Political Economics

[Crafty_Dog]

https://fee.org/articles/poverty-in-the-us-was-plummeting-until-lyndon-johnson-declared-war-on-it/?fbclid=IwAR361lAp3kkbKpM_qUZmQIa3IQBvAvnJpbZiQf9uKD8PzBW0Q2faINbFtT4

[DougMacG]

https://fee.org/articles/poverty-in-the-us-was-plummeting-until-lyndon-johnson-declared-war-on-it/?fbclid=IwAR361lAp3kkbKpM_qUZmQIa3IQBvAvnJpbZiQf9uKD8PzBW0Q2faINbFtT4

Excellent piece.  I wish every student, voter and politician would read it. 

[DougMacG]

Like clockwork, even in high wage, high cost of living NYC.
https://nypost.com/2019/09/30/as-predicted-the-15-wage-is-killing-jobs-all-across-the-city/

[DougMacG]

https://www.foxbusiness.com/economy/steve-moore-trump-economy-is-really-experiencing-a-middle-class-boom-this-data-doesnt-lie?fbclid=IwAR1s2rfhKSv4nFKqTJtO8VWydaVdv6DLu9FjGAYsxnVCWUevcWUqDBuOxH4

"The $5,003 rise in middle-class incomes is especially impressive given that incomes only rose by $1,200 in the seven years under Obama — after the recession ended."

ISN'T THAT WHAT LIBERALS WANTED?  They should support OUR policies.

"Instead, the left has chosen to either ignore this story altogether or to denounce these findings, which come from the gold standard of economic data, the U.S. Census Bureau.
...
This same data also undermines the other riff from the Elizabeth Warren crowd, which is that the Trump economic boom is merely a continuation of the Obama trend. The income gains are four times higher under Trump in less than half the number of years in office."

[DougMacG]

Electric car subsidies are pure political corruption: "79 percent of electric vehicle tax credits were claimed by households with an adjusted gross income of more than $100,000 a year" and "46 percent of credit eligibility flowed to one state, California."
   - source: economist Alan Reynolds

[G M]

Electric car subsidies are pure political corruption: "79 percent of electric vehicle tax credits were claimed by households with an adjusted gross income of more than $100,000 a year" and "46 percent of credit eligibility flowed to one state, California."
   - source: economist Alan Reynolds

Obama's "green economy" initiatives were all dem graft operations.

[DougMacG]

About ten percent of Americans will spend at least a year in the top one percent and more than half of all Americans will spent a year in the top ten percent.

39% of Americans will spend a year in the top 5 % of the income distribution, 56 % will find themselves in the top 10%, and 73% percent will spend a year in the top 20 %.

https://medium.com/incerto/inequality-and-skin-in-the-game-d8f00bc0cb46

[objectivist1]

Very interesting graph.  Note well that for all the hoopla about Trump's stock market rally, at this point in his presidency, he's actually a bit shy of where Obama was at the same point.  That's not to say that Trump has much more to crow about, but interesting nonetheless.  This surprised me.

https://www.macrotrends.net/2482/sp500-performance-by-president

[Crafty_Dog]

The market was RECOVERING during Obama, with Trump it is reaching into new territory.

[G M]

The market was RECOVERING during Obama, with Trump it is reaching into new territory.

Well, we had 8 summers of recovery, I was told.

 

[DougMacG]

Very interesting graph.  Note well that for all the hoopla about Trump's stock market rally, at this point in his presidency, he's actually a bit shy of where Obama was at the same point.  That's not to say that Trump has much more to crow about, but interesting nonetheless.  This surprised me.

https://www.macrotrends.net/2482/sp500-performance-by-president

I know Trump brags about the market under his term and some on the Left say the markets perform better under Democrats.  I find that whole direction of analysis flawed. 

Judged by today's party's I would say JFK was a Republican and that Nixon governed as a Democrat.  Reagan's tax cuts were delayed two years, meaning the main policies in those years were the Carter administration's. Clinton's policies were decidedly Democrat for two years and then merged with Newt Gingrich and the Republicans for the final six years.  At the end, Clinton triggered the tech crash that brought down the first two years for W. and then Bush policies was all over the map.  They say he gave supply side economics a bad name without ever trying it.

The W. Bush economic policy arrow switched when he lost Congress in Nov 2006 / Jan 2007 and Obama and team (HRC, Biden, Pelosi, Reid, Schumer) were the de facto leaders into the crash.  They were leading in all the Presidential polls when people and markets lost confidence.  In fact it was there policies, unrepealed by Republicans that led to the crash.  Put that period onto his watch and see where the numbers fall.

