The Wall Street Examiner http://wallstreetexaminer.com Get the facts. Fri, 30 Jan 2015 02:30:09 +0000 en-US hourly 1 My First Two Market Hypotheses for January Successfully Test, Now Comes The Third http://wallstreetexaminer.com/2015/01/my-first-two-market-hypotheses-for-january-successfully-test-now-comes-the-third/ http://wallstreetexaminer.com/2015/01/my-first-two-market-hypotheses-for-january-successfully-test-now-comes-the-third/#comments Fri, 30 Jan 2015 02:29:43 +0000 http://wallstreetexaminer.com/?p=234896 Support in the 1985-2000 area was tested and held. This looks like a test of the earlier January low that we thought was a 13 week cycle low. I had also suggested that with the 6 month cycle rolling over, the 13 week cycle up phase would be weak and choppy. Put a check mark next to that one. But what about the third leg of that hypothesis? That’s still to come.

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Fed Statement: Not Dovish, Not Hawkish—-Just Gibberish http://wallstreetexaminer.com/2015/01/fed-statement-not-dovish-not-hawkish-just-gibberish/ http://wallstreetexaminer.com/2015/01/fed-statement-not-dovish-not-hawkish-just-gibberish/#comments Thu, 29 Jan 2015 21:55:35 +0000 http://davidstockmanscontracorner.com/?p=38879 This is a syndicated repost courtesy of David Stockman's Contra Corner » Stockman’s Corner. To view original, click here.

Call it 529 words of gibberish and be done!

All of the FOMC’s platitudes about the economy “expanding at a solid pace”, labor market conditions which have “improved further”, household spending which is “rising moderately” and business fixed investment which is “expanding” are not simply untruthful nonsense; they are a smokescreen for the Fed’s actual intention. Namely, to keep the Wall Street gamblers in free money in the delusional hope that ever rising stock prices will generate a trickle down of “wealth effects” in the main street economy.

But in equivocating still another time about when they intend to get the Fed’s big fat ZIRP thumb off the money  market, the denizens of the Eccles Building have shown their true colors. The FOMC is not really comprised of economists or central bankers. It is simply a groupthink posse of spineless cowards who are petrified of a Wall Street hissy fit—–and are therefore willing to dispense whatever spurious word clouds they judge may be necessary to keep the gamblers hitting the “bid” until the next meeting.

After all, how can it possibly be true that notwithstanding all the “solid” economic advances it crowed about in the opening paragraph, the Fed still intends to maintain zero interest rates through mid-year—or for what will be an out-of-this-world 80 months running? As recently as 10 years ago that incredulous juxtaposition—-a solid economy coupled with desperate policy measures—-would have been laughed out of court by even the Fed’s own economists.

In fact, we don’t have a solid economy at all, and the halting advances of recent years have absolutely nothing to do with Fed policy. Instead, the utterly trite macroeconomic commentary contained in its meeting statements is a form of Keynesian ritual incantation based on a delusional conceit. Namely, that left to its own devices the US economy would chronically sink into a recessionary stupor, and that it is only the deft interventions of the central bank which nudge the $18 trillion US economy back onto the path toward full employment and the realization of “potential GDP”.

The very opposite is true. The Fed has become a serial bubble machine. Its fantastic bouts of money printing and the resulting destruction of honest price discovery in the financial markets lead to violent boom and bust cycles in the Wall Street casino—-of which we have had three since the mid-1990s.

These violent financial swings, in turn, send the main street economy into a corresponding cycle of advance and relapse. These real economy undulations are driven by the artificial stocking and de-stocking of inventory and labor and the artificial bicycling of consumer and business confidence triggered by the Wall Street crashes and reflations.

But here’s the thing. The intervals of GDP and jobs “advance” between periodic financial market busts reflect the resilience and regenerative powers of the capitalist market, not the interest rate manipulations and balance sheet machinations of the Fed.

So what the Fed’s post-meeting statements describe as policy driven economic “advances” and “improvements” are actually the halting gains that main street workers, businesses and entrepreneurs are able to realize from their own economic efforts. Indeed, the false correlation of natural capitalist recovery with central bank policy intervention has gotten so ritualized and trivialized that yesterday’s crowing about economic recovery is nearly identical to the word clouds the FOMC emitted in 2007 and 1999.

