Wednesday, December 21, 2016

Today's Links

Isn't that the point?  "The weak labor market of the Great Recession resulted in a large redistribution from wages to profits. The tightening of the labor market in the last two years has reversed part of this shift. If the Fed raises interest rates enough to prevent further tightening, then it will be locking in place this redistribution to profits." Dean Baker, Inflation and the upward distribution of wealth

1--More backtracking; Trump's commitment to infrastructure vow is being questioned

Trump or his campaign also mentioned schools, hospitals, pipelines, water treatment plants and the electrical grid as part of a job-creation strategy that would make the U.S. "second to none." It was a rare area in which House Minority Leader Nancy Pelosi and other Democrats hoped for common ground with the president-elect. The possibility of a major infrastructure spending plan is one of several factors that have fueled the recent run-up in stock prices.

But did he mean it?...

Senate Majority Leader Mitch McConnell tried to tamp down expectations last week, telling reporters he wants to avoid "a $1 trillion stimulus." And Reince Priebus, who will be Trump's chief of staff, said in a radio interview that the new administration will focus in its first nine months with other issues like health care and rewriting tax laws. He sidestepped questions about the infrastructure plan.

In a post-election interview with The New York Times, Trump himself seemed to back away, saying infrastructure won't be a "core" part of the first few years of his administration. But he said there will still be "a very large-scale infrastructure bill."

He acknowledged that he didn't realize during the campaign that New Deal-style proposals to put people to work building infrastructure might conflict with his party's small-government philosophy.

"That's not a very Republican thing - I didn't even know that, frankly," he said.

Since the election, Trump has backed away - or at least suggested flexibility - on a range of issues that energized his supporters during the campaign, including his promises to prosecute Hillary Clinton, pull out of the Paris climate change accord and reinstitute waterboarding for detainees.

2--Christmas on Wall Street: The Dow closes in on 20,000

The American oligarchy is celebrating a dream-come-true Christmas. It anticipates, with good reason, that Trump’s administration will be a government of, for and directly by the financial oligarchy. The collection of billionaires, bankers, CEOs, generals and social arch-reactionaries that will comprise his cabinet and White House inner circle is pledged to remove all constraints on the ability of the rich to plunder American society for their own personal gain and profit.

The bankers stand to get the removal of the minor limitations on quasi-legal speculative practices written into the 2010 Dodd-Frank bank regulation act, plus higher interest rates. This is guaranteed by the presence of three Goldman Sachs alumni in the Trump administration: the fascistic Stephen Bannon (chief White House strategist), Steven Mnuchin (Treasury Department chief) and Goldman Sachs President and Chief Operating Officer Gary Cohn (chairman of Trump’s National Economic Council).

Little wonder that bank stocks have led the postelection surge, and Goldman shares have risen by more than 33 percent, accounting for a quarter of the rise in the Dow. JPMorgan Chase has not done badly either, gaining 22 percent

3--Will the Trump Era Bring Higher Interest Rates? Don’t Count On It

(Not as much growth as expected) Economists at JPMorgan Chase, for example, are forecasting economic growth of just under 2 percent for both 2017 and 2018 — about the same as the pace of the last six years.

And that’s before you factor in the risk that some elements of Trump economic policy could end up being a drag on growth. Think of a trade war with China or Mexico, immigration restrictions that limit the supply of labor or geopolitical disputes.

4--Trump Talked, the Fed Listened: Let’s Shrink the Balance Sheet, Bullard Says

5--What the Heck’s Happening to Our Share Buyback Boom?

Companies in the S&P 500 spent about $3 trillion since 2011 to buy back their own shares, often with borrowed money. It’s part of a noble magic called financial engineering, the simplest way to goose the all-important metric of earnings per share (by lowering the number of shares outstanding). And it creates buying pressure in the stock market that drives up share prices.

With buybacks, you don’t need to sell one extra iPhone to boost your earnings per share. So the amounts have grown and grown. With ultra-cheap money available to borrow endlessly, companies take on debt and hollow out shareholder equity. It has worked like a charm. Stock prices have soared. Declining revenues and earnings, no problem. But something is happening that hasn’t happened since the Financial Crisis.

Share buybacks in the third quarter plunged 28% year-over-year, to $115.6 billion, the biggest year-over-year dive since Q3 2009, according to FactSet. It was the second quarter in a row of declines, from the glorious Q1 this year, when buybacks had reached $168 billion, behind only Q3 2007 before it all came apart....

Despite the decline, buybacks remained a huge buying force in the market. At the end of Q3, trailing 12-month buybacks ate up 66% of net income, about the same as a year ago, with 119 companies in the S&P 500 blowing more on buybacks than they generated in earnings. And 109 companies blew more on buybacks than they generated in free cash flow. As ludicrously high as this sounds, it’s the lowest count since Q2 2013.

And much of it is funded with debt. Over the past three years, aggregate debt of the S&P 500 companies has grown 1.7 times faster than aggregate cash and short-term investments, according to FactSet.

6--Inflation is not a problem. Inequality is.

We have numerous pieces raising serious questions about whether the labor market is really at full employment, noting for example the sharp drop in employment rates (for all groups) from pre-recession levels and the high rate of involuntary part-time employment. But the story of accelerating inflation is also not right...

A close look at the data does not provide much evidence of accelerating inflation. The core PCE deflator, the Fed's main measure of inflation, has risen 1.7 percent over the last year, which is still under the 2.0 percent target. This target is an average, which means that the Fed should be prepared to allow the inflation rate to rise somewhat above 2.0 percent, with the idea that inflation will drop in the next recession.

Anyhow, the 1.7 percent rate is slightly higher than a low of 1.3 percent reached in the third quarter of 2015, but it is exactly the same as the rate we saw in the third quarter of 2014. In other words, there has been zero acceleration in the rate of inflation over the last two years.

Furthermore, even this modest acceleration has been entirely due to the more rapid increase in rent over the last two years. The inflation rate in the core consumer price index, stripped of its shelter component, actually has been falling slightly over the last year. It now stands at 1.1 percent over the last year.

The weak labor market of the Great Recession resulted in a large redistribution from wages to profits. The tightening of the labor market in the last two years has reversed part of this shift. If the Fed raises interest rates enough to prevent further tightening, then it will be locking in place this redistribution to profits. That would be bad news for tens of millions of workers, especially if the decision was based on a misreading of inflation data.

7--Population growth stalls in US

An uptick in deaths, a slowdown in births and a slight drop in immigration all damped American population growth for the year ended July 1. The 0.7% increase, to 323.1 million, was the smallest on record since 1936-37, according to William Frey, a demographer at the Brookings Institution....

“There is a new economy being created out of the carnage of the Great Recession, and in a lot of those new growth areas, Utah seems to be at the forefront,” Ms. Perlich said. “You roll back 40 years ago, and we were really pretty isolated and much more parochial here.”

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