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The Main Indicator That Impacts Early Fed Cut

24 hours ago

Posted on 15 June 2019
by UPFINA

Weekend Reading from UPFINAAs discussed in the article on the May PPI report, inflation needs to fall to give the Fed room to cut rates. We don’t know the exact inflation rate where cuts make sense, but anything lower than April’s inflation is a strong start. The Fed and the market got their wish with the May CPI report. Specifically, monthly CPI was 0.1% which met estimates and was below April’s 0.3% rate.Please share this article – Go to very top of page, right hand side, for social media buttons.As the chart below shows, headline yearly CPI was 1.8% which missed estimates for 1.9% and April’s 2% reading.This looks great versus the 2.8% weekly wage growth reading released in the BLS report last week. Declining nominal wage growth isn’t a problem

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The Model That Maketh The Man? Wynne Godley In The NYT

3 days ago

Posted on 13 June 2019
by Philip Pilkington

The New York Times ran an article in 2013 appraising the work of Wynne Godley and his colleagues and followers. This is fantastic. It is great to see this approach to economics, which the NYT rightly notes predicted the 2008 crash, get the proper media attention it deserves. The article, however, while extremely well-written and well-informed, is indicative of a danger that I have long been pointing out on this blog.Please share this article – Go to very top of page, right hand side, for social media buttons.The article in question is keen to point out the importance it, and others, attach to the fact that Wynne Godley not only predicted the crash but also built models. This is on the back of a comment that I find rather misleading by

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Underemployment Rate Hits A New Cycle Low

4 days ago

Posted on 12 June 2019
by UPFINA

Article of the Week from UPFINAHighlights:Because of backward revisions there were technically no payroll jobs created in May.Private sector jobs are growing more than the headline because government is contracting.Please share this article – Go to very top of page, right hand side, for social media buttons.Highlights continued:Prime age participation rate is dropping again.Household survey tells better story than payrolls data.There is still slack in the labor market but likely less than previously.Wage growth is disappointing.The best way to describe the May labor report is most of the stats were consistent with a full labor market; the notable exceptions were the declines in the prime age labor force participation and yearly wage growth. In a

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Ray Dalio Is Kinda, Sorta, Really Wrong

7 days ago

Posted on 09 June 2019
by John Mauldin, Thoughts from the Frontline

“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist." – John Maynard KeynesPlease share this article – Go to very top of page, right hand side, for social media buttons.“Nothing is more dangerous than a dogmatic worldview – nothing more constraining, more blinding to innovation, more destructive of openness to novelty."- Stephen Jay Gould“Inequality has emerged as a major issue in the US and beyond. A generation ago it could reasonably have

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Analyzing Corporate Debt

8 days ago

Posted on 08 June 2019
by UPFINA

Weekend Reading from UPFINALabor market data has been mostly good, although there have been a couple negative readings. Specifically, the NFIB small business survey and the Conference Board consumer confidence index both show the labor market is strong. Also, the employment index in the manufacturing and non-manufacturing ISM PMIs rose. Finally, jobless claims in the week of June 1st were 218,000 which matched the prior reading; claims are near a historic low in relation to the size of the labor market.Please share this article – Go to very top of page, right hand side, for social media buttons.The two negative labor market reports of late were the May ADP private sector report and the Challenger Job Cut report. The May ADP report could have been a

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The Origins Of Both Endogenous Money And The Industrial Revolution

10 days ago

Posted on 06 June 2019
by Philip Pilkington

Article of the Week from Fixing the EconomistsThe July 2013 issue of the Review of Keynesian Economics (ROKE) included, among other things, an introduction by the president of the Argentinian central bank (which is available free online) and a book review by me (which is not). But here I want to focus on one paper in particular. It is by William E. McColloch and is entitled A Shackled Revolution? The Bubble Act and Financial Regulation in Eighteenth Century England (it is available free in working form here).Please share this article – Go to very top of page, right hand side, for social media buttons.The paper in question is arguing against the story told by some economists that the Bubble Act of 1720 was passed in response to the

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Holey Models: A Final Response To Matheus Grasselli