Stated differently, there is no natural business cycle that the Fed is improving upon. There is only a destructive and artificial boom-and-bust cycle owing to central bank policy intervention that pumps the main street economy up and down over and over again. Accordingly, the only relevant measure of economic conditions is not the short-run changes which materialize in the recovery rebound after each financial bust, but the trend rate of change over time——something that can best be measured on a peak-to-peak basis.

Forget reported GDP oscillations from quarter-quarter. They measure “spending”, not production; and it is the latter which is the true source of sustainable economic growth and rising wealth—–to say nothing of the seasonally maladjusted and everlastingly revised noise that afflicts the quarterly and monthly reports.

By the same token, wage and salary income is the  true marker of national production of goods and services, and is free of the circular logic in the GDP accounts in which “spending”, such as personal consumption expenditures (PCE), derived from transfer payments is counted as “growth”.

Needless to say, if the $2.7 trillion of current transfer payments are funded with government borrowing, they do not measure growth at all—just the theft of future income to service the debt. And if they are funded with taxes under today’s conditions of heavy income and payroll tax burdens, this may well detract, not add, to growth over time owing to the supply side disincentives to workers and entrepreneurs.

So here’s the truth, and it has nothing to do with a “solid” economy. During the seven years since the Q3 2007 peak of the Fed’s last bubble, total wage and salary income in the US economy has grown by just 15.6% in nominal terms or from $6.4 trillion to $7.4 trillion.

That amounts to a paltry annual growth rate of 2.2% per year. And when you factor out inflation (even using Uncle Sam’s GDP deflator which significantly under-measures the true cost of living), there is virtually nothing left. In fact, the annual rate of real wage and salary gain during the last seven years has been just 0.5%.

Moreover, that limpid gain represents a sharp deterioration from the comparable trend of previous boom-and-bust cycles, meaning that economic performance is getting worse over time, notwithstanding the Fed’s all out embrace of massive money printing. Thus, during the seven years after the 2000-2001 dotcom bust, US wage and salary income grew by double the rate cited above. That is, nominal incomes earned by employed Americans rose by 4.1% per year; and when you adjust for inflation, the gain was actually triple the most recent period, rising by 1.5% annually.

Go back to the seven year gain after the 1990-1991 bust and the contrast is even more striking. Compared to the aggregate gain of 15.6% during 2007-2014, the seven year gain back then was 44%!  Again, back out the GDP deflator and the pick-up in real wage and salary income was 3.1% annually.

Folks, that’s 5X greater than the “solid” advance that the pettifoggers at the Fed were crowing about yesterday. And this unassailable evidence that our monetary politburo is actually undermining the American economy, not helping it, can be seen in almost any honest trend level comparison you can make.

Take the Fed’s spurious claim that labor markets have “improved further”.  No they haven’t.

Labor markets have not even recovered to where they were before the 2008 crash. At least after the dotcom crash in 2000, there was a small gain in full-time “breadwinner” jobs in the US economy. But as shown below, as of December 2014 there were still 2.5 million fewer breadwinner jobs in the US economy than there were in late 2007.

Breadwinner Economy Jobs - Click to enlarge

In fact, even on a headline basis there are only about 2 million more jobs reported by the BLS than at the last peak. That amounts to just 24k jobs per month or only a tiny fraction of the 150,000 per month growth of the labor force.

Again, this represents a sharply deteriorating trends. During the 7-years after the 2000 peak, the BLS reported a gain of 5 million jobs; and after the 1990 peak, the 7-year gain was more than 12 million nonfarm payroll additions.

Moreover, even the paltry net jobs gain since the 2007 peak has been overwhelmingly in part-time jobs in bars, restaurants, retail emporiums and temp agencies. But the “jobs” in the category shown below average only 26 hours per week and pay rates average less than $14 per hour. Accordingly, they generate less than $20,000 of earned income per year or only 40% of the average wage in the breadwinner category.

This is “further improvement”? No, it is rank sophistry and deliberately misleading propaganda.

