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After a massive surge in consumer credit in the last three months of 2017, when October thru December saw a massive increase in revolving and non-revolving credit, amounting to a total $73 billion, the Fed reported that 2018 started off with a whimper, with a modest $701 million increase in credit card debt, coupled with a $13.2 billion increase in non-revolving, or auto and student loan, credit in the first month of the year.

Revolving credit was the clear outlier, with the monthly increase of $0.7BN far below December’s $6.1BN and last January’s $934 million, and the smallest increase since February 2015 (excluding the December 2015 series revision). Still, the increase pushed the latest revolving credit total to $1.0298 trillion, a new all time high.

Meanwhile, non-revolving credit, which with the exception of one definition change month, has not gone down since 2011, also hit a new all time high of $2.825 trillion, following the latest monthly increase of $13.2 billion, fractionally higher than last month’s downward revised $13.1 billion.

What about its components? Well, with everything else going for record highs, we doubt it will be a surprise to anyone that both student debt and auto loans hit a new all time high in the quarter ending December 2017, with $1.491 trillion for the former, and $1.12 trillion for the latter (the next monthly update will take place in two months, when the Q1 data is released).

The sharp slowdown in consumer credit growth may be the latest red flag for the US economy, which as a reminder ended 2017 with a record surge in credit-funded spending; and now that credit card companies demand payment, US consumers – whose personal saving rate is already near record lows – appear to have retrenched, and have substantially slowed down their credit card usage, which for an economy in which 70% of GDP is consumer spending suggests more negative surprises for Q1 GDP.

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Via Dana Lyons’ Tumblr,

Based on one survey, consumers’ expectations for stock market gains were never higher, or more assured, than they were in January — just prior to the stock market plunge.

“Don’t get your hopes up”, the saying goes. Of course, it is a warning in the event that the “hopes” don’t come true. While the adage does not always follow perfectly or immediately, one arena with a fair amount of historical evidence to support its notion is the stock market. And the last few months provide a perfect example.

In the monthly University of Michigan Survey of Consumers, one of the questions asked of respondents is their estimation of the “probability of an increase in the stock market in the next year”. Among the various ways that the UM breaks down the data is by taking the mean response to that question. Due to the persistent stock rally, that mean response has quite elevated for the past several months. However, the January reading took things to another level as the reading soared by more than 4 percentage points to 66.7%.  That is easily the highest reading in the survey’s 16-year history.

Of course, that was right before the recent correction.

Also preceding the market’s “rug pull” was another data point from the survey which provides the level of “extreme” responses in addition to the mean. When tallying the survey numbers, the UM breaks the responses down by quartiles (i.e., the % of respondents expressing a probability of a stock market increase between 1%-24%, 25%-49%, etc.). They also provide the percentage of respondents who say there is a 0% chance of a stock market rally over the following year as well as the percentage of respondents saying there is a 100% chance.

As the bottom pane in the chart reveals, in January, the percentage of respondents stating there was a 100% chance the stock market would be higher in 12 months came in at 13%. Along with this past October, that was also the highest reading on record. So, it appears as though, along with the aggregate respondent group becoming too bullish collectively, perhaps too many individuals had adopted unequivocal expectations of a market rally.

Putting the 2 series together, readings for both the mean and the percentage in the “100% camp” were unprecedented in January. If we loosen the parameters a bit, though, we can look for others junctures that saw extremes in both figures. For example, if we search for all months with mean readings above 62% and “100%” readings above 10%, we come up with the following 3 periods, as shown on the chart:

• July 2007
• June 2015
• August 2017 – January 2018

Obviously, the first 2 incidents occurred right near a cyclical top (2007) and a serious intermediate-term top (2015). So beyond the recent relatively brief, though sharp, correction, longer-term implications of unreasonably high expectations certainly remain a concern.

Lastly, the fact that we saw such a large jump (4.3%) in the survey’s mean response while the series was already elevated was a cause for concern, and may still be. Consider that the only other months that saw more than a 4% jump to at least 60% were the following:

• February 2005
• July 2007
• June 2015

We already know about the latter 2 periods. The 2005 event wasn’t such a hot time to invest either, however. While the market did avoid suffering too serious of a drawdown, the S&P 500 was unable to make any upside progress for about 9 months.

While some might dismiss these developments as coincidence, we don’t buy it. Extremes in market sentiment, and plenty of other walks of life, have a consistent tendency to experience sharp mean reversion, which serves to restore balance to the forces in question.

