Category: Economy

Trump’s budget proposal slashes spending by $3.6 trillion over 10 years

Washington Post/Damian Paletta & Robert Costa/05-22-17

President Trump on Tuesday will propose cutting federal spending by $3.6 trillion over 10 years, a historic budget contraction that would severely ratchet back spending across dozens of programs and could completely reshape government assistance to the poor.

…Mick Mulvaney, director of the Office of Management and Budget, said the spending plan, titled “A New Foundation for American Greatness,” is focused on protecting taxpayer money and cutting spending on programs that are ineffective or encourage people not to work.

…The proposed budget refocuses decades of U.S. spending — both foreign and domestic — to reflect Trump’s belief that too much taxpayer money is simply given away.

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Posted in Economy, Politics |

Treasury Sec Mnuchin: “we’re not going to get [tax reform] done by August.”

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Posted in Economy, Politics |

Trump’s new budget is only good for 1.9% growth rather than 3%, warns ex-OMB director

CNBC/Berkeley Lovelace Jr./05-23-17

President Donald Trump’s budget proposal is likely to help produce 1.9 percent economic growth, not 3 percent, former Office of Management and Budget Director Jim Nussle told CNBC on Tuesday.

Nussle’s comment came the morning after Trump’s proposed fiscal 2018 budget became public. The White House said it is a key component in pushing economic growth to 3 percent.

The Congressional Budget Office currently estimates, however, growth at about 1.9 percent and the Federal Reserve projects the economy will expand at a 1.8 percent annual rate.

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Posted in Economy, Politics |

Eurozone consumer confidence hits decade high

FT/Mehreen Khan/05-19-17

The good times are back in the eurozone.

A measure of consumer confidence has hit a pre-financial crisis peak this month, reaching its best level in a a decade as the continent has shrugged off populist political risks in 2017.

The European Commission’s monthly sentiment gauge gained 0.3 points to hit -3.3 in May – its best level since July 2007.

PG View: Aside from the negative number itself, this article fails to mention that consumer confidence hasn’t been positive since the euro launched nearly 20-years ago.


source: tradingeconomics.com

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Posted in Economy, Europe |

Trump scandals threaten GOP agenda

Politico/Nancy Cook & Burgess Everett/05-18-17

Republicans’ long-held dreams of tweaking Medicaid, repealing Obamacare and overhauling the tax code appear in more jeopardy than ever as scandal and investigations beset President Donald Trump’s White House.

Some Republicans fear that subpoenas and congressional inquiries will swamp the time they need to pass a health care or tax bill in 2017 — not to mention renegotiate NAFTA, unify behind a $1 trillion infrastructure plan or build that border wall.

“Everything affects our work right now. The more controversy we have the more difficult it is to do things,” said Senate Finance Chairman Orrin Hatch (R-Utah). “But this place is filled with controversy, so if you don’t understand that, you’re in the wrong job.”

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Posted in Economy, Politics |

Goldman Sachs’ top economist is losing confidence in the Fed’s ability to raise interest rates


BusinessInsider/Pedro Nicolaci da Costa/05-16-17

Goldman Sachs chief economist Jan Hatzius has become distinctly less confident in his expectation that the Federal Reserve will raise interest rates twice more this year and make a major announcement about reducing its bond holdings.

Hatzius’ skepticism is due to US inflation, which has been undershooting the Fed’s 2% official target for most of this economic recovery, and continues to lag despite constant warnings to the contrary.

…”We have shaved our subjective odds of a June rate hike to 80%, from 90% earlier, and have also become a bit less confident in a September hike,” Hatzius added. “If the outlook deteriorates significantly, the committee might simply delay any further tightening steps.

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Posted in Central Banks, Economy, inflation, Monetary Policy |

Greek economy sinks back into recession

BBC/05-16-17

Greece has fallen back into recession for the first time since 2012, official figures from Eurostat show.

The country’s gross domestic product (GDP) fell by 0.1% in the first three months of the year after shrinking by 1.2% in the final quarter of 2016.

The figures come as Greek unions begin two days of industrial action against cuts to pensions and tax rises insisted on by creditors.

Greece is still struggling to secure a new bailout from international lenders.

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Posted in Economy, Europe, European Debt Crisis |

Pimco dims US inflation target after ‘noticeable softening’

FT/Adam Samson/05-15-17

A “noticeable softening” in US inflation over the past two months ratchets up the pressure on the Federal Reserve to defend its rate rise plans, Pimco said on Monday as it reduced its target for price growth this year.

