joi, 10 decembrie 2015

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Attitudes, Attitudes: Dear Nate Silver, Regarding Donald Trump, You Are Missing Something Big!

Posted: 10 Dec 2015 07:57 PM PST

I am a big fan of Nate Silver. He was spot on in the last two presidential elections and I bought into his methodology, in advance, confidently predicting the results.

Nate adjusted his odds as the campaign progressed and got 49 out of 50 correct in 2008.

I am not sure which one he missed, but I got 49 out 50 correct before Obama even won the nomination. Missouri showed me up.

Initially, my methodology was quite a bit different. I was certain the economy was headed for disaster and that every remotely close state would swing Democratic. It was that simple for me, but I became a huge fan of his methodology as the election campaign progressed.

Nate got all 50 right in 2012. I missed a couple. But I made my picks early in a bragging rights bet with friends. Had I predicted in the final week, I likely would have just gone with Silver's picks or his methodology for the same outcome.

So yes, I am a fan. Yet, I have to say "Dear Nate, you are missing something big time!

Polls Relevant?

Week after week Donald Trump surges in the polls, and week after week Silver says ignore them.

I say you can no longer ignore them. I will explain why below. First let's look at how Nate sees things.

  • August 6: In Donald Trump's Six Stages Of Doom Nate Silver said "I recently estimated Trump's chance of becoming the GOP nominee at 2 percent. How did I get there? By considering the gantlet he'll face over the next 11 months — Donald Trump's Six Stages of Doom."
  • September 15: Nate Silver said Trump Has About 5% Chance Of Winning
  • October 20: In Donald Trump Is Doomed And/Or Invincible Nate Silver again referred to Six Stages of Doom saying "Trump's odds are in the high single digits... and on September 1 his chances were 2%". Adding "nobody quite like Trump has won a party nomination before, or even come all that close to it. So there's some universe where his chances are 0 percent. .... to some extent 4 percent vs 7 percent is an angels-dancing-on-pinheads debate."
  • November 23: In Dear Media, Stop Freaking Out About Donald Trump's Polls Nate Silver said "Trump's chances are higher than 0 but (considerably) less than 20 percent".

South Carolina Poll

Here are results from a South Carolina Poll released December 9.

  • Trump 35%
  • Carson 15%
  • Cruz 14%
  • Rubio 14%
  • Bush 5%
  • Graham 2%

Support for Trump rose 8 points after his statement he would bar Muslims from entering the US. Graham is from South Carolina.

Five Key Points

  1. 39% have national security as their top issue. 
  2. 29% prioritize economic issues. 
  3. 16% say immigration is the top issue. 
  4. Among voters with national security as the top issue, trump has 32%, double that of anyone else.
  5. Trump has a 48% landslide result on the economy.

Would Trump Bolt?

In a USA Today poll releases December 8, 68% of Trump's supporters would vote for him if he bolts the GOP.

That's one hell of a lot of loyalty. Do I believe that? No. But, that is a strong measure of strong sentiment.

Nearly Two-Thirds Of Likely GOP Voters Back Trump's Muslim Ban

A Talking Points Memo reports Nearly Two-Thirds Of Likely GOP Voters Back Trump's Muslim Ban.
Republican presidential frontrunner Donald Trump's recent proposal to ban all Muslims from entering the U.S. has far from hurt his poll numbers; in fact, a poll released Wednesday found that almost two-thirds of GOP primary voters back the widely-condemned plan.

In a new Bloomberg Politics/Purple Strategies poll, 37 percent of all likely general election voters said they support Trump's plan while 65 percent of likely Republican primary voters said they back the ban.
Attitudes

The role of attitudes is precisely what Silver misses. Opinions of candidates can come and go. But are the attitudes towards banning Muslim's likely to change?

What Inning Is It?

Silver says "campaign time is not linear. We're still in the functional equivalent of the top of the second inning."

Is it the 2nd inning or the 3rd? Either way, I would agree with Silver that it's early. But what is the lead? Is it no runs,  one run, or perhaps as many as four runs?

What About Undecideds?

Silver points out the vast majority of people make up their minds in primaries late in the game but voters make up their minds earlier in national elections. That makes sense, because there are only two candidates to choose from in the election, and primarily it's only the independents who swing.

But is it really as lopsided as Silver suggests below?



