Weekly Indicators for September 26 - 30 at XE.com

 - by New Deal democrat

My Weekly Indicators post is up at XE.com. The recent "wobbliness" continues, but with a different cast of characters each week.

On a side note, real life has continued to occupy so much time that my blogging activity has been very limited.  That is likely to continue for 2 or 3 more weeks.  That's a shame, because there are some changes afoot that I would like to share.

In general, while the shallow industrial recession of 2015 did end in about March of this year, the subsequent rebound is proving pretty shaky.  Some Doomish relationships have appeared that should not be disregarded.  I am confident that we are not in a recessioin now, nor is one imminent, but there are more and more signs that make me think that, in terms of baseball, we are maybe in the top of the 8th inning for this expansion.

Ed "Call Center" Morrissey's Complete Economic Stupidity on Display Yet Again

     Today, we have this gem of complete and total ignorance from Ed Morrissey from Hot Air:

The problem occurred when the federal government — spurred by both parties, but starting with Bill Clinton’s administration — attempted to artificially increase demand in home ownership by subsidizing increasingly risky mortgages. That actually started with interventionist regulation: a revision to the Community Reinvestment Act in 1999. That put pressure on banks to expand lending and lower standards for approvals; later, Congress would step up subsidizing such loans through Fannie Mae and Freddie Mac, which then sold the mortgages on the bond markets with the implicit guarantee from the federal government.  That created a huge but artificial increase in demand that drove housing values way up, delinking them from their traditional relationship to the rate of inflation. Suddenly lots of people saw their equity as an ATM, so consumer spending rapidly increased, and politicians of both parties took credit for great economies and rising home ownership.

This analysis has been debunked numerous times.  The latest is from Barry over at the Big Picture. Barry offers detailed and nuanced analysis, which means it's already far above Ed "I ran a call center so I'm qualified to write about economics" Morrissey's head.  If you're really interested, you can search Barry's site for "CRA;" he's taken this meme down several times.

Ed's an economic idiot; he keeps trying to write something of substance, only to prove on a regular basis that those who ran call centers aren't qualified to write about economics.

Here's the key point for me:

The housing bubble was global.  So either the CRA somehow caused all these other countries to engage in risky lending, or something else was going on.

Bonddad's Thursday Linkfest

I'm a financial adviser with Thompson Creek Wealth as well as a tax and business attorney with The Law Office of Hale Stewart.

Men Without Work

Durable Goods Unchanged

1-Year Chart of the XLI

Italy Downgrades Forecast

Italy has downgraded its economic forecasts, presenting the country with a worse fiscal outlook than expected and limiting prime minister Matteo Renzi’s chances of proposing a big economic stimulus before the December referendum that will determine his fate. 

The Italian cabinet approved the new projections overnight, slashing its estimate for gross domestic product growth this year to 0.8 per cent from a pace of 1.2 per cent predicted in April. Next year, Rome is expecting growth of 1 per cent, compared with a previous estimate of 1.4 per cent.

1-Year Chart of the EWI

Bonddad's Wednesday Linkfest

I'm a financial adviser with Thompson Creek Wealth as well as a tax and business attorney with The Law Office of Hale Stewart.

Brexit's Impact on U.S. Will be Small

Overall, the U.K. vote to leave the European Union left several sources of uncertainty for the global economy in its wake. Short-term and longer-term uncertainty are likely to lead to some reduction in U.K. GDP and potentially longer-run growth, but the transmission to the United States is likely to be small. First, exports are a relatively small share of U.S. GDP, and exports to the United Kingdom are less than 1 percent of GDP. Second, while longer-term uncertainty will likely lead to a longer-term reduction in U.K. GDP, the transmission to the United States is likely to be much smaller. Provided that financial conditions across Europe do not become too strained, the evidence suggests that heighted uncertainty is a major concern for the United Kingdom, a modest concern for the European Union, and a relatively minor concern for the United States.

