Author Topic: US Economy, the stock market , and other investment/savings strategies  (Read 480893 times)

Crafty_Dog

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Wesbury: Nonfarm payrolls up strongly
« Reply #1150 on: July 08, 2016, 09:39:49 AM »
Nonfarm Payrolls Increased 287,000 in June To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/8/2016

Nonfarm payrolls increased 287,000 in June, crushing the consensus expected 180,000. Including revisions to April/May, payrolls rose 281,000.

Private sector payrolls increased 265,000 in June, although revisions to prior months subtracted 14,000. The largest gains in June were for leisure & hospitality (+59,000), health care & social assistance (+58,000), information (+44,000), professional & business services (+38,000, including temps), and retail (+30,000). Manufacturing payrolls rose 14,000 while government rose 22,000.

The unemployment rate rose to 4.9% in June from 4.7% in May.

Average hourly earnings – cash earnings, excluding irregular bonuses/commissions and fringe benefits – rose 0.1% in June and are up 2.6% versus a year ago.

Implications: The Fed should feel foolish. After last month's report that payrolls rose only 38,000 in May the Fed panicked, deciding to postpone rate hikes. But in June payrolls rose 287,000, well above trend, higher than any economist was forecasting, and the fastest growth in eight months. Both of these numbers should be taken with a grain of salt. The economy was not as weak as suggested by anemic May payroll growth and is not as strong as today's number. Instead, it's still a Plow Horse. Part of the reason for the recent volatility in payrolls was the Verizon strike, but only some of it. Information sector jobs fell 39,000 in May and rebounded 44,000 in June. That's why it's important for everyone (including the Fed!) to look at the trend, which shows average monthly job growth of 204,000 in the past year and 172,000 in the past six months. Although some pessimistic analysts will dwell on the jobless rate, which rose back to 4.9% in June, that follows last month's unusually large drop to 4.7%. Again, look at the trend. The jobless rate was 5.3% a year ago and the drop in the past twelve months is not due to a shrinking labor force; the labor force is up 1.9 million in the past year. In addition, the U-6 unemployment rate, which includes discouraged workers and part-timers who want full-time jobs, dropped to 9.6%, the lowest since April 2008. The details of today's report give the Fed reasons to put rate hikes back on the table. Average hourly earnings (which exclude fringe benefits and irregular bonuses/commissions) grew 0.1% in June and are up 2.6% from a year ago, while total hours worked are up 1.6%. Combined, total cash earnings are up 4.3% from last year, giving workers plenty of purchasing power. That's impressive considering that many highly-skilled and highly-paid Baby Boomers are retiring. Another positive detail was that the median duration of unemployment dropped to 10.3 weeks, the lowest so far in the recovery. In other recent news on the labor market, new claims for jobless benefits fell 16,000 last week to 254,000. Continuing claims for unemployment benefits declined 44,000 to 2.12 million. These data suggest jobs continue to grow in July, somewhere in the 170,000 – 200,000 range. We doubt the Fed will move in July, but the market is putting the odds of a rate hike by September at only 12%. That's way too low. Don't be surprised if the Fed still ends up raising rates twice later this year.

Crafty_Dog

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Wesbury: How many apps has the Fed written?
« Reply #1151 on: July 11, 2016, 09:47:28 AM »
Ignore the Central Banks To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/11/2016

How many times does Chicken Little have to wrongly squawk before investors get it? Yes, payrolls increased just 38,000 in May, and yes, British voters opted for political independence from the European Union. And, yes, Stock markets swooned. But, they will likely hit new highs this week. Just another head fake, brought to you by the bad news bears.

The financial press doesn't help. They jump on any, and every, story-line that can be spun negatively, even if they can't really explain it. And, the Fed seems just as jumpy as the press. Before the May jobs report (released June 3rd), most thought the Fed would hike rates by July. But after the May jobs data, and even though Janet Yellen went out of her way to emphasize that the Fed doesn't put too much weight on any one economic report, the market knew a July rate hike was off.

Some are spinning the July 287,000 jobs report as a "relief" to the Fed, but this only makes sense if somehow the Fed were thinking of cutting rates, but chose to ignore the weaker than expected May jobs data thinking things would get better. In other words, the Fed's indecision and wobbly-knees are creating uncertainty and an environment of fear.

We think it's time to start ignoring central banks. The pretense of global central banks the past several years is that without their decisive action, the crisis of 2008-09 would have turned into a global depression. All it took was a combination of massive quantitative easing, zero percent rates, and now negative interest rates to prop up growth.

This, we think, is nonsense. Quantitative easing just piled banks a mile high with reserves that they didn't lend. And, if QE really did create economic growth, it would have also generated higher inflation and a weaker dollar, but inflation remains low by historical standards and the dollar isn't weak.

The same goes for negative rates. Central banks have always thought lower short-term rates create more stimulus. So, what's to stop them from going the next step and believing that negative rates must be even better! What this theory misses is that negative rates are, in effect, a tax on the financial system, which is supposed to be the conveyor belt for monetary policy. That's why countries adopting negative rates haven't yet generated the economic improvement those rates are supposed to yield. Quit waiting, it's not going to happen. In fact, negative interest rates lead to slower money growth.

But, it's not central banks that create wealth, it's entrepreneurial vigor – new ideas that make consumers' lives better, and engineering improvements that are freeing the US from unstable foreign energy supplies. Government spending and regulation stifle growth, and for the most part that's been getting worse in recent years. But, guess what? In some ways, things are getting better. For example, American oil producers are exporting crude oil for the first time since the 1970s.

The Fed has never written an App. It may use the Cloud, but it didn't build it. Remember this the next time the financial press obsesses about the next move, or lack thereof, by the Fed, the European Central Bank, Bank of England, or Bank of Japan. It hardly matters at all. And, besides, it's time wasted that's better spent analyzing companies. That's what "investors" do.

ccp

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It'a all roses from hear
« Reply #1152 on: July 15, 2016, 02:56:51 PM »
https://www.yahoo.com/finance/news/economy-suddenly-looks-great-000000269.html

Buy buy buy buy buy buy buy buy buy buy buy buy buy buy buy buy ........................

yeeeeeeeeeeeeeehaaah!

 :wink:

Crafty_Dog

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Wesbury: Real GDP accelerating?
« Reply #1153 on: July 18, 2016, 03:11:59 PM »
Real GDP Accelerating To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 7/18/2016

Forecasting economic growth from quarter to quarter is a humbling experience. Even when you get the trend right – and it's hard to beat our forecast of Plow Horse growth – there's always a quarter here and there that will throw you for a loop.

Trying to estimate growth in the second quarter is even tougher than others because that's the time of year when the government goes back and revises the GDP reports for the past few years. Moreover, the government has had persistent problems seasonally adjusting GDP, tending to underestimate growth in the first quarter each year while overestimating growth in the middle two quarters. Government statisticians say they're trying to fix that problem, but who knows how much they'll do this time.

With all this in mind, we're forecasting that the economy grew at a 2.2% annual rate in Q2, maintaining a Plow Horse pace. However, there are important signs of improvement. For example, it looks like "real" (inflation-adjusted) personal spending rose at the fastest pace in a decade. And the key reason holding down overall growth in Q2 is an inventory correction that may end up overshooting, helping boost growth in the quarters ahead.

Meanwhile, the M2 measure of the money supply has grown at an 8.2% annual rate in the first six months of 2016, the fastest pace since 2012. This is consistent with our forecast that both real GDP growth and inflation should be accelerating more than most investors expect in the next year or so, which, in turn, should be good for equities and bad for most bonds.

Below is our "add-em-up" forecast for Q2 real GDP.

Consumption: Auto sales declined slightly in Q2, but retail sales outside the auto sector rose at a 7.1% annual pace in Q2, and services, grew at about a 2.5% rate. Overall, it looks like real personal consumption of goods and services, combined, grew at a 4.4% annual rate in Q2, contributing 3.0 points to the real GDP growth rate (4.4 times the consumption share of GDP, which is 69%, equals 3.0).

Business Investment: Business equipment investment looks like it declined at a 1% annual rate in Q2 while commercial construction fell at a 10% rate. R&D probably grew around its trend of 5%. Combined, we estimate business investment slipped at a 1% rate, which should subtract 0.2 points from the real GDP growth rate (-1.0 times the 13% business investment share of GDP equals -0.1).

Home Building: Residential construction looks like it took a breather in Q2, dropping at an 8% annual rate. Don't get worried, though. This a temporary breather; builders still need to ramp up production to fill a shortage of homes. In the meantime, the temporary drop in Q2 will trim 0.3 points off of the real GDP growth rate. (-8.0 times the home building share of GDP, which is 4%, equals -0.3).

Government: Military spending rose in Q2 while public construction projects declined. On net, we're estimating that real government purchases rose at a 1% rate in Q2, which would add 0.2 percentage points to real GDP growth (1.0 times the government purchase share of GDP, which is 18%, equals 0.2).

Trade: At this point, the government only has trade data through May, but the data so far suggest the "real" trade deficit in goods has gotten a little smaller. As a result, we're forecasting that net exports add 0.3 points on the real GDP growth rate.

Inventories: At present, we have even less information on inventories than we do on trade, but what we have suggests companies were surprised by the acceleration in consumer spending, resulting in a sharp slowdown in the pace of inventory accumulation during Q2. We're forecasting inventories subtracted 0.9 points from real GDP growth in Q2.

