Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

NEW$ & VIEW$ (10 SEPTEMBER 2014)

Today: JOLT! “Y debt”.
U.S. Hiring Hits Highest Level Since 2007 in July The number of hires by U.S. employers in July reached the highest level since 2007 and job openings hovered near their highest level in 13 years, the latest sign of improvement in U.S. labor markets.

Employers hired some 4.9 million workers in July, the highest level since December 2007, the Labor Department said Tuesday. Employers reported 4.7 million openings in July, roughly the same as in June, which was at a 13-year high.

In July, there were around 2.1 unemployed workers for every job opening, up slightly from two in June, but down from three workers per opening one year earlier. There were nearly 6.5 unemployed workers for every opening at the depth of the recession in 2009. Between 2004 and 2006, the ratio of unemployed workers to job openings averaged around 1.9.

Tuesday’s report, known as the Job Openings and Labor Turnover Survey, offers the latest sign of how job markets have firmed up more than five years after the official end of the 2007-09 recession. It tracks the millions of Americans who are laid off from, hired for or quit a job every month.

The report showed that the level of workers who quit their jobs was up slightly in July to a six-year high. The share of workers that have voluntarily quit their jobs has hovered at 1.8% for six consecutive months. The hires rate, at 3.5% in July, matched its highest level in six years.

The number of job openings in July stood around 8% above the level from December 2007, when the last recession was deemed to have officially began. But the number of employees hired was still 3% below that level and the number of employees who voluntarily quit was 11% below the December 2007 mark.

Labour market could be even stronger

(…) the JOLTS suggests employment could be even stronger given the pent-up demand for labour, as evidenced by the almost 4.7 million job openings in June and July, the highest since 2001. As today’s Hot Charts show, the unfilled positions partly reflect the difficulty of firms to attract qualified workers ― according the National Federation of Independent Business, 46% of small businesses, the highest in over 7 years, are finding that there are too few or no qualified applicants for the job openings. While skills shortages are real in some sectors of the economy, perhaps the market isn’t clearing because the price ain’t right. The price here, of course, is wages (or wage growth), which have remained soft despite the improvement in the jobless rate this year. (NBF)

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Compared With Earlier Generations, Young Americans Now Far More Saddled With Debt Today’s young Americans are burdened by debt at a far greater rate than prior generations, new research shows.

More than a third of Americans age 24 to 28—or 35%—have debts that exceed their assets, according to research from Dartmouth College assistant professor Jason Houle. That’s roughly double the proportion of their peers in the late 1980s and mid-1970s.

Mr. Houle, in an article published in the academic journal Social Problems, compares Americans between ages 24 and 28 across three generations: those from today, which he calls Generation Y; early baby boomers, who were that age in the mid-1970s; and late baby boomers from the late 1980s.

He finds the share of young Americans with debt—if not the overall dollar amount—has actually fallen from prior generations. Today, 75% of young Americans have debt, compared with 76.5% of late baby boomers at the same age and 78.2% of early baby boomers.

But big shifts in the types of debt held by the groups have led to far different experiences. Younger Americans today are taking on far less mortgage debt and far more student and credit-card debt than the early and late boomers did at the same age, according to Mr. Houle’s research, which relied on Labor Department data.

Only 19.8% of today’s young Americans have home-related debt, down from 29.9% of their peers in the late 1980s and 43.1% of those in the mid-1970s. Conversely, 22.4% of young Americans today have education debt, compared with 5.1% among late baby boomers and none among early boomers. (…)

MBA Mortgage Applications
Small Business Ownership In America Is At An All-Time Low

According to the Federal Reserve, the percentage of American families that own a small business is at the lowest level that has ever been recorded.  In a report that was just released entitled “Changes in U.S. Family Finances from 2010 to 2013: Evidence from the Survey of Consumer Finances“, the Federal Reserve revealed that small business ownership in America “fell substantially” between 2010 and 2013. (…)

OPEC Says World Will Need Less of Its Oil

In its monthly oil-market report, the Organization of the Petroleum Exporting Countries said it had revised estimated demand for its crude down by 200,000 barrels a day for 2015 and by the same amount for this year. As a result, markets will need 300,000 barrels a day less of OPEC crude next year, it said.

