Tag Archives: forecasts

The 1% are changing America. It’s our move.

Summary: The moment approaches when every American sees that the 1% are taking it away. Then we each make a choice to go with the flow or resist. Here are a few events that show this time is close. I’ve predicted the events leading to this point, but have no idea how we’ll react. Much depends on our choice.

“An experience of profound contempt is necessary in order to grasp our situation, and our capacity for contempt is vanishing.”
— From Allan Bloom’s Closing of the American Mind, chapter on “Values” (1987).

Don't Tread on Me

We’re in the pursuit phase of our battle with the 1%, the quiet coup. Decades of quiet organizing and slow progress (see here & here) — then Reagan began their advance that continues to this day, inexorably accelerating. After breaking down the old order (e.g., unions, campaign finance limits, New Deal era limits on banks) we see them building a New America: dismantling the public-financed colleges (see here and here), shifting the tax burden from the rich to the middle class, and many other changes to core features of America.

The obvious moment of truth will come when events force us to see the systematic nation of these changes. Will we rise to the challenge, or look in the mirror and see cowards? That time approaches. Soon we’ll learn the answer.

(1)  Former NSA & CIA Director Hayden mocks us

This is almost too good to be true. Former CIA and NSA Director Michael Hayden spoke to America’s inner party at the Wall Street Journal’s CFO Conference.

If somebody would come up to me and say “Look, Hayden, here’s the thing: This Snowden thing is going to be a nightmare for you guys for about two years. And when we get all done with it, what you’re going to be required to do is that little 215 program about American telephony metadata — and by the way, you can still have access to it, but you got to go to the court and get access to it from the companies, rather than keep it to yourself” — I go: “And this is it after two years? Cool!”

He was speaking the truth. We deserve to be mocked The USA Freedom Act was mostly cosmetic reform (the NYT agrees). Two years ago I predicted our pitiful response to Snowden’s revelations.

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We passed a dark milestone: more money came out of 401(k)s than went in

Summary: Lost in yesterday’s festival about the latest meeting of America’s central planners (wielding tools that Kings of the pre-modern world would envy) was a small article in the Wall Street Journal announcing that we have passed a small milestone on the road to a harsh future.  {1st of 2 posts today.}

 

America passes an important inflection point

The boomers pass through America like a sheep through a snake. In our wild and crazy younger days we dragged the nation into miniskirts and riots. In our old age into censors on our language and behavior.

Our effect on prices has been equally large. What we buy goes up in price. What we sell goes down. Our long journey into adulthood has put wind into the sails of home and stock prices. Our retirement will turn us into sellers of these assets, with the smaller and poorer generations following unlikely to replace our buying.

The Wall Street Journal reported that we have hit the next milestone on this path, as the decades long tsunami into 401(k) plans turns into a slow ebb tide when people retire, rolling over their 401(k) accounts to IRAs. Although this has little impact on markets, it is another step to the day money begins to flow out of retirement plans. We don’t have long to wait. The bottom 80% of Boomer’s have only small sums saved; many have only small pensions (or none) — and will begin withdrawals immediately after retirement is forced upon them either from disability (white collar cowboys have no idea how quickly bodies wear out from a lifetime of physical work) or inability to find a job.

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Update on 3 battles in the war for control of America: TPP, NSA, & police

Summary:  We’re in the endgame — the pursuit phase of battle — where the 1% employ the power gathered through years of careful planning and work. Hence the number of important conflicts splashing over the front pages. Much depends on their outcomes. I’ve predicted wins for the 1%, as their well-organized and funded political machine defeats our apathy. Here’s the action on 3 of these clashes as of today.  {2nd of 2 posts today.}

Crystal Ball

Contents

  1. The Trans Pacific Partnership.
  2. Our out-of-control police.
  3. Government surveillance of Americans.
  4. For More Information.