Then he lost the House two years into his Presidency and was unable to pass any more far Left legislation, just down to his pen and his executive orders.  What he was unable to ban was fracking out in the states.  He opposed the transformational economic force that happened 'on his watch'.

Trump's market surge started with his election, not his inauguration. 

First year budgets come from the predecessor, what I call runners left on base, and the rest come from Congress.  Scoring it all as the President's is trickery IMHO.  Is the House of Representatives doing everything it can to help grow the markets and the economy right now?  Obviously not.

For more instructive analysis, I like GDP better than stocks, a wider measure, and the timeline needs to match the policy arrow shift, not the name on the door. 
----
The comparison of Chile and Venezuela over the last 30 years is instructive. One went from statist and poor to free and rich.  The other went from free and rich to socialist and poor.

https://danieljmitchell.wordpress.com/2018/07/24/world-bank-compares-chile-and-venezuela/

[DougMacG]

The market was RECOVERING during Obama, with Trump it is reaching into new territory.

Well, we had 8 summers of recovery, I was told.

 

He took 8 years to get back what should have recovered in 6 months.  Plus the market crash was caused by bad government policies in the first place. 

As mentioned in my other post, why make a distinction between a Republican (in name only) or a Democrat who both govern with Democrat policies, cf. letting the federal government run wild with the mortgage finance system.

[ccp]

are these interests outside his non spot partisan work as a  Democrat Partly  Professor of Economics, or malicious set up / trap ?

https://www.mediaite.com/print/nyts-paul-krugman-says-hacker-downloaded-child-pornography-using-his-ip-address/

Either way this is bad in general.

[G M]

are these interests outside his non spot partisan work as a  Democrat Partly  Professor of Economics, or malicious set up / trap ?

https://www.mediaite.com/print/nyts-paul-krugman-says-hacker-downloaded-child-pornography-using-his-ip-address/

Either way this is bad in general.

http://ace.mu.nu/archives/385207.php

[DougMacG]

Crafty,  I was wondering how your daughter's paper on rent control turned out.  It is hard to find any information other than that screwing up a market makes everything worse for everyone including the people receiving the so-called benefit.

[Crafty_Dog]

Thank you for asking but she changed her mind and instead did something on whether Hermosa Beach should keep its police department or contract the gig out to LA County.

[G M]

Thank you for asking but she changed her mind and instead did something on whether Hermosa Beach should keep its police department or contract the gig out to LA County.

Curious what her take on that would be.

[DougMacG]

a recent working paper by Gerald Auten and David Splinter, economists at the Treasury and Congress’s Joint Committee on Taxation, respectively, reaches a striking new conclusion. It finds that, after adjusting for taxes and transfers, the income share of America’s top 1% has barely changed since the 1960s (see chart 1).
https://www.economist.com/briefing/2019/11/28/economists-are-rethinking-the-numbers-on-inequality
https://www.economist.com/img/b/1280/672/85/sites/default/files/images/print-edition/20191130_FBC532_0.png

http://davidsplinter.com/AutenSplinter-Tax_Data_and_Inequality.pdf

[Crafty_Dog]

Very interesting!

Please post in the Economics thread on S, C, & H forum as well so that it can be more easily found for the deep theoretical implications it contains.

[ccp]

tries to make the upside down case that Trump win in 2020 would be bad for the economy


https://finance.yahoo.com/news/why-trump-reelection-is-risk-for-markets-economist-220530643.html

as always the business interests making a stink about some trade barriers
all the while China is screwing us over and eating our lunch dinner and our future

Like I said the Economist is a leftist rag
from Europe

isn't even good for toilet paper as the ink comes off on your skin

[Crafty_Dog]

I was first exposed to The Economist back when I was at U PA in the 70s.  Very impressive back then!  Now?  Not , , ,

[G M]

https://www.dailymail.co.uk/news/article-7940131/How-coronovirus-outbreak-killed-106-wreck-global-economy.html

There is a VERY limited window to prepare for what is coming.

[DougMacG]

Barack Obama
@BarackObama
 · Feb 17
Eleven years ago today, near the bottom of the worst recession in generations, I signed the Recovery Act, paving the way for more than a decade of economic growth and the longest streak of job creation in American history.
---------

WHAT?!

---------

Real after-tax income was virtually flat from the 2008 recession to the end of Obama's first term, despite temporary tax giveaways in 2009-12.  GDP briefly grew by ~2.7% in 20014-15 (with Fed's QE) but only 1.6% in 2016.  The 2009 spend-spree can't get credit for 2 out 8 years.   - Alan Reynolds



President Bush passed the Economic Stimulus Act in February 2008 and the Troubled Asset Relief Act in October. Whatever Bush & Obama did was of late and largely irrelevant.  What the Fed did (take rates from 5 1/4% to zero) is what mattered.