I suggest that table is a poor reflection of reality. For starters, I doubt there are truly 80% undecided, but for the sake of argument I will accept that number.

The chart is unrealistic because although voters may be undecided, it likely they are undecided between two or at most three candidates, not totally clueless.

For example some voters may be undecided between say Trump and Carson one week, and Trump and Rubio the next, while totally ruling out Bush, Fiorina, Huckabee, and Christie.

So, there's undecided, and there's totally clueless.

Stubborn Facts

Silver concludes his "Dear Media, Stop Freaking Out About Donald Trump's Polls" article with ...
So, could Trump win? We confront two stubborn facts: first, that nobody remotely like Trump has won a major-party nomination in the modern era. And second, as is always a problem in analysis of presidential campaigns, we don't have all that many data points, so unprecedented events can occur with some regularity. For my money, that adds up to Trump's chances being higher than 0 but (considerably) less than 20 percent. Your mileage may vary. But you probably shouldn't rely solely on the polls to make your case; it's still too soon for that.
More Stubborn Facts

  • Trump has stayed on top of the polls far, far, longer than anyone including Silver and I thought possible. I even wondered if his anti-Muslim talk would sink him. It didn't. For now it seems to have strengthened him.
  • Everyone's up-front favorite, Jeb Bush is burning money like mad.
  • Bush is getting trounced even his home state.
  • Carson is sinking like a rock. Since Carson is an unconventional candidate, history suggests he is now a lost cause.


Opinions

Do Christie, Paul, Fiorina, Huckabee have any chance? I suggest close to zero but let's put them at 1% each. Let's generously put Bush at 5%.

Although it's highly doubtful Carson can recover, let's Generously put Carson at 5%

Now what do we have?

Revised Support Suggestion



Which Way Will Undecideds Break?

Are those undecideds really likely to vote for anyone other than Trump, Carson, Cruz, or Rubio?

Come on Nate, really?

Put Bush in the list if you want but even Carson in the swing is generous. I suspect Carson will lose more of what he has now than pick up new undecided voters.

Bush can pick up undecideds. That's why I raised Bush to five from Nate's one.

Even if most have not decided who they will vote for, it's highly likely those voters have decided one or more candidates they won't vote for. And that matters.

Based on attitudes, Trump for now, clearly belongs in the "possible list" of a huge percentage of those undecided voters!

By the way, I'm not really talking about just Iowa above, but rather national numbers. The results of the first few primaries will be the tell.

Looked at this way, even though it's only the second or third inning, the odds of Trump winning would seem to be no worse than about 25%.

But are they better?

Of course they are. Attitudes are the key. 65 percent of likely Republican primary voters said they back the ban on Muslim immigration!

Key Questions of the Day
 
  1. Is there a choice of candidates if that's how one feels about Muslims?
  2. Is that attitude going to change?
  3. And what about those five key points above?

Those five key points above are about voter attitudes as well. This means Trump's strong attitudes on Muslim's and immigration are aligned with strong voter attitudes on the same issues.

Importantly, no other candidate has those attitudes!

So unless Trump sticks his foot in his mouth on some issue, attitudes may be enough for him to carry the day. And while anything can happen, some things are far more likely than others.

Nate, care to rethink your odds?

Mike "Mish" Shedlock

Disastrous Discussion: US Corporate Profits vs. GDP: How Sustainable is Corporate Profit Trend? Do US Equities Deserve a PE Premium?

Posted: 10 Dec 2015 10:34 AM PST

US Corporate Profits vs. GDP

The latest GMO Quarterly Report, released yesterday as a 26-page PDF, has some interesting charts and commentary on valuations, PEs, and a premium on US equities.

Let's put a spotlight on a chart and commentary starting on page 10.


When we began building our forecasts, this series had a wonderfully mean-reverting look to it. There had been no obvious trend for the close to 50 years of data, despite plenty of good times and bad in the interim. And the appearance of long-term stability still seemed strong as late as the early 2000s. At the time we excused the new highs of profitability as the consequence of the housing boom and bubble in risk assets. Afterwards profits were good enough to fall through the old average in the financial crisis, although not to the lows we saw in prior recessions. And since then, after the fastest and sharpest recovery on record, we saw them rise well beyond anything the U.S. has ever seen. On this measure, while profitability is off of its recent highs, it is higher than any point in history before 2010.

