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

[objectivist1]

The big story here is that the REASON this has happened is that these CEOs are increasingly being paid in stock itself - not even in stock options.  This is not necessarily a bad thing, because it is an attempt to tie pay to performance.  BUT - the stock market is being manipulated in gross fashion, and over the last several years has NOT reflected the true performance of the companies behind the stocks.  It’s not the CEO’s faults or even the boards of directors that they are being overpaid - it is the massive and unprecedented manipulation of the stock market.  A crash is inevitable at this point - it’s not a question of IF, it’s only a question of WHEN?

http://bigstory.ap.org/article/median-ceo-pay-crosses-10-million-2013

[DougMacG]

...
http://bigstory.ap.org/article/median-ceo-pay-crosses-10-million-2013

This is for large" companies only.  For a benchmark, a medium cap company is worth $2 to 10 billion.  What is the average increase these companies had over this period?  The article doesn't say.  What portion of the increase went to the top executive?  Doesn't say.

My math:  $14 Trillion in the S&P 500 is about $28 billion per company, on average.  Stocks went up 26% last year or about 7.3 billion per company.  The lead executive, who we don't credit for the increase, made about $10 million or about .001 of the increase.  Outrageous (sarc.)

First we want their pay tied to performance.  Then we don't like it when that amounts to a lot of money.

What I don't like is when they make a lot of money for leading failure.  Government Motors comes to mind.

The question I would ask is this:  What policies do we have that favor large established companies over newer, smaller ones.  That is what over-regulation does. The largest companies with compliance departments and officers, human resource departments etc. know how to navigate within the myriad of rules and the rest of us couldn't open a lemonade stand without a team of lawyers and lobbyists, much less start an investment bank to compete with Goldman Sachs and the rest.

[objectivist1]

DMG - certainly I agree with you that there is a huge amount of crony capitalism going on right now.  This is not a true free-market system, because the government is picking winners and losers by whom it favors with its regulations.  The SEC has been corrupt in this regard for decades, as it is NOT enforcing rules that create a level playing field.  In a truly free-market system, CEOs would be rewarded when their companies do well, and not rewarded when profitability/revenue declines.  That's only one aspect though - there is so much onerous regulation going on (Obama's solar energy companies for example) which make it possible for management to preside over a company which goes bankrupt, and walk away with millions of dollars - effectively stolen from the investors - which many times happen to be U.S. taxpayers.

As an aside - I've never liked this idea of an "old boys club" of corporate directors - unlimited in scope - which has been allowed by the SEC for decades.  People who know nothing about running a particular company in a certain industry are put on the board by a minority of stockholders and paid huge salaries - in exchange for the same treatment.  One hand washes the other.  NO ONE ought to be allowed to be on the board of 20 different companies.  It simply is not possible for one person to know enough about all those separate entities to make effective, informed decisions about how they should be run.

[DougMacG]

... NO ONE ought to be allowed to be on the board of 20 different companies.  It simply is not possible for one person to know enough about all those separate entities to make effective, informed decisions about how they should be run.

Or in a free market, potential stockholders would look at the quality of management and the board of directors and not buy those stocks.  If companies were losing demand for stock ownership on that basis, they would re-evaluate those practices.

[Crafty_Dog]

As a supply-sider, I note that these forecasts of imminent doom are based almost entirely on "consumer demand." In my model of the economy, consumer demand is unimportant. What drives things is the supply side: jobs, output, and new investment. On that score, I note that in the first four months of this year the private sector created 840K new jobs, capital spending rose at a 4.8% annualized rate, industrial commodity prices rose at a 5.7% annualized rate, corporate profits increased at a 3% annualized rate, bank loans to business increased by $86 billion, industrial production rose at a 3.6% annualized rate, and credit spreads are at post-recession lows. In short, the supply side of the economy remains healthy, with no signs of deterioration.

In a few months we will know which "side" is the right one to follow: supply or demand. Supply-side analysis suggests the economy continues to grow at a modest pace of 2-3%. Demand-side analysis says we are in another recession.



=======================
Real GDP Was Revised to a -1.0% Annual Rate in Q1 To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/29/2014

Real GDP was revised to a -1.0% annual rate in Q1 from a prior estimate of +0.1%. The consensus expected -0.5%.

The largest downward revision, by far, was for inventories. Commercial construction and net exports were also revised down while business investment in equipment and intellectual property were revised up.
The largest positive contribution to the real GDP growth rate in Q1 was personal consumption. The weakest components were inventories and net exports.
The GDP price index was unrevised at a 1.3% annual rate. Nominal GDP growth – real GDP plus inflation – was revised down to a 0.3% annual rate from a prior estimate of 1.4%.
Implications: Forget about GDP for a moment. The most important economic news this morning was in the labor market, where initial claims fell 27,000 last week to 300,000 and continuing claims declined 17,000 to 2.63 million. Both the four-week average for initial claims and continuing claims are the lowest since 2007. Plugging these figures into our payroll models suggests a gain of 200,000 in May. (The forecast will change as we get more data in the next week on claims, the ADP index, and consumer spending.) Now back to Q1 GDP: look out for the Pouting Pundits of Pessimism. As we said in our most recent Monday Morning Outlook, it’s important to remember the report is for Q1, the last days of which ended two months ago, so it’s a “rearview mirror” picture of the economy. Real GDP was revised down to -1% at an annual rate from an original estimate of +0.1%. But as we have always argued, the weather was the chief culprit behind Q1 weakness and the downward revision was almost completely due to lower inventories, which leaves more room for growth in future quarters. Nothing in today’s news changes our forecast that real GDP will grow at about a 3% rate in the year ahead. Despite today’s downward revisions, nominal GDP (real growth plus inflation) is up 3.4% from a year ago; nominal GDP excluding government purchases is up 4.3% from a year ago. These figures continue to suggest a federal funds rate of essentially zero makes monetary policy too loose. Today’s report also provided the first glimpse at overall corporate profits, and boy was the headline ugly. Corporate profits fell 9.8% in Q1, but there are two good reasons. First, as with overall GDP, weather had a negative effect. Second and more important, the big drop in corporate profits was due to a large “capital consumption adjustment” which reflects the expiration of 50% bonus depreciation provision and higher limits for expensing under the American Taxpayer relief Act of 2012. In other words, this is a one-off event and we expect corporate profits to rebound sharply in the coming quarters. In other news today, pending home sales (contracts on existing homes) increased 0.4% in April after a 3.4% gain in March. These reports suggest existing home sales, which are counted at closing, will increase about 2% in May.

[G M]

I guess we just ignore the new levels of poverty and the rapid evaporation of the middle class.

[objectivist1]

"In short, the supply side of the economy remains healthy, with no signs of deterioration."  Really?  870,000 jobs in 4 months?  Well BELOW what is required simply to keep even with new workers entering the workforce?  SHRINKING GDP?  Sounds like a prescription for a robust, "plow-horse" economy to me!   

[Crafty_Dog]

GM, Obj:

No we do not ignore that at all, nor, if your read his blog, does Scott.

Nonetheless, these points are important and ALSO need to be part of our analysis:

" I note that in the first four months of this year the private sector created 840K new jobs, capital spending rose at a 4.8% annualized rate, industrial commodity prices rose at a 5.7% annualized rate, corporate profits increased at a 3% annualized rate, bank loans to business increased by $86 billion, industrial production rose at a 3.6% annualized rate, and credit spreads are at post-recession lows. In short, the supply side of the economy remains healthy, with no signs of deterioration."

Scott's point about the demand side nature (Keynesianism) of many criticisms IMHO is perceptive and deep.  Supply Side analysis can be very powerful.  In this regard the best single book I can recommend, and IMHO one of the best books of political economics ever written (and it is in an easy to read style) is "The Way the World Works" by Jude Waniski (sp?).  Highly recommended.

[G M]

http://hotair.com/archives/2014/05/30/cbs-dont-expect-the-economy-to-rebound-significantly/

[Crafty_Dog]

http://scottgrannis.blogspot.com/

[DougMacG]

Scott Grannis:  "One negative quarter does not make a recession."

No, but two does, and that's just an arbitrary definition.  The point is that we are in a no growth economy no matter how they spin it, and we are doing everything wrong in terms of trying to grow out of it.

I wholeheartedly agree that supply side being the main determinant of economic growth.  But how is that going?  The George Will piece started to back up the allegation I have been making.  We're in a horrible rut of not launching enough real new startup companies that have the potential to grow into large, dynamic, employing entities to grow the economy.  The dearth of startups is hard to measure because people are filing LLCs as they scale their work down to part time, solo operations.  I file one for every 80 year old house I buy, but I am not employing anyone or growing the economy. 

