Friday, July 31, 2015

7/31/15 Social Security Trustees annual report

I won't bore you with the numbers.  Here are some things the report said:

Social Security’s Disability Insurance (DI) Trust Fund now faces an urgent threat of reserve depletion...

Social Security and Medicare together accounted for 42 percent of Federal program expenditures in fiscal year 2014.

Social Security’s total expenditures have exceeded non-interest income of its combined trust funds since 2010... (me-you can't pay interest to yourself-it is a phony accounting gimmick so it is worse than they say).

Under current projections, the annual cost of Social Security benefits expressed as a share of workers’ taxable earnings will grow rapidly from 11.3 percent in 2007, the last pre-recession year, to roughly 16.7 percent in 2038... (me - and yet the 'untrust' fund goes BK anyway).

Social Security’s and Medicare’s projected long-range costs are not sustainable...

In 2014, Social Security’s cost continued to exceed the combined program’s tax income...

In 2014, the combined cost of the Social Security and Medicare programs equaled 8.5 percent of GDP. The Trustees project an increase to 11.4 percent of GDP by 2035...

7/31/15 getting panties tied in a knot over GDP inventory changes

Everybody gets their panties tied in a knot over inventory changes.  The media morons should start reported the two GDP data points below and do it on a year over year basis instead of quarter to quarter which terribly misleading.
This is not that bad.  And if a slight increase in interest rates derails the economy then there is something really really wrong.  I think the FED should come out and say they are going to raise interest rates 1% over the next two years and let the economy price that in.  Also, it will let the stock and bond market price it in.

Here is the last five quarter from the chart above which excludes inventory changes and net imports: 
2015:Q2:  2.7
2015:Q1:  3.0
2014:Q4:  3.0
2014:Q3:  3.0
2014:Q2:  2.3
This is looking good.
Here is the last five excluding just inventory from chart below.  This shows the slowdown in exports.
2015:Q2:  2.2
2015:Q1:  2.4
2014:Q4:  2.6
2014:Q3:  3.0
2014:Q2:  2.3

Five percent growth is an overheated economy.  It shouldn’t take that much to get the economy consistently at 3% plus but it isn’t up to the FRB, it is the job for congress.  However congress and the president are interested in social egalitarian ideology rather than jobs.

7/31/15 Quote - well said regarding increasing interest rates

Retired economist Scott Grannis:

What the Fed is proposing to do is to lessen the degree of monetary accommodation by a modest amount. That is quite distinct from "hiking" rates in an effort to tighten monetary policy. Although the Fed usually only talks about the nominal overnight rate, what they are really targeting is the real overnight rate, which is currently about -1%. They could raise short term rates to 1% and the real funds rate would only be zero, which is hardly what one might consider "tight." 

Raising the overnight rate from -1% to zero is not really hiking rates or tightening, it is more accurately described—as the Fed says—as "normalizing" interest rates; getting rates back to some semblance of normality.

It is also important to recognize that for many years there will be a huge amount of excess reserves in the banking system. Those reserves could support an almost unlimited amount of lending. Because the Fed can't drain all those excess reserves quickly, they need to raise the interest rate they pay on those reserves to a level which leaves the banking system content to hold lots of excess reserves, and not seek to expand lending dramatically. Banks must see the rate on excess reserves as attractive, on a risk-adjusted basis, relative to the yield they could obtain by making new loans, otherwise bank lending will accelerate and that could lead to an unwanted increase in the supply of money. Which of course would work to push up inflation.

The Fed can well afford to normalize rates in this environment, since there are no signs of stress that would warrant the continued existence of extreme monetary accommodation. The economy is not fragile nor is it hanging by a thread, nor is it in danger of hitting "stall speed." It is simply growing at a slow, and relatively steady rate with lots of unused and idle capacity.

Monday, July 27, 2015

7/27/15 Quote

“Last December was the end of the bull market.  The bag holders are fully in place.”

I am not endorsing it, I just like the efficiency of words.

Saturday, July 25, 2015

Q1’09 was the quarter that had peak debt of the banks.  So I am starting with this quarter to the present Q1’15, six years.  The total leverage in the economy is up by $6,310.3 billion dollars.  That reads six trillion three hundred ten billion dollars.  Here are the components from FRB Z.1 D3.