Put it all together, and we get a forecast of 2.2% for Q2, another Plow Horse quarter. However, the sharp inventory slowdown suggests production and, therefore, real GDP is likely to pick up in the third and fourth quarters. Corporate profits and stock prices are likely to keep rising as well. We expect this to affect the Fed and Fed speakers to become more hawkish, letting investors know a rate hike is a serious possibility by September.


objectivist1

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Janet Yellen Suggests Rate Hike Coming in September...
« Reply #1155 on: August 28, 2016, 11:17:42 AM »
Fed Officials Suggest Rate Hike On The Way In September

Friday, 26 August 2016 - Brandon Smith

As predicted here at Alt-Market, despite all other indications of a receding economy the Fed is pushing for yet another rate hike in 2016.  This is a CLASSIC move for the Federal Reserve.  They almost ALWAYS hike rates into a recession/depression, and this usually accelerates the downturn.  Keep in mind the timing of these announcements; only two months before the U.S. presidential elections.  I believe the goal here by the elites is to initiate a soft downturn going into the elections which will boost Donald Trump's campaign.  I believe that they plan to place Trump into office and then allow the system to crash completely.  The point?  To place conservatives at the helm and then blame them for an economic collapse that was already engineered to happen by international financiers...

 

Federal Reserve Chair Janet Yellen said Friday that the case for an interest rate hike “has strengthened in recent months” in light of recent strong job growth, but she gave no signal that Fed policymakers will make a move at a meeting next month.

At the Fed’s annual symposium in Jackson Hole, Wyo., Yellen said the Fed’s policymaking committee “continues to anticipate that gradual increases in the federal funds rate will be appropriate over time” to meet the Fed’s goals for inflation and employment.

The Dow Jones industrial average rose after Yellen’s remarks, but logged a small decline at midday as the market digested the news that met its expectations. Meanwhile, Fed Vice Chairman Stanley Fischer said on CNBC that next Friday's report on August job gains could factor into the Fed's decision at its September 20-21 meeting, a remark that appeared to keep a rate increase on the table. The 10-year Treasury yield was up .03 percentage points in early afternoon trading at 1.6%.

The Fed raised its benchmark interest rate in December for the first time in nine years but has stood pat since then, leaving it at a historically low 0.4%.
« Last Edit: August 28, 2016, 11:19:44 AM by objectivist1 »
"You have enemies?  Good.  That means that you have stood up for something, sometime in your life." - Winston Churchill.

G M

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Re: Janet Yellen Suggests Rate Hike Coming in September...
« Reply #1156 on: August 28, 2016, 05:41:16 PM »
Trump won't win the election, short of some epic game changer.



Fed Officials Suggest Rate Hike On The Way In September

Friday, 26 August 2016 - Brandon Smith

As predicted here at Alt-Market, despite all other indications of a receding economy the Fed is pushing for yet another rate hike in 2016.  This is a CLASSIC move for the Federal Reserve.  They almost ALWAYS hike rates into a recession/depression, and this usually accelerates the downturn.  Keep in mind the timing of these announcements; only two months before the U.S. presidential elections.  I believe the goal here by the elites is to initiate a soft downturn going into the elections which will boost Donald Trump's campaign.  I believe that they plan to place Trump into office and then allow the system to crash completely.  The point?  To place conservatives at the helm and then blame them for an economic collapse that was already engineered to happen by international financiers...

 

Federal Reserve Chair Janet Yellen said Friday that the case for an interest rate hike “has strengthened in recent months” in light of recent strong job growth, but she gave no signal that Fed policymakers will make a move at a meeting next month.

At the Fed’s annual symposium in Jackson Hole, Wyo., Yellen said the Fed’s policymaking committee “continues to anticipate that gradual increases in the federal funds rate will be appropriate over time” to meet the Fed’s goals for inflation and employment.

The Dow Jones industrial average rose after Yellen’s remarks, but logged a small decline at midday as the market digested the news that met its expectations. Meanwhile, Fed Vice Chairman Stanley Fischer said on CNBC that next Friday's report on August job gains could factor into the Fed's decision at its September 20-21 meeting, a remark that appeared to keep a rate increase on the table. The 10-year Treasury yield was up .03 percentage points in early afternoon trading at 1.6%.

The Fed raised its benchmark interest rate in December for the first time in nine years but has stood pat since then, leaving it at a historically low 0.4%.

objectivist1

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Brandon Smith: Fed is Ready to Raise Interest Rates - Plan Accordingly...
« Reply #1157 on: September 02, 2016, 09:04:11 AM »
Central Banks Ready to Launch Their "Brave New World"

Brandon Smith - www.alt-market.com - August 31, 2016

The latest Federal Reserve meeting in Jackson Hole, Wyoming, is over and so far it would seem that the general investment world is not too happy about Janet Yellen’s statements as well as those of other Fed officials.  In fact, many people are looking for some simple clarity as to what the central bank is actually planning.

Most importantly, investors want to know why the Fed is suddenly so adamant about continued interest rate hikes in 2016.  Only a couple months ago, almost everyone (including alternative economic analysts) was arguing that the Fed would “never dare” to raise rates again so soon, and that there was no chance of a rate hike so close to the presidential elections.

Instead, investors have been greeted with surging rate-hike odds as Fed officials openly hint of another boost, probably in September.

As I have been saying for years, if you think the Fed’s motivation is to protect or prolong the U.S. economy, then you will never understand why they do the things that they do.  Only when people are willing to accept the reality that the Fed’s job is to undermine the U.S. economy can they grasp central bank behavior.

Here is the issue that scares mainstream markets — many day traders are greedy, but not necessarily dumb.  They KNOW full well that the only pillar holding up stocks at record highs has been central bank intervention.  A vital part of this intervention has been the use of near-zero interest rates.  That is to say, cheap and free overnight loans through the Fed have allowed banks and other corporations to remain “solvent,” and these loans have been the fuel companies have used for corporate buybacks of stocks.

Corporate buybacks have been a primary driver in the bull market rally that supposedly saved the world from the ongoing deflationary destruction of capital.  In 2015, buybacks reached historic levels and garnered one of the largest equities reversals in history.   While these buybacks do little or nothing to heal the economy on Main Street, they certainly do wonders for equities portfolios.  By buying up their own shares, corporations boost the value of remaining shares through a brand of legal trickery.  And, in the process, these corporations also boost the overall perceived value of global stock markets.

As Edward Swanson, author of a study from Texas A&M, noted on stock buybacks used to offset poor fundamentals:

“We can’t say for sure what would have happened without the repurchase, but it really looks like the stock would have kept going down because of the decline in fundamentals… these repurchases seem to hold up the stock price.”

Yes, to us he seems to be stating the obvious, but for the average American, a green stock market means a recovering economy.  There is no deeper question of why the markets are rallying, and this lack of understanding is dangerous for our country.

Even marginal hikes in borrowing costs will kill the party and, while people not involved in finance and stocks are oblivious, day traders know exactly what is going on.  This is the reason for the underlying panic felt by the investment world at any hint of a rate hike by the Fed.

As we saw with the limited audit of TARP, the Fed was pumping tens of trillions in overnight loans into distressed banks and companies, even foreign companies overseas.  I suggest that if a FULL audit of the Fed were ever conducted, we would find tens of trillions more in overnight loans since 2008.

Imagine for a moment if those loans never stopped.  Imagine that such loans have been an ongoing mainstay of our financial system and stock markets in general.  Now, ask yourself, what would happen if the companies reliant on these free loans suddenly had to pay interest on them?

Think about it; what would the interest cost be on a mere .5% to 1% of $16 trillion in overnight loans through TARP?  What would the cumulative cost be on all the loans banks and companies need to survive every quarter?   In the end, corporations would either drown in billions of dollars in exponential debt or they would have to stop accessing loans from the Fed.  Once the loans stop, the stock buybacks stop.  Once the buybacks stop, stock markets crumble.

Without free cash from the Fed, the bubble in stock markets will finally and thoroughly implode, crashing down to meet all other fundamentals.

Why would the central bank pull the plug on life support to stock markets?  There are multiple reasons, but a top reason is that this is the Federal Reserve’s modus operandi.  They consistently seem to raise rates into recessionary conditions that they also tend to create.  In essence, the Fed likes to acclimate and addict markets to low interest percentages, and then increase those percentages to agitate and elicit a chaotic reaction.

In my article Brexit Aftermath - Here’s What Will Happen Next, I stated:

“Really, the only safe measure the Fed can take from now on is to do nothing.  I highly doubt that they will do nothing.  In fact, even in the face of the Brexit I still believe the Fed will raise rates a second time before the end of the year.  Why?  This is what the Fed has always done as recession takes hold.  Historically, the Fed raises rates at the worst possible times.  As with the Brexit, I am going to have to take the contrary position to most analysts on this.”

What analysts out there need to understand, whether they are independent or mainstream, is that a great shift in central bank policy and attitude is coming. Christine Lagarde at the IMF calls it the “economic reset,” some Fed officials, like Atlanta Fed President Dennis Lockhart, state that central banks are entering a “brave new world.” These are highly loaded phrases that represent a drastic overhaul of the global financial system; an overhaul that is quite deliberate and inevitably destructive for certain nations and economies, including the U.S.

If we examine the policy pursuits and recently stated goals of central banks around the world, and those statements made after the Brexit referendum, we find that a process of complete global centralization is underway. This includes a push for all central banks to “coordinate policy” under a single directive.

Alternative analysts already know that all central banks are ALREADY covertly coordinated by the Bank for International Settlements.  So, when central bankers call for policy coordination in the mainstream press, what they really mean is, they want the existing coordination that is covert to become publicly accepted and celebrated.  They want that which is illegal to become legal.  That which is morally reprehensible to become morally relative.

Central bankers also want their position of authority over the global economy to become a public priority.  Ten years ago, when I asked average people what they knew about the Federal Reserve, most of them responded with confusion.  They had never heard of the institution, let alone what its function was.  Today, almost everyone knows about the Fed, but there is also an assumption attached that central banks, whether they are successful or not, are supposed to maintain economic stability.  Keep in mind that global stocks barely vibrate today until a central bank somewhere publishes a policy statement.  This is not how investment is supposed to function.  The jawboning of central banks should be mostly meaningless.