Part Time Economy Jobs- Click to enlarge

Finally, consider consumption spending growth—-notwithstanding the fact that the obsessive focus on this by the Fed and Wall Street stock promoters is really just a Keynesian shibboleth. The American economy desperately needs a much higher rate of private savings and productive investment if real wealth and living standards are to rise in the future.

But as described more fully in this morning’s post called “Bubble Finance At Work: A Tale of Two Economies”, even the growth in PCE that has actually occurred since the last peak has been overwhelming focused at the very top of the income ladder. Specifically, 30% of all the gain in consumption spending during the present so-called recovery has been concentrated among the top 5% of households.

In fact, through the most recent year available (2012) real consumption spending among the bottom 95% of American households (or about 115 million) was still 1% below the prior peak.  In other words, the overwhelming share of consumption gains have come from the small fraction of households which own upwards of 85% of financial assets.

Needless to say, that is not a measure of household spending that is “rising moderately”. Instead, it is evidence of the vast shift of income and wealth to the top of the ladder that has resulted from the Fed’s Wall Street coddling policies. And its not even a sustainable gain in consumption spending at all—- just a feedback loop from the Fed’s third bubble this century, and consumption spending which will swiftly shutdown when the Fed’s latest and greatest financial bubble finally bursts.

So call all the Fed’s crowing about the US economy’s alleged “solid” advance exactly what it is. That is to say, Keynesian gibberish designed to disguise its craven capitulation to the Wall Street casino.

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Will The Economist’s New Editor Bring More Intellectual Honesty on Trade? http://wallstreetexaminer.com/2015/01/will-the-economists-new-editor-bring-more-intellectual-honesty-on-trade/ http://wallstreetexaminer.com/2015/01/will-the-economists-new-editor-bring-more-intellectual-honesty-on-trade/#comments Thu, 29 Jan 2015 21:38:09 +0000 http://alantonelson.wordpress.com/?p=2131 This is a syndicated repost courtesy of RealityChek. To view original, click here.

The editor of the London-based Economist is leaving, something I normally wouldn’t write about except the magazine is one of the world’s most influential, and it has been a leading voice for trade liberalization since its founding (in 1843!). Most of all, if its departing chief is any indication, the publication hasn’t learned a blessed thing about how the distinctive form of freeing trade spearheaded by the United States since the early 1990s was instrumental in triggering the worst global recession since the Great Depression, and how it continues threatening an even worse replay.

John Micklethwaite, who has edited The Economist since 2006, allows in a farewell essay that “Globalisation has indeed brought problems in its wake.” But he insists that those difficulties have been more than offset by freer trade’s record doing “an incredible job of reducing want” and, in particular, of lifting nearly 1 billion people out of extreme poverty since 1990.

Yet Micklethwaite makes no mention of the role played by policy-induced trade flows over the last two and a half decades in inflating the credit and housing bubbles in the United States and other high income countries, and thus ensuring that, without remedial action, they would at some point burst with disastrous consequences for the entire world.

As I’ve mentioned before, the argument that what are called “global imbalances” helped set the stage for the crisis and its painful aftermath is well established in the ranks of the world’s leading economists. Micklethwaite knows it backwards and forwards; his magazine has even covered it. But it’s never informed The Economist’s widely cited and enthusiastic editorial paeans to trade agreements and related policy decisions that unmistakably helped light and added fuel to the fire. And this narrative is nearly unheard of at the level of America’s chattering class, its Mainstream Media, and its elected politicians – many of whom either rely on The Economist for this type of deep analysis, or pretend to.

That’s pretty scary given that President Obama and the powerful offshoring lobby are pushing for some of the most ambitious trade liberalization deals in world history. At the same time, it’s at least partly understandable, since it’s a difficult argument to make. So let me try to express it as simply as I can.

Since the pursuit of the North American Free Trade Agreement (NAFTA), starting in the very late-1980s, American trade policy in particular has followed a strongly offshoring bent. Its main purpose has been not to promote more sales of American-made products and services overseas. If that were the case, its main targets would not have been very low-income countries like Mexico and China and Central America and the Andean countries of South America and sub-Saharan Africa and Jordan and Vietnam. Their populations have simply been too poor for their economies ever to have become significant buyers of what U.S. workers turn out – at least on a net basis.

