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Topic: US Economics, the stock market , and other investment/savings strategies (Read 266927 times)
Power User
Posts: 15533
Get Ready for a Wild Week, or economic crash.....
Reply #650 on:
July 29, 2013, 03:52:46 PM »
America as Detroit
Jay Zawatsky
July 29, 2013
The malignant cancer cells oozing from the petri dish of progressive policy known as the City of Detroit are soon to metastasize throughout the body politic. The disease, which has been described by Mark Steyn as the malign alliance between a corrupt political class, rapacious public-sector unions, and an ever more swollen army of welfare dependents, will first lay low other formerly great American cities. Newark, Oakland, Cleveland and Los Angeles initially come to mind. But the same fate awaits nearly every other large municipality ruled for generations by so-called progressive thinkers.
Once U.S. cities have danced to Motowns latest bankruptcy beat, it will be the rest of Americas turn to confront unfunded liabilities. In the case of Detroit, fully half of what the city owes$9 billion out of Detroits unpayable $18 billionis the unfunded pension liabilities to retired public employees and those still on the citys payroll.
But wait. $9 Billion? $18 Billion? Those amounts are mere rounding errors in the context of the U.S. budget deficit and aggregate national debt. Former Obama car czar Steve Rattner opined recently in the New York Times that the 700,000 remaining residents of the Motor City are no more responsible for Detroits problems than were the victims of Hurricane Sandy for theirs, and eventually Congress decided to help them.
But Detroits fiscal problems are not a natural disaster. Indeed, the citys economic and social problems are what Secretary of Homeland Security Janet Napolitano might have called a man-caused disaster. Rattner even obliquely acknowledges that free will was behind Detroits disaster. The six words preceding his plea for a second, smaller Detroit bailout (GM was the first) were
ut apart from voting in elections...
That is the rub. There is, there never has been, and there never will be a free lunch. Yet Americans have been voting themselves money since LBJs Great Society. According to the Federal Reserve, the nations unfunded liabilities stand at over $125 trillion, including Medicare ($86.6 trillion), prescription drugs ($21.8 trillion) and Social Security ($16.4 trillion), which amount does not include the $16.8 trillion current U.S. Treasury debt. These entitlement programs were sold to the public as pay as you go and were supposed to build surpluses to balance already known future demographic shifts. But leaders in both major parties invaded these programs current income (from payroll taxes) to win votes by financing discretionary programs such as farm supports, food stamps, weapon systems, student loans, housing-loan guarantees, green-energy subsidies and literally hundreds of other spending initiativesall for political constituencies capable either of making contributions or putting political boots on the ground.
Politicians, particularly with the IRS as unpopular as it is today, know that they cannot raise taxes any further, even on that fellow behind the tree, as Senator Russell Long famously quipped. Congress also knows that with a Federal Reserve as compliant as Chairman Bernankes, there is no current restraint on borrowing. Both parties assume that the Fed simply will print up sufficient digital dollars to purchase any federal IOUs that cannot be sold. For fiscal year 2013, that has been $540 billion, the price tag for nearly all nonmilitary discretionary spending.
But the final reckoning is approaching. When Bernanke merely hinted that the Federal Reserves $85 billion per month of debt monetization might be tapered back, even by a little, the stock market swooned. Mortgage rates jumped dramatically. This rate increase threatened the so-called housing recovery, which is nothing more than a reinflation of the housing bubble originally pumped up by the Federal Reserves last attempt to prevent the markets from cleaning out the aggregated malinvestment since former Fed chairman Alan Greenspan rescued the market in 1987. The Fed then spent the better part of two weeks explaining away and backing off from its taper talk.
The Fed cannot tapernot today, not ever. Tapering would mean that the economy has reached self-sustaining growth. But the economic recovery, hamstrung by increased regulatory initiatives in finance, healthcare and energy, as well as higher taxes on job creators and increased subsidies to politically favored but unproductive industries (for example, low-rate student loans despite bleak job prospects for many graduates), is the weakest since 1948.
In eight out of the ten recoveries since World War II, employment was 57 percent higher by this point after the end of the recession than it had been at its previous peak. By that measure, the U.S. should have 10 million more jobs now than in 2007. In none of those ten recoveries were there fewer jobs than at the previous peak. Today, more than 60 months after the previous peak, there are 3 million fewer jobs. And with the ratio of full time jobs to part time jobs having fallen from nearly 5 to 4.2, the quality of the jobs that have been created is substantially poorer than in past recoveries.
Without free money, Wall Street would crash, the economy would fizzle fast, and economic progressives could lose their hold on power. But backed by substantial parts of the media and unions, the current regime will never let that happen. So be prepared for fewer and lower quality jobs, increasing federal debt, small businesses scaling employees back to part-time to avoid Obamacare mandates, debt monetization and financial repression (including no yield for savers).
In 1960, before the Great Society, Detroit was the wealthiest city per capita in America among cities with more than two hundred thousand residents. In those years, the United States was the worlds largest creditor nation. Today, Detroit is the poorest city per capita in America among cities with more than two hundred thousand residents. Today, the United States is the worlds largest debtor nation.
Welcome to Detroit, America.
Jay Zawatsky is the CEO of havePower, LLC (a natural gas infrastructure developer) and a professor of business, economics, and finance at Montgomery College in Rockville, Maryland.
Power User
Posts: 15533
Re: Get Ready for a Wild Week, or economic crash.....
Reply #651 on:
July 29, 2013, 04:51:04 PM »
IMF fears Feds stimulus tapering could reignite euro debt crisis
Ambrose Evans-Pritchard, The Telegraph | 13/07/26 | Last Updated: 13/07/26 7:48 AM ET
More from The Telegraph
The tapering of stimulus by the U.S. Federal Reserve risks reigniting Europes debt crisis and pushing weak countries into a debt-deflation spiral, the International Monetary Fund has warned.
It's about time Europe's crisis states formed a debtors' cartel
Comment: The peoples of southern Europe could at any time confront their creditors with a stern ultimatum. Either you change the entire structure of eurozone crisis policy or we take long-overdue steps to protect our societies against mass unemployment and to protect our industrial base. Keep reading . . .
The macro-economic environment continues to deteriorate. Recovery remains elusive, said the IMF in its annual health check on the eurozone. Growth has weakened further and unemployment is still rising. Mounting social and political tensions pose an increasing threat to reform.
The report said the onset of a new tightening cycle in the US has already pushed up global bond yields, and this may have further to run. It could lead to additional, and unhelpful pro-cyclical increases in borrowing costs within the euro area. Financial market stresses could quickly reignite, it said.
The Fund said the European Central Bank must take offsetting action to prevent a vicious circle setting in, ideally by cutting interest rates, introducing a negative deposit rate, and purchasing a targeted range of private assets.
It should launch credit easing policies to alleviate the lending crunch in Spain, Italy, and Portugal, where borrowing costs for firms are 200 to 300 basis points higher than in Germany, with small businesses struggling to raise any money at all.
Why Greece could be in more trouble than its lenders think
Europe begins emergence from recession as manufacturing expands for first time in two years
The report came as ECB data showed that loans to the private sector fell by euros 46-billion (pounds 40-billion) in June, after falling by euros 33-billion in May. The annual rate of contraction has accelerated to 1.6pc.
Growth of the M3 broad money supply is also fizzling out. There has been almost no rise in M3 since October 2012. Todays figures put serious question marks over the strength of the nascent recovery, said Martin van Vliet from ING. The data are at odds with the recent rebound in industrial output and rising PMI manufacturing surveys.
The IMF said the eurozone economy would shrink by 0.6% in 2013. It is expected to grow by 0.9% next year, but this is too little to make a dent on unemployment, or to stabilise debt levels. There is a high risk of stagnation, especially in the periphery. Such an outcome could push the periphery toward a debt-deflation spiral, it said.
The report said that it may take years to unwind the credit excesses of the early EMU years. Historically, almost all of the run-up in household debt tends to be reversed. But in the euro area, the reduction in debt-to-GDP ratios has barely started, and the boom was more pronounced.
The Fund called on eurozone leaders to deliver on pledges for a banking union and resolution fund capable of swift decisions. While polite in tone, the authors appear exasperated by incomplete or stalled delivery of policy commitments.
The hurdle for reaching a collective agreement is always high. Building political support for such decisions can take considerable time, especially when they involve thorny issues such as burden-sharing or ceding national control. Making swift progress on completing the banking union and moving toward greater fiscal integration are proving exceedingly difficult.
Power User
Posts: 9483
Re: US Economics, the stock market , and other investment/savings strategies
Reply #652 on:
July 30, 2013, 10:42:32 AM »
Wesbury, eating crow so artfully:
"Wednesday is the initial report on Q2 GDP and we expect a pretty tepid growth rate of 1.2%, which is down slightly from last week when we thought 1.5%...
Over the past few years of recovery, real economic growth has often lagged our expectations, in large part due to shortfalls in business investment and inventories. This quarter could be similar."
Brian Wesbury, this economy sucks. Real growth 'lagged your expectations' because you underestimated the accumulated damage done by anti-growth policies, not because of one line item here or there on a balance sheet.
When investment is punished, one will see 'shortfalls' of it. Labor requires capital and capital requires labor. In a free country, each person can provide either or both. In a sinking ship, you will see opportunities to provide neither.
Power User
Posts: 42558
Re: US Economics, the stock market , and other investment/savings strategies
Reply #653 on:
July 31, 2013, 03:20:29 PM »
The First Estimate for Q2 Real GDP Growth is 1.7% at an Annual Rate To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 7/31/2013
The first estimate for Q2 real GDP growth is 1.7% at an annual rate, beating the 1.0% the consensus expected. Real GDP is up 1.4% from a year ago.
The largest positive contributions to the Q2 real GDP growth rate were consumer spending and business investment. The largest drag, by far, was net exports.
Personal consumption, business investment, and home building were all positive in Q2, growing at a combined rate of 2.6% annualized. Combined, they are up 2.4% in the past year.
The GDP price index increased at a 0.7% annual rate in Q2. Nominal GDP real GDP plus inflation rose at a 2.4% rate in Q2 and is up 2.9% from a year ago and up at a 3.7% annual rate from two years ago.
Implications: Real GDP grew at a 1.7% annual rate in Q2, beating consensus expectations, but staying at a Plow Horse pace. We like to focus on real GDP growth outside of government, trade, and inventories and that measure grew at a moderate 2.6% pace in Q2. The more interesting news came from benchmark revisions some of which went back to 1929. Those revisions show the Great Recession was still big, but not quite as steep. New data also show the economy has grown slightly faster in the past three years (2010-12): 2.2% versus 2.0%. Were now estimating real GDP growth will pick up in the second half of the year and grow about 3% in 2014. The Federal Reserve meets later today and nothing in the GDP report supports the case for aggressive monetary ease. Nominal GDP real GDP plus inflation is up at a 3.7% annual rate in the past two years, very close to the average of 3.9% per year over the past 10 years. This is too fast for a short-term interest rate target near zero and suggests a quick end to quantitative easing would not hurt the economy. We expect the Fed to announce tapering in September and announce the end of quantitative easing in March. In other news today, the ADP employment index says private payrolls increased 200,000 in July. Plugging this data into our models suggests the official Labor report (released Friday) will show a gain of 155,000 nonfarm and 159,000 private. The Chicago PMI, a regional measure of manufacturing sentiment, increased to 52.3 in July from 51.6 in June. Recent news on housing has been very good. The Case-Shiller index, which measures home prices in 20 key metro areas, showed a gain of 1% in May and 12.2% from a year ago. Recent gains have been led by San Francisco, Las Vegas, San Diego, and Detroit (yes, Detroit!). Pending home sales which are contracts to buy existing homes, declined 0.4% in June after rising 5.8% in May. These figures, combined, suggest a rebound in existing home closings in July.
Power User
Posts: 42558
July Non-farm payrolls
Reply #654 on:
August 02, 2013, 11:08:59 AM »
Non-Farm Payrolls Increased 162,000 in July To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 8/2/2013
Non-farm payrolls increased 162,000 in July versus a consensus expected 185,000. Including revisions to prior months, nonfarm payrolls were up 136,000.
Private sector payrolls increased 161,000 in July (+135,000 including revisions to prior months), lagging the consensus expected 195,000. The largest gains were for retail (+47,000), restaurants & bars (+38,000), and professional & business services (+36,000, including temps). Government payrolls ticked up 1,000.
The unemployment rate declined to 7.4% (7.390% unrounded) from 7.6% (7.557% unrounded).
Average weekly earnings cash earnings, excluding benefits declined 0.1% in July but are up 1.9% from a year ago.
