Jobs Here, Jobs There, Jobs Everywhere!

Well, that's two months in a row that the fine folks at BLS have shocked us with blow out jobs numbers.  Expectations among "economists" were in the range of 185,000, with the top end prediction around 240,000, but just like last month the BLS shocked to the upside with a reported 255,000 in job gains.  And they revised prior months and added another 18,000 jobs there.  It's time to party!  And indeed, it looks like the market is set to do just that with futures up nicely as we head into the opening bell.

http://www.bloomberg.com/news/articles/2016-08-05/payrolls-surge-as-u-s-hiring-gains-broad-based-for-second-month

Now a cynic might suggest that someone is painting the tape for the upcoming election.  Thank goodness I am not a cynic and I can sleep at night and fully buy into the numbers the BLS is spewing. 

And the good news spew does not stop there. Look as well at wage growth, up a respectable .3% from the month before.  Take that cynic!  Though you should ignore that somehow tax withholdings on wages for July were mysteriously down 1.0% YOY despite all the new jobs and wage increases.  I mean, that must just be an anomaly or taxes going down, right?

http://www.zerohedge.com/news/2016-08-04/ahead-tomorrows-jobs-number-big-red-flag-tax-withholdings-slump

Now on the market reaction.  Yes, it looks like we are going to see a nice bump this morning but then, then, then it may just occur to some that dear old Janet has no real reason to justify not raising the rates at the next Fed meeting in September.   Sure, I am sure some economic disaster in some foreign land will give an excuse or two, but holding pat will be extremely difficult for her to justify with back-to-back incredible jobs numbers.  Certainly the price of gold, down over 1% as I write this, suggests someone anticipates a rate increase is in our future.

Noon Update

Looks like Bloomberg is once again reading my blog and following my lead on financial topics of interest:

http://www.bloomberg.com/news/articles/2016-08-05/fed-comfort-in-upbeat-jobs-data-doesn-t-guarantee-september-hike

A Penny Saved is a Penny Wasted?

You would think after a few decades of empirical proof from Japan the Central Banks of the world would wake up to the fact that John Maynard Keynes may have been wrong - or at least that his theories were best applied in very limited situations for short periods.  But no, now with over $12 trillion in government bonds paying negative rates and savers being punished left and right, Keynes is ruling the roost.  For a perspective on some of the ills of this approach, the linked article explains it better than I can:

https://mises.org/blog/keynesian-blessing-americans-are-broke

I just wanted to throw a little more gas on this fire.  If the whole goal of the Keynesian approach is to reduce or eliminate savings and get people to spend their money, doesn't the focus today have to be on the top 1% of the economic ladder?  After all, according to Forbes, the wealthiest top 1% in the world now hold 50% of the wealth.  In my book, this means they have a whole lot of mula they ain't spending and if they are not spending it and it represents half the net worth of the globe, well Keynes must be rolling over in his grave.  So maybe Bernie was right and the federal government needs to either tax the money away from the 1% and give it to the poor souls who will spend it or somehow force the wealthiest bastards to spend the dough and not hoard it.

Not saying I agree with this strategy because I think Keynesian economics is a bunch of idiocy based on economists who think they can predict, and thus influence, how people act.  Obviously they need to go back and try again as they are not getting their prognostications right.  Does the average Joe on the street really go out and spend more when there is inflation because whatever it is will cost more a month from now or, alternatively, delay spending when there is deflation as it will get cheaper?  Seriously?!!  Ask said average Joe what the CPI rate is or what the CPI even represents - or for that matter which CPI he follows - and you will likely get an blank stare. Ask Joe if he follows the most common CPI-U and let him define it.  If Joe is on Social Security he may actually know what CPI-W is, or at least that it is going nowhere, as his annual benefit adjustments are tied to it, but I suspect beyond that most folks have little idea.  Sure most can likely recite there is not a lot of inflation right now according to government stats, but most do not care.  What they care about is their rent going up, affording car payments and school loan payments.  Whether that crock pot they are wanting will cost $2 more next year or $2 less is not controlling their spending decisions.

But hey, what do I know.  I am not an economist.  I am, however, someone who would like to invest and plan my finances wisely and doing so is virtually impossible with the Central Banks and governments around the globe screwing with and distorting everything.

