Economic news roundup

Several interesting articles have come to my notice during the past week.  Click each link to read the whole thing.


1.  Bill Gross Investment Outlook, May 2015.

A “sense of an ending” has been frequently mentioned in recent months when applied to asset markets and the great Bull Run that began in 1981. Then, long term Treasury rates were at 14.50% and the Dow at 900. A “20 banger” followed for stocks as Peter Lynch once described such moves, as well as a similar return for 30 year Treasuries after the extraordinary annual yields are factored into the equation: financial wealth was created as never before. Fully invested investors wound up with 20 times as much money as when they began. But as Julian Barnes expressed it with individual lives, so too does his metaphor seem to apply to financial markets: “Accumulation, responsibility, unrest…and then great unrest.” Many prominent investment managers have been sounding similar alarms, some, perhaps a little too soon as with my Investment Outlooks of a few years past titled, “Man in the Mirror”, “Credit Supernova” and others. But now, successful, neither perma-bearish nor perma-bullish managers have spoken to a “sense of an ending” as well. Stanley Druckenmiller, George Soros, Ray Dalio, Jeremy Grantham, among others warn investors that our 35 year investment supercycle may be exhausted. They don’t necessarily counsel heading for the hills, or liquidating assets for cash, but they do speak to low future returns and the increasingly fat tail possibilities of a “bang” at some future date. To them, (and myself) the current bull market is not 35 years old, but twice that in human terms. Surely they and other gurus are looking through their research papers to help predict future financial “obits”, although uncertain of the announcement date. Savor this Bull market moment, they seem to be saying in unison. It will not come again for any of us; unrest lies ahead and low asset returns. Perhaps great unrest, if there is a bubble popping.

2.  We haven't heard Carl Icahn this bearish in a long time.

Carl Icahn ... was more bearish than Business Insider has heard him in some time.

. . .

"I'm very concerned about the market," he said. "I think that you have a situation where this market keeps going up ... and yet a lot of the economic news isn't all that good, and also more importantly, earnings aren't good."

. . .

"What's even more dangerous than the actual stock market," he said, "is the high-yield market. Junk bonds. "

Icahn is so worried he said he wanted to start putting out information about how dangerous he thought the hunt for yield was getting. Two weeks earlier on Wall Street Week, DoubleLine's Jeff Gundlach expressed the same concern.

"I think default rates are going to go up in this market," Icahn said. "You see all these high-yield funds ... money keeps going into them. ... When they [the bonds] start coming down there's going to be a rush for the exits."

. . .

And that's a scary prospect — that's when things can go south, fast.

3.  Beware of the phantom: ‘New jobs’ hoax.

Each spring, Labor starts adding phantom jobs to its count — jobs they guess have been created but can’t prove have been created.

Some of that phantom spirit is tied to the weather. No, really. At Labor, good weather = the birth of companies = more jobs.

And even in this day and age of instantaneous knowledge of everything, Labor still guesses at how many jobs these newly born companies are generating.

When it reports April employment numbers this Friday at 8:30 a.m., Labor will include about 263,000 phantom jobs.

At least, that is how many phantom jobs it factored in last May.

This May, the Bureau of Labor Statistics will add around 204,000 phantom jobs. In June through August, that number falls to 129,000 and then to 122,000 and then 104,000.

And there is no telling if any of those jobs actually exist. In fact, what if companies were quietly dying this spring instead of sprouting up like so many daffodils? Well, Labor would worry about that later on.

Of the 263,000 or so phantom jobs that will be added through guesstimates in April, probably 50,000 or so will — thanks to seasonal adjustments — be added to the “realer” number to produce the total Labor will announce.

Journalists and economists will report whatever Labor puts in the headlines without question.

But now you know better.

4.  Celebrate the Strong Dollar.

It is amazing to me that the US dollar can be strong at all right now, given the actions of the Fed.  With its near infinite QE and zero-interest rate programs, one would expect the dollar to be weak (Oversimplifying, driving down the returns on financial assets reduces the overseas demand for them, thus reducing the demand for dollars, driving down the price of dollars).  But it turns out that the rest of the world (esp. Japan and the EU) are actually working twice as hard to trash their own currencies (they are actually heading into negative interest rate territory, not just zero) and thus on a relative basis, the dollar is stronger.

5.  The great unraveling of globalization.  (NOTE:  This article should be read in conjunction with my post a few days ago titled 'The plain, unvarnished truth about why our economy sucks'.)

“Even for the most successful multinationals, profit margins in international markets are on average lower than margins in the domestic market,” said Robert Salomon, aprofessor of international management at the NYU Stern School of Business. “It’s the liability of foreign markets. By virtue of the fact that you are foreign, you are at a disadvantage.”

That’s a far cry from the way globalization was pitched, as the strategic imperative du jour nearly two decades ago. It was supposed to act like a rising tide, lifting all boats in poor and rich countries alike. Buoyed by hundreds of thousands of new assembly line jobs courtesy of multinationals in emerging nations, the middle class would swell, which in turn would propel higher local consumption. More factories would be needed to meet the demand, further raising local standards of living and handing the largest non-domestic companies a vast and enthusiastic new customer base.

Meanwhile, in the United States and Europe, consumers would have their pick of inexpensive items made by people thousands of miles away whose pay was much lower than theirs. And in time trade barriers would drop to support even more multinational expansion and economic gains while geopolitical cooperation would flourish.

Western corporations — hoping to find new fast-growth revenue channels and inexpensive manufacturing opportunities to augment mature, developed economies at home — moved to set up shop in far-flung regions like China, Brazil, Russia and India, where the greatest GDP gains were anticipated, as well as in so-called second tier emerging nations such as Thailand, Malaysia, the Philippines and Nigeria.

Yet despite all this activity and enthusiasm, hardly any of the promised returns from globalization have materialized, and what was until recently a taboo topic inside multinationals — to wit, should we reconsider, even rein in, our global growth strategy? — has become an urgent, if still hushed, discussion.

6.  The Cash Value of Home Gardens.

The ROI (return on investment) of a home garden can be $1,000 a year and $30/hour.

. . .

A major point of value that this overview doesn’t show is the huge improvement in the ‘quality’ of the product being consumed as prices are only for ‘supermarket grade’ product. I believe that the real value amount should be raised by somewhere between 50% and 100% of the amount shown to reflect the improved quality.

. . .

One hour in your own garden means 4 hours you don’t have to spend shifting stock at Walmart to earn money to buy food.

All interesting and thought-provoking reading.

Peter