Instead, the purpose was to enable U.S. businesses, primarily big multinational manufacturers, to take advantage of the super-low wages and other costs and light regulations, in these countries, and turn them into bases for supplying the American market – with factories and workforces once located in the United States.

Why was this so unwise? And how did it help bring on the financial crisis? Because all the offshoring enabled by these trade deals took income and income-earning opportunities from populations that the world economy relied on to consume (Americans and to a lesser extent West Europeans), and transferred them to those very low-income countries. That is, enough productive power was sent to the third world to undermine American and European consumption power significantly. But third world incomes started from such a low base that the new wealth could not possibly turn these populations into major net consumers.  Indeed, as with the role of global imbalances, this income shift is now no longer controversial among economists who actually know the subject.

As a result, the world’s main consumers no longer earned enough to enable their consumption to sustain adequate global growth, and the world’s new producers were still far from being able to fill the gap. Governments in the high-income countries, especially in Washington, tried to paper over the problem with unprecedented flows of cheap credit – which inflated the bubbles. But the underlying source of instability remained wholly unaddressed, as made clear not only by the bursting of those bubbles, but by the inability of the United States and most of Europe to grow satisfactorily without them.

Micklethwaite evidently decided to ignore this issue when preaching the (unalloyed) virtues of freer trade. Let’s hope his successor at The Economist displays more intellectual honesty.

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David Stockman Trashes The Fed http://wallstreetexaminer.com/2015/01/david-stockman-trashes-the-fed/ http://wallstreetexaminer.com/2015/01/david-stockman-trashes-the-fed/#comments Thu, 29 Jan 2015 21:12:51 +0000 http://wallstreetexaminer.com/?p=234894

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Initial Claims Show The Healthiest Jobs Market in History, Or Maybe Not http://wallstreetexaminer.com/2015/01/initial-claims-show-the-healthiest-jobs-market-in-history-or-maybe-not/ http://wallstreetexaminer.com/2015/01/initial-claims-show-the-healthiest-jobs-market-in-history-or-maybe-not/#comments Thu, 29 Jan 2015 18:54:06 +0000 http://wallstreetexaminer.com/?p=234879 The headline, fictional, seasonally adjusted (SA) number of initial unemployment claims for last week came in at 265,000, which blew out the Wall Street conomist crowd consensus guess of 301,000. The pundits had shaved 1,000 off  their guess after missing on the low side last week. My, my! Such pessimists!

But my interest is not in the silly expectations game of pin the tail on the number. My interest is in the actual, unmanipulated data. Analyzing that is the only way to be sure that you are seeing what’s really going on.

The Department of Labor prominently reports the actual unadjusted data clearly and illustrates it in comparison with the previous year. As it does with virtually all government economic data releases, the mainstream financial media crowd chooses to ignore reality by not reporting the actual number. In the case of this report, the DoL also reports exactly how messy the seasonally adjusted data is by reporting what the seasonal adjustment had forecast based on the arbitrary mathematical calculation of what’s normal.

According to the Department of Labor the actual, unmanipulated numbers were as follows. “The advance number of actual initial claims under state programs, unadjusted, totaled 280,237 in the week ending
January 24, a decrease of 102,358 (or -26.8 percent) from the previous week. The seasonal factors had expected a decrease of 57,297 (or -15.0 percent) from the previous week. There were 357,806 initial claims in the comparable week
in 2014.”

Initial Claims and Annual Rate of Change- Click to enlarge

Initial Claims and Annual Rate of Change- Click to enlarge

The actual week to week change last week was a drop of 102,000 (rounded). This is a greater decline than the 10 year average decrease for that week, which was a decrease of 88,000 (rounded). This year’s drop was also larger than the comparable weeks of 2014 and 2013 which fell by 58,000 and 68,000 respectively.

Actual first time claims were 21.7% lower than the same week a year ago. This is at the extreme of the normal range, which since 2010 years has mostly fluctuated between -5% and -15%. There have only been a few weeks where the year to year decline was more than 20%. But that’s the 4th instance since last September.