And this leads to the quandary for thinking about the U.S. stock market. We cannot find any convincing evidence that the U.S. is deserving of trading at a premium P/E to the rest of the world. This profitability, however, could be read either of two ways. Either the U.S. has somehow unlocked a secret to permanently higher profitability or this is an extremely dangerous time to be investing in the U.S. U.S. profitability has never looked materially better relative to the rest of the world than it does today. The bull case would be that, for whatever reason, this profitability gap is sustainable and U.S. stocks are only mildly more expensive than the rest of the developed world given U.S. P/Es are only about a point higher.

But, frankly, we have a hard time believing this bull case. U.S. outperformance in recent years can be readily explained by the better trends in profitability, but that is a long way from saying that outperformance was truly justified. From a macroeconomic perspective, maintaining such high levels of profitability in the face of low investment rates implies ever-increasing wealth inequality in this country, unless taxes were to be raised in a way that seems highly implausible. Generating sufficient end demand in the economy given the inequality would call on either the rich to start spending their wealth at significantly greater rates than we have seen historically or the rest of households to spend more than 100% of their income, as they did in the housing bubble. It is hard to envision that an economy that relies on those foundations to be a sustainable one.

Conclusion

The clearest evidence for the U.S. being special today is inextricably tied to its recent performance. In the long run, the U.S. clearly had the good fortune of not having its capital stock destroyed, but otherwise doesn't look that special. In the shorter term, we have seen an impressive expansion of American profitability that has not been mirrored in the rest of the world, and U.S. stocks have duly outperformed. This has, not surprisingly, led investors to try to convince themselves of the inherent superiority of U.S. stocks to justify continuing to hold them. We cannot completely reject the possibility that those arguments are correct, but the evidence seems pretty thin. Certainly there is no strong evidence that would cause us to believe the U.S. is truly deserving of trading at a higher P/E than the rest of the world. On the profitability front, there seems little doubt U.S. corporate profitability is better than normal, but the question is how much better?  Our best estimate is that profit margins are about 24% better than normal, but there is a wider than normal range of possibilities here, with the plausible figures anywhere from 5% to 40% above normal. The impact on our forecast is a range as high as +2% real to a disastrous -4% real for the next seven years, depending on which measure of profitability was the "true" one.

Disclaimer: The views expressed are the views of Ben Inker through the period ending December 2015, and are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities.
Questions

  1. How Sustainable is Corporate Profit Trend? 
  2. Do US Equities Deserve a PE Premium?

1A. I side with Ben Inker that US equities do not deserve much of PE premium.

2A. As far as profitability goes, ignoring another massive war such as WWII, the US cannot hold an edge in profitability for long. Aside from labor issues and tax consequences, whatever US companies are doing better productivity-wise, other companies will eventually figure out.

But that statement does not really answer the question of trend. Even if the US deserves a premium, the trend itself will mean revert.

Simply put, corporate profits as a percentage of GDP are not going to stay in the 9% to 10% range, and 10-year smoothed PEs will not stay at a level they are now, only exceeded in 1929, 2000, and 2007.

There is no reason to believe "this time is different" for either PEs or corporate profits.

Here's the critical question: If the trends mean revert, what will US equities return? 

7-Year Asset Class Real Return Forecasts



The above from latest GMO Forecast.

GMO Disclaimer
The chart represents real return forecasts for several asset classes and not for any GMO fund or strategy. These forecasts are forward‐looking statements based upon the reasonable beliefs of GMO and are not a guarantee of future performance. Forward‐looking statements speak only as of the date they are made, and GMO assumes no duty to and does not undertake to update forward‐looking statements. Forward‐looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. Actual results may differ materially from those anticipated in forward‐looking statements. U.S. inflation is assumed to mean revert to long‐term inflation of 2.2% over 15 years.
How Good or Bad Can Returns Get?

I like Inker's approach of putting a range on things. Here is the key paragraph from above:
Our best estimate is that profit margins are about 24% better than normal, but there is a wider than normal range of possibilities here, with the plausible figures anywhere from 5% to 40% above normal. The impact on our forecast is a range as high as +2% real to a disastrous -4% real for the next seven years, depending on which measure of profitability was the "true" one.
Disastrous Discussion

Inker labeled -4% real returns as "disastrous". Actually, 0% for seven years would be disastrous for pension funds expecting 8% returns or better for the same timeframe.

