Saturday, October 29, 2016
Weekly Indicators for October 24 - 28 at XE.com
- by New Deal democrat
My Weekly Indicators piece is up at XE.com. The main change is that gas prices are now UP YoY. And the wobbling continues.
Friday, October 28, 2016
Q3 GDP: a positive for the present, but ...
- by New Deal democrat
As you probably already know, real Q3 GDP was preliminarily reported at +2.9% this morning, well above expectations.
Politically, that is good news for Hillary Clinton, as the economy has accelerated to a decent pace in the last Quarter before the election -- although it suggests an improvement to a majority on the order of 52/48 vs. 51/49.
But when we look out 12+ months ahead ... well, Indian Summer is inevitably followed by the Gales of November.....
This post is up at XE.com.
Thursday, October 27, 2016
September housing: mixed signals
- by New Deal democrat
I have an updated look at housing over at XE.com.
We have a continued uptrend n new home sales, mixed signals in housing permits, and a worsening trend in mortgage applicatioins.
Bonddad's Thursday Linkfest
For those of you who follow me on Twitter, I'm moving from @captivelawyer to @originalbonddad.
I'm a Financial Adviser with Thompson Creek Wealth Advisers and an attorney with the Law Office of Hale Stewart
I'm a Financial Adviser with Thompson Creek Wealth Advisers and an attorney with the Law Office of Hale Stewart
A sharp pullback in spending by cities and states on infrastructure—from highways to sewage systems to police stations—is weighing on U.S. economic growth.
Such government austerity is unusual in the eighth year of an economic expansion, and it is acting as a headwind for economic expansion just as the worst effects of the energy-industry bust, a strong dollar and inventory drawdown are fading.
The decline in state and local investment depressed gross domestic product growth this spring and was on track to weigh on economic growth again in the third quarter.
State and Local Spending as a Percent of GDP
With the U.S. labor market at or near maximum employment, assessing trend job growth has become increasingly important. This “breakeven” rate, which is the pace of job growth needed to maintain a healthy labor market, depends primarily on growth in the labor force. Estimates that account for population aging and potential labor force participation trends suggest that trend growth ranges between about 50,000 and 110,000 jobs per month. Actual job growth has been well above this pace, implying that it can slow substantially in the future without undermining labor market health
3, 6 and 12 Month Moving Averages of Job Growth
Not least is the benefit to Social Security and other entitlement programs: in contrast to the population of labor-force age in Japan, Germany, Italy, and the United Kingdom—countries with generally older populations, lower fertility, and lower immigration—the U.S. labor-force-age population is projected to grow more than five percent between 2010 and 2030. Yet were it not for new minorities, the country’s labor force would decline by eight percent. Moreover, within the labor force, new minorities add needed youthfulness that brings with it innovation and an entrepreneurial spirit. Projections of the labor force show that in 2030, 54 percent of new minorities will be under age 40, compared to well under half of the rest of the labor force population.
Wednesday, October 26, 2016
Bonddad's Wednesday Linkfest
For those of you who follow me on Twitter, I'm moving from @captivelawyer to @originalbonddad.
I'm a Financial Adviser with Thompson Creek Wealth Advisers and an attorney with the Law Office of Hale Stewart
Mario Draghi Explains Why Rates Are So Low
I'm a Financial Adviser with Thompson Creek Wealth Advisers and an attorney with the Law Office of Hale Stewart
Mario Draghi Explains Why Rates Are So Low
The first is a secular slowdown in productivity growth across advanced economies, coupled with pessimistic expectations about growth potential in the years to come, which has reduced the expected rate of return on capital. And if that real rate of return falls, it is logical that firms will only be willing to borrow at lower real rates. This is reflected in lower long-term real yields.
The second factor is a global imbalance of saving and investment, which has led real yields to fall even relative to growth prospects. On the saving side, a “global saving glut”, produced among other things by ageing populations, has bid up the price of safe assets at a time when the supply of those assets has been shrinking, thereby compressing real yields. Factors such as a decline in the relative price of capital goods have also led to a fall in desired investment.
