The Market Ticker
Commentary on The Capital Markets - Category [Macro Factors]
Logging in or registering will improve your experience here
Main Navigation
Sarah's Resources You Should See
Full-Text Search & Archives
Leverage, the book
Legal Disclaimer

The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions. For investment, legal or other professional advice specific to your situation contact a licensed professional in your jurisdiction.


Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility; author(s) may have positions in securities or firms mentioned and have no duty to disclose same.

Market charts, when present, used with permission of TD Ameritrade/ThinkOrSwim Inc. Neither TD Ameritrade or ThinkOrSwim have reviewed, approved or disapproved any content herein.

The Market Ticker content may be sent unmodified to lawmakers via print or electronic means or excerpted online for non-commercial purposes provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media, to republish full articles, or for any commercial use (which includes any site where advertising is displayed.)

Submissions or tips on matters of economic or political interest may be sent "over the transom" to The Editor at any time. To be considered for publication your submission must include full and correct contact information and be related to an economic or political matter of the day. All submissions become the property of The Market Ticker.

Considering sending spam? Read this first.

2022-11-22 07:00 by Karl Denninger
in Macro Factors , 822 references
[Comments enabled]  

Said Chuckie:

“Now more than ever, we’re short of workers. We have a population that is not reproducing on its own with the same level that it used to. The only way we’re going to have a good future in America is if we welcome and embrace immigrants, the Dreamers, and all of them, ‘cause our ultimate goal is to help the Dreamers but get a path to citizenship for all 11 million or however many undocumented that are here, and we will be pursuing that in the next Senate, in the Senate, the comprehensive immigration reform,” he said.

Well Chuck, that's because you've ruined incentives.

Chuck Schumer, as a powerful sitting Senator, is personally responsible in part for said ruination.  So are the other sitting Senators.  So have been the last several Presidents, including Trump and, at least, all the way back to Clinton.

When you ignore the border and bring in millions of people who work off the books and thus suppress wages you undercut the desire of Americans to produce children.  Thinking people consider whether they'll be able to raise a child with their own resources before choosing to make said child.  Unthinking people, specifically those incapable of higher thought processes or worse, psychopaths, don't care.  The problem here should be obvious in that both of those groups are incapable of productive output themselves.

The early 1980s inflation destroyed the two-parent, one-earner single-family home.  That destruction was deliberate; rather than tell the Arabs to stick it in their ass and mean it we instead forced women into the workforce and away from children and hearth.  Then we pedaled a rank lie: You can have it all girl, motherhood, career, a rich husband and lots of pearls without giving up anything.

This has always been and always will be crap.  All choices have costs and anyone trying to tell you otherwise is in fact arguing you should be given a capacity and impetus to steal. 

It cannot be otherwise.

Allowing the medical scheme to go from 3-4% of GDP to roughly 20% is a 15% tax on your real spendable income, assessed before taxes but hitting you afterward.  In other words because of how the system works (employer "insurance" payments are off the top line before taxes, yet you pay out-of-pocket with after-tax dollars) this effectively puts your entire blended tax rate, including both halves of Medicare and FICA, in front of personal health care spend.  I remind you that everyone who works has a roughly 15% tax rate from the first dollar in the form of FICA and Medicare tax, so if you're in the 10% Federal rate it's really 25%.

Bringing in "more immigrants" does not resolve this problem because as soon as you "regularize" said persons they can trivially determine the same thing and they too will stop having children for the same reason.  The exceptions are those who, once again, are either psychopathic or mentally compromised to a degree sufficient that they're not contributing much of anything to begin with.

If you want to know why millions of young people are choosing not to have children, or to have only one per couple (which is not enough, obviously, to replace the two of them) the answer is right there in your face.  Our society and government have made the choice to have children by the ordinary working-class people one that is virtually impossible to do with anything approaching full-time care for said children and the household they live in by one of the two adults.  Forcing the second adult out of the house in order to maintain the household did not occur due to "natural forces"; in fact technology has made it so that you can do more with less so it should have moved the bar in terms of required intelligence, drive and income to raise a family DOWNWARD rather than the other way.

Instead it became virtually impossible and the entire reason for it is the scams, thefts and frauds imposed by our government and those of other western nations.  The so-called "green energy" scheme is just another element of it; while battery-powered cars may sound nice digging a half-million pounds of earth up to produce one electric car battery, which is what's required, never mind the horror show ecologically that goes along with processing the lithium and slave child labor associated with the cobalt necessary to make said batteries is just another example.