Obamacare has a myriad of disincentives to dissuade employment, full time employment, or employment beyond 50 employees.  This is happening right while we need new companies to grow and employ thousands of employees.  Capital gains taxes just went up by how much federally?  33%?!  Does anyone remember the surge in investment and innovation when those rates went down?  Our largest state California, along with where I live and elsewhere just raised the top rates on Capital Gains, and everything else.  The negative effects of that aren't showing up as quickly or badly as I would think, but if you believe the supply side matters, the damage will reveal itself and maybe is starting to show.

North Dakota is growing gangbusters, but it is North Dakota.  The engine driving that is driving that growth is illegal activity in New York state, or on federal land and the feds own 50% of the western U.S.  And they are trying to shut it down everywhere else too. 

The Obama administration is still hell-bent on shutting down coal, but coal generates 40% of our electricity, and we are building no new nuclear plants.  You would make a long term investment and build a manufacturing facility in the face of that kind of uncertainty?  I wouldn't.  The big industry here is medical devices.  Now they are subject to a new tax on gross sales.  Not on profits, on sales before you even figure in costs, and that is on top of all other taxes.  You would expand those businesses or launch a new one facing that?  I wouldn't.  Instead, people are trying to figure out how to make a living without employing anyone, and without subjecting themselves to risk and uncertainty.  Did I mention highest corporate tax rates in the OECD and 175,500 total pages in the Code of Federal Regulations.  Good grief, this business climate is the opposite of the supply side model - and Wesbury and Grannis both know it.

Liberals in MN say these taxes don't matter.  We still have decent employment and growth numbers.  Tell that to the state's oldest and most successful company, Minnesota Mining and Manufacturing (3M).  After 112 years here they just held their first annual meeting in Austin Texas.  They can avoid state taxes that way but they can't avoid federal taxation and regulaiton without ending or moving operations out of the country, and they most certainly are doing that too.

Corporate profits are up 3% while stock prices are up 25%.  What could possibly go wrong?

Back to the Scott G's main theme, supply side is the main determinant, but demand matters too.  When sales go down. profits disappear, wealth and investment shrink, and a downward spiral appears with no tools left to stimulate it.

These guys were right about the stock market of the last few years.  I do not buy that they were right about the US economy.  A plowhorse doesn't plow backwards.

The experts blame the cold winter for the economic doldrums, but more likely it was the obsession with global warming and the all-powerful government and anti-private growth fever that came with it that is causing the malaise.

[objectivist1]

No offense intended, but to me - this is really an absurd debate.  The facts are very clear to anyone with two eyes and a functioning brain that looks at the unemployment statistics and the retail economy as evidenced by simply driving around various parts of the country and observing the literally thousands of shuttered businesses and empty strip malls.  Doug makes excellent points as well.  Corporate profits up by 3% with 25% growth in stock prices simply defies gravity.  What is so hard to understand about this?

If a person wants to engage in navel-gazing and theoretical, legalistic arguments about why black is white and up is down - that is their business.  If that person chooses to manage their investments in this manner - so much the worse for them.  I choose to view the world as it is - based on the evidence I see with my own eyes and rational capacity, then plan accordingly. Frankly, I think this discussion is one for idiots, because it essentially asks the question: "Which do you trust? An economist with a vested interest in projecting a rosy outlook, or the cold, hard, obvious facts available to anyone who makes even a modest effort at investigation?

[objectivist1]

www.weeklystandard.com/blogs/1-8-american-men-between-ages-25-54-are-not-working_793938.html

[Crafty_Dog]

We are all agreed that many, many people are fuct.  We are all agreed that Obama's policies are profoundly destructive.  We are all agreed that there are profound contradictions and impossibilities in the current trajectory.   I think/hope we all appreciate the difference between the market and the economy.

I may be in the minority here however in my willingness to note that Grannis and Wesbury

a) have FAR superior record to ours when it comes to the market;
b) have good points to contribute with regard to some important positive variables that are out there
c) have good points to contribute in making clear that many criticisms of the economy are essentially keynesian in nature and that supply side is generally a better line of analysis.


________________________________________
Personal Income Increased 0.3% in April To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 5/30/2014

Personal income increased 0.3% in April, matching consensus expectations. Personal consumption declined 0.1%, coming in below the consensus expected gain of 0.2%. Personal income is up 3.6% in the past year, while spending is up 4.3%.
Disposable personal income (income after taxes) increased 0.3% in April and is up 3.6% from a year ago. The gain in April was led by private sector wages & salaries and dividend income.

The overall PCE deflator (consumer prices) increased 0.2% in April and is up 1.6% versus a year ago. The “core” PCE deflator, which excludes food and energy, also rose 0.2% in April and is up 1.4% in the past year.

After adjusting for inflation, “real” consumption declined 0.3% in April but is up 2.7% from a year ago.

Implications: After March, when consumers increased spending at the fastest pace in almost five years, consumers took a breather in April, with spending slipping 0.1%. This is not a big deal. Despite the slight decline in April, spending is up at a 6.1% annual rate in the past three months and a 4.7% rate in the past six months. These are faster than the 4.3% gain in the past year, so the underlying trend appears to be accelerating. Personal income matched expectations, rising 0.3% in April and is up 3.6% from a year ago. The gain in income was led by private-sector wages & salaries which were up 0.3% in April and are up 4.2% from a year ago. Over the past three months, private-sector wages & salaries have also accelerated, up at a 5.5% annual rate. We expect both income and spending to keep growing at a healthy clip. Job growth continues and we expect payroll gains of around 200,000 for May. Meanwhile, as unemployment gradually declines, employers will offer higher wages. In addition, consumers’ financial obligations are hovering at the smallest share of income since the early 1980s. (Financial obligations are money used to pay mortgages, rent, car loans/leases, as well as debt service on credit cards and other loans.) On the inflation front, the Federal Reserve’s favorite measure of inflation, the personal consumption price index, was up 0.2% in April, the same as “core” consumption prices, which exclude food and energy. Overall consumption prices and core prices are up 1.6% and 1.4%, respectively, in the past year, both below the Fed’s 2% target. But, as recently as October 2013 PCE prices were up only 0.8% from a year ago and we expect to hit the 2% target by year end, putting pressure on the Federal Reserve to start raising interest rates sometime in the first half of 2015. In other news this morning, the Chicago PMI, which measures manufacturing sentiment in that key region, increased to 65.5 in May from 63.0 in April. As a result, we expect the national ISM Manufacturing report (to be released Monday) to increase to 55.9 in May from 54.9 in April. After a winter lull, the Plow Horse economy is picking up her pace.

[DougMacG]

For my part, I respect the smarts and integrity of those two and am happy to have the opportunity to express disagreement with their conclusions.  There is both a connection and a disconnect between the market and the economy. I assume the two are both equally relevant to this thread.

[Crafty_Dog]

There was a time when I believed the efficient (stock) market hypothesis, but no longer.  That is not to say that the market has lost all value as a leading indicator, just that , , , ,

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

Is America Depressed?

Okay, so America's seen some bad news lately. The economy stinks, and no one is confident. Mediocre economic numbers are greeted as a triumph. Obamacare's a mess. The federal government is one cluster-you-know-what of venality and incompetence after another. The Millennials seem spoiled, self-absorbed, and incapable of achieving in the modern workplace. Trouble is brewing from Ukraine to Syria to Iraq to Libya to the South China Sea to the Korean peninsula. Our allies are unnerved, our enemies acting bolder.

There's a particular gloom among a lot of conservatives lately, too: The country has more takers than makers. Everybody's addicted to "Uncle Sugar." Too many establishment Republicans just want to replace the Democrats' crony capitalism with their own crony capitalism. Our popular culture makes Sodom and Gamorrah look like Mayberry. Time to start putting our savings into gold and shopping for real estate in Belize.

We can't let our perspective of our fellow Americans get defined by every idiot on Twitter or the comments section. We've always had idiots. We've always had loud idiots. The good folks working hard, taking care of their families, and living the American dream don't spend a lot of time arguing on the Internet.

This is still a country packed to the gills with innovative, driven, hard-working, ingenious, generous, kind-hearted folk of every race, creed, and color.

Don't believe me? Here are some bits of good news you may have missed:

•   Faith in the future is returning; we're making more new Americans — a.k.a. "babies" — again:
The newest child birth rate numbers have just been released by the Centers for Disease Control and Prevention (CDC), and the report indicates that there were 4,736 more births in 2013 than there were the year before, which shows an increase that America hasn't seen in five years.

•   We're doing this while reducing teen pregnancy, births, and abortions:
In examining birth and health certificates from 2010 (the most recent data available), Guttmacher Institute found that approximately 6 percent of teenagers (57.4 pregnancies per 1,000 teenage girls) became pregnant — the lowest rate in 30 years and down from its peak of 51 percent in 1991. Between 2008 and 2010 alone, there was a 15-percent drop.