Implications: A Plow Horse report on improvement in the labor market in July, with some good data, some soft data, and some numbers right in the middle. The best news was that the unemployment rate dropped to 7.4%, the lowest since December 2008. Civilian employment, an alternative measure of jobs that includes small business start-ups, rose 227,000, helping push the jobless rate down. However, the jobless rate also dropped because of a 37,000 decline in the labor force. We dont think the decline in the labor force is going to continue and expect the jobless rate to decline in the year ahead even as the labor force starts growing again. Thats been the trend over the past year, as the unemployment rate has dropped 0.8 points while the labor force has increased 686,000. The so-so data in todays report was a below-consensus 162,000 increase in payrolls, only 136,000 including revisions to prior months. Notably, the two strongest sectors were retail (+47,000) and restaurants & bars (+38,000). In the past year, retail has added more jobs than in any year since 2000; restaurants & bars than in any year since at least 1990. This suggests employers, when possible, are hiring more part-time workers to avoid Obamacare. The worst news in todays report was a slight decline in total hours worked as well as wages per hour. Still, in the past year, hours are up 2.1% while wages per hour are up 1.9%, for a 4% gain in total cash earnings in the past twelve months. After adjusting for inflation, these earnings are still up 2% from a year ago. In other words, despite July, the trend is for workers generating more purchasing power. The labor market once again forcefully rejected the theory that the sequester is hurting the economy. Since the sequester went into effect, nonfarm payrolls are up an average of 173,000 per month versus 136,000 for the same four months (March July) a year ago. The big financial market question is how the Federal Reserve reacts to todays report. We think the numbers support the case that it will announce a tapering of its asset purchases in September. And we still expect an end to quantitative easing announced in March 2014. Obviously, the labor market is far from perfect. Whats holding us back is the huge increase in government, particularly transfer payments, over the past several years. Despite that, entrepreneurs and workers are gritting out a recovery and the Plow Horse economy keeps moving forward.
Power User
Posts: 9483
Re: US Economics, the stock market , and other investment/savings strategies
Reply #655 on:
August 03, 2013, 07:10:14 AM »
"Despite that, entrepreneurs and workers are gritting out a recovery and the Plow Horse economy keeps moving forward."
Good grief. Entrepreneur is a noun in need of a past tense form for proper usage. How does pure spin hold up to facts?
"Over the past year, real GDP has grown by only 1.4 percent, with inflation at 1.5 percent, according to revised GDP reports. Nominal GDP growing at only 2.9 percent is virtually a post-WWII low. Its a rate thats more appropriate for recessions than recoveries."
1.4% real growth when breakeven growth used to be considered 3.1% means economic decline. Real startup rates are at all time lows.
Power User
Posts: 42558
WSJ: Bound for glory?
Reply #656 on:
August 03, 2013, 11:58:02 AM »
Patriot Post:
If creating jobs is Obama's focus, he needs glasses. As usual, headline numbers look good -- unemployment dropped to 7.4 percent in July from 7.6 percent in June. But the underlying data is not at all good. The number is only ticking downward due to attrition, not job creation. Though the economy added 162,000 jobs, a third of them were in retail (read: part-time), while construction lost 6,000 jobs. Numbers for May and June were revised downward, hours and earnings declined (while Obama's tax hikes take a bite out of paychecks), and the number of people who gave up looking for work increased. If labor participation remained what it was in 2009, unemployment would be 10.7 percent.
The bull market is starting to look like a stampede.
After taking more than 13 years to climb to 1600 from 1500, the S&P 500 index of big U.S. stocks didnt even take 13 weeks to add the next 100 points. On Thursday, just 90 days after rising above 1600, the S&P 500 closed at 1706.87, the 24th time it has hit an all-time high this year; on Friday, both the S&P 500 and the Dow Jones Industrial Average again set record highs.
Counting dividends, the S&P 500 is up 177% since the lows of March 2009and many investors cant stand watching anymore. After years of withdrawals, money is finally coming back into U.S. stock funds, with more than $7.5 billion pouring in last month, according to the Investment Company Institute, a trade group.
Some investors undoubtedly are telling themselves, Ill know when its time to get out or Im a long-term investor, so a short-term drop in the market wont bother me.
When stocks are going up, its easy to imagine that you will stick to your plan when stocks go down. And its hard to imagine that in the next market panic, the heat of the moment could reduce your resolutions to ashes.
A new study sheds light on why people who precommit to structured decisions that lock them into a plan are better able to stay the course than those who rely on willpower aloneand how precommitting might be rewarding in itself.
In the research, just published in the journal Neuron, a team of neuroscientists based in England, Germany and Switzerland sought to learn more about what enables people to wait longer for a larger reward instead of grabbing a smaller profit sooner.
When Ulysses asked to be tied to the mast to resist the song of the sirens, he was precommitting to stay put no matter whatbecause he knew his willpower might weaken at the worst possible time.
Investors can tie themselves to the mast, too, with structures that lock you into a decision and impose a cost if you change coursemutual funds with redemption fees to deter short-term trading, certificates of deposit with penalties for early withdrawals or dollar-cost averaging plans that automatically sweep a fixed amount from your bank into a fund every month.
In the study, participants sometimes relied on willpower alone to wait longer for a larger reward. Sometimes the same participants could precommit by choosing to make the smaller, earlier prize unavailableand unable to tempt them as they waited for the larger reward.
For the 78 men in the study, aged 18 to 35, the rewards were glimpses at photos of scantily clad women; some (the larger rewards) were more attractive than others (the smaller rewards). Images of the opposite sex, many experiments have shown, activate the same areas of the brain that respond to financial gain.
Unsurprisingly, the men were much less likely to defer gratification when they relied only on willpower than when they chose to precommit.
Another result was surprising. When men who found it quite difficult to wait for the larger reward chose to precommit, says Molly Crockett, a neuroscientist at University College London who led the study, brain scans showed intense activation in the reward circuitry of their brains.
Protecting yourself against the possibility that you might turn out to be weak-willed, she says, may have a subjective value to the human brain.
So if you are considering an entryor returnto the stock market, ask yourself if you are ready to precommit to it.
You could buy a fixed amount every month in a dollar-cost-averaging plan; sign an investing contract, witnessed by family or friends, stipulating how long you will hold your investments; name the account after a goal, such as saving for college or retirement; or craft a checklist that spells out the only conditions under which you would sell.
If you arent willing to tie yourself to the mast, you almost certainly dont belong in stocks at all at this pointsince the course may well be far rougher in the future than it recently has been. And your willpower, no matter how firm you think it is, will probably fail you when the market takes a bad drop.
As Adam Smith said of the stock market in his classic book The Money Game: If you dont know who you are, this is an expensive place to find out.
Write to Jason Zweig at
, and follow him on Twitter:@jasonzweigwsj
Last Edit: August 03, 2013, 01:22:39 PM by Crafty_Dog
Power User
Posts: 42558
June Personal Income
Reply #657 on:
August 03, 2013, 01:09:56 PM »
second post
Personal Income Increased 0.3% in June To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 8/2/2013
Personal income increased 0.3% in June, coming in slightly below the consensus expected gain of 0.4%. Personal consumption rose 0.5%, exactly as the consensus expected. In the past year, personal income is up 3.1% while spending is up 3.3%.
Disposable personal income (income after taxes) increased 0.3% in June and is up 1.9% from a year ago. The gain in income was primarily driven by private wages & salaries and interest/dividends.
The overall PCE deflator (consumer prices) rose 0.4% in June and is up 1.3% versus a year ago. The core PCE deflator, which excludes food and energy, was up 0.2% in June and is up 1.2% in the past year.
After adjusting for inflation, real consumption increased 0.1% in June and is up 2.0% from a year ago. Real spending was up at a 1.8% annual rate in Q2 versus the Q1 average.
Implications: Another month, another Plow Horse report on income and spending. Income grew 0.3% in June and is up 3.1% from a year ago. Adjusting for inflation, real income is up 1.8% from a year ago. These gains are not being artificially supported by government transfers; excluding transfers such as Medicare, Medicaid, Social Security, and unemployment insurance real personal income is still up 1.7% from a year ago. Despite what some pundits are saying, there is still no evidence that the end of the payroll tax cut or federal spending sequester is hurting consumers. Real consumer spending is up 2% from a year ago; at the same time last year, real spending was up 2.2% over the prior year, not much difference. We expect further gains in both income and spending over the remainder of the year. Job growth will continue and, as the jobless rate gradually declines, employers will be offering higher wages. Meanwhile, consumers financial obligations are hovering at the smallest share of income since the early 1980s. (Financial obligations are money used to pay mortgages, rent, car loans/leases, as well as debt service on credit cards and other loans.) On the inflation front, the Federal Reserves favorite measure of inflation, personal consumption prices, was up 0.4% in June, while core consumption prices were up 0.2%. Overall consumption prices are up only 1.3% in the past year while core prices, which exclude food and energy, are up only 1.2%. Both are below the Feds 2% target. However, we think these price measures will be noticeably higher by year end. In other news yesterday, cars and light trucks were sold at a 15.7 million annual rate in July, down 1.8% from June but up 11.2% from a year ago. At present, were forecasting that real consumer spending will grow at a moderate 2% - 2.5% annual rate in the third quarter.
Power User
Posts: 9483
Re: US Economics, The Wesbury Plowhorse economy pictured
Reply #658 on:
August 04, 2013, 09:42:28 AM »
The Wesbury Plowhorse economy
Power User
Posts: 42558
Wesbury addresses the DBMA forum
Reply #659 on:
August 05, 2013, 12:20:34 PM »
Monday Morning Outlook
Politicizing the Economy To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 8/5/2013
If we were put in charge of the world, if we had complete control of fiscal and monetary policy, we would change things.
But we arent in control. And complaining gets us nowhere. Our job is to keep investors informed and to share our best thinking about where the economy and financial markets are headed.
We wont always be perfect. We have made mistakes in the past and we will make them in the future. When we are wrong, we will say so, and when we are right, we will try to remember when we were wrong.
At the same time, we will attempt to figure out why we were wrong. For example, we thought the US would avoid a recession in 2008 we wrote it, we said it on TV, we gave speeches about it. We were wrong. Unfortunately, we thought there was no way that the government would allow mark-to-market accounting (M2M) to remain in place.
We think this was our mistake. It was so clear to us that M2M was the problem, but the Paulsen Treasury and Bernanke Fed did not see it that way. The result: TARP and QE.
Both TARP and QE were mistakes. In the six months after TARP was passed and QE first went into effect, the S&P 500 fell an additional 40%. The stock market did not bottom until overly rigid M2M accounting rules were fixed in March/April 2009. Thats when the economy and the stock market reversed course. This wasnt a coincidence.
We also dont subscribe to the Reinhardt-Rogoff thesis, that economic growth is always slow after financial crises. We believe the only reason this appears to be true is because governments often grow and make major mistakes during and after financial crises. It is the growth of government and major policy mistakes that hold the economy back, not the crisis itself. In other words, we are not surprised by the relatively slow recovery, but we completely disagree with the conventional wisdom about why it is so.
The real drivers of growth, the real creators of wealth have nothing to do with most of what people are talking about today. Its not about deleveraging and QE, rather its about Entrepreneurs versus government.
New ideas, innovation, creativity, and surprises, drive growth. And these days, innovation is amazing. Fracking, the Cloud, Smartphone, Tablet, 3-D printing all these, plus more, boost productivity, profits and opportunity. And they are doing so in spite of what we think are policy mistakes.
This puts us on the wrong side of both political parties. The Right, who superficially understand supply-side thinking, see a recession around every corner and argue day and night that the economy is awful, terrible, or inches from another recession. Its all because of Barrack Obama. The Right wants a recession to prove that government is too big.
The Left blames capitalism for the crisis, hates the Sequester and always wants more government, so it also wants to spin the economy in a negative light. The Left wants more spending and will argue that the economy needs it.
We werent surprised when both the front page and the editorial page of the Wall Street Journal argued that the July employment data were evidence of an economy in trouble.
We, on the other hand, look at the July data and are kind of amazed. Forty-one months of consecutive gains in private sector payrolls! And Q2 GDP, even at 1.8% growth, seems almost miraculous, given tax hikes, Obamacare, Dodd-Frank, QE, and Sequester politics.
We arent arguing its a boom, but it certainly isnt a bust either. We call it the Plow Horse economy, and we are not shocked that corporate profits have been beating the consensus 2/3rds of the time for the past 4 years. And, for the record, since QE money creation is boosting excess reserves, and not M2, and since government spending has been falling as a share of GDP, we dont believe its all a sugar high, either.
What we are trying to say is: our narrative is different from the politicized narrative. This means our narrative is attacked from both sides. We have been called friends of Obama and right wing extremists on the same day.
Others dont miss a chance to say First Trust missed the recession of 2008 as if this proves we dont understand whats going on today. But when we step back, especially after a 177% total return for the S&P 500 since March 2009, and a 4.8% annualized return since 12/29/2007, we think the naysayers are allowing their political views to bias their economic/market forecasts. We try really hard not to do that. What we want to do is help investors make better decisions.
Power User
Posts: 15533
(Part-time plowhorse!)Part-time jobs account for 97% of 2013 job growth
Reply #660 on:
August 05, 2013, 07:16:22 PM »
Part-time jobs account for 97% of 2013 job growth
posted at 9:21 am on August 5, 2013 by Ed Morrissey
Being on vacation last week meant that I missed the jobs report for July, which turned out to be as unremarkable as most of those in the four-plus years of the so-called economic recovery. The media reports I did catch while on the cruise focused mainly on the fact that the jobs added in July missed the expectations of analysts, and not on the fact that adding only 162,000 jobs meant another extension of stagnation, as the US economy needs ~150,000 jobs added each month just to tread water, thanks to population growth. Thats not even a decent maintenance number, let alone the kind of job growth needed to put the chronically unemployed back to work.
The media reports also missed another trend in job reports, one caught by a former chief of the Bureau of Labor Statistics and reported by McClatchys Kevin Hall this morning. Almost all of the job growth this year came in part-time work and when we say almost all, we mean 97% of it:
The unemployment rate is measured by the separate Household Survey, and it fell two-tenths of a percentage point to 7.4 percent, its lowest level since December 2008. Thats due in part to slow growth in the labor force. The jobless rate is based on a sample of self-reporting from ordinary people across the nation, and its the Labor Department measure that shows a very troubling trend in hiring.
