by Zero Hedge - July 30th, 2014 2:03 pm
Submitted by Tyler Durden.
As expected, The FOMC continued its taper pace at $10bn but what was supposed to be a ‘steady as she goes’ statement had a few surprises:
- *PLOSSER DISSENTS ON DECISION, CITING GUIDANCE ON RATE OUTLOOK
- *FOMC SEES SIGNIFICANT UNDERUTILIZATION OF LABOR RESOURCES
- *FOMC: ODDS OF PERSISTENT SUB-2% INFLATION `DIMINISHED SOMEWHAT’
More of the same but some modestly hawkish sentiment sneaking in regarding improving labor markets. Oddly – no trade recommendations from Yellen.
Of note, the addition of the following language about labor slack:
… a range of labor market indicators suggests that there remains significant underutilization of labor resources…
Remember when the Fed had a 6.5% unemployment target for “slack”? It appears that the Fed continues to understand that it is not just jobs, part-time agem, but wages that matter. And as we have shown repeatedly, real wages continue to decline.
As for inflation, the language…
“inflation running persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term”
… has been struck, and replaced with the following:
Inflation has moved somewhat closer to the Committee’s longer-run objective. Longer-term inflation expectations have remained stable… the likelihood of inflation running persistently below 2 percent has diminished somewhat
Plosser objected “to the guidance indicating that it likely will be appropriate to maintain the current target range for the federal funds rate for “a considerable time after the asset purchase program ends,” because such language is time dependent and does not reflect the considerable economic progress that has been made toward the Committee’s goals.”
The conclusion: “The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions.”
So… rate hike any second, right?
Market Pre-FOMC: S&P Futs 1961.5, 10Y 2.55%, JPY 102.90, Gold $1294
Full statement redline:
by ilene - July 30th, 2014 1:01 pm
Courtesy of The Automatic Earth.
Arnold Genthe Long Beach, New York Summer 1927
Oh yay, US Q2 GDP supposedly rose by 4%. Aw, come on. That’s only 7% more than in Q1 (or 6.1% in the once again revised Q1 number). Wonder what made that happen? Don’t bother. It’s complete nonsense. New home sales and lending home sales went down – again – recently, wages are not going anywhere, the ADP jobs report was – again – low today. There’s nothing that adds up to a 6% or 7% difference between Q1 and Q2.
The real story of the American economy lies elsewhere. The economy is sinking away in a debt quagmire. If it were a body, the economy would be in up to its neck in debt by now, with the head tilted backwards so it can still breathe. Barely. But your government doesn’t want you to know. There are a lot of things that illustrate this.
First , let’s go back a few days to the Russell Sage Foundation report, Wealth Levels, Wealth Inequality And The Great Recession, that I mentioned in Washington Thinks Americans Are Fools. I posted a pic from the report and said it “makes clear ‘recovery’ is about the worst possible and least applicable term to use to describe what is happening in the US economy”:
Households at the “median point in the wealth distribution – the level at which there are an equal number of households whose worth is higher and lower”, saw their wealth plummet -36% from 2003 to 2013. From the highest point, in 2007, to 2013 the number is -43%. Five years after 2008 and Lehman, five years into the alleged recovery, which raised US federal, Federal Reserve, and hence taxpayer, obligations by $10-$15 trillion or more, US median household wealth was down -36% from 2003. And that’s by no means the worst of it:
If you look at the 5th and 25th percentile ‘wealth’ numbers (much of it negative), you see that they went down from 2003 to 2007, while the median was still rising. For both, wealth in the 2003-2013 timeframe deteriorated by some -200% (or two-thirds, if you will). -$9,479 to -$27,416 for the poorest 5%, $10.219 to $3,2000 for the lowest 25%.
by Chart School - July 30th, 2014 12:51 pm
Courtesy of Doug Short.
Earlier today we learned that the Advance Estimate for Q2 2014 real GDP came in at 3.95 percent (rounded to 4 percent), up from -2.1 percent for the revised Q1 data and well above most forecasts. Real GDP per capita was somewhat lower at 3.31 percent.
