising that higher tax rates and spending cuts sent them into an intellectual and theoretical funk.
Add to that the partial government shutdown, “debt ceiling” debate, tapering, and Obamacare! This created a whole new set of worries and if you got your economic news from TV, you expected Armageddon. But, in the end, all of this was over-hyped nonsense.
Cutting government spending actually helps the economy, the tax hikes were relatively minor and tapering has zero impact on real economic activity. “Real” (inflation-adjusted) consumer spending rose at a 5.7% annual rate in October and November, the fastest pace for any two months since 2006 (excluding “cash-for clunkers” in 2009).
Instead of falling over dead, the Plow Horse economy gained strength in the second half. Real GDP grew 4.1% at an annual rate in the third quarter and stock market indices rose to all-time record highs. We weren’t surprised. Back in January, with the Dow at 13,104, the S&P 500 at 1,426, and the 10-year Treasury yield at 1.78%, we projected a 15,500 Dow at year-end 2013, a 1,700 S&P 500, and 2.85% 10-year T-note yield.
We were more bullish on stocks than the consensus and much more bearish on bonds, even though the conventional wisdom believed that higher interest rates would hurt stocks.
By mid-May, with stocks already at our year-end targets, we lifted the forecast to 16,250 for the Dow and 1,775 for the S&P 500. Last Friday, the Dow was 16,478, the S&P 1,841 and 10-year yield closed at 3.00%.
Right now, we’re projecting further gains for stocks and more losses for Treasury securities in 2014. Our year-end 2014 forecast for the Dow is 18,500 and for the S&P 500, 2,075. Including dividends, that’s a total return of about 15%. The 10-year Treasury yield should keep trending up and hit 3.65% by year end.
For the economy, the year began with the unemployment rate at 7.8%. The consensus expected a decline to 7.4%, while we forecast 7.0%, which is the exact rate for November. (December employment data arrives January 10th.) For 2014, the consensus projects a 6.5% unemployment rate at the end of 2014. We think we’ll finish the year closer to 6%.
We were a little too optimistic on GDP for 2013. We predicted an acceleration of real GDP growth to 2.7% this year. The acceleration happened, but growth when all is said and done will come in at around 2.4%. For 2014, with housing and jobs accelerating, we expect growth very close to 3%.
Our biggest mistake was on inflation. We were bearish on gold, but bullish on the CPI. Gold fell alright (by 28%, so far), but the CPI, which rose 1.8% in 2012, will likely rise by just 1.3% for all of 2013. We still expect inflation to accelerate, but are holding our forecast at 2% for next year, with further increases in the years beyond. The link between monetary policy and inflation is often long and variable. We still believe higher inflation is just a matter of time.
Other themes for 2014 include a continuation of the housing recovery, although with more construction leading to somewhat slower gains in home prices. Meanwhile, the media will talk eventually about the “re-leveraging” of the American consumer. It’s about time, with financial obligations such a small share of income. But expect the media to make this a negative story rather than a positive one.
In the end, the most important theme of all for 2013 is that the entrepreneur came through with productivity enhancing innovation in spite of having a bloated government on its back. The result was a Plow Horse economy – one that ain’t gonna win the Kentucky Derby, but ain’t heading toward the glue factory, either.
In 2014, the Plow Horse is likely to trot a little. Yes, without Obamacare and a spendaholic Congress, things could be even better. But, like 2013, we think those who spend all their time worried about politics will miss another year of growth and rising equity values. Stay bullish and stay invested.
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http://online.wsj.com/news/articles/SB10001424052702304753504579287504166323702
WSJ: Beware the Tech Bubble
Hmmm...
Maybe, maybe not.
Worry but don't panic.
Updates: Monday mornings on Wesbury. )
Wesbury: "In 2014, the Plow Horse is likely to trot a little. " "Stay bullish and stay invested."
This is so good, it doesn't matter what you invest in. When have I heard that before and what could possibly go wrong?
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The ISM Manufacturing Index Fell Slightly to 57.0 in December To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 1/2/2014
The ISM manufacturing index fell slightly to 57.0 in December from 57.3 in November. The consensus expected 56.8. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mixed in December but all remain well above 50. The new orders index increased to 64.2 from 63.6, while the employment index increased to 56.9 from 56.5. The Supplier deliveries index rose to 54.7 in December from 53.2 in November. The production index declined to 62.2 from 62.8.
The prices paid index rose to 53.5 in December from 52.5 in November.
Implications: The first report of the New Year was a good one. After booming in November, the ISM index, a measure of manufacturing sentiment around the country fell just slightly in December, coming in at the second highest level since April 2011. According to the Institute for Supply Management, an overall index level of 57.0 is consistent with real GDP growth of 4.6% annually. We don’t expect real GDP to grow anywhere near that pace in Q4, but we do expect faster growth in 2014 than 2013. The new orders index boomed to 64.2 in December, coming in at the highest level since early 2010. The employment index moved higher to 56.9 from 56.5, the highest level since mid-2011. This is consistent with the plow horse growth we have been getting out of the labor market over the past few years and signals another positive report on payrolls on Friday, January 10. On the inflation front, the prices paid index rose to 53.5 in December from 52.5 in November. Still, little sign of inflation, but we don’t expect this to last given loose monetary policy. In other news this morning, new claims for unemployment benefits decreased 2,000 last week to 339,000. Continuing claims for regular state benefits fell 98,000 to 2.83 million. Also today, construction increased 1.0% in November and 1.6% including revisions to prior months. This is the highest level for construction spending since March 2009. The increase in construction in November was led by private single-family homebuilding, while private commercial construction showed strong gains as well. In recent news on the housing sector, the Case-Shiller index, a measure of home prices in the 20 largest metro areas, increased 1% in October (seasonally-adjusted) and is up 13.6% in the past year. Recent gains have been led by Atlanta, Los Angeles, and Las Vegas. On the sales front, pending home sales, which are contracts on existing homes, increased 0.2% in November. As a result, we expect a slight increase in existing home closings in December. The Plow Horse Economy continues to move forward.
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http://www.ftportfolios.com/Commentary/EconomicResearch/2014/1/6/why-tapering-doesnt-matter
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http://www.ftportfolios.com/Commentary/EconomicResearch/2014/1/6/why-tapering-doesnt-matter
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http://www.cnbc.com/id/101326268
...continued shrinkage in the labor force. The labor force participation rate tumbled to 62.8 percent, its worst level since January 1978.
http://finance.yahoo.com/news/u-job-growth-weakest-three-134853368.html
U.S. job growth weakest in three years
http://finance.yahoo.com/news/china-overtake-u-worlds-top-110600120.html
China to overtake U.S. as world's top trader
Other than American workers not working and American businesses not hiring, and other countries passing us up in world trade, things look pretty good.
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Economists predicted that December would see nearly 200,000 new jobs, but reality was ... unexpected. Just 74,000 jobs were created last month. The headline unemployment rate dropped from 7.0% to 6.7%, but -- and it's a big but -- this was almost entirely attributable to the 525,000 people who left the workforce. Just 62.8% of Americans were part of the labor force, tied for the lowest rate since 1978, and nearly 92 million people aren't in the labor force. For the year, unemployment dropped 1.2 percentage points, but real unemployment is at least 13.1% and, again, we'd point to the 2.9 million Americans who left the labor force in 2013 as the reason. By the way, we're entering year six of the Obama "recovery."
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second post
Data Watch
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Non-farm Payrolls Increased 74,000 in December To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 1/10/2014
Non-farm payrolls increased 74,000 in December, well below the consensus expected 197,000. Including upward revisions to prior months, nonfarm payrolls were up 112,000.
Private sector payrolls increased 87,000 in December (+120,000 including revisions to prior months), lagging the consensus expected 200,000. The largest gains were for retail (+55,000) and temps (+40,000). The largest decline was for non-residential construction (-22,000). Government payrolls declined 13,000.
The unemployment rate dropped to 6.7% (6.681% unrounded) from 7.0% (6.981% unrounded).
Average weekly earnings – cash earnings, excluding benefits – increased 0.1% in December and are up 1.8% from a year ago.
Implications: The labor market surprised to the downside in December, with slower growth in payrolls, a decline in total hours worked, and only a small increase in wages that likely lagged inflation for the month. Payrolls increased 74,000 versus a consensus expected 197,000 (First Trust was forecasting a comparatively low 150,000). However, this does not mean the jobs recovery is over. Payroll growth was stronger than originally expected in August, September, October, and November, so getting one month to the downside does not make a new trend. In addition, the Labor Department says 273,000 workers were unemployed in December due to unusually severe weather in the survey week. This is the most for any December since 1977. For comparison, in the past ten years, on average, 138,000 workers have been out of work due to weather in December. These figures are from the civilian employment survey, not the payroll survey, but hint at a sharp rebound in job growth in January. Despite the weather issue, civilian employment was up 143,000 in December. It’s early, but we expect payrolls to grow roughly 200,000 in January. Also, don’t be surprised if December payrolls are revised up next month; December 2012 was originally reported at 155,000 and later revised to 219,000. The bright spot in today’s report was the decline in the jobless rate to 6.7%. However, much of the decline was due to a drop in labor force participation. Most of the drop in the jobless rate in the past year is due to job growth, but some of it is due to lower participation. In terms of the details of the report, although total hours were down in December and average hourly earnings only rose 0.1%, they are up a combined 3.4% versus a year ago, which means consumer incomes are still rising. This is more than enough for workers to keep pushing up spending, particularly in an environment where consumers’ financial obligations are low relative to income. The labor market could and would be doing better with a better set of public policies. But it is still improving. In the past year nonfarm payrolls have grown at an average monthly rate of 182,000 while civilian employment is up 96,000 per month. Over time, we expect these two rates of job growth to converge and think the pace of growth in civilian employment is likely to accelerate.
________________________________________
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The jobs recovery? Are you fcuking kidding me?
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http://online.wsj.com/news/articles/SB10001424052702303754404579312840728986548?mod=U.S._newsreel_4
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http://online.wsj.com/news/articles/SB10001424052702303754404579312840728986548?mod=U.S._newsreel_4
The stock bubble will inflate until the big pop.
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Industrial Production Increased 0.3% in December To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 1/17/2014
Industrial production increased 0.3% in December, matching consensus expectations, but was up 0.5% including revisions to prior months. Production is up 3.7% in the past year.
Manufacturing, which excludes mining/utilities, rose 0.4% in December (+0.6% including revisions to prior months). Auto production rose 1.6% in December, while non-auto manufacturing was up 0.3%. Auto production is up 7.2% versus a year ago while non-auto manufacturing is up 2.2%.
The production of high-tech equipment rose 1.7% in December, and is up 9.9% versus a year ago.
Overall capacity utilization rose to 79.2% in December from 79.1% in November. Manufacturing capacity increased to 77.2% in December.
Implications: The plow horse economy is starting to trot. Another strong report today on industrial production, which reached a new all-time high in December. Production rose 0.3% for the month and an even stronger 0.5% including revisions to prior months. Taking out mining and utilities gives us manufacturing, which was up 0.4% in December and up 2.8% in the past year. Auto production was up 1.6% in December, but even non-auto manufacturing was up 0.3%. We expect continued gains in production as the housing recovery is still young and demand for autos and other durables remains strong. Over the past year, production in the auto sector has expanded by 7.2%. Excluding autos, manufacturing output is up 2.2% in the past year and 6.0% at an annual rate in the past three months. We expect the growth gap between auto and non-auto manufacturing to narrow substantially in the year ahead, with slower growth (but still growth!) in autos and faster growth elsewhere in manufacturing. Capacity utilization rose to 79.2% in December. This is a new high for the recovery and above the average of 78.9% in the past 20 years. As a result, further gains in production in the year ahead should push capacity use higher, which means companies will have an increasing incentive to build out plants and equipment. Meanwhile, corporate profits and cash on the balance sheet are at record highs, showing companies have the ability to make these investments.
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I haven't paid attention to Isis in years. I remember when anti- sense was all the rage late 90's. Then fell out of favor after it didn't work. I recall posts on the old DMG board on this. Now look at it. Hindsight is everything in the stock market. I recall my uncle telling us the story of how his friends advised him to buy into resorts international in the 70's which was the first Atlantic City casino approved by the regulators. He thought it too risky. His friends made millions. He then added, "everything I did in the stock market was wrong...."
I am not sure if I every bought ISIS but I know I watched it for years. I look at this and weep:
http://finance.yahoo.com/q/pr?s=ISIS+Profile
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I have more than one or two regrets like that myself.
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Correction. The chart was what I meant to post:
http://finance.yahoo.com/echarts?s=ISIS+Interactive#symbol=isis;range=my;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=;
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http://online.wsj.com/news/articles/SB10001424052702304428004579352472437635350?mod=WSJ_hp_LEFTWhatsNewsCollection
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Now near $1200. I wonder if even one person bought then and still owns now? Lets see $1000 then now ~ $775,000 now. The dreams stock markets are made of:
http://finance.yahoo.com/echarts?s=PCLN+Interactive#symbol=pcln;range=my;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=;
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http://online.wsj.com/news/articles/SB10001424052702304428004579352472437635350?mod=WSJ_hp_LEFTWhatsNewsCollection
They must be missing all the really bad economic news that isn't hard to find.
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GM,
Yes the economy is improving for the few, and not the wealthy. Like Forbes said, my father taught me one can make far more money recommending stocks than investing in them. Wesbury knows he can make far more money giving advice than following it.
In health care the big businesses are getting wealthy. There is huge consolidation, huge squeezing of smaller guys and increased demands on all the workers. I believe it is the same every other segments of the economy. I don't recall in my lifetime seeing the gap from the very rich to the vast majority of Americans expanding any faster as it has under this President.
Yet the Republicans seem totally unable to articulate any consistent messages to reach those same "vast majority of Americans". The ineptitude of the Republican leadership (in what is not any longer my party) is breathtaking.
I have no motivation to vote. Why bother? Should I vote for the big government Republican or the outright liberal? Little difference. They are all giving the citizens country away.
Victor David Hanson was on Marc Levin last PM. He more or less agreed the immigration cave in is quite likely the end of the ball game for America as we knew it. He doesn't understand why Republicans cannot reach out to the majority of citizens and connect.
All I can say is many talk show hosts blow away any political articulators in the repub leadership.
As of now I will stay home and not vote period. I didn't bother to vote for Christie either. I don't like him and he has done nothing for me or the bill payers in NJ - nothing.
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Isolating the part I disagree with :-D
"Wesbury knows he can make far more money giving advice than following it."
Exactly. And all of us I suspect, and certainly me, would be wealthier if we had followed it.
David Gordon phrase about investing comes to mind: "Better to profit, than be a prophet."
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****Isolating the part I disagree with grin
"Wesbury knows he can make far more money giving advice than following it."
Exactly. And all of us I suspect, and certainly me, would be wealthier if we had followed it.****
What in here do you not agree with?
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My comments follow:
Monday Morning Outlook
________________________________________
The Recovery Is Not A Sugar High To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 2/10/2014
Inadvertently, we previously sent out an earlier version of this week’s Monday Morning Outlook. Below is the updated version:
What happened to stocks in January and early February is nothing new. It’s happened quite a few times in the past four years and eleven months. Ever since mark-to-market accounting was fixed in March/April 2009, these corrections have been short-lived and relatively mild. And once they were over the market went higher. It’s been a very strong bull market.
Nonetheless, few investors truly understand why things turned around so abruptly in 2009 and every time the stock market declines there is a mad rush to believe this time the sky really is falling.
A key reason for this belief is that conventional wisdom has coalesced around a relatively simple-minded narrative that goes like this – “the economy died in 2008 and Quantitative Easing (QE) is the life support system…it’s a false recovery, a sugar high…without QE, the markets would not be up.”
We think this narrative has it wrong… it’s mistaken.
First of all, the entire subprime crisis was only about $400 or $500 billion dollars of bad loans. Yes, those are large numbers, but in an economy that was producing $15 trillion of GDP each year, it’s just not enough to cause a cataclysm.
Rather, it was an accounting rule – mark-to-market accounting – that created losses for financial institutions well in excess of the true problems in the housing market. This rule forced financial firms to sell mortgage-related assets into a fire sale, markets became illiquid, and prices fell to levels well below fundamental value. Without mark-to-market accounting the crisis would have remained contained.
We’re not saying firms should never mark assets to market. The rule makes sense when firms are always ready to sell an asset. But the rule makes no sense at all when markets seize up and no sane owner would sell an asset (that is still performing) for a price massively below its true value; unless an accounting rule forced it. If in the absence of the rule, asset owners could or would just wait out the storm then the only justification for marking an asset down in value is if it is truly credit impaired.
But instead of fixing the overly rigid accounting rule, the US government invented policies – TARP and QE were the big ones – to fill the hole in bank capital caused by mark-to-market losses. Both TARP and QE started in October 2008 and the stock market promptly plummeted – falling an additional 40%, with financial stocks down significantly more than the market as a whole.
Only after Barney Frank and the House Banking Committee leaned on the Financial Accounting Standards Board to fix mark-to-market did things turn around. A hearing was announced on March 9, 2009, the exact day the market hit bottom. The rule wasn’t officially changed until early April 2009, but by then markets had already anticipated the change. It was the change in this rule that stopped the crisis, not TARP and QE.
Our main point is that the crisis was never actually as bad as many thought. The bubble wasn’t as big as many Austrian economists think. Once the accounting rule was changed, the recovery was virtually guaranteed. TARP and QE didn’t “save” the economy and “tapering” is not dangerous. The odds of a return of the crisis are virtually nil.
The economy, profits and stock prices are rising because of “real” economic developments – fracking, new computer software, and communication technologies are raising energy production and productivity, which, in turn, are driving growth. Yes, the economy could be doing even better, but we shouldn’t ignore real improvements either.
The bottom line is that while so many people view the recovery as fragile and fake, they are missing the important narrative outlined above. The economy and markets are so much more robust than the conventional wisdom believes. So, when markets fall and fear overwhelms so many because they believe the wrong narrative, opportunity abounds for the bulls.
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This analysis is not without logic. I would add that adding to the gravity of the decline was the market anticipating Obama's cap & trade and other stupidities and when they floundered without getting anywhere, the portion of the decline due to them reversed itself. I would also add that BW's analysis is quite incomplete e.g. the implications of declining work force, Obamacare, extreme accumulation of debt, various demographic issues and their related unfunded liabilities, increasingly hostile tax code and regulatory environment, the general misinformed level of the American people due to the Pravdas, and much more.
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Obviously, this doesn't mean the market will continue to behave as it has - but as the author points out, many who were laughing at this chart last November are no longer doing so. Wesbury is a fool, in my humble opinion.
www.marketwatch.com/story/scary-1929-market-chart-gains-traction-2014-02-11
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Well, we here who have predicted doom and gloom since the DOW was at 6500 have much about which to be humble. This thread is, in part about the stock market, and in that game score is kept by making money. Speaking proportionately, BW is WAY ahead of all of us here by that criterion.
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I guess the sprawling debt and masses of unemployed and underemployed are proof of just how prosperous we are.
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Good point, G M - Also, I must say it escapes me how so many take the attitude that they will continue to gamble in the face of all this reality staring them in the face. Yes - we've had a big run-up in the market - but based upon exactly WHAT fundamentals? There aren't any to speak of. That this increase has been driven by factors other than increased productivity and profitability SHOULD give anyone pause. Expecting that there will be some sort of warning signal which will give one time to exit the market safely is patently ridiculous, and ought to be evident to anyone with a modicum of knowledge about the market and its history.
Plenty of fools (though not nearly so many as today) kept investing in the market prior to the crash in 1929, and I'm sure they were scoffing at naysayers back then as well.
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"Plenty of fools (though not nearly so many as today) kept investing in the market prior to the crash in 1929, and I'm sure they were scoffing at naysayers back then as well."
Many of us were scoffing at the naysayers in 1999 too. "Oh it is different this time". While we were looking at charts comparing the market spike of 1929 and 1999.
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Riffing on David Gordon's word play, profit and prophet may be homonyms, but in the market I would rather be the former than the latter. Unfortunately I am not.
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Wesbury has been right and we have been wrong. Anyne can see that. The charts show that this will just keep going up and up and up.
'I couldn't figure out why the baseball kept getting bigger and bigger and then it hit me.'
(http://ei.marketwatch.com/Multimedia/2014/02/10/Photos/MG/MW-BU310_scary__20140210132547_MG.jpg?uuid=d13c2b42-9280-11e3-9759-00212803fad6)
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"'I couldn't figure out why the baseball kept getting bigger and bigger and then it hit me.'"
That is very funny.
OTOH, David Gordon sees good things ahead for the market.
The story will tell itself as our Adventures continue!
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BofA Said to Cut 450 More Mortgage Jobs as Loan Demand Declines
http://www.moneynews.com/Companies/job-cuts-loan-demand/2014/02/13/id/552678
Bank of America Corp., the second-largest U.S. lender, is cutting 450 mortgage jobs from West Coast offices after new loans fell short of internal forecasts
Plowhorse beginning to trot...
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***From what we have seen–the fixing of the LIBOR rate, the London gold price, foreign exchange rates, the price of bonds and the manipulation of gold and stock market futures prices–we don’t know what the limit is to the ability of the Fed, the Treasury, the Plunge Protection Team, the Exchange Stabilization Fund, and the banks to manipulate the markets.***
Has this ever been the case in American history where in a Fed can control the markets like they are doing?
*****Free Report - Financial Markets 2014
Financial, Gold, Stocks Markets Manipulation's Becoming More Extreme, More Desperate
Stock-Markets / Market Manipulation Feb 09, 2014 - 02:07 PM GMT
By: Paul_Craig_Roberts
In two recent articles we explained the hows and whys of gold price manipulation. The manipulations are becoming more and more blatant. On February 6 the prices of gold and stock market futures were simultaneously manipulated.
On several recent occasions gold has attempted to push through the $1,270 per ounce price. If the gold price rises beyond this level, it would trigger a flood of short-covering by the hedge funds who are “piggy-backing” on the bullion banks’ manipulation of gold. The purchases by the hedge funds in order to cover their short positions would drive the gold price higher.
With pressure being exerted by tight supplies of physical gold bars available for delivery to China, the Fed is growing more desperate to keep a lid on the price of gold. The recent large decline in the stock market threatened the Fed’s policy of taking pressure off the dollar by cutting back bond purchases and reducing the amount of debt monetization.
Thursday, February 6, provided a clear picture of how the Fed protects its policy by manipulating the gold and stock markets. Gold started to move higher the night before as the Asian markets opened for trading. Gold rose steadily from $1254 up to a high of $1267 per ounce right after the Comex opened (8:20 a.m. NY time). The spike up at the open of the Comex reflected a rush of short-covering, and the stock market futures looked like they were about to turn negative on the day. However, starting at 8:50 a.m., here’s what happened with Comex futures and S&P 500 stock futures:
At 8:50 a.m. NY time (the graph time-scale is Denver time), 3,225 contracts hit the Comex floor. During the course of the previous 14 hours and 50 minutes of trading, about 76,000 total April contracts had traded (Globex computer system + Comex floor), less than an average of 85 contracts per minute. The 3,225 futures contracts sold in one minute caused a $15 dollar decline in the price of gold. At the same time, the stock market futures mysteriously spiked higher:
As you can see from the graphs, gold was forced lower while the stock market futures were forced higher. There was no apparent news or market events that would have triggered this type of reaction in either the gold or stock market. If anything, the trade deficit report, which showed a higher than expected trade deficit for December, should have been mildly bullish for gold and bearish for the stock market. Furthermore, at the same time that gold was being forced lower on the Comex, the U.S. dollar index experienced a sharp drop in price and traded below the 81 level of support. The fall in the dollar is normally bullish for gold.
The economy is getting weaker. Fed policy is obviously failing despite recent official pronouncements that the economy is improving and that Bernanke’s monetary policies succeeded. A just published study by Jing Cynthia Wu and Fan Dora Zia concludes that the the positive impact of the Federal Reserve’s policy of quantitative easing is so slight as to be insignificant. The multi-trillion dollar expansion in the Federal Reserve’s balance sheet lowered the unemployment rate by little more than two-tenths of one percent, raised the industrial production index by 2 percent, and brought about a mere 34,000 housing starts. http://econweb.ucsd.edu/~faxia/pdfs/JMP.pdf [3]
The renewal of the battle over the debt ceiling limit is bullish for gold and bearish for stocks. However, with the ongoing manipulation of the gold price and stock averages via gold and stock market futures, the normal workings of markets that establish true values are disrupted.
A rising problem for the manipulators is that the West is running low on gold available for delivery to China and other Asian buyers. In January China took delivery of a record amount of gold. China has been closed since last Friday in observance of the Chinese New Year. As China resumes purchases, default on delivery moves closer.
One way for the Fed and bullion banks to hold off defaulting on Chinese purchases is to coerce holders of gold futures contracts to settle in cash, not in delivery of gold, by driving down the price during heavy Comex delivery periods. This is what likely occurred on Feb. 6 in addition to the Fed’s routine price maintenance of gold.
As of Thurday’s (Feb. 6) Comex report for Wednesday’s (Feb. 5) close, there were about 616,000 ounces of gold available to be delivered from Comex vaults for February contracts totaling slightly more than 400,000 ounces, of which delivery notices for 100,000 ounces were given last Wednesday night. If the holders of the other 300,000 contracts opt to take delivery instead of cash settlement, February contracts would absorb two-thirds of Comex gold available for delivery.
The Comex gold inventory has been a big source of gold shipments from the West to the East, resulting in a decline of the Comex gold inventory by over 4 million ounces–113 tonnes–during the course of 2013. We know from reports from Swiss bar refiners that the 100 ounce Comex gold bars are being received by these refiners and recast into the kilo bars that the Chinese prefer and shipped to Hong Kong. With the amount of physical gold in Comex vaults rapidly being removed, the Fed/bullion banks use market ambush tactics such as those we describe above to augment and conserve the supply of gold available for delivery.
Readers have asked if gold can continue to be shorted on the Comex once no gold is left for delivery. From what we have seen–the fixing of the LIBOR rate, the London gold price, foreign exchange rates, the price of bonds and the manipulation of gold and stock market futures prices–we don’t know what the limit is to the ability of the Fed, the Treasury, the Plunge Protection Team, the Exchange Stabilization Fund, and the banks to manipulate the markets.
Paul Craig Roberts
http://www.paulcraigroberts.org/
Paul Craig Roberts [ email him ] was Assistant Secretary of the Treasury during President Reagan's first term. He was Associate Editor of the Wall Street Journal . He has held numerous academic appointments, including the William E. Simon Chair, Center for Strategic and International Studies, Georgetown University, and Senior Research Fellow, Hoover Institution, Stanford University. He was awarded the Legion of Honor by French President Francois Mitterrand. He is the author of Supply-Side Revolution : An Insider's Account of Policymaking in Washington ; Alienation and the Soviet Economy and Meltdown: Inside the Soviet Economy , and is the co-author with Lawrence M. Stratton of The Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are Trampling the Constitution in the Name of Justice . Click here for Peter Brimelow's Forbes Magazine interview with Roberts about the recent epidemic of prosecutorial misconduct.
© 2013 Copyright Paul Craig Roberts - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle*****
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Got love it. Coming from a Columbia economist. I don't which is worse - Princeton or Columbia.
"Yes, the U.S. has structural problems with its welfare programs, its income distribution is unacceptably skewed and its birth rates are falling. But all that is widely known and is part of a lively public policy debate. Therefore, I see no point of harping on these issues just to find something to be down on the U.S. economy."
If the economy is so good how about a tax break for those of us who are paying all your cronies bills:
******Stop whining! The US economy is in good shape
Published: Sunday, 16 Feb 2014 | 8:36 PM ET
By: Michael Ivanovitch | President, MSI Global
While operating more than an entire percentage point below its potential growth rate, the U.S. economy still raised its business sector employment by nearly 2 million people over the last twelve months.
That is a remarkable achievement because companies usually don't step up hiring until a sustained increase in capacity pressures them to start adding to their labor force.
(Read more: Wicked winter puts big chill on job creation)
And no other economy contributed last year 4.1 percent of its gross domestic product (GDP) to the rest of the world. Those in the emerging markets, who are now complaining about declining dollar liquidity, may also wish to note that the U.S. last year bought from them $515 billion more than it sold to them.
Based on current growth dynamics, this year promises an even better outlook for employment creation and America's contribution to the world economy.
Play Video
Positive on US economy: Julius Baer
Mark Matthews, Head of Research Asia, Bank Julius Baer, explains why he thinks the U.S. economy is seeing recovery and will continue to improve with the Fed's tapering.
The most recent evidence from survey data indicates that the U.S. service sector (approximately 90 percent of the economy) continues to expand in a steady and sustained fashion. Despite recent distortions caused by bad weather, the same is true of the manufacturing industries, where the capacity utilization rate is approaching its long-term average of 80 percent.
The U.S. economy is underpinned by growing real incomes, increasing employment, record-low borrowing costs and an easing access to credit facilities as banks continue to open up their channels of consumer financing.
Balanced policy mix
All these developments are taking place in the context of an appropriately supportive policy mix, where the tightening fiscal policy is offset by an expansionary credit stance.
(Read more: Economy takes $50B winter weather hit: CNBC survey)
That policy configuration has allowed the U.S. to achieve a relatively fast and substantial fiscal consolidation in an environment of a growing economy. Indeed, this year's budget deficit is expected to come in at 3 percent of GDP and to decline 24 percent from the previous fiscal year – a feast that euro area austerity advocates can only dream about.
The Treasury's declining borrowing requirements are making it possible for the U.S. Federal Reserve (Fed) not only to safely scale back its monthly asset purchases, but also to maintain its highly accommodative policy stance to compensate for the falling public sector outlays.
Here are some numbers to illustrate the point: in the course of December and January, the Fed's balance sheet expanded by a monthly average of only $22 billion – a huge drop from a monthly average of $98.8 billion in the previous two months.
(Read more: US economy may be stuck in slow lane for long run)
The Fed did that without creating any adverse effects in bond and mortgage markets. Last Friday, for example, the yield on the benchmark ten-year Treasury note traded at 2.74 percent, compared with 2.84 percent in the early December of last year. Mortgage costs followed the same pattern.
The rate on the 30-year fixed mortgage was 4.32 percent last Friday, down from 4.41 percent a month ago and 4.46 percent in December.
This is encouraging, and we may soon begin to see a gradual shrinking of the Fed's $3.7 trillion balance sheet. The Fed will, however, maintain its easy credit stance as long as the inflation pressures are kept at bay by the prevailing slack in labor and product markets.
Play Video
Expect US to grow close to 4% this year: Joel Stern
Joel Stern, Chairman & CEO, Stern Value Management, expects real U.S. GDP to grow between 3.7 and 4.2 percent this year
Plenty of room for noninflationary growth
At the moment, there are no reasons to worry about rising inflation expectations. Unit labor costs in the fourth quarter declined 1.6 percent from the year earlier as a result of strong productivity gains and weak wage increases. For last year as a whole, unit labor costs rose only 0.8 percent.
More of the same can be expected in the months ahead because, even under conditions of modest economic activity, a slow take up of the labor market slack will lead to productivity growth that will offset most of the underlying wage gains of about 2 percent.
The Fed's recent statements show that they are well aware of that. The U.S. monetary authorities are not fooled by a surprisingly fast decline of the unemployment rate. They know that the actual jobless rate last month was double the officially reported rate of 6.6 percent – if one adds to the unemployment rolls involuntary part-time workers and people marginally attached to the labor force.
The Treasury and the Fed are also turning their attention to the external demand for American goods and services.
(Read more: Janet Yellen is NOT Ben Bernanke)
Worrying about one-fifth of U.S. exports that go to Europe, Washington wants to see more supportive economic policies in the recession-ridden euro area. The focus is now on Germany, which is seen as holding back the euro zone growth with its staggering current account surplus of 7 percent of GDP.
The U.S. has less of a case against China. The Chinese current account surplus is below 2 percent of GDP, growth is increasingly led by domestic demand, China's imports are growing at a rate of 10 percent or more, and the yuan's exchange rate is being forced up by capital inflows Beijing finds increasingly difficult to control.
All this will be part of the next meeting of the G20 finance ministers and central bank governors in Sydney, Australia on February 20-22, 2014.
Based on this analysis, I remain optimistic about the U.S. economic outlook.
(Read more: Bad jobs reports won't change tapering: Yellen)
Yes, the U.S. has structural problems with its welfare programs, its income distribution is unacceptably skewed and its birth rates are falling. But all that is widely known and is part of a lively public policy debate. Therefore, I see no point of harping on these issues just to find something to be down on the U.S. economy.
My investment strategy conclusions also remain largely unchanged. I like U.S. equities, but I don't like bonds. I am more positive about gold, because I believe that geopolitical instabilities, strengthening growth in developed economies, and some central banks' asset diversifications will support gold prices.
Michael Ivanovitch is president of MSI Global, a New York-based economic research company. He also served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York and taught economics at Columbia. *****
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http://pjmedia.com/eddriscoll/2014/02/23/bachelor-pad-economics/?singlepage=true
Interview: Aaron Clarey Talks Bachelor Pad Economics
February 23rd, 2014 - 6:46 pm
“Bachelor Pad Economics,” Aaron Clarey tells me about his new book in our latest podcast interview, is focused upon “maximizing your amount of time on this planet to spend on you and leisure and not be slaving away eighty hours at the office and just so you can afford that big mansion in the suburbs or the BMW SUV.” Clarey stresses the importance of minimalism in his financial planning. “Material wealth really doesn’t matter,” he tells me. “I’m the biggest capitalist there ever was. But truthfully, the only thing that really matters, the true source of happiness is other humans. And the great thing about humans is they’re free.”
Is it possible to enjoy America’s decline from your swank bachelor’s pad, knowing that you’re financially prepared to ride out the worst of the remaining years of the Obama era? Yes we can, shouts Clarey, the self described “Captain Capitalist” and “the only motorcycling, fossil-hunting, tornado-chasing, book-writing, ballroom-dancing, economist in the world,” in Bachelor Pad Economics. Clarey’s new book brings financial planning to the themes of his previous title, last year’s Blogosphere hit, Enjoy the Decline.
During our nearly 19-minute long interview, Aaron will explore:
● The only source of happiness in a period of national decline.
● What is the chief underlying cause of American decline?
● The importance of minimalism as a financial strategy.
● How did Aaron make the jump from financial analyst to new-media maven?
● How to survive the higher-education bubble.
● What role does real estate play in Bachelor Pad Economics?
● What is the infamous “Smith & Wesson Retirement Plan”?
And much more. Click here to listen:
(18 minutes and 51 seconds long; 16.5 MB file size. Want to download instead of streaming? Right click here to download this interview to your hard drive. Or right click here to download the 3.10 MB lo-fi edition.)
If the above Flash audio player is not be compatible with your browser, click on the video player below, or click here to be taken directly to YouTube, for an audio-only YouTube clip. Between one of those versions, you should find a format that plays on your system.
Transcript of our interview begins on the following page; for our many previous podcasts, start here and keep scrolling.
MR. DRISCOLL: This is Ed Driscoll for PJ Media.com, and we’re talking today with Aaron Clarey, the self-described Captain Capitalism, who blogs and podcasts at Captain Capitalism.blogspot.com, is the author of the 2013 Blogosphere hit Enjoy the Decline, and is the author of the new book, Bachelor Pad Economics. And Aaron, thanks for stopping by today.
MR. CLAREY: Thanks for having me, Ed.
MR. DRISCOLL: Aaron, most financial and self-help books have rather grandiose titles dating back to Napoleon Hill’s classic 1937 book Think and Grow Rich. In contrast, Bachelor Pad Economics, at least going by its title, sounds like a more modest approach to finances. So what constitutes the economics of the bachelor pad?
MR. CLAREY: Well, there’s several traits or qualities, I guess, or strategies. But probably the most important one, or the underlying one, is minimalism. And the reason I start focusing on minimalism is not just because I was brought up poor and it was by force, but as time goes on, especially in the Western civilization we rely on stock markets and capital gains and stock valuation for our retirement, you have a bubble with primarily baby boomer retirement dollars driving up the price of stocks. And so when they withdraw their money, I foresee at least a stagnation in stock prices in terms of real rates of return.
And that is going to put the onus or put the focus on personal budgeting and cost control and spending as little as possible. So there’s that financial aspect.
And then the other aspect or minimalism that kind of underlines the book is that material wealth really doesn’t matter. I’m the biggest capitalist there ever was. But truthfully, the only thing that really matters, the true source of happiness is other humans. And the great thing about humans is they’re free.
So, you know, your family, your friends, your loved ones, those people willingly hang out with you and are going to provide a higher rate of return, a higher quality of life than a Ferrari or anything like that.
So Bachelor Pad Economics is ‑‑ you know, there’s certain other aspects like the education and career and all this other stuff, but it is focusing on maximizing your amount of time on this planet to spend on you and leisure and not be slaving away eighty hours at the office and just so you can afford that big mansion in the suburbs or the BMW SUV.
MR. DRISCOLL: Your Twitter profile describes you as “the only motorcycling, fossil-hunting, tornado-chasing, book-writing, ballroom-dancing, economist in the world.” Could you talk about your background in economics and how you made the jump to writing and new media?
MR. CLAREY: It was all accidental, truthfully. I majored in finance at the University of Minnesota and ended up becoming credit analyst. And kind of to the buildup of the housing bubble, it wasn’t accounting or financial statements that was where the threat was coming from. The threat was coming through valuations, through loan-to-values, through economics. And I had minored in economics. I always loved economics and it was my original major, but it just wasn’t practical in terms of employment.
However, as the housing bubble grew larger and larger and larger, I was forced more and more into analyzing the economy and housing market than I was people’s financial statements or companies’ income statements. And that kind of sent me on another trajectory where the next bank I worked at had me more in a role of an economist. And then I also wrote a book about the housing bubble. And that along with just banking being just so horrendously corrupt and inept, I couldn’t tolerate it anymore.
And slowly but surely, my writing career ended up taking off, especially with the advent of the Internet and Amazon. And yeah, when it came down to the choice, [I thought], do I want to blog and write from my laptop on a beach or at Yellowstone National Park, or while I’m riding a motorcycle up to Alaska? Do I want to do that, or do I want to sit in this cubicle analyzing financial statements?
So I cut the string about, oh, two years ago, and have not looked back.
MR. DRISCOLL: The timing of Enjoy the Decline, your previous book, was excellent, coming as it did in early 2013, shortly after Americans voted for another four years of Mr. Decline himself, Barack Obama.
Let’s break the title down to its two halves, particularly since you expand upon these themes in the new book, Bachelor Pad Economics.
Could you start by explaining how America wound up in its current period of decline?
MR. CLAREY: Yeah. Basically, the quality and caliber of the people has declined. You look at people today ‑‑ you know, a perfect example to me, going around the Internet there’s a picture of a World War II vet who is 26, and then a picture of Pajama Boy, who is 26. And that basically sums it up right there.
The country is only going to be as good as its people. You’re going to get the government you deserve. And that’s where the decline comes in. So that’s the primary thing.
And then the symptoms that you see are government debt, government deficits, spending per pupil. [In] Glenn Reynolds’ new book, he’s got some great charts in there showing that spending per pupil adjusted for inflation has gone up four-fold, but the performance has stagnated. All these things show that it’s the Roman Empire version 2.0. And that’s where the decline aspect comes in.
MR. DRISCOLL: And if America is in a protracted, possibly irreparable, period of decline, what are some ways to enjoy it?
MR. CLAREY: Well, the first thing is to accept reality. And Enjoy the Decline doesn’t parallel perfectly the five or six stages of grief, but it’s the same process. Everyone grew up with the United States. We love it. And we were told what to believe, Ronald Reagan, rah, rah, rah, all that other stuff. But the key to enjoying it is to first accept reality. Because if you live in denial, every decision you make based on that denial is not going to be effective.
So we first have to realize that the United States is at least in a declining state or at minimum, stagnation. The prospects do not look good for the future. I don’t see us turning around. And you have to also admit that no matter what, the United States is not special. Every empire collapses. Every one throughout the history of the world does.
So you got to say, okay, I’m here and alive now. I don’t want to believe in flowers and puppies and unicorns. So given that the United States is in decline, what decisions can I make that will still make the best of a bad situation?
MR. DRISCOLL: Well, you mentioned Glenn Reynolds’ books on the higher education bubble. Do you recommend spending large amounts of cash for higher education and advanced degrees, majoring in arcane subjects to get ahead in the 21st century America?
MR. CLAREY: Not ‑‑ not arcane subjects. If you want to become a surgeon, maybe. And even with Obamacare, that’s doubtful. But it really does depend.
I had another book called Worthless that was basically the young person’s indispensible guide to choosing the right major. And it really does depend. It’s very simple. Ask people what they want to buy, what they want to purchase, what they’re going to purchase, and then go major in something that builds that. That’s how simple it is.
So if you want to major in English in an English-speaking country, that’s pretty stupid. If you want to major in feelings and emotion or you want to major in your skin color, or your ethnicity ‑‑ Chicano-American studies [for example], that’s stupid.
But if you want to major in chemical engineering, electrical engineering, stuff like that, [then] yes, it’s worth spending the money, but get your bang for your buck. I don’t know how people can think dropping six figures on a master’s or an advanced degree in the liberal arts is wise or sane.
MR. DRISCOLL: What role does real estate play in Bachelor Pad Economics?
MR. CLAREY: Ed, it’s kind of a love-hate relationship, and it really depends on the individual. If you’re a family man, yeah, you probably want to get a house if you’re going to raise a family. Some people can do the corporate thing. I can’t do the corporate thing. I just can’t. I’m too independent-minded and I’ve got two hemispheres of a brain.
But for those people who can reliably be employed for 20 years, 30 years, the life of a mortgage, sure, go ahead and get housing. But at the same time, realize that local governments are just as socialist or trending socialist as the federal and state governments. So you’re buying the right to pay property taxes. And in some towns, especially like Detroit and Minneapolis, Chicago, the property taxes get so high, that you’re paying more on property taxes than you are principal or amortization on your — on your mortgage.
But outside of the family man, living in pretty conservative suburbs and rural areas, I really don’t like real estate in terms of an investment, because especially as a bachelor, especially if you’re going to be doing the minimalist route, a house is just pointless, especially with telecommuting and everything nowadays. You’re anchored to that property. I think Peter Schiff and I share some of the same views of this. You’ve got to maintain the home. It just isn’t worth it.
It is so much easier and so much freeing of your life to rent and have a landlord deal with the maintenance issues and everything else, than becoming a homeowner. So it really does depend on the individual and what you want to achieve in life.
MR. DRISCOLL: Well, given the title of both books, what is the relationship of having kids and having financial freedom?
MR. CLAREY: A negative correlation.
MR. DRISCOLL: Okay.
MR. CLAREY: Not necessarily ‑‑ I mean, financial freedom is one thing, but happiness is a completely different ball of wax. Kids are humans, and they’re probably the single-most source of happiness and joy that loving, good parents will ever have. And they can also be the worst experience ever, if you’re not prepared to raise them.
But definitely in terms of money, absolutely, children are the number one cause of poverty. That’s just a fact. And if you have a kid, well, your income per capita has immediately dropped by half.
I’m not saying don’t have kids. I know people that have kids, and they’re wonderful kids and [when I see them], I kind of say, god, maybe I should [have kids].
And then I see the crying, screaming kids that are throwing rocks through windows, and they’re my windows. And I’m like, get that kid out of here before I call the child services. And so again, it does depend on the individual and what they want in life.
MR. DRISCOLL: Aaron, I believe that both of your recent books rather infamously reference “the Smith and Wesson Retirement Plan.” Most of us would rather not, to quote Pete Townshend, “fire the pistol at the wrong end of the race.” While recommending much about Bachelor Pad Economics, in a post at PJ Media earlier this month, Dr. Helen Smith, who helped champion your books, took strong offense at your suggestion. Could you elaborate on your reasoning?
MR. CLAREY: Well, the reasoning is economic. And it is secular. I won’t deny that. So people who are religious or even traditional, they obviously would be against that. And I take no umbrage and no offense to it.
But from a purely economic point of view, and even a humanitarian point of view, there are some times where you’re terminally ill — pick your poison: cancer, a brain tumor, whatever. And you’re not coming back, you are going to die, and the remaining two weeks, three months, whatever your life, are going to be absolutely in pain and misery.
I think it’s wise or humane or ‑‑ what’s the word I’m looking for ‑‑ compassionate to, you know, somehow kill yourself, not necessarily with a Smith & Wesson, but some kind of euthanasia. And it not only puts you out of your misery, but it also saves a ton of money. I mean, I forget what the statistics are, but a plurality of your health expenses are incurred in the last six months of life.
So you want to talk about, you know, saving your family the grief of watching you just decay and, whatever, mentally, physically, what have you, or be in pain; not to mention save the finances for a future generation. It’s not for everybody. I’m not saying you have to do it, I’m just saying it is an option.
MR. DRISCOLL: Well, barring that approach, how would you recommend planning for retirement in today’s economy?
MR. CLAREY: Oh, it really depends. I would get some money outside of the United States so it cannot be confiscated like Argentina or Cyprus. I would definitely contribute to a 401(k) and an IRA, even though I’m not a big fan of retirement plans.
And especially if, let’s say, in your 401(k) or 403 you have a match. Absolutely, because that’s free money. But then maybe have some exposure in property. Not necessarily something that you’d live in, but through a real estate investment trust, because real estate is a pretty good hedge against inflation, and it does grow with the population, as long as your population is growing. At least there’s some intrinsic value there. I also recommend having gold and silver, not necessarily for investment purposes, but more inflation insurance reasons.
But then, in terms of other asset groups, there really isn’t a lot of growth. I mean, it’s not just the United States baby boomers that are retiring, but boomers of all the western nations where most of the capital is. And these retirement dollars have driven up stock valuation everywhere. This is why your dividend yield is like a paltry two percent. This is why ‑‑ well for other reasons, the Central Bank and your government bond or your saving account pays less than one percent.
So I don’t see a lot of hope. I don’t see a lot of up and coming economies. I mean, maybe Singapore, Malaysia, Hong Kong, for a safety bet. But that would be more like investing in a blue chip stock. You’re really not going to have a ton of twenty percent annual gains over the course of ten years.
MR. DRISCOLL: And speaking of bachelor pad-related questions. I have to ask, how did the photos of various lovely young women reading your books appear on your Web site?
MR. CLAREY: The ‑‑ wait. Which ‑‑ the ladies? Which one ‑‑ are you talking ‑‑ oh, the models?
MR. DRISCOLL: There’s the photo that’s currently on the right-hand sidebar of your blog, of a very attractive young woman reading ‑‑
MR. CLAREY: Oh, yeah! Well, I have friends of the female persuasion. And let’s say ballroom dancing and knowing how to salsa helps. And watching Victor Borge, Walter Matthau movies and Cary Grant movies, and maybe plagiarizing some of their sayings and words, and building up some charm, might have a say in that. But yeah, most of them are friends. All of them are friends. And we’ll leave it at that. They are friends.
MR. DRISCOLL: Your blog makes several reference to the “Manosphere.” I what the Blogosphere is, but what is the Manosphere?
MR. CLAREY: Well, the Manosphere is kind of…I’m not trying to tout it, but it’s just the truth. It’s this up and coming backlash to feminism, I guess, is the best way to put it. You’ve had, essentially, two-and-a-half generations of men brought up without dads. Even if the dad was present, they’ve been emasculated. I’m trying to be succinct with my description.
Basically, boys like girls, men like women. It’s probably the most important thing in our lives, especially when we’re younger. And the amount of lies and baloney we were fed about how to approach women, the nature of the sexes, blah, blah, blah, is wrong. It was all couched in feminism or heavily influenced by ‘60s, ‘70s feminism.
The Manosphere is basically the older brother or the father you never had, who says, all right, look junior, here’s the deal. No, girls don’t like nice, sweet men. They don’t like it when you write them poems; and they don’t like it when you give them flowers. They like it when you hit the gym, lift weights, show up on your motorcycle, and then don’t call them back for a week. It may not be pretty. It may not be nice. It may be completely politically incorrect. But it’s truth. It’s reality.
And so you have a lot of guys who are now turning to this older brother kind of Manosphere where you compare notes. Say, hey, did this work? No. Did that work? No. Did this work? Yeah, that worked.
So I got an entire chapter about girls, and it’s heavily influenced by the Manosphere, especially in terms of sexual market value. So we apply some economics there to describe the dynamic and the relationship between men and women, and specifically and practically how to use that to your advantage to woo the young ladies.
MR. DRISCOLL: And Aaron, last question: Your books are predicated on this nation being permanently hosed. Is that a reasonable assumption, or is there any hope for America yet?
MR. CLAREY: Oh, there’s always hope. I see some glimmers of hope. For example, and this gets, again, to the Manosphere. You could say I’m crass and direct and blunt and very politically incorrect. A disproportionate amount of my readership and viewership for my blog and my podcasts or my YouTube channel ‑‑ are minorities, especially black males and Hispanic males.
And the reason there’s hope is because these guys are sick and tired of being lied to their entire lives by primarily leftist politicians. And here’s a guy who’s like, hey, you know what? I don’t care about your feelings. I don’t care about your race. Here’s how it is. This is why you’re poor. Here’s a practical way to get out of it.
And I have a very loyal following from minorities. So when I see a lot of the Hispanic and black males becoming even more conservative, more libertarian than I am even, that kind of gives me hope.
But in general, that’s a niche of the Blogosphere that I’m in, where I see some hope. But my books are predicated on the U.S. collapsing, because if the U.S. didn’t collapse and it boomed, well, that’s not hard to adapt to. You just enjoy the incline. But what does take some doing is learning how to maximize your utility, enjoy your life to the limits, in a poor environment.
MR. DRISCOLL: This is Ed Driscoll and we’ve been talking today with Aaron Clarey of Captain Capitalism.blogspot.com and the author of the new book Bachelor Pad Economics. And Aaron, thanks for stopping by PJ Media.com today.
MR. CLAREY: Thank you very much, Ed.
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http://www.bloomberg.com/news/2014-02-21/why-drug-lords-and-criminals-are-so-risk-averse.html
Why Drug Lords and Criminals Are So Risk-Averse
By Ben Steverman Feb 21, 2014 2:10 PM MT
Photographer: Raul Arboleda/AFP via Getty Images
A picture of late drug trafficker Pablo Escobar is hung from a wall inside the Napoles... Read More
Even international drug traffickers need investment advisers.
That was Robert Mazur’s job when he went undercover for the U.S. government in the 1980s and ‘90s. Posing as a Mob-connected businessman, he helped the Medellin drug cartel launder and invest its suitcases full of cash.
His clients were “the biggest crooks in the world,” says Mazur, author of "The Infiltrator: My Secret Life Inside the Dirty Banks Behind Pablo Escobar’s Medellin Cartel.” Yet they “always told me that they don’t gamble,” Mazur says. “They don’t take risk, which is why the stock market was of absolutely no interest to them.”
Wait, criminals don’t like risk? Murder, drug trafficking, fraud and bribery -- all okay. But propose buying them shares of Twitter or Tesla, and they freak?
Investing, by definition, means trusting others. You must believe chief financial officers aren’t cooking the books and rely on people like Mark Zuckerberg to make smart use of the billions at their disposal. For criminals who thrive on taking advantage of trust that’s not an easy sell.
Convicted felon Sam E. Antar says stock-picking -- trusting in people and numbers you can’t directly verify -- sets you up as a mark for the unscrupulous. Antar was the chief financial officer of Crazy Eddie, Inc., an electronics chain led by Sam’s cousin, Eddie Antar. The chain collapsed under the weight of its fraud in 1989. “Investors live on hope and it’s the criminal’s job to take advantage of that hope,” Antar says.
The fact that he got caught is no consolation, Antar says. Regulators and investigative reporters have been losing the resources to uncover fraud. He points out, correctly, that the number of FBI white-collar crime prosecutions has fallen by half since the 1990s. Antar now speaks on white-collar fraud, often to law enforcement groups, runs a website on the topic and consults for law firms suing on behalf of investors.
“If I wanted to be a scam artist today, I could be very, very successful,” he says. “I’d probably have less risk of being prosecuted and far less risk of going to prison.” But as he also points out, criminals are as short-sighted as the rest of us, maybe more so. “Nobody ever plans on failure,” he says. “The prisons are full of people who never planned on being there.”
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http://www.realclear.com/markets/2014/02/24/jim_grant_stocks_set_for_big_fall_thanks_to_fed_5910.html
Jim Grant: Stocks Are Set for Big Fall, Thanks to the Fed
Posted: 2/24/2014 8:44:38 EST
The Federal Reserve's massive bond buying and near-zero-interest-rate monetary policy has set up the stock market for a big fall, said Jim Grant, founder and editor of Grant's Interest Rate Observer.
"My fear is because that interest rates are suppressed, therefore earnings are inflated," he told CNBC's "Squawk Box" on Monday. "So when rates go up … the 'hall of mirrors' is shattered and we look at each other and see what actually is real rather than what the Fed wants us to believe."
If it were up to him, Grant said, the Fed would not have intervened at the time of the 2008 financial crisis because the markets and wages should have been given a chance to hit rock bottom.
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I'm thinking he must be selling while talking up the US market when near the end of the article it is pointed out he is a net seller:
http://www.chicagotribune.com/business/sns-rt-us-berkshire-results-20140301,0,7548264.story
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The ISM non-manufacturing index declined to 51.6 in February, coming in below the
consensus expected 53.5. (Levels above 50 signal expansion; levels below 50 signal
contraction.)
The major measures of activity were mixed in February, while most remain above 50.
The employment index slipped to 47.5 from 56.4, the lowest reading for the index in
four years, while the business activity index fell to 54.6 from 56.3. The supplier
deliveries index moved higher to 53.0 from 52.5. The new orders index rose to 51.3
from 50.9.
The prices paid index declined to 53.7 in February from 57.1 in January.
Implications: After a surprise on the upside from the ISM manufacturing report,
today’s ISM service sector report surprised to the downside. Although, at
51.6, the report still showed expansion in the service sector, the report came in
below consensus expectations. The business activity index – which has a
stronger correlation with economic growth than the overall index – dipped to
54.6, a level that continues to signal solid economic growth. The worst news in
today's report was an 8.9 point decline in the employment index, to 47.5. After
hitting a three year high last month, the employment index now stands at its lowest
level since March of 2010. Many of the industries reporting a slowdown in
employment; mining, real estate, and entertainment & recreation, to name a few,
were hit hard by continued unusually cold (and snowy) weather. As the cold season
comes to an end, expect employment in these industries to pick back up as companies
and consumers make up for lost time. On the inflation front, the prices paid index
dropped to 53.7 in February from 57.1 in January. Still no sign of runaway
inflation, but given loose monetary policy, we expect this measure to move upward
over the coming year. In other news this morning, the ADP index, a measure of
private payrolls, increased 139,000 in February. Plugging this into our payroll
models brings our forecast for the official report on Friday to 151,000 nonfarm,
150,000 private. (Tomorrow’s report on unemployment claims may alter this
forecast slightly.) In other recent news, sales of autos and light trucks increased
0.7% in February but were unchanged from a year ago. Look for faster gains in the
months ahead as buyers make up for shopping days lost to bad weather.
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China stocks hit 5 year low. major indexes across the region registering steep declines
http://www.cnbc.com/id/101478543
NYSE and S&P Margin Debt at (another) all time record high
http://www.advisorperspectives.com/dshort/updates/NYSE-Margin-Debt-and-the-SPX.php
Jobs report: At This Rate, It Will Take 28 Years To Get Everyone Back To Work
http://www.realclearmarkets.com/articles/2014/03/10/at_this_rate_it_will_take_28_years_to_get_everyone_back_to_work_100944.html
US stocks at record highs http://www.reuters.com/article/2014/02/24/markets-global-idUSL1N0LT1NG20140224
If the writing was on the wall, what more would it need to say?
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Retail Sales Increased 0.3% in February To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 3/13/2014
Retail sales increased 0.3% in February (-0.2% including revisions for December/January) versus a consensus expected 0.2% gain. Sales are up 1.5% versus a year ago.
Sales excluding autos also rose 0.3% in February (-0.1% including revisions to prior months). The consensus expected a 0.1% gain. These sales are up 1.3% in the past year.
The increase in sales in February was led by non-store retailers (internet and mail-order).
Sales excluding autos, building materials, and gas increased 0.3% in February (-0.2% including revisions to prior months). If unchanged in March, these sales will be down at a 1.8% annual rate in Q1 versus the Q4 average.
Implications: Today’s retail sales report shows that as the harsh winter weather starts to ease, the consumer is starting to venture out again, or at least buy more on-line. After falling in December and January, overall retail sales increased 0.3% in February, narrowly beating consensus expectations. According to Planalytics Inc., December was the coldest in five years and had snowfall 21 percent above normal. According to NOAA, the US experienced the coldest population-weighted January in the past twenty years. No wonder sales of autos over the past three months are down at a 15% annual rate while sales from non-store retailers (internet/mail-order sales) are up 5.3%. “Core” sales, which exclude autos, building materials and gas, rose 0.3% in February. Over the next few months, expect consumer spending to rebound sharply from weather-related problems. Also, the underlying trend in consumer spending should improve due to growth in wages, growth in total hours worked, and a very low debt burden on consumers. Given today’s retail report as well as reports on inventories and the service sector, it now looks like the third report on GDP in Q4 will show a growth rate of 3.0% versus a prior estimate of 2.4%. If so, real GDP was up 2.7 in 2013 (Q4/Q4) a big improvement from the 2% growth rate in both 2011 and 2012. In other news this morning, new claims for unemployment insurance declined 9,000 last week to 315,000. Continuing claims for regular state benefits dropped 48K to 2.86 million. It’s still early, but our payroll models are tracking March gains of 196,000 nonfarm and 198,000 for the private sector. On the inflation front, import prices increased 0.9% in February but are down 1.1% from a year ago. Oil led the price gains in February, up +4.4%. Excluding petroleum and petroleum products, import prices were up a more modest 0.2%. Export prices increased 0.6% in February but are still down 1.3% from a year ago. Excluding farm products, export prices rose 0.7% in February but are down 0.7% from a year ago.
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Wow! It must be recovery summer again!
:wink:
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Wow! It must be recovery summer again!
:wink:
We should have everyone back to work again by 2042, assuming nothing else goes wrong.
http://www.realclearmarkets.com/articles/2014/03/10/at_this_rate_it_will_take_28_years_to_get_everyone_back_to_work_100944.html
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- The Daily Caller - http://dailycaller.com -
Data shows millions of Americans falling out of the workforce
Posted By Neil Munro On 1:59 PM 03/13/2014 In | No Comments
The number of native-born, working-age Americans who aren’t working has shot up by almost 9 million since 2007, and by almost 15 million since 2000, according to a new report by the Center for Immigration Studies, an anti-immigration group.
By late 2012, roughly 50 million native-born working-age Americans weren’t working, up from 40 million in 2000, according to the March 13 report, titled “Still No Evidence of a Labor Shortage.”
The army of idle Americans is important for the immigration debate, because advocates for greater immigration say foreign workers are needed to fill slots that can’t be taken by Americans.
The 50 million idle Americans include many who are studying, have chosen not to work or have retired early.
But the government data shows that 16.7 million native-born Americans wanted — but did not have — full-time work in 2013, up from 10.5 million in late 2007, and 7.8 million in 2000.
These unemployment and underemployment numbers include all native-born Americans who sought work in the last few weeks, are working part-time while seeking full-time jobs, and those who are “marginally attached” to the workforce.
The rise in the number of unemployed Americans was accompanied by increased employment of immigrants.
The data shows that 23.8 million immigrants had jobs in 2013, up slightly from 23 million in 2007, and up sharply from 18.8 million in 2000.
The shift in employment patterns underlies the numerous polls that show rising opposition to any amnesty for illegal immigrants, and that show lopsided opposition to further inflow of immigrants and guest-workers.
A March 13 report by Gallup showed that only 4 percent of Americans regard immigration as the top problem facing the United States. The poll did not say if the four percent want more or less immigration. Unemployment and the economy was deemed most important by 36 percent of the 1,048 adult respondents.
The opposition to increased immigration may have played a role in the March 11 win by Republican Rep. David Jolly, who slammed his opponent after she supported greater use of migrant workers.
“We have a lot of employers over on the beaches that rely upon workers and especially in this high-growth environment, where are you going to get people to work to clean our hotel rooms or do our landscaping?” Sink told her audience Feb. 25.
Subsequently, Jolly ran a TV ad in the district, saying “on illegal immigration, I favor stronger borders. Not amnesty.” He won the district, even though he was outspent and 50.7 percent of the district’s voters pulled the lever for President Barack Obama in 2012.
The opposition to amnesty gives the GOP an opportunity to leapfrog over the Democrats, according to Sen. Jeff Sessions.
“Republicans have a choice… [because they] can either join the Democrats as the second political party in Washington advocating uncontrolled immigration, or they can offer the public a principled alternative and represent the American workers Democrats have jettisoned,” he wrote in a March 13 article, titled “Becoming the Party of Work.”
“Republicans can either help the White House enact an immigration plan that will hollow out the American middle class, or they can finally expose the truth about the White House plan and detail the enormous harm it will inflict,” he wrote.
“Is it not time for the GOP to make a clean public break from the special-interest immigration lobby and let Democrats own — solely, completely, and exclusively — the unwise and unpopular policies they are pushing on these groups’ behalf?” said Sessions, who may be preparing for a presidential run.
“The heart of the GOP’s pro-worker, pro-middle-class agenda should be a bold reforming of our welfare system… [and] should be combined with a series of conservative policies all united by that common theme: shrinking the welfare rolls and growing the employment rolls,” he said.
Follow Neil on Twitter
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Article printed from The Daily Caller: http://dailycaller.com
URL to article: http://dailycaller.com/2014/03/13/data-shows-millions-of-americans-falling-out-of-the-workforce/
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http://finance.yahoo.com/news/long-term-jobless-face-dark-future-u-study-184151966--business.html
Long-term jobless face a dark future in U.S.: study
By Jason Lange
WASHINGTON (Reuters) - The millions of Americans suffering through long stretches of unemployment could be left behind as the economy strengthens, a study by an influential former White House economist found.
Alan Krueger, a respected labor market economist who led President Barack Obama's Council of Economic Advisers, said those unemployed long term tended to put less effort into their job hunts than others and were often viewed by employers as undesirable.
The sobering analysis published on Thursday by the Brookings Institution, a think tank in Washington, projected that people out of work for more than six months will increasingly give up their job search in the coming years.
Their plight could be one of the deepest scars left by the 2007-09 U.S. recession.
While the unemployment rate has fallen quickly over the past year, most of the workers getting jobs have experienced only brief stretches of unemployment.
It has yet to be seen whether the long-term unemployed will eventually get jobs as the economy strengthens or drop out of the labor force altogether. Krueger's analysis suggests America is headed towards the latter of those two paths.
"A concerted effort will be needed to raise the employment prospects of the long-term unemployed, especially as they are likely to withdraw from the job market at an increasing rate," Krueger wrote in the paper, which was coauthored by his Princeton University colleagues Judd Cramer and David Cho.
In February, there were 3.8 million people without jobs who had been actively looking for work for at least 27 weeks, nearly three times more than on the eve of the recession.
Krueger and his coauthors found the long-term unemployed were especially prone to dropping out of the workforce. While that pattern is suppressed in the aftermath of recession, the researchers concluded it would reassert itself in coming years.
It also appears unlikely a strengthening economy will benefit the long-term unemployed much. The researchers found that even in states with low jobless rates such as North Dakota, where the economy is booming thanks to surging oil output, the long-term unemployed don't seem to be doing any better.
The paper also suggested the U.S. Federal Reserve would do better to monitor the dwindling ranks of short-term unemployed than the overall jobless rate when trying to gauge when a tightening labor market might fuel inflationary wage pressures.
The research supported the growing view among economists that those out of work for an extended period don't suppress wage growth much, perhaps because they aren't trying very hard to get jobs or aren't seriously considered when they apply.
That means there could be less slack in the job market than would be suggested by the current unemployment rate of 6.7 percent. The number of short-term unemployed workers has fallen quickly in recent years and is now at roughly the same level as it was in 2004.
"Further declines in short-term unemployment would be expected to be associated with rising inflation and stronger real wage growth," the economists wrote.
While this view has gained currency among academic economists, Fed Chair Janet Yellen on Wednesday said recent evidence supporting this conclusion was far from conclusive. She said she remained concerned about people who gone for long stretches without work.
(Reporting by Jason Lange; Editing by Meredith Mazzilli)
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Really??? Tell us (other than Crafty) something we don't already know... :-)
I'll add that I am convinced the precious metals market is being kept artificially low, and has been for some time. There is absolutely no rational economic reason for gold and silver prices to be FALLING now. See below:
www.cbsnews.com/news/is-the-us-stock-market-rigged/
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Buy on the dips, though beans and bullets should be your priority.
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Obj:
While certainly governmental manipulations are quite plausible with regard to gold and silver, there most certainly are rational economic reasons for gold and silver to be declining:
a) the prospect of rising interest rates. G&S do not pay interest. When interest rates rise, on the margin there will be sellers. Gold's precipitous decline in the late 70s is a strong example of this at work; or
b) the failure of promises of accelerating inflation for the last several years
PS: Once again, I point out that I post Wesbury not because I agree with him on everything, but because he has been a FAR better market prognosticator over the last several years (and that is one of the themes for this thread) than any of us. IMHO it is wise to consider opinions with which one does not necessarily agree.
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"he has been a FAR better market prognosticator over the last several years (and that is one of the themes for this thread) than any of us"
In retrospect - yup.
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Crafty,
I do not dispute your statements regarding the current declining gold price from a short-term, rather myopic perspective. However - I think if one honestly takes a long-term, more comprehensive view of the current situation with regard to the massive expansion of the US money supply, our wholly unprecedented and rapidly expanding debt, and the fact that China and Russia are in the process of moving away from the US dollar as a reserve currency (all of which Wesbury, et. al. either refuse to acknowledge or dismiss as no big deal) it's clear to me that the price of gold and silver in real terms ought to be two to three times - maybe even higher - its present level. The US dollar is of value now ONLY because of its reserve status. Once that collapses, so will its value - RAPIDLY.
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That may very well be the case.
However when you say " There is absolutely no rational economic reason for gold and silver prices to be FALLING now"
a) your use of the word "now" would seem to mean "the short term"? yes?
b) whether you or I agree or not, there are reasons, which I listed, why G&S would be falling now.
I would re-emphasize that the prospect of higher interest rates e.g. due to the dollar's reserve status being threatened, certainly is a very strong factor against gold prices rising and indeed, as in the late 70s, could very well trigger a sharp decline-- the exact opposite of what you deny to be even possible.
With our collective track record on this subject, humility would seem to be appropriate for us.
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Crafty,
I never denied anything to be possible. I'm simply stating my educated opinion. I also agreed in my last post that your analysis (in the short term) is rational. I'm not one to gamble and try to profit from short-term moves in any market. I have always been oriented toward the long-term, and fundamentals, rather than technical analysis or short-term movements.
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" absolutely no rational economic reason" sounds rather close to saying something is not possible, , , :-)
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Crafty - No, saying there is no rational economic basis means that, while something may in fact be happening, it is not consistent with a rational long-term analysis. Lots of irrational things happen in markets on a short-term basis. I don't buy into the B.S. that I was taught in college business courses that the market incorporates all available information accurately and behaves accordingly. That's what I meant to convey. Sorry for the lack of precision.
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No worries, I was just putting on my lawyerly nit-picking hat :-)
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http://www.ftportfolios.com/Commentary/EconomicResearch/2014/4/15/the-plow-horse-gets-de-iced
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Industrial Production Increased 0.7% in March To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 4/16/2014
Industrial production increased 0.7% in March (+1.2% including revisions to prior months) beating the consensus expected gain of 0.5%. Production is up 3.7% in the past year.
Manufacturing, which excludes mining/utilities, increased 0.6% in March (+1.1% with revisions to prior months). Auto production declined 0.8% in March while non-auto manufacturing increased 0.6%. Auto production is up 5.4% versus a year ago while non-auto manufacturing is up 2.7%.
The production of high-tech equipment rose 0.7% in March and is up 8.3% versus a year ago.
Overall capacity utilization increased to 79.2% in March from 78.8% in February. Manufacturing capacity rose to 76.7% in March.
Implications: Another very solid report from the industrial sector as the Plow Horse continues to thaw. Overall industrial output rose 0.7%, and was up a robust 1.2% with revisions to prior months. Earlier this winter, harsher than normal weather wreaked havoc on the economy slowing production, but that looks to now be over, and a positive payback has ensued. Over the past two months, industrial production has increased at an 11.8% annual rate. Manufacturing which excludes mining and utilities, rose 0.6% in March and was up 1.1% with revisions to prior months, up 12.4% at an annual rate over the past two months. Expect more healthy gains in the next couple of months as weather patterns continue to normalize. Overall production is up a respectable 3.7% from a year ago. We expect continued gains in production as the housing recovery is still young and both businesses and consumers are in a financial position to ramp up investment and the consumption of big-ticket items, like appliances. In particular, note that the output of high-tech equipment is up 8.3% from a year ago, signaling companies’ willingness to upgrade aging equipment from prior years. More big news from today’s report was that capacity utilization was 79.2% in March, above the average of 78.9% over the past twenty years, and the highest level since June 2008. Further gains in production in the year ahead will continue to push capacity use higher, which means companies will have an increasing incentive to build out plants and equipment. Meanwhile, corporate profits and cash on the balance sheet are at record highs, showing that companies have the ability to make these investments.
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http://online.wsj.com/news/articles/SB10001424052702304688104579467823517834980?mod=WSJ_hpp_MIDDLENexttoWhatsNewsThird&mg=reno64-wsj
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Over the past five years, the pouting pundits of pessimism have focused on countless issues that would bring the economy down. Any growth, they argue, is the result of a Fed induced sugar high.
We don’t buy it.
Through it all, the plow horse keeps plodding ahead. The fundamental growth factors are still in place and, as the Fed tapers, banks are starting to pick up lending. We see upside surprise potential.
Click here to watch the latest Wesbury 101 – Upside Surprise Potential
http://www.ftportfolios.com/Commentary/EconomicResearch/2014/4/23/upside-surprise-potential
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So go ahead and ignore all the negative indicators regarding our staggering debt and faltering economy, and stay fully invested in the market along with Wesbury until you lose it all - or most of it - in the coming crash. The choice is yours to make.
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The market will need to fall A LOT for what you say to be true. For all our prophesy, he is far more profit-y, and IMHO we need to keep that in mind and be humble.
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Pay no attention to the market manipulation behind the curtain...
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(http://www.powerlineblog.com/admin/ed-assets/2014/04/Reagan-v-Obama-copy.jpg)
Sixty percent of young Minnesotans who graduated from college in 2011 still didn’t have a full-time job in their second year post-graduation!
http://mn.gov/deed/images/Measuring%20Employment%20Outcomes%20for%20Graduates%20March%202014%20Trends.pdf
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That chart is obviously very racist.
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This thread includes in its subject heading "the stock market". We here have been predicting disaster as the DOW and the NAZ have more than doubled. That is one helluva a move to have missed-- and if armaggedon (sp?) does not come, some of us are going to have a hard time explaining that. If it does come, that does not mean it was good investing strategy to have sat on the sidelines in wait of proof of our prophecies.
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Second post:
New Orders for Durable Goods Increased 2.6% in March
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 4/24/2014
New orders for durable goods increased 2.6% in March (2.5% including revisions to prior months), beating the consensus expected gain of 2.0%. Orders excluding transportation increased 2.0% in March, beating the consensus expected gain of 0.6%. Orders are up 9.1% from a year ago while orders excluding transportation are up 5.1%
The gain in overall orders was led by civilian aircraft and computers & electronic products, but every major category of orders increased.
The government calculates business investment for GDP purposes by using shipments of non-defense capital goods excluding aircraft. That measure increased 1.0% in March and was up at a 1.7% annual rate in Q1 versus the Q4 average.
Unfilled orders increased 0.6% in March and are up 7.5% from last year.
Implications: A very solid, well-rounded report on durable goods today. New orders for durable goods rose 2.6%, beating consensus expectations and the largest gain since November. Once again the transportation sector led the way, particularly orders for civilian aircraft. But, unlike last month, there was broad strength outside the transportation sector. Orders excluding transportation increased 2% in March, the largest gain since January 2013. The best news in today’s report was that shipments of “core” capital goods, which exclude defense and aircraft, increased 1% in March. Plugging these data into our GDP models suggests businesses increased “real” (inflation-adjusted) equipment investment at about a 5% annual rate in Q1. Business investment should accelerate over the next couple of years. Consumer purchasing power is growing and debt ratios are low, leaving room for an upswing in appliances. Meanwhile, businesses have record profits and balance sheet cash at the same time that capacity utilization is above long-term norms, leaving more room (and need) for business investment. Signaling future gains, unfilled orders for “core” capital goods rose 0.6% in March, hitting a new record high, and are up 10% from a year ago. In other news this morning, initial claims for unemployment insurance increased 24,000 last week to 329,000. Continuing claims declined 61,000 to 2.68 million. Plugging these figures into our payroll models suggests an April gain of roughly 210,000, both nonfarm and private. This forecast may change over the next week as we get more data, but it looks like another solid month for job growth.
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This thread includes in its subject heading "the stock market". We here have been predicting disaster as the DOW and the NAZ have more than doubled. That is one helluva a move to have missed-- and if armaggedon (sp?) does not come, some of us are going to have a hard time explaining that. If it does come, that does not mean it was good investing strategy to have sat on the sidelines in wait of proof of our prophecies.
Agree 100%.
Wesbury has been right in hindsight on his conclusion to stay invested in equities over this period. Also true is that he spins some of his words and picks the economic observations that back his conclusions. Also true is that he did not see the last collapse. So he is good on the upside, not good on the downside. And the naysayers have missed the entire upside.
My interest is the economy more than the stock market; Wesbury and the thread cover both. The markets have performed well since the last trough, no doubt. The economy is in a plowhorse 1st gear, under-performing its historic growth line by tens of trillions of dollars of income and tens of millions of workers not employed or under-employed. Wesbury would agree with this but glosses over the negatives IMHO. When people say stock market, the greatest interest is in where it will go from here as much as what did it do last year, last 5 years etc. On the future from right here, we don't know if Wesbury or the naysayers are right.
Alan Greenspan famously suggested “Irrational exuberance” more than 50 months before the tech stock crash of March 2000 and more than 7 years before the DOW bottom of 2002-2003. Was he right voicing his concerns or was he wrong? Certainly his timing was lousy. People made and then lost a lot of money during that period. While riding the market up, awareness of the vulnerabilities in hindsight was probably a good thing.
Greenspan: "Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?"
— "The Challenge of Central Banking in a Democratic Society", 1996-12-05
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Buttonwood
Sound the retreat
Profits in America may have peaked for this cycle
Apr 26th 2014 | From the print edition
ARE corporate profits at last running out of steam? The lead-up to the first-quarter results season on Wall Street was marked by an unusually large number of profit warnings, such as that from Chevron, an oil group. According to Morgan Stanley, an investment bank, earnings estimates for S&P 500 companies were revised down by 4.4 percentage points in the first quarter.
As is the custom, having lowered the bar, companies will now beat those revised forecasts, allowing Wall Street analysts to proclaim a “successful” results season. But when one removes the effect of exceptional items (such as writedowns the year before), American profits are now falling, not rising, according to data from MSCI (see chart).
In a sense, this is about time. The recovery in American corporate profits since the recession has been remarkable: they are close to a post-war high as a proportion of GDP. Bulls have a number of arguments why this is a lasting, not cyclical, phenomenon. Economic power has shifted from labour to capital thanks to globalisation, they say; companies can move production to parts of the world where wages are lower. But if that effect is so strong, why aren’t profits as high elsewhere? In Britain the return on corporate capital is below its post-1997 average.
An alternative, but related, line of reasoning is that foreign profits have boosted the earnings of companies in the S&P 500, making the relationship with domestic GDP less relevant. America may still be running a trade deficit but its global champions, the argument runs, are raking in the money overseas. Research by Audit Analytics found that the amount of profits held abroad and not repatriated nearly doubled to $2.1 trillion between 2008 and 2013.
But where will American multinationals make so much money in future? Not in either Europe or Japan, where the economies have barely grown in recent years. Emerging markets might seem more promising, but their economies have been slowing, as companies like Diageo, a drinks producer, and Cisco, a tech-components group, have reported. Several developing economies have seen their currencies fall sharply too. It seems unlikely that American multinationals are going to get a further spurt of profits from this source.
In any case, the global data do not bear out the overseas-profit argument. Just as in America, there have been regular disappointments. In 2012, according to Citibank, global profits growth was just 2%, compared with initial forecasts of 11%. At the start of 2013 profits were forecast to rise by 12%; the actual increase was 7%.
The stockmarket has been remarkably resilient in the face of these setbacks. In 2012 global equities rose by 13%; last year they managed 24%. In part, that is due to optimism about the economy’s future trajectory. The euro-zone crisis has disappeared from the headlines while the American economy has been showing signs of returning to healthy growth.
But it is also down to supportive monetary policy. Short-term interest rates have not budged for the past two years (in the developed world) and government-bond yields have been close to historic lows. Investors have accordingly turned to the stockmarket in search of higher returns. Low interest rates have also played their part in keeping profits high, by reducing borrowing costs and by encouraging companies to use their spare cash to buy back stock, thereby increasing earnings per share.
However, buying back shares suggests a certain lack of imagination on the part of chief executives, or a lack of profitable projects to back. That remains an odd aspect of the profits boom: in theory, if the return on capital is high, one would expect a lot of capital to be invested. The resulting competition would eventually cause profits to fall. The process acts as a natural check on profits growth, but has yet to occur this cycle.
Instead, chief executives are turning to that old device for boosting sluggish profits: takeovers. According to Thomson Reuters, the global value of mergers and acquisitions in the first quarter was 36% higher than in the same period of 2013. The right takeover can result in cost cuts through economies of scale—although in the long run, the academic evidence in favour of takeovers is mixed.
A takeover boom is a classic signal of the final stages of a bull market, a sign that financial engineering has taken over from genuine business expansion. And that is hardly a surprise: the current rally is already the fourth-largest and the fifth-longest-running since 1928.
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CNSNews.com) - The real median income of American men who work full-time, year-round peaked forty years ago in 1973, according to data published by the U.S. Census Bureau.
In 1973, median earnings for men who worked full-time, year-round were $51,670 in inflation-adjusted 2012 dollars. The median earnings of men who work full-time year-round have never been that high again.
In 2012, the latest year for which the Census Bureau has published an estimate, the real median earnings of men who worked full-time, year-round was $49,398. That was $2,272—or about 4.4 percent—below the peak median earnings of $51,670 in 1973.
In 1960, the earliest year for which the Census Bureau has published this data, the median earnings for men who worked full-time, year-round were $36,420 in 2012 dollars. Between 1960 and 1973 that increased $15,250—or about 41.9 percent.
By comparison, the real median earnings of American women who work full-time year-round peaked in 2007, when women who worked full-time earned $38,872 in constant 2012 dollars. From 1960 through 2007, the real income of American women who work full-time increased $16,774 or about 76 percent. From 2007 to 2012, the real earnings of women who work full-time declined $1,081, or about 2.8 percent.
By “earnings,” the Census Bureau means money someone earns as an employee, which “includes wages, salary, armed forces pay, commissions, tips, piece-rate payments, and cash bonuses earned, before deductions are made for items such as taxes, bonds, pensions, and union dues.” It also includes “net income” from self-employment.
The business and economic reporting of CNSNews.com is funded in part with a gift made in memory of Dr. Keith C. Wold.
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http://www.youngresearch.com/researchandanalysis/stocks-researchandanalysis/smart-money-signals-trouble-ahead/?awt_l=PWy8k&awt_m=3XhiwvJMBDzlu1V&utm_source=rss&utm_medium=rss&utm_campaign=smart-money-signals-trouble-ahead
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One can notice that there is a pattern change around 10Am to trading though it could go up or down, but something does happen 1/2 hour in.
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US growth slows sharply to 0.1%
First-quarter GDP misses forecasts by a wide margin
http://www.ft.com/home/us
Brian Wesbury:
Weak GDP growth in Q1 should have been expected, but also should be ignored.
https://www.ftportfolios.com/retail/blogs/Economics/index.aspx
Good grief, let's ignore the latest actual data! And please show me where he expected this. What else will we learn later that we should have expected?
Dem consultants say don't use the R word (Recovery). Americans aren't buying that this is a recovery. That report was issued before real growth was adjusted to zero. http://news.yahoo.com/advice-democrats-dont-recovery-073618756--election.html
BW was right, looking backwards, on the ever-increasing value of existing investments in entrenched companies. The posters here have been right on the correlation of no-growth policies with no growth results. We aren't growing jobs. We aren't growing incomes. We aren't growing capital. We aren't growing wealth. We aren't starting enough new businesses to replace our stagnating and failing ones. We have no plan to meet our already legislated obligations except to keep raising taxes and spending with monetary imagination. But let's put a smiley face on it and call it plow horse strength!
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Plowhorse has a multitude of definitions that are subtle and complex and not readily grasped by lesser beings.
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Agreed, DougMacG. Wesbury's "analysis" - such as it is - defies gravity long-term. Yes, the market is up very significantly since Obama took office. That is NOT, however based upon fundamental economic information and true company valuation using such real data.
Wesbury has been correct in predicting the market would continue to rise so far. So what? Being invested in this market now is akin to playing roulette in a casino where one is on a winning streak, but the casino is being consumed in a roaring fire.
Play if you wish.
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"Wesbury has been correct in predicting the market would continue to rise so far. So what? Being invested in this market now is akin to playing roulette in a casino where one is on a winning streak, but the casino is being consumed in a roaring fire. Wesbury has been correct in predicting the market would continue to rise so far. So what? Being invested in this market now is akin to playing roulette in a casino where one is on a winning streak, but the casino is being consumed in a roaring fire. Play if you wish."
This thread is about BOTH the US economy AND the stock market.
Your comments are quite on point with regard to the economy, but not so much with regard to the market.
How much are we up since the bottom? How much over 140%? That's a helluva move to have missed and I wish I hadn't missed most of it. Tight stops solve a goodly % of the consequences of the likely downturn.
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Crafty,
1) The stock market and the economy are inextricably linked. Surely you are aware of this fact.
2) Tight stops are hardly the panacea they are promoted as being by some, and will most certainly NOT protect you in the event of an economic collapse, as anything valued in dollars will be worth a tiny fraction of what it was just before the collapse.
I repeat: play at your own risk, and choose wisely. Your choices have consequences.
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Well, no longer having any money to invest I am quite safe from harm :cry: :lol:
That said, I'm thinking a goodly % of a profit margin of over 100% would survive with a tight stop.
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"How much are we up since the bottom? How much over 140%?"
I agree with Crafty's larger point but there is no one on earth who was all out on the the way down, all the way in at the exact bottom, holding still and able selling safely before the next downturn. Good luck getting that return; you will be the first! Peak to peak we are up more like 18% over 7 years, so a Wesbury follower who didn't fold in the last crash or panic before the nest peak is making about a 2% return. That seems underwhelming for the risks endured.
Dow 10 year chart:
(http://i603.photobucket.com/albums/tt114/dougmacg/6a2ab830-27af-4a33-be21-3a69407cc53b_zpscb0afabc.png)
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(http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2013/07/20130727_income.jpg)
Plowhorse-tastic!
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Thank you for posting that for me GM.
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Wesbury will talk down the deterioration of growth and say it is at least not yet anything to woryy about but something just to keep an eye on. He will then spew his usual rant about how the economy is hunky dory, etc.
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The ISM Manufacturing Index Increased to 54.9 in April To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 5/1/2014
The ISM manufacturing index increased to 54.9 in April from 53.7 in March, beating the consensus expected level of 54.3. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mixed in April but all remain above 50, signaling growth. The employment index rose to 54.7 from 51.1 while the supplier deliveries index increased to 55.9 from 54.0. The production index declined slightly to 55.7 from 55.9. The new orders index was unchanged at 55.1.
The prices paid index slipped to 56.5 in April from 59.0 in March.
Implications: Following temperatures, the ISM index, a measure of manufacturing sentiment around the country, continued to move higher in April. The index now shows manufacturing activity expanding at the fastest pace since the end of 2013, with seventeen of the eighteen manufacturing industries surveyed reporting growth in April. While not quite back to the levels we saw in mid-to-late 2013, the index has stood in expansion territory for eleven consecutive months, and we expect the index to continue to show strength as companies ramp up production and make up for time lost to bad weather. According to the Institute for Supply Management, an overall index level of 54.9 is consistent with real GDP growth of 3.9% annually. While yesterday’s Q1 GDP report showed real growth at a tepid 0.1%, we expect to see a strong rebound in Q2. On the inflation front, the prices paid index fell to 56.5 in April from 59.0 in March. Still, little sign of inflation, but we don’t expect this to last given loose monetary policy. The employment index jumped to 54.7 in April from 51.1 in March. Plugging today’s data into our models, our forecast for tomorrow’s employment report are solid gains of 231,000 and 232,000 for nonfarm and private payrolls, respectively. In other news this morning, construction increased 0.2% in March. The gain in March was primarily due to a rise in home building offsetting a decline in government construction of schools and colleges. However, revisions for January and February were negative. As a result, it now looks like real GDP shrank at a 0.1% annual rate in Q1 versus the official report yesterday that it grew at a 0.1% rate. Either way, Q1 is in the rear-view mirror and real GDP is set to accelerate sharply in Q2.
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U.S. Adds 288,000 Jobs in April
Great. Now unemployment at the pre-crash workforce participation rate is down to 9.9%, 18% if you count the underemployed at the old participation rate.
(http://static.businessinsider.com/image/536393db6bb3f7e35f4453f6-1200/image.jpg)
Still more than twice as bad as when voters gave the no confidence vote to Republicans after 51 consecutive months of job growth. Who knew THIS would happen?
After Five Years Of Obamanomics, A Record 100 Million Americans Not Working
http://www.forbes.com/sites/peterferrara/2014/01/24/after-five-years-of-obamanomics-a-record-100-million-americans-not-working/
US Needs To Generate 262K Jobs Each Month To To Breakeven
http://www.zerohedge.com/news/us-needs-generate-262k-jobs-each-month-get-back-breakeven
Looking forward to Wesbury's take. :wink: Plowhorse begins to trot? Or did he already use that one - before the 0.1% winter surge?
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The number of adults in the labor force dropped an estimated 806,000 in April. Adults reporting they hold a job in the household survey actually fell 73,000. Thus, the 0.4 percent drop in the unemployment rate (to 6.3%) reflected bad news—a smaller workforce—rather than good news.
http://www.brookings.edu/blogs/jobs/posts/2014/05/02-big-payroll-gains-anemic-labor-force-growth-burtless
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Plowhorse? Or is it lipstick on a pig?
(Media question: Isn't a drop of 800,000 adults in the workforce in April a bigger story than job gains that are just under the breakeven rate?)
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Excellent work Doug!
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"Either way, Q1 is in the rear-view mirror and real GDP is set to accelerate sharply in Q2."
I told you. Growth at minus 01%. No biggy. Oh growth is set to accelerate big time next quarter.
Sorry. Yeah this guy happened to be right the last couple of years. He is still a horses ass.
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I keep posting Wesbury because we need to be exposed to other points of view.
Nonfarm Payrolls Increased 288,000 in April To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 5/2/2014
Nonfarm payrolls increased 288,000 in April, beating the consensus expected 218,000. Including revisions to prior months, nonfarm payrolls increased 324,000.
Private sector payrolls increased 273,000 in April. Including revisions to prior months, private payrolls increased 296,000. The largest gains were for professional & business services (+75,000, including temps), education & health care (+40,000), and construction (+32,000). Manufacturing increased 12,000. Government payrolls rose 15,000.
The unemployment rate dropped to 6.3% (6.275% unrounded) from 6.7% (6.712% unrounded).
Average weekly earnings – cash earnings, excluding benefits – were unchanged in April but up 1.9% from a year ago.
Implications: Great headlines about the direction of the labor market, but the details of today’s employment report were not as strong. Nonfarm payrolls increased 288,000 in April, the largest gain in more than two years. However, we think some of the gain is payback for harsh winter weather and unusually slow job gains back in December/January. Nonfarm payrolls are up 197,000 per month in the past year and we think the underlying trend is a little faster than that pace. The other piece of good news was that the unemployment rate dropped to 6.3%, well below where even the most optimistic forecasters were predicting. The jobless rate among college grads is only 3.3%. But the drop in the jobless rate was mostly due to an 806,000 drop in the labor force, which pushed the participation rate down to 62.8%, tying the lowest level since 1978. Civilian employment, an alternative measure of jobs that includes small business start-ups, declined 73,000 in April. That employment survey, which is volatile from month to month, showed a solid gain in full-time jobs, but a large decline in part-time work. We also think the end of extended unemployment benefits at the start of the year explains some of the drop in the jobless rate. Extended benefits kept some people from working and also kept others, who really didn’t intend to look for work, in the labor force (they had to claim they were looking to keep getting benefits). So the end of extended benefits should push down the jobless rate by both encouraging work among those who want to work and discouraging participation among those who really don’t want to work. The worst news in today’s report was a second straight month of zero gains in average hourly earnings, which are now up only 1.9% versus a year ago. However, total hours of work increased 0.3% in April and are up 2.4% in the past year. So, total cash earnings are up 4.4% versus a year ago, providing plenty of fuel for consumer spending. As we always remind our readers, the labor market could and would be doing better with a better set of public policies. But it’s still improving. In the past year nonfarm payrolls have grown at an average monthly rate of 197,000 while civilian employment is up 166,000 per month. We expect continued Plow Horse gains in the months ahead. In other recent news, sales of autos and light trucks declined 2.2% in April to a 16.0 million annual rate. That’s still 5.6% above a year ago and we expect gains to continue over the next couple of years.
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Fair enough as long as you keep posting him when the market tanks as it inevitably always does. OF course he or I know not when. But he will still be talking his same schpeel. (nicer Yiddish version of bull shit).
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http://money.cnn.com/2014/04/30/investing/gdp-economy/index.html?iid=SF_E_Lead
(http://i2.cdn.turner.com/money/dam/assets/140430083103-gdp-data-043014-620xa.png)
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http://www.shadowstats.com/alternate_data/unemployment-charts
(http://www.shadowstats.com/imgs/sgs-emp.gif?hl=ad&t=1399037093)
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Always good to keep track of unemployment in various ways, not just the official govt. number!
"Fair enough as long as you keep posting him when the market tanks as it inevitably always does."
Of course! After all, we've been posting while the market goes up , , , :lol: :lol: :lol:
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The market and the economy aren't the same. The market is what it is because of manipulation. Meanwhile, the economy continues to implode.
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That the market and the economy are not the same is precisely the point that I have been making in defense of the value of posting Wesbury here in response to the criticisms these posts often receive.
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http://online.wsj.com/news/articles/SB10001424052702303678404579538022048652130?mod=Opinion_newsreel_6
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Cote author=Crafty_Dog link=topic=985.msg80770#msg80770 date=1399130106]
That the market and the economy are not the same is precisely the point that I have been making in defense of the value of posting Wesbury here in response to the criticisms these posts often receive.
[/quote]
Stein's law: Anything that can't go on forever, won't.
The market manipulations can't go on forever. I was living in Nevada when the housing bubble was inflating. I saw the writing on the wall and sold my place for almost double what I bought it for.
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http://www.newsmax.com/Newsfront/jobs-created-lost-exodus/2014/05/02/id/569240/
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Other viewpoints.
Trouble ahead, trouble behind. Casey Jones you better... Watch your speed.
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INVESTOR OUTLOOK NY Times
http://www.nytimes.com/2014/05/06/upshot/time-to-worry-about-stock-market-bubbles.html?hpw&rref=&_r=0
Time to Worry About Stock Market Bubbles
MAY 6, 2014
With relatively little fanfare, the stock market has become expensive again.
While the rest of economy has been growing frustratingly slowly for almost five years, stocks have been rising at a boomlike clip. An investment in the Standard & Poor 500-stock index would have doubled from early 2009 through early 2013 and then gained an additional 18 percent over the last year.
Relative to long-term corporate earnings – and more in a minute on why that measure is important – stocks have been more expensive only three times over the past century than they are today, according to data from Robert Shiller, a Nobel laureate in economics. Those other three periods are not exactly reassuring, either: the 1920s, the late 1990s and in the prelude to the 2007 financial crisis.
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More negative forecasting. Take reports about the future with a grain of salt.
Wall Street: 98% Risk of Crash This Year
Tuesday, 06 May 2014
http://www.moneynews.com/MKTNews/wall-street-crash-market-strength/2014/04/24/id/567582/?promo_code=a3auptln&utm_source=taboola&utm_medium=referral
Earlier this year, a select group of Wall Street Insiders were surveyed, and the results were ominous. These financial experts and fund managers predicted a 98% chance a stock market crash will happen in the next six months.
Gary Shilling, one of Wall Street’s top economists, says the S&P Index could drop as low as 800, a 42% decline.
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It may well be as stated, but isn't this an advertisement? Doesn't basic contrarian theory say that when everyone (e.g. 98%) thinks something it is already priced into the market?
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My guns, ammo and canned food investment strategy seems sound.
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It may well be as stated, but isn't this an advertisement? Doesn't basic contrarian theory say that when everyone (e.g. 98%) thinks something it is already priced into the market?
Apologies for posting that if it was bogus. The only fact check I did was to see the economist they quoted really is a Forbes contributor. No doubt they take his words out of context but an investor should at least contemplate what they will do if things turn gradually or suddenly downward. The 98% was some un-named, 'select' group. Meaningless, I admit. Still there seems to be more and more negative stories appearing. Please see the previous post from NY Times.
I tend to agree that the market closes at market value every business day. But that falls into the trap that people have all the right information and apply it rationally, not emotionally, which I think we proved false in politics and voting. Was the market at market value the day before the 1929 crash? The 1987 crash? Was it at market value the day before Fannis Mae, Freddie Mac, Countrywide Financial, Bear Stearns, Merrill Lynch, Lehman Brothers, AIG, Washington Mutual etc all went under? More likely we can say the writing was on the wall and no one wanted to read it.
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Monday Morning Outlook
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Can a "Perma-Bull" Turn Bearish? To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/19/2014
During the past five years, stock market forecasts have fallen into three different camps.
• It’s a Dead Cat Bounce, Sugar High, Artificial, QE-Induced Bubble Stock Market. It will crash any day.
• It’s a Real Bounce, from Artificial Undervalued Lows, With Technology and Productivity Driving Real Profits. The market is still cheap and will go higher.
• It was too low in 2009, but, as it moved higher, it became fairly, or over-valued. The risks of the world have risen and a correction or sideways market is due.
We are firmly in the second camp. Fox Business host, Dagen McDowell, with the Dow trading at 11,189 back on August 24, 2011 (link here) accused us of believing in “Unicorns and Rainbows” because we said the US stock market was 40% undervalued.
Today, we still think the broad US equity market is about 20% undervalued. Some have called us “perma-bulls.” Others have questioned, fairly we might add, whether we were bullish for selfish reasons. They wonder if being bullish benefits First Trust.
So, this brings up a logical set of questions. What if we did become bearish? Would we actually tell people? Would we actually go public?
For the record, our firm manages many different asset classes in many different countries. If for some reason we thought US stocks were risky, we could always recommend products that would provide diversification in other asset classes.
But, let’s put that aside. Lately, we have become very concerned the Federal Reserve has painted itself in a corner. The Fed has created $2.6 trillion in excess reserves that are like gasoline sitting next to a water heater. Instead of moving the gasoline out of the house completely by shrinking its balance sheet, it has decided to transfer the gas to different containers.
The Fed will try to pay banks not to lend. It proposes to make this work through a system of reverse repurchase agreements (known as, repos). Basically the Fed is attempting to trade bonds to banks, money market funds, and Government Sponsored Enterprise, for reserves. In this way it temporarily sops up the excess reserves without actually shrinking its balance sheet.
We believe this is dangerous for the economy. So far, there has been no sugar high because banks did not lend their excess reserves. That is beginning to change. In the past three months, commercial and industrial loans, M2 and M1, are up at a 16%, 7.7% and 15.8% annualized rates of growth, respectively.
Banks will help finance some of the massive expansion in Merger and Acquisition activity now taking place. Banks can earn more in this financing activity than current earnings on reserves (0.25%) or on reverse repos (0.08%).
The Fed will be forced to raise interest rates on its repos if it wants to compete and we see an “arms race” coming, where the Fed tries to outbid borrowers for excess reserves. This will eventually force rates up faster and further than most now believe possible.
What this does to our forecast is that we now see a money-induced spurt in growth that could end badly. We don’t see that “bad ending” happening for quite some time. At least 12 months, probably more like 24 months, possibly 36+ months.
In the meantime, as money growth accelerates, the economy, stocks and inflation will accelerate, too. So, what is a good thing for the market over the next year or two will result in below-normal market returns after the surge is done.
Much will depend on how the Fed plays this out. It’s still possible the Fed will find a way to unwind its balance sheet before a bubble in stocks occurs, the yield curve inverts, or there is some kind of major financial problem. As a result, an accurate timeline can’t be developed just yet.
But, we promise that as these events unfold in the years ahead, we will not be shy about sharing them. We already are. There is no reason for a forecaster who values his or her reputation to spin an analysis in a way that makes no sense. The Fed is playing with fire and we wish it would stop.
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Hmmmm.....
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Hmmmm.....
Wesbury: "What if we did become bearish? Would we actually tell people? Would we actually go public? For the record, our firm manages many different asset classes in many different countries. If for some reason we thought US stocks were risky, we could always recommend products that would provide diversification in other asset classes."
I felt bad pointing out a bias that he freely admits. His job is to tell you why you should feel good about buying US and global securities, and secondly he looks for facts to support that view. He has used the false but true defense heavily: the economy keeps under-performing but the markets are still up.
He has been mostly right (since the last time he was wrong) but I have a hard time believing this market is 20% under-valued right now.
Time will tell. Good luck.
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Government Motors' 15.6 million recalls is quite the record-breaker
Dan Calabrese - www.caintv.com - May 26, 2014.
For a single year. Just five months in.
If you think it's gratuitious that I'm still connecting GM's problems to the bailout and subsequent era of government ownership, you don't know enough about how the auto industry works - which is to say, it doesn't work so much as it plods.
The culture put in place by the Obama Administration did not leave the company when the government sold its shares. Culture change moves more slowly than a glacier in the auto industry. Besides, if you don't think it sounds like the Obama White House to ignore problems until they grow on a massive scale and then offer a litany of excuses and obfuscations, boy, I don't know what to tell you.
From this morning's Detroit News (where I am also a columnist):
GM has stepped up the pace of its recall campaigns as it tries to show it is more responsive to safety concerns since it was learned that the company knew for years of problems with ignition switches in some vehicles. Several key safety officials at the automaker have left, retired or been moved to new positions. It has added 35 product investigators since the beginning of 2014 and is taking a look at all outstanding issues.
On Friday, GM paid a record-setting $35 million fine to the National Highway Traffic Safety Administration for failing to recall in a timely fashion 2.6 million vehicles linked to 13 deaths due to the defective ignition switches. The automaker admitted it broke the law in the settlement that will require intensive monitoring and monthly meetings with NHTSA to discuss all pending safety issues over a three-year period.
GM also is bracing for the fallout of an internal report into what went wrong over the course of the decade of delays in issuing the ignition-switch recalls. Two congressional committees plan to bring GM CEO Mary Barra back to testify for a second round of hearings. The Justice Department, Securities and Exchange Commission and at least one state attorney general are investigating.
The White House declined to comment on whether the spate of GM recalls suggest the government didn’t exercise proper oversight during the nearly five years when it owned a significant stake in the automaker as part of the $49.5 billion bailout.
“What’s absolutely important as a general principle is every automobile manufacturer — foreign or domestic — be held accountable when it comes to safety matters,” spokesman Jay Carney said Tuesday.
Fine. Hold them accountable. And exactly what form should the accountability take? When the government first took control of GM, Obama immediately fired then-CEO Rick Wagoner. And rightly so. It was one of the few unassailably correct decisions Obama has made. Wagoner had proven he was incapable of leading the company effectively and he needed to be replaced.
But GM has not found a leader in the years since who proved up to the task. GM's priority since the bailout has been to provide political cover for the advocates of the bailout, which is why it has added plants, shifts and employees it really didn't need. It is also the reason it ramped up the production of Chevy Volts despite the lack of demand. Politicians held out the Volt as one of the primary rationales for bailing out the the company, so the factory needed to crank up Volt production to justify the politicians.
And when a safety issue arose, GM showed the same instincts as the government: Try to cover it up if you possibly can so no one will criticize you.
The culture of GM hasn't changed. It was only reaffirmed by the bailout, which sent the message that GM was not only too big to fail, but too important to be expected to change. This was as much about bailing out the UAW as anything else, and that's a vicious cycle. Union works its way into company. Union helps lead company to brink of obsolescence. Union gets bailed out by political allies. Union repeats process.
Taxpayers lost $28 billion helping this company stay exactly the way it has always been. And politicians tell us it was a good investment. I hope you're happy with your return.
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The big story here is that the REASON this has happened is that these CEOs are increasingly being paid in stock itself - not even in stock options. This is not necessarily a bad thing, because it is an attempt to tie pay to performance. BUT - the stock market is being manipulated in gross fashion, and over the last several years has NOT reflected the true performance of the companies behind the stocks. It’s not the CEO’s faults or even the boards of directors that they are being overpaid - it is the massive and unprecedented manipulation of the stock market. A crash is inevitable at this point - it’s not a question of IF, it’s only a question of WHEN?
http://bigstory.ap.org/article/median-ceo-pay-crosses-10-million-2013
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http://bigstory.ap.org/article/median-ceo-pay-crosses-10-million-2013
This is for large" companies only. For a benchmark, a medium cap company is worth $2 to 10 billion. What is the average increase these companies had over this period? The article doesn't say. What portion of the increase went to the top executive? Doesn't say.
My math: $14 Trillion in the S&P 500 is about $28 billion per company, on average. Stocks went up 26% last year or about 7.3 billion per company. The lead executive, who we don't credit for the increase, made about $10 million or about .001 of the increase. Outrageous (sarc.)
First we want their pay tied to performance. Then we don't like it when that amounts to a lot of money.
What I don't like is when they make a lot of money for leading failure. Government Motors comes to mind.
The question I would ask is this: What policies do we have that favor large established companies over newer, smaller ones. That is what over-regulation does. The largest companies with compliance departments and officers, human resource departments etc. know how to navigate within the myriad of rules and the rest of us couldn't open a lemonade stand without a team of lawyers and lobbyists, much less start an investment bank to compete with Goldman Sachs and the rest.
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DMG - certainly I agree with you that there is a huge amount of crony capitalism going on right now. This is not a true free-market system, because the government is picking winners and losers by whom it favors with its regulations. The SEC has been corrupt in this regard for decades, as it is NOT enforcing rules that create a level playing field. In a truly free-market system, CEOs would be rewarded when their companies do well, and not rewarded when profitability/revenue declines. That's only one aspect though - there is so much onerous regulation going on (Obama's solar energy companies for example) which make it possible for management to preside over a company which goes bankrupt, and walk away with millions of dollars - effectively stolen from the investors - which many times happen to be U.S. taxpayers.
As an aside - I've never liked this idea of an "old boys club" of corporate directors - unlimited in scope - which has been allowed by the SEC for decades. People who know nothing about running a particular company in a certain industry are put on the board by a minority of stockholders and paid huge salaries - in exchange for the same treatment. One hand washes the other. NO ONE ought to be allowed to be on the board of 20 different companies. It simply is not possible for one person to know enough about all those separate entities to make effective, informed decisions about how they should be run.
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... NO ONE ought to be allowed to be on the board of 20 different companies. It simply is not possible for one person to know enough about all those separate entities to make effective, informed decisions about how they should be run.
Or in a free market, potential stockholders would look at the quality of management and the board of directors and not buy those stocks. If companies were losing demand for stock ownership on that basis, they would re-evaluate those practices.
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As a supply-sider, I note that these forecasts of imminent doom are based almost entirely on "consumer demand." In my model of the economy, consumer demand is unimportant. What drives things is the supply side: jobs, output, and new investment. On that score, I note that in the first four months of this year the private sector created 840K new jobs, capital spending rose at a 4.8% annualized rate, industrial commodity prices rose at a 5.7% annualized rate, corporate profits increased at a 3% annualized rate, bank loans to business increased by $86 billion, industrial production rose at a 3.6% annualized rate, and credit spreads are at post-recession lows. In short, the supply side of the economy remains healthy, with no signs of deterioration.
In a few months we will know which "side" is the right one to follow: supply or demand. Supply-side analysis suggests the economy continues to grow at a modest pace of 2-3%. Demand-side analysis says we are in another recession.
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Real GDP Was Revised to a -1.0% Annual Rate in Q1 To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/29/2014
Real GDP was revised to a -1.0% annual rate in Q1 from a prior estimate of +0.1%. The consensus expected -0.5%.
The largest downward revision, by far, was for inventories. Commercial construction and net exports were also revised down while business investment in equipment and intellectual property were revised up.
The largest positive contribution to the real GDP growth rate in Q1 was personal consumption. The weakest components were inventories and net exports.
The GDP price index was unrevised at a 1.3% annual rate. Nominal GDP growth – real GDP plus inflation – was revised down to a 0.3% annual rate from a prior estimate of 1.4%.
Implications: Forget about GDP for a moment. The most important economic news this morning was in the labor market, where initial claims fell 27,000 last week to 300,000 and continuing claims declined 17,000 to 2.63 million. Both the four-week average for initial claims and continuing claims are the lowest since 2007. Plugging these figures into our payroll models suggests a gain of 200,000 in May. (The forecast will change as we get more data in the next week on claims, the ADP index, and consumer spending.) Now back to Q1 GDP: look out for the Pouting Pundits of Pessimism. As we said in our most recent Monday Morning Outlook, it’s important to remember the report is for Q1, the last days of which ended two months ago, so it’s a “rearview mirror” picture of the economy. Real GDP was revised down to -1% at an annual rate from an original estimate of +0.1%. But as we have always argued, the weather was the chief culprit behind Q1 weakness and the downward revision was almost completely due to lower inventories, which leaves more room for growth in future quarters. Nothing in today’s news changes our forecast that real GDP will grow at about a 3% rate in the year ahead. Despite today’s downward revisions, nominal GDP (real growth plus inflation) is up 3.4% from a year ago; nominal GDP excluding government purchases is up 4.3% from a year ago. These figures continue to suggest a federal funds rate of essentially zero makes monetary policy too loose. Today’s report also provided the first glimpse at overall corporate profits, and boy was the headline ugly. Corporate profits fell 9.8% in Q1, but there are two good reasons. First, as with overall GDP, weather had a negative effect. Second and more important, the big drop in corporate profits was due to a large “capital consumption adjustment” which reflects the expiration of 50% bonus depreciation provision and higher limits for expensing under the American Taxpayer relief Act of 2012. In other words, this is a one-off event and we expect corporate profits to rebound sharply in the coming quarters. In other news today, pending home sales (contracts on existing homes) increased 0.4% in April after a 3.4% gain in March. These reports suggest existing home sales, which are counted at closing, will increase about 2% in May.
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I guess we just ignore the new levels of poverty and the rapid evaporation of the middle class.
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"In short, the supply side of the economy remains healthy, with no signs of deterioration." Really? 870,000 jobs in 4 months? Well BELOW what is required simply to keep even with new workers entering the workforce? SHRINKING GDP? Sounds like a prescription for a robust, "plow-horse" economy to me! :roll:
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GM, Obj:
No we do not ignore that at all, nor, if your read his blog, does Scott.
Nonetheless, these points are important and ALSO need to be part of our analysis:
" I note that in the first four months of this year the private sector created 840K new jobs, capital spending rose at a 4.8% annualized rate, industrial commodity prices rose at a 5.7% annualized rate, corporate profits increased at a 3% annualized rate, bank loans to business increased by $86 billion, industrial production rose at a 3.6% annualized rate, and credit spreads are at post-recession lows. In short, the supply side of the economy remains healthy, with no signs of deterioration."
Scott's point about the demand side nature (Keynesianism) of many criticisms IMHO is perceptive and deep. Supply Side analysis can be very powerful. In this regard the best single book I can recommend, and IMHO one of the best books of political economics ever written (and it is in an easy to read style) is "The Way the World Works" by Jude Waniski (sp?). Highly recommended.
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http://hotair.com/archives/2014/05/30/cbs-dont-expect-the-economy-to-rebound-significantly/
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http://scottgrannis.blogspot.com/
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Scott Grannis: "One negative quarter does not make a recession."
No, but two does, and that's just an arbitrary definition. The point is that we are in a no growth economy no matter how they spin it, and we are doing everything wrong in terms of trying to grow out of it.
I wholeheartedly agree that supply side being the main determinant of economic growth. But how is that going? The George Will piece started to back up the allegation I have been making. We're in a horrible rut of not launching enough real new startup companies that have the potential to grow into large, dynamic, employing entities to grow the economy. The dearth of startups is hard to measure because people are filing LLCs as they scale their work down to part time, solo operations. I file one for every 80 year old house I buy, but I am not employing anyone or growing the economy.
Obamacare has a myriad of disincentives to dissuade employment, full time employment, or employment beyond 50 employees. This is happening right while we need new companies to grow and employ thousands of employees. Capital gains taxes just went up by how much federally? 33%?! Does anyone remember the surge in investment and innovation when those rates went down? Our largest state California, along with where I live and elsewhere just raised the top rates on Capital Gains, and everything else. The negative effects of that aren't showing up as quickly or badly as I would think, but if you believe the supply side matters, the damage will reveal itself and maybe is starting to show.
North Dakota is growing gangbusters, but it is North Dakota. The engine driving that is driving that growth is illegal activity in New York state, or on federal land and the feds own 50% of the western U.S. And they are trying to shut it down everywhere else too.
The Obama administration is still hell-bent on shutting down coal, but coal generates 40% of our electricity, and we are building no new nuclear plants. You would make a long term investment and build a manufacturing facility in the face of that kind of uncertainty? I wouldn't. The big industry here is medical devices. Now they are subject to a new tax on gross sales. Not on profits, on sales before you even figure in costs, and that is on top of all other taxes. You would expand those businesses or launch a new one facing that? I wouldn't. Instead, people are trying to figure out how to make a living without employing anyone, and without subjecting themselves to risk and uncertainty. Did I mention highest corporate tax rates in the OECD and 175,500 total pages in the Code of Federal Regulations. Good grief, this business climate is the opposite of the supply side model - and Wesbury and Grannis both know it.
Liberals in MN say these taxes don't matter. We still have decent employment and growth numbers. Tell that to the state's oldest and most successful company, Minnesota Mining and Manufacturing (3M). After 112 years here they just held their first annual meeting in Austin Texas. They can avoid state taxes that way but they can't avoid federal taxation and regulaiton without ending or moving operations out of the country, and they most certainly are doing that too.
Corporate profits are up 3% while stock prices are up 25%. What could possibly go wrong?
Back to the Scott G's main theme, supply side is the main determinant, but demand matters too. When sales go down. profits disappear, wealth and investment shrink, and a downward spiral appears with no tools left to stimulate it.
These guys were right about the stock market of the last few years. I do not buy that they were right about the US economy. A plowhorse doesn't plow backwards.
The experts blame the cold winter for the economic doldrums, but more likely it was the obsession with global warming and the all-powerful government and anti-private growth fever that came with it that is causing the malaise.
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No offense intended, but to me - this is really an absurd debate. The facts are very clear to anyone with two eyes and a functioning brain that looks at the unemployment statistics and the retail economy as evidenced by simply driving around various parts of the country and observing the literally thousands of shuttered businesses and empty strip malls. Doug makes excellent points as well. Corporate profits up by 3% with 25% growth in stock prices simply defies gravity. What is so hard to understand about this?
If a person wants to engage in navel-gazing and theoretical, legalistic arguments about why black is white and up is down - that is their business. If that person chooses to manage their investments in this manner - so much the worse for them. I choose to view the world as it is - based on the evidence I see with my own eyes and rational capacity, then plan accordingly. Frankly, I think this discussion is one for idiots, because it essentially asks the question: "Which do you trust? An economist with a vested interest in projecting a rosy outlook, or the cold, hard, obvious facts available to anyone who makes even a modest effort at investigation?
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www.weeklystandard.com/blogs/1-8-american-men-between-ages-25-54-are-not-working_793938.html
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We are all agreed that many, many people are fuct. We are all agreed that Obama's policies are profoundly destructive. We are all agreed that there are profound contradictions and impossibilities in the current trajectory. I think/hope we all appreciate the difference between the market and the economy.
I may be in the minority here however in my willingness to note that Grannis and Wesbury
a) have FAR superior record to ours when it comes to the market;
b) have good points to contribute with regard to some important positive variables that are out there
c) have good points to contribute in making clear that many criticisms of the economy are essentially keynesian in nature and that supply side is generally a better line of analysis.
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Personal Income Increased 0.3% in April To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/30/2014
Personal income increased 0.3% in April, matching consensus expectations. Personal consumption declined 0.1%, coming in below the consensus expected gain of 0.2%. Personal income is up 3.6% in the past year, while spending is up 4.3%.
Disposable personal income (income after taxes) increased 0.3% in April and is up 3.6% from a year ago. The gain in April was led by private sector wages & salaries and dividend income.
The overall PCE deflator (consumer prices) increased 0.2% in April and is up 1.6% versus a year ago. The “core” PCE deflator, which excludes food and energy, also rose 0.2% in April and is up 1.4% in the past year.
After adjusting for inflation, “real” consumption declined 0.3% in April but is up 2.7% from a year ago.
Implications: After March, when consumers increased spending at the fastest pace in almost five years, consumers took a breather in April, with spending slipping 0.1%. This is not a big deal. Despite the slight decline in April, spending is up at a 6.1% annual rate in the past three months and a 4.7% rate in the past six months. These are faster than the 4.3% gain in the past year, so the underlying trend appears to be accelerating. Personal income matched expectations, rising 0.3% in April and is up 3.6% from a year ago. The gain in income was led by private-sector wages & salaries which were up 0.3% in April and are up 4.2% from a year ago. Over the past three months, private-sector wages & salaries have also accelerated, up at a 5.5% annual rate. We expect both income and spending to keep growing at a healthy clip. Job growth continues and we expect payroll gains of around 200,000 for May. Meanwhile, as unemployment gradually declines, employers will offer higher wages. In addition, consumers’ financial obligations are hovering at the smallest share of income since the early 1980s. (Financial obligations are money used to pay mortgages, rent, car loans/leases, as well as debt service on credit cards and other loans.) On the inflation front, the Federal Reserve’s favorite measure of inflation, the personal consumption price index, was up 0.2% in April, the same as “core” consumption prices, which exclude food and energy. Overall consumption prices and core prices are up 1.6% and 1.4%, respectively, in the past year, both below the Fed’s 2% target. But, as recently as October 2013 PCE prices were up only 0.8% from a year ago and we expect to hit the 2% target by year end, putting pressure on the Federal Reserve to start raising interest rates sometime in the first half of 2015. In other news this morning, the Chicago PMI, which measures manufacturing sentiment in that key region, increased to 65.5 in May from 63.0 in April. As a result, we expect the national ISM Manufacturing report (to be released Monday) to increase to 55.9 in May from 54.9 in April. After a winter lull, the Plow Horse economy is picking up her pace.
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For my part, I respect the smarts and integrity of those two and am happy to have the opportunity to express disagreement with their conclusions. There is both a connection and a disconnect between the market and the economy. I assume the two are both equally relevant to this thread.
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There was a time when I believed the efficient (stock) market hypothesis, but no longer. That is not to say that the market has lost all value as a leading indicator, just that , , , ,
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Is America Depressed?
Okay, so America's seen some bad news lately. The economy stinks, and no one is confident. Mediocre economic numbers are greeted as a triumph. Obamacare's a mess. The federal government is one cluster-you-know-what of venality and incompetence after another. The Millennials seem spoiled, self-absorbed, and incapable of achieving in the modern workplace. Trouble is brewing from Ukraine to Syria to Iraq to Libya to the South China Sea to the Korean peninsula. Our allies are unnerved, our enemies acting bolder.
There's a particular gloom among a lot of conservatives lately, too: The country has more takers than makers. Everybody's addicted to "Uncle Sugar." Too many establishment Republicans just want to replace the Democrats' crony capitalism with their own crony capitalism. Our popular culture makes Sodom and Gamorrah look like Mayberry. Time to start putting our savings into gold and shopping for real estate in Belize.
We can't let our perspective of our fellow Americans get defined by every idiot on Twitter or the comments section. We've always had idiots. We've always had loud idiots. The good folks working hard, taking care of their families, and living the American dream don't spend a lot of time arguing on the Internet.
This is still a country packed to the gills with innovative, driven, hard-working, ingenious, generous, kind-hearted folk of every race, creed, and color.
Don't believe me? Here are some bits of good news you may have missed:
• Faith in the future is returning; we're making more new Americans — a.k.a. "babies" — again:
The newest child birth rate numbers have just been released by the Centers for Disease Control and Prevention (CDC), and the report indicates that there were 4,736 more births in 2013 than there were the year before, which shows an increase that America hasn't seen in five years.
• We're doing this while reducing teen pregnancy, births, and abortions:
In examining birth and health certificates from 2010 (the most recent data available), Guttmacher Institute found that approximately 6 percent of teenagers (57.4 pregnancies per 1,000 teenage girls) became pregnant — the lowest rate in 30 years and down from its peak of 51 percent in 1991. Between 2008 and 2010 alone, there was a 15-percent drop.
At 34.4 births per 1,000 teenage women, the birthrate was down 44 percent from its peak rate of 61.8 in 1991. The abortion rate is down too: In 2010, there were 14.7 abortions per 1,000 teenagers, which is the lowest it's been since the procedure was legalized.
• According to the CDC, the numbers are going in the right direction for life expectancy, heart disease, and cancer death rate:
Americans are living longer than ever. According to the report, in 2010, life expectancy at birth for the total population was 78.7 years — 76.2 years for men and 81.0 years for women. Between 2000 and 2010, life expectancy at birth increased 2.1 years for men and 1.7 years for women. The gap in life expectancy between men and women narrowed from 5.2 years in 2000 to 4.8 years in 2010.
The report also notes a 30% decline between 2000 and 2010 in the age-adjusted heart disease death rate, from 257.6 to 179.1 deaths per 100,000 population. But in 2010, heart disease was still the most lethal disease in the US, with 24% of all deaths, the report says.
The age-adjusted cancer death rate decreased 13% between 2000 and 2010, from 199.6 to 172.8 deaths per 100,000 population. Still, in 2010, 23% of all deaths in the US were from cancer, close behind heart disease. In 2012, 18.1% of adults aged 18 and over were current cigarette smokers, down from 23.2% in 2000.
• The Mayo Clinic just scored "complete remission" of a form of previously-untreatable cancer using an engineered measles virus in a human being. Harvard's Stem Cell Institute recently announced that adult stem cells from bone marrow tissue can specifically target and kill brain tumors.
• The hunt for a cure for AIDS continues, but treatments have effective and widespread in ways that were simply unimaginable a generation ago. It is a much less deadly disease: "The age-adjusted HIV death rate has dropped by 85% since its peak, including by 14% between 2009 and 2010." There are indications that some people can be "functionally cured" of HIV. There are other beautiful anecdotes: A Vancouver, Canada hospital repurposed its AIDS ward because the number of cases dwindled so rapidly.
• The scale of the U.S. energy boom is jaw-dropping: "According to the U.S. Bureau of Labor Statistics, the number of new jobs in the oil-and-gas industry (technically a part of mining) increased by roughly 270,000 between 2003 and 2012. This is an increase of about 92% compared with a 3% increase in all jobs during the same period. The BLS reports that the U.S. average annual wage (which excludes employer-paid benefits) in the oil and gas industry was about $107,200 during 2012, the latest full year available. That's more than double the average of $49,300 for all workers."
• We're at the dawn of the era of private spaceflight: "SpaceX, Boeing and Sierra Nevada are building new manned spacecraft with the goal of restoring U.S. human spaceflight capability by 2017."
• Yes, it's a dangerous world. But our men and women in uniform, the companies that supply them, and the researchers that equip them regularly produce breakthroughs that sound like science fiction. The Pentagon is developing a hypersonic missile that can hit anywhere in the world in 30 minutes. They're developing brain chips to treat PTSD. There's some mysterious plane -- allegedly a stealth transport -- flying over Texas. University researchers may be on the verge of developing functional invisibility. And, as Kevin Williamson notes, brainwave-driven exoskeletons may help the paralyzed rise and walk.
• As David Plotz lays out, there has never been more news published than there is today; web sites of media organizations from the New York Times to Fox News publish literally hundreds, sometimes thousands, of new items a day. Sure, you can say a lot of it's crap. A lot of anything is crap. But the barrier to entry in the news world is obliterated. We're no longer in an era where the number of pages and column-inches in the New York Times, and the time limits of the nightly news,set the limits for what the public sees and reads. Despite the commencement mobs and the political-correctness enforcers, this is a golden age for free speech.
In fact, things are going so well in the apolitical or non-political aspects of American life . . . all that talk about a second American Century may not just be happy talk or tired campaign rhetoric. We just have to get our government to work correctly — and in many circumstances, do less, and get out of the way! — and our best days may indeed be ahead of us.
So cheer up, conservatives!
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The ISM Manufacturing Index Increased to 55.4 in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/2/2014
The ISM manufacturing index increased to 55.4 in May from 54.9 in April, almost exactly the consensus expected level of 55.5. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mixed in May but all remain above 50, signaling growth. The production index increased to 61.0 from 55.7, while the new orders index rose to 56.9 from 55.1. The employment index declined to 52.8 from 54.7. The supplier deliveries index declined to 53.2 from 55.9.
The prices paid index rose to 60.0 in May from 56.5 in April.
Implications: After two mistaken reports earlier today, the Institute for Supply Management says its manufacturing index, a measure of factory sentiment around the country, came in at 55.4. This was an increase versus April and almost exactly what the consensus expected. Since the steep weather-related drop in January, the index is up four months in a row. The report for May shows growth in seventeen of the eighteen manufacturing industries (textile mills were the only exception). While not quite back to the levels seen at the end of 2013, the index has stood in expansion territory for twelve consecutive months, and we expect the index to show continued strength as companies ramp up production and continue to make up for time lost to bad weather. According to the Institute for Supply Management, an overall index level of 55.4 is consistent with real GDP growth of 4.1% annually, consistent with what we think will be a sharp rebound in growth in Q2 after the temporary slump in Q1. On the inflation front, the prices paid index rose to 60.0 in May from 56.5 in April. Along with broader measures of consumer and producer prices, inflation is starting to show signs of the loose monetary policy of the past several years. In other news this morning, construction increased 0.2% in April (1.2% including revisions to prior months), reaching the highest level since March 2009. The gain in April itself was led by construction at public colleges. New housing (single-family and multi-family units combined) was up 1.6% in April and is up 17% in the past year. After the harsh winter weather, construction spending has now shown growth for three consecutive months as projects delayed by the cold have gotten underway.
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The Velocity Of Money In The U.S. Falls To An All-Time Record Low
Monday, 02 June 2014 16:16 Michael Snyder - www.alt-market.com
This article was written by Michael Snyder and originally published at The Economic Collapse
When an economy is healthy, there is lots of buying and selling and money tends to move around quite rapidly. Unfortunately, the U.S. economy is the exact opposite of that right now. In fact, as I will document below, the velocity of M2 has fallen to an all-time record low. This is a very powerful indicator that we have entered a deflationary era, and the Federal Reserve has been attempting to combat this by absolutely flooding the financial system with more money. This has created some absolutely massive financial bubbles, but it has not fixed what is fundamentally wrong with our economy. On a very basic level, the amount of economic activity that we are witnessing is not anywhere near where it should be and the flow of money through our economy is very stagnant. They can try to mask our problems with happy talk for as long as they want, but in the end it will be clearly evident that none of the long-term trends that are destroying our economy have been addressed.
Discussions about the money supply can get very complicated, and that can cause people to tune out, but it doesn’t have to be that way.
To put it very basically, when there is lots of economic activity, there is lots of money changing hands.
When there is not very much economic activity, the pace at which money circulates through our system slows down.
That is why what is happening in the U.S. right now is so troubling.
First, let’s look at M1, which is a fairly narrow definition of the money supply. The following is how Investopedia defines M1…
A measure of the money supply that includes all physical money, such as coins and currency, as well as demand deposits, checking accounts and Negotiable Order of Withdrawal (NOW) accounts. M1 measures the most liquid components of the money supply, as it contains cash and assets that can quickly be converted to currency. It does not contain “near money” or “near, near money” as M2 and M3 do.
As you can see from the chart posted below, the velocity of M1 normally declines during a recession. Just look at the shaded areas in the chart. But a funny thing has happened since the end of the last recession. The velocity of M1 has just kept falling and it is now at a nearly 20 year low…
Velocity Of Money M1
Next, let’s take a look at M2. It includes more things in the money supply. The following is how Investopedia defines M2…
A measure of money supply that includes cash and checking deposits (M1) as well as near money. “Near money” in M2 includes savings deposits, money market mutual funds and other time deposits, which are less liquid and not as suitable as exchange mediums but can be quickly converted into cash or checking deposits.
In the chart posted below, we can once again see that the velocity of M2 normally slows down during a recession. And we can also see that the velocity of M2 has continued to slow down in the “post-recession era” and has now dropped to the lowest level ever recorded…
Velocity Of Money M2
This is a highly deflationary chart.
It clearly indicates that economic activity in the U.S. has been steadily slowing down.
And if we are honest, we have to admit that we are seeing signs of this all around us. Major retailers are closing down stores at the fastest pace since the collapse of Lehman Brothers, consumer confidence is down, trading revenues at the big Wall Street banks are way down, and the steady decline in home sales is more than just a little bit alarming.
In addition, the employment situation in this country is much less promising than we have been led to believe. According to a report put out by the Republicans on the Senate Budget Committee, an all-time record one out of every eight men in their prime working years are not in the labor force…
“There are currently 61.1 million American men in their prime working years, age 25–54. A staggering 1 in 8 such men are not in the labor force at all, meaning they are neither working nor looking for work. This is an all-time high dating back to when records were first kept in 1955. An additional 2.9 million men are in the labor force but not employed (i.e., they would work if they could find a job). A total of 10.2 million individuals in this cohort, therefore, are not holding jobs in the U.S. economy today. There are also nearly 3 million more men in this age group not working today than there were before the recession began.”
Never before has such a high percentage of men in their prime years been so idle.
But since they are not counted as part of “the labor force”, the government bureaucrats can keep the “unemployment rate” looking nice and pretty.
Of course if we were actually using honest numbers, the unemployment rate would be in the double digits, our economy would be considered to have been in a recession since about 2005, and everyone would be crying out for an end to “the depression”.
And now we are rapidly approaching another downturn. In my recent articles entitled “Has The Next Recession Already Begun For America’s Middle Class?” and “27 Huge Red Flags For The U.S. Economy“, I detailed much of the evidence for why this is true.
And those that run the Federal Reserve know all of this.
That is one of the reasons for all of the “quantitative easing” that they have been doing. The folks at the Fed know that the U.S. economy would probably drift into a deflationary depression if they just sat back and did nothing. So they flooded the system with money in a desperate attempt to revive economic activity. But instead, most of the new money just ended up in the pockets of the very wealthy and further increased the divide between those at the top and those at the bottom in this country.
And now Fed officials are slowly scaling back quantitative easing because they apparently believe that the economy is getting “back to normal”.
We shall see.
Many are not quite so optimistic.
For example, the chief market analyst at the Lindsey Group, Peter Boockvar, believes that the S&P 500 could plummet 15 to 20 percent when quantitative easing finally ends.
Others believe that it will be much worse than that.
Since 2008, the size of the Fed balance sheet has grown from less than a trillion dollars to more than four trillion dollars. This unprecedented intervention was able to successfully delay the coming deflationary depression, but it has also made our long-term problems far worse.
So when the inevitable crash does arrive, it will be much, much worse than it could have been.
Sadly, most Americans do not understand these things. Most Americans simply trust that our “leaders” know what they are doing. And so in the end, most Americans will be completely blindsided by what is coming.
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That is VERY interesting. Please post it at http://dogbrothers.com/phpBB2/index.php?topic=1948.650 so we can discuss it there.
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Market Veteran Warns: “Massive Shocks In The World Financial System In Coming Years”
Monday, 02 June 2014 16:47 Mac Slavo
This article was written by Mac Slavo and originally published at SHTFplan.com
There is a euphoria being enjoyed by many in the investment world and in economic circles centered around the notion that the world has recovered from the financial crisis of 2008. Stock markets in the United States have risen to all time highs. Mainstream financial experts imply this is a key indicator of economic growth, improved consumer confidence, and a return to boom times.