17 days ago

Posted on 30 May 2019
by Philip Pilkington

Fixing the Economists Article of the WeekMatheus Grasselli has responded to some of my previous posts (in the comments on this post) and some comments I made on the Facebook Young INET page. His points were as I thought they would be – indeed, I have already dealt with them in this post. For the sake of tying up loose ends, however, I will repeat my points here and make a few general comments about the use of mathematical modelling and numerical probabilistic reasoning in economics.Please share this article – Go to very top of page, right hand side, for social media buttons.Grasselli had previously given me an example of how Bayesian probability can be used in the case of HIV testing. I fully agree with his approach because HIV testing and

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20 Steps To A Recession

18 days ago

Posted on 29 May 2019
by UPFINA

UPFINA Article of the WeekWhen the Fed starts hiking rates, it’s the beginning of the end of the business cycle. That being said, there are long hike cycles like the current one. There hasn’t been a recession since the Fed started hiking rates in December 2015 partially because the Fed has been hiking rates gingerly. Whenever the markets have feared a recession this cycle, the Fed has calmed them whether it’s through rate hike pauses like now or dovish language which we might see more of at the June 19th Fed meeting.Please share this article – Go to very top of page, right hand side, for social media buttons.With such a long expansion, some investors have thrown out their playbook for timing the next recession. Some even believe the Fed has outlawed

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Why Debt Won’t Spark Inflation

21 days ago

Posted on 26 May 2019
by John Mauldin, Thoughts from the Frontline

Modern technology was supposed to make travel less necessary. We can meet by phone, video, and now in virtual reality. But we’re still traveling more than ever. I certainly am.Please share this article – Go to very top of page, right hand side, for social media buttons.The reason is simple: Technology can’t yet replace face-to-face conversation, and especially group conversations. It is genetically hardwired in our species. We spend more time on the phone and Skype than ever but technology also makes information more complex and nuanced. Conveying it often requires a personal presence, so we fly around and talk in person.I thought of that last week at the Strategic Investment Conference. I’ve been writing about

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Recession Warning?

22 days ago

Posted on 25 May 2019
by UPFINA

Weekend Reading from UPFINAThe two most prominent weak economic reports in Q2 have been the April retail sales and industrial production reports. We’ve explained in previous articles why they could be one-off reports. The latest round of tariffs hasn’t had a chance to affect the monthly economic reports because they were announced so recently.Please share this article – Go to very top of page, right hand side, for social media buttons.Very Terrible Markit PMIThe May Flash Markit PMI reading was terrible as it is consistent with just 1.2% GDP growth. That’s similar to the Atlanta Fed’s 1.3% GDP growth estimate which is relatively low. The consensus is 1.8% Q2 growth. Neither of those data points fully grasp how bad this report was. The best way to

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The Global Economy: What The Future Holds – Part 2

23 days ago

Posted on 24 May 2019
by Elliott Morss, Morss Global Finance

IntroductionIn Part 1 of this two-part series, I suggested that the largest countries measured by GDP, population, and geographic area would be the primary drivers of global futures. Here, I look at their military and economic dimensions and draw conclusions.Please share this article – Go to very top of page, right hand side, for social media buttons.Military PowerBut before getting to economic data, it is worth covering military power and influence. Consider first power as measured by military budgets. The US spends the most by far. But a good portion of its military outlays goes to ongoing wars and not to defense “investments." Saudi Arabia remains a special partner of the US, in part because of all the military

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Probability And The Principle Of Indifference In Applied Economic Reasoning

24 days ago

Posted on 23 May 2019
by Philip Pilkington

Article of the Week from Fixing the EconomistsCarola Binder has brought my attention to a very commendable post she did regarding how people perceive their chances of being laid off. The results, from the point of view of the application of probability theory to economics, were very interesting.Please share this article – Go to very top of page, right hand side, for social media buttons.Here I quote Binder in full:Prior to answering the question, survey takers are given this brief intro to help them understand probabilities: "Your answers can range from zero to one hundred, where zero means there is absolutely no chance, and one hundred means that it is absolutely certain. For example, when weather forecasters report the chance of rain, a