The brave new world of central banking is a plan to expand on this corrupt correlation.  That is to say, the general public and the mainstream should be questioning whether central banks should exist at all.  Instead, people are arguing over what policies are better for central banks to adapt.  The existence of central banks is considered an absolute.  The masses are only given the option to debate what faces and what hats central banks should wear.  If we get anything out of this deal, we only get to choose the form of our destructor.

I should point out also the growing trend in the mainstream media of criticism against the Fed.  This is a relatively new thing.  For the past several years the more effectively critical the alternative media became against the Fed, the louder MSM talking heads would cheerlead for the establishment.  With central bankers becoming more open about their global shift into something "different", a new program of stabbing at the Fed has been initiated.  This is not a coincidence.

As I have argued in various articles, the Fed itself may be just as sacrificial to the elites as the U.S. economy.  In the process of global centralization, the Fed would eventually have to take a back seat to the IMF, World Bank and the BIS.  It is not surprising to me in the slightest that the bought-and-paid-for mainstream media is changing gears and attacking the institution they once desperately defended.  Priorities are evolving.

I believe that with the advent of a second rate hike in 2016, many conditions will change.  The Dow and some emerging markets will no longer enjoy unmitigated support, and they will begin to fall going into the elections.  As I have mentioned many times in past articles, Donald Trump is the most likely candidate to take up residence in the White House.  Conservatives will be lulled into a temporary euphoria, happy just to have defeated she-demon Hillary Clinton, only to discover that an overall global implosion has entered a new stage.  This implosion will of course be blamed on those same conservative movements.

In the meantime, central banks around the world are going to start openly coordinating while the IMF will take up a “leadership role” in managing international policy.  Central banks will also be branching out and taking on new powers.  As suggested at Jackson Hole, many central bankers are arguing for “new tools” to fight future fiscal downturns, and no, this does not mean negative interest rates.  Instead, watch for central banks to change the definition of inflation on a whim, or adjust the relative value of currencies through agreements with other countries instead of allowing free markets to determine values, and watch for complete overhauls in how economic instability is calculated.

What we are heading for is a world in which many nations will suffer from reductions in living standards and where some first world nations will be reduced to third world conditions.  In order to normalize increased global poverty, you have to stop calling it poverty and start calling it a “brave new world.”  You have to convince the populace that the economic degradation is not a problem that can be solved — rather, it is a problem we must all adapt to and accept.

Be very wary when elites and international financiers mention “global reset,” or a “brave new world,” or a “new world order.”  What they are talking about is not a program that is in your best interest.  What they are talking about is the deliberate creation of chaos; a slow burning calamity that can be exploited to derive the benefits of even more centralization and even more power.

They will call it random.  They will call it coincidence or fate or even blame it all on their ideological opponents.  In the end, they will eventually call it a natural progression of events; a social and financial evolution.  They will call it inevitable.  None of this will be true.  There is nothing natural about a totalitarian framework — it is a machine that is carefully crafted piece by piece, maintained by the hands of a select few tyrants and fed with the labor, sacrifice and fear of the innocent.

The only solution is to expunge the parasites from our fiscal body.  These institutions and the people behind them should not exist.  Most if not all of our sociopolitical distress today could be cured if a “brave new world” meant wiping the slate clean and dispelling financial elites and central bankers into a bottomless pit.
"You have enemies?  Good.  That means that you have stood up for something, sometime in your life." - Winston Churchill.

Crafty_Dog

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Scott Grannis: Brandon Smith is wrong
« Reply #1158 on: September 02, 2016, 02:57:07 PM »
Hi Marc: I just glanced at this post, and it seems to me that Smith is basing his entire argument on a faulty assumption (i.e., that Fed stimulus is propping up the market, and tightening is on the way and will prove fatal). As we discussed a few weeks ago, I see things very differently. I think the Fed has cut rates because the market has been extremely risk averse; the Fed is a follower, not a leader. Stocks were very cheap and are now only moderately expensive (i.e., PE ratios are a bit above long-term averages). But considering how low interest rates are, stocks are still quite attractive relative to cash and short-term bonds. There are plenty of signs of risk aversion which jibe with the low level of short-term interest rates. Inflation expectations are unquestionably low. The dollar is trading around its long-term average against other currencies on an inflation adjusted basis. Very few, if any signs of speculative excess; plenty of indicators suggesting that the private sector has deleveraged to a significant degree. Business investment has been notoriously weak, another sign of risk aversion. Very few, if any, signs of financial market distress. I think the market is priced to the expectation that growth will remain sluggish for as far as the eye can see, and inflation will remain low.

The August jobs number was disappointing, and it confirms that the economy has downshifted so far this year. I don’t see any signs that the Fed is determined to tighten, and today’s data will likely serve to weaken whatever resolve they may have had to do so.
 

objectivist1

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Brandon Smith Responds...
« Reply #1159 on: September 03, 2016, 05:45:15 AM »
I don't "assume" the markets are propped up by Fed stimulus, that is a verifiable fact.

As already linked in the article above, stock buybacks are indeed propping up equities prices artificially. Companies are seeking to counteract poor fundamentals:

http://www.cnbc.com/2016/03/28/companies-that-do-buybacks-do-worst-over-time-.html

The Fed's overnight loans and near zero interest rates feed the coffers of various banks and international businesses. This has allowed them to institute constant debt fueled stock buybacks:

http://www.reuters.com/article/us-usa-fed-buybacks-analysis-idUSKCN0RN0D320150923

The Fed cut rates because it was the only way to prop up the dying markets. In fact, every time stocks began to retrace the initial crash of 2008-2009, the Fed introduced more QE, boosting markets again. THIS WAS OPENLY ADMITTED by Dallas Fed head Richard Fisher. Here is the quote:

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

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

I’m not surprised that almost every index you can look at … was down significantly." [Referring to the results in the stock market after the Fed raised rates in December.]

Fisher went on to hint at the impending danger:

I was warning my colleagues, “Don’t go wobbly if we have a 10-20% correction at some point…. Everybody you talk to … has been warning that these markets are heavily priced.”

http://video.cnbc.com/gallery/?video=3000474362

Alan Greenspan also openly admitted that the Fed's main concern was propping up equities:

http://www.zerohedge.com/news/2016-04-18/greenspan-admits-feds-plan-was-always-pushing-stocks-higher

Of course, it does not surprise me that a "mainstream economist" would be completely oblivious to this information. They live in another world separate from reality.

As far as the so called "recovery" is concerned, all fundamental data has indicated since last DECEMBER that the global economy is not only in consistent decline, but that decline is now accelerating. This did not stop the Fed from raising rates the first time. I am not sure why mainstream economists think that data makes any difference to the Fed today.

No one asked the fed to raise rates in the first place, yet they did. And now, they are going to raise again. Today's job numbers gave no indication whatsoever that the Fed will back off from another hike. That is all mainstream news gossip and nothing more.

I have been consistently right over the years about Federal Reserve activity. I am right again this time. When they raise again this year, I hope you are willing to accept that perhaps the mainstream knows very little about how the economy and the central banks operate
"You have enemies?  Good.  That means that you have stood up for something, sometime in your life." - Winston Churchill.

DougMacG

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Re: Brandon Smith Responds...
« Reply #1160 on: September 05, 2016, 07:06:49 AM »
My view on this is closer to Obj's than to Grannis' view.  I don't follow the reasoning of Grannis, Wesbury, others, that quantitative (monetary/money) expansion didn't increase the money supply because that money is mostly sitting in reserve accounts or however they reason that.

The market has been up 7 years while monetary policy has been absurdly on the expansionist side.  The Fed's best economists have considered the economy too weak and fragile this whole time to even begin to raise rates from zero to normal with the exception of one, 1/4 point rise. With rates down, stocks mostly soared.

I understand the age-old logic fallacy that correlation doesn't equal causation but what else explains the rise of all large stocks, fracking, economic strength?

Holding interest rates down has kept interest rate based investments uncompetitive with capital in equities.  All money (and more money?) chasing the same stocks IMHO.

Holding interest rates artificially down allows prime borrowers to finance operating capital for nothing.  Who does that help more than the Dow 30, Nasdaq 100 or S&P 500?  Startups don't have the same easy money.

The other factor typically missed is over-regulation.  When you buy a Dow or S&P stock, you are buying global market share in an industry.  Nothing keeps new competitors, innovation and creative destruction out like over-regulation.  No one has more lobbyists or better lobbyists than the biggest companies in the land.  Over-regulation in an industry, banks, oil, pharma, makes it so only the biggest, most entrenched companies with the deepest pockets can do it.

There has been a disconnect between the US Economy and the 'US' stock market for the entire Obama terms.  Economic dynamism lost is good news if you own major market share in major industry and all these companies do. 

Where I differ with Obj is this:  " it does not surprise me that a "mainstream economist" would be completely oblivious to this information. They live in another world separate from reality."

I consider Scott Grannis to be an expert, a respected friend of the forum and to know more about all of this than me.  The Dallas Fed chair Richard Fisher is a hero but having one smart person agree with us doesn't make us right.  Greenspan is partly an idiot;  having him agree with us in part also doesn't make us right either.  Time will sort out who is right. 

Crafty_Dog

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Re: US Economics, the stock market , and other investment/savings strategies
« Reply #1161 on: September 05, 2016, 09:39:03 AM »
An additional variable contributing to the rise of the US market is that for all the foibles, flaws, and fallacies of our market, other markets are worse and money from there flows to here.

EU-- will it survive?
China-- a bubble?
Third World markets?

US can look pretty good in comparison.

DougMacG

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Re: US Economics, the stock market , and other investment/savings strategies
« Reply #1162 on: September 06, 2016, 07:22:46 AM »
An additional variable contributing to the rise of the US market is that for all the foibles, flaws, and fallacies of our market, other markets are worse and money from there flows to here.

EU-- will it survive?
China-- a bubble?
Third World markets?

US can look pretty good in comparison.

Agree.  Even under Obama  (and Yellen) there isn't a better currency or market in the world.   Yet we pursue the policies of Venezuela.