But not everyone agrees. Swiss market veteran Egon Von Greyerz suggests that exactly the opposite is the case, noting that the underlying economic fundamentals all over the world are indicative of massive problems from the United States to China.
In an interview with King World News Von Greyerz highlights his reasoning, citing numerous data points that paint a completely different picture from the one being shown to the majority of the world’s citizens.
It surprised me to see how many of those top economists and fund managers were totally bullish on the global economy based on their view of growth in the United States.
I also went to a conference for ultra-high net worth individuals in Singapore, and I noticed very little fear or concern about the risks in the world today.
So this is a very dangerous time with the people who control the investment markets having very little regard for the risks and the dangers that the world is currently facing.
…
We have discussed the massive risks which are present in the system and they are more ubiquitous now than ever — Japan, EU, UK, US, China, and geopolitical risks. The financial system has the same problems today as it had in 2008, but the money printing over the last few years has achieved a calm and complacency that will lead to massive shocks in the world financial system in coming years.
…
A lot of the economic indicators in the U.S. are very weak. Retail sales are plunging, bank profits are falling, home sales are falling fast, both existing and new homes, and 56 percent of Americans have sub-prime credit today.
…
Global debt is now around $275 trillion, or 385 percent of world GDP. That’s $38,000 of debt for each and every person in the world. Even the average American is one paycheck from bankruptcy. So how does anyone ever believe that any of this debt could ever be repaid? Well, it won’t be, that’s absolutely guaranteed.
All this will lead to unprecedented money printing and hyperinflation. Thereafter we are likely to see a deflationary collapse of the financial system. We will certainly be looking at a very different world in coming years.
Excerpts from full interview made available by King World News
The notion that the global economy is in recovery and that the United States has exited the recession of 2008/2009 is a facade.
Michael Snyder at the Economic Collapse Blog and Jim Quinn of The Burning Platform recently noted that despite the purported success of government cash infusions, America’s death rattle is growing louder as household retail brands are being absolutely pummeled by a lack of consumer spending.
Retail store results for the 1st quarter of 2014 have been rolling in over the last week. It seems the hideous government reported retail sales results over the last six months are being confirmed by the dying bricks and mortar mega-chains. In case you missed the corporate mainstream media not reporting the facts and doing their usual positive spin, here are the absolutely dreadful headlines:
Wal-Mart Profit Plunges By $220 Million as US Store Traffic Declines by 1.4%
Target Profit Plunges by $80 Million, 16% Lower Than 2013, as Store Traffic Declines by 2.3%
Sears Loses $358 Million in First Quarter as Comparable Store Sales at Sears Plunge by 7.8% and Sales at Kmart Plunge by 5.1%
JC Penney Thrilled With Loss of Only $358 Million For the Quarter
Kohl’s Operating Income Plunges by 17% as Comparable Sales Decline by 3.4%
Costco Profit Declines by $84 Million as Comp Store Sales Only Increase by 2%
Staples Profit Plunges by 44% as Sales Collapse and Closing Hundreds of Stores
Gap Income Drops 22% as Same Store Sales Fall
Ann Taylor Profit Crashes by 75% as Same Store Sales Fall
American Eagle Profits Tumble 86%, Will Close 150 Stores
Aeropostale Losses $77 Million as Sales Collapse by 12%
Big Lots Profit Tumbles by 90% as Sales Flat & Exiting Canadian Market
Best Buy Sales Decline by $300 Million as Margins Decline and Comparable Store Sales Decline by 1.3%
Macy’s Profit Flat as Comparable Store Sales decline by 1.4%
Dollar General Profit Plummets by 40% as Comp Store Sales Decline by 3.8%
Urban Outfitters Earnings Collapse by 20% as Sales Stagnate
McDonalds Earnings Fall by $66 Million as US Comp Sales Fall by 1.7%
Darden Profit Collapses by 30% as Same Restaurant Sales Plunge by 5.6% and Company Selling Red Lobster
TJX Misses Earnings Expectations as Sales & Earnings Flat
Dick’s Misses Earnings Expectations as Golf Store Sales Plummet
Home Depot Misses Earnings Expectations as Customer Traffic Only Rises by 2.2%
Lowes Misses Earnings Expectations as Customer Traffic was Flat
Of course, those headlines were never reported. I went to each earnings report and gathered the info that should have been reported by the CNBC bimbos and hacks. Anything you heard surely had a Wall Street spin attached, like the standard BETTER THAN EXPECTED.
Those are the facts.
Last week well known contrarian economist John Williams made two dire predictions. First, the government’s Q1 economic growth numbers would be revised downward and actually show that the economy shrank for the first three months of the year. This has now been confirmed with official revisions showing negative one percent growth.
Second, Williams predicts that come July 30 the second quarter will verify that the United States has entered another recession, which is officially defined as two consecutive negative growth quarters.
Once these data are released it will confirm what we’ve been warning about for many months – that there is and has been no economic recovery. The U.S. (as well as China and Europe) are about to hit the next wave of this broader depression.
There is, as Williams noted, no way of saving the system at this point, echoing Von Greyerz’s assessment that we will soon be living in an unrecognizable world.
It won’t all happen overnight, but a collapse is all but assured at this point.
Those who have made the effort to get informed and taken steps to prepare for the inevitable calamity that is to come will fare much better than the 99% percent of Americans who will be totally blindsided when life as we have come to know it comes to an abrupt halt.
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http://finance.yahoo.com/blogs/breakout/-the-air-is-already-coming-out-of-the-bubble--but-fed-can-delay-collapse--peter-schiff-202622159.html
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It's only a matter of time before the US Dollar loses its global reserve status. BUY GOLD & SILVER BULLION NOW. When this happens, it will be too late:
The New World Order And The Rise Of The East
Wednesday, 04 June 2014 02:44 Brandon Smith
“Actually, as Winston well knew, it was only four years since Oceania had been at war with Eastasia and in alliance with Eurasia. But that was merely a piece of furtive knowledge, which he happened to possess because his memory was not satisfactorily under control. Officially the change of partners had never happened. Oceania was at war with Eurasia: therefore Oceania had always been at war with Eurasia. The enemy of the moment always represented absolute evil, and it followed that any past or future agreement with him was impossible…” – George Orwell, 1984
Nations, cultures and populations are best controlled through the use of false paradigms. This is a historically proven tactic exploited for centuries by oligarchs around the world. Under the Hegelian dialectic (the very foundation of the Marxist and collectivist ideology), one could summarize the trap of false paradigms as follows:
If (A) my idea of freedom conflicts with (B) your idea of freedom, then (C) neither of us can be free until everyone agrees to be a slave.
In other words: problem, reaction, solution. Two sides are pitted against each other in an engineered contest. Each side is led to believe that its position is the good and right position. Neither side questions the legitimacy of the conflict, because each side fears this will lead to ideological weakness and disunity.
The two sides go to war, sometimes economically, sometimes militarily. Both governments demand that individuals relinquish freedom, independence and self-reliance, a sacrifice that “must be made” so that victory can be achieved. In the end, neither nation nor society has truly won. The only winners are the oligarchs, who sing words of loyalty to their respective camps, while acting in league from the very beginning. The oligarchs, who never intended to target each other in the first place. Their target, their ONLY target, was the citizenry itself — the dumbfounded masses now mesmerized with shock, awe and terror.
The false paradigm method and the Hegelian dialectic are in full force today. Only a few years ago, Russia, China and the United States were considered close economic and political allies. Today, those alliances are being quickly scrapped in order to make room for conflict, a conflict useful only to a select international elite. As I have outlined in numerous articles, including Russia Is Dominated By Global Banks, Too and False East/West Paradigm Hides The Rise Of Global Currency, when one looks beyond all the theatrical rhetoric being thrown around between Barack Obama and Vladimir Putin, the ultimate reality is that the relationship of both governments to the global banking elite is the same.
During both of Obama’s Presidential terms, he has flooded his cabinet with current and former employees of Goldman Sachs, a longtime proving ground for elitist financiers with globalist aspirations.
And who is the primary economic adviser to Vladimir Putin and the Russian state? Why Goldman Sachs, of course!
U.S. and European elites have been calling for a centralization of economic power under the control of the International Monetary Fund, as a well as a new global currency.
Not surprisingly, Putin also wants a new global currency under the control of the IMF.
Obama is closely advised by globalists like Zbigniew Brzezinski, a member of the Council on Foreign Relations and cofounder of the Trilateral Commission, who in his book Between Two Ages: America’s Role In The Technetronic Era states:
"The nation-state is gradually yielding its sovereignty …[F]urther progress will require greater American sacrifices. More intensive efforts to shape a new world monetary structure will have to be undertaken, with some consequent risk to the present relatively favorable American position…"
As long as he has been in power, Putin has been closely advised by Henry Kissinger, yet another member of the CFR and proponent of the Trilateral Commission, who has said:
"In the end, the political and economic systems can be harmonized in only one of two ways: by creating an international political regulatory system with the same reach as that of the economic world; or by shrinking the economic units to a size manageable by existing political structures, which is likely to lead to a new mercantilism, perhaps of regional units. A new Bretton Woods kind of global agreement is by far the preferable outcome…"
Both Kissinger and Brzezinski refer to this harmonized global economic and political structure as the “New World Order.” The fact that the political leaders of Russia and the United States are clearly being directed by such men should not be taken lightly.
China, too, has made demands for a restructuring of the global monetary system into a centralized currency basket under the dominance of the IMF.
China’s ties to the banking elite of London are well documented.
The call on both sides for a new monetary system and the end of the dollar as world reserve seems to greatly contradict the fantasy that the East and West are fundamentally at odds. The progression towards a world currency and/or economic governance also appears to be growing along with the consolidation of economic and military ties between Eastern nations. This would suggest that the rise of the East and the crippling of Western elements is actually advantageous to global bankers in the long term.
While disinformation agents and media shills have attempted to downplay any danger to the strength of America and the dollar, Eastern governments have been swiftly establishing alliances and decoupling from U.S. influence.
The historic 30-year Russia/China gas deal has, of course, been finalized. This deal is already eating up market space and influencing the way in which the energy trade traditionally behaves.
China and Russia have also expanded on their bilateral agreements made in 2010, which remove the dollar as the reserve currency in transactions between the two nations.
China’s thirst for gold continues, while the country is now building its own gold exchange to rival the U.S. Comex.
Russia has recently established what Putin calls the “Eurasian Economic Union,” a deal which includes Kazakhstan and Belarus, two countries that hold large, freshly discovered oil fields.
In response to the engineered conflict over Ukraine, as well as the “Asian-Pacific Pivot” by the U.S., China has openly called for a new security pact with Russia and Iran.
Let’s also not forget that China is set to surpass the U.S. as the world’s largest economy by 2016, according to the Organization for Economic Co-operation and Development (OECD).
While the rise of the East is being painted in Western circles as a threat to U.S. and NATO dominance, the bigger picture is being hidden from view. Yes, indeed, the consolidation of the East is a considerable threat to the dollar and the U.S. economy — most importantly in the event that China refuses to accept dollars as payment on exports and debts. With the world’s largest exporter/importer refusing to take dollars as a reserve, most nations will inevitably follow their lead. The argument against this development is, of course, that there is no rational trigger for such a violent fiscal attack. I would remind skeptics that there was no rational trigger for the current strengthened relations between Russia and China until the Ukraine crisis. Is anyone really foolish enough to bet against another direct or indirect conflict between NATO and the East? And is anyone really ignorant enough to assume that said event would not be used as an excuse to cut the legs out from under the dollar completely?
The New World Order players have positioned the East and West for just such a scenario. Why? In my article Who Is The New Secret Buyer Of U.S. Debt?, I give evidence indicating that the Bank of International Settlements and the IMF are preparing the financial world for a new global monetary system, brought into existence by a second Bretton Woods conference. The debasement of the dollar and the rise of the East are NOT obstacles to this plan. Rather, they are required factors. There can be no truly global economic system without “harmonization”, the demise of the dollar's world reserve status, and the end of sovereign economic governance.
For those who doubt this scenario, read Paul Volcker’s latest statement, as reported by Zero Hedge.
Volcker, the same man who was directly involved in the destruction of the first Bretton Woods agreement and the final death rattle of the gold standard, is now promoting a NEW Bretton Woods-style agreement in which currencies are pegged to a controlled market system — in essence, a centralized international monetary system. Volcker also suggests that a single nation-based reserve currency like the dollar may be a danger to overall fiscal health.
Volcker is right. The dollar-dominated forex casino and fiat fraud is a danger to the world. Volcker helped make it that way! And what a surprise, the former Federal Reserve chairman has a solution on a silver platter for the American people — all we need is GLOBAL centralization and bureaucratic oversight.
The propaganda is being carefully planted within the mainstream. Christine Lagarde of the IMF now spends the whole of her media interviews inserting the phrase “global economic reset” without explaining exactly what that would entail, while central banking elites like Volcker suggest a Bretton Woods II conference leading to a global monetary authority. In the meantime, Russian government-funded media outlets like RT produce pieces accusing the U.S. of being a nuclear menace while we Americans get to watch manipulative Hollywood films like “Jack Ryan: Shadow Recruit,” which depicts a Russian plot to collapse the U.S. economy. China and U.S. representatives squabble with each other at geopolitical meetings fueling fears of diplomatic breakdown, while the Pentagon "suggests" they may have to revamp their military strategies in consideration of yet another World War. Just as in Orwell's book, 1984, old enemies become allies and then enemies once again, and at the top of the pyramid, it's all a farce.
The best lies contain elements of truth. The truth here is that the East is forming alliances in opposition to the West, the West is involved in underhanded covert operations all over the planet, and both “sides” are in fact on the verge of a catastrophic battle for supremacy. The great lie is that important details have been left out of our little story. Both sides are merely puppet pieces in a grand game of global chess, and any conflict will ultimately benefit the small group of men standing over the board. They include the international financiers who have influenced the very policy fabric of each government toward a climactic crisis which they hope will finally give them the “New World Order” they have always dreamed of.
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Obj:
I'm running that past some friends , , ,
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The ISM Non-Manufacturing Index Increased to 56.3 in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/4/2014
The ISM non-manufacturing index increased to 56.3 in May, beating the consensus expected 55.5. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mostly higher in May, and all remain at 50 or above. The business activity index jumped to 62.1 from 60.9 while the new orders index increased to 60.5 from 58.2. The employment index moved higher to 52.4 from 51.3 while the supplier deliveries index declined to 50.0 from 50.5.
The prices paid index rose to 61.4 in May from 60.8 in April.
Implications: Today’s report on the service sector continues to show the rebound in economic growth and an upward move in inflation. Since hitting a four-year low in February, the ISM service sector has jumped to 56.3, signaling the fastest growth in nine months and showing expansion for a 52nd consecutive month. All 17 non-manufacturing industries surveyed reported growth in May. Paired with the strong ISM manufacturing report from Monday, it looks like production is bouncing back from the harsher than normal winter. The business activity index– which has a stronger correlation with economic growth than the overall index – rose 1.2 points in May to 62.1, the highest reading for the index in over three years. New orders continue to show strong gains, rising 2.3 in May and also reaching a three year high. After a drop in April, the employment index showed a slight bounce back to 52.4. While still below the average reading of 54.4 seen in 2013, we expect this measure to move higher in the coming months as companies hire more in response to better economic growth (which the business activity index is showing). On the inflation front, the prices paid index jumped to 61.4 in May from 60.8 in April. Still no sign of runaway inflation, but given loose monetary policy, we expect this measure to either stay elevated or even move upward over the coming year. Once again, we have a report showing the Plow Horse economy may be starting to trot.
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Obvious typo. Starting to rot.
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It's only a matter of time before the US Dollar loses its global reserve status. ...
Unless sane people take back America first.
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It's only a matter of time before the US Dollar loses its global reserve status. ...
Unless sane people take back America first.
Not enough left. The FSA grows everyday.
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Nonfarm Payrolls Increased 217,000 in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/6/2014
Nonfarm payrolls increased 217,000 in May, almost exactly the consensus expected 215,000. Including revisions to prior months, nonfarm payrolls increased 211,000.
Private sector payrolls increased 216,000 in May. Including revisions to prior months, private payrolls also increased 211,000. The largest gains were for professional & business services (+55,000, including temps), health care & social services (+55,000), and restaurants/bars (+32,000). Manufacturing increased 10,000. Government payrolls rose 1,000.
The unemployment rate remained at 6.3%.
Average weekly earnings – cash earnings, excluding benefits – increased 0.2% in May and are up 2.1% versus a year ago.
Implications: Solid report on the direction of the labor market. Nonfarm payrolls increased 217,000 in May. That’s the fourth straight month above 200,000, the first time that’s happened since 1999-2000. The other leading piece of good news was the unemployment rate staying at 6.3% after the steep drop from 6.7% in March. Most economists had expected the jobless rate to tick back up. Moreover, the unemployment rate remained at 6.3% despite a 192,000 gain in the labor force. Civilian employment, an alternative measure of jobs that includes small business start-ups, increased 145,000. Unlike last month, most of the details in today’s report were also good. Total hours worked and average hourly earnings were up 0.2% each, for a combined increase of 0.4% for May. This measure of total cash wages is up 4.2% in the past year, more than enough to fuel continued increases in consumer spending. Also, the median duration of unemployment fell to 14.6 weeks, the lowest in five years, and the share of voluntary job leavers among the unemployed increased to 8.9%, tying the highest level since 2008. In the past, Fed Chair Yellen has written that a higher share of leavers shows confidence in the labor market. The most negative news in today’s report was that, despite the gain in the labor force, the participation rate stayed at 62.8%, still tied at the lowest level since the late 1970s. We think the long-term downward trend in labor force participation since 2000 is largely tied to the aging of the Baby Boom generation. However, we can’t help but notice the impact on the labor market of the end of extended unemployment insurance at the start of the year. Extended benefits kept some people from working and also kept others, who really didn’t intend to look for work, in the labor force (they had to claim they were looking to keep getting benefits). So the end of extended benefits should push down the jobless rate by both encouraging work among those who want to work and discouraging participation among those who really don’t want to work. And, since the start of the year, we’ve had both faster payroll growth and a decline in the participation rate. As we always remind our readers, the labor market could and would be doing better with a better set of public policies. But it’s still improving. In the past year nonfarm payrolls have grown at an average monthly rate of 198,000 while civilian employment is up 158,000 per month. We expect continued Plow Horse gains in the months ahead, pushing the jobless rate below 6% later this year. In turn, this will help put pressure on the Federal Reserve to move up short-term interest rates in the first half of 2015.
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Data Watch
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Industrial production rose 0.6% in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/16/2014
Industrial production rose 0.6% in May (+1.0% including revisions to prior months), beating the consensus expected gain of 0.5%. Production is up 4.3% in the past year.
Manufacturing, which excludes mining/utilities, increased 0.7% in May (+1.0% with revisions to prior months). Auto production rose 1.5% in May while non-auto manufacturing rose 0.5%. Auto production is up 7.8% versus a year ago while non-auto manufacturing is up 3.4%.
The production of high-tech equipment increased 1.6% in May and is up 5.3% versus a year ago.
Overall capacity utilization rose to 79.1% in May from 78.9% in April. Manufacturing capacity increased to 77.0% in May.
Implications: A very good report out of the industrial sector today. Industrial production rose 0.6% in May and was up an even stronger 1% including revisions to prior months, better than consensus expectations. More importantly, there appears to be a broad acceleration in manufacturing activity. Factory output is up 3.9% from a year ago, but up at a 5.7% annual rate in the past three months. All of this recent acceleration is outside the volatile auto sector; manufacturing production ex-autos is up 3.4% from a year ago, but up at a 5% annual rate in the past three months. Look for more robust growth in the industrial sector in the months ahead. The housing recovery is still young and both businesses and consumers are in a financial position to ramp up investment and the consumption of big-ticket items, like appliances. In particular, note that the output of high-tech equipment is up 5.3% from a year ago and up at a 10.7% annual rate in the past three months, signaling companies’ willingness to upgrade aging equipment from prior years. Capacity utilization now stands at 79.1% in May, up from 78.9% in April, and higher than the average of 78.9% over the past twenty years. Further gains in production in the year ahead will push capacity use higher, which means companies will have an increasing incentive to build out plants and equipment. Meanwhile, corporate profits and cash on the balance sheet are close to record highs, showing that companies have the ability to make these investments. Other, more timely, manufacturing news signal more gains in production in June. The Empire State index, a measure of factory sentiment in New York, rose to +19.3 in June from +19 in May, This is the highest level in four years. On the housing front, the NAHB index, which measures confidence among home builders, came in at 49 in June, the best reading in four months and up four points from May.
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http://etfdailynews.com/2014/06/17/how-will-you-fare-the-coming-economic-collapse/
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http://www.marketwatch.com/story/americans-are-getting-into-debt-just-to-get-by-2014-06-18?pagenumber=2
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New Orders For Durable Goods Declined 1.0% in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/25/2014
New orders for durable goods declined 1.0% in May (-0.8% including revisions to prior months), falling short of the no change the consensus expected. Orders excluding transportation declined 0.1% in May but increased 0.1% including revisions to prior months. The consensus expected an increase of 0.3%. Orders are up 2.7% from a year ago while orders excluding transportation are up 4.4%.
The decline in overall orders was led by unspecified transportation equipment (probably government submarine orders). Orders for civilian aircraft also declined. The largest gains were for autos and primary metals.
The government calculates business investment for GDP purposes by using shipments of non-defense capital goods excluding aircraft. That measure increased 0.4% in May. If unchanged in June, these shipments will be up at a 6.6% annual rate in Q2 versus the Q1 average.
Unfilled orders increased 0.6% in May and are up 7.9% from last year.
Implications: New orders for durable goods slipped 1% in May. However, cutting through the monthly volatility, we see an acceleration in business investment. The US military ordered a boatload of submarines in April (yes, bad pun intended). As a result, overall orders increased 0.8% in April despite a decline of 0.8% outside the defense sector. Without this large order in May, the figures reversed, with overall orders declining 1%, but up 0.6% excluding the defense sector. As the table below shows, ex-defense orders are up at a 12.1% annual rate in the past three months versus a 2.2% gain in the past year. Orders for primary metals, fabricated metals, computers/electronics, and autos have all accelerated. Some of this acceleration is likely an offset to weakness we had this winter, but some of it also reflects a growing backlog of orders. Unfilled orders are up at a 9.7% annual rate in the past three months and up 7.9% versus a year ago. Shipments of “core” capital goods, which exclude defense and aircraft – a good proxy for business equipment investment – increased 0.4% in May, and are up at a 9.1% annual rate in the past three months. We are on the cusp of a large increase in business investment over the next couple of years. Consumer purchasing power is growing and debt ratios are low, leaving room for an upswing in appliances. Meanwhile, profit margins are still high, corporate balance sheets are loaded with cash, and capacity utilization is near long-term norms, leaving more room (and need) for business investment.
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Second post:
Real GDP Growth in Q1 Was Revised Down to a -2.9% Annual Rate To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/25/2014
Real GDP growth in Q1 was revised down to a -2.9% annual rate versus a prior estimate of -1.0% and a consensus expected -1.8%.
The largest negative revision was for consumer spending on services. Net exports were also revised down. Other components of GDP were little changed.
The largest positive contribution to the real GDP growth rate in Q1 came from consumer spending. The weakest components of real GDP, by far, were inventories and net exports.
The GDP price index was unrevised at a 1.3% annualized rate of change. Nominal GDP growth – real GDP plus inflation – was revised down to a -1.7% annual rate versus a prior estimate of 0.3%. Nominal GDP is up 2.9% versus a year ago.
Implications: Hard to get an uglier headline number than the -2.9% annual growth rate for real GDP in Q1. Excluding recessions (or immediately before or after), that figure is the worst on record going back to World War II. However, we are very confident this will be the exception. If the economy were back in recession, the unemployment rate would have increased and jobs would have declined; instead, unemployment was steady in Q1 (and has dropped in Q2) and payrolls grew at an average monthly rate of 190,000. So why the big drop in real GDP? Much of the US was slammed with unusually harsh winter weather in Q1. In addition, when the government grows so large, it’s harder for the economy to absorb those events and keep growing. But so far in Q2 the data suggest a rebound back to solid economic growth, at around a 3% annual rate. Improvement in the labor market has accelerated, industrial production is growing rapidly, and auto sales have soared. To figure out the underlying trend in real GDP growth, we like to take out government purchases, trade, and inventories. What’s left are final sales to private domestic purchasers, which increased at a 0.5% annual rate in Q1, is up 2.3% in the past year, and up at a 2.3% annual rate in the past two years. Corporate profits fell 9.1% in Q1. But remember, these numbers are based on IRS data, and the change in tax laws earlier this year regarding depreciation and expensing had a major effect. S&P reported profits were actually up in Q1 as was cash flow. As a result, we do not believe the drop in the government’s measure of profits is a negative sign for equities. Today’s data do not suggest the Federal Reserve needs to pull back from tapering. Nominal GDP (real growth plus inflation) fell at a 1.7% annual rate in Q1 but is still up 2.9% from a year ago and up at a 3% annual rate in the past two years. That’s high enough to sustain not only an end to tapering but also higher short-term rates than the Fed is now targeting.
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What controlled substance is this idiot smoking?
"Consumer purchasing power is growing and debt ratios are low, leaving room for an upswing in appliances."
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As you said earlier, it is the policies. Wesbury and others are looking for better results, reasons for optimism and ways to make money in THIS economy. My interest is only in changing the policies.
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Global Markets' Strength Doesn't Reflect Economic Outlook, Central Banks Say
Investors Could Be Unprepared for Interest-Rate Rises, Says BIS
By Viktoria Dendrinou
June 29, 2014 6:30 a.m. ET
BRUSSELS—Buoyant financial markets are out of kilter with the shaky global economic and geopolitical outlook, the Bank for International Settlements said in its annual report published Sunday.
The warning from the BIS, a consortium of the world's top central banks, comes as financial markets—from stocks to bonds to commodities—have been enjoying a broad-based rally in the first half of 2014, reflecting investor optimism over expansionary central-bank monetary policies.
"Overall, it is hard to avoid the sense of a puzzling disconnect between the markets' buoyancy and underlying economic developments globally," the report read.
Investor jubilation stems partly from the commitment by the world's largest central banks, such as the U.S. Federal Reserve and European Central Bank, to keep interest rates low while economies continue to recover from recession. Markets have been resilient in the face of uneven growth in the U.S. and Europe, as well as political and economic unrest in Ukraine, the Middle East and elsewhere.
"Financial markets are euphoric, in the grip of an aggressive search for yield…and yet investment in the real economy remains weak while the macroeconomic and geopolitical outlook is still highly uncertain," said Claudio Borio, the head of the BIS's monetary and economic department.
Central bankers meet around every two months at the BIS's headquarters in Basel, Switzerland. The group doesn't set policy, but rather serves as a forum for central bankers to exchange views about financial markets and the global economy.
While global growth has firmed, the BIS said, it is still below its precrisis levels. The world economy was up 3% in the first quarter of 2014 compared with a year earlier—weaker than the 3.9% average growth rate between 1996 and 2006. In some advanced economies, output, productivity and employment remain below their precrisis peak.
But Mr. Borio said the effectiveness of policies aiming to boost domestic demand—and therefore growth—has been stunted by large overhangs of debt.
Governments in advanced economies have made progress in reducing their fiscal deficits since the crisis but debt levels are higher than ever and still rising. It cited data that showed 2014 debt exceeding 100% of gross domestic product in most major economies, including Italy, Spain, France, the U.S. and the U.K.
In a speech on Sunday, BIS General Manager Jaime Caruana warned that increased debt levels make borrowers' ability to repay more sensitive to a fall in income and interest-rate increases. "Thus, higher debt translates into greater financial fragility and financial cycles that may become increasingly disruptive," he said.
The organization cautioned that while low interest rates may keep service costs low for some time, they don't solve the problem of high debt levels because "by encouraging rather than discouraging the accumulation of debt they amplify the effect of the eventual normalization [of interest rates]."
The BIS voiced concerns that though central banks have signaled they will normalize monetary policy—after six years of low rates—investors may still be unprepared for the consequences.
But the risk of central banks normalizing too late and too gradually, the BIS said, shouldn't be underestimated, mainly due to the policy's diminished effectiveness over time.
"Tellingly, growth has disappointed even as financial markets have roared: The transmission chain seems to be badly impaired," the report said, referring to the "unusually" weak levels of global growth even after six years of extremely accommodative policy.
This is partly because nominal rates are near zero, the report said, meaning central banks cannot reduce them further to boost economic growth. Deleveraging as economic actors try to reduce debts—a so-called balance-sheet recession—has also meant that the financial sector hasn't been boosting its lending to the real economy despite successive interest-rate cuts.
What's more, keeping up ultra-accommodative monetary policy can be a source of turmoil for other economies. Some emerging-market economies and small, open advanced economies have gone through bouts of market turbulence because of loose monetary policy in major advanced countries.
Some of the money these policies have pumped into markets has found its way to emerging economies as investors sought higher-yielding assets, boosting their exchange rates and weakening exports. But when in May last year the Federal Reserve hinted at tapering—curbing its bond-purchasing program—exchange rates and asset prices in emerging markets stumbled.
Returning to normal monetary policy too slowly could also be dangerous for government finances, the BIS warned. "Keeping interest rates unusually low for an unusually long period can lull governments into a false sense of security that delays the needed consolidation," it said, as the glut of cash encourages cheap government borrowing.
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http://reason.com/reasontv/2014/06/25/america-has-ceased-to-exist-says-liberta
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http://www.nytimes.com/2014/07/08/upshot/welcome-to-the-everything-boom-or-maybe-the-everything-bubble.html?emc=edit_th_20140708&nl=todaysheadlines&nlid=49641193&_r=0
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http://www.nytimes.com/2014/07/08/upshot/welcome-to-the-everything-boom-or-maybe-the-everything-bubble.html?emc=edit_th_20140708&nl=todaysheadlines&nlid=49641193&_r=0
Trying to push the meme that the horrible economy is the new normal.
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http://www.internationalman.com/articles/peter-schiff-shares-his-offshore-strategies
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What if "Potential" is Just 1.5%? To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/14/2014
A key ingredient of monetary policy is the estimate of “potential real GDP growth” – how fast the economy should expand. The Federal Reserve thinks potential is about 2¼% per year. Using this, the Fed estimates GDP is about 8.5% below potential and monetary policy should remain easy.
But what if the Fed is wrong? What if bad policy (tax hikes, spending, and regulation), which started even before the Panic of 2008, but got worse afterward, cut potential to 1.5%?
To clarify, we’re not using the word “potential” as a true, inviolable, speed limit. Like a rusty old Corvette, we believe that if it were fixed up (with pro-growth policies), the economy could grow a lot faster.
We reject the theory of the “new normal.” Slow growth isn’t a natural aftermath of a financial crisis. If anything, it’s the “new ab-normal.” Anti-growth government policies
have hurt the economy and caused higher unemployment.
Looking back at historical data suggests potential GDP growth may have slowed to about 1.5% around a decade ago (see chart here).
At first no one noticed. Excessively accommodative Fed policy and other government stimulus created a bubble in housing – which pushed the economy above its potential back in 2007. Then the Panic of 2008 took it back below its potential, but not as far as most thought.
Since then, real GDP has grown faster than 1.5%. So, instead of being 8.5% below potential as many at the Fed think, the economy may very well be operating at a level close to its true potential given current policies.
We are not yet 100% convinced by this argument, but it explains some perplexing things. First, it helps explain why the “Plow Horse Economy” hasn’t moved faster. It doesn’t matter how many steroids the Fed feeds the horse, it just isn’t going to run like a thoroughbred.
Second, it doesn’t mean growth won’t accelerate. For example, we may see 3% real GDP growth later this year, but any move to 4% growth, or above, is highly unlikely.
Third, the CPI is up at a 2.6% annual rate in the first five months of 2014 versus 1.1% in the same period in 2013, even though real GDP fell in Q1.
Fourth, with growth slow, and the Fed holding short-term rates down artificially, longer-term rates have been held down. If real GDP growth averages 1.5% in the long run and markets expect that to continue, the 10-year Treasury yield should hold at a lower level than would have been the case in an economy with higher potential – say, during the 1994-2004 period. So, as long as the Fed keeps inflation at 2-2.5%, a 10-year of 3.75% is a better long-term forecast than 4.5%.
A lower potential growth rate slows increases in standards of living, but doesn’t curtail new innovation and the profits that come from that. So, if you’re wondering what happened to the middle class or why wages aren’t growing rapidly while stocks are, look no further than slower potential growth.
And, there is only one way to improve it. Get better fiscal policies and stop counting on the Fed.
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The Plowhorse has gone missing!
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Industrial Production Rose 0.2% in June To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/16/2014
Industrial production rose 0.2% in June, coming in slightly below the consensus expected gain of 0.3%. Production is up 4.3% in the past year.
Manufacturing, which excludes mining/utilities, increased 0.1% in June. Auto production declined 0.3% in June while non-auto manufacturing rose 0.2%. Auto production is up 6.8% versus a year ago while non-auto manufacturing is up 3.2%.
The production of high-tech equipment increased 0.3% in June and is up 6.4% versus a year ago.
Overall capacity utilization was unchanged at 79.1% in June. Manufacturing capacity declined to 77.1% in June from 77.2% in May. (Back when I was in the University in the mid 70s, these numbers would have been considered as implying that inefficient capacity was starting to be used, thus implying impending inflationary pressures-- Marc)
Implications: A Plow Horse report out of the industrial sector today. Industrial production rose a tepid 0.2% in June, coming in slightly below consensus expectations. But, with the June report, we now have data for all of the second quarter, when production grew at a 5.5% annual rate, the fastest quarter of growth in almost four years. Industrial production is up 4.3% from a year ago while manufacturing output is up 3.6%. We expect continued robust growth in the industrial sector in the months ahead. The housing recovery is still young and both businesses and consumers are in a financial position to ramp up investment and the consumption of big-ticket items, like appliances. In particular, note that the output of high-tech equipment is up 6.4% from a year ago and up at a 11.6% annual rate in the past three months, signaling companies’ willingness to upgrade aging equipment from prior years. Capacity utilization now stands at 79.1% in June, and higher than the average of 78.9% over the past twenty years. Further gains in production in the year ahead will push capacity use higher, which means companies will have an increasing incentive to build out plants and equipment. Meanwhile, corporate profits and cash on the balance sheet are close to record highs, showing that companies have the ability to make these investments. In other news today, the NAHB index, which measures confidence among home builders, jumped 4 points to 53 in July, the best reading since January. Looks like a broad pick-up in both sales and foot traffic around the country.
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http://www.mybudget360.com/stock-market-in-bubble-cynk-pe-valuations-at-record-levels/
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http://www.mybudget360.com/stock-market-in-bubble-cynk-pe-valuations-at-record-levels/
http://www.marketwatch.com/story/were-in-the-third-biggest-stock-bubble-in-us-history-2014-07-15?dist=beforebell
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Plow Horse GDP Rebound in Q2 To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/21/2014
The 2.9% drop in real GDP during the first quarter was a fluke caused by a brutal winter and some one-off events. With much of the monthly data in for Q2, it looks like the US will see that drop almost completely reversed.
Normally, we would expect a bigger bounce as pent-up demand (lost to the weather) returned and added to growth already in train. But, not this time. In recent years, tax rates have been hiked, regulations have increased and government spending has expanded. All of these are a burden on the economy that creates slower potential growth.
As a result, while we expect a nice rebound in Q2 real GDP to 2.9% annualized growth, this still looks like a Plow Horse recovery.
This doesn’t mean we won’t see better growth rates in the years ahead. Monetary policy is loose – and will stay that way even when the Federal Reserve starts raising rates – corporate profits have been terrific, and housing will continue to rebound. Job creation has hastened, helping boost incomes and purchasing power.
However, the economy will remain disappointingly weak unless, and until, government policies change. Given current policies, this economic expansion will not be like the ones in the 1980s or 1990s. Not even close.
As we do every quarter, below is a component by component “add-em-up” forecast of Q2 real GDP – and how we get the 2.9% rebound from the Q1 economic pothole.
Consumption: Auto sales surged at a 26% annual rate in Q2 and “real” (inflation-adjusted) retail sales outside the auto sector grew at a 4% rate. But services make up about 2/3 of personal consumption and those were roughly unchanged. As a result, it looks like real personal consumption of goods and services combined, grew at a 1.9% annual rate in Q2, contributing 1.3 points to the real GDP growth rate (1.9 times the consumption share of GDP, which is 69%, equals 1.3).
Business Investment: Business equipment investment looks like it grew at a 12.5% annual rate in Q2, the fastest pace since 2011. Commercial construction looks like it grew at a 4% rate. Factoring in R&D suggests overall business investment grew at a 7.5% rate, which should add 0.9 points to the real GDP growth rate (7.5 times the 12% business investment share of GDP equals 0.9).
Home Building: Better weather brought more home building in Q2, although nothing close to a housing boom. We see a 6% annualized gain in home building in Q2 adding 0.2 points to the real GDP growth rate (6 times the home building share of GDP, which is 3%, equals 0.2).
Government: Public construction projects, which had been slowed by the weather in Q1, rebounded sharply in Q2. However, military spending continued to head down. On net, it looks like real government purchases grew at a 2% annual rate in Q2, which should add 0.4 percentage points to real GDP growth (2 times the government purchase share of GDP, which is 18%, equals 0.4).
Trade: At this point, the government only has trade data through May, and it doesn’t look very good for US GDP. On average, the “real” trade deficit in goods has grown larger in Q2. As a result, we’re forecasting that net exports subtracted 0.7 points from the real GDP growth rate.
Inventories: Companies cut the pace of inventory accumulation in Q1. But, with partial data only through May, it appears inventory accumulation is reaccelerating. That’s a harbinger of better sales ahead and, for the time being, will add 0.8 points to the real GDP growth rate in Q2.
Nothing in the next GDP report is going to signal an economic boom. But, the dour forecasts of imminent recession which accompanied the reported drop in GDP over the winter months will be proven wrong. (Once again!) We aren’t looking for a boom, but it sure looks like a solid Plow Horse piece of data is on its way.
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I'm not sure if General Motors falls under US Economy or Cognitive Dissonance of Government Programs. Who saw THIS coming?
GM Debt Climbs to Over $40 Billion, Earnings Disappoint
http://markets.ft.com/research/Markets/Tearsheets/Financials?s=GM:NYQ
Other than trouble in housing, transportation, employment, healthcare, education, and global security on the brink of collapse, things look pretty good out there.
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"GM is alive and al Qaeda is on the run"
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This was published in USA Today:
"Yes, this is an equity bubble"
John Hussman, PhD Stanford
http://www.hussmanfunds.com/wmc/wmc140728.htm
Not easy to dismiss.
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If second quarter "growth" comes in below 2.9%, we are net-negative for the year. Consensus estimates are something like 3% which is net-zero growth for the year. Economist Gary Shilling says that may be closer to 1% growth and could be negative making this a recession since the first of the year. Remember that last quarter we did not learn of the decline until revisions came in months later. This time that should be right around election time.
http://www.zerohedge.com/news/2014-07-27/gary-shilling-q2-gdp-was-closer-1-3-it-could-even-be-negative-number
Gary Shilling: "Q2 GDP Was Closer To 1% Than To 3%. It Could Even Be A Negative Number"
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http://davidstockmanscontracorner.com/heres-what-wall-street-bulls-were-saying-in-december-2007-read-and-take-cover/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+PM+Monday
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Scott G. was kind enough to share his thoughts with me on the Hussman analysis:
First, let me say that Hussman's credentials as a connoisseur of valuations is somewhat suspect. His Strategic Growth Fund (HSGFX) has managed the unenviable record of delivering a -21% total return since early March 2009, while the S&P 500 has enjoyed a total return of 224%. If he has provided a service to mankind, it is in demonstrating just how badly a market timing investment strategy can perform.
But eventually, of course, he will be right and the market will suffer a correction, and perhaps a serious one. It's all a matter of timing, something he unfortunately appears to lack in addition to not being able to recognize valuations over multi-year periods.
Be that as it may, I don't agree with the valuations he cites today.
The standard PE ratio of the S&P 500 is 18, as compared to its long-term average of 16. That is not particularly stretched, in my view, especially in light of the fact that corporate profits are close to record levels relative to GDP and long-term interest rates are exceptionally low.
If I use after-tax corporate profits from the NIPA tables as the "E" and the S&P 500 index as the "P" then I find that PE ratios are almost exactly equal to their average since 1960.
I don't give much credence to Shiller's CAPE ratio, since I think that the level of profits 10 years ago has almost zero bearing on the valuation of equities today. Corporate profits relative to GDP are much higher today not because they are unsustainably high, but because of globalization, which has allowed successful firms here to address markets that are exponentially larger than they could have addressed just a few decades ago.
While he worries that the market is hugely over-leveraged, I note that various measures of leverage in the household sector are as low as they have been for many decades. And the fact that banks have accumulated over $2.6 trillion in excess reserves while only moderately expanding their lending activities suggests to me that banks, as well as households, have been very risk averse and continue to be.
He insists on believing that the Fed's QE policies have directly distorted valuations and interest rates. In contrast, I think most of what the Fed has done has been to accommodate the market's extraordinary demand for safe assets. I believe that if the Fed had really been pumping money into the economy and distorting all manner of things, that we would have seen quite a bit more inflation than we have to date.
Nevertheless, I do wish they would accelerate their timetable for higher short-term rates and for the unwinding of their balance sheet.
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That is a strong response by Scott Grannis. These guys working in the same field are kind of tough on each other. Hussman missed the entire run-up. Most on Grannis' side of it missed the entire crash, also a pretty big event of the last decade. Taking the middle ground, I say you don't get to compare performance only from rock bottom unless you called both the crash and rock bottom.
As interesting as the images in the rear view mirror are, the point between the optimists and pessimists today is who is right today.
Scott does a nice job of both hedging and backing up his view. This is a post worth re-reading after the market makes its next move in either direction. If it is up 224% every 5 years and you believe current polls then the DOW hits 38,000 at the end of Hillary's first term. Back up the truck, as we used to say.
But then Scott would also be right if, as he says, "eventually, of course, [Hussman] will be right and the market will suffer a correction, and perhaps a serious one."
We are all lousy market timers. I know a number of people who do large money management. I would take the compensation but wouldn't want the responsibility of getting all of the market returns for their clients now while fully protecting them against the next, inevitable, serious correction.
To me, the stock market offers you cloudy title to a company. You share ownership with people who have very different time frames, objectives and systems for getting in and out of ownership than you do. Psychology, emotions and subtle tipping points that trigger other events matter, and most of that we can't see.
Scott G: "The standard PE ratio of the S&P 500 is 18, as compared to its long-term average of 16. That is not particularly stretched, in my view, especially in light of the fact that corporate profits are close to record levels relative to GDP and long-term interest rates are exceptionally low."
From here record profits could continue to go up forever (lol), or go down in a very possible recession, or stay flat for years. The DOW still at 17000 in 5 years not at all out of the realm of possibilities, nor a worst case scenario. Artificially low interest rates will most certainly go up the instant moment we quit holding them artificially down. And reserves parked safely is still money created (out of thin air).
Good luck to everyone who is in. I lost all my stock market money last time I was dead wrong.
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The First Estimate for Q2 Real GDP Growth 4.0% at an Annual Rate To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/30/2014
The first estimate for Q2 real GDP growth is 4.0% at an annual rate, easily beating the 3.0% rate expected by the consensus. Real GDP is up 2.4% from a year ago.
The largest positive contributions to real GDP growth in Q2 were from consumer spending and inventories. The largest drag was net exports.
Personal consumption, business investment, and home building were all positive in Q2, growing at a combined rate of 3.1% annualized. Combined, they are up 2.8% in the past year.
The GDP price index increased at a 2.0% annual rate in Q2. Nominal GDP (real GDP plus inflation) rose at a 6.0% rate in Q2, is up 4.1% from a year ago and up at a 3.7% annual rate from two years ago.
Implications: What a difference one report makes. Real GDP came in higher than the consensus expected for Q2, growing at a 4% annual rate. The rebound more than offset the weather-related hit in Q1, when real GDP fell at a (revised) 2.1% annual rate. Today’s report includes revisions to the GDP data going back several years and shows an economy that was a little weaker in 2010-12, but stronger than originally reported in 2013. New figures show real GDP grew 3.1% in 2013 versus a prior estimate of 2.6%. The one drawback in today’s data was that much of the growth in Q2 came from faster inventory accumulation, which will be tough to duplicate for the rest of the year. We still expect growth between 2% and 3%, but wouldn’t be surprised if it continued to come in at the lower end of that range. Nominal GDP grew at a 6% annual rate in Q2, is up 4.1% versus a year ago and is up at a 3.7% annual rate in the past two years. Nominal GDP is a good proxy for the level of interest rates over time and suggests that the Fed is falling behind the curve. Even though we think they should move faster, the Fed will stick to ending QE by Halloween and then start lifting rates in the first half of 2015. The BEA also released its first estimate of GDO - Gross Domestic Output for Q1 last Friday. GDO attempts to measure “all” economic activity. In other words it includes more business-to-business sales along the value-added chain of production. GDO shows that rather than steeply declining in Q1, the economy was roughly flat. This is not surprising given brutal winter weather and it suggests that the drop in Q1 real GDP was not as sinister as many wanted to believe. In other news today, the ADP index says private payrolls increased 218,000 in July. Plugging this into our models suggests the official Labor report (released Friday) will show a nonfarm gain of 220,000. On the housing front, the Case-Shiller index, which measures home prices in 20 key metro areas, dipped 0.3% in May, the first decline in 28 months, although prices are still up 9.3% from a year ago. The dip in May was led by Atlanta, Chicago, and Detroit. Look for price gains in the year ahead, but not as fast as in the past couple of years. Pending home sales, which are contracts on existing homes, declined 1.1% in June after rising 6% in May. Combined, these figures suggest a 2.4% gain in existing home sales in July. After all that, it’s still the Plow Horse.
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Happy days are here again oh happy days are here again oh happy days are here again oh yeaaaaaaaahahhhh!!!!!!!!!
:wink:
You wanna buy land in south central Florida? :-D
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http://davidstockmanscontracorner.com/qe-and-zirp-have-failed-to-lift-main-street-but-withdrawal-of-the-monetary-heroin-will-be-brutal/
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Stockman is right. And what does 40% of the voting public want to do about the wealth gap?
Tax the "rich" which also includes much of the middle class, to pay for all their debts. Continue the war on savings as Crafty apply puts it, "welcome" 5 million more poor illegals on top of the 12 million already here, and then all their relatives turning the rest of the country into Kalifornia (NJ too), punish the energy sector as Doug pointed out is the most thriving sector of all, embolden our enemies, piss off our friends, divide the nation even more and blame the other side, call them "haters" as the first Black and stooge in office does, all the while it is their policies worsening this mess.
But yes gotta support that brockster and the rest of the "for the po crowd".
The democrats in lock step eternally pushing *forward* destroying America.
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Events vs. Data To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/4/2014
If you’re an investor looking for a reason to be worried, there are plenty of headlines to light the fuse. Widening war in the Middle East, turmoil in eastern Ukraine (or is that western Russia?), a debt default by Argentina…problems with some Portuguese bank…Ebola…tapering.
It’s not a short list, and equities are down roughly 3% since their peak on July 24th.
Maybe, just maybe, a long-awaited stock-market correction has begun. We can’t confirm or deny that prediction. All we know for certain is that this would be about the 43rd correction analysts have called in just the past 24 months.
What we do know is that the fundamentals do not suggest anything terribly serious is wrong with the US stock market. Don’t take this the wrong way. These events are all important. They matter. But in the long sweep of history, they don’t yet rise to the level of world changing events. Most of us have experienced much worse in our lifetimes.
Compared to the Yom Kippur War, the recent conflict between Israel and Gaza is small. And an interesting by-product of this current conflict is that more Arab countries are now supporting Israel.
Meanwhile, Putin’s Russia is playing an increasingly weak hand trying to foment a border crisis with Ukraine. The recent downing of Malaysian Airlines flight 17 has pushed Europe into sanctions that hurt Putin’s inner circle in its most vital organ. That would be their wallets.
Yes, Argentina isn’t going to pay all its debts. But, given its history, why is this news? Since its independence in 1816, Argentina has been in default or rescheduling about 1/3rd of the time. We’d be more surprised if Argentina always paid its debts on time.
Ebola is certainly a scary headline, but projecting some turning point for the market due to Bird Flu, Swine Flu or even AIDS back in the 1980s was an overreaction.
Fear makes any one of these seem a potentially cataclysmic event, but the same could be said about hundreds of things that have happened in the past 200 years. The one thing we’re sure of is that the economic fundamentals haven’t changed much and that the market remains undervalued.
Real GDP in the second quarter rose 4% at an annual rate after a weather-related drop in Q1 of 2.1%. Moreover, revisions to 2013 show that real GDP grew 3.1% in the four quarters of 2013. By the way, some analysts used year-over-year data for 2013 to show a 2.2% gain in real GDP, but this is like using your average net worth for the year to reflect your financial health, not what you had at year-end.
The job market is showing steady gains, with another 209,000 added to payrolls in July. That’s the sixth straight month above 200,000, the first time that’s happened since 1997. And it looks like more of the same in August: initial unemployment claims are at a four-week average of 297,000, the lowest since April 2006.
In addition, the manufacturing sector looks like it’s firing on all cylinders. The ISM Manufacturing Index beat on the upside, hitting 57.1 in July, the highest since 2011.
Construction plunged in June, but that’s a very volatile indicator from month to month and the trend is still up, with a gain of 26% since the bottom in early 2011.
Technical analysis is not our area of expertise, which is why we have to be agnostic about whether we’re in a correction. But if it is a correction, we think a rebound would be soon to follow.
We still believe the bull market will remain intact until a recession is on the way, the equity market gets overpriced, or monetary policy gets tight. None of these are here yet and we don’t expect them anytime soon.
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Events vs. Data To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/4/2014
If you’re an investor looking for a reason to be worried, there are plenty of headlines to light the fuse. Widening war in the Middle East, turmoil in eastern Ukraine (or is that western Russia?), a debt default by Argentina…problems with some Portuguese bank…Ebola…tapering.
It’s not a short list, and equities are down roughly 3% since their peak on July 24th.
Maybe, just maybe, a long-awaited stock-market correction has begun. We can’t confirm or deny that prediction. All we know for certain is that this would be about the 43rd correction analysts have called in just the past 24 months.
What we do know is that the fundamentals do not suggest anything terribly serious is wrong with the US stock market. Don’t take this the wrong way. These events are all important. They matter. But in the long sweep of history, they don’t yet rise to the level of world changing events. Most of us have experienced much worse in our lifetimes.
Compared to the Yom Kippur War, the recent conflict between Israel and Gaza is small. And an interesting by-product of this current conflict is that more Arab countries are now supporting Israel.
Meanwhile, Putin’s Russia is playing an increasingly weak hand trying to foment a border crisis with Ukraine. The recent downing of Malaysian Airlines flight 17 has pushed Europe into sanctions that hurt Putin’s inner circle in its most vital organ. That would be their wallets.
Yes, Argentina isn’t going to pay all its debts. But, given its history, why is this news? Since its independence in 1816, Argentina has been in default or rescheduling about 1/3rd of the time. We’d be more surprised if Argentina always paid its debts on time.
Ebola is certainly a scary headline, but projecting some turning point for the market due to Bird Flu, Swine Flu or even AIDS back in the 1980s was an overreaction.
Fear makes any one of these seem a potentially cataclysmic event, but the same could be said about hundreds of things that have happened in the past 200 years. The one thing we’re sure of is that the economic fundamentals haven’t changed much and that the market remains undervalued.
Real GDP in the second quarter rose 4% at an annual rate after a weather-related drop in Q1 of 2.1%. Moreover, revisions to 2013 show that real GDP grew 3.1% in the four quarters of 2013. By the way, some analysts used year-over-year data for 2013 to show a 2.2% gain in real GDP, but this is like using your average net worth for the year to reflect your financial health, not what you had at year-end.
The job market is showing steady gains, with another 209,000 added to payrolls in July. That’s the sixth straight month above 200,000, the first time that’s happened since 1997. And it looks like more of the same in August: initial unemployment claims are at a four-week average of 297,000, the lowest since April 2006.
In addition, the manufacturing sector looks like it’s firing on all cylinders. The ISM Manufacturing Index beat on the upside, hitting 57.1 in July, the highest since 2011.
Construction plunged in June, but that’s a very volatile indicator from month to month and the trend is still up, with a gain of 26% since the bottom in early 2011.
Technical analysis is not our area of expertise, which is why we have to be agnostic about whether we’re in a correction. But if it is a correction, we think a rebound would be soon to follow.
We still believe the bull market will remain intact until a recession is on the way, the equity market gets overpriced, or monetary policy gets tight. None of these are here yet and we don’t expect them anytime soon.
http://humanevents.com/2008/02/25/brian-wesbury-sees-no-recession-ahead/
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Nonfarm Productivity Increased at a 2.5% Annual Rate in the Second Quarter To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/8/2014
Nonfarm productivity (output per hour) increased at a 2.5% annual rate in the second quarter versus a consensus expected gain of 1.6%. Nonfarm productivity is up 1.2% versus last year.
Real (inflation-adjusted) compensation per hour in the nonfarm sector was up at a 0.1% annual rate in Q2 and is up 1.0% versus last year. Unit labor costs increased at a 0.6% rate in Q2 and are up 1.9% versus a year ago.
In the manufacturing sector, productivity was up at a 3.6% annual rate in Q2, much better than among nonfarm businesses as a whole. The faster gain in manufacturing productivity was due to faster growth in output. Real compensation per hour declined at a 0.8% annual rate in the manufacturing sector, while unit labor costs fell at a 1.3% rate.
Implications: After a large drop in productivity in Q1, nonfarm productivity grew at a 2.5% annual rate in Q2. Hours continued to increase at a healthy clip and output climbed even faster so output per hour increased. Productivity is only up 1.2% from a year ago, but we think government statistics underestimate actual productivity growth. There are many examples, in every area of the economy, but the service sector is particularly hard to measure. Drivers used to buy road atlases, and then GPS devices to help them navigate; now they download free apps that are more accurate and provide optimal routes through real-time traffic patterns. Travelers used to guess, hit-or-miss, where to go for a meal. Now they can use free services to tell them what restaurants are close and provide reviews. The figures from the government miss the value of these improvements, which means our standard of living is improving faster than the official reports show. Sectors of the economy that are easier to measure show more rapid productivity growth. In manufacturing, productivity surged at a 3.6% annual rate in Q2 and is up 2.1% from a year ago. The surge in Q2 was due to output growing much faster than hours. In spite of the overall problems with measurement, we anticipate faster productivity growth over the next few years as new technology increases output growth in all areas of the economy. In other news, yesterday new claims for unemployment insurance declined 14,000 to 289,000. The four week moving average at 293,500 is now the lowest since February 2006. Continuing claims for jobless benefits declined 24,000 to 2.52 million.
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http://goldsilver.com/news/james-rickards-cold-war-2-0-is-a-financial-war/?utm_medium=email&utm_campaign=8+13+14+GS+Weekly&utm_content=8+13+14+GS+Weekly+CID_38c81df2ad88f08af610e8f4dbeaee17&utm_source=GoldSilver%20Email%20Marketing&utm_term=read%20more
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Silver Wheaton, Pan American Silver each -5%, hurt by low silver prices • 2:16 PM
Silver Wheaton (SLW -5.3%) and Pan American Silver (PAAS -5.3%) are both
sharply lower as low silver prices combined with still-high costs combine to
weigh on Q2 results.SLW said its silver equiv. realized price fell from
$23.05/oz. a year ago to $19.83 in this year's Q2; gold sales accounted for
~30% of sales, and SLW’s realized gold price of $1,295/oz. was included
in a 14% drop in the silver equiv. price.In Q2 results for PAAS, the average
realized price for silver was $19.58/oz., down from $22.68 in the year-ago
quarter; gold, which accounts for ~25% of sales, also suffered, fetching
$1,289/oz.vs. $1,423 a year ago.
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Silver Wheaton, Pan American Silver each -5%, hurt by low silver prices • 2:16 PM
Silver Wheaton (SLW -5.3%) and Pan American Silver (PAAS -5.3%) are both
sharply lower as low silver prices combined with still-high costs combine to
weigh on Q2 results.SLW said its silver equiv. realized price fell from
$23.05/oz. a year ago to $19.83 in this year's Q2; gold sales accounted for
~30% of sales, and SLW’s realized gold price of $1,295/oz. was included
in a 14% drop in the silver equiv. price.In Q2 results for PAAS, the average
realized price for silver was $19.58/oz., down from $22.68 in the year-ago
quarter; gold, which accounts for ~25% of sales, also suffered, fetching
$1,289/oz.vs. $1,423 a year ago.
Buy on the dips.
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I bought PAAS at 9 and rode it to 40. Got out in the low 30s and mid 20s IIRC.
As I have cautioned here a number of times, as soon as interest rates go up, the experience of the late 70s teaches that gold and silver will bet fuct. As it is gold is donw over 35% from its peak.
The piece in GM,s post 909 epitomizes the notion of profity from prophesy. It can be done, but then again the market can be wrong longer than you can stary solvent.
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I bought PAAS at 9 and rode it to 40. Got out in the low 30s and mid 20s IIRC.
As I have cautioned here a number of times, as soon as interest rates go up, the experience of the late 70s teaches that gold and silver will bet fuct. As it is gold is donw over 35% from its peak.
The piece in GM,s post 909 epitomizes the notion of profity from prophesy. It can be done, but then again the market can be wrong longer than you can stary solvent.
I'm not buying to flip silver and gold for profit. I'm buying to have something of value after we go Weimar.
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New Orders For Durable Goods Boomed 22.6% in July To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/26/2014
New orders for durable goods boomed 22.6% in July (+23.8% including revisions to prior months), easily beating the consensus expected gain of 8.0%. Orders excluding transportation declined 0.8% in July, but were up 0.3% including revisions to prior months, coming in below the consensus expected 0.5% gain. Orders are up 33.8% from a year ago while orders excluding transportation are up 6.6%.
The gain in overall orders was led by civilian aircraft and autos. The largest decline was for machinery.
The government calculates business investment for GDP purposes by using shipments of non-defense capital goods excluding aircraft. That measure rose 1.5% in July (+2.7% including revisions to prior months). If unchanged in August and September, these shipments will be up at an 8.8% annual rate in Q3 versus the Q2 average.
Unfilled orders increased 5.4% in July and are up 12.3% from last year.
Implications: Durable goods boomed 22.6% in July, the biggest increase on record going back to 1958. The entire gain in durable goods orders was due to the very volatile transportation sector, which rose 74.2% in July. In particular, civilian aircraft orders rose 318% as Boeing received 324 orders for new planes in July. Excluding transportation, new orders for durable goods declined 0.8% in July, but were revised up to a 3% gain in June (versus a prior estimate of 1.9%) and are up 6.6% versus a year ago. The best news today was that shipments of “core” capital goods, which exclude defense and aircraft – a good proxy for business equipment investment – rose 1.5% in July and June shipments were revised up to a 0.9% gain (versus a prior estimate of -0.3%). These shipments are now up 7.6% versus a year ago, a major acceleration from the 0.4% decline in the year ending in July 2013. Until recently, business investment had been unusually slow relative to other parts of the recovery, but it now looks like companies are finally updating their equipment and building out capacity more quickly. On the housing front; mixed news on home prices today. The FHFA index, which measures prices for homes financed with conforming mortgages, increased 0.4% in June, and is up 5.2% from a year ago. However, the Case-Shiller index, which measures homes in 20 key metro areas around the country, declined 0.2% in June, with 13 of the 20 areas showing a decline, led by Minneapolis and Detroit. That’s the first overall decline since early 2012. Still, in the past year, the Case-Shiller index is up 8.1%, with gains led by Las Vegas, San Francisco, and Miami. Both the FHFA index and Case-Shiller show smaller price gains in the past twelve months than in the twelve months that ended in June 2013. We expect that trend to continue, with these measures generally moving up but showing smaller gains than in the recent years. In other news this morning, the Richmond Fed index, a measure of factory sentiment in the mid-Atlantic region, rose to +12 in August from +7 in July, signaling continued gains in industrial production in August.
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The ISM Manufacturing Index Surged to 59.0 in August To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/2/2014
The ISM manufacturing index surged to 59.0 in August from 57.1 in July, easily beating the consensus expected level of 57.0. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mixed in August, but all remain well above 50, signaling growth. The new orders index rose to 66.7 from 63.4, while the production index increased to 64.5 from 61.2. The supplier deliveries index dipped slightly to 53.9 from 54.1. The employment index was little changed at 58.1 from 58.2 in July.
The prices paid index declined to 58.0 in August from 59.5 in July.
Implications: A booming report from the manufacturing sector as the ISM Manufacturing index, which measures factory sentiment around the country, rose to 59.0 in August, the highest level in more than three years. The best news in today’s report came from the new orders index, which rose to 66.7, the highest reading in more than a decade, and a sign that factory activity should continue to pick up in the months ahead. According to the Institute for Supply Management, an overall index level of 59.0 is consistent with real GDP growth of 5.2% annually. While last week’s GDP report came in at a strong 4.2% for Q2, we don’t expect the growth rate to remain quite that fast over the remainder of the year. The long-term link between the ISM report and real GDP growth has tended to over-estimate real GDP growth in the past several years. On the inflation front, the prices paid index fell to a still elevated 58.0 in August from 59.5 in July. Along with broader measures of consumer and producer prices, inflation is showing signs of overly loose monetary policy. The employment index was essentially unchanged at 58.1 in August, just off the three year high reading of 58.2 in July’s report. With the data in today’s release, we are currently forecasting a gain of about 25,000 manufacturing jobs for this Friday’s employment survey. In other news today, construction increased 1.8% in July and 3.3% including upward revisions for May and June. The gain in July itself was led by state and local projects (like paving roads and building bridges). A large gain in commercial construction was led by power plants and manufacturing facilities. The upward revisions for May/June suggest real GDP will be revised up to a 4.4% annual growth rate in Q2 from a prior report of 4.2%.
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The ISM Non-Manufacturing Index Increased to 59.6 in August To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/4/2014
The ISM non-manufacturing index increased to 59.6 in August, easily beating the consensus expected 57.7. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mostly higher in August, and all remain above 50. The business activity index jumped to 65.0 from 62.4 while the employment index increased to 57.1 from 56.0. The supplier deliveries index moved higher to 52.5 from 51.5. The new orders index dipped to 63.8 from 64.9.
The prices paid index declined to 57.7 in August from 60.9 in July.
Implications: Another strong reading from the service sector as the ISM services index jumped to 59.6 in August, beating the forecast from all 74 economic groups that made a prediction and coming in at the highest reading since August 2005. The ISM service sector has now shown expansion for a 55th consecutive month. Paired with the strong ISM manufacturing report from Tuesday, it’s clear the economy is continuing to bounce back from the harsher than normal winter that slowed activity at the start of the year. The business activity index– which has a stronger correlation with economic growth than the overall index – rose 2.6 points in August to 65.0, the highest reading for the index in close to ten years. New orders dipped slightly, but remain at a very robust reading of 63.8, suggesting production should continue to pick up in the months ahead. After the drop back in April, the employment index has expanded for each of the past four months and, with this month’s reading of 57.1, has moved above the average reading of 56.5 seen over the past five years. As employment continues to expand, expect income growth to boost consumer spending and business revenue, which, in turn, will help support even more job growth in the future. In other words, the growth in the economy is self-sustaining and should remain that way until monetary policy gets tight, which is at least a few years away. On the inflation front, the prices paid index dropped to a still elevated 57.7 in August from 60.9 in July. No sign of runaway inflation, but given loose monetary policy, we expect this measure to either stay elevated or move upward over the coming year. Once again, we have a report showing the Plow Horse economy may be starting to trot. In other recent news, Americans bought cars at a 17.5 million annual rate in August, much higher than the consensus expected and the fastest pace since January 2006. Sales were up 6.4% versus July and up 10% from a year ago. These figures suggest a strong rebound in retail sales in August after no change in July.
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" ISM Non-Manufacturing Index Increased to 59.6"
The economy seems to do best in the contrived measurements. How many people don't work in America, how many people don't work full time (hundreds of millions), how many even know or remember what full time, private sector employment is anymore?
0.0: That is the manufacturing and non-manufacturing index level today combined for all the companies that never started over the last 8 years since Pelosi-Obama-Reid took power.
" the Plow Horse economy may be starting to trot"
Last time Wesbury said that, we were headed into negative growth territory with an economy too weak to withstand winter. No mention that it is still the worst economic recovery in 80 years, perhaps more. I think Wesbury is conflating market success with overall economic performance, which is stuck in an intentional, no-growth pattern of stagnation. Plow horses don't trot, especially when pulling a heavy load.
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Another view on the performance of the US economy by Democrat Lawrence Summers:
http://www.washingtonpost.com/opinions/lawrence-summers-supply-issues-could-hamper-the-us-economy/2014/09/07/274ce00c-352f-11e4-9e92-0899b306bbea_story.html
The U.S. economy continues to operate way below estimates of its potential that were made prior to the onset of financial crisis in 2007, with a shortfall of gross domestic product now in excess of $1.5 trillion — or $20,000 per family of four. Just as disturbing, an average economic growth rate of less than 2 percent since that time has caused output to fall further and further below those estimates of potential. Almost a year ago, I invoked the concept of “secular stagnation” in response to the observation that, five years after the financial hemorrhaging had been stanched, the business cycle was not returning to what had been previously thought of as normal levels of output.
"...weak growth along with significant decreases in labor slack suggest a major slowing of the growth of potential output."
Lawrence Summers is a professor at and past president of Harvard University. He was treasury secretary from 1999 to 2001 and economic adviser to President Obama from 2009 through 2010.
(http://www.cbo.gov/sites/default/files/cbofiles/images/pubs-images/45xxx/45150-land-figure1.png)
http://www.cbo.gov/publication/45150
(I will posting the policy part of this that follows on the Political Economics thread.)
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Why Do Stocks Keep Rising? To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/8/2014
So far this year, the S&P 500, including dividends, has returned 10.1% to investors. The NASDAQ, including dividends, is up 10.7%.
This has happened even though the Federal Reserve has tapered bond purchases from $85 billion per month, to the current $25 billion. And everyone knows, QE will fall to $15 billion after September 17th and zero after the Fed’s meeting in late October.
The market is up in spite of Vladimir Putin invading Ukraine, the rise and rapid spread of ISIS in Iraq and Syria, and even volcanoes in Iceland. It’s up even though Ebola is spreading in Africa, upcoming Congressional elections in the US, and some members of the Fed publicly vocalizing about the need to raise interest rates sooner than next year.
The stock market is up even though some previously bullish analysts have turned skeptical or even bearish. It’s up even though it had a little hiccup back in July and even though the 5-year Treasury yield is up 100 basis points since early 2013.
This continues a trend that started sixty-six months ago on March 9, 2009. Since then, the S&P 500 is up at annualized average of 24% (including dividends). And the things the market has worried about in the past year don’t hold a candle to the fears stirred up over those previous five years.
During those five years, pundits on many business TV shows, after hearing that we thought stocks could go even higher and that the economy would keep growing, always asked “yeah, but what about ______”?
You can fill in the blank with a hundred things…they certainly did…the Sequester, Greece, Dubai, Cypress, the Fiscal Cliff (twice), part-time jobs, and on and on. This incessant pessimism, the constant belief that things were bound to go wrong seems almost surreal. How can somebody stay negative for so long, but convince themselves that they are always right?
Maybe this is why CNBC viewership is falling. According to Zap2it.com, it’s fallen to a 2-year low (click here).
It’s important to remember that many people watch business TV at work and ratings services do not do a good job of capturing this viewership. Nonetheless, if these data capture any type of decline at all, it’s a real shame.
The 21st century is an amazing period of entrepreneurial activity. Fracking, 3-D printing, robotics, biotech advances, the Cloud, wireless communication technologies, smartphones, tablets, and apps are just a few of the areas of massive advancement.
The business world is vibrant, productive and massively efficient. One broad measure of profits has grown 20% at an annual average rate between Q4-2008 and Q2-2014. How come TV can’t capture that vibrancy in a way that attracts more viewers?
The good news is that TV does not drive stock prices, profits do. Rising profits prove that resources are being utilized more efficiently and when resources are used more efficiently, they become more valuable.
One problem the pessimists have is that they look back at 2008 and see a failure of markets and the success of government. But TARP and QE never saved the economy. Stock markets fell an additional 40% after TARP was passed. But once mark-to-market accounting rules were changed in March/April 2009, the crisis ended and a recovery began. That recovery has been real, not a “sugar high,” built on government action.
It may not have been the strongest recovery ever, but in those areas driven by, or that utilize, new technology, it has certainly been profitable.
That’s why stocks keep rising in spite of all the negative news that circulates. Understanding profits is the key to understanding why stocks keep rising.
________________________________________
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Eloquent, as usual. A little smug about being right the last 60 months or so, after missing the last crash.
Who was right or wrong during the run up is not the same question as who is right today.
What do we know happens after a long run up in stock prices?
a. It will go up further
or
b. It will come to a screeching and painful halt and decline.
Quoting BW: ""Stock markets fell an additional 40% after TARP was passed [in 2008]." - He is making a different point but what was his prediction then? 40% further crash? That is an awful lot of lost value[tens of trillions?] to have missed so recently to be smug about anything now (IMHO). I predict the market now will do either a. or b. above, go up or go down. I would not base optimism on this column because I believe he is cherry picking his facts. Other facts are not so positive. For example, what about the dearth of startups?
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http://www.marketwatch.com/story/the-american-family-makes-200-more-a-year-than-it-did-in-1989-2014-09-05
Don't spend that 200 bucks all in one place.
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http://www.marketwatch.com/story/the-american-family-makes-200-more-a-year-than-it-did-in-1989-2014-09-05
Don't spend that 200 bucks all in one place.
1989 happened to be the end of the Reagan era, followed by endless, no-new-taxes tax increases, beginning in 1990.
That said, there are many problems with this type of analysis.
a. Median family size is shrinking, so that measurement isn't particularly useful.
b. Tracking "the share of wealth owned by the top 3% of American families" over such an extended period doesn't show the mobility in and out of that group.
c. We don't count most of the income received at the lower end of the scale.
d. Every time an illegal or anyone else walks into this economy with nothing, the median goes down even if no one else's income or wealth has changed.
Far more enlightening IMHO are the analyses that take specific groups from specific points in time and then track their income and wealth mobility going forward.
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Economists See Overseas Risks as Growth Wild Card
WSJ Survey Shows Optimism on U.S. Economy, but Not So Much for Rest of World
By Nick Timiraos
WSJ
Sept. 11, 2014 12:08 p.m. ET
After an uneven first half of the year, most economists are relatively sanguine about the U.S. economy's growth outlook. It's the rest of the world that's a concern, according to The Wall Street Journal's monthly forecasting survey.
More than 90% of the 48 surveyed economists—not all of whom answered every question—said they expect the U.S. economy to improve relative to the first half of 2014. None see the economic outlook deteriorating. The survey was conducted after last Friday's weaker-than-expected August jobs report.
The brighter outlook for the U.S., coming as the Federal Reserve gets set to end its bond-buying stimulus program next month and amid generally improving economic data, stands in contrast to economists' views toward other large economies.
Just one-third said their outlook for the eurozone had improved, roughly balanced with the share seeing a worse outlook for the currency union. One-quarter of economists said their outlook for China improved, while almost 40% said it had deteriorated slightly. About 40% said their outlook for Japan had improved, compared with 12% that said it had deteriorated.
"The U.S. cycle is well ahead" of Europe and Japan, said Joseph Carson, an economist at Alliance Bernstein. "We've taken the hits and restructured. The household sector has deleveraged, and the financial sector has re-liquefied. You've seen little progress in Europe."
The U.S. is also better off because of increasing domestic oil production and the potential for new industries to grow on the back of that cheaper energy supply, Mr. Carson said.
Indeed, a majority of economists don't believe global oil prices will change over the next six months as a result of turmoil in the Middle East. One-third said the instability might lead to a slight increase in oil prices.
Economists cited the situation in Ukraine as the largest threat to global growth, followed by monetary missteps by central bankers and structurally high unemployment.
James F. Smith, chief economist at Parsec Financial, is pessimistic about the threat of economic warfare between Russia and Europe over the unrest in Ukraine, including the prospect of a European banking crisis from a Russian debt default. He also worries about the implications of Japan's growing trade deficit. Still, compared with the August survey, the latest consensus outlook for economic growth, unemployment and inflation for 2014 and 2015 was little changed.
The economists see gross domestic product, the broadest measure of goods and services produced across the economy, advancing at a 3% annual pace this quarter and next. Just three economists expected growth to exceed 3.7% in the third or fourth quarters, and only two see growth falling below 2%. The economy expanded at a 4.2% pace in the second quarter after contracting 2.1% in the first quarter, according to the Commerce Department. Forecasters in the Journal survey expect the U.S. economy to grow at a 2.8% annual pace in 2015, down slightly from last month's forecast of 2.9% annual growth.
Economists saying there is more upside to their near-term forecast outnumber those who say there is more downside by nearly 2 to 1. Economists cited stronger consumer spending and faster capital investment by businesses as their top upside surprises, while they flagged geopolitical risks, Europe's economy, and the soft U.S. housing market as their biggest concerns.
Nearly half of economists believe that the 10-year Treasury yield will end the year at or under 2.76%, compared with the median forecast of 3% in the August survey.
Most economists don't expect the Fed to raise short-term interest rates from near zero before June 2015, and the number of economists who believe the Fed will move early next year declined since the August survey.
Messrs. Carson and Smith say they believe better hiring and growth in the U.S. could force the Fed to raise rates during the first quarter of 2015. Despite the turmoil abroad, the U.S. has seen little impact so far, Mr. Carson said. Stock prices and durable-goods orders have advanced, while oil prices have declined.
Others believe overseas risks will provide further reasons for policy makers to tread carefully. "If the Fed moves too quickly to raise rates, we risk leveling the forest rather than just trimming the overgrowth," said Diane Swonk, chief economist at Mesirow Financial. The turmoil abroad only makes the central bank's task "much more precarious," she said.
The Fed would rather move too slowly than too quickly, "given the lack of safety nets if we were to stumble into a recession," Ms. Swonk said.
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...
More than 90% of the 48 surveyed economists—not all of whom answered every question—said they expect the U.S. economy to improve relative to the first half of 2014. None see the economic outlook deteriorating. ...
The optimism is impressive! But stated occasionally in the climate change context, a poll of scientists (who all agree with each other) is not science. This looks more like a study of how 'scientists' let the views of their peers influence their work.
I judge economists by how well they can explain the past and present, not by how well they foresee the future, which none can do reliably or accurately.
"... only two (of 48) see growth falling below 2%."
Not mentioned, but how many of these 48 economists predicted a contraction greater than 2% for last winter? None, I'm sure.
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Retail Sales Increased 0.6% in August To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/12/2014
Retail sales increased 0.6% in August, matching consensus expectations, but were up 1.0% including revisions to prior months. Sales are up 5.0% versus a year ago.
Sales excluding autos increased 0.3% in August, matching consensus expectations, but were up 0.6% including revisions to prior months. These sales are up 4.1% in the past year.
The increase in sales in August was led by autos and building materials. The weakest category was gas.
Sales excluding autos, building materials, and gas were up 0.4% in August. If unchanged in September, these sales will be up at a 4.7% annual rate in Q3 versus the Q2 average.
Implications: A very solid report out of the retail sector today. Retail sales rose 0.6% in August, increasing for the seventh consecutive month, and rising by the most in four months. Sales continue to grow at a healthy clip from a year ago, up 5%. Moreover, the “mix” of retail sales was even better news than the headline, as gas station sales dropped 0.8% due to lower gas prices. Gas prices are also down 0.8% from a year ago. The widespread use of fracking and horizontal drilling is making this possible, which means consumers can take the money they save on filling their tanks and spend it on other things. “Core” sales, which exclude autos, building materials and gas, increased 0.4% in August and 0.8% including upward revisions to June and July. “Core” sales have now been positive in eleven of the last twelve months. These sales are a key input into GDP calculations and, if unchanged in September, the sales will grow 4.7% at an annual rate in Q3 versus Q2. Once we include other spending (on services and durables), our expectation is that “real” (inflation-adjusted) consumer spending, goods and services combined, will grow at a 2% annual rate in Q3. We expect consumer spending to accelerate in the year ahead, as lower unemployment means an acceleration in income gains at the same time that consumer debt service is hovering near multiple-decade lows. In other news this morning, no consistent sign yet of inflation in trade prices. Import prices fell 0.9% in August, although they declined only 0.1% excluding oil. Export prices slipped 0.5% in August and declined 0.3% excluding agriculture. In the past year, import prices are down 0.4% while export prices are up 0.4%. In other recent news, new claims for unemployment insurance increased 11,000 last week to 315,000. Continuing claims rose 9,000 to 2.50 million. These figures are consistent with our early forecast that payrolls are growing roughly 200,000 in September.
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Personal income increased 0.3% in August To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Deputy Chief Economist
Date: 9/29/2014
Personal income increased 0.3% in August (+0.4% including revisions to prior months). The consensus expected a 0.3% gain. Personal consumption rose 0.5% in August (+0.7% including revisions to prior months), beating the consensus expected gain of 0.4%. Personal income is up 4.3% in the past year, while spending is up 4.1%.
Disposable personal income (income after taxes) increased 0.3% in August and is up 4.2% from a year ago. The gain in August was led by wages & salaries in the private service sector, rent, and Medicaid, which offset a large decline in farm income.
The overall PCE deflator (consumer prices) was unchanged in August but is up 1.5% versus a year ago. The “core” PCE deflator, which excludes food and energy, rose 0.1% in August and is also up 1.5% in the past year.
After adjusting for inflation, “real” consumption rose 0.5% in August (+0.7% including revisions to prior months) and is up 2.6% from a year ago.
Implications: A solid report on consumer spending and income today. Consumption rose 0.5% in August and was revised up for prior months. This shouldn’t be a surprise; payrolls are up about 2.5 million in the past year. Don’t let anyone tell you this is all unsustainable. Total income – which also includes rents, small business income, dividends, interest, and government transfer payments – increased 0.3% in August, was revised up for prior months, and is up 4.3% from a year ago. This is slightly faster than the 4.1% increase in consumer spending in the past year. In other words, incomes lead spending and the US is not experiencing a credit-created increase in consumption. One overlooked part of this economic report is the massive growth in government redistribution. Medicaid, for example, is up 12.5% versus a year ago, largely due to Obamacare. Overall government transfer payments – like Medicare, Medicaid, Social Security, disability, welfare, food stamps, and unemployment compensation – are a very large share of income. Before the Panic of 2008, these transfers were roughly 14% of income. In early 2010, they peaked at 18%. Now they are 17%. Redistribution hurts growth because it reallocates scarce resources away from productive ventures. Keynesians try to say government spending is necessary to boost the economy in a recession, but this is certainly not the case anymore. Private sector jobs have expanded for 54 consecutive months and private-sector wages & salaries are up 5.8% from a year ago, which is faster than the 5.3% gain in government transfers. We expect both income and spending to accelerate in the year ahead as jobs and wages continue to grow. In addition, consumers’ financial obligations are hovering at the smallest share of income since the early 1980s. (Financial obligations are money used to pay mortgages, rent, car loans/leases, as well as debt service on credit cards and other loans.) On the inflation front, the Federal Reserve’s favorite measure, the personal consumption price index, was unchanged in August and is up only 1.5% from a year ago. Given loose monetary policy, by the middle of next year, the Fed is going to struggle to keep inflation down at 2%. That’s part of the reason we expect short-term rates to move up in the first half of 2015.
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248,000 Jobs Added in September
The U.S. economy added 248,000 jobs in September, and the headline unemployment rate fell to 5.9%. The real story is that 315,000 people left the workforce, and labor force participation ticked down again to 62.7%, remaining at levels not seen since the Carter-era recession. That's why the unemployment rate is falling. The U-6 unemployment rate, a better measure, sits at 11.8%. That said, the report contains some good news: The August report was revised up from 142,000 jobs created to 180,000, and CNBC notes, "The job creation [in September] was tilted heavily towards full-time positions, which surged by 671,000. Part-time jobs actually fell by 384,000." Furthermore, writes National Review's Patrick Brennan, "248,000 jobs in September is still not as fast as we’d like a recovery to be, but it’s noticeably more jobs than need to be created to keep up with population growth, and the past eight months have been a faster average period of job creation than any comparable time during this recovery." The American economy is resilient enough even to face the headwinds of Barack Obama's "recovery."
Are We Better Off Than Six Years Ago?
"t is indisputable that our economy is stronger today than it was when I took office," Barack Obama said in a speech Thursday, echoing his comments in his "60 Minutes" interview last weekend. Of course, that's an awfully low bar, isn't it? And, as the American Enterprise Institute's James Pethokoukis notes, we haven't exactly been going gangbusters. "But consider," says Pethokoukis, "(a) the economy has been unable to consistently grow at more than 2% throughout this expansion; (b) trend GDP remains below its prerecession path; (c) the share of adults with any kind of job remains well below pre-recession levels; (d) there are just 1.2 million more private jobs today than January 2008 despite 15.6 million more adults; (e) wage growth remains weak; (f) the megabanks are even bigger, (g) the pace of startups is lackluster; (h) median household income, as measured by the Census Bureau, was 8 percent lower last year than in 2007." A few more stats: The poverty rate is up, even though government subsistence is at a record high, and homeownership is down almost 3%. Consumer confidence took a steep drop from 93.4% in August to 86% in September. Obama admitted the American people "don't yet feel enough of the benefits." No kidding. His solution? To raise the minimum wage (which will kill more jobs) and to spend more on infrastructure. Where have we heard that before? Finally, Obama noted, "Make no mistake: [My] policies are on the ballot. Every single one of them." He got that right.
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http://www.telegram.com/article/20140709/COLUMN70/307099992/0
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http://www.telegram.com/article/20140709/COLUMN70/307099992/0
He may be the best President of the last 90 years for something he has not done:
"It is too early to tell whether the third phase will let Mr. Obama leave office with economic growth exceeding 4 percent, at least 300,000 new jobs a month being created, and an unemployment rate below 4 percent. But if that happens — and the stock market does not implode — Mr. Obama will go down in history as the best president the U.S. economy has seen in 90 years."
In fact he presided over the tanking of the workforce participation rate to a level not seen since before women widely entered the workforce. It is an economy that employs men at the lowest rate ever recorded. What these twisted economic stats are telling us is just how twisted our economic stats are.
We are "adding" jobs beneath breakeven levels. The jobs we are losing are full time and the jobs we are adding are part time. Mostly though, fewer and fewer are choosing to work, now that it is optional and the rewards of work and starting businesses have been largely removed.
By their math, when this economy hits zero jobs with zero workers remaining, the unemployment rate will be at its lowest ever!
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If you can get past all the darn popups and other ads from Forbes which I say I no longer normally read:
http://www.forbes.com/sites/adamhartung/2014/09/05/obama-outperforms-reagan-on-jobs-growth-and-investing/
Anyone care to argue the middle class are not being screwed over by the Democrats who rob them to pay for votes to a good portion of the population and those who are making out like kings who not only have made fortunes from bail out money indebting us for generations, but continue to have the gall to call for mass immigration to replace us with foreign workers who will work for less. Think it doesn't drive down wages?
Most of the hard working Americans are sold out by both sides.
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Monday Morning Outlook
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Timing The Market Doesn't Work To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 10/13/2014
The stock market doesn’t owe anything to anyone. If you missed the bottom in 2009, no one owes you another chance to get in when stocks are that cheap. We may never see such historic lows again.
And even if markets did give us another chance, most investors would probably miss it all over again because they would be in such a panic – just like in 2009. Breathless, breaking-news would provide so much instantaneous, and conflicting, analysis of technical indicators, like “support levels,” “trading-volume,” “200-day moving averages,” and “new highs and lows” that investors wouldn’t be able to act with any confidence.
Fundamental analysts would talk of a “downward spiral in the wealth effect,” “a new normal,” “peak earnings,” “political gridlock,” or, “Fed inaction.” With this back-drop investors would expect even more declines.
But, even after the events of recent weeks, an investor that bought the S&P 500 on December 1, 2007, and held, would have made 6% per year (including dividends) through today. More recently, even after another 1.5% drop last Friday, the S&P 500 was 12.6% above its level of a year ago (14.9%, with dividends). How many people think of 2007, or last October, as a buying opportunity?
Believe it or not, we would argue that today is what a buying opportunity looks like. When stocks were rising just a few months ago, lots of investors were upset they hadn’t gone “long” in 2013. Now, with markets falling, and equity prices hovering near those same levels, they hesitate to buy.
Think about all the reasons for the market drop. One fear is a slowdown in Europe. But Europe has been a very sickly plow horse for several years, so much so that many serious economists were proposing a break-up of the Euro.
We’re not forecasting an economic boom in Europe, but with money easy, a collapse is not in the cards either. More like a slow motion continuation of very weak real growth as Euro-sclerosis continues.
Another fear is a slowdown in China. But goods exports to China are only 0.7% of US GDP, about half of what we export to Mexico, and if China gets in trouble our imports from China will cost less. When China is importing much more from the US, a slowdown there will be more significant. But for now, the concern is overdone.
Yet another fear is that “Abe-nomics” isn’t working in Japan. For the record, it won’t work. Free-markets, not government, save economies. Japan has been in decline for the past two decades, but the US has still grown. In other words, it’s nothing new.
The strangest fear is that a strong US dollar will hurt the market. But a strong dollar in the 1980s and 1990s coincided with a bull market, not a bust. King Dollar is good for investors.
We are not saying equities will go up today, or tomorrow, or even this week. Heck, for all we know the long-awaited correction may finally be upon us.
But, the Fed is not tight, trade protectionism is not in the wind, tax rates are not headed higher, and big government is checked by divided government. Profits are still rising, the US economy is accelerating, and our models show that equities are still cheap. It may not be the “mother of all buying opportunities,” but it ain’t the end of equities, either.
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Wesbury says market timing doesn't work yet he picks a market low starting point or a market high ending point or both to show performance.
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Wesbury has picked 12 of the last 0 recoveries.
So he has that going for him.
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Ummm , , , sorry but Wesbury has been decisively kicking the collective ass of this board when it comes to predicting the market, and inflation.
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Markets go up and down, hopefully more up than down. He is right when they are up and wrong when they go down. For the right reasons? I say no. Entrenched companies did well under crony government and did well mostly outside our borders.
If WE believe real unemployment is still nearly double digit, 9.6% best case by any consistent measure, then he has been wrong for 6 years about ECONOMIC recovery.
The main question always is, What next?
If a 5 year rise built partly upon a house of cards, QE, won't ever come down, then he is right about the market - for the wrong reasons.
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As always, "Profit or prophet-ize?"
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As always, "Profit or prophet-ize?"
Fair enough. Wesbury's point now is buy stocks now, after 5 years up and under political economic policies he and we think are harmful to investments. We will see.
It's only theoretical to me. I lost my stocks money not last time he was wrong but the time before that.
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http://www.mybudget360.com/not-in-the-labor-force-transfer-payments-one-third-supporting-population/
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Better Policies on the Horizon To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Senior Economist
Date: 10/27/2014
Some say we have a Plow Horse Economy because economic growth is always slow after a financial crisis. But the real reason is that politicians from both major parties keep throwing more government “solutions” at problems. This started well before President Obama took office.
The Bush Administration, and a spend-friendly Congress, pushed temporary “stimulus” spending in 2001 and then followed Larry Summers’ Keynesian advice in early 2008 and passed tax credits and even more stimulus. President Bush said, “I’ve abandoned free market principles to save the free market system” in an explanation of TARP. Then, we got more “stimulus” in 2009. Don’t forget quantitative easing, either.
We believe this is the reason real GDP growth during the current recovery, averaging 2.2% per year, is the slowest five-year period of growth without a recession in the last 100 years.
What’s interesting is that we can divide this economy into two parts – a “Race Horse” exists in many sectors, like fracking, and high-tech; like 3-D printing, the cloud, smartphones and apps. Government did not drive these processes and new techniques; free markets did.
But, where government interfered in the most overt ways – in labor markets and in housing – the recovery has been much slower. And government is using the “Amazon Model” of spend to grow in alternative energy production, hoping that losses today equal benefits tomorrow. This may be true, but at least Amazon is spending its own money and the stock market votes every day on whether it is a good idea or not.
To some, what we have just written sounds overly political. But we are actually thinking economically. We believe in small government because smaller government creates a more dynamic private sector with higher standards of living.
And, judging by the evidence, the American people are beginning to shift toward this view again. A recent Politico poll, weighted equally between Republicans and Democrats, showed 64% think things in the US feel “out of control.” Other polls show both the President and Congress with extremely low popularity right now.
It’s a 1970s vibe! Many Americans worry their kids will be worse off. They fret about ISIS and Ebola. Most Democrat candidates are allergic to President Obama showing up in their states or districts. The same was true back in 2006 when Republicans distanced themselves from President Bush.
Obviously, problems often stretch out longer than we think they should. But, it seems clear Americans are ready for a change, and when this happens, politicians start moving that way even if they don’t have strong ideologies. As an example, some are campaigning as “Clinton Democrats” these days – meaning that tax cuts and more moderate, even free market, policies aren’t off the table.
We aren’t projecting another Ronald Reagan. But a shift away from supporting “government solutions” to all problems seems more likely these days.
Next weeks’ mid-term elections are the first step, but major changes won’t take place until after the 2016 presidential election. Already there is more centrism on economics.
Years of sluggish growth have weakened the “status quo” faction inside the GOP. No wonder two of the GOP’s toughest Senate races this year are in Kentucky and Kansas where long-term incumbent Senators seem out of touch. And for Democrats, the burden of majority means they have to defend more incumbents – a tough road to hoe in a 1970s-like environment.
What this means is that a Republican president in 2016 would likely use special budget procedures to reform Medicare and Medicaid in addition to improving the tax system for both companies and individuals. But, right now a Democrat president looks more probable. And in 2017-18, with the recovery aging, she would likely support moves to reform the corporate tax code, plus reforming Obamacare with market-friendly changes like health savings accounts.
In other words, the next president is likely to be more market friendly than the current one. The American people won’t have it any other way. Look for evidence of this shift as the results of the mid-term elections pour in next week.
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The First Estimate for Q3 Real GDP growth is 3.5% at an Annual Rate To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Senior Economist
Date: 10/30/2014
The first estimate for Q3 real GDP growth is 3.5% at an annual rate, beating the 3.0% the consensus expected. Real GDP is up 2.3% from a year ago.
The largest positive contributions to the Q3 real GDP growth rate were net exports, consumer spending, and government purchases. The only drag was inventories.
Personal consumption, business investment, and home building were all positive in Q3, growing at a combined rate of 2.3% annualized. Combined, they are up 2.8% in the past year and up at a 2.8% annual rate in the past two years.
The GDP price index increased at a 1.3% annual rate in Q3. Nominal GDP – real GDP plus inflation – rose at a 4.9% rate in Q3 and is up 3.9% from a year ago and up at a 3.8% annual rate from two years ago.
Implications: Real GDP surprised to the upside in Q3, growing at a 3.5% annual rate. The best news in the report was that real business investment (excluding inventories) grew at a 5.5% annual rate in Q3 and is up 6.7% from a year ago. Some pessimistic analysts will surely point out that the trend in real GDP growth is still tepid, up 2.3% from a year ago and up at that very same 2.3% rate in the past two years. These data are accurate, of course, which is why we’ve been calling the economy a plow horse. But even a plow horse will sometimes pick up his pace. Arguing against this view are those who say government spending boosted growth in Q3. Yet, even without government spending, Q3 real GDP grew 3.3%, and if we exclude government, trade, and inventories, real GDP is up 2.8% annually in past 2 years. And that’s roughly what we think the underlying trend is for the economy as a whole. In other words, a slight improvement from the 2.3% pace many have become used to. Monetary policy is loose and will remain that way even as the Fed eventually starts lifting short-term rates. Federal spending has declined to 20% of GDP versus 24% of GDP five years ago. Corporate profits are at a record high. All of these factors signal better economic growth ahead. Meanwhile, today’s report continues to show that the Fed should start raising rates earlier than the market now expects. Nominal GDP (real GDP plus inflation) increased at a 4.9% rate in Q3 and is up at a 3.8% annual rate in the past two years. For comparison, nominal GDP is up at a 3.6% rate in the past decade. A short-term interest rate of essentially zero is too low given current economic conditions. Regardless, we expect the Fed to wait until the second quarter of next year to start lifting rates. In other news this morning, new claims for unemployment insurance increased 3,000 last week to 287,000. The four-week moving average is 281,000, the lowest since May 2000. Continuing claims for regular state benefits rose 29,000 to 2.38 million. It’s still early, but plugging these data into our models suggests October payrolls will be up about 240,000, another solid month.
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It's funny that the first estimate would come out so high just before an election. Meanwhile, 80% believe the administration would lie to them about something important.
Even if true, that is a quarterly growth rate that was surpassed during 27 of the 32 quarters under Reagan. (Source: The Economy in the Reagan Years: The Economic Consequences of the Reagan Administrations, By Anthony S. Campagna)
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Gas prices are falling and it looks like the Reps are going to take the Senate.
Both of these developments are very pleasing to the market and business confidence.
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QE: It Didn't Work To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Senior Economist
Date: 11/3/2014
Conventional Wisdom says that greedy, crazy, speculative, bankers almost destroyed the world back in 2008 and the government saved it with TARP and QE. Many analysts believe QE has kept the US from lurching back into recession. Some even think QE means hyperinflation is on the way.
But the data don’t support any of this. QE started in September 2008, while TARP was passed a month later. But between October 2008 and March 2009, the S&P 500 fell an additional 40%, while the recession only got worse. Inflation never took off and nominal GDP growth has remained subdued.
By contrast, our minority view is that the crisis was never as bad as many think; that mark-to-market accounting turned a large, but not economy-killing, problem, into a Panic. Supporting our case is that the equity market, and the economy, bottomed when mark-to-market accounting was fixed in March/April 2009. In other words, this is not a “sugar high” driven by monetary stimulus.
Only history can prove which one of these views is correct. But, now that the Fed has tapered, we have some real evidence to digest. The Fed has reduced its monthly purchases from $85 billion per month to zero. Yet, instead of a calamity, U.S. real GDP grew at a 4.6% annual rate in Q2 and a 3.5% rate in Q3. The unemployment rate has dropped to 5.9% from 7.2% a year ago (with a big assist from ending extended benefits). The S&P 500 closed at a record high on Friday. And, the yield on the 10-year Treasury is lower today than it was in December 2013.
In other words, it looks like ending QE3 made the economy stronger, not weaker. Intellectually speaking, those who believe that QE was driving economic activity have a problem.
Remarkably, many analysts who claim to believe in free markets support the conventional wisdom. They give credit to government or the Fed for driving growth, when in fact it has been government that has held growth back.
We believe new technology (like fracking, the cloud, 3-D printing, apps,…etc.) has driven profits higher. The stock market is up because it represents the returns from investment by the private sector in these new technologies.
Meanwhile, government spending, regulation, and tax hikes have held the broader economy back – to a tepid 2.3% annual real GDP growth rate since the recovery started in mid-2009. The economic drag from forced redistribution and a large misallocation of credit are holding back overall growth.
As QE ends, this misallocation of credit is diminishing and the private sector is expanding. It’s time for investors to focus even more on what’s been driving equities higher the past five years: the power of entrepreneurship, not QE.
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QE: It Didn't Work
Brian S. Wesbury, 11/3/2014
"Conventional Wisdom says that greedy, crazy, speculative, bankers almost destroyed the world back in 2008 and the government saved it with TARP and QE. Many analysts believe QE has kept the US from lurching back into recession. Some even think QE means hyperinflation is on the way."
- I think the view around here is that government bungled its regulatory role and government became a participant in the market, greatly skewing and screwing up all kinds of things. This had nothing to do with free markets (or greed) running wild.
...QE started in September 2008, while TARP was passed a month later. But between October 2008 and March 2009, the S&P 500 fell an additional 40%, while the recession only got worse. Inflation never took off and nominal GDP growth has remained subdued.
- The market fell another 40% with QE + TARP, but we don't know how far it would have fallen without QE+TARP. Wrong solution for the wrong problem.
By contrast, our minority view is that the crisis was never as bad as many think; that mark-to-market accounting turned a large, but not economy-killing, problem, into a Panic. Supporting our case is that the equity market, and the economy, bottomed when mark-to-market accounting was fixed in March/April 2009. In other words, this is not a “sugar high” driven by monetary stimulus.
- I'm not sure how much of the market rise to date is a sugar high driven by monetary stimulus. Good point on mark to market, but this was not the only error government made controlling the housing and financial markets.
Only history can prove which one of these views is correct.
- Don't hold your breath. History is still arguing over the Great Depression and the failed remedies.
But, now that the Fed has tapered, we have some real evidence to digest. The Fed has reduced its monthly purchases from $85 billion per month to zero. Yet, instead of a calamity, U.S. real GDP grew at a 4.6% annual rate in Q2 and a 3.5% rate in Q3. The unemployment rate has dropped to 5.9% from 7.2% a year ago (with a big assist from ending extended benefits). The S&P 500 closed at a record high on Friday. And, the yield on the 10-year Treasury is lower today than it was in December 2013. In other words, it looks like ending QE3 made the economy stronger, not weaker. Intellectually speaking, those who believe that QE was driving economic activity have a problem.
- This part at least does not address the question of whether equity values were run up by QE. We know there is a disconnect between equities market GDP growth.
Remarkably, many analysts who claim to believe in free markets support the conventional wisdom. They give credit to government or the Fed for driving growth, when in fact it has been government that has held growth back.
- I think they believe it is driving false growth, an illusion of growth.
We believe new technology (like fracking, the cloud, 3-D printing, apps,…etc.) has driven profits higher. The stock market is up because it represents the returns from investment by the private sector in these new technologies.
- Margin levels and PE's are at or near record highs, no?
Meanwhile, government spending, regulation, and tax hikes have held the broader economy back – to a tepid 2.3% annual real GDP growth rate since the recovery started in mid-2009.
- I believe that is growth below the break-even rate. False growth. Stagnancy.
The economic drag from forced redistribution and a large misallocation of credit are holding back overall growth.
As QE ends, this misallocation of credit is diminishing...
- Agreed.
and the private sector is expanding.
- Huh? Because the Obama administration released a preliminary number, 3.5%, just before an election?
It’s time for investors to focus even more on what’s been driving equities higher the past five years: the power of entrepreneurship, not QE.
- The factors that support new entrepreneurial growth are still all pointing downward. Even tomorrow's election can't change that.
If one starts with a simple assumption that MV=PQ. We know the output Q of the economy has been flat. We know the price level P has been reasonably flat. Conclude that The Fed pumped additional money M into the economy (trillions) at a rate roughly offsetting the rate that velocity of economic activity has decreased. Wrong problem masked by the wrong solution. But yes, "tapering" it to zero is good thing, long overdue.
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Good discussion on the merits.
Some additional points:
1) The market looks forward. It tanked when McCain got passed in the polls by Obama. It hits new highs when it looks like the Reps will control both houses. Coincidence?
2) Many of the big gainers are international and have their profits made (and often staying) overseas;
3) Unemployment rate dropped when Reps insisted on shortening the 99 week "emergency" extension of unemployment-- much to the hysteria of Baraq and friends;
4) Deficit dropped sharply due to The Sequester-- again to Cassandran wailings of doom from Baraq and friends.
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All good points. Regarding McCain/Obama, it's true but I don't think the it was necessarily Republican vs Democrat. More the fact that a very specific tax increase was coming, on these gains, on these stocks, in that time frame. The Obama Presidency meant the presumed certainty that the 'Bush tax cuts on the wealthy' would expire. Even if you didn't need to take your profit, you knew that everyone else did and would be selling. They could buy back in too with a delay, but people wouldn't during a mass sell off. Once the profits were gone, the ame impending tax hike the next time around (the first one got canceled) didn't have the same, immediate meaning to investors.
I'm not sure if the market cares too much about the current election. We will have divided government either way.
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Monday Morning Outlook
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Change Is In The Air To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/10/2014
While many flay away, trying to figure out the meaning of last week’s GOP wave election, it seems simple. The government has tried for more than five years to turn a Plow Horse economy into a Race Horse, and failed. Yes, the economy is growing and creating jobs, but living standards are growing slowly, or not at all, for many.
This doesn’t mean Republicans gave voters a reason to vote for them. There was no clear national agenda broadly accepted by GOP candidates going into the election.
Instead, the GOP capitalized on disappointment with President Obama, the economy, and a general feeling of malaise. Like the 1970s, a large expansion of the entitlement
state, higher tax rates, a patchwork quilt of crony capitalism, including subsidies for wind and solar power and electric cars has undermined growth. And no amount of Federal Reserve quantitative easing seems to help – banks are just piling up excess reserves.
What’s interesting is that voters seem to get what many opinion-leaders don’t get at all. There is an eerie agreement between many on the left and right that QE has had a big effect. The “left” – led by Paul Krugman – says QE (and other government spending) kept rates down, boosted stocks, increased consumer wealth and demand, and, therefore, economic growth. We just needed more of everything.
Meanwhile, many on the “right” say the only reason stocks are up is because of QE, but that somehow it only affected stocks and nothing else. They say this because they don’t want President Obama to get credit for anything.
We’re not sure which side is more twisted up in intellectual knots. If QE kept interest rates down, why did rates fall as the Fed tapered and then ended QE? And if QE is the main reason stocks are up, why hasn’t QE generated higher gold prices, a lower dollar, or broad-based inflation?
The bottom line is that neither Ben Bernanke nor Janet Yellen have ever fracked a well or burned the midnight oil writing apps. This recovery has not been about Washington, DC at all. It’s been about the Cloud, and 3D printing, and surging energy production, as well as, yes, a natural normal recovery in home building and auto production, which would have been even stronger if the federal government had just left those sectors alone.
That’s why profits are up and, in turn, profits are the key reason the stock market has been in a bull run. Meanwhile, those profits are helping generate the recovery we have, despite all the harmful policy gimmicks of the past decade.
In the end, the voters are looking for results and the only mechanism that will give them the extra growth they want is freer markets, including the freedom to fail.
Last week gave us two reasons to hope this policy shift is on the way. One is that many (but by no means all!) in the GOP are inclined to support freer markets and now their political hand is stronger. The other was the news Friday that the Supreme Court agreed to review a challenge to the health care law that asks whether Obamacare can only provide subsidies in states that run their own exchanges.
It’s hard to exaggerate the significance of this legal case. If the Court rules against the Obama Administration’s interpretation of the law – and we think it probably will – it would, in effect, free each state to decide whether it will be an Obamacare state or not as written. Without all the states involved, we doubt the law can survive. Those who support freer markets would be poised to move the health system in that direction.
None of this can be taken to the bank. Politicians, that supposedly support freer markets, have squandered the Reagan-Thatcher revolution – just look at 2005-06, when the GOP controlled every elected branch of government. But this time, the American public is running out of options. Freer markets are the only thing left to try. The stock market seems to understand this and is moving higher.
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Real GDP was Revised to a 3.9% Annual Growth Rate in Q3 To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/25/2014
Real GDP was revised to a 3.9% annual growth rate in Q3 from a prior estimate of 3.5%. The consensus had expected a revision to 3.3%.
Inventories, personal consumption, and business equipment investment were revised up, offsetting a downward revision in net exports.
The largest positive contributions to the real GDP growth rate in Q3 were personal consumption, net exports, and government purchases. The only component that was a drag on growth was inventories.
The GDP price index was revised higher to a 1.4% annual growth rate from a prior estimate of 1.3%. Nominal GDP growth – real GDP plus inflation – was revised up to a 5.3% annual rate from a prior estimate of 4.9%.
Implications: The bull market will continue to run. Forget the surprise upward revision to real GDP for a second. The best news in today’s report was that corporate profits grew at an 8.6% annual rate in Q3 and are at a new all-time record high. Ultimately, high profits are why equities are undervalued and today’s data supports further equity gains in the year ahead. The government’s measure of profits fell steeply in Q1, but the sharp rebound in the past couple of quarters suggests the drop was weather-related, just like the temporary drop in real GDP. The economy grew at a 3.9% annual rate in Q3, which is an improvement from the 3.5% rate reported a month ago. In the past year – which includes the weather-related problems in Q1 as well as the rebound – real GDP is up 2.4%. Real GDP is up at a 2.3% annual rate in the past two years, the same exact pace since the recovery started in mid-2009. However, we expect the pace of real GDP growth to pick up for the next couple of years. Nominal GDP (real growth plus inflation) was revised up to a 5.3% annual rate in Q3 from a prior estimate of 4.9%. Nominal GDP is up 4% from a year ago and up at a 3.9% annual rate in the past two years. These figures show the Fed’s target of essentially zero for short-term interest rates is too low and monetary policy is too loose. On the housing front, the national Case-Shiller index, which measures prices across the country, increased 0.7% in September and is up 4.8% from a year ago. The largest gains in the past year have been in Miami, Las Vegas, and San Francisco. The FHFA index, which focuses on homes financed with conforming mortgages, was unchanged in September but up 4.3% versus a year ago. In the year that ended in September 2013, the Case-Shiller was up 10.6% while the FHFA was up 8.3%. In other words, price gains have continued in the past year but at a slower pace. For the year ahead, prices will keep working their way higher but at an even slower pace, more like 3 – 4%. In other news this morning, the Richmond Fed index, a measure of mid-Atlantic manufacturing sentiment, fell to +4 in November from +20 in October. So factory activity is still expanding, just not as quickly.
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Oil - Just Another Price To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 12/1/2014
Don’t take this the wrong way: energy is important. Oil prices are important. But, we believeth those involved in economic punditry often bloweth them out of proportioneth.
Many, who previously fretted that higher oil prices meant economic doom, now say the sharp drop means an economic boom. We are happy to be paying less at the pump, but, from a macro-economic perspective, we don’t expect lower prices to generate a noticeable improvement in the overall economy.
There are four pillars of economic strength (or weakness) – monetary policy, tax policy, trade policy, and spending (or regulatory) policy. Right now, money is loose, tax rates will remain stable, trade policy is improving, and for the past few years, the leftward lurch in government spending and regulation has been gridlocked.
In other words, macro conditions in the US are no worse, and probably better, than they were a few years ago. Entrepreneurship is still flourishing. The US is riding a wave of technology – 3D printing, robotics, the Cloud, smartphones, tablets, apps, bio- and nano-technology – and horizontal drilling and hydraulic fracturing. Many prices are falling as these technologies boost productivity.
The only real mystery is why it took so long for oil prices to finally collapse. It’s not OPEC. The US uses roughly 19 million barrels of oil per day (bpd). Seven years ago US production was 8.5 million bpd; today, 14 million bpd, with energy independence in sight. OPEC is drowning under a gusher of tech-driven oil production.
Also, lower prices aren’t a tax cut any more than free mapping and direction-finder software, or a drought-resistant corn plant, is a tax cut. Lower oil prices, lower food prices, more efficient transportation, and better communication aren’t tax cuts per se, but instead are the fruits of entrepreneurship.
High oil prices stimulate drilling and more production, but squeeze consumers. Low prices slow drilling and production, but free up resources for consumers to spend on other things. It’s not a zero-sum game; it’s part of a process. Relative price changes cause a shift in resources, unlike a tax cut, which changes the incentives for labor and investment.
In other words, don’t look for an economic boom. The drop in oil prices is just a positive reinforcement to the growth engine that has been driving the US economy, and equity values higher, in recent years. It’s a Plow Horse and until a true change in policy kicks in, it will remain a Plow Horse. We need less government spending, less regulation, and lower tax rates to get a real economic boom.
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Nonfarm Productivity Increased at a 2.3% Annual Rate in the Third Quarter To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 12/3/2014
Nonfarm productivity (output per hour) increased at a 2.3% annual rate in the third quarter, revised up from last month’s estimate of 2.0%. Nonfarm productivity is up 1.0% versus last year.
Real (inflation-adjusted) compensation per hour in the nonfarm sector increased at a 0.2% annual rate in Q3 and is up 0.4% versus last year. Unit labor costs declined 1.0% in Q3 but are up 1.2% versus a year ago.
In the manufacturing sector, the Q3 growth rate for productivity (2.9%) was faster than among nonfarm businesses as a whole. The faster pace in productivity growth was due to a slower increase in hours in that sector. Real compensation per hour was up in the manufacturing sector (+0.5%), and unit labor costs declined at a 1.3% annual rate.
Implications: Already signaled by last week's upward revision in the growth rate for Q3 real GDP, today's data show that productivity growth was also revised from a modest 2% annualized growth to a more respectable 2.3%. We say respectable, because productivity has been relatively weak - up just 1% from a year ago following an anemic 0.7% gain the year before. So, while the most recent quarter was in line with history, the past few years have seen productivity improvements noticeably slower than the average gain of 2.3% since 1996. There are three points to make about this. First, there are measurable improvements in productivity. Second, one must remember that productivity is an "aggregate" number - it includes all output, from new-tech, high productivity 3D printing, and, the wasted time spent on filling out complicated tax and regulatory paperwork. In other words, don't blame the private sector for slow growth, blame government. And, third, productivity is probably underestimated in the high-tech arena, especially for services, because we don't know how to account for things like GPS road guidance, for example. Sectors of the economy that are easier to measure show more rapid productivity growth. On the manufacturing side, productivity rose at a 2.9% annual rate in Q3, and is up a more healthy 2.7% from a year ago. Manufacturers, due to new technologies, are still able to increase output faster than hours. Overall, for the rest of the year and into 2015-16, we look for faster productivity growth than in the past two years. In other news this morning, the ADP index, which measures private-sector payrolls, showed a gain of 208,000 in November. Our models now forecast a nonfarm gain of 219,000, with 210,000 in the private sector, although the forecast may change slightly tomorrow based on new data for unemployment claims.
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1) I give due credit to Wesbury and other bulls for calling the good stock market over these times. (Not for the reasons they give.)
2) There is such a disconnect between the US economy and the stock market that maybe they are separate topics...
3) Wesbury gets this right on two important counts:
"don't blame the private sector for slow growth, blame government"
This is slow growth, and this is government's fault. Growth could be, should be, 4-5% or more - consistently, under pro-growth policies.
4) Actual, real growth in per person consumption expenditures is up (only) 1.4% over the past year. Real GDP growth per person was up only 1.7%. Source: stlouisfed.org
This is pathetic and almost unprecedented stagnation for coming out of such a deep hole.
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Someone called into Mark Levin and wondered if the 5 million illegals who are now legal will be added to the unemployment rolls. Since I believe the vast majority who are not children are working Obama could claim he "added" a million or two new jobs to the rolls. That assumes these people will also admit to working.
The point is the unemployment numbers are all just smoke and mirrors. And this is one more example to prove it.
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ccp: "Someone called into Mark Levin and wondered if the 5 million illegals who are now legal will be added to the unemployment rolls. Since I believe the vast majority who are not children are working Obama could claim he "added" a million or two new jobs to the rolls. That assumes these people will also admit to working."
We have illegals working her in numbers greater that all the working class citizens looking for work. If we wanted to absorb new immigrants at a faster rate, we should combine that wish with policies that enhance the starting and growing of new businesses and jobs, instead of the opposite.
"The point is the unemployment numbers are all just smoke and mirrors. And this is one more example to prove it. "
Lead story yesterday on our local paper was just how great the employment situation now is. Twin Cities' unemployment is now back to 3.6%. No mention that the majority of adults in north Minneapolis are now permanently out of the workforce.
Meanwhile, the number of adults completely out of the workforce in America will hit 100 million by the end of the Obama administration. More adults have left the workforce than work full time in the private sector, 92M to 86M.
Yes, ccp, we need new ways to measure and talk about employment and unemployment.
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Contrary to what all the economic pollyannas are telling us. Here is the reality. AS IF anyone who looks around with their own two eyes can't see this for themselves:
http://www.alt-market.com/articles/2428-retail-disaster-holiday-sales-crater-by-11-online-spending-declines
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http://www.nytimes.com/2014/12/16/business/economy/economic-recovery-spreads-to-the-middle-class-.html?emc=edit_th_20141216&nl=todaysheadlines&nlid=49641193
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Obama's friends do good. $ http://start.toshiba.com/news/read/category/Business/article/afp-ge_to_distribute_40_bn_to_shareholders_in_20152016-afp GE to distribute $40 bn 2015-16 http://www.thenewamerican.com/usnews/politics/item/9268-obamas-crony-capitalism-and-his-top-2008-donors Obama’s 08 Donors.
P.C.
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Have We Finally Turned the Corner?
The silver lining
As 2014 came to a close, it was all about economic good news. Leading off the parade: In December, the Dow Jones Industrial Average capped off a torrid year of 7.5% growth when it reached 18,000 for the first time. Meanwhile, GDP grew at a 4.6% annual rate in the second quarter and an even faster 5% in the third -- a pace not seen since 2003. And on top of that, Americans saved $14 billion at the gas pump in 2014, and could save even more this year. Things are looking a bit brighter for 2015.
With all that economic good news, experts feel the job market will further strengthen in 2015 so the headline unemployment rate will slide ever closer to 5%. The labor market may remain a little bit soft as the long-term unemployed will be the last to find work, but as a whole it's no wonder the Left is boasting of the “Obama boom.” Even those on the Right are admitting this may end the “Age of Suck.”
This general feeling of economic optimism is reflected in increasing consumer confidence. While some worried about sluggish Black Friday sales as well as slower than expected last-minute shopping at retailers as the Christmas season wound down, online purchasing was strong enough to keep sales right around their predicted growth rate for the 2014 season.
While some try to credit Barack Obama for the rebound, the good news is rooted in two areas the president has tried his best to obstruct.
One is an overall slowdown in government spending growth, which is declining as a percentage of GDP. Congress hasn't done nearly enough to cut spending given its tendency to govern by continuing resolution rather than a set budget -- meaning the Obama spending bonanza of 2009 and 2010 is the new minimum. But as columnist David Harsanyi puts it, “After [2010], Congress, year by year, became one of the least productive in history. And the more unproductive Washington became, the more the economy began to improve.”
The key date is 2010, when Republicans took over the House. Harsanyi argues gridlock has created part of this improvement, and there's a compelling argument for that point. Imagine what we may have been saddled with had Republicans not taken over the House in 2010: endless government “stimulus” programs, cap and trade, and a faster implementation of ObamaCare for starters -- all leading to a national debt far larger than the already-astronomical one we're facing now.
Another part of the economic rebound stems from lower oil prices, which have plummeted by nearly half in the last six months. That steep drop is now reflected in gas-pump prices, resulting in what Citigroup estimates as an average $1,150 annual boost to consumers. This boom could have been amplified still further if not for Obama's stalling of the Keystone XL pipeline or his refusal to open up federally controlled land to oil exploration. An activist EPA also waits in the wings with the potential for crippling regulations similar to those imposed on the coal industry.
Obama can try his best, but no president has figured out a way to kill the American free enterprise system. Its resilience has brought us out of numerous depressions, panics, recessions and economic slumps over the years as enough people found a way to work through or around the situation.
We will begin to see the effects of a truly divided government, with Republicans now totally in charge of Congress and Obama threatening to veto more legislation. “I haven't used the veto pen very often since I've been in office,” Obama not-so-subtly threatened last month. “Now, I suspect, there are going to be some times where I've got to pull that pen out.”
While the economy is improving -- at least according to the numbers our government releases, if not necessarily everyone's personal situation -- it will be up to those respective sides to make the case why things could be even better if their vision prevails. It's a battle that will be joined as contenders for the 2016 presidential election come onto the scene and spell out their plans to continue the momentum.
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“I haven't used the veto pen very often since I've been in office,” Obama not-so-subtly threatened last month. “Now, I suspect, there are going to be some times where I've got to pull that pen out.”
Yeah Harry Reid did his dirty work.
"Citigroup estimates as an average $1,150 annual boost to consumers"
The Democrats response of course is this is the perfect time to increase gas taxes. Even heard some phoney Republicans make this case. I think Ben Stein was one of them.
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Monday Morning Outlook
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GDP, Strong Again To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 1/26/2015
With all the focus on Europe in general and Greece in particular, it’s important to keep in mind that the US economy continues to move forward. After real GDP dropped in the first quarter of last year, some analysts were predicting another recession. By contrast, we said the drop was due to unusually harsh winter weather and the economy would rebound quickly.
And rebound it did. Real GDP grew at a 4.6% annual rate in the second quarter and a 5% rate in the third. On Friday, the government will report its initial estimate for real GDP growth in Q4 and we think the economy grew at a 3.3% annual rate. If we’re right, real GDP was up a Plow Horse 2.6% in 2014, slightly faster than the 2.3% pace the economy has averaged since the recovery started in 2009.
For 2015, we’re forecasting 2.7%. Some analysts are lifting their forecasts based on plummeting oil prices and Europe’s quantitative easing, while some might mark them down due to Greece. But these are all sideshows.
Lower oil prices may push up non-oil spending, but oil production will now expand more slowly. QE in Europe is not going to help boost growth; it’ll just stuff European banks with as many useless excess reserves as US banks hold already. And our exports to Greece are less than 0.01% of US GDP.
Instead, investors need to focus on the fundamentals that drive the economy, which haven’t changed. Monetary policy remains loose, tax rates are not going up (regardless of what President Obama said in his State of the Union address), and entrepreneurs are still innovating.
Below is our “add-em-up” forecast for Q4 real GDP.
Consumption: Auto sales increased at a 0.5% annual rate in Q4 while “real” (inflation-adjusted) retail sales outside the auto sector were up at a tepid 1.8% rate. But services make up about 2/3 of personal consumption and those were up at about a 4.5% rate. So it looks like real personal consumption of goods and services combined, grew at a 3.8% annual rate in Q4, contributing 2.6 points to the real GDP growth rate (3.8 times the consumption share of GDP, which is 68%, equals 2.6).
Business Investment: Business equipment investment and commercial construction were both unchanged in Q4. Factoring in R&D suggests overall business investment grew at a 0.8% rate, which should add 0.1 point to the real GDP growth rate (0.8 times the 13% business investment share of GDP equals 0.1).
Home Building: A 9% annualized gain in home building in Q4 will add about 0.3 points to real GDP (9 times the home building share of GDP, which is 3%, equals 0.3).
Government: Public construction projects continued to increase in Q4 while military spending picked up as well. As a result, it looks like real government purchases grew at a 1.1% annual rate in Q4, which should add 0.2 percentage points to real GDP growth (1.1 times the government purchase share of GDP, which is 18%, equals 0.2).
Trade: At this point, the government only has trade data through November, but the data so far suggest the “real” trade deficit in goods has gotten a little smaller. As a result, we’re forecasting that net exports add 0.1 point to the real GDP growth rate.
Inventories: After a weather-related lull in Q1, companies built inventories at a very rapid pace in Q2. Since, then that pace has neither slowed nor sped up further, meaning inventories are a net zero for GDP, neither adding nor subtracting.
The US government has expanded way too much in the past decade or so, which is why we have a Plow Horse economy rather than a Race Horse economy. But, even in this environment, the private sector still has room to grow. Not just in Q4, but in 2015 and likely beyond.
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It's time if you haven't already - to make sure you have food supplies, water, firearms, and GOLD & SILVER. Paper investments will be worth next-to-nothing. IGNORE AT YOUR PERIL - Please read the article below carefully and take it seriously. There is not much time left. If you don't have at least 50% of your liquid assets in gold and silver - you will be very sorry later this year. Don't be foolish - it's easy to stay in denial and tell yourself this is nothing more than alarmism:
Failing Stimulus And The IMF's New 'Multilateral' World Order
Tuesday, 27 January 2015 05:24 Brandon Smith
My theme for 2015 has been the assertion that this will be a year of shattered illusions; social, political, as well as economic. As I have noted in recent articles, 2014 set the stage for multiple engineered conflicts, including the false conflict between Eastern and Western financial and political powers, as well as the growing conflict between OPEC nations, shale producers, as well as conflicting notions on the security of the dollar's petro-status and the security and stability of the European Union.
Since the derivatives and credit crisis of 2008, central banks have claimed their efforts revolve around intervention against the snowball effect of classical deflationary market trends. The REAL purpose of central bank stimulus actions, however, has been to create an illusory global financial environment in which traditional economic fundamentals are either ignored, or no longer reflect the concrete truths they are meant to convey. That is to say, the international banking cult has NO INTEREST whatsoever in saving the current system, despite the assumptions of many market analysts. They know full well that fiat printing, bond buying, and even manipulation of stocks will not change the nature of the underlying crisis.
Their only goal has been to stave off the visible effects of the crisis until a new system is ready (psychologically justified in the public consciousness) to be put into place. I wrote extensively about the admitted plan for a disastrous “economic reset” benefiting only the global elites in my article 'The Economic End Game Explained'.
We are beginning to see the holes in the veil placed over the eyes of the general populace, most notably in the EU, where the elites are now implementing what I believe to be the final stages of the disruption of European markets.
The prevailing illusion concerning the EU is that it is a “model” for the future the globalists wish to create, and therefore, the assumption is that they would never deliberately allow the transnational union to fail. Unfortunately, people who make this argument do not seem to realize that the EU is NOT a model for the New World Order, it is in fact a mere stepping stone.
The rising propaganda argument voiced by elites in the International Monetary Fund and the Bank For International Settlements, not to mention the ECB, is not that Europe's troubles stem from its ludicrous surrender to a faceless bureaucratic machine. Rather, the argument from the globalists is that Europe is failing because it is not “centralized enough”. Mario Draghi, head of the ECB and member of the board of directors of the BIS, tried to sell the idea that centralization solves everything in an editorial written at the beginning of this year.
“Ultimately, economic convergence among countries cannot be only an entry criterion for monetary union, or a condition that is met some of the time. It has to be a condition that is fulfilled all of the time. And for this reason, to complete monetary union we will ultimately have to deepen our political union further: to lay down its rights and obligations in a renewed institutional order.”
Make no mistake, the rhetoric that will be used by Fabian influenced media pundits and mainstream economic snake-oil salesmen in the coming months will say that the solution to EU instability as well as global instability is a single global governing body over the fiscal life of all nations and peoples. The argument will be that the economic crisis persists because we continue to cling to the “barbaric relic” of national sovereignty.
In the meantime, internationalists are protecting the legitimacy of stimulus actions and banker led policy by diverting attention away from the failure of the central planning methodology.
Mario Draghi has recently announced the institution of Europe's own QE bond buying program, only months after Japan initiated yet another stimulus measure of its own, and only months after the Federal Reserve ended QE with the finale of the taper.
I would point out that essentially the moment the Fed finalized the taper of QE in the U.S., we immediately began to see a return of stock volatility, as well as the current plunge in oil prices. I think it should now be crystal clear to everyone where stimulus money was really going, as well as what assumptions oblivious daytraders were operating on.
The common claim today is that the QE of Japan and now the ECB are meant to take up the slack left behind in the manipulation of markets by the Fed. I disagree. As I have been saying since the announcement of the taper, stimulus measures have a shelf life, and central banks are not capable of propping up markets for much longer, even if that is their intention (which it is not). Why? Because even though market fundamentals have been obscured by a fog of manipulation, they unquestionably still apply. Real supply and demand will ALWAYS matter – they are like gravity, and we are forced to deal with them eventually.
Beyond available supply, all trade ultimately depend on two things - savings and demand. Without these two things, the economy will inevitably collapse. Central bank stimulus does not generate jobs, it does not generate available credit, it does not generate higher wages, nor does it generate ample savings. Thus, the economic crisis continues unabated and even stock markets are beginning to waver.
As demand collapses due to a lack of strong jobs and savings, it pulls down on the central bank fiat fueled rocket ship like an increase in gravity. The rocket (in this case equities markets and government debt) hits a point of terminal altitude. The banks are forced to pour in even more fiat fuel just to keep the vessel from crashing back to Earth. No matter how much fuel they create, the gravity of crashing demand increases equally in the opposite direction. In the end, the rocket will tumble and disintegrate in a spectacular explosion, filled to capacity with fuel but unable to go anywhere.
Oil markets have expressed this reality in relentless fashion the past few months. Real demand growth in oil has been stagnant for years, yet, because of stimulus, because of the real devaluation of the dollar, and because of market exuberance, prices were unrealistically high in comparison. The crash of oil is a startling sign that the exuberance is over, and something else is taking shape...
The disconnect within banker propaganda could be best summarized by Mario Draghi's recent statements on the ECB's new stimulus measures. When asked if he was concerned about the possibility of European QE triggering currency devaluation and hyperinflation, Draghi had this to say:
“I think the best way to answer to this is have we seen lots of inflation since the QE program started? Have we seen that? And now it's quite a few years that we started. You know, our experience since we have these press conferences goes back to a little more than three years. In these 3 years we've lowered interest rates, I don't know how many times, 4 or 5 times, 6 times maybe. And each times someone was saying, this is going to be terrible expansionary, there will be inflation. Some people voted against lowering interest rates way back at the end of November 2013. We did OMP. We did the LTROs. We did TLTROs. And somehow this runaway inflation hasn't come yet.
So the jury is still out, but there must be a statute of limitations. Also for the people who say that there would be inflation, yes When please. Tell me, within what?”
Firstly, if you are using “official” CPI numbers in the U.S. to gauge whether or not there has been inflation, then yes, Draghi's claim appears sound. However, if you use the traditional method (pre-1990's) to calculate CPI rather than the new and incomplete method, inflation over the past few years has stood at around 8%-10%, and most essential goods including most food items have risen in price by 30% or more, far above the official 0%-1% numbers presented by the Bureau of Labor Statistics.
But beyond real inflation numbers I find a very humorous truth within Draghi's rather disingenuous statement; yes, QE has not yet produced hyperinflation in the U.S. (primarily because the untold trillions in fiat created still sit idle in the coffers of international banks rather than circulating freely), however, what HAS stimulus actually accomplished if not inflation? Certainly not any semblance of economic recovery.
Look at it this way; I could also claim that if international bankers lined up on a stage at Davos and danced the funky-chicken, hyperinflation would probably not result. But what is the point of dancing the funky chicken, and really, what is the point of QE? Stimulus clearly has about as much positive effect on the economy as jerking around rhythmically in tight polypropylene disco pants.
Japan and the ECB are in fact launching sizable stimulus measures exactly because the QE of the Federal Reserve achieved ABSOLUTELY NOTHING except the purchase of 5-6 years without total collapse (only gradual collapse). And what is the real cost/benefit ratio of that purchase of half a decade of fiscal purgatory? When the breakdown of debt and forex markets does occur, it will be a hundred times worse than if the Fed had done nothing at all. Which brings me to our current state of affairs in 2015, and the IMF plan to take advantage...
IMF head Christine Lagarde put out a press release this past week, one which was probably drafted for her by a team of ghouls at the BIS, mentioning the formation of what she called the “New Multilateralism”.
Lagarde begins with the same old song about accommodative monetary policy:
“Besides structural reforms, building new momentum will require pulling all possible levers that can support global demand. Accommodative monetary policy will remain essential for as long as growth remains anemic – though we must pay careful attention to potential spillovers. Fiscal policy should be focused on promoting growth and creating jobs, while maintaining medium-term credibility.”
Of course, as we have already established, monetary policy does nothing to inspire demand. So, what is a global syndicate of bankers to do? Promote maximum interdependency! Lagarde laments the impediments of the sovereign attitude:
“No economy is an island; indeed, the global economy is more integrated than ever before. Consider this: Fifty years ago, emerging markets and developing economies accounted for about a quarter of world GDP. Today, they generate half of global income, a share that will continue to rise.
But sovereign states are no longer the only actors on the scene. A global network of new stakeholders has emerged, including NGOs and citizen activists – often empowered by social media. This new reality demands a new response. We will need to update, adapt, and deepen our methods of working together.”
And here we have a more subtle insinuation of the planning and programming I have been warning about for years. Because national sovereignty is no longer “practical” in an economically interdependent world (a world forced into economic interdependency by the globalists themselves), we must now change our way of thinking to support a more globalist framework.
The first big lie is that interdependency is a natural economic state. Historically, economies are more likely to survive and thrive the LESS dependent they are on outside factors. Independent, self contained, self sustaining, decentralized economies are the natural and preferable cultural path. Multilateralism (centralization) is completely contrary and destructive to this natural state, as we have already witnessed in the kind of panic which ensues across the globe when even one small nation, like Switzerland, decides to break from the accepted pattern of interdependency.
Also, take note of Lagarde's reference to the growing role that developing nations (BRICS) are playing in this interdependent globalized mish-mash. As I have been warning, the IMF and the international banks fully intend to bring the BRICS further into the fold of the “new multilateralism”, and the supposed conflict between the East and the West is a ridiculous farce designed only as theater for the masses.
