US Economy, the stock market , and other investment/savings strategies

[G M]

http://www.marketwatch.com/story/jobless-claims-jump-again-to-7-month-high-2016-01-21

[Crafty_Dog]

FWIW David Gordon, a name known to some here, is confident that we are not in the middle of another 2008.

[ccp]

He was very right about Google.

Didn't he predict they would hit 700?

On the front page of the WSJ if I recall.   David is no slouch.

[Crafty_Dog]

Amen to that.

[G M]

FWIW David Gordon, a name known to some here, is confident that we are not in the middle of another 2008.

Why?

[Crafty_Dog]

Hard to explain what David does, but those of us who know him always pay attention when he speaks.

[G M]

Did he give any reason why he thinks this isn't 2008?

[Crafty_Dog]

I get my riff about "profit, not prophet" from David.  He reads charts in a high IQ one-of-a-kind way.  Track record includes many extraordinary calls.

[objectivist1]

I'd like to see his rationale as well.  There is overwhelming evidence (see Brandon Smith article in my earlier post) that this is shaping up to be WORSE than 2008.
Where is his evidence to the contrary?

[Crafty_Dog]

That is not what he is. 

He does serious due diligence in companies he believes in, reads stock charts, and buys and sells accordingly.   

[G M]

http://www.businessinsider.com/recovery-is-a-myth-2016-1

[G M]

http://townhall.com/columnists/kurtschlichter/2016/01/25/buy-ammo-n2109112/page/full

Buy Ammo
Kurt Schlichter | Jan 25, 2016



I have never, ever had anyone tell me that he had too much ammunition.  Not in a combat zone, not in a civil disaster, not even in peacetime.  Never.  Nor have I lived through a time where our governing class was so deeply corrupt, so utterly foolish, and so dangerously focused on the perpetuation of its own power that it risked bringing down everything we have built not merely in the United States but in the entire West.

Right now, if you are watching the news, you have questions about the future.  And the answer to all of them is to buy ammo.

Buying ammo is a no-lose proposition.  Look, the worst thing that happens if you buy more ammo is that you have more ammo.  Plus, much of our consumer ammo is made by hardworking Americans, and many of those ammo makers are located in red states where the right to keep and bear arms is celebrated and respected.  So you’re helping fellow conservative Americans, which is good.  And you’re infuriating people like that sanctimonious, Second Amendment-hating incompetent infesting the White House, which is great.

Of course, buying ammo presumes you have already fulfilled your duty as a law-abiding, able-bodied American citizen and obtained sufficient firearms for the defense of yourself, your family, your community, and your Constitution.  I can’t tell you how many people in the last year have confessed to me that they have finally decided to visit their local gun seller to do what they had put off for far too long and transition from sheep to sheepdog.

A handgun and a long weapon per adult is merely the minimum.  We call that “a good start.”  Now, while you can really efficiently carry only two weapons at once, when all hell breaks loose you’re going to have friends who were the grasshopper to your ant and did not prepare for winter.  You may wish to share the contents of your armory with them when the time comes; keep in mind that the only thing in a gunfight that’s better than having a black combat rifle is having your buddy there to provide supporting fire with a black combat rifle. 

Or a shotgun – diversity is a good thing.

Don’t forget training.  Malpractice with a weapon is a bad thing, particularly when the foolishness of our leaders has led to the kind of chaos where hospitals are deserted and antibiotics are hard to come by.  I oversaw the weapons training of at least 20,000 troops over my career (Sergeants actually do the training; officers oversee the planning, resourcing, and big picture range operations, then find their sharpest sergeant to run them through some refresher drills so they can shoot “Expert” when they hit the firing line and qualify in front of everyone).  I am a big fan of weapons training.  You need to learn safety, and you also need to learn how to hit what you are shooting at.  Don’t be like the gangbanging, side-shooting nimrods in Democrat inner cities who can’t hit the other scumbags they’re shooting at and instead take out nice ladies walking home from church.  Having lots of ammo on hand facilitates training.

Now, many of our urban liberal friends will not understand why we insist on ensuring that we have plenty of guns and ammo.  They are, not coincidentally, the same urban liberals who don’t understand how creating economic and political chaos by screwing up the economy, coddling crooks, allowing unrestricted immigration, refusing to defeat our enemies, and frittering away the rule of law all act to undermine this wonderful island of relative peace and stability we call the United States.  The über-beta editor of a well-known liberal website once chided me on Twitter for pointing out the fact that civilization walks on a tightrope over a chasm of chaos, telling me I was essentially nuts for thinking this could all fall apart much faster and much more violently than any of us imagine.  But I was not nuts.  I was remembering.  I was remembering Los Angeles on fire during the Rodney King riots.  I spent three weeks on the streets with the Army during that little life lesson based out of an armory south of I-10 and east of the 405.  Let’s just say that it was a looty, shooty area.  So I don’t need chaos lessons from some tweedy femboy, nor do you.  It may not be apocalypse now, but it could very well be apocalypse soon.

Do you think our elite is going to protect you during the next “uprising?”  Remember, it’s a “riot” only if elite liberals are at risk like they were when Beverly Hills got threatened; it’s an “uprising” if only you are.  Remember that “stand down” order in Baltimore?

Do you think the Iranians and our other enemies haven’t been watching Team Feckless in inaction and thought about popping off a hot rock or two a hundred miles above Kansas City to fry all our wonderful electronic gizmos with EMP?  A couple days after our logistics networks go down those urban hipsters are going to learn what really constitutes a “food desert.”

Do you think a country this politically divided can’t devolve into violence?  People in Kosovo were pretty sure everything was hunky dory while Tito was alive.  People resolved their differences through the institutions.  And then Tito died, and the game changed.  In just a few years, it became very bad. 

Right now we have a president who thinks he can ignore or modify the law unilaterally, justifying it with the baffling argument that he shouldn’t have to ask Congress because Congress will just say “No” – which I always thought was kind of the point of checks and balances.   So what happens when President Clinton, who identified you and me and the 50% of Americans who aren’t her supporters as her enemies, decides she gets to make her own laws because, well, she knows better and feels like it?  Nothing good.

But deterrence is a wonderful thing.  An armed, trained populace is not only prepared for when things go bad, but the fact that it is armed and trained makes it much less likely that things will go bad in the first place.  Last year, Americans voted for liberty by buying well over 15 million new guns.  That’s roughly 40,000 a day, every day.  That’s enough to arm three infantry divisions. 

Every.  Single.  Day.

Just don’t forget to buy ammo.

[Crafty_Dog]

Monday Morning Outlook
________________________________________
Q4: Sluggish Growth, No Recession To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 1/25/2016

The recent turmoil in the equity markets would make more sense if the US economy were headed for recession. But the economic data aren’t cooperating.
Although initial jobless claims have trended up recently, plugging recent reports into our models suggests payrolls are still growing at about a 200,000 monthly rate, not even close to a recession. Meanwhile, existing home sales surged in December and “core” industrial production (manufacturing ex-autos) eked out a 0.1% gain as well.

Overall, Q4 was nothing great. As we explain below, we estimate real GDP grew at a 0.9% annual rate in Q4, consistent with the Plow Horse economic growth the economy has experienced ever since emerging from recession in mid-2009. Yes, 0.9% is on the weak side of the trend, but there have been six quarters with even weaker growth during the expansion. Moreover, the weakest part of GDP will be inventories, which should leave more room for future growth.

We like to focus on “core” GDP. By subtracting the volatile, and less growth-oriented, categories (Government spending, Inventories, and International trade) from GDP, a clearer picture of trends in investment and consumer spending emerge. That measure appears to have grown at a 1.9% annual rate in Q4, which means it was up a respectable 2.7% in 2015. This is part of the reason why we think, despite recent market turmoil, real GDP will rise 2.5%+ in 2016.

