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

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THE DAILY EDGE: 23 AUGUST 2019: Recession Watch

Posted yesterday: “OPEN SESAME!” MOMENTS
U.S. Leading Economic Indicators Strengthen

The Conference Board’s Composite Index of Leading Economic Indicators increased 0.5% (1.6% y/y) during July following a 0.1% June decline, revised from -0.3%. It was the largest rise since September 2018. (…)

Performance amongst the components of the Leading Indicator index was mixed. Contributing positively to the index were the readings for building permits, initial unemployment insurance claims, stock prices, consumer expectations for business/ economic conditions and the leading credit index. Offsetting these increases were declines in the average workweek, the ISM new orders index, factory orders for nondefense capital goods excluding aircraft and the yield spread between 10-year Treasuries and Fed Funds. Factory orders for consumer goods & materials held steady.

Three-month growth in the leading index rebounded m/m to 1.4% (AR) but remained below the high of 9.1% in December 2017.

The Index of Coincident Economic Indicators increased 0.2% (1.8% y/y), the same as in June which was revised from 0.1%. (…) Three-month growth in the coincident index improved to 1.9% (AR), its strongest since February.

The Index of Lagging Economic Indicators increased 0.6% last month (3.5% y/y) after a 0.5% June rise, revised from 0.6%. (…) Three-month growth in the lagging index strengthened to 4.2%, its quickest since February.

The ratio of coincident-to-lagging economic indicators is sometimes considered a leading indicator of economic activity. It declined to nearly the lowest level since early-1975.

A pretty timely uptick (charts below from Advisor Perspectives):

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Smoothed LEI

These charts are from Ed Yardeni:

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A look at trends in each of the LEI components doesn’t lead to a great sense of safety, does it?

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U.S. Initial Unemployment Insurance Claims Decline Sharply

Initial unemployment insurance claims fell to 209,000 (-2.1% y/y) during the week ended August 17 from the prior week’s 221,000, revised from 220,000. (…) The four-week moving average of initial claims of 214,500 compared to 214,000 in the prior week. It remained above the 50-year low of 201,500 reached in April.

The latest initial claims figure covers the survey week for August nonfarm payrolls. Claims fell 7,000 (-3.2%) from the July period. During the last twenty years, there has been a 69% correlation between the level of initial jobless claims and the m/m change in payroll employment. (…)

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Claims are still well within the channel.

But, but, yesterday’s U.S. Flash PMI from Markit should curb your enthusiasm, if any: Services have kept the economy humming so far but:

At 50.9 in August, down from 53.0 in July [and 56 in February], the IHS Markit Flash U.S. Services PMI™ Business Activity Index eased to a three-month low and pointed to only a marginal rate of expansion. Subdued demand conditions continued to act as a brake on growth, with the latest rise in new work the slowest since March 2016. This contributed to a decline in backlogs of work for the first time in 2019 to date. Meanwhile, business expectations among service providers for the next 12 months eased in August and were the lowest since this index began nearly a decade ago. (…)

August’s survey data provides a clear signal that economic growth has continued to soften in the third quarter. The PMIs for manufacturing and services remain much weaker than at the beginning of 2019 and collectively point to annualized GDP growth of around 1.5%.

The most concerning aspect of the latest data is a slowdown in new business growth to its weakest in a decade, driven by a sharp loss of momentum across the service sector. Survey respondents commented on a headwind from subdued corporate spending as softer growth expectations at home and internationally encouraged tighter budget setting. (…)

Business expectations for the year ahead became more gloomy in August and remain the lowest since comparable data were first available in 2012. The continued slide in corporate growth projections suggests that firms may exert greater caution in relation to spending, investment and staff hiring during the coming months.

World wide from the CPB:

  • World trade volume decreased 1.4% month-on-month (growth was 0.6% in May, initial estimate 0.3%) and growth was -0.7% in 2019Q2 (-0.3% in 2019Q1).
  • World trade momentum was -0.7% (non-annualised; 0.1% in May, initial estimate 0.0%).
  • World industrial production decreased 0.5% month-on-month (0.2% in May, unchanged from initial estimate) and growth was -0.1% in 2019Q2 (0.2% in 2019Q1).
  • World industrial production momentum was -0.1% (non-annualised; 0.6% in May, initial estimate 0.7%).