Over the last six months, of the net job creation, 97 percent of that is part-time work, said Keith Hall, a senior researcher at George Mason Universitys Mercatus Center. That is really remarkable.
Hall is no ordinary academic. He ran the Bureau of Labor Statistics, the agency that puts out the monthly jobs report, from 2008 to 2012. Over the past six months, he said, the Household Survey shows 963,000 more people reporting that they were employed, and 936,000 of them reported theyre in part-time jobs.
That is a really high number for a six-month period, Hall said. Im not sure that has ever happened over six months before.
And Hall says there has to be something driving that kind of trend, and thinks he knows what it is:
There is something going on if such a large share of the hiring is part time, Hall said.
Hall speculated that the implementation of the Affordable Care Act, shorthanded as Obamacare, might be resulting in employers shifting workers to part-time status to avoid coming health care obligations.
Theres been so much talk about the effects of Obamacare on part-time work, he said. This is such an unusual thing to see.
Forbes Chris Conover wrote about this trend last week, before the BLS published the July jobs report:
Denialism may be too strong a term.[1] But there seem to be a lot of people arguing that Obamacare has little or nothing to do with the rise in part-time employment. Some deny the rise is even happening, while others are content to deny that Obamacare is the culprit. Admittedly, it takes a little detective work, but if we systematically review the available empirical evidence in an even-handed fashion, the conclusion seems inescapable: Obamacare is accelerating a disturbing trend towards a nation of part-timers. This is not good news for America.
Ratio of New PT Workers to New FT Workers Explodes in 2013. For the most part, an examination of metrics measured in millions (e.g., involuntary PT workers or total PT workers) masks what is really going on. A much better sense is given by comparing the changes in PT employment to the changes in FT employment. Because the monthly Current Population Survey are so volatile, it is easier to see what is going on by calculating an average monthly figure for each calendar year to get a sense of whether the number of PT or FT is rising or falling. We only have six months of data for 2013, but this method allows us to compare the average monthly count for the year to date with the average monthly count from prior years on an apples-to-apples basis. We can then calculate the ratio of new PT workers in an average month to new FT workers in an average month. Obviously this ratio will turn negative in years that either FT or PT workers have declined on average. So over the past decade, theres only 4 other years with which to compare the 2013 experience.
What should immediately be obvious to even someone without a shred of statistical training is how deviant the 2013 experience is compared to the past. For every new FT job added to the economy, there were 4.3 PT jobs added! In most (non-negative) years, the ratio is the reverse: that is, there are typically 5 FT jobs added for every new PT job. Even in 2004the year with the second-highest ratio during this time-framethere were 2 FT jobs for every PT job, yielding a ratio of 0.5. Even if growth in PT vs. FT workers reverted to its historic pattern for the balance of 2013, the years average monthly ratio still would be four times as large as the 2nd highest ratio from 2004.
The July report only confirms that trend. Only 92,000 full-time jobs were created, while 172,000 part-time jobs got filled (not net numbers). The only major influence in 2013 that differs from the preceding three years of the recovery is the impending ObamaCare mandate on employers, which the Obama administration will try to postpone for a year. The data shows that businesses have already begun to react by minimizing their risk and costs through part-time employment, thanks to the perverse incentives set up by the ACA, and that this will continue as long as the mandate exists.
Maybe thats why its so difficult to find ObamaCare defenders these days at least unpaid ones. OFA tried to stage a rally in Centreville, Virginia yesterday, but only one person bothered to attend, and even the organizer took a powder after less than a half-hour on the job:
That means gatherings like todays in Centreville although the slow start here is probably not what OFA organizers had in mind. After a scheduling snafu over the start time, a few people showed up and left before it actually started. Just one volunteer stayed to help work the phone bank for the health law, and the events organizer bolted after 20 minutes although he was bound for another Obamacare event, a house party.
Another part-time worker, eh?
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Re: US Economics, the stock market , and other investment/savings strategies
Reply #661 on:
August 05, 2013, 07:19:43 PM »
FWIW the number I saw elsewhere was that 75% of the jobs "created" this year were part-time, not 97%.
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Dreams of plowhorses....
Reply #662 on:
August 05, 2013, 07:36:45 PM »
This Rally Has Been Based on a Fantasy, Says Peter Schiff
Lauren Lystrer
Yahoo Finance
June 6, 2013
Markets are slightly higher in the U.S., the day after the second-largest point decline of 2013 for the Dow Jones Industrial Average (^DJI), according to the Wall Street Journal. The Dow dropped 216.95 points or 1.4% to below 15,000, while the S&P 500 (^GSPC) fell 1.4% and the Nasdaq (^IXIC) composite fell 1.3%.
So what happened?
Some reports blame it on concern over wild swings in Japanese stocks and rising expectations that the Federal Reserve may be moving closer to scaling back its easy money bond buying policies.
But if the stocks had closed in the green yesterday, its easy to picture the explanations about how a weak ADP Private Payroll report made investors more confident that Fed Taper Talk has come too early and is on hold for now, thus restoring confidence easy money will continue to flow. Also, late last month U.S. investors shrugged off a 7 percent sell off in Japanese stocks, as USA Today notes.
As opposed to trying to figure out why the market fell, maybe the better question is why has it been rallying all these days or weeks or months, Peter Schiff tells The Daily Ticker in the accompanying interview. Hes CEO and chief global strategist of Euro Pacific Capital and chairman of Euro Pacific Precious Metals.
I think Wall Street has been trying to convince itself that despite the data, the U.S. economy is actually recovering, says Schiff. And I think over the last several weeks so many data points have come in to disappoint this fantasy of an economic recovery, that I think maybe its finally starting to set in.
Schiff points to weaker than expected ISM manufacturing data showing the largest contraction in four years as an example.
Schiff also points to the fear of rising interest rates in a weakening environment and concern that even if the Fed is printing money its not going to overcome that.
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Re: US Economics, the stock market , and other investment/savings strategies
Reply #663 on:
August 05, 2013, 07:48:55 PM »
Continuing the conversation with this from the other side:
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Re: US Economics, the stock market , and other investment/savings strategies
Reply #664 on:
August 05, 2013, 08:01:20 PM »
Quote from: Crafty_Dog on August 05, 2013, 07:48:55 PM
Continuing the conversation with this from the other side:
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Too big to rescue
Reply #665 on:
August 05, 2013, 08:20:54 PM »
Study: U.S. Debt Obligations $70 Trillion
by Wynton Hall5
A new study by University of California-San Diego economics professor James Hamilton finds that the United States has over $70 trillion in off-balance sheet liabilities--an amount nearly six times the on-balance-sheet debt figure.
The Treasury debt outstanding is $16.74 trillion. Of that, $4.84 trillion is money the U.S. owes itself. For that reason, explains Matt Phillips of Quartz, many analysts tend to focus on the $11.91 trillion in debt that is publicly available to be traded.
Hamiltons study, however, examined the federal liabilities that are not included in the governments officially reported numbers. Specifically, he examined the federal governments support for housing, other loan guarantees, deposit insurance, actions taken by the Federal Reserve, and government trust funds.
Not surprisingly, Hamilton found that Medicare and Social Security represent the bulk of future U.S. debt obligations, coming in at $27.6 trillion and $26.5 trillion respectively.
The study's $70 trillion debt estimate may actually be overly optimistic. Boston University economics professor Laurence J. Kotlikoff, who served on President Ronald Reagans Council of Economic Advisers, says the nations true debt obligations are three times that figure.
"If you add up all the promises that have been made for spending obligations, including defense expenditures, and you subtract all the taxes that we expect to collect, the difference is $211 trillion. That's the fiscal gap," Kotlikoff told National Public Radio. "That's our true indebtedness."
Hamilton concedes that other scholars may arrive at different figures.
Some may argue that the current off-balance-sheet liabilities of the U.S. federal government are smaller than those tabulated here; others could arrive at larger numbers," writes Hamilton. "But one thing seems undeniablethey are huge.
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Re: US Economics, the stock market , and other investment/savings strategies
Reply #666 on:
August 05, 2013, 11:17:40 PM »
A nice job of balance and presenting both sides on the forum. As always, Wesbury makes some valid and worthwhile points. I like his honesty admitting that he missed the last crash, consistently over-estimates growth in the slow cycles and as an investment house economist he fully intends to miss the next crash when it again rears its ugly head. He cherry picks an S&P rise of 177% as if anyone including himself ever called the exact bottom or top of any market swing. Without stating explicitly that the S&P is a collection of established companies that operate globally and mostly benefit from the over-regulaiton that freezes out competition, he hints around at the fact that this economy is currently producing virtually no startups capable of continuing our economic growth.
I agree with Wesbury that if you have the benefit of looking at your investments in the rear view mirror, you should have been fully invested during upswings. Implied is to also be all-out of long positions during downswings. Good luck with that.
FYI to Wesbury: "Fracking, the Cloud, Smartphone, Tablet, and 3-D printing" are NOT new ideas. Fear of a no-growth, declining workforce, capital punished economy collapsing under the weight of liabilities of $70 trillion, rapidly increasing tax rates and 174,545 pages of federal regulations is not "wanting a recession to prove that government is too big".
Wesbury inadvertently nails the whole question: "The real drivers of growth, the real creators of wealth ... its about Entrepreneurs versus government." Who does a reasonable person think is winning the battle of entrepreneurs versus government? Hint at the answer is above, liabilities of $70 trillion, rapidly increasing tax rates and 174,545 pages of federal regulations, while the rate of real startups is at an all time low.
Paraphrasing the WSJ, the President doesn't know or won't admit that the private sector has to create wealth before government can redistribute it.
Last Edit: August 05, 2013, 11:22:04 PM by DougMacG
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The next Detroit
Reply #667 on:
August 06, 2013, 07:12:40 PM »
August 6, 2013
NYT: Chicago The Next Detroit
How much trouble is Chicago in? According to the New York Times front page this morning, this much trouble:
The pension fund for retired Chicago teachers stands at risk of collapse. The citys four funds for other retired city workers are short by $19.5 billion. At least one of the funds is in peril of running out of money in less than a decade. And starting in 2015, the city will be required by the state to make far larger contributions to the funds, which could leave it hundreds of millions of dollars in the redas much as it would cost to pay 4,300 police officers to patrol the streets for a year.
This is kind of the dark cloud thats coming ever closer, Mr. Emanuel said in a recent interview, adding that he had no intention of raising his citys property taxes by as much as 150 percentthe price tag, he says, that it might take to pay such bills. Thats unacceptable. [...]
Among the nations five largest cities, Chicago has put aside the smallest portion of its looming pension obligations, according to a study issued this year by the Pew Charitable Trusts. Its plans were funded at 36 percent by the end of 2012, city documents say. Federal regulators would step in if a corporate pension fund sank to that level, but they have no authority over public pensions.
That 2015 mandatory increase? $1 billion.
The fact that the Times is giving Chicagos long-festering mess such prominent coverage this morning is a testament to how Detroits thunderous collapse has made all these sorts of previously over-the-horizon problems seem a lot closer and menacing. Also prominently featured in the article is the blue civil war simmering beneath the surface: public unions are squaring off against Mayor Rahm Emanuel, who has threatened to increase retirement ages and freeze inflation adjustments to union benefit plans in order to help cushion the impact of those approaching mandatory increases in the citys outlays.
The articles best quote goes to another close Obama aide whos running against Governor Pat Quinn in next years elections, William M. Daley: Anyone who thinks that this is just a problem on paper, those are the same people who looked at Detroit 20 years ago and said, Dont worry about it, we can handle it. Were glad to see that at least a couple of the cogs in Chicagos long-ruling Democratic machine have awoken to the crisis at the citys doorstep. Better late than never.
The one unspoken question: can Obama stand idly by if his hometown starts going down the tubes on his watch?
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Wesbury: stock buybacks and PE ratios
Reply #668 on:
August 06, 2013, 08:35:52 PM »
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Re: US Economics vs the stock market
Reply #669 on:
August 07, 2013, 11:07:49 AM »
The S&P index of entrenched companies operating globally going up 177% is not evidence that the plowhorse economy is stronger and healthier than we think.
Is there any chance that interest rates artificially set at zero, moving all money to equities, quantitative easing, flooding 85B/mo. into the market, and over-regulation, locking out all new competition, had anything to do with stocks going up while the rest of America and the world are all stuck in stagnation?
Last Edit: August 07, 2013, 11:21:43 AM by DougMacG
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Re: US Economics - Recovery is over, was it good for you?
Reply #670 on:
August 07, 2013, 11:16:12 AM »
Is it possible that the U.S. economic recovery is currently, at this very moment, moving at the fastest pace at which it will ever move? (under these policies)
The BEA GDP growth figure for 2Q13 was +1.7%
, meaning that the United States economy grew 0.425% over that period. That is about half of what we might like. Bill Gross at PIMCO, among others, has been advancing the proposition that this low-or-no growth is the new normal for the United States
My prediction [Joe Malchow, Powerline] is that his 2009 missive by that title will be remembered for a very long time. His post-election letter questioned Retrain, rehire into higher paying and value-added jobs?
That may be the political myth of the modern era. There arent enough of those jobs. A structurally higher unemployment rate of 7% or more is the feared whisper number in Fed circles.