Below is our “add-em-up” forecast for Q4 real GDP.

Consumption: Modest growth in auto sales and continued gains in services, which make up more than 2/3 of personal consumption, suggest real personal consumption of goods and services, combined, grew at a 1.9% rate in Q4, contributing 1.3 points to the real GDP growth rate (1.9 times the consumption share of GDP, which is 68%, equals 1.3).

Business Investment: Both business equipment investment and commercial construction look down slightly in Q4, probably led by the energy sector. But R&D probably grew enough to offset that damage, leaving overall business investment unchanged, with zero net effect on GDP.

Home Building: The home building recovery continued in Q4. Residential construction looks to have grown at a 9% annual rate, which should add 0.3 points to the real GDP growth rate (9 times the home building GDP share, which is 3%, equals 0.3).

Government: A surge in military spending probably more than offset a decline in public construction projects in Q4, suggesting real government purchases rose at a 1.0% rate, which would add 0.2 percentage points to real GDP growth (1.0 times the government purchase share of GDP, which is 18%, equals 0.2).

Trade: At this point, the government only has trade data through November, but the numbers so far suggest the “real” trade deficit in goods has gotten bigger due to weaker economies abroad. As a result, we’re forecasting that net exports are a drag of 0.2 points on the real GDP growth rate.
Inventories: At present, we have even less information on inventories than we do on trade, but what we have suggests companies added to inventories at a much slower pace than in Q3. As a result, we’re forecasting inventories subtracted 0.7 points from real GDP in Q4.

Put it all together, and we get a 0.9% forecast for real GDP growth in Q4. But, with the components that make up the “core” adding a total of 1.6 points and those components making up only 82% of total GDP, the growth rate for those core components appears to be healthy 1.9%. Sorry for the extra math, but if 82% of GDP grows at a 1.9% rate, then the contribution to overall GDP growth is just 1.6 points.

We’ve noticed more and more people are coming up with words to describe this slow growth economy – the snail, the six-cylinder car, plodding, and crawling. Why don’t they just say “Plow Horse” because that’s what it is.

[Crafty_Dog]

http://scottgrannis.blogspot.com/2016/01/the-yield-curve-says-no-recession.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29

[ccp]

http://www.investopedia.com/terms/n/negative-interest-rate-policy-nirp.asp

[Crafty_Dog]

The ISM Manufacturing Index Rose to 48.2 in January To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/1/2016

The ISM manufacturing index rose to 48.2 in January, coming in below the consensus expected level of 48.4. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)

The major measures of activity were mostly higher in January. The new orders index rose to 51.5 from 48.8 while the production index moved higher to 50.2 from 49.9 in December. The supplier deliveries index increased to 50.0 from 49.8. The employment index fell to 45.9 from 48.0 in December.
The prices paid index was unchanged at 33.5 in January.

Implications: It was a real mixed bag report today from the ISM, with the headline index remaining in contraction territory (remember, levels above 50 signal expansion while levels below 50 signal contraction, so a move higher to 48.2 means continued contraction, but at a slower pace than last month), while the major sub-indexes were mostly positive. However, the two most forward looking measures, new orders and production, both returned to levels above 50, signaling growth. Employment was the major drag in January, as the petroleum and coal industry led ten of eighteen manufacturing industries to report declining employment. This comes in contrast to the continued strength in other employment indicators (such as initial claims, which have remained below 300K since February of last year). It’s also important to remember that manufacturing represents a relatively small piece of overall employment. In 2015, manufacturing added an average of 2,500 jobs a month, while the private sector as a whole grew by more than 210,000 jobs monthly. In other words, today’s report does little to change our outlook on Friday’s employment report, where we expect to see significant gains. The modest readings from the ISM manufacturing report since peaking at 58.1 in August 2014, have given some pessimists reason to cheer, but we see no broad-based evidence of a significant slowdown. And remember, the ISM is a survey which can reflect sentiment as much as actual economic activity. As a whole, today’s data continues to highlight a stark contrast in two broad sectors of the economy: services, where the economy is expanding briskly and prices are rising, versus goods, where both growth and inflation are soft to non-existent. Overall activity isn’t booming, but it does continue to plow forward at a modest pace. In other news this morning, construction increased 0.1% in December (-0.5% including downward revisions for October/November). The slight gain in December itself was the by-product of a surge in government projects (paving roads and building bridges) and new home construction, and a large drop in commercial construction, particularly chemical manufacturing facilities, probably related to a drop in oil output.

[G M]

http://www.cnbc.com/2016/02/05/citi-world-economy-trapped-in-death-spiral.html

[DougMacG]

http://www.cnbc.com/2016/02/05/citi-world-economy-trapped-in-death-spiral.html

Just like in foreign policy, a world not led by a strong USA is not a well-led world.

[ccp]

Death spiral.

I am too old to volunteer to help establish the Mars colony.  (and not wealthy enough)

[Crafty_Dog]

http://scottgrannis.blogspot.com/

[G M]

https://theartsmechanical.wordpress.com/2016/02/05/a-shipping-update/

Running on empty.

[DougMacG]

http://scottgrannis.blogspot.com/

We would like to say, famous people caught reading the forum, except that Scott Grannis is the source of the theory and math I like to use measuring the gap of permanently lost income and wealth as a result of the failed policies and anemic growth rate out of the 'great recession':


Is this the link you refer to?  http://scottgrannis.blogspot.com/2016/02/productivity-is-missing-ingredient.html

From the link:

"We've know for years that this recovery is the weakest post-war recovery on record, and the chart above makes the case. If this had been a typical recovery, national income (GDP) would be about $2.8 trillion higher than it is today. That's like saying that average wages and salaries would be 17% higher. For a family earning $60,000, that's over $10,000 more income per year that has failed to materialize despite all their hard efforts."


Up to $2.8 trillion per year taken since Pelosi-Reid-Obama-Clinton took over Washington comes to roughly $19 trillion dollars.  Hmmm, this criminal act cost us enough money to pay off the national debt.  And yet people want more of it.

This magnitude of theft with intent, theft by fraud, constitutes roughly 320 million counts of felony grand larceny.
http://criminal.findlaw.com/criminal-charges/larceny-penalties-and-sentencing.html
He should serve out his Presidential term from prison.

[G M]

http://www.mybudget360.com/total-us-debt-19-trillion-growth-of-us-public-debt/

Unpayable

[ccp]

Couldn't possibly be only 4.9%.  More Obama BS:

http://www.newsmax.com/Finance/DavidStockman/stock-market-invest-bulls-bears/2016/02/07/id/713143/

[G M]

Couldn't possibly be only 4.9%.  More Obama BS:

http://www.newsmax.com/Finance/DavidStockman/stock-market-invest-bulls-bears/2016/02/07/id/713143/

The only stats as crooked as China's is the ones fed to us.

[objectivist1]

Rush Limbaugh talked about this on Friday.  "First-time unemployment numbers" is what Obama quoted.  Translation:  "Not counting the 94 million plus workers who have stopped looking for work."  Complete fraud.

[Crafty_Dog]

Monday Morning Outlook
________________________________________
Want Faster Growth? Put the Jockey on a Diet! To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/8/2016

The number one reason the US has a Plow Horse economy rather than a Race Horse economy is the growth in the size and scope of the federal government, which sits like a grossly overweight jockey atop an otherwise healthy thoroughbred.

After being limited in the 1980s under President Reagan and then in the 1990s in President Clinton’s first six years in office, it started creeping upward again.
At first, it didn’t seem like a big deal. The economy was booming in the late 1990s, and so the increase in spending was hard to notice. From 1992 to 1998, discretionary spending – federal outlays that have to be approved every year – were up only 0.5% per year.

