Monday, December 21, 2015

I Stand Corrected

Well, if I am going to be wrong, I might as well be the first to point it out.  Let me begin by admitting defeat.  I predicted in April that the Fed would not raise interest rates this year and I was wrong.  Missed it by two weeks.  Oh well.

Might I add that I said then and all along that them raising rates is a good thing.  I wanted them to do so.  Indeed they should have never even gone to ZIRP in the first place, but once they went there the sooner they ended it the better.  Now I did not think they would raise rates this year given the state of affairs and their self-made mandate of the economy having a never-ending expansion.  But they did indeed raise them last week, though the reason I thought they should raise rates is not the reason they gave.  Lance Roberts here http://seekingalpha.com/article/3767106-fed-rate-hike-starts-the-clock?ifp=0&app=1 quotes our dear Ms. Yellen on the reason for the rate increase being okay and timely:

When asked about why the Fed decided to raise rates now, Ms. Yellen responded by suggesting that the "odds were good" the economy would have ended up overshooting the Fed's employment, growth and inflation goals had rates remained at low levels. She then went on to state that it was a "myth" that economic growth cycles die of "old age."
He then goes on to write the following sentence:

While such an optimistic outlook for economic growth was certainly welcomed by the markets, both of her statements expose the challenges that lie ahead for the Fed. 
Instead, I believe he should have worded the sentence thusly:

While such an optimistic outlook for economic growth was certainly welcomed by the markets, both of her statements expose the challenges of believing the lies from the head of the Fed.

Point being that the reasons Janet gave are most certainly not the real reason they did it, which I suspect was largely an attempt by them to maintain some small semblance of credibility as they have been telegraphing a rate increase for a very, very long time.  The also know perfectly well the prolonged ZIRP is brewing disastrous consequences and is leading to increased criticism of them not raising previously, so they likely want to silence the critics (albeit while lining up a whole new cadre of critics because they raised rates).  Just no winning for poor old misunderstood Janet.  It is also quite possible they want/need some wiggle room for when the recession/depression/end  of the world (take your pick) hits and are hoping like hell they can get in a few increases in the rate before that happens - AND HOPEFULLY WITHOUT CAUSING IT TO HAPPEN.

Oh, and there is one other possibility, which is just evil enough in its covert continuing support of financial institutions that I have to believe it may indeed be a significant part of Janet's plot.  You see, there are a couple of different ways the Fed can effectively raise rates.  The easiest and least suspect would be to simply reduce its balance sheet by say $1.4 trillion.  There is a lot of detail not needed here on how this works, so if you are interested see Dr. Hussman's nice piece explaining it here:

http://www.hussman.net/wmc/wmc151221.htm

But nooo, the Fed chose not to take this logical and easy route, which would also achieve a long overdue reduction in its balance sheet.  Nope, it has chosen instead to increase the rate it pays banks on excess reserves and reverse repurchases, thereby subsidizing both U.S. and foreign banks to the tune of billions more (as in more than the billions they have already been giving them each year).  And yes, a lot of this goes to foreign banks, as in U.S. taxpayers subsidizing those banks when their own governments won't do so.  Oh joy.  For more of an explanation on how this works, go here.

http://www.zerohedge.com/news/2015-12-21/real-reason-behind-yellens-rate-hike-11-billion-handout-foreign-banks-fed

So are you at all surprised that Yellen did not give the real reason for their moves or how the moves will be achieved?

Still, whatever the real reasons are for the Fed doing it, an increase in rates is a good thing either way (though doing it by reducing their balance sheet would have been a lot wiser).

Now I am not a fool (unless you talk to my wife), and I have no burning desire for a recession or the inevitable pain and financial misery it will bring to many people, both here in the U.S. and around the world, and I know the rate increase will likely hasten the pending recession's approach.  I just know it is inevitable and the longer the Fed falsely pumps up markets and the economy with false rates, the worst the next bubble bursting will be.  And it will already be a doozy. 

You see the falsely low, artificially manipulated rates lead to falsely high, artificially manipulated markets and business models.  It leads to virtually free money being used to speculate through financial gamesmanship and on poorly conceived business models.

I note in an article at the Mises Institute site this week, that there is a debate among economists on whether businesses actually take more risks with money when rates are low.  You can find it here:

https://mises.org/library/why-capitalists-are-repeatedly-fooled-business-cycles

Now the Austrian business cycle theory ("ABCT") concludes that low rates lead to a misallocation of resources because free money leads businesses to do stupid things.  The counter thought is that business people know better than to be stupid.  (I may be simplifying these arguments a tad, but this is the gist.)  As quoted in the Mises article, a critic of this ABCT theory is Gordon Tullock, and Gordy believes they are all wet:

One would think that business people might be misled in the first couple of runs of the Rothbard cycle and not anticipate that the low interest rate will later be raised. That they would continue to be unable to figure this out, however, seems unlikely. Normally, Rothbard and other Austrians argue that entrepreneurs are well informed and make correct judgments. At the very least, one would assume that a well-informed businessperson interested in important matters concerned with the business would read Mises and Rothbard and, hence, anticipate the government action.
So Gordy concludes business people have learned from past mistakes on what not to do with low rates and undoubtedly behaved properly during the just ended 84 months of ZIRP.  RIGHT . . .

I certainly agree with Gordy that perhaps SOME business people are smart enough to know better, but unfortunately these business people have to compete with stupid business people who are only looking to boost profits for the coming months or year.  Unfortunately many CEOs are more focused on next year's stock price and the impact it has on their compensation and a good bit less focused on appreciating the teachings of Mises and Rothbard.  So they do foolish things like borrowing tons of money at low rates and using it to buy back stock or give dividends, which has been occurring at a record pace the past couple of years.  Or they take the free money and invest it in poorly conceived business models and acquisitions.

And the fine folks giving the loans to these poorly conceived businesses really do not give a damn as they are just getting their commissions or fees and packaging the loans for "investors" starved for any investment gain they can get because the damn interest rates are so low and they cannot make gains on more conservative investments.  Thus, one gets all these high yield bond funds provided by our good friends at BlackRock, Third Avenue and the like that make it possible for the average retail investor to play in the junk bond market, which as we speak is in the process of imploding.

But hey, Gordy tells us this is not really happening as all these smart business people are familiar with the teachings of Mises and Rothbard and know the dangers associated with the improper use of low interest rate funds, so they are only using said funds prudently, just as those lending the funds are being so prudent in who they lend to.

But wait a second, as pointed out in the Mises article linked above, this whole Fed ZIRP thingy was supposedly to get consumers to borrow money they did not have or spend savings which were earning them nothing and indeed losing money to inflation.  Someone has to meet this artificially created demand and what better way to do it than to borrow money at cheap rates.  This was happening on a global basis and China became the 800 pound gorilla of artificial demand, building unneeded infrastructure and ghost cities.  When China cooled, so did all the artificial demand for commodities and all those foolishly highly-leveraged businesses that were created to meet this demand are now sucking wind.  So everyone is slashing prices and both the good and the bad businesses are struggling.

