Archive for August 2017

Data released today were a perfect microcosm of the US economy. On one hand, job growth is excellent, with involuntary weekly terminations at lows last seen 40 years ago. Moreover, real consumer spending growth is solid at 2.7% and the manufacturing sector continues to strengthen. On the other hand, inflationary pressures are utterly non-existent and…

After peaking at almost $375 billion in 2005, originations of home-equity lines of credit (HELOCs) plummeted to just $62.5 billion by 2010. Since then they have been steadily rising, and through 1H17 already total $84 billion, suggesting annual volume of close to $200 billion. Despite this rise, new originations are less than repayments. Bank holdings…

Since the beginning of the 2016 presidential election cycle, President Trump has repeatedly argued that trade deficits with other nations are indicative of unfair trade. His contention is that if we just negotiate better trade deals, deficits would disappear, and economic growth and employment would improve. Regrettably, this view is simplistic; usually deeper economic forces…

Hurricane Harvey will probably cause $75 billion in economic damage, less than Katrina’s $130 billion, but still making it the second most costly storm just ahead of Superstorm Sandy’s $71 billion. Crude prices are down 3% as refineries have shut, reducing demand but causing gasoline prices to rise by a similar amount. Lumber is also…

While housing and autos are struggling, albeit for very different reasons, banks are doing splendidly! Net interest margin, or the difference between what banks lend and borrow at rose to 3.22 percentage points, the highest since 13Q4. Partly as a result, ROA (return on assets) rose to 1.14%, ROE (return on equity) increased to 10.11%,…

The Friday File: This year’s LA Dodgers are, to date, one of the best baseball teams ever assembled. Their current .714 winning percentage would put them in a tie for the fifth winningest club, and on pace to win 116 games. That would tie them with the 2001 Seattle Mariners and the 1906 Chicago Cubs…

While the 10th anniversary of the first signs of the Great Recession occurred on 8/9/17, what will cause the next recession? My list includes: geopolitical risk, Chinese overreliance on debt, a trade dispute that gets out of hand, a global bond market crash, and the most likely culprit, a monetary policy mistake via the premature…

While electric cars sell, they come with two problems. The first, a large public subsidy. When it ended, as it did in Hong Kong and the State of Georgia, sales plummeted by 100% and 80% respectively. The second problem, high battery prices. With oil at $50/bbl, batteries must fall from the current $270/kwh to $50/kwh…

When asked how they would spend repatriated earnings that are held abroad, the most popular answer was pay down debt, followed by repurchasing existing shares. Next was getting into mergers and acquisitions, fourth was increasing capital spending and fifth was boosting dividends. The only answer above that lifts GDP is boosting capital spending. That’s why…

Overhauling NAFTA may be very hard. First, unlike Obamacare, Congress likes NAFTA. Second, as Trump is unpopular in Canada and loathed in Mexico, granting significant concessions to the US may be politically impossible. Third, the concessions Canada and Mexico made in the Trans-Pacific Partnership were easier as both nations wanted access to the many other…