Consumer prices in the US continue to show why the Fed isn't worried about inflation one bit. Headline CPI dropped 0.3% in November, with the annual number at just 1.3%, a sharp decline from November's 1.7% pace. The biggest catalyst for the decline is of course, the plunging price of... Show More
US equity markets are getting a boost from today's Fed statement. The major indices are up between 1.5% and 2% as the Fed says it can be patient about raising rates. Despite the strong domestic economy, it makes sense for rates to stay low as long as feasible given the... Show More
Why has volatility returned to the US equity markets? The VIX is trading above 20 for just the third time this year. Keep in mind, 20 is the long-term historical average for the fear index, and it's basically the cutoff point for what we consider volatile markets. Yet, equity volatility... Show More
Sluggish growth in China and stagnation in Europe don't seem to be affecting the US economy, which posted strong industrial production in November. Industrial output climbed 1.3% for the month, in comparison to the 0.7% expected by analysts. That's also up from just 0.1% in October. The annual increase is... Show More
There's been plenty of news to discuss lately concerning the US economy/financial markets, but perhaps the most important bit of insight comes from Nobel Laureate Paul Krugman. The famous economist does not believe the Fed will raise rates in 2015. Coming from Krugman, who's economic predictions have been about as... Show More
The positive economic news in the US continues to roll in, this time coming in the form of retail sales. Retail spending climbed to 0.7% in November, well above expectations of 0.4%. The annual changes looks even better, with sales climbing 5.1% year-over-year. Spending increased nearly across the board, with... Show More
US equities are being pulled down by the energy sector once again. The S&P 500 is off 1.1% and continues to retreat from record highs. The culprit is once again crude oil, with futures trading at just over $60 a barrel. Oil futures are down nearly 5% today on greater... Show More
Small businesses in the US finally appear to be taking part in the overall economic recovery. The NFIB's Small Business Optimism Index hit a 7-year high, climbing to 98.1 in November. That's a decent clip above the projected number of 96.5. It's also slightly higher than the 98 average between... Show More
Is the Big Mac dead or is it just economics? Today's news out of fast food giant McDonald's is anything but good. November sales were down in all three major regions for the burger chain, and were especially bad in the US. Global same-store sales fell 2.2% for the month,... Show More
The November jobs report beat even the most optimistic of projections, and the US labor market got a much needed dose of good news. New private sector jobs climbed by 321,000, well over the consensus estimate of 225,000. Jobs gain increased across the board, and include growth in professional services,... Show More
US employment data remain moderately positive heading into the final month of the year. The big government job reports comes out tomorrow, but we've already had two meaningful data points this week. First off, the ADP jobs number was 208,000. That's less than the 220,000 expected but still in reasonable... Show More
Today's ISM Services (Non-manufacturing) Index brought a nice upside surprise. November's number came in at 59.3, a big jump from last month's 57.1 and much higher than the consensus estimate of 57.5. 8 out of the 10 index components increased from last month as well as year-over-year. The Business Activity... Show More
Nice summary today on Yahoo Finance highlighting the winners and losers in the US from plunging crude oil prices. The most obvious winners of course, are the consumers. Less money needed for gasoline means more money for everything else. However, there are several negative effects of cheap oil to consider.... Show More
From the first economic report for the week in the US, ISM Manufacturing came in better than expected. The reading for November was 58.7, compared to expectations of 58.5. While the numbers did slightly decline from October's 59, it still represents the second highest level since early 2011. The important... Show More
Key economic news will be released this week in the US, which should help clarify the murky picture of the economy. Last week, growth in personal income and spending was moderately positive, while jobless claims made a surprise jump. New orders for durable goods also climbed 0.4% in October, reversing... Show More
A flurry of economic reports came out today in the US, and the results were mixed. Personal income and consumer spending both rose by 0.2% in October. The numbers are slightly lower than expected, but the trend remains encouraging. Most importantly, the annual rise in private wages is at a... Show More
US third quarter GDP was revised substantially higher, beating the expectations of economists. The consensus estimate for today's GDP revision was 3.3% (down from the previous reading of 3.5%). Instead, the number came in at a much stronger 3.9%. Even better, the gains game from upward revisions in goods consumption... Show More
The Chicago Fed National Activity Index shows a bit of slowing in the US economy. The 3-month moving average for the index dropped from +0.12 in September to -0.01 in October. The biggest negative impact came from the production-related indicators. Most likely, manufacturing is starting to take something of hit... Show More
Why can't Europe follow the lead of the US, Japan, and China? Reports this week are likely to show inflation in the Eurozone falling dangerously low, yet European leaders can't seem to get the hint. Draghi understands what must be done, but the ECB doesn't have the kind of authority... Show More
The US Leading Economic Indicators Index (LEI) came in higher than expected for October. The Conference Board's index climbed from 0.7% in September to 0.9% last month. The median forecast was for 0.6%, so this was a fairly substantial beat. New orders are giving a boost to US manufacturing, while... Show More
Here's the link to the CPI report: http://www.bls.gov/news.release/cpi.nr0.htm
The problem isn't even so much with federal spending, although that would help certainly, but state and local governments have cut way back. Regarding federal borrowing, when they do go up, it would presumably be in line with a growing economy and thus greater tax receipts. Also, much of the spending is based on automatic spending programs due to the recession (welfare, food stamps, unemployment, medicaid/medicare) and doesn't necessarily target job growth but maintaining a minimum standard of living. Much of that will go away (not the medical stuff) as the economy improves.