+1,022.9               Households ex-mortgages
-1,191.3                Households mortagages
+1,552.9               Businesses
+      88.6               State and Local government
+6,241.4               Federal government
-2,996.3                Domestic financial sectors
+1,592.1               Foreign
+6,310.3               TOTAL

The non-financial domestic non-government figure, i.e., households and businesses is 1.384 trillion dollars of increased borrowing.  This is the real economy.  It has borrowed an average of $230.75 billion each year over the last six years.  Doesn’t seem like a lot.  The combined government and banks has increased borrowing by 3.334 trillion dollars.  So it appears on the surface that half of the new Federal debt paid off the bank’s liabilities.   And thank you resident financial institutions for having faith in the US.

What is really interesting is that the efficiency of credit has improved during this period.  “Improved” is an understatement.  But first let’s look at the velocity of money which is simply GDP divided by the money stock.

This shows how terribly inefficient increasing the money supply has been.  And we all have heard over and over again how total debt has been increasing so much faster than GDP.  Scathing criticism is directed to the fact that total debt has gone up 6 trillion dollars and GDP had only gone up 3 trillion dollars.  But since the great recession, something amazing has happened.  Since total debt is $59 + trillion and GDP is $17 + trillion the ratios have stayed almost the same during the period in question.

The velocity of credit (GDP divided by total credit) has stopped going down and has in fact gone up a small amount.  The efficiency of credit has never been better since the great credit expansion that started in the early 1980s.

I will postulate based on the components that deleveraged, household mortgages and banks, having high debt is bad for the economy, and components that have increased in debt, businesses and the Federal government, having high debt is good for the economy.

What?  Wait.  Ok.  Let me think.

7/25/15 We have reached escape velocity.

I think we are almost at the maximum growth rate possible given our demographic and regulatory structure.  The challenge is to mange it so we don't get worse.

Friday, July 24, 2015

7/24/15 Breakout and rolling over

BEN's 1

BEN's 2

BEN's 3

7/24/15 New Single Family Home Sales ARE GREAT. Don't believe the government seasonally adjusted bullshit.

Here are the actual total number of new single family homes sold in their respective quarters:

Q1'12 87,000
Q2'12 103,000
Q3'12 94,000
Q4'12 85,000
Q1'13 109,000
Q2'13 126,000
Q3'13 95,000
Q4'13 99,000
Q1'14 107,000
Q2'14 120,000
Q3'14 108,000
Q4'14 104,000
Q1'15 130,000
Q2'15 143,000

What is there to complain about?  Here are the actual sales in the months of June.

June '12    34,000
June '13    43.000
June '14    38,000
June '15    45,000

What is there to complain about?  Here are the actual sales in 2015 by month.

Jan'15      39,000
Feb'15     45,000
Mar'15     46,000
Apr'15     50,000
May'15    48,000
Jun'15      45,000

Because June is supposed to be a big month of sales they seasonally adjust it to look negative even though this was the best June in four years.

I am not saying the economy isn't slowing down.  I really don't know.  I am not making predictions here.  I am just pointing out the actual sales.

Thursday, July 23, 2015

7/23/15 Charles Hugh Smith Of TwoMinds blog

When Charles Hugh Smith started out 6 or so years ago I used to send him cash in the mail to help keep him going.  Others send him money too.  I am not endorsing him but he often comes up with interesting insights.  He is calling this an echo bubble.

7/23/15 We arrived at support - see 7/20/15 This chart could derail...

7/23/15 Quiz

What happens when initial claims go below 300k?

7/23/15 Corporations deleveraged?

From the peak of leverage before the great recession Q3’07, non-financial corporations liabilities grew 37.4% through Q1’15.  For the same period their equity grew 29.4%.

Liabilities to GDP:
Q3'07     1.12
Q1'15     1.27

I am just dismayed that anyone thinks there is less risk due to deleveraging.

Well, who am I to question the ROI on corporate decisions?  Profits have been stellar so I guess corporations can grow out of their debt.

The place that deleveraging actually took place is with the banks and non-bank financial companies.  And this was a financial crazy products crisis.  So who am I to question what liability levels non-financial corporations should have?

Note that the economy as a whole continues to plow money into R&D.  And this chart is adjusted for inflation.

7/23/15 What the talkers missed with Seattle's minimum wage hike to $15

When the full $15 per hour comes into effect, some employees will ask for reduced hours so they can maintain their welfare benefits.  What people so far have missed is that we are financing people to work less.  A 30 hour a week person who makes $10 per hour x 30 hours = $300.  That person will now work 20 hours for their $300 per week and keep their income the same and their welfare the same.

What would you do with 40 more hours a month of time?

Tuesday, July 21, 2015

7/21/15 The internals really sucked

Really?  Down volume goes up when market goes down?

