Category Archives: Economy

Hedge Fund CIO: “America’s Yield Curve Inversion Can Mean One Of Three Things”

Three Worlds

America’s yield curve inversion can mean one of three things,” said (Eric Peters, CIO of One River Asset Management). “We’re either living in a world of secular stagnation and investors worry that central banks no longer have sufficient policy tools to spur growth and inflation,” he continued. “Or the economy is simply sliding toward recession and the inversion will persist until the Fed panics and spurs a recovery,” he said. “Or we’re living in a world, where the market is moving in ways that defy historical norms because of global QE. And if that’s the case, the curve is sending a false signal.”

https://www.zerohedge.com/s3/files/inline-images/TSY%20yield%20curve%203.31.jpg?itok=B16pb_qT

“If we’re sliding toward recession, then it seems odd that credit markets are holding up so well,” continued the same CIO. “So keep an eye on those,” he said. “And if the curve is sending a false signal due to German and Japanese government bonds yielding less than zero out to 10yrs, then the recent Fed pivot and these low bond rates in America may very well spur a blow-off rally in stocks like in 1999.” A dovish Fed in 1998 (post-LTCM) and 1999 (pre-Y2K) provided the liquidity without which that parabolic rally could have never happened.

https://www.zerohedge.com/s3/files/inline-images/aligator%20jaws%20march%202019_1.jpg?itok=KGvQ1sIB

“But if investors believe America is succumbing to the secular stagnation that has gripped Japan and Europe, and if they’re growing scared that global central banks are no longer capable of rescuing markets, then we have a real problem,” said the CIO. “Because a recession is bad for markets, but not catastrophic provided that central banks can step in to spur recovery. But with global rates already so low, if investors lose faith in the ability of central banks to do what they have always done, then we’re vulnerable to a stock market crash.”

Sovereignty:

Turkish overnight interest rates squeezed to 300% on Monday. Then 600% on Tuesday. By Wednesday, they hit 1,200%. Downward pressure on the Turkish lira, and the government’s efforts to punish speculators fueled the historic rise. Erdogan allegedly wants to limit lira loses ahead of today’s elections. The pressures that drove the currency lower were mainly of Turkish origin. Of course, the Turks have every right to their own economic policies, but they must bear the consequences. That’s what comes with being a sovereign state.

The Greeks and Turks are neighbors. The Turks began negotiations to join the EU in 2005, with plans to adopt the Euro after their acceptance. Those negotiations stalled in 2016. As they look across the border at their Greek neighbors now, and see their interest rates stuck at -0.40%, are they envious? Perhaps. But having witnessed the 2011 Greek humiliation, would the Turks be willing to forfeit sovereignty for the Euro’s stability and stagnation? And how do the Greeks (and Italians) feel about having forfeited their sovereignty?

Anecdote:

“Only optimists start companies,” I answered. The Australian superannuation CEO had asked if I’m an optimist or pessimist. “I see the potential for technological advances to produce abundance in ways difficult to fathom. But I also see the chance of something profoundly dark,” I continued. He observed that people seemed consumed by the latter but spend so little time on the former. “That’s good. Humans are wonderful at solving problems of our own creation. The more we worry, the less goes wrong,” I said. So he asked what worries me most?

“Not the displacement of human labor by machines, we can solve the resulting social challenges. I worry that the only thing Americans seem to agree on now is that China is our adversary.” And pressing, he asked me to list the things I admire about China. “Okay. I admire China’s work ethic, drive, ambition, economic accomplishments. They’ve overtaken us in many advanced scientific fields. I admire that very much.” He smiled and asked me to carry on. “I’m grateful for their competition. It makes us better. And I admire that they’ve evolved communism to make it work while all others failed. The world is better with diversity of thought, philosophy – diversity increases resiliency, robustness. And democratic free-market capitalism will grow stronger with a formidable competitor.” He smiled.

“But China’s system values the collective over the individual. We value the opposite. And I’m concerned the two systems cannot peacefully coexist now that we’re the world’s two largest economies. I don’t want to live under their system, I don’t want their vision of the future for my children. They probably feel the same way. Both views are valid but incompatible, and increasingly in conflict,” I explained. He nodded and said, “I don’t want that for our children either.”

