Morning Report: Jobs report disappoints, but don’t discount the Fed 5/9/16

Markets are up small despite some bad data out of China overnight. Bonds and MBS are up small.

Jobs report data dump:

  • Payrolls + 160k
  • Unemployment rate 5%
  • Average hourly earnings + 0.3% MOM / +2.5% YOY
  • Labor force participation rate 62.8%
  • Underemployment rate 9.7%

Overall not a great report. The Labor Force Participation rate fell back, which is bad news for the economy overall. Earnings are up, which is about the only bright spot on the report. Strategists are beginning to worry about a deceleration in the economy, or even a mild recession. Tough to see how the Fed raises rates in June.

The Labor Market Conditions Index improved to -.09 from -2.1 last month. This is a meta-index of several leading and lagging indicators.

Despite the weakness in the economy, Bill Gross and Mohammed El Arian are warning investors not to discount the Fed. Their point: wage growth is the most important part of that jobs report, and they are going up. A June hike is not the most likely outcome, however it shouldn’t be ruled out either.

The Fed wants to see a bit of inflation, but the convoy system in Asia is preventing it. Like the Japanese, China is propping up unprofitable factories, which is contributing to a glut of aluminum, steel, and other industrial goods. We saw this happen in the 1930s, which triggered trade wars and exacerbated a global deflationary vortex. We are seeing a similar thing today, with the backlash against free trade, and nationalistic candidates in Europe and the US.

The biggest internet lender, Lending Club, is down big pre-open after the CEO resigned over a loan sale. Apparently the loan sale didn’t have anything to do with pricing or credit, but it did violate the company’s internal procedures. The company is currently facing trouble funding its loans in the capital markets. The stock is down close to $5 a share after trading at $19.50 just under a year ago.

This year has not been kind to the stocks of non-bank lenders / servicers – Nationstar, Ocwen, Stonegate, Walters all down badly this year.

Wondering how your property taxes compare to others in the country? CoreLogic has worked it out for you.

33 Responses

  1. So if European banks are charging people to deposit funds to stimulate SPENDING, does that work well enough to offset the damage from capital fleeing?

    I do not see how it could out floods of foreign investing in North America.

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  2. “Wondering how your property taxes compare to others in the country? CoreLogic has worked it out for you.”

    Tennessee is below 1% and we have no income tax. Great state!

    Like

  3. Proven oil reserves at current usage level are 65 years worldwide and 10 years, USA alone.
    I am sure proven reserves will increase over time, of course, but they will remain finite.

    I think that perhaps the most compelling pressure for renewable energy is this fact.
    We would like to have plastic goods available, for a very long time. We would like to continue to use petroleum based lubricants for a very long time. We would like to fly airplanes and sail ships without nuclear reactors in them.

    I think this fact of finite resources is so compelling that it makes a better argument for renewables than global warming, or pollution.

    I think this fact of finite resources makes renewables a national security/defense issue.

    Do any of you see it thus?

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    • No, I think the electric car is simply a better mousetrap, and will only get better and cheaper. Internal combustion engines are going to see their share of the transportation market collapse over the next couple decades, IMO. We are the Saudi Arabia of natural gas and that is going to power transportation going forward via CNG for trucks / buses and electricity for cars.

      Until we figure out a way to store electricity on a large scale, caol, nuclear and nat gas will remain the primary ways we generate electricity. But the technology continues to get better and better. Solar roof panels are going to become standard on new houses in certain parts of the country.

      I think this will happen anyway, and getting the government involved will only fuck it up.

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      • Isn’t coal, NG and nuclear fuel nature’s way of storing electricity?

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      • The government can provide incentives that move it forward faster, such as tax incentives (what the left refers to as corporate subsidies) for solar panels or the installation of electric charging stations in parking garages, workplaces, hotels, restaurants, etc. Government can require new housing be built with electric charging ports. These things would speed adoption, although they are not necessary, ultimately, for it to happen.

        When the government gets into playing VC with renewable energy companies, then it will definitely mess things up. Or gets into micromanaging other things . . . yeah, it can mess things up. Or tries to create a price incentive by taxing fuel or otherwise artificially inflating the price of energy. Yup. And, historically, the government tends to want to do the things that will make the biggest mess, because CLIMATE! Or SOCIAL JUSTICE! Or something.

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    • not necessarily. Surely water and air are finite resources, but are they national security/defense issues? I think not, ditto petroleum resources.

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    • MarK;

      Do any of you see it thus?

