Archive for the ‘Economy’ Category

The Week Ahead: Ed’s Daily Notes for September 2nd   Leave a comment

Welcome back! Time to look at what lies ahead for this week.

The earnings are almost non-existent this week, with PVH Corp. (PVH) being the largest company reporting (on Wednesday).

But we do have some big U.S. economic reports due this week:

TUESDAY: ISM Manufacturing Index
WEDNESDAY: ADP Employment Report
THURSDAY: International Trade Gap Report
FRIDAY: August Employment Report

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Posted September 2, 2014 by edmcgon in Economy, News

Ed’s Daily Notes for August 26th   1 comment

Financial Times: François Hollande purges government after leftwing revolt

Plas brought this up yesterday:

François Hollande has purged his embattled Socialist government of leftwingers opposed to EU austerity after a revolt led by Arnaud Montebourg, the flamboyant economy minister.

Mr Montebourg quit the cabinet on Monday, delivering a blistering attack on what he called “absurd” austerity policies – supported by Mr Hollande – which had brought about “the most destructive crisis in Europe since 1929”.

The outspoken minister said in a televised statement that the eurozone’s fiscal stance was “the cause of the unnecessary prolongation of the economic crisis and the suffering of the European population”.

The cabinet crisis was triggered by figures this month showing there had been no growth in the French economy in the first half of the year, with unemployment continuing to rise.

The economic gloom alarmed the left, already worried by the deep unpopularity of the government. An Ifop poll at the weekend showed Mr Hollande’s approval rating at just 17 per cent, with prime minister Manuel Valls plunging nine points to 36 per cent.

This presents a unique market situation. On one hand, France moving farther away from Germany politically would destabilize the European Union. On the other hand:

Bloomberg: Draghi Pushes ECB Closer to QE as Deflation Risks Rise

Mario Draghi just pushed the European Central Bank closer to quantitative easing.

With euro-area data this week likely to show the weakest inflation since 2009, the ECB president used a high-powered central-banking conference in Jackson Hole, Wyoming, to warn that investor bets on prices have “exhibited significant declines.”

Stocks rose, the euro fell and bond yields dropped to record lows today as the comments fanned speculation the ECB is finally heading for a form of monetary stimulus it has long avoided. Draghi previously said that a worsening of the medium-term inflation outlook would provide a reason for broad-based asset purchases.

The Aug. 22 speech “was a major event and marked a turning point in ECB rhetoric,” said Philippe Gudin, chief European economist at Barclays Plc in Paris. “We think the recent economic developments have increased the chance of outright QE as the next step.”

From a market perspective, central bank action always trumps politics (contrary to popular opinion). One can argue the ECB should have done this several years ago, although I don’t: As we have seen in the U.S., QE only creates economic window dressing by artificially pumping up markets and allowing banks to sell overpriced assets to the Fed (instead of lending money to truly help the economy). If Europe wants to pursue this, expect European markets to do well.

But what about the U.S.? With the Fed ending QE this Fall, around the same time we will possibly getting ECB action, the effect on the world economy should go like this: Dollar rises in value, euro falls, U.S. exports to Europe fall, European exports to the U.S. increase. However, because most European products tend to be high-end, unless the euro falls through the floor (which would require an exceedingly large QE from the ECB, which is not expected), European exports to the U.S. have limited upside. Overall, I would expect the U.S. exporters to be hurt by this news.

As an aside, I would also expect China to be hurt by this news, being effected in the same way as the U.S. If it hurts the Chinese economy severely enough, we might even see the Chinese de-pegging the yuan from the dollar. But this is speculation on activity at least a year away (more likely several years away). Honestly, it is hard to say what the Chinese may do.

Ed’s Daily Notes for August 25th   1 comment

For the week ahead, the big event will be the release of the second guess on 2nd Quarter U.S. GDP, coming Thursday at 8:30 am EST.

For earnings reports, I get Prospect Capital (PSEC) today, and SeaDrill (SDRL) on Wednesday. Both stocks are currently in my 401(k), which I use for long-term holdings.