Presumably higher inflation would lead to higher home prices as well, a boon for the average American. Perhaps more importantly, higher inflation would devalue current debt overhang - still a major drag on the economy and consumer spending.
Meant to include this originally, but here's the Fed Statement Tracker, which shows what's changed from the last statement. http://projects.wsj.com/fed-statement-tracker/
Certainly takes some heat off the hawks' argument. Ultimately, wage growth is going to be the deciding factor on rate changes I think.
Definitely so, especially since consumer spending makes up 70% of GDP. You can safely ignore last quarter's abysmal GDP - this next quarter should come in above 3% easily.
CPI release: http://www.bls.gov/news.release/cpi.nr0.htm
Most of the contrarian views in the US are coming from the far-right wing and are mostly based on political beliefs rather than economic principles. Mainstream economists generally agree that the US is recovering slowly but would like to see the growth rate pick up. Regarding Shostak, making any predictions based on the money supply during a liquidity trap is a recipe for error. I don't believe money supply makes a bit of difference in a demand-constrained economy.
By now seasonality is typically built into the futures, but it's remained tepid so far. It could be expectations of lower demand, but I think it's more likely anticipation of the potential supply glut I mentioned above.
I'm fairly certain retail companies, particular apparel stores, will be apt to blame the weather for any poor results.
Here's a link to the report: http://www.federalreserve.gov/releases/g17/Current/default.htm
Debt to GDP ratio is returning to roughly pre-financial crisis levels. I don't think debt servicing will impose a significant drag on GDP unless/until Medicare or Social Security becomes a major burden when all the baby boomers are done working. If nothing changes, that won't be for another 30 years or so.
It also could be the release on Netflix of the final 8 shows of Breaking Bad - which is what I'm doing with my nights.
I've been waiting weeks to finally work bloviate into one of my wires.
I tend to be bullish on gold as well, but I prefer personally to put on a little more risk in my safer investment vehicles in exchange for a dividend/interest payment of some kind. Although, I prefer gold to some 6-month CD paying 0.5%.
Jordan, I don't have any evidence to support this, but perhaps the construction hiring is being done in advance of warmer weather approaching? Maybe there's some lead time in getting workers trained and ready for the busy season. The actual construction results (new residential construction) fell 10% in the most recent report - which seems to me a little more reflective of the impact of bad weather.
Equities are way up on the news - and I think it may continue. Once again, it's a big deal and a major policy shift for the Fed to say Fed Fund Rates will stay at 0% despite 6.5% unemployment. Inflation (CPI, PPI, core inflation) is going to be the big thing to watch moving forward.
At least part of the move higher seems to be based on analysts expecting better Black Friday results. While the results weren't bad, they aren't as good as hoped. So, a bit of investor fear may be creeping into the market or investors could be adjusting expectations to take into account expected lower earnings next quarter.
I don't think bond buying will necessarily go away in 2014, but I do believe it will be reduced. Maybe the reduction won't be substantial - and it will have nothing to do with the money supply or inflation potential. However, I think Yellen will want to wean the market slowly off QE so we won't see huge selling in equities each time there's an announcement that bond purchases will be lessened.
Perhaps a compelling reason why Snapchat (and others) should consider IPOs sooner rather than later.
There's an instant bookmark for me. Nice find James.
