Relevant and even prescient commentary on news, politics and the economy.

Marrying NAFTA and The TPP: The US-Mexico “Trade Agreement”

Marrying NAFTA and The TPP: The US-Mexico “Trade Agreement”

I really am not sure where to begin with this latest farce, Trump’s announcement yesterday of a supposed US-Mexico Free Trade Agreement.  Of course there was the farce of him trying to make the announcement with a live phone call between him and outgoing Mexican President Pena-Nieto (to be replaced on Dec. 1 by leftist populist Obrador), which took awhile to get going.  There is the problem that some details appear to be unresolved, but most importantly that Pena-Nieto insisted four times that Canada needed to be part of the deal for it to be accepted in Mexico, including with his last words to Trump, while Trump seems fine with just having a tow-nation deal leaving Canada in the dust, or perhaps hoping that Canada will simply be forced to sign onto this deal as is, which it might.  But for Congress to approve it prior to Obrador coing into office, given Congress’s 90-day waiting period on such legislation, Trump has four (now only three) days to get Canada to sign on.  Prospects for that and Mexico also passing it before Dec. 1 do not look too good, maybe not much better than the prospects of actually getting North Korea to denuclearize.

So what is in this deal?  Most of the publicity has been about its automobile section, which some in the US hope will increase automobile production in the US, although that is not definitely the case.  The two main parts are to increase the  portion of parts made in North America from 62.5% to 75% in order to avoid facing tariffs.  This apparently would affect Toyota, Nissan, and Mazda most severely, but hardly any other  non-North American producer.  Maybe some of those companies might shift some production to North America, maybe at least production of parts, but there is no reason to believe any such increase will go to the US rather than to Mexico, although probably some would.

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Even if the yield curve tightens no further, there will be consequences next year

  by New Deal democrat

Even if the yield curve tightens no further, there will be consequences next year

Both my posts from yesterday morning and today dealt with two aspects of the implications of the Fed raising rates.
The unifying idea beneath both of them is that the Fed’s raising rates is already having consequences in the economy; consequences that are likely to be amplified should the Fed continue on its present path.
And we have a pretty good idea what those consequences are likely to be, beyond employment. Four times in the 1980s and 1990s the yield curve tightened to right about where it is now, without going into full inversion or heralding an ensuing recession.
I wrote what I hope is a tour de force laying out in much fuller form what is already likely in store for the economy next year, based only on where we are already now. The editors at Seeking Alpha seem to have liked it, because they made it an “Editors Pick,” and here is the link where you can read it (and, yes, put a little jingle in my pocket by doing so!).

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What the compressed yield curve means for employment

What the compressed yield curve means for employment

Aside from the threat of a recession down the road, is there cause for concern by economic Progressives in the fact that the yield curve has tightened (i.e., the difference in interest rates between long and short term bonds has become very small)?

In a word, Yes.

Four times during the 1980s and 1990s the difference in the interest yield between 2 and 10 year treasury bonds got about as low as it is now (blue in the graphs below). That occurred in 1984, 1986, 1994, and 1998.

Even though on none of those 4 occasions a recession followed, on 3 of 4 of those occasions YoY employment gains (red, divided by 2 for scale) subsequently declined:

In both 1984 and 1994, YoY employment gains peaked within 2 months of the low point in the yield spread. In the 1980s, that decline continued right through and a little beyond the 1986 low in spreads. In both cases YoY gains in employment declined by roughly half. Only in 1998 was there no appreciable effect.

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Are We Alone In The Galaxy (Or Maybe Even The Universe?)

Are We Alone In The Galaxy (Or Maybe Even The Universe?)

In 1938 Orson Welles put on a radio show in New York City that dramatized the famous novel by H.G. Wells, _The War of the Worlds_. This novel is about an invasion of Planet Earth by intelligent beings from Planet Mars, with this invasion just  barely being defeated.  Several movies have been made of this famous novel, probably the first to present this now long-running sc-fi theme of our planet being invaded by aliens from outer space.  However, whar was especially important about this particular radio performance 80 years ago is that many people turning on their radios and hearing ongoing reports of a Martian invasion of New Jersey is that many people believed it and a temporary panic ensued.  Lots of people thought it highly likely that Mars was inhabited by intelligent beings who were a threat to us.

How things change.  Now we have sent several vehicles to Mars, where not only are there not dangerously threatening intelligent beings, but we have yet to find any signs of even single-cell life, although the recent discovery of some actual water there may yet possess the possibility that some simple form of life is there, or perhaps was, although increasingly the search for probably only single-cell life to moons of Jupiter and Saturn, with no luck so far.  If there are intelligent space aliens, they are on planets in other star systems.  However, until recently, given over 100 billion stars in our Milky Way galaxy, various estimates of the probabilities involved had it as near certain there is life elsewhere in the galaxy, and also highly likely that there is intelligent life of some source, probably on multiple planets.  And we have indeed discovered “exo-planets” around many stars (I note that my brother-in-law, Michael Werner, has long been a major leader of the search for these exo-planets using the Spitzer infrared telescope).

These calculations suggesting a high probability of intelligent life elsewhere triggered the initiation of the Search for Extra-Terrestial Intelligence (SETI) about a half century ago, sending out various messages hoping to get a reply from somebody out there.  So far there have been no replies.  This has begun to shift views to the point that now we have flipped to the opposite view of that held in 1938: now we have commentators suggesting that the probability of life is much lower than previously thought, that we arose from a very curious and special set of circumstances, these so weird we may in fact be alone in the galaxy, and even possibly in the entire observable universe.