In inflation-adjusted dollars the average new car in 1970 cost roughly one half as much in terms of median family income as it did in 2019 (its worse today.)  The median house cost $23,000 in 1970 .vs. median family income of $9,300, or to put it another way 2.47 years of income would pay for the house.

Today the median house price is $428,000 but median household income was $87,864 so you needed not 2.47 years of income but 4.87 years, or approximately twice as many working years to earn the house. 

The entire problem lies here in that while technological improvement, that is, productivity, is supposed to make our lives better as the definition of productivity is "doing more with less" over the last 50 years it has gone the other way with the cost of common and necessary components of civilized life in America doubling in real terms on a percentage-of-household income basis.  This in turn suppresses birth rates for the obvious reason that thinking people will not have children they cannot afford to raise.

If we had not allowed all of this expanding grift and scam over that same period of time in terms of income you could buy a home for your family with about 1.2x median household income and two cars for the percentage of income you spent on one in 1970.  Since every bit of productivity improvement comes from the people who are, of course, the ones who do more with less the benefit should go to the people and absent grift, scam and fraud, all of which can only be performed without going to jail if the government is involved we would have all kept same.  Large families would be the norm rather than the exception, financial stress in households would be half of what it was in 1970 and nobody would be complaining about "immigration" because we'd have no reason to admit anyone who didn't have either a hell of a lot of money to invest or a proved high-class IQ -- and likely both.

There is no answer to this found in importing more low-intelligence, low-education and thus low-capability people from nations without functional educational and technological infrastructure.  They will fill that gap for exactly one cycle at which point they realize the same thing -- that they can't afford to have kids and make the rent either -- and thus you've actually gone backward since they're more-likely to be below the median income line.

The only fix is to kneecap the scammers, starting with the myriad scams found in health care and, the new one, "green energy" of all stripes so that young couples of child-bearing age find themselves able to have children they can raise and support within their family units on one working-age person's wages while the other's full-time job is the home and kids.

This is a math problem folks and has been turned into a wild-eyed pack of lies by the political and "business" class, all of whom are extraordinarily invested in ripping you off.

View this entry with comments (opens new window)

2022-11-16 08:41 by Karl Denninger
in Macro Factors , 440 references
[Comments enabled]  

This was rather unexpected...

Advance estimates of U.S. retail and food services sales for October 2022, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $694.5 billion, up 1.3 percent (±0.5 percent) from the previous month, and 8.3 percent (±0.7 percent) above October 2021. Total sales for the August 2022 through October 2022 period were up 8.9 percent (±0.5 percent) from the same period a year ago. The August 2022 to September 2022 percent change was unrevised from virtually unchanged (±0.2 percent)*.

Uh, so much for "interest rate increases are causing a recession and thus must be stopped."


Indeed even furniture and home decorating stores were up on a seasonal basis, and barely down on a non-adjusted (this thing called "fall" tends to reduce traffic in same, natch.)  Gasoline sales were up very materially but people are paying it.  And both non-sotre and general merchandise were up, along with groceries.

Where's the money coming from?

Credit cards, which we already knew and said debt hit records.

This is not sustainable but it also contains no signal to tell The Fed to back off.

View this entry with comments (opens new window)

2022-11-15 08:38 by Karl Denninger
in Macro Factors , 514 references
[Comments enabled]  

So why was the Ticker late this morning?

The PPI was due at 0830 ET, and it has now dropped.

The Producer Price Index for final demand increased 0.2 percent in October, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices rose 0.2 percent in September and were unchanged in August. (See table A.) On an unadjusted basis, the index for final demand advanced 8.0 percent for the 12 months ended in October.

Hmmm..... the market added quite a bit -- and ex food and energy it was flat and on goods, less food and energy, was down 0.1%.

Final demand services was down 0.1%.

On the 12 month run-rate basis it was up 5.4% ex foods, energy and trade -- and up 8% gross.

Intermediate tells an interesting story; foods and feeds are down, three months running now.  Unprocessed energy was down materially, which stomped on the index generally.

These are reads on a forward basis; unprocessed goods are in front of intermediate and this looks like a three month trend.