Oil Continues to Consolidate

QQQs and SPYs Don't Have Much Upside Room Based on the Number of Stocks About the 50 and 200 day EMA

Bonddad's Tuesday Linkfest

I'm a financial adviser with Thompson Creek Wealth as well as a tax and business attorney with The Law Office of Hale Stewart.

New Home Sales Drop 7.6% M/M/Increase 20.6% Y/Y

1-Year Chart of the XHB ETF

Mario Draghi on the Pros and Cons of the EU Outlook

On the positive side, incoming information continues to point to the euro area economy being resilient to global and political uncertainty, notably following the UK referendum outcome. The initial impact of the vote has been contained and the strong financial market reactions, such as equity price falls, have largely reversed.

At the same time, the substantial weakening of the foreign demand outlook since June is expected to dampen export growth. Along with other factors, it will continue to pose downside risks to the euro area’s growth prospects. According to the September ECB staff macroeconomic projections, annual real GDP growth is expected to increase by 1.7% this year, and by 1.6% in each of the next two years.

Latest Markit Numbers

OECD Report on Trade

Over the past few years, the rate of global trade growth has halved relative to the pre-crisis period, and it declined further in recent quarters, with the weakness concentrated in Asia. While low investment has played a role, rebalancing in China and a reversal in the development of global value chains could signal permanently lower trade growth, leading to weaker productivity growth. Lack of progress – together with some backtracking – on the opening of global markets to trade has added to the slowdown. 

BOJ Head Kuroda's Observations On the New BOJ Policy

The first point is that, during the three years since the introduction of QQE, Japan's economic activity and prices, as well as financial conditions, have improved substantially, and Japan's economy is no longer in deflation. 

The second point is that, despite such a positive turnaround, the price stability target of 2 percent has not been achieved.

The Bank has come to the conclusion that it can facilitate the formation of a yield curve, which is deemed most appropriate for achieving the price stability target of 2 percent, through the appropriate combination of a negative interest rate and JGB purchases. 

The fourth point is the impact of monetary easing on the functioning of financial intermediation...Although the direct impact of these developments on economic activity as a whole is unlikely to be substantial, it is possible that such developments can cause uncertainty regarding the sustainability of the financial functioning in a broad sense, in that they could have a negative impact on economic activity through a deterioration in people's confidence. In facilitating the formation of an appropriate yield curve, the Bank should take account of these points. 

Dallas Fed on August's and September's Economic Numbers

Economic indicators released in August and September have been mixed. Consumption spending got off to a strong start in the third quarter, and employment growth slowed but remains solid. However, the more timely purchasing managers’ surveys were unusually downbeat. Still, forward-looking indicators and professional forecasts point to stronger growth in the second half of the year. Inflation remains muted and below the Federal Reserve’s target rate of 2 percent, with goods and services inflation exhibiting differing trends.

Little Stevie Hayward of Powerline: Still an Economic Jackass

Today, Little Stevie Hayward of Powerline has a post up titled, "Don't Look Now, But."  It's his usual cut and paste job masquerading as economic analysis.  He first points to the weak state of corporate earnings, noting they are headed for another decline.   But, it's obvious that he has no idea what's behind this number.  The big issue is weak oil company revenues.  Consider this chart from Factset.com:

Notice the very large drop in energy revenues.  China's switch from a manufacturing economy to one driven by consumer demand is another cause (Stevie might want to take a look at information from the RBA -- that's Reserve Bank of Australia -- for context).  In fact, 7 industries reported positive earnings growth.  So, this isn't exactly the Armageddon he's predicting. 

He then notes the China and Japan are selling treasuries.  Let's place that move in context.  Here's a chart of the 30-year treasury yield for the last 30+ years:

Interest rates have been declining for the last 40 years.  There's a lot of reasons for this.  To get caught up on that, read Bernanke's Global Savings Glut theory or Larry Summers Secular Stagnation argument.  Which little Stevie Hayward won't do, because it uses big words and contains math.  

