The Wall Street Examiner » Wall Street Examiner Exclusives http://wallstreetexaminer.com Get the facts. Tue, 22 Jul 2014 22:57:17 +0000 en-US hourly 1 Why ECBs Negative Interest On Reserves Is a Con Game That Can’t Work http://wallstreetexaminer.com/2014/07/why-ecbs-new-policy-is-a-con-game-that-wont-work/ http://wallstreetexaminer.com/2014/07/why-ecbs-new-policy-is-a-con-game-that-wont-work/#comments Sun, 20 Jul 2014 00:17:32 +0000 http://radiofreewallstreet.fm/?p=3517 This is a syndicated repost courtesy of Radio Free Wall Street. To view original, click here.

In this video, posted for Radio Free Wall Street subscribers on June 13, 2014,  Lee Adler shows why the ECBs new policy is a ridiculous con that won’t work to solve Europe’s economic problems. He reviewed the data (as of June 13, 2014) that suggests US stocks were still likely to make more new highs.

Transcript below

To see samples of past videos on a 30 day delayed basis go to our Youtube channel.

If you are not a subscriber and would like to see or hear not only today’s program but all weekly video programs, click this button to start your subscription. It takes less than a minute to complete the signup form and start watching or listening to all Radio Free Wall Street programs. To learn more click here or join and listen right now. By clicking this button, I agree to the Wall Street Examiner’s Terms of Use.

3 month subscription to Radio Free Wall Street podcasts, renewing automatically unless canceled. Price: $39.00

Transcript

On June 6, the ECB announced that it would begin to charge interest at the rate of 10 basis points on deposits held at the central bank. The institution of the negative deposit rate has resulted in the universal misconception that this is supposed to spur banks to lend more to business by discouraging them from holding deposits at the central bank, as if this were somehow even possible, which it is not.

Deposits are created when the loans are made. That applies not only to central banks, but banks in general. Banks do not need central bank money to create loans. Banks can create loans, and money—deposits—out of thin air, subject to reserve requirements, which today are effectively zero. Loans create deposits. Deposits create reserves.

What happens when a central bank lends money to banks? It creates a deposit in the bank’s account at the central bank. On the one hand the loan becomes an asset of the central bank. On the other hand, the deposit that is created becomes a liability of the central bank. The two amounts are equal.

The immutable law of accounting, on any balance sheet, is that assets equal liabilities plus capital. In the case of the central bank, capital is essentially a fixed amount, therefore any increase in assets will result in an equal increase in liabilities when the central bank makes a loan to a bank. Conversely, when a bank repays a loan, the deposit is extinguished and money disappears.

A portion of the banking system’s balance sheet is therefore the mirror image of the central bank’s balance sheet. The banking system’s cash assets acquired as a result of loans made by the central bank can not be “withdrawn” from the central bank to make loans, nor do they need to be. The only way the banking system could withdraw those deposits would be to literally ask for truckloads of paper cash to be delivered to their own vaults. Needless to say, that’s not likely to happen, short of bank runs by depositors demanding cash from them.

The amounts of money on deposit at the ECB are immutable. They can be shifted from one liability category to another, such as from accounts known as “Current Accounts” to Deposit facility or Fixed Term Deposits. The first two will now charge 10 basis points to the holder. The Fixed Term Deposits which the ECB offers regularly still pay a nominal interest rate. So there will be increased demand for those as banks try to reduce their costs. But other than withdrawing paper cash, the banks can only reduce their deposits at the ECB one way. That’s to pay back the loans that created the deposits.

With the ECB now charging interest on deposits, lo and behold this week, that’s exactly what happened. The balance sheet shrank by €25 billion in the week ended June 6. That’s exactly the opposite of the ECB’s intent, but entirely predictable. [Note: Since then, through July 10 the ECB's balance sheet has shrunken by an additional €167 billion.

The ECB knew that that could happen, so simultaneously with charging 10 basis points interest on deposits it also reduced the interest rate on its weekly main refinancing operations (MRO) by 10 basis points. This results in an absolute wash in the banking system’s cost of funds over time as the new MROs at the lower rate replace outstanding MROs at the higher rate. [Note: The deposit became effective immediately on all existing deposits. The reduced loan cost applies only to new loans.]