In the past 5 months, businesses have been unusually reluctant to cut workers. In fact, these are all time record lows in terms of the number of claims per million workers. Is that a sign of a healthy, growing economy, or a bubble economy stretched to the limit? The last two times these numbers were nearly as strong were at the tops of the housing bubble and the internet/tech bubble. The current readings come on the heels of the long running US oil/gas bubble, which has recently collapsed.

I track the daily real time Federal Withholding Tax data in the Wall Street Examiner Professional Edition. It too has been very strong over the past couple of weeks. The growth rate of withholding taxes is now running at an annual rate of gain of about 3.75% in real terms, adjusted for the trend rate of increase in workers’ weekly incomes.

While we have been teased with signs of change in the claims data from time to time, the trend is still in force. Only if we start to see the numbers coming in above the comparable week for the past year for a few weeks would it be a sign of material change in trend, and a possible excuse for the Fed to bring back the Ghost of QE Past. The current data will encourage the Fed start the smoke and mirrors game of pretending to raise interest rates.

I have been reporting that claims were at record bubble levels since September 2013. At the tops of the last two bubbles in 1999-2000 and in 2006-07 claims persisted at record low levels for a year before the economy plunged. The economic foundations were already beginning to crumble by the time the first anniversary of record readings rolled around. In other words, employers were either slow to get the message or slow to act. In the current market, the claims numbers have stayed near or at record lows from September 2013 until now. The extreme condition has now persisted for 17 months. It seems that this is either the healthiest job market ever, or the bubble to end all bubbles.

I have inverted the scale on the chart below to show the correlation with stock prices. The rate of improvement clearly slowed in 2013 and 2014 concurrent with the massive surge in Fed QE. The rate of improvement in claims was much stronger in 2012 when the Fed was not doing QE. And it appears that once again when the Fed has stopped shoveling cash at financial engineers and speculators, the jobs numbers perk up.

While the direction of the stock market is positively correlated with QE, since 2012, improvement in the job market has been negatively correlated. This is clear evidence that the conomists and media pundits are wrong. QE did NOT boost the US recovery. It suppressed it while enabling and encouraging their financial engineers ran their skimming scams.

Claims and Stock Prices? Click to enlarge

Claims and Stock Prices? Click to enlarge

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Alexis Tsipras’ Open Letter Nails The Stupendous Folly Of Brussels’ ‘Extend And Pretend’ http://wallstreetexaminer.com/2015/01/alexis-tsipras-open-letter-nails-the-stupendous-folly-of-brussels-extend-and-pretend/ http://wallstreetexaminer.com/2015/01/alexis-tsipras-open-letter-nails-the-stupendous-folly-of-brussels-extend-and-pretend/#comments Thu, 29 Jan 2015 17:20:51 +0000 http://davidstockmanscontracorner.com/?p=38854 This is a syndicated repost courtesy of David Stockman's Contra Corner » Stockman’s Corner. To view original, click here.

By Alexis Tsipras via Syriza.net.gr

Alexis Tsipras’ “open letter” to German citizens published on Jan.13 in Handelsblatt, a leading German language business newspaper

Most of you, dear Handesblatt readers, will have formed a preconception of what this article is about before you actually read it. I am imploring you not to succumb to such preconceptions. Prejudice was never a good guide, especially during periods when an economic crisis reinforces stereotypes and breeds biggotry, nationalism, even violence.

In 2010, the Greek state ceased to be able to service its debt. Unfortunately, European officials decided to pretend that this problem could be overcome by means of the largest loan in history on condition of fiscal austerity that would, with mathematical precision, shrink the national income from which both new and old loans must be paid. An insolvency problem was thus dealt with as if it were a case of illiquidity.

In other words, Europe adopted the tactics of the least reputable bankers who refuse to acknowledge bad loans, preferring to grant new ones to the insolvent entity so as to pretend that the original loan is performing while extending the bankruptcy into the future. Nothing more than common sense was required to see that the application of the ‘extend and pretend’ tactic would lead my country to a tragic state. That instead of Greece’s stabilization, Europe was creating the circumstances for a self-reinforcing crisis that undermines the foundations of Europe itself.

