Savings Rate Soars To Highest Since May 2009 On December Surge In Comp And Dividends Ahead Of Fiscal CliffSubmitted by Tyler Durden on 01/31/2013 09:55 -0400
One look at the headline December data and one would get the impression that millions of Americans had started dealing meth out of some New Mexico RV, as personal income exploded by the most in 8 years, soaring some 2.6% in December to $13.936 billion. And since the surge in income, which was expected to rise some 0.8%, was hardly matched by a comparable boost to spending which missed expectations of 0.3%, rising just 0.2% - somewhat paradoxical considering the biggest boost to the otherwise negative Q4 GDP print was precisely this: spending and consumption, meant that the personal saving rate (which is merely a function of income less spending) soared to 6.5% or the highest since May 2009 - superficially an indication that consumers are hunkering down in expectation of something very bad.
Japan's Chain Of Events: Stagnation -> Monetization -> Devaluation -> Stabilization -> Retaliation -> HyperinflationSubmitted by Tyler Durden on 01/21/2013 17:31 -0400
As the world's equity markets prepare to rally on the back of yet more central bank printing as Japan's Shinzo Abe takes the helm with a 2% inflation target and a central bank entirely in his pocket, The Telegraph's Ambrose Evans-Pritchard suggests a rather concerning analog for the last time a Japanese prime-minister attempted to salvage his deflation/depression strewn nation. The 1930s 'brilliant rescue' by Korekiyo Takahashi, who removed Japan from the Gold Standard, ran huge 'Keynesian' budget deficits intentionally, and compelled the Bank of Japan to monetize his debt until the economy was back on its feet managed to devalue the JPY by 60% (40% on a trade-weighted basis). Initially this led to exports rising dramatically and brief optical stability, but the repercussion is the unintended consequence (retaliation) that the world missed then and is missing now. Though the economy appeared to stabilize, the responses of other major exporting nations, implicitly losing in the game of world trade, caused Japan's policies to backfire, slowed growth and left a nation needing to chase its currency still lower - eventually leading to hyperinflation in Japan (and Takahashi's assassination). With no Martians to export to, why should we expect any difference this time? and how much easier (and quicker) are trade flows altered in the current world?
Well, my fellow Slope-a-Dopes, your selfless Idiotic Savant servant, whom is securely chained to his desk, has spent a significant part of the long weekend, perusing nearly every finance blog on the world wide web for you. Therefore, I can reliably report to the SOH, that the overwhelming consensus out there in the financial blogosphere, which has now reached a nearly universal feverish pitch, is boldly & proudly heralding that a most encouraging new economic dawn is finally upon us. It seems, a pristine permanent plateau of prosperity has been patently perfected.
Presenting Dave Collum's now ubiquitous and all-encompassing annual review of markets and much, much more. From Baptists, Bankers, and Bootleggers to Capitalism, Corporate Debt, Government Corruption, and the Constitution, Dave provides a one-stop-shop summary of everything relevant this year (and how it will affect next year and beyond).
In what is likely the fist major under the radar profit warning of the current quarter, GE chief, and Obama Job Tzar, Jeff Immelt warned during GE's annual outlook meeting held earlier in Manhattan that the "economic uncertainty" in the current quarter has resulted in an investment "pause" that has resulted in a slowdown of corporate sales. Put into numbers, GE is now calling for about 8% growth this year, from a 10% forecast barely two months ago. Read: Q4 sales, and thus earnings, are set to be a major disappointment. And while no superstorms were blamed in this particular sales warning, the fiscal cliff did feature prominently. As the WSJ reports, "[Immelt] said ongoing jitters over the so-called "fiscal cliff" of tax increases and government spending cuts contributed to the trend." Then again, it is just as likely that the tapped out US consumer, whose savings rate is tumbling, whose real disposable income is now declining on a year over year basis, and whose real wage growth is decidedly negative, would be tapped out even if Obama and Boehner were not playing constant cat and mouse. But whatever the reason for the slowdown may be, one thing is certain: "Clearly, there has been an investment pause in certain industries," Mr. Immelt said. "We've definitely seen a slowdown in the fourth quarter." Bring on the spin brigade.
