2019-12-06 Links and Charts

Global Manufacturing Inches Back Into Expansion, Despite Ongoing Slump In Export Orders.

US Manufacturing Survey Disappoints, New Orders/Employment Plunge.

US GDP growth for Q4 and Q1 2020 is tracking 0%, yes that is 0, per Nordea. 

The Way Out for a World Economy Hooked On Debt? More Debt. 

47% Of GDP – This Is Definitely The Scariest Corporate Debt Bubble In U.S. History. 

The great American labor paradox: Plentiful jobs, most of them bad. 

Friday euphoria ignored the latest disastrous German industrial output. 

Brookings Institution study shows 44 percent of all American workers toil in “low-wage” jobs, with median earnings of $18,000 a year.

December 2019 Economic Forecast Index Declines And Now In Contraction.

The Econintersect Economic Index (EEI) is designed to spot Main Street and business economic turning points. This forecast is based on the index's three-month moving average. The three-month rolling index value is now a NEGATIVE 0.122 - a decline from last month's positive 0.025. The economic forecast is based on the 3-month moving average as the monthly index is very noisy. A positive value of the index represents Main Street economic expansion. Readings below 0.4 indicate a weak economy, while readings below 0.0 indicate contraction. 

Merchant Wholesalers Inventories-to-Sales Ratio Up, … with Sales down, exemplified by household appliances and electronics:




Japan's 10Y Yield On Verge Of Turning Positive As Abe Prepares Massive Debt-Busting Stimulus.

Japan preparing $120 billion stimulus package to bolster fragile economy.


The Credit Market Powder Keg: The ratio of loan downgrades to upgrades has soared.



Saxo Bank: "The S&P500's Valuation Is The Highest Since 2001"

“Based on the current valuation level in the S&P 500 we observe historically a 0.5% real return annualized with a +/- 2%-points uncertainty. This means that investors buying into current valuation levels are pursuing momentum effects rather than long-term return expectations. These moves never end good.”

Hussman: The meaning of valuation.

While there’s no question that waves of speculation and risk-aversion can produce substantial market fluctuations over various segments of the complete market cycle, investors should understand that long-term returns, as well as full-cycle downside risks, are driven by valuations. When I say “valuation,” I’m not simply talking about the ratio of current stock prices to next year’s estimated earnings. Stocks aren’t simply a claim on next year’s earnings, and a single year of earnings is typically not a “sufficient statistic” for long-term cash flows, particularly at the peak or trough of an economic cycle. Valuations measure the tradeoff between current prices and a very long-term stream of expected future cash flows. Every useful valuation ratio is just shorthand for that calculation. Every valuation ratio that fails that criterion is inferior, and you can show it in historical data.  

The valuation measures that investors use should survive two criteria. First, a good valuation measure should reasonably mirror a proper discounted cash flow analysis, and as you can see above, this is something we can check. Second, a good valuation measure (technically, it’s log value) should be strongly correlated with actual subsequent market returns in cycles across history. Again, this is something we can check. 

Based on the most reliable valuation measures we’ve examined or introduced over more than three decades, the current tradeoff between stock prices and likely future cash flows now rivals the 1929 and 2000 extremes.

"Lower For Ever": One Bank Makes A Stunning Discovery - The Fed's Rate Cuts Are Now Deflationary.

 

In light of the gloomy structural framework detailed above, it will come as little surprise that Rabobank's outlook for rates is not so much "lower for longer as lower forever." 

Charts 13 and 14 below show Rabobank's forecasts for US policy rates and yields through to the end of next year. The bank's Fed watcher, Philip Marey, who has been spot on in his Fed calls in the past two years, expects the Fed to be forced into cutting policy rates once again in April 2020 as a slowdown becomes more pronounced. 

With this deceleration of activity seen triggering a recession in the second half of next year, Rabo’s base case is for the Fed to cut rates at each subsequent meeting taking the lower end of the fed Funds target range to zero by the end of the year (a development that will naturally prompt discussion of another wave of, self-defeating, QE in addition to the NOT QE we have right now). 

Rabo expects 10y yields to hit a new record low in H2 2020 with 1.0% currently viewed as the resting point at the end of the year, and strikingly, the bank states that it views the risks to this forecast "to be titled to the downside"

Geopolitics:

Ross Says Trump Will Hike Tariffs If No China Deal By Dec 15.


Krieger: Two Paths Forward with China – The Good and The Bad.

“I’ve consistently forecasted a significant worsening in U.S.-China relations and remained adamant that all the happy talk of trade deals and breakthroughs is just a lot of hot air. … it’s highly unlikely the current trajectory will reverse course and result in a return to what had been business as usual. Instead, we’re probably headed toward a serious and historically meaningful escalation of tensions between the U.S. and China, with what we’ve seen thus far simply a prelude to the main drama.”

(Very Brief) Book review of the week:

The Debt Delusion.

I have been reading Prof John Weeks’ book ‘The Debt Delusion‘. I should say, upfront, that I know John, and enjoy his company: he is a fellow member of the Progressive Economy Forum. The book would be worth reading without that association.

In essence, John uses the book to tackle six myths, which he identifies as:

1) We must live within our means;
2) Governments should balance their books;
3) We should tighten our belts to achieve this objective;
4) Debt is always bad:
5) Government debt should be avoided by reducing expenditure and not raising taxes;
6) In combination, these mean that there is no alternative to austerity. 

