ECRI Recession Call Update: Weekly Leading Index Declines Again
Guest post by Dough Short.
The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) dropped to 123.1 from a slight downward revision of 124.4 (see the fifth chart below). The WLI growth indicator also slipped, now at 0.1 as reported in Friday’s public release of the data through May 18, down from the previous week’s 0.4.
The latest data release to the general public continues to command focus in the wake of Lakshman Achuthan repeated reaffirmation of ECRI’s recession call in live interviews around the major business networks on May 9th. The most detailed of the interviews was his Bloomberg appearance. See also Achuthan’s similar video interview with the Wall Street Journal.
Real Personal Income as a Recession Indicator
A key argument in ECRI’s latest reaffirmation of its recession call is the seen in the long-term pattern of year-over-year real personal income (illustrated below, which I will update with the new montly data due out on June 1). See this May 9th commentary on the ECRI website.
Keynesianism & Eugenics
Guest post by Azizonomics.
The theory of output as a whole, which is what The General Theory of Employment, Interest and Money purports to provide, is much more easily adapted to the conditions of a totalitarian state.
John Maynard Keynes
In looking at and assessing the economic paradigm of John Maynard Keynes — a man himself fixated on aggregates — we must look at the aggregate of his thought, and the aggregate of his ideology.
Keynes was not just an economist. Between 1937 and 1944 he served as the head of the Eugenics Society and once called eugenics ”the most important, significant and, I would add, genuine branch of sociology which exists.” And Keynes, we should add, understood that economics was a branch of sociology. So let’s be clear: Keynes thought eugenics was more important, more significant, and more genuine than economics.
Eugenics — or the control of reproduction — is a very old idea.
In The Republic, Plato advocated that the state should covertly control human reproduction:
Japanese debt-The end of the road?
The individual mind usually focuses on a few subjects only. Over the past weeks investors have focused on JPM, Grexit and Facebook, but let’s not forget about Japan’s downgrade. Yes, domestic investors are the main buyers of Japanese debt, and they have been “loyal”. The question is though, how much more debt can/want they take down. By Edward Hugh.
The recent decision by Fitch Ratings to downgrade the Japanese sovereign by one notch, from from AA minus to A plus, has all the outward appearance of being a predictable non event.
As the Reuters article reporting the decision puts it, ”Credit downgrades usually do not have a lasting impact on markets in Japan because its government bonds are mostly held by domestic investors”.
Yet something somewhere fails to convince me that this nonchalance is really justified . Something tells me that this process of rising debt and falling credit ratings cannot go on and on forever, and that at some point we will reach what Variant Perception’s Claus Vistesen calls “the end of the road”. In which case, we could start to ask ourselves, what then gets to happen next? Certainly there is nothing in conventional economic theory which can help us anticipate the answer, since this kind of end of the road point has not been forseen, anywhere, unless I am mistaken.
Macro Talk
Talking Macro with Schnapp.
On the economic outlook and the grim future Europe faces.
Spain-It just gets worse
Summer is approaching rapidly, with hopefully “turistas” willing to spend the much needed euros in Spain. Somehow, the news just don’t want to start on a positive note. The big elephant in the European room sure is moving. Various news in local El Pais press over the past few days. Spain is crying.
Bankia to ask for a further 19 billion euros in bailout funds
Central bank chief asks to appear in Congress over Bankia
Catalonia urges central government to provide support to pay debts
Fiat currency
Gordon Long’s chart is still working nicely as we move across the time axis.
The relative expansion of central banks’ balance sheets
With twitter feeds exploding over the Euro breaching the 1.25 level, and rumors of French banks preparing for a Grexit, let’s review what central planners balance sheets look like. Via Macroblog (Atlanta Fed).
Relative to before the financial crisis, the Federal Reserve’s asset holdings are currently about 3.3 times larger. Initially, the source of that increase was the collateral associated with various temporary lending facilities that the Fed used to address the financial panic. Those assets were then replaced on net by purchases under the first large-scale asset purchase program in 2009. Then in late 2010, asset holdings increased further as a result of a second large-scale asset purchase program.