At 34.4 births per 1,000 teenage women, the birthrate was down 44 percent from its peak rate of 61.8 in 1991. The abortion rate is down too: In 2010, there were 14.7 abortions per 1,000 teenagers, which is the lowest it's been since the procedure was legalized.

•   According to the CDC, the numbers are going in the right direction for life expectancy, heart disease, and cancer death rate:
Americans are living longer than ever. According to the report, in 2010, life expectancy at birth for the total population was 78.7 years — 76.2 years for men and 81.0 years for women. Between 2000 and 2010, life expectancy at birth increased 2.1 years for men and 1.7 years for women. The gap in life expectancy between men and women narrowed from 5.2 years in 2000 to 4.8 years in 2010.

The report also notes a 30% decline between 2000 and 2010 in the age-adjusted heart disease death rate, from 257.6 to 179.1 deaths per 100,000 population. But in 2010, heart disease was still the most lethal disease in the US, with 24% of all deaths, the report says.

The age-adjusted cancer death rate decreased 13% between 2000 and 2010, from 199.6 to 172.8 deaths per 100,000 population. Still, in 2010, 23% of all deaths in the US were from cancer, close behind heart disease. In 2012, 18.1% of adults aged 18 and over were current cigarette smokers, down from 23.2% in 2000.

•   The Mayo Clinic just scored "complete remission" of a form of previously-untreatable cancer using an engineered measles virus in a human being. Harvard's Stem Cell Institute recently announced that adult stem cells from bone marrow tissue can specifically target and kill brain tumors.

•   The hunt for a cure for AIDS continues, but treatments have effective and widespread in ways that were simply unimaginable a generation ago. It is a much less deadly disease: "The age-adjusted HIV death rate has dropped by 85% since its peak, including by 14% between 2009 and 2010." There are indications that some people can be "functionally cured" of HIV. There are other beautiful anecdotes: A Vancouver, Canada hospital repurposed its AIDS ward because the number of cases dwindled so rapidly.

•   The scale of the U.S. energy boom is jaw-dropping: "According to the U.S. Bureau of Labor Statistics, the number of new jobs in the oil-and-gas industry (technically a part of mining) increased by roughly 270,000 between 2003 and 2012. This is an increase of about 92% compared with a 3% increase in all jobs during the same period. The BLS reports that the U.S. average annual wage (which excludes employer-paid benefits) in the oil and gas industry was about $107,200 during 2012, the latest full year available. That's more than double the average of $49,300 for all workers."

•   We're at the dawn of the era of private spaceflight: "SpaceX, Boeing and Sierra Nevada are building new manned spacecraft with the goal of restoring U.S. human spaceflight capability by 2017."

•   Yes, it's a dangerous world. But our men and women in uniform, the companies that supply them, and the researchers that equip them regularly produce breakthroughs that sound like science fiction. The Pentagon is developing a hypersonic missile that can hit anywhere in the world in 30 minutes. They're developing brain chips to treat PTSD. There's some mysterious plane -- allegedly a stealth transport -- flying over Texas. University researchers may be on the verge of developing functional invisibility. And, as Kevin Williamson notes, brainwave-driven exoskeletons may help the paralyzed rise and walk.

•   As David Plotz lays out, there has never been more news published than there is today; web sites of media organizations from the New York Times to Fox News publish literally hundreds, sometimes thousands, of new items a day. Sure, you can say a lot of it's crap. A lot of anything is crap. But the barrier to entry in the news world is obliterated. We're no longer in an era where the number of pages and column-inches in the New York Times, and the time limits of the nightly news,set the limits for what the public sees and reads. Despite the commencement mobs and the political-correctness enforcers, this is a golden age for free speech.

In fact, things are going so well in the apolitical or non-political aspects of American life . . . all that talk about a second American Century may not just be happy talk or tired campaign rhetoric. We just have to get our government to work correctly — and in many circumstances, do less, and get out of the way! — and our best days may indeed be ahead of us.

So cheer up, conservatives!

[Crafty_Dog]

The ISM Manufacturing Index Increased to 55.4 in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/2/2014

The ISM manufacturing index increased to 55.4 in May from 54.9 in April, almost exactly the consensus expected level of 55.5. (Levels higher than 50 signal expansion; levels below 50 signal contraction.)

The major measures of activity were mixed in May but all remain above 50, signaling growth. The production index increased to 61.0 from 55.7, while the new orders index rose to 56.9 from 55.1. The employment index declined to 52.8 from 54.7. The supplier deliveries index declined to 53.2 from 55.9.
The prices paid index rose to 60.0 in May from 56.5 in April.

Implications: After two mistaken reports earlier today, the Institute for Supply Management says its manufacturing index, a measure of factory sentiment around the country, came in at 55.4. This was an increase versus April and almost exactly what the consensus expected. Since the steep weather-related drop in January, the index is up four months in a row. The report for May shows growth in seventeen of the eighteen manufacturing industries (textile mills were the only exception). While not quite back to the levels seen at the end of 2013, the index has stood in expansion territory for twelve consecutive months, and we expect the index to show continued strength as companies ramp up production and continue to make up for time lost to bad weather. According to the Institute for Supply Management, an overall index level of 55.4 is consistent with real GDP growth of 4.1% annually, consistent with what we think will be a sharp rebound in growth in Q2 after the temporary slump in Q1. On the inflation front, the prices paid index rose to 60.0 in May from 56.5 in April. Along with broader measures of consumer and producer prices, inflation is starting to show signs of the loose monetary policy of the past several years. In other news this morning, construction increased 0.2% in April (1.2% including revisions to prior months), reaching the highest level since March 2009. The gain in April itself was led by construction at public colleges. New housing (single-family and multi-family units combined) was up 1.6% in April and is up 17% in the past year. After the harsh winter weather, construction spending has now shown growth for three consecutive months as projects delayed by the cold have gotten underway.

[objectivist1]

The Velocity Of Money In The U.S. Falls To An All-Time Record Low

Monday, 02 June 2014 16:16    Michael Snyder - www.alt-market.com


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

When an economy is healthy, there is lots of buying and selling and money tends to move around quite rapidly.  Unfortunately, the U.S. economy is the exact opposite of that right now.  In fact, as I will document below, the velocity of M2 has fallen to an all-time record low.  This is a very powerful indicator that we have entered a deflationary era, and the Federal Reserve has been attempting to combat this by absolutely flooding the financial system with more money.  This has created some absolutely massive financial bubbles, but it has not fixed what is fundamentally wrong with our economy.  On a very basic level, the amount of economic activity that we are witnessing is not anywhere near where it should be and the flow of money through our economy is very stagnant.  They can try to mask our problems with happy talk for as long as they want, but in the end it will be clearly evident that none of the long-term trends that are destroying our economy have been addressed.

Discussions about the money supply can get very complicated, and that can cause people to tune out, but it doesn’t have to be that way.

To put it very basically, when there is lots of economic activity, there is lots of money changing hands.

When there is not very much economic activity, the pace at which money circulates through our system slows down.

That is why what is happening in the U.S. right now is so troubling.

First, let’s look at M1, which is a fairly narrow definition of the money supply.  The following is how Investopedia defines M1…

A measure of the money supply that includes all physical money, such as coins and currency, as well as demand deposits, checking accounts and Negotiable Order of Withdrawal (NOW) accounts. M1 measures the most liquid components of the money supply, as it contains cash and assets that can quickly be converted to currency. It does not contain “near money” or “near, near money” as M2 and M3 do.
As you can see from the chart posted below, the velocity of M1 normally declines during a recession.  Just look at the shaded areas in the chart.  But a funny thing has happened since the end of the last recession.  The velocity of M1 has just kept falling and it is now at a nearly 20 year low…

Velocity Of Money M1

Next, let’s take a look at M2.  It includes more things in the money supply.  The following is how Investopedia defines M2…

A measure of money supply that includes cash and checking deposits (M1) as well as near money. “Near money” in M2 includes savings deposits, money market mutual funds and other time deposits, which are less liquid and not as suitable as exchange mediums but can be quickly converted into cash or checking deposits.
In the chart posted below, we can once again see that the velocity of M2 normally slows down during a recession.  And we can also see that the velocity of M2 has continued to slow down in the “post-recession era” and has now dropped to the lowest level ever recorded…

Velocity Of Money M2

This is a highly deflationary chart.

It clearly indicates that economic activity in the U.S. has been steadily slowing down.

And if we are honest, we have to admit that we are seeing signs of this all around us.  Major retailers are closing down stores at the fastest pace since the collapse of Lehman Brothers, consumer confidence is down, trading revenues at the big Wall Street banks are way down, and the steady decline in home sales is more than just a little bit alarming.

