Chapter 11 Filings Soar, C&I Lending Growth Stalls (Unpeaceful, Uneasy Feeling)

Real GDP growth is above 3%, unemployment rate is near 4%, and other economic indicators are flashing green. Yet, I have an unpeaceful, uneasy feeling.

Chapter 11 (bankruptcy) filings are rising and are back to Great Recession levels.

Source: and

Another indicator, commercial and industrial lending from commercial banks, is approaching a flat stall. Even real estate lending is slowing again YoY.

Throw in our Federal government debt of over $20 trillion and skyrocketing consumer debt,

So, The Federal Reserve was wildly successful in terms of lowering interest rates and encouraging the Federal government and households to gorge on debt. Wait, households are responsible for the Federal debt!

Perhaps we are already gone!


Manufacturing in the U.S. Accelerates to Its Best Year Since 2004 (Making Manufacturing Great Again?)

Making Manufacturing Great Again? MMGA?

(Bloomberg) U.S. manufacturing expanded in December at the fastest pace in three months, as gains in orders and production capped the strongest year for factories since 2004, the Institute for Supply Management said Wednesday.

* Factory index climbed to 59.7 (est. 58.2) from 58.2 a month earlier; readings above 50 indicate expansion
* Gauge of new orders advanced to 69.4, the highest in nearly 14 years, from 64

*Measure of production increased to 65.8, the strongest since May 2010, from 63.9

Key Takeaways
The survey-based measure of factory activity — the year’s second-highest behind September, when storm-related supply delays boosted the index — brings the 2017 average to 57.6, the best in 13 years. The latest gain extends a string of strong readings that’s been fueled by more domestic business investment, improving global economies and steady spending by American households.

The acceleration in bookings indicates production will remain robust in coming months as factories race to limit mounting order backlogs amid declining customer inventories. Increasing export orders underscore improvement in global markets.

The figures suggest manufacturing strength will persist into early 2018, even after the ISM’s semi-annual survey of purchasing managers published last month showed factories anticipate growth in capital spending to slow this year.




Witchy Woman: Yellen’s Last FOMC Meeting (Fed Funds Rate Rises To 1.5% As Balance Sheet Begins Slow Unwind)

Yes, this was Federal Reserve Chair Janet Yellen’s last Open Market Committee (FOMC)  meeting. And the FOMC raised,  as widely expected, the Target rate (upper bound) to 1.50%.


Over the past year, The Fed has raised their target rate from 0.50% on 12/13/16 to 1.50% on 12/13/17, a 100 basis point increase over 1 year. Meanwhile, the Fed’s holdings of Treasury notes and bonds has declined (unwind).

Even since Bernanke and Yellen (Beryellen?) launched us on the QE train, core inflation has rarely exceeded 2% YoY and wage growth has been terrible.


Alas, Yellen and NY Fed’s Dudley, two ardent doves, will be gone.


Yes, Janet Yellen is a witchy woman.

Raven Gray hair and ruby lips
Sparks Bubbles fly from her finger tips


Courtesy of Jesse from Jesse’s Cafe Americain. 

Bad Case of Unaffordable Housing: Shelter CPI Rises >2x Core Inflation (“Inflation” Cools Ahead of FOMC Meeting)

The Fed’s Open Market Committee (FOMC) meeting is today.  And according to the SF Fed’s calibration of the Taylor Rule, the Fed Funds Target rate should be 6.13% (it is only 1.25%, a spread of 488 basis points TOO LOW).


There was nothing in this morning’s inflation report that is likely to cause the FOMC not to increase the upper bound of The Fed Fund’s Target rate to 1.5%. Why? Core inflation (less food and energy YoY) declined to 1.71%.  Core PCE Prices YoY is at 1.45% YoY (well below The Fed’s Target Rate of 2%.


Owner’s equivalent rent of residences YoY fell to 3.12%, still over twice that of core inflation. And FHFA’s house price index YoY is 2.78x hourly earnings YoY for most of the population.


Doctor, doctor (Yellen), stop driving up house prices for average Americans.


Q3 Unit Labor Costs Decline To -0.70% YoY As Retail Landscape Changes (With Robots)

The title from Quartz says it all: “There are 170,000 fewer retail jobs in 2017—and 75,000 more Amazon robots.”


As more and move firms move to robots in effort to reduce costs and increase efficiency, we are likely to see further declines in unit labor costs in business.