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The Trump Tax Increase

25 days ago

Posted on 22 May 2019
by UPFINA

UFINA Article of the WeekTrade War Escalates, A Tax Increase On Middle ClassWhile President Trump delayed the global auto tariffs, the situation with China isn’t as good. As we mentioned in a previous article, China is tough to deal with because of the intellectual property dispute. This is about bringing China onto a level playing field with America after decades of being an emerging market. Based on GDP per capita, China isn’t a developed economy, but its huge population makes it the powerhouse of global growth.Please share this article – Go to very top of page, right hand side, for social media buttons.Because of Trump’s new effort to negotiate with China in a very public way it makes it seem like this is an easy deal and that these are new

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Some International Evidence For Keynesian Economics Without The Phillips Curve

25 days ago

Posted on 22 May 2019
from Voxeu.org

— this post authored by Roger Farmer and Giovanni NicolòThe economies of many countries are operating close to full capacity, but unemployment and inflation are both low. Using data from the US, UK and Canada, this column compares differences in the macroeconomic behaviour of real GDP, the inflation rate and the yields on three-month Treasury securities in the three countries. It shows that the Farmer monetary model, closed with a belief function, outperforms the New Keynesian model, closed with the New Keynesian Phillips curve. The data fit the multiple equilibria emphasised in the Farmer model well, rather than the mean-reverting processes assumed by the New Keynesian model. Please share this article – Go to very top of page, right hand side,

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Takeaways From The SIC

28 days ago

Posted on 19 May 2019
by John Mauldin, Thoughts from the Frontline

There are these two young fish swimming along, and they happen to meet an older fish swimming the other way, who nods at them and says, “Morning, boys, how’s the water?" And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes, “What the hell is water?" – David Foster Wallace, This Is WaterPlease share this article – Go to very top of page, right hand side, for social media buttons.Turning and turning in the widening gyreThe falcon cannot hear the falconer; Things fall apart; the centre cannot hold;Mere anarchy is loosed upon the world,The blood-dimmed tide is loosed, and everywhereThe ceremony of innocence is drowned;The best lack all conviction, while the worstAre

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Can Tariffs Bankrupt Americans?

29 days ago

Since our last article on the U.S. China trade war, China officially retaliated against America’s 25% tariff on $200 billion in goods with its own tariff on $60 billion of American goods. Over 5,000 goods will be taxed at a 25% rate. Other goods will be taxed at a rate of 20% which is an increase from 5% and 10%.Please share this article – Go to very top of page, right hand side, for social media buttons.On the possibility of taxing just about all Chinese imports at a 25% rate, President Trump stated:“We have the right to do [tariffs on] another $325 billion at 25% in additional tariffs. I have not made that decision yet."This is consistent with how Trump’s negotiation process has gone. When he takes action, he threatens more action, but doesn’t deliver until first trying to negotiate. He

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The Slope Of The Term Structure And Recessions: Evidence From The UK, 1822-2016

29 days ago

Posted on 18 May 2019
from Voxeu.org

— this post authored by Terence Mills, Forrest Capie, and Charles GoodhartIt is well known that the slope of the term structure of interest rates contains information for forecasting the likelihood of a recession in the US. This column examines whether the same is true for the UK. Focusing on three periods – the pre-WWI era, the inter-war years, and the post-WWII period – it finds strong support for the inverted yield curve being a predictor of UK recessions for both the pre-WWI and post-WWII periods, but the evidence is less conclusive for the inter-war years.Please share this article – Go to very top of page, right hand side, for social media buttons.As the yield curve in the US has now once again inverted, following the Fed’s attempt to

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Bayesianism And Non-Ergodicity In Economics

May 16, 2019

Posted on 16 May 2019

by Philip Pilkington

The atomic hypothesis which has worked so splendidly in Physics breaks down in Psychics. We are faced at every turn with the problems of Organic Unity, of Discreteness, of Discontinuity – the whole is not equal to the sum of the parts, comparisons of quantity fails us, small changes produce large effects, the assumptions of a uniform and homogeneous continuum are not satisfied.

