Weekly Indicators for January 18 - 22 at Seeking Alpha

 

 - by New Deal democrat

My Weekly Indicators post is up at Seeking Alpha.

The pandemic, and the monetary and interest rate responses to it, are dictating which sectors are improving and which are stagnated or worse.

But as vaccinations slowly progress, in springtime there may be growth in the garden.

As usual, clicking over and reading rewards me a little bit for the work I put in, and brings you up to the moment on the data.

A detailed, updated look at the housing market

 

 - by New Deal democrat

Existing home sales for December were reported this morning at 6.76 million annualized, just below the October 10 Year+ high of 6.86 million.

Although existing home sales are about 90% of the entire housing market, they are less important economically than new housing construction, which has multiplier effects which last 12-24 months.

But right now both existing home sales and new home construction are telling the same story: a market that is turning in its best performance since before the Great Recession. I have updated my detailed look at this very important long leading sector in an article over at Seeking Alpha.

Clicking over and reading will bring you thoroughly up to date about this crucial sector, and reward me a little bit for my work.

Initial jobless claims: still elevated compared with several months ago, another negative jobs report for January a possibility

 

 - by New Deal democrat

Initial jobless claims this week came within a hair of meeting my criteria for a change to an upward trend. 

On a unadjusted basis, new jobless claims declined by 151,303 to 960,668. Seasonally adjusted claims also declined by 26,000 to 900,000 (last week’s numbers were also adjusted downward from 965,000 to 926,000). The 4 week moving average, however, rose by 23,500 to 848,000.

Here is the close up since the end of July (these numbers were in the range of 5 to 7 million at their worst in early April): 

There is now a 2 1/2 month trend of YoY% increases in initial claims. Further, by rising to  900,000 or higher for the second week in a row, seasonally adjusted claims hit one of my two markers for a fundamental change of trend. But the 4 week average - by a whopping 2,000 - remains under my marker of 850,000.

Why I’m still waiting at least one more week for confirmation can be seen in my next graph.

For the last couple of months, I have been cautioning that the holiday season plays havoc with seasonality even in normal years, let alone a year when the pandemic is causing changes in weekly numbers by an order of magnitude. Typically in the weeks after Christmas and New Years’, claims go up by 25,000 to 50,000 on an unadjusted basis, and then rapidly recede. This year claims both went up and then this week came down by up to 10x as much during this period. 

But when we look at the YoY% change in all of the above metrics, which washes out those outsized seasonal affects, the picture - especially in the critical, non-seasonally adjusted data - is not so negative:

While weekly seasonally adjusted claims have risen 310% - a YoY comparison last seen in August, the 4 week average is still in the YoY range they were in October, at +240%. Further, the the non-seasonal trend, at a 240% increase YoY, looks like a sideways rather than upward trend. If this changes next week, when it looks almost certain the 4 week average will exceed 850,000, then we’ll definitely know we are in an upward trend. But I’m giving it that one more week.

Turning to seasonally and non-seasonally adjusted continuing claims, which historically lag initial claims typically by a few weeks to several months, the former declined by 127,000 to a new pandemic low of 5,054,000, while the latter declined by 203,750 to 5,563,048:

Because these lag initial claims, I have suspected that we would see an upward reversal. Last week I wrote that it appeared to have arrived, but with the new pandemic low in adjusted claims, that is on hold.

As I usually note, a reminder that both initial and continued claims remain at or above their worst levels from the Great Recession.

Finally, because the past two weeks have been about 50,000 higher than the conquerable two weeks last month, it appears more likely than not that we will see another slightly negative jobs report for January when it is reported in two weeks.

As I wrote last week, renewed partial lockdowns and increased consumer caution due to the out of control pandemic have caused increased layoffs. At the same time, it isn’t quite as bad as I would have thought several months ago. Already in his first day in office, Joe  Biden has begun to tackle COVID in a far more forceful, cohesive manner. With increased federal authority behind mask-wearing and organized vaccination programs with the States, together with invocation of the Defense Procurement Act for both N95 mask and vaccine production, hopefully we will see a decisive downward trend in the pandemic by the spring equinox.

Happy Inauguration Day!

 

 - by New Deal democrat

Today is a day for rejoicing!

Back to the salt mines tomorrow.

“Those who cannot see must feel:” a retrospective on the Trump presidency

 

 - by New Deal democrat

Four years ago I wrote “Those Who Cannot See Must Feel,” which is

the translation of an old German saying that I used to hear from my grandmother when I misbehaved.  It is pretty clear that, over the next four years, the American public is going to do a lot of feeling ....  The results will range somewhere in between bad, disastrous, catastrophic, and cataclysmic, depending on how badly foreign affairs are bungled and how much basic norms of republican government irreversibly give way to despotism.  