And this has been exacerbated by the third factor: the debt overhang in the public and private sectors bequeathed by the financial crisis. This has further raised saving – as all sectors deleverage – and depressed investment and consumption.
As a consequence, the natural rate of interest – which is the real interest rate that balances desired saving and planned investment, at a level consistent with output being at potential and stable prices – has fallen over time, to very low or even negative levels. And whatever the drivers behind this, central banks have to take it into account and cut their policy rates to commensurately lower levels.
Procter & Gamble saw organic sales and volumes rise in all of its segments, spurred by gains in shampoos such as Pantene and Head & Shoulders. Even the company's shaving segment, which has felt the impact of lower-cost competitors such as Unilever's recently acquired Dollar Shave Club, notched a slight sales gain likely on the back of new offerings from the Gillette brand. By major region, sales in the U.K. remained "challenging" post the country's Brexit vote, P&G Chief Financial Officer Jon Moeller said to reporters on a conference call, while sales in China rose by 2%.
About 500,000 solar panels were installed every day last year as a record-shattering surge in green electricity saw renewables overtake coal as the world’s largest source of installed power capacity.
Two wind turbines went up every hour in countries such as China, according to International Energy Agency officials who have sharply upgraded their forecasts of how fast renewable energy sources will keep growing.
“We are witnessing a transformation of global power markets led by renewables,” said Fatih Birol, executive director of the global energy advisory agency.
1-Year Chart of FAN and TAN ETFs
Bonddad's Thursday Linkfest
For those of you who follow me on Twitter, I'm moving from @captivelawyer to @originalbonddad.
I'm a Financial Adviser with Thompson Creek Wealth Advisers and an attorney with the Law Office of Hale Stewart
Mario Draghi Explains Why Rates Are So Low
I'm a Financial Adviser with Thompson Creek Wealth Advisers and an attorney with the Law Office of Hale Stewart
Mario Draghi Explains Why Rates Are So Low
The first is a secular slowdown in productivity growth across advanced economies, coupled with pessimistic expectations about growth potential in the years to come, which has reduced the expected rate of return on capital. And if that real rate of return falls, it is logical that firms will only be willing to borrow at lower real rates. This is reflected in lower long-term real yields.
The second factor is a global imbalance of saving and investment, which has led real yields to fall even relative to growth prospects. On the saving side, a “global saving glut”, produced among other things by ageing populations, has bid up the price of safe assets at a time when the supply of those assets has been shrinking, thereby compressing real yields. Factors such as a decline in the relative price of capital goods have also led to a fall in desired investment.
And this has been exacerbated by the third factor: the debt overhang in the public and private sectors bequeathed by the financial crisis. This has further raised saving – as all sectors deleverage – and depressed investment and consumption.
As a consequence, the natural rate of interest – which is the real interest rate that balances desired saving and planned investment, at a level consistent with output being at potential and stable prices – has fallen over time, to very low or even negative levels. And whatever the drivers behind this, central banks have to take it into account and cut their policy rates to commensurately lower levels.
Procter & Gamble saw organic sales and volumes rise in all of its segments, spurred by gains in shampoos such as Pantene and Head & Shoulders. Even the company's shaving segment, which has felt the impact of lower-cost competitors such as Unilever's recently acquired Dollar Shave Club, notched a slight sales gain likely on the back of new offerings from the Gillette brand. By major region, sales in the U.K. remained "challenging" post the country's Brexit vote, P&G Chief Financial Officer Jon Moeller said to reporters on a conference call, while sales in China rose by 2%.
About 500,000 solar panels were installed every day last year as a record-shattering surge in green electricity saw renewables overtake coal as the world’s largest source of installed power capacity.
Two wind turbines went up every hour in countries such as China, according to International Energy Agency officials who have sharply upgraded their forecasts of how fast renewable energy sources will keep growing.
“We are witnessing a transformation of global power markets led by renewables,” said Fatih Birol, executive director of the global energy advisory agency.
1-Year Chart of FAN and TAN ETFs
Tuesday, October 25, 2016
Bonddad's Tuesday Linkfest
For those of you who follow me on Twitter, I'm moving from @captivelawyer to @originalbonddad.
