Bank of America: “We’ve Seen This Movie Before: It Ends With A Recession”

In a merciful transition from Wall Street’s endless daily discussions and more often than not- monologues – of why vol is record low, and why a financial cataclysm will ensue once vol finally surges, lately the main topic preoccupying financial strategists has been the yield curve’s ongoing collapse – with the 2s10s sliding and trading at levels last seen in April 2015, and with curve inversion predicted by BMO to take place as soon as March 2018. And, according to at least one other metric, the yield curve should already be some -25bps inverted. This is shown in the following chart from Bank of America which lays out the correlation between the US unemployment rate and the 2s10s curve, and which suggests that the latter should be 80 bps lower, or some 25 basis points in negative territory.
Here is some additional context from BofA’s head of securitization Chris Flanagan, who views “the recent sharp flattening of the yield curve, which has seen the 2y10y spread go from 80 bps to almost 50 bps since late October, as the natural course of events at this stage of the economic cycle. Unemployment is low, and probably headed lower, and the Fed is intent on raising rates to stave off future inflation; we’ve seen this movie before and it typically ends with a flat or inverted yield curve. Based on history (and gravity), we think the most likely path forward is that the 2y10y spread reaches zero or inverts sometime over the next year or so and that recession of some kind follows in 2020 or 2021. (Given that the curve has flattened 30 bps in just over a month, projecting an additional 50 bps flattening over the next year is not really too bold.) Of course, much can happen along the way to change that outcome, but for now that seems to us to be the most likely course of events to us.”
Here Flanagan openly disagrees with the BofA’s “house call” of a steepening yield curve, and explains why:

This post was published at Zero Hedge on Dec 10, 2017.

November Jobs Report: 228K New Jobs, Better Than Forecast

This morning’s employment report for November showed a 228K increase in total nonfarm payrolls, which was better than forecasts. The unemployment rate remained at 4.1%. The Investing.com consensus was for 200K new jobs and the unemployment rate to remain at 4.1%. September and October nonfarm payrolls were revised for a total gain of 3K.
Here is an excerpt from the Employment Situation Summary released this morning by the Bureau of Labor Statistics:
Total nonfarm payroll employment increased by 228,000 in November, and the unemployment rate was unchanged at 4.1 percent, the US Bureau of Labor Statistics reported today. Employment continued to trend up in professional and business services, manufacturing, and health care.
Here is a snapshot of the monthly percent change in Nonfarm Employment since 2000. We’ve added a 12-month moving average to highlight the long-term trend.

This post was published at FinancialSense on 12/08/2017.

November Payrolls Jump 228K, Beat Expectations But Wage Growth Disappoints

In a continuation of the recent theme shown by the labor market, the BLS reported that November payrolls rose by a seasonally adjusted 228K, beating expectations of 200K, if lower than October’s downward revised 244K (from 261K) while September was revised up from +18,000 to +38,000. With these revisions, employment gains in September and October combined were 3,000 more than previously reported.
There were few surprises in the report, which saw the labor force participation rate flat at 62.7%, near a 30+ year low, while the unemployment rate also remained unchanged at 4.1%, the lowest since Dec 2000.
And while overall the labor report was strong, there was once again disappointment in wage growth, with average hourly earnings rising 0.2% m/m, below the consensus estimate of est. 0.3%, with the October number revised lower to -0.1%. The Year over year number also missed, printing at 2.5%, up from October’s 2.3% but below the consensus print of 2.7%.

This post was published at Zero Hedge on Dec 8, 2017.

What’s The Best Company To Work For Where You Live?

