JOLTED Optimism

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

The latest updates for the JOLTS showed that job openings in April surged to a new series high. Jumping by 267k (seasonally adjusted), the trend in job openings is being used as confirmation that there must be some robust underlying trend in overall payrolls despite the ubiquitous slump everywhere else. In other words, this is another series from the BLS that appears to be confirming the Establishment Survey’s view on the economic pickup.

“This is more confirmation that the economy is indeed emerging from that soft patch in the first quarter and can still pick up even faster in the next few months,” said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.
Job openings, a measure of labor demand, rose 5.2 percent to a seasonally adjusted 5.4 million in April, the highest level since the series began in December 2000, the Labor Department said in its monthly Job Openings and Labor Turnover Survey (JOLTS).

Ever since the start of 2014, weather be damned, the pace of job openings has simply decoupled from all perception except the Establishment Survey. While that offers “more confirmation” for economists, in reality it amounts to the same confirmation. The JOLTS survey is benchmarked to the BLS’s Current Employment Situation (CES), meaning that if there is a trend-cycle problem in the mainline payroll report it will passed along, directly, to JOLTS.

From the BLS itself:

JOLTS total employment estimates are benchmarked, or ratio adjusted, monthly to the strike-adjusted employment estimates of the CES survey. A ratio of CES to JOLTS employment is used to adjust the levels for all other JOLTS data elements.

Given that baseline, it would be highly suspect and relevant only where the JOLTS figures diverge from the Establishment Survey. While none of the components had done so for most of 2014, that isn’t the case more recently. While Job Openings have supposedly surged, the hiring rate has not. Dating back to last October, hiring appears to have frozen if not slightly declined.

WHY YOU SHOULD STOP LISTENING TO JIM WILLIE

Submitted by J.C. Collins  –  philosophyofmetrics

The use of propaganda to further geopolitical and socioeconomic objectives are complex methods of positioning arguments and manufacturing preconditioned counter arguments. This ‘seeding of the field beforehand’ has become commonplace, predictable, and can be trended with relative ease.

When American Senators openly state that China should be barred from having their currency added to the SDR composition because of the threat of computer hacking, the obvious nature of the counter move becomes apparent and predictable.

The United States does not have the veto influence to stop the RMB from being added to the SDR, as it takes a 70% vote to make changes to the basket composition.  This differs from the 2010 reforms to the governance structure and quota system, as 85% is required to make those changes.  Which falls within the parameters of US veto power.

Not being able to directly influence and prevent the addition of the Chinese currency into the SDR is not a position which America likes.  And it can’t be assumed that just because the propaganda is now being disseminated that the US doesn’t actually want the RMB in the SDR.  What it tells us is that they want the RMB to be included on their terms, not the terms of China or another group of countries, such as BRICS.

Speaking of BRICS, the Brazilian representative to the International Monetary Fund, one Paulo Nogueira Batista Junior, will be the new vice president for the BRICS Development Bank.  This assignment of an IMF representative to a senior position within the BRICS bank should be a wakeup call to anyone who still thinks that the BRICS institutions and the AIIB will be operating outside of the existing monetary framework and global institutions.

Those who promote the fantasy that China and BRICS are going to overthrow the western banking system, and destroy the American dollar have no concept of the broader macroeconomic and macroprudential engineering which is taking place throughout the international institutions and regional institutions, of which both the BRICS Bank and AIIB are becoming integrated with.  Both were in fact designed specifically for the purpose of integrating eastern monetary policies with those of the international institutions.

There are those, like Jim Willie, who maintain their shtick and carry on in an unprofessional manner while promoting this make-believe fantasy analysis of the overthrow of western banking. Tactics used to distract from the real arguments and push ‘back alley propaganda’ are name calling and character assassinations of everyone who disagrees with his position.  The favorite targets of this “analyst” are usually James Rickards and Christine Lagarde.

For the record, I despise bullies and consider them the worst of humanity, as well as the weakest. Which is why I have decided to write this post. Though I do understand I’m taking a risk of being perceived in a similar fashion for writing this piece to begin with.  It’s a case of necessity overriding niceness.

