The never-ending push for 2% price inflation is absurd to the point of being counterproductive.
However, stubborn central bank mules don't care about history or common sense. They just keep doing what their fatally flawed model says they should do.
The euro and eurozone government bond yields plunged on Thursday after the ECB president indicated it stood ready to extend the "size, composition and duration" of its €1.1tn bond-buying programme.
"We are observing a weakening of the prospects of the Chinese economy," Mr Draghi said. "This has two effects substantially: one is through trade . . . and the confidence effect on the stock market and all other financial markets."
In a sign of policymakers' willingness to reinforce their QE package, the ECB raised the purchase limit of a single country's debt stock from 25 to 33 per cent. That decision should remove some of the constraints on central bankers in member states such as Germany, where the government has voiced its reluctance to issue more debt in the coming years.
Inflation forecasts for this year were revised downwards to 0.1 per cent, from the 0.3 per cent estimate in June, 1.1 per cent next year from 1.5 per cent, and 1.7 per cent in 2017 from 1.8 per cent. The central bank targets inflation of just below 2 per cent.
Growth forecasts were revised down to 1.4 per cent this year, from 1.5 per cent, 1.7 per cent in 2016 from 1.9 per cent and 1.8 per cent in 2017 from 2 per cent.
At the moment, the central bank plans to buy about €60bn worth of mostly government bonds each month until September 2016. In a further sign of intent, Mr Draghi said for the first time that the purchases were intended to run until then "or beyond, if necessary".
Infinity and Beyond
If QE doesn't produce 2% inflation (and it hasn't worked for going on three decades in Japan, and half a decade in the US) then Draghi's clear intention is to keep doing what has not worked here, there, or anywhere, until it does work.
"To infinity and beyond," said Draghi.
That's not quite a literal translation, but it is an accurate expression of what Draghi implied.
The Atlanta Fed third quarter GDPNow Forecast inched up today, primarily based on August motor vehicle sales.
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 1.5 percent on September 3, up from 1.3 percent on September 1. The nowcast for third-quarter real personal consumption expenditures growth ticked up from 2.6 percent to 2.7 percent following yesterday afternoon's release on August motor vehicle sales from the U.S. Bureau of Economic Analysis.
GDPNow Forecast September 3, 2015
Blue Chip Lag
Wondering why the Blue Chip forecast always seems to lag the GDPNow forecast, and by varying amounts?
Here's the answer from Patrick Higgins, Senior Economist, Federal Reserve Bank of Atlanta:
Hi Mish
The Blue Chip forecasts are always published on the 1st and 10th of the month. Furthermore, on the graph, we use the "survey" dates, which are about 4-6 days before these publication dates. This implies the Blue Chip forecasts will, at a minimum, lag about 5 days behind GDPNow and can lag as much as 25 days near the end of each month.
This post was originally in YouMoz, and was promoted to the main blog because it provides great value and interest to our community. The author's views are entirely his or her own and may not reflect the views of Moz, Inc.
Google processed over 1 trillion search queries in 2014. As Google Search continues to further integrate into our normal daily activities, those search results become increasingly important, especially when individuals are searching for information about a company or product.
To better understand just how much of an impact Google has on an individual's purchasing decisions, we set up a research study with a group of 1,000 consumers through Google Consumer Surveys. The study investigates how individuals interact with Google and other major sites during the buying process.
Do searchers go beyond page 1 of Google?
We first sought to understand how deeply people went into the Google search results. We wanted to know if people tended to stop at page 1 of the search results, or if they dug deeper into page 2 and beyond. A better understanding of how many pages of search results are viewed provides insight into how many result pages we should monitor related to a brand or product.
When asked, 36% of respondents claimed to look through the first two pages or more of search results. But, looking at actual search data, it is clear that individuals view less than 2% of searches below the top five results on the first page. From this, it is clear that actual consumer behavior differs from self-reported search activity.
Takeaway: People are willing to view as many as two pages of search results but rarely do so during normal search activities.
Are purchasing decisions affected by online reviews?
Google has integrated reviews into the Google+ Local initiative and often displays these reviews near the top of search results for businesses. Other review sites, such as Yelp and TripAdvisor, will also often rank near the top for search queries for a company or product. Because of the prevalence of review sites appearing in the search results for brands and products, we wanted a better understanding of how these reviews impacted consumers' decision-making.
We asked participants, "When making a major purchase such as an appliance, a smart phone, or even a car, how important are online reviews in your decision-making?"
The results revealed that online reviews impact 67.7% of respondents' purchasing decisions. More than half of the respondents (54.7%) admitted that online reviews are fairly, very, or absolutely an important part of their decision-making process.