States like Illinois would likely be wiped out. And if 0% is disastrous, I am not sure what the correct word for -2% or -4% should be.

Even 2% real returns (3%-4% nominal) vs. expected nominal returns of 8% or better would be an outright disaster to many pension plans. Yet, 2% is likely as good as it gets.

Looking back on today, seven years from now, Inker may very well look like an optimist.

Mike "Mish" Shedlock

Import/Export Price Deflation: Export Prices -0.6%, Double Consensus Estimate; Import Prices -0.4% Half Estimate; Net Negative for GDP

Posted: 10 Dec 2015 08:27 AM PST

Import/Export Price Deflation

Import/export price deflation continues in November. The kicker this month is a decline in exports prices greater than the decline in import prices with agricultural products leading the way, down a steep 1.1%.

The Bloomberg Econoday consensus estimate was for export prices to dip -0.3% and import prices to dip -0.8%.

The actual result was a dip in export prices twice as big as economists expected and export prices half as much as economists expected. oops.

Moreover, the decline in export prices was outside the -0.4% to 0.0% range of any individual estimate.

Year-over-year export prices are down 6.3% and import prices down 9.4%.

With that, let's check out the Econoday Report.
Cross-border price pressures remain negative with import prices down 0.4 percent in November and export prices down 0.6 percent. Petroleum fell 2.5 percent in the month but is not an isolated factor pulling prices down as non-petroleum import prices fell 0.3 percent in the month. Agricultural exports are the wildcard on the export side and they fell a sizable 1.1 percent but here too, the deflationary pull is widespread with non-agricultural export prices down 0.6 percent.

Year-on-year contraction is perhaps less severe than prior months but not by much. Import prices are down a year-on-year 9.4 percent with non-petroleum import prices at minus 3.4 percent. Import prices from Canada are down the heaviest, at minus 18.0 percent on the year, with Latin America next at minus 12.7 percent. Showing the least price weakness are imports from China at minus 1.5 percent. Export prices are down 6.3 percent on the year with non-agricultural prices down 5.7 percent.

Of special concern are continuing incremental decreases for prices of finished goods, both imports and exports. Federal Reserve policy makers have been waiting for an easing drag from low import prices, not to mention oil prices as well, with neither yet to appear. Contraction in import prices not only reflects low commodity prices but also the strength of the dollar which has been giving U.S. buyers more for their dollars.
Since exports add to GDP and imports subtract, today's numbers, in isolation, suggest further weakening in GDP estimates.

Mike "Mish" Shedlock

Truck Rates Plunge; What About Actual Shipping Volumes? Strong Case for Pending Recession

Posted: 10 Dec 2015 12:01 AM PST

Trucking Spot Prices Plunge

Here's an interesting chart and commentary courtesy of James Jaillet who writes Truckload Rates Sunk Again in November.
Average per-mile rates on the spot market fell again for all three major truckload segments in November, according to data from loadboard Truckstop.com.



This is the fourth straight month that rates dipped in all three segments, continuing a now year-long downward trend spurred by both a major drop in diesel prices and market conditions.

Paid rates, verified averages of rates paid to carriers, fell 4 cents from October in reefer and flatbed segments and 7 cents in flatbed.

Paid reefer [refrigerated] rates in the month averaged $2.14, down 43 cents from last November. Rates in the segment have fallen 26 cents since May.
Fuel Costs

Let's dive into Freight Rate Index Data to see the reason for the plunge.



The index includes the following costs: Fuel, Wages, Equipment, Depreciation, Financing, Admin, Compliance, and Insurance. Nearly all of the volatility pertains to fuel and wages.



For August through November the downward trend is nearly all due to lower fuel costs. In the December 2 report a nearly 3 cent drop in fuel was nearly offset by a 3 cent rise in wages.

That tells us nothing about shipping volumes, the numbers I am really interested in. For shipments, let's look elsewhere starting with the Cass Freight Index.

Cass Freight Shipments Index



Cass nicely provides the data for both costs and shipments. Here is a subset of one of their tables.

