Friday, November 27, 2020

Weekly Economic Reports: Week ending Nov 27, 2020

Markets set new highs

Each of the major indices rose more than 2.0% this shortened week and set new record highs, including the Dow Jones Industrial Average (+2.2%), which crossed above 30,000 for the first time ever. The Russell 2000 rose 3.9%, the Nasdaq Composite rose 3.0%, and the S&P 500 rose 2.3%.

Value, cyclical, and small-cap stocks retained their leadership roles in this part of the bull market. The S&P 500 energy sector rose 8.5%, and the financials sector rose 4.6%. Every other sector, except real estate (-0.4%), ended the week with gains.
 

November business activity growth accelerates unexpectedly to begin the shortened week

The preliminary Markit U.S. Manufacturing PMI Index for November surprisingly increased to 56.7 from October's unrevised 53.4 figure, unexpectedly moving further into expansion territory denoted by a reading above 50. The Bloomberg consensus estimate called for the index to dip to 53.0. The preliminary Markit U.S. Services PMI Index showed output for the key U.S. sector also unexpectedly accelerated, rising to 57.7 from October's 56.9 figure, and compared to forecasts of a decline to 55.0. A reading above 50 denotes expansion.

The overall expansion was the fastest in over five-and-a-half years, as both manufacturers and service providers indicated a steeper upturn in output. The month also saw a survey record rise in employment and an unprecedented increase in prices, the latter in part linked to a record incidence of supply chain delays.

Consumer confidence declines

The Conference Board's Consumer Confidence Index (chart) declined more than expected to 96.1 from October's upwardly-revised 101.4 level, and versus the Bloomberg consensus estimate calling for a decline to 98.0. The softer-than-expected read came as the Present Situation Index portion of the survey dipped but the Expectations Index of business conditions for the next six months fell noticeably. On employment, the labor differential—consumers’ appraisal of jobs being "plentiful" minus being "hard to get"—ticked further into positive territory, nudging up to 7.2 from the 7.1 level posted in October.


Existing home prices jump

The S&P CoreLogic Case-Shiller National Home Price Index jumped 1.4% in September, the most since March 2013. It followed a similar increase in the prior month, making it the biggest back-to-back gain since March 2005. It reflects strong housing demand, boosted by record low mortgage rates, pent-up housing market activity from spring, and increased interest in suburban and larger homes as a result of the pandemic. Home price gains were widespread across the country, with all 19 metro areas with September data posting increases. 

On a y/y basis, the National Index advanced 7.0%, the fastest pace since May 2014. That was higher than the 6.2% y/y and 6.6% y/y gains in the 10-city and 20-city composite indexes, respectively, which implies stronger demand for homes outside of large metro areas. Separately, the FHFA Purchase-Only House Price Index surged a record 1.7% in September, and was up 9.1% y/y, the most since February 2006. Real house prices were up 6.5% y/y in Q3, the most in 15 years. 

Homes sales decline but beat expectations

New home sales unexpectedly declined 0.3% m/m in October to an annual rate of 999,000, versus forecasts calling for a rate of 975,000 units, and compared to September's upwardly-revised 1,002,000 unit level. The median home price was up 2.5% y/y at $330,600. New home inventory remained at September's rate of 3.3 months of supply at the current sales pace. Sales in the Northeast and Midwest rose m/m, but sales in the South and West declined. Sales in all four regions were sharply higher y/y. New home sales are based on contract signings, offering a timelier read on housing activity compared to the larger contributor of existing home sales, which are based on closings.

Regional manufacturing reports miss expectations

The Richmond Fed Manufacturing Activity Index declined more than expected but remained in expansion territory (a reading above zero) for this month. The index fell to 15 from October's record high of 29, and versus forecasts calling for the figure to decline to 20.0. New orders, shipments and employment all declined but continued to depict growth.

Weekly initial jobless claims higher than expected

Weekly initial jobless claims came in at a level of 778,000 for the week ended November 21st, above the Bloomberg estimate of 730,000 and the prior week's upwardly-revised 748,000 level. The four-week moving average rose by 5,000 to 748,500, while continuing claims for the week ended November 14th fell by 299,000 to 6,071,000, above estimates of 6,000,000. The four-week moving average of continuing claims dropped by 438,000 to 6,615,250.

