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By New Deal Democrat
Monthly data for September this week, revealing deflation in both import and export prices. The ISM services index remained very positive. Wholesale sales fell slightly; inventory increased slightly. Thus, the inventory-to-sales ratio rose slightly.
My usual note: I look at the high-frequency weekly indicators because while they can be very noisy, they provide a good Now-cast of the economy. The indicators will confirm a trend or indicate a switch in trend well before monthly and quarterly reports.
In general, I am going in order of long leading indicators, then short leading indicators, and then coincident indicators.Interest rates and credit spreads
- 5.35% BAA corporate bonds down -0.01%
- 2.08% 10-year treasury bonds up +0.03%
- 3.27% credit spread between corporates and treasuries down -0.04%
30-year conventional mortgage rate:
- 3.89%, up +.12%
Interest rates for BAA corporate bonds made a 50+ year low in January. This was not confirmed by AAA corporate bonds. Their one-year low was 4.3%, and more recently their one-year high was 5.3%. After a possible once-in-a-lifetime low of 1.47% in July 2012, treasuries rose to over 3% in late 2013, then fell through 2014 and in 2015 have averaged a little over 2%. Spreads have widened further and are very negative.
Mortgage rates which remain under 4% also remain a positive.Housing
- +26% w/w Purchase applications
- +49% YoY Purchase applications
- +24% w/w Refinance applications
Real Estate loans
- Unchanged w/w
- +5.1% YoY
Mortgage applications had been awful for several years, before turning up early this year in response to very low rates. With rates back below 4% recently, this number has turned positive.
Real estate loans have been firmly positive for close to two years.Money supply
- -0.3% w/w
- Unchanged m/m
- +6.4% YoY Real M1
- -0.4% w/w
- +0.4% m/m
- +5.9% YoY Real M2
Real YoY money supply remains firmly positive.
Trade-weighted US Dollar (Broad)
- Down -0.69 to 120.20
The US Dollar appreciated about 20% against the Euro, in particular, late last year. It made yet another new high one week ago. As a result, the US is importing deflation strongly and exporting, not so much.Commodity pricesJoC ECRI
- Down -1.18 to 86.70 w/w
- Down -29.03 YoY
BBGt Industrial metals ETF
- 101.75 up +4.27 w/w
Commodity prices as measured by ECRI are again at multi-year lows this week and the YoY comparisons are deteriorating even more, although industrial metals rose.Employment metrics
Initial jobless claims
- 263,000 down -14,000
- 4-week average 267,500 down -3,250
Initial claims remain well within the range of a normal economic expansion, as does the 4-week average.
The American Staffing Association Index
- Unchanged at 100
- Down -3.45 YoY
The YoY comparison had generally been positive to strongly positive since last spring. In the last five months, this turned neutral and then increasingly negative. The YoY comparison has blown out to its worst comparisons since the Great Recession during the last month.
- $52.3 B for the first 6 days of October vs. $55.4 B one year ago, down -$3.1 B or -5.6%
- $163.8 B for the last 20 reporting days ending Thursday vs. $156.4 B one year ago, up +$7.4 B or +4.7%
Beginning with the last half of 2014, with a few exceptions, virtually all readings have been positive. October started off negative. As the 20-day rolling total is positive, I am returning this to a weak positive.