Yes, much of the spending restraint was due to the Peace Dividend after the demise of the Soviet Union. But social (or non-military) discretionary spending grew at only a 4% annual rate, which was slower than the 5.6% annual growth rate of nominal GDP (real GDP growth plus inflation). In other words, social spending was shrinking relative to the economy.

Then, the limits on the size of government gave way. Maybe it was an inevitable political reaction to prosperity. Voters don’t mind politicians loosening the purse-strings when times are good. Or maybe President Clinton was just spending more to reward supporters for standing by him during impeachment.
Either way, discretionary spending started moving up faster, growing 3.6% in 1999, 7.5% in 2000, and 5.5% in 2001 (the last budget President Clinton had a hand in) with increases in social spending leading the way.

Then came President Bush, who ushered in No Child Left Behind, a new prescription drug entitlement for seniors, and, eventually, TARP and “temporary” stimulus in 2008. In eight years, discretionary social spending rose 6.8% per year, and that doesn’t even include prescription drugs or TARP. Total spending soared 8.3% per year. In Fiscal Year 2009, the federal government was spending 24.4% of GDP, up from 17.6% eight years prior.

Then came an avalanche of new spending initiatives in President Obama’s first 15 months that substantially increased the future path of government outlays. Not all of it was designed to show up right away, just like FDR and Social Security or LBJ and Medicare and Medicaid. But data from the CBO show that between taking office and mid-2010, his policies added about 9% to future government spending.

And that’s not even counting some of the new spending, which is hidden. When Obamacare regulates health insurance markets to raise insurance rates for some people and cut them for others, it’s no different than the government taxing healthy people and spending money on the sick. But now, instead of collecting and spending the money directly, the government gets insurance companies to do the dirty work for it.

In 2010, voters reacted by handing control of the House of Representatives back to the GOP and, in 2011, some progress was made against higher spending. In particular, they passed a Sequester. But then the discipline faded and, with budget deal after budget deal, spending started creeping up again.
And so here we find ourselves, with huge entitlement programs ready to ramp up further as the Baby Boomers keep retiring and much of the economy regulated more than ever before.

Underneath all this are entrepreneurs generating new ideas, keeping the economy going, but only able to push growth to a Plow Horse pace, not the Race Horse pace we’d have if the jockey slimmed back down to where it was in, say, 1998.

Increasingly, it looks like the only way to end the upward spending ratchet is for voters to elect a president dedicated to a smaller government at the same time they elect a Congress with the same commitment. Less spending, less regulation, particularly in energy and health care, as well as lower tax rates are the only policies that can stir the economy out of its doldrums.

[objectivist1]

Will A Market Selloff Turn Into Worldwide Recession?

Tuesday, 09 February 2016 Bob Adelmann

EDITOR'S NOTE: It's nice that the mainstream academic economists are finally getting with the program in terms of collapsing demand across the financial spectrum.  Of course, it's too little too late.  By the time this information is digested by the general public, it will be far too late for any of them to properly prepare for what's in store.  Hopefully, the efforts  of alternative economic analysts have educated enough people to make a difference when global fiscal mechanics grind to a halt.  After all is said and done, it has been the mainstream financial media that has played a considerable role in the misdirection of the American public in particular, and such people deserve to be punished for it.

Regards,

Brandon Smith, Founder Of Alt-Market.com

 

This article was written by Bob Adelmann and originally published at The New American

Olivier Blanchard, the former chief economist for the International Monetary Fund (IMF), said back in October that his biggest fear is the “herd” mentality of investors who sell even if they don’t have any news to back up their decision: "Investors worry that other investors know something bad, and so they just sell, although they themselves have no new information."

At bottom, it is said, markets are driven by expectations and not by numbers. When the numbers get bad enough, the “herd” mentality takes over, and investors who have been holding losing positions, finally cave, and liquidate, taking their losses.

The numbers are bad enough. Thomas Thygesen, the head of economics at the Swedish banking conglomerate SEB, told 200 commodity brokers and analysts last month that a global recession is on the way. He then recounted signals of recession:

• Commodity prices — not just oil — have dropped by two-thirds since the summer of 2014;

• Oil has suffered the worst price decline in recent history;

• Crude fell to $10 a barrel in the late 1990s in the wake of the Asian financial crisis, suggesting that the same could happen again;

• The impact of the collapse in crude should have a positive impact as industry relies heavily on energy to drive itself, but it’s not;

• The “tail” of the oil price decline is causing bankruptcies that are negatively impacting banks and forcing them to recast their balance sheets, cut back on loans to the oil industry, and, in some cases, cut their dividends;

• The decline is “imperiling the finances of producer nations from Nigeria to Azerbaijan”; and

• China’s reports of 6 percent growth are increasingly being written off as unrealistic, perhaps even fraudulent.

Blanchard added to this litany, that the world economy may have reached a “tipping point,” noting, “This would be a serious shock. My biggest fear is precisely that the dramatic shift in mood becomes self-fulfilling.”

First, the average business cycle is five years. The start of the Great Recession was seven years ago. Second, the wave of bankruptcies in the oil sector will gain in number and ferocity, according to Blanchard. Third, the high-yield bond index “is now vulnerable” thanks to oil prices that are low and likely to remain low or even fall further.

In addition, the amount of debt that the oil and gas industry has accumulated worldwide is staggering: The industry has issued $1.4 trillion of bonds and borrowed another $1.6 trillion from banks for a total of $3 trillion. With net free cash flows declining and in some cases disappearing altogether, the industry is increasingly threatened by its inability to service that debt. The ripple effect would reach far beyond the industry itself.

Bronka Rzepkowski of Oxford Economics is equally concerned: "Conditions that usually pave the way for mounting defaults — such as growing debt, tightening monetary conditions, tightening of corporate credit standards and volatility spikes — are currently [being] met in the U.S."

And then there’s history itself. Over the last 45 years the Standard & Poor’s 500 Index (SPX) has suffered a loss of more than 12 percent on 13 occasions. Six of these have led to a recession in the United States, nearly half the time.

The same goes for Europe, according to Dennis Jose at Barclays Bank: “Of the 14 previous occasions [when] equities have had a similar decline, seven have been associated with recession.”

Michael Pento of Pento Portfolio Strategies and author of The Coming Bond Market Collapse points out that the average drop in stock prices — peak to trough — during the last six recessions has been 37 percent. That would take the SPX, currently trading at 1835, all the way down to 1300.

But, says Pento, “This one will be worse.” China, considered the driver of global economic growth for decades, has multiplied its debt by an astonishing 28 times since 2000. As that massive buildup is unwinding, the Shanghai stock market has declined 40 percent since June 2014, and the rout isn’t yet complete. The problem, says Pento, is that China “has accounted for 34 percent of global growth” but without that, the global economy is in trouble.

There’s the U.S. housing market, where the home price to income ratio is currently 4.1, way above the average of 2.6. This not only makes it increasingly difficult for first-time home buyers, it also means that existing home owners looking to move up can’t find buyers.

There’s the stock market in the United States, which, despite the recent selloff, has a “market capitalization to GDP” ratio of 110, compared to its long-term average of 75.

There’s the debt taken on since 2007: Household debt is back to its former record of $14 trillion; business debt has grown from $10.2 trillion to $12.6 trillion during that period; the national debt has ballooned from $9.2 trillion to $19 trillion; and the Fed’s balance sheet is off the charts, moving from $880 billion to $4.5 trillion.

As the recession becomes more obvious, the Fed is left with few options. If it begins another program of monetary expansion — QE 4 — it “would cause an interest rate spike that would turn the recession into a devastating depression,” said Pento, adding, “Faith in the ability of central banks to provide sustainable GDP growth [has] already been destroyed, given their failed eight-year [previous] experiments in QE.”