Q3 GDP growth remains at 33.1%

The second look (of three) at Q3 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of expansion of 33.1%, unrevised from the first release, and matching forecasts. Q2's figure was unadjusted at a 31.4% plunge. Personal consumption was revised to a 40.6% increase, below expectations of an adjustment to a 40.9% jump, from the initially-reported 40.7% increase. Q2 consumption was unrevised at a 33.2% drop.

On inflation, the GDP Price Index was unrevised at a 3.6% rise, matching estimates, while the core PCE Index, which excludes food and energy, was also unrevised at a 3.5% gain, in line with forecasts.

Durable goods orders rise

October preliminary durable goods orders rose 1.3% month-over-month (m/m), versus estimates of a 0.8% rise and compared to September's upwardly-revised 2.1% increase. Ex-transportation, orders increased 1.3% m/m, versus forecasts of a 0.5% gain and compared to September's favorably-adjusted 1.5% rise. Moreover, orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, were up 0.7%, compared to projections of a 0.5% rise, while the prior month's figure was upwardly-revised to a 1.9% increase.

The advance goods trade balance showed that the October deficit widened by a slightly smaller amount than expected, coming in at $80.3 billion, versus estimates calling for it to increase to $80.4 billion from September's unadjusted shortfall of $79.4 billion.

Preliminary wholesale inventories rose 0.9% m/m for October, compared to expectations of a 0.4% gain, and versus September's favorably-revised 0.7 rise.

Mortgage applications fall

The MBA Mortgage Application Index rose by 3.9% last week, following the prior week's 0.3% dip. The increase came as a 4.5% gain in the Refinance Index was met with a 3.5% rise in the Purchase Index. The average 30-year mortgage rate fell 7 basis points (bps) to 2.92%.

Consumer spending growth slows, as personal income falls

Personal income fell 0.7% in October, worse than the consensus of -0.1%. While most sources of income posted gains in early Q4, those were overwhelmed by a 9.8% slide in net government transfers. Transfers had spiked earlier this year with the passage of the CARES Act and other federal assistance programs, but most are scheduled to expire at the end of 2020. Their share of personal income has receded from a record high of 24.9% in April to 12.1% now, but that is still higher than at any other time since 1959. In contrast, the income share of worker compensation has rebounded to 59.5%, but it remains historically low. With the unemployment rate still elevated, the waning fiscal stimulus could weigh on consumer spending and the broad economic recovery in the near-term.

Personal consumption expenditures (PCE) rose 0.5% in October, above the consensus of 0.3%, but the smallest gain in the past six months. Real PCE also rose 0.5%, led by more spending on durable goods (mostly recreational goods and vehicles) and services (led by health care). Consumers are tapping personal savings to boost spending. The saving rate fell from 14.6% to 13.6%, which is a fraction of what it was in the spring. However, this rate is still close to its highest level since 1975, which could signal a potential change in consumer behavior toward more saving. While this could benefit economic growth in the long-term, it could act as a drag on the recovery in the short-term. The PCE Price Index and its core were unchanged from the previous month, but both ticked down on a y/y basis. Lack of inflationary pressures ensures continued monetary accommodation from the Fed for the foreseeable future.

Consumer sentiment pulls back

The Reuters/University of Michigan Consumer Sentiment Index edged down 0.1 point from its preliminary November reading to 76.9, about in line with the consensus of 77.0. It was down 4.9 points for the full month, as consumer expectations sank 8.7 points, the most since April. The spike in COVID cases in the fall and a partisan shift after the presidential election weighed on the outlook. Consumers felt slightly better about current conditions. 

On a y/y basis, consumer sentiment is off 20.6%, consistent with recessionary fears, which could weigh on consumer spending and growth. Separately, the Bloomberg Consumer Comfort Index slipped 0.2 points last week to 49.6, on a weaker assessment of personal finances and the buying climate. Similar to the Sentiment Index, Comfort is a long way from its pre-recession level, as consumers remain cautious.