With unemployment in the US purportedly reaching its lowest level in 17 years (that is, according to the Department of Labor’s flawed household survey) employees who once would’ve been too fearful to leave their jobs are now actively looking for opportunities. With that in mind, many have probably wondered what’s the best company to work for where they live?
Well, HowMuch.com gathered data compiled by Forbes into an infographic to try and map out the best and largest employers in every country.
Forbes recently released a ranking of the best companies in the world using a variety of different perks and benefits, like the quality of food served to employees, parental leave policies or whether companies allow their employees to nap while on the job.
HowMuch mapped these companies by paying attention to their market capitalization to get a feel for how large an organization needs to be to afford such high-quality benefits. One company therefore represents each country, color-coded by market cap. Red countries have an employer worth over $100 billion, and dark blue countries boast relatively small employers under $10 billion.

This post was published at Zero Hedge on Dec 7, 2017.

Giant Sucking Sound Sucks (Far) More Than US Industry Now

There are two possibilities with regard to stubbornly weak US imports in 2017. The first is the more obvious, meaning that the domestic goods economy despite its upturn last year isn’t actually doing anything positive other than no longer being in contraction. The second would be tremendously helpful given the circumstances of American labor in the whole 21st century so far. In other words, perhaps US consumers really are buying at a healthy pace, just not with the same eagerness from China and the rest anymore.
It was during the dot-com recession of 2001 that Ross Perot’s ‘giant sucking sound’ finally materialized. Between then and the bottom of the Great ‘Recession’, one third of US manufacturing jobs disappeared. With imports stuck, especially those from China, could production be moving back onshore? The unemployment rate at 4.1% would seem to suggest a burgeoning economy where that might be the case for US consumers.
Unfortunately, that doesn’t appear to be happening according to any data. Despite it being a Trump campaign promise, there just isn’t any indication that the loss of manufacturing capacity is anything other than permanent. Then again, we don’t really know for sure because there just isn’t any growth in the demand of US consumers regardless of where the goods are produced.

This post was published at Wall Street Examiner on December 5, 2017.

Key Events In The Coming Week: Jobs, Brexit, PMI, IP And More

The first full week of December is shaping up as rather busy, with such Tier 1 data in the US as the payrolls report, durable goods orders and trade balance. We also get UK PMI data and GDP, retail sales across the Euro Area, as well as central bank meetings including Australia RBA and BoC monetary policy meeting.
Key events per RanSquawk
Monday: UK PM May To Meet EU’s Juncker & Barnier Tuesday: UK Services PMI (Nov), RBA MonPol Decision Wednesday: BoC MonPol Decision, Australian GDP (Q3) Friday: US Payrolls Report (Nov), Japan GDP (Q3, 2nd) The week’s main event takes place on Friday with the release of November’s US labour market report. Consensus looks for the headline nonfarm payrolls to show an addition of 188K jobs, slowing from October’s 261K. Average hourly earnings growth is expected to slow to 0.3% M/M from 0.5%, while the unemployment rate and average hours worked are expected to hold steady at 4.1% and 34.4 respectively. Hurricane induced volatility should be absent from the November release, and consensus points to a headline print much more in-keeping with trend rate.
Other key data releases next week include the remaining October services and composite PMIs on Tuesday in Asia, Europe and the US, ISM non-manufacturing in the US on Tuesday, ADP employment report on Wednesday and China trade data on Friday.
Focus will also fall on Wednesday’s Bank of Canada (BoC) interest rate decision, with the majority looking for the Bank to leave its key interest rate unchanged at 1.00%, although 3 of the 31 surveyed by Reuters are looking for a 25bps hike. Following the BoC’s back-to-back rate hikes in Q3, interest rate markets were pricing in a 40-50% chance of a hike at the upcoming decision, that has now pared back to 25% as the BoC has sounded more cautious in recent addresses, highlighting that it expected the economy to slow (GDP growth moderated to 1.7% in Q3 on a Q/Q annualised basis, from 4.3% in Q2) while stressing that it remains data dependant. RBC highlights that ‘the BoC has been focused on the consumer’s reaction to the earlier hikes and is content to wait-and-see for the moment. Wage growth – another key metric for the central bank – has improved in recent employment reports (reaching the highest level of growth since April 2016 in November’s report). Despite its softer tone, the BoC continues to stress that ‘less monetary stimulus will likely be required over time’ and as a result the statement will be scoured for any changes in tone. At the time of writing, markets are pricing a 57.2% chance of a 25bps hike in January, with such a move 91.0% priced by the end of March.

