Morning Report – Is China setting up for a 1929 moment? 3/5/15

Stocks are higher this morning after the ECB committed to buy 60 billion euros worth of bonds starting Monday. Bonds and MBS are up small.

Nonfarm productivity fell 2.2% in the fourth quarter, as output increased 2.6% and hours worked increased 4.9%. On a year-over-year basis, it fell .1%. Lower productivity means that wage inflation will become inflationary sooner than it otherwise would. Not sure what is driving the decline.

Unit labor costs rose 4.1%, which was a function of a 1.9% increase in compensation and a 2.2% decline in productivity. Unit Labor Costs are up 2.6% over the last year.

Initial Jobless Claims rose to 320k, and the Bloomberg Consumer Comfort Index rose to 43.5.

Is China setting up for a 1929 moment? Certainly the backdrop is there. This seems to be par for the course, as countries that go through a long secular growth spurt end up having bubbles. It happened to the US in 1929, it happened to Japan in 1989, and it has happened to China. Their government wants to deflate the bubble, as all governments who face this do, however that is easier said than done. The fallout will be felt in the luxury real estate markets in the US and Canada. Think the Bay Area, San Diego, Washington DC, NYC, Vancouver, Seattle. Do the Chinese banks puke Treasuries or do they buy them as a flight to safety? That is the most interesting question.

27 Responses

  1. First!

    jnc and NoVA–are you getting this snow as well?

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  2. None yet. Just rain so far.

    Forecast is for it to switch over later.

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  3. It’s a genuine blizzard at times here–be careful when it switches over!

    @kevinwillis1: how ’bout you? I heard on the radio that someplace in KY got 16″

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  4. Brent – The left’s new logic. Paying shareholders dividends is the equivalent of the mob skimming casino profits.

    http://www.washingtonpost.com/opinions/the-big-skim-for-shareholders/2015/03/04/91d50920-c271-11e4-9271-610273846239_story.html?hpid=z3

    It’s always worth remembering that the left truly sees capitalism as fundamentally illegitimate.

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    • jnc:

      It’s always worth remembering that the left truly sees capitalism as fundamentally illegitimate.

      Another indication that the left is ideologically inclined to oppose to freedom.

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  5. Because it lacks central command and control. Central authority, duly elected or not, is the only legitimate entity. Capitalism does not support command and control, it’s the opposite.

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  6. Meyerson is a twit. Does he think corporations have some sort of social responsibility to invest in capital expenditures even if the return is not there?

    It never occurs to him that there is a downside to excess capital expenditures…

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    • Brent:

      It never occurs to him that there is a downside to excess capital expenditures…

      Plus he seems to think that dividend payouts end up getting buried in the back yard or simply disappearing into the ether. He quotes the study:

      “Finance,” Mason continues, “is no longer an instrument for getting money into productive businesses, but instead for getting money out of them.”

      The assumption, apparently, is that money that is paid out as dividends somehow gets removed from “productive business” and, implicitly, the economy entirely.

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    • BTW, on this:

      Does he think corporations have some sort of social responsibility to invest in capital expenditures even if the return is not there?

      Yes, I suspect that is exactly what he thinks.

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  7. It’s always worth remembering that the left truly sees capitalism as fundamentally illegitimate.

    Meh. You’re just channeling your inner Aletheia there.

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  8. The assumption, apparently, is that money that is paid out as dividends somehow gets removed from “productive business” and, implicitly, the economy entirely.

    If the company cannot come up with an investment that exceeds the company’s cost of capital, they have a fiduciary duty to distribute it to shareholders, who will find a better use of that capital.

    That is what makes capitalism work – capital finding its highest and best use.

    The responsible thing IS to distribute the capital to someone who can deploy it more efficiently.

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  9. @kjmmurphy: 3″ snow over inch of ice, plenty of drifts up to 6″ or 9″. Everybody’s home and we did some sledding, but attempts to build a snowman were nonconclusive.

    Having a steep hill I’m the backyard is definitely a positive when it snows!

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  10. Glad you’re all having a good snow day! I imagine it doesn’t happen any too often in your neck of the woods.

    We’re up to about 5″ here and it’s still coming down like gangbusters.

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  11. It doesn’t happen here much, and recently we’ve been more prone to ice and sleet than snow . . . and this started with sleet, and a lot of it, so there’s an inch of ice under the snow. A couple of weeks ago we got a few days off for sleet and ice, but no snow.

    It’s an interesting cycle. I remember a couple of doozy snow storms from when I was a kid, then for about 20 years it was more sporadic (and rarely got as cold as it did when I was in junior high). But recently we’ve been getting single digit weather like when I was a kid, but more ice and freezing rain than snow. Still, nothing has yet compared to the surprise March snowstorm from about ’82,’83 where we got 14 inches of snow. Had snow drifts up to 9′ in some places. Have had a few serious snow storms since that, but nothing to that level. Since we seem to be in a greater cooling cycle, I thought we might get one this year, but this is pretty tame by comparison. We usually get a snow like this every few years. Glad we haven’t had an ice storm like in 1993 recently. It was just a day worth of torrential freezing rain, and everything was covered in ice. The ice worked its way into all sorts of transformers, and hundreds of thousands of people lost power. All sorts of tree branches falling everywhere. It was a mess!

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  12. @kjmmurphy: “It’s always worth remembering that the left truly sees capitalism as fundamentally illegitimate.
    Meh. You’re just channeling your inner Aletheia there.”

    Yah. First, the moderate left clearly embraces much of capitalism both for their own compensation and as a source of revenue to fund the higher calling of government action. Obviously, they believe unconstrained capitalism as an evil, but even many on the right don’t believe in unconstrained capitalism, such as, say, selling heroin to minors or that businesses have a right to get into the business of selling, say, child pornography no matter how much profit there might be in it.