-------------------------------------------------------------------------------------------------------

I might have mentioned this once before.  If Barack Obama wants to talk aboutthe  timing and cause and effect of economic outlook and Presidents' policies:

The end of the previous economic expansion coincided exactly to the month with Nancy Pelosi, Harry Reid, Hillary Clinton, Barack Obama, John Kerry and Joe Biden being elevated to the majority in Congress.  The financial collapse coincided exactly with the market reaction to the reality that Barack Obama will be the next President, The markets knew Democrats would control all levers of government, tax rates especially on capital will be going up, healthcare will be socialized, and the business climate will be going to hell.  And we had financial collapse as smart money pulled out.  Business expansion ended and nbew business startups basically went to zero.

That is when "the worst recession in generations" began.  Congratulations to Obama for not making policies any worse than the markets expected.
--------------
Obama is also the only president in U.S. history to have never had a single year of 3.0 percent or greater GDP growth.

[Crafty_Dog]

https://fee.org/articles/economists-in-denmark-to-america-yeah-were-not-socialist/

[DougMacG]

From Middle East and Saudi threads:

Coronavirus and now plunging oil prices might just end the mullahs.

https://www.bloomberg.com/news/articles/2020-03-07/saudi-aramco-slashes-crude-prices-kicking-off-price-war

Remember the 70s, Inelastic demand explained the quadrupling of oil prices.  Just because prices go up do not in the short run mean you can adjust in the short run and drive part way to work in the morning, part way to the grocery store or quit taking the kids to little league and girl scouts.  Up to some price point, you just pay the price and continue your usage.

Then there was Katrina, 2005, shutting down refineries and domestic gasoline supplies temporarily.  Prices spiked until demand came down to match available supplies.  People said the large increases were from greed but in fact they found the new and changing supply and demand equilibrium quite accurately.

Jump to 2020 and the economic demand question is asked in reverse.  How much must the price fall for demand to pick up enough to match the excess supply? 

It could be that no amount of price decrease will make up for the fact that people don't want to travel, board airplanes or drive great distances when then they are told and scared into staying home.

[DougMacG]

[G M]

Not true. The elites do very well. Mao didn't miss any meals while living in the Forbidden City and enjoying his harem of very young girls as millions of Chinese starved to death.

See every other attempt at socialism for similar stories.

[ccp]

"Not true. The elites do very well. Mao didn't miss any meals while living in the Forbidden City and enjoying his harem of very young girls "

And that goes for Stalin too . He many dacas (estates) all over Russia and endless girls.

Castro had many girls and lived well from what I read.


AOC likes her clothes and fine things.  Michelle Obama would live like a queen in any socialist system as would her hubby who I find hard to believe did not have at least a few flings.......

Sanders family doing ok as is he.

[DougMacG]

Good points.  The power and control of the resources that was the market belonging to everyone goes straight to the ruling classes, the few, exactly the opposite of what they advertise.

[DougMacG]

https://www.nbcnews.com/think/opinion/bernie-sanders-wrong-democratic-socialism-sweden-everywhere-else-ncna11586

[Crafty_Dog]

Please post that in the Socialism and Fascism thread as well

[G M]

https://www.dailymail.co.uk/news/article-7940131/How-coronovirus-outbreak-killed-106-wreck-global-economy.html

There is a VERY limited window to prepare for what is coming.

https://charleshughsmith.blogspot.com/2020/03/the-covid-19-dominoes-fall-world-is.html?m=1

[DougMacG]

https://www.dailymail.co.uk/news/article-7940131/How-coronovirus-outbreak-killed-106-wreck-global-economy.html

There is a VERY limited window to prepare for what is coming.

https://charleshughsmith.blogspot.com/2020/03/the-covid-19-dominoes-fall-world-is.html?m=1

G M is our most accurate predictor in times of doom.   

Good articles, but I disagree with Charles Hugh Smith on this:

"Here's the S&P 500. Where is the bottom? There is no bottom, but nobody dares say this. Companies with negative profits have no value other than the cash on hand and the near-zero auction value of other assets. Subtract their immense debts and they have negative net worth, and therefore the market value of their stock is zero."

As we had with rising stock prices in the anemic Obama economy, your ownership in stock in major companies (that will survive) is ownership of world market share of all the various market segments.  Disruptive innovation is a greater long term threat to Apple, Google, Facebook, 3M, IBM, GE, etc than economic doom.