In addition, the employment situation in this country is much less promising than we have been led to believe.  According to a report put out by the Republicans on the Senate Budget Committee, an all-time record one out of every eight men in their prime working years are not in the labor force…

“There are currently 61.1 million American men in their prime working years, age 25–54. A staggering 1 in 8 such men are not in the labor force at all, meaning they are neither working nor looking for work. This is an all-time high dating back to when records were first kept in 1955. An additional 2.9 million men are in the labor force but not employed (i.e., they would work if they could find a job). A total of 10.2 million individuals in this cohort, therefore, are not holding jobs in the U.S. economy today. There are also nearly 3 million more men in this age group not working today than there were before the recession began.”
Never before has such a high percentage of men in their prime years been so idle.

But since they are not counted as part of “the labor force”, the government bureaucrats can keep the “unemployment rate” looking nice and pretty.

Of course if we were actually using honest numbers, the unemployment rate would be in the double digits, our economy would be considered to have been in a recession since about 2005, and everyone would be crying out for an end to “the depression”.

And now we are rapidly approaching another downturn.  In my recent articles entitled “Has The Next Recession Already Begun For America’s Middle Class?” and “27 Huge Red Flags For The U.S. Economy“, I detailed much of the evidence for why this is true.

And those that run the Federal Reserve know all of this.

That is one of the reasons for all of the “quantitative easing” that they have been doing.  The folks at the Fed know that the U.S. economy would probably drift into a deflationary depression if they just sat back and did nothing.  So they flooded the system with money in a desperate attempt to revive economic activity.  But instead, most of the new money just ended up in the pockets of the very wealthy and further increased the divide between those at the top and those at the bottom in this country.

And now Fed officials are slowly scaling back quantitative easing because they apparently believe that the economy is getting “back to normal”.

We shall see.

Many are not quite so optimistic.

For example, the chief market analyst at the Lindsey Group, Peter Boockvar, believes that the S&P 500 could plummet 15 to 20 percent when quantitative easing finally ends.

Others believe that it will be much worse than that.

Since 2008, the size of the Fed balance sheet has grown from less than a trillion dollars to more than four trillion dollars.  This unprecedented intervention was able to successfully delay the coming deflationary depression, but it has also made our long-term problems far worse.

So when the inevitable crash does arrive, it will be much, much worse than it could have been.

Sadly, most Americans do not understand these things.  Most Americans simply trust that our “leaders” know what they are doing.  And so in the end, most Americans will be completely blindsided by what is coming.

[Crafty_Dog]

That is VERY interesting.  Please post it at http://dogbrothers.com/phpBB2/index.php?topic=1948.650 so we can discuss it there.

[objectivist1]

Market Veteran Warns: “Massive Shocks In The World Financial System In Coming Years”

Monday, 02 June 2014 16:47    Mac Slavo


This article was written by Mac Slavo and originally published at SHTFplan.com

There is a euphoria being enjoyed by many in the investment world and in economic circles centered around the notion that the world has recovered from the financial crisis of 2008. Stock markets in the United States have risen to all time highs. Mainstream financial experts imply this is a key indicator of economic growth, improved consumer confidence, and a return to boom times.

But not everyone agrees. Swiss market veteran Egon Von Greyerz suggests that exactly the opposite is the case, noting that the underlying economic fundamentals all over the world are indicative of massive problems from the United States to China.

In an interview with King World News Von Greyerz highlights his reasoning, citing numerous data points that paint a completely different picture from the one being shown to the majority of the world’s citizens.

It surprised me to see how many of those top economists and fund managers were totally bullish on the global economy based on their view of growth in the United States.

I also went to a conference for ultra-high net worth individuals in Singapore, and I noticed very little fear or concern about the risks in the world today.

So this is a very dangerous time with the people who control the investment markets having very little regard for the risks and the dangers that the world is currently facing.

…

We have discussed the massive risks which are present in the system and they are more ubiquitous now than ever — Japan, EU, UK, US, China, and geopolitical risks.  The financial system has the same problems today as it had in 2008, but the money printing over the last few years has achieved a calm and complacency that will lead to massive shocks in the world financial system in coming years.

…

A lot of the economic indicators in the U.S. are very weak.  Retail sales are plunging, bank profits are falling, home sales are falling fast, both existing and new homes, and 56 percent of Americans have sub-prime credit today.

…

Global debt is now around $275 trillion, or 385 percent of world GDP.  That’s $38,000 of debt for each and every person in the world.  Even the average American is one paycheck from bankruptcy.  So how does anyone ever believe that any of this debt could ever be repaid?  Well, it won’t be, that’s absolutely guaranteed.

All this will lead to unprecedented money printing and hyperinflation.  Thereafter we are likely to see a deflationary collapse of the financial system.  We will certainly be looking at a very different world in coming years.

Excerpts from full interview made available by King World News

The notion that the global economy is in recovery and that the United States has exited the recession of 2008/2009 is a facade.

Michael Snyder at the Economic Collapse Blog and Jim Quinn of The Burning Platform recently noted that despite the purported success of government cash infusions, America’s death rattle is growing louder as household retail brands are being absolutely pummeled by a lack of consumer spending.

Retail store results for the 1st quarter of 2014 have been rolling in over the last week. It seems the hideous government reported retail sales results over the last six months are being confirmed by the dying bricks and mortar mega-chains. In case you missed the corporate mainstream media not reporting the facts and doing their usual positive spin, here are the absolutely dreadful headlines:

Wal-Mart Profit Plunges By $220 Million as US Store Traffic Declines by 1.4%
Target Profit Plunges by $80 Million, 16% Lower Than 2013, as Store Traffic Declines by 2.3%

Sears Loses $358 Million in First Quarter as Comparable Store Sales at Sears Plunge by 7.8% and Sales at Kmart Plunge by 5.1%

JC Penney Thrilled With Loss of Only $358 Million For the Quarter

Kohl’s Operating Income Plunges by 17% as Comparable Sales Decline by 3.4%

Costco Profit Declines by $84 Million as Comp Store Sales Only Increase by 2%

Staples Profit Plunges by 44% as Sales Collapse and Closing Hundreds of Stores

Gap Income Drops 22% as Same Store Sales Fall

Ann Taylor Profit Crashes by 75% as Same Store Sales Fall

American Eagle Profits Tumble 86%, Will Close 150 Stores

Aeropostale Losses $77 Million as Sales Collapse by 12%

Big Lots Profit Tumbles by 90% as Sales Flat & Exiting Canadian Market

Best Buy Sales Decline by $300 Million as Margins Decline and Comparable Store Sales Decline by 1.3%

Macy’s Profit Flat as Comparable Store Sales decline by 1.4%

Dollar General Profit Plummets by 40% as Comp Store Sales Decline by 3.8%

Urban Outfitters Earnings Collapse by 20% as Sales Stagnate

McDonalds Earnings Fall by $66 Million as US Comp Sales Fall by 1.7%

Darden Profit Collapses by 30% as Same Restaurant Sales Plunge by 5.6% and Company Selling Red Lobster

TJX Misses Earnings Expectations as Sales & Earnings Flat

Dick’s Misses Earnings Expectations as Golf Store Sales Plummet

Home Depot Misses Earnings Expectations as Customer Traffic Only Rises by 2.2%

Lowes Misses Earnings Expectations as Customer Traffic was Flat

Of course, those headlines were never reported. I went to each earnings report and gathered the info that should have been reported by the CNBC bimbos and hacks. Anything you heard surely had a Wall Street spin attached, like the standard BETTER THAN EXPECTED.

Those are the facts.

Last week well known contrarian economist John Williams made two dire predictions. First, the government’s Q1 economic growth numbers would be revised downward and actually show that the economy shrank for the first three months of the year. This has now been confirmed with official revisions showing negative one percent growth.

Second, Williams predicts that come July 30 the second quarter will verify that the United States has entered another recession, which is officially defined as two consecutive negative growth quarters.

Once these data are released it will confirm what we’ve been warning about for many months – that there is and has been no economic recovery. The U.S. (as well as China and Europe) are about to hit the next wave of this broader depression.

There is, as Williams noted, no way of saving the system at this point, echoing Von Greyerz’s assessment that we will soon be living in an unrecognizable world.

It won’t all happen overnight, but a collapse is all but assured at this point.

Those who have made the effort to get informed and taken steps to prepare for the inevitable calamity that is to come will fare much better than the 99% percent of Americans who will be totally blindsided when life as we have come to know it comes to an abrupt halt.

