by ilene - May 22nd, 2015 2:33 pm
Courtesy of Mish.
Inquiring minds are reading Fed Chair Janet Yellen’s Outlook for the Economy speech, delivered today at the Providence, Rhode Island Chamber of Commerce.
Here are a few snips from what I believe to believe is a way over-optimistic assessment. I provide rebuttals following each statement.
Yellen: The U.S. economy seems well positioned for continued growth. Households are seeing the benefits of the improving jobs situation, and consumer confidence has been solid.
Mish: The economy is not positioned for much, if any, growth. Consumer confidence is not solid, and consumer spending plans have been sinking like a rock. See Consumer Confidence Plunges Below Any Economist’s Estimate; Consumers Shock Economists.
Yellen: The drop in oil prices amounts to a sizable boost in household purchasing power. The annual savings in gasoline costs has been estimated at about $700 per household, on average, and savings on heating costs--especially here in the Northeast, where it was so cold this winter--are also large. Given these energy savings on top of the job gains, real disposable income has risen almost 4 percent nationally over the past four quarters. Households and businesses also are benefiting from favorable financial conditions. Borrowing costs are low, supported by the Fed’s accommodative monetary policies. And credit availability to both households and small businesses has improved.
Mish: Any savings on energy went up in smoke on rental increases and rising health care costs. See CPI Shows Sharply Rising Medical Costs; Huge Obamacare Hikes Planned.
Yellen: In recent months, as I noted earlier, there has been some softness in the economic data. Recent indicators of both household spending and business investment have slowed, and industrial output has declined. The Commerce Department’s initial estimate was that real gross domestic product was nearly flat in the first quarter of 2015. If confirmed by further estimates, my guess is that this apparent slowdown was largely the result of a variety of transitory factors that occurred at the same time, including the unusually cold and snowy winter and the labor disputes at ports on the West Coast, both of which likely disrupted some economic activity. And some of this apparent weakness may just be statistical noise. I therefore expect the economic data to strengthen.
Mish: In a shock to economists, consumers are doing exactly what they said they
by ilene - May 22nd, 2015 12:43 pm
Courtesy of Mish.
The CPI came in exactly in line with the Bloomberg Consensus option today.
It’s the details, not the overall number that is worrying. Medical care and rents have been rising rapidly.
The Fed likes to ignore food and energy costs. They have their chance to prove it.
From Bloomberg …
Pull forward that rate hike is what some of the hawks are thinking after reading today’s consumer price report where a benign looking headline, up only 0.1 percent in April, masks rising pressure through many components.
Excluding food and energy, core prices rose 0.3 percent which doesn’t seem that much but is outside Econoday’s high-end forecast for 0.2 percent. It is also the highest since January 2013. The year-on-year rate for the core is plus 1.8 percent which, after dipping to 1.6 percent earlier in the year, is closing in on the Fed’s general inflation target of 2.0 percent.
Readings showing pressure are outside energy including medical costs (up a very steep 0.7 percent in the month) and education costs (up 0.5 percent). Shelter costs, reflecting rising rents, came in at plus 0.3 percent for the 3rd time in 4 months which is the hottest streak for this reading since way back in late 2006 and early 2007. Also standing out are gains in furniture (up 1.3 percent) and used cars (up 0.6 percent).
Oil prices have been on the rise but not energy costs, at least in the April report which fell a heavy 1.3 percent. Gasoline fell 1.7 percent in the month. Two other readings also showed downward pressure: airfares (minus 1.3 percent) and apparel (minus 0.3 percent). Food costs were flat.
The headline CPI is down 0.2 percent year-on-year which looks downright deflationary. But the lack of pressure is due entirely to energy which is down a very deflationary 19.4 percent year-on-year. Energy prices are bound to firm given the recent move in oil from the high $40s for WTI to $60. That and emerging price pressures through the bulk of the consumer economy raise the risk that inflation may be brewing after all.
The CPI Seasonally Adjusted Numbers from the BLS look even worse.
by ilene - May 22nd, 2015 12:36 pm
It's not so easy to separate social and fiscal issues. This article discusses why it can't be done, and what the fiscally conservative/socially liberal folks are missing. Thoughts? Please share with us in the comment section.