Tim Cook (of Apple) said a little earlier in this crisis as markets started to fall, I don't see how this changes our long term outlook at all.  In the aftermath, in his industry, people are going to demand smartphone communications capability more and more and better and better, if that is possible.  People are going to demand health services more and better.  People are going to demand private transportation more and better.  People are going to value and invest in their house more.  You don't need your well pump on the blink in the next crisis.  People are demand more of their food supply, and other basic supplies,  and so on.  People are going to value saving and preparing for their future more, etc.  If some of these companies go under, it will be because someone else is doing it better, not because no one is buying, in my view.

The future is more prosperous than ever before - unless we screw it all up in the voting booth with our political-economic public policies.

I am very bullish on buying back in.  I just wish I knew when.  What is the first sign that the worst (of the investment interruption) is behind us?   It sure looks to me like we are close to bottom.

I look forward to buying future CV-19 testing kits at Dollar Tree - for $1, sometime before the next 'unforeseen' crisis hits.

[Crafty_Dog]

https://amgreatness.com/2020/03/15/america-in-a-new-upside-down-world/

[G M]

"I am very bullish on buying back in.  I just wish I knew when.  What is the first sign that the worst (of the investment interruption) is behind us?   It sure looks to me like we are close to bottom."

We are a very long way from the bottom.

https://www.scg-lv.com/social-collapse/
Social Collapse
March 14, 2020 | No Comments

It might be a good time to discuss the possibility of social collapse.  As a risk manager I always tell my clients “it my job to consider the worst-case scenario”.  While conducting some research I ran across an article written in 2008 by Dmitry Orlov.  https://www.resilience.org/stories/2008-02-26/five-stages-collapse/ Below I have quoted a specific passage however as you read it think how you can put each one into context today.

Stage 1: Financial collapse. Faith in “business as usual” is lost. The future is no longer assumed resemble the past in any way that allows risk to be assessed and financial assets to be guaranteed. Financial institutions become insolvent; savings are wiped out, and access to capital is lost.

Stage 2: Commercial collapse. Faith that “the market shall provide” is lost. Money is devalued and/or becomes scarce, commodities are hoarded, import and retail chains break down, and widespread shortages of survival necessities become the norm.

Stage 3: Political collapse. Faith that “the government will take care of you” is lost. As official attempts to mitigate widespread loss of access to commercial sources of survival necessities fail to make a difference, the political establishment loses legitimacy and relevance.

Stage 4: Social collapse. Faith that “your people will take care of you” is lost. As local social institutions, be they charities, community leaders, or other groups that rush in to fill the power vacuum, run out of resources or fail through internal conflict.

Stage 5: Cultural collapse. Faith in the goodness of humanity is lost. People lose their capacity for “kindness, generosity, consideration, affection, honesty, hospitality, compassion, charity” (Turnbull, The Mountain People). Families disband and compete as individuals for scarce resources. The new motto becomes “May you die today so that I die tomorrow” (Solzhenitsyn, The Gulag Archipelago). There may even be some cannibalism.

As a security professional and as a father I am considering the real possibility that we may face a serious social break down.  I am not a conspiracy theorist or a “prepper” however having a plan is not such a bad idea.

With all that said I have not lost complete faith in humanity however it is possible to see how each stage is being realized.  So, I have started to make some basic preparations which I will share.  This is by no means a perfect list and I welcome comments that will help me and others on items missed.

First you have to realize your restrictions.  Meaning you cannot pack your entire house up if you need to leave. So, keeping the list simple and executable is important.

I contacted my home owners insurance carrier and bumped up my coverage.  The thought was that if I had to leave and upon my return my home was burned down what is the worth of everything I would need to replace.
A check list – I started my prep with a check list of items I have on hand, items I need to buy and where those items are located.  This will help if you need to leave quickly.
Exit strategy – If I have to leave where am I going?  I have a pre-determined location where I can meet up with others.  Simple rule Safety in numbers…
Food and Water, non-perishable food items and plenty of water.  I didn’t mess around with water bottles rather I purchased the big water cooler style bottles of water.  Everyone is buying cases of water and these jugs are left unpurchased
Clothing- no need to pack all your cloths grab functional clothing, not clothing for fashion. Durable shoes, jackets socks and underwear
Personal Hygiene products – enough for a long period of time how long is up to you
Medications, pain killers, vitamins
Flashlights, with spare batteries
Pocket knives preferably utility tool such as a Leatherman
Refillable water bottles
Medical kits, gauze alcohol, bandages, tourniquets, band-aids, Neosporin
Lighters and candles.  Candles should be in containers so when burned the melted wax is contained. Candles are fore light not for fragrance.
Pet food, collars, leashes if you have pets.
Trash bags, zip locks bags
Fuel Cans for vehicle gas, filled
Sleeping bags, blankets and pillows
Towels, hand and bathing
Plastic cups, bowls, plates, forks, knives, spoons
Pot, Pan and minimal cooking utensils
Paper products – Paper towels, toilet paper, wet wipes
Soap – dish soap and laundry soap
Physical Cash – minimum of $100
Charging cords for your devices
Backpacks
Spare reading glasses or prescription glasses
Personal items, laptops, paperwork, jewelry etc.
Optional items if you can, camping stove with propane, generator, ice chest
Lastly guns and ammo and personal protective kit.  Some may see this as controversial however if you are put in the worst-case scenario how else to you expect to protect yourself and your family?