      I do not. I feel pretty confident in predicting that we will never run out of oil. If/when it gets more expensive than the alternatives, which it must if indeed it becomes more and more scarce, we will stop using it.

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      • I tend to suspect we’ll have more than enough oil until such time as it becomes less necessary to use oil. I.e., solar energy and other alternatives will improve increasingly, as well battery storage, and by the time we are low enough on oil that the cost is crushing, we’ll have plenty of alternatives. Electric cars are in their infancy, and I suspect before we need to stop using oil, everything that matters will be electrically powered . . . meaning that it will be less of an onus to switch to other sources of power, as electric devices are agnostic as to whether or not the energy supplied is from coal or from solar. I’m suspecting we’ll have decent oil alternatives before there’s any serious shortage (that is not manmade or due to natural disaster). Peak oil, like Y2K, is not actually a problem.

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    • I’m dubious of both numbers, and think they will actually stretch out further into the future. That being said, 65 years is probably more than we need for alternatives to become more generally compelling and much easier to access. If most cars aren’t electric in 65 years, I’d be surprised.

      Electricity is the currency of energy. It the not too distant future, anything that needs to be done will be doable with electricity, and anything that can produce electricity can provide the energy.

      This is also a problem that will ultimately solved in the market place. If it becomes more price competitive to move to renewables, it will happen at a faster rate. Necessity is the mother of invention. As it happens, the move towards renewables may seem very slow in our day-to-day lives but is, I think, actually happening very rapidly.

      Also, I don’t think we’re that far away from being able to biologically produce oil in massive quantities, if we wanted to, but that doesn’t mean there aren’t reasons to look for better ways to create and use energy, or better sources of materials to replace petroleum lubricants and plastics, either. All of which are coming, many of them only year away, and much more only decades away.

      Assuming the entire world isn’t blown up and also doesn’t go socialist in the interim.

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  4. Looks like Trump is back on the reservation:

    “But Trump—being Trump—is still peeved about the Times’ reporting. So on Monday morning he went to town on the paper and in the process let loose an interesting comment: “This is the United States government. First of all, you never have to default because you print the money. I hate to tell you. So there’s never a default. But the point is it was reported in the New York Times incorrectly.” ”

    http://www.slate.com/blogs/moneybox/2016/05/09/donald_trump_says_the_u_s_can_t_default_on_its_debt_because_it_prints_money.html

    So debt write down = crazy idea that disqualifies him and threatens the entire world economy.

    Printing money to inflate the debt away = conventional economic wisdom that makes him part of the mainstream consensus.

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    • Given how central bankers have an iron grip on interest rates, it is possible the bond vigilantes wouldn’t even have an effect…

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    • jnc:

      So debt write down = crazy idea that disqualifies him and threatens the entire world economy.

      To me the idea that was crazy was the notion that the ability to write-down debt means that “you can’t lose” by borrowing more and more money.

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      • “Printing money to inflate the debt away = conventional economic wisdom that makes him part of the mainstream consensus.”

        Yes, well, printing money doesn’t sound like a less-crazy idea.

        Also, tangentially, I observed a number of assertions that Donald Trump announced America could just default on its debts, but I don’t think Trump ever suggested that. Because bad is never bad enough, and everything has to be hyperbolically embellished.

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        • “but I don’t think Trump ever suggested that.”

          Correct.

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        • KW:

          Yes, well, printing money doesn’t sound like a less-crazy idea.

          In many circumstances it sounds somewhat less crazy to me. The US has inflated its way out of debt throughout its history, but has never, as far as I know, repudiated its debt or attempted to write it off. One thing that is really weighing on Greece’s ability to recover from its borrowing/spending craze is that, being a part of the Euro, the ability for it to devalue its currency is not open to it.

          BTW, just to be clear, saying that printing money to cause inflation (effectively a devaluation) might be preferable relative to a write-down in some circumstances is not to say that printing money does not have serious negative repercussions. It is just a relative judgment.

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      • “To me the idea that was crazy was the notion that the ability to write-down debt means that “you can’t lose” by borrowing more and more money.”

        Welcome to MMT.

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        • I’m glad you know what it is, because I can’t make head nor tails of it. The Wikipedia article mostly made my head hurt.

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        • The bottom line for MMT is an argument that deficits never matter because the government controls the money supply so the first and only goal of fiscal & monetary policy is to generate enough demand to provide for full employment.

          MMT’ers will get into a lot of mumbo jumbo about how everyone else doesn’t understand what money is because with fiat currency, i.e. money’s value comes solely from being able to fulfill a tax obligation to the government.

