The NY Fed Just Cut Its First Half GDP Forecast To 1.0%

The New York Fed’s ‘decidedly-more-optimistic-than-Atlanta-Fed’s-GDPNow-model’ NowCast model for GDP growth just tumbled back to reality after a week of dismal data finally forced its hand. Treasury bond yields are extending their tumble as NYFed slashes Q1 growth to just 0.8% (from 1.5% in Feb) and collapsed Q2 growth to 1.2% from 1.9% last week. This cuts the entire H1 estimate from 1.5% to 1.0%… shamed down to GDPNow’s reality.

Q1 cut…

 

And Q2 slashed…

 

And what drove the drastic cut…

Source: NYFed

This means the US has to grow 3.4% in the second half to hit the Fed’s target!

It appears the shaming of their ‘optimism’ has worked. And the reaction in bonds is clear…

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Bernie Sanders’ Ongoing Argument With Himself About Gun Violence Liability

During last night’s Democratic presidential debate, as Brian Doherty noted, Bernie Sanders seemed to express sympathy for a lawsuit that seeks damages from the manufacturer, distributor, and dealer who supplied the rifle used in the 2012 massacre at Sandy Hook Elementary School in Newtown, Connecticut. That represents an apparent reversal from the position Sanders took at another debate just last month, when he explicitly and persistently criticized the very same lawsuit.

Last night, after Hillary Clinton faulted Sanders for saying the families of the Sandy Hook victims “didn’t deserve their day in court” (her paraphrase), he responded, “They are in court today, and actually they won a preliminary decision today. They have the right to sue, and I support them and anyone else who wants the right to sue.”

Last month, by contrast, Sanders said this:

If you go to a gun store and you legally purchase a gun, and then, three days later, if you go out and start killing people, is the point of this lawsuit to hold the gun shop owner or the manufacturer of that gun liable?

If that is the point, I have to tell you I disagree. I disagree because you hold people—in terms of this liability thing, where you hold manufacturers’ [liable] is if they understand that they’re selling guns into an area that—it’s getting into the hands of criminals, of course they should be held liable.

But if they are selling a product to a person who buys it legally, what you’re really talking about is ending gun manufacturing in America. I don’t agree with that….

As I understand it…what people are saying is that if somebody who is crazy or a criminal or a horrible person goes around shooting people, the manufacturer of that gun should be held liable….

If that is the case, then essentially your position is there should not be any guns in America, period.

Those comments, along with similar statements Sanders made in interviews with Rolling Stone last December and the New York Daily News on April 1, are consistent with his vote for the Protection of Lawful Commerce in Arms Act, which bans lawsuits based on “the harm solely caused by the criminal or unlawful misuse of firearm products or ammunition products by others when the product functioned as designed and intended.” Sanders has taken a lot of heat from Clinton and other gun controllers for that vote, and he is now cosponsoring a bill that would repeal the law. Yet it seems clear that he still believes in the principle it embodies.

Witness this exchange from the Daily News interview, which is what Clinton was talking about when she criticized Sanders’ stance last night:

Daily NewsThere’s a case currently waiting to be ruled on in Connecticut. The victims of the Sandy Hook massacre are looking to have the right to sue for damages the manufacturers of the weapons. Do you think that that is something that should be expanded?

Sanders: Do I think the victims of a crime with a gun should be able to sue the manufacturer, is that your question?

Daily NewsCorrect.

Sanders: No, I don’t.

That seems plainly inconsistent with what he said last night. Sanders might respond that “they have the right to sue” even under current law, which is true, although the Sandy Hook plaintiffs have resorted to a very broad, highly implausible interpretation of “negligent entrustment,” one of the liability theories that the Protection of Lawful Commerce in Arms Act allows (along with lawsuits based on product defects and illegal actions by gun suppliers). The usual understanding of negligent entrustment would cover a dealer who, say, sold a gun to someone he had reason to know was bent on violence, or to someone who was obviously buying the gun for a third party who was legally disqualified from owning firearms. By contrast, the Sandy Hook plaintiffs, who include the families of nine people murdered at the school, plus a survivor of the massacre, argue that the defendants are guilty of negligent entrustment because they made a gun with no legitimate civilian uses available to the general public.