Once you have packed what you can, stage it for easy access.  This list is by no means everything you could consider however I believe it is realistic and executable by anyone.

People are smart, mobs of people are dumb.  Be safe out there… Remember plan and prepare for the worst and hope for the best….

[DougMacG]

Thanks G M.  I really like the planning, prepping, worst case scenario posts.  We need to think about these things - before it happens. 

Worst case scenario is ONE of the scenarios we need to consider in this case.  In my view, this is a practice run.

I live in a climate where winter will kill you.  I can't believe people only have one way t heat their home,  If electric OR gas goes off, you freeze.  Yet I would think home is where you want to be in a crisis.

Anyway, this doesn't look like a crisis where the power goes off, or the food or water supply ends, and at least here we aren't headed into winter.

I doubt if the death toll surpasses the flu or other common maladies and I think the economic bounce back will be quick and relatively sudden, once the crisis phase of it becomes yesterday's news.

There is zero chance this passes abortion as the leading cause of death, so the carnage of it is all a matter of perspective.

Why did Apple re-open all their offices in China?  And the hospital beds are not overloaded.   Those are more independent data points than hearing the worst has passed from the government.

People who got the virus without symptoms including children still gain immunity from it. There is an end to this.  We just don't know when.

After the carnage, some good comes out of this.  There will be worse black swan events to follow - if we live long enough to experience them.

[G M]

Thanks G M.  I really like the planning, prepping, worst case scenario posts.  We need to think about these things - before it happens. 

Worst case scenario is ONE of the scenarios we need to consider in this case.  In my view, this is a practice run.

I hope you are right. I hope everyone learns good lessons and gets ready for the worse case scenario. We never know when the next black swan arrives.

I live in a climate where winter will kill you.  I can't believe people only have one way t heat their home,  If electric OR gas goes off, you freeze.  Yet I would think home is where you want to be in a crisis.

It depends where home is. Also, things happen in the middle of crisis times, like fires or natural disasters. Imagine "The Big One" hits SoCal. What if the New Madrid fault shakes MinneSoCold?

Anyway, this doesn't look like a crisis where the power goes off, or the food or water supply ends, and at least here we aren't headed into winter.

I doubt if the death toll surpasses the flu or other common maladies and I think the economic bounce back will be quick and relatively sudden, once the crisis phase of it becomes yesterday's news.

I hope you are correct. I expect multiple waves, like the Spanish Flu. Also, there are 3rd, 4th, 5th order effects, like China trying to take Taiwan or Lil' Kim launches rockets or Iran fires a nuke at Israel.

There is zero chance this passes abortion as the leading cause of death, so the carnage of it is all a matter of perspective.

Why did Apple re-open all their offices in China?  And the hospital beds are not overloaded.   Those are more independent data points than hearing the worst has passed from the government.

Expect waves. This is only the first.

People who got the virus without symptoms including children still gain immunity from it. There is an end to this.  We just don't know when.

After the carnage, some good comes out of this.  There will be worse black swan events to follow - if we live long enough to experience them.

[DougMacG]

A point I believe important / crucial to the future discussion and analysis:  Because is that we start with the best economy in the world and perhaps the best economy in history, we are in a better position to survive this economically and to come back quickly once the medical side of it is under control.  Who knew that the US growth rate is over 3% heading into the forced shutdowns.  The average GDP growth rate under Obama was 1.5%.  Growth if you can call it that in the final year of the Obama administration was 1.5%.  Europe growth was 1% at best.  Growth under new Democrat proposals is worse yet.  Trump growth is 100% better than Obama growth, 200% better than the European model proposed for us and (again) puts us in a MUCH BETTER POSITION TO SURVIVE THIS.

https://www.frbatlanta.org/cqer/research/gdpnow.aspx

CENTER FOR QUANTITATIVE ECONOMIC RESEARCH
   
GDPNow

The growth rate of real gross domestic product (GDP) is a key indicator of economic activity, but the official estimate is released with a delay. Our GDPNow forecasting model provides a "nowcast" of the official estimate prior to its release by estimating GDP growth using a methodology similar to the one used by the U.S. Bureau of Economic Analysis.

GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model. In particular, it 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.