  

  I realize that criticizing Little Stevie Hayward of Powerline is like shooting fish in a barrel.  He's that stupid.  But, so long as he keeps writing, I'll keep pointing out how incredibly stupid he is.

New home sales continue uptrend as expected from lower mortgage rates

 - by New Deal democrat

All things being equal, lower mortgage rates typically translate into increase new home sales -- and even though August was a decrease from July, in 2016 that relationship is holding fast and is the most positive aspect of the important and leading housing market.

This post is up at XE.com.

Bonddad Monday Linkfest

Weekly Performance of US Sectors

RRG Chart for US Industries

1-Year Chart of the XLKs

RRG Graph of the XLKs 10 Largest Members

Financial Performance of 10 Largest XLK Members

1-Year Chart of the XLFs

1-Year RRG Chart of the Largest XLF Members

Financial Performance of the 10 Largest XLK Members

My Weekly Columns Are Up at XE.com

International Economic Week in Review

US Bond Market Week in Review

US Equity Market Week in Review

Steve Hayward of Powerline Continues to Be an Economic Jackass

     Today, Steve Hayward of Powerline wrote a blog post titled, The Economy in Pictures.  He uses a whopping 4 graphs to argue that the economy is near a recession.  You can stop laughing now.  
 
     Over at XE.com I have a post that uses 18 different indicators -- and these are indicators that have a long track record of being accurate predictors of economic activity -- to argue that we're still looking at a modestly growing economy.  

     Once again, we have Steve Hayward proving that he's an economic jackass of the highest order. But on a good note, we can also start to argue that he's a great contrary indicator: do the exact opposite of what he does and you'll make out like a bandit in the market.

Weekly Indicators for September 19 - 23 at XE.com

 - by New Deal democrat

My Weekly Indicators post is up at XE.com.  Commodities undid their recent wobble, but the trend in several interest rate indicators is of concern.

Bonddad's Thursday Linkfest

New Fed Projections

BOJ Adds to QE (FT)

The Bank of Japan has launched a new kind of monetary easing as it set a cap on 10-year bond yields and vowed to overshoot its 2 per cent inflation target on purpose.

Its decision demonstrates that even eight years after the global financial crisis, central bankers are still willing to experiment with monetary policy tools as they struggle to escape from low inflation around the world.

The move marks another effort by Haruhiko Kuroda, BoJ governor, to surprise market expectations by expanding his monetary policy toolkit to signal his determination that Japan escape its decades of on-and-off deflation.

Weekly Chart of the Japanese ETF

OECD Warns of Slow Global Growth

The global economy is projected to grow at a slower pace this year than in 2015, with only a modest uptick expected in 2017. The Outlook warns that a low-growth trap has taken root, as poor growth expectations further depress trade, investment, productivity and wages.

Over the past few years, the rate of global trade growth has halved relative to the pre-crisis period, and it declined further in recent quarters, with the weakness concentrated in Asia. While low investment has played a role, rebalancing in China and a reversal in the development of global value chains could signal permanently lower trade growth, leading to weaker productivity growth. Lack of progress – together with some backtracking – on the opening of global markets to trade has added to the slowdown. 

Exceptionally low – and in some cases negative – interest rates are distorting financial markets and raising risks across the financial system.  A disconnect between rising bond and equity prices and falling profit and growth expectations, combined with over-heating real estate markets in many countries, increases the vulnerability of investors to a sharp correction in asset prices.

“The marked slowdown in world trade underlines concerns about the robustness of the economy and the difficulties in exiting the low-growth trap,” said OECD Chief Economist Catherine L. Mann. “While weak demand is surely playing a role in the trade slowdown, a lack of political support for trade policies whose benefits could be widely shared is of deep concern.

”Monetary policy is becoming over-burdened. Countries must implement fiscal and structural policy actions to reduce the over-reliance on central banks and ensure opportunity and prosperity for future generations.”

World Trade is Disappointing (OECD)

Table of the 20 Largest Shipping Companies by Market Cap (FinViz)

Chart of the Shipping Sector (Finviz)

A Divided Fed Leaves Rates Unchanged

This is over at xe.com.