Takeaway: Companies need to take reviews seriously. Restaurant review stories receive all the press, but most companies will eventually have pages from review sites ranking for their names. Building a strong base of positive reviews now will help protect against any negative reviews down the road.
When do negative reviews cost your business customers?
Our research also uncovered that businesses risk losing as many as 22% of customers when just one negative article is found by users considering buying their product. If three negative articles pop up in a search query, the potential for lost customers increases to 59.2%. Have four or more negative articles about your company or product appearing in Google search results? You're likely to lose 70% of potential customers.
Takeaway: It is critical to keep page 1 of your Google search results clean of any negative content or reviews. Having just one negative review could cost you nearly a quarter of all potential customers who began researching your brand (which means they were likely deep in the conversion funnel).
What sites do people visit before buying a product or service?
Google Search is just one of the sites that consumers can visit to research a brand or product. We thought it would be interesting to identify other popular consumer research sites.
Interestingly, most people didn't seem to remember visiting any of the popular review sites. Instead, the brand site that got the most attention was Google+ Local reviews. Another noteworthy finding was that Amazon came in second, with half the selections that Google received. Finally, the stats show that more people look to Wikipedia for information about a company than to Yelp or TripAdvisor.
Takeaway: Brands should invest time and effort into building a strong community on the Google+, which could lead to receiving more positive reviews on the social platform.
Online reviews impact the bottom line
The results of the study show that online reviews have a significant influence on the decision-making process of consumers. The data supports the fact that Internet users are generally willing to look at the first and second page of Google search results when searching for details about a product or company.
We can also conclude that online review sites like Google+ Local are heavily visited by potential customers looking for information, and the more negative content they find there, the less likely they will be to purchase your products or visit your business.
All this information paints a clear picture that what is included in Google search results for a company or product name will inevitably have an impact on the profitability of that company or product.
Internal marketing teams and public relation firms (PR) must consider the results that Google displays when they search for their company name or merchandise. Negative reviews, negative press, and other damaging feedback can have a lasting impact on a company's ability to sell their products or services.
How to protect your company in Google search results
A PR or marketing team must be proactive to effectively protect a company's online reputation. The following tactics can help prevent a company from suffering from deleterious online reviews:
First, identify if negative articles already exist on the first two pages of search results for a Google query of a company name or product (e.g., "Walmart"). This simple task should be conducted regularly. Google often shifts search results around, so a negative article—which typically attracts a higher click-through rate—is unfortunately likely to climb the rankings as individuals engage with the piece.
Next, monitor and analyze the current sentiment of reviews on popular review sites like Google+ and Amazon. Other sites, like Yelp or Trip Advisor, should also be checked often, as they can quickly climb Google search results. Do not attempt to artificially alter the results, but instead look for best practices on how to improve Yelp reviews or other review sites and implement them. The goal is to naturally improve the general buzz around your business.
If negative articles exist, there are solutions for improvement. A company's marketing and public relations team may benefit by highlighting and/or generating positive press and reviews about the product or service through SEO and ORM efforts. By gaining control of the search results for your company or product, you will be in control of the main message that individuals see when looking for more information about your business. That's done by working to ensure prospects and customers enjoy a satisfying experience when interacting with your brand, whether online or offline.
Being proactive with a brand's reputation, as viewed in the Google search results and on review sites, does have an impact on the bottom line.
As we see in the data, people are less likely to make a purchase as the amount of negative reviews increase in Google search results.
By actively ensuring that honest, positive reviews appear, you can win over potential customers.
Sign up for The Moz Top 10, a semimonthly mailer updating you on the top ten hottest pieces of SEO news, tips, and rad links uncovered by the Moz team. Think of it as your exclusive digest of stuff you don't have time to hunt down but want to read!
You are subscribed to the Moz Blog newsletter sent from 1100 Second Avenue, Seattle, WA 98101 United States To stop receiving those e-mails, you can unsubscribe now.
With all the chatter about whether the Fed will hike on September 17 or not, let's do an interest rate and bond yield recap of where various rates are, where they have been, and where they are likely headed.
Effective Federal Funds Rate
As of yesterday, the effective federal funds rate was a mere 8 basis points. Since April, it has been swinging from a low of 6-8 basis points to a high of 14-15 basis points.
I suspect the odds of a hike are close to 50-50.
The CME Fed Watch has the hike odds at 27% as of September 2. However, the CME does not consider a move to 0.25% a hike.
I do, because it clearly is.
The current Fed stance is 0.00% to 0.25%. With the effective Fed Funds rate hovering between 8 and 15 basis points, a move to a firm 0.25% would be about an eighth of a point hike.
Why nearly everyone expects a quarter point hike is a pure mystery to me.
