Morning Report: Brazil downgraded to junk 9/10/15

Stocks are lower this morning as emerging markets fall. Bonds and MBS are flat. Overnight, China intervened in the f/x markets to support the yuan. China’s surprise devaluation in August was the catalyst for this whole sell-off.

Remember, when you read the words “Chinese supporting the yuan” think one thing: Treasury sales and increasing interest rate. The Chinese support the yuan by selling dollars, and the way they sell dollars is by selling Treasuries.

Brazil was downgraded to junk by S&P yesterday. This is part of the reason why emerging markets are heavy this morning. This move was expected eventually, however the speed in which it happened was surprising. Does this put a bid under Treasuries? Nope.

Import prices fell 1.8% in August and are down 11.4% year over year. A strong dollar is depressing commodity prices and making imports more cost competitive.

Initial Jobless Claims came in at 275k, a drop from 281k the week before. People who have jobs are generally keeping them.

The Bloomberg Consumer Comfort Index was flat at 41.4 last week. 2/3 have a negative view of the economy. while 55% have a positive view of their own personal financial situation.

Wholesale inventories fell 0.1% in July, while wholesale sales fell 0.3%. The inventory to sales ratio, which can be considered a leading indicator for a recession is at 1.3x, an elevated reading. This would signal a recession is a possibility.

The current continuing resolution to keep the government open expires at the end of the month. Government shutdown talk will undoubtedly escalate as the two sides posture over funding Planned Parenthood.

To its proponents, Keynsianism cannot fail, it can only be failed. Dr. Cowbell is worried that Abenomics will fail in Japan. Of course Japan has followed the Keynsian playbook to the letter for 25 years and has had no growth and a debt to gdp ratio of 2.2x to show for it. Whenever you hear people saying: we need to spend big on infrastructure to put people to work and get the economy going again, remember they are basically putting the old New Deal / Japanese wine in a new bottle.

35 Responses

  1. Brazil is the next great economic powerhouse. And always will be.

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  2. The Detroit Lions are going to surprise a lot of people this year..

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    • Brent:

      The Detroit Lions are going to surprise a lot of people this year.

      So does that mean I should pick them over the Chargers this week? Filling out my picks right now.

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      • Today’s question for our leftist brethren at ATiM:

        Is it possible for the Supreme Court to act contrary to the rule of law and, if so, how would you recognize an instance of it?

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  3. @Scott, was more of a response to Yello’s comment about Brazil. Regarding this weekend, I would take the over. Detroit’s D is suspect without Suh and Fairley and Levy out.

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  4. Breaking… US to accept 10,000 Syrian refugees. that’s gonna go over well…

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  5. you might be excused for thinking obama cares more about the welfare of the middle east than he does about the welfare of the united states…

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  6. Someone should check the backlog of the Afghan & Iraqi translators who worked for the US who still can’t get into the US Military and still can’t get into the US.

    http://www.washingtontimes.com/news/2014/dec/8/visas-set-for-4000-afghan-interpreters-who-helped-/?page=all

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  7. Brent, I suspect that this could also become fodder for a rider on the appropriation bills to block Obama’s ability to authorize the 10,000.

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  8. Someone should check the backlog of the Afghan & Iraqi translators who worked for the US who still can’t get into the US Military and still can’t get into the US.

    Pains me to say it but they chose the wrong side.

    When was the last time it was beneficial to ally with the US? WWII?

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  9. Brent, I doubt Keynes would have followed what the neo-Keynesians are doing. He understood perfectly well that pump priming only works to start the pump. Doing it while the pump is running in the mechanical world will ruin the pump, and in the real world its analog used to devalue money, but now has no discernible short term effect, thanks to everyone trusting unlimited fiat money rather than panicking. I guess he would have predicted asset bubbles, though.

    In short, I do not believe JMK would have thought that in a time of huge structural deficits that additional deficit financing would lead to growth of the economy. That would not be consistent with what little I recall of his theory.

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  10. “”I mean, if there’s 10 people that have been accused and under a reasonable likelihood standard maybe one or two did it, seems better to get rid of all 10 people,” Polis said. “We’re not talking about depriving them of life or liberty, we’re talking about their transfer to another university.”

    Jared Polis (D) CO…

    I’m sorry, the left is going batshit crazy at this point… I agree with Scott – we are going to separate as a country at some point.

    http://www.washingtonexaminer.com/campus-sexual-assault-hearing-applauds-witch-hunt-mentality/article/2571784

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    • Brent:

      I’m sorry, the left is going batshit crazy at this point… I agree with Scott – we are going to separate as a country at some point.

      The glue necessary to bind a nation together – common culture, political values, etc – are increasingly non-existent. The surface level commonality that both left and right profess – valuing things like freedom, rule of law, the constitution, etc. – is really just a fraud. Each side understands those common words they use to mean totally different things. In reality they are, in many ways, diametrically opposed to each other.

      I also think that SCOTUS’ increasingly obvious contempt for the limits of its constitutional role is going to accelerate things. The left can cheer its court-imposed cultural victories, but all those victories really do is produce less and less respect for the law in the eyes of those that have, for all practical purposes, been disenfranchised by them. What good is the right to vote for a legislature if this life-appointed super-legislature gets to arbitrarily change, eliminate, or create new laws at will? And why should we ordinary citizens respect the law when SCOTUS itself so clearly does not?