Recent forecasts for the GDPNow model are available here. More extensive numerical details—including underlying source data, forecasts, and model parameters—are available as a separate spreadsheet. You can also view an archive of recent commentaries from GDPNow estimates.

Latest estimate: 3.1 percent — March 18, 2020
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2020 is 3.1 percent on March 18, up from 2.9 percent on March 17. After this morning's new residential construction report from the U.S. Census Bureau, the nowcast of first-quarter real gross private domestic investment growth increased from 6.3 percent to 7.5 percent.

[G M]

https://www.marketwatch.com/amp/story/guid/C5C9915C-6D42-11EA-A687-9E83803F6B96


Far from over.

[DougMacG]

https://www.marketwatch.com/amp/story/guid/C5C9915C-6D42-11EA-A687-9E83803F6B96

Far from over.

Yes. 

"Miller thinks it is critical that investors understand how bad the downturn in China is so that they can read official reports with some healthy skepticism. "

   - "Some healthy skepticism"??  How about inserting "China Lies" at the end of every sentence quoting them.

My fear from the beginning was the economic spillover effect from China.  If we protected every American today (and we aren't), we still couldn't lift the travel bans.

This chapter ends when the medical crisis is solved and the regime of China is in the "ash-heap of history". *
---------------------------------

"What I am describing now is a plan and a hope for the long term -- the march of freedom and democracy which will leave Marxism-Leninism on the ash-heap of history as it has left other tyrannies which stifle the freedom and muzzle the self-expression of the people."

    - President Ronald Reagan delivered this 1982 speech to members of the British Parliament in the Royal Gallery at the Palace of Westminster in London.
https://www.historyplace.com/speeches/reagan-parliament.htm

[Crafty_Dog]

https://www.powerlineblog.com/archives/2020/03/dems-gotta-dem-pelosi-style.php

[Crafty_Dog]

Grannis
https://scottgrannis.blogspot.com/2020/03/chart-updates.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29

Wesbury
https://www.ftportfolios.com/blogs/EconBlog/2020/3/24/weathering-the-storm-when-will-the-clouds-part

https://www.ftportfolios.com/Commentary/EconomicResearch/2020/3/24/two-invisible-threats

[G M]

It’s just the flu, bro!

Wesbury is a moron.

Grannis
https://scottgrannis.blogspot.com/2020/03/chart-updates.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29

Wesbury
https://www.ftportfolios.com/blogs/EconBlog/2020/3/24/weathering-the-storm-when-will-the-clouds-part

https://www.ftportfolios.com/Commentary/EconomicResearch/2020/3/24/two-invisible-threats

[DougMacG]

https://www.project-syndicate.org/commentary/how-covid19-pandemic-affects-financial-market-narratives-by-robert-j-shiller-2020-03

[Crafty_Dog]

The High Cost of Low Interest Rates
Irresponsible policy from the Federal Reserve made the coronavirus crisis worse than it had to be.
By James Grant
April 1, 2020 6:38 pm ET
SAVE
PRINT
TEXT
108
It took a viral invasion to unmask the weakness of American finance. Distortion in the cost of credit is the not-so-remote cause of the raging fires at which the Federal Reserve continues to train its gushing liquidity hoses.

But the firemen are also the arsonists. It was the Fed’s suppression of borrowing costs, and its predictable willingness to cut short Wall Street’s occasional selling squalls, that compromised the U.S. economy’s financial integrity.

'A Very Tough Two Weeks'


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The coronavirus pandemic would have called forth a dramatic response from the central bank in any case. Not even the most conservatively financed economy could long endure an official order to cease and desist commercial activity. But frail corporate balance sheets and overextended markets go far to explain the immensity of the interventions.

Perhaps never before has corporate America carried more low-grade debt in relation to its earning power than it does today. And rarely have equity valuations topped the ones quoted only weeks ago.

“John Bull can stand many things, but he can’t stand 2%,” said Walter Bagehot, the Victorian-era editor of the Economist, concerning the negative side effects of a rock-bottom cost of capital. Needing income, investors will take imprudent risks to get it. And if 2% invites trouble, zero percent almost demands it.

Interest rates are the critical prices that measure investment risk and set the present value of estimated future cash flows. The lower the rates, other things being equal, the higher the prices of stocks, bonds and real estate—and the greater the risk of holding those richly priced assets.

In 2010 the Federal Reserve set out to lift market prices through a rate-suppression program called quantitative easing. Chairman Ben Bernanke was forthright about his intentions. “Easier financial conditions will promote economic growth,” he wrote at the time. Lower interest rates would make housing more affordable and business investment more desirable. Higher stock prices would “boost consumer wealth and help increase confidence, which can also spur spending.” The Fed commandeered investment values into the government’s service. It seeded bull markets in the public interest.