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It can get worse as Ed Yardeni illustrates:

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Confused? Read on, you have company!

  • Seeking clarity from Fed’s Powell? Good luck with that

  • Three Fed Officials Offer Diverging Views on Rate Cuts in TV Interviews Three Fed officials offered diverging views on the path for monetary policy in television interviews, with two skeptical over the need for lower rates and a third open to a further cut by the central bank.
  • Big Banks Struggled With Fed Communications Ahead of July FOMC As the Federal Reserve prepared to implement its first interest rate cut in over a decade, many of Wall Street’s biggest banks weren’t happy with the story officials were telling markets.

    • A majority of primary dealer banks told the New York Fed in a survey done ahead of the July 30-31 Federal Open Market Committee that central bank communications were on the ineffective side.

    The survey, conducted July 17-22, found that 15 of 24 banks rated Fed communications as “ineffective” or close to that level, compared with eight who rated the communications effectiveness at the midpoint between ineffective and effective. The survey was released Thursday.

    “Several dealers indicated that they found communication confusing, and several characterized communication from various Fed officials as inconsistent,” the New York Fed report said.

    Primary dealers underwrite Treasury debt auctions and serve as counterparties to central bank monetary policy operations. A similar New York Fed survey of market participants, also done ahead of the July Fed meeting, saw the Fed getting better grades from money managers, although 14 out of 28 also gave low grades for communications effectiveness. (…)

    Today’s Powell Jackson Hole speech “may mark the last market sensitive event of what Bank of America Merrill Lynch refers to as “the summer of bonds” where bonds flew off the shelves as investors sought safety from the threat of global recession. The bank notes investors poured a record three-month $155 billion into bond funds, versus $98 billion that drained out in January 2019 (WSJ)

    BlackRock’s views: Dealing with the next downturn: From unconventional monetary policy to unprecedented policy coordination

    And at the WH:

    Trump Adviser Says Tax Cuts Could Be Proposed Before 2020 Election Lawrence Kudlow, the president’s top economic adviser, said a middle-class tax-cut proposal could be unveiled during the 2020 presidential campaign, adding a new layer to conflicting messages from the administration.

    (…) “You very may well see a new rollout of additional, additional middle-class tax relief and small-business tax relief,” Lawrence Kudlow, the White House National Economic Council director, said Thursday evening on Fox Business Network.

    President Trump said Wednesday tax-cut proposals weren’t being considered, contradicting remarks he had made a day earlier amid reports of a slowing economy. (…)

    “There is nothing in the near term, that’s what the president was getting at,” Mr. Kudlow said. “We believe the economy is quite healthy, we expect some relief on short-term interest rates coming up from the Fed and so forth. But longer run, why not?” (…)

    The message: We don’t want anybody to think we may be thinking a recession is coming. But we’ll be ready if a recession…or polls threaten.

    Just in case you want to rely on economists to timely warn you of a recession, Bianco Research shows that professional forecasters never put odds of a decline in GDP over subsequent 4 quarters much above 30%.

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    Huawei Puts a Price on Trump’s Aggression

    (…) China’s largest technology company is seeking ways to replace key U.S. suppliers such as Cadence Design Systems Inc. and Synopsys Inc., Deputy Chairman Eric Xu said Friday. The overall damage to the company will be a “little less” than billionaire founder Ren Zhengfei’s initial estimate, Xu added.

    Huawei is seeking to develop alternatives after coming under intense pressure from the Trump Administration, which has argued its technology represents a security threat. On Friday, it introduced its most powerful artificial intelligence chipset, the Ascend 910, which is poised to rival some of the best offerings from Qualcomm Inc. and Nvidia Corp. Earlier this month, it offered the first glimpse of an in-house software — HarmonyOS — that may someday replace Google’s Android.