We have seen numerous articles as of late discussing how the average American family has finally delevered their household balance sheet at last. The problem is that apart from mortgage debt, whose decline has been facilitated by massive central bank and governmental intervention, other debt is still being piled on. These other debts are at substantially higher rates than mortgages and negatively impacts the consumer's ability to save. This is why savings rates continue to fall. As full-time employment remains elusive, the average American continues to resort to debt, and governmental support, to fill the gap between waning real incomes and their expected standard of living. This is a game that has a finite end. The diversion of income from savings to support debt service requirements will continue to impede economic growth until such time as either debt returns to levels that are conducive for higher levels of personal savings or incomes rise. This leaves consumers trapped between the need to payoff of debts in order to free up cash flow but needing increased levels of debt to sustain their standard of living. In the end the consumer will delever, either by choice or by force, the only difference between the two outcomes is the length of time that the current economic malaise lasts.
Sweeping changes are taking place at the state level as pension trustees and legislatures push for higher monthly contributions to pension plans, a later retirement age and lower annual cost-of-living adjustments for current and retired workers. Unions (those that don't make Twinkles, in any event), are making the concessions because they can see the future absent shared sacrifice — the termination of defined benefit plans in favour of defined contribution plans. Be that as it may, employee contributions are going up — a de facto tax hike. And this will work directly against any upturn in consumer spending when you consider that the state and local government sector employ nearly 20 million people or 15% of the national job pie. So we will have less government, fewer entitlements and more whisperings that it isn't just the $250,000+ high-income households that are going to experience tax increases and diminished disposable income growth. This is shared sacrifice. To think that the nation could have ever gone to war in Iraq and in Afghanistan under the Bush regime, putting our troops at great risk not to mention the emotional scars on their families, while here at home civilians would be allowed to enjoy tax cuts and a debt-financed consumption binge.... One has to wonder what events could provide positive momentum to GDP growth, push corporate earnings to record highs as the consensus predicts as early as next year, or generate any lasting inflation, for that matter. It's the people that make these pricing decisions. Businesses can only price up to what consumers are willing to pay. It is households that determine whether or not we have inflation, not some bureaucrat in Washington who believes he has control over some printing press.
We find ourselves more amazed than ever at the ability of those in power to lie, misinform and obfuscate the truth, while millions of Americans willfully choose to be ignorant of the truth and yearn to be misled. It’s a match made in heaven. Acknowledging the truth of our society’s descent from a country of hard working, self-reliant, charitable, civic minded citizens into the abyss of entitled, dependent, greedy, materialistic consumers is unacceptable to the slave owners and the slaves. We can’t handle the truth because that would require critical thought, hard choices, sacrifice, and dealing with the reality of an unsustainable economic and societal model. It’s much easier to believe the big lies that allow us to sleep at night. The concept of lying to the masses and using propaganda techniques to manipulate and form public opinion really took hold in the 1920s and have been perfected by the powerful ruling elite that control the reins of finance, government and mass media. How many Americans are awake enough to handle the truth? Abraham Lincoln once said that he believed in the people and that if you told them the truth and gave them the cold hard facts they would meet any crisis. That may have been true in 1860, but not today.
The personal income and spending report Friday morning left a lot to be desired for those expecting a stronger economic environment soon. However, the report fell well in line with what we have been expecting over the past several months as the drag on real wages and incomes have weighed on the consumer; and with personal consumption making up more the 70% of the economy, changes to employment, incomes or credit has an immediate and significant impact to growth. When it comes to the economy, and particularly the ongoing recession watch that has nearly become a sporting event, it is real (inflation adjusted) incomes that matter. In the most recent report we see that real personal incomes declined for the month from $11,546 to $11,532 billion for the month reflecting a -.12 change. Economic expansion since the last recession has been hovering around a flat line for the past seven months. The next couple of months will be very telling about the strength of the underlying economy. The manufacturing data continues to point to further economic weakness, hiring plans have deteriorated and the main drivers of economic growth have all stagnated. While we can hope to get lucky that things will work out for the best - "hope" rarely works out as an investment strategy.
It was only appropriate that on a day in which our chart of the day confirmed that the US consumer is getting increasingly more broke, we got an update of Personal Income and Personal Spending, both of which missed expectations and declined substantially. October income printed at 0.0%, down from 0.4% in September, and below expectations of 0.2%, while spending plunged from 0.8% all the way into negative territory at -0.2%, missing expectations of an unchanged print. Counterintuitively, the spin is that this miss was due to Sandy, when this makes absolutely zero sense: as a reminder Sandy only hit in the last 4 days of October, which means it had no time to impact income, and if anything it prompted an increase in spending as consumers stockpiled ahead of the landfall. But that's why they call it spin. Of course, none of this should come as a surprise: the implied savings rate in September hit a multi-year low of 3.3%, which means going forward the blend of spending and savings will be unpleasant for stocks as consumers have no choice but to rebuild savings once more. And finally, the most disturbing metric, and one which is a red flashing light for all those predicting yet another economic renaissance in 2013, is that real Disposable Income declined by 0.1%: the third decrease in 3 months, confirming that on an inflation adjusted basis the consumer peaked in the summer, and it is all downhill from here.
