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Fed’s GDP and Unemployment Projections: Who Believes Them?

In addition to its blather about interest rates, the Fed also made numerous economic projections.
Economic Projections

Please consider the Economic Projections of FOMC Participants under their individual assumptions of appropriate monetary policy, September 2020.

Fed’s GDP, Unemployment, PCE Inflation Projections

Fed's GDP, Unemployment, PCE Inflation Projections 2020-09

GDP Projection

The Fed believes GDP will only contract 3.7% in 2020 then rebound 4% in 2021, and 3% in 2022.

Do you believe this?

Unemployment Projection

The Fed believes the Unemployment Rate will be 7.6% in 2020, 5.5% in 2021, and 4.6% in 2022.

Do you believe this?

PCE Inflation Projection

The Fed believes Core Personal Consumption Expenditure inflation (excluding food and energy) will be 1.5% in 2020, 1.7% in 2021, and 1.8% in 2022.

Do you believe this?

GDP Poll

Unemployment Poll

PCE Poll

My Take

  • GDP: I will take the under. Way under. Much of the rebound was due to $600 pandemic stimulus checks that expired on July 25. This will be a huge headwind going forward.
  • Unemployment: I am leery of games with the participation rate and labor force but I will go with higher.
  • PCE : This one is humorous. For months, the Fed has committed not only to 2% but letting inflation run hotter than expected for some time to make up for needed lost inflation. Yet the Fed admits it will not hit its targets until 2023. PCE inflation, as measured, is a joke. So perhaps the Fed is on target.

The Wonders of Free Money in Two Pictures

Lesson of the Day

If you give away enough free money, spending recovers.

Census Report on Advance Retail Sales 

The Census report on Advance Retail Sales provides half of our “Lesson of the Day“.

Adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, July sales were $536.0 billion, an increase of 1.2 percent from the previous month, and 2.7 percent above July 2019.Total sales for the May 2020 through July 2020 period were down 0.2 percent  from the same period a year ago.

The May 2020 to June 2020 percent change was revised from up 7.5 percent to up 8.4 percent. Retail trade sales were up 0.8 percent from June 2020, and 5.8 percent above last year.

Nonstore retailers were up 24.7 percent from July 2019, while food and beverage stores were up 11.1 percent  from last year.

Retail spending rose for the third straight month despite a rise in coronavirus infections with reopenings stalled.

Spike in Government Spending

Government Spendiing Spiked

The chart from Pew shows stimulus and deficits exceed that in the Great Recession.

Since March, government stimulus authorizations (not all spent yet) total at least $3 trillion. Another $2 trillion is on the deck when Democrats and Republicans agree to another package.

That is the second half of the Free Money Wonder.

The federal government has run deficits nearly every year since the Great Depression and consistently since fiscal 2002. Through the first 10 months of fiscal 2020, the government took in $2.82 trillion in revenue and spent $5.63 trillion, for a year-to-date deficit of just over $2.8 trillion, according to the Treasury Department’s Bureau of the Fiscal Service. Through the first 10 months of fiscal 2019, by comparison, the deficit stood at $866.8 billion.

…click on the above link to read the rest of the article…

More Than Half of Business Closures are Permanent

More Than Half of Business Closures are Permanent

A Yelp study finds that 55% of business closures are closed for good.

Yelp reports Increased Consumer Interest in May correlates with more Covid outbreaks and closures in June and July.

Consumer Interest vs Outbreaks

Yelp July  2020 A - consumer interest increased

Business Closures Fluctuate Across the Nation

  • There were 140,000 total businesses closures on Yelp from March 1 to June 15. This increased to more than 147,000 total business closures on June 29 and then dropped again to just more than 132,500 total business closures as of July 10. 
  • In April, there were more than 175,000 business closures indicating that only 24% of businesses that were closed in April have reopened.
  • Even as total closures fall, permanent closures increase with 72,842 businesses permanently closed, out of the 132,580 total closed businesses, an increase of 15,742 permanent closures since June 15. 
  • This also means that the percentage of permanent to temporary business closures is rising, with permanent closures now accounting for 55% of all closed businesses since March 1, an increase of 14% from June when we reported 41% of closures as permanent. 
  • Overall, permanent closures have steadily increased since the peak of the pandemic with minor spikes in March, followed by May and June.

