Empathy for the Devil

Submitted by Danielle DiMartino Booth – DB Money Strong

Empathy for the Devil, dimartinobooth.com

Mick Jagger has credited Charles Pierre Baudelaire for inspiring him to write “Sympathy for the Devil”.The French poet wove gorgeous verses around darker subjects that refuted mankind’s inherent kindness; his advocacy of the diabolical was pure allegation. As for the Rolling Stones, the song is a platform from which to present mankind’s atrocities from the devil’s point of view – to allow the devil himself to play devil’s advocate on history’s annals of tragedy. The controversial but undeniably timeless hit bridges from the trial and death of Jesus Christ to the Russian Revolution and World War II. The intense lyrics peak with Jagger demanding to know, “Who killed the Kennedys?”

A recent enlightening listen to this classic among rock classics reminded yours truly of the dangers of confirmation bias, the quest to validate one’s views by rejecting others’. After nearly a decade inside the Federal Reserve, one could only conclude that this contrarian-minded thinker would have been damagingly brainwashed to not bask in the clean light of skepticism.

Nevertheless, the dangers of deriving incomplete conclusions necessitates you play devil’s advocate to yourself from time to time. Caveat lector: this is purely an exercise in introspection. The writer’s full loss of faculties is not the conclusion you should draw at the end of this piece. So, now that we’ve set the stage, knowing said writer’s tongue is firmly in cheek, let’s channel our inner devil’s advocate. Shall we?

Our advocacy may as well start with the stalwart U.S. consumer, who we’ve all learned might take a body blow from time to time, but is never knocked out. The January release of retail sales was all it took to send those who’d temporarily jumped on the bearish bandwagon scurrying for their caves. Forget 2015’s Polar Vortex that made for easy comparables; the 3.4-percent gain over last year was still the best in a year. And December was revised up to boot. Isn’t it plain to see that the $140 billion de factor tax cut at the gas pump (which apparently kicks in with a long lag) and buoyant wages are finding their way into the real economy?

As for the strongest component of retail sales, it’s not only subprime loans that are behind the 6.9-percent growth in car sales over 2015. Super prime auto loan borrowers’ share of the pie is now on par with that of subprime borrowers – each now accounts for a fifth of car loan originations. What’s that, you say? Can’t afford that new set of wheels? Not to worry. Just lease. You’ll be in ample company — some 28 percent of last year’s car sales were made courtesy of leases, an all-time high. For bigger ticket items, anecdotal evidence suggests that while Gulf Stream sales have hit the skids, financing for yachts can still be had for two percent, a song in and of itself. So why not live a little?

And while you’re at it – turn up the heat! Not only are lower heating and gasoline prices paying off in spades for all households, Ford 150 and Ferrari drivers alike. But the other side of the story, that of the damage inflicted by crashing energy prices on all those displaced highly-compensated oil patch workers, is set to finally abate. All we need is for the always-accommodating countries of Iran and Iraq to both agree to play nice in the diplomatic sand box for the greater good of the world economy. Russia has held out an olive branch. Why shouldn’t they as well? Continue reading

January Retail Sales: Let Them Eat Bacon!

Submitted by Danielle DiMartino Booth – DB Money Strong

SALEWIDE

Last June, Jeralean Talley, who had been the oldest known living person in the world, passed away in Detroit at the grand old age of 116.  That left Susanna Mushatt Jones, also 116, and the second known living person born in the 1800s, to assume the throne. When asked about the secret to her longevity, the sprightly supercentenarian replied that she ate four strips of bacon every morning. She has a sign in her kitchen that reads, “Bacon makes everything better.”

Jones’ devotion to bacon may have amused the media, which had only just regaled the consuming masses with the results of a study that found bacon and other processed meats exacted untold damage on the human body, presumably resulting in shorter life spans.

Judging from recent retail sales behavior, the public has sided with Jones. “The bacon business appears to be immune to the consumer trend toward healthier cuisine,” noted Ellen Zentner, chief economist at Morgan Stanley in her group’s annual deep dive report into consumption trends.

As for what else has been insusceptible, The Liscio Report’s Philippa Dunne noted that home improvement sales were not only revised up sharply from December but tacked on another neat gain in January taking the growth rate over last January to 1.7 percent. Sales at the Home Depots and Lowe’s of this world likely signal the continued stunted mobility among many Americans who still owe more on their home than it is worth.

That factor aside, there was this little thing called a historic snowstorm that swept the East Coast in January, “Home improvement is just plain strong, seemingly without the help from the weather,” Dunne observed. Blizzard smizzard! Continue reading

The January Jobs Report Does Not Ensure a March Rate Hike

Submitted by Danielle DiMartino Booth – DB Money Strong

Investors should be alarmed by what the Fed will miss in the most recent slew of data on the state of the U.S. labor market. By the same token, they should be reassured that there’s is another payroll report ahead of the March Federal Open Market Committee meeting.

What messages will the Fed glean? Their in-house economists’ metrics will tell them that consumer spending will pick up in the months to come care of full-time job creation and accelerating wage gains. Indeed, wage growth last year was the briskest since July 2009 and January’s outsized 0.5-percent gain gives credence to those who’ve been warning about growing paychecks.

Expect the Fed to disregard the slide in job creation and conclude that a one-month aberration can be dismissed, as one month never makes a trend. In fact, when you average the gains, the trend in payroll growth is accelerating: the three-month average is 222,000, which outpaces the six-month average of 212,000, which in turn bests the 12-month average of 214,000.

The most encouraging aspect of the report, bar none, was the age cohort responsible for the decline in the unemployment rate to an eight-year low of 4.9 percent. The Lindsey Group’s Peter Boockvar points out that the bulk of the gains in the household report came from those ages 25-54 years old.

“In this ripe-age-for-working category, 607,000 more got jobs while there was little change for those aged 16-24 and over the age of 55, in sharp contrast to the prior month and in this cycle,” Boockvar noted.

So the increase in the labor force participation rate and wages, coupled with the decline in the unemployment rate and no disaster in average gains will probably be where the narrative ends for Fed policymakers. Janet Yellen is sure to applaud the improvement in the jobs market when she testifies to Congress next week. Expect speech after speech to echo this merry sentiment in the weeks to come, putting investors further on edge. Continue reading