(1)  The Trans Pacific Partnership

Under the cloak of “free trade”, a large secret plan to screw us. Three weeks ago I forecast that it would pass. Today’s vote suggests that I might be wrong, as a bipartisan alliance in the House voted against Obama on a key step in the legislative dance. The vote among Democrats was 40-144 against, among Republicans 86-158 against.

House Democrats delivered a stinging defeat to President Obama’s trade agenda when a vast majority voted to derail legislation designed to help him advance a sweeping deal with 11 Pacific-rim nations.

The House voted 302 to 126 to sink a measure to grant financial aid to displaced workers, fracturing hopes at the White House that the package would smooth the path for Congress to approve a separate bill to grant Obama fast-track authority to complete an accord with 11 other Pacific Rim nations.

“I don’t think you ever nail anything down around here,” Obama told reporters on his way out of the Capitol. “It’s always moving.”

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Put the latest stats in larger context to understand the economy

Summary: Amidst the bursts of enthusiasm about the economy by bulls (boom!) and bears (recession!), the reality continues to be slow growth, and slowly falling forecasts for the future. Only slowly do people come to realize that, as so many sell hope and despair to their audience. This post looks at our economy from the present quarter to the unknown glories ahead. Understanding events requires seeing this broad context.  {1st of 2 posts today.}

Seeing the future

Ron Chapple/Getty Images

Contents

  1. Inventory to sales ratio.
  2. New Homes Sales.
  3. Retail Sales.
  4. Fading hopes for the future.
  5. Beyond secular stagnation.
  6. For More Information.

(1)  Inventory to sales ratio

The total business inventory/sales ratio for April has gotten a lot of attention from the bears, but wrongly. Changes in technology and business practices reduced the rate steadily from 1.55 in 1992 to 1.25 in 2006, when its current range began. Nine years is too short a history to tell us much. Also, this is a lagging indicator. The wholesale inventory/sales ratio tells a similar story. I don’t know why this has increased since the April 2012 low of 1.25. The weakness this year reflects the slowdown early this year. Total business inventory to sales ratio

(2)  New Homes Sales

Due to our obsession with housing as an investment, this indicator receives attention disproportionate to its importance. April new homes sales were flat for the 3rd consecutive month, down 4% from the December post-crash high. It remains a strong although only small part of the economy. Continue reading

Economists show the perils and potential of the coming robot revolution

Summary: History shows that we oddly focus on small changes coming while ignoring the larger one, because they are truly revolutionary and hence difficult to see and understand. So it is with the third industrial revolution, the oddest so far — and likely to be the biggest. This post shows that some of our top economists have begun to describe what’s coming. As usual with power, it’s great news if we manage it well and potentially horrific if we don’t.  We time to get ready. {1st of 2 posts today.}

Julie Hagerty & Leslie Neilsen in "Airplane!" (Paramount Pictures)

The reality will not be funny. Julie Hagerty & Leslie Neilsen in “Airplane!” (Paramount Pictures)

Robots Are Us: Some Economics of Human Replacement

By Jeffrey D. Sachs (Prof Economics, Columbia), Laurence J. Kotlikoff (Prof Economic, Boston U), Seth G. Benzell, and Guillermo LaGarda.
29  March 2015.

Abstract

Will smart machines replace humans like the internal combustion engine replaced horses? If so, can putting people out of work, or at least out of good work, also put the economy out of business? Our model says yes. Under the right conditions, more supply produces, over time, less demand as the smart machines undermine their customer base. Highly tailored skill- and generation-specific redistribution policies can keep smart machines from immiserating humanity. But blunt policies, such as mandating open-source technology, can make matters worse.

Opening

Whether it’s bombing our enemies, steering our planes, fielding our calls, rubbing our backs, vacuuming our floors, driving our taxis, or beating us at Jeopardy, it’s hard to think of hitherto human tasks that smart machines can’t do or won’t soon do. Few smart machines look even remotely human. But they all combine brains and brawn, namely sophisticated code and physical capital. And they all have one ultimate creator – us.