[G M]

http://finance.yahoo.com/blogs/breakout/-the-air-is-already-coming-out-of-the-bubble--but-fed-can-delay-collapse--peter-schiff-202622159.html

[objectivist1]

It's only a matter of time before the US Dollar loses its global reserve status.  BUY GOLD & SILVER BULLION NOW.  When this happens, it will be too late:

The New World Order And The Rise Of The East

Wednesday, 04 June 2014 02:44    Brandon Smith


“Actually, as Winston well knew, it was only four years since Oceania had been at war with Eastasia and in alliance with Eurasia. But that was merely a piece of furtive knowledge, which he happened to possess because his memory was not satisfactorily under control. Officially the change of partners had never happened. Oceania was at war with Eurasia: therefore Oceania had always been at war with Eurasia. The enemy of the moment always represented absolute evil, and it followed that any past or future agreement with him was impossible…” – George Orwell, 1984

Nations, cultures and populations are best controlled through the use of false paradigms. This is a historically proven tactic exploited for centuries by oligarchs around the world. Under the Hegelian dialectic (the very foundation of the Marxist and collectivist ideology), one could summarize the trap of false paradigms as follows:

If (A) my idea of freedom conflicts with (B) your idea of freedom, then (C) neither of us can be free until everyone agrees to be a slave.

In other words: problem, reaction, solution. Two sides are pitted against each other in an engineered contest. Each side is led to believe that its position is the good and right position. Neither side questions the legitimacy of the conflict, because each side fears this will lead to ideological weakness and disunity.

The two sides go to war, sometimes economically, sometimes militarily. Both governments demand that individuals relinquish freedom, independence and self-reliance, a sacrifice that “must be made” so that victory can be achieved. In the end, neither nation nor society has truly won. The only winners are the oligarchs, who sing words of loyalty to their respective camps, while acting in league from the very beginning. The oligarchs, who never intended to target each other in the first place. Their target, their ONLY target, was the citizenry itself — the dumbfounded masses now mesmerized with shock, awe and terror.

The false paradigm method and the Hegelian dialectic are in full force today. Only a few years ago, Russia, China and the United States were considered close economic and political allies. Today, those alliances are being quickly scrapped in order to make room for conflict, a conflict useful only to a select international elite. As I have outlined in numerous articles, including Russia Is Dominated By Global Banks, Too and False East/West Paradigm Hides The Rise Of Global Currency, when one looks beyond all the theatrical rhetoric being thrown around between Barack Obama and Vladimir Putin, the ultimate reality is that the relationship of both governments to the global banking elite is the same.

During both of Obama’s Presidential terms, he has flooded his cabinet with current and former employees of Goldman Sachs, a longtime proving ground for elitist financiers with globalist aspirations.

And who is the primary economic adviser to Vladimir Putin and the Russian state? Why Goldman Sachs, of course!

U.S. and European elites have been calling for a centralization of economic power under the control of the International Monetary Fund, as a well as a new global currency.

Not surprisingly, Putin also wants a new global currency under the control of the IMF.

Obama is closely advised by globalists like Zbigniew Brzezinski, a member of the Council on Foreign Relations and cofounder of the Trilateral Commission, who in his book Between Two Ages: America’s Role In The Technetronic Era states:

"The nation-state is gradually yielding its sovereignty …[F]urther progress will require greater American sacrifices. More intensive efforts to shape a new world monetary structure will have to be undertaken, with some consequent risk to the present relatively favorable American position…"

As long as he has been in power, Putin has been closely advised by Henry Kissinger, yet another member of the CFR and proponent of the Trilateral Commission, who has said:

"In the end, the political and economic systems can be harmonized in only one of two ways: by creating an international political regulatory system with the same reach as that of the economic world; or by shrinking the economic units to a size manageable by existing political structures, which is likely to lead to a new mercantilism, perhaps of regional units. A new Bretton Woods kind of global agreement is by far the preferable outcome…"

Both Kissinger and Brzezinski refer to this harmonized global economic and political structure as the “New World Order.” The fact that the political leaders of Russia and the United States are clearly being directed by such men should not be taken lightly.

China, too, has made demands for a restructuring of the global monetary system into a centralized currency basket under the dominance of the IMF.

China’s ties to the banking elite of London are well documented.

The call on both sides for a new monetary system and the end of the dollar as world reserve seems to greatly contradict the fantasy that the East and West are fundamentally at odds.  The progression towards a world currency and/or economic governance also appears to be growing along with the consolidation of economic and military ties between Eastern nations. This would suggest that the rise of the East and the crippling of Western elements is actually advantageous to global bankers in the long term.

While disinformation agents and media shills have attempted to downplay any danger to the strength of America and the dollar, Eastern governments have been swiftly establishing alliances and decoupling from U.S. influence.

The historic 30-year Russia/China gas deal has, of course, been finalized. This deal is already eating up market space and influencing the way in which the energy trade traditionally behaves.

China and Russia have also expanded on their bilateral agreements made in 2010, which remove the dollar as the reserve currency in transactions between the two nations.

China’s thirst for gold continues, while the country is now building its own gold exchange to rival the U.S. Comex.

Russia has recently established what Putin calls the “Eurasian Economic Union,” a deal which includes Kazakhstan and Belarus, two countries that hold large, freshly discovered oil fields.

In response to the engineered conflict over Ukraine, as well as the “Asian-Pacific Pivot” by the U.S., China has openly called for a new security pact with Russia and Iran.

Let’s also not forget that China is set to surpass the U.S. as the world’s largest economy by 2016, according to the Organization for Economic Co-operation and Development (OECD).

While the rise of the East is being painted in Western circles as a threat to U.S. and NATO dominance, the bigger picture is being hidden from view. Yes, indeed, the consolidation of the East is a considerable threat to the dollar and the U.S. economy — most importantly in the event that China refuses to accept dollars as payment on exports and debts. With the world’s largest exporter/importer refusing to take dollars as a reserve, most nations will inevitably follow their lead.  The argument against this development is, of course, that there is no rational trigger for such a violent fiscal attack. I would remind skeptics that there was no rational trigger for the current strengthened relations between Russia and China until the Ukraine crisis. Is anyone really foolish enough to bet against another direct or indirect conflict between NATO and the East? And is anyone really ignorant enough to assume that said event would not be used as an excuse to cut the legs out from under the dollar completely?

The New World Order players have positioned the East and West for just such a scenario. Why? In my article Who Is The New Secret Buyer Of U.S. Debt?, I give evidence indicating that the Bank of International Settlements and the IMF are preparing the financial world for a new global monetary system, brought into existence by a second Bretton Woods conference. The debasement of the dollar and the rise of the East are NOT obstacles to this plan.  Rather, they are required factors. There can be no truly global economic system without “harmonization”, the demise of the dollar's world reserve status, and the end of sovereign economic governance.

For those who doubt this scenario, read Paul Volcker’s latest statement, as reported by Zero Hedge.

Volcker, the same man who was directly involved in the destruction of the first Bretton Woods agreement and the final death rattle of the gold standard, is now promoting a NEW Bretton Woods-style agreement in which currencies are pegged to a controlled market system — in essence, a centralized international monetary system. Volcker also suggests that a single nation-based reserve currency like the dollar may be a danger to overall fiscal health.

Volcker is right. The dollar-dominated forex casino and fiat fraud is a danger to the world. Volcker helped make it that way! And what a surprise, the former Federal Reserve chairman has a solution on a silver platter for the American people — all we need is GLOBAL centralization and bureaucratic oversight.

The propaganda is being carefully planted within the mainstream. Christine Lagarde of the IMF now spends the whole of her media interviews inserting the phrase “global economic reset” without explaining exactly what that would entail, while central banking elites like Volcker suggest a Bretton Woods II conference leading to a global monetary authority. In the meantime, Russian government-funded media outlets like RT produce pieces accusing the U.S. of being a nuclear menace while we Americans get to watch manipulative Hollywood films like “Jack Ryan: Shadow Recruit,” which depicts a Russian plot to collapse the U.S. economy.  China and U.S. representatives squabble with each other at geopolitical meetings fueling fears of diplomatic breakdown, while the Pentagon "suggests" they may have to revamp their military strategies in consideration of yet another World War.  Just as in Orwell's book, 1984, old enemies become allies and then enemies once again, and at the top of the pyramid, it's all a farce.

The best lies contain elements of truth. The truth here is that the East is forming alliances in opposition to the West, the West is involved in underhanded covert operations all over the planet, and both “sides” are in fact on the verge of a catastrophic battle for supremacy. The great lie is that important details have been left out of our little story. Both sides are merely puppet pieces in a grand game of global chess, and any conflict will ultimately benefit the small group of men standing over the board. They include the international financiers who have influenced the very policy fabric of each government toward a climactic crisis which they hope will finally give them the “New World Order” they have always dreamed of.

 

[Crafty_Dog]

Obj:

I'm running that past some friends , , ,

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

The ISM Non-Manufacturing Index Increased to 56.3 in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/4/2014

The ISM non-manufacturing index increased to 56.3 in May, beating the consensus expected 55.5. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The major measures of activity were mostly higher in May, and all remain at 50 or above. The business activity index jumped to 62.1 from 60.9 while the new orders index increased to 60.5 from 58.2. The employment index moved higher to 52.4 from 51.3 while the supplier deliveries index declined to 50.0 from 50.5.
The prices paid index rose to 61.4 in May from 60.8 in April.