Has the past month’s correction re-set market sentiment enough to put bulls’ minds at ease? That remains to be seen. However, the UM Survey data does potentially present a warning on a longer time frame.

*  *  *

If you’re interested in the “all-access” version of our charts and research, please check out our new site, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Thanks for reading!

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As previously reported, NYT confirms that President Trump is expected to formally sign off on imposing tariffs on steel and aluminum imports at noon on Thursday, although “advisers close to the White House emphasized that the timing could change.”

The tariffs, however, would not go into effect immediately, however, with a two-week implementation period required under the statue that gives the president authority to impose the measures. That could give countries or companies a chance to submit input and try to sway the administration’s plan, according to the people familiar with the deliberations.

However, more notably, both the loonie and peso moved sharply, with the USDCAD dipping from 1.2960 to 1.2920 and USDMXN, 18.7860 towards 18.7300, following comments from Sarah Sanders that potential carveouts for Mexico and Canada are being discussed, which again echoes what President Trump said yesterday.

As some noted, however, Sanders did seem to strike a more conciliatory tone in saying that tariff plans will be executed on a “country by country basis” considering national security (which investors take to mean allies).

NEW: Press Sec. Sanders says Pres. Trump expected to “sign something by the end of the week” on tariffs, says some countries will have potential carve outs based on national security. https://t.co/YPiDzAZ6KA pic.twitter.com/vFps2QAIJ4

— ABC News Politics (@ABCPolitics) March 7, 2018

The news that some allies may be exempt also helped push stocks higher on the day.

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Authored by John Coumarianos via RealInvestmentAdvice.com,

There are many ways of assessing the value of the stock market. The Shiller PE (price relative to the past decade’s worth of real, average earnings) and Tobin’s Q (the value of companies’ outstanding stock and debt relative to their replacement cost) are likely the two best. That doesn’t mean those metrics are accurate crash indicators, or that one can use them profitably as trading signals. Expensive stocks can stay expensive or get more expensive, and cheap stocks can stay cheap or get cheaper for inconveniently long periods of time.

But those metrics do have a good record of forecasting future long-term (one decade or more) returns. And that’s important for financial planning and wealth management. Difficult though it is sometimes, everyone must plug in an estimated return into a formula for retirement savings. And if an advisor is plugging in a 7% or so return for a balanced portfolio currently, he or she is likely not doing their job well. Stocks will almost certainly return less than their long-term 10% annualized average for the next decade or two given a starting Shiller PE over 30. The long-term average of the metric, after all, is under 17.

Another way of looking at how expensive the market has gotten recently is to look at sales of the S&P 500 constituents and relate it to share price. Companies are always manipulating items on income statements to arrive at a particular earnings number. Recently, record numbers of companies have supported net income numbers with non-GAAP metrics. That can be legitimate sometimes. For example, depreciation on real estate is rarely commensurate with reality. But it can also be nefarious, as Vitaliy Katsenelson recently argued in criticizing Jack Welch’s stewardship of General Electric, which Katsenelson characterized as being more interested in beating quarterly earnings estimates rather than in creating long-term wealth. And that’s why sales metrics can be useful. They are less easily manipulated.

So I created a chart showing sales per share growth and price per share growth of the S&P 500 dating back to the end of 2008. From the beginning of 2009 through the end of 2016, companies in the index grew profits per share by nearly 4% annualized, a perfectly respectable number for a mature economy. But price per share grew by a whopping 14.5% over that time. Over that 8 year period, sales grew less than 50% cumulatively, while share prices tripled.

Anyone invested in stocks should worry about this chart. How do share prices get so divorced from underlying corporate sales? One likely answer is low interest rates. But there must be other reasons because we’ve had low interest rates and low stock prices before – namely in the 1940s. That was after the Great Depression, and stocks were still likely viewed as suspect investments. Today, by contrast, stocks are not viewed with much suspicion, despite the technology bubble peaking in 2000 and the housing bubble in 2008. Investors still believe in stocks as an asset class.

And yet, the decline in rates over the past four decades has been breathtaking, as has Federal Reserve intervention. James Montier of Boston asset manager, Grantham, Mayo, van Otterloo (GMO), has studied stock price movements over the past few decades and found that a significant percentage of upward price movements have occurred on or before Federal Open Market Committee (FOMC) days. Montier estimated that 25% of the market’s return since 1984 has resulted from movements around FOMC days. Moreover, the market has moved higher regardless of what the FOMC decision was.

