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Friday, May 22, 2015 1:33 PM


Yellen Yap: Point by Point Rebuttal


Inquiring minds are reading Fed Chair Janet Yellen's Outlook for the Economy speech, delivered today at the Providence, Rhode Island Chamber of Commerce.

Here are a few snips from what I believe to believe is a way over-optimistic assessment. I provide rebuttals following each statement.

Yellen: The U.S. economy seems well positioned for continued growth. Households are seeing the benefits of the improving jobs situation, and consumer confidence has been solid.

Mish: The economy is not positioned for much, if any, growth. Consumer confidence is not solid, and consumer spending plans have been sinking like a rock. See Consumer Confidence Plunges Below Any Economist's Estimate; Consumers Shock Economists.

Yellen: The drop in oil prices amounts to a sizable boost in household purchasing power. The annual savings in gasoline costs has been estimated at about $700 per household, on average, and savings on heating costs--especially here in the Northeast, where it was so cold this winter--are also large. Given these energy savings on top of the job gains, real disposable income has risen almost 4 percent nationally over the past four quarters. Households and businesses also are benefiting from favorable financial conditions. Borrowing costs are low, supported by the Fed's accommodative monetary policies. And credit availability to both households and small businesses has improved. 

Mish: Any savings on energy went up in smoke on rental increases and rising health care costs. See CPI Shows Sharply Rising Medical Costs; Huge Obamacare Hikes Planned.

Yellen: In recent months, as I noted earlier, there has been some softness in the economic data. Recent indicators of both household spending and business investment have slowed, and industrial output has declined. The Commerce Department's initial estimate was that real gross domestic product was nearly flat in the first quarter of 2015. If confirmed by further estimates, my guess is that this apparent slowdown was largely the result of a variety of transitory factors that occurred at the same time, including the unusually cold and snowy winter and the labor disputes at ports on the West Coast, both of which likely disrupted some economic activity. And some of this apparent weakness may just be statistical noise. I therefore expect the economic data to strengthen.

Mish: In a shock to economists, consumers are doing exactly what they said they would do, not what economist's models predicted consumers would do.



For what consumers said they would do, please see Household Spending Growth Expectations Plunge; Recession Already Started?

For what consumers actually did, please see Dismal Retail Sales Numbers Suggest Recession Likely Underway.

Yellen: Putting it all together, the economic projections of most members of the FOMC call for growth in real gross domestic product of roughly 2-1/2 percent per year over the next couple of years, a little faster than the pace of the recovery thus far, with the unemployment rate continuing to move down to near 5 percent by the end of this year. And for inflation, as I noted earlier, my colleagues and I expect inflation to move up toward our objective of 2 percent as the economy strengthens further and as transitory influences wane.

Mish: The economic projections of the Fed have been and remain laughable.

Here is an amusing chart of the Fed's own pathetic performance from Honey I Shrunk the Kids.

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Yellen: Given this economic outlook and the attendant uncertainty, how is monetary policy likely to evolve over the next few years? Because of the substantial lags in the effects of monetary policy on the economy, we must make policy in a forward-looking manner. Delaying action to tighten monetary policy until employment and inflation are already back to our objectives would risk overheating the economy.

Mish: The Fed is far too late. The obvious bubbles in equities and junk bonds are proof enough. The Fed has never once in history tightened in a forward-looking manner. Panic reactions are the norm.

Yellen: If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target and begin the process of normalizing monetary policy. To support taking this step, however, I will need to see continued improvement in labor market conditions, and I will need to be reasonably confident that inflation will move back to 2 percent over the medium term.

Mish: The idea that consumer price deflation is damaging is downright idiotic. Even the BIS recognizes that fact. For discussion, please see Historical Perspective on CPI Deflations: How Damaging are They?

Fed Consistently Wrong

The Fed has been consistently wrong as discussed in Why Are Economists' Predictions So Damn Awful?

The Fed has been so wrong, so many times, and in so many ways. Why anyone bothers to listen to such speeches other than to poke fun at them remains a mystery.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

11:43 AM


CPI Shows Sharply Rising Medical Costs; Huge Obamacare Hikes Planned


The CPI came in exactly in line with the Bloomberg Consensus option today.




It's the details, not the overall number that is worrying. Medical care and rents have been rising rapidly.

The Fed likes to ignore food and energy costs. They have their chance to prove it.

From Bloomberg ...

Pull forward that rate hike is what some of the hawks are thinking after reading today's consumer price report where a benign looking headline, up only 0.1 percent in April, masks rising pressure through many components.

Excluding food and energy, core prices rose 0.3 percent which doesn't seem that much but is outside Econoday's high-end forecast for 0.2 percent. It is also the highest since January 2013. The year-on-year rate for the core is plus 1.8 percent which, after dipping to 1.6 percent earlier in the year, is closing in on the Fed's general inflation target of 2.0 percent.

Readings showing pressure are outside energy including medical costs (up a very steep 0.7 percent in the month) and education costs (up 0.5 percent). Shelter costs, reflecting rising rents, came in at plus 0.3 percent for the 3rd time in 4 months which is the hottest streak for this reading since way back in late 2006 and early 2007. Also standing out are gains in furniture (up 1.3 percent) and used cars (up 0.6 percent).

Oil prices have been on the rise but not energy costs, at least in the April report which fell a heavy 1.3 percent. Gasoline fell 1.7 percent in the month. Two other readings also showed downward pressure: airfares (minus 1.3 percent) and apparel (minus 0.3 percent). Food costs were flat.

