Money/inflation, the Fed, Banking, Monetary Policy, Dollar, BTC, crypto, Gold

[G M]

I just forwarded that to Scott Grannis. Let's see what he says.

I look forward to his response.

[Crafty_Dog]

________________________________________
The Producer Price Index Rose 0.4% in September To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 10/12/2017

The Producer Price Index (PPI) rose 0.4% in September, matching consensus expectations. Producer prices are up 2.6% versus a year ago.

Energy prices rose 3.4% in September, while food prices were unchanged. Producer prices excluding food and energy rose 0.4%.

In the past year, prices for goods are up 3.3%, while prices for services are up 2.1%. Private capital equipment prices rose 0.4% in September and are up 2.5% in the past year.

Prices for intermediate processed goods rose 0.5% in September and are up 4.3% versus a year ago. Prices for intermediate unprocessed goods declined 0.4% in September but are up 7.0% versus a year ago.

Implications: The impact of Hurricane's Harvey and Irma can be felt throughout today's report on producer prices. The most significant impact from the storms was on supply chains, where increased demand for machine and equipment parts, paired with a limited supply, pushed up margins to wholesalers. Meanwhile storm-related refinery shutdowns along the Gulf Coast led energy prices 3.4% higher in September, including a 10.9% jump in gasoline prices. Food prices, however, showed little impact, unchanged in September and down at a 0.5% annual rate in the past six months. Looking beyond food and energy, "core" prices rose 0.4% in September. In addition to higher wholesaler margins, most major categories of goods and services also rose in September. In the past year, producer prices have increased 2.6%, the largest twelve month rise since early 2012. This is certainly elevated in September by the hurricanes, but producer prices have been at or above 2% on a year-to-year basis in seven of the last eight months. And a look further down the pipeline shows the trend higher should continue in the months to come. Intermediate processed goods rose 0.5% in September and are up 4.3% from a year ago, while unprocessed goods declined 0.4% in September but remain up 7.0% in the past year. In other words, the "data dependent" Fed has clear evidence that inflation has met or exceeded their 2% target. In employment news this morning, new claims for unemployment benefits declined 15,000 last week to 243,000, while continuing claims fell 32,000 to 1.89 million, the lowest level since 1973. The temporary storm-related dip in employment looks to have passed, and we expect a very strong rebound in payrolls in October.

[DougMacG]

Or else?!  They will buy their oil from the US?  Venezuela (Venezuelan Bolívar)?  Japan, lol.
Maybe Russia, which of these countries needs a flood of Yuan for their consumer purchases?  Angola?

If they partner up with Iran, how 'bout we do the same with Taiwan?

Does anyone remember when over-reliance on unreliable oil sources was a finance and national security nightmare - for the importer?

http://dailycaller.com/2016/03/21/china-buying-lots-of-oil-from-saudi-arabia-iran-and-russia/
China surpassed the United States as the world’s largest net importer of petroleum in 2013. Within the next few decades, it is expected to buy roughly 70 percent of its oil from foreign sources, much of which will come from countries known for instability. Sudan alone provides 7 percent of China’s oil imports, and over one-third of Chinese oil imports come from Sub-Saharan Africa. Some of China’s largest oil suppliers are Angola, Sudan, Nigeria, and Equatorial Guinea, which are all known for political instability.

“Iran could also be a big supplier to Beijing in the months and years to come, as well as a partner that Tehran could call on to supply important loans, technology, and resources to develop Iran’s oil and natural resource sectors,” Kazianis concluded.

China is already heavily investing in Iranian oil, according to The New York Times and has been Iran’s largest trading partner for six years in a row. The two largest suppliers of Chinese oil, Russia and Saudi Arabia, are politically stable but are involved in Middle Eastern conflicts. China prefers to avoid being drawn into such confrontations, especially given recent tensions with its own Muslim minorities.
-------------------

Let's see what Scott G says.  It seems to me that:  a) none of these countries were using the US$ by choice.  They used it because it was in their best interest to do so.  If so, then switching makes them worse off.  b) Currency is a medium of exchange, doesn't change underlying fundamentals.

[Crafty_Dog]

Can’t see how this will make much of a difference. Money is fungible. The value of the dollar is determined not by transactional demand for oil, but for by the demand to hold dollars.

On Oct 12, 2017, at 12:59 PM, Marc Denny <craftydog@dogbrothers.com> wrote:

https://www.cnbc.com/2017/10/11/china-will-compel-saudi-arabia-to-trade-oil-in-yuan--and-thats-going-to-affect-the-us-dollar.html

[DougMacG]

https://www.realclearpolitics.com/articles/2017/10/28/president_trump_needs_a_stable_dollar_along_with_tax_cuts_to_maximize_growth_135392.html

He compares Taylor and rules based monetary policy to Volcker.  This is not about high versus low rates; it is about getting it right.

"President Trump Needs a Stable Dollar Along With Tax Cuts to Maximize Growth"
...
" Taylor is working on a study that argues for a return to a rules-based international currency system. Several years ago, former Fed Chair Paul Volcker, who used gold and commodities as leading inflation indicators while appointed, argued for a rules-based monetary policy at home and new international currency cooperation abroad."
...

[DougMacG]

I predicted Trump would pick Taylor and I was wrong.  Trump picked the less qualified alternative although he is already a member of the Fed Board of Governors.  The result of this pick will probably be okay, no worse than Yellen.  Powell was one who argued with Yellen to ease off of quantitative easing.  The Trump camp thinks Powell will be slower to raise interest rates, giving his economy continued, nominal and  artificial boost, like Yellen did for Obama, and not be too obsessed or pure with what is right and responsible for the dollar and interest rates.  Powell will be easier for the administration to influence, they think.

Drawbacks to this:
a) artificially low interest rates are killing off savings and have other bad effects.  
b) Instead of having the leading mind on monetary policy at the top, the new chair of this most crucial organization will mostly rely the advice of outsiders and underlings, aka the swamp.

[Crafty_Dog]

True digital currencies were more common in science fiction than in reality until quite recently. The big stumbling block for electronic money that doesn't have a physical form is the issue of ownership. How can you truly possess something of intrinsic value that can be effectively copied ad nauseam? In 2008, a paper published under a pseudonym, Satoshi Nakamoto, introduced the world to the digital currency bitcoin, a groundbreaking development in its own right. But more important, however, was the underlying algorithm that made the cryptocurrency work.
 
The technology that anchors bitcoin, known as the blockchain, was the truly revolutionary development. Commonly referred to as distributed ledger technology, blockchain is already considered to be a disruptive technology and will affect a number of different industries beyond the financial sector, including but not limited to shipping and logistics, aerospace and defense, retail, health care, and manufacturing.

Distributed ledger technology is a truly revolutionary development.

In the case of digital currencies such as bitcoin, which pioneered the technology, transactions are recorded in a shared public ledger — the ubiquitous blockchain. The currency (or contract or other exchange of information) is not controlled by a central entity like a bank but is instead managed by an online community. Members with powerful computers are encouraged to maintain the transactional register by "verifying the blockchain" — in other words, by solving complex mathematical equations and adding another "block" of transactions to the existing chain. With bitcoin, the process is known as "mining" because the verifier is rewarded with new bitcoins.

 
Ultimately, the key attribute of the technology is its ability to ensure and enshrine an often undervalued commodity: trust. The only way the protocol itself can be hacked and a false transaction entered is if a group of actors control more than 50 percent of the nodes verifying the blockchain in order to collude with one another.
 
To be quite clear, first-mover offerings such as bitcoin, Ethereum or Ripple that are popular today might easily die a quick death tomorrow. For now, the technology remains in its infancy and new applications are still being developed. There are a number of technological challenges to be surmounted as well as regulatory hurdles to overcome before potential sectors of the economy adopt this technology — or not, as the case may be.

[G M]

True digital currencies were more common in science fiction than in reality until quite recently. The big stumbling block for electronic money that doesn't have a physical form is the issue of ownership. How can you truly possess something of intrinsic value that can be effectively copied ad nauseam? In 2008, a paper published under a pseudonym, Satoshi Nakamoto, introduced the world to the digital currency bitcoin, a groundbreaking development in its own right. But more important, however, was the underlying algorithm that made the cryptocurrency work.
 
The technology that anchors bitcoin, known as the blockchain, was the truly revolutionary development. Commonly referred to as distributed ledger technology, blockchain is already considered to be a disruptive technology and will affect a number of different industries beyond the financial sector, including but not limited to shipping and logistics, aerospace and defense, retail, health care, and manufacturing.

Distributed ledger technology is a truly revolutionary development.

In the case of digital currencies such as bitcoin, which pioneered the technology, transactions are recorded in a shared public ledger — the ubiquitous blockchain. The currency (or contract or other exchange of information) is not controlled by a central entity like a bank but is instead managed by an online community. Members with powerful computers are encouraged to maintain the transactional register by "verifying the blockchain" — in other words, by solving complex mathematical equations and adding another "block" of transactions to the existing chain. With bitcoin, the process is known as "mining" because the verifier is rewarded with new bitcoins.

 
Ultimately, the key attribute of the technology is its ability to ensure and enshrine an often undervalued commodity: trust. The only way the protocol itself can be hacked and a false transaction entered is if a group of actors control more than 50 percent of the nodes verifying the blockchain in order to collude with one another.
 
To be quite clear, first-mover offerings such as bitcoin, Ethereum or Ripple that are popular today might easily die a quick death tomorrow. For now, the technology remains in its infancy and new applications are still being developed. There are a number of technological challenges to be surmounted as well as regulatory hurdles to overcome before potential sectors of the economy adopt this technology — or not, as the case may be.

Digital currencies are just another fiat currency, and can be killed off quite easily by nation-states. I'm not adverse to using them, but I wouldn't store much in that format that I couldn't afford to lose.

[Crafty_Dog]

https://www.alt-m.org/2017/10/26/blockchain-gold/

=========================================

Also see:

Cyrptocurrencies aren't currencies. They have become speculative vehicles bought on credit. The growth rate of Bitcoin, or any individual "currency," is convincingly limited by the technology, but the number of "currencies" has exploded.

"All of this should make it very plain to buyers of any cryptocurrency that it’s greatest selling point, it’s limited supply, has been completely debunked and in the most preposterous way possible. In fact, the growth rate in the creation of new cryptocurrencies makes central bank money printing in recent years look utterly conservative by comparison."

The following article, of course, is now wildly out of date, having been posted about 35 days ago, but consider the arguments. The extremes have only become more extreme and the insanity more insane.

Tom



(Bold highlighting below is mine. Tom)

This is not the store of value you are looking for

Posted by Jesse Felder on 9/1/2017

[Omitting a lot of talk about Warren Buffett and Ben Gramham's thinking about bubbles]

Essentially, a bubble starts with a compelling premise and then the prices start going up and greed takes over. And I think this is exactly what is going on with Bitcoin today.It all started with a compelling premise. Out of the depths of the financial crisis a group of cyber punks came up with the idea of a decentralized, digital form of cryptocurrency with limited supply that could not be manipulated by any central authority. The idea really had its foundations a decade or so earlier but it took the financial crisis to precipitate its actual creation in early 2009. As central banks around the world began to pursue incredible amounts of money printing the premise only became that much more compelling. Then the price started to take off and greed took over.