If this is a stock market bubble – and the data shows unusually high prices relative to sales and earnings – it is a strange one. One doesn’t hear the anecdotal evidence of excitement – i.e., cab driver’s talking about their latest stock purchases, etc…. This is perhaps a kind of dour bubble, where asset ownership at any price seems prudent in an economy that is becoming less and less hospitable to ordinary workers. Or, as Montier wrote in a more recent paper, this may be a “cynical” bubble where investors know that shares are overpriced, but think they can be the first ones out when the inevitable decline begins.

via Zero Hedge http://ift.tt/2tqHBEA Tyler Durden

While there are plenty of stories of artificial intelligence gone wrong, it seems many recent new owners of Amazon’s Alexa devices have been rudely woken by “bone-chillingly creepy” laughing from their AI friend.

As The Daily Mail reports, some users say their Alexa-enabled gadgets start laughing totally unprompted.

So Alexa decided to laugh randomly while I was in the kitchen. Freaked @SnootyJuicer and I out. I thought a kid was laughing behind me. pic.twitter.com/6dblzkiQHp

— CaptHandlebar (@CaptHandlebar) February 23, 2018

One user reportedly tried to turn the lights off in their home but Alexa repeatedly turned the lights back on, eventually uttering an ‘evil laugh,’ according to BuzzFeed.

Another Echo Dot owner said they told Alexa to turn off their alarm in the morning and she responded by letting out a ‘witch-like’ laugh.

Alexa is programmed in many voice-activated devices with a preset laugh, which can be prompted by asking: ‘Alexa, how do you laugh?’

But so far, it’s unclear why Alexa is laughing even when users don’t ask her to.

As if that wasn’t bizarre enough, Amazon also has a ‘Laugh Box’ skill, which lets users play different types of laughter, such as a ‘baby laugh’ or a ‘sinister laugh.’

While initially just thought to be an internet joke, The Verge reports that Amazon has now responded to the creepiness in a statement to The Verge, saying, “We’re aware of this and working to fix it.”

As The Verge’s Shannon Liu concludes, many have related the laughter back to a moment in 2001: A Space Odyssey when HAL 9000 turns evil and says, “I’m sorry Dave, I’m afraid I can’t do that.” Maybe it’s a sign that having smart devices in our homes is another step toward a creepy, dystopian future where robot overlords rule. When does that Terminator sequel come out again?

*  *  *
So far ‘Russian hackers’ have not been blamed for this “creepy” laughter… though we suspect it will not be long.

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(Wage) inflation is here.

That’s the message from the just released, March, Beige Book, in which the Fed found that not only did “prices increase in all districts”, but that “most districts also saw employers raise wages“, a clear harbinger of an overheating economy.

While overall economic activity expanded at a “modest to moderate” pace across the 12 Federal Reserve Districts in January and February, with districts reporting modest growth in home sales and construction with the latter constrained by labor and materials shortages, it was the commentary on employment, wages and prices that took center stage.

Here, the Fed said that even as employment grew at a moderate pace, “across the country,  contacts observed persistent labor market tightness and brisk demand for qualified workers, as well as increased activity at staffing placement services.”

The Beige Book further noted that “several Districts reported continued worker shortages across most sectors, with contacts often mentioning shortages in the construction, information technology, and manufacturing sectors.”

And the punchline: “Most Districts saw employers raise wages and expand benefit packages in response to tight labor market conditions” with contacts in a few Districts conveyed reports of modest increases in compensation following passage of the Tax Cuts and Jobs Act.

And while wages increased in “most” districts, prices did so everywhere: “prices increased in all Districts, and most reports noted moderate inflation.”

Curiously, the Fed highlighted that four Districts saw a marked increase in steel prices, due in part to a decline in foreign competition. Is the Fed suddenly also advocating for no trade tariffs? 

Here are the details on the rising steel prices:

• Overall –  Prices increased in all Districts, and most reports noted moderate inflation. Four Districts saw a marked increase in steel prices, due in part to a decline in foreign competition.
• Cleveland – A steel producer observed that every time his firm gets close to having a full staff, someone quits.
• Atlanta –  Firms reported that input costs continued to rise, specifically steel, brass, and copper
• Chicago –  Steel production increased at a moderate pace in response to solid end-user demand and the rebuilding of inventories at steel service centers
• St.Louis –  Steel prices increased moderately throughout the District, and contacts in Louisville and Little Rock reported upticks in trucking freight rates.
• Dallas –  Transportation firms noted an increase in fuel costs, manufacturers noted increases in steel and petroleum product prices

Additionally, the Fed also said that price growth for building materials such as lumber picked up, stemming from an uptick in construction activity. Several Districts reported moderate increases in broad transportation costs, caused primarily by higher fuel costs that boosted freight rates. Home and commercial lease prices rose across most of the country.