August housing cools off, but slow increase in trend persists

 - by New Deal democrat

This post is up at XE.com.  The headline numbers are disappointingly flat.  But when we step back and take a look at the three month moving average, a slight trend appears.

Bonddad's Wednesday Linkfest

I'm a financial adviser with Thompson Creek Wealth as well as a tax and business attorney with The Law Office of Hale Stewart.

Is the Business Cycle Dead? (Capital Spectator)

But maybe the real issue is that the economy is stuck in a netherworld where growth remains perpetually weak while unusually low interest rates keep the macro trend from falling into a conventional business-cycle ditch. Actually, we’ve been in something approximating this netherworld in recent years, albeit punctuated by temporary bursts of relatively solid growth.

Housing Starts and Permits Drop (Census)

Increase in Incomes is Real and Important (Barry)

The latest data, courtesy of the Census Bureau, which released its annual update on incomes and poverty yesterday, showed that median household income increased a whopping 5.2 percent in 2015 to an inflation-adjusted $56,516. As the New York Times, noted, it was “the largest single-year increase since record-keeping began in 1967.”

.....

Ignore the naysayers; the most recent numbers were a huge positive surprise, showing that incomes for all Americans are rising in a meaningful way. Unlike in recent years, when much of the gains went to an increasingly narrow group at the top of the economic strata, last year’s improvements were broad and deep. “Gains were spread across the income spectrum and by race, while women’s earnings inched closer to men’s,” Bloomberg reported.

Global Trade is Weaker (ECB)

The so-so 2016 election economy

 - by New Deal democrat

As I have pointed out in several recent posts, the economic fundamentals forecast a very tight, 51/49 Presidential race.  Here again is a copy of Nate Silver's "economics only" election forecast:

Here's how Silver calculates the index:

"How does the model judge how well the economy is doing? It calculates an index, which may seem complicated but is actually relatively intuitive. We combine the change over the past year in six measures of economic health — jobs (nonfarm payrolls); manufacturing (industrial production); income (real personal income); spending (personal consumption expenditures); inflation (the consumer price index); and the stock market (S&P 500) — into a single index. Each part of the index is compared to how well the economy was doing by that metric in previous presidential election years"

While (except for the stock market) this is a good coincident index for the economy, almost exactly matching the criteria used to determine if the economy is in recession or not,voddly it does not include most of the series that Silver himself found om 2011 were most correlated with the results of Presidential elections over the last 50 years:

So let's take a look at the nine series that had correlations of .30 or better:

ISM manufacturing index (Jan - Sep):

Unfortunately the ISM has withdrawn its permission for the St. Louis FRED to post its data, so I can't post a better graph.  But I can tell you that through August, this year the ISM Manufacturing index has averaged 50.8 -- just barely positive.

Nonfarm employment:

Employment has grown by about 1% in the first 8 months of this year.

Unemployment rate (Sep less Jan):

The unemployment rate in September is the same as it was in January.

Real personal income minus transfers

This is also up about 1% so far this year.

Change in employment to population ratio (Sep less Jan)

The e/p ratio has only improved by 0.1% this year.

Real GDP and real GDP per capita

Real GDP is only up about 0.5% through the second quarter.  Per capita it is up less than 0.2%.

Real final sales (i.e., production plus wholesale plus retail sales)

This is also up about 1% through the second quarter.

Real disposable income per capita

This too is up about 1% as of July.

In summary, only one series -- the unemployment rate -- out of the 9 most correlated with the re-election of the incumbent party is not positive (and it is unchanged).  All of the others are positive, although several just barely so. BUT, none of them are strongly positive.  This is an economy moving forward in no better than second gear.  So the incumbent party is favored -- but by very little.

Bonddad's Tuesday Linkfest

I'm a financial adviser with Thompson Creek Wealth as well as a tax and business attorney with The Law Office of Hale Stewart.

OPEC Is Close to Deal?