          Krugman actually does a good job of demonstrating that their “central insight” is just an accounting tautology.

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    • I think it is funny how a gazillion leftists have written the exact same article and each one fancies themselves as having an original thought…

      Does the left simply not realize that charges of racism are now so boilerplate that they lost their effect?

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      • It’s supply and demand. They are supplying the same material to the same people (i.e., preaching to the choir), because there are enough people who need the tribal reinforcement of the Evil Other for their psychological comfort. It’s like liberal comfort food (there are certain equivalents on the right; talk radio tends to be repetitive in its condemnation of liberals and assertions that they want to destroy America or some variation). Even in the most reasonable conservative or liberal analysis, the observations tend to be repetitive. Ideological opinions are well-trod ground.

        The idea that every conservative is a racist want-to-be-Nazi and that ever liberal hates America reinforce a simplistic world view far too pat to be accurate, but the choir consumes it greedily.

        Eugene Mirman tweeted, and posted on Facebook, this:

        “Regardless of who you support this coming November — please try to be condescending and assume the worst of everyone you disagree with.”

        And got responses on Facebook about how he was a corporate shill and a crypto-supporter of racists and misogynists and how they had a right to be condescending and assume the worst of everyone you disagree with because it was obviously true and SOCIAL JUSTICE! And how he was part of the conspiracy, and so on.

        I think the shorter answer is that people are idiots. 😉

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        • I think the answer is two fold, first, it’s virtue signalling, second, there is fear that African Americans might not vote for Hillary in the numbers that are required to ensure victory, hence the need to remind them that Trump is the Klan.

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      • What kind of nefarious racist trick are whites up to now? Obama’s the first POTUS since JFK not to have Impeachment charges filed against him in the house.

        http://www.theatlantic.com/politics/archive/2016/05/racism-commentary-obama-trump/481329/

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  5. Speaking of oil………..there are a lot of untapped resources here in the old USA still that aren’t being brought up because the price per barrel makes it prohibitive. Lots of natural gas is still being “mined” though.

    The technology is just waiting for the opportunity as far as oil goes though.

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    • lms:

      there are a lot of untapped resources here in the old USA still that aren’t being brought up because the price per barrel makes it prohibitive.

      Another indication that there is no need to make a political issue out of finding alternatives.

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      • And the search for alternatives is ongoing. The oft-vilified market is taking care of that, there is just a quasi-Utopian belief that with the right (or, I should say, “left”) political leadership in Washington, it can be implemented by fiat in a year or so. 😉

        Solar panel price and efficiency is improving. Other alternatives are being developed privately. Energy consumption will likely be at the level it was in 1960 in a few years (in America, anyway, and peaked in 1978):

        https://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&met_y=eg_use_pcap_kg_oe&idim=country:USA:CHN:RUS&hl=en&dl=en

        Most of the reason for this is technological innovation and reduction of waste. Our population was 180 million in 1960 and is 322 million now, or more than double, yet our energy usage is only 19% higher. And we may well end up matching that 1960 level of energy consumption by the time our population crests 400 million, or sooner. In any case, a decade from now that 19% figure will be lower, not higher.

        But going back to lmsinca’s comments, I understand there’s a lot of natural gas and oil that is, by law, off limits to us. I can’t imagine the oil is figured in Mark’s quoted 10 year figure. I would expect we’d have much more oil, assuming it was cost competitive and legal to access it.

        There also remains a possibility of unexpected technological innovations radically increasing energy efficiency or radically increasing solar panel or wind efficiency, or even radically increasing the energy efficiency of gas or oil or coal. Consumption of fossil fuels would be less of an issue if we could get the same energy benefit using 80% or 70% of the same fuel sources as we do now. All this can and will happen without government intervention. There is always a market for cheaper or cleaner energy.

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        • I agree on all of this KW, but I also think that alternative energy is a security and defense issue. Apparently, from what I have read since I started this sub thread, so does DoD.

          The estimates I threw out are soft and based on 90% certainty of reserve. There are other measures that take in 50% certainty of reserve and 10% certainty of reserve.

          Liked by 1 person

        • The DoD thinks AGW is a national security issue, not sure their judgement is completely sound here.

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        • “I agree on all of this KW, but I also think that alternative energy is a security and defense issue.”

          Well, it would be good to be poised to easily access our own oil and natural gas, if necessary . . . I’d love to at least have the potential to cut off OPEC. Alas, I don’t expect that to happen.

          The DoD thinks everything is a defense issue. You would too, if you got that much money!

          Like

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