Here’s the MF Post of the Day from Mar 30th. I thought it was a wonderful read. Negative interest rates are just a tiny part of this article. It’s about the economy and the future of the stock market from here. It’s a very interesting collection of observations. Anyone have any comments?
Board: Macro Economics
So, you know, Guido, how we doin?
Help Wanted Ads: From the National Federation of Independent Businesses, the “hard to fill rate” is back where it was in 2005. Bloomberg calls it “a clear sign of economic recovery and maybe that wage hikes are on the way.” From 25% in 2005 to 7% in 2009 , and now back to 25% as of February, 2015. Businesses have been sitting on their openings, afraid to hire, but that time is past. There’s enough demand, managers are starting to search for employees again.
The “Quit Rate”, from the US Bureau of Labor Statistics. Peaked as high as 2.25% in 2005, fell to 1.3% in 2009. Now back to 2%. The “quit rate” is seen as an indication that the supply of good jobs is growing, and that people are becoming more mobile in their careers. This number always dips during recessions as people hunker down and do not voluntarily leave either for other opportunities, which are fewer, or to start their own business because of poor economic conditions. The “quit rate” moves with “confidence”, and it’s rising.
Revolving Credit: Americans return to the old habit of charging it. Credit card debt hasn’t climbed back to 2008 levels but it’s heading that way. Revolving credit balances have climbed every year for the past four years.
Cost of Weddings: This number fell dramatically in the wake of the financial meltdown, almost 20% from $34k to $28k. It still sounds expensive to me, but the number has rebounded to $32k and continues to climb. Mrs. Goofy and I rented a yacht and took the family for an all day cruise in Boston Harbor. We brought some catered food and a Justice of the Peace. Easy peasy. We weren’t kind to wedding planners in 1984, and neither was the fall of Lehman some 25 years later.
German bonds: Bonds maturing as far out as seven years carry a negative interest rate. Yep, if you give them $1000, in seven years you’ll get back less than $1000. Now there’s a vote of confidence in the way Europe is handling things. And there is no shortage of takers in European markets!
Cost of Shipping: The Baltic Dry Index has fallen 2/3 in three years. This measures the cost of transporting raw materials by sea. This can indicate two things: long lead times in ship building and the consequent finishing of new and larger ships just as Chinese and European demand drop, or, uh, one or either of the above, separately.
The Strong Dollar: It makes for scary headlines, but it’s great for American travelers and not so great for US exporters. On the other hand, companies in the S&P get almost half their revenue outside the US, so maybe it’s not quite such a big deal anymore, at least to us investors.
Hedge Fund Performance: it’s been pathetic since 2008. While the S&P 500 index is up 130%, aggregate hedge fund performance is up a piddling 30%. Take out the 2% annual fee and the 20% “performance” tip and you’d have been almost as well off putting the money in a coffee can on the kitchen table.
Wall Street: To quote from Bloomberg: “In the industry the only thing more satisfying than making money is complaining about how hard the banking life has become. So many new rules and such little gratitude! Don’t buy it. Wall Street is doing fine.” Financial sector stocks have risen 62% in three years. That’s better than the S&P index over the same period.
The Almighty Apple: continuing to defy the law of large numbers, Apple’s profit rose 38% in the most recent quarter. The company still has a ways to go to become the first Trillion Dollar Corporation, but it’s no longer outside the realm of possibility. It needs another $250b in market cap. Closer than anyone has ever been.
The housing market bull has been a godsend for Home Depot and Lowe’s, whose stocks have climbed $80 to $115 and from $45 to $70 respectively in just the past year. Homeowners see their houses as good investments. Again. Welcome to 2006!
Vacancies: OTOH, it’s harder to find a place to rent in the US than at any time since 1993. Damaged credit scores, stagnant wages, and difficult-to-get mortgages are keeping millions from buying and are putting pressures on rental pricing. Good for landlords and capitalists, not so good for people with economic issues to face.
Bitcoin. Remember Bitcoin? It was going to take the worry out of that endless printing press specie? It’s gone from $1100 to $250 in the two years and some months since November 2013. Soon you’ll haver to carry it around in a wheelbarrow to buy a loaf of bread! Then again, jump the starting point back another six months and it’s doubled. Oh, for the stability of the US dollar! Oh wait! Non-sequitur.
Almonds: The price of almonds is up 50% in two years, as drought ravages California, where 80% of the world supply grows. Maybe not for long, if the rain gods don’t speak soon. Let’s hope that it isn’t the Anasazi thing all over again.
Everything: Mostly positive. Unemployment keeps coming down, more slowly than some would like, but then there are also a lot of “long term discouraged” who are re-entering the market, which artificially slows the numerical drop. And there is the baby-boom, in which a lot of front-edgers decided to retire, and are now finding some employment opportunities that didn’t exist in 2008 and 2009 and who are rethinking the whole thing.
Then again, China is slowing down, oil prices are cratering, and some are insisting that it’s all about to crash, any moment, because of, uh, revealed truth, data be damned. Advice: ignore those with the sandwich boards crying “Doom! You’re kicking the can down the road!” and assume that the economy is getting healthier, the dollar stronger, consumers more confident, and the market rich (oops, and maybe a little overvalued. Well, you can’t have everything.)
I happily acknowledge cribbing much of the data above from Bloomberg, The conclusions about doomsayers are entirely my own. Well, and most sentient people, if you asked them.