Really?  Up volume down when market goes up?

New highs minus new lows NYSE

7/21/15 Somebody is pushing up those 3% of stocks for a purpose

From the Wall Street Journal Money Beat blog:

 For one thing, only a few stocks are driving the gains. Of the S&P 500′s 3.5% year-to-day gain, virtually all of it has come from the top 15 stocks in the index, ranked by market-weight, according to data from Howard Silverblatt, the senior index analyst at S&P Dow Jones Indices.

Apple Inc., for instance, accounted for 12.5 points of the index’s 72-point gain this year, and Inc. accounted for 7.5 points. Google Inc. (both classes of stock), Walt Disney Co., Facebook Inc., Gilead Sciences, Netflix Inc., J.P. Morgan Chase & Co., and Pfizer are also driving the gains.

Me:  I think hedge funds and banks are pushing these few stocks higher to elevate the indexes while offloading their other 97% of stocks to the poor sucker 401K people who are not allowed to own individual stocks.  Maybe an employee wants to own Apple Computer but he has to buy all the rest in his mutual funds and ETFs.  You know, in order to protect employees, really protect employers from liability law suits, the government deems an employee must diversify.

I know banks are not allowed to own stocks but they are allowed to hold inventory for various purposes.

Monday, July 20, 2015

7/20/15 Some climatic charts

I consider the Nasdaq composite climatic and the Nadsaq 100 more so.  Same with the S&P100.  Went up too far too fast.  Not quite so the S&P500.  Definitely not the NYSE composite.  The declines have exceeded advances by 2 to 1 for the last two days while the 500 increased a little.
The 500 failed to close above its previous new high.  I don’t like the 500 at over 21 PE on twelve months trailing earnings especially that Q1 GAAP earnings declined. 

If the S&P 500 does go to a new high it doesn’t necessarily mean a breakout either.

7/20/15 A bad divergence

The S&P100 (OEX) are the top dogs.  On May 21 a new all time high was made.  Since then there has been a rotation to them and today another all time new high was made.  But the number of shares above the 200 moving average dropped by a couple of issues.  And the number of issues above the 200 day moving average was 84 on May 21.  Today with a strong new high the number of issues above the 200 day moving average is 68.

7/20/15 This chart could derail the stock market

If commodities don’t hold at 207 and conversely the USD goes over 100 I think it will be bad for the stock market.  The high dollar will be perceived as a restraint on exports.  Also the high dollar will be a restraint on corporate foreign earnings.  If commodities prices break out below then “deflationary” fears will abound.  Offsetting that is the belief that the FRB may not raise rates in the face of new lows in commodity prices.

7/20/15 The Great Rotation - we have seen this before - at the end of speculative cycles

Sunday, July 19, 2015

7/19/15 Its Time to Normalize

Last week we had Janet Yellen give the Fed's semi-annual report to congress.  As one Chris Hamilton  of Hambone's reports, "The Fed's contention is things are good enough that although private sources only wanted to deleverage with rates at record with rising rates private sources will choose to take out the debt they didn't want at lower rates plus refinance all that existing debt into higher rates??? "

7/19/15 Our Liberal rulers say supply side doesn't work

Keynesianism is ideological and its religious practitioners believe that supply side doesn’t work and demand can and must be controlled.  It is laughable to think that demand can be controlled.  There is always a variance between supply and demand.  “The only part one can reasonably wring variance out of is supply”, said one Jeffery Carter of Points and Figures.

Wednesday, July 15, 2015

7/15/15 The Demise of the Stupid Party

All a president, any president, has to do is call a treaty and agreement and the senate no longer has the constitutional right of advice and consent to treaties according to the Stupid Party.

I have been saying since the Republicans won an historic election in 2012 the Republicans are on the verge of extinction.  I won’t go into all the ways they have supported Obama’s agenda since their amazing victory. 

Remember back in April when the Republicans passed the Corker bill waiving the Senate’s right to advice and consent on the Iran nuclear treaty?  They didn’t have to do that.  There was absolutely no reason to do that.

John McCain has always been on my list as one of the reasons for the demise of the party.  On this waiver he said they had to pass it because it was the only thing the Democrats would agree to.  But why John, why?  Because president Obama has called the treaty an agreement he says.  The constitution doesn’t allow the Senate to advice and consent on agreements.