    The company is also researching ways to replace chip-design software tools offered by Cadence and Synopsys, Xu told a news briefing in Shenzhen without elaborating. “There were no chip design tools 10 years ago, but the industry still developed chips,” said Xu, who argued that Cadence and Synopsys were not must-haves for design. “Intel started to develop chips in the 1970s, when those companies didn’t exist.” (…)

    One area in which the Chinese company is rapidly developing in-house expertise is semiconductors, propelling Beijing’s ambitions of weaning itself off foreign chips. HiSilicon — Huawei’s chip design subsidiary — has been developing its capabilities for a long time, and it’s recently grown into the second largest customer (after Apple Inc.) for the world’s biggest chip manufacturing contractor Taiwan Semiconductor Manufacturing Co.Huawei has also elevated the presence of home-grown technologies throughout its product line — from base stations to smartphones and servers — as a key step to limiting the damage of the U.S. ban.

    The Ascend 910 processor unveiled Friday is a show of technological prowess. It will be used for AI model training, and Huawei says it outperforms all existing competition. Xu proclaimed that “without a doubt, it has more computing power than any other AI processor in the world.” The company also unveiled MindSpore, an AI computing framework that — along with the 910 — is supposedly twice as fast as Google’s TensorFlow.

    Facebook’s Libra backers distance themselves from project Some early supporters of cryptocurrency consider cutting ties amid regulatory scrutiny

    (…) Two of the project’s founding backers told the FT they were concerned about the regulatory spotlight and were considering cutting ties. Another backer said they were worried about publicly supporting Libra for fear of attracting the attention of agencies who oversee their own businesses. (…)

    FYI: From Robert Eisenbeis, Ph.D., Vice Chairman & Chief Monetary Economist, Cumberland Advisors

    Bitcoin and similar cryptocurrencies: While Bitcoin gets a lot of attention, there are now over 1600 so-called cryptocurrencies trading on at least 500 different exchanges.[1] Given the number and complexity of arrangements, only general observations are offered here.[2] While these systems offer varying degrees of real-time clearing and settlement, the exchanges are not interconnected; and not all currencies are available on each. In fact, some are single-currency exchanges. In many respects, attempting to convert one cryptocurrency into another is the same as engaging in a foreign-exchange conversion; but with so many currencies the number of pairs of exchange rates is very large, and it is made even more cumbersome because exchange rates may also vary from exchange to exchange. Finally, it is important to note that there are often significant transactions costs, and the delay in conversion back to a home currency may take anywhere from two to five days before the seller receives good funds. So these are not real-time transfer systems as envisioned in the Payment Modernization Act. Indeed, the cryptocurrency environment is quite similar to the Wildcat banking period in the US in the 1800s when individual banks issued their own currencies, usually backed by a promise to redeem in gold. These currencies did not trade at par with each other, and there were books printed to help users identify issuing banks and their associated currencies.

    Despite all the positive hype, there have been some significant problems with hacking and loss of funds by cryptocurrency holders. A recent study revealed some interesting facts.[3] Considering just Bitcoin alone, it was determined that one quarter of Bitcoin users and about half the transactions were associated with illicit activities, amounting to an estimated $72 billion per year in that one currency alone. In addition, there have been numerous exchange failures, one of the most famous being the 2014 failure of Japan’s Mt. Gox, one of the largest in terms of volume of transactions. About 650,000 bitcoins were lost due to hacking, and the exchange’s creditors were said to have lost $2.4 trillion.[4]

    A supposed desirable feature of cryptocurrencies is their anonymity, in that transactions are said not to be traceable. Whether that is true or not, it is interesting that the Mueller investigation of Russian interference in our 2016 election resulted in indictments of 12 Russian security agents; and the investigation revealed that the use and tracking of Bitcoin payments was an important piece of evidence. So, these transactions may not be as hidden as most think.