Bloomberg: Jackson Hole Theme: Labor Markets Can’t Take Higher Rates

Global central bankers led by Federal Reserve Chair Janet Yellen said labor markets still have further to heal before their economies can weather higher interest rates.

Even as they signaled international monetary policies are set to diverge as economic recoveries increasingly differ, officials meeting over the weekend in Jackson Hole, Wyoming, placed jobs at the center of their decision making by saying stronger hiring and wages are still needed to drive demand.

The focus on jobs suggests the Fed and Bank of England will tighten policy within a year as their economies show signs of strengthening. By contrast, European Central Bank President Mario Draghi and Bank of Japan Governor Haruhiko Kuroda acknowledged they may be forced to deploy fresh stimulus.

Making her debut as Fed chief at the annual central bankers’ conclave in the shadow of the Teton mountains, Yellen said while U.S. hiring has improved and the debate at the Fed is shifting toward when “we should begin dialing back our extraordinary accommodation,” there is still a “significant” underuse of the workforce, and the labor market has yet to fully recover from the worst recession since the Great Depression.

Yellen can cry about “job market problems” all she wants, but she is facing an increasingly hawkish FOMC. As QE nears an end in October, those hawks will become louder.

Yahoo News: Iran says it downed Israeli drone over nuclear site

Iran’s elite Revolutionary Guard said it has brought down an Israeli stealth drone above the Natanz uranium enrichment site in the centre of the country.

This news is from Iran, so take it for what it is worth. And I would normally ignore it, except for the fact recent news stories have reasonably speculated at a potential Israeli strike in Iran. If you are dabbling in the oil markets, keep this in mind.

Posted August 25, 2014 by edmcgon in Economy, Federal Reserve, News, Stocks

Ed’s Daily Notes for August 21st   Leave a comment

Wall Street Journal: Fed Debates Early Rate Hikes

Federal Reserve officials debated at their July policy meeting whether they might need to raise interest rates sooner than expected in light of a strengthening recovery, but they were restrained by lingering doubts about whether the economy’s gains would persist.

The minutes of the meeting, released Wednesday with their regular three-week delay, show an intensifying debate inside the central bank about when to respond to a surprisingly swift descent in the unemployment rate and a pickup in consumer prices.

Some Fed officials say this long-sought economic progress warrants moving toward tighter credit soon, but they were outnumbered at the meeting by those who wanted more evidence before signaling that rate increases are on the way. The minutes don’t identify participants by name or specify the number who held certain views.

Translation: Markets will continue their “bad economic news is good, and vice versa” for awhile. However, the Fed needs to be watched for signs they aren’t seeing the economy the same way as the markets are.

The search for clues on rate-hike timing now turns to Fed Chairwoman Janet Yellen’s address Friday at a central-bank symposium in Jackson Hole, Wyo. The conference is focused on labor markets and Ms. Yellen will update her views on how they are evolving.

She has argued through her first six months on the job that an abundance of part-time workers and long-term unemployed, in addition to soft wage growth, suggest labor markets and the broader economy weren’t near overheating.

Steven Blitz, chief economist at ITG Investment Research, said he expected Ms. Yellen to revisit these points Friday, to indicate her patience about raising rates. “She doesn’t want the market getting too far in front of the Fed,” Mr. Blitz said.

Posted August 21, 2014 by edmcgon in Economy, Federal Reserve, News

Ed’s Daily Notes for August 19th   1 comment

Bloomberg: Only Rich Know Wage Gains With No Raises for U.S Workers

Call it the no-raises recovery: Five years of economic expansion have done almost nothing to boost paychecks for typical American workers while the rich have gotten richer.

Meager improvements since 2009 have barely kept up with a similarly tepid pace of inflation, raising the real value of compensation per hour by only 0.5 percent. That marks the weakest growth since World War II, with increases averaging 9.2 percent at a similar point in past expansions, according to Bureau of Labor Statistics data compiled by Bloomberg.