Let's look at another example of this prudence, which we can find in the retail auto market.  Auto loans are at records on virtually every stat, including amount financed, the length of the loan, the percentage of sub-prime and deep sub-prime borrowers, etc.

http://www.zerohedge.com/news/2015-12-03/auto-loan-madness-continues-us-car-buyers-take-record-debt-lunatic-financing-terms

But hey, prudent business people running used car lots who spend their free time studying Rothbard and Mises know better than to tie their business model to cheap credit.  They would not sleep at night if they thought those buying the cars were getting in over their heads.  And they would not have a business model that throws caution to the wind and allows - perhaps promotes - people borrowing more than they can afford to buy a car now instead of waiting until they can afford one or perhaps buying a more expensive one now than they otherwise would.  No way Jose.  Nope, I most certainly did not hear any auto ads promoting "Bad credit, no credit - no problem."  My imagination is again getting the best of me.

Car dealers always think for the long term and promote sound buying choices.  Why they would be foolish to frontload sales during low interest rate times only then to suffer the consequences when demand evaporates with higher rates.  Surely they would not want to suffer the consequences of every Tom, Dick and Gordy defaulting on sub-prime loans and lots filling with repossessed vehicles.  Why that would be foolish of them to risk.  Moreover, they know that the companies financing these loans have the exact same interests of fostering sound buying decisions and affordable loans.  So these loan companies have their backs and the backs of the consumers as well - not to mention the backs of the investors in the HY bond funds.

And so economists like Gordy are undoubtedly correct to assume business people are wise and prudent in their use of low interest rates.  Again, I stand corrected.  My thoughts on all this were clearly wrong.  I really need to stop making so many mistakes on this blog.

Thursday, October 22, 2015

All Is Well!

We can officially stop sounding the alarms and relax.  The near demise of the world economy is over.  All is well my friends.

The DOW was up a whopping 320 points, Draghi is telegraphing more QE and lower rates in December in the EU and - drumroll please - after hours shares of Amazon, Google, AT&T and Microsoft are all up on better than expected earnings!!  Oh, happy days are here again!

Heck, Amazon has now even shown a profit for a whole two quarters in a row!  A whopping $79 million this past quarter for a company with a mere 677 million shares outstanding.  Why if they can repeat this feat quarterly, they could show in the future profits of $320 million a year, which is over 50 cents a share!!  More than enough to justify a stock price of  over $600 after hours making Mr. Bezos the third richest man in the U.S. and fifth richest in the world!!

http://www.bloomberg.com/news/articles/2015-10-22/bezos-leaps-to-third-richest-in-u-s-as-amazon-sales-beat-target

He is now worth a nice $55B.  And at its current pace, his company will only take a little over 171 years to make that much profit.  Indeed, through the wonders of math, we can determine that at a pace of $79 million a quarter in profit, if every single penny of profit were to be distributed to shareholders they would receive an amount equal to the stock price in a mere 1200 years, give or take a decade or two.  Wow, that is most impressive!  Makes me reminisce about the good ole days.  You know, 2000.  Ah, now those were P/Es back then.  Mostly negative but outstanding to say the least.

Yes, put away those silly worries of a downturn and break out the champagne! 

10.23.15 update:  With the S&P up again today, you savvy investors once again have bragging rights.  Yes, at this point year-to-date you have not lost any money on average in the S&P!  Yeah team, we're breaking even!

Friday, October 9, 2015

Looking For A Big Prick

I hear in financial and other markets there are a lot of big pricks pretty much anywhere you look.  And we need a big one to prick this humongous bubble we have formed.  Deutsche Bank, for example, is the biggest prick in Europe.  I thought the bad news, as in a $7+ Billion quarterly loss, this past week for Deutsche Bank might do it, especially with its $75 Trillion (that's with a T) or so of derivative exposure.

http://www.zerohedge.com/news/2015-10-07/first-crack-deutsche-bank-preannounces-massive-loss-may-cut-dividend

But alas, after an initial selloff of the stock, bad news once again is good news and it was today trading HIGHER than it was before the announcement.  Yes, higher!

VW is certainly considered a big prick by many, including its customers and environmentalists.  And it is not at all likely to exhibit the old "bad news is good news" syndrome because its bad news can definitely get a lot worse before it is all over with.  Yet, its stock bounced back at least some and was up over 20% from its post-scandal lows this week.  So another big prick rises again.

No, these big pricks apparently are not big enough.  We need a really big one because we have a really big bubble this time.  Now the thing is the Fed and other central banks are running around putting protection on all these big pricks when they arise to prevent them from pricking the bubble.  China did it, Europe did it and the U.S has and will do it.

But eventually we will have one really big bubble in a room for of big pricks and poor Janet with not enough protection in her pocket to go around.  And me thinks that time is coming  . . .

Friday, October 2, 2015

Is That A Fat Lady I Hear Singing?

Well the jobs numbers are in for September and they are miserable, as in 142,000 non-farm payrolls miserable.  In context, the consensus range was 180,000-285,000, so this was a big miss.  And to pour salt in this wound, the prior two months were revised down a collective 59,000.

http://www.calculatedriskblog.com/2015/10/september-employment-report-142000-jobs.html

I am thinking the tune she will likely sing is "I Can't Get No Satisfaction."

Thursday, October 1, 2015

That's Going To Leave A Bruise

Well, can't say I didn't tell you so.  The ISM manufacturing index came in this morning at 50.2, below the consensus forecast of 50.4 and continuing a rather distinct downward direction.  Couple that with the foreign trade numbers out earlier this week and the GDPNow Q3 "growth" forecast took a rather noticeable turn for the worse, dropping from 1.8% to .9% in one fell swoop.  Ouch!

https://www.frbatlanta.org/cqer/research/gdpnow.aspx?panel=1

Markets initially reacted poorly but rebounded at the end closing up modestly.  I guess you never know. 

Wednesday, September 30, 2015

Enjoy Thyself Today

The last day of the quarter and as expected markets are set to paint the tape for the quarter's end.  Certainly not enough paint in the bucket to make this quarter look anything but horrific, but why not end the quarter on an up note.  So enjoy the day - until tomorrow.

You see tomorrow the ISM Manufacturing index numbers come out and me thinks they will have an unfavorable aroma associated with them.  Since all (as in Philly, NY, Dallas, Chicago, Richmond, Kansas and Milwaukee) the regional numbers out the past couple of weeks, including the latest on Milwaukee today, sucked big time, tomorrow's number is not likely to inspire a lot of happy feelings.

http://www.zerohedge.com/news/2015-09-30/another-regional-fed-survey-collapses-ism-milwaukee-crashes-2009-lows

So while the GDPNow forecast by the Atlanta Fed rose to its highest level for the third quarter earlier this week with a whopping 1.8%, based largely on folks now briefly spending more than they make (yeah!), don't expect this glowing number to hold.

The bigger question to start pondering is what will the month of October hold for the markets.  October is known historically for some very prominent crashes, like 1929 and 1987, so it has an emotional connotation to it you cannot ignore.  Indeed, with stocks highly overvalued by all historical standards, whether they will stay overvalued is only a matter of emotion, not fundamentals.  Where do you think the emotion is right now?  Does it support folks wanting to take risk in October and maintain or increase the overvaluation?  Or have fear and risk aversion set in with  it being likely we will have more reversion to mean (or as Dr. Hussman notes in his weekly article this week, reversion to inversion)  The question is, are you feeling lucky?  Or, better yet, are people in general feeling lucky?  I think you know the answer.