Here is a chart of real GDP per capita growth since 1960. For this analysis I’ve chained in today’s dollar for the inflation adjustment. The per-capita calculation is based on quarterly aggregates of mid-month population estimates by the Bureau of Economic Analysis, which date from 1959 (hence my 1960 starting date for this chart, even though quarterly GDP has is available since 1947). The population data is available in the FRED series POPTHM. The logarithmic vertical axis ensures that the highlighted contractions have the same relative scale.
I’ve drawn an exponential regression through the data using the Excel GROWTH function to give us a sense of the historical trend. The regression illustrates the fact that the trend since the Great Recession has a visibly lower slope than long-term trend. In fact, the current GDP per-capita is 11.6% below the regression trend and at a post-recession low.
The real per-capita series gives us a better understanding of the depth and duration of GDP contractions. As we can see, since our 1960 starting point, the recession that began in December 2007 is associated with a deeper trough than previous contractions, which perhaps justifies its nickname as the Great Recession.
Quarterly GDP Compounded Annual Rate of Change
The standard measure of GDP in the US is expressed as the compounded annual rate of change from one quarter to the next. The current real GDP is 4.0 percent (rounded from 3.95 percent). But with a per-capita adjustment, the data series is currently at 3.31 percent. Both a 10-year moving average and the slope of a linear regression through the data show that the US economic growth has been slowing for decades.
How do the two compare, GDP and GDP per capita? Here is an overlay of the two in the 21st century.
by Zero Hedge - July 30th, 2014 12:17 pm
Submitted by Tyler Durden.
A 4.0% GDP print – time to get out in front of the people and take the credit…
by Zero Hedge - July 30th, 2014 11:59 am
Submitted by williambanzai7.
by ilene - July 30th, 2014 11:45 am
Submitted by Tyler Durden.
Back in December 2013, when everyone was expecting a 3% GDP print for Q1, we did a simple analysis concluding that "Inventory Hoarding Accounts For Nearly 60% Of GDP Increase In Past Year." We stated that this "hollow growth", which is merely producers pulling demand from the future courtesy of cheap credit and assuming the inventory will be sold off in ordinary course of business without bottom-line slamming liquidations or dumping, and which further assumes a healthy US consumer and global economy, is a flashing red flag for the future of US economic growth. In fact, we were one of the very few who warned that Q1 GDP would be a disaster: "The problem with inventory hoarding, however, is that at some point it will have to be "unhoarded." Which is why expect many downward revisions to future GDP as this inventory overhang has to be destocked."
This is precisely what happened in Q1, however it was blamed on the "harsh weather."
Alas, following today's "spectacular" 4.0% GDP print following the predicted plunge in the US economy in Q1, we can again conclude that not only has nothing changed, but what we warned in Q4 of 2013 is about to happen all over again, and the inventory overhang (which incidentally was estiamted by the BEA and will certainly be revised lower next month) is about to slam future US growth.
The chart below shows the quarterly change in the revised GDP series broken down by Inventory (yellow) and all other non-Inventory components comprising GDP (blue). Something to note: companies are traditionally loath to liquidate inventories unless the economy is clearly in a depressionary collapse as happened in late 2008 early 2009, when inventory dumping was the main reason why GDP remained flat if not negative even as other GDP components rebounded. As such, it is always the last component of GDP to go, and when it does watch out below.
And, as we showed last time, where the scramble to accumulate inventory in hopes that it will be sold, profitably, sooner or later to buyers either domestic or foreign, is most visible, is in the data from the past 4 quarters, or the trailing year starting in…
by Zero Hedge - July 30th, 2014 11:34 am
Submitted by Tyler Durden.
Portugal’s PSI20 plunged over 3.4% today extending recent losses after its dead-cat-bounce, leaving the index near its lowest since October 2013. Interestingly peripheral bond spreads (and IG/HY credit spreads) compressed while equity markets all dumped across Europe amid concerns of blowback from Russia. As the sell-off accelerated into the close, credit markets also tumbled. An initial rally in financials gave way rapidly as US opened and rumors of G7 statements and Russian retaliation spread. Europe’s VIX closed just shy of 18.00 – its highest close since early May. Banco Espirito Santo fell another 10% to record lows ahead of tonight’s earnings.