Even economists at Citigroup, the third largest bank holding company in the country, are getting nervous. Jonathan Stubbs reported for the bank on Thursday, “The world appears to be trapped in a … death spiral,” adding,

[A] stronger U.S. dollar, weaker oil/commodity prices, weaker world trade/petrodollar liquidity, weaker [emerging markets and global growth] and repeat, ad infinitum. This would lead to Oilmageddon, a “significant and synchronized” global recession and a proper modern-day equity bear market.

[DougMacG]

U6 is a better measure than U3, yet the media always go with the lower number.  But U6 at 9.9 still omits the discouraged unemployed.  The real unemployment rate is roughly 22.5%, as shown in this chart.


The blue line best matches what people are actually experiencing.

http://www.powerlineblog.com/archives/2016/02/talkin-employment-blues.php
http://mobile.wnd.com/2013/01/heres-the-real-unemployment-rate/

[Crafty_Dog]

This is a Correction, Not a Recession To view this article, Click Here
Brian S. Wesbury, Chief Economist
Date: 2/12/2016

With the S&P 500 down 10.5% through February 11th, questions about the health of the economy seem to intensify daily. The concerns typically go something like this: If the financial markets are a predictor of where the economy is headed, has the plow horse finally lost traction? Is a recession looming? 
Let’s put this to the test.
An old joke says the stock market has predicted 19 of the last five recessions. Stocks don’t always lead the economy, and earnings clearly don’t show that things are awful. With 375 S&P 500 companies having reported Q4 earnings as of February 11th, 70.7% have beat estimates, although earnings are down 5% from a year ago it’s all due to just one sector, energy. Of the 375 companies that have reported, only 23 of them have been energy. Excluding those 23 energy companies, earnings for the other 352 companies are up 1.0% from year-ago. So, for those claiming the market drop is due to declining earnings, it seems more like an energy story than an economic one. It's plow horse earnings growth outside of energy, but it's earnings growth.
Corrections are designed to scare the snot out of people. This is one of those corrections, and if you read my email inbox or watch, read, or listen to the financial press, it’s working.
But this is an emotional correction, not a fundamental one. The US is not entering a recession. Let’s look at a few more facts:
Retail sales rose 0.2% in January, beating consensus expectations and were up 0.4% including revisions to prior months. This is the third consecutive month of gains, which is particularly impressive considering gas station sales plummeted 3.1% in January, due to lower prices at the pump. Again more of an energy story than an economic one. Excluding gas stations, retail sales have risen seven months in a row and are up 4.5% from a year ago.
In 2015, hourly earnings rose 2.7%, acceleration from the sub-2.0% trend seen over the previous two years. At the same time, initial claims have been below 300,000 for 49 consecutive weeks. Private payrolls grew at a 216,000 monthly rate in 2015, and the unemployment rate is down to 4.9%. And no, this is not a “part-time” recovery. In the past twelve months, full-time employment has grown by 2.5 million jobs while part-time employment is down 120 thousand! With 5.6 million unfilled jobs (the second highest on record), and quit rates at the highest levels of the recovery, there should be little question why they Fed started to hike rates in December.
What about inflation? Oil has plummeted and we must be near deflation if we aren’t there already, Right?!? But, “core” inflation, which excludes the volatile food and energy components was up 2.1% year-to-year in December, very close to the Fed’s 2% inflation target. Even with the huge drop in oil, the overall index is still up 0.7% in the past twelve months. And the consumer price index is about to drop off the huge declines from early last year when oil plummeted. If the consensus is right and a 0.1% drop occurred in December, year-to-year CPI will rise to 1.3% in January, from just 0.7% in December.
In other words we don't have deflation in the US.
You can tell there is massively negative emotion in the market because everything is bad. Low oil prices are bad. Strong car sales are bad - by the way, autos sold at a record pace in 2015 and continued to rise in January. When the Fed dot plot forecast four rate hikes in 2016, that was "bad." And now it's "bad" that the Fed may hold off on another rate hike for a while.
Whether the Fed continues to raise rates or folds to market concerns and holds off, the Fed won’t be tight any time soon. Commercial and industrial loans grew 13.6% at an annual rate in past 13 weeks, that doesn’t sound like evidence of tight monetary policy to us.
What we focus on are the Four Pillars of Prosperity: Monetary Policy, Tax Policy, Trade Policy, and Spending & Regulation. So let’s see where those stand:
1.      Monetary Policy – As we mentioned above, the Fed is still easy and will be for the foreseeable future
 
2.      Tax Policy – If anything, tax policy is likely to get better before it gets worse, but don’t expect much until after the elections
 
3.      Trade Policy - The US is not going to become protectionist
 
4.      Spending & Regulation – This is the only real area of concern. Spending and regulation are too high, but spending is still a smaller share of GDP than it was five years ago and the Supreme Court just blocked harmful EPA regulations.
To say it succinctly, the fundamentals of the economy show no evidence of recession. And, out of the four potential threats, only one is moderately negative.
This is a correction, not a turning point for the stock market. Our models, with stocks driven by interest rates and corporate profits, not sentiment, suggest the market is still significantly undervalued.
It's not often you get recession level prices when there is no recession.
Put money to work, don't run away.

[Crafty_Dog]

http://scottgrannis.blogspot.com/2016/03/lousy-economy-but-great-job-security.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29

[DougMacG]

http://scottgrannis.blogspot.com/2016/03/lousy-economy-but-great-job-security.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29

Everyone who can be laid off, fired or eliminated already has been.

[objectivist1]

Doug: EXACTLY.

To Scott Grannis:  Thank you for that brilliant analysis, Captain F**cking Obvious!

[ccp]

Isn't reported that essentially all the new jobs are going to people from other countries.

Why this is wonderful.  We are merrily employing the world.  How beautiful.

[Crafty_Dog]

http://scottgrannis.blogspot.com/2016/03/profits-are-down-is-that-bad-for-stocks.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29

[DougMacG]

http://scottgrannis.blogspot.com/2016/03/profits-are-down-is-that-bad-for-stocks.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29

I commented on the Scott Grannis blog today and he responded.  We agreed that 'less anemic' might describe the upward revision in this economy better than 'stronger growth'.   

[Crafty_Dog]

 

[Crafty_Dog]

Don't Short the Participation Rate! To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 4/4/2016

Last Friday was an interesting day. For years now, the US has consistently added jobs and the unemployment rate has steadily fallen. But, the Pouting Pundits of Pessimism keep arguing that a falling unemployment rate is only because of weak growth in the labor force.  So, on Friday, when the employment data for March were released, showing growth in the labor force and a rising unemployment rate (from 4.9% to 5.0%) guess what the pundits focused on? You got it, now it’s the unemployment rate that matters.

In spite of these Nattering Nabobs, the job market keeps getting better. The March payroll increase of 215,000 makes it 66 consecutive months of positive job growth. And now, both measures of job growth – the payroll report and the household data, which captures small-business start-ups – are up 234,000 per month in the past year. Not super strong, but certainly not weak.

But what’s changed the most lately is a pick-up in the growth of the labor force. The total number of people in the labor force is up 2.2 million in the past year, the largest increase since 2007-08. The labor force is now growing faster than population and the labor force participation rate bottomed at 62.4% back in September – the lowest level since the late 1970s – and in March made it back to 63.0%.

That’s still low by historical standards. Nonetheless, it shows that economic growth is finally overcoming the loss of workers due to baby boomers retiring and more generous government handouts to those who don’t work.

Faster wage growth is part of the reason. Average hourly earnings – workers’ cash earnings excluding tips and irregular bonuses/commissions – are up 2.3% in the past year. In the first three months of 2016, those earnings rose 2.7% at an annual rate. And with gas prices holding overall inflation down, those earnings go further.

