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nuggets of financial self-defence
Mish's take on global economic news and events
Zaktualizowano: 1 dzień 11 godzin temu

Thin Crowds, Subdued Shopping on Black and Blue Friday; Thanksgiving Shopping a Bust

pt., 27/11/2015 - 18:45
Retailers, especially big-box retailers will be blue if light shopping carries over for the rest of the season. The Wall Street Journal reports Thinner Crowds on Black Friday.
Millions of Americans left their Thanksgiving meals to hit stores across the country in an annual shopping ritual, but the crowds on early Black Friday morning were thinner than years past at some malls and shopping districts.

Thinner crowds could spell problems for retailers, some of whom entered the holidays warning of uneven consumer demand and elevated levels of inventory. But the smaller crowds could also reflect deeper changes in how Americans shop: Increasingly, they are spending more online and making fewer visits to stores.

Driving up to a nearly empty parking lot at a Wal-Mart in Houston on Friday morning, Dora Rodriguez, 39 years old, stopped her silver hatchback in surprise and called out her window to another shopper: “Excuse me, the Black Friday sale—it’s ended already?”

Thirty-six percent of consumers said they planned to shop online only during this year’s holiday season, up from 19% who said so last year, according to the investment bank Jefferies. By comparison, just 18% of consumers said they planned to shop only in physical stores this year, down from 35% who said so a year ago.

“The competition is led by Amazon and that factors into how other retailers set their prices,” said Paul Trussell, a Deutsche Bank analyst. Subdued Start to Shopping Season

Reuters reports Black Friday Crowds Thin in Subdued Start to U.S. Holiday Shopping.
Crowds were thin at U.S. stores and shopping malls in the early hours of Black Friday and on Thanksgiving evening as shoppers responded to early holiday discounts with caution and bad weather hurt turnout.

"We believe Thanksgiving shopping was a bust," analysts at Suntrust Robinson Humphrey said in a research note. "Members of our team who went to the malls first had no problem finding parking or navigating stores."

Scott Tuhy, vice-president at Moody's who tracks companies like Macy's Inc (M.N), said crowds on Thursday evening in New Jersey were steady but not busy. He said some stores saw a fair amount of activity around orders that were placed online and picked up in stores.Mike "Mish" Shedlock Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Unbelievable Lie of the Day: Turkey Says It Had Not Recognized the Aircraft as Russian When it Shot it Down

pt., 27/11/2015 - 09:07
In the wake of conflicting flight path information with Russian and Turkey differing on the flight path of the Russian aircraft that Turkey downed over Syria, comes the incredulous claim that Turkey did not recognize the aircraft as Russian when it shot the aircraft down.

This unbelievable statement comes as Hollande and Putin Seek Common Ground but Remain at Odds Over Syrian Targets.
The leaders of France and Russia held more than three hours of talks at the Kremlin focusing on the fate of the Syrian president and on which parts of the armed opposition should be protected from air strikes.

The summit was part of Mr Hollande’s push for a broader coalition against Islamist radicals Isis after the attacks in Paris a week ago.

After the talks, Mr Hollande said he and Mr Putin had agreed on three basic points. “First, we will intensify the exchange of intelligence and any other information between our militaries. Second, the strikes on Isis will intensify and become part of a co-ordinated campaign in order to make them more efficient. Third — and Mr Putin also stressed this — we must focus our air strikes on Isis and other terrorist groups.”

The gulf between the leaders on the future of Mr Assad remained as wide as ever. Mr Hollande reiterated his position that Mr Assad “cannot play a role in the future of this country” but Mr Putin rebuffed him, repeating his standard phrase that only the Syrian people could determine the future of their country.

The issue of widely diverging goals of the external actors in the Syrian war gained renewed urgency after Turkey shot down a Russian fighter jet on Tuesday which it said had violated its airspace. Ankara’s move is believed to have been partly motivated by the fact that Russia’s air force has been bombarding Turkmen villages in northern Syria, an ethnic group that Turkey views as an ally.

Turkey’s President Recep Tayyip Erdogan said on Thursday that Ankara had not recognised the aircraft as Russian when it shot it down. Following a slew of announcements of economic retaliation against Turkey, Mr Putin angrily dismissed this claim as “impossible” and said Russia had provided the US with information on the time and location of its sorties.

“Since Turkey is a member of Nato, they should have known. Did they think it was a US plane?” Mr Putin said. “All we hear is lame excuses. Well, that’s their choice, it’s not our choice.”Impossible

Putin's claim is correct. It is impossible to believe Turkey did not know who it was shooting at.

In fact, the claim is so absurd, and so much an obvious bald-faced lie, one has to question Turkey's claim that the Russian aircraft did indeed violate Turkey's air space.

Competing Claims

The above image from Turkish military releases recording of 'warnings' sent to downed warplane, Russia disputes flight path.

Turkey claims it issued warnings. I do not believe those warning claims are in dispute. What is in dispute are conflicting flight path claims.

If Russia violated Turkish air space, it was for at most a few seconds. But here's the real question at this point: After Turkey's unbelievable lie that it did not know what it was shooting at, how can anyone possibly believe Turkey, on anything, related to this matter?

Mike "Mish" Shedlock  Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Majority in UK Now Favor Brexit; Cameron's Quandary

czw., 26/11/2015 - 17:21
Attitudes towards the EU have hardened in the wake of the ISIS attack on Paris. A new poll reveals Majority of UK Public Now Wants 'Brexit'. More than half of the public now want to leave the European Union, according to an opinion poll for The Independent – the first time our monthly survey has shown a majority for “Brexit.”

The survey of 2,000 people by ORB, conducted last Wednesday and Thursday in the wake of the Paris terrorist attacks, will be seen as a reflection of public anxiety about the EU’s migration crisis.

Some 52 per cent of people say Britain should leave the EU, while 48 per cent want to remain.

When ORB asked the same question in June, July and September, a majority (55 per cent) wanted to stay and 45 per cent to quit on each occasion.  Last month, amid widespread media coverage of the refugee crisis, the margin narrowed slightly to 53 per cent in favour of staying in, with 47 per cent wanting out.

The latest survey highlights a stark divide between the generations ahead of the in/out referendum to be held by the end of 2017.  Some 69 per cent of 18-24 year-olds want to remain in the EU, while only 31 per cent want to leave. Support for EU membership declines steadily with age among older groups, with only 38 per cent of those aged 65 and over wanting to remain and 62 per cent in favour of leaving.

Some 54 per cent of people who voted Conservative at the May election want to leave the EU, as do 93 per cent of Ukip voters. But a majority of Labour, Liberal Democrat, SNP and Green supporters want to remain.

The overall findings will worry pro-EU campaigners, who admit privately that the refugee crisis is shifting opinion against membership. There are also fears that the Out campaign, funded heavily by hedge funds opposed to EU regulation, enjoys a much bigger budget than the In brigade.  “We will have less but are much more likely to spend it better,” said one In camp insider, promising a professional effort than its rivals.Cameron's Quandary

UK prime minister David Cameron really has his work cut out for him now. Just yesterday, German Chancellor Angela Merkel Reaffirmed Her Open-Door Refugee Policy.

She is out of her mind of course, and that's going to give all of Europe a major headache, while making matters especially difficult for Cameron who pledged to work out an agreement with Merkel and French President Francois Hollande that the British could accept.

Hollande may be sympathetic on migration issues, but he will not be sympathetic about financial transaction taxes and London regulations.

Cross issues are now huge and more bickering will not help.

Will Cameron even be willing to put this all to a vote as promised? If polls remain in the Brexit category, I doubt it, unless he is politically forced to do so.

Mike "Mish" ShedlockMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

On the Verge of Consumer Exhaustion

śr., 25/11/2015 - 21:25
Fourth Quarter GDPNow Forecast Sinks to 1.8%

Following today's personal income report in which consumer spending rose only 0.1% month-over-month, the Atlanta Fed GDPNow Forecast for fourth quarter declined by 0.5 percent to 1.8 percent.

"The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2015 is 1.8 percent on November 25, down from 2.3 percent on November 18. The forecast for the fourth-quarter rate of real consumer spending declined from 3.1 percent to 2.2 percent after this morning's personal income and outlays release from the U.S. Bureau of Economic Analysis."

The latest Blue-Chip forecast for early November was 2.7%, a highly unlikely number at this stage unless season spending picks up big time.

Reports show stores are not discounting merchandise as much as consumers like, and consumers generally expect to spend less, so odds of a hefty jump in Christmas sales is questionable.

We may know more next week when reports on Black and Blue Friday become available.

4th Quarter GDP Trends

Consumer Exhaustion 

The initial 4th quarter GDPNow forecast started at 2.5% on October 30. It rose as high as 2.9% following the auto sales and jobs reports. It's pretty much been downhill since then.

Wholesale trade, retail trade, existing home sales, all knocked off points.

Today's Personal Incomes and Outlays Report knocked off a half percentage point even though wage growth was substantial.

Many signs point to consumer exhaustion.

Back-to-school spending was weak, housing starts have been weak, existing home sales are weak, manufacturing has been weak, recent spending reports have been weak, and Christmas sales appear "tepid" at this point.

Auto sales have been the one consistently bright spot, in this otherwise treading water economy, but what cannot go on forever, won't.

Mike "Mish" ShedlockMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Personal Income and Outlays: Income Hits Estimates, Spending Disappoints; Optimism Reins Supreme

śr., 25/11/2015 - 19:49
Today's Personal Income and Outlays shows consumer spending once again on the "soft side" despite solid income growth.

Income was in-line with expectations of a 0.4% gain. However, spending came in with an anemic  0.1% gain month-over-month. The Econoday Consensus Estimate for consumer spending was 0.3%, in a range of 0.2% to 0.5%, so economists once again were way overoptimistic.

Moreover, the core PCE (personal consumption expenditures) price index, the Fed's preferred inflation measure, came in at 0.0% whereas the consensus estimate was 0.2% in a range of 0.1% to 0.2%. The PCE price index was another big miss for economists.