Cass Freight Shipments
Month200720082009201020112012201320142015
Jan1.171 1.129 0.851 0.899 1.010 1.046 1.020 1.000 1.027
Feb1.196 1.134 0.938 0.930 1.036 1.072 1.077 1.073 1.083
March1.258 1.160 0.905 0.974 1.108 1.094 1.140 1.144 1.086
April1.259 1.171 0.878 0.991 1.113 1.115 1.100 1.161 1.132
May1.278 1.162 0.913 1.014 1.111 1.135 1.132 1.173 1.158
June1.310 1.166 0.933 1.106 1.165 1.150 1.133 1.201 1.160
July1.259 1.096 0.928 1.011 1.122 1.142 1.107 1.154 1.141
Aug1.271 1.127 0.940 1.095 1.143 1.130 1.126 1.181 1.127
Sep1.295 1.080 0.966 1.116 1.200 1.155 1.156 1.164 1.146
Oct1.264 1.050 0.921 1.058 1.081 1.139 1.116 1.153 1.092
Nov1.256 1.028 0.947 1.088 1.056 1.093 1.105 1.151
Dec1.173 0.902 0.919 1.049 1.056 1.071 1.037 1.078

This was the worst October for shipments since 2011 and the worst September since 2010.

In addition, Every month this year except January and February were worse than the same month a year ago. That's eight consecutive months of declining shipments year-over-year.

Next let's take a look at a few highlights from the Cass Freight Report for October.

Cass Freight Index Report
Following the trend observed in the last four years, both total spend and the number of shipments for North American freight declined in October. The indexes have been below 2013 levels for the last several months. The first reading on third quarter GDP was a disappointing 1.5 percent annual growth rate, compared to 3.9 percent in the second quarter.



Consumer sector goods are, by far, the strongest in the market now. In many ways this is the silver lining in the storm clouds, because it means that consumers are still in the game. Consumer spending, which accounts for more than two‐thirds of U.S. economic activity, grew 3.2 percent in the third quarter after expanding at a 3.6 percent pace in the second quarter.

Shipment Volumes

The number of freight shipments dropped 4.7 percent from September. The freight shipments index now sits at its lowest October level since 2011. This month's decline was much sharper than in recent years and can be directly correlated to falling imports and exports as well as decreased domestic manufacturing levels. Burdened by bloated inventories, and under the shadow of a possible interest rate increase by the Federal Reserve, businesses cut back on new orders placed in the last three or four months. This is resulting in lower import volumes, less freight to move and faltering industrial production. With the dollar still strengthening, export growth decelerated in the third quarter. The Association of American Railroads reports that October traffic was down 4.3 percent from 2014 levels. More importantly, though, is that carloads dropped 20.7 percent and intermodal fell 20.3 percent from the previous month. Rail has been hit particularly hard by the rapid drop in industrial commodities caused by the steady decline in industrial production. Coal, petroleum and ores were down, while grain was up. The reductions in energy production are being felt throughout the freight community as shipments of not only petroleum, but also pipe, water, sand and other drilling materials, have dropped off significantly.

Overall Picture

Third quarter GDP growth was indicative of the economic headwinds facing the economy caused by the strong U.S. dollar (making U.S. goods less competitive abroad) and the weakening world economy. However, the consumer sector is rising to the occasion and continues to improve, providing the missing element to a full recovery from the Great Recession. Consumer spending has been bolstered by low inflation, especially with fuel prices; improving jobs creation; and stronger household purchasing power. In October, the Labor Department reported that 271,000 jobs were added and the unemployment rate dipped to 5 percent. A report from the Labor Department showed new applications for unemployment benefits last week hovering near levels last seen in late 1973. Growth in durable goods spending (for long‐lasting items such as washing machines and automobiles) continued strong, rising 6.7% in the third quarter. Inventory levels remain a looming problem as the Federal Reserve has been actively hinting that an interest rate hike is very possible in December. The combination of record inventory levels and an interest rate increase will cause a significant hike in inventory carrying costs. This will most likely drive a drawdown much like the one we saw in 2009 and 2010. Expect freight to continue to trail off through year's end. Retailers and wholesalers have ample supply for the holiday season, so imports and freight shipments should not strengthen considerably.
Mish Comments

All in all that was a balanced report by Cass. And providing the actual data to look at was a very nice touch.

Let's now discuss other points of view regarding GDP, inventories, and consumer spending.

Consumer Spending as Percent of GDP

It is widely believed that consumer spending accounts for approximately two-thirds of the economy. A few dispute that claim.