The banking systems’ cost on funds obtained from the ECB equal the interest cost of the borrowed funds less any interest paid on the deposits created or plus any interest charged on deposits. The old loan interest rain was 25 basis points, and the resulting deposit at the central bank paid zero. The net cost to the banking system was 25 basis points. If the loan cost is reduced to 15 basis points and the deposit rate is increased to 10 basis points, the cost to the banking system is calculated

Interest on loan .15 + deposit cost -.10 = .25.

In other words, the cost of the funds equals the 15 basis points in interest on the loan plus the 10 basis points charge on the deposits for a total cost of funds of .25 basis points.

There’s no difference in the cost of the loans before and after. There’s no incentive to do anything, and in fact even if the cost were ten times as much it could not encourage banks to make more loans. Banks can create loans at will. They do not need central bank money to create loans. The issue is not the lack of willingness or ability of the banking system to make loans. The issue is the lack of qualified demand.

There are times when banks go insane and make loans to unqualified borrowers. We’ve just been through one of those periods. Chastened by the resulting collapse, most banks, in the interest of self preservation, have only been interested in making loans to qualified borrowers. What’s lacking today is qualified borrowers. Effective loan demand is weak, and there’s nothing the ECB can do about that.

The Fed knows that, so instead of voluntary lending programs, it resorts to outright securities purchases to inject funds into the system. While the ECB’s balance sheet keeps shrinking, the Fed, by forcing Primary Dealers to sell securities to it keeps growing its balance sheet and keeps forcing cash into the system. Since economic loan demand is far less than the amount of cash the Fed is forcing into the system, its actions only causes

The ECB can’t do that because it does not have a captive dealer system to force funds into the system. It also does not purchase government securities except on a limited and tortured basis to get around its own rules. To counter that problem it is now making plans to purchase asset backed securities. The ostensible purpose of that is to stimulate bank lending to businesses. But that can’t work without qualified borrowers for the banks to lend to. What it will do is further stimulate the worldwide asset bubble as the ECB buys more ABS than the banks can replace with new lending.

It would appear that the ECB is either stupid or insane if it believes these measures will work. But the ECB is neither stupid nor insane. These new policies are just a bluff, a con, an attempt to get the market to believe some kind of fantasy in the vain, stupid, and foolish hope that that will somehow stimulate the European economy. My guess is that it won’t work.

END TRANSCRIPT

ADDITIONAL NOTES

Charging interest on those deposits will not stimulate lending. There’s so much ignorance and misinformation being promulgated in the media and the blogging community about the ECB’s new program, it is stunning. Absolutely stunning. Apparently no journalists or bloggers understand the simplest basics of double entry accounting and the fact that there are two different balance sheets involved in central bank actions.

For each central bank action there is a debit and a credit on the books of the central bank, and a debit and a credit on the books of the banks. When a central bank lends to banks, that creates a cash asset on the banks’ ledger. Those assets are held as deposits at the central bank (or they can ask for and get vault cash- but they don’t because there’s insufficient demand for paper cash). Central banks can’t direct what banks do with the cash assets created on the banks’ balance sheet when the central bank makes a loan to them. The fact of whether it is paying interest on the deposits so created, or charging interest on them has zero impact on total money supply. There’s no sterilization.

Furthermore, unlike the Fed’s purchases from Primary Dealers, the ECB’s programs are voluntary. It cannot force banks to borrow money. OK, with the LTRO it “strongly encouraged” all banks to borrow the funds, look what happened when the involuntary holding period ended. Those funds were repaid lickety split. Some of the unneeded funds were clearly used to fund a US Treasury carry trade. As soon as the banks were allowed to begin repaying the LTRO after the mandatory one year holding period, look what happened. The Fed has had a voluntary lending program forever. It’s called the Discount Window. Nobody uses it.

ECB Balance Sheet and US Treasuries- Click to enlarge

ECB Balance Sheet and US Treasuries- Click to enlarge

Any strictly voluntary lending programs that are restricted to a specific purpose where there’s no profit incentive and no qualified borrowers for the banks to actually lend to, won’t be used.

The interest that the ECB will now charge on deposits is a direct offset to the reduced cost on the loans it has outstanding to the banks. It’s a wash transaction. Will the banks voluntarily increase lending because of that? Obviously not. Furthermore, you need qualified borrowers. You cannot force banks to lend money they know or strongly believe can’t be repaid.

