Morning Report: Personal Spending / Incomes rise 8/3/15

Markets are lower this morning after Chinese and Greek stocks fell overnight. Bonds and MBS are down small.
Personal Incomes rose 0.4% in June, beating the 0.3% street forecast. Personal spending rose 0.2%, in line with estimates. May’s blockbuster 0.9% increase was revised downward to 0.7%. The PCE Deflator (the inflation measure preferred by the Fed) rose 1.3%, still well below their 2% target rate.
Auto sales will be coming in drip-by-drip during the day. Ford reported 5% increase in light vehicle sales, better than the 1.8% estimate. Auto sales have been doing well as of late as the average age of a car on the road in the US has hit 11.4 years, which is a record. The next big “tell” on spending will be the back-to-school shopping season, which is right around the corner.
Obama is set to unveil new emissions limits for utilities today. Supposedly they go farther than earlier proposals. Will undoubtedly raise prices and slow the migration of manufacturing back to the US. Note industry and states aren’t taking this lying down. Cheap energy is the US offset to cheap labor overseas. Note that coal miner Alpha Natural Resources filed for Ch. 11 bankruptcy this morning..
The ISM July Manufacturing Index fell to 52.7 in July. Production-related indicators rose, however employment and exports fell.
Construction spending rose 0.1% in June, much lower than expectations, however May was revised upward from 0.8% to 1.8%. Residential construction is up 0.4% month-over-month and 13% year-over-year.
We will get the all-important jobs report on Friday. The Fed will get one more jobs report before the September FOMC meeting. The Street has handicapped the chance of a hike as a coin toss. The stock market remains sanguine about rate hikes – the VIX (a measure of fear in the marketplace) is bouncing along the bottom. There is an old market saw: “VIX is high, time to buy. VIX is low, time to go.” There is a lot of complacency with stocks right now. Below is a chart of the VIX over time. It hit 80 during the financial crisis. Given the short shelf life of traders (by the time you are 40, you are a senior citizen), there is an entire generation of traders who have never been through a tightening cycle. This could get interesting.

20 Responses

  1. Worth a note:

    “Hillary Helps a Bank—and Then It Funnels Millions to the Clintons

    The Wall Street Journal’s eyebrow-raising story of how the presidential candidate and her husband accepted cash from UBS without any regard for the appearance of impropriety that it created.

    Conor Friedersdorf
    Jul 31, 2015”

    http://www.theatlantic.com/politics/archive/2015/07/hillary-helps-a-bankand-then-it-pays-bill-15-million-in-speaking-fees/400067/

    Like

  2. @McWing: Well, at least he’s trying! Sheesh!

    And if those people with their petty resentments about low-skilled people with no experience in the industry arbitrarily making just as much as they do . . . those people are the problem! If people would just work as hard as they can no matter how much they got compensated, and no matter how much other people got compensated (or actually worked) . . . we could finally have a pure socialist utopia!

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  3. Can’t have the wrong people benefit:

    “As New York Rents Soar, Public Housing Becomes Lifelong Refuge

    By MIREYA NAVARRO
    AUG. 3, 2015”

    http://www.nytimes.com/2015/08/04/nyregion/as-new-york-rents-soar-public-housing-becomes-lifelong-refuge.html

    Like

  4. “And if those people with their petty resentments about low-skilled people with no experience in the industry arbitrarily making just as much as they do ”

    With all the additional aggregate demand that was generated how could there be any problems?

    Like

  5. Saw this at Stormfront, et, DailyKos.


    * [new] So who does this guy represent? (2+ / 0-)
    War-Mongering Likudnik assholes, or New York State?

    If Israeli warheads want a war with Iran, they can leave us out of it. Big talk, lotsa “Hey, let’s you and them FIGHT!”