Implications: Today’s report on the service sector continues to show the rebound in economic growth and an upward move in inflation. Since hitting a four-year low in February, the ISM service sector has jumped to 56.3, signaling the fastest growth in nine months and showing expansion for a 52nd consecutive month. All 17 non-manufacturing industries surveyed reported growth in May. Paired with the strong ISM manufacturing report from Monday, it looks like production is bouncing back from the harsher than normal winter. The business activity index– which has a stronger correlation with economic growth than the overall index – rose 1.2 points in May to 62.1, the highest reading for the index in over three years. New orders continue to show strong gains, rising 2.3 in May and also reaching a three year high. After a drop in April, the employment index showed a slight bounce back to 52.4. While still below the average reading of 54.4 seen in 2013, we expect this measure to move higher in the coming months as companies hire more in response to better economic growth (which the business activity index is showing). On the inflation front, the prices paid index jumped to 61.4 in May from 60.8 in April. Still no sign of runaway inflation, but given loose monetary policy, we expect this measure to either stay elevated or even move upward over the coming year. Once again, we have a report showing the Plow Horse economy may be starting to trot.

[G M]

Obvious typo. Starting to rot.

[DougMacG]

It's only a matter of time before the US Dollar loses its global reserve status. ...

Unless sane people take back America first.

[G M]

It's only a matter of time before the US Dollar loses its global reserve status. ...

Unless sane people take back America first.

Not enough left. The FSA grows everyday.

[Crafty_Dog]

Nonfarm Payrolls Increased 217,000 in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/6/2014

Nonfarm payrolls increased 217,000 in May, almost exactly the consensus expected 215,000. Including revisions to prior months, nonfarm payrolls increased 211,000.

Private sector payrolls increased 216,000 in May. Including revisions to prior months, private payrolls also increased 211,000. The largest gains were for professional & business services (+55,000, including temps), health care & social services (+55,000), and restaurants/bars (+32,000). Manufacturing increased 10,000. Government payrolls rose 1,000.

The unemployment rate remained at 6.3%.

Average weekly earnings – cash earnings, excluding benefits – increased 0.2% in May and are up 2.1% versus a year ago.

Implications: Solid report on the direction of the labor market. Nonfarm payrolls increased 217,000 in May. That’s the fourth straight month above 200,000, the first time that’s happened since 1999-2000. The other leading piece of good news was the unemployment rate staying at 6.3% after the steep drop from 6.7% in March. Most economists had expected the jobless rate to tick back up. Moreover, the unemployment rate remained at 6.3% despite a 192,000 gain in the labor force. Civilian employment, an alternative measure of jobs that includes small business start-ups, increased 145,000. Unlike last month, most of the details in today’s report were also good. Total hours worked and average hourly earnings were up 0.2% each, for a combined increase of 0.4% for May. This measure of total cash wages is up 4.2% in the past year, more than enough to fuel continued increases in consumer spending. Also, the median duration of unemployment fell to 14.6 weeks, the lowest in five years, and the share of voluntary job leavers among the unemployed increased to 8.9%, tying the highest level since 2008. In the past, Fed Chair Yellen has written that a higher share of leavers shows confidence in the labor market. The most negative news in today’s report was that, despite the gain in the labor force, the participation rate stayed at 62.8%, still tied at the lowest level since the late 1970s. We think the long-term downward trend in labor force participation since 2000 is largely tied to the aging of the Baby Boom generation. However, we can’t help but notice the impact on the labor market of the end of extended unemployment insurance at the start of the year. Extended benefits kept some people from working and also kept others, who really didn’t intend to look for work, in the labor force (they had to claim they were looking to keep getting benefits). So the end of extended benefits should push down the jobless rate by both encouraging work among those who want to work and discouraging participation among those who really don’t want to work. And, since the start of the year, we’ve had both faster payroll growth and a decline in the participation rate. As we always remind our readers, the labor market could and would be doing better with a better set of public policies. But it’s still improving. In the past year nonfarm payrolls have grown at an average monthly rate of 198,000 while civilian employment is up 158,000 per month. We expect continued Plow Horse gains in the months ahead, pushing the jobless rate below 6% later this year. In turn, this will help put pressure on the Federal Reserve to move up short-term interest rates in the first half of 2015.

[Crafty_Dog]

Data Watch
________________________________________
Industrial production rose 0.6% in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/16/2014

Industrial production rose 0.6% in May (+1.0% including revisions to prior months), beating the consensus expected gain of 0.5%. Production is up 4.3% in the past year.
Manufacturing, which excludes mining/utilities, increased 0.7% in May (+1.0% with revisions to prior months). Auto production rose 1.5% in May while non-auto manufacturing rose 0.5%. Auto production is up 7.8% versus a year ago while non-auto manufacturing is up 3.4%.
The production of high-tech equipment increased 1.6% in May and is up 5.3% versus a year ago.
Overall capacity utilization rose to 79.1% in May from 78.9% in April. Manufacturing capacity increased to 77.0% in May.

Implications: A very good report out of the industrial sector today. Industrial production rose 0.6% in May and was up an even stronger 1% including revisions to prior months, better than consensus expectations. More importantly, there appears to be a broad acceleration in manufacturing activity. Factory output is up 3.9% from a year ago, but up at a 5.7% annual rate in the past three months. All of this recent acceleration is outside the volatile auto sector; manufacturing production ex-autos is up 3.4% from a year ago, but up at a 5% annual rate in the past three months. Look for more robust growth in the industrial sector in the months ahead. The housing recovery is still young and both businesses and consumers are in a financial position to ramp up investment and the consumption of big-ticket items, like appliances. In particular, note that the output of high-tech equipment is up 5.3% from a year ago and up at a 10.7% annual rate in the past three months, signaling companies’ willingness to upgrade aging equipment from prior years. Capacity utilization now stands at 79.1% in May, up from 78.9% in April, and higher than the average of 78.9% over the past twenty years. Further gains in production in the year ahead will push capacity use higher, which means companies will have an increasing incentive to build out plants and equipment. Meanwhile, corporate profits and cash on the balance sheet are close to record highs, showing that companies have the ability to make these investments. Other, more timely, manufacturing news signal more gains in production in June. The Empire State index, a measure of factory sentiment in New York, rose to +19.3 in June from +19 in May, This is the highest level in four years. On the housing front, the NAHB index, which measures confidence among home builders, came in at 49 in June, the best reading in four months and up four points from May.

[G M]

http://etfdailynews.com/2014/06/17/how-will-you-fare-the-coming-economic-collapse/

[G M]

http://www.marketwatch.com/story/americans-are-getting-into-debt-just-to-get-by-2014-06-18?pagenumber=2

[Crafty_Dog]

New Orders For Durable Goods Declined 1.0% in May To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/25/2014

New orders for durable goods declined 1.0% in May (-0.8% including revisions to prior months), falling short of the no change the consensus expected. Orders excluding transportation declined 0.1% in May but increased 0.1% including revisions to prior months. The consensus expected an increase of 0.3%. Orders are up 2.7% from a year ago while orders excluding transportation are up 4.4%.

The decline in overall orders was led by unspecified transportation equipment (probably government submarine orders). Orders for civilian aircraft also declined. The largest gains were for autos and primary metals.

The government calculates business investment for GDP purposes by using shipments of non-defense capital goods excluding aircraft. That measure increased 0.4% in May. If unchanged in June, these shipments will be up at a 6.6% annual rate in Q2 versus the Q1 average.
Unfilled orders increased 0.6% in May and are up 7.9% from last year.

Implications: New orders for durable goods slipped 1% in May. However, cutting through the monthly volatility, we see an acceleration in business investment. The US military ordered a boatload of submarines in April (yes, bad pun intended). As a result, overall orders increased 0.8% in April despite a decline of 0.8% outside the defense sector. Without this large order in May, the figures reversed, with overall orders declining 1%, but up 0.6% excluding the defense sector. As the table below shows, ex-defense orders are up at a 12.1% annual rate in the past three months versus a 2.2% gain in the past year. Orders for primary metals, fabricated metals, computers/electronics, and autos have all accelerated. Some of this acceleration is likely an offset to weakness we had this winter, but some of it also reflects a growing backlog of orders. Unfilled orders are up at a 9.7% annual rate in the past three months and up 7.9% versus a year ago. Shipments of “core” capital goods, which exclude defense and aircraft – a good proxy for business equipment investment – increased 0.4% in May, and are up at a 9.1% annual rate in the past three months. We are on the cusp of a large increase in business investment over the next couple of years. Consumer purchasing power is growing and debt ratios are low, leaving room for an upswing in appliances. Meanwhile, profit margins are still high, corporate balance sheets are loaded with cash, and capacity utilization is near long-term norms, leaving more room (and need) for business investment.