Even more important, the acceleration in wages is happening while there’s a lull in the expansion of the welfare state. The welfare state has grown substantially in the past several years. The Affordable Care Act, also known as Obamacare, expanded Medicaid and created large subsidies to buy health insurance. As a result, people have less incentive to work. The same goes for letting disability benefits become, in effect, a “waiting station” for middle-age workers before they can get Social Security retirement benefits.

Even without retiring Boomers, a bigger welfare state should mean slower growth in the labor force and lower labor force participation, exactly what’s happened. But, for the next few years, as wages grow faster, the bargain available to those who work will likely get better faster than welfare benefits.
And that means a rebound in labor force growth.

It also means stabilization for the unemployment rate. The jobless rate ticked up to 5.0% in March and is now barely lower than the 5.1% back in September, six months ago. We would suggest that the US is now at “full employment,” or is even above full employment.

Earlier in the economic recovery, some analysts were complaining that slow growth in the labor force was causing the unemployment rate to drop quickly even though job growth was not that fast. Now we have the opposite: faster growth in the labor force, paired with faster job growth, meaning the jobless rate barely moves.

At present, we think the unemployment rate will likely stay right around 5.0% or slightly lower this year, with continued robust gains in both jobs and the labor force. However, we could eventually see further declines in the jobless rate in 2017 due to the delayed effects of loose monetary policy this year. But that would come with a negative – higher inflation.

What we’d really like to see is a shift in policy next year, one that both trims the welfare state and cuts tax rates. In that situation, jobs and the labor force would grow even faster and the Federal Reserve would have more room to raise rates back toward normal, even if the unemployment rate went up a little.

[Crafty_Dog]

second post

http://scottgrannis.blogspot.com/2016/04/a-few-encouraging-developments.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29

[ccp]

Want to buy into a 5% stake in a 2 trillion dollar company?  ( or is the 5 % stake 2 trillion?   )

http://finance.yahoo.com/news/saudi-arabias-government-officially-unveils-124152347.html

[objectivist1]

Oil Market Hype And Crisis Signal Greater Troubles Ahead

Wednesday, 20 April 2016   Brandon Smith - www.alt-market.com


Most people are not avid followers of economic news, and I don’t blame them. Financial analysis is for the most part boring and tedious and you would have to be some kind of crazy to commit a large slice of your life to it.

However, those of us who are that crazy do what we do (and do it independently) because underneath all the data and the charts and the overnight news feeds we see keys to future events. And if we are observant enough, we might even be able to warn people who don’t have the same proclivities but still deserve to know the reality of the world around them.

Most Americans and much of the rest of the planet probably were not aware of the recent oil producer’s meeting in Doha, Qatar this past Sunday, nor would they have cared. A bunch of rich guys in white dresses talking about oil production levels does not exactly spark the imagination. What the masses missed, though, was an event that could affect them deeply and economically for many months to come.

A little background highly summarized…

After the derivatives and credit crisis launched in 2007/2008 the Federal Reserve responded to disastrous levels of deflation with a fiat money printing bonanza. Everyone knows this. The problem was the central bankers never had any intention of actually using all that “cash” to support Main Street or the fundamentals of the economy.

Instead, they used their printing press and digital loan transfers to artificially re-inflate the coffers of banks and major corporations. It was a blood transfusion for vampires, if you will.

Through the use of TARP (Troubled Asset Relief Program), quantitative easing, artificially low interest rates, and probably a host of secret actions we’ll never hear about, a steady stream of capital (or debt, to be more precise) was pumped through corporate conduits. The goal? To keep the U.S. from immediate bankruptcy through treasury bond purchases, to boost bank credit, and to allow companies to institute an unprecedented program of stock buybacks (a method by which a corporation buys back its own shares to reduce the amount on the market, thereby manipulating the value of the remaining shares to higher prices).

As the former head of the Federal Reserve Dallas branch, Richard Fisher admitted in an interview with CNBC:

“What the Fed did — and I was part of that group — is we front-loaded a tremendous market rally, starting in 2009.

It’s sort of what I call the “reverse Whimpy factor” — give me two hamburgers today for one tomorrow."

Why would the Fed want to engineer a hollow rally in stocks? As I have said in the past, they did this because they know that the average American watches about 15 minutes of television news a day and gauges the health of the economy only on whether the Dow is green or red. From 2009 to 2015, the Fed felt it needed to support markets through fiat and keep the public placated and apathetic.

Stocks and bonds were not the only assets being propped up by the Fed, though. In tandem, oil markets were artificially inflated.

Oil suffered a historic spike in 2008, then collapsed to near $40 (WTI). Starting in 2009 and the initiation of major stimulus measures by the Fed, oil prices came back with a vengeance; almost as if the spike in 2008 was merely a measure to psychologically prepare the public for what was to come. In 2010 prices climbed near the $90 mark, then in 2011 they peaked at around $115 a barrel.

Then, something magical happened — in December, 2013, the Fed announced the Taper of QE3, something very few people predicted would actually happen (you can read this article breaking down why I predicted it would happen).

The taper involved slowly cycling out Fed purchases a month at a time. By mid-2014 the taper was nearing completion. Suddenly, oil markets began to tank. By October, 2014 the Fed finished the taper and oil collapsed, from $95 a barrel to a low of under $30 a barrel at the beginning of 2016. The correlation between the Fed taper and the overwhelming drop in oil prices is undeniable. Clearly, high oil prices were primarily dependent on Fed QE.



While equities fluctuated heavily after the end of QE3, they were still supported by the Fed’s other pillar – near zero interest rates. NIRP allowed the Fed to continue funneling cheap or free money to banks and corporations so they could keep stock buybacks rolling, but oil was done for.

Now, until recently, oil markets have NOT reflected the true state of the global economy. All other fundamental indicators have been in decline since the crash of 2008, including global exports, imports, the Baltic Dry Index, manufacturing, wages, real employment numbers, etc. Oil consumption in the U.S., according to the World Economic Forum, has sunk to lows not seen since 1997. Current levels of oil consumption are FAR below projections made in 2003 by the Energy Information Administration. By most tangible measurements, we never left the crisis of 2008.



Oil demand continued to fall but prices remained high because of Fed intervention. My theory: As with stocks, the Fed at that time needed to pump up the only other indicator the mainstream might notice as a sign of dangerous deflation – energy prices.  Dwindling demand is the real problem being hidden in chaos surrounding arguments over production.  The establishment prefers we focus completely on supply while ignoring the warnings of falling demand.

QE was the first pillar to be pulled from the false recovery, and oil markets plunged. At the end of 2015, the Fed removed the second pillar of NIRP and raised interest rates. OPEC members met to discuss a possible production freeze agreement but the conference failed to produce anything legitimate. This resulted in stocks crashing in extreme volatility to meet up with oil.

Then something magical happened once again. In mid-February, OPEC members and non-members arranged yet another meeting, this time with much fanfare and steady rumors hinting at a guaranteed production freeze deal. Oil began to climb back from the brink, and stocks rallied over the course of six more weeks.  All eyes were on Doha, Qatar and the oil agreement that would "save markets".

I bring up the recent history of oil markets because I want to give some perspective to those people who suffer from a disease I call "ticker tracking".  This disease causes extreme short attention span issues and loss of long term memory.  The dopamine addiction of ticker tracking makes people forget about long term trends and their relation to the events of today, to the point that they ignore all fundamentals in the name of watching little red and green lines day in and day out.

For example, the fact that the Doha meeting failed but did not result in an immediate and massive slide in oil and stocks sent ticker trackers crowing that the market "will never be allowed to fall".  Their affliction keeps them from realizing that the effects of Doha, like any other major financial event in the past, take TIME to set in.  Not to mention, they seem oblivious to the implications of oil struggling to move comfortably beyond $40 a barrel.

