Nobody Thinks it Would Happen Again

By Doug Noland

WSJ: “Ten Years After the Bear Stearns Bailout, Nobody Thinks It Would Happen Again.”

Myriad changes to the financial structure have seemingly safeguarded the financial system from another 2008-style crisis. The big Wall Street financial institutions are these days better capitalized than a decade ago. There are “living wills,” along with various regulatory constraints that have limited the most egregious lending and leveraging mistakes that brought down Bear Stearns, Lehman and others. There are central bank swap lines and such, the type of financial structures that breed optimism.

March 17, 2008 – Financial Times (Gillian Tett): “In recent years, bankers have succumbed to the idea that the credit world was all about numbers and complex computer models. These days, however, this assumption looks ever more of a falsehood. For as anyone with a classical education knows, credit takes its root from the Latin word credere (“to trust”) And as the current credit turmoil now mutates into ever-more virulent forms, it is faith – or, rather, the lack of it – that has turned a subprime squall into a what is arguably the worst financial ­crisis in seven decades. Make no mistake: what we are witnessing right now is not just a collapse of faith in one single institution (namely Bear Stearns) or even an asset class (those dodgy subprime mortgage bonds). Instead, it stems from a loss of trust in the whole style of modern finance, with all its complex slicing and dicing of risk into ever-more opaque forms. And this trend is not just damaging the credibility of banks, but the aura of omnipotence that has enveloped institutions such as the US Federal Reserve in recent years.”

Continue reading Nobody Thinks it Would Happen Again

Atlanta Fed’s Q1 GDP Forecast Drops From 5.4% To 1.9% (Kudlow To Replace Cohn In Trump Admin)

By Anthony B. Sanders

As Bruce Springsteen warbled, we’re going down. At least the Atlanta Fed’s Q1 GDP forecast is going down … from 5.4% to 1.9%.


The latest shoe to drop? The CPI report on 3/13, PPI on 3/14 and the retail sales report. And PCE growth is slowing.

Continue reading Atlanta Fed’s Q1 GDP Forecast Drops From 5.4% To 1.9% (Kudlow To Replace Cohn In Trump Admin)

Will Higher Mortgage Rates Kill the Housing Market?

By Charlie Bilello

U.S. Mortgage Rates have risen for 9 consecutive weeks, hitting their highest levels since January 2014.

Source Data: Freddie Mac

That certainly seems like a sharp increase, but is 4.46% high?

Only when compared to recent history, which includes the all-time low in yields from November 2012 (3.31%). In a historical context, mortgage rates today are still quite low.

How low? Lower than 85% of monthly data points going back to 1971. The median 30-year Mortgage Rate over that time: 7.70%.

Continue reading Will Higher Mortgage Rates Kill the Housing Market?

Bi-Weekly Economic Review: The New Normal Continues

By Joseph Calhoun

There has been a lot of talk about the economic impact of the recent tax reform. All of it, including the analyses that include lots of fancy math, amounts to nothing more than speculation, usually informed by little more than the political bias of the analyst. I am guilty of that too to some degree but I don’t let my personal political views dictate how I view the economy for purposes of investing. I am, to put it mildly, a skeptic. I don’t believe half of what I hear from politicians or economists – sadly not that much different these days – and even less of what I hear from Wall Street.

I rely on the markets – the wisdom of crowds – to understand the economy. While almost everyone on Wall Street and Main Street are trying to read the economy in the hope they can predict the future of the markets, I concentrate on trying to figure out what the markets are saying about the present economy. I eschew the impossible for the merely difficult. When people ask me about our outlook I’m often at a loss for words because we really don’t have one. We take things as they come and adjust as necessary. Contrary to popular belief, it is not necessary to predict the future accurately – an impossible task – to be a good investor. But you do need to see the present clearly. And our internal biases – political and other – make that difficult but not impossible.