Of course, size isn’t everything. While it might be tempting to try and interpret the change in the size of the central bank’s balance sheet as a summary statistic of the degree of monetary policy accommodation, as Dave Altig’s post points out, that interpretation is not so straightforward. Increasing the size of the balance sheet is not the only thing a central bank can do to ease monetary policy when short-term interest rates are very low. For example, in late 2011 the Fed began a maturity extension program that changed the composition of the assets on the balance sheet, but this program did not materially alter the size of the balance sheet.
With this caveat in mind, the following chart compares the proportionate changes in the size of asset holdings of five central banks over the period from the first quarter of 2007 through the first quarter of 2012: the Federal Reserve (FR), the Bank of England (BE), the European Central Bank (ECB), the Bank of Canada (BC), and the Bank of Japan (BJ).
VXN Futures
Via Vix and more.
You really need a scorecard to keep up with the new product launches at the CBOE. Today was potentially a big one, with the launch of futures on the Nasdaq-100 Volatility Index, which most of us simply refer to as VXN or Vixen.
As the table below shows, the VIX continues to account for approximately 99% of the volatility index futures at the CBOE Futures Exchange (CFE). Today VXN futures (VN) traded 20 contracts on its opening day. While futures in the CBOE Emerging Markets ETF Volatility Index (VXEEM) are currently positioned at the #2 product at the CFE, VXN futures certainly have a lot of potential, with the likes of Apple (AAPL), Facebook (FB) and Google (GOOG) and other technology high fliers folded into this security.
On a related note, for anyone who may be interested, I authored the feature article, The Expanding Volatility Megaplex, in the current edition ofExpiring Monthly. This article chronicles the history of volatility indices and looks at how the CBOE has recently begun to aggressively expand the scope of volatility indices and turn these into product platforms for futures, options and exchanged-traded products.
UK Banks Want to Charge Customers for Accounts
Guest post by Azizonomics.
This is nuts. UK banks want to charge customers for the privilege of handing over their money and letting banks gamble it in the global derivatives casino.
From the Telegraph:
A groundswell of support for change is understood to be gathering among the authorities. The Treasury’s advisers on the Independent Commission on Banking and the Office of Fair Trading are said to be also backing the proposals, alongside the treasury select committee and financial regulators.
Britain is the only country in Europe to operate a “free-in-credit” model of current account banking. Instead of levying fees on an account, lenders make their money through “stealth charges” on overdrafts and cross-selling of other products. Only India and Australia run equivalent models.
Regulators and officials want to reform the system to boost competition by making it easier to compare rival accounts. They also believe so-called “free banking” encourages mis-selling of financial products, exposes banks to compensation risks and lets customers down.
So the impression that bankers and regulators have seems to be that banks are doing customers a favour by holding onto their money and occasionally losing it all buying junk securities.
Nope. In a free market, banks that tried to charge customers for the privilege would be laughed out of the marketplace. Banks — by their very definition as intermediaries — generate profits from making good investments, not by charging customers for the privilege of holding their money.
JPMorgan Gave Risk Oversight to Museum Head-good enough?
Surprised? Hardly. This is not a fairy tale, but reality. Corporate governance 101 anybody? From Bloomberg Businessweek.
The three directors who oversee risk at JPMorgan Chase & Co. (JPM) (JPM) include a museum head who sat on American International Group Inc.’s governance committee in 2008, the grandson of a billionaire and the chief executive officer of a company that makes flight controls and work boots.
What the risk committee of the biggest U.S. lender lacks, and what the five next largest competitors have, are directors who worked at a bank or as financial risk managers. The only member with any Wall Street experience, James Crown, hasn’t been employed in the industry for more than 25 years.
“It seems hard to believe that this is good enough,” said Anat Admati, a professor of finance at Stanford University who studies corporate governance. “It’s a massive task to watch the risk of JPMorgan.”
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