Archive for the ‘Economic Data’ Category

The Flim-Flam Economy

Monday, May 2nd, 2016

The absurdity of today’s flim-flam economy can be summarized when the events of the past week are considered together:

  • The U.S. economy grew at an annualized rate of just 0.5% during the first quarter
  • Corporate profits are the lowest they’ve been since 2009
  • The current bull market is now the second longest in history
  • The Federal Reserve Board, to no one’s surprise, elected yet again not to raise interest rates

The conclusion that can be drawn is that, while the U.S. is not yet a socialist country, it is no longer a capitalist country, either.  There is a seeming collusion between political leaders and central bankers with the net result being more and more government control over our lives amid the illusion that all is well, because, after all, the stock market moves in only one direction. Equities

Mainstream media, with few exceptions, reinforce the illusion, cheerleading for the Obama Administration as it continues to break records for its ever-increasing volume of new regulations.  Burdensome new regulations reduce corporate profits, which should result in lower stock prices.  But the Fed has somehow managed to circumvent reality and juice the market ever higher.  (more…)

Something’s Rotten …

Monday, April 4th, 2016

“That it should come to this!”

                                  Hamlet, Act I, Scene II

Any student of Shakespeare will recall that Hamlet’s procrastination did not bode well for Denmark.

Centuries later, the Scandinavian country has Tivoli and perhaps the world’s best ice cream, but it’s not exactly a world power.  It may not be Hamlet’s fault–after all, Denmark is even more socialistic than the U.S. and Canada–but his hesitation was not a good thing for him or his country.YellenHamlet 2

So what does this have to do with Janet Yellen?  She chairs the Federal Reserve Board, which, like Denmark, has wielded its power clumsily, although it doesn’t even produce ice cream.  And, like the tragic prince, she will likely be remembered more for her inaction than for her action.

Even Hamlet didn’t procrastinate for years, although it may seem that way if you watch a poor production of the famous play. Also, like the melancholy Prince of Denmark, Ms. Yellen seems to be collapsing under the weight of the world and fretting over the potential consequences of her actions. And so, like Hamlet, she does nothing.

Her words before the New York Economic Club last week could have come straight out of Hamlet. Princess Yellen may be far less eloquent than the young prince of Denmark, but the parallels between what she said and what he said are significant. (more…)

Set. Down. No Hike.

Monday, March 21st, 2016

The economic outlook can be summed up in five words: Everything’s great, except what isn’t.

We’ll lead with the “everything’s great” part, as seen through the filter of the Federal Reserve Board.  As Fed Chair Janet Yellen reminds us after every meeting, the Fed has two goals—lowering the unemployment rate and stabilizing prices.

The Fed’s target unemployment rate is 4.7% to 5.8% and, if you believe the U.S. Bureau of Labor Statistics (see below re: why you shouldn’t), the Fed has accomplished that goal, as the current rate is at an eight-year low of 4.9%.  The Fed’s target inflation rate is 2% and, depending on how you measure inflation, it’s close to that number.Stock Prices

“The Fed’s preferred measure, the personal consumption expenditures price index, rose 1.3% in January from the previous year, and so-called core inflation—which excludes volatile food and energy prices—was 1.7%,” The Wall Street Journal reported. “The consumer-price index rose 1% in February from a year earlier, but core CPI was up 2.3% for the year, the largest 12-month increase since May 2012.”

So the Fed could have logically declared its mission accomplished and begun to gradually increase interest rates, as was expected after December’s initial miniscule rate increase.  So why was the vote at last wek’s meeting 10-1 against a rate hike? (more…)

Making America Great Again

Monday, March 7th, 2016

It’s clear that in spite of boisterous bad behavior, a lack of workable policies and a few very bad ideas, Donald Trump is the odds-on favorite to become the Republican nominee for president of the United States.

Why?  It may be that his theme of “Making America Great Again” is resonating with voters.

While starting trade wars and building a wall to keep out Mexicans would have the opposite impact, American greatness could emerge as the theme of this campaign.

That’s because, as the charts below demonstrate, America’s greatness has faded mightily during President Obama’s administration.  Home ownership, median family income and labor force participation has plummeted.  Meanwhile, student loan debt, the use of food stamps (aka the Supplemental Nutrition Assistance Program or SNAP), federal debt, money printing, healthcare costs and—not coincidentally—black inequality have soared.20160301_obama_0

So voters have latched onto The Donald as the anti-Obama.

Why Candidate Trump Exists

In fact, former Louisiana Governor Bobby Jindal, whose own presidential candidacy never gained any traction, notes in The Wall Street Journal that Presidential candidate Trump would not exist if not for President Obama. (more…)

Just In Time for Christmas

Monday, December 21st, 2015

Even if it were wrapped in shiny paper with a big red bow on it, virtually everyone would have guessed at this year’s Christmas present from the Federal Reserve Board.

For most of us, the rate hike will be the equivalent of coal in our stockings, but for the economists, analysts, stock pickers, pundits, talking heads and other assorted Fed groupies, the rate hike was essential, because it validates their existence.  After inaccurately predicting a rate hike throughout 2015, they finally got it right! 20151217_BAML1

The hike of 25 to 50 basis points in the federal funds rate is an insignificant increase (the Fed’s Board of Governors will raise the interest rate paid on reserves to 0.5% and the Federal Open Market Committee will offer a rate of 0.25% on reverse repurchase agreements), except that it represents the end of an era.  ZIRP, or zero-interest-rate policy, has now been replaced with ZIRP+ or maybe Near ZIRP, Almost ZIRP or A-Tad-Above ZIRP.  It’s still as close to ZIRP as you can get without being ZIRP.