My party, and I personally, disagreed fiercely with the May 2010 loan agreement not because you, the citizens of Germany, did not give us enough money but because you gave us much, much more than you should have and our government accepted far, far more than it had a right to. Money that would, in any case, neither help the people of Greece (as it was being thrown into the black hole of an unsustainable debt) nor prevent the ballooning of Greek government debt, at great expense to the Greek and German taxpayer.

Indeed, even before a full year had gone by, from 2011 onwards, our predictions were confirmed. The combination of gigantic new loans and stringent government spending cuts that depressed incomes not only failed to rein the debt in but, also, punished the weakest of citizens turning people who had hitherto been living a measured, modest life into paupers and beggars, denying them above all else their dignity. The collapse of incomes pushed thousands of firms into bankruptcy boosting the oligopolistic power of surviving large firms. Thus, prices have been falling but more slowly than wages and salaries, pushing down overall demand for goods and services and crushing nominal incomes while debts continue their inexorable rise. In this setting, the deficit of hope accelerated uncontrollably and, before we knew it, the ‘serpent’s egg’ hatched – the result being neo-Nazis patrolling our neighbourhoods, spreading their message of hatred.

Despite the evident failure of the ‘extend and pretend’ logic, it is still being implemented to this day. The second Greek ‘bailout’, enacted in the Spring of 2012, added another huge loan on the weakened shoulders of the Greek taxpayers, “haircut” our social security funds, and financed a ruthless new cleptocracy.

Respected commentators have been referring of recent to Greece’s stabilization, even of signs of growth. Alas, ‘Greek-covery’ is but a mirage which we must put to rest as soon as possible. The recent modest rise of real GDP, to the tune of 0.7%, signals not the end of recession (as has been proclaimed) but, rather, its continuation. Think about it: The same official sources report, for the same quarter, an inflation rate of -1.80%, i.e. deflation. Which means that the 0.7% rise in real GDP was due to a negative growth rate of nominal GDP! In other words, all that happened is that prices declined faster than nominal national income. Not exactly a cause for proclaiming the end of six years of recession!

Allow me to submit to you that this sorry attempt to recruit a new version of ‘Greek statistics’, in order to declare the ongoing Greek crisis over, is an insult to all Europeans who, at long last, deserve the truth about Greece and about Europe. So, let me be frank: Greece’s debt is currently unsustainable and will never be serviced, especially while Greece is being subjected to continuous fiscal waterboarding. The insistence in these dead-end policies, and in the denial of simple arithmetic, costs the German taxpayer dearly while, at once, condemning to a proud European nation to permanent indignity. What is even worse: In this manner, before long the Germans turn against the Greeks, the Greeks against the Germans and, unsurprisingly, the European Ideal suffers catastrophic losses.

Germany, and in particular the hard-working German workers, have nothing to fear from a SYRIZA victory. The opposite holds. Our task is not to confront our partners. It is not to secure larger loans or, equivalently, the right to higher deficits. Our target is, rather, the country’s stabilization, balanced budgets and, of course, the end of the grand squeeze of the weaker Greek taxpayers in the context of a loan agreement that is simply unenforceable. We are committed to end ‘extend and pretend’ logic not against German citizens but with a view to the mutual advantages for all Europeans.

Dear readers, I understand that, behind your ‘demand’ that our government fulfills all of its ‘contractual obligations’ hides the fear that, if you let us Greeks some breathing space, we shall return to our bad, old ways. I acknowledge this anxiety. However, let me say that it was not SYRIZA that incubated the cleptocracy which today pretends to strive for ‘reforms’, as long as these ‘reforms’ do not affect their ill-gotten privileges. We are ready and willing to introduce major reforms for which we are now seeking a mandate to implement from the Greek electorate, naturally in collaboration with our European partners.

Our task is to bring about a European New Deal within which our people can breathe, create and live in dignity.

