It has been quite an eventful week between Scotland's battle over independence, the Federal Reserve's FOMC announcement and the markets making new all time highs. The FOMC announcement was more comedy than anything else as the continued facade of the Fed's forecasting capabilities was revealed, it appears the biggest factor in the world of investing and for this weekend's list of "Things To Ponder" we have accumulated a few reads relating to the Fed.
When you see the headlines touting strong retail sales, you need to consider what you are actually seeing in the real world. RadioShack will be filing for bankruptcy within months. Wet Seal will follow. Sears is about two years from a bankruptcy filing. JC Penney’s turnaround is a sham. They continue to lose hundreds of millions every quarter and will be filing for bankruptcy within the next couple years. Target and Wal-Mart continue to post awful sales results and have stopped expanding. And as you drive around in your leased BMW, you see more Space Available signs than operating outlets in every strip center in America.
What will $1 million buy in New York City? A diamond-encrusted Cartier men’s watch. A small fleet of 2014 Bentley Continentals. Or maybe your very own parking spot in SoHo... "Parking is in serious demand and has proven an excellent investment with no sign of a decline."
It’s not just homeowners who have to worry about rising interest rates, the Federal government might soon get a taste of its own medicine. From the admittedly partisan Republican Senate Committee on the Budget comes this report outlining how federal interest outlays will dovetail with other expenses in the future. "By the end of the budget window in 2024, however, CBO forecasts that interest payments will nearly quadruple to an astonishing $880 billion."
Nowhere is the "financialization" of the US economy more evident than in this chart showing the relative net worth ratio of quntile to the next quintile right below it. Quote Census: "The distribution of net worth became more spread out between 2000 and 2011. The ratio of median net worth of the highest quintile to the second quintile increased from 39.8 to 86.8 between 2000 and 2011, and the ratio of the highest quintile to the third quintile increased from 7.7 to 9.2. The ratio of the highest quintile to the fourth quintile was 3.0 in 2000 and showed no statistically significant change over this period."
Why So Much Anger In Ferguson? 10 Facts About The Massive Economic Gap Between White & Black AmericaSubmitted by Tyler Durden on 08/19/2014 21:48 -0400
When people feel like they don't have anything else to lose, they are likely to do just about anything. Many in the mainstream media seem absolutely mystified as to why there is so much anger in Ferguson, but as I pointed out yesterday, all of this anger did not erupt out of a vacuum. Economic conditions in Ferguson, and for African-Americans as a whole, have been deteriorating for years. Sadly, many white Americans are totally oblivious to any of this.
The failure to understand money is shared by all nations and transcends politics and parties. The destructive monetary expansion undertaken during the Democratic administration of Barack Obama by then Federal Reserve chairman Ben Bernanke began in a Republican administration under Bernanke’s predecessor, Alan Greenspan. Republican Richard Nixon’s historic ending of the gold standard was a response to forces set in motion by the weak dollar policy of Democrat Lyndon Johnson. For more than 40 years, one policy mistake has followed the next. Each one has made things worse. What they don’t understand is that money does not “create” economic activity.
Here is the bottom line: since Lehman, or starting in 2009, the Birth/Death adjustment alone has added over 3.5 million jobs. Or rather "jobs", because these are not actual jobs - these are BLS estimates for how many jobs newly-formed businesses have created based purely on statistical estimations and hypotheses that the US economy in 2014 is as it was in 1960. Which means that the traditional dynamics used behind the Birth and Death adjustment are now merely Dead, and US employment is overestimated by as much as three and a half million jobs!
"Of all the economic bubbles that have been pricked, few have burst more spectacularly than the reputation of economics itself." – From The Economist, July 16, 2009.
Mainstream economists continue to dominate their profession and wield huge influence on public policies. They merely needed to close ranks after the financial crisis and wait for people to forget that their key theories and models were wholly discredited. Meanwhile, heterodox economists who stress credit market risks and financial fragilities – the Austrians, the Minskyites – remain stuck on the fringes of the field. It doesn’t much matter that the crisis validated their thinking. Nonetheless, we’ll continue to explain why we think a shake-up is overdue...“Mythbusting” the theories of mainstream economists.
Manhattan has been transformed into nothing more than an oligarch playground, or as some call it, “Disneyland for Wall Street.” We have discussed at length the head-shakingly insane money-laundering inflows that are 'stashed' into NYC real estate but, as the following reports, one of the most shocking and disturbing revelations from that article was the fact that: "The Census Bureau estimates that 30 percent of all apartments in the quadrant from 49th to 70th Streets between Fifth and Park are vacant at least ten months a year." Forget China, ghost residences come to the US. Welcome to Planet Oligarchy, where empty skyscrapers loom over the hordes of freedom-hating, destitute slaves.
Long-duration Treasuries continue to look attractive; a view that Scotiabank's Guy Haselmann has unwaveringly maintained for the past six months for a variety of diverse reasons. Of all of the various reasons, private pension demand is the most interesting and compelling (and the least understood). The bottom line is that PBGC rule changes will cause persistent and incremental demand over time that overwhelms net visible secondary market supply. Concerns about funding status will trump the private defined benefit plan manager’s fiduciary desire to ‘maximize return per unit of risk’. There are other factors, but the point is that Treasuries as a relative asset class looks attractive.
Those following the labor force participation rate (which as even the Census Bureau showed is declining not so much due to demographics but due to older people working longer and pushing younger people out of the labor force as we showed yesterday) will hardly be surprised to learn that alongside today's impressive NFP print, the reason why the unemployment rate took another big step lower from 6.3% to 6.1%, was once again as a result of the number of people not in the labor force, which in June rose to a fresh record high of 92,120K, up 111K from June.
Where Disposable Income Goes To Die: Since 1990 Real Rents Are Up 15% While Median Incomes Are UnchangedSubmitted by Tyler Durden on 07/02/2014 10:48 -0400
To the Fed's Janet Yellen, runaway inflation - at least that which can not be "hedonised" away by the BLS like iPad and LCD TV prices - may be simply "noise", which probably explains why she doesn't rent. But for the record number of Americans who are forced to rent as house prices are too high for the vast majority of the population while mortgage origination has tumbled to record lows (as banks can generate far higher returns on reserve by buying stocks than lending out said money), inflation is going from bad to worse. Case in point: as the WSJ shows, since 1990 asking rents - in real terms i.e., adjusted for inflation - have increased a whopping 15%. The change in median income over the same period? 0%.
Following the rather stunning shenanigans of Q1 GDP with regard healthcare spending (as we detailed here), we thought, four years after its passage in 2010, it worth analyzing Obamacare's economic impact? Beforehand, economists generally believed that the broader coverage would raise the demand for healthcare goods and services, although there was some disagreement about related effects on healthcare inflation. In reality, as UBS notes, there was too much optimism about a positive immediate economic impact and a negative price inflation effect.
The news that hundreds of thousands of people will lose water supplies is not a stunning headline anymore - poor old Ukraine... or Iraq. However, this time, the 'it couldn't happen here' crowd might be stunned to hear that The Motor City is playing serious hardball with residents who have fallen behind on paying their water bills. Detroit’s Water and Sewerage Department has begun turning off the taps of 150,000 residents who are at least two months behind on payments. As one advocate notes, "sick people have been left without running water and working toilets. People recovering from surgery cannot wash and change bandages. Children cannot bathe, and parents cannot cook." Of course, given that these are generally voting members of the US public, we would be stunned if the Federal government did not create a new fund to 'help' them out of this 'unfairness'.