Continue reading Bi-Weekly Economic Review: The New Normal Continues

Desperately Seeking Larry (Kudlow)

By David Stockman

About midday yesterday we got to wondering just how desperate bubblevision is for fake good news to peddle because apparently even the talking heads can’t figure out why the market keeps levitating higher.

These ruminations arose after we had turned down a request to appear on the CNBC Halftime Report to comment on the network’s “breaking news” that Larry Kudlow was about to be named Trump’s top economic advisor. Next thing we knew, however, the show’s host, Scott Wapner, broke into the producer’s follow-up call, insisting we reconsider.

The apparent goal was to elicit some praise for Larry’s solid free trade position. And, obviously, Trump’s increasingly unhinged trade-war-in-the-making could indeed upset the Wall Street applecart.

Continue reading Desperately Seeking Larry (Kudlow)

The X’s and Y’s Of Jerome Powell & The Long End, As Calculated by Eurodollar Futures

By Jeffrey Snider

For the end-of-bond-bull-market-crowd, 3% is a line in the sand. There is no inherent significance in that number, except that it’s a round one. The benchmark 10s as of now trade with regard to that level as if it’s a ceiling. That’s what makes it so momentous. In 2013, the yield finally broke 3% the day after Christmas, getting as high as 3.04% on New Year’s Eve. It hung around there until January 8, 2014, before finally declining back below 3% and remaining less to this day.

Back in 2010, though, 3% was meaningless. At that time, the level to beat was 4%, which the 10s did exactly once that year on April 5. The difference between 2010 and 2013 was the long end’s view of this possible ceiling.

Ceiling for what? It’s this part that I think so many get confused about in being confused over the yield curve. There’s two parts to it, the short as well as long end. The latter is an economic indication while the former is tuned by perceptions of money substitutes (including policy rates like IOER and RRP). It’s in the middle where those come together.

Continue reading The X’s and Y’s Of Jerome Powell & The Long End, As Calculated by Eurodollar Futures

The Return of The Perfect Payrolls

By Jeffrey Snider

Over the past two days, Chinese exports exploded, US payrolls bested 300k, and China’s CPI recorded the hottest inflation in 5 years. Globally synchronized growth? It’s times like these where remembering how nothing goes in a straight line helps settle and ground interpretations. In thinking that way already, you are never surprised when there are good even perfect data reports on occasion the way policymakers are always surprised with “unexpected” bad ones. We are in a global upturn, after all.

The question, as always, is whether these things represent a meaningful shift. The inflation/boom scenario is one where the economy doesn’t just meander at low level positives but accelerates forcefully into an inarguable growth period – something we haven’t seen anywhere for more than a decade.

It might be tempting to view this recent positive report cluster in that way, but, again, we’ve seen these before. It’s not just one month that is required to suggest what everyone is looking for. These have been over the past few years rather easily explained by outliers (China exports), noise (payrolls), and statistical difficulties (China CPI). We will know things are truly picking up when the bad months are what become attention grabbing for their infrequency.

Continue reading The Return of The Perfect Payrolls

Japanese Bubble Bursting Playbook

By Kevin Muir

Every now and then I stumble across a new source of information that I can’t wait to share with my readers. Today is one of those days. If you have even the tiniest shred of interest in commodities, then head over to the Goerhring & Rozencwajg website immediately. It’s just terrific stuff.

I must admit to being partial to their bullish commodity story, but in a recent RealVision TV interview, Leigh Goehring solved a problem that I have wrestled with for some time.

Continue reading Japanese Bubble Bursting Playbook

Q4 2017 Z.1 Flow of Funds

By Doug Noland

So much uncertainty in the world these days. Some things, however, we know with certitude: U.S. Debt, the value of the securities markets and Household Net Worth do grow to the sky. The Fed’s latest Z.1 report documents another quarter of inflating Credit, markets and perceived wealth – three additional months of history’s greatest Bubble.