Readers will be familiar with such claims and that I, like John, have no time for them. For this reason I recommend the book. But I also do so because it is intensely readable. This is a book that uses the odd graph and table, but most certainly not formulas. Instead John uses an easy narrative flow to make his argument. …

… to explain that the constraints that we face are not financial. “Our means” very clearly is not defined by the relationship between government expenditure and taxation. If the term has any relevance at all, then it definitely refers to the capacity of an economy to meet the real needs of those who live within it. The finance follows. For those looking for an explanation of this fact I recommend John’s book.

(Not just) For the ESG crowd:

An introduction to the state of energy storage in the U.S.

Decrying ‘Utterly Inadequate’ Efforts to Tackle Climate Crisis, UN Chief Declares ‘Our War Against Nature Must Stop’.

IMF: Carbon Calculus: For deep greenhouse gas emission reductions, a long-term perspective on costs is essential.

Oil and Gas Industry Rebukes Fracking Ban Talk as UN Shows Just How Much Fossil Fuel Plans Are Screwing Climate Limits.

as the UN’s new “Production Gap” report reiterates, unrestrained oil and gas production is inconsistent with the world’s climate targets. Current production plans result in 43 percent more oil and 47 percent more gas in 2040 than would be consistent with a 2°C pathway, according to the analysis.

FT: Why business cannot tackle climate change on its own.


Must read of the week:

Are evidence-based decisions impossible in politics?
Human psychology and institutional incentives are powerful barriers to truth and reason, but both can be addressed.

Making good political decisions is difficult because human beings spend so much time in what economist and psychologist Daniel Kahneman calls “System One” mode. This is a way of thinking that is fast, emotional, easy and efficient. It’s heavily reliant on cognitive shortcuts and fast judgments, and prone to bias. Much of our politics exists in this space - the immediate, the gut, the familiar and emotional. And many of our structural incentives - our institutions, rules, laws and habits - keep us locked into this mode.

It’s not that we don’t want to do better. We often do. Plenty of us like evidence, rigorous reasoning and careful thought. But in a busy, distracted, speedy and complex world, we often take the path of cognitive least-resistance and get stuck battling the psychological tendencies that lead us towards poor reasoning. And given that we are often rewarded for doing so, at least in the short term, we’re encouraged to keep it up.

Other fare:

Frozen II isn’t just a cartoon. It’s a brilliant critique of imperialism.

Climate change: Elephants killing and injuring people due to drought. And: Climate change likely to blame as Russian town overrun by polar bears.

OECD Regional Well-Being Index: A Closer Measure of Life.

Think celebrities and CEOs make way too much money? Check out this chart.


Quote of the Week:

In 1976, a professor of economic history at the University of California, Berkeley published an essay outlining the fundamental laws of a force he perceived as humanity’s greatest existential threat: Stupidity. Stupid people, Carlo M. Cipolla explained, share several identifying traits: they are abundant, they are irrational, and they cause problems for others without apparent benefit to themselves, thereby lowering society’s total well-being. There are no defenses against stupidity, argued the Italian-born professor, who died in 2000. The only way a society can avoid being crushed by the burden of its idiots is if the non-stupid work even harder to offset the losses of their stupid brethren.

from: The five universal laws of human stupidity.


Speaking of stupidity…

Photo Toon of the Week:

2019-11-30 Links and Charts

Durable Goods Orders Rebound Bigly In October, CapEx Proxy Surges.

Surging China PMIs, Crashing Korea Exports Spark Even More Confusion About Global Economy.


Charles Hall: Does Trump have a bunch of 'losers' to thank for a growing economy?

“There are many complex factors that determine the state of the economy, but only one absolute prerequisite — available and affordable energy to manufacture and move things to market, and to transport, feed, comfort and amuse people. …. This situation means that relatively cheap oil and gas are keeping the U.S. economy strong. But this cheap oil and gas is being partially subsidized by investors who are either losing money or receiving a poor return on investment. In this respect, President Trump has these financial “losers” to thank for a large part of the current health of the U.S. economy.”

Related: Phase 2 of the Great American Shale Oil & Gas Bust.

Brick & Mortar Melts Down as Ecommerce Jumps by Most Ever.

US Consumers spend more online. 

US: Growth in small business employment has been slowing.

Why The US Job Market Is About To Crack In 8 Charts. Lots of charts from DB.

This Is The Chart Albert Edwards Is Watching To Decide When The US Becomes "Japanified".




Federal Reserve Proposes New Rule To Let Inflation Run Hot Ahead Of Next Recession.

Danielle DiMartino Booth: "...And You Thought Recession Risk Was A Thing Of The Past..."

Charlie McElligott: "The Bull Market In Bonds Is Back On".

Crescat Capital: The Impending End of a Mania.

Macro Imbalances

There is a laundry list of dangerous assets bubbles in the global financial markets today that have built up over a record long US economic expansion:

• Highest ever global debt to GDP levels;
• …
• Record indebtedness of US public and private corporations combined relative to GDP…

Catalysts

The unwinding of these imbalances is likely to be highly destructive to the investment portfolios of unprepared global savers today. Below, we list the confluence of macroeconomic timing signals, including social and geopolitical forces, now bearing down for an assault on overvalued financial assets. Most of these have been uncanny warning signs directly ahead of past bear markets and business cycle peaks.

