It's easy to visualize the efficiency of precise ties.
Every phone call goes through.
The marching band executes every turn, on cue. The entire band, each and every one of them.
The fabric in that sari is flawless.
Today, we're seeing more and more sloppy ties, more things created by apparently random waves than in predictable outcomes.
Maybe that email doesn't get through or that text isn't answered. Maybe the individuals you thought would spread your idea, don't. Maybe turnover increases in your organization or the provider you count on changes his policies...
But the number of connections is so great, it all works out. The haystack doesn't fall down, the nubby wool sweater doesn't ravel, the idea still spreads.
Precision ties are still magical. But we shouldn't avoid sloppy ties if they're going to get the job done. Substituting sloppy ties without sufficient mass, though, gets us nothing but disappointment. {9}
In the wake of recent economic data, economists at the IMF and Deutsche Bank lowered their growth estimates.
IMF Cuts Forecast Again
Like a dog running in futile circles hoping to catch its tail, the IMF does the same thing with its perennially over-optimistic assessment of everything from emerging markets to the G7 economies.
The International Monetary Fund cut its global growth forecasts for a second time this year on Tuesday, citing weak commodity prices and a slowdown in China and warned that policies aimed at increasing demand were needed.
The Fund, whose annual meeting starts in Peru this week, forecast that the world economy would grow at 3.1 percent this year and by 3.6 percent in 2016.
Both new forecasts are 0.2 percentage point below its July forecast and are 0.4 percentage point and 0.2 percentage point below its April outlook, respectively.
The downgrades come after central banks in major industrial economies have cut rates to near zero and spent around $7 trillion in quantitative easing programs in the seven years since the global financial crisis. Despite these measures, investment, growth and productivity are stuck below pre-crisis levels and there is a lack of consumer demand.
Among major economies, the United States is expected to grow by 2.6 percent in 2015 and by 2.8 percent in 2016, the Eurozone is forecast to grow by 1.5 percent and 1.6 percent, respectively, with Japan seen at 0.6 percent and 1.0 percent.
One of the biggest permabulls on the Street is apparently turning bearish as Deutsche Bank's chief US economist Joseph LaVorgna throws in the towel after taking a look at August trade date.
Here's the call:
"We are reducing our estimates of Q3 and Q4 real GDP growth due to a significant deterioration in net exports. Based on the complete August international trade data—we received the advance report last week—US exports are expected to be unchanged in the quarter. This is down from a 5.1% annualized increase in Q2, which followed a -6.0% West Coast port- and weather-related decline in Q1. At the same time, imports are on track to increase 10.0% in the quarter, the fastest gain since Q4 2014. This would have the effect of widening the trade deficit by $64 billion, which equates to a negative 160 basis-point annualized drag on Q3 output relative to our prior estimate. Recall that in Q1 2015, net exports subtracted 192 bps off real GDP growth. In response to today's trade data, we have lowered our Q3 real GDP growth forecast to 1.7% from 3.0% previously, and our forecast for Q4 real GDP growth has been trimmed from 3.0% to 2.3%. This has the effect of lowering 2015 real GDP growth, as measured on a Q4 over Q4 basis, from 2.6% to 2.1%. Moreover, we are cutting our 2016 forecast as well, albeit more modestly for reasons we will discuss in today's US Daily Economic Notes. Real GDP growth for 2016 (Q4/Q4) is now projected at 2.7%, down three tenths from our earlier estimate."
LaVorgna's Tail-Chasing Exercise
Until today, LaVorgna had been predicting 3% third quarter GDP growth, a fairy tale number never approached in the Atlanta Fed GDPNow Model.
Today, the Atlanta Fed model forecast actually rose, having taken into account the advance trade numbers on September 29.
Note that the Atlanta Fed model was never above 1.8% whereas LaVorgna was at the top end of the most recent "Blue Chip" consensus.
More than likely, LaVorgna's tail-chasing exercise is not over.
Evolution of GDP Forecast
On September 29, the GDPNow model declined from 1.8% to 1.1% with the advance foreign trade numbers.
Following auto sales and today's more complete trade numbers, the model forecast is back to 1.1%.
Today the US Commerce department report on International Trade in Goods and Services shows the trade deficit rose by $6.6 billion to $48.3 billion. The numbers are for August, very backwards-looking given it is now October.