 

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A new risk at the Fed: Donald Trump’s power to fire Fed Governors

A new risk at the Fed: Donald Trump’s power to fire Fed Governors

Calling it “breaking with decades of presidential convention,” the New York Times reported last week on Donald Trump’s open criticism of recent Federal Reserve rate hikes. quoting him as telling donors at a  fund-raiser in the Hamptons:

that he had expected Mr. Powell to adhere to an easy-money monetary policy, by keeping interest rates low, when he nominated Mr. Powell in November to succeed Janet L. Yellen….

On Monday, Mr. Trump complained about the Fed chairman publicly, telling Reuters “I’m not thrilled with his raising of interest rates, no. I’m not thrilled.” Mr. Trump, in an interview, added “I should be given more help by the Fed” through more accomodative monetary policy….

Earlier this summer Trump had told an interviewer on CNBC: “I don’t like all of this work that we’re putting into the economy and then I see rates going up. I am not happy about it.”

Well, if there’s one thing we don’t expect from Donald Trump, it’s breaking conventions, right?

The independence of the Federal Reserve Chair and the other appointed Governors is theoretically protected by 12 U.S.C. Section 247, which provides:

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Reskilling America

Conversable Economist Tim Taylor presents a chart representing spending over a life time on Education and Skills in America.

“Figure 4 (depicted) is from a report by the White House Council of Economic Advisers, titled “Addressing America’s Reskilling Challenge” (July 2018). The blue area shows public education spending, which is high during K-12 years, but the average spending per person drops off during college years. After all, many people don’t attend college, and of those who do many don’t attend a public college. Private education spending shown by the red area takes off during college years, and then trails off through the 20s and 30s of an average person. By about age 40, public and private spending on education and skills training is very low. Spending on formal training by employers, shown by the gray area, does continue through most of the work-life.

The figure focuses on explicit spending, not on informal learning on the job. As the report notes: “Some estimates suggest that the value of these informal training opportunities is more than twice that of formal training.” Nonetheless, it is striking that the spending on skills and human capital is so front-loaded in life. The report cites estimates that over a working lifetime from ages 25-64, the average employer spending per person on formal training totals about $40,000.”

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New and existing home sales for July 2018: UPDATED with link

 by New Deal democrat

New and existing home sales for July 2018: UPDATED with link

Both new and existing home sales for July came in low. New home sales were at a 9 month low, and existing home sales at a 2 year low:

That’s enough for both series to be scored as negatives, although the new home sales downturn could easily be revised away, and existing home sales are the least important of all housing indicators.

I’ll have a full analysis of all home sales indicators up at Seeking Alpha, and when it comes online, I will link to it.

UPDATE: and here’s the link!

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Hannity as Goebbels

Hannity as Goebbels

Joseph Goebbels famously said that if you want to convince a populace of A Big Lie (fake news), then you do it by repeating it, over and over and over again.  For a long  time I have been keeping an eye on Hannity, reportedly nightly conversing with Trump after his show.  What struck me some time ago how repetitive the core pats of his introductory monologue are.  I have increasingly noticed that pro-Trump people seem to believe pretty much all of this super-repeated core Hannity-Trump lies. And I have seen no systematic or regular effort to offset this Goebbelsian Big Lie repetition.  So, here I am going to make a small attempt to point out some of the worst lies Hannity Big Lies about.

Almost all of it has to do with Hillary Clinton, a “whataboutism,” argument; Trump may have done some questionable things, but whatabout Hillary and her emails and so much more?  After all, at Trump rallies they still chant “Lock her up,” although reportedly in West VA a few days ago there was less enthusiasm and a lot of empty chairs.

A caveat is that this is not some super defense of Hillary.  One more or less accurate bit in the usual Hannity rant is that Hillary and the DNC treated Bernie Sanders badly and unfairly.  But I simply note for now that Bernie himself totally supported her, even as we know some people who voted for him voted for Trump. And, of course, she should have spent more time in Wisconsin and MIchigan rather than such effluvia as Arizona and (gag) Utah.  She was not on top of things, although in the case of the third surprise swing state, Pennsylvania, that was where she was on the last night of the campaign in Philadelphia, trying to get the vote out.  She knew that one was crucial, and she lost it.

So now we must deal with crucial issues.

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Is the rental vacancy rate a leading signal for the housing market?

Is the rental vacancy rate a leading signal for the housing market?

Here is something I noticed while putting together my piece yesterday on the housing market.

Three of the series — new home sales, existing home sales, and single family starts — all peaked last November:

That made me go back and think about an anomaly I had noticed, but hadn’t figured out, with regard to the rental vacancy rate:

which, according to the graph, peaked in the 3rd Quarter of last year, and has declined since.

It occurred to me that this is probably not a coincidence. If housing unaffordability has become a real constraint for potential buyers, then there should be an increasing number of such buyers who are forced to rent instead — which would drive down the rental vacancy rate.

It also looks like the rental vacancy rate peaked in 1997-98 and early 2004, in advance of the last two cyclical housing peaks, which I suspect is also not a coincidence.

So, is there a leading signal for the housing market in the rental vacancy rate? My preliminary perusal makes me think it’s complicated. I’m chewing it over.

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