The decline in big-box retail stores (and their closings) demostrates the paradigm shift in American employment.


I often wonder how long it will be before universities go mostly to on-line teaching to avoid the problems of some faculty teaching 20 year-old material from graduate school and using stale Harvard/UVA business cases? It is just a matter of time.

A scene inside Jeff Bezos’ Amazon warehouse.



US GDP QoQ Grows At 3.3% Pace, Fastest Since 2014 (Equipment Purchases Lead The Way) – Yield Curve 10Y-2Y Steepens

According to the BEA, US Gross Domestic Product (GDP) grew at a 3.3% QoQ (Annualized) pace, the highest since 2014.

But what drove the rise in Q3 GDP growth of 3.3%? It wasn’t personal consumption expenditures (PCE) that actually fell from 3.3% in Q2 to 2.3% in Q3. The big contributer was gross private domestic investment that rose from 3.9% in Q2 to 7.3% in Q3.


And leading the investment charge was nonresidential equipment purchases, rising to 10.4 in Q3. This has been the highest sustained rise in equipement purchases since the US exited The Great Recession.


On the news, the 10-year Treasury note yield rose around 6 basis points.


And the US Treasury 10Y-2Y curve steepened to over 60 basis points.


This Flat Yield Curve Is No Greenspan Conundrum (Low Inflation Prevails)

  • Fed Study Says San Francisco Fed research blames low inflation, neutral rate
  • There’s some risk that term premium could rise abruptly

(Bloomberg) —  This isn’t Alan Greenspan’s yield curve.

The gap between short and longer-term interest rates has been narrowing even as the Federal Reserve raises its policy rate, a trend that echoes the so-called “flattening” of the curve between June 2004 and December 2005. Then-Fed Chairman Greenspan called the mid-2000s episode a “conundrum,” but the leveling out is no mystery this time around, Federal Reserve Bank of San Francisco researcher Michael Bauer writes in a note called the Economic Letter.Low inflation and neutral interest rates as well as political uncertainty are all weighing on longer-dated bond yields, keeping them low even as the Fed boosts the cost of borrowing in the near-term, Bauer writes. That’s important, because it means that if price pressures pick up quickly, investors could begin to demand better compensation for holding longer-dated securities — reversing the flattening and potentially dinging stock market valuations, which are based partly on the low level of yields in the bond market.

“Perceived inflation risk could reverse its course quickly if inflation suddenly trended up,” Bauer says in the note. “Similarly, if investors’ expectations about the Fed’s balance sheet were to change suddenly, or if investor sentiment about the relative attractiveness of Treasuries deteriorated for other reasons, the term premium could rise quickly.”

Inflation has been low this year, with the Fed’s preferred index posting a 1.6 percent gain in September, well below the central bank’s 2 percent goal.

Market-based indicators suggest that investors are starting to doubt whether inflation will accelerate. When investors expect prices to rise, they require extra return to hold longer-dated securities because of the risk that price gains will erode the investments’ value. But if they see a greater risk of tepid inflation progress, they’re willing to pay extra to hedge against low inflation — driving down longer-term bond yields and flattening the curve.

Likewise, Fed officials have gradually marked down their forecasts for how high they’ll ultimately lift their overnight policy benchmark. The shift reflects a growing sense among policy makers that the neutral rate — the one that neither stokes nor slows growth — has declined and will stay low. Expectations about future short-term rates are a key determinant of long-term yields, so as markets followed the Fed’s lead, it probably helped to flatten the curve, Bauer writes.

Finally, expectations for fiscal stimulus drove up bond yields when Donald Trump won the presidential election last year, but have since waned. The study shows Treasury yields falling on days with negative headlines about domestic politics and geopolitical risks.

Yeppers, core inflation is still 1.33% and the neutral real rate is 1.40% leading the San Francisco Fed to generate a Taylor Rule estimate of 5.96% for the Fed Funds Target Rate,  while it is only 1.25% — A GAP OF 471 BASIS POINTS.

Yes, the Taylor Rule gap is higher now that during Greenspan’s tenure as Fed Chair, mainly because core inflation is lower under Bernanke/Yellen.

But notice that core inflation declined to under 1% in 1998 under Greenspan. But 10-year Treasury note volatility is near an all-time low (under 4).

Cheers to Alan Greenspan, the architect of monetary expansion!