Tuesday, September 29, 2015

Let's Just Call Him Dick

I was listening to a financial advisor on the radio over the weekend.  I hesitate to use his real name, so let's just call him Dick Forthefun.  Dick was noting how interest rates continue to be at lows of a lifetime and everyone should take advantage of it and buy a house or a bigger house or refinance if they can.  Dick even gave an example of a couple with an existing 30 year mortgage with only 10 years left to pay and said they should refinance into a new 30 year mortgage at 4% and lower their monthly payments.  This was thrown out there without any facts of said hypothetical couple other than what I just gave.  Nothing on their age, current rate, retirement plans, monetary situation or anything else.  Just hey, rates are low and you are an idiot not to take advantage.

Well I agree that it makes sense to take advantage of the low rates in certain circumstances, but in my book you have to look at each individual's circumstances.  If you are retiring in 10 years or have a kid going to school then, perhaps having NO mortgage in 10 years instead of lower payments for 30 years makes sense.  Or maybe, if you can refinance with no or minimal closing costs or points, you can do a 10 year mortgage at 3.75%.  Monthly payments should still go down, just not as much, and you are still done in 10 years.

I've refinanced three times in the past seven years.  The first two times I refinanced into new 30 year mortgages and while my payments did go down as I went from the original 7% to 5.5% to 4.5% and did no cost refinancing, I nonetheless realized at the end of the day that here I was 10 years into my home ownership and still had 28 years of mortgage payments and largely the same loan balance as when I started (since very little goes to equity in the first years of a 30 year mortgage). Those financially intelligent moves just seemed to make less sense in this context.  So the last time I refinance three years ago I did a 15 year mortgage, which I was able to get for a fixed 3%.  Yes, my payments went up some but my house will be paid for now in 12 years when I am ready to retire.  I can stay in it then with no mortgage at all or sell it and have full use of the proceeds.  No risk of housing slumping and going under water.  My preference is very much to go into retirement debt free.  Certainly takes some strain off the golden years.

So Dick, stop throwing around out of context stupid advice.  And maybe your announced belief that interest rates are going up, which formed the context of the entire show you did that day, is full of it as well.  There was no rate increase in September and presently the vast majority of economists say none this year.  For once, I agree with the majority of economists on their forecast.  Indeed, I think we will see NIRP before any increase and our dear friend Janet has hinted it is not out of the question.

And Dick, I also heard you the other day touting how wonderful you are in having discovered ETFs long before most financial planners and how you have been steering your clients to these instead of mutual funds for years.  So far, so good as there are some benefits to these while the market is rising.  Let's just see how that works out now that the market is heading south and the whole liquidity thingy is raising its ugly head.  You failed to mention there may be situation where ETFs cannot fund redemptions.  Ooops, I guess you didn't consider that one.

http://www.zerohedge.com/news/2015-09-09/mom-and-pop-will-probably-get-trampled-alliance-bernstein-warns-bond-etf-Armageddon

It would seem that none other than Carl Ichan agrees that ETFs are a dangerous place for the average investor:

http://www.zerohedge.com/news/2015-07-16/icahn-vs-fink-wall-street-legends-clash-over-dangerous-etfs

I don't hear you telling your listeners or clients about the ETF flash crashes this month or how many of them have been hastily trying to line up lines of credit to deal with liquidity issues, which must be reassuring..

So Dick, thanks but no thanks for the advice.

Sunday, September 20, 2015

Good Thing I Am Not An Economist

I read about macoeconomic stuff because I find it interesting.  I have no formal education in the area, which makes it of even more interest to me.  I also think this assists me greatly coming to it without a formal education as I did not have years of professors brainwashing me with any specific disposition.  Indeed, my niece just started college and is studying economics and finance, so I wrote to her and asked that she learn what she can but keep an open mind.  To me an open mind is critical.  I cannot name a single author or blog I agree with all the time and my thinking has changed over time.  Some theories I agree with generally and some I do not.  But one thing that has proven itself repeatedly and seems to be THE most sound economic principle is that economists are terrible at forecasts.

Let's take this past week's decision by the Fed to continue ZIRP.  Going into the meeting I think the result was pretty much expected by surveyed economists, but I saw some reports were close to 50/50.  Yet just a few weeks ago the majority of economists predicted an increase this meeting.  Indeed, in July and August over 80% predicted a September increase and over 75% have predicted a September or earlier increase all year.  Go back to January and over 60% predicted it to happen by June.

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/09/economists%20are%20always%20wrong.png

Now if you look at April just under 90% were predicting an increase by September.  Yet in the first half of April I posted here noting that I did not see the Fed increasing rates this year or next and was more likely to start QE4. 


I never changed that belief and am happy to see more folks starting to share it.  Not a difficult call in my book.  The economic outfall around the globe has been there for the whole year for those who cared to look.  The question has never been whether the economy is doing well, it isn't, but how well ZIPR, NIRP and QE around the world can continue mask it.  Mind you, NOT avoid it, just mask it.  They masked the problems for a long time but the cracks are definitely starting to show.  I just don't see why trained economists cannot see this.  Perhaps this is what they were trained to do.  And, more likely, their jobs call for them to be economic cheerleaders, not unbiased readers of the tea leaves.

It does not stop with the rate increase.  On a regular basis dozens of economists come in with a broad range of predictions and it amazes me how often the results are not in their range or even close.  For example, at the end of July I predicted a market crash by the end of the third quarter and the beginning of a recession this year.  Specifically, I said:

Unfortunately, I truly believe it will take a near disaster at this point to teach us this lesson.  Indeed a recession of epic proportions is needed and, like it or not, it is upon us sooner than we would like.  I am going out on a limb here and predicting just such a recession beginning in the last half of this year.  And I will be surprised if the markets do not crash before this quarter is out.  So then we will get to the bottom line and truly see if all's well that ends.

http://financialspiltmilk.blogspot.com/2015/07/alls-well-that-ends.html

It was a guess of course, but an educated one based on an array of reports suggesting the time had come.  Dr. Hussman's website, for one, is a nice place to visit to find some of the best reliable stats and I particularly enjoy his weekly market comment.:

http://www.hussman.net/

And if  you like charts and stats that prove the point, then you will find a host of them nicely summarized here in one place:

http://seekingalpha.com/article/3538036-the-market-in-pictures-the-aging-bull?ifp=0&app=1

All pointing in to the same conclusion.

But few if any economists thought the market was in for a crash this quarter.  Yet we are in the worst global market quarter in over four years and as summarized at The Economic Collapse link below, a crash is happening in the U.S. and around the world.

http://theeconomiccollapseblog.com/archives/the-stock-markets-of-the-10-largest-global-economies-are-all-crashing

Note I say "is happening" and not "has happened."  I think one has happened but do not in the least think it is over yet and the worst is yet to come. 

As for my recession prediction, only time will tell as they do not call a recession until long after it occurs.  We can say for certain, however, that economists are not seeing one.  If you visit the GDPNow website of the Atlanta Fed you will see the consensus range of predictions for third quarter GDP is in the range of just under 2% to just over 3%.  They certainly do not see a recession starting before the end of the year - or at all for that matter.  We will see.

So decide for yourself if you want to believe the economists.  To me, you are better off reading a host of opposing views on this, looking at the facts and deciding for yourself.

Saturday, August 29, 2015

Weekend Laugh!