In Is the US Economy Close to a Bust, Pater Tenebrarum at the Acting Man Blog points out ...
One thing that we cannot stress often enough is that the manufacturing sector is far more important to the economy than its contribution to GDP would suggest. Since GDP fails to count all business spending on intermediate goods, it simply ignores the bulk of the economy's production structure. However, this is precisely the part of the economy where the most activity actually takes place. The reality becomes clear when looking at gross output per industry: consumer spending at most amounts to 35-40% of economic activity. Manufacturing is in fact the largest sector of the economy in terms of output.
To that I would add much of consumer spending is transfer payments: Food stamps, Medicare, Medicaid, etc. And health care costs have soared.

In The GDP Illusion Tenebrarum writes ...
Sure enough, in GDP accounting, consumption is the largest component. However, this is (luckily) far from the economic reality. Naturally, it is not possible to consume oneself to prosperity. The ability to consume more is the result of growing prosperity, not its cause. But this is the kind of deranged economic reasoning that is par for the course for today: let's put the cart before the horse!
Both articles are worth a closer look.

Inventory Levels

Cass cautioned "Inventory levels remain a looming problem as the Federal Reserve has been actively hinting that an interest rate hike is very possible in December. The combination of record inventory levels and an interest rate increase will cause a significant hike in inventory carrying costs."

That's an accurate synopsis but I suggest Cass understates the inventory problem.

Let's recap what I said Wednesday morning in Wholesale Trade: Another Bad Report, Inventories Decline, Prior Month Revised Way Lower; Expect Negative Revisions to 3rd and 4th Quarter GDP; What About Autos?

Inventories to Sales

Economists missed the wholesale trade report numbers by a mile. The Econoday Consensus Estimate for today's trade numbers was +0.2% in a range of 0.0% to 0.4%. The actual report (for October) came in at -0.1%.

That's bad enough, but some of the much touted inventory build for 3rd quarter (See Wholesale Trade Inventories Surge Led By Autos) did not happen.

Last month's report had me scratching my head. I certainly didn't expect such a jump. And it didn't happen. Today, September inventories were revised from +0.5% to +0.2%.

Positives for Production?

Bloomberg comments "[Wholesale trade inventories] may be negatives for third-quarter GDP but are positives for the production and employment outlooks."

Let's investigate that claim with a dive into the actual Census Report on Wholesale Trade for a chart and more details.

Inventories to Sales



The inventory-to-sales ratio is clearly in the danger zone. Over-optimism across the board is generally what causes these spikes.

Year-on-year, inventories are up 3.6 percent but sales are down 3.7 percent. Inventories contributed heavily to rather anemic GDP growth this year.

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

What About Autos?

Inquiring minds may be wondering about autos. So, let's take a look at autos and other categories.

Inventory and Sales - Percent Change From Year Ago
GroupSales Inventories Sales-to-Inventory Ratio CurrentSales-to-Inventory Ratio Year Ago
US. Total-3.73.61.311.22
Durable-2.22.51.661.58
Automotive2.313.11.771.6
Furniture6.49.91.631.58

Autos are one of the key things that has been strong most of the year. Sales are up 2.3 percent but inventories are up 13.1%. And subprime lending has been a driving force behind those sales.

Across the board, inventories-to-sales seem way out of line.

Unless sales pick up dramatically (and I highly doubt they will), inventories will be a huge drag on growth that will not only negatively impact 3rd Quarter GDP estimates, but also GDP estimates for multiple quarters looking ahead.

Demographics

The demographic picture is not that pretty. I covered that recently in When Does the Demographically-Related Pension Ponzi Scheme Blow Up?

As a reader pointed out "Aging populations consume less, and have different consumption patterns to working populations. Retirees consume less food, autos and real estate compared to young working couples. They use more healthcare instead. Also, aging populations take on less debt. These factors combined make the economic effect of lowering interest rates and printing money less pronounced than they would be in different circumstances."

We're not talking about lower rates (until the Fed dramatically reverses course in 2016). Meanwhile, what prices are going up substantially more than others? And who is affected?

  • Apartment Rents
  • Medical

Rising medical expenses are part of consumer spending, but not a very productive one.

And soaring rent prices strongly affect those who cannot afford a house. Millennials are in that group.

Overseas, we have outright Population Deflation: Spain Joins Germany with Negative Net Birth Rate; Italy on Threshold; Who's to Blame?

The US is much better off than Europe and Japan, but what does that say for US export prospects?

Jobs

Cass noted "A report from the Labor Department showed new applications for unemployment benefits last week hovering near levels last seen in late 1973."