Crude inventories fall

EIA Petroleum Inventories: Crude -0.8M barrels vs. +0.1M consensus, +0.8M last week.
EIA Gasoline +2.2M barrels vs. +0.6M consensus, +2.6M last week.
EIA Distillates -1.4M barrels vs. -1.6M consensus -5.2M last week.

Habakkuk 2:2
“Write the vision
And make it plain on tablets,
That he may run who reads it.
For the vision is yet for an appointed time;
But at the end it will speak, and it will not lie.
Though it tarries, wait for it;
Because it will surely come,
It will not tarry.

Saturday, November 21, 2020

One more time: The difference between rich and poor

There are numerous posts on this blog, and millions on other blogs and news sites, on the subject of what the rich do different, but it's worth repeating again, I guess. The principles are simple. Still, some two-thirds of Americans live paycheck to paycheck. For many, the act of using all of your monthly income to cover your monthly expenses — with no money left over and none for savings — is a fact of life.

Look, I've been there. It can be a mindset, and a trap. Best to get out of it if you're in it, as fast as possible. 

Depending on the survey, the percentage of people living paycheck to paycheck runs from half of workers making under $50,000 (according to Nielsen data) to 74% of all employees (per recent reports from both the American Payroll Association and the National Endowment for Financial Education.) And almost three in 10 adults have no emergency savings at all, according to Bankrate’s latest Financial Security Index.

Even many in the upper class are seeing their six-figure incomes slip through their fingers. The Nielsen study found that one in four families making $150,000 a year or more are living paycheck-to-paycheck, while one in three earning between $50,000 and $100,000 also depend on their next check to keep their heads above water.

What is going on? I keep reading about stagnant wages, about how a lot of people haven't gotten pay raises. Yea, so blame the other guy. Don't take personal responsibility. And let money rule your life, rather than you being in charge. I'm not buying this excuse. 

Another reason is financial illiteracy. Seems people are too ignorant to make good financial decisions. While you can blame the "system," again, personal responsibility should be number one. There is no excuse in today's world for being financially illiterate. The knowledge is there. However, if our schools -- especially high school and college -- would provide basic education, this would go along way to reducing what I call generational poverty. 


The other large factor is behavior. While some of this can be taught, it really is -- again! -- personal responsibility. Unfortunately, our education system does not provide this insight to young people. Many -- if not most -- are indoctrinated with the victim mindset, a sense of entitlement. This is just stupid. It causes people living in the richest nation in the history of the world to be scrapping by -- paycheck to paycheck. Sad. 

The University of Oklahoma (where I was lucky enough to have attended their graduation school of communications) offers a course for students. Part 1 (18:38) and Part 2 (18:29)

But let's repeat the factors and behaviors that rich people have and do the weigh the odds in their favor: 

1. They avoid debt

This may seem obvious, but dodging any debt is certainly a habit that can help your overall financial picture. Outside of the mortgages on their home, Daugs says that his clients make sure to reduce and eliminate all debt.

If you want to build wealth, you cannot waste money on paying interest on consumer credit, such as credit cards and even car loans. 

Because most credit cards charge notoriously high interest whenever you carry a balance, prioritize paying these balances off in full every month (and on time to keep a good credit score). Only charge what you know you can pay off and avoid store credit cards in general. (They are known for having low credit limits, high interest rates and limited usability.)

2. They have an emergency fund

This could be the number one killer of financial security: not having an emergency fund. Having a solid reserve of cash that you can tap into in an emergency goes a long way. If you have an unexpected expense, such as an urgent car repair or medical bills, a rainy-day fund that is immediately available for withdrawals can help you afford it. This way, you don’t need to charge the expense onto a high-interest credit card or take out a personal loan.

Start with anything, even if it's only $1,000. But build it as quickly as you can until you have at least three months' living expenses. Most wealthy people have between six and 12 months. 

I have 10 and never worry about expenses, even if I had to buy a car. Speaking of cars, see the next item. 

3. They buy their cars, and plan to keep them long-term

For the most part, cars depreciate in value the second you drive one off the lot.

Self-made millionaires typically buy, instead of lease, any new car with plans to hold onto it for a while. By keeping their cars long-term, they can use the time between car purchases to save up cash that would otherwise go towards a monthly payment.