Eight years later and Bitcoin is now worth nearly $100 billion. It has soared 20-fold to $4,800 per Bitcoin over just the past two years, since Buffett’s partner Charlie Munger called it, “rat poison.” To get a sense of just how overvalued this is, the Wall Street Journal surmised if Bitcoin took over the entire credit card transaction market, putting Visa and MasterCard out of business, it would be worth about $100. Even more egregious, the Bitcoin Investment Trust (GBTC) now trades at more than a 115% premium to the underlying value of its Bitcoin assets. Buyers here thus need Bitcoin to trade over $10,000 to begin to break even on today’s purchases.

Bitcoin is only part of the story. There are now more than 800 different cryptocurrencies with a combined market cap of $166 billion. “ICO Unicorns” are now a thing (companies whose initial coin offerings are now worth more than a billion dollars). Burger King introduced the Whopper Coin last week and Doge Coin, which was created as a joke based upon a popular internet meme, is now worth nearly a quarter billion dollars. There’s now a Dentacoin for patients to use in paying their dentists. There’s a Titcoin for porn and a Potcoin for marijuana.

All of this should make it very plain to buyers of any cryptocurrency that it’s greatest selling point, it’s limited supply, has been completely debunked and in the most preposterous way possible. In fact, the growth rate in the creation of new cryptocurrencies makes central bank money printing in recent years look utterly conservative by comparison. And all of this still ignores the fact that a bitcoin is even less tangible than a tulip bulb. There is literally nothing to it.

That hasn’t stopped investors from buying in, however. More than 50 hedge funds have been formed to take advantage of the crypto gold rush. And it’s not just high net worth, folks, either. NBC news ran a story recently carrying this headline: “Middle America Is Crazy In Love With Bitcoin.” The first line reads, “If you’re not buying Bitcoin, you’re not keeping up with the Joneses.” And when you run a google search for “buy bitcoin with” the first suggested result is “PayPal.” The second is “credit card.” Middle America now famously has no savings to speak of so they are buying Bitcoin in their credit cards.

If this doesn’t fit Mr. Buffett’s criteria of a bubble, I don’t know what does. Much of this is just your standard bubble greed but it’s interesting that the premise, the story of Bitcoin, has resonated with people so much. They are clearly buying into the proposition that central banks have gone nuts and they need something to act as a store of value amid the madness. It’s just another signpost in the anti-technocrat, anti-elitist movement. Sadly, these folks have been deceived as to the merits of their chosen store of value.

And it’s terribly ironic that the store of value they have chosen is simply a bad knock-off one that has been around for as long as humans have needed one. I am, of course, referring to gold. In fact, one of the early predecessors of Bitcoin was called Bitgold and it was essentially a digital currency that attempted to mimic gold’s virtues. Think back to the Bitcoin premise presented at the beginning of this discuss: “a decentralized, digital form of cryptocurrency with limited supply that could not be manipulated by any central authority.” The only difference between Bitcoin and gold is that the latter is not digital or encrypted; it’s tangible. Oh, and unlike cryptocurrencies it’s supply is truly limited.

It’s almost as if, in the aftermath of the financial crisis, investors went looking for gold, stared directly at it and then were somehow hypnotized into thinking, “this is not the store of value you’re looking for.” A painful bear market, like that we have witnessed in gold since 2011, can have just that sort of effect. And the most powerful bull market in history in what is plainly a digital pyramid scheme played a not insignificant role, as well.

Still, the popularity of the Bitcoin premise will eventually be very bullish for gold. When the bubble in the former bursts (which will likely coincide with a bursting of the bubbles in other risk assets), investors will realize their error and rush once again to the latter, understanding that it is the genuine article and truly fulfills the promise of a “store of value.” At that point, prices will rise and we will start to see greed at work again in the gold markets.

[Crafty_Dog]

Data Watch
________________________________________
The Producer Price Index Increased 0.4% in October To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/14/2017

The Producer Price Index (PPI) increased 0.4% in October, well above the consensus expected rise of 0.1%. Producer prices are up 2.8% versus a year ago.

Food prices rose 0.5% in October, while energy prices were unchanged. Producer prices excluding food and energy rose 0.4%.

In the past year, prices for goods are up 3.2%, while prices for services are up 2.4%. Private capital equipment prices rose 0.3% in October and are up 2.7% in the past year.

Prices for intermediate processed goods rose 1.0% in October and are up 5.0% versus a year ago. Prices for intermediate unprocessed goods were unchanged in October but are up 7.7% versus a year ago.

Implications: Producer prices rose much faster than expected in October, with nearly every category moving higher. Prices for services led the way, rising 0.5% in October as margins for fuel and lubricant dealers surged 24.9% (it's not unusual to see large swings in this category from month-to-month). In fact, nearly every category in today's report shows inflation pressures that are likely to flow through to consumer prices in the months ahead. Goods prices rose 0.3% in October, with pharmaceuticals and industrial chemicals leading the way. Food prices rose 0.5% following three months of flat or declining prices, while energy prices (typically one of the more volatile components month-to-month) was unchanged in October. "Core" producer prices – which exclude both food and energy – rose 0.4% in October and are up 2.4% in the past year. That represents the fastest twelve-month rise since early 2012. There may still be remnants of hurricane impacts in the pricing data, but that's starting to subside, and producer prices have now been at or above 2% on a year-to-year basis in seven of the last nine months. In other words, prices were moving higher well before the storms touched down in Texas and Florida. A look further down the pipeline shows the trend higher should continue in the months to come. Intermediate processed goods rose 1.0% in October and are up 5.0% from a year ago, while unprocessed goods were unchanged in October but remain up 7.7% in the past year. Given these figures, it would be difficult for the "data dependent" Fed to cite current inflation trends as a reason to hold off on continued rate hikes. And with employment growth remaining strong, Chairwoman Yellen, and her successor Jerome Powell, look to have a clear runway for gradual but steady rate hikes into 2018.

[Crafty_Dog]

By Steven Russolillo
Updated Dec. 7, 2017 7:15 p.m. ET
126 COMMENTS

More than $70 million worth of bitcoin was stolen from a cryptocurrency-mining service called NiceHash following a security breach, causing the company to halt operations for at least 24 hours.

Andrej P. Škraba, head of marketing at NiceHash, said to The Wall Street Journal that approximately 4,700 bitcoin had been stolen from a bitcoin wallet, an online account that stores the digital currency. Bitcoin wallets, like other online bank accounts, have been targets of hackers in the past.

“It was a professional attack,” Mr. Škraba said. He declined to elaborate further, saying more information will be revealed at a later date.

In a six-minute video posted on Facebook, Marko Kobal, chief executive and co-founder of NiceHash, said either a hacker or group of hackers started infiltrating its internal systems through a compromised company computer on Tuesday at 6:18 p.m. Eastern Time. Within two hours, funds were stolen from accounts, he said.

NiceHash has notified major exchanges and mining pools about the breach “to help us track and possibly even recover the stolen funds,” Mr. Kobal said.

“We are doing really everything we can right now. However, this will take time,” he said. “As soon as we have a solution in place, we’ll reach out, hopefully in the next few days.”

The hack came as the price of bitcoin surged yet again to new highs. Through Thursday morning in New York, the digital currency soared 40% in about 40 hours, hurdling through five separate $1,000 barriers. It recently traded near its all-time high, at about $16,600, according to research site CoinDesk. At current levels, those stolen bitcoin would be worth about $78 million.

“It’s a bad thing to happen, but I think it’s going to be forgotten about pretty quickly,” said Arthur Hayes, founder and chief executive of BitMEX, a bitcoin-derivatives exchange in Hong Kong, of the theft. “Everyone is still high-fiving each other” over the recent gains.

Bitcoin’s rise from around $1,000 at the start of the year has attracted crowds of eager small-time investors to what had originally been a curiosity for techies. Several exchanges in the U.S. are set to offer derivatives contracts on bitcoin such as futures, another step toward building a traditional market around the stateless digital currency.

NiceHash, which markets itself as the largest crypto-mining marketplace, said it is investigating the breach and cooperating with authorities as it seeks to restore the service “with the highest security measures at the earliest opportunity.”

Based in Slovenia, NiceHash matches people in need of computer-processing power to “mine” cryptocurrencies with people who have power to spare. Payment is made to miners in bitcoin and other cryptocurrencies as an incentive for their processing and verifying transactions through complex algorithms.

Should You Buy Bitcoin?

The price of the digital currency has soared, but experts say you should be wary.

“We are truly sorry for any inconvenience that this may have caused and are committing every resource towards solving this issue as soon as possible,” NiceHash said in a separate statement on its Facebook page. The company also advised users to change their passwords.

Security has been an issue with bitcoin for years. One of the best-known cautionary tales is that of Mt. Gox, once the world’s largest bitcoin exchange. It collapsed and filed for bankruptcy protection after losing virtual currency valued at hundreds of millions of dollars in 2014.

The NiceHash hack represents a far-smaller portion of bitcoin’s overall market capitalization, Mr. Hayes notes.

“It just goes to show that bitcoin is a really valuable asset and when you have valuable assets, people are going to try to steal them,” said Mr. Hayes, who predicts bitcoin could hit $50,000 by the end of next year. “So it’s important to be prudent and protect it the best you can.”

[ccp]

https://finance.yahoo.com/quote/BTCUSD=X/

[Crafty_Dog]

See Decade Forecast: 2015-2025

While the world focuses on the ups and downs of bitcoin, another cryptocurrency, ripple (XRP), is making a splash. Since Dec. 27, the value of one XRP has increased by over 50 percent to as high as $1.83. This briefly pushed XRP to become the second largest cryptocurrency by market capitalization, and it's now relatively even with ethereum. Bitcoin, on the other hand, has fallen by over 10 percent since the Dec. 27 announcement by South Korea that it would increase regulations on cryptocurrency trading and could close some of the country's cryptocurrency exchanges.

What's the reason for the fascination with bitcoin and the lack of it for XRP? The answer is in the intent and purpose behind the two cryptocurrencies. In the emerging cryptocurrency and blockchain technology sphere, bitcoin is the established market leader as a currency, but it's just that: a currency. It's the first-generation application of blockchain technology. However, others, such as ripple and ethereum, are second- or even third-generation applications, which take the blockchain and cryptocurrency mechanism and build it beyond mere currency. The company behind XRP, Silicon Valley's Ripple, has designed its ripple platform as a way to clear and process payments and transactions, including cross-border transactions, using XRP and the ripple protocol as the conduit, thus lowering the costs of transactions.

These applications have caught the attention of the financial sector, and there have been a slew of announcements supporting the platform over the last two months. In November, Santander and American Express said they were working with Ripple to route payments between their respective customers in the United Kingdom and the United States. On Dec. 14, the Japan Bank Consortium, which comprises 61 banks in Japan, said that it had agreed to pilot programs with two South Korean banks to test cross-border transactions. This was followed by an announcement on Dec. 27 by SBI Ripple Asia, Ripple's branch in Asia, that it was forming a consortium with Japanese credit card companies to use the platform for payment processing. The latter has been the bigger driver in the rise in XRP's value, which has made Ripple one of Silicon Valley's largest private companies when taking into account the value the currency holds.

The idea of using blockchain technology for processing cross-border payments will continue to gain traction, through ripple or its potential successors. Cross-border payments today are typically done using the SWIFT network, which is the international mechanism that most banks communicate through to conduct transactions. Ripple would allow companies to get around that system. Moreover, ripple isn't tied to the dollar when making transactions in different currencies. The ripple platform looks for the shortest path through a number of customers both buying and selling their different currencies to complete a transaction seamlessly. This could weaken one aspect of the dollar's global pre-eminence.