I should clarify, I think it will continue past March, but I believe the purchases will start getting reduced around that time. Reductions could end up being minor (say $5-$10 billion at a time). The time frame may certainly change as economic data is released. The single most important factor will be the jobs number, followed closely by CPI or other inflation measures.
Anecdotally, it seems like the excitement over Black Friday is greater than usual. And yes, the malls do seem to be getting decent sized crowds. From a macro perspective, the early surveys are showing a stronger likelihood of higher holiday spending than in recent years. We'll have to see, but I believe we're on pace for a strong retail season in the US.
It does seem a little like 2000 with some of these high flyers in tech and social media. One thing I will say, back in 2000, nobody really had any idea how many of the companies were going to generate profits. It was all hype and very little was quantifiable. These days, at least there are models and projections which show the path to profitability for a given business. Now, some of these may be entirely too optimistic (Twitter likely falls into that category) - but at least there's some logic behind the lofty valuations
Here's a link to the December PPI report: http://www.bls.gov/ppi/
FB is certainly in better shape now with 49% of ad revenue coming from mobile. That wasn't the case last year, when that number was just 14%. Twitter has the advantage of already generating most of its revenues from mobile.
In some ways, Twiiter should be more straightforward vis-a-vis valuation. It basically has one product. FB is expanding into quite a bit more diverse territory. Plus, Instagram could be a big deal for them and is basically not being monetized right now.
More info: Pricing date set for November 6th with the high end valuing the company at just over $11 billion.
Ironically, I got the news off of Twitter.
Interestingly the VIX drop to below 15 is well below its historical average of 20 - but a relatively normal level for what's typically considered a non-volatile market. On the other hand, VVIX (the implied volatility of the VIX index) dropped 17% to almost exactly its historical long-term mean of 86. You could say that volatility traders are neutral on risk right now compared to equity (or index) option traders who appear to believe the worst is over.
Interesting note, last week when the VIX breached 20, it was only the 24th time since 1990 the index was higher than 20 while S&P 500 realized volatility was less than 10%. Realized volatility has increased this week, but last week's data point marks a very unlikely situation.
Inevitably, it may not be until 2015, investors will start to worry about inflation. We'll have to get past the debt ceiling issues, tapering, and other non-standard events. But at some tipping point in the future, positive economic data will once again correlate to rising inflation expectations. When that happens, history suggests gold will catch a bid. In the meantime, there's a floor on the price of gold due to geopolitical risk and uncertainty. In terms of strategy, I believe it's a good scenario to sell copious amounts of put spreads.
The Republicans are just rearranging the deck chairs on the Titanic. They'll say anything right now to try to stem the tide of their plummeting approval ratings.
At least Twitter has the ability to delay the IPO as long as needed. Although, I'm hearing the initial valuation isn't supposed to be higher than $20 billion, or 1/5th the size of the Facebook IPO.
Another point to consider - would the Fed even dare to start tapering given the potential economic damage which could result from a government shutdown? I don't see the FOMC voting for any QE changes until the budget/debt ceiling issues are resolved.
Hard to tell what the Fed is looking at in terms of data. They rarely, if ever, give specifics - preferring to stick to vague generalities. I wouldn't be surprised if they made their decisions based on in-house analysis and then let the crowd play guesswork games over what the central bank is actually seeing.
Markets may not buy into it right away, but the danger is real. Obama won't give any ground on his one true accomplishment (universal healthcare) and Republicans have nothing left to lose. If multiple government operations do shut down, it could have a very adverse effect on the US economy - which is precisely what the country does not need right now.
However, the most realistic worst-case scenario for the Fed's actions is higher than desired inflation. The Fed does have a relatively successful history of being able to control inflation. Moreover, you could argue the Fed isn't doing enough to promote higher inflation - which would both erode debt overhang and savings - and should lead to greater consumer spending.
The hope is that ejecting 3 companies representing just 2% of the index will more equally balance the impact of all 30 index components. So for instance IBM's weighting will be cut from 9.4% to 7.9% after the new additions. In theory, this should reduce the index's volatility - but we won't know for sure until the actual changes take place starting next week.
I'd argue it's too soon to start with tougher lending standards. Easy monetary policy is supposed to spark real estate growth. In fact, monetary policy's biggest impact is on the housing market. Tougher lending implies less loans - and the global economy is not ready yet for any type of slowdown, regardless of a potential bubble.
That being said, cheap Chinese coal stocks could be a strong medium-term play. I don't see any other form of energy fulfilling China's growing energy needs, at least until (or if) several more nuclear plants come online.