DDF

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Re: US Economics, the stock market , and other investment/savings strategies
« Reply #1163 on: September 06, 2016, 07:38:45 AM »
An additional variable contributing to the rise of the US market is that for all the foibles, flaws, and fallacies of our market, other markets are worse and money from there flows to here.

EU-- will it survive?
China-- a bubble?
Third World markets?

US can look pretty good in comparison.


The proof has always been, and always will be, in where the flow of migration (illegal or otherwise), is going. Some people have undoubtedly seen Mexican side of the fence in Tijuana in Colonia Tierra y Libertad, strewn with crosses of the people that have died in the desert to the north, attempting to cross.

I'm as alt-right as they come on several matters, and can't stand Obama, or any of them. There is still no denying that the American economy is the best in the world.

Crafty_Dog

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Good QE explanation from Wesbury
« Reply #1164 on: September 06, 2016, 09:51:12 AM »
Monday Morning Outlook
________________________________________
QE Is Not A Magic Elixir To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/6/2016

In the Wild West, traveling salesmen sold Magic Elixirs that cured anything that ailed you. These days, the elixir is Quantitative Easing (QE) – it supposedly saved the world from Armageddon, lifted stock prices, drove down bond yields, and, according to at least one analyst, created the fracking boom.

So now that the Fed has tapered and plans a second rate hike, many investors fret about an impending recession and a collapse in stocks. They think the US is one big "bubble."

But those Wild West Magic Elixirs didn't work and neither does QE. Before the Panic of 2008, the Federal Reserve had assets totaling $870 billion. Then the Fed started buying Treasury and mortgage bonds from banks with abandon in exchange for new deposits in the banking system – the equivalent of printing new money. Fed assets ballooned in three stages – QE1, QE2, and QE3 – topping out at nearly $4.5 trillion by late 2014, when QE ended. Banks ended up with trillions in cash.

Before the Panic, banks had about $10 billion in reserves at the Fed, almost all of which they were legally required to hold to back up their customers deposits. Now, banks are holding $2.2 trillion in "excess reserves," or reserves in excess of what the banks are legally required to hold. They hold these reserves at the Fed and today earn 0.5% per year, about $12 billion per year, for doing absolutely nothing.

But those reserves just sit there. Over history, banks have always lent out all the money the Fed printed and exchanged for bonds, but now banks just hold most of this cash. Because the Fed has almost always said QE is temporary, banks have little reason to lend out funds the Fed could withdraw at any time.

So, even though the Fed's balance sheet soared, M2 growth, until recently, was a very pedestrian 6% per year. That's why hyperinflation never materialized. That's why the dollar didn't collapse. That's why all that QE wasn't necessary.

Consumer prices are up only 0.8% in the past year. We think inflation is headed higher, but hyperinflation this is not. Meanwhile growth has stagnated. So, if all this money was really boosting the economy, if it really was a magic elixir, wouldn't growth and inflation be higher?

Some say whatever growth we've had is because of QE, but how can money that's not lent cause anything? Nominal GDP – real GDP growth plus inflation – has grown at a 3.7% annual rate since the economic recovery started seven years ago in mid-2009. With the exception of the immediate aftermath of the Panic, that's the slowest 7-year period since World War II. So much for easy money.

Others acknowledge that maybe QE hasn't created hyperinflation or helped the economy, but somehow attribute the bull market in stocks to the same policy. But stocks are up around 10% since QE ended. If QE is so powerful, shouldn't stocks have cratered (and bond yields gone up) when QE ended? Of course, these analysts say European and Japanese QE has taken the place of US QE. But if QE in the US didn't lift M2, how could foreign QE? It's a foreign Magic Elixir!

Some say that the bear market will start when QE is put in reverse. The theory is the Fed will eventually sell bonds and make banks' excess reserves disappear, pushing up interest rates and therefore making stocks look more expensive.

But, we believe that a very low federal funds rate and the Fed's unwillingness to normalize rates, not QE itself, is what is holding down bond yields. This is why we use higher interest rates in our stock market models. In fact, to assess fair value for stocks, as we noted last week, even using a 3.5% yield on the 10-year Treasury Note suggests equities are still undervalued. We expect bond yields to rise as the Fed lifts rates.

Moreover, all the discussion about QE ignores corporate profits. The S&P 500 is no higher today relative to economy-wide corporate profits than it was in the late 1950s. Was that an unsustainable bubble as well?

We get it. Many investors and analysts, who have consistently predicted doom and gloom for the past seven years needed to come up with a reason why they were wrong. So they developed a theory that everything is fake: the economic recovery and the bull market, all built on temporary factors, like QE, that were about to reverse.

But the theory makes no sense. QE has been a great big nothing. It hasn't boosted inflation, hasn't helped growth, and has been meaningless to the bull market in stocks, which has been driven by entrepreneurship.

There really is nothing special about the current bull market. If anything, it should have been stronger. And it would have been if policymakers did their job right. But that doesn't mean we shouldn't have had any bull market at all.

ccp

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Re: US Economics, the stock market , and other investment/savings strategies
« Reply #1165 on: September 15, 2016, 08:07:05 AM »
Very high risk speculative stock to buy if you think Trump could win:

https://nz.finance.yahoo.com/q?s=AIR.NZ

Hollywood to Wellington flights will be triple booked.    :-)

G M

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Re: US Economics, the stock market , and other investment/savings strategies
« Reply #1166 on: September 15, 2016, 08:41:23 AM »
Very high risk speculative stock to buy if you think Trump could win:

https://nz.finance.yahoo.com/q?s=AIR.NZ

Hollywood to Wellington flights will be triple booked.    :-)

Good luck, as Wellington will be either directly or indirectly ruled by Beijing before long.

DougMacG

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Re: US Economics, the stock market , and other investment/savings strategies
« Reply #1167 on: September 15, 2016, 09:07:17 AM »
"Good luck, as Wellington will be either directly or indirectly ruled by Beijing before long."


That's right.  The economic freedom of Hong Kong, Singapore, New Zealand, South Korea and others is (was?) made possible by the benevolence of a US military presence that was once the strongest in the world.


objectivist1

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Ugly Economic Developments Coming Very Soon...
« Reply #1168 on: September 15, 2016, 01:53:40 PM »
The World is Turning Ugly as 2016 Winds Down

Brandon Smith - www.alt-market.com

I have to say that the negative reverberations in our current economic and political environment are becoming so strong that it is impossible for people to not feel at least some uneasiness in their gut. I imagine this is the same kind of sensation many felt from 1914 to 1918 during World War I and the terrible birth of communism, or perhaps in the early 1930s at the onset of the Great Depression and the rise of fascism. Some global changes are so disturbing that they send shockwaves through the collective unconscious before they ever hit the mainstream. People know that something is about to happen, even if they cannot yet clearly define it.

At the beginning of August in my article “2016 Will End With Economic Instability And A Trump Presidency” I stated that:

"I believe a softer downturn will begin before the election (the U.S. presidential election) takes place, most likely starting in September. This will give a boost to the Trump campaign, or at least, that is what the polls will likely say. I would also watch for some banking officials and media pundits to blame this downturn on Trump’s rise in the polling data. The narrative will be that just the threat of a Trump presidency is “putting the markets on edge."

Unfortunately, it would seem so far that this prediction was correct. Currently global markets have crossed into severe volatility with a vengeance after around three months of eerie calm. Why? Well, as I warned in the same article linked above as well as numerous others since the beginning of this year, the Federal Reserve is determined to continue raising interest rates into a recessionary environment as they almost always do, and equities markets addicted to cheap debt cannot tolerate even one additional rate hike from the central bank.

So far all evidence suggests that the Fed plans to raise rates again soon; I believe at the end of this month.  The only seemingly "anti-hike" voice at the Fed so far has been board member Lael Brainard, but even her statements promote a false narrative that a America is on track to "recovery".

Many normally “dovish” members of the Fed have openly suggested that now is the time to hike.  Voting members at the Fed have been vocal about a shift in policy.  The latest example being head of the Bank of Cleveland, Loretta Mester. She argues that rates have remained “too low for too long,” and rejected notions that lower rates are necessary to maintain stability.

This is the same kind of language Fed members used right before the rate hike in December 2015, the first rate hike in around a decade.  And, to add to the fervor, even JP Morgan Chase head Jamie Dimon is calling for interest rates to rise.

Get ready folks, because all the naysayers that claimed another rate hike is “impossible" are probably about to be proven wrong yet again.

My warning on an accelerating Trump campaign being blamed for weak stock markets has also come true. Already, Bloomberg is launching the meme that the idea of Hillary Clinton losing the election to Trump “because of her health” is a “landmine for vulnerable markets.”

This is some incredible spin by the elitist controlled media, but again, very predictable. The globalists are setting the stage to blame the economic collapse they created on conservative movements. Clinton’s “health issues” are being set up as the scapegoat for a Trump win, which conjures additional social unrest as many on the Left will argue (in the event of a Trump win) that Trump prevailed on a technicality. That is to say, the extreme Left will argue that Trump’s presidency is not legitimate.

Another scenario is also possible but I think less likely — the potential for Clinton to bow out of the election due to her health, causing a rationale for a postponed election. I do not think a postponed election really serves the interests of the elites, but it would certainly trigger massive chaos if it occurred. Only in the strangest of any election year in American history could this even be thought of as a legitimate danger.

Another global indicator, oil, is tumbling yet again as all the jawboning from OPEC on a “production freeze” has failed to boost crude prices for more than a week at a time. Frankly, no one is buying the hype anymore. Those who bet on the WTI index shooting past $50 to $60 a barrel this year should have been paying more attention to alternative analysts. The only other factor that has kept oil from crashing down into the $30 range has been random inventory draws. These reports, though, are little more than a stop gap. Companies have been shifting crude to different facilities in order to create the illusion of inventory draws and higher demand. But usually within a week the reports catch up to the real supply and an inventory spike sends oil crashing down again.

