Tag: finance

While both stock and bond markets are “influenced” by the ongoing flood of central bank liquidity, it is clear that the two “markets” have a very different view of the future. The last few days have seen the longer-term bond term structure (perhaps indicative of future growth hopes) collapse and are now unchanged on the year. Of course, the “taper” has been seen as nothing but great news by stocks which have pushed on to a 28% gain on the year… Which “efficient” market is discounting the future correctly we wonder?

 

 

Chart: Bloomberg

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Submitted by Charles Hugh-Smith of OfTwoMinds blog,

"If we expect an economic theory to behave like a theory of physics, with non-trivial predictions about the future, we're never going to get one."

Back in August I explored Why Isn't There a Demonstrably Correct Economic Theory?. Many commentators have noted the obvious, that economics is a pseudo-science rather than a real science: beneath the fancy quantification and math, economics is fundamentally the study of human behavior, and that complex mix of dynamics cannot be reduced to a tidy econometric model that spits out accurate predictions.

One key element of science is that the results must be reproducible, that is, the same experiment/conditions should yield the same results time and again. I suspect that economic models are not applicable across all times and situations; a model might "work" in one era and in a very specific set of circumstances, but fail in another era or in a similar set of circumstances.

Since human behavior is based in culture as well as in naturally selected (genetically driven) behavior, then cultural milieus and values obviously play critical roles in shaping economic behaviors.

So presenting an economic model as "scientific" and quantifiable is in effect claiming that the bubbling stew of human culture can be reduced to quantifiable models that will yield predictions that are accurate in the real world. This is clearly false, as culture is not a static set of objects, it is a constantly shifting interplay of feedback loops.

This helps explain why human behavior is so unpredictable. Virtually no one successfully predicted World War I in 1909, and no one predicted the collapse of the U.S.S.R. in 1985.

Another reason all economic theories fail as scientifically verifiable models is that economics boils down to a very simple dynamic: those in power issue financial claims on resources as a "shortcut" way of gaining control of the resources without actually having to produce the resources or earn the wealth via labor and innovation.

I think this is the one fundamental dynamic of economics, and it does not lend itself to reductionist models.

Longtime correspondent Chuck D. recently explained why economics will never be predictive (i.e. a real science) like physics:

If we expect an economic theory to behave like a theory of physics, with non-trivial predictions about the future, we're never going to get one. If, on the other hand, we accept economic theories which explain why we'll never get the kind of economic theory we'd like to have, the kind that would support investment decisions and government policy formulation, we can formulate THAT kind of theory. (If you want a physicist to decide whether light is a stream of particles or a pattern of waves, you're not going to get an answer.)

Von Neumann and Morgenstern came pretty close when they applied mathematical game theory to economic behavior. In game theory terms, if there existed an economic theory which provided any kind of advantage to those who understood it, either it would be kept a secret (so as not to give up the advantage), or the "game" itself would adapt to invalidate the theory.

The reason for the failure of economics to produce "the theory we'd like to have" is not merely that people are complex, just as modern physics doesn't say that "electrons are really hard to locate;" the problem is that any conceivable process for observing the electron disturbs its position and/or momentum, invalidating the observation. A theory of economics cannot be both useful and well-known. (Can we call this a statement of "meta-theory"?)

So, the competitive (game-like) nature of economics means that the usual incremental accumulation of knowledge that applies in natural science is impossible. To succeed in the market, I need to have better information and/or interpretation than at least one other trading opponent (oops, I almost said "trading partner"!) There are two ways for me to have better knowledge than you do: either I think hard about the data I gather (and keep the results to myself), or I promulgate disinformation and misinterpretation (see "talking my book").

In other words, I don't need to be smart if I can make you stupid. It's just the opposite of science. It's not even necessary for everyone to proliferate misinformation, as long as there's enough of it around to create uncertainty about the truth. (You and I, for example, can see things quite clearly, and still not turn the tide of madness around us.)