Lagarde reiterates the IMF push for inclusion of the BRICS (new networks of influence) into the new system, as well as the IMF's role as the arbiter of global governance:
“This can be done by building on effective institutions of cooperation that already exist. Institutions like the IMF should be made even more representative in light of the dynamic shifts taking place in the global economy. The new networks of influence should be embraced and given space in the twenty-first century architecture of global governance. This is what I have called the “new multilateralism.” I believe it is the only way to address the challenges that the global community faces.”
The IMF head finishes with my favorite line, one which should tell you all you need to know about what is about to happen in 2015. I have for some time been following the progress (or lack of progress) in the IMF reforms presented in 2010; reforms which the U.S. Congress has refused to pass. Why? I believe the reforms remain dormant because the U.S. is MEANT to lose its veto powers within the IMF, and the IMF has already made clear that lack of passage will result in just that.
“Against this backdrop, the adoption of the IMF reforms by the United States Congress would send a long-overdue signal to rapidly growing emerging economies that the world counts on their voices, and their resources, to find global solutions to global problems.
Growth, trade, development, and climate change: 2015 will be a rendezvous of important multilateral initiatives. We cannot afford to see them fail. Let us make the right choices.”
Why remove U.S. veto power? Because BRICS nations like China are about to be given far more inclusion in the IMF's multilateralist order. In fact, 2015 is the year in which the IMF's Special Drawing Rights conference is set to commence, with initial discussions in May, and international meetings in October. I believe U.S. veto power will probably be removed by May, making the way clear (creating the rationale) for the marginalization of the U.S. dollar in favor of the SDR basket currency system, soon to be boosted by China's induction.
In 2015 what we really have is a sprint towards currency and market devaluation across the spectrum. India, Japan, Russia, Europe, parts of South America, have all been debased monetarily. The U.S. has as well, most Americans just don't know it yet. The value of this for globalists is far reaching. They have at a basic level created an atmosphere of lowered economic expectations – a global reduction in living standards which will at bottom lead to third world status for everyone. The elites hope that this will be enough to condition the public to support centralized financial control as the only option for survival.
It is hard to say what kind of Black Swans and false flags will be conjured in the meantime, but I highly doubt the shift towards the SDR will take place without considerable geopolitical turmoil. The public will require some sizable scapegoats for the kind of pain they will feel as the banks attempt to place the global economy in a totalitarian choke hold. While certain institutions may be held up as sacrificial lambs (including possibly the Federal Reserve itself), the concept of banker governance will be promoted as the best and only solution, despite the undeniable reality that the world would be a far better place if such men and their structures of influence were to be wiped off the face of the planet entirely.
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Objectivist: "It's time if you haven't already - to make sure you have food supplies, water, firearms, and GOLD & SILVER. Paper investments will be worth next-to-nothing. IGNORE AT YOUR PERIL - Please read the article below carefully and take it seriously. There is not much time left. If you don't have at least 50% of your liquid assets in gold and silver - you will be very sorry later this year. Don't be foolish - it's easy to stay in denial and tell yourself this is nothing more than alarmism:"
Our side tends to be wrong on severity and especially timing of these things. Like oil prices, the US economy as a whole is a bit of a futures market. The last time the economy tanked corresponded exactly with when it became clear that America would be run by one, far-left party for the foreseeable future. The changing of the House in 2010 offset that some damage. Gridlock is better than lunging to the left. The changing of the Senate now has offset that a little more. The prospect that Hillary will either govern more centrist or better yet lose is encouraging. The US economy is enormous and has absorbed at least some this political and governmental damage. We have at least a 50-50 shot at turning this ship around in the two years. I believe we survived the worst and people are ready to connect to a message better than give up and let your bankrupt government support you. There is also positive movement around the globe for this message. Sweden has rolled back a part of the biggest entitlement state on the planet. Australia and Canada have turned for the better. France rolled back its worst tax and is starting to understand security threats we all face. America is one leader and one election away from moving back in the direction of freedom, IMHO.
That said, I am 100% invested in hard assets (real estate) and zero in dollar-based paper. I wouldn't either buy equities or bet against them right now. I survived the worst R.E. collapse in memory. If there is any rule of law left after the next meltdown, I will charge my rents in gold, silver, copper, barter or whatever people are exchanging for value.
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Also, US is now or about to be the world's largest energy producer.
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Also, US is now or about to be the world's largest energy producer.
The massive layoffs in the energy sector tend to show otherwise.
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Also, US is now or about to be the world's largest energy producer.
The massive layoffs in the energy sector tend to show otherwise.
The forecast for gas prices is to stay down and the forecast for production is up. Sounds like a win both ways. http://www.eia.gov/forecasts/steo/report/us_oil.cfm
The expansion of drilling may be stopped by low oil prices, but I doubt they will close existing operations.
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What did we have there, one good quarter in a row?
Q4 GDP Advance Estimate at 2.6% Disappoints Expectations
http://www.financialsense.com/contributors/doug-short/q4-gdp-advance-estimate-disappoints-expectations
Growth is back below average, median and 'breakeven' growth, as it should be expected with this policy mix. Maybe Wesbury will see it in a more positive light...
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Actually he says it remains the plow horse that has been his hypothesis all along.
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Actually he says it remains the plow horse that has been his hypothesis all along.
That is a more accurate characterization than other reporting implying we are in an expansion fueled by the success of big government. We have a positive income and wealth effect coming from gas costing as low as $1.72 yesterday in the heartland, half of what it used to cost and 1/4th of the administration's target. Also an employment bump helped by unemployment benefits running out.
Meanwhile I see friends running medium sized businesses, playing defense instead of offense in a global economy, trying to work around paying the highest corporate income tax in the world not to mention our ever-expanding regulatory burden.
With these policies, why should the economy grow any faster?
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"Don't worry be happy!" :roll:
http://news.yahoo.com/video/world-debt-not-just-greece-163213118.html#/world-debt-not-just-greece-163213118.html
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http://www.ftportfolios.com/Commentary/EconomicResearch/2015/2/13/apocalypse-not-a-chance
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http://www.ftportfolios.com/Commentary/EconomicResearch/2015/2/13/apocalypse-not-a-chance
http://humanevents.com/2008/02/25/brian-wesbury-sees-no-recession-ahead/
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:-D
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http://www.youngresearch.com/researchandanalysis/real-estate-researchandanalysis/bullish-economic-indicator-nobody-talking/
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As family size drops below 1 we will need more and more housing?
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The Morning Ledger: U.S. Capital Spending Set to Grow
James Willhite
The Morning Ledger from CFO Journal cues up the most important news in corporate finance every weekday morning. Send us tips, suggestions and complaints: james.willhite@wsj.com. Get The Morning Ledger emailed to you each weekday morning by clicking http://on.wsj.com/TheMorningLedgerSignup. Follow us on Twitter @CFOJournal.
Good morning. Big U.S. businesses are anticipating that the economy will continue to grow for some time, and many of them are finally putting their money where their mouth is, the WSJ’s Theo Francis reports. Large companies across the U.S. are gearing up to improve tactical radio systems, expand distribution centers, produce more crackers and refurbish hotel rooms—all signs of increased business investment that could give another boost to the strengthening economy.
Aging business models and equipment are running into limits on their growth, but the new confidence has many of them taking the plunge with significant capital investments. All told, capital investment rose 15% in the fourth quarter to a five-year high of $166 billion, the third-fastest rise since early 2010.
“In terms of all the fundamentals, it looks pretty good still, so why wait?” said Gee Lingberg, a vice president at Host Hotels & Resorts Inc. With occupancy at 14-year highs, Host Hotels is more than doubling its spending on major projects, to as much as $260 million in 2015 from $112 million last year. “Now that the economy is getting stronger, even with a slight uptick in supply, demand should be able to exceed that.”
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http://www.ftportfolios.com/Commentary/EconomicResearch/2015/3/6/strong-jobs,-foolish-stocks
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Someday it will turn out that the bears that were wrong all this time will eventually be right.
http://www.marketwatch.com/story/6-reasons-to-sell-stocks-now-and-go-to-cash-2015-04-06
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Posted: 10 Apr 2015 05:30 PM PDT
As the chart above shows, Commercial & Industrial Loans outstanding at U.S. banks grew at a 19% annualized pace in the first three months of this year. These loans are mostly to small and medium-sized businesses that are not able to access the capital markets directly. It's good news not because more loans mean more spending and/or more economic activity (lending doesn't create growth, but it can facilitate growth by distributing capital to people and businesses can make productive use of the money). It's good news because it reflects a significant increase in confidence on the part of banks and businesses. Confidence has been in short supply for most of the current recovery, as can be seen by the tepid growth of business investment and the disappointingly slow growth of the economy. That looks to be changing for the better now.
Banks have had the ability to increase their lending virtually without limit ever since the Fed began its Quantitative Easing program in late 2008. However, lending didn't really pick up until the beginning of last year, right around the time the Fed announced the tapering and eventual end of QE. Things have changed dramatically since then. With rising confidence comes a reduced demand for money (i.e., money in the form of cash and cash equivalents like bank reserves, which exceed required reserves by about $2.5 trillion), and this validates the Fed's decision to stop growing its balance sheet. On the margin, banks are becoming less and less willing to sit on trillions of excess reserves; they'd rather lend money to the private sector than to the Fed, and they are beginning to do that in spades.
With lending activity booming, this is no time to be pessimistic about the economy's prospects.
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Cyber Security seems like a good sector. People whom I respect are mentioning FireEye.
https://www.securityweek.com/fireeye-uncovers-decade-long-cyber-espionage-campaign-targeting-south-east-asia
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Was winter during global warming unexpectedly cold again?
I wonder if 0.2% growth is still considered plowhorse pace. You aren't going to plow much land this way. Fingernails grow faster.
Latest from Wesbury that I see: Where's the Hyper-Inflation?
http://www.ftportfolios.com/retail/blogs/economics/index.aspx
Why would we see hyper-inflation in a stalled economy?
The experts tell us we can make no change to policies and just hope for things to improve - to get back to the near zero growth of last year.
http://www.nytimes.com/2015/04/30/upshot/how-to-make-sense-of-weak-economic-growth-in-2015.html?_r=0&abt=0002&abg=0
Good grief.
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People whom I respect are mentioning FireEye.
One of the Cabot newsletters recommended them about a year ago. Supposedly they have some leading edge (for now) security system. I never bought. It crashed and Cabot finally said to cash out and take the losses. I think it has recovered some. I think one of the other email companies (Fool or other?) may be recommending it again.
Story stock. Sounds good. Could be big. Could be a dead end.
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Personal Income was Unchanged in March To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 4/30/2015
Personal income was unchanged in March, coming in below the consensus expected gain of 0.2%. Personal consumption rose 0.4% in March versus a consensus expected 0.5%. Personal income is up 3.8% in the past year, while spending is up 3.0%.
Disposable personal income (income after taxes) was unchanged in March, but is up 3.6% from a year ago. Gains in private-sector wages & salaries, government benefits, and nonfarm small-business income were offset by lower dividends, farm income and interest income.
The overall PCE deflator (consumer prices) increased 0.2% in March and is up 0.3% versus a year ago. The “core” PCE deflator, which excludes food and energy, rose 0.1% in March and is up 1.3% in the past year.
After adjusting for inflation, “real” consumption increased 0.3% in March and is up 2.7% from a year ago.
Implications: Hold off on personal income and spending for a moment. The biggest news this morning was that new claims for jobless benefits fell 34,000 last week to 262,000. Continuing claims dropped 74,000 to 2.25 million. Both initial and continuing claims are now the lowest since 2000. Plugging these figures into our models suggests nonfarm payrolls rose about 280,000 in April, well above the current consensus estimate of 220,000. This is consistent with our view that the economy is rebounding quickly from the lull in Q1 and the Federal Reserve will have the justification it needs to start lifting short-term rates in June. Some analysts may be dismayed by today’s headline of no change in personal income, but this was mostly the result of a drop in dividend and interest income after a spike upward in February. The underlying trend remains positive, with overall personal income up 3.8% in the past year and private wages & salaries up a more robust 4.3%. This trend in income is why consumer spending can keep rising as well, which it did by 0.4% in March. Expect more gains in the months ahead, powered by income gains as well as savings from lower energy prices. In the meantime, lower energy prices helped hold down commercial construction in Q1. Detailed numbers on that sector arrived this morning and showed that 70% of the large drop in commercial construction in Q1 was due to less exploration and drilling for oil and natural gas. In other news this morning, the Employment Cost Index, a useful measure of worker earnings, increased 0.7% in Q1 and is up 2.6% in the past year, the largest gain since 2008. This kind of wage acceleration boosts the case that the Federal Reserve has room to start raising rates. On the housing front, pending home sales, which are contracts on existing homes, increased 1.1% in March, suggesting existing home sales, which are counted at closing, will rise again in April. On the manufacturing front, the Chicago PMI, a measure of factory sentiment in that key region came in at 52.3, above the consensus forecasted 50.0. As a result, we are forecasting that the national ISM index will come in at 52.2, a respectable gain from 51.5 in March.
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http://www.youngresearch.com/researchandanalysis/stocks-researchandanalysis/raging-bull-in-china-has-shaky-foundation/?awt_l=PWy8k&awt_m=3YtE7yMQqvzlu1V
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There IS NO RECOVERY HAPPENING, despite what the talking heads in the media - Wesbury being a rather egregious example - will tell you:
www.zerohedge.com/news/2015-05-08/americans-not-labor-force-rise-record-93194000
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There IS NO RECOVERY HAPPENING, despite what the talking heads in the media - Wesbury being a rather egregious example - will tell you:
www.zerohedge.com/news/2015-05-08/americans-not-labor-force-rise-record-93194000
With a little rounding that is 100 million ADULTS not in the workforce by the end of the Obama Presidency. They don't even count as unemployed! We need another way of measuring what used to be called the unemployment rate.
I heard Wesbury say that total growth is over 3%. He clarified that total growth is inflation plus real growth. Really? Now we're combining those to make it sound like something is going on?
He also said that plowhorse is the combined growth of the race horse segments, Uber is all I can think of, and what he called the rest - the "dead horse" economy. He got that part right.
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Real GDP was Revised to a -0.7% Annual Rate in Q1 To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/29/2015
Real GDP was revised to a -0.7% annual rate in Q1 from a prior estimate of +0.2%. The consensus expected -0.9%.
The largest downward revisions were for net exports and inventories. Business investment in equipment and home building were revised higher.
The largest positive contribution to the real GDP growth rate in Q1 was personal consumption. The weakest component, by far, was net exports.
The GDP price index was unrevised at a -0.1% annual rate. Nominal GDP growth – real GDP plus inflation – was revised down to a -0.9% annual rate from a prior estimate of 0.1%.
Implications: Look out for the Pouting Pundits of Pessimism calling for a recession. Today’s GDP report showed contraction, but the report is for Q1, the last days of which ended two months ago, so it’s a “rearview mirror” picture of the economy and very likely a distorted one. Real GDP growth was revised down to a -0.7% annual rate from an original estimate of +0.2%. But as we have always argued, there were three main temporary culprits behind the Q1 weakness: plummeting energy prices, bad weather, and West Coast port strikes – all of which have dissipated. Also, part of the downward revision was due to lower inventories, which leaves more room for growth in future quarters. There also seems to be a fourth factor that held down growth in Q1 and it has nothing to do with actual output, but how the government seasonally adjusts the data. A study from the Federal Reserve shows that the government hasn’t been adjusting the data correctly based on the time of year. In turn, the wrong adjustments have meant growth looks artificially low in the first quarter, and artificially high in other quarters. The average for the year is the same, but it should be spread out more evenly than the government data now show. Luckily, the government is aware of the problem and will release new seasonal adjustment methods for GDP in late July. This puts the Fed in an interesting place. If the data are really better than what the government now says, and if the economic data continue to show a pick-up in activity, a June rate hike does not seem like much of a stretch. Today’s report also provided the first glimpse at overall corporate profits, and just like GDP, the headline was ugly. Corporate profits fell 5.9% in Q1, but the drop in both real GDP and profits resembles what happened in the first quarter of last year, after which profits rebounded sharply. Keep in mind that despite the drop in Q1, corporate profits are still up 3.7% from a year ago. In other news yesterday, pending home sales (contracts on existing homes) increased 3.4% in April, hitting a nine-year high. This report suggests existing home sales, which are counted at closing, will show a solid gain in May. Also yesterday, initial claims increased 7,000 last week to 282,000 and continuing claims increased 11,000 to 2.22 million. Plugging these figures into our payroll models suggests a nonfarm gain of 234,000 in May. (The forecast will change as we get more data in the next week on claims, the ADP index, and consumer spending.)
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Of course he doesn't. He's a paid hack for those who wish to promote the illusion that this economy is growing. As I've stated here ad nausem, anyone with a room-temperature IQ (let alone one of 130+, which I believe more than a few of our members would test at) can see by simple observation that the economy is NOT growing, and hasn't been for the duration of this Presidency. Observe, once again, that there are 93 MILLION able-bodied Americans of working age NOT EVEN LOOKING FOR A JOB. They are not counted in these patently fraudulent unemployment statistics the government is promulgating, and suggesting that they are somehow directly comparable to unemployment rate statistics issued many decades ago. This is an obscene joke. Work-force participation rate is at its lowest level since 1978. Hillary Clinton, for God's sake - is saying that she has been "shocked" to discover recently that small business creation has "stalled out" under this administration.
The "real" unemployment rate, I submit - along with many other traditional/conservative economists - is currently hovering at or above 15%. The reason this doesn't manifest itself as obviously as the soup lines of the 1930s is because all of these non-working people are still eating, they are still driving their cars, they are still watching their cable television, still using their smart phones - ALL ON THE BACKS OF THE INCREASINGLY FEW OF US WHO ARE ACTUALLY WORKING, and fiat money created out of thin air, i.e., printed by the Treasury. Fueled, I might add, by MASSIVE multi-trillion-dollar debt.
CLEARLY, this is unsustainable, and it is only a matter of time before the economic collapse happens. Of course when it does, the likes of Wesbury, et. al. won't give a damn, because (assuming they don't believe their own b.s.) they will have placed the vast majority of their personal wealth into hard assets - not those such as stocks - which are dollar-denominated - as they tiresomely continue to urge everyone else to do. It is staggering to watch as otherwise intelligent people fall victim to this sophistry. I suppose there is no limit to the capacity for human reality-denial when it comes to ugly truths, no matter how obvious those truths happen to be.
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http://scottgrannis.blogspot.com/
This is not to say that we are wrong, but we are speaking as prophets, and Wesbury is speaking to profit. With regard to the stock market (whidh is one of the subjects of his thread) he has done spectacularly better than any of us for the past six years.
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Crafty:
I wouldn't want to go up against you in a physical fight (God help me - I want you on MY side!) BUT - I don't think I would swap places with you financially either - if these are the prognosticators you are listening to :-)
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:lol: :lol:
You're right, you don't want to trade places with my finances-- which would be A LOT better if I had listened to Wesbury and Grannis (the one time I actually acted on Scott's advice I made 90% on TIP bonds in about 18 months) than what I actually did; I listened to us here and held back from reinvesting for FAR too long.
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http://scottgrannis.blogspot.com/
This is not to say that we are wrong, but we are speaking as prophets, and Wesbury is speaking to profit. With regard to the stock market (whidh is one of the subjects of his thread) he has done spectacularly better than any of us for the past six years.
I agree with Obj in large part, but what Crafty says about past stock market performance is true too. The "markets" are way up over a long period - using the rear view mirror and skipping all downturns which seem so far behind us now. But the rear view mirror does not tell us much about what is in front of us now.
Wesbury knows that half or more of this economy has been under-performing this whole time. And he mixes his analysis between markets and the US economy, as we do. He is on our side of the political fence, but with a positive bias on the markets. Scott Grannis has roughly the same views without the bias of writing for an equities firm.
When we saw 00.002 growth in the 1st quarter, one could only guess this will no doubt be adjusted downward. Now there is perhaps a 50% chance we are already 5 months into a recession that no one is reporting on - hence some of the frustration.
The negative bias on our side comes from the fact that we know these policies don't work. The only question is how resilient is the productive spirit in the remaining sectors of the private American economy to withstand these negative forces. Where we should have had 5-6% growth coming out of a collapse, we had 2%. Where we should be getting on a 3.1% longer term growth trend we are see zero, and now less. Instead of getting back on our long term GDP growth curve, we have a gap of tens of trillions of dollars of production and wealth that will never be recovered. Or as the O administration says, it was because of a long cold, snowy, harsh winter - again - right while global warming is our number one national security risk. Good grief.
As PP points out on housing, so many of these economic measures are bogus, out of date, or tell us nothing. The unemployment rate tells us nothing about how many people are out of work just as our poverty measures tell us nothing about the real income of the poor. Affordable housing, the term, refers to all housing that isn't affordable. Affordable care means that 84% on it require subsidy. The GDP growth rate now has more margin of error than it has growth. The Dow tells us how 30 big companies are doing, adjusted for occasionally removing and replacing the lousy ones. The wider measure S&P covers 500, Nasdaq lists 3000, and none of these tell us anything about the other 28 million small businesses in this country or the millions that never got started due to excessive government barriers to entry. At some point a rational person trying his or her hardest to understand what is going on gets tired of hearing bullsh*t.
Here is another look at it without the Wesbury spin. Note how QE affects the market and how Wall Street is up without seeing the larger context.
(http://www.thegatewaypundit.com/wp-content/uploads/obamanomics-toilet-575x409.jpg)
http://www.thegatewaypundit.com/2015/05/worst-president-ever-gdp-growth-shrinks-by-0-7-in-first-quarter/
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Personal Income Increased 0.4% in April To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/1/2015
Personal income increased 0.4% in April (0.5% including revisions to prior months), coming in above the consensus expected gain of 0.3%. Personal consumption was unchanged in April versus a consensus expected 0.2% gain. Personal income is up 4.1% in the past year, while spending is up 2.8%.
Disposable personal income (income after taxes) increased 0.4% in April, and is up 3.6% from a year ago. The gain in April was led by personal interest income and private-sector wages & salaries.
The overall PCE deflator (consumer prices) was unchanged in April but is up 0.1% versus a year ago. The “core” PCE deflator, which excludes food and energy, rose 0.1% in April and is up 1.2% in the past year.
After adjusting for inflation, “real” consumption remained unchanged in April but is up 2.7% from a year ago.
Implications: Although consumer spending took a breather in April (as tax payments surged), consumer purchasing power continued to grow and we expect that to translate into faster spending in the months ahead. Payrolls are up almost three million in the past twelve months and wage growth is starting to accelerate as well. Private-sector wages & salaries are up a robust 5.1% in the past year. Total income – which also includes rents, small business income, dividends, interest, and government transfer payments – increased 0.4% in April and is up 4.1% in the past year, noticeably faster than the 2.8% gain in consumer spending. This is why consumers have enough income growth to keep on lifting their spending without getting into financial trouble. One part of the report we keep a close eye on is government redistribution. In the past year, government transfers to persons are up 5.8%, largely driven by Obamacare (with, Medicaid spending up 10.9% versus a year ago). However, outside Medicaid, government transfers are up a slower 4.6% in the past year and unemployment compensation is very close to the lowest level since 2007. The bad news is that taken all together, government transfer payments – Medicare, Medicaid, Social Security, disability, welfare, food stamps, and unemployment comp. – don’t seem to be falling back to where they were prior to the Panic of 2008, when they were roughly 14% of income. In early 2010, they peaked at 18%. Now they are down to around 17%, but not falling any further. Redistribution hurts growth because it reallocates resources away from productive ventures. This is why we have a Plow Horse economy instead of a Race Horse economy. The PCE deflator, the Fed’s favorite measure of consumer inflation, was flat in April. Although that measure is only up 0.1% from a year ago, it’s been held down by falling energy prices. The “core” PCE deflator, which excludes food and energy, is up 1.2% from a year ago. That’s still below the Fed’s 2% inflation target, but it’s up at a 1.5% annualized rate in the past three months. Now that energy prices have leveled off, look for overall inflation to move up toward “core” inflation over the rest of the year. Key fact: incomes and spending are up even with price pressures low. That’s real growth. The Fed knows all this, which is why we still think it will strongly consider a rate hike at the meeting later this month.
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Monday Morning Outlook
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Don't Deny The Jobs Recovery To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein - Deputy Chief Economist
Date: 6/8/2015
Don’t Deny The Jobs Recovery
You would think that after 63 straight months of growth in private sector payrolls, the longest streak since the 1930s, everyone would agree that the job-market recovery is for real. But, that ain’t the case. A quick Google search still uncovers a whole bunch of pessimistic appraisals of jobs and the economy.
Analyzing these pessimists shows they have four major complaints about any supposed strength in the job market.
The first complaint is that the job growth is all or mostly part-time. The numbers on part-timers come from the civilian employment survey, which is very useful over longer periods of time (like a year) but very volatile from month to month.
What does this report show? That in the past year, part-time employment is up 196,000, while overall jobs are up about 3 million. So, guess what? The share of the workforce in part-time jobs has continued to fall – not rise.
Remember, these monthly numbers can be very volatile. So, at least a couple of times per year, the numbers will show that “all” of the jobs in some certain month were part-time. This brings the pessimists out of the woodwork. Rush Limbaugh will talk all day about part-time jobs and Obamacare. But, then, the data go back to normal and we don’t hear from the pessimists again (on this issue) until it happens again. Meanwhile, they ignore the opposite trend month after month, while finding something else to complain about.
The second misleading story is that the number of adults not in the labor force (neither working nor looking for work) is at or near a record high. The problem with this claim is that it’s both 100% true and 100% irrelevant. The reason it’s irrelevant is that because of population growth, the number of non-working adults is usually rising whether we’re in recession of not. For example, it grew by more than six million during the economic expansion from 1991 to 2001.
The third misleading pessimistic story about the job market is that the “true” unemployment rate is 10.8%, not the 5.5% the government says. There are multiple problems with this claim. First, what’s called the “true” unemployment rate is reported by the government in its monthly jobs data, so it’s not like the Labor Department is trying to hide anything.
This more expansive “true” unemployment rate (called the U-6) includes all those counted as unemployed by the regular jobless rate as well as people working part-time who say they’d prefer to work full-time, plus “discouraged” and “marginally-attached” workers. In other words, it is always higher than the regular unemployment rate. Traditionally, in good times or bad, it’s about 80% higher. (So when the regular jobless rate was 4.4% back in March 2007, the so called “true” or U-6 unemployment rate was actually 8.0%.)
Today, the “true” unemployment rate is 10.8%, while the regular unemployment rate is 5.5%. This is slightly above the normal relationship between the two measures, but back in 2009, the “true” unemployment rate was 17.1% - so both measures are lower than they were – the labor market is better no matter what data you use.
The last misleading story, which is still widespread, is that there might be more jobs but wages aren’t rising. Average hourly earnings are up only 2.3% from a year ago. But with lower energy prices, overall consumer prices are barely higher than a year ago, which means “real” (inflation--adjusted) wages are up about 2% per hour since last year. That easily beats the trend over the past several decades.
The pessimists would be more believable if they said, the economy and jobs would be better with a more free-market set of policies. Lower tax rates, less regulation, and less government spending (particularly on entitlements) would all spur faster growth. But to say things are “awful” is misleading. Investors need to be wary of narratives that use the data to try to trick them into thinking the recovery isn’t there at all. It’s important for investors to separate politics from economics.
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"Today, the true unemployment rate is 10.8%" - 'nuff said!
In fact the unemployment rate is 37.2% of adults in America.
http://cnsnews.com/news/article/ali-meyer/628-labor-force-participation-has-hovered-near-37-year-low-11-months
"62.8%: Labor Force Participation Has Hovered Near 37-Year-Low for 11 Months"
That is the lowest participation rate EVER FOR ADULT males.
It is like an Obama straw man argument. Why is the comparison point the depth of the worst collapse instead of the median or best of other so-called recoveries?
What portion of this so called 'recovery' is artificial? What should or would be the market interest rate if not for QE-insanity? What is the growth rate employment rate if / when we remove all the artificial stimuli and create an economy of private sector balance, where savings equals investment?
What is the GDP gap since 2009, the area under the curve between where we are and we we should be? 2-3 trillion per year times 6.5 years and counting - on the conservative side? We are approaching 20 trillion of income not earned and wealth not created due to counter-productive policies and approaching 100 million adults not working by the end of his term.
Yay, rah - rah, zero percent growth! Excuse me if I don't get excited. We are not the ones mixing politics with economics.
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Something I and many others here have been saying for some time now:
AP ANALYSIS: MORE 'PHONY NUMBERS' IN REPORTS AS STOCKS RISE
June 8, 2015
NEW YORK (AP) -- Those record profits that companies are reporting may not be all they're cracked up to be.
As the stock market climbs ever higher, professional investors are warning that companies are presenting misleading versions of their results that ignore a wide variety of normal costs of running a business to make it seem like they're doing better than they really are.
What's worse, the financial analysts who are supposed to fight corporate spin are often playing along. Instead of challenging the companies, they're largely passing along the rosy numbers in reports recommending stocks to investors.
"Companies are tilting the results," says fund manager Tom Brown of Second Curve Capital, "and the analysts are buying it."
An analysis of results from 500 major companies by The Associated Press, based on data provided by S&P Capital IQ, a research firm, found that the gap between the "adjusted" profits that analysts cite and bottom-line earnings figures that companies are legally obliged to report, or net income, has widened dramatically over the past five years.
At one of every five companies, these "adjusted" profits were higher than net income by 50 percent or more. Many more companies are in that category now than there were five years ago. And some companies that seem profitable on an adjusted basis are actually losing money.
It wasn't supposed to be this way. After the dot-com crash of 2000, companies and analysts vowed to clean up their act and avoid highlighting alternative versions of earnings in a way that could mislead investors.
But Lynn Turner, chief accountant at the Securities and Exchange Commission at the time, says companies are still touting "made-up, phony numbers" as much as they did 15 years ago, perhaps more, and few experts are calling them out on it.
"The analysts aren't doing enough to get behind the numbers that management gives them to find out what's really going on," Turner says.
Offering an alternative view of profits that leaves out various costs is not new. It's perfectly legal, and sometimes helpful as a tool for investors to gain insight into how a business is doing.
But with stocks breaking record after record and the current bull market entering its seventh year, there's more money riding on the assumption that the earnings figures being touted by companies and analysts are based on sound calculations.
"The longer the rally, the bigger the downside because of all the smoke and mirrors," says money manager John Del Vecchio, co-author of "What's Behind the Numbers?" a book on how profit reports can mislead.
In its study, AP compared bottom-line profit figures that follow rules called generally accepted accounting principles, or GAAP, to the adjusted profit figures calculated by financial analysts and collected by S&P Capital IQ. AP looked at companies in the Standard & Poor's 500 index.
Most of the time, the adjustments made companies look better by leaving out things like costs related to laying off workers, a decline in the value of patents or other "intangible" assets, the value of company stock distributed to employees, or losses from a failed venture. Critics argue that these are regular costs and shouldn't be excluded.
Key findings
- Seventy-two percent of the companies reviewed by AP had adjusted profits that were higher than net income in the first quarter of this year. That's about the same as in the comparable period five years earlier, but the gap between the adjusted and net income figures has widened considerably: adjusted earnings were typically 16 percent higher than net income in the most recent period versus 9 percent five years ago.
For a smaller group of the companies reviewed, 21 percent of the total, adjusted profits soared 50 percent or more over net income. This was true of just 13 percent of the group in the same period five years ago.
- Quarter after quarter, the differences between the adjusted and bottom-line figures are adding up. From 2010 through 2014, adjusted profits for the S&P 500 came in $583 billion higher than net income. It's as if each company in the S&P 500 got a check in the mail for an extra eight months of earnings.
Fifteen companies with adjusted profits actually had bottom-line losses over the five years. Investors have poured money into their stocks just the same.
- Stocks are getting more expensive, meaning there could be a greater risk of stocks falling if the earnings figures being used to justify buying them are questionable. One measure of how richly priced stocks are suggests trouble. Three years ago, investors paid $13.50 for every dollar of adjusted profits for companies in the S&P 500 index, according to S&P Capital IQ. Now, they're paying nearly $18.
In a crackdown after the dot-com crash, regulators required companies to lay out clearly in their financial reports how they arrived at alternative versions of their profits. The bottom-line figures have to be prominently reported, too. But it's not clear the extra details have helped.
"The data is more confusing than it's been in a long time, and the reason is all the junk they put in the numbers," says fund manager Michael Lewitt of the Credit Strategist Group. He says analyst reports don't help, and finds himself spending too much time sifting through the same "nonsense" figures he confronted back in the dot-com days.
Michelle Leder, founder of Footnoted.com, which produces detailed analyses of financial statements, says most investors don't even bother to sift, preferring instead to seize upon a single number, often the wrong one.
"People just want to know the number," she says. "They don't care how the sausage is made."
Frequent adjustments
Boston Scientific, a maker of medical devices like stents used to prop open arteries, had adjusted profits of $3.6 billion in the five years through 2014, according to analysts' calculations. But if you include a write-off for a failed acquisition, various "restructuring" charges and costs stemming from layoffs and lawsuits, it's a different picture entirely: $4.9 billion in net losses.
In a brief talk to analysts in April, the chief financial officer at Boston Scientific used the word "adjusted" in referring to results 34 times, twice every minute, on average. The word is also littered throughout the company's presentations and financial reports. In recent years rivals Medtronic, Stryker and Zimmer have also highlighted their results this way, says Raj Denhoy, an analyst at Jefferies, an investment bank.
Aluminum giant Alcoa has taken "restructuring" and related charges in 20 of the past 21 quarters. The company reported net losses of more than $900 million in the five years through 2014, but analysts have largely shrugged them off because they're tied to a strategic shift that involves getting rid of unwanted businesses. Analysts prefer to point to the $3.1 billion in adjusted profits during that time.
To be fair, analysts see the adjusted figures more as a tool for helping estimate future profits than as a judgment on the past. They say many losses and charges are not likely to recur and shouldn't be included in their calculations.
But in an age of constant change, when some companies revamp their business repeatedly, many one-time items are starting to seem not so one-time anymore.
"If you have to reinvent the company every couple of quarters, then it's not a one-off," says accounting expert Jack Ciesielski, longtime publisher of The Analyst's Accounting Observer, a newsletter.
What to count
For their part, Boston Scientific and Alcoa say the extra figures they provide help shed more light on their companies. Boston Scientific says the numbers allow investors to see the company "through the eyes of management" because they are the same ones its executives use in making decisions. Alcoa says its financial results reflect a "significant transformation" to make it more competitive.
Another number often missing in adjusted profit figures is the value of stock awarded to employees. This stock-based pay, the argument goes, requires no exchange of cash, so it doesn't affect a company's earnings power. Critics say stock distributions are a part of compensation and should be counted as an expense.
"What if they said they're going to pay for rent by issuing stock?" asks Brown of Second Curve Capital. "Would you then (exclude) rent" in calculating earnings?
Salesforce.com, a leader in cloud computing, routinely excludes the cost of stock compensation from figures it touts to investors, and analysts largely do the same. Analysts say the company earned $1.2 billion in adjusted profits in the five years through 2014. Its bottom-line result, including stock pay and other costs, was a $712 million loss.
Brian Rauscher, chief portfolio strategist at Robert W. Baird & Co., says stocks can continue to rise based on an inflated account of company profits for months or even years, but not indefinitely. He says it's like a bomb no one can see has been placed under the market: You know it's there, but you're not sure when it will go off.
"We don't know if the fuse is a few inches or a few miles," he says.
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http://www.ftportfolios.com/Commentary/EconomicResearch/2015/6/9/liar,-liar,-unemployment-not-higher
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http://www.ftportfolios.com/Commentary/EconomicResearch/2015/6/9/liar,-liar,-unemployment-not-higher
42% of adults don't work. Not 5.5%. Not 10.8%. 42%! If you are not actively looking for work, you are not employed, but not unemployed. That's clear isn't it? If the government pays you SSI, SNAP, MFIB, TANF, Medicaid, Section 8 or one of a thousand and fifty other social spending programs other than unemployment compensation to not work, and you don't work, don't look for work, don't even want to work or plan to work - ever again, then you are NOT unemployed.
This kind of logic makes me sick.
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The Fed has the best data available anywhere on the US economy, down to micro-level crop reports and equivalent for all regions and industries. They arguably have the most and best economists on staff of anywhere in the world with a virtually unlimited budget to study and track data. Yet The Fed has left their interest rate at 0% for 6 1/2 years - since Dec. 2008 including all of this "recovery", all of the Obama Presidency, through two different Fed Chairs. All this in spite of the fact that we know zero interest rates are bad for savings, skew incentives, mis-allocate resources, give the policy makers no additional room to move and should only be used in an absolute emergency, if then.
We are told how solid the economy now is and how great and strong the recovery is and has been and how the market gains are not from Fed policy, yet those who know the very most think this economy and this recovery is still too weak and fragile to handle interest rates of even one or two percent, much less the 4 or 5% it would take to make savings possible.
I know Wesbury and Grannis think interest rates should start coming back up, but how do they explain that fact that The Fed, with all their wisdom, disagrees.
On another point, slightly related, it is time to repeal Humphrey Hawkins.
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Personal Income Increased 0.5% in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/25/2015
Personal income increased 0.5% in May (0.6% including revisions to prior months). The consensus expected an increase of 0.5%. Personal consumption was up 0.9% in May (1.1% including revisions to prior months), beating the consensus expected 0.7%. Personal income is up 4.4% in the past year, while spending is up 3.6%.
Disposable personal income (income after taxes) increased 0.5% in May, and is up 3.8% from a year ago. The gain in May was led by private-sector wages & salaries, interest, and small-business income.
The overall PCE deflator (consumer prices) increased 0.3% in May and is up 0.2% versus a year ago. The “core” PCE deflator, which excludes food and energy, rose 0.1% in May and is up 1.2% in the past year.
After adjusting for inflation, “real” consumption rose 0.6% in May and is up 3.4% from a year ago.
Implications: Whatever happened to the theory that consumers would just pocket the savings from lower energy prices instead of spending it? Instead, consumer spending came back with a vengeance in May, rising 0.9%, the fastest pace for any month since 2009. And that was back when the government was using “cash-for-clunkers” to pass out checks to car buyers. Skipping that program, we’d have to go back to 2006. “Real” (inflation-adjusted) consumer spending is up 3.4% from a year ago, also the fastest growth since 2006. Expect more of this in the year ahead. Payrolls are growing about three million per year and wage growth is accelerating as well. Private-sector wages & salaries are up a robust 5.7% in the past year. Total income – which also includes rents, small business income, dividends, interest, and government transfer payments – increased 0.5% in May and is up 4.4% in the past year, faster than the 3.6% gain in consumer spending. This is why consumers have enough income growth to keep on lifting their spending without getting into financial trouble. One part of the report we keep a close eye on is government redistribution. In the past year, government transfers to persons are up 5%, largely driven by Obamacare. However, outside Medicaid, government transfers are up a slower 4.3% in the past year and unemployment compensation is the lowest since 2007. The bad news is that overall government transfer payments – Medicare, Medicaid, Social Security, disability, welfare, food stamps, and unemployment comp. – aren’t falling back to where they were before the Panic of 2008, when they were roughly 14% of income. In early 2010, they peaked at 18%. Now they are down to around 17%, but not falling any further. Redistribution hurts growth because it shifts resources away from productive ventures. This is why we have a Plow Horse economy instead of a Race Horse economy. The PCE deflator, the Fed’s favorite measure of inflation, increased 0.3% in May. Although it’s only up 0.2% from a year ago, it’s been held down by falling energy prices. The “core” PCE deflator, which excludes food and energy, is up 1.2% from a year ago. That’s still below the Fed’s 2% inflation target, but it’s up at a 1.7% annualized rate in the past three months. Now that energy prices have leveled off, look for overall inflation to move up toward “core” inflation over the rest of the year. In other news this morning, initial claims for unemployment insurance rose 3,000 last week to 271,000, the 16th straight week below 300,000. Continuing claims for regular state benefits increased 22,000 to 2.25 million. These claims numbers are at rock bottom levels and are about as good as it gets.
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Wesbury: the deck chairs are looking very well organized on the Titanic!
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A Dearth Of Tech IPOs May Mask Bubble Trouble
Only eight companies backed by venture capital have gone public in 2015. That’s a long way from last year’s 115.
By Andy Kessler
July 9, 2015 6:49 p.m. ET
The latest bubble chatter in the tech industry came from Fitbit, the maker of high-tech pedometers. Fitbit went public last month at a $4.1 billion valuation, and the stock price has more than doubled. Is a company that made $132 million in profit last year worth almost $9 billion? Major Silicon Valley players don’t think so. Sam Altman, who runs the startup accelerator Y Combinator, called the market last month a “mega bubble” that “won’t last forever.”
But since fewer startups seem willing to submit themselves to the disclosure and discipline of the public markets, how would we know? The Wall Street Journal’s Billion Dollar Startup Club shows 100 private companies valued at more than $1 billion. Yet this year there have been only eight venture-capital-backed initial public offerings compared with 115 in all of 2014.
Aside from Tesla and a few others, most of the hot companies with eyebrow-raising values are staying private. Uber is rumored to be raising $2 billion in funding for a valuation of $50 billion. Blue Apron, which ships three million meal kits a month to hungry millennials, has taken in $135 million at a $2 billion valuation. Food-delivery companies Instacart and Delivery Hero are worth a few billion each.
Yet none is going public. The delay can perhaps be blamed in part on Sarbanes-Oxley, a 2002 law that beefed up oversight and made it more expensive to be a public company. There’s also the 2012 JOBS Act, which increased the threshold for public reporting to 2,000 shareholders from 500. Whatever the causes, there is no longer a rush to go public if companies can raise sufficient private capital. “Now, after the IPO, it’s much worse,” Alibaba co-founder Jack Ma put it in June. “If I had another life, I would keep my company private.”
As a shareholder and a lifelong bubble watcher, I’m disturbed. Public markets enforce discipline on companies and push them to improve. Look at Facebook. In the first full quarter after its 2012 IPO, the company disappointed Wall Street with only 14% of revenue from mobile—phones, iPads and other portable devices. Now mobile accounts for 98% of Facebook’s ad growth and almost 70% of its revenue. Markets rule.
That discipline can be tough. After its December IPO, Lending Club missed earning expectations and fell to $14 a share from $28. The stock price of the craft-selling website Etsy has halved in the two months since the company went public. The online advertising company Rocket Fuel went public in September 2013 at $29, soared three weeks later to $65 and is now $7.
But with Uber at $50 billion, surely we’re in a bubble? Remember: A bubble is not created by high valuations. A bubble is a psychological phenomenon in which investors are tricked—by the company or themselves—into believing that a profit stream is sustainable when it really isn’t.
Case in point is the dot-com bust of the late 1990s. Many companies told me at the time that Goldman Sachs or Morgan Stanley would take them public as soon as they could strike a deal with AOL. So AOL would invest on the stipulation that the company buy pop-up ads on various sites within AOL. Thus AOL turned its cash into sales. The madness stopped when companies ran out of money and AOL ran out of companies.
In 1999, Microsoft invested $250 million in the online ailment manual WebMD in exchange for WebMD paying $30 a month for thousands of physicians for dial-up Internet via, you guessed it, Microsoft’s MSN. Amazon invested $30 million in Drugstore.com in exchange for Drugstore.com paying $105 million over three years for a branded tab on Amazon. It all looked good, but it couldn’t last. It is no different from Bear Stearns using its balance sheet to spike mortgage-backed securities from 2005-08.
Today’s startups aren’t passing money in circles like this yet, though I suspect it will happen. With so many private firms holding wads of cash, the ability to use their balance sheets to drive sales will be too tempting. But without the disclosures required of public firms, this logrolling may be hidden from view. As such, Silicon Valley tycoons shouldn’t get jitters over big numbers. A deluge of IPOs would be just the sunshine needed to sustain this much needed reordering of the global economy.
Mr. Kessler, a former hedge-fund manager, is the author of “Eat People” (Portfolio, 2011).
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It is almost like there has been some sort of fundamental change.
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http://www.marketwatch.com/story/these-lurking-debts-may-turn-us-cities-states-into-greece-2015-06-30
Next.
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Reads to me like the bond holders pay the piper.
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I've been noting this for the past couple of years, as strip malls shut down and remain vacant. Major retailers are shutting down stores, and the media is not reporting this, as they try to prop up consumer sentiment and give people the impression that everything is actually improving under this disastrous Obama economy. You ain't seen NOTHING yet. See below:
Major Chain Stores Shutting Down As America Faces “Birth Pangs Of Retail Apocalypse”
Wednesday, 15 July 2015 Mac Slavo
Reduced consumer spending is heralding a looming economic downturn, if not collapse, with an unprecedented shutdown of major box stores, restaurants and grocers underway.
It doesn’t bode well for the millions of Americans who are already seriously struggling, and will only accelerate the death of the middle class.
Along with this massive shrinkage of the retail sectors will go thousands of jobs. Natural Newsreports:
There is chatter across the web about dozens of major retail chains that are expected to permanently shutter a large number of their store locations this year. Popular names like Abercrombie & Fitch, Barnes & Noble, Chico’s, Children’s Place, Coach, Fresh & Easy, Gymboree, JCPenney, Macy’s, Office Depot, Pier One, Pep Boys, and many others are named as soon-to-be casualties in what some news sources are now referring to as the coming “retail apocalypse.”
The Economic Collapse Blog pins 2015 as a significant “turning point” for the U.S. economy, ominously warning that at least 6,000 retail store locations are expected to close this year based on company announcements. Many American consumers are already witnessing the birth pangs of this retail apocalypse as brick-and-mortar department, specialty, and even food shops close their doors for good.
The list of store closures (see here) is truly massive, and in no way accounts for everything that’s coming.
But Americans are still buying one major retail category — technological gadgets like iPhones, wearables, smart devices and computers. As technology purchases soar, shopping malls that have long specialized in clothing and fashion retail are falling in on themselves.
Business Insider calls it a slow and painful death, noting the collapse not only of thousands of stores from dozens of chains, but even the fall of giants like Gap:
Gap once ruled the retail world. But today America’s largest apparel retailer is closing a quarter of its stores and laying off hundreds of workers after disappointing sales.
Gap’s closures are indicative of a larger trend in American retail.
According to National Real Estate Investor, more retailers are planning to close, but are holding on for the end of the holiday shopping season:
After a tsunami of store closing announcements during the first half of the year, experts forecast that the remainder of 2015 will be relatively quiet as retailers focus on getting through the holiday season. However, retailers will continue to shutter stores throughout the year as leases expire.
[…]
The most recent store closing data available reports that retailers and restaurateurs announced closings of more than 3,500 establishments totaling an estimated 19.9 million square feet, according to the U.S. Retail Real Estate Supply Conditions report from ICSC Research and PNC Real Estate Research. The planned 1,784 store closures announced after Radio Shack’s February Chapter 11 bankruptcy filing represented half of the total first-quarter tally.
And the tenants aren’t being replaced by new stores; the retail sector is just shrinking.Business Insider notes:
More than two dozen malls have shut down in the last four years and another 60 malls are on the brink of death, The New York Times reported, citing Green Street Advisors, a real-estate and real-estate investments trust analytics firm.
The elephant in the room in clearly online sales, with major sites like Amazon undercutting and dwarfing brick and mortar box stores.
And with online sales impacting on-the-ground retail, local jobs are destroyed as well. The future of retail will be more compacted, less physical and more out of reach for those with shrinking pocketbooks and dwindling means.
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This is an interesting point. I wish the piece discussed more the role of the internet in this process.
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http://www.usatoday.com/story/news/nation/2015/07/20/more-children-living-poverty-now-than-during-recession/30415391/
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http://www.cnbc.com/2015/08/07/stocks-are-a-disaster-waiting-to-happen-stockman.html
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Economic Reality Now Catching Up To Market Fantasy
Friday, 07 August 2015 04:49 Brandon Smith - www.alt-market.com
In the mind of a schizophrenic person, internal elements of fantasy (negative and positive) are made manifest in the psyche and projected out onto the real world. Often, the daydream images of the mind are not merely images to them. Rather, what they imagine subconsciously becomes reality. Their faculties of observation become so limited, either due to a reaction to trauma or merely an inherent inability to cope, that they cannot decipher between fact and fiction. A person could go on like this for quite some time if all his needs are provided for by someone else. But the moment that support ends (and it will), the realities of necessity, not to mention supply and demand, take hold. One cannot live in a schizophrenic world indefinitely.
The current global mishmash of interdependent and socialized economies are, at bottom, schizophrenic. Our markets are not based in any fundamental reality. There is very little tangible foundation left to stand on, and this has been the case for several years. Yet some people might argue that since the derivatives crash of 2008, most of the world has continued to walk on air and there is little for us to worry about.
The power of fantasy is that it is self-perpetuating. Fantasies are fueled most commonly by misplaced hopes and unhealthy or unrealistic desires, and such things are darkly and grotesquely energizing. Fantasies can indeed keep economies around the world functionally alive even when they are clinically dead. But again, there is always an end.
Equities and commodities markets in particular have levitated despite economic fact, making their eventual fall ever more spectacular. That fall has now begun halfway through 2015.
Let’s look at the cold hard truths of our current situation.
New signals of market crisis are generating every two to four weeks as we grind on into the third quarter. This is in stark contrast to the relatively predictable and "stable" market behavior of the past three years. I realize that we are experiencing a “slow boil” and that many people may not even be taking note of the exponential increase in negative economic signs, but really, think about it - at the beginning of 2014, what was the general financial sentiment compared to today?
Europe has just experienced the worst “near miss” yet with the Greek crisis, a crisis that is still not over and will likely end in chaos as the last-minute deal with the European Central Bank is derailed by International Monetary Fund intervention.
Keep in mind that Europe is overwhelmed with debt as peripheral countries border collapse and core nations like France float in a recessionary ether they refuse to openly acknowledge.
Asia is the biggest story right now, with Chinese markets in veritable free fall despite all attempts by the communist government to quell stock selling and shorting, to the point of threatening arrest and imprisonment for some net short sellers.
China’s Shanghai Stock Exchange has experienced a 30% drop in market value in a month's time. The mainstream argument meant to marginalize this fact is that less than 2% of China’s equities are owned by foreign investors; therefore, a crash there will not affect us here. This is, of course, pure idiocy.
China is the largest importer/exporter in the world; and it’s set to become the world’s largest economy within the next two years, surpassing the United States. China’s economy is a production economy, and the nation is a primary supplier for all consumer goods everywhere. Thus, China is a litmus test for the fiscal health of the rest of the world. When Chinese companies are struggling, when exporters are seeing steady overall declines and when manufacturing begins to crawl, this is not only a reflection of China’s economic instability, but also a reflection of the collapsing demand in every other nation that buys from China.
Collapsing demand means collapsing sales and collapsing market value. For a global economic system so dependent on ever growing consumption, this is a death knell.
In the U.S., markets have experienced a delayed reaction of sorts, due in great part to the Federal Reserve’s constant injections of fiat fantasy fuel since the credit crisis began. This kind of artificial support for markets has become an expected and essential part of market psychology, resulting in utter dependency on easy money siphoned into big banks that then use it to bolster equities through massive stock buybacks (among other methods). Now, however, quantitative easing has been tapered and zero interest-rate policy is nearing the chopping block. The stock buyback scam is nearing an end.
Already, U.S. stocks are beginning to feel the pain as reality slowly nibbles away once dependable gains. There is a good reason for this - Wages are in constant decline; manufacturing is in steady decline; retail sales are in decline, and government and personal debts continue to rise. We are not immune to the financial chaos of other nations exactly because we have been railroaded into a highly interdependent global economic system. In fact, much international fiscal uncertainty is tied directly to the fall of the American consumer as a reliable cash cow and economic engine.
So where is this all headed?
Commodities tell part of the story, with oil sliding steadily, signaling what we in the alternative economic community have been saying for years: Fiat stimulus propped up markets (including energy markets) that should have been allowed to deflate long ago, and now we are suffering the consequences. Crude oil prices fell 19 percent in July alone as energy companies the world over scramble to adapt. Gold and silver have taken considerable hits to their paper value while physical purchases continue to skyrocket, meaning the street price of metals may soon decouple from illegitimate and manipulated market prices.
Smaller and some medium-sized economies will continue to “surprise” markets with volatile debt issues, like Puerto Rico (nearing possible default) and Venezuela (nearing certain doom). These are more canaries in the coal mine to watch carefully.
It is also important to keep in mind that prices on necessities including food and housing remain high despite deflation in other areas (like wages). This suggests we are in the midst of a stagflationary fiscal environment.
Centralization is the key to every single economic development we’ve seen since the 2008 crash. Venezuela, in particular, is a marker for where we are all headed: total price controls, food confiscation from farms, rationing and even computer-chipped ration cards in order to thwart any attempts by citizens to stockpile essentials. Do not assume that such draconian measures are limited to third world socialist hellholes. Or, at the very least, do not assume that a country like the U.S. is not on the verge of becoming a third world hellhole.
As for Europe, French president Francois Hollande has openly called for a centralized “eurozone government” in order to deal with the ongoing economic crisis there (something I have been warning about for several years). Supranational government is the endgame for sovereign humanity, and the EU is on the fast track.
In China, the march continues toward the inclusion of the yuan in the IMF’s SDR currency basket, the greatest economic centralization scheme of all time. The recent suggestion by an IMF panel to "delay" inclusion until 2016 only reinforces the likelihood that the Yuan will be entered into the basket. If the IMF had no intention to bring China into the fold, they would have suggested a 5 year delay just as they did back in 2010. For those who think China’s recent market crisis will somehow thwart their inclusion into the SDR, think again. The IMF has already announced that the market route in China will have no bearing on the SDR conference, which is set to end in November.
In the U.S., the markets wait for the Federal Reserve’s rate hikes. The rate hike issue is an underestimated one by some analysts, who seem to think that initial hikes will be "minor" and will result in little to no reverberations. Interest rates affect more than just overnight bank lending; they are the primary pillar supporting current market psychology. There is NO other financial element giving positive influence to investor psychology. There is no good economic news out there to warrant the bull market of the past few years. There is no open form of QE (and future QE seems unlikely as renewed stimulus would only be an admission that the first three attempts at QE failed miserably, derailing any point to new easing). There is no recovery. And when any even minor or engineered "good news" is presented in the mainstream, markets have reacted NEGATIVELY for fear that this will hasten higher interest rates.
Beyond psychology and false hopes, even minor increases in interest rates will essentially kill most large scale bank lending. We know through the limited audit of the TARP bailouts that trillions in fiat was created simply to feed international banks and corporations through ZIRP and that this kind of free money lending has been a mainstay ever since. ZIRP is the primary driver of stock buybacks and the equities bull market. But this will only continue as long as the Fed loans remain free (or almost free). Trillions in loans can equal billions in interest even with a minor rate rise, meaning, with the end of ZIRP and free money, banks and corporations will stop borrowing, stock buybacks will dissolve, and equities will lose the artificial support they have so far enjoyed.
Even mainstream financial news outlets are beginning to question why the Fed would push at all for rate hikes and pretend that the American fiscal system is in recovery, when ALL other information would lead the rational person to the contrary conclusion. I would point out that in order to understand central planners and globalist motives, you need to look at what they chase.
The Fed’s job is to destroy the U.S. economy and the dollar, not save them, which is why the Fed continues to deny economic turmoil and charges headlong into a rate hike scenario even though no one in the mainstream asked them to. The Chinese central bank’s job is to make all arrangements for Yuan inclusion in the SDR, despite the fact that China is supposedly in conflict with Western banks. The ECB and Europe are obsessed with centralized government even if they have to break several eggs to get it. And the IMF and Bank of International Settlements are set up to be the economic heroes of the day, warning us all (too late, of course) of the potential downfall of central bank stimulus policies and government debt obligations.
In a murky world of market fantasy, our first guideposts are the fundamentals themselves. Supply and demand can be misrepresented for a time through manipulated statistics, but the tangible effects of decline cannot be. Our secondary guideposts are the paths that internationalists and central banks bulldoze through the fiscal forest. To anyone with any sense, the endgame is clear: Total centralization is the goal, and economic fear is the tool they hope to use to get there. I have written on numerous solutions to this threat in past articles; but the first and most important action is for each of us to acknowledge, wholeheartedly, that the system we know is ending. It is over. What replaces that system will either be up to us or up to them. Only by admitting that there is an end to the fantasy, a painful end, will we then be able to help determine our future reality.
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http://www.marketwatch.com/story/dow-5000-yes-it-could-happen-2015-08-21
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[Dow was down another 1000 early today, then] ... "U.S. stocks staged a dramatic recovery off their lows on Monday, helped by a turnaround in Apple's shares, but the three main indexes remained in or within spitting distance of correction territory amid fears China's growth is slowing." (Reuters)
But why would fears of China's growth slowing affect the US negatively? It isn't like they are buying our products anyway. Nor are they going to quit making their products cheaply for us. In fact, the US customers get a purchasing power raise with the devaluation of Chinese currency.
The economic ties to China are more subtle. A small piece of each of these DOW companies is their China business. More importantly, if their exports are down, it tells us demand elsewhere around the world is down. Who leads the global economy today? No one knows. Maybe it's us, leading from behind. If the US is still the leader, the direction can only be down or to stagnate.
Equities prices are based on a multiple of growth - price/earnings x growth rate https://en.wikipedia.org/wiki/PEG_ratio Take away growth and earnings also disappear for most companies. Take away earnings and growth and the price goes to zero.
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Another look at global demand down by looking at oil price analysis via Zerohedge:
(http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/08/oil%20supply%20demand_0.jpg)
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Data Watch
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Real GDP was Revised to a 3.7% Annual Growth Rate in Q2 To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/27/2015
Real GDP was revised to a 3.7% annual growth rate in Q2 from a prior estimate of 2.3%, easily beating the consensus expected 3.2%.
The largest source of the upward revision was business investment, but all major categories were revised higher.
The largest positive contribution to the real GDP growth rate in Q2 was personal consumption, but almost all major components were up. The only negative component was business investment in equipment.
The GDP price index was revised up to a 2.1% annual rate of change from a prior estimate of 2.0%. Nominal GDP growth – real GDP plus inflation – was revised up to a 5.9% annual rate from a prior estimate of 4.4%.
Implications: If the Fed thinks the recent stock market correction makes the case for a September rate hike “less compelling”, then today’s GDP report should make it more compelling again. Real GDP is at an all-time record high. It already was before today’s upward revision, but it’s at a new high now after being revised to a 3.7% annualized growth rate in Q2 from an original estimate of 2.3%. Growth in Q2 beat even the highest estimate of all 79 economists who were surveyed. Nominal GDP (real growth plus inflation) snapped back at a 5.9% rate in Q2, is up 3.7% from a year ago and up at a 4.1% annual rate in the past two years. These figures continue to signal that a federal funds rate of essentially zero makes monetary policy too loose. We think the Fed should raise rates in September and still believe the Fed may pull the trigger on rate hikes as long as the stock market shows signs of recovery from the recent correction. All major categories for GDP were revised higher, with business investment leading the way. Business investment was originally reported down at a 0.6% annual rate but was revised to a growth rate of 3.2%. Also in today’s GDP report was our first glimpse at economy-wide corporate profits, which rose 2.4% in Q2 after falling 5.8% in Q1. These profits numbers are calculated by government statisticians and include “capital consumption and inventory valuation adjustments,” neither of which affect cash flow. In the past two quarters, the BEA capital consumption adjustment, which converts depreciation from historical cost to replacement cost, has subtracted massively from profits. Excluding these adjustments, corporate profits are at a record high, both on a pre-tax basis and after-tax. That’s the fuel which is going to keep the Plow Horse economy moving along despite the growth in the size of government. In other news this morning, new claims for jobless benefits declined 6,000 last week to 271,000. Continuing claims rose 13,000 to 2.27 million. Plugging these figures into our models suggests August payrolls are up about 195,000. The last piece of news reported this morning was a 0.5% gain in pending homes sales in July after a 1.7% decline in June. Pending home sales are contracts on existing homes and these figures suggest existing home sales, which are counted at closing may slip a little in August after surging almost 10% in the prior three months.
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Lies You Will Hear As The Economic Collapse Progresses
Thursday, 27 August 2015 Brandon Smith
It is undeniable; the final collapse triggers are upon us, triggers alternative economists have been warning about since the initial implosion of 2008. In the years since the derivatives disaster, there has been no end to the absurd and ludicrous propaganda coming out of mainstream financial outlets and as the situation in markets becomes worse, the propaganda will only increase. This might seem counter-intuitive to many. You would think that the more obvious the economic collapse becomes, the more alternative analysts will be vindicated and the more awake and aware the average person will be. Not necessarily...
In fact, the mainstream spin machine is going into high speed the more negative data is exposed and absorbed into the markets. If you know your history, then you know that this is a common tactic by the establishment elite to string the public along with false hopes so that they do not prepare or take alternative measures while the system crumbles around their ears. At the onset of the Great Depression the same strategies were used. Consider if you've heard similar quotes to these in the mainstream news over the past couple months:
John Maynard Keynes in 1927: “We will not have any more crashes in our time.”
H.H. Simmons, president of the New York Stock Exchange, Jan. 12, 1928: “I cannot help but raise a dissenting voice to statements that we are living in a fool’s paradise, and that prosperity in this country must necessarily diminish and recede in the near future.”
Irving Fisher, leading U.S. economist, The New York Times, Sept. 5, 1929: “There may be a recession in stock prices, but not anything in the nature of a crash.” And on 17, 1929: “Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months.”
W. McNeel, market analyst, as quoted in the New York Herald Tribune, Oct. 30, 1929: “This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan… that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years.”
Harvard Economic Society, Nov. 10, 1929: “… a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall.”
Here is the issue – as I have ALWAYS said, economic collapse is not a singular event, it is a process. The global economy has been in the process of collapse since 2008 and it never left that path. Those who were ignorant took government statistics at face value and the manipulated bull market as legitimate and refused to acknowledge the fundamentals. Now, with markets recently suffering one of the greatest freefalls since the 2008/2009 crash, they are witnessing the folly of their assumptions, but that does not mean they will accept them or apologize for them outright. If there is one lesson I have learned well during my time in the Liberty Movement, it is to never underestimate the power of normalcy bias.
There were plenty of “up days” in the markets during the Great Depression, and this kept the false dream of a quick recovery alive for a large percentage of the American population for many years. Expect numerous “stunning stock reversals” as the collapse of our era progresses, but always remember that it is the overall TREND that matters far more than any one positive or negative trading day (unless you open down 1000 points as we did on Monday), and even more important than the trends are the economic fundamentals.
The establishment has made every effort to hide the fundamentals from the public through far reaching misrepresentations of economic stats. However, the days of effective disinformation in terms of the financial system are coming to an end. As investors and the general public begin to absorb the reality that the global economy is indeed witnessing a vast crisis scenario and acknowledges real numbers over fraudulent numbers, the only recourse of central bankers and the governments they control is to convince the public that the crisis they are witnessing is not really a crisis. That is to say, the establishment will attempt to marginalize the collapse signals they can no longer hide as if such signals are of “minimal” importance.
Just as occurred during the onset of the Great Depression, the lies will be legion the closer we come to zero hour. Here are some of the lies you will likely hear as the collapse accelerates...
The Crisis Was Caused By Chinese Contagion
The hypocrisy inherent in this lie is truly astounding, to say the least, considering it is now being uttered by the same mainstream dirtbags who only months ago were claiming that China's financial turmoil and stock market upset were inconsequential and would have “little to no effect” on Western markets.
I specifically recall these hilarious quotes from Barbara Rockefeller in July:
“Something else that doesn’t matter much is the Chinese equity meltdown—again. China may be big and powerful, but it lacks a retail base and fund managers experienced in price variations, never mind a true rout...”
“Doom-and-gloom types have been saying for a long time that we will get a stock market rout when the Fed finally does move to raise rates. But as we wrote last week, history doesn’t bear out the thesis, not that you can really count on history when the sample size is one or two data points...”
Yes, that is a bit embarrassing. One or two data points? There have been many central bank interventions in history. When has ANY central bank or any government ever used stimulus to manipulate markets through fiat infusion and zero interest fueled stock buybacks or given government the ability to monetize its own debt, and actually been successful in the endeavor? When has addicting markets to stimulus like a heroin dealer ever led to “recovery”? When has this kind of behavior ever NOT created massive fiscal bubbles, a steady degradation of the host society, or outright calamity?
Suddenly, according to the MSM, China's economy does affect us. Not only that, but China is to blame for all the ills of the globally interdependent economic structure. And, the mere mention that the Fed might delay the end of near zero interest rates in September by a Federal Reserve stooge recently sent markets up 600 points after a week-long bloodbath; meaning, the potential for any interest rate increase no mater how small also has wider implications for markets.
The truth is, the crash in global stocks which will undoubtedly continue over the next several months despite any delays on ZIRP by the Fed is a product of universal decay in fiscal infrastructure. Nearly every single nation on this planet, every sovereign economy, has allowed central and international banks to poison every aspect of their respective systems with debt and manipulation. This is not a “contagion” problem, it is a systemic problem to every economy across the world.
China's crash matters not because it is causing all other economies to crash. It matters because China is the largest importer/exporter in the world and it is a litmus test for the financial health of every other country. If China is failing, it means we are not consuming, and if we are not consuming, then we must be broke. China's crash portends our own far worse economic conditions. THAT is why western markets have been crumbling along with China's despite the assumptions of the mainstream.
China's Rate Cuts Will Stop The Crash
No they won't. China has cut rates five times since last November and this has done nothing to stem the tide of their market collapse. I'm not sure why anyone would think that a new rate cut would accomplish anything besides perhaps a brief respite from the continuing avalanche.
It's Not A Crash, It's Just The End Of A “Market Cycle”
This is the most ignorant non-explanation I think I have ever heard. There is no such thing as a “market cycle” when your markets are supported partially or fully by fiat manipulation. Our market is in no way a free market, thus, it cannot behave like a free market, and thus, it is a stunted market with no identifiable cycles.
Swings in markets of up to 5%-6% to the downside or upside (sometimes both in a single day) are not part of a normal cycle. They are a sign of cancerous volatility that comes from an economy on the brink of disaster.
The last few years have been seemingly endless market bliss in which any idiot day trader could not go wrong as long as he “bought the dip” while Fed monetary intervention stayed the course. This is also not normal, even in the so-called “new normal”. Yes, the current equities turmoil is an inevitable result of manipulated markets, false statistics, and misplaced hopes, but it is indeed a tangible crash in the making. It is in no way an example of a predictable and non-threatening “market cycle”, and the fact that mainstream talking heads and the people who parrot them had absolutely no clue it was coming is only further evidence of this.
The Fed Will Never Raise Rates
Don't count on it. Public statements by globalist entities like the IMF on China, for example, have argued that their current crisis is merely part of the “new normal”; a future in which stagnant growth and reduced living standards is the way things are supposed to be. I expect the Fed will use the same exact argument to support the end of zero interest rates in the U.S., claiming that the decline of American wealth and living standards is a natural part of the new economic world order we are entering.
That's right, mark my words, one day soon the Fed, the IMF, the BIS and others will attempt to convince the American people that the erosion of the economy and the loss of world reserve status is actually a “good thing”. They will claim that a strong dollar is the cause of all our economic pain and that a loss in value is necessary. In the meantime they will, of course, downplay the tragedies that will result as the shift toward dollar devaluation smashes down on the heads of the populace.
A rate hike may not occur in September. In fact, as I predicted in my last article, the Fed is already hinting at a delay in order to boost markets, or at least slow down the current carnage to a more manageable level. But, they WILL raise rates in the near term, likely before the end of this year after a few high tension meetings in which the financial world will sit anxiously waiting for the word on high. Why would they raise rates? Some people just don't seem to grasp the fact that the job of the Federal Reserve is to destroy the American economic system, not protect it. Once you understand this dynamic then everything the central bank does makes perfect sense.
A rate increase will occur exactly because that is what is needed to further destabilize U.S. market psychology to make way for the “great economic reset” that the IMF and Christine Lagarde are so fond of promoting. Beyond this, many people seem to be forgetting that ZIRP is still operating, yet, volatility is trending negative anyway. Remember when everyone was ready to put on their 'Dow 20,000' hat, certain in the omnipotence of central bank stimulus and QE infinity? Yeah...clearly that was a pipe dream.
ZIRP has run it's course. It is no longer feeding the markets as it once did and the fundamentals are too obvious to deny.
The globalists at the Bank for International Settlements in spring openly deemed the existence of low interest rate policies a potential trigger for crisis. Their statements correlate with the BIS tendency to “predict” terrible market events they helped to create while at the same time misrepresenting the reasons behind them.
The point is, ZIRP has done the job it was meant to do. There is no longer any reason for the Fed to leave it in place.
Get Ready For QE4
Again, don't count on it. Or at the very least, don't expect renewed QE to have any lasting effect on the market if it is initiated.
There is truly no point to the launch of a fourth QE program, but do expect that the Fed will plant the possibility in the media every once in a while to mislead investors. First, the Fed knows that it would be an open admission that the last three QE's were an utter failure, and while their job is to dismantle the U.S. economy, I don't think they are looking to take immediate blame for the whole mess. QE4 would be as much a disaster as the ECB's last stimulus program was in Europe, not to mention the past several stimulus actions by the PBOC in China. I'll say it one more time – fiat stimulus has a shelf life, and that shelf life is over for the entire globe. The days of artificially supported markets are nearly done and they are never coming back again.
I see little advantage for the Fed to bring QE4 into the picture. If the goal is to derail the dollar, that action is already well underway as the IMF carefully sets the stage for the Yuan to enter the SDR global currency basket next year, threatening the dollar's world reserve status. China also continues to dump hundreds of billions in U.S. treasuries inevitably leading to a rush to a dump of treasuries by other nations. The dollar is a dead currency walking, and the Fed won't even have to print Weimar Germany-style in order to kill it.
It's Not As Bad As It Seems
Yes, it is exactly as bad as it seems if not worse. When the Dow can open 1000 points down on a Monday and China can lose all of its gains for 2015 in the span of a few weeks despite institutionalized stimulus measures lasting years, then something is very wrong. This is not a “hiccup”. This is not a correction which has already hit bottom. This is only the beginning of the end.
Stocks are not a predictive indicator. They do not follow positive or negative fundamentals. Stocks do not crash before or during the development of an ailing economy. Stocks crash after the economy has already gone comatose. Stocks crash when the system is no longer salvageable. Since 2008, nothing in the global financial structure has been salvaged and now the central banking edifice is either unable or unwilling (I believe both) to supply the tools to allow us even to pretend that it can be salvaged. We're going to feel the hurt now, all while the establishment tells us the whole thing is in our heads.
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I will reflect upon this.
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Real GDP was Revised to a 3.7% Annual Growth Rate in Q2 To view this article, Click Here
Brian S. Wesbury, Chief Economist
Real GDP was revised to a 3.7% annual growth rate in Q2 from a prior estimate of 2.3%...
FYI to our friend BW. Aberrant quarterly GDP growth does not get "annualized" when the other quarters were zero or negative.
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http://www.bloomberg.com/news/articles/2015-08-27/china-said-to-sell-treasuries-as-dollars-needed-for-yuan-support
Effects?
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Interesting.
This can be read in various ways, from alarming to encouraging.
Off the top of my head, making the case for encouraging it could be argued that without moving US rates, China lessens future leverage over the US. Arguably China is peeing into the winds of reality here and that, as usually is the case, government interventions cannot command the vastness of currency markets.
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http://www.theguardian.com/business/2015/aug/30/central-banks-cant-save-markets-crash-shouldnt-try
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http://www.theguardian.com/business/2015/aug/30/central-banks-cant-save-markets-crash-shouldnt-try
Trying to stop the business cycle only makes the inevitable worse.
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The ISM Manufacturing Index Declined to 51.1 in August To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/1/2015
The ISM manufacturing index declined to 51.1 in August, coming in below the consensus expected level of 52.5. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mostly lower in August, but all stand above 50. The new orders index fell to 51.7 from 56.5, while the production index moved lower to 53.6 from 56.0. The employment index slipped to 51.2 from 52.7. The supplier deliveries index rose to 50.7 from 48.9.
The prices paid index declined to 39.0 in August from 44.0 in July.
Implications: First things first. Yes, today’s report from the ISM showed the lowest reading for the headline index going back to 2013, but it is important to remember that the index measures the pace of expansion and contraction. Levels above 50 represent expansion, so while August’s reading of 51.1 is lower than July’s reading of 52.7, that does not mean that activity has declined, but that it continues to expand at a slightly slower pace than in recent months. It’s hard to draw many conclusions from the report, other than that the economy continues to grow at a moderate pace. The overall index has now remained above 50 (levels higher than 50 signal expansion) for 32 consecutive months. In addition, each of the major measures of activity showed expansion in August. The new orders index, the most forward looking measure, declined to 51.7 in August from 56.5 in July. This measure accelerated for each of the previous four months, and a temporary slowdown in the pace of growth is nothing to worry about. The production index followed new orders lower, declining to 53.6 from 56.0. In other words, the two key areas of the report focused on actual production took a breather in August, but still show signs of continued growth. With new orders continuing to expand, expect sustained strength in production in the months ahead. While the overall index remains below the peak of 58.1 seen in August 2014, we don’t believe this is anything to worry about. Remember that the economy was unusually strong in the summer of last year as it recovered from bad weather in the first quarter of 2014. The employment index fell in August to 51.2, representing continued growth in hiring, but at a slower pace than in recent months. Combined with recent data on initial and continuing claims, we estimate that jobs expanded by 196,000 in August. On the inflation front, the prices paid index declined to 39.0 in August from 44.0 in July, as falling prices for crude oil and raw metals helped push prices lower for fourteen of the eighteen industries reporting. The prices paid index has now shown contraction in prices for ten consecutive months. Taken as a whole, this month’s ISM report, with modest expansion across the major measures of activity, signals continued plow-horse growth in the months ahead. In other news this morning, construction increased 0.7% in July, while construction was also revised up substantially for June. The gain in July was led by private single family home construction as well as manufacturing facilities.
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Is there nothing on which Dick Morris is not an expert?
http://www.dickmorris.com/china-will-keep-crashing-dick-morris-tv-lunch-alert/?utm_source=dmreports&utm_medium=dmreports&utm_campaign=dmreports
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Anyone could predict this. Even me.
Sell, Sell, Sell............
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The ISM Non-Manufacturing Index Declined to 59.0 in August To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/3/2015
The ISM non-manufacturing index declined to 59.0 in August from 60.3, coming in above the consensus expected 58.2. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were all lower in August, but most remain well above 50, signaling expansion. The employment index fell to 56.0 from 59.6 while the business activity index declined to 63.9 from 64.9. The supplier deliveries activity index moved lower to 52.5 from 53.0, and the new orders index slipped to 63.4 from 63.8.
The prices paid index declined to 50.8 in August from 53.7 in July.
Implications: This morning’s ISM services report for August could be reported as a slowdown from July, or, it could be reported as the second highest reading for the index going back to 2005. These indices are hard to read because we believe sentiment plays a role in the answers to survey questions, but it is clear that the services sector, which is much larger than the manufacturing sector, continues to show strength. Through the first eight months of the year, service sector activity is stronger than it was in the same period a year ago, while August’s reading also represents a 67th consecutive month of expansion. Of the eighteen industries reporting, fifteen showed growth in August, while only one, mining (which includes oil and gas extraction), reported contraction - two industries reported no change. The business activity index, which has a stronger correlation with economic growth than the overall index, fell to a still robust 63.9, while the new orders index, the most forward looking measure of service sector activity moved lower to 63.4. Expect activity to remain strong over the coming months as companies move to fill the steady flow of new orders coming in. Both the business activity and new orders indexes showed acceleration from the first quarter to the second (coming off the bitter winter and West Coast port strikes), and the growth trend has continued through the first two months of Q3. The employment index fell in August to a still respectable 56.0, as declines led by mining more than offset rising employment in the majority of the reporting industries. On the inflation front, the prices paid index dipped in August to 50.8, led lower by (you guessed it) mining. As a whole, today’s report suggests continued growth in the months ahead and an uptick in activity for the second half of 2015.
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"The ISM non-manufacturing index declined to 59.0 in August from 60.3, coming in above the consensus expected 58.2. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity *were all lower* in August, *but* most remain well above 50, signaling expansion.
Implications: This morning’s ISM services report for August could be reported as a slowdown from July, or, it could be reported as the second highest reading for the index going back to 2005. These indices are hard to read because we believe sentiment plays a role in the answers to survey questions, but it is clear that the services sector, which is much larger than the manufacturing sector, continues to show strength.
Great more McDonalds, Dunkin Donuts, and Chiplotes.
Got to love the mumbo jumbo from this guy.
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http://www.alt-market.com/articles/2684-russia-is-going-to-pass-a-law-formally-dumping-the-us-dollar
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Thread Nazi says "Please post in Money thread". :-D
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Nonfarm Payrolls Increased 173,000 in August To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/4/2015
Nonfarm payrolls increased 173,000 in August, below the consensus expected 217,000. Including revisions to prior months, nonfarm payrolls increased 217,000.
Private sector payrolls increased 140,000 in August, while June and July were revised up a combined 5,000. The largest gains were for health & social assistance (+56,000), professional & business services (+33,000, including temps), and restaurants & bars (+26,000). Manufacturing payrolls fell 17,000 while government rose 33,000.
The unemployment rate fell to 5.1% from 5.3%.
Average hourly earnings – cash earnings, excluding tips, commissions, bonuses, and fringe benefits – rose 0.3% in August and are up 2.2% versus a year ago.
Implications: Even by the loose standards of the monetary doves, the Federal Reserve should start raising interest rates this month. The unemployment rate fell to 5.1% in August, the lowest since early 2008 and right in the middle of the range the Fed believes is the long-term average. Some doves have argued that due to the deep recession the Fed should use loose money to temporarily push the jobless rate below the long-term average. But, with the current stance of policy, the unemployment rate is down a full percentage point from a year ago. It takes time for changes in policy to affect the economy, so even if the Fed starts raising rates today, the momentum from loose policy so far means the jobless rate is already set to dive well below the long-term average. Today’s employment report showed continued improvement in the labor market. At 173,000, payroll growth came in a little short of consensus expectations. But the first report for August is usually revised up substantially. Remember August 2011, when the initial report was zero growth in payrolls? Two months later it was revised up to 104,000. This August was the 66th month in a row with growth in private payrolls, the longest streak since at least the late 1930s. Civilian employment, an alternative measure of jobs that includes small-business start-ups, increased 196,000 this August. Meanwhile, the total number of hours worked rose 0.4% in August and is up 2.7% from a year ago. Combined with wages per hour up 2.2% from a year ago, workers’ total cash earnings are up 4.9%. No wonder auto sales are booming, hitting the highest level since 2005. Also, notice again the deafening silence from those who used to bemoan the rise in part-time jobs. Part-time employment is down 765,000 in the past year even as total jobs are up. However, all the good news doesn’t mean everything is right. The participation rate remained at 62.6% in August, tying the lowest level since 1977. Three key factors are holding down participation: aging Boomers, easily available disability benefits, and overly generous student aid. The bottom line is that the economy in general and labor market in particular would be doing better with a better set of policies, like lower tax rates, less government spending, and lighter regulation. That’s why we have a Plow Horse economy rather than a Race Horse economy. It’s not the boom of the 1980s or 1990s – not even close – but it continues to move forward.
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Wesbury takes the reported 5.1% U.S. "unemployment rate" at face value. I repeat: The man is either an idiot or a liar. There are 93 MILLION AMERICANS NOT CURRENTLY IN THE WORK FORCE. THAT IS PRACTICALLY 50% OF THIS NATION'S WORKING-AGE POPULATION. WHAT PART OF THIS DOES WESBURY AND OTHERS WHO ACCEPT THIS FIGURE AS CREDIBLE NOT UNDERSTAND???
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Also, the Employment Rate counts a person holding two or three jobs as three people being employed. How many people do you know that hold two or more jobs? I know plenty, and they are all in the Service Industries.
Also, how about the fact that many companies are now going with Part Time Employees under 30 hours to avoid Obamacare. That means to counter the difference from 40 to 30 hours, the company must hire more Part Time Employees.
And on this note, remember when 40 hours was full time but now it is 30? 30 counts as Full Time Employment.
Let's just change the measuring stick to make things look better. Sort of like the Women Clothing Manufactures who changed the standard for size on dresses. Make a size 12 down to a 10. Now the women can claim they are 10's.
BTW, the Fed cannot raise rates. Doing so:
1. Increases rates on millions of Lines of Equity, making payments higher and causing more defaults.
2. Increases rates on Adjustable Rate 1st mortgages, making payments higher and causing more defaults.
3. Make housing less affordable which will reduce home sales, and which will ultimately lead to falling home values.
4. Drives up consumer rates and payments.
5. Student loans.
6. Cause the equity markets to puke.
Does the Fed want to drive up rates which will cause all the problems I cite, as well as other problems? The Fed is stuck. They cannot do anything because if they do, it harms the economy, what is left of it.
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Apart from his comments on the unemployment rate at the end of this entry (he fails to discuss the numbers who have given up looking for work), as usual Scott makes numerous points worth considering.
http://scottgrannis.blogspot.com/2015/09/the-problem-is-lack-of-productivity.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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http://legalinsurrection.com/2015/09/august-jobs-report-94-million-americans-no-longer-in-labor-force/
Awesome!
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Monday Morning Outlook
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Everything's Not Bad To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/8/2015
Have you noticed? Everything’s bad these days. On February 25, 2015, the Washington Post wonkblog posted a piece titled “Why rising wages might be bad news.”
Last week, on September 1st, after another strong month of car and truck sales, the Wall Street Journal published a story “The Bad News in Strong Car Sales.”
Back in January 2014, when the dollar was weak, Zerohedge.com published a piece titled “The Slow (But Inevitable) Demise Of The Dollar.” Buy gold!
Now that the dollar is strong, the US is in a deadly currency war. On July 28, 2015, cnn.com published a piece titled “Watch Out: Strong U.S. dollar could trigger currency crisis.” Sell everything!
Television is even worse, but combing through hours of tape to find those nuggets of really bad analysis, we already know are there every day, seems like a waste of time.
We are tempted to argue that bad news sells, so the bigger the explosion, the more flame or flying metal a story has, the more viewers tune in. But, it goes deeper than that.
First off, our political leadership – on both sides of the aisle – use economic fear in an attempt to win votes.
The Right argues that as long as Barack Obama is president, nothing good can happen. Ask them about the stock market and they say it’s just a sugar high caused by the Fed. Ask them about 66 consecutive months of private-sector job growth and they argue all the jobs are part-time (not true) or that the labor force isn’t growing. Vote for us and this nightmare will end.
The left argues that bad economic news is because George Bush let his bankers destroy the country and we need more government spending and redistribution (more Democrat policies) to fix things.
Second, ever since the trauma of 2008, investors have had a bad case of Post-Traumatic Stress Disorder. Every drop in the market, every weak economic report, every analyst with a doom and gloom story, no matter how unlikely, creates a visceral reaction of fear, loathing, fight, or flight.
Third, there are so many outlets for thought these days that every voice and every opinion has an outlet. C’mon…rising wages and strong car sales are bad?
All of this makes the “fog of war” look like a picture window. There is more bad economics, bad math and bad information masquerading as analysis these days than we have seen at any time in the past 30 years.
Talking heads look into the TV screen and say things like; “China is collapsing.” But the reality is that Chinese real GDP is still growing somewhere between 4% and 6% per year. Yes, the Chinese stock market has fallen sharply in recent months, but the Shanghai Composite stock index is only down 2% year-to-date and is still up 36.3% from 12 months ago.
After last Friday’s jobs report – yep, the one that reported 173,000 new jobs in August and a 5.1% unemployment rate –some analysts expressed the idea that, “the US job market is falling apart.” Give us a break. Historically, August is the month with the most upward revisions and payrolls in June and July were revised up a total of 44,000. Over the past 12 months, total non-farm payrolls have climbed an average of 243,300 per month, better than any twelve-month period in the prior expansion in 2001-07.
Another line we heard last Friday was, “wages were up only a TINY 0.3% in August!” But, 0.3% in one month is 3.7% annualized growth! Even if inflation were running at 2%, anyone complaining about what is naturally a small gain in one month is misusing mathematics.
We aren’t saying that you should only listen to First Trust Economics…we think listening to only one argument is a mistake. What we are saying is “be careful,” try to use some common sense and turn your nonsense filters on high.
For example, Greece has the GDP of Detroit, how could it possibly take the world down? China is the #2 economy in the world, but so was Japan back in the late 1980s. Entrepreneurs create growth, not politicians or the Fed. Janet Yellen doesn’t frack wells or write Apps and a 0.5% federal funds rate won’t slowdown Apple. Everything’s Not Really So Bad.
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- Yes, irked.
"Everything's Not Bad" (Wesbury)
- Straw, like Obamna. The argument isn't that everything is bad. You have to make that up to defeat it. Yes, the AMerican economy is amazingly resilient under the circumstances. With key elections coming up every 2, 4 and 6 years, there is still hope that we turn this around, survive and prosper.
"First off, our political leadership – on both sides of the aisle – use economic fear in an attempt to win votes."
- Back to BW, both sides aren't the same. There ought to be some RATIONAL fear that the current course isn't working.
"We aren’t saying that you should only listen to First Trust..."
- A significant point of agreement!
Question for BW: If EVERYTHING is okay, why has the Fed maintained pretend stimulative zero or near zero, artificially low interest rates for a period of time that is now going on TWO DECADES?! Are your saying the Fed doesn't have access to the best and most detailed economic information on every sector possible? Are you kidding? They do and the picture they are seeing isn't pretty.
What BW's Rosy Scenario has established is that the indices of already entrenched companies have mostly gone up until now while 'stimulated' growth is near zero, the median is stuck and entrepreneurial activity, the lifeblood of the economy, along with the worker participation rate are all collapsing.
94 MILLION PEOPLE - and growing - are now planning to NEVER WORK AGAIN. That is almost as many that pull the wagon working full time in the private sector. Assuming no change in policies, what could possibly go wrong, going forward?
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http://individual.troweprice.com/public/Retail/Planning-&-Research/T.-Rowe-Price-Insights/Personal-Finance/Overcoming-Your-Market-Fears?placementGUID=em_rtl_edu_escid251354_Inv_Dgst_U50_PFD&creativeGUID=EMBDHT&v_sd=201508
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http://scottgrannis.blogspot.com/2015/09/good-news-trumps-bad-news.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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http://scottgrannis.blogspot.com/2015/09/good-news-trumps-bad-news.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
From the link:
The bad news: this is the weakest recovery ever; the labor force participation rate has been falling for 15 years; productivity growth is dismally low; our national debt is at a post-war high of 72% of GDP; race relations have deteriorated; tax and regulatory burdens are suffocating the private sector; savers and retirees have been severely penalized by seven years of near-zero interest rates; the rule of law has been weakened by the emergence of the Imperial Presidency; crony capitalism (a euphemism for corruption in government) is rampant; the tax code is a nightmare; and transfer payments are at record-high levels that correspond to 20% of personal income and over 70% of federal spending.
Powerful stuff. The so-called good news can only be taken in the context of the above. In other words, we can say all we want about the great re-arrangement of deck chairs on the Titanic, but not honestly without also mentioning the iceberg.
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I asked Scott for his response. Here it is:
"The first step to fixing the debt is to fix the deficit. We’ve done that. If current trends persist, the burden of debt (debt/GDP) will decline. At 72% currently, the debt is big but not an existential threat. It’s also important to remember that it’s not debt that is the problem, it’s spending. Spending is inevitably paid for by taxation. Spending saps the economy’s productivity, squanders resources, and feeds corruption. Get spending under control and the existing debt becomes irrelevant on the margin. We have made great progress in that direction. Things may deteriorate in the future, but for now there is genuine progress and reason to be hopeful."
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I asked Scott for his response. Here it is:
"The first step to fixing the debt is to fix the deficit. We’ve done that. If current trends persist, the burden of debt (debt/GDP) will decline. At 72% currently, the debt is big but not an existential threat. It’s also important to remember that it’s not debt that is the problem, it’s spending. Spending is inevitably paid for by taxation. Spending saps the economy’s productivity, squanders resources, and feeds corruption. Get spending under control and the existing debt becomes irrelevant on the margin. We have made great progress in that direction. Things may deteriorate in the future, but for now there is genuine progress and reason to be hopeful."
We didn't fix the deficit as I understand it because a) with Obamacare the deficit was scheduled to go back up, and b) with the sequester, defense spending is putting us in a readiness deficit that will cost $2 (a concession on social spending) for every $1 of defense restoration. c) Tax rates are at unsustainably high levels. CBO rules are not fully dynamic. Significant tax rate cuts will require further spending cuts. d) entitlement disaster, e) unfunded liabilities partly within the above. f) Workforce participation rate not just worst ever but still declining, f) the birth dearth. g) The coming rise of interest rates applied to our massive debt.
Our fiscal house is still a complete mess. IMHO.
Scott is obviously correct on spending but existing debt does not become irrelevant on the margin when you apply 20 trillion to a doubling, tripling or more of interest rates. Instead it is existing debt that makes future budget balancing impossible.
I will be hopeful AFTER power and political direction changes in Washington. Even then I am skeptical.
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The capacity for human denial in the face of obvious evidence everywhere one turns never ceases to astonish me.
Shades of Jews in Europe circa 1938 insisting that despite the Nazis clear targeting of them, "The Germans won't do anything to hurt us - we're too important to the economy." We know how that turned out...
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Doug,
Agree with you that the deficit has not been fixed. Just because it has dropped does not mean that it will continue to drop, especially with a recession, increase in interest rates, or most important, DC remaining in the control of the Uni-Party.
Debt is absolutely a concern. Debt has increased over $8t in the last 8 years, and will continue to rise, especially so as rates increase in the future. I find that those who cite that debt is only a proportion of the GDP are deluding themselves. (This does not include state debts which is even more devastating.)
If the illegals are given amnesty, then they become eligible for all the welfare and other government support systems available which will drive up costs. Add Obamacare and the problems increase even more.
The problem is spending, but there is no current will in DC to stop the spending, or even reduce it. Oct 1, the beginning of the new budgetary year, is 8 days away and there is no budget ready for the 8th year in a row. Why? Because neither side wants to introduce a budget that will reveal just how bad things are. Instead they introduce continuing budget resolutions to fund the government to hide the real budget.
To really show how bad it is, when/if the budget results in a "shut down" of only unnecessary employees, the laid off employees are guaranteed to receive "back pay" for all the missed days. Guess they don't want to raise the ire of the government unions.
Of course, if it gets bad, the government will just print more money..............
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Politics, monetary policy, the economy, and financial markets; everywhere you look things are changing.
The Fed held off on raising rates last week, and the markets weren’t sure how to react. Employment has been strong and inflation is in check, but a third (and unofficial) objective, market volatility, caused the Fed not to act.
Thankfully, Fed Chair Yellen’s speech yesterday suggests rates will rise before year end. It’s about time. A 0.25% rate hike won’t make the Fed tight, just less loose.
Meanwhile, news broke this morning that House Speaker Boehner will resign from Congress at the end of next month. This makes a government shutdown more likely, but that’s not necessarily a bad thing.
Finally, GDP was revised higher to 3.9% for Q2 and, more importantly for the markets, corporate cash flows continue to climb.
With these corrections in place, the equity markets look set to hit all-time highs.
Brian Wesbury
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The Worst Part Is Central Bankers Know Exactly What They Are Doing
Wednesday, 23 September 2015 Brandon Smith
The best position for a tyrant or tyrants to be in, at least while consolidating power, is tyranny by proxy. That is to say, the most dangerous tyrants are those the people do not recognize: the tyrants who hide behind scarecrows and puppets and faceless organizations. The worst position for the common citizen to be in is a false sense of security and understanding, operating on the assumption that tyrants do not exist or that potential tyrants are really just greedy fools acting independently from one another.
Sadly, there are a great many people today who hold naïve notions that our sociopolitical dynamic is driven by random chaos, greed and fear. I’m sorry to say that this is simply not so, and anyone who believes such nonsense is doomed to be victimized by the tides of history over and over again.
There is nothing random or coincidental about our political systems or economic structures. There are no isolated tyrants and high-level criminals functioning solely on greed and ignorance. And while there is certainly chaos, this chaos is invariably engineered, not accidental. These crisis events are created by people who often refer to themselves as “globalists” or “internationalists,” and their goals are rather obvious and sometimes openly admitted: at the top of their list is the complete centralization of government and economic power that is then ACCEPTED by the people as preferable. They hope to attain this goal primarily through the exploitation of puppet politicians around the world as well as the use of pervasive banking institutions as weapons of mass fiscal destruction.
Their strategic history is awash in wars and financial disasters, and not because they are incompetent. They are evil, not stupid.
By extension, perhaps the most dangerous lie circulating today is that central banks are chaotic operations run by intellectual idiots who have no clue what they are doing. This is nonsense. While the ideological cultism of elitism and globalism is ignorant and monstrous at its core, these people function rather successfully through highly organized collusion. Their principles are subhuman, but their strategies are invasive and intelligent.
That’s right; there is a conspiracy afoot, and this conspiracy requires created destruction as cover and concealment. Central banks and the private bankers who run them work together regardless of national affiliations to achieve certain objectives, and they all serve a greater agenda. If you would like to learn more about the details behind what motivates globalists, at least in the financial sense, read my article 'The Economic Endgame Explained.'
Many people, including insiders, have written extensively about central banks and their true intentions to centralize and rule the masses through manipulation, if not direct political domination. I think Carroll Quigley, Council on Foreign Relations insider and mentor to Bill Clinton, presents the reality of our situation quite clearly in his book “Tragedy And Hope”:
"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations. Each central bank … sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."
This "world system of financial control" that Quigley speaks of has not yet been achieved, but the globalists have been working tirelessly towards such a goal. The plan for a single global currency system and a single global economic authority is outlined rather blatantly in an article published in the Rothschild owned 'The Economist' entitled 'Get Ready For A Global Currency By 2018'. This article was written in 1988, and much of the process of globalization it describes is already well underway. It is a plan that is at least decades in the making. Again, it is foolhardy to assume central banks and international bankers are a bunch of clumsy Mr. Magoos unwittingly driving our economy off a cliff; they know EXACTLY what they are doing.
Being the clever tyrants that they are, the members of the central banking cult hope you are too stupid or too biased to grasp the concept of conspiracy. They prefer that you see them as bumbling idiots, as children who found their father’s shotgun or who like to play with matches because in your assumptions and underestimations they find safety. If you cannot identify the agenda, you can do nothing to interfere with the agenda.
I have found that the false notion of central bank impotence is growing in popularity lately, certainly in light of the recent Fed decision to delay an interest rate hike in September. With that particular event in mind, let’s explore what is really going on and why the central banks are far more dangerous and deliberate than people are giving them credit for.
The argument that the Federal Reserve is now “between a rock and a hard place” keeps popping up in alternative media circles lately, but I find this depiction to be inaccurate. It presumes that the Federal Reserve "wants" to save the U.S. economy or at least wants to maintain our status quo as the “golden goose.” This is not the case. America is not the golden goose. In truth, the Fed is exactly where it wants to be; and it is the American people who are trapped economically rather than the bankers.
Take, for instance, the original Fed push for the taper of quantitative easing; why did the Fed pursue this in the first place? QE and zero interest rate policy (ZIRP) are the two pillars holding up U.S. equities markets and U.S. bonds. No one in the mainstream was demanding that the Fed enact taper measures. And when the Fed more publicly introduced the potential for such measures in the fall of 2013, no one believed it would actually follow through. Why? Because removing a primary support pillar from under the “golden goose” seemed incomprehensible to them.
In September of that year, I argued that the Fed would indeed taper QE. And, in my article “Is The Fed Ready To Cut America’s Fiat Life Support?” I gave my reasons why. In short, I felt the Fed was preparing for the final collapse of our economic system and the taper acted as a kind of control valve, making a path for the next leg down without immediate destabilization. I also argued that all stimulus measures have a shelf life, and the shelf life for all QE and ZIRP is quickly coming to an end. They no longer serve a purpose except to marginally slow the collapse of certain sectors, so the Fed is systematically dismantling them.
I received numerous emails, some civil and some hostile, as to why I was crazy to think the Fed would ever end QE. I knew the taper would be instituted because I was willing to accept the real motivation of central banks, which is to undermine and destroy economies within a particular time frame, not secure economies or kick the can indefinitely. In light of this, the taper made sense. One great pillar is gone, and now only ZIRP remains.
After a couple of meetings and preplanned delays, the Fed did indeed follow through with the taper in December of that year. In response, energy markets essentially imploded and stocks became steadily more volatile over the course of 2014, leading to a near 10% drop in early fall followed by foreign QE efforts and false hints of QE4 by Fed officials as central banks slowed the crisis to an easier to manage pace while easing the investment world into the idea of reduced stimulus policies and reduced living standards; what some call the "new normal".
I have held that the Fed is likely following the same exact model with ZIRP, delaying through the fall only to remove the final pillar in December.
For now, the Fed is being portrayed as incompetent with markets behaving erratically as investors lose faith in their high priests. This is exactly what the bankers that control the Fed prefer. Better to be seen as incompetent than to be seen as deliberately insidious. And who knows, maybe a convenient disaster event in the meantime such as a terrorist attack or war (Syria) could be used to draw attention away from the bankers completely.
Strangely, Bloomberg seems to agree (at least in part) with my view that the taper model is being copied for use in the rate hike theater and that a hike is coming in December.
Meanwhile, some Federal Reserve officials once again insinuate that a hike will be implemented by the end of the year while others hint at the opposite.
Other mainstream sources are stating the contrary, with Pimco arguing that there will be no Fed rate hike until 2016. Of course, Pimco made a similar claim back in 2013 against any chance of a QE taper. They were wrong, or, they were deliberately misleading investors.
Goldman Sachs is also redrafting their predictions and indicating that a Fed rate hike will not come until mid-2016. With evidence indicating that Goldman Sachs holds considerable influence over Fed policy (such as exposed private meetings on policy between Fed officials and banking CEO's), one might argue that whatever they “predict” for the rate hike will ultimately happen. However, I would point out that if Goldman Sachs is indeed on the inside of Fed policy making, then they are often prone to lying about it or hiding it.
During the taper fiasco in 2013, Goldman Sachs first claimed that the Fed would taper in September. They lost billions of dollars on bad currency bets as the Fed delayed.
Then, Goldman Sachs argued that there would be no taper in December of that year; and they were proven to be wrong (or disingenuous) once again.
Today, with the interest rate fiasco, Goldman Sachs claimed a Fed rate hike would likely take place in September. They were wrong. Now, once again, they are claiming no rate hike until next year.
Are we beginning to see a pattern here?
How could an elitist-run bank with proven inside connections to the Federal Reserve be so wrong so often about Fed policy changes? Well, losing a billion dollars here and there is not a very big deal to Goldman Sachs. I believe they are far more interested in misleading investors and keeping the public off guard, and are willing to sacrifice some nominal profits in the process. Remember, these are the same guys who conned nations like Greece into buying toxic derivatives that Goldman was simultaneously betting against!
The relationship between international banks like Goldman Sachs and central banks like the Federal Reserve is best summed up in yet another Carroll Quigley quote from “Tragedy And Hope”:
"It must not be felt that these heads of the world’s chief central banks were themselves substantive powers in world finance. They were not. Rather, they were the technicians and agents of the dominant investment bankers of their own countries, who had raised them up and were perfectly capable of throwing them down. The substantive financial powers of the world were in the hands of these investment bankers (also called “international” or “merchant” bankers) who remained largely behind the scenes in their own unincorporated private banks. These formed a system of international cooperation and national dominance which was more private, more powerful, and more secret than that of their agents in the central banks."
Goldman Sachs and other major banks act in concert with the Fed (or even dictate Fed actions) in conditioning public psychology as much as they manipulate finance. First and foremost, globalists require confusion. Confusion is power. What better way to confuse and mislead the investment world than to place bad bets on Fed policy changes?
Heading into the end of 2015, we are only going to be faced with ever mounting mixed messages and confusion from the mainstream media, international banks and central banks. It is important to always remember, though, that this is by design. A common motto of the elite is “order out of chaos,” or “never let a good crisis go to waste.” Think critically about why the Fed has chosen to push forward with earth-shaking policy changes this year that no one asked for. What does it have to gain? And realize that if the real goal of the Fed is instability, then it has much to gain through its recent and seemingly insane actions.
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http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/09/20150916_obo.jpg
(http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/09/20150916_obo.jpg)
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Wesbury's prediction is about the MARKET.
GM's posted charts are about the REAL WORLD.
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Personal Income Increased 0.3% in August To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/28/2015
Personal income increased 0.3% in August and rose 0.4% including revisions to prior months. The consensus expected a gain of 0.4%. Personal consumption increased 0.4% in August (0.7% including revisions to prior months), beating consensus expectations of 0.3%. Personal income is up 4.2% in the past year, while spending is up 3.5%.
Disposable personal income (income after taxes) increased 0.4% in August, and is up 3.6% from a year ago. The gain in August was led by private sector wages & salaries. Most other categories saw small gains in August.
The overall PCE deflator (consumer prices) was unchanged in August and is up 0.3% versus a year ago. The “core” PCE deflator, which excludes food and energy, rose 0.1% in August and is up 1.3% in the past year.
After adjusting for inflation, “real” consumption rose 0.4% in August (0.7% including revisions to prior months) and is up 3.2% from a year ago.
Implications: Incomes and spending continued to move higher in August, led again by strong growth in wages & salaries. Payrolls are up almost three million from a year ago, helping push private-sector wages & salaries up a robust 4.1% in the past year. Total income – which also includes rents, small business income, dividends, interest, and government transfer payments – increased 0.3% in August and is up 4.2% in the past year, faster than the 3.5% gain in consumer spending. In other words, recent gains in consumer spending have been driven by higher incomes, not consumers getting into potential financial trouble with too much debt. The only real negative news in today’s report was the failure to make any progress against government redistribution. Although unemployment compensation is hovering around the lowest levels since 2007, overall government transfers to persons are up 4.5% in the past year, largely driven by Obamacare. Before the Panic of 2008, government transfers – Medicare, Medicaid, Social Security, disability, welfare, food stamps, and unemployment comp – were roughly 14% of income. In early 2010, they peaked at 18.5%. Now they’re around 17%, but not falling any further. Redistribution hurts growth because it shifts resources away from productive ventures. This is why we have a Plow Horse economy instead of a Race Horse economy. The PCE deflator, the Fed’s favorite measure of inflation, was unchanged in August. Although it’s only up 0.3% from a year ago, it continues to be held down by falling energy prices. The “core” PCE deflator, which excludes food and energy, is up 1.3% from a year ago. That’s still below the Fed’s 2% inflation target, but it’s up a faster 1.6% annualized rate in the past six months. As soon as energy prices stop falling, inflation is going to pick up, supporting the case for starting rate hikes before year-end. In other news today, pending home sales, which are contracts on existing homes, declined 1.4% in August after rising in July. Our models project that existing home sales, which are counted at closing, should rise slightly in September.
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Sorry that I am not much on the Investment Side. But this makes sense. Yes Doug, my sick humor again.
(https://openmerchantaccount.com/img/trumppattern.jpg)
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http://scottgrannis.blogspot.com/2015/10/the-fed-is-powerless-to-boost-jobs.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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The Bull Market Still Lives To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 10/5/2015
Stock market corrections (usually defined as 10% pullbacks) are hard to understand. Often they happen in the midst of long-term bull markets. But why? Is it like getting the flu? Is it just emotion? Or, are corrections a necessary cleansing out of excess optimism? Our answer: we don't really know.
One thing we do know is that almost every time they happen, pessimists come out of the woodwork saying that a Bear Market has begun. In the past seven years, this has happened a number of times, but each time, the market has bounced back to new highs. Think about 2011, when the S&P 500 fell by 19.4% from April 29th to October 3rd. Even with the recent decline, the market is up 77.5% since then. We think the 2015 correction is no different and expect stocks to move to new highs.
There’s no real definition of a bear market, or a bull market, for that matter. Most pundits use the rule-of-thumb that a bear market is a 20% drop from a prior peak. However, in 1962 this happened in the midst of a long running rise in stock prices that went on until 1966. So, we don't really know what to call that!
That still leaves several other 20% market declines in 1957, 1970, 1973-74, 1980, 1981-82, 1990, 2000-02, and 2007-09. But each of these was correlated with recession and a recession anytime soon is extremely unlikely.
Monetary policy is loose and will remain that way even when the Federal Reserve starts raising interest rates (still later this year, in our view). We wish marginal tax rates were lower, but they’re not high by historical standards. Trade policy continues to move, at least gradually, in a direction of lower barriers to international trade. The federal government could certainly find ways to spend less and reform entitlements, but government is not growing as quickly as it did in the prior decade.
Moreover, financial firms are better capitalized than they’ve been for years, corporate balance sheets are loaded with cash, and households’ financial obligations are hovering near the smallest share of after-tax income since the early 1980s. Meanwhile, as much as home building has revived the past few years, it still has further to go. This is just not a recipe for recession.
There were two other "bear" markets that didn’t accompany a recession. One was in 1966, during the long economic expansion of the 1960s. The other was in 1987, with the famous and short-lived Crash in October that year.
But the 1966 decline in stocks followed the "Great Society" legislation, and inflation was ramping up. And 1987 was a fluke. In addition, our capitalized profits models – what we use to estimate fair value for equities – would have said both times that equities were overvalued before those bear markets started. By contrast, the same model is now saying equities are still undervalued.
The model uses after-tax corporate profits discounted by the 10-year Treasury yield. Partly because profits have risen so much but mostly because the 10-year Treasury yield is artificially low, this model still suggests that the S&P 500 is massively undervalued. Using a 10-year Treasury yield of 2%, the model says the “fair value” of the S&P 500 is 4,850.
But this number is artificially high because the discount rate is being held down by the Fed. Using a 4% 10-year discount rate gives us a “fair value” 2,425, leaving plenty of room for equities to rebound from the recent correction and move much higher. Assuming zero growth in profits, the 10-year yield would have to rise to about 5% to signal that equities are fairly priced right now.
None of this means equities have to hit new highs this week, or even this month. It does suggest that fears about a bear market are way overblown. We see no reason for a recession on the horizon, and equities still look cheap.
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"The Bull Market Still Lives
Brian S. Wesbury,
...That still leaves several other 20% market declines in 1957, 1970, 1973-74, 1980, 1981-82, 1990, 2000-02, and 2007-09. But each of these was correlated with recession and a recession anytime soon is extremely unlikely.
...
We see no reason for a recession on the horizon..."
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(WSJ Oct 3, 2015):
It’s certainly hard to find much good news in the September numbers. Employers added 142,00 net new jobs, but only 118,000 in the private economy. Payrolls were revised lower by 59,000 for July and August, for a monthly average of only 167,000 in the third quarter. That’s down from a monthly average of 198,000 for all of 2015 so far, which is down from 260,000 a month in 2014.
Worse, the labor participation rate—a key measure of labor market health—fell to 62.4%, the lowest rate since 1977, when the economy was still recovering from the rough mid-1970s recession. Some 350,000 Americans left the labor force in September...
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More people are leaving the workforce than taking new jobs by a ratio of 3:1 in the year after Obamacare kicked in. Who could have possibly predicted this??
Wesbury is looking at these same numbers: 118,000 new jobs created while 350,000 left the workforce (in one month) is the new normal. China is in possible freefall, Europe with zero growth is under invasion, the Middle East is headed into world war.
What could possibly go wrong?
The good news according to Wesbury is that stocks look cheap. Back up the truck...
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" 118,000 new jobs created"
Statistically all taken by people not born here.
Hey so what that is good for all of us! :-P
Yet the politicians seem to not really be concerned because it is all about love and dreams.
We the citizens are selfish ass holes and all those from elsewhere are saints.
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http://www.wsj.com/articles/debt-markets-shaken-amid-more-corporate-downgrades-defaults-1444671712
http://www.wsj.com/articles/profit-margins-take-spotlight-in-u-s-earnings-season-1444580752
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http://www.wsj.com/articles/debt-markets-shaken-amid-more-corporate-downgrades-defaults-1444671712
http://www.wsj.com/articles/profit-margins-take-spotlight-in-u-s-earnings-season-1444580752
There was a recovery?
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"There was a recovery?"
You beat me to that! Ready to start some recovery jokes? How will we know it's over - the lady with the fat calves will sing? Where were you when the Obama recovery hit? I sneezed, my eyes closed, and I missed it. How was it?
While we were 'recovering', we had this biggest debt run-up, greatest unfunded liabilities, lowest business startup rate, most people who left the workforce, and the biggest drop in median income in our nation's brief history.
Recovery means return to normal, not return to some new normal.
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I laughed at the fat calves line. :-D
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Allegedly a housing story but really this is about employment, income, demographics and the state of the economy. Just wanted to get this posted before Wesbury tells how great hiring was last month.
Share of First-Time Homebuyers Falls in U.S., Now at 28-Year Low
http://www.bloomberg.com/news/articles/2015-11-05/share-of-first-time-homebuyers-falls-in-u-s-now-at-28-year-low
To anyone, please tell us how this could possibly be good economic news.
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The idea is quite simple, at least if you’re a finance professor drawing out equations on a blackboard: stocks are worth all future dividends or profits discounted to present value. So if expected future profits go up, stocks should rise. But if expected future profits remain stable while interest rates rise, then profits are worth less and stocks should go down.
But that certainly hasn’t worked in the past few weeks. At the close on October 14, the federal funds futures market was putting only about a 25% chance on the Federal Reserve raising rates by the meeting on December 16. And remember, that was before the meeting in late October, so it reflected the total possibility of raising rates in either October or December.
Now the odds of a December rate hike are around 70%. As a result, the yield on the 10-year Treasury climbed from 1.99% on October 14 to 2.34% as of Friday, an increase of 35 basis points. This makes sense. Long-term rates mostly reflect expectations about future short-term rates. So, if investors put higher odds on a near-term rate hike – and rising short-term rates in the years ahead – then long-term yields should move up.
It also makes sense that gold fell by about 8%. Earlier rate hikes won’t make monetary policy “tight.” But earlier rate hikes could make the stance of policy “less loose,” which undermines the argument for runaway, hyper-inflation. Rate hikes have traditionally put downward pressure on the growth rate of nominal GDP, compared to the growth rate that would have existed had the Fed held rates lower. This means a lower path for future inflation and therefore lower gold prices.
But, contrary to conventional wisdom, as the odds of a Fed rate hike have increased in the past few weeks, so have stock prices. Partly this is due to better economic data, but with bond yields higher and no real change in profit forecasts, the rise in stock prices has the bears perplexed. The reason the bears are so confused is that they think the entire rise in stock prices during recent years is a “sugar high” – caused solely by easy Fed policy and Quantitative Easing.
This, we think, is a huge mistake, which ignores or dismisses the massive rise in corporate earnings the US has seen in the past few years. These earnings have been driven by relentless entrepreneurship, innovation, and creativity.
This is why the market recovered from the Panic in 2008-09. During the panic, bond yields fell and stocks plummeted. Now, yields are rising and stocks are rising at the same time.
The key issue is investors’ appetite for risk. When investors panic and flee from risk, bond yields and stock prices both drop. But several years into the bull market that started when mark-to-market accounting was limited, the panic is still receding. Every day more investors realize that the over-the-top “doom and gloom forecasts” just aren’t coming true. Certainty and confidence are slowly returning.
It’s also important to recognize that this time “it really is different.” The coming rate hike cycle will be different from any other time in history. In the past, raising rates required the Fed to slow reserve growth, or actually drain reserves from the banking system, slowing or reversing money growth.
But there are currently $2.6 trillion in excess reserves and the Fed has no plans to drain them, but will instead pay banks more to hold those excess reserves. The idea is that higher rates will encourage banks not to lend, which will keep money growth (like M2) in check. In other words, there is excess liquidity in the system and the Fed is doing little to contain it.
In other words, money will not be tight any time soon, a key reason we remain bullish. Just because stocks aren’t as attractive as they were in March 2009 doesn’t mean they can’t keep going higher. In fact, we still think the S&P 500 is at least 25% undervalued, even if interest rates move higher.
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http://www.breitbart.com/video/2015/11/08/former-gao-head-u-s-national-debt-is-actually-about-65-trillion/
The economy is back, baby!
Curious what Wesbury has to say...
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http://www.ftportfolios.com/Commentary/EconomicResearch/2015/11/13/its-the-domestic-spending-stupid
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The Worst Recovery Ever?For Part-Time Jobs To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/17/2015
Mark Twain has been attributed with saying “If you don't read the newspaper, you're uninformed. If you read the newspaper, you're misinformed.” And given the media’s portrayal of the job market recovery over the past six-and-a-half years, we can see where he was coming from.
We hear all the time “It’s a part-time recovery for jobs.” In reality, exactly the opposite is true. This has been the worst recovery for part-time jobs in more than 40 years! We aren’t really sure where the idea came from to begin with. Maybe it was because part-time jobs rose substantially during the last recession and people just assumed that trend continued.
Or maybe it’s because the media, playing the role of armchair economists, dug into the household side of the employment report and figured out that you can see how many part-time or full time jobs are reported each month, and they cherry-pick just the months that show large part-time gains to support their argument.
Take for instance April of 2015, the household survey showed a gain of 437,000 part-time jobs while full-time showed a 252,000 loss. So for that single month, all of the gains in household employment were due to part-time jobs. But, as with many data series, the month-to-month reports can be very volatile.
To get a better idea of what’s really going on, you need to look at the trend over at least the past year. Take that small step back, and a much clearer picture emerges. It turns out that, from October 2014 to
October 2015, the US added 2.3 million full-time jobs and actually lost 507,000 part-time jobs. So despite monthly volatility, all of the jobs created in the past year have been full-time.
The table (see PDF) shows expansions and contractions in the US economy going back to January 1970. It’s true, the last recession did see a large gain in part-time employment, but this recovery has been like nothing we have seen in the last 45 years – part-time jobs have actually declined by 276,000, while full-time jobs have risen by 9.3 million. This means 100% of the jobs that have been created in this expansion so far have been full time jobs. 100%! And the employment picture keeps improving.
Private sector payrolls have risen for 68 consecutive months, the best streak going back to at least the early 1900’s. Meanwhile, the unemployment rate has been cut in half from 10% to 5% and the more expansive U-6 rate, which also includes marginally attached and discouraged workers as well as those employed part-time for economic reasons, has fallen from a high of 17.1% down to 9.8% in October.
Don’t get us wrong, we aren’t praising the strength of this economic recovery. We still call it a plow-horse. Government is too big, taxes are too high and regulation is much too onerous. And jobs could be growing faster with better policies in place, but this has certainly not been a part-time recovery. The pouting pundits trying to push that story are either cherry-picking the data or never looked at it to begin with. Either way, they are just plain wrong.
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Job growth was one half of population growth.
http://www.multpl.com/united-states-population/table
Somehow he spins that into a positive.
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http://scottgrannis.blogspot.com/2015/11/fed-liftoff-is-good-news.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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http://scottgrannis.blogspot.com/2015/11/fed-liftoff-is-good-news.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
We have to keep hearing about 66 consecutive months of job growth, longest streak on record:
http://www.politicususa.com/2015/09/04/boom-obama-economy-marks-66th-consecutive-month-private-sector-job-growth.html
At the same time, the Fed, with the best economists in the world (allegedly) and the best data in the world, keep meeting and deciding that this economy is too fragile to handle interest rates above 0%. A 1/4 point increase could put this economy back into a tailspin,they argue by their actions.
ZIRP (Zero Interest Rate Policy) has been the law of the land since December 2008; that includes every minute of the tainted Obama 'recovery'.
I don't know that the end this nonsense will be instantly positive. Nonetheless, we all know it must end.
Maybe the Fed put this off as long as possible in order to put the 'correction' from this false recovery on future leaders.
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Data Watch
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The ISM Manufacturing Index Declined to 48.6 in November To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 12/1/2015
The ISM manufacturing index declined to 48.6 in November, well below the consensus expected level of 50.5. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mixed in November. The new orders index fell to 48.9 from 52.9, while the production index dropped to 49.2 from 52.9. The employment index jumped to 51.3 from 47.6, and the supplier deliveries index increased to 50.6 from 50.4.
The prices paid index declined to 35.5 in November from 39.0 in October.
Implications: No two ways about it, at 48.6 in November the ISM manufacturing index fell below 50, signaling contraction, for the first time in three years and came in lower than the forecast from any economic group. Today’s data highlight a stark contrast in two broad sectors of the economy: services, where the economy is expanding briskly and prices are rising, versus goods, where both growth and inflation are soft to non-existent. ISM survey respondents cited the strong dollar as a headwind to global sales, while low energy prices continue to hurt companies in the energy sector. Adding to the trouble, stores are still working through excess inventories that resulted from overaggressive purchasing earlier in the year. While we would much rather see readings above 50, there are two important things to remember with today’s report. First, the manufacturing sector represents a much smaller portion of the economy than the service sector, which has been growing much more rapidly in 2015. Paired with solid gains in employment and wages, as well as positive trends in housing and consumer spending, the economic fundamentals suggest a recession is nowhere in sight. Second, the inventory buildup is a temporary factor, and the pickup in hiring activity suggests companies are expecting orders to move higher soon, too. The drop in the overall ISM index looks a lot like the last time the manufacturing index fell below 50 back in November 2012, and that one-month dip was followed by three years of economic growth. In other words, ignore headlines that suggest the sky is falling and the Fed should hold off on raising rates later this month. The modest readings from the ISM manufacturing report in 2015, after peaking at 58.1 in August 2014, have given some pessimists reason to cheer, but we see no broad-based evidence of a significant slowdown. And remember, the ISM is a survey which can reflect sentiment as much as actual economic activity. A look at the big picture, rather than a focus on volatile monthly data, shows a green light for the Fed. In other news this morning, construction increased 1% in October (1.2% including upward revisions to prior months). The gain in October was led by federal government construction projects, single-family homes, and manufacturing facilities (chemicals, in particular). Yesterday, the National Association of Realtors reported that pending home sales, which are contracts on existing homes, increased 0.2% in October after dropping 1.6% in September. Our models suggest existing home sales, which are counted at closing, will be up slightly in November.
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Uh, oh. That's about as pessimistic as Wesbury ever gets.
"index...came in lower than the forecast from any economic group...growth soft to non-existent. ...strong dollar as a headwind to global sales, low energy prices continue to hurt companies in the energy sector. Adding to the trouble, stores are still working through excess inventories that resulted from overaggressive purchasing earlier in the year. ...Paired with solid gains in employment and wages (huh?), as well as positive trends in housing(?) and consumer spending (oh,no!), ...inventory buildup is a temporary factor...the economic fundamentals suggest a recession is nowhere in sight. (Translation, you are hereby warned of impending doom) ...ignore headlines that suggest the sky is falling... we see no broad-based evidence of a significant slowdown. (Parse that, depending on what the meaning of is is.) A look at the big picture, rather than a focus on volatile monthly data (who is focusing on monthly data, BW?), shows a green light for the Fed. In other news this morning, construction increased 1% in October (1.2% including upward revisions to prior months). The gain in October was led by federal government construction projects,... Yesterday, the National Association of Realtors reported that pending home sales, which are contracts on existing homes, increased 0.2% in October after dropping 1.6% in September. (Isn't that a net drop of 1.4% in just 2 months?)
The good news is:
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VERY ugly - that's how it will look - much worse than most can even imagine:
What Will Happen When the Dollar Collapses?
Dave Hodges
June 2nd, 2014
This article has been generously contributed by Dave Hodges and was originally published at The Common Sense Show.
currency-collapse1 (1)Will It Be a False Flag Attack Or a Currency Collapse?
Hitler initiated a false flag event and burned down the Reichstag to gain control over the German government. Could the same happen here in the United States? My initial response to that question is, does it really matter? The pattern of societal collapse and subsequent governmental enslavement of the American people will be largely the same whether the precipitating incident is a false flag attack or a currency collapse. For the purpose of simplicity, let us call the precursor event to all-out martial law, a currency collapse.
The Federal Reserve Is the Enemy of Humanity
The Federal Reserve has been bleeding this country to death for a century. What the dollar bought 100 years ago, can only buy three cents of product today. This means that 97% of the value of our currency has gone into the pockets of the Federal Reserve investors for the past 100 years.
I am amazed at the abject ignorance of the American people and that they think the Federal Reserve is actually part of the federal government. As we like to stay in the alternative media, the Federal Reserve is no more federal than Federal Express. For the record, the Federal Reserve is a privately held corporation which sells stock to preferred insiders. In 1913, a small majority of Congress commissioned the Federal Reserve to control banking in the United States. Without a doubt, this was the worst decision ever made by an act of Congress.
The Dollar Is Diving
The world is running from the dollar, or should I more accurately state the Petrodollar. Until recently, our dollar was used as the currency of international trading. Further, the dollar was also the reserve currency for oil. All foreign countries wishing to purchase oil from the Middle East, first had to purchase dollars from the Federal Reserve. After FDR took us off the gold standard during the Great Depression and Richard Nixon finished the task of providing America with a totally Fiat currency, the only backing that our dollar enjoys is that of being the reserve currency for both trading and for oil (i.e. the Petrodollar scam).
The major cause of the present economic calamity is fractional reserve banking. When the government goes to the private Federal Reserve and asks for one trillion dollars, the federal reserve gets to print one trillion for the government, at interest, and $10 trillion dollars for themselves and to lend out at high interest rates. This inflationary practice erodes the value of your dollar while enriching our Federal Reserve investors. Ultimately, the currency upon which we depend on will be destroyed and life as we know it will be changed forever.
The practice of fractional reserve banking should be wholly illegal because it creates a state of permanent inflation for the benefit of a few and sets up economic demise for the many.
A Changing of the Financial Guard
The nations presently running from our petrodollar are India, China, Iran, Japan, South Africa and Australia have signed their own trade agreements and their currency of choice is no longer the dollar!
When the collapse of the dollar occurs, it will literally and figuratively come like a thief in the night, and I do mean overnight!
We are all familiar with the concept of inflation, which is the intentional byproduct of the Federal Reserve. But I am not just talking inflation, I’m speaking about hyperinflation which is caused by the collapse of the value of the currency resulting in runaway prices. Here are three examples of how quickly a currency collapse can occur when a nation’s money when its money no longer holds it value:
1. In Weimar Germany, from 1922 – 1923, prices doubled every three days.
2. In the modern era, in Yugoslavia from 1992-94, witnessed prices doubling every 34 hours.
3. In Zimbabwe, in the two year period from 2007 – 2008, prices doubled every 25 hours.
History is replete with examples of currency collapses and they typically follow very predictable patterns in which a nation unravels and social chaos, and many times, widespread violence and even genocide becomes part of the national landscape.
What Does a Currency Collapse Look Like?
It can accurately be stated that a lot has been written and rehearsed by the federal government on the topic of the effects of a currency collapse and its subsequent impact on society. NORTHCOM, DHS and FEMA as well as other federal entities have practiced for this eventuality. In each and every scenario, the facts remain the same, human beings and society follows a very predictable pattern of decline when the currency of the day collapses. And normally, the currency collapse comes without any warning to the general public.
When George Soros recently pulled his money from the S&P 500 and from Bank of America, Citibank and JP Morgan, all Americans should have sat up and taken notice. Generally, when the currency collapses, a stock market crash is right on its heels. Because of the repeal of Glass-Steagall, a banking meltdown will immediately occur following the collapse of the stock market because since Clinton’s presidency, banks are now allowed to loan money for investment in the stock market and for down payments for homes. It was irresponsible of Congress to repeal Glass-Steagall, because it made surviving an economic Armageddon a near impossibility just as it did during the 1929 crash.
In a currency collapse, your life savings will be wiped out. From this point on, the effect cascades like a roaring tsunami racing across the open ocean.
Hurricanes Katrina and Sandy demonstrated that gas stations will be bone dry within two days following a complete collapse. Subsequently, commerce will not move. If you are on vacation, you may not make it home. On the second day following a currency collapse, being on the road will be a risky endeavor because of other desperate motorists who will lie in wait to rob other motorists of essential supplies and resources.
With no available fuel, the grocery and drug stores will be empty within one to three days. There will be no food to be had except for that which is decaying in your refrigerator and that in which you can beg, borrow and steal from your neighbors who will also be begging, borrowing and stealing. from your other neighbors. If you have an adequate food and water supply, you better have an adequate gun and ammo supply in order to defend your assets. And when will you sleep? The protection of your critical assets is a 24/7 proposition. Therefore, having a cooperative survival plan is critical.
Without gas, people will stop going to work. Corporations will disappear overnight. Hurricane Katrina showed America that the police cannot be expected to stay on the job more than 48-72 hours as they will be home protecting their families and foraging for food and water like everyone else. The emergence of former police, now operating as gangs, will become common in an effort to secure the products which will ensure survival. Therefore, when your home is under attack, there will nobody to call. Everyone will be on their own.
The elderly and the chronically ill will be the first to die. Too old to defend their assets, the elderly will find themselves overpowered as they will make easy preys of opportunity for the roving gangs. The chronically ill will have no way to procure their medication and even if they survive the looting rampage which will follow a currency collapse, these poor souls will perish without access to their life-sustaining prescriptions.
The money in your wallet will be useless. Cell phones will not work. Heating and air conditioning will not work either and depending on the time of year, the environment could prove deadly to untold numbers of people.
Water treatment plants will stop operating for the same reasons that you will not be able to find a cop during this crisis nobody will be manning the water treatment plants. Toilets will back up and diseases will spread like wildfire. Cholera will become the leading cause of death even surpassing homicide. Something as simple as toilet paper will become a prized commodity. There will be no trash pickup and more disease will result due to the increased rodent population.
Clean drinking water and hunger will become the dominant motivator in society. Roving bands of looters, turned murderers, will sweep through neighborhoods seeking to obtain these critical elements of survival. Young women will sell themselves for a can of food for their children. Society will see the widespread loss of human dignity and self-respect.
Infanticide and euthanasia of the weak will become common events because there will be decided efforts to reduce the amount of mouths to feed. There will be the stark realization that the lights are not coming back on and the ensuing sense of hopelessness will lead to murder-suicides within families and simple incidences of suicide will be used as a means to escape the horrendous circumstances.
Humanity’s Darkest Hour
There will come a time when all the available animals will be devoured and then there will be only one place to turn to for food. History shows thatcannibalism will set in by the beginning of the third week. Extreme hunger will lead to humans hunting humans as an available food supply. There is a real possibility that this could begin to occur within 15-20 days following the currency collapse.
The Government’s Version of the Final Solution
If the establishment military has properly planned, they will move into take control but they will not move quickly. The more death there is, the fewer people there will be to control. Government will typically move in with their solutions towards the end of the second week as has been the case in past economic collapses. The earliest the military could be deployed on the streets would be about four days from the event. Even then, the military cannot be everywhere. Christians should pay particular attention for when the Roman currency was debased in the third century, there was a revolving door for Roman emperors and Christians became the scapegoats for the economic issues.
To fully understand the relationship that will exist between yourself and the government, Google “Executive Order 13603″. The reasons behind the creation of Executive Order 13603 will soon become readily apparent. You will retain ownership over nothing including food, water, guns, ammunition, your house, your car and even yourself. If you survive, you will be conscripted to work in some capacity in a specialty and location not of your choosing. The provisions for dealing with potential dissidents will go into motion under the NDAA which allows for mass arrest and secret incarcerations without due process. There is one ironclad thing that you can count on, food and water will be used to control the people following the collapse of the dollar
Who Will Help Us?
When past currency collapses occur, organizations such as the World Bank, the IMF, the UN and the US have appeared to render their predatory version of help in exchange for control of critical infrastructure and other capital considerations. Because of this aid, more people survived in the impacted areas. However, what happens when the top dog collapses? Who would be able to come and render aid in America? Even in a world disgusted by our imperialistic ways would offer help, could they? Not under the coming circumstances could anyone offer help because they will be in a worse situation.
In short, there will be nobody riding in to rescue the United States. Despite some rebelling against the dollar, the world is still dependent upon our currency. When the currency collapses it will pull the rest of world down with us. The subsequent collapse of global currencies will indeed constitute a major depopulation event and all the elite have to do is wait it out in places like the tunnels under Denver International Airport.
During this time, Americans will truly discover if there really are FEMA camps and what they will be used for. If people want to eat, they will be enticed to go where food is promised. Although you can count on the above mentioned events transpiring in the event of a currency collapse, what lies ahead is unknown to a large extent because the top dog will not have been economically obliterated in modern history.
Conclusion
In addition to what has previously been written, in an economic collapse, we can expect the government to impose travel restrictions and martial law. Life, as we know it will not be recognizable.
Obama is willing to talk about the $17 trillion dollar deficit. However, you never hear the government nor the media discuss the real debt? Our real financial obligations total $240 trillion dollars through programs like social security, Medicare, public pensions and welfare. Subsequently, I want to make one thing abundantly clear; It is not a matter if we are going to have a currency collapse, it is when. And the when is much sooner than later. It could happen tomorrow, next month and even next year. We do not have two years left in the American economic engine. A currency collapse is nothing to look forward to, and people who intend on surviving the event should be in the midst of their preparations.