... every [other] country in the world which has a Madisonian presidential system ... ha[s] [ ] somewhere along the line fallen into despotism.  I believe that the answer until now has been that the US is the only country which had not succumbed ....

I have some hope as to the former because both China and Russia are smart enough to figure out that they can get what they want by bribing Trump without resorting to armed conflict.  As to the latter, unfortunately, I hold out little hope.... there is not the slightest reason to believe Trump will allow himself to be constrained by, well, anything.

.... I have no illusion that we can do anything to prevent what is now directly in front of us.

I touched somewhat on economics, noting that 

demand side economics which target ordinary Americans works better to improve their lot.  In simple terms, give a wealthy man money and he will hoard most of it.  Give an ordinary person money and they will spend it. Spending has a bigger multiplier effect than hoarding.

And aside from the $1200 stimulus payment in early 2020, spearheaded by Democrats in Congress, Trump’s economy coasted on record low long term interest rates created in the aftermath of the 2016 Brexit vote; while his only noteworthy economic law was the gargantuan giveaway to the wealthy in the 2018 tax cut, with exactly the (lack of) results predicted.

But, as quoted above, mainly I focused on the political repercussions.

Four years later, the best that can be said is that we avoided cataclysm. Trump didn’t launch a nuclear war, and he didn’t start any other conflagration, although he did commit an act of War against Iran, which is almost certainly going to retaliate now that Trump is out of office (the most likely target being in the Trump family, but also possibly one or more senior military officials). 

We have also gotten pretty lucky as to the deterioration in the international situation. The US alliances with NATO and Japan have held; Biden is set to rejoin the Paris climate accords immediately. China did effectively subsume Hong Kong without a peep from the US, but has not made any irreversible moves on Taiwan. The Big Unknown is Russia, where, although it didn’t militarily take over Belarus or Ukraine,  every single arms agreement has been terminated, almost certainly in accordance with a plan by Putin, and even more alarming, the US should assume at this point that Trump and his cronies have compromised the entire US defense apparatus aside from anything the Pentagon has managed to conceal from him.

But the events of January 6 showed that the internal US system has sustained grave damage. It held, due mainly to the independence of the Judiciary (which Trump never expressly disobeyed), and due to the integrity of a few crucial local and State GOP election officials. But Congressional oversight utterly failed. Trump contemptuously ignored subpoenas and legal mandates without consequence. He ignored Congressional spending restraints, invoking a State of Emergency that Congress failed to overrule (with a 2/3’s vote of both Houses being necessary). With GOP Senate backing, one impeachment and conviction attempt has already failed. 

In short, Trump effectively showed that, so long as a President has the backing a majority of the House, or 1/3+ of the Senate, he can do whatever he wants without fear of being held to account in any fashion. Put that together with effective control over the prosecutorial system and the nearly absolute pardon power, and he can behave with complete impunity. Finally, he established on January 6 that, in the future, with the backing of a majority in Congress, the will of the Electorate, even as expressly confirmed and certified by the Electoral College, can be overruled and he can continue in office. And he might even be able to pardon the perpetrators.

In other words, the last successful Madisonian system has almost certainly been fatally wounded.

Because for decades I have been a voracious reader of history, and because I believe that learning principles from psychology can be applied to society as a whole, here is some lessons about where we are in the cycle:

1. Stability breeds instability - Economist Hyman Minsky famously theorized that stability breeds instability in economic systems. It is clear that the same is true in political systems. For example, it is clear that the peace and stability in Europe in the 19th Century after 1815 bred complacency in its governing aristocratic elites. As a result, the ruling monarchies proverbially pushed on the edge of the envelope in ever more extreme fashion. And for decades, the system held. Until in 1914, it didn’t, with catastrophic effects. Stability had bred instability.

Similarly, for the past 40 years, the Right in America has become ever more radicalized, as norm after norm has been breached. And yet - until January 6 at least - the system held. Ironically the fact that the system held up for so long only encouraged more rule-breaking, more “Constitutional hardball.” After all, if the system is impregnable, why worry?

And now the fabric of the system is finally tearing.

2. The rise of brownshirts. One specific way in which the fabric of the system is tearing is the rise of brownshirts. Before Trump, it was very much a fringe problem. But first with Charlottesville, then with the Second Amendment militias appearing in State capitals like Richmond VA early in 2020, then spreading to the anti-lockdown and anti-mask movements in other State capitals like in Michigan, armed brownshirts are now regularly appearing on American streets to physically threaten and intimidate those with whom they disagree. The January 6 putsch attempt in the US Capitol, with the intention to lynch the Vice President, the Speaker of the House and others, shows that the problem is now fully-formed.

In ancient history the use of brownshirts during the times of the Gracchii Brothers in the Roman Republic was the clarion sounding for a fatal wound being inflicted on the Republic, even if it took another generation until, with Sulla’s proscriptions, the Republic was dead on its feet. In the Weimar Republic and in other fascist uprisings in Europe after WW1 the widespread appearance of brownshirts similarly hailed the beginning of the end of Constitutional government.