This post was published at Zero Hedge on Dec 4, 2017.

Rig For Stormy Weather

What storm? The Dow Jones Industrial Average (DOW) reached another all-time high. Interest rates in the U. S. are yielding multi-decade lows, some say multi-century lows. Trillions of dollars in global sovereign debt have negative yield and European junk bonds yield less than 10 year U. S. treasuries. ‘Official’ unemployment is low. Borrowing is inexpensive. Things are good, so they say!
I Doubt It!
Do you believe the above is a fair and accurate representation of our economic world? If so, how do you explain the following?
Global debt exceeds $200 trillion and is rising rapidly. This massive debt will NOT be paid back in currencies with 2017 purchasing power. Debt MUST be rolled over in continually DEVALUING dollars, euros, yen and pounds. The financial system rolls over maturing debt, adds more, and pretends repayment will not be problematic. Those who hope this will remain true ignore the lessons of history, including sky-high interest rates in the late 1970s, the Asian and Long Term Capital crises in the late 1990s, many defaults and hyperinflations in the last century and the credit-crunch-recession-market-crash of 2008.

This post was published at Deviant Investor on Dec 4, 2017.

Senate Approves Trump’s Tax Reform

The U. S. Senate on Saturday narrowly approved a tax reform, moving Republicans and President Donald Trump a big step closer to their goal of slashing taxes which will create an economic boom in the United States and draw-in capital from around the globe.
This will put tremendous pressure upon Europe, Canada, and even Japan which all tax their economies significantly to the suppression of economic growth. The United States will have the lowest unemployment rate if this passes compared to the lost generation in Europe of high unemployed youth.
Armstrong Economics

This post was published at Armstrong Economics on Dec 2, 2017.

Millennials Saved Thanksgiving Weekend

While online spending surged, the overall picture for Thanksgiving weekend spending was more mixed as the traditional ‘bricks and mortar’ retailers continued to struggle. Nevertheless, overall spending was about 4% higher. The National Retail Foundation (NRF) estimated that 174 million Americans shopped online or in stores over the period (Thursday to Monday), versus 164 million the previous year, although the latter excluded Cyber Monday. According to Bloomberg.
‘The big takeaway here is: Gone are the days you could measure the success of this weekend by looking at a single metric,’ NRF Chief Executive Officer Matthew Shay said on a conference call.
It’s also difficult to tell from the NRF data how e-commerce sales compared with brick-and-mortar shopping. But other surveys have indicated that physical chains saw smaller crowds this year. The research firm ShopperTrak found that shopper visits declined 1.6 percent combined on Thanksgiving and Black Friday.
Overall spending in the holiday season is expected to rise as much as 4 percent from last year, helped by low unemployment and rising home values. The purchases will amount to about $680 billion in November and December, the Washington-based NRF has estimated.

This post was published at Zero Hedge on Nov 29, 2017.

Labor Market Conundrum: Number Of Millennials Living At Home With Mom Continues To Surge

Nary a day goes by that President Trump and/or the talking heads on CNBC fail to mention the following unemployment chart as evidence that “everything is awesome” with the U. S. economy…
***
…which might be true unless you’re among the 95 million-ish Americans who have been looking for a job for so long that you no longer even count as a human being to the Bureau of Labor Statistics…

This post was published at Zero Hedge on Nov 22, 2017.