But investment valuations don’t exist to serve a public-policy agenda. Their purpose is to allocate capital. Distort those values and you waste not only money but also time—human heartbeats.


ILLUSTRATION: DAVID GOTHARD
Like a shark, credit must keep moving. Loans fall due and must be repaid or rolled over (or, in extremis, defaulted on). When the economy stops, as the world’s has effectively done, lenders are likely to demand the cash that not every borrower can produce.

To resolve the devastating panic of 1825, the Bank of England rendered “every assistance in our power,” as a director of the bank testified, “and we were not upon some occasions over nice.”

In a still more radical vein, the Fed has set about buying (or supporting the purchase of) commercial paper, residential mortgage-backed securities, Treasurys, investment-grade corporate bonds, commercial mortgage-backed securities and asset-backed securities. It has abolished bank reserve requirements. Through a new direct-lending program, the Fed has become a kind of commercial bank.

If not for the buildup of the financial excesses of the past 10 years, fewer such monetary kitchen sinks would likely have had to be deployed. No pandemic explains the central bank’s massive infusions into the so-called repo market that followed this past September’s unscripted spike in borrowing costs. For still obscure reasons, a banking system that apparently is more than adequately capitalized was unable to meet a sudden demand for funds on behalf of the dealers who warehouse immense portfolios of government debt.

The superabundance of Treasury securities is the spoor of America’s trillion-dollar boom-time deficits. Persistently low interest rates have facilitated that borrowing, as they have the growth of private-equity investing (ordinarily with lots of leverage), the rise of profitless startups, the raft of corporate share repurchases, and the unnatural solvency of loss-making companies that have funded themselves in the Fed’s most obliging debt markets.

For savers in general, and the managers of public pension funds in particular, lawn-level interest rates confer no similar gains. On the contrary: To earn $50,000 in annual interest at a 5% government bond yield requires $1 million of capital; to earn the same income at a 1% yield demands $5 million of capital. To try to circumvent that forbidding arithmetic, income-famished investors buy stocks, junk bonds, real estate, what have you. It worked as long as the bubble inflated.

In a bubble, performance is the name of the investment game. Over the past 10 years, skeptics of our debt-financed prosperity have had to fall in line. To keep up with the Joneses, fiduciaries have sought an edge in lower-quality assets. Managers of investment-grade bond portfolios dabbled in junk bonds. Junk-bond investors slummed it in lower-rated junk or in the kind of bank debt that is senior in name but structured without the once-standard protective legal fine print.

Investing at positive nominal yields, Americans are still comparatively lucky. The holders of some $10.9 trillion of yen-, euro- and Swiss franc-denominated bonds are paying for the privilege of lending. “Investors seeking safety were prepared to face a guaranteed loss when holding the debt to maturity,” was how the Financial Times last summer tried to explain the nearly inexplicable.

Negative nominal bond yields are a 4,000-year first, according to Sidney Homer’s “A History of Interest Rates,” republished for a fourth edition with co-author Richard Sylla in 2005. Topsy-turvy investment-grade bond markets aren’t without precedent, but the extent of the upheaval today is startling. If adversity is the test of the quality of a senior security, as old-time doctrine held, segments of today’s corporate bonds and tradable bank loans have already flunked. On March 20, according to S&P Global Market Intelligence, the volume of such loans quoted below 80 cents on the dollar topped the peak distress level of 2008. While the panic subsequently abated, many supposedly senior corporate claims are proving to be fair-weather investments, not so different from common equity.

Deceived by ultralow interest rates, Americans borrow and lend in the kind of false economy that candidate Donald Trump properly condemned in 2016. Covid-19 will sooner or later beat a retreat. For the sake of honest prices and true values, it would be well if the central bankers did the same.

Mr. Grant is the editor of Grant’s Interest Rate Observer.

[Crafty_Dog]

The Fed’s ‘Main Street’ Mistake
The central bank’s terms favor Wall Street and take new credit risks.
By The Editorial Board
April 9, 2020 7:28 pm ET

The essential facts of the coronavirus economic disaster are these: Federal and state governments have shut down most American commerce, robbing tens of thousands of successful companies of revenue through no fault of their own. Mass layoffs are already underway, with 6.6 million new jobless claims in the week that ended April 4, and cascading bankruptcies loom.

That’s the backdrop for the Federal Reserve’s unprecedented $2.3 trillion expansion of its lending and bond-buying programs on Thursday to offer a liquidity lifeline. The Fed isn’t scrimping on the firepower, but the details released Thursday are disappointing, and perhaps even dangerous to a robust recovery. The Fed is rescuing weaker credits as well as the strong, is diving ever-deeper into risky assets, and is putting Wall Street ahead of companies across Middle America.