It's a popular refrain among "centrists." The truth is that social and fiscal issues are inextricably bound
By Greta Christina, originally published at Alternet (via Salon)
Well, I’m conservative — but I’m not one of those racist, homophobic, dripping-with-hate Tea Party bigots! I’m pro-choice! I’m pro-same-sex-marriage! I’m not a racist! I just want lower taxes, and smaller government, and less government regulation of business. I’m fiscally conservative, and socially liberal.”
How many liberals and progressives have heard this? It’s ridiculously common. Hell, even David Koch of the Koch Brothers has said, “I’m a conservative on economic matters and I’m a social liberal.”
And it’s wrong. W-R-O-N-G Wrong.
You can’t separate fiscal issues from social issues. They’re deeply intertwined. They affect each other. Economic issues often are social issues. And conservative fiscal policies do enormous social harm. That’s true even for the mildest, most generous version of “fiscal conservatism” — low taxes, small government, reduced regulation, a free market. These policies perpetuate human rights abuses. They make life harder for people who already have hard lives. Even if the people supporting these policies don’t intend this, the policies are racist, sexist, classist (obviously), ableist, homophobic, transphobic, and otherwise socially retrograde. In many ways, they do more harm than so-called “social policies” that are supposedly separate from economic ones. Here are seven reasons that “fiscally conservative, socially liberal” is nonsense.
1: Poverty, and the cycle of poverty. This is the big one. Poverty is a social issue. The cycle of poverty — the ways that poverty itself makes it harder to get out of poverty, the ways that poverty can be a permanent trap lasting for generations — is a social issue, and a human rights issue.
by ilene - May 22nd, 2015 11:13 am
Courtesy of The Automatic Earth.
NPC Dedication of Francis Asbury statue, Washington, DC 1924
The present Chinese leadership appears to be trying to gain (regain?) more -if not full- control over the country’s economic system, while at the same time (re-)boosting the growth it has lost in recent years.
President Xi Jinping, prime minister Li Keqiang and all of their subservient leaders – there are 1000?s of those in a 1.4 million citizens country- apparently think this can be done. Yours truly doubts it.
As I’ve repeatedly said over the past years, I don’t think that they ever understood what would happen if they opened up the country to a more free-market, capitalist structure. That doing so would automatically reduce their political power, since a free market, in whatever shape and form, does not rhyme with the kind of control which the Communist Party has been used to for decades, and which the current leaders have grown up taking for granted.
I don’t think they’re fools or anything, just that their -preconceived- ideas of power don’t rhyme with the kind of economy Beijing, starting with Deng Xiao Ping, has created. In particular, they have allowed other segments of society to accumulate great wealth, and with wealth comes power.
And in fine Pandora’s Box fashion, it’s very hard, if not impossible, to reverse the process. This failure to grasp to what extent these ‘market liberation’ policies have had a Sorcerer’s Apprentice effect, may, if not must, lead to utter chaos and worse…
A closely related failure is that the rulers have allowed the shadow banking system to grow to ginormous proportions. Likely, in their eyes this ‘merely’ helped the economy grow at double digit speed for years, and they could stop it at will. But something else was growing along with it: the power of the shadow banks -and the people behind them-, both economic and political. Which is not acceptable in a one party rules all system.
And so there is a crackdown going on, presented as ‘reform’, and shadow bank loans have indeed diminished. But that is hurting the economy much more than it heals it. And so measures are reversed on the fly.
by ilene - May 22nd, 2015 10:03 am
Courtesy of Pam Martens.
When the U.S. Department of Justice held its press conference on Wednesday to announce that five mega banks were each pleading guilty to a felony charge, paying big fines and being put on probation for three years, Assistant U.S. Attorney General Leslie Caldwell specifically took a battering ram to the reputation of Swiss bank, UBS.
Four banks — Citicorp, a unit of Citigroup, JPMorgan Chase & Co., Royal Bank of Scotland and Barclays — pleaded guilty to an antitrust charge of conspiring to rig foreign currency trading while UBS pleaded guilty to one count of wire fraud for its earlier involvement in rigging the interest rate benchmark, Libor.
In explaining why the Justice Department was ripping up the non-prosecution agreement it had negotiated with UBS in December 2012 over its involvement in the Libor fraud and now charging it with a felony, Caldwell delivered a scathing attack on UBS, stating:
“Perhaps most significantly, UBS has a ‘rap sheet’ that cannot be ignored. Within the past six years, the department has resolved criminal investigations of UBS three times, resulting in non-prosecution or deferred prosecution agreements. UBS also has entered into civil and regulatory settlements on multiple occasions within the past few years. Enough is enough.”
