Using Evidence for Decisions

cropped-bob-shapiro.jpg   By Bob Shapiro

Sometimes numbers can give different messages depending on how you look at them. With a Presidential election a month and a half away, this can be a problem.

For example, stats were released on Tuesday for Housing Starts and also for Housing Permits. The Starts number for August was down about 6% from the July figure, while the Permits were down just slightly.

Image result for housing starts

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Fed Credibility Dwindles, Pension Funding Crisis Looms

By Clint Siegner From http://www.MoneyMetals.com

Fed officials jawbone the markets and spread disinformation. They figure it’s part of their job as central planners. It’s not enough to pull the levers and twist the knobs on interest rates, the money supply, and asset prices. They also use propaganda to manage investor psychology. It’s all smoke and mirrors.

Frustrated metals investors wonder just how long officials will maintain their hold over markets when so much of what they say turns out to be garbage and so much of what they do ends in failure.

The answer is perhaps not much longer. There are real cracks emerging in the credibility of Fed banksters. It has taken years, but investors and pundits are finally questioning whether the Fed knows what it’s doing. They have progressed from the blind worship of Alan Greenspan, who engineered first the Dot.com bubble and then the housing bubble that made people feel so wealthy, to wondering if they can believe a word Janet Yellen says.

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The Coming Market Rout

cropped-bob-shapiro.jpg   By Bob Shapiro

Several days ago, IM Vronsky wrote that the big banks are in deep trouble. Since the financial reporting of these companies leave out much of the data necessary to evaluate these companies, he pointed to the price history (and technicals) of several bank stocks.

While stock prices reflect only the collective market sentiment based on the incomplete reporting, it does indicate that all is not well in River City.

Looking at the overall market first, we find that prices peaked about a year ago and since have turned down. Lets look at some factors affecting stock prices.

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National Black Chamber of Commerce Upsets Climate Pundits

By Eric Worrall – Re-Blogged From http://www.WattsUpWithThat.com

The National Black Chamber of Commerce has been upsetting climate advocates, by insisting that President Obama’s clean energy plan would hurt the US economy. The response from climate advocates has been nothing short of vitriolic.

For example;

How the polluter-backed National Black Chamber misleads minorities

By Martin Luther King III December 29

Martin Luther King III is co-founder of the Drum Major Institute.

For months now, the National Black Chamber of Commerce has been warning communities of color that the Obama administration’s Clean Power Plan will cause job losses and generate higher energy bills.

In fact, the opposite is true.

The Environmental Protection Agency’s first-ever limits on carbon pollution from power plants will create clean- energy jobs, improve public health, bring greater reliability to our electric power grid, bolster our national security, demonstrate the United States’ resolve to combat climate change and maybe even reduce our utility bills.

By limiting the emission of carbon dioxide, the Clean Power Plan also will slow a main driver of extreme weather, which has inflicted widespread economic damage and human misery, including death.

That’s what the National Black Chamber of Commerce neglects to mention.

Read more: https://www.washingtonpost.com/opinions/how-the-polluter-backed-national-black-chamber-misleads-minorities/2015/12/29/12b1ac3e-ae2f-11e5-b820-eea4d64be2a1_story.html

Unfortunately for Martin Luther King III’s dubious claim about energy bills, it was President Obama himself who explained that his plan will cause energy bills to skyrocket.

https://wattsupwiththat.files.wordpress.com/2014/10/green_money_windmills.jpg

So what has the NBCC done, to provoke such a response? The following is an excerpt from the NBCC report on the 15th December;

3. Congress Alert: Currently, Congress is negotiating the omnibus spending legislation. One concerning provision that they are reportedly trying to slip into this trillion dollars spending package is a provision that would increase funding for the Green Climate Fund by $3B. This money uses Americans’ tax dollars to subsidize projects in foreign countries under the guise of climate change. Please let your congressperson and senators know this is unacceptable before they finish this really pork filled package.

Read more: http://www.nationalbcc.org/news/progress-reports/2561-progress-report-december-15-2015

Back in September the NBCC held a seminar, titled How Climate Policy Hurts the Poor

Regardless of one’s personal opinions on the effect man-made greenhouse emissions have on the climate, the Obama Administration’s proposed Clean Power Plan will exact a high price on Americans and have a negligible impact – if any – on global temperatures. NERA’s economic consultants estimate a temperature reduction of only 0.018 degrees C in 2100 at a cost of hundreds of billions of dollars. In August, the Environmental Protection Agency announced its final rule to achieve a 32% reduction in “carbon pollution” from the electric power production sector by 2030.

