Central Perk

miercuri, 9 decembrie 2015

Mish's Global Economic Trend Analysis

U.S. Satisfaction Falls to 13-Month Low
Wholesale Trade: Another Bad Report, Inventories Decline, Prior Month Revised Way Lower; Expect Negative Revisions to 3rd and 4th Quarter GDP; What About Autos?
In Support of Free Online Education

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
Group	Sales	Inventories	Sales-to-Inventory Ratio Current	Sales-to-Inventory Ratio Year Ago
US. Total	-3.7	3.6	1.31	1.22
Durable	-2.2	2.5	1.66	1.58
Automotive	2.3	13.1	1.77	1.6
Furniture	6.4	9.9	1.63	1.58

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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Seth's Blog : Making a new decision

Making a new decision

It's almost impossible to persuade someone that he's wrong. Almost impossible to make your argument louder and sharper and have the other person say, "I was wrong and I will change my mind."

Far more effective: Help someone make a new decision, based on new alternatives and a new story.

Arnold got it right in this passionate invitation to (re) think about our future.

• Email to a friend •

Mish's Global Economic Trend Analysis

When Does the Demographically-Related Pension Ponzi Scheme Blow Up?
Cheney Calls Trump "Un-American"; Republican Establishment in Chaos; Congressman Asks Trump to Step Down; Reflections on Un-Americanism
When Shipping Overcapacity Meets Falling Demand
Bank of Canada Announces Tools Including -0.5 Interest Rates; Loonie Sinks to 2004 Low; Right Tool at the Right Time

When Does the Demographically-Related Pension Ponzi Scheme Blow Up?

Posted: 08 Dec 2015 11:01 PM PST

Reader "GM", an actuary student in Malaysia pinged me with an accurate observation on demographics, but missed the boat on a solution.

GM writes ....

I thought I would point out the reason for this monetary madness, which I believe you had brought up before.

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.

As a student actuary who is also doing my CFA I believe that demographics has a far greater impact on the economy than current economic models allow for. I live in Malaysia, where civil servants receive pensions based on their basic (not final) pay. But even this is unsustainable - The Edge newspaper earlier this year reported that nearly 40% of government operating expenses goes to pensions and emoluments, hence a need for pension reserving arises.

Perhaps governments and corporations alike may want to encourage higher birth rates to avoid destroying the monetary pinnacles they have built for themselves?

Singapore, for all her freedom, cannot seem to encourage more births. There is an unwritten understanding in Singaporean corporations that a woman joining corporations cannot give birth within 5 years of joining, and later if she does, there are little or no maternity benefits.

They now have a TFR lower than Japan, and are facing a real estate bubble collapse.

Maybe we could investigate this for the sake of asset prices?

Cheers!
GM

What's the Solution?

Demographics are indeed a problem, but what's the solution? To encourage more births when housing prices are sky high, asset bubbles exist everywhere, and education costs in the US are totally insane?

Central bankers greatly contributed to this mess by cheapening interest rates to a point the BIS started screaming loudly (See BIS Points Finger at Yellen, Draghi: Warns About "Unthinkably" Low Interest Rates, Bond Market "Dislocations").

The best thing to do is let the free market work, something Bernanke had the chance to do in 2009, but didn't.

He called the collapse of Lehman his biggest failure. I propose it was his biggest success.

Actually, Bernanke did not "let" Lehman fail as he describes. Lehman had failed and Bernanke let the market pronounce a proper death burial.

Now that Bernanke has successfully re-blown the property bubble, millennials cannot afford houses.

Demographic Time Bomb

The solution "GM" proposed (to have the government encourage more kids) cannot work. Government has no idea what the birth rate should be.

What if the number of jobs is too low? What if the cost of housing too high? What about food stamps and other handouts for those with no jobs? And what happens down the road (way down the road when someone argues "we need more kids")?

Bear in mind by the time the kids born today reach a working age where they can help the elders, many of those elders will already have died!

Besides, the only way to encourage more births is to throw money at the problem. But what would that do? It would punish everyone else via taxation and bigger property bubbles.

