Saturday, December 24, 2016

Weekly Indicators for December 19 - 23 at

 - by New Deal democrat

My Weekly Indicators column is up at

There has really been a shift in much of the data since the presidential election.  On the one hand, interest rates have spiked, as has to some extent the US$ and at least one measure of risk in bank lending rates. Gas prices continue to trend in the direction of becoming a headwind.

Interestingly, for the last several weeks holiday consumer spending as measured by Gallup has also weakened -- which is completely at variance from the surge since the election in consumer sentiment as measured both by Gallup and monthly by the University of Michigan.

This negativity is also at odds with the surge in the stock market.

It may be that the fortunes of producers and consumers are about to diverge in a big way.

How Long Until John Hinderaker Writes Similar Praise of Trump?

     Merriam-Webster offers the following definition and example of the word Sycophant:

1.) a servile self-seeking flatterer

Parasite, sycophant, toady, leech, sponge mean a usually obsequious flatterer or self-seeker. parasite applies to one who clings to a person of wealth, power, or influence or is useless to society . sycophant adds to this a strong suggestion of fawning, flattery, or adulation . toady emphasizes the servility and snobbery of the self-seeker . leech stresses persistence in clinging to or bleeding another for one's own advantage . sponge stresses the parasitic laziness, dependence, and opportunism of the cadger .

The connotation is clearly negative; a sycophant is someone who eventually becomes a pure apologist for the worst sorts of behavior.

Hinderaker has unfailingly towed the conservative Republican party line, regardless of how ridiculous.  He is a proud member of the flat earth society, denying the idea of human-caused global warming (this, despite the fact that Hinderaker has no formal scientific qualifications).  He believed that the Fed's 2008 policy would lead to hyper-inflation (interestingly enough, Hinderaker has written nothing about the post-election jump in inflation expectations).  Other examples abound.

     In 2005, Hinderaker penned a post, titled, "A Stroke of Genius?"  It contains this bootlicking paragraph:

It must be very strange to be President Bush. A man of extraordinary vision and brilliance approaching to genius, he can’t get anyone to notice. He is like a great painter or musician who is ahead of his time, and who unveils one masterpiece after another to a reception that, when not bored, is hostile.

After receiving a large amount of well-deserved ridicule, Hinderker added the following to the post:

UPDATE: Of all the thousands of posts we have done over the years, this one seems to most outrage the Left, I suppose because it is so at odds with liberals’ cherished illusions about President Bush. The tone of the post is obviously tongue in cheek, but liberals never seem to notice. They are, to put it charitably, not big on nuance. More important, I’ve never seen a liberal respond to, let alone rebut, the point of the post: that President Bush’s proposal to share pollution control technology with the countries where carbon emissions are rising most rapidly made far more sense than the Kyoto approach, which combined ineffectiveness with economic disaster. That, too, is a sign of the intellectual vacuity of modern liberalism.

He obviously tried to walk back his obsequious statement, but to little avail.

Given that Hinderaker is a Republican toady, how long until he pens a similar defense of Trump?

Wednesday, December 21, 2016

The post-election interest rate spike isn't signaling a recession -- yet

 - by New Deal democrat

This post is up over at .

XE is currently having a problem posting images.  So here are the three images that go with that post:

Treasury yields vs. 30 year mortgage rates:

Mortgage rates (inverted) vs. housing permits since the Great Recession:

Morrtgage rates (inverted) vs. housing permits in the 1970s and 1980s:

Thoughts on Post-Election Industry Movement

The above table from shows the post-election percentage change in the largest sector ETFs.  Here are some thoughts on why certain sectors have rallied or sold off.

1.) There has been talk of repealing or scaling back Dodd-Frank, which could potentially be a huge boon to the financial industry.  In addition, the Fed is now raising interest rates, which increases the interest rate spread, which should increase bank earnings. 

2.) Industrials and basic materials are rallying in hopes of a large infrastructure bill.

3.) Trump has appointed a very pro-oil cabinet: Perry at the Department of Energy and Rex Tillerson as Secretary of State.  In addition, OPEC has agreed to limit production.  Both these facts explain the XLE's recent rally.   