Oil prices and usage
- Oil up +$4.84 to $49.50 w/w
- Gas unchanged at $2.32 w/w
- Usage 4-week average up +5.2% YoY
The 2010-13 Oil choke collar remains broken. The price of gas and oil bottomed at the end of January at $2.02. They rose $0.80 to $2.82 in June and have declined since then. Gas is below $2 in many states.Bank lending rates
- 0.317 TED spread up +0.011 w/w
- 0.1955 LIBOR up +0.0015 w/w
Both TED and LIBOR have risen since the beginning of this year to the point where both are negatives, although there have been some wild fluctuations.Consumer spending
- Johnson Redbook +0.7% YoY
- Goldman Sachs -0.4% w/w, +0.7% YoY
- Gallup daily consumer spending 14-day average at $91, up +4 YoY
Both the Goldman Sachs and Johnson Redbook Indexes weakened after last Christmas, and weakened further YoY beginning in May, and have weakened further in the last month, probably as YoY gas price comparisons turn flatter. Until the last 4 weeks, with the exception of 3 weeks in April, the Gallup report had been negative since the beginning of this year. The big difference appears to be that Gallup does not measure big, durable, purchases, but most importantly does include gas purchases. Gallup had yet another good week this week.Transport
- Carloads down -3.2% YoY
- loads ex-coal down -2.2% YoY
- Intermodal units up +1.9% YoY
- Total loads down -0.7% YoY
- Harpex down -14 to 477
- Baltic Dry Index down -71 to 817
Rail traffic fell off a cliff in mid-February. Intermodal traffic quickly turned positive again, but domestic carloads, led by coal (for export) declined further in May and June (off -8% to -10% YoY), and has been at consistent, less negative YoY comparisons since, indicating that if we could seasonally adjust, we would probably find traffic increasing in the last few months.
After declining sharply for several months, making a 3-year low in mid-February, the BDI surged higher, and then declined again. Meanwhile, Harpex (container shipping) turned up sharply for 3 months, peaking at 646 in July, before turning down again. In the longer term, shipping rates bottomed about 3 years ago and have been in a slow and variable uptrend since, although the Baltic index did break that to the downside in the recent skid.Steel production
- Down -0.5% w/w
- Down -7.3% YoY
Over the last several years, steel production had generally been in a decelerating uptrend. Since spring 2014, it turned mixed and then cliff-dived 7 months ago.SUMMARY:
Among long leading indicators, interest rates for corporate bonds and treasuries remained neutral. Mortgage rates, and purchase and refinance mortgage applications are positives. Real estate loans are positive. Money supply is positive.
Among short leading indicators, the interest rate spread between corporates and treasuries remains quite negative, as is the US Dollar. Positives included jobless claims, oil and gas prices, and gas usage. Commodities remain a big global negative. Temporary staffing is negative for the 21st week in a row, and more intensely so for the 3rd straight week.
Among coincident indicators, steel production, shipping, rail transport ex-intermodal, the TED spread and LIBOR all are negative. Tax withholding and consumer spending are weakly positive.
The only changes this week were that Octobers tax withholding got off to a poor start and railroad got slightly weaker. Aside from that, the story remains the same as recently. Consumer-related indicators - mortgages, oil and gas, jobless claims, and consumer spending - all remain positive. But those portions of the US economy most exposed to global forces, including the US Dollar, commodities, and industrial production and transportation, are all firmly negative. Employment on net is still a positive, though more weakly so. The US economy is clearly importing weakness, but not enough to overcome domestic positives.
New Deal Democrat, XE.com
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PROVIDENCE, RI A new state-commissioned study says that Governor Raimondos toll-financed highway repair proposal would boost state economic activity by more than a half-billion dollars and create 6,487 new jobs over the next decade.
Regional Economic Models Inc. of Massachusetts, hired to address economic concerns about tolling tractor trailers, concluded that as a result of Raimondos RhodeWorks construction plan, Rhode Islanders would also earn an additional $521 million in cumulative personal income by 2025.
Compared to those economic benefits, the cost to Rhode Island business and residents would be a relatively modest $160 million over 10 years, because the majority of the revenue would come from outside the state, either from the federal government or out-of state trucks that pass through without stopping, the study said.
At an afternoon briefing, Jonathan Womer, director of the Rhode Island Office of Management and Budget, acknowledged that, given the methodology of the study, it was almost certain to show an economic benefit from RhodeWorks, and the greater the amount of spending from those outside sources, the bigger the local boost.
In addition to tolls alone, the REMI study examined six alternative scenarios that included not getting $400 million in federal funding for mass transit on routes 6 and 10 if the road-improvement project isnt done and supplementing toll revenue with $12.5 million from increasing the gas tax.
As it turned out, the study estimated that raising the gas tax would create even more jobs 6,656 jobs over 10 years than tolling alone, and $22 million more in gross domestic product.
Explaining why Raimondo didnt pursue a gas-tax increase to pay for RhodeWorks despite the larger projected job gains, Womer said that estimated personal-income growth in the gas-tax-hike scenario was $81 million lower over 10 years than pure tolling.