Total Businesses Closures

Yelp July  2020 - Where are most Businessses Closed

States with the largest populations have the most closures. 

Total Business Closures Per 1,000

Yelp July  2020 - Where are most Businessses Closed per 1,000

On a metro level, Las Vegas, NV, is suffering from the highest rate of permanently closed businesses with 861 businesses permanently closed, as the city reacts to a decrease in tourism. Meanwhile, Los Angeles, CA, has the most closures with 11,342 total temporary and permanent business closures.

Restaurants Struggle

…click on the above link to read the rest of the article…

A Surge in Small Business Bankruptcies is Underway

A Surge in Small Business Bankruptcies is Underway

The new rules make it easier for small businesses to file for chapter 11. And they are.

Small Businesses Walking Away

In 2008, homeowners walked away from mortgages. 

Thanks to the Small Business Reorganization Act of 2019 (SBRA), in effect as of February 19, 2020, small businesses have an easier shot at doing the same.

For example, the Twisted Root Burger grew quickly, but co-founder now says ‘I’m gonna walk away’ from some locations.

Twisted Root Burger was a Texas success story, expanding from one casual restaurant in 2006 to 24 sites including restaurants, bars, a brewery and a theater. Now, the company is moving fast in another direction—into bankruptcy.

“I’m not gonna open that restaurant at half the revenue,” said co-founder Jason Boso. “I’m gonna walk away from those restaurants. I’m not gonna set myself up for failure.”

More than 500 companies filed for bankruptcy under the small-business bankruptcy rules since February, according to the American Bankruptcy Institute. June was the top month for filings with 131 cases; many were filed in states hit hard by the pandemic like Florida, Texas, California, New York and Illinois.

“It was somewhat prescient,” said Ryan Wagner, a restructuring and bankruptcy attorney with international law firm Greenberg Traurig LLP. “It was passed without the foresight of the pandemic.” The law is the most significant change to the bankruptcy code since 2005.

SBRA Highlights

  • Applies to businesses with $2.7 million in liabilities, raised to $7.5 million under coronavirus stimulus
  • Owners continue operating their business while in court
  • Owners can retain equity after exiting bankruptcy
  • Owners can modify residential mortgages if home was collateral for a business loan
  • Faster turnaround to save time and minimize legal fees
  • Owners generally have three to five years to repay creditors
  • Creditors can be paid based on a business’s projected income

Walking away gets a new lease on life, this time for small businesses.

Industrial Production Declines Most in 101 Years

Industrial Production Declines Most in 101 Years

On the heels of miserable retail sales numbers comes the worst ever industrial production numbers.

The Fed’s Industrial Production report provides another grim look at the Covid-19 wrecked economy.

Total industrial production fell 11.2 percent in April for its largest monthly drop in the 101-year history of the index, as the COVID-19 (coronavirus disease 2019) pandemic led many factories to slow or suspend operations throughout the month.

Manufacturing output dropped 13.7 percent, its largest decline on record, as all major industries posted decreases. The output of motor vehicles and parts fell more than 70 percent; production elsewhere in manufacturing dropped 10.3 percent.

The indexes for utilities and mining decreased 0.9 percent and 6.1 percent, respectively. At 92.6 percent of its 2012 average, the level of total industrial production was 15.0 percent lower in April than it was a year earlier.

Capacity utilization for the industrial sector decreased 8.3 percentage points to 64.9 percent in April, a rate that is 14.9 percentage points below its long-run (1972–2019) average and 1.8 percentage points below its all-time (since 1967) low set in 2009.

No V-Shaped Recovery

As noted earlier today Retail Sales Plunge Way More Than Expected

Despite talk from hopers, even the fed understands there will not be a V-Shaped recovery.

Instead they are promoting a helicopter drop of money. For details, please see Panic Sets In: Fed Promotes More Free Money

Panic Sets In: Fed Promotes More Free Money

Panic Sets In: Fed Promotes More Free Money

Lawmakers need to do more says Minneapolis Fed President Neel Kashkari.

