Target, Kohl’s and Walmart have all reported declines in same store sales for the 1st quarter. The retailing titans are quick to blame the weather over the actual reason, a huge social security tax increase for workers. Why would they spin the results this way? Weather can improve, but smaller paychecks are a permanent part of the new normal. The companies are attempting to persuade investors that poor sales are temporary, but they aren’t buying it as the stocks underperform the market.
For months, we have been writing that the Fed cannot possibly lower
the rate of money printing for fear of a market swoon. Today, the
chairman admits as much:
A premature tightening of monetary policy could lead interest rates
to rise temporarily but would also carry a substantial risk of slowing
or ending the economic recovery and causing inflation to fall further.
interest rates will kill the stock market rally in an instant, and the
algos will create the mother of all panics as they all try to sell on
the news in unison. Until this happens, enjoy those paper profits in
When central banks commenced printapalooza, the hot money flowed into
commodities as the cotton price chart shows. Cotton was also given a
boost by the spread of the Arab Spring to Egypt, a major cotton
exporter. Since then, concerns of a shortage have alleviated, and the
hot money has flowed into the stock and bond markets. Weak demand from
both manufacturers and speculators should continue to push prices
Here is one reason why the “housing recovery” has yet to significantly boost the economy: the housing recovery does not exist. Sales of existing homes have finally clawed their way back to the lows of the 2001 recession, but in order to experience pre-2008 levels of economic growth housing sales still need to increase another 40%. With declining real wages for the vast majority of U.S. workers, a large increase in sales is a pipe dream. The chart above shows how far we have really fallen.
Politicians like to talk. The newly elected Icelandic government
gives many reasons for shelving EU accession talks, but the real reason
lies within the charts above. While the Eurozone economy atrophies,
Iceland has achieved steady economic growth in the wake of its financial
crisis. Hmmm, what is the difference between the Icelandic and Eurzone
Japanese bond yields have not risen all that much considering their history. What is troubling is the recent bouts of volatility. Wide, intraday price spreads have no precedent. These volatile days foreshadow the widespread panic that will engulf this market one day, just don’t ask me which day that will be.
Yesterday, we discussed the problem of protective labor laws:
Since businesses in Europe have learned how difficult it is to shed workers during recessions, they are loathe to increase hiring during boom times. Paradoxically, worker protection laws do not protect workers on a net basis. Sure, the few who have good jobs may get to retain them a little longer but at the expense of the many unemployed.
It is a political nonstarter to suggest rolling back these protections so that a freer labor market results in more hiring, so politicians propose good looking solutions that actually do nothing. Letta’s job creation proposals fall into this category.
All is not well in the world. Preserving middle class entitlements has created a permanent underclass that has no prospects. This problem is not limited to Sweden, Europe and, indeed, the United States have a similar problem. Fortunately, the riots have been limited to Europe, so far.