This is not a full post by any means.  I just had to share this.  Fed Vice Chairman Stanley Fisher was speaking at Jackson Hole today and he is quoted as saying:

“With inflation low, we can probably remove accommodation at a gradual pace . . .Yet, because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening.”
http://www.bloomberg.com/news/articles/2015-08-29/fed-ecb-and-boe-policy-makers-all-say-they-see-inflation-rising

Seriously!?  Dude, we've had ZIRP for freakin' six years with no inflation to speak of and it's "because monetary policy influences real activity with a substantial lag?"  That's the best logic you can put forward for why inflation will take off any day now?  I have some news for you Stan; we are on the verge of deflation and will go there soon, so get used to it.

And these folks are overseeing the number one economy on Earth.  It's amazing we have managed to remain as such with folks like this calling the shots.

Friday, August 21, 2015

"Tailwinds"?

I visit a number of financial sites, both mainstream and not-so-mainstream, and one of the mainstream ones commonly highlights videos on the side of the article that may be of interest.  I have from time-to-time clicked on some and did so on one yesterday.  As usual, it started with a 30 second financially oriented commercial.

I will not name any names but in this commercial a rather genuine sounding woman is speaking to the viewer and noting how stocks are still a good value investment, especially in Europe, which is benefiting from the strengthening U.S. dollar.  Indeed, she referred to this currency variance as a "tailwind" for European stocks, "especially Germany."  The whole piece is to get you to put your hard-earned money with these investing intellectuals so they can invest wisely in German and other European stocks.

Now I do not know when this particular ad was first aired or when it was recorded, but I am really scratching where the sun does not shine and wondering why they would still be running it.  It undoubtedly is achieving the opposite of what it was intended to achieve, at least with anyone who is conscious and has a pulse.  It is certainly not promoting this company well at the moment.  You see EuroStoxx 600 is down nearly 6% this week and Germany's DAX has had a slight one week slip of 7.4%. 

But this is not the worst of it.  The DAX peaked way back in early April and is down 18% since the peak.  I know this ad has been running for a while, weeks at least.  So two questions, why would you want to invest with a company that was recommending investing in Germany during a prolonged stock decline in a market that was highly overvalued to begin with?  And why would you invest with a company stupid enough to run this ad during months while the German market is plunging?

Now I could see perhaps selling the story that the strongest economy in Europe has had a market correction leading to an investing opportunity (mind you, I am not saying this is indeed the case as I think Europe and Germany have a long way down to go).  At least such a line in the present environment would be plausible, but this tailwind crap is not winning any converts today.

Fed Up with Fed Up Expectations

I have been saying for months, since April to be specific, that the Fed ain't raisin' no rates!  They want to do so, they should do so, they should have done so a long, long time ago, but they are not going there this year and are more likely to do more QE than raise rates.  It's the economy stupid, and it is starting to show its dark underside for all to see.

Mish earlier this week at his site noted expectations were for a 1/8 point increase in September followed by another 1/8 point in December.  Well, after the past couple of days that old forecast has been revisited just a tad and now calls for there to be no increase in September and 1/8 point in December.  We will see.

http://globaleconomicanalysis.blogspot.com/2015/08/yield-curve-flattens-in-recessionary.html

You Stand Corrected


Well, actually, the markets stand corrected.  The Dow, Nasdaq and Russell 2000 all ended the day in correction territory today.  Who could have seen that coming . . .

Thursday, August 20, 2015

Do You Feel Lucky, Punk?

Based on market activity today, not so much apparently.  Lance Roberts emphasizes today a valid point that market direction is only loosely tied to valuations and more directly tied to market sentiment.


http://seekingalpha.com/article/3453466-all-bubbles-are-different?ifp=0&app=1


Thus, an undervalued market can continue to fall and, as we have been seeing, an overvalued market can continue to climb. 


It would seem we have passed through the light and are turning to the more pessimistic side of emotions.  Indeed, we generally did so some time ago, but the market has been artificially propped up for some time by corporate share buy backs and the like.  During a downturn last week, for example, all sectors were selling except the corporations themselves, thereby obviating what would have been a rather nasty negative market fall.  As Zero Hedge observed, Goldman Sachs, who does the buybacks for many corporations, set a new record that day.  You have to wonder whether any of said corporations exceeded their daily limits on buybacks that day.


Obviously there can be other manipulations impacting the market running counter to emotions, with China government intervention being the most stark.  Government wonks in the U.S. do their best to calm jitters as well, though not to the point of arresting those who dare short the market.


But alas, in the long term true valuations tend to rule the day on people's emotions and computer programs will in time multiply that effect.

Wednesday, August 19, 2015

Oh Dear, This is a Quandary

Janet has a bit of a quandary on her hands and I think it will get worse before it gets better.  The old CPI came in today at a MoM increase of just .1%, half of the forecasted .2%. 


http://www.zerohedge.com/news/2015-08-19/consumer-prices-rise-slowest-pace-2014-airfares-plunge-car-costs-slide-rents-jump


Oh what shall she do, where shall she go?  Now with inflation no where near the desired annual 2%, a rate increase in September is growing harder to justify.  And the market agrees, which is why Treasuries and the stock markets have all reacted pretty strongly to the news.


http://www.zerohedge.com/news/2015-08-19/low-inflation-print-sparks-panic-selling-treasuries


Oh my, my, my, this just will not do.


There are, however, a few ways out my dear Janet.  Behind door one we have the stand-by of making up or relying on other bogus stats to still justify an increase, with this abysmal number just being a flash in the pan that can be ignored.  While I would wager on this one, I think there are a few more stats coming out before the Fed meeting in September that will be equally bad and will be harder to brush off.  Specifically:





If these are as bad as I believe they will be, door number one may be locked.


Behind door number two is the old simply not doing the increase yet and telegraphing it will be likely in the near future, like December.  This I fear is the most likely scenario.


But then there is good old door number three.  This one is the Fed finally fessing up what they already know, that ZIRP and QE are not working as expected and Bernanke is a sack full of doo doo.  They can confess their sins and raise rates anyway as leaving them where they are will cause more long term damage from the ultimate recession upon us than the known short term damage from a rate increase.  This is the best door, with nice natural wood and brass fixtures and all, but Yellen ain't knockin' on this door any time soon.  Folks at the St. Louis Fed, however, are starting to see the light of day:


http://www.zerohedge.com/news/2015-08-19/after-6-years-qe-and-45-trillion-balance-sheet-st-louis-fed-admits-qe-was-mistake


As the St. Louis Fed sees it, all the stuff ZIRP and QE was supposed to bring us - and other countries - just is not happening and there is no proof it ever will.  Indeed, they go so far as to say that evidence shows QE has been "ineffective" at increasing inflation.  If they CPI number above does not take you there, then just look at Japan for good measure.


Yes, reality is setting in - or at least the ability to speak the truth about it seems to be.  Perhaps there is hope after all.


Let me add now, since positing the above this morning, minutes of the Fed July meeting were released and they eased market concerns over any rate increase happening in September, especially with the changes since that meeting dampening inflation expectations even further.  Most at the Fed seemed to still be taking a bit of a wait-and-see approach, wanting further employment improvement and higher inflation expectations before raising.  If we are like Japan, it could be a very, very long wait. 


http://www.bloomberg.com/news/articles/2015-08-19/u-s-index-futures-decline-amid-global-growth-concern-before-fed


And so the stock market has erased most of its earlier losses.  Yeah - more continuation of the stupid ZIRP policy that will destroy us!  Looks like most "investors," speculators, manipulators, economists now expect door number two as well.  What a shocker.