Source: ZeroHedge

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Guess How Much Americans Spend Drunk Shopping Online?

A new survey reveals that nearly 80% of people who drink alcohol have shopped on the web while intoxicated. 

And while the results can be hilarious, drunk shopping is a multi-billion dollar national habit

According to a survey by tech and business newsletter The Hustledrunk Americans spend approximately $45 billion per year, with an average annual spend of $444 per drunk shopper.

Most common? Clothing and shoes, while Amazon remains the shopping platform of choice. 

https://www.zerohedge.com/s3/files/inline-images/wghat%20do.jpg?itok=piw0v9tX

The findings are based on a survey of 2,174 alcohol-consuming readers between March 11-18 of this year. The average respondent was 36-years-old, and has an income of $92,000 per year, more than double the national average. Thus, The Hustle‘s wealthier readers may skew the results when extrapolated – but we’re having fun with this one. 

Overall, 79% of all alcohol-consuming respondents have made at least one drunken purchase in their lifetime — though this varies a bit based on demographics. –The Hustle

https://www.zerohedge.com/s3/files/inline-images/do-you-drunk-shop.jpg?itok=Q4piUbsb

Women (80%) are slightly more likely than men (78%) to drunk shop. This makes sense since women generally shop more than men — especially online.

Drunk shoppers also tend to be younger. Millennials outrank baby boomers by 13%, which might be attributed to the rise of e-commerce (we’ll get to this later).

Certain professionals also seem to be more inclined to shop drunk than others. We limited our data to jobs with the highest response rates then parsed out the 5 industries that are most and least likely to shop under the influence. –The Hustle

What’s the alcohol of choice while drunk shopping? Beer, followed by wine, followed by whiskey.

https://www.zerohedge.com/s3/files/inline-images/type%20of%20alcohol.jpg?itok=wHRGbqVG

Another interesting metric is that people who shop while drunk have around 10 drinks per week, while those who typically shop sober consume half as much

https://www.zerohedge.com/s3/files/inline-images/habits.jpg?itok=mEOupkNH

As far as average spent per year: 

Our average respondent reports dropping $444 per year on drunk purchases — from life-size cut-outs of Kim Jong-un to 30-pound bags of Idaho potatoes.

A little back-of-the-napkin math gives us a rough estimate of the drunk shopping market at large: There are ~130m alcohol-consuming adults in the US. In our survey findings, 79% of alcohol-consuming adults shop drunk at an average annual spend of $444. Assuming these rates hold true at a national level (purely speculative), drunk shopping is a ~$45B per year market.

Extrapolating this further, we determined the average lifetime spend on drunk purchases is $4,187 — good for a total drunken expenditure of nearly half a trillion dollars.

https://www.zerohedge.com/s3/files/inline-images/how%20much%20per%20yerar.jpg?itok=IyoCpfHL

When it comes to drunk shopping by profession, those in the fashion industry are the biggest, richest drunks – at an average of $949 spent per year, followed by writers, medical professionals and those in the fitness industry. 

Who spends the least while shopping drunk? Government workers, engineers and – in last place, those working in retail.

https://www.zerohedge.com/s3/files/inline-images/professions-1.jpg?itok=UDL6j_NE

Geographically speaking Kentucky is oddly at the top along with Connecticut. Though, the survey may have had one really rich respondent in each state that skewed the results. Who knows. 

Kentuckians top the charts with a $742 annual spend. In fact, the entire South — a region known for its fine bourbon — is a blanket of red. California, the country’s wine capital, is the lone over-achiever on the otherwise mediocre West Coast.

This bears little semblance to the CDC’s analysis of the heaviest binge-drinking states (in fact, it’s almost opposite). But it shows that the economics of drunk shopping is a more complex matter than simply parsing out where people drink the most.

https://www.zerohedge.com/s3/files/inline-images/by%20state.jpg?itok=Yy-Wkw4h

As far as platform of choice, Amazon leads the pack, followed by Ebay, Etsy, Target and Walmart. At least two of those are worth an intervention if you ever catch your friends drunk shopping at Walmart, for example.

https://www.zerohedge.com/s3/files/inline-images/by%20platform.jpg?itok=ZUX4J2zx

Clothing and shoes are the goods of choice while drunk.