    The ultra-far-left is essentially Marxist and those folks truly see capitalism as illegitimate. Aletheia being an excellent example. I’m amazed by some of the stuff that person posts. Communism has never been tried? Even if you accept that the Soviet Union was state sponsored capitalism, which is a stretch, and kind of ignores that any time pure Communism is tried, there are mechanics to implementing it that would involve it looking very much like any command economy. But Communism has been tried routinely in microcosm, the collectives and communes, and has never been a rousing success.

    But the whole, obvious evidence that such a system would ultimately fail is the clearly very large number of people that don’t want to participate. And it ain’t just rich people.

    And on and on. But you can’t argue, I don’t think, that everybody on the left despises capitalism. The Clinton’s, for example, embrace capitalism wholeheartedly. As does, say, the fairly liberal Warren Buffet. As do the Obamas, actually, at least in their own lives. 😉

    There is just a general disagreement where and how much the government should be involved in taxing and regulating.

    The idea of getting rid of currency is insane. It’s like arguing that we get rid of language because talking can cause arguments.

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    • KW:

      But you can’t argue, I don’t think, that everybody on the left despises capitalism.

      I’m not sure who was arguing that. Certainly that’s not what I took from jnc’s comment.

      But I do think there is a basic difference between tolerating something because it sometimes produces desirable results despite its general odiousness, and embracing something because it is recognized as a fundamental good despite the fact that it occasionally produces undesirable results. And I think that, with regard to capitalism, ideologically the progressive left is much closer to the former than the latter.

      Also, the fact that certain people on the left have personally (and happily) profited greatly from a capitalist economy is no indication of whether or not the ideological left in general embraces capitalism.

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  13. “Michigoose, on March 5, 2015 at 11:10 am said:

    It’s always worth remembering that the left truly sees capitalism as fundamentally illegitimate.

    Meh. You’re just channeling your inner Aletheia there.”

    No, I’m taking Meyerson at his word. He’s not a trivial figure on the left.

    http://prospect.org/authors/harold-meyerson

    “Brent Nyitray, on March 5, 2015 at 10:43 am said:

    Meyerson is a twit. Does he think corporations have some sort of social responsibility to invest in capital expenditures even if the return is not there?”

    What I found most twittish about his argument was the surprising embrace of corporate middle management as the ideal decision makers for companies:

    “In the decades following World War II, the disposition of funds within corporations was the prerogative of the managers. Their investments, chiefly from retained earnings, led to a generation of high productivity growth accompanied by steadily rising worker incomes, thanks to substantial unionization. In the 1980s, however, the managerially controlled firm was challenged by corporate raiders who sought to create leaner firms with lower wages in order to return more money to shareholders. “

    Yes, the 1970’s was a golden era for American business.

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  14. @scottc1: “I blame global warming.”

    Old man, get with the times. It’s “climate change”. Global warming is now an obvious misnomer only applied by conservative cranks who hate science.

    I actually credit macro seasons, as I suspect our climate has now and has always exhibited seasons, macro seasons, and macro-macro seasons, in addition to a constant thrust of minute climate changes over millennia that keep one ice age from being the same as the previous one. And we get overlap, so when you reach a place in a, say, 30 year cycle, you aren’t in the same place in the large 250 year cycle. This gives us a lot of great weather variation, but I think “climate change” is a misnomer.

    It’s macro seasonal change, and we get into warming and cooling trends in those, just as we do between summer and winter on a yearly basis.

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  15. FYI – Looks like I was wrong on the whole BVI thing for Clinton’s E-mail. That’s just for the Http web site place holder and it’s from a bulk provider called Confluence networks.

    The mail server was apparently hosted at her house in New York.

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    • Nuts – I repeated that misinformation widely and now must track it down, JNC. I rely on your links for accuracy, man!

      In my reorganization of corporate taxation I do away with the double tax by the simple expedient of making dividends deductible to the corp and taxable to the individual.

      Call me “pro-dividend” Mr. Mayerson.

      Addendum – Mr. Mayerson, my plan should increase the income of pension plans! Do you hate old people?

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  16. Heh.

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  17. It’s factually accurate but wasn’t as relevant as I thought it was. I was focused on the wrong server, which was the regular old web one for http traffic.

    PL Poster actually did some better digging than I did:

    “CatNado
    3:11 PM EST
    Within the instant classic “ClintonEmail.com” domain, it appears there are three separate servers. The domain’s blank landing page is hosted by Confluence Networks known for monetizing expired domain names and spam.

    CatNado
    3:13 PM EST [Edited]
    The real worry comes from two other public-facing ClintonEmail.com subdomains, which can allow anyone with the right URL to try to sign in.

    One is sslvpn.clintonemail.com, anyone in the world with that URL can attempt to log in possibly you could log into anything tied to the Secretary of State’s email server”

    http://www.washingtonpost.com/blogs/plum-line/wp/2015/03/05/six-questions-hillary-clinton-must-answer-about-her-email/

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  18. She figured that the media would be so invested in the prospect of the first female president that she can get away with murder. She is probably correct in that assessment.

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  19. “markinaustin, on March 5, 2015 at 6:39 pm said:

    So stupid/arrogant still fits?”

    Arrogant yes. Stupid only fits if she pays a price for it. This wasn’t a blunder made out of ignorance of either technology or the law.

    It was an intentional trade off of taking the heat for lack of transparency and lack of ethics in exchange for maintaining control over what E-mails are turned over at any given time.

    My mistake was just getting the physical hosting location wrong (which isn’t trivial). AP determined that the E-mail server was hosted in her house in New York.

    Like

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