Positive Feedback Loops, Financial Instability, & The Blind Spot Of Policymakers

‘Learn how to see. Realize that everything connects to everything else.’ – Leonardo da Vinci
A Dangerous Market Structure is More Worrying than Expensive Asset Valuations and Record Debt Levels
Macro-prudential regulations follow financial crises, rarely do they precede one. Even when evidence is abundant of systemic risks building up, as is today, regulators and policymakers have a marked tendency to turn an institutional blind eye, hoping for imbalances to fizzle out on their own – at least beyond the duration of their mandates. It does not work differently in economics than it does for politics, where short-termism drives the agenda, oftentimes at the expenses of either the next government, the broader population or the next generation.
It does not work differently in the business world either, where corporate actions are selected based on the immediate gratification of shareholders, which means pleasing them at the next round of earnings, often at the expenses of long-term planning and at times exposing the company itself to disruption threats from up-and-comers.
Long-term vision does not pay; it barely shows up in the incentive schemes laid out for most professions. Economics is no exception. Orthodoxy and stillness preserve the status quo, and the advantages hard earned by the few who rose from the ranks of the establishment beforehand.
Yet, when it comes to Central Banking, and more in general policymaking, financial stability should top the priority list. It honorably shows up in the utility function, together with price stability and employment, but is not pursued nearly as actively as them. Central planning and interventionism is no anathema when it comes to target the decimals of unemployment or consumer prices, yet is residual when it comes to master systemic risks, relegated to the camp of ex-post macro-prudential regulation. This is all the more surprising as we know all too well how badly a deep unsettlement of financial markets can reverberate across the real economy, possibly leading into recessions, unemployment, un-anchoring of inflation expectations and durable disruption to consumer patterns. There is no shortage of reminders for that in the history books, looking at the fallout of dee dives in markets in 1929, 2000 and 2007, amongst others.

This post was published at Zero Hedge on Nov 22, 2017.

Hayek on Good and Bad Unemployment Policies

In 1944 Professor Hayek emphasised that sustainable employment de pends on an appropriate distribution of labour among the different lines of production. This distribution must change as circumstances change. Sustain able employment thus depends on appropriate changes in relative real wage-rates. If established producers – both unions and capitalists – prevent such relative changes from becoming effective, there follows an unnecessary rise in unemployment. Sustainable employment now depends on successfully tackling these established labour and capital monopolies. – Sudha R. Shenoy
One of the obstacles to a successful employment policy is, paradoxically enough, that it is so comparatively easy quickly to reduce unemployment, or even almost to extinguish it, for the time being. There is always ready at hand a way of rapidly bringing large numbers of people back to the kind of employment they are used to, at no greater immediate cost than the printing and spending of a few extra millions. In countries with a disturbed monetary history this has long been known, but it has not made the remedy much more popular. In England the recent discovery of this drug has produced a somewhat intoxicating effect; and the present tendency to place exclusive reliance on its use is not without danger.
Though monetary expansion can afford quick relief, it can produce a lasting cure only to a limited extent. Few people will deny that monetary policy can successfully counteract the deflationary spiral into which every minor decline of activity tends to degenerate. This does not mean, however, that it is desirable that we should normally strain the instrument of monetary expansion to create the maximum amount of employment which it can produce in the short run. The trouble with such a policy is that it would be almost certain to aggravate the more fundamental or structural causes of unemployment and leave us in the end in a position worse than that from which we started.

This post was published at Ludwig von Mises Institute on 11/16/2017.

Can’t Hide From The CPI

This is a syndicated repost courtesy of Alhambra Investments. To view original, click here. Reposted with permission.
On the vital matter of missing symmetry, consumer price indices across the world keep suggesting there remains none. Recoveries were called ‘V’ shaped for a reason. Any economy knocked down would be as intense in getting back up, normal cyclical forces creating momentum for that to (only) happen.
In the context of the past three years, symmetry is still nowhere to be found. It’s confounding even central bankers who up until all this have been especially immune to contrary evidence. The unemployment rate tells them what they want, so everything else be damned.
The US CPI in October 2017 rose 2.04% above the index for October 2016. That’s a slight deceleration from 2.23% inflation in September, despite another energy price boost.