[Crafty_Dog]

Second post:

Real GDP Growth in Q1 Was Revised Down to a -2.9% Annual Rate To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 6/25/2014

Real GDP growth in Q1 was revised down to a -2.9% annual rate versus a prior estimate of -1.0% and a consensus expected -1.8%.

The largest negative revision was for consumer spending on services. Net exports were also revised down. Other components of GDP were little changed.
The largest positive contribution to the real GDP growth rate in Q1 came from consumer spending. The weakest components of real GDP, by far, were inventories and net exports.

The GDP price index was unrevised at a 1.3% annualized rate of change. Nominal GDP growth – real GDP plus inflation – was revised down to a -1.7% annual rate versus a prior estimate of 0.3%. Nominal GDP is up 2.9% versus a year ago.

Implications: Hard to get an uglier headline number than the -2.9% annual growth rate for real GDP in Q1. Excluding recessions (or immediately before or after), that figure is the worst on record going back to World War II. However, we are very confident this will be the exception. If the economy were back in recession, the unemployment rate would have increased and jobs would have declined; instead, unemployment was steady in Q1 (and has dropped in Q2) and payrolls grew at an average monthly rate of 190,000. So why the big drop in real GDP? Much of the US was slammed with unusually harsh winter weather in Q1. In addition, when the government grows so large, it’s harder for the economy to absorb those events and keep growing. But so far in Q2 the data suggest a rebound back to solid economic growth, at around a 3% annual rate. Improvement in the labor market has accelerated, industrial production is growing rapidly, and auto sales have soared. To figure out the underlying trend in real GDP growth, we like to take out government purchases, trade, and inventories. What’s left are final sales to private domestic purchasers, which increased at a 0.5% annual rate in Q1, is up 2.3% in the past year, and up at a 2.3% annual rate in the past two years. Corporate profits fell 9.1% in Q1. But remember, these numbers are based on IRS data, and the change in tax laws earlier this year regarding depreciation and expensing had a major effect. S&P reported profits were actually up in Q1 as was cash flow. As a result, we do not believe the drop in the government’s measure of profits is a negative sign for equities. Today’s data do not suggest the Federal Reserve needs to pull back from tapering. Nominal GDP (real growth plus inflation) fell at a 1.7% annual rate in Q1 but is still up 2.9% from a year ago and up at a 3% annual rate in the past two years. That’s high enough to sustain not only an end to tapering but also higher short-term rates than the Fed is now targeting.

[objectivist1]

What controlled substance is this idiot smoking?

"Consumer purchasing power is growing and debt ratios are low, leaving room for an upswing in appliances."

[DougMacG]

As you said earlier, it is the policies.  Wesbury and others are looking for better results, reasons for optimism and ways to make money in THIS economy.  My interest is only in changing the policies.

[Crafty_Dog]

Global Markets' Strength Doesn't Reflect Economic Outlook, Central Banks Say
Investors Could Be Unprepared for Interest-Rate Rises, Says BIS
By Viktoria Dendrinou
June 29, 2014 6:30 a.m. ET

BRUSSELS—Buoyant financial markets are out of kilter with the shaky global economic and geopolitical outlook, the Bank for International Settlements said in its annual report published Sunday.

The warning from the BIS, a consortium of the world's top central banks, comes as financial markets—from stocks to bonds to commodities—have been enjoying a broad-based rally in the first half of 2014, reflecting investor optimism over expansionary central-bank monetary policies.

"Overall, it is hard to avoid the sense of a puzzling disconnect between the markets' buoyancy and underlying economic developments globally," the report read.


Investor jubilation stems partly from the commitment by the world's largest central banks, such as the U.S. Federal Reserve and European Central Bank, to keep interest rates low while economies continue to recover from recession. Markets have been resilient in the face of uneven growth in the U.S. and Europe, as well as political and economic unrest in Ukraine, the Middle East and elsewhere.

"Financial markets are euphoric, in the grip of an aggressive search for yield…and yet investment in the real economy remains weak while the macroeconomic and geopolitical outlook is still highly uncertain," said Claudio Borio, the head of the BIS's monetary and economic department.

Central bankers meet around every two months at the BIS's headquarters in Basel, Switzerland. The group doesn't set policy, but rather serves as a forum for central bankers to exchange views about financial markets and the global economy.

While global growth has firmed, the BIS said, it is still below its precrisis levels. The world economy was up 3% in the first quarter of 2014 compared with a year earlier—weaker than the 3.9% average growth rate between 1996 and 2006. In some advanced economies, output, productivity and employment remain below their precrisis peak.

But Mr. Borio said the effectiveness of policies aiming to boost domestic demand—and therefore growth—has been stunted by large overhangs of debt.

Governments in advanced economies have made progress in reducing their fiscal deficits since the crisis but debt levels are higher than ever and still rising. It cited data that showed 2014 debt exceeding 100% of gross domestic product in most major economies, including Italy, Spain, France, the U.S. and the U.K.

In a speech on Sunday, BIS General Manager Jaime Caruana warned that increased debt levels make borrowers' ability to repay more sensitive to a fall in income and interest-rate increases. "Thus, higher debt translates into greater financial fragility and financial cycles that may become increasingly disruptive," he said.

The organization cautioned that while low interest rates may keep service costs low for some time, they don't solve the problem of high debt levels because "by encouraging rather than discouraging the accumulation of debt they amplify the effect of the eventual normalization [of interest rates]."

The BIS voiced concerns that though central banks have signaled they will normalize monetary policy—after six years of low rates—investors may still be unprepared for the consequences.

But the risk of central banks normalizing too late and too gradually, the BIS said, shouldn't be underestimated, mainly due to the policy's diminished effectiveness over time.

"Tellingly, growth has disappointed even as financial markets have roared: The transmission chain seems to be badly impaired," the report said, referring to the "unusually" weak levels of global growth even after six years of extremely accommodative policy.

This is partly because nominal rates are near zero, the report said, meaning central banks cannot reduce them further to boost economic growth. Deleveraging as economic actors try to reduce debts—a so-called balance-sheet recession—has also meant that the financial sector hasn't been boosting its lending to the real economy despite successive interest-rate cuts.

What's more, keeping up ultra-accommodative monetary policy can be a source of turmoil for other economies. Some emerging-market economies and small, open advanced economies have gone through bouts of market turbulence because of loose monetary policy in major advanced countries.

Some of the money these policies have pumped into markets has found its way to emerging economies as investors sought higher-yielding assets, boosting their exchange rates and weakening exports. But when in May last year the Federal Reserve hinted at tapering—curbing its bond-purchasing program—exchange rates and asset prices in emerging markets stumbled.

Returning to normal monetary policy too slowly could also be dangerous for government finances, the BIS warned. "Keeping interest rates unusually low for an unusually long period can lull governments into a false sense of security that delays the needed consolidation," it said, as the glut of cash encourages cheap government borrowing.

[G M]

http://reason.com/reasontv/2014/06/25/america-has-ceased-to-exist-says-liberta

[Crafty_Dog]

http://www.nytimes.com/2014/07/08/upshot/welcome-to-the-everything-boom-or-maybe-the-everything-bubble.html?emc=edit_th_20140708&nl=todaysheadlines&nlid=49641193&_r=0

[G M]

http://www.nytimes.com/2014/07/08/upshot/welcome-to-the-everything-boom-or-maybe-the-everything-bubble.html?emc=edit_th_20140708&nl=todaysheadlines&nlid=49641193&_r=0

Trying to push the meme that the horrible economy is the new normal.

[G M]

http://www.internationalman.com/articles/peter-schiff-shares-his-offshore-strategies

[Crafty_Dog]

What if "Potential" is Just 1.5%? To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/14/2014

A key ingredient of monetary policy is the estimate of “potential real GDP growth” – how fast the economy should expand. The Federal Reserve thinks potential is about 2¼% per year. Using this, the Fed estimates GDP is about 8.5% below potential and monetary policy should remain easy.

But what if the Fed is wrong? What if bad policy (tax hikes, spending, and regulation), which started even before the Panic of 2008, but got worse afterward, cut potential to 1.5%?

To clarify, we’re not using the word “potential” as a true, inviolable, speed limit. Like a rusty old Corvette, we believe that if it were fixed up (with pro-growth policies), the economy could grow a lot faster.

We reject the theory of the “new normal.” Slow growth isn’t a natural aftermath of a financial crisis. If anything, it’s the “new ab-normal.” Anti-growth government policies
have hurt the economy and caused higher unemployment.

Looking back at historical data suggests potential GDP growth may have slowed to about 1.5% around a decade ago (see chart here).