Thank you, Chuck, for an insightful, thought-provoking commentary.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/fu3ezmah7pU/story01.htm Tyler Durden

All one can say following the latest New Home Sales data release is that “baffle with BS” mode is fully engaged. First, following the release of the “revised” seasonally adjusted New Home Sales data, we learned that homebuilders somehow sold an extra 88 thousand annualized homes in the months of September, October and November: the same months when the sellside and economist crew was screaming home sales would plunge due to the government shutdown…  just so there is a buffer when sales dropped and/or disappointed (because apparently nobody buys houses when the government isn’t around). Instead what happened was a massive 18% jump in New Home Sales in the month of October, when the US government was shut down for over half the month, and the final print was 474K sales, the highest since July 2007. So much for that particular red herring.

 

But where things get outright bizarre, is when one looks at the series showing the average sales price for New Homes. Keep in mind that an hour ago we showed that mortgage applications have tumbled to a fresh 13 year low, while refi apps slid to the lowest in 5 years. So what happened to the average new home sales price in the month of November? Well, it just hit a new all time high! Why, because why it can.

And… #Ref!

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As the non-government worker ‘slaves’ away, working 80 hours straight at Toys’r’Us, or earning an ‘unlivable’ wage at McDonalds, President Obama as used an executive order to activate a 1% pay raise for all government workers. As the WSJ reports, the 4.4 milion federal employees are receiving their first across-the-board pay bump since a 2% increase in January 2010 (though notably agency directors must meet this cost within their existing budgets – not collecting any new funds to pay for it). Of course, even by government statistical standards, this is still not keeping up with inflation, but hey, it’s better than nothing.

 

Via WSJ,

Federal employees in January will get their first across-the-board pay raise in several years, as President Barack Obama moved Monday to activate a 1% increase for all government workers.

 

The increase came by an executive order and was expected. The raise was requested by the White House earlier in the year and Congress didn’t take the necessary steps to prevent it from taking place.

 

…

 

The Obama administration in previous years agreed to freeze the pay of federal employees as part of the ongoing deficit-reduction fights in Congress.

 

It’s the first across-the-board pay bump for federal employees since federal employees received a 2% increase in January 2010. Federal employees were able to collect bonuses, overtime and promotion pay raises.

 

Federal agencies must accommodate the pay increases within their budgets and they do not collect additional funds because of Mr. Obama’s order.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/KHLyGZ3tSO4/story01.htm Tyler Durden

As the non-government worker ‘slaves’ away, working 80 hours straight at Toys’r’Us, or earning an ‘unlivable’ wage at McDonalds, President Obama as used an executive order to activate a 1% pay raise for all government workers. As the WSJ reports, the 4.4 milion federal employees are receiving their first across-the-board pay bump since a 2% increase in January 2010 (though notably agency directors must meet this cost within their existing budgets – not collecting any new funds to pay for it). Of course, even by government statistical standards, this is still not keeping up with inflation, but hey, it’s better than nothing.

 

Via WSJ,

Federal employees in January will get their first across-the-board pay raise in several years, as President Barack Obama moved Monday to activate a 1% increase for all government workers.

 

The increase came by an executive order and was expected. The raise was requested by the White House earlier in the year and Congress didn’t take the necessary steps to prevent it from taking place.

 

…

 

The Obama administration in previous years agreed to freeze the pay of federal employees as part of the ongoing deficit-reduction fights in Congress.

 

It’s the first across-the-board pay bump for federal employees since federal employees received a 2% increase in January 2010. Federal employees were able to collect bonuses, overtime and promotion pay raises.

 

Federal agencies must accommodate the pay increases within their budgets and they do not collect additional funds because of Mr. Obama’s order.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/KHLyGZ3tSO4/story01.htm Tyler Durden

As we have pounded the table for the past 2 years, the one most fundamental component of a self-sustaining, “escape velocity” US recovery has been the persistent absence of corporate spending and capital expenditures, as a result of a corporate mindset in which it is better to reward shareholders with short-term gains such as dividends and stock buybacks, than invest in the future via CapEx (or M&A). Which is why we were eagerly looking forward to today’s Durable Goods number as it provides the best read of how America’s corporations are gearing up for capital spending in terms of both orders (which can be cancelled at any time as Boeing so vividly remembers in the aftermath of the Lehman bankruptcy) and actual shipments. On the surface, the numbers were great, beating expectations across the board.