So, while bitcoin continues to rise in value (though its rise has tempered over the last few weeks), newer generations of cryptocurrencies are gaining traction as they offer more promise and potential beyond what bitcoin can offer. That will be bitcoin's most important legacy in geopolitics — kicking off the process of finding new platforms and applications for blockchain technology.

[ccp]

Ripple's chart is more then nuts
makes Qualcomm of 2000 look like Minnesota Mining and Manufacturing's  chart:

https://finance.yahoo.com/quote/XRP-USD?ql=1&p=XRP-USD

up 40 x in ~ 8 months !

up 8 times in 1 month !

somebodies are getting fabulously rich -> FAST !

[Crafty_Dog]

https://www.wsj.com/articles/peter-thiels-founders-fund-makes-big-bet-on-bitcoin-1514917433

[Crafty_Dog]

The Consumer Price Index Rose 0.1% in December To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 1/12/2018

The Consumer Price Index (CPI) rose 0.1% in December, matching consensus expectations. The CPI is up 2.1% from a year ago.

Food prices rose 0.2% in December, while energy prices declined 1.2%. The "core" CPI, which excludes food and energy, increased 0.3% in December, above the consensus expected rise of 0.2%. Core prices are up 1.8% versus a year ago.

Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – rose 0.2% in December and are up 0.4% in the past year. Real average weekly earnings are up 0.7% in the past year.

Implications: Consumer prices rose 0.1% in December, ending 2017 up 2.1% for the year, exactly the same as the increase seen in 2016. However, in the past three months CPI is up at a 2.6% annual rate, signaling that inflation is accelerating further above the Fed's 2% target. A look at the details of today's report shows energy prices declined 1.2% in December, tempering increased prices seen across nearly all other categories. Food prices increased 0.2%, while "core" prices – which exclude the typically volatile food and energy components – rose 0.3% in December. "Core" prices are up 1.8% in the past year, but are showing acceleration in recent months, up at a 2.2% annual rate over the past six-months and 2.5% annualized in the past three months. In other words, both headline and "core" inflation stand near or above the Fed's 2% inflation target, and both have been rising of late. Housing costs led the increase in "core" prices in December, rising 0.3%, and are up 2.9% in the past year. Meanwhile prices for services also rose 0.3% in December and are up 2.6% over the past twelve months. Both remain key components pushing "core" prices higher and should maintain that role in the year ahead. Add in yesterday's report on producer prices that showed rising inflation in the pipeline and we expect consumer price inflation to move to around 2.5% or higher by the end of 2018. Given the strength of the labor market, with the unemployment at the lowest level in more than a decade and headed lower, paired with a pickup in the pace of economic activity thanks to improved policy out of Washington, the Fed is on track to raise rates at least three times in 2018, with a fourth hike looking increasingly likely.

[DougMacG]

"The Consumer Price Index (CPI) rose 0.1% in December, matching consensus expectations. The CPI is up 2.1% from a year ago."

That sounds great - compared to Venezuela - but it is inexcusable that 2% inflation is our 'target', nearly 50% higher than the interest rate for savings.  What could possibly go wrong with that!  With the magic of compounding interest, our dollar loses half its value in less than 30 years at the current rate.  Just like the places with hyperinflation, any long term investment needs to be deflated constantly with a calculator to compensate for the ever-declining value of the dollar.

https://www.bls.gov/data/inflation_calculator.htm

[Crafty_Dog]

Bitcoin gripped the investing world last year like no other asset class in recent memory, minting new millionaires, sparking a pivot to blockchain technology and attracting a new wave of interest from institutional investors.

In 2018, bitcoin has been a total dud.
Bad StartBitcoin is in the midst of its worst monthlydrop in three years.Bitcoin price performanceSource: Coindesk
%2015’16’17’18-50-250255075100

The price of the cryptocurrency is down by about 30% in January, on pace for its worst monthly drop in three years, according to research site Coindesk. It fell below $10,000 on Wednesday, a two-month low. And it‘s down by about half from its all-time high of close to $20,000, reached in mid-December.

The plunge is noteworthy even by bitcoin’s standards. While it’s been known to lose over a quarter of its market value in the span of a day, those declines have typically been short lived. Over the past five years, bitcoin has fallen by over 30% in a given month only three other times, the latest in January 2015.

Bitcoin recently traded at around $10,000 after earlier falling as low as $9,627, according to Coindesk.

While several factors are driving the decline, the regulatory clampdown occurring around the world is an important reason why bitcoin and the broader cryptocurrency market have fallen on tougher times.

Bitcoin vs. Regulators: Who Will Win?

As bitcoin has emerged from the underground world of nerds and criminals to become a mainstream investment, the risk of hacks and scandals has also blossomed. What's a government to do? The WSJ's Steven Russolillo travels the world (sort of) to see how regulators are responding to the remarkable rise of cryptocurrencies.

On Tuesday, the Securities and Exchange Commission halted a $600 million initial coin offering, one of the biggest U.S. interventions yet into the world of raising money by issuing digital tokens. And earlier this month, the top U.S. derivatives regulator brought charges in three cases involving virtual currencies.

Further hurting sentiment, Facebook Inc. said Tuesday that it would stop all ads on its platform that promote cryptocurrencies and initial coin offerings. The social media giant said it wanted to eliminate promotions of “financial products and services frequently associated with misleading or deceptive promotional practices.”

In Asia, the Chinese government has taken steps to limit bitcoin mining operations, a blow to a large market for minting new bitcoin. Japan, which has held a favorable stance on cryptocurrencies, was stung by a hack last week in which $530 million worth of the currencies were swiped from exchange Coincheck Inc. And South Korea has undertaken new legislation aimed at calming its red-hot bitcoin market.


    SEC Moves to Stop $600 Million Digital Coin Offering
    Japan’s Cryptocurrency Whiz Kid Faces $530 Million Reckoning
    Why Bitcoin? Why Now? (Dec. 9, 2017)

“All of this is frightening,” said Kim Sang-woo, a 29-year-old from Seoul who says he’s been trading cryptocurrencies for nearly a year.

Mr. Kim said he initially entered the crypto market with a $20,000 investment on local Korean exchanges, spread out over nine digital currencies including bitcoin and ethereum. Through trading in and out of these coins, he said he made 10 times his initial investment.

But now he said he’s cut his exposure to digital currencies, instead favoring Korean stocks.

“Valuations were way too high,” he said. “I still see positive catalysts and I’m sure all the regulation is just a way of eventually building up a bigger market. But it’s tough right now.”

For sure, bitcoin has still been a highly profitable investment for many investors. It remains up by some 900% from where it traded at the beginning of last year. And investors who bought bitcoin as recently as three months ago have more than doubled their money.

But in a further sign of the growing regulatory pressure, South Korea’s customs service on Wednesday said it had found illegal foreign exchange dealings amounting to 637.5 billion South Korean won ($592.9 million) carried out through cryptocurrencies.

Kim Yong-chul, a director at KSC’s Financial Investigation Division, said the figure is likely to increase as the investigation continues.

By South Korean law, any foreign remittances above $3,000 require supporting documentation, while cumulative overseas transactions that exceed $50,000 annually are also monitored carefully. Unlike flat currency remittances, which are carefully scrutinized by the country’s government, cryptocurrencies aren’t attached to any remittance restrictions.

The customs services’ findings came a day after South Korea’s government implemented stricter verification checks for cryptocurrency investors, who are now required to hold certified bank accounts in order to buy cryptocurrency using flat money.

Also Tuesday, a South Korean court for the first time made a ruling to confiscate bitcoin proceeds, as part of a judgment against an illegal pornography website. The court ruled that the website operator should forfeit some 191 bitcoin—about $1.91 million based on its current value—in addition to a separate flat money fine.

Write to Steven Russolillo at steven.russolillo@wsj.com and Eun-Young Jeong at Eun-Young.Jeong@wsj.com

[Crafty_Dog]

second post

SAN FRANCISCO — Creating a new Bitcoin requires electricity. A lot of it.

In the virtual currency world this creation process is called “mining.” There is no physical digging, since Bitcoins are purely digital. But the computer power needed to create each digital token consumes at least as much electricity as the average American household burns through in two years, according to figures from Morgan Stanley and Alex de Vries, an economist who tracks energy use in the industry.

The total network of computers plugged into the Bitcoin network consumes as much energy each day as some medium-size countries — which country depends on whose estimates you believe. And the network supporting Ethereum, the second-most valuable virtual currency, gobbles up another country’s worth of electricity each day.

The energy consumption of these systems has risen as the prices of virtual currencies have skyrocketed, leading to a vigorous debate among Bitcoin and Ethereum enthusiasts about burning so much electricity.

The creator of Ethereum, Vitalik Buterin, is leading an experiment with a more energy-efficient way to create tokens, in part because of his concern about the impact that the network’s electricity use could have on global warming.

“I would personally feel very unhappy if my main contribution to the world was adding Cyprus’s worth of electricity consumption to global warming,” Mr. Buterin said in an interview.

But many virtual currency aficionados argue that the energy consumption is worth it for the grander cause of securing the Bitcoin and Ethereum networks and making a new kind of financial infrastructure, free from the meddling of banks or governments.

“The electricity usage is really essential,” said Peter Van Valkenburgh, the director of research at Coin Center, a group that advocates for virtual currency technology. “Because of the costs, we know the only people participating are serious, that they are economically invested. That creates the incentives for cooperation.”

This dispute has its foundations in the complex systems that produce tokens like Bitcoin; Ether, the currency on the Ethereum network; and many other new virtual currencies.

All of the computers trying to mine tokens are in a computational race, trying to find a particular, somewhat random answer to a math algorithm. The algorithm is so complicated that the only way to find the desired answer is to make lots of different guesses. The more guesses a computer makes, the better its chances of winning. But each time the computers try new guesses, they use computational power and electricity.

The lure of new Bitcoins encourages people to use lots of fast computers, and lots of electricity, to find the right answer and unlock the new Bitcoins that are distributed every 10 minutes or so.

This process was defined by the original Bitcoin software, released in 2009. The goal was to distribute new coins to people on the Bitcoin network without a central institution handing out the money.

Early on, it was possible to win the contest with just a laptop computer. But the rules of the network dictate that as more computers join in the race, the algorithm automatically adjusts to get harder, requiring anyone who wants to compete to use more computers and more electricity.

These days, the 12.5 Bitcoins that are handed out every 10 minutes or so are worth about $145,000, so people have been willing to invest astronomical sums to participate in this race, which has in turn made the race harder. This explains why there are now enormous server farms around the world dedicated to mining Bitcoin.

This process is central to Bitcoin’s existence because in the process of mining, all the computers are also serving as accountants for the Bitcoin network. The algorithm the computers solve requires them to also keep track of all the new transactions coming onto the network.
Photo
A computer server farm in Iceland, dedicated to mining Bitcoin. Credit Richard Perry/The New York Times

The mining race is meant to be hard so that no one can dominate the accounting and fudge the records. In the 2008 paper that first described Bitcoin, the mysterious creator of the virtual currency, Satoshi Nakamoto, wrote that the system was designed to thwart a “greedy attacker” who might want to alter the records and “defraud people by stealing back his payments.” Because of the mining and accounting rules, the attacker “ought to find it more profitable to play by the rules.”

