by ilene - August 28th, 2015 10:23 am
Courtesy of Charles Hugh-Smith, Of Two Minds
By financial independence, I don't mean an inherited trust fund. I mean earning an independent living as a self-employed person. Sure, it's nice if you chose the right parents and inherited a fortune. But even without the inherited fortune, financial independence via self-employment has always been an integral part of the American Dream.
Indeed, it could be argued that financial independence is the American Dream because it gives us the freedom to say Take This Job And Shove It (Johnny Paycheck).
This chart shows the self-employed as a percentage of those with jobs (all nonfarm employees). According to the FRED data base, there are 142 million employed and 9.4 million self-employed. (This does not include the incorporated self-employed, typically physicians, attorneys, engineers, architects etc. who are employees of their own corporations.)
This chart depicts self-employment from 1929 to 2015. Self-employment plummeted after World War II as Big Government and Big Business (Corporate America) expanded and the small family farmer sold to agri-business or went to the city for an easier living as an employee of the government or Big Business.
Self-employment picked up as the bulk of 65 million Baby Boomers entered the work force in the 1970s. Not entirely coincidentally, a 30-year boom began in the 1980s, driven by financialization, technology and the explosion of new households as Baby Boomers got jobs, bought homes, etc. These conditions gave a leg up to self-employment.
Self-employment topped at around 10.5 million in the 1990s, and declined sharply from about 2007 to the present. But the expansion of self-employment from 1970 to 1999 is somewhat deceptive; while self-employment rose 45%, full-time employment almost doubled, from 67 million in 1970 to 121 million in 1999.
Financial independence means making enough income to not just scrape by but carve out a modestly middle-class life. If we set $50,000 as a reasonable minimum for that standard (keeping in mind that households with children recently estimated they needed $200,000 in annual income to get by in San Francisco), we find that according to IRS…
by ilene - August 28th, 2015 1:47 am
Courtesy of Mish.
Economist Steve Keen pinged me in response to my post Regional Manufacturing Expectations From Mars.
In that post, I compared Richmond Fed manufacturing survey expectations (six month look ahead projections made in February for August), to what actually happened in August.
In response, Steve Keen Tweeted
@MishGEA gets it wrong! Says “Regional Manufacturing Expectations From Mars” when they’re really from Uranus.
I duly stand corrected. I am now planetarily aligned with Keen on the distinction between Mars and Uranus.
On a more serious note, please consider the Financial Times article Why China’s stock market implosion might not be very meaningful, by Izabella Kaminska.
Kaminska quotes Steve Keen as follows …
One key peculiarity about China’s economy—and there are many—is that much of its growth has come from the expansion of industries established by local governments (“State Owned Enterprises” or SOEs). Those factories have been funded partly by local governments selling property to developers (who then on-sold it to property speculators for a profit while house prices were rising), and partly by SOE borrowing. The income from those factories in turn underwrote the capacity of those speculators to finance their “investments”, and it contributed to China’s recent illusory 7% real growth rate.
With property price appreciation now over, those over-levered property developers aren’t buying local government land any more, and one of the two sources of finance for SOEs is now gone. Borrowing is still there of course, and the Central Government will probably require local councils to continue borrowing to try to keep the growth figures up. But the SOEs are already losing money, and this will just add to the Ponzi scheme. The collapse of China’s asset bubbles will therefore hit Chinese GDP growth much more directly than the crashes in the more fully capitalist nations of Japan and the USA.
Heart of the Matter
Keen indeed gets to the heart of the matter about SOEs, borrowing, and illusory growth rates….
by Market Shadows - August 28th, 2015 12:02 am
Financial Markets and Economy
The turmoil in financial markets to start the week is fast becoming a blip in the rear-view mirror, with developed market equities posting robust gains on Thursday as volatility subsided and the commodity complex largely advanced.
The U.S. stock market bounced back on Thursday and made history.