The loud and pompous proclamations of Mr. Willie are not based on the economic and political realities which are taking place in the global monetary system.  When information first started being presented here on POM about the SDR, Mr. Willie was explaining that the IMF was broke and the SDR would never happen.  It was stated that China would have nothing to do with the SDR.

When both the IMF and China came out with official announcements about having the RMB added to the SDR, the propaganda from Mr. Willie shifted and he began to promote the idea that China joining the SDR was going to be a Trojan horse which would destroy the institution from the inside.

Homebuilder Mini-Cycles Too

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

So far this year, there has been a divergence in the housing statistics about the state of real estate markets in the US. The National Association of Realtors (NAR) estimates that existing home sales (resales) have lagged, stagnated and even faltered all the while the Census Bureau’s figures on new home sales surged. The latter moved to seven-year highs (which sounds great until you realize the housing bust, proper, is almost a decade old now) and quite a bit just in 2015. The series had been stuck around 450,000 units (SAAR) for most of the period after the post-taper turmoil in mid-2013.

Resale estimates largely matched those trends until more recently. There was the inflection in 2013, the downdraft into early 2014 and then a modest bounce which has seemingly lost momentum and depth.

It could very well be that the real estate market is picking up once more in a non-winter bounce, driven first by new builds before existing structures, but I submitted a few weeks ago an alternate explanation that suggested instead builders were far too optimistic about what 2014 suggested and got too far ahead of themselves for it. Thus, the surge in sales activity was an almost desperate attempt to sell inventory before any financial difficulties might arise under perhaps less-than-ideal financial circumstances in the “dollar” world.

With homebuilder companies reporting earnings, it appears as if at least the first part of that supposition might be true (there isn’t much talk yet about tightening up on leverage for new build propositions). The most recent “unexpected” weakness was reported by Hovnanian. Revenue in the latest quarter was up 4.2% at $469 million, but that was far short of the $534 million “analysts” were looking for. Worse, for the stock anyway, net income and comparable EPS suffered; -$0.13 per share versus -$0.05 the same quarter prior year.

Hovnanian, based in Red Bank, N.J., said it offered more sales incentives — enticements such as free upgrades and financial assistance with closing costs – to goose flagging sales of its speculative homes in its latest quarter. Builders start construction on so-called spec homes before they are sold in anticipation of buyers arriving later.
Hovnanian acknowledged Thursday that it had been “too aggressive” on its spec counts, and therefore had to offer the freebies to unload many of those homes, which increased its sales but sapped its gross margins.

That quote above was from Q1, reported in the Wall Street Journal, but it appears that the same carried through into Q2. In the latest disappointment, the company’s CEO indicated that once again they were “too aggressive” in pricing homes, as deep concessions were necessary to move inventory where sales volume wasn’t keeping up with expectations. While management expects still a rebound, it should be noted Ara Hovnanian sold 314,937 shares on April 16, representing about 10% of his total holdings.

The Firing Squad for General Petraeus?

Submitted by William Bonner, Chairman – Bonner & Partners

Good Men are Hard to Find in Public Life

We are working our way through our series, “The Good, the Bad, and the Ugly.” Our premise: In a world where everyone is a lawbreaker, it’s hard to spot the real criminals. (Go here to catch up on Part I and Part II.)

You are probably as disgusted by the bad and the ugly as we are. So today, we touch briefly on the good.

This secret US weapon is discussed further below …

Cartoon by Adam Zyglis

Yes, there are good people all around us. Private life is full of them. A good gardener. A good clergyman. Even a good banker. But in public life, a good man is hard to find.

You can search the nation’s capital from top to bottom, including the broom closets. You won’t find many. Instead, the bright lights of “public service” attract bugs, pests, and parasites.

Some are a nuisance. Others are dangerous.

Row, row, row your boat …

Cartoon by Jim Day

Trouble in the Bond Market

We have promised to leave the vermin for tomorrow. But we can’t help mention one of them, former top U.S. Army commander and CIA director David Petraeus. He figures in today’s story like the mythical Cyclops: He is the nemesis that brought forth our hero.