    The proposed Libra/Calibra payments system put forward by Facebook is a closed system variant of blockchain cryptocurrencies.  The key distinctions are that the currency-value is to be backed by a basket of currencies, the system is not truly anonymous, the user receives no return on the purchase of a Libra and it is unclear how and under what terms a user can convert a Libra back into the home currency.  All of these are details that are yet to be resolved.  Indeed, some have argued that Libra is more like an ETF than an actual cryptocurrency.[5]

    THE DAILY EDGE: 22 AUGUST 2019: Very Weak U.S. PMI

    Also posted today: “OPEN SESAME!” MOMENTS
    Stumbling Economies Fan Recession Fears Data paint a bleak picture of the global economy ahead of Jackson Hole symposium
    FLASH PMIs

    August data signalled a renewed slowdown in the rate of U.S. private sector business activity growth. The seasonally adjusted IHS Markit Flash U.S. Composite PMI Output Index dipped from 52.6 in July to 50.9 in August, to signal only a slight increase in business activity and the slowest pace of expansion for three months. Moreover, the latest reading was the joint-lowest since February 2016.

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    Weaker business activity growth largely reflected a loss of momentum in the service sector during August. Although manufacturing production rose at a broadly similar pace to that seen in July, the rate of expansion remained softer than that recorded in the service economy.

    Private sector companies revealed a marked slowdown in new business growth in August, with the latest upturn in order books the weakest since the series began in October 2009. Survey respondents often cited subdued corporate spending in response to softer business conditions and concerns about the global economic outlook.

    A number of private sector firms noted that less favorable demand conditions had held back staff recruitment during August. The rate of job creation eased to its weakest since February 2010. Meanwhile, confidence in relation to the year-ahead business outlook dropped for the seventh month running to its lowest since this index began in July 2012.

    The latest survey indicated an overall decline in average cost burdens for the first time since the index began in October 2009. Meanwhile, prices charged by private sector companies decreased for the first time in three-and-a-half years.

    At 50.9 in August, down from 53.0 in July, the IHS Markit Flash U.S. Services PMI™ Business Activity Index eased to a three-month low and pointed to only a marginal rate of expansion. Subdued demand conditions continued to act as a brake on growth, with the latest rise in new work the slowest since March 2016. This contributed to a decline in backlogs of work for the first time in 2019 to date. Meanwhile, business expectations among service providers for the next 12 months eased in August and were the lowest since this index began nearly a decade ago.

    The seasonally adjusted IHS Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™)1 registered 49.9 in August, down from 50.4 in July and below the neutral 50.0 threshold for the first time since September 2009.

    The decline in the headline PMI mainly reflected a much weaker contribution from new orders, which offset a stabilization in employment and fractionally faster output growth. New business received by manufacturing companies fell for the second time in the past four months during August. Although only marginal, the latest downturn in order books was the sharpest for exactly 10 years. Latest data also signalled the fastest reduction in export sales since August 2009.

    Survey respondents indicated that a drop in sales often cited a soft patch across the automotive sector, alongside a headwind to manufacturing exports from weaker global economic conditions.

    Meanwhile, manufacturing companies continued to trim their inventory levels in August, which was mainly linked to concerns about the demand outlook. Pre-production inventories fell for the fourth month running, while stocks of finished goods decreased to the greatest extent since June 2014.

    Tim Moore, Economics Associate Director at IHS Markit:

    August’s survey data provides a clear signal that economic growth has continued to soften in the third quarter. The PMIs for manufacturing and services remain much weaker than at the beginning of 2019 and collectively point to annualized GDP growth of around 1.5%.

    The most concerning aspect of the latest data is a slowdown in new business growth to its weakest in a decade, driven by a sharp loss of momentum across the services sector. Survey respondents commented on a headwind from subdued corporate spending as softer growth expectations at home and internationally encouraged tighter budget setting.

    Manufacturing companies continued to feel the impact of slowing global economic conditions, with new export sales falling at the fastest pace since August 2009.

    Business expectations for the year ahead became more gloomy in August and remain the lowest since comparable data were first available in 2012. The continued slide in corporate growth projections suggests that firms may exert greater caution in relation to spending, investment and staff hiring during the coming months.

    The recent soft patch in the eurozone economy continued into August, according to latest PMI data from IHS Markit, with activity rising modestly amid a marginal increase in new business. The recent pattern of services growth compensating for a downturn in manufacturing was repeated midway through the third quarter. August did see a drop off in confidence among companies in the single currency area, with firms becoming more wary of hiring additional staff as a result.