    Somebody needs to remind this asshole how many New Yorkers lost their lives and limbs fighting on behalf of NeoCon assholes who are mostly Israeli operatives/lobbyists/agents masquerading as Americans while working on behalf of Bibi and the Thugs…

    “Ronald Reagan is DEAD! His policies live on but we’re doing something about THAT!”

    by leftykook on Mon Aug 03, 2015 at 08:48:15 AM PDT

    http://www.dailykos.com/story/2015/08/03/1408376/-All-eyes-on-Chuck-Schumer-on-Iran-deal#comments

    Like

  6. “With all the additional aggregate demand that was generated how could there be any problems?”

    The most specious economic argument out of the left.. Let’s take from people who don’t vote for us (cause they don’t spend it, and our economy is 70% consumption) and give it to people who will (cause they will spend it).

    The left imagines the formula for GDP is consumption plus government spending. Investment doesn’t count, apparently..

    Hell, make the minimum wage a million bucks, and we’ll have aggregate demand coming out our ears..

    Like

  7. “Investment doesn’t count, apparently..”

    Neither does the loss of consumption from taxes.

    Like

  8. Hard to balance those quotas just right:

    “The Virginia Democratic Party said Republicans’ rejection of the female justice in favor of Alston, who is African American, is part of a pattern of “outside the mainstream” behavior.”

    https://www.washingtonpost.com/local/virginia-politics/va-republicans-to-fire-mcauliffes-supreme-court-pick-install-their-own/2015/08/03/507ff4f2-39e6-11e5-b3ac-8a79bc44e5e2_story.html?tid=trending_strip_5

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  9. How many re-writes did that quote take?

    Like

  10. @Brent: “Hell, make the minimum wage a million bucks, and we’ll have aggregate demand coming out our ears..”

    Well, that’s just crazy. But $15 an hour is totally doable and would help everybody and would have no effect on the behavior of employers or consumers, because . . . magic!

    Like

  11. It’s hard to argue with people who wrap themselves up in MMT.

    Like

  12. @jnc4p: “With all the additional aggregate demand that was generated how could there be any problems?”

    Republicans will steal all the aggregate demand with their greed and avarice. If you really looked into this—I mean, *really* looked into it—you would find disgruntled Republicans intentionally sabotaging this man’s company to prevent the public from learning how swell socialism works.

    Like

  13. “But $15 an hour is totally doable and would help everybody and would have no effect on the behavior of employers or consumers, because . . . magic!”

    Unless you are in Puerto Rico apparently. There the laws of supply and demand apply:

    “Is Puerto Rico’s status as part of the U.S. all good? A recent report commissioned by the commonwealth’s government argues that its economy is hurt by sharing the U.S. minimum wage, which raises costs, and also by federal benefits that encourage adults to drop out of the work force. In principle these complaints could be right. In particular, even economists who support a higher U.S. minimum wage, myself included, generally agree that it could be a problem if set too high relative to productivity — and Puerto Rican productivity is far below mainland levels.”

    http://www.nytimes.com/2015/08/03/opinion/paul-krugman-americas-un-greek-tragedies-in-puerto-rico-and-appalachia.html?ref=opinion

    Like

  14. Weather *is* climate.

    Like

    • jnc:

      You should be pleased:

      http://www.wsj.com/articles/tom-hayes-convicted-of-libor-rigging-1438610483

      Former bank trader Tom Hayes was sentenced to 14 years in prison on Monday after a London jury convicted him of trying to fraudulently rig the London interbank offered rate, or Libor.

      The unanimous jury verdict, followed about an hour later by the judge’s 14-year prison sentence, delivers one of the harshest penalties meted out against a banker since the financial crisis. While several big banks have pleaded guilty to manipulating Libor, it was the first criminal conviction of an individual for rigging the widely used benchmark.

      I thought this line was interesting.

      But the 12-person jury, after deliberating for just more than a week, dismissed those arguments and convicted him on all eight counts of conspiring to defraud.

      Apparently, exactly who he was conspiring to defraud is unclear.