Early gains disappeared for European banks…
Portugal plunged to 9 month lows…
and broad European stocks fell as US GDP (as good as it gets) and Russian warnings sparked selling…
by ilene - July 30th, 2014 11:01 am
Courtesy of Pam Martens.
As Wall Street On Parade reported last week, Jeffrey Kleintop, Chief Market Strategist for LPL Financial, reports that corporations are now the single largest buying source for U.S. stocks – authorizing buybacks of their own stocks to the tune of $754.8 billion in 2013 alone.
And it’s a long-term trend. According to Birinyi Associates, for calendar years 2006 through 2013, corporations authorized $4.14 trillion in buybacks of their own publicly traded stock in the U.S. — raising the question, just what kind of a bull market is this?
JPMorgan Chase, the largest U.S. bank by assets, has turned share buybacks into an art form, buying back a whopping $17,945,000,000 of shares from 2010 through 2013. In just the calendar year of 2011, JPMorgan spent a stunning $8,827,000,000 on stock buybacks.
According to JPMorgan’s most recent quarterly report filed with the Securities and Exchange Commission, “the Firm’s Board of Directors has authorized the Firm to repurchase $6.5 billion of common equity between April 1, 2014, and March 31, 2015.”
If the full authorization of $6.5 billion is spent by the first quarter of next year, JPMorgan will have tapped its capital to the tune of $24.5 billion – not to lend to deserving businesses or home buyers or consumers, but to binge on its own stock buybacks.
Having a steady pool of billions of dollars to prop up a stock’s share price might seem like a neat trick to top corporate executives whose compensation is tied, in part, to the performance of the company’s stock, but it does little to help a nation struggling from the aftermath of the economic ravages unleashed by the big bank financial crash in 2008.
Q2 GDP Surges 4%, Beats Estimates Driven By Inventories, Fixed Investment Spike; Historical Data Revised
by ilene - July 30th, 2014 10:31 am
Submitted by Tyler Durden.
Moments ago the Commerce department reported Q2 GDP which blew estimates out of the water, printing at 4.0%, above the declining 3.0% consensus, as a result of a surge in Inventories and Fixed Investment, both of which added over 2.5% of the total print, while exports added another 1.23% to the GDP number. The full breakdown by component is shown below.
As the BEA noted, "The Bureau emphasized that the second-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency. The "second" estimate for the second quarter, based on more complete data, will be released on August 28, 2014."
Some other components:
The change in real private inventories added 1.66 percentage points to the second-quarter change in real GDP after subtracting 1.16 percentage points from the first-quarter change. Private businesses increased inventories $93.4 billion in the second quarter, following increases of $35.2 billion in the first quarter and $81.8 billion in the fourth quarter of 2013.
Real personal consumption expenditures increased 2.5 percent in the second quarter, compared with an increase of 1.2 percent in the first. Durable goods increased 14.0 percent, compared with an increase of 3.2 percent. Nondurable goods increased 2.5 percent; it was unchanged in the first quarter. Services increased 0.7 percent in the second quarter, compared with an increase of 1.3 percent in the first.
Real nonresidential fixed investment increased 5.5 percent in the second quarter, compared with an increase of 1.6 percent in the first. Investment in nonresidential structures increased 5.3 percent, compared with an increase of 2.9 percent. Investment in equipment increased 7.0 percent, in contrast to a decrease of 1.0 percent. Investment in intellectual property products increased 3.5 percent, compared with an increase of 4.6 percent. Real residential fixed investment increased 7.5 percent, in contrast to a decrease of 5.3 percent.
Real exports of goods and services increased 9.5 percent in the second quarter, in contrast to a decrease of 9.2 percent in the first. Real imports of goods and services increased 11.7 percent, compared with an increase of 2.2 percent.
What is interesting
by Zero Hedge - July 30th, 2014 10:30 am
Submitted by Tyler Durden.
Well that didn’t last long…
Desk chatter of large institutional selling and concerns over a forthcoming G7 statement on Russia are being blamed for now…