A great opportunity for Europe is about to be born in Greece on 25th January. An opportunity Europe can ill afford to miss.

via Alexis Tsipras’ Open Letter Nails The Stupendous Folly Of Brussels’ ‘Extend And Pretend’

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Is it the National Association of Manufacturers or the National Association of Offshorers? http://wallstreetexaminer.com/2015/01/is-it-the-national-association-of-manufacturers-or-the-national-association-of-offshorers/ http://wallstreetexaminer.com/2015/01/is-it-the-national-association-of-manufacturers-or-the-national-association-of-offshorers/#comments Thu, 29 Jan 2015 16:20:39 +0000 http://alantonelson.wordpress.com/?p=2128 This is a syndicated repost courtesy of RealityChek. To view original, click here.

Here’s hoping that the National Association of Manufacturers (NAM) gets to testify in Congress on President Obama’s trade agenda – and soon. That’s not because there’s any reason to expect the organization voluntarily to shed any genuine light on the likely impact of granting the president fast track negotiating authority or the Trans-Pacific Partnership (TPP). Instead, it’s because it will be a great opportunity for lawmakers with some smarts to find out whether and to what extent, like the rest of the big business organizations pressing for new trade deals, NAM’s views are shaped by offshoring interests.

NAM’s focus on maximizing opportunities to send American jobs and production overseas rather than boosting them at home could become especially apparent if the organization sends its new board chairman, Tenneco chief Gregg Sherrill, to Washington. By its count, his auto parts giant currently runs 101 production-related facilities around the world – and only 19 are in the United States.

According to Tenneco, this breaks down into 16 U.S. factories out of a global total of 86, and three engineering centers out of a global total of 14. The company’s only software development center is in India.  (It couldn’t find any qualified Americans to do the work?)

Tenneco explains its location decisions by declaring that “We are where our customers are.” At first glance, the figures bear out the firm. Tenneco makes a wide range of auto parts, and according to the latest figures I could find, the United States in the second quarter of 2014 accounted for only 13.14 percent of global auto and truck production (by units). That was second behind China – by a wide margin. China’s 11.783 million vehicle output represented 26.06 percent of the global total. And the company maintains 18 factories and one engineering center in the PRC.

Similarly, India produced 4.22 percent of the world’s motor vehicles in the second quarter of 2014, and accounted for just under seven percent of Tenneco’s worldwide factories (along with the software center). And Mexico’s 4.65 percent of the company’s manufacturing locations seems appropriate given its 3.68 percent of world vehicle output.

But when it comes to trade, the subject of trade policy hearings, Tenneco’s strategy raises big questions. For example, if its aim is to produce close to its customers, it would seem that expanding exports isn’t a high priority. Yet boosting these U.S. overseas sales, and thus increasing American growth and hiring clearly is the Obama administration’s top stated trade priority. So why is the NAM, now headed by Tenneco’s boss, so enthused about new trade deals?

Perhaps more important, is Tenneco’s factory location pattern in fact related to its trade behavior? The company doesn’t disclose that information, so it’s clearly a question Members of Congress and Senators should ask. Moreover, Tenneco is far from the only parts maker in NAM’s ranks. Sherrill (or whatever surrogate is sent) should be asked comparable questions about the entire industry, especially since sector-wide trade data is eminently available, and it shows clearly that the United States has steadily turned into an import magnet from low-wage countries where Tenneco (and other parts makers) have lots of factories.

Let’s take China. True, it’s now far and away the world’s vehicle output leader. And indeed, total U.S. parts exports to the People’s Republic rose by nearly 107 percent between 2007 (chosen as a baseline since it’s the year the American recession began) and 2013. Year-to-date 2013 to 2014 (we won’t have full 2014 data for another week), these exports are up another 13.90 percent.

Yet between 2007 and 2013, American auto parts imports from China were up nearly as fast – nearly 96.50 percent. And their value in 2014 was 5.77 times the value of U.S. parts exports. The same trends describe U.S.-India auto parts trade. The 2014 import-export ratio for the much larger amount of U.S.-Mexico auto parts trade is smaller – 2.20:1. But an enormous number of parts imports from Mexico are contained in the enormous number of finished vehicles America buys from the country. Vehicle imports from China and India are still small.  Given Tenneco’s stated aim of producing near its customers – a strategy that many other American-owned manufacturers also profess to be following – why such a large and growing gap in trade flows?