This post was published at Wall Street Examiner on November 15, 2017.

The Fed’s Bubblenomics

The Following is adapted from a preface to a new report by Murray Sabrin, featured in his November 15 presentation, “Bubblenomics” at Ramapo College.] If you Google ‘dot com bubble,’ you will get nearly 1.2 million hits, and 3.3 million hits if you Google ‘tech bubble.’ A Google search of ‘housing bubble’ will return nearly 11 million hits. (The searches were conducted on March 29, 2017). And if you search Amazon books for financial crisis 2008 you will get more than 1200 hits.
Given all the books, monographs, essays, articles, and editorials that have been written about back-to-back bubbles that occurred within two decades, one would think there would be nothing else to write about.
The purpose of this book is to present to the general public, my fellow academicians and policymakers with an brief account and review of one of the most turbulent periods in United States history without the usual jargon academics are noted for.
As the two quotes from the Federal Reserve’s website above reveal, the Fed has been given the responsibility by the Congress of the United States to essentially promote sustainable prosperity, stabilize prices and maximize employment. During the past 100 years of the Federal Reserve’s operations, the economy has grown substantially (see Figure 1 for data since 1929), but the path to higher living standards have been interrupted by depressions/ recessions, a few bouts with double-digit price inflation and occasionally widespread unemployment. Although the Congress has expected the Federal Reserve to be a wise and prescient ‘helmsman,’ navigating the economy from becoming overheated or plunging into a recession or worse, the Fed’s track record belies its mandates.

This post was published at Ludwig von Mises Institute on 11/15/2017.

Looking For Inflation In All The Wrong Places

A policeman sees a drunk man searching for something under a streetlight and asks what the drunk has lost. He says he lost his keys and they both look under the streetlight together. After a few minutes the policeman asks if he is sure he lost them here, and the drunk replies, no, and that he lost them in the park. The policeman asks why he is searching here, and the drunk replies, ‘this is where the light is’. – The Streetlight Effect
The drunk in the above story is an idiot, of course. But no more so than modern economists who can’t find inflation because they’re looking only at the part of the economy covered by their government’s Consumer Price Index.
But gradually, grudgingly, a handful of mainstream economists do seem to be figuring out that the soaring value of stocks, bonds, real estate, fine art, collectibles and cryptocurrencies is a legitimate sign of a depreciating currency and future instability. Inflation, in other words. From yesterday’s Morningstar:
Lack of inflation is a global issue
(Morningstar) – The lack of inflation is a global issue. Unemployment is at cyclical lows in the US, Germany, and Japan, yet in each of these countries there is only small evidence that wages are picking up. No doubt globalisation and technology are common factors that have helped constrain wages across countries.

This post was published at DollarCollapse on NOVEMBER 14, 2017.

U.K. Litigation Cases On Defaulted Consumer Debts Soar Beyond 2008 Levels

Last month, S&P warned that UK lenders could incur 30 billion of losses on their consumer lending portfolios consisting of credit cards, personal and auto loans if interest rates and unemployment rose sharply. Much like in the U. S., S&P warned that “loose monetary policy, cheap central bank term funding schemes and benign economic conditions” had fueled an “unsustainable” yet massive expansion of consumer credit that will inevitably end badly. Per The Guardian:
The rapid rise in UK consumer debt to 200bn from car finance, personal loans and credit cards is unsustainable at current growth rates and should raise ‘red flags’ for the major lenders, ratings agency Standard & Poor’s has warned.
In detailed analysis of the sector, S&P warned that losses from this form of lending suffered by banks and other financial institutions could be ‘sharp and very sudden’ in an economic downturn and may be exacerbated if the Bank of England increased interest rates.
It also warned that it could downgrade banks’ credit ratings if the high growth rate persisted or banks took on too much risk in this sector. But it did not fear any system-wide impact from consumer credit.
‘Loose monetary policy, cheap central bank term funding schemes and benign economic conditions have supported consumer credit supply and demand,’ S&P said.
Annual growth rates in UK consumer credit of 10% a year have outpaced household income growth, which is closer to 2%, and become a focus for the Bank which is scrutinising lenders’ approach to the sector.
‘We believe the double-digit annual growth rate in UK consumer credit would be unsustainable if it continued at the same pace,’ S&P said.