When pressed about why the Republicans allowed the White House to bypass the Senate’s advice and consent clause of the Constitution, he responded, “It’s not a treaty, though. That’s the problem. They’re calling it an agreement. If it were a treaty, then it would require 2/3 vote of the Senate in a positive fashion. You know your Constitution.”
When pressed further on the issue, McCain said, “Not when the administration doesn’t call it a treaty–okay? They’re the ones that label it. It is not a treaty. We can’t designate it. They have the ability to call it an agreement. We do not. Those are the facts.”

He went further, “The Congress cannot designate it as a treaty. Ask a Constitutional scholar. We cannot call an agreement a treaty. The administration has to call it a treaty. Ask anyone who is an expert on the Constitution. Yes, you’re frustrated. I am terribly frustrated, because I think this is going to be a new nuclear arms race throughout the Middle East and further destabilizing the most destabilized part of the world.”

If I don't vote millions of others are not voting either.  Hello Hillary.

(I am soooo thankful President Obama has not deemed to call chicken soup a Philly cheese steak sandwich).

Tuesday, July 14, 2015

7/14/15 reflationary trade appears to be ending

Bonds going up signifies a "deflation" trade.  Bonds going down is signifies "inflation" trade.  Note that stocks have gone fairly sideways in 2015 while the "reflationary" trade was in progress.  I think the 50 day moving average is bottoming and will start to move up.  If so the "reflationary" trade is over and implies one should be long bonds and short stocks.  Short stocks that is, if it wasn't for the PPT.


In part I believe the "reflationary" trade is over because the world economy is slowing down.

7/14/15 I won an arguement on social security debt

Social security debt is worse than the external debt. External debt can be rolled over which doesn't increase the debt load but social security debt requires new external debt (because they will not raise taxes to pay it when due).

Monday, July 13, 2015

7/13/15 Mississippi and Louisiana as well as Greece should have their own currency

The Greeks hated their Drachma because it was always being devalued.  But that is the value of it.  They need to leave the Euro and get back to the Drachma as fast as they can.

If Mississippi and Louisiana had their own currency most of the jobs lost to Asia would have gone to those states.

7/12/15 The warmest year ever...2014

Was 2014 the warmest year ever as said?  Of course not.  The earth was once a molten rock.  One of those years was the warmest.  The earth has been in a long term cooling trend ever since.  And there have been some nasty cold periods.  Dangerously cold periods.

Scientists who have been studying mass extinctions noticed a pattern that coincided with ice ages.  It was when our solar system in its cycle around the center of our galaxy encounters the front of the spiral arm of Orion.  I wonder what else this line of study will encounter.

Oh.  But the science is settled.

Of all the hysterias that liberals created for us, global warming has been the biggest.  However, it has not had the impact on us yet that has the fervor to put unqualified people into becoming mortgagors.

Sunday, July 12, 2015

7/11/15 But retail and food service sales are great, right?

Year over year retail sales have been declining steadily and now are barely above growth.

7/11/15 Wholesale Trade Report for May - are we in a slowdown recession?

Again, looking at non-seasonally adjusted data from a year ago is the most accurate way of looking at most of the economic data.  Yellow box lower right shows sales for the first 5 months of 2015 and 2014.  Sales are down 3.7%.  The green box shows inventories in May '15 are 5.1% higher than in May '14.

These bad figures result in a bad inventory to sales ration chart looking like this.

Thursday, July 9, 2015

7/9/15 Why I am not liking inventory to sales ratio

this is through April
I don't like this increase.  Do probably don't remember the business stuff from the nineties.  One successful business concept was JIT - Just in Time.  This allowed for much less investment, and thus financing, to go into inventories.
This seems to me to be another example of the end of our magical time of ever decreasing interest rates to spur ever increasing credit creation.  I just can't see a way to explain this increase as a good thing.
Optimists say it is because businesses believe that they need to stock up on inventory because very soon there is going to be a explosion of economic growth and they need to be ready for it.
That reasoning makes me want to puke.  You keep your inventories tight no matter what.  That is what JIT was all about.   

7/9/15 If debt is killing the economy then more debt will fix it. If more debt won’t fix it inflation will.

That is all I have to say about that.

7/9/15 Philly Fed's The Big Six

This is updated as of July 4.  It has been struggling to get back to and above zero.