Studies have shown that people who base their self-worth on appearance are more likely to imbibe alcohol, so there is some tenuous linkage here. But this also ties in with the rapid rise of the direct-to-consumer fashion industry.

Entertainment (movies, games) and tech gadgets are also popular choices — though the party train seems to abruptly halt at software (if you’ve purchased a copy of Microsoft Excel drunk, we need to talk.)

Weirdest purchases, according to The Hustle‘s readers?

  • 200 pounds of fresh, 10-foot tall bamboo
  • A World War 2-era bayonet
  • A full-size inflatable bouncy castle (“For my living room”)
  • A breast pump (“I’m a dude”)
  • A splinter that was removed from the foot of former NBA Star, Olden Polynice
  • The same vest Michael J. Fox had on in Back to the Future
  • A $2,200 pair of night vision goggles
  • Tons of international fights (Azerbaijan, Iceland, Ukraine, Tunisia)
  • An NRA membership
  • A trilogy of Satanic religious books

Who could regret $2,200 night vision goggles?

Source: ZeroHedge

It’s Not Too Soon For A Fed Rate Cut, According To This Chart

  • The time between the Fed’s final interest rate hike and its first rate cut in the past five cycles has averaged just 6.6 months, according to Natixis economist Joseph LaVorgna. 
  • The bond market  has quickly pivoted, and fed funds futures are pricing in a quarter point of easing for this year, just days after the Fed forecast no more hikes for this year. 
  • LaVorgna said there are three conditions required for a Fed reversal, and that of a soft economy could soon be met.

(by Patti Domm) The bond market has quickly priced in a Federal Reserve interest rate cut this year, just days after the Fed said it would stop raising rates.

That has been a surprise to many investors, but it shouldn’t be — if history is a guide.

Joseph LaVorgna, Natixis’ economist for the Americas, studied the last five tightening cycles and found there was an average of just 6.6 months from the Federal Reserve’s last interest rate hike in a hiking cycle to its first rate cut.

The economist points out, however, that the amount of time between hike and cut has been lengthening.

“For example, there was only one month from the last tightening in August 1984 to the first easing in September 1984. This was followed by a four-month window succeeding the July 1989 increase in rates, a five-month gap after the February 1995 hike, an eight-month interlude from May 2000 to January 2001, and then a record 15- month span between June 2006 and September 2007,” he wrote.

The Fed last hiked interest rates by a quarter point in December. Last week, it confirmed a new dovish policy stance by eliminating two rate hikes from its forecast for this year. That would leave interest rates unchanged for the balance of the year, with the Fed expecting one more increase next year.

But the fed funds futures market has quickly moved to price in a full fledged 25 basis point easing, or cut, for this year.

“The market’s saying it’s going to happen in December,” said LaVorgna.

There are three conditions that need to be met for the Fed to reverse course and cut interest rates, LaVorgna said. First, the economy’s bounce back after the first quarter slump would have to be weaker than expected, with growth just around potential. Secondly, there would have to be signs that inflation is either undershooting the Fed’s 2 percent target or even decelerating. Finally, the Fed would have to see a tightening of financial conditions, with stock prices under pressure and credit spreads widening.

LaVorgna said the condition of a sluggish economy could be met.

“I don’t think the economy did very well in the first quarter just based on the fact the momentum downshifted hard from Q4, sentiment was awful, production was soft,” he said. ’I’m worried growth is close to zero in the first quarter.”

LaVorgna said he does not see much of a snap back in the second quarter.

In the current cycle, the Federal Reserve began raising interest rates in December 2015 after taking the fed funds target rate to zero during the financial crisis.

Source: by Patti Domm | CNBC

***

Americans Are Only Now Starting To Seek Higher Deposit Rates… Just As The Fed Prepares To Cut

 

The U.S. Economy Is In Big Trouble

Summary

  • Economic data is showing further negative divergence from the rally in the stock market.

  • The Census Bureau finally released January new home sales, which showed a 6.9% drop from December.