Free Money for 18 Months

The Fed cannot directly give money away so that burden falls on Congress. Kashkari follows Fed Chair Jerome Powell in seeking Congressional Action.

“They are going to need more. If this is a slow recovery, the way I think it is — I think we’re in this for months, a year, 18 months — there are going to be a lot of families that are going to need direct financial assistance,” Kashkari said Thursday during a virtual event with CBS. “I think a V–shaped recovery is off the table.”

“Putting money directly in the hands of laid-off Americans is, I think, the most direct way to get assistance, and then they will spend the money where they need it,” Kashkari said. “I just think money in the pockets of people who have lost their jobs is what we need right now until we can get the health care system to catch up and get control of this virus.”

I case you were wondering what sent the S&P in a huge 70-point S&P 500 U-Turn today, that reason is as good as any.

Powell’s Message

Yesterday, Powell made similar statements, just not as forceful. 

Recall that the Fed has lending powers, not spending powers. A loan from a Fed facility can provide a bridge across temporary interruptions to liquidity, and those loans will help many borrowers get through the current crisis. But the recovery may take some time to gather momentum, and the passage of time can turn liquidity problems into solvency problems. Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery. This tradeoff is one for our elected representatives, who wield powers of taxation and spending.

…click on the above link to read the rest of the article…

Negative Rates Are Not an Option

Negative Rates Are Not an Option

Today, Fed Chair Jerome Powell reiterated the Fed’s position on negative rates and gave his economic assessment as well.

Economic Outlook “Highly Uncertain”

In a live economic interview with PIIE, Jerome Powell discussed the Fed’s outlook for the economy and the advisability of negative interest rates.

The video interview is above and here is Here is Powell’s Prepared Transcript.

Key Transcript Snips

The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II. We are seeing a severe decline in economic activity and in employment, and already the job gains of the past decade have been erased. Since the pandemic arrived in force just two months ago, more than 20 million people have lost their jobs. A Fed survey being released tomorrow reflects findings similar to many others: Among people who were working in February, almost 40 percent of those in households making less than $40,000 a year had lost a job in March.

While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks. Economic forecasts are uncertain in the best of times, and today the virus raises a new set of questions: How quickly and sustainably will it be brought under control? Can new outbreaks be avoided as social-distancing measures lapse? How long will it take for confidence to return and normal spending to resume? And what will be the scope and timing of new therapies, testing, or a vaccine? The answers to these questions will go a long way toward setting the timing and pace of the economic recovery. Since the answers are currently unknowable, policies will need to be ready to address a range of possible outcomes.

…click on the above link to read the rest of the article…

Eurozone Collapse: V-Shaped Recovery Mirage Is Gone

Eurozone Collapse: V-Shaped Recovery Mirage Is Gone

Eurozone Economy Collapses 3.8% in the first quarter, the worst on record.  Spain (-5.2%) and France (-5.6%) GDP were much worse than Italy (-4.7%).

Economist Daniel Lacalle offers his thoughts on the European economy in a YouTube video. 


Daniel Lacalle✔@dlacalle_IA

EUROZONE COLLAPSE

The V-Shaped Recovery Mirage Is Gone.

https://www.youtube.com/watch?v=kO_RxjESCk4 … YouTube at 🏠 ‎@YouTube


What LaCalle says about the Eurozone also applies to the US. 

What’s Next for America?

For a 20-point discussion of what to expect, please see Nothing is Working Now: What’s Next for America?

No V-Shaped Recovery

Here’s the correct viewpoint: The Covid-19 Recession Will Be Deeper Than the Great Financial Crisis.

Simply put, a quick return to business as usual is not in the cards.

Inflation or Deflation?

Meanwhile, the debate over inflation or deflation continues.

Will it be Inflation or Deflation?

If you believe the answer is inflation, then you do not understand the importance of credit and demand shocks. Click on the link for discussion.

Rate of Contraction Exceeds the Global Financial Crisis

Rate of Contraction Exceeds the Global Financial Crisis

The US is suffering  the fastest deterioration in operating conditions for over 11 years.

