Tag Archive: Federal Reserve/Monetary Policy

China’s Economy Shorthand the Largest Asset Bubble in Human History

The term “ghost city” is a loaded one, often deployed to skew toward a particular viewpoint. In the context of China’s economy, it has become shorthand for perhaps the largest asset bubble in human history. While that may ultimately be the case, in truth China’s ghost cities aren’t about the past but its future.

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U.S. Industrial Production: Industrial Drag

Completing a busy day of US economic data, Industrial Production was, like retail sales and inflation data, highly disappointing. Prior months were revised slightly lower, leaving IP year-over-year up just 2% in June 2017 (estimates for May were initially 2.2%). Revisions included, the annual growth rate has been stuck around 2% now for three months in a row, suggesting like those other accounts a pause or even possible end to the mini-improvement...

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Retail Sales Conundrum

Retail sales were thoroughly disappointing in June. Whereas other accounts such as imports or durable goods had at least delivered a split decision between adjusted and unadjusted versions, for retail sales both views of them were ugly. Seasonally-adjusted first, spending last month was down for the second straight time. Worse than that, estimated sales were just barely more than in January.

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US S&P 500 Index, Federal Funds Target, Manufacturing Payrolls, US Imports and US Banking Data: All Conundrums Matter

Since we are this week hypocritically obsessing over monetary policy, particularly the federal funds rate end of it, it’s as good a time as any to review the full history of 21st century “conundrum.” Janet Yellen’s Fed has run itself afoul of the bond market, just as Alan Greenspan’s Fed did in the middle 2000’s.

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China Imports and Exports: The Ghost Recovery

To the naked eye, it represents progress. China has still an enormous rural population doing subsistence level farming. As the nation grows economically, such a way of life is an inherent drag, an anchor on aggregate efficiency Chinese officials would rather not put up with.

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Competing CPI,PPI, Industrial Production and Retail Sales: No Luck China, Either

Former IMF chief economist Ken Rogoff warned today on CNBC that he was concerned about China. Specifically, he worried that country might “export a recession” to the rest of Asia if not the rest of the world. I’m not sure if he has been paying attention or not, but the Chinese economy since 2012 has been doing just that to varying degrees often just shy of that level.

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US Federal Funds, Bond Market and WSJ Economic Survey: The Hidden State of Money

Correctly interpreting the bond market is more than just how and when to invest your money in UST’s. Not that it isn’t useful in such a money management capacity, but interest rates starting at the risk-free tell us a lot about what is wholly unseen. There is simply no way to directly observe inside an economy what is taking place at all levels and in all transactions. We try to estimate as best we can in the aggregate, but the real economy works...

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Vehicle Sales, Consumer Price Index and Average Weekly Hours: More Than Minor Auto Potential

According to Edmunds.com, in June 2017 the average length of a new vehicle loan has been stretched to a record 69.3 months. JD Power says that incentives last month were running at more than 10% of MSRP, the eleventh time over the past twelve months where manufacturers have so heavily discounted. And yet, the auto industry would have us believe that the problem is one of fleet sales rather than of consumers.

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US Imports, Exports and Trade Stalls, Too

US imports rose year-over-year for the seventh straight month, but like factory orders and other economic statistics there is a growing sense that the rebound will not go further. The total import of goods was up 9.3% in May 2017 as compared to May 2016, but growth rates have over the past five months remained constrained to around that same level. It continues to be about half the rate we should expect given the preceding contraction.

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Global Manufacturing PMI’s, Inflation and CPI: Some Global Odd & Ends

When it comes to central bank experimentation, Japan is always at the forefront. If something new is being done, Bank of Japan is where it happens. In May for the first time in human history, that central bank’s balance sheet passed the half quadrillion mark.

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U.S. Gross Domestic Products: Near Record Expansion (Really Reduction)

Real GDP in the US was revised up to 1.41% quarter-over-quarter (annual rate), still the fourth of the last six to be less than 1.5%. While economists and policymakers have taken to judging the economy by its downside, that is only because the extent of the global problem is revealed by complete absences of an upside. The occasional decent quarter doesn’t come close to making up for the more plentiful disappointing ones, let alone to still resolve...

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Pending Home Sales: Home Attitude Adjustments

The National Association of Realtors (NAR) reported today that pending home sales declined for the third straight month. As with so many other accounts, it’s not really the downside that is relevant but how instead there has been little to no growth for quite some time now. The NAR’s index value, which is how the organization reports the level of pending sales, was 108.5 in May 2017. That’s up 42% from the low in 2010, but also slightly less than...

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Maybe Deep Dissatisfaction Has A Point

To complete a trifecta, maybe someone could interview Alan Greenspan about rational exuberance. The last of the latest Fed Chairmen, Janet Yellen, purports today that the next financial crisis will not be in “our lifetimes.” The issue, however, isn’t even crisis so much as credibility. Given that she and the rest of them had no idea about the last one until it was almost over, we might be forgiven for rejecting her thesis outright – and it having...

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Oil Prices and Manufacturing PMI: No Backing Sentiment

When the price of oil first collapsed at the end of 2014, it was characterized widely as a “supply glut.” It wasn’t something to be concerned about because it was believed attributable to success, and American success no less. Lower oil prices would be another benefit to consumers on top of the “best jobs market in decades.”

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Weird Obsessions

People often ask why I care so much about China. In some ways the answer is obvious, meaning that China is the world’s second largest economy (the largest under certain methods of measurement). Therefore, marginal changes in the Chinese economy are important to understanding our own global situation.

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Brazil’s Reasons

Brazil is another one of those topics which doesn’t seem to merit much scrutiny apart from morbid curiosity. Like swap spreads or Japanese bank currency redistribution tendencies, it is sometimes hard to see the connection for US-based or just generically DM investors. Unless you set out to buy an emerging market ETF heavily weighted in the direction of South America, Brazil’s problems can seem a world away.

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Basic China Money Math Still Doesn’t Add Up To A Solution

There are four basic categories to the PBOC’s balance sheet, two each on the asset and liability sides of the ledger. The latter is the money side, composed mainly of actual, physical currency and the ledger balances of bank reserves. Opposing them is forex assets in possession of the central bank and everything else denominated in RMB.

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Fading Further and Further Back Toward 2016

Earlier this month, the BEA estimated that Disposable Personal Income in the US was $14.4 trillion (SAAR) for April 2017. If the unemployment rate were truly 4.3% as the BLS says, there is no way DPI would be anywhere near to that low level. It would instead total closer to the pre-crisis baseline which in April would have been $19.0 trillion. Even if we factor retiring Baby Boomers in a realistic manner, say $18 trillion instead, what does the...

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Now China’s Curve

Suddenly central banks are mesmerized by yield curves. One of the jokes around this place is that economists just don’t get the bond market. If it was only a joke. Alan Greenspan’s “conundrum” more than a decade ago wasn’t the end of the matter but merely the beginning. After spending almost the entire time in between then and now on monetary “stimulus” of the traditional variety, only now are authorities paying close attention.

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More Pieces of Impossible

On his company’s earnings conference call back on Valentine’s Day, T-Mobile CEO John Legere was unusually feisty. Never known for shyness, Legere had reason behind his bluster. T-Mobile had practically built itself up on price, being left the bottom tier of the wireless space practically to itself. That all changed, however, as both Verizon and Sprint were set to escalate the wireless price war.

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