In the US:

• The Treasury yield curve recently exceeded the critical 70% inversion threshold that has preceded each of the last six recessions with no false signals;
• The Conference Board’s consumer expectations survey has diverged strongly to the downside compared to its unsustainably high present situation index;
• Job openings are declining while the lagging and contrarian unemployment rate is at cyclical lows;
• Both the Atlanta and New York Fed’s real-time GDP trackers have been trending steadily down for almost two years and appear to be approaching recessionary levels;
• Corporate earnings of the Russell 3000 already contracted on a year-over-year basis in the last reported quarter;
• US share buybacks are now 30% lower than 2018;
• Increased insider selling of stocks;
• Declining CEO/CFO confidence surveys;
• M&A transactions drying up;
• ISM manufacturing PMI at recessionary levels;
• Construction spending declining;
• Bearish deteriorating stock market breadth while indices reach highs;
• Implied volatility for stocks retesting low levels that preceded previous selloffs;
• Smart money flow index diverging from the recent run-up in the S&P 500;
• Leveraged loans stumbling;
• Busted/delayed/cancelled IPOs;
• Recent liquidity crisis that spiked interest rates in the overnight US Treasury rehypothecation market;
• Inflation rate above the entire Treasury yield curve;
• Core and median CPI at 10-year highs diverging from long-term inflation expectations at 40-year lows;
• Capacity utilization now falling;
• Commercial & industrial loans declining the most since the housing bust;
• Auto loan spreads rising as delinquency rates rise;
• Net exports of services now falling the most since the GFC and tech bust;
• Increased election uncertainty and rising political polarization creates an unknown binary outcome for future tax policy which is now friendly for financial markets but could swing 180 degrees; …

"A Once In A Decade Divergence" Warns This Global Macro Fund (between global equities and their underlying fundamentals)

“As we look out over the next six months, we see material risk for global equities as market participants come to the realization that economic growth will not rebound in a similar fashion to the 2016 global growth cycle. However, given our current visibility, we do see stabilization in the global economic data in Q12020, but the rebound following this stabilization will likely be the weakest since 1998 – implying an L like recovery versus a V or U.

This is largely a function of global credit growth, which has only risen 0.84% from its lows versus the historical cyclical upturn threshold minimum of 2.70%. While we see stabilization globally, our US leads point to further deterioration in consumption and employment through 1H20, which complicates the potential global bottom. Nevertheless, global equities are currently pricing in a 2016 like rebound in global growth, which will likely need to be priced out before we become more constructive on international equities and weak dollar plays,"

See link for more charts on Pervalle’s leading (long leading and short leading) indicators



(Not just) for the ESG crowd:

FT: Climate change: how China moved from leader to laggard. If you can’t access FT.

A Solar 'Breakthrough' Won't Solve Cement's Carbon Problem.

The Collapse of Civilization May Have Already Begun.

Scientists disagree on the timeline of collapse and whether it's imminent. But can we afford to be wrong? And what comes after?

“It is now too late to stop a future collapse of our societies because of climate change.” These are not the words of a tinfoil hat-donning survivalist. This is from a paper delivered by a senior sustainability academic at a leading business school to the European Commission in Brussels, earlier this year. Before that, he delivered a similar message to a UN conference: “Climate change is now a planetary emergency posing an existential threat to humanity.”

Nate Hagens. Economics For The Future – Beyond The Superorganism. Science Direct.

“The real problem of humanity is the following: we have paleolithic emotions; medieval institutions; and god-like technology.”– E.O. Wilson

Despite decades of warnings, agreements, and activism, human energy consumption, emissions, and atmospheric CO2 concentrations all hit new records in 2018. If the global economy continues to grow at about 3.0% per year, we will consume as much energy and materials in the next ±30 years as we did cumulatively in the past 10,000. Is such a scenario inevitable? Is such a scenario possible? Simultaneously, we get daily reminders the global economy isn’t working as it used to such as rising wealth and income inequality, heavy reliance on debt and government guarantees, populist political movements, increasing apathy, tension and violence, and ecological decay. To avoid facing the consequences of our biophysical reality, we’re now obtaining growth in increasingly unsustainable ways.

The developed world is using finance to enable the extraction of things we couldn’t otherwise afford to extract to produce things we otherwise couldn’t afford to consume. With this backdrop, what sort of future economic systems are now feasible? What choreography would allow them to come about? In the fullness of the Anthropocene, what does a hard look at the relationships between ecosystems and economic systems in the broadest sense suggest about our collective future? Ecological economics was ahead of its time in recognizing the fundamental importance of nature’s services and the biophysical underpinnings of human economies. Can it now assemble a blueprint for a ‘reconstruction’ to guide a way forward?

Before articulating prescriptions, we first need a comprehensive diagnosis of the patient. In 2019, we are beyond a piecemeal listing of what’s wrong. A coherent description of the global economy requires a systems view: describing the parts, the processes, how the parts and processes interact, and what these interactions imply about future possibilities. This paper provides a brief overview of the relationships between human behavior, the economy and Earth’s environment. It articulates how a social species self-organizing around surplus has metabolically morphed into a single, mindless, energy-hungry “Superorganism.” Lastly, it provides an assessment of our constraints and opportunities, and suggests how a more sapient economic system might develop.