August exports were $185.1 billion, $3.7 billion less than July exports. August imports were $233.4 billion, $2.8 billion more than July imports.
A surge in imports of new iPhones helped feed what was an unusually wide trade gap in August of $48.3 billion, well up from July's revised $41.8 billion. But cell phones, at $2.1 billion, make up only a portion of the gap with a drop in exports the most salient factor. Exports were down nearly across the board including industrial supplies at minus $2.2 billion, consumer goods at minus $0.6 million, autos at minus $0.5 million, and foods/feeds/beverages at minus $0.3 million. Weakness in exports reflects weakness in foreign demand together with the strength of the dollar.
The goods gap came in at $67.9 billion, which is up from last week's advance reading of $67.2 billion. The petroleum gap, which is always a central factor in the nation's deficit, fell to $6.9 billion from July's $8.1 billion and reflects lower prices. Demand for the nation's services, unlike its goods, continues to climb, to a surplus of $19.6 billion vs $19.5 billion in a reflection of demand for technical and managerial services.
By country, the gap with China, the main source of iPhones, rose sharply, to $35.0 billion from $31.6 billion. The gap with Mexico widened to $5.3 from $3.4 billion. Other bilateral data are mostly steady though the gap with the EU narrowed to $13.8 from $15.2 billion.
Imports are a subtraction on the national accounts but are, nevertheless, a two-way street, that is reflecting demand at home which is a sign of economic strength, not weakness. Still these results will limit expectations for third-quarter GDP.
Actually, this was pretty much factored into third quarter GDP estimates when the "advance numbers" came out last week. And these numbers, already way late, frequently sport huge revisions. Once again, GDP is a very lagging number.
There have been a lot of Star Wars fans that have taken their love of the films a little too far over the years. But this guy took his love for Star Wars and used it to make something truly incredible.
It's been almost 22 years since "Ace Venture: Pet Detective" hit theaters. See what the cast looks like now compared to how they looked back in the day. Jim Carrey
It turns out that competitive Scrabble players always arrange the letters on their rack in alphabetical order.
The reason makes sense: By ensuring consistency, the patterns appear. You've seen this before...
That same discipline works in most kinds of problem solving. Develop a method where you organize all the inputs, the assumptions and the variables in the same order. Consistently grouping what you see will make it ever more clear that you've seen something like this before.
Reader Dean emailed me today in response to a couple of recent articles I wrote regarding US policy in Syria.
Dean disagreed with the tone of my articles, stating a belief the US needs to "take a stand".
I back his "take a stand" suggestion 100% and offer this specific proposal.
The Stand
Admit the US is largely responsible for the huge mess in the Mideast.
Welcome Russia's help in solving it.
Welcome Iran's help in solving it.
Time to Self-Assess
There are many who believe the US should never apologize for anything. And that is precisely the attitude of the playground bully.
It is the weak-minded fools and the feeble hypocrites who demand everyone else to admit their mistakes while never accepting they own.
The US has one hell of a lot to apologize for in regards to the current Mideast crisis. Admitting that 50 years from now when those who created the crisis are long since dead will do no good. Admitting responsibility now will help.
There is no Chamberlain, nor modern day Hitler involved here. The harder demagogues try to play the Hitler/Chamberlain the sillier they look.
This is not about appeasement in any form. It's about a realistic self-assessment of who created the mess in order to move forward in the best manner.
In previous articles I summed up the immigration problems in Europe and the US as the direct result of an "unlimited demand for free services, free shelter, and free food".
Let's tune into what Economist Milton Friedman has to say about Illegal Immigration.
If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand.
A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.
One of the great mistakes is to judge policies and programs by their intentions rather than their results.
Nothing is so permanent as a temporary government program.
I am favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible.
Many people want the government to protect the consumer. A much more urgent problem is to protect the consumer from the government.
Friedman on Free Trade
Underlying most arguments against the free market is a lack of belief in freedom itself.
Well first of all, tell me: Is there some society you know that doesn't run on greed? You think Russia doesn't run on greed? You think China doesn't run on greed? What is greed? Of course, none of us are greedy, it's only the other fellow who's greedy. The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. Einstein didn't construct his theory under order from a bureaucrat. Henry Ford didn't revolutionize the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty you're talking about, the only cases in recorded history, are where they have had capitalism and largely free trade. If you want to know where the masses are worse off, worst off, it's exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear, that there is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by the free-enterprise system.