A disappointing reading on consumer price growth in March may have seemed like a one-time blip, but a repeat performance the following month raised eyebrows at the big US bond manager.

“…unlike in March – when weakness was primarily attributable to the largest-ever monthly decline in wireless services – April’s weakness was broad-based, reflecting softness in a range of core goods and services,” said chief US economist Tiffany Wilding.

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Posted in Economy, inflation |

Hurricane Bearing Down on the Casino

Daily Reckoning/David Stockman/05-11-17

…Washington will soon become a three-ring circus of investigations of Russia-gate and the “hidden” reasons for Trump’s action. The Imperial City will get embroiled in bitter partisan warfare and the splintering of the GOP between its populist and establishment wings.

In that context, what passes for “governance” will be reduced to a moveable Fiscal Bloodbath that cycles between debt ceiling showdowns and short-term continuing resolution extensions.

Progress on Obamacare “repeal and replace” or on a 2018 budget resolution that would enable consideration of tax reform will be nearly impossible.

Apparently, that’s not yet dawned on the Wall Street shills who are in the business of justifying a market that never stops rising.

…To use a storm metaphor, I have never been in the eye of a hurricane. But I do reside only a few blocks from Wall Street. And I can feel the financial barometric pressure plummeting by the hour.

In fact, others than the five FAANG stocks (Facebook, Amazon, Apple, Netflix and Goggle), the market has been silently collapsing since March 1st.

PG View: Stockman warms that the lack of breadth in the stock market portends that “a crash is just around the corner.”

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Posted in Economy, Markets |

Stagflation Builds As US Producer Prices Spike Most In 5 Year

ZeroHedge/Tyler Durden/05-11-17

For the 3rd month in a row, US Producer Prices have risen at a faster rate than The Fed’s mandate. April healdine PPI rose 2.5% YoY – the most since Feb 2012, and well above the highest anayst estimate, despite disinflationary credit impulse pressures from China being seen in industrial metals. The biggest driver is surging costs for investment advice!

…So Q1 saw The Fed hike as GDP growth plummeted (weakest quarterly growth for a rate hike since 1980) and inflation surged… this won’t end well.

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Posted in Economy, inflation |

Of Course the Economy Isn’t Going to Grow at 3% This Year

TheStreet/Emily Stewart/05-10-17

Commerce Secretary Wilbur Ross is conceding a point that economists have been making for a while — the 3% growth rate the Trump administration has promised isn’t realistic anytime soon.

In an interview with Reuters on Tuesday, Ross said President Trump’s growth target “is certainly not achievable this year,” marking the first time a White House official has acknowledged that the figure is a less-than-feasible goal in the near-term.

PG View: No real surprise here . . .

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Posted in Economy |

Bad Week for Oil and Iron Ore Gets Worse, Spurring Contagion

Bloomberg/05-05-17

Within minutes of U.S. crude-oil futures tumbling through $45 a barrel, signs of a broader risk-off swing started to emerge in markets, exacerbating what was already brewing as a worrying week for commodities.

Oil’s retreat to a level not seen since OPEC forged its landmark agreement to cut output last November stoked declines from iron ore to industrial metals and losses that many commentators had been putting down to individual supply and demand factors.

…Iron ore has lost about 12 percent this week in Singapore, the most since November, as the material used in steelmaking fails to shake concerns about supply and the outlook for Chinese demand.

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Posted in Economy |

U.S. Labor Productivity Unexpectedly Drops In Q1, Labor Costs Jump

RTTNews, via NASDAQ/05-04-17

A report released by the Labor Department on Thursday showed an unexpected drop in U.S. labor productivity in the first quarter along with a bigger than expected jump in unit labor costs.

The Labor Department said productivity fell by 0.6 percent in the first quarter after surging up by a revised 1.8 percent in the fourth quarter.

Economists had expected productivity to come in unchanged compared to the 1.3 percent jump that had been reported for the previous quarter.

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Posted in Economic Data, Economy |

Eurozone GDP growth outpaces U.S. at start of year

Xinhua/05-03-17

The economic recovery across the 19-country Eurozone was better than expected in the opening quarter of this year and outpaced that of the United States, official data showed Wednesday.