The rules have kept attackers at bay in the nine years since the network got going. Without this process, most computer scientists agree, Bitcoin would not work.

But there is disagreement over the real value of Bitcoin and the network that supports it.

For people who consider Bitcoin nothing more than a speculative bubble — or a speculative bubble that has enabled online drug sales and ransom payments — any new contribution toward global warming is probably not worth it.


But Bitcoin aficionados counter that it has allowed for the creation of the first financial network with no government or company in charge. In countries like Zimbabwe and Argentina, Bitcoin has sometimes provided a more stable place to park money than the local currency. And in countries with more stable economies, Bitcoin has led to a flurry of new investments, jobs and start-up companies.

“Labeling Bitcoin mining as a ‘waste’ is a failure to look at the big picture,” Marc Bevand, a miner and analyst, wrote on his blog. The jobs alone, he added, “are a direct, measurable and positive impact that Bitcoin already made on the economy.”

But even some people who are interested in all that innovation have worried about the enormous electrical use.

Mr. de Vries, who keeps track of the use on the site Digiconomist, estimated that each Bitcoin transaction currently required 80,000 times more electricity to process than each Visa credit card transaction, for example.

“Visa is more centralized,” Mr. de Vries said. “If you really distrust the financial system, maybe that is unattractive. But is that difference really worth the additional energy cost? I think for most people that is probably not worth the case.”

The figures published by Mr. de Vries have been criticized by Mr. Bevand and other Bitcoin fans, who say they overstate the energy costs by a factor of about three. Many critics add that producing and securing physical money and gold also require lots of energy, in some cases as much as or more than Bitcoin uses.

Mr. Van Valkenburgh, of the Coin Center, has argued that Bitcoin miners, who can do the work anywhere, have an incentive to situate themselves near cheap, often green energy sources, especially now that coal-guzzling China appears to be exiting the mining business. Several mining companies have opened server farms near geothermal energy in Iceland and hydroelectric power in Washington State.

But the concerns about electricity use have still hit home with many in the industry. The virtual currencies known as Ripple and Stellar, which were created after Bitcoin, were designed not to require electrically demanding mining.

Perhaps the biggest change could come from the new mining process proposed by Mr. Buterin for Ethereum, a process that some smaller currencies are already using. Known as “proof of stake,” it distributes new coins to people who are able to prove their ownership of existing coins — their stake in the system. The current method, which relies so heavily on computational power, is called “proof of work.” Under that method, the accounts and people who get new coins don’t need existing tokens. They just need lots of computers to take part in the computational race.

Energy concerns are not the only factor encouraging the move. Mr. Buterin also believes that the new method, which is likely to be rolled out over the next year, will allow for a less centralized network of computers overseeing the system.

But it is far from clear that the method will be as secure as the one used by Bitcoin. Mr. Buterin has been fiercely attacked by Bitcoin advocates, who say his proposal will lose the qualities that make virtual currencies valuable.

Mr. Van Valkenburgh said that for now, throwing lots of computing power into the mix — and the electricity that it burns — was the only proven solution to the problems Bitcoin solves.

“At the moment, if you want robust security, you need proof of work,” he said.

[Crafty_Dog]

The Consumer Price Index Rose 0.5% in January To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/14/2018

The Consumer Price Index (CPI) rose 0.5% in January, coming in above the consensus expected increase of 0.3%. The CPI is up 2.1% from a year ago.

Energy prices rose 3.0% in January, while food prices increased 0.2%. The "core" CPI, which excludes food and energy, increased 0.3% in December, above the consensus expected rise of 0.2%. Core prices are up 1.8% versus a year ago.

Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – declined 0.2% in January but are up 0.8% in the past year. Real average weekly earnings are up 0.4% in the past year.

Implications: New Fed Chief Jerome Powell has his work cut out for him, with consumer prices in January rising at the fastest monthly pace in more than five years. The consumer price index rose 0.5% in January and is up 2.1% in the past year, marking a fifth consecutive month of year-to-year prices rising more than 2%. In the past three months, CPI is up at a 4.4% annual rate, showing clear acceleration above the Fed's 2% target. A look at the details of today's report shows rising prices across most major categories. Energy prices increased 3% in January, while food prices rose 0.2%. But even stripping out volatile food and energy prices shows rising inflation. "Core" prices rose 0.3% in January, the fastest monthly pace since 2005. Core prices are up 1.8% in the past year, but are showing acceleration in recent months, up at a 2.6% annual rate over the past six-months and a 2.9% rate in the past three months. In other words, both headline and core inflation stand above the Fed's 2% target, and both have been rising of late. Housing costs led the increase in "core" prices in January, rising 0.2%, and up 2.8% in the past year. Meanwhile prices for services rose 0.3% in January and are up 2.6% over the past twelve months. Both remain key components pushing "core" prices higher and should maintain that role in the year ahead. The most disappointing news in today's report is that real average hourly earnings declined 0.2% in January. However, these earnings are up 0.8% in the past year. And, given the strength of the labor market, with the unemployment rate at the lowest level in more than a decade and headed lower, paired with a pickup in the pace of economic activity thanks to improved policy out of Washington, expect upward pressure on wages in the months ahead. Add it all up, and the Fed is on track to raise rates at least three times in 2018, with a fourth rate hike more likely than not.
________________________________________

[Crafty_Dog]

The Producer Price Index Rose 0.4% in January To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/15/2018

The Producer Price Index (PPI) rose 0.4% in January, matching consensus expectations. Producer prices are up 2.7% versus a year ago.

Energy prices rose 3.4% in January, while food prices declined 0.2%. Producer prices excluding food and energy increased 0.4%.

In the past year, prices for goods are up 3.3%, while prices for services are up 2.3%. Private capital equipment prices increased 0.5% in January and are up 2.5% in the past year.

Prices for intermediate processed goods rose 0.7% in January and are up 4.6% versus a year ago. Prices for intermediate unprocessed goods increased 0.9% in January and are up 2.5% versus a year ago.

Implications: Producer prices jumped in January, rising 0.4% as nearly every major category showed increased prices. And producer prices are up 2.7% in the past year, exceeding the Fed's 2% inflation target. This follows suit with yesterday's CPI report that shows inflation pressures have been picking up of late, and it's not difficult to see why. The Federal Reserve is running an incredibly loose monetary policy. Yes, the Fed Funds rate is slowly and steadily on the rise, but there are still more than two trillion dollars of excess reserves in the banking system, and monetary policy won't be tight until that excess slack is removed. This is especially true because anti-bank attitudes and regulation have been reversed, which reduces the headwinds to monetary growth. To put it mildly, new Fed Chair Jerome Powell and the rest of the FOMC have their work cut out for them. Taking a look at the details of today's PPI report shows rising costs for hospital services, apparel, and gasoline leading the way. Energy, led by a 7.1% jump in gasoline prices, increased 3.4% in January. Meanwhile food prices declined 0.2% in January. Strip out the typically volatile food and energy groupings, and "core" producer prices rose 0.4% in January and are up 2.2% in the past year. For comparison, "core" prices rose 1.4% in the twelve months ending January 2017, and were up 0.8% in the twelve months ending January 2016. And a look further down the pipeline shows the trend higher should continue in the year to come. Intermediate processed goods rose 0.7% in January and are up 4.6% from a year ago, while unprocessed goods increased 0.9% in January and are up 2.5% in the past year. Both categories have seen a pickup in price increases over the past six and three-month periods. Given these figures, and with employment growth remaining strong and inflation rising, we expect four rate hikes in 2018. On the jobs front, initial jobless claims rose 7,000 last week to 230,000, while continuing claims rose 15,000 to 1.942 million. Both measures remain near the lowest levels seen in decades, 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.

[DougMacG]

[Wesbury] Energy prices rose 3.4% in January, while food prices declined 0.2%. Producer prices excluding food and energy increased 0.4%.

These sound like ordinary fluctuations to me.  Minimum wage increases however that went into effect Jan 1 in several states, more money for the same work value, are inflationary, IMHO.

https://www.usatoday.com/story/money/2017/12/19/minimum-wage-hikes-18-states-20-cities-lift-pay-floors-jan-1/961213001/

Our acceptance, goal, of 2% inflation, and willingness to drive it up further and faster than that is more damaging than we know.

[Crafty_Dog]

http://www.mauldineconomics.com/frontlinethoughts/inflation-and-honest-data

[Crafty_Dog]

The Meaning of Bitcoin’s Volatility
Cryptocurrency may be a leading indicator for traditional assets such as stocks, bonds and credit.
The Meaning of Bitcoin’s Volatility
Photo: Getty Images/iStockphoto
By Kevin Warsh
March 7, 2018 6:41 p.m. ET
21 COMMENTS

Bitcoin, despite its name, isn’t money. Its price volatility significantly diminishes its usefulness as a reliable unit of account or an effective means of payment. Bitcoin might, however, serve as a sustainable store of value, like gold. Even if you’re not buying cryptoassets, bitcoin’s boom-and-bust cycle is worth watching. It may foretell of heightened market volatility to come and significant imbalances across a broad swath of financial assets.

The underlying technology, blockchain, is a significant breakthrough. Bitcoin’s computer code was unveiled on Jan. 3, 2009, by the pseudonymous Satoshi Nakamoto. It deftly allows participants, who may not know or trust one another, to complete transactions without having to rely on any centralized governance regime. Most of us can’t read the code, but in bitcoin’s “genesis block” its creator inserted a curious bit of text, a headline from a U.K. newspaper that day: “Chancellor on brink of second bailout for banks.” Bitcoin’s founding spirit is evident, too, in what its founder wrote shortly thereafter: “The root problem with conventional currency is all the trust that’s required to make it work.”

Bitcoin’s earliest disciples included technologists and libertarians, along with a few doomsayers who feared catastrophe and currency debasement in the aftermath of the financial crisis. Still, the breadth of interest in cryptocurrencies—and bitcoin’s price—increased smartly. By Election Day 2016, one bitcoin was worth about $700.

Then last year, buyer interest in bitcoin exploded. As the price kept climbing—past $2,000, then $5,000, then $10,000—the innovators were followed by imitators. Everyone from Uber drivers to grandmothers wanted in on the action. So did Wall Street pros, in pursuit of new assets under management. The price finally peaked at nearly $20,000 in December.

What caused the bitcoin fever of 2017? Euphoria is a part of the human condition, but also important were the changing contours of the global economy and economic policy.

First, the election of President Trump reinvigorated animal spirits. Investors and CEOs began to expect pro-growth changes in regulatory and tax policy. The outlook for economic growth, both in the U.S. and abroad, improved markedly. The Fed raised short-term interest rates four times between Election Day and the end of 2017. But broader financial conditions—including the all-in cost and availability of credit across financial markets—were looser nonetheless.

This economic backdrop made bitcoin and other alt-currencies look like a one-way bet. If loose financial conditions continued, risk assets like stocks and newfangled cryptocurrencies would be bid up. If stronger growth brought higher inflation, causing the Fed to raise rates faster than expected, then bitcoin would be a haven from the volatility affecting other financial assets.

Second, investors, while decidedly upbeat overall, worried that the Trump administration’s trade policy might include a sustained bout of mercantilism, including dollar devaluation aimed at bolstering American exports in the short term. Administration authorities suggested a preference for a weaker dollar. And markets obeyed: The dollar lost 12% of its value against a trade-weighted basket of foreign currencies during 2017. Investors looking for another store of value found bitcoin and other cryptocurrencies, whose prices escalated accordingly.

