Record Level of Job Openings Doesn’t Mean the Labor Market is Tight There were 6.17 million job openings at the end of July, up by nearly 200,000 from a year earlier, the Labor Department said Tuesday. But the record-high level of job openings might overstate tightness in the labor market.

While employers are posting more jobs, they’re not hiring at the same rate. In July, 5.5 million workers were hired. A separate measure of payrolls, highlighted in the monthly jobs report, shows the pace of employment growth eased each year since 2014.

Openings outpacing hiring could suggest employers are struggling to find qualified workers. That may mean available workers don’t have the skills needed to land the job. It could also reflect that Americans are reluctant relocate to take available positions. (…)

The internet has made posting a job cheaper and easier. In some cases firms could be fishing for the perfect candidate but aren’t desperate enough to pay more or train a less qualified worker. The number of open position has exceeded monthly hires most months since 2015. In the prior 14 years of data, that rarely happened. That could indicate it was previously more common to hire without publicly posting the job. (…)

U.S. Household Incomes Rose in 2016 to New Record Income for the average American household reached a new high last year for the first time this century.

 

 

 However, the increases have been uneven. The bottom 10% of the households still earn significantly less than they did in 1999. (The Daily Shot)

Source: @jbjakobsen, @josephncohen

OIL

• IEA Sees Strongest Global Oil-Demand Growth in Two Years

(…) OPEC improved its implementation of the accord to reduce supply last month, to 82 percent from 75 percent. Its 10 partners fully delivered on their pledged cutbacks for the first time since the agreement started in January, as Russia and Kazakhstan conducted seasonal maintenance work at oilfields, the IEA said.

Nonetheless, if OPEC keeps output at current levels the group is unlikely to reduce stockpiles “dramatically” either this year or even in 2018, Neil Atkinson, the head of the IEA’s oil markets and industry division, said in a Bloomberg television interview. (…)

• Saudi Arabia Pushes OPEC on New Tack to Curb Oil Supplies In seeking to further curtail global oil supplies and lift prices, Saudi Arabia wants to shift the emphasis to exports rather than output. OPEC’s declines in exports aren’t keeping pace with production cuts, a break with past trends.

OPEC has cut nearly one million barrels a day of oil output in the past year. But that isn’t how the global crude market sees it.

Oil exports from member countries have also declined, but by a significantly smaller margin than production cutbacks. The unusual discrepancy is muting the impact of a November 2016 deal aimed at curtailing oil supplies in a bid to lift prices, traders and analysts say.

In the past, OPEC’s production curbs translated into comparable declines in exports. This time around, some OPEC countries are selling oil out of storage or reducing domestic consumption, leaving more crude available to ship overseas. (…)

Since October 2016, the month that serves as the baseline for OPEC’s agreement to cut output, exports from the cartel’s 14 members have declined by 213,000 barrels a day, according to Kpler, a private firm that tracks oil tankers and global petroleum movements. That is a million barrels a day less than the cartel promised to cut from its production. In actuality, OPEC’s output was about 880,000 barrels a day less in July compared with October 2016, according to the International Energy Agency, which advises governments and companies.

Saudi Arabia has already begun drastically scaling back its crude-oil exports, reducing them to 6.6 million barrels a day in August compared with over 7 million barrels a day in July, according to Kpler. (…)

Overall, OPEC’s exports fell by 639,000 barrels a day in August compared with July, according to Kpler. Saudi Arabia and the United Arab Emirates accounted for almost all of the decline.

Algeria, Angola, Iran and Kuwait all increased exports in August.

Although no countries have publicly challenged Mr. Falih on the shift in emphasis, OPEC ministers see cutting exports as a tough sell, according to people close to the cartel. (…)

SENTIMENT WATCH

• Wall Street titans wary of ageing rally in US stocks Investors look to buy protection and increase cash levels amid high valuations

(…) These concerns came to the fore at a CNBC hedge fund conference in New York this week. Leon Cooperman, the head of Omega Advisors, said that while he did not expect a bear market, a 5 to 8 per cent correction could happen “any time”, and added that bonds “look like they’re in a bubble”. Julian Robertson, the erstwhile founder of Tiger Management, said equity valuations were “very high” and worried about a bubble forming.