All manner of things change in a low-or-no growth economy, especially the relative attractiveness of predation as an economic modality. Over a sufficient period of time, this transforms the great lie of liberalismthat your neighbors success is the cause of your povertyinto a terrible truth. We arent there yet. The consensus among the money managers I know (and the ones I overhear in the cafes of Palo Alto) is that we are still in a tepid recovery, slowly climbing our way back to our historical growth metrics. But what if this is as good as it gets?
Here is a chart just published by Ashok Rao:
This chart helps us see the second order of number of unemployedsi.e., not the number of people unemployed, nor the change in the number of people unemployed, but the rate of improvement in the change of the number of people unemployed. As you can see from the shaded areas, which are recessions, what happens as a recession is ending and the U.S. is returning to growth is that the number of unemployeds falls, and falls at a faster rate. It then seems to normalize, somewhat, at a negative rate, during which periods we have good, solid growth. Crucially, the rate of improvement in the number of unemployeds never gets too fast. Over the last forty years it seems to be negative-bounded at -10%. What that means is that there is very little precedent for our current recovery to become any more furiously ebullient than it already is. It would mean that our labor market is now adjusted.
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June Trade Deficit; July non-mftr index
Reply #671 on:
August 07, 2013, 04:08:23 PM »
The Trade Deficit in Goods and Services Came in at $34.2 Billion in June To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 8/6/2013
The trade deficit in goods and services came in at $34.2 billion in June, much smaller than the consensus expected $43.5 billion.
Exports rose $4.1 billion in June, led by gains in fuel oil, jewelry, and petroleum products. Imports declined $5.8 billion, led by consumer goods (such as cell phones), fuel oil, and petroleum products.
In the last year, exports are up 3.2% while imports are down 1.0%. Petroleum imports are down 12.6% from a year ago, while non-petroleum imports are up 0.4%.
The monthly trade deficit is $8.2 billion smaller than a year ago. Adjusted for inflation, the trade deficit in goods is $3.4 billion smaller than a year ago. This is the trade indicator most important for measuring real GDP.
Implications: The trade deficit in June narrowed to the lowest level since October 2009, as virtually all major categories of exports were up in June, while most major categories of imports were down. The trade deficit came in much smaller than the government estimated when it released GDP figures last week. As a result, the trade sector, which was originally estimated to be a drag of 0.8 points on real GDP growth, now appears to have had zero net effect on Q2 real GDP. For this reason we now believe real GDP grew at a 2.5% annual rate in Q2 versus the governments original estimate of 1.7%. The big story here is what is happening to energy production in the US. The US has been experiencing a boom in energy production and exports over the past few years because of the technological advances in horizontal drilling and fracking, meaning a larger share of what we consume is produced domestically. In turn, we are importing much less. In fact, exports of petroleum products are up 11.2% over the past year while imports of petroleum products are down 12.6%. We expect this trend to continue and have a major impact on the trade picture. Led by fuel oil and petroleum products total exports reached an all-time high in June. This is happening despite a drop in exports to the European Union which are still down 1.7% from a year ago, but we expect positive gains over the coming year as the European Union starts to recover. Sales to the Pacific Rim are up 1.7% and sales to South/Central America are up 3.3%. We have been arguing for years now that technological advances, not just in energy, are driving growth, so this June trade number is just the kind of positive surprise we have been expecting. As we said above, look for an upward revision to Q2 GDP.
The ISM Non-Manufacturing Index Rose to 56.0 in July
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 8/5/2013
The ISM non-manufacturing index rose to 56.0 in July, coming in well above the consensus expected 53.1. (Levels above 50 signal expansion; levels below 50 signal contraction.)
The key sub-indexes were mostly higher in July, and all remain above 50. The new orders index rose to 57.7 from 50.8 and the business activity index increased to 60.4 from 51.7 while the supplier deliveries index gained to 52.5 in July from 51.5. The exception was the employment index, which declined to 53.2 from 54.7.
The prices paid index rose to 60.1 in July from 52.5 in June.
Implications: Just like its manufacturing sister report, the ISM service report boomed in July easily beating not only consensus expectations but the predictions from all of the 84 economics groups that made a forecast. Both reports signal a pickup in economic growth in Q3. The ISM service report expanded at the fastest pace in five months. The business activity index, which has a stronger correlation with economic growth than the overall index boomed to 60.4, while the new orders index also showed notable growth to 57.7. The only disappointing part of todays report was the employment index which fell to 53.2. We expect this measure to move higher in coming months as more hiring occurs as companies see higher production in the future (which the business activity index is showing). On the inflation front, the prices paid index rose to 60.1 in July from 52.5 in June. Given loose monetary policy, we expect this measure to remain elevated over the coming year. Pessimistic analysts have been touting the end of the payroll tax cut and the federal spending sequester as reasons to expect weaker economic growth. But the truth, from looking at the data so far, is little to no significant impact from these events on the consumer or economy, and we do not think there will be. What we have here is a Plow Horse Economy that looks like it may be starting to trot.
Last Edit: August 07, 2013, 04:28:53 PM by Crafty_Dog
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Re: US Economics - DBMA Fact checking the 'Plow Horse Trot'
Reply #672 on:
August 09, 2013, 10:23:56 AM »
Brian Wesbury (with
added): "What we have here is a Plow Horse Economy that
looks like
may be
starting to trot."
Plow horses don't trot, especially when pulling a load heavier than themselves.
"The number of people receiving federally subsidized food assistance today exceeds the number of full-time, private-sector working Americans."
Economics to Wesbury sometimes becomes art over science. But plow horses, even as a figure of speech, operate under the laws of Newtonian Physics where they measure 'work done', not results spun.
The Workforce Participation Rate is up 0.1% since hitting the lowest point in our history since the time that women widely entered the workforce. Was he tempted to call this upsurge a 'canter'??
The private sector will trot when the load it is pulling becomes manageable. Neither spin not optimism will not overcome the laws of physics.
"The Right wants a recession to prove that government is too big."
If a huge boulder is hanging in the air directly over my family or neighborhood, expressing an awareness of gravity is not the same as wishing for it to fall.
Last Edit: August 09, 2013, 10:49:35 AM by DougMacG
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Dr. Doom predicts '87-like crash
Reply #673 on:
August 10, 2013, 10:46:26 AM »
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Too-easy money makes market too risky
Reply #674 on:
August 11, 2013, 11:08:38 AM »
Quote from: Crafty_Dog on August 10, 2013, 10:46:26 AM
A market correction of this sort seems just as likely to me as the Wesbury scenario that things just keep plowing forward, especially if the market sees a good likelihood of artificial stimuli ending. Calling the timing of it is always dubious.
170 of the S&P 500 are already tanking. The largest of the politically connected, crony companies are still holding up the growth in this market.
Note President Obama's comment that commitment to 'dual mission' of the Fed is central to his Fed Chair pick . He wants this sick and stalled economy under his watch propped up to maintain its 1% growth rate for the duration, no matter the long term cost. Maybe we can go that far before crashing and maybe we can't.
Too-easy money makes market too risky
The liquidity-fueled rally of the past 9 months is easy to like. But recent history tells us higher prices based on easy money carry extreme dangers, so a violent drop could lie ahead.
Last Edit: August 11, 2013, 12:22:16 PM by DougMacG
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July retail sales
Reply #675 on:
August 13, 2013, 11:42:31 AM »
Retail Sales Increased 0.2% in July To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 8/13/2013
Retail sales increased 0.2% in July, (+0.4 including revisions to prior months) versus a consensus expected gain of 0.3%. Sales are up 5.4% versus a year ago.
Sales excluding autos were up 0.5% in July, coming in above consensus expectations of 0.4%. These sales were up 0.4% including revisions to prior months and up 4.0% in the past year.
The increase in sales in July was led by food and beverage stores, gas stations, and restaurants/bars. The largest decline was for autos.
Sales excluding autos, building materials, and gas rose 0.5% in July but were up 0.4% including revisions to prior months. If unchanged in August/September, these sales will be up at a 2.5% annual rate in Q3 versus the Q2 average.
Implications: Retail sales have increased for four straight months. Whatever happened to all the analysts who thought the sequester or fiscal cliff deal was going to kill the consumer? Despite their predictions of doom and gloom, we got another plow horse report on retail sales today. Sales came in almost exactly as the consensus expected, up 0.4% including revisions to previous months, and are up 5.4% since last year. With consumer prices up about 2% since last year, real (inflation-adjusted) sales are up about 3.4% in the past year. Core sales, which exclude autos, building materials, and gas, rose 0.5% in July the largest monthly increase this year and the 13th consecutive monthly gain. There was nothing in todays report to write home about, but it is growth and much better than many analysts were projecting at the beginning of the year. For the rest of 2013, we still expect two major themes to play out for the consumer: first, an acceleration in consumer spending growth versus the past couple of years despite higher taxes and the sequester; second, a transition away from growth in auto sales and toward other areas, like furniture, appliances, and building materials. Consumer spending should accelerate because of continued growth in jobs, hours, and wages. In addition, households have the lowest financial obligations ratio (debt service plus other recurring monthly payments) since the early 1980s. In other news this morning, the trade sector continues to show subdued prices. Import prices were up 0.2% in July and are up only 1% in the past year. All of these small gains are due to oil. Ex-petroleum, import prices were down 0.5% in July and are down 0.7% in the past year. Export prices slipped 0.1% in July and are up only 0.4% in the past year. Excluding farm products, export prices were unchanged in July and exactly the same as a year ago.
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Re: Dr. Doom predicts '87-like crash
Reply #676 on:
August 14, 2013, 03:28:49 PM »
Quote from: Crafty_Dog on August 10, 2013, 10:46:26 AM
Top technician: Yes, 2013 does look like 1987
CNBC.com | Monday, 12 Aug 2013 | 1:47 PM ET
Marc Faber frightened the market with his call that 2013 is looking a lot like 1987. But while the Gloom, Boom & Doom Report publisher has been quite bearish for some time, one top technician now says that the charts back up the unsettling comparison Faber made on Thursday.
(Read more: Marc Faber: Look out! A 1987-style crash is coming)
Carter Worth of Oppenheimer starts out with a simple premise: "Tops have a look and feel over and over and over."
Citing the same warning sign Faber pointed to, Worth said on Friday's "Options Action" that a top tends to come "as breadth starts to waneand then the trouble ensues." With that in mind, he took to the charts to compare the current market action to the charts leading up to historical tops in the market.
Worth's first comparison is to the two years leading up to May 2011, when the market dropped on the S&P downgrade of the U.S. credit rating.
Worth notes the similarity between that chart and today's, noting that in 2011: "Basically we plunged, from May to August, about 20 percent." He added: "Now that's a fairly benign thing20 percentbut it's the shape and look of the ascent that precedes the drop that's important."
Building on his case, Worth noted a similarity between August 2011 to August 2013, and the two years leading up to the decline of 1968.
"In 1968, we had a very similar two-year trajectory, just like the one we're in now, and then the trouble started," Worth said, presenting another chart that looks strikingly similar to our present situation. "In this case, it was in December of 1968, and over the next 18 months, we dropped 40 percent," he said.
Worth then looked at the chart of the two years leading up to the infamous crash of 1987.
Of all the periods that Worth looked at, 1987 is "the one that's the most correlated" with the current market"it's running at a 96 percent correlation," he said.
Given that in 1987, the S&P fell some 40 percent in three months, Worth finds this correlation very troubling.
"Does it have to play out that way? No," he said. "But it really does speak to: What is one playing for by staying long? Is it asymmetrical risk-reward?"
In Worth's view, the risk-reward is indeed highly skewed. "Upside is limited, and by staying in, you embrace or prospectively take the punishment that is coming," he concluded.
(Read more: Siegel: Keep buyingyou 'can't lose')
Dan Nathan of RiskReversal.com is of the same mind. "You probably have a few percent to the upside, but you could potentially have a really sharp down-10-percent move," Nathan said.
Of course, given what the market did in 1987 after topping out, perhaps a decline of just 10 percent would leave some investors thankful.
By CNBC's Alex Rosenberg. Follow him on Twitter: @CNBCAlex.
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Re: Dr. Doom predicts '87-like crash
Reply #677 on:
August 14, 2013, 03:42:59 PM »
Quote from: Crafty_Dog on August 10, 2013, 10:46:26 AM
Too-easy money makes market too risky
The liquidity-fueled rally of the past 9 months is easy to like. But recent history tells us higher prices based on easy money carry extreme dangers, so a violent drop could lie ahead.
By Bill_Fleckenstein Fri 10:10 AM
There is not much one can say to make sense out of the maniacal rise we have seen in the stock market since last fall, other than to note that the third and fourth rounds of bond buying by our Federal Reserve (aka QE3 and QE4) have boosted stock prices 20 to 25%.
Beneath the surface, however, stocks are a house of cards. Simply because prices are rising as a consequence of the massive liquidity injected by the Fed (and the Bank of Japan) combined with "professionals" running other people's money who are terrified of not keeping up with the averages does not mean that participating in the stock market at the moment is something that anyone who is sane ought to do.
The wrong kind of royal flush
Even so, resisting the siren song of apparently easy money is difficult, and most people eventually get sucked in. This is shown by the latest mutual fund statistics, which show that people are taking money out of bond funds and pushing it into stock funds.
It is not knowable when this maniacal rise in equity prices will come to an end. As I have stated many times, either the market has to exhaust itself, some sort of catalyst has to come into play or something has to stop the Fed. Obviously, the only thing that can take away the printing press is the bond market, and that will take some time.