It’s all a con, a shell game. And the nonsense about it in the media is truly frightening.

Banks do not need central bank cash to create loans. A loan creates its own cash and own reserve at the bank. With all the excess cash already on their books, the only constraints on lending is demand from qualified borrowers and bank capital. If capital/asset ratios are adequate banks can lend. Whether they will or not depends on qualified loan demand.

]]>
http://wallstreetexaminer.com/2014/07/why-ecbs-new-policy-is-a-con-game-that-wont-work/feed/ 0
Geopolitics, The Wisdom of US Consumers, and The Long Term Trend http://wallstreetexaminer.com/2014/07/geopolitics-the-wisdom-of-us-consumers-and-the-long-term-trend/ http://wallstreetexaminer.com/2014/07/geopolitics-the-wisdom-of-us-consumers-and-the-long-term-trend/#comments Sat, 19 Jul 2014 04:17:09 +0000 http://radiofreewallstreet.fm/?p=3663 Read more →

]]>
This is a syndicated repost courtesy of Radio Free Wall Street. To view original, click here.

Lee Adler looks at whether geopolitical watersheds matter to the market, and why consumer attitudes are critically important to understand stock market and economic trends, with an eye to both the short term and long term outlooks. Subscribers may right click here to open or download this video and play in your media player at the correct resolution. Or click here for a lower resolution video.

To listen to audio only, click here.

To see samples of past videos on a 30 day delayed basis go to our Youtube channel.

If you are not a subscriber and would like to see or hear not only today’s program but all weekly video programs, click this button to start your subscription. It takes less than a minute to complete the signup form and start watching or listening to all Radio Free Wall Street programs. To learn more click here or join and listen right now. By clicking this button, I agree to the Wall Street Examiner’s Terms of Use.

3 month subscription to Radio Free Wall Street podcasts, renewing automatically unless canceled. Price: $39.00

 

 

Feedback

Please send your questions and suggestions for future programs.

[contact-form] ]]>
http://wallstreetexaminer.com/2014/07/geopolitics-the-wisdom-of-us-consumers-and-the-long-term-trend/feed/ 0
Ominous Portents in Consumer Sentiment http://wallstreetexaminer.com/2014/07/ominous-portents-in-consumer-sentiment/ http://wallstreetexaminer.com/2014/07/ominous-portents-in-consumer-sentiment/#comments Fri, 18 Jul 2014 15:07:02 +0000 http://wallstreetexaminer.com/?p=202562 While the media focuses on the meaningless short term squiggles in consumer confidence indicators, I like to look at the long term trend. I like it because US consumers in the aggregate are far better forecasters of markets and the US economy than are the professional economic and financial pundits who are so focused on the meaningless short term headline numbers.

The verdict of consumers has been consistent for the past 16 years. Thumbs down. That matches the decline in real median household income and living standards that most Americans have experienced over that period. It represents the long term decay of the US economy, an economy that is increasingly structured to benefit only the few at the top while leaving more and more Americans behind.

These trends have been promoted by the Fed’s policies of ZIRP and QE. The benefits of these policies accrue entirely to bankers, hedge fund operators, and corporate executives who order buybacks of their company’s stock to buy the stock options they granted to themselves. They shrink their companies, lay off workers, increase the pool of unemployed and underemployed workers and pressure labor market rates lower in the process. These parasitic policies will, if allowed to play out indefinitely, eventually kill the host–the US economy. The long term consumer sentiment trend clearly reflects the results of current policy.

Consumer sentiment has also had a pattern of more pronounced shorter term declines as the US stock market topped out in 2000 and 2007. This chart from Briefing.com illustrates both the long term decline and the negative divergences that have developed at the last two major stock market tops.

Consumer Sentiment Long Term- Click to enlarge

Consumer Sentiment Long Term- Click to enlarge

Both the Michigan/Reuters measure and the Conference Board’s measure consist of a couple of useful component indicators which reflect consumer attitudes about current conditions and their feelings about the future, which are then amalgamated into a meaningless composite for headline consumption. I like to focus particularly on the present conditions component because consumers are quite capable of evaluating how things are going right now. Like the rest of us, their predictions about the future are suspect, but the expectations index has also had a knack of foreshadowing major stock market declines. In addition pessimism about the future has persisted for 16 years a clear reflection of the reality of life for most Americans.