Big investors from Pimco’s Dan Ivascyn to Pershing Square’s Bill Ackman have revealed they are buying protection against turmoil. Bridgewater’s Ray Dalio also said in August that the world’s biggest hedge fund group was “reducing our risk” because of rising concerns about the political environment. Seth Klarman, the founder of the $30bn asset manager Baupost, is holding 42 per cent of its assets in cash, according to a report this week. (…)

• DoubleLine’s Gundlach says German yields ‘crazily low’ Bond fund manager says withdrawal of QE by ECB would lead them to jump higher

• Wall Street executives have gloomy outlook on third-quarter trading results Executives from JPMorgan Chase & Co , Bank of America Corp and Goldman Sachs Group Inc warned on Tuesday that trading conditions during the third quarter were likely to be poor for their banks.

Bank of America sees revenue from trading stocks and bonds likely to decline around 15 percent in the third quarter compared with the year-ago period, its chief financial officer, Paul Donofrio, said.

JPMorgan Chief Executive Jamie Dimon gave an even more downbeat forecast for his bank, predicting a 20 percent drop in trading revenue. Dimon said he may stop giving trading guidance because investors were too focused on short-term results.

Goldman President Harvey Schwartz said conditions for fixed-income trading have not improved much since the beginning of the year, but he declined to be specific. (…) In the second quarter, Goldman reported a 40 percent drop inbond trading revenue and the weakest commodities results in its history as a public company. (…)

• Former BIS Chief Economist Warns “More Dangers Now Than In 2007”

Having warned in the past that “the system is dangerously unacnhored,” former chief economist of the Bank for International Settlements, William White, told Bloomberg TV overnight that the current situation “looks very similar to 2008,” adding that OECD sees “more dangers” today than in 2007. (…)

And yet:

Source: BofAML

Are Low Real Interest Rates Here to Stay?

FYI, if you have the time (42 pages). Pretty thorough from two economist at the BOE. Here’s the summary:

Long-term real interest rates across the world are low, having fallen by about 450 basis points (bps) over the past thirty years. To understand whether low real rates are here to stay, we need to understand what has caused the decline. The co-movement in rates across both advanced and emerging economies suggests a common driver: the global neutral real rate may have fallen. In this paper we attempt to identify which secular trends could have driven such a fall. Although there is huge uncertainty, under plausible assumptions we think we can account for around 400 bps of the 450 bps fall.

Our quantitative analysis highlights slowing global growth expectations as one force that may have pushed down on real rates recently, but shifts in saving and investment preferences appear more important in explaining the long-term decline. We think the global saving schedule has shifted out in recent decades due to demographic forces, higher inequality, and, to a lesser extent, the glut of precautionary saving by emerging markets. Meanwhile, desired levels of investment have fallen as a result of the falling relative price of capital, lower public investment, and an increase in the spread between risk-free and actual interest rates.

Looking ahead, in the absence of sustained changes in policy, most of these forces look set to persist, and some may even build further. This suggests that the global neutral rate may remain low and perhaps settle at around 1 percent in the medium to long run. If true, this will have widespread implications for policymakers—not least in how to manage the business cycle if monetary policy is frequently constrained by the zero lower bound.

Mnuchin: Some Services Companies Won’t Get ‘Pass-Through’ Rate Under Tax Plan Treasury secretary says ‘absolutely’ open to making any tax law retroactive to Jan. 1

Republicans want to cut the 35% corporate tax rate. They also want to lower rates on so-called pass-through businesses, which pay business taxes through the individual tax returns of their owners at individual tax rates, which currently reach as high as 39.6%.

Many pass-through businesses are small. They also include some of the largest law, accounting and investment firms, which Mr. Mnuchin suggested might not get the new lower rate on pass-through business income that Republicans are planning.