As for "tapering," if the Fed tries to cut back its bond buying, my guess is that Wall Street would throw a fit and stock prices would tank, which would also hurt the economy. And if Fed Chairman Ben Bernanke and his colleagues are paying attention to the job market, nothing is occurring there to make them want to taper. Thus, I continue to think tapering is very unlikely.
He's just covering his basis
Perhaps Bernanke has an ulterior motive and wants to do a bit of tapering, if only to try to create the illusion that he's capable of being "tough." But I really can't speculate about that. I do know that printing money does not boost the economy or create jobs. All it does is misallocate capital, increase risk and precipitate inflation.
Meanwhile, many of those who were crushed in the stock and real-estate busts think we are in a Goldilocks (i.e., perfect) environment. In fact it is actually still 2009, just with much higher stock prices and a somewhat healthier banking system, thanks to taxpayer money and the fact that the Fed is stealing from savers via artificially low interest rates to give the proceeds to banksters. All in all, the financial environment is literally a house of cards built on runaway speculation.
Burning Japanese
Tuesday night, Japan was the scene of a fair amount of red ink, as its equity market lost about 4%, though the yen was quite strong. At least for the time being, those seduced into playing the easy-money game in Japan are seeing their financial dreams complicated by the fact that so many are all on the same side of the page. That problem will present itself in America at some point; we just don't know when.
Parenthetically, I think most people look at the fundamentals of the yen and say, "Wow, there is a currency that ought to decline." But in fact it has been rallying for the past month against the dollar, despite talk of tapering, and we can make the same comparison to the euro. I find it interesting that everyone can see the flaws in the yen and euro, yet for a while now those currencies have been doing better than the dollar, which so many people seem to think is still a sound currency. In any case, what this more likely illuminates is the wackiness of what transpires in financial markets in a world saturated with QE-created liquidity.
I am not the only one who thinks that beneath the shiny veneer of rising stock prices, the investing landscape has become fraught with risk. Many longtime successful investors do, as well. In his most recent newsletter, my good friend Fred Hickey shared a quote from Seth Klarman, founder of Baupost Group, that I found particularly timely and poignant. Klarman described the current investment environment as " harder than it has been at any time in our three decades of existence the underpinnings of our economy and financial system are so precarious that the unabating risks of collapse dwarf all other factors."
I suggest everyone read those two points a couple of times.
When the best offense is defense
At some point, the stock market will decline violently in a short space of time and there will be economic carnage in its wake. I continue to think that the computers that run so much money will eventually get loose on the downside at some point as the underlying economic and financial risks of the world rear their ugly heads. (Read Every day, another flash crash for more on those computers.)
Could it be two years from now? Yes, in theory, though I seriously doubt this can go on that long. I suspect the next nine months could be very pregnant no pun intended.
In any case, folks need to be prepared for some serious carnage, even though the timing is not yet predictable.
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Re: US Economics, the stock market , and other investment/savings strategies
Reply #678 on:
August 14, 2013, 04:35:50 PM »
Even if they are all wrong, there seem to be a lot of articles coming out about an impending downturn. Not to feed the frenzy, but this one is called...
10 Reasons the Market Has Peaked
by Doug Kass, President of Seabreeze Partners Management Inc.
1. Rising interest rates pose more of a threat to growth than many believe. At the core of my pessimism is that the U.S. economy will not likely be able to hold up in the face of an increase in interest rates and a higher cost of capital. The Fed's four-year-plus strategy of quantitative easing is growing increasingly more ineffective -- it has neither created jobs nor stimulated innovation. (Apparently, the San Francisco Fed now agrees.) Kick-starting asset prices and the production of economic growth of only 2% (in real terms) underscore the failure of trickle-down monetary policy and simply do not guarantee a self-sustaining recovery that will continue under its own momentum.
As I have previously written, the stock market, the consumer and the corporate and public sectors are addicted to low interest rates.
To date, the market has comfortably absorbed a doubling in the five-year U.S. note yield and a 110-basis-point increase in the 10-year U.S. note yield. The next rise in rates, however, will likely exact more of an economic and market toll (particularly on housing).
If you don't think the market is the beneficiary of quantitative easing and you think tapering is nonevent, consider that the Fed has printed $600 billion of new money this year. This has generated only a 1.5% increase in GDP or $300 billion this year. But thus far in 2013, there has been a 20% rise in the value of U.S. stocks -- that is a rise of $3.5 trillion (on a base of $20 trillion total market value). So, a change of policy (i.e., tapering), is more significant and impactful than most argue.
The "taper is not tightening" argument is semantics because less asset purchases equals less accommodation. Moreover, it is now the markets that have tightened policy over the last two months, as the Fed has begun to lose control of rates. (Note: The yield on the 10-year U.S. note resides at 2.66% this morning, only a few basis points from the recent high yield. In my judgment we are close to the line in the sand, where rates will adversely impact economic activity.)
2. Economic fragility. The recent data indicate that the domestic economy is growing moderately but steadily, but job growth is weak in quality, retail sales seem to be stalling, automobile sales have essentially flatlined since November 2012, and housing appears to be pausing (as measured by lower purchase applications, slowing traffic, reduced order books and rising cancelations).
I challenge anyone (excluding the economic perma-bulls) to say (with confidence) that the U.S. economy is at escape velocity. I don't believe it is self-sustaining without the benefit of continued quantitative easing. As expressed earlier, any further increase in interest rates will be a headwind to growth.
3. The economic prospects for China, the straw that stirs the drink of global growth, are uncertain. I am not only suspect of publicly stated China growth rates but I am increasingly concerned with the rapid pace of credit growth, which has been increasingly sourced from the more risky and less transparent Chinese shadow banking sector.
China's credit growth relative to its GDP growth has been too rapid, so the country's leadership is committed to slowing credit. This raises the risk of a banking crisis and subpar (5% or less) real economic growth.
This downturn in growth will likely have a systemic financial impact on China's banking industry (which could feed into non-Chinese banks), global economic growth and on the pricing of risk assets. (Note: I would recommend both Goldman Sachs' recent "Top of Mind" and Hedgeye's Moshe Silver's column in this week's Fortune for lengthier discussions of this issue.)
4. An expected 2013 tapering is likely a policy mistake. I anticipate a September tapering despite the economy still growing at less than its potential. In listening to the Fed fiesta over the past month, it appears that most Fed members want out of quantitative easing for two basic reasons: 1. It is increasingly clear that QE is having a reduced or more marginal impact on growth; and 2. it is also clear that some feel exiting a $4 trillion balance sheet will be a challenge.
This could be a policy error, especially if consensus and Fed economic projections are wrong-footed, as I think they are. If I am right, investors will begin to see tapering as premature relative to economic activity. Though tapering has been well-telegraphed and should start moderately -- let's say a $15-billion-per-month reduction from $85 billion -- if I have to quantify, I would guess that the S&P falls maybe up to 50 points in anticipation of it.
I recognize that though tapering lies ahead, tightening does not. That said, corrections can occur anytime, despite quantitative easing and despite zero interest rates as far as the eyes can see. Look at the weakness in the Nikkei. The hedge fund community's favorite regional stock market is almost 10% off its high despite even more expansive quantitative easing than in the U.S.
5. The Fed head selection represents a more significant market event than consensus believes. My money is on Larry Summers. The selection of Summers (the favorite) or Geithner (a very long shot) could cost the S&P something like 50 points, while the selection of Kohn or Yellen (second favorite) could be a marginal positive for the markets.
Though Summers has broad experience and is intellectually gifted, he would probably be difficult to work with, and the reduced transparency in a Summers-led Fed would likely increase asset price volatility. Both Yellen and Kohn are as qualified intellectually/academically and understand the workings of the Fed as they have been there forever. Also, they are highly respected by the other Fed members.
6. Politics will return to the front burner in the coming months. The September-October political agenda is lengthy, including the debt ceiling, government spending and immigration, tax and government-sponsored enterprise reform.
Though market participants have become inured to the nonsensical rhetoric, a lengthy fight and impasse could again weigh on consumer and corporate confidence as it has previously.
7. The bull market is long in the tooth. We now lie almost 54 months from the generational low of March 2009. Over the past six decades, the average bull market has been about 43 months, the longest bull markets have lasted 56 and 60 months. (Note: The longest bull streaks didn't face the structural economic headwinds that we face today; they had long runways of growth and technological innovation ahead of them.)
Moreover, the intermediate leg of the bull market, which commenced in November 2012, has already climbed by almost 30% in only eight months.
8. Changing leadership seen as a negative. As I recently wrote, sector/group leadership changes are typically a negative sign for markets. (And, as Jim Cramer suggested on Real Money yesterday, "It's hard to find leaders.")
Former market-leading financials (Financial Select Sector SPDR (XLF) is -4% off its high), housing (the most distributional pattern, with the iShares U.S. Home Construction ETF (ITB) -18% off its high), health care and biotech (iShares Nasdaq Biotechnology Index Fund (IBB) is -4% off high) sectors are all extended and in recent weeks have begun to show signs of lost momentum, underperformance and possibly distribution. At the same time, materials have improved, but few others have, suggesting that a broader-based (and healthier) sector rotation is not yet in place.
9. Breadth weakens. Though most indices are within 1% of an all-time high, new peaks have not been confirmed by breadth or by new 52-week highs since mid-July. This is particularly true with regard to NYSE (all issues) breadth, which includes a number of bond-equivalent stocks/ETFs. The same non-confirmation has developed in the Nasdaq Composite and S&P 600 indices. Relatedly, the McClellan Summation Index has rolled over (Hat tip, Chuck Berry!) and could go down further before even reaching a moderate oversold status.
10. Valuations are stretched. As I expect only 2%-4% growth in S&P earnings for 2013 and 2014, any further stock price gains are very dependent on improving valuations and multiple expansion.
S&P profit forecasts are for $107 a share for 2013, $110 a share for 2014, and $114 a share in 2015. Given these estimates and given the deep structural global economic issues (disequilibrium in the U.S. jobs market, continuing deleveraging, etc.) I deem an appropriate/reasonable P/E as between 14x to 15x (slightly under the five-decade average of 15.2x), a contraction in valuations from current levels
Finally, let's look at the "Shiller P/E ratio." My friend/buddy/pal FT Advisors' Brian Wesbury recently wrote the following:
In terms of market calls, few academics or economists can match Yale University economics professor Robert Shiller. In his 2000 book, Irrational Exuberance, he argued that 10-year averages of corporate earnings smoothed out the ups and downs of the business cycle. Then, using this "cyclically adjusted" level of earnings and comparing it to current stock prices, he claimed to generate a better version of the P/E ratio. Shiller's timing couldn't have been better. The "Shiller P/E ratio" was at an all-time high in 1999-2000, a clear signal of overvaluation and a reason to sell.
Today, Shiller's valuation work says that stocks are back to being in overvalued territory.
At the end of July, Shiller's ratio was 23.8, the highest since 2008.
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Re: US Economics, the stock market , and other investment/savings strategies
Reply #679 on:
August 14, 2013, 08:03:33 PM »
Scott Grannis took on Shiller argument and successfully deconstructed it IMHO (though I forget the details
"1. Rising interest rates pose more of a threat to growth than many believe. At the core of my pessimism is that the U.S. economy will not likely be able to hold up in the face of an increase in interest rates and a higher cost of capital."
The argument here, and elsewhere in the piece, is Keynesianism. I am of the opinion that the low interest rate policy not only FAILED but was COUNTER PRODUCTIVE. Therefore does it not follow that its cessation is a nullity or even a good thing? Albeit not necessarily for the market!!!
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Re: US Economics, the stock market , and other investment/savings strategies
Reply #680 on:
August 15, 2013, 01:31:23 PM »
" I am of the opinion that the low interest rate policy not only FAILED but was COUNTER PRODUCTIVE. Therefore does it not follow that its cessation is a nullity or even a good thing? Albeit not necessarily for the market!!!"
It was an artificial stimulus. Yes, it was counter-productive and it failed because it didn't address the underlying problems. It stimulated some things at the expense of other things, distorted incentives and diverted resources from best use. Still, the beginning of the end of the monetary injection will most likely trigger the market downward in the short run as we may already be seeing.
Rising interest rates means that equities have to compete with other, safer places to tuck money, such as bonds, CDs, Treasuries, etc. instead of being the only category offering a possible return.
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WSJ: Games the Fed plays
Reply #681 on:
August 15, 2013, 07:55:16 PM »
The Games the Fed Plays With Your Investments
Judging the value of your portfolio is a lot more work these days than opening your account statement.
By DAVID C. PATTERSON
Federal Reserve Chairman Ben Bernanke is playing games with your investments. The Fed's quantitative-easing program and near-zero interest rate policy is explicitly aimed at (among other things) raising asset prices to create a "wealth effect" that will bring about more confidence and spending, which will support the economy and, in turn, the market.
The Fed's game isn't that easy to win, however. Since everyone knows what the Fed is doing, its actions are highly anticipated and "discounted" by the market, to the extent that when they actually occur they may have no effect on prices at all. Worse, they may have the opposite of the intended effect. This can happen if an "accommodative" move is judged to be a tad less so than was expected, sending the market down rather than up.
The Fed, of course, must take this possibility into account, since its whole wealth-effect strategy depends on market reaction. It may therefore have to make the move a little more accommodative, lest it disappoint.
But the market understands this also, and may have anticipated this second-order adjustment, a possibility that the Fed in turn must assess in deciding whether to make it. Mind you, "the market" isn't one person, but a very large number of different actors, each trying to anticipate how all the others will behave.