After several volatile days with huge swings in both directions, the Dow finished Thursday up 369 points. Combined with Wednesday's 619-point rally, it's the best two-day point gain for the Dow in its history, surpassing the previous record set in 2008.
An unusual trend in the relationship between the dollar and U.S. stocks emerged during this week’s global stock-market selloff.
Though both U.S. stocks and the dollar have both been appreciating over the past year, they typically trade inversely because a strengthening dollar hurts corporate earnings.
The Chinese aviation industry is growing at an incredible pace.
And Boeing has taken notice.
According to the latest projections from the airplane maker, Chinese airlines will play a big role in the company's financial success.
It's not talked about nearly as much as oil or Islamic State, yet lack of water is driving conflict and strife in the Middle East and North Africa.
Oil markets catch breath after biggest gains in six years (Business Insider)
Crude oil futures were largely steady on Friday after
by ilene - August 27th, 2015 9:52 pm
Courtesy of Joshua Brown, The Reformed Broker
Five trading days in the Dow Jones Industrial Average and a roundtrip between here and the close last Friday.
God forbid you had gone a few days doing something other than obsessing over the market. You’d take a look at the current level and conclude that not much has gone on.
The hard part is that we don’t always get a V-shaped bounce. And sometimes, the bounce isn’t permanent – just a temporary development to suck more buyers in. But you can’t know in advance, nor can anyone else, so its probably not a great idea to go leaping off a diving board headfirst into the most hysterically bearish or bullish narrative you can find.
Managing the mental ups and downs is more important than trying to manage the market’s ups and downs for most investors. For short-term traders, however, this is paradise.
Have at it, guys.
by ilene - August 27th, 2015 8:54 pm
Courtesy of Joshua M. Brown, The Reformed Broker
You want the box score on this latest weekly battle in the stock market?
No problem: Humans 1, Machines 0
Because if you think it was human beings executing sales of Starbucks (SBUX) down 22% on Monday’s open, you’re dreaming. And if you believe that it was thinking, sentient people blowing out of Vanguard’s Dividend Appreciation ETF (VIG) at a one-day loss of 26% at 9:30 am, you’ve got another thing coming.
By and large, people did the right thing this week. They recognized that JPMorgan and Facebook and Netflix should not have printed at prices down 15 to 20% within the first few minutes of trading and they reacted with buy orders, not sales. They processed the news about the 1200+ individual issue circuit-breakers and they let the system clear itself.
Rational, experienced people understood that an ETF with holdings that were down an average of 5% should not have a share price down 30%.
Conversely, machines can only do what they’ve been programmed to do. There’s no art, there’s no philosophy and there’s no common sense involved. And volatility-shy trading programs have been programmed to de-risk when prices get wild and wooly, period. Their programmers can’t afford to have an algo blow-up so the algos are set up to pull their own plug, regardless of any qualitative assessment during a special situation that is obvious to the rest of the marketplace.
Warren Buffett once explained that “Paradoxically, when ‘dumb’ money acknowledges its limitations, it ceases to be dumb.” Ordinary investors, in the aggregate, have learned their limitations the hard way over the last few decades. This is why 25% of all invested assets are in passive investment vehicles and Vanguard is now the largest fund family on the planet. Retail players gave up on the fever dream of Mad Money long ago; Mom and Pop are now investing in the missionary position from here on out.
by ilene - August 27th, 2015 8:43 pm
Courtesy of Mish.
Disputes over GDP go on and on and on. MarketWatch reports By another measure, the U.S. economy was ho-hum in second quarter.
There are two ways to compute how well the economy is doing.
One is to tally all the goods and services produced during a given time period — that’s called gross domestic product.
Another is to measure all the incomes earned in the production of those goods and services — that’s called gross domestic income.
Over time, they should be exactly the same. But measurement isn’t easy, and so the Commerce Department not only reports both figures, but also for the first time on Thursday averaged the two together.
The result wasn’t great: It’s showed a 2.1% average for the second quarter, since GDP growth was a sterling 3.7% and GDI was a meager 0.6%.