Tenneco’s Sherrill could certainly clear up all such questions about his own company by telling Congress how much the firm exports and imports nowadays annually, and how those numbers have changed since the North American Free Trade Agreement (also strongly supported by NAM) launched the current era of U.S. trade policymaking. He should also disclose the levels of domestic and foreign content in his company’s products and how they’ve changed during this period.

Sherrill should add how the company’s domestic and foreign output and employment levels have changed during this period. Similar figures for all the other companies and industries represented by NAM would be helpful, too – from Sherrill or any of the organization’s other spokespersons.

Any witnesses from NAM – or the other offshorer-dominated business groups favoring the president’s trade agenda – will no doubt claim that such information represents valuable commercial secrets, and can’t be revealed without surrendering major strategic advantages to rivals. But that problem is easily solved by requiring such disclosures from all companies, foreign or domestic-owned, above a certain size that do business in the United States.  That way, no one would come out on top on net.

NAM claims that it’s devoted to creating “job across the United States” – and presumably production, too. But without details about its companies’ actual performance, the official trade figures show that Congress and the public are entitled to wonder whether the organization’s name should be changed to the National Association of Offshorers.

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Breaking Bad! WTI Crude Oil Falls Below $44, Inflation Keeps Dropping http://wallstreetexaminer.com/2015/01/breaking-bad-wti-crude-oil-falls-below-44-inflation-keeps-dropping/ http://wallstreetexaminer.com/2015/01/breaking-bad-wti-crude-oil-falls-below-44-inflation-keeps-dropping/#comments Thu, 29 Jan 2015 16:13:01 +0000 http://confoundedinterest.wordpress.com/?p=39605 ]]> This is a syndicated repost courtesy of Confounded Interest. To view original, click here.

West Texas Intermediate Crude oil just fell below $44. And The Fed’s 5 year forward breakeven inflation rate keeps falling with WTI crude oil prices.

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Is this Walter White? Or Federal Reserve Chair Janet Yellen?

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Punxsutawney Phil? Pending Home Sales Decline MoM By 2nd Biggest Amount Since June 2010 http://wallstreetexaminer.com/2015/01/punxsutawney-phil-pending-home-sales-decline-mom-by-2nd-biggest-amount-since-june-2010/ http://wallstreetexaminer.com/2015/01/punxsutawney-phil-pending-home-sales-decline-mom-by-2nd-biggest-amount-since-june-2010/#comments Thu, 29 Jan 2015 15:56:37 +0000 http://confoundedinterest.wordpress.com/?p=39601 ]]> This is a syndicated repost courtesy of Confounded Interest. To view original, click here.

Groundhog Day alert!

(Bloomberg Economics) — December’s drop off in pending sales of existing homes provided a rare downside surprise amid some generally upbeat housing data from last month, and suggests existing home sales may be set to soften leading up to the spring selling season.

• The headline index fell 3.7 percent, compared to a Bloomberg consensus forecast for a 0.5 percent increase, and a slightly revised increase of 0.6 percent in November. While seasonal adjustments can be challenging at this time of year, that raises the possibility that 2015 will start off with weakness in existing home sales.

Yes, Punxsutawney Phil, the prognosticator of prognosticators, (better know as Bloomberg Economics) is predicting a weak start to the 2015 housing season. December’s pending home sales (MoM) suffered the 2nd biggest decline since June 2010.

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We knew yesterday from the MBA’s mortgage purchase application index that purchase applications are only higher by 1% over last year’s abysmal purchase applications numbers.

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You don’t need Punxsutawney Phil, the groundhog, to forecast the 2015 housing market.

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Gold Threatens A Support Level http://wallstreetexaminer.com/2015/01/gold-threatens-a-support-level/ http://wallstreetexaminer.com/2015/01/gold-threatens-a-support-level/#comments Thu, 29 Jan 2015 14:27:15 +0000 http://wallstreetexaminer.com/?p=234837 What’s the outlook if gold breaks support at 1265, or if it holds?

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