Add to this the latest news that Congress has passed a bill allowing the families of 9/11 victims to sue the Saudi government for their part in the attack, and you have a recipe for a dumping of the dollar as the world’s petrocurrency. Even if Obama vetoes the bill, I believe a two-thirds majority of congress will override that veto. A catastrophe in oil markets is inevitable.

Whether in oil markets or other sectors of finance and social stability, make no mistake, catastrophe is exactly what national governments are preparing for.

This is most obvious today in the European Union. The German government in their first revision of their civil defense plan since the cold war has warned the public to prepare for an unspecified event by stockpiling at least 10 days worth of food and five days worth of water. Germany is also debating the idea of placing troops on the streets to “protect against ISIS.”

And Germany is not alone. French presidential candidate Nickolas Sarkozy has made some highly disturbing statements on security in a recent interview, outlining measures he believes will best protect the public from “militants.” From Reuters:

France needs to get tough on militants by creating special courts and detention facilities to boost security, the country’s former President Nicolas Sarkozy said in a interview published in Sunday newspaper Le Journal du Dimanche.

“Every Frenchman suspected of being linked to terrorism, because he regularly consults a jihadist website, or his behavior shows signs of radicalization or because is in close contact with radicalized people, must by preventively placed in a detention center,” Sarkozy said in the interview.

Sarkozy, who announced last month his candidacy for the April 2017 presidential election, has said there is no place for “legal niceties” in the fight against terrorism.

Even in the face of Islamic extremism and terrorism, the concept of “detention facilities” where people are held without charge and without trial on the mere suspicion of being a danger to society should horrify anyone with any sense. The fact of the matter is, these violations of personal freedom and of due process are NEVER used for only one group of people. Totalitarian governments ALWAYS use one group as an excuse for the police state, then over time they expand the police state outwards to oppress everyone.

This is the kind of rhetoric that liberty movement activists in the U.S. fought against in the National Defense Authorization Act (NDAA); but it is making a resurgence in Europe and in America as well. If you think Sarkozy is a marginal example, I recommend you re-watch this interview with Gen. Wesley Clark, who argues that “radicalized people” who are disloyal to the U.S. government should be placed in internment camps. He suggests that Britain, Germany and France need to take similar measures. It would appear that they are doing just that.

Never forget that “radicalism” is an arbitrary designation, and the label can be applied to just about anyone for any reason. A trend in police state language is growing in the mainstream in the name of fighting terrorism, but the abrupt urgency in Europe is rather odd. Only a few months ago, EU leaders were using some outrageous mental gymnastics in order to avoid confronting the notion of Islamic terrorism. Now, they are suddenly concerned? Why?

I believe Europe is about to witness a catalyst for financial crisis, and they are using terrorism as an excuse to preposition martial law resources before this event takes place. They don’t care about stopping ISIS, but they do care about locking down and controlling an angry citizenry in the wake of an economic downturn. If a few more terrorist attacks occur in the meantime, then hey, that only helps the elites in their efforts to pacify the public for the sake of “security.”

Official preparedness warnings from Germany, for example, are of little use to the public. A supply of a mere ten days of food and five days of water is useless during any sizable crisis. But, the German government can now say that they “tried to warn people.” Sarkozy’s statements are the most blatant call for a police state I have yet seen from an establishment puppet politician, and this should worry people. The fact that he is being so open and honest about the end game indicates to me that a dangerous shift is imminent.

It would appear, according to EU government behavior, that whatever is about to happen globally is going to hit hardest in Europe first and then spread to the U.S. and the rest of the world. I recommend readers watch the EU very carefully over the next few months. If you have any financial or survival preparations you have been putting off, I suggest you take care of them before the end of this year. From what I see so far, geopolitically and economically the global situation is only going to become more unstable in the near term.
"You have enemies?  Good.  That means that you have stood up for something, sometime in your life." - Winston Churchill.

ccp

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Re: US Economics, the stock market , and other investment/savings strategies
« Reply #1169 on: September 15, 2016, 02:43:21 PM »
"Good luck, as Wellington will be either directly or indirectly ruled by Beijing before long."

Then the Hollywood libs who move there will wish they had not voted for bRoCk.

ccp

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Wells Forgo all reputation for honesty
« Reply #1170 on: September 20, 2016, 03:23:43 PM »
Not sure if this is correct thread.  For once I cannot say I disagree with Elizabeth Warren on this:

https://www.yahoo.com/finance/news/wells-fargo-ceo-full-responsibility-022343031.html

Crafty_Dog

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Re: US Economics, the stock market , and other investment/savings strategies
« Reply #1171 on: September 20, 2016, 05:39:57 PM »
Maybe the banking thread  :lol:

Crafty_Dog

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Wesbury notes negative implications of truck sales
« Reply #1172 on: September 20, 2016, 05:49:08 PM »
The Glass Half Empty To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 9/19/2016

We get called perma-bulls, wrongly we think, because we were late to call 2008 a Panic, and because we've pushed back against the doom and gloom of the past 7 1/2 years. Time and again over the past several years, we've argued the Plow Horse economy would continue to grow.

Remember fears about adjustable-rate mortgage re-sets, or the looming wave of foreclosures that would lead to a double-dip recession? Remember the threat of widespread defaults on municipal debt? Remember the hyperinflation that was supposed to come from Quantitative Easing? Or how about the Fiscal Cliff, Sequester, or the federal government shutdown? Or the recession we were supposed to get from higher oil prices...and then from lower oil prices? How about the recession from the looming breakup of the Euro or Grexit or Brexit?

In the end, none of these were reasons to fear a recession or to bail out of stocks.

But this doesn't mean we are "perma-bulls." It doesn't mean we will never be concerned about the prospects for recession. Sooner or later, the US will have another recession. And even though we've consistently pushed back against others' recession theories the past several years, we are always on the lookout for recession theories that make sense.

And although we don't think a recession will happen anytime soon, there are some data we're concerned about.

In the past fifty years, one of the best signals of an impending recession has been medium and heavy truck sales. Anytime that's dropped substantially – and the 31% drop since June 2015 certainly qualifies – a recession has started within two years of the peak in sales. If that holds this time around, we'd be due for a recession starting by the middle of 2017.

Given the traditional role of these vehicles to the flow of commerce around the country, a drop should never be casually dismissed. So, normally the drop since mid-2015 would give us serious concerns about the economy.

This time, however, the drop in medium and heavy truck sales has come during a time of falling oil prices and less mining activity. In addition, sales before mid-2015 may have been artificially high due to a new regulation on trucks' antilock braking systems. Some sales appear to have been accelerated to avoid the new rule, which then went into effect. There have been other regulations on emissions that affected sales as well.

Another data series we're watching closely is what we call "core" industrial production, which is industrial production excluding utilities, mining, and autos, all of which are very volatile. The core measure is down 0.9% from a year ago. Normally a decline of nearly 1% only happens in recessions or right after they end, but it also happened back in January 2014, so we think it's important to wait and see. Once again, the absorption of lower oil prices and the huge drop in drilling activity in the energy sector may be holding down production.

If truck sales and core industrial production continue to show weakness it would certainly get more of our attention. But, for now, we think the weight of the data show continued Plow Horse growth.

Job growth continues at a healthy clip. Initial unemployment claims have averaged 261,000 over the past four weeks and have been below 300,000 for 80 straight weeks. Consumer debt payments are an unusually low share of income and consumers' seriously delinquent debts are still dropping. Wages are accelerating. Home building has risen the past few years even as the homeownership rate has declined, making room for plenty of growth in the years ahead.

Meanwhile, there haven't been any huge shifts in government policy in the past two years. Yes, policy could be much better, but the pace of bad policies hasn't shifted into overdrive lately.

In other words, our forecast remains as it has been the past several years, for more Plow Horse economic growth. But you should never have any doubt that we are constantly on the lookout for something that can change our minds.
 

G M

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Re: US Economics, the stock market , and other investment/savings strategies
« Reply #1173 on: September 20, 2016, 05:54:50 PM »
It's a fcuking depression. Yes, Wesbury was late to recognize 2008 the way John Denver was late to recognize his lack of ability as a pilot.

objectivist1

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Re: US Economics, the stock market , and other investment/savings strategies
« Reply #1174 on: September 20, 2016, 06:38:11 PM »
Thank you, GM!   :lol:  Wesbury conveniently fails to mention that JUST TO MAINTAIN PACE WITH THE POPULATION GROWTH (workers retiring vs. new young people reaching working age) requires that the economy create approximately 250,000 jobs/month.  That hasn't happened on average SINCE 2008.  There is no recovery.  It doesn't exist.  It's a BIG LIE.  It's nothing more than propaganda designed to prop up the political status quo which is benefiting people like Wesbury.

« Last Edit: September 20, 2016, 06:39:58 PM by objectivist1 »
"You have enemies?  Good.  That means that you have stood up for something, sometime in your life." - Winston Churchill.

Crafty_Dog

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Re: US Economics, the stock market , and other investment/savings strategies
« Reply #1175 on: September 20, 2016, 07:07:55 PM »
Do note gents that people who followed his advice over ours are A LOT richer for it.


objectivist1

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Re: US Economics, the stock market , and other investment/savings strategies
« Reply #1176 on: September 20, 2016, 08:00:14 PM »
Crafty:

Over the relative short-term, yes.  Point acknowledged.  However the vast majority of those people may lose all of their gains in one breathtaking plunge when the crash occurs if they fail to time it properly, which is virtually impossible to do.  I will eat my words if Wesbury accurately predicts the downturn.  I'm not losing sleep over this prospect.
"You have enemies?  Good.  That means that you have stood up for something, sometime in your life." - Winston Churchill.

Crafty_Dog

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Re: US Economics, the stock market , and other investment/savings strategies
« Reply #1177 on: September 20, 2016, 08:11:01 PM »
Reasonably tight stops should handle that.