Dave Hodges is an award winning psychology, statistics and research professor, a college basketball coach, a mental health counselor, a political activist and writer who has published dozens of editorials and articles in several publications such as Freedom Phoenix, News With Views, and The Arizona Republic.
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The solution is to end to fractional reserve? Seriously?
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Crafty,
I think this is a necessary part of the solution - I agree with Murray Rothbard that fractional-reserve banking constitutes fraud/embezzlement. Full-reserve banking ought to be mandated by the U.S. government, and the Federal Reserve abolished in the best-case scenario. Yes, there will always be loan-shark-type unregulated activity, but this will not be enough as a percentage of the total economy to destabilize the financial system. In this area, Ron Paul is 100% correct - despite his loony isolationist beliefs.
Below is an excerpt from a Wikipedia entry on full-reserve banking:
In the post-World War II era, economists have shown little interest in 100%-reserve banking, although some have examined the issue and concluded that the costs and inconvenience of a full-reserve banking system would outweigh any benefits.[4][5] However, economist Milton Friedman at one time advocated a 100% reserve requirement for checking accounts[6] and economist Laurence Kotlikoff has also called for an end to fractional-reserve banking.[7] According to Austrian economist Murray Rothbard, reserves of less than 100% constitute fraud on the part of banks, and full-reserve banking would eliminate the risk of bank runs.[8][9] Austrian economist Jesús Huerta de Soto also vehemently advocates full-reserve banking.
Some economists have noted that because banks would not earn revenue from lending against demand deposits, depositors would have to pay fees for the services associated with checking accounts. This, it is felt, would probably be rejected by the public.[5][10] Economists Diamond and Dybvig have warned that under full-reserve banking, since banks would not be permitted to lend out funds deposited in demand accounts, this function could be expected to be taken over by unregulated institutions. Unregulated institutions (such as high-yield debt issuers) would take over the economically necessary role of financial intermediation and maturity transformation, therefore destabilizing the financial system and leading to more frequent financial crises.[4][11]
In the wake of the 2008 financial crisis, Martin Wolf endorsed full reserve banking, saying "it would bring huge advantages".[3] John H. Cochrane also has come out in favor of full reserve banking.[12] In a response in the New York Times, Paul Krugman stated that the idea was "certainly worth talking about", but worries that it would drive financial activity outside the banking system, into the less regulated shadow banking system.[13]
Currently, no country in the world requires its banks to keep 100% reserves, although a 2015 government study commissioned by Iceland recommended its implementation.[14]
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https://ca.news.yahoo.com/watch-u-recession-zero-interest-rates-china-next-123111939--sector.html
Will we be able to tell?
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The ISM Non-Manufacturing Index Declined to 55.9 in November To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 12/3/2015
The ISM non-manufacturing index declined to 55.9 in November from 59.1 in October, coming in below the consensus expected 58.0. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mostly lower in November, but all remain above 50, signaling expansion. The business activity index fell to 58.2 from 63.0 while the new orders index declined to 57.5 from 62.0. The employment index moved lower to 55.0 from 59.2 in October. The supplier deliveries index increased to 53.0 from 52.0.
The prices paid index rose to 50.3 in November from 49.1 in October.
Implications: Despite coming in well below consensus expectations, at 55.9 the ISM non-manufacturing index continued to signal robust growth in the service sector that makes up most of the US economy. This marks a stark contrast from the manufacturing sector, and suggests the Fed should and will start raising rates in mid-December. There are still a few key data releases before the Fed announces its decision on the 16th, but the decisive data should come in tomorrow’s employment report. And plugging this morning’s initial jobless claims reading of 269,000, a 39th consecutive week under 300,000, we are now forecasting payroll gains of 198,000 nonfarm and 188,000 private. In other words, unless tomorrow presents a huge negative surprise, the Fed will have no reason to wimp out yet again. In November, twelve of eighteen service industries reported growth. The most forward looking measures, business activity and new orders, showed a slower pace of growth, but both remain at very healthy levels. Expect activity to remain strong over the coming months as companies move to fill the steady flow of new orders coming in. The employment index is also painting a positive picture. Despite some monthly volatility, the first eleven months of 2015 have shown employment growing at the fastest pace since the series began in 1998. On the inflation front, the prices paid index inched back above 50 in November, showing that prices rose modestly after two months of declines. Taken as a whole, today’s reports on employment and service sector activity have set the stage for the Fed to finally make the much-overdue first rate hike before year end.
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from the Glibness thread:
President Obama: "I think the issue is just going to be the pace and how much damage is done before we are able to fully apply the brakes."
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Translation: "I'm steadily implementing Cloward-Piven to collapse the present system, but that takes a little time. The actual collapse may not occur until I'm out of office, and then we (the Democrats) will blame it on the next President, and call for a complete government takeover as a solution."
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http://scottgrannis.blogspot.com/2015/12/slow-steady-jobs-growth-is-good-news.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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http://scottgrannis.blogspot.com/2015/12/slow-steady-jobs-growth-is-good-news.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
Why is Grannis taking bs numbers like they are true?
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Worth noting is that the large % of these jobs were in Texas, North Dakota, and other fracking revolution states.
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http://www.ibtimes.com/sp-cuts-credit-ratings-8-large-us-banks-federal-reserve-rethinks-bailouts-2209206
While we were looking at other things...
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http://scottgrannis.blogspot.com/2015/12/slow-steady-jobs-growth-is-good-news.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
Why is Grannis taking bs numbers like they are true?
http://davidstockmanscontracorner.com/these-aint-your-grandfathers-jobs-why-fridays-rip-should-be-sold/
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The list of what Stockman has been wrong about over the years is quite long (as Scott Grannis can describe in considerable detail) but this particular entry by him has peaked my curiosity. I will see if I can get Scott to comment.
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I like Scott Grannis but cringe when I hear economists repeat and dwell on known flawed economic measures. It makes me wonder who the audience is, equities buyers? Yes, the Fed should end its ZIRP, zero interest rate policy, not because the economy is solid or job 'growth' is sufficient, but because the Fed interest rate wasn't the problem and creating this additional distortion isn't the solution. Two wrongs don't make an economy right. Grannis mentions the real problems in passing, "...despite all the headwinds (e.g., high tax burdens, huge new regulatory burdens)". More helpful would be if those problems were the headline and the job growth in name only was the footnote.
Stockman may be a flake and anti-supply-sider now, but he offers facts that are noteworthy: The shrinkage of 'breadwinner' type jobs are masked in statistics by the expansion of jobs that average roughly a third of median breadwinner pay level.
Assuming Fed ZIRP affected jobs at the margin, this pyrrhic growth of the last 7 years is attributable to short term gimmicks, not underlying fundamentals. Touting the false accomplishment props up the people who admit they are really applying the brakes.
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Crafty: "Worth noting is that the large % of these jobs were in Texas, North Dakota, and other fracking revolution states."
- While those like Obama who tout this 'growth' oppose fracking and success in any other industry of real growth.
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Thank you for the thoughtful comments.
I emailed Scott and he has been kind enough to reply:
"Stockman wears his bias in plain view, and he is adept at putting together numbers that appear to validate his biased interpretation of government data. But the same data he disparages he also uses to prove his points. He argues that the data are completely misleading ("These artifacts of the BLS’ seasonally maladjusted, trend-cycle modeled, heavily imputed, endlessly crafted and five times revised “jobs” numbers”), and then he proceeds to mine the same numbers for proof of what he asserts is the real reality.
"His main point seems to be that the jobs growth of the past six years is all a mirage, just a lot of empty, low-paying jobs.
"I would agree that the jobs numbers are suspect, and I make that point repeatedly: the monthly jobs numbers are notoriously subject to significant revisions after the fact. So you have to take them with a few grains of salt. But you can’t dismiss them entirely.
"Nevertheless, there are statistics that can’t be fudged or revised, such as tax receipts. Taxes don’t lie, and no one pays more in taxes than he really owes. If anything, higher tax rates encourage evasion and trickery, so we ought to look at actual tax receipts as being inherently downwardly biased relative to reality on the ground, considering that marginal tax rates have been increasing in recent years..
"But let’s look at the sum of individual income tax receipts and payroll tax receipts over the past 15 years, the period during which he argues that hours worked of all persons have been virtually flat. On an annual basis that sum increased at a 3.1% compound annual rate, from $1.63 trillion to $2.56 trillion. All the new jobs have been inconsequential, since hours worked haven’t changed, he argues, yet the workforce generated almost $1 trillion in tax revenues in the past year than it did 15 years ago.
"I say you can’t ignore the jobs numbers completely, and you can’t claim that all the new jobs have been stupid and worthless jobs, when it is abundantly clear that the people out there working are paying a lot more in taxes."
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In-Store Sales Collapse 10% Over Black Friday Weekend
Tuesday, 01 December 2015 Brandon Smith Alt-Market.com
There are dozens of excuses and rationalizations for why this has happened, including the nonsensical lie that it has been caused by stores "spreading sales out over the entire Christmas season". I'm sorry, but retail outlets plugged Black Friday just as hard this year, from my observations, as any other year. And, Americans for some insane reason still treat Black Friday as a kind of "tradition". People were out in force on Black Friday weekend, but they are BUYING LESS. Once this Christmas shopping season is over, it will likely be rated as one of the worst in years. Online sales are also well below predictions for this year and have not nearly filled the hole that has been left by brick and mortar stores. I predicted this development in my article 'Economic Crisis Goes Mainstream - What Happens Next?', based on the fact that global shipping rates and numbers have plunged, signalling crumbling demand. Where demand falls, so falls the economy...
Sales at brick-and-mortar stores between Nov. 26 and Nov. 29 totaled an estimated $20.43 billion, 10.4% lower than 2014, according to ShopperTrak, a consumer research and analytics company. "There are several contributing factors, including fewer available store hours on Thanksgiving Day and a later Hanukkah that is anticipated to push sales into December," said ShopperTrak founder Bill Martin in a statement. Sales on Thanksgiving day were an estimated $1.76 billion, a 12.5% decrease from last year. Sales on Black Friday were about $10.21 billion, about 12% down from last year. With seven key shopping days left in the year, ShopperTrak said it maintains its 2.4% brick-and-mortar sales growth forecast for the holiday season.
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(Venezuela thread)
Following Gilder made me money at first and then lost me far more.
Those were bizarre times. I worked in the industry and had the additional overconfidence of thinking I had inside information. Fiber optic buildout growth projections were all in triple digits at the time it crashed to zero. I still didn't believe it and made one more big bet. Haven't bought a share of a stock since - which also isn't the right lesson. In the real estate crash on paper I lost close to 10 times as much. But they were hard assets they didn't fundamentally change. Those fiber optic pathways under the oceans are hard assets too, alive and well. We paid for them and don't own them anymore as the businesses went under. Gilder was right on technology and wrong on business investment.
My Grandpa used to say don't take partners in business. With stocks today you share ownership with people who are investing with different (millisecond) timeframes.
I can't imagine having money in the market now, no matter how long the bulls have been right. What is Wesbury's record at calling the next fall?
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I have been harping on this for a long time before we had data to back it up. The Obama economy has the worst rate of real business startups in the history of our country. The long term effect of this catastrophe is worse than all the hundreds of trillions of dollars of unfunded liabilities combined.
A certain number of new companies need to be started that will grow to a thousand employees and a billion in sales every year, and so many more that will grow to a hundred employees and a dozen employees and so on. And filing an LLC to protect an existing asset that will never employ anyone doesn't count.
Now we have data and it is alarming:
http://www.realclearmarkets.com/articles/2015/12/18/america_has_a_serious_start-up_slump_101923.html
America Has a Serious Start-Up Slump: Discouraging news about American entrepreneurship.
We confidently assume that we have the world's most entrepreneurial nation, and the proof seems overwhelming. Google, Facebook and Twitter are but three (relatively) recent startups that have become corporate titans.
Before them, there were others: Microsoft, Intel and FedEx. We seem to excel at nurturing new firms. Or do we?
Previous studies have shown that, despite the success of firms like Facebook, the number of startups has dropped sharply, from about 13% of all firms in the late 1980s to about 8% in 2011.
Now a new study from the National Bureau of Economic Research reports that the expansion of the remaining startups - which traditionally has been much faster than the growth of existing companies - has slowed considerably.
By some measures, it now barely exceeds the average of older companies.
So there's a double whammy: fewer startups and slower growth at the survivors.
This could be one reason the recovery from the Great Recession has been so sluggish, with the economy's growth averaging about 2% annually from 2010 to 2014, much slower than earlier post-World War II recoveries.
Using Census Bureau data, the study examined business births (the creation of new firms), deaths (companies going out of business) and growth from 1976 to 2011. It confirmed earlier studies: Though most new firms fail in their first five years, the growth of the survivors is so strong that it offsets the losses of other firms and creates much of the economy's overall increase in jobs. But that began to change after 2000, when startups' high growth faded.
The upshot: "Startups and high-growth young firms (under five years) contributed less to U.S. job creation in the post-2000 period than in earlier periods," said the report.
The startup slump may also help explain the slowdown in productivity.
(This could go in so many threads...)
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This is a VERY important theme and I am glad to see you bring it up. I have pasted your post here as well: http://dogbrothers.com/phpBB2/index.php?topic=2194.new#new so that we can focus on in its own right without being diluted among the other themes of this thread. (Here too works as well)
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Let?s Try Again: S&P 2,375 To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 12/28/2015
The future exists to keep forecasters humble. And our 2,375 forecast for the S&P 500 at year-end 2015 has done just that. We are humbled, but we do tip our hat to Jim Paulsen at Wells Fargo Asset Management who said that 2015 would be a tough year for US stocks.
Jim was right and we were wrong. To date, the S&P 500 has been basically flat in 2015, yet it did pay about a 2% dividend, which means the index beat gold, which is down about 10%, while the 10-year Treasury Note has had a total return of only about 1.5%. Oil is down 31% so far in 2015, European stocks and emerging markets disappointed as well. Japan is up 8.1% and the Nasdaq is still up 6.2% in 2015. All of this just goes to show how difficult it is to pick the perfect investment every year.
This is why we look at fundamentals. We don’t think a recession is likely in 2016. We expect Plow Horse economic growth and resilient corporate profits. As a result, we believe US stocks are still undervalued. We view the 2015 pause, after six years of increases, as a pause that refreshes.
So here we go again. Not only do we believe Northwestern will beat Tennessee on New Year’s Day, but we expect the S&P 500 to end 2016 at 2,375, 15.7% above current levels. This is based on our Capitalized Profits Model, which discounts corporate profits by the 10-year Treasury yield.
Given a 10-year Treasury yield that currently stands at 2.25%, the “raw” version of the model says the S&P 500 is “worth” 4,228. Yes, we realize that sounds insanely high. But this number is artificially high because current Fed policy is holding the yield curve “artificially low.” Using a more reasonable 10-year discount rate of 4%, instead, gives us a “fair value” calculation of 2,378.
And if we’re wrong about interest rates, if long-term yields remain stubbornly low much longer than we think, then we’re being too pessimistic about equities. A discount rate of 3.25%, for example, would put fair value at 2,925. Another way to think of this is that if the “new normal” crowd is right and interest rates stay low, then stocks have to go to much higher levels before future returns would be expected to be held down significantly.
For now, we still think the 10-year yield is eventually headed for 4%. Over long periods of time, the 10-year yield tends to equal nominal GDP growth – real GDP growth plus inflation. The Federal Reserve projects that nominal GDP growth will hover around 4% per year over the longer run, which is consistent with a 10-year yield of 4%.
Yes, the 10-year yield has fallen short of nominal GDP growth over the past five years, but over the past ten years (through the third quarter), the Note yield has averaged 3.17% while nominal GDP growth has averaged 3.18%. In other words, the so-called “broken” link between yields and the economy is a figment of the time period chosen.
However, because the Fed will lift rates in a gradual and patient manner, we forecast the 10-year yield ends next year at 3%. As a result, any danger to stocks will not be due to a rapid increase in interest rates. If you want to worry about our forecast for stocks, you should focus on profits.
We are not all that worried. Yes energy earnings are down, but we do expect real GDP to grow at a Plow Horse 2.5% annual rate in 2016. This is a slight acceleration from 2015, but no different than the 2.5% growth of 2013 and 2014.
Plow Horse economic growth should generate continued gains in the labor market. Payrolls should be up another 2.5 million, about the same as this year, and wage growth should accelerate, drawing more adults back into the labor force. As a result, the unemployment rate should continue to drop, but not quite as fast, hitting around 4.7% around Election Day. However, with fewer “discouraged” workers, the expansive U-6 definition of unemployment, what some call “true unemployment” will fall faster than the official rate.
Meanwhile, given loose monetary policy, inflation should pick up faster than most anticipate. We estimate a 2.5% increase in the CPI in 2016. As soon as energy prices stop falling, the other parts of consumer prices, which have been growing beneath the radar, will take over. For example, rent of shelter, which makes up about one-third of the CPI, is up 3.2% from a year ago and has accelerated for five years in a row. Medical care is up 2.9% in the past year.
All-in-all, 2016 looks like another year of healing from the Panic of 2008. The bull market continues to run and the economy continues to grow. If we knew how to move assets each and every year to get the “best” returns, we would trade the market much more, and benefit. But, so-called “macro-traders” don’t win very often. As a result we stick with fundamentals, which say US stocks remain undervalued.
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Might want to buy some US oil stocks and short the Saudis.
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Had we had AVERAGE growth out of recession, we would have added 5 MILION more jobs. That is a workforce the size of Pennsylvania.
Had we had REAGAN growth out of a recession, we would have added 12 MILLION more jobs.
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Sorry, This Is Still The Worst Economic Recovery Ever
Investor's Business Daily: http://news.investors.com/ibd-editorials/123115-787733-obamanomics-gets-f-grade-for-failing-to-create-economic-growth-jobs.htm#ixzz3wNep0KWK
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http://www.washingtontimes.com/news/2016/jan/3/stephen-moore-the-obama-economic-recovery-that-was/
The Obama recovery that wasn’t
...eight years of virtually zero income gain. And President Obama and his Washington political pundits wonder why voters are in such a cranky mood.
Last week the Joint Economic Committee of Congress issued a report on the Obama recovery loaded with even more dismal news. On almost every measure examined, the 2009-15 recovery since the recovery ended in June of 2009 has been the meekest in more than 50 years.
Start with the broadest measure of economic progress: growth in output. The chart below compares the Obama growth pace with that of the average recovery coming out of the last eight recessions and with the Reagan recovery and over the same number of months (77). Democrats used to disparage the Reagan expansion as nothing special, yet the growth rate over the first 25 quarters under Reagan was 34 percent versus 14.3 percent under Obama.
How much does this matter? If we had grown at an average pace, GDP in 2015 would have been about $1.8 trillion higher. Under the Reagan recovery growth would have been $2.7 trillion higher.
It is certainly true that every recession is different in cause and consequences, so the JEC dug deeper into the numbers. It examined GDP growth on a per-capita basis. The Reagan recovery was abnormally strong in part because it happened when millions of baby boomers swept into the work force adding to growth. But even on a per-capita basis, real GDP has grown only 9.0 percent versus 18.8 percent for the average recovery. That is the lowest of any post-1960 recovery.
Next the JEC measured job market trends. Again we see a failing record. Yes, official unemployment of just over 5 percent today is very low. But that’s the biggest lie in America — right up there with “we’re from the government and we’re here to help.”
The distortion is due to the fact that 94 million people in America over the age of 16 aren’t in the labor force. If job growth had been the same as the average recovery we would have at least 5 million more Americans working — which is nearly the size of the workforce in Pennsylvania.
Amazingly, if we had had a Reagan-paced job recovery we would today have at least 12 million more Americans working. Job creators are still on strike and it’s a result of EPA rules, Obamacare, tax hikes, and other assaults against business.
When fewer people are working and wages are stagnant, incomes don’t grow. That’s the real sorry story of the Obama era. If the Obama recovery had been just average, in other words a C grade, JEC calculates that “after-tax per person income would be $3,339 (2009$) per year higher,” families can no longer be fooled with happy talk about “hope and change.” They feel the tough times.
The JEC’s dreary conclusion tells the whole story of the era of Obamanomics: “On economic growth the Obama recovery ranks dead last.”
One other statistic that stands out on the Obama record as we begin his last year in office. The debt is up to $16.5 trillion and by the he leaves office our indebtedness will be almost double where it was when he entered the Oval Office. Just the interest payments alone cost half a trillion dollars a year. This is the Obama legacy and if liberals want to take ownership of this bleak record — it’s all theirs.
• Stephen Moore is an economic consultant with Freedom Works and a Fox News contributor.
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I'm guessing Wesbury is saying it's a great time to buy.
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I'm guessing Wesbury is saying it's a great time to buy.
He is still writing his apology for being wrong about last year. Was 100% exposure to risk last year worth the -0.7% return?
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http://www.reuters.com/article/us-usa-economy-deutsche-bank-idUSKBN0UJ1YL20160105
Plowhorse in German is?
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http://www.ftportfolios.com/Commentary/EconomicResearch/2016/1/8/this-aint-no-bust
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Westbury says our exports to China are $100 billion. If those suddenly went to zero, it would cut only one half of 1% from our growth.
One half of 1% is our growth.
Missed in that is what if our imports from China went to zero - our standard of living would collapse.
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Better short this retail stock:
https://shop.hillaryclinton.com/collections/apparel
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For the record, I confess to entertaining the notion that the party may be over and that the big Fustercluck has finally begun.
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For the record, I confess to entertaining the notion that the party may be over and that the big Fustercluck has finally begun.
"If something cannot go on forever, it will stop.”
― Herbert Stein, What I Think: Essays on Economics, Politics, & Life
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Welcome to Puerto Rico
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http://www.redstate.com/2016/01/13/study-93-us-counties-still-havent-recovered-recession/
Plowhorse!
http://www.bloomberg.com/news/articles/2016-01-15/retail-sales-in-u-s-decrease-to-end-weakest-year-since-2009
Sales at U.S. retailers declined in December to wrap the weakest year since 2009, raising concern about the momentum in consumer spending heading into 2016.
The 0.1 percent drop matched the median forecast of 84 economists surveyed by Bloomberg and followed a 0.4 percent gain in November, Commerce Department figures showed Friday in Washington. For all of 2015, purchases climbed 2.1 percent, the smallest advance of the current economic expansion.
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$29 Oil and the Dollar
As the greenback keeps rising, commodity prices keep falling.
ENLARGE
Photo: Getty Images/Ikon Images
Jan. 15, 2016 6:56 p.m. ET
82 COMMENTS
Equities took another beating on Friday, on the heels of one more Chinese market selloff and oil sinking below $29 a barrel for the first time in 12 years. The Dow industrials and the S&P 500 are down more than 8% in two weeks, and the growing fear is that this is a harbinger of recession.
Amid the hunt for culprits, one place to look is the link between the price of oil and the dollar. There has long been an inverse correlation between dollar strength and commodity prices, as we saw more than a decade ago. As the Federal Reserve made its historic mistake of staying too easy for too long in the early 2000s, oil began its long march upward to $100 a barrel and beyond. The correlation has been going in reverse in the last year as the dollar strengthens and oil plunges.
Morgan Stanley tracked this correlation in a smart research note earlier this week. While not ignoring the fundamentals of oil supply and demand, especially lower oil demand from slower growth in China, Morgan Stanley estimated that increasing dollar strength could take the oil price down to $20 a barrel.
The Fed’s inevitable unwinding of its post-panic monetary exertions explains part but not all of the dollar’s rebound. Central banks in Japan and Europe have been pursuing a devaluation strategy and capital flight from China is causing the yuan to depreciate. As more investors demand dollars, the greenback strengthens and the chances of currency markets overshooting grows.
If oil does fall to $20, the economic pain is likely to be considerable throughout the oil patch and commodity markets. Energy bankruptcies will proliferate. Eventually low prices will lead to cuts in supply and oil will find a bottom. But the carnage might be reduced if the dollar stabilized against major currencies. Meantime, the world desperately needs pro-growth economic policies, but it’s hard to see where they’ll be coming from any time soon.
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http://www.express.co.uk/finance/city/634666/China-spark-global-financial-ICE-AGE-depression-sending-markets-crashing-by-75
Plowhorse!
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(https://westernrifleshooters.files.wordpress.com/2016/01/the-morning-after-1.jpg)
http://humanevents.com/2008/02/25/brian-wesbury-sees-no-recession-ahead/
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The U.S. Is At The Center Of The Global Economic Meltdown
January 20, 2016 Brandon Smith
While the economic implosion progresses this year, there will be considerable misdirection and disinformation as to the true nature of what is taking place. As I have outlined in the past, the masses were so ill informed by the mainstream media during the Great Depression that most people had no idea they were actually in the midst of an “official” depression until years after it began. The chorus of economic journalists of the day made sure to argue consistently that recovery was “right around the corner.” Our current depression has been no different, but something is about to change.
Unlike the Great Depression, social crisis will eventually eclipse economic crisis in the U.S. That is to say, our society today is so unequipped to deal with a financial collapse that the event will inevitably trigger cultural upheaval and violent internal conflict. In the 1930s, nearly 50% of the American population was rural. Farmers made up 21% of the labor force. Today, only 20% of the population is rural. Less than 2% work in farming and agriculture. That’s a rather dramatic shift from a more independent and knowledgeable land-utilizing society to a far more helpless and hapless consumer-based system.
What’s the bottom line? About 80% of the current population in the U.S. is more than likely inexperienced in any meaningful form of food production and self-reliance.
The rationale for lying to the public is certainly there. Economic and political officials could argue that to reveal the truth of our fiscal situation would result in utter panic and immediate social breakdown. When 80% of the citizenry is completely unprepared for a decline in the mainstream grid, a loss of savings through falling equities and a loss of buying power through currency destruction, their first response to such dangers would be predictably uncivilized.
Of course, the powers-that-be are not really interested in protecting the American people from themselves. They are interested only in positioning their own finances and resources in the most advantageous investments while using our loss and fear to extract more centralization, more control and more consent. Thus, the hiding of economic decline is enacted because the decline itself is useful to the elites.
And just to be clear for those who buy into the propaganda, the U.S. is indeed in a speedy decline.
In 'Lies You Will Hear As The Economic Collapse Progresses', published in summer of last year, I predicted that “Chinese contagion” would be used as the scapegoat for the downturn in order to hide the true source: American wealth destruction. Today, as the Dow and other markets plummet and oil markets tank due to falling demand and glut inventories, all we seem to hear from the mainstream talking heads and the people who parrot them in various forums is that the U.S. is the “only stable economy by comparison” and the rest of the world (mainly China) is a poison to our otherwise exemplary financial health. This is delusional fiction.
The U.S. is the No. 1 consumer market in the world with a 29% overall share and a 21% share in energy usage, despite having only 5 percent of the world’s total population. If there is a global slowdown in consumption, manufacturing, exports and imports, then the first place to look should be America.
Trucking freight in the U.S. is in steep decline, with freight companies pointing to a “glut in inventories” and a fall in demand as the culprit.
Morgan Stanley’s freight transportation update indicates a collapse in freight demand worse than that seen during 2009.
The Baltic Dry Index, a measure of global freight rates and thus a measure of global demand for shipping of raw materials, has collapsed to even more dismal historic lows. Hucksters in the mainstream continue to push the lie that the fall in the BDI is due to an “overabundance of new ships.” However, the CEO of A.P. Moeller-Maersk, the world’s largest shipping line, put that nonsense to rest when he admitted in November that “global growth is slowing down” and “[t]rade is currently significantly weaker than it normally would be under the growth forecasts we see.”
Maersk ties the decline in global shipping to a FALL IN DEMAND, not an increase in shipping fleets.
This point is driven home when one examines the real-time MarineTraffic map, which tracks all cargo ships around the world. For the past few weeks, the map has remained almost completely inactive with the vast majority of the world’s cargo ships sitting idle in port, not traveling across oceans to deliver goods. The reality is, global demand has fallen down a black hole, and the U.S. is at the top of the list in terms of crashing consumer markets.
To drive the point home even further, the U.S. is by far the world’s largest petroleum consumer. Therefore, any sizable collapse in global oil demand would have to be predicated in large part on a fall in American consumption. Oil inventories are now overflowing, indicating an unheard-of crash in energy use and purchasing.
U.S. petroleum consumption was actually lower in 2014 than it was in 1997 and 25% lower than earlier projections predicted. A large part of this reduction in gas use has been attributed to fewer vehicle miles traveled. Though oil markets have seen massive price cuts, the lack of demand continued through 2015.
This collapse in consumption is reflected partially in newly adjusted 4th quarter GDP forecasts by the Federal Reserve, which are now slashed down to 0.7%. And remember, Fed and government calculate GDP stats by counting government spending of taxpayer money as "production" or "commerce". They also count parasitic programs like Obamacare towards GDP as well. If one were to remove government spending of taxpayer funds from the equation, real GDP would be far in the negative. That is to say, if the fake numbers are this bad, then the real numbers must be horrendous.
And finally, let’s talk about Wal-Mart. There is a good reason why mainstream pundits are attempting to marginalize Wal-Mart’s sudden announcement of 269 store closures, 154 of them within the U.S. with at least 10,000 employees being laid off. Admitting weakness in Wal-Mart means admitting weakness in the U.S. economy, and they don’t want to do that.
Wal-Mart is America’s largest retailer and largest employer. In 2014, Wal-Mart announced a sweeping plan to essentially crush neighborhood grocery markets with its Wal-Mart Express stores, building hundreds within months. Today, those Wal-Mart Express stores are being shut down in droves, along with some supercenters. Their top business model lasted around a year before it was abandoned.
Some in the mainstream argue that this is not necessarily a sign of economic decline because Wal-Mart claims it will be building 200 to 240 new stores worldwide by 2017. This is interesting to me because Wal-Mart just suffered its steepest stock drop in 27 years on reports that projected sales will fall by 6% to 12% for the next two years.
It would seem to me highly unlikely that Wal-Mart would close 154 stores in the U.S. (269 stores worldwide) and then open 240 other stores during a projected steep crash in sales that caused the worst stock trend in the company’s history. I think it far more likely that Wal-Mart executives are attempting to appease shareholders with expansion promises they do not plan to keep.
I am going to call it here and now and predict that most of these store sites will never see construction and that Wal-Mart will continue to make cuts, either with store closings, employee layoffs or both.
As the above data indicates, global demand is disintegrating; and the U.S. is a core driver.
The best way to sweep all these negative indicators under the rug is to fabricate some grand idea of outside threats and fiscal dominoes. It is much easier for Americans to believe our country is being battered from without rather than destroyed from within.
Does China have considerable fiscal issues including debt bubble issues? Absolutely. Is this a catalyst for global collapse? No. China’s problems are many but if there is a first “domino” in the chain, then the U.S. economy claims that distinction.
China is the largest exporter in the world, not the largest consumer. If anything, a crash in China’s economy is only a REFLECTION of an underlying collapse in U.S. demand for Chinese goods (among others). That is to say, the mainstream dullards have it backward; a crash in China is a herald of a larger collapse in U.S. markets. A crash in China is a symptom of the greater fiscal disease in America. The U.S. is the primary cause; it is not the victim of Chinese contagion. And the crisis in the U.S. will ultimately be far worse by comparison.
I wrote in 'What Fresh Horror Awaits The Economy After Fed Rate Hike?', published before Christmas:
"Market turmoil is a guarantee given the fact that banks and corporations have been utterly reliant on near-zero interest rates and free overnight lending from the Fed. They have been using these no-cost and low-cost loans primarily for stock buybacks, purchasing back their own stocks and reducing the number of shares on the market, thereby artificially elevating the value of the remaining shares and driving up the market as a whole. Now that near-zero lending is over, these banks and corporations will not be able to afford constant overnight borrowing, and the buybacks will cease. Thus, stock markets will crash in the near term.
This process has already begun with increased volatility leading up to and after the Fed rate hike. Watch for far more erratic stock movements (300 to 500 points or more) up and down taking place more frequently, with the overall trend leading down into the 15,000-point range for the Dow in the first two quarters of 2016. Extraordinary but short lived positive increases in the markets will occur at times (Christmas and New Year’s tend to result in positive rallies), but shock rallies are just as much a sign of volatility and instability as shock crashes."
Markets moved immediately into crash territory after the new year began. This was an easy prediction to make and one that I have been reiterating for months — just as the timing of the Fed rate hike was an easy prediction to make, based on the Fed’s history of deliberately increasing instability through bad policy as the economy moves into deflationary spirals. The Fed did it during the Great Depression and is doing it again today.
It is no coincidence that global markets began to tank after the first Fed rate hike; no-cost overnight lending to banks and corporations was the key to maintaining equities in a relatively static position. As the U.S. loses momentum, the world loses momentum. As the Fed ends outright stimulation and manipulation, the house of cards falls.
I have said it many times and I’ll say it yet again: If you think the Fed’s motivation is to prolong or protect the U.S. economy and currency, then you will never understand why it takes the policy actions it does. If you understand and accept the fact that the Fed is a saboteur working carefully and incrementally toward the destruction of the U.S. to make way for a new globally centralized system, everything falls into place.
To summarize, the U.S. economy as we know it is not slated to survive the next few years. Read my article 'The Economic Endgame Explained' for more in-depth information on why a collapse is being engineered and what the openly admitted goal is, including the referenced 1988 article from The Economist titled “Get Ready A World Currency In 2018,” which outlines the plan for a reduction of the dollar and the U.S. system in order to make way for a global basket reserve currency (Special Drawing Rights).
It is astonishingly foolish to assume that even though the U.S. has held the title of king of global consumption share for decades, that our economy is somehow not a primary faulty part in the sputtering global economic engine. Economies are falling because demand is falling. Demand is falling because Americans are not buying. Americans are not buying because Americans are broke. Americans are broke because central bank policy has created an environment of wealth destruction. This wealth destruction in the U.S. has been ongoing, but only now is it becoming truly visible. The volatility we see in developing nations is paltry compared to the financial chaos we now face. Anyone who attempts to dismiss the dangers of a U.S. breakdown or the threat to the unprepared public is either an idiot, or they are trying to divert and distract you from reality. The coming months will undoubtedly verify this.
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http://www.marketwatch.com/story/jobless-claims-jump-again-to-7-month-high-2016-01-21
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FWIW David Gordon, a name known to some here, is confident that we are not in the middle of another 2008.
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He was very right about Google.
Didn't he predict they would hit 700?
On the front page of the WSJ if I recall. David is no slouch.
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Amen to that.
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FWIW David Gordon, a name known to some here, is confident that we are not in the middle of another 2008.
Why?
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Hard to explain what David does, but those of us who know him always pay attention when he speaks.
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Did he give any reason why he thinks this isn't 2008?
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I get my riff about "profit, not prophet" from David. He reads charts in a high IQ one-of-a-kind way. Track record includes many extraordinary calls.
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I'd like to see his rationale as well. There is overwhelming evidence (see Brandon Smith article in my earlier post) that this is shaping up to be WORSE than 2008.
Where is his evidence to the contrary?
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That is not what he is.
He does serious due diligence in companies he believes in, reads stock charts, and buys and sells accordingly.
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http://www.businessinsider.com/recovery-is-a-myth-2016-1
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http://townhall.com/columnists/kurtschlichter/2016/01/25/buy-ammo-n2109112/page/full
Buy Ammo
Kurt Schlichter | Jan 25, 2016
I have never, ever had anyone tell me that he had too much ammunition. Not in a combat zone, not in a civil disaster, not even in peacetime. Never. Nor have I lived through a time where our governing class was so deeply corrupt, so utterly foolish, and so dangerously focused on the perpetuation of its own power that it risked bringing down everything we have built not merely in the United States but in the entire West.
Right now, if you are watching the news, you have questions about the future. And the answer to all of them is to buy ammo.
Buying ammo is a no-lose proposition. Look, the worst thing that happens if you buy more ammo is that you have more ammo. Plus, much of our consumer ammo is made by hardworking Americans, and many of those ammo makers are located in red states where the right to keep and bear arms is celebrated and respected. So you’re helping fellow conservative Americans, which is good. And you’re infuriating people like that sanctimonious, Second Amendment-hating incompetent infesting the White House, which is great.
Of course, buying ammo presumes you have already fulfilled your duty as a law-abiding, able-bodied American citizen and obtained sufficient firearms for the defense of yourself, your family, your community, and your Constitution. I can’t tell you how many people in the last year have confessed to me that they have finally decided to visit their local gun seller to do what they had put off for far too long and transition from sheep to sheepdog.
A handgun and a long weapon per adult is merely the minimum. We call that “a good start.” Now, while you can really efficiently carry only two weapons at once, when all hell breaks loose you’re going to have friends who were the grasshopper to your ant and did not prepare for winter. You may wish to share the contents of your armory with them when the time comes; keep in mind that the only thing in a gunfight that’s better than having a black combat rifle is having your buddy there to provide supporting fire with a black combat rifle.
Or a shotgun – diversity is a good thing.
Don’t forget training. Malpractice with a weapon is a bad thing, particularly when the foolishness of our leaders has led to the kind of chaos where hospitals are deserted and antibiotics are hard to come by. I oversaw the weapons training of at least 20,000 troops over my career (Sergeants actually do the training; officers oversee the planning, resourcing, and big picture range operations, then find their sharpest sergeant to run them through some refresher drills so they can shoot “Expert” when they hit the firing line and qualify in front of everyone). I am a big fan of weapons training. You need to learn safety, and you also need to learn how to hit what you are shooting at. Don’t be like the gangbanging, side-shooting nimrods in Democrat inner cities who can’t hit the other scumbags they’re shooting at and instead take out nice ladies walking home from church. Having lots of ammo on hand facilitates training.
Now, many of our urban liberal friends will not understand why we insist on ensuring that we have plenty of guns and ammo. They are, not coincidentally, the same urban liberals who don’t understand how creating economic and political chaos by screwing up the economy, coddling crooks, allowing unrestricted immigration, refusing to defeat our enemies, and frittering away the rule of law all act to undermine this wonderful island of relative peace and stability we call the United States. The über-beta editor of a well-known liberal website once chided me on Twitter for pointing out the fact that civilization walks on a tightrope over a chasm of chaos, telling me I was essentially nuts for thinking this could all fall apart much faster and much more violently than any of us imagine. But I was not nuts. I was remembering. I was remembering Los Angeles on fire during the Rodney King riots. I spent three weeks on the streets with the Army during that little life lesson based out of an armory south of I-10 and east of the 405. Let’s just say that it was a looty, shooty area. So I don’t need chaos lessons from some tweedy femboy, nor do you. It may not be apocalypse now, but it could very well be apocalypse soon.
Do you think our elite is going to protect you during the next “uprising?” Remember, it’s a “riot” only if elite liberals are at risk like they were when Beverly Hills got threatened; it’s an “uprising” if only you are. Remember that “stand down” order in Baltimore?
Do you think the Iranians and our other enemies haven’t been watching Team Feckless in inaction and thought about popping off a hot rock or two a hundred miles above Kansas City to fry all our wonderful electronic gizmos with EMP? A couple days after our logistics networks go down those urban hipsters are going to learn what really constitutes a “food desert.”
Do you think a country this politically divided can’t devolve into violence? People in Kosovo were pretty sure everything was hunky dory while Tito was alive. People resolved their differences through the institutions. And then Tito died, and the game changed. In just a few years, it became very bad.
Right now we have a president who thinks he can ignore or modify the law unilaterally, justifying it with the baffling argument that he shouldn’t have to ask Congress because Congress will just say “No” – which I always thought was kind of the point of checks and balances. So what happens when President Clinton, who identified you and me and the 50% of Americans who aren’t her supporters as her enemies, decides she gets to make her own laws because, well, she knows better and feels like it? Nothing good.
But deterrence is a wonderful thing. An armed, trained populace is not only prepared for when things go bad, but the fact that it is armed and trained makes it much less likely that things will go bad in the first place. Last year, Americans voted for liberty by buying well over 15 million new guns. That’s roughly 40,000 a day, every day. That’s enough to arm three infantry divisions.
Every. Single. Day.
Just don’t forget to buy ammo.
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Monday Morning Outlook
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Q4: Sluggish Growth, No Recession To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 1/25/2016
The recent turmoil in the equity markets would make more sense if the US economy were headed for recession. But the economic data aren’t cooperating.
Although initial jobless claims have trended up recently, plugging recent reports into our models suggests payrolls are still growing at about a 200,000 monthly rate, not even close to a recession. Meanwhile, existing home sales surged in December and “core” industrial production (manufacturing ex-autos) eked out a 0.1% gain as well.
Overall, Q4 was nothing great. As we explain below, we estimate real GDP grew at a 0.9% annual rate in Q4, consistent with the Plow Horse economic growth the economy has experienced ever since emerging from recession in mid-2009. Yes, 0.9% is on the weak side of the trend, but there have been six quarters with even weaker growth during the expansion. Moreover, the weakest part of GDP will be inventories, which should leave more room for future growth.
We like to focus on “core” GDP. By subtracting the volatile, and less growth-oriented, categories (Government spending, Inventories, and International trade) from GDP, a clearer picture of trends in investment and consumer spending emerge. That measure appears to have grown at a 1.9% annual rate in Q4, which means it was up a respectable 2.7% in 2015. This is part of the reason why we think, despite recent market turmoil, real GDP will rise 2.5%+ in 2016.
Below is our “add-em-up” forecast for Q4 real GDP.
Consumption: Modest growth in auto sales and continued gains in services, which make up more than 2/3 of personal consumption, suggest real personal consumption of goods and services, combined, grew at a 1.9% rate in Q4, contributing 1.3 points to the real GDP growth rate (1.9 times the consumption share of GDP, which is 68%, equals 1.3).
Business Investment: Both business equipment investment and commercial construction look down slightly in Q4, probably led by the energy sector. But R&D probably grew enough to offset that damage, leaving overall business investment unchanged, with zero net effect on GDP.
Home Building: The home building recovery continued in Q4. Residential construction looks to have grown at a 9% annual rate, which should add 0.3 points to the real GDP growth rate (9 times the home building GDP share, which is 3%, equals 0.3).
Government: A surge in military spending probably more than offset a decline in public construction projects in Q4, suggesting real government purchases rose at a 1.0% rate, which would add 0.2 percentage points to real GDP growth (1.0 times the government purchase share of GDP, which is 18%, equals 0.2).
Trade: At this point, the government only has trade data through November, but the numbers so far suggest the “real” trade deficit in goods has gotten bigger due to weaker economies abroad. As a result, we’re forecasting that net exports are a drag of 0.2 points on the real GDP growth rate.
Inventories: At present, we have even less information on inventories than we do on trade, but what we have suggests companies added to inventories at a much slower pace than in Q3. As a result, we’re forecasting inventories subtracted 0.7 points from real GDP in Q4.
Put it all together, and we get a 0.9% forecast for real GDP growth in Q4. But, with the components that make up the “core” adding a total of 1.6 points and those components making up only 82% of total GDP, the growth rate for those core components appears to be healthy 1.9%. Sorry for the extra math, but if 82% of GDP grows at a 1.9% rate, then the contribution to overall GDP growth is just 1.6 points.
We’ve noticed more and more people are coming up with words to describe this slow growth economy – the snail, the six-cylinder car, plodding, and crawling. Why don’t they just say “Plow Horse” because that’s what it is.
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http://scottgrannis.blogspot.com/2016/01/the-yield-curve-says-no-recession.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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http://www.investopedia.com/terms/n/negative-interest-rate-policy-nirp.asp
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The ISM Manufacturing Index Rose to 48.2 in January To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/1/2016
The ISM manufacturing index rose to 48.2 in January, coming in below the consensus expected level of 48.4. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mostly higher in January. The new orders index rose to 51.5 from 48.8 while the production index moved higher to 50.2 from 49.9 in December. The supplier deliveries index increased to 50.0 from 49.8. The employment index fell to 45.9 from 48.0 in December.
The prices paid index was unchanged at 33.5 in January.
Implications: It was a real mixed bag report today from the ISM, with the headline index remaining in contraction territory (remember, levels above 50 signal expansion while levels below 50 signal contraction, so a move higher to 48.2 means continued contraction, but at a slower pace than last month), while the major sub-indexes were mostly positive. However, the two most forward looking measures, new orders and production, both returned to levels above 50, signaling growth. Employment was the major drag in January, as the petroleum and coal industry led ten of eighteen manufacturing industries to report declining employment. This comes in contrast to the continued strength in other employment indicators (such as initial claims, which have remained below 300K since February of last year). It’s also important to remember that manufacturing represents a relatively small piece of overall employment. In 2015, manufacturing added an average of 2,500 jobs a month, while the private sector as a whole grew by more than 210,000 jobs monthly. In other words, today’s report does little to change our outlook on Friday’s employment report, where we expect to see significant gains. The modest readings from the ISM manufacturing report since peaking at 58.1 in August 2014, have given some pessimists reason to cheer, but we see no broad-based evidence of a significant slowdown. And remember, the ISM is a survey which can reflect sentiment as much as actual economic activity. As a whole, today’s data continues to highlight a stark contrast in two broad sectors of the economy: services, where the economy is expanding briskly and prices are rising, versus goods, where both growth and inflation are soft to non-existent. Overall activity isn’t booming, but it does continue to plow forward at a modest pace. In other news this morning, construction increased 0.1% in December (-0.5% including downward revisions for October/November). The slight gain in December itself was the by-product of a surge in government projects (paving roads and building bridges) and new home construction, and a large drop in commercial construction, particularly chemical manufacturing facilities, probably related to a drop in oil output.
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http://www.cnbc.com/2016/02/05/citi-world-economy-trapped-in-death-spiral.html
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http://www.cnbc.com/2016/02/05/citi-world-economy-trapped-in-death-spiral.html
Just like in foreign policy, a world not led by a strong USA is not a well-led world.
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Death spiral.
I am too old to volunteer to help establish the Mars colony. (and not wealthy enough)
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http://scottgrannis.blogspot.com/
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https://theartsmechanical.wordpress.com/2016/02/05/a-shipping-update/
Running on empty.
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http://scottgrannis.blogspot.com/
We would like to say, famous people caught reading the forum, except that Scott Grannis is the source of the theory and math I like to use measuring the gap of permanently lost income and wealth as a result of the failed policies and anemic growth rate out of the 'great recession':
(https://3.bp.blogspot.com/-UEJpqIOP_a8/VrP0oc6Px0I/AAAAAAAAVDc/PyNPLs-bioU/s1600/Real%2BGDP%2Bvs%2B3%2525%2Btrend.jpg)
Is this the link you refer to? http://scottgrannis.blogspot.com/2016/02/productivity-is-missing-ingredient.html
From the link:
"We've know for years that this recovery is the weakest post-war recovery on record, and the chart above makes the case. If this had been a typical recovery, national income (GDP) would be about $2.8 trillion higher than it is today. That's like saying that average wages and salaries would be 17% higher. For a family earning $60,000, that's over $10,000 more income per year that has failed to materialize despite all their hard efforts."
Up to $2.8 trillion per year taken since Pelosi-Reid-Obama-Clinton took over Washington comes to roughly $19 trillion dollars. Hmmm, this criminal act cost us enough money to pay off the national debt. And yet people want more of it.
This magnitude of theft with intent, theft by fraud, constitutes roughly 320 million counts of felony grand larceny.
http://criminal.findlaw.com/criminal-charges/larceny-penalties-and-sentencing.html
He should serve out his Presidential term from prison.
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http://www.mybudget360.com/total-us-debt-19-trillion-growth-of-us-public-debt/
Unpayable
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Couldn't possibly be only 4.9%. More Obama BS:
http://www.newsmax.com/Finance/DavidStockman/stock-market-invest-bulls-bears/2016/02/07/id/713143/
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Couldn't possibly be only 4.9%. More Obama BS:
http://www.newsmax.com/Finance/DavidStockman/stock-market-invest-bulls-bears/2016/02/07/id/713143/
The only stats as crooked as China's is the ones fed to us.
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Rush Limbaugh talked about this on Friday. "First-time unemployment numbers" is what Obama quoted. Translation: "Not counting the 94 million plus workers who have stopped looking for work." Complete fraud.
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Monday Morning Outlook
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Want Faster Growth? Put the Jockey on a Diet! To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/8/2016
The number one reason the US has a Plow Horse economy rather than a Race Horse economy is the growth in the size and scope of the federal government, which sits like a grossly overweight jockey atop an otherwise healthy thoroughbred.
After being limited in the 1980s under President Reagan and then in the 1990s in President Clinton’s first six years in office, it started creeping upward again.
At first, it didn’t seem like a big deal. The economy was booming in the late 1990s, and so the increase in spending was hard to notice. From 1992 to 1998, discretionary spending – federal outlays that have to be approved every year – were up only 0.5% per year.
Yes, much of the spending restraint was due to the Peace Dividend after the demise of the Soviet Union. But social (or non-military) discretionary spending grew at only a 4% annual rate, which was slower than the 5.6% annual growth rate of nominal GDP (real GDP growth plus inflation). In other words, social spending was shrinking relative to the economy.
Then, the limits on the size of government gave way. Maybe it was an inevitable political reaction to prosperity. Voters don’t mind politicians loosening the purse-strings when times are good. Or maybe President Clinton was just spending more to reward supporters for standing by him during impeachment.
Either way, discretionary spending started moving up faster, growing 3.6% in 1999, 7.5% in 2000, and 5.5% in 2001 (the last budget President Clinton had a hand in) with increases in social spending leading the way.
Then came President Bush, who ushered in No Child Left Behind, a new prescription drug entitlement for seniors, and, eventually, TARP and “temporary” stimulus in 2008. In eight years, discretionary social spending rose 6.8% per year, and that doesn’t even include prescription drugs or TARP. Total spending soared 8.3% per year. In Fiscal Year 2009, the federal government was spending 24.4% of GDP, up from 17.6% eight years prior.
Then came an avalanche of new spending initiatives in President Obama’s first 15 months that substantially increased the future path of government outlays. Not all of it was designed to show up right away, just like FDR and Social Security or LBJ and Medicare and Medicaid. But data from the CBO show that between taking office and mid-2010, his policies added about 9% to future government spending.
And that’s not even counting some of the new spending, which is hidden. When Obamacare regulates health insurance markets to raise insurance rates for some people and cut them for others, it’s no different than the government taxing healthy people and spending money on the sick. But now, instead of collecting and spending the money directly, the government gets insurance companies to do the dirty work for it.
In 2010, voters reacted by handing control of the House of Representatives back to the GOP and, in 2011, some progress was made against higher spending. In particular, they passed a Sequester. But then the discipline faded and, with budget deal after budget deal, spending started creeping up again.
And so here we find ourselves, with huge entitlement programs ready to ramp up further as the Baby Boomers keep retiring and much of the economy regulated more than ever before.
Underneath all this are entrepreneurs generating new ideas, keeping the economy going, but only able to push growth to a Plow Horse pace, not the Race Horse pace we’d have if the jockey slimmed back down to where it was in, say, 1998.
Increasingly, it looks like the only way to end the upward spending ratchet is for voters to elect a president dedicated to a smaller government at the same time they elect a Congress with the same commitment. Less spending, less regulation, particularly in energy and health care, as well as lower tax rates are the only policies that can stir the economy out of its doldrums.
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Will A Market Selloff Turn Into Worldwide Recession?
Tuesday, 09 February 2016 Bob Adelmann
EDITOR'S NOTE: It's nice that the mainstream academic economists are finally getting with the program in terms of collapsing demand across the financial spectrum. Of course, it's too little too late. By the time this information is digested by the general public, it will be far too late for any of them to properly prepare for what's in store. Hopefully, the efforts of alternative economic analysts have educated enough people to make a difference when global fiscal mechanics grind to a halt. After all is said and done, it has been the mainstream financial media that has played a considerable role in the misdirection of the American public in particular, and such people deserve to be punished for it.
Regards,
Brandon Smith, Founder Of Alt-Market.com
This article was written by Bob Adelmann and originally published at The New American
Olivier Blanchard, the former chief economist for the International Monetary Fund (IMF), said back in October that his biggest fear is the “herd” mentality of investors who sell even if they don’t have any news to back up their decision: "Investors worry that other investors know something bad, and so they just sell, although they themselves have no new information."
At bottom, it is said, markets are driven by expectations and not by numbers. When the numbers get bad enough, the “herd” mentality takes over, and investors who have been holding losing positions, finally cave, and liquidate, taking their losses.
The numbers are bad enough. Thomas Thygesen, the head of economics at the Swedish banking conglomerate SEB, told 200 commodity brokers and analysts last month that a global recession is on the way. He then recounted signals of recession:
• Commodity prices — not just oil — have dropped by two-thirds since the summer of 2014;
• Oil has suffered the worst price decline in recent history;
• Crude fell to $10 a barrel in the late 1990s in the wake of the Asian financial crisis, suggesting that the same could happen again;
• The impact of the collapse in crude should have a positive impact as industry relies heavily on energy to drive itself, but it’s not;
• The “tail” of the oil price decline is causing bankruptcies that are negatively impacting banks and forcing them to recast their balance sheets, cut back on loans to the oil industry, and, in some cases, cut their dividends;
• The decline is “imperiling the finances of producer nations from Nigeria to Azerbaijan”; and
• China’s reports of 6 percent growth are increasingly being written off as unrealistic, perhaps even fraudulent.
Blanchard added to this litany, that the world economy may have reached a “tipping point,” noting, “This would be a serious shock. My biggest fear is precisely that the dramatic shift in mood becomes self-fulfilling.”
First, the average business cycle is five years. The start of the Great Recession was seven years ago. Second, the wave of bankruptcies in the oil sector will gain in number and ferocity, according to Blanchard. Third, the high-yield bond index “is now vulnerable” thanks to oil prices that are low and likely to remain low or even fall further.
In addition, the amount of debt that the oil and gas industry has accumulated worldwide is staggering: The industry has issued $1.4 trillion of bonds and borrowed another $1.6 trillion from banks for a total of $3 trillion. With net free cash flows declining and in some cases disappearing altogether, the industry is increasingly threatened by its inability to service that debt. The ripple effect would reach far beyond the industry itself.
Bronka Rzepkowski of Oxford Economics is equally concerned: "Conditions that usually pave the way for mounting defaults — such as growing debt, tightening monetary conditions, tightening of corporate credit standards and volatility spikes — are currently [being] met in the U.S."
And then there’s history itself. Over the last 45 years the Standard & Poor’s 500 Index (SPX) has suffered a loss of more than 12 percent on 13 occasions. Six of these have led to a recession in the United States, nearly half the time.
The same goes for Europe, according to Dennis Jose at Barclays Bank: “Of the 14 previous occasions [when] equities have had a similar decline, seven have been associated with recession.”
Michael Pento of Pento Portfolio Strategies and author of The Coming Bond Market Collapse points out that the average drop in stock prices — peak to trough — during the last six recessions has been 37 percent. That would take the SPX, currently trading at 1835, all the way down to 1300.
But, says Pento, “This one will be worse.” China, considered the driver of global economic growth for decades, has multiplied its debt by an astonishing 28 times since 2000. As that massive buildup is unwinding, the Shanghai stock market has declined 40 percent since June 2014, and the rout isn’t yet complete. The problem, says Pento, is that China “has accounted for 34 percent of global growth” but without that, the global economy is in trouble.
There’s the U.S. housing market, where the home price to income ratio is currently 4.1, way above the average of 2.6. This not only makes it increasingly difficult for first-time home buyers, it also means that existing home owners looking to move up can’t find buyers.
There’s the stock market in the United States, which, despite the recent selloff, has a “market capitalization to GDP” ratio of 110, compared to its long-term average of 75.
There’s the debt taken on since 2007: Household debt is back to its former record of $14 trillion; business debt has grown from $10.2 trillion to $12.6 trillion during that period; the national debt has ballooned from $9.2 trillion to $19 trillion; and the Fed’s balance sheet is off the charts, moving from $880 billion to $4.5 trillion.
As the recession becomes more obvious, the Fed is left with few options. If it begins another program of monetary expansion — QE 4 — it “would cause an interest rate spike that would turn the recession into a devastating depression,” said Pento, adding, “Faith in the ability of central banks to provide sustainable GDP growth [has] already been destroyed, given their failed eight-year [previous] experiments in QE.”
Even economists at Citigroup, the third largest bank holding company in the country, are getting nervous. Jonathan Stubbs reported for the bank on Thursday, “The world appears to be trapped in a … death spiral,” adding,
[A] stronger U.S. dollar, weaker oil/commodity prices, weaker world trade/petrodollar liquidity, weaker [emerging markets and global growth] and repeat, ad infinitum. This would lead to Oilmageddon, a “significant and synchronized” global recession and a proper modern-day equity bear market.
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U6 is a better measure than U3, yet the media always go with the lower number. But U6 at 9.9 still omits the discouraged unemployed. The real unemployment rate is roughly 22.5%, as shown in this chart.
(http://i1.wp.com/www.powerlineblog.com/ed-assets/2016/02/sgs-emp.gif)
The blue line best matches what people are actually experiencing.
http://www.powerlineblog.com/archives/2016/02/talkin-employment-blues.php
http://mobile.wnd.com/2013/01/heres-the-real-unemployment-rate/
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This is a Correction, Not a Recession To view this article, Click Here
Brian S. Wesbury, Chief Economist
Date: 2/12/2016
With the S&P 500 down 10.5% through February 11th, questions about the health of the economy seem to intensify daily. The concerns typically go something like this: If the financial markets are a predictor of where the economy is headed, has the plow horse finally lost traction? Is a recession looming?
Let’s put this to the test.
An old joke says the stock market has predicted 19 of the last five recessions. Stocks don’t always lead the economy, and earnings clearly don’t show that things are awful. With 375 S&P 500 companies having reported Q4 earnings as of February 11th, 70.7% have beat estimates, although earnings are down 5% from a year ago it’s all due to just one sector, energy. Of the 375 companies that have reported, only 23 of them have been energy. Excluding those 23 energy companies, earnings for the other 352 companies are up 1.0% from year-ago. So, for those claiming the market drop is due to declining earnings, it seems more like an energy story than an economic one. It's plow horse earnings growth outside of energy, but it's earnings growth.
Corrections are designed to scare the snot out of people. This is one of those corrections, and if you read my email inbox or watch, read, or listen to the financial press, it’s working.
But this is an emotional correction, not a fundamental one. The US is not entering a recession. Let’s look at a few more facts:
Retail sales rose 0.2% in January, beating consensus expectations and were up 0.4% including revisions to prior months. This is the third consecutive month of gains, which is particularly impressive considering gas station sales plummeted 3.1% in January, due to lower prices at the pump. Again more of an energy story than an economic one. Excluding gas stations, retail sales have risen seven months in a row and are up 4.5% from a year ago.
In 2015, hourly earnings rose 2.7%, acceleration from the sub-2.0% trend seen over the previous two years. At the same time, initial claims have been below 300,000 for 49 consecutive weeks. Private payrolls grew at a 216,000 monthly rate in 2015, and the unemployment rate is down to 4.9%. And no, this is not a “part-time” recovery. In the past twelve months, full-time employment has grown by 2.5 million jobs while part-time employment is down 120 thousand! With 5.6 million unfilled jobs (the second highest on record), and quit rates at the highest levels of the recovery, there should be little question why they Fed started to hike rates in December.
What about inflation? Oil has plummeted and we must be near deflation if we aren’t there already, Right?!? But, “core” inflation, which excludes the volatile food and energy components was up 2.1% year-to-year in December, very close to the Fed’s 2% inflation target. Even with the huge drop in oil, the overall index is still up 0.7% in the past twelve months. And the consumer price index is about to drop off the huge declines from early last year when oil plummeted. If the consensus is right and a 0.1% drop occurred in December, year-to-year CPI will rise to 1.3% in January, from just 0.7% in December.
In other words we don't have deflation in the US.
You can tell there is massively negative emotion in the market because everything is bad. Low oil prices are bad. Strong car sales are bad - by the way, autos sold at a record pace in 2015 and continued to rise in January. When the Fed dot plot forecast four rate hikes in 2016, that was "bad." And now it's "bad" that the Fed may hold off on another rate hike for a while.
Whether the Fed continues to raise rates or folds to market concerns and holds off, the Fed won’t be tight any time soon. Commercial and industrial loans grew 13.6% at an annual rate in past 13 weeks, that doesn’t sound like evidence of tight monetary policy to us.
What we focus on are the Four Pillars of Prosperity: Monetary Policy, Tax Policy, Trade Policy, and Spending & Regulation. So let’s see where those stand:
1. Monetary Policy – As we mentioned above, the Fed is still easy and will be for the foreseeable future
2. Tax Policy – If anything, tax policy is likely to get better before it gets worse, but don’t expect much until after the elections
3. Trade Policy - The US is not going to become protectionist
4. Spending & Regulation – This is the only real area of concern. Spending and regulation are too high, but spending is still a smaller share of GDP than it was five years ago and the Supreme Court just blocked harmful EPA regulations.
To say it succinctly, the fundamentals of the economy show no evidence of recession. And, out of the four potential threats, only one is moderately negative.
This is a correction, not a turning point for the stock market. Our models, with stocks driven by interest rates and corporate profits, not sentiment, suggest the market is still significantly undervalued.
It's not often you get recession level prices when there is no recession.
Put money to work, don't run away.
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http://scottgrannis.blogspot.com/2016/03/lousy-economy-but-great-job-security.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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http://scottgrannis.blogspot.com/2016/03/lousy-economy-but-great-job-security.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
Everyone who can be laid off, fired or eliminated already has been.
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Doug: EXACTLY.
To Scott Grannis: Thank you for that brilliant analysis, Captain F**cking Obvious!
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Isn't reported that essentially all the new jobs are going to people from other countries.
Why this is wonderful. We are merrily employing the world. How beautiful.
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http://scottgrannis.blogspot.com/2016/03/profits-are-down-is-that-bad-for-stocks.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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http://scottgrannis.blogspot.com/2016/03/profits-are-down-is-that-bad-for-stocks.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
I commented on the Scott Grannis blog today and he responded. We agreed that 'less anemic' might describe the upward revision in this economy better than 'stronger growth'. :-D
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:-D
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Don't Short the Participation Rate! To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 4/4/2016
Last Friday was an interesting day. For years now, the US has consistently added jobs and the unemployment rate has steadily fallen. But, the Pouting Pundits of Pessimism keep arguing that a falling unemployment rate is only because of weak growth in the labor force. So, on Friday, when the employment data for March were released, showing growth in the labor force and a rising unemployment rate (from 4.9% to 5.0%) guess what the pundits focused on? You got it, now it’s the unemployment rate that matters.
In spite of these Nattering Nabobs, the job market keeps getting better. The March payroll increase of 215,000 makes it 66 consecutive months of positive job growth. And now, both measures of job growth – the payroll report and the household data, which captures small-business start-ups – are up 234,000 per month in the past year. Not super strong, but certainly not weak.
But what’s changed the most lately is a pick-up in the growth of the labor force. The total number of people in the labor force is up 2.2 million in the past year, the largest increase since 2007-08. The labor force is now growing faster than population and the labor force participation rate bottomed at 62.4% back in September – the lowest level since the late 1970s – and in March made it back to 63.0%.
That’s still low by historical standards. Nonetheless, it shows that economic growth is finally overcoming the loss of workers due to baby boomers retiring and more generous government handouts to those who don’t work.
Faster wage growth is part of the reason. Average hourly earnings – workers’ cash earnings excluding tips and irregular bonuses/commissions – are up 2.3% in the past year. In the first three months of 2016, those earnings rose 2.7% at an annual rate. And with gas prices holding overall inflation down, those earnings go further.
Even more important, the acceleration in wages is happening while there’s a lull in the expansion of the welfare state. The welfare state has grown substantially in the past several years. The Affordable Care Act, also known as Obamacare, expanded Medicaid and created large subsidies to buy health insurance. As a result, people have less incentive to work. The same goes for letting disability benefits become, in effect, a “waiting station” for middle-age workers before they can get Social Security retirement benefits.
Even without retiring Boomers, a bigger welfare state should mean slower growth in the labor force and lower labor force participation, exactly what’s happened. But, for the next few years, as wages grow faster, the bargain available to those who work will likely get better faster than welfare benefits.
And that means a rebound in labor force growth.
It also means stabilization for the unemployment rate. The jobless rate ticked up to 5.0% in March and is now barely lower than the 5.1% back in September, six months ago. We would suggest that the US is now at “full employment,” or is even above full employment.
Earlier in the economic recovery, some analysts were complaining that slow growth in the labor force was causing the unemployment rate to drop quickly even though job growth was not that fast. Now we have the opposite: faster growth in the labor force, paired with faster job growth, meaning the jobless rate barely moves.
At present, we think the unemployment rate will likely stay right around 5.0% or slightly lower this year, with continued robust gains in both jobs and the labor force. However, we could eventually see further declines in the jobless rate in 2017 due to the delayed effects of loose monetary policy this year. But that would come with a negative – higher inflation.
What we’d really like to see is a shift in policy next year, one that both trims the welfare state and cuts tax rates. In that situation, jobs and the labor force would grow even faster and the Federal Reserve would have more room to raise rates back toward normal, even if the unemployment rate went up a little.
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second post
http://scottgrannis.blogspot.com/2016/04/a-few-encouraging-developments.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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Want to buy into a 5% stake in a 2 trillion dollar company? ( or is the 5 % stake 2 trillion? :-o)
http://finance.yahoo.com/news/saudi-arabias-government-officially-unveils-124152347.html
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Oil Market Hype And Crisis Signal Greater Troubles Ahead
Wednesday, 20 April 2016 Brandon Smith - www.alt-market.com
Most people are not avid followers of economic news, and I don’t blame them. Financial analysis is for the most part boring and tedious and you would have to be some kind of crazy to commit a large slice of your life to it.
However, those of us who are that crazy do what we do (and do it independently) because underneath all the data and the charts and the overnight news feeds we see keys to future events. And if we are observant enough, we might even be able to warn people who don’t have the same proclivities but still deserve to know the reality of the world around them.
Most Americans and much of the rest of the planet probably were not aware of the recent oil producer’s meeting in Doha, Qatar this past Sunday, nor would they have cared. A bunch of rich guys in white dresses talking about oil production levels does not exactly spark the imagination. What the masses missed, though, was an event that could affect them deeply and economically for many months to come.
A little background highly summarized…
After the derivatives and credit crisis launched in 2007/2008 the Federal Reserve responded to disastrous levels of deflation with a fiat money printing bonanza. Everyone knows this. The problem was the central bankers never had any intention of actually using all that “cash” to support Main Street or the fundamentals of the economy.
Instead, they used their printing press and digital loan transfers to artificially re-inflate the coffers of banks and major corporations. It was a blood transfusion for vampires, if you will.
Through the use of TARP (Troubled Asset Relief Program), quantitative easing, artificially low interest rates, and probably a host of secret actions we’ll never hear about, a steady stream of capital (or debt, to be more precise) was pumped through corporate conduits. The goal? To keep the U.S. from immediate bankruptcy through treasury bond purchases, to boost bank credit, and to allow companies to institute an unprecedented program of stock buybacks (a method by which a corporation buys back its own shares to reduce the amount on the market, thereby manipulating the value of the remaining shares to higher prices).
As the former head of the Federal Reserve Dallas branch, Richard Fisher admitted in an interview with CNBC:
“What the Fed did — and I was part of that group — is we front-loaded a tremendous market rally, starting in 2009.
It’s sort of what I call the “reverse Whimpy factor” — give me two hamburgers today for one tomorrow."
Why would the Fed want to engineer a hollow rally in stocks? As I have said in the past, they did this because they know that the average American watches about 15 minutes of television news a day and gauges the health of the economy only on whether the Dow is green or red. From 2009 to 2015, the Fed felt it needed to support markets through fiat and keep the public placated and apathetic.
Stocks and bonds were not the only assets being propped up by the Fed, though. In tandem, oil markets were artificially inflated.
Oil suffered a historic spike in 2008, then collapsed to near $40 (WTI). Starting in 2009 and the initiation of major stimulus measures by the Fed, oil prices came back with a vengeance; almost as if the spike in 2008 was merely a measure to psychologically prepare the public for what was to come. In 2010 prices climbed near the $90 mark, then in 2011 they peaked at around $115 a barrel.
Then, something magical happened — in December, 2013, the Fed announced the Taper of QE3, something very few people predicted would actually happen (you can read this article breaking down why I predicted it would happen).
The taper involved slowly cycling out Fed purchases a month at a time. By mid-2014 the taper was nearing completion. Suddenly, oil markets began to tank. By October, 2014 the Fed finished the taper and oil collapsed, from $95 a barrel to a low of under $30 a barrel at the beginning of 2016. The correlation between the Fed taper and the overwhelming drop in oil prices is undeniable. Clearly, high oil prices were primarily dependent on Fed QE.
While equities fluctuated heavily after the end of QE3, they were still supported by the Fed’s other pillar – near zero interest rates. NIRP allowed the Fed to continue funneling cheap or free money to banks and corporations so they could keep stock buybacks rolling, but oil was done for.
Now, until recently, oil markets have NOT reflected the true state of the global economy. All other fundamental indicators have been in decline since the crash of 2008, including global exports, imports, the Baltic Dry Index, manufacturing, wages, real employment numbers, etc. Oil consumption in the U.S., according to the World Economic Forum, has sunk to lows not seen since 1997. Current levels of oil consumption are FAR below projections made in 2003 by the Energy Information Administration. By most tangible measurements, we never left the crisis of 2008.
Oil demand continued to fall but prices remained high because of Fed intervention. My theory: As with stocks, the Fed at that time needed to pump up the only other indicator the mainstream might notice as a sign of dangerous deflation – energy prices. Dwindling demand is the real problem being hidden in chaos surrounding arguments over production. The establishment prefers we focus completely on supply while ignoring the warnings of falling demand.
QE was the first pillar to be pulled from the false recovery, and oil markets plunged. At the end of 2015, the Fed removed the second pillar of NIRP and raised interest rates. OPEC members met to discuss a possible production freeze agreement but the conference failed to produce anything legitimate. This resulted in stocks crashing in extreme volatility to meet up with oil.
Then something magical happened once again. In mid-February, OPEC members and non-members arranged yet another meeting, this time with much fanfare and steady rumors hinting at a guaranteed production freeze deal. Oil began to climb back from the brink, and stocks rallied over the course of six more weeks. All eyes were on Doha, Qatar and the oil agreement that would "save markets".
I bring up the recent history of oil markets because I want to give some perspective to those people who suffer from a disease I call "ticker tracking". This disease causes extreme short attention span issues and loss of long term memory. The dopamine addiction of ticker tracking makes people forget about long term trends and their relation to the events of today, to the point that they ignore all fundamentals in the name of watching little red and green lines day in and day out.
For example, the fact that the Doha meeting failed but did not result in an immediate and massive slide in oil and stocks sent ticker trackers crowing that the market "will never be allowed to fall". Their affliction keeps them from realizing that the effects of Doha, like any other major financial event in the past, take TIME to set in. Not to mention, they seem oblivious to the implications of oil struggling to move comfortably beyond $40 a barrel.
Remember, oil was around $60 (WTI) six months ago, and had held over $100 (WTI) for years before then. The crash in oil markets has ALREADY happened, folks. What we are witnessing today is the last vestiges of that crash playing out in extreme volatility. Now we wait for equities to fall and meet oil, as they did at the beginning of 2016, and as they eventually will again.
Are stocks tracking oil prices? It may not be an absolute correlation, and they do tend to decouple at times, but the overall trend has been consistent; when oil falls, stocks loosely follow.
The Doha meeting was always a farce; that much was obvious before it even took place. Bloomberg along with other media outlets were planting rumors of backroom deals between Russia and Saudi Arabia before the Doha event which would solidify a production freeze. Numerous mainstream “experts” claimed an agreement was essentially a sure thing. Even some skeptics within the liberty movement were doubtless that a deal was certain because “the internationalists would never allow oil prices to continue to drag on the public perception of the economy.”
First, I am not a believer in the idea that global economic decisions are really made at these meetings. Any nation that has a central bank that is tied to the Bank of International Settlements and the International Monetary Fund is a CONTROLLED nation. Period. Economic arrangements are handed down from on high, not debated spontaneously in open forums. Read Harper’s 1983 article on the BIS titled “Ruling The World Of Money” for more information on how globalists control the economic policies of nations.
Second, even if a person believes that such vital economic decisions as a global oil production freeze are decided in closed meetings while the press waits just outside, why would anyone buy into the Doha event?
I am not quite sure why some people were gullible enough to think that after 15 YEARS of oil producers refusing to come together on any form of meaningful agreement they would suddenly shake hands this year. The only hope markets had was the possibility that the Doha meeting would result in an empty deal that they could spin in the mainstream news as a legitimate “production freeze.” Apparently they won’t even be getting that.
The Doha talks ended in failure. All the signs said this would happen. As I wrote in my article “Lost Faith In Central Banks And The Economic End Game”:
For anyone who was betting on oil markets to continue their rally past the $40 per barrel mark, there was a lot of bad news. Saudi Arabia crushed optimism by announcing that it would not be entertaining a “production freeze” proposal unless ALL other oil producing nations, including Iran, also agreed to it.
Iran then doubly crushed optimism by announcing an increase in production rather than committing to a freeze.
Russia then administered the final blow by releasing data showing that their oil output had risen to historic levels, indicating that they will not be entering into any agreement on a production freeze.
Besides a recent overly optimistic (and rather suspicious inventory draw) which has caused a short term rebound, all indicators show that oil will be headed back to the lows seen at the beginning of this year.
The effects of the Doha failure were delayed by a convenient labor strike in Kuwait, which caused algo trading computers to buy en masse despite the negative news. As I pointed out on Monday, though, the Kuwait situation would be very short lived. Now, it is time to watch and wait for Saudi Arabia and Iran to begin battling over market share and increasing production even more. These things take a little time to develop.
Currently oil has dropped back below $40(WTI) and markets are extremely volatile. I do not believe the failure of the Doha meeting alone will translate to a fantastic drop in stocks. But, I do believe that it is a very heavy straw added to the camel's back, and there is a negative trend developing before our very eyes that will become apparent in the next couple of months.
As I have said in the past, a market entirely supported by rumors and hearsay can rally quickly, but also lose all gains at the drop of a hat. What the Doha debacle represents is a signal that the establishment is incrementally abandoning support for market systems. This is translating to a loss of faith in central banks and major financial institutions.
On top of this, look at the incredible amount of misinformation and misdirection that went into Doha, now completely exposed. The truth is crystal; the MSM lied and obfuscated helping the establishment to drive up oil prices and stocks, all for a mere six to eight weeks of market security. As soon as these lies were revealed, volatility began to return.
If the oil market bubble can implode (as it already has) in such a way due to the striking of fundamentals, then stocks can also be destabilized as well. It will happen, and I believe 2016 is the year it will happen.
There are those out there that miscalled how the Doha meeting would end because they were blinded by a particularly dangerous bias; they have assumed that central banks and internationalists want or need to continue propping up markets indefinitely. This is not necessarily true. In fact, I have outlined time and again evidence showing that they are planning the opposite. That is to say, they are planning to deliberately bring down markets in a controlled manner.
Oil was the most recent system to be undermined, and stocks will likely follow before the year is out. The fall in oil and the circus at Doha signals a change in strategy by the globalists. It signals a shift towards the controlled demolition of our economy and the centralization of fiscal power into a single global administrative entity. Order out of chaos.
There is a steady stream of events in the next few months that can be used as a steam valve for sinking global markets. Watch the April Fed meeting carefully. The Fed recently held two “emergency meetings” along with a third surprise meeting between President Barack Obama and Fed Chair Janet Yellen. The last time such a meeting occurred the Fed hiked rates less than a month later. I expect that the Fed will raise rates once again either this month or in June.
Also, watch for the Brexit (the British exit from the EU) referendum in June. Such a development would greatly shock an already unsteady Europe as well as the rest of the West.
And, of course, watch for trends in oil and stocks, but do not get caught up in the day-to-day mindlessness of ticker tracking. It is pointless and will not help you to understand what is happening economically. In any economic crisis, stocks are the LAST indicator to turn negative and daily analysis by itself is in no way a crystal ball.
The next couple of months should be very interesting. Stay vigilant.
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http://www.cnbc.com/2016/04/27/federal-reserve-rate-decision-latest-news.html
Everything is awesome!
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The ISM Non-Manufacturing Index Rose to 55.7 in April To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/4/2016
The ISM non-manufacturing index rose to 55.7 in April from 54.5 in March, coming in above the consensus expected 54.8. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mostly higher in March, and all stand above 50, signaling expansion. The new orders index rose to 59.9 from 56.7 while the employment index increased to 53.0 from 50.3 in March. The supplier deliveries index remained unchanged at 51.0, and the business activity index declined to 58.8 from 59.8.
The prices paid index increased to 53.4 in April from 49.1 in March.
Implications: Service sector activity picked up in April at the fastest pace of 2016. Among the eighteen industries that the ISM surveys, thirteen reported growth in April, while just four - including mining and transportation - reported contraction. Service sector activity has now grown for 75 consecutive months, and continued strength in both new orders and business activity show positive signs for the months ahead. The new orders index, a signal of how business activity and employment are likely to move in coming months to fill demand, rose to 59.9, the highest reading in six months. Meanwhile the business activity index declined one point to a still robust 58.8. Taken together, growth prospects remain positive with no sign of a recession. On the inflation front, the prices paid index broke above 50 in April, coming in at 53.4 as rising prices for metals and fuels more than offset declining prices for beef, eggs, and natural gas. The employment index ticked higher in April, rising to 53.0 from 50.3 in March. In both 2014 and 2015, the pace of service sector growth slowed (but still showed growth) in the first quarter before picking up through the remainder of the year, and today’s report suggests this trend may continue in 2016. In other news this morning, the ADP index, which measures private-sector payrolls, increased 156,000 in April. We are waiting on tomorrow’s initial claims data for a final estimate, but plugging the ADP figures into our models suggests Friday's official report on nonfarm payrolls will show a gain north of 200,000, another solid month. In other recent news, consumers continue to flock to auto dealerships, with cars and light trucks selling at a 17.4 million annual rate in April, up 5.1% from March and up 4.0% from a year ago.
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Nonfarm Payrolls Increased 160,000 in April To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/6/2016
Nonfarm payrolls increased 160,000 in April, missing the consensus expected 200,000. Including revisions to February/March, payrolls rose 141,000.
Private sector payrolls increased 171,000 in April, although revisions to prior months subtracted 25,000. The largest gains in April were for professional & business services (+65,000, including temps), education & health care (+54,000), and leisure & hospitality (+22,000). Manufacturing payrolls rose 4,000 while government fell 11,000.
The unemployment rate remained at 5.0%.
Average hourly earnings ? cash earnings, excluding irregular bonuses/commissions and fringe benefits ? rose 0.3% in April and are up 2.5% versus a year ago.
Implications: Disappointing headlines, but mixed details and key bright spots that shouldn?t be overlooked. The most disappointing headline was that payroll growth slackened in April to 160,000, well short of consensus expectations and the slowest in seven months. Meanwhile, civilian employment, an alternative measure of jobs that includes small business start-ups, declined 316,000. Normally, a drop in civilian employment this large would mean a higher unemployment rate, but the labor force fell 362,000, so the unemployment rate remained at 5.0%. However, don?t get panicky: it?s just one month?s data and the trends over the past year remain solid. In the past twelve months, payrolls are up 224,000 per month and civilian employment is up 208,000 per month. And, in spite of the drop in April, the labor force is up almost 1.9 million in the past year. Even the labor force participation rate, which declined to 62.8% in April from 63.0% in March and remains very low by historical standards, is slightly higher than it was a year ago. So how can we stay bullish about further improvements in the labor market? Because both wages and hours worked show plenty of demand for workers. Average hourly earnings grew 0.3% in April and are up 2.5% in the past year. Meanwhile, total hours worked rose 0.4% in April and are up 2.1% from last year. The importance of more hours is easy to overlook, but shouldn?t be. The average workweek ticked up to 34.5 hours in April from 34.4 hours in March. That one-tenth of an hour might seem small, but it?s the equivalent of adding about 350,000 jobs. As a result of the increase in wages and hours, total cash earnings (excluding fringe benefits and irregular bonuses/commissions) are up 4.7% from a year ago. In an environment where consumer prices are up about 1%, that leaves lots of room for more consumer purchasing power. The financial markets reacted to this morning?s report by reducing the odds on a June rate hike to only 2%. We think that?s absurdly low. In the past, Fed Chief Yellen has watched the share of voluntary job leavers (or ?quitters?) among the unemployed as a sign of labor market strength. In April, that share hit 10.8%, the highest since 2008 and barely below the average of 10.9% during the past 30 years. Expect a rebound back toward trend job growth in May and for expectations of a June rate hike to move up over the next several weeks.
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The economy is back!
:roll:
How's the record number of food stamps going?
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Fed Minutes Indicate Rate Hike In June
Wednesday, 18 May 2016 Brandon Smith
As predicted right here at Alt-Market, the Federal Reserve is pressing for a second rate hike this June, right before the Brexit vote in the UK to determine if they will leave the EU. As I have warned on numerous occasions, the Fed is ignoring all fundamental data and pretending as if a "recovery" is progressing in order to justify a rate move. Markets stalled today after being slapped down the past week as hints of a rate hike hit the mainstream, and oil dropped quickly on the mere threat of a stronger dollar. If a rate hike occurs (and I believe it will), expect markets to fall dramatically, back into the 15,000 point (Dow) range by the end of the second quarter. Stocks have NOT priced in a rate hike in a realistic manner; in fact, the markets have essentially ignored the possibility and this is probably going to bite them on the ass. If the Brexit passes as well, expect a GLOBAL market downturn. June is going to be a very interesting month...
Federal Reserve policy makers indicated that a June interest-rate increase was likely if the economy continued to improve, boosting market expectations they will act next month.
“Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen and inflation making progress toward the committee’s 2 percent objective, then it likely would be appropriate for the committee to increase the target range for the federal funds rate in June,” according to minutes of the Federal Open Market Committee’s April 26-27 meeting released Wednesday in Washington.
Officials were divided over whether those conditions were likely to be met in time. “Participants expressed a range of views about the likelihood that incoming information would make it appropriate to adjust the stance of policy at the time of the next meeting,” the minutes stated.
Referring to the June meeting, officials “generally judged it appropriate to leave their policy options open and maintain the flexibility to make this decision” based on how the economy evolves, the minutes said.
“The tone was quite hawkish, and I think probably surprised many market participants,” said Tony Bedikian, managing director of global markets for Citizens Bank in Boston. “It looks like the Fed put the June hike relatively aggressively on the table, so long as the economic data continues to show positive signs.”
READ MORE HERE:
http://www.bloomberg.com/news/articles/2016-05-18/most-fed-officials-saw-june-hike-likely-if-economy-warrants
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Are they done propping up Obama and setting up the crash correction to come right as he leaves?
It was a different situation but I wonder what we can learn from Paul Volcker. He was appointed in August 1979. By July 1981 he had the Federal Funds rate above 20% using tight money to squeeze out inflation. Meanwhile the Reagan tax cuts were delayed and not fully in place until Jan 1, 1983. In the time in between, unemployment spiked and people faced a hard recession. In hindsight it seems quite obvious that those different but opposing forces on the economy should have happened simultaneously.
What is wrong with this economy, in addition to absent interest rates, is excessively burdensome (1) regulations (2) taxation, and (3) all the disincentives to produce in the social spending network that weaves its way through the lives of more than half the people. For example, make more money and you lose your healthcare subsidy, Fafsa eligibility, SSI etc.
Zero interest rates serve to partially hide negative effects of these other problems in the short term while causing other long term problems like zero savings and zero new real investment in the economy, ensuring roughly zero growth in GDP and wages.
Monetary policy has a different decision process and team than we have for these other failed policies, yet it would be beneficial to the economy if the timing was coordinated with correction of these other known problems.
But of course we aren't even admitting what's wrong much less motivated to fix them. The Fed rate increase is a head fake. If they go through with it at all, it will be a 1/4 point increase in addition to the 1/4 point increase we had last December and the last before that was 10 years ago. At this rate, savers would see 5% interest rates by just past their life expectancy. The schedule for fixing the other problems at this point is never.
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Business Debt Delinquencies Are Now Higher Than When Lehman Brothers Collapsed In 2008
Monday, 23 May 2016 Michael Snyder www.alt-market.com/articles/2901-business-debt-delinquencies-are-now-higher-than-when-lehman-brothers-collapsed-in-2008
This article was written by Michael Snyder and originally published at The Economic Collapse
You are about to see more very clear evidence that a new economic crisis has already begun. During economic recoveries, business debt delinquencies generally fall, and during times of economic recession business debt delinquencies generally rise. In fact, you will see below that business debt delinquencies shot up dramatically just prior to the last two recessions, and the exact same thing is happening again right now. In 2008, business debt delinquencies increased at a very frightening pace just before Lehman Brothers collapsed, and this was a very clear sign that big trouble was ahead. Unfortunately for us, in 2016 business debt delinquencies have already shot up above the level they were sitting at just before the collapse of Lehman Brothers, and every time debt delinquencies have ever gotten this high the U.S. economy has always fallen into recession.
In article after article, I have shown that key indicators for the U.S. economy started falling in either late 2014 or at some point during 2015. Well, business debt delinquencies are another example of this phenomenon. According to Wolf Richter, business debt delinquencies have shot up an astounding 137 percent since the fourth quarter of 2014…
Delinquencies of commercial and industrial loans at all banks, after hitting a low point in Q4 2014 of $11.7 billion, have begun to balloon (they’re delinquent when they’re 30 days or more past due). Initially, this was due to the oil & gas fiasco, but increasingly it’s due to trouble in many other sectors, including retail.
Between Q4 2014 and Q1 2016, delinquencies spiked 137% to $27.8 billion.
And we never see this kind of rise unless the U.S. economy is heading into a recession. Here is more from Wolf Richter…
Note how, in this chart by the Board of Governors of the Fed, delinquencies of C&I loans start rising before recessions (shaded areas). I added the red marks to point out where we stand in relationship to the Lehman moment:
Business loan delinquencies are a leading indicator of big economic trouble.
To me, this couldn’t be any clearer.
Just like the U.S. government and just like U.S. consumers, U.S. businesses are absolutely drowning in debt.
In fact, a report that was just released found that debt at U.S. companies has been growing at a pace that is 50 times faster than the rate that cash has been growing.
Just imagine what it would mean for your family if your debt was growing 50 times faster than your bank account. Needless to say, this is an extremely troubling development…
Well, American companies may just have a mountain’s worth of problems, according to a new report from Andrew Chang and David Tesher of S&P Global Ratings.
“At the same time, the imbalance between cash and debt outstanding we reported on last year has gotten even worse: Debt outstanding increased 50x that of cash in 2015,” wrote Chang and Tesher.
“Total debt rose by roughly $850 billion to $6.6 trillion last year, dwarfing the 1% cash growth ($17 billion).”
And the really bad news is that banks all across the country are starting to tighten credit to businesses.
In other words, they are beginning to become much more reluctant to loan money to businesses because debts are going bad at such an alarming rate.
When the flow of credit to the business community starts to slow down, it is inevitable that the overall economy slows down as well. It is just basic economics. So the deterioration of the U.S. economy that we have witnessed so far is just the beginning of a process that is going to take quite a while to play out.
And let us not forget that most of the rest of the world is already is much worse shape than we are. Most global financial markets are officially in bear market territory right now, and some nations are already experiencing full-blown economic depression.
Now that the early chapters of the “next crisis” are here, most American families find themselves ill-equipped to deal with another major downturn. In fact, USA Today is reporting that approximately two-thirds of the country is currently living paycheck to paycheck…
Two-thirds of Americans would have difficulty coming up with the money to cover a $1,000 emergency, according to an exclusive poll, a signal that despite years after the Great Recession, Americans’ finances remain precarious as ever.
These difficulties span all incomes, according to the poll conducted by The Associated Press-NORC Center for Public Affairs Research. Three-quarters of people in households making less than $50,000 a year and two-thirds of those making between $50,000 and $100,000 would have difficulty coming up with $1,000 to cover an unexpected bill.
What are these people going to do when they lose their jobs or their businesses go under?
If you have any doubt that the U.S. economy is already in recession mode, just look at this chart over and over.
For months, I have been warning that the same patterns that immediately preceded previous recessions were happening once again, and this rise in debt delinquencies is another striking example of this phenomenon.
This stuff isn’t complicated. Anyone that is willing to be honest with themselves should be able to see it. As a society, we have been making very, very bad decisions for a very, very long period of time, and what we are watching unfold right now are the inevitable consequences of those decisions.
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A funny quote I came across trying to read the market reaction to Brexit:
"Many companies in the FTSE 100 (the Dow of the UK) dig stuff up in Africa, price it in dollars and sell it in China" [and then take the global market value of that to tell us how the economy is doing in Britain in this case].
http://www.telegraph.co.uk/business/2016/06/27/why-we-should-be-looking-at-the-ftse-250-and-not-the-ftse-100-to/
To me it reinforces my point that the nominal dollar value index of giant, crony, entrenched companies, Dow, S&P, etc., after QE-10, ZIRP, NIRP, CRAp, doesn't tell us squat about how the economy is doing.
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HOW OBAMA'S STUDENT-LOAN POLICY MAKES COLLEGE IMPOSSIBLE TO AFFORD
And the Democratic solution is to double down on it.
July 8, 2016 John Perazzo
One of the most crushing economic burdens that will plague today's young Americans for decades to come, is the debt they incur on their college student loans. Seven of every ten graduating collegians owe money on such loans, and their average debt is currently about $28,950 per borrower—up 68% from a decade ago. During the Obama administration, the cumulative sum of all student loan debt in the U.S. has risen from $600 billion to almost $1.4 trillion, a figure that continues to grow by an astounding $235 million per day.
We were brought to this sorry state-of-affairs by many years of bad policy, topped off by a particularly catastrophic “innovation” by Obama and the Democrats. For decades prior to the Obama years, students most commonly borrowed money for college by dealing with private lending institutions, most notably the Student Loan Marketing Association (known colloquially as Sallie Mae). Each time these lenders issued a student loan, they paid a fee to the federal government, which, in turn, assumed responsibility for covering the cost of any defaults. Knowing that taxpayers would pick up the tab for bad loans, the lenders relaxed their approval standards and made money readily available at low interest rates—even to students with weak credit credentials. This led, predictably, to record levels of borrowing.
Colleges and universities, reaping the windfall of this easy access to student-loan money, had no incentive whatsoever to keep their operating costs or tuition fees in check. Consequently, from 1985-2010 the cost of college tuition rose at more than 4 times the general rate of inflation. The gravy train was running in high gear. As Cato Institute scholar Tad DeHaven puts it, “[T]he rise in student subsidies over the decades appears to have fueled inflation in education costs.”
But instead of trying to break this cycle by taking the government out of the equation and allowing the free market to operate, the Obama administration took precisely the opposite approach.
On July 1, 2010, Obama signed Congressional legislation eliminating the role of private lenders in federal student loans. All such loans would now be issued through the Department of Education's Direct Loan program. Previously, the Department of Education had been responsible for about one-third of federal student loans through its direct-lending program. Now that figure became 100%. The Wall Street Journal correctly predicted that the new policy would cause the cost of college to “become even less affordable” while giving “more power to government” and transferring “more of the costs and risks of college financing to taxpayers.” House Education and Labor Committee chairman John Kline concurred that the new student loan program would “encourage more borrowing ... and leave the taxpayer holding the bag.”
In accordance with these predictions, delinquency rates on new student loans rose by 22% after 2010. Today, says the Wall Street Journal, “more than 40% of Americans who borrowed from the government’s main student-loan program aren’t making payments or are behind” on their loan payments.
Of course, where President Obama is concerned, government can never be big enough, or intrusive enough, or bloated enough. Thus, like the economic illiterate that he is, he has also called for a massive increase in federal Pell Grants to low-income students who are not required to repay the money. Meanwhile, economists at the Federal Reserve Bank of New York report that the Pell Grant program is little more than a boondoggle that fills the massive coffers of colleges and universities by driving tuition costs through the roof for everyone. As Forbes.com reports, “[F]or every dollar that Pell Grants are increased, college tuition goes up by 55 cents. In other words, the students pay an extra 55 cents in tuition for every dollar of Pell Grant they receive, meaning they only save 45 cents in terms of out-of-pocket costs. Colleges gain even more than the 55 cents from each dollar of new Pell Grants because they collect the extra tuition from all their students, including all the ones who do not receive Pell Grants.”
And what, pray tell, is presidential candidate Hillary Clinton's prescription for the problem of skyrocketing tuition and student debt? It's exactly what you'd expect from yet another economic illiterate. “Students at community college will receive free tuition,” she proclaims, and they “should never have to borrow to pay for tuition, books, and fees to attend a four-year public college in their state.” Does this mean that Hillary has devised a clever plan for persuading professors and administrators to work for free, and thus to eliminate tuition costs? Nope. Her “plan” is to have the federal and state governments do more to “meet their obligation to invest in higher education.”
That, of course, means that you—the American taxpayer, the plaything of our overlords in government—must “invest” more in the college education of people whom you've never met and will never know. Why? Because Hillary and Barack and the rest of the Democratic Party say it's your duty. And if you find that it's difficult to come up with the requisite cash, perhaps you could just do what Hillary does to earn a few extra bucks every now and then: Go give a one-hour speech somewhere for $250,000, and you'll be fine.
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Nonfarm Payrolls Increased 287,000 in June To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/8/2016
Nonfarm payrolls increased 287,000 in June, crushing the consensus expected 180,000. Including revisions to April/May, payrolls rose 281,000.
Private sector payrolls increased 265,000 in June, although revisions to prior months subtracted 14,000. The largest gains in June were for leisure & hospitality (+59,000), health care & social assistance (+58,000), information (+44,000), professional & business services (+38,000, including temps), and retail (+30,000). Manufacturing payrolls rose 14,000 while government rose 22,000.
The unemployment rate rose to 4.9% in June from 4.7% in May.
Average hourly earnings – cash earnings, excluding irregular bonuses/commissions and fringe benefits – rose 0.1% in June and are up 2.6% versus a year ago.
Implications: The Fed should feel foolish. After last month's report that payrolls rose only 38,000 in May the Fed panicked, deciding to postpone rate hikes. But in June payrolls rose 287,000, well above trend, higher than any economist was forecasting, and the fastest growth in eight months. Both of these numbers should be taken with a grain of salt. The economy was not as weak as suggested by anemic May payroll growth and is not as strong as today's number. Instead, it's still a Plow Horse. Part of the reason for the recent volatility in payrolls was the Verizon strike, but only some of it. Information sector jobs fell 39,000 in May and rebounded 44,000 in June. That's why it's important for everyone (including the Fed!) to look at the trend, which shows average monthly job growth of 204,000 in the past year and 172,000 in the past six months. Although some pessimistic analysts will dwell on the jobless rate, which rose back to 4.9% in June, that follows last month's unusually large drop to 4.7%. Again, look at the trend. The jobless rate was 5.3% a year ago and the drop in the past twelve months is not due to a shrinking labor force; the labor force is up 1.9 million in the past year. In addition, the U-6 unemployment rate, which includes discouraged workers and part-timers who want full-time jobs, dropped to 9.6%, the lowest since April 2008. The details of today's report give the Fed reasons to put rate hikes back on the table. Average hourly earnings (which exclude fringe benefits and irregular bonuses/commissions) grew 0.1% in June and are up 2.6% from a year ago, while total hours worked are up 1.6%. Combined, total cash earnings are up 4.3% from last year, giving workers plenty of purchasing power. That's impressive considering that many highly-skilled and highly-paid Baby Boomers are retiring. Another positive detail was that the median duration of unemployment dropped to 10.3 weeks, the lowest so far in the recovery. In other recent news on the labor market, new claims for jobless benefits fell 16,000 last week to 254,000. Continuing claims for unemployment benefits declined 44,000 to 2.12 million. These data suggest jobs continue to grow in July, somewhere in the 170,000 – 200,000 range. We doubt the Fed will move in July, but the market is putting the odds of a rate hike by September at only 12%. That's way too low. Don't be surprised if the Fed still ends up raising rates twice later this year.
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Ignore the Central Banks To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/11/2016
How many times does Chicken Little have to wrongly squawk before investors get it? Yes, payrolls increased just 38,000 in May, and yes, British voters opted for political independence from the European Union. And, yes, Stock markets swooned. But, they will likely hit new highs this week. Just another head fake, brought to you by the bad news bears.
The financial press doesn't help. They jump on any, and every, story-line that can be spun negatively, even if they can't really explain it. And, the Fed seems just as jumpy as the press. Before the May jobs report (released June 3rd), most thought the Fed would hike rates by July. But after the May jobs data, and even though Janet Yellen went out of her way to emphasize that the Fed doesn't put too much weight on any one economic report, the market knew a July rate hike was off.
Some are spinning the July 287,000 jobs report as a "relief" to the Fed, but this only makes sense if somehow the Fed were thinking of cutting rates, but chose to ignore the weaker than expected May jobs data thinking things would get better. In other words, the Fed's indecision and wobbly-knees are creating uncertainty and an environment of fear.
We think it's time to start ignoring central banks. The pretense of global central banks the past several years is that without their decisive action, the crisis of 2008-09 would have turned into a global depression. All it took was a combination of massive quantitative easing, zero percent rates, and now negative interest rates to prop up growth.
This, we think, is nonsense. Quantitative easing just piled banks a mile high with reserves that they didn't lend. And, if QE really did create economic growth, it would have also generated higher inflation and a weaker dollar, but inflation remains low by historical standards and the dollar isn't weak.
The same goes for negative rates. Central banks have always thought lower short-term rates create more stimulus. So, what's to stop them from going the next step and believing that negative rates must be even better! What this theory misses is that negative rates are, in effect, a tax on the financial system, which is supposed to be the conveyor belt for monetary policy. That's why countries adopting negative rates haven't yet generated the economic improvement those rates are supposed to yield. Quit waiting, it's not going to happen. In fact, negative interest rates lead to slower money growth.
But, it's not central banks that create wealth, it's entrepreneurial vigor – new ideas that make consumers' lives better, and engineering improvements that are freeing the US from unstable foreign energy supplies. Government spending and regulation stifle growth, and for the most part that's been getting worse in recent years. But, guess what? In some ways, things are getting better. For example, American oil producers are exporting crude oil for the first time since the 1970s.
The Fed has never written an App. It may use the Cloud, but it didn't build it. Remember this the next time the financial press obsesses about the next move, or lack thereof, by the Fed, the European Central Bank, Bank of England, or Bank of Japan. It hardly matters at all. And, besides, it's time wasted that's better spent analyzing companies. That's what "investors" do.
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https://www.yahoo.com/finance/news/economy-suddenly-looks-great-000000269.html
Buy buy buy buy buy buy buy buy buy buy buy buy buy buy buy buy ........................
yeeeeeeeeeeeeeehaaah!
:wink:
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Real GDP Accelerating To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/18/2016
Forecasting economic growth from quarter to quarter is a humbling experience. Even when you get the trend right – and it's hard to beat our forecast of Plow Horse growth – there's always a quarter here and there that will throw you for a loop.
Trying to estimate growth in the second quarter is even tougher than others because that's the time of year when the government goes back and revises the GDP reports for the past few years. Moreover, the government has had persistent problems seasonally adjusting GDP, tending to underestimate growth in the first quarter each year while overestimating growth in the middle two quarters. Government statisticians say they're trying to fix that problem, but who knows how much they'll do this time.
With all this in mind, we're forecasting that the economy grew at a 2.2% annual rate in Q2, maintaining a Plow Horse pace. However, there are important signs of improvement. For example, it looks like "real" (inflation-adjusted) personal spending rose at the fastest pace in a decade. And the key reason holding down overall growth in Q2 is an inventory correction that may end up overshooting, helping boost growth in the quarters ahead.
Meanwhile, the M2 measure of the money supply has grown at an 8.2% annual rate in the first six months of 2016, the fastest pace since 2012. This is consistent with our forecast that both real GDP growth and inflation should be accelerating more than most investors expect in the next year or so, which, in turn, should be good for equities and bad for most bonds.
Below is our "add-em-up" forecast for Q2 real GDP.
Consumption: Auto sales declined slightly in Q2, but retail sales outside the auto sector rose at a 7.1% annual pace in Q2, and services, grew at about a 2.5% rate. Overall, it looks like real personal consumption of goods and services, combined, grew at a 4.4% annual rate in Q2, contributing 3.0 points to the real GDP growth rate (4.4 times the consumption share of GDP, which is 69%, equals 3.0).
Business Investment: Business equipment investment looks like it declined at a 1% annual rate in Q2 while commercial construction fell at a 10% rate. R&D probably grew around its trend of 5%. Combined, we estimate business investment slipped at a 1% rate, which should subtract 0.2 points from the real GDP growth rate (-1.0 times the 13% business investment share of GDP equals -0.1).
Home Building: Residential construction looks like it took a breather in Q2, dropping at an 8% annual rate. Don't get worried, though. This a temporary breather; builders still need to ramp up production to fill a shortage of homes. In the meantime, the temporary drop in Q2 will trim 0.3 points off of the real GDP growth rate. (-8.0 times the home building share of GDP, which is 4%, equals -0.3).
Government: Military spending rose in Q2 while public construction projects declined. On net, we're estimating that real government purchases rose at a 1% rate in Q2, which would add 0.2 percentage points to real GDP growth (1.0 times the government purchase share of GDP, which is 18%, equals 0.2).
Trade: At this point, the government only has trade data through May, but the data so far suggest the "real" trade deficit in goods has gotten a little smaller. As a result, we're forecasting that net exports add 0.3 points on the real GDP growth rate.
Inventories: At present, we have even less information on inventories than we do on trade, but what we have suggests companies were surprised by the acceleration in consumer spending, resulting in a sharp slowdown in the pace of inventory accumulation during Q2. We're forecasting inventories subtracted 0.9 points from real GDP growth in Q2.
Put it all together, and we get a forecast of 2.2% for Q2, another Plow Horse quarter. However, the sharp inventory slowdown suggests production and, therefore, real GDP is likely to pick up in the third and fourth quarters. Corporate profits and stock prices are likely to keep rising as well. We expect this to affect the Fed and Fed speakers to become more hawkish, letting investors know a rate hike is a serious possibility by September.
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http://scottgrannis.blogspot.com/2016/08/productivity-sucks.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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Fed Officials Suggest Rate Hike On The Way In September
Friday, 26 August 2016 - Brandon Smith
As predicted here at Alt-Market, despite all other indications of a receding economy the Fed is pushing for yet another rate hike in 2016. This is a CLASSIC move for the Federal Reserve. They almost ALWAYS hike rates into a recession/depression, and this usually accelerates the downturn. Keep in mind the timing of these announcements; only two months before the U.S. presidential elections. I believe the goal here by the elites is to initiate a soft downturn going into the elections which will boost Donald Trump's campaign. I believe that they plan to place Trump into office and then allow the system to crash completely. The point? To place conservatives at the helm and then blame them for an economic collapse that was already engineered to happen by international financiers...
Federal Reserve Chair Janet Yellen said Friday that the case for an interest rate hike “has strengthened in recent months” in light of recent strong job growth, but she gave no signal that Fed policymakers will make a move at a meeting next month.
At the Fed’s annual symposium in Jackson Hole, Wyo., Yellen said the Fed’s policymaking committee “continues to anticipate that gradual increases in the federal funds rate will be appropriate over time” to meet the Fed’s goals for inflation and employment.
The Dow Jones industrial average rose after Yellen’s remarks, but logged a small decline at midday as the market digested the news that met its expectations. Meanwhile, Fed Vice Chairman Stanley Fischer said on CNBC that next Friday's report on August job gains could factor into the Fed's decision at its September 20-21 meeting, a remark that appeared to keep a rate increase on the table. The 10-year Treasury yield was up .03 percentage points in early afternoon trading at 1.6%.
The Fed raised its benchmark interest rate in December for the first time in nine years but has stood pat since then, leaving it at a historically low 0.4%.
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Trump won't win the election, short of some epic game changer.
Fed Officials Suggest Rate Hike On The Way In September
Friday, 26 August 2016 - Brandon Smith
As predicted here at Alt-Market, despite all other indications of a receding economy the Fed is pushing for yet another rate hike in 2016. This is a CLASSIC move for the Federal Reserve. They almost ALWAYS hike rates into a recession/depression, and this usually accelerates the downturn. Keep in mind the timing of these announcements; only two months before the U.S. presidential elections. I believe the goal here by the elites is to initiate a soft downturn going into the elections which will boost Donald Trump's campaign. I believe that they plan to place Trump into office and then allow the system to crash completely. The point? To place conservatives at the helm and then blame them for an economic collapse that was already engineered to happen by international financiers...
Federal Reserve Chair Janet Yellen said Friday that the case for an interest rate hike “has strengthened in recent months” in light of recent strong job growth, but she gave no signal that Fed policymakers will make a move at a meeting next month.
At the Fed’s annual symposium in Jackson Hole, Wyo., Yellen said the Fed’s policymaking committee “continues to anticipate that gradual increases in the federal funds rate will be appropriate over time” to meet the Fed’s goals for inflation and employment.
The Dow Jones industrial average rose after Yellen’s remarks, but logged a small decline at midday as the market digested the news that met its expectations. Meanwhile, Fed Vice Chairman Stanley Fischer said on CNBC that next Friday's report on August job gains could factor into the Fed's decision at its September 20-21 meeting, a remark that appeared to keep a rate increase on the table. The 10-year Treasury yield was up .03 percentage points in early afternoon trading at 1.6%.
The Fed raised its benchmark interest rate in December for the first time in nine years but has stood pat since then, leaving it at a historically low 0.4%.
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Central Banks Ready to Launch Their "Brave New World"
Brandon Smith - www.alt-market.com - August 31, 2016
The latest Federal Reserve meeting in Jackson Hole, Wyoming, is over and so far it would seem that the general investment world is not too happy about Janet Yellen’s statements as well as those of other Fed officials. In fact, many people are looking for some simple clarity as to what the central bank is actually planning.
Most importantly, investors want to know why the Fed is suddenly so adamant about continued interest rate hikes in 2016. Only a couple months ago, almost everyone (including alternative economic analysts) was arguing that the Fed would “never dare” to raise rates again so soon, and that there was no chance of a rate hike so close to the presidential elections.
Instead, investors have been greeted with surging rate-hike odds as Fed officials openly hint of another boost, probably in September.
As I have been saying for years, if you think the Fed’s motivation is to protect or prolong the U.S. economy, then you will never understand why they do the things that they do. Only when people are willing to accept the reality that the Fed’s job is to undermine the U.S. economy can they grasp central bank behavior.
Here is the issue that scares mainstream markets — many day traders are greedy, but not necessarily dumb. They KNOW full well that the only pillar holding up stocks at record highs has been central bank intervention. A vital part of this intervention has been the use of near-zero interest rates. That is to say, cheap and free overnight loans through the Fed have allowed banks and other corporations to remain “solvent,” and these loans have been the fuel companies have used for corporate buybacks of stocks.
Corporate buybacks have been a primary driver in the bull market rally that supposedly saved the world from the ongoing deflationary destruction of capital. In 2015, buybacks reached historic levels and garnered one of the largest equities reversals in history. While these buybacks do little or nothing to heal the economy on Main Street, they certainly do wonders for equities portfolios. By buying up their own shares, corporations boost the value of remaining shares through a brand of legal trickery. And, in the process, these corporations also boost the overall perceived value of global stock markets.
As Edward Swanson, author of a study from Texas A&M, noted on stock buybacks used to offset poor fundamentals:
“We can’t say for sure what would have happened without the repurchase, but it really looks like the stock would have kept going down because of the decline in fundamentals… these repurchases seem to hold up the stock price.”
Yes, to us he seems to be stating the obvious, but for the average American, a green stock market means a recovering economy. There is no deeper question of why the markets are rallying, and this lack of understanding is dangerous for our country.
Even marginal hikes in borrowing costs will kill the party and, while people not involved in finance and stocks are oblivious, day traders know exactly what is going on. This is the reason for the underlying panic felt by the investment world at any hint of a rate hike by the Fed.
As we saw with the limited audit of TARP, the Fed was pumping tens of trillions in overnight loans into distressed banks and companies, even foreign companies overseas. I suggest that if a FULL audit of the Fed were ever conducted, we would find tens of trillions more in overnight loans since 2008.
Imagine for a moment if those loans never stopped. Imagine that such loans have been an ongoing mainstay of our financial system and stock markets in general. Now, ask yourself, what would happen if the companies reliant on these free loans suddenly had to pay interest on them?
Think about it; what would the interest cost be on a mere .5% to 1% of $16 trillion in overnight loans through TARP? What would the cumulative cost be on all the loans banks and companies need to survive every quarter? In the end, corporations would either drown in billions of dollars in exponential debt or they would have to stop accessing loans from the Fed. Once the loans stop, the stock buybacks stop. Once the buybacks stop, stock markets crumble.
Without free cash from the Fed, the bubble in stock markets will finally and thoroughly implode, crashing down to meet all other fundamentals.
Why would the central bank pull the plug on life support to stock markets? There are multiple reasons, but a top reason is that this is the Federal Reserve’s modus operandi. They consistently seem to raise rates into recessionary conditions that they also tend to create. In essence, the Fed likes to acclimate and addict markets to low interest percentages, and then increase those percentages to agitate and elicit a chaotic reaction.
In my article Brexit Aftermath - Here’s What Will Happen Next, I stated:
“Really, the only safe measure the Fed can take from now on is to do nothing. I highly doubt that they will do nothing. In fact, even in the face of the Brexit I still believe the Fed will raise rates a second time before the end of the year. Why? This is what the Fed has always done as recession takes hold. Historically, the Fed raises rates at the worst possible times. As with the Brexit, I am going to have to take the contrary position to most analysts on this.”
What analysts out there need to understand, whether they are independent or mainstream, is that a great shift in central bank policy and attitude is coming. Christine Lagarde at the IMF calls it the “economic reset,” some Fed officials, like Atlanta Fed President Dennis Lockhart, state that central banks are entering a “brave new world.” These are highly loaded phrases that represent a drastic overhaul of the global financial system; an overhaul that is quite deliberate and inevitably destructive for certain nations and economies, including the U.S.
If we examine the policy pursuits and recently stated goals of central banks around the world, and those statements made after the Brexit referendum, we find that a process of complete global centralization is underway. This includes a push for all central banks to “coordinate policy” under a single directive.
Alternative analysts already know that all central banks are ALREADY covertly coordinated by the Bank for International Settlements. So, when central bankers call for policy coordination in the mainstream press, what they really mean is, they want the existing coordination that is covert to become publicly accepted and celebrated. They want that which is illegal to become legal. That which is morally reprehensible to become morally relative.
Central bankers also want their position of authority over the global economy to become a public priority. Ten years ago, when I asked average people what they knew about the Federal Reserve, most of them responded with confusion. They had never heard of the institution, let alone what its function was. Today, almost everyone knows about the Fed, but there is also an assumption attached that central banks, whether they are successful or not, are supposed to maintain economic stability. Keep in mind that global stocks barely vibrate today until a central bank somewhere publishes a policy statement. This is not how investment is supposed to function. The jawboning of central banks should be mostly meaningless.
The brave new world of central banking is a plan to expand on this corrupt correlation. That is to say, the general public and the mainstream should be questioning whether central banks should exist at all. Instead, people are arguing over what policies are better for central banks to adapt. The existence of central banks is considered an absolute. The masses are only given the option to debate what faces and what hats central banks should wear. If we get anything out of this deal, we only get to choose the form of our destructor.
I should point out also the growing trend in the mainstream media of criticism against the Fed. This is a relatively new thing. For the past several years the more effectively critical the alternative media became against the Fed, the louder MSM talking heads would cheerlead for the establishment. With central bankers becoming more open about their global shift into something "different", a new program of stabbing at the Fed has been initiated. This is not a coincidence.
As I have argued in various articles, the Fed itself may be just as sacrificial to the elites as the U.S. economy. In the process of global centralization, the Fed would eventually have to take a back seat to the IMF, World Bank and the BIS. It is not surprising to me in the slightest that the bought-and-paid-for mainstream media is changing gears and attacking the institution they once desperately defended. Priorities are evolving.
I believe that with the advent of a second rate hike in 2016, many conditions will change. The Dow and some emerging markets will no longer enjoy unmitigated support, and they will begin to fall going into the elections. As I have mentioned many times in past articles, Donald Trump is the most likely candidate to take up residence in the White House. Conservatives will be lulled into a temporary euphoria, happy just to have defeated she-demon Hillary Clinton, only to discover that an overall global implosion has entered a new stage. This implosion will of course be blamed on those same conservative movements.
In the meantime, central banks around the world are going to start openly coordinating while the IMF will take up a “leadership role” in managing international policy. Central banks will also be branching out and taking on new powers. As suggested at Jackson Hole, many central bankers are arguing for “new tools” to fight future fiscal downturns, and no, this does not mean negative interest rates. Instead, watch for central banks to change the definition of inflation on a whim, or adjust the relative value of currencies through agreements with other countries instead of allowing free markets to determine values, and watch for complete overhauls in how economic instability is calculated.
What we are heading for is a world in which many nations will suffer from reductions in living standards and where some first world nations will be reduced to third world conditions. In order to normalize increased global poverty, you have to stop calling it poverty and start calling it a “brave new world.” You have to convince the populace that the economic degradation is not a problem that can be solved — rather, it is a problem we must all adapt to and accept.
Be very wary when elites and international financiers mention “global reset,” or a “brave new world,” or a “new world order.” What they are talking about is not a program that is in your best interest. What they are talking about is the deliberate creation of chaos; a slow burning calamity that can be exploited to derive the benefits of even more centralization and even more power.
They will call it random. They will call it coincidence or fate or even blame it all on their ideological opponents. In the end, they will eventually call it a natural progression of events; a social and financial evolution. They will call it inevitable. None of this will be true. There is nothing natural about a totalitarian framework — it is a machine that is carefully crafted piece by piece, maintained by the hands of a select few tyrants and fed with the labor, sacrifice and fear of the innocent.
The only solution is to expunge the parasites from our fiscal body. These institutions and the people behind them should not exist. Most if not all of our sociopolitical distress today could be cured if a “brave new world” meant wiping the slate clean and dispelling financial elites and central bankers into a bottomless pit.
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Hi Marc: I just glanced at this post, and it seems to me that Smith is basing his entire argument on a faulty assumption (i.e., that Fed stimulus is propping up the market, and tightening is on the way and will prove fatal). As we discussed a few weeks ago, I see things very differently. I think the Fed has cut rates because the market has been extremely risk averse; the Fed is a follower, not a leader. Stocks were very cheap and are now only moderately expensive (i.e., PE ratios are a bit above long-term averages). But considering how low interest rates are, stocks are still quite attractive relative to cash and short-term bonds. There are plenty of signs of risk aversion which jibe with the low level of short-term interest rates. Inflation expectations are unquestionably low. The dollar is trading around its long-term average against other currencies on an inflation adjusted basis. Very few, if any signs of speculative excess; plenty of indicators suggesting that the private sector has deleveraged to a significant degree. Business investment has been notoriously weak, another sign of risk aversion. Very few, if any, signs of financial market distress. I think the market is priced to the expectation that growth will remain sluggish for as far as the eye can see, and inflation will remain low.
The August jobs number was disappointing, and it confirms that the economy has downshifted so far this year. I don’t see any signs that the Fed is determined to tighten, and today’s data will likely serve to weaken whatever resolve they may have had to do so.
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I don't "assume" the markets are propped up by Fed stimulus, that is a verifiable fact.
As already linked in the article above, stock buybacks are indeed propping up equities prices artificially. Companies are seeking to counteract poor fundamentals:
http://www.cnbc.com/2016/03/28/companies-that-do-buybacks-do-worst-over-time-.html
The Fed's overnight loans and near zero interest rates feed the coffers of various banks and international businesses. This has allowed them to institute constant debt fueled stock buybacks:
http://www.reuters.com/article/us-usa-fed-buybacks-analysis-idUSKCN0RN0D320150923
The Fed cut rates because it was the only way to prop up the dying markets. In fact, every time stocks began to retrace the initial crash of 2008-2009, the Fed introduced more QE, boosting markets again. THIS WAS OPENLY ADMITTED by Dallas Fed head Richard Fisher. Here is the quote:
"What the Fed did — and I was part of that group — is we front-loaded a tremendous market rally, starting in 2009.
It’s sort of what I call the “reverse Whimpy factor” — give me two hamburgers today for one tomorrow.
I’m not surprised that almost every index you can look at … was down significantly." [Referring to the results in the stock market after the Fed raised rates in December.]
Fisher went on to hint at the impending danger:
I was warning my colleagues, “Don’t go wobbly if we have a 10-20% correction at some point…. Everybody you talk to … has been warning that these markets are heavily priced.”
http://video.cnbc.com/gallery/?video=3000474362
Alan Greenspan also openly admitted that the Fed's main concern was propping up equities:
http://www.zerohedge.com/news/2016-04-18/greenspan-admits-feds-plan-was-always-pushing-stocks-higher
Of course, it does not surprise me that a "mainstream economist" would be completely oblivious to this information. They live in another world separate from reality.
As far as the so called "recovery" is concerned, all fundamental data has indicated since last DECEMBER that the global economy is not only in consistent decline, but that decline is now accelerating. This did not stop the Fed from raising rates the first time. I am not sure why mainstream economists think that data makes any difference to the Fed today.
No one asked the fed to raise rates in the first place, yet they did. And now, they are going to raise again. Today's job numbers gave no indication whatsoever that the Fed will back off from another hike. That is all mainstream news gossip and nothing more.
I have been consistently right over the years about Federal Reserve activity. I am right again this time. When they raise again this year, I hope you are willing to accept that perhaps the mainstream knows very little about how the economy and the central banks operate
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My view on this is closer to Obj's than to Grannis' view. I don't follow the reasoning of Grannis, Wesbury, others, that quantitative (monetary/money) expansion didn't increase the money supply because that money is mostly sitting in reserve accounts or however they reason that.
The market has been up 7 years while monetary policy has been absurdly on the expansionist side. The Fed's best economists have considered the economy too weak and fragile this whole time to even begin to raise rates from zero to normal with the exception of one, 1/4 point rise. With rates down, stocks mostly soared.
I understand the age-old logic fallacy that correlation doesn't equal causation but what else explains the rise of all large stocks, fracking, economic strength?
Holding interest rates down has kept interest rate based investments uncompetitive with capital in equities. All money (and more money?) chasing the same stocks IMHO.
Holding interest rates artificially down allows prime borrowers to finance operating capital for nothing. Who does that help more than the Dow 30, Nasdaq 100 or S&P 500? Startups don't have the same easy money.
The other factor typically missed is over-regulation. When you buy a Dow or S&P stock, you are buying global market share in an industry. Nothing keeps new competitors, innovation and creative destruction out like over-regulation. No one has more lobbyists or better lobbyists than the biggest companies in the land. Over-regulation in an industry, banks, oil, pharma, makes it so only the biggest, most entrenched companies with the deepest pockets can do it.
There has been a disconnect between the US Economy and the 'US' stock market for the entire Obama terms. Economic dynamism lost is good news if you own major market share in major industry and all these companies do.
Where I differ with Obj is this: " it does not surprise me that a "mainstream economist" would be completely oblivious to this information. They live in another world separate from reality."
I consider Scott Grannis to be an expert, a respected friend of the forum and to know more about all of this than me. The Dallas Fed chair Richard Fisher is a hero but having one smart person agree with us doesn't make us right. Greenspan is partly an idiot; having him agree with us in part also doesn't make us right either. Time will sort out who is right.
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An additional variable contributing to the rise of the US market is that for all the foibles, flaws, and fallacies of our market, other markets are worse and money from there flows to here.
EU-- will it survive?
China-- a bubble?
Third World markets?
US can look pretty good in comparison.
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An additional variable contributing to the rise of the US market is that for all the foibles, flaws, and fallacies of our market, other markets are worse and money from there flows to here.
EU-- will it survive?
China-- a bubble?
Third World markets?
US can look pretty good in comparison.
Agree. Even under Obama (and Yellen) there isn't a better currency or market in the world. Yet we pursue the policies of Venezuela.
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An additional variable contributing to the rise of the US market is that for all the foibles, flaws, and fallacies of our market, other markets are worse and money from there flows to here.
EU-- will it survive?
China-- a bubble?
Third World markets?
US can look pretty good in comparison.
The proof has always been, and always will be, in where the flow of migration (illegal or otherwise), is going. Some people have undoubtedly seen Mexican side of the fence in Tijuana in Colonia Tierra y Libertad, strewn with crosses of the people that have died in the desert to the north, attempting to cross.
I'm as alt-right as they come on several matters, and can't stand Obama, or any of them. There is still no denying that the American economy is the best in the world.
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Monday Morning Outlook
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QE Is Not A Magic Elixir To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/6/2016
In the Wild West, traveling salesmen sold Magic Elixirs that cured anything that ailed you. These days, the elixir is Quantitative Easing (QE) – it supposedly saved the world from Armageddon, lifted stock prices, drove down bond yields, and, according to at least one analyst, created the fracking boom.
So now that the Fed has tapered and plans a second rate hike, many investors fret about an impending recession and a collapse in stocks. They think the US is one big "bubble."
But those Wild West Magic Elixirs didn't work and neither does QE. Before the Panic of 2008, the Federal Reserve had assets totaling $870 billion. Then the Fed started buying Treasury and mortgage bonds from banks with abandon in exchange for new deposits in the banking system – the equivalent of printing new money. Fed assets ballooned in three stages – QE1, QE2, and QE3 – topping out at nearly $4.5 trillion by late 2014, when QE ended. Banks ended up with trillions in cash.
Before the Panic, banks had about $10 billion in reserves at the Fed, almost all of which they were legally required to hold to back up their customers deposits. Now, banks are holding $2.2 trillion in "excess reserves," or reserves in excess of what the banks are legally required to hold. They hold these reserves at the Fed and today earn 0.5% per year, about $12 billion per year, for doing absolutely nothing.
But those reserves just sit there. Over history, banks have always lent out all the money the Fed printed and exchanged for bonds, but now banks just hold most of this cash. Because the Fed has almost always said QE is temporary, banks have little reason to lend out funds the Fed could withdraw at any time.
So, even though the Fed's balance sheet soared, M2 growth, until recently, was a very pedestrian 6% per year. That's why hyperinflation never materialized. That's why the dollar didn't collapse. That's why all that QE wasn't necessary.
Consumer prices are up only 0.8% in the past year. We think inflation is headed higher, but hyperinflation this is not. Meanwhile growth has stagnated. So, if all this money was really boosting the economy, if it really was a magic elixir, wouldn't growth and inflation be higher?
Some say whatever growth we've had is because of QE, but how can money that's not lent cause anything? Nominal GDP – real GDP growth plus inflation – has grown at a 3.7% annual rate since the economic recovery started seven years ago in mid-2009. With the exception of the immediate aftermath of the Panic, that's the slowest 7-year period since World War II. So much for easy money.
Others acknowledge that maybe QE hasn't created hyperinflation or helped the economy, but somehow attribute the bull market in stocks to the same policy. But stocks are up around 10% since QE ended. If QE is so powerful, shouldn't stocks have cratered (and bond yields gone up) when QE ended? Of course, these analysts say European and Japanese QE has taken the place of US QE. But if QE in the US didn't lift M2, how could foreign QE? It's a foreign Magic Elixir!
Some say that the bear market will start when QE is put in reverse. The theory is the Fed will eventually sell bonds and make banks' excess reserves disappear, pushing up interest rates and therefore making stocks look more expensive.
But, we believe that a very low federal funds rate and the Fed's unwillingness to normalize rates, not QE itself, is what is holding down bond yields. This is why we use higher interest rates in our stock market models. In fact, to assess fair value for stocks, as we noted last week, even using a 3.5% yield on the 10-year Treasury Note suggests equities are still undervalued. We expect bond yields to rise as the Fed lifts rates.
Moreover, all the discussion about QE ignores corporate profits. The S&P 500 is no higher today relative to economy-wide corporate profits than it was in the late 1950s. Was that an unsustainable bubble as well?
We get it. Many investors and analysts, who have consistently predicted doom and gloom for the past seven years needed to come up with a reason why they were wrong. So they developed a theory that everything is fake: the economic recovery and the bull market, all built on temporary factors, like QE, that were about to reverse.
But the theory makes no sense. QE has been a great big nothing. It hasn't boosted inflation, hasn't helped growth, and has been meaningless to the bull market in stocks, which has been driven by entrepreneurship.
There really is nothing special about the current bull market. If anything, it should have been stronger. And it would have been if policymakers did their job right. But that doesn't mean we shouldn't have had any bull market at all.
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Very high risk speculative stock to buy if you think Trump could win:
https://nz.finance.yahoo.com/q?s=AIR.NZ
Hollywood to Wellington flights will be triple booked. :-)
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Very high risk speculative stock to buy if you think Trump could win:
https://nz.finance.yahoo.com/q?s=AIR.NZ
Hollywood to Wellington flights will be triple booked. :-)
Good luck, as Wellington will be either directly or indirectly ruled by Beijing before long.
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"Good luck, as Wellington will be either directly or indirectly ruled by Beijing before long."
That's right. The economic freedom of Hong Kong, Singapore, New Zealand, South Korea and others is (was?) made possible by the benevolence of a US military presence that was once the strongest in the world.
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The World is Turning Ugly as 2016 Winds Down
Brandon Smith - www.alt-market.com
I have to say that the negative reverberations in our current economic and political environment are becoming so strong that it is impossible for people to not feel at least some uneasiness in their gut. I imagine this is the same kind of sensation many felt from 1914 to 1918 during World War I and the terrible birth of communism, or perhaps in the early 1930s at the onset of the Great Depression and the rise of fascism. Some global changes are so disturbing that they send shockwaves through the collective unconscious before they ever hit the mainstream. People know that something is about to happen, even if they cannot yet clearly define it.
At the beginning of August in my article “2016 Will End With Economic Instability And A Trump Presidency” I stated that:
"I believe a softer downturn will begin before the election (the U.S. presidential election) takes place, most likely starting in September. This will give a boost to the Trump campaign, or at least, that is what the polls will likely say. I would also watch for some banking officials and media pundits to blame this downturn on Trump’s rise in the polling data. The narrative will be that just the threat of a Trump presidency is “putting the markets on edge."
Unfortunately, it would seem so far that this prediction was correct. Currently global markets have crossed into severe volatility with a vengeance after around three months of eerie calm. Why? Well, as I warned in the same article linked above as well as numerous others since the beginning of this year, the Federal Reserve is determined to continue raising interest rates into a recessionary environment as they almost always do, and equities markets addicted to cheap debt cannot tolerate even one additional rate hike from the central bank.
So far all evidence suggests that the Fed plans to raise rates again soon; I believe at the end of this month. The only seemingly "anti-hike" voice at the Fed so far has been board member Lael Brainard, but even her statements promote a false narrative that a America is on track to "recovery".
Many normally “dovish” members of the Fed have openly suggested that now is the time to hike. Voting members at the Fed have been vocal about a shift in policy. The latest example being head of the Bank of Cleveland, Loretta Mester. She argues that rates have remained “too low for too long,” and rejected notions that lower rates are necessary to maintain stability.
This is the same kind of language Fed members used right before the rate hike in December 2015, the first rate hike in around a decade. And, to add to the fervor, even JP Morgan Chase head Jamie Dimon is calling for interest rates to rise.
Get ready folks, because all the naysayers that claimed another rate hike is “impossible" are probably about to be proven wrong yet again.
My warning on an accelerating Trump campaign being blamed for weak stock markets has also come true. Already, Bloomberg is launching the meme that the idea of Hillary Clinton losing the election to Trump “because of her health” is a “landmine for vulnerable markets.”
This is some incredible spin by the elitist controlled media, but again, very predictable. The globalists are setting the stage to blame the economic collapse they created on conservative movements. Clinton’s “health issues” are being set up as the scapegoat for a Trump win, which conjures additional social unrest as many on the Left will argue (in the event of a Trump win) that Trump prevailed on a technicality. That is to say, the extreme Left will argue that Trump’s presidency is not legitimate.
Another scenario is also possible but I think less likely — the potential for Clinton to bow out of the election due to her health, causing a rationale for a postponed election. I do not think a postponed election really serves the interests of the elites, but it would certainly trigger massive chaos if it occurred. Only in the strangest of any election year in American history could this even be thought of as a legitimate danger.
Another global indicator, oil, is tumbling yet again as all the jawboning from OPEC on a “production freeze” has failed to boost crude prices for more than a week at a time. Frankly, no one is buying the hype anymore. Those who bet on the WTI index shooting past $50 to $60 a barrel this year should have been paying more attention to alternative analysts. The only other factor that has kept oil from crashing down into the $30 range has been random inventory draws. These reports, though, are little more than a stop gap. Companies have been shifting crude to different facilities in order to create the illusion of inventory draws and higher demand. But usually within a week the reports catch up to the real supply and an inventory spike sends oil crashing down again.