While the long term trends clearly depict the steady deterioration in the “American way” of life, I’m more interested in those year long negative divergences that have marked the last two major tops.

Both the present conditions and expectations indexes reached the long term downtrend lines in late 2012. In spite of stock prices going on a massive run since then, consumer sentiment has not broken out in similar fashion. It has remained below the long term trendlines. This shows that the stock market bubble is benefiting only the privileged few. Economic gains are not accruing to the majority.

As a technical analyst, I see the inability of these indexes to break out to the upside as a sign that the next big move to the downside in the markets and the economy is merely a matter of time. In 48 years of charting I have come to see that technical analysis is useful in understanding all kinds of trends, not just in stock and commodity prices as most traders use them, but in economic data as well. Technical analysis helps us to recognize and understand clearly the history of where things have been and where the trends are currently headed. TA has some predictive ability in regards to the near term future as well but its greatest strength is in understanding the past and the present. The all important “present” is something that most pundits, with their focus on the short term headlines fail to grasp because they lack the proper perspective and clarity about the longer term trends.

The longer perspective in this case is deeply troubling.

The shorter term negative divergences from economic data and stock prices are also a red flag. If these negative trends do not reverse within a few months, and especially if they deepen, they would suggest that the stock market is likely to be forming the same kind of top that it formed in 2000 and 2007. Worse, any downturn today would start from a weaker economic position than either of the two previous bear markets. The financial and economic impacts of a downturn from such a weak position are likely to be devastating.

]]>
http://wallstreetexaminer.com/2014/07/ominous-portents-in-consumer-sentiment/feed/ 2
Initial Claims Below Record Lows Of Housing Bubble Show Economic Distortion, Overheating http://wallstreetexaminer.com/2014/07/initial-claims-below-record-lows-of-housing-bubble-show-economic-distortion-overheating/ http://wallstreetexaminer.com/2014/07/initial-claims-below-record-lows-of-housing-bubble-show-economic-distortion-overheating/#comments Thu, 17 Jul 2014 15:31:49 +0000 http://wallstreetexaminer.com/?p=202476 Initial claims for unemployment are below bubble record levels after first reaching that extreme in September of last year. The warning signs of a distorted, maladjusted, overheated economy continue.

The headline, seasonally adjusted (not actual) number for initial unemployment claims for the week ended July 12,  the 27th week of the year, was 302,000, which was 11,000 less than the consensus guess of Wall Street economists. The actual numbers, which the Wall Street captured media ignores, again show claims below the levels reached at the top of the housing/credit bubble in 2006, a condition which has now persisted for 10 months. Since September 2013 when the number of claims first fell to a record low, the numbers have suggested that the central bank driven financial engineering/credit bubble has reached a dangerous juncture.

The headline number is seasonally adjusted, therefore fictional. It may or may not give an accurate impression of reality, depending on the week. The recent seasonally adjusted numbers, and the way the mainstream media reports the numbers, give little indication that by historical standards the numbers of firings and layoffs that lead to unemployment claims represent a danger sign. No one is ringing alarm bells. Bulls view this condition as a sign that the economy has reached “escape velocity.” Bears suggest that this is” as good as it gets.” I think it’s even more ominous.

It’s standard practice in the media for mainstream pundits to be looking the wrong way, but until the last couple of weeks I hadn’t even seen any independent bloggers raise this issue either. Now some observers have come up with the term “as good as it gets.” They’re catching up to reality, but are still behind the curve. In my view, the economy reached that level last fall.  Perhaps a year or two from now they will look back and say, “The economy was overheated, but nobody saw it,” except for those of us who pay attention to the actual data, as opposed to the seasonally adjusted diversion that everyone is fixated on.

According to the Department of Labor, “The advance number of actual initial claims under state programs, unadjusted, totaled 369,591 in the week ending July 12, an increase of 47,079 (or 14.6 percent) from the previous week. The seasonal factors had expected an increase of 49,945 (or 15.5 percent) from the previous week. There were 410,974 initial claims in the comparable week in 2013.”