The idea is to create a special tax rate that is equal to or higher than the corporate tax rate but lower than the tax rate that applies to wages. That new rate would apply to pass-through business income but with boundaries to prevent it from being used by people whose income from service businesses closely resembles wages.

“If you’re an accountant firm and that’s clearly income, you’ll be taxed an income rate, you won’t be taxed a pass-through rate,” Mr. Mnuchin said. “If you’re a business that’s creating manufacturing jobs, you’re going to get the benefit of that rate because that’s going to be passed through to help create jobs and better wages.” (…)

This tax thing is skidding off the rink…

U.S. Threatens China Over North Korea Sanctions

(…) If China doesn’t implement the United Nations sanctions regime it has backed, “We will put additional sanctions on them and prevent them from accessing the U.S. and international dollar system,” Treasury Secretary Steven Mnuchin said on Tuesday at a conference. (…)

• North Korea vows to accelerate nuclear programme Pyongyang says US will face ‘greatest pain it ever experienced’ for pushing UN sanctions

BITCOIN

(…) Still, he said he wouldn’t advise shorting bitcoin. Given its wildly speculative nature, Mr. Dimon said, it could go to $20,000. Later, at a separate conference, he said it could go to $100,000 and noted his daughter had made some money in bitcoin.

Ultimately though, Mr. Dimon said that he thinks Bitcoin is “a fraud” and it “will eventually blow up.” He referenced approvingly the comments of another titan of the traditional markets, Howard Marks, who “an unfounded fad.” (…)

Mr. Dimon said blockchain may take decades to roll out since it has to be by use case. Mr.  Dimon said that’s because people have to code specific use cases for blockchain and that it’s a “refactoring of existing systems, it will take a while.”

J.P. Morgan is already using blockchain for credit default swaps and loans. “As we get more comfortable, it’ll roll out,” Mr. Dimon said, adding that most banks have experts testing blockchain, learning about it and applying it. “It’s not going to happen overnight,” he said. “It’ll happen piece by piece as we all get comfortable and function with blockchain.”

BTW, Howard Marks’ views on Bitcoin have evolved. He wrote about it in his latest letter Yet Again?

So what’s my real bottom line?

• Advocates say if Bitcoin is accepted as described above, you’ll make more than 50 times your money. Thus success doesn’t have to be highly probable for buying Bitcoin to have a huge expected return. This is called “lottery-ticket thinking,” under which it seems smart to bet on an improbable outcome that offers a huge potential payoff. We saw it in full flower in the dot-com boom in 1999-2000, and I think we’re seeing it in action again today with regard to Bitcoin.Nothing is as seductive as the possibility of vast wealth.
• Several of the “seeds for a boom” that I listed in “There They Go Again . . . Again” are at work in the Bitcoin surge: (a) there is a grain of underlying truth as set out above; (b) there’s the prospect of a virtuous circle: widespread demand will lead to wider acceptance as legal tender, which will lead to widespread demand; and (c) thus this tree may grow to the sky, as there is no obvious limit to this logic. None of these things necessarily make Bitcoin a mistake. They merely say elements that contributed to past bubbles can be detected today with regard to Bitcoin.
• Finally, Bitcoin isn’t alone. There are hundreds of digital currencies already – including eleven with market capitalizations over a billion dollars – and no limits on the creation of new ones. So even if digital currencies are here to stay, who knows which one will turn out to be the winner? Hundreds of e-commerce start-ups appreciated rapidly in the tech bubble based on the premise that “the Internet will change the world.” It did, but most of the companies ended up worthless.

Thanks to the people who took the time to educate me, I’m a little less of a dinosaur regarding Bitcoin than I was when I wrote my last memo.  I think I understand what a digital currency is, how Bitcoin works, and some of the arguments for it.  But I still don’t feel like putting my money into it, because I consider it a speculative bubble.  I’m willing to be proved wrong.