Wednesday, June 29, 2016

Good news and bad news from the gas and commodity front


 - by New Deal democrat

The good news is, it appears that gas prices have peaked for the summer (h/t GasBuddy):



Perhaps just as good, the YoY% changes in gas prices have been roughly stable at about -15% in the last few months:



This suggests that gas prices still haven't hit a secular bottom -- which is great for US consumers (and probably showed up in this morning's good report on personal spending).

The bad news is, resource extraction states are still taking it on the chin.  With the last two reports in this week for June, here's what the regional Fed manufacturing new orders indexes look like:
  • Empire State up +16.4 to +10.9
  • Philly down -1 to -2.9
  • Richmond down -14 to -14
  • Kansas City up +7 to +4
  • Dallas down -20.9 to -14.9
  • Month over month rolling average: -2.5 from one month ago to -4
These are very volatile.  For example, two months ago Richmond was at +18!  But the less volatile average, which was positive in March and April, has now returned to being negative for two months in a row.  I am still of the opinion that the shallow industrial recession centered on commodities is ebbing, as this longer term graph of the average of the 5 Fed indexes shows (h/t Calulated Risk):



Good news and bad news from the gas and commodity front


 - by New Deal democrat

The good news is, it appears that gas prices have peaked for the summer (h/t GasBuddy):



Perhaps just as good, the YoY% changes in gas prices have been roughly stable at about -15% in the last few months:



This suggests that gas prices still haven't hit a secular bottom -- which is great for US consumers (and probably showed up in this morning's good report on personal spending).

The bad news is, resource extraction states are still taking it on the chin.  With the last two reports in this week for June, here's what the regional Fed manufacturing new orders indexes look like:
  • Empire State up +16.4 to +10.9
  • Philly down -1 to -2.9
  • Richmond down -14 to -14
  • Kansas City up +7 to +4
  • Dallas down -20.9 to -14.9
  • Month over month rolling average: -2.5 from one month ago to -4
These are very volatile.  For example, two months ago Richmond was at +18!  But the less volatile average, which was positive in March and April, has now returned to being negative for two months in a row.  I am still of the opinion that the shallow industrial recession centered on commodities is ebbing, as this longer term graph of the average of the 5 Fed indexes shows (h/t Calulated Risk):



Good news and bad news from the gas and commodity front


 - by New Deal democrat

The good news is, it appears that gas prices have peaked for the summer (h/t GasBuddy):



Perhaps just as good, the YoY% changes in gas prices have been roughly stable at about -15% in the last few months:



This suggests that gas prices still haven't hit a secular bottom -- which is great for US consumers (and probably showed up in this morning's good report on personal spending).

The bad news is, resource extraction states are still taking it on the chin.  With the last two reports in this week for June, here's what the regional Fed manufacturing new orders indexes look like:
  • Empire State up +16.4 to +10.9
  • Philly down -1 to -2.9
  • Richmond down -14 to -14
  • Kansas City up +7 to +4
  • Dallas down -20.9 to -14.9
  • Month over month rolling average: -2.5 from one month ago to -4
These are very volatile.  For example, two months ago Richmond was at +18!  But the less volatile average, which was positive in March and April, has now returned to being negative for two months in a row.  I am still of the opinion that the shallow industrial recession centered on commodities is ebbing, as this longer term graph of the average of the 5 Fed indexes shows (h/t Calulated Risk):



Bonddad Wednesday Linkfest


Damian Kimmelman is exactly the kind of entrepreneur the U.K. government says it needs. His London startup has 100 employees and expects to hire many more. Unfortunately for the British economy, Kimmelman’s new people won’t be in the U.K.: 

He changed his plans after voters chose to to leave the European Union last week.“We’ll be distributing our team, opening up new offices in Europe rather than focusing on the U.K.,” said Kimmelman, whose company, DueDil, provides data-analytics tools to study private companies. “This is a miserable outcome for the economy.”

Kimmelman is among thousands of U.K. businesspeople, investors and consumers overhauling their plans as a result of the Leave campaign’s surprise victory. Hiring is being canceled or moved overseas, investments terminated and expansions shelved. 

It all adds up to what economists warn could be a sudden recession -- especially if politicians don’t act fast to lay out a convincing plan for extricating the U.K. from the EU without major disruption. Almost three-quarters of economists consulted in a Bloomberg survey this week said they think the country is headed for its first recession since 2009.

..........

