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Government, Not Amazon Putting Cashiers Out of Work – Ep. 259

Summary:

Amazon Buys Whole Foods

The Dow was up today; mainly on the surprise announcement that Amazon, the king of on-line retailing, is buying Whole Foods.  In a labor market significantly altered by ObamaCare-style government intervention, this news could signal further changes to the labor market.  Retail has experienced a steady decline, and this move could usher in a new wave of Amazon Go-style services.

Economic Surprise Index Headed For  2009 Territory

According to an article in Zero Hedge: For the 13th straight week, US economic data disappointed (already downgraded) expectations, sending Citi’s US Macro Surprise Index to its weakest since August 2011 (crashing at a pace only beaten by the periods surrounding Lehman and the US ratings downgrade). The last time, Us economic data disappointed this much, Ben Bernanke immediately unleashed Operation Twist… but this time Janet Yellen is hiking rates and unwinding the balance sheet.

“Unexpected” Bad News in Housing Starts and Building Permits

Another “unexpected” big drop in housing starts; the third month in a row is accompanied by a drop in building permits, so that means that this trend is likely to continue. The last time we had 3 consecutive monthly declines it was 2009.

  • We got some more bad economic news coming out today, and it capped a week of generally worse than expected news
  • I was looking at a chart of the Economic Surprise Index on an article on Zero Hedge and it was a new low for this cycle
  • They went back to find the last time the Economic Surprise Index was this low
  • It was right about the time the Federal Reserve launched “Operation Twist”
  • Remember that? I was calling it “Operation Screw”
  • When the Fed was lengthening the maturity of its balance sheet
  • It was selling some of its short term bonds and buying longer term bonds
  • To have a better impact on pushing down long-term interest rates
  • Yet today, when the market is being surprised by the same amount of negative economic data
  • “Unexpected negative news”
  • Again, every time you read a negative news story it is always prefaced with “Unexpected”
  • I always put that in quotes because, why don’t they expect it by now?
  • You get enough bad news, you should expect it
  • At some point, they will, and that’s when the index starts to go the other way
  • When things are bad long enough, people start expecting bad things to happen
  • And then the next thing you know, good things happen
  • So the Economic Surprise Index goes the other way
  • People are still optimistic, yet they keep being disappointed
  • Despite this, the Fed is not only not doing “Operation Twist”, it is tightening
  • It’s putting the screws on big time in that it has just announced quantitative tightening
  • Not only did they just raise interest rates on Wednesday but they indicated they are getting ready to do quantitative tightening for the first time ever
  • This has never been tried before by the Federal Reserve
  • It’s amazing, too that the Federal Reserve is always out there talking about quantitative easing helped the economy
  • It pushed up asset prices, it pushed up the stock market, pushed up the real estate market
  • O.K., if that is what they think, how can they believe they can reverse the process, do quantitative tightening, and not have a negative impact on asset prices?
  • Not have a negative impact on the economy?
  • It’s amazing that they have the hubris that they actually believe that this can be accomplished
  • Again, it doesn’t have a positive impact: you inflate an asset bubble and the asset bubble can distort the economy and lead to phony economic growth, the appearance of economic growth
  • Yes, if you try to suck the air out of the bubble that phony wealth is going to disappear and you’re going to be left with all the problems created by artificial stimulus
  • So to the extent that the Fed actually follows through with quantitative tightening,
  • And again, they are “data dependent”
  • But who knows what that means, because they’re ignoring all this data
  • The data we got today, early this morning, was housing starts
  • An “unexpected” big drop in housing starts; this is the third month in a row that the starts are down
  • There was even a slight revision to the prior month
  • But not only were housing starts way down, but building permits are also way down, so that means that this trend is likely to continue
  • The last time we had 3 consecutive monthly declines it was 2009
  • What was going on in 2009? The greatest Recession since the great Depression
  • This is bad news for a big sector of the economy
  • And guess what? The Fed just hiked rates!
  • And quantitative tightening also involves selling mortgage backed securities
  • So if the Fed is a seller of mortgage backed securities instead of being a buyer,
  • That means that there is downward pressure on price, upward pressure on rates,
  • That means it’s more expensive for pe0ple to buy houses
  • The Atlanta Fed with its GDP Now and the New York Fed with its GDP NowCast
  • Both downwardly revised their estimates for Q2 GDP
  • The Atlanta Fed moved down from 3.2 to 2.9%
  • What’s more important is not where the Atlanta Fed is, but the New York Fed
  • They went down from 2.3%  to 1.9%, the lowest estimate so far this year%