The core PCE is the Fed's most important inflation reading and it is not showing rising pressure, coming in unchanged in October, vs an expected gain of 0.2 percent, with the year-on-year rate at 1.3 percent which is also unchanged. Consumer spending also proved soft, up only 0.1 percent vs expectations for a 0.3 percent gain. Spending shows flat readings across categories including only a small gain for services which usually are strong.

The income side is better, hitting expectations at a 0.4 percent gain with wages & salaries showing an outsized gain of 0.6 percent. And the outlook for future spending is solid with a strong 3 tenths rise in the savings rate to 5.6 percent.

Turning back to inflation readings, the overall PCE price index remains nearly dead flat in a reminder that fuel prices remain very low and should give a boost to durable spending during the holidays. The PCE price index is up only 0.1 percent, vs Econoday expectations for a 0.2 percent gain, with the year-on-year rate at a very telling and extremely low plus 0.2 percent.

Though income data in this report do point to consumer strength ahead, the spending data are not a strong start at all for the fourth quarter. These results, especially the core price readings, will not lift the odds for a December rate hike.

Recent History Of This Indicator

The core PCE price index is the Fed's favorite inflation reading and Econoday expectations are calling for a 0.2 percent gain in October in what would be substantial enough to further build expectations for a December rate hike. Readings on personal income and personal spending are also expected to rise, at respective consensus forecasts of plus 0.4 percent for the former, reflecting wage and workweek gains in the October employment report, and plus 0.3 percent for the latter in what, combined with steady incremental gains in service spending, would be in line with gains for core retail sales.  Another Overoptimistic Forecast

All-in-all this was another hugely overoptimistic estimate by economists. Wage gains were in-line with expectations, but wage gains are easy to forecast given data that comes out of monthly job reports.

For more on perpetual overoptimism, please see Persistent Overoptimism Three Ways: Truckers, Fed Economists, Manufacturers

Mike "Mish" ShedlockMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Black and Blue Friday Coming Up

śr., 25/11/2015 - 08:48
Tomorrow is Thanksgiving. Black and Blue Friday will follow, putting U.S. Consumers and Stores in Face Off Over Discounts.
A Reuters/Ipsos survey found more people planned to cut holiday spending than increase in every category surveyed: clothing, jewelry, electronics, food and toys, and that 46 percent felt they could wait longer in the season to buy because of faster shipping.

Appliances, entertainment items, infant products and hardware showed narrowing discounts, MarketTrak reported, while promotions for apparel, toys and electronics were getting bigger.

Kurt Jetta, head of retail industry researcher TABS Group, found the discounts underwhelming.

"The fact that retail has been so weak coming in to the season would suggest they may need to ramp up efforts to make up for this later," Jetta said. Consumers were cautious going into the holidays, with sales at Macy's, Nordstrom Inc and Best Buy missing expectations in recent quarterly results. Target's online sales fell due to a drop in demand for electronics.

The Reuters/Ipsos survey of 4,639 adults from Nov. 12-23 found 28 percent of consumers expected discounts of 50 percent or more on most items, 36 percent hoped to see promotions of at least 33 percent while 49 percent expect a minimum discount of 20 percent on most products.

A survey for Boston Consulting Group found 70 percent of consumers would spend the same or less as last year, describing the consumer outlook as "tepid."

"Consumers have been trained to know that they can wait, and they will wait and that will force the retailers to continue to be promotional," said Joel Bines, managing director at AlixPartners.Unreliable Polls

Polls are notoriously unreliable. Typically consumers spend more than they expect, on junk they do not need and cannot really afford.

Yet, manufacturing reports have been dismal, and retail sales tepid other than autos.

The recovery is also very long in the tooth, with the Fed poised to hike interest rates.

All things considered I expect a very weak holiday shopping season. If so, someone is sure to be blue. Will it be retailers or shoppers with buying hangovers? I suspect both.

Black and Blue Fighting

There is always a stampede or two over the latest craze toy or hot promotion that will be thrown into the ashcan six months from now. And someone lands a punch every year, in fights over who had their hands first on the last discounted thingamabob.

The best way to face the hustle and bustle of black and blue Friday is to not face it at all. I recommend a hike, a bike ride, a walk in the park, or golf if weather permits.

Mike "Mish" ShedlockMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Flight Paths Over Turkey Analyzed; Obama Defends Turkey; Choose Your Friends and Enemies Wisely; Merkel Madness

wt., 24/11/2015 - 23:39
In the wake of Turkey shooting down a Russian aircraft over Syria, the immediate impact will be to make negotiations on the removal of Assad all the more difficult. First let's analyze the flight path of the downed aircraft courtesy of Stratfor.

Map of Flight Path of Downed Russian Aircraft

Deadly Few Seconds

The short distances involved and the speed at which fighter jets fly does support the view made by a US official: "They were in Turkish airspace only 2 to 3 seconds".

Obama Defends Turkey

Voice of America reports Turkey Has Right to Defend Its Territory, Airspace.
President Barack Obama said the downing of a Russian fighter jet along the Syrian-Turkish border Tuesday is evidence of an "ongoing problem" with Russia's military operations in Syria, and that Turkey had a "right to defend its territory and its airspace."

Speaking during a joint news conference with French President Francois Hollande, Obama said information about Turkey's downing of the Russian Su-24 was still being collected, but noted that Russian military aircraft are targeting moderate Syrian opposition groups very close to Turkey's borders.

A U.S. military spokesman confirmed that Turkish pilots issued repeated warnings to the Russian plane and didn't get a response. However, the spokesman said it was not immediately clear on which side of the border the Russian jet was flying. Moscow insists the jet never left Syrian airspace.Moderate Al Qaeda Yet Again

There's Obama once again with more bullsheet about "moderate" Al Qaeda rebels. Nonetheless, it does appear Russia violated Turkey's airspace.

Everyone is supposed to be on the same side here, but it's all a lie. Turkey buys oil from ISIS and that provides the funds for ISIS to buy weapons and maintain fighting.

Both Turkey and the US would rather see Syrian president Assad fall than take out ISIS.

I side with Putin who stated "This event goes beyond the framework of the regular fight against terrorism. today's loss is connected to a stab in the back by accomplices of the terrorists."

Putin noted "a large amount of oil and oil products" entering Turkey from ISIS-held territory in Syria, provides the terrorist group with a "large money supply."

Turkey the "Accomplices of the Terrorists"

The Guardian analyzes Putin's viewpoint in Is Vladimir Putin right to label Turkey ‘accomplices of terrorists’?
The relationship hinted at by Russian leader after warplane was shot down is a complex one, and includes links between senior Isis figures and Turkish officials.

Turkish borders have been the primary thoroughfare for fighters of all kinds to enter Syria. Its military bases have been used to distribute weapons and to train rebel fighters. And its frontier towns and villages have taken in almost one million refugees.

Turkey’s international airports have also been busy. Many, if not most, of the estimated 15,000-20,000 foreign fighters to have joined Islamic State (Isis) have first flown into Istanbul or Adana, or arrived by ferry along its Mediterranean coast.

The influx has offered fertile ground to allies of Assad who, well before a Turkish jet shot down a Russian fighter on Tuesday, had enabled, or even supported Isis. Vladimir Putin’s reference to Turkey as “accomplices of terrorists” is likely to resonate even among some of Ankara’s backers.

Turkish businessmen struck lucrative deals with Isis oil smugglers, adding at least $10m (£6.6m) per week to the terror group’s coffers, and replacing the Syrian regime as its main client. Over the past two years several senior Isis members have told the Guardian that Turkey preferred to stay out of their way and rarely tackled them directly.

Concerns continued to grow in intelligence circles that the links eclipsed the mantra that “my enemy’s enemy is my friend” and could no longer be explained away as an alliance of convenience. Those fears grew in May this year after a US special forces raid in eastern Syria, which killed the Isis official responsible for the oil trade, Abu Sayyaf.

A trawl through Sayyaf’s compound uncovered hard drives that detailed connections between senior Isis figures and some Turkish officials. Missives were sent to Washington and London warning that the discovery had “urgent policy implications”.

“Turkey thought they could control it all,” said one senior western official. “But it got out of their hands. It has come back to bite them in the heart of Ankara [a double suicide bombing in October that was claimed by Isis] and it will haunt them for a long time.”Merkel Madness

Turkey is guilty as charged. And yet, Angela Merkel wants to strike a deal with Turkey that would allow 75 million Turkish access to the Schengen border-free area from as soon as 2016.

For details, please see Bargaining With the Devil: Germany Bribes Turkey With Aid Package, EU Sidelines Highly Critical Report on Turkey’s Free Speech Record.

Simply put, Angela Merkel is crazy.

What to Expect Next

Stratfor discusses the implications of this madness in What to Expect After the Downing of a Russian Fighter Jet.
Turkey's downing of a Russian fighter jet in Syria has raised the stakes in an already crowded and complicated conflict. The Nov. 24 incident will also likely undermine efforts to find a solution to the country's protracted civil war.

The destruction of a Russian search-and-rescue helicopter sent to find the downed jet's crew will only aggravate the situation more. Rebels brought down the helicopter with small arms fire, killing one Russian marine, and then destroyed it with a TOW anti-tank guided missile — a weapon built and supplied by the United States. Even though the rest of the crew survived the attack, Russia will not be pleased that another outside party's weapons are being used against it in the fight.

Peace Moves Further Out of Reach

The incident with the fighter jet will no doubt raise the risk of clashes occurring in the airspace over Syria. The United States had made considerable progress in deconflicting Syrian airspace by signing a memorandum of understanding with Russia that laid out procedures to prevent problems from arising as each side carried out airstrikes. But with the Russians angry at the Turks, and the Turks operating in close concert with the Americans — especially in the planned anti-Islamic State operation over northern Aleppo — the United States and its coalition partners may find themselves drawn into the spat between Ankara and Moscow.