Third, trust in institutions plummeted amid the 2016 election. The Edelman Trust Barometer, a survey conducted in October and November, reported that in the U.S. “trust has suffered the largest-ever-recorded drop in the survey’s history.” The trend was driven “by a staggering lack of faith in government, which fell 14 points to 33 percent among the general population.” Another boost to cryptocurrencies.

The euphoria dissipated somewhat earlier this year. Two-way volatility jumped. Bitcoin dropped more than half from its December peak, before recovering somewhat in the past month to about $10,000. The other largest alt-currencies traded similarly. Investors are now recalibrating their expectations of government policy. Mr. Trump’s mercantilist rhetoric may prove more than a negotiating tactic, auguring new tariffs and trade restrictions the world over. Economic isolationism would do great harm to our economic growth prospects. The Treasury should understand, too, that denigrating the world’s reserve currency is particularly ill-advised.

Jerome Powell, the new Fed chairman, might cause the institution to think anew about how best to conduct monetary policy. The Fed might also prudently consider introducing its own digital currency to gain the benefits of innovation without sanctioning the illicit behavior that bitcoin and its brethren have attracted. Most cryptocurrencies on the market today will turn out to be worthless. But a new generation of cryptocurrencies is on the horizon, some of which might possess more of the attributes of money, better satisfying bitcoin’s founding purpose.

Bitcoin is particularly sensitive to new uncertainties in the conduct of economic policy. Bitcoin’s surge in volatility in December and January thus presaged the past month’s volatility in more traditional and consequential financial assets, including stocks, bonds and credit. When the tide goes out, the excesses in other financial asset classes will be more apparent. And bitcoin may well have shown the way.

Mr. Warsh, a former member of the Federal Reserve Board, is a distinguished visiting fellow in economics at Stanford University’s Hoover Institution.

[DougMacG]

1.  Interest rate raised 1/4 point, sixth increase since the Fed determined that Barack Obama will not be blamed if this kills off his zero growth.

"Central bankers, led by Jerome Powell in his first meeting as chairman, approved the widely expected quarter-point hike that puts the new benchmark funds rate at a target of 1.5 percent to 1.75 percent. It was the sixth rate hike since the policymaking Federal Open Market Committee began raising rates off near-zero in December 2015."

2. Fed raises growth forecast?  Why??  I thought tax cuts had nothing to do with economic growth in the eyes of these Keynesian, government interventionists.

"Fed officials raised their forecast for 2018 GDP growth from 2.5 percent in December to 2.7 percent, and increased the 2019 expectation from 2.1 percent to 2.4 percent.".  (same link)


Let me get this straight.  Under Obama, at least the first seven years of Obama, we got to full employment they said, had a fully recovered economy in words, but in actions the economy was too fragile in the eyes of the Fed to raise interest rates off of their zero interest rate policy.  Raising interest rates could kill off fragile and miniscule growth!  But yesterday the Fed raised both the interest rate again and the growth projection.  Am I missing something - did something change - like that tax rate cuts do in fact cause growth?

[DougMacG]

Flashback:  The Fed’s economic forecasts have been too optimistic for the past 10 years
https://qz.com/1018721/the-us-federal-reserve-has-been-overoptimistic-about-gdp-growth-in-every-forecast-since-2007/

They are the most highly funded economic research organization in the world, are they not?  They missed the crash.  They over-estimated growth every quarter since Dems took congress in 2007 promising tax hikes, and over-estimated growth every year of Obama's anti-growth agenda.  How did this happen?  They didn't know that growing spending, tax rates and burden of government on the private sector was anti-growth.

Now that we are back to pro-growth policies and they are inching up their projections but are happy to under-estimate growth?

Among the Fed fallacies:  Believing year after year that their own policies will create growth when they don't.  They assumed that an economy with the worst male workforce participation in the nation's history was at full employment when it wasn't.  they believed that placing punitive taxes on 'the rich', capital and employers doesn't curtail growth; that is a rejection of capitalism, is it not?  Marxist, if one had to put a label on it.  To keep doing that year after year is anti-science and anti-math.

Why don't we fire [agenda-based] incompetence?  Instead Trump chose Yellen's right hand man to be his Fed chair.  Funny that no one here has listed that as an 'accomplishment'.

[Crafty_Dog]

Reality Check
By Jacob L. Shapiro
The Petrodollar Has Been in Decline for Years


Global confidence in the dollar isn’t waning simply because the U.S. is buying less foreign oil.


The petrodollar is in decline. This is not because it is now possible, as of March 26, to buy yuan-denominated oil futures on the Shanghai International Energy Exchange. It is because the United States does not buy as much oil as it used to.

Since 2012, U.S. crude oil production has been increasing thanks to technological advances in hydraulic fracturing and horizontal drilling. A byproduct of the United States’ reducing its reliance on oil imports and becoming an oil exporter is that countries dependent on oil sales need new customers. The most promising new customer is China, which last year surpassed the U.S. as the world’s largest oil importer. China, understandably, would like to pay for oil in yuan rather than dollars, and beggars like Saudi Arabia can’t afford to be choosers. It would be a mistake, however, to conclude that the decline of the petrodollar also portends the decline of the dollar’s status as the world’s reserve currency.

Peak Influence

To understand the consequences of the petrodollar’s demise, it is necessary to remember that the impetus for the creation of the petrodollar system was not strictly economic – it was also strategic. The Middle East was one of the main areas of competition between the Soviet Union and the United States during the Cold War. The U.S. wanted to ensure that it would always have access to the oil produced by OPEC countries, which at the time accounted for more than half of total oil production. To do so, Washington offered Saudi Arabia and other Gulf oil producers weapons and protection. In exchange, they agreed to accept the dollar exclusively for oil sales and to invest their revenue into U.S. Treasuries. The economics benefited both sides, but Cold War strategic challenges were just as important, if not more so.

All of this has since changed. OPEC now produces only about 40 percent of the world’s oil, and the days when it could dictate global oil prices are over. The U.S. is one of the key reasons: It has surpassed Saudi Arabia in both recoverable oil reserves and total hydrocarbon production, and U.S. shale production has put a ceiling on the price of oil. In addition, the U.S. has become a significant oil exporter, increasing exports by a factor of 20 in the past four years, which means the U.S. has gone from major consumer of Saudi oil to competitor practically overnight. In 1977, the U.S. imported 1.38 million barrels of oil per day from Saudi Arabia. In 2012, that figure had not changed much – just under 1.37 million bpd. Since then, U.S. oil imports from Saudi Arabia have fallen by 30 percent to 949,000 bpd.

(click to enlarge)


(click to enlarge)


Saudi Arabia’s strategic importance to the U.S. has also slipped. U.S. involvement in the Middle East is no longer about collecting allies to oppose Soviet acolytes. What the U.S. needs more than anything in the Middle East are partners strong enough to manage the region’s chaos without running to Washington for help every time the Houthis fire a missile or the Iranians develop a new proxy. The U.S. has also not forgotten Saudi Arabia’s use of radical Islamist proxies and the Saudis’ involvement in the spread of radical Islamist ideologies, which played a major role in the formation of groups such as al-Qaida and the Islamic State. The U.S., which has been trying to extricate itself from its wars in the Muslim world for 17 years, now faces an aggressive Iran and a defiantly independent Turkey, and its Saudi ally has been no help.

While the U.S. is weaning itself off foreign oil, China is growing more dependent. This does not come without certain benefits for Beijing. The U.S. is a prime example of the power consumers hold over producers, especially in a world where most countries export more than they can use. But unlike the U.S., China does not have the benefit of being able to access the world’s oceans at will. Also unlike the U.S., China cannot offer a country like Saudi Arabia much in the way of security or protection. And even as the yuan’s usage increases, countries will still value the dollar over all currencies for reasons that have nothing to do with what currency China uses to pay its oil suppliers.

Quantifying Confidence

The dollar was established as the world’s reserve currency at the 1944 Bretton Woods Conference. It is true that the rise of the petrodollar helped the dollar maintain this position in the 1970s after President Richard Nixon took steps that led to taking the U.S. off the gold standard. But just because there was once a direct link between the dollar’s position as a global reserve currency and the petrodollar system does not mean the link is still definitive.

This is not to say the decline of the petrodollar system will be without consequence. The quantity of dollars abroad matters, and since the U.S. will be buying less oil, there will be fewer dollars abroad. But the dollar will retain its position as the global reserve currency as long as it is seen as the safest and most reliable currency one can hold, and there is little reason to think global confidence in the dollar is waning simply because the U.S. is buying less foreign oil.

Confidence can be tricky to quantify, but global preference for the dollar is not abstract. The latest data from the International Monetary Fund shows that in the third quarter of 2017, 54 percent of official foreign exchange reserves were held in U.S. dollars. That was an increase of 13 percent over the previous year, which means the U.S. position is not only dominant – it is increasing. By comparison, just 1 percent of foreign exchange reserves were held in Chinese renminbi in the third quarter. The Bank for International Settlements, which produces a survey of foreign exchange turnover every three years, revealed in its latest edition in December 2016 that the yuan was used in 4 percent of foreign exchange transactions in 2016, just barely more than that of the Mexican peso. By comparison, the U.S. dollar was used in 88 percent of foreign exchange transactions.


(click to enlarge)


(click to enlarge)


China can certainly strong-arm countries into using yuan to increase its global usage. But being able to force countries like Saudi Arabia or Venezuela to use yuan is very different from countries choosing to use the yuan because it is preferable to the alternatives.

To vie for global reserve currency status, China does not need an oil futures market – it needs to prove it can carry out transparent monetary policy, refrain from routinely manipulating the yuan’s value and lift capital controls. China is light-years from all three. What China can do with this move is increase the use of the yuan in the world.

Ironically, as China does this, it will become more dependent on the Middle East and on maritime trade routes to get there, just as the U.S. is becoming less dependent on the same. This will increase China’s need to develop power-projection capabilities and may bring it into conflict with the prevailing world order. In the meantime, as long as Saudis and speculators are the only ones taking yuan, the dollar’s position as global reserve currency should be safe.

[DougMacG]

Trump picked Powell because he wouldn't move as fast to right-size interest rates where the choice of Taylor would have more certainly meant a move toward rules-based monetary policy.  Nonetheless, with no Obama to protect anymore, the Fed started to talk about the Taylor rule and more objective and responsible policy making.

Squeezing all that went wrong in monetary policy out in any sudden way will have winners and losers.  Happily I paid off the end of my adjustable debt just in time for these increases and am now making over 1% on my savings.
------------------------------------------------------------
https://economicsone.com/2018/03/13/monetary-policy-getting-back-on-track/

On January 18 of last year, former Chair Janet Yellen described the Fed’s strategy for the policy instruments, saying that “When the economy is weak…we encourage spending and investing by pushing short-term interest rates lower….when the economy is threatening to push inflation too high down the road, we increase interest rates…”  In a speech the following day, she compared this strategy with the Taylor rule and other rules, and she explained the differences.

On July 7 of last year, the Fed added, for the first time ever, a whole new section on “Monetary Policy Rules and Their Role in the Federal Reserve’s Policy Process” in its Monetary Policy Report . It noted that “key principles of good monetary policy” are incorporated into policy rules. It listed specific policy rules, including the Taylor rule and variations on that rule. It showed that the interest rate was too low for too long in the 2003-2005 period according to the Taylor rule. It showed that, according to three of the rules, the current fed funds rate should be moving up.