Markit reports Output Contracts at Fastest Pace in Survey History amid COVID19 pandemic .

Key Findings

  • Flash U.S. Composite Output Index at 27.4 (40.9 in March). New series low.
  • Flash U.S. Services Business Activity Index at 27.0 (39.8 in March). New series low.
  • Flash U.S. Manufacturing PMI at 36.9 (48.5 in March). 133-month low
  • Flash U.S. Manufacturing Output Index at 29.4 (46.5 in March). New series low

Adjusted for seasonal factors, the IHS Markit Flash U.S. Composite PMI Output Index posted 27.4 in April, down from 40.9 in March, to signal the fastest reduction in private sector output since the series began in late-2009.

Services companies registered the steepest rate of decline in the survey’s history, while manufacturers recorded the sharpest fall in sales since the depths of the financial crisis in early-2009. 

The cancellation and postponement of orders led firms to reduce their workforce numbers at a rate far exceeding anything seen previously over the survey history at the start of the second quarter. 

Chris Williamson, Chief Business Economist Comments

  1.  “The COVID-19 outbreak dealt a blow to the US economy of a ferocity not previously seen in recent history during April. The deterioration in the flash PMI numbers indicates a rate of contraction exceeding that seen even at the height of the global financial crisis, with jobs also being slashed at a rate far exceeding anything previously recorded by the survey.” 
  2. “The large swathe of non-essential business that has been shut down temporarily amid efforts to contain the virus means the blow has been most heavily felt in the service sector, and especially for consumer facing companies in the recreation and travel industries. Those companies still actively trading meanwhile reported the steepest drop in demand seen since data were first available, and are also struggling against twin headwinds of staff shortages and supply chain delays.”

…click on the above link to read the rest of the article…

As Unemployment Claims Rise, So Do Missed Mortgage Payments

As Unemployment Claims Rise, So Do Missed Mortgage Payments

Over 22 million people have filed for unemployment benefits in the past 4 weeks. Many struggle with payments.

Black Knight reports More than 2.9 Million in Forbearance, 5.5% of All Mortgages

Key Details 

  • As of April 16, more than 2.9 million homeowners – or 5.5% of all mortgages – have entered into COVID-19 mortgage forbearance plans
  • This population represents $651 billion in unpaid principal and includes 4.9% of all GSE-backed loans and 7.6% of FHA/VA loans
  • At today’s level, mortgage servicers would be bound to advance $2.3 billion of principal and interest payments per month to holders of government-backed mortgage securities on COVID-19-related forbearances
  • Another $1.1 billion per month in lost funds will be faced by those with portfolio-held or privately securitized mortgages

Forbearance Totals

Black Knight Forbearance Totals 2020-04-16

Payment Forbearance Under Cares Act

On March 27, 2020, President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security Act (also known as the CARES Act) into law. A provision of the CARES Act allows borrowers with federally backed mortgages to request temporary loan forbearance for up to 180 days. Borrowers also have the right to apply for an extension of another 180 days of forbearance

Once a borrower requests hardship forbearance due to the COVID-19 pandemic, the act requires the servicer to offer a CARES Act forbearance. 

Pitfalls 

Forbes warns of Mortgage Forbearance Pitfalls

John Ulzheimer, an Atlanta-based credit expert formerly of FICO and Equifax, warns of a potential balloon payment.

“If the lender or servicer demands that you pay back the deferred amount all at once or in an otherwise expedited manner, that could be impossible for the borrower.” 

Unfortunately, having a mortgage servicer ask for a “balloon” payment once your forbearance period ends is a very real possibility. Borrowers from multiple national banks have reportedly been informed of the need to repay any delayed payments in a lump sum at a future date.

Three Things Not to Do

…click on the above link to read the rest of the article…

Hyperinflationists Come Out of the Woodwork Again

Hyperinflationists Come Out of the Woodwork Again

CoinDesk asked me to share my opinions on the chance of hyperinflation. My thoughts are below.

From CoinDesk

Hi Mish,

I am working on an article for CoinDesk about recent fiscal and monetary splurge by governments and central banks across the globe and the impact on gold and bitcoin. As I see, a majority of analysts and economists are calling for hyperinflation and rally in gold.