Friday, August 14, 2015

Driving Me Crazy

So I have read from time to time about the soon "coming to a showroom near you" fully autonomous self-driving cars.  Just like we have been seeing in sci-fi movies and shows for years.  Indeed, they are expected to hit the markets by 2019.  And everyone is climbing on board, with most of the major auto manufacturers, Google and Apple all with plans in various stages.  What an exciting time to be alive!


http://www.businessinsider.com/report-10-million-self-driving-cars-will-be-on-the-road-by-2020-2015-5


Exciting for some anyway.  I, for one, love driving.  I find it relaxing and enjoyable - though you would not need to twist my arm to give up the 10 hour drive in a van with kids home to see the grandparents.  I drive a stick shift and love to be in control and based on commercials for most sports cars there are a lot of folks who love it too.  While I do recognize that not everyone might love driving like I do, I do think most people like the sense of being in control - or someone being in control - of something as dangerous as a car moving at high speeds.


I realize that the self-driving cars, when the bugs are worked out, should dramatically increase safety, not decrease it.  Indeed, I recently saw an article probing what auto insurers are going to do for premiums when the roads become abundantly safer due to self-driving cars with computers and sensors that can react to situations far faster than any human.  Premiums will have to adjust downwards and profits will narrow.


Well, fear not GEICOs and Progressives of the world, for I think I have a niche for you to fill.  You can sell cyber attack insurance against the inevitable hacking someone will eventually launch on self-driving cars.  These cars will be wirelessly connected and they are operated by computers, so it is just a matter of time before some hacker breaks a code and takes over a car.  They could do it to steal it, cause it to go some place other than where its passenger wants it to go (even with the captive passenger in it) or even wreck it.  Can you imagine what would happen if terrorists were able to take over thousands of cars at once or program their own cars to go on a rampage?  I can and it would not be pretty.


Now I am sure some smart techie funded by auto companies will tell me how this cannot happen.  Certainly tech titans like Google and Apple being in the business will lead to secure systems.  Certainly the resources of major auto manufacturers will also be brought to bear to insure the highest in security, just like the security on high-end luxury cars today that are so impenetrable.  Why with immobilizers and 96-bit encryption there is no way they can be hacked to run amok. 


Okay then, while you are thinking that through, check out the attached Bloomberg article on how some smart thieves have figured out how to break the code on keyless systems and immobilizers and steal some low-end cars, like Lamborghinis, Bentleys, Porsches and such.   Indeed, they report that 42% of the auto thefts in London are done just this way. 


http://www.bloomberg.com/news/articles/2015-08-14/vw-has-spent-two-years-trying-to-hide-a-big-security-flaw


Kinda' gives you that warm, fuzzy, safe feeling about self-driving cars, doesn't it.  Me thinks for now I will continue to enjoy driving myself, thank you.
And if the havoc driverless cars can bring gives you the willies, think about driverless trains.  Kind of sounds like a movie I once saw.


http://globaleconomicanalysis.blogspot.com/2015/08/driverless-trains-why-does-chicago-us.html
Of course, if you go to the link on wireless trains you will see a nice video of a train crash from when the operator fell asleep.  Tough choice - sleeping operators or hackers in charge.  Sort of sounds like the upcoming election choices.

Thursday, August 6, 2015

Like He Said, And He Said, And He Said, and She Said . . .

I mentioned in my last post that I believe the economy would be in a recession in the last half of 2015 and the U.S. stock market will likely crash by the end of the third quarter.  I also opined that while the Fed desperately wants to adjust rates, the ultimate demise of the economy will prevent it from doing so.  On the latter point, Fed Governor Lockhart is quoted this week as saying that it will take "significant deterioration" of economic conditions for them not to raise rates in September.

http://www.philstockworld.com/2015/08/05/fed-yap-vs-futures-bloomberg-vs-cme-eighthpoint-baby-hikes/

I am just of a view that we will in fact see good proof of serious deterioration by then.  Indeed, I am of a view that we see it already.
On these points, I link a recent article by Lance Roberts that addresses some of the sound reasons I believe there is already significant deterioration.



http://seekingalpha.com/article/3406375-the-bea-is-still-overestimating-growth?ifp=0&app=1




His nice piece is obvious on why I think there will be a recession. And I could add a host of other charts and stats as further support a recession is upon us, showing liquidity concerns, rare divergences on market breadth, the debacle in commodity prices, China, Russia, Brazil, Australia, PIIGS, Canada, etc. all falling, Donald Trump combing his hair, etc. but hopefully you get the picture - and they all point to the same picture in my view, which is recession (or in Trump's case receding).




Now the linked Roberts article does note the BEA having a different picture and it does a nice job of pointing out how the BEA has adjusted the focus on its picture of GDP over the past couple of years to try to make it look better.  I believe we all adjust what we see to fit our desired version of reality, so it is no surprise the BEA does it too. 

The point being, however, that the Fed is looking - knowingly - at a number of cooked figures on GDP, unemployment, inflation and the like, and it is using these fake and distorted stats as justification for a hike.  They really desperately want to hike as they know it was stupid not to do it sooner and the rate has been in ZIRP territory far too long.  But they cannot justify the increase for the real reasons as the real reasons are not consistent with their Keynesian playbook, so they have to cook the books on the economic figures to make them fit.



Now I for one also see the need for them to raise the rates.  Indeed, I see the need for the Fed to disappear and stop meddling altogether, but that ain't happening any time soon, so for now them raising rates is the best they can do.  And they do not need to raise them because we have a hot economy that needs cooling, but rather because the low rates have simply encouraged and enabled fools to play with our money irresponsibly building financial bubbles and the only way to end this is to raise the rates. 




But alas I believe the reality of the economy will set in even in the cooked books before mid-September and a rate hike discussion will be history unless the entire Fed decides to use a new playbook and simply raise them because it is stupid to leave them there.  But stupid is as stupid does, so don't wait for this to happen.  Nope ZIRP and probably more QE is in our future, like it or not.  One bubble bursts and the next bubble cometh . . .


Update 8.6.15


I just saw that the Atlanta Fed, which is where Lockhart - quoted above - hails, has just released their third quarter GDP preliminary forecast at a whopping 1% - juuuust a taaad below bluechip concensus forecast that stands over 3%.  Ouch!  I wonder if Lockhart considers this "significant deterioration" from the 2.3 figure the BEA recently gave for the second quarter.  The drop is mostly attributable to that old inventory thingy.


http://www.zerohedge.com/news/2015-08-06/gdp-shocker-atlanta-fed-sees-q3-growth-laughable-1



Tuesday, July 28, 2015

"All's Well That Ends!"

No, I did not leave off a word from the famous quote.  This is my new saying and I am saying it today on the U.S. economic situation.  The Fed has distorted the economic world we live in so completely that there is no solution except for the markets to crash and burn and hopefully, just hopefully, we will learn some lessons and not let the Fed repeat this nonsense.  We do not need to push people to spend money they do not have and punish them for daring to save money.  We do not need to give interest free loans to corporations to buy back their own stock and artificially support overinflated stock prices and reward executives with big bonuses.  We do not need to be a nation of extreme debt.