On February 23 of this year, the Fed, now with new Chair Jerome Powell, again included a whole section on policy rules in its latest Monetary Policy Report, elaborating on last July’s Report and thus indicating that the new approach will continue.

On February 27 and March 1 of this year, in his first testimony in the House and Senate as Fed Chair, Jerome Powell referred explicitly to making monetary policy with policy rules.

https://www.federalreserve.gov/newsevents/testimony/files/powell20180227a.pdf
https://economicsone.com/2018/03/13/monetary-policy-getting-back-on-track/
https://www.federalreserve.gov/monetarypolicy/policy-rules-and-how-policymakers-use-them.htm

[DougMacG]

This is from Denny S' site, Software Times:

The three rules of money
Trust that people will freely accept it in payment at full value
Transferability
Security that it cannot be counterfeit
http://softwaretimes.com/files/money+2-0.html

We need to get Denny's Pearl's of Wisdom posted on the forum.
----------------------------------------------------
My recollection of the three rules of money is slightly different:
1.  It is better to have money than to not have it.
2.  More is better than less.
3.  Sooner is better than later.

[DougMacG]

I know ccp said recently he doesn't have time for GG anymore but I would point out that for what he got wrong on some investments he also got a whole lot of things right on economics and technology.

There has long been a big divide between different conservatives on money, cf. Robert Bartley versus Milton Friedman.  In the case of the Gilder, he says in the 2017 article that he was wrong in the 2016 book.  In any case, this is quite interesting stuff IMHO to ponder and there is plenty of truth in these writings no matter what you think of his conclusions and proposals.

https://www.cnbc.com/2016/04/05/the-fed-is-a-god-that-has-failed-george-gilder-commentary.html

http://thefederalist.com/2017/02/06/heres-trump-can-fix-broken-international-trading-system/#.WJs6xb698P0.twitter

He is right on a number of things (if not all).

Both parties use the Fed to cover up fiscal failings.  Fed Policy makes the huge budget deficits possible.

Zero interest rates, if you don't allocate money by price then you are doing it with other criteria.  It all goes to government big, S&P 500 companies and doesn't finance 'mainstreet'.  [I was saying during the whole Obama 'recovery' that the 'markets' are indexes for entrenched players, not for the dynamic economy.]

Venture capital investment in 2014 is one-third of what it was in 2000.

There were half as many IPOs in 2015 as in 2000, and they were mostly focused on a few large deals.

In 1999, there were seven times more IPOs than mergers and acquisitions for tech companies. Today merger and acquisitions outnumber IPOs by almost 36 to 1

[I had been saying over that period, lowest real business startup rate in history.  This is data along those same lines]

[Crafty_Dog]

https://www.youngresearch.com/researchandanalysis/currencies-and-gold/steve-forbes-heres-why-cryptocurrencies-arent-money/?awt_l=PWy8k&awt_m=3XAKAav3Z6zlu1V

[Crafty_Dog]

The Consumer Price Index Rose 0.2% in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/12/2018

The Consumer Price Index (CPI) rose 0.2% in May, matching consensus expectations.  The CPI is up 2.8% from a year ago.

Energy prices increased 0.9% in May, while food prices were unchanged.  The "core" CPI, which excludes food and energy, increased 0.2% in May, also matching consensus.  Core prices are up 2.2% versus a year ago.

Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – rose 0.1% in May but are unchanged in the past year.  Real average weekly earnings are up 0.3% in the past year.

Implications: Rising costs for gasoline and housing led the consumer price index 0.2% higher in May, continuing the uptrend in inflation that started in late 2015.  Consumer prices are now up 2.8% in the past year, the largest twelve-month increase since early 2012.  More important than reaching a recent high, consumer price inflation has now exceeded 2.0% on a twelve-month basis in each of the last nine months.  In other words, this isn't a blip higher that is likely to reverse in a month or two ahead.  The (modest) pickup in inflation that the Fed has been looking for is here. Now the onus is on the Fed not to fall behind the curve.  Taking a deeper look at today's report, energy prices as a whole rose 0.9% in May, with a jump in gasoline prices only partially offset by declining costs for natural gas (think home heating) as the US saw the warmest May on record.  Meanwhile food prices were unchanged in May as lower costs at the grocery store offset increased prices for eating out.  Strip out the typically volatile food and energy components, and "core" prices increased 0.2% in May and are now up 2.2% in the past year.  A closer look at "core" prices shows housing once again led the increase, and we expect housing costs to continue to be a key driver of overall inflation in year ahead.  On the wages front, real average hourly earnings rose 0.1% in May.  These inflation-adjusted hourly earnings have shown little movement over recent months, however this earnings data does not include irregular bonuses – like the ones paid by companies after the tax cut.  We expect a visible pickup in wage pressures in the year ahead. Paired with continued strength in employment, the trend in inflation has essentially locked in a rate hike at tomorrow's Fed meeting, and we expect two more hikes (likely in September and December) to follow, for a total of four hikes in 2018.

[Crafty_Dog]

The Producer Price Index (PPI) Increased 0.5% in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/13/2018

The Producer Price Index (PPI) increased 0.5% in May, coming in well above the consensus expected rise of 0.3%.  Producer prices are up 3.1% versus a year ago.

Energy prices rose 4.6% in May, while food prices rose 0.1%.  Producer prices excluding food and energy increased 0.3% in May and are up 2.4% in the past year.   

In the past year, prices for goods are up 4.4%, while prices for services are up 2.4%.  Private capital equipment prices increased 0.4% in May and are up 3.1% in the past year.

Prices for intermediate processed goods rose 1.5% in May and are up 6.3% versus a year ago.  Prices for intermediate unprocessed goods increased 2.5% in May and are up 6.8% versus a year ago.

Implications:  Any lingering shred of doubt that the Fed will raise rates later today can be put to rest.  Producer prices rose 0.5% in May, matching the largest single-month increase in more than five years. More important, producer prices are up 3.1% in the past year, a ninth consecutive month of prices rising at or above 2.5% on a year-to-year basis, and the largest twelve-month increase since January of 2012.  And price gains have been accelerating, up 3.2% at an annual rate in the past six months, and up at a 3.5% annual rate over the last three.  While energy prices led the rise in May, jumping 4.6%, prices rose nearly across the board. Even stripping out energy and the 0.1% increase in food prices, "core" producer prices rose 0.3% in May and are up 2.4% in the past year.  The increase in core prices was led by trade services (think margins to wholesalers), as well as transportation and warehousing services. To put the rising trend in perspective, core prices rose 2.0% in the twelve months ending May 2017, and 1.2% in the twelve months ending May 2016.  And a look further down the pipeline shows the trend of rising inflation is likely to continue in the months ahead.  Intermediate processed goods rose 1.5% in May, and are up 6.3% from a year ago, while unprocessed goods prices increased 2.5% in May and are up 6.8% in the past year.  In short, inflation is running comfortably above the Fed's 2% inflation target, and, with job growth remaining robust, pressure is on the Fed not to fall behind the curve.  In addition to a 25 basis point rate hike today, look for updates in projection materials - the "dot plot" - to show a shift in FOMC member expectations towards two more hikes in 2018 (so including today's hike, four total this year), with three to four hikes anticipated in 2019.  As we noted Monday, this pace of hikes is no reason to fear. Monetary policy isn't becoming tight, just a little less loose.   

[Crafty_Dog]

https://www.wsj.com/articles/u-s-inflation-hits-six-year-high-in-may-1530278981?mod=hp_lead_pos3

[Crafty_Dog]

 Stein, Deputy Chief Economist
Date: 7/11/2018

The Producer Price Index (PPI) increased 0.3% in June, coming in above the consensus expected rise of 0.2%. Producer prices are up 3.4% versus a year ago.

Energy prices rose 0.8% in June, while food prices declined 1.1%. Producer prices excluding food and energy increased 0.3% in June and are up 2.8% in the past year.

In the past year, prices for goods are up 4.3%, while prices for services are up 2.8%. Private capital equipment prices increased 0.3% in June and are up 3.5% in the past year.

Prices for intermediate processed goods rose 0.7% in June and are up 6.8% versus a year ago. Prices for intermediate unprocessed goods declined 1.0% in June but are up 5.8% versus a year ago.

Implications: Through the first half of 2018, producer prices rose at the fastest pace to start a year since 2011. And, at 3.4%, the increase in producer prices over the past year stands well above the Fed's 2% inflation target (for comparison, producer prices rose 1.9% in the twelve months ending June 2017 and 0.2% in the twelve months ending June 2016). While ever-volatile food and energy prices continue to play a role, stripping out those components still shows "core" prices up 2.8% in the past year. No matter how you cut it, inflation has the Fed on notice. And with our expectation of two more hikes this year (for a total of four in 2018) now the consensus – and Fed - expectation, the sights are set on 2019, where we expect to see another four rate hikes. Taking a look at the details of today's report shows producer prices rose 0.3% in June on the back of May's hefty 0.5% increase – tied for the largest monthly jump in more than five years. "Core" prices rose 0.3% in June, with the increase in core prices led by trade services (think margins to wholesalers). Given the elevated levels of order backlogs reported by both manufacturing and service sector firms in the ISM reports, we expect this trend to continue in the months to come until firms can either increase capacity or find qualified workers to fill positions – a task that has become increasingly difficult in a tight labor market. A look further down the pipeline also suggests rising inflation to come. Intermediate processed goods rose 0.7% in June, and are up 6.8% from a year ago, while unprocessed goods prices declined 1.0% in June but remain up 5.8% in the past year. In short, neither inflation nor employment – the two components of the Fed's dual mandate - give the Fed any reason to slow down the pace of raising rates. Monetary policy isn't close to being tight, and steady, gradual hikes this year and next won't change that.

[Crafty_Dog]

The Consumer Price Index Rose 0.1% in June To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/12/2018

The Consumer Price Index (CPI) rose 0.1% in June, coming in below the consensus expected +0.2%. The CPI is up 2.9% from a year ago.

Food prices increased 0.2% in June, while energy prices declined 0.3%. The "core" CPI, which excludes food and energy, increased 0.2% in June, matching the consensus. Core prices are up 2.3% versus a year ago.

Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – rose 0.1% in June but are unchanged in the past year. Real average weekly earnings are up 0.2% in the past year.

Implications: Consumer prices increased less than the consensus expected in June, but are up 2.9% in the past year, the largest 12-month increase since 2011-12 and well above the Federal Reserve's 2.0% inflation target. While rising energy prices have certainly contributed to the trend since oil prices bottomed in early 2016, inflation has been broad-based. "Core" consumer prices – which exclude both food and energy costs – rose 0.2% in June and are up 2.3% in the past year. More important, this is a trend, not a one-month anomaly. Consumer price inflation has now exceeded 2.0% on a twelve-month basis in each of the last ten months, while "core" prices have surpassed 2.0% on a twelve-month basis for each of the last four months. To put the rise in perspective, consumer prices increased 1.6% for the twelve-months ending June 2017 and 1.0% for the twelve-months ending June 2016. Taking a deeper look at today's report shows energy prices declined 0.3% in June, as rising gasoline prices were more than offset by lower costs for natural gas and electricity. Meanwhile food prices rose in June, led higher by dairy products, fruits, and vegetables. Stripping out the food and energy components shows the 0.2% increase in core prices was once again led by owners equivalent rent (the amount an owner would need to pay in order to rent their home on the open market). On the wages front, real average hourly earnings rose 0.1% in June. These inflation-adjusted hourly earnings have shown little movement over recent periods, however this earnings data does not include irregular bonuses – like the ones paid by companies after the tax cut or to attract new hires. We expect a visible pickup in wage pressures in the year ahead. Paired with continued strength in employment, the trend in inflation has put pressure on the Fed to keep up the pace of steady rate hikes. Expect two more hikes this year (for a total of four in 2018) with four more to follow in 2019, leaving monetary policy still accommodative but at a much more appropriate level given the pace of economic growth. In other news this morning, initial jobless claims declined 18,000 to 214,000. Continuing claims declined 3,000 to 1.74 million. These figures suggest jobs creation continues at a solid clip.