Will human replacement – the production by ourselves of ever better substitutes for ourselves – deliver an economic utopia with smart machines satisfying our every material need? Or will our self-induced redundancy leave us earning too little to purchase the products our smart machines can make? Ironically, smart machines are invaluable for considering what they might do to us and when they might do it.

… Our simulated economy – an overlapping generations model – is bare bones. It features two types of workers consuming two goods for two periods. Yet it admits a large range of dynamic outcomes, some of which are quite unpleasant.

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A secret of the new business cycle, & why good predictions have become so rare

Summary:  This post looks at the recent economic data, but not to convince you about the rightness of my forecast (more slow growth), but rather to help you make sense of the river of economic data the modern media brings us. As a bonus you’ll learn the secret of the new business cycle. (1st of 2 posts today.)

Economic forecasting has become much more difficult in the era that began in 2000.Wheel of fate

We get so many confident forecasts about the economy. Some bullish, some bearish, most wrong. On the fringes of the investment industry we get people boasting about their insights, with mockery of mainstream economists, and conspiracy theories about the government’s data to explain their failed predictions.

Nor have mainstream economists won much glory. They correctly called the recovery after the strong stimulus programs began in early 2009, but have consistently and wrongly expected “take off” to “normal growth”.

After 6 years with multiple bursts of massive government stimulus, the US (and perhaps world) economy lives in crazy town. The numbers bounce around in an ever-changing nonsensical pattern of activity. The textbook business cycle clock is MIA. At the top of the swings the bulls are wrong; at the bottom the bears are wrong. So it has been this year. Economists expected a strong start with 3% in Q1, we got near-zero (which might get revised to down) — accompanied by the usual wave of bad data.

This month’s numbers have been mixed, but with two kinds of strong results. Good news, like the decent jobs growth. And great but fake news like that the Wall Street Journal (and other news media) reported this week: “U.S. home building surged in April to the highest level since before the recession officially began, a sign of thaw in the housing market during the crucial spring selling season.” It’s an example of why we know little: because we read the news.

FRED: Housing Starts

As you can see, single family home starts “surged” by reversing their dump in March. April’s starts were almost identical to those in November 2013 and December 2014. The trend is slow growth.

By “highest since the crash” they meant rising to 40% of the pre-crash peak (and roughly half of the rate during the late 1998-2002 period). Including multi-unit homes gives the same picture.

Freight activity indexes

Instead of looking at the various sector indicators, let’s look at something more central. Nothing is more central than transportation, with multiple measures giving hard data in relatively real time. We cannot have accelerating growth without something moving fast — raw materials, imports, exports — something. The indexes draw a mixed picture, consistent with the rest of our messy data.

From the Department of Transportation we get the seasonally adjusted Freight Transportation Services Index, measuring the volume of freight carried in the US. In March it was 0.4% below its peak in November and up 3.1% YoY (Year over Year). That’s consistent with GDP and most other data.

FRED: Transportation Services Index

For more current but narrower data we turn to the American Trucking Associations we get an index measures tonnage (seasonally adjusted) carried by trucks in the US.  The index peaked at 135.8 in January 2015. In April the index fell 3% to a 12 month low of 128.6 (2000=100), down 5.3% from January and up 1.0% YoY. Bad news from a volatile metric.

ATA: Truck Tonnage Graph, April 2015

About the US shipping data: There has been some exciting chatter about the large drop in US exports via container ships. It resulted from the strike at the southern California ports, which was resolved at the end of February. US container exports increased in April, but remain far below year-ago levels. Perhaps the congestion is taking months to unwind. Worth watching.

Conclusion

I often wonder what laypeople get by reading the financial news. It’s presented as a kaleidoscope, bewildering in its abundance, usually devoid of useful context, largely a scaffolding on which analysts and journalists hang their narrative (which often contradicts the data). What do people get from reading this daily flow of factoids?

In a sense it’s always been so, but the strong cyclical aspect of the economy — the business clock — kept people’s narratives somewhat synchronized with reality. Six years of erratic slow growth sustained by bursts of government stimulus have allowed both bulls and bears free reign of their imaginations. Government stimulus plus weak growth means imminent depression, if not collapse of the dollar and perhaps civilization. Or the successful stimulus programs laid the foundation for years of powerful economic growth.