Add to this the latest news that Congress has passed a bill allowing the families of 9/11 victims to sue the Saudi government for their part in the attack, and you have a recipe for a dumping of the dollar as the world’s petrocurrency. Even if Obama vetoes the bill, I believe a two-thirds majority of congress will override that veto. A catastrophe in oil markets is inevitable.
Whether in oil markets or other sectors of finance and social stability, make no mistake, catastrophe is exactly what national governments are preparing for.
This is most obvious today in the European Union. The German government in their first revision of their civil defense plan since the cold war has warned the public to prepare for an unspecified event by stockpiling at least 10 days worth of food and five days worth of water. Germany is also debating the idea of placing troops on the streets to “protect against ISIS.”
And Germany is not alone. French presidential candidate Nickolas Sarkozy has made some highly disturbing statements on security in a recent interview, outlining measures he believes will best protect the public from “militants.” From Reuters:
France needs to get tough on militants by creating special courts and detention facilities to boost security, the country’s former President Nicolas Sarkozy said in a interview published in Sunday newspaper Le Journal du Dimanche.
“Every Frenchman suspected of being linked to terrorism, because he regularly consults a jihadist website, or his behavior shows signs of radicalization or because is in close contact with radicalized people, must by preventively placed in a detention center,” Sarkozy said in the interview.
Sarkozy, who announced last month his candidacy for the April 2017 presidential election, has said there is no place for “legal niceties” in the fight against terrorism.
Even in the face of Islamic extremism and terrorism, the concept of “detention facilities” where people are held without charge and without trial on the mere suspicion of being a danger to society should horrify anyone with any sense. The fact of the matter is, these violations of personal freedom and of due process are NEVER used for only one group of people. Totalitarian governments ALWAYS use one group as an excuse for the police state, then over time they expand the police state outwards to oppress everyone.
This is the kind of rhetoric that liberty movement activists in the U.S. fought against in the National Defense Authorization Act (NDAA); but it is making a resurgence in Europe and in America as well. If you think Sarkozy is a marginal example, I recommend you re-watch this interview with Gen. Wesley Clark, who argues that “radicalized people” who are disloyal to the U.S. government should be placed in internment camps. He suggests that Britain, Germany and France need to take similar measures. It would appear that they are doing just that.
Never forget that “radicalism” is an arbitrary designation, and the label can be applied to just about anyone for any reason. A trend in police state language is growing in the mainstream in the name of fighting terrorism, but the abrupt urgency in Europe is rather odd. Only a few months ago, EU leaders were using some outrageous mental gymnastics in order to avoid confronting the notion of Islamic terrorism. Now, they are suddenly concerned? Why?
I believe Europe is about to witness a catalyst for financial crisis, and they are using terrorism as an excuse to preposition martial law resources before this event takes place. They don’t care about stopping ISIS, but they do care about locking down and controlling an angry citizenry in the wake of an economic downturn. If a few more terrorist attacks occur in the meantime, then hey, that only helps the elites in their efforts to pacify the public for the sake of “security.”
Official preparedness warnings from Germany, for example, are of little use to the public. A supply of a mere ten days of food and five days of water is useless during any sizable crisis. But, the German government can now say that they “tried to warn people.” Sarkozy’s statements are the most blatant call for a police state I have yet seen from an establishment puppet politician, and this should worry people. The fact that he is being so open and honest about the end game indicates to me that a dangerous shift is imminent.
It would appear, according to EU government behavior, that whatever is about to happen globally is going to hit hardest in Europe first and then spread to the U.S. and the rest of the world. I recommend readers watch the EU very carefully over the next few months. If you have any financial or survival preparations you have been putting off, I suggest you take care of them before the end of this year. From what I see so far, geopolitically and economically the global situation is only going to become more unstable in the near term.
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"Good luck, as Wellington will be either directly or indirectly ruled by Beijing before long."
Then the Hollywood libs who move there will wish they had not voted for bRoCk.
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Not sure if this is correct thread. For once I cannot say I disagree with Elizabeth Warren on this:
https://www.yahoo.com/finance/news/wells-fargo-ceo-full-responsibility-022343031.html
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Maybe the banking thread :lol:
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The Glass Half Empty To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/19/2016
We get called perma-bulls, wrongly we think, because we were late to call 2008 a Panic, and because we've pushed back against the doom and gloom of the past 7 1/2 years. Time and again over the past several years, we've argued the Plow Horse economy would continue to grow.
Remember fears about adjustable-rate mortgage re-sets, or the looming wave of foreclosures that would lead to a double-dip recession? Remember the threat of widespread defaults on municipal debt? Remember the hyperinflation that was supposed to come from Quantitative Easing? Or how about the Fiscal Cliff, Sequester, or the federal government shutdown? Or the recession we were supposed to get from higher oil prices...and then from lower oil prices? How about the recession from the looming breakup of the Euro or Grexit or Brexit?
In the end, none of these were reasons to fear a recession or to bail out of stocks.
But this doesn't mean we are "perma-bulls." It doesn't mean we will never be concerned about the prospects for recession. Sooner or later, the US will have another recession. And even though we've consistently pushed back against others' recession theories the past several years, we are always on the lookout for recession theories that make sense.
And although we don't think a recession will happen anytime soon, there are some data we're concerned about.
In the past fifty years, one of the best signals of an impending recession has been medium and heavy truck sales. Anytime that's dropped substantially – and the 31% drop since June 2015 certainly qualifies – a recession has started within two years of the peak in sales. If that holds this time around, we'd be due for a recession starting by the middle of 2017.
Given the traditional role of these vehicles to the flow of commerce around the country, a drop should never be casually dismissed. So, normally the drop since mid-2015 would give us serious concerns about the economy.
This time, however, the drop in medium and heavy truck sales has come during a time of falling oil prices and less mining activity. In addition, sales before mid-2015 may have been artificially high due to a new regulation on trucks' antilock braking systems. Some sales appear to have been accelerated to avoid the new rule, which then went into effect. There have been other regulations on emissions that affected sales as well.
Another data series we're watching closely is what we call "core" industrial production, which is industrial production excluding utilities, mining, and autos, all of which are very volatile. The core measure is down 0.9% from a year ago. Normally a decline of nearly 1% only happens in recessions or right after they end, but it also happened back in January 2014, so we think it's important to wait and see. Once again, the absorption of lower oil prices and the huge drop in drilling activity in the energy sector may be holding down production.
If truck sales and core industrial production continue to show weakness it would certainly get more of our attention. But, for now, we think the weight of the data show continued Plow Horse growth.
Job growth continues at a healthy clip. Initial unemployment claims have averaged 261,000 over the past four weeks and have been below 300,000 for 80 straight weeks. Consumer debt payments are an unusually low share of income and consumers' seriously delinquent debts are still dropping. Wages are accelerating. Home building has risen the past few years even as the homeownership rate has declined, making room for plenty of growth in the years ahead.
Meanwhile, there haven't been any huge shifts in government policy in the past two years. Yes, policy could be much better, but the pace of bad policies hasn't shifted into overdrive lately.
In other words, our forecast remains as it has been the past several years, for more Plow Horse economic growth. But you should never have any doubt that we are constantly on the lookout for something that can change our minds.
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It's a fcuking depression. Yes, Wesbury was late to recognize 2008 the way John Denver was late to recognize his lack of ability as a pilot.
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Thank you, GM! :lol: Wesbury conveniently fails to mention that JUST TO MAINTAIN PACE WITH THE POPULATION GROWTH (workers retiring vs. new young people reaching working age) requires that the economy create approximately 250,000 jobs/month. That hasn't happened on average SINCE 2008. There is no recovery. It doesn't exist. It's a BIG LIE. It's nothing more than propaganda designed to prop up the political status quo which is benefiting people like Wesbury.
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Do note gents that people who followed his advice over ours are A LOT richer for it.
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Crafty:
Over the relative short-term, yes. Point acknowledged. However the vast majority of those people may lose all of their gains in one breathtaking plunge when the crash occurs if they fail to time it properly, which is virtually impossible to do. I will eat my words if Wesbury accurately predicts the downturn. I'm not losing sleep over this prospect.
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Reasonably tight stops should handle that.
BTW I would submit that 7 years is quite a bit more than "short term". What % has the move been since the bottom? Nearly 200%? Let's face facts: We predicted mass inflation, doom and gloom, and crashing prices for pretty much the last seven years. The explanation by Grannis (and Wesbury) of the implications of the increase in banking reserves has proven correct.
Please read for precision here: What I am saying is does not contradict that we agree that there are genuine risks of genuine catastrophe. However, which course of action would make you richer:
Staying out of the market for these seven years in the belief of your powers of prophesy or profiting for the past seven years, and taking the risk that you will have to give a chunk of it back should there be a catastrophic crash that you missed?
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I've been following the markets throughout the past week, but can't come up with any new or informed observations about what's happening. However, there's nothing wrong with a recap of how I see the economy and the markets, so here goes:
The economy is likely continuing to grow at a disappointingly slow pace, but we might see some modestly stronger GDP numbers in the second half as compared to the first half of the year. There are several reasons for sluggish growth, but monetary policy is not one of them. Tax and regulatory burdens are excessively high; confidence is still lacking; and business investment is weak despite strong corporate profits. Risk aversion, a lack of confidence, and weak investment have sapped the economy's productivity. More recently, the tremendous uncertainty surrounding the November elections—which could give us even higher tax and regulatory burdens and four more years of sluggish growth under a Clinton presidency, or reduced tax and regulatory burdens and four years of stronger growth under a Trump presidency—is most likely convincing risk-takers that it is better to wait until next year before deciding to undertake new investments, and that in turn is contributing to keep growth weak, especially this year.
The Fed has not been "stimulative;" rather, the Fed has been accommodating the world's almost insatiable desire for money and safe assets with its Quantitative Easing program. Short-term interest rates are not artificially low, and thus they are not artificially inflating the prices of risk assets and/or bonds. Interest rates are low because the economy is sluggish, inflation is low, and the market holds out very little hope for improvement in the years ahead. Rates are low because the world's demand for safe assets is very strong. In particular, the very low level of real yields on TIPS, combined with relatively low implied inflation, strongly suggests that the market is very pessimistic about the long-run outlook for economic growth. The Fed is not too tight, because real yields are very low and the yield curve is positively sloped. Deflation exists primarily in the durable goods sector, and China has been one of the driving factors behind ever-cheaper prices for the electronics that have boosted our standard of living—there is nothing wrong with that.
Stocks are no longer cheap, but neither are they obviously expensive. The current PE ratio of the S&P 500 (~20) is above its long-term average, but not excessively high considering how low interest rates are on notes and bonds. Key indicators of systemic risk (particularly swap spreads) are relatively low and stable, and this—combined with the absence of tight money—suggests that the risk of recession is low for the foreseeable future. The unusually wide spread between the yield on cash and the yield on risk assets is a compelling reason to stay invested.
The dollar is reasonably valued against most other currencies, according to the Fed's Real Broad Dollar Index, and my analysis of the dollar's PPP value against other major currencies is largely in agreement with this. Raw industrial commodity prices are neither very high nor very low, but they have been trending higher this year and this suggests some firming in the global economic outlook—which, like that of the U.S., has been unimpressive of late, if not a bit troubling.
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Good post by Grannis. This is a remarkably stable, under-performing economy and the market has beat all bets for 7 years running. Grannis has things mostly right (IMHO) with some disagreements on the margin that have already been discussed here. I notice he doesn't see stocks undervalued any\more and he doesn't see great economic growth coming. For the investor who must invest somewhere: If you want to stay in for more, slow, steady growth, have at it, but don't look to these more optimistic prognosticators to give the early warning of the next sudden downturn or crash. The pros will be getting out faster than you in a crisis. Where should you invest instead of the equities markets? I don't know. Even cash and insured savings are sure losers.
If Hillary wins, the economy keeps the brakes on. If Trump wins, I think the Fed puts the brakes on before any growth policies get enacted. Lose-lose.
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http://seekingalpha.com/article/4009875-americas-hegemony-means-asset-management?auth_param=evk9c:1bv5m78:3184b8e8fd38d0523ffceb521e8532bf&uprof=46
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http://www.nationalreview.com/article/441120/wage-stagnation-blame-government-not-markets
Unfortunately we will have Clinton who will ram policies down our throats that will just make this worse.
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Monday Morning Outlook
________________________________________
Revolution To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/14/2016
Elections have consequences and the impact on U.S. economic policy of last week's election will be enormous. We're sure we'll be writing about all of these issues in much greater depth over the next several months, but, for now, here's a broad outline of what to expect.
One of the Republicans' first tasks will be repealing much (but not all) of the Affordable Care Act, also known as Obamacare. To get that done, they will use the budget reconciliation process in the US Senate, where they don't need to break a filibuster with 60 votes; instead, they only need a simple majority. The budget process can be used to eliminate (1) penalties for not getting insurance, (2) subsidies for buying government-approved overly-broad insurance packages, and (3) the expansion of Medicaid.
Although you may hear about "compromises" on children staying on parent's insurance plans and pre-existing conditions, those aren't really compromises. Rules that aren't budget related can't be repealed thru a budget bill. But expect the Department of Health and Human Services (maybe headed by Bobby Jindal) to change some rules to substantially slim down health insurance, to make it look more like catastrophic insurance, and, therefore, much less expensive.
On net, this means not only a big cut in government spending but lower effective marginal tax rates. Right now, large Obamacare subsidies remove an incentive to earn more money. The dollar value of working more hours and earning more income is offset by the loss of subsidies.
Next: A big supply-side tax cut, particularly on capital investment. Look for a big drop in the tax rate on regular corporate profits. The only problem will be getting enough Democratic votes for a supermajority in order to make these changes permanent. With only a simple majority, tax cuts are limited to just 10 years, just like under President Bush.
On entitlements, several years ago, House Speaker Paul Ryan developed a plan to block-grant Medicaid to the states, similar to how the welfare system was block-granted to the states in 1996 under President Clinton. Look for that to happen later in 2017, especially if the GOP decides to temporarily leave Medicaid alone when it repeals other parts of Obamacare. Ryan also has a plan to turn Medicare into a more efficient and less expensive insurance subsidy system rather than a fee-for-service system. The one area of inaction will be Social Security, where changes require 60 votes in the Senate.
For the financial sector, look for a new Labor Secretary to halt the DOL/Fiduciary Rule in its tracks before April 10, or, in the alternative, Republicans to use the budget process to prevent it from getting enforced. The Fiduciary Rule is a beehive of potential class-action lawsuits and it will end up limiting the ability of smaller investors to get good financial advice.
Repealing all of Dodd-Frank would require 60 votes in the Senate, more votes than the GOP has to achieve that goal. But look for more flexibility for small and medium-sized banks. Republicans will also strangle the Consumer Financial Protection Bureau, by not defending it against a recent Supreme Court ruling that called its structure unconstitutional, by not appointing leaders, and by cutting off its revenue flow.
A Trump Administration is going to be very friendly to the fossil fuel industry. Look for faster approval for pipelines and less regulation of CO2 emissions. There's already talk of a Keystone pipeline revival, which would have been impossible under President Clinton. The US is well on its way to being a net petroleum exporter in the next few years.
Two areas of problems are protectionism and infrastructure.
We understand the temptation to do protectionism. China steals our intellectual property, subsidizes its steelmakers, and often forces our companies to work with local firms when working in their country. And maybe the threat of protectionism will get them to stop these practices. Tariffs would also help some US companies and their workers. But protectionism would also raise prices for consumers. So, for example, if steel or aluminum prices rise, automakers pay more and your cars and trucks are going to cost more, leaving less money to spend on other products.
Over time, protectionism would hurt the economy and stock market, which would erode political capital. Recent comments, though, suggest Mr. Trump is going to tread lightly on trade issues for the time being, a hopeful sign. To offset this, look for Trump to be very tough on immigration issues, moving to strictly enforce the E-Verify system to make sure workers are legally here, and limiting entry from countries with hostility toward Western Civilization. Jeff Sessions is an immigration hawk and his former staffers are well placed on Trump's transition team.
Washington has always been enamored with more infrastructure spending. It can be an easy political sell and Trump and his advisors like the idea. But stimulus spending didn't work under President Obama and it wouldn't work now. Boosting government spending would be a mistake and would weaken the economy long-term. We're hoping Trump pares back his infrastructure promises, leaves it to the states, or somehow keeps unions from milking the spending programs like they always do. The way to do that is suspend Davis-Bacon.
President-elect Trump also has a chance to systematically shift policy in a free-market direction in other ways. Earlier this year, government worker unions breathed a sigh of relief as the Supreme Court deadlocked 4-4 in the case of a California state worker who said being required to pay union dues violated her First Amendment rights. Justice Scalia likely would have agreed with the worker, but died before the ruling was made.
The tie went to the union's favor because the union won in the lower federal court. But, right now, there's already another similar case winding its way through the courts. Just one conservative appointment and every government worker in the entire country will no longer be required to pay a union a dime.
Just imagine what US elections will be like when government unions have almost no money to spend or organize. This may be a nightmare for some, but for those who support free markets, it will be a dream come true.
Bottom line: economic policies are likely to tilt toward free markets, which will boost growth, jobs, incomes and equity values. If that's what happens, a second term is highly likely.
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Wesbury is quite good when he writes about this sort of thing.
"One of the Republicans' first tasks will be repealing much (but not all) of the Affordable Care Act, also known as Obamacare. To get that done, they will use the budget reconciliation process in the US Senate, where they don't need to break a filibuster with 60 votes; instead, they only need a simple majority. The budget process can be used to eliminate (1) penalties for not getting insurance, (2) subsidies for buying government-approved overly-broad insurance packages, and (3) the expansion of Medicaid. "
Maybe deals can be made to get to 60 votes by using the reconciliation threat and writing bills that some red state democrats can sign onto.
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Not my area of expertise, but this is probably important.
What will President Trump mean for stocks?
Mary Jo White announced plans on Monday to step down as chair of the powerful Securities and Exchange Commission before President-elect Donald Trump takes office.
White's term at the helm of the SEC hadn't been scheduled to expire until June 2019.
Trump has promised to roll back the sweeping regulation of Wall Street that White has spent nearly four years trying to install. In fact, implementing Dodd-Frank rules and other financial reforms had been one of the biggest challenges during White's tenure at the SEC.
White, 68, did not state a reason for her resignation, but said it was a "tremendous honor" to lead the SEC and she is "very proud" of the agency's rule making as well as its enforcement actions.
In her statement, White said it's "critical" that the SEC remain "truly independent," allowing the agency to carry out its duty to safeguard markets and protect investors.
White praised her agency's efforts to reform money market funds and make companies become more transparent. She also noted that the SEC has notched three straight years of record enforcement actions, including insider trading and corruption violations.
But the SEC chair has also drawn criticism from the likes of Senator Elizabeth Warren. Just last month Warren, a Democrat, called for President Obama to remove White from her job because she wasn't doing enough to prevent businesses from pouring cash into politics.
It's not clear who Trump would nominate to replace White, but her departure could allow the president-elect to tap someone more in line with his deregulatory tilt.
White's exit would also mean that Wall Street's top cop will become even more shorthanded, with just two of the SEC's five commissioner seats filled. Gridlock in Washington has prevented the Senate from confirming Obama's two nominees.
White arrived at the SEC in April 2013 after being nominated by Obama, and despite leaving before her term is up she will be one of the SEC's longest serving chairs.
White served as U.S. Attorney for the Southern District of New York for nearly a decade until 2002. Her office successfully prosecuted the terrorists behind the 1993 bombing of the World Trade Center.
She has also worked as a high-powered lawyer at the New York law firm Debevoise & Plimpton.
http://money.cnn.com/2016/11/14/investing/sec-mary-jo-white-resigns/index.html?sr=twCNN111416sec-mary-jo-white-resigns1048PMVODtopLink&linkId=31153062
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http://scottgrannis.blogspot.com/2016/11/a-bond-bear-market-is-bullish-for-stocks.html
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http://www.ftportfolios.com/Commentary/EconomicResearch/2016/11/21/give-thanks-for-the-coming-boom
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http://scottgrannis.blogspot.com/2016/11/closing-obama-gap.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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http://www.ftportfolios.com/Commentary/EconomicResearch/2016/11/21/give-thanks-for-the-coming-boom
He will finally get the recovery he has been predicting the last years. It must be very exciting for him!
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http://scottgrannis.blogspot.com/2016/11/closing-obama-gap.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
If will take 5℅ growth for 8 years to close the Obama gap.
3.1℅ growth is average growth, never achieved in an Obama year.
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http://www.ftportfolios.com/Commentary/EconomicResearch/2016/11/21/give-thanks-for-the-coming-boom
He will finally get the recovery he has been predicting the last years. It must be very exciting for him!
With my bias toward supply side policies, I also think the economy will boom - once good policies are fully enacted.
If there is certainty or at least consensus that much better policies are imminent, the market will anticipate that, in the reverse way that investors pulled back decisively when Pelosi-Reid-Obama-Clinton took control of Washington in 2007-2008.
The Reagan boom was preceded by the Volcker tightening that should have happened simultaneous with the tax rate cut stimulus. A horrible recession filled the interim.
On Dec 13-14 the Fed will raise rates again, though only by 1/4 point and to levels that are still far too low. That hike alone won't tank investment or the economy but a delay or roadblock in the 52-48 Senate of the tax and regulatory reforms we were promised perhaps will.
Any thoughts from others as to whether or not this market can continue to go up and up ahead of real growth even if we start doing things right?
Disclosure: My money is not in the stock market. My money was lost in a previous stock market. Maybe it is still there, but it isn't mine anymore!
Wesbury has been more accurate than us - on the up markets. He generally misses the crashes and corrections.
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"He will finally get the recovery he has been predicting the last years. It must be very exciting for him!"
And we will be very glad the apocalypse we have been predicting the last 8 years has not come to be. :evil:
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http://www.zerohedge.com/news/2016-12-02/2014-us-has-added-571000-waiters-and-bartenders-and-lost-34000-manufacturing-workers
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"He will finally get the recovery he has been predicting the last years. It must be very exciting for him!"
And we will be very glad the apocalypse we have been predicting the last 8 years has not come to be. :evil:
None of the fundamentals looming over us have been fixed.
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Thou100% agreed that spending and deficit/debt remain huge and growing, but it does look like the tax code and Obamacare may well be about to be fixed and the zero interest rate policies too. These are all BFDs and IMHO the potential for a real take off in economic growth is very real.
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second post
The Worden Report (Thursday, December 01, 2016)
Technology Stocks Fall Sharply on Heavy Selling
Strength in financials helped lift the Dow Jones Industrial Average to a 68-point gain, bucking the trend of the overall market. Leading the blue-chip average higher were Goldman Sachs Group (GS), up 3.32%, JPMorgan Chase (JPM), up 2.06%, General Electric (GE), up 2.05% and Travelers Cos. (TRV), up 1.83. The other major stock indexes all closed lower. Especially the technology-laden NASDAQ Composite Index, which closed below its 50-day price moving average after falling 1.36%. This market action, as one analyst calls it, is a "vicious rotation" out of the sectors which performed well prior to the election, i.e. technology. While we are seeing a significant rotation into important sectors such as energy and financials, the technology sector has suffered clear technical damage as a result of this rotation of funds. The interest-rate sensitive financial stocks have been moving higher in direct correlation with the climb in 10-year bond yields, but this is fast becoming a crowded trade.
As I pointed out, technology (SX110) was our weakest Sector Index today by a significant margin, losing 2.44%. The biggest individual decliners in the sector (minimum market-cap of $10B) were Weibo Corp. (WB), down 10.15%, Microchip Technology (MCHP), down 7.48%, ServiceNow Inc. (NOW), down 7.29%, Analog Devices (ADI), down 7.04%, Lam Research Corp. (LRCX), down 7%, Skyworks Solutions (SWKS), down 6.60%, Applied Materials (AMAT), down 6.52%, Qualcomm Inc. (QCOM), down 5.83%, Micron Technology (MU), down 5.38% and Seagate Technology PLC (STX), down 4.96%.
In last night's report, I wrote, "The Standard & Poor's 500 Index tried to hold at the 2,200 level when tested this afternoon, but closed on its session low of 2,198.81, down 0.27%. I'm watching the 2,193 level, which I believe is an important test for the S&P 500." The stock market came off its worst levels of the day in the final 10 minutes of trading, but the Standard & Poor's 500 Index still lost 0.35% to close at 2,191.08. I believe we are likely to see more corrective action in the market with the S&P 500 gradually working its way down to the 50-day price moving average, currently at 2,156.
-Peter Worden
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Thou100% agreed that spending and deficit/debt remain huge and growing, but it does look like the tax code and Obamacare may well be about to be fixed and the zero interest rate policies too. These are all BFDs and IMHO the potential for a real take off in economic growth is very real.
True about Trump's proposals and the economic growth that should follow if enacted. Also consider in the difficulty of passing major reforms. Not just Trump's and Ryan's views but the policy views of Hillary Clinton clone Claire McCaskill, the 8th most moderate Democrat Senator needed to reach 60 votes are suddenly and potentially decisive. ((((
If the market assumes that tax reform and healthcareare repeal are coming and something less transpires, what then for the markets?
On GM's point, also look at the big unfunded liabilities not likely to be addressed. Doubling our growth rate, if it happens, is a step not a fix for a bankrupt trajectory.
If the Obama stock run-up was partly tied to QE and that is ended, what effect has that? And if the stock indices run-ups were skewed because they track the most entrenched companies protected from disruption by excessive regulations and that is reversed ... what then? The DOW 30, NASDAQ 100 or S&P 500 going up and up and up without interruption or correction as a stagnant economy becomes dynamic, is that a certainty? (No.)
I make no prediction, just agree that the fix is not started but more possible to do now than it has been for a very long time.
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http://www.cnbc.com/2016/12/02/95-million-american-workers-not-in-us-labor-force.html
What 'are so many of them doing?' 95 million not in US labor force
Jeff Cox | @JeffCoxCNBCcom
Friday, 2 Dec 2016 | 12:58 PM ETCNBC.com
The November jobs report looked pretty good on the surface except for one number that popped off the page: 95 million.
That's the number of Americans now counted as not in the labor force, a historic high that has confounded economists and policymakers. The total — 95.06 million to be more exact — has been rising consistently but surged by a gaudy 446,000 last month.
The jump occurred as the U.S. economy added 178,000 jobs and the headline unemployment rate dropped sharply.
Explaining the consistent increase in those leaving the labor force is complicated, with factors divided between an aging and rapidly retiring workforce, a skills gap that leaves job openings unfilled, and the nettlesome problem of too many people who find it's just easier to collect welfare and other transfer payments rather than go back to work.
"WTF are so many of them doing?" Peter Boockvar, chief market analyst at The Lindsey Group, said in a note after the nonfarm payrolls report. Boockvar used a crude online expression that nicely sums up the continued frustration with America's shrinking labor force.
In a subsequent interview, he acknowledged the issue is many pronged and poses a long-term obstacle for economic growth.
"It's a combination. There's no question a lot of them are retirees," Boockvar said. "No one wants to say, 'I want to get fired and sit on my butt.' But when people do lose their jobs, they're not being incentivized enough to go back to work compared to the benefits they get by not being at work."
Indeed, the U.S. saw an explosion in benefits during the Great Recession that has receded only mildly during the recovery.
For example, the level of those enrolled in the Supplemental Nutrition Assistance Program — food stamps — has remained elevated even with an economic expansion that is nearly 7 ½ years old. SNAP recipients totaled 33.5 million in 2009, the year the recession ended. In 2016, the number is at 45.3 million. The government shelled out $74 billion in benefits last year, about double the level of 2008.
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http://www.cnbc.com/2016/12/02/95-million-american-workers-not-in-us-labor-force.html
What 'are so many of them doing?' 95 million not in US labor force
Jeff Cox | @JeffCoxCNBCcom
Friday, 2 Dec 2016 | 12:58 PM ETCNBC.com
The November jobs report looked pretty good on the surface except for one number that popped off the page: 95 million.
That's the number of Americans now counted as not in the labor force, a historic high that has confounded economists and policymakers. The total — 95.06 million to be more exact — has been rising consistently but surged by a gaudy 446,000 last month.
The jump occurred as the U.S. economy added 178,000 jobs and the headline unemployment rate dropped sharply.
Explaining the consistent increase in those leaving the labor force is complicated, with factors divided between an aging and rapidly retiring workforce, a skills gap that leaves job openings unfilled, and the nettlesome problem of too many people who find it's just easier to collect welfare and other transfer payments rather than go back to work.
"WTF are so many of them doing?" Peter Boockvar, chief market analyst at The Lindsey Group, said in a note after the nonfarm payrolls report. Boockvar used a crude online expression that nicely sums up the continued frustration with America's shrinking labor force.
In a subsequent interview, he acknowledged the issue is many pronged and poses a long-term obstacle for economic growth.
"It's a combination. There's no question a lot of them are retirees," Boockvar said. "No one wants to say, 'I want to get fired and sit on my butt.' But when people do lose their jobs, they're not being incentivized enough to go back to work compared to the benefits they get by not being at work."
Indeed, the U.S. saw an explosion in benefits during the Great Recession that has receded only mildly during the recovery.
For example, the level of those enrolled in the Supplemental Nutrition Assistance Program — food stamps — has remained elevated even with an economic expansion that is nearly 7 ½ years old. SNAP recipients totaled 33.5 million in 2009, the year the recession ended. In 2016, the number is at 45.3 million. The government shelled out $74 billion in benefits last year, about double the level of 2008.
http://www.forbes.com/sites/realspin/2014/01/17/you-think-the-deficit-is-bad-federal-unfunded-liabilities-exceed-127-trillion/
Jan 17, 2014 @ 07:00 AM
You Think The Deficit Is Bad? Federal Unfunded Liabilities Exceed $127 Trillion
Guest commentary curated by Forbes Opinion. Avik Roy, Opinion Editor.
By Vance Ginn
Although the battle over a two-year budget deal and the national debt limit in Washington, D.C. has received the lion’s share of media attention recently , the bigger, more ominous threat facing taxpayers are unfunded liabilities—the difference between the net present value of expected future government spending and the net present value of projected future tax revenue, particularly those associated with Social Security and Medicare.
While federal unfunded liabilities are important, state-level unfunded pension liabilities also pose serious obstacles. In Texas, the recent 2013 Employees Retirement System (ERS) Valuation Report outlines the funding shortages this pension system faces and there is some indication it may be unable to pay beneficiaries by 2052.
The federal unfunded liabilities are catastrophic for future taxpayers and economic growth. At usdebtclock.org, federal unfunded liabilities are estimated at near $127 trillion, which is roughly $1.1 million per taxpayer and nearly double 2012’s total world output.
With about 134,000 active members in Texas’ ERS at the end of fiscal year 2013, the total unfunded liability was $7.2 billion—or $54,000 per active member. Despite the much smaller future net debt obligations in ERS compared with federal programs, there are similarities how we got here.
Laurence Kotlikoff and Scott Burns’ book entitled The Coming Generational Storm: What You Need to Know About America's Future argue federal unfunded liabilities are primarily from a generational accounting problem, in which the dependency ratio of retirees to taxpayers is declining from an aging population.
Recommended by Forbes
The authors’ state, “today there are about 4 payees for every 1 beneficiary, but by the year 2030 there will only be 2 payees for every 1 beneficiary. Simple arithmetic will note that this is not sustainable over the long run.”
To understand the magnitude of this problem, the authors note one solution that includes all the following: “raise income taxes by 17 percent, raise payroll taxes by 24 percent, cut federal purchases by 26 percent, and cut Social Security and Medicare benefits by 11 percent.”
In the current political and economic environment, these changes are highly unlikely, but it shows the substantial economic costs associated with these large unfunded liabilities.
State pensions across the country also face this generational accounting problem, whereby an author discusses his research in a recent Wall Street Journal op-ed entitled “The Hidden Danger in Public Pension Funds” stating, “The ratio of active public employees to retirees has fallen drastically, according to the State Budget Crisis Task Force. Today it is 1.75 to 1; in 1950, it was 7 to 1. This means that a loss in pension investments has three times the impact on state and local budgets than 40 years ago.”
In addition to an aging population in Texas creating substantial challenges with funding ERS, it is also riddled with a problem many state pension portfolio managers face: low rates of return on risk-free assets, such as a one-year Treasury security that returns less than 1 percent.
As these managers choose riskier investments to gain a higher rate of return, the study cited in the WSJ op-ed notes that the standard deviation of public pension investments to state and local budgets—a good measure of risk—has increased 10-fold from about 2 percent in 1975 to 20 percent today. Along with fewer people contributing to these pensions, riskier investments should be of grave concern to all.
Since the actuarial funded ratio of ERS is 77 percent based on an 8 percent annual rate of return, this rate of return and the risk-taking portfolio managers must use to gain this return are vital. Over the last five years, the fund’s annual return was 6 percent and 7.1 percent over the last ten years. Although the ten-year annual average was close to 8 percent, there is no guarantee this will continue, which could dramatically lower the funded ratio.
Clearly, the generational accounting problem burdening programs at the federal level also burden Texas’ pensions and the more risky assets portfolio managers must invest in are increasing the susceptibility of an even lower funded ratio in the future.
Although there are marginal changes that could be made to fully fund ERS, we at the Texas Public Policy Foundation believe the best long-run approach is to convert it from a defined benefit plan to a defined contribution plan, putting the power back in the hands of its members and off the backs of taxpayers.
Many may argue this is not the time for pension reforms; however, President Reagan may have said it best, “If not us, who? If not now, when?”
Vance Ginn, Ph.D., is a policy analyst for the Center for Fiscal Policy with the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin. He may be reached at vginn@texaspolicy.com.
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The ISM Non-Manufacturing Index Rose to 57.2 in November from 54.8 in October To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 12/5/2016
The ISM non-manufacturing index rose to 57.2 in November from 54.8 in October, easily beating the consensus expected 55.5. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mostly higher in November, and all stand above 50, signaling expansion. The employment index surged to 58.2 from 53.1 and the business activity index rose to 61.7 from 57.7 in October. The supplier deliveries index increased to 52.0 from 50.5, while the new orders index moved lower to 57.0 from 57.7.
The prices paid index declined modestly to 56.3 from 56.6 in October.
Implications: Sentiment in the service sector hit the highest level in more than a year in November and has signaled growth for 82 consecutive months. The high level in November was broad-based, with fourteen of eighteen industries reporting expansion. Meanwhile, all major measures of activity remain above 50, signaling expansion as well. New orders continue to grow, but at a slightly slower pace than in October, while all other major indexes showed a pickup in pace. Business activity and employment both showed the fastest pace of expansion in more than a year, as companies work to fill the steady flow of new orders arriving. The healthy readings on new orders and business activity both suggest the service sector should continue to grow in the months ahead. While employment has been a weak spot in the manufacturing sector, the much larger service sector continues to expand, in-line with the 188,000 monthly nonfarm jobs growth seen over the past year. And while the pace of job growth may slow modestly as the labor market tightens, employment gains should put continued downward pressure on the unemployment rate while pushing up wage growth. No matter how you cut it, the labor market looks very close to the Fed's "full employment" target. On the inflation front, the prices paid index was essentially unchanged at 56.3 in November from 56.6 in October, representing the second highest reading in more than two years (behind only October's). Rising costs for airfare, copper, and fuels more than offset declining prices for beef and dairy. With a strong employment reading and inflation showing a pickup in pace over recent months, today's report from the service sector points full steam ahead for a rate hike at next week's Fed meeting.
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Nonfarm Productivity Increased at a 3.1% Annual Rate in the Third Quarter To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 12/6/2016
Nonfarm productivity (output per hour) increased at a 3.1% annual rate in the third quarter, unchanged from last month's preliminary report. Nonfarm productivity is unchanged versus last year.
Real (inflation-adjusted) compensation per hour in the nonfarm sector increased at a 2.2% annual rate in Q3 and is up 1.8% versus last year. Unit labor costs rose at a 0.7% annual rate in Q3 and are up 3.0% versus a year ago.
In the manufacturing sector, productivity rose at a 0.4% annual rate in Q3, slower than among nonfarm businesses as a whole. The smaller gain in manufacturing productivity was due to slower growth in output. Real compensation per hour increased at a 2.0% annual rate in the manufacturing sector, while unit labor costs rose at a 3.3% annual rate.
Implications: Nonfarm productivity growth was unrevised at a 3.1% annual rate in the third quarter. That may seem odd given the upward revisions to real GDP growth for Q3, but the number of hours worked were revised up as well, leaving output growth per hour unchanged. Still, that 3.1% annualized gain in productivity for the third quarter represents the fastest gain in two years, a break from the trend in declining productivity readings over the prior three quarters, and a clear improvement from the 2% annualized pace of productivity growth seen over the past twenty years. But despite the healthy rise in Q3, productivity remains unchanged from a year ago. We believe government statistics underestimate actual productivity growth. Have you ever had to call a cab or a limo to come pick you up on short notice? Now, with the press of a button, UBER sends a car directly to your door. And it's faster, easier, and often cheaper than ever before. Meanwhile Yelp gives you instant restaurant reviews and Facetime lets you talk face-to-face with people thousands of miles away. The benefits from these technologies have been immense. But because many of these incredible new technologies are free, they aren't directly included in output measures, making their impact on productivity difficult to measure. So while our quality of life continues to rise, it's not completely showing up in the government statistics. As the tax and regulatory environment improves, expect productivity growth to pick up in the next couple of years. In particular, a lower tax rate on corporate America will encourage greater efficiency. In addition, continued employment gains are pushing down the unemployment rate and putting rising pressure on wages, which give companies a greater incentive to take advantage of the efficiency-enhancing technology that entrepreneurs have been inventing in troves.
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Real GDP Growth in Q3 was Revised to a 3.5% Annual Rate To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 12/22/2016
Real GDP growth in Q3 was revised to a 3.5% annual rate from a prior estimate of 3.2%, beating the consensus expected 3.3%.
The upward revision was due to stronger business investment and personal consumption. Other categories were either unchanged or changed only slightly.
The largest positive contribution to the real GDP growth rate in Q3 came from consumer spending. The weakest component of real GDP was residential investment.
The GDP price index was unrevised at a 1.4% annualized rate of change. Nominal GDP growth – real GDP plus inflation – was revised up to a 5.0% annual rate versus a prior estimate of 4.6%. Nominal GDP is up 2.9% versus a year ago and up at a 3.1% annual rate in the past two years.
Implications: Today's final GDP report for the third quarter showed real economic growth at a 3.5% annual rate, slightly better than consensus expectations, and the fastest growth in two years. The upward revisions were due to business investment and personal consumption, which means the "mix" of growth was favorable for the year ahead. Although corporate profits were revised down slightly, they were still up 5.8% in Q3 and up 2.1% from a year ago. The lull in profits over the past year and a half has been an energy story. But as energy prices are well off their lows from earlier this year, we expect higher profits in the quarters to come. Meanwhile, plugging the new profits data into our capitalized profits model suggests US equities remain cheap, not only at today's interest rates but even using a 10-year Treasury yield in the 3.5% - 4% range. In terms of monetary policy, the Fed should see today's report as a confirmation that they made the right decision to raise short-term rates last week. Nominal GDP growth (real growth plus inflation) was revised to 5% annual rate in Q3 from a prior estimate of 4.6%. Nominal GDP is up 2.9% in the past year and up at a 3.1% annual rate in the past two years, leaving the Fed plenty of room for rate hikes in 2017. Monetary policy will not be restrictive until the federal funds rate is moved close to nominal GDP growth. That's still a long way off. In other news today, the FHFA index, which measures prices for homes financed with conforming mortgages, increased 0.4% in October. In the past year, these home prices are up 6.2% versus a 6.0% increase in the year ending in October 2015. Look for continued gains in home prices in the year ahead, as jobs keep expanding, wage growth accelerates, and any headwind created by an increase in mortgage rates is offset by expectations of faster future economic growth.
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"Real GDP growth in Q3 was revised to a 3.5% annual rate from a prior estimate of 3.2%, beating the consensus expected 3.3%."
I must admit I was wrong when I predicted the growth estimate would be revised downward after the election. Still, this and the current quarter will conclude 8 years of lethargic, pathetic and ARTIFICIAL growth.
Nominal growth is 3% and our inflation target is 2%. The difference is a rounding error; we aren't better off.
What would the real growth rate be without 10 trillion in new fiscal deficit stimulative spending? What would it be without quantitative easing, asset re-purchases and 8 years of near zero interest rate policy? Zero growth or worse, I suspect.
Easy money when it shouldn't be was a major cause of the last financial meltdown: https://economicsone.com/2016/12/09/unconventional-monetary-policy-normalization-and-reform/
Have we learned anything?
What would the growth rate be if we didn't tax corporations at the highest rate in the world? If we didn't pour two dozen new tax increases on the economy with Obamacare, or if we didn't add tens of thousands of new pages of regulations onto what used to be a relatively free economy? If we hadn't dropped out of the top ten freest countries in the world in the Heritage Freedom Index?
Stay tuned. Maybe we will find out.
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We are hardly out of the woods yet. I am hoping the boom will be soon enough and big enough to start to mitigate the looming collapse.
http://chicagoboyz.net/archives/54412.html
Can Donald Trump Prevent the Economy from Falling Into a Black Hole?
Posted by Kevin Villani on December 13th, 2016 (All posts by Kevin Villani)
Interest rates will eventually rise without an even more devastating policy of financial repression. When they do, rising interest costs will produce a vicious cycle of ever more borrowing. We are already approaching the “event horizon” of spinning into this black hole of an inflationary spiral and economic collapse from which few countries historically have escaped. A substantially higher rate of growth is the only way to break free.
National economic growth is typically measured by the growth of GDP, and citizen well being by the growth of per-capita GDP. The long run trend of GDP growth reflects labor force participation, hours worked and productivity as well as the rate of national saving and the productivity of investments, all of which have been trending down.
The population grows at about 1% annually and actual GDP growth averaged 2% overall for 2010-2016 (using the new World Bank and IMF forecast of US GDP at 1.6% for 2016), hence per capita GDP grew at only 1%. Moreover the income from that 1% growth went primarily to the top one percent while 99% stagnated and minorities fell backwards.
Why we are approaching the Event Horizon
The Obama Administration annually predicted a more historically typical 2.6% per capita growth rate, consistent with the historical growth in non-farm labor productivity. How could their forecasts be so far off?
The Obama Administration pursued the most massive Keynesian fiscal and monetary stimulus ever undertaken. Such a policy generally at least gives the appearance of a rise in well being in the near term, as the government GDP statistic (repetitive, as the word “statistic derives from the Greek word for “state” ) reflects final expenditures, thereby imputing equal value to what governments “spend” as to the discretionary spending of private households and businesses in competitive markets. But labor productivity gains stagnated at only about 1%, most likely reflecting the cost and uncertainty of anti-business regulatory and legislative policies that dampened investment, something the Administration denied, trumping even a short term boost to GDP.
As a result the national debt approximately doubled from $10 trillion to $20 trillion, with contingent liabilities variously estimated from $100 to $200 trillion, putting the economy ever closer to the event horizon. Breaking free will require reversing the highly negative trends by reversing the policies that caused them.
Technology alone isn’t sufficient
Obama Administration apologists argued that stagnation is “the new normal” citing leading productivity experts such as Robert Gordon who dismissed the potential of new technologies. Many disagree, but Gordon’s findings imply even greater reliance on conventional reform.
Fiscal policy won’t be sufficient
Raising taxes may reduce short term deficits but slows growth. Cutting wasteful spending works better but is more difficult.
The list of needed public infrastructure investments has grown since the last one trillion dollar “stimulus” of politically allocated and mostly wasteful pork that contributed to the stagnation of the last eight years. Debt financed public infrastructure investment contributes to growth only if highly productive investments are chosen over political white elephants like California’s bullet train, always problematic.
Major cuts in defense spending are wishful thinking as most geopolitical experts view the world today as a riskier place than at any prior time of the past century, with many parallels to the inter-war period 1919-1939.
The major entitlement programs Social Security and Medicare for the elderly need reform. But for those in or near retirement the potential for savings is slight. Is Medicare really going to be withheld by death squads? Are benefits for those dependent on social security going to be cut significantly, forcing the elderly back into the labor force? Cutting Medicare or SS benefits for those with significant wealth – the equivalent of a wealth tax – won’t affect their consumption, hence offsetting the fall in government deficits with an equal and offsetting liquidation of private wealth. Prospective changes for those 55 years of age or younger should stimulate savings and defer retirement, improving finances only in the long run.
The remaining bureaucracies are in need of major pruning and in numerous cases elimination but they evaded even budget scold David Stockman’s ax during the Reagan Administration.
Americans will have to work more and consume less
That is the typical progressive economic legacy of excessive borrowing from the future.
The first Clinton Administration created the crony capitalist coalition of the political elite and the politically favored, e.g., public sector employees and retirees, subsidy recipients and low income home loan borrowers. The recent Clinton campaign promised to broaden this coalition, which would have accelerated the trip over the event horizon.
Reform that taxes consumption in favor of savings and a return to historical real interest rates could reverse the dramatic decline of the savings rate. Regulations redirecting savings to politically popular housing or environmental causes need to be curtailed in favor of market allocation to productive business investment.
Repeal and replace of Obama Care could reverse the trend to part time employment. Unwinding the approximate doubling of SS Disability payments and temporary unemployment benefits could reverse the decline in labor force participation.
Service sector labor productivity has been falling since 1987, the more politically favored the faster the decline. Legal services are at the bottom, partly reflecting political power of rent-seeking trial lawyers, followed by unionized health and then educational services. Union favoritism through, e.g., Davis Bacon wage requirements and “card check” increases rent seeking, particularly rampant in the unionized public sector.
Competition, of which free but reciprocal trade has historically been a major component, has traditionally provided the largest boost to well being by realizing the benefits of foreign productivity in a lower cost of goods while channeling American labor into employment where their relative productivity is highest. The transition is often painful, but paying people not to work long term is counterproductive. Immigration of both highly skilled and low cost labor (but not dependent family) generally contributes to per capita labor productivity in the same way as free trade.
None of this will be easy. The alternative is Greece without the Mediterranean climate or a sufficiently rich benefactor.
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Kevin Villani, chief economist at Freddie Mac from 1982 to 1985, is a principal of University Financial Associates. He has held senior government positions, been affiliated with nine universities, and served as CFO and director of several companies. He recently published Occupy Pennsylvania Avenue on the political origins of the sub-prime lending bubble and aftermath.
"Real GDP growth in Q3 was revised to a 3.5% annual rate from a prior estimate of 3.2%, beating the consensus expected 3.3%."
I must admit I was wrong when I predicted the growth estimate would be revised downward after the election. Still, this and the current quarter will conclude 8 years of lethargic, pathetic and ARTIFICIAL growth.
Nominal growth is 3% and our inflation target is 2%. The difference is a rounding error; we aren't better off.
What would the real growth rate be without 10 trillion in new fiscal deficit stimulative spending? What would it be without quantitative easing, asset re-purchases and 8 years of near zero interest rate policy? Zero growth or worse, I suspect.
Easy money when it shouldn't be was a major cause of the last financial meltdown: https://economicsone.com/2016/12/09/unconventional-monetary-policy-normalization-and-reform/
Have we learned anything?
What would the growth rate be if we didn't tax corporations at the highest rate in the world? If we didn't pour two dozen new tax increases on the economy with Obamacare, or if we didn't add tens of thousands of new pages of regulations onto what used to be a relatively free economy? If we hadn't dropped out of the top ten freest countries in the world in the Heritage Freedom Index?
Stay tuned. Maybe we will find out.
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I remember when Peter Gold (?) told us he was buying gold after the tech crash in the early 2000s on a previous forum pre Dog Brothers:
http://www.macrotrends.net/1333/historical-gold-prices-100-year-chart
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The ISM Manufacturing Index Rose to 54.7 in December To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 1/3/2017
The ISM manufacturing index rose to 54.7 in December, beating the consensus expected level of 53.8. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mostly higher in December, and all stand above 50, signaling growth. The new orders index surged to 60.2 from 53.0 in November, while the production index increased to 60.3 from 56.0. The employment index moved higher to 53.1 from 52.3, while the supplier deliveries index declined to 52.9 from 55.7 in November.
The prices paid index increased to 65.5 in December from 54.5 in November.
Implications: Manufacturing ended 2016 on a high note, with the ISM manufacturing survey hitting the highest reading in two years. And December's increase represents the fourth consecutive month that the index has moved higher, signaling faster growth. Both the new orders and production indices hit multi-year highs, suggesting that 2017 should hit the ground running as factories gear up to fill increased demand. Some of this may be in part due to President-Elect Trump's focus on the manufacturing sector, but we think the likelihood of tax and regulatory reform are boosting confidence across industries and will benefit both the manufacturing and service sectors. The employment index also hit a 2016 high in December after being the only major indicator to decline in November. That said, manufacturing remains a small portion of total employment. We tend to focus on other signals of labor force strength (initial claims, earnings growth, and consumer spending) which have shown constant strength even through some turbulent times for the manufacturing sector. On the inflation front, the prices paid index skyrocketed to 65.5 in December from 54.5 in November, with eighteen commodities rising in price while just three declined. So any claims that rising prices are just a reflection of the rebound in oil prices are missing the mark. Yes, energy prices have been on the rise since bottoming in mid-2014, but rising economic activity is starting to put pressure on a wide variety of inputs. This, paired with rising energy, is likely to push inflation above the Fed's 2% target in 2017. As a whole, today's report shows the Plow Horse manufacturing sector starting to hit its stride as the nation prepares to pass the reins to a new President. In other news this morning, construction spending increased 0.9% in November (+0.8% including revisions to October). New single-family home building led the way, while hotel construction and public schools also increased.
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http://scottgrannis.blogspot.com/2017/01/off-to-good-start.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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http://www.ftportfolios.com/Commentary/EconomicResearch/2017/1/25/the-plow-horse-is-dead
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Personal Income Increased 0.3% in December To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 1/30/2017
Personal income increased 0.3% in December, coming in below the consensus expected 0.4%. Personal consumption rose 0.5% in December, matching consensus expectations. Personal income is up 3.5% in the past year, while spending is up 4.5%.
Disposable personal income (income after taxes) increased 0.3% in December and is up 3.7% from a year ago. The gain in December was led by private-sector wages & salaries.
The overall PCE deflator (consumer inflation) rose 0.2% in December and is up 1.6% versus a year ago. The "core" PCE deflator, which excludes food and energy, increased 0.1% in December and is up 1.7% in the past year.
After adjusting for inflation, "real" consumption increased 0.3% in December and is up 2.8% from a year ago.
Implications: Last year ended on a solid note, with healthy gains in Christmas-time consumer spending and respectable income gains as well. Income increased 0.3% in December with private-sector wages & salaries bouncing back 0.4% after declining in the previous month. Incomes are up 3.5% in the past year and we expect further gains in the year ahead as the labor market continues to tighten. In turn, consumer spending will continue to grow as well. Spending rose 0.5% in December and is now up 4.5% in the past year. Today's report also shows inflation continuing to trudge higher. The PCE deflator, the Fed's favorite measure of inflation, rose 0.2% in December and is up 1.6% from a year ago. It still has not crossed 2%, but this is a sharp jump from just 0.6% inflation in the year ending in December 2015. In the past three months PCE prices are up at a 1.9% annual rate, right around the Fed's long-term target of 2%. Meanwhile, the "core" PCE deflator, which excludes food and energy, is up 1.7% from a year ago. We expect continued acceleration in year-ago comparison measures of inflation over the next few months, with a lot of the gain coming from energy prices. Together with continued employment gains, these figures support the case for at least three rate hikes by the Fed in 2017. The one consistent dark cloud in the income reports has been government redistribution. Overall government transfers to persons are up 3.3% in the past year. Before the Panic of 2008, government transfers – Medicare, Medicaid, Social Security, disability, welfare, food stamps, and unemployment insurance – were roughly 14% of income. In early 2010, they peaked at 18.5%. Now they're around 17%, but not falling any further. Redistribution hurts growth because it shifts resources away from productive ventures and, among those getting the transfers, weakens work incentives. That's why, for the time being, we still have a Plow Horse economy, not a Race Horse economy.
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Also note that GDP went up 1.8% per year the last 8 years - - - as Wesbury predicted? (
The good news is the predictability - that dismal policies bring dismal results.
The bad news is that we haven't really changed the policies yet.
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http://scottgrannis.blogspot.com/2017/01/the-markets-not-very-optimistic.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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The ISM Manufacturing Index Rose to 56.0 in January To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/1/2017
The ISM manufacturing index rose to 56.0 in January, beating the consensus expected level of 55.0. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were all higher in January, and all stand above 50, signaling growth. The employment index jumped to 56.1 from 52.8 in December, while the production index increased to 61.4 from 59.4. The supplier deliveries index moved higher to 53.6 from 53.0, while the new orders index rose to 60.4 from 60.3 in December.
The prices paid index increased to 69.0 in January from 65.5 in December.
Implications: Manufacturing opened 2017 on a high note, with the ISM manufacturing survey hitting the highest reading in more than two years and the best reading to start a year going back to 2011. And every major category of activity showed a faster pace of expansion in January. Factories hit the ground running, with the production index rising to 61.4 in January, a multi-year high. Add in continued growth in the pace of new orders and production should continue to show healthy growth in the months ahead. Plus, President Trump has promised tax cuts and regulatory reforms, likely boosting confidence across industries. The employment index showed the largest increase in January, rising to 56.1 from 52.8 in December. That said, manufacturing remains a small portion of total employment. For a better picture of labor market health, we tend to focus on broader signals (initial claims, earnings growth, and consumer spending) which have shown constant strength even through some turbulent times for the manufacturing sector. On the inflation front, the prices paid index jumped to 69.0 in January from 65.5 in December, with more than twenty commodities rising in price while not a single commodity reported lower. So any suggestion that rising prices are just a reflection of the rebound in oil prices misses the mark. Rising economic activity, the lagged effect of loose monetary policy, is starting to put pressure on a wide variety of inputs, and it looks increasingly likely that inflation will rise above the Fed's 2% target in 2017. In other news earlier this morning, the ADP index says private payrolls increased 246,000 in January. Plugging this into our models suggests Friday's official Labor report will show a nonfarm increase of 197,000 (versus a consensus 175,000), although we may tweak this forecast slightly based on tomorrow's report on unemployment claims. On the housing front, pending home sales, which are contracts on existing homes, increased 1.6% in December, suggesting a small gain in closings on existing homes in January. The national Case-Shiller index, which measures home prices, increased 0.8% in November and is up 5.6% from a year ago, an acceleration from the 5.2% gain in the year ending in November 2015. Price gains in the past twelve months have been led by Seattle and Portland, with the slowest gains in New York City and Washington, DC. Construction spending declined 0.2% in December (unchanged including revisions to prior months), as a decline in manufacturing and educational facilities more than offset a pickup in home building.
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Irreversible Damage - The U.S. Economy Cannot Be Repaired
Brandon Smith - February 2, 2017
As I outlined in my article 'The False Economic Narrative Will Die In 2017', the mainstream media has been carefully crafting the propaganda meme that the Trump administration is inheriting a global economy in “ascension,” when in fact, the opposite is true. Trump enters office at a time of longstanding decline and will likely witness severe and accelerated decline over the course of the next year. The signs are already present, and this fits exactly with the basis for my prediction of the Trump election win — conservative movements are indeed being set up as scapegoats for a global economic crisis that international financiers actually created.
Plus, it doesn’t help that Trump keeps boasting about the farcical Dow hitting record highs after his entry into the White House. Talk about the perfect setup…
With the speed at which Trump is issuing executive orders, my concern is that people’s heads will be spinning so fast they will start to assume an appearance of economic progress. Here is the issue — some problems simply cannot be fixed, at least not in a top down fashion. Some disasters cannot be prevented. Sometimes, a crisis has to run its course before a nation or society or economy can return to stability. This is invariably true of the underlying crisis within the U.S. economy.
It is imperative that liberty activists and conservatives avoid false hope in fiscal recovery and remain vigilant and prepared for a breakdown within the system. Despite the sudden political sea change with Trump and the Republican party in majority control of the D.C. apparatus, there is nothing that can be done through government to ease fiscal tensions at this time. Here are some of the primary reasons why:
Government Does Not Create Wealth
Government is a wealth-devouring machine. The bigger the government, the more adept it is at snatching capital and misallocating it. Such a system is inherently unequipped to repair an economy in a stagflationary spiral.
I’m hearing a whole lot of talk lately on all the jobs that will be created through Trump’s infrastructure spending plans, which reminds me of the desperation at the onset of the Great Depression and the efforts by Herbert Hoover to reignite the U.S. economy through a series of public works programs. Reality does not support a successful outcome for this endeavor.
First off, Trump’s ideas for infrastructure spending to kick start a U.S. recovery are not new. The Obama administration and Congress passed the largest transportation spending bill in more than a decade in 2015 and pushed for a similar strategy to what is now being suggested by Trump. I should point out though that like Herbert Hoover, Obama’s efforts in this area were essentially fruitless. Obama was the first president since Hoover to see “official” annual U.S. GDP growth drop below 3 percent for the entirety of his presidency, with GDP in 2016 dropping to a dismal 1.6 percent.
Though projects like the Hoover Dam were epic in scope and electrifying to the public imagination during the Depression, they did little to fuel the overall long-term prospects of the American economy. This is because government is incapable of creating wealth; it can only steal wealth from the citizenry through taxation to pay debts conjured out of thin air, or, it can strike a devil’s bargain with central banks to print its way to fake prosperity.
Some might argue that Trump is more likely to redirect funds from poorly conceived Obama-era programs instead of increasing taxes or printing, but this does not change the bigger picture. Redirected funds are still taxpayer funds, and those funds would be far better spent if they were returned to taxpayers rather than wasted in a vain effort to increase GDP by a percentage point. Beyond this, the number of jobs generated through the process will be a drop in the bucket compared to the 100 million plus people no longer employed within the U.S. at this time.
Bottom line? Though new roads and a wall on the southern border are winners for many conservatives, infrastructure spending is a non-solution in preventing a long-term fiscal disaster.
Interdependency Is Hard To Break
Another prospect for raising funds to pay for job generating public works projects is the use of tariffs on foreign imports. Specifically, imports of goods from countries which have maintained unfair trade advantages through global agreements like NAFTA, CAFTA or the China Trade Bill. This is obviously a practical concept and it was always the intention of the founding father post-revolution for government to generate most of its funding through taxation of foreign imports and interstate commerce, rather than taxation of the hard earned incomes of the citizenry. However, the idea is not without consequences.
Unfortunately, globalists have spent the better part of a half-century ensuring that individual nations are completely financially dependent on one another. The U.S. is at the very CENTER of this interdependency with our currency as the world reserve standard. In order to change the nature of the inderdependent system, we have to change the nature of our participation within that system. This means, in order to assert large tariffs on countries like China (which Trump has suggested), America would have to be willing to sacrifice the main advantage it enjoys within the interdependent model — we would have to sacrifice the dollar’s world reserve status.
Keep in mind, this is likely to be done for us in an aggressive manner by nations like China. China’s considerable dollar and treasury bond holds can be liquidated, and despite claims by mainstream shills, this WILL in fact have destructive effects on the U.S. economy.
Also keep in mind that with higher tariffs come higher prices on the shelf. The majority of goods consumed by Americans come from outside the country. Higher tariffs only work to our advantage when we have a manufacturing base capable of producing the goods we need at prices we can afford. The American manufacturing base within our own nation is essentially nonexistent compared to the Great Depression. In order to levy tariffs we would need a level of production support we simply do not have.
The point is, an unprecedented change in America's production dynamic would have to happen so that we do not face heavy fiscal consequences for the use of tariffs as an economic weapon.
Manufacturing Takes Time To Rebuild
Much excitement has been garnered by reports that certain U.S. corporations will be bringing some manufacturing back within our borders over the course of Trump’s first term as president. And certainly this is something that needs to happen. We should have never outsourced our manufacturing capability in the first place. But, is this too little too late? I believe so.
I remember back in 2008/2009 mainstream economists were applauding the Federal Reserve’s bailout efforts and the call for quantitative easing, because, they argued, this would diminish the dollar’s value on the global market, which would make American goods less expensive, and by extension inspire a manufacturing renaissance. Of course, this never happened, which only adds to the mountain of evidence proving that most mainstream economists are intellectual idiots.
It is important that we do not fall into the same false-hope trap in 2017. While Trump may or may not handle matters more aggressively, there is only so much that can be accomplished through politics. Rebuilding a manufacturing base after decades of outsourcing takes time. Many years, in fact. Factories have to be commissioned, money has to change many hands, wages have to be scouted for the best possible labor per-dollar spent and people have to be trained from the very ground up in how to produce goods again. In many cases, the skill sets required to maintain functioning factories in the U.S. (from engineers to machinists to assembly line labor to the people who know how to manage it all) just don’t exist anymore. All we have left are millions of retail and food service workers forming mobs to demand $15 an hour, which is simply not going to encourage a return to manufacturing.
Beyond this, at least in the short term, America will have a much stronger dollar on the global market, rather than a weaker dollar, due to the fact that the Federal Reserve has initiated a renewed series of interest rate increases just as Trump entered office. While the mainstream theorizes that the Fed will turn "dovish" and back away from rate hikes, I think this is a rather naive notion. It serves the elites far better to create a battle between Trump and the Fed - therefore, I see no reason for the Fed to back away from its rate hike process. Trump will demand a weaker dollar, the Fed won't give it to him, and ultimately, the global economy will start to see the dollar as a risky venture and dump it as the world reserve; which is what the globalist have wanted all along so that they can introduce the SDR as a bridge to a new world currency.
With a "strong" dollar (relative to other indexes) there is even LESS incentive for foreign nations to buy our goods now than there was after the credit crisis in 2008. If the dollar loses world reserve status (as I believe it will during Trump’s first term), then at that point we will have a swiftly falling currency — but too swift to fuel a manufacturing reboot.
Is there even enough internal wealth to support the rise of manufacturing within the U.S. for a period of time necessary for our economy to rebalance? If there is I’m not seeing it. We are a nation mired in debt. So much so that even selling off our natural resources would not erase the problem.
Ultimately, the shift away from being tied to a globalized system towards a self-contained producer nation with a citizenry wealthy enough to sustain that production in light of limited exports to foreign buyers is a shift that requires incredible foresight, precision and ample time. It is not something that can be ramrodded into existence through force or by government decree. In fact, the act of trying to force the change haphazardly will only agitate an economy already on the verge of calamity.
Solutions Start With The Citizenry, Not Washington
I understand that conservatives in particular want to “make America great again,” and I fully agree with that goal. But, someone has to point out the inconsistencies in the current strategy and recognize that the situation is beyond repair. To make America great again would require decentralized efforts to maximize production and self reliance at a local level, not centralized federal tinkering with the economy. The globalists have been far too thorough in their programs of interdependency. The only way out now is for the system to crash and for the right people to be in place to rebuild.
Sadly, not only will a crash result in great tragedy for many Americans, but it is also an outcome the globalists prefer. They believe that THEY will be the men in the right place at the right time to rebuild the system in an even more centralized fashion. They hope to sacrifice the old world order to inspire the social desperation needed to convince the masses of the need for a “new world order.” Again, this crash cannot be avoided, it can only be mitigated. We can prepare and become self sufficient. We can fight to ensure that the globalists are not in a position to rebuild the system in their image once the dust settles. But, we should not place too much expectation that the Trump administration will be able to solve any of our economic problems, if that is even their intent. The solution remains in our hands, not in the hands of the White House.
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I remember in the 60s watching my $100 dollars "earn" or accrue 5% interest just for being deposited at a bank and thinking that ain't much. Now to get anywhere near that is hawked as some kind of great deal:
https://www.nerdwallet.com/blog/banking/history-of-bank-accounts/
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http://scottgrannis.blogspot.com/2017/02/claims-in-uncharted-waters-is-labor.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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http://scottgrannis.blogspot.com/2017/02/claims-in-uncharted-waters-is-labor.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
Not reassuring.
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The author is correct here - this ought to be blindingly obvious at this point:
www.sovereignman.com/trends/worlds-largest-hedge-fund-manager-predicts-bleak-future-for-markets-20855/
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Plan B for billionaires is a opulent underground bunker fortress in New Zealand probably lined with terra cotta warriors.
For us - forget about it.
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Plan B for billionaires is a opulent underground bunker fortress in New Zealand probably lined with terra cotta warriors.
For us - forget about it.
New Zealand will probably be a base for the PLA in the not too distant future.
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PLA?
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PLA?
PLA= People's Liberation Army-China
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Monday Morning Outlook
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Room to Grow To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/6/2017
The US economy has grown at an average annual rate of only 2.1% since the recovery started in mid-2009, far slower than during the economic expansions of the 1980s and 1990s.
Many analysts tie some of the slower growth to slower expansion in the labor force due to retiring Boomers and the end of the shift of women into the paid job market. But productivity (output per hour) has been slow as well. Since mid-2009, productivity is up at a 1.0% annual rate versus a pace of 2.1% at the same point in the recoveries after the 1981-82 recession and 1990-91 recession. The expansion in 2001-07 lasted six years during which productivity grew 2.5% per year.
In other words, if productivity growth had been just as fast in the current expansion as in the expansions of the 80s and 90s, real GDP growth would have been averaging around 3.2% per year, not 2.1%. In that case, much of the current angst about the US economy would be gone.
Two popular theories try to explain why productivity growth has been so slow.
One is the "Great Stagnation" theory made famous by economist Robert Gordon, among others. Gordon believes humanity – usually, but not always, led by the US – made massive leaps in technological progress and implementation between 1870 and 1970: incandescent light bulbs, automobiles, central heating, refrigerators, the germ theory of disease, window screens, radios, telephones, television, air conditioners, airplanes, sewer systems, and indoor plumbing.
Gordon says those kinds of achievements, directly addressing problems humans have wanted to address since the beginning of time, simply can't be duplicated again, and so we're simply going to have to learn to live with slower economic growth. In turn, he proposes government policies that focus on redistributing income to lower earners.
No one doubts the transformative nature of the inventions of the late 19th Century and early 20th Century. But pretending that we can know the future path of technological advances is the kind of hubris at the heart of centrally planned economies.
Moreover, we think any slowdown in progress is due to the larger size of government, which puts politicians in charge of shifting resources around according to political expediency rather than letting those resources find their most efficient use. It's no wonder that the biggest leaps in innovation started when the US government was tiny compared to today's size.
Think about the possibilities of driverless cars or doubling the length of healthy vigorous adult life (both mentally and physically). The economic value of these kinds of breakthroughs would be enormous.
Another theory of why we have to settle for slower growth is our economy has too much debt. But debt, by itself, is not a reason for slower growth. Just think about your own situation. If you woke up this morning and had $50,000 more debt than you previously realized, would you work more or less in the future? More, obviously, which makes output go up, not down.
Debt can be a problem if debtors suddenly decide they won't pay their obligations. In that case, lenders can become insolvent, causing financial strains until the economy adapts.
But we don't see a reason for a sudden spike in defaults by borrowers. Seven years ago, consumers were 90+ days delinquent on more than a $1 trillion in consumer loans. But that figure has declined every year since and is now at $400 billion.
Although the government's debt is at a record high, net interest on the debt is still low relative to both GDP and federal revenue. Even if interest rates on government debt went to 4% across the yield curve tomorrow, net interest relative to GDP and revenue would still be lower than the average during the 1980s and 1990s.
Meanwhile, capital standards are higher and leverage ratios lower at US financial institutions. In other words, debt is not holding the US economy back.
We believe the US is at a pivotal point right now, with a chance to curb spending, cuts tax rates, and rollback the regulatory state. If it does so, many of the same analysts now telling us we have to accept slower growth will be spinning their wheels inventing theories about why growth suddenly picked back up.
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http://money.usnews.com/investing/articles/2017-02-02/what-happens-to-berkshire-hathaway-after-warren-buffett
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David Stockman correctly diagnoses (IMHO) the current debt calamity we are living in, and says that stocks are wildly overvalued, and Trump is powerless to stop this train wreck from occurring this year:
https://www.youtube.com/watch?v=7xgNncFHAng
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Eventually he may be proven right, but it is worth noting that Stockman has been wrong for several decades now on pretty much everything.
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Data Watch
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The ISM Manufacturing Index Rose to 57.7 in February To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 3/1/2017
The ISM manufacturing index rose to 57.7 in February, easily beating the consensus expected level of 56.2. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mostly higher in February, and all stand above 50, signaling growth. The new orders index jumped to 65.1 from 60.4 in January, while the production index increased to 62.9 from 61.4. The supplier deliveries index moved higher to 54.8 from 53.6. The employment index fell to 54.2 from 56.1 in January.
The prices paid index declined to 68.0 in February from 69.0 in January.
Implications: The ISM manufacturing survey hit a two-and-a-half year high in February, and is off to the best start to a year since 2011. Factories continue to ramp up activity, with the production index rising to 62.9 in February as seventeen of eighteen industries reported growth. Add in continued growth in the pace of new orders and production should continue to show healthy growth in the months ahead. Plus, President Trump has promised tax cuts and regulatory reforms, likely boosting confidence across industries. The employment index was the only major index to decline in February, but remember that levels about 50 signal growth, so the February reading of 54.2 represents continued expansion but at a slower pace than in January. That said, manufacturing remains a small portion of total employment. For a better picture of labor market health, we tend to focus on broader signals (initial claims, earnings growth, and consumer spending) which have shown constant strength even through some turbulent times for the manufacturing sector. On the inflation front, the prices paid index was nearly unchanged at 68.0 in February from 69.0 in January, with more than twenty commodities rising in price while just one, scrap metal, reported lower. So any suggestion that rising prices are just a reflection of the rebound in oil prices misses the mark. Rising economic activity, the lagged effect of loose monetary policy, is putting pressure on a wide variety of inputs, and putting pressure on the Fed not to fall behind the curve in raising rates that are too low for the current environment. In other economic news this morning, construction spending declined 1.0% in January (-0.1% including revisions to prior months), as a decline in state and local construction of airport terminals and bridges more than offset a pickup in home building.
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http://www.ftportfolios.com/Commentary/EconomicResearch/2017/3/1/trump-speaks,-stocks-soar
http://scottgrannis.blogspot.com/2017/03/rising-rates-are-still-bullish-for.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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Are We Witnessing The Weirdest Moment In Economic History?
Wednesday, 08 March 2017 Brandon Smith
It is an unfortunate reality that most people tend to be oblivious to massive sea changes in geopolitics and economics. You would think that these events would catch the immediate attention of everyone as they happen, but usually it is not until they realize that the microcosm of their personal lives is subject to the consequences of the macrocosm that they wake up and take notice.
There are, however, ways to train yourself to pick up on signals within the news cycle and within political and financial rhetoric; signals that indicate a great shift is perhaps on the way. Sometimes these initial signs are subtle, sometimes they are as subtle as a feminist slut-walk. I would point out that over the next few months there are dangerous correlations so numerous and blatant in the economic sphere that I would almost rather watch a marching gaggle of frumpy feminists wearing nothing but electrical tape than bear witness to the mayhem that is about to strike the unwitting public.
What am I talking about? Well, let’s go through the list…
Federal Reserve Meeting March 14-15th
As my readers know well, I have been warning since before the election that the Fed would use a Trump presidency as an opportunity to pull the plug on near-zero interest rates and remove a primary pillar supporting stock markets — stock buybacks made possible by free overnight loans to numerous banks and corporations. Without QE and low interest rates the equities bubble will inevitably implode.
Corporate earnings certainly aren’t holding up stocks, neither is GDP or consumer spending. The Fed is the only determining factor of the ongoing bull market. Anyone who claims otherwise is probably a mainstream analyst or overzealous day trader with a vested interest in keeping the illusion going.
It is not surprising to me at all that the “rate hike odds” for March have been increased by mainstream analysts to 90% in the span of a week. I don’t know why anyone uses these arbitrary odds as an indicator of anything. I’ve been receiving emails all month asking me if I still believe the Fed will hike rates while the odds are “so low.” Look, the Fed does not make decisions at these meetings. They make decisions months in advance and the meetings are window dressing.
Too many people operate under the delusion that the central bank wants to continue propping up stocks, which is why they cannot grasp why the Fed would raise rates. In reality, the stage has been perfectly set to allow the bubble to implode. When the elites have a perfect scapegoat, they use it, and conservative movements represent that perfect scapegoat today.
The important thing to remember, though, is the timing of this particular meeting…
U.S. Debt-Ceiling Suspension Ends March 15th
So, in case you weren’t tracking the economic situation two years ago, the U.S. government almost went bust (in a sense) in 2015. The debt ceiling sets limits on how much the government can borrow to fund itself, and that limit was hit hard under the Obama administration after he managed to nearly double the national debt during his tenure. Congress passed legislation to allow borrowing to continue until March 2017, and of course, much of that capital was “borrowed” from the Federal Reserve, which, of course, creates it out of thin air. With the return of the debt ceiling, the question is — will Congress be able to extend and delay again? With Trump running on a platform of fiscal responsibility, CAN they extend again? Do they even want to, or is this an engineered crisis event?
Once again, the timing of all this is a little odd. The Fed is raising rates into the first year of the Trump presidency leaving equities increasingly open to destabilization. In addition, the government might not be able to continue borrowing from them, or there will be a renewed extension but the costs of borrowing will run much higher. In either case, this month seems to pronounce the beginning of something; a considerable move away from the standard operating procedures that the elites have been using for the past several years. With such changes come consequences, always.
Formal Initiation Of Brexit On March 15th
The skeptics have been telling me for months that even though I was right about the Brexit vote victory the elites “would never allow” the British to leave the EU. Well, it doesn’t look that way to me so far. Theresa May plans to formally notify the EU of British exit on March 15th triggering two years of negotiations which will undoubtedly send economic shock waves throughout the globe on a regular basis.
Of course the Brexit will move forward! Why not? Globalists need a continuing atmosphere of crisis to distract the masses from their great global reset, and they need multiple scapegoats for the economic disaster that their reset will cause. Enter conservative movements in Europe; once again the perfect target to pin a crisis on.
French Elections Start April 23rd, End May 7th
Yet another election in which the EU hangs in the balance. Recent polls indicate that Marine Le Pen, the designated “populist" candidate, is falling behind. I have to ask, though, have we not learned our lesson yet on the meaninglessness of political polls? I think most of us have.
I believe Le Pen will be one of the final two candidates to move on to the election in May, and though I am not as certain as I was on Brexit and Trump, I am going to go ahead and predict a Le Pen win. If there is any sizable terrorist event in the next couple of months in the EU, or expanded Muslim riots, she is a guaranteed win. This brings up the very real prospect of a “Frexit” in the near future, and analysts should expect that a Le Pen win will be met with some panic in the financial world.
Potential Italian Election Move On April 30th
The Italian political process is a little confusing to me, but what I can tell you is that this spring or early summer you will probably be hearing a lot more about it. Former Italian prime minister and current Italian Democratic Party leader Matteo Renzi is set to decide on a the date for a leadership vote, which may come as early as April 30th. The outcome of this vote will likely decide how soon the next official Italian election will take place.
The election is required to be held before May 2018, but there is increasing pressure to hold elections in 2017, perhaps even this coming summer. I would not be at all shocked to see a surprise announcement of an early Italian election after the leadership vote is held.
Why should anyone care? The consensus is that Renzi’s party will be overrun by anti-EU factions and that this may result in a kind of “Italiexit.” The outcome of Italy’s series of votes and political restructuring will have wide reaching effects on the psychology of the markets for many months to come.
German Federal Election Held September 24th
Yes, even Germany is quaking this year in the wake of a potential “populist” tsunami. Angela Merkel is exceedingly unloved by her own people lately as her approval ratings collapse. Once-silent sovereignty champions in the country are becoming more and more vocal about Merkel’s rather insane open immigration policies which were the key element that drew millions of Muslims into the EU. It was the German government’s promise of endless entitlement programs that created the incentive for the mass migration in the first place, and now, finally, the German people are fed up with the complete lack of cultural assimilation and what many see as the destruction of western values.
I do not think that Germany will abandon the supranational concept of the EU regardless of the outcome of the election, but the removal of Merkel would signal a less agreeable Germany, which would exacerbate the already tottering European Union. Meaning more economic uncertainty in 2017.
If You Thought 2016 Was Weird…
If you thought 2016 was weird, I suggest you get comfortable with the surreal because it is not going away anytime soon. 2017 is a veritable treasure trove of falling elevators, and I haven’t even covered half of the issues facing the economy this year. But what about the macro-analysis?
To summarize, it seems to me that many of these events, stacked so closely together, are not coincidental in their timing. As I have noted in articles such as The Economic End Game Explained, globalists have been openly planning for decades to set in motion a vast financial overhaul and the launch of a single global economy and currency (the seeds being planted starting in 2018). If this is still their timeline, then it would follow that they would need a series of fiscal earthquakes designed to shake up the “old world order” to make way for a “new world order.”
Perhaps each of these events will result in a “stable” outcome and there is nothing to be concerned about. That said, I don’t believe in chance. Most geopolitical outcomes are influenced by internationalist players, which makes the outcomes of these events predictable. This is what made the Brexit predictable, and it is what made Trump’s victory predictable. Everything about the confluence of political and economic events in 2017 suggests to me a festering crisis atmosphere.
As I have always said, economic collapse is a process, not a singular moment in time. This process lulls the masses into complacency. You can show them warning sign after warning sign, but most of them have no concept of what a collapse is. They are waiting for a cinematic moment of revelation, a financial explosion, when really, the whole disaster is happening in slow motion right under their noses. Economies do not explode, they drown as the water rises one inch at a time.
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"...Weirdest Moment In Economic History?"
It is not political that Democrat Janet Yellen would raise interest rates up on Donald Trump's election. Near zero interest rate policy is wrong and needs correcting. What is political is that she did not do it 8 years ago!
Right now we risk a repeat of the Volcker recession of 81-82. We have the tightening of money preceding the stimulus of tax rate cut reform.
Are we really stupid or ignorant enough to repeat this catastrophic error? Yes. Why wouldn't we? We repeat and continue all of our other economic errors.
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a) The Volcker tightening was in the context of 12% inflation. Keep in mind the implications of this in the context of baseline budgeting i.e. if inflation falls quicker than anticipated (as was the case) then the spending "cuts" have a larger % of real cuts in relation to nominal cuts.
b) Are you agreeing with the Keynesian notion that the low rates have stimulated the economy?
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http://scottgrannis.blogspot.com/2017/03/february-jobs-report-changes-nothing.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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"The Volcker tightening was in the context of 12% inflation."
"Keep in mind the implications of this in the context of baseline budgeting i.e. if inflation falls quicker than anticipated (as was the case) then the spending "cuts" have a larger % of real cuts in relation to nominal cuts." -
"Are you agreeing with the Keynesian notion that the low rates have stimulated the economy?"
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QE, in my view, was like adding gas when the problem was flat tires. I think that QE and low rates were partly stimulative (it's easier to buy a house, car or appliance when interest rates are at zero), but it was not the right solution to the right problem - and it did cause immeasurable other damage (savings rate, etc).
Low rates and QE aren't exactly the same thing. They were injecting money in other ways too.
Unlike Grannis and Wesbury, I think QE and low rates contributed to the run-up of the stock market during the slow growth Obama years. The S&P 500 went up 235% over 8 years while the economy was growing at 1.9% /yr. Was it stimulative for the market to surge? Not noticeably. It didn't address what was wrong (taxes and regulations).
Will a move toward tightening of money now will have some contractionary effect? I think slightly yes, but not the main factor. The economy could easily grow past a little tightening if we would simultaneously correct our other policy mistakes.
My pessimism mostly comes from the tax reform that is delayed or not happening. I don't see how you bump growth from 2% to 4% without fixing the screwed up tax code. We are expecting different results from doing the same things. The delay in lowering rates makes people put off transactions and taxable income whenever they can. Inaction from employers and investors is the enemy of growth. And if/when expectations fall, the positive economic effect we see now is gone.
On the other side of it, Trump was right to go bold on removing excess regulations early. If those were well chosen they may already be having a positive effect.
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(http://www.jsmineset.com/2017/03/07/in-the-news-today-2621/)
http://www.jsmineset.com/2017/03/07/in-the-news-today-2621/
So, exactly how much of a problem is this?
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I asked Scott Grannis and this is what he said:
"Derivatives are poorly understood by almost everyone, including the author of this article. This vastly overstates the case by many orders of magnitude."
-Scott Grannis
scottgrannis.blogspot.com
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I asked Scott Grannis and this is what he said:
"Derivatives are poorly understood by almost everyone, including the author of this article. This vastly overstates the case by many orders of magnitude."
-Scott Grannis
scottgrannis.blogspot.com
Are derivatives a problem? If so, where on the scale, 1 being no issue, 10 being TEOTWAWKI?
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https://www.wsj.com/articles/buying-appetite-returns-to-global-markets-1490063629
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Flashback:
http://dogbrothers.com/phpBB2/index.php?topic=985.msg7691#msg7691
Rick N, October 22, 2006:
There will be a lot of capital gains realization in 2007 and 2008 as many investors opt to pay the 15% tax rate ahead of possible rate hikes if the Dems control Congress and the White House. Coupled with the projected decrease in corporate profits in the second half of next year, the likely increase in selling pressure on all asset classes, stocks, real estate and commodities, increases the risk of negative economic and investment data.
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This all came to be true like clockwork, and a point I have tried to make after the fact. Investors lost confidence and had powerful reasons to pull back ahead of the expected tax rate hikes on capital and investors. The 2006 election flipped power in Washington to the tax rate hikers and the likelihood of them also taking control of the White House in 2008 led to the crash. The Federal Reserve and federal government-caused bubble was the other hand in it, left exposed when growth ended. Democrats kept delaying their promised tax rate hikes, but by continuing to promise them, they stomped out all optimism and growth in the economy.
It is a nice feature of this forum that Rick alerted anyone paying attention here to this very real economic risk before it happened!
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http://www.goldcore.com/us/gold-blog/cyber-wars-crash-markets-threat-humanity-rickards-buffett/
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NICE FIND Doug!
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Personal Income Increased 0.4% in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/30/2017
Personal income increased 0.4% in May, (0.3% including revisions to prior months). The consensus expected a 0.3% gain. Personal consumption increased 0.1%, (+0.2% including prior months' revisions). The consensus expected a gain of 0.1%. Personal income is up 3.5% in the past year, while spending is up 4.2%.
Disposable personal income (income after taxes) increased 0.5% in May and is up 3.7% from a year ago. The gain in May was led by dividend income.
The overall PCE deflator (consumer inflation) declined 0.1% in May but is up 1.4% versus a year ago. The "core" PCE deflator, which excludes food and energy, rose 0.1% in May and is up 1.4% in the past year.
After adjusting for inflation, "real" consumption rose 0.1% in May and is up 2.7% from a year ago.
Implications: Good news for consumers. Incomes and spending continued to move higher in May, led by the fastest growth in dividends since December 2012. Incomes are showing the strongest start to a year since 2014 and are up 3.5% in the past year. But it wasn't just dividends that rose in May. All major categories of income rose, as well. Along with the rising incomes, spending ticked up 0.1%. As always, we like to take a step back and look at the trend. While spending growth has outpaced income over the past year, incomes are up at a 3.6% annual rate in the past three months compared to a 3.3% pace for spending. Some stories are claiming consumers are in trouble, but the facts suggest otherwise. Consumer debts are at a record high in dollar terms, but so are consumer assets. Comparing the two, debts are the lowest relative to assets since 2000 (and that's back during the internet bubble when asset values were artificially high). Meanwhile, the financial obligations ratio - which compares debt and other recurring payments to income – is still hovering near the lowest levels of the past thirty years. The US consumer is in excellent shape. On the inflation front, the PCE deflator declined 0.1% in May but is up 1.4% in the past year. By contrast, a year ago, in May 2016, the 12-month change for prices was only 1.0%; in May 2015, it was up a meager 0.3%. In other words, we think inflation is still in a long-term accelerating trend. Falling energy prices will hold inflation readings down again in June but we expect to be close to the Fed's 2% inflation target at year end, which is consistent with the Fed raising rates again in September and then starting balance sheet normalization on October 1. In other news this morning, the Chicago PMI, which measures manufacturing sentiment in that region, rose to 65.7 in June from 59.4, the highest reading in more than three years. As a result, we think Monday's national ISM Manufacturing index will show a gain for June.
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http://freebeacon.com/issues/cbo-treasury-run-cash-next-3-months-leading-default-delay-payments/
CBO: Treasury to Run Out of Cash in Next 3 Months, Leading to Default or Delay of Payments
Treasury may run out earlier if the government spends more money or takes in less revenue
BY: Ali Meyer
June 30, 2017 5:00 am
The Treasury is set to run out of cash in October, which may lead to a default on debt obligations or payment delays for government programs, according to a report from the Congressional Budget Office.
On March 15, 2017, the suspension of the debt limit expired and since then the Treasury has been able to borrow additional funds without violating the debt ceiling.
"The Congressional Budget Office projects that if the debt limit remains unchanged, those measures will be exhausted and the Treasury will most likely run out of cash in early to mid-October," the report states. "The government would then be unable to pay its obligations fully, so it would have to delay making payments for its programs and activities, default on its debt obligations, or both."
The amount of money the government spends on programs and the amount it collects in taxes could change from the budget office projections, so the office warns that the Treasury could run out of funds even earlier.
Currently, the federal deficit stands at $693 billion, which is an increase of $134 billion than what it projected in January. The federal government has an outstanding debt of $19.8 trillion, which includes $14.3 trillion in public debt and $5.5 trillion held by government accounts.
Spending on major government programs such as Social Security and Medicare causes the amount of borrowing to increase. For example, payments to Medicare Advantage and Medicare Part D plans will total $23 billion, spending on Social Security benefits will total roughly $23 billion and funds for active-duty military and recipients of Supplemental Security Income will total roughly $25 billion.
According to the report, unless the debt limit is raised, the Treasury will not be able to issue additional debt.
"That restriction would ultimately lead to delays of payments for government programs and activities, a default on the government's debt obligations, or both," the budget office said. "CBO estimates that without an increase in the debt limit, the Treasury, by using all available extraordinary measures, would most likely be able to continue borrowing and have sufficient cash to make its unusual payments until early to mid-October of this year."
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"Currently, the federal deficit stands at $693 billion, which is an increase of $134 billion than what it projected in January."
WTF?
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Crafty has always noted Scott Grannis and others have pointed out to watch the dollar so I wonder if this is of import:
http://www.reuters.com/article/us-global-forex-idUSKBN19L04P?il=0
I also wonder if the Illinois budget crises could start the eventual downward spiral.
Could that be the catalyst everyone is looking out for? Like the smoke behind the fire? Or the Lehman Brothers canary in the coal mine so to speak.
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Crafty has always noted Scott Grannis and others have pointed out to watch the dollar so I wonder if this is of import:
http://www.reuters.com/article/us-global-forex-idUSKBN19L04P?il=0
I also wonder if the Illinois budget crises could start the eventual downward spiral.
Could that be the catalyst everyone is looking out for? Like the smoke behind the fire? Or the Lehman Brothers canary in the coal mine so to speak.
The system is ripe for cascading failure. The deep state doesn't mind having it happen on Trump's watch.
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http://www.foxbusiness.com/politics/2017/06/30/high-tax-connecticut-fails-to-pass-budget-as-fiscal-situation-worsens.html
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GM posts:
***http://www.foxbusiness.com/politics/2017/06/30/high-tax-connecticut-fails-to-pass-budget-as-fiscal-situation-worsens.html***
I am all but certain that as SOON as Christie is gone in NJ (come Nov) and the Dems take over the governorship, I will have to cough up more extortion money to the Dem-union-liberal lawyer-racket/ mobsters.
Christie did hold the line on taxes and I give him credit for that.
Despite some of the highest taxes in the US like most Dem/mobster controlled blue states there is no doubt they will go up again.
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GM posts:
***http://www.foxbusiness.com/politics/2017/06/30/high-tax-connecticut-fails-to-pass-budget-as-fiscal-situation-worsens.html***
I am all but certain that as SOON as Christie is gone in NJ (come Nov) and the Dems take over the governorship, I will have to cough up more extortion money to the Dem-union-liberal lawyer-racket/ mobsters.
Christie did hold the line on taxes and I give him credit for that.
Despite some of the highest taxes in the US like most Dem/mobster controlled blue states there is no doubt they will go up again.
My advice is to get out while you can.
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The one party states will come to regret their choices too late.
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Research Reports
________________________________________
The Road to Normal Starts in September To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/26/2017
The Federal Reserve made no changes to interest rates today and made almost no changes to the text of its statement. However, the wording changes it did make strongly support our view the Fed will announce the start of balance sheet reductions at the end of its next meeting on September 20.
First, the Fed qualified its reference to maintaining its current policy of rolling over principal payments by saying this was the policy only for the "time being."
Second, at the last meeting in June, the Fed said renormalization would start "this year." Now it says "relatively soon," the same language Fed Chief Yellen used at the press conference (but not the Fed's official statement) back in June.
Third, back in June the Fed said it "currently" expected to start renormalizing the balance sheet. That left the Fed wiggle room to change its own expectation, as if it anticipated the possibility of making a change to its timing. Now, by removing "currently," the Fed is essentially saying the likelihood of changing its mind is much lower.
Put it all together and it looks like an announcement about renormalization is very likely to happen at the next meeting. Moreover, there were no dissents at all from today's statement, unlike in June, when Minneapolis President Neel Kashkari made a dovish dissent.
We expect the Fed's September announcement about renormalization to follow the path suggested in June. For the first three months (presumably, October – December) the Fed will reduce its balance sheet by $10 billion per month ($6 billion in Treasury securities, $4 billion in mortgage-related securities). Then, every three months, the amount of monthly balance sheet reduction will rise by $10 billion (with the same 60/40 proportion between Treasury securities and mortgage-related securities). That escalation will continue until the Fed is cutting its balance sheet by $50 billion per month (presumably in the last quarter of 2018).
Meanwhile, the Fed softened language surrounding inflation expectations, but made it clear they still anticipate inflation moving towards their 2% inflation target over the medium term. Given the continued improvements in the labor market and consistent – if modest - inflation, we still anticipate the Fed will raise rates once more in 2017. That may change as markets react to the balance sheet normalization process and additional economic data, but, unlike many in the market, we place the odds of a December rate hike at well over 50%.
While others fret about renormalization and rising rates damaging the economy or financial markets, investors should remain bullish. Look for faster economic growth and a continuation of the bull market in equities in the years ahead.
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http://scottgrannis.blogspot.com/2017/08/no-boom-no-bust.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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but in the words of George Gilder debt is good:
http://www.newsmax.com/Newsfront/credit-card-debt-surpasses/2017/08/07/id/806355/
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In the words of Scott Grannis, upon my forwarding that to him:
"Yes. And it’s shocking: in 10 years credit card debt outstanding has managed to increase by a whopping $1 billion! In inflation adjusted terms it has fallen by 10%. Relative to nominal GDP it has fallen by almost 25%. The sky is falling!"
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Are Stock Prices Dangerously High? It Depends How You Look at It
These three P/E measurements are alarming. So why hasn’t it mattered?
Each of the major P/E measures is currently higher than its long-term average. Still, the market hit its latest high on Friday.
Each of the major P/E measures is currently higher than its long-term average. Still, the market hit its latest high on Friday. Illustration: Davide Bonazzi for The Wall Street Journal
By Jeff Brown
Aug. 6, 2017 10:13 p.m. ET
47 COMMENTS
U.S. stocks have set record after record this year, pleasing investors who might have expected a postelection slump. But have prices soared to levels that are too risky?
Just as a 50-degree day is cool in August and warm in January, share prices can look high or low depending on the frame of reference. Still, by almost any standard, share prices are indeed high today—sobering for anyone with a serious stake in the market. Consider the three most popular measures: trailing price-to-earnings ratio, forward P/E ratio and cyclically adjusted P/E ratio.
“Each of the measures is currently higher than its long-term average, prompting many market analysts to predict an impending market decline,” says Brandon Thomas, co-founder and chief investment officer at Envestnet , ENV -3.70% a Chicago-based research and advice provider for financial advisers.
Yet some experts make a case that stocks are not overpriced by important measures and will continue to rise. What’s an investor to do?
Here’s a look at what the top barometers are showing—and why stocks continue to defy them—along with the pros’ arguments about what comes next.
• Trailing P/E Ratio: The classic price-to-earnings ratio, or P/E, looks at the current price divided by the company’s total earnings for the past 12 months.
Today, the P/E for the stocks in the S&P 500 index is about 24, meaning investors pay $24 for every $1 in corporate earnings. That’s quite high compared with the historical average of about 15 or 16, but not so high compared with some periods of crisis in the past—more than 40 around the dot-com bubble and above 100 after the financial crisis broke. To return to average, prices would have to tumble or earnings skyrocket.
Some experts note, however, that it isn’t unusual, or particularly risky, for the P/E to be somewhat higher than average when interest rates and inflation are unusually low. If you’ll earn only a tad over 2% on a 10-year Treasury note, paying $50 for every $1 in interest income, why not pay 24 times earnings on a stock? That would be a 4% earnings yield (earnings divided by price). Also, a low earnings yield is easier to stomach if little will be lost to inflation.
Andrew Kleis, co-founder of Insight Wealth Group, a wealth-management firm in West Des Moines, Iowa, says that “in times of incredibly low interest rates, like today and the last several years, investors put their money into the equities markets because they believe that is their best opportunity for risk-adjusted returns. That drives up P/E ratios. It’s happened before, and it’s happening again.”
This view assumes investors own stocks to share in current or future earnings, even though not all earnings are paid out as dividends. Undistributed earnings used for plant expansion, research and development or stock buybacks should boost the share price.
• Forward P/E: For another look, many experts use a P/E based on projected or forecast earnings, usually from company estimates and a consensus among analysts. Because many analysts are predicting earnings will grow in the near and medium term, this view produces a P/E a little less frightening—currently about 19 for the S&P 500, close to its long-term average.
Jim Tierney, chief investment officer for concentrated U.S. growth equities at AllianceBernstein asset management in New York, says “forward earnings are what we care about the most,” and notes that Wall Street analysts expect healthy earnings gains, producing a forward P/E just shy of 19 this year and close to 17 in 2018. “A bit elevated, but not excessive in a world where the 10-year Treasury as at 2.37%,” Mr. Tierney says.
Of course, a forward-looking P/E can be off if earnings later come in higher or lower than expected. Earnings estimates sometimes have a bit of wishful thinking, and experts say many analysts currently assume earnings will be boosted by a big Republican corporate-tax cut.
Craig Birk, executive vice president of portfolio management at Personal Capital, an investment-management firm in San Carlos, Calif., says he prefers trailing P/E because it relies on established facts. “Forward-looking P/E is also useful, but it must be taken in the context that earnings projections tend to change meaningfully,” Mr. Birk says.
• CAPE: Robert Shiller, the Yale economist known for his book “Irrational Exuberance,” which warned of price bubbles in stocks and housing, devised a different approach to reduce distortions from short-term factors. His “cyclically adjusted price-to-earnings ratio,” or CAPE, divides the S&P 500’s current level by the average of 10 years of earnings adjusted for inflation.
That produces a frightening figure—a P/E today around 30, matching the level on Black Tuesday in 1929, and nearly double the long-term average of about 17 (but still below the peak of nearly 45 in 2000).
While CAPE is less volatile than the other two P/E gauges, some experts caution that it can be misleading at times. Right now, the 10-year earnings average is dragged down by the poor results during the financial crisis, pushing the CAPE ratio up.
Steve Violin, senior vice president and portfolio manager, F.L. Putnam Investment Management in Wellesley, Mass., prefers a CAPE using a five-year earnings average instead of 10, feeling it captures the current business climate and avoids distortions from events too far back to matter.
“A five-year CAPE ratio tends to be reasonably stable by avoiding estimates and smoothing out annual fluctuation,” he says. It’s currently at 23.6, compared with about 18 over the long term.
How long will this last?
A look at the S&P’s components shows that P/Es vary, with some stocks riskier than others—and demonstrates that no gauge can provide a simple view by itself of what’s going on.
Mr. Kleis notes, for example, that the average price of the S&P 500 is driven up by the 100 largest stocks in the index, with the remaining 400 trading closer to their historical P/E levels. “We know that investors have invested [their money] largely in the big, popular names they know and love,” he says. Because the index is based on market weight (stock price times number of shares), the top 100 make up 65% of the index’s value and have a disproportionate effect, he says.
Debating what various gauges really mean at any given moment is an endless process that always has some experts screaming that the sky is about to fall and others saying, “What, me worry?”
The important point today is that all the most popular barometers say share prices are high.
Mr. Violin notes, though, that valuation measures like P/E ratios are only part of the picture and need to be seen alongside measures of profit growth and financial strength. For that, he recommends zeroing in on individual companies. “It’s hard to use valuation ratios as a timing mechanism on their own,” he says. “Elevated stock-market valuations can persist for extended periods as they are sometimes justified.”
P/E ratios have been above average for years, and investors who dumped stocks as soon as they started to look high would have missed huge gains. “Stock valuations are elevated in aggregate, but economic and profit growth has justified these valuations so far,” Mr. Violin says. “This trend looks like it could persist, especially if interest rates remain low.”
Mr. Thomas says that despite high P/Es, the market is currently a “Goldilocks environment”—just right—due to low inflation and forecasts for higher corporate earnings. Though rising interest rates are traditionally damaging to stocks, Mr. Thomas believes rates are going up slowly enough for the markets to digest without much harm.
“Stock prices are at record highs for a reason,” he says, “and that is an expectation of improving earnings growth going forward. Many analysts are forecasting an acceleration in earnings growth as a result of an expected tax cut.”
Of course, things can go wrong. With the turmoil in Washington, for example, tax cuts are far from guaranteed.
Mr. Brown is a writer in Livingston, Mont. He can be reached at reports@wsj.com.
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The Consumer Price Index Rose 0.4% in August To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/14/2017
The Consumer Price Index (CPI) rose 0.4% in August, coming in above the consensus expected increase of 0.3%. The CPI is up 1.9% from a year ago.
"Cash" inflation (which excludes the government's estimate of what homeowners would charge themselves for rent) rose 0.4% in August and is up 1.5% in the past year.
Energy prices rose 2.8% in August, while food prices rose 0.1%. The "core" CPI, which excludes food and energy, increased 0.2% in August, matching consensus expectations. Core prices are up 1.7% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – declined 0.3% in August but are up 0.6% in the past year. Real average weekly earnings are up 0.9% in the past year.
Implications: Consumer price inflation in August was the hottest for any month since January, with prices rising 0.4%. But, between Hurricanes Harvey and Irma, we're going to have to wait a couple of months to figure out whether there has been a shift in the underlying trend. The increase in prices in August was led by gasoline and housing costs. We're certain to see more upward pressure from gas prices in September as Harvey hit late in August, and so only affected prices for a small part of the month. In the past year, consumer prices are up 1.9%. This is below the Federal Reserve's 2% target, and so some are saying the Fed should hold off on raising rates in December. But consumer prices were up only 0.2% in the year ending in August 2015 and up 1.1% in the year ending August 2016, so seeing through temporary fluctuations, we think inflation has remained in a rising trend. "Core" consumer prices, which exclude food and energy, rose 0.2% in August and are up 1.7% from a year ago. A closer look at core prices shows a handful of goods that are keeping that measure below the 2% inflation target. Cellphone service prices have declined an unusually large 13.2% in the past year, while major household appliances are down 3.9% and vehicle costs are falling. For the consumer, these falling prices - which are the result of technological improvements and competition – plus rising wages mean increased spending power on all other goods. We still expect inflation to trend towards 2%+ in the medium term, and don't think the gains to consumers from falling prices in select areas are reason for concern or a justification for the Fed to hold off on a steady path of rising rates. A week ago, the futures market put the odds of a December rate hike at only 22%; now those odds are up to 47%. We think they should be more like 65%. The most disappointing news in today's report is that real average hourly earnings declined 0.3% in August. However, these earnings are up 0.6% over the past year. On the jobs front, initial claims for unemployment benefits declined 14,000 last week to 284,000. The recovery from Harvey should keep exerting downward pressure on claims over the next couple of weeks. Unfortunately, Irma will likely exert even more powerful upward pressure in the near term, so next week's report in claims should rise to about 300,000. After that, claims should drop over the following few weeks back to about 240,000, where it was before the hurricanes. In the meantime, continuing claims for unemployment benefits fell 7,000 to 1.94 million. Plugging all this data into our models suggests payroll gains will be muted for September, but then bounce back in the fourth quarter of the year.
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GDP Growth Looking Good To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 10/16/2017
Next week, government statisticians will release the first estimate for third quarter real GDP growth. In spite of hurricanes, and continued negativity by conventional wisdom, we expect 2.8% growth.
If we're right about the third quarter, real GDP will be up 2.2% from a year ago, which is exactly equal to the growth rate since the beginning of this recovery back in 2009. Looking at these four-quarter or eight-year growth rates, many people argue that the economy is still stuck in the mud.
But, we think looking in the rear view mirror misses positive developments. The economy hasn't turned into a thoroughbred, but the plowing is easier. Regulations are being reduced, federal employment growth has slowed (even declined) and monetary policy remains extremely loose with some evidence that a more friendly business environment is lifting monetary velocity.
Early signs suggest solid near 3% growth in the fourth quarter as well. Put it all together and we may be seeing an acceleration toward the 2.5 – 3.0% range for underlying trend economic growth. Less government interference frees up entrepreneurship and productivity growth powered by new technology. Yes, the Fed is starting to normalize policy and, yes, Congress can't seem to legislate itself out of a paper bag, but fiscal and monetary policy together are still pointing toward a good environment for growth.
Here's how we get to 2.8% for Q3.
Consumption: Automakers reported car and light truck sales rose at a 7.6% annual rate in Q3. "Real" (inflation-adjusted) retail sales outside the auto sector grew at a 2% rate, and growth in services was moderate. Our models suggest real personal consumption of goods and services, combined, grew at a 2.3% annual rate in Q3, contributing 1.6 points to the real GDP growth rate (2.3 times the consumption share of GDP, which is 69%, equals 1.6).
Business Investment: Looks like another quarter of growth in overall business investment in Q3, with investment in equipment growing at about a 9% annual rate, investment in intellectual property growing at a trend rate of 5%, but with commercial constriction declining for the first time this year. Combined, it looks like they grew at a 4.9% rate, which should add 0.6 points to the real GDP growth. (4.9 times the 13% business investment share of GDP equals 0.6).
Home Building: Home building was likely hurt by the major storms in Q3 and should bounce back in the fourth quarter and remain on an upward trend for at least the next couple of years. In the meantime, we anticipate a drop at a 2.6% annual rate in Q3, which would subtract from the real GDP growth rate. (-2.6 times the home building share of GDP, which is 4%, equals -0.1).
Government: Military spending was up in Q3 but public construction projects were soft for the quarter. On net, we're estimating that real government purchases were down at a 1.2% annual rate in Q3, which would subtract 0.2 points from the real GDP growth rate. (1.2 times the government purchase share of GDP, which is 17%, equals -0.2).
Trade: At this point, we only have trade data through August. Based on what we've seen so far, it looks like net exports should subtract 0.2 points from the real GDP growth rate in Q3.
Inventories: We have even less information on inventories than we do on trade, but what we have so far suggests companies are stocking shelves and showrooms at a much faster pace in Q3 than they were in Q2, which should add 1.1 points to the real GDP growth rate.
More data this week – on industrial production, durable goods, trade deficits, and inventories – could change our forecast. But, for now, we get an estimate of 2.8%. Not bad at all.
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Retail Sales Increased 0.2% in October To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/15/2017
Retail sales increased 0.2% in October (+0.5% including revisions to prior months). The consensus expected no change. Retail sales are up 4.6% versus a year ago.
Sales excluding autos rose 0.1% in October (+0.2% including revisions to prior months). The consensus expected a 0.2% gain. These sales are up 4.3% in the past year. Excluding gas, sales were up 0.4% in October and are up 4.3% from a year ago.
The rise in sales in October was led by autos, restaurants & bars and food & beverage stores.
Sales excluding autos, building materials, and gas rose 0.4% in October. If unchanged in November/December, these sales will be up at a 2.8% annual rate in Q4 versus the Q3 average.
Implications: Retail sales beat expectations for October and were revised up for prior months, a sign that - if you cut through the volatility due to the hurricanes - the economy is picking up. Retail sales rose 0.2% in October, after being held down by Harvey in August and then surging in September as consumers recovered following the storms. The growth in October was led by autos, which should remain unusually strong through year end as people replace vehicles destroyed in the hurricanes. But sales were also strong at restaurants & bars as well as food and beverage stores. The weakest categories in October were building materials, which should rebound in future months as Texas and Florida rebuild, and gas station sales, due to gas prices falling after the surge in September. Total retail sales are now up 4.6% in the past year. The best news today was the considerable strength for "core" sales, which excludes autos, building materials, and gas. Core sales grew 0.4% in October, and are up 3.4% from a year ago. Although some retail outlets are getting beat up by on-line retailing, the sector looks good from the consumer's point of view. Jobs and wages are moving up, consumers' financial obligations are an unusually small part of their incomes, and serious (90+ day) debt delinquencies are down substantially from post-recession highs. In other news this morning, business inventories were unchanged in September but revised up for earlier in the third quarter. As a result of these figures and the retail revisions, we now expect the government's estimate of Q3 real GDP growth to be revised up to a 3.3% annual rate from an originally reported 3.0%. Meanwhile, early tracking for Q4 real GDP growth in the 3.5 – 4.0% range. If we're right about Q4, this would be the first time we've had three straight quarters above 3% since before the financial crisis. In other news this morning, the Empire State index, a measure of manufacturing sentiment in New York, fell to 19.4 in November from 30.2 in October, suggesting continued strength in the factory sector.
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Industrial Production Increased 0.9% in October To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/16/2017
Industrial production increased 0.9% in October (1.4% including revisions to prior months), easily beating the consensus expected 0.5%. Utility output rose 2.0%, while mining fell 1.3%.
Manufacturing, which excludes mining/utilities, increased 1.3% in October (1.7% including revisions to prior months). Auto production rose 1% while non-auto manufacturing rose 1.3%. Auto production is down 1.6% versus a year ago while non-auto manufacturing is up 2.9%.
The production of high-tech equipment rose 1.2% in October and is up 4.2% versus a year ago.
Overall capacity utilization increased to 77.0% in October from 76.4% in September. Manufacturing capacity utilization rose to 76.4% in October from 75.5% in September.
Implications: Industrial production continued its post-hurricane rally in October, easily beating consensus expectations as the manufacturing sector led the way. But even without the storms, production would have been a solid 0.3%, according to the Federal Reserve. Industrial production rose 0.9% in October and is now up 2.8% versus a year ago. The biggest positive contribution to today's headline number came from manufacturing which rose 1.3%, matching the largest monthly gain since 2010. Auto manufacturing rose 1% in October and is now up at a 27.5% annual rate in the past three months, getting back to pre-hurricane levels of output. Meanwhile, non-auto manufacturing posted its largest monthly gain since 2006, rising 1.3%. This strength was also reflected in manufacturing capacity utilization, which rose to its highest level since 2008. Looking forward, expect further gains in overall production as the economy recovers from the effects of the two hurricanes. The one disappointment in today's report came from mining which fell 1.3%, primarily due to both oil and gas well drilling and extraction. Oil and gas-well drilling has struggled since the storms, but its monthly declines have begun to level off and it is still up a massive 61% from a year ago. Look for a surge in drilling activity in the months ahead once the effects of the storms pass. In other news this morning, the Philly Fed Index, a measure of sentiment among East Coast manufacturers, fell to a still high 22.7 in November from 27.9 in October. On the employment front, new claims for jobless benefits rose 10,000 last week to 249,000. Meanwhile, continuing claims fell 44,000 to 1.86 million. Look for another solid month of job growth in November. Finally, on inflation, import prices rose 0.2% in October while export prices remained unchanged. In the past year however, import prices are up 2.5% while export prices are up 2.7%, both in stark contrast to the price declines in the twelve months ending in October 2016. Yet another reason why the Federal Reserve should and will raise rates in December.
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The Economy is Accelerating To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/20/2017
We've called it a "Plow Horse" economy, which was our metaphor invented to counter forecasters who said slow growth meant a recession was on its way. A Plow Horse is always slow, but that slowness hides underlying strength – it was never going to slip and fall. Now, the economy is accelerating.
Halfway through the fourth quarter, monthly data releases show real GDP growing at a 3%+ annual rate. If that holds, it would make for three consecutive quarters of growth at 3% or higher. Believe it or not, the last time that happened was 2004.
Last week saw retail sales, industrial production, and housing starts all come in better than expected for October, the latter two substantially better.
And while retail sales grew "just" 0.2% in October, that came on the back of a 1.9% surge in September. Overall sales, and those excluding volatile components like autos, gas and building materials, all signal a robust consumer.
Meanwhile factory output surged 1.3% in October, tying the second highest monthly gain since 2010. Production at factories is now up 2.5% from a year ago, and accelerating. By contrast, factory production was down 0.1% in the year ending October 2016 and unchanged in the year ending October 2015. The current revival is not due to the volatile auto sector, where output of motor vehicles is down 5.9% from a year ago while the production of auto parts is down 0.3%.
The last piece of last week's good economic news was on home building: housing starts surged after a storm-related lull in September. Single-family starts, which are more stable than multi-family starts - and add more per unit to GDP - tied the highest level since 2007. Housing completions hit the highest level since 2008.
As a result of all this data, the Atlanta Fed's "GDP Now" model says real GDP is growing at a 3.4% annual rate in Q4. The New York Fed's "Nowcast" says 3.8%.
Of course, if we get anything close to those numbers, some analysts will claim the fourth quarter is just a hurricane-related rebound. But the conventional wisdom has been way too bearish for years, and Q3 is likely to be revised up to a 3.4% growth rate from the original estimate of 3.0%. Put it all together, and things are looking up. It's no longer a Plow Horse economy. In fact, after years of smothering the growth potential of amazing new technologies, the government is finally getting out of the way.
The Obama and Bush regulatory State is being dismantled piece by piece, and spending growth has slowed relative to GDP. Tax cuts are moving through Congress. These positive developments have monetary velocity – the speed at which money moves through the economy – picking up. "Animal spirits" are stirring. We don't have a cute name for it, but growth is accelerating.
This reduction in the burden of government would be easier, and much more focused on growth, if Republicans had fixed the budget scorekeeping process when they first had the chance back in 2015, or even in the mid-1990s, after having gained control of both the House and Senate.
Instead, they took a cowardly pass. As a result, when assessing the "cost" of tax cuts, Congress still ignores the positive economic effects of tax cuts on growth. Oddly, while refusing to "score" better GDP growth, we understand the budget scorekeepers assume tax cuts lead to higher interest rates, which add to the cost of the tax cuts. In effect, the scorekeepers will use dynamic models to count the negative effects of tax cuts on the overall economy, but not the positive ones!
This kind of rigged scoring system is why the current tax proposals don't cut tax rates on dividends or capital gains, and why some of the tax cuts are temporary. It's also why the top tax rate on regular income for the highest earners is likely to end up near the current tax rate of 39.6%.
We were never satisfied with Plow Horse growth, but we always thought it showed the power of innovation. The power of new technology caused the economy to grow since 2009, despite the burden of big government.
Now with better policies, growth is on the rise. We haven't fixed enough problems to get 3% real growth in every quarter, and maybe not even as the average growth rate over time. That would probably take some major changes to entitlement spending programs. But the recent improvement is hard to miss and signals that entrepreneurship is alive and well in the United States.
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"the Atlanta Fed's "GDP Now" model says real GDP is growing at a 3.4% annual rate in Q4. The New York Fed's "Nowcast" says 3.8%."
Yet we cannot pass meaningful tax reform because budget rules require a 2.6% projection AFTER the incentives to hire, build, expand are restored. Stuck on stupid.
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https://nypost.com/2017/11/26/will-the-bank-stop-stiffing-me-on-my-savings-account-rate/
I remember when they paid 5% no matter how little you had in the bank
I watched my hundred dollars go up to 105 in the mid 60s.
checks were free.
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https://nypost.com/2017/11/26/will-the-bank-stop-stiffing-me-on-my-savings-account-rate/
I remember when they paid 5% no matter how little you had in the bank
I watched my hundred dollars go up to 105 in the mid 60s.
checks were free.
I think it is the Federal Reserve and our flawed public policies like monetary policy and deficit spending that is holding interest rates so low, not the banks IMHO.
Note that banking is a cartel, and a public private partnership (cronyism by definition). They borrow from the Fed more so than reinvest savings. If you wanted them to be competitive, you would need to allow more banks to compete or allow existing banks to compete in more markets.
The Fed gives them (almost) unlimited money (printed money, pretend money, caveat currency) at zero percent (with rounding) interest. Given that, how much can they pay savers for their savings? (near zero)
A whole generation and now maybe two or three will live without knowing the formerly greatest force on earth, the power of compounding interest.
https://www.cbsnews.com/news/compound-interest-the-most-powerful-force-in-the-universe/
That same force in now applied in the opposite direction, the declining value of the dollar over time even when inflation is averaging only 2-3%.
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Personal Income Rose 0.4% in October To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/30/2017
Personal income rose 0.4% in October (0.3% including revisions to prior months), beating the consensus expected 0.3%. Personal consumption increased 0.3% (+0.2% including prior months' revisions), matching consensus expectations. Personal income is up 3.4% in the past year, while spending is up 4.2%.
Disposable personal income (income after taxes) rose 0.5% in October and is up 3.2% from a year ago. The gain in October was led by private sector wages and salaries.
The overall PCE deflator (consumer inflation) rose 0.1% in October and is up 1.6% versus a year ago. The "core" PCE deflator, which excludes food and energy, rose 0.2% in October and is up 1.4% in the past year.
After adjusting for inflation, "real" consumption rose 0.1% in October and is up 2.6% from a year ago.
Implications: Consumers enjoyed rising wages and healthy spending in October, following a storm-boosted September report. Consumer spending rose 0.3% in October, a slower pace of spending growth than we saw in September, but remember that September spending was boosted by the replacement of vehicles destroyed by hurricanes Harvey and Irma. Spending in October - led by housing, groceries, and prescription drugs – came despite a headwind from slower auto and gasoline sales. Meanwhile incomes rose 0.4% in October, led by private sector wages & salaries as well as interest income. Both incomes and spending have been heating up in recent months, with income rising at a 4.2% annual rate in the past three months, and spending up at a 5.5% annual rate over the same period. We expect to see healthy growth in the coming months, especially if meaningful tax cuts and reform come out of Washington. While some will bemoan that spending has outpaced income growth in the past few months, and has risen at a faster pace in the past year, stories about problems with the consumer are way overblown. Yes, consumer debts are at a record high in raw dollar terms, but so are consumer assets. Comparing the two, debts are the lowest relative to assets since 2000 (and that's back during the internet bubble when asset values were artificially high). Meanwhile, the financial obligations ratio - which compares debt and other recurring payments to income – is still hovering near the lowest levels of the past 35 years. In other words, consumers still have room to increase spending, and steadily rising incomes will continue to boost spending power in the months ahead. On the inflation front, the overall PCE deflator rose 0.1% in October and is up 1.6% in the past year. While that is modestly below the Fed's 2% inflation target, the pace of inflation has been rising in recent months and provides clear backing for the Fed to continue with rate hikes. In other news this morning, the Chicago PMI, which measures manufacturing sentiment in that region, fell in November to a still strong 63.9. Plugging this into our model along with other recent data, we expect tomorrow's national ISM Manufacturing index to show continued robust growth for November. In employment news this morning, new claims for jobless benefits fell 2,000 last week to 238,000. Meanwhile, continuing claims rose 42,000 to 1.96 million. Look for another solid month of job growth in November.
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Don't Fear Higher Interest Rates To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 12/4/2017
The Federal Reserve has a problem. At 4.1%, the jobless rate is already well below the 4.6% it thinks unemployment would/could/should average over the long run. We think the unemployment rate should get to 3.5% by the end of 2019 and wouldn't be shocked if it got that low in 2018, either.
Add in extra economic growth from tax cuts and the Fed will be worried that it is "behind the curve." As a result, we think the Fed will raise rates three times next year, on top of this year's three rate hikes, counting the almost certain hike this month. And a fourth rate hike in 2018 is still certainly on the table. By contrast, the futures market is only pricing in one or two rate hikes next year – exactly as it did for 2017. In other words, the futures markets are likely to be wrong for the second year in a row.
And as short-term interest rates head higher, we expect long-term interest rates to head up as well. So, get ready, because the bears will seize on this rising rate environment as one more reason for the bull market in stocks to end.
They'll be wrong again. The bull market, and the US economy, have further to run. Rising rates won't kill the recovery or bull market anytime in the near future.
Higher interest rates reflect a higher after-tax return to capital, a natural result of cutting taxes on corporate investment via a lower tax rate on corporate profits as well as shifting to full expensing of equipment and away from depreciation for tax purposes.
Lower taxes on capital means business will more aggressively pursue investment opportunities, helping boost economic growth and the demand for labor – leading to more jobs and higher wages. Stronger growth means higher rates.
For a recent example of why higher rates don't mean the end of the bull market in stocks look no further than 2013. Economic growth accelerated that year, with real GDP growing 2.7% versus 1.3% the year before. Meanwhile, the yield on the 10-year Treasury Note jumped to 3.04% from 1.78%. And during that year the S&P 500 jumped 29.6%, the best calendar year performance since 1997.
This was not a fluke. The 10-year yield rose in 2003 and 2006, by 44 and 32 basis points, respectively. How did the S&P 500 do those years: up 26.4% in 2003, up 13.8% in 2006.
Sure, in theory, if interest rates climb to reflect the risk of rising inflation, without any corresponding increase in real GDP growth, then higher interest rates would not be a good sign for equities. That'd be like the late 1960s through the early 1980s. But with Congress and the president likely to soon agree to major pro-growth changes in the tax code on top of an ongoing shift toward deregulation, we think the growth trend is positive, not negative.
It's also true that interest on the national debt will rise as well. But federal interest costs relative to both GDP and tax revenue are still hovering near the lowest levels of the past fifty years. As we've argued, sensible debt financing that locks in today's low rates would be prudent. However, it will take many years for higher interest rates to lift the cost of borrowing needed to finance the government back to the levels we saw for much of the 1980s and 1990s. And as we all remember the 80s and 90s were not bad for stocks.
Bottom line: interest rates across the yield curve are headed higher. But, for stocks, it's just another wall of worry not a signal that the bull market is anywhere near an end.
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Previously thought impossible! [Like yesterday, by growth haters, 'non-partisan' agencies and jouno-lists]
https://www.reuters.com/article/us-usa-economy-nyfed/n-y-fed-raises-u-s-fourth-quarter-gdp-growth-view-to-near-4-percent-idUSKBN1E9292?il=0
https://www.newyorkfed.org/research/policy/nowcast
N.Y. Fed raises U.S. fourth-quarter GDP growth rate to near 4 percent
This changes everything.
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Monday Morning Outlook
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2018: Dow 28,500, S&P 3100 To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 12/18/2017
Last December we wrote "we finally have more than just hope to believe that this year, 2017, is the year the Plow Horse Economy finally gets a spring in its step." We expected real GDP growth to accelerate from 2.0% in 2016 to "about 2.6%" in 2017. Our optimism was, in large part, based on our belief that the incoming Trump Administration would wield a lighter regulatory touch and move toward lower tax rates.
So far, so good. Right now, we're tracking fourth quarter real GDP growth at a 3.0% annual rate, which would mean 2.7% growth for 2017 and we expect some more acceleration in 2018.
The only question is: how much? Yes, a major corporate tax cut (which should have happened 20 years ago) is finally taking place. And, yes, the Trump Administration is cutting regulation. But, it has not reigned in government spending. As a result, we're forecasting real GDP growth at a 3.0% rate in 2018, the fastest annual growth since 2005.
The only caveat to this forecast is that it seems as if the velocity of money is picking up. With $2 trillion of excess reserves in the banking system, the risk is highly tilted toward an upside surprise for growth, with little risk to the downside. Meanwhile, this easy monetary policy suggests inflation should pick up, as well. The consumer price index should be up about 2.5% in 2018, which would be the largest increase since 2011.
Unemployment already surprised to the downside in 2017. We forecast 4.4%; instead, it's already dropped to 4.1% and looks poised to move even lower in the year ahead. Our best guess is that the jobless rate falls to 3.7%, which would be the lowest unemployment rate since the late 1960s.
A year ago, we expected the Fed to finally deliver multiple rate hikes in 2017. It did, and we expect that pattern will continue in 2018, with the Fed signaling three rate hikes and delivering at least that number, maybe four. Longer-term interest rates are heading up as well. Look for the 10-year Treasury yield to finish 2018 at 3.00%.
For the stock market, get ready for a continued bull market in 2018. Stocks will probably not climb as much as this year, and a correction is always possible, but we think investors would be wise to stay invested in equities throughout the year.
We use a Capitalized Profits Model (the government's measure of profits from the GDP reports divided by interest rates) to measure fair value for stocks. Our traditional measure, using a current 10-year Treasury yield of 2.35% suggests the S&P 500 is still massively undervalued.
If we use our 2018 forecast of 3.0% for the 10-year yield, the model says fair value for the S&P 500 is 3351, which is 25% higher than Friday's close. The model needs a 10-year yield of about 3.75% to conclude that the S&P 500 is already at fair value, with current profits.
As a result, we're calling for the S&P 500 to finish at 3,100 next year, up almost 16% from Friday's close. The Dow Jones Industrial Average should finish at 28,500.
Yes, this is optimistic, but a year ago we were forecasting the Dow would finish this year at 23,750 with the S&P 500 at 2,700. This was a much more bullish call than anyone else we've seen, but we stuck with the fundamentals over the relatively pessimistic calls of "conventional wisdom," and we believe the same course is warranted for 2018. Those who have faith in free markets should continue to be richly rewarded in the year ahead.
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Predictions for 2018
Posted: 31 Dec 2017 05:40 PM PST
One year ago I expected to see an improving economy and further gains in equity prices, and I sure got that right. Stocks are up big-time and GDP growth has accelerated somewhat. But I worried, as I have every year for the past 8 years, that the Fed might be slow to react to rising confidence and declining money demand, and that this could set off a bout of rising inflation. Fortunately, I got that wrong yet again, since inflation has remained in a comfortable 1.5 - 2% range. For the past two years I've liked emerging markets, and they have done quite well. Last year I didn't much care for gold or commodities, but they have done well thanks to a weaker dollar—which I didn't see coming. So it's a mixed bag for calls, but last year's 19.4% rise in equity prices goes a long way to making up for a few smaller losses. In any event, take the following with suitable grains of salt. I've been bullish and right (on stocks) for so long now that it makes even me nervous.
All throughout 2017 the world worried that Trump and the Republicans were going to prove incompetent. Was Trump crazy? Could he actually govern? Could the Republicans abolish Obamacare as promised? Could they pass tax reform? Turns out they did a pretty good, if far from perfect, job. Obamacare is being dismantled, beginning with the elimination of the mandate. Tax reform could have been better, but it achieved its main objective: to stimulate investment. Meanwhile, hidden behind the distractions of tweet storms and faux pas, Trump has accomplished a major reduction in federal regulatory burdens. This can really make a difference over the long haul, and it may already be contributing to faster growth.
Thinking back, Obama in his first year got a $1 trillion dollar stimulus package designed to boot-strap the economy by redistributing income (see my analysis here). The result was the slowest recovery on record; Obama ended up borrowing some $8 trillion to no avail, since nothing he did was aimed at increasing the market's desire to invest, work harder, or take risk. Trump in his first year got a $1.5 trillion (CBO-scored "cost") stimulus package designed to boost the economy by increasing the after-tax returns to business investment. I'm betting the results of Trump's tax reform will be much better than expected, but the market is not yet willing to make that same bet, and that is the point of departure for all predictions of what is to come.
If 2017 was about just one thing, it was the ability of the Republicans to pass meaningful tax reform. The market spent most of the year handicapping the odds of tax reform, and it would appear that it is now mostly, if not fully, priced in. The tax reform package boils down to a one-time 20% boost to after-tax corporate profits (by cutting the corporate income tax rate from 35% to 21%), and that's pretty much what we have seen happen to equity prices this past year.
If 2018 is going to be about just one thing, it will be whether boosting the after-tax rewards to business investment results in a stronger economy. Beginning in 2009, Obama and the Democrats gambled that a massive redistribution of income would boost demand and thus boost the economy, but they lost. They ended up flushing $8 trillion down the Keynesian toilet. Trump and the Republicans are now gambling that a significant increase in the after-tax rewards to business investment will boost the economy. Only time will tell, but there are already hints of a stronger economy in the data: e.g., capex is up, industrial production is up, business confidence and the ISM indices are up, and industrial metals prices are up. It's likely that the current quarter could mark the first time we've enjoyed three consecutive quarters of 3% or more growth in over 12 years.
I think the meme for 2018 will be this: waiting for GDP. If the economy shows convincing and durable signs of stronger growth, more investment, more jobs, and rising productivity, then the Republicans' gamble will have paid off. If not, the Democrats will have carte blanche to take control of Congress and oust a sitting president.
From my supply-sider's perspective, we now have the essential ingredients for a stronger economy in place. Tax incentives are correctly aligned to encourage more business investment; regulatory burdens are being slashed, business confidence is high, and the Fed is not a threat for the foreseeable future. Swap and credit spreads are low, as is implied volatility, and that tells us that liquidity is plentiful and systemic risk is low. The fact that the rest of the world is also doing better as well is just icing on the cake.
But, argue the skeptics, won't businesses just use their extra profits to buy back shares and increase their dividends, making the wealthy even wealthier without creating any new jobs? This oft-repeated allegation is an empty argument, because it ignores one key thing: what do those who receive the money from buybacks and dividends do with it? John Cochrane explains it in this brief excerpt (do read the whole thing):
Suppose company 1 gets a tax cut, doesn't really know what to do with the money -- on top of all the extra cash the company may already have -- as it doesn't have very good investment projects. It sends the money to shareholders. Well, what do shareholders do with it? (Hint: track the money.) They most likely roll the money in to other investments. They find company 2 that does need the money for investment, and send it to that company. In the end, they only consume it if nobody has any good investment ideas.
The larger economic point: In the end, investment in the whole economy has nothing to do with the financial decisions of individual companies. Investment will increase if the marginal, after-tax, return to investment increases. Lowering the corporate tax rate operates on that marginal incentive to new investments. It does not operate by "giving companies cash" which they may use, individually, to buy new forklifts, or to send to investors. Thinking about the cash, and not the marginal incentive, is a central mistake.
In other words, what some companies do with their extra cash is immaterial. What matters is that tax reform has increased the marginal incentive to invest—for the entire economy—by reducing tax rates and by allowing the immediate expensing of capex. On the margin, investment now has become more attractive and more profitable in the US, and this will almost certainly result in more investment (some of which is likely to come from overseas firms deciding to relocate here), which in turn means more jobs, more productivity, and higher real incomes. As I explained a few years ago, productivity has been the missing ingredient in the current lackluster recovery, and very weak business investment is one reason that productivity has gone missing. A pickup in investment is bound to raise productivity, which is the ultimate driver of growth and prosperity.
So it's clear to me that tax reform is a big deal, because it's very likely to boost the long-term growth trajectory of the US economy by a meaningful amount. Surprisingly, however, the market does not appear to share that view. Why else would real yields still be miserably low (e.g., 0.3% for 5-yr TIPS)? Why else would the market expect only a modest increase (0.75% or so) in the Fed's target funds rate for the foreseeable future? The current Fed target is 1.5%, while 2-yr Treasury yields, which are the market's expectation for what that rate will average over the next two years, are only 1.9%. As for real yields, the current Fed target translates into a real yield—using the PCE Core deflator—of roughly zero, while the yield on 5-yr TIPS says the market expects that rate to average only 0.3% over the next 5 years. If the economy really gets up a head of steam (e.g., real growth of 3% or more per year), I can't imagine the Fed wouldn't raise rates by more than the market currently expects, and I can't imagine nominal and real yields in general won't be significantly higher than they are today. The last time the economy was growing at 4% a year (early 2000s), 5-yr TIPS real yields were 3-4%.
Yet the Fed is the one thing I worry about, which is nothing new. The Fed has been responsible for every recession in recent memory, because each time they have tightened monetary policy in order to reduce inflation or to ward off an expected increase in inflation, they have ended up choking off growth. They are well aware of this, however, so they are going to be very careful about raising rates as the economy picks up steam. But as I've explained many times before, the Fed's worst nightmare is a return of confidence. More confidence in a time of surprisingly strong growth would almost certainly reduce the demand for money; if the Fed doesn't take offsetting moves to increase the demand for all those excess reserves in the banking system (e.g., by raising the funds rate target and draining bank reserves) the result would be an unwelcome rise in inflation. Inflation is a monetary phenomenon: when the supply of money exceeds the demand for it, inflation is the inevitable result. And higher inflation would set us up for the next recession.
