This Santa Claus stock rally will not spur increased spending

No, Virginia there is no Santa Claus.

Unfortunately, Virginia now works for the National Retail Federation, which came out with its projection for holiday gift spending for this year. Continue reading

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An open letter to Chair Yellen on the inflation mystery

Let me take this post to write an open letter to Fed chief Janet Yellen to explain what is going on in the US economy. It appears she needs it

At her press conference on Wednesday Yellen said of the inflation rate being suppressed. “I will not say that the committee clearly understands what the causes are of that.”

Dear Chair Yellen, Continue reading

Opioid abuse decimated US workforce: Paper

Where have all the workers gone? That’s the question baffling economists and social scientists for the last decade.

As the labor participation rate for Americans continues to slide lower, a Princeton professor beliefs he has found a contributing factor: Opioid abuse.

“Labor-force participation is lower in areas of the US with a high rate of opioid prescriptions, and labor-force participation fell more over this 15-year period in areas with a high rate of opioid prescriptions,” Alan Krueger wrote in the paper.

Krueger, the former Obama White House economist is not the first to propose this theory of a generation of workers lost to the epidemic of over-subscribed pain killers.

However, in an early version of this paper, Krueger showed data that nearly 50% of America’s between 25- and 54-years old not in the workforce were taking pain killers.

His paper cites the  post-recession decline in the labor-force participation rate—which stands at 62.9% in August, according to the Labor Department data. This number has fallen from 66% in December 2007 and a peak of 67.3% in early 2000.

Many have attributed the decline to aging Baby Boomers retiring, however the data shows that the 60 and older workforce has remained somewhat static as older workers retirement funds were decimated in the 2008 market rout.

It’s also a point to make that as the next generation has fallen out of the workforce, older workers need to stay on since there are little in the way of replacements to fill the job.

While Krueger says the data is not all in yet, he suggests that a further look into this epidemic is warranted, since there may be a cause and effect. “It’s certainly something that deserves serious attention,” he told the Wall Street Journal.

As an aside, I have written on this subject in the past. I see it as a chicken and egg problem. Which came first the loss of a job or the drug abuse?

I maintain that the job loss or fear of it came first. Under Obama, many out of work workers filed for disability for workplace injuries in order to get benefits.

The number of Americans on disability skyrocketed after 2007-2008. Since many claimed pain as the result of the injuries, opioid use also soared. Once hooked, it is very difficult to get off the drugs.

While this is not addressed in the paper directly — as I mentioned earlier the author worked in the White House at the time — I contend that there is also a cause and effect there, with the major drug companies only too happy to churn out millions of pills for the government to pay for through its Social Security disability insurance program.

The real pain is the lost generation of workers and the bill other Americans will have to pay for years.

Consumers credit crunch changes retail picture more than Amazon

The state of the consumer can be summed up in two pieces of data that were released this week.

First, total US household debt was $12.84 trillion in the three months to June, up $552 billion from a year ago, according to the New York Federal Reserve Bank report published on Tuesday. Almost 5% of that sum or $600 billion of that debt is in default.

Secondly, the only retailers to have decent earnings this week were the off-price stores. TJ Maxx, which owns that brand along with Marshall’s and Home Goods, beat profit estimates and guided higher, while being one of the few retail chains to be opening new stores.

Target was the other bright spot for the retail sector as it also beat the Street’s revenue and profit forecasts by remodeling stores and ramping up 2-day delivery services.

The off-price retail sector is booming when you compare it to Macy’s, Nordstrom and other department stores, as consumers look to price versus brands. While Amazon’s pricing could be included in the sector, it has less to do with the department’s stores demise than the credit crunch.

A line in the Fed report sticks out to me, which said the growing number of credit cards balances maxed out “ticked up notably.” This is the canary for cash-strapped consumers, who earlier reports from the Fed said were making more credit card purchases for everyday staples like gas and groceries.

Is this a matter of convenience or is the credit card used as a bridge to pick up milk on the Wednesday before payday?

Not sure if an answer to that can be derived, but it points in an ominous direction when you take into account that real wages have been flat on an inflation basis for over a decade at the very least.

 

Used auto sales are getting the hook

Here’s one job that’s sure to be hiring, but you will not see it on the Bureau of Labor Statistics employment data for August.

It’s the Repo Man.

All those subprime auto loans for eight years, 0 percent down and no credit check, were not all that secure, but then again the car makers sold the vehicle and put the risk on someone’s’ books.

Much like the housing crisis, the finance companies making these risky loans securitized the loans and sold the bonds to investors, which are creating some cracks in the $1.2 trillion market for auto financing.

Investors starving for yield are grabbing these securities with two fists. In 2009, $2.5 billion of new subprime auto bonds were sold. In 2016, $26 billion exchanged hands, according to a Wells Fargo report.

However, the glut of vehicles arriving on the back of tow trucks onto lots has accelerated leading to a 4.1% price decline on used cars in August.

Also with so many cheaper cars on the lot that are only one or two years old, new car sales are hurting. July’s sales numbers were stunning when compares to the record number of 17.5 million cars sold in 2016.

General Motors reported a 15.4% sales decline in July compared to the same period a year ago, selling 226,107 cars and trucks. Ford Motor said sales slid 7.4% last month to 199,318 vehicles. Fiat Chrysler posted a 10% decline in July, selling 161,477 vehicles.

“So, what i can I do to put you in this beauty?”

“Not much obviously. Give me that one-page loan form, I’ll sign it and pick up the car tomorrow. Maybe I’ll be back in six months to pick up a different model.”

Does sound like another recipe for disaster.