The full breakdown:

• Headline Durable Goods including volatile transports were up 3.5%, beating expectations of a 2.0% rise, and up from an upward revised -0.7%.
• The much more relevant and informative Durable Goods ex transports rose 1.2%, beating expectations of a 0.7% increase, and up from a downward revised -0.7%
• On the pure CapEx front, Cap Goods orders non-defense exluding aircraft rose 4.5%, slamming expectations of a 0.7% increase, and up from an upward revised 0.7%
• And finally, Cap Goods shipments non-defense ex aircraft rose 2.8%, on expectations of a 1.0% increase and up from a downward revised -0.4%.

Still, even with the current pick up, the trend needs to show some additional strength to breach the recent declining trendline as shown in the charts below, first that of Durable Goods, helped recently quite a bit by Boeing orders:

And certainly more needs to happen in the Durables ex aircraft:

 

As for actual shipped Capex, it is still trailing at the bottom:

Nonetheless. today’s news was great, and if one is so intent, one may be convinced that the CapEx recovery is just around the corner.

However, because there always is a but, here is the BUT.

November traditionally is a month in which the bulk of the increase is due to seasonal adjustments. This was no exception, with Not Seasonally Adjusted data declining substantially in every category: Durable Goods, both core and ex-trans, declined by 2.3% and 6.4% respectively, while core CapEx, Shipments and Orders, also dropped by 2.0% and 1.0% respectively.

So what’s the big deal: there are seasonal adjustments every year right. Of course, however the seasonal adjustments are there to revise the sequential changes, not the annual changes from a year ago. In other words, while the mover from October 2013 to November 2013 may be adjusted for seasonal variation, it is the move from November 2010 to November 2011 to November 2012 to November 2013 and so on, that should be virtually in line both adjusted and unadjusted.

Which is why it is odd that when we look at just this data for the Durable Goods ex transports, that we see avery curious Seasonal Adjustments aberation.

See if you can spot the difference in the chart below:

The chart above looks at the Year over Year change in Durables ex transports for the month of November across 4 different years. What immediately stands out is that while 2010 through 2012 acted just as expected, with SA and NSA data almost identical, in 2013 the data… diverged. In fact, the divergence between the SA and NSA was inexplicably over $2.2 billion. What does that mean? Well, if the SA number was accurate, and in line with what the NSA number predicted, Durables Goods ex-transports would have declined by -0.5% instead of rising by 1.2%. The same would apply to all other key categories from the report.

In other words, when all else fails, and when Unadjusted data points to a decline, just do what the government’s Arima X 12 model is so good at doing, and adjusted the data.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/bswgJzYiKV4/story01.htm Tyler Durden

From its peak in October 2012, mortgage applications have collapsed 66% and this week printed at new 13-year lows. Since rates started to crack on Taper talk in May 2013, mortgage applications have fallen in a one-way street (but hey, rising rates won’t affect the housing recovery, right? remember 15% mortgages… as the usual bullshit meme goes, entirely missing the shift in house prices, affordability, and marginal price-setter). Of course, the usual ‘seasonal’ effect wil be blamed and recovery will re-blossom in the new year… except, seasonally this is among the worse drop in the last few weeks of the year in the last decade. Adding further salt to the wound of wealth generation, the refi index has dropped to a fresh 5-year low as the home equity ATM remains shut (having dropped 73% in the last few months).

 

New 13-year low in mortgage applications…

 

and no – its not seasonals, its worse…

 

But hey, the Fed’s economic-confidence inspiring Taper will fix all this and housing will rise once again… on the shoulders of cheap money Wall Street landlords…

 

Charts: Bloomberg

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That it has been one of the most lacklustre shopping seasons in recent years has already been repeatedly covered, with average holiday spending expected to decline for the first time since the Great Financial Crisis of 2008, all this despite record promotions and an ever earlier start to Black Friday.

Another chart showing the same trend from Bloomberg, with the comment that the “eroding middle class can no longer drive activity as it has in the past” – that’s odd: we said the same thing in late 2009 for which we got yet another label of tinfoil conspiracy theorists…

However, while the early start to shopping season has missed expectations, driven primarily by an unprecedented weakness in traditional bricks and mortar outlets, there was some hope that the last stretch into Christmas and the New Year would provide a much needed, last minute bump. Those hopes were dashed last night when Shopptertrack reported that retail traffic plummeted by an unprecedented 21% last week, and in-store sales decreased 3.1% from the year before, dashing retailers’ hopes that the final stretch before Christmas would offset soft sales numbers earlier in the holiday shopping season.