Remember, oil was around $60 (WTI) six months ago, and had held over $100 (WTI) for years before then.  The crash in oil markets has ALREADY happened, folks.  What we are witnessing today is the last vestiges of that crash playing out in extreme volatility.  Now we wait for equities to fall and meet oil, as they did at the beginning of 2016, and as they eventually will again.

Are stocks tracking oil prices? It may not be an absolute correlation, and they do tend to decouple at times, but the overall trend has been consistent; when oil falls, stocks loosely follow.

The Doha meeting was always a farce; that much was obvious before it even took place. Bloomberg along with other media outlets were planting rumors of backroom deals between Russia and Saudi Arabia before the Doha event which would solidify a production freeze. Numerous mainstream “experts” claimed an agreement was essentially a sure thing. Even some skeptics within the liberty movement were doubtless that a deal was certain because “the internationalists would never allow oil prices to continue to drag on the public perception of the economy.”

First, I am not a believer in the idea that global economic decisions are really made at these meetings. Any nation that has a central bank that is tied to the Bank of International Settlements and the International Monetary Fund is a CONTROLLED nation. Period. Economic arrangements are handed down from on high, not debated spontaneously in open forums. Read Harper’s 1983 article on the BIS titled “Ruling The World Of Money” for more information on how globalists control the economic policies of nations.

Second, even if a person believes that such vital economic decisions as a global oil production freeze are decided in closed meetings while the press waits just outside, why would anyone buy into the Doha event?

I am not quite sure why some people were gullible enough to think that after 15 YEARS of oil producers refusing to come together on any form of meaningful agreement they would suddenly shake hands this year. The only hope markets had was the possibility that the Doha meeting would result in an empty deal that they could spin in the mainstream news as a legitimate “production freeze.” Apparently they won’t even be getting that.

The Doha talks ended in failure. All the signs said this would happen. As I wrote in my article “Lost Faith In Central Banks And The Economic End Game”:

For anyone who was betting on oil markets to continue their rally past the $40 per barrel mark, there was a lot of bad news. Saudi Arabia crushed optimism by announcing that it would not be entertaining a “production freeze” proposal unless ALL other oil producing nations, including Iran, also agreed to it.

Iran then doubly crushed optimism by announcing an increase in production rather than committing to a freeze.

Russia then administered the final blow by releasing data showing that their oil output had risen to historic levels, indicating that they will not be entering into any agreement on a production freeze.

Besides a recent overly optimistic (and rather suspicious inventory draw) which has caused a short term rebound, all indicators show that oil will be headed back to the lows seen at the beginning of this year.

The effects of the Doha failure were delayed by a convenient labor strike in Kuwait, which caused algo trading computers to buy en masse despite the negative news.  As I pointed out on Monday, though, the Kuwait situation would be very short lived.  Now, it is time to watch and wait for Saudi Arabia and Iran to begin battling over market share and increasing production even more.  These things take a little time to develop.

Currently oil has dropped back below $40(WTI) and markets are extremely volatile. I do not believe the failure of the Doha meeting alone will translate to a fantastic drop in stocks. But, I do believe that it is a very heavy straw added to the camel's back, and there is a negative trend developing before our very eyes that will become apparent in the next couple of months.

As I have said in the past, a market entirely supported by rumors and hearsay can rally quickly, but also lose all gains at the drop of a hat. What the Doha debacle represents is a signal that the establishment is incrementally abandoning support for market systems.  This is translating to a loss of faith in central banks and major financial institutions.

On top of this, look at the incredible amount of misinformation and misdirection that went into Doha, now completely exposed. The truth is crystal; the MSM lied and obfuscated helping the establishment to drive up oil prices and stocks, all for a mere six to eight weeks of market security.  As soon as these lies were revealed, volatility began to return.

If the oil market bubble can implode (as it already has) in such a way due to the striking of fundamentals, then stocks can also be destabilized as well. It will happen, and I believe 2016 is the year it will happen.

There are those out there that miscalled how the Doha meeting would end because they were blinded by a particularly dangerous bias; they have assumed that central banks and internationalists want or need to continue propping up markets indefinitely. This is not necessarily true. In fact, I have outlined time and again evidence showing that they are planning the opposite. That is to say, they are planning to deliberately bring down markets in a controlled manner.

Oil was the most recent system to be undermined, and stocks will likely follow before the year is out. The fall in oil and the circus at Doha signals a change in strategy by the globalists. It signals a shift towards the controlled demolition of our economy and the centralization of fiscal power into a single global administrative entity. Order out of chaos.

There is a steady stream of events in the next few months that can be used as a steam valve for sinking global markets. Watch the April Fed meeting carefully. The Fed recently held two “emergency meetings” along with a third surprise meeting between President Barack Obama and Fed Chair Janet Yellen. The last time such a meeting occurred the Fed hiked rates less than a month later. I expect that the Fed will raise rates once again either this month or in June.

Also, watch for the Brexit (the British exit from the EU) referendum in June. Such a development would greatly shock an already unsteady Europe as well as the rest of the West.

And, of course, watch for trends in oil and stocks, but do not get caught up in the day-to-day mindlessness of ticker tracking. It is pointless and will not help you to understand what is happening economically. In any economic crisis, stocks are the LAST indicator to turn negative and daily analysis by itself is in no way a crystal ball.

The next couple of months should be very interesting. Stay vigilant.

[G M]

http://www.cnbc.com/2016/04/27/federal-reserve-rate-decision-latest-news.html

Everything is awesome!

[Crafty_Dog]

The ISM Non-Manufacturing Index Rose to 55.7 in April To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/4/2016

The ISM non-manufacturing index rose to 55.7 in April from 54.5 in March, coming in above the consensus expected 54.8. (Levels above 50 signal expansion; levels below 50 signal contraction.)

The major measures of activity were mostly higher in March, and all stand above 50, signaling expansion. The new orders index rose to 59.9 from 56.7 while the employment index increased to 53.0 from 50.3 in March. The supplier deliveries index remained unchanged at 51.0, and the business activity index declined to 58.8 from 59.8.

The prices paid index increased to 53.4 in April from 49.1 in March.

Implications: Service sector activity picked up in April at the fastest pace of 2016. Among the eighteen industries that the ISM surveys, thirteen reported growth in April, while just four - including mining and transportation - reported contraction. Service sector activity has now grown for 75 consecutive months, and continued strength in both new orders and business activity show positive signs for the months ahead. The new orders index, a signal of how business activity and employment are likely to move in coming months to fill demand, rose to 59.9, the highest reading in six months. Meanwhile the business activity index declined one point to a still robust 58.8. Taken together, growth prospects remain positive with no sign of a recession. On the inflation front, the prices paid index broke above 50 in April, coming in at 53.4 as rising prices for metals and fuels more than offset declining prices for beef, eggs, and natural gas. The employment index ticked higher in April, rising to 53.0 from 50.3 in March. In both 2014 and 2015, the pace of service sector growth slowed (but still showed growth) in the first quarter before picking up through the remainder of the year, and today’s report suggests this trend may continue in 2016. In other news this morning, the ADP index, which measures private-sector payrolls, increased 156,000 in April. We are waiting on tomorrow’s initial claims data for a final estimate, but plugging the ADP figures into our models suggests Friday's official report on nonfarm payrolls will show a gain north of 200,000, another solid month. In other recent news, consumers continue to flock to auto dealerships, with cars and light trucks selling at a 17.4 million annual rate in April, up 5.1% from March and up 4.0% from a year ago.

[Crafty_Dog]

Nonfarm Payrolls Increased 160,000 in April To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/6/2016

Nonfarm payrolls increased 160,000 in April, missing the consensus expected 200,000. Including revisions to February/March, payrolls rose 141,000.

Private sector payrolls increased 171,000 in April, although revisions to prior months subtracted 25,000. The largest gains in April were for professional & business services (+65,000, including temps), education & health care (+54,000), and leisure & hospitality (+22,000). Manufacturing payrolls rose 4,000 while government fell 11,000.