Federal Reserve Chair Janet Yellen has zeroed in on faster wage growth as an important milestone for declaring the job market healed and ready to withstand policy tightening, even as other labor measures improve…

Households in the top 20 percent of U.S. socioeconomic groups saw their incomes grow by an average of $8,358 a year from 2008 to 2012, compared with a $275 annual decline for the lowest 20 percent, according to data from the Bureau of Labor Statistics.

If you want to know why the riots in Ferguson, Missouri are happening, look no further than the news above. While the Media might be stoking the racial aspect of the riots, I see the police shooting that took place there as a spark in a tinder box. Before you write that incident off as “blacks being blacks”, consider that every time this country goes through an economic recession or stagnation, blacks always do worse in the employment statistics than other races. The U.S. has serious racial issues, which are only exacerbated by the moat which the upper classes have put around their wealth. When you see the stock indexes hitting new highs with obscene regularity, at the same time the bond markets are flooded with money to the point of paying almost nothing in yield, yet the employment and wages are stagnant, this is clearly an economic disconnect. There is an absurd amount of money being invested, but there isn’t a “trickle down” effect.

On top of the economic flaws, we have a huge education problem, especially in the black community. I would draw your attention to this article, “Did School Integration Fail Black Children?“:

The reality is that black families faced heavier burdens with the desegregation mandate than whites. Black children spent more time commuting, black schools were closed to make desegregation more convenient for whites (and to prevent their flight to the suburbs or private schools), and black teachers and principals were fired when white and black schools were merged. Estimates show that more than 82,000 black teachers provided instruction to a black student population numbering around 2 million in 1954. Within a span of 10 years, around 40,000 black teachers lost their jobs. Ninety percent of black principals lost their jobs in 11 Southern states.

Today, increased public school closings across the nation disproportionately impact black, Latino and poor students who lose their neighborhood schools. Eighty-eight percent of the school closings in Chicago affect black students.

The decimation of black educators has had a long-lasting impact. A study by the National Center for Education Statistics found that among 3.3 million teachers in American public elementary and secondary schools in 2012—where minority students are quickly becoming the majority—they were 82 percent white, 8 percent Hispanic, 7 percent black and about 2 percent Asian. The loss of black teachers means that many students have lost contact with their most impactful role models. As black educator Kevin Gilbert told the Associated Press, “Nothing can help motivate our students more than to see success standing right in front of them.”

As usual with most progressive solutions, desegregation sounded good on the surface, but had horrendously bad results. Unfortunately, because of decades of being the only group willing to deal with the black community, the progressives are the only ones to whom the black community are listening. So when smart people like Kareem Abdul-Jabbar offer solutions, they naturally include progressive solutions like food stamps and welfare, which are temporary crutches, not real solutions.

I won’t offer a solution here, but I will say that any solutions that sound good on the surface need to be viewed with more discerning eyes. And the already failed policies of the progressives need to be thrown out. They have already done enough damage.

Posted August 19, 2014 by edmcgon in Economy, Editorial/opinion, News, Politics

The Week Ahead: Ed’s Daily Notes for August 18th   Leave a comment

Here is the calendar for the week ahead, which looks pretty slow:

TUESDAY: The U.S. Consumer Price Index report for July will be released at 8:30 am EST. Home Depot (HD) will also be releasing their quarterly earnings report.
WEDNESDAY: The Federal Reserve’s Open Market Committee meeting minutes from their July 30th meeting will be released at 2 pm EST.
THURSDAY: U.S. Weekly Jobless Claims report released at 8:30 am EST.

And now for an editorial…

Time: The Coming Race War Won’t Be About Race

I haven’t discussed the situation in Ferguson, Missouri, mainly because I haven’t had anything to contribute to the discussion. Fortunately, Kareem Abdul-Jabbar takes care of that for me in the editorial above.

However, while he nails it with most of his editorial, I have to take exception with one point he made:

I’m aware that it is unfair to paint the wealthiest with such broad strokes. There are a number of super-rich people who are also super-supportive of their community. Humbled by their own success, they reach out to help others. But that’s not the case with the multitude of millionaires and billionaires who lobby to reduce Food Stamps, give no relief to the burden of student debt on our young, and kill extensions of unemployment benefits.