UT San Diego reports:

The disappointing numbers, released by ShopperTrak on Monday, are “kind of staggering,” said the research firm’s founder, Bill Martin, who last week voiced optimism that retailers would see a noticeable spike in traffic and sales the week of Dec. 16-22 after two consecutive weeks of decreases in both.

 

He attributed the latest nosedive to successful November promotions, and bad weather last week in the Midwest and other central states. An increase in virtual window-shopping has prevented consumers throughout the shopping season from setting foot in many stores to look, feel and compare prices, he added.

Wait, November promotions were successful? For whom: retailers whose bottom lines got crushed in the margin collapse, or buyers who decided to wait and keep waiting for even better deals, until in the end they decided not to buy at all. Blaming the weather we understand, as do the trend to convert purchases to “window shopping” – in a world in which everything is turning virtual, it only makes sense that Americans pretend to shop asl well.

What’s worse, however, is that the deus ex of online sales is not appearing and will not save the day:

But even online sales aren’t growing at the expected pace. Online spending from home and work desktop computers in the U.S. from Nov. 1 through Dec. 15 was up 9 percent from the same period last year to $37.8 billion, according to the most available data from comScore.

 

That’s below the 14 percent growth that the Internet research firm is forecasting for the season.

 

Even though Black Friday holds the title as single busiest shopping day of the holiday season, the week before Christmas is traditionally the busiest week in the most important shopping season of the year. Many retailers depend on November and December to make as much as 40 percent of their annual revenue, the National Retail Federation says. But while 2013 is shaping up to be the largest holiday shopping season on record, retailers are not getting the photo finish they expected.

 

“The numbers are not devastating, but they are a bit alarming,” Martin said.

 

He is not revising his forecast of 2.4 percent overall growth in retail sales for November and December, already the slowest growth since 2009, because it was strong sales in early November that caused the softer late-season sales.

Finally, it appears that the strategy of pulling forward demand to the present through record discounts, and crushing margins in hopes of “making it up in volume” only works for those perpeptual non-cash flow generating juggernauts like Amazon, which on a long enough timeline will do everything (badly), and supposedly put everyone out of business. Just not yet.

Retailers began earlier than ever promoting deep discounts and deals to appeal to frugal consumers. Retail sales in November were up 4.7 percent from 2012, the Commerce Department reported.

 

“November was pretty strong, and that’s going to carry some weight into December,” Martin said. “If December ends up being flat, I expect we’re still going to have a 2.4 percent increase.”

 

There are some strong shopping days left before the end of the month, he said, and retailers will push hard to get shoppers back into their stores post-Christmas to exchange gifts, use gift cards and take advantage of post-holiday promotions. Gift cards are not recorded as sales until they are exchanged for merchandise, and because 80 percent of shoppers plan to buy them this year, bringing total gift card spending to an all-time high of $29.8 billion, they could have a big influence on sales after the Christmas holiday.

 

Final sales figures for the holiday shopping season are expected in January.

We can’t wait. In the meantime, we expect seasonally adjusted government retail sales data to indicate once again, that all is well, and that it is not the ARIMA X 12 seasonal fudge-factor goalseeker that is wrong, but that it is reality which is at fault.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/zNeSKT0_syI/story01.htm Tyler Durden

That it has been one of the most lacklustre shopping seasons in recent years has already been repeatedly covered, with average holiday spending expected to decline for the first time since the Great Financial Crisis of 2008, all this despite record promotions and an ever earlier start to Black Friday.

Another chart showing the same trend from Bloomberg, with the comment that the “eroding middle class can no longer drive activity as it has in the past” – that’s odd: we said the same thing in late 2009 for which we got yet another label of tinfoil conspiracy theorists…

However, while the early start to shopping season has missed expectations, driven primarily by an unprecedented weakness in traditional bricks and mortar outlets, there was some hope that the last stretch into Christmas and the New Year would provide a much needed, last minute bump. Those hopes were dashed last night when Shopptertrack reported that retail traffic plummeted by an unprecedented 21% last week, and in-store sales decreased 3.1% from the year before, dashing retailers’ hopes that the final stretch before Christmas would offset soft sales numbers earlier in the holiday shopping season.