That's accurate. 

But what does that mean looking ahead? That things are going to get even better? If so, how much better?

Initial Claims



Strong Case for Recession

Jobs are the laggiest of laggy indicators. A turn down here would not be welcome at all.

But why shouldn't jobs turn down precisely here?

  1. Inventories are up
  2. Sales are down
  3. The Fed is hiking
  4. Corporate profits stalled 
  5. The recovery is above average in duration
  6. Manufacturing is in outright recession
  7. New home sales are weak at best
  8. Existing home sales are down and a NAR Report Calls the Report "Disturbing"
  9. Trucking is down
  10. The energy sector is a bust
  11. Auto sales are hugely subprime 
  12. Big box retailers struggling
  13. Mall vacancies increasing 
  14. Consumer Spending Much Weaker Than Expected last two months

What's next? No hiring? Outright layoffs?

I believe there's a pretty decent chance the US is about to slip into recession, if it hasn't done so already.

Mike "Mish" Shedlock

Seth's Blog : Quantum content and blurred lines



Quantum content and blurred lines

Twenty years ago, cookbooks were cookbooks. Almanacs were almanacs. There were no thrillers that were also coming-of-age diet books.

Twenty years ago, jazz was jazz and polka was polka. Jazz polka wasn't really a thing.

The reason is simple: The publisher of the work needed to get it to the store, the store needed to put it on a shelf and the consumer had to find it. Most of the time, publishers would push back (hard) on creators to make sure that the thing they created fit into a category. No category, no shelf space. No shelf space, no sale.

In our long tail, self published, digital world, there is of course infinite shelf space. And there is no retailer that needs to be sold, because since there's no shelf space issue, they will carry everything.

As a result of no one pushing back on the self-published writer or musician, there's a huge blurring going on. The design of websites, for example, is all over the map in ways that magazines and books never were. 

Quantum theory posits that an electron is either here or there. Not in between. And for a long time, content fitted into quantum buckets. But the shift to digital has blurred all of that.

Except...

Except that the consumer of content still thinks in terms of buckets. She's judging your podcast in the first eight seconds, "what does this remind me of?" She's searching for famous names, scanning the bestseller list, moving sidewways within a category.

Yes, of course we need your post-categorization genius. We need you to blend and leap and integrate new styles to create new forms.

But while you're busy not being pigeonholed, don't forget that we pigeonhole for a reason. And if it's too difficult to figure out how to pay attention to you, we'll decide to ignore you instead.

Make your magic, and make it easy for us to figure out...

What is this thing?

What does it remind me of?

Do people like me like stuff like this?

       

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miercuri, 9 decembrie 2015

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


U.S. Satisfaction Falls to 13-Month Low

Posted: 09 Dec 2015 08:15 PM PST

Although well above the 2008 low of 7%, Gallup reports After Terror Attacks, U.S. Satisfaction Falls to 13-Month Low of 20%.
After the recent terrorist attack in San Bernardino, California, Americans' satisfaction with the way things are going in the U.S. dropped seven percentage points to 20%. This is the lowest level of satisfaction recorded since November 2014, but still above the all-time low of 7% in October 2008.



A seven-point month-to-month drop in satisfaction is rare but not unprecedented. Satisfaction dropped seven points in 2013 during the October partial government shutdown. It plummeted 12 points in the fall of 2008 as the economy crumbled, falling to the all-time low of 7% in mid-October of that year.

The recent high point in satisfaction is 32% in January and February of this year, the highest since the end of 2012. Satisfaction levels have been lower for the rest of this year. But despite month-to-month fluctuations, at least 25% of Americans have been satisfied each month until the December reading.
Question of the Day

Is a 25% satisfaction rate something to be pleased about?

Satisfaction Demographics



The political party satisfaction levels are rather interesting. Last month 42% of Democrats were satisfied but only 13% of Republicans. Is this simply a factor of who is in the White House?

Regardless, Democrat satisfaction plunged a whopping 15 percentage points to 27.

Gallup comments "White Americans remain less likely to be satisfied than nonwhite Americans, probably because whites are more likely to be Republicans."

Mike "Mish" Shedlock

Wholesale Trade: Another Bad Report, Inventories Decline, Prior Month Revised Way Lower; Expect Negative Revisions to 3rd and 4th Quarter GDP; What About Autos?

