WTI is trading below $64 this afternoon and the long end of the UST curve is being bid rather starkly, the 30-year has dropped below 2.90%, there is an important element to consider about such “price discovery.” As my colleague Doug Terry points out, a 40% drop in oil prices is no longer strictly a matter of finance. In other [...]
I’m not sure what basis there is for expecting a robust holiday season. Even factoring the move in the unemployment rate and upward revisions to GDP in the past two quarters, none of that has done anything toward correlating with rising income. In fact, 2014 is conspicuous in that aspect more than at any time during this “recovery.” The latest [...]
There is an undoubted shift in the behavior of consumers, including and especially during the peak retail season between Thanksgiving and Christmas. However, to say that is the sole reason for the decline in actual sales volume is to stretch that truth into (in many cases intentional) utter misdirection. The initial indications from the retail outlets are so far beyond [...]
The word “unexpectedly” has made its appearance in Japan with the latest quarterly GDP release. Economists had forecast between +2.2% and +2.5%, so -1.6% counts for an “outlier” to commentary. This result, following a quarter where GDP already fell 7.3%, is nothing short of atrocious and leaves no doubt the disastrous shape to which Japan has befallen. As I said [...]
Economists and policymakers continue to count on a second quarter surge in economic activity to ignite momentum for the rest of the year. The first revision to Q2 GDP comes on Thursday, so that will be the first test of the thesis. Given the inordinate volatility in the data set GDP could conceivably amount to almost anything at this point. [...]
Following up with some more detail on yesterday’s GDP euphoria, a closer examination reveals that not much has changed beneath the headline refiguring. Again, I highly doubt the 3.9% (plus some rounding) survives further estimations, but that really doesn’t much matter at this point. Whether it ultimately arrives at 5% or 2% won’t change the trends that are embedded beneath [...]
You hear it repeated incessantly that the US economy is consumer-driven, and perhaps it is in some very narrow aspects. The idea, however, that consumption accounts for 70% of the economy is false, a figure derived from GDP calculations that include, among other artificial creations, an imputation for homeowner rent equivalence (BEA estimates how much a homeowner might pay themselves [...]
Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject [...]
Labor unrest is an expected feature of a malfunctioning economy. The 1970’s, for example, were rife with labor problems up and down the economic scale and across industries. Agitation for wage growth was proportional and directly attributable to the public’s perceived ability to maintain some standard of living. The Great Inflation threatened to leave a good deal of the populace [...]
In 1935 Friedrich A. Hayek presented the following diagram of the productive stages of an economy's production. The insights drawn from this depiction of an efficiently allocated economy form the basis of Austrian Business Cycle Theory. A voluntary decrease in consumption and commensurate increase in savings lowers the slope of the hypotenuse, thus the real rate of [...]
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