Food stamps and unemployment benefits don’t create opportunities for the poor. That is only the “bread” part of the infamous “bread and circuses”. It didn’t solve poverty in Ancient Rome, and it won’t do it in modern America either.

That said, the burden of student debt is something we need to be considering. My view is we need to be targeting certain educational degrees with student grants, instead of using the broad stroke loans for all college educations. If we need more engineers, then let’s give grants to college students studying engineering. If we need more computer programmers, give grants to those students too. If we need more auto mechanics, provide grants to the trade schools for those students. We don’t just need a generation of students with ANY college degree. We need them educated in fields where “we the people” have a need. Unfortunately, this needs to be done intelligently, which means the politicians can’t do it.

Posted August 18, 2014 by edmcgon in Economy, Editorial/opinion, Federal Reserve, News, Politics

Ed’s Daily Notes for August 14th   Leave a comment

The Hill: Why is Obama returning to Washington?

President Obama won’t make any major announcements on immigration reform during his secretive mid-vacation trip back to Washington next week, the White House said Wednesday.

The president is expected to return to the White House on Sunday, but officials won’t say why Obama is taking the unusual, and costly, trip back to Washington. He’s expected to return to Martha’s Vineyard, where he’s been vacationing, on Tuesday.

The article goes into a lot of speculation over immigration reform and other things. My guess is the president is planning some kind of classified military operation. If it goes as planned, we may never hear about it. On the other hand, if it doesn’t, it could create a situation. Maybe something involving Ukraine, Iraq, or Iran?

Regardless of the reason, it would make me reluctant to buy any stocks until next week.

Bloomberg: Recovery Halts as Germany Shrinks, France Stagnates

Yesterday, it was bad news from Asia. Today, we have Europe:

The euro area’s recovery halted in its three biggest economies in the second quarter, underlining the vulnerability of the region to weak inflation and the deepening crisis in Ukraine.

German gross domestic product shrank 0.2 percent, more than economists forecast, while stagnation in France prompted the government to scrap its 2014 deficit target after data released today. Combined with Italy’s unexpected slide into recession, the reports may add pressure on the European Central Bank to expand stimulus.

While Germany’s second-quarter weakness was largely due to a warm winter that shifted production to earlier months, the outlook for coming months is now clouded by the impact of international measures against Russia over its support of separatists in Ukraine. That imperils the euro area as a whole, where inflation is running at the slowest pace since 2009 and measures announced by the ECB will take time to have an effect.

I love the excuse for Germany: warm weather. So cold weather slows the U.S. GDP, while warm weather does it to Germany? I guess people only work in Fall and Spring?

Bloomberg: Cisco Cutting 6,000 Jobs as CEO Forecasts Stagnant Growth

Bad news for Cisco fans:

Cisco Systems Inc. (CSCO) is cutting 6,000 jobs and forecasting little to no revenue growth in the current quarter amid a slump in demand from phone and cable companies, and weakness in emerging markets.

The world’s largest networking-equipment maker, which has about 74,000 employees, said it will take a pretax charge of as much as $700 million. Including the latest round of firings, which represent about 8 percent of the workforce, Cisco has eliminated more than 18,000 people over the past three years.

John Chambers, who is nearing retirement after almost two decades as Cisco’s chief executive officer, has been grappling with slowing growth for its market-leading routers and switches. Phone carriers and other large companies are replacing legacy network hardware with software that performs many of the same tasks. Sales in emerging markets won’t recover for several more quarters, Chambers said on a conference call.

While Cisco is still in a good spot financially, they need a strategy for getting out of the death spiral in which they seem to be stuck. If they can replace Chambers with an innovation-oriented CEO, or if the stock drops to book value ($10.90/share, which isn’t likely any time soon), then I might call the stock a buy. Until then, Cisco is a solid “sell”.

Posted August 14, 2014 by edmcgon in Economy, News, Stocks, Technology