We need instead to let people do what our parents taught us, which is the opposite of what the Fed wants; build a good savings and live within your means.  We need to let free markets be free with poorly run corporations going out of business, opening the way for honest, innovative corporations investing in our future. We need corporations with poorly conceived business models not to get dirt cheap financing to pursue their schemes for naught.  We need to let market forces do their natural work and get the government and the Fed out of it.  Unfortunately, I truly believe it will take a near disaster at this point to teach us this lesson.  Indeed a recession of epic proportions is needed and, like it or not, it is upon us sooner than we would like.  I am going out on a limb here and predicting just such a recession beginning in the last half of this year.  And I will be surprised if the markets do not crash before this quarter is out.  So then we will get to the bottom line and truly see if all's well that ends.

My hope is that a recession now will give some smart Presidential candidate who understands the situation an opportunity to capitalize on it and use it as a basis to garner a groundswell of support for a better structure.  Politicians love to campaign for change and nothing prods people into wanting change more than a recession.  We can only hope and pray - and vote!

So it  will not end well, but it most certainly will end.  We have to start somewhere.

Okay, so at this point I could start waxing poetic about a Phoenix rising from the ashes, attach a clip of some group singing "We Shall Overcome" or leave you with some touching quote to drive home my point.  On the latter, pick whichever one of the following quotes you think fits best and stick with it (or not).  They are from such intellectual notables as Wayne Gretzky, George Clooney and Babe Ruth, so you can't go wrong here.

"Experience teaches slowly, and at the cost of mistakes." James A. Froude

"Instead of 'stimulating' a recovery, the Feds have 'simulated' one.  Bill Bonner

"Failure happens all the time. It happens every day in practice. What makes you better is how you react to it." Mia Hamm

"Failure is the key to success; each mistake teaches us something." Morihei Ueshiba

"I've come to believe that all my past failure and frustration were actually laying the foundation for the understandings that have created the new level of living I now enjoy." Tony Robbins

"You’ll always miss 100% of the shots you don’t take." Wayne Gretzky

"Success is often achieved by those who don't know that failure is inevitable." Coco Chanel

"You build on failure. You use it as a stepping stone. Close the door on the past. You don't try to forget the mistakes, but you don't dwell on it. You don't let it have any of your energy, or any of your time, or any of your space." Johnny Cash

"Forget about the consequences of failure. Failure is only a temporary change in direction to set you straight for your next success." Denis Waitley

"What would life be if we had no courage to attempt anything?" Vincent van Gogh

"I really don't think life is about the I-could-have-beens. Life is only about the I-tried-to-do. I don't mind the failure but I can't imagine that I'd forgive myself if I didn't try." Nikki Giovanni

"No man ever achieved worth-while success who did not, at one time or other, find himself with at least one foot hanging well over the brink of failure." Napoleon Hill

"It is hard to fail, but it is worse never to have tried to succeed." Theodore Roosevelt

"Do one thing every day that scares you." Eleanor Roosevelt

"A person who doubts himself is like a man who would enlist in the ranks of his enemies and bear arms against himself. He makes his failure certain by himself being the first person to be convinced of it." Ambrose Bierce

"Don't be afraid of missing opportunities. Behind every failure is an opportunity somebody wishes they had missed." Lily Tomlin

"I can accept failure, everyone fails at something. But I can't accept not trying." Michael Jordan

"Our greatest glory is not in never falling, but in rising every time we fall." Confucius

"Try a thing you haven’t done three times. Once, to get over the fear of doing it. Twice, to learn how to do it. And a third time to figure out whether you like it or not." Virgil Thomson

"Remembering that I'll be dead soon is the most important tool I've ever encountered to help me make the big choices in life. Because almost everything - all external expectations, all pride, all fear of embarrassment or failure - these things just fall away in the face of death, leaving only what is truly important." Steve Jobs

"One does not discover new lands without consenting to lose sight of the shore for a very long time." Andre Gide

"The only failure is not to try." George Clooney

"Fear is only as deep as the mind allows." Japanese Proverb

"If you're doing your best, you won't have any time to worry about failure." H. Jackson Brown, Jr.

"Inaction breeds doubt and fear. Action breeds confidence and courage. If you want to conquer fear, do not sit home and think about it. Go out and get busy." Dale Carnegie

"Take risks: if you win, you will be happy; if you lose, you will be wise." Anonymous

"We learn wisdom from failure much more than success. We often discover what we will do, by finding out what we will not do." Samuel Smiles

"Fear is the main source of superstition, and one of the main sources of cruelty. To conquer fear is the beginning of wisdom." Bertrand Russell

"Failure is success if we learn from it." Malcolm Forbes

"I've missed more than 9000 shots in my career. I've lost almost 300 games. 26 times, I've been trusted to take the game winning shot and missed. I've failed over and over and over again in my life. And that is why I succeed." Michael Jordan

"He knows the water best who has waded through it." Danish Proverb

"Never be afraid to try something new. Remember, amateurs built the ark; professionals built the Titanic." Anonymous

"I must not fear. Fear is the mind-killer. Fear is the little-death that brings total obliteration. I will face my fear. I will permit it to pass over me and through me. And when it has gone past I will turn the inner eye to see its path. Where the fear has gone there will be nothing. Only I will remain." Frank Herbert

"Failure is a detour, not a dead-end street." Zig Ziglar

"Success isn't permanent and failure isn't fatal." Mike Ditka

"Never let the fear of striking out get in your way." George Herman "Babe" Ruth

"The only real failure in life is not to be true to the best one knows." Buddha

"Success is not final, failure is not fatal: it is the courage to continue that counts." Winston Churchill

"Develop success from failures. Discouragement and failure are two of the surest stepping stones to success." Dale Carnegie

"The greatest mistake you can make in life is to continually be afraid you will make one." Elbert Hubbard

"For every failure, there's an alternative course of action. You just have to find it. When you come to a roadblock, take a detour." Mary Kay Ash

"Most great people have attained their greatest success just one step beyond their greatest failure." Napoleon Hill

"One who fears failure limits his activities. Failure is only the opportunity to more intelligently begin again." Henry Ford

"No man is a failure who is enjoying life." William Feather

"Failure doesn't mean you are a failure it just means you haven't succeeded yet." Robert H. Schuller

"My great concern is not whether you have failed, but whether you are content with your failure." Abraham Lincoln

"Do not fear mistakes. You will know failure. Continue to reach out." Benjamin Franklin

Monday, July 27, 2015

Say What?

So, can someone explain to me how the following headlines on Bloomberg today can at all be read as being consistent?  First, let's start with a headline and article on what the Fed is going to talk about when it meets this week:

"The Fed Is Closer to Hitting Its Inflation Target Than People Think"


http://www.bloomberg.com/news/articles/2015-07-27/the-fed-is-closer-to-hitting-its-inflation-target-than-people-think

Fair enough.  I don't believe it but I do believe they have bogus stats that they might try to rely on to support an interest rate hike, which they desperately want to do.  Unfortunately, by September, it will be too late for them to justify any hike and they will be considering another round of QE instead.  Part of the reason why can be seen in other headlines of Bloomberg this morning, such as:

"These 10 States Will Be Hurting the Most After the Commodities Meltdown"

http://www.bloomberg.com/news/articles/2015-07-27/these-10-states-will-be-hurting-the-most-after-the-commodities-meltdown

This particular article recounts how commodities across the board are down, many to extremes.  It refers to the meltdown as brutal and notes that Bloomberg's own commodity index is at a 13 year low.  Yep, sounds inflationary to me.