The process can at some point turn powerfully negative, if the monetary stimulus stops, or is expected to stop, or becomes ineffectivewhich it will if it is expected to become ineffective, because it is only effective based on what the market expects.
If your head is spinning by now, join the club. The conditions are those of a classic "game" in the language of game theorists. The job of that profession (which includes several Nobel Prize winners) is to predict and if possible handicap the possible outcomes of such games. You don't have to be much of a theorist to see that the number and volatility of outcomes increases geometrically with each new player, especially one as powerful and manipulative as the Fed.
And you don't need a theory at all to notice that the market has been regularly moving in the "wrong" direction: Bad news is good news, and vice versa, because it isn't the news itself that matters, but how the Fed will react to itor, more accurately, how the market thinks it will react.
Price and value have a weak relationship at best on Wall Street, and the Fed seems intent on bringing about a complete divorce, by manipulating and generally inflating price, and by simultaneously undermining value.
Value, to make any sense for investment assets, must make some reference to why we hold the assets. Generally speaking, it isn't for the ability to convert them to cash, in bulk and on short notice, but to generate a cash flow, or income stream, that continues reliably over some lengthy if not indefinite period and preserves its purchasing power. Value for this purpose would be the size of such a cash flow that the assets can support.
The Fed's aggressive suppression of interest rates, while raising the price of bonds, has correspondingly destroyed their value. A 10-year Treasury bought today at a 2% yield would pay 1.2% net of tax (current top federal rate only), for an annual loss of .8% against the 2% rate of inflation that the Fed is aiming for. The loss would be greater against the higher rate that the Fed says it may tolerate, and greater still against the rate that many investors think they are really facing in their expenses.
Stocks have a better record of supporting lifestyles over long periods, but that ability also depends on their price level at the starting point. You might think that a draw of, say, 3% from a diversified equity portfolio would produce a cash flow that sustained its purchasing power over time. Yet looking at all 10- or 15-year, quarter-to-quarter periods since the start of the S&P index in 1926, this was true only about 60% of the time. Unless it is justified by real profit growth, higher price just means lower sustainable draw.
Higher prices logically mean lower value (more money having to be paid for the same thing), but they tend to correct themselves for just that reason: Wanting better value, people stop paying the higher price.
The rules are different in the game the Fed is playing. If the price of investment assets is going up, not because of improved economic conditionscreditworthiness of debtors, profitability of companies, real demand for commoditiesbut rather because the Fed has decreed that they shall go up, the natural, corrective effect is subverted, at least for as long as the Fed has credibility. In this respect there is no difference between prices on the stock market and in other markets: Engineered inflation is self-feeding rather than self-correcting, until it isn't. We saw this play out to disastrous effect in the housing market as low mortgage rates pushed home prices ever higher until they collapsed in 2007-08.
All in all, judging the value of your investment portfolio is a lot more work these days than opening your account statement. The more people do that work, of course, the less stimulated they will feel about spending, and the more futile will be Fed policy and its supposed "wealth effect."
Meanwhile, painful as it is to hold cash, it might pay to keep some handy as the game plays out. The Fed is a powerful but uncertain player. When it steps away, the turmoil may be more painful still, but will set the stage for a return of true value determined by market forces.
Mr. Patterson is chairman and CEO of Brandywine Trust Group LLC
Last Edit: August 15, 2013, 07:57:53 PM by Crafty_Dog
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Good luck unwinding that!
Reply #682 on:
August 15, 2013, 09:44:11 PM »
Good Luck Unwinding That
Submitted by Tyler Durden on 08/15/2013 20:08 -0400
Across the Curve
Ben Bernanke
Budget Deficit
Gross Domestic Product
Reserve Currency
A few months ago, when discussing the most pertinent topic for Bernanke and his merry central-planning men we said that "with every passing week, the Fed's creeping takeover of the US bond market absorbs just under 0.3% of all TSY bonds outstanding: a pace which means the Fed will own 45% of all in 2014, 60% in 2015, 75% in 2016 and 90% or so by the end of 2017 (and if the US budget deficit is indeed contracting, these targets will be hit far sooner). By the end of 2018 there would be no privately held US treasury paper. Still think QE can go on for ever?" What followed was 3 months of heated debate on whether the Fed will or will not taper which for some reason were focusing on the wrong thing - the economy. Ironically, how the economy is doing has nothing to do with the Fed's decision, which is entirely decided by the increasing shortage of private sector "quality collateral" i.e., bonds.
How big is this shortage? As noted above, the Fed's literally absorbs ~0.3% of the bond market each week. And according to the most recently released Fed balance sheet data, this is indeed the case. According to SMRA calculations, the Fed owned about 31.47% of the total outstanding ten year equivalents. This is above the 31.24% from the prior week, and higher than the 30.99% from the week before - a rate of increase almost in line with what we predicted.Inversely this means that the percentage of ten-year equivalents available to the private sector decreased to 68.53% from 68.76% in the prior week. Long story short, the Fed just soaked up 0.23% of the bond market in one week and half a percent in two weeks, a ratio that will only increase in time, and unless there is a taper, may reach 0.5% per week.
At that level of bond market "takeover", the liquidity in what was once the world's most liquidity bond market, already lamented by the TBAC as we showed earlier this week, will evaporate entirely and the daily bond halts that were a norm in Japan in April and May will promptly come to the US. Only at that point, unlike the BOJ which had the Fed to fall back on, there will be no Plan B, as the opportunity cost of an illiquid bond market is the reserve currency status of the dollar and the credibility of the Fed - the two are interchangeable. Which also means the future of the entire global fiat system will be on the brink.
Which brings us to the point of this post.
Clueless economists and pundits are happy to trot out every now and then a chart showing the ratio of the Fed's balance sheet to GDP, which supposedly is meant to indicate that the Fed owning 20% of US GDP on its books is normal.
What said clueless economists never seem to grasp is that a Fed whose balance sheet is full of 3 month bills is completely diffrerent than a Fed whose balance sheet is full of 30 Year bonds. And the best way to represent that is by showing the 10 Year equivalent holdings of the Fed.
Presenting Exhibit A: the Fed's balance sheet represented in the form of 10 Year equivalent holdings.
The long-term average is ~4%. As noted above, it just hit 31.47% this week. And even with a taper (especially since the untaper will be just around the corner once the market crashes and the Fed has no choice but to jump right in), we fully expect that the Fed will hit its current SOMA limit of 70% of any and every CUSIP across the curve by 2016.
Take one look at the chart above, and extrapolate it reaching twice as high.
And then imagine how this Mt. Everest of 10 Year equivalents will be unwound.
Good luck with that.
This is the chart:
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Re: US Economics, the stock market , and other investment/savings strategies
Reply #683 on:
August 15, 2013, 11:59:18 PM »
Scott Grannis thinks the numbers in the preceding piece are quite inaccurate.
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Re: US Economics, the stock market , and other investment/savings strategies
Reply #684 on:
August 16, 2013, 10:01:21 AM »
Quote from: Crafty_Dog on August 15, 2013, 11:59:18 PM
Scott Grannis thinks the numbers in the preceding piece are quite inaccurate.
"According to SMRA calculations, the Fed owned about 31.47% of the total outstanding ten year equivalents. This is above the 31.24% from the prior week, and higher than the 30.99% from the week before"
"with every passing week, the Fed's creeping takeover of the US bond market absorbs just under 0.3% of all TSY bonds outstanding: a pace which means the Fed will own 45% of all in 2014, 60% in 2015, 75% in 2016 and 90% or so by the end of 2017 (and if the US budget deficit is indeed contracting, these targets will be hit far sooner). By the end of 2018 there would be no privately held US treasury paper. Still think QE can go on for ever?"
The point is not that this will happen. It won't. The point is that this course will change. It has to.
Separate from the fact that the amount and percentage is increasing, it is remarkable that debt is not debt. We owe ourselves a very significant and increasing portion of that total.
First, we borrow in our own currency, a luxury most countries don't have. It allows us to pay back, actually issue replacement debt, in devalued dollars that we never pay back, but replace again in devalued dollars. A free lunch of sorts - if you believe in that sort of thing. Now it turns out, well exposed on these pages, that we don't even pretend to borrow the actual amounts of our budget shortfalls from anyone. We just sort of invent the money. We get to spend the money, inject it with all the multipliers into the economy (keeping for time from falling below zero growth), and never even borrow it much less worry about paying it back. We magically 'buy' the debt with nothing but electronic entries, not by selling off national parks or federal office buildings. Then we point to poorly measured M-2 or M-nonsense indices and say that the money supply and the price level didn't even go up. Just more free lunch!
Problem is that we know there is no free lunch, just an accounting puzzle. The costs of these massive free lunches are out there lurking, whether Bernancke, Wesbury, Grannis, or any of us can immediately or demonstrably point to them or not.
The point of liberal governance, and Wesbury's plowhorse theory as well, is that our private sector is so strong that none of these impending certainties - funny money catching up with us, rising interest rates catching up with us, rising tax rates catching up with us, massive regulatory state catching up with us, lowered workforce participation rate and expanding disability and food stamp loads catching up with us, historically low rates of real business start ups, Obamacare's impending burden on employers, or just the market rising faster than the economy for 5 years and counting - not one of these things nor all of them combined will ever bring it all down.
I don't buy it.
Last Edit: August 16, 2013, 10:06:58 AM by DougMacG
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Re: US Economics, the stock market , and other investment/savings strategies
Reply #685 on:
August 17, 2013, 07:08:11 PM »
Walmart Earnings Disaster Exposes a Collapsing Economy: Davidowitz
.By Jeff Macke | Breakout Thu, Aug 15, 2013 10:24 AM EDT..
Walmart (WMT) reported earnings of $1.24 a share this morning on revenues of $116.2 billion. Analysts had been expecting $1.25 on $118.5 billion. Sales in stores open more than a year declined 0.3%. Walmart also guided lower for the full year citing a "challenging sales and operating environment." The stock is off sharply and at risk of going negative for the last 52 weeks.
Those are the numbers, but not the whole story. Walmart is the thermometer of the American economy. Disregard the government data. Jobs and GDP and all the rest are at best inaccurate measures of the economy and at worst flat out corrupt. Walmart is capitalism writ large. The entire organization is focused on nothing but selling goods and services to Americans. It may be an empire in decline, but Walmart sells more than $1 billion worth of merchandise per day in a bad quarter. When Walmart misses estimates, it can only mean one of two things: either Walmart or the American economy is weaker than anyone thought.
Related: 3 Signs Walmart's Best Days Are Behind It
"Walmart is a terrific operator... They didn't suddenly become stupid," says says Howard Davidowitz, one of the top retail minds in the country. "The economy is in collapse. That's what's going on."
Davidowitz points out that Walmart isn't just a store for the downtrodden. They have 150 million customers which collectively spent less in Walmart stores than in the same period last year. Davidowitz says another 50 million customers shop at Target (TGT), which he also expects to have negative comp stores sales when it reports next week.
Don't forget that Macy's (M) also missed expectations yesterday. Three makes a trend. The GDP data is positive and the employment data says things are improving gradually. Either the best merchants in America forgot how to sell, Americans stopped consuming beyond their means, or the economy is turning south, not getting better.
Related: Macy's Miss Another Sign Retail Isn't the Place to Be: Hoenig
"I don't think we're in a recession right now, but I think there's a 50 percent chance we'll be in one next year," Davidowitz shouts, and there's nothing the government is going to be able to do about it. "We've spent all the money, we've borrowed all the money, and we're in the tank."
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Re: US Economics, the stock market , and other investment/savings strategies
Reply #686 on:
August 18, 2013, 06:45:33 PM »
My CREE took a big hit due to missing earnings. I'm out for now with my gains. This may prove to be an error but the price earning ratio was real high and CREE previously has been up to 80 before dropping to 20 before going back up to over 70. Unfortunately I need to be more risk averse than I perceive holding CREE to be at this point.
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A sobering gut check for the market
Reply #687 on:
August 20, 2013, 04:56:32 PM »
A sobering gut check for the market
By Shawn Tully, senior editor-at-large
August 19, 2013: 8:51 AM ET
What a rigorous metric called "EVA" says about the value of stocks. Hint: it ain't pretty.
FORTUNE -- Forget P/Es. Trailing, forward, westward, or eastward, the venerable price-earnings ratio tells you little more about the value of a company than its marketing budget. Or (ugh!) its "consensus analyst rating."
The best measure of how companies perform for shareholders is a wonkish tool called Economic Value Added, or EVA. The advantage of EVA is that it corrects the gap, so to speak, in regular GAAP accounting by gauging what's really important: whether shareholders are getting returns superior to what they'd garner putting their money in another, equally risky stock or index fund.
According to EVA, a company only truly enriches investors when it exceeds the return that the market already expects from similar stocks. When it beats that bogey, it's truly making money for you. When it falls short, it's a loser -- even if its official earnings numbers look good.
MORE: Why is Bernanke's Fed dragging its feet on bank regulations?
EVA's big innovation is imposing a charge for all the capital that companies deploy to generate profits. Under GAAP, an auto or soft drink manufacturer can keep raising earnings per share by piling cash into expensive acquisitions or modestly profitable new plants. Sure, the interest on the debt used for those investments gets lopped off earnings. What's deceiving is that companies pay no charge for their biggest source of capital: the equity raised from shareholders and invested on their behalf in retained earnings. That's money you could put somewhere else and earn interest on it. So shareholders should make sure they're being properly compensated for that investment.