Update 8/3/16

Looks like Bloomberg sees the 1% holding the wealth to also be a problem for Janet.  They must be one of the handful reading this blog.

http://www.bloomberg.com/news/articles/2016-08-03/why-the-rise-of-the-one-percent-makes-janet-yellen-s-job-harder

Driving Me Crazy

We have seen an explosion in the past few years of developments toward truly autonomous vehicles.  Some predict fully autonomous vehicles to be ready for consumers by 2020.  But then along came the first fatal crash involving a semi-autonomous vehicle, a Tesla at that, and perhaps that timetable has just been pushed back a tad.  If you look a the issues involved in rolling out truly autonomous vehicles, it seems unlikely that we will see them outside of beta testing for quite some time.  Let's start with the recent fatal crash and look at some of the issues it highlights.

According to Bloomberg, Tesla has rolled out approximately 70,000 semi-autonomous cars since October 2014 in a massive beta test of sorts. 

http://www.bloomberg.com/news/articles/2016-07-01/fatal-tesla-crash-spurs-criticism-of-on-the-road-beta-testing

From the description at Bloomberg, these Tesla cars appear to be Level 2 cars, i.e. those that are largely automated (at least for certain driving) but where the driver must remain fully attentive.  It seems, however, that the driver who died and who supposedly was watching a movie at the time was treating the vehicle as Level 3, where the functions are sufficiently automated that the driver can safely engage in other activities but nonetheless can still take control if need be or desired.  Even within the levels you can have a host of variations, such as cars that fall into Level 2 in urban settings but elevate to Level 3 on a well marked interstate. Be it Level 2 or 3, this car still failed to avoid a fatal crash it should have been able to avoid.

In the fatal accident, a Tesla on a highway in Florida unsuccessfully tried to pass under the trailer of an 18-wheeler that had crossed the highway in front of it. It is believed that the car's electronic sensors mistook the white trailer for bright sky and failed to brake. 

In Tesla's defense, it claims its semi-autonomous cars had logged over 130 million miles before this fatality and that the average for regular cars is a fatality every 94 million.  Well, as we lawyers like to say - tell it to the jury!  And I am sure Mr. Musk or his company will have to do just that.

While the deceased is from Ohio, which has fairly conservative mid-west juries and verdicts, the fatal accident was in Florida, which has anything but conservative juries and verdicts.  Eight and even nine figure verdicts from single fatalities are not unheard of there.  Just last year one of those wonderful tobacco companies took a $23 billion punitive damage verdict in an individual wrongful death suit, which did get drastically reduced for constitutional reasons, but you get the picture - not a good state to be a defendant.

Well geez you say, they have to have insurance for this.  And geez I say, I am sure they do (though not for punitive damages).  But nothing like a fatality and perhaps a nice eight figure verdict to raise your premiums and with 70,000 such cars out there and more on the way, it's gonna' take a whole lotta' premium to keep this baby insured.  Because despite accidents and fatalities in these cars perhaps being rarer than in regular old jalopies, when they do occur it is almost for certain that the manufacturer will be held liable. Yes, manufacturers have always had some liabilities in, but most accidents are due primarily if not exclusively to driver error, not product defect, so the liabilities were fewer.  Indeed, almost 40% of vehicle fatalities are traditionally due to alcohol or drugs, but with autonomous cars they virtually all will involve some level of product defect.  In this accident, for example, while the "driver" himself may well have been partially at fault for watching a movie, there's no way Tesla is going to prove to a jury the car did nothing wrong.  Ain't happening my friends. 

And I suspect Musk might get whacked pretty good with punitive damages.  You see beta testing your vehicles on 70,000 end users is probably not wise, especially when many other manufacturers are refusing to do anything of the sort.  Likely other manufacturers are doing so for safety reasons and also they undoubtedly do not want the PR of a fatal accident like just occurred.  When such an experiment leads to the death of a 40 year old former Navy seal, sparks are going to fly and sales are going to drop.

This seems to be one of the big issues with autonomous cars, manufacturer liability.  It is probably not the thorniest but it is one that may well sideline the whole shebang absent a legislative solution, which will likely come eventually but will take a long time.  Ultimately, especially when all cars are autonomous, everyone predicts they will be much safer than cars today.  But if manufacturers are facing massive liabilities for every wreck, even if there are a lot fewer wrecks, they will not survive.  They must appeal for legislative relief along the lines of no fault protection and probably will need it on a federal level to be effective, but that poses a host of political issues to overcome.