On balance, I think it's quite likely the economy is going to improve, and surprisingly so. Ordinarily that would be great news for the equity market, since a stronger than expected economy should result in stronger than expected profits. But the market is still cautious, so good news is going to be met with increased skepticism: if the Fed raises rates as the economy improves, the market will worry that higher rates will increase the risk of recession. And even if the Fed is slow to raise rates, the market will see that as a sign that inflation is likely to move higher, and that would in turn increase the odds of more aggressive Fed tightening and eventually another recession. In short, we're probably going to see the market climb periodic walls of worry, just as it has for the past several years.
Risk assets should do well in this environment, given time, but there will be headwinds. Rising Treasury yields will act to keep PE ratios from rising further, so equity market gains are likely to be driven mainly by stronger-than-expected earnings. At the same time, higher bond yields will make it easier to people to exit stocks (very low yields today make being short stocks very painful).
Emerging market economies are so far behind their developed counterparts that they have tremendous upside potential in a world that is increasingly prosperous, but a stronger than expected US economy is likely to boost the dollar, which in turn would put pressure on commodity markets and the emerging economies that depend on them.
I continue to believe that gold is trading at a significant premium to its long-term, inflation-adjusted price (which I estimate to be around $600/oz.) because the world is still risk-averse. So a stronger US economy and a stronger dollar would spell bad news for gold. Who needs gold if real yields and real growth are rising?
In order to judge whether things are playing out in a healthy fashion, it will be critical to periodically assess the status of the world's demand for money—particularly bank reserves, of which there are over $2 trillion in excess of what is needed for banks to collateralize their deposits. If banks' demand to hold excess reserves declines faster than the Fed's willingness to drain reserves and/or raise the interest rate it pays on reserves, then higher inflation is almost sure to rear its ugly head. Signs of that happening would likely be seen in rising inflation expectations, a falling dollar, a steeper yield curve, and/or rising gold and commodity prices.
The world is on the cusp of a new chapter of stronger growth, led by US tax reform. The US economy has plenty of upside potential, given the past 8 years of sub-par growth and a significant decline in the labor force participation rate and lingering risk aversion. Tax reform can and should unleash that underutilized potential and boost confidence. The future looks bright, but there are, of course, lots of things that could go wrong (e.g., North Korea, the Middle East, Trump's ego, the Fed) so if and as the world becomes less risk averse, an investor would be wise to remain cautious, since very few things these days are obviously cheap. On the other hand, Treasuries, and bond yields in general, look very low and should thus be approached with great caution
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Great analysis by Scott.
http://scottgrannis.blogspot.com/2017/12/predictions-for-2018.html
SG: "I've been bullish and right (on stocks) for so long now that it makes even me nervous."
- My interest is in GDP growth; I have no prediction about the stock market. The market should tend to go up in a good economy but there are other factors which Scott goes on to explain.
"Obama ended up borrowing some $8 trillion to no avail"... "They ended up flushing $8 trillion down the Keynesian toilet."
- People intuitively know this and have been electing Obama's opponents for the last 4 cycles, but it seems that no one on the political stage effectively points this out. R's are risking of about a trillion with tax rate cuts that will cost nothing if they succeed. They are designed to grow the economy. Democrats just wasted $8 trillion (above and beyond all taxes collected) on what only could harm incentives and growth.
" If the economy shows convincing and durable signs of stronger growth, more investment, more jobs, and rising productivity, then the Republicans' gamble will have paid off."
"Lowering the corporate tax rate operates on that marginal incentive to new investments. It does not operate by "giving companies cash"... " (Univ of Chicago economist John Cochrane)
More investment "means more jobs, more productivity, and higher real incomes."
- Now we find out if that is right.
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https://www.ftportfolios.com/Commentary/EconomicResearch/2018/1/5/boom
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https://www.ftportfolios.com/Commentary/EconomicResearch/2018/1/5/boom
Nice to know I have lived long enough to see Wesbury's predictions be accurate again.
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Industrial Production Increased 0.9% in December To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 1/17/2018
Industrial production increased 0.9% in December (1.0% including revisions to prior months), beating the consensus expected 0.5%. Utility output rose 5.7%, while mining rose 1.6%.
Manufacturing, which excludes mining/utilities, increased 0.1% in December (0.2% including revisions to prior months). Auto production rose 2.0% while non-auto manufacturing was unchanged. Auto production is up 0.4% versus a year ago while non-auto manufacturing is up 2.6%.
The production of high-tech equipment rose 0.4% in December and is up 3.7% versus a year ago.
Overall capacity utilization increased to 77.9% in December from 77.2% in November. Manufacturing capacity utilization was unchanged in December.
Implications: Industrial production finished 2017 with a bang, beating consensus expectations and posting the largest calendar-year gain since 2010. The headline series rose 0.9% in December and is now up 3.6% in the past year. Further, overall production rebounded 10.7% at an annual rate in Q4 – its fastest quarterly pace since 2009 – after being held back in Q3 by Hurricanes Harvey and Irma. Even though the overall number was strong in December, it is important to note that the details of the report show the strength was primarily due to the volatile utilities and mining components. Manufacturing, which rose 0.1% in December has undergone a major shift. Back in December 2016, automobile manufacturing was up 6% from the prior year while non-auto manufacturing was up 0.2%. Now the leadership has reversed, with auto manufacturing up only 0.4% in the past year while non-auto manufacturing is up 2.6%. This demonstrates that the revival of manufacturing outside the auto sector in the US hasn't been all talk. The biggest source of strength in today's report came from utilities, a volatile category that is very dependent on weather, which rebounded 5.7% in December, after coming in weak in November. Given low January temperatures in much of the country, utilities may have another month of growth in them before reverting to normal. Another bright spot in December came from mining, which rose 1.6% amid broad-based gains in the sector. Notably, after five consecutive months of declines, oil and gas-well drilling rose 0.9% in December. Despite the weakness following the storms, today's gain signals it may have turned the corner. Look for a surge in drilling activity in the months ahead. In other recent news, the Empire State index, a measure of manufacturing sentiment in New York, dropped to 17.7 in January from 19.6 in December. On the housing front, the NAHB index, which measures homebuilder sentiment, fell to a still high 72 in January from 74 in December, signaling continued optimism from developers.
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The ISM Manufacturing Index Rose to 59.7 in December To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 1/3/2018
The ISM Manufacturing Index rose to 59.7 in December, easily beating the consensus expected 58.2. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mostly higher in December, and all remain comfortably above 50, signaling growth. The new orders index rose to 69.4 from 64.0 in November, while the production index increased to 65.8 from 63.9. The supplier deliveries index rose to 57.9 from 56.5. The employment index declined to 57.0 from 59.7 in November.
The prices paid index rose to 69.0 in December.
Implications: Optimism in the manufacturing sector soared in December as tax reform moved toward passage. Manufacturing activity closed out 2017 on a high note, with the ISM index hitting 59.7 in December, behind just September for the highest reading of the year and the fastest pace of expansion going back to 2011. And it was not just a short term boom to end the year, in 2017 the ISM manufacturing index averaged the highest readings for a calendar year going all the way back to 2004. In December, sixteen of eighteen industries reported growth (two reported declines), while respondents noted that the pickup is coming from increased customer activity in both the US and abroad. The two most forward-looking indices – new orders and production - led the way in December, rising to very healthy levels. In fact, new orders hit the highest reading going back all the way to 2004. This suggests that the strength shown by the manufacturing sector throughout 2017 should carry over into 2018. And now that Washington has made good on tax reform (and regulatory reform looks likely), the pace of growth could pick up even further. In other news this morning, construction spending rose 0.8% in November (+1.2% including revisions to prior months). A jump in home building and the construction of offices more than offset a decline in work on manufacturing facilities. In housing news from last week, the national Case-Shiller home price index increased 0.7% in October and is up 6.2% from a year ago. By contrast, home prices rose 5.2% in the year ending in October 2016, so we've had some acceleration in home price increases in the past year. In the last twelve months, price gains have been led by Seattle and Las Vegas. The recent tax bill, which trims state and local tax deductions as well as mortgage interest deductibility for new loans, should be a headwind for price gains in the next few years. However, given short housing supplies and an economy gaining strength, we're still likely to see solid national average price gains, just not as fast as the past year and with the gains tilted toward lower tax states.
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The First Estimate for Q4 Real GDP Growth is 2.6% at an Annual Rate To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 1/26/2018
The first estimate for Q4 real GDP growth is 2.6% at an annual rate, below the consensus expected 3.0%. Real GDP is up 2.5% from a year ago.
The largest positive contribution to the Q4 real GDP growth rate was consumer spending. The largest drags were net exports and inventories.
Combined, personal consumption, business investment, and home building were up at a 4.6% annual rate in Q4 and 3.3% in the past year.
The GDP price index rose at a 2.4% annual rate in Q4 and is up 1.9% from a year ago. Nominal GDP – real GDP plus inflation – rose at a 5.0% rate in Q4, is up 4.4% from a year ago, and up at a 3.9% annual rate from two years ago.
Implications: The headline growth rate of 2.6% for fourth quarter real GDP and 2.5% for 2017 make the economy look like it's still a Plow Horse, but the details of the report show it's not. The parts of GDP that are the most volatile from quarter to quarter – international trade and inventories – were major drags on growth in Q4. We like to follow "core" GDP, which we define as consumer spending, business investment in equipment, structures, and intellectual property, as well as home building. Adjusted for inflation, core GDP grew at a 4.6% annual rate in Q4, the fastest pace since 2014, and rose 3.3% in 2017. Consumer spending was very strong in Q4, in part due to the surge in auto sales late in the year to replace vehicles destroyed in Hurricanes Harvey and Irma. Meanwhile, home building grew at an 11.7% annual rate, the fastest in over a year. Business investment in equipment grew at an 11.4% rate, the fastest since 2014. We expect real GDP to grow at a 3%+ rate in 2018, which would be the first year that's happened since 2005. In particular, the tax cuts enacted in late December and the deregulation coming from Washington, DC are going to help spur faster growth. Meanwhile, today's report makes it even clearer the Federal Reserve is behind the curve. Nominal GDP – real GDP growth plus inflation – grew at a 5.0% annual rate in Q4, was up 4.4% in 2017, and up at a 3.9% annual rate in the past two years. All of these are much higher than the Fed's current target for short-term rates of 1.375%. The Fed has been saying it will raise short-term rates three times in 2018. The investor consensus has recently come around to that view as well, but thinks the odds of two rate hikes is higher than the odds of four. We think the opposite, that if the Fed doesn't raise rates three times in 2018, it will be four hikes, not two.
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https://www.wsj.com/articles/stocks-are-headed-for-a-fall-1516145624
Mr. Bernanke explained (in 2009) that this “unconventional” monetary policy was designed to encourage an asset-substitution effect. Investors would shift out of bonds and into equities and real estate. The resulting rise in household wealth would push up consumer spending and strengthen the economic recovery.
The strategy eventually worked as Mr. Bernanke had predicted.
...
When interest rates rise back to normal levels, share prices are also likely to revert to previous norms.
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You have been warned.
Martin Feldstein was chairman of the Council of Economic Advisers under President Reagan, is a professor at Harvard and a member of the Journal’s board of contributors.
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Rush was right on. Said the sell off yesterday was a bunch of crap with people taking profits and to try to make a stink about Trump and it would go right back up the next day on the self made buy opportunity
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I thought it was about the bond market?
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https://www.wsj.com/articles/the-return-to-normal-risk-1517876724
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It's now officially Trump's economy. Up until yesterday, it was Obama's. All the bad years when Obama was president? Those were Bush's, of course!
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As always, Wesbury is articulate, but is he addressing the spending implications longer term of ending the Sequester and Trillion dollar deficits as far as the eye can see and the effects of all this on interest rates, the cost of servicing a $20+T debt-- now at $400B? per year?!?
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This is Just a Correction...
Last year US stock markets experienced the least volatile year on record, hitting new highs seemingly every day. Then came the tax reform bill to end 2017, and a huge January with the S&P 500 rising 5.6%. Investors, especially individuals who finally became convinced that the rally would go on, piled in. It wasn't massive 1999-style euphoria, but many investors finally succumbed to the fear of missing out.
And as if on cue, sentiment (but not fundamentals) shifted, and stock markets gave up their 2018 gains. The S&P 500 - as of the close on February 8th - was down 10.2% from its all-time closing high set on January 26th.
Everyone wants to find a "reason" for a correction, to explain what happened, especially when it takes them by surprise. And these days the prime culprit, according to the financial press, is interest rates heading higher. Some attribute this increase to rising wage pressures and inflation, some blame ballooning budget deficits. But beneath it all is a widely-held belief that stock market gains have been propped up by easy money and low interest rates – a sugar high.
Our answer to this: No! The stock market has been driven higher by earnings growth. In fact, given the recent downdraft in stock prices and the simultaneous increase in earnings estimates, the S&P 500 is now trading at roughly 16.7 times 2018 earnings estimates. That's not high by historical standards. In fact, that is lower than the 30 year average of 19.4.
More importantly, we have been expecting interest rates to go higher and have urged the Fed to raise rates more quickly. Given the pace of economic growth, the Fed is a long way from being tight. At the same time, economic data has been strengthening and earnings are booming. With 337 S&P 500 companies having reported Q4 earnings as of the 8th of February, 76.9% have beaten estimates, and earnings are up 17.0% from a year ago. This double-digit earnings growth is forecast to continue through 2018, even with higher interest rates. Corporate balance sheets are stronger than they have been in decades, spending is accelerating and the recent tax cut is an unambiguous positive.
Corrections scare the snot out of people. For many, who thought markets only go up, they feel like the end of the world. This is especially true when pundits start trying to explain the drop in stock prices by arguing that there are fundamental problems with the economy. This time is no different. But, in our opinion, this is an emotional correction, not a fundamental one. The US is not entering a recession, and higher interest rates over the next few years do not spell doom for the economy or markets.
In fact, because of better policy, economic growth this year looks set to accelerate to 3%+ (we are forecasting 4% real GDP growth in Q1). That is why interest rates are rising, because of better than expected economic growth. This is a good thing! Not a reason to sell stocks. In this case higher interest rates are a byproduct of a stronger economy, not the unwinding of QE or higher deficits.
Retail sales rose 0.4% in December, are up 9.0% annualized over the past six months and are up 5.5% year over year. January's ISM Manufacturing and Non-Manufacturing indexes just hit the highest readings for a January in seven and 14 years respectively. In January, hourly earnings were up 2.9% from a year ago, the best reading since 2009. At the same time, initial claims have been below 300,000 for 153 consecutive weeks. Private payrolls were up 196,000 in January, and the unemployment rate is down to 4.1% and headed lower. And no, this is not a "part-time" recovery. In the past twelve months, full-time employment has grown by 2.39 million jobs while part-time employment is down 92,000! With 5.8 million unfilled jobs and quit rates at the highest levels of the recovery, there should be little question why the Fed continues to hike rates.
We use a Capitalized Profits Model (the government's measure of profits from the GDP reports divided by interest rates) to measure fair value for stocks. Our traditional measure, using a current 10-year Treasury yield of 2.85% suggests the S&P 500 is still massively undervalued. The model needs a 10-year yield of 3.9% today to conclude that the S&P 500 is already at fair value with current profits. Fair value, not over-valued.
What we focus on are the Four Pillars of Prosperity: Monetary Policy, Tax Policy, Trade Policy, and Spending & Regulation. So, let's see where those stand:
1. Monetary Policy – The Fed is still easy and will be for the foreseeable future. Remember, there are still over $2 trillion in excess reserves!
2. Tax Policy – Tax policy has improved dramatically on the margin, a tailwind for growth and earnings.
3. Trade Policy - The protectionist talk coming from Washington is worrisome, but, so far, there has been much more hot air than substance. In fact, total trade (exports + imports) sits at record highs.
4. Spending & Regulation – This is a mixed, but still positive, bag. On the regulation front, 2017 saw the biggest decline in regulation, at least since the Reagan-era, and possibly in history. That's great news for growth. The spending side is still a concern. The recent budget deal reached in the U.S. Senate boosts spending at least as fast as GDP growth over the next couple of years. That's not a recipe for long-term economic acceleration, but also not an immediate threat to growth.
The bottom line shows that the fundamentals of the economy are strengthening. Higher interest rates are a byproduct of a stronger economy. And, out of the four potential threats to the economy, only one is moderately negative.
It's not often you get a substantial pullback in the market when both economic and earnings growth are strengthening. Stay calm. Stay invested in equities. Don't fight the fundamentals.
Brian S. Wesbury - Chief Economist
Robert Stein, CFA – Deputy Chief Economist
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http://humanevents.com/2008/02/25/brian-wesbury-sees-no-recession-ahead/
As always, Wesbury is articulate, but is he addressing the spending implications longer term of ending the Sequester and Trillion dollar deficits as far as the eye can see and the effects of all this on interest rates, the cost of servicing a $20+T debt?
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This is Just a Correction...
Last year US stock markets experienced the least volatile year on record, hitting new highs seemingly every day. Then came the tax reform bill to end 2017, and a huge January with the S&P 500 rising 5.6%. Investors, especially individuals who finally became convinced that the rally would go on, piled in. It wasn't massive 1999-style euphoria, but many investors finally succumbed to the fear of missing out.
And as if on cue, sentiment (but not fundamentals) shifted, and stock markets gave up their 2018 gains. The S&P 500 - as of the close on February 8th - was down 10.2% from its all-time closing high set on January 26th.
Everyone wants to find a "reason" for a correction, to explain what happened, especially when it takes them by surprise. And these days the prime culprit, according to the financial press, is interest rates heading higher. Some attribute this increase to rising wage pressures and inflation, some blame ballooning budget deficits. But beneath it all is a widely-held belief that stock market gains have been propped up by easy money and low interest rates – a sugar high.
Our answer to this: No! The stock market has been driven higher by earnings growth. In fact, given the recent downdraft in stock prices and the simultaneous increase in earnings estimates, the S&P 500 is now trading at roughly 16.7 times 2018 earnings estimates. That's not high by historical standards. In fact, that is lower than the 30 year average of 19.4.
More importantly, we have been expecting interest rates to go higher and have urged the Fed to raise rates more quickly. Given the pace of economic growth, the Fed is a long way from being tight. At the same time, economic data has been strengthening and earnings are booming. With 337 S&P 500 companies having reported Q4 earnings as of the 8th of February, 76.9% have beaten estimates, and earnings are up 17.0% from a year ago. This double-digit earnings growth is forecast to continue through 2018, even with higher interest rates. Corporate balance sheets are stronger than they have been in decades, spending is accelerating and the recent tax cut is an unambiguous positive.
Corrections scare the snot out of people. For many, who thought markets only go up, they feel like the end of the world. This is especially true when pundits start trying to explain the drop in stock prices by arguing that there are fundamental problems with the economy. This time is no different. But, in our opinion, this is an emotional correction, not a fundamental one. The US is not entering a recession, and higher interest rates over the next few years do not spell doom for the economy or markets.
In fact, because of better policy, economic growth this year looks set to accelerate to 3%+ (we are forecasting 4% real GDP growth in Q1). That is why interest rates are rising, because of better than expected economic growth. This is a good thing! Not a reason to sell stocks. In this case higher interest rates are a byproduct of a stronger economy, not the unwinding of QE or higher deficits.
Retail sales rose 0.4% in December, are up 9.0% annualized over the past six months and are up 5.5% year over year. January's ISM Manufacturing and Non-Manufacturing indexes just hit the highest readings for a January in seven and 14 years respectively. In January, hourly earnings were up 2.9% from a year ago, the best reading since 2009. At the same time, initial claims have been below 300,000 for 153 consecutive weeks. Private payrolls were up 196,000 in January, and the unemployment rate is down to 4.1% and headed lower. And no, this is not a "part-time" recovery. In the past twelve months, full-time employment has grown by 2.39 million jobs while part-time employment is down 92,000! With 5.8 million unfilled jobs and quit rates at the highest levels of the recovery, there should be little question why the Fed continues to hike rates.
We use a Capitalized Profits Model (the government's measure of profits from the GDP reports divided by interest rates) to measure fair value for stocks. Our traditional measure, using a current 10-year Treasury yield of 2.85% suggests the S&P 500 is still massively undervalued. The model needs a 10-year yield of 3.9% today to conclude that the S&P 500 is already at fair value with current profits. Fair value, not over-valued.
What we focus on are the Four Pillars of Prosperity: Monetary Policy, Tax Policy, Trade Policy, and Spending & Regulation. So, let's see where those stand:
1. Monetary Policy – The Fed is still easy and will be for the foreseeable future. Remember, there are still over $2 trillion in excess reserves!
2. Tax Policy – Tax policy has improved dramatically on the margin, a tailwind for growth and earnings.
3. Trade Policy - The protectionist talk coming from Washington is worrisome, but, so far, there has been much more hot air than substance. In fact, total trade (exports + imports) sits at record highs.
4. Spending & Regulation – This is a mixed, but still positive, bag. On the regulation front, 2017 saw the biggest decline in regulation, at least since the Reagan-era, and possibly in history. That's great news for growth. The spending side is still a concern. The recent budget deal reached in the U.S. Senate boosts spending at least as fast as GDP growth over the next couple of years. That's not a recipe for long-term economic acceleration, but also not an immediate threat to growth.
The bottom line shows that the fundamentals of the economy are strengthening. Higher interest rates are a byproduct of a stronger economy. And, out of the four potential threats to the economy, only one is moderately negative.
It's not often you get a substantial pullback in the market when both economic and earnings growth are strengthening. Stay calm. Stay invested in equities. Don't fight the fundamentals.
Brian S. Wesbury - Chief Economist
Robert Stein, CFA – Deputy Chief Economist
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That is some wicked snark there GM!
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By Adam Bell for the Australian Institute of International Affairs
Following Wall Street's lead, this week has seen dramatic plunges across share markets the world over. Seemingly paradoxically, the fall was sparked by good economic news: US wages, and consequently inflation, were finally growing after years in the doldrums. Interest rate rises are likely on the way. Speculation is now rampant as to what is really going on: is this merely a correction amid record stock price highs? Or are we witnessing the beginning of the next big financial crash?
The Birth of the Bubble
Recent growth predictions certainly belie the more pessimistic outlook. The International Monetary Fund (IMF) began the year by announcing it was revising global growth figures upwards. Although the forecasted economic improvement was predicated on a Republican tax bill that the IMF deems damaging to the US economy in the long-run, it nevertheless predicted the tax bill would have a positive immediate impact. In the short run, it was deemed likely to galvanise an already promising global economy experiencing the "broadest synchronised global growth upsurge since 2010".
At face value, such a proclamation does indeed seem justified. Europe is witnessing its best economic conditions in a decade, with GDP growth hitting 2.5 per cent in 2017. The American economy is also proving to be robust, and is facing its lowest level of unemployment in 17 years. China, meanwhile, has continued to confound predictions of economic slowdown by increasing its GDP growth in 2017. Taken together, such news seems to indicate a global economy finally strengthening after years of weak growth following the Global Financial Crisis (GFC).
Unfortunately, as the recent share selloff hints at, a latent crisis lies beneath all the good news. While the return to growth represents the beginning of a long-awaited recovery, it is also a harbinger of the end to an extraordinary era of monetary policy. To understand why, it is necessary to understand what this policy entailed. When financial markets froze and the global economy tanked during the GFC, central banks embraced a little-tested, controversial measure known as quantitative easing to stimulate moribund economies.
Easy Money
Quantitative easing involves the mass purchase of safe assets (mostly government bonds) by central banks to inject liquidity into financial markets and lower the cost of lending. When banks effectively ceased lending and economic activity collapsed during the GFC, quantitative easing functioned to restore confidence and boost demand. It was used in Europe, the US and Japan, and did indeed prove effective; combined with massive government spending programs, the world economy halted its tailspin faster than it did during the most recent comparable financial collapse, the Great Depression.
The problem, however, is that quantitative easing was supposed to be a short-term measure; instead, it has persisted for a decade. The post-GFC era has been one of tepid growth and low inflation. Fearing that withdrawing their exceptional support might undermine already feeble growth, central banks have continued massive bond-buying programs to prop up shaky financial markets. This is most clearly seen via the balance sheets of the American, Japanese and European central banks: their assets grew from just over USD$3 trillion (AUD$3.8 trillion) in 2007 to around USD$15 trillion today.
The consequences of this have been profound. Although it has largely taken until 2018 for a real recovery to get underway, recent years have seen asset and equity prices skyrocket to record highs. This has been most apparent throughout global stock markets, but can also be seen in the booming housing prices of the West and unwaveringly high bond prices. The surge in prices can be explained via economics 101: demand has massively increased as cheap money has sloshed throughout financial systems, while the supply of assets has remained constrained.
A Dangerous Addiction
The reason for this constraint? Look to a phenomenon known as secular stagnation. Recently popularised by former US Treasury Secretary Larry Summers, secular stagnation posits that the long-term growth potential for developed countries shifts permanently lower due to a variety of limiting factors. Chief among these today are ageing populations and stagnant productivity. Importantly, lower growth means diminished prospects for profitable investments. This, combined with endless money-printing, has created the dangerous asset price inflation that we see today. More money has gone after less opportunities, leading to what Summers' predicted would be "a prolonged period in which satisfactory growth can only be achieved by unsustainable financial conditions".
Such unsustainable financial conditions were pressingly highlighted by Professor William White, a chief economist at the OECD, during the recent World Economic Forum in Davos. Professor White painted a dangerous picture of global finance. He pointed out that global debt levels have vaulted well beyond the levels seen prior to the GFC, with debt fuelled by quantitative easing in the West flowing into risky investments in developing markets. Furthermore, he asserts that Western credit markets are showing signs of deterioration daily, as repayment problems begin to emerge across a variety of unsustainable debts instruments issued in markets desperate for decent returns. Most disturbingly, he declared that market indicators appeared strikingly similar to just before the collapse of Lehman Brothers at the height of the GFC.
It is not surprising that financial markets caught serious jitters when faced with the prospect of the end to quantitative easing and a rise in interest rates. But while the story of stock market falls is undoubtedly ominous, the more daunting concern pertains to what might happen next. The world's weak recovery from the GFC has seen government debt levels rise almost unanimously throughout the world's economies. Central banks have kept interest rates near zero while feverishly propping up financial markets. If a financial crisis were to emerge, the traditional tools of fiscal stimulus and expansionary monetary policy would be largely unavailable to much of the developed world. Despite good news to start the year, dark clouds loom over the global economy in 2018.
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That is some wicked snark there GM!
Here is the problem. We all know that there are massive, and frankly unfixable problems with our political-economic system. At some point, the distortions and debt won't.be able to be postponed. Trump bought us time, but there is no political will to address the real issues.
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Something positive on Wesbury, imports should be added to exports for economic value, not subtracted and Wesbury does exactly that: "...total trade (exports + imports) sits at record levels."
But trade protectionism is more than a risk with trump since he promised a lot and has delivered a little so far. More expensive washing machines helps us how?
Of the other pillars, monetary policy still puts us at high risk. What we sowed for nearly decades we will someday reap. Someday might be 2018... Our insane, short sighted monetary policy of expansionism, zero interest rate policy, etc. gave us artificial stimulus of perhaps little or no value but the consequence of ridding ourselves of that policy abuse could be costly in the extreme. As interest rates go up and they must, what happens? Stocks come down? Wealth effect goes down. Bonds become more attractive. Cost of debt goes up. Who has a lot of debt? [America]. Real estate values come down. For every $x/mo a buyer is willing to pay for a certain house at 3% interest, what happens to the purchase price at 6% interest if same buyer is willing to pay or constrained by the same monthly payment? Price goes down with every quarter point move, all other things equal. We learned in 2008-2009 real estate is part of the economy. A big part of America's wealth is in real estate values. The raising of near zero rates is necessary, inevitable and beneficial. Surviving it will be a tight rope walk.
The other pillars: Deregulation, yes, Trump has done amazing things but just the low hanging fruit. Some of the most brutal regulations lie at the state and especially local levels. Our regulatory state and anti-entrepreneurial mentality is still a dominant force across the fruited plain. Don't believe me? Try opening a lemonade stand.
Taxes, yes, partial reform. But most crucial for the economy tends to be the highest individual rates. Those dropped from 39.6 to 37%, hardly at all while losing key deductions, not exactly unleashing 'animal spirits'. Capital gains rates were not lowered and still taxed as ordinary income at the state level. We still tax inflationary 'gains' as 'gains', talk about distortions!
Spending, up and up. And that is before Democrats take back Washington. Government spending takes resources away from the private economy whether you tax to pay for them or not.
Debt, up and up. Cost of debt with rising interest rates, up and way up.
If spending makes the deficit go up, tax rate cuts will be blamed. Leftism still controls the media, academia, and nearly all messaging, except one loose nut with a twitter account. Said of George W Bush, he gave supply side economics a bad name - without trying it.
Paying for the $13 trillion direct cost of the Obama Presidency, $9 trillion new debt plus $4 trillion in quantitative expansion... that cost hits the economy when? How? What about the other damage? 75% of Mexican immigrants are on some kind of welfare, just reported. A new generation or two of Americans were taught to be recipients in a redistributive economy, permanently out of the workforce. We have entire communities where 50% of adults don't work. More Americans than ever dependent on government for healthcare. And we look to make more voters out of people who came here for benefits.
There are some good trend lines emerging, but there are some enormous, accumulated problems unaddressed.
GM: "Trump bought us time..." Also the Republican majorities in the House and Senate, but how was that time used? Chasing shiny objects or making real reforms? Mostly the former and their time of holding majorities could be ending.
What brought the economy down last time? The election of the Pelosi-Reid congress signaled the shift in policies coming and scared capital to the exits. The economic damage of anti-capitalism was not at all limited to those invested in the markets.
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The Bernanke Correction
Asset prices are adjusting as financial repression ends.
By The Editorial Board
Feb. 9, 2018 7:13 p.m. ET
The stock market continued its wild swings Friday, finishing up for the day but still concluding the worst week in nearly a decade. Look for more such gyrations as investors adapt to the return of market-based interest rates.
In his typical way, Donald Trump lumbered into part of the truth this week with a tweet. “In the ‘old days,’ when good news was reported, the Stock Market would go up,” he wrote. “Today, when good news is reported, the Stock Market goes down. Big mistake, and we have so much good (great) news about the economy!”
He’s referring to the paradox that stock prices fell despite a strengthening U.S. and global economy. But Mr. Trump is missing that faster growth requires a fundamental shift in the monetary policy of the past decade. In particular this means the looming end to the financial repression that the Federal Reserve has been practicing since the financial panic. In that sense this is the Ben Bernanke correction, as the Fed and other central banks unwind the former Fed chairman’s unprecedented monetary experiment.
For nearly a decade the Fed has intervened in financial markets to repress the long end of the bond market. It scooped up the bulk of new long Treasury bonds, as the European and Japanese central banks later did in their economies. The idea was to push investors into riskier assets like real estate, junk bonds and stocks as they sought greater returns that they couldn’t get in Treasurys. The policy worked as asset prices rose, though it did far less for the real economy and workers without assets.
Janet Yellen maintained the Bernanke policy as long as she could, and only recently has the Fed started to unwind its asset purchases and raise interest rates. Europe and Japan still haven’t begun, but faster growth suggests the end of the Bernanke era beckons there too. This is what investors are anticipating, even as they see the good news that economic growth is accelerating.
Volatility and interest-rate risk are thus returning to equities. This doesn’t mean all of the stock gains in recent years have been an artificial “sugar high.” Higher earnings have also been important. But it does mean that asset prices will reset based on the anticipation of more normal monetary policy and the return of real interest rates.
Keep in mind that no one really knows how this will turn out because there is literally no precedent for the monetary policy of the past decade. Mr. Bernanke and Ms. Yellen have left new Chairman Jay Powell the difficult task of reversing their Fed policy without tanking the economy. Eventually asset prices will find a new level that reflects economic fundamentals, but the process may be messy, as this week suggests.
The good news is that U.S. economic fundamentals are as strong as they’ve been since 2005, and maybe 1999. And in that sense the Trump -GOP policy mix of tax reform and deregulation is well timed. The Trump policies and faster growth around the world are crucial if we are going to keep the expansion going and live through the end of financial repression. We need supply-side incentives to drive growth to survive the Bernanke-Yellen monetary correction.
One irony of the current moment is that the Keynesians who presided over nearly a decade of secular stagnation are now worried that the economy is “overheating.” Then again, they said faster growth wasn’t possible, so they almost have to dismiss it.
Mr. Trump’s instinct as a real-estate guy is always to want lower interest rates. But the more he demands low rates amid faster economic growth, the higher rates he is likely to see and sooner than he imagines. Faster economic growth and a tight labor market will mean rising wages for the working men and women who elevated him to the White House. Stocks will eventually adjust and follow a growing economy, and Mr. Trump needs to let the Fed continue on its path back to normal.
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Snatching Slow Growth from the Jaws of Fast Growth To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/12/2018
The U.S. economy continues to be lifted by an incredible wave of new technology. Fracking, 3-D printing, smartphones, apps, and the cloud have boosted productivity and profits. Yet taxes, regulation and spending all increased markedly in the past decade, raising the burden of government and dragging down the real GDP growth rate to a modest 2.2% from mid-2009 to early 2017.
Then 2017 saw the tides start to shift. Regulation was cut dramatically and the U.S. saw the most sweeping corporate tax reform in history. Guess what? Growth picked up to almost 3% annualized in the last three quarters of 2017 and real GDP looks set for about 4% growth in the first quarter of 2018.
But the dream of getting back to long-term 4% growth died this week in a bipartisan orgy of government spending. Congress lifted the budget caps on "discretionary" (non-entitlement) spending by about $300 billion over the next two years, and spending is now set to rise by 10% this year.
No, this won't kill the economy tomorrow (or this year), but unless the Congress gets control of federal spending, the benefits from the tax cuts and deregulation will be short-lived.
Many argued that making corporate tax cuts temporary would limit their effectiveness because corporations would not change their behavior. So, what does a corporate CFO do now? Trillion dollar deficits as far as the eye can see mean Congress has a reason – and an excuse - to raise tax rates in the future. This doesn't mean they're going back to 35%, but massive deficits will make it hard to sustain a 21% tax rate over time. In other words, while Congress passed permanent tax cuts, it now makes them almost impossible to sustain.
Every dollar the government spends must be either taxed or borrowed from the private sector. The bigger the government, the smaller the private sector. Not only does increased spending mean higher tax rates are expected in the future, but also a smaller private sector as it's forced to fund a bigger government. It's the Spending that crowds out growth, not deficits themselves
Look, we get it. The world is a dangerous place and we are sure there are parts of our military that need better funding. But the government can't do everything. If we need more spending on defense, those funds should be found by reducing spending elsewhere. Otherwise, eventually, the country won't be able to afford to defend itself, either.
But, in order to reach the minimum of 60 votes needed in the US Senate, Republicans capitulated to Democrats demands for more non-military spending. The result was a budget blow-out.
So, where does that leave us? Optimistic about an acceleration in growth this year and 2019, which will help lift stock prices as well, but not as optimistic beyond that as we were before the budget deal. The Plow Horse is not coming back overnight, but unless we get our fiscal house in order, it's still lurking in the barn.
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I remember in the early 70s when making 30 K per annum was a sold salary and 100K was really wealthy.
This shows why those days are forever gone:
https://inflationdata.com/Inflation/Consumer_Price_Index/HistoricalCPI.aspx?reloaded=true
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Wesbury has a superior record , , , for a rising market. But as 2008 showed, he may have a blind spot in his mental map when it comes to recognizing a genuine downturn.
https://www.ftportfolios.com/Commentary/EconomicResearch/2018/2/15/inflation,-interest-rates,-and-stocks
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Excellent work by Wesbury, but I do think he misses that artificially low rates caused vast capital flows into equities.
QE and Its Apologists To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/20/2018
On March 9, 2018, the bull market in U.S. stocks will celebrate its ninth anniversary. And, what we find most amazing is how few people truly understand it. To this day, in spite of massive increases in corporate earnings, many still think the market is one big "sugar high" – a bubble built on a sea of Quantitative Easing and government spending.
While passing mention is given to earnings (because they are impossible to ignore), conventional wisdom has clung to the mistaken story that QE, TARP, and government spending saved the economy from the abyss back in 2008-09.
A review of the facts shows the narrative that "Wall Street" – meaning capitalism and free markets – failed and government came to the rescue is simply not true.
Wall Street was not the driving force behind subprime mortgages. In his fabulous book, Hidden in Plain Sight, Peter Wallison showed that by 2008 Fannie Mae, Freddie Mac and other government programs had sponsored 76% of all subprime debt – not "Wall Street." Everyone was playing with rattlesnakes and government was telling them it was OK to do so. But, when the snakes started biting, government blamed the private sector, capitalism and free markets.
At the same time, Wall Street did not cause the market and economy to collapse; it was overly strict mark-to-market accounting. Yes, leverage in the financial system was high, but mark-to-market accounting forced banks to write down many performing assets to illiquid market prices that had zero relationship to true value. Mark-to-market destroyed capital.
QE started in September 2008, TARP in October 2008, but the market didn't bottom until March 9, 2009, five months later. On that day in March, former U.S. Representative Barney Frank, of all people, promised to hold a hearing with the accounting board and SEC to force a change to the ill-advised accounting rule. The rule was changed and the stock market reversed course, with a return to economic growth not far behind.
Yes, the Fed did QE and, yes, the stock market went up while bond yields fell, but correlation is not causation. Stock markets fell after QE started, and rose after QE ended. Bond yields often rose during QE, fell when the Fed wasn't buying, and have increased since the Fed tapered and ended QE.
A preponderance of QE ended up as "excess reserves" in the banking system, which means it never turned into real money growth. That's why inflation never took off. Long-term bond yields fell, but this wasn't because the Fed was buying. Bond yields fell because the Fed promised to hold short-term rates down for a very long time. And as long-term rates are just a series of short-term rates, long term rates were pushed lower as well.
We know this is a very short explanation of what happened, but we bring it up because there are many who are now trying to use the stock market "correction" to revisit the wrongly-held narrative that the economy is one big QE-driven bubble. Or, they use the correction to cover their past support of QE and TARP. If the unwinding of QE actually hurts, then they can argue that QE helped in the first place.
So, they argue that rising bond yields are due to the Fed now selling bonds. But the Fed began its QE-unwind strategy months ago, and sticking to its plans hasn't changed a thing.
The key inflection point for bond yields wasn't when the Fed announced the unwinding of QE; it was Election Day 2016, when the 10-year yield ended the day at 1.9% while assuming the status quo, which meant more years of Plow Horse growth ahead. Since then, we've seen a series of policy changes, including tax cuts and deregulation, which have raised expectations for economic growth and inflation. As a result, yields have moved up.
Corporate earnings are rising rapidly, too, and the S&P 500 is now trading at roughly 17.5 times 2018 expected earnings. This is not a bubble, not even close. Earnings are up because technology is booming in a more politically-friendly environment for capitalism. And while it is hard to see productivity rising in the overall macro data, it is clear that profits and margins are up because productivity is rising rapidly in the private sector.
The sad thing about the story that QE saved the economy is that it undermines faith in free markets. Those who argue that unwinding QE is hurting the economy are, in unwitting fashion, supporting the view that capitalism is fragile, prone to bubbles and mistakes, and in need of government's guiding hand. This argument is now being made by both those who believe in big government and those who supposedly believe in free markets. No wonder investors are confused and fearful.
The good news is that QE did not lift the economy. Markets, technology and innovation did. And this realization is the key to understanding why unwinding QE is not a threat to the bull market.
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The ISM Manufacturing Index Rose to 60.8 in February To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 3/1/2018
The ISM Manufacturing Index rose to 60.8 in February, coming in well above the consensus expected 58.7. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mixed in February, but all remain comfortably above 50, signaling growth. The employment index rose to 59.7 from 54.2 in January, while the supplier deliveries index increased to 61.1 from 59.1. The new orders index declined to 64.2 from 65.4, while the production index fell to 62.0 from 64.5 in January.
The prices paid index rose to 74.2 in February.
Implications: Factory activity is off to roaring start in 2018, with the ISM Manufacturing index rising to 60.8 in February, the highest reading since 2004. And the growth is broad-based, with fifteen of eighteen industries reported growth in February (two reported declines). While the two most forward-looking indices - new orders and production – both ticked lower in February (remember, levels above 50 signal expansion, so these lower readings represent continued growth, but at a slower pace than in recent months), they continue to shine with readings in the 60's and suggest that activity in the manufacturing sector should remain robust in the months ahead. The employment index showed the largest rise in February, moving to 59.7 from 54.2 in January. Pairing this with other indicators on the strength of the labor market suggests that employment growth picked up pace in February, though heavy snow in parts of the country may put a damper on next week's employment report. If it does, no need for concern. Look for a rebound in the employment data in the following months. Prices, meanwhile, rose in February to a reading of 74.2, the highest since mid-2011. A total of twenty-seven commodities were reported up in price, while no commodities showed declining costs. This serves as yet another sign that inflation is picking up pace as economic growth accelerates, and a signal to the Fed that four rate hikes in 2018 are not just appropriate, but warranted. In sum, the strength shown by the manufacturing sector throughout 2017 is carrying over into 2018. In other news this morning, construction spending was unchanged in January (+0.8% including revisions to prior months). A rise in spending on highways & streets and housing offset declines in power projects and commercial construction.
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second post
Personal Income Rose 0.4% in January To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 3/1/2018
Personal income rose 0.4% in January versus a consensus expected 0.3%. Personal consumption increased 0.2% in January, matching consensus expectations. Personal income is up 3.8% in the past year, while spending is up 4.4%.
Disposable personal income (income after taxes) rose 0.9% in January and is up 4.0% from a year ago. The gain in January was led by a drop in personal taxes and a rise in private sector wages and salaries as well as government transfers.
The overall PCE deflator (consumer inflation) rose 0.4% in January and is up 1.7% versus a year ago. The "core" PCE deflator, which excludes food and energy, rose 0.3% in January and is up 1.5% in the past year.
After adjusting for inflation, "real" consumption declined 0.1% in January but is up 2.7% from a year ago.
Implications: Consumers enjoyed a strong start to 2018, as impacts from the Tax Cuts and Jobs Act begin to materialize. Personal income increased 0.4% in January, led by rising wages and salaries in the private sector, and has seen a healthy 3.8% gain over the past twelve months. This was aided by an estimated $30 billion in one-time bonuses paid out by companies that see the newly lowered corporate tax rates boosting their bottom line. And it's not just bonuses, the Bureau of Economic Analysis estimates that the tax cuts reduced personal taxes by a whopping $115.5 billion at an annual rate, pushing after-tax income higher by 0.9% in January. Government transfers also jumped in January, as the 2% cost-of-living adjustment took effect for Social Security beneficiaries in January. But this is a one-time bump, so while government transfers rose a significant 1.3% in January, month-to-month growth will return to more normal levels in the months ahead. And while government transfers are up 3% in the past year, total income has grown at a faster 3.8% during the same period (and private sector wages and salaries rose 5.0%!), so transfer payments are making up a smaller portion of income than a year ago. On the spending side, personal consumption increased 0.2% in January and is up 4.4% in the past year. Some have bemoaned this rise in spending, suggesting that consumers are digging themselves into a hole. But while consumer debts are at a record high in raw dollar terms, so are consumer assets. Comparing the two, debts are the lowest relative to assets since 2000 (and that's back during the internet bubble when asset values were artificially high), and falling. Meanwhile, the financial obligations ratio – which compares debt and other recurring payments to income – is still relatively low. In other words, consumers still have plenty of room to increase spending. On the inflation front, the overall PCE deflator rose 0.4% in January and is up 1.7% in the past year. "Core" prices, which exclude food and energy, are accelerating, up at a 2.1% annual rate in the past three months versus a 1.5% gain the past year, and provide clear backing for the Fed to raise rates four times this year. On the jobs front, initial jobless claims declined 10,000 last week to 210,000, while continuing claims rose 57,000 to 1.931 million. Initial claims are now the lowest since 1969, so look for another solid jobs report in February, although heavy snow in parts of the country might put some temporary downward pressure on payrolls for the month. If so, don't fall into the trap of thinking the good times are over. Job gains should rebound in the following months.
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I thought we were already at "full employment".
https://www.cnbc.com/2018/03/07/adp-us-private-sector-february-2018.html
Private-sector jobs grow by 235,000 in February, vs 195,000 expected
Watching quickly for positive results from the tax rate cuts before new trade laws collapse the economy. Let's see what happens with federal revenues. https://www.fiscal.treasury.gov/fsreports/rpt/mthTreasStmt/current.htm
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One important stat missing from the previous February economics reports:
"More than 800,000 Americans joined the labor force in February, according to the report, most bypassing unemployment and jumping straight into jobs. It was the largest one-month increase in the labor pool since 1983, outside months that included one-time Census hiring."
http://www.morningstar.com/news/dow-jones/TDJNDN_201803097275/us-hiring-surges-with-313000-jobs-unemployment-flatupdate.print.html
1983? That was the year that Reagan's phased-in tax rate cuts went fully into effect.
Where else is it optional to work? We were at "full employment" according to credentialled economists, and then 800,000 people entered the workforce in one month. I thought the people out of the workforce were children, elderly, retired, disabled. No, welcome to 2018 in the developed world, being out of the workforce on public subsidy is a lifestyle choice.
What policy makers and analysts ignore as they see our deficit and debt as permanent is that disincentives to work and invest are big contributors to the demand for services. Raise the participation rate in the economy, to invest, to work or to be productively self employed and the number of people on government programs and the cost of those programs can go down. We will watch and see on that part.
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http://scottgrannis.blogspot.com/2018/03/10-key-charts-updated.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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https://www.ftportfolios.com/Commentary/EconomicResearch/2018/3/22/dont-fear-volatility
Scott Grannis: http://scottgrannis.blogspot.com/2018/03/the-fed-is-not-tightening-monetary.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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Even without dynamic scoring, CBO is starting to admit that growth policies might cause economic growth.
https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/53651-outlook.pdf
3.3% growth, up from 2.4% in Obama's later years, is roughly the breakeven point of what tax reform needs to achieve to pay for itself. To sustain that growth is another matter.
Growth over 3% is needed for Republicans to have any chance of holding Congress. Assuming that winter was a bit lackluster, the next two quarters need to be great news and public sentiment coming into the November elections or the House will turn to the other side and the Republican agenda, if there was one, will be ended.
Unmentioned by most pundits is that (lack of) GDP growth determined the last election more than anything to do with either specific candidate. Lack of growth made it an uphill fight for the outgoing President's party to hold the White House, no matter who the nominees would be. Nate Silver warned of over-relying on that indicator, but he still lists it first as a factor before all the distractions emerged.
https://fivethirtyeight.com/features/clinton-begins-the-2016-campaign-and-its-a-toss-up/
Real GDP growth in the quarters coming into Reagan's reelection ranged from 4.0 to 9.4%. We could use a some of that right now.
http://www.data360.org/dsg.aspx?Data_Set_Group_Id=274&count=all
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Very, very slowly the MSM will have to start covering what we already had here on the forum. ) The is IBD, it may take a year to get to NBC, CBS, CNN...
https://www.investors.com/politics/editorials/trump-tax-cuts-revenues-deficits-paying-for-themselves/
It's Official: Trump Tax Cuts Are Boosting Growth And Mostly Paying For Themselves
"Last June, the CBO said GDP growth for 2018 would be just 2%. Now it figures growth will be 3.3% — a significant upward revision."
That is a 65% increase in growth rate in a 19 trillion dollar economy? Yes, I would say that is significant!
Who knew? Who even knows now? With Reagan, they never did widely report it; it was just so apparent that everyone knew, in 49 states at least.
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Several Charts in the original- which do not print here:
===========================================
I. Consumer Confidence and Expectations Rapidly Deteriorate
Overall consumer spending had been gaining momentum the past two months, but ChangeWave’s latest survey results show a dip in discretionary spending over the next 90 days. Despite this decline, these are the second-strongest April readings in eight years.
That said, there are two important cautionary signs: both consumer expectations for the overall direction of the US economy and confidence in the stock market are registering strong declines for the third consecutive survey. In addition, we’re seeing a further softening of the jobs market this month and renewed negative pressures from global economic conditions.
ChangeWave’s April Consumer Spending survey consisted of 1,584 primarily North American respondents from 451 Research’s Leading Indicator panel. The survey was conducted April 4-20, 2018.
Dip in Consumer Spending
A total of 31% of respondents report they’ll spend more over the next 90 days than they did during the same period a year ago, while 19% say they’ll spend less – a net 4 point decline from March. For context, our April 2017 survey registered a net 5 point uptick from the previous survey, coming off three consecutive months of expansion in spending.
Individual Spending Categories. This pullback is affecting retail spending categories, most of which are unchanged. However, two categories are improved. Spending on Travel/Vacation is showing a seasonal increase – up 3 points from March as well as year-over-year, while Household Repairs/ Improvements (up 1 point) has improved for the fourth consecutive month.
Expectations and Confidence Continue to Slide
Consumer Expectations. Nearly one-third (32%) of respondents believe the overall direction of the US economy will improve over the next 90 days, while 28% think it will worsen – a net 16 point decline. This is the third consecutive survey with a significant decline in expectations. The picture is considerably more negative compared to a year ago, with a net -20 point change.
Stock Market Confidence. More than half (53%) say they’re less confident in the US stock market now than they were 90 days ago, and only 9% report they’re more confident – a net 20 point drop from previously. As with expectations, this is the third consecutive decline in consumer confidence, and the weakest April reading ever recorded in our survey.
The 451 Take
VoCUL’s most recent Consumer Spending survey shows a pullback in spending going forward, following two months of improvements. Overall spending remains positive despite a dip this month. Moreover, these are the second-strongest April readings in eight years.
This downtick in spending is impacting several retail categories, with most unchanged this month. But spending at major retailers remains solid, with many seeing slight upticks. Online giant Amazon continues to lead all competitors, while each month brings news of retail chains closing brick-and-mortar stores.
This month the US Supreme Court is hearing arguments in favor of imposing sales tax on all online purchases rather than only in states where the retailer has physical stores. But it is unlikely this will have a significant impact on online shopping as many consumers will continue shopping online lured by its convenience and easy comparison shopping for the lowest cost. And Amazon continues to dominate, despite the fact that it started charging sales tax a year ago.
It’s been a bumpy few months for the economy, with both expectations and confidence declining for the third consecutive survey. The year started with sweeping new tax reform legislation, and in February, the US stock market experienced a correction. Also in February, the Federal Reserve raised interest rates, but on a positive note, it has not increased concerns over inflation nor has it caused a significant negative impact on discretionary spending.
In other cautionary findings, the current state of the global economy is having a negative impact on spending, as one in five indicate they’ll be decreasing their spending as a result of global economic issues. And there’s been a softening of the jobs market for the second consecutive survey.
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The preliminary number doesn't tend to be very accurate but it will be a big talking point for opponents or proponents of Trump, Republicans and the tax cut.
One estimate is that it will come in at 2% GDP growth 1st quarter. If so, that will be a big disappointment for some of us and a long wait to see if second and third quarter results come in better before the election.
We need growth over 3%, it needs to beat estimates and surpass CBO projections.
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The preliminary number doesn't tend to be very accurate but it will be a big talking point for opponents or proponents of Trump, Republicans and the tax cut.
One estimate is that it will come in at 2% GDP growth 1st quarter. If so, that will be a big disappointment for some of us and a long wait to see if second and third quarter results come in better before the election.
We need growth over 3%, it needs to beat estimates and surpass CBO projections.
www.cnbc.com/2018/04/27/first-reading-on-q1-2018-gdp.html
First reading on first-quarter GDP up 2.3%, vs 2.0% growth expected
Income at the disposal of households increased at a 3.4 percent rate in the first quarter, accelerating from the fourth quarter's 1.1 percent pace. Households also boosted savings during the quarter.
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The-market-has-been-inflated-by-low-interest-rates theory has held attraction for many of us here. Rather persuasively, Wesbury begs to differ:
3% - Why It Doesn't Matter To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 4/30/2018
Just a few weeks ago, the Pouting Pundits of Pessimism were freaked out over the potential for the yield curve to invert. They've now completely reversed course and are freaked out over a 3% 10-year Treasury note yield.
All this gnashing of teeth is driven by a belief that low interest rates and QE have "distorted" markets, created a "mirage," a "sugar high" – a "bubble."
These fears are overblown. Faster growth and inflation are pushing long-term yields up – a good sign. And, yes, the Fed is normalizing its extraordinarily easy monetary policy, but that policy never distorted markets as much as many people suspect. Quantitative Easing created excess reserves in the banking system but never caused a true acceleration in the money supply. That's why hyper-inflation never happened and both real GDP and inflation remained subdued. Profits, not QE, lifted stocks.
And our models show that low interest rates were never priced into equity values, either. We measure the fair value of equities by using a capitalized profits model. Simply put, we divide economy-wide corporate profits by the 10-year Treasury yield and compare these "capitalized profits" to stock prices over time. In other words, we compare profits, interest rates, and equity values and determine fair value given historical relationships. The lower the 10-year yield, the higher the model pushes the fair value of stocks.
Because the Fed held short-term rates so low, and gave forward guidance that they would stay low, they pulled long-term rates down, too. As a result, over the past nine years, artificially low 10-year yields have caused our model to show that stocks were, on average, 55% undervalued.
In other words, stocks never priced in artificially low interest rates. If they had, stock prices would have been significantly higher, and in danger of falling when interest rates went up.
But we have consistently adjusted our model by using a 3.5% 10-year yield. Using that yield today, along with profits from the fourth quarter, we show the stock market 15% undervalued. In other words, we've anticipated yields rising and still believe stocks are undervalued. A 3% 10-year yield does not change our belief that stocks can rise further this year, especially with our expectation that profits will rise by 15-20% in 2018.
The yield curve will not invert until the Fed becomes too tight and that won't happen until the funds rate is above the growth rate of nominal GDP growth. Stay bullish.
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"over the past nine years, artificially low 10-year yields have caused our model to show that stocks were, on average, 55% undervalued."
[Now] "we show the stock market 15% undervalued."
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One might also conclude differently from the same data that stocks that were at market value under previous conditions are 30% overvalued now.
It will take amazing luck and skill to take all of ZIRP, NIRP and trillions of dollars of QE out without a negative consequence.
This is now the longest bull market in market history. Where does it go from there? Wesbury: Up. And he is right - every time he says up - except for when it goes down.
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And some of us here have been wrong all the times it went up , , , :-D and that includes me :cry:
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And some of us here have been wrong all the times it went up , , , :-D and that includes me :cry:
http://www.topgunfp.com/brian-wesbury-is-clueless/
Brian Wesbury Is Clueless
May 5, 2009 at 4:16 pm · Category: Sentiment Analysis
Brian Wesbury, Chief Economist at First Trust Advisors and a regular on CNBC, especially The Kudlow Report, has a piece up at Forbes today titled: “The Recession Is Over”:
Now it looks like our V-shaped recovery is underway. When the NBER eventually gets around to declaring the recession end date, we think it will be May 2009.
……
In our view, there are no more shoes to drop.javascript:void(0);
Wesbury is notable mainly for his ability to get everything wrong. Usually, even bad forecasters get something right, even if it is by accident. Not Wesbury.
Here are some excerpts from an editorial he wrote for The Wall Street Journal on January 28, 2008 titled “The Economy Is Fine (Really)” (subscription required):
It is hard to imagine any time in history when such rampant pessimism about the economy has existed with so little evidence of serious trouble.
……
With housing so weak, the recent softness in production and durable goods orders is understandable. But housing is now a small share of GDP (4.5%). And it has fallen so much already that it is highly unlikely to drive the economy into recession all by itself. Exports are 12% of the economy, and are growing at a 13.6% rate. The boom in exports is overwhelming the loss from housing.
…….
Models based on recent monetary and tax policy suggest real GDP will grow at a 3% to 3.5% rate in 2008, while the probability of recession this year is 10%.
……
Yet many believe that a recession has already begun because credit markets have seized up. This pessimistic view argues that losses from the subprime arena are the tip of the iceberg. An economic downturn, combined with a weakened financial system, will result in a perfect storm for the multi-trillion dollar derivatives market. It is feared that cascading problems with inter-connected counterparty risk, swaps and excessive leverage will cause the entire “house of cards,” otherwise known as the U.S. financial system, to collapse. At a minimum, they fear credit will contract, causing a major economic slowdown.
For many, this catastrophic outlook brings back memories of the Great Depression, when bank failures begot more bank failures, money was scarce, credit was impossible to obtain, and economic problems spread like wildfire.
This outlook is both perplexing and worrisome. Perplexing, because it is hard to see how a campfire of a problem can spread to burn down the entire forest. What Federal Reserve Chairman Ben Bernanke recently estimated as a $100 billion loss on subprime loans would represent only 0.1% of the $100 trillion in combined assets of all U.S. households and U.S. non-farm, non-financial corporations. Even if losses ballooned to $300 billion, it would represent less than 0.3% of total U.S. assets.
……
Because all debt rests on a foundation of real economic activity, and the real economy is still resilient, the current red alert about a crashing house of cards looks like another false alarm…… Dow 15,000 looks much more likely than Dow 10,000. Keep the faith and stay invested. It’s a wonderful buying opportunity.
He has no credibility and no shame. I don’t dislike Brian Wesbury as he seems like a nice guy. But he should be held accountable for getting everything wrong. And nobody should pay any heed to his forecasts.
More on this topic (What's this?)
“V†Shaped Recovery? Nah, They Have the Chart Upside Down… (The Cynical Economist, 5/11/09)
You can't really see it on this chart so you'll have to trust me (www.thedailytradingrisk.blogspot..., 9/1/15)
Pounding the Table for a V-Shaped Recovery (Contrarian Profits, 5/5/09)
Read more on Trust, V-shaped recession at Wikinvest
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Monday Morning Outlook
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Labor Market Strength To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/14/2018
The US labor market has rarely been stronger.
Recent figures from the Labor Department show US businesses had a total of 6.550 million job openings in March versus 6.585 million people who were unemployed. That's a gap of only 35,000 workers. By contrast, this gap never fell below 2 million in the previous economic expansion that ended in 2007, and stood at 638,000 in January 2001, at the end of the expansion that started in mid-1991 and ran through early 2001.
Of course, these figures have to be put in context. The measure of unemployed workers doesn't include "discouraged" workers, for example, nor does it include part-time workers who say they want full-time jobs. And it's not like all the unemployed have the skill sets needed for the job openings that are available.
Still, the negligible gap between the number of job openings and the number of unemployed who are pursuing work shows that the demand for labor is intense.
Reports on jobless claims show companies are clinging to their workers. In the past four weeks, the average pace of initial jobless claims has been the lowest since 1969; meanwhile, continuing claims have averaged the lowest since 1973.
And new jobs continue to be created. In the past year, nonfarm payrolls are up an average of 190,000 per month, matching the pace of the year ending in April 2017. As a result of this continued job creation, the jobless rate has dropped to 3.9% in April, the lowest since the peak of the internet boom in 2000.
Assuming a real GDP growth rate of 3.0% this year and next, we think the jobless rate will finish 2018 at 3.7%. That would be the lowest rate since 1969.
Then, in 2019, the jobless rate should drop to 3.2%, the lowest since 1953. Beyond that, continued solid growth could realistically push the jobless rate below 3.0%.
Maybe it's optimism about the labor market that's behind President Trump's recent tick upwards in popularity and the GOP's better performance in the "generic" ballot, which measures whether potential voters are inclined to support Republicans or Democrats in House races this November. Either way, it doesn't seem like an environment that favors a tidal wave of change for the Democrats this fall. The odds of the GOP keeping the House are rising, and the GOP looks more likely to gain Senate seats than lose them.
Although some still bemoan slow growth in wages, April average hourly earnings were up a respectable 2.6% in the past year. And that doesn't include the kinds of one-time bonuses that have become more widespread since the tax cut was enacted in late 2017.
The biggest blemish on the labor market is that the participation rate – the share of adults who are either working or actively looking for work – is still low by the standards of the last forty years. After peaking at 67.3% in early 2000, the participation rate has declined to the current reading of 62.8% in April.
This drop is mainly due to three factors: the aging of the Baby Boom generation into retirement years, overly generous student aid (which has reduced the willingness of young Americans to work), and disability benefits that are too easily available. Hopefully, the coming years will see policymakers find ways to tighten rules on disability while limiting student aid to truly needy students who are taking economically useful coursework.
But even if these changes don't happen, look for more good news – and an even stronger labor market - in the year ahead.
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https://www.ftportfolios.com/Commentary/EconomicResearch/2018/5/21/u.s.-acts-good-things-happen
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https://www.wsj.com/articles/u-s-gdp-growth-revised-down-to-2-2-rate-in-first-quarter-1527683513
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https://www.wsj.com/articles/u-s-gdp-growth-revised-down-to-2-2-rate-in-first-quarter-1527683513
That makes 4 latest quarter growth rate: 2.9%. The news 3 months from now will be GDP growth over 3%, twice the growth rate under Obama:
Average annual GDP growth: 1.48% during Obama's two terms
https://www.zerohedge.com/news/2017-01-27/barack-obama-now-only-president-history-never-have-year-3-gdp-growth
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NYT: "The American economy roared into overdrive last month, delivering the strongest job gains since February. The report underscored other recent signs of strength, like robust personal income and spending data reported earlier this week. The unemployment rate for May was at lows not seen since the heady days of the dot-com bubble."
"...unemployment rate could sink as low as 3 percent by the end of 2019. That would bring it to levels last seen in 1953"
..."“It’s just a matter of time before wages start going up more strongly."
https://www.nytimes.com/2018/06/01/business/economy/jobs-report.html
That has to hurt! This is NOT what Speaker(?) Pelosi wanted to hear. Meanwhile, how are the Hillary-Bernie-NYT policies doing in the Venezuelan test market?
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Doug writes:
"That has to hurt! This is NOT what Speaker(?) Pelosi wanted to hear. "
They will take the fall back position :
What Don Lemon (pun intended on last name) said yesteray :
Trump is benefitting from Obama's economic policies and Obama deserves all the credit "everyone knows that "
He obviously does not realize what a fool he sounds like.
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The ISM Manufacturing Index Rose to 58.7 in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/1/2018
The ISM Manufacturing Index rose to 58.7 in May, beating the consensus expected 58.2. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were all higher in May, and all stand comfortably above 50, signaling growth. The production index jumped to 61.5 from 57.2 in April, while the new orders index rose to 63.7 from 61.2. The employment index increased to 56.3 from 54.2, and the supplier deliveries moved to 62.0 from 61.1 in April.
The prices paid index rose to 79.5 in May.
Implications: In case you missed it, the manufacturing sector is having its best year since 2004. Including May's reading of 58.7, the ISM manufacturing index has averaged a very impressive reading of 59.0 through the first five months of the year, and a look at the details of today's report show the healthy pace of expansion should continue in the months ahead. Similar to this morning's employment report, growth was broad based in May, with sixteen of eighteen industries reporting growth in May (no industries reported contraction).
Meanwhile the two most forward-looking indices - new orders and production – both stand at robust levels in the 60's (remember, levels above 50 signal expansion). In fact, the new orders index has seen readings of 60 or higher for thirteen consecutive months, tying the longest stretch above 60 going all the way back the early 1970's. In other words, the strength in manufacturing isn't a blip on the radar, it's a sustained trend. The employment index rose to 56.3 from 54.2 in April, supporting the gain of 18,000 manufacturing jobs reported in this morning's employment report. And survey respondents suggest that employment would be higher, but for difficulties in finding both skilled and unskilled labor to fill positions. Prices, meanwhile, rose once again in April to a reading of 79.5, the highest since 2011. A total of twenty-two commodities were reported up in price, while none showed declines. Yet another sign (see yesterday's reported on the PCE price index) that inflation is picking up pace as economic growth accelerates, and a signal to the Fed that a total of four rate hikes in 2018 are not just appropriate, but warranted. In addition to a rate hike that is essentially locked in for this month's Fed meeting, look for updates to both the Fed statement and economic projections to show an acknowledgement that both employment and inflation are running ahead of prior forecasts. In sum, it's hard to find much not to like in today's report. In other news this morning, construction spending rose 1.8% in April (and up 2.0% including upward revisions to prior months). For April itself, a surge in home building and a pickup in spending on power projects more than offset a decline in commercial construction (think retailers and wholesalers).
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Is 2020 the Year for Recession? To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/11/2018
According to former Fed Chair Ben Bernanke, the U.S. economy will get a Wile E Coyote surprise in 2020. You know, just when everyone thinks he caught the Roadrunner, Wile notices he has run straight off a cliff, plummets seemingly forever before hitting the bottom in a cloud of dust, and then, just for spite, an anvil lands on his head.
In other words, Bernanke sees a 2020 recession looming. Other analysts are saying it, too. And whenever they do, they get their name in the headlines. Scaremongering attracts attention.
But there is good news here: The Pouting Pundits of Pessimism don't think the crisis starts tomorrow. No longer does some exogenous crisis event – say, Brexit, or Grexit, student loan defaults, etc., – threaten imminent collapse. Now, the recession doesn't happen for another two years.
Another interesting detail: the new problem is that the economy is growing too fast. Remember when analysts used to say, "since the economy is growing less than 2% annually, it means a recession is coming"? Now, Bernanke says the U.S. applied stimulus (in the form of a tax cut) "at the very wrong moment," with the economy already at full employment. In other words, real GDP growth is too strong, so the Fed will over-tighten and a recession is inevitable.
Now we agree that a recession is coming – someday. Recessions are a fact of life, like death and taxes. But predicting one in 2020 - and being right about it – is like reading tea leaves, it's pure chance. No one, and we mean no one, can honestly see that far in the future – not with the clarity expressed by these dated forecasts.
No one knows exactly what the Fed will do, not even the Fed. Let's say they follow their forecasts, raising fed funds to 3.5% in 2019. That alone doesn't tell us if policy is "tight."
While most recessions are caused by an excessively tight Fed, we don't think the Fed is too tight until it drives the federal funds rate close to, or above, the rate of growth in nominal GDP. Over the past five years, nominal GDP has averaged about 3.9%. Which means if the Fed were to raise the funds rate by 0.25% three more times in 2018 and four times in 2019 (reaching 3.5%), and if nominal growth slowed to 3.5%, the Fed would be tight at that point. A recession would be possible.
However in the past year, nominal GDP growth has accelerated to 4.7%, and next year it could be as high as 6%. That means a 3.5% federal funds rate would not be restrictive. The Fed would have to raise rates faster and farther than any forecast we have seen in order to be "tight" going into 2020. At the same time, there are still at least $1.9 trillion in excess bank reserves. Until those reserves are eliminated, no one knows if raising rates can actually cause a recession.
We do have one major worry. Government spending is rising rapidly, and the deficits this spending creates will put pressure on politicians. If they were to raise tax rates, this could cause potential problems for U.S. growth.
But the bottom-line remains: the U.S. is not facing an imminent threat. That's why doom and gloomers have shifted to forecasting future recessions, not looming crises. But we think it's not going to be the economy that gets an anvil on its head in 2020. More likely, it'll be investors who believe in the recession forecast.
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Personal Income Rose 0.4% in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/29/2018
Personal income rose 0.4% in May, matching consensus expectations. Personal consumption increased 0.2% in May (+0.1% including revisions to prior months), lagging the consensus expected rise of 0.4%. Personal income is up 4.0% in the past year, while spending is up 4.6%.
Disposable personal income (income after taxes) rose 0.4% in May and is up 4.0% from a year ago. The gain in May was led by private-sector wages and salaries and dividend income.
The overall PCE deflator (consumer prices) rose 0.2% in May and is up 2.3% versus a year ago. The "core" PCE deflator, which excludes food and energy, also rose 0.2% in May and is up 2.0% in the past year.
After adjusting for inflation, "real" consumption was unchanged in May but is up 2.3% from a year ago.
Implications: While comfortable May weather held down consumer spending on utilities, incomes continued to rise. Personal income rose 0.4% in May, led by private-sector wages and salaries and dividend income. Incomes have seen a healthy 4.0% gain over the past twelve months, while disposable (after-tax) income is also up 4.0% in the past year, matching the largest twelve-month increase since 2015. On the spending side, personal consumption increased 0.2% in May and is up 4.6% in the past year. In recent years consumer spending has been growing faster than incomes, leading to concerns that consumers may be digging themselves into a financial hole. But it's important to put this into perspective. While consumer debt has risen to a record high in dollar terms, consumer assets have grown faster, so liabilities continue to decline relative to household assets. Meanwhile the financial obligations ratio – which compares debt and other recurring payments to income – remains near multi-decade lows. In other words, consumers still have plenty of room to increase spending. One of the best pieces of news in today's report is that government transfers continue to grow at a slower pace than overall income. So while government transfers are up 3.6% in the past year, total income has grown at a faster 4.0% over the same period (and private sector wages & salaries have risen 5.3%!), transfer payments are making up a smaller – though still too high - portion of income. On the inflation front, the PCE deflator rose 0.2% in May and is up 2.3% in the past year. More important is that "core" prices, which exclude food and energy, are up 2.0% in the past year, the first time the core index has touched 2.0% on a twelve-month basis in more than six years. In other words, the Fed looks set to be tested sooner, rather than later, on how they will react as PCE prices breach their "symmetric" inflation target. On the manufacturing front, the Chicago PMI, which measures manufacturing sentiment in that region, rose to 64.1 in June from 62.7 in May. Look for another strong reading of about 58.7 in Monday's national ISM Manufacturing report, showing robust growth in the factory sector.
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Real GDP Growth in Q1 was Revised to a 2.0% Annual Rate To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/28/2018
Real GDP growth in Q1 was revised to a 2.0% annual rate from a prior estimate of 2.2%, coming in slightly below the consensus expected 2.2%.
The downward revision was due to smaller net exports and inventories, along with a smaller gain in personal consumption. Business investment was revised slightly higher.
The largest positive contributions to the real GDP growth rate in Q1 came from business investment and consumer spending.
The GDP price index was revised higher to a 2.2% annual rate. Nominal GDP growth – real GDP plus inflation – was unchanged from the prior estimate of 4.2%. Nominal GDP is up 4.7% versus a year ago.
Implications: Today's "final" GDP report for the first quarter showed a slower pace of economic growth but higher corporate profits compared to prior readings. Real GDP grew at a 2.0% annual rate in Q1 versus last month's estimate of 2.2% and the initial reading of 2.3%. The downward revision was due to a smaller inventory build than originally expected, lower net exports, and slower growth in consumer spending on services. Business investment was revised higher, growing at a 10.4% annual rate, the fastest growth since Q3 2014. Meanwhile, economy-wide corporate profits were revised up by 2.4%, and now show a 1.8% gain in Q1 from Q4. Corporate profits are up 6.8% from a year ago. Plugging the new profits data into our capitalized profits model suggests US equities remain cheap, not only at today's interest rates but even using a 10-year Treasury yield of 3.5%. And while corporate profits data are reported with a lag, we expect that tax reform and regulatory relief will be a tailwind for profits in the quarters ahead. In terms of monetary policy, nothing in today's report suggests we should change our forecast that the Federal Reserve will raise rates again in September and December, and four times in 2019. Nominal GDP – real GDP growth plus inflation – grew at a 4.2% annual rate, easily outpacing a short-term interest rate target of 1.75% to 2.00%. The Fed is nowhere near tight and needs to continue to raise rates. In other news this morning, initial jobless claims rose 9,000 to 227,000. Continuing claims declined 21,000 to 1.71 million. These figures suggest another month of solid job creation in June.
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Economic growth surged in the second quarter this year. The only question is, by how much?
Predicting this Friday's GDP report is trickier than usual. First, it's the initial report for the quarter. Second, we have to wait until Thursday for key data on exports and imports, which is particularly important because the trade sector looks to have had an unusually large influence on second quarter growth. And third, this is the release each year where the government goes back several years and makes revisions to its methods and calculations.
Over recent years, GDP releases have suffered from problems with "seasonality." For example, over the past eight years, real GDP has grown at a 2.2% annual rate. But the average annualized growth rate in the first quarter each year has been 1.3%, while the second quarter has averaged 2.8%. The government is supposed to apply seasonal adjustments to make sure normal winter weather doesn't artificially drive down GDP growth, but apparently those adjustments haven't been working.
So what happens if the government fixes this problem, resulting in upward revisions to Q1 growth rates and slower growth rates in Q2? We have no way of knowing if the government plans to tweak their methodology and, if so, by how much. As a result, our forecast faces atypical risks.
All that said – and keeping in mind that we might make adjustments when we get Thursday's data on durable goods, inventories, and trade – our forecast for real GDP growth in Q2 stands at 4.8%. If so, and assuming no net revisions to recent quarters, real GDP growth would be at a 3.4% annual rate so far this year and 3.2% in the past year.
Here's how we get to 4.8%:
Consumption: Automakers reported car and light truck sales declined at a 1.4% annual rate in Q2. Meanwhile, "real" (inflation-adjusted) retail sales outside the auto sector grew at a 6.0% annual rate. However most consumer spending is on services, and growth in services was moderate. Our models suggest real personal consumption (goods and services combined), grew at a 3.2% annual rate, contributing 2.2 points to the real GDP growth rate (3.2 times the consumption share of GDP, which is 69%, equals 2.2).
Business Investment: It looks like another quarter of solid growth, with commercial construction growing at a 10% annual rate, equipment investment growing at about a 2% rate, and intellectual property growing at a trend rate of 5%. Together, that means business investment grew at a 4.5% rate, which should add 0.6 points to real GDP growth. (4.5 times the 13% business investment share of GDP equals 0.6).
Home Building: Residential construction paused in Q2, although we think the recovery in this sector will pick right back up in Q3. For the time being, though, the sector will have no impact on the real GDP growth rate.
Government: Both public construction projects and military spending were up in Q2. As a result, it looks like real government purchases rose at a 1.8% annual rate, which would add 0.3 points to the real GDP growth rate. (1.8 times the government purchase share of GDP, which is 17%, equals 0.3).
Trade: At this point, we only have trade data through May. Based on what we've seen so far, net exports should add 1.2 points to the real GDP growth rate. However, an advance glimpse at June trade figures arrives Thursday, which could shift this key estimate up or down.
Inventories: We're also working with incomplete figures on inventories. But what we do have suggests companies were accumulating inventories more rapidly in Q2 than in Q1. This should add 0.5 point to the real GDP growth rate.
Add it all up, and we get 4.8% annualized growth. The Plow Horse economy is dead. That doesn't mean we're in a boom like the mid-1980s or late 1990s, but tax cuts and deregulation have finally killed off the plodding roughly 2% growth rate of 2010-2016.
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"Our forecast for real GDP growth in Q2 stands at 4.8%."
Wow!
Did anyone see this coming? :wink:
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No Recipe for Weak Housing To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/6/2018
Something strange happened after last Friday's jobs report - the yield on the 10-year Treasury Note fell, finishing Friday at 2.95%, down four basis points from Thursday's close. To us, this makes no sense. If anything, it serves to reinforce our view that the bond market is making a big mistake.
Yes, we realize that July nonfarm payrolls (at +157,000) were lighter than the consensus expected 193,000. But, as we wrote in our Data Watch, May and June were revised upward by a total of 59,000. In other words, July payrolls were 216,000 higher than the Labor Department estimated in June. If we assume these new workers make the average weekly wage, that equals $10.5 billion more in annualized earnings for American workers (216,000 x $933.23 x 52) – in just one month!
Meanwhile, civilian employment (an alternative measure of jobs that includes small-business start-ups) rose 389,000 in July, helping push the jobless rate down to 3.9%. Even more impressive, the U-6 unemployment rate - what some people refer to as the "true" rate, which includes discouraged and marginally-attached workers as well as and those with part-time jobs who say they want full-time work - fell to 7.5%, the lowest reading since 2001.
The Hispanic unemployment rate dropped to 4.5% in July, the lowest on record dating back to the early 1970s. At 6.6%, the black jobless rate was not at a record low, however, these figures are volatile from month to month and have averaged 6.9% in the past year, the lowest 12-month average on record. Notably, the unemployment rate among those age 25+ who never finished high school is 5.1%, also the lowest on record dating back to the early 1990s. You sensing a trend?
Put it all together and we see plenty of reasons to be optimistic about economic growth in the third quarter. It's early, but right now we're tracking 4.5% real GDP growth in Q3, which would boost the year-over-year increase to 3.3%. Some analysts tried to discount the growth in the second quarter because of a surge in exports, but we think the more important quirk in Q2 was that companies reduced inventories at the fastest pace since 2009. A return to a more normal pace of inventory accumulation means a large boost to growth in Q3, more than offsetting any impact from trade.
The conventional wisdom just can't wrap their collective heads around the idea that tax cuts and deregulation are truly boosting underlying growth. And, like much of the previous nine years, keep looking for a reason to be bearish about the economy. This time they think housing will collapse. After all, housing starts fell in June, so did new home sales, and existing home sales have fallen for three straight months.
That said, it's too early to rule out that this is simply statistical noise. These figures will go through some quite substantial revisions in the months and even years ahead. The softness could be completely revised away.
And remember, home building is still below fundamental levels, based on population growth and scrappage. The US has about 138 million housing units, so annual population growth of 0.7% per year suggests we need to build about 950,000 new housing units per year (0.7% of 138 million). Add to that homes replaced due to scrappage (voluntary knock-downs, fires, floods, hurricanes, tornadoes) and the 1.25 million housing starts of the past year simply isn't enough.
Finally, while higher mortgage rates would pose a problem for homebuyers if everything else were unchanged, that's not the case. Mortgage rates have moved higher because of faster anticipated economic growth. In that environment, mortgage rates should be higher, and home-buying should move higher as well. An economy with 3% real GDP growth and a jobless rate below 4% is going to create more buyers than the Plow Horse economy that prevailed from mid-2009 through the start of 2017.
In spite of our optimism, one of the things we know for sure about the next couple of years is that, from time to time, one part of the economy (or more) will lag others. We expect the pouting pundits to use that weakness to predict doom and gloom. We can't prove they will be wrong, just like we can't "prove" the sun will come up tomorrow. But, for the past nine years we've disagreed with the pessimism, and we still do. The economy - and housing - will continue to grow.
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The Kevlar Economy To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/13/2018
Since March of 2009, the predictions of economic, and stock market collapse have been non-stop. Doom-and-gloomers have been unrelenting. And it's doubly frustrating since you can't disprove a negative until it doesn't happen.
We have written hundreds of pieces since the recovery - and bull market – began, arguing that the pessimism was unjustified. We've argued that Brexit, Grexit, resetting ARMs, student loans, government debt, Obamacare, no QE4, tapering,...etc., would not stop growth. The doomsayers have been wrong. Constantly. For our troubles we get labeled "perma-bulls", despite our arguments proving true. Meanwhile, the "perma-bears" have never had to answer for their fallacious forecasts.
Now they're talking Turkey, tariffs, a strengthening dollar, China selling US debt, Fed rate hikes. They never give up. But, we still aren't worried.
The United States, for the time being, is a Kevlar economy. It's practically bulletproof. By allowing other counties to maintain higher tariffs, America, the world's biggest consumer, has helped those countries grow. By holding corporate tax rates higher than most other countries, the US has subsidized non-US growth.
But under new management, the self-sabotage is being eliminated. Cutting corporate tax rates and reducing regulation have made the US more competitive. No, we are not ignoring the negative impact of tariffs on some US producers and consumers, but tariffs hurt foreign countries more than they hurt America.
Countries without the Constitutional rule of law, property rights and true free markets need foreign help to grow. The US is removing some of that help in making itself more competitive. As a result, the US will continue to grow, while other countries suffer a loss of investment and sales. Once again doomsayers will be proven wrong.
Yes, it's true that a slowdown in the growth of other countries can impact corporate earnings, or even have some impact on US growth, but the damage will not be nearly as great as the pouting pundits proclaim. We still forecast 3%+ real GDP growth over the next few years, along with continued jobs growth and the lowest unemployment rate in decades.
Doomsayers, take note. There are five real threats to prosperity: 1) Excessively tight Fed policy. 2) Excessive government spending. 3) Excessive regulation. 4) Tax Hikes and 5) Trade protectionism.
Right now, the Fed is not tight, far from it. Government spending is too high, that's why growth isn't even higher. The Regulatory environment is improving. Tax rates have been cut and are not likely to be hiked anytime soon. Finally, tariffs are going up, but by a much smaller amount than taxes were cut. We also do not expect a protracted trade war because that would harm other countries much more than the US. Ultimately, we expect deals to bring tariffs down.
In other words, of the five threats, two are negatives (with trade likely to turn) and three are positives – and don't forget new and unbelievably positive technologies! Someday, a recession will happen again, but for now the Kevlar economy will only get stronger.
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http://scottgrannis.blogspot.com/2018/09/chart-of-shame.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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second post
https://www.ftportfolios.com/Commentary/EconomicResearch/2018/9/4/the-kevlar-economy
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Get Ready for the Next Financial Crisis
The post-2008 fixes piled on more debt. And when rates rise and credit turns, equity won’t be far behind.
53 Comments
By Daniel J. Arbess
Sept. 14, 2018 6:08 p.m. ET
A financial-news update in London, Sept. 15, 2008.
A financial-news update in London, Sept. 15, 2008. Photo: Getty Images
It’s the 10th anniversary of the Lehman Brothers debacle. Do we need reminding that debt crises take place when markets underwrite and buy too much bad debt? Yes.
The 2008 crisis was clearly visible before it struck. So is the next one. The short-term fixes produced by America’s broken political system failed miserably to reduce debt. Instead they substantially increased, nationalized and redistributed it—from household mortgages to sovereign, corporate and consumer balance sheets. We may be about to experience the consequences of piling on more debt to solve a debt crisis.
Anyone who followed housing markets could see what was coming a decade ago. Speculators with the lowest credit scores were buying more homes than they cared to occupy—financed with deferred interest and sometimes no money down. Those mortgages were securitized, pooled together in CDOs, “collateralized debt obligation” funds that issued small slices of equity leveraged with huge debt tranches backed by pools of mortgages.
Investors in CDO debt couldn’t know the credit risk they were assuming. How could they perform due diligence on thousands of mortgages? Fund sponsors and placement agents reassured investors and credit-rating firms that “housing prices never go down, so mortgages don’t default.” One Wall Street participant recently told me that Moody’s “stress case” assumed home prices would rise “only” 4% to 5% annually.
Buying credit-default-swap protection to short this assumption was nearly free (19 basis points for supersenior AAA-rated bonds), probably the most asymmetric trade ever. I know, because the Xerion hedge fund I managed did it in 2006, applying lessons learned in structured finance asset management, when we were offered and declined the opportunity to sponsor and manage one of the first mortgage-backed CDOs in 1998.
Wall Street firms started out serving their traditional and essential purpose of intermediating capital during the mortgage boom. But when yield-seeking institutions filled their capacity for mortgage CDO notes, the bankers convinced their firms to warehouse the leftovers on their own balance sheets to keep the gravy train of placement revenues on the tracks. Managements bought the bankers’ never-default narrative, and the financial system paid the price.
Investor appetite, and the industry’s legitimacy, ultimately relied on investment-grade ratings for the CDO notes conferred by government-certified credit-rating firms Moody’s, Fitch and Standard & Poor. But they were hired by the placement agents and fund sponsors. Guess how much independent work did they did, and on whose models they relied?
A sophisticated few CDO investors wisely laid off the risks for a nominal fee to regulated insurers like AIG and financial-guarantee insurance companies such as MBIA and AMBAC. Some “first loss” investors in CDO equity even cleverly hedged by shorting notes senior to their position. It was free money for everyone—until it wasn’t. When Lehman was left to fail, the ensuing contagion and panic left the Fed and other sovereign balance sheets as the lenders of last resort.
Decision-making leadership across society has great technical expertise. Its incentives are another question. But the finance industry’s market discipline maximizes efficiency, aiming to produce the most revenue at the lowest cost. That led professionals throughout the system—sponsors, placement agents, credit-rating firms and investors—to take the easy way out. Nobody bears specific responsibility for the last crisis. Everyone does: It was an entire industry ecosystem built on mindless heuristics, shortcuts and failures of common-sense investment diligence.
Talented Fed and Treasury leadership saved the day. Congress, paralyzed by partisan bickering, failed. It barely managed to enact the triage of the Troubled Asset Recovery Program, authorizing the Treasury to purchase defaulted bonds. Then it spent years blaming and vilifying “Wall Street,” only to restrict its critical market-making and liquidity-providing functions while leaving the credit-rating firms and their conflict-laden model untouched. Lawmakers achieved nothing else meaningful in the eight following years.
The Obama White House did rescue the car industry, but only by impairing senior secured creditors and enriching the unions, which were subordinated unsecured creditors, with billions of dollars in equity, repudiating decades of basic bankruptcy law. The main burden of post-crisis government response fell by default to the Federal Reserve.
At least the Trump administration has moved on to reducing business regulations and cutting corporate tax rates, giving American companies an incentive to repatriate and invest overseas profits, a chance to do more than buy back stock with the savings. Call it fiscal easing. This should help the innovative, small businesses that create most of the economy’s new jobs. But it won’t be enough; Trump fiscal easing will probably be remembered as another kick-the-can palliative, paid for by adding trillions to the national debt.
In the past decade, total global debt (sovereign, corporate and household) has spiked nearly 75%. This includes a doubling of sovereign debt, from $29 trillion to $60 trillion, according to a recent McKinsey report. Total corporate debt increased by 78% over the same decade, to $66 trillion. Bank loan volumes have been stable, although low-quality “covenant lite” loans have dominated. Bond markets have filled in, with nonfinancial bonds outstanding up 172%, from $4.3 trillion to $11.7 trillion. McKinsey says 40% of U.S. companies are rated one notch above “junk” or lower, and the Bank for International Settlements estimates 10% of legacy companies in the developed world are “zombies,” meaning earnings before interest and taxes don’t cover interest expenses.
This is what zero interest rates and quantitative easing have wrought—more debt and lower credit quality. Yield-starved investors were happy to look the other way and refinance dubious credits so long as rates were low and they had no better alternative. Small wonder central banks are glacially unwinding their balance sheets and raising rates. But higher rates are coming, possibly heralding a tsunami of credit defaults. Why should that be in this disinflationary environment, when software and service technologies are displacing capital and labor from industry and keeping costs low? Simply: more supply, and declining demand for U.S. Treasurys, whether the Fed raises policy rates or not.
The U.S. owes $21.5 trillion of Treasury debt, the majority of which is scheduled to be refinanced in the next eight years, disregarding the additional $1 trillion required by the 2017 tax reform and an estimated $100 trillion of unfunded entitlement spending ahead. The Fed still owns $2.324 trillion it bought from banks as part of quantitative easing, which will need to be refinanced at maturity. Foreign sovereigns own $6.5 trillion, 40% of which is in the hands of China, Japan and Saudi Arabia.
China and Japan are increasingly refinancing their own debt. As China continues its transition from exports to domestic consumption and buys its oil in its “petro yuan” straight from Saudi Arabia, while the U.S. buys less Saudi oil, Riyadh and Beijing have less appetite for U.S. Treasurys. Finally, the European Central Bank’s anticipated policy normalization suggests Europe too will be competing with the Fed for buyers in sovereign refinancing markets. Is it prudent to assume that private institutions will pick up the slack?
Cautious as the Fed may be about raising short-term interest rates, and even should economic growth naturally slow as the one-time spike of fiscal easing subsides, supply-demand dynamics suggest the “belly” of the U.S. Treasury curve is headed higher. If the 10-year Treasury, the reference rate for corporate bonds, surpasses 3.25%, much less approaches its long-term average yield of 4.5%, “lend and pretend” refinancing could stop cold.
When credit turns, stocks have never been far behind. The longest-ever bull market may be closer to ending than we think—and that could be the least of our problems.
Mr. Arbess is CEO of Xerion Investments.
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The Growing Deficit To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/17/2018
The U.S. federal government reported last week that it ran a deficit of $214 billion in August, the fifth largest deficit for any single month in US history.
The Congressional Budget Office thinks these numbers are consistent with a budget deficit of about $800 billion for Fiscal Year 2018, which ends September 30. If so, that would be the largest annual deficit in raw dollar terms since FY 2012. This deficit is roughly 4.0% of GDP, which would be the highest since FY 2013.
For many, this growing deficit is a dagger to the heart of the tax cut enacted in late 2017. They say the tax cut was irresponsible. However, economic growth has picked up because of the tax cut, and growth is the key to higher fiscal receipts down the road – in fact tax receipts are still hitting record highs.
Between 2010 and 2017, the U.S. passed two large tax hikes, yet the deficit was still $665 billion in FY 2017, which was not exactly a model of fiscal purity. As a result, we call "politics" on all those now fretting about deficit spending only when a tax cut is involved.
It's important to recognize that the tax cut has, so far, reduced revenue compared to how much the federal government would have collected in the absence of the tax cut. But, total federal receipts are likely to end the current Fiscal Year up slightly from last year and at a record high. Next year, according to the CBO, revenue should be up 4.6% and at another record high.
In other words, the tax cut didn't lead to an outright reduction in revenue, it just slowed the growth of revenue.
Spending is the problem. Total federal spending will rise about 4% this year and is scheduled to rise about 8% next year. In spite of an acceleration in economic growth, government spending is rising faster than GDP.
While this is a long-term problem, it will not turn the U.S. into Greece overnight. No fiscal crisis for the nation is at hand. Last year, net interest on the federal debt amounted to 1.4% of GDP. The Congressional Budget Office projects that net interest will hit 2.9% of GDP before some of the tax cuts theoretically expire in the middle of the next decade.
That is a large increase, but net interest relative to GDP hovered between 2.5% and 3.2% from 1982 through 1998. The U.S. paid this price and the economy still grew more rapidly than it has in the past decade. The U.S. didn't become Greece.
Compare two economies of equal size. One spends $500 billion, but with zero taxes, the other spends $2 trillion, but taxes $1.5 trillion. Both have $500 billion deficits, but the first economy would be more vibrant and could finance the debt more easily. It's not that deficits don't matter, but deficits alone are not a reason for investors to run for the hills.
And when deficits are partly caused by more federal spending on interest payments you know who will hate it the most? The politicians.
Here's why. Politicians like to deliver things their constituents are grateful for, things that make voters more likely to vote for them rather than someone else. Tax cuts help politicians get more votes, at least from those who actually pay taxes. Government programs can also help incumbents corral votes. Pass out government checks and you can get more votes, too. But bondholders have no gratitude for politicians when they receive the interest they're owed on Treasury securities.
Higher net interest payments will eventually "crowd out" future tax cuts and government programs, making it tougher for incumbents to get re-elected. As net interest payments rise, more politicians will start obsessing about the deficit again, just like in the 1980s and 1990s.
The true threat to long-term fiscal health is spending. If left unreformed, entitlement programs like Social Security, Medicare, and Medicaid will take a ceaselessly higher share of GDP, leading to a larger and larger share of American production being allocated according to political gamesmanship rather than individual initiative, in turn eroding the character of the American people.
Unless we change the path of spending, last year's tax cuts - and the boost to economic growth they've already provided - risk getting overwhelmed in the long run. But, for investors, this isn't an immediate problem. After all, deficit fears have been around for decades and equities still rose. Stay bullish, for now.
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https://www.frbatlanta.org/cqer/research/gdpnow.aspx
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2018 is 4.1 percent on October 1,
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Average annual GDP growth: 1.48% during Obama's two terms
https://www.zerohedge.com/news/2017-01-27/barack-obama-now-only-president-history-never-have-year-3-gdp-growth
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I thought this quarter was supposed to drop to the low 3s because the 4.2 number of the previous quarter included purchases made to get in ahead of the tariffs?
In other words this is really big news if accurate?
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I thought this quarter was supposed to drop to the low 3s because the 4.2 number of the previous quarter included purchases made to get in ahead of the tariffs?
In other words this is really big news if accurate?
The first version of the so called real number for GDP growth will come out sometime between now and the election but this is probably the best estimate to use in the meantime.
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Market corrected because of ... ...
what? Interest rate fears? Overheated economy, tightening recession coming? I don't buy it.
Election fear of a Democratic house? That makes more sense to me but the timing doesn't match the polling.
Scott Grannis guesses that it's just a panic attack, something short of a correction which is more like 10%, and he says that is healthy.
http://scottgrannis.blogspot.com/2018/10/just-another-panic-attack.html?m=1
It is healthy in the sense that it shakes out all the people who feel the market is overvalued until those who feel it's undervalued or accurately valued become the larger force.
In other words, a market being a market.
Regarding potential structural reasons, the economy is not overheating. The Atlanta fed raised its third-quarter GDP growth estimate to 4.2% on October 10th. The workforce participation rate is still expanding, we are still adding jobs. Wage growth in tune with productivity growth plus a 2% inflation adjustment. The tariffs care is real but we have a new North American agreement and China is becoming more and more isolated. China's economy is 6 times more vulnerable to the trade war. China's Leverage of the u.s. midterms vulnerability will soon be in the rearview mirror. At some point it's in both countries interest to settle the differences and free trade will blossom on both sides of the Pacific.
Reasons to be pessimistic are about the lowest of the last 12 years.
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https://www.wsj.com/articles/u-s-is-worlds-most-competitive-economy-for-first-time-in-a-decade-1539727213?fbclid=IwAR3azj2hPkGRLSAZ3pYclBJcfTFv0WggNdna9GLrskOCq3I98e578WaH5O0
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Is 3Q GDP number out yet?
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"Is 3Q GDP number out yet?"
Look for the first release on Oct 26 at 8:30am.
BEA Gross Domestic Product (advance estimate) Q3 2018 October 26, 2018 8:30
BEA Gross Domestic Product (second estimate) Q3 2018 November 28, 2018 8:30
BEA Gross Domestic Product (third estimate) Q3 2018 December 21, 2018 8:30
https://www.commerce.gov/page/2018-release-schedule-economic-indicators
Current estimate at Atlanta Fed GDP Now is 3.8%.
https://www.frbatlanta.org/cqer/research/gdpnow.aspx
Down a little from the last post but still 2 1/2 times the growth rate of the entire Obama administration.
At more than double the growth rate, we have barely begun to drain the swamp and lower the cost and burden of government.
Too bad neither party and no states are proposing to make significant further reforms. With a popular mandate we could make this country great again.
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If you ask the Left the answer is always we need more taxes
If you ask the Right the answer is tax cuts and grow the economy
Neither alone works
we are doomed
thats is it.
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If you ask the Left the answer is always we need more taxes
If you ask the Right the answer is tax cuts and grow the economy
Neither alone works we are doomed
that is it.
Raise taxes means kill the goose.
Lower tax rates can only be part of a strategy. As we grow the economy, we must move people off of dependency on the government, food stamps, housing, and especially health care. Must also move their thinking off of dependency on the government. Then must convert that to winning elections and lowering spending.
50% of people receiving a check or subsidy from the government is NOT any kind of focus on helping those in the very most need. It is something else, social engineering and vote buying. It screws up incentives and disincentives, up, down and sideways in the economy. Free money, free sh*t is stupid thinking. You get this subsidy. It's not even paid for. And your kids won't be stuck with the tab? How so? Your debts will be wiped out in the bankruptcy of our country and we have a major political party and half the people supporting that?
Government spending, a symbol of government running our lives, is the problem. Entitlements. Put unnecessary government regulations and mandates right there with spending. Moving us toward sameness and trickle up poverty. From hunger to brain cancer to pollution, all problems are more easily and more likely solved with prosperity.
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Same as with Reagan
cut taxes while increasing the military budget while not holding down any spending (even NPR can't be cut for goodness sakes)
and VIOLA - deficit soars
Only difference is this time Repubs controlled the Houses.
As I said we will never see another tax cut in my lifetime. When Dems retake the House ballgame over.
https://www.breitbart.com/politics/2018/10/17/donald-trump-urges-cabinet-members-to-deliver-five-percent-cuts/
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Trump's Economy Is Creating Factory Jobs 10 Times Faster Than Obama's
"In the 21 months since his inauguration, President Trump's deregulatory policies and historic tax cuts have led to a manufacturing resurgence, with 396,000 jobs added. In fact, the pace of manufacturing job growth over the past 21 months of President Trump's leadership is more than 10 times that of President Obama's last 21 months in office."
https://www.investors.com/politics/commentary/trumps-economy-creating-manufacturing-jobs/
Or as young voters and other Democrats might say to this 10-fold increase: whatever.
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https://www.cnbc.com/2018/10/26/first-read-on-us-q3-2018-gross-domestic-product.html
US ECONOMY
The US economy grew at a 3.5% pace in the third quarter, faster than expected
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Faster than WHO expected??
"During the presidential campaign, Trump promised growth of 3.5% a year"
http://www.latimes.com/business/hiltzik/la-fi-3percent-20170519-story.html
"Making up the difference from 2% to more than 3% looks like a pipe dream."
"High rates of growth, and the productivity that drives it, are likely distant memories from a bygone era."
Northwestern's Robert J. Gordon, "U.S. GDP's best years are behind it."
The only place one can find confidence about a growth rate of 3%-plus is inside the Trump administration, where Treasury Secretary Steven Mnuchin says it's "very achievable."
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https://www.businessinsider.com/trump-3-gdp-growth-plan-makes-no-sense-2017-2
Feb. 27, 2017, 1:48 PM
Three percent GDP growth. Three percent GDP growth. Three percent GDP growth.
Get it stamped on your brain. Get it tattooed somewhere. Have some T-shirts made, because this is team Trump's goal for the economy. In a time of extreme policy confusion, 3% GDP growth is one of the only firm targets we have to hang onto.
The problem is that in interview after interview, Donald Trump and his surrogates have demonstrated that they have no idea how to get there.
Chief White House Economic Adviser Gary Cohn has also talked about the magic path to 3% GDP growth, mostly saying that tax reform and deregulation would get us there. Treasury Secretary Steven Mnuchin said the target was "very achievable" and spouted the same lines.
Business Insider: "Unfortunately, that's not how GDP growth works."
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https://www.pbs.org/newshour/politics/watch-live-president-obamas-town-hall-in-elkhart-indiana
President Obama: Trump lacks ‘magic wand’ to grow economy
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https://www.politifact.com/truth-o-meter/article/2017/may/26/why-economists-are-skeptical-us-can-grow-3-percent/
Politi"Fact"
"Why economists are skeptical that U.S. can grow by 3 percent"
...
"So do economists really think that 3 percent growth is no longer feasible? Basically, yes."
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Crafty_Dog posted Feb 2018 in Political Economics thread
Harvard Economist & Obama Chairman of Council of Economic Advisors
« Reply #1724 on: February 16, 2018, 04:15:47 AM »
As Boomers Go Gray, Even 2% Growth Will Be Hard to Sustain
Hoping for 3% or more is folly. The fundamentals—people and productivity—seem unlikely to provide it.
By Jason Furman
https://dogbrothers.com/phpBB2/index.php?topic=1467.msg108819#msg108819
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US GDP growth rate was 1.6% during President Obama's last year in office and averaged 1.48% over his two term presidency. More than doubling the growth rate of the world's largest economy in history is a BFD.
https://www-cbsnews-com.cdn.ampproject.org/v/s/www.cbsnews.com/amp/news/u-s-economic-growth-slowed-in-2016-to-1-9/?amp_js_v=a2&_gsa=1&usqp=mq331AQECAFYAQ%3D%3D#referrer=https%3A%2F%2Fwww.google.com&_tf=From%20%251%24s&share=https%3A%2F%2Fwww.cbsnews.com%2Fnews%2Fu-s-economic-growth-slowed-in-2016-to-1-9%2F
https://www.zerohedge.com/news/2017-01-27/barack-obama-now-only-president-history-never-have-year-3-gdp-growth
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[Doug] I ask my liberal friends: "Are you for or against economic growth?"
They think this is a stupid or trick question, but it isn't. They are voting against pro-growth policies and voting for anti-growth policies, over and over, up and down the ballot. They either are against growth or have other priorities ahead of growth - but those other priorities like full employment, affordable-this and affordable-that, or even funding big government don't work out so well without economic growth.
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Great employment report came out as the last economic news before the election.
https://www.bls.gov/news.release/empsit.nr0.htm
Other than Trump tweeting and Trump rallies, just horrible messaging by the Republicans. Why can't they get a coherent message out? Challenge the voter, are you for or against economic growth? It really is that simple. Do you want your children and grandchildren to grow up in a prosperous country or to live in decline?
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Real GDP Grew at a 3.5% Annual Growth Rate in Q3 To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/28/2018
Real GDP grew at a 3.5% annual growth rate in Q3, matching the initial estimate as well as consensus expectations.
Business investment and inventories were revised higher, but offset by downward revision to consumer and government spending, residential investment, and net exports.
The largest positive contributions to the real GDP growth rate in Q3 were personal consumption and inventories. The largest drag was net exports.
The GDP price index increased at a 1.7% annual growth rate, matching the prior estimate. Nominal GDP growth – real GDP plus inflation – was revised up to a 5.0% rate from a prior estimate of 4.9%.
Implications: Hold off on the GDP data for a second, because this morning's first look at corporate profit growth in the third quarter is the real headline. Pre-tax corporate profits rose 3.4% in the third quarter - the fastest quarterly growth rate since Q2 2014 – and are up 10.3% in the past year, the largest four-quarter increase since mid-2012 (and thanks to the tax cuts, after-tax profits are up nearly 20% in the past year). Plugging this data into our capitalized profits model puts our estimate of "fair value" for the S&P 500 at 3,614, or roughly 35% above yesterday's closing value. Even if the 10-year Treasury yield (the denominator in our model) rose to 3.5% today, the market would still be undervalued by nearly 20%. In other words, the correction we have seen since mid-September is emotional, not logical, and we expect markets to move higher in the months ahead. With that out of the way, on to the GDP data. Real GDP growth in the third quarter showed no net change from the first to the second estimate, staying at 3.5%. The best news in today's report was the upward revision to business investment to a 2.5% annual rate from an initial estimate of 0.8%, while the government spending estimate was revised lower. Inventories were also revised higher, helping to offset a decline in consumer spending, but not something that can be relied upon for sustained growth. We like to follow "core" real GDP, which excludes inventories, government purchases, and international trade. Inventories and government don't generate long-term growth, while the way trade is counted does a bad job of showing that rising imports signal strong spending. Core GDP grew at a 3.2% annual rate in Q3 versus a prior report of 3.1% and is up at a healthy 3.5% in the past year. Nominal GDP growth (real growth plus inflation) was revised to 5.0% annual rate in Q3 from a prior estimate of 4.9%. Nominal GDP is up 5.5% in the past year and up at a 4.8% annual rate in the past two years. All of these figures suggest the economy can sustain higher short-term interest rates, but the question looms whether the Fed will stick to its guns or blink in the face of market volatility. All eyes will be on the December FOMC meeting – where a hike looks nearly certain - for a clearer picture on the path of rates in 2019. In other recent news, the national Case-Shiller index shows home prices up 0.4% in September. In the past year prices are up 5.5%, a deceleration from the 6.0% gain in the year ending in September 2017. The major city with the fastest price growth, by far, was Las Vegas, up 13.5% from a year ago. Meanwhile, the FHFA index, which measures prices for homes financed by conforming mortgages, rose 0.2% in September and is up 6.0% from a year ago. That's a deceleration from the 6.7% gain in the year ending in September 2017. In other words, home prices are still rising on a national basis, just not as fast as a year ago.
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Data Watch
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Personal Income Rose 0.5% in October To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/29/2018
Personal income rose 0.5% in October, while personal consumption increased 0.6%, both beating consensus expected gains of 0.4%. Personal income is up 4.3% in the past year, while spending is up 5.0%.
Disposable personal income (income after taxes) rose 0.5% in October and is up 4.8% from a year ago. The gain in October was led by private-sector wages and salaries and government transfers.
The overall PCE deflator (consumer prices) rose 0.2% in October and is up 2.0% versus a year ago. The "core" PCE deflator, which excludes food and energy, rose 0.1% in October and is up 1.8% in the past year.
After adjusting for inflation, "real" consumption rose 0.4% in October and is up 2.9% from a year ago.
Implications: Following a lull in September, both incomes and spending surged in October, rising 0.5% and 0.6%, respectively. To put that in perspective, those both tie for the highest readings of their respective series in 2018, and show healthy consumers heading into the holiday season. Breaking down the data shows that incomes were led by a 0.3% gain in private sector wages and salaries, a 0.6% gain in government transfers, and a 1.6% gain in proprietor's income (think small businesses, partnerships, and farms). Farm income was notable in October, as it was boosted by a Department of Agriculture program to assist farmers affected by trade retaliations, pushing farm incomes up by the largest amount in more than five years. But even excluding this temporary boost, incomes were up 0.4% in the month. More important is that incomes are up a healthy 4.3% in the past year, and thanks to the tax cuts, after-tax income is up 4.8% over the last twelve months. And consumers are putting that extra spending power to work. Consumer spending rose 0.6% in October, led by increased spending on housing, healthcare, and recreation. While consumption growth has trended moderately above income growth over the past few years, this follows a period between 2010 and 2015 where income growth outpaced the growth in spending. As a result, consumer balance sheets remain very healthy, with plenty of room for increased spending in the months ahead. The worst news in today's report was that government transfers rose 0.6% in October. That said, government transfers continue to grow at a slower rate than wages and salaries, so while government transfers are up 4.2% in the past year, transfer payments are making up a smaller – though still too high – portion of income. On the inflation front, the PCE deflator rose 0.2% in October and is up 2.0% in the past year. "Core" prices, which exclude food and energy, are up 1.8% in the past year. Extra attention will be on economic and inflation data leading up to December Fed meeting, where we will get updated forecasts on where the Fed sees the economy – and rates – moving in 2019. In employment news this morning, initial jobless claims rose 10,000 last week to 234,000. Meanwhile, continuing claims rose 50,000 to 1.71 million. Despite the increases – which could have been impacted by recent holidays - we expect further strength in payroll growth in November. On the housing front, pending home sales (contracts on existing homes) fell 2.6% in October following a 0.7% rise in September. These reports suggest existing home sales, counted at closing, should move modestly lower in November.
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The ISM Non-Manufacturing Index Rose to 60.7 in November To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 12/6/2018
The ISM non-manufacturing index rose to 60.7 in November, easily beating the consensus expected 59.0. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mixed in November, but all remain well above 50, signaling expansion. The business activity index rose to 65.2 from 62.5 in October, while the new orders index increased to 62.5 from 61.5. The employment index declined to 58.4 from 59.7 in October, and the supplier deliveries index fell to 56.5 from 57.5.
The prices paid index rose to 64.3 from 61.7 in October.
Implications: Service sector activity continues to surge, with the November ISM Services index hitting the second highest reading (behind just September) in more than a decade. And barring a massive decline in December, 2018 will average the highest full-year reading for the index since the series began in the late 1990s. A look at the details of today's report shows that the pickup in activity was broad-based, with seventeen of eighteen industries reporting growth in November (the agriculture, forestry, fishing & hunting industry reported a decline). In addition to the breadth of growth, the two most forward-looking indices – new orders and business activity – led the gain in November, suggesting we will see a strong close to this year and a healthy start to 2019. That said, two major sub-indices moved lower in November, showing continued growth, but at a slower pace than October. The employment index declined to a still robust reading of 58.4, from 59.7 in October. As we noted in today's analysis of the trade report, we expect tomorrow's employment report to show a gain of 193,000 nonfarm jobs. Growth in employment would be even faster, but the lowest unemployment rate in nearly fifty years has led to difficulties for companies in finding qualified labor (this also explains the pickup in wage growth as demand for labor exceeds supply at prior lower wages). Finally, the supplier deliveries index declined in November, signaling that delays related to labor shortages, component shortages, and freight issues (due to a lack of truck drivers), are easing somewhat. These delays, paired with the strength in new orders, are putting upward pressure on prices – as reflected in the prices paid index, which rose to 64.3 in November. While we don't expect prices will soar any time soon, this suggests inflation will continue to run at-or-above the Fed's 2% target, putting pressure on the Fed not to fall behind the curve with the pace of rate hikes in 2019. In other recent news, automakers reported they sold cars and light trucks at a 17.5 million annual rate in November, down 0.2% from October, and down 0.8% from a year ago. We expect auto sales will continue to gradually decline versus year-ago levels as consumers, who have plenty of purchasing power, shift toward other sectors.
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Monday Morning Outlook
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The Long-Term Yield Conundrum To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 12/10/2018
Last Friday, the 10-year Treasury Note closed at a yield of 2.85%. That's up from 2.41% at the end of 2017, but down from the peak of 3.24% on November 8th, and well below where fundamentals suggest yields should be.
In the last two years, nominal GDP growth – real GDP growth plus inflation – has run at a 4.8% annual rate. Normally, we'd expect yields to be close to nominal GDP growth, but Treasury yields have remained stubbornly low.
Some analysts are spooked by the recent movement of 3-year yields above 5-year yields, thinking this "inversion" signals a recession. We think this is sorely mistaken. With a lag, recessions have often (but not always) followed periods when the federal funds rate exceeds the 10-year yield. If anything, that's the inversion to look out for; feel free to ignore the rest. But, at present, the 10-year is yielding about 70 basis points above the funds rate, well within the normal range.
One reason that the 10-year yield has remained below where economic fundamentals suggest it should trade is that the Federal Reserve set short-term interest rates near zero. Longer-term bonds, including the 10-year reflect the current level of short-term rates as well as the projected path of those rates in the future. So, back when yields were essentially zero, and the Fed was signaling they could stay there for a long time, this pulled down longer-term yields. The Fed has now lifted short-term interest rates by 200 basis points from where they were, but investors still don't believe they will go much higher.
Part of the issue is that many think low rates themselves are the only reason the economy came out of the Great Recession. So as the Fed lifts rates, many investors expect the next recession is a small tip of the scale from returning in force.
If you're buying 10-year Notes under the premise that a recession will happen sometime in the next ten years – and you also expect the next recession to tie (or beat) '08-'09 for the title of worst recession since the Great Depression – then the yield on the 10-year Treasury makes a lot more sense.
But we wholeheartedly disagree with your assessment. We think the bond market is anticipating a far weaker economy over the next ten years than the data justifies.
No matter how many believe it, the bond market is not all-knowing. In November 1971, the 10-year Treasury was yielding 5.81%. Over the next ten years, inflation alone increased at an 8.6% annual rate and nominal GDP grew at a 10.7% annual rate. In other words, 10-year note investors got hammered as yields soared. And notice that back in 1971 we had a Republican president (Richard Nixon) leaning heavily on the Fed to maintain a loose monetary policy. Sound familiar?
The next recession is unlikely to be like the last. Our calculations suggest national average home prices were 40% overvalued at the peak of the housing boom – pumped up by government rules and subsidies artificially favoring home buying. Meanwhile overly stringent mark-to-market accounting rules created a once in a 100-year panic. Mark-to-market rules have now changed to allow cash flow to be used to value assets, plus banks are much better capitalized. In other words, fundamentals suggest another panic is not in the cards.
What's more likely is that, when the next recession hits – and we don't see one happening until at least 2021 – it will be softer than usual, more like 1990-91 or 2001, than 1973-75, 1981-82 or 2007-09. As investors realize data trumps the rhetoric, we expect bond yields to rise. In the end, math wins.
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It's a good article. Agree or not he clarifies his thinking on interest rates in particular.
In explaining differences between the last recession and the possible next one he writes:
"Our calculations suggest national average home prices were 40% overvalued at the peak of the housing boom – pumped up by government rules and subsidies artificially favoring home buying."
I wonder what our PP (who was kind of tough on Wesbury previously) thinks of housing prices now.
Also this: "The Fed has now lifted short-term interest rates by 200 basis points from where they were, but investors still don't believe they will go much higher."
The interest rate banks pay went from 0.25% to 2.25%, an 8-fold increase just since the 2016 election. That doesn't effect the value of every house or every business, does it? Nothing to see here, move along.
My sense is housing is nearly 40% overvalued now based on the continued skewing of government policies, with a reckoning coming from the impact of tax reform's SALT deduction limitation and the trend to limit mortgage interest deduction.
Mortgage interest for indebtedness over 1 million no longer deductible. (Doesn't affect you unless different segments of the same market are connected!)
Home equity loans: The new tax law also ended the deduction for interest on home equity indebtedness (until 2026), unless used to pay for home improvements. It's December of the first year, does anyone know this yet?
Some people may want to pay less for their housing going forward and some may have to. But it's not like housing is a major part of the US economy... oops.
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Industrial Production Rose 0.6% in November To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 12/14/2018
Industrial production rose 0.6% in November (+0.3% including revisions to prior months), beating the consensus expected gain of 0.3%. Mining output rose 1.7% in November, while utilities increased 3.3%.
Manufacturing, which excludes mining/utilities, was unchanged in November (-0.5% including revisions to prior months). Auto production rose 0.3%, while non-auto manufacturing was unchanged. Auto production is up 3.5% versus a year ago, while non-auto manufacturing is up 1.9%.
The production of high-tech equipment rose 1.7% in November and is up 7.6% versus a year ago.
Overall capacity utilization rose to 78.5% in November from 78.1% in October. Manufacturing capacity utilization fell to 75.7% in November from 75.8% in October.
Implications: Industrial production continued to climb higher in November, hitting a new record high. However, the details of today's report were less impressive than the headline gain of 0.6%. All of November's growth was due to gains in mining and utilities, while overall manufacturing remained unchanged for the month. Further, downward revisions dragged the readings for both the headline index and manufacturing in October into negative territory. That said, a look at growth in the past year shows industrial production – which counts "units" of output and is therefore a proxy for "real" growth – is up a healthy 3.9%. Notably, the flat reading for manufacturing in November was due to a decline in the production of nondurable goods offsetting gains in motor vehicles, machinery, and high-tech equipment. In the past year, the various capital goods indices continue to show healthy growth with business equipment up 4.1%, machinery up 6.2%, and high-tech equipment up 7.6%. Comparing this with the more tepid year-over-year growth of 0.7% for nondurable goods, or 1.9% for manufacturing as a whole, demonstrates that capital goods production remains a valuable source of strength. In turn, more capital goods should help push productivity growth higher, making it easier for the economy to grow in spite of a tight labor market. The biggest monthly gain in November came from utilities which rose 3.3%, as unseasonably cold weather supported demand for heating. Finally, after a brief dip in activity in October due to Hurricane Michael, mining rebounded 1.7% in November to return to a record high. The advance was due to gains in oil and gas extraction and coal mining. Mining is now up 13.2% in the past year, by far the fastest growing category in industrial production.
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Yesterday down. Today up. Hard to time a comment...
Trump took credit for the stock market rise. Opponents of course want to give him credit for the correction as well.
https://www.bloomberg.com/news/articles/2019-01-03/the-president-owned-the-trump-bump-are-we-in-the-trump-slump?srnd=premium
Funny that the downturn began when it became clear that Democrats led by Nancy Pelosi would take the House promising socialism if they can pass it and endless investigations.
On that theory, the downturn ends if and when it becomes clear that Leftists will not pass legislation by winning only one chamber, nor will they remove the President though they certainly can provide endless turmoil.
The downturn preceded the shutdown so that isn't the cause but it doesn't help.
Strange to me that Trump blames the Fed instead of investor distrust of the Democrats. Maybe he feels he has more to gain by fighting the Fed but most think he would be more effective making that argument to them in private.
Chinese markets are down even more, maybe current fears here come out of trade jitters. cf Smoot Hawley. China is signaling it wants an agreement, whatever that means. US negotiators are headed there next week. Will they really give up technology theft??
If politics and uncertainty over future policies have anything to do with this volatility, the endless campaign of 2020 should provide plenty of drama.
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Data Watch
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Nonfarm Payrolls Rose 312,000 in December To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 1/4/2019
Nonfarm payrolls rose 312,000 in December, destroying the consensus expected 184,000. Including revisions to October/November, nonfarm payrolls increased 370,000.
Private sector payrolls rose 301,000 in December and revisions to prior months added 42,000. The largest increases in December were for education & health services (+82,000), accommodations & food service (+49,000), professional & business services (+43,000, including temps), construction (+38,000), and manufacturing (+32,000). Government rose 11,000.
The unemployment rate rose to 3.9% in December from 3.7% in November.
Average hourly earnings – cash earnings, excluding irregular bonuses/commissions and fringe benefits – rose 0.4% in December and are up 3.2% versus a year ago.
Implications: Job growth surged in December, easily beating even the most optimistic forecast by any economics group and severely undermining the theory that the US is on the verge of a recession. Nonfarm payrolls rose 312,000 in the last month of the year and were revised up a substantial 58,000 for prior months. Civilian employment, an alternative measure of jobs that includes small-business start-ups, increased 142,000, but that series is very volatile from month to month. For 2018 as a whole, nonfarm payrolls rose 220,000 per month while civilian employment increased 217,000 per month. These are very robust figures given that we started the year eight and half years into an economic recovery. Although the unemployment rate rose to 3.9%, that was in large part due to a strong 419,000 increase in the labor force. For 2018 as a whole, the jobless rate fell only 0.2 percentage points (it ended 2017 at 4.1%), the smallest drop for any year so far in the recovery, even though we likely had the best economic growth for any calendar year so far in the recovery.
Faster growth with robust job gains and slower declines in the unemployment rate suggest something happened in 2018 to boost productivity and change the recovery for the better; we think that was a combination of the tax cut and deregulation, which should continue to support growth in 2019. Accelerating wages are another sign of improvement. Average hourly earnings rose 0.4% in December and are up 3.2% from a year ago. (Remember, that's in spite of that measure excluding extra earnings from irregular bonuses and commissions, like those paid out after the tax cut was passed.) Meanwhile, total hours rose 0.5% in December and are up 2.0% in the past year. As a result, total cash earnings are up 5.2% in the past year, easily surpassing inflation and more than enough to keep consumer spending growing.
What does this mean for the Fed?
If the economic data were the only issue, the Fed could raise rates as often as four times in 2019, the same as in 2018. However, we think the Fed wants to avoid the federal funds rate getting higher than the 10-year Treasury Note yield, which means the Fed would stand pat if Treasury yields stay where they are today. In the end, we think the 10-year yield rises due to solid economic data and the fed ends up hiking rates twice in 2019, maybe more if yields rise enough. Not every jobs report will be as strong as December's, but those fearing a recession or significant slowdown are too bearish on the US.
In other recent news, automakers reported selling cars and light trucks at a 17.6 million annual rate in December, up 0.3% from November, up 0.7% from a year ago, and easily beating the consensus expected 17.2 million pace. However, sales for all of 2018 were down 0.1% from 2017 and we expect a gradual decline in the next few years in spite of solid economic growth overall.
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manufacturing (+32,000)
Interesting. I believe the smartest president ever said that these jobs weren't coming back.
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Interesting perspective from today's WSJ:
"It helps to think of stocks as having a focal length, like the lens of a camera, which is the point in the future investors are looking at. Stocks with long focal lengths have an area of high magnification, a smaller angle of view, and fewer things in focus. Amazon’s investors were willing to overlook low margins in the short term in exchange for a bountiful prize out there somewhere. A short focal length means investors don’t look too far and can see everything all in focus, warts and all, like General Electric . Stocks have a duration, but you can’t really measure it—you have to sense it, or feel how far out the market is willing to look."
https://www.wsj.com/articles/stock-picking-is-like-time-travel-11547412001
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Also, I saw Charles Payne this morning say that GDP projections have dropped from 2.7 to 2.4%?
Retail Sales Declined 1.2% in December To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/14/2019
Retail sales declined 1.2% in December (-1.5% including revisions to prior months), coming in well below the consensus expected gain of 0.1%. Retail sales are up 2.3% versus a year ago.
Sales excluding autos fell 1.8% in December (-2.3% including revisions to prior months) coming in well below the consensus expected no change. These sales are up 2.0% in the past year. Excluding gas, sales were down 0.9% in December but are up 2.5% from a year ago.
The drop in sales in December was led by non-store retailers (internet & mail order) and gas stations. The largest gain was for autos.
Sales excluding autos, building materials, and gas fell 1.6% in December and were down 1.8% including revisions to prior months. These sales were up at a 0.3% annual rate in Q4 versus the Q3 average.
Implications: There's no way around it, today's retail data for December were ugly. Our first inclination, given how inconsistent the report is with other economic data – like surging employment, accelerating wages, and the Johnson-Redbook measure of same-store sales – is to suspect that the partial government shutdown hampered the Census Bureau's ability to collect and process the data. Yes, we know Census said there was no problem, but it certainly appears to be an odd coincidence. Another oddity is that the report shows a 3.9% decline in sales at non-store retailers, which includes internet sales, the largest percentage drop since November 2008 in the midst of the financial crisis. We find that hard to believe and expect either a substantial upward revision or a steep rebound for January. Looking at the report, overall retail sales declined 1.2% in December, falling by the most in nine years, and coming in much lower than any economic forecasting group expected. The declines were broad-based, as eleven of thirteen major categories showed a drop in sales. Sales at gas stations fell 5.1% in December. "Core" sales, which exclude autos, building materials, and gas stations (the most volatile sectors) were down 1.6%, were revised lower for prior months, but are still up 2.3% from a year ago. Plugging today's report into our models suggests "real" (inflation-adjusted) consumer spending, on goods and services combined, will be up at around a 3.0% annual rate in Q4 while real GDP grows at around a 2.5% rate. Given the tailwinds from deregulation and tax cuts, we expect an average real GDP growth rate of close to 3% in both 2018 and 2019, a pace we haven't seen since 2004-05. Jobs and wages are moving up, tax cuts have taken effect, consumer balance sheets look healthy, and serious (90+ day) debt delinquencies are down substantially from post-recession highs. Some may point to household debt at a record high as reason to doubt that consumption growth can continue. But household assets are near a record high, as well. Relative to assets, household debt levels are near the lowest in more than 30 years. In other news today, initial jobless claims rose 4,000 last week to 239,000. Meanwhile, continuing claims rose 37,000 to 1.77 million. However, both remain at very healthy levels and we expect a solid gain in payrolls for February.
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"Retail Sales Declined 1.2% in December"
Retail is a declining sector and I would guess that internet sales are poorly measured. Maybe in the spirit of supply side economics we won't be only a consumer-driven economy anymore.
Wesbury: "Given the tailwinds from deregulation and tax cuts, we expect an average real GDP growth rate of close to 3% in both 2018 and 2019, a pace we haven't seen since 2004-05. Jobs and wages are moving up."
That's an opinion but it's remarkable! IF TRUE, that is a doubling of the growth rate. If not true, what changed? Dems won the House. Same problem that killed off the last expansion he identifies.
"Tailwinds" - Yes. That is what we have left in the second half of Trump's first term, only what is already passed. The Dem House is not going to pass any pro-economic-growth bill of any sort. The exception to that should be to make the individual tax cuts already passed permanent. I haven't heard that mentioned since the Ocasio-Omar election.
Also not mentioned relating to growth: Interest rates are holding steady and a pretty good China deal is possible.
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Monday Morning Outlook
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Spare Us the GDP Agony To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 3/4/2019
Real GDP grew at a 2.6% annual rate in the fourth quarter, and while some analysts are overly occupied with this "slowdown" from the second and third quarter, we think time will prove it statistical noise. Even at 2.6%, the pace is a step up from the Plow Horse 2.2% annual rate from mid-2009 (when the recovery started) through early 2017.
Fourth quarter real GDP growth happened in spite of a huge decline in retail sales for December (itself suspicious and likely to be revised higher, as job growth and retailer reports painted a very different picture). Moreover, business investment grew at a 6.2% rate in Q4 and was up 7.2% in 2018, the fastest calendar growth for any year since 2011.
In 2018 as a whole, real GDP grew at the fastest pace for any calendar year since 2005. And what's even more impressive is that year-over-year real GDP growth has accelerated in every quarter since the beginning of 2017. The first quarter of 2017 was up just 1.9% from a year earlier while subsequent quarters showed four-quarter growth of 2.1%, 2.3%, 2.5%, 2.6%, 2.9%, 3.0% and now 3.1%. We expect Q1-2019 GDP to slow like many other Q1s in recent years, meaning this impressive streak may come to an end. But this too is just statistical noise, and the YOY trend should remain around 3%+ over coming quarters.
"Potential growth," a measure of how fast the economy can grow when the unemployment rate is stable, has also improved. It's calculated using "Okun's Law," which says that for every 1% per year the economy grows faster than its potential rate, the jobless rate will drop by 0.5 points.
Working backward from the unemployment declines of recent years shows that potential GDP growth has picked up. From mid-2010 thru mid-2017, potential real GDP grew at just a 0.6% annual rate. But in 2018, with real GDP growth of 3.1% while the jobless rate dropped only 0.3 points, potential growth was 2.5%.
The worst part of the GDP story is the political gamesmanship of those who say real GDP only grew 2.9% in 2018. These data distorters are not looking at the size of the economy in the fourth quarter of 2018 compared to the fourth quarter of 2017; instead, they are comparing production through all of 2018 to production in all of 2017.
Here's why their method is misleading. Let's say that in the first quarter of Year 1 a company earns $100 per share then earnings slip to $99 in Q2, $98 in Q3 and $97 in Q4. Then, in Year 2, earnings start at $97 per share in Q1, go to $98 in Q2, $99 in Q3 and finally back to $100 in Q4. Overall, for two years earnings per share were flat. But that's because earnings growth was bad in Year 1 and good in Year 2. But the misleading method used by those saying the economy only grew 2.9% in 2018 would compare total earnings in Year 2 ($394) to total earnings in Year 1 ($394) and say the company had zero growth in Year 2! But that's nonsense. What matters in measuring Year 2 is how much earnings grew during the year, and in our example, that was 3.1% in Year 2.
As you can probably guess, this is a method favored only by academics, academic-style institutions like the IMF and World Bank, and political operatives trying to mislead. The truth is that tax cuts and deregulation have boosted growth, and will keep doing so as long as we stay on path.
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"2018 ... real GDP growth ... 3.1%"
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"[Year over year] trend should remain around 3%+ over coming quarters."
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He doubled the Obama growth rate in just two years using deregulation and tax reform. Did anyone see this coming! He needed a 0.4% increase in the growth rate to break even on the tax rate cuts. Voila.
Or as typical Leftist deniers of economic science predicted:
"Reasonable estimates of the current tax proposals will likely increase growth by no more than 0.1 percentage points per year on an ongoing basis.
Official government estimates of past tax reform proposals have never found a dynamic response as large as 0.4 percentage points per year."
http://www.crfb.org/papers/can-tax-reform-generate-04-additional-growth
Oops. The increase was already four times what the entire Left said couldn't happen.
Can the loss of the House to the Democrats and the potential loss of Senate and Presidency in 2020 screw up optimism, risk taking and investment and kill off the new, faster, growth rate? Yep.
Wouldn't it be nice if both parties would promise to continue the policies that are working if they win. Instead we have a 50/50 chance of Venezuelan socialism beginning in one and a half years. No exaggeration. Invest away.
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"Wouldn't it be nice if both parties would promise to continue the policies that are working if they win. Instead we have a 50/50 chance of Venezuelan socialism beginning in one and a half years. No exaggeration. Invest away."
Wall Street would be making a wise investment in paying all of Trump's medical bills.
If something happens to him or he loses. ...... back to Obamsternomics
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Data Watch
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Real GDP Growth in Q4 was Revised to a 2.2% Annual Rate To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 3/28/2019
Real GDP growth in Q4 was revised to a 2.2% annual rate from a prior estimate of 2.6%, narrowly missing the consensus expected 2.3%.
The downward revision was due to personal consumption and government purchases. Net exports were revised up.
The largest positive contributions to the real GDP growth rate in Q4 came from consumer spending and business investment. The weakest component was home building.
The GDP price index was revised down to a 1.7% annualized rate of change from a prior estimate of 1.8%. Nominal GDP growth – real GDP plus inflation – was revised down to a 4.1% annual rate versus a prior estimate of 4.6%. Nominal GDP is up 5.2% versus a year ago and up at a 4.9% annual rate in the past two years.
Implications: Real GDP grew at a 2.2% annual rate in the fourth quarter, a downward revision from the prior estimate of 2.6%. There were no major changes to any particular component of GDP, but downward revisions to consumer spending and government purchases outweighed an upward revision to net exports. Still, real GDP grew 3.0% in 2018, the fastest growth for any calendar year since 2005, boosted by the shift to lower tax rates and less regulation. Meanwhile, nominal GDP – real GDP growth plus inflation – grew at a 4.1% annual rate in Q4. That's a downward revision from the prior estimate of 4.6%. However, nominal GDP was still up 5.2% in 2018 and is up at a 4.9% annual rate in the past two years, signaling that monetary policy is not tight. Today we also got our first look at economy-wide Q4 corporate profits, which were down 0.4% compared to the third quarter but are up 7.4% from a year ago. All the decline in Q4 was due to profits at domestic financial companies; profits increased at domestic nonfinancial firms, as well as from the rest of the world. Meanwhile, after-tax profits are up 14.3% from a year ago. Although some analysts are saying profits have peaked, we think the story of 2019-20 will be that profit growth may have peaked in 2018, but the level of profits will continue to trend higher. Our capitalized profits model suggests US equities remain cheap, not only at today's interest rates but even using a 10-year Treasury yield of 3.5%. In other news this morning, new claims for unemployment insurance declined 5,000 last week to 211,000. Continuing claims rose 13,000 to 1.756 million. These claims figures are both at very low levels, suggesting a rebound in payroll growth in March. On the housing front, pending home sales, which are contracts on existing homes, declined 1.0% in February after a 4.3% surge in January. These reports suggest March existing home sales, which are counted at closing will come in at around a 5.27 million annual rate, about the average of the past year.