UT San Diego reports:

The disappointing numbers, released by ShopperTrak on Monday, are “kind of staggering,” said the research firm’s founder, Bill Martin, who last week voiced optimism that retailers would see a noticeable spike in traffic and sales the week of Dec. 16-22 after two consecutive weeks of decreases in both.

 

He attributed the latest nosedive to successful November promotions, and bad weather last week in the Midwest and other central states. An increase in virtual window-shopping has prevented consumers throughout the shopping season from setting foot in many stores to look, feel and compare prices, he added.

Wait, November promotions were successful? For whom: retailers whose bottom lines got crushed in the margin collapse, or buyers who decided to wait and keep waiting for even better deals, until in the end they decided not to buy at all. Blaming the weather we understand, as do the trend to convert purchases to “window shopping” – in a world in which everything is turning virtual, it only makes sense that Americans pretend to shop asl well.

What’s worse, however, is that the deus ex of online sales is not appearing and will not save the day:

But even online sales aren’t growing at the expected pace. Online spending from home and work desktop computers in the U.S. from Nov. 1 through Dec. 15 was up 9 percent from the same period last year to $37.8 billion, according to the most available data from comScore.

 

That’s below the 14 percent growth that the Internet research firm is forecasting for the season.

 

Even though Black Friday holds the title as single busiest shopping day of the holiday season, the week before Christmas is traditionally the busiest week in the most important shopping season of the year. Many retailers depend on November and December to make as much as 40 percent of their annual revenue, the National Retail Federation says. But while 2013 is shaping up to be the largest holiday shopping season on record, retailers are not getting the photo finish they expected.

 

“The numbers are not devastating, but they are a bit alarming,” Martin said.

 

He is not revising his forecast of 2.4 percent overall growth in retail sales for November and December, already the slowest growth since 2009, because it was strong sales in early November that caused the softer late-season sales.

Finally, it appears that the strategy of pulling forward demand to the present through record discounts, and crushing margins in hopes of “making it up in volume” only works for those perpeptual non-cash flow generating juggernauts like Amazon, which on a long enough timeline will do everything (badly), and supposedly put everyone out of business. Just not yet.

Retailers began earlier than ever promoting deep discounts and deals to appeal to frugal consumers. Retail sales in November were up 4.7 percent from 2012, the Commerce Department reported.

 

“November was pretty strong, and that’s going to carry some weight into December,” Martin said. “If December ends up being flat, I expect we’re still going to have a 2.4 percent increase.”

 

There are some strong shopping days left before the end of the month, he said, and retailers will push hard to get shoppers back into their stores post-Christmas to exchange gifts, use gift cards and take advantage of post-holiday promotions. Gift cards are not recorded as sales until they are exchanged for merchandise, and because 80 percent of shoppers plan to buy them this year, bringing total gift card spending to an all-time high of $29.8 billion, they could have a big influence on sales after the Christmas holiday.

 

Final sales figures for the holiday shopping season are expected in January.

We can’t wait. In the meantime, we expect seasonally adjusted government retail sales data to indicate once again, that all is well, and that it is not the ARIMA X 12 seasonal fudge-factor goalseeker that is wrong, but that it is reality which is at fault.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/zNeSKT0_syI/story01.htm Tyler Durden

What time can you go home today? Find out with the schedule of early market closures below:

Floor Trade:

• CME/CBOT – Early Close: Equities – 12:15PM Central; Interest Rates, FX, Commodities – 12:00PM Central
• NYMEX – Early Close: 1:30PM Eastern
• COMEX – Early Close: 11:30AM Central
• NYSE – Early Close: 1:00PM Eastern

 

Electronic Trade:

• CME Globex – Early Close Equities, Interest Rates, FX: 12:15PM Central
• NYMEX – Early Close: 1:45PM Eastern
• NYSE LIFFE – Early Close 7:00AM Eastern
• Eurex – Closed

 

Individual Cash Index:

• FTSE – 7:30AM Eastern
• IBEX 35 – 8:00AM Eastern
• Amsteram Exchange, CAC 40, PSI 20, BEL 30: 8:05AM Eastern  
• (Germany, Italy, Switzerland, Norway and Sweden Closed)

Source: RanSquawk

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