According to Josh Shapiro, chief U.S. economist at MFR, that’s the largest gap between the two measures of the economy since the third quarter of 2007.
“Some research has shown the GDI figures to be a more accurate representation of economic activity, but the evidence is mixed and the debate continues. Nonetheless, the disparity reported in Q2 does lend credence to the notion that the GDP growth reported in the quarter likely overstates the underlying vitality of the economy in the span,” he said in a note to clients.
That may look significant, but let’s investigate further.
DGI vs. GDP Percent Change from Year Ago
by ilene - August 27th, 2015 8:13 pm
… comes from Dan Loeb of Third Point, who as Gawker points out admits to being a member of the hacked cheating website: due diligence:
“As my family, friends and business colleagues know, I am a prolific web surfer. Did I visit this site to see what it was all about? Absolutely – years ago, at the time I was invested in Yahoo and IAC and was endlessly curious about apps and websites. Did I ever engage or meet with anyone through this site? Never. That was never my intention — as evidenced by the fact that I never provided a credit card to set up an account.”
Indeed, as the author points out, this is an "entirely plausible excuse for being on Ashley Madison" especially for someone who was financially affiliated with comparable websites. In fact, for anyone on Wall Street caught on Ashley Madison and having to explain to their significant other why they were on (a website where some 95% of the members were many to begin with) the explanation is all too simple: to test out the platform and its profitability ahead of their imminent (and now permanently scrapped) IPO. Period, end of story.
Unless the story doesn't end there, like in this case: "it doesn’t explain why someone who had no intention of engaging with other adulterers described himself as looking for “discreet fun with 9 or 10,” as indicated in his profile data.
I asked Loeb why he’d entered his desire for “discreet fun” into a website he had no intention of using. He replied: “That field was part of going on the site and I gave a brief line that sounded plausible.”
Loeb’s statement also doesn’t explain why he checked his private messages on an account he never used to “engage” with anyone. The profile data shows that the last time he did so was on December 9, 2013—eight months after he joined Ashley Madison.
Here is what a better explanation may have sounded like: "I am a billionaire: does it look like I need to secretly hook up on an anonymous website when I can go out and have any woman I want?"
[Picture of Dan Loeb from Reuters, here.]
by ilene - August 27th, 2015 7:30 pm
On Wednesday, we asked if Monday’s catastrophic ETF collapse which saw over 200 funds fall by at least 10% was just a warmup for a meltdown of even greater proportions.
The problem, you’ll recall, was that in the midst of Monday’s flash-crashing mayhem, a number of ETFs traded at a remarkable discount to fair value. Essentially, market makers looked to have simply walked away (there’s your HFT "liquidity provision" in action) or else put in absurdly low bids in order to avoid getting steamrolled when the constituent stocks came off halt. The wide divergences weren’t arbed for whatever reason and the result was an epic breakdown of the ETF pricing mechanism.
As we wrote on Wednesday, this was proof positive that contrary to popular belief (which, incidentally, is itself contrary to common sense in this case), an ETF cannot be more liquid than the assets it references and when liquidity dries up in the underlying as it did on Monday, the market structure is clearly inadequate to cope.
But don’t worry, because the problem has been identified.
It’s simply a "computer glitch" at Bank of New York Mellon. Here’s WSJ:
A computer glitch is preventing hundreds of mutual and exchange-traded funds from providing investors with the values of their holdings, complicating trading in some of the most widely held investments.
The problem, stemming from a breakdown early this week at Bank of New York MellonCorp., the largest fund custodian in the world by assets, prompted emergency meetings Wednesday across the industry, people familiar with the situation said. Directors and executives at some fund sponsors scrambled to manually sort out pricing data and address any legal ramifications of material mispricings, those in which stated asset values differed from the actual figures by 1% or more.
