Archive for August, 2014

Going Prudential In a Macro Way

Thursday, August 28th, 2014

Obfuscation is an art form in which the Federal Reserve Board excels.  It follows a few simple rules:

  • Never use a word or phrase that is simple and widely understood when a word is available that is less well known (e.g., “obfuscation” instead of “confusion”).
  • Act as though you know what you’re talking about.
  • Act as though everyone else knows what you’re talking about.
  • Ignore failure and act as though you’ve succeeded.  No one will know the difference.

The Fed’s expertise in obfuscation is clear in its choice of strategies that are allegedly designed to create economic growth, but are really designed to prop up the bloated stock market.Janet Yellen

First, we had “quantitative easing.”  The Fed couldn’t just call it bond buying.  What does “quantitative easing” mean?  Is it the opposite of qualitative easing?  Or quantitative hardening?  How does one go about easing quantitatively?  What exactly is being eased?

The Fed couldn’t just reduce its bond buying – it had to “taper” its bond purchases.

The Fed also flirted with “forward guidance,” which, as we’ve previously explained, is simply talking about what you’re going to do without doing it.  Mario Draghi, chair of the European Central Bank has perfected this technique.  Too bad The Fed hasn’t, because it could have avoided buying trillions of dollars in bonds it will soon have to sell. (more…)

The Economy Is Booming – For the Repo Man

Friday, August 22nd, 2014

“Credit is a sacred trust, it’s what our free society is founded on. Do you think they give a damn about their bills in Russia?”                                                                                                                                                 Bud in “Repo Man”

The good news for the economy is that consumers are buying more.  The bad news is that they’re not paying for what they buy.

The Urban Institute found that more than a third of Americans are not only in debt, but are being chased down by debt collectors.  Debt collectors are, of course, a last resort; they’re used when all else fails and the debtor is more than 180 days past due.  When a consumer goes six months without paying a bill, it’s a good sign the person either has no intention of paying or is unable to pay.

Yet about 77 million Americans – 35% of adults with a credit file – have debt in collections.  They owe an average of $5,178, which doesn’t sound like much, but keep in mind that’s debt that’s gone into collection, not total household debt.  It does not include mortgage debt, but does include credit card, medical and utility debt.

Consumer creditThe average American household has $15,480 in credit card debt alone and consumer debt totals $11.74 trillion.  Add in federal debt, corporate debt, state government debt, municipal debt and the debt of other countries and it’s a wonder that anyone anywhere is still solvent.

You may recall the cheering that took place in 2009, when consumer debt levels decreased.  But, as the chart shows, that was a small mogul on a steep and steadily rising mountain of IOUs.

(more…)

Baby Boomer Bust

Friday, August 15th, 2014

Each day, another 8,000 baby boomers turn 65.

The U.S. Census Bureau says there are more than 77 million baby boomers, defined as those born between 1946 and 1964.  By 2030 all boomers will be over 65 and will represent about 20% of the population.

So, given the growing number of boomers who have reached retirement age, why is the unemployment rate still so high?Over 65 retirement

Based on the official U-3 statistics, unemployment is still at 6.2%.  That’s much better than the 10% rate we had in 2009, but it’s considerably higher than the 3.9% rate the U.S. enjoyed in 2000 – which was long before baby boomers even thought about retirement.

If Americans are retiring at 65, that should open up more than a quarter million new jobs per month – on top of job growth caused by economic recovery.  So when the Bureau of Labor Statistics reports that 205,000 jobs were created in July 2014, it’s not exactly a sign of prosperity.

The U-6 unemployment rate, which includes those who have given up looking for work, is still 12.2%, which is practically European.

So why is the unemployment rate still stubbornly high?

(more…)

It’s a Mad, Mad, Mad, Mad World

Friday, August 8th, 2014

Isn’t summer supposed to be the time when life slows down and the world takes a vacation?

That may be the case for some of us, but the despots of the world are working overtime.  Consider just a few of the world crises taking place this summer:

  • Russia’s conflict with Ukraine continues.  The downing of Malaysian Airlines Flight 17 by pro-Russian rebels has done little to stop it.
  • Hamas is fighting with Israel over Gaza.  A cease fire is in place, but Hamas has shown little respect for previous cease fires and it is unlikely that this crisis has ended.
  • Muslim terrorists known as ISIS are making inroads in Iraq.  It’s reached the point where President Obama has reversed his policy and announced that U.S. military airstrikes will take place “if necessary.”
  • Syrian leader Bashar al-Assad continues to slaughter his people, while the country’s conflict threatens to spill over into Lebanon.
  • The newly inaugurated Libyan parliament has called for a cease fire and threatened to act against warring militias that continue fighting.
  • Al-Qaeda-linked sect Boko Haram continues to hold more than 200 schoolgirls captive in Nigeria.
  • Iran is developing nuclear weapons, although the U.S. State Department said U.S. and Iranian officials had a “constructive discussion” this week about Iran’s nuclear program.  There’s some conjecture that, even if Iran were to agree to halt its nuclear development program, it could outsource the program to North Korea.

    Gaza today.

    Gaza today.

Remember the end of the Cold War, the resulting “peace dividend” and the economic growth of the ’90s?  Remember life before the financial crisis?  Much has happened since then and most of it has not been good.

(more…)

Bad News – The Economy May be Recovering

Friday, August 1st, 2014

“This is what it sounds like when doves cry.”

                                                                    Prince

Imagine this.  After more than five years of mediocre economic growth and a quarter of “negative growth,” the economy grew at a rate of 4.0% in the second quarter.

At least that’s what the Bureau of Economic Analysis (BEA) said.  The BEA previously estimated that the economy shrank by 2.9% during the first quarter, but has readjusted its analysis and now says that the economy shrank by 2.1% in the first quarter.Inventory

From 2.9% “negative growth” to 4.0% positive growth is a swing of nearly 7% in a span of just three months.

That’s quite a swing … but do you believe it?  After all, Q1 growth was reported at -1%, -2.9% and finally -2.1%, so how much confidence should we have in the BEA’s first report for Q2?

Meteorologists are often criticized for erring on the weather, but they’re forecasting.  The BEA is trying to tell us what happened more than a month ago – and still can’t get it right.

(more…)