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Thus the results of Mathematical Psychics turn out to be derivative, not fundamental, indexes, not measurements, first approximations at the best; and fallible indexes, dubious approximations at that, with much doubt added as to what, if anything, they are

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Shelter Inflation Stays High Despite Slower Home Price Growth

May 15, 2019

Posted on 15 May 2019
by UPFINA

UPFINA Article of the WeekWhile jobless claims fell in the week of May 4th to 228,000 from 230,000, this report was highly disappointing. 3 weeks prior, when claims increased to 230,000, economists said they jumped because of the Easter holiday season. However, now we have 3 weeks of elevated claims which have caused the 4 week moving average, seen in the chart below, to increase from 201,500 to 220,250.Please share this article – Go to very top of page, right hand side, for social media buttons.Source: FREDThis isn’t a recessionary warning, but it is something to follow closely as jobless claims are finally following the boost in layoff announcements seen in Q1. On a yearly basis, growth in the 4 week moving average of claims increased from -10.6%,

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Your Pension May Be Monetized

May 12, 2019

Posted on 12 May 2019

by John Mauldin, Thoughts from the Frontline

One difficulty in analyzing our economic future is the sheer number of potential crises. When so much could go wrong (and really right, when the exponential technologies I foresee get here), it’s hard to isolate, let alone navigate, the real dangers. We are tempted to ignore them all. Ignoring them is usually the right response, too. We can "Muddle Through" almost anything.

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But muddling through isn’t the same as smooth sailing. It’s difficult, unpleasant, and often keeps you from looking for better opportunities. Then there are times when you can’t even muddle through. Instead, you find yourself emotionally at a

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The Casualties Of War

May 11, 2019

Posted on 11 May 2019
by UPFINA

Weekend Reading From UPFINATrade War Impact On Consumer Prices, Stocks & Global EconomyHeading into May, the trade talks appeared to be headed in a positive direction, albeit very slowly. We’re hesitant to trust politicians/officials when they discuss major dealings because history has shown us more often than not politicians kick the can down the road rather than getting anything done. In America, politicians face elections every 2-6 years which makes tough votes and decisions not in their best interest.Please share this article – Go to very top of page, right hand side, for social media buttons. British and German wounded, Bernafay Wood, 19 July 1916. Photo by Ernest Brooks, Wikipedia. (Click picture for large image.)This healthy skepticism of an

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The Bayesian Cult: Threatening Those Who Refuse To Fall Into Line

May 9, 2019

Posted on 09 May 2019
by Philip Pilkington

I thought it might be worthwhile to follow up my previous posts on probabilities with one in which I first of all clarify one or two points and second of all show why certain people are attracted to Bayesian statistics. I draw on a paper that Lars Syll (who else?) has drawn my attention to by the philosopher Clark Glymour. The following post will be an extended comment on Glymour’s excellent paper.Please share this article – Go to very top of page, right hand side, for social media buttons.Bayesian statistics is a subjective measure of probabilities. What that means is that it assumes that we hold degrees of belief about certain things and that the probabilities are contained within these degrees of belief – they are not, as it were, “out

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Time To Change Strategy

May 6, 2019

Posted on 06 May 2019
by John Mauldin, Thoughts from the Frontline

My recent articles described what I think the future will look like. I hasten to add, it isn’t what I think the future should look like or what I want to see. Almost the entire developed world has painted itself into a corner.Please share this article – Go to very top of page, right hand side, for social media buttons.It won’t necessarily be terrible. I don’t expect another Great Depression or economic upheaval, but we will have to adapt our portfolios and lifestyles to this new reality. The good news is the changes will happen relatively slowly. We have time to adapt.In war movies, it’s common for the dashing leader to make bold promises like, “We will never retreat!" ahead of a glorious victory. The assumption is

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Inflation And Income Growth Implications On Fed Rate Cut

May 1, 2019

Posted on 01 May 2019
by UPFINA

UPFINA Article of the WeekBecause of the government shutdown, spending and inflation data from February and March came out together along with March income data. Everyone who was confused about the low GDP deflator in the Q1 GDP report was brought up to speed somewhat since the inflation readings in February and March mostly missed estimates. Furthermore, the core PCE reading fell much more than the core CPI reading.Please share this article – Go to very top of page, right hand side, for social media buttons.Core PCE Inflation CratersSpecifically, headline February inflation was 1.3% which was down from 1.4%. Core PCE inflation fell from 1.8% to 1.7%, missing estimates for 1.8%. Furthermore, headline PCE inflation was 1.5% in March which increased

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Cleaning Out Americans And Their Laundry

April 30, 2019

Posted on 29 April 2019

by Timothy Taylor, Conversable Economist

Washing Machine Tariffs: Who Paid? Who Benefits?