The gross domestic product (GDP) growth in the single currency grew by 0.5 percent quarter on quarter between January and March, making the annual growth rate to 1.7 percent, according to a preliminary flash estimate published by Eurostat, the bloc’s statistics agency.

The better-than-expected performance added to the evidence that Eurozone’s recovery has gained momentum, beating that of the United States, whose GDP expanded by 0.7 percent at an annual basis in the first quarter of this year.

PG View: Well of course! Negative rates, QE and the resulting weaker currency is always going to beat-out tighter monetary policy and a stronger currency. Unfortunately, both the U.S. and Europe have borrowed so much prosperity from the future, that sub-2% growth may be the best we can hope for.

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Posted in Economy |

Larry Fink: Expect ‘Severe Issue’ in U.S. Economy If Trump’s Tax Plan Adds to Deficit

WSJ/Sarah Krouse/04-28-17

BlackRock Inc. Chief Executive Laurence Fink cast doubt on the viability of the Trump administration’s tax plan, saying that if the proposal adds to the country’s deficit, it will create a “severe issue.”

Mr. Fink, who runs the world’s largest asset manager, also called the possibility of sustainable 3% growth unlikely. Part of the challenge the U.S. faces, Mr. Fink said, is demographics. Baby boomers, the largest living generation in the country is aging, reaching retirement age.

“With our demographics it seems pretty improbable to see sustainable 3% growth,” Mr. Fink said at an investing conference hosted by research firm Morningstar Inc. in Chicago.

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Posted in Economy, Politics |

U.S. first-quarter growth weakest in three years as consumer spending falters

Reuters/Lucia Mutikani/04-28-17

The U.S. economy grew at its weakest pace in three years in the first quarter as consumer spending barely increased and businesses invested less on inventories, in a potential setback to President Donald Trump’s promise to boost growth.

Gross domestic product increased at a 0.7 percent annual rate also as the government cut back on defense spending, the Commerce Department said on Friday. That was the weakest performance since the first quarter of 2014.

PG View: That falls right between the Atlanta Fed’s GDPNow forecast and expectations. Still, it makes the March rate hike look pretty ill-advised.

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Posted in Economy |

Hedge fund legend Paul Tudor Jones says this ‘terrifying’ chart should freak out the Fed

CNBC/John Melloy/04-21-17

[Paul Tudor Jones], who made a large part of his fortune by calling the infamous stock market crash in October 1987, referred to a chart of the market’s value relative to the country’s economy and said it should be “terrifying” to central bankers, namely Federal Reserve chief Janet Yellen, according to the report.

…The trader said that low interest rates instituted by central bankers around the world have ballooned U.S. stock market valuations back to 2000 levels, right before the dot-com bubble burst and shares plunged.

This chart is sometimes called the “Buffett Indicator” because the Berkshire Hathaway chairman once referred to it in an interview as one of the key measures of valuation he tracks.

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Posted in Economy, Markets |

Larry Fink: ‘Warning Signs Are Getting Darker’ for the U.S. Economy

Bloomberg/Charles Stein/04-19-17

Laurence D. Fink, chief executive officer of BlackRock Inc., said the lackluster growth of the U.S. economy and uncertainty around the Trump administration’s ability to quickly pass key reforms pose a risk to markets.

“There are some warning signs that are getting darker,” said Fink, in an interview Wednesday on Bloomberg Television. Fink, who runs the world’s largest money manager, mentioned a pullback in car sales and a slowdown in merger and acquisition activity as indications that uncertainty is rising. The slowest economy among the G-7 nations is the U.S., he said.

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Posted in Economy |

Rickards: Predict the Unpredictable… We’re Heading Straight Into a Recession

Modern Wall Street/Olivia Bono-Voznenko/04-13-17

Before the holiday weekend begins, best-selling author James Rickards joins Olivia Bono-Voznenko outside the NYSE to talk all about the markets and his latest book, “The Road to Ruin.” Jim discusses the currency wars, Trump’s turnaround on China & the Fed and an inevitable crisis amid a weak system.

“Have 10% of your investable assets in [physical] gold.” — James G. Rickards

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Posted in Currency Wars, Debt, Economy |

Trump’s Weaker Dollar Dream at Odds With Strong Economy Promise

Bloomberg/Andrew Mayeda/04-13-17

President Donald Trump has signaled his preference for a weaker dollar and low interest rates. He may end up with neither if the U.S. economy continues to recover and he delivers on his ambitious agenda of tax cuts and infrastructure spending.