The solution as always, is to let the free market economy decide on its own what the supply of credit should be, what housing prices should be, what the birth rate should be.

European Demographics Problem

I discussed the European demographics problem in Population Deflation: Spain Joins Germany with Negative Net Birth Rate; Italy on Threshold; Who's to Blame?

So Who's to Blame?

Central banks and their inflationary tactics are at the head of the list.
Fiscal stimulus, including a myriad of "affordable housing" programs that failed also contributed.
Corrupt politicians in bed with union leaders handing out untenable pension promises is right at the forefront as well.

How the hell is a policy to encourage more births going to fix those three enormous structural issues?

And what about debt? Student loans? Millennials taking care of their aging parents?

The bottom line is the monetary actions of central banks, and the fiscal stimulus and protectionist actions of governments are for the sole benefit of the already wealthy, to the detriment of the shrinking middle class.

Fewer and fewer millennials can afford to bring up kids in this environment.

Economic Madness Spreads

Yet, here were are with more economic madness. Finland heads up the fool's parade with a Helicopter Drop Free Money Proposal For Everyone.

Last week the ECB Cut Interest Rates to -0.3 Percent.

The market expected more. Currently the Bank of Japan is monetizing 100% of new debt issuance. Has it helped?

Canada Joins the Negative Interest Rate Watch Group

Canada reacted to its recession just today with an absurd proposal to lower interest rates to -0.5 percent.

Negative interest rates did not work in Europe, nor have zero interest rates solved anything in Japan. And even the BIS note the ridiculousness of the idea. But here we are.

In regards to negative interest rates, Bank of Canada governor Stephen Poloz commented "should the need arise, we'll be ready. The effectiveness of each tool will depend on the situation, making it more a matter of choosing the right one at the right time".

This was my response to Poloz's "right tool at the right time proposal".

Right Tool at the Right Time

I have a very simple question for Poloz: If you know the right tool for the right time, why is Canada in or flirting with recession?

If the Fed knew how to use tools, why was there a global financial collapse?

If the ECB knew how to use tools, why can't the eurozone hit inflation targets?

It may be a "matter of choosing the right one at the right time" but don't expect central banks to come close.

In practice, central banks pull tools out of their collective asses, making them up as they go along, hoping to cure the messes their policies created. The results speak for themselves: a series of asset bubbles of increasing amplitude over time.

There is one and only one tool that will work. It's called the free market.

Expecting a bunch of economic illiterates who do not understand the irreplaceable role of the free market is like expecting an idiot to divine the theory of relativity.

Proposals for the government to do something about the birth rate are 100% guaranteed to do one thing: make matters worse.

Finally, what cannot be put off forever, won't. The demographically-related pension ponzi scheme that expects 8% returns with 0% or negative bonds and fewer contributing workers is one of those things.

Mike "Mish" Shedlock

Cheney Calls Trump "Un-American"; Republican Establishment in Chaos; Congressman Asks Trump to Step Down; Reflections on Un-Americanism

Posted: 08 Dec 2015 04:43 PM PST

The Republican establishment has finally had enough of Donald Trump.

Today the collective mice that constitute the Republican party establishment all lined up to attack Trump after Trump called for a ban on all Muslims entering the US.

Democratic candidate Hillary Clinton joined the party with a tweet that Trump's idea was "reprehensible, prejudiced and divisive".

Criticism also came from Republican presidential hopefuls Chris Christie, the New Jersey governor, Sen Marco Rubio of Florida and Jeb Bush.

Trump Disowned

The Guardian reports Donald Trump's Muslim Ban Proposal Throws Republican Party Into Chaos

Republican presidential candidate Donald Trump was disowned by his own party's top leadership on Tuesday and faced calls to drop his White House bid as the world reacted with outrage to his plan for a ban on Muslims entering the United States.

The billionaire frontrunner's plan tipped the Republican presidential race into chaos, with party leaders from the chairman of the Republican National Committee to former US vice-president Dick Cheney condemning the idea as "un-American".