The dispute will also undermine ongoing attempts to find a solution to the Syrian civil war, especially since Turkey is an important foreign patron of many of the rebel groups that were expected to have a seat at the negotiating table. With video circulating of Turkmen fighters from these units shooting at the Russian pilots, Moscow probably will no longer accept their participation in the talks. Since some of these groups also belong to the Free Syrian Army and are part of Syria's more moderate opposition, this will make it much more difficult to reach a roster of representatives that all sides can agree on before heading into negotiations. And as long as talks on a power-sharing agreement in Syria remain elusive, the foreign sponsors of the Syrian civil war will be dealing with an increasingly complex battlefield.Choose Your Friends and Enemies Wisely

Broadly speaking, this mess is precisely what one should expect under the idiotic doctrine "the enemy of my enemy is my friend".

When everyone is everyone else's enemy, everyone becomes everyone else's friend under the practiced doctrine.

Under such a doctrine, we are now friends with Al Qaeda terrorists even though we blew up Iraq on the mistaken premise Saddam Hussein was harboring them.

Al Qaeda is now in our friends group because they seek to overthrow Assad. But ISIS also wants to overthrow Assad.

US response in the region shows the US is more intent on taking out Assad, than taking out ISIS, even though Assad is no threat to anyone except those seeking to overthrow him.

In turn, this proves the US can pick neither its friends nor its enemies wisely! But look on the bright side: It's good for those who seek perpetual war.

For more on the sheer ridiculousness of US policy, please see New Cold War; Circular Absurdity.

Mike "Mish" Shedlock Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Richmond Fed Region Negative Again; Inventories Suggest Outright Disaster on Horizon

wt., 24/11/2015 - 21:05
Economists expected manufacturing activity in the Richmond Fed region would bounce into positive territory this month.

The Bloomberg Econoday Consensus Estimate was +1 in a range of 0-4, but the reading of -3 came in below any economist's estimate.
Early indications for the November factory sector are soft right now after Richmond Fed reports a much lower-than-expected minus 3 headline for its manufacturing index. Order data are very negative with new orders at minus 6, down from zero in October, and backlog orders at minus 16 for a 9-point deterioration. Shipments are also in contraction, at minus 2, with the workweek at minus 3. Employment, at zero, shows no monthly change but the declines for backlog orders and the workweek don't point to new demand for workers. Price data are subdued but do show some constructive upward pressure.

This report along with Empire State, as well as yesterday's manufacturing PMI, are pointing to a downbeat month for the factory sector which is being held down by weak foreign demand, as evidenced in the decline for goods exports in this morning's advance release of international trade data.Ahead of the release, Bloomberg had this to say: "Regional Fed surveys have been showing improvement in November and the same is expected for the Richmond Fed's manufacturing index." 

"Details in this report, as in other manufacturing surveys, did show life in October but there were points of weakness including lack of growth for new orders and extended contraction for backlog orders."


The New York region came in at -10.74 below the lowest Econoday guess of -8.50. The prior (October) release was -11.36, but -10.74 is not an improvement, it's a decline at a lesser rate.

For more details please see Empire State Manufacturing Negative Fourth Month, Work Week Lowest Since Mid-2011.

There was an improvement in the Philly Fed region, to +1.9 (See Philly Fed Slightly Positive After Two Months of Contraction) but I labeled that "noise" given the new orders and shipment components were negative and the workweek collapsed to -16.2

No Signs of Life

Diving into the Richmond Fed Report, we see shipments, backlog of orders, and the average workweek all negative for the third month consecutive. New orders were down two of the last three months, and flat the third.

Check out those inventories!

Manufacturers are not only stockpiling raw materials, they have stockpiled finished goods with declining orders, hoping sales will pick up.

Outright Disaster on Horizon

Looking ahead, growth in inventories vs. declining shipments and new orders does not bode well for employment or the workweek. In fact, inventories suggest an outright disaster is on the horizon.

But hey, the six-month look ahead numbers look great.

Absurd Expectations

Unfortunately, history shows those expectations are ridiculous. I analyzed the New York region look-ahead expectations and in 167 months, nearly 14 years of data, there were only five months (just under 3% of the time) in which current conditions exceeded projections made six months previous!

For details, please see Tracking Manufacturing's Perpetual Overoptimism.

For a followup, also see Persistent Overoptimism Three Ways: Truckers, Fed Economists, Manufacturers.

Mike "Mish" ShedlockMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Turkey Shoots Down Russian Plane; Two Seconds; New Cold War; Circular Absurdity

wt., 24/11/2015 - 19:42
Theater of Absurd

The tangled web of friend-foe relationships in the Mideast has reached a new high point of circular absurdity.

  • The US and Turkey are fighting ISIS (allegedly), as is Russia and Iran.
  • Turkey just shot down a Russian plane on the Syrian-Turkey border.
  • Turkey freely buys oil from ISIS which gives ISIS the money needed buy weapons. 
  • The US and France are working with Russia to fight ISIS.
  • Syrian rebels, armed with US Anti-Tank missiles just shot down a Russian helicopter.
  • The US backs alleged "moderate" Al Qaeda rebels seeking to overthrow Syrian president Assad.
  • ISIS also seeks to overthrow Assad.

Turkey Shoots Down Russian Plane

The Financial Times reports Turkey Shoots Down Russian Fighter Jet on Syrian Border.
Vladimir Putin has accused the Turkish government of providing financial and military support to Isis, in a furious response to the downing of a Russian fighter jet near the Syria-Turkey border.

Turkey said it shot down the Russian Sukhoi Su-24 on Tuesday morning after it violated Turkish airspace, escalating tensions between international powers with competing aims in war-torn Syria.

Mr Putin warned that the “tragic incident” will bring “serious consequences” for relations between the two countries, and alleged that Turkey had helped bankroll Isis through oil sales.

Turkey has disputed Moscow’s version of events. A government official said the crew was given “repeated warnings”, beginning from when the jet came within 15km of the Turkish border.

A special meeting of Nato’s North Atlantic Council was called for later on Tuesday at Turkey’s request, prompting further anger in Moscow.

“Instead of immediately getting in contact with us, the Turkish side immediately turned to their partners with Nato to discuss this incident, as if it was us who downed a Turkish jet and not vice versa,” said Mr Putin.

“Do they want to put Nato at Isis’s service?”

Alexei Pushkov, chairman of the foreign affairs committee of Russia’s lower house, tweeted that Turkey’s economic losses as a result of the deterioration of relations with Moscow would “exceed tenfold the profits of those who have established a profitable oil business with Isis”.

Turkish media and local activists said the Russian jet came down in Yamadi on the Turkish-Syrian border. However the Syrian Observatory for Human Rights, a UK-based activist group, put the crash site in the Jabal Turkman area of northern Latakia.

Earlier, several parts of the rural northern Latakia region were being shelled from the air during clashes involving regime forces and loyalist militia on one side and rebels and Islamist divisions on the other.Where is Latakia?

Latakia is the principal port city of Syria, as well as the capital of the Latakia Governorate. Thus, the Russian plane was over Syria, not Turkey when it was shot down.

Two Seconds

US officials told NBC "They were in Turkish airspace only 2 to 3 seconds, a matter of seconds" before the Turkish F-16s attacked.
A U.S. military spokesperson in Baghdad backed the Turkish claim that they warned the Russian pilots they were in Turkish airspace before shooting down the aircraft.

"I can confirm that, yes," Col. Steve Warren told a briefing but could not say whether the incursion was deliberate.

He added that the U.S. did not observe the shoot down, but heard what transpired because the aircraft were operating on open channels.

A spokesman for the rebels in the area told NBC News that some of its fighters had opened fire on the pilots as they fell to the ground, killing one of them. The body was being held by the rebels, said the commander Jahid Ahmed, who added that he had no information on the second pilot.

Ian Shields, a professor of international relations at Anglia Ruskin University, warned the Turkish downing of the Russian warplane has the potential to spark a new Cold War. Rebels Down Russian Helicopter with US Supplied Anti-Tank Missile

As part of the circular absurdity, ZeroHedge reports Syrian Rebels Destroy Russian Helicopter With US-Supplied Anti-Tank Missile.

"It would be bad enough if the US were supplying TOWs to anyone in Syria. But this is Washington and Riyadh handing anti-tank missiles to forces that are firing them at the Iranians who are operating under cover of Russian airstrikes [to fight ISIS]. Just to drive that home: the US is waging war against Iran and Russia with but one degree of separation," commented ZeroHedge.

Perpetual War

Does anyone recall the US took out Saddam Hussein on the false premise, Iraq was harboring Al Qaeda?

The statement Hussein was harboring Al Qaeda was not even true. But after the US took out Hussein and disbanded the Iraqi military, Al Qaeda and ISIS filled the military vacuum, fighting over Iraqi and Syrian territory.

Al Qaeda terrorists became our friends, and ISIS a much in demand enemy. In the case for perpetual war, we need friends to sell weapons to, and enemies to fight.

New Cold War

Ian Shields, a professor of international relations at Anglia Ruskin University, warned the Turkish downing of the Russian warplane has the potential to spark a new Cold War.

I suggest Cold Wars are so passé. No one wants one of those.

Not enough people were killed, not enough weapons were sold, and not enough new enemies were made in the cold war to keep the war machine well oiled.

Perpetual war is the solution, the bigger the better.

Citizens United for WWIII

Citizens United for WWIII, a think-tank led by US Senator John McCain and various presidential candidates of both parties, demands no less than a global hot war, preferably nuclear, including Russia and China.

In case you are wondering, I made up the name Citizens United for WWIII. Unfortunately, the idea is correct, even if the think-tank name does not exist.

Mike "Mish" Shedlock Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Swiss Bank Hits Customers With Negative Interest Rates; Crazy? What About Velocity?

wt., 24/11/2015 - 11:25
Alternative Bank Schweiz (ABS), a small bank in Switzerland broke the negative interest rate on deposits barrier, CHARGING customers to take their money. (emphasis in caps from the article).
The Alternative Bank Schweiz wrote to customers telling them they would face a -0.125 per cent rate on their money from 2016 – and a -0.75 per cent rate on deposits above 100,000 Swiss francs.

The move echoes the Swiss central bank’s -0.75 per cent negative deposit rate imposed on financial institutions placing money with it.

Sweden’s central bank also introduced negative rates, which currently stand at -0.35 per cent, while the European Central Bank introduced them in part with its -0.2 per cent overnight deposit rate.