Could you please share your take?

Thanks

CoinDesk

Matter of Definitions

Before there can be a rational debate on anything, people must agree on definitions.

I believe most people would accept this definition: Hyperinflation is the complete collapse in currency against every other asset.

Pick a currency, say the US dollar. To bet on hyperinflation and be correct, the dollar would have to go nearly worthless vs the Euro, the Pound, the Yen.

Alternatively, 50% in a single month would quality. Professor Hanke defines Hyperinflation as a 50% Currency Collapser in a Month.

Q: How likely is that?

A: Close to zero.

Replay Discussion

Curiously, this is a replay of my 2010 article Williams Calls for “Great Hyperinflationary Great Depression”.

Williams is John Williams of Shadowstats. He was not alone. Here is a snip changing the name Williams to “Hyperinflationsists” in the first word of these four points.

  1. Hyperinflationists focus on money supply, ignoring credit although credit is far more important.
  2. Hyperinflationists ignore numerous global interconnections. Calling for hyperinflation in the US alone ignores happenings in Europe, Japan, and China. I remain amazed at how US-centric hyperinflationists in general are.
  3. Hyperinflationists ignore US gold holdings, the largest in the world.
  4. Hyperinflationists ignore the massive influence of consumer attitudes and bank attitudes towards lending.

To expect the US dollar to go to zero vs the Euro, Yen, Food, gold, Yuan, etc., was then and is now pure silliness.

…click on the above link to read the rest of the article…

50,000 New Coronavirus Infections Per Day in China

50,000 New Coronavirus Infections Per Day in China

Prof. Neil Ferguson, Vice Dean Faculty of Medicine, Imperial College in London, estimates 50K new infections per day. 

Please consider the following video by Prof. Neil Ferguson.

10 Key Video Points

  1. 50,000 new cases a day in china
  2. Infections doubling every 5 days
  3. Death rate is still unknown
  4. China likely to peak in March
  5. Epidemic peak is still a month away
  6. It will be very hard to control this epidemic the say way we did with SARS 15-20 years ago
  7. Cases are always underestimated
  8. Death delays are as long as three weeks
  9. Reported deaths outside China are not reassuring because of delays
  10. We still don’t know the full effects

Tweet on Containment Strategies


Building on @ChristoPhraser et al’s work, @coreypeak‘s model examining the impact of disease dynamics on the relative benefits of symptom monitoring v quarantine seems relevant for thinking through #nCoV2019 containment strategies. https://www.pnas.org/content/114/15/4023.abstract …


Jim Bianco’s Latest Update

…click on the above link to read the rest of the article…

“Made in China” Economic Hit Coming Right Up

“Made in China” Economic Hit Coming Right Up

Economic contagion due to the coronavirus is underway. Hyundai halted production. Sony, Apple, and Ford issued warnings.

If you can’t get parts, you can’t build cars.

And due to a coronavirus-related manufacturing halt in China, Hyundai to Shut Down Some Production.

Hyundai, the world’s fifth-largest carmaker, announced Tuesday that it was suspending production lines at its car factories in South Korea, one of the first major manufacturers to face severe supply-chain issues because of the coronavirus.

Many auto plants in China have already shut down because of the virus, including factories run by Hyundai, Tesla, Ford and Nissan. Hyundai plants in South Korea would be the first to shut down lines outside of China, and comes as Hyundai has ramped up production in China over the past two decades.

Economic Contagion

The Wall Street Journal comments on China’s Economic Contagion

More than 20,000 coronavirus cases have been confirmed worldwide—an eight-fold increase over the last week—and experts say hundreds of thousands may not yet have been diagnosed. Two dozen or so countries have reported cases, and many have restricted travel from China to limit the contagion. Companies are evacuating employees from China.

U.S. manufacturers such as Ford, Apple and Tesla have temporarily halted production. One-sixth of Apple sales and nearly half of chip-maker Qualcomm’s revenues come from China. So do 80% of active ingredients used by drug-makers to produce finished medicines. Because China is the world’s largest manufacturer and an enormous consumer market, the economic freeze will disrupt supply chains and reduce corporate earnings.