…The bigger question is how Trump can coax the dollar lower and still promise to inject fiscal stimulus, Setser said. “Historically, a bigger fiscal deficit has put upward pressure on the dollar.”

…”I don’t see why the president shouldn’t be allowed to talk about this,” said Joseph Gagnon, a former Fed official who is now a senior fellow at the Peterson Institute for International Economics. “The strong-dollar policy has outlived its usefulness.”

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Posted in Central Banks, Economy, Monetary Policy, Politics, U.S. Dollar |

The Fed Is Communicating A Recession Is Imminent

ZeroHedge/Chris Hamilton/04-13-17

The Federal Reserve is clearly and plainly telling us that it intends to take the US into recession in short order. I’m not sure what message the markets are hearing, but the Fed is messaging two to three more rate hikes this year into (according to GDP) a sluggish and slowing economy. The FFR (Federal Funds Rate) has been raised by 80 basis points and meanwhile the 10yr US Treasury yield has flat-lined. At this pace, the spread (which is as near a full proof indicator of recession as we have) suggests by year end we will have recession. Of course the Fed could halt it’s likely June, September, and December rate hikes (I’m assuming 30bps each…though 50bp jumps aren’t out of the question) and/or the 10yr yield could rise (but below I’ll show why this is highly unlikely). So, absent course correction, the spread on bank lending will vanish and likely turn negative by year end…and the economic impact is recession.

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Posted in Central Banks, Economy, Monetary Policy |

Why did Trump flip flop on Yellen? She may be the dove he needs, analysts say

MarketWatch/Greg Robb/04-13-17

Federal Reserve Chairwoman Janet Yellen is the dove that President Donald Trump needs to achieve his economic goals, central bank experts said Wednesday as they contemplated the apparent reversal in his stance.

In an interview with the Wall Street Journal, Trump said he had respect for Yellen and said she was “not toast” when her term helming the central bank ends next year.

“I do like a low-interest rate policy, I have to be honest with you,” Trump said in the interview.

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Posted in Central Banks, Economy, Monetary Policy, Politics |

China faces a tough fight to escape its debt trap

FT/Martin Wolf/04-11-17

If something cannot go on forever, it will stop.” This is “Stein’s law”, after its inventor Herbert Stein, chairman of the Council of Economic Advisers under Richard Nixon. Rüdiger Dornbusch, a US-based German economist, added: “The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.”

These quotations help us think about the macroeconomics of China’s economy. Growth at rates targeted by the government requires a rapid rise in the ratio of debt to gross domestic product. This cannot continue forever. So it will stop. Yet, since the Chinese government controls the financial system, it can continue for a long time. But the longer the ending is postponed, the greater the likelihood of a crisis, a big slowdown in growth, or both.

I have argued that it is in the interests of China and the rest of the world to keep their financial systems separate. The rapid growth of indebtedness and the size of its financial system represent a threat to global stability. China needs to rebalance its economy and stabilise its financial system before opening up capital flows. Western financiers will have a different view. We should ignore this sectional interest.

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Posted in Debt, Economy |

World trade seen growing 2.4 percent in 2017, uncertainty weighs: WTO

Reuters/Stephanie Nebehay/04-12-17

World trade is on track to expand by 2.4 percent this year, though there is “deep uncertainty” about economic and policy developments, particularly in the United States, the World Trade Organization (WTO) said on Wednesday.

WTO director-general Roberto Azevedo said that clarity was still needed on U.S. President Donald Trump’s trade policies, while making a general appeal to resist protectionism.

The results of upcoming elections in major economies including France should provide more predictability for investors, he said.

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Posted in Economy |

If Everyone Is So Confident, Why Aren’t They Borrowing?

WSJ/Aaron Back/04-11-17

One of the great mysteries and biggest concerns in the economy right now is the slowing growth in bank lending. Economists are searching for answers but none are entirely satisfying.

Total loans and leases extended by commercial banks in the U.S. this year were up just 3.8% from a year earlier as of March 29, according to the latest Federal Reserve data. That compares with 6.4% growth in all of last year, and a 7.6% pace as of late October.

The slowdown is more surprising given the rise in business and consumer confidence since the election. And it is worrisome because the lack of business investment is considered an important reason why economic growth has remained weak.