The unemployment rate remained at 5.0%.

Average hourly earnings ? cash earnings, excluding irregular bonuses/commissions and fringe benefits ? rose 0.3% in April and are up 2.5% versus a year ago.

Implications: Disappointing headlines, but mixed details and key bright spots that shouldn?t be overlooked. The most disappointing headline was that payroll growth slackened in April to 160,000, well short of consensus expectations and the slowest in seven months. Meanwhile, civilian employment, an alternative measure of jobs that includes small business start-ups, declined 316,000. Normally, a drop in civilian employment this large would mean a higher unemployment rate, but the labor force fell 362,000, so the unemployment rate remained at 5.0%. However, don?t get panicky: it?s just one month?s data and the trends over the past year remain solid. In the past twelve months, payrolls are up 224,000 per month and civilian employment is up 208,000 per month. And, in spite of the drop in April, the labor force is up almost 1.9 million in the past year. Even the labor force participation rate, which declined to 62.8% in April from 63.0% in March and remains very low by historical standards, is slightly higher than it was a year ago. So how can we stay bullish about further improvements in the labor market? Because both wages and hours worked show plenty of demand for workers. Average hourly earnings grew 0.3% in April and are up 2.5% in the past year. Meanwhile, total hours worked rose 0.4% in April and are up 2.1% from last year. The importance of more hours is easy to overlook, but shouldn?t be. The average workweek ticked up to 34.5 hours in April from 34.4 hours in March. That one-tenth of an hour might seem small, but it?s the equivalent of adding about 350,000 jobs. As a result of the increase in wages and hours, total cash earnings (excluding fringe benefits and irregular bonuses/commissions) are up 4.7% from a year ago. In an environment where consumer prices are up about 1%, that leaves lots of room for more consumer purchasing power. The financial markets reacted to this morning?s report by reducing the odds on a June rate hike to only 2%. We think that?s absurdly low. In the past, Fed Chief Yellen has watched the share of voluntary job leavers (or ?quitters?) among the unemployed as a sign of labor market strength. In April, that share hit 10.8%, the highest since 2008 and barely below the average of 10.9% during the past 30 years. Expect a rebound back toward trend job growth in May and for expectations of a June rate hike to move up over the next several weeks.

[G M]

The economy is back!

 

How's the record number of food stamps going?

[objectivist1]

Fed Minutes Indicate Rate Hike In June

Wednesday, 18 May 2016    Brandon Smith

As predicted right here at Alt-Market, the Federal Reserve is pressing for a second rate hike this June, right before the Brexit vote in the UK to determine if they will leave the EU.  As I have warned on numerous occasions, the Fed is ignoring all fundamental data and pretending as if a "recovery" is progressing in order to justify a rate move.  Markets stalled today after being slapped down the past week as hints of a rate hike hit the mainstream, and oil dropped quickly on the mere threat of a stronger dollar.  If a rate hike occurs (and I believe it will), expect markets to fall dramatically, back into the 15,000 point (Dow) range by the end of the second quarter.  Stocks have NOT priced in a rate hike in a realistic manner; in fact, the markets have essentially ignored the possibility and this is probably going to bite them on the ass.  If the Brexit passes as well, expect a GLOBAL market downturn.  June is going to be a very interesting month...

 

Federal Reserve policy makers indicated that a June interest-rate increase was likely if the economy continued to improve, boosting market expectations they will act next month.

“Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen and inflation making progress toward the committee’s 2 percent objective, then it likely would be appropriate for the committee to increase the target range for the federal funds rate in June,” according to minutes of the Federal Open Market Committee’s April 26-27 meeting released Wednesday in Washington.

Officials were divided over whether those conditions were likely to be met in time. “Participants expressed a range of views about the likelihood that incoming information would make it appropriate to adjust the stance of policy at the time of the next meeting,” the minutes stated.

Referring to the June meeting, officials “generally judged it appropriate to leave their policy options open and maintain the flexibility to make this decision” based on how the economy evolves, the minutes said.

“The tone was quite hawkish, and I think probably surprised many market participants,” said Tony Bedikian, managing director of global markets for Citizens Bank in Boston. “It looks like the Fed put the June hike relatively aggressively on the table, so long as the economic data continues to show positive signs.”

 

READ MORE HERE:

http://www.bloomberg.com/news/articles/2016-05-18/most-fed-officials-saw-june-hike-likely-if-economy-warrants

[DougMacG]

Are they done propping up Obama and setting up the crash correction to come right as he leaves?

It was a different situation but I wonder what we can learn from Paul Volcker.  He was appointed in August 1979.  By July 1981 he had the Federal Funds rate above 20% using tight money to squeeze out inflation.  Meanwhile the Reagan tax cuts were delayed and not fully in place until Jan 1, 1983.  In the time in between, unemployment spiked and people faced a hard recession.  In hindsight it seems quite obvious that those different but opposing forces on the economy should have happened simultaneously.

What is wrong with this economy, in addition to absent interest rates, is excessively burdensome (1) regulations (2) taxation, and (3) all the disincentives to produce in the social spending network that weaves its way through the lives of more than half the people.  For example, make more money and you lose your healthcare subsidy, Fafsa eligibility, SSI etc.

Zero interest rates serve to partially hide negative effects of these other problems in the short term while causing other long term problems like zero savings and zero new real investment in the economy, ensuring roughly zero growth in GDP and wages.

Monetary policy has a different decision process and team than we have for these other failed policies, yet it would be beneficial to the economy if the timing was coordinated with correction of these other known problems.

But of course we aren't even admitting what's wrong much less motivated to fix them.  The Fed rate increase is a head fake.  If they go through with it at all, it will be a 1/4 point increase in addition to the 1/4 point increase we had last December and the last before that was 10 years ago.  At this rate, savers would see 5% interest rates by just past their life expectancy.  The schedule for fixing the other problems at this point is never.

[objectivist1]

Business Debt Delinquencies Are Now Higher Than When Lehman Brothers Collapsed In 2008

Monday, 23 May 2016    Michael Snyder  www.alt-market.com/articles/2901-business-debt-delinquencies-are-now-higher-than-when-lehman-brothers-collapsed-in-2008

This article was written by Michael Snyder and originally published at The Economic Collapse

You are about to see more very clear evidence that a new economic crisis has already begun.  During economic recoveries, business debt delinquencies generally fall, and during times of economic recession business debt delinquencies generally rise.  In fact, you will see below that business debt delinquencies shot up dramatically just prior to the last two recessions, and the exact same thing is happening again right now.  In 2008, business debt delinquencies increased at a very frightening pace just before Lehman Brothers collapsed, and this was a very clear sign that big trouble was ahead.  Unfortunately for us, in 2016 business debt delinquencies have already shot up above the level they were sitting at just before the collapse of Lehman Brothers, and every time debt delinquencies have ever gotten this high the U.S. economy has always fallen into recession.

In article after article, I have shown that key indicators for the U.S. economy started falling in either late 2014 or at some point during 2015.  Well, business debt delinquencies are another example of this phenomenon.  According to Wolf Richter, business debt delinquencies have shot up an astounding 137 percent since the fourth quarter of 2014…

Delinquencies of commercial and industrial loans at all banks, after hitting a low point in Q4 2014 of $11.7 billion, have begun to balloon (they’re delinquent when they’re 30 days or more past due). Initially, this was due to the oil & gas fiasco, but increasingly it’s due to trouble in many other sectors, including retail.

Between Q4 2014 and Q1 2016, delinquencies spiked 137% to $27.8 billion.