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  15. No it’s not. It would be the people who would have benefited from a slightly lower or higher LIBOR rate at the time of the rate fixing.

    The fact that the harm is diffuse doesn’t mean that it didn’t occur.

    The defense I would have mounted was that LIBOR fixing was part of the government policy to make the banks look better and done at the direction of his superiors. I believe he tried some of it, but I suspect various gloating E-mails and other messages did him in.

    Like

    • jnc:

      No it’s not.

      Sure it is. If no one knows who exactly was defrauded (and I have searched news reports in vain for an actual, identified victim) then, pretty much by definition it is unclear.

      It would be the people who would have benefited from a slightly lower or higher LIBOR rate at the time of the rate fixing.

      Who are those people, exactly, and why didn’t they make an appearance at the trial?

      The fact that the harm is diffuse doesn’t mean that it didn’t occur.

      True, but the fact that harm must have occurred doesn’t mean it is clear who it occurred to.

      BTW, I have also searched in vain for any analysis on the actual effect that any attempted manipulation had on a given day or days, and hence the gain realized by the manipulators and the cost to victims. Most of the evidence indicating manipulation has come in the form of e-mails and phone calls requesting that those responsible for libor submissions submit a “high” or “low” rate on given days, not actual, hard data. I haven’t been able to find anything about where that day’s setting would/should have been in the absence of the request, and hence how much was gained/loss because of it. My own fairly limited analysis from a few years ago did not show any obviously successful manipulation, but I was focused strictly on $ libor and Hayes was apparently attempting to manipulate yen libor.

      Personally, I am in this guy’s camp:

      In a way it’s a shame that the Libor settlements are mostly about collecting and typesetting embarrassing instant messages. The interesting question in Libor manipulation is whether it caused a net harm: Did Bank X push Libor up while Bank Y pushed it down in ways that mostly reflected and equilibrated underlying interest-rate market dynamics? Or did the banks mostly work together in a way that systematically enriched them as a group at the expense of their clients as a group?

      This seems like a very hard question, but also one that is of curiously little interest to the regulators. Among those regulators, the U.K. FCA has the most detailed mechanism for determining penalties; it is explicitly supposed to consider “the amount of benefit gained or loss avoided.” It completely shrugged off that determination for Deutsche Bank…Isn’t that question — for Deutsche Bank, and for the Libor-manipulating banks as a whole — the important one? Shouldn’t the Libor manipulating banks be assessed on the economic impact of their manipulation, and not just on who had the most bad quotes?

      Unfortunately there seems to be precious little investigation into this seemingly (to me) important issue.

      The defense I would have mounted was that LIBOR fixing was part of the government policy to make the banks look better and done at the direction of his superiors.

      The government approval defense would only have made sense during a limited period at the height of the 2008 crisis. Prior to then, remember, the attempted manipulation was of an entirely different kind for an entirely different purpose, and I think you would be hard pressed to make a real case that the government had given its tacit approval. And I am pretty sure that Hayes’ conviction is related to the time prior to (at UBS) and well after (at Citi) the actual crisis time.

      Like

  16. Here’s a potential group Scott, anyone who had a rate reset on the day of the alleged manipulation that was based on LIBOR.

    “Who are those people, exactly, and why didn’t they make an appearance at the trial?”

    Because it’s not a civil case?

    Like

    • jnc:

      Here’s a potential group Scott, anyone who had a rate reset on the day of the alleged manipulation that was based on LIBOR.

      Well, only half of them, while the other half (ie those with the same direction as the manipulators) will have actually benefited from the manipulation.

      Because it’s not a civil case?

      I’m no criminal trial expert, but I would imagine that victims at least get a mention, if not an actual appearance, at criminal trials. Especially sympathetic victims.

      And speaking of civil trials, that will be the most interesting to watch, and which will really need to identify an actual harm. I am not aware of any such suits that have been successful so far, suggesting that identifying an actual harm is not an easy thing to do.

      Like

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