Raising taxes on diesel fuel would produce fewer jobs than raising taxes on gasoline, but be better for personal-income growth, according to the study.
Raimondo ordered the REMI study, which took one month to make and cost $50,000, after House Speaker Nicholas Mattiello declined to bring the RhodeWorks proposal for a vote. He said he was concerned the economic consequences of the toll plan had not been fully analyzed.
On Thursday Mattiello, who was briefed on the REMI report Wednesday, said he would show the study to other economists and then negotiate a new version of a bridge-repair financing plan with the governor and Senate president that addresses his concerns. Hearings and a vote on a still-undefined plan would most likely not happen until January or February, he said.
My concerns have not changed, Mattiello said in a phone interview. The impact that tolling will have on the trucking industry, but more importantly, the economy, manufacturing and different sectors that rely on Class A trucks.
This report suggests the impact may be minimal and I have to study whether I accept those conclusions and if I accept that I will be more comfortable, he added.
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Many people interested in Bitcoin have a less than optimistic view about the health of the global economy. This skepticism in some cases pessimism is fueled by a controversial business cycle theory that is fairly popular in Bitcoin circles. This theory holds that the easy money created by central and fractional reserve banks induce entrepreneurs to embark upon projects that are are not actually profitable. This action sparks a series of events, in which the economy booms, reaches a peak, and then comes crashing down.
Also read: The Blythe Masters Philosophy: Pay no Attention to Bitcoin
Although this theory is highly contested in academic economics circles, a sizeable portion of the Bitcoin community stands by it; I happen to agree with this theory as well. Thus, believing this theory to hold valuable information about real world markets, us Bitcoiners often wonder about what will happen to our beloved digital currency if the "big one" comes a recession so bad that the traditional financial system goes offline for good.
Bitcoin supporters tend to view such an event as a devastating blow to society, but a potential opportunity for Bitcoin to prove its salt. As the old fiat currencies collapse, people will flock to Bitcoin as a modern safe haven asset the 21st century version of gold. Consequently, Bitcoin will see an eruption in purchasing power and global acceptance, quickly becoming the global currency of choice in a post-collapse economy.
There have already been some smaller-scale demonstrations of this potential. In 2013, the government of Cyprus announced a radical move, in which it would tap into the personal bank deposits of citizens as part of a bail out plan. Cyprus residents flocked to bitcoin as a way to keep the government away from their wealth; the bitcoin price and trading volume soared in response to this demand from Cyprus. Two years later in the Summer of 2015, Bitcoin faced a similar situation when the global economy threatened to take a turn for the worst. Greece faced a debt crisis and a possible exit from the European Union, while the Chinese economy took a nasty fall. The bitcoin price took off when many Chinese citizens in addition to people speculating about a grexit rushed to the Bitcoin markets to shore up their wealth.
And so many Bitcoiners lie in wait, strongly believing that the next global downturn will be the seminal turning point in Bitcoin's history.
These people may be in for a disappointing reality though, because it's possible that traditional finance's fall will be anticlimactic, while the rise of bitcoin fails to happen overnight. Although many people think that recessions will get progressively worse until the economy collapses, economic theory suggests multiple ways for recessions to vary in length and intensity. The next recession could be extremely severe, or it could be relatively mild past recessions do not determine the severity of future downturns. Consequently, Bitcoin's adoption rate in response to recessions will not necessarily be linear. If a recession is particularly bad, Bitcoin might get a significant bump in use. On the other hand, smaller recessions might not worry people enough to consider using a different currency.
So, does this mean that mass Bitcoin adoption is an enthusiasts? Not exactly. Undoubtedly, traditional finance is not in good shape. It took 6 years for the US unemployment rate to reach the Federal Reserve's target of 5.5%, and a large chunk of that lowered rate came from people dropping out of the workforce altogether rather than finding jobs. Furthermore, jobs reports have been mixed; some months saw higher than expected growth, while other months have been less than stellar. Outside the US, the rest of the world's economy is shaky at best. China's economy has plummeted, with the People's Bank entering damage control. Greece and Puerto Rico both face potential debt crises, which could rock global markets. Meanwhile, central banking policy seems to be losing its bite; the Federal Reserve has kept interest rates at near 0% for almost 10 years, with not much to show in the post-2008 economy. Traditional fiat may very well fall at some point, but it could be a slow burn. Thus, Bitcoin still has plenty of room to become a fiat-killer, just maybe not as soon as some people would prefer.
