September 2016

The calm before the storm?

September was a very boring month. At months’ end, asset prices remained about the same as they were in the beginning, with intra month fluctuations being almost perfectly offset.   August 31 September 30 S&P 500 2170.95 2151.13 Dollar Index 86.77 86.37 10-yr Yield 1.57 1.59 At the beginning of September, the probability of a rate hike in the September 21st meeting was around 25%. Getting closer to the meeting date, the probability fell to 12%. The meeting came and went with nothing new, except Yellen´s statement that “the case for an increase in the federal funds rate has strengthened…”.… Read More

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Personal Income and Outlays confirm poor August, poor LT trends

The data releases came at or below expectations. The economy is neither hot nor cold, just tepid. The charts indicate that the trends for the past two years have weakened. That´s not surprising given the Fed´s “actions” over this period, when all the talk has been about “normalizing” policy, something for which, according to Yellen, there´s “no fixed time-table”. The “guessing-game” the Fed is playing is just not conducive to an improvement in economic outcomes. August was confirmed a poor month for GDP. This is not really news now that current month, September, surveys have shown better outcomes than expected.… Read More

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The NGDP forecast for 2017Q3 is coming to an end. Like markets, it has shown remarkably little volatility. There have been a few small bumps that have been hugely magnified in the financial press desperate for news, but recent data plus market-implied trend growth is very stable. We have worried about the trend in Base Money but it is  not feeding into markets. An example is the Major Currencies USD Index that has remained in a very tight channel indeed.

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GDP Report – Second Revision

RGDP QoQ annualized growth was revised up to 1.4% from 1.1% in the first revision. Here we read: Thursday’s report showed a measure of business investment improved rather than declined, accounting for most of the upward revision. On a YoY basis the revision was from 1.2% to just 1.3%. These annualized QoQ figures make for dramatic headlines, multiplying actual % change by four,  but are grossly exaggerate of reality. However, no matter how you slice it, it´s a dreary economic performance. The charts give an idea. On the LHS, we get an idea of the depth of the recession, measured… Read More

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The Japanese economy has seemed a bit of a puzzle to many. Unemployment has fallen and GDP per capita has grown, but not GDP itself. There has been huge active monetary easing but inflation has not budged much. Officially, a recession was announced but it passed much of the population by without much notice. What has been going on? Are the numbers wrong? Well, in an interesting report the FT today alerted us to the Bank of Japan’s look into the country’s GDP data. The BoJ has suspected that the official statistics might be undercooking the size of the country’s economy. Sadly,… Read More

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What´s that stance?

The Statement at the closing of the December/15 FOMC meeting when, after seven years of the FF rate remaining in the 0 to 0.25 percent range, the FF rate was raised 25 bp, reads: Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent. The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation. If policy remains accommodative after… Read More

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Today: Though her speech to the House of Representatives’ Financial Service Committee avoided remarks on monetary policy, Yellen admitted in the Q&A period that if job creation continued at its current pace it could lead to overheating of the American economy which in turn would require a more rapid removal of accommodative monetary policy. In November 1996: In spite of all that is going right in the American economy, I too remain concerned about the outlook. I agree with the staff that we may well be living on borrowed time and that inflation will eventually accelerate if the unemployment rate remains… Read More

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In a speech called “Why Study Economics” to students at Howard University Stanley Fischer attempted to shed some light on a key macro issue. He failed. Illustrating his own confusion about macroeconomics, despite years and years of study, and despite hundreds of research papers, some of which were authored by him. “Why is participation in our nation’s labor force declining? … Economists are examining a number of reasons why prime-age males are falling out of the labor force. Here there are differences among economists. Some economists have emphasized the role of public assistance programs, such as disability insurance. Some evidence… Read More

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If it keeps hitting imaginary crossroads, the Fed will end crashing the economy

In “Fed hits crossroads on unemployment”, we read: Most Federal Reserve officials agree the economy is at or getting very close to what economists consider full employment, the rate below which inflation starts to rise. What they can’t agree on is what should happen next. As the unemployment rate hovers below 5% and job gains moderate, one of the key debates at this week’s Fed policy meeting will be how much farther the Fed can let it decline without risking runaway inflation. In the 1960s and early ’70s, the Fed let the jobless rate fall below estimates of full employment.… Read More

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After a good result in August, the September survey was even better, and August was revised up. The level of 104.1 is the highest since the recession ended, beating the previous post-recession peak set in January 2015. It was driven by growing confidence in the jobs market even if income prospects and business conditions were more balanced in their outlook. This picture fits with the sluggish growth in the economy overall, but no pressure on the labor market, either on the downside to cut jobs or on the upside to raise wages. It´s as if the economy has shown the… Read More

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