And then there is that little old China thingy.  Bloomberg also notes that China's markets were down just a tad today:

"China Has Biggest One-Day Stock Crash Since 2007"


http://www.bloomberg.com/news/articles/2015-07-27/chinese-stock-index-futures-drop-before-industrial-profits

Indeed, the Shanghai stock market was down nearly 9% and one would likely see far worse but for the 10% cap on the amount a given stock can drop in a day.  A full 1700 stocks reached this limit today.  But hey, we're immune to what happens in China, right?

Let's just take a gander at other stock markets and see.  In the U.S., the Dow is 5% off its high for the year, Nasdaq 4% off and S&P 3% off, with most of these losses in the past week.  Indeed, each is off nearly 1% today as I write this, following an equally depressing drop last Friday.

Let's not forget the strengthening dollar either.  Tends to make imports cheaper and to dampen exports.  Last I checked, neither of these results is inflationary.  But hey, what do I know.  The stats the Fed is looking at must be a lot more accurate.  I'm just a dumb turd trying to figure things out and should stand in silent awe of Yellen.

Tuesday, July 7, 2015

Kicking the Can - Some Things Never Change

I was just looking back at some of my old posts that made it to Seeking Alpha.  Here is one from May 7, 2010 that was a bit prescient, if I do say so myself, and still in my view 100% on target.  There are a few references to Greece in there, for those who are counting, including a prediction it would eventually default or need a debt haircut as its debt load was simply unsustainable.  Ah, but no one listens to me.  I repeat it in full below:

Once Again, Kicking the Can Down the Road

 
So while sitting at a conference in NYC, one of the speakers noted that his partner just emailed him that the Dow was down over 900 and the partner was wondering what he had done in NYC to cause this. Everyone chuckled and everyone pulled out their respective mobile devices to see if it was true and not just a joke. After all, I looked before I went to the conference on Thursday morning and futures were pretty much flat, but he was not joking about the Dow. I responded,"Wow, I did not see that coming."

Well, actually, I did. I have seen it coming since March 9, 2009, when the market started its incredible climb off the recession lows. I was not sure exactly when, how or what the precipitating event would be, but looking at fundamentals it was just a matter of time. Now everything could be honky dory tomorrow or next week. I have totally given up trying to figure the market in the short to medium term as there are simply too many variables to consider, but I am still a bear in the long term and my investment strategy this year has totally focused on long term fundamentals.

The world debt problem has not been corrected. It has shifted to government coffers in many countries but is still there. Greece is one somewhat extreme example of it, but is by no means alone. This is a worldwide problem and few countries are immune. Even the "immune" countries, i.e. those with no real internal debt issues, are going to feel it as trading partners suffer. It ain't going to be pretty folks.

So what happens next? Undoubtedly governments in Europe, the U.S. and elsewhere will put new assurances in place that everything is fine to calm the markets. Perhaps a few billion more here or there will be spent to calm fears and we will have a recovery of sorts from the current anxiety. The VIX will go back down, credit markets will calm and all will be fine - at least on the surface. But then we will catch up to that damn can again. Each time it seems the can gets bigger and heavier and we cannot kick it as far as last time. When we catch up we will try to kick it again and will probably succeed a bit, but eventually we will not. Eventually it will be time to pay for our foolishness. Greece is already there and some other countries are not far behind. Eventually, virtually all of us will be there-- including the good old U.S. of A.

You see, this is what happens when you do not take your medicine. When you do not try, in an orderly fashion, to dismantle corrupt companies that caused the problem and do not deserve to survive, and instead spend hundreds of billions to keep them alive, continuing to do a lot of the same stuff that got us here. This is what happens when you try to solve a debt crisis with more debt. This is what happens when you have policies in place that promote people, corporations and governments living wildly beyond their means. This is what happens when you focus on short term gains over long term stability, which we have easily done for at least a generation.

So here is where I see things unfolding. As noted above, given the market woes this week, you will see some government support coming out; it could be the EU, IMF, U.S. or whoever, but some, probably many, officials will be making a lot of public statements on how the situation is controlled and Greece will be fine. The folks in Greece will, meanwhile, continue to riot as their lifestyles just got flushed down the toilet. Mind you, none of us would like this to happen to us, so I understand, but the truth is they made their bed - we all did. Greece will then be followed by other countries facing the same situations. It could be the other PIIGS, it could easily be the UK or the U.S., or it could be Japan. We could also see a bubble or two soon popping in China. There are so many ifs here no one can say, but I can say I do not see many rosy scenarios.

Debt is only going away if either those owing - either individuals, companies or governments - default, modify, or pay it down. I think default is in the long term cards for Greece and a few other countries, as the people simply will not live with the relatively long term pain of paying down the debt. The middle ground of some negotiated modifications, i.e. haircuts, is certainly possible and probably a good middle ground, but that still will cause some havoc in the markets as a lot of financial institutions - you know, the ones we just saved - hold a lot of this public debt. It is going to be painful any way you look at it.

So what do we do in the U.S.? It is not rocket science folks. Dismantle companies that should not survive. Put in place policies that promote people spending less, paying off debts and, God forbid, saving some money. But politicians cannot fathom this. If people spend within their means we cannot possibly support an economy built on excesses. The housing market depends on people spending beyond their means. Retailers do too, as do all those commercial real estate landlords. We would most certainly suffer a long and hard recession. It would be absolutely horrific if we have to live within our means as our U.S. economy would take a hit of several percentage points on the GDP. We, like those in Greece, do not have the tolerance for such financial pain. After all, we love our stuff. I am not immune, I love my stuff. I do not want to live without my stuff. No one does. And so, we incur more government debt and we kick the can again.

I don't know about you, but my toe is beginning to hurt.

Saturday, July 4, 2015

It Was A Terrible, Horrible, Awful Economic Time in the U.S.

Walk with me as we think back to a rather unpleasant economic time here in the United States.  Virtually a million people all stopped working, looking for work or lost their full time jobs in a single month.  Factory orders dropped monthly over 5% month-after-month-after-month-after-month . . ..  Countries around the world were suffering equal or worse economic demise, unable to pay their staggering debts and with vast unemployment exceeding 25% in numerous places and over 50% for the young and eager to work.  The economic bastions of old were virtually all in decline and struggling to find answers.  The year - 2015.

The following link to an article by Lance Roberts is interesting as a whole but I focused on the second point about employment.  While part time employment went up in June nicely, full time jobs declined nearly 350,000 and a staggering 640,000 dropped out of the workforce altogether, which accounted for the lowering of the U-3 unemployment rate to 5.3%.  Yes, a dropping unemployment rate can be a bad thing if it is measured like U-3 is measured.

http://seekingalpha.com/article/3301655-3-things-valuations-employment-sectors?ifp=0&app=1

On the factory orders front, here is an interesting post on Seeking Alpha that is an eye-opener regarding factory orders.  They have been solidly in one direction this year - down.  Say what you want about other supposedly rosy numbers, if people ain't buyin' it they ain't buidlin' it and from these numbers, not much is being built.  Now this is in part due to inventory buildups in the rosier past of 2014, but reality should have set in for businesses long before now.  Down 8% in May and a six month average of down 5.5%.  This is consistently bad.

http://seekingalpha.com/article/3301425-factory-orders-fall-now-8-percent-economists-unconvinced

Now we just need to wait and see how long it takes the U.S. stock markets to start dealing with these realities.  They know the realities, but they also have ZIRP and lots of hedge funds soaking this rally for everything they can while they bow out (and short out).