The Bank of England’s chief economist Andy Haldane delivered a speech in September discussing how Britain could have to consider negative interest rates as an extreme measure in a future crisis.

The big Swiss banks passed on some of the pain from the Swiss central bank’s -0.75 per cent rate to their institutional clients, but Alternative Bank Schweiz is believed to be the first retail bank to hit savers with a charge.

The bank describes itself as an ethical organisation focused on backing firms investing in social and environmental projects.

With its balance sheet totalling nearly 1.6 billion Swiss francs last year, most of its activities are concentrated in cooperative housing projects, providing affordable housing and sustainable energy solutions, as well as organic farming. Less Than Zero

Bloomberg offers a "quick take" on Less Than Zero.
Imagine a bank that pays negative interest. Depositors are actually charged to keep their money in an account. Crazy as it sounds, several of Europe’s central banks have cut key interest rates below zero and kept them there for more than a year. For some, it’s a bid to reinvigorate an economy with other options exhausted. Others want to push foreigners to move their money somewhere else. Either way, it’s an unorthodox choice that has distorted financial markets and triggered warnings that the strategy could backfire. If negative interest rates work, however, they may mark the start of a new era for the world’s central banks.

The Situation

With the fallout limited so far, policy makers are more willing to accept sub-zero rates. Having once said that the European Central Bank had hit the “lower bound,” President Mario Draghi signaled in October and November that the deposit rate could be cut even further into negative territory. The ECB became the first major central bank to venture below zero in June 2014, and it now charges banks 0.2 percent to hold their cash overnight. Sweden also has negative rates, Denmark used them to protect its currency’s peg to the euro and Switzerland moved its deposit rate below zero for the first time since the 1970s.

That means investors holding to maturity won’t get all their money back. Banks have been reluctant to pass on negative rates for fear of losing customers, though Julius Baer began to charge large depositors.

The Background

Negative interest rates are a sign of desperation, a signal that traditional policy options have proved ineffective and new limits need to be explored. They punish banks that hoard cash instead of extending loans to businesses or to weaker lenders. Rates below zero have never been used before in an economy as large as the euro area. While it’s still too early to tell if they will work, Draghi pledged during the height of Europe’s debt crisis in 2012 to do “whatever it takes” to save the area’s common currency, signaling the ECB’s willingness to be innovative. It chose to experiment with negative rates before turning to a bond-buying program like those used in the U.S. and Japan.

The Argument

In theory, interest rates below zero should reduce borrowing costs for companies and households, driving demand for loans. In practice, there’s a risk that the policy might do more harm than good. If banks make more customers pay to hold their money, cash may go under the mattress instead. Janet Yellen, the U.S. Federal Reserve chair, said at her confirmation hearing in November 2013 that even a deposit rate that’s positive but close to zero could disrupt the money markets that help fund financial institutions. Two years later, she said that a change in economic circumstances could put negative rates “on the table” in the U.S., and Bank of England Governor Mark Carney said he could now cut the benchmark rate below the current 0.5 percent if necessary.Economic Distortions

That's actually a balanced synopsis by Bloomberg as far as it went.

But unlike Europe, the US has large money market funds that would be destroyed by negative rates. Banks may be able to hold out for a while by raising other fees, but money market funds would immediately be in trouble.

Customers would withdraw money, put it into banks charging the lowest fees, stuff cash under the mattress, or open safe deposit boxes.

If rates get negative enough, there would be a run on the banks, but a run on money market funds would likely happen first.

Someone Has to Hold the Cash

The central bank thesis is to get people to spend the money. But note the absurdity. Someone must hold every dollar printed at all times.

If you buy a candy bar and eat it, or a coat and wear it, the store that sold those items to you has the money. Mathematically, someone at all times must hold all the money.

What About Velocity?

Reader "Vince" has been bugging me to write about the velocity of money. Velocity purportedly measures the speed at which money circulates in the economy.

I have commented before on the absurdity of the velocity thesis, but this seems like a good time for a rehash.

Velocity = Value of transactions / supply of money 
The value of transactions = price * transactions = GDP.

Thus, velocity is nothing more than GDP divided by money supply. Here is the equation, two ways.

V = PT / M
V = GDP / M

Right now, velocity is falling simply because money supply is increasing faster than GDP.

But what constitutes money supply?

M1, M2, MZM, base money, and true money supply all yield different measures of velocity.

M2 Velocity

M1 Velocity

MZM Velocity

TMS Velocity

So is velocity 1.7, 5.9, 1.5, 1.3 or something else?

If we rearrange the equation, GDP / Velocity = M.

Supposedly we know GDP but what do we plug into the equation for velocity to derive M? Can one independently measure velocity?

The answer to that question is a resounding no.

Since GDP = PT, GDP can rise if prices rise and GDP can go up if transactions go up. GDP can rise if transactions decline, provided prices rise enough. And GDP can rise if prices decline, provided transactions rise enough.

  • Velocity can rise with rising prices
  • Velocity can fall with rising prices
  • Velocity can rise with increasing transactions
  • Velocity can fall with increasing transactions


  1. Velocity has no life of its own.
  2. Velocity does not cause anything to happen.
  3. Velocity cannot be measured by any independent means.

Curiously, economists are concerned about "falling velocity" as if it means something other than the central banks are printing money that sits as excess reserves.

Inquiring minds may also be interested in Frank Shostak's 2002 article Is Velocity Like Magic? Much of my understanding of velocity comes from that article.

Shostak used the phrase "Velocity has no life of its own." On this Murray Rothbard wrote "It is absurd to dignify any quantity with a place in an equation unless it can be defined independently of the other terms in the equation."

Mario Draghi on Velocity

On November 20, Draghi Pledged to ‘Do What We Must’ to Boost Sluggish Inflation.
Mario Draghi has dropped his clearest hint yet that the European Central Bank is about to inject more monetary stimulus into the eurozone economy, brushing aside staunch opposition from Germany’s powerful Bundesbank.

The ECB president said yesterday that ECB policymakers would “do what we must to raise inflation as quickly as possible”. The remark echoed a promise Mr Draghi made during the region’s debt crisis in 2012 to do “whatever it takes” to save the single currency.

The ECB is widely expected to unleash a souped-up version of its €1.1tn quantitative easing package and consider cutting one of its benchmark rates deeper into negative territory.

“If we conclude that the balance of risks to our medium-term price stability objective is skewed to the downside, we will act by using all the instruments available within our mandate,” Mr Draghi said. “In particular, we consider the APP [asset-purchase programme] to be a powerful and flexible instrument, as it can be adjusted in terms of size, composition or duration to achieve a more expansionary policy stance.”

He added: “The level of the deposit facility rate can also empower the transmission of [QE], not least by increasing the velocity of circulation of bank reserves.Question for Draghi

I laughed out loud at that last line. If QE increases velocity, then why is velocity declining in the US, in Europe, and in Japan?

By the way, bank reserves do not circulate. Reserves are deposits that are not lent out. One can even argue that money does not really circulate per se, as it has to be held at all times by someone.

Negative Interest Rates Crazy?

Let's return to this statement by Bloomberg: "Crazy as it sounds, several of Europe’s central banks have cut key interest rates below zero and kept them there for more than a year".

Yes, negative interest rates are crazy.

Link if video does not play: Crazy - Patsy Cline.

Desperation and Hubris

  • Negative interest rates are a sign of central bank desperation. 
  • They are a sign central banks are clueless about how the economy really works. 
  • And they are a sign of extreme hubris coupled with extreme stubbornness as Japan has proven over the course of three decades that unconventional measures do not work as economists expect.

It's crazy to keep trying things that cannot possibly work, over and over again.

Mike "Mish" ShedlockMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Housing Rebound Didn't Lift Economy as Much as Economists Expected: Why?; Six Questions for Zandi

wt., 24/11/2015 - 01:04
Home prices are nearly back to where they were before the crash. In some places, home prices are above where they were at the peak of the national boom.

Yet, the impact of rising home prices has not had the economic effect that economists expected.

The Wall Street Journal addresses the issue in Why the Housing Rebound Hasn’t Lifted the U.S. Economy Much.

I think the journal misses the reasons by a mile, as does Moody’s Analytics chief economist Mark Zandi. Let's take a look.
Home equity has roughly doubled to $12.1 trillion since house prices hit bottom in 2011, according to the Federal Reserve. As a result, a key gauge of housing wealth—homeowners’ equity as a share of real-estate values—is nearing the point seen a decade ago, before the downturn.

Such a level once would have offered a double-barreled boost to the economy by providing owners with more money to tap and making them feel more flush and likely to spend. But today, that newfound wealth has had little effect on behavior.

Home equity’s effect on consumer spending is at its lowest ebb since the early 1990s, according to Moody’s Analytics. The research firm estimates that every $1 rise in home equity in the fourth quarter of 2014 would translate to about two cents of extra consumer spending over the next 1 to 1½ years. That was a third of the impact home equity had before the bust, Moody’s said.

Why aren’t homeowners feeling flush again? For one thing, since rising home prices over the past few years largely have made up for ground lost during the recession, many owners might not even realize they have equity to tap.

The bust looms large and home equity is seen as more fleeting than it used to be, said Fannie Mae chief economist Doug Duncan.

“Consumers are definitely more conservative financially than they were 10 years ago. They’ve seen that house prices can be volatile,” Mr. Duncan said.

Mortgage lenders also aren’t giving owners access to as much equity as they used to. While it was common during the boom to see loans that took out 100% or even more of a home’s value, now few will let an owner take out more than 80%.

Finally, other kinds of loans are cheaper, removing one incentive to tap home equity.

Could home equity start to flex its muscle sometime soon?

Some economists think it might. One reason: In many metro areas, home prices have overtaken or are about to overtake their boom-era peak.

About 38% of metro areas had prices above their pre-2009 peak at the end of the third quarter, up from a 30% level last year, according to Moody’s Analytics and CoreLogic. A further 13% of metros are within 5% of their prebust peak.

“We’re at an inflection point,” [Moody’s Analytics chief economist] Mark Zandi said. “Since the crash, it’s all been about repairing homeowners’ equity but now that house prices are returning to prerecession levels, we will see homeowners’ equity driving consumer spending, home improvements and economic activity.” Zandi Misses Demographic Boat 

Boomers are not about to go on a spending spree based on the once widely held but now discredited notion that home prices always go up.