A swath of big money managers and funds was affected, ranging from U.S. money-market mutual funds run by Goldman Sachs Group Inc., exchange-traded funds offered by Guggenheim Partners LLC and mutual funds sold by Federated Investors. Fund-research firm Morningstar Inc. said 796 funds were missing their net asset values on Wednesday.
by ilene - August 27th, 2015 5:00 pm
Courtesy of Lance Roberts via STA Wealth Management
Earlier this week I posted two articles. The first discussed the possibility that this is just a correction within an ongoing bull market. The second delved into the possibility that a new cyclical bear market has begun. Only time will tell which is truly the case.
The bounce over the last couple of days has been met with "party hats" by the mainstream media as a sign that the bottom is in and the worst is now behind us. Historically such has not been the case as witnessed by looking at the 1987, 1998, 2010 and 2011 corrections that occurred within an ongoing bull market. In every case, the markets bounced off correction lows only to retest those lows several weeks later. As I stated then:
"The sharp 'reflexive' rally that will occur this week is likely the opportunity to review portfolio holdings and make adjustments before the next decline. History clearly suggests that reflexive rallies are prone to failing, and a retest of lows is common. Again, I am not talking about making wholesale liquidations in accounts. However, I am suggesting taking prudent portfolio management actions to raise some cash and reduce overall portfolio risk."
The esteemed technician Walter Murphy recently had some interesting commentary in this regard.
"Our sense is that the volatility of recent days is a sign that the S&P 500 is attempting to put a short-term bottom in place.
Nonetheless, the weekly and monthly Coppock Curves are down, with the weekly oscillator positioned to remain weak for at least another 5-6 weeks. In addition, there are no meaningful divergences. For example, the daily Coppock and RSI(8) indicators are at their lowest levels since August 2011.
Another indicator that may prove to be guideline is the S&P’s Bullish Percent Index, which is also at its lowest reading (22.4%) since 2011. During the 2011correction, the BPI initially fell to 20.4% in August, experienced a relief rally to 54.4% in September, and then fell to 21.8% in October. The October low was a bullish divergence because it was higher than the August reading even though the “500” recorded a lower low. This divergence was followed by the just-completed four-year
by ilene - August 27th, 2015 3:30 pm
Courtesy of Mish.
In the wake of a stronger than expected GDP report (see Second Quarter GDP Revised Up, as Expected, Led by Autos, Housing), some are questioning the stated growth.
For example, the Consumer Metrics Institute says "On the surface this report shows solid economic growth for the US economy during the second quarter of 2015. Unfortunately, all of the usual caveats merit restatement".
Consumer Metrics Caveats
- A significant portion of the "solid growth" in this headline number could be the result of understated BEA inflation data. Using deflators from the BLS results in a more modest 2.33% growth rate. And using deflators from the Billion Prices Project puts the growth rate even lower, at 1.28%.
- Per capita real GDP (the number we generally use to evaluate other economies) comes in at about 1.6% using BLS deflators and about 0.6% using the BPP deflators. Keep in mind that population growth alone (not brilliant central bank maneuvers) contributes a 0.72% positive bias to the headline number.
- Once again we wonder how much we should trust numbers that bounce all over the place from revision to revision. One might expect better from a huge (and expensive) bureaucracy operating in the 21st century.
- All that said, we have — on the official record — solid economic growth and 5.3% unemployment. What more could Ms. Yellen want?
I certainly agree with point number three. Significant GDP revisions are the norm, even years after the fact. The numbers are of subjective use at best because GDP is an inherently flawed statistic in the first place.
As I have commented before, government spending, no matter how useless or wasteful, adds to GDP by definition.
Moreover, inflation statistics are questionable to say the least, as are hedonic price measurements and imputations.
Imputations are a measure of assumed activity that does not really exist. For example, the BEA "imputes" the value of "free checking accounts" and ads that number to GDP.
The BEA also makes the assumption that people who own their houses would otherwise rent them. To make up for the alleged lost income, the BEA actually assumes people rent their own houses from themselves,