  • E-commerce sales for Q4 reported last week showed a 2% annualized growth rate, down from 2.6% in Q3.

  • The economy is over-leveraged with debt at every level to an extreme, and the Fed knows it.

  • I would say the odds that the Fed starts printing money again before the end of 2019 are better than 50/50 now.

“You’ve really seen the limits of monetary and fiscal policy in its ability to extend out a long boom period.” – Josh Friedman, Co-Chairman of Canyon Partners (a “deep value,” credit-driven hedge fund)

(Dave Kranzler) The Fed’s abrupt policy reversal says it all. No more rate hikes (yes, one is “scheduled” for 2020, but that’s fake news), and the balance sheet run-off is being “tapered,” but will stop in September. Do not be surprised if it ends sooner. Listening to Powell explain the decision or reading the statement released is a waste of time. The truth is reflected in the deed. The motive is an attempt to prevent the onset economic and financial chaos. It’s really as simple as that. See Occam’s Razor if you need an explanation.

As the market began to sell off in March, the Fed’s FOMC foot soldiers began to discuss further easing of monetary policy and hinted at the possibility, if necessary, of introducing “radical” monetary policies. This references Bernanke’s speech ahead of the roll-out of QE1. Before QE1 was implemented, Bernanke said that it was meant to be a temporary solution to an extreme crisis. Eight-and-a-half years and $4.5 trillion later, the Fed is going to end its balance sheet reduction program after little more than a 10% reversal of QE and it’s hinting at restarting QE. Make no mistake, the 60 Minutes propaganda hit-job was a thinly veiled effort to prop up the stock market and instill confidence in the Fed’s policies.

Economic data is showing further negative divergence from the rally in the stock market. The Census Bureau finally released January new home sales, which showed a 6.9% drop from December. Remember, the data behind the report is seasonally adjusted and converted to an annualized rate. This theoretically removes the seasonal effects of lower home sales in December and January. The Census Bureau (questionably) revised December’s sales up to 652k SAAR from 621k SAAR. But January’s SAAR was still 2.3% below the original number reported. New home sales are tanking despite the fact that median sales price was 3.7% below January 2018 and inventory soared 18%.

LGI Homes (NASDAQ:LGIH) reported that in January it deliveries declined year-over-year (and sequentially), and Toll Brothers (NYSE:TOL) reported a shocking 24% in new orders. None of the homebuilders are willing to give forward guidance. LGI’s average sale price is well below $200k, so “affordability” and “supply” are not the problem (it’s the economy, stupid).

The upward revision to December’s new home sales report is questionable because it does not fit the mortgage purchase application data as reported in December. New homes sales are recorded when a contract is signed. 90% of all new construction homes are purchased with a mortgage. If purchase applications are dropping, it is 99% certain that new home sales are dropping. With the November number revised down 599k, and mortgage purchase applications falling almost every week in December, it’s 99% likely that new home sales at best were flat from November to December. In other words, the original Census Bureau guesstimate was probably closer to the truth.

The chart to the right shows the year-over-year change in the number of new homes (yr/yr change in the number

https://static.seekingalpha.com/uploads/2019/3/22/saupload_Untitled-10.png

of units as estimated by the Census Bureau) sold for each month. I added the downward sloping trend channel to help illustrate the general decline in new home sales. As you can see, the trend began declining in early 2015.

Recall that it was in January 2015 that Fannie Mae and Freddie Mac began reducing the qualification requirements for government-backed “conforming” mortgages, starting with reducing the down payment requirement from 5% to 3%. For the next three years, the government continued to lower this bar to expand the pool of potential homebuyers and reduce the monthly payment burden. This was on top of the Fed artificially taking interest rates down to all-time lows. In other words, the powers that be connected to the housing market and the policymakers at the Fed and the government knew that the housing market was growing weak and have gone to great lengths in an attempt to defer a housing market disaster. Short of making 0% down payments a standard feature of government-guaranteed mortgage programs, I’m not sure what else can be done help put homebuyers into homes they can’t afford.