Experts estimate a significant impact on the cost of electricity to all consumers and businesses. President Obama has kept his promise that “electricity rates would necessarily skyrocket” as a result of his policy. The poorest and most vulnerable members of society will be disproportionately harmed by these impending spikes in energy prices. Europe is already experiencing “energy poverty” where families and the elderly are being forced to choose between eating and heating. Tens of thousands did in the United Kingdom in several recent winters because they are unable to pay their electricity bills and still buy enough food. Will this happen in America next?

The world’s poorest – the 1.3 billion in developing countries who depend on wood and dried dung as primary cooking and heating fuels, smoke from which kills 4 million and temporarily debilitates hundreds of millions every year – will be condemned to more generations of poverty and its deadly consequences. Instead, developing countries desperately need to replace such primitive and dirty fuels with electricity, the most affordable sources of which are fossil fuels.

Read more: http://www.nationalbcc.org/events/icalrepeat.detail/2015/09/21/120/-/how-climate-policy-hurts-the-poor

Plenty more where that came from – the NBCC website is well worth a read.

I admire that the NBCC has chosen to steadfastly and consistently defend the interests of its members, in the face of what must be substantial political pressure to join President Obama’s climate crusade.

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One Measure of the US Economy

cropped-bob-shapiro.jpg   By Bob Shapiro

I had occasion to view a couple of Cass Trucking Index graphs, both for shipments (the physical volume) and for expenditures. Interestingly, the number of shipments in 2015 is almost dead flat compared to 1999.

Since US population has increased by over 15% during that time, from 279 Million to 322 Million today, I would have expected a similar rise in shipments.

Cass Freight Index Shipments 123115

Of course, 1999 was before the Bubble burst, while today we have anything but a robust Economy. Even so, with our political leaders trumpeting all the strides they have made to get the Economy back on the right track, dead even compared to 15% higher betrays an Economy that still is worse off than 16 years ago.

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US Secular Stagnation?

By Steven H Hanke – Re-Blogged From http://www.Gold-Eagle.com

Stagnationists have been around for centuries. They have embraced many economic theories about what causes economic stagnation. That’s a situation in which total output, or output per capita, is constant, falling slightly, or rising sluggishly. Stagnation can also be characterized by a situation in which unemployment is chronic and growing.

Before we delve into the secular stagnation debate – a debate that has become a hot topic – a few words about current economic developments in the U.S. are in order. What was recently noticed was the Federal Reserve’s increase, for the first time in nearly a decade, of the fed funds interest rate by 0.25 percent. What went unnoticed, but was perhaps more important, was that the money supply, broadly measured by the Center for Financial Stability’s Divisia M4, jumped to a 4.6 percent year-over-year growth rate. This was the largest increase since May 2013.

Since changes in the money supply, broadly determined, cause changes in nominal GDP, which contain real and inflation components, we can anticipate a pick-up in nominal aggregate demand in the U.S. Indeed, if M4 keeps growing at its current rate, nominal aggregate demand, measured by final sales to domestic purchasers, will probably reach its long-run average annual rate of 4.8 percent by mid-2016 (see the accompanying chart). This rate of nominal aggregate demand growth was last reached in 2006, almost ten years ago. So, the current economic news from the U.S. is encouraging.

But what about the secular stagnation debate? The secular stagnation thesis in a Keynesian form was popularized by Harvard University economist Alvin Hansen. In his presidential address to the American Economic Association in 1938, he asserted that the U.S. was a mature economy that was stuck in a rut that it could not escape from. Hansen reasoned that technological innovations had come to an end; that the great American frontier (read: natural resources) was closed; and that population growth was stagnating. So, according to Hansen, investment opportunities would be scarce, and there would be nothing ahead except secular economic stagnation; unless, fiscal policy was used to boost investment via public works projects.

Hansen’s economics were taken apart and discredited by many non-Keynesian economists. But, the scholarly death blow was dealt by George Terborgh in his 1945 classic The Bogey of Economic Maturity. In the real world, talk of stagnation in the U.S. ended abruptly with the post-World War II boom.

It is worth noting that many Keynesians were caught up, at least temporarily, in the secular stagnation fad. Even Paul Samuelson, a leader of the Keynesians – thanks, in part, to his popular textbook — was temporarily entrapped. But, like Houdini, he miraculously escaped. That said, there were things in Economics that Samuelson probably wished he had thrown overboard, too. My favorite from the 13th edition (1989) is: “The Soviet economy is proof that contrary to what many sceptics had earlier believed, a socialist command economy can function and even thrive.”