Perhaps both sides have become exhausted. With stock market valuations at nosebleed levels and gold far below its peak, the bears are either endangered or no longer bet their beliefs. The slow steady decline of economists’ long-term growth expectations (e.g., of the Fed Open Market Committee) show the bulls enthusiasm has faded as well.

What’s the secret of the new business cycle? The secret is that there is no business cycle here, just a long chaotic transitional period that began on Y2K (the real significance of that date). I believe the erratic nature of the economic data is the tell. We should be watching the data not to predict the next tick (always difficult, now impossible) but to see the emerging new economic regime when it emerges. Until then almost anything can happen. Perhaps good. Perhaps bad.

“Unless you expect the unexpected you will never find truth, for it is hard to discover and hard to attain.”
— Heraclitus, the pre-Socratic “Weeping Philosopher” of Ionia.

The Business Cycle

For More Information

If you liked this post, like us on Facebook and follow us on Twitter. See all posts about economics, about markets, and especially these about our slowing economy:

  1. How close are we to the next recession?
  2. Updating the recession watch; & what might the government do to fight a slowdown?
  3. Economic status report: good news plus chaff from doomsters.
  4. Economics gets interesting as the economy darkens while stocks bubble.
  5. Today’s forecast for the US economy & stock market: cooling, perhaps with storms.
  6. What does our surprisingly slow economy in Q1 tell us about the future?
  7. Update about the economy: slowing, vulnerable, in a strange space.
  8. About our slowing GDP: are we near a recession? are the models accurate?

The Trevor Greetham (Fidelity) Investment Clock

It worked in the post-WWII era that ended around Y2k.

Trevor Greetham (Fidelity) Investment Clock

Trevor Greetham (Fidelity) Investment Clock.

 

 

About our slowing GDP: are we near a recession? are the models accurate?

Summary: Some good news about the US economy, and a cautionary note about popular investment advice. It’s a bit technical, but explains important matters seldom mentioned.  (1st of 2 posts today.)

World Models

Investment experts bombard America with forecasts, picking from the flood of data those tidbits that fit their views, often shown without context. It’s motivated reasoning, an easy path to plausible and entertaining but false reasoning.  For example, the weak Q1 GDP has excited the bears, as has the Atlanta Fed’s GDPnow model’s forecast of only 0.7% SAAR GDP in Q2 (since it’s giving bearish forecasts, bears have deemed the GDPnow model the next Einstein). That’s far below the consensus guess of 2.5%, per the Fed’s May 15 survey of professional forecasters.

In his May 13 report Ethan Harris, economist for Bank of America, explains the situation, discussing the difficulty of forecasting GDP, the various models economists use, and the consensus confidence that US growth will accelerate from the near-zero Q1. Excerpt…

Hot hand

For the second year in a row, economists have come into the first quarter forecasting 3% GDP growth, then lowered their forecast to about 1% by the end of the quarter, only to see a roughly flat official release. By contrast, the GDPNow model from the Atlanta Fed “nailed” the latest quarter, predicting almost exactly the 0.2% advance estimate. Looking ahead, the model predicts just 0.8% for 2Q, compared to a 2.9% consensus. Should we be worried?

The short answer is: “not really.” The GDPNow model actually has a slightly worse forecasting record than both BofAML and the consensus over the last several years.

Casting for a better forecast

In recent years economists have developed increasingly sophisticated models for
estimating GDP in real time. … The Atlanta Fed takes a more high tech approach. Without boring the reader, their initial forecast each quarter is based on a “Bayesian Vector Autoregression (BVAR)” — basically an elaborate extrapolation of recent trends in the data. They then feed in hard data for the quarter as it is released and modify the forecast accordingly. While their model was spot on in the latest quarter, its real-time forecasting record is slightly worse than both our own and the consensus. …

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