BTW I would submit that 7 years is quite a bit more than "short term".  What % has the move been since the bottom?  Nearly 200%?  Let's face facts:   We predicted mass inflation, doom and gloom, and crashing prices for pretty much the last seven years.  The explanation by Grannis (and Wesbury) of the implications of the increase in banking reserves has proven correct.

Please read for precision here:  What I am saying is does not contradict that we agree that there are genuine risks of genuine catastrophe.  However, which course of action would make you richer:

Staying out of the market for these seven years in the belief of your powers of prophesy or profiting for the past seven years, and taking the risk that you will have to give a chunk of it back should there be a catastrophic crash that you missed?
 

Crafty_Dog

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Grannis gives his Sit Rep:
« Reply #1178 on: September 24, 2016, 06:49:05 PM »
I've been following the markets throughout the past week, but can't come up with any new or informed observations about what's happening. However, there's nothing wrong with a recap of how I see the economy and the markets, so here goes:

The economy is likely continuing to grow at a disappointingly slow pace, but we might see some modestly stronger GDP numbers in the second half as compared to the first half of the year. There are several reasons for sluggish growth, but monetary policy is not one of them. Tax and regulatory burdens are excessively high; confidence is still lacking; and business investment is weak despite strong corporate profits. Risk aversion, a lack of confidence, and weak investment have sapped the economy's productivity. More recently, the tremendous uncertainty surrounding the November elections—which could give us even higher tax and regulatory burdens and four more years of sluggish growth under a Clinton presidency, or reduced tax and regulatory burdens and four years of stronger growth under a Trump presidency—is most likely convincing risk-takers that it is better to wait until next year before deciding to undertake new investments, and that in turn is contributing to keep growth weak, especially this year.

The Fed has not been "stimulative;" rather, the Fed has been accommodating the world's almost insatiable desire for money and safe assets with its Quantitative Easing program. Short-term interest rates are not artificially low, and thus they are not artificially inflating the prices of risk assets and/or bonds. Interest rates are low because the economy is sluggish, inflation is low, and the market holds out very little hope for improvement in the years ahead. Rates are low because the world's demand for safe assets is very strong. In particular, the very low level of real yields on TIPS, combined with relatively low implied inflation, strongly suggests that the market is very pessimistic about the long-run outlook for economic growth. The Fed is not too tight, because real yields are very low and the yield curve is positively sloped. Deflation exists primarily in the durable goods sector, and China has been one of the driving factors behind ever-cheaper prices for the electronics that have boosted our standard of living—there is nothing wrong with that.

Stocks are no longer cheap, but neither are they obviously expensive. The current PE ratio of the S&P 500 (~20) is above its long-term average, but not excessively high considering how low interest rates are on notes and bonds. Key indicators of systemic risk (particularly swap spreads) are relatively low and stable, and this—combined with the absence of tight money—suggests that the risk of recession is low for the foreseeable future. The unusually wide spread between the yield on cash and the yield on risk assets is a compelling reason to stay invested.

The dollar is reasonably valued against most other currencies, according to the Fed's Real Broad Dollar Index, and my analysis of the dollar's PPP value against other major currencies is largely in agreement with this. Raw industrial commodity prices are neither very high nor very low, but they have been trending higher this year and this suggests some firming in the global economic outlook—which, like that of the U.S., has been unimpressive of late, if not a bit troubling.
 

DougMacG

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Re: Grannis gives his Sit Rep:
« Reply #1179 on: September 25, 2016, 11:48:47 AM »
Good post by Grannis.  This is a remarkably stable, under-performing economy and the market has beat all bets for 7 years running.  Grannis has things mostly right (IMHO) with some disagreements on the margin that have already been discussed here.  I notice he doesn't see stocks undervalued any\more and he doesn't see great economic growth coming.  For the investor who must invest somewhere:  If you want to stay in for more, slow, steady growth, have at it, but don't look to these more optimistic prognosticators to give the early warning of the next sudden downturn or crash.  The pros will be getting out faster than you in a crisis.  Where should you invest instead of the equities markets?  I don't know.  Even cash and insured savings are sure losers.

If Hillary wins, the economy keeps the brakes on.  If Trump wins, I think the Fed puts the brakes on before any growth policies get enacted.  Lose-lose.


ccp

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Re: US Economics, the stock market , and other investment/savings strategies
« Reply #1181 on: October 16, 2016, 07:15:26 AM »
http://www.nationalreview.com/article/441120/wage-stagnation-blame-government-not-markets

Unfortunately we will have Clinton who will ram policies down our throats that will just make this worse.

Crafty_Dog

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Wesbury: Trump looking good
« Reply #1182 on: November 14, 2016, 09:48:59 AM »
Monday Morning Outlook
________________________________________
Revolution To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 11/14/2016

Elections have consequences and the impact on U.S. economic policy of last week's election will be enormous. We're sure we'll be writing about all of these issues in much greater depth over the next several months, but, for now, here's a broad outline of what to expect.

One of the Republicans' first tasks will be repealing much (but not all) of the Affordable Care Act, also known as Obamacare. To get that done, they will use the budget reconciliation process in the US Senate, where they don't need to break a filibuster with 60 votes; instead, they only need a simple majority. The budget process can be used to eliminate (1) penalties for not getting insurance, (2) subsidies for buying government-approved overly-broad insurance packages, and (3) the expansion of Medicaid.

Although you may hear about "compromises" on children staying on parent's insurance plans and pre-existing conditions, those aren't really compromises. Rules that aren't budget related can't be repealed thru a budget bill. But expect the Department of Health and Human Services (maybe headed by Bobby Jindal) to change some rules to substantially slim down health insurance, to make it look more like catastrophic insurance, and, therefore, much less expensive.

On net, this means not only a big cut in government spending but lower effective marginal tax rates. Right now, large Obamacare subsidies remove an incentive to earn more money. The dollar value of working more hours and earning more income is offset by the loss of subsidies.

Next: A big supply-side tax cut, particularly on capital investment. Look for a big drop in the tax rate on regular corporate profits. The only problem will be getting enough Democratic votes for a supermajority in order to make these changes permanent. With only a simple majority, tax cuts are limited to just 10 years, just like under President Bush.

On entitlements, several years ago, House Speaker Paul Ryan developed a plan to block-grant Medicaid to the states, similar to how the welfare system was block-granted to the states in 1996 under President Clinton. Look for that to happen later in 2017, especially if the GOP decides to temporarily leave Medicaid alone when it repeals other parts of Obamacare. Ryan also has a plan to turn Medicare into a more efficient and less expensive insurance subsidy system rather than a fee-for-service system. The one area of inaction will be Social Security, where changes require 60 votes in the Senate.

For the financial sector, look for a new Labor Secretary to halt the DOL/Fiduciary Rule in its tracks before April 10, or, in the alternative, Republicans to use the budget process to prevent it from getting enforced. The Fiduciary Rule is a beehive of potential class-action lawsuits and it will end up limiting the ability of smaller investors to get good financial advice.

Repealing all of Dodd-Frank would require 60 votes in the Senate, more votes than the GOP has to achieve that goal. But look for more flexibility for small and medium-sized banks. Republicans will also strangle the Consumer Financial Protection Bureau, by not defending it against a recent Supreme Court ruling that called its structure unconstitutional, by not appointing leaders, and by cutting off its revenue flow.

A Trump Administration is going to be very friendly to the fossil fuel industry. Look for faster approval for pipelines and less regulation of CO2 emissions. There's already talk of a Keystone pipeline revival, which would have been impossible under President Clinton. The US is well on its way to being a net petroleum exporter in the next few years.

Two areas of problems are protectionism and infrastructure.

We understand the temptation to do protectionism. China steals our intellectual property, subsidizes its steelmakers, and often forces our companies to work with local firms when working in their country. And maybe the threat of protectionism will get them to stop these practices. Tariffs would also help some US companies and their workers. But protectionism would also raise prices for consumers. So, for example, if steel or aluminum prices rise, automakers pay more and your cars and trucks are going to cost more, leaving less money to spend on other products.

Over time, protectionism would hurt the economy and stock market, which would erode political capital. Recent comments, though, suggest Mr. Trump is going to tread lightly on trade issues for the time being, a hopeful sign. To offset this, look for Trump to be very tough on immigration issues, moving to strictly enforce the E-Verify system to make sure workers are legally here, and limiting entry from countries with hostility toward Western Civilization. Jeff Sessions is an immigration hawk and his former staffers are well placed on Trump's transition team.

Washington has always been enamored with more infrastructure spending. It can be an easy political sell and Trump and his advisors like the idea. But stimulus spending didn't work under President Obama and it wouldn't work now. Boosting government spending would be a mistake and would weaken the economy long-term. We're hoping Trump pares back his infrastructure promises, leaves it to the states, or somehow keeps unions from milking the spending programs like they always do. The way to do that is suspend Davis-Bacon.

President-elect Trump also has a chance to systematically shift policy in a free-market direction in other ways. Earlier this year, government worker unions breathed a sigh of relief as the Supreme Court deadlocked 4-4 in the case of a California state worker who said being required to pay union dues violated her First Amendment rights. Justice Scalia likely would have agreed with the worker, but died before the ruling was made.

The tie went to the union's favor because the union won in the lower federal court. But, right now, there's already another similar case winding its way through the courts. Just one conservative appointment and every government worker in the entire country will no longer be required to pay a union a dime.

Just imagine what US elections will be like when government unions have almost no money to spend or organize. This may be a nightmare for some, but for those who support free markets, it will be a dream come true.

Bottom line: economic policies are likely to tilt toward free markets, which will boost growth, jobs, incomes and equity values. If that's what happens, a second term is highly likely.

DougMacG

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Re: Wesbury: Trump looking good
« Reply #1183 on: November 14, 2016, 10:03:48 AM »
Wesbury is quite good when he writes about this sort of thing.