I do expect, at the very least, that we might see a “statistical” bounce in the numbers to show up over the couple of existing and new home sale reports (starting with February’s numbers). Both the NAR and the government will likely “stretch” seasonal adjustments imposed on the data to squeeze out reports which show gains, plus it looks like purchase mortgage applications may have bounced a bit in February and March, though the data was “choppy” (i.e., positive one week and negative the next).

E-commerce sales for Q4 reported last week showed a 2% annualized growth rate, down from 2.6% in Q3. Q3 was revised lower from the 3.1% originally reported. This partially explains why South Korea’s exports were down 19.1% last month, German industrial production was down 3.3%, China auto sales tanked 15% and Japan’s tool orders plummeted 29.3%. The global economy is at its weakest since the financial crisis.

It would be a mistake to believe that the U.S. is not contributing to this. The Empire State manufacturing survey index fell to 3.7 in March from 8.8 in February. Wall Street’s finest were looking for an index reading of 10. New orders are their weakest since May 2017. Like the Philly Fed survey index, this index has been in general downtrend since mid-2017. The downward slope of the trendline steepened starting around June 2018. Industrial production for February was said to have nudged up 0.1% from January. But this was attributable to a weather-related boost for utilities. The manufacturing index fell 0.4%. Wall Street was thinking both indices would rise 0.4%. Oops.

The economy is over-leveraged with debt at every level to an extreme and the Fed knows it. Economic activity is beginning to head off of a cliff. The Fed knows that too. The Fed has access to much more in-depth, thorough and accurate data than is made available to the public. While it’s not obvious from its public posture, the Fed knows the system is in trouble. The Fed’s abrupt policy reversal is an act of admission. I would say the odds that the Fed starts printing money again before the end of 2019 are better than 50/50 now. The “smartest” money is moving quickly into cash. Corporate insiders are unloading shares at a record pace. It’s better to look stupid now than to be one a bagholder later.

Source: by Dave Kranzler | Seeking Alpha

41% Of New York Residents Say They Can No Longer Afford To Live There

More than a third of New York residents complaint that they “can’t afford to live there” anymore (and yet they do). On top of that, many believe that economic hardships are going to force them to leave the city in five years or less, according to a Quinnipiac poll published Wednesday. The poll surveyed 1,216 voters between March 13 and 18. 

In total, 41% of New York residents say they can’t cope with the city’s high cost of living. They believe they will be forced to go somewhere where the “economic climate is more welcoming”, according to the report.

Ari Buitron, a 49-year-old paralegal from Queens said: “They are making this city a city for the wealthy, and they are really choking out the middle class. A lot of my friends have had to move to Florida, Texas, Oregon. You go to your local shop, and it’s $5 for a gallon of milk and $13 for shampoo. Do you know how much a one-bedroom, one-bathroom apartment is? $1700! What’s wrong with this picture?”

https://www.zerohedge.com/s3/files/inline-images/apartments%20for%20rent%20new%20york.jpg?itok=BSU4QTYO

In response to a similar poll in May 2018, only 31% of respondents said they felt as though they would be forced to move, indicating that the outlook among residents is getting much worse – very quickly.

New York native Dexter Benjamin said: “I am definitely not going to be here five years from now. I will probably move to Florida or Texas where most of my family has moved.”

Many of those who have moved, prompted by New York’s tax burden and new Federal law that punishes high tax states, aren’t looking back. Robert Carpenter, 50, who moved from Brooklyn to New Jersey told the Post: “Moving to New Jersey has only added 15 minutes to my commute! And I am still working in Downtown Brooklyn. I save about $300 extra a month, which in the long run it matters.”

He continued: “Because of the city tax and the non-deductibility of your real estate taxes, we’re seeing a lot more people with piqued interest.”

The poll also found that minorities have an even more pessimistic outlook on things. Non-whites disproportionately ranked their situations as “poor” and “not good” according to the poll.

Clifton Oliver, 43, who is black and lives in Washington Heights, said: “When I moved here there was no H&M, no Shake Shack — it was authentically African-American New York Harlem. Now Neil Patrick Harris lives down the block. People are going down south to Florida, Alabama, Baltimore.”