Quotes of the Week:

Scott Adams, on staying in your lane: “At the time of this writing, the two most influential politicians in the United States are a real estate developer who became president and a bartender who got elected to Congress.”

Also: Graham, Gundlach, Dalio, Klarman, Grantham, Marks, Montier…



Headline of the Week:

Left in Car on Its Own, Florida Dog Shifts Into Reverse and Drives in Circles for an Hour.

The video of the cops just standing there watching is pathetic / funny, take your pick.



Photos of the Week:

Humpback whales feeding off Alaska.

“A herd of elephants marched 12 hours to the house of Lawrence Anthony after he died – the man who saved them.

They stayed there silent for two days. Exactly one year after his death, to the day, the herd marched to his house again.”

2019-11-25 Charts and Links

Global Debt To Hit All Time High $255 Trillion, 330% Of World GDP.
Bank of America's Michael Hartnett on Friday calculated that since the collapse of Lehman, government debt has increased by $30tn, corporates debt by $25tn, household by $9tn, and financial debt by $2tn; And with central banks expected to support government debt, BofA warns that "the biggest recession risk is disorderly rise in credit spreads & corporate deleveraging."

Is There a Threat of a New Global Economic Crisis?
The unprecedented debt load of major economies, like the United States, China and the EU is fraught with a disastrous threat for the entire world. This could lead to a disaster that will by far exceed the Great Depression if deleverage starts, Valdai Club expert Alexander Losev warns. … despite the unprecedented growth of world debt in the past ten years after the 2008 crisis, investment activity in the real economy is declining, growth in the world economy and international trade is slowing and the risk of a global recession is on the rise. The accumulated aggregate debt is becoming a real threat to the stability of the global financial system.

Here's The Simple Reason Why A Global Economic Recovery Is Not Coming.
But has the global economy indeed troughed, and is a period of smooth sailing ahead? The answer will depend, as it traditionally has in the past decade, on whether China will stimulate both its own, and the global economy to the point where it successfully triggers a global inflationary shockwave around the globe. Unfortunately, the answer for now appears to be a resounding no, and not just as a result of the latest leading economic indicators out of China which missed across the board, confirming that Beijing is bracing for the first ever sub-6% GDP print. As Saxo Bank's Christopher Dembik writes, there is another reason why China will not open massively the credit tap anytime soon. But before we get into his argument, as a reminder, the latest Chinese credit data was a disaster, with the revised Aggregate Financing data series printing at its lowest level on record as we discussed in "China's Credit Creation Unexpectedly Collapses At The Worst Possible Time."


Why China's Growth Rate Is Much, Much Lower Than You Think. 

Fathom's China Momentum Indicator Signals More Downside Ahead



Michael Pettis, via Mish: China, like Japan in the 1990s, Will Be Dominated by Huge Zombie Banks.

China needs to prepare for zero interest rates.

Visualizing The Simple Reason Why America Will Drown In Deflation.



World Trade Barometer Suggests Global Economy Continues To Plunge As Trade War Takes Toll.




Rail Recession: U.S. Carloads Continue Collapse As Manufacturing Slows.

Couple charts from GS from: 

Here Are Goldman's Top Trades And Themes For 2020.
Wage growth is picking up… from repressed levels back to normal

Seeing as I brought up the topic of the (misleading) savings rate recently:
Why The Measure Of “Savings” Is Entirely Wrong. The reality is the measure of “personal savings,” as calculated by the Bureau of Economic Analysis, is grossly inaccurate. However, to know why such is the case, we need to understand how the savings rate is calculated….
The differential between incomes and the actual “cost of living” is quite substantial. As Researchers at Purdue University found, in the U.S., $132,000 was found to be the optimal income for “feeling” happy for raising a family of four. A Gallup survey found it required $58,000 to support a family of four in the U.S. (Forget about being happy, we are talking about “just getting by.”)

The “gap” between the “standard of living” and real disposable incomes is shown below. Beginning in 1990, incomes alone were no longer able to meet the standard of living so consumers turned to debt to fill the “gap.” However, following the “financial crisis,” even the combined levels of income and debt no longer fill the gap. Currently, there is almost a $2654 annual deficit that cannot be filled.


That gap explains why consumer debt is at historic highs and growing each year. If individuals were saving 8% of their money every year (as per the phony US personal savings rate), debt balances would at least be flat, if not declining, as they are paid off.


Consumers Are Keeping The US Out Of Recession? Don’t Count On It.

Fed's "National Activity Index" Plunges To 2-Year Low.

DB charts, Global light vehicle sales, etc.:

(Not just) for the ESG crowd:

Brookfield markets new green bond in Canada, sets sights on Brazil and India.

Climate-proofing Canada’s economy.

There is no denying that climate change is now a mainstream issue, as evidenced by vigorous debates in the recent federal election. While governments are struggling to come up with public-policy responses, global investors and financial institutions are not standing around. The investment world is already shaping markets in response to the effects of climate change.

Lewis Lapham in Lapham’s Quarterly: Paying the Piper.