[Crafty_Dog]

Yield Curve Inversion To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/16/2018

The yield spread between the 2-year and 10-year Treasury Note has narrowed to 25 basis points, its smallest spread since 2007. This has many investors worried the narrowing spread will lead to an inversion of the yield curve (when short-term rates exceed long-term rates) – which throughout history has often occurred prior to a recession.

In reality, an inverted yield curve simply means long-term investors expect short-term rates to fall in the future. A 2-year bond is just two 1-year bonds, one after another. So if the 2-year yield is below the 1-year yield, then investors are saying the yield on the 1-year bond, one year from now, is expected to be lower.

For the record, an inverted yield curve does not cause a recession. Typically, the yield curve inverts because the Fed drives short-term interest rates too high and over-tightens monetary policy. It's this tight monetary policy that causes the recession, the inversion is a symptom of the bigger issue. Investors, realizing the Fed is too tight, push long-term rates down because they expect the Fed to reduce short-term rates in the future. It's the overly-tight Fed that causes both the recession and the inverted yield curve.

This is why we do not believe the current narrowing yield spread signals looming recession. The Fed is far from being tight. Short-term rates remain well below the pace of nominal GDP growth, and even below many measures of inflation. As a result, rates are likely to rise in the future, not fall. If anything, the 10-year Treasury note appears overvalued – possibly in a bubble (meaning yields on the 10-year Treasury are far too low).

But just like most overvalued markets, investors seek ways to justify it. In 1999, despite weak - or no - earnings growth, the US stock market became massively overvalued. By our measures, over 60% above fair value.

This has now apparently happened to the Treasury market. Justification for low yields include low foreign yields, an imminent recession, and a belief the Fed is (or will soon become) too tight.

Nominal GDP (real growth plus inflation) grew 4.7% in the four quarters ending in March, and looks to have grown even faster in the four quarters ending in June. At 2.83%, the 10-year Treasury note yield is 187 basis points below nominal GDP growth. For comparison, over the past 20 years (1997-2017) – the 10-year Note yield averaged just 43 basis points less than nominal GDP growth. In other words, today's spread is substantially – and we think unsustainably - larger than its 20-year average.

Nominal GDP growth is a good proxy for a "natural or neutral" rate of interest because it's the average rate of growth in the economy – a reasonable proxy for investment returns. Some companies grow much faster than GDP, some grow much slower.

If interest rates are well below nominal GDP, then companies growing less than average are encouraged to borrow. But this makes no economic sense. It's "malinvestment"...investment that hurts growth and slows the creation of wealth. In other words, interest rates today are well below levels justified by fundamentals.

More importantly, the economy is accelerating, and the Fed is chasing both rising real growth and rising inflation. Even if the Fed lifts rates to 3.5% by the end of 2019 (which would require six more rate hikes at the current pace), the Fed will still not be tight relative to nominal GDP growth. So, the odds of a recession in the next few years remain very low even if we get a technical inversion.

That said, we don't expect the yield curve to invert in the near future. It may. But if it does, it just means that the bubble in long-term rates still exists. At some point that will cease. It won't be pretty for long-term bond holders, but at least it should end the inversion-recession fears.

[DougMacG]

Good analysis by Wesbury.  )

[Crafty_Dog]

Data Watch
________________________________________
The Producer Price Index was Unchanged in July To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/9/2018

The Producer Price Index (PPI) was unchanged in July, coming in below the consensus expected rise of 0.2%. Producer prices are up 3.3% versus a year ago.

Energy prices declined 0.5% in July, while food prices declined 0.1%. Producer prices excluding food and energy increased 0.1% in July and are up 2.7% in the past year.

In the past year, prices for goods are up 4.5%, while prices for services are up 2.6%. Private capital equipment prices increased 0.3% in July and are up 3.4% in the past year.

Prices for intermediate processed goods were also unchanged in July but are up 6.8% versus a year ago. Prices for intermediate unprocessed goods rose 2.7% in July and are up 8.2% versus a year ago.

Implications: Producer prices were flat in July – the first month of 2018 not to show an increase of at least 0.2% - as declining prices in a few select sectors held down inflation. But even with the flat reading in July, the producer price index is up 3.3% in the past year, behind just last month for the largest twelve-month increase going back to late 2011. A look at the details in July shows the ever-volatile food and energy sectors declined 0.1% and 0.5%, respectively. Strip out these two components, and "core" prices rose 0.1% in July and are up 2.7% in the past year. In other words, both core and headline PPI measures show inflation easily exceeds the Fed's 2% inflation target, reinforcing our projection for two more rate hikes this year and four hikes in 2019. In addition to declines in food and energy prices, trade services prices (think margins to wholesalers and retailers) also dropped 0.8% in July. This was likely the result of companies accepting smaller margins in the short-term, rather than raise prices for consumers, as input prices increase. A look at recent ISM reports suggests strong order activity paired with difficulty finding qualified labor and freight truck drivers is putting pricing pressure on some industries. Excluding declines in food, energy, and trade services, producer prices rose 0.3% in July. We view July as an aberration and expect monthly data to show higher inflation in the months ahead. In other news this morning, initial jobless claims declined 6,000 last week to 213,000. Continuing claims rose 29,000 to 1.76 million. These figures suggest job creation continues at a healthy pace in August.
________________________________________
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.

Follow Brian Wesbury

[Crafty_Dog]

I thought real wage growth would be much higher.
=========================================

Data Watch
________________________________________
The Consumer Price Index Rose 0.2% in July To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/10/2018

The Consumer Price Index (CPI) rose 0.2% in July, matching consensus expectations. The CPI is up 2.9% from a year ago.

Food prices increased 0.1% in July, while energy prices declined 0.5%. The "core" CPI, which excludes food and energy, increased 0.2% in July, also matching the consensus. Core prices are up 2.4% versus a year ago.

Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – were unchanged in July but are down 0.2% in the past year. Real average weekly earnings are up 0.1% in the past year.

Implications: Consumer prices continue to march higher, rising 0.2% in July and, at 2.9%, matched June's reading for the largest 12-month increase going back to 2011-12. While rising energy prices have certainly contributed to the trend since oil prices bottomed in early 2016, inflation has been broad-based. "Core" consumer prices – which exclude both food and energy costs – also rose 0.2% in July and are up 2.4% in the past year. More importantly, this is a trend, not a one-month anomaly. Consumer price inflation has now exceeded 2.0% on a twelve-month basis in each of the last eleven months, while "core" prices have surpassed 2.0% on a twelve-month basis for each of the last five months. To put the rise in perspective, consumer prices increased 1.7% for the twelve-months ending July 2017 and 0.8% for the twelve-months ending July 2016. Taking a deeper look at today's report shows energy prices fell 0.5% in July, as prices for gasoline, natural gas, and electricity all declined. Meanwhile food prices rose 0.1% in July, led higher by costs for fruits and vegetables. Stripping out the food and energy components shows the 0.2% increase in core prices was once again led by owners' equivalent rent (the amount an owner would need to pay in order to rent their home on the open market). On the wages front, real average hourly earnings were flat in July and are down 0.2% in the past year. These inflation-adjusted hourly earnings have been stubbornly slow to move, however this earnings data does not include irregular bonuses – like the ones paid by companies after the tax cut or to attract new hires. We expect a visible pickup in wage pressures in the year ahead. Paired with continued strength in employment (see the sneaky-strong July data released last Friday), the trend in inflation has put pressure on the Fed to keep up the pace of steady rate hikes. Expect two more hikes this year (for a total of four in 2018) with four more to follow in 2019, leaving monetary policy still accommodative but at a much more appropriate level given the pace of economic growth.
________________________________________

[Crafty_Dog]

Retail Sales Rose 0.5% in July To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 8/15/2018

Retail sales rose 0.5% in July (+0.1% including revisions to prior months) versus a consensus expected gain of 0.1%. Retail sales are up 6.4% versus a year ago.

Sales excluding autos increased 0.6% in July (+0.4% including revisions to prior months), beating the consensus expected 0.3% gain. These sales are up 7.2% in the past year. Excluding gas, sales were up 0.5% in July and are up 5.1% from a year ago.

The gain in sales in July was led by restaurants & bars, non-store retailers (internet & mail order), and general merchandise stores. The largest decline was for health & personal care stores.

Sales excluding autos, building materials, and gas rose 0.6% in July. If unchanged in August/September, these sales will be up at a 4.6% annual rate in Q3 versus the Q2 average.

Implications: A strong jobs market, growing economy, and higher take-home pay thanks to the tax cuts have consumers feeling great. Retail sales grew for the sixth consecutive month, rising 0.5% in July. And the gains in July were broad-based, with nine of thirteen major categories showing rising sales, led by restaurants & bars, internet & mail order sales, and general merchandise stores. Retail sales are up a strong 6.4% from a year ago (and up an even stronger 7.2% excluding auto sales). Today's report suggests consumer spending started off the third quarter on a strong note, supporting our projection of 4.0 - 4.5% real GDP growth for Q3. Given the tailwinds from deregulation and tax cuts, we expect an average real GDP growth rate of 3%+ in both 2018 and 2019, a pace we haven't seen since 2005. 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 yesterday's NY Federal Reserve Bank report showing household debts at a record high as reason to doubt that consumption growth can continue. But what the negative headlines didn't mention is that household assets are at a record high, as well. Relative to assets, household debt levels are the lowest in more than 30 years. In other words, there's plenty of room for consumer spending – and retail sales – to continue to trend higher in the months to come. In other news today, the preliminary reading on Q2 nonfarm productivity growth came in at a 2.9% annual rate, beating the consensus expected 2.4%. Productivity is up 1.3% versus a year ago and we expect it to accelerate in the year ahead. Companies have increased business investment, which should generate more output per hour. Meanwhile, the tight labor market should encourage firms to find more efficient ways to produce. On the inflation front, import prices were unchanged in July, while export prices declined 0.5%. The drop in export prices was due to farm products, with soybean prices falling 14.1% and farm products down 5.3% overall, likely the result of recent trade disputes. However, the trend in import and export prices is still upward. Import prices are up 4.8% in the past year, versus a 1.2% gain the year ending July 2017; export prices are up 4.3% in the past year versus a 0.9% increase in the year ending July 2017. Cutting through recent gyrations, more inflation is on the way.

[Crafty_Dog]

The Consumer Price Index Rose 0.1% in September To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 10/11/2018

The Consumer Price Index (CPI) rose 0.1% in September, coming in below the consensus expected increase of 0.2%. The CPI is up 2.3% from a year ago.

