Corporate Profits (Per Unit of Real Gross Valued Added) Were Negative for 7 of Last 8 Quarters As Dow Hits 22,000

The Dow Jones Industrial Average keeps on rising and is now hovering around 22,000.

But not every indicator is rising. Corporate profit per unit of real gross value added (after tax with IVA and CCAdj) has been declining YoY for 7 of the last 8 quarters.

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Corporate profit per unit follow a similar pattern following a recesssion. They rise rapidly, then begin slowing until the point at which they are consistently declining on a YoY basis.

The following chart shows the current slowdown in corprate profit per unit of real gross value added, similar to the slowdown following Q3 2006 and Q3 1997 before recessions.

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Is Winter coming?

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State and Local Pensions Average 0.6% Return In 2016 (Despite 7.6% Return Assumption and Chronic Underfunding)

The US Federal government is spending at a fast and furious rate. US Federal Spending is rising at a staggering $428,253,120 per day while US Federal TAX Revenue is only rising at $129,857,760 per day. That is almost a ratio of 2x tax revenue.

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Meanwhile, US public debt is skyrocketing.

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While the Federal government further indebts citizens, the US personal savings rate in declining at a rate of 24% YoY.

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Then we have the underfunded pension funds of American, both private and public.  Public pension funds earned a dismal 0.6% in 2016

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According to the Center for Retirement Research at Boston College. public pension funds are also underfunded at 67.9% as of 2016.

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Rotten returns coupled with chronic underfunding. Who are those guys?

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FDIC’s Hoenig: Bank Lending Weak Because of Payouts (99% Net Income Distribution)

Thomas Hoenig, the former KC Fed Chairman and current vice chairman of the Federal Deposit Insurance Corporation (FDIC) stated recently that banks are choosing to distribute their earnings to investors rather than lend.

WASHINGTON (Reuters) – Big banks say tight U.S. financial regulation forces them to sit on capital and not put money to work by making loans, but in truth they choose to distribute all of their earnings to investors instead of lending them, a long-time regulator said in a letter to two powerful senators released on Wednesday.

Using public data to analyze the 10 largest bank holding companies, Hoenig found they will distribute more than 100 percent of the current year’s earnings to investors, which could have supported to $537 billion in new loans.

On an annualized basis they will distribute 99 percent of net income, he added.

He added that if banks kept their share buybacks, totaling $83 billion, then under current capital rules they could boost commercial and consumer loans by $741.5 billion.

Here is a table from Hoenig’s letter to Senators Mike Crapo and Sherrod Brown. hoenigletter07-31-2017

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Of course, deposit rates at banks are near zero giving them almost zero cost source of funding. And bank lending (especially Commercial and Industrial loans) are slowing appreciably.

And then we have 1-4 unit mortgage debt outstanding which has a YoY growth rate of 2.7%, the lowest in history before 2008.

That would help to explain the lack of US inflation (money trapped in the Federal Reserve System) and the pitiful velocity of money (the lowest in modern history).

So, The Fed’s zero-interest rate policies have not benefitted borrowers, but benefitted owners of bank stocks. And helped create massive asset bubbles (which Greenspan denies for stocks, but admits for bonds).

New Home Sales Slow In June, Still Stuggling To Recover After Housing Bubble

New home sales rose, but modestly disappointed in June (610k vs 615k exp) with a small downward revision to May.

New home sales continue to climb … back to pre-housing bubble levels.of the early 1990s as do mortgage purchase applications.

Although the median price for new home sales fell over 4% in June, they are still up 52.2% since October 2010.

Remember all the cheerleading from the Mortgage Bankers Association (MBA) last week ove the massive surge in mortgage refinancing applications? In reality, refi applications are stuck in a rut since the last increase in mortgage rates.

Yes, we are still picking up the trash from the housing and credit bubble of the last decade.

The Gleaners by Jean-François Millet. Sort of.

M2 Money Growth Declines To 20 Month Low (What Happens To Wage Growth?)

Real median household income, one measure of American household prosperity, peaked in 1999, fell slightly in 2000, then declined in the early 2000s only to hit decade-peak in 2007. RMINC continued to fall again until 2012 when it finally started to rise.

What is notable is that the rise in real median household income in the 1990s corresponded with a rapid rise in the M2 money supply.from 1995 to 1999. That represented a 33% in M2 money supply.

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The rapid increase in M2 Money Supply also corresponds to the high in M2 Money Velocity in 1997, as if Fed Chair Alan Greenspan expended all the M2 fuel in one massive attempt to stimulate the economy.  M2 velocity (GDP/Money Supply) has been falling ever since. Along with real median household income. EXCEPT FOR 2013 AND AFTER WHEN REAL MEDIAN HOUSEHOLD INCOME ROSE EVEN AS M2 MONEY VELOCITY WAS SINKING LIKE A ROCK.

One possible explanation lies with the redesign of the income question in 2013 and onwards.

Starting in 2013 with a partial phase-in, which was fully implemented in 2014, Census changed the questions and the methods in calculating household income.

For example, Census, starting in 2014, began to “collect the value of assets that generate income if the respondent is unsure of the income generated.”

Also, the government started to use “income ranges” as a follow-up for “don’t know” or “refused” answers on income-amount questions.

So, that is a partial explanation for the anomoly of rising real median household income with crashing M2 Money Velocity. THEY CHANGED THE HOUSEHOLD INCOME DEFINTION.

M2 Money growth has fallen to a 20 month low  while an alternative measure of money supply, the Austrian money supply, just fell to a 105 month low. 

The “Austrian” measure of the money supply differs from M2 in that it includes treasury deposits at the Fed (and excludes short time deposits, traveler’s checks, and retail money funds).

Well, M2 Money supply increases hasn’t done much for Average Hourly Earnings of Production and Nonsupervisory Employees, particularly since 2008.

Whether we are using the decline in M2 growth or Austrian money growth, neither one have benefitted the majority of Americans.