The warming of the planet currently spread across seven continents, four oceans, and twenty-four time zones is the product of a fossil-fueled capitalist economy that over the past two hundred years has stuffed the world with riches beyond the wit of man to marvel at or measure. The wealth of nations comes at a steep price—typhoons in the Philippine Sea, Category 5 hurricanes in the Caribbean, massive flooding in Kansas and Uttar Pradesh, forests disappearing in Sumatra and Brazil, unbearable heat in Paris, uncontrollable wildfires in California, unbreathable air in Mexico City and Beijing.

The capitalist dynamic is both cause of our prosperous good fortune and means of our probable destruction, the damage in large part the work of Adam Smith’s invisible hand, guided by the belief that money buys the future. Nature doesn’t take checks. Who then pays the piper—does capitalism survive climate change, or does a changed climate put an end to capitalism? The question informs this issue of Lapham’s Quarterly…

Steve Keen: ‘4°C of global warming is optimal’ – even Nobel Prize winners are getting things catastrophically wrong.

William Nordhaus was awarded the 2018 Nobel Prize in Economics for “integrating climate change into long-run macroeconomic analysis”. This implies that he worked out what global heating means for our economy, given what climate scientists say will happen to our planet. But Nordhaus’s predictions of what global heating will cost the earth are dangerously at odds with the science. In his Nobel Prize lecture, Nordhaus described a 4°C increase in global average temperature as “optimal” — that is, the point at which the costs and benefits of mitigating climate change are balanced. In a subsequent academic paper based on this lecture, he stated that “damages are estimated to be 2 percent of output at a 3°C global warming and 8 percent of output with 6°C warming”. This is a trivial level of damage, equivalent for the 6°C warming case to a fall in the rate of economic growth over the next century of less than 0.1% per year. …. The average global temperature during the last Ice Age was 4°C cooler than today. There’s no way we can accurately predict what GDP would be in such a cool world today, but we know that most of Europe north of Berlin, and of America north of New York, would be under a kilometre of ice. To argue that this would cut GDP by just 3.6% is simply absurd.

Climate Change Is Coming for Global Trade. As sea levels rise and storms become fiercer, container shipping could be in for major disruptions

Ford’s Mustang Mach-E is an electric SUV with up to 300 miles of range. (Starting at US$43,895 and coming in late 2020)



Geopolitics

Ian Bremmer: The End of the American International Order: What Comes Next?

This is the text of a speech delivered by Bremmer on November 18 at the 2019 GZERO Summit in Tokyo.

Bound to Fail: The Rise and Fall of the Liberal International Order. Journal of International Security.

The liberal international order, erected after the Cold War, was crumbling by 2019. It was flawed from the start and thus destined to fail. The spread of liberal democracy around the globe—essential for building that order—faced strong resistance because of nationalism, which emphasizes self-determination. Some targeted states also resisted U.S. efforts to promote liberal democracy for security-related reasons. Additionally, problems arose because a liberal order calls for states to delegate substantial decision-making authority to international institutions and to allow refugees and immigrants to move easily across borders. Modern nation-states privilege sovereignty and national identity, however, which guarantees trouble when institutions become powerful and borders porous. Furthermore, the hyperglobalization that is integral to the liberal order creates economic problems among the lower and middle classes within the liberal democracies, fueling a backlash against that order. Finally, the liberal order accelerated China’s rise, which helped transform the system from unipolar to multipolar. A liberal international order is possible only in unipolarity. The new multipolar world will feature three realist orders: a thin international order that facilitates cooperation, and two bounded orders—one dominated by China, the other by the United States—poised for waging security competition between them.

Other Fare:

Blockbuster WSJ Investigation: How Google Interferes With Its Search Algorithms and Changes Your Results.



Book Review:

David Graeber: Against Economics – reviews Robert Skidelsky’s Money and Government: The Past and Future of Economics.

There is a growing feeling, among those who have the responsibility of managing large economies, that the discipline of economics is no longer fit for purpose. It is beginning to look like a science designed to solve problems that no longer exist. A good example is the obsession with inflation. Economists still teach their students that the primary economic role of government—many would insist, its only really proper economic role—is to guarantee price stability. We must be constantly vigilant over the dangers of inflation. For governments to simply print money is therefore inherently sinful. If, however, inflation is kept at bay through the coordinated action of government and central bankers, the market should find its “natural rate of unemployment,” and investors, taking advantage of clear price signals, should be able to ensure healthy growth. These assumptions came with the monetarism of the 1980s, the idea that government should restrict itself to managing the money supply, and by the 1990s had come to be accepted as such elementary common sense that pretty much all political debate had to set out from a ritual acknowledgment of the perils of government spending. This continues to be the case, despite the fact that, since the 2008 recession, central banks have been printing money frantically in an attempt to create inflation and compel the rich to do something useful with their money, and have been largely unsuccessful in both endeavors. 

We now live in a different economic universe than we did before the crash. Falling unemployment no longer drives up wages. Printing money does not cause inflation. Yet the language of public debate, and the wisdom conveyed in economic textbooks, remain almost entirely unchanged.