I'm a Financial Adviser with Thompson Creek Wealth Advisers and an attorney with the Law Office of Hale Stewart
Demographic Changes Will Keep Rates Lower Longer
I'm a Financial Adviser with Thompson Creek Wealth Advisers and an attorney with the Law Office of Hale Stewart
Demographic Changes Will Keep Rates Lower Longer
However, there are exceptions to this rule, and we may be living through an important exception at the present time. It seems that the Federal Reserve is starting to recognise that the decline in the equilibrium interest rate in the US (r*) has been driven not by temporary economic “headwinds” that will reverse quickly over the next few years, but instead has been caused by longer term factors, including demographic change.
Because these demographic forces are unlikely to reverse direction very rapidly, the conclusion is that equilibrium and actual interest rates will stay lower for longer than the Fed has previously recognised. Of course, the market has already reached this conclusion, but it is important that the Fed is no longer fighting the market to anything like the same extent as it did in 2014-15. This considerably reduces the risk of a sudden hawkish shift in Fed policy settings in coming years.
Is Wage Growth Increasing?
The Atlanta Fed's Wage Growth Tracker came in at 3.6 percent in September, up from 3.3 percent in August and 3.4 percent in July, but the same as the 3.6 percent reading for June. By this measure, there are no obvious signs of an acceleration in wage growth for continuously employed workers during the last few months.
However, the headline wage growth tracker is a three month moving average of each month's median wage growth. Interestingly, for September, the median wage growth (using data that are not averaged, sometimes called "unsmoothed") was 4.2 percent, up from 3.6 percent in August, and the highest since late 2007. This pop in median wage growth can be seen in the following chart, which compares the median wage growth (smoothed using a three-month average) with the unsmoothed monthly median.
Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) increased to –0.14 in September from –0.72 in August. All four broad categories of indicators that make up the index increased from August, but in September, all four categories made negative contributions to the index for the second straight month.
Latin America's Weekly ETF Charts Are Bullish
Oil's Hitting Resistance in the Lower 50's
Monday, October 24, 2016
Gas prices turn higher YoY
- by New Deal democrat
I've called the current state of the economy "Indian Summer," a spate of positive news during a period substantially after mid-cycle. But eventually Indian Summer must give way to the Gales of November. We just got our first chilly breeze.
In the last few days, according to GasBuddy, the price of gas has turned higher YoY:
A tailwind to consumers has ended. The problem is, it may turn into a significant headwind in the next 6 - 12 months.
Normally, gas prices fall during the autumn into winder, and then rise in spring into summer, as in the graph below from 2005-06:
The problem arises when gas prices fail to decline, or decline just a small amount, during the autumn and winter, as happened during the prior winter of 2004-05:
Gas prices rose about $1 YoY from just over $2/gallon to over $3/gallon between summer 2004 and summer 2005;
As a result, consumer inflation (red, left scale in the graph below) rose from about 2%+ to over 4%:
Now let's take that same graph and apply it to the last 12 months:
*IF* gas prices follow a similar trajectory to that of 2004-05, we should expect con sumer inflation to rise to more than 3%, and gas prices will be north of $3/gallon again.
Since YoY nominal wage increases are still averaging only about 2.7%, a similar increase in inflation will mean that real wages decline by next summer. And that would be an important harbinger of the onset of the next recession.
Bonddad's Monday Linkfest
For those of you who follow me on Twitter, I'm moving from @captivelawyer to @originalbonddad.
XLIs Are Starting to Outperform the SPYs
XLIs Turned Slightly Positive in the Last 10-Week Period
General Dynamics, Caterpillar, Union Pacific and UPS are the Winners So Far
UNP Has A Great Profit Margin
Earnings season picked up its pace this week, and commentary was a bit stronger this week than last week. The first week of earnings is always filled with banks and most reported good results. Their performance is especially impressive given how difficult it is for financial services companies to operate in this low interest rate environment.
The election is also front of mind for many CEOs. Almost everyone expects that the end of the presidential race will lift a cloud of uncertainty over the economy. Whether or not the election will be a lasting catalyst though depends in large part on what the next President actually does. Either way, a new President will bring change, but perhaps one more than the other.