EVA presents the real picture of that shareholder compensation by placing a stiff fee -- equal to the prevailing cost-of-capital -- on every dollar of equity sitting on the company's balance sheet. In the EVA mindset, the only true profit is "economic profit," the cash generated after paying the full capital charge. Generating EVA is like shooting under par, or at least beating your handicap, in golf. It's a mark of superior performance. And producing big, consistent gains in EVA is the driver and hallmark of great stocks, from Wal-Mart (WMT) to Amazon (AMZN).
The consulting firm Stern Stewart pioneered EVA in the 1990s, winning such devotees as legendary Coca-Cola (KO) chief Roberto Goizueta. Firm co-founder Bennett Stewart now champions EVA as CEO of EVA Dimensions, which sells software and data that companies use to do this rigorous valuation analysis, and produces original equity research for big institutional money managers.
So what does EVA say about the stock market now? Well, it ain't pretty.
MORE: Why car companies can't win young adults
Since the recovery began in late 2009, according to an exclusive EVA Dimensions analysis done for Fortune, U.S. companies delivered gigantic increases in EVA that took the figure from extremely depressed depths to its highest level in fifteen years.
Two numbers are critical in determining EVA. The first is return on capital. It's simply the ratio of earnings to total capital. (EVA uses a special definition of earnings that includes capitalizing R&D and restructuring costs.) The more a company can drive sales higher and restrain costs, without deploying loads of new investment, the higher its return on capital. And that's just what happened in the early part of the recovery. The nation's return on capital jumped from 7% in late 2009 to almost 10% by the start of 2012 for non-financial companies -- a good performance (though honestly, no better than the number reached at the peak of previous cycles).
What really spurred this rise in EVA was the Fed, as it orchestrated the historic decline in interest rates. That campaign, in turn, drove the cost of capital -- which includes the special charge for equity -- to astoundingly low levels. From mid-2009 to mid-2013, the cost of capital shrunk from 7% to just over 5%. As a result, the "spread" between what companies earned on their capital, and what they paid for that capital expanded to startling highs. Through mid-2013, the spread stood at an extraordinary 4 points, a 15-year high. Multiply the spread times the total capital employed by the company (equity and debt), and you get EVA.
MORE: The gray art of not quite insider trading
So the huge spread meant huge economic profit. (That's good!) And that sumptuous economic profit is the catalyst for the explosion in stock prices that started in early 2009.
But today, both factors are reversing course, with potentially disastrous consequences for investors. Since mid-May, the rate on 10-year Treasury bonds has jumped from 1.6% to 2.8%. That's lifted the cost of capital by about as much, from a low of 5.2% to around 6.3%. The less-known issue, which EVA Dimensions' data shows vividly, is that profitability is also dropping sharply. Since 2011, return on capital has fallen to around 8.9% for non-financials, a decline of 1.1 points. It's as if stocks were caught between two powerful pincers that are now inexorably narrowing.
The sudden fall in the return on capital has two sources, and they're likely to remain on a downward track. First, companies were extremely successful in lowering costs during both the downturn and the recovery, chiefly through workforce reductions. In 2006, U.S. employers had 3.5 workers for every $1 million in sales. Today, 2.6 workers produce every $1 million in revenues. Corporate overhead has fallen from almost 13% of revenues in the early 2000s to a 15-year low of 11%. "Expenses may remain stable, but it's clear companies have run out of room to make major cost reductions," says Robert Corwin of EVA Dimensions.
Second, corporations are suffering a shocking drop in sales growth. Since the second half of 2011, sales growth has gone from chugging at an annual pace of nearly 12% to trudging at a paltry 2.5%. Creeping revenues inevitably lead companies to invest less in their future growth and operations. When companies don't see folks crowding the stores or showrooms, they curb spending for expansion and improvements. Growing sales and new investment are crucial to boosting EVA, and both sales and investment are expected to remain soft for some time. Capital growth can also boost EVA, but it too is likely to be weak going forward.
MORE: Telltale signs your star employees are job hunting
That creates a virtually insurmountable problem. The only way that stock prices can surmount the tide of a rising cost of capital is if the return on capital -- the profitability generated mainly from rising sales -- rises even faster. By contrast, if the cost of capital keeps going up, and the return on capital continues to tumble (or even stay steady), stock prices are bound to fall.
The sharp fall in interest rates through the first half of 2012 masked the problem. Now it's fully apparent. "Over the past eighteen months, the EVA of U.S. companies was sustained by the falling cost of capital, not rising profitability," says Corwin. "The current state of zero profitability increases won't cut it."
Investors are hardly naïve. Right now, although PE ratios are high by some measure, the EVA methodology shows that the market is the most pessimistic it has been about growth expectations in the past fifteen years, with the exception of the 2008-2009 crash. The rub is that investors may not be pessimistic enough.
MORE: Stocks headed for 2nd straight losing week
Just how big is the potential drop? Corwin isn't making any predictions. But he did provide Fortune with a series of forecasts showing what would happen given various changes in the cost of capital and profitability. Let's assume that the 10-year Treasury bond returns to a reasonably normal level of 4.5%. That would drive the cost of capital from the current level to around 7%. Even if the return on capital remained steady at the current 8.9%, stock prices would drop by 25%.
It may not happen. Companies could find new ways to enhance their profitability. But don't bet against EVA.
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Posts: 15533
Fed tapering: The math investors need to know
Reply #688 on:
August 20, 2013, 04:59:57 PM »
Fed tapering: The math investors need to know
Commentary: What normal interest rates would do to stock valuations
By Brett Arends
In October, 2007, just before the crash, the stock market put on one last surge to new highs. Even though it was clear there were icebergs all around and indeed several ships were already taking on water and listing heavily the participants in the market decided to party One Last Time.
My excellent friend Peter Bennett, a money manager in London who has called most of the big market moves over the past 15 years, sent a missive to his clients with a powerful one-word headline: Farce.
Click to Play Fed tapering of bond-buying looks more likelyEconomists say economic growth is likely good enough for the Fed to pull back on its stimulus later this year. Photo: AP
Well, here we are again. I am not so bold as to predict what is going to happen over the next few months, but the situation on Wall Street brings that word to mind yet again.
In the past two months bonds have slumped, long-term interest rates have surged, and yet the Dow Jones Industrial Average and the Standard & Poors 500 have been hitting new highs.
I don't offer crystal-ball gazing, hocus-pocus or any other associated magic or marketing shtick. I can only offer some basic math, basic common sense (I hope) and the perspective of someone whos first discipline was neither management nor science but history.
In a nutshell: Federal Reserve tapering the winding down of quantitative easing, and the normalization of interest rates changes absolutely everything in the markets.
The bond markets already know this. The stock market doesnt. Investors need to understand the math. Most of them dont, and Wall Street isnt going to tell them.
So lets do the numbers, shall we?
As recently as May, as a result of the policies of the Federal Reserve, the basic interest rate which underpins financial markets the interest rate on the 10-year Treasury note was as low as 1.6%. Today its already risen to 2.7%. Furthermore, history says the interest rate has typically fluctuated around 2% above inflation. Over time, thats what people whove been willing to own ten-year Treasury bonds have expected as an average return on their money. As the bond market currently predicts inflation of about 2.5% over the next decade, we can estimate that when the Fed stops rigging interest rates and they go completely back to normal, the rate on the ten-year would probably be around 4.5%.
Now lets look at what that means for stocks.
When you buy shares in the stock market, you are purchasing the right to a stream of dividends stretching out into the far distant future (forever, at least in theory). Youre buying the right to all those lovely dividends from Exxon /quotes/zigman/203975/quotes/nls/xom XOM -0.10% and General Electric /quotes/zigman/227468/quotes/nls/ge GE -0.55% and Wal-Mart /quotes/zigman/245476/quotes/nls/wmt WMT -0.48% and Coca-Cola /quotes/zigman/222647/quotes/nls/ko KO -0.34% and Procter & Gamble /quotes/zigman/238894/quotes/nls/pg PG -0.08% and so on. Although you wont claim those dividends forever, because you aren't immortal, you can claim them for as long as you like. And when you no longer want any more you can sell the stock, with its claim on all the subsequent dividends, to someone else. And so on.
Imagine a share of stock that will pay you $100 in dividends every year for the next, say, 100 years. How much is that worth in todays money? How much would you pay for that stock? To know the value, you have to apply a relevant discount rate in laymans terms, and with some oversimplification, you have to know what interest rate you could get on the money if you didnt buy the stock.
In May, you knew you could earn 1.6% a year, at least for the next 10 years, if you left your money in ten-year Treasury notes. Applying a 1.6% discount rate to our stream of $100 dividends produces a value of $4,972. In other words, thats how much that theoretical stock would be worth, in todays money, if we use a discount rate of 1.6%.
Hike that discount rate to 2.7% the interest rate on the Treasury note today and that value collapses by nearly a third, to $3,445. Hike the discount rate to 4.5% a normal rate on the Treasury and the value halves to $2,240.
To put this in very simple logic: The Federal Reserve has been suppressing interest-rates to boost the economy. That suppression artificially hiked the value of the stock market, by a simple mathematical equation. Now that suppression is coming to an end, interest rates can be expected to rise. That rise ought again, by a simple mathematical equation to reduce the value of the stock market. Dramatically.
You can play with the numbers. Ive applied different discount rates, adding in an equity risk premium for the extra return stock-market investors want to earn above risk-free Treasury bonds. Ive assumed the stream of dividends will grow year after year. None of that changes the direction of the math. (Indeed, if we assume dividends will rise over time, which seems reasonable, the math gets even worse higher interest rates reduce the valuations by even greater amounts). Taking the ten-year Treasury rate from Mays 1.6% to a normal 4.5% adds about three percentage points to the discount rate. Mathematically, that can slash the valuation of the stock market by 30% to 50% under basic financial calculations.
Or let me approach this from another angle. It is no secret that many investors, horrified at the pitifully low interest rates they have been able to earn from bonds and certificates of deposit, have gone to the stock market in search of higher yields. It isnt always a bad idea, but, as ever, the critical factor is the price you pay.
Using FactSet, I ran a screen of stocks in the Standard & Poors 1500 index a broad index of large and medium-size companies.
Back in May, as noted earlier, ten-year Treasury notes were paying 1.6%. In the S&P 1500, there are 527 companies offering higher dividend yields about one in three.
Today an investor can earn 2.7% from a ten-year Treasury. How many stocks can beat that? Just 267 or half as many.
And if rates go to a normalized 4.5%, how many stocks will be able to beat that? According to FactSet, just 58 stocks out of 1500 offer a higher dividend yield. In other words, if an income investors hurdle rate rises from 1.6% to 4.5%, the number of stocks with dividend yields that can jump over it collapses by 90%.
The bond market has already started waking up to the new math. But the stock market just parties on. Farce.
Brett Arends is a MarketWatch columnist. Follow him on Twitter @BrettArends.
Power User
Posts: 15533
The most important number for the market: 2.75%
Reply #689 on:
August 20, 2013, 05:05:15 PM »
The most important number for the market: 2.75%
Published: Wednesday, 31 Jul 2013 | 12:33 PM ET
By: Alex Rosenberg | CNBC Producer
BofA Technician: Yields will spike, and stocks will suffer
Tuesday, 30 Jul 2013 | 1:02 PM ET
MacNeil Curry, BofA's head of technical strategy, believes the 10-year yield is going to 3.5 percent. That could spell trouble for cyclical stocks, with CNBC's Jackie DeAngelis and the Futures Now Traders.
Round integers like 1,700 on the S&P 500 are well and good, but savvy traders have their minds on another number: 2.75 percent
That was the high for the 10-year yield this year, and traders say yields are bound to go back to that level. The one overhanging question is how stocks will react when they see that number.
"If we start to push up to new highs on the 10-year yield so that's the 2.75 levelI think you'd probably see a bit of anxiety creep back into the marketplace," Bank of America Merrill Lynch's head of global technical strategy, MacNeil Curry, told "Futures Now" on Tuesday.
And Curry sees yields getting back to that level in the short term, and then some. "In the next couple of weeks to two months or so I think we've got a push coming up to the 2.85, 2.95 zone," he said.
(Read more: US Treasurys widen losses after data hints at less stimulus)
Jim Iuorio, the managing director of TJM Institutional Services and a CNBC contributor, thinks the old highs for the 10-year yield are in the cards, but he says that's because of expectations about what Federal Reserve Chairman Ben Bernanke might be thinking.
"The chairman wants to control volatility by sending rates up to a higher level, but he wants to control the rate at which they go higher. The spike up to 2.75 that happened three weeks ago alarmed him," Iuorio said. "Now the market thinks he's ready to start opening the door a little further. So we're headed back to those old highs."
(Read more: Why I'm selling bonds ahead of the Fed)
Getty Images
A trader works in the S&P 500 options pit at the Chicago Board Options Exchange.
Curry reiterates that pace is an important component of how the market responds to a rise in yields. He said the market will be much more anxious if the bump "transpired on the backdrop of an acceleration to the topside, as opposed to a gradual push higher."
Indeed, stocks didn't sell off when the 10-year yield hit 2.75 percent in early July. But when yields rose from 2.1 percent to 2.7 over the course of one taper-obsessed week in June, the market dropped rapidly.
Either way, iiTrader CEO Rich Ilczyszyn says the trend is loud and clear. "This chart clearly shows that the market is poised for some type of tapering, and yields will go higher," Ilczyszyn said.
