Tuesday, 12 May 2015

Chart of The Day: U.S. Unemployment Rate - Higher and Higher with Each Bust

Saturday, 9 May 2015

The Crank Report, Issue #5 (9 May 2015)

In this issue: 
  • The Economic Meaning and Consequences of Debt
  • Why in the World Does the Stock Market Always Peak Just Prior to a Recession?
  • The "Austrian" True Money Supply Weekly: Hanging in There
  • More Stressed than in a Long Time
  • The U.S. Stock Market Risk Indicator: Dangerous Topping Action
  • Table: The "Austrian" True Money Supply - 1981 to YTD 2015

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Friday, 8 May 2015

What Will Happen With U.S. GDP Growth Going Forward?

In my latest article on Seeking Alpha I try to answer this question in addition to shedding some light on the poor GDP growth seen over the last ten years.

You can read the article here. 

Friday, 1 May 2015

The PMI Slides 6.9% on last year, Stock Market Bubble

The purchasing managers index (PMI) for the U.S. shred 6.9% compared to April last year to record the biggest y/y drop for two years.

Meanwhile, the stock market continues to look in the other direction expanding 13.6% during the last twelve months as measured by the Wilshire 4500.

The sliding PMI combined with the surging stock market sent the ratio between the two to yet another all-time high surpassing the previous bull market high (October 2007) by more than 80%.

This bubble is one for the history books. But don't blame it on the "free market".

Thursday, 30 April 2015

The Road to U.S. Poverty: Don't Get Blinded by Monetary Expansion

More money, paper and electronic, available in an economy does not make the people living there better off. If more money actually could achieve this feat, politicians would long ago have ordered the banks and the central banks to transfer more money to all to please the electorate. 

What an increased quantity of money does do however, other than ensuring that some (the early receivers) gain at the expense of others (the late receivers, those on fixed incomes etc) is pushing all sorts of economic aggregates and price indices higher than they would be absent such monetary inflation. 

So what happens if we strip out the money supply growth from GDP?* Here are the reported nominal GDP numbers,

...and here are the same numbers adjusted for the money supply growth...

...which shows the U.S. economy is heading in the wrong direction. Looking at the year on year (y/y) percentage change, the chart below shows output as measured by GDP has contracted nearly every quarter on a y/y basis since Q3 2011. Note also the 2008/09 contraction which bottomed at a 13.5% y/y decline in Q2 2009 (nominal GDP contracted only 3.2% in that quarter: which of the two do you think better reflects reality?). 

Smoothing out the the annualised change to a ten year basis gives us the following result:

But wait. There are today 25 million more Americans than ten years ago. Turning the above chart to a per capita basis tells us...

...that the U.S. economy is heading rapidly in the wrong direction and has done so since at least the mid 1990s. 

This adverse economic development in the U.S. might also shed some light on the ever decreasing purchasing power of personal income which certainly can (will?) lead to the average income earner struggling to make ends meet. 

Just as both Nominal and Real GDP numbers are not accurate measures of economic growth (due to insufficient data, as it only measures final output etc), or lack thereof, the adjusted numbers suffer the same weakness. In addition, not all money supply growth necessarily ends up in items forming part of GDP. However, assuming this relationship is fairly steady over time, and the fact that increases in the money supply will by itself drive GDP up and as an increase it the quantity of fiat money in an economy has nothing to do with wealth, it's perhaps not unreasonable to conclude that the adjusted measure helps explain economic developments better than both Nominal and Real GDP.

Stocks, Fundamentals and Valuations

By Pater Tenebrarum

How important are macro-economic fundamental data and valuations in deciding on whether or not to buy stocks, and how does this influence long term returns? Are there any universally valid rules that can be applied? At the very least we can state that there is plenty of empirical evidence that supports certain conclusions.

Mish has just posted a review of a recent weekly market comment by John Hussman, who probably writes more about market valuations than anyone else we know of. One of the most interesting aspects Mr. Hussman’s discusses in his missives on the topic in our opinion concerns the connection between stock market trends and interest rates, or what we might term his “empirical debunking of the Fed model”.

Continue reading the article here.

Wednesday, 29 April 2015

Tuesday, 28 April 2015

Exactly When the Fed Will Launch QE4

By Bill Bonner

On Friday, the S&P 500 and the Nasdaq closed at record highs.

It’s the first time both indexes have done so since December 31, 1999.

Why such optimism?

High profits, you say. But where do profits come from?

Households have less money to spend than they did 15 years ago. And companies cannot make money just by selling things to each other.

The only explanation is that customers – including the US government – continue to borrow and spend.

Corporations borrow money to buy their own shares. Consumers borrow to buy products. Either way, the money comes “out of nowhere” and falls on balance sheets like manna from heaven.
Today’s question: Where is nowhere?

Continue reading here.

Chart of The Day: Having Disengaged from Most Other Fundamentals Long Ago....

...the U.S. stock market is now disengaging from Fed assets as well. 

QE4 must be around the corner, right....

Wednesday, 22 April 2015

The Crank Report, Issue #4 (22 April 2015)

In this issue: 
  • Earnings Season Warning: Apparent Profits
  • Recession Alert: Blame the End of QE3
  • Central Planners Must Test Their Products on the Market, too: The Reverse REPO Exercise
  • The "Austrian" True Money Supply Weekly: The Bank Credit Boom - Guess Who's Back!
  • Chart: The Flattening of the Treasury Yield Curve: Falling Growth Expectations?
  • Chart: Break Even Inflation Rate: Still Low, but Rising
  • Table: The "Austrian" True Money Supply - 1981 to YTD 2015

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You can access previous issues here.