Headed into retirement, boomers in general have more worries than whether or not their kitchen cabinets are up to date. Boomer home improvements will primarily pertain to replacing worn out heaters, air conditioning, or appliances, not remodeling.

And millennials, especially women, still live at home in record numbers. For details, please see Women Not Leaving the Nest in Record Numbers; Marriage and Kids, Who Can Afford Them?

Six Questions for Zandi

  1. How can you spend "home equity", when you don't even have a home?
  2. What about the need of boomers to downsize, not upgrade?
  3. What about student debt? 
  4. What about attitudes of millennials?;
  5. What about health care costs for aging boomers?
  6. What about millennials who have to take care of their aging parents and don't have the means?

Zandi expects the prior trend will resume. I propose we are not at inflection point. It's all in his head, and easy answers to the above questions on attitudes and demographics explain why.

Mike "Mish" ShedlockMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Italy Seeks "Silver Bullet" to Clean Up €330 Billion Nonperforming Loans; Explaining the "Bad Bank" Concept

pon., 23/11/2015 - 20:59
In defiance of eurozone rules against state aid to banks, Italy Plans Bad Bank "Silver Bullet" Bailout. Italy plans to launch a series of bad bank-style measures as early as the end of the year in an effort to cut its €330bn pile of non-performing loans as it seeks a “silver bullet” to boost its weak economic recovery, say senior officials.

Such a move raises the prospect of a confrontation with the European Commission, which has so far rejected draft plans presented by the Italian Treasury, arguing that any government intervention would qualify as state aid, the officials say.

According to several senior Italian officials, one plan under discussion involves placing the bulk of Italy’s NPLs into a privately held vehicle in which senior debt would be guaranteed by the state, probably through the state development agency Cassa Depositi e Prestiti.

The aim would be to reduce the gap between the price banks are offering to sell the loans and the price private entities are willing to pay for them, which has remained stubbornly wide, amid private investors’ concerns about the ease of clawing back soured loans in Italy.

One senior government official said a clean-up of NPLs would be the single most effective “silver bullet” for boosting Italian growth.

The cabinet was meeting on Sunday for an emergency session, while the markets were closed, to decide measures to inject €2bn to save four small banks — Banca Marche, CariFerrara, CariChieti and Banca Etruria — taken under state control in the past year due to lack of solvency.

Italy’s stock of NPLs hit €330bn in mid-2014, according to the International Monetary Fund. The sum has barely slipped from that level — with a knock-on effect on bank lending. Credit flow to small businesses that make up the bulk of the Italian economy remains stagnant, according to data from the Bank of Italy.

Most recent data show Italy’s economy grew a disappointing 0.2 per cent in the third quarter of this year.

Echoing growing concern among Italy’s business leaders, Citi analyst Giada Giani wrote this week that while the country’s reform momentum had picked up over the past two years, the impact on current growth was probably limited, as signs of improvement to overall competitiveness were scant.

“Once the monetary and fiscal stimuli fade, we reckon Italian GDP growth is unlikely to exceed the 0.75 per cent to 1 per cent range,” she wrote.Explaining the "Bad Bank" Concept

Take away artificial stimulus and I rather doubt Italy grew at all.

And with €330 billion nonperforming loans does anyone believe the ECB's stress tests that show eurozone banks are well capitalized.

Let's get down to the nitty-gritty of how the "bad bank" construct works and doesn't work.

The idea that you can take bad debt, isolate it, and it then magically becomes good debt, is of course ridiculous. Creating a bad bank does nothing in and of itself.

It is the "government guarantee" that cures the bad bank. And it is taxpayers who pay for the government.

And so here we go again, with another bailout of bondholders, at the expense of the public, and in violation of EC rules, should Italy proceed with the plan.

"At Risk" of Failing Euro Budget Rules

Every country in the Eurozone is "at risk" of violating budget rules for the simple reason nearly all of them currently and consistently violate budget rules.

Nonetheless, on November 17, the European Commission targeted Austria, Italy and Lithuania 'At Risk' of Failing Euro Budget Rules. The European Union warned Tuesday another three of the 19 countries that use the euro, including Italy, risk breaking the currency bloc's budget rules and hinted it could give France some leeway in the wake of the attacks in Paris.

Though the EU's executive Commission said no country's draft budget has been found to be seriously in breach of the rules, it said Italy, Austria and Lithuania risk overshooting deficit limits in 2016. It urged the countries to revise their spending plans.

Pierre Moscovici, the EU's top economy official, indicated France may get a sympathetic hearing at the Commission if the country's budget plans deteriorate in coming months in the wake of the attacks. The French government has indicated it will boost security spending, which will affect its budget.

The euro rulebook encompasses many requirements, the most important one being that countries keep their budget deficits under 3 percent of annual GDP. If they don't, they must present plans to do so, or face fines. For Italy, the worry is not about the headline deficit number, which is below the 3 percent limit, but the country's ability to handle its debts.

Those under the strictures of a bailout program, currently only Greece and Cyprus, don't have to present plans. And Portugal didn't submit them, apparently because it's effectively without a government following last month's general election. The others, apart from Spain and including France, had presented plans that were said to be "broadly compliant" with 2016 requirements."Broadly" Compliant Defined

Broadly compliant means those countries may barely meet budget-deficit rule extensions, granted multiple times already, assuming there is not another economic slowdown nor another wave of terror.

France uses Paris as an excuse, but in reality France would have been "broadly non-compliant" anyway.

Of course, there is nothing magic about 3% deficits year-after-year. Exponentially speaking, even 1% eventually matters. Italy's debt burden that it cannot shrink even though it is compliant with the deficit rule is proof enough.

Mike "Mish" ShedlockMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Existing Home Sales Decline, NAR Calls Report "Disturbing"; First Time Buyers Decline Third Year; Housing Clearly Weakening

pon., 23/11/2015 - 19:14
Existing home sales came in a bit under Bloomberg Econoday Consensus, down 3.4% in October. Year-over-year trends are weakening.
Sales of existing homes are not a source of strength for the economy, down 3.4 percent in October to a slightly lower-than-expected annualized rate of 5.36 million. Year-on-year, sales are up only 3.9 percent which is the lowest for this reading since January. Weakness is split roughly even between single-family homes, down 3.7 percent in the month to a 4.75 million rate, and condos, down 1.6 percent to a 610,000 rate.

Lack of homes on the market, in a reflection of price weakness, remains a major factor holding down sales. Supply relative to sales is at 4.8 months, up slightly from the prior month but still below the 5.2 months of October last year. A reading of 6.0 months is considered a balanced market. The number of homes on the market, at 2.14 million, is actually below the 2.24 million this time last year, an unwanted surprise that the National Association of Realtors, which compiles the existing home sales report, calls "disturbing".

Price data for October are once again weak, down 0.9 percent for both the median (at $219,600) and the average (at $262,800). Year-on-year, the median is up 5.8 percent with the average up 3.4 percent.

Regional sales data show a sharp decline in the West, down 8.7 percent in the month for a year-on-year gain of 2.7 percent. The South, which is the largest housing region, also shows weakness, down 3.2 percent for only a 0.5 percent year-on-year gain. The Northeast and Midwest were little changed in October with year-on-year appreciation very solid for both, in the high single digits.

But the weakness in the West and the weakness in the South are not positive indications for the housing sector where moderate strength on the new home side of the market is being offset by weakness on the existing side.Existing Home Sales Percent Change From Year Ago

October vs. September

In September, Existing Home Sales Rose 4.7% Following August's 5% Decline.

This is what Bloomberg said a month ago: "Existing home sales bounced back very strongly in September, up 4.7 percent to nearly reverse the prior month's revised decline of 5.0 percent, a decline that now looks like an outlier. The month's annual sales rate, at 5.55 million, is just beyond Econoday's top-end forecast and the second best reading of the recovery. The year-on-year percentage gain, at plus 8.8 percent, is back where it was during the sales gains of the spring."

If there was an "outlier", perhaps it was the September gain, not the August and October declines.

And even though September sales data bounced, prices didn't. The median price declined 2.9% in September.

Bloomberg concluded "This report, which wraps up a busy and mostly positive week for housing data, is a big plus for the housing outlook, suggesting that demand for existing homes may be catching up with demand for new homes."

I responded: "That last statement by Econoday is amusing. For starters, new home sales are not all that strong, and it is new home sales that contribute most to GDP and family formations."

As a followup, please note my November 18 article Housing Starts Plunge 11% to 7-Month Low: Single-Family Down 2.4%, Multi-Family Down 25%

October wiped away all of September's good news and then some. 1.060 million starts was far below Econoday Consensus Estimate of 1.162 million SAAR and also well below the lowest estimate of 1.125 million.

Bloomberg pointed out hidden strength including "important good news" on October permits.

Spotlight on Permits

  • September month permits were down 5%
  • October permits rose only 4.1%.
  • September starts were revised lower from 1.206 million to 1.191 million (a 15,000 -1.24% negative revision).

In aggregate, that hardly looks like "important good news".

First Time Buyers Decline Third Year

The National Association of Realtors (NAR) notes First-time Buyers Fall Again in NAR Annual Buyer and Seller Survey.

"The share of first–time buyers declined for the third consecutive year and remained at its lowest point in nearly three decades as the overall strengthening pace of home sales over the past year was driven more by repeat buyers with dual incomes."

Housing Clearly Weakening

On average, starts are weakening, permits are weakening, new home sales are weakening, price data is weakening, and existing home sales are weakening.

First time buyers, a strong indication of family formation, is at a three-decades low, and the NAR is "disturbed" about trends.

Simply put, housing is weakening, albeit in a volatile way, making it a bit harder to spot the change in underlying trends.

Mike "Mish" Shedlock Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Cash is King for Holiday Shopping; 63% of Millennials Have No Credit Cards; Millennial Attitudes and Deflationary Trends

pon., 23/11/2015 - 09:32
As we head into the black Friday holiday shopping season, cash is king.
Cash will be the most popular payment method for shoppers buying holiday gifts, with 39% of Americans saying they plan to use it for most of their holiday purchases, in a recent survey of 1,000 shoppers personal finance website Bankrate conducted with Princeton Survey Research Associates International. This number was about the same as in 2014, when 38% of holiday shoppers said they planned to use cash.