Maybe Sanders agrees with that theory, which is arguably consistent with his support for a federal “assault weapon” ban. But I doubt it. From everything he has said about the issue, it is apparent that he still rebels at the notion that law-abiding, non-negligent manufacturers and dealers should be held responsible for the crimes committed by a tiny percentage of their customers. The same logic, after all, would apply to handguns, which mass murderers use more frequently than so-called assault weapons.

It is hard to see Sanders’ decision to support repealing the Protection of Lawful Commerce in Arms Act as anything other than an insincere, politically convenient conversion. Although the law is questionable on federalist grounds (since it dictates the liability rules applied by state courts), i have never heard him make that argument. It would be surprising if he did, since he (like Clinton) has a very broad view of the federal government’s power and has never, as far as I know, shown much interest in the 10th Amendment.

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Hillary Clinton Just Turned the Democratic Party Into the Party of the $15 an Hour Minimum Wage

At last night’s presidential debate, the Democratic Party became the party of the $15-an-hour minimum wage.

Facing off against rival candidate Bernie Sanders on CNN, Hillary Clinton seemed to endorse the idea of a national $15 minimum. Asked whether she would, as president, sign a bill mandating a $15 federal minimum, Clinton said, emphatically: “Of course I would.”

That’s a new one for Clinton. As she noted in the rest of her response, she has previously voiced support for activists pushing for a $15 minimum at the local level. But she’s also endorsed tiered approaches that raise wages higher and faster in wealthier urban areas than in their poorer rural counterparts. And when asked about a national minimum, she’s always said that as president she would try to raise the national wage floor to $12 an hour.

In a follow-up, Clinton’s campaign clarified the candidate’s statement, saying that she “supports a $12 federal minimum wage—but believes the federal minimum is just that, and encourages states, cities, and workers through bargaining to go even higher, including a $15 minimum wage in places where it makes sense.” But the fact is, she clearly said that as president she would sign a bill raising the minimum wage to $15 an hour everywhere in the U.S. if it came to her desk. That may not be a flip-flop on her part, but it is, at least, an update of her old position.

And it represents a major shift in both the Democratic party and national politics. Just a few years ago, President Obama’s endorsement of raising the federal minimum to $10.10 was big news, and it helped organize the rest of the party around that number. In the years since, the figure has only grown, with relatively centrist figures in the party like Hillary Clinton endorsing $12 an hour (while trying to play nice with $15-an-hour activists) while activists pushed for a higher figure. Legislation to impose a $15 minimum wage around the country, in places like California, the city of Seattle, and New York, has only intensified that pressure. And the presidential race against Bernie Sanders, who has rallied supporters around his calls for a $15 an hour minimum, appears to have been the final push for Clinton.

As the Democratic party’s likely presidential nominee, Clinton is the de facto leader of the party right now, or at the very least, one of its most influential voices, particularly when it comes to setting the party’s policy agenda. So just as Obama’s endorsement of a $10 minimum moved the party three years ago, Clinton’s clear willingness to approve a federal $15 minimum wage, even if it’s higher than what she might propose herself, is certain to move the party toward a general endorsement of the $15 minimum. At the very least, Democratic legislators who are concerned about a $15 minimum will likely quiet their criticisms; if nothing else, Clinton’s movement shows how difficult it is for Democratic politicians to resist pressure to support a national $15 wage.

Which means that one of the major parties now effectively backs a minimum wage that is supported by essentially no economic evidence or experience whatsoever, a figure that is so high that it makes even economists on the left who support raising the federal minimum from its current $7.25 an hour uncomfortable.

That includes people like Arindrajit Dube, the co-author of a study which found “no detectable employment losses” from U.S. minimum wage increases in the past, who told Timothy Lee of Vox that substantial job market losses could be the result of California adopting a $15 minimum. California’s plan, he said, was a very big, very risky experiment with a massive state economy: “If you’re risk-averse, this would not be the scale at which to try things,” he told Lee. 