Friday, July 3, 2015

Bush v. Clinton

There is a reasonable chance that next year we will see another Bush v. Clinton battle.  On the highly erroneous, not saying it is so, have absolutely no support for it, totally made-up, what if category of discussion, let me hypothesize that the present Bush and Clinton perform in the Oval Office similarly to their family members.  After all, Jeb is of the same blood as the other two and was raised by the same parents as W with likely similar values being instilled.  And Hill is - well - she does have the same last name and is married to the guy, so just play along and assume she performs like him (and I mean in the Oval Office, not the bedroom. Okay, okay, so he probably did that in the Oval Office too, but you know what I mean).  Assuming - and you know what it means to assume - that this is the case, let's look into the crystal ball and see what is in store.

Let's start with private sector employment, shall we.  The two Bushes were collectively in office 12 years.  They collectively added - drum roll please - 1,047,000 private sector jobs.  That is a whopping 87,250 jobs per year.  Billy, in eight years, did a little better, adding 20,957,000 private sector jobs, averaging 218,000 per month.  Just a sliiiiight difference here.

http://www.calculatedriskblog.com/2015/07/public-and-private-sector-payroll-jobs.html

Deficit

Now we are off looking at ye old deficit spending.  GHW added $1.554 trillion during his four years and his son W added a whopping $5.849 trillion, for a total over 12 years of $7.403 trillion, which is .617 trillion per year.  Bill added $1.396 trillion in his eight years, or .237 trillion per year. 

http://useconomy.about.com/od/usdebtanddeficit/p/US-Debt-by-President.htm

Keep in mind folks that his is a Bush vs. Clinton discussion, not a Republican vs. Democrat discussion.  If you want to go there, Democrats should not be getting on their high horse just yet as Obama has spent $6.167 trillion through 2014 and has another two years of damage to inflict.  And though Obama's job creation has been better than the two Bushes, me thinks the last year and a half of his second term could change that quite a bit.  And, let's not forget, his job creation has been meager at best anyway given it is virtually all low paying part time jobs.


 



Wednesday, July 1, 2015

Greece is Small Potatoes

Well, everyone seems to be so captivated with little old Greece that no one seems to have noticed a slightly bigger problem - China.  Let's compare.  Greece at the end of 2013 (and it has vastly slid downhill since) captured .30% of the world GDP.  China, just a tad more at 15.4%.  For you math whizzes in the audience, that puts China GDP at over 50 times that of Greece.  One might surmise from this that problems in China may mean a bit more to us here in the U.S. than problems in Greece.  Long term, problems in Greece could be the first domino in festering issues in the EU rearing their ugly head and that is the true danger there and eventually here as well, but for the immediate future, the second largest economy in the world deserves more focus.

And as I was thinking about China not getting the attention it deserves just yesterday, I saw two articles today on the very same point, including this one by Lance Roberts, who I like to follow in Seeking Alpha:

http://seekingalpha.com/article/3296315-chart-of-the-day-is-china-sending-a-warning?ifp=0&app=1

If you did not notice, China is officially in a bear market and, despite some strong government intervention this weekend in terms of a reduced rate and reserve requirements, it is still struggling this week.  It lost 5% yesterday and as I write is down at the start of Thursday, complete with a whole lot of volatility.

I will not drone on about all the problems China is facing, but suffice it to say it does not have a booming economy right now to save the day, so things are quite likely to get a whole lot worse before they get better.  Simply couple that with EU problems and a less than stellar economy in the U.S. to support its highly overvalued market and you get the picture.

Update 7.2.15

Over four hours of trading left for Friday in China and the Shanghai market is down another 5% already, bringing the total drop to more than 27% and counting.  Lots of bubbles around and China is the porcupine in the room.

Update 7.3.15

And here is Zero Hedge noting much of the same.  He gives nice specifics on government attempts to stop the slide, including suspending some short sellers, i.e. the only ones making money in China, and launching an investigation into suspicious and possibly illegal market manipulation - like everything was above board and not suspicious at all during the markets meteoric rise.  And I hope he is right in believing brokerages will not utilize the new margin lending process that allows investors to use their house as collateral.  They are letting investors now use their house to support margin buying - seriously!!?

http://www.zerohedge.com/news/2015-07-03/chinese-stocks-plummet-despite-government-threats-shorts-europe-lower-us-closed

And to put it in perspective, David Stockman notes that the Chinese stock market in the past three weeks has lost in value 10 times the entire GDP of Greece.  Referendum that.

http://davidstockmanscontracorner.com/chinese-stocks-just-lost-10-times-greeces-gdp/

Wednesday, June 24, 2015

"Unemployment" Finally Explained

I saw this at Zero Hedge and had to share it.  The best explanation ever for the officially cited "unemployment" numbers in the U.S.

h/t Feral Irishman via Jim Quinn's Burning Platform blog,

COSTELLO:  I want to talk about the unemployment rate in America  .

ABBOTT: Good Subject.  Terrible Times.  It’s 5.6%.

COSTELLO:  That many people are out of work?

ABBOTT: No, that’s 23%.

COSTELLO: You just said 5.6%.

ABBOTT:  5.6% Unemployed.

COSTELLO:  Right 5.6% out of work.

ABBOTT: No, that’s 23%.

COSTELLO: Okay, so it’s  23% unemployed.

ABBOTT: No, that’s 5.6%.

COSTELLOWAIT A MINUTE. Is it 5.6% or 23%? 

ABBOTT: 5.6% are unemployed.  23% are out of work.

COSTELLO: If you are out of work you are unemployed.

ABBOTTNo, Congress said you can’t count the “Out of Work” as the unemployed.  You have to look for work to be unemployed.

COSTELLO: BUT THEY ARE OUT OF WORK!!!

ABBOTT: No, you miss his point.

COSTELLO:  What point?

ABBOTTSomeone who doesn’t look for work can’t be counted with those who look for work. It wouldn’t be fair. 

COSTELLO: To whom?

ABBOTT: The unemployed.

COSTELLO: But ALL of them are out of work.

ABBOTT: No, the unemployed are actively looking for work. Those who are out of work gave up looking and if you give up, you are no longer in the ranks of the unemployed. 

COSTELLO: So if you’re off the unemployment roles that would count as less unemployment?

ABBOTT: Unemployment would go down. Absolutely!

COSTELLO: The unemployment just goes down because you don’t look for work?

ABBOTT: Absolutely it goes  down. That’s how it gets to 5.6%. Otherwise it would be 23%.

COSTELLO: Wait, I got a question for you. That means there are two ways to bring down the unemployment number?  

ABBOTT: Two ways is correct.

COSTELLO: Unemployment can go down if someone gets a job?

ABBOTT: Correct.

COSTELLO: And unemployment can also go down if you stop looking for a job?

ABBOTT: Bingo.

COSTELLO: So there are two ways to bring unemployment down, and the easier of the two is to have people stop looking for work.

ABBOTT: Now you’re thinking like an Economist. 

COSTELLO:  I don’t even know what the hell I just said!  

ABBOTT: Now you’re thinking like a Politician.