Trump toured the US television studios in unrepentant form, unmoved by the gale of criticism that followed his speech aboard an aircraft carrier on Monday evening. Speaking aboard the USS Yorktown, he acknowledged that his proposal was "probably not politically correct", before whipping up a cheering crowd and adding: "But. I. Don't. Care."

"We need a total and complete shutdown of Muslims entering the United States while we figure out what the hell is going on," Trump said. "We are out of control."

Horrified Muslims in the United States heard in Trump's rhetoric an echo of Nazism, and they joined the Republican condemnation of Trump as un-American.

"He's trampling on our constitution and packaging it as a snake oil cure for our security concerns," said Kassem Allie, executive administrator of the Islamic Center of America in Dearborn, Michigan, one of the largest mosques in the US. "He's using fear-mongering reminiscent of Nazi Germany and Stalin."

House speaker Paul Ryan said Trump's remarks violated the constitution and were "not who we are as a party".

"This is not conservatism," the Wisconsin representative said, adding: "Some of our best and biggest allies in this struggle and fight against radical Islam terror are Muslims."

There were signs that Trump was not deaf to the Republican insurrection. He appeared to make a veiled threat on Twitter on Tuesday to run as an independent. "A new poll indicates that 68% of my supporters would vote for me if I departed the GOP & ran as an independent," he wrote.

In Congress, a Florida Republican spoke on the floor of the House of Representatives to make a passionate demand for Trump to quit the presidential race.

"It should be heartbreaking to every American that we have a frontrunner in the presidential race that suggests there will be a religious test for anybody who wishes to come to our shores," said Representative David Jolly. "It is an affront to the principles upon which our nation was founded."

Ukip leader Nigel Farage released a statement saying Trump had "gone too far".

Muslim groups around the world expressing outrage at Trump's proposal included Dar al-Ifta, the state religious body in Egypt.

Trump followed up the speech with a media blitz Tuesday morning, in which he claimed the mantle of Franklin Delano Roosevelt, citing the internment of Japanese Americans during the second world war as precedent for his policy.

"This is a president highly respected by all, he did the same thing," Trump said on ABC News. "If you look at what he was doing, it was far worse."

However, Rick Wilson, a Republican strategist who has been a vocal critic of Trump, told the Guardian: "There was a whiff of fascism around this guy. Now there's a reek of fascism".

Pot Calls Kettle Black

That's quite a coordinated attack on Trump.

And Dick Cheney is without a doubt correct in his statement that Trump is constitutionally un-American. Yet, this is the biggest case of the pot calling the kettle black since .... forever.

If ever there was a case of un-Americanism it was the Bush-Cheney administration's unfounded and illegal war in Iraq. And that war directly led to the formation of ISIS.

Dick Cheney belongs in prison if not hell.

Hypocrite Paul Ryan

The Republican establishment is the biggest collection of un-American warmongers in history.

Speaker Paul Ryan said Trump's remarks violated the constitution and were "not who we are as a party".

This same hypocrite has a rather amazing Stance on War and Peace. Ryan would engage Iran militarily, in advance.

Ryan claims "[Iran] is the world's largest sponsor of terrorism. They've dedicated themselves to wiping an entire country off the map."

It's a blatant lie, which Republicans often repeat, that Iran ever threatened to wipe Israel off the Map.

For discussion of what Iran really said, please see Peace Must Be Stopped At Any Cost; Lies and Hypocrisy on Iran.

Reflections on Allies

Next, please ponder Ryan's statement "Some of our best and biggest allies in this struggle and fight against radical Islam terror are Muslims."

Actually, Saudi Arabia, our alleged ally, is a direct sponsor of ISIS. Our alleged enemy, Iran, isn't. And it was Saudi nationals that plotted 911.

While on the subject of "allies" please note what retired general Wesley Clark has to say: ISIS Serves Interests Of US Allies Turkey And Saudi Arabia.

Reflections on Un-Americanism

Under Democrat and Republican presidents alike, the US has backed corrupt regimes in Iraq, Iran, Argentina, Chile, Afghanistan, Ukraine, and countless other places while ignoring wholesale slaughter of civilians in many African counties. Is that American?