One expects a certain institutional lag. Mainstream economists nowadays might not be particularly good at predicting financial crashes, facilitating general prosperity, or coming up with models for preventing climate change, but when it comes to establishing themselves in positions of intellectual authority, unaffected by such failings, their success is unparalleled. One would have to look at the history of religions to find anything like it. To this day, economics continues to be taught not as a story of arguments—not, like any other social science, as a welter of often warring theoretical perspectives—but rather as something more like physics, the gradual realization of universal, unimpeachable mathematical truths. “Heterodox” theories of economics do, of course, exist, but their exponents have been almost completely locked out of what are considered “serious” departments, and even outright rebellions by economics students (from the post-autistic economics movement in France to post-crash economics in Britain) have largely failed to force them into the core curriculum.

As a result, heterodox economists continue to be treated as just a step or two away from crackpots, despite the fact that they often have a much better record of predicting real-world economic events. What’s more, the basic psychological assumptions on which mainstream (neoclassical) economics is based—though they have long since been disproved by actual psychologists—have colonized the academy, and have had a profound impact on popular understandings of the world.

Nowhere is this divide between public debate and economic reality more dramatic than in Britain, which is perhaps why it appears to be the first country where something is beginning to crack. It was center-left New Labour that presided over the pre-crash bubble, and voters’ throw-the-bastards-out reaction brought a series of Conservative governments that soon discovered that a rhetoric of austerity—the Churchillian evocation of common sacrifice for the public good—played well with the British public, allowing them to win broad popular acceptance for policies designed to pare down what little remained of the British welfare state and redistribute resources upward, toward the rich. “There is no magic money tree,” as Theresa May put it during the snap election of 2017—virtually the only memorable line from one of the most lackluster campaigns in British history. The phrase has been repeated endlessly in the media, whenever someone asks why the UK is the only country in Western Europe that charges university tuition, or whether it is really necessary to have quite so many people sleeping on the streets.

The truly extraordinary thing about May’s phrase is that it isn’t true. There are plenty of magic money trees in Britain, as there are in any developed economy. They are called “banks.” Since modern money is simply credit, banks can and do create money literally out of nothing, simply by making loans. Almost all of the money circulating in Britain at the moment is bank-created in this way. Not only is the public largely unaware of this, but a recent survey by the British research group Positive Money discovered that an astounding 85 percent of members of Parliament had no idea where money really came from (most appeared to be under the impression that it was produced by the Royal Mint).

Quotes of the Week:

Rubino: “Every sector of the U.S. economy is so over indebted I don’t see how we go on much longer. The Fed is desperately trying to prolong this thing. We’re running trillion dollar deficits now, and what that is for is to keep the system from falling apart. We are 11 years into an expansion, a record. This is the longest bull market in history, and this is the longest economic expansion in history… These guys don’t know exactly what’s going to happen in the next recession, but they are afraid that the system is so highly leveraged that even a garden-variety three quarters of a percent of negative growth and a garden variety of 20 % drop in stock prices might be fatal. The system might not be able to handle that because it would cause so much damage and there are so many different places that can blow up that the system would spin out of control. We would get 2008-09 again but on steroids because the numbers are so much bigger this time around. So, they want to avoid that at all costs.”


US AG William Barr: “in waging a scorched earth, no-holds-barred war of ‘Resistance’ against this Administration, it is the Left that is engaged in the systematic shredding of norms and the undermining of the rule of law.”

… much more on Adam Schiff’s and the Democrats’ Orwellian “campaign to blow smoke up America’s ass for three years running” by JHK here, and more on our Pravda-like B.S. media’s inane coverage or our insane world by Johnstone here, in which politicians and the media “use a light sprinkling of fact to weave a narrative that has very little to do with reality”


Photo of the Week:
Hope we don’t have any “Black Swans” coming, because they are fierce-looking!

Totally Unrelated – Catchy Headlines; just checking if you’re reading these:

Pointless work meetings 'really a form of therapy'.

Cops put GPS tracker on man’s car, charge him with theft for removing it.

They Can't Stop Us:' People Are Having Sex With 3D Avatars of Their Exes and Celebrities.

2019-11-18 Charts and Links

Here's What To Expect From Fed Chair Powell Today. zerohedge. Nov. 13, 2019.

Key Takeaways from Powell's Prepared Remarks (via Bloomberg)

1. The Fed chairman says the current stance of monetary policy is “likely to remain appropriate” as long as the economy remains on track for moderate growth
2. In a dovish note he adds: “Sluggish growth abroad and trade developments have weighed on the economy and pose ongoing risks,” and inflation pressures “remain muted”
3. Powell’s outlook remains positive; “My colleagues and I see a sustained expansion of economic activity, a strong labor market, and inflation near our symmetric 2 percent objective as most likely”

Bank Of America: Stocks Are The Most Expensive Since The Jan 2018 Meltup "But There Is No Alternative"

Must Read: 
A Striking Collection of Duck-Like Features. …as usual with Hussman, I recommend reading the whole thing; lotsa gems; this is just an appetizer:

“Are stocks in a bull market? Are stocks in a bear market? The answer isn’t actually observable in real-time. As I’ve noted for decades, bull markets and bear markets exist only in hindsight. When will the bull market end? It might have ended Friday. I kind of think it did. But that question is irrelevant to our investment outlook, because our outlook is a reflection of current, observable evidence. We choose our actions based on the conditions we observe, and the range of outcomes that have historically followed. No future-looking labels are necessary. We also pay special attention to features that tend to emerge – usually as a collection – at the most extreme points of opportunity or risk. The goal isn’t so much to forecast future conditions but instead to identify present ones: to gather observable evidence, to insist on knowing how that evidence has been associated with actual subsequent outcomes, and to align our investment stance with the “distribution” of likely opportunities or risks, understanding that the outcome in this particular instance is unknowable ….

