Mother Of All Bubbles (MOAB) And Endless Monetary Stimulus

By Anthony B. Sanders

Is Yellen Really Charles Atlas?

This isn’t a Don Ho “Tiny Bubble.” But the Mother-of-all-bubbles (MOAB). Endless monetary stimulus from The Federal Reserve (and other Central Banks) has led to incredible distortions in asset prices.

If we look at the ratio of financial assets to disposable personal income, you can see the spikes in the ratio corresponding to the bubble of the 1990s, the housing bubble of the 2000s and the everything bubble of the 2100s. The commonality?  Fed interest rate low interest rate regimes. With each successive bubble burst, The Fed had to drop their target rate even further.


But The Fed rate increases in 2008 weren’t enough, The Fed also adopted their QE quantitative easing) programs where they purchased more and more Treasury Notes and Bonds and Agency MBS. Particularly with QE3 (the large spike in the orange line).

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Global Consumer Sentiment Trends

By Callum Thomas

The global GDP weighted consumer sentiment index dipped slightly in September, but stayed within its upward trend, and continued its divergence against the global manufacturing PMI.  That last point is worth highlighting.  Consumer sentiment is often understood to be more of a lagging/coincident indicator and hence the weakness in the PMI may flow through later.  But it does beg the question once more as to whether the softer PMI readings are purely sentiment effects and simply overreaction to news headlines.  If the consumer is right then before long it will be back to business for global risk assets, but if the manufacturer is right then consumer sentiment could simply be the next shoe to drop.

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About That $61,372 Report Of Real Median Household Income

By Anthony B. Sanders

Obama Administration Changed The Way It Was Measured In 2013 (Tell The Story Right!)

True, real median household income (RMINC) has been rising since 2014.


In fact, real median household income looks far better from 2014 to 2017 than it did from 2007 to 2012 (orange line). Yes, that declining RMINC line looks pretty bad if you are trying to convince voters that the economy is doing well. Particularly with average hourly earnings plummeting and remaining stagnant until 2015.

Continue reading About That $61,372 Report Of Real Median Household Income

Prefiguring The Expected Expectations Fail

By Jeffrey Snider

The Boston Fed held its 62nd Annual Economic Conference over the weekend. Not quite as well-known as the KC Fed’s Jackson Hole symposium, this Eastern branch’s meeting still attracts many big-name speakers. The “right” speakers, that is, meaning academic and mainstream bank Economists, supranational think tank thinkers, as well as current and former central bankers. The echo chamber is just as thick and impenetrable as it is in Wyoming.

Appearing in Boston alongside former Treasury Secretary Larry Summers, Goldman Sachs chief Economist Jan Hatzius, and Cleveland Fed President Lorretta Mester was Olivier Blanchard. Dr. Blanchard has every bit of pedigree covered: former director of research at the IMF, M. Solow Professor of Economics emeritus at the Massachusetts Institute of Technology, and now a Senior Fellow at the prestigious Peterson Institute for International Economics.

The purpose of this year’s gathering was to decipher if there might be any lingering effects from “long spells” of low interest rates. From what I can tell, nobody addressed the biggest one – why there were long spells of low interest rates. They’ve moved on from all that to fretting over what that might say about the ability of Economists to decipher the major economic problems confronting the global economy.

Continue reading Prefiguring The Expected Expectations Fail

LatAm GDP in 2018: Forecasts Versus Reality (from IKN484)

By Otto Rock

This piece was part of IKN484, out last weekend. 

How LatAm and Carib economies are doing compared to expectations
Generally recognized as the best regional macro-economic study group, CEPAL held its mid-year update in Mexico last weekend and during the week I had chance to catch up on its mid-term report on Latin America and the Caribbean. As usual there’s a lot of information, both on the overview and granular ends, as you’d expect from a 242 page document (get yours on this link here (4) if economics in Spanish language is your thing too…yummy), but after perusing through I think this chart (with personal notes added) is a useful guide to the region and its economies, worth a segment on the Weekly.

What we see is the GDP performance in 2018 of the regional countries, done in order of GDP growth (e.g. Dominican Republic is doing best at +5.4% growth this year, Venezuela worst at -12%). Expectations for growth weren’t on the spectacular end of the spectrum at this point in the cycle, so numbers like +4% or +5% may be good and solid but they’re not going to make world headlines against the +7% of China or +8% of India. Which brings me to the reason I chose this particular graphic, as it charts the current estimates for 2018 compared to CEPAL’s own forecast made for 2018 at the end of last year.

Continue reading LatAm GDP in 2018: Forecasts Versus Reality (from IKN484)

Approaching the 10-Year Anniversary

By Doug Noland

We’re rapidly Approaching the 10-year Anniversary of the 2008 financial crisis. Exactly one decade ago to the day (September 7, 2008), Fannie Mae and Freddie Mac were placed into government receivership. And for at least a decade, there has been nothing more than talk of reforming the government-sponsored-enterprises.