If the Fed delays until December, we may see such a move (if the economy stays reasonably firm), but even then, I believe the Fed will baby-step this in a Market May I approach, quite similar to the childhood "Mother May I" game.
Baa is Moody's lowest investment grade bond (one step above junk). It is a measure of risk taking appetite. The rise in yield from January is an effective tightening of rates, albeit from a low level. The following long term chart adds perspective.
Moody's Seasoned Baa Bond Yield
BB High Yield Bond Yield
BB is the top junk bond rating. Is the yield bottom in?
The Break-even rate refers to the difference between the yield on a nominal fixed-rate bond and the real yield on an inflation-linked bond (such as a Treasury inflation-protected security, or Tips) of similar maturity and credit quality. If inflation averages more than the break-even rate, the inflation-linked investment will outperform the fixed-rate bond. If inflation averages below the break-even rate, the fixed-rate bond will outperform the inflation-linked bond.
The 10-year breakeven rate is about 1.63% as of August 31, 2015. Clearly the market is not expecting serious consumer price inflation for quite a long time.
Yield Curve as of 2015-09-01
I created the above chart in StockCharts. The chart shows US treasury yields from 2 years to 30 years.
2- and 3-year yields have been rising very slowly since the beginning of 2013 in anticipation of Fed rate hikes.
At the long end of the curve (30-year in red, 10-year in orange) rates made recent highs in late 2013 but are well below those highs now.
Let's compare rates across the entire curve now compared to a year ago.
Note that between 6-months and 2-years, treasury yields are higher than they were a year ago. Meanwhile, from 5-years and out, rates are lower than they were a year ago.
Torsten Slok, Deutsche Bank's chief U.S. economist, sees a silver lining in this market turmoil that he figures actually makes a September liftoff look more attractive.
"If anything, the narrative in markets at the moment is such that if the Fed does hike in September, then long rates and the dollar will decline because the market will think the Fed is hiking prematurely," Slok says in a research note. "Ironically, September may be the ideal time for the Fed to hike rates because given the way we currently talk about the economy in markets a Fed hike in September will likely be associated with an easing of financial conditions and not a tightening."
He asserts that the central bank ought to "do the first hike exactly when there is a bearish narrative in markets" to ensure it doesn't prompt yields further out along the curve to jump, as was the case in the infamous bond selloff sparked by 1994's rate rise.
The Bloomberg article also mentions the "savings glut" thesis, a preposterous idea that I will rebut, in detail, later, in a separate post.
Mish Rebuttal of Slok's View
Other than general agreement over the unlikelihood of the long end spiking, Slok's reasoning seems flat out wrong.
The flattening of the curve is generally not good for bank profits and also reflects increasing recession possibilities.
A key reason the yield curve cannot invert now is the low end is at zero. Price in a couple hikes and portions of the yield curve could invert.
That's what happened in Canada earlier this year following a surprise cut in rates by the Royal Bank of Canada.
Canada Recession
On January 31, Based on an inversion in parts of the yield curve, I correctly proclaimed Canada in Recession.
Just yesterday, Canadian stats confirmed the recession. It remains to be seen if the US follows, but a flattening of the yield curve is not a good sign for growth.
The debate still rages "will they, won't they". The correct answer is "It won't matter at all".
If the US does follow into recession, rest assured it will not be because of hike. With the global economy slowing rapidly, and with US equities and corporate bonds in huge bubbles, one hell of a payback is coming for the inane QE policies of this Fed.
Fed policy is also behind rising income inequality that Fed Chair Janet Yellen constantly whines about.
Is the Bond Bull Market Over?
Here's the question that's been on nearly everyone's mind for at least a decade: Is the Bond Bull Market Over.
I have two answers: Yes, and Perhaps Not.
Those answers are not contradictory. There are many bond bull markets to consider. Let's start with corporate bonds.
Near-Junk Corporate Bull Market Over?
Using Moody's Baa seasoned bonds as a good proxy for near-junk (the lowest investment grade bonds), let's take an even closer look at recent happenings.
The Moody's Baa seasoned bond yield hit an all-time low of 4.29% on January 30, 2015. It is now 5.36%. That's over a 100 basis point tightening (one full percentage point) in a mere seven months.
I am willing to state that the bull market in near-junk bonds is finished.
At some point the market will question covenant-lite conditions in which corporations can pay back debt with more debt issuance.
At some point the market will questions corporations taking on debt to buy back shares.
At some point the market will question the ability of some of these near-junk companies to survive at all.
At some point the market will realize what a bubble the Fed has blown with QE and how it seriously affected junk bond rates.
That "some point" appears to be now.
The only question is how fast the air comes out of the enormous junk balloon. We have yet seen a slow release of air from a bubble. Will this be a first?
Junk Bond Bull Market Over?