      I have heard it said that the wealthy should support a robust welfare state if only to protect themselves from a revolt by the poor who have nothing left to lose. A similar thing might be said of the left with regard to supporting true constitutional rule.

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  11. “The glue necessary to bind a nation together – common culture, political values, etc – are increasingly non-existent. ”

    The bigger glue that’s falling apart is the idea that democratic legitimacy involves people who don’t agree with you getting a vote too.

    Now it’s always an appeal to the courts when you can’t get a majority to agree with you.

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    • jnc:

      The bigger glue that’s falling apart is the idea that democratic legitimacy involves people who don’t agree with you getting a vote too.

      Yeah, that’s sort of what I meant by political values. The left has decided that the democratic process is far less important than getting results, and because of its overwhelming success in getting results via the non-democratic court system, they have become enamored with it. No need to expend the effort to convince people you are right when it is easier to simply force them to comply regardless of what they think. It is hardly a new insight, but liberals are extremely illiberal these days.

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  12. They might vote for the wrong thing.

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  13. If only they were easier to spot… Like, if they wore something that would identify them as Jewish.

    Or gay.

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  14. personally, i find it’s getting harder not to be angry all the time. i might need to step back for a bit.

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  15. Mencken comes to mind,

    Democracy is the theory that the common people know what they want, and deserve to get it good and hard.

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  16. “personally, i find it’s getting harder not to be angry all the time. i might need to step back for a bit.”

    Always good to take a look at what’s good in your own life (I start with things like y car is just working, I’ve got air condition in my home AND where I work, and so on). We spend a lot of time picking at the negatives and ignoring the positives of life, but most of us have incredibly wonderful lives (especially in the 1st world) but we take for granted what we got in our lives (streaming movies! the Internet! iPhones! X-Box! Air conditioning! Antibiotics!) and instead focus on minor negatives (most people are stupid, most people who opine on politics or are supposed to report on it are douche bags) … which is ultimately a choice we’re making, not something we have to do.

    And even in politics. One can worry about Obama. Or the betrayal of John Roberts. Or Ginsberg. But I’m still grateful we’ve got a SCOTUS with Clarence Thomas. That’s a frickin’ miracle in this day and age (and, alas, I don’t think it will ever happen again . . . he will be the last of the rock-ribbed conservatives to sit on the bench).

    Still, I’m sitting in a nice chair and my job is pushing data around, which I always found interesting. It’s a good time to be alive! Happiness!

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  17. “novahockey, on September 11, 2015 at 8:24 am said:

    personally, i find it’s getting harder not to be angry all the time. i might need to step back for a bit.”

    That’s a direct result of the quality of liberal/progressive on Plum Line. Interacting there for several years now has certainly increased my contempt for them, and also degraded the quality of my own commentary.

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  18. Krugman’s got a fever, and the only prescription, is more cowbell!

    “Japan’s Economy, Crippled by Caution
    SEPT. 11, 2015”

    http://www.nytimes.com/2015/09/11/opinion/paul-krugman-japans-economy-crippled-by-caution.html?ref=opinion

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  19. That’s a direct result of the quality of liberal/progressive on Plum Line. Interacting there for several years now has certainly increased my contempt for them, and also degraded the quality of my own commentary.

    which is why i spend less and less time there..

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  20. What is the continued draw at PL?

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  21. missionary work. convert the heathens. or gather intelligence on the opposition. it is the progressive id on display.

    “Interacting there for several years now has certainly increased my contempt for them”

    This has to be it . It’s not much fun anymore.

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  22. The odd thing is how angry progressives still are after eight years of having their guy in office, but I suspect a lot of that is due to semi-effective gridlock.

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  23. I think Progressivism is at its heart about trying to change and control people, which is pretty much impossible even if you have the weight of the state on your side. It has to be frustrating to see the rubes refuse to accept their (to them) obviously superior viewpoints. Politics is a sales business first and foremost, and the progressive MO is to ridicule and shame your customers into compliance, which is about the most ineffective sales tactic there is. The natural reaction to someone like that is fuck you.

    The other thing progressivism requires is for people to have faith in the state – that it operates in good faith, and is trying to do good. I think the left was hoping for Camelot II. Unfortunately, faith in government continues to fall, which prevents people from wanting to give the government more power and resources.

    So, while the left has been able to institute a few things by brute force (obamacare, gay marriage, etc) they haven’t been able to make the sale that they have the right ideas and that must infuriate them.

    Unfortunately the lesson seems to be that if we just got rid of the Koch Brothers then people will see the light.

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  24. Unfortunately the lesson seems to be that if we just got rid of the Koch Brothers then people will see the light.

    Oh, it would take a lot more than just getting rid of them. . .

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  25. Observation on the economy and Fed rate raising:

    I got a quote on replacing my HVAC unit today and the quote came with a prequalified offer for 3 year financing at 0 percent from Wells Fargo which I ended up declining in favor of a flat discount for paying with cash up front. The HVAC guy did note though that the 0 percent financing is often the tipping point when they are closing the sale.

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  26. what was the discount? would be interesting to derive the implied interest rate on the loan..

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  27. Hard to pass up interest free money, I’ll say that.

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