The Basel Committee on Banking Supervision is an exclusive and somewhat mysterious entity that issues banking guidelines for the world’s largest financial institutions. The Committee’s latest ‘framework’, is referred to as “Basel III”. The regulators have stubbornly held to the view that AAA-government securities constitute the bulk of those high quality assets, even as the rest of the financial world increasingly realizes they are anything but that. As banks move forward in their Basel III compliance efforts, they will be forced to buy ever-increasing amounts of AAA-rated government bonds to meet liquidity and capital ratios. Add to this the additional demand for bonds from governments themselves through various Quantitative Easing programs, and we may soon have a situation where government bond yields are so low that they simply make no sense to hold at all. This is where gold comes into play. If the Basel Committee decides to grant gold a favourable liquidity profile under its proposed Basel III framework, it will open the door for gold to compete with cash and government bonds on bank balance sheets – and provide banks with an asset that actually has the chance to appreciate. The world’s non-Western central banks have already embraced this concept with their foreign exchange reserves, which are vulnerable to erosion from ‘Central Planning’ printing programs. After all – if the banks are ultimately interested in restoring stability and confidence, they could do worse than holding an asset that has gone up by an average of 17% per year for the last 12 years and represented ‘sound money’ throughout history.
We remain in the throes of a secular era of disinflation. We also are in a long-term period of sub-par economic growth and below-average returns. This has become so well entrenched that U.S. pension plans now have more exposure to bonds than to stocks, as we highlighted two weeks ago. Look, this is not about being bearish, bullish or agnostic. It's about being realistic and understanding that in our role as market economists, it is necessary to provide our clients with information and analysis that will help them to navigate the portfolio through these stressful times. Our crystal ball says to stick with what works in an uncertain financial and economic climate — in other words, maintain a defensive and income-oriented investment strategy.
With all bad news on the tape now having a suitable "explanation", be it a prior president, a tropical storm, the weather being too hot, the weather being too cold, the weather being just right, but never, ever someone actually taking blame for the fact that life is what happens when corporate CEOs (and sovereign presidents) are busy making "priced to perfection" plans. So it is with what is now a confirmed flop of a Black Friday, which according to ShopperTrak saw sales drop by nearly 2% to $11.2 from 2011, which in turn was a 6.6% gain over 2010 (and would be revised to far lower once all the refunds and exchanges to cash took place in the two weeks later). This occurred despite a 3.5% increase in retail foot traffic to 307.7 million store visits. The nominal drop in retail sales also occurred despite a nearly 1% increase in the total US population over last Thanksgiving, and a 2% Y/Y inflation. But fear not: the ad hoc excuse for this "surprising" loss in purchasing power is already handy: it is all Black Thursday's fault, or the latest idiotic attempt by retailers to cannibalize their own future sales by diluting the exclusivity of Black Friday, and which will force all retailers to follow the sovereigns in a race to the bottom, as soon every day will be the equivalent of Black Friday. But at least retailers have another 364 years worth of excuses for the conceivable future to excuse any and all store weakness. Next year: it's all Black Wednesday's fault.
When it comes to firmly established, currency-for-commodity, self reinforcing systems in the past century of human history, nothing comes close to the petrodollar: it is safe to say that few things have shaped the face of the modern world and defined the reserve currency as much as the $2.3 trillion/year energy exports denominated exclusively in US dollars (although recent confirmations of previously inconceivable exclusions such as Turkey's oil-for-gold trade with Iran are increasingly putting the petrodollar status quo under the microscope). But that is the past, and with rapid changes in modern technology and extraction efficiency, leading to such offshoots are renewable and shale, the days of the petrodollar "as defined" may be over. So what new trade regime may be the dominant one for the next several decades? According to some, for now mostly overheard whispering in the hallways, the primary commodity imbalance that will shape the face of global trade in the coming years is not that of energy, but that of food, driven by constantly rising food prices due to a fragmented supply-side unable to catch up with increasing demand, one in which China will play a dominant role but not due to its commodity extraction and/or processing supremacy, but the contrary: due to its soaring deficit for agricultural products, and in which such legacy trade deficit culprits as the US will suddenly enjoy a huge advantage in both trade and geopolitical terms. Coming soon: the agri-dollar.