"One of the Republicans' first tasks will be repealing much (but not all) of the Affordable Care Act, also known as Obamacare. To get that done, they will use the budget reconciliation process in the US Senate, where they don't need to break a filibuster with 60 votes; instead, they only need a simple majority. The budget process can be used to eliminate (1) penalties for not getting insurance, (2) subsidies for buying government-approved overly-broad insurance packages, and (3) the expansion of Medicaid. "

Maybe deals can be made to get to 60 votes by using the reconciliation threat and writing bills that some red state democrats can sign onto.

DDF

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SEC Chair to Vacate Position
« Reply #1184 on: November 14, 2016, 05:14:40 PM »
Not my area of expertise, but this is probably important.

What will President Trump mean for stocks?

Mary Jo White announced plans on Monday to step down as chair of the powerful Securities and Exchange Commission before President-elect Donald Trump takes office.
White's term at the helm of the SEC hadn't been scheduled to expire until June 2019.
Trump has promised to roll back the sweeping regulation of Wall Street that White has spent nearly four years trying to install. In fact, implementing Dodd-Frank rules and other financial reforms had been one of the biggest challenges during White's tenure at the SEC.



White, 68, did not state a reason for her resignation, but said it was a "tremendous honor" to lead the SEC and she is "very proud" of the agency's rule making as well as its enforcement actions.

In her statement, White said it's "critical" that the SEC remain "truly independent," allowing the agency to carry out its duty to safeguard markets and protect investors.
White praised her agency's efforts to reform money market funds and make companies become more transparent. She also noted that the SEC has notched three straight years of record enforcement actions, including insider trading and corruption violations.

But the SEC chair has also drawn criticism from the likes of Senator Elizabeth Warren. Just last month Warren, a Democrat, called for President Obama to remove White from her job because she wasn't doing enough to prevent businesses from pouring cash into politics.

It's not clear who Trump would nominate to replace White, but her departure could allow the president-elect to tap someone more in line with his deregulatory tilt.
White's exit would also mean that Wall Street's top cop will become even more shorthanded, with just two of the SEC's five commissioner seats filled. Gridlock in Washington has prevented the Senate from confirming Obama's two nominees.
White arrived at the SEC in April 2013 after being nominated by Obama, and despite leaving before her term is up she will be one of the SEC's longest serving chairs.
White served as U.S. Attorney for the Southern District of New York for nearly a decade until 2002. Her office successfully prosecuted the terrorists behind the 1993 bombing of the World Trade Center.

She has also worked as a high-powered lawyer at the New York law firm Debevoise & Plimpton.

http://money.cnn.com/2016/11/14/investing/sec-mary-jo-white-resigns/index.html?sr=twCNN111416sec-mary-jo-white-resigns1048PMVODtopLink&linkId=31153062

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G M

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Re: Wesbury: Give thanks for the coming boom
« Reply #1188 on: November 30, 2016, 07:10:28 PM »
http://www.ftportfolios.com/Commentary/EconomicResearch/2016/11/21/give-thanks-for-the-coming-boom

He will finally get the recovery he has been predicting the last years. It must be very exciting for him!

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Re: Grannis: Closing the Obama Gap
« Reply #1189 on: November 30, 2016, 08:16:27 PM »

DougMacG

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Re. US Economy, Stock Market, Wesbury: Give thanks for the coming boom
« Reply #1190 on: December 01, 2016, 08:27:18 AM »
http://www.ftportfolios.com/Commentary/EconomicResearch/2016/11/21/give-thanks-for-the-coming-boom
He will finally get the recovery he has been predicting the last years. It must be very exciting for him!


With my bias toward supply side policies, I also think the economy will boom - once good policies are fully enacted.

If there is certainty or at least consensus that much better policies are imminent, the market will anticipate that, in the reverse way that investors pulled back decisively when Pelosi-Reid-Obama-Clinton took control of Washington in 2007-2008.

The Reagan boom was preceded by the Volcker tightening that should have happened simultaneous with the tax rate cut stimulus.  A horrible recession filled the interim.

On Dec 13-14 the Fed will raise rates again, though only by 1/4 point and to levels that are still far too low.  That hike alone won't tank investment or the economy but a delay or roadblock in the 52-48 Senate of the tax and regulatory reforms we were promised perhaps will.

Any thoughts from others as to whether or not this market can continue to go up and up ahead of real growth even if we start doing things right?

Disclosure:  My money is not in the stock market.  My money was lost in a previous stock market.  Maybe it is still there, but it isn't mine anymore!

Wesbury has been more accurate than us - on the up markets.  He generally misses the crashes and corrections.

Crafty_Dog

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Re: US Economics, the stock market , and other investment/savings strategies
« Reply #1191 on: December 01, 2016, 11:32:59 AM »
"He will finally get the recovery he has been predicting the last years. It must be very exciting for him!"

And we will be very glad the apocalypse we have been predicting the last 8 years has not come to be.  :evil:


G M

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Re: US Economics, the stock market , and other investment/savings strategies
« Reply #1193 on: December 02, 2016, 07:40:33 PM »
"He will finally get the recovery he has been predicting the last years. It must be very exciting for him!"

And we will be very glad the apocalypse we have been predicting the last 8 years has not come to be.  :evil:

None of the fundamentals looming over us have been fixed.

Crafty_Dog

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Re: US Economics, the stock market , and other investment/savings strategies
« Reply #1194 on: December 03, 2016, 09:10:23 AM »
Thou100% agreed that spending and deficit/debt remain huge and growing, but it does look like the tax code and Obamacare may well be about to be fixed and the zero interest rate policies too.  These are all BFDs and IMHO the potential for a  real take off in economic growth is very real. 


Crafty_Dog

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Re: US Economics, the stock market , and other investment/savings strategies
« Reply #1195 on: December 03, 2016, 09:26:08 AM »
second post

The Worden Report (Thursday, December 01, 2016)
 
 
 
 
 
Technology Stocks Fall Sharply on Heavy Selling
 
 
 
 
 

Strength in financials helped lift the Dow Jones Industrial Average to a 68-point gain, bucking the trend of the overall market. Leading the blue-chip average higher were Goldman Sachs Group (GS), up 3.32%, JPMorgan Chase (JPM), up 2.06%, General Electric (GE), up 2.05% and Travelers Cos. (TRV), up 1.83. The other major stock indexes all closed lower. Especially the technology-laden NASDAQ Composite Index, which closed below its 50-day price moving average after falling 1.36%. This market action, as one analyst calls it, is a "vicious rotation" out of the sectors which performed well prior to the election, i.e. technology. While we are seeing a significant rotation into important sectors such as energy and financials, the technology sector has suffered clear technical damage as a result of this rotation of funds. The interest-rate sensitive financial stocks have been moving higher in direct correlation with the climb in 10-year bond yields, but this is fast becoming a crowded trade.
 
 
 
As I pointed out, technology (SX110) was our weakest Sector Index today by a significant margin, losing 2.44%. The biggest individual decliners in the sector (minimum market-cap of $10B) were Weibo Corp. (WB), down 10.15%, Microchip Technology (MCHP), down 7.48%, ServiceNow Inc. (NOW), down 7.29%, Analog Devices (ADI), down 7.04%, Lam Research Corp. (LRCX), down 7%, Skyworks Solutions (SWKS), down 6.60%, Applied Materials (AMAT), down 6.52%, Qualcomm Inc. (QCOM), down 5.83%, Micron Technology (MU), down 5.38% and Seagate Technology PLC (STX), down 4.96%.
 
 
 
In last night's report, I wrote, "The Standard & Poor's 500 Index tried to hold at the 2,200 level when tested this afternoon, but closed on its session low of 2,198.81, down 0.27%. I'm watching the 2,193 level, which I believe is an important test for the S&P 500." The stock market came off its worst levels of the day in the final 10 minutes of trading, but the Standard & Poor's 500 Index still lost 0.35% to close at 2,191.08. I believe we are likely to see more corrective action in the market with the S&P 500 gradually working its way down to the 50-day price moving average, currently at 2,156.
 
 
 
-Peter Worden

DougMacG

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Re: US Economics, the stock market , and other investment/savings strategies
« Reply #1196 on: December 04, 2016, 07:48:52 AM »
Thou100% agreed that spending and deficit/debt remain huge and growing, but it does look like the tax code and Obamacare may well be about to be fixed and the zero interest rate policies too.  These are all BFDs and IMHO the potential for a  real take off in economic growth is very real. 

True about Trump's proposals and the economic growth that should follow if enacted.  Also consider in the difficulty of passing major reforms.  Not just Trump's and Ryan's views but the policy views of Hillary Clinton clone Claire McCaskill, the 8th most moderate Democrat Senator needed to reach 60 votes are suddenly and potentially decisive.  ((((

If the market assumes that tax reform and healthcareare repeal are coming and something less transpires, what then for the markets?

On GM's point, also look at the big unfunded liabilities not likely to be addressed.  Doubling our growth rate, if it happens, is a step not a fix for a bankrupt trajectory.

If the Obama stock run-up was partly tied to QE and that is ended, what effect has that?   And if the stock indices run-ups were skewed because they track the most entrenched companies protected from disruption by excessive regulations and that is reversed ...  what then?  The DOW 30, NASDAQ 100 or S&P 500 going up and up and up without interruption or correction as a stagnant economy becomes dynamic, is that a certainty? (No.)

I make no prediction, just agree that the fix is not started but more possible to do now than it has been for a very long time.

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Today's economy
« Reply #1197 on: December 04, 2016, 08:32:24 AM »
http://www.cnbc.com/2016/12/02/95-million-american-workers-not-in-us-labor-force.html


What 'are so many of them doing?' 95 million not in US labor force
Jeff Cox   | @JeffCoxCNBCcom
Friday, 2 Dec 2016 | 12:58 PM ETCNBC.com


The November jobs report looked pretty good on the surface except for one number that popped off the page: 95 million.

That's the number of Americans now counted as not in the labor force, a historic high that has confounded economists and policymakers. The total — 95.06 million to be more exact — has been rising consistently but surged by a gaudy 446,000 last month.