When import tariffs are proposed, there’s a lot of talk about unfairness and helping workers. But when the tariffs are enacted, the standard pattern is that consumers pay more, profits for the protected firm go up, and jobs are reshuffled from unprotected to protected industries.

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Back in 1911, satirist Ambrose Bierce defined "tariff" this way in The Devil’s Dictionary:

"TARIFF, n.A scale of taxes on imports, designed to protect the domestic producer against the greed of his consumer."

Back in fall 2017, the Trump administration announced worldwide tariffs on

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How I Learned To Love The Debt

April 28, 2019

Posted on 28 April 2019
by John Mauldin, Thoughts from the Frontline

The US, Europe, and most of the developed world on are the road to Japanification. Like I wrote last week, we will see financial repression, ever increasing deficits, slower growth, etc. Essentially, the rest of us will begin to look like Japan with its astronomical deficits and ultra-dovish monetary policy.Please share this article – Go to very top of page, right hand side, for social media buttons.I tried to emphasize this is not the end of the world. It’s not the best world, either, but we’ve gone too far to come back now. There is no significant constituency for any of the things it would take for the US government to balance its budget. Neither party wants to reduce the deficit, and the MMT fans want to make

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Marginalist Microeconomics As Authoritarian Poison

April 25, 2019

Posted on 25 April 2019
by Philip Pilkington

Article of the Week from Fixing the Economists“The world itself is the will to power – and nothing else! And you yourself are the will to power – and nothing else!" – Friedrich NietzschePlease share this article – Go to very top of page, right hand side, for social media buttons.Lars Syll has directed me to an interesting post by Ole Rogeberg. It is about an interview that was undertaken with labour economist Daniel Hamermesh. In the interview Hamermesh explains that the problems with economics today are mainly to do with the macro side, not the micro side. It is the macro side, Hamermesh explains, that failed to see the crisis, not the micro side.First of all, this is an entirely dubious argument. Anyone who knows their history of

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The Rules Will Change But That’s Probably OK

April 21, 2019

Posted on 21 April 2019
by John Mauldin, Thoughts from the Frontline

“But the emperor has nothing at all on!" said a little child.“Listen to the voice of innocence!" exclaimed his father; and what the child had said was whispered from one to another.“But he has nothing at all on!" at last cried out all the people. The emperor was suddenly embarrassed, for he knew that the people were right; but he thought the procession must go on now! And the lords of the bedchamber took greater pains than ever, to appear holding up the robes although, in reality, there were no robes at all. – – – “The Emperor’s New Clothes" by Hans Christian AndersenPlease share this article – Go to very top of page, right hand side, for social media buttons.When you write about controversial topics for hundreds

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Who Benefited From Tax Reform?

April 20, 2019

Posted on 20 April 2019

Written by Dan Lieberman, Alternativeinsight

Characterizations of the Tax Cuts and Jobs Act have followed agendas – its opponents maintaining it is a bill for the wealthy, and its supporters arguing that the bill fairly satisfies all economic levels.

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A previous article, Failure of Trump Tax Cuts, analyzed the effects of the Tax cuts on the economy and showed that tax cuts do not pay for themselves; they do not generate additional revenue that compensate for the loss of government receipts. This article analyzes tax cut effects on individual wage earners. Four scenarios, representative of the tax paying public in years 2107 and 2018, are presented.

Single

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What Do IQ Tests Really Measure?

April 18, 2019

Posted on 18 April 2019
by Philip Pilkington

Fixing the Economists Article of the WeekIQ. What is it all about? In our society it is generally seen as a sort of symbol of social status. So much so that some join groups like Mensa in order to hang out with other high IQ people while others sign up for dating websites that are supposedly geared toward your IQ level.Please share this article – Go to very top of page, right hand side, for social media buttons.Yes, the more democratically minded amongst us might get something of a sniff of elitism off the whole thing. Scratch the surface and you might even begin to smell something even more unseemly; I refer of course to the 19th and 20th century eugenics movement which was intimately bound up with the emerging idea of IQ.Well, a recent

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