Overall Economic Activity suggested that a March hike is guaranteed:

• Production increases were broad based across manufacturing with all but one District noting at least modest growth in activity
• Tourism was ‘broadly solid’ with Atlanta and Richmond recording ‘robust’ growth
• Consumer spending was mixed as non-auto retail sales increased in just over half of the Districts; auto sales declined or were flat in every District
• Districts reported modest growth in home sales and construction with the latter constrained by labor and materials shortages

Finally, here are selected key anecdotes from the Beige book, courtesy of Bloomberg:

• Boston: Only one of the ten First District manufacturers contacted this cycle reported lower sales — a gun maker. Otherwise, all manufacturing contacts reported higher sales than a year ago.
• New York: A major New York City agency indicated that labor demand has remained brisk, while qualified candidates have been in increasingly short supply – particularly for jobs requiring technical skills. One contact noted that drug testing and background checks have disqualified many job applicants.
• Philadelphia: A Philadelphia contact noted that hotels benefited from several large conventions, Eagles’ home playoff games, and the Super Bowl itself, which drew local fans for downtown hotel stays in anticipation of the evening celebration.
• Cleveland: Contacts speculated that savings resulting from the Tax Cuts and Jobs Act will, in part, support pay increases over the short to medium terms
• Richmond: A North Carolina company reported demand of about two truckloads for every available truck. Trucking companies have continued to turn away business because of driver shortages and expect this problem to worsen in coming months as shipments pick up seasonally in the spring.
• Atlanta: The January forecast for Florida’s orange crops was down further from the previous report as the effects of the Hurricane Irma continued to be felt.
• Chicago: Contacts noted that subsoil moisture was very depleted in many areas because of drought conditions last year, making timely spring and summer rains more important for crop health this coming growing season.
• St. Louis: Contacts expressed optimism about near-term farm income as area farmers were able to turn strong yields into profits in 2017, although some expressed concern about the downside risks of NAFTA renegotiations.
• Minneapolis: The number of job seekers registered with state workforce offices in January was 11 percent lower in North Dakota and 29 percent lower in Montana compared with a year earlier.
• Kansas City: The number of active oil and gas rigs continued to edge higher, primarily in New Mexico and Wyoming.
• Dallas: Contacts in tourism areas along the Gulf Coast said business continues to struggle after the devastation of Hurricane Harvey.
• San Francisco: A health-care provider in the Mountain West reported a jump in insurance premiums, partly due to a reduction in federal subsidies for low-income families.

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Yesterday, we pointed out that Attorney General Jeff Sessions has finally acted to stop California from ignoring federal immigration authorities and laws, with the DOJ suing the state to nullify Assembly Bill 450, which stops private companies from voluntarily cooperating with federal immigration authorities.

And shortly after the suit was filed, Sessions warned chided the state for disobeying federal laws, saying American law provides no room for secession or nullification, per the Hill

“I understand that we have a wide variety of political opinions out there on immigration. But the law is in the books and its purposes are clear and just,” Sessions said during a speech to the California Peace Officers’ Association in Sacramento on Wednesday.

“There is no nullification. There is no secession. Federal law is the supreme law of the land. I would invite any doubters to go to Gettysburg, to the tombstones of John C. Calhoun and Abraham Lincoln. This matter has been settled,” he continued.

The lawsuit filed by the DOJ aims to block three so-called sanctuary laws passed by the state’s legislature this year.

The laws being challenged prohibit private employers from voluntarily cooperating with federal immigration officials, while preventing state and local law enforcement officials from giving federal immigration officials information about the release date of removable immigrants in their custody; and create an inspection and review scheme that requires the California Attorney General to investigate the immigration enforcement efforts of federal agents.

In its complaint, the DOJ alleges that the Supremacy Clause of the Constitution should require California to enforce federal laws. Sessions added that the state’s laws are harmful to its residents and prevent law enforcement from doing its job.

He also singled out Oakland Mayor Libby Schaaf, who tipped off illegal immigrants that there would be an ICE raid in the Bay Area starting within the next 24 hours, for criticism.

Acting ICE Director Thomas Homan slammed Schaaf for the unauthorized warning, saying she was serving the same purpose as a “gang lookout” on a corner where drugs are sold.

However, despite Schaaf’s warnings, federal immigration agents said they’d arrested more than 150 people in Northern California who they say have violated immigration laws for deportation.

Still, Sessions said he had a “message” for the mayor.