Source: ZeroHedge

Yield Curve Inverts For The First Time Since 2007: Recession Countdown Begins

The most prescient recession indicator in the market just inverted for the first time since 2007.

https://www.zerohedge.com/s3/files/inline-images/bfm960.jpg?itok=c0gP8hQC

https://i0.wp.com/northmantrader.com/wp-content/uploads/2019/03/yield.png?ssl=1

Don’t believe us? Here is Larry Kudlow last summer explaining that everyone freaking out about the 2s10s spread is silly, they focus on the 3-month to 10-year spread that has preceded every recession in the last 50 years (with few if any false positives)… (fwd to 4:20)

As we noted below, on six occasions over the past 50 years when the three-month yield exceeded that of the 10-year, economic recession invariably followed, commencing an average of 311 days after the initial signal. 

And here is Bloomberg showing how the yield curve inverted in 1989, in 2000 and in 2006, with recessions prompting starting in 1990, 2001 and 2008. This time won’t be different.

https://www.zerohedge.com/s3/files/inline-images/prior%20inversions.jpg?itok=BgnEMjCQ

On the heels of a dismal German PMI print, world bond yields have tumbled, extending US Treasuries’ rate collapse since The Fed flip-flopped full dovetard.

https://www.zerohedge.com/s3/files/inline-images/bfm14B0.jpg?itok=Ez0lIVd_

The yield curve is now inverted through 7Y…

https://www.zerohedge.com/s3/files/inline-images/bfm1EA4.jpg?itok=xPH6zVO8

With the 7Y-Fed-Funds spread negative…

https://www.zerohedge.com/s3/files/inline-images/bfm2864.jpg?itok=HqnSx1RR

Bonds and stocks bid after Powell threw in the towell last week…

https://www.zerohedge.com/s3/files/inline-images/bfmA98E.jpg?itok=D4zUXHf3

But the message from the collapse in bond yields is too loud to ignore. 10Y yields have crashed below 2.50% for the first time since Jan 2018…

https://www.zerohedge.com/s3/files/inline-images/bfm5670.jpg?itok=rocy5sKV

Crushing the spread between 3-month and 10-year Treasury rates to just 2.4bps – a smidge away from flashing a big red recession warning…

https://www.zerohedge.com/s3/files/inline-images/bfm36A8.jpg?itok=3cfUyMJ1

Critically, as Jim Grant noted recently, the spread between the 10-year and three-month yields is an important indicator, James Bianco, president and eponym of Bianco Research LLC notes today. On six occasions over the past 50 years when the three-month yield exceeded that of the 10-year, economic recession invariably followed, commencing an average of 311 days after the initial signal. 

Bianco concludes that the market, like Trump, believes that the current Funds rate isn’t low enough:

While Powell stressed over and over that the Fed is at “neutral,” . . . the market is saying the rate hike cycle ended last December and the economy will weaken enough for the Fed to see a reason to cut in less than a year.

https://www.zerohedge.com/s3/files/inline-images/bfm1B73_0.jpg?itok=iZGfa7C7

Equity markets remain ignorant of this risk, seemingly banking it all on The Powell Put. We give the last word to DoubleLine’s Jeff Gundlach as a word of caution on the massive decoupling between bonds and stocks…

“Just because things seem invincible doesn’t mean they are invincible. There is kryptonite everywhere. Yesterday’s move created more uncertainty.”

Source: ZeroHedge

10Y Treasury Yield Tumbles Below 2.50% As 7Y Inverts

The bond bull market is alive and well with yesterday’s bond-bear-battering by The Fed extending this morning.

10Y Yields are back below 2.50% for the first time since Jan 2018…

https://www.zerohedge.com/s3/files/inline-images/bfmCA1F.jpg?itok=_jgnif7R

…completely decoupled from equity markets….

https://www.zerohedge.com/s3/files/inline-images/bfm51AD.jpg?itok=s4YZh3r-

The yield is now massively inverted to Fed Funds…

https://www.zerohedge.com/s3/files/inline-images/bfm8BAA.jpg?itok=hEx0M8LV

With 7Y yields now below effective fed funds rate…

https://www.zerohedge.com/s3/files/inline-images/bfm5F7C.jpg?itok=yYvetY6-

Source: ZeroHedge