Behind cash, the most popular choices for payment were debit cards, with 31% saying they would pay this way, followed by credit cards (22%) and checks (3%).

Younger shoppers were especially unlikely to use credit cards; 48% of millennials said they would do most of their holiday shopping with debit cards, and 36% said they preferred cash. Mobile payments are still unpopular; only 14% of U.S. adults with smartphones or similar devices plan to make even one mobile payment during the holiday season, according to Bankrate.

Millennials in general tend to avoid credit cards more than previous generations have done; 63% of millennials don’t own a single credit card, according to a separate Bankrate survey in 2014. “They grew up in the Great Recession and saw what happened with their parents,” Cetera said. “They don’t ever want to be in a situation where they’re in debt. They’re shying away from high-interest loans, essentially.”Millennial Attitudes

That stat on credit card usage by millennials is precisely in tune with statements I made in 2008 if not before.

  • Kids will be competing with their parents and grandparents for jobs that do not pay a living wage.
  • Children whose parents are being destroyed by debt now, will keep those memories for a long time.

Deflationary Trends

  1. Millennial attitudes
  2. Technology
  3. Demographics of aging boomers
  4. Student debt
  5. Millennials overpay for healthcare 
  6. Low family formation rates

The Fed, the ECB, Bank of Japan, Bank of China, etc., are fighting major deflationary forces.

Attitudes are the key force actually. It took two generations for memories of the great depression to go away.

And it will take at least a generation for millennials who saw their parents lose their homes or get into huge fights over money for those memories to vanish.

To top it off, the Fed (central banks in general) has spawned another enormous asset bubble that will hugely add to deflationary woes when it pops.

Mike "Mish" ShedlockMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Brussels Closed Second Day; Spain and UK Consider Joining Fight Against ISIS; Creating Enemies When None Exist

nie., 22/11/2015 - 20:33
Belgium Terrorist Manhunt Continues

Following Saturday's imminent attack alert in which Belgium shops were closed and sporting events cancelled, Brussels Remains on Terror Shutdown
Brussels remained in lockdown for a second day on Sunday as Paris sought to spearhead an international response to retaliate against Isis in the wake of the attacks that killed 130 in the French capital.

Belgium raised its terror alert in Brussels to the maximum on Saturday, cancelling major sports events and concerts. Many big shops, museums and restaurants were also closed, after Charles Michel, prime minister, said there was an imminent risk that a group of jihadis was preparing simultaneous attacks with guns and explosives.

Public fears centre on Mr Abdeslam, who was driven back to Brussels immediately after the Paris attacks.

Some of Mr Abdeslam’s friends, who had spoken to him via phone since then, told the US broadcaster ABC that he felt trapped between French and Belgian authorities on one side and Islamic State, known as Isis, on the other, which was angry that he had not detonated his belt in the Paris attack.

Koen Geens, the justice minister, said that the hunt for suspects was continuing, and stressed that he knew the identities of at least some of the jihadis being sought. He said that Belgium would re-evaluate the risks on Sunday afternoon, but added that the metro was likely to resume services on Monday.

Jean-Yves Le Drian, French defence minister, on Sunday saluted signs that France was no longer isolated in Europe in the fight against Islamist terrorism.

Spain is considering sending troops to Africa to relieve French soldiers deployed to contain the threat of jihadis in Mali and across the Sahel desert, Mr Le Drian said. “Some are considering to bomb Daesh (Isis), I know the UK is, but there are others. Some are willing to provide logistical support, in the form of a tactical carrier aircraft or a helicopter.” Belgium and the UK have deployed a military ship in the eastern Mediterranean, he added.

Le Drian also pointed that Russia had shifted position in Syria, following the bombing by Isis of a Russian passenger jet over the Sinai. “They are bombing Raqqa,” he said.

He acknowledged however that troops on the ground would have to be sent to eradicate Isis. “A victory, the destruction of Isis requires troops on the ground,” he said. “Not necessarily French.” UN Passes Resolution on ISIS

Last Friday the UN Passed Resolution Urging Action Against Isis.
The UN unanimously approved a resolution on Friday calling on governments to “take all necessary measures” in the fight against the Islamist militants of Isis.

Introduced by France, the Security Council resolution was an attempt to show international unity in the wake of the Paris attacks that killed 130 people and the Mali hotel attack, which took place only hours before the vote.

The vote on Friday represents a rare moment of international unity over Syria at the UN following several years of divisions that have often pitted western countries against Russia. Earlier in the week, the Russians introduced their own counter-terrorism resolution that had a broader focus than Isis and implied international co-operation with the Assad regime in Syria, however it was not taken up for consideration.

The resolution calls on UN members to “take all necessary measures, in compliance with international law” against Isis and called for the eradication of “safe havens” in Syria and Iraq. As well as Isis, it also includes Jabhat al-Nusra, the al-Qaeda affiliate in Syria.

It does not invoke Article 7 of the UN Charter, which provides an international legal underpinning for outside military intervention.

However, the main powers on the Security Council remain divided on one of the central issues of how to bring about an end to the Syrian conflict and the long-term role of Syrian ruler Bashar al-Assad.Assad Is No Threat

Given Assad is no credible threat to the US, it is absurd the US wants to make the overthrow of Assad part of the package.

Mindless meddling, inane overthrows of state leaders like Saddam Hussein, and nation building, created this mess.

Cameron Seeks Parliament Support for Attacks on ISIS

In the UK, David Cameron Seeks Commons Approval for Isis Air Strikes.
David Cameron is hoping to win House of Commons approval for RAF air strikes against Isis targets in Syria next month, amid signs that dozens of Labour MPs could defy party leader Jeremy Corbyn and vote for military action.

The UK prime minister will on Thursday give a detailed statement on the case for British attacks on the terrorist group in Syria, as part of a wider diplomatic and humanitarian settlement in the country.

Meanwhile Mr Corbyn, who is opposed to military action, is under mounting pressure to let Labour MPs have a free vote on the issue, reflecting a deep split in the party.

The prime minister’s team is now increasingly confident that a sufficient number of Labour MPs will back military intervention in Syria to secure a Commons victory in a vote that could come before Christmas.

Mr Cameron and Mr Osborne are haunted by their failure to win Commons support for military intervention in Syria in 2013, although at that time the government wanted to target the regime of Bashar al-Assad.Reflections on Assad

Had Assad been overthrown, it's likely ISIS would now be in control of the entire country.

Mindless meddling, the CIA's hopeless training programs, and the sending of US weapons to the region all strengthened ISIS' hand.

The experience of Afghanistan, Iraq and Libya has convinced many of our own people that the elite’s enthusiasm for endless military interventions has only multiplied the threats to us — while leaving death and destabilisation in their wake,” said Corbyn.

Assad was never a threat. ISIS is. Ironically, ISIS is a US/UK creation that is a direct result of US/UK actions against non-threats.

We blew up Iraq for no reason, killed or wounded hundreds of thousands of innocent people in the process, destroyed the country's infrastructure, and ignited a religious civil war, in a country that had religious freedoms.

In the process, US/UK actions created millions of extremely upset citizens. An incalculable number of those Iraqis became radicalized terrorists.

Haunted by "Action"

The Financial Times' comment "Mr Cameron and Mr Osborne are haunted by their failure to win Commons support for military intervention in Syria in 2013", is preposterous.

The UK is haunted by action, not inaction.

Tony Blair's "action" of joining president Bush in the militarily and socially stupid overthrow of Hussein directly led to the creation of ISIS.

With perpetual warmongering the clear goal, the US and UK fabricated an enemy where none really existed.

Tony Blair has admitted mistakes (see Tony Blair Apologizes for Creation of ISIS) but obviously no lessons were learned.

Mike "Mish" Shedlock Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Oil Patch Problems: Rigs Down 60%, Production Down 3%, $40-$50 Price Doesn't Work

nie., 22/11/2015 - 02:12
With every bounce in the price of oil, US producers used enhanced techniques to get more and more oil out of existing wells. So even as rig counts collapsed, production is barely off the highs, at a price that isn't even profitable.

Oil Flirts with $40 Again

Prices are once again flirting with $40. Crude has not hand a monthly close below $40 since mid-2004. And $40 to $50 is not even profitable, putting producers into a bind.

Oil Patch Problems

The Wall Street Journal explains Low Crude Prices Catch Up With the U.S. Oil Patch.
U.S. companies have stunned global rivals by continuing to produce oil—particularly from shale deposits—ever more cheaply as American crude prices plunged from over $100 a barrel in 2014. But the recent drop toward $40 a barrel and below puts even the most efficient operators in a bind.

“Forty-dollar to fifty-dollar oil prices don’t work in this business,” Ryan Lance, chief executive of ConocoPhillips, the largest independent U.S. oil producer, said in an interview.

The worst-case scenario most major producers have discussed in the past six weeks with investors involved a price of $50 a barrel. That is beginning to look optimistic as Saudi Arabia continues to produce near-record volumes and major exporters such as Iraq have increased output. Many oil executives, including BP PLC CEO Bob Dudley, expect prices to be “lower for longer.” The U.S. Energy Department is forecasting the price of oil will average around $50 a barrel next year.

Breakeven Price

More than 250,000 people world-wide have lost their jobs in the industry over the past year, according to Graves & Co., a Houston consulting firm. Many companies that were hoping to weather low energy prices without new rounds of layoffs and salary cuts may be forced to slash those costs yet again, said Eric Lee, an energy analyst with Citigroup.

“We’re really reaching the limit of what people can do,” said Allen Gilmer, chief executive of DrillingInfo, an Austin, Texas company that compiles data on tens of thousands of shale wells across North America. “Right now, you are down to the best areas, the best rigs, the best people. Any cuts from now on are bone rather than fat.”

Earlier this month, EOG Resources Inc., a Houston-based shale driller, said some of its most prolific wells would yield a rate of return above 40%, even with U.S. oil prices at $50 a barrel.