The Aruoba-Diebold-Scotti business conditions index is designed to track real business conditions at high frequency. Its underlying (seasonally adjusted) economic indicators (weekly initial jobless claims; monthly payroll employment, industrial production, personal income less transfer payments, manufacturing and trade sales; and quarterly real GDP) blend high- and low-frequency information and stock and flow data. Both the ADS index and this web page are updated as data on the index's underlying components are released.
The average value of the ADS index is zero. Progressively bigger positive values indicate progressively better-than-average conditions, whereas progressively more negative values indicate progressively worse-than-average conditions. The ADS index may be used to compare business conditions at different times. A value of -3.0, for example, would indicate business conditions significantly worse than at any time in either the 1990-91 or the 2001 recession, during which the ADS index never dropped below -2.0.
The vertical lines on the figure provide information as to which indicators are available for which dates. For dates to the left of the left line, the ADS index is based on observed data for all six underlying indicators. For dates between the left and right lines, the ADS index is based on at least two monthly indicators (typically employment and industrial production) and initial jobless claims. For dates to the right of the right line, the ADS index is based on initial jobless claims and possibly one monthly indicator.

7/9/15 Vanquish the IRS

The IRC Internal Revenue Code is an edifice to the greatest corruption mankind has ever devised.  Many of the tax systems proposed as a replacement are flawed but anything is better than what exists.  Also, liberals use the IRS as a weapon against their political enemies.  Liberals have no ethics.  They believe that non-liberals are bad and therefor they as superior beings are justified in anything they do.  It is necessary to eliminate the tools used by the authoritarian liberals.

Wednesday, July 8, 2015

7/8/15 Positives

Car and light truck sales continue to be very strong.  Residential and total construction spending continues to be strong.  I don't see how you can have a recession with these two performing well.

7/8/15 What do the powers that be do when the 200 day moving average is breached?

Since there is no other strong support for the S&P below its 200 day moving average you need to create a computer glitch that shuts down all trading on the various NY stock exchanges.

This will calm down everybody.  Right?

7/8/15 Some more negatives

The credit managers index continues to drift downward.  Rail car loading have been down for several months.  Two year swap rates while low are on an upward trajectory as are corporate credit spreads.

7/8/15 And if that doesn't work...

And if the Chinese measures listed on 7/6/15 didn't work they can add:

Ban all large holders of stocks from selling their stocks and put a time frame on it of 6 months.

And finally, let can take a page from the US and create a computer glitch that stops all trading all together.

Monday, July 6, 2015

7/6/15 Quote

"Send me your tired, your poor, your sufferers from Gender Dyspohoria, previously known as Gender Identity Disorder."

7/6/15 China shows what the US can do to stop a stock market decline

Have the central bank print money to make loans to brokerage firms to use for margin lending.

Cut interest rates.

Reduce bank reserve requirements.

Suspend IPOs (in order to reduce the number of shares available for trading to help keep supply short of demand).

Let companies voluntarily suspend trading in their stocks on the exchanges if their stock is declining.

Expand collateral for margin loans to include equity in homes on top of existing art work and antiques.

Have the central bank print money for a reserve fund to buy stocks (ETFs and mutual funds) directly.

Keep the housing boom going as a way to support stocks buy having the central bank print money to buy the debt of local governments which debt was used for real estate financing.

Ban pension funds from selling stocks in their portfolio.


It seems to be working.

Sunday, July 5, 2015

7/5/15 Demand management folly

Raising taxes on the rich and cutting them on the middle class so the rich stop over investing and the middle class stops under consuming is the ultimate folly in demand management.

7/5/15 That science fiction plot

You know the science fiction plot that is very common, the one where space aliens colonize earth because their planet is dying?

Western civilization is being invaded by aliens.  They come from unsustainable cultures and bring their unsustainability with them.  If they had sustainable cultures they wouldn’t be coming here.

7/5/15 Eventually more QE and this this time to create some decent inflation

I argue that slow and steady growth is much better than an economic roller coaster ride.  However, we are in a perpetual recover because we cannot achieve normalcy.  Demographics prevents being able to grow out of our debt and unfunded liabilities.
If government debt was used properly, that is for projects with a rate of return, there would not be a problem in reducing GDP with a declining population as per capita GDP could remain the same.  But government debt is used for consumption.  When this happens people view government as good, as compassionate.  However, the money goes poof gone.
It means serving the debt requires more and more income.  The powers that be know it.  It is the reason that the Chamber of Commerce and Jeb Bush want more immigration.  They know we need a growing population to increase the absolute amount of GDP, even if the per capital GDP declines due to the poor productivity of immigrants.  Just adding to population does increase GDP if only to feed and house them.
I expect the FRB to be dovish over the next several years with rate increases that will pose no threat to the economy.  Eventually as debt service takes up more and more income, I expect the FRB to become active at a level that will surprise us.