China’s GDP growth was already almost certainly lower than the official figure of 6%, and it is likely to fall by a third or more.

…click on the above link to read the rest of the article…

Hundreds of Virus Carrying Planes Headed for US, London, Paris, Vancouver

Hundreds of Virus Carrying Planes Headed for US, London, Paris, Vancouver

Lockdowns are for the peasants, not those with money.

What Does Halt All Traffic Mean?

This morning, I Decided to Research this Question:


I don’t Know Jim, good question.

China statements say “tours”

Other sources suggest “individuals”

So … Is it Tours or Individuals?

And what about those who visited China from other countries?

Not covered at all IMO. https://twitter.com/biancoresearch/status/1221573171515678722 …Replying to @MishGEA97:21 PM – Jan 26, 2020


Results below.

Lockdown? What Lockdown?

There is no lockdown in China, if you are wealthy.

Check out this Beijing Flight Schedule for today. Here’s the Wuhan Flight Schedule for today.

Lockdowns are for those with no money, not the wealthy.

Beijing Departures

  • 25 flights on a page
  • 5 pages for the 00:00-06:00 departures
  • 26 pages for 06:00-12:00 departures
  • 22 pages for the 12:00-18:00 Beijing departures
  • 20 pages for the 18:00-00:00 departures

That’s about 1825 flights out of Beijing.

Wuhan Departures Today

How easy is it to escape Wuhan?

You can still catch a flight from Wuhan to Anchorage, Tokyo, Seoul, Bangkok, Singapore, Taipei and countless cities in China including Beijing and Shanghai.

  • There are 8 pages of flights out of Wuhan today. That’s about 200 flights. Most of the flights are within China, but that hardly stops containment.
  • In the 00:00-06:00 slot one flight left for Anchorage. Another left for Bangkok, Thailand and another went to Tokyo.
  • In the 06:00-12:00 slot, two planes left for Tokyo and three to Hong Kong.
  • In the 12:00-18:00 slot, three planes left for Seoul, South Korea and two went to Taipei, Taiwan.
  • In the 18:00-00:00 slot, one plane went to Bangkok , three went to Taipei, three went to Hong Kong,

Wuhan Departures Tomorrow

Tomorrow, there are four flights from Wuhan to Singapore, three to Taipei, two to Bangkok, three to Tokyo, three to Paris, and six to Hong Kong, three to San Francisco,

…click on the above link to read the rest of the article…

Bubbles Everywhere: All Dressed Up and Nowhere to Hide

Bubbles Everywhere: All Dressed Up and Nowhere to Hide

Economist Robert Shiller says there is no alternative to riding out bubbles.

Please consider Stock Market Crash Near? Nobel Laureate Sees ‘Bubbles Everywhere’

When Nobel Laureate and “Irrational Exuberance” author Robert Shiller says he sees bubbles in the financial markets — you’d better listen up. He literally wrote the book on stock market crashes and bubbles after all.

“I see bubbles everywhere,” Shiller, economics professor at Yale University and author of just-published “Narrative Economics” told investors gathered in Los Angeles Wednesday. “There’s no place to go. You just have to ride it out. You invest even though you expect the price to decline.” Shiller famously predicted the 2000 stock market crash and the 2007 crash of the housing market.

Shiller says the housing market is in a bubble phase, not unlike 2005. That was the point the housing bubble was inflated, but yet to go parabolic. “It’s like 2005 again,” Shiller said. “San Francisco and L.A. are already slowing down.” That’s a “bad indicator,” he said, as those markets have been going up for years.

No Place to Go?!

I do not care about books or past predictions.

I care about logic of the moment.

For starters, if housing was like “2005 again“, San Francisco and LA would not be “already slowing down.” But that is nitpicking.

Here’s the important issue: On an individual basis, It is absurd to say there is “no place to go“.

Places to Hide

  1. Gold
  2. US Dollar
  3. Foreign Currencies
  4. US treasuries 5-year or less

 It is impossible for all of those to decline at the same time. Heck it is impossible for 2 and 3 to decline at the same time except compared to gold or some other asset, which of course implies somewhere else to hide.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
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