Tag Archives: seeking alpha

A stagnant economy and a booming stock market, destined to realign eventually

Summary: Nothing has changed during the past year, except that the US stock market has zoomed to near-record valuations, With no visible support in Fed policy, or corporate and economic fundamentals. The economy remains locked in slow growth. The exciting growth stories are mostly noise or cherries picked from the flood of economic numbers. Are investors hoping Trump will defeat the fiscal conservatives in Congress and sign a massive stimulus program? It’s a risky bet.

Jigsaw puzzle mismatch

One amazing aspect of this US expansion cycle is its stability: slow steady growth despite large political and economic changes, foreign and domestic — combined with persistent (almost delusional) expectations for accelerating growth really soon. Another amazing aspect is the combination of slow economic growth and profit growth with high equity valuations. How long can this discordant picture continue?

None of this is difficult to see. At the beginning of every month I post a brief look at graphs of the economy. The conclusions are almost too obvious to state. Let’s do it again. The fantastic gap remains, waiting for the event to bring the economy and stock market back into alignment.

See the rest of this article at Seeking Alpha.

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The Red Warning Flags In Today’s Employment Report

Summary: the key things to know about today’s job report.  (Second of two posts today.)

  • The December job numbers show that nothing has changed.
  • The US economy remains locked in slow gear, slowly slowing.
  • The exciting stories about growth are mostly noise or cherries picked from the flood of economic numbers.
  • Combined with a hawkish Fed and high valuations = a dangerous market for investors.

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Slow Economic Growth

Three important things to see in today’s jobs report

The monthly jobs report creates a flood of exciting news stories.  Most of these discuss small fluctuations in its many numbers, most of which are just statistical noise. Here are three things you need to know about job and wage growth. They are the key trends seldom mentioned in the news.

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The Important But Hidden News In The Jobs Report

SummarySlow Economic Growth

  • Jobs continued their trend: a long period of slow growth, second weakest since 1961 (2001-07 was worse).
  • Worker’s wages continued their slow growth, weekly wages up 2.1% YoY for private sector hourly workers.
  • Slow growth doesn’t create the imbalances & inflation that cause recession. This could run for another year, and perhaps longer.
  • Such slow non-inflationary growth makes raising rates a risky play for the Fed. I doubt they will be so bold.
  • In this slow growth environment paying big valuations for stocks is risky gamble.

The monthly employment report is the most important economic report. It is central to our consumer-led economy, relatively accurate, and frequent (unlike GDP). The November report frustrates both bulls and bears. Still more slow growth in jobs and wages. No signs of boom, no signs of bust, no signs of inflation. Boring, but rich with implications for investors.

As usual, the chart tells the tale. This is the YoY percent change in jobs from the Establishment Survey, not seasonally adjusted (NSA). The purple line is the 1.6% growth reported today. Growth peaked at 2.3% in February 2015 and has slowed steadily since — but gently. Click to enlarge.

Employment growth through November 2016

Contents

Why look at the NSA YoY percent changes? What about the horrific numbers from… Aren’t most of the new jobs low-paying? What about the recession that was coming? Why are investors paying such high valuations for stocks?

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Move evidence the Fed will not raise rates on our slow-mo economy

Summary: On Thursday I posted “Ignore The Bond Bears, The Fed Will Not Raise Rates“. Many on Wall Street disagree — most of whom since 2012 have expected a cycle of rising rates to begin really soon.  Such as J. P. Morgan’s prediction of a rate increase in December. Friday’s data confirms my forecast in a big way.

Slow Economic Growth

First, yet another in the almost endless series of economic indicators showing the US economy stuck in “slow”. Retail sales — critical in our consumer-driven nation — is up only 2.9% YTD YoY, with September +3.4% YoY (NSA) — see the report. We should be at peak growth in this expansion; instead growth faded in Fall 2014 and has remained slow since then.

Retail Sales - September 2016

Click to enlarge.

Second, with this data the Atlanta Fed’s GDPnow model lowered its prediction for Q3 real GDP to +1.9%. The forecast on August 5 was for 3.8% growth. On October 28 we get the advance estimate from the BEA. The average GDP growth since the trough in Q2 of 2009 has been 2.1%. The data for Q3 shows no change in that slow growth.

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The Fed Will Not Raise Rates In The Foreseeable Future

Summary: Since 2010 I have said that the economy is locked in slow-mo and the Fed will not start a new rate cycle. It’s even more true today than in 2010.

  • Many investors and economists are convinced that the Fed will soon end its near-zero interest rate policy and begin raising rates – “normalizing them”.
  • As I and others have said since the crash, these times are not normal (i.e., the post-WWII era has ended).
  • Most economic indicators show flat or slowing economic growth.
  • The developed world has fallen into secular stagnation.
  • The next event is not a boom requiring higher rates, but a recession.

Slow Economic Growth

Short-term riskless US rates are set in the world’s largest market:
when will rates return to normal?

Market yields on 3-month T-bills

We have been told for six years that soon interest rates will rise. During that time, the right-wing’s inflationistas have predicted rising inflation, or even hyperinflation (remember the 2010 “Obama will turn America into Zimbabwe” scare?). Incredibly, many experts still believe this despite…

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Ignore The Bulls And Bears. See The Key Trend In The Jobs Numbers.

Summary: Ignore the Bulls & Bears. Their need for clickbait stories turns noise into news. See the key trends in the jobs numbers, revealing the forces shaping the US economy.

Slow Economic Growth

  • The jobs report confirms that the US economy grows slowly, and is slowing.
  • It gives no evidence that the US is accelerating, or that the Fed will raise rates.
  • If it continues slowing at this rate, we will have a recession in 2019.
  • High equity valuations make no sense in this slow motion economy.
  • Beware of analysts who sell stories about exciting noise, hiding the boring but important trends.

See my article at Seeking Alpha for the full story.