When unions get higher wages for their members by restricting entry into an occupation, those higher wages are at the expense of other workers who find their opportunities reduced. When government pays its employees higher wages, those higher wages are at the expense of the taxpayer. But when workers get higher wages and better working conditions through the free market, when they get raises by firm competing with one another for the best workers, by workers competing with one another for the best jobs, those higher wages are at nobody's expense. They can only come from higher productivity, greater capital investment, more widely diffused skills. The whole pie is bigger - there's more for the worker, but there's also more for the employer, the investor, the consumer, and even the tax collector. That's the way the free market system distributes the fruits of economic progress among all people. That's the secret of the enormous improvements in the conditions of the working person over the past two centuries.
Friedman on Kennedy
In a much quoted passage in his inaugural address, President Kennedy said, "Ask not what your country can do for you -- ask what you can do for your country." It is a striking sign of the temper of our times that the controversy about this passage centered on its origin and not on its content. Neither half of the statement expresses a relation between the citizen and his government that is worthy of the ideals of free men in a free society. The paternalistic "what your country can do for you" implies that government is the patron, the citizen the ward, a view that is at odds with the free man's belief in his own responsibility for his own destiny. The organismic, "what you can do for your country" implies that government is the master or the deity, the citizen, the servant or the votary. To the free man, the country is the collection of individuals who compose it, not something over and above them. He is proud of a common heritage and loyal to common traditions. But he regards government as a means, an instrumentality, neither a grantor of favors and gifts, nor a master or god to be blindly worshiped and served. He recognizes no national goal except as it is the consensus of the goals that the citizens severally serve. He recognizes no national purpose except as it is the consensus of the purposes for which the citizens severally strive.
Friedman On Drugs
See, if you look at the drug war from a purely economic point of view, the role of the government is to protect the drug cartel. That's literally true.
Now here's somebody who wants to smoke a marijuana cigarette. If he's caught, he goes to jail. Now is that moral? Is that proper? I think it's absolutely disgraceful that our government, supposed to be our government, should be in the position of converting people who are not harming others into criminals, of destroying their lives, putting them in jail. That's the issue to me. The economic issue comes in only for explaining why it has those effects. But the economic reasons are not the reasons.
Mish Comments
The war on drugs, the war on poverty, US drone policy, collective bargaining of public unions, tariffs and protective subsidies, and the war on freedom (perversely labeled as homeland security and NSA anti-terrorism) have all taken huge tolls on the US prosperity.
Here's my theoretical question for the day: Why are mules stubborn, and why can't blind jackasses see?
I ask that question in regards to a few recent news articles. One is on Japan, one the US, and one on emerging markets with various overlaps in between.
Japan is on the verge of a technical recession after data on industrial production raised the prospect of a second consecutive quarter of negative growth. Industrial production for August — a crucial input into gross domestic product — unexpectedly fell by 0.5 per cent on the previous month after a 0.6 per cent fall in July.
"It's likely we're already in technical recession," said Masamichi Adachi, senior economist at JPMorgan in Tokyo, who forecast an annualised contraction of 1 per cent in the third quarter after 1.2 per cent in the second.
In an interview with the Financial Times this week, Mr Abe's economic adviser, Etsuro Honda, said additional fiscal stimulus was an "urgent task", while an increasing number of analysts expect the Bank of Japan to expand its monetary stimulus at the end of October.
Last week Janet Yellen, US Federal Reserve chair, implicitly criticised the BoJ's policy, noting in a speech: "I am somewhat sceptical about the actual effectiveness of any monetary policy that relies primarily on the central bank's theoretical ability to influence the public's inflation expectations."
The BoJ has a wide range of policy options for further easing. It could increase the rate of asset purchases from the current Y80tn ($670bn) a year; expand the range of assets it buys; or use communication tools to signal how long it will keep monetary policy loose.
The debts of non-financial firms in emerging market economies quadrupled, from $4tn (£2.6tn) in 2004 to well over $18tn in 2014, according to the IMF's twice-yearly Global Financial Stability Report.