At first no one noticed. Excessively accommodative Fed policy and other government stimulus created a bubble in housing – which pushed the economy above its potential back in 2007. Then the Panic of 2008 took it back below its potential, but not as far as most thought.

Since then, real GDP has grown faster than 1.5%. So, instead of being 8.5% below potential as many at the Fed think, the economy may very well be operating at a level close to its true potential given current policies.

We are not yet 100% convinced by this argument, but it explains some perplexing things. First, it helps explain why the “Plow Horse Economy” hasn’t moved faster. It doesn’t matter how many steroids the Fed feeds the horse, it just isn’t going to run like a thoroughbred.

Second, it doesn’t mean growth won’t accelerate. For example, we may see 3% real GDP growth later this year, but any move to 4% growth, or above, is highly unlikely.

Third, the CPI is up at a 2.6% annual rate in the first five months of 2014 versus 1.1% in the same period in 2013, even though real GDP fell in Q1.

Fourth, with growth slow, and the Fed holding short-term rates down artificially, longer-term rates have been held down. If real GDP growth averages 1.5% in the long run and markets expect that to continue, the 10-year Treasury yield should hold at a lower level than would have been the case in an economy with higher potential – say, during the 1994-2004 period. So, as long as the Fed keeps inflation at 2-2.5%, a 10-year of 3.75% is a better long-term forecast than 4.5%.

A lower potential growth rate slows increases in standards of living, but doesn’t curtail new innovation and the profits that come from that. So, if you’re wondering what happened to the middle class or why wages aren’t growing rapidly while stocks are, look no further than slower potential growth.

And, there is only one way to improve it. Get better fiscal policies and stop counting on the Fed.

[G M]

The Plowhorse has gone missing!

[Crafty_Dog]

Industrial Production Rose 0.2% in June To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/16/2014

Industrial production rose 0.2% in June, coming in slightly below the consensus expected gain of 0.3%. Production is up 4.3% in the past year.

Manufacturing, which excludes mining/utilities, increased 0.1% in June. Auto production declined 0.3% in June while non-auto manufacturing rose 0.2%. Auto production is up 6.8% versus a year ago while non-auto manufacturing is up 3.2%.

The production of high-tech equipment increased 0.3% in June and is up 6.4% versus a year ago.

Overall capacity utilization was unchanged at 79.1% in June. Manufacturing capacity declined to 77.1% in June from 77.2% in May.  (Back when I was in the University in the mid 70s, these numbers would have been considered as implying that inefficient capacity was starting to be used, thus implying impending inflationary pressures-- Marc)


Implications: A Plow Horse report out of the industrial sector today. Industrial production rose a tepid 0.2% in June, coming in slightly below consensus expectations. But, with the June report, we now have data for all of the second quarter, when production grew at a 5.5% annual rate, the fastest quarter of growth in almost four years. Industrial production is up 4.3% from a year ago while manufacturing output is up 3.6%. We expect continued robust growth in the industrial sector in the months ahead. The housing recovery is still young and both businesses and consumers are in a financial position to ramp up investment and the consumption of big-ticket items, like appliances. In particular, note that the output of high-tech equipment is up 6.4% from a year ago and up at a 11.6% annual rate in the past three months, signaling companies’ willingness to upgrade aging equipment from prior years. Capacity utilization now stands at 79.1% in June, and higher than the average of 78.9% over the past twenty years. Further gains in production in the year ahead will push capacity use higher, which means companies will have an increasing incentive to build out plants and equipment. Meanwhile, corporate profits and cash on the balance sheet are close to record highs, showing that companies have the ability to make these investments. In other news today, the NAHB index, which measures confidence among home builders, jumped 4 points to 53 in July, the best reading since January. Looks like a broad pick-up in both sales and foot traffic around the country.

[G M]

http://www.mybudget360.com/stock-market-in-bubble-cynk-pe-valuations-at-record-levels/

[G M]

http://www.mybudget360.com/stock-market-in-bubble-cynk-pe-valuations-at-record-levels/

http://www.marketwatch.com/story/were-in-the-third-biggest-stock-bubble-in-us-history-2014-07-15?dist=beforebell

[Crafty_Dog]

Plow Horse GDP Rebound in Q2 To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/21/2014

The 2.9% drop in real GDP during the first quarter was a fluke caused by a brutal winter and some one-off events. With much of the monthly data in for Q2, it looks like the US will see that drop almost completely reversed.

Normally, we would expect a bigger bounce as pent-up demand (lost to the weather) returned and added to growth already in train. But, not this time. In recent years, tax rates have been hiked, regulations have increased and government spending has expanded. All of these are a burden on the economy that creates slower potential growth.

As a result, while we expect a nice rebound in Q2 real GDP to 2.9% annualized growth, this still looks like a Plow Horse recovery.

This doesn’t mean we won’t see better growth rates in the years ahead. Monetary policy is loose – and will stay that way even when the Federal Reserve starts raising rates – corporate profits have been terrific, and housing will continue to rebound. Job creation has hastened, helping boost incomes and purchasing power.

However, the economy will remain disappointingly weak unless, and until, government policies change. Given current policies, this economic expansion will not be like the ones in the 1980s or 1990s. Not even close.

As we do every quarter, below is a component by component “add-em-up” forecast of Q2 real GDP – and how we get the 2.9% rebound from the Q1 economic pothole.
Consumption: Auto sales surged at a 26% annual rate in Q2 and “real” (inflation-adjusted) retail sales outside the auto sector grew at a 4% rate. But services make up about 2/3 of personal consumption and those were roughly unchanged. As a result, it looks like real personal consumption of goods and services combined, grew at a 1.9% annual rate in Q2, contributing 1.3 points to the real GDP growth rate (1.9 times the consumption share of GDP, which is 69%, equals 1.3).

Business Investment: Business equipment investment looks like it grew at a 12.5% annual rate in Q2, the fastest pace since 2011. Commercial construction looks like it grew at a 4% rate. Factoring in R&D suggests overall business investment grew at a 7.5% rate, which should add 0.9 points to the real GDP growth rate (7.5 times the 12% business investment share of GDP equals 0.9).

Home Building: Better weather brought more home building in Q2, although nothing close to a housing boom. We see a 6% annualized gain in home building in Q2 adding 0.2 points to the real GDP growth rate (6 times the home building share of GDP, which is 3%, equals 0.2).

Government: Public construction projects, which had been slowed by the weather in Q1, rebounded sharply in Q2. However, military spending continued to head down. On net, it looks like real government purchases grew at a 2% annual rate in Q2, which should add 0.4 percentage points to real GDP growth (2 times the government purchase share of GDP, which is 18%, equals 0.4).

Trade: At this point, the government only has trade data through May, and it doesn’t look very good for US GDP. On average, the “real” trade deficit in goods has grown larger in Q2. As a result, we’re forecasting that net exports subtracted 0.7 points from the real GDP growth rate.

Inventories: Companies cut the pace of inventory accumulation in Q1. But, with partial data only through May, it appears inventory accumulation is reaccelerating. That’s a harbinger of better sales ahead and, for the time being, will add 0.8 points to the real GDP growth rate in Q2.

Nothing in the next GDP report is going to signal an economic boom. But, the dour forecasts of imminent recession which accompanied the reported drop in GDP over the winter months will be proven wrong. (Once again!) We aren’t looking for a boom, but it sure looks like a solid Plow Horse piece of data is on its way.

[DougMacG]

I'm not sure if General Motors falls under US Economy or Cognitive Dissonance of Government Programs.  Who saw THIS coming?

GM Debt Climbs to Over $40 Billion, Earnings Disappoint
http://markets.ft.com/research/Markets/Tearsheets/Financials?s=GM:NYQ

Other than trouble in housing, transportation, employment, healthcare, education, and global security on the brink of collapse, things look pretty good out there.

[G M]

"GM is alive and al Qaeda is on the run"

[DougMacG]

This was published in USA Today:
"Yes, this is an equity bubble"
John Hussman, PhD Stanford
http://www.hussmanfunds.com/wmc/wmc140728.htm
Not easy to dismiss.

[DougMacG]

If second quarter "growth" comes in below 2.9%, we are net-negative for the year.  Consensus estimates are something like 3% which is net-zero growth for the year.  Economist Gary Shilling says that may be closer to 1% growth and could be negative making this a recession since the first of the year.  Remember that last quarter we did not learn of the decline until revisions came in months later.  This time that should be right around election time.

http://www.zerohedge.com/news/2014-07-27/gary-shilling-q2-gdp-was-closer-1-3-it-could-even-be-negative-number

Gary Shilling: "Q2 GDP Was Closer To 1% Than To 3%. It Could Even Be A Negative Number"

[G M]

http://davidstockmanscontracorner.com/heres-what-wall-street-bulls-were-saying-in-december-2007-read-and-take-cover/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+PM+Monday