4.) There is a great deal of concern underlying health-care policy.  The pending ACA repeal will put the insurance markets on very tenuous footing.  In addition, there is growing concern that Congress will become more aggressive about drug prices (see this story from today's NYTimes).   

5.) Rising interest rates are a net negative for utilities.

6.) The 10 largest consumer staple stocks are multi-national companies.  The strong dollar and Trump's anti-trade talk would be a net negative for this sector.

Monday, December 19, 2016

Energy Inflation Is Increasing and May Place the Fed in a Policy Bind Next year

Energy Inflation is increasing:

Saudi Arabia's massive production cut in 2014 sent oil prices lower, causing a large economic boost to consumer spending.  Earlier this month, OPEC reversed course, signing a deal that cut production. This was the primary reason for the latest rally in the oil market.  According to Bloomberg, bullish oil bets are currently at a 2-year high.  

All of these factors will cause an increase in energy inflation, which may place the Fed in a policy bind.  Overall CPI is hovering around 2%: core is 2.1% while overall is 1.7%.  But as the chart above shows, energy prices are starting to accelerate, which will push overall CPI closer to the Fed's 2% target.    

Sunday, December 18, 2016

"Those who cannot see must feel"

 - by New Deal democrat

That's the translation of an old German saying that I used to hear from my grandmother when I misbehaved.  It is pretty clear that, over the next four years, the American public is going to do a lot of feeling (including, unfortunately the plurality of voters who *did* see).  The results will range somewhere in between bad, disastrous, catastrophic, and cataclysmic, depending on how badly foreign affairs are bungled and how much basic norms of republican government irreversibly give way to despotism.  

I have some hope as to the former because both China and Russia are smart enough to figure out that they can get what they want by bribing Trump without resorting to armed conflict.  As to the latter, unfortunately, I hold out little hope.  Already North Carolina has crossed the line into Banana Republic-dom, and there is not the slightest reason to believe Trump will allow himself to be constrained by, well, anything.

On my to-do list is to go through a list I have been given of every country in the world which has a Madisonian presidential system, to see if any of them have not somewhere along the line fallen into despotism.  I believe that the answer until now has been that the US is the only country which had not succumbed. Someday if and when the Second American Republic is assembled, diluting or eliminating the powers of the Presidency are essential.

In the meantime the autocrat will have his day.  After all, no fascist ever was overthrown so long as they were winning.

But ... this is a good time to repeat that my view of economics dictates my politics, not the other way around.  Libertarians and neoliberal economists fail by not taking into account bargaining power.  They take contracts as a given, to be neutrally enforced by Solomonic courts. But contracts - and their enforcement - have everything to do with bargaining power, and left to their own devices, as the saying goes, "Thims that has, gits." Thus, over time, without a countervaling force, economies tend towards oligopolies and polities to oligarchies.

And all of that gets revealed in the numbers over time.  So my view is, all I have to do is faithfully report the economic numbers, and the political argument follows.  Go back 100 years and compare the economic records of Democratic and Republican administrations, and the record speaks for itself.  Most Democratic administration beat most Republican administrations.  Outside of the high inflation era of the late 1970s early 80s, where a  supply-side stimulus was helpful and non-inflationary, demand side economics which target ordinary Americans works better to improve their lot.  In simple terms, give a wealthy man money and he will hoard most of it.  Give an ordinary person money and they will spend it. Spending has a bigger multiplier effect than hoarding.

I have no illusion that we can do anything to prevent what is now directly in front of us.  But its results will be in the numbers -- particularly in wages, income, and employment.  I will continue to report them faithfully, and continue to tell you based on the numbers how I expect the next months and several years to unfold.

For now, I see no recession in the next 9 months.  If anything, I expect pretty good numbers over the next 3 to 6 months.  But the next recession is out there somewhere, its stage beginning to be set in the long leading indicators. There is every reason to believe it will feature outright wage deflation (i.e., carrying debt into the recession will be unusually toxic), and there is no reason to believe that the new regime will pursue any means that will help ameliorate it.

I will report the numbers as straightforwardly as I can to help you brace yourself.