Initial Unemployment Claims- Click to enlarge

Initial Unemployment Claims- Click to enlarge

Actual initial unemployment claims were 10% lower than the same week a year ago. The normal range of the annual rate of change the past 3.5 years has mostly fluctuated between -5% and -15%. The current number is just a continuation of the bubble trend.

The actual week to week change last week was an increase of 47,000. Increases are normal for this week of July. The current number is consistent with the average change for this week.

New claims were 2,644 per million workers (based on June nonfarm payrolls). This compares with 2,759 per million in this week of 2007 and 2,768 per million in the comparable week of 2006, at the very top of the housing bubble. In September 2013, this figure set a record low. In each ensuing week the numbers have remained at or near record levels.

Initial Unemployment Claims Per Million Workers- Click to enlarge

Initial Unemployment Claims Per Million Workers- Click to enlarge

A soft economy with high unemployment, but where hardly any workers are laid off each week suggests that employers are holding on to the workers they have with the skill sets they need because they cannot find those skills in the enormous pool of unemployed workers. The labor market of those with needed skills is tight. The recent surge in job openings shown by Janet Yellen’s favorite measure, the JOLTS Survey (Job Openings and Labor Turnover), supports that view.

]]>
http://wallstreetexaminer.com/2014/07/initial-claims-below-record-lows-of-housing-bubble-show-economic-distortion-overheating/feed/ 0
Industrial Production Surge Looks Like 2007 Just Before Economy Collapsed http://wallstreetexaminer.com/2014/07/industrial-production-surge-looks-like-2007-just-before-economy-collapsed/ http://wallstreetexaminer.com/2014/07/industrial-production-surge-looks-like-2007-just-before-economy-collapsed/#comments Wed, 16 Jul 2014 16:08:03 +0000 http://wallstreetexaminer.com/?p=202391 The headline number on Industrial Production “missed” today, coming in at a seasonally adjusted gain of 0.2% versus the economic consensus guess of 0.4%. But is that accurate and does it matter?

The Fed’s actual, not seasonally adjusted (NSA) Industrial Production Index was up 2.8% in June versus May. That’s a completely average performance for June, which is always an up month and had a similar gain in June in each of the past 10 years. The average gain was +2.9% over the past 10 years and the index was up 3% in June 2013. This is based on units of production and thus is a measure of “real” performance, not skewed by inflation.

The year over year gain was 4.1%. This is near the center of the range of annual rates of change over the past 3 years. I’ll let others argue whether 4% is “good” or “bad.” I’ll just note that it has been an amazingly consistent performance, ignoring the vagaries of the Fed’s stop/start pumping of money into the financial markets via periods of QE interspersed with no QE. The growth rate has been about the same under QE3-4 as it was in 2011, when there was no QE. Today’s growth rate is lower than in June-November 2011, when there was also no QE. The evidence does not support the Fed’s contention that money pumping and ZIRP stimulate economic growth.

But as I have opined with regard to other economic data, not only does this appear to be as good as it gets, there are aspects of what appear to be a dangerously extended condition on this chart.

Industrial Production, The Fed, and The Stock Market - Click to enlarge

Industrial Production, The Fed, and The Stock Market – Click to enlarge

The industrial production index is based on units of production and therefore need not be adjusted for inflation. As I have shown in a prior analysis, the gains have been skewed by energy production. If those components are removed, net industrial production ex energy remains below 2007 peak levels.

Ex-energy industrial production rose just 2.6% over the past 12 months. The growth rate has been declining since 2010 in spite of all the Fed’s money pumping… Or because of it because it encourages financial engineering at the expense of real investment. And as we see in this chart there’s been a surge this year that looks exactly like the surge in the first half of 2007.

Non Energy Industrial Production - Click to enlarge

Non Energy Industrial Production – Click to enlarge

I’ve asked before, “Can the energy boom be sustained at this pace?” Maybe this chart holds clues to the answer.

Is Energy Capacity Growth Boner Sustainable - Click to enlarge

Is Energy Capacity Growth Boner Sustainable – Click to enlarge

And the next question is, “What happens to the US economy when this begins to moderate?”

Industrial producers apparently take their cues from the stock market, which in turn has been directly driven by Fed cash over at least the past 12 years.The Fed pumped up the system at a steady pace throughout the 2003-06 period, growing its balance sheet at a 5% clip throughout the period. That’s hard to see on the chart because the subsequent balance sheet expansion has been so extreme. But in 2007, the Fed pulled the plug and stopped growing its assets just as the massive, easy money driven, generational credit bubble had begun to enter its chaotic deflation phase.