And it includes people like Alan Krueger, a former Obama administration official who conducted some of the most widely cited research suggesting that some types of minimum wage increases would not result in job losses. Writing in The New York Times last October, he warned that increasing the minimum to $15 could well hurt economies across the country. “$15 an hour is beyond international experience,” he wrote, “and could well be counterproductive. Although some high-wage cities and states could probably absorb a $15-an-hour minimum wage with little or no job loss, it is far from clear that the same could be said for every state, city and town in the United States.”

Again, this is not the position of some anti-minimum-wage crusader. This is from an economist who worked in the Obama administration and whose research has been critical in building support for a substantial hike in the federal minimum wage. Even he cannot go as far as Bernie Sanders has gone, and as far as Hillary Clinton went last night.

The point is that there is simply no precedent for a minimum wage hike at this scale, and there is no evidence to support the belief that it definitely would not backfire. Indeed, there is good reason to believe that it would be very harmful, especially in rural, less wealthy communities where wages are typically lower than in high-cost urban areas. (Another thing this reveals is just how beholden to the demands of activists living in those high-cost urban areas the Democratic party has become.)

The most generous way to describe Clinton’s stated willingness to sign a $15 an hour national minimum wage into law, then, is to say that she is willing to make a massive gamble on the nation’s economy and the jobs of millions of citizens based on essentially no direct evidence that it would pay off. It is a dangerous and irresponsible position on its own, and it is likely to move both her party and the nation in a dangerous and irresponsible direction. Would she really be willing to take a risk this big? Apparently the answer is: Of course she would. 

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With Everyone Selling Stocks, Who Is Buying? Goldman Explains

There has been some confusion in recent weeks about one unexplained aspect of the rising market: just who is buying?

The reason for the confusion is not only the previously documented buyer strike by the smart money (hedge funds, institutions and private clients), which as we reported a few days have sold stocks for 11 consecutive weeks.

 

Then last night, citing the latest EPFR data, BofA reported that retail equity investors are now also “risk-off” following $6.2 billion in equity outflows from all regions.

So retail is selling, insiders are selling… who is buying?

Here is the answer courtesy of Goldman’s David Kostin:

Corporations purchased $561 billion of US equities during 2015, 40% higher than during 2014 ($401 billion) and the second highest level since at least 1952 ($721 billion in 2007). Managements remained committed to share repurchases (net of issuance) last year amidst modest US GDP growth of 2.4% and extended valuations. Outside of the Great Recession, corporates have been the primary source of US equity demand.

 

We already know that in a world of declining cash flows, the primary source of funds to facilitated this behavior was debt issuance. In fact, as SocGen showed in a stunning chart last year, the only reason for the increase of net debt in the 21st century has been to fund buybacks.

 

That explains who bought. But what about who is buying and who will keep on buying? The answer: even more corporate buybacks.

Buybacks will remain the key source of equity inflow in 2016

 

We expect corporations will purchase $450 billion of US equities in 2016 and will remain the largest source of US equity demand. With the US economy expected to grow at a modest 2% pace and cash balances at high levels, firms are likely to continue to pursue buybacks as a means of generating shareholder value. We forecast S&P 500 EPS will rise by 9% to $110 this year from $100 in 2015 (see US Equity Views, March 14, 2016), which should also benefit allocation to buybacks.

This means that without corporate buybacks, suddenly the S&P has a gaping $225 billion shorfall in net equity flow to fill. Which is also why it is so critical for the Fed to make sure that there are no disruptions to the bond market: should the issuance train slow down, and if corporations can’t raise the much needed half a trillion in debt proceeds which will be used to buyback stock, a big problem emerges.

It also explains why the ECB last month scrambled to backstop investment grade corporate bond issuance for the first time: in effect Draghi gave his blessing to Europe’s companies to raise debt and to use every last EUR of proceeds to buyback their own stock.

We expect something similar to be unviled in the US soon.

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OSU Threatens to Expel Student Activists for Making Campus Staff Feel Unsafe

Should the Ohio State University (OSU) administration have threatened to sic the cops on student protesters staging a peaceful sit-in at a campus building? I’m with Conor Friedersdorf, who writes that he’s “usually skeptical of any decision to call the police on peaceful protesters,” or to expel students for campus activism. Still, in an era when college administrators routinely trip all over themselves to pander to student protesters, there’s something almost comforting about this more authoritarian response to the campus left, especially since it was tempered with seeming respect and restraint from officials.  