Enough is apparently not enough, however, when it comes to serial banking tyrants based in the U.S. Not only does Citigroup have a monster rap sheet that keeps growing, but it’s the bank that contributed significantly to the U.S. financial collapse in 2008 and received the largest taxpayer bailout in U.S. history: $45 billion in equity infusions, over $300 billion in asset guarantees, and over $2 trillion in low-cost loans from the Federal Reserve.
by ilene - May 22nd, 2015 9:25 am
Courtesy of Pater Tenebrarum via Acting-Man.com
A Big Dow Theory Divergence
We briefly want to show a few charts that have caught our eye recently. This is by no means a comprehensive market update (we plan to provide one soon). Here is something though one doesn’t see all too often: the Dow Industrials and Transportation averages have diverged from each other for about six months running. To be sure, no valid Dow theory sell signal has been given yet. For that to happen both averages need to break their previous reaction lows in concert. However, divergences at peaks are a “heads up” signal. Charles Dow would probably at least raise one eyebrow and frown a little.
Transportation stocks have turned from leaders into laggards, in the process diverging ever more from the Industrials average – click to enlarge.
The NYA, Then and Now
The next two charts were sent to us by a friend who manages a fund and often passes on his technical observations to us. The first chart shows the broad-based NYSE Stock Exchange Index (NYA) as it looked in the final years of the tech mania that fizzled out in the spring of 2000. The second chart shows the NYA as it looks today.
The NYA from 1996 to 2000 – click to enlarge.
The NYA today – click to enlarge.
The similarity between these two charts is quite baffling. However, we hasten to add that we have seen many such pattern comparisons over the past few decades, and they often turn out to be meaningless. Incidentally though, Paul Tudor Jones’ career really took off when he traded the 1980s market based on the pattern of the 1920s market, and the pattern actually did repeat, including the infamous crash (the action obviously began to diverge after the crash, but the patterns eerily shadowed one another for a number of years). So at times, a pattern comparison can actually turn out to be helpful.
by ilene - May 21st, 2015 11:32 pm
Courtesy of Mish.
Congratulations are in order for team Bush and team Obama for another stunning US foreign policy success: Isis Controls Half of Syria after Palmyra Seizure.
Fighters from the Islamic State of Iraq and the Levant (Isis) have seized the Syrian city of Palmyra, home to a Unesco world heritage site, putting nearly half of Syrian territory in the jihadi group’s hands and sparking fears that treasured antiquities may be destroyed.
Isis announced it had “complete control” of the city on Thursday, and state television said President Bashar al-Assad’s forces had withdrawn from the city, which is known to most Syrians by its Arabic name Tadmur.
Ancient Palmyra is known to the world for its iconic avenue of Roman columns, and was a cultural crossroad of the ancient world. The city dates back to the 1st century, when it was an oasis on a trade route linking eastern civilisations with the Roman empire. Its ruins lie to the southwest of modern Tadmur.
“Palmyra is an extraordinary World Heritage site in the desert and any destruction to Palmyra [would be] not just a war crime but . . . an enormous loss to humanity,” Unesco head Irina Bokova said in a video.
Isis has developed a reputation for destroying or selling cultural treasures. Earlier this year it filmed its fighters smashing Assyrian artefacts at sites in northwestern Iraq.
Moderate Rebels Defect
In case you are wondering how this happened, please consider this IBTimes report from March 7, 2015: US-Backed Moderate Syrian Rebels In North Defect; Obama Strategy Set Back.
It was supposed to be a crucial instrument of the Obama administration's aims in Syria, an ostensibly moderate rebel fighting force that would keep the pressure on the authoritarian regime in Damascus without aiding the ruthless jihadist forces that have captured much of the country. But the soldiers of Harakat Hazzm — the first Syrian rebel group to receive arms from the CIA — disbanded this week.
As a result, much of northern Syria is in the hands of the extremists, and the United States is left with no palatable ally in the area in the midst of a regional conflict that continues to spiral out of control.
Hillary Backs Moderates
by ilene - May 21st, 2015 8:20 pm
Michael Santoli Interviews Ian Bremmer on Yahoo Finance.