Services, however, advanced on a 12 month basis and our economy is much-more service-oriented than goods.  On that basis we're still running three times the 2% "target" and, equally-importantly the last three months is accelerating higher.  That's bad.

What do I expect out of this?

50 bips in December and no, we're not done -- the market's exuberance is nuts.

View this entry with comments (opens new window)

2022-11-11 07:00 by Karl Denninger
in Macro Factors , 1257 references
[Comments enabled]  

We call it.... "crazy Ivan" - Hunt for Red October

Except this is November, and the crazy came out of the CPI report.

The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4 percent in October on a seasonally adjusted basis, the same increase as in September, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 7.7 percent before seasonal adjustment.

The index for shelter contributed over half of the monthly all items increase, with the indexes for gasoline and food also increasing.

If you were short into this there was no getting away from what went up your backside; a literal 100 handles went into the Spoos within seconds and I'm quite sure if you'd been short you would have been gapped over, so a stop would have gotten you exactly no protection.

The problem in the "better than expected" report is in that bolded line and in fact that's a high going back all the way through April on a seasonally-adjusted basis.  Food away from home also was up at the seasonally-adjusted high, where it has been for the last three months sequentially, so there's no love there either.  Note that the latter is often subject to fairly long supply lines and contracts which delay the impact of movement both ways, and thus that it is lagging is no big shock.  Food at bars and restaurants has been up less than food at home over the last 12 months and thus you can expect it to continue hitting the index for quite some time yet.

The 900lb Gorilla in the room this month is fuel oil, which is, as many people do not know, #2 diesel.  It was up a stunning 19.8% on the month and stands at 68.5% up from last year this time.  Anyone expecting the consumer experience to improve with that record has rocks in their head, never mind those who use it for heating that are about to get a visit from the proctologist this winter.

Incidentally if you are one of them and your supplier is screwing you on price go to a truck stop (or any rural fuel place that sells to farmers for off-road use) and bring jerry cans.  They sell dyed fuel for use in the refer units.  Its the same thing and if its cheaper to buy it there than pay whatever the guy with the truck wants to bring it to the house your decision should be obvious. 

Piped gas relaxed some, which is good news if you use it, but its still up 20% on the year.  A huge percentage of people use that for heat, so there you go.  Oh, and guess what is used to generate electrical power?  Uh huh, which is why electricity is up 14.1% on the year.

If you remember me talking about "Owner's Equivalent Rent" and how it falsely stated that there was no inflation while home prices shot the moon you can see the inverse of that right now in the OER number which is up 6.9% on the year.  That which held down inflation figures for years is now going to prop them up for years, like it or not. There is no evidence that rents, on the other hand, is relaxing at all.  Anyone who thinks The Fed can ignore 32.6% of spending in the economy has rocks in their head; they most-certainly will not, and that's what shelter comprises.  Annualized its up 6.9% so no, we're not "winning" on inflation.

Transportation services (you don't need to get to the store and go to work, right?) were up strongly as well; 15.2% on the year (yikes) with car insurance being up big.  That which you're forced to spend there you won't spend anywhere else.

Interestingly enough  I see some evidence of softening in the hotel pricing market, which is likely due to demand destruction -- after all, their interest picture looks like yours, so absent that they'd be raising prices.  This should be paid attention to, particularly over the "snowbird" season in the next few months as it might be a leading indicator.

Oh, don't worry about health insurance: It's only up 20.6% on the year, and the BLS claims its also less than 1% of spending.  Sure it is.

Who's also having trouble maintaining prices?  Sportball, surprisingly.  Down 17.7% over the last year.  Whadda ya mean those $10 beers and $20 parking fees are too much?

And so, as they say, it goes.

View this entry with comments (opens new window)

2019-07-27 07:00 by Karl Denninger
in Macro Factors , 426 references
[Comments enabled]  

This garbage is just flat-out ridiculous:

I earn my living investing other people’s money in the stock market. I am terrified contemplating how I am going to save my clients’ money, as well as my own, if a Democrat is elected president. The policies that the Democrats are advocating will destroy the American economy, not just the stock market, but the whole US economy. My first instinct will be to raise cash ahead of the stock market crash, but even that is only a temporary safe harbor.