Here’s precisely what a campus spokesman told the OSU students who had occupied a campus building last week: 

If you are students, and I think the vast majority of you are, I want you to understand that you are violating the student code of conduct. As dictated to me by [university president] Dr. Drake 15 minutes ago to me on the phone, we have chosen to try to work with you this evening because we respect you. This is your university. And we want to have dialogue. We want the dialogue to extend beyond tonight. But if you refuse to leave, then you will be charged with a student code of conduct violation. And I’m telling you this now because I want you to have good thought and careful consideration. If you’re here at 5 a.m. we will clear the building and you will be arrested. And we will give you the opportunity to go to jail for your beliefs. Our police officers will physically pick you up, take you to a paddywagon, and take you to be jail.

As Friedersdorf notes, “lots of college administrators decide to clear protests with force—recall the pepper-spraying cop at UC Davis, for example—but taking a preemptive, hardline position, bluntly and transparently, is a striking departure from other occupations I’ve seen.” 

But the most interesting part of this incident is the language OSU officials used to justify their action: the langague of safe spaces. Students couldn’t just occupy any old campus building, the school said, because there were workers in those buildings, too, and the kids were freaking them out.

“The consensus of university leaders is that the people who work in this building should be protected also,” said one of the school spokesman. “They come to work around 7 o’clock. Do you remember when you all made the rush down there and chanted to the folks outside the doors a minute ago? That scared people.” A second OSU official told students that “the employees who work past five o’clock left early this evening. Do you know why? Because they were scared you were going to do something.”

“The people in this building have a right to a safe environment,” the first spokesman continued, “and to an environment where their jobs won’t be interrupted.”

Says Friedersdorf, who has been covering campus activism and its discontents for a while, “appealing to the safety and fear of staff in this way is something else I’ve never seen. But I suspect that it will be used against student protesters in the future. In my work defending free speech, I’ve repeatedly noted how speech codes implemented in the late 1980s and early 90s with the intention of protecting black students were ultimately used to charge and punish more black students than white students.” 

If we’re allowing for a little optimism, perhaps this is just one lesson that each new generation has to learn for itself: The Man is never your friend. If you give authorities—be they campus administrators, cops, or federal officials—the tools to censor and the framework to sell it, they will never stop with using this power only in ways that you like. As campus administrators turn this “speech is literally violence” mindset back on their charges, let’s hope that millennials and Gen Z get the message. 

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$1,001,000,000,000: China Just Flooded Its Economy With A Record Amount Of New Debt

When China reported its economic data dump last night which was modestly better than expected (one has to marvel at China’s phenomenal ability to calculate its GDP just two weeks after the quarter ended – not even the Bureau of Economic Analysis is that fast), the investing community could finally exhale: after all, the biggest source of “global” instability for the Fed appears to have been neutralized.

But what was the reason for this seeming halt to China’s incipient hard landing? The answer was in the secondary data that was reported alongside the primary economic numbers: the March new loan and Total Social Financing report.

As the PBOC reported last night, Chinese banks made 1.37 trillion yuan ($211.23 billion) in new local-currency loans in March, well above analyst expectations, as the central bank scrambled to keep the economy engorged with new loans “to keep policy accomodative to underpin the slowing economy” as Reuters put it. This was up from February’s 726.6 billion yuan but off a record of 2.51 trillion yuan extended in January. Outstanding yuan loans grew 14.7 percent by month-end on an annual basis, versus expectations of 14.5 percent.

But it wasn’t the total loan tally that is the key figure tracking China’s credit largesse: for that one has to look at the total social financing, which in just the month of March rose to 2.34 trillion yuan, the equivalent of more than a third of a trillion in dollars!