***
Financial markets reacted well to the news, but look below the price surface and the complications appear. The big winners included non-investment grade corporate bonds and real-estate investment trusts that will now qualify for Fed programs despite their credit risk. High-yield and municipal bond prices also rose. Growth companies like Amazon, Intel and Nvidia fell or were flat, and the overall market reaction was underwhelming.

Bernie Sanders Bows Out


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This reflects the priorities of the Fed’s new lending facilities, and how far out on the risk curve it is going. Take the Term Asset-Backed Securities Loan Facility that the Fed first used in 2008 and that it revised last month. In 2008 TALF accepted only triple-A-rated securities and it made money on the loans. On Thursday the Fed said it will now accept much riskier credits including commercial mortgage securities and collateralized loan obligations.

These are loan pools packaged into securities by Wall Street, which lobbied the Fed and Treasury hard for the TALF expansion. This means the Fed will in effect buy the worst shopping malls in the country and some of the most indebted companies. The opportunities for losses will be that much greater. Treasury is backstopping losses, but the taxpayer risks here are greater than what the Fed took on in 2008-2009.

The Fed may feel all of this is essential to protect the financial system’s plumbing and reduce systemic risk until the virus crisis passes, but make no mistake that the Fed is protecting Wall Street first. The goal seems to be to lift asset prices, as the Fed did after the financial panic, and hope that the wealth effect filters down to the rest of the economy.

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Contrast that with the Fed’s new Main Street Lending Program, which these columns have pushed. This is aimed at middle-market companies from zero to 10,000 employees and up to $2.5 billion in 2019 annual revenue. These companies are the backbone of the U.S. economy, typically well managed, with modest leverage. They need liquidity because banks won’t lend to them now and the government has eliminated their customers.

Yet the details make us wonder if the Fed really wants anyone to take up the offer. The Fed will accept comments on the program until April 16, which means it probably can’t launch until May 1, and money might not start flowing for weeks after that. By then many of these companies will be going bust.

The Fed has also attached strings that will make the loans far less attractive—including bans on stock buybacks and limits on compensation and dividends that weren’t stipulated in the recent Cares Act for Fed loans made “in the ordinary course of business.” The Fed seems to have imported strings that were intended for Treasury’s direct lending to companies. This sounds like political protection for Treasury and the Fed from getting banged on by Congress.

The loans will last four years, which makes these strings even more unappealing and extends the Fed’s reach into private business far longer. The companies will also have to “make reasonable efforts” not to lay off employees, which means it will be harder to manage after the crisis.

The better solution would be no-strings loans to all-comers with good collateral and only for the short-term. But the Fed is forcing lenders that make Main Street loans to keep 5% of the risk, which means the borrowers will have to meet both bank covenants and the Fed’s terms. The risk is that many companies will resist taking the loans until they are in the ICU, and then it may be too late.

***
All of this adds up to the following contrast: A company bought by a Wall Street firm and loaded up with debt that is part of a CLO security will now face far easier terms for liquidity relief than will a similar privately owned company in the Midwest that never took on too much debt. This is employing political discretion, and picking winners and losers, far more than the Fed did in 2008.

Perhaps, with a lot of luck, the economy will restart faster than we fear and these Main Street firms will manage to survive. That was the note Fed Chairman Jerome Powell hit Thursday when he paraphrased predecessor Ben Bernanke’s comment that “you’ll be looking back on this and you will, you won’t see much, only modest effects, I think he said, on the economy from this event.” Mr. Powell and Treasury Secretary Steven Mnuchin may underestimate how much this shutdown is hollowing out the heart of the U.S. economy.

It is also putting the future of American capitalism at risk in a way even the financial panic did not. The Fed and Treasury are becoming the main lenders to American business, and in this storm there is no choice. But will they recede when the virus is defeated?

Mr. Powell said Thursday that this is a “truly rare” intervention by the Fed, which will retreat when the virus plague is over. But that is what the Fed also said during the financial panic, and it never did come close to normalizing policy. If the shutdown lasts for many more weeks, the Fed could become America’s lender of first resort.

[Crafty_Dog]

https://www.dailywire.com/news/nancy-pelosi-says-congress-will-not-reopen-in-april-warns-trump-not-to-restart-economy/

[G M]

https://chicagoboyz.net/archives/62405.html

Far from over.

[ccp]

".Far from over."

well many people far smarter about finance and markets agree

saying this bump is a bear trap.

[DougMacG]

Yes.  Much bad economic news to come - for an extended period.  I don't know who to warn or how to warn them.  It isn't good for the economy for everyone to pull all money out, but the alternative is the roller coaster described earlier.