The group attributed lackluster appetite for its oil to mounting competition from rival producers and sluggish demand in industrialized nations.

The U.S.–which is undergoing a boom in nonconventional fields—is to boost its oil output by 780,000 barrels a day in 2015, OPEC said.

OPEC also downgraded its global oil demand forecast by 20,000 barrels a day for next year. Though the revision is tiny compared with OPEC’s expectation that consumption will increase by 1.19 million barrels a day, the group said it reflected slower consumption growth in industrialized nations.

Despite lower demand for its crude, OPEC said its production rose by 231,000 barrels a day in August as Libyan oil ports and fields reopened.

The group’s August output stood at 30.35 million barrels a day—nearly a million barrels a day higher than average daily demand for its crude oil this year.

Nyah-Nyah France misses EU budget deficit target Defiant Paris will not meet required level of 3% of GDP until 2017
SENTIMENT WATCH
Yet Another Wall Street Bear Folds The latest pessimist to throw in the towel is Gina Martin Adams, senior analyst at Wells Fargo Securities. She initiated a new 12-month S&P 500 price target at 2100 on Tuesday, well ahead of her previous 1850 year-end forecast.

“Tactically, we continue to believe that equity investors should be on guard for a more challenging investment climate in the near term, as monetary policy certainty fades to uncertainty this autumn,” Ms. Adams wrote to clients on Tuesday. “However, economic growth and earnings trends continue to improve, supporting a relatively optimistic outlook for stocks over a longer term.”

NEW$ & VIEW$ (9 SEPTEMBER 2014)

Today: Latest NFIB looks good overall. More signs that the consumer is spending. Good news for housing…and some bad news.

NFIB CHARTS

From September’s report:

Two percent reported reduced worker compensation and 25 percent reported raising compensation, yielding a seasonally adjusted net 22 percent reporting higher compensation, up 1 point and the second best reading since the first quarter of 2008. A net seasonally adjusted 15 percent plan to raise compensation in the coming months (up 1 point). The reported gains in compensation are now solidly in the range typical of an economy with solid growth, but it isn’t clear that we have “solid growth”, unless we are ready to settle for the sub-par tunnel we have been in.

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Pretty good overall, isn’it?

Consumer Borrowing Accelerated in July as Credit-Card Borrowing Rose Consumer borrowing accelerated in July as Americans took on more credit-card debt and other loans.

Total outstanding consumer credit, excluding loans secured by real estate like home mortgages, rose at a seasonally adjusted annual rate of 9.7% in July from the prior month to $3.238 trillion, the Federal Reserve said Monday. That was up from growth of 7.1% in June and 7.3% in May.

Outstanding revolving credit, mostly credit-card debt, rose at a 7.4% pace in July to $880.54 billion, the fastest growth rate since April. Outstanding nonrevolving credit, a category that includes car and student loans, rose at a 10.6% rate to $2.357 trillion, its fastest monthly pace since February 2013. (…)

Hmmm…So, how could the savings rate rise as much as it reportedly did in July? I continue to expect that July’s weak sales and expenditures data will be revised up (chart from Haver Analytics).

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Ed Yardeni also thinks something is amiss with recent eco data:

This weakness simply doesn’t jibe with lots of other labor market indicators showing very low layoffs, plenty of job openings, and lots of national and regional business surveys with solid employment indicators. This more upbeat view of the economy was confirmed by our Earned Income Proxy (EIP), which is aggregate hours worked multiplied by average hourly earnings in the private sector. It is highly correlated with private wages and salaries in personal income. Our EIP rose 0.4% m/m to yet another new record high last month, auguring well for consumer spending.