    The IHS Markit Eurozone Composite PMI® ticked up to 51.8 in August according to the ‘flash’ estimate, up from July’s three-month low of 51.5 but still one of the weakest readings for six years. Although narrowing slightly from the previous month, there remained a wide divergence in performance between the manufacturing and service sectors. Services activity continued to increase at a solid pace, with growth recorded in Germany, France and across the rest of the euro area.

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    In contrast, manufacturing output was down for the seventh month running, albeit to a lesser extent than in July. While France was able to eke out production growth, falls were seen in Germany and outside of the ‘big-2’.

    Total new business rose marginally again, with the rate of expansion unchanged from that seen in July. Overall new orders were hindered by a decline in export business (which includes intra-euro area trade). New export orders were down for the eleventh successive month in August.

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    A sizeable drop in confidence regarding the 12-month outlook was registered in August as the global economic slowdown tempered optimism. Sentiment was down to the lowest since May 2013, with confidence weaker across both monitored sectors. Softer optimism was recorded in France and the rest of the eurozone, while German firms were pessimistic about the prospects for business activity for the first time in almost five years.

    Fading confidence led to further caution around hiring midway through the third quarter. The rate of job creation was modest, having ticked down from that seen in July to the weakest since April 2016. Services job creation softened, while the manufacturing sector posted job cuts for the fourth month running. Despite slower job creation across the euro area, companies were still able to comfortably deal with incoming new orders and also work through backlogs of work. In fact, outstanding business decreased to the greatest extent since November 2014.

    Spare capacity was also evident in manufacturing supply chains, with vendors able to shorten their delivery times for the sixth month running amid a sharp reduction in demand for inputs. Rates of both input cost and output price inflation ticked up in August, but remained subdued given the softer demand environment. Moreover, manufacturers continued to signal outright reductions in both their cost burdens and selling prices.

    While output growth in Germany picked up slightly in August, there were worrying signs on the new order front as inflows decreased to the greatest extent since April 2013. Negative sentiment among companies in the eurozone’s largest economy was highlighted by the strongest pessimism in the manufacturing sector in the over seven-year series history. France fared better in comparison, seeing solid expansions in both output and new orders as the manufacturing sector returned to growth to join services in expansion territory. The rest of the euro area as a whole saw little change in the rate of growth during August, as solid expansion in services outweighed falling manufacturing output.

    (…) While the rate of overall expansion ticked up, we’re still looking at GDP only rising by between 0.1% and 0.2%, based on the PMI data for the third quarter so far. (…) It appears that companies are braced for a sustained period of weakness, and as a result are showing greater reluctance to take on additional staff. (…) . The risk remains, therefore, that the euro area’s largest economy will have fallen into technical recession in the third quarter.

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    China’s yuan falls to fresh 11-year lows on trade war worries, despite state bank support Spot yuan ended the domestic session down 0.34% at 7.0875 per dollar, its weakest such close since March 14, 2008.

    As the Fed Frets, Retailers Rake in Sales Strong results from Target, Lowe’s are latest indication the U.S. consumer is doing just fine

    (…) Strong results from some of America’s biggest retailers suggest worries that an unsettled global environment is about to send U.S. consumers into retreat are overblown. (…) What makes the disconnect even more remarkable is that big retailers aren’t just reporting good results, they are expressing a lot of optimism. Target raised its earnings forecast for 2019, as did Walmart. Home Depot said escalating tariffs with China might rattle consumer confidence, but also that real-time data don’t show this yet. (…)

    U.S. Job Growth Weaker Through March Than Earlier Reported, New Data Show The Labor Department lowered its estimate of total U.S. employment in March by 501,000, or 0.3%.

    Government agencies in recent weeks have substantially lowered their estimates of job gains, output growth and corporate profits over different periods since early 2018 through the first quarter of this year, as part of their regularly scheduled updates based on fuller data.