The Green New Deal, renewed regulations, Medicare for All, free college,  as well as the 70-90% tax rates proposed by Democrats, will tank the stock market and US economic growth, leading to higher unemployment and reduced wage gains. All these programs require higher taxes and not just the soak the rich fantasy of the 70-90% rates. Most of the Democratic candidates have pledged to roll back the 2017 Republican tax cuts that fueled the renewal of economic growth in the US.

All of this is true.

But it's irrelevant.

As I've pointed out for more than a decade by 2024 CMS -- that's Medicare and Medicaid -- are incapable of the shenanigans that they use to suppress their budgetary deficit impact.  This is not rocket science, it's arithmetic, exactly as is the so-called "doom dates" on Social Security.

But Social Security's "doom dates" are in fact rather minor.  Being able to pay 80% of a promised benefit (that is, you're running a ~20% fiscal deficit which is consuming assets) is sort of ugly, but that's fixable.  Nobody's going to like a 20% tax increase on FICA (7.65% of wages up to the cap, plus another half you don't see) but raising the cap, increasing that tax by 20% or some combination that gets to the same place resolves the problem.

That's not catastrophic.  Nor, for most people, is a 20% reduction in payments, although the howling (and election losses) that result from the latter guarantees that won't be the outcome.  Those tax changes will and can be made and will not result in a collapse of the economy.

However, CMS is not running a 20% fiscal deficit; in their case roughly one dollar in five is covered, not four dollars in five!  When they run out of that stoked-back powder there are two choices, and only two choices:

1. Essentially default in its entirety on the promises made to Medicare recipients, both current and forward, forever.  This will simply cost-shift basically all of that onto Medicaid, particularly with regard to nursing home care once you bankrupt the vast majority of Medicare (retired) people, which will happen almost instantly.


2. Congress changes the law so as to permit CMS to run without backing, that is, the entirety of their operating deficit shows up on the federal budget as a fiscal deficit.

Social Security and Medicare are currently prohibited by law from doing #2.  Congress will have no choice but to permit #2 for at least Medicare, and since utterly nobody in the political or news space de-aggregates these two programs when talking about "fiscal cliffs" even though they have radically different exposures and funding problems the pressure to do it for both in the same bill will be overwhelming.

Not that it really matters; #2 will roughly double the federal deficit on an essentially immediate and permanent forward basis.

The "big lie" is this:

Whatever you think of President Trump, you know by his record that he will put America first and that his policies have created a robust economy. Unless you want to see the US economy and your standard of life destroyed, there is no alternative to voting for President Trump.

No, he has not.

The GDP data is here.

It shows a 4% gross GDP advance over the last 12 months (to Q2/2019.)

Debt to the penny shows a 3.91% fiscal deficit as percentage of GDP over the same period of time.

In other words there is no "robust economy" at all; it's a lie.

Actual GDP expansion in real terms over the last 12 months is 0.09%!

Statistically-speaking that's zero.

These are not my numbers and not my assertions; they're the government's figures and they're widely-regarded as facts.  Trump's most-recent "budget deal", which he is advocating for, has passed the House and will almost-certainly pass the Senate and be signed into law will remove all fiscal rectitude until the middle of 2021 by suspending the debt ceiling entirely.

Again, I remind you, by 2024 on current trajectories that roughly trillion dollar deficit ($828 billion on a rolling 12 month basis at present, and accelerating) will permanently double.

Yes, GDP will go up, since every dollar of that deficit will be immediately spent.  That's how borrowing works; you borrow money and you spend it, and as soon as you spend it GDP increases.  That's basic math and economics.

However, diluting the currency as a means of "goosing" GDP doesn't actually advance anything in terms of actual economic output.  Worse, productivity, if you believe the BLS, is "advancing" at 3.4% annually as of the last read.  This is, paradoxically, very negative in light of the fiscal deficit because "doing more with less", which is the definition of productivity, means that GDP should be running at least at that level on a fiscally-adjusted basis!

In other words if you include productivity, and for honest numbers you have to, the US is currently in a deep recession as it is in fact contracting real output on a roughly 3.3% annual rate.

How is this possible given "full employment" and the stock market soaring?