FYI, weekly chain store sales remained pretty good through September 6. The back-to-school season was strong which augurs well for the all-important Thanksgiving and Christmas periods.image

Pointing up Why More Renters Aren’t Buying (Hint: Weak Incomes, Savings) A new survey says that younger workers and other renters aren’t turning away from homeownership because they lack the desire to own homes. Instead, they’re staying on the sidelines because they lack the capacity to purchase.

Destroying the myth that Millenials don’t dream of owning a house: 

The analysis from the New York Federal Reserve Bank comes via their survey of consumer expectations in February. It polled 867 homeowners and 344 renters on their attitudes toward homeownership and their plans to move.

Pointing up (…) Around three in five respondents think that buying a home in their ZIP Code is a good investment, compared with one in eight that think it’s a bad one.

So what does all of this mean? The good news from the standpoint of the real-estate industry is that there’s less evidence of a structural shift in Americans’ preference for owning homes. “With a stronger economy and eased credit standards, homeownership would pick up,” the authors write.

High five But there is this:

Single Americans Now Comprise More Than Half the U.S. Population Single Americans make up more than half of the adult population for the first time since the government began compiling such statistics in 1976.

Some 124.6 million Americans were single in August, 50.2 percent of those who were 16 years or older, according to data used by the Bureau of Labor Statistics in its monthly job-market report. That percentage had been hovering just below 50 percent since about the beginning of 2013 before edging above it in July and August. In 1976, it was 37.4 percent and has been trending upward since.

Singles, particularly younger ones, are more likely to rent than to own their dwellings. Never-married young singles are less likely to have children and previously married older ones, many of whom have adult children, are unlikely to have young kids, Yardeni wrote. That will influence how much money they spend and what they buy.

The percentage of adult Americans who have never married has risen to 30.4 percent from 22.1 percent in 1976, while the proportion that are divorced, separated or widowed increased to 19.8 percent from 15.3 percent, according to the economist.

Schäuble Defends German Monetary Stance Germany’s Finance Minister Shows Reluctance to Give In to Deficit Demands From Italy, France

The E.U. remains far from being united:

“Growth and jobs aren’t a result of higher deficits, because we shouldn’t have any problems if that was the case… The only way out is innovation, structural reforms, investment, reliable conditions and trust in the sustainability” of public finance.

The comments signal Germany’s continued reluctance to give in to demands from France and Italy to grant them more leeway in achieving their deficit goals and instead spend more money to help generate growth.

“Everybody should adhere to European rules,” he said, adding countries must not only pledge to overhauls but, also, implement them. (…)

“They [ECB officials] do what they can, but they have basically exhausted their toolbox,” Mr. Schäuble said. “Cheap money also can’t force growth, otherwise we wouldn’t have any problem right now.”

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SENTIMENT WATCH
Wall Street Bear Changes Course A prominent Wall Street bear just ditched his pessimistic views on U.S. stocks. Deutsche Bank strategist David Bianco planted his flag in the bullish camp on Monday, lifting his S&P 500 year-end price target to 2050.

Deutsche Bank DBK.XE +0.22% strategist David Bianco planted his flag in the bullish camp on Monday, saying he now sees  ”a long lasting economic expansion of moderate growth, which should rival the U.S. record of 10 years.”

He boosted his year-end S&P 500 target to 2050, reflecting an additional 2.5% gain for the rest of the year. That compares to his previous target of 1850, or a 7.5% drop from recent levels. His old 1850 estimate was tied for the lowest forecast among prominent Wall Street strategists tracked by Birinyi Associates.

A combination of continued profit growth among S&P 500 companies at about a 6% rate and lower-than-normal long-term interest rates should bode well for stocks in the coming years, Mr. Bianco said. As long as the risk of recession remains low, he now says there is little reason the bull market won’t keep going.

He also boosted his 2015 S&P 500 target to 2150 from 2000, unveiled a 2016 target of 2030 and said the index could reach 2050 by 2018.