You see torts and auto liability are issues traditionally handled on a state level with state regulation and common law.  Driver's licenses are issued at a state level, driving laws are at a state level, required insurance is at a state level and liabilities for accidents are determine under individual state standards.  Giving a lot of this control over to the federal government is not going to be an easy sell.  Can you imagine Texas giving this up?  But it is something that has to be uniform to work and it will not be uniform on a state level.  Thus, Volvo, for one, has been pushing the federal government to regulate this area and not leave it to the states.

http://www.digitaltrends.com/cars/volvo-urges-u-s-government-to-regulate-autonomous-cars/

There is enough money and societal benefit at stake that it will likely eventually happen, but it will be a long and painful journey.

But liability is just one issue.  Assuming they get uniform legislation, manufacturers still need to deal with the public attitudes.  You probably have around 70,000 owners of semi-autonomous Teslas now very hesitant if not outright refusing to use the semi-autonomous features that they can turn on or off.  Who wants to endanger their own lives or the lives of their families over a system that cannot tell a freakin' semi trailer from bright sky?

At least in Teslas some of the semi-autonomous features can be disengaged and the driver can take over.  That will not be the case for all autonomous cars.  Level 4 cars, like those being designed by Google, do not allow this.  There are apparently some thorny issues switching from auto pilot to driver control while cruising down the road and doing so in an emergency situation is even more problematic.  To avoid this increased danger, Google is not planning on giving the occupant a choice.  There will be no steering wheel. It is either the computer or nothing. 

Still, when the bugs are worked out the expectations are these autonomous cars will be a lot safer, saving probably tens of thousands of lives a year just in the U.S. IF they go into across-the-board use.  Now it seems odd we feel relatively safe driving ourselves or letting others drive us (though I cannot relax with my wife behind the wheel), but we do not trust autonomous or semi-autonomous cars that are safer.  Still, it won't take too many serious accidents to dampen the willingness of the public to trust a computer.  Computer problems, after all, are nearly a daily happening.  Half my draft of this article, for example, got lost yesterday when my computer crashed and went into the blue screen of death.  This happening while typing a blog post is a nuisance; it happening while going 70 mph down the highway gives all new meaning to the blue screen of death.

Certainly manufacturers are building backup systems and a default for the car to safely pull over and park if all goes wrong, but technology is not perfect and every accident will be blamed on the technology.  The more this happens the less folks will trust these cars to drive for them - despite them still being a lot safer than people driving.  Overcoming this psychology will be difficult and is not happening in the next few years as some predict.

Another issue manufacturers and others seem to downplay is the prospect for vehicles operated by computers to be hacked.  While manufacturers are undoubtedly jumping through hoops to insure security, there is no computer that cannot be hacked.  An individual or group with sufficient knowledge, time and resources will achieve this in time.  Perhaps it will just be a bored teenager getting the cars to communicate to each other about some traffic patterns that do not exist just for fun, or perhaps it will be terrorists driving cars off cliffs or into each other.  The stuff of fiction movies will eventually become reality.  And if you think a few accidents will hamper people's desire to use an autonomous vehicle, wait until the first successful hack gets publicized.  This issue is also a prime concern on the insurance side of things, where a recent survey found it to top the list for concern for risk managers:

http://www.bloomberg.com/news/articles/2016-07-19/cybersecurity-is-biggest-risk-of-autonomous-cars-survey-finds

You can chalk my pessimism up to me being an old fart who still enjoys driving a stick shift.  There may be some truth to that, but there are certainly strong pros and cons and I believe it will take a lot longer than most assume for us to go full throttle into fully autonomous vehicles.

Rand Corporation did an extensive study on autonomous vehicles, first released in 2014, which you can find here:

http://www.rand.org/pubs/research_reports/RR443-2.html

In it they identified a host of pros and cons to autonomous vehicles.  Despite being around 200 pages, it is worth the read.  It identifies a number of other considerations I have not addressed above.

Happy Independence Day - Britain!

A lot has been written on Brexit and whether it is good or bad for Britain.  I don't know enough to know for sure and from what I have read I believe no one really does.  Certainly there will be a lot of short term pain while everything is worked out, but I do see the initial drop in the FTSE has been overcome and then some, with a nice gain over the pre-Brexit level.  Go figure.