“Here’s my message to Mayor Schaaf: How dare you,” Sessions said Wednesday.

“How dare you needlessly endanger the lives of our law enforcement officers to promote a radical open borders agenda.”

Sessions also clarified that the DOJ isn’t trying to force California to enforce federal immigration law – but rather, that it’s asking California to “stop actively obstructing federal law enforcement.”

* * *

California Gov. Jerry Brown lashed out at the Federal government against on Wednesday, saying “we’re basically going to war against the state of California, the engine of the American economy.”

Brown added that Sessions’ speech was “unbecoming” of the nation’s chief law enforcement officer, teasing Sessions that Brown hopes “Donald will be happy with him.”

 

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A Russian double agent and former spy and his daughter who are fighting for their lives in an English hospital, were attacked with a nerve agent in a targeted murder attempt, British police said Wednesday. As reported previously, Sergei Skripal, a 66-year-old former Russian military intelligence officer who became an informant for the UK’s secret intelligence service MI6, and his 33-year-old daughter Yulia were found unconscious, slumped on a bench outside a shopping center in the city of Salisbury on Sunday. Baffled police initially said the pair had come into contact with an unknown substance.

For the past two days scientists at the Ministry of Defense’s research laboratory Porton Down have been racing to establish the precise nature of the possible poison used in the attack. Then on Wednesday evening, Mark Rowley, the head of the Metropolitan Police’s counter terror force, revealed that the pair had been “specifically” targeted with a nerve agent although he did not disclose the exact form of poison that was used by the attackers, the FT reported.

“This is being treated as a major incident involving attempted murder by administration of a nerve agent,” said Rowley.

Russian Spy Investigation: Incident is being treated as attempted murder – @metpoliceuk Assistant commissioner Mark Rowley says https://t.co/yRY1sBMk5F pic.twitter.com/Suha4Tjscz

— BBC News (UK) (@BBCNews) March 7, 2018

Rowley added that “hundreds of detectives” are working on the case, after confirming an unnamed nerve agent has been identified in the case. “These two people remain critically ill in hospital. Sadly, in addition a police officer who was one of the first to attend the scene in response to the incident is now also in a serious condition in hospital. Wiltshire Police are providing every support to his family.”

According to AP, the police investigation has focused on a number of properties, including Sarum House next door to the Zizzi Zizzi restaurant. The Home Secretary warned this morning against speculation as rumors began to fly. Amber Rudd said police and the nation “has to respond to evidence not rumor.”

“We do know more about the substance and the police will be making a further statement this afternoon in order to share some of that. We must let the police carry on their work,” Rudd told the BBC. Earlier today, Rowley said: “Working alongside Wiltshire police and partner agencies, we continue to carry out extensive inquiries. This investigation is at the early stages and any speculation is unhelpful at this time.

“The focus at this time is to establish what has caused these people to become critically ill. We would like to reassure members of the public that this incident is being taken extremely seriously and we currently do not believe there is any risk to the wider public.

“The two people taken ill were in Salisbury centre from around 1.30pm. Did you see anything out of the ordinary? It may be that at the time, nothing appeared out of place or untoward, but with what you now know, you remember something that might be of significance. Your memory of that afternoon and your movements alone could help us with missing pieces of the investigation. The weather was poor that day, so there were not as many people out and about. Every statement we can take is important.”

An emergency meeting of the government’s crisis team, COBRA, has been chaired by Rudd while Counter Terrorism cops were called in. As reported on Monday, Skripal worked as a double agent for the UK intelligence agency MI6 and was jailed in Russia in 2006 for spying for Britain, having passed on the names of undercover Russian intelligence agents. He was later part of a “spy swap” in which Russia released four spies in exchange for 10 Russian agents.

On Tuesday, UK Foreign Minister Boris Johnson threatened to boycott the Russia World Cup if Russia was found to be behind the incident: BoJo told MPs in the House of Commons that Russia is a “malign and destructive” force and promised it would be “brought to heel” following the suspected poisoning of the former double agent:

“There is much speculation about the disturbing incident in Salisbury, where a 66-year-old man, Sergei Skripal, and his 33-year-old daughter, Yulia, were found unconscious,” Johnson told parliament.

“While it would be wrong to pre-judge the investigation, I can reassure the House that should evidence emerge that implies state responsibility, then her majesty’s government will respond appropriately and robustly.”

And now that it has been found that the attack on the former Russian spy was an attempted murder, we await to see what the official retaliation against Moscow will be, and whether one or more western nations will follow through with the threat to boycott the Russian world cup.

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