But break-even prices don’t always give the whole picture of how much money a shale company must spend to pump oil and move it to market. They can exclude land costs, which for some companies amount to billions of dollars, and they don’t include the cost of using pipelines to transport crude, according to company financial statements and analyst reports.

In nearly all of its investor presentations this year, EOG has said it can turn a profit at prices at or below the prevailing oil price at the time of the presentation. Yet more than $6 billion in capital spending this year has produced nearly $4 billion in net losses over the past year for the company, which is an industry bellwether.

The company, which has said $40 oil is unsustainable, didn’t respond to requests for comment.

EOG isn’t alone. In the past 12 months, the 24 largest shale companies have reported losses totaling more than $62 billion and many show negative returns.At $40, oil patch bankruptcies will soar.

Mike "Mish" Shedlock Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Brussels Enters Lockdown, Warns of "Paris-Style" Attack, Airport and Sporting Events Closed

sob., 21/11/2015 - 18:25
Officials in Belgium have "precise information" that Brussels faces a "Paris-Style" Attack. In response Brussels Enters Lockdown. Brussels faces an imminent threat of a Paris-style Islamic State terrorist attack, authorities warned, as the city shut down its metro system and shopping malls, canceled sporting and cultural events and told people to avoid gathering in large groups.

We have precise information that outlines the risk of an attack similar to the one that unfolded in Paris,” Belgian Prime Minister Charles Michel told a press conference Saturday morning in Brussels. “It is a threat based on the theory that it would take place with arms and explosives, maybe even in several places and at the same time.”

Authorities canceled sporting events and cultural activities around the Belgian capital. Professional soccer games were postponed, movie theaters, opera houses, libraries and galleries closed and shopping malls and department stores shut their doors. The city’s Atomium tourist venue didn’t open on Saturday, while night clubs and concert venues said they wouldn’t open in the evening.

"We have enough pieces of information to judge that the threat is precise and imminent," said Foreign Minister Didier Reynders, according to Belga newswire. "It’s normal that there is a certain feeling of fear after what happened in Paris and Bamako," he said in a reference to al-Qaeda-linked gunmen killing at least 21 people at a luxury hotel in Mali’s capital on Friday.

The Brussels metro will remain closed until at least Sunday afternoon, Michel told reporters Saturday morning after a meeting of the national security council. The council will meet again on Sunday to decide whether to extend the closure beyond the weekend.

The terror warning came hours after the United Nations on Friday unanimously endorsed a resolution calling for countries to take “all necessary measures” to combat so-called Islamic State in Syria and Iraq, warning that the group intends further attacks like those that in the French capital.Imprecise Information

The above information seems more "general" than precise. Is the threat even real?

Yet, it's tough to second-guess the actions taken now simply because we don't know what the authorities know.

But unless those in the plot are captured today (assuming there is a plot), will the airport be any safer on Sunday or Monday?

Now that fears are heightened, one obvious risk is a series of idle threats that will shut down cities, time and time again.

Mike "Mish" Shedlock Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Persistent Overoptimism Three Ways: Truckers, Fed Economists, Manufacturers

pt., 20/11/2015 - 19:47
The other day I noted a persistent overoptimism regarding manufacturers.

Since then, I have seen a couple articles regarding overoptimism at the Fed and overoptimism in trucking. Of course, there is also persistent overoptimism about earnings growth and  stock market expectations.

The track record on recessions is perfect. The Fed never sees them coming. Let's investigate the overoptimism phenomena starting with trucking.

Profit-Killing Overcapacity in Trucking Coming Up 

SupplyChain247 asks Is the U.S. Trucking Industry Entering a Profit-Killing Era of Overcapacity?
As surface transportation’s peak period ends for the year, and trucking eyes the traditionally slowest time for the industry as first quarter 2016, economic signals are, at best, mixed.

U.S. factory activity grew last month at its slowest pace since May 2013 as manufacturers pared their stockpiles and cut jobs.

The Institute for Supply Management’s index of factory activity slipped to 50.1 in October from 50.2 in September. The figures barely signal growth, which is any reading above 50.

Third-quarter Gross Domestic Product grew at a 1.5 percent annual rate in the third quarter, far below the 3.9 percent pace in the April-June quarter.

What the Economists Are Saying

“We’re hopeful this will mark the low,” Ian Shepherdson, an economist at Pantheon Macroeconomics, said in a note to clients. “It looks as though the downshift in manufacturing activity may be coming to an end.”

ABF Freight, the seventh-largest LTL carrier reported a decline in revenues due to lower fuel surcharges and lower tonnage levels, even though shipments rose year over year. But ABF showed “great cost discipline,” Stifel analyst David Ross noted.

UPS Freight
, the fifth-largest LTL, reported tonnage off 10 percent (matching the record decline reported in the 2009 3Q during the depth of the Great Recession) and shipments down 5 percent year over year (the worst drop since 2008 fourth quarter).

That has spread to the truckload side as well. Heartland Express, the 12th-largest TL, reported a whopping 35 percent drop in third quarter earnings year of year. Operating revenue decreased 15.9 percent to $182.5 million. Revenue, excluding fuel surcharge revenue, decreased less precipitously, by 8.1 percent to $160.7 million.

Bob Costello, chief economist for the American Trucking Associations, recently told an industry gathering that the third quarter economic slowdown was merely a blip on the radar, fueled by manufacturers and retailers burning off excess inventory from earlier in the year.

“The U.S. economy is on sound footing,” Costello said at the ATA Convention in October. “When the inventory adjustment is done, there will be a high level of freight.”

“My personal belief is the trucking industry needs to realize production of goods will have ups and downs,” Satish Jindel, principal of SJ Consulting, which closely tracks industry pricing, told Logistics Management. “They should not build capacity built on rosy outlooks coming from economists and other organizations that have a bias to be optimistic.

“The reality should show they should only have capacity to handle base GDP growth rate,” JIndel added. “Everything above that should be handled by methods that can provide capacity on interim basis. So they’re not stuck with excess drivers and trucks.”

So far, the industry does not appear to be doing that. Sales of Class 8 heavy trucks are on pace for one of the best years in history - around 260,000 units in North America. That is a warning sign of future overcapacity, Jindel said.Bias for Optimism

It's interesting that Jindel noted the bias of optimism. I was just looking at a San Francisco Fed study on Persistent Overoptimism about Economic Growth.
In November 2007, the Federal Open Market Committee began releasing projections for real GDP growth four times per year in its Summary of Economic Projections (SEP). The SEP reports the central tendency and range for real GDP growth forecasts from the Federal Reserve Board members and Federal Reserve Bank presidents. Over the past seven years, many growth forecasts, including the SEP’s central tendency midpoint, have been too optimistic. In particular, the SEP midpoint forecast (1) did not anticipate the Great Recession that started in December 2007, (2) underestimated the severity of the downturn once it began, and (3) consistently overpredicted the speed of the recovery that started in June 2009. The SEP growth forecasts have typically started high, but then are revised down over time as the incoming data continue to disappoint. Similar patterns are observed in the consensus private-sector growth forecasts compiled by the Blue Chip Economic Survey. This Economic Letter reviews the SEP’s track record of forecasting growth and considers some explanations for the optimistic bias.

Overoptimism 2008-2010

The SEP growth forecast for 2008 never turned negative. At the time, the mainstream view was that the U.S. economy would avoid a recession despite the ongoing housing market turmoil. The actual growth rate for 2008 turned out to be –2.8%—the largest annual decline since 1946. The SEP growth forecast for 2009 did not turn negative until January 2009. This was the first forecast released after the Lehman Brothers bankruptcy in September 2008. The 2009 growth forecast reached a low point of –1.7% in April 2009 but was later revised up, coinciding with a rebound in stock prices. The actual growth rate for 2009 was –0.24%.

Overoptimism 2011-2013

A notable feature of the SEP growth forecasts for 2011 through 2013 are the extremely high starting values—around 4% or higher. The last period of multiyear growth over 4% in the U.S. economy was during the tech-bubble years of 1996–99. The overoptimistic SEP growth forecasts for 2011 through 2013 were eventually cut in half, each ending around 2%. The actual growth rates for those years were 1.7%, 1.6%, and 3.1%.

Explaining the Persistent Overoptimism

In a cross-country study of private-sector forecasts from 1989 to 1998, Loungani (2001) finds that “the record of failure to predict recessions is virtually unblemished.” He also finds that forecast revisions in one direction tend to be followed by further revisions in the same direction and that one-year-ahead growth forecasts are typically too optimistic.

An updated study by Ahir and Loungani (2014) finds that the private-sector’s record of failure to predict recessions remained intact through 2008 and 2009. A study by Alessi, et al. (2014) finds that one-year-ahead growth forecasts from the Federal Reserve Bank of New York and the European Central Bank from 2008 to 2012 exhibited substantial overoptimism, averaging 1.6 to 2.4 percentage points above actual growth. The SEP growth forecasts fit the pattern of these various studies.

According to the SEP, “each participant’s projections are based on his or her assessment of appropriate monetary policy.” A possible explanation for the SEP’s prediction of a rapid catch-up to potential GDP after 2009 is that participants overestimated the efficacy of monetary policy in the aftermath of a so-called balance-sheet recession. Recessions triggered by financial crises are typically preceded by sustained episodes of bubbly asset prices and debt-financed spending booms. When the bubble bursts, the resulting debt overhang forces borrowers to repair their balance sheets via reduced spending or default. Borrowers have too much debt, so monetary policy actions designed to encourage more borrowing by lowering interest rates are less effective. Balance-sheet recessions are typically followed by sluggish recoveries and permanent output losses, that is, real GDP never returns to its pre-crisis path (Bank for International Settlements 2014). The SEP’s overprediction of the speed of the recovery could also be linked to other factors. These include possibly underestimating the damage to the economy’s supply side, as evidenced by the downward revisions to potential GDP, or perhaps expecting larger effects from stimulative federal fiscal policy.