The Fed is currently moving gradually to end its historic rates of money pumping inflating the current massive bubble. That pumping will slow to a crawl at the end of this year with only MBS replacement purchases continuing at a low background level in 2015 after the Fed ends outright Treasury and MBS purchases. Whether that will be sufficient to keep the current asset bubble driven industrial production surge from another chaotic collapse is the biggest question.

I suspect that those who fear that the Fed can never end QE, at least for more than a few months may prove correct. That has terrible implications for the future. The markets themselves will send timely clues as to how that will manifest itself. It’s up to us to pay attention for those clues.

]]>
http://wallstreetexaminer.com/2014/07/industrial-production-surge-looks-like-2007-just-before-economy-collapsed/feed/ 0
Worst June Retail Sales Performance In History, But So What http://wallstreetexaminer.com/2014/07/june-retail-sales-performance-worst-in-history-but-so-what/ http://wallstreetexaminer.com/2014/07/june-retail-sales-performance-worst-in-history-but-so-what/#comments Wed, 16 Jul 2014 13:59:21 +0000 http://wallstreetexaminer.com/?p=202382 Actual, not seasonally adjusted data from the Commerce Department showed a 5.6% drop in June retail sales versus May. It was the worst June performance in the 22 year history of this data. However, the year to year growth rate remained at +4.3% which was in line with the trend of the past year. This data is not adjusted for inflation.

M7402100131020829155744832158[1]

On an inflation and population adjusted basis, real retail sales per capita have almost recovered to the peak level reached in 2005.That’s after 5 years of recovery. Growth at the top of the income spectrum with an additional push from steadily growing foreign shopping tourism in the US has driven this growth.

DRSTOOL!REALRETAILPERCAPPRELIM[1]

Real retail sales per capita dropped by 6.2% in June versus May. Again, this was the largest June drop in the history of this data. However, the annual growth rate of +2.5% was within the range of the past 4 years, which has averaged +2.6%. Real growth of +2.6% isn’t too shabby, but again, the performance of the upper income strata of American’s and shopping tourism growth has skewed this growth upward. Most Americans, hit with declining real household income have been forced to spend less.

Interestingly, real sales growth hasn’t budged from trend since 2010, regardless of whether the Fed was pumping money into the market during the active phases of 5 years of QE, or in a pause as was the case in 2011-12. However, the Fed’s theory that printing money would drive a stock market bubble which would result in higher sales (see Bernanke’s 2010 Washington Post Oped) has apparently worked to some extent. What has not worked is that the benefits have not accrued to the majority, but only to the privileged few, mostly bankers, leveraged speculators, and corporate executives ordering their companies buy back the stock options which they issued to themselves.

The question is how long this Fed bubble induced appearance of growth can be sustained without benefiting the broader population and how long it can be sustained without the central bank directly inflating stock prices. We’ll find out, at least for a while, early in 2015 when the Fed will once again temporarily pause QE, but not end it completely. It will continue to purchase MBS, which in turn will pump at least some cash into the financial markets via Primary Dealer trading accounts.  That should provide at least a modest test.

Of course, the “real” growth rate is also actually almost certain to be severely overstated since the Federal Government deliberately understates inflation.

]]>
http://wallstreetexaminer.com/2014/07/june-retail-sales-performance-worst-in-history-but-so-what/feed/ 0
Escape Velocity, As Good As It Gets, Or A Fish Beginning to Rot? http://wallstreetexaminer.com/2014/07/escape-velocity-as-good-as-it-gets-or-a-fish-beginning-to-rot/ http://wallstreetexaminer.com/2014/07/escape-velocity-as-good-as-it-gets-or-a-fish-beginning-to-rot/#comments Sat, 12 Jul 2014 03:54:27 +0000 http://radiofreewallstreet.fm/?p=3638 Read more →

]]>
This is a syndicated repost courtesy of Radio Free Wall Street. To view original, click here.

Lee Adler looks at more data that suggest the both the stock market and the economy have reached dangerous extremes. Subscribers may right click here to open or download this video and play in your media player at the correct resolution. Or click here for a lower resolution video.

To listen to audio only, click here.