And we never see this kind of rise unless the U.S. economy is heading into a recession.  Here is more from Wolf Richter…

Note how, in this chart by the Board of Governors of the Fed, delinquencies of C&I loans start rising before recessions (shaded areas). I added the red marks to point out where we stand in relationship to the Lehman moment:


Business loan delinquencies are a leading indicator of big economic trouble.

To me, this couldn’t be any clearer.

Just like the U.S. government and just like U.S. consumers, U.S. businesses are absolutely drowning in debt.

In fact, a report that was just released found that debt at U.S. companies has been growing at a pace that is 50 times faster than the rate that cash has been growing.

Just imagine what it would mean for your family if your debt was growing 50 times faster than your bank account.  Needless to say, this is an extremely troubling development…

Well, American companies may just have a mountain’s worth of problems, according to a new report from Andrew Chang and David Tesher of S&P Global Ratings.

“At the same time, the imbalance between cash and debt outstanding we reported on last year has gotten even worse: Debt outstanding increased 50x that of cash in 2015,” wrote Chang and Tesher.

“Total debt rose by roughly $850 billion to $6.6 trillion last year, dwarfing the 1% cash growth ($17 billion).”

And the really bad news is that banks all across the country are starting to tighten credit to businesses.

In other words, they are beginning to become much more reluctant to loan money to businesses because debts are going bad at such an alarming rate.

When the flow of credit to the business community starts to slow down, it is inevitable that the overall economy slows down as well.  It is just basic economics.  So the deterioration of the U.S. economy that we have witnessed so far is just the beginning of a process that is going to take quite a while to play out.

And let us not forget that most of the rest of the world is already is much worse shape than we are.  Most global financial markets are officially in bear market territory right now, and some nations are already experiencing full-blown economic depression.

Now that the early chapters of the “next crisis” are here, most American families find themselves ill-equipped to deal with another major downturn.  In fact, USA Today is reporting that approximately two-thirds of the country is currently living paycheck to paycheck…

Two-thirds of Americans would have difficulty coming up with the money to cover a $1,000 emergency, according to an exclusive poll, a signal that despite years after the Great Recession, Americans’ finances remain precarious as ever.

These difficulties span all incomes, according to the poll conducted by The Associated Press-NORC Center for Public Affairs Research. Three-quarters of people in households making less than $50,000 a year and two-thirds of those making between $50,000 and $100,000 would have difficulty coming up with $1,000 to cover an unexpected bill.

What are these people going to do when they lose their jobs or their businesses go under?

If you have any doubt that the U.S. economy is already in recession mode, just look at this chart over and over.

For months, I have been warning that the same patterns that immediately preceded previous recessions were happening once again, and this rise in debt delinquencies is another striking example of this phenomenon.

This stuff isn’t complicated.  Anyone that is willing to be honest with themselves should be able to see it.  As a society, we have been making very, very bad decisions for a very, very long period of time, and what we are watching unfold right now are the inevitable consequences of those decisions.

[DougMacG]

A funny quote I came across trying to read the market reaction to Brexit:

"Many companies in the FTSE 100 (the Dow of the UK) dig stuff up in Africa, price it in dollars and sell it in China" [and then take the global market value of that to tell us how the economy is doing in Britain in this case]. 
http://www.telegraph.co.uk/business/2016/06/27/why-we-should-be-looking-at-the-ftse-250-and-not-the-ftse-100-to/

To me it reinforces my point that the nominal dollar value index of giant, crony, entrenched companies, Dow, S&P, etc., after QE-10, ZIRP, NIRP, CRAp, doesn't tell us squat about how the economy is doing.

[objectivist1]

HOW OBAMA'S STUDENT-LOAN POLICY MAKES COLLEGE IMPOSSIBLE TO AFFORD

And the Democratic solution is to double down on it.

July 8, 2016  John Perazzo

One of the most crushing economic burdens that will plague today's young Americans for decades to come, is the debt they incur on their college student loans. Seven of every ten graduating collegians owe money on such loans, and their average debt is currently about $28,950 per borrower—up 68% from a decade ago. During the Obama administration, the cumulative sum of all student loan debt in the U.S. has risen from $600 billion to almost $1.4 trillion, a figure that continues to grow by an astounding $235 million per day.

We were brought to this sorry state-of-affairs by many years of bad policy, topped off by a particularly catastrophic “innovation” by Obama and the Democrats. For decades prior to the Obama years, students most commonly borrowed money for college by dealing with private lending institutions, most notably the Student Loan Marketing Association (known colloquially as Sallie Mae). Each time these lenders issued a student loan, they paid a fee to the federal government, which, in turn, assumed responsibility for covering the cost of any defaults. Knowing that taxpayers would pick up the tab for bad loans, the lenders relaxed their approval standards and made money readily available at low interest rates—even to students with weak credit credentials. This led, predictably, to record levels of borrowing.

Colleges and universities, reaping the windfall of this easy access to student-loan money, had no incentive whatsoever to keep their operating costs or tuition fees in check. Consequently, from 1985-2010 the cost of college tuition rose at more than 4 times the general rate of inflation. The gravy train was running in high gear. As Cato Institute scholar Tad DeHaven puts it, “[T]he rise in student subsidies over the decades appears to have fueled inflation in education costs.”

But instead of trying to break this cycle by taking the government out of the equation and allowing the free market to operate, the Obama administration took precisely the opposite approach.

On July 1, 2010, Obama signed Congressional legislation eliminating the role of private lenders in federal student loans. All such loans would now be issued through the Department of Education's Direct Loan program. Previously, the Department of Education had been responsible for about one-third of federal student loans through its direct-lending program. Now that figure became 100%. The Wall Street Journal correctly predicted that the new policy would cause the cost of college to “become even less affordable” while giving “more power to government” and transferring “more of the costs and risks of college financing to taxpayers.” House Education and Labor Committee chairman John Kline concurred that the new student loan program would “encourage more borrowing ... and leave the taxpayer holding the bag.”

In accordance with these predictions, delinquency rates on new student loans rose by 22% after 2010. Today, says the Wall Street Journal, “more than 40% of Americans who borrowed from the government’s main student-loan program aren’t making payments or are behind” on their loan payments.

Of course, where President Obama is concerned, government can never be big enough, or intrusive enough, or bloated enough. Thus, like the economic illiterate that he is, he has also called for a massive increase in federal Pell Grants to low-income students who are not required to repay the money. Meanwhile, economists at the Federal Reserve Bank of New York report that the Pell Grant program is little more than a boondoggle that fills the massive coffers of colleges and universities by driving tuition costs through the roof for everyone. As Forbes.com reports, “[F]or every dollar that Pell Grants are increased, college tuition goes up by 55 cents. In other words, the students pay an extra 55 cents in tuition for every dollar of Pell Grant they receive, meaning they only save 45 cents in terms of out-of-pocket costs. Colleges gain even more than the 55 cents from each dollar of new Pell Grants because they collect the extra tuition from all their students, including all the ones who do not receive Pell Grants.”

And what, pray tell, is presidential candidate Hillary Clinton's prescription for the problem of skyrocketing tuition and student debt? It's exactly what you'd expect from yet another economic illiterate. “Students at community college will receive free tuition,” she proclaims, and they “should never have to borrow to pay for tuition, books, and fees to attend a four-year public college in their state.” Does this mean that Hillary has devised a clever plan for persuading professors and administrators to work for free, and thus to eliminate tuition costs? Nope. Her “plan” is to have the federal and state governments do more to “meet their obligation to invest in higher education.”

That, of course, means that you—the American taxpayer, the plaything of our overlords in government—must “invest” more in the college education of people whom you've never met and will never know. Why? Because Hillary and Barack and the rest of the Democratic Party say it's your duty. And if you find that it's difficult to come up with the requisite cash, perhaps you could just do what Hillary does to earn a few extra bucks every now and then: Go give a one-hour speech somewhere for $250,000, and you'll be fine.