    On the flip side, personal income—which comes from pay, dividends, interest and other sources—rose more and households saved more in 2018 and the first quarter of this year than earlier estimated. (…)

    Employers added about two million jobs in the year through March, down 501,000 from a prior estimate, the Labor Department said Wednesday. That brought down the average monthly gain over that period to about 168,000 from 210,000—still solid but not as robust as once thought.

    The total number of jobs in March was 0.3% less than the earlier estimate, a larger-than-usual annual revision. And the 12-month gain was a substantial 20% lower than the prior tally. (…)

    The department also said a key measure of corporate profits fell 2.2% in the first quarter of this year compared with a year earlier, after previously reporting that profits grew 3.4%. (…)

    More-recent data show output grew at a 2.1% annual rate in the second quarter and that average monthly job growth has remained around 165,000 this year, below the 2017 average gain of 179,000. (…)

    The bright spot in the revisions was Commerce’s new estimate that personal income rose 5.6% in 2018 from the year before, up from its previous 4.4% estimate. The biggest upward revisions were made to growth in income from dividends and interest, which flow disproportionately to wealthier households. (…)

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    (New York Times)

    In Reversal, Trump Says He Is No Longer Considering Tax Cuts President Trump ruled out a cut in the payroll tax and also said he wasn’t looking to reduce capital-gains taxes by indexing gains to inflation.
    Fed was divided on rate cut, wanted to avoid appearing on path for more cuts Federal Reserve policymakers were deeply divided over whether to cut interest rates last month but were united in wanting to signal they were not on a preset path to more cuts, a message not likely to sit well with U.S. President Donald Trump.

    Minutes from the two-day meeting released on Wednesday showed policymakers’ ultimate decision to lower the central bank’s benchmark interest rate by a quarter percentage point drew more opposition than was reflected in the rate-setting panel’s 8-2 vote, announced after the meeting adjourned on July 31. (…)

    “Participants generally favored an approach in which policy would be guided by incoming information … and that avoided any appearance of following a preset course,” according to the minutes. (…)

    U.S. Existing Home Sales Rise While Prices Slip

    The National Association of Realtors reported that sales of existing homes increased 2.5% during July to 5.420 million (0.6% y/y) from 5.290 million in June, revised from 5.270 million. Sales were 9.9% higher than the recent low during January. (…)

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    The median price of all existing homes sold weakened 1.6% last month (+4.3% y/y) to a $280,800 (NSA) from the record of $285,300 in June. The average sales price fell 1.3% (+3.1% y/y) to $317,100 from June’s record of $321,400.

    Existing home sales rose in most sections of the country during July. Sales in the West jumped 8.3% (-0.8% y/y) to 1.180 million and reversed the 3.5% decline during June. Sales in the South gained 1.8% (2.7% y/y) to 2.310 million after a 2.6% decline. Existing home sales in the Midwest improved 1.6% (0.8% y/y) to 1.270 million and repeated the June rise. Working the other way, sales in the Northeast declined 2.9% (-4.3% y/y) to 660,000 and reversed June’s gain.

    Sales of existing single-family homes increased 2.8% (1.0% y/y) to 4.840 million units, the highest level since February. Sales of condos and co-ops were unchanged at 580,000 units (-3.3% y/y).

    The number of homes on the market declined 1.6% y/y. The months’ supply of homes on the market fell m/m to 4.2, but remained up from a low of 3.1 months in December 2017.

    Manufacturers Want to Quit China for Vietnam. They’re Finding It Impossible.

    (…) The specialized supply chains that made China a production powerhouse for smartphones and aluminum ladders and vacuum cleaners and dining tables are nowhere near as developed in Vietnam. Factories with U.S.-focused safety certifications and capital-intensive machinery aren’t as easy to find.