Energy prices declined 0.5% in September, while food prices were unchanged. The "core" CPI, which excludes food and energy, increased 0.1% in September, below the consensus expected increase of 0.2%. Core prices are up 2.2% versus a year ago.

Real average hourly earnings – the cash earnings of all workers, adjusted for inflation – rose 0.3% in September and are up 0.5% in the past year. Real average weekly earnings are up 1.1% in the past year.

Implications: Consumer prices rose less than expected in September, but the upward trend in inflation remains intact. Consumer prices rose only 0.1% in September, compared to the 0.2% the consensus expected. But in the past eight Septembers (2010-2017), consumer prices have risen as much as expected four times, while rising less than expected four times, so September data may be influenced by some seasonal issues. In other words, investors shouldn't see tepid inflation in September as a shift in the overall upward trend. Look for a rebound in inflation reported a month from now. Even with the soft inflation reading for September, consumer prices are up 2.3% from a year ago and have exceeded the Fed's 2% inflation target for thirteen consecutive months. To put it in a longer-term perspective, consumer prices rose 2.2% for the twelve-months ending September 2017, 1.5% for the twelve-months ending September 2016, and were unchanged for the twelve-months ending September 2015. So, after running stubbornly below the Fed's inflation target for the first five years of the recovery, the question has shifted from "will the Fed wait on raising rates?" to "can the Fed wait on raising rates?" No, this isn't runaway inflation, but with the federal funds rate well below the pace of nominal GDP growth, the odds of higher inflation – paired with a tight labor market and widespread strength in economic data - should be enough to keep the Fed on track for slow-but steady hikes through at least the end of 2019 (think one more this year, and four next year). Energy prices fell in September, declining 0.5% on the back of lower prices for electricity and natural gas. That said, energy prices are still up 4.8% in the past year. Food prices, meanwhile, were unchanged in September. "Core" consumer prices – which exclude both food and energy costs – rose a modest 0.1% in September but are up 2.2% in the past year. Taking a deeper dig into today's report shows the 0.1% increase in core prices was once again led by owners' equivalent rent (the amount an owner would need to pay in order to rent their home on the open market). Meanwhile, a 3% drop in used car and truck prices – which tied the steepest decline for any month since 1969 – as well as declines in prices for hospital services and prescription drugs held down the overall increase in core prices. The best news in today's report was that real average hourly earnings rose 0.3% in September. While these wages are up just 0.5% in the past year, there is clear acceleration, with wages up 1.3% at an annual rate in the past six months, and up at a 1.9% annual rate over the past three months. And importantly, these earnings do not include irregular bonuses – like the ones paid by companies after the tax cut or to attract new hires – or the value of benefits. It's an imperfect measure (to say the least), but we still expect a visible pickup in wage pressure in the year ahead. In employment news this morning, initial jobless claims rose 7,000 last week to 214,000, while continuing claims rose 4,000 to 1.66 million. Both measures stand near multi-decade lows, reiterating the strength of both the labor market and the economy. Note that Hurricane Michael will influence claims reports for at least the next couple of weeks and may temporarily limit job gains in the October employment report, as well.
________________________________________

[ccp]

What she said :

https://www.cnbc.com/2018/10/30/yellen-says-rising-us-deficit-unsustainable-if-i-had-a-magic-wand-i-would-raise-taxes.html

About her :

https://www.investopedia.com/articles/personal-finance/081315/janet-yellen-success-story-net-worth-education-top-quotes.asp

How CNBC reported what she said: 

"'If I had a magic wand, I would raise taxes"

and OF COURSE (fake news) conveniently  left out the first part of it:

" Yellen says rising deficit is unsustainable: "

[DougMacG]

What she said :
https://www.cnbc.com/2018/10/30/yellen-says-rising-us-deficit-unsustainable-if-i-had-a-magic-wand-i-would-raise-taxes.html

About her :
https://www.investopedia.com/articles/personal-finance/081315/janet-yellen-success-story-net-worth-education-top-quotes.asp

How CNBC reported what she said:  
"'If I had a magic wand, I would raise taxes"

and OF COURSE (fake news) conveniently  left out the first part of it:
" Yellen says rising deficit is unsustainable: "

Good catch on that ccp, playing half a quote to suit their purposes is what they do.

"If I had a magic wand, I would raise taxes and cut retirement spending,"
"Yellen says rising deficit is unsustainable"

CNBC dropped the cut retirement spending part too for the headline.  It has been demonstrated over and over again that the deficit problem is on the spending side.

Besides the selective headline, I would focus on the magic wand admission.  Presumably that means, if I were Trump and congress, but it also means that if Leftist policies worked.  

Much like 'banning' guns in churches doesn't stop shootings, perhaps makes them worse, raising tax rates on productive activities does not directly or automatically make revenues go up. Past a certain level of taxation, higher tax rates diminish productive activity.  4600 businesses left this country during the recent, punitive corporate tax rate chapter of our tax history and the new business startup rate plunged to a historic low.  Exactly right that it would have taken a magic wand to squeeze more money out of them.  Compel business activity and lock the exits.  They could not compete paying punitive taxes in a global economy without a magic wand.

Federal spending has gone from rob Peter to pay Paul to keep paying Paul with paper long after Peter has nothing more to pay.  Yellen only notices retirement spending but that would be a start.  Hold all spending programs accountable to needs, results and the constraint of limited resources.

Both the Fed and the elected government have come to believe that spending and deficits have no real limits.

Leftist utopia of unlimited spending while decimating the private economy requires a magic wand and more because it doesn't work in the real world.  Look at the socialist disaster in Venezuela for the most recent failure.  Absent the magic wand, Leftism requires coercion and even that doesn't work.

Funny how Yellen was able to hold the line on the near zero interest rates she opposed all the way through to the 2016 election to partially cover up the failed policies of the Obama administration and then, in an instant, up they go.  The Fed Discount rate held at 0.5% through Obama's failed recovery and is 2.25% now, a 350% increase, and scheduled to keep going up.
https://www.thebalance.com/fed-funds-rate-history-highs-lows-3306135

The Fed enables and accommodates deficit spending and plays favorites with Presidents.  Where is that in their mission and oath of office?

I outed Janet Yellen a couple of years ago in a DB post that I gave to our pp to publish at Sparta Report:
https://www.spartareport.com/2016/06/janet-yellen-fed-banking-monetary-policy/
... and then Trump did not reappoint her.  Famous people caught reading the forum.

[ccp]

Good point too CD

and to clarify my post

What multimillionaire Yellin  also said was

"If I had a magic wand, I would raise taxes and cut retirement spending,"   Which CNBS fake news cut out the part they do not like and pasted the part that makes case for leftist agenda

*Personally if I had magic wand or was married to Barbara Eden I would simply make the debt disappear.*

[DougMacG]

*Personally if I had magic wand or was married to Barbara Eden I would simply make the debt disappear.*


When do we tell Leftists there isn't a magic wand that makes the bad consequences of bad policies go away.

If we could just convince centrists, moderates, independents that Leftists have no magic wand, they would never get power again.  We'd all be stuck with common sense conservatism: you have to work hard to get ahead, pay for what you spend, don't make someone else pay for what you wouldn't pay for, etc.  We'd have balanced budgets and low tax rates forever.

[Crafty_Dog]

The Producer Price Index Rose 0.1% in November To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 12/11/2018

The Producer Price Index (PPI) rose 0.1% in November, above the consensus expectation of no change. Producer prices are up 2.5% versus a year ago.

Energy prices fell 5.0% in November, while food prices increased 1.3%. Producer prices excluding food and energy rose 0.3% in November and are up 2.7% in the past year.

In the past year, prices for goods are up 2.2%, while prices for services are up 2.6%. Private capital equipment prices were unchanged in November but are up 2.9% in the past year.

Prices for intermediate processed goods fell 0.7% in November but are up 4.3% versus a year ago. Prices for intermediate unprocessed goods fell 5.3% in November and are down 0.7% versus a year ago.

Implications: After posting the largest single-month increase in more than six years in October the producer price index continued its climb higher in November, though at a slower pace. The main source of strength in today's report came from final demand services where prices rose 0.3%, offsetting the 0.4% decline in prices for final demand goods, keeping the headline index positive for the month. Looking at the details of final demand services shows that prices were driven higher by increased margins to wholesalers, which rose 0.3%. More specifically, margins for fuels and lubricants retailing soared 25.9%, probably the result of wholesalers not fully passing on November's 14% drop in gasoline prices to their customers. Recent increases in wholesaler margins could be a sign of rising demand paired with limited supply; ISM reports have shown strong order and business activity, but companies struggling to hire and ship products due to a tight labor market. Or it could simply be companies adjusting prices higher following months of rising input costs cutting into margins; remember, these wholesaler margins fell overall in Q3. The biggest source of weakness in today's report was the 5% decline in final demand energy, which represents the largest monthly drop for that index since the oil price crash of 2015. This was driven by the decline in gasoline prices mentioned above and resulted in an overall drop of 0.4% in final demand goods for November. Some analysts have recently been citing falling energy prices as a reason for the Federal Reserve to hold off on continued rate hikes in 2019. However, no matter which way you cut it – headline prices up 2.5% in the past year or "core" prices up 2.7% -- trend inflation clearly stands above the Fed's 2% target. These data support our expectation for one more hike this year and up to four more hikes in 2019.

[DougMacG]

An alternative to five more rate hikes in the next year when there were none during Obama's recovery would be for the Fed to hold steady while the high stakes trade negotiations with China are taking place. 

Once a new agreement is in place, the growth and velocity of the resulting economic surge will help us to afford the boiling water shock of all these coming rate increases.

Zero Interest Rate Policy by the Fed under Obama was wrong, stupid, ineffective, counter-productive and everyone knew all along that the bill for the damage accruing would come due at some future date and that, in their view, might as well happen under Trump.

It would be nice - once - if the Fed would announce with their policy explanations that the real reason these increases are necessary is because we were so wrong for so long. 

[DougMacG]

Strange that the Fed is hell-bent on right-sizing interest rates under Trump when they left them at 0.25% for the entire Obama 'recovery'.  Nine rate increases since the election.  The federal funds rate has now  ten-fold higher than under Obama - - - and no one in the academia-media complex admits the economy is better.



Trump appointed the current Fed chair.  If he had made a better pick as I and others suggested, rates might have gone up even faster.

Did anyone tell the Fed we are in the midst of a stock market crash, a trade war and a political crisis?  I called for a pause in the increases until after China caves first in the trade stalemate.  This is a rare example of famous and powerful people NOT reading the forum.

Wesbury coming, this increase was expected, nothing to worry about, plowhorse economy is plowing ahead, we are still bullish on equities, some great buys out there.  )

[G M]

Strange that the Fed is hell-bent on right-sizing interest rates under Trump when they left them at 0.25% for the entire Obama 'recovery'.  Nine rate increases since the election.  The federal funds rate has now  ten-fold higher than under Obama - - - and no one in the academia-media complex admits the economy is better.



Trump appointed the current Fed chair.  If he had made a better pick as I and others suggested, rates might have gone up even faster.

Did anyone tell the Fed we are in the midst of a stock market crash, a trade war and a political crisis?  I called for a pause in the increases until after China caves first in the trade stalemate.  This is a rare example of famous and powerful people NOT reading the forum.

Wesbury coming, this increase was expected, nothing to worry about, plowhorse economy is plowing ahead, we are still bullish on equities, some great buys out there.  )

This is being done on purpose.