While full economic statistics won’t come in for weeks, the early signs aren’t good. A survey of 1,092 business leaders conducted after the referendum by the Institute of Directors, a London-based business organization, found a quarter are freezing recruitment and almost as many are considering moving some operations out of the U.K. In a survey of 2,000 consumers by Retail Economics, a consulting firm, 58 percent said they thought the vote would have a negative impact on their spending on non-essential items.




Participation rose steadily from the 1970s through the 1990s as increasing numbers of women entered the formal workforce. That process ran its course, and, around the year 2000, participation began a gradual decline because of population aging and the continuation of other long-term trends, particularly the decline in participation among prime age males. From 2008 through 2013, participation dropped sharply by 3 percentage points, but has remained about flat, on net, since late 2013 in a context of strong job growth and declining unemployment. Economists estimate that, as the population ages, participation will naturally tend to decline at a trend rate of about 0.2 percentage point per year, so this period of flat participation actually represents an improvement against the post-crisis cyclical drop. Today, participation is near its longer-run trend as estimated by a group of Fed economists whose work is widely cited on these issues.2 Some other estimates suggest that there is still a shortfall in participation, and, of course, estimates of the trend participation rate are surrounded by fairly wide bands of uncertainty. I am inclined to believe that there are potential workers at the margins of the labor market who will return as the recovery continues, the labor market tightens further and wages increase. The U.S. participation rate for workers in the 25-54 age group is now below those of most other advanced economies, including the U.K., France and Germany, for example.


A Long-Term Chart of the LFPR





A Long-Term Chart of the LFPR between for Men and Women (Careful of the different scales)





U-6 Unemployment Rate





Atlanta Fed Wage Growth Tracker










Tuesday, June 28, 2016

Why I continue to believe that Brexit is "a fire across the river"


 - by New Deal democrat

This post is up at XE.com.

Bonddad Tuesday Linkfest

6-Month and 5-Year Chart of the Pound/Dollar to Show Magnitude of Sell-off





1-Year Daily Chart of the SPYs 



Prices have broken the uptrend started in February; they are now below the 200-day EMA and are resting on/near the first Fibonacci retracement level.  Volume over the last 2 days has been very heavy.  Momentum is declining.  


1-Year Chart of the IEFs




In contrast, treasuries are at their highest level in a year.




However, there is a disconcerting trend that has gained strength: agnotology. It’s a term worth knowing, since it is going global. The word was coined by Stanford University professor Robert N. Proctor, who described it as “culturally constructed ignorance, created by special interest groups to create confusion and suppress the truth in a societally important issue.” It is especially useful to sow seeds of doubt in complex scientific issues by publicizing inaccurate or misleading data. 

Culturally constructed ignorance played a major role in the Brexit vote, as we shall see after a bit of explanation.

Monday, June 27, 2016

How Do I Know Brexit is a Bad Idea? Because the Guys at Powerline Say Not to Worry

     Powerline's writers suffer from the Dunning-Kruger effect: they are too stupid to know that they are, well, stupid when it comes to economics.  If you search this blog for the word "Powerline" you'll see ample documentation that clearly demonstrates their economic incompetence.  But two stand out for special mention.

1.) Powerline's entire economic analysis for 2014 was wrong.  And I mean 100% wrong.  That level of incompetence has to be developed and nurtured.
2.) A big reason why they're wrong?  They rely on conspiracy websites for their economic numbers and analysis.

     Now we have Steven Hayword stepping up to the plate with this deep thought on Brexit:

Likewise I think Britain will survive just fine or likely prosper (just as California boomed immediately after Prop. 13), and the EU might even consider laying off some of the 1,750 linguists, 600 full-time interpreters and 3,000 freelancers it uses to facilitate its meetings in Brussels and Strasbourg (because what good is a European parliament if you can’t have multiple locations), or even eliminating some of the many mid-level Eurocrats who have salaries higher than Prime Minister Cameron

Does Mr. Hayword offer any analysis -- as in numbers, facts or figures?  No.   It's all going to be better now because the UK has thrown off the yoke of their oppressive EU overlords.

So, given that Powerline is a great contrary indicator, I'm going to reassert my argument that Brexit is a colossal blunder of epic proportions.  You can read my reasoning here.  But, that article does have facts and figures, so it's probably way beyond what Powerline's writers could understand.

Bonddad Monday Linkfest






Daily Chart of the Europe ETF



Performance of US Equity Sectors for the Last Week and Month (FINVIZ)






Interestingly, this will help both Bank of England (BoE) Governor Mark Carney and European Central Bank (ECB) President Mario Draghi in their efforts to reach their inflation targets. A weak euro and a weak pound may also assist the terms of trade for Europe. But Brexit certainly has the potential to increase the friction of transacting with and within the United Kingdom and the EU, offsetting any benefit from a cheap currency.