OPEC members are close to reaching an agreement on how to stabilize the market, Venezuelan President Nicolas Maduro said after speaking to his counterparts from Iran and Ecuador.

Maduro held “positive discussions” with fellow members of the Organization of Petroleum Exporting Countries who attended the Summit of the Non-Aligned Movement, he said Sunday at a press conference following the event, in which 15 heads of state gathered in the South American country. Maduro said he spoke with Ecuadorian President Rafael Correa and Iranian President Hassan Rouhani at the summit and that he hopes an accord can be reached by the end of the month. 

1-Year Chart of Oil

China Debt Level High

China’s debt has grown to alarming levels, according to new data from the Bank for International Settlements that highlight a big potential risk to the global economy.

What the BIS terms the country’s “credit gap” is now three times higher than the typical danger level, the research shows.

The measure tracks the difference between corporate and household debt as a proportion of gross domestic product and the long term trend, thus highlighting any divergence between current and historic borrowing patterns — a possible indicator of unsustainable debt accumulation.

1-Year Chart of the Chinese Market

McDonald's Next EU Target?

McDonald’s could face an order to pay nearly $500m in back taxes to Luxembourg, according to a Financial Times analysis of an investigation by Brussels into state-supported tax avoidance.

Last month the European Commission imposed a €13bn tax penalty on Apple in Ireland, triggering a storm of protest from Washington and corporate America. As the commission steps up its crackdown on so-called sweetheart tax deals, two US multinationals — McDonald’s and Amazon — are potentially next in line.

According to an FT review of the commission’s McDonald’s probe, it paid an average tax rate of 1.49 per cent on the $1.8bn profit earned by its Luxembourg-based European headquarters since its 2009.

1-Year Chart of McDonalds

Bonddad's Tuesday Linkfest

I'm a financial adviser with Thompson Creek Wealth as well as a tax and business attorney with The Law Office of Hale Stewart.

OPEC Is Close to Dael?

OPEC members are close to reaching an agreement on how to stabilize the market, Venezuelan President Nicolas Maduro said after speaking to his counterparts from Iran and Ecuador.

Maduro held “positive discussions” with fellow members of the Organization of Petroleum Exporting Countries who attended the Summit of the Non-Aligned Movement, he said Sunday at a press conference following the event, in which 15 heads of state gathered in the South American country. Maduro said he spoke with Ecuadorian President Rafael Correa and Iranian President Hassan Rouhani at the summit and that he hopes an accord can be reached by the end of the month. 

1-Year Chart of Oil

China Debt Level High

China’s debt has grown to alarming levels, according to new data from the Bank for International Settlements that highlight a big potential risk to the global economy.

What the BIS terms the country’s “credit gap” is now three times higher than the typical danger level, the research shows.

The measure tracks the difference between corporate and household debt as a proportion of gross domestic product and the long term trend, thus highlighting any divergence between current and historic borrowing patterns — a possible indicator of unsustainable debt accumulation.

1-Year Chart of the Chinese Market

McDonald's Next EU Target?

McDonald’s could face an order to pay nearly $500m in back taxes to Luxembourg, according to a Financial Times analysis of an investigation by Brussels into state-supported tax avoidance.

Last month the European Commission imposed a €13bn tax penalty on Apple in Ireland, triggering a storm of protest from Washington and corporate America. As the commission steps up its crackdown on so-called sweetheart tax deals, two US multinationals — McDonald’s and Amazon — are potentially next in line.

According to an FT review of the commission’s McDonald’s probe, it paid an average tax rate of 1.49 per cent on the $1.8bn profit earned by its Luxembourg-based European headquarters since its 2009.

1-Year Chart of McDonalds

Bonddad's Monday Linkfest

The DIAs and IJHs are Right At Support

The SPYs Have Consolidated Right Above Fibonacci Levels

The QQQs Bounced Off Support and Rallied Higher

The Financial and Technology ETFS Are Outperforming the SPYs

1-Year Chart of the XLFs

1-Year Chart of the XLKs