This post was published at Zero Hedge on Nov 14, 2017.

A new record yet again: 95,385,000 Americans not in labor force. The army of non-working Americans continues to grow.

We continue to live in a country with two very different stories to tell. In one of the stories, we have a country with a very low unemployment rate and a record in the stock market. In the other story we live in a place where 95,385,000 Americans are not in the labor force. This new record was reached in the latest set of data released by the Bureau of Labor and Statistics (BLS). This is a bigger issue than most would like to admit. Many older Americans are drawing substantially from the government and we now have a younger American population working in low wage positions. This is a new record that isn’t something to be proud about.
Another record of those not in the labor force
The number of Americans not in the labor force is troubling when you dig deep into the data. Part of this is being governed by Americans retiring but millions of these people are falling into this category for harder to characterize reasons.

This post was published at MyBudget360 on Nov 11, 2017.

The Ponzi scheme that’s more than 100x the size of Bernie Madoff

By January 1920, much of Europe was in total chaos following the end of the first World War.
Unemployment soared and steep inflation was setting in across Spain, Italy, Germany, etc.
But an Italian-American businessman who was living in Boston noticed a unique opportunity amid all of that devastation.
He realized that he could buy pre-paid international postage coupons in Europe at dirt-cheap prices, and then resell them in the United States at a hefty profit.
After pitching the idea to a few investors, he raised a total of $1,800 and formed a new company that month – the Securities Exchange Company.
Early investors were rewarded handsomely; within a month they had already received a large return on investment.
Word began to spread, and soon money came pouring in from dozens, then hundreds of other investors.

This post was published at Sovereign Man on November 10, 2017.

November Macro Update: Recession Risk Remains Low

Summary: The macro data from the past month continues to mostly point to positive growth. On balance, the evidence suggests the imminent onset of a recession is unlikely.
The bond market agrees with the macro data. The yield curve has ‘inverted’ (10-year yields less than 2-year yields) ahead of every recession in the past 40 years (arrows). The lag between inversion and the start of the next recession has been long: at least a year and in several instances as long as 2-3 years. On this basis, the current expansion will last well into 2018 at a minimum. Enlarge any image by clicking on it.
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Unemployment claims are also in a declining trend; historically, claims have started to rise at least 6 months ahead of the next recession. Note that recent hurricanes had a short-term negative impact on economic data. In the past, growth has quickly resumed. Thus, jobless claims recently spiked higher after Harvey/Irma, as it also did after Katrina and Sandy, but recent claims are already at a new 40+ year low.

This post was published at FinancialSense on 11/10/2017.

Global Labor and Capacity

Many forecasters, in and out of government, see severe limits to US economic growth in coming years and an inflation threat even sooner. A tight labor market, they claim, is the key reason.
Fed’s Forecast
The Fed is thoroughly convinced that the headline unemployment rate, now 4.2%, is so low that it will soon spawn significant wage inflation that, if left unchecked, will spread throughout the economy. The central bankers fervently believe in the theoretical Phillips Curve that holds that the lower the unemployment rate, the higher the inflation rate. They seem oblivious to the reality that both the unemployment rate and inflation have been falling in recent years.
Nevertheless, the Fed and others see the rising number of job openings while the hiring rate remains flat as clear evidence of a tight job market. In contrast, we continue to believe that employers remain cautious over new hires as they fret about not being able to pass on their additional costs in higher prices.

This post was published at FinancialSense on 11/08/2017.