This borrowing binge has taken business debt as a share of economic output from less than half, in 2004, to almost 75%.
With the US Federal Reserve expected to raise interest rates in the coming months, the IMF warns that emerging market governments should ready themselves for an increase in corporate failures, as firms struggle to meet sharply higher borrowing costs.
That could create distress among the local banks who have bought much of this new debt, causing them in turn to rein in lending, in a "vicious cycle" reminiscent of the credit crisis of 2008-09.
"Shocks to the corporate sector could quickly spill over to the financial sector and generate a vicious cycle as banks curtail lending. Decreased loan supply would then lower aggregate demand and collateral values, further reducing access to finance and thereby economic activity, and in turn, increasing losses to the financial sector," the IMF warns.
Its economists find that the sharp increase in borrowing has been driven largely by international factors, including the historically low interest rates and quantitative easing unleashed by central banks in the US, Japan and Europe, as they have sought to rekindle growth in the wake of the sub-prime crisis.
Meanwhile, Back in Chicago
In Chicago, Mayor Rahm Emanuel wants to hike taxes to counter falling tax revenue thanks to corporate business flight.
Businesses and individuals alike are exiting the region because taxes and the business climate are too unfriendly.
After misleading markets for months, with the claim that it would finally raise the near-seven-year-old, near-zero Fed Funds rate in September, the Fed last week reneged, on the grounds that the global economy was too weak for it. A rise of merely 25 basis points can undermine global economic growth? That's silly – and no less so than the claim that the Fed's zero-interest rate policy (ZIRP) has "stimulated" economic (or credit) growth. All major central banks have imposed ZIRPs in recent years; economic growth has been weak not despite ZIRPs but in part because of them.
Credit to Washington now exceeds credit to non-financial business, by $2 trillion. Which one produces wealth?
No wonder the expansion of the past five years hasn't been vigorous; but of course Keynesians applaud deficit-spending booms and national debt buildups, as means of saving and stimulating the economy, when all else fails. Things would have been far worse, they say, had government credit not displaced business credit. Yet economic growth was both steady and more robust in the decade after 1995, when credit for business expanded relative to credit for government.
Why then are so many other monetary central planners taking this ruinous road and staying on it, exit after exit after exit? Because they're central planners; it's what they do. Stupid, stubborn things.
Consider: Japan already has had a ZIRP for fifteen years, amid prolonged stagnation; the U.S. has had a ZIRP for "only" seven years; if the Fed were to match the duration of the Bank of Japan's idiocy and stubbornness, it would persist with a ZIRP until at least 2023. That's a lot of U.S. economic stagnation to (not) look forward to.
Questions of the Day
Why does the IMF support the very low rates that brought about the conditions it now seeks to fight?
Why does Chicago Rahm Emanuel propose tax hikes when tax hikes are the problem?
Why can't president Obama, like Rahm Emanuel understand why businesses move out of countries and out of states?
Why do economists in general, central banks in general, and the Bank of Japan specifically, all support policies that have been a proven failure in Japan for decades?
Why cannot any of the above see that debt is the problem and more debt and measures that foster more debt cannot possibly be the solution?
Because They're Mules or Blind Jackasses
The circuitous answer to all the above question is "Mules are stubborn because they are mules, and blind jackasses cannot see by definition."
A Point About Credit
By the way, I would like to point out one aspect of that excellent article by the Capitalist Advisor they failed to mention but I am confident they understand.
Although credit liabilities of the federal government have risen above non-financial businesses, the latter is expanding sharply for precisely the wrong reason: Corporations have gone on a debt binge, not for business expansion, but rather to buy back their own shares at obscenely overvalued prices.
It is impossible for this to work out well, so it won't. ... Except of course for the CEOs and executives who cash out all their stock options every month and park the money in US treasuries.
Reflections on Income Inequality
Those who whine about income inequality, notably Janet Yellen and various Fed members, ought to take this into consideration. But they won't. In fact, they can't for three reasons.
The Fed consists of a group of central planners.
Central planners do stupid things.
They won't change because central planners are more stubborn than mules, and as blind as blind jackasses.
The central planners and blind jackasses are in firm control. Those in academic wonderland as well as most mainstream media are aligned with the mules and jackasses to strengthen that trend.
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