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Posted in Debt, Economy |

Trump’s quick wins on China trade won’t wipe out the deficit

CNNMoney/Jethro Mullen/04-10-17

President Trump toned down his rhetoric when he met his Chinese counterpart, Xi Jinping, late last week. This was not the start of a trade war some had feared.

There was no repeat of claims that China was stealing U.S. jobs by manipulating its currency. There was also no grand bargain between the leaders of the world’s two biggest economies.

Instead, they agreed to a “100-day plan” for talks, according to U.S. Commerce Secretary Wilbur Ross.

…Analysts say China could make small concessions, but they won’t have much impact on America’s $310 billion trade deficit.

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Posted in Economy |

Economy Threatens U.S. Stocks More Than Trump, Says Veteran Money Manager

Bloomberg/Adam Haigh/04-03-17

Veteran money manager Bob Doll is becoming increasingly worried that the American economy poses a greater threat to the U.S. stock rally than the political tensions traders are currently focused on from President Donald Trump and Congress.

Sentiment on the U.S. economy may be too high, leaving investors vulnerable to negative surprises on growth, according to Doll…

…“We remain constructive in the medium-and long-term toward risk assets, but are growing increasingly cautious about the short-term outlook,” Doll wrote in a letter to clients April 3. “More than politics, the economy probably presents a more probable roadblock for equities.”

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Posted in Economy, Markets |

The Fed is running out of reasons to keep raising interest rates

BusinessInsider/Pedro Nicolaci da Costa/03-31-17

Federal Reserve Chair Janet Yellen said the primary reason for raising interest rates in March was a simple one: the central bank is confident in a steadily improving economy.

Here’s the rub. The economy hasn’t really been improving lately, it’s actually been deteriorating somewhat. Despite record-setting rallies in stocks and renewed optimism among business leaders, hard data mostly point to a still-subdued environment for both investment and consumer spending.

…So while the Fed has promised to raise interest rates a few more times this year — some say two more, others three — the reasoning for such an increase may be unraveling a bit.

PG View: Yellen acknowledged disappointing growth in her testimony before Congress, but markets shrugged it off. That may be starting to change

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Posted in Central Banks, Economy, Monetary Policy |

The Fed just tightened its growth forecast

BusinessInsider/Elena Holodny/03-15-17

The Federal Open Markets Committee voted to raise its benchmark interest rate after a two-day meeting, as virtually everyone had been expecting.

It also released its latest Summary of Economic Projections.

The Fed now expects real GDP to grow around 2.0% to 2.2% in 2017, a tighter range compared to its earlier outlook of 1.9% to 2.3%.

PG View: Yellen said that she would welcome stronger economic growth within the context of price stability. That’s not typically what you get in a rising interest rate environment.

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Posted in Economy |

Show Me The Money

Janus/Bill Gross/03-09-17

Central banks attempt to walk this fine line – generating mild credit growth that matches nominal GDP growth – and keeping the cost of the credit at a yield that is not too high, nor too low, but just right. Janet Yellen is a modern day Goldilocks.

How is she doing? So far, so good, I suppose. While the recovery has been weak by historical standards, banks and corporations have recapitalized, job growth has been steady and importantly – at least to the Fed – markets are in record territory, suggesting happier days ahead. But our highly levered financial system is like a truckload of nitro glycerin on a bumpy road. One mistake can set off a credit implosion where holders of stocks, high yield bonds, and yes, subprime mortgages all rush to the bank to claim its one and only dollar in the vault. It happened in 2008, and central banks were in a position to drastically lower yields and buy trillions of dollars via Quantitative Easing (QE) to prevent a run on the system. Today, central bank flexibility is not what it was back then. Yields globally are near zero and in many cases, negative. Continuing QE programs by central banks are approaching limits as they buy up more and more existing debt, threatening repo markets and the day to day functioning of financial commerce.

I’m with Will Rogers. Don’t be allured by the Trump mirage of 3-4% growth and the magical benefits of tax cuts and deregulation. The U.S. and indeed the global economy is walking a fine line due to increasing leverage and the potential for too high (or too low) interest rates to wreak havoc on an increasingly stressed financial system. Be more concerned about the return of your money than the return on your money in 2017 and beyond.

PG View: Gross makes a good point about being more concerned about capital preservation. Although he doesn’t mention it specifically, one of the best assets for accomplishing that task is gold.

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Posted in Debt, Economy |