It’s worth noting that total GSE (MBS and debt) Securities ended Q3 2008 at $8.070 TN, having about doubled from year 2000. The government agencies were integral to the mortgage finance Bubble – fundamental to liquidity excess, pricing distortions (finance and housing), general financial market misperceptions and the misallocation of resources. GSE Securities did contract post-crisis, reaching a low of $7.544 TN during Q1 2012. Since then, with crisis memories fading and new priorities appearing, GSE Securities expanded $1.341 TN to a record $8.874 TN. Of that growth, $970 billion has come during the past three years, as financial markets boomed and the economy gathered momentum. A lesson not learned.

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Do Stocks Perform Better When Manufacturing Is Booming?

By Charlie Bilello

US manufacturing is booming.

In a report released this week, the ISM Manufacturing Index moved up to 61.3, the second-highest level in the last 30 years.

Data Source for all charts/tables herein: FRED, Bloomberg

Many are saying that’s great news for the stock market because increased manufacturing activity is evidence of a stronger economy. This seems logical but does the data support such a conclusion? And is it prudent to use manufacturing indicators to time your exposure to stocks.

Let’s take a look…

Continue reading Do Stocks Perform Better When Manufacturing Is Booming?

Capex and Taxes; What The Corporate Sector Is Saying About the Economy

By Jeffrey Snider

Private US businesses are not building new facilities, or renovating old ones, at a rate that suggests the economy is doing well. Let alone booming. For more than two years now, the aggregate level of Private Non-residential Construction Spending has been flat.

According to the Census Bureau in figures released today, construction capex in July 2018 (seasonally adjusted) was less than 2% above what took place in July 2016. Compared to November 2016, there was less spending in the latest month than during the height of Reflation #3.

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The Uncomfortable Hiatus

By James Howard Kunstler

And so the sun seems to stand still this last day before the resumption of business-as-usual, and whatever remains of labor in this sclerotic republic takes its ease in the ominous late summer heat, and the people across this land marinate in anxious uncertainty. What can be done?

Some kind of epic national restructuring is in the works. It will either happen consciously and deliberately or it will be forced on us by circumstance. One side wants to magically reenact the 1950s; the other wants a Gnostic transhuman utopia. Neither of these is a plausible outcome. Most of the arguments ranging around them are what Jordan Peterson calls “pseudo issues.” Let’s try to take stock of what the real issues might be.

Energy: The shale oil “miracle” was a stunt enabled by supernaturally low interest rates, i.e. Federal Reserve policy. Even The New York Times said so yesterday (The Next Financial Crisis Lurks Underground). For all that, the shale oil producers still couldn’t make money at it. If interest rates go up, the industry will choke on the debt it has already accumulated and lose access to new loans. If the Fed reverses its current course — say, to rescue the stock and bond markets — then the shale oil industry has perhaps three more years before it collapses on a geological basis, maybe less. After that, we’re out of tricks. It will affect everything.

Continue reading The Uncomfortable Hiatus


By Doug Noland

I’ve been here before and, candidly, it’s not much fun. Lodged in my mind this week was the brilliant quote from the 19th century German philosopher Arthur Schopenhauer: “All truth passes through three stages: First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as self-evident.”

It’s fascinating how it all works. Looking back, there was definitely a Bubble in 1999. Clearly, 2007 was one huge Bubble. Everything is obvious in hindsight, and most look back now and contend it was pretty conspicuous even at the time. Having toiled through both prolonged Bubble periods – arguing against deeply embedded bullish conventional wisdom – I can attest to the fact that the Bubble viewpoint was violently opposed at the late stages of both cycles.

I don’t feel I’m venturing out on a limb to predict that some years into the future the 2018 Bubble backdrop will be recalled as rather self-evident. Years of experimental “whatever it takes” global monetary stimulus (rates, QE and market manipulation) nurtured excess and imbalances on an unparalleled global scale. EM borrowed excessively, too much denominated in foreign (U.S. dollar!) currencies. The Federal Reserve (all central banks) held rates too low for much too long. Prices for virtually all asset classes were inflated to dangerous extremes.

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Home Prices Continue To Rise Faster Than Wage Growth

By Anthony B. Sanders

Las Vegas Fastest, Washington DC Slowest, First Time Homebuyers Face Grim Reality

Case-Shiller has released their June housing report.

The 20 metro home price index rose 6.31% YoY. The bad news? Hourly earnings for US private sector workers is only growing at 2.70% YoY.


As they say, all real estate is local. The fastest growing city in term of home prices is Las Vegas at 13% YoY with Seattle in close second at 12.8% YoY.

Continue reading Home Prices Continue To Rise Faster Than Wage Growth