Tag Archives: economy

Fed Nonsense and Error Bars

By Michael Ashton

Wages follow inflation, rather than leading it

[Yesterday’s] news was the Employment number. I am not going to talk a lot about the number, since the January jobs number is one of those releases where the seasonal adjustments totally swamp the actual data, and so it has even wider-than-normal error bars. I will discuss error bars more in a moment, but first here is something I do want to point out about the Employment figure. Average Hourly Earnings are now clearly rising. The latest year-on-year number was 2.5%, well above consensus estimates, and last month’s release was revised to 2.7%. So now, the chart of wage growth looks like this.


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No Energy ‘Tax Cut’…

By Jeffrey Snider of Alhambra

Personal Savings Up Meaning No Energy ‘Tax Cut’ Reaches Consumer

If China and US manufacturing are suffering from what looks like the contours of a slowly progressing recession, we don’t have to go very far to find the genesis. The common denominator is and has been US consumers. That much is evident in very clear fashion through retail sales during the Christmas season that were abysmal. The BEA’s update for full PCE figures shows mostly the same, even though overall PCE is highly influenced by “services” spending in the form of imputations and, where evident, services in the form of a tax (health care).

Real PCE spending was slightly negative in December month-over-month, which suggests another reason why GDP disappointed without too much snow or “residual seasonality.” That makes two of the last three months with essentially zero spending growth despite both what the BEA suggests as somewhat rising income and no “inflation.” This has been an issue with these data points for some time, as the BEA continually suggests that income is rising faster than spending only to revise income lower in persistent fashion. This dichotomy is highlighted by the personal savings rate, which in count of repeated revisions appears as just noise almost without discernible pattern.

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Beyond The Semantics of ‘Missing Money’

By Jeffrey Snider of Alhambra

In short, the Fed took over money dealing in some forms in 2008

Economists had noticed by the mid-1970’s that what they thought were steady money relationships with the economy had broken down. This divergence was not slight; how could it be given that the era still stands today as the Great Inflation? Ostensibly, a great deal of research on the topic was devoted to monetary policy implications which is a direct assault on any idea of monetarism as some static and universal set of laws by which to guide economic management for all time. More and more through the worst part of the Great Inflation, the later 1970’s, this became a search for “missing money.”

What was in many ways frustrating was that this “money” was never really missing at all. Almost everyone knew where it was and what it was; the problem was that economists resisted and resisted declaring the products of financial innovation as “money.” While technology and originality had created NOW accounts, surplused repos and, yes, eurodollars, the mainstay of economics continued to assert them as nothing more than exotic forms of assets. It didn’t matter that they were being used in practice as transactionable substitutes, what mattered to them was that quantity theory was never truly jeopardized.

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Up to Our Necks in It

By Michael Ashton

Commodities were worth hating four years ago

It is amazing to reflect on the fact that the stock market last week experienced its worst 5-day span to open the year ever. I haven’t independently confirmed that; it seems incredible to me that in a hundred and whatever years we have never started with a 6% loss – but that is what is being widely reported. In any event, it has been a bad start and the market is back to the levels it last saw in August, before the inexplicable Q4 blast-off. Easy come, easy go.

Why is the market down? The harder question is the question of why it was up in the first place. Stocks have been persistently far above fair value measured by CAPE, Tobin’s Q, or any other traditional value metric. The argument that stocks were high because bond yields were low is perhaps the best explanation; this is after all part of the whole “portfolio balance channel” effect that the Fed has been trying to create with QE – raise the price of a good (bonds) and the prices of substitutes (corporate bonds, stocks) should also rise. (Left unsaid, of course, is why it is a good thing to move asset prices away from fair value. The ‘wealth effect’ is small, and zero-sum at best unless prices can permanently be moved away from fair value.)