Below is a version of a chart I shared last year. In hindsight, the large collection of duck-like features we observed the week of September 21, 2018 was immediately followed by a -19.8% swoon into year-end. As I observed at the time: “The only time we’ve ever seen a confluence of risk factors anywhere close to those of today was the week of March 24, 2000, which marked the peak of the technology bubble. In my view, this sort of analysis is useful because it doesn’t rely on any single risk factor, and emphasizes that while these risk factors can emerge individually without consequence, a large and critical mass of them probably shouldn’t be dismissed. My impression is that this is as close as one gets to ringing a bell at the top.” We observed an equivalent extreme last week (ended Friday, November 8, 2019). While this is again as close as one gets to a duck, we can’t know until later whether it’s actually a duck. All we can say with confidence is that current, observable market conditions present us with a striking collection of duck-like features.”

Technically Speaking: A Correction Is Coming, Just Don’t Tell The Bulls…Yet.

Q4 GDP Crashes: US Economy Growing At Slowest Pace In 4 Years.

(MW: Okay, its kinda early to be saying this, but:)

Following a burst of poor US economic data, including today's disappointing retail sales and dismal industrial production, the US economic surprise index has slipped back into the negative after peaking in late September.

                                                                        

Household debt climbs to record high, delinquencies rise. (lotsa charts at link) 

The "Oh, $hit!" Moment For Subprime Auto Loans Arrives; Serious Delinquencies Blow Out.

 

Bank lending, UK, China, India. (charts at the link)

India's Factory Output And Electricity Demand Plunge To Decade Lows Amid Economic Downturn.

CLO Slump Sparks Warning: "There's More Volatility Coming". (see the chart at link of monthly returns of BB CLO bonds… October, ouch)


The Long Read:
History as a giant data set: how analysing the past could help save the future. The Guardian.

Calculating the patterns and cycles of the past could lead us to a better understanding of history. Could it also help us prevent a looming crisis? 

(not just) for the ESG crowd: 

Ben Hunt: The Rake

1) Require by law that the board Chair of publicly traded companies may not also be the CEO. [and if you really want to get serious about this, require that the board Chair be an independent director]

2) Require by law that board directors may only receive cash compensation for their services and are not eligible for any form of stock-based compensation.

3) Require by law that board directors may not exercise any form of previously granted stock-based compensation while they serve on the board.

Do these proposals go far enough? I don’t think so. But they’re a start.

Morgan Stanley: Decarbonization: The Race to Net Zero.

Morgan Stanley produced a Sustainability report in October called Decarbonization: The Race to Net Zero -- it has sections on Renewables; EVs; CCS; Hydrogen; and Biofuels; followed by economics consequences of climate change (low-balled / understated ... if a report doesn't acknowledge the potential economic loss by 2100 is infinite, then it doesn't understand the science ... yes, I'm serious, and so are the scientists -- even if the IPCC, a political body, doesn’t say so); implications for coal/oil/gas (also under-stated, b/c (a) what big US bank is going to piss off its big-time energy clients, and b/c of (b) my last point, i.e. that if we don't keep most of the oil in the soil, we're toast -- if you don't want to believe me, and who does, feel free to check out all the research I've collected on my other blog re: positive feedback effects, tipping points, irreversibilities and abrupt climate change --- particularly re the release of undersea and permafrost methane); green financing; and a just transition(?)

‘Profound shifts’ underway in energy system, says IEA World Energy Outlook. Carbon Brief.

The world’s CO2 emissions are set to continue rising for decades unless there is greater ambition on climate change, despite the “profound shifts” already underway in the global energy system.

It’s too late for a carbon tax—it’s time for a world war against climate change. Adele Peters, Fast Company. Nov. 4, 2019.

“The reality is that we have zero years and we have to change all of our infrastructure.”

Aronoff: We Need a Green Bailout for the People.

Book review:

Yanis Varoufakis: Good Economics for Hard Times by Abhijit V Banerjee and Esther Duflo review – methodical deconstruction of fake facts

Good Economics for Hard Times is the latest attempt by economists to defend their profession. It is, happily, an excellent antidote to the most dangerous forms of economics bashing: the efforts of opportunistic politicians to weaponise discontent with mainstream politics and to press it into the service of a xenophobic ideology that denies facts and serves the interests of a nativist, global oligarchy.

The book’s authors, MIT economists Abhijit Banerjee and Esther Duflo, write beautifully and are in full command of their subject. They examine the most crucial issues humanity faces (migration, trade wars, the scourge of inequality, climate catastrophe) with a combination of humility over what economics cannot tell us and pride over its contributions to our limited understanding. On every page, they seek to shed much-needed light upon the distortions that bad economics bring to public debates while methodically deconstructing their false assumptions. In their words, the book’s noble, urgent task is “to emphasise that there are no iron laws of economics keeping us from building a more humane world”.