By John Mauldin
Ian Bremmer’s new book on the future of the US and geopolitics, Superpower, just hit the streets yesterday, and it’s already creating quite a buzz. It draws on Bremmer’s remarkable understanding of politics, America, and the world. I first ran into Ian at a conference about four years ago, where he was the after-dinner keynote speaker. It was one of those dinners where I had to go (I had spoken earlier), and I had no knowledge of Ian other than his official bio. A professor of geopolitics. From New Yawk. So this Texas boy settled in while Ian walked on stage … and in three seconds I realized that this was an uber-nerd. Total geek. Seriously, when Hollywood wants to type cast a brilliant super-nerd, they should use Ian as the model. He hit all my stereotype buttons, and I of all people should know better.
Within five minutes, this nebbish professor was blowing me away. I was totally captivated. He took me on a trip through the geopolitical landscape as profound as any I had ever been on.
Ian gave one of the most compelling presentations at our most recent Strategic Investment Conference. No fancy Powerpoint, just one machine-gun idea after another, strung together in what I now realize is his own carefully crafted style.
As I shared with you in Thoughts from the Frontline last week, Ian’s summary of the geopolitical situation and America’s role in managing it can be expressed in two words: it’s bad.
The US is not in decline, he asserts in today’s Outside the Box, citing “the strength of the dollar, US equity markets, employment levels and the economic rebound, the energy and food revolutions, and generation after generation of technological innovation.” But America’s foreign policy and international influence are most certainly in decline. Nevertheless, no other country can even come close to claiming superpower status, so the role the US chooses to play in the world remains of paramount importance.
by ilene - May 21st, 2015 7:57 pm
Courtesy of Bill Bonner
Bonds: A Crowded Trade
In the financial markets, we have been waiting for a crash of U.S. stock prices. And waiting. And waiting. It still hasn’t come.
Last week the spectacular bull market in U.S. stocks that began in March 2009 continued with even more gains. On Friday, the S&P 500 hit another all-time high.
But the real action was in the bond market. Over the last three weeks, about half a trillion dollars has been wiped off the value of global bonds … despite lower than normal trading volumes.
According to Citigroup strategist Mark Schofield, the sell-off is a “stark reminder of just how congested a lot of market positioning has become.” This makes it “increasingly difficult for investors to exit those positions when the time comes to do so.”
As Bloomberg reports:
“That means that it will be increasingly difficult for central banks to start backing away from their unprecedented stimulus efforts as growth takes hold – no matter how much they may want to – without causing a massive traffic jam of investors all trying to sell at once.”
Uh … yes.
Italy’s 10 year government bond yield – an example of recent bond market indigestion – click to enlarge.
A Modern-Day John Law
Nobody knows whether the recent correction in bond prices (and the accompanying rise in yields) will continue or not.
It is almost too classic to believe. Serious economists – and anyone with any common sense – have realized for centuries that you can’t increase the quantity of debt without also decreasing its quality. The more you owe, the less likely you are to pay.
But central banks have been encouraging businesses, households, and governments all over the planet to take on more debt. They claim this will “stimulate” the economy… and that the resulting “growth” will make it easy to repay the debt.
by ilene - May 21st, 2015 4:30 pm
Financial Markets and Economy
Here they're doing that grumbling in letters to clients the day after their guilty pleas. There is no promise of reform here: The Justice Department caught the banks doing things that it didn't like and fined them billions of dollars, but won't stop them from doing most of those things. As long as there are no more ambiguities or misunderstandings about what they are. It's a weird stalemate. The Justice Department doesn't like these practices, the banks like them fine, and they've agreed to disagree. These practices have been singled out, in the context of criminal plea agreements (a bad context!), as things that happened. But not quite as crimes. And the banks are careful to make clear: They're going to keep happening.
The Senate Has a $66 Billion Gift for U.S. Banks (Bloomberg)
A U.S. Senate proposal to raise the level at which banks are deemed systemically important could help free up as much as $66 billion in capital at 11 lenders and allow for increased shareholder payouts.
The jitters were so intense that it took a clear message from European Central Bank policy makers that the central bank stands firmly behind its aggressive stimulus program, for the market to calm and resume some bullish momentum.
The first road-legal autonomous truck made a splashy debut earlier this month. The Freightliner Inspiration Truck is shiny and new, but it will not be good for everyone. Autonomous trucks will destroy