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Even GDP Objects

By Jeffrey Snider of Alhambra

Alhambra on GDP, Oil, China and the US economy

US oil prices (WTI) ended 2014 at $53.45 spot. Since the decline to that point was thought be a temporary deviation, the fact that WTI ended 2015 at $37.07 is inconceivable to that perspective. The reasons for that were the unemployment rate and GDP. Payroll expansion had just fired up into the “best jobs market in decades” while GDP was shooting up into the 5% range (since revised lower). The final reading on Q3 2014 GDP was released on December 23, 2014, and it presented the possibility of not just the highest growth rate dating back to 2003, but also in back-to-back quarters.

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Armstrong 3+ Decades Late on Manufacturing

By Biiwii

As you may know, certain things get stuck in my craw from time to time because I came from industry, not from the abstract world of stock markets, finance and Keynesian economics.  In short, I made stuff and sold stuff.  The pressure was always there to get better, more efficient, more employee friendly, more modern.  We did well in those regards, starting in the early 80’s.

Along comes a post by Martin Armstrong, the detailed merits of whom I will not debate because I don’t study him closely enough.  Suffice it to say that I do not care for the cult-like following that seems to hold he and his computer, Socrates aloft in much the same way I did not care for the cult-like following (of “Comrades in Golden Arms”) that held aloft James Sinclair, by way of whom many people came to know Mr. Armstrong.

Indeed, too many smart people seem to put great weight on Martin Armstrong for the non-guru likes of me to criticize him in general.  But I will go by what I read when the material is on a subject that I know about.  US Manufacturing is a subject that I know about intimately; politics and associated biases are not.  Yesterday, from Armstrong in response to another poor ISM release…

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The Economy Would be in Recession if…

By Jeffrey Snider of Alhambra

The Economy Would be in Recession if it Weren’t so Robust

In the manufacturing sector we find the most supreme test of economic credentials. Despite what is clearly taking place, the mainstream, orthodox outlook and assessment continues to dominate. There isn’t any doubt anymore about the manufacturing sector, as recession not only is broad enough there on its own it continues to deepen and darken. Yet, because Janet Yellen declared the US economy close to “overheating” by initiating a rate increase, there remains all sorts of confusion about how this contradiction could occur.

It stands to no reason that an overheating economy would be so incredibly weak in the one segment that should be most visibly revivifying. If American economic fortunes were so bright, there is no reason to suggest that Americans would not be buying as much as “stuff” as they possibly could. Frugality is not a current consumer trait, and the fact that the savings rate may be closer to 5.5% rather than 10.5% as it once was suggests that hasn’t been instituted out of anything more than necessity.

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SEMI Book-to-Bill Ratio Decelerates as Expected…

By Biiwii

As posted at NFTRH.com

SEMI Book-to-Bill Ratio Decelerates as Expected, Semis Not Under Valued

I see analysis out there discussing the Semiconductor sector as a whole as being under valued relative to other stock market sectors. This seems to be based on the fact that the SOX chart has not made nearly the catch up move that for example, the NDX has in its post 2000 recovery.

While charts can provide many helpful views to probabilities, they cannot get inside an industry and divine the importance of a sub-sector (Semi Equipment; AMAT, LRCX, etc.) within a sector as a whole. The equipment companies (which I am short) are the Canary’s Canary, with the Semi sector in general being an economic Canary in a Coal Mine.

I can see why a chartist might get excited. SOX vs. NDX has been stair stepping higher since leading the market into the August drop.

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Dallas Fed’s Signs of Recession

By Tom McCellan

Dallas Fed’s Signs of Recession

Dallas Fed Survey Production Index, signs of recession
December 31, 2015

Last week, I compared rainfall in New York City to both the stock market and GDP growth.  That would be just a great case of statistical whimsy, if not for the amazingly strong correlation in the data.  Such a correlation does not come about just randomly.

This week, I want to share some economic data that will be more conventionally acceptable, and which also argues for an impending soft recession.  Some people will just never accept rainfall as an economic indicator, which is their loss.  But these are Dallas Fed generated numbers that will be more difficult for anyone to dismiss.

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