Today, another Harvard University economist, Larry Summers, is beating the drums for secular stagnation. And Summers isn’t just any Harvard economist. He was formerly the president of Harvard and a U.S. Treasury Secretary. Summers, like Hansen before him, argues that the government must step up to the plate and invest more to fill the gap left by deficiencies in private investment, so that the economy can be pulled out of its stagnation rut. He is preaching the stagnation gospel beyond the ivy-covered halls at Harvard. And, he is picking up followers. For example, Canada’s new Prime Minister, Justin Trudeau, has latched onto Summers and the stagnation thesis. What better way to justify expanding government investments, or should we say white elephants?

For evidence to support Summers’ secular stagnation argument and his calls for more government investment, he points to the anemic private domestic capital expenditures in the U.S. As the accompanying chart shows, gross private domestic business investment, which does not include residential housing investment, has rebounded modestly since the great recession. But, most of this gross investment has been eaten up in the course of replacing capital that has been used up or became obsolete. Indeed, the private capital consumption allowances shown in the chart are huge. While these capital consumption figures are approximate, they are large enough to suggest that there is little left for net private business investment. This means that the total capital stock, after actually shrinking in 2009, has grown very little since then.

If we take a longer look, one starting in 1960, it appears that net private domestic investment as a percent of GDP has trended downward (see the accompanying chart). This is due to the fact that private capital consumption allowances as a percentage of GDP have trended upward. This shouldn’t surprise us. With the increasingly rapid rate of innovation, obsolescence and, therefore, capital consumption have increased. On the surface, these facts appear to give the stagnationists a reed to lean on. But, it’s a weak one.

To understand the troubling net investment picture, we must ask why businesses are so reluctant to invest. After all, it’s investment that fuels productivity and real economic growth. Are the stagnationists on to something? Have we really run out of attractive investment opportunities that require the government to step in and fill the void?

A recent book by Robert Higgs, Taking a Stand: Reflections on Life, Liberty, and the Economy, helps answer these questions. In 1997, Higgs first introduced the concept of “regime uncertainty” to explain the extraordinary duration of the Great Depression of the 1930s. Higgs’ regime uncertainty is, in short, uncertainty about the course of economic policy – the rules of the game concerning taxes and regulations, for example. These rules of the game affect the net benefits and free cash flows investors derived from their property. Indeed, the rules affect the security of their property rights. So, when the degree of regime uncertainty increases, investors’ risk-adjusted discount rates increase and their appetites for making investments diminish.

Since the Great Recession of 2009, regime uncertainty has been elevated. This has been measured by Scott R. Baker of Northwestern University, Nicholas Bloom of Stanford University and Steven J. Davis of the University of Chicago. Their “Economic Policy Uncertainty Index for the U.S.,” which was published by the Cato Institute in Washington, D.C., measures, in one index number, Higgs’ regime uncertainty. In addition, there is a mountain of other evidence that confirms the ratcheting up of regime uncertainty during the tenure of the George W. Bush and Barack Obama administrations. For example, a recent Pew Research Center survey finds that the percent of the public that trusts Washington, D.C. to do the right thing has fallen to all-time lows of around 20 percent.

So, contrary to the stagnationists’ assertions, the government is the problem, not the solution. Secular stagnation in the U.S. is just what it was when Alvin Hansen popularized it in the 1930s: Its bunk. Nothing more than a phony rationale for more government waste.

Welcome To The Currency War, Part 20: Corporate Profits Head South, Stock Prices To Follow?

By John Rubino – Re-Blogged From Dollar Collapse

A too-strong currency is, in theory, supposed to make it harder to sell things to cheap-currency countries, thus crimping corporate profits and by implication pretty much everything else.

The US dollar has been rising against the rest of the world for over a year, so let’s see how we’re doing. From today’s Wall Street Journal:

Falling Corporate Profits Blur U.S. Growth Outlook

Profits at U.S. companies during the third quarter posted their largest annual decline since the recession, underscoring the competitive pressure from a strong dollar and weak global demand that could limit businesses’ ability to support stronger economic growth in the coming months.A comprehensive measure of companies’ profits across the U.S.—earnings adjusted for inventory and depreciation—dropped to $2.1 trillion in the third quarter, down

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