It was in New York City, at the 92nd Street Y, which advertises itself as a “world-class cultural and community center,” that Petraeus was scheduled to speak…

But let us interrupt with a quick market update. U.S. stocks sold off a bit more On Monday, with the Dow down 82 points – or about 0.5%. Gold was more or less flat. At $1,181 an ounce ahead of the bell on Wall Street, it is still down from the $1,200 level where it was stuck for so long.

The big money is worried … but not yet panicky. Greece is getting ready to bolt the European Union. China seems on the verge of a major crisis. And as we warned in my new investor presentation, there’s a violent monetary shock on the horizon.

The fallacies of GDP

Submitted by Alasdair Macleod – FinanceAndEconomics.org

The common error of confusing growth with progress goes largely unnoticed, though it permeates all macroeconomic analysis. There is no better example of this mistake than the fallacies behind the interpretation of Gross Domestic Product. GDP is the market value of all final goods and services in a given year. As such, it is only an accounting identity reflecting the quantity of money in the economy.

Econometricians constructing GDP have devised a sterile statistic that should not be used to set economic policy. It leads to the common error of assuming any increase in GDP is desirable. Statistics like GDP tell a story of an economy based on historical prices but devoid of any qualitative value; and progress, the improvement in the human condition, is what really matters.

Transactions reflecting both wealth creation and also economically destructive state spending are included in GDP without differentiation. Far from the government component of GDP being singled out from the total, it is often welcomed as contributing to economic growth. Macroeconomists, with an eye on the statistical impact of cuts in government spending, discourage governments from making them. The lack of distinction between wealth-creation and wealth-destruction is fundamental to their belief that state intervention is beneficial.

More light can be shed on this issue with an example. Imagine an economy with a fixed quantity of money and credit; further assume foreign trade is in balance, and that the population is stable. Products will succeed, stagnate or fail. People will get pay rises, pay cuts or be encouraged by reality to move from the least successful businesses into more successful businesses. The businesses of yesteryear fade and those of tomorrow evolve. Winners will redeploy resources released from the failures. Annual GDP, the sum total of all production paid for by everyone’s earnings and profits, will therefore be unaltered from the previous year: it is a zero sum, assuming that as a whole people’s money preferences relative to goods do not change. Without the injection of extra money, people are always forced to choose between items: they cannot add to the purchasing power of their income through extra credit created out of thin air, creating demand that otherwise would not exist.

Progress is, therefore, marked by improved products and lower prices, because as the volume and quality of production increases the total money value of them must remain the same. This is true for both final products and for investment in the higher orders of production. But importantly, GDP growth is nil.

The Global Downside To Eurodollar Decay

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

It is exceedingly difficult these days to detect where finance ends and the economy begins. That was intended, of course, as it was believed that greater intrusiveness on the part of the financial ends were consistent with greater, and better, economic control. Certain strains of economics have been obsessed since the dawn of the discipline with finding “optimal” outcomes. More recently, especially since the 1960’s, that has been transformed into not just understanding them or their potential but actually creating them through commandment of finance.

The generalized view of the current global predicament is simply that those seeking “optimal” outcomes through “optimal” control don’t have any real appreciation for how their efforts have transformed pretty much everything. The Federal Reserve in the United States still operates as if the US dollar were the US dollar, applying narrowly to just the circumstances within the US. Only recently (somehow it took until 2010!! for them begin thinking of unifying federal funds and eurodollars; one of many massive mistakes in 2008) has the eurodollar system become even a small topic of interest.

But even now, central bankers are perplexed by the state of finance as well as the global economy. Janet Yellen still declares the financial system “resilient” when in fact she and the FOMC has to answer (or “choose” not to, directly) as to all the anomalies spread all over the place. Q1 GDP is “unexpectedly” weak, treasury yields are violently volatile, China is an unrequited mess, emergency monetarism is still “necessary” almost everywhere eight years later; anomalies all?