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What could have happened to the economic outlook in the 4th quarter?
Rep. Omar elected. Rep. Tlaib elected. Rep. Ocasio-Chavez elected. All moderate Republicans in suburban districts sent home. Nancy Pelosi elevated to Speaker of the House. Proposals abound to crush wealth, bring down the President and socialize the industries. I guess voters wanted the economy to tick downward.
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Monday Morning Outlook
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Don't Cut Rates, Cut Spending To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 4/1/2019
We've been "Comrades in Supply-side Arms" with Stephen Moore (now a Federal Reserve nominee) and Larry Kudlow (Administration Economist) for decades, with very few disagreements on economic policy. However, with both having called for a 50 basis point cut in short-term rates, we find ourselves in total disagreement with their conclusion.
They both make supply-side arguments. Kudlow told CNBC on Friday, "the [Fed] should not tighten just because of prosperity." We agree! While Moore, in an op-ed, argued that a 15% drop in a basket of commodity prices during Q4 showed the Fed was too tight. We've supported price targeting in the past.
It's true the yield curve is flat - inverted in some places - but that's because the market is pricing in a rate cut. We don't see it, nor do we see the reason for it. Our model is simple: add inflation and real growth to get nominal GDP growth. Then look at it over the past two years to remove volatility. If the Fed lifts rates too close to nominal GDP growth, or over it, then it's too tight. Nominal GDP is up 4.9% annualized in the past two years while the federal funds rate is 2.375%. The Fed is at least 200 basis points away from being too tight.
From 1913 until 2008, the Fed had to make reserves in the banking system scarce in order to lift rates. It did this by selling bonds to banks and removing the cash from the system. When rates moved above nominal GDP, it was a signal the Fed had removed too many reserves. It was the lack of money, not the higher rates or the inverted yield curve, that caused the recession. Then, the Fed would reverse course and buy bonds to inject reserves into the system, making them plentiful, which lowered rates. It was the extra money that lifted economic growth, not the lower interest rates.
The Fed has now changed the system. During the Crisis, the Fed injected trillions into the banking system, and there are now $1.5 trillion in "excess reserves." Normally this would automatically keep rates low. But the Fed is paying banks interest on those reserves – currently 2.4%. But this is an experiment. No one knows if paying interest on reserves will keep banks from lending them out. And, no one knows the exact interest rate needed to keep those excess reserves from creating inflation. And as long as those excess reserves exist, the Fed isn't "tight."
Short-term rates are low, and there are other policies that risk slowing growth. Government spending is growing faster than GDP and is projected to reach around 21% of GDP this year, taking resources from the private sector. Tariff uncertainty doesn't help either. Bad policies are the most salient threat to growth. Shifting blame to the Fed is not the answer.
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The rising debts and deficits are going to give the Crats a good MSM supported argument for raising taxes (under the guise that is the richly who get the tax) .
OF course we know they NEVER speak of spending cuts unless it is military
I don't recall even a peep from Donald about debts.
If we/he/Repubs can't even cut NPR NEA and special olympics for goodness sakes ......
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For me, it is pretty simple, unless we take on entitlement formulas, it is all for nought. Anyway, let's take the Debt conversation to the Budget thread.
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https://apnews.com/e48cd0b437294313b570c490b83c63fa
Mainsream media will cover this story, with a pillow until it stops breathing.
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https://apnews.com/e48cd0b437294313b570c490b83c63fa
Mainsream media, cover this story, with a pillow until it stops breathing.
Well, the economy is racist, so...
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3 months ago we were told the government shutdown would kill off economic growth.
All but the economists who appreciate the supply side missed the idea that deregulation and tax reform would foster growth. Projected growth was 0 to 1%, if not the beginning of a recession.
Static analysis did not see this coming.
In other news, The economic establishment fights to keep supply siders off of the Federal Reserve because they know nothing about the economy.
Maybe the Keynsians, the smart planners, the socialists and the public private crony partnership crowds are not quite as smart as they think.
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I don't have the data in front of me, but apparently a goodly part of the growth was due to increasing inventories , , ,
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I don't have the data in front of me, but apparently a goodly part of the growth was due to increasing inventories , , ,
Yes. It's always for some factor in the sub data. It still beats all the alternatives, stagnation, recession, collapse or a Venezuelan result that Democrats apparently want.
Compare with 'Democratic Socialism in Sweden. 3.2% is greater than any quarter they have had in a half century.
https://tradingeconomics.com/sweden/gdp-growth
GDP Growth Rate in Sweden averaged 0.56 percent from 1981 until 2018
By the end of the next quarter the US could have two new trade deals.
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https://www.ftportfolios.com/Commentary/EconomicResearch/2019/4/29/conventional-wisdom-wrong-again
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yet the debt goes up:
https://www.washingtonexaminer.com/news/white-house/larry-kudlow-trump-wont-pay-down-any-of-the-national-debt
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yet the debt goes up:
https://www.washingtonexaminer.com/news/white-house/larry-kudlow-trump-wont-pay-down-any-of-the-national-debt
More debt or higher taxes on doctors? Even that doesn't help because there is no limit on spending.
I would settle for any path to a balanced budget in his time. We need the debt burden to shrink, and that happens with growth of the private incomes and restraint on the public side. Good luck getting both.
[Almost] No one gives a bleep about the deficit or debt except to make an expedient political point. "Your side is running up the deficit [this time]."
Two trillion in increased infrastructure spending discussed today. Both sides wanted more?!
For every Dem [or R] spending proposal, instead of asking how are you going to pay for it when nothing is paid for anyway, ask: Instead of WHAT?? Free college? Instead of what? Social security? It's not a "priority" if it's just piled on top everything else. Representative government was supposed to be where we elect people to make difficult choices for us.
Young productive people should be the deficit hawks. Instead it's the $100T green new deal for them. Raising tax rates didn't bring in more money or grow the economy.
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Previously in the budget thread:
"Change the growth rate from Obama levels, the CBO projection of 1.9% to 3% growth, the average over the 50 years before the latest collapse and malaise, and the deficit to GDP ratio in 30 years drops from 150% to 50%."
https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/52480-ltbo.pdf
https://dogbrothers.com/phpBB2/index.php?topic=1847.msg110272#msg110272
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Sorry to be a party pooper, and I do want to believe, but what were the spending assumptions by the CBO then and how do they compare to now?
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Sorry to be a party pooper, and I do want to believe, but what were the spending assumptions by the CBO then and how do they compare to now?
I'm glad you are asking the tough questions. The point of the previous post is that at any projected level of spending, the burden of the debt is 300% greater after 30 years for a stagnant 1.9% economy than one growing at 3%.
Or if you are liberal or RINO you will just spend more with more money. I don't know what assumptions CBO made, current baseline? We can just assume they are wrong.
You can grow the economy out of debt burden without paying down the debt IF you hold the line on spending. Maybe somebody someday will propose that but in the current state of politics, it doesn't sell.
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The question to me, what is the right policy mix? For the Obama years, we knew we were screwed, but we survived - carrying $20T in debt. In the first two years of Trump, what should they have done? Trump had a DOA budget that cut every department except defense and ? by 10%. It didn't happen. Republicans were what? Afraid of losing the House!
On the tax question, I thought lowering corporate taxes to OECD average, 24-25%, was good enough but they lowered them to 20%, losing some revenue short term in exchange for long term growth. As mentioned, provisions like the child tax credit are spending programs in the tax code, costing revenue. It wasn't all about growth and revenue. Now people look to see if they are actually paying less, 80% are, and then are shocked to see we aren't collecting way more in aggregate. Kind of an unfair expectation. If people care truly about deficits, pay more and spend less. But we tried taxing more under Obama and it didn't bring in more revenue. That leaves spending and LONG TERM growth as the only deficit tools.
On spending, consider this:
3.6 million people are off of food stamps since the Trump election:
https://www.dailysignal.com/2018/08/03/fact-check-trump-says-3-5-million-people-have-been-lifted-off-food-stamps/
Most spending is payments to people and millions off of food stamps is an indication that LESS IS NEEDED from the government, yet we spend more.
Here is another indicator, fewer need disability assistance in a stronger economy, admitted in the NYT!
https://www.nytimes.com/2018/06/19/business/economy/social-security-applications.html
Who knew that disability correlates with the economy instead of health.
They mis-projected growth on the low side and it is out-performing. They should adjust "baseline" spending downward to correct that mistake! Instead spending always goes up.
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Thank you.
BTW, if anyone wants the graphs that Scott sent me, please email me at craftydog@dogbrothers.com
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Private payrolls surge by 275,000 in April, blowing past estimates in biggest gain since July
https://news.yahoo.com/economics-tyranny-venezuela-103004780.html
Note to the previous discussion, it takes an accumulation of months like these with more and more people working to replace the 'lost revenues' of tax reform. Job growth and business growth is not instant; it is a flow. If we don't screw it up, these are permanent gains in the number of people paying in. Also a decrease in the number of people dependent on government programs as this exceeds population growth.
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Monday Morning Outlook
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This Crazy Rate Cut To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/24/2019
The narrative that the U.S. economy is in trouble – some say teetering on the edge of recession - has become so powerful and persuasive that few investors give it a second thought. So of course, they believe, the Fed should cut interest rates. We haven't seen anything like it since the Fed was hiking rates in the deflationary late- '90s. Those rate hikes, which were totally unwarranted, ended up causing a recession.
The rate cuts that the Fed now seems to be planning are equally unwarranted. The dovish tones arose back in the fourth quarter of 2018, when the U.S. stock market experienced a correction while the Fed was lifting rates. Many believe this correction ended when the Fed signaled an end to rate hikes. But simply put, no one really knows if this was correlation or causation. We believe it was the former...pure happenstance.
The Fed is not tight. No way, no how. The federal funds rate is currently 2.375% and no one can look at us with a straight face and say that this interest rate is keeping anyone, anywhere from making an investment.
Of more important note, every prior Fed-induced recession happened because the Fed withdrew reserves from the system, pushing up interest rates. It was the lack of money - the squeeze on reserves – that pushed interest rates higher and caused the recession. Rates themselves don't cause recessions, it's the reason rates move that really matters.
Today, the Fed still has $1.4 trillion in excess reserves in the system, so it can hardly be called tight by any stretch of the imagination. It is when the Fed withdraws too many reserves, pushing the federal funds rate above the pace of nominal GDP growth, that the economic tides turn toward recession. So how close are we now? Over the past two years, nominal GDP is up at a 4.8% annualized rate, twice the current federal funds rate.
Some argue a slowdown in foreign growth should have the Fed concerned. But we know of no U.S. recession ever caused by weakness overseas. Japan collapsed in the 1990s, the U.S. boomed.
It is true there have been some weak economic data points of late. The bears have been pointing, for example, to the Markit Services and Manufacturing indices. But, these are surveys and have never, to our knowledge, been successfully used to predict a recession.
Others are fretting over the tepid 75,000 new jobs added in May. But since this recovery began, the initial payroll reports have come in weak on multiple occasions without signaling recession, just look at May 2012, or December 2013, or May 2016, or September 2017, or February 2019. All months at first came in weaker than the May report and not one signaled recession.
What investors should be focused on is initial unemployment claims as a share of total employment at the lowest reading ever. Job openings, meanwhile, are 1.6 million greater than the total unemployed. Retail sales are booming, up 10.9% in the past three months at an annual rate. After revisions, real GDP likely grew 3.3% at an annual rate in Q1 and is likely to rise 2.0% in Q2 (held down by a 1.0 point slowdown in inventories). There is absolutely no evidence of recession.
The worst part of the proposed rate cut is that all those who think they see a recession will become convinced that the Fed avoided it, even though it was never coming.
It's true that inverted yield curves, as we now see between the 3-month and 10-year Treasury yields, often proceed recessions. But typically, those inversions have happened when the Fed took out too many reserves from the system, which is not the case today. Instead, today's inversion is based, completely, on the market pricing in rate cuts. This is not your father's yield curve inversion.
We think a rate cut is crazy. However, it makes our bullish case for stocks even easier to defend, in spite of the fact that we think the Fed would be sowing the seeds of future economic problems.
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Personal Income Rose 0.5% in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/28/2019
Personal income rose 0.5% in May, beating the consensus expected gain of 0.3%. Personal consumption rose 0.4 % in May (+0.5% including revisions to prior months), versus a consensus expected +0.5%. Personal income is up 4.1% in the past year, while spending has increased 4.2%.
Disposable personal income (income after taxes) rose 0.5% in May and is up 3.9% from a year ago.
The overall PCE deflator (consumer prices) rose 0.2% in May and is up 1.5% versus a year ago. The "core" PCE deflator, which excludes food and energy, rose 0.2% in May and is up 1.6% in the past year.
After adjusting for inflation, "real" consumption rose 0.2% in May, and is up 2.7% from a year ago.
Implications: Strength in income and spending continued in May, on the back of a strong report in April that was revised even higher. Personal income rose 0.5% in May - matching April for the largest one-month jump in 2019 and tied for the second largest monthly increase in more than two years - as interest income and wages & salaries pushed overall incomes higher. Meanwhile spending rose 0.4% in May, made more impressive considering that comes after a 1.0% jump in March and a 0.6% increase in April (which, we should note, was revised higher in today's report from the original reading of +0.3%). To put that in perspective, the 8.3% annualized growth in spending over the past three months is the fastest pace we have seen since late 2009. And it's not just spending that has picked up, personal income is up 4.1% in the past year, but up at a faster 4.5% annualized rate over both the past three and six-month periods. This is not the type of data that would suggest a need for lower interest rates, and the Fed acknowledged the health of consumer activity in leaving rates unchanged at the June meeting just over a week ago. Their focus was instead on inflation, which has continued to run below its 2% target. PCE prices rose 0.2% in May and are up 1.5% in the past year, while "core" prices, which exclude the volatile food and energy sectors, also rose 0.2% in May but is up a slightly faster 1.6% in the past twelve months. However, over the past three months those measures have accelerated, with overall PCE prices up at a 2.8% annualized rate while "core" prices are up 2% annualized, both either at or exceeding the Fed's targets. Unfortunately, today's data will probably do little to change their leanings toward cutting rates in July barring resolution on the trade tariffs with China and signs that inflation is moving higher. Is a rate cut needed? Not at all. The US continues to benefit from the tailwinds of tax reform and deregulation put in place over the past two years, and the economy is on track to once again grow near the fastest annual pace in more than a decade. There is no recession on the horizon, and no need for government intervention. The economy is doing just fine on its own. In other news this morning, the Chicago Purchasing Managers Index (a gauge of business sentiment in the region) fell to 49.7 in June from 54.2 in May, while yesterday saw the Kansas City Fed Manufacturing Index decline to 0 in June from 4 in May. Plugging this data into our models suggests the national ISM Manufacturing index, scheduled for release next Monday, is likely to decline to 51.6 for June after 52.1 in May. We think these recent survey declines are largely due to trade-related headlines that have temporarily stoked negative sentiment and fear, and do not suggest a significant slowdown in actual production.
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Temporary Tepid Growth for Q2 To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/22/2019
This Friday, the government will release its initial estimate of real GDP growth in the second quarter, and the headline is likely to look soft. At present, we're projecting an initial report of growth at a 1.8% annual rate.
If our projection holds true, we're sure pessimistic analysts and investors will latch onto the slowdown from the 3.1% growth rate for the first quarter, implying that we're back to slower Plow Horse growth for good. They will argue nothing has substantially changed since Trump took office, despite tax cuts and deregulation.
It's true that an annualized growth rate of 1.8% would be the slowest pace since the first quarter of 2017. But, as we will explain below, growth in the second quarter was likely held down temporarily by businesses returning to a more sustainable pace of inventory accumulation following the rapid pace of inventory building in the second half of 2018 and first quarter of this year. Excluding inventories – focusing on what economists call final sales – we estimate that real GDP grew at a 3.1% annual rate in Q2.
We also like to follow what we call "core GDP," which is real growth in personal consumption, business investment, and home building, combined. Core GDP looks like it grew at a 4.1% annual rate in the second quarter, the fastest pace in a year. In other words, while the economy may not be booming like the mid-1980s or late-1990s, the underlying trend remains quite healthy, and certainly much better than the Plow Horse period from mid-2009 through early 2017.
Here's how we get to our 1.8% real growth forecast for Q2:
Consumption: Automakers say car and light truck sales grew at a 2.8% annual rate in Q2 while "real" (inflation-adjusted) retail sales outside the auto sector grew at a 3.9% rate. Combined with some less up-to-date figures on consumer spending on services, real personal consumption (goods and services combined) looks to have grown at a 4.0% annual rate, contributing 2.7 points to the real GDP growth rate (4.0 times the consumption share of GDP, which is 68%, equals 2.7).
Business Investment: Reports on durable goods shipments and construction suggest all three components of business investment – equipment, commercial construction, and intellectual property – rose in the first quarter. A combined growth rate of 5.1% adds 0.7 points to real GDP growth. (5.1 times the 14% business investment share of GDP equals 0.7).
Home Building: After five straight quarters of contraction, it looks like home building – a combination of new housing as well as improvements – increased at a 2.6% annual rate in Q2. Expect more gains in the quarters ahead as home builders are still constructing too few homes given population growth and the scrappage of older homes. In the meantime, a 2.6% pace translates into a boost of 0.1 point to real GDP growth. (2.6 times the 4% residential construction share of GDP equals 0.1).
Government: Looks like a relatively large 2.3% increase in real public-sector purchases in Q2, which would add 0.4 points to the real GDP growth rate. (2.3 times the government purchase share of GDP, which is 17%, equals 0.4).
Trade: Net exports' effect on GDP has been very volatile in the past year, probably because of companies front-running - and then living with - tariffs and (hopefully) temporary trade barriers. Net exports added 0.9 points to the GDP growth rate in Q1, but should subtract an almost equal 0.8 points in Q2.
Inventories: Inventories are a potential wild-card, because we are still waiting on data on what businesses did with their shelves and showrooms in June. We get a report on inventories on Thursday, the day before the GDP report arrives, which may change our final GDP forecast. In the meantime, it looks like the pace of inventory accumulation got back to more normal levels in Q2, which should temporarily subtract 1.3 points from real GDP growth.
Add it all up, and we get 1.8% annualized real GDP growth. Don't let this tepid headline number spoil your day; the trend remains strong where it matters most, and prospects are bright for the US economy.
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Voters elected a democratic House in large part because of a false expectation of Mueller report collusion and now it has been a year since we have had any further economic reforms. Why should people expect rapid growth when they vote against it? The argument needs to be, if you support my successful economic policies, you need to support the right candidates up and down the ticket.
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The First Estimate for Q2 Real GDP Growth is 2.1% at an Annual Rate To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/26/2019
The first estimate for Q2 real GDP growth is 2.1% at an annual rate, beating the consensus expected 1.8%. Real GDP is up 2.3% from a year ago.
The largest positive contributions to real GDP growth in Q2 were consumer spending and government purchases. The largest drags were inventories and net exports.
Personal consumption, business investment, and home building, combined, grew at a 3.2% annual rate in Q2 and are up 2.3% in the past year.
The GDP price index increased at a 2.4% annual rate in Q2. Nominal GDP (real GDP plus inflation) rose at a 4.6% annual rate in Q2, is up 4.0% from a year ago, and up at a 5.0% annual rate from two years ago.
Implications: Real GDP was stronger than the consensus expected in the second quarter, growing at a 2.1% annual rate. This is consistent with our projection that real GDP will grow at close to a 3.0% annual rate in 2019 (Q4/Q4). The details on the second quarter were stronger than the headline, showing that what we call 'core GDP" – real growth in personal consumption, business investment, and home building, combined, grew at a 3.2% annual rate. Notably, inventories grew at a much slower pace in the second quarter, which was a temporary drag on real economic growth. Inventories may continue to be a drag on growth into the third quarter but should stop slowing GDP growth by late this year. In addition, today's report made mincemeat of the idea that the Federal Reserve needs to cut rates or should cut rates at next week's meeting. Nominal GDP – real GDP growth plus inflation – grew at a 4.6% annual rate in Q2, is up 4.0% from a year ago, and up at a 5.0% annual rate in the past two years, all figures well above the current federal funds rate of 2.375%. In particular, the GDP deflator, which measures prices for all components of GDP, increased at a 2.4% annual rate in Q2, adding to the list of data that have exceeded expectations since the last Fed meeting in June, including job growth, industrial production, and retail sales. If the Fed were really data dependent, it wouldn't be discussing a rate cut. Today's report on GDP was the one time every year that the government goes back and revises data for multiple years. The most interesting part of this year's changes were a significant downward revision to corporate profits and a similar upward revision to workers' incomes. However, our capitalized profits models still show that US equities are very cheap and don't suggest a reason to deviate from our year-end projection that the S&P 500 will hit 3250. The US economy is in excellent shape. Deregulation and lower tax rates have boosted economic growth and we expect continued healthy growth in the year ahead.
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Atlanta Fed, GDP Now Latest forecast: 1.3 percent — July 25, 2019
"The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2019 is 1.3 percent."
https://www.frbatlanta.org/cqer/research/gdpnow.aspx
Once again growth beats expectations. The press all winter and spring said we might already be in a recession. Maybe there is something wrong with 'expectations'.
The US still has strong growth compared to the Obama years and relative to the rest of the world. China's reported growth (an exaggerated number) is the worst since 1992. Germany, Europe are headed downward dragging others with them.
Negative factors on US growth: Trade and a lousy global economy. Also, we are running our economy in a political environment where we face a 50/50 chance of turning into a third world country in the next election, nationalizing industries, punishing capital, taxing wealth and curtailing freedoms. 24 Democrats running for President and a far Left US House promise a Venezuelan path. Who makes great long term investments in that environment? A rational player focuses on defense with their assets instead of taking risks needed to surge forward.
Solution: Shift from proving to trade partners they can't keep screwing us to inspiring them to fix what is wrong. An escalating trade war is in NO ONE's best interest. This has gone on long enough. Trump needs to shift from being a pariah on the world stage to being Leader of the Free World. We want reciprocal free trade in Europe and in China in particular, and a level playing field governed by technology patents and rule of law. President Trump has the bully pulpit. Take the case to the people - in Europe, in China if necessary. Start calling out these nations to implement the solutions, not escalate the problems.
One quick and lasting stimulant in the economy that doesn't require an act of the Leftist Pelosi House: Index capital gains to inflation effective August 1 2019 - by executive order. This would unlock assets, capture revenue and have a velocity multiplier effect throughout the economy. His top economic adviser (Kudlow) is for it. Do something bold and positive for the country. Out-perform your socialist opponents by embracing the free movement of capital in an entrepreneurial economy. Let them run against success, not argue that they offer better stagnation.
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I have not followed this thread very much.....but buying Bitcoin is the once in a generation assymetric bet. Please read, https://www.amazon.com/Bitcoin-Standard-Decentralized-Alternative-Central/dp/1119473861/ref=sr_1_1?keywords=saifedean&qid=1564242545&s=gateway&sr=8-1
The book has been translated in 14 languages. Can also be downloaded free from Saifedean Ammous's twitter handle and explore this website https://dergigi.com/
6 months back bitcoin was at 3200$, its now down to 9500$ (after peaking at 13800$)...it will moon again before Dec 2019. 85 % drawdowns are routine with Bitcoin, so invest only what you are willing to lose and hold for 5-10 years.
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I made what for me is a fairly substantial bet on a bitcoin ETF about two weeks ago.
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Thats a good start, but really the mantra is "Not your keys, not your coin". One of the driving forces behind BTC (Bitcoin) use is of being a sovereign individual, This means you store your own private keys using a hardware wallet. That means no one can put a hold on your bank acct, you can cross borders freely with the codes in your brain or in your hardware wallet etc. In a world moving to a cash less society, the ability to be your own bank is vitally important.
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Personal Income Rose 0.4% in June To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/30/2019
Personal income rose 0.4% in June while personal consumption rose 0.3%, both matching consensus expectations. Personal income is up 4.9% in the past year, while spending has increased 3.9%.
Disposable personal income (income after taxes) increased 0.4% in June and is up 4.7% from a year ago.
The overall PCE deflator (consumer prices) rose 0.1% in June and is up 1.4% versus a year ago. The "core" PCE deflator, which excludes food and energy, rose 0.2% in June and is up 1.6% in the past year.
After adjusting for inflation, "real" consumption increased 0.2% in June, and is up 2.5% from a year ago.
Implications: Consumers should have a smile on their face headed into the second half of 2019, as wages continue to rise at a healthy clip. Before we jump into the details for June, today's report also shows large upward revisions for income growth since the end of 2016. Previously, we had income figures through May 2019 and the data showed that personal incomes had grown at a 4.3% annual rate since the end of 2016. But the revisions show that income was instead growing at a 5.3% annual rate, largely due to faster growth in worker compensation. Spending was revised up slightly, which means, with better incomes, spending has more room to improve in the future. For June, personal income rose 0.4% for a fourth consecutive month, led higher by private sector wages and salaries. Spending rose 0.3% in June, made more impressive considering that comes after a 0.6% jump in April and a 0.5% increase in May. To put that in perspective, the 5.7% annualized growth in spending through June is the fastest pace of growth for the first half of a year since 2006. Incomes are also accelerating, with personal income up 4.9% in the past year, but up at a faster 5.2% annualized rate over both the past three and six-month periods. This is not the type of data that would suggest a need for lower interest rates, and the Fed acknowledged the health of consumer activity in leaving rates unchanged at their last meeting back in June. Their focus was instead on inflation, which has continued to run below its 2% target. PCE prices rose 0.1% in June and are up 1.4% in the past year, while "core" prices, which exclude the volatile food and energy sectors, rose 0.2% in June but are up a slightly faster 1.6% in the past twelve months. However, over the past three months those measures have accelerated, with overall PCE prices up at a 2.2% annualized rate while "core" prices are up 2.5% annualized, both exceeding the Fed's targets. Unfortunately, today's data (or any of the other strong data released since the last Fed meeting) will probably do little to change its leanings toward cutting rates tomorrow. Is a rate cut needed? Not at all. The US continues to benefit from the tailwinds of tax reform and deregulation put in place over the past two years, and the economy is on track to once again grow near the fastest annual pace in more than a decade. There is no recession on the horizon, and no need for government intervention. In other news this morning, the national Case-Shiller index rose 0.2% in May and is up 3.4% from a year ago, a significant slowdown from the 6.3% gain in the year ending in May 2018. In the past twelve months, price gains were led by Las Vegas, Phoenix, and Tampa, while prices have dropped slightly in Seattle and risen only slightly in San Francisco, and San Diego.
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Data Watch
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Industrial Production Declined 0.2% in July To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/15/2019
Industrial production declined 0.2% in July (-0.4% including revisions to prior months), below the consensus expected gain of 0.1%. Mining output fell 1.8% in July, while utilities rose 3.1%.
Manufacturing, which excludes mining/utilities, fell 0.4% in July (-0.6% including revisions to prior months). Auto production declined 0.2%, while non-auto manufacturing fell 0.4%. Auto production is up 3.7% versus a year ago, while non-auto manufacturing is down 0.9%.
The production of high-tech equipment rose 0.2% in July and is up 5.3% versus a year ago.
Overall capacity utilization declined to 77.5% in July from 77.8% in June. Manufacturing capacity utilization fell to 75.4% in July from 75.8% in June.
Implications: No doubt about it, industrial production was weak in July. The one positive contribution for the month came from utilities, the result of temperatures returning to normal and boosting demand for air conditioning following the coolest June since 2009. Aside from that series, declines were broad-based. Auto manufacturing fell 0.2% in July following two months of strong gains. Meanwhile, manufacturing outside the auto sector (which represents the majority of activity) declined 0.4%. Putting the two series together shows overall manufacturing fell 0.4% in July and is now down 0.5% from a year ago. This represents a considerable slowdown in the twelve-month growth rate since the end of 2018, and the same pattern can be seen in overall industrial production as the chart in the attached PDF shows. However, it's important to remember that we saw a similar slowdown in 2015-16 during the oil price crash, and no recession materialized. Keep in mind that manufacturing is only responsible for about 11% of GDP and is much more sensitive to global demand than other sectors of the economy. Even though non-auto manufacturing is now down 0.9% in the past year, the various capital goods production indices continue to outperform the broader index. For example, over the past twelve months business equipment is up 1.0%, high-tech equipment is up 5.3%, and durable goods more generally are up 1.1%. By contrast non-durable goods production is down 2.1%, demonstrating that the ongoing weakness in non-auto manufacturing growth isn't being led by the death of business investment Finally, mining activity fell 1.8% in July, its largest monthly drop in over three years. However, according to the Fed this was just the result of a sharp temporary decline in oil extraction due to hurricane Barry. In the past year mining is still up 5.5%, showing the fastest year-over-year growth of any major category. In other recent news from the manufacturing sector, the Philly Fed Index, a measure of East Coast factory sentiment, dropped to +16.8 in August from +21.8 in July. Meanwhile, the Empire State Index, which measures factory sentiment in the New York region, continued its rebound, rising to +4.8 in August from +4.3 in July. Notably, both of these readings beat consensus expectations and signal continued optimism. On the housing front, the NAHB index, which measures homebuilder sentiment, rose to 66 in August from 65 in July, matching its 2019 high. The increase was driven by expectations of stronger sales activity and buyer foot traffic.
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Data Watch
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Retail Sales Increased 0.7% in July To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/15/2019
Retail sales increased 0.7% in July, easily beating the consensus expected gain of 0.3%. Retail sales are up 3.4% versus a year ago.
Sales excluding autos rose 1.0% in July, easily beating the consensus expected 0.4% gain. These sales are up 3.7% in the past year. Excluding gas, sales rose 0.6% in July and are up 3.8% from a year ago.
The increase in sales in July was led by non-store retailers (internet & mail order), gas stations and restaurants & bars. Auto sales were the only major decline.
Sales excluding autos, building materials, and gas rose 1.0% in July (+1.1% including revisions to prior months). If unchanged in August/September, these sales will be up at a 7.1% annual rate in Q3 versus the Q2 average.
Implications: Tell us again why the Fed should be cutting rates? Add today's retail sales report to the litany of other positive news coming out of the US economy over the past few months. A truly "data dependent" Fed should not have cut rates in late July and would not be heading for another rate cut in September, like it has signaled and as the financial markets fully anticipate. Today's retail sales report shows the consumer is doing very well. Sales increased 0.7% in July, rising for the fifth consecutive month and beating even the most optimistic forecast on Bloomberg. Ten of the thirteen major categories had higher sales, led by non-store retailers (think internet & mail order), gas stations, and restaurants & bars. Powered by "Prime Day," non-store sales were up 16.0% from a year ago, sit at record highs, and now make up 12.8% of overall retail sales, also a record. The only significant decline in today's report was for autos. "Core" sales, which exclude autos, building materials, and gas stations (the most volatile sectors) were up 1.0% in July, up 1.1% including revisions to prior months, and are up 4.8% from a year ago. Jobs and wages are moving up, companies and consumers continue to benefit from tax cuts, consumer balance sheets look healthy, and serious (90+ day) debt delinquencies are down substantially from post-recession highs. For these reasons, expect continued solid gains in retail sales in the year ahead. In other news today, nonfarm productivity (output per hour) rose at a 2.3% annual rate in the second quarter, coming in well above the consensus expected increase of 1.4%. The rise in nonfarm productivity came as output rose while hours worked declined, pushing output per hour higher. Nonfarm productivity is up 1.8% in the past year and up 1.7% at an annualized rate over the past two years. This is the fastest two-year increase since 2011, which was early in the recovery, when it's normal for productivity growth to surge as firms increase output while still reluctant to add hours. The recent gain, however, comes deep in an economic recovery, which suggests tax cuts and deregulation are the key drivers. We expect productivity will remain elevated in 2019, as the investments in machinery and R&D continue to come online. Meanwhile, the tight labor market will encourage firms to keep looking for more efficient ways to produce. Also today, initial jobless claims rose 9,000 last week to 220,000. Continuing claims rose 39,000 to 1.726 million. Plugging these figures into our model suggests nonfarm payrolls continue to grow at a healthy pace in August. In other news yesterday, on the inflation front, both import and export prices rose 0.2% July. In the past year, import prices are down 1.8%, while export prices are down 0.9%. We expect these inflation figures to continue to head north in the coming months.
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and job growth up
https://www.breitbart.com/the-media/2019/08/16/anthony-scaramucci-plotting-trump-takedown-with-bill-kristol/
fastest growing industry - the anti Trumpers
highest pain in the industry are the back - stabbing rats
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https://www.foxbusiness.com/economy/august-retail-sales
US retail sales rise more than expected in August as auto sales surged
Recessions aren't caused by political wishful thinking. Who knew?
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Data Watch
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Industrial Production Increased 0.6% in August To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/17/2019
Industrial production increased 0.6% in August, easily beating the consensus expected gain of 0.2%. Mining output jumped 1.4% in August, while utilities rose 0.6%.
Manufacturing, which excludes mining/utilities, increased 0.5% in August (+0.6% including revisions to prior months). Auto production declined 1.0%, while non-auto manufacturing rose 0.6%. Auto production is up 0.5% versus a year ago, while non-auto manufacturing is down 0.6%.
The production of high-tech equipment rose 0.8% in August and is up 1.9% versus a year ago.
Overall capacity utilization increased to 77.9% in August from 77.5% in July. Manufacturing capacity utilization rose to 75.7% in August from 75.4% in July.
Implications: Industrial production surged in August, easily beating consensus expectations to post its largest monthly increase in a year. And the details of the report were as good as the headline, with nearly every major category showing growth. The one exception came from auto manufacturing, which fell 1.0% in August. However, that comes on the heels of three consecutive months of strong gains, and auto production is still up 0.5% from a year ago. Meanwhile, the best news came from manufacturing outside the auto sector (which represents the majority of manufacturing activity) where production rose 0.6%, its largest monthly gain in over a year. Putting the two series together shows overall manufacturing increased 0.5% in August but is still down 0.5% from a year ago. This represents a considerable slowdown in the twelve-month growth rate since the end of 2018, and the same pattern can be seen in overall industrial production as the chart in the attached PDF shows. However, the slowdown has begun to taper off, and there is evidence that manufacturing activity may be turning a corner. Over the past four months, manufacturing has risen at a 2.6% annualized rate, a stark reversal from an annualized decline of 5.8% during the first four months of 2019. Despite all the recent doomsday predictions related to the US-China trade dispute, it's important to remember that we also saw a similar slowdown in 2015-16 during the oil price crash, and no recession materialized. Keep in mind that manufacturing is only responsible for about 11% of GDP, and is much more sensitive to global demand than other sectors of the economy. Finally, mining activity rebounded 1.4% in August following a sharp temporary decline in July due to hurricane Barry. In the past year, mining is still up 5.1%, showing the fastest year-over-year growth of any major category. Expect a further acceleration in the coming months as US shale drillers ramp up activity to fill the gap in production caused by the recent attacks on Saudi Arabia's oil infrastructure. In other news this morning, the Empire State Index, which measures factory sentiment in the New York region, fell to +2.0 in September from +4.8 in July. On the housing front, the NAHB index, which measures homebuilder sentiment, rose to 68 in September from 67 in July, an eleven-month high. This represents a significant and consistent rebound in optimism following the collapse in the index at the end of 2018.
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Hey Everyone.
I am back!
Just wondering anyone's thoughts on all the REPOs and the current liquidity crunch going on.
Pat
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Welcome back!!! 8-) 8-) 8-)
https://www.ftportfolios.com/blogs/EconBlog/2019/9/18/repo-madness
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http://ftalphaville.ft.com/2019/09/17/1568721798000/A-story-about-a-liquidity-regime-shift/
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Huh?
QE, or not QE? On Friday, the U.S. Treasury formally announced plans to start buying back short-term U.S. Treasury debt. The plan calls for the New York Federal Reserve Bank to buy about $60 billion through mid-November – an attempt to correct liquidity shortages in the banking system in September – and with buy-backs continuing through the second quarter of 2020, it also aims to preempt future liquidity crunches. (Future buy-backs will be determined based on the demand for dollars.) The Fed has said that this is not a change in monetary policy and insists that it categorically is not qualitative easing. The U.S. economy is due for a cyclical recession sooner or later, and moves made by the Federal Reserve now will impact the severity and tools available for dealing with a recession when it arrives.
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Trump economy is growing faster in the middle of a trade war than the Obama economy grew under artificial stimuli while neglecting the long term threats.
How many MSM warnings have we seen that we may already be in recession (wish, wish) yet our growth rate is greater than all of Europe. Who knew.
https://www.msn.com/en-us/finance/markets/us-economy-holds-up-with-19-25-growth-on-consumer-strength/ar-AAJzqQX
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Industrial Production Dropped 0.8% in October To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/15/2019
Industrial production dropped 0.8% in October, lagging the consensus expected decline of 0.4%. Mining output fell 0.7% in October, while utilities dropped 1.3%.
Manufacturing, which excludes mining/utilities, declined 0.6% in October. Auto production fell 7.1%, while non-auto manufacturing declined 0.2%. Auto production is down 11.9% versus a year ago, while non-auto manufacturing is down 0.7%.
The production of high-tech equipment rose 0.1% in October and is up 5.6% versus a year ago.
Overall capacity utilization declined to 76.7% in October from 77.5% in September. Manufacturing capacity utilization fell to 74.7% in October from 75.2% in September.
Implications: Industrial production continued to take it on the chin in October, as the GM strike dragged on. That said, outside autos there wasn't much to like in today's report either, with nearly every major category of production showing declines. Autos led industrial production lower in October, declining 7.1%, and over the course of September and October the GM strike dragged auto production down by a total of 12.2%, the largest two-month decline since the recession in 2009. The good news is that the strike has since been resolved, so autos are poised for a sharp rebound in November. Manufacturing, excluding autos, had a more muted decline of 0.2% in October. Despite the GM strike, over the past five months, overall manufacturing has declined at a 0.9% annualized rate, a smaller decline than the large annualized drop of 4.5% during the first five months of 2019. We think this trend will continue and expect a return to positive growth in industrial production in the months ahead. The strike is over, USMCA is likely to be passed soon, and a Phase 1 trade deal with China looks to be around the corner. It's also important to remember that we had a similar slowdown in 2015-16 during the oil price crash, and no recession materialized. And keep in mind that manufacturing is only responsible for about 11% of GDP and is much more sensitive to global demand than other sectors of the economy. Outside the manufacturing sector, mining activity fell 0.7% in September, primarily due to a decline in coal extraction. Utilities were also weak in October, falling 2.6% as an increase in natural gas usage was swamped by lower demand for electricity. Given relatively harsh weather for much of the country so far in November, utility output is set to rebound. High-tech equipment production was the one bright spot in October, rising 0.1%, and is now up 5.6% in the past year, the fastest year-over-year growth of any major category. In other manufacturing news this morning, the Empire State Index, which measures factory sentiment in the New York region, fell to +2.9 in November from +4.0 in October, still signaling growth in that area of the country.
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second post
Retail Sales Rose 0.3% in October To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/15/2019
Retail sales rose 0.3% in October (+0.2% including revisions to prior months) versus a consensus expected 0.2%. Retail sales are up 3.1% versus a year ago.
Sales excluding autos increased 0.2% in October, falling short of the consensus expected 0.4% gain. These sales are up 2.8% in the past year. Excluding gas, sales rose 0.2% in October and are up 3.9% from a year ago.
The rise in sales in October was led by non-store retailers (internet & mail order), autos, and gas stations. The largest decline was at clothing & accessory stores.
Sales excluding autos, building materials, and gas increased 0.2% in October (+0.1% including revisions to prior months). If unchanged in November and December, these sales will be up at a 1.1% annual rate in Q4 versus the Q3 average.
Implications: Retail sales bounced back in October after falling for the first time in seven months in September. Sales grew 0.3% in October and are up a solid 3.1% from a year ago, but the underlying details of the report were a little more mixed than the overall headline would suggest, as sales rose in only six of thirteen major categories. Non-store retailers (think internet & mail order) and autos led the way rising 0.9% and 0.5% in October, respectively. Non-store sales are up 14.3% from a year ago, sit at record highs, and now make up 12.9% of overall retail sales, also a record. The largest decline in sales in October was for clothing and accessory stores, which dropped 1.0%. In spite of the lack of breadth, there should be no doubt the consumer is doing well. "Core" sales, which exclude autos, building materials, and gas stations (the most volatile sectors) grew 0.2% in October, and are up 4.2% from a year ago and 7.8% at an annualized rate since the start of 2019, the fastest ten-month pace of growth since December 1999. Jobs and wages are moving up, companies and consumers continue to benefit from tax cuts, consumer balance sheets look healthy, and serious (90+ day) debt delinquencies are down substantially from post-recession highs. For these reasons, expect continued solid gains in retail sales in the year ahead. In inflation news today, import prices fell 0.5% in October, driven by a decline in petroleum prices. Meanwhile, export prices declined 0.1% primarily due to industrial goods. In the past year, import prices are down 3.0%, while export prices are down 2.2%. We expect a turnaround to at least modest price gains in the year ahead.
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Manufacturing jobs multiply in state
Report: State has second highest manufacturing job growth in U.S.
By Bethany Blankley - The Center Square
Oct. 10, 2019
http://www.gmtoday.com/news/local_stories/2019/10102019-manufacturing-jobs-multiply-in-state.asp
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Manufacturing jobs multiply in state
Report: State has second highest manufacturing job growth in U.S.
By Bethany Blankley - The Center Square
Oct. 10, 2019
http://www.gmtoday.com/news/local_stories/2019/10102019-manufacturing-jobs-multiply-in-state.asp
Strange, I was told that jobs like these weren't coming back. Something about a magic wand....
This just in, Trump to be impeached for sorcery! "He turned me into a newt" says unnamed whistleblower...
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For the record, unleashing free market, entrepreneurial capitalism IS magic.
The other side has an even more powerful belief in capitalism. They think you can put any weight on it, any burden, any moral hazard and any set of disincentives to produce, and nothing (much) will go wrong.
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Even in this so-called recession, Trump economy growth is more than a third better than the average or last year growth of the Obama economy.
https://www.foxbusiness.com/markets/markets-us-gdp-third-quarter-revised
The markets that will never recover hit record highs for the 100th time under Trump.
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Data Watch
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The ISM Manufacturing Index Declined to 47.2 in December To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 1/3/2020
The ISM Manufacturing Index declined to 47.2 in December, lagging the consensus expected 49.0. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mostly lower in December. The production index fell to 43.2 from 49.1 in November, while the employment index declined to 45.1 from 46.6. The new orders index moved lower to 46.8 from 47.2. The supplier deliveries index rose to 54.6 from 52.0 in November.
The prices paid index rose to 51.7 in December from 46.7 in November.
Implications: Manufacturing activity continued to slow as 2019 came to a close, according to the Institute for Supply Management (ISM) survey, hitting the lowest level since 2009. However, the ISM index is calculated through a survey of purchasing managers who are often swayed more by sentiment than actual activity, so we think it should be taken with a grain of salt. The index has dipped below 50 earlier in this recovery - without signaling recession - on three occasions in 2012, once again in 2013, and for five consecutive months in 2015/16. Each time, the economy kept growing. The two most forward-looking indices - new orders and production – both declined in December and remain below 50, signaling a slowdown in activity. The new orders index fell to 46.8 from 47.2 in November, while the production index dropped to 43.2 from 49.1. Despite the continued weakness, we expect a return to growth in the months ahead. Why? The ISM data doesn't match what we are seeing from other reports. The latest report on personal consumption shows goods consumption through November up at a 6.6% annualized rate, on-track to show the largest annual increase for the series in fifteen years! So, if consumers are clearly buying, and companies are apparently - according to today's report - not producing, something has got to give. In fact, today's report showed the customers' inventories index declined to 41.1. Customers' inventories have now been declining for 39 consecutive months, which is positive for future factory output. Given that we are also not seeing a pickup in layoffs – something you would expect to see if business significantly slowed - we lean towards the hard data over the survey output when it comes to judging the health of the economy. Speaking of workers, the employment index declined to 45.1 from 46.6 in November. While December employment isn't likely to replicate the 200,000+ reading from November (which, remember, was aided by GM workers returning from strike), we still expect to see healthy nonfarm payroll growth of around 154,000. Finally, on the inflation front, the prices paid index rose to 51.7 in December, pushed higher due primarily to metals (namely steel and aluminum). While the ISM manufacturing index has proved shaky over recent months, the preponderance of the data point to continued growth in the economy. In other news this morning, construction spending rose 0.6% in November (+2.6% including revisions to prior months), coming in above the consensus expected gain of 0.4%. A pickup in home building and public construction of highways and streets were partially offset by a slowdown in spending on manufacturing facilities. In recent employment news, initial jobless claims fell 2,000 last week to 222,000, while continuing claims rose 5,000 to 1.728 million. On the housing front, the Case-Shiller national home price index rose 0.5% in October and is up 3.3% from a year ago, while the FHFA index, which measures prices for homes financed with conforming mortgages, increased 0.2% in October and is up 5.0% over the past twelve months. Both indexes show slower price gains in the past twelve months than in the year ending in October 2018. Finally, pending home sales, which are contracts on existing homes, rose 1.2% in November after a 1.3% decline in October. We expect existing home sales (counted at closing) will rise modestly in the months ahead.
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The ISM Non-Manufacturing Index Rose to 55.0 in December To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 1/7/2020
The ISM Non-Manufacturing index rose to 55.0 in December, beating the consensus expected 54.5. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mixed in December, but all stand above 50, signaling growth. The business activity index rose to 57.2 from 51.6 in November, while the supplier deliveries index increased to 52.5 from 51.5. The new orders index fell to 54.9 from 57.1 in November, and the employment index declined to 55.2 from 55.5.
The prices paid index was unchanged at 58.5.
Implications: While so much attention has been given to the ISM manufacturing index as it dipped below 50 in recent months, data from the much larger service sector continues to show solid growth. And the growth was broad-based in December, with eleven industries reporting growth, while six showed decline. The two most forward-looking indices – business activity and new orders – moved in opposite directions in December, with activity rising but orders slowing. Companies reported increased order activity in November as remaining 2019 budgets were put to work, and healthy orders activity continued in December – though at a modestly slower pace, in part due to reduced holiday schedules. Meanwhile, the pickup in orders from October and November led to a rise in activity as orders are filled. Activity could have grown faster but for increasing lead times for materials and difficulty in finding qualified labor to fill additional positions (which shouldn't be a surprise with the unemployment rate at multi-decade lows). Speaking of workers, the employment index slipped to 55.2 from 55.5 in November. While we are waiting on tomorrow's ADP employment report and Thursday's initial claims data to finalize our forecast, we believe that Friday's employment report will show a print of around 154,000 nonfarm jobs added. That represents a slowdown from the 200,000+ jobs added in November as GM workers returned from strike, but healthy growth nonetheless. On the inflation front, the prices paid index was unchanged at 58.5 in December, as rising costs for beef, cheese, and fuel were offset by a decline in prices for steel and lettuce. At the end of the day, the service sector report from the ISM should be given more weight than the manufacturing report when it comes to the outlook on the broader economy, but the media loves negative news and these data simply don't support their dour outlook. Fear sells, even when the fear isn't justified.
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10 years of NASDAQ
https://twitter.com/AlanReynoldsEcn/status/1215421037380341762
@AlanReynoldsEcn
Those habitually critical of American corporations ("big tech" in particular) have presumably put their money where there mouth was, such as government securities or bank deposits - anyplace except NADAQ stocks. Now they resent us tech investors for their own foolish timidity.
]https://pbs.twimg.com/media/EN4K_cYU4AATgQ9.png
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From 2500 to 9000, who else sat this one out?
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The US economy is not in an economic boom, but growth has been consistently faster than during the Plow Horse phase from mid-2009 through the end of 2016. Real GDP has grown at a 2.6% annual rate since the start of 2017 versus 2.2% beforehand.
But most analysts expect a noticeable slowdown in 2020; not a recession, but slimmer 1.8% real GDP growth (Q4/Q4). This is an even steeper decline than the 2.2% consensus forecast for 2019 that analysts made a year ago. By contrast, we're forecasting real GDP growth in the 2.5 - 3.0% range in 2020.
We're not trying to be contrarian, and don't think that label applies to us. We're not just saying "up" because others are saying "down." The reason our forecast is different is that most analysts are Keynesians, and we're supply-siders; they follow money, we follow incentives.
As a result, they think the extra economic growth related to the tax cut was a temporary phenomenon, due to putting more money in the pockets of consumers and businesses. Instead, we're focused on what the changes to the tax law due to the incentives to work, invest, and run businesses more efficiently.
That last part is particularly important given that the incentive effects of the Trump tax cut were focused so heavily on businesses. Some analysts have claimed those tax cuts didn't work, noting that business investment in plant and equipment hasn't boomed.
But the way businesses operate has changed substantially over recent decades. The old way of raising worker productivity was by giving them more equipment. Now companies push the work, the decisions, to the consumer by using Apps. Instead of buying a shiny new computer, they figure out how to use computers and networks most effectively. No wonder corporate profits have remained at such high levels.
This may also explain why productivity growth has accelerated in spite of lukewarm growth in the dollar value of business investment. Productivity growth is normally strong early in an economic expansion, and then fades later on. For example, productivity grew 3.7% in the first year of the current expansion. In the next 6½ years it grew at a very weak 0.7% annual rate (through the end of 2016). Since then, productivity is up at a much more respectable 1.4% rate.
The economic expansion isn't going to last forever, but look for the US economy to continue to outperform the doubters until the doubters realize their model of how the economy works has a fundamental flaw.
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https://www.ftportfolios.com/Commentary/EconomicResearch/2020/1/14/2020-economic-and-marketing-outlook
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https://finance.yahoo.com/news/u-jobs-top-estimates-225-133001952.html
https://finance.yahoo.com/news/u-jobs-top-estimates-225-133001952.html
Beware the sell-off the day this fall Bernie is nominee and leads the incumbent in the polls.
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https://www.ftportfolios.com/Commentary/EconomicResearch/2020/1/14/2020-economic-and-marketing-outlook
Good analysis. I agreed with his optimism all the way through, then wondered what could bring it down?
An economic collapse in China and Asia could.
In Hubei province, a population the size of Italy’s is under lockdown
https://www.economist.com/china/2020/01/30/tough-quarantine-measures-have-spread-across-china
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Nonfarm Payrolls Rose 225,000 in January To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/7/2020
Nonfarm payrolls rose 225,000 in January, beating the consensus expected 165,000. Including revisions to November/December, nonfarm payrolls were up 232,000.
Private sector payrolls rose 206,000 in January, while revisions to the two prior months added 7,000. The largest increases in January were for education & health services (+72,000), construction (+44,000), leisure & hospitality (+36,000), and transportation & warehousing (+28,000). Government increased 19,000 while manufacturing declined 12,000.
The unemployment rate ticked up to 3.6% in January from 3.5% in December.
Average hourly earnings – cash earnings, excluding irregular bonuses/commissions and fringe benefits – rose 0.2% in January and are up 3.1% versus a year ago.
Implications: A solid report on the labor market for January; not quite as strong as the big headline, but strong nonetheless. Nonfarm payrolls rose 225,000 in January, beating the consensus expected 165,000 and were higher than the forecast from any economics group. Some are saying the gain was due to unusually mild weather in January throughout much of the country. But the government keeps track of the number of people who miss work due to weather each month and fewer people missed work due to weather back in January 2015, when overall payrolls rose only 191,000 (smaller than the gain this January), so weather is likely only a small part of the explanation for strong payrolls. However, civilian employment, an alternative measure of jobs that includes small-business start-ups, declined 89,000. As a result of the decline in civilian employment the jobless rate ticked up to 3.6%. Don't get us wrong: today's report is good news overall, but the top-line increase in nonfarm payrolls isn't going to happen every month. Looking at the past year, nonfarm payrolls have averaged an increase of 171,000 per month while civilian employment has averaged a gain of 174,000, both solid figures but closer to the underlying trend than the 225,000 gain in payrolls. Perhaps the best news in today's report was that the labor force participation rate (the share of adults who are either working or looking for work) increased to 63.4%, the highest since early 2013. Participation among "prime-age" adults (25 to 54), hit 83.1%, the highest since the Lehman Brothers bankruptcy in 2008. The share of adults who are employed hit 61.2%, also the highest since 2008. Meanwhile, workers' purchasing power continues to grow. Average hourly earnings grew 0.2% in January and are up 3.1% from a year ago. Total hours worked grew 0.2% in January and are up 0.9% from a year ago. As a result, total earnings by all private-sector workers combined are up 4.1% in the past year. Today's report pushes back against market expectations that the Federal Reserve will cut short-term rates later this year. Monetary policy isn't tight and we don't need lower rates.
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What does everyone here think about market implications of this so-called Coronavirus?
1. Medically, how does this end?
2. Mathematically, how is this expanding? Remember, information from China is likely false, understated.
3. Economy of China: If the economic impact only hit with a huge recession in China, how does that affect our markets, my 'growth stock funds'?
4. If the virus hits epidemic levels elsewhere, what is that economic and market impact?
5. If stock markets start to panic, how far does it go.
I am thinking I should be in an all cash position now and buy back in at the bottom. That is against my nature but it is too late to panic after everyone else already has.
Ideas, advice?
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Trying to answer my own question, here is the Shanghai index for the last 3 months:
(https://markets.money.cnn.com/cgi-bin/upload.dll/file.png?z718f7d0az0e9db315623b4398b38ad4874a50aa75)
Stocks in China kept going up at the announcement of the virus, peaked in mid January. Bottomed out (for now) around Feb 1 and is up since then. This tells me there is no panic now.
What news of spread or trajectory makes this change?
There are fewer than 2000 deaths known worldwide so far. Far lower even in China than auto accidents, cancer, etc.
https://www.worldometers.info/coronavirus/
The economic scare then has to do with the travel bans, quarantines and shut downs of economic activity. I'm surprised this hasn't shown up in the numbers yet.
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:-o :-o :-o
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Time to Fear the Coronavirus?
Monday, fear over the Coronavirus finally gripped investors, as both the Dow Jones Industrial Average and the S&P 500 index fell over 3% - the largest daily declines in two years. These drops wiped out all the gains for the year.
Frankly, it's amazing to us that the market had been so resilient! Maybe it's because recent history with stocks and viruses is that markets overreact leading to significant buying opportunities along the way. Over a 38-day trading period during the height of the SARS virus back in 2003, the S&P 500 index fell by 12.8%. During the Zika virus, which occurred at the end of 2015 and into 2016 the market fell by 12.9%. There are other examples, but they all passed, and the market recovered and hit new highs.
Will this happen again? Our view is that it is highly probable.
We aren't trying to be immunologists, and that may make our points moot, but there aren't that many immunologists in the world and the World Health Organization says this is not yet a true pandemic. We're just economists, but looking at the data, and having perspective is always important.
This whole thing is a human tragedy and we would never take human life and suffering lightly. And looking at data can make people appear cold, when in reality all they are trying to do is understand the situation. There are currently 80,088 confirmed cases and 2,699 deaths from the coronavirus COVID-19 outbreak as of Monday. This is a big number and is still growing, but the pace of growth looks to be slowing.
Much of the pessimism surrounding the virus focuses on the Chinese under-counting the number of infected to save face. However, it's important to note that a shortage of specialized test kits has caused health officials in many countries to rely on observable symptoms for diagnoses, and because coronavirus mimics the flu and pneumonia in its early stages, it's also possible that authorities may be over-counting as well.
Instead of looking at it from a total confirmed case perspective, we think the number of total active cases provides a better look into what is happening. This measure takes total confirmed cases and subtracts deaths and recoveries. This gives the total amount of people who have the potential to spread the virus further.
According to Worldometer, which aggregates statistics from health agencies across the world, total active cases peaked about a week ago at 58,747 and have since been declining. Even with all the new cases we are seeing in South Korea, Italy and Iran (where data is suspect). There have been 30,597 cases with an outcome (2,699 deaths and 27,898 recovered). In other words, the total active cases now stand at 49,923, a drop of 15% from the peak on February 17th.
One death is too many, but to put that number into a little bit of perspective, according to the World Health Organization, in the United States alone for the 2019-2020 season, there have been at least 15 million flu illnesses, 140,000 hospitalizations and 8,200 deaths. Imagine if everyone with an internet connection followed the spread of this annual flu, case by case, hour by hour.
It's true that the death rate from Coronavirus appears to be around 2% in China, which is much higher than the death rate from the normal flu, but like the flu increases with age. However, outside of China the death rate is far less than inside China, roughly 1%. And, there is already a drug that will combat COVID-19 moving toward first phase clinical trials. It took three months for this to happen in 2020, versus 20 months for SARS back in 2002/03 - a testament to advances in drug technology.
From a macro-economic point of view, the real question is how will this impact the US economy over the coming year. In short, our view has not changed. The US we believe is relatively insulated, with a fantastic health system. The US started the year with solid economic data and so far, nothing has changed. In fact, with all the data we already have on hand, we are expecting around 2% growth in Q1. Most of the impact to the US from the corona virus will come in Q2.
Capital goods exports to China along with imports from China are sure to be depressed given the struggles to reopen factories abroad. Most Chinese factories are still only operating at about 50-60% of capacity. Shipping giant Maersk has already said it has cancelled more than 50 trips to and from Asia. With China being home to seven of the world's busiest container ports there is bound to be some impact. Inventories in the US will be depleted more rapidly, but once the virus subsides, expect faster accumulation of inventories in the second half of the year.
Revenues and earnings from companies that are highly exposed to China will definitely be affected. China being shut down for a month will have a global impact. But lower earnings in the first half of the year should be made up by a strong rebound in the second half of the year with payback from lost months. Demand remains strong and there has been no visible impact yet on the job market as shown by initial unemployment claims. Supply disruption is the issue. We suggest looking through any earnings weakness as we expect it to be transitory.
One small nugget of good news is that many companies had already been shifting supply chains from China due to the Trump Tariffs. If they weren't considering it before they will be now as they realize the importance of diversification. Expect this trend to accelerate moving forward.
The US consumer is on solid footing and will continue to be one of the key drivers to US economic growth in the year to come. We believe, just like all the other viruses we have seen over the past decades that have dissipated, the Coronavirus will be no different. Some have suggested that the 1918 Spanish Flu, which killed hundreds of thousands in the US could happen again. No one knows, but 2020, is not 1918. Technology and news move much faster and the US rebounded from the Spanish Flu when all was a said and done. We suspect that any drop in earnings or economic activity will be short lived, and more than made up for in the year to come. Don't panic, stay invested.
Brian S. Wesbury - Chief Economist
Robert Stein, CFA – Deputy Chief Economist
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What does everyone here think about market implications of this so-called Coronavirus?
1. Medically, how does this end?
When the infected die off. Based on the information available, expect something similar to the 1918 Spanish Flu as a best case scenario.
2. Mathematically, how is this expanding? Remember, information from China is likely false, understated.
Yes. China is lying it's ass off. Look how rapidly it's gone global. Unless you are in an underground bunker, this will reach where you live.
3. Economy of China: If the economic impact only hit with a huge recession in China, how does that affect our markets, my 'growth stock funds'?
The whole global debt-based economy is fixing to go up in flames. We never fixed the core issues from 2008, and now a giant black swan has arrived.
4. If the virus hits epidemic levels elsewhere, what is that economic and market impact?
TEOTWAWKI
5. If stock markets start to panic, how far does it go.
1934
I am thinking I should be in an all cash position now and buy back in at the bottom. That is against my nature but it is too late to panic after everyone else already has.
Some cash, some gold and silver and a whole bunch of guns, ammo, food and water. Beans, bullets, and bandages. Hospitals will become death zones. Avoid getting sick. Expect the cities to burn.
Ideas, advice?
Liquidate your urban real estate now.
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https://charleshughsmith.blogspot.com/2020/02/how-many-cases-of-covid-19-will-it-take.html
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Thank you GM for this response.
I liquidated (most of) my stock holdings last week. Not because of my fear of the virus, but because of my fear of other people's fear of the virus. I don't see how you can have economic activity frozen in place and not have market (over)reaction to it.
Liquidating the illiquid is another matter, but the long process is started.
I would like to buy back in when the market bottoms and the peak virus scare is over. Someone please say when.
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Thank you GM for this response.
I liquidated (most of) my stock holdings last week. Not because of my fear of the virus, but because of my fear of other people's fear of the virus. I don't see how you can have economic activity frozen in place and not have market (over)reaction to it.
Liquidating the illiquid is another matter, but the long process is started.
I would like to buy back in when the market bottoms and the peak virus scare is over. Someone please say when.
Those left alive will know. The biggest threat isn't the virus, it's the second and third order effects of the virus on the global economy and the nation-state components of the global network.
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"I liquidated (most of) my stock holdings last week. Not because of my fear of the virus, but because of my fear of other people's fear of the virus."
Looks like a good move.
"I would like to buy back in when the market bottoms and the peak virus scare is over. Someone please say when."
IF and When Trump wins re election ?
:-o
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"I liquidated (most of) my stock holdings last week. Not because of my fear of the virus, but because of my fear of other people's fear of the virus."
Looks like a good move.
"I would like to buy back in when the market bottoms and the peak virus scare is over. Someone please say when."
IF and When Trump wins re election ?
:-o
If not, the gruel will be free in the re-education camps.
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Real GDP Growth in Q4 was Unrevised at a 2.1% Annualized Rate To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/27/2020
Real GDP growth in Q4 was unrevised, coming in at a 2.1% annual rate, matching consensus expectations.
Upward revisions to inventories and net exports were offset by downward revision to business investment and consumption.
The largest positive contribution to the real GDP growth rate in Q4 was net exports. The weakest component, by far, was inventories.
The GDP price index was revised down slightly to a 1.3% annual growth rate from a prior estimate of 1.4%. Nominal GDP growth – real GDP plus inflation – was revised down to a 3.5% annual rate from a prior estimate of 3.6%.
Implications: Not much "new" news on GDP. The second reading for real GDP growth showed the same moderate 2.1% annualized pace of growth that was estimated last month, but the mix of revisions versus the previous estimate were slightly less positive. Business investment was revised lower, led by equipment and software, along with consumption, led by non-durable goods. Meanwhile revisions to inventories and net exports were revised higher. "Core" real GDP, which strips out inventories, net exports, and government purchases, rose at a tepid 1.3% annual rate in the fourth quarter and is up at a 2.5% annualized rate in the past two years. Today's reading on growth, an unemployment rate at 3.6%, and inflation readings hovering around 2% all show no need for more rate cuts. Nominal GDP growth – real GDP growth plus inflation – is up 4.0% from a year ago, and up 4.4% annualized in the past two years, much too high for short-term interest rates well below 2.0%, even with Coronavirus fears. Currently the market is expecting three rate cuts this year, the first one coming in March. Further cuts would be a mistake. We expect real GDP to grow at a 2%+ rate in 2020 with slower growth in the first half relative to the second. The tax cuts enacted in late 2018 and the deregulation coming from Washington, DC will continue to support the US economy.
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Stratfor Worldview
What a Coronavirus Crisis Means for Europe
Adriano Bosoni
Senior Europe Analyst, Stratfor
8 MINS READ
Feb 28, 2020 | 18:24 GMT
Two women wearing blue, protective respiratory masks take a tour outside the Colosseum in Rome, Italy, on Jan. 31, 2020, after two cases of the new coronavirus were confirmed in the city.
Tourists wear protective masks outside the Colosseum in Rome on Jan. 31, 2020, amid reports that the new coronavirus outbreak had spread to the Italian capital. As of Feb. 28, Italy had reported 400 cases of the virus and 12 deaths.
(ALBERTO PIZZOLI/AFP via Getty Images)
HIGHLIGHTS
The intensifying contagion will curb Europe's industrial activity and tourism flows while emboldening Euroskeptic calls for tighter border controls....
Europe's stock markets have plunged in recent days, with its largest economies (Germany, France, the United Kingdom, Italy and Spain) now all reporting upticks in cases of COVID-19, the coronavirus that emerged from China in recent weeks. Stocks in European industries reliant on Chinese supplies, such as in the technology sector, have suffered some of the sharpest losses, along with airline and credit card companies, due to the expected reduction of economic activity in Europe. But with the size and scope of the contagion expected to grow for at least several more weeks, these stock market dips may just be the tip of the iceberg as disruptions to Europe's supply chains, domestic consumption and tourism sector — and potentially even border crossings — begin to more acutely affect the bloc's already slowing economy.
The Big Picture
Europe has faced slowing GDP growth in recent months due to external factors, such as global trade disputes. The growing number of coronavirus cases in Europe now risks further impeding economic growth across the bloc and could even place some EU countries on the brink of a recession in the months ahead.
See The Fate of the Eurozone
Italy at the Epicenter
As more European countries announce coronavirus cases, stock markets on the continent are taking a beating. On Feb. 28, London’s Financial Times Stock Exchange 100 Index fell to its lowest level since mid-2016, with stock exchanges in major cities such as Frankfurt, Paris, Milan and Madrid suffering sharp losses as well. The pan-European STOXX 600 index, meanwhile, lost more than 9 percent of its value between Feb. 19 and Feb. 26.
The coronavirus outbreak has so far hit Italy’s industrial north, the country’s economic core, particularly hard. The two regions with the highest number of cases to date, Lombardy and Veneto, account for 30 percent of Italy’s GDP. This will have multiple negative effects on the Italian economy, which was already stagnating prior to the coronavirus outbreak. In early February the European Commission predicted that Italy would grow by only 0.3 percent in 2020; but a recession this year cannot be ruled out.
Some factories in northern Italy have shut down temporarily amid the outbreak, while others are now operating with a reduced number of workers. With people (particularly in the north) staying home to prevent contagion, the activity in bars, restaurants, shopping malls, supermarkets and movie theaters has also declined in recent days. Several corporate events and international fairs have been canceled or postponed, which will adversely affect host cities' economies. For example, the Milan Furniture Fair, the world’s largest such event, has been postponed from April to June.
The Italian government will likely ask Brussels for more flexibility in the enforcement of its fiscal rules so that it can increase public spending to boost economic growth and grant tax cuts to the areas affected by the outbreak. The European Union will likely accept these measures, though they could end up further adding to Italy’s large fiscal deficit. Because of Italy's high debt levels, the European Union had called on Rome to reduce its deficit, though this will probably now have to wait.
Strained EU Systems
The contraction in industrial activity in northern Italy will also disrupt supply chains across Europe. Italy is one of the most industrialized countries on the continent, and its exports are part of the supply chains of countries such as Germany, Austria and France, where some industries depend on Italian components (such as auto parts) for production. According to a report by an Italian industrial association, coronavirus-related disruptions will become particularly acute if they persist past mid-March.
Along with Italy, China is another key supplier for European industries. The Asian giant provides supplies such as auto parts, microchips and chemicals to European factories. But as the global epicenter of the new coronavirus, China is facing even more severe industrial disruptions. To offset the loss of Chinese imports, European companies could look for alternative suppliers within the bloc. While this could create new business opportunities for European firms, many may not be able to match the competitive prices offered by their Chinese counterparts.
The coronavirus outbreak is also threatening the capabilities of healthcare systems across the European Union. Fearing that panic could collapse their healthcare facilities, some countries, including Spain, have told people to get tested only if they have clear symptoms or have recently visited risky areas, such as northern Italy.
Tourism Troubles
The most immediate effect of the coronavirus outbreak in China was a sudden reduction in the number of Chinese tourists visiting Europe. This is not a minor issue, considering that some 6 million Chinese nationals visit Europe every year. In recent weeks, dozens of airlines have canceled or modified their routes to China, while some have also canceled flights to Italy. Germany's largest airline, Lufthansa, for example, announced a freeze in new hires on Feb. 26, and said it would offer unpaid leave to some of its employees to counteract the economic impact of the coronavirus. The announcement follows Lufthansa's move to reduce flights to Hong Kong and cancel all flights to and from mainland China earlier this month as demand fell. Other European airlines, including British Airways, Finnair and Easyjet, have also said that falling bookings and canceled routes due to the outbreak are hurting their operations.
With Europe now beginning to develop its own cases of coronavirus, several governments have warned their citizens to restrict travel as much as possible. Countries like the United States, Germany, Austria and Spain issued travel warnings for Italy. The virus outbreak will inflict a toll on the travel sectors in other European countries as well, as some of the most prominent virus cases have taken place in popular tourist destinations. Several countries have already canceled or postponed cultural, business and sports events.
As new cases of coronavirus continue to emerge in Europe for at least several more weeks, political pressure on national governments to introduce border controls will grow.
This is especially concerning for Southern Europe, where tourism represents a significant source of economic activity. While the calculations vary, tourism represents around 16 percent of Spain's GDP, 13 percent of Italy's, and almost 10 percent of France's. Coronavirus cases in high-profile tourism destinations such as Spain's Tenerife Island (where 1,000 people were locked down for days after some hotel guests tested positive for the virus) risk cutting into this crucial revenue stream. Such disruptions, combined with travel warnings by governments and growing fears of contagion, will probably result in an overall reduction of travel in Europe in the coming weeks. If the outbreak continues into late March, it could disrupt travel around Easter in mid-April, one of the most active periods of the year for tourism in Europe.
Border Controls
The coronavirus outbreak risks putting the passport-free Schengen area under stress. So far, the European Commission’s official position is that there is no need to reintroduce border controls on the continent. But as new cases of coronavirus continue to emerge in Europe for at least several more weeks, political pressure on national governments to introduce border controls will grow. Opposition parties will use the coronavirus crisis to accuse governments of not doing enough to protect their populations. The virus will offer nationalist-oriented parties in particular even more fodder to attack EU institutions and demand tighter border controls. The leaders of Italy’s League Party and France’s National Rally have both already demanded the reintroduction of border controls, blaming the Schengen area for facilitating cross-border contagion.
The reintroduction of border controls, however, would risk further harming the economies of the Schengen countries by slowing the transportation of products and the movement of workers and tourists across borders. The World Health Organization has also spoken against the introduction of unilateral restrictions to travel, as it's not a given such efforts would reduce contagion. Indeed, Italy suspended flights to China, but it still became the European epicenter of the coronavirus outbreak in Europe.
Every Member for Itself?
While the expansion of the coronavirus across Europe will continue to dampen economic activity across the continent for weeks, a cohesive, coordinated reaction by the European Union is unlikely. On Feb. 24, the European Commission announced a 232 million euro ($244 million) package of measures to combat the coronavirus outbreak in Europe. The package allots 114 million euros to support WHO efforts; 100 million euros for diagnostics, therapeutics and prevention research; 15 million euros to support rapid diagnosis and epidemiological surveillance in African countries; and 3 million euros for repatriation flights of EU citizens from Wuhan. However, this is far from a package meant to stimulate the European economy. The European Central Bank, for its part, is running out of tools to boost growth: interest rates are already at record low levels and new programs, such as the expansion of the bond-buying quantitative easing, are controversial in the eurozone.
As a result, individual countries will, for the most part, be left to their own devices to respond to the virus, though financial and political realities will limit their ability to do so quickly and efficiently. Already-high levels of debt and deficits will constrain southern European governments' room for action, while many of the more fiscally conservative governments in northern Europe will be wary of funding an expensive stimulus package aimed at countering the outbreak's economic impact. External factors will also play an important role here, as a slower-than-expected economic recovery in China could further delay Europe's economic recovery by producing ripple effects on global supply chains and trade.
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second post
Data Watch
________________________________________
Personal Income Rose 0.6% in January To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/28/2020
Personal income rose 0.6% in January (+0.3% including downward revisions to prior months) versus a consensus expected 0.4%. Personal consumption increased 0.2% in January (+0.1% with prior revisions), lagging the consensus expected +0.3%. Personal income is up 4.0% in the past year, while spending has increased 4.5%.
Disposable personal income (income after taxes) rose 0.6% in January and is up 4.0% from a year ago.
The overall PCE deflator (consumer prices) rose 0.1% in January and is up 1.7% versus a year ago. The "core" PCE deflator, which excludes food and energy, also rose 0.1% in January and is up 1.6% in the past year.
After adjusting for inflation, "real" consumption increased 0.1% in January and is up 2.7% from a year ago.
Implications: Consumers started the new year – and the new decade – on a healthy note, as both income and spending moved higher in January. Personal income rose 0.6% in January, matching the largest monthly increase in more than a year. Within income, the gain was led by government transfers (January includes annual cost of living adjustments for Social Security as well as payments related to the Affordable Care Act's refundable tax credits), as well as private-sector wages and salaries. Higher incomes, in turn, continue to drive spending, which rose 0.2% in January. Spending on services led consumer purchases higher in January, in particular outlays on restaurants and hotels, while spending on goods rose as well. With spending up faster than income over the past year, some may be concerned that consumers are getting stretched, but that isn't the case. Households de-levered following the recession, bringing financial obligations (think mortgages, car loans, etc.) to near multi-decade lows as a share of after-tax income. Put simply, the strong labor market has more people working more hours for more pay, which has fueled the growth in spending. And that math - aided by the improved tax and regulatory environment that went in place in 2018 – provides a strong base for continued economic growth in 2020. One area the Fed has been keeping a keen eye on is inflation, which continues to run below its 2% target. PCE prices rose 0.1% in January and are up 1.7% in the past year. "Core" prices, which exclude the volatile food and energy sectors, also rose 0.1% in January and are up 1.6% in the past twelve months. In other words, inflation is still below but not far from the Fed's 2.0% target. While the markets are reacting to fears over the unknown brought about by the Coronavirus, strong consumers, rising wages, tame inflation, and the data on the economy continue to show steady growth. If the Fed is truly data dependent, it will stay the course and leave rates unchanged for the foreseeable future. That said, given fears regarding the Coronavirus and the Fed's tendency to cut rates at any sign of trouble, even if cutting rates will do nothing to cure a virus, we now think a rate cut on March 18th is more likely than not. On the manufacturing front, the Kansas City Fed index rose to +5 in February from -1 in January, while the Chicago PMI index increased 49.0 in February from 42.9. These reports on regional manufacturing activity follow reports from New York, Philadelphia, and Dallas in suggesting that next week's ISM manufacturing report should remain in expansion territory after spending much of late 2019 in contraction. On the housing front, pending home sales, which are contracts on existing homes, rose 5.2% in January after falling 4.3% in December. These figures suggest closings on existing homes should be roughly stable in February.
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Wesbury has a major appearance on Varney on Tuesday
MARK YOUR CALENDAR
TUESDAY, MARCH 3, 2020
6:00AM PT * 7:00AM MT * 8:00AM CT * 9:00AM ET
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30 days after sars, mers, and swine flu hit the US, the S&P 500 was ... up.
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30 days after sars, mers, and swine flu hit the US, the S&P 500 was ... up.
This is different.
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Coronavirus Is Different. It’s Rapidly Hitting Supply and Demand.
Fast-spreading disease snarls factories, business travel; White House vows epidemic is ‘not going to sink the U.S. economy’
A worker wore a face mask on a production line manufacturing cables at a factory in China’s Guizhou province on Tuesday.
PHOTO: CHINA DAILY/REUTERS
By Thomas Gryta and Russell Adams
Updated March 1, 2020 2:22 pm ET
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Companies have endured financial meltdowns, civil wars and natural disasters. Now they are confronting a different kind of menace: a fast-spreading virus that has abruptly dented demand and supply across industries and continents.
The novel coronavirus, which has infected more than 85,000 people, has swept through Asia and Europe, disrupted global travel and hobbled supply chains that churn out everything from smartphones to pharmaceuticals. In days, it went from pockets of woe to the top concern of chief executives world-wide.
Conferences are getting canceled, from the CERAWeek energy conference in Houston to Facebook Inc.’s F8 developer gathering in California. Disneyland Tokyo is closed. Auto suppliers are warning of parts shortages. Generic drug manufacturers are paying 50% more for some raw materials.
The organizers of CERAWeek, one of the world’s top annual energy events, announced their decision Sunday citing, among other things, “growing concern about large conferences with people coming from different parts of the world.”
The epidemic’s widespread nature and related uncertainty will put a hold on large corporate investments, mergers and hiring, said Stanford University economist Nicholas Bloom, who has researched the impact of uncertainty on business cycles.
Pharmaceutical workers packed medicines in Changsha, in China's Hunan province, on Thursday.
PHOTO: XUE YUGE/XINHUA/ZUMA PRESS
“A lot of the damage is already being inflicted, purely from major decisions being delayed,” Mr. Bloom said. “I can’t see many firms green-lighting any projects until they can figure out what is going on.”
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Big Drugmakers Warn About Impact
Grocers Prepare for Surge in Demand
Stocks Getting a Coronavirus Boost
Live Coverage: Coronavirus and Business
Larry Kudlow, director of the White House’s National Economic Council, said Friday the threat from the virus for Americans is low and the “coronavirus is not going to sink the U.S. economy.” Some in the Trump administration have accused the news media of exaggerating the situation and causing hysteria, even as the White House tightened travel restrictions over the weekend after health officials in Washington state reported the first U.S. death from the illness.
The virus surfaced as U.S. companies were riding atop America’s longest economic expansion on record, matched by soaring stock-market returns. But profit growth for S&P 500 companies started to cool last year, squeezed by rising labor costs and trade disruptions.
Chinese government gauges of activity in the manufacturing and services sectors plunged to record lows in February, the country said Saturday, dropping into territory that indicates a contraction.
U.S. business activity in February fell to its lowest level in more than six years on fears of the epidemic.
In February, 129 companies in the S&P 500 discussed the coronavirus in their quarterly earnings calls, up from 60 in January, according to a Wall Street Journal analysis of transcripts. There were nearly 600 mentions of the virus in companies’ security filings in the past week alone, according to Kaleidoscope, a research firm.
Executives have talked about how the virus will curb consumer spending on products from Crocs sandals to Gucci handbags. It has slowed production at nickel mines in Indonesia and halted the filming of “Mission Impossible 7” in Venice.
Corporate Caution
Number of SEC filings with coronavirusmentions since Feb. 1
Source: Kaleidoscope
Note: Through Feb. 28
Feb. 3
Feb. 10
Feb. 17
Feb. 24
0
50
100
150
200
250
At the same time, many companies have cautioned it is too early to tell how much the virus might damage business. Economists have struggled to project the extent of the economic fallout, which they say depends on whether the epidemic continues to spread—and on public reaction if it does. While some forecasters have said the virus’s spread in China and elsewhere would slow the U.S. economy in the first quarter, economists expect a swift U.S. recovery from any downturn as companies work to meet pent-up consumer demand after the health threat subsides.
“Every CEO that I know has got to manage an employee dimension, supply-chain dimension, in many cases a revenue dimension,” as well as Wall Street’s needs, said Mike White, who ran PepsiCo Inc.’s international division in 2003 when SARS hit. He now sits on the boards of Whirlpool Corp., Kimberly-Clark Corp. and Bank of America Corp. “We’re still in the middle of the river here,” he said.
Whirlpool cited its sales and supply chain in China and elsewhere in Asia in trimming its first-quarter profit guidance Friday. The appliance maker said the outbreak in northern Italy, where the company has manufacturing operations, would hurt sales there too.
Some companies that have tried to gauge the impact of the virus have had to revise initial estimates. Emerson Electric Co., which makes factory automation equipment, warned on Feb. 13 that the virus would reduce quarterly sales by $75 million to $100 million. On Friday, it put the damage as high as $150 million.
On Friday, United Airlines Holdings Inc. postponed until September an investor meeting that was scheduled for March 5, saying it couldn’t have a productive conversation on its long-term strategy until the epidemic abates. United is offering certain pilots the option of taking April off with reduced pay, according to a letter from the pilot union chairman to members.
Airlines have taken one of the hardest, earliest hits from the crisis. Asian and European carriers have implemented cost-cutting measures to accommodate canceled flights to China and curtailed services to other affected areas such as Italy.
As the spread of the virus in China has slowed, some Chinese factories are reopening, though many are short-staffed and transportation is still difficult. For example, smartphone makers are expected to ship 64 million fewer devices in the first half of 2020, market researcher International Data Corp. said, hampered by component shortages and quarantine mandates.
Zuru Ltd.’s factories have reopened in phases over the past few weeks, after the toy maker installed dividers between workspaces and added sanitation stations. But the Shenzhen-based company is thinly staffed due to restrictions on China travel and was operating at 20% capacity last week, said co-founder Anna Mowbray. “There’s definitely going to be holes on shelves,” she said.
A worker assembling an industrial valve at an Emerson Electric factory in Marshalltown, Iowa.
PHOTO: TIM AEPPEL/REUTERS
The disease is still spreading in other countries. Hyundai Motor Co. on Friday stopped building its popular Palisade SUV and other U.S.-sold SUVs after a factory worker in Korea tested positive for coronavirus. Google said Friday one of its employees in Zurich had been diagnosed, but the office remains open.
China is a key supplier of chemical and raw materials used by many pharmaceutical manufacturers, a potential problem for popular blood-pressure medicines and several older antibiotics that are no longer manufactured in the U.S. Experts believe China is also the only maker of key ingredients in a class of decades-old antibiotics known as cephalosporins, which treat a range of bacterial infections including pneumonia.
Automotive suppliers are warning car companies they could run out of certain parts used in North American factories in coming weeks, particularly electronic components. Hoping to stave off factory stoppages, some manufacturers have taken the unusual and costly step of flying in critical parts by cargo planes.
Some companies have benefited from the outbreak, which has spurred buying of respiratory face masks and disinfecting wipes, propping up shares of some makers of such items. Clorox Co. ’s stock briefly hit record highs last week while the broader market plunged.
“The good news is that the shock from the virus is hitting at a time when households appear to be in good shape,” wrote Bob Schwartz, a senior economist with Oxford Economics.
Mr. White, the former PepsiCo executive, said the long-term economic outlook is solid even as companies face short-term pressures. “Almost every company is going to have an issue with their first-quarter numbers,” he said.
Write to Thomas Gryta at thomas.gryta@wsj.com and Russell Adams at russell.adams@wsj.com
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Is this the Biden - (Clyburn) bounce?
Like all the CNNers - 'oh thank God for good ole Joe'
he's back to save us from orange man or bernie (or is he?)
If Bama comes our for good ole joe will market rocket another level?
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Doug
sold stocks prior
looking like financial genius.
:-D
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For the record, I lightened up some, but of course now I wish I had lightened up more. That said, here's Grannis:
==================================
Calafia Beach Pundit
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Thoughts on market crashes
Posted: 09 Mar 2020 09:41 AM PDT
Back in October of 1987 I was one year into my job at Leland O'Brien Rubinstein (LOR), the firm that was later accused of having caused the biggest stock market crash in modern times (that's a story for another day). Sunday night, October 18th, I remember thinking "tomorrow is going to be very ugly." And indeed it was, as the stock market went on to lose more than one-third of its value in the span of just two months. Last night I thought the same, and this morning the market opened almost 20% below its all-time high registered a bit less than 3 weeks ago.
The Crash of October 1987 shocked the world, but—to me—the most surprising result of all the angst and turmoil was that it didn't precipitate a recession. Indeed, real GDP growth in Q4/87 was a rather spectacular 7%. There's a lot of fear behind the current selloff, but there is also something tangible to worry about, and that is of course the potential of a teeny-tiny virus to upset—and possible even to derail—the global economy. Back in 1987 it seemed inconceivable that we would avoid a recession, and it seems that way now too.
Today's Vix index didn't exist in 1987, but I recall that calculations of implied stock market volatility at its peak were in the neighborhood of 100+. Earlier this morning the Vix shot up to 62, but it's still lower than the all-time high of 90, which was registered in October 2008. We're not at record levels of panic yet, but we're pretty close, and so far the number of American victims of the virus is practically de minimis, but sure to soar.
Scientists are working furiously on vaccines and therapeutics. Markets are consumed with risk sharing—those willing to bear downside risk are being compensated handsomely, while those with low risk tolerances are locking in huge losses. Liquid markets act as shock absorbers for the physical economy, and there is no sign to date that liquidity is drying up. Central banks are supplying needed liquidity, and another round of Quantitative Easing seems like a no-brainer. Fiscal policy, however, is a clumsy tool at times like this; better to let market pricing solve problems by directing resources to their highest and best use.
How all of this sorts in the next few days and weeks is anybody's guess. But it's a sure bet that we are nowhere near the end of the world as we know it.
Here are some relevant charts with prices as of 12:30 pm Eastern time:
Chart #1
The current decline in stock prices seems tame compared to other periods of panic.
Chart #2
Short-term interest rates have collapsed to near-zero. The demand for safe assets is intense.
Chart #3
Credit spreads have jumped, similar to what happened when oil prices collapsed in 2015-16. The market is concerned that sharply lower oil prices will bankrupt many oil producers.
Chart #4
Systemic risk is still relatively low, especially in the U.S. market, and liquidity is still abundant. Markets are not freezing up as they did in late-2008. That is a very good sign.
Chart #5
The dollar today is pretty close to its average over the past 5 years, and nowhere near being dangerously weak nor worrisomely strong. Oil prices have suddenly become cheap again. Good for consumers, bad for producers. In any event, we've lived through this sort of thing before and the world didn't end.
Chart #6
The Vix jumped to 62 at the open, and is currently trading at 53 or so. Options on stocks are extremely expensive for those who want to minimize risk, and extremely attractive for those willing to bear risk. This is the proper function of markets—using prices to shift risk to those who are willing to bear it.
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second post
Monday Morning Outlook
________________________________________
A Coronavirus Recession? To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 3/9/2020
No one knows with any real certainty how much, or for how long, the Coronavirus will impact the US economy. What we do know is that it will have an impact. And, after data releases of recent weeks, we also know that the US economy was in very good shape before it hit.
Nonfarm payrolls grew by a very strong 273,000 in January and another 273,000 in February. The unemployment rate was 3.5% in February and initial claims for jobless benefits were 216,000 in the last week of February. Retail sales in January were up 4.4% versus a year ago. In February, sales of cars and light trucks were up 1.9% from a year ago and were above the fourth-quarter average. This suggests that total retail sales for February rose as well.
Industrial production fell 0.3% in January, but likely rebounded sharply in February. After all, hours worked in manufacturing durable goods rose 0.9% in February and colder weather likely lifted utility output.
Housing starts have been particularly strong lately, coming in at an average annual pace of 1.597 million in December and January, the fastest pace for any two-month period since 2006. Yes, part of the surge in home building was due to good weather, so February will likely fall off to around a 1.49 million pace, which excluding December and January, would be the fastest pace of building for any month since 2007.
The ISM Manufacturing index slipped to 50.1 in February from 50.9 the month before, but a level above 50 still suggests growth in factory activity nationwide. The ISM Non-manufacturing index, which measures a much larger share of the economy, rose to 57.3 in February, signaling strength.
Putting all of this data into their model, the Atlanta Fed projects real GDP is growing at a 3.1% annual rate in the first quarter. That's not a typo. However, March data, which isn't available yet will likely bring this number down.
The early economic headwinds from the Coronavirus are coming from slower production in China, which likely led to a big drop in inventories. We expect this to pull first quarter real GDP down to a 2.0% growth rate and we are now thinking growth will be zero in the second quarter. After that, given previous episodes of rapidly spreading viruses, inventory replenishment should boost growth to the 3.5 – 4.0% annual rate range in the second half of the year.
This may seem optimistic, but keep in mind what happened when the "Hong Kong flu" hit the US from September 1968 through March 1969, killing around 34,000 people in the US according to the Centers for Disease Control. During the last quarter of 1968 and first quarter of 1969, real GDP grew at an average annual rate of 4.0%. The "Swine Flu" in 2009 also did not lead to a recession.
However, a much more negative story unfolded in late 1957 and early 1958 when the US was hit by the "Asian flu," which killed almost 70,000 in the US and didn't spare younger people as much as the Coronavirus. Real GDP was growing around 3% annually in 1957, but as the flu started to peak in Q4, the economy shrank at a 4.1% annual rate, followed by an annualized 10.0% plunge in the first quarter of 1958, the deepest drop for any quarter in the post-World War II era (from 1947 through 2019).
But then, right after the plunge, the economy rebounded at a 7.8% annual rate for the next five quarters.
Before the Coronavirus hit we thought the odds of a recession in the next twelve months were about 10%. Now we think they're around 20%. Higher, but not high. There is no precedent for the first social media panic regarding the flu. Either way, here's a simple rule of thumb: if the unemployment rate goes up 0.4 percentage points or more compared to where it was three months prior then the US is probably in a recession, otherwise it's probably not. The jobless rate was 3.5% in December, so unless it goes above 3.9% soon the economy is still growing.
The bottom line is that we've had severe flus before without a recession and when we did have a downturn, the economy bounced back very quickly. The stock market is pricing in a steep drop in profits, which is certainly possible. A strong recovery, which we expect, will reverse this as it has in the past.
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Doug
sold stocks prior
looking like financial genius.
:-D
Let's go over that genius haiku thing again. :wink: Except that a genius would know when to get back in, wouldn't have doubled down during the tech crash, wouldn't have stayed out the entire Obama years, etc.
In this case, I was about 30 days late, but so was the market. I wondered when and how hard the China thing would hit our markets, then noticed it hadn't even hit the Shanghai index yet, even while they were already under lockdown, and immune shots were a year out.
Two things were happening today that apparently scare people in addition to just virus scare. Saudi declared oil-war on Russia in particular and on OPEC. Low energy prices along with excess supplies sound like a good thing to me, but it is going to turn some big stocks and funds downward. Secondly, we are just getting the large supplies of CVl9 test kits in by the million now and because widespread testing is possible, the number of known cases is going to skyrocket. If stock prices have now priced in lousy earnings for the current period, "GDP Now' is still at 3% and summer is going to kill or drastically slow the virus, maybe this week is the bottom.
Stanford and others are closing, gatherings and travels are canceling, maybe the bottom is when the things that closed re-open - and stay open.
In better news, the fatality rates are plummeting with more testing. No kids have died and the median death age is about 80 - with pre-existing respiratory issues.
The common cold is really 200 viruses and it looks like this will hang around long term like those.
What I knew for sure a month ago was that panic would be oversold by the media in hopes this thing could somehow be blamed on Trump.
While Wuhan Virus was growing exponentially in China and moving outward, Trump was issuing travel bans and quarantines (and building border walls) to protect us. What was the so-called adult party, the Democrats, doing? Fake impeachment. Trying to tie the hands of the President and the administration right in the face of a black swan public health crisis. Putting [dirty] politics ahead of public health.
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"GDP Now' is still at 3% and summer is going to kill or drastically slow the virus, maybe this week is the bottom.
I doubt it. We have a long way to go. Expect things to get much worse here in the next few weeks, and expect waves of the virus to hit globally.
We have yet to see the worst of the virus and the second and third order effects.
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"GDP Now' is still at 3% and summer is going to kill or drastically slow the virus, maybe this week is the bottom.
I doubt it. We have a long way to go. Expect things to get much worse here in the next few weeks, and expect waves of the virus to hit globally.
We have yet to see the worst of the virus and the second and third order effects.
Agree. Maybe a downward turn in the number of cases by late April early May.
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I expect May to be the worst with the first wave.
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https://capitalisteric.wordpress.com/2020/03/10/coronavirus-blunt-truth-part-2-hitting-the-wall/
I hope it doesn't go this way, but hope is not a plan.
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https://capitalisteric.wordpress.com/2020/03/10/coronavirus-blunt-truth-part-2-hitting-the-wall/
I hope it doesn't go this way, but hope is not a plan.
https://www.patreon.com/posts/sars-cov-2-covid-34741277
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https://capitalisteric.wordpress.com/2020/03/10/coronavirus-blunt-truth-part-2-hitting-the-wall/
I hope it doesn't go this way, but hope is not a plan.
Looks like the below link has gone Tango Uniform, so here is the text:
https://www.patreon.com/posts/sars-cov-2-covid-34741277
Mar 9 at 1:38pm
SARS-CoV-2/COVID-19
Although it won’t be posted until Monday, I am writing this on Friday, 6MAR2020 (fair warning, any numbers will probably be wrong by the time you read them).
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I’ve never—in almost a decade of writing the Mountain Guerrilla Blog—jumped on the worry wagon. I was one of those who pointed out—accurately—that Jade Helm was simply a typical training exercise. I’m the guy who pointed out—in books, for posterity, no less—that seeing armored vehicles and tanks transported CONUS, on rail cars, is not a sign of coming martial law, but is simply the way the military transports shit stateside. I’m hardly a model of prepper paranoia.
So, when I say that I’m concerned—not scared, not worried, but concerned—about COVID-19, there must be a reason, right?
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Sources and Methods
Sources and methods is a term used to describe the process of intelligence collection and analysis. Intelligence information sources and the nature of the information gathered can vary. Sources are the sources from which we get the information. Methods are the tradecraft utilized to procure that information.
Sources can be other people, which would be referred to as Human Intelligence, or HUMINT. Information collected from photographs, such as satellite overheads, is referred to as imagery intelligence, or IMINT. There’s also signals intelligence, or SIGINT, such as eavesdropping on phone calls, and etc.
Here’s the thing though...much like the Enigma Project, during WW2, if the opposition learns who/what your sources are, they can stop that flow of information, or worse, they can utilize disinformation, feeding you bad information through those sources. The opposition—or even friendly allies that you need to keep tabs on—can determine sources through a number of methods.
In some cases, taking advantage of your intelligence collection efforts to stop an attack, or to hit a specific target at a specific time, can be a clue that you intercepted communications (Enigma’s biggest issue was, once we had the Enigma machine, a lot of times, taking advantage of the information collected would have revealed that we had the machine, leading to a loss of that asset).
One of the humorous things I see a lot is someone posting information, and then a dozen people piping up with, “Tell us your sources!” Now, in some cases, for sure, you might be able to share your sources. If you’re getting your information from newspaper articles, or Internet sites, by all means, share away. But...if someone has actual HUMINT sources, asking them to “cite your sources” doesn’t show that you’re cool and edgy. It shows that you don’t understand how the process works.
Now...there’s a catch to that. To some degree, if let’s say, Agent X says, “Hey, I’ve got this source, and he’s claiming THIS is going to happen at THIS time, in THAT location,” you’ve got two choices. You can completely disregard it, because you don’t know Agent X, and have no way to determine if he has any ability to vet his sources. If the information he is providing is completely ridiculous, or you have another, known source, let’s say Agent Z, that’s saying, “Nope. Not happening. Not possible!” then taking doubting Agent X’s information is sensible.
Alternatively, you can decide to say, “Hey, this makes sense. It correlates with the other information we have coming in, so let’s keep an eye on this. This Agent X might have a good source, after all!”
Finally, if Agent X is a known quantity; either he’s provided information in the past that turned out to be solid, useful, accurate intelligence, or he’s someone who you trust the judgment and experience of, then the sensible approach is to say, “Hmm...I guess I should consider this. It’s got a higher than not likelihood of being accurate, based on Agent X’s track record.”
Here’s what I’ve got: I can look at a broad array of intelligence sources: I can look at the raw data being put out by different organizations and governments. I can analyze that through both my experience, and basic understanding of numbers and math. I can take the information that people I trust are providing me, based on their HUMINT sources, and determine if I trust MY guy’s judgment enough to trust the source he’s relying on. And, that’s exactly what I’m doing.
And my conclusion is, there’s a whole lot more to be concerned about this than we’re being told.
It’s up to you to determine whether you can accept my information as valid intelligence or not, and then determine whether you should allow that to modify your approach to this—or any—situation. But, the idea that I’m going to reveal sources and methods (which a number of emails and Private Messages have requested I do…) is absurd. If you don’t want to accept my information as valid, whether because it contradicts sources you already have and trust, or because it simply doesn’t fit your worldview (which is a whole other issue to deal with), that’s fine. I’m certainly not going to get butthurt over it. I KNOW who/what my sources are, and I’ve already made the determination of which I can trust, and which I need to be wary of (because even the best source won’t be 100% accurate, 100% of the time). And, like I said on FB, in three months, if my sources turn out to be wrong, feel free to call me a paranoid fuckface. I don’t think that’s going to be the case.
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A Failure of Imagination
The second problem that arises is a failure of imagination, which results from normalcy bias. A failure of imagination is a circumstance that occurs when something that seems predictable, but undesirable, was not planned for. 9/11 was categorized, in the 9/11 Commission Report, as a “failure of imagination,” because nobody imagined that a bunch of jihadists would fly planes into buildings. Interestingly, I’ve actually been told, on at least three different occasions, by three different people, that such a scenario was actually hypothesized as early as the late 1970s, by some folks working at SWC (Special Warfare Center). I was still in diapers when this allegedly occurred, but of the three people who told me that, I trust at least two of them implicitly, and one of those supposedly helped write a paper on the idea, so…
I’ve never planned for a pandemic. In my lifetime, every single impending pandemic has seemed, from the word go, to be much ado about nothing. In fact, when the COVID-19 news first started coming out of China, I took the same approach. Then, as I pointed out last week, I got some information from some trusted sources that made me rethink it. Fortunately, I’ve seldom suffered from an inability to set aside my preconceived biases and look at new information objectively. So, I started looking closer, and finding new information that made me start wondering. Then, I started getting intelligence information from some OTHER trusted sources, and I started thinking more, and started looking harder at the data I was seeing.
I’m convinced, as are most people who seem willing to say anything, that the second and third order effects from COVID-19 are going to be the most damaging. But...I suspect that is going to be because the first order effects: infection, hospitalization, and deaths, are going to be far worse than anybody is yet admitting.
I would seriously like to be proven wrong, but I’m extremely doubtful at this point, that I will.
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As I’m writing this (again, on Friday, 6MAR2020), I’m listening to Chris Martenson’s Peak Prosperity (almost) daily Coronavirus update. I just listened to him breaking down the numbers coming out of Italy, and he made the point that they don’t add up to what we’re being told. First of all, worldwide, outside of China, only half of confirmed cases are “recovered,” (and, I point out, nobody is defining what “recovered” actually means, in this case). Second of all, according to the numbers coming out of that country—and I hasten to point out that Italy is a first-world nation, with a commensurate level of medical care available—at least 61% of confirmed cases are requiring hospitalization. That’s a pretty big breakdown in the story that came out of the Chinese data that “over 80% of cases don’t require any medical care!”
So, where’s the breakdown? China says that 80% of cases don’t require hospitalization, and only 2% die. A week later, Italy has 61% of their confirmed cases in the hospital, receiving care, and WHO has updated the international case fatality rate (CFR) to 3.4%.
And, I’m paranoid, because I said China was lying it’s ass off about their numbers?
Here’s what I SUSPECT (with the obvious caveat that I have no way to prove it. This isn’t even from sources. This is just my personal suspicion….): China lied it’s ass off about the numbers, all the way around. They lied about the rate of infection. They lied about the fatality numbers….and they lied about the demographic breakdowns. I suspect a LOT more people in middle-age died than they’ve let on.
Today, during VP Pence’s daily Coronavirus Task Force briefing, one of the speakers made specific mention of several comorbities that put people at higher risk from the COVID-19 coronavirus: they included everything from existing respiratory ailments, to heart disease, to diabetes. That’s a little different from the early descriptions that this really only impacted people over 80, with respiratory ailments.
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“It’s just the flu!” is a line I’m still hearing, more often than not, both locally and nationally. While some people are pushing the “It’s all Mass Media hype!” that’s the exact opposite of what I’ve seen in the little mass media coverage I’ve seen of this. Instead, I’ve seen our local media sources making light of the situation: “Gee, do we really have to tell people to wash their hands? Aren’t they supposed to do that anyway!? Har-har-har.”
I “suspect” that, inside the Beltway, a large number of “very important” people are seeing HUMINT reports and overhead imagery, from inside China, that has them far more concerned than they are—or can, unless they actually want to cause mass hysteria in the population—and I suspect that it pretty clearly shows that the Chinese lied their asses off.
So, why do I think it’s so much worse than we’re being told it is?
1) Today, POTUS signed a bill into law, providing $8.3 BILLION to fund the effort to contain and control this pandemic (and, with the definition of a pandemic being “(of a disease) prevalent over a whole country or the world,” this is—by both metrics—a pandemic, whether anyone is admitting that yet or not. It’s certainly a pandemic in China, and it’s more than fair to call it an international pandemic by this point, depending on how you choose to define “prevalent.”). That bill passed the House 415-2, and then the Senate (Rand Paul was the only dissenting vote), before being signed by POTUS, in less than a week. When was the last time that happened for a disease? H1N1? Ebola? SARS? MERS? (And, from everything I’ve seen—and I admit, I haven’t gone and read the bill itself—there were no last-minute pork barrel amendments to it).
2) We’re still being told “It’s just the flu, bro!” but when was the last time that the White House—under ANY administration—established a Task Force that not only met daily, but briefed the public daily, led by the VICE-PRESIDENT no less, for the flu?
“Well, they had to, in order to keep people from overreacting!” Nonsense. Providing daily “Oh, don’t panic, it’s no big deal” briefings is far less effective at achieving that goal, especially with the American public, than POTUS simply saying, “You know what? This is a bunch of nonsense. It’s not that big a deal,” and then dropping it. Everytime a reporter asked about it, he could just say, “It’s the flu, bro!” and drop it. Instead, they established a task force, put the Vice-President in charge of it, and they are meeting daily to manage this. It’s not just the fucking flu.
3) King County, Washington, which has been Ground Zero for COVID-19 in the US thus far, just bought an entire hotel to use for quarantine of expected COVID-19 patients. But...if less than 20% of confirmed cases need hospitalization, and it’s pretty easy to avoid getting, that shouldn’t be necessary, right? When was the last time a county government bought an entire hotel just to quarantine flu patients? “It’s just the flu, bro!”
4) I’ve heard from several HUMINT sources, in several different states, who work in hospitals, that their hospitals are initiating specific precautionary measures, including full PPE for ALL patient contacts, and testing ANYONE—patient, guest, or employee—for fever or other symptoms, before letting them through the doors. Hell, I’ve never seen a doctor or nurse do more than MAYBE put on a mask and gloves before seeing a suspected flu patient…
5) A number of multi-national corporations: Apple, Amazon, Google, and Walmart, have all placed restrictions on corporate travel internationally and nationally, because of coronavirus concerns. Granted, all of those companies do a LOT of business with China, but...if it’s not THAT contagious, nor dangerous, why are these companies risking shareholder ire and bottom lines, when some basic precautions like washing their hands and not touching their faces so much, could mitigate any risk dramatically. I mean, sure there’s insurance concerns, but...”it’s just the flu, bro,” and I guarantee those companies don’t normally restrict corporate travel because of flu.
6) United Airlines is reportedly (HUMINT source. I could probably look it up and find it online as well, but I trust the source, and I’m in the middle of typing this) cutting 20% of their international flights. They’ve canceled their pilot new hire academy, and will be laying off pilots as soon as the route contractions take place. (The same source just told me—again, this is Friday evening—that he is on a flight to Europe. Half his flight is empty. “Is that normal? For a Friday night flight to Europe?” “Nope. It’s usually fairly full, even this time of year, which is normally a slump time anyway.”
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So, yeah, I think this is a lot more dangerous, including to those of us who aren’t in our 80s, and/or suffering from co-morbidities, than we’re being led to believe. Sure, there’s only a couple hundred cases in the US so far (an hour ago, as I write this, it topped 300 confirmed), and a handful of deaths thus far (and by all accounts, most of those presented with co-morbities). But...as several epidemiologists have pointed out, we’re 2-3 weeks behind Italy, and we’re not really testing much yet. There are still reports of people showing up—or even just calling—their PCP (Primary Care Providers) or local Urgent Care clinics—in places with known clusters of cases already—and being told, “It’s just the flu,” or “We’re not testing until you need hospitalization.” So, the reality is, we don’t KNOW what the actual number of cases is yet, and we really don’t know how many people are dealing with really severe cases of it already, but have convinced themselves that “it’s just a really bad case of the flu!”
I expect the number of confirmed cases to skyrocket in coming weeks, as the testing kits become more widely available. HOPEFULLY, that will drop the CFR dramatically...but, we’re also seeing that, from onset of symptoms, death doesn’t occur for 2-3 weeks with modern medical care (recovery generally is apparently taking 4-6 weeks, from a casual search of Internet sources, and I haven’t heard anything counter to that either). I suspect—and again, this is me, not my sources—that we’re just now hitting the start of a big boom, and this is going to completely jump the tracks in the next week or two (honestly, I’d say it’s already jumped the tracks, and turned into a train wreck, but….).
One thing I have heard, from several HUMINT sources, is that organizations are concerned with the short-term effects, but they’re more concerned with what’s going to happen when this picks back up again in autumn. I don’t know about that. Australia is still getting hit pretty good, and it’s summer there, so I’m not so sure that we’re going to have a respite during the summer months. Hopefully.
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So, there’s like 5 pages of fear-mongering about the actual first-order effects of this virus. All of that, and just for me to say, as concerned as I am about them, I still agree that the second- and third-order effects are going to be far, far worse.
Second Order Effects: Medical Care
According to the Chinese numbers, 63% of medical workers that were exposed to this coronavirus contracted COVID-19. That’s well over half. We’ve—presumably—got asymptomatic carriers walking around, passing this shit around, and there’s already an admitted shortage of PPE. So, what happens to OTHER medical care needs, when half the staff of your local clinics and hospitals go down with this (even if it’s a “mild” flu-like case)? The transient populations of this country, and significant portions of the working poor, use the local emergency room like a PCP office, because they know they legally have to be seen, even if they cannot afford to pay. Emergency Rooms are busy as fuck, on a slow night.
So, you get in a car wreck, and get transported to the ER (assuming EMS isn’t at below half staffing as well due to exposure…), to find it packed with fuckers, and a harried, overworked staff, because half of their co-workers are out of commission in quarantine….think you’re going to get decent care?
Or, you get appendicitis, and need surgery, or you slice your fucking hand open cutting your steak, or you’re lighting off fireworks, on fourth of July, and catch a “mortar” in the face (don’t laugh...I saw it happen last year). My mother, as most readers are aware, had a pretty severe stroke last summer. She’s recovering well, but what would the impact have been if the hospital had been at half staff because of quarantine? And, this isn’t a far-out scenario. A fire department in Washington is already under quarantine—presumably for at least 14 days—because they all went into the nursing home where it was present already, and are now considered at risk...Sure hope nobody’s house catches fire…
In our area, if an ambulance gets called, the local Sheriff’s Department is mandated to respond as well. So, Mom is experiencing really severe flu, puking her guts up. The ambulance is called (because nobody wants her puking in their car?), and the deputy responds as well. When it does finally get to the hospital, it turns out to be COVID-19, and now everybody on scene is quarantined—including the deputies who showed up. How quick before half your local LEO are off the clock, on quarantine? Or, LEO gets a call, and goes hands-on with some homeless dude...who turns out to be carrying the virus...now ALL the cops are quarantined as well...and gods forbid any of them made it back to the office before the test showed that it was coronavirus, and now we’ve got to quarantine the entire fucking police department…
Yeah, there are some potentially scary second-order effects.
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Third-Order Effects: Economic and Supply-Chain Disruptions
One of the things I’m hearing from a lot of people is that they’re only worried about dumbasses like me panic-buying stuff and the stores running out as a result. Well, newsflash kids: We didn’t need to do any panic-buying. When we decided maybe this was real, and maybe it was more concerning than the news and the government was letting on, we made a few last minute purchases to bolster stocks we already had, (and, interestingly, as I looked through those purchases, I realized, none of the stuff we bought came in from China. It was mostly shit like canned foods or frozen meats to supplement what we produce), but...we were ALREADY prepared. I don’t NEED to panic about this, because I’m already prepared to deal with it.
Here’s the thing though: China is shut the fuck down. Oh, they’re claiming that they’re back at 80% production, in some factories. Like everything else though, if you take what the Chinese are saying, at face value, I’ve got a prime piece of beachfront condo for sale, just South of Tucson. I’ll give it to you at a steal of price too! Between quarantines on products coming out of China, the fact that there’s no way they’re at 80%, let alone 100% production, and won’t be for some time…there’s a pretty solid chance that a significant portion of what you might need to buy in coming weeks and months simply isn’t going to be available.
This isn’t just—or even primarily—because of hysterical panic-buying (although there will be more than a little bit of that, as there already has been), but because of economic contractions as funding sources simply dry up (have you watched the Stock Market over the last two weeks?). Between shit not coming from China, and shit not being made here either, the economy is legitimately fucked, I suspect, for quite some time. Certainly the consumer economy is going to be hammered.
Restaurants? Want to bet folks are going to think thrice about taking Grandma out to supper at her favorite diner? Bars? Meh...bars will probably be alright, because people will rationalize their desire to drink. Sporting events? Even assuming state and local governments don’t put restrictions on large scale public events in the interest of public health, I suspect you’ll see a significant decline in the attendance at concerts and ball games. Even if it does turn out that I’m completely full of shit on the actual first-order impacts of the virus, are you going to risk going to a concert, picking it up off some nearby concert-goer, and then passing it on to Grandpa? We already have repeated cases of people who KNEW they were carrying the virus, violating their quarantine and going to concerts...people go to concerts and out to eat at restaurants with the flu all the fucking time. If this is “just the flu, bro!” why would they take it any more serious?
Let’s look at the Italian numbers though, alongside projected numbers of the American populace expected to contract the virus, and see if we can make a hypothesis:
So, 61% of Italian confirmed cases are requiring hospitalization. And, low-ball figures now are claiming at least 40% of the American population can be expected to contract it (I suspect it’s higher, because I suspect there’s a lot of as-yet unidentified cases floating around out there still). The American population is 331 million. 40% of that is 132.4 million. If 61% of those require hospitalization (and remember, we’re not even LOOKING at the case fatality rate right now...just the number of cases in Italy—a first world nation—that require hospitalization), that’s 80.76 million hospital cases. That’s just below 25% of the American population requiring hospitalization! You think THAT’S not going to have an impact on the economy?
According to the American Hospital Association, there are 6,146 hospitals—total—in the United States (and 616 if those are non-federal psychiatric hospitals, so I don’t know how useful those are going to be in an infectious disease scenario….). Amongst those 6,146 hospitals there are a TOTAL of 924,107 staffed beds available. The AHA doesn’t list how many of those beds are full at any given time, but from talking to health care providers, I know it’s pretty significant. Let’s say a mere 50% of them are full (and I guarantee it’s nowhere near that low. NOWHERE near that low. I bet—without finding the stat, it’s closer to 85-90% of them are full at any given time). That leaves roughly 460,000 beds available. Let’s say, for the sake of argument, that of the 80.76 million that the experts and numbers seem to say we can expect—in a first world nation—to need hospitalization (and really, that 40% infection rate is a pretty low-ball estimate, according to most of what I’ve seen from different epidemiologists), occurs over a two-year span. So, we’ve got 40 million people that need hospitalization, per year, with 460,000 beds available…..Uhm….Looks like a whole bunch of other counties better be checking the real estate markets for hotels…. But, again...you think that’s not going to have economic impacts. A quarter of the American population out of work, because they’re in the hospital?
What about the costs? Insurance companies going to be able to afford that? What about the costs of the under- and uninsured? How long can the hospitals eat the cost of uninsured ER visits, at that rate? Especially since we know this is likely to spread far faster among low-income and homeless populations?
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Am I being a paranoid fuckface, and worried over what is essentially a non-issue? Maybe. I’d love it, if in three months, you’re all coming on here going, “John, you fucking idiot! Hahahahaha!” But, I genuinely don’t think that’s going to happen.
I suspect this is going to get ugly. It’s going to get even uglier than it might, because a whole lot of “preppers” are still shoving their heads in the sand, saying, “It’s just the flu, bro! Don’t be so paranoid! Nothing happened last time, with H1N1!”
You know what else didn’t happen with H1N1? The fucking feds didn’t start a White House Task Force to combat it. They didn’t pass an emergency spending bill for $8.3 BILLION to combat it. We didn’t shut down travel from a major trading partner country for the indefinite future to combat it. First world nations didn’t have 61% of confirmed cases requiring hospitalization to treat it. There weren’t 100,000 confirmed cases, internationally, in like the first three months.
So, yeah, I’m taking this serious.
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What Is John Mosby doing?
Someone mentioned, on my Mountain Guerrilla Blog Facebook page, “I wonder if John Mosby can just tend to his gardens and livestock and quarantine his family from the world until this thing is over.”
As I responded then, “No. I can’t quarantine my family from the world until this is over. What I CAN do is pay attention to it, and take as many precautions as possible, including social distancing when possible.”
So, what does that mean?
1) We double-checked our food storage. I KNEW we had a solid year+ of staples, but I confirmed. We made two shopping trips, and stocked up on some extras of the stuff we normally eat every day. We normally have a solid month of “normal” food on hand, but we pushed that up to three months—not coounting snacks—and my wife started incorporating the staples in already. After cataloging it, we’ve certainly got 18 months, and probably over 24 months of food, on hand. That doesn’t count livestock sources of food, and it doesn’t count the garden, which will be producing food inside of two weeks (if you can count lettuce and kale as food….).
2) I repacked my trauma bag, and we stocked up on cold and flu medicines for us and the kids. In addition, we stocked an entire extra year’s worth of daily Vitamin C doses (and it’s not like we don’t have a fuck ton of natural Vitamin C sources all around us). I’m planning on discussing my PACE plan for medical care in an article, but I’m good on medical, for anything within my scope of practice to treat, and for some level of nursing care, including isolation/quarantine for infectious patients, for some time.
3) We’ve started putting social distancing into practice. We’ve abstained from Judo and Gym visits for the last two weeks, into the foreseeable future. Fortunately, I’ve got a home gym that’s the equal of a Crossfit box, albeit outdoors (and I started on the building frame for it today), including Judo/wrestling mats, so I can work still work with the kids on those skills as well. The kids are homeschooled anyway, as most readers know, so that’s a non-issue. I have my real-life business, but I’ve put most of those projects on hold, except the ones I can do from home/at a distance.
When we do have to go to town, I’ve always been pretty good at social distancing anyway. I can mean mug most people into staying outside of arm’s reach, and I’m not shy about putting my hands up and telling people to back the fuck up, especially with this shit going around. We’ve been keeping the kids home on those trips, and if they do have to go along, keeping them in the truck, while one parent runs into wherever we need to go. Beyond that, lots of hand sanitizer before and after touching anything that others have touched, and not making physical contact with strangers is about the best we can do.
4) I’ve made it a point to hammer at our people to start battening down their preparedness even more, as well. We dialed in some shortcomings with the communal clan food storage project (which is completely separate, for now, from our family food storage), and I’ve been harping on them to increase their family preparedness for possibly needing to shut-in and self-quarantine at home. Most of the other families send their kids to public school, because of two working parent household requirements, but we’ve been pushing them to consider what happens if/when the schools close down for lengthy periods of time.
5) I’ve provided our people with both my “trigger event” for chaining the gates at the farm, and informed them that, if they show up after that event, they should expect a 30 day quarantine when they arrive.
6) I’ve tried to pass on some of the information I’m receiving to other family, friends, and neighbors. Like most people, for the most part, they’re scoffing at it. “It’s just the flu, bro!” Well, okay. I’ve done what I can do. I can’t cram it down their throats, and it’s not my job to do so. I can only set the example for others to follow, if they choose to step up and try to meet the standards required.
Beyond that, there’s not much specific we can do, that we’re not already doing, as part of our normal lifestyle. We stay far healthier and fitter than most Americans, because we spend so much time outside, doing physical stuff, and we do well-rounded PT daily, and we eat reasonably healthy (and it’s even healthier now that we’re not eating out at all…). We take vitamins, multivitamins, and extra Vitamin C. We get lots of sunlight and fresh air, and will be eating tons of fresh vegetables in the coming weeks and months. So, if the numbers ARE accurate, we’re less likely to contract the virus, and if we do, we’re less likely to see negative effects from it such as needing hospitalization.
The fact that most trauma injuries can be treated at home, and then nursed back to health means we have less need for the hospital (I buried a Benchmade folder in my thigh a couple years ago. It was an accident, and I was being a dumbass. Not doing stupid shit, but not using the right tool for the job either. I went to get stitches, but even then the doctor said they probably weren’t necessary, given the rapidity with which I had secured and dressed the wound...I’m not worried about most of the kinds of injuries we’re likely to sustain), and if it’s beyond our ability to deal with, we have a number of nurses and at least one MD in the clan that can be counted on for assistance in a pinch, until/unless they end up quarantined.
So, the second-order effects, barring something really dramatic, aren’t too much of a concern for me either. I’m really more concerned about the long-term, third-order effects on supply-chain issues, and replacing things we use up. My current plan for that is to simply continue assessing things on a day-to-day basis, and if I notice something that seems like it might wear out quicker than anticipated, or otherwise need to be replaced, I’ll go try and get an extra/replacement. If that ends up not being possible, because of supply chain issues, then we’ll move on to the contingency plan.
Example: I use my chainsaws a lot. I have two Stihl, pro model saws. I have extra bars and chains for both of them. I have one extra fuel filter for each. I may, next week, go buy a couple extra fuel filters, but I generally don’t need to replace those very often, in my experience, so I’m not super-concerned about it. I’m more concerned about fuel availability. So, I filled every single fuel can on our place. I’ve got a LOT of fuel stored here now. If, two months from now though, I cannot get fuel for the saw? Well, I’ll go back to using my axes and hand saws. Benefit of building a timber frame house, by hand? I learned how efficient it actually is to use hand tools, when you know HOW to use them.
We’ve got three vehicles on the place. One is in the process of being rebuilt/repaired (it’s been a very lengthy process, as it’s not been a huge priority. It just moved up a notch, but it’s a relatively rare vehicle, and parts are a motherfucker to get in the best of times. I THINK I’ve got everything I need to get it running, but it won’t go back to being a daily driver, because it’s also my best off-road vehicle, and I don’t want to risk normal wear-and-tear if I’m going to have trouble getting parts. If one of the other two go down, well, we’ve got a spare. If all three vehicles go down, we’re back to being infantry. Fortunately, at that point, we don’t have very far we need to go, and if we do...we walk anyway. No big deal.
So...we’re pretty well set if this does turn out to be as bad—or worse—as I expect. Thus my statement, that I’m not particularly worried. Pandemics are part of the historical trend in dying empires. I suspect we (the US as a nation, not my clan) will come out of this on the other side, with a severely contracted economy, a dramatically reduced population, and a smaller international footprint. Then, we’ll try to convince ourselves that it’s no big deal, nothing has changed (“It’s just the flu, bro!”), and we’ll continue to be the dominant world power that we were 30 years ago. Most of the rest of the world will continue to ignore us—as they’re already doing as much as possible—and in a few years, there’ll be another pandemic that will have a similar effect. It’s just part of the cycle. It is #TheFateOfEmpires.
That having been said, my job—as I’ve seen it—from the beginning of the Mountain Guerrilla Blog, is to help others, namely you, the readers, prepare better for the things we’re experiencing. Part of that has been providing training guidance for security, through my experiences as an ARSOF NCO. Part of that has been providing preparedness guidance through our combined experiences living, and raising a family outside the normal civilized bounds placed on people by the imperial culture. That ranges from mindset issues to off-grid living. Part of THAT in turn, is helping you understand when something is more than what you’re being told it is. That’s my goal with these thoughts on the coronavirus/COVID-19 issue. I sincerely believe, based on the intelligence information I’m receiving—and analyzing within the limits of my ability to do so—that this is far, far more than “just the flu, bro!” It’s going to have far greater impacts—first, second, and third order, than the vast majority of people—including “preppers” are seeing thus far. I suggest getting your shit dialed as tight as you can, while you still can (and for some of you, that was last week or the week before…).
For some of you, you’re going to look at this and say, “Meh. Fuck that guy. I’m already prepared!” If that’s the case, good for you! If that’s not the case, and you’re just telling yourself that so you can sleep tonight, well, I feel bad for your dependents.
For some of you, you’re going to look at this and say, “Fucking doomers! It’s just the flu!” I hope you’re right. You’re not. It’s already been demonstrated, by people that actually make a living studying infectious diseases that it’s not the fucking flu, but well, maybe all these super smart nerds, all over the world, who make their living studying bugs in microscopes, are wrong, and you’re right. I hope so. If you’re wrong, well, for your sake, I hope you’re like the 39% of the Italians who have contracted this and didn’t need hospitalization for it. Or, I hope you’re part of the 30-60% of the population that is projected to probably not contract it at all. I know how much I would wager on an investment that only had a 60% chance of returning a good benefit, and it ain’t much. On a 30% chance? Man, I don’t give money away.
This is the last article I’m going to write specific about the coronavirus/COVID-19, until the first week in July (April, May, June is three months), when I will return to the subject, just long enough to say either, “Mea Culpa, Mea Culpa, Mea Maxima Culpa,” and apologize to you for fear-mongering pointlessly, or to say, “I fucking told you so!” (and, if something really, really dramatic happens in the meantime, I’ll probably break that promise...like hundreds of thousands of Americans start fucking ending up in ICU). In the meantime, I’m just going to return to our normal programming of security and general preparedness, although, obviously a lot of that will be tied in with the coronavirus/COVID-19, since it’s relevant. For instance, this week, we’ve got an article on medical preparedness. I’m GOING to talk about about infectious disease prevention through PPE, because that’s part of basic medical preparedness.
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https://ammo.com/articles/are-guns-ammo-new-gold-infographic
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https://ammo.com/articles/are-guns-ammo-new-gold-infographic
Body armor too!
https://www.buzzfeednews.com/article/ryanhatesthis/its-not-just-food-and-hand-sanitizer-panicked-coronavirus
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Why Are Markets So Volatile? It’s Not Just the Coronavirus.
The market is dominated by computer-driven investors that rely on signals such as volatility and momentum
Michael Pomada, CEO of Crabel Capital Management in Los Angeles MATTHEW SCOTT GRANGER FOR THE WALL STREET
By Gunjan Banerji and Gregory Zuckerman
March 16, 2020 5:12 pm ET
Traders like Michael Pomada help explain why the stock market is going through its most turbulent period in recent memory.
Mr. Pomada was in good spirits as he drove his convertible to his office in Los Angeles’s Century City complex before sunrise on March 9. Investment funds managed by his $4.5 billion firm, Crabel Capital Management, were up about 5% for the year. He wasn’t especially concerned about financial markets or the economy, even though oil prices were tumbling that morning.
Yet, all day, Crabel sold stock futures and other investments, contributing to a 2,014-point, or 7.8%, drop in the Dow Jones Industrial Average.
Two days later, the blue-chip index fell into a bear market-—as Mr. Pomada’s firm continued selling—bringing an abrupt halt to an 11-year bull run that began in the throes of the financial crisis.
Like a growing number of investors today, Crabel relies on preset algorithms to make computerized trades. They are dictated by a series of inputs. And one of the most important of these inputs is the market’s own volatility.
As a result, when things get wild, the computers at Crabel and other firms start selling—helping make it wilder still.
“We need to cut position size when market volatility pops,” even if the positions seem like winners over the long term, said Mr. Pomada, Crabel’s chief executive. “It can feel awkward, but we know we’re doing the right thing from a risk perspective.”
The stock market has been plunging as investors struggle to judge the impact of the coronavirus, a price war in oil and their impact on the global economy. Monday’s fall of nearly 3,000 points in the Dow Jones Industrial Average, or more than 12%, marked the second-worst day in its 124-year history. But those reasons don’t fully explain the remarkable volatility.
High Anxiety
The VIX, known as Wall Street's 'fear gauge,'closed at a record high on Monday.
Cboe Volatility Index
Source: FactSet
As of March 16, 4:14 p.m. ET
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Since the mid-February market peak, the Dow Industrials have closed more than 1,000 points lower on six trading days and rebounded at least 1,000 points four times. Adding to those moves, and potentially hastening them, are technical factors that have little to do with how investors feel about the outlook for companies, earnings and the economy.
In a dramatic shift since the financial crisis, the market today is dominated by computer-driven investors whose machines react to a series of technical and other factors, as well as by more-traditional investors who rely on reams of fast-flowing data. On many days, forces such as the market’s volatility and momentum, derivatives activity and the market’s liquidity—how easy or difficult it is to get in and out of trades—can help drive trading.
In earlier times, when trading was dominated by fundamental investors who scoured balance sheets, studied goods prices and tried to reckon a company’s future profits, market volatility figured in to some extent, but not in any defined way. Now, for many traders a stock is simply a thing that moves, whether the company makes shoes or airplanes or frozen pizza. And how much a stock moves—how sudden and sharp are its swings—is a factor as important as any other in whether to buy or sell it.
On Friday, various momentum inputs directed investors to buy shares late in the day when the market began to climb. Buying by these algorithmic investors, alongside other investors’ bullishness or hedging, sent the Dow Industrials up nearly 2,000 points, or 9.4%, in its biggest one-day percentage gain since 2008, traders said. Most of the move happened in the last 30 minutes, a concentrated burst that drove the index up over 1,400 points.
As 2020 began, investors were optimistic the economic expansion would continue, as calming trade tensions between the U.S. and China and three recent interest-rate cuts from the Federal Reserve lifted stocks to record levels. For years, it paid to buy each dip in stocks and to embrace trades that bet against the return of volatility.
The outlook for investors started turning dire the weekend of Feb. 22, after a surge of coronavirus cases outside China. Fears it could spread globally and tip economies into recession smashed a long stretch of tranquility in financial markets.
The Dow Industrials fell from a record Feb. 12 into a bear market on March 11—defined as a decline of at least 20%—in 19 trading days, the fastest such plunge ever. The S&P 500 suffered a similar drop.
Including Monday’s plunge, the trading wiped $8.28 trillion in market value from the broad stock-market index. Treasury yields plumbed new lows, reflecting furious buying of safe government bonds. Oil prices fell at rates not seen since the 1991 first Gulf War. Investors fled riskier debt, afraid companies that loaded up on credit amid low interest rates would have trouble repaying.
“You’ve gone from an environment where you think you can go into a mini bubble to…we could have a recession starting in March,” said Troy Gayeski, co-chief investment officer of SkyBridge Capital, which oversees $9 billion. “This is a whole new world.”
According to JPMorgan Chase & Co, more than $100 billion of selling during the week of Feb. 23, the worst week since the financial crisis, was fueled by strategies such as options hedging, what traders call “vol targeting”—using volatility as a central input in trading decisions—and other systematic tactics.
Many of the technical trading strategies—which helped buoy markets during its 11-year bull run—have been unraveling and driving volatility. On the way up, as volatility fell, people bought risky assets; now volatility is rising, so they’re selling.
“What you get is that Minsky moment: That stability ultimately breeds instability,” said Charlie McElligott, a strategist at Nomura, referring to the late economist Hyman Minsky’s thesis that prolonged periods of calm can sow the seeds of a painful collapse.
Different technical dynamics can work the other way, too, Mr. McElligott said, creating “a massive violence on upside moves.”
Many of these traders are selling shares and other investments to manage their risks rather than to profit from a tumble. Along the way, they can amplify the very downturns they are hoping to avoid by offloading shares just as the market swoons, adding to the turmoil.
Some of these strategies, such as chasing momentum, also can magnify rallies. Extended rallies often bring lower market volatility, thus spurring computer buying.
Funds making decisions based on volatility, including some with names such as volatility-targeting funds and risk-parity funds, have risen in popularity. Risk-parity funds manage an estimated $175 billion.
Systematically Selling
Systematic funds, which include commodity trading advisors and those that targetvolatility or make 'risk parity' trades, were selling more aggressively relative toothers like active mutual funds and retail investors.
Difference between current exposure and average exposure to stocks over pastfive years
Source: Deutsche Bank
Notes: Figures through March 12; Negative value indicates below-average exposure; DeutscheBank considers active mutual funds, long-short equity funds and retail investors as'discretionary.'
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One such investor, Roberto Croce, spends his days tracking thousands of data points on volatility and the intricate relationships between about 60 markets, from commodities to stocks and bonds around the world. Overseeing about $1.3 billion in a risk-parity strategy, Mr. Croce, a senior portfolio manager at Mellon Investments in Boston, buys and sells assets based on how risky they appear at any given time.
He began dumping stocks in early February and kept selling during the week of March 2 as the selloff accelerated.
By then, business leaders were canceling conferences and travel because of the virus. Anxiety was so high that the Federal Reserve’s emergency interest-rate cut on March 3, its first such move between scheduled policy meetings since the financial crisis, did little to soothe markets. On Sunday the Fed cut rates again, to near-zero, as the coronavirus pushed the U.S. closer toward a recession.