So while the market might fret over higher yields, these traders believe the charts are already sending stocks the memo that they're coming soon.
By CNBC's Alex Rosenberg. Follow him on Twitter: @CNBCAlex.
Power User
Posts: 9483
Re: US Economics, the stock market , and other investment/savings strategies
Reply #690 on:
August 26, 2013, 09:38:14 AM »
Brian Wesbury: "The Right wants a recession to prove that government is too big."
No. More like we see a giant boulder over our head and believe in gravity.
New home sales plunge 13.4%
Tim Mullaney, USA TODAY 4:17 p.m. EDT August 23, 2013
Sales of new homes plunged in July. The seasonally adjusted annual sales pace of 394,000 missed analysts' expectations of 487,000.
The last 4 years were the worst 4 years of the last 60 years: http://www.census.gov/construction/nrs/pdf/stageann.pdf
Mortgage rate went up to 4%! Maybe it just affected homes...
U.S. durable goods post largest drop in nearly a year
(Reuters) - Orders for long-lasting U.S. manufactured goods recorded their biggest drop in nearly a year in July and a gauge of planned business spending on capital goods tumbled, casting a shadow over the economy early in the third quarter.
The Commerce Department said on Monday durable goods orders dropped 7.3 percent as demand for goods ranging from aircraft to computers and defense equipment fell.
That was the biggest decline since last August and snapped three consecutive months of gains.
The Plowhorse Trot? Or is it what Neil Young said about one of his songs, "This one starts off kinda slow - and then fizzles out altogether."
Last Edit: August 26, 2013, 09:45:34 AM by DougMacG
Power User
Posts: 9483
The Market and the Economy - move oppositely
Reply #691 on:
August 26, 2013, 09:59:32 AM »
"U.S. stocks edged higher in light volume on Monday after a steep drop in orders for long-lasting manufactured goods pushed back expectations the Federal Reserve will soon begin to wind down its economic stimulus."
Just clarifying here. Bad economic news drives the market higher because it means the Fed cannot back off its easy money / artificial stimulation policy, but ... easy, fake money has nothing to do with why the market has outperformed all logic and reason over the last 4 years. Got it.
Power User
Posts: 42558
Re: US Economics, the stock market , and other investment/savings strategies
Reply #692 on:
August 26, 2013, 10:13:30 AM »
You are supporting your analysis well.
That said, light volume days are usually insignificant and the market reporters description of the whys of the day may or may not be correct. It may just as well be currency flows from overseas markets anticipating higher interest rates and better growth here in the US see e.g. my post a little while ago in the money, currency, gold, silver thread.
Power User
Posts: 42558
Wesbury: Doug is wrong
Reply #693 on:
August 26, 2013, 01:13:36 PM »
New Orders for Durable Goods Dropped 7.3% in July
Data Watch
New Orders for Durable Goods Dropped 7.3% in July To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 8/26/2013
New orders for durable goods dropped 7.3% in July (-7.2% including revisions to
June), coming in well below the consensus expected decline of 4.0%. Orders excluding
transportation slipped 0.6% (-0.4% including revisions to June). The consensus
expected a gain of 0.5%. Overall new orders are down 0.3% from a year ago, while
orders excluding transportation are up 5.9%.
The drop in overall orders was led by a massive fall in civilian aircraft, along
with a dip in computers/electronics.
The government calculates business investment for GDP purposes by using shipments of
non-defense capital goods excluding aircraft. That measure declined 1.5% in July. If
these shipments are unchanged in August and September they will be down at a 5.3%
annual rate in Q3 versus the Q2 average.
Unfilled orders rose 0.4% in July and are up 4.3% from last year.
Implications: Get a grip. Today's weak report on durable goods is not the end
of the world. The details show the economy is still a plow horse. Why
shouldn't you be worried when orders for durables plummet 7.3%? First, the
durables report is notoriously volatile. Orders dropped roughly 13% in August 2012
and about 6% twice earlier this year, in January and then again in March, with no
recession. Second, the drop in orders in July was mostly due to civilian aircraft, a
category which is likely to rebound sharply in the coming months. Orders excluding
transportation were down, but only 0.6%. The most worrisome sign in the report was
that shipments of "core" capital goods, which exclude defense and
aircraft, fell 1.5% in July and are up a tepid 0.8% from a year ago. As a result,
with modest business investment in equipment, it now looks like real GDP growth in
the third quarter is coming in at roughly a 1.5% annual rate. Once again, more plow
horse. The good news in the report was that unfilled orders were up again, hitting a
new record high, and are accelerating, with growth at a 16% annual rate in the past
three months. The news on unfilled orders supports our optimism about an eventual
acceleration in business investment. Monetary policy is loose and, for Corporate
America, borrowing costs are low and balance sheet cash and profits are at or near
record highs. Meanwhile, the obsolescence cycle should goad more firms to update
their capital stock. In addition, the recovery in home building should generate more
demand for big-ticket consumer items, such as appliances. That's why Home
Depot is doing so well. The bottom line is that today's report is not the
start of a new negative trend. Expect more plow horse growth in the months ahead.
Power User
Posts: 9483
Re: Wesbury: Doug is wrong
Reply #694 on:
August 26, 2013, 02:56:41 PM »
Very funny Crafty.
He quotes the same numbers I did: "New Orders for Durable Goods Dropped 7.3% in July". Then the obligatory Obama-like straw man argument: "Today's weak report on durable goods is not the end of the world." Oh, good grief, who said it was - based on one monthly report. How about based on the policies of failure. "First, the durables report is notoriously volatile." Of course it is, then why are we fixated on these reports, and touting them when they are up? 'If you take out the sectors that were sharply down(civilian aircraft), the report isn't so bad.' Hmmm, OK. Civilian aircraft is "likely to rebound sharply", yet it "looks like real GDP growth in the third quarter is coming in at roughly a 1.5% annual rate." Then the rest of the economy is dormant or worse? "The recovery in home building should generate more demand for big-ticket consumer items, such as appliances." - Huh?? It was the worst 4 years of the last 60 years, and down again last month! "Monetary policy is loose (because the economy still stuck in neutral) and, for Corporate America, borrowing costs are low (because the Fed is printing the money and companies are SCARED TO DEATH those costs are going up) and balance sheet cash and profits are at or near record highs(already factored into current prices). Meanwhile, the obsolescence cycle should goad more firms to update their capital stock. WHAT?? Companies are trimming their full time payrolls because of Obamacare and will need fewer machines to support fewer employers. Right?
"The details show the economy is still a plow horse." A plowhorse doesn't trot, pull backwards or behave "notoriously volatile". A 1.5% growth gets us out of this funk - NEVER. I think we all agree this economy sucks and are just arguing over word usage to describe what we all see. Back to you, Brian. )
Power User
Posts: 15533
Re: US Economics, the stock market , and other investment/savings strategies
Reply #695 on:
August 26, 2013, 06:01:25 PM »
Wesbury: Pissing on your leg and telling you the plowhorse is making it rain.
Power User
Posts: 15533
The 5% recovery: Why most are still in recession
Reply #696 on:
August 26, 2013, 06:05:55 PM »
The 5% recovery: Why most are still in recession
Published: Monday, 26 Aug 2013 | 12:22 PM ET
By: Jeff Cox | Senior Writer
People looking for work stand in line to apply for a job during a job fair in Miami on May 2.
How strong the economic recovery has been since the Great Recession ended in 2009 probably depends on viewpoint.
For those in the top 5 percent, the recovery has been pretty good.
As for the other 95 percent, well ... maybe not so much.
Post-financial crisis wealth disparity has been well-chronicled.
What housing recovery?
Shari Olefson, author of "Foreclosure Nation," and Tanya Marchiol, CEO of Team Investments, discuss the decline in recent housing data and what it indicates about the recovery.
Federal Reserve Gov. Sarah B. Raskin drew widespread attention with this speech in April that showed how poorly the lower income levels have fared during the recovery, particularly because those demographics have their wealth concentrated in housing and are hit far more severely by falling prices.
The unemployed in lower-income groups also take a hit because they have a more difficult time finding jobs that pay at a rate commensurate with the positions they lost.
(Read more: Jobless picture is worse than you think: Gallup)
Finally, history has shown that highly accommodative monetary policy widens income disparity by awarding speculators and penalizing savers. While the S&P 500 is up nearly 150 percent since the March 2009 lows, that's most helped those heavily invested in stocks.
The University of California, Berkeley has produced some seminal research on this topic.
But this series of charts, put together by Charles Hugh Smith at oftwominds.com, helps put the sharply skewed recovery into perspective.
(Read more: Ugly durables numbercomplicates the taper debate)
He uses a handful of metrics to show that, despite the climb in gross domestic product and other data points, the recovery has not made its way through the economy.
Those points are: full-time employees as a percentage of the population; median household income (down 7.2 percent); real personal income less transfer receipts (government payments); and overall income disparity, which has yawned over the past decade.
The conclusion isn't pretty:
Huge leaps in the income and wealth of the top 5 percent mask the decline of income and wealth of the bottom 95 percent. Average all wealth and income and it appears that the economy is expanding to the benefit of all, when it fact only the top 5 percent have escaped the recession; the recession never ended for the bottom 95 percent.
And there's more:
An even better way to create an illusory expansion is to simply not measure trends that would reveal a deepening recession. For example, what percentage of student loans are purposefully taken out as a substitute for income, i.e. used to pay basic living expenses rather than education? Anecdotally, there is plentiful evidence that a great many people are signing up for one class at the local community college in order to get a student loan to live on.
Finally, Smith lays waste to the idea that more expansionist monetary policy from the Fed and further "stimulus" from the government through deficit spending will make things any better:
(Read more: What's really going on in housing)
Things are falling apartthat is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand.
By CNBC's Jeff Cox. Follow him
on Twitter.
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Posts: 7843
Re: US Economics, the stock market , and other investment/savings strategies
Reply #697 on:
August 27, 2013, 10:02:21 PM »
Obviously Wesbury is in the top 5%.
Power User
Posts: 9483
Re: US Economics, Plowing backwards, workforce participation rate chart updated
Reply #698 on:
August 29, 2013, 12:41:37 AM »
The Wesbury theory is that the economy keeps plowing forward, no matter how bad the wrong headed policies get, Obamacare, tax rate increases, no problem. The indices of established companies measured in recently printed dollars do not tell the whole story. This chart tells us what portion of the adults in the country participate in the workforce since the onslaught of the Pelosi-Reid-Obama nightmare. Each half point means more than a million more are no longer working, and likely on the receiving end. Hardly a recovery in my view:
Source: BLS / NY Times
More people left the workforce than found a new jobby a factor of nearly three (in the plowhorse economy). 22 million Americans are unemployed or underemployed.
Power User
Posts: 42558
Wesbury on GDP revisions
Reply #699 on:
August 29, 2013, 04:29:21 PM »
Real GDP Was Revised to a 2.5% Annual Growth Rate in Q2 To view this article, Click Here
Brian S. Wesbury - Chief Economist
Bob Stein, CFA - Deputy Chief Economist
Date: 8/29/2013
Real GDP was revised to a 2.5% annual growth rate in Q2 from a prior estimate of 1.7%. The consensus had expected 2.2%.
The largest source of the upward revision was net exports, with commercial construction and inventories also revised up. Business investment in intellectual property and government purchases were revised down.
The largest positive contributions to the real GDP growth rate in Q2 were personal consumption and inventories. The weakest component was government purchases.
The GDP price index was revised up to a 0.8% annual rate of change from a prior estimate of 0.7%. Nominal GDP growth real GDP plus inflation was revised up to a 3.2% annual rate from a prior estimate of 2.4%.
Implications: Upward revisions for net exports pushed the governments estimate of real GDP growth noticeably higher in Q2, to 2.5% from an original report of 1.7%. But the best news today was that corporate profits grew at a 16.4% annual rate in Q2 and are up 5% from a year ago. The one negative signal in the GDP revisions was that inventories were revised higher in Q2, which suggests slower overall growth in Q3, in the 1% - 1.5% range. Either way, todays report is consistent with continued plow horse economic growth. Excluding government purchases, real GDP grew at a healthy 3.3% annual rate in Q2. Nominal GDP (real growth plus inflation) is up 3.1% from a year ago and up at a 3.8% annual rate in the past two years. These figures continue to signal that a federal funds rate of essentially zero makes monetary policy too loose. In other news this morning, new claims for jobless benefits declined 6,000 last week to 331,000. Continuing claims slipped 14,000 to 2.99 million. Eight days away from the official Labor report, our payroll models are signaling an August gain of 157,000 nonfarm, 160,000 private (with upward revisions over subsequent months). Earlier this week, the Richmond Fed index, a survey of mid-Atlantic manufacturers, spiked up to +14 in August from -11 in July. On the housing front, the Case-Shiller index, a measure of home prices in 20 major metro areas, rose 0.9% in June (seasonally-adjusted) and is up 12.1% in the past year. Recent gains have been led by San Diego, Las Vegas, San Francisco, Los Angeles, and Miami. Pending home sales, which are contracts on existing homes, declined 1.3% in July. Recent data on pending home sales suggest existing home sales, which are counted at closing, will drop about 2.5% in August. But this follows a 6.5% surge in July and sales would still be at very high levels relative to the last few years. As a result, we dont see it as a sign that the recent rise in mortgage rates is going to generate a double-dip in housing.
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