The jump occurred as the U.S. economy added 178,000 jobs and the headline unemployment rate dropped sharply.

Explaining the consistent increase in those leaving the labor force is complicated, with factors divided between an aging and rapidly retiring workforce, a skills gap that leaves job openings unfilled, and the nettlesome problem of too many people who find it's just easier to collect welfare and other transfer payments rather than go back to work.

"WTF are so many of them doing?" Peter Boockvar, chief market analyst at The Lindsey Group, said in a note after the nonfarm payrolls report. Boockvar used a crude online expression that nicely sums up the continued frustration with America's shrinking labor force.

In a subsequent interview, he acknowledged the issue is many pronged and poses a long-term obstacle for economic growth.

"It's a combination. There's no question a lot of them are retirees," Boockvar said. "No one wants to say, 'I want to get fired and sit on my butt.' But when people do lose their jobs, they're not being incentivized enough to go back to work compared to the benefits they get by not being at work."

Indeed, the U.S. saw an explosion in benefits during the Great Recession that has receded only mildly during the recovery.

For example, the level of those enrolled in the Supplemental Nutrition Assistance Program — food stamps — has remained elevated even with an economic expansion that is nearly 7 ½ years old. SNAP recipients totaled 33.5 million in 2009, the year the recession ended. In 2016, the number is at 45.3 million. The government shelled out $74 billion in benefits last year, about double the level of 2008.

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Unfunded liabilities
« Reply #1198 on: December 04, 2016, 08:46:37 AM »
http://www.cnbc.com/2016/12/02/95-million-american-workers-not-in-us-labor-force.html


What 'are so many of them doing?' 95 million not in US labor force
Jeff Cox   | @JeffCoxCNBCcom
Friday, 2 Dec 2016 | 12:58 PM ETCNBC.com


The November jobs report looked pretty good on the surface except for one number that popped off the page: 95 million.

That's the number of Americans now counted as not in the labor force, a historic high that has confounded economists and policymakers. The total — 95.06 million to be more exact — has been rising consistently but surged by a gaudy 446,000 last month.

The jump occurred as the U.S. economy added 178,000 jobs and the headline unemployment rate dropped sharply.

Explaining the consistent increase in those leaving the labor force is complicated, with factors divided between an aging and rapidly retiring workforce, a skills gap that leaves job openings unfilled, and the nettlesome problem of too many people who find it's just easier to collect welfare and other transfer payments rather than go back to work.

"WTF are so many of them doing?" Peter Boockvar, chief market analyst at The Lindsey Group, said in a note after the nonfarm payrolls report. Boockvar used a crude online expression that nicely sums up the continued frustration with America's shrinking labor force.

In a subsequent interview, he acknowledged the issue is many pronged and poses a long-term obstacle for economic growth.

"It's a combination. There's no question a lot of them are retirees," Boockvar said. "No one wants to say, 'I want to get fired and sit on my butt.' But when people do lose their jobs, they're not being incentivized enough to go back to work compared to the benefits they get by not being at work."

Indeed, the U.S. saw an explosion in benefits during the Great Recession that has receded only mildly during the recovery.

For example, the level of those enrolled in the Supplemental Nutrition Assistance Program — food stamps — has remained elevated even with an economic expansion that is nearly 7 ½ years old. SNAP recipients totaled 33.5 million in 2009, the year the recession ended. In 2016, the number is at 45.3 million. The government shelled out $74 billion in benefits last year, about double the level of 2008.


http://www.forbes.com/sites/realspin/2014/01/17/you-think-the-deficit-is-bad-federal-unfunded-liabilities-exceed-127-trillion/

Jan 17, 2014 @ 07:00 AM
You Think The Deficit Is Bad? Federal Unfunded Liabilities Exceed $127 Trillion


Guest commentary curated by Forbes Opinion. Avik Roy, Opinion Editor.



By Vance Ginn

Although the battle over a two-year budget deal and the national debt limit in Washington, D.C. has received the lion’s share of media attention recently , the bigger, more ominous threat facing taxpayers are unfunded liabilities—the difference between the net present value of expected future government spending and the net present value of projected future tax revenue, particularly those associated with Social Security and Medicare.

While federal unfunded liabilities are important, state-level unfunded pension liabilities also pose serious obstacles. In Texas, the recent 2013 Employees Retirement System (ERS) Valuation Report outlines the funding shortages this pension system faces and there is some indication it may be unable to pay beneficiaries by 2052.

The federal unfunded liabilities are catastrophic for future taxpayers and economic growth. At usdebtclock.org, federal unfunded liabilities are estimated at near $127 trillion, which is roughly $1.1 million per taxpayer and nearly double 2012’s total world output.

With about 134,000 active members in Texas’ ERS at the end of fiscal year 2013, the total unfunded liability was $7.2 billion—or $54,000 per active member. Despite the much smaller future net debt obligations in ERS compared with federal programs, there are similarities how we got here.

Laurence Kotlikoff and Scott Burns’ book entitled The Coming Generational Storm: What You Need to Know About America's Future argue federal unfunded liabilities are primarily from a generational accounting problem, in which the dependency ratio of retirees to taxpayers is declining from an aging population.
Recommended by Forbes

The authors’ state, “today there are about 4 payees for every 1 beneficiary, but by the year 2030 there will only be 2 payees for every 1 beneficiary. Simple arithmetic will note that this is not sustainable over the long run.”

To understand the magnitude of this problem, the authors note one solution that includes all the following: “raise income taxes by 17 percent, raise payroll taxes by 24 percent, cut federal purchases by 26 percent, and cut Social Security and Medicare benefits by 11 percent.”

In the current political and economic environment, these changes are highly unlikely, but it shows the substantial economic costs associated with these large unfunded liabilities.

State pensions across the country also face this generational accounting problem, whereby an author discusses his research in a recent Wall Street Journal op-ed entitled “The Hidden Danger in Public Pension Funds” stating, “The ratio of active public employees to retirees has fallen drastically, according to the State Budget Crisis Task Force. Today it is 1.75 to 1; in 1950, it was 7 to 1. This means that a loss in pension investments has three times the impact on state and local budgets than 40 years ago.”

In addition to an aging population in Texas creating substantial challenges with funding ERS, it is also riddled with a problem many state pension portfolio managers face: low rates of return on risk-free assets, such as a one-year Treasury security that returns less than 1 percent.

As these managers choose riskier investments to gain a higher rate of return, the study cited in the WSJ op-ed notes that the standard deviation of public pension investments to state and local budgets—a good measure of risk—has increased 10-fold from about 2 percent in 1975 to 20 percent today. Along with fewer people contributing to these pensions, riskier investments should be of grave concern to all.

Since the actuarial funded ratio of ERS is 77 percent based on an 8 percent annual rate of return, this rate of return and the risk-taking portfolio managers must use to gain this return are vital. Over the last five years, the fund’s annual return was 6 percent and 7.1 percent over the last ten years. Although the ten-year annual average was close to 8 percent, there is no guarantee this will continue, which could dramatically lower the funded ratio.

Clearly, the generational accounting problem burdening programs at the federal level also burden Texas’ pensions and the more risky assets portfolio managers must invest in are increasing the susceptibility of an even lower funded ratio in the future.

Although there are marginal changes that could be made to fully fund ERS, we at the Texas Public Policy Foundation believe the best long-run approach is to convert it from a defined benefit plan to a defined contribution plan, putting the power back in the hands of its members and off the backs of taxpayers.

Many may argue this is not the time for pension reforms; however, President Reagan may have said it best, “If not us, who? If not now, when?”

Vance Ginn, Ph.D., is a policy analyst for the Center for Fiscal Policy with the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin. He may be reached at vginn@texaspolicy.com.
« Last Edit: December 04, 2016, 09:10:16 AM by Crafty_Dog »

Crafty_Dog

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Re: US Economics, the stock market , and other investment/savings strategies
« Reply #1199 on: December 05, 2016, 11:47:26 AM »
The ISM Non-Manufacturing Index Rose to 57.2 in November from 54.8 in October To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 12/5/2016

The ISM non-manufacturing index rose to 57.2 in November from 54.8 in October, easily beating the consensus expected 55.5.  (Levels above 50 signal expansion; levels below 50 signal contraction.)

The major measures of activity were mostly higher in November, and all stand above 50, signaling expansion.  The employment index surged to 58.2 from 53.1 and the business activity index rose to 61.7 from 57.7 in October. The supplier deliveries index increased to 52.0 from 50.5, while the new orders index moved lower to 57.0 from 57.7.

The prices paid index declined modestly to 56.3 from 56.6 in October. 

Implications:  Sentiment in the service sector hit the highest level in more than a year in November and has signaled growth for 82 consecutive months.  The high level in November was broad-based, with fourteen of eighteen industries reporting expansion.  Meanwhile, all major measures of activity remain above 50, signaling expansion as well. New orders continue to grow, but at a slightly slower pace than in October, while all other major indexes showed a pickup in pace.  Business activity and employment both showed the fastest pace of expansion in more than a year, as companies work to fill the steady flow of new orders arriving.  The healthy readings on new orders and business activity both suggest the service sector should continue to grow in the months ahead.  While employment has been a weak spot in the manufacturing sector, the much larger service sector continues to expand, in-line with the 188,000 monthly nonfarm jobs growth seen over the past year.  And while the pace of job growth may slow modestly as the labor market tightens, employment gains should put continued downward pressure on the unemployment rate while pushing up wage growth.  No matter how you cut it, the labor market looks very close to the Fed's "full employment" target.  On the inflation front, the prices paid index was essentially unchanged at 56.3 in November from 56.6 in October, representing the second highest reading in more than two years (behind only October's).  Rising costs for airfare, copper, and fuels more than offset declining prices for beef and dairy.  With a strong employment reading and inflation showing a pickup in pace over recent months, today's report from the service sector points full steam ahead for a rate hike at next week's Fed meeting.