“It’s very clear what I have to do when risk rises. I have to reduce exposure,” said Mr. Croce. “That all happens based on the list of instructions that we’ve given to the computer.”
A risk-parity strategy run by Man Group PLC, one of the largest publicly held hedge funds, was cutting exposure to stocks around the world, commodities and credit the week of March 2, according to someone close to the matter.
By March 12, as the Dow dropped 10%, exposure by risk-parity strategies to stocks and other assets fell to the lowest level since 2013, Nomura estimates show.
Fleeing Stocks
Allocation to stocks by so-called volatility-targeting strategies tracked by DeutscheBank hit the lowest level on record on March 12, when stocks had their worst day since 1987.
Source: Deutsche Bank
Note: Figures through March 12. Deutsche Bank tracks a sample of funds. These tactics try tomanage a portfolio's level of volatility by allocating across stocks, bonds and cash.
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That same day, so-called volatility-targeting funds slashed their allocation to stocks to a record low, according to Deutsche Bank strategist Binky Chadha.
Those who trade based on volatility say that their activity isn’t dangerous because they alone can’t move markets, and that it isn’t clear how much they amplify the market’s direction.
They can also help stem the bleeding. Mr. Pomada’s firm reduced some of its bearish oil positions on March 9 because volatility had surged. It had been betting against the market, but moved to buy crude that day, potentially lending support to oil prices as they were cratering.
Additionally, these investors say their strategies are nuanced. “It’s extremely unlikely that a bunch of managers are pounding the market with exactly the same trades at exactly the same time,” Mr. Croce said.
Mr. Croce said he looks to sell shares gingerly so as to not significantly move prices. The signals help him make levelheaded decisions. “Humans like to sell bottoms and buy tops,” he said.
In addition to investors who have been selling as volatility soared, others have been getting out solely because of moves in the value of stock options they have sold.
In recent years, traders big and small have turned to options, which give investors the right to buy or sell shares later at agreed-upon prices, to juice returns. Assets in mutual funds and exchange-traded funds using options strategies have soared to $26 billion from about $10 billion since 2010, according to Morningstar Direct as of January.
In calm markets, when it’s safe to assume most options will never be exercised, some investors sold options just to collect the premium. Banks and trading firms also sell options to investors looking to hedge.
When markets fall and volatility soars, sellers of put options—which give the buyer the right to sell at a certain price, and which typically rise in value as the market falters—can be caught in a bind. They scramble to dump shares and stock futures to try to hedge or to minimize their growing losses.
Data firm Squeeze Metrics estimates that for every percentage-point fall in stocks, trading firms need to sell $30 billion in stocks to hedge their stances. Those same firms need to buy that much when the market jumps one percent. Hence, still more volatility.
In some ways, these trading techniques are similar to “portfolio insurance,” the hedging strategy popular in the late 1980s, when investors’ computers sold stock futures at the first sign of a decline to protect against deeper losses. On Oct. 19, 1987, that tactic led to more computerized selling and a rout of more than 22% in the Dow.
“It’s adding to the severity of these rips up and down,” said Tobias Hekster, who has been trading options for more than two decades and is co-chief investment officer of hedge fund True Partner Capital.
As of Monday, the S&P 500 has moved up or down by at least 4% for six consecutive sessions, the longest streak since November 1929, according to Dow Jones Market Data. The market’s move triggered trading halts for the first time since 1997.
London’s Aspect Capital automatically reduced positions in oil and other assets on March 9. The $7.2 billion firm spread its activity throughout the day, rather than sell at the opening of trading, according to Christopher Reeve, director of risk. That would suggest the firm didn’t exacerbate the collapse in oil prices.
“If markets get more volatile, our positions get smaller,” said Mr. Reeve, whose firm has funds that have both gained and lost money so far this year.
Further magnifying moves is how tough it can be to complete trades in times of stress. Big banks have backed away from trading over the past decade, leaving fewer players in many markets. The trades that get done can move prices more, causing greater tumult.
Tough Trades
It's gotten more onerous to trade S&P 500futures, a crucial market for hedging andmaking directional wagers.
S&P 500 futures available to buy or sell nearthe best prices
Source: Goldman Sachs
Note: Figures as of March 2.
.million
2012
’14
’16
’18
’20
0
10
20
30
40
50
60
70
80
$90
It’s become harder to trade assets from Treasurys to stocks and derivatives during the selloff. The number of Treasurys available to buy or sell near the best prices has dropped and is near levels not seen since late 2008, according to JPMorgan data. It became more onerous to trade S&P 500 futures and stocks, according to Goldman Sachs Group Inc., which said in a March 3 note to clients that the dynamic was contributing to rallies and selloffs.
Dean Curnutt, chief of New York-based brokerage Macro Risk Advisors, said he has considered leading clients away from trading certain stock options because of this concern.
Options are handy when investors are fearful of stock declines and can provide a buffer against losses. If it’s tough to trade them in times of stress, that could leave investors handcuffed.
That was the case recently with options on iShares iBoxx USD High Yield Corporate Bond Exchange-Traded Fund, a high-yield-bond ETF that has recorded steep price declines. “I would call it untradeable. The frictions are so high,” said Mr. Curnutt. “Maybe the best defense is just unwinding your portfolio to return to cash.”
The result? Likely more volatility.
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https://raconteurreport.blogspot.com/2020/03/you-really-have-no-idea.html
TUESDAY, MARCH 17, 2020
You Really Have No Idea
This isn't a ramble. I have a number of lines of thought I've been stewing over at work all weekend, and I'll be going down each one until I'm done.
Let's begin.
4000
8000
16000
32000
64000
128000
256000
512000
1000000
2000000
4000000
8000000
16000000
32000000
64000000
128000000
256000000
512000000
4000 is the number of confirmed cases of coronavirus in the U.S. now.
(That we know about. Reality could be 100,000 or more.)
If that original number doubles seventeen more times, the product is a number larger than the populations of the U.S. (330M), Mexico(137M), and Canada(37M), combined. IOW, it's virtually everywhere in North America at that point. (No, I'm not particularly concerned about the banana republics between Mexico and South America in this regard. They can lump it.)
What I've read is that the outbreak is doubling every 4-6 days. So somewhere between 68 and 102 days from today, the shit sandwich on this continent reaches full maturity.
If the spread of the disease is moving at that rate.
If the current voluntary measures don't halt that growth, or even slow that pace.
If it doesn't run out of people stupid enough to keep doing things to spread it.
With the above caveats:
May 22nd, to June 26th, give or take.
It crests 100M cases a week to two earlier.
Long before then, we'll have a great view of how lethal it is, and how many cases are serious. So by somewhere between mid-May and Mid-June, we'll either have metric f**ktons of people requiring hospitalization, and dead, or not. How much better or worse it is then will be a foolproof look at whether this is a nothingburger, or Spanish Flu. Oh, and if there are really 100,000 cases now, we get there a full month earlier.
Now maybe you can figure out why POTUS said this will last through July or August, at minimum.
And remember, the 85% (or more, or less) of all infected people who have symptoms ranging from none, to moderate flu, aren't the problem. They never were. They'll be just fine.
It's the hordes dying in droves, and crashing the entire U.S. medical system that could put a kink in this country that'll last for decades. And crashing the stock market. And everyone going broke. And crashing the economy even after this passes. And so on. And so on. And so on.
That's 5 1/2 months from now.
How much food do you have?
How much cash on hand do you have?
How much of each of those does Gilligan's family have, and how far are they from you?
So, how much ammo do you have??
That little thought exercise should concentrate your minds wonderfully.
----------
Now, a reminder about some other numbers.
900,000 staffed hospital beds.
93,000 staffed ICU beds.
60,000 ventilators.
1,000,000 medical doctors.
2,800,000 registered nurses.
106,000 respiratory therapists.
That is the army you're gong to war with, in this pandemic.
And when I say staffed beds, I don't just mean doctors, nurses, and RTs. I also mean D.Os, PAs, EMTs, CNAs, pharmacists, radiology techs, facilities engineers, clean-up crew, supply workers, registration clerks, administration people, IT geeks, and hundreds of other clerks and jerks, without whose constant efforts and hard work, plus medical supplies in small mountains every single day, Dr. Hero and Nurse Awesome are just a couple of people in funny pajamas, and with about as much lifesaving ability on their own as there is actual magical ability in Rupert Grint and Matthew Lewis.
If it was just beds we needed, we could take all the surplus army cots from the 2M guys RIFFed from Uncle Sam in the 1990s, unfold them, and Presto!, have another 2M spots to dump patients. It doesn't work like that.
I bring this up because if "only" 10% of Kung Flu victims require a hospital bed, because they're really that sick, then long about the time we hit 16,000,000 victims, in (44 to 66 days, so let's average it to) 55 days, we have more patients than we have beds for them. At that point, we're Italy. Say about May the 12th or so. (We may also have up to 480,000 dead, which if it happens would have crushed every ICU in the country 5 times over long before that point.)
We've covered this before, but it bears keeping in mind. Keep your thumb in this spot, as we move along.
----------
This weekend, all considered, from purely a Kung Flu cases standpoint, was just ducky.
We had maybe half a dozen to ten "rule-outs" (meaning "maybe it is, maybe it isn't; look for other things that rule out Kung Flu. Like actual influenza flu.) Given the abysmally slow return time, I believe at least one was positive for Kung Flu.
"Ten patients? Is that all?!? Aesop is fulla sh*t! This is a big conjob nothingburger!" - every two-digit IQ soopergenius who ever read a word I wrote on this topic.
And herewith, we digress for a bit.
Scenario One: You're in the military. In a combat zone. The enemy is known to have chemical weapons. One day, a shell whistles over from the enemy side of things, and goes off with a less than enthusiastic bang. Then another, and another. You see a hazy white cloud forming at each impact site, coalescing into a large white cloud, now drifting lazily towards your position.
Do you
a) send the company dumbass Gilligan over there to have a sniff for you, and report back
b) send the whole company of men over, and see what happens
c) put Gilligan in temporary command, and have him lead the whole company over there
d) Yell "GAS! GAS! GAS!", while clanging metal-on-metal, and then rapidly don your MOPP gear and gas mask, before the cloud blows into your position, and prepare to treat anyone nearby who was slower on the uptake.
Scenario Two: You're working in a hospital. An ambulance arrives, and unloads a patient spurting blood everywhere, who tells you he just arrived from the Congo, where he runs an HIV and Ebola Survivors Clinic, and tripped on the jetway and cut his leg open.
Do you
a) run over and apply direct pressure with your bare hands, while fountaining blood cascades into your eyes, nose, and mouth, and lick yourself clean afterwards
b) yell at all your other co-workers to join you in performing "a"
c) Both "a" and "b"
d) put on appropriate gown, gloves, and mask with splatter shield, and apply an emergency tourniquet
In case you were wondering, the correct answer to both scenarios is "d".
You always assume the worst, from common sense, and institutional policy, and over-prepare, so you can deal with it easily if it turns out to be less-than.
You don't grab your .22 to go take on that African Cape Buffalo, and then find out you needed a bit more to get it done. Unless you're a farking moron.
I told you that story so I could tell you this one:
----------
Some days back, I stated that I didn't think we'd bring Kung Flu patients into the hospital, but instead, triage them in tents outside, then send the ones meeting criteria to some FEMA-set-up Kung Flu Treatment Center, staffed as possible, and serviced by dedicated Hazmat 9-1-1 ambulances, whisking members of the community there as appropriate, in full protective gear, 24/7/365.
Because, as I argued with flawless logic, to do otherwise would be to
a) risk our entire healthcare system being overwhelmed and destroyed, a la Italy, and
b) make every other medical emergency impossible to deal with, thus doubling casualties from every other treatable and preventable cause of death, from heart attacks and strokes to appendicitis, because the entirety of any and every hospital would be filled with Kung Flu-infected plague petri dishes, in every nook and cranny.
Turns out, TPTB, top to bottom, make the Italians look like Leonardo da Vinci.
1) We're not putting tents up everywhere.
2) We're not segregating people out of the hospital.
3) We'll do a half-assed triage assessment outside the building somewhere (fill in the blank where___________)
4) Using screening criteria overtaken by reality a month ago, because the CDC, no matter how asinine, is always the CDC
4a) to wit, asking about foreign travel, even though homegrown community-acquired cases outstrip foreign travel candidates, and have for two weeks
4b) ask about exposure to known Kung Flu patients, even though the CDC and local public health departments refused to test for Kung Flu until four days ago, in most cases, (due to jackassery, fuckwittery, and a dearth of functional kits for two months) thus insuring via Catch-22, that if you never test for King Flu, nobody anyone was in contact with ever officially has Kung Flu
5) then bring the infected into an appropriate sealed negative airflow room
5a) which cleverly has no patient monitoring equipment
5b) will not allow you to get portable chest x-ray equipment into the room with the patient with respiratory problems (which, cleverly, no one thought about prior to then)
5c) which would contaminate said portable x-ray equipment every time you got it into the quarantine room
5d) which would require an extensive, nigh impossible decontamination of said X-ray equipment for each and every subsequent patient
5e) thus leading to shooting x-rays outside the building, or in other places that probably violate 27 hospital safety policies, local health and safety codes, and probably eleventy Nuclear Regulatory Commission regulations regarding radiological safety of patients, staff, and bystanders, in a slow-rolling Chernobyl sort of way
5f) and taking them to CT scanners which are then contaminated, and failing to do a full terminal clean of said rooms and equipment each and every time, which would take them offline for hours each shift, and necessitate closing the hospital to ambulance traffic, so why bother cleaning?
6)unless you're fresh out of negative airflow rooms, in which case you
7) put them into open rooms with no protection or containment
8) thus insuring that all staff members and other patients are exposed over and over again
9) to cases which will not be tested for Kung Flu unless they're first proven negative for the flu
10) Or not
11) All such "policies" being rather more like the Pirates Code ("just guidelines, really"), purely at the whimsy and caprice of whatever doctor(s), charge nurses, or cranky old bat nurse has phone duty that day at the Public Health office, and their personal and capricious interpretation of the current (of four or five or six, so far) CDC guidelines
12) which apparently are changed every hour, if not more frequently
13) while the managers, and senior management, who should be living in the same shoes and underpants 24/7/365 until they sort this shit out, weekend or no, but whom are instead nowhere to be seen, heard from, or in any wise directly involved, until the total colossal clusterfuck falls over from its own weight seven or eight times over, between Friday afternoon and the middle of the following week.
14) while staff and patients having to deal with the results of people with Acute-on-Chronic Head-Up-The-Ass-Syndrome are repeatedly subjected to potential pandemic exposure, leading to sickness, preventative quarantine, lawsuits, and death
15) as the Low IQ staff members, who still think this is no big deal, continue to half-ass every bit of their response, 24/7/365, because half of them were below the upper/lower cut in their graduating classes as well.
THAT'S WHAT YOU'RE GETTING.
The CDC (as per usual, going back years decades) has no f**king idea that it doesn't even know what it doesn't even know, including how to find its own ass with both hands, a map, a compass, and a rearview mirror.
ManageManglement has no idea the CDC can't find its own ass either, and is looking for their own as well.
Supervisory staff puts on its Lemming Suicide Squad Crash Helmet and blinders, and announces that the Light Brigade will smartly charge right over the cliff.
Grunt-level staff, doctors, nurses, ancillary members, etc. will continue to work until
a) they can't take the bullshit
b) they get sick
c) they realize their own family's safety trumps a paycheck.
Instead of learning from Italy's mistakes, and trying to save people and the overall healthcare system, we're going to keep on half-assing this until we're in it over our heads, and then drown. Instead of making the hard call early, and working the kinks out now, when it would have been easy, when it's five patients a week, we'll wait until it's 500 patients an hour, and then crash and burn in a glorious orgy of stupidity.
I expect people to hit the wall.
This is all new to everyone.
There hasn't been a pandemic like this in 100 years.
BUT I ALSO EXPECTED THEM NOT TO BE SO GODDAMN STUPID AFTER THEY HIT THE WALL AS TO NOT RUN HEADFIRST INTO IT TEN OR TWENTY MORE TIMES, IN RAPID SUCCESSION, SIMPLY BECAUSE THEY CAN.
That last expectation was misguided, being most clearly irrational hubris overcoming a solid and well-founded pessimism about people in general, the universality of the Peter Principle, and the inevitability of people, left to their own devices, shooting themselves in the feet until they run out of feet, or ammunition. And then, reloading.
Having said (and witnessed, firsthand) all of the above, and after understating it by at least half (you really have NO idea) there's only one way to deal with this, for me:
I mean that last, most sincerely. We're all going to go through this. Harden the fuck up.
Take care of yourselves.
Take care of your families.
Take care of your friends.
Take care of Your People.
No one is coming to save you.
Not me.
Not the government.
Not. Any. One.
Everything is Your Responsibility.
Deal With your Shit.
Get It Done.
YOYO = You're On Your Own
Best Wishes. Really.
And if, watching the economy do a SMOD impact into your life, and the entire nation go onto a (mostly voluntary) full lockdown quarantine, you still think this is just a hype and a nothing burger, I can't help you. If you're right, I don't need to; and if I'm right, no one will miss you.
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That one has me looking like a Jewish Don King! :-o :-o :-o
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https://www.ftportfolios.com/Commentary/EconomicResearch/2020/3/17/coronavirus-contraction
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https://www.zerohedge.com/economics/jpmorgan-now-expects-global-depression-second-quarter
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now with so many people out of the market it is really hard to tell
how many dooms dayers are simply trying to take this down more.
GREAT DEPRESSION
WE may never recover
this will go on for decades etc.
I have to reread 1918 again though the world is far different now..........
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now with so many people out of the market it is really hard to tell
how many dooms dayers are simply trying to take this down more.
GREAT DEPRESSION
WE may never recover
this will go on for decades etc.
I have to reread 1918 again though the world is far different now..........
My complaint with the publicly traded stocks, including the mutual stock funds at T Rowe Price that I refer everyone else to, is the shared ownership aspect. Like ccp says, some always want to drive it down further so they can profit even more when it comes back. They have imperfect ways of knowing when but their ways and their powers are better and greater than ours.
I looked to get back into the same funds this week and found out I need to stay out of these funds 30 days when redeeming [so that people do not mess up the mutual funds with instant trading]. Meanwhile I could buy back in elsewhere but setting up accounts takes time.
At the start of this, I figured there is a 100% chance that the market bounces back 100% within a relatively short order after panicking and settling, by end of summer, end of year or within a short period after that, within another 1 or 2 years if it's deeper and slower. If I buy back in when it is down 25-30% and it comes back, that roughly gives me 25-30% more shares or more value of the same stocks just for opting out of the v-shaped crash/recovery. If it drops further to 40% off or bounces around in the 30s% down, I have to admit I have no way of calling the real bottom and there will likely or at least possibly be a big rush for people to get back in on the way up too. This is not headed to zero. It will come back in one form or another. A huge percentage of the economy is not affected at all, except by other people's panic.
We face other risks. It's hard for the US economy to come back alone if the world economy is still crashed. Also there is the political risk that if things are bad for too long economically it wouldn't take much for our whole election to turn leftward, and in that double, triple, quadruple bad news scenario I would not want to be in the markets. My prediction is the opposite. This country will roar back. Unfortunately my certainty level is way below 50%. (
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".Also there is the political risk that if things are bad for too long economically it wouldn't take much for our whole election to turn leftward, and in that double, triple, quadruple bad news scenario I would not want to be in the markets."
my concern also.
that would for extend the picture of bad new for yrs or forever.
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Markets also could be down because Tulsi Gabbard dropped out leaving just Joe Biden to challenge Trump.
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https://scottgrannis.blogspot.com/2020/03/weve-probably-seen-worst.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
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https://scottgrannis.blogspot.com/2020/03/weve-probably-seen-worst.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
I hope he is correct, but I doubt it.
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Both he and Wesbury we slow to recognize the Black Swan in 2008.
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https://www.reuters.com/article/us-usa-economy-durablegoods/u-s-durable-goods-orders-increase-solidly-before-coronavirus-idUSKBN21C1YS?il=0
Orders for durable goods, items ranging from toasters to aircraft that are meant to last three years or more, accelerated 1.2% last month (Feb 2020), the Commerce Department reported on Wednesday. Data for January was (also) revised up.
--------------------------------------
GDP Now, a statistical measure published by the Atlanta Fed STILL has current GDP growth at 3.1%, not counting known closures and cutbacks coming due to the Wuhan Coronavirus.
https://www.frbatlanta.org/cqer/research/gdpnow.aspx
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2020 is 3.1 percent on March 25, unchanged from March 18 after rounding. After this week’s and last week’s data releases from the National Association of Realtors and the U.S. Census Bureau, the nowcast of first-quarter real gross private domestic investment growth decreased from 7.5 percent to 7.4 percent.
(...does not capture the impact of COVID-19 beyond its impact on GDP source data and relevant economic reports that have already been released. It does not anticipate the impact of COVID-19 on forthcoming economic reports beyond the standard internal dynamics of the model.)
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[quote author=Crafty_Dog
...
payrolls grew by a very strong 273,000 in January and another 273,000 in February. The unemployment rate was 3.5% in February and initial claims for jobless benefits were 216,000 in the last week of February. Retail sales in January were up 4.4% versus a year ago. In February, sales of cars and light trucks were up 1.9% from a year ago and were above the fourth-quarter average. This suggests that total retail sales for February rose as well.
...
hours worked in manufacturing durable goods rose 0.9% in February and colder weather likely lifted utility output.
Housing starts have been particularly strong lately, coming in at an average annual pace of 1.597 million in December and January, the fastest pace for any two-month period since 2006. Yes, part of the surge in home building was due to good weather, so February will likely fall off to around a 1.49 million pace, which excluding December and January, would be the fastest pace of building for any month since 2007.
------------------------------------------
That was the news only a couple of weeks ago. Kick this virus out of the way and some kind of strong economic recovery is possible. It's just a matter of time and success on every front, knowledge, testing, supplies, vaccines, treatments.
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https://www.ftportfolios.com/Commentary/EconomicResearch/2020/3/30/recession-v-shaped-or-u
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https://www.ftportfolios.com/Commentary/EconomicResearch/2020/3/30/recession-v-shaped-or-u
They economy will reopen gradually so it cannot be a sharp v-shaped recovery.
I see a sharp and vigorous recovery IF / WHEN we fully reopen everything, which is when, never?
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https://www.ftportfolios.com/Commentary/EconomicResearch/2020/3/30/recession-v-shaped-or-u
They economy will reopen gradually so it cannot be a sharp v-shaped recovery.
I see a sharp and vigorous recovery IF / WHEN we fully reopen everything, which is when, never?
We are in unknown territory.
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Not only is the world economy very contracted now, it is also very fragmented. Indeed, the very concept of the global economy has taken a deep hit.
This was Jude Wanniski's analysis, with which I agree, of the primary cause of the Great Depression.
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The former global economy is now a mess. Trust level with China, for example, is now at zero.
As we grew our US federal government spending to US$5Trillion!, we managed to spend most of it in ways that weaken the economy and none of it in ways that address the weaknesses in the economy.
Black Swan author Nassim Talib, if I understand him right, does NOT see current times as a black swan event because a virus pandemic was perfectly foreseeable. Calling it unforeseeable excuses our unpreparedness.
From the article below, over-specialization leads to lost knowledge. In the case of 3M N95 masks and basic hand sanitizers, maybe that means lost facilities and materials needed to ramp up and build what we need.
https://www.theamericanconservative.com/articles/why-didnt-we-test-our-trades-antifragility-before-covid-19/
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As best as I can tell:
Most analytical focus seems to be on flattening the wave, but not so much on what comes after the peak of the wave.
The Commie Virus is now part of the human biome. Even assuming that we keep within the now somewhat increased capacity of the health system, a goodly percentage of the human herd remains without immunity and as we lift current measures, not only do the original risks of inundating waves return, but either way those who haven't gotten it remain concerned and their behavior affected.
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The ISM Manufacturing Index Declined to 49.1 in March To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 4/1/2020
The ISM Manufacturing Index declined to 49.1 in March, beating the consensus expected 44.5. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mostly lower in March. The production index fell to 47.7 from 50.3 in February, while the new orders index declined to 42.2 from 49.8. The supplier deliveries index rose to 65.0 from 57.3, and the employment index declined to 43.8 from 46.9 in February.
The prices paid index declined to 37.4 in March from 45.9 in February.
Implications: The impact of the Coronavirus on factory sentiment was less than expected for March, with the ISM Manufacturing index coming in at 49.1, beating the forecast from every economics group. Expect the index to get uglier in the months ahead, but for the time being, ten out of the eighteen industries surveyed reported continued growth in March, only six reported contraction, and two reported no change. Comments from survey respondents were peppered with concerns over the Coronavirus, its likely impacts on supply chains, as well as the effects of the oil-price war. The two most forward-looking indices – new orders and production – both moved lower in today's report. New orders fell to 42.2 in March, the lowest since 2009, likely due to uncertainty about the near future. Meanwhile, the production index declined to 47.7 in March from 50.3 in February, as a lack of new orders and delivery restrictions due to public health measures hit activity. That said, recent news surrounding manufacturers converting their production lines to make ventilators, personal protective equipment, and other necessary items for the fight against the Coronavirus suggests some support for production and new orders going forward. Regarding overseas supply chains, one respondent noted that Asian suppliers are getting back up to speed. This was reflected yesterday in China's manufacturing PMI which rebounded sharply back into expansion territory, though it's always important to take Chinese numbers with a grain of salt. That said, supply chain disruptions and delivery restrictions in the US have impacted the supplier deliveries index, which rose to 65.0 in March from 57.3 in February (remember, the supplier delivery index moves higher as delivery delays rise). Finally, the employment index continued to decline in March, falling to 43.8. This echoed the decline of 27,000 jobs in today's ADP employment report, reflecting the ongoing effects of government-mandated shutdowns of businesses. We are forecasting a 145,000 drop in nonfarm payrolls for March but may adjust this estimate tomorrow morning once we see the latest figures on unemployment claims. In other news this morning, construction fell 1.3% in February. A rise in transportation projects was offset by broad-based declines elsewhere, led by commercial construction and manufacturing. Finally, in recent news on the housing market, pending home sales, which are contracts on existing homes, rose 2.4% in February after a 5.3% gain in January. Normally, these gains would signal a surge in closings in March. But closings were unusually strong in February, perhaps a reaction by some buyers to the oncoming Coronavirus. And now, given social distancing, closings in March could be relatively soft. On the price front, the Case-Shiller index, which measures national home prices, rose 0.5% in January and is up 3.9% from a year ago, a slight deceleration from the 4.2% increase in the year ending in January 2019. In the past twelve months, price gains have been the fastest in Phoenix, the slowest in New York and Chicago.
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https://wilderwealthywise.com/submarines-star-trek-and-economic-collapse/
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Both witty and gloomy , , ,
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based on this I should sell everything while we have bump in the market.
who knows?
of course if we only listen to Dr Desai and the world stays in for 2 weeks the problem is solved:
https://www.yahoo.com/huffpost/doctor-rishi-desai-fox-news-085227730.html
Democrats love this shit so they can say if only the bad orange man (didn't he change his hair color recently to white?)
won't take anything seriously.
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IMHO, the Greatest Depression is the much more likely outcome than being back to normal in June. If that is correct, then getting some money back is better than losing everything, yes?
I hope I am wrong, but hope isn’t a strategy. Don’t let normalicy bias bite you in the ass.
based on this I should sell everything while we have bump in the market.
who knows?
of course if we only listen to Dr Desai and the world stays in for 2 weeks the problem is solved:
https://www.yahoo.com/huffpost/doctor-rishi-desai-fox-news-085227730.html
Democrats love this shit so they can say if only the bad orange man (didn't he change his hair color recently to white?)
won't take anything seriously.
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well you have been right so far
if true, we will likely see a socialist response in my humble opinion
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well you have been right so far
if true, we will likely see a socialist response in my humble opinion
That will be tried and then it will fail as it always has.
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As best as I can tell:
Most analytical focus seems to be on flattening the wave, but not so much on what comes after the peak of the wave.
The Commie Virus is now part of the human biome. Even assuming that we keep within the now somewhat increased capacity of the health system, a goodly percentage of the human herd remains without immunity and as we lift current measures, not only do the original risks of inundating waves return, but either way those who haven't gotten it remain concerned and their behavior affected.
Yes. Behaviors will be affected for a long time to come. To ccp's question, what to do (with investments) today? I struggle to address that for my daughter's investments and others.
Reality is challenging my optimism. Best realistic case includes some major bumps in the road. The health and economic issues are intertwined. I knew when we test more, we would find more cases, but I am surprised to still see it getting worse with very widespread shutdowns in place. We should see a peak and declining new infection numbers when? When depends on where, but nationwide we should see something positive by the middle or end of April, don't you think? Then what?
If we all need masks and we all need sanitizers and there are none, then why predict optimism until the most basic protections are readily available.
There is real progress on immunization, but what date will it really available and by what date will a serious portion of the globe be immunized? It's a long way off even if the tests in progress now are successful.
Stock markets used to precede economic markets by 6 months. At this point one might say it hasn't fallen enough yet to fully encompass all the bad health and economic news and numbers to come. Then when we really are on the rebound, how soon do people sense or anticipate that and how strongly does it come back? No one knows but we are a long way from being able to lift travel bans, meaning a whole lot of industries face extended troubles, and pull down other industries with them.
Are you ready for the market reaction to the US deficit numbers?
My earlier market pessimism before came from the idea that other investors cannot handle the quarterly news of major companies taking revenue and profit hits from business in China. That short term pessimism is ten times stronger now than then.
Looking back in this thread, I wrote:
Re: US Economy, the stock market: Coronavirus?
« Reply #1399 on: February 18, 2020, 11:07:37 AM »
What does everyone here think about market implications of this so-called Coronavirus?
1. Medically, how does this end?
2. Mathematically, how is this expanding? Remember, information from China is likely false, understated.
3. Economy of China: If the economic impact only hit with a huge recession in China, how does that affect our markets, my 'growth stock funds'?
4. If the virus hits epidemic levels elsewhere, what is that economic and market impact?
5. If stock markets start to panic, how far does it go.
An hour later I wrote:
Trying to answer my own question, here is the Shanghai index for the last 3 months:
Stocks in China kept going up at the announcement of the virus, peaked in mid January. Bottomed out (for now) around Feb 1 and is up since then. This tells me there is no panic now.
What news of spread or trajectory makes this change?
There are fewer than 2000 deaths known worldwide so far. Far lower even in China than auto accidents, cancer, etc.
https://www.worldometers.info/coronavirus/
The economic scare then has to do with the travel bans, quarantines and shut downs of economic activity. I'm surprised this hasn't shown up in the numbers yet.
I am thinking I should be in an all cash position now and buy back in at the bottom. That is against my nature but it is too late to panic after everyone else already has.
Ideas, advice?
Also see GM Reply #1403 February 25. GM: I sold one urban property since then.
The question today is, do the markets today already reflect all the bad news to come? (Almost certainly no. Look at them react to unemployment numbers that were basically government ordered, already known.) If you get out today, will you know when to get back in? (No.)
Dow chart lately:
(https://api.wsj.net/api/kaavio/charts/big.chart?nosettings=1&symb=djia&uf=0&type=2&size=2&sid=1643&style=320&freq=1&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=8&rand=840149611&compidx=&ma=0&maval=9&lf=1&lf2=0&lf3=0&height=335&width=579&mocktick=1)
If 26,000 was the old normal, call it 100%. It went to peak 30k = 115%. Today it is at 21k = 80% of 26k ( or 70% of the peak).
I would say, forget about the peak gone by and ask when does it get back to 26k? If you still think that is by year end, that is a 24% return (up from 21k, the decision point today). If you think that is 2 years out, that is a 24% return in two years, still not bad. My point in asking these questions Feb 18 was that my stomach wasn't ready for the roller coaster ride in between.
We will get through this. I don't know when. It won't go to zero. Don't you think Google, Apple, Amazon, United Health Group and a whole lot of new innovative companies are going to make a lot of money in the future? There is plenty of money on the sidelines to buy back in once everyone scared has sold.
The part I hate about roller coasters is when they head straight down and then you see there is a sharp sideways turn at the bottom... At the end you get off right where you started, out a few bucks and all shook up. It's not a perfect analogy. You can get off the stock market anywhere you want.
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Fauci thought in 2 weeks we could see evidence of flattening I think last week
I will be shocked :-o it we don't see by end of April
what we are doing HAS to be helping
But Dr Desai on Martha McCAllum suggesting we all shut down for 2 weeks is wrong
two weeks would not be enough and one would have to isolate every human being on the planet from every other human being
NOT possible and just a stupid supposition
as far as I am concerned
Bill Gates in thinking in terms of computer logic or a computer hologram
This is not real world humanity.
I don't want to live at the whims of AI monitoring every inch of every person's movements moving as around like chess pieces with MSFT being the mastermind behind it all - no chance
give liberty or death applies here for me.
I liked Tucker's valid points
at what point to we figure trying to save a portion 2/10ths of humanity is worth the destruction of our economy , society, way of life
and future ?
I remember seeing a movie of African hunters who when one gots too old and sick he simply sat down to die while the rest proceeded
on the hunt. There was nothing more they could do for him and the rest had to move on to survive
It is telling how Dems only want to blame Republicans and not themselves
no criticism of Dem governors who waited to do anything
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Really good post Doug.
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Data Watch
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Retail Sales Declined 8.7% in March To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 4/15/2020
Retail sales declined 8.7% in March (-8.5% including revisions to prior months), below the consensus expected 8.0% decline. Retail sales are down 6.2% versus a year ago.
Sales excluding autos declined 4.5% in March, (-4.3% including revisions to prior months). The consensus expected a 5.0% decline. These sales are down 1.7% in the past year. Excluding gas, sales declined 8.0% in March and are down 5.1% from a year ago.
The drop in sales in March was led by autos, restaurants & bars, clothing stores, and gas stations. The largest increase by far, was for food & beverage stores.
Sales excluding autos, building materials, and gas declined 3.5% in March. These sales were down at a 2.5% annual rate in Q1 versus the Q4 average.
Implications: Retail sales plummeted in March at a faster pace than any month on record, falling 8.7%. Sales declines were widespread, but led by autos, restaurants & bars, clothing & accessory stores, and gas stations. Auto sales fell 25.6%, which leaves room for further declines in April given government-mandated shutdowns. The same goes for restaurants & bars, where sales were down 26.5%. Sales in this category will decline sharply again in April. Sales at clothing & accessory stores fell 50.5%, which makes sense when everyone is too busy stocking up on food and other necessities. Gas station sales dropped 17.2%, a result of both lower prices and lower sales volume. The best-performing categories were food and beverage stores (supermarkets and groceries), up 25.6%, non-store retailers (internet and mail-order), up 3.1%, and general merchandise stores (including warehouse clubs), up 6.4%. Building materials & garden equipment rose 1.3%, possibly signaling relative resilience in the housing sector. "Core" sales, which exclude the most volatile categories of autos, building materials, and gas station sales, declined 3.5% in March and are down 0.7% from a year ago. Overall sales are down 6.2% from a year ago. Plugging these figures into our models suggests "real" (inflation-adjusted) consumer spending (goods and services, combined) fell at a roughly 2% annual rate in the first quarter and that real GDP declined at a roughly 3% rate, although we could adjust these figures later this month before the government releases its initial report on Q1 real GDP on April 29. This is an astounding turnaround from our pre-Coronavirus estimate that the economy was growing at a 3% rate in Q1, a combination of solid entrepreneurship, lower tax rates, and less of a regulatory burden. Now, it looks like the second quarter will be even worse than the first, with the steepest drop in real GDP for any quarter since the immediate aftermath of World War II or possibly the Great Depression in the 1930s. In the months ahead, the timing and pace of the recovery will be largely influenced by the timing and pace of governments at all levels easing restrictions on economic activity (even if gradually), which, in turn, depends on the spread of the virus as well as testing and therapies to fight it. Until we see some easing, expect the data to remain ugly.
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Industrial Production Declined 5.4% in March To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 4/15/2020
Industrial production declined 5.4% in March, below the consensus expected drop of 4.0%. Mining output fell 2.0% in March, while utilities dropped 4.0%.
Manufacturing, which excludes mining/utilities, declined 6.3% in March. Auto production dropped 28.0%, while non-auto manufacturing fell 4.5%. Auto production is down 26.5% versus a year ago, while non-auto manufacturing is down 5.0%.
The production of high-tech equipment fell 0.1% in March but is up 5.5% versus a year ago.
Overall capacity utilization dropped to 72.7% in March from 77.0% in February. Manufacturing capacity utilization declined to 70.3% in March from 75.0% in February.
Implications: Today's report on industrial production is our first look at the factory sector since broad-based shutdowns of the US economy to fight Coronavirus took effect, and boy was it a doozy. Headline industrial production and its manufacturing subcomponent plunged 5.4% and 6.3% respectively. These are the largest monthly declines for both series since early 1946, when the end of World War II led to a huge drop in armaments. Within manufacturing, auto production fell 28.0% in March, coming in just above the current record decline of 28.4% in Jan 2009 in the midst of the financial crisis. Given production shutdown since then, brace for an even steeper drop in April. Meanwhile, non-auto manufacturing fell 4.5% in March, the largest monthly drop on record. Mining output declined 2.0%, as extraction activity for oil, natural gas, and other minerals took a hit. The price of WTI crude is down roughly 68% since the beginning of January, pushing below the break-even level for many US producers, so we expect more weakness in this sector, going forward, as well. The crude oil market got hit from both sides, as global disruptions from the Coronavirus hit demand, while Saudi Arabia and Russia boosted supply in a quest to wash out US competitors. However, a recent announcement by President Trump that an agreement has been made with these producers to cut a significant portion of daily supply could help going forward, though cartel type agreements are notoriously unreliable.
Later this year, as the pandemic is dealt with, prices will rebound, with mining activity rising close behind. In other recent manufacturing news, the Empire State Index, which measures factory sentiment in the New York region, fell to -78.2 in April from -21.5 in March. This is the largest monthly drop on record and brings the index to its lowest reading on record, signaling more ugly data from the factory sector is on the way. Look for major drops in other regional manufacturing survey as the full hit from Coronavirus lockdowns makes its way into the data. On the housing front, the NAHB index, a measure of sentiment among homebuilders, fell to 30 in April from 72 in March, the largest monthly drop on record. The decline was primarily driven by a deterioration in the outlook for future sales and buyer foot traffic. Look for a decline in home building in the months ahead, but not as much of a decline as overall US economic activity, as many work crews in the sector are still legally allowed to work.
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From the Scott G thread:
Politics & Religion / Scott Grannis: Things are looking up
« Last post by Crafty_Dog on April 28, 2020, 02:58:17 PM »
https://scottgrannis.blogspot.com/2020/04/things-are-looking-up.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29
A number of important points are made there. The doubling rate is under control. Some states and businesses will be re-opening - cautiously. The hospital capacity question seems to be answered. The ventilators are there; don't seem to be the answer anyway. Hand sanitizers and masks are coming. Testing is way up. Sunshine and summer coming fast. We have moved along on the learning curve. I hate to say this, but many of the most exposed and vulnerable already died. In medical terms, was this the bottom?
On the investment side, can investors handle the rear view mirror news still to come. Q1 GDP was downward - because we lost half of March. Q2 will be downward because we lost all of April. Quarterly earnings of almost everything, same. Is there still going to be a sell off with every unemployment report and bad earnings report, or is the market going to be what it is supposed to, forward looking?
But if the first part is true, the 'recession' only lasted about 6 weeks. If 21 states begin to reopen, economic activity next week is greater than economic activity last week. And better yet the next week and the next month. We did the 14 day quarantine 3 times over. More states and more industries will open. Places with forced closures didn't do much better than places without them, just pushed their curve further out, and constitutional issues are beginning to mount. Offices are building partitions and retail checkouts are building sneeze guards. Maybe you wear a space suit, but if you need to fly, you eventually will go to the airport and do that.
If traffic court can operate by video, so can housing court, and so on.
There is pent up demand for many closed things, from hair cuts to dental work and medical treatments. Restaurant meals, with distancing. People are wanting to invest more in their homes now that they have spent some time there.
Relapses of new outbreaks can be handled with immediate micro-closures. We know how now. With each new setback, we have better readiness, treatments, facilities, isolation possibilities, testing and 'herd immunity'. And each day we move closer to a vaccine. Maybe we even learned something that will help with the next coronavirus.
Economically speaking, was this the bottom?
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The First Estimate for Q1 Real GDP Growth is -4.8% at an Annual Rate To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 4/29/2020
The first estimate for Q1 real GDP growth is -4.8% at an annual rate, lagging the consensus expected -4.0%. Real GDP is up only 0.3% from a year ago.
Consumer spending was, by far, the largest drag on Q1 real GDP growth, with business investment in equipment, commercial construction, and inventories down, as well. Net exports and home building made large positive contributions to real GDP growth.
Personal consumption, business investment, and home building, what could be called "core private GDP," fell at a 6.6% annual rate in Q1 and is unchanged from a year ago.
The GDP price index increased at a 1.3% annual rate in Q1. Nominal GDP – real GDP plus inflation – dropped at a 3.5% rate in Q1 and is up 2.1% in the past year.
Implications: Real GDP fell at 4.8% annual rate in the first quarter, the largest drop since late 2008. Considering that the economy was cruising along at moderate growth through February, this signals an unprecedented monthly drop in economic activity in March. This drop obviously continued through April and therefore suggests an even deeper plunge in real GDP growth in Q2. We are penciling-in -30%, but the key factors determining the plunge are outside the realm of normal economics, including the pace of the spread of COVID19, the easing of legal restrictions on activity, as well as the development of therapies for the illness. To put -30% in perspective, the worst quarter since the winddown from World War II was -10% in the first quarter of 1958 on the heels of the Asian Flu. In the meantime, the drop in real GDP in Q1 this year was led by consumer spending, particularly spending on services, which fell at a 10.2% annual rate. The largest drops for services were for health care, restaurants & bars, recreation, and transportation. The slide in health care may seem odd, but many people are staying away from hospitals as well as the offices of doctors and dentists unless they have a very serious condition. Real (inflation-adjusted) spending on goods declined 1.3% overall, including large drops for autos and apparel, while food and beverages purchased for off-premise consumption rose at the fastest pace on record. Some observers may take heart in the reduction in the trade deficit in Q1. But the decline wasn't because of an increase in exports, which would have been good news, it was because imports fell faster than exports. Total trade declined at a 12.6% annual rate; not a good sign. One odd part of the report was that inventories only declined at a $16.3 billion annual rate in Q1, suggesting a bigger inventory reduction may be waiting in Q2. On the inflation front, the GDP deflator rose at a 1.3% annual rate in Q1, but we expect a negative print for Q2 based on the drop in commodity prices. In other recent news, the Richmond Fed index, a measure of mid-Atlantic factory sentiment, fell to -53 in April from +2 in March. That figure is the lowest on record. For perspective, the lowest during the Great Recession was -44 in February 2009. On the housing front, the Case-Shiller national home price index rose 0.5% in February and was up 4.2% from a year ago. Our best guess is that COVID19 will not greatly affect housing prices in the short run as both buyers and sellers flee the market.
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Monday Morning Outlook
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S&P 3100, Dow 25750 To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/11/2020
In December 2018 with the S&P 500 at 2,500, we forecast it would hit 3,100 by the end of 2019 and then pushed our forecast to 3,250 as stocks soared. The S&P 500 rose 28.9% in 2019 and hit that revised target on the first day of trading in 2020.
We then raised the target to 3,650 for the end 2020, and the way stocks were moving higher in January and February made that forecast look reasonable. But then the world took a detour into the Coronavirus Contraction. As a result, we are adjusting our year-end 2020 target down to 3,100, with the Dow Jones Industrials average finishing at 25,750. That would be a moderate gain of 5.8% from the Friday close.
The range of plausible outcomes for the rest of 2020 is very wide right now. Key variables include factors that are normally irrelevant to forecasting markets such as the spread of the Coronavirus, how quickly the economy opens, the development of therapies or a vaccine to fight the disease, and how quickly people are willing to go back to normal.
With the economy getting crushed, some analysts are wondering how equities could have bounced so hard from the March lows. We understand their confusion. With unemployment likely above 15% and real GDP falling roughly 30% in Q2, how can equities be doing so well?
One key to understanding this is that investors don't buy shares of GDP, they buy ownership stakes in a distinct set of companies, many of which are doing quite well despite the general economic carnage.
Imagine a company that has a major competitor nearby. One day, completely out of the blue, the competitor's facilities are all destroyed by a meteor. Obviously, no one would celebrate this catastrophe. However, when competitors go away the enterprise value of the surviving company rises, and you don't have to be an astrophysicist to figure that out.
In many ways, the spread of the Coronavirus has given larger well-capitalized companies, particularly technology companies and big box stores that were allowed to stay open, an advantage over Main Street competitors. And unlike Main Street businesses, a larger share of these companies are publicly traded.
Meanwhile, our capitalized profits model for equities, based on profits and interest rates, suggests a 3,100 level for the S&P 500 would not be overvalued. To put this in context, a 3,100 level assumes that profits fall by 60% AND the yield on the 10-year Treasury Note climbs to 1.25%. We forecast profits will fall about 25% this year and the 10-year Treasury will rise to just 0.9% by year-end. In other words, even at 3,100 we believe the S&P 500 will still be undervalued. And with profits rising in 2021, we think the S&P 500 can then rise to 3,650, a year later than we originally forecast.
One reason to be bullish on equities is that these days Quantitative Easing by the Federal Reserve is going straight into the M2 money supply and not into excess reserves. In the past three months, M2 has climbed at a 66% annualized rate, the fastest rate we know of in history.
Meanwhile, the federal government has ramped up deficit spending (with unemployment insurance and loans/grants to small businesses) to try to offset private-sector losses in income. Regardless of what we think of these policies, the effect will be to support equity prices in the year ahead.
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Companies have always strived to present their financial results in the most flattering light. Now some are going a step further, presenting a new customized metric they are calling "ebitdac:" earnings before interest, tax, depreciation, amortisation — and coronavirus. This week Schenck Process, a German manufacturing group, added back €5.4 million of first-quarter profits that it said it would have made were it not for the hit caused by state-mandated lockdowns. Its operating profit for the period — “adjusted ebitdac” of €18.3 million — was almost 20 per cent higher than the same period a year earlier, rather than 16 per cent lower. Schenck Process is not the only company tinkering with the presentation of its results. (via Financial Times)
https://www.ft.com/content/5467518c-1b68-4712-9e74-e7cc949d8002
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https://qz.com/1856783/the-us-economy-and-sp-500-index-of-stocks-are-out-of-whack/
The US economy and the stock market are the most out of whack since the dot-com bubble
May 13, 2020
If forecasts for a 30% to 40% decline in gross domestic product turn out to be accurate, then the US stock market’s valuation is more disjointed from the underlying economy than it’s been since the dot-com bubble in 2000. The Federal Reserve’s Nowcast, a statistical model based on economic indicators, forecasts a 31% contraction in GDP, while economists at JPMorgan estimate the economy could shrink as much as 40%.
The market capitalization of the companies in the S&P 500 Index, a benchmark that tracks 500 large US-listed stocks, is defying gravity. Investors are looking past the economy’s downtown, anticipating a time when growth rekindles. If JPMorgan’s estimates are accurate, the S&P 500 will soon be worth about 25% more than US GDP, assuming the stock market remains close to its value at the end of April 2020.
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Just like you posted
the "market " always over reacts
now there is the rush to get back in before the "other guy"
driving it all to thin atmosphere levels
let me know when Grannis calls the next bottom
if GM is right it might not matter
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CCP: Just posted on the Grannis thread.
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Retail Sales Declined 16.4% in April To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/15/2020
Retail sales declined 16.4% in April, lagging the consensus expected 12.0% decline. Retail sales are down 21.6% versus a year ago.
Sales excluding autos declined 17.2% in April, (-17.1% including revisions to prior months). The consensus expected an 8.5% decline. These sales are down 18.8% in the past year. Excluding gas, sales declined 15.5% in April and are down 19.7% from a year ago.
The drop in sales in April was led by restaurants & bars, general merchandise stores, and food and beverage stores. The largest and only increase was for non-store retailers (internet & mail order).
Sales excluding autos, building materials, and gas declined 17.2% in April. If unchanged in May and June, these sales will be down at a 56.6% annual rate in Q2 versus the Q1 average.
Implications: Forget about retail sales for a minute. Initial unemployment claims came in at 2.98 million last week, continuing the recent spate of extremely high readings since March. However, initial claims have dropped for six weeks in a row after peaking at 6.87 million in late March, including a decline of 195,000 last week. Moreover, after the claims data were released yesterday it was reported that Connecticut accidentally overstated claims by about 270,000. Once fixed, this will show an even steeper decline in claims last week and we expect claims to come in around 2.1 million for the current week (reported next Thursday). In addition, we have heard anecdotal reports of an unusual number of fraudulent initial claims being made due to the temporary generosity of the program. As a result, we are following continuing claims, data for which lag initial claims by one week. Continuing claims hit a record high of 22.83 million two weeks ago and are likely to rise again in next week's report. At present, we are forecasting that continuing claims peak in late May, signaling a bottom for the overall US economy. Now back to retail sales, which plummeted in April at a faster pace than any month on record, falling 16.4%. Sales declines with only one of thirteen categories with higher sales. The drop was led by restaurants & bars, general merchandise stores, and food and beverage stores, with steep declines also at gas stations, for motor vehicles, furniture/electronics/appliances, as well as at clothing stores. Sales at restaurants & bars fell 29.5% but should see smaller declines moving forward given the partial reopening in many states. The same goes for general merchandise stores, where sales were down 20.8%. Surprisingly sales at food & beverage stores fell 13.1%, most likely due to people overstocking food and necessities the month before. (Most people didn't use their 200 rolls of toilet paper in one month). Gas station sales dropped 28.8%, a result of both lower prices and lower sales volume. The best-performing and only positive category was non-store retailers (internet and mail-order), up 8.4% in April and up 21.6% from a year ago. These sales now account for 19.4% of overall retail sales, an all-time record. "Core" sales, which exclude the most volatile categories of autos, building materials, and gas station sales, declined 17.2% in April and are down 17.6% from a year ago. Overall sales are down 21.6% from a year ago. The data show that the second quarter for real GDP will be much worse than the first, with the steepest drop in real GDP for any quarter since the immediate aftermath of World War II or possibly the Great Depression in the 1930s. The good news is we are starting to see some easing in restrictions; green shoots are starting to show up in the weekly high frequency data we follow, which you can find here. In inflation news yesterday, import prices fell 2.6% in April, as falling fuel prices led the way dropping 31.5%, while nonfuel imports also declined 0.5%. Meanwhile, export prices declined 3.3%, with prices dropping for both agricultural and nonagricultural exports. In the past year, import prices are down 6.8%, while export prices are down 7.0%.
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https://www.newyorker.com/news/our-columnists/have-the-record-number-of-investors-in-the-stock-market-lost-their-minds?utm_source=nl&utm_brand=tny&utm_mailing=TNY_Daily_051620&utm_campaign=aud-dev&utm_medium=email&bxid=5be9d3fa3f92a40469e2d85c&cndid=50142053&hasha=52f016547a40edbdd6de69b8a7728bbf&hashb=e02b3c0e6e0f3888e0288d6e52a57eccde1bfd75&hashc=9aab918d394ee25f13d70b69b378385abe4212016409c8a7a709eca50e71c1bc&esrc=bounceX&utm_term=TNY_Daily
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second post
Data Watch
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Industrial Production Declined 11.2% in April To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/15/2020
Industrial production declined 11.2% in April versus the consensus expected drop of 12.0%. Mining output fell 6.1% in April, while utilities dropped 0.9%.
Manufacturing, which excludes mining/utilities, dropped 13.7% in April. Auto production fell 71.7%, while non-auto manufacturing dropped 10.3%. Auto production is down 79.2% versus a year ago, while non-auto manufacturing is down 13.3%.
The production of high-tech equipment declined 3.0% in April but is up 4.2% versus a year ago.
Overall capacity utilization dropped to 64.9% in April from 73.2% in March. Manufacturing capacity utilization fell to 61.1% in April from 70.8% in March.
Implications: The drop in industrial production in April was the largest in the 101-year history of the index, as the first full month of pandemic-related shutdowns caused a broad-based collapse in activity. Headline industrial production and its manufacturing subcomponent plunged 11.2% and 13.7%, respectively, the largest monthly declines for both series on record. Within manufacturing, auto production fell 71.7%. Meanwhile, non-auto manufacturing fell 10.3% in April as well, demonstrating the widespread nature of factory shutdowns. But it wasn't just the factory sector that was weak in April. Mining declined 6.1%, as extraction activity for oil, natural gas, and other minerals took a hit. After the front-month futures contract briefly went negative in mid-April, the price of WTI crude has since recovered. But it's still down roughly 55% since the beginning of January and below the break-even level for many US producers. As a result, we expect more weakness in this sector in the months ahead. The crude oil market got hit from both sides, as global disruptions from the Coronavirus hit demand, while Saudi Arabia and Russia boosted supply in a quest to wash out US competitors. Later this year, as the pandemic eases, prices should rebound, with mining activity recovering close behind. Note that given this year's weather patterns, we would normally have expected utility output to rise this April. Instead, it slipped 0.9%, likely due to less utility demand from offices and stores around the country. While today's report may leave a bad taste in your mouth, it's important to remember that the weakness was largely anticipated. High frequency data indicate that some forms of economic activity are already reviving, and we expect the overall level of output to bottom very soon, perhaps later this month. As more areas of the country begin to reopen, a return to growth is on the horizon by mid-year. In other recent manufacturing news, the Empire State Index, which measures factory sentiment in the New York region, rose to -48.5 in May from -78.2 in April. While this indicates a continued contraction, it also represents the largest one-month increase in the index since 2003, signaling improvement, though from a very low baseline. In other words, New York was getting worse, but at a slower rate. That may not seem like good news, but it's a necessary step before output starts improving again
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What does everyone here think about market implications of this so-called Coronavirus?
1. Medically, how does this end?
When the infected die off. Based on the information available, expect something similar to the 1918 Spanish Flu as a best case scenario.
2. Mathematically, how is this expanding? Remember, information from China is likely false, understated.
Yes. China is lying it's ass off. Look how rapidly it's gone global. Unless you are in an underground bunker, this will reach where you live.
3. Economy of China: If the economic impact only hit with a huge recession in China, how does that affect our markets, my 'growth stock funds'?
The whole global debt-based economy is fixing to go up in flames. We never fixed the core issues from 2008, and now a giant black swan has arrived.
4. If the virus hits epidemic levels elsewhere, what is that economic and market impact?
TEOTWAWKI
5. If stock markets start to panic, how far does it go.
1934
I am thinking I should be in an all cash position now and buy back in at the bottom. That is against my nature but it is too late to panic after everyone else already has.
Some cash, some gold and silver and a whole bunch of guns, ammo, food and water. Beans, bullets, and bandages. Hospitals will become death zones. Avoid getting sick. Expect the cities to burn.
Ideas, advice?
Liquidate your urban real estate now.
https://alphanewsmn.com/minneapolis-city-council/
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quote author=DougMacG link=topic=1148.msg125625#msg125625 date=1590169747]
Pandemic peak in US was April 21.
--------------------------------
May jobs report up 2.5 million. "Experts" estimates off by 10.5 million.
https://www.cnbc.com/2020/06/05/jobs-report-may-2020.html
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This Bull Market Isn’t as Big as You Think
Just a few big winners are responsible for most of the stock market’s rapid recovery
PHOTO: ALEX NABAUM
By Jason Zweig
June 5, 2020 10:00 am ET
The gap between Wall Street and Main Street has never seemed wider—but much of it is an illusion.
Since it bottomed on March 23, the S&P 500 has shot up almost 40%—the highest return over so short a period since 1933, according to S&P Dow Jones Indices. For the year-to-date, the S&P 500 is down less than 3%, counting dividends. Meanwhile, 108,000 Americans have died in a pandemic, 21 million are out of work and the country is seething with civil unrest.
This disconnect isn’t as extreme as it seems. Beneath the surface, much of the stock market is suffering, too. Most stocks are down this year, many by 20% or more. A few fortunate winners have generated big gains, fueling the misperception that losses have been minimal. The result is a market that isn’t as irrationally exuberant as it might appear.
SHARE YOUR THOUGHTS
Is the stock market oblivious to economic hardship? Join the conversation below.
U.S. stocks as a whole are far from cheap by historical standards, but the market isn’t blind to the calamities that surround us.
Yes, for the year to date, Zoom Video Communications Inc. ZM -1.35% is up 209%, Regeneron Pharmaceuticals Inc. 59% and Amazon.com Inc. 33%. But entire industries have been flattened: Earlier this week, airlines were down an average of 52% year to date; banks, 33%; energy, 32%; autos, 30%; consumer finance, 27%. Even utilities were down 5%.
Overall, of the 3,470 stocks in the Wilshire 5000 index that traded between Dec. 31, 2019, and June 2, 73% had negative returns for the year to date.
It isn’t unusual for the stock market to split into a few extreme winners and lots of losers. In 1973, a few darlings rose to near-record valuations while most stocks fell miserably. In 1999, technology shares shot up more than 80% even as many companies in the broader market languished and Warren Buffett’s Berkshire Hathaway Inc. fell 20%.
Seldom, however, has the gap between the haves and the have-nots been as wide as it is now.
In the first five months of this year, big growth stocks rose 6.1% while small, low-priced “value” stocks lost 25.6%. That was the biggest gap in performance between them over any such period since early 1999 and the second widest on record back to 1986, according to AJO, a Philadelphia-based investment firm.
Haves vs. Have-Nots
Despite the pandemic, massive unemployment and growing social unrest, U.S. stocks are down only a few percentage points in 2020. This helps mask wide return disparities.
Average return
Year to date through end of May
20
%
10
Most expensive stocks
0
Cheapest
–10
Return
disparity
–20
–30
2010
’15
’20
Note: S&P 500’s 50 priciest and 50 cheapest stocks based on price/earnings ratio on Dec. 31 of the previous year. Excludes financials, real estate, and companies with negative P/E ratios or P/E ratios above 100. Returns don’t include dividends.
Source: FactSet
The 50 most-expensive stocks in the S&P 500 as of last Dec. 31 were up an average of 11.3% through June 3, according to Drew Dickson, chief investment officer at London-based Albert Bridge Capital LLP. The 50 cheapest stocks, meanwhile, were down an average of 16.8%.
“People want to pay even more than they did for the stocks they already loved, and even less for the stocks that they didn’t,” says Mr. Dickson. “There’s no reason why that should be the case, other than a very fearful market thinking that big, expensive, high-quality companies must be safer at any price.”
Already out of favor going into 2020, small and value stocks suffered further as investors fled to perceived safety amid the pandemic and economic lockdown.
In recent days, small and value stocks have begun to show signs of recovery as the biggest, hottest stocks have flagged.
After all, when large growth stocks are “priced to perfection, they have to deliver on that just to maintain their valuation,” warns Nili Gilbert, co-founder and portfolio manager at Matarin Capital Management LLC in New York.
Such hot stocks as Amazon, Advanced Micro Devices Inc., Netflix Inc. and Salesforce.com Inc. are all trading for more than 50 times their anticipated earnings for 2020, according to FactSet.
“Maybe now, as the market believes that we’re going to be able to recover, some of those heavier industries, like cyclicals, materials and industrials, will lead the charge,” says Ms. Gilbert. “The expectations [for small stocks and value stocks] have gotten so low that that’s become a catalyst in itself.”
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The Recession is Over To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/8/2020
The recession that started in March is the sharpest downturn since the Great Depression. As it turns out, it was also the shortest.
Friday's employment report should leave little doubt that the US economy has already hit bottom and is starting to recover. Every economist brave enough to make a public forecast thought nonfarm payrolls would drop in May and the unemployment rate would continue to rise. Instead, it was the opposite: nonfarm payrolls rose 2.5 million, and the unemployment rate dropped to 13.3%.
This doesn't mean the US is fully recovered, or even close; a full recovery is going to take at least a few years. But look for more positive numbers from here on out, including next week's reports on retail sales, industrial production, and home building.
Paul Krugman tweeted the possibility of the Trump Administration cooking the books, but that's absurd. Jason Furman, one of President Obama's top economists, pointed out that the Bureau of Labor Statistics has 2,400 career staffers and only one political appointee, with no ability to cook the books. The odds of a conspiracy among these career civil servants to help the Trump Administration are zero.
Some analysts have been saying that the unique nature of the economic downturn has made the unemployment rate unreliable, because, for example, PPP loans have allowed furloughed workers to be paid, even though they aren't working, so technically, some say, they are unemployed. Counting these workers as unemployed would have put the jobless rate at 16.3% in May versus the official report of 13.3%.
However, using the same method in April would have meant that jobless rate would have been reported as 19.5%, not the official estimate of 14.7%, which means the drop in the jobless rate in May would have been 3.2 percentage points (19.5% to 16.3%), not the 1.4 points reported Friday. And it's the change in the unemployment rate that matters for financial markets.
Meanwhile, initial jobless claims fell for the ninth consecutive week, and continuing claims remain below the peak hit in the week ending May 9, both consistent with an economy that is already hit bottom.
Another piece of evidence supporting the case for a recovery is that tax receipts look better. Every day the Treasury Department releases figures on various categories of tax receipts. These receipts vary wildly depending on the day of the week and the time of the month, so we like to compare them to 2015, because that was the last year the number of days in March through December fell on the same days of the week as 2020.
In the past five workdays, the Treasury collected $56.8 billion individual income and payroll taxes withheld from paychecks, up 11.8% from the same days in 2015. A month ago, in early May (specifically, the five workdays through May 7), these receipts were up 7.1% versus 2015. This acceleration signals the economy has turned a corner.
Which brings us to our outlook for equities. A month ago, with the S&P 500 at 2930, we projected that stocks would recover to 3100 by year end. But now we're barely under 3200. We continue to expect more gains, but don't expect it to be a straight line, with the S&P 500 finishing the year around 3350 and the Dow Jones Industrials average at 28,500.
Profits will be down substantially in the second quarter, but should recover strongly in the several quarters thereafter. Meanwhile, the money supply is growing rapidly, and the Federal Reserve is prepared to keep monetary policy loose for the foreseeable future, as should be clear after Wednesday's meeting.
The US has gone through tremendous turmoil so far this year, with a response to COVID-19 that included unprecedentedly widespread government-mandated economic shutdowns, followed by a combination of legitimate protests, riots, and looting. No one knows for sure what the second half will bring, much less 2021 and beyond. But we think that, like in the past, those who have faith in the future will be rewarded.
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Conflicting Data Muddies the U.S. Economic Outlook
Michael Monderer
Michael Monderer
Senior Analyst for Global Economics, Stratfor
5 MINS READ
Jun 10, 2020 | 17:06 GMT
A woman walks past closed shopfronts in what would be a normally busy fashion district in Los Angeles, California, on May 4, 2020. The U.S. economy has lost roughly 20 million jobs since the onset of the country’s COVID-19 outbreak in February.
HIGHLIGHTS
As evidenced by the contradictory numbers in the latest U.S. jobs report, Washington will be forced to chart its economic recovery from the COVID-19 crisis with fiscal policies based on either outdated or unreliable data....
The United States and other governments around the world face difficult policy decisions on fiscal stimulus amid great uncertainty regarding the course of their economies in light of the global COVID-19 crisis. But as evidenced by the conflicting data in the latest jobs report released by the U.S. Bureau of Labor Statistics (BLS), it's proving difficult to find numbers and models that are both timely and use reliable data in order to gauge when economies will begin coming out of recovery on their own. Economic forecasts will be increasingly put under the microscope, making it important to understand what these predictions do and don't tell us.
The Risk of Relying on Employment Numbers
The exact timing of the trough of a recession says nothing about the duration or strength of recovery (e.g., whether it is "V-shaped" or some other alphabetical shape), but the speed of recovery is important when determining where and how to inject more stimulus into the economy. The Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), a private research institution, says the U.S. recession began in March when the BLS's employment survey fell from its February peak of 152.4 million, thus ending 128 months of consecutive expansion — the longest in U.S. history.
The NBER recession declaration, however, is unusual in that it was based almost entirely on employment data without waiting for the release of more traditional, retrospective national income and product data for the second quarter of 2020. In the United States, the slowdown is due entirely to lockdown measures associated with the COVID-19 pandemic and not the effects of economic policy. Yet, there is a question of whether the U.S. economy is now in recovery as lockdowns increasingly ease and people return to work, particularly in high-contact service industries such as restaurants and personal services.
It's unorthodox to define recession solely by using unemployment data. The May unemployment rate for the United States fell to 13.3 percent from 14.7 percent in April, which by an unemployment measure alone suggests the trough of a short-lived recession occurred in either April or early May. Non-farm payrolls fell in March and April, but improved by a net 2.5 million in May. Given the unprecedented nature of the current global situation, however, there are considerable difficulties with the data as reported, which may understate the amount of continued unemployment.
The BLS defines unemployment as those who aren't working but are actively seeking employment. Some states, however, have waived the requirement for recipients of unemployment benefits to be looking actively for work, which would ordinarily put them out of the workforce per the BLS definition.
The BLS's household survey may have also misclassified about 5 million people as employed, but absent from work rather than unemployed or temporarily laid off.
It's unclear whether workers receiving benefits from the U.S. Coronavirus Aid, Relief, and Economic Security (CARES) Act were counted as unemployed.
Response rates to the household and establishment surveys were down, which affected sample-based estimates.
Moreover, the data in the latest U.S. jobs report conflicts not only with itself, but also with other alternative real-time measures of economic activity.
The BLS reported that nearly 21 million people were unemployed in May. But it also reported that in the week covered by its surveys nearly 30 million Americans were getting unemployment benefits.
Despite dropping in May, weekly claims for new unemployment are still extraordinarily high, which suggests many people are continuing to lose jobs.
Given the severity and suddenness of the COVID-19 lockdown in the United States, traditional GDP data substantially lags other indicators. Alternative, high-frequency data continues to show a mixed picture for the U.S. economy.
In the most recent weekly report, same-store sales (those by chain retailers) were down by 7.5 percent, albeit that compares with an 8.5 percent drop the previous week.
Restaurant bookings are increasing slowly.
Mortgage demand has recovered and is nearly back to pre-COVID levels.
Electricity demand is down overall, even as residential demand increases in some regions.
Public transit use is slowly rising, but still down from earlier in the year.
The number of active oil rigs drilling for oil is down by two-thirds since the beginning of 2020.
Making Decisions With Murky Data
As the U.S. government looks to make decisions about future stimulus, it will be forced to rely on either delayed data or data with gaps and deficiencies. Most economists think it's too early to declare an end to the U.S. recession, which would be among the shortest on record. The consensus view among economists is that additional government support will continue to be needed, especially as there is not yet information indicating whether many of the current job losses are permanent or if business bankruptcies will increase. Private investment, which had declined for three previous quarters in 2019, is almost certain to have suffered further this year, which will not only affect long-term growth trends but also points to the need for extended stimulus, even after the economic recovery begins.
As evidenced by the conflicting numbers in the latest jobs report, the U.S. government will be forced to chart its economic recovery from the COVID-19 crisis with fiscal policies based on either outdated or unreliable data.
Republican lawmakers, however, have been quick to say that new fiscal stimulus should be restrained based on the latest jobs data, and the U.S. Senate is not expected to take up additional measures until July when many CARES Act benefits expire. Whether or not the lack of a timely and large fiscal stimulus will prolong the economic slowdown and further retard recovery remains to be seen. But the United States, of course, will not be alone in making such decisions, as countries everywhere will be forced to act in the face of insufficient and uncertain information.
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Nonfarm Payrolls Rose 4.80 Million in June To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/2/2020
Nonfarm payrolls rose 4.80 million in June, beating the consensus expected gain of 3.23 million.
Private sector payrolls rose 4.767 million in June. The largest increases were for restaurants & bars (2.088 million), retail (740,000), and education & health services (568,000). Manufacturing rose 356,000 while government increased 33,000.
The unemployment rate dropped to 11.1% in June from 13.3% in May.
Average hourly earnings – cash earnings, excluding irregular bonuses/commissions and fringe benefits – fell 1.2% in June but are up 5.0% versus a year ago. Aggregate hours worked rose 3.6% in June but are down 8.9% from a year ago.
Implications: The wild ride continues. After plummeting at the fastest pace ever in April, nonfarm payrolls rose at the fastest pace ever in May and have done so again in June, adding 4.8 million jobs for the month. Even better, almost all of the gain was in the private sector, with leisure and hospitality leading the way, while retail, education & health services, and manufacturing also added a substantial number of jobs, as well. The labor market has a long road ahead to be fully-healed, but, in the past two months, has recovered one-third of the payrolls lost in March and April. Civilian employment, an alternative measure of jobs that includes small-business start-ups, tells a similar story, up 4.94 million in June and also regaining in May and June one-third of the employment lost in March and April. Another piece of relatively good news is that the unemployment rate, which the consensus expected to come in at 12.5%, arrived at 11.1%, instead. That's still very high by historical standards, but much lower than the peak of 14.7% in April. The labor force (people working or looking for work) increased by 1.7 million in June after a similar gain in May, although it's still down substantially from earlier this year. The worst headline of the report was that average hourly earnings fell 1.2% in June. However, recent declines are a return to normal after a huge surge in April. Job losses in April were concentrated among lower-paid workers, so average hourly earnings rose because those still working typically made more money. Now, as lower-paid workers are rehired, their pay levels reduce average earnings. We like to track what the report means for workers' earnings, and today's news was good. Total hours worked increased 3.6% in June. Multiplying hours by earnings shows that total earnings rose 2.4%. That said, total earnings are still down 4.3% versus a year ago, which means workers have less purchasing power generated by actual production, versus purchasing power coming from government benefits. As we said last month, the unemployment rate is going to remain at unusually high levels for at least the next few months, but today's report is a testament to the entrepreneurial spirit and how quickly businesses have been able to adapt to a global pandemic and unprecedented shutdowns of the US economy. A full recovery is still a long way off, but there should no doubt at this point that the recovery has started.
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In the aftermath of recent strong gains in jobs, some analysts have been latching onto pandemic-related classification errors to claim the headline unemployment rate is at best distorted to show an overly optimistic picture of the labor market, and at worst a downright lie to try and manipulate public perceptions. These accusations relate to whether a worker who is on temporary leave from a job due to the pandemic should be recorded as "employed but absent from work due to other reasons" or "unemployed on temporary layoff." If a given number of workers affected by the pandemic are classified as the former it makes the unemployment rate look better than if they are classified as the latter.
Thankfully, the Bureau of Labor Statistics has been transparently addressing this in the footnotes of their reports. If all those classified as "employed but absent from work due to other reasons" were reclassified as "unemployed on temporary layoff" in June, the result would have been an unemployment rate of 12.1%, instead of the official 11.1%.
However, its crucial to point out that even though the level of the unemployment rate would have been higher in June, its decline would have been larger. The official rate fell 2.2% in June, from 13.3% to 11.1%. With reclassification, the decline would have been nearly twice as large, falling 4.2% in June, from 16.3% to 12.1%. Given that it's the change in the unemployment rate that matters for financial markets when gauging the strength of the economic recovery, reclassification reinforces the optimistic outlook.
Bryce Gill - Economist
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for tech stocks it is the gogo 90's all over again
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The Consumer Price Index Rose 0.6% in June To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/14/2020
The Consumer Price Index (CPI) rose 0.6% in June, coming in above the consensus expected +0.5%. The CPI is up 0.6% from a year ago.
Energy prices rose 5.1% in June, while food prices increased 0.6%. The "core" CPI, which excludes food and energy, rose 0.2% in June, versus a consensus expected +0.1%. Core prices are up 1.2% versus a year ago.
Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – declined 1.7% in June but are up 4.3% in the past year. Real average weekly earnings are up 4.6% in the past year.
Implications: Following three months of declines, the consumer price index (CPI) turned higher in June, rising 0.6% to tie the largest monthly increase since 2009. Gasoline prices (+12.3%), beef (+4.8%) and physicians services (+0.5%) lead the rise. Energy turned higher for the first time in five months, rising 5.1% in June as fuel prices offset a decline in the electricity index. Food prices increased 0.6% in May, with rising costs for meats, poultry, fish, and eggs leading a rise across most major food categories. Strip out the impacts from these typically volatile food and energy sectors, and "core" prices increased 0.2% in June. In addition to physicians services, prices for hospital care (+0.4%), home furnishings (+0.4%), and airline fares (+2.6%) were key contributors, while heavily COVID impacted industries like autos and recreation continued to have price declines. The Coronavirus and government-mandated shutdowns remain a factor clouding the data. While states are progressing in the reopening process (outside of restaurants and bars in areas with high COVID cases), businesses continue to operate under restrictions of reduced capacity, which looks likely to continue for the foreseeable future. We expect prices will continue to rise in the months ahead towards the 2% - 3% annual pace of inflation that was in effect before the Coronavirus wreaked havoc on global economies. While we are still battling the virus, the worst - from an economic perspective - appears to be behind us, and indications from the employment front suggest that the economy bottomed back in May, making the COVID recession one of the sharpest recessions on record, but also the shortest. Even with the drastic downward impact on business activity and prices from the virus, consumer prices are still up 0.6% in the past year, though that is a marked slowdown from the upward trend in inflation prior to the Coronavirus. Core prices remain up 1.2% versus a year ago. What might, at first glance, look like the worst news in today's report was that "real" (inflation-adjusted) average hourly earnings fell 1.7% in June. However, the June decline should really be viewed as a positive signal. As the economy lost more than 22 million jobs in March and April, lower wage sectors were hit particularly hard. With fewer workers operating in the lower wage positions, it pushed up the average hourly wage among those whose jobs remained. In May and June, nearly 7.5 million net nonfarm jobs returned, pushing average wages lower. In the months ahead, real earnings per hour will further decline as the return to work continues. The economic recovery has begun, the worst economic quarter in the post-World War II era is behind us, and the question now shifts to how quickly we recover.
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Industrial Production Increased 5.4% in June To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/15/2020
Industrial production increased 5.4% in June, beating the consensus expected gain of 4.3%. Mining output fell 2.9% in June, while utilities rose 4.2%.
Manufacturing, which excludes mining/utilities, increased 7.2% in June. Auto production jumped 105.0%, while non-auto manufacturing rose 3.9%. Auto production is down 24.7% versus a year ago, while non-auto manufacturing is down 10.1%.
The production of high-tech equipment increased 1.8% in June and is up 1.8% versus a year ago.
Overall capacity utilization increased to 68.6% in June from 65.1% in May. Manufacturing capacity utilization rose to 66.9% in June from 62.3% in April.
Implications: The industrial sector continued its recovery in June, posting the largest monthly gain since 1959. However, that improvement is from a very low baseline. Even with June's impressive headline gain, Q2 as a whole was down at a 42.6% annualized rate versus the Q1 average, the largest quarterly drop since 1946 during the winddown in the industrial sector after WW2. While there is still a ways to go before a full recovery, the details of today's report were healthy. Within manufacturing, auto production surged 105% in June, following a similarly strong gain of 120.1% in May, as car and truck factories continued to resume operations. Expect more large gains in the auto sector in the months ahead, as production in June was still 24.4% below the level reached in February, before the Coronavirus and related shutdowns hit the US. Meanwhile, non-auto manufacturing rose 3.9% in June, its largest monthly gain on record. While some sectors of the economy, like restaurants, bars, and hotels are at risk due to re-closure and shutdowns, the factory sector is less at risk, and should keep recovering. Outside the factory sector, activity remained mixed. Utilities output rose 4.2% in June, as warmer weather drove demand for air conditioning and offices and retail stores around the country continued to reopen. Meanwhile, mining declined 2.9%, as extraction activity for oil, natural gas, and other minerals continued to fall. Despite a recent rebound, WTI crude oil prices are still down roughly 35% since the beginning of January and below the break-even level for many US producers, which is holding down activity. One bright spot is that the number of oil and gas rigs in the US has leveled off after falling roughly 65% since the pandemic began, so it looks like most of the damage is behind us. As economic activity continues to rebound, demand for energy grows, and the surviving firms consolidate, mining eventually will be a tailwind for industrial production. In other manufacturing news this morning, the Empire State Index, which measures factory sentiment in the New York region, rose to +17.2 in July from -0.2 in June. This is the first positive reading from the index since February and signals that the huge declines have passed and manufacturing activity in New York has begun to rebound. Finally, on the inflation front, import prices increased 1.4% in June, as fuel led the way rising 21.9%, while nonfuel imports rose 0.3%. Meanwhile, export prices increased 1.4%, with prices rising for both agricultural and nonagricultural exports. In the past year, import prices are down 3.8%, while export prices are down 4.4%.
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https://thehill.com/opinion/finance/512174-the-kodak-loan-insider-trading-in-a-new-garb
noticed same thing with the vaccine stocks
they for no reason go up significantly and then next day or so is announcement of Federal money.
not sure if just company insiders
or criminals eaves dropping or leaks from government employees . most likely all the above
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The Economy Is Limping, but Wall Street Is Booming
Panicky investors, pandemic-hit companies turned to banks in the first half, driving fees to an eight-year high
Wall Street has benefited from the Federal Reserve reacting to the pandemic by flooding the system with money.
PHOTO: SPENCER PLATT/GETTY IMAGES
By Liz Hoffman
Sept. 3, 2020 2:41 pm ET
Investment-banking and trading revenues hit an eight-year high in the first half of 2020, a counterintuitive boom that shows the heavy hand of the Federal Reserve and a growing gulf between financial markets and the real economy.
Global banks raked in fees from companies scrambling to raise cash and panicky investors scrambling to sell, then buy again as markets surged. Revenue in these traditional Wall Street businesses was 32% higher than in the same period last year, bucking years of sideways and downward drifts, according to industry research group Coalition, which compiled data from the 12 largest global investment-banking firms.
The surge is being driven by two factors: huge need for cash from pandemic-hit companies and the Federal Reserve flooding the system with money, which props up market prices and nudges investors into its riskier corners. The result is a borrowing boom that has pulled companies back from the ledge and lifted Wall Street’s fortunes.
Revenue at the 12 largest investment banksin the first six months of each year
Source: Coalition
.billion
Investmentbanking
Equitiestrading
Fixed-incometrading
2015
'16
'17
'18
'19
'20
0
20
40
60
80
$100
“The Fed created a bubble where life could go on—not unlike the NBA bubble,” said Yousef Abbasi, a strategist at investment bank StoneX Group Inc., referring to the bizarro basketball season happening in quarantine at Disney World in Florida. “That explains the disconnect we see between the economy and the market.”
Executives have been quick to describe the windfall as temporary, hoping to lower expectations from investors and head off criticism from politicians. “Cut it in half,” JPMorgan JPM +1.13% Chase & Co. Chief Executive James Dimon predicted in July of his firm’s $11 billion in quarterly trading revenue.
The gap between the real economy and financial markets has only widened since JPMorgan and its peers closed their second-quarter books. The S&P 500 and the tech-heavy Nasdaq Composite Index both closed at fresh highs on Wednesday, in sharp contrast to a limping economy. Tens of millions of Americans are unemployed, and preliminary jobs data released this week suggests the economy added far fewer jobs than anticipated in August.
Issuance of highly rated corporate debt is up 29% globally and 72% in the U.S. by dollar volume this year, according to Dealogic. PepsiCo Inc., PEP -0.20% Walt Disney Co., DIS -1.68% Verizon Communications Inc. VZ +0.48% and other blue-chip companies pried the market open in March. Riskier companies followed.
“Companies and investors learned the lesson from 2008, which is to create fortress balance sheets as quickly and holistically as you can,” said Thomas Sheehan, Bank of America Corp. BAC +1.33% ’s co-head of investment banking.
Records have fallen one after another. Ford Motor Co. F -0.25% raised $8 billion in the largest junk-bond deal ever. Google’s parent company, Alphabet Inc., sold the cheapest five-year bond on record, paying just 0.45%, according to Refinitiv.
Some deals bore Wall Street’s fingerprints with intricate structures that allowed cheaper borrowing, like United Airlines Holdings Inc.’s UAL -1.58% Goldman-led deal backed by the carrier’s frequent-flier program. Other companies, like Ford, raised more than they asked for.
“The idea is to build a bridge to a reopened economy,” said Susie Scher, who co-runs the capital-markets group at Goldman Sachs Group Inc. GS -0.13% “If the story is good enough and investors believe a company can get to the other side of this, the demand is there.”
Goldman itself took advantage, selling $2.5 billion in bonds on the same day in March that it helped raise more than $13 billion for clients including Verizon and Exxon Mobil Corp. XOM +0.01%
That steady supply of new securities fed Wall Street’s trading machine, which purred back to life after years of decline.
Revenue from fixed-income trading, which includes bonds and products linked to interest rates, rose 56% from 2019’s first half to $55 billion, according to Coalition. Investors scrambled to cut risk, then loaded up on safer names for what looks to be a prolonged period of low yields. “Investors need to own something, and investment-grade debt looks attractive,” Ms. Scher said.
Equities revenue was more mixed, up from a year earlier but hovering around its five-year average. Simple stock orders jumped as day traders piled into the market on retail platforms like Robinhood Markets Inc.
But hedge funds, some of Wall Street’s best-paying customers, retreated from the market to protect gains and meet margin calls. (Banks lend money against hedge funds’ portfolios. When prices fall, funds must pony up more cash or sell assets to keep their borrowing levels in check.) Morgan Stanley’s MS -0.87% hedge-fund clients held 15% fewer assets at the firm in the second quarter than in the first.
Another laggard has been merger activity, which is down by more than half from a year ago. But appetite is starting to stir, especially among private-equity firms—and with it, the prospect of acquisition-related borrowings. The Wall Street Journal reported Wednesday on a private-equity bid for railroad giant Kansas City Southern.
Write to Liz Hoffman at liz.hoffman@wsj.com
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What will markets do if (unlikely) Dems sweep House, Senate, Presidency? What will you do on that possible news?
Sell, sell, sell?
I will reduce my 0.0% position in the stock market and will step up the attempt to sell three properties by year end.
Even cash may become contraband.
Ready for another government induced 'business cycle' roller coaster ride?
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I confess myself baffled at the market being as strong as it has been given the uncertainty and baffled at what to do.
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I confess myself baffled at the market being as strong as it has been given the uncertainty and baffled at what to do.
Yes. Everyone seems to see some version of divided government coming out of this, some version of more of the same. Better to be invested than not.
If the market is looking 6 months ahead, the economy will be coming out of coronavirus somewhere near that timeframe so why panic now, people think.
It is possible that Republicans sweep these elections, but if you believe mainstream polling for the past year, it's more likely Democrats sweep it all. That is not a neutral event for income and investments. Higher tax rates, greater regulation, higher energy prices, industry takeovers and shutdowns - we know what that does to an economy. Is that what these big wall street and silicon valley investors want? Even if you only own giants like Google and Amazon that benefit from government regulation, their income is proportional to the strength of the economy. How does that not collapse under the proposals we have heard?
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(https://ci3.googleusercontent.com/proxy/-tLJZVqu0WAo4M1xB-QF-47ir1RleYlPkemjvZGLbXh4vX9sLD4c6r4iwjMkjM-50GUTtQMQo8ehebH1HRiVzHX14k1MO3lkpk01nDXEvbZqgufZAUUMMus-W3mzZy4xjUHcSNDbDl5wizl-f70tJh1AdSJ85s6aTwQCPnzEWII2-OL-vw=s0-d-e1-ft#https://static01.nyt.com/images/2020/11/24/briefing/25-the-morning-markets/oakImage-1606255191042-articleLarge.png)
Source: NYT this morning
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he story of the U.S. economy in 2020 will consist of three major shocks: Covid, racial unrest and an election that divided the nation.
The story of 2021, however, will be of a great comeback.
But let’s start at the beginning, before the pandemic, when things seemed poised to go quite differently.
Unemployment was at record lows, and yet employment kept rising. The longest economic expansion in U.S. history appeared to have set off a virtuous cycle: Job gains led to increased household wealth and spending, which in turn encouraged more hiring, in some cases pulling off the sidelines people who had stopped looking for work.
Even more striking was that after years of widening, the wealth gap was shrinking. According to the Federal Reserve’s Survey of Consumer Finances, people in the lowest income quintile saw their net worth rise 37% from 2016 to 2019, while the top quintile largely held steady. Blacks and Hispanics, meanwhile, saw gains in net worth of 33% and 65%, respectively, while whites saw a gain of 3%.
A tight labor market drove employers to raise wages, offer greater schedule flexibility and invest more in worker training. Incomes among younger people rose substantially—by 13% among those under age 35—as they gained more opportunities, skills and work experience. Even the most stubborn economic trends, such as declining Black homeownership rates, finally turned around in 2019.
And then the pandemic arrived. The depth and breadth of its economic disruption was greater than that of any postwar recession. About 40% of those who earned less than $40,000 lost their jobs in March. New weekly jobless claims, which had hovered above the 200,000 mark for months, soared past six million.
The distribution of the job losses, meanwhile, was completely different from what one usually sees in downturns. Low-income Americans were the hardest-hit group in terms of both the general economic impact of government-mandated lockdowns and reduced spending on face-to-face services. Black and Hispanic workers are disproportionately represented in some of the industries that suffered most, such as restaurants and barber shops.
In broader terms, this was the first service-sector-led recession, a big-city recession and a women’s recession. From February to April, the employment level fell 15% for women ages 25 to 54, compared with 12% for men, according to the Bureau of Labor Statistics. Among the four million people who have been pushed out of the labor force since February, 55% are women. Many had little option but to suspend their careers as school closures and health risks disrupted child care and schooling.
But while restaurants, hotels, travel services, theaters and sports leagues confronted cancellations, other industries have benefited from the unfortunate circumstances. Grocery stores received a sudden boost to sales, and the nation’s supply chain kicked in to surmount shortages of basic foodstuffs (despite empty toilet-paper and bleach shelves). E-commerce companies became a lifeline for millions of people reluctant to leave their homes. Online learning companies blossomed, as did the home-exercise sector and videogames.
The unprecedented challenges of the pandemic spurred innovations. Access to telemedicine expanded thanks to rule changes in Medicare and Medicaid allowing patients and doctors to be reimbursed for remote visits. A company called Zoom, which few had heard of before the pandemic, became an instant global brand. Manufacturers repurposed assembly lines to make ventilators and masks, doing their part—usually voluntarily—to save lives. Feared ventilator shortages did not come to pass.
Congress took a rare break from partisan battles to approve the largest stimulus package ever passed. Millions of Americans received $1,200 stimulus checks, no questions asked. The Paycheck Protection Program kept many small businesses afloat while providing a windfall for others. Expanded unemployment benefits helped the jobless get by and helped sustain spending. As a result, household incomes and expenditures were surprisingly resilient.
But then another shock took place. On May 25 in Minneapolis, a Black man named George Floyd died while being arrested by police, one of whom was later charged with second-degree murder. As a cellphone video of Mr. Floyd’s death began to circulate, protests and civil unrest spread across the country. Shopping districts that had just begun to reopen after Covid-19 lockdowns now boarded up their storefronts; in some cities curfews were imposed.
Meanwhile, the stock market recovered quickly, and the labor market’s recovery beat expectations. By November, unemployment had fallen to 6.7% from 14.7% in April.
The third shock came as no surprise, but was difficult to bear nonetheless: the contentious election. Many important issues were at stake, including economic policy. Rather than a blue wave or a red wave, the American people produced a mixed election result, with Democrats winning the presidency but shrinking their margin in the House. Control of the Senate remains up in the air, pending the result of runoff elections in Georgia in January. Historically, divided government has been associated with stability.
So, despite three major upheavals in 2020, the U.S. economy now is primed for recovery, growth and continued adaptation to a new normal. Some industries will continue to suffer as long as the pandemic lasts—and beyond. Commercial-real-estate companies and bricks-and-mortar retailers are reinventing themselves for a new work-from-home, shop-from-home age.
But there is no society better prepared for what awaits. Startups are blossoming. There were almost 1.6 million new business applications in the third quarter of 2020, up from fewer than 860,000 a year earlier. The financial sector is solid, largely thanks to a much bigger, faster response from the Federal Reserve than during the financial crisis of 2008-09. An online economy, hardened thanks to recent surges in broadband infrastructure, kept America running through its recent dark days and will only expand. Highly effective vaccines will start becoming available soon, along with inexpensive, rapid Covid-19 home tests.
When it is safe for business to resume as usual, the economy could take off. Americans have accumulated $2 trillion in new savings deposits since February, according to the Federal Reserve. That is more than 10% of gross domestic product waiting to be spent.
Vulnerabilities exposed by the pandemic will now receive more attention and investment. Federal and state governments will likely shore up emergency stockpiles of beds, medicines and personal protective equipment. They are also likely to overhaul outdated unemployment-insurance websites, which crashed during the pandemic, to be able to process a steady stream of applicants when the next recession causes a spike. And just as the Fed and financial system were better prepared for this crisis than they were for 2008, our fiscal-policy infrastructure will be better prepared for the next emergency.
We have gained valuable practice sending checks out to households, expanding and extending unemployment insurance, using temporary flexibility in SNAP benefits (food stamps) and making forgivable loans to businesses. Policy makers are evaluating data now that will enable us to learn from our mistakes and be more effective in the future.
Payroll Employment
Percentage change in payroll employment relative to pre-recession peak
1974
1980
1981
1990
2001
2008
2020
0
%
-2
-4
-6
-8
-10
-12
-14
-16
0
12
24
36
48
60
72
MONTHS SINCE MOST RECENT EMPLOYMENT PEAK
Source: Bureau of Labor Statistics
Meanwhile, our leap into the future of work will create new opportunities. Now that remote work is more widely accepted, many employees will no longer be tied to high-cost urban centers that previously had held a monopoly on certain kinds of jobs. They’ll be able to move to places where one can actually build houses and raise a family comfortably. And as more people vote with their feet, state and local governments will have to become more responsive, whether on taxation and housing policy, school quality or police accountability.
People will continue to save time and money formerly spent on commuting. We could start to see exciting new uses of physical space that employers no longer need. Office buildings could be converted into housing, parking garages into outdoor parks and parking lanes into bicycle paths.
Workers with disabilities or conditions that make it hard to leave the home will find new opportunities in the work-from-anywhere economy. And, while women suffered the brunt of the job losses in 2020, they could end up being the biggest winners in the long term from the adoption of more-flexible work arrangements. Balancing work and parenting will be easier in a world where working from home remains an option but schools are operating normally.
America had a rough year, but we might look back on 2020 as the start of a new, even more resilient, more inclusive and more sustainable boom.
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"we might look back on 2020 as the start of a new, even more resilient, more inclusive and more sustainable boom"
- I don't recognize the editorial writing. Sounds like opinion writing from the news sections. For one thing, how do you not add the caveat to any optimism, if Biden, Harris, Pelosi, Schumer don't screw it up?
More inclusive?? Who did the Trump expansion not include, rich white men in the suburbs? That was the only group where Trump did not gain support.
Deficits of a trillion a month did not do lasting damage? How so?
https://bipartisanpolicy.org/report/deficit-tracker/#:~:text=The%20Congressional%20Budget%20Office%20reported,June's%20deficit%20of%20%248%20billion.
The coming need for negative interest rates is not a warning sign?
https://www.bloomberg.com/news/articles/2020-05-07/negative-u-s-policy-rate-seen-by-early-2021-in-futures-market#:~:text=Futures%20Market%20Sees%20Negative%20U.S.%20Policy%20Rate%20by%20Early%202021,-By&text=Traders%20are%20now%20pricing%20in,Treasuries%20to%20a%20record%20low.
I'll tell you what the first boom is going to be in the new year. Evictions and foreclosures - if the third world policy of banning enforcement of consensual contracts is lifted.
https://www.housingwire.com/articles/2021-housing-market-forecast-its-about-politics-not-economics/
What could go wrong?
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https://thehill.com/opinion/finance/529838-red-flag-paul-krugman-is-optimistic-about-the-economy
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https://www.usdebtclock.org/
didn't Cheney say it was meaningless once?
https://www.thebalance.com/value-of-us-dollar-3306268
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https://www.zerohedge.com/personal-finance/breadlines-stretch-across-america-economic-collapse-much-worse-you-are-being-told
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Jeremy Grantham: “The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble. Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000. These great bubbles are where fortunes are made and lost – and where investors truly prove their mettle. For positioning a portfolio to avoid the worst pain of a major bubble breaking is likely the most difficult part. Every career incentive in the industry and every fault of individual human psychology will work toward sucking investors in. But this bubble will burst in due time, no matter how hard the Fed tries to support it, with consequent damaging effects on the economy and on portfolios. Make no mistake – for the majority of investors today, this could very well be the most important event of your investing lives. Speaking as an old student and historian of markets, it is intellectually exciting and terrifying at the same time. It is a privilege to ride through a market like this one more time.” (via The New York Times Sunday Magazine, gmo.com)
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Unpossible! Having election frauded their way into controlling the USG, we will finally see how uncontrolled spending really ramps up the economy. It'll be great!
Jeremy Grantham: “The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble. Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000. These great bubbles are where fortunes are made and lost – and where investors truly prove their mettle. For positioning a portfolio to avoid the worst pain of a major bubble breaking is likely the most difficult part. Every career incentive in the industry and every fault of individual human psychology will work toward sucking investors in. But this bubble will burst in due time, no matter how hard the Fed tries to support it, with consequent damaging effects on the economy and on portfolios. Make no mistake – for the majority of investors today, this could very well be the most important event of your investing lives. Speaking as an old student and historian of markets, it is intellectually exciting and terrifying at the same time. It is a privilege to ride through a market like this one more time.” (via The New York Times Sunday Magazine, gmo.com)
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I can't wait to see the megabailouts of the blue states! That won't have any impact on the dollar!
https://www.zerohedge.com/news/2021-01-11/2021-may-be-year-world-loses-confidence-dollar
Unpossible! Having election frauded their way into controlling the USG, we will finally see how uncontrolled spending really ramps up the economy. It'll be great!
Jeremy Grantham: “The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble. Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000. These great bubbles are where fortunes are made and lost – and where investors truly prove their mettle. For positioning a portfolio to avoid the worst pain of a major bubble breaking is likely the most difficult part. Every career incentive in the industry and every fault of individual human psychology will work toward sucking investors in. But this bubble will burst in due time, no matter how hard the Fed tries to support it, with consequent damaging effects on the economy and on portfolios. Make no mistake – for the majority of investors today, this could very well be the most important event of your investing lives. Speaking as an old student and historian of markets, it is intellectually exciting and terrifying at the same time. It is a privilege to ride through a market like this one more time.” (via The New York Times Sunday Magazine, gmo.com)
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".I can't wait to see the megabailouts of the blue states! That won't have any impact on the dollar!"
But wait
we now have "grown ups"
nothing to worry about
when it crashes they will blame the orange man
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https://finance.yahoo.com/news/january-2021-jobs-report-labor-department-nonfarm-payrolls-184719721.html
I noticed on another site it states "non private " jobs added
so with no further explanation anywhere
I assume this means more government jobs
which in my opinion is a step backward NOT forward
funny how that gets left out in reporting of jobs data
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https://www.zerohedge.com/markets/historic-repo-market-insanity-10y-treasury-trades-4-ahead-monster-short-squeeze?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
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second
Stocks Turn Lower After Powell’s Comments
Nasdaq falls nearly 3%, bond yields rise as investors digest Fed chair’s comments
Index performance
Source: FactSet
As of March 4, 2:59 p.m. ET
%
Dow industrials
S&P 500
NasdaqComposite
Russell 2000
March 4
2 p.m.
-5
-4
-3
-2
-1
0
1
By Caitlin Ostroff and Gunjan Banerji
Updated March 4, 2021 2:07 pm ET
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TEXT
U.S. stocks dropped and Treasury prices tumbled as investors parsed comments from Federal Reserve Chairman Jerome Powell about the outlook for inflation and the central bank’s views on rising bond yields.
The S&P 500 dropped 1.9% after two consecutive days of declines. The Nasdaq Composite fell 2.8%, and is now poised to enter a correction--a 10% decline from its recent high. The tech-heavy gauge is also on track to fall more than 1% for the third consecutive session for the first time since September 2020. The Dow Jones Industrial Average lost 514 points, or 1.7%.
Fed Chairman Forecasts a Slow Return to Pre-Pandemic Employment
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Fed Chairman Forecasts a Slow Return to Pre-Pandemic Employment
Fed Chairman Forecasts a Slow Return to Pre-Pandemic Employment
Taking questions at the WSJ Jobs Summit, Jerome Powell explains his expectations for a return to maximum employment and how the labor force has changed since the pandemic started. Photo: Al Drago/Getty Images
Mr. Powell answered questions on how he views the jump in yields at The Wall Street Journal Jobs Summit and emphasized that the economy is far from reaching full employment. Some analysts and investors said that Mr. Powell’s responses, which closely adhered to his previous comments, did little to assuage fears about the recent rise in bond yields.
Nasdaq Composite performance, year-to-date
Source: FactSet
As of March 4, 2:59 p.m. ET
%
Jan. 5
Feb.
March
-4
-3
-2
-1
0
1
2
3
Central bank officials have previously said they would keep monetary policy loose until the economy is stronger, and that they view the rise in bond yields as a signal that investors are optimistic about the U.S. economic recovery.
The yield on the 10-year U.S. Treasury note jumped to 1.541% during his speech, on track for the highest closing level in at least a year. That level marks a steep climb from early January, when it was as low as 0.915%. Yields rise when bond prices fall.
The stock market has been taking cues from the government bond market. A recent selloff in U.S. sovereign debt has lifted Treasury yields, curbing investors’ appetite for the technology stocks that had soared in a low-yield environment.
Some money managers are betting that additional fiscal stimulus in the U.S. will boost inflation and cause the Fed to raise interest rates sooner than they had expected. That has led to a jump in real yields, or the returns on bonds after adjusting for inflation expectations.
Yield on 10-year U.S. Treasury note
Source: Tullett Prebon
As of March 4, 2:58 p.m. ET
%
2/19/2020 closing yield
March 2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Fresh data showed that 745,000 Americans applied for first-time unemployment benefits in the week ended Saturday, up from 736,000 the week prior. Economists surveyed by The Wall Street Journal had expected 750,000 jobless claims.
A key measure of investors’ inflation expectations also surged recently. Five-year breakevens—which reflect the expected pace of price increases over the five-year period that begins five years from now—climbed above 2.5% for the first time in 13 years before closing at 2.487% Wednesday, according to Deutsche Bank.
Yields on Treasury inflation-protected securities, or TIPS, which are a proxy for the real yields, have also shot upward. The 10-year TIPS yield rose to minus 0.741% Thursday, from minus 1.089% at the end of last year, according to Tradeweb. It briefly closed as high as minus 0.635% at the end of February, when there was a wave of selling in the government bond market.
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The recent moves in the bond market have coincided with a sharp drop in tech darlings and favorites for momentum investors, like Tesla, which fell 6.7% on Thursday. ARK Innovation ETF dropped 6%.
Expectations for U.S. economic growth have been bolstered by a proposed $1.9 trillion Covid-19 relief package. Senate Democrats agreed Wednesday to narrow eligibility for some of the direct payments that are part of the bill, a concession to centrists whose support is needed to pass it.
“You basically have fiscal stimulus feed through to consumption, which means earnings can go up and that will support equity markets,” said Esty Dwek, head of global market strategy at Natixis Investment Managers.
She said she expects sectors like banks that would benefit from the economic reopening to perform well as investors exit richly valued technology stocks. “The headline numbers of the indexes sometimes mask that it has been more of a rotation in equities rather than out of equities,” she said.
A trader worked on the floor of the New York Stock Exchange on Wednesday.
PHOTO: COURTNEY CROW/ASSOCIATED PRESS
The stimulus package should also increase support for unemployed people, which will bolster consumer spending and the economic recovery, Ms. Dwek said.
Overseas, the pan-continental Stoxx Europe 600 fell 0.4%.
Most major Asian markets fell in a technology-led selloff that mirrored Wednesday’s trading in the U.S.
Markets were weighed down by uncertainty over the pace of global economic recovery, as well as concerns that quickening inflation could eventually lead to higher interest rates, according to Justin Tang, the head of Asian research at United First Partners in Singapore.
“On one hand, you want the economy to grow, but the massive cash in the economy raises the boogeyman of inflation,” he said. “I’m not sure if the economy can actually take higher interest rates at the moment. We are recovering, but I’m pretty sure we’re not out of the woods yet,” he added.
Share-price and index performance, Thursday
Source: FactSet
As of March 4, 2:59 p.m. ET
Snowflake
Splunk
Zoom
Alphabet
Amazon.com
Nasdaq Composite
Microsoft
Square
Okta
-8%
-6
-4
-2
0
2
4
6
8
Mr. Tang said the recent pullback was reminiscent of 2018, when the tech sector sold off as bond yields rose, though he noted that episode quickly eased.
—Joanne Chiu contributed to this article.
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I haven't a fg clue what this means, but it sounds super scary:
https://www.zerohedge.com/markets/10y-treasury-hits-stunning-425-repo-yields-blow-out?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
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https://www.zerohedge.com/markets/one-bank-turn-apocalyptic-fed-will-inevitably-move-ycc-rates-are-no-longer-anchored?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
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second post
I have no idea what he is talking about but it sounds intriguing.
https://www.zerohedge.com/news/2021-03-06/tesla-crashes
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https://www.zerohedge.com/markets/one-bank-turn-apocalyptic-fed-will-inevitably-move-ycc-rates-are-no-longer-anchored?utm_campaign=&utm_content=Zerohedge%3A+The+Durden+Dispatch&utm_medium=email&utm_source=zh_newsletter
Much to discuss here.
-----------------------
Hartnett's views on the rest of the 2020s:
...
We say optimal [asset allocation] is 25/25/25/25 in bond/stock/cash/commodities
-----------------------
[Doug] That is a pretty defensive position which seems right to me.
But within those 25/25/25/25 segments are a lot of choices.
Which stocks, which bonds, which commodities? Ideas?
Real estate not mentioned. I look at these choices as strategies for the non-RE part of the portfolio. Land is not a commodity.
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second post
I have no idea what he is talking about but it sounds intriguing.
https://www.zerohedge.com/news/2021-03-06/tesla-crashes
Tesla TSLA looks to me like it went from 400 to 900 to 600 from Nov to Jan Feb to March.
https://www.marketwatch.com/investing/stock/TSLA/charts
A little like Bitcoin, there is no way to know from the outside what it really is worth. Tesla is a brand of car but also presumably the technology license many of the rest will need to convert to EV and survive.
Remember when Qualcomm went up 2400% in a year (1999) when the market figured out George Gilder was right, billions of people will want and need a smart phone and QCOM owned the enabling technology.
Coincidentally, tech crashed March 2000. Qualcomm lives on but hasn't had years like that one and wasn't at the forefront of 5G.
Does Tesla have a lock on the technology, or can China Inc. and others do it without them? And are we all really headed toward EVs and a battery powered world? All before we address real grid issues, power generation issues and battery issues?
I have no idea, but filled with healthy skepticism.
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https://www.nationalreview.com/2021/03/treasurys-tremble/?utm_source=Sailthru&utm_medium=email&utm_campaign=WIR%20-%20Sunday%202021-03-14&utm_term=WIR-Smart
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https://senatestockwatcher.com/
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https://mailchi.mp/7bb6acfd6328/weekly-market-update-april-10-2020-dow-jones-industrial-23719-127-sp-500-278982-121-nasdaq-composite-815358-106-us-ten-year-6775272?e=2890ef8a97
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https://scottgrannis.blogspot.com/
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https://www.foxbusiness.com/economy/larry-summers-recession-surging-inflation?fbclid=IwAR2FC8tUmDL7ZMfjnBFAma-f40wz5fyIZxOhDDH8CqnWLD9llx8r-YUB6mk
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The markets will all be just fine in 2022 as the nations of the world confront inflation, stagnation, supply outages, re-regulation, energy outages, rising crime waves, new foreign policy disasters and "the everything bubble. Not to mention pandemic and the new "Black Swan" event coming.
https://www.cnbc.com/2021/12/28/millionaires-want-to-own-a-little-less-of-everything-bubble-next-year.html
Alfred E Newman is quoted as saying, "What, Me Worry?" Supertramp says, "Crisis, What Crisis? Bob Marley says, "Every little thing is gonna be alright".
13 year bull markets go on forever, right? What could possibly go wrong?
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Tech gets wrecked
With the Fed ready to aggressively dial back on pandemic-era easy policy, equities took a beating, especially high multiple tech stocks. Growth shares like Alphabet (GOOG, GOOGL) and Meta (FB) ended the day down around 4%, while other names did a lot worse, like Okta (OKTA) and Salesforce (CRM), which closed the session about 8% lower. Piling on the pressure was a rise in U.S. Treasury yields, with the rate on the 2-year Treasury note - the maturity most sensitive to Fed policy expectations - shooting to its highest level since the pandemic began in March 2020.
Analyst commentary: "People expected rate hikes this year, and that was talked about, but I don’t think people were expecting the Fed to already be speaking about letting the balance sheet run off, even as soon as the first rate hike,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. "If you ride a wave of liquidity to the upside and that liquidity starts to go away, I don't think it's terribly surprising that you're going to see a reaction," added Kathy Jones, head of fixed income at Charles Schwab.
Even before the FOMC minutes and tech carnage, a rotation was being played out in the previous four sessions. For example, Goldman Sachs' hedge fund clients scooped up shares linked to airlines, energy and industrial names that benefit from the reopening trade and an improving economy. Value and cyclicals also outperformed despite benchmark indexes moving lower, with consumer goods and retailers like Walmart (WMT) and Walgreens (WBA) finishing the session in the green.
==============================
==============================
https://seekingalpha.com/article/4477421-wall-street-breakfast-what-to-watch-in-2022?lctg=61bda83b45c6ef57b357d931&mailingid=26273154&messageid=wall_street_breakfast&serial=26273154.2251323&userid=55542170&utm_medium=email&utm_source=seeking_alpha
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S&P 500 Charts Are So Bad Even Bulls Are Looking to Adjust Bets
Is it time for me to get back in? )
https://www.bloombergquint.com/markets/bear-market-s-p-500-calls-say-charts-getting-too-ragged-to-hold
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Could electric trucks replace freight trains?
https://www.yahoo.com/finance/news/warren-buffett-thinks-investment-firms-133000597.html
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Stock markets down 6 trillion dollars year-to-date. Real estate up, but next to crash. Interest rate hikes begin tomorrow. Up to 8, 1/4 point increases in the next year? I suppose some of these will be delayed or canceled based on the likely economic downturn oh, and get Joe Biden through the midterms.
Oil is up. Commodities are up. What is left to invest in? Is it too late to buy guns and ammo?
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Stock markets down 6 trillion dollars year-to-date. Real estate up, but next to crash. Interest rate hikes begin tomorrow. Up to 8, 1/4 point increases in the next year? I suppose some of these will be delayed or canceled based on the likely economic downturn oh, and get Joe Biden through the midterms.
Oil is up. Commodities are up. What is left to invest in? Is it too late to buy guns and ammo?
I just bought 3000 rounds of 9mm for 36 cents a round. I miss getting bulk 9mm for 16 cents a round, but I doubt those days are coming back.
If you don’t have weapons and the ability to use them, the food you bought will just belong to the predators that kick in your door.
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https://www.foxbusiness.com/economy/inflation-eroding-social-security-purchasing-power
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https://www.foxbusiness.com/economy/inflation-eroding-social-security-purchasing-power
Keep in mind that roughly 1/3 of Americans make 15 dollars an hour or less.
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https://markets.businessinsider.com/news/stocks/jeremy-grantham-gmo-stock-market-crash-recession-inflation-federal-reserve-2022-5?fbclid=IwAR2WglIvUu_s8aXP7eA4W7yBRwUYAvlanrIM2UmcSNjamneRiG8eEpmT_h4
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The U.S. stock market averages sold off this week with the major benchmarks on Thursday posting their largest declines in more than three weeks, ahead of Friday’s May Consumer Price Inflation (CPI) data. On Friday, the CPI came in higher than expected amid soaring energy prices, which led to further stock price weakness. The May CPI rose 1.0% month-over-month versus 0.7% expected. Prices for shelter, gasoline and food were the biggest contributors. After declining in April, the energy index rose 3.9% month-over-month, with the gasoline index rising 4.1%. Core CPI (ex-food and energy) rose 0.6% versus 0.5% expected. On a year-over-year basis, CPI rose at the fastest pace since 1981, coming in at 8.6% versus 8.2% consensus. Core CPI on a year-over-year basis rose 6.0% versus 5.9% consensus. This stubbornly higher inflation increases the probability that the Fed may be more aggressive in raising its federal funds rate target higher and for longer than the current expectations, increasing the odds that the economy may be pushed into a recession. The Fed’s June interest rate decision is next week, with the central bank expected to raise the federal funds rate by a half-percentage point – a move that is expected to recur in July and may be replicated in September.
It appears that stock market volatility will remain elevated throughout the summer. Although the inflation numbers may be close to peaking, the real question is how quickly inflation comes down. Inflation can be quite sticky and remain elevated for some time, causing the Fed to keep raising interest rates and accelerate unwinding its balance sheet, potentially leading us into a recession. Just this week, Treasury Secretary Janet Yellen stated that the U.S. is likely facing a prolonged period of elevated inflation. In addition, the World Bank sharply lowered its global growth forecast and projected several years of high global inflation and tepid growth reminiscent of stagflation of the 1970s. Citing damage from the Russian invasion of Ukraine and supply chain bottlenecks persisting from the pandemic, the World Bank said global growth is expected to slump to 2.9% in 2022 from 5.7% in 2021, significantly lower than its January forecast of 4.1% growth. For the U.S., it forecasts growth to slow to 2.5% in 2022, 1.2% below its prior projection, and expects inflation to remain above 2%, about where it stood prior to the pandemic, at least until 2024.
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https://scottgrannis.blogspot.com/
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https://www.yahoo.com/finance/news/wharton-professor-jeremy-siegel-one-180612220.html
in a downturn
but I sense we have not reached capitulation yet
but what do I know
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https://scottgrannis.blogspot.com/
Scott G: "It's no secret that virtually every recession in the past 50 years (with the exception of the brief economic collapse of last year) was triggered by the Fed tightening monetary policy in order to bring inflation down."
...
He ends with: "there is little reason to think that Fed tightening—which has already had a significant impact—will be as much of a threat to the economy as past tightenings have been. With one major caveat: Congress must resist Biden's pleas for more taxes and more spending. More taxes would weaken the economy and more spending would aggravate inflation pressures, but neither seem very likely in my judgment."
-----------------------------
I disagree, but time will soon tell.
The economy declined in the first quarter by 1.4%. A recession they define as 2 consecutive quarters of negative growth (decline). Second quarter ends at the end of June. GDPNow (Atlanta Fed) keeps dropping the Q2 forecast, now at 0.9%. If that ends up negative, we are already in a recession and have been since the first of the year. https://www.atlantafed.org/cqer/research/gdpnow Even if the numbers come in exactly as stated, that is negative net growth over the last two quarters, whether they call it a recession or not.
Tightening the money supply due to inflation causes recessions, but the inflation itself is putting brakes on the economy. Wages are not going up as fast as prices which in simple terms means - we can buy less.
Real growth is nominal growth adjusted for inflation (and the CPI greatly understates inflation). The higher the inflation, the harder it is for nominal growth to keep up with it, (right?) and inflation right now is the highest in 40 years.
Inflation (roughly defined) is more money chasing fewer goods. Grannis says M2 is under control, that's good, that's one side of it, but what about producing more goods (and services)? For that, Scott says, "Congress must resist Biden's pleas for more taxes and more spending."
True but resisting making it even worse is not much of a stimulus. What this economy needs, for one thing, is immediate energy stimulus in the form of freeing the energy producers from the current government stranglehold. We had pipeline shutdown, the leases stopped, federal lands blocked, fracking under attack, and rhetoric that says fossil fuels will be transitioned out - before their replacement is ready or available. That's how you get panic buying in markets, not how you get more supply, but the administration is adamant about not changing course on climate religion over economics no matter the consequence.
Here's another idea to stimulate the economy without direct tax cuts or spending changes, INDEX LONG TERM CAPTIAL GAINS TO INFLATION. (Somebody tell Joe Biden). Free up the capital and let it go to it's best use, there's a novel idea.
We have all these anti-growth policies and then can't figure out, where's the growth?
The more the economy grows, which is very little right now, the more squeezed energy markets are, the more prices will go up until all the inelasticity is squeezed out of the demand and people start to break. That is the point where people have to walk, carpool or just not go - to their second job for example. And there is no way out without changing course.
Sounds like a recession coming to me. Unless we change, which they won't do.
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Very good, thoughtful post.
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GDP Now, Atlanta Fed estimate just dropped 0.9% since my post 3 days ago to 0.0% second quarter growth. That follows negative real growth in the first quarter.
As mentioned, the Biden recession is already well under way.
https://www.atlantafed.org/cqer/research/gdpnow
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"the Biden recession is already well under way"
Wait Larry Summers just told us this was due to Republicans ........
so who do I believe, the Harvard genius or
Doug?
:wink:
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https://michaelyon.locals.com/upost/2649924/shit-will-get-real-before-this-year-is-out
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https://www.zerohedge.com/markets/prepare-epic-finale-jeremy-grantham-warns-stock-market-super-bubble-has-yet-burst?utm_source=&utm_medium=email&utm_campaign=896
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Investors around the world are piling into U.S. stocks, even as they brace for the prospect of a rocky autumn, because they say there’s nowhere better to shelter from the turbulence in global markets.
Skyrocketing inflation, worries about a potential recession, Russia’s invasion of Ukraine, rising energy prices and new Covid-19 outbreaks have rattled everything from stocks to bonds to commodity prices this year.
“The U.S. looks the least challenged in a very challenging world,” said Christopher Smart, chief global strategist at Barings and head of the Barings Investment Institute. “Everybody is slowing down, but the U.S., because of the continuing strength of the jobs market, still seems to be slowing more slowly.”
Investors have added money to U.S. equity-focused stock and mutual funds for four of the past six weeks, according to Refinitiv Lipper data, while yanking money from international stock funds for 20 consecutive weeks. That’s the longest streak since a 22-week run of outflows that ended in October 2019.
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https://www.theepochtimes.com/keeping-up-with-inflation-fedex-announces-biggest-ever-general-rate-increase_4755206.html
--------
In 60 years Democrats went from referring to a 'rising lifts all' meaning economic growth is the key, to just rising tide means all prices go up.
Get these people away from the steering wheel!
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https://michaelyon.locals.com/upost/2649924/shit-will-get-real-before-this-year-is-out
This!
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https://www.theburningplatform.com/2022/09/28/how-europes-energy-disaster-will-cripple-the-u-s-economy/#more-279397
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probably will say not so bad
and show us 50 confusing charts with bars and lines up and down
and 4 pages of discussion
and in the end
not that big a deal
our GDP is so huge we can absorb the hit with little downside
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https://www.zerohedge.com/markets/you-will-rent-nothing-and-you-will-be-happy-rent-center-crashes-after-pulling-guidance-due
Getting crushed.
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https://www.zerohedge.com/markets/you-will-rent-nothing-and-you-will-be-happy-rent-center-crashes-after-pulling-guidance-due
Getting crushed.
Rent a Center is a huge rip off - of people already making not enough money.
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https://www.zerohedge.com/markets/you-will-rent-nothing-and-you-will-be-happy-rent-center-crashes-after-pulling-guidance-due
Getting crushed.
Rent a Center is a huge rip off - of people already making not enough money.
Yes it is.
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The stock market resumed its decline in the third quarter after the August summer rally petered out, with the averages receding to new lows. The Federal Reserve continues to raise interest rates in its efforts to slow inflation, with the yield on the ten-year U.S. Treasury climbing to the 4% level. As our own Paul DeSisto has pointed out, this is the highest yield for that benchmark security in fifteen years. The Fed has made clear that there will be no change of course in its policy until inflation recedes toward the 2% level. As current increases in the Consumer Price Index (CPI) remain over 8%, it is evident that the Fed has its work cut out for it.
In simple terms, the rise in interest rates increases the competition that stocks face from bonds and short-term fixed income investments. Investors received very low returns on fixed income investments in recent years, as they believed in TINA – “There is no Alternative to Stocks.” But now, low risk investments in short-term Treasuries yield over 3%, and may well reach 4-5% at the end of the current tightening cycle. While these yields historically are not out of the ordinary, they would likely be accompanied by lower stock prices.
The Fed expects there to be further “collateral damage” to both economic growth and employment, and by extension to corporate earnings, caused by its plan to bring inflation under control. It is likely that the economy’s growth will slow to a crawl or even decline in the quarters ahead, and that unemployment will rise back above the 4% level. With job openings still outstripping unemployed people, it is unlikely the Fed will moderate its current policy until the labor markets are more balanced. Lastly, it is possible that the current consensus earnings estimate for the year ahead will have to be trimmed. Analysts still expect an 8.2% earnings gain, despite slowing revenue growth and the margin pressure of higher costs for most everything.
The rapid increase in interest rates has dramatically slowed the housing market, as the cost for a thirty-year conventional fixed rate mortgage has topped 7%, versus a rate of under 3% for such a loan this time last year. That combined with a 36% increase in the median price of a US home in the past two years has lowered affordability to levels last seen in 2006, according to Yardeni Research. We would expect the housing component of price inflation (including rental prices with a lag) to recede in the not-too-distant future. As the Adam Smith Institute has stated, “the cure for high price is high prices.”
While most of the financial news is not a cause for optimism, we feel constrained to point out that stock prices are well on their way to “normal” levels of valuation after years of ebullient excess. At the beginning of the current year, the S&P 500 index traded at a rich 23 times trailing earnings. Based on today’s price level, that ratio has fallen to 16.2 times, close to the average of 15.35 times since 1929. From Yardeni Research:
While the trailing P/E ratio going back over thirty years has been lower (for example, under 13 times in the year 2011 at the end of the financial crisis) it has not stayed there for long, as both earnings and prices do recover with the economy.
Although current valuations are at best a blunt tool to anticipate near term price movements, today’s prices suggest a much more favorable risk/reward level going forward for owning good quality stocks.
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Fed made historic mistakes
and may make a third one
yet despite this everyone has their jobs
https://www.yahoo.com/news/transcript-mohamed-el-erian-face-154835490.html
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Something Has Snapped: Unexplained 2.3 Million Jobs Gap Emerges In Broken Payrolls Report
Tyler Durden's Photo
BY TYLER DURDEN
FRIDAY, NOV 04, 2022 - 05:44 PM
A simplistic, superficial take of today's jobs report would conclude that the red hot jump in nonfarm payrolls indicates a "strong hiring market" (just ignore the jump in the unemployment rate). Nothing could be further from the truth.
Recall that back in August and September, we showed that a stark divergence had opened between the Household and Establishment surveys that comprise the monthly jobs report, and since March the former has been stagnant while the latter has been rising every single month. In addition to that, full-time jobs were plunging while part-time jobs were soaring.
Fast forward to today when the inconsistencies not only continue to grow, but in some cases have becoming downright grotesque.
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Consider the following: the closely followed Establishment survey came in above expectations at 261K, above the 195K expected, and down modestly from last month's upward revised 319K...
... numbers which confirm that at a time when virtually every major tech company is announcing mass layoffs...
... the BLS has a single, political agenda - not to spoil the political climate less than a week ahead of the payrolls by painting a "suboptimal" labor market picture.
Alas, there is only so much the Department of Labor can hide under the rug because when looking at the abovementioned gap between the Household and Establishment surveys which we have been pounding the table on since the summer, it just blew out by a whopping 589K, the most since June's 608K, as a result of the 261K increase in the number of nonfarm payrolls (tracked by the Household survey) offset by a perplexing plunge in the number of people actually employed which tumbled by 328K (tracked by Establishment survey).
What is even more perplexing, is that despite the continued rise in nonfarm payrolls, the Household survey continues to telegraph growing weakness, and as of Oct 31, the gap that opened in March has since grown to a whopping 2.3 million "workers" which may or may not exist anywhere besides the spreadsheet model of some BLS political activist!
Showing this another way, there were 158.5 million employed workers in March 2022... and 158.6 million in October 2022 an increase of just 150K, during a period in which the number of payrolls (which as a reminder is the number the market follows) reportedly increased by 2.5 million!
As an aside, it appears this is not the first time the "apolitical" Bureau of Labor Statistics has pulled such a bizarre divergence off: it happened right before Obama's reelection:
And then again: right before Hillary's "100% guaranteed election (because one wouldn't want a soft economy to adversely impact her re-election odds).
It gets better: digging in even deeper into the far more accurate and nuanced Household Survey, we find that the October plunge in Employment was the result of a massive collapse in full-time jobs offset by a modest increase in part-time jobs:
In fact, as shown below, since March, the US has lost 490K full-time employees offset by an almost identical gain of 492K part-time employees, while 126K workers were forced to get more than one job over the same period.
Finally, the cherry on top: the number of Unemployed workers - also tracked by the Household Survey - jumped by 306K, rising to 6.059 million, the highest since February!
So what's going on here? The simple answer: there has been no change in the number of people actually employed, but due to deterioration in the economy, more people are losing their higher-paying, full-time jobs, and switching into much lower- paying, benefits-free part-time jobs, which also forces many to work more than one job, a rotation which picked up in earnest some time in March and which has only been captured by the Household survey. Meanwhile the Establishment survey plows on ahead with its politically-motivated approximations, seasonal adjustments, and other labor market goalseeking meant to make the Biden admin look good at least until after the midterms .
And since the Establishment survey is far slower to pick up on the nuances in employment composition, while the Household Survey has gone nowhere since March, the BLS data engineers have been busy goalseeking the Establishment Survey (with the occasional nudge from the White House especially with midterms looming) to make it appear as if the economy is growing strongly, when in reality all they are doing is applying the same erroneous seasonal adjustment factor that gave such a wrong perspective of the labor market in the aftermath of the covid pandemic (until it was all adjusted away a year ago). In other words, while the labor market is already cracking, it will take the BLS several months of veering away from reality before the government bureaucrats accept and admit what is truly taking place.
As we said back in August, "We expect that "realization" to take place just after the midterms, because the last thing the Biden administration can afford is admit the labor market is crashing in addition to the continued surge in inflation." We still hold on to this prediction: expect big negative payroll prints as soon as December.
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"As we said back in August, "We expect that "realization" to take place just after the midterms, because the last thing the Biden administration can afford is admit the labor market is crashing in addition to the continued surge in inflation." We still hold on to this prediction: expect big negative payroll prints as soon as December."
Very interesting
playing the data to find a way to beef it up or sound good.
Reminds me of a shell game ( think I lost 5 to 10 dollars 40 or more yrs ago on the street in NYC)
As we said back in August, "We expect that "realization" to take place just after the midterms, because the last thing the Biden administration can afford is admit the labor market is crashing in addition to the continued surge in inflation." We still hold on to this prediction: expect big negative payroll prints as soon as December.
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Ten Year Treasury: Under 4%
VIX: Down from 31 to 23
Gold: up from 1600 to 1750
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https://www.zerohedge.com/markets/here-comes-job-shock-philadelphia-fed-admits-us-jobs-overstated-least-11-million?utm_source=&utm_medium=email&utm_campaign=1136
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https://www.axios.com/2023/01/18/chatgpt-ai-health-care-doctors
https://en.wikipedia.org/wiki/OpenAI
https://www.cnet.com/tech/computing/chatgpt-ai-threat-pulls-google-co-founders-back-into-action-report/
if the private company goes public it will be big
of course probably many $$$ per share...........
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Please post that and follow ups on the "Intelligence and AI" thread as well.
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Huge job creation numbers this week.
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https://scottgrannis.blogspot.com/
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https://external-preview.redd.it/bleQi_4bA82eGuuyscUSanzdjkUCJhD1C-ZYbSbzpsQ.jpg?auto=webp&v=enabled&s=fdd23a9231a9f184c4a45847785959e2fb795597
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Amazing foto!
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https://nypost.com/2023/03/15/government-fear-mongering-over-silicon-valley-bank-and-how-to-profit/
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https://capitalisteric.wordpress.com/2023/03/15/not-much-time-left/
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https://rudy.substack.com/p/the-total-and-utter-incompetence
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https://www.thegatewaypundit.com/2023/04/developing-mcdonalds-shuts-us-offices-prepares-for-layoffs/
https://nypost.com/2022/10/16/joe-biden-insists-us-economy-is-strong-as-hell-as-he-munches-an-ice-cream-cone/
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https://confoundedinterest.net/2023/10/12/gimme-expensive-shelter-headline-cpi-hotter-than-expected-core-remains-above-4-00-rent-inflation-7-41/
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The VIX, an indicator of the market's propensity, is in the 12s-- very low. While we here worry about armageddon in various forms, the market seems unperturbed.
Gold, after having pulled back from 2000 to the high 1700s (working from memory) is now around 2050.
10 year and 30 year Treasury interest rates have fallen sharply from their peak.
As noted by the IBD article posted recently on our forum, serious contradictions are to be found in our ability to pay for our debt and our continuing deficits AND take care of what needs doing. This includes a dire need to reverse the declines in military spending for all the wars on the horizon.
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"As noted by the IBD article posted recently on our forum, serious contradictions are to be found in our ability to pay for our debt and our continuing deficits AND take care of what needs doing. This includes a dire need to reverse the declines in military spending for all the wars on the horizon."
Age old political dilemma, we need to drastically cut overall federal spending while seriously increasing military readiness. How?
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Oil below 70 today. VIX in the 12s.
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so what does this mean
low volatility
oil down
? buy oil?
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Not sure! Market seems surprisingly sanguine, while we were see possible armageddon. Also worth noting is that gold is around $2050 and BTC is around 44. I experience cognitive dissonance.
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so what does this mean
low volatility
oil down
? buy oil?
VIX. "measures how much volatility professional investors think the S&P 500 index will experience over the next 30 days"
- Not something I follow but it seems that stability, low volatility is good, high volatility bad.
Oil down can mean a number of things, global demand falling meaning global recession. Could mean production increased with the recent spike in prices. More importantly, one sign of things like food and production being more affordable going forward.
As mentioned, there are good and bad signs out there for investors and people who predict the near-term future of the economy. ("cognitive dissonance")
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"Not something I follow but it seems that stability, low volatility is good, high volatility bad."
Exactly how I understand the VIX. So, given current circumstances it seems quite counterintuitive to me that it be quite low. What am I missing?
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https://www.dailymail.co.uk/yourmoney/article-12825029/American-Dream-Dead-Moving-Abroad.html
look at the map
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Oil down to 68.
Gold drops below 2,000.
VIX now in the 11s.
All rather inconsistent with our notion here that the world is going to hell in a handbasket.
WTF?
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https://www.dailymail.co.uk/news/article-13180433/billionaires-Jeff-Bezos-Leon-Black-Mark-Zuckerberg-sell-stocks.html
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https://www.ft.com/content/53f64b6b-3151-46b3-ad83-3a4732c35d41?segmentId=b385c2ad-87ed-d8ff-aaec-0f8435cd42d9
APRIL 19 2024
Noted economist Mohamed El-Erian hints that the markets ignoring escalating Middle East tensions may be missing potentially dire consequences.
"recent escalation of tensions between Iran and Israel...significant consequences not only for an already unstable Middle East but also for the wellbeing of the global economy and the stability of its financial system."
"the global economy ... is already too fragile to handle a large new economic shock. Specifically, a further round of military escalation between Iran and Israel would undermine already low and fragile global growth, push up goods inflation at a time when services inflation is still too high, and impose demands on fiscal and monetary authorities that have already used up much of their policy flexibility and have limited operating space."
...
"First, two of the potential engines of global growth — the already-stressed Chinese and European economies — would be hit relatively hard given their high dependence on imported energy.
Second, US inflation would prove even more stubborn at a time when progress in reducing price pressures has already disappointed this year, thereby acting as a bigger counter to early rate cuts by the Federal Reserve.
Third, the strong dollar would get a further appreciation boost, undermining trade and financial intermediation.
And finally, with worsening economic and geopolitical situations, risk premia would increase. This would lead to higher borrowing costs than might have prevailed otherwise. "
...
"There is no doubt that the latest round of Iran-Israel hostilities has crossed many lines and durably raised the geopolitical temperature in the region. Yet markets seem keen to brush this aside, comforted by the fact that we are yet to reach the boiling point of significant human casualties and physical damage in these retaliation rounds — a point that would cause significant economic and financial dislocations. Given that this is a region that is vulnerable to errors of judgment, insufficient understanding of adversaries, and implementation accidents, that could well prove too complacent a reaction."
--------------------------
I would add this war conducted by the Houthis is already having an effect.
https://www.datacenterdynamics.com/en/analysis/the-houthis-and-the-red-sea-a-new-risk-to-subsea-cables/
Are ships that once passed through the Suez canal really going all the way around the Horn of Africa? And Biden, NATO et al have no answer for it?
We live in a troubled world. [Invest accordingly.]