That description might actually fit were it attached where it properly belongs, to the eurodollar standard itself. Since August 2007, the eurodollar standard has never been the same and it had taken a rather self-destructive course starting in the middle of 2013, tracing back to, again, the Federal Reserve’s blindingly narrow understanding of the world they had an enormous part in creating.

Is the eurodollar’s decay and attrition causing the global economy to fall apart, or is it the global economy’s malaise that is triggering the eurodollar standard’s problems? The answer to both is “yes.”

Indian Silver Demand Explodes to US Silver Owners’ Delight

Submitted by Mark O’Byrne  –  GoldCore

– India may absorb as much as one third of total global silver production this year
– Strong demand for silver steadily increasing year by year
– Indian citizens and solar industry take advantage of current low prices in silver
– U.S. silver imports still enormous despite ostensible decline in demand

The first four months of 2015 saw India import possibly as much as 3,000 tonnes of silver bullion. If the momentum is maintained India is on track to import a staggering 9,000 tonnes over the course of 2015.

This would represent almost one third of total annual mine supply globally. Worldwide mine supply was 877 million troy ounces (27,277 metric tonnes).

It would represent a 27% increase in India’s 2014 silver imports of 7063 tonnes which itself was a 13%  increase on the 2013 figure showing a steadily growing demand for physical silver in India with each passing year.

According to srsroccoreport.com, who compiled the data, it is Indian citizens who are the driving force behind the record demand for silver in India. We would speculate that India’s commitment to solar power may also be a factor.

Back in 2009, the Indian government set a target of 20GW of solar power generation by 2020. However, in January of this year the government dramatically reaffirmed its commitment to solar power by setting a new target of generating 100GW by 2022.

Solar power is generated by photovoltaic cells which rely upon silver for their manufacture. While PV cells used in India are predominantly manufactured in China it may be that Indian investors may be accumulating silver in anticipation of growing demand for PV cells – China also has a highly ambitious solar power program – or it may be that the government itself is stockpiling supplies to protect against supply disruptions.

Srsroccoreport.com also point out that silver imports into the U.S. continue to be enormous. They speculate that this is due to a handful of institutions and high net worth individuals buying silver while sentiment among the wider public remains pessimistic – a good contrarian indicator.

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• Bond Crash Across The World As Deflation Trade Goes Horribly Wrong (AEP)
• Janet Yellen Gives Asia the Jitters (William Pesek)
• MSCI Backs Itself Into Corner On China Share Inclusion (Reuters)
• China Approves Another 1 Trillion Yuan Local Debt Swap (WSJ)
• Greece is Playing an Ultimatum Game (Bloomberg)
• Markets Surge On Rumours Of German Compromise On Greece (Guardian)
• Germany Against 3rd Greek Bailout Under Any Circumstances: BILD (Reuters)
• IMF’s ‘Never Again’ Experience In Greece May Get Worse (Reuters)
• Ruling On Pension Cuts Will Cost Greek State €1.5 Billion (Kathimerini)
• Growth, What Growth? Thatcherism Fails To Produce The Goods (Guardian)
• Iceland’s Economy Recovered After It Jailed Bankers And Let Banks Go Bust (Ind.)
• Iceland: The Economy That Came In From The Cold? (Independent)
• The New Currency Trade: Short The Kiwi (CNBC)
• Trends Show Crowdfunding To Surpass Venture Capital in 2016 (Forbes)
• The Microfinance Delusion: Who Really Wins? (Hickel)
• US Shifts Stance on Big Pharma in TPP Talks (NY Times)
• TTIP Vote Postponed As European Parliament Descends Into Panic (Independent)
• Maybe WWIII Won’t Occur, But The Damages Are Already Horrible (Zuesse)
• US Draws EU Into Russia Crusade, Against Our Interests – Ex-French PM (RT)
• Poll Highlights Divisions Among Public On Tackling Ukraine Crisis (RT)
• Why Our Brains Don’t Process The Gravest Threats To Humanity (Brian Merchant)

Much more here: Debt Rattle June 11 2015 – TheAutomaticEarth.com