Let's hone in on BB bonds, the top-tier on non-investment grade (junk) bonds.
That is a rise of 131 basis points (1.31 percentage points).
And for the same reasons noted in the above Baa discussion, I declare the end of the junk bond bull market.
Is the US Treasury Bull Market Over?
This question is amusing. Here is a pair of charts that shows why.
US 30-Year Bond Yield Monthly Chart
The "death" of the US treasury bull market has been proclaimed so many times it's difficult to show them all. Let's hone in further.
US 30-Year Bond Yield Daily Chart
Where others saw massive price inflation coming (with the CPI as the determining measure), I called for deflation (as measured by credit marked to market and asset prices). In other words I expected monetary inflation to manifest itself in asset prices not consumer prices.
I stick with that call. For all of those who think consumer price inflation is just around the corner, I have some questions.
Questions for Inflationistas
What happens when there is another asset bubble bust in the US?
What happens if the US goes into recession later this year or early 2016?
What happens to the long end of the curve if the market even thinks the Fed will hike the US into recession?
What is happening to the long end of the cure relative to the short end?
Do consumer prices soar when commodity prices collapse?
Bonus question: With the long end of the curve just 70 basis points away from a record low, and with a global growth slowing, is it inconceivable for another record low at the long end of the curve?
Is the Bond Bull Market Over?
US Corporates: Yes - and with surprisingly little fanfare
US Treasuries: Maybe - but with constant speculation and erroneous proclamations for what seems like forever.
By the way, junk bond bull markets and equity bull markets tend to go hand-in-hand. So do junk bond bear markets and equity bear markets.
The Fed's Beige Book is a summary and analysis of economic activity and conditions, issued roughly two weeks prior to monetary policy meetings of the Fed.
"Book" is an adequate expression. This month, the Beige Book is 50 pages long. It's prepared with the aid of reports from the district Federal Reserve Banks.
Don't bother reading the book. It's not worth the slog.
The Beige Book, prepared for the September 17 FOMC meeting, is not underscoring any urgency for a rate hike. Eleven of 12 districts report only moderate to modest growth with the Cleveland district reporting only slight growth. This compares with 10 districts in the July Beige Book which reported moderate to modest growth. Most districts describe labor demand as no more than modest to moderate and most describe actual job growth as no better than slight or modest. But there are isolated areas of labor shortages and four districts report a rise in wages for specific industries. Inflation is described as stable with only slight upward pressure across districts.
The sample period for the report ended on August 24, capturing the beginning of global market volatility. Several districts cited China as a factor slowing down demand. Still manufacturing, boosted by the auto sector, is described as mostly positive though two districts, New York and Kansas City, report contraction. The strong dollar is cited by five districts as a negative for manufacturing. Farm conditions are described as mixed.
Housing is a clear positive in the report, with sales and prices rising in every district. Construction is described as strong. Retail sales are also positive and are continuing to expand in most districts. Loan demand is generally described as rising. There's no significant immediate reaction to the report.
Will They or Won't They?
It matters not whether the Fed hikes or not. Either way, bubbles have formed in equities and junk bonds. Tiny hikes will not cause a recession, and the bubbles are destined to pop anyway.
In honor of the question, however, here's a musical tribute from the '40s, with thanks to reader Charles.
Reeling from low oil prices, Canada fell into a recession in the first half of the year, government data confirmed Tuesday, putting Conservative Prime Minister Stephen Harper on the defensive in the run-up to October elections.
According to Statistics Canada, the economy contracted 0.5 percent in the second quarter after retreating 0.8 percent in the previous three months.
It is Canada's second recession in seven years and it is the only Group of Seven nation in economic retreat. The figures are the weakest since the 2008 global financial crisis.
The data reflects fears about the health of the global economy as more gloomy evidence emerged of a slowdown in China, a main engine of growth worldwide.
Canada Recession Call Easy
Unlike the US, where the Fed pegged short-term interest rates so low that the yield curve cannot invert, calling the Canadian recession was easy.
Following the rate cut, the yield curve in Canada inverted out to three years. Inversion means near-term interest rates are higher than long-term rates.
I saw no other person mention the inversion at the time. An inverted yield curve generally portends recession.
US Recession Call More Difficult
With constantly huge GDP revisions in the US, and with a yield curve that cannot invert, it's much tougher calling US recessions.
It remains to be seen if a US recession starts this year or not. Spectacular auto sales and modest home building have kept the economy trudging along.
However, the US is not going to decouple from a slowing global economy forever. The idea is as silly as the 2008 notion that China would decouple from the US economy.
YouTube sends email summaries like these so you can keep up with your channel subscriptions. If you no longer want to receive these updates, you may edit your preferences here or unsubscribe.
Postări