Questions Raised

Regardless, after 84 months of ZIRP, it’s worth noting that interest rates have changed direction and are now heading up.  ZIRP was already old when this blog was started in January 2010.  Now what are we going to write about?  (more…)

A Way Out for the Fed

Monday, November 2nd, 2015

The economy grew at a tepid rate of 1.5% during the third quarter.  More than 100 million Americans aren’t working.  And the inflation rate is near zero.

That’s after seven years of the most radical monetary policy in history, which was supposed to lower unemployment while boosting the inflation rate to 2%.  If you’re the Federal Reserve Board, do you:

  • Conclude that keeping interest rates near zero isn’t helping the economy and abandon that policy.
  • Keep doing what you’re doing, hoping things will change next year, so you can take credit for it.
  • Conclude that the economy is still a mess even after you bought a few trillion dollars’ worth of bonds, so maybe you need to buy more bonds.

    When economists think rates will rise.

    When economists think rates will rise.

The correct answer, at least last week, was b., as the Fed voted to continue its zero interest rate policy (ZIRP), “surprising no one,” as The Wall Street Journal noted.

That means the Fed will keep on zirping, at least until December, but more likely into 2016.

Subject to Interpretation

The Fed’s policy statement, which has changed about as much as Fed policy over the past seven years, was interpreted by many to imply that the Fed “might” increase interest rates by a whole 0.25% when it meets in December.

(more…)

Five Reasons Why Wenning Advice Is Worth More Than Buzzfeed

Monday, August 24th, 2015

You may have heard that Americans are now getting their news online, instead of reading it in newspapers.  They’re not.

Most of what appears online and is called “news” fits that classification only in the broadest sense of the word.  Instead of going online to read about the Iranian nuclear deal, the economic turmoil in China or continuing slow growth in the U.S., Americans are reading about the Kardasians, Caitlyn Jenner and ex-Subway pitchman Jared Fogle.FTSE

If you doubt the above, consider that NBCUniversal just announced it is investing $200 million in Buzzfeed, which now has a value of $1.5 billion.

Buzzfeed, as you’re probably aware, is a site that is notorious for its lists.  Today, for example, you can find “16 Sexts Every Twentysomething Actually Wants,” “40 Random Thoughts We’ve All Had The Night Before School” and “99 Names For B**bs” (Note: our standards are higher than Buzzfeed’s, but you can probably figure it out).

(more…)

Today’s Economic News: Woe Is Me

Monday, July 27th, 2015

The summer weather and the media’s focus on positive economic news may have you feeling cheerier than usual these days.

Two words: “Bah, humbug.”  Or maybe, “Get real.”

Focus, for a minute, on the cloud, rather than the silver lining; recognize that evaporation has caused the glass to be less than half full (and more than half empty); see the bubble bursting, the interest rates rising and stock prices dropping.  In other words, get realistic about the economy.

In the Keynesian world, the more government spends, the more the economy is “stimulated.” In the real world, more spending means more debt, higher taxes, more regulation and GDP growth well below the historic norm. Chart 1

In the imaginary world, central bankers and government officials can keep the economy growing indefinitely and can boost asset prices to new records forever.  In the real world, asset prices are at artificially induced levels; reality will take hold when the Federal Reserve Board raises interest rates, when China’s stock market tanks (as it has begun to), when Greece is booted out of the Eurozone, or when Iran uses the $150 billion it receives from the lifting of sanctions to further its war against the U.S. and Israel.  (more…)

Economic Schizophrenia

Monday, June 8th, 2015

Schizophrenia is “a long-term mental disorder of a type involving a breakdown in the relation between thought, emotion, and behavior, leading to faulty perception, inappropriate actions and feelings, withdrawal from reality and personal relationships into fantasy and delusion, and a sense of mental fragmentation.”Personal Income

In general use it is referred to as “a mentality or approach characterized by inconsistent or contradictory elements.”  It is also often used to refer to someone with a split personality.

It is a truly severe mental disorder that is difficult to treat.  And it seems to be a perfect description of today’s economy.

Thursday: Don’t Raise Rates This Year

As a recent example, consider last week’s announcement by the International Monetary Fund (IMF) that it was lowering its growth estimate for the U.S. economy from 3.1% to 2.5%.  Both estimates are well below the 3.3% annual growth rate that was the norm before the financial crisis, but even 2.5% is average the average we’ve seen throughout the Obama presidency. (more…)

Stock Market Continues to Set Records, But Why?

Monday, June 1st, 2015

Let’s take a simple quiz and answer the following multiple choice question.

The stock market is hitting new highs because:

  1. Corporate earnings are at an all-time high.
  2. The economy is recovering.
  3. The market is being manipulated by the Federal Reserve Board.
  4. Investors lack common sense.

Corporate earnings are supposed to drive stock prices.  That used to be true, before the market was made dysfunctional by Fed mingling, high-frequency trading, overbearing regulations and other factors.  It’s not true anymore.  At least not now. S&P 500

The stock market has been setting records, even though S&P company earnings declined 13% in the first quarter of 2015.  That follows a 14% declined in the fourth quarter of 2014.  Do you see a trend here?

As our friend Charlie Bilello of Pension Partners, LLC pointed out on Contra Corner, six out of the ten major S&P 500 sectors showed year-over-year declines, including consumer sectors, which were supposed to have benefited most from a decline in gas prices.

(more…)