The headline CPI is down 0.2 percent year-on-year which looks downright deflationary. But the lack of pressure is due entirely to energy which is down a very deflationary 19.4 percent year-on-year. Energy prices are bound to firm given the recent move in oil from the high $40s for WTI to $60. That and emerging price pressures through the bulk of the consumer economy raise the risk that inflation may be brewing after all.
The CPI Seasonally Adjusted Numbers from the BLS look even worse.

Seasonally Adjusted

  • All Items Less Food and Energy rose 0.3% (following a rise of 0.2% in March and 0.2% in February)
  • Medical Care jumped 0.9% in April (following a rise of 0.4% in March).
  • Used Cars jumped 0.6% (following a rise of 1.2% in March and 1.0% in February).
  • Shelter rose 0.3% (following a rise of 0.3% in March and 0.2% in February) 

Supposedly energy prices declined 1.3%. Gasoline led the way with a 1.7% decline. Does that seem believable?

Health Insurers Seek Hefty Rate Boosts

Worse yet, planned Obamacare premiums are about to explode, setting the stage for debate over federal health law’s impact.

The Wall Street Journal reports Health Insurers Seek Hefty Rate Boosts.
Major insurers in some states are proposing hefty rate boosts for plans sold under the federal health law, setting the stage for an intense debate this summer over the law’s impact.

In New Mexico, market leader Health Care Service Corp. is asking for an average jump of 51.6% in premiums for 2016. The biggest insurer in Tennessee, BlueCross BlueShield of Tennessee, has requested an average 36.3% increase. In Maryland, market leader CareFirst BlueCross BlueShield wants to raise rates 30.4% across its products. Moda Health, the largest insurer on the Oregon health exchange, seeks an average boost of around 25%.

All of them cite high medical costs incurred by people newly enrolled under the Affordable Care Act.

“This year, health plans have a full year of claims data to understand the health needs of the [health insurance] exchange population, and these enrollees are generally older and often managing multiple chronic conditions,” said Clare Krusing, a spokeswoman for America’s Health Insurance Plans, an industry group. “Premiums reflect the rising cost of providing care to individuals and families, and the explosion in prescription and specialty drug prices is a significant factor.”
Poor Retail Sales Explained

Economists have been struggling to explain poor retail sales and the slump in consumer attitudes. All their models suggested consumers would increase retail spending thanks to the decline in gasoline prices.

The economists all forgot to factor in the Obamacare effect and rising rents. This is just round one.

For further discussion please see ...


To wrap it up, please consider Why Are Economists' Predictions So Damn Awful?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Thursday, May 21, 2015 10:32 PM


Another US Foreign Policy Success: Isis Controls Half of Syria after Palmyra Seizure


Congratulations are in order for team Bush and team Obama for another stunning US foreign policy success: Isis Controls Half of Syria after Palmyra Seizure.

Fighters from the Islamic State of Iraq and the Levant (Isis) have seized the Syrian city of Palmyra, home to a Unesco world heritage site, putting nearly half of Syrian territory in the jihadi group’s hands and sparking fears that treasured antiquities may be destroyed.

Isis announced it had “complete control” of the city on Thursday, and state television said President Bashar al-Assad’s forces had withdrawn from the city, which is known to most Syrians by its Arabic name Tadmur.

Ancient Palmyra is known to the world for its iconic avenue of Roman columns, and was a cultural crossroad of the ancient world. The city dates back to the 1st century, when it was an oasis on a trade route linking eastern civilisations with the Roman empire. Its ruins lie to the southwest of modern Tadmur.

“Palmyra is an extraordinary World Heritage site in the desert and any destruction to Palmyra [would be] not just a war crime but . . . an enormous loss to humanity,” Unesco head Irina Bokova said in a video.

Isis has developed a reputation for destroying or selling cultural treasures. Earlier this year it filmed its fighters smashing Assyrian artefacts at sites in northwestern Iraq.
Moderate Rebels Defect

In case you are wondering how this happened, please consider this IBTimes report from March 7, 2015: US-Backed Moderate Syrian Rebels In North Defect; Obama Strategy Set Back.
It was supposed to be a crucial instrument of the Obama administration's aims in Syria, an ostensibly moderate rebel fighting force that would keep the pressure on the authoritarian regime in Damascus without aiding the ruthless jihadist forces that have captured much of the country. But the soldiers of Harakat Hazzm -- the first Syrian rebel group to receive arms from the CIA -- disbanded this week.

As a result, much of northern Syria is in the hands of the extremists, and the United States is left with no palatable ally in the area in the midst of a regional conflict that continues to spiral out of control.
Hillary Backs Moderates

Please recall that Hillary was in favor of backing "moderate" rebels.

But it is not just Democrats who want to back "moderates". Chief warmonger, Republican Senator John McCain, does as well.

Has anyone bothered to question if we are even backing the right person?

Iran is actually our ally here. Iran wants to help the US fight ISIS. The only problem is Iran backs Syrian president Assad, while the goal of the US is to overthrow Assad to alleged "moderates".

Roots of Crisis

This is exactly the kind of idiocy one can expect when you think you can "nation build".

Without a doubt the roots of this crisis date back to the inane decision by George Bush to invade Iraq. But please recall that Hillary was in favor of invading Iraq as well.

The non-amusing fact in this mess is the policies of George Bush, Obama, and Hillary Clinton are similar if not identical. Yet, Republicans blame Obama and Democrats blame Republicans.

The only candidate who has an alternative plan to this mess is Senator Rand Paul.

Contemplating Success

Some may ask "Mish, how the hell can you call this disaster a success?"

The answer is simple: In spite of what they may say, the goal of mainstream Republicans and Democrats is obviously perpetual war.

A destruction of a major historic site in Palmyra will have even some peacemongers clamoring for retaliation.

Make no bones about it, the takeover of Palmyra was a major US foreign policy success, provided you understand the goal.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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