    And Vietnam, with less than one-tenth China’s population, is already running into labor shortages as global manufacturers rush to set up shop here to avoid U.S. tariffs. (…)

    As a result, a new global manufacturing landscape is starting to take shape, executives say. Production leaving China is getting divvied up among developing countries, with a small portion going to the U.S. on the back of automation. The reordering of supply chains is likely to leave China with a diminished but still significant share of the pie. (…)

    The Chinese model of the past 20 years thrived on suppliers being close to each other, making production quicker, less expensive and more efficient. Now, as operations become more fragmented, they are threatening to raise costs, stretch delivery times and expose companies to multiple tax and labor regimes. (…)

    Federal Deficits to Grow More Than Expected in Next Decade, CBO Says Deficits are projected to grow by $809 billion, to $12.2 trillion, over the next decade thanks to last month’s budget deal.

    (…) The deal agreed upon by congressional leaders and the White House will add roughly $1.7 trillion to deficits between 2020 and 2029, assuming federal spending continues to rise by the rate of inflation beyond 2021. Much of that increase will be offset by lower-than-expected interest rates, which will reduce the cost of servicing the government’s swelling debt by $1.4 trillion over the next decade, the CBO said in the updated budget projections.

    In total, deficits are now expected to rise $809 billion more than the agency projected just a few months ago, bringing total deficits over the next decade to $12.2 trillion.

    Annual deficits as a share of economic growth are expected to average 4.7% over that period, higher than the 4.4% the CBO estimated in May and well above the 2.9% average over the past 50 years.

    Overall, the CBO said government debt as a share of the economy is expected to rise from 79% this year to 95% in 2029—up from 92% when the agency released its 10-year forecasts in May and the highest level since just after World War II, when debt exceeded the size of the economy. (…)

    The CBO said Wednesday higher tariffs are expected to reduce the level of U.S. GDP by 0.3% by 2020, primarily by raising prices, which reduces consumers’ purchasing power and increases the cost of business investment. Tariffs also reduce average real household income by $580, or 0.4%, by 2020, the CBO projected. (…)

    Germany Sells 30-Year Bonds With Negative Yields In an unprecedented move, Germany sold 30-year bonds at a negative yield, as investors desperate for safe assets bet that further falls in yields will boost the value of the bonds in the future.
    TECHNICALS WATCH

    I don’t know and use much technical stuff but I can’t resist seeing 2 things on this chart: a rising channel with higher highs and higher lows and what seems to be strong resistance at current levels which, perhaps coincidentally, is right at 20.0 on the Rule of 20 scale.

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    Note the yellow line wanting to bend lower. This is the Rule of 20 Fair Value which rises with trailing EPS and declining inflation. Currently, trailing EPS have plateaued while inflation is creeping up. A declining FV is headwind for equity markets.

    The 13/34–Week EMA remains positive (CMG Wealth)

    However, demand for equities is evaporating at the fastest rate since 2008 as SentimenTrader shows:

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    SentimenTrader also points out that fixed income investors are getting out of the riskiest holdings. Last December, the sell-off was widespread:

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    Bond Market: Why Is Everything Upside Down?

    Good primer on negative yields.

    The WeWork IPO

    If you care, Ben Thomson offers his analysis. I will single out the governance issue:

    The tech industry generally speaking is hardly a model for good corporate governance, but WeWork takes the absurdity an entirely different level. For example:

    • WeWork paid its own CEO, Adam Neumann, $5.9 million for the “We” trademark when the company reorganized itself earlier this year.
    • That reorganization created a limited liability company to hold the assets; investors, however, will buy into a corporation that holds a share of the LLC, while other LLC partners hold the rest, reducing their tax burden.
    • WeWork previously gave Neumann loans to buy properties that WeWork then rented.
    • WeWork has hired several of Neumann’s relatives, and Neumann’s wife would be one of three members of a committee tasked to replace Neumann if he were to die or become permanently disabled over the next decade.
    • Neumann has three different types of shares that guarantee him majority voting power; those shares retain their rights if sold or given away, instead of converting to common shares.

    Byrne Hobart has made the case that some of the real estate transactions with Neumann are justifiable, but given how bad everything else in this list is, not assuming the worst is a generous interpretation; meanwhile, Neumann has already reportedly cashed out $700 million of his holdings via sales and loans. Everything taken together hints at a completely unaccountable executive looting a company that is running as quickly as it can from massive losses that may very well be fatal whenever the next recession hits.