5-year Chart of the Pound/Dollar




5-Year Chart f the Pound/Euro




5-Year Chart of the Euro/Dollar







The uncertainty of the situation and what comes next hit all markets in the wake of the vote, and emerging markets were not exempt, with the MSCI Emerging Markets Index experiencing a sharp decline. However, I believe once the initial shock wears off, the longer-term impact should be more limited since emerging markets’ trade and investment are widely diversified; the amount of trade with the United Kingdom is relatively small for most emerging market countries.

However, some specific emerging markets have greater ties to the United Kingdom, and the impact could be felt more acutely in those countries. Some of the Southeast Asian nations with historic ties to the United Kingdom could be negatively impacted. Specific companies with operations in the United Kingdom could be impacted—banks, for example, that have property investments in the United Kingdom (or branches there) that help fund their projects.


1-Year Chart of the EEM ETF






Existing home sales increased 1.8 percent month-over-month in May from the prior month to a seasonally adjusted annual rate of 5.53 million, the National Association of Realtors (NAR) said on Wednesday. That was the strongest pace since February 2007. NAR flagged support from low rates and accumulated equity (driving trade-ups). The number of new homes sold fell -6 percent in May, better than the -9.5 percent slump anticipated by economists polled by Bloomberg. The rejuvenated housing market has provided a boost to the economy, helping offset a slowdown in business spending and a downturn in the energy sector


1-Year Chart of the XHB





Sunday, June 26, 2016

Brexit: A Colossal Blunder

Instead of writing my three weekly articles, this week I've written a longer piece on the international implications of Brexit.

Here's a quick summary: there are no good ramifications.

Here's a link to the article at XE.com

A thought for Sunday: as they peer into an abyss, the EU and UK should look to the example of Abraham Lincoln


 - by New Deal democrat

In 1914, the combined Empires of Europe bestrode the entire world like a colossus. With deep interconnectedness of trade, and breathtaking industrial innovations, a future of plenty beckoned.

Just over 30 years later, Europe largely lay in ruins and ashes.  If it were not for outside intervention, much of its surviving population would have starved to death.

From that cataclysm arose the European Project, which at its heart was a vow that by ever increasing unification the demon of War that had stalked the continent for many centuries would be vanquished.

Whatever the flaws of the Euro - and they appear to be fundamental - and whatever the lack of accountability of the Eurocrats, the fact remains that the underlying European Project is probably the single best political event to have occurred on that continent in centuries.

For nearly 70 years, the arc of history bent towards the "ever closer union" that was the heart of the enterprise.  Until Thursday.

Now that a major country has voted to leave the EU, the question becomes just how much centrifugal force has been unleashed.

Let me be a blunt as possible:  the demise of the European Project would be an unmitigated disaster for all humankind.  A return to pre-1945 nationalism ought to be unthinkable.  

At one level this shows that MInsky's economic insight -- that periods of stability breed instability -- applies to politics as well.  Put another way, humanity is most at risk of dangers that have not been seen during the present generation's lifespan, as those who remember the relevant past and vow not to repeat its mistakes, pass away from the scene.

It is worth noting that in neither the UK nor Greece nor any other of the EU nations clamoring for some sort of exit, has there been any clamoring for ending NATO.  That transatlantic alliance that binds European nation states to each other and to North America now resumes renewed importance.

In the meantime, European elites need to take to heart the complaints of the many millions who have seen nothing but privation and unaccountability out of the EU for the last decade.  Soul-searching about the Euro, about the limits to immigration both within and from without, and about the toixc fruit of doctrinaireausterity, need to be a first-order  priority.  Abraham Lincoln's words to the devasted South in his second inaugural address in 1965 seem particularly apt:
With malice toward none, with charity for all, with firmness in the right as God gives us to see the right, let us strive on to finish the work we are in, to bind up the nation's wounds, ... to do all which may achieve and cherish a just and lasting peace among ourselves and with all nations. 
If Lincoln could say that to the defeated slave States, then surely after EU soul-searching takes place, the resulting reforms should placed before the UK with an invitation to remain or to rejoin freely and without penalty.

Saturday, June 25, 2016

Weekly Indicators for June 20 -24 at XE.com


 - by New Deal democrat

My Weekly Indicator post is up at XE.com.

There were some Brexit-related moves on Friday, but the overall picture remains the same.