Serendipity would have it that even as Good Economics… was still in the pipeline Banerjee and Duflo, who are also partners in life, were awarded (with Michael Kremer) this year’s Nobel prize in economics. It was an inspired choice. Unlike previous winners, mostly older white males whose grand theories are built upon mathematics of dizzying complexity, they have made a name for themselves by studying the circumstances of the world’s poorest people.

….

in Good Economics…, the plentiful facts do not go far enough in exposing the deeper causes of our current predicament. …. Every book as important as this one must include a theory of change: how shall we use its insights to bring about a more humane world? Banerjee and Duflo’s offering is enlightened selfishness by the rich, and razor-sharp analysis that is disseminated to the public. This is unconvincing, but it could not be otherwise. To provide a persuasive progressive policy agenda at a time when the usual fixes (quantitative easing, taxation) no longer work, the roots of capitalism’s stagnation and flirtation with climate catastrophe must come to the surface. It is a remarkable sign of the times that, as my friend the philosopher Slavoj Žižek once said, even the brightest minds would rather fathom the end of the world than plan for the demise of capitalism. Perhaps the greatest contribution of Good Economics… is precisely this: it demonstrates both the brilliant insights that mainstream economics can make available to us and its limits, which a progressive internationalism has a duty to transcend.

Quote(s) of the Week:

“Tyler Durden”:

"The fact that Dennis Gartman - the most successfully contrarian indicator in the history of capital markets - on Tuesday repeated the now traditional Treasury bear gibberish, that "the case can be made that the three decade long bull run in 30 Year Treasuries has run its course to the end", only gave us certainty that the Treasury selloff is now over."

Bill Mitchell:

“One of the stark facts about the academic economics discipline is its insularity and capacity to deliver influential prognoses on issues that affect the well-being of millions with scant regard to the actual consequences of their opinions and with little attention to what other social scientists have to say. The mainstream economists continually get things wrong but take no responsibility for the damage they cause to the well-being of the people”

JFK (to James Tobin):

“Is there any economic limit to the deficit? I know of course about the political limits. People say you can’t increase the national debt too fast or too much. We’re always answering that the debt isn’t growing relative to national income. But is there any economic limit to size of the debt in relation to national income? There isn’t is there? Well, what is the limit?” – Tobin said the only limit is really inflation – JFK: “That’s right, isn’t it? The deficit can be any size, the debt can be any size, provided they don’t cause inflation. Everything else is just talk.”

Lars Syll: 

There are “difficulties encountered by heterodox thinkers. Orthodox thinkers share a dogma, or at least a set of a priori assumptions, and usually a methodology. In essence, this makes orthodox thinking an echo chamber where basic ontology is never questioned. When the heterodox argue, as in the economically heterodox here, the argument eventually descends (or ascends?) into metaphysics; into ontology and epistemology. This is both the benefit and drawback of thinking and arguing from any kind of heterodox position. While we are all drawn here by our rejection of orthodox economics, each of us has a particular perspective. That perspective is drawn from our enculteration and areas of study. That perspective is a kind of filter through which we see and interpret the world. Our only commonality appears to be a rejection of orthodox economics…. After rejecting orthodox economics, which unavoidably involves critiquing and rejecting its patently fallacious ontology, we are faced with the task of constructing a new ontology suitable for modern political economy. It’s not an easy task and there will be many disagreements on perspective. There are two keys in my view. Empiricism is one. “It is a fundamental part of the scientific method that all hypotheses and theories must be tested against observations of the natural world rather than resting solely on a priori reasoning, intuition, or revelation.” ”

Lisa Duggan:

“We are in the midst of a major global, political, economic, social and cultural transition—but we don’t know which way we’re headed”

As quoted by Chris Hedges, who also said:

“The corporate coup orchestrated by the ruling oligarchs over the past few decades gave us Donald Trump. If this coup is not reversed, far worse will follow. The oligarchs are the last to understand the consequences of their moral depravity.”

Followed by:

“Oligarchs, freed from outside oversight and regulation, wantonly pillage the political and economic institutions that sustain them. They run up huge government deficits by slashing taxes on the rich. This forces an underfunded government to borrow from the banks, further enriching the oligarchs, and impose punishing austerity programs on the public. They privatize traditional government services, including utilities, intelligence gathering, large parts of the military, the police, the prison system and schools to make billions in profits. They create complex financial mechanisms that ensure usurious interest rates on mortgages, personal and student loans. They legalize accounting fraud and suppress wages to keep the public trapped in a crippling debt peonage. They loot trillions in taxpayer money when their speculative bubbles burst. They are no longer capitalists, if we define capitalists as those who make money from the means of production. They are a criminal class of financial speculators that rewrite the laws to steal from everyone, including their own shareholders. They are parasites that feed off the carcass of industrial capitalism. They produce nothing. They make nothing. They manipulate money. And this gaming of the system and seizure of political power by finance capital is why the wealthiest 1% of America’s families control 40% of the nation’s wealth.”

Which reminded me of Robert A. Heinlein, in Stranger in a Strange Land.

“Government! Three-fourths parasitic and the rest stupid fumbling.”

Photo of the Week:

“A cheetah has given birth to a giant litter of seven adorable cubs… In the wild cheetahs usually give birth to three to five young, and they are vulnerable to predators from birth, so to see seven siblings together is very unusual.”