And since when is it constitutionally OK for the US to act as prosecution, judge, and jury in ordering drone strikes?

Both Bush and Obama are un-American on this issue. So is Hillary.

I like Representative David Jolly's suggestion that Trump should stop his campaign because he is un-American and unfit to be president.

Then again, they are all unfit. They should all cease campaigning.

Mish for President

Mish for President anyone?

I am not seriously running for president of course, but I do provide detailed answers on eleven different issues.

Such a platform by someone in either political party could conceivably win a presidential election, if only such a candidate could win the nomination.

The problem is getting nominated. Donald Trump proves what a joke the nomination process has become.

Mike "Mish" Shedlock

When Shipping Overcapacity Meets Falling Demand

Posted: 08 Dec 2015 01:37 PM PST

The following charts show what happens when an increasing number of ships meets falling demand.

Harper Petersen Shipping Rates by Vessel Size - Ten Years

Source: Harper Petersen

More charts below, but first let's explain TEU.

TEU

TEU stands for twenty-foot-equivalent unit. It's an imprecise term because lengths have a 20-foot long (6.1 meters) standard but heights vary. Heights range from 2 feet three inches to 9 foot six inches. The most common heights are 8 feet 6 inches (2.6 m) and 9 feet 6 inches (2.9 m).

Let's hone in on shipping rates for the last two years.

Harper Petersen Shipping Rates by Vessel Size - Two Years

Harper Petersen Index - Ten Years

Harper Petersen Index - One Year

Something clearly happened in first quarter of this year in terms of shipping demand.

Mike "Mish" Shedlock

Bank of Canada Announces Tools Including -0.5 Interest Rates; Loonie Sinks to 2004 Low; Right Tool at the Right Time

Posted: 08 Dec 2015 10:42 AM PST

The Canadian dollar, affectionately known as the loonie because of a loon on the one dollar coin, has crashed vs. the US dollar.

US Dollar vs. Canadian Dollar Monthly

The USD vs. the Loonie is back to a high last seen in May of 2004.

Tools Needed

Isn't a sinking currency supposed to help exports and the economy in general? Well, not in this corner, but that is what central bankers believe.

Canada ought to be flying high if the general central bank currency thesis was correct. Instead, the Bank of Canada announced it has Tools Beyond Zero Rate if needed.

Policy makers still have firepower to spur growth in the face of another crisis, even with borrowing costs near zero, Bank of Canada Governor Stephen Poloz said.

While the central bank doesn't expect it will need to resort to unconventional policies, a number of tools are still available, Poloz said, including charging banks for deposits, forward guidance and asset purchases. Fiscal stimulus could be even more effective than monetary policy in extreme circumstances, he said.

"I certainly hope we won't ever have to use these tools," Poloz said, according to the text of a speech he's giving Tuesday in Toronto. "However, in an uncertain world, a central bank has to be prepared for all eventualities."

Poloz said the bank's estimate for its real lower bound is negative 0.5 percent, an update from a previous estimate of 0.25 percent, published in a 2009 unconventional monetary policy framework. Poloz also said the central bank is now 'confident' Canada's financial markets could function in a negative rate environment, where banks would be charged for deposits, rather than being paid interest as is conventional.

"In short, should the need arise, we'll be ready. The effectiveness of each tool will depend on the situation, making it more a matter of choosing the right one at the right time," said Poloz.

Right Tool at the Right Time

I have a very simple question for Poloz: If you know the right tool for the right time, why is Canada in or flirting with recession?

If the Fed knew how to use tools, why was there a global financial collapse?

If the ECB knew how to use tools, why can't the eurozone hit inflation targets?

It may be a "matter of choosing the right one at the right time" but don't expect central banks to come close.

In practice, central banks pull tools out of their collective asses, making them up as they go along, hoping to cure the messes their policies created. The results speak for themselves: a series of asset bubbles of increasing amplitude over time.

There is one and only one tool that will work. It's called the free market.

Expecting a bunch of economic illiterates who do not understand the irreplaceable role of the free market is like expecting an idiot to divine the theory of relativity.

Mike "Mish" Shedlock