Borwnshirts also plagued the flailing medieval city-state Republics, particularly Genoa and Florence. And we need only mention the 20th century example of the Weimar Rebpuclic, but also armed fascist uprisings in other 20th century European States.

Now we have a pattern of right-wing brownshirts on the streets of the US. Between no left-wing counterpart, and meeting force with left-wing force, the latter is the least worst option - but in either case the Republic is failing. The only other possibility is that with ruthless and unrelenting prosecutions for threats and violence the inflorescent movement might be brought to heel.

3. The right wing has learned that it has near impunity. This brings up a more general point about learning. If you ever watched the reality show “Supernanny,” you saw parents whose households were completely ruled by young children and even toddlers, because temper tantrums had always proven effective, as one or both parents always ultimately gave in. Supernanny never advocated using force, nor any punishment worse than being forced to stand or sit in a “quiet corner.” But the system had to be used relentlessly. Any time one or both parents abandoned it, the child had simply learned that throwing a tantrum long enough was successful. Thus the longer the coddling had gone on, the longer the tantrum and the more arduous the first application of the new system had to be in order finally to break the child’s will.

Similarly, right-wing extremism has been coddled in the US for over a generation - at very least since Gingrich’s 1994 conservative revolution in Congress. The center and the left have been hoping that half-measures and indulgence will make the problem go away. Instead the problem has gotten worse and worse - because the right-wing tantrums have almost always ultimately been successful.

The Biden Presidency may be liberal democracy’s last chance in the US. Like the parents in Supernanny, Biden and the Democrats must be prepared to “flood the zone” with changes, and be unrelenting for a long time in their application, to demonstrate to the right-wing that extremist tantrums will no longer be successful. Because the right-wing extremists probably have to be successful in only one more Presidential election.

4. Finally, and most fundamentally, as David Frum wrote, “If [a faction] become[s] convinced that they can not win democratically, they will not abandon conservatism. They will reject democracy.” 

This was just as true back in Ancient Rome. The patricians who dominated the Senate, moreso than their adversaries, the plebeians and the Italian allied states, in order to prevent the dilution of their vast wealth in the latifundia (huge rural plantations), were willing to compromise and ultimately shred the entire fabric of the Republic in order to avoid that loss. Similarly, in medieval Florence, the Medicis and their allies believed they would be better off if the Republic was subverted than if it was allowed to continue. The same held true in in the faction-riven Republic of Genoa, and the partisans of Prince Willliam in the Dutch Republic.

  

Similarly, whether we call them conservative evangelicals, social conservatives, or the White Herrenvolk, there is a large minority in the US that believes that its fundamental worldview is in danger of being permanently overturned. There is also another minority of the wealthy who believe that taxation for any government programs to improve the condition of the vast lower middle and working classes is a permanent and fundamental assault on their right to sequester their (often inherited) wealth. Both of these groups have been showing, and are continuing to show, that they are prepared to overturn the US’s representative democratic system itself if that is what it takes to maintain their position.

In sum, the Trump Presidency has shown that the US representative democratic Republic is under grave assault, and has sustained near-mortal damage unless it is reversed quickly and thoroughly. Those who could not see in 2016 have been and are feeling.

NFIB small business optimism vs. reality

 

 - by New Deal democrat

This is a really slow news week - on the economy!  My retrospective on the Trump Presidency is nearly complete and will be published tomorrow morning.

In the meantime, here is a brief note on the Small Business Optimism index which was updated for December last week, showing a steep decline across the board. Here it is:

What happened? Was there some earthshaking economic news? A hidden cataclysm of supply or demand?

Hardly.

What happened is that it became apparent to the small businessmen who primarily make up the National Federation of Independent Business that Biden had been elected to the Presidency.

As has been noted from time to time, Trump’s core constituency is not the white working class, but rather white small businessmen. When Trump shockingly won the 2016 election, their outlook soared - as is easily seen on the graph. Now that Trump has lost in 2020, their viewpoint has returned to where it was under Obama (note: the other big downward spike was March and April, when the COVID lockdowns went into effect).

A similar effect shows up in the same survey’s index for hiring plans:

What actually happened, according to ADP’s index of small business hiring, is that it tapered off dramatically after 2017, and after surging the most from 2011-15:

Gee, small businessmen didn’t actually hire more workers in response to bog-standard GOP economic policies. Hoocoodanode?

The Federalist Papers #74 on insurrections, treason, and the pardon power: an argument that such pardons would be invalid as “arising in a case of impeachment”

 - by New Deal democrat

The Insurrectionists from January 6 are already asking Trump for pardons. Probably the only thing that would hold him back from doing so is his innate selfishness: what would be the benefit to *him*?