Of course, we could still have the "big one." We might experience a depression so severe that the public flocks to a new monetary system en masse with Bitcoin being a good candidate. But we must understand that doomsday might not come, and Bitcoiners might have to endure a long and bumpy ride. The world might have to give up on traditional finance bit-by-bit, with Bitcoin offering itself as a worthy alternative.
Do you think there will be a huge crash that will catapult Bitcoin into the mainstream? Let us know in the comments below!
Images courtesy of Pixabay
The opinions expressed in this article are not necessarily those of Bitcoinist.net.
Originally posted on: What will Happen to Bitcoin when the Economy goes Bust?
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If you've noticed more craft breweries are popping up all over the Michiana area, youre not wrong.
Its not just for a weekend getaway anymore. These breweries are right here in the South Bend and Mishawaka area and theyve become a tourist attraction for the community.
Breweries like South Bend Brew Werks, Evil Czech and Crooked Ewe have attracted people since the day they opened.
The Brewers Association, the trade industry group for craft beer, says Craft Brewing Industry Contributed $55.7 billion to the US Economy in 2014, more than 424,000 jobs.
One of our local breweries, Evil Czech Brewery, is on pace to do $4 million this year alone.
St. Joe County officials say were following the trend of breweries.
They say breweries are making a positive impact on the economy through brewery tours and positive talk around town.
Officials also say they've been a popular attraction and brought in tourists from around the area-- even offering weekend tours that breweries like South Bend Brew Werks are a part of.
People want to go and try these microbreweries and really get a feel for the communities there," said Lindsey Horner of Visit South Bend Mishawaka. "And weve seen such a boom and its really exciting because it sort of puts us on the map with those communities that are making a name for themselves in the brewery scene for sure.
Some micro-breweries say people now want a richer taste in beer and want the freedom to experiment with different flavors-- places like Evil Czech allow them to do so.
People seem to enjoy the overall experience and atmosphere that micro-breweries have to offer, which makes them even more of an attraction.
Brewery owners say its not only that the customers want a more flavorful and high quality beer too.
Evil Czech managers say it's the unique experience you get that goes along with sipping beer that makes these breweries so popular.
We call ourselves a public house. We love the fact that at one table you have a group of businessmen and the next table if a bunch of college kids and the next table over there you got girls night out and everyone gets along in here and craft beer brings everyone together," said Evil Czech General Manager, Dan Walker.
The Brewers Association defines craft breweries as ones that are small, independent and traditional.
The Association also says they brew about 6 million barrels annually.
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Global trade has officially slumped into recession, including in Asia. For a debt-ridden and troubled world economy, the long awaited Trans-Pacific Partnership (TPP) deal may have come just in the nick of time, but there are plenty of risks still ahead.
After narrowly failing to reach agreement in August, the 12 TPP nations finally sealed a deal on October 5 after five days of round-the-clock talks, creating the world's biggest free trade zone. Comprising Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam, the grouping encompasses 40 percent of world gross domestic product (GDP) with economic output of nearly $30 trillion, representing the biggest multilateral trade pact in two decades.
"After five years of intensive negotiations, we have come to an agreement that will create jobs, drive sustainable growth, foster inclusive development, and promote innovation across the Asia-Pacific region," US Trade Representative Michael Froman said.
Highlighting the deal's strategic significance, US President Barack Obama said the agreement "strengthens our strategic relationships with our partners and allies in a region that will be vital to the 21st century."
"When more than 95 percent of our potential customers live outside our borders, we can't let countries like China write the rules of the global economy. We should write those rules, opening new markets to American products while setting high standards for protecting workers and preserving our environment," he said in a statement.
International Monetary Fund (IMF) managing director Christine Lagarde hailed the TPP pact as a "very positive development."