A final explanation for the pattern of SEP growth forecasts may be linked to a natural human tendency to assume that recent trends will continue. Research shows that people tend to use simple forecast rules that extrapolate from recent data (Williams 2013). For example, one could forecast four-quarter growth over the coming year using only the most recent observation of quarterly growth in the preceding year. The backward-looking nature of this forecasting rule would help explain the failure to predict recessions.

Implications for Economic Models

Research has identified numerous instances of persistent bias in the track records of professional forecasters. These findings apply not only to forecasts of growth, but also of inflation and unemployment (Coibion and Gorodnichencko 2012). Overall, the evidence raises doubts about the theory of “rational expectations.” This theory, which is the dominant paradigm in macroeconomics, assumes that peoples’ forecasts exhibit no systematic bias towards optimism or pessimism. Allowing for departures from rational expectations in economic models would be a way to more accurately capture features of real-world behavior (see Gelain et al. 2013). Perpetually Optimistic

Undoubtedly, economists are among the most perpetually overoptimistic persons on the planet. But it's not just economists.

I commented on manufacturers' optimism on Wednesday in Tracking Manufacturing's Perpetual Overoptimism.

I took the New York Fed regional data which compares current condition to future expectations six months from now, then shifted the expectations forward by six months.

Here is the result of my mini-study on optimism.

Current Business Conditions vs. Expected Business Conditions (For Now - Made Six Month Ago)

Perpetual Overoptimism

The perpetual overoptimism is impossible to miss. Here are the readings for 2015.

Month/YearCurrent ConditionsExpected Conditions1/20157.7846.102/20156.9046.083/2015-1.1942.394/20153.0946.845/2015-1.9839.316/20153.8648.357/2015-14.9225.588/2015-14.6730.729/2015-11.3637.0610/2015-10.7429.81
In 167 months, nearly 14 years of data, there were only five months (just under 3% of the time) in which current conditions exceeded projections made six months previous!

Month/YearCurrent ConditionsExpected Conditions2/1/200213.80-11.926/1/20090.28-3.657/1/200912.56-5.558/1/200920.933.539/1/200933.6828.27
Recession History

The above pattern should not be hard to spot. Overoptimism only dies at or near recession troughs.

Useless Survey Projections 

It's amazing how much focus is on totally useless "expectations".

Rare pessimism seems to mark bottoms, but the rest of the time the look-ahead projections are only good for those in need of a laugh.

By the way, I expect another "Peak" line at the top of the above table sometime reasonably soon. The Fed will be shocked when it happens. It has a perfect track record of missing recessions. 

Mike "Mish" ShedlockMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Obama to Veto Bill Requiring Background Checks On Syrian Refugees; France Demands Tighter Controls, EU Balks; 31 States Won't Take Syrian Refugees

pt., 20/11/2015 - 10:35
In response to the Paris terrorist attacks, President Obama essentially said terrorists are welcome here.

ABC News reports Obama Vows to Veto Bill Increasing Screening for Refugees.
President Barack Obama is vowing to veto a bill from House Republicans that would increase screening for Syrian and Iraqi refugees before they enter the United States.

The White House says the legislation would introduce "unnecessary and impractical requirements" that would harm efforts to assist some of the world's most vulnerable people.

The bill would add a new requirement for FBI background checks. It does not call for ending the refugee program or require religious screenings, as some Republicans have demanded.France Demands Tighter Controls, EU Balks

In Europe, France Demands Tighter Controls, EU Balks.
France is demanding that Brussels and the European Parliament “get a grip” on the security threats facing the bloc by allowing tighter border checks and removing barriers to sharing airline passenger data.

Bernard Cazeneuve, French interior minister, hit out at the EU’s lack of action, saying the bloc must “shape up” and regroup in the face of an organised terror threat following Friday’s terrorist attacks in Paris.

In the wake of the Paris attacks, the issue has become politicised in Brussels, with Monika Hohlmeier, a German Christian Democrat and leader of the parliament’s home affairs committee, accusing left-leaning parties of “inviting terrorists to use loopholes in our safety and security legislation in order to perpetrate other terror attacks”.

“For them there is no lesson to be drawn from the Paris attacks,” Ms Hohlmeier said of the parliament’s mainstream centre-left and liberal groups. “The movements of terrorists have to be monitored.”

The commission has been avoided discussing amendments to the code governing the Schengen zone. Dimitris Avramopoulos, EU home affairs commissioner, said on Wednesday that Schengen was “not the problem” if its tools for security were put to full use.Refugees Attack German Nurses

Prison Planet reports German Hospital Forced to Hire Security Guards After ‘Refugees’ Physically Attack Nurses.

Gatestone mentions a similar story in Migration Crisis Becomes Public Health Crisis.

  • German hospitals are increasing security to protect doctors and nurses from violent attacks by migrants who are unhappy with the medical treatment they are receiving.
  • Critics are warning that German taxpayers will end up paying billions of euros to provide healthcare for a never-ending wave of asylum seekers. This is in addition to the billions of euros already being spent to provide newcomers with food, clothing and shelter.
  • In addition to the massive economic and social costs, as well as the burden of increased crime, including a rape epidemic, Germans are now facing the risk of being exposed to exotic diseases — and tuberculosis.
  • Roughly 5% of asylum seekers are carrying resistant germs. In real numbers, this works out to around 75,000 newcomers with highly infectious diseases. — Dr. Jan-Thorsten Gräsner, director of the Institute for Rescue and Emergency Medicine.
  • Twenty types of vaccines are now in short supply, and 16 others are no longer available at all. Because of production bottlenecks, some vaccines will not become available until 2017.
  • Muslim women refuse to be treated by male doctors, and many Muslim men refuse to be treated by females. — Max Kaplan, director of the Bavarian Medical Board.
  • German media outlets are downplaying the extent of the healthcare problem, apparently to avoid spreading fear or provoking anti-immigrant sentiments.

ISIS Welcome

By all means, let's not inconvenience terrorists with "impractical" background checks. Instead, let's give the NSA more power to tap the phones of US citizens.

I'm not sure the origin of that image or I would give credit and post a link.

Since Obama won't act sensibly, many states have.

31 States Will Not Take Syrian Refugees

CNN reports More than Half the Nation's Governors say Syrian Refugees Not Welcome.
More than half the nation's governors say they oppose letting Syrian refugees into their states, although the final say on this contentious immigration issue will fall to the federal government.

States protesting the admission of refugees range from Alabama and Georgia, to Texas and Arizona, to Michigan and Illinois, to Maine and New Hampshire. Among these 31 states, all but one have Republican governors.

Only 1,500 Syrian refugees have been accepted into the United States since 2011, but the Obama administration announced in September that 10,000 Syrians will be allowed entry next year.

American University law professor Stephen I. Vladeck put it this way: "Legally, states have no authority to do anything because the question of who should be allowed in this country is one that the Constitution commits to the federal government." But Vladeck noted that without the state's participation, the federal government would have a much more arduous task.

"So a state can't say it is legally objecting, but it can refuse to cooperate, which makes thing much more difficult."

In announcing that his state would not accept any Syrian refugees, Texas Gov. Greg Abbott tweeted Monday on his personal account, "I demand the U.S. act similarly," he said. "Security comes first."

In a statement from Georgia's governor, Republican Nathan Deal, he said Georgia will not accept Syrian refugees "until the federal government and Congress conducts a thorough review of current screening procedures and background checks."Get a Grip on Reality

France demands, to no avail, the EU to "get a grip" on reality.

Actually, president Obama, the EU, and chancellor Merkel all need to "get a grip" on reality.

Here's a dose of math reality. The EU let in a million refugees, if just 1/10 of 1% of them are terrorists, that's 1,000 terrorists the EU has to deal with.

Mike "Mish" ShedlockMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy

Auto Originations Hit 10-Year High, Subprime Loans Fuel Growth; Party About Over?

czw., 19/11/2015 - 22:01
A New York Fed study notes a huge surge in subprime auto loans after taking into account a newer, more accurate methodology.

The new approach takes into consideration new originations as opposed to new accounts. The result was an upward shift in the volume of newly originated auto loans by 25 to 30 percent.

Newly Originated Loans

A credit score of 660 is the generally acknowledged line between good and poor credit. Scores below 620 are outright awful.

With those numbers in mind, let's see how things stack up.

Originations by Credit Score

Originations hit $156.8 billion in the third quarter, the highest level in a decade. Loans to borrowers with scores below 620 jumped to nearly $40 billion in the second quarter.

Loans to borrowers with credit scores below 660 are the highest since 2005.

The reports notes "With the surge in the second quarter, the total number of subprime originations has since reached a ten-year, pre-crisis high, only surpassed by the unique periods in 2005 that were associated with 'employee pricing' promotions and record sales for the auto manufacturers."

Will "employee pricing" once again mark the last hurrah?

Auto Finance Companies vs. Banks and Credit Unions

Note the jump in truly awful credit score originations

Delinquencies Tick Up

The uptick in delinquencies is modest so far. Nonetheless, some banks have become concerned.

For example, the New York Times reported in March Wells Fargo Puts a Ceiling on Subprime Auto Loans. Wells Fargo, one of the largest subprime car lenders, is pulling back from that roaring market, a move that is being felt throughout the broader auto industry.
From Our Advertisers

The giant San Francisco bank, known for its stagecoach logo and its steady profits, has been at the center of the boom in making loans to people with tarnished credit scores. Wall Street, meanwhile, has been bundling and selling such loans as securities to investors, reaping big profits while allowing millions of financially troubled borrowers to buy cars.

But now, amid signs that the market is overheating, Wells Fargo has imposed a cap for the first time on the amount of loans it will extend to subprime borrowers.

The bank is limiting the dollar volume of its subprime auto originations to 10 percent of its overall auto loan originations, which last year totaled $29.9 billion, bank executives said.Party About Over?

Typically banks react too late, after most of the damage has been done. It's the same every cycle. By the time credit is available to those on the bottom rung, the party is about over.

Regardless, and as I have pointed out numerous times, the surge in autos is one of the few things holding up consumer spending and is also the only bright spot at all of manufacturing.

What cannot go on forever won't. And it's nearly the end of the line for autos. Repercussions will be deeper than economists expect.

Mike "Mish" Shedlock Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Kategorie: Najnowsze feedy


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