To see samples of past videos on a 30 day delayed basis go to our Youtube channel.

If you are not a subscriber and would like to see or hear not only today’s program but all weekly video programs, click this button to start your subscription. It takes less than a minute to complete the signup form and start watching or listening to all Radio Free Wall Street programs. To learn more click here or join and listen right now. By clicking this button, I agree to the Wall Street Examiner’s Terms of Use.

3 month subscription to Radio Free Wall Street podcasts, renewing automatically unless canceled. Price: $29.00

 

 

]]>
http://wallstreetexaminer.com/2014/07/escape-velocity-as-good-as-it-gets-or-a-fish-beginning-to-rot/feed/ 0
Escape Velocity? As Good As It Gets? Or A Dangerous Economic Extreme? http://wallstreetexaminer.com/2014/07/escape-velocity-as-good-as-it-gets-or-a-dangerous-economic-extreme/ http://wallstreetexaminer.com/2014/07/escape-velocity-as-good-as-it-gets-or-a-dangerous-economic-extreme/#comments Thu, 10 Jul 2014 18:02:52 +0000 http://wallstreetexaminer.com/?p=202071 Initial claims for unemployment remain near bubble record levels after first reaching that extreme in September of last year. The warning signs of a distorted, maladjusted, overheated economy continue.

The headline, seasonally adjusted (not actual) number for initial unemployment claims for the week ended July 5,  the 26th week of the year, was 304,000. The consensus guess of Wall Street economists was 311,000, a good guess. The actual numbers, which the Wall Street captured media ignores, continue to show claims near the levels reached at the top of the housing/credit bubble in 2006, a condition which has now persisted for 10 months. Since September 2013 when the number of claims first fell to a record low, the numbers have suggested that the central bank driven financial engineering/credit bubble has reached a dangerous juncture.

The headline number is seasonally adjusted, therefore fictional. It may or may not give an accurate impression of reality, depending on the week. The recent seasonally adjusted numbers, and the way the mainstream media reports the numbers, give little indication that by historical standards the numbers of firings and layoffs that lead to unemployment claims represent a danger sign. No one is ringing alarm bells. Bulls view this condition as a sign that the economy has reached “escape velocity,” whatever that means. Bears suggest that this is as good as it gets. I think it’s even more ominous than that.

It’s standard practice in the media for mainstream pundits to be looking the wrong way, but until the last couple of weeks I hadn’t even seen any independent bloggers raise this issue either. Now some observers have come up with the term “as good as it gets.” They’re catching up to reality, but are still behind the curve. In my view, the economy reached that level last fall.  Perhaps a year or two from now they will look back and say, “The economy was overheated, but nobody saw it,” except for those of us who pay attention to the actual data, as opposed to the seasonally adjusted diversion that everyone is fixated on.

According to the Department of Labor, “The advance number of actual initial claims under state programs, unadjusted, totaled 322,248 in the week ending July 5, an increase of 16,542 (or +5.4 percent) from the previous week. The seasonal factors had expected an increase of 28,394 (or + 9.3 percent) from the previous week. There were 383,811 initial claims in the comparable week in 2013.

- Department of Labor (DOL)

Initial Unemployment Claims - Click to enlarge

Initial Unemployment Claims – Click to enlarge

Actual initial unemployment claims were a whopping 16% lower than the same week a year ago, but this could be a calendar factor. The 26th week of the year ended at the end of June last year. Compared to that week this week’s number is down just 4%. The normal range of the annual rate of change the past 3.5 years has mostly fluctuated between -5% and -15%. There’s no news here, just a continuation of the bubble trend.

The actual week to week change last week was an increase of 16,500. Increases are normal in early July, but this was by far the smallest increase of the past decade for this week. The average change for the comparable week over the past 10 years was an increase of more than 52,000. As good as it gets, or dangerously overheated and distorted? I think the latter. Time will tell.

New claims were 2,306 per million workers (based on June nonfarm payrolls). This compares with 2,160 per million in this week of 2007 and 2,217 per million in the comparable week of 2006, at the very top of the housing bubble. In September 2013, this figure set a record low. It continues to hover near record levels.