It's not hard to figure out; it's happening the same way you're "just fine" if you make $100,000 a year but continually add another $4,000 a year to your credit card balances.  That $4,000 is quite a lift in your standard of living.  It allows your family of four "another" week-long cruise per year, for example, or a very nice trip to Disney, or, for that matter, more than half of the monthly payments on a brand new $50,000 "loaded" pickup truck or Lexus.  Note that if every family did this GDP would increase at that same 4% since you're all spending 4% more than you make and the gross output will thus lift by that same 4%.  The (obvious, to anyone with more than two firing neurons in their brain) problem is that you're not really gaining any prosperity at all; in fact you're going backwards as you're accumulating an obligation that at least has an interest expense and at least in theory eventually must be paid off!

This illusion of "prosperity" can continue for a very long time -- so long as your credit card company doesn't call the loan, or even just shut off the spigot and deny any more charges. But even if just the latter happens not only does that $4,000 a year of "spending" disappear the interest payments do not disappear, and since you can't afford to pay down any of the principle those interest costs go on forevermore into the future.

Again -- as things stand right now we're consuming our capital base at a roughly 3% annual rate.  That depletion rate is set to double within the next five years.

I do not know when the markets will wrap their arms around this just like I don't know when you as a family would if you were running up your credit card on those Disney vacations.  But I do know that the day when it happens will come.  Not might, not could, will.

The willful and intentional denial of this fact by you, Greenwald, along with the others drum-beating for the flying-hair monster currently in office will simply make it worse when it does happen.  After all a market crash from DOW 27,000 to DOW 5,000 is very, very bad.  But one from DOW 35,000 to 5,000 is demonstrably worse because more and more people will believe that the so-called "value" in those assets is not only real but theirs to consume over the coming years when in fact it is not.  How many of those people have a half-million dollar "retirement fund" that is, in fact, really a $50,000 one?

What really galls me, however, is so-called "money managers" like the cited one in this quoted article, who believe that (1) this "prosperity" is real despite the data saying its not being literally in their face, (2) Trump is responsible for it and (3) voting for Democrats will be a disaster while not doing so will continue the "prosperity."

The root problem is that there is no prosperity in the first place; it's a chimera and fraud writ large and has been the case and policy of both parties since approximately 2000, when the accumulation of federal debt crossed the zero boundary and began resulting in negative contribution to GDP.

This is an exponential series.  Like all exponential series the negative impact starts slowly and thus the "belly" in the curve from the two lines on the chart for a while expands.  Yes, the top-line (debt) is accelerating but the imposed cost starts at a lower level and thus there's more "gap" between the two curves for a while.

But arithmetic tells us that exponents always behave exactly the same way.  That the appearing-safe "belly" will disappear, the gap will close and when it does you have a catastrophe because you can't cover the expense.  There is nothing you can do about it other than to halt the excessive spending and pay down the outstanding balance, but this requires not just halting the excessive spending (that is, cutting it to income levels) but going even further in order to pay off some of the outstanding balance.

At present the Federal Government is spending approximately 25% more than it takes in from all taxes combined.  To halt the detonation the spending cuts must therefore be more than 25% in total, now and forevermore into the future.  Everyone in DC has a wipe-out, toddler-style screamfest if you propose not spending more every single year yet the corrective action required is for one quarter of all money spent today be whacked off the budget.  That's how far down the rabbit hole we've gone, all without a single whimper of revolt or refusal to consent by the public at-large.

The mantra for the last 30+ years is that we're "leaving this mess to our kids and grand-kids", implying that we're saddling those who either cannot yet vote or worse, aren't yet born.  That was true 30 years ago,  It was probably true 20 years ago, as the generation just being born then would become adults about...... now.

But today it's no longer true.  We're not leaving anything to anyone.  The problem is here, it's ours, and we either stop it now or it will blow up in our faces.  Five years is a very short period of time to make fiscal adjustments and allow the economy to adjust and come back into balance.  Trying to eke out another 10, 20, or even 50% in stock prices over the next five years is not only unwise it's literally suicidal on a national basis and those advocating for same deserve to be held to account when, not if, their continued drum-beating for a fiscally, economically, politically, morally and ethically bankrupt position results in mortality.  One can only hope it's their progeny, spouses and then theirs personally, in that order first.  Sadly while I can hope and pray for them to be first it will not be only them no matter who goes first; the count of ordinary people who will be utterly destroyed and likely die is going to reach all the way from top to bottom with those at the bottom bearing the greatest percentage of losses.

View this entry with comments (opens new window)