The thought that Trump could issue Got Out of Jail Free cards to the very people he incited to riot is mind boggling.

But it’s at least possible that he might not have the right to do so. 

Article III, Section 2 of the Constitution provides that “The President ... shall have the power to grant] reprieves and pardons for offenses against the United States, EXCEPT IN CASES OF IMPEACHMENT.'' 

That last bit isn’t just my emphasis. It’s also the emphasis placed on the quote in the discussion of the President’s pardoning power in The Federalist No. 74, which also discusses the right of the President to issue pardons in the cases of sedition and treason. Below is the entirety of the relevant discussion: 

Humanity and good policy conspire to dictate, that the benign prerogative of The expediency of vesting the power of pardoning in the President has, if I mistake not, been only contested in relation to the crime of treason. This, it has been urged, ought to have depended upon the assent of one, or both, of the branches of the legislative body. I shall not deny that there are strong reasons to be assigned for requiring in this particular the concurrence of that body, or of a part of it. As treason is a crime leveled at the immediate being of the society, when the laws have once ascertained the guilt of the offender, there seems a fitness in referring the expediency of an act of mercy towards him to the judgment of the legislature. And this ought the rather to be the case, as the supposition of the connivance of the Chief Magistrate ought not to be entirely excluded. But there are also strong objections to such a plan. It is not to be doubted, that a single man of prudence and good sense is better fitted, in delicate conjunctures, to balance the motives which may plead for and against the remission of the punishment, than any numerous body whatever. It deserves particular attention, that treason will often be connected with seditions which embrace a large proportion of the community .... In every such case, we might expect to see the representation of the people tainted with the same spirit which had given birth to the offense. And when parties were pretty equally matched, the secret sympathy of the friends and favorers of the condemned person, availing itself of the good-nature and weakness of others, might frequently bestow impunity where the terror of an example was necessary. 

 

On the other hand, when the sedition had proceeded from causes which had inflamed the resentments of the major party, they might often be found obstinate and inexorable, when policy demanded a conduct of forbearance and clemency. But the principal argument for reposing the power of pardoning in this case to the Chief Magistrate is this: in seasons of insurrection or rebellion, there are often critical moments, when a well-timed offer of pardon to the insurgents or rebels may restore the tranquillity of the commonwealth; and which, if suffered to pass unimproved, it may never be possible afterwards to recall. The dilatory process of convening the legislature, or one of its branches, for the purpose of obtaining its sanction to the measure, would frequently be the occasion of letting slip the golden opportunity. The loss of a week, a day, an hour, may sometimes be fatal. If it should be observed, that a discretionary power, with a view to such contingencies, might be occasionally conferred upon the President, it may be answered in the first place, that it is questionable, whether, in a limited Constitution, that power could be delegated by law; and in the second place, that it would generally be impolitic beforehand to take any step which might hold out the prospect of impunity. A proceeding of this kind, out of the usual course, would be likely to be construed into an argument of timidity or of weakness, and would have a tendency to embolden guilt.

On the one hand, the above passage would seem to support the right of Trump to pardon the seditionists of January 6. But I think there is an important distinction.

Federalist No. 74 envisions the President intervening in moments of societal peril so that “a well-timed offer of pardon to the insurgents or rebels may restore the tranquillity of the commonwealth.” While certainly not exactly on point, this is akin to Jimmy Carter’s blanket pardon of Vietnam War draft dodgers - an attempt to heal a festering rift in society. In the hypothetical noted by the Federalist papers, it defuses an imminent rupture.

But that is exactly opposite to the case where the sedition has occurred precisely *because* of incendiary actions of the very President himself. In this case, take out Trump’s own incitement, and there is no riot or sedition.

Further, Trump has in fact *been impeached* by the House, whether or not he is ever convicted by the Senate. So the criteria for the exception - “except in cases of impeachment” - while they may specifically be meant to exclude pardons for those civil officers who have been impeached, nevertheless may apply here. Literally, textually (for those who are devotees of textualism, as current members of the Supreme Court allegedly are), the acts for which the insurrectionists are seeking pardons exactly gave rise to this “case of impeachment.” Further, had the Founders chose to do so, they could have said that the exception only applies “in cases of impeachment *and conviction.*” They didn’t include that qualification, and in other cases, e.g., theSlaughterhouse Cases concerning the 14th Amendment, the Supreme Court has held such omissions to be meaningful. 

In short, even if Trump does issue pardons to the insurrectionists, I think prosecutors should argue that the pardons are invalid under the Constitution. The cases would surely be taken to the Supreme Court, where both the textualists and those looking to the spirit of the law, surely aware that these cases are “sui generis” (I.e., in a class all by themselves, extremely unlikely ever to be repeated), might decide that the pardons arose “in a case of impeachment” and hold that the proffered pardons are null and void.