This market rebound could be largely due to the pound taking a dive, which will help exports and British companies that do so, but Brits are going to be paying a good bit more for imports, and last I checked they import quite a bit of what they consume, so this cuts both ways.  If I were a cynic, I might suspect that Central Bank interventions have had something to do with the FTSE and other markets having a rebound.   Either way, the market does not reflect Brexit to be another Lehman moment.  (For that we should be watching some of the European financial institutions that are setting new record lows)

Indeed, there is firm evidence that the Brexit move has already resulted in some tangible benefits for Brits.  Well, for at least one Brit anyway, David Cameron.  You see, he seems to be enjoying his new found freedom, lounging on the sofa with the occasional jaunt to the frig.  And the problems of the world are no longer his.  As he observed:

"I flicked on Sky News and apparently there was some unpleasantness yesterday which is absolutely none of my business anymore."

Here is one fellow making the best of it.  He is, after all, in an enviable position.  If all goes to hell in a hand basket he can say "I told you so" and if it all turns out for the best, well, he benefits with the rest of Britain.  Win/win and the abdication of any responsibility has to be refreshing for him.

http://www.thedailymash.co.uk/politics/politics-headlines/cameron-spends-relaxing-day-at-home-laughing-20160701110050

Let's just hope it works out this well for the rest of Britain.

While no one knows how it will work out, there is something to be said for more independence.  The countries of Europe are simply too different in their origins, politics and approaches to life to be combined to the extent they have been.  The turmoil over the past few years in Greece epitomizes how different the Greeks are from Germans in financial matters.  Are the French of a same mind as the Brits or Germans on politics, social issues and the like?  I think not.

For a nice piece detailing why a painful vote for independence made sense to one well-informed Brit, I refer you to this work by Ambrose Evans-Pritchard.  He seems to know of what he speaks:

http://davidstockmanscontracorner.com/brexit-fears-giant-hoax-or-calm-before-the-next-storm/

So as we in the States approach our annual celebration of independence from Britain, we watch the turmoil across the pond and wonder if some day Britain will likewise celebrate its own Independence Day.  And who doesn't like having another national holiday to take off from work!  See Britain, silver linings everywhere you look.

Apple Loses 100,000+ iPhone Customers!

In case you missed it, Apple's Chinese manufacturer of the iPhone, Foxconn, fired 60,000 workers and replaced them with robots. 

https://mishtalk.com/2016/05/26/we-need-new-labels-i-propose-100-robot-made/

Now if you figure that these workers and their families are all potential iPhone customers, or likely already have them and would be customers when it comes to replacing them, and that after being fired for robots they cannot afford such luxuries, then you can easily get to 100,000+ fewer iPhone customers.  Now they might secure other jobs, but as Mish points out in the linked article, these workers are in a city in China where thousands of other manufacturers are automating.  Moreover, companies are leaving China altogether as you do not need cheap labor if you do not need any labor, so automated factories are more efficient if they are built near the customers, like in Europe or the U.S.

For example, Adidas and other shoe manufacturers are gradually eliminating millions of shoe making jobs by building automated factories in Europe and elsewhere,.  So all those Adidas workers replaced by robots cannot afford iPhones and the 60,000 workers who made iPhones ain't going to be walking around in new sneakers either.

You see the problem here is that old supply and demand thingy is tied to those on the demand side of the equation having money.  The Central Banks around the world are kicking butt trying to get folks to spend money, which increases demand, which leads to more supply, which leads to more profits and which USED TO lead to more jobs, which leads to paychecks, which leads to more demand.  You take the more jobs aspect out of the equation and there is no money around to lead to more demand.  Indeed, you are stripping jobs and demand and taking the process in the opposite direction.  The whole capitalistic structure is shooting itself in the foot.  But hey, let the other companies hire people as we need to automate to enhance profits so that the 1% can be even richer. 

You tell me, how many iPhones and sneakers does that 1% need?

Obviously we cannot and will not stop progress in automation.  The challenge has been and will continue to be finding jobs for the millions that are and will be losing their jobs to machines.  For the U.S. it started as losing jobs to cheaper labor overseas, which is still an issue, but it is morphing into a global issue of losing jobs to machines.  We are getting more and more into a world where we do not need nearly as many people to supply the needs of the people.  This will be an ever increasing challenge for our "leaders," if you want to call them that.

Euuuuuu . . . I Smell Something Nasty

I won't repeat what is filling the wires everywhere you look about the EU and Brexit.  Rather, let me just note that the underlying problems with the EU structure, which in no small part led to Brexit, was not that difficult to see coming.  As I said in 2011::

"EU Splitting?