Total (non-financial and financial) U.S. System borrowings jumped a nominal $495 billion during the quarter and $2.630 TN in 2017 to a record $68.591 TN. Total Non-Financial Debt (NFD) expanded at a seasonally-adjusted and annualized rate (SAAR) of $1.407 TN during 2017’s fourth quarter to a record $49.050 TN (’17 growth of $1.793 TN). Credit growth slowed from Q3’s SAAR $3.007 TN and Q2’s SAAR $1.921 TN, while it was closely in line with Q4 2016’s SAAR $1.435 TN. NFD as a percentage of GDP ended 2017 at 249%. This compares to 230% to end 2007 and 179% in 1999.

By major category for the quarter, Household Debt expanded SAAR $790 billion, a notable acceleration from Q3’s $516 billion and Q2’s $573 billion. For perspective, one must go back to 2007’s $946 billion to see annual growth exceeding Q4’s pace of Household borrowings. For 2017, total Household Borrowings expanded $604 billion, up from 2016’s $510 billion, ‘15’s $403 billion, ‘14’s $402 billion, ‘13’s $241 billion, and ‘12’s $266 billion. Household Borrowings contracted $51 billion in ’11 and $61 billion in ’10.

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Jobs Friday! 313K Jobs Added [Higher Than Expected]

By Anthony B. Sanders

The Bureau of Labor Statistics has released their report for February. In a nutshell, 313k jobs were added, Labor Force Participation increased to 63%, but  YoY average hourly earnings fell to 2.6%.


Total nonfarm payroll employment increased by 313,000 in February, and the unemployment rate was unchanged at 4.1 percent, the U.S. Bureau of Labor Statistics reported today.

Employment rose in construction, retail trade, professional and business services,
manufacturing, financial activities, and mining.

Household Survey Data

In February, the unemployment rate was 4.1 percent for the fifth consecutive month,
and the number of unemployed persons was essentially unchanged at 6.7 million.
(See table A-1.)

Among the major worker groups, the unemployment rate for Blacks declined to 6.9
percent in February, while the jobless rates for adult men (3.7 percent), adult
women (3.8 percent), teenagers (14.4 percent), Whites (3.7 percent), Asians (2.9
percent), and Hispanics (4.9 percent) showed little change. (See tables A-1, A-2,
and A-3.)

The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged at 1.4 million in February and accounted for 20.7 percent of the unemployed.

Over the year, the number of long-term unemployed was down by 369,000. (See table A-12.)

The civilian labor force rose by 806,000 in February. The labor force participation rate increased by 0.3 percentage point over the month to 63.0 percent but changed little over the year. (See table A-1.)

In February, total employment, as measured by the household survey, rose by 785,000.

Continue reading Jobs Friday! 313K Jobs Added [Higher Than Expected]

Really Looking for Inflation, Part 2

By Jeffrey Snider

Continued from Part 1

What these unusually weak productivity estimates lean toward is, quite simply, the possibility the BLS has been overstating jobs gains for years. In early 2018, there is already the hint of just that problem in a 4.1% unemployment that doesn’t lead to any acceleration in wages and labor income. What it does suggest is that something (or several somethings) in these estimates is off somewhere.

For the unemployment rate, that already includes the participation problem in its denominator, but, again, that is not mutually exclusive of problems in the numerator (the increase in the number of payrolls). As nothing more than a rhetorical exercise utilizing nothing more than back-of-the-envelope counterfactuals (so take it in that spirit), if productivity had been more balanced and thus more consistent with how an economy actually works over the intermediate and long terms (not transitory), that would have meant by simple arithmetic either output was much higher or labor input much lower.

The Household Survey gained 1.44% per year during those same years, a lower rate than total hours worked reflecting the increase in full-time jobs as some part-time positions were converted back to the former pre-crisis status. Reducing the total gain in hours worked by more than a third (as shown above) would have lowered the increase in the Household Survey by more than 5.2 million at the end of 2017, leaving out how in every likelihood the reduction would have been more severe factoring less part-time jobs conversions.

Continue reading Really Looking for Inflation, Part 2