New Claims at Bubble Levels- Click to enlarge

New Claims at Bubble Levels- Click to enlarge

A soft economy with high unemployment, but where hardly any workers are laid off each week suggests that employers are holding on to the workers they have with the skill sets they need because they cannot find those skills in the enormous pool of unemployed workers. The labor market of those with needed skills is tight.

The recent surge in job openings shown by Janet Yellen’s favorite measure, the JOLTS Survey (Job Openings and Labor Turnover), supports that view.

JOLTS At Record Extreme- Click to enlarge

JOLTS At Record Extreme- Click to enlarge

The current surge in job openings now exceeds the number reached at the peak of the housing bubble. The Fed drives stock bubbles and employers take their cues from stock prices, following the market up and finally going “all in” on hiring as the bubble reaches its zenith. By the standards of the 2003-2006 housing bubble, the US economy has now reached a similar extreme in the current “financial engineering bubble.” From this perspective, this is a dangerous condition that could once again be a precursor to collapse as the Fed gradually stops the pumping that inflated this bubble.

Meanwhile, those without the needed job skills have been marginalized into a US underclass of “untouchables” who cannot participate in, or importantly, help to drive, economic growth. Instead, they become an increasing drag on growth.

In this regard, the bubble driven, distorted, maladjusted, top heavy US economy appears to be stretched to its limit. For an economy to maintain healthy growth it needs a growing population of workers who can afford to consume the goods and services the economy produces. Without that growth, stagnation is the best possible outcome. With the number of workers who cannot participate in economic growth increasing either because they have no jobs or only jobs with low pay, economic implosion may be inevitable.

Timing is the issue. We don’t use economic indicators for stock market timing. The markets themselves are their own best indicators. However, when the claims data begins to weaken from the current extremes, that should be a sign that the central bank driven financial engineering credit bubble has begun to deflate.

]]>
http://wallstreetexaminer.com/2014/07/escape-velocity-as-good-as-it-gets-or-a-dangerous-economic-extreme/feed/ 0
How The US Government Deliberately and Systematically Understates Inflation http://wallstreetexaminer.com/2014/07/us-government-deliberately-systematically-understates-inflation/ http://wallstreetexaminer.com/2014/07/us-government-deliberately-systematically-understates-inflation/#comments Thu, 03 Jul 2014 04:50:02 +0000 http://wallstreetexaminer.com/?p=201721 The US Government has been deliberately and systematically understating inflation since 1983. This video shows how the BLS does it.

This is a segment from the June 27 Radio Free Wall Street video for subscribers. The remainder of the program discusses why July could be rocky for stocks, and why real time data Federal tax revenues suggest that the financial engineering bubble should be near its peak. Subscribe to all of these cutting edge commentaries.

]]>
http://wallstreetexaminer.com/2014/07/us-government-deliberately-systematically-understates-inflation/feed/ 0
US Government Commits History’s Greatest Fraud With CPI Methodology http://wallstreetexaminer.com/2014/06/us-government-commits-historys-greatest-fraud-with-cpi-methodology/ http://wallstreetexaminer.com/2014/06/us-government-commits-historys-greatest-fraud-with-cpi-methodology/#comments Sat, 28 Jun 2014 04:14:06 +0000 http://radiofreewallstreet.fm/?p=3608 Read more →

]]>
This is a syndicated repost courtesy of Radio Free Wall Street. To view original, click here.

The US Government has committed massive fraud in measuring inflation since 1983.   Lee Adler discusses why that means the Fed won’t just be behind the curve, it will drive us off the road and over a cliff. He also looks at the issue of whether record tax collections mean peak financial engineering and the approaching end of the bubble. Subscribers may right click here to open or download this video and play in your media player at the correct resolution.

To listen to audio only, click here.

To see samples of past videos on a 30 day delayed basis go to our Youtube channel.

If you are not a subscriber and would like to see or hear not only today’s program but all weekly video programs, click this button to start your subscription. It takes less than a minute to complete the signup form and start watching or listening to all Radio Free Wall Street programs. To learn more click here or join and listen right now. By clicking this button, I agree to the Wall Street Examiner’s Terms of Use.

3 month subscription to Radio Free Wall Street podcasts, renewing automatically unless canceled. Price: $29.00

Feedback

[contact-form] ]]>
http://wallstreetexaminer.com/2014/06/us-government-commits-historys-greatest-fraud-with-cpi-methodology/feed/ 0