A full two years ago I posted a prediction that the EU will break up. I think I called it the time the EU losing the U. This was a post by me that got a lot of negative feedback then- as in it was an insane proposition. Let me simply say, I stand by my original proposition:

http://online.wsj.com/article/SB10001424052970204010604576592830020996482.html "

And this post was referring back to a prediction I made at the end of 2008 for the year ahead.  I guess as most men, I was a bit premature:

"EU with no U. The strains on the EU have never been greater and Germany's reluctance to play ball with the rest of the union will, in my opinion, cause a rift that cannot be fixed. I doubt the EU will disband in 2009, but pressures will reach a critical point and it may well happen in 2010."

But alas, I must admit that my belief on the EU splitting was tied pretty much wholly to its financial structure.  Britain's vote was based on this in part no doubt, but I think the man or woman on the street is voting more for other reasons, like a desire to better control their borders and not wanting to cede as much control over their lives to the EU.  In scary times, folks like to have that old self-determination thingy, for better or worse, and letting the likes of Angela Merkel have a lot of influence over their lives was probably not sitting well.  And for Britain, I am thinking it is for the better - as apparently 52% of the people in Britain think as well.

https://mises.org/blog/brexit-individualism-nationalism-globalism-0

On the economic front, for example, you might have noticed a curious thing (curious that is for the Remain crowd); the UK stock market - FTSE 100 - was only down a tad over 3% (after an initial dive of 6%).  Indeed, it survived the day better than the DOW.  And compared to other EU stock markets, it ruled.  The German DAX 100 sank nearly 7% and the French CAC 40 was down a whopping 8%.  This could just be attributable to the pound dropping in a way Trump would describe as yuuuuge, which should strongly support UK exports.  I mean, they do have exports don't they.  Oh yeah, Rolls Royce is in Britain. They also make, uh, something else I am sure, like beer.  Whatever they make just got cheaper compared to most other currencies.

This is not to say the rest of EU will not impose trade barriers like tariffs and the like, but that is a two-way street and Britain did represent nearly fifth of the entire EU economy.  This will  indeed be interesting to watch. 

It will be especially interesting to see if other EU members follow the British lead, which I expect will indeed happen.  There are a bunch of unhappy voters in various countries it seems as elections in other parts of the EU over the past couple of years reflect a growing influence of the same type of sentiment the British populace just demonstrated.  Discontent voters are obviously making their voices heard on this side of the pond as well.  Interesting times.

Once, Twice, Three Times . . . You're Screwed!

Interesting piece today in Bloomberg on how a record number of folks over 65 are continuing to work.

http://www.bloomberg.com/news/articles/2016-05-13/-i-ll-never-retire-americans-break-record-for-working-past-65

Why you ask?  Silly question.  You know the answer - THEY NEED THE MONEY!  60% surveyed say they need the money.  And as Bloomberg points out, the financial crisis in 2008 and the tech boom/bust in 2000 destroyed the retirement savings of baby boomers, many of whom were probably conservatively invested in the past seven years as retirement neared, so they did not benefit as much from the most recent market recovery.

So 2000 is once and 2008 is twice.  Where is the third time?  The third time is our friends at the Fed.  With ZIRP as the mandate for over 80 months, baby boomers who still had savings have been getting virtually no return on these savings, so they have to keep working.

And here is the true irony in all this.  The job market participation rate of baby boomers is very high and the participation of those who should be working the jobs is very low, so those making the money are those needing to save every penny they can, meaning they ain't spending their dough no matter what the Fed does.  Janet just scratches her derriere wondering why there is not more spending when unemployment is so low as she is missing the picture.  She just screwed the boomers out of retirement funds so they aren't going to spend and they are taking the jobs from those who might.  Meanwhile those graduating college who might actually qualify for good paying jobs are busy paying off their first mortgage, a/k/a student loans, and have little left to buy homes or spend foolishly. 

http://www.bloomberg.com/news/articles/2016-05-13/student-debt-is-eating-into-the-household-budget

And then there is that whole shift in the employment market to lower paying service sector jobs that is not helping much either.  There does not seem to be any obvious end in sight to this cycle and the Fed is clueless to trying to stop it even if they wanted to.

"Hello, welcome to stupid Fed policies.  How might I help you/"