Posted: 09 Dec 2015 10:50 AM PST

Economists missed the wholesale trade report numbers by a mile. The Econoday Consensus Estimate for today's trade numbers was +0.2% in a range of 0.0% to 0.4%. The actual report (for October) came in at -0.1%.

That's bad enough, but some of the much touted inventory build for 3rd quarter (See Wholesale Trade Inventories Surge Led By Autos) did not happen.

Last month's report had me scratching my head. I certainly didn't expect such a jump. And it didn't happen. Today, September inventories were revised from +0.5% to +0.2%.

From Econoday
Wholesale inventories fell 0.1 percent in October against no change for sales, keeping the stock-to-sales ratio for this sector unchanged at 1.31. Wholesale inventories are on the heavy side as this ratio is well up from 1.22 this time last year. Year-on-year, inventories are up 3.6 percent which is well ahead of a 3.7 percent decline for sales.

Inventory builds reflecting falling sales include metals and autos, though strong sales of the latter at the retail level point to a bounce back for related wholesale sales. Inventory draws reflecting rising sales include furniture, apparel, and farm products.

Businesses including wholesalers watch their inventory levels carefully, limiting unwanted overhang as much as they can especially when sales are slow. The decline in October inventories, together with a sizable 3-tenth downward revision to September to plus 0.2 percent, may be negatives for third-quarter GDP but are positives for the production and employment outlooks. Watch Friday for the business inventories report which will include data from the retail sector.
Positives for Production?

Bloomberg comments "[Wholesale trade inventories] may be negatives for third-quarter GDP but are positives for the production and employment outlooks."

Let's investigate that claim with a dive into the actual Census Report on Wholesale Trade for a chart and more details.

Inventories to Sales



The inventory-to-sales ratio is clearly in the danger zone. Over-optimism across the board is generally what causes these spikes.

Year-on-year, inventories are up 3.6 percent but sales are down 3.7 percent. Inventories contributed heavily to rather anemic GDP growth this year.

What About Autos?

Inquiring minds may be wondering about autos. So, let's take a look at autos and other categories.



click on chart for sharper image

Let's put some key numbers in a table to make them easier to read.

Inventory and Sales - Percent Change From Year Ago
GroupSales Inventories Sales-to-Inventory Ratio CurrentSales-to-Inventory Ratio Year Ago
US. Total-3.73.61.311.22
Durable-2.22.51.661.58
Automotive2.313.11.771.6
Furniture6.49.91.631.58

Take a good look at autos. Sales are up 2.3 percent but inventories are up 13.1%. Across the board, inventories-to-sales seem way out of line.

Unless sales pick up dramatically (and I highly doubt they will), inventories will be a huge drag on growth that will not only negatively impact 3rd Quarter GDP estimates, but also GDP estimates for multiple quarters looking ahead.

Mike "Mish" Shedlock

In Support of Free Online Education

Posted: 09 Dec 2015 09:46 AM PST

I have written on numerous occasions that the cost of education in the US is ridiculously high.

One solution is affordable online education.

If Everyone Pitched In

Yesterday, I received an email from Sal Khan, founder of the Khan Academy.

His motto is "You can learn anything. For Free. For Everyone. Forever."

With fewer than 100 employees, Khan Academy serves more than 15 million users each month with over 100,000 videos and exercises.

Email from Khan
Hi Mish

As you may know, Khan Academy is a small nonprofit with a big mission: a free, world-class education for anyone, anywhere. It's an ambitious goal, and we rely on donations from people like you to keep working toward it.

If all of you pitched in just $3, it would fund all of our work for the next year.

All gifts made in December are being matched by a group of our supporters, so I hope you'll take advantage of this opportunity to pitch in and double your impact.

Your support will help us keep building free content and making the site even better for millions of learners around the world.

All the best,

Sal Khan
Founder, Khan Academy
For free, for everyone, forever.
Free vs. Free Market

Nothing is really "free" of course. The academy depends on donations.

But the academy is a "free market" solution that does not depend on government handouts. It's a model we should all embrace. And donations are tax deductible.

I believe most Mish readers can afford a bit more than the $3 Khan asks. Regardless, whatever you can contribute, even $1 is appreciated.

If you share Khan's vision, please Make a Donation Today.

All gifts made in December will be matched dollar-for-dollar.

Mike "Mish" Shedlock

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