And there is your answer, because if one adds up the Total Social Financing injected in the first quarter, one gets a stunning $1 trillion dollars in new credit, or $1,001,000,000,000 to be precise, shoved down China’s economic throat. As shown on the chart below, this was an all time high in dollar terms, and puts to rest any naive suggestion that China may be pursuing “debt reform.” Quite the contrary, China has once again resorted to the old “growth” model where GDP is to be saved at any cost, even if it means flooding the economy with record amount of debt.

 

And to put it all together, the PBOC also reported that the broad M2 money supply measure grew 13.4% in March from a year earlier, or precisely double the rate of growth of GDP. This means that it took two dollars in new loans to create one dollar of GDP growth.

 

With China’s debt/GDP already estimate at 350%, how much longer can China sustain this stunning debt (and by definition, deposit) growth continue?

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Consumer Sentiment Tumbles To Lowest Since September; Umich Expresses Concern About “Resilience Of Consumer”

We were wrong: several minutes ago when we documented the collapse in the Gallup Economic confidence, we said that “we look forward to the UMich confidence report to beat expectations when it is released in just a few minutes.” Moments ago the official print came out and it was not pretty: sliding from 91 to 89.7, not only did the print miss expectations of a rebound to 92.0, but was the lowest print since September 2015, as well as the fourth consecutive drop.

The reason for the drop? Consumers reported a slowdown in expected wage gains, weakening inflation-adjusted income expectations, and growing concerns that slowing economic growth would reduce the pace of job creation.

And as UMich calculates, “the data now indicate that inflation-adjusted personal consumption expenditures will grow by 2.5% in 2016.” Hardly a glowing endorsement of the 2.7% quarterly GDP growth needed to hit the Fed’s optimistic forecast.

This is what the report said:

Consumer confidence continued its slow overall decline in early April, marking the fourth consecutive monthly decline. To be sure, the sizes of the recent losses have been quite small, with the Sentiment Index falling just 2.9 Index-points since December 2015, although it was down 6.2 Index-points from a year ago and 8.4 points below the peak in January 2015. None of these declines indicate an impending recession, although concerns have risen about the resilience of consumers in the months ahead.

 

Consumers reported a slowdown in expected wage gains, weakening inflation-adjusted income expectations, and growing concerns that slowing economic growth would reduce the pace of job creation. These apprehensions should ease as the economy rebounds from its dismal start in the first quarter of 2016. Overall, the data now indicate that inflation-adjusted personal consumption expenditures will grow by 2.5% in 2016.

Add to this the concern about rising gas prices that was voiced by Gallup and suddenly you have a very troubling picture of the US economy.

But perhaps most troubling for the Fed is that while 1 year inflation expectations remained unchanged at 2.7%, the 5 year forward forecast dropped from 2.7% to 2.5%, implying that whatever the Fed is doing to boost expectations of rising prices is not working.

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“It’s Getting Worse” – Economic Outlook Plummets In Gallup Poll, Rising Gas Prices Blamed

According to the latest Weekly Economic Confidence poll released by Gallup, Americans’ confidence in the US economy is getting worse. The poll asks people to rate the economy as of today, and whether or not the economy as a whole is getting better or worse.

It turns out that ordinary people are not as excited about the US economy as those who are cheerleading minimum wage job creation and market levels being close to all time highs, and certainly not as excited as that group of people called each month by either the Conference Board or UMich, the two far more closely tracked confidence indicators.

The Economic Confidence Index for the week ending April 10th came in at -14. Down from the prior week, and hitting a low not seen since the first week of November last year.

 

Digging a little deeper into the detail, Gallup reveals that people are viewing the economic outlook to be much worse than current conditions. While both components are getting worse, the economic outlook plummeted. The score of -22 reflects 37% of US adults saying the economy is “getting better”, while 59% say it’s “getting worse.

This is how Gallup concludes:

Americans’ views of the national economy have been somewhat turbulent over the last several weeks, with confidence improving one week only to fall the following week. From a broad perspective, economic confidence so far this year has neither moved into a sustained period of positivity nor entered into a steady decline. Americans are confronted with presidential candidates using the economy as one of their talking points, mixed signals from national economic reports, volatility in the stock market and an apparent end of sub-$2 gas prices nationally — all of which may be affecting their economic assessments.