"I have called for a policy upgrade to avoid a new mediocre in the global economy, and rekindling trade is an essential component of this agenda. The agreement is not only important because of the size, as the signatories countries account for about 40 percent of global GDP; it also pushes the frontier of trade and investment in goods and services to new areas where gains can be significant," Lagarde said.
The IMF boss also urged countries to "renew their efforts to complete ongoing negotiations and the broader international community to reignite multilateral trade initiatives to ensure a cohesive global trading system."
However, the TPP still faces the political hurdle of ratification in each member nation before it can take effect. Obama in particular is expected to face a tough fight to win passage in the US Congress, with criticism of the pact from both Republican and Democrat lawmakers, including Democratic presidential frontrunner Hilary Clinton.
Asia's Winners and Losers
Assessing Asia's winners and losers from the deal, Bloomberg News pointed to Japan's auto industry as gaining from increased access to the US market, while its farmers face increased competition due to reduced barriers on beef, pork and rice imports. Overall though, the deal affects an estimated 28 percent of Japanese trade, with Tokyo seeing the pact as an important tailwind for "Abenomics."
Australia and New Zealand are seen as big winners in agricultural exports, while the Oceania neighbors also persuaded Washington to reduce intellectual property protections for new drugs from 12 years to five. According to Canberra, the TPP will remove import taxes on A$9 billion ($6.6 billion) of Australian trade, while New Zealand has estimated annual savings of around NZ$259 million ($173 million).
Vietnam has been described by the Eurasia Group as one of the biggest winners, with a potential 11 percent boost to GDP by 2025 on the back of an estimated 28 percent jump in exports. Malaysia is also seen gaining from reduced trade barriers on its exports of electronics, chemicals, palm oil and rubber, while Singapore hailed the pact as creating "greater prosperity and more jobs."
Singapore Business Federation chief executive Ho Meng Kit also noted that the TPP "is not an exclusive agreement, but has provisions to allow other trading nations in Asia to join later. As such, it serves as a pathway toward a free trade area for the Asia-Pacific."
However, China's failure to join the TPP in favor of its own Regional Comprehensive Economic Partnership (RCEP) pact for Asia could prove costly. According to Bloomberg economist Fielding Chen, the world's second-biggest economy could lose market share to the United States and Japan in developing economies such as Vietnam, while the Obama administration has gained momentum in its much-touted "pivot" to Asia.
The TPP could boost world income by as much as $295 billion a year over the next decade, a gift that keeps on giving for the global economy, according to estimates by the Peterson Institute for International Economics.
Yet for Asia and the world, the pact has added significance in the face of a deepening trade recession that threatens to send a sluggish global economy back into crisis.
Gavekal Research has highlighted that world trade has slumped into recession, in the biggest downturn in export volumes since 2010. As previously noted by Pacific Money, Asia has also been hit by a "trade recession" amid an "unusually depressed period of global trade."
According to the IMF's Lagarde, 2015 could mark "the fourth consecutive year of below-average trade growth," with the continued failure of the Doha Round of global trade negotiations adding to the pressure on a successful TPP.
In its latest "World Economic Outlook" report, the Washington-based lender cut its global growth forecast for 2015 to 3.1 percent from its July estimate of 3.3 percent, rising to 3.6 percent in 2016 compared to its earlier prediction of 3.8 percent.
"Six years after the world economy emerged from its broadest and deepest postwar recession, the holy grail of robust and synchronized global expansion remains elusive," the IMF's Maurice Obstfeld said in a statement.
Obstfeld pointed to increasing "downside risks" due to slower growth in China, falling commodity prices and the impending uptick in US interest rates, with emerging and developing economies expected to post their fifth straight year of weaker growth.
Adding to the pressure is the recent global debt binge fueled by quantitative easing, with emerging market companies estimated to have racked up $3 trillion in over-borrowings. According to the IMF, corporate debt in such economies has quadrupled over the past decade, with over-borrowing accounting for an average 15 percent of their GDP and as much as 25 percent in China.
Corporate and bank balance sheets are currently stretched, the IMF warned. Immediate prudential attention is needed.
With the risks for the global economy escalating, the pressure is now on TPP lawmakers to speed the pact's implementation and prevent an even deeper slump in world trade.