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/"

Is Socialism Inevitable?

Chew on this.  While I am not a big fan of socialism - and it has never worked well in practice - we seem to perhaps be heading there whether we want to or not.

I attach an interesting article that notes, probably accurately, that modern technology and other increases in productivity are leading to fewer jobs and fewer hours for those who work, yet those making little still have many more luxuries than the middle class did half a century ago.

http://www.zerohedge.com/news/2016-03-25/peddling-fiction-after-all-job-growth-doesnt-mean-were-getting-richer

Indeed, eventually if this course continues the only jobs that will continue to exist are those that cannot be automated effectively or that we as a society will not allow to be automated with robots and computers.  Mish, for one, regularly reports on advances in technology and robotics and had this interesting piece today.  I especially found the clip about Sofia interesting.  If you watch it continue until the end of the video to hear her tell her inventor that she would be happy to destroy humans.

http://mishtalk.com/2016/03/25/meet-concierge-connie-sophia-your-medical-robot-robotic-pets-dc-delivery-bots/

So service jobs are being taken over by robots, factory jobs largely already have been automated, cars and trucks will soon drive themselves, pizza is delivered in an self-driving oven, and so forth and so on.  The next linked piece has some good stats on the ratio of robots to humans in the industrial workforce.  They go from countries with low ratios like China at 36 per 10,000 workers to South Korea with close to 500 per 10,000 workers.  It will take a while but China's ratio is catching up as it is installing record numbers of robots, leaving an interesting question on what they will do with many hundreds of millions of people needing to work.

http://www.zerohedge.com/news/2016-03-26/visualizing-why-manufacturing-jobs-arent-coming-back

At least in theory we are progressing ourselves out of jobs and perhaps this is part of the reason for the income disparity we are seeing.  Higher paying industrial jobs are increasingly automated, leaving only low paying service jobs and the highest paying specialized jobs, with little in between.  Money flows to the top to those who run the companies that provide us these gadgets or that lie, cheat and steal the most, and the rest of the population is settling to the bottom rung as fewer decent jobs exist.  As more and more jobs disappear there perhaps eventually will be no alternative but having the top few percent who make all the money pay enough taxes to support the rest in some basic necessities, like smart phones, big screen TVs, talking refrigerators and robots that fold our laundry - those basics.

Seriously though, there really will not be enough jobs left for everyone needing them and we will need to figure out what to do with those who cannot find work.  Is a society without work for a majority - or perhaps without even the need for a majority to work - utopia or hell?  Interesting times ahead. 

Obamacare - What's Up With That

So I read this recent article on how Obamacare is costing boat loads of money and premiums are up across the board:

http://www.zerohedge.com/news/2016-03-25/thanks-obamacare-what-americans-spent-most-money-2015

Now I agree that health care is undoubtedly a big driver of what little inflation the government has reported.  But the question that I do not think can be answered yet is why and will this continue.  The reason I say this is largely due to anecdotal evidence but I think it is enough to raise the question.

I primarily raise the question based on a comment from a doctor.  He told me that doctors and hospitals are incredibly busy following implementation of Obamacare as there is this massive population of patients who simply did not seek medical attention before because they did not have insurance and could not afford it.  They only went to get help when they had no choice and then it was commonly to the emergency room on Medicare or Medicaid's dime.  Now that many of them have the coverage they are getting physicals and checkups and, guess what, problems are being discovered that need to be dealt with.  And these problems are leading to more payouts by insurers than perhaps they anticipated because I suspect the insurers did not factor this into their initial premiums,  either because they did not anticipate the increase or intentionally ignored it to keep initial premiums low to get things started.  Either way, they are having to increase premiums to pay for all these people who have old, festering, unattended to problems that are now being addressed.

So again the question I pose is whether this initial significant increase will continue or level off in time, and I suspect only time will tell.

Meanwhile the good news might be that the 4th Quarter GDP estimate was just increased to 1.4% with the "bulk" of the increase coming from "services," which is in no small part healthcare. 

http://www.shopfloor.org/2016/03/fourth-quarter-2015-real-gdp-revised-higher-at-1-4-percent-growth/

So Obamacare may be achieving what the Fed so desperately has tried to do.  QE and ZIRP may not get folks to spend but require them to get health insurance and by God they will use it!

http://www.zerohedge.com/news/2016-03-26/healthcare-about-surpass-housing-biggest-source-american-growth

Then again things are not going so honky dory lately over at the Atlanta Fed with its GDPNow forecast.  Its forecast for the 1st quarter 2016 went from a sweet 2.3% two weeks ago on March 11 to a somewhat more sour 1.4% March 24.  Hopefully that direction will not continue.  We shall see.

We Used to Invest

Long ago you could look at data, either on macro level or on a micro level, and hopefully make some informed decisions on where to put your money.  You could do silly things like look at the employment numbers to gauge the health of the economy or at the financial statements of a company to determine its value and risk.  You could roughly ballpark timing of economic cycles and when a reversion to mean was in the cards.  You could do your homework and truly find a good value place to "invest" your money.  Those days sadly are gone.

Moves by the governments and Central Banks of the world, along with games played by many corporations with no fear of punishment, have ended those days.  It used to be if a corporation cooked its books it failed and went bankrupt but now it can rely on the government to bail it out.  Economic cycles are now totally distorted by Fed action so recessions are delayed in their onset but more severe when they occur.  Data from the government includes countless adjustments, seasonal and otherwise, until it is virtually meaningless.  Financial information from companies cannot be taken at face value with more and more companies cooking their numbers with non-GAAP numbers, stock buybacks and the like.  The market is also based on computers and algorithms where its direction can simply be due to a quirk or fat finger.  It is truly a world for speculators, not investors.  Yet folks looking to retire some day are increasingly either needing to save enough to retire without and expected return or to take risks they should not take because conservative investments provide next to no return.

So even the most savvy of investors are stumped.  If you watched The Big Short you saw some very smart fellows who figured out the housing bust in advance who nearly went broke because the true impact of what was happening was hidden for an extended period through fraud that went unpunished.  As pointed out in this link by Lance Roberts, economic cycles are increasingly distorted and hard to anticipate, especially now that major economies around the world are all following suit in kicking the can.

http://seekingalpha.com/article/3959755-yellen-just-cage-bears?ifp=0&app=1

Yet as he explains this simply delays the inevitable and makes it worse when it arrives.  This is why I have been wanting Yellen to increase rates.  Not because it will aid the economy in the short term but because it will allow the long overdue recession to wash out the crap.  The longer we kick the can on this the worse it will be and more people will suffer needlessly.  Yet now the Central Banks of the whole world seem to be coordinating a final stand against the onset of a natural correction cycle.  They will fail in avoiding it and only succeed in making it worse.  And in the process they will make any assessment of when this economic cycle should come virtually impossible to determine, despite how many charts and stats you study.

So be careful out there.