 

Americans’ cautiousness in their assessments of the economy may not be far off from those of economic leaders, however. Federal Reserve Board Chair Janet Yellen has been slow to raise interest rates, with some economists arguing Yellen has been overly cautious and has underestimated the economy’s actual strength. Yellen’s critics say the slow pace of raising rates will put the Fed at a disadvantage, with the possibility of increased inflation as the economy reaches its employment targets.

The disconnect in sentiment between everyday people and financial pundits must just be the result of a communications issue. And of course, we look forward to the UMich confidence report to beat expectations when it is released in just a few minutes.

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Bill Nye, “Science Guy,” Open to Jail Time for Climate Change Skeptics

Bill Nye, called “The Science Guy” after the kids’ show he hosted for PBS back in the 1990s, is up for jailing people who question climate change.

Asked about environmental activist Robert Kennedy’s assertion that climate skeptics should be tried as war criminals, the TV personality mused, “We’ll see what happens.”

In a discussion of the case being brought by various state attorneys general against ExxonMobil—an action that has led to subpoenas of free-market think tanks such as the Competitive Enterprise Institute (CEI)—Nye had this to say:

As a taxpayer and voter, the introduction of this extreme doubt about climate change is affecting my quality of life as a public citizen… So I can see where people are very concerned about this, and they’re pursuing criminal investigations as well as engaging in discussions like this….That there is a chilling effect on scientists who are in extreme doubt about climate change, I think that is good.

More from The Washington Times here.

You don’t need to a flat-earther to think this sort of attitude is all to the good. Science works best when consensuses are reached via evidence and broad agreement, not political and legal threats.

Reason’s science correspondent, Ronald Bailey, notes that CEI subpoeana—which seeks 10 years’ worth of internal correspondence and private donor information—proceeded directly from a conference hosted by Al Gore and featuring many state-level attorneys general. Their main target is ExxonMobil, which they claim has lied about environmental science. But as Bailey, who doesn’t actually agree with CEI on many climate-change issues and policies, notes, “to outlaw disagreements over how to interpret science heads down the perilous path toward Lysenkoism, in which only officially approved science is allowed to be practiced and discussed.”

And as Glen Reynolds, the University of Tennessee Law professor who runs the popular Instapundit site, wrote in USA Today, the subpoena of CEI is meant to punish the nonprofit for having taken money from ExxonMobil and will almost certainly chill its ability to raise money from donors. All because it doesn’t subscribe to what politicians say is the proper way to think about and act on climate change.

Prescribing such orthodoxy seems to be just what they have in mind. Their approach is — and I use this term quite deliberately — thoroughly un-American. In pursuing this action, they are betraying their oaths of office, abusing their powers and behaving unethically as attorneys…. free speech advocates are already talking about a Virgin Islands tourism boycott. And voters everywhere need to ask themselves: If these government officials have such contempt for others’ constitutional rights, who might they target next for “unacceptable” speech?

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US Industrial Production Plunges As Auto Manufacturing Tumbles

The US economy has never – ever – seen Industrial Production drop YoY for seven months in a row without being in a recession. Down 2.0% YoY in March, the weakest since December and down 0.6% MoM (weakest since Feb 2015) the decline in factory output is driven a 1.6% plunge in vehicle production (2.8% collapse in motor vehicles specifcally) in March.

 

 

As The Fed details,

Manufacturing output decreased 0.3 percent in March. The production of durables moved down 0.4 percent. The largest declines, about 1 1/2 percent, were registered both by motor vehicles and parts and by electrical equipment, appliances, and components. Several industries posted increases, with the largest, nearly 1 percent, for computer and electronic products. After increasing 0.9 percent in January and decreasing 0.5 percent in February, the output of nondurable manufacturing edged down in March, as gains in the production of petroleum and coal products and of chemicals nearly offset declines for most other industries. The output of other manufacturing (publishing and logging) fell almost 1 percent. 

It really should be no surprise that Auto production is hitting the wall, as we have been discussing, inventories are extreme…price and sales weakness is occurring amid a mal-investment-driven excess inventory-to-sales at levels only seen once before in 24 years…

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