Category Archives: The Economy

Short Memories

Consumer Confidence was reported this morning to have risen sharply, to the highest since December 2000. Stocks rose and bonds fell, taking this news as a sign of economic strength, one presumes. Obviously the buyers do not remember what happened in 2001. when the market fell to a loss of 27% by September.

Oh, and by the way, there is essentially no historical correlation between changes in the reported Consumer Confidence and changes in actual retail spending. Just sayin’

Inflation

There is much noise that the Fed will raise interest rates to combat “inflation.”

Over the last year to the end of February, wages are up 2.8% (nominal). The price of oil, as a metric for energy prices, is up 32%.

Guess what is driving “inflation.”

The Saudis are still pumping as hard as they can, but justifying it on the grounds that they are storing the above-quota output, not selling it internationally. It seems to me that a tank in Saudi and a tank in Oklahoma are pretty much fungible, except that we at least think we know how much is in the Oklahoma tanks.

The bottom line is that global inventories of oil are continuing to expand to new records, more or less on a daily basis. The EIA is forecasting that US shale is set to expand production by 109k barrels from March to April, rising from 4.853mmbpd to 4.962mmbpd, and offsetting OPEC’s entire February production cut.

At some point we are going to see a reaction and that will be the end of “inflation.” For a while, anyway.

Unsentimental

The Atlanta Fed GDPNow forecast for Q1 GDP now stands at 1.2% annualized growth. This despite outrageously bullish sentiment everywhere you look.

1937, anyone?

Awash In Oil

Given the record level of oil inventories, it is amazing to me that the crude price is being sustained in the low $50s. This price is encouraging the shale producers to keep pumping, having sold forward their product into the futures market.

Now it seems that gasoline shipments are being diverted from New York as there is nowhere to put the stuff. Demand is down and everyone is carefully avoiding the obvious explanation – there is a recession underway.

Which rather surprises me – I would have thought that Trump’s Goldman advisers would want him to take the recession now, while there is still room to blame it (justly) on Obama, rather than further postpone and aggravate the inevitable outcome.

I don’t think the stock market will head lower until oil does. But it seems that Treasuries may be starting to reject the “Trumpflation” scenario.

Same Old

Per Bloomberg, house flippers have pushed the share of sales that are flips, or properties sold twice in 12 months, to its highest level since 2006.

Home flippers, who buy homes as a speculative bet on short-term price appreciation, accounted for 6.1 percent of U.S. home sales in 2016, according to Trulia, which defines a flip as a property sold twice in a 12-month period in arm’s-length transactions. That’s the highest share since 2006, when flips accounted for 7.3 percent of sales.

House prices are, of course, now above the last bubble peak. This is not likely to end any differently than the last time. Thanks, Janet.

Malls Hit The Wall

According to Forbes in 2015, the US leads the world in retail space per capita, with about 25 square feet (roughly 50 square feet, if small shopping centers and independent retailers are added). In contrast, Europe has about 2.5 square feet per capita. Number two is the UK, with about one-sixth the retail space per capita of the US. Now that online shopping is replacing store visits, shopping malls are becoming white elephants.

More mall landlords are choosing to walk away from struggling properties, leaving creditors in the lurch and posing a threat to the values of nearby real estate.

As competition from online shopping batters retailers, some of the largest U.S. landlords are calculating it is more advantageous to hand over ownership to lenders than to attempt to restructure debts on properties with darkening outlooks.

Obviously this is a looming bust for commercial real estate – and of course a wave of defaults on the associated debt.

Employment

President Trump has made a lot of headlines with promises to “bring jobs back” and get people “off welfare and into jobs.”

Are these promises realistic? What will it take to get people who have left the labor force, or never entered it, working?

The first problem is the so-called welfare cliff. Research from the Illinois Policy Institute details the welfare cliff experienced by single-parent, two-children households and two-parent, two-children households in Cook, Lake and St. Clair counties, and the city of Chicago. This is just an example, there are many other such charts which vary in minor ways depending on location, family circumstances, etc.

The second problem is skills, or rather the lack of them. Picking on Chicago for the simple reason of consistency with the welfare cliff study above, we find that 37% of adults have low or limited literacy skills (level 1 or below on the PIAAC scale). This means 5th. grade skills or less – almost all can read a little, but not well enough to fill out an application, read a food label, or read a simple story to a child. On a national basis, the most recent data I could find shows about 25% for unemployed or out of labor force adults, 18% overall at level 1 or below.

This, of course, says nothing about job-related skills or numeracy. Nothing good, anyway.

Just bringing back jobs is not going to fix either of these problems.

And It’s Gone

Jack Ma points out that the US has wasted $14 trillion on wars.

Since the Vietnam war, more than 45 years ago, the US has embarked on a neocon strategy of war in an effort to build a global empire. The result of that strategy has left American infrastructure second rate, its school system in shambles, and its healthcare system a complete and utter joke.

Just imagine what America could’ve done with $14t of investable dollars, instead of waging wars.

Aside from the wars, America spends more than 50% of its discretionary budget on the military, per annum, 16% of its overall budget.

And the neocons are trying to stir up another one, with Russia. Why? For what? Wag The Dog? And that doesn’t even count the other futile wars, like the “War On Drugs.”

Pictures At An Exhibition

Sorry, Модест Петрович Мусоргский.

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Low Unemployment Good For The Market?

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