If you need to finance the car, pay it off as soon as you can and plan to keep the car long after that loan is paid off. 

The last car I financed was a 2004 Buick, in 2005. Once it was paid off (early) I put the payment in a bank account. When it was time to replace the car in 2018, I bought a low-mileage certified 2016 Chevy Impala and paid cash. Only way to go. And yes, I kept the Buick for 13 years. 

4. They invest

Once an emergency fund is in place, it's important to have an investment plan, whether in stocks, bonds, mutual funds or exchange traded funds (ETFs).

As a general rule of thumb, you should save at least roughly 20% of your income each month. This 20% goes toward your savings plans, emergency fund, retirement and investments. How much you take out of your paycheck to invest depends heavily on your income and investment goals, but getting used to living without that 20% is a good start for both your savings and you investments.

Automatic savings plans, from paycheck to an investment account is an excellent way of automating savings. The top line of your budget should be for this category -- savings and investments -- rather than it being the bottom line, or something you do after all other categories. 

5. They take advantage of everything their employer has to offer

It’s worth looking over your employer’s benefit plans thoroughly. Companies offer more than just retirement plans that can help you save money and even invest to earn more.

Leveraging some of the below benefits can be helpful:

Employer retirement match: If you can afford to do so, make sure you are contributing enough to match any employer contributions. “The match is basically ‘free’ money to you,” Daugs says.

Employer life or disability insurance: Your employer’s group plans can offer significant savings versus buying these insurance policies individually.

Employer Health Savings Account (HSA): If you qualify for a HSA, some employers will match your contributions up to a certain amount. Your contributions are tax-deferred.

Employer legal services: See if your employer plan offers legal services. If you ever need to have estate planning documents prepared, such as wills or trusts, you can save money in attorney fees if you use the legal services offered in your benefits plan.

Employee Stock Purchase Plans (ESPP): If your employer offers ESPP, you can typically put up to a certain percentage of your pay into this plan that then allows you to purchase the company stock at a discount to the market price. If you feel good about your company and their stock, this can be another cost-effective way of investing to continue to build your net worth.

6. They don't try to keep up with the Joneses

Keeping up with “the Joneses” is a typical way people dig themselves into debt. But living beyond your means time and time again eventually catches up to you.

When building wealth, fight the need to have the latest and greatest gadgets. So much money is wasted on constant ‘upgrades’ these days and can cost you both money and lost opportunity.

It’s only human to want to compare your life to others, but take another look at your lifestyle and budget, focusing on what’s most important for your own personal goals. These are your needs and wants that truly matter to your bottom line and happiness.

7. They use budgets

This is probably basic to any financial plan. Here's five simple steps to create a good budget: 
  1. Determine your income. Start with how much money you make after tax each month.
  2. Calculate Expenses. Let's break up your monthly spend into specific buckets
  3. Calculate the difference. If your expenses are already greater than your savings, you have 2 options
  4. Determine what to do with your savings.
  5. Make it a habit.
Here's another guide to budgeting. I really can't stress this enough. Most people who are having financial problems probably don't use a budget, at least in my experience. The first question I ask people is "Do you have a budget?" and the answer is usually no. Don't be one of these people. 

Bottom line

There are a lot of moving pieces to having a solid financial plan. Embracing opportunities to pay off debt, save, invest and learn, all while avoiding potential pitfalls, make a big difference on your ability to build your wealth.

Self-made millionaires started by reducing their debts to increase cash flow and build their ‘rainy day fund,’ Once these were in place, they were then able to incorporate the other investment habits and really grow their assets.

No matter how simple or obvious a money habit may be, the point is that you stick to it. Discipline is key and with it you can build the financial future you desire.



Thursday, November 19, 2020

Weekly Economic Reports: Week ending Nov. 20, 2020


Regional manufacturing data misses (Nov. 16, 2020)

The Empire Manufacturing Index, a measure of activity in the New York region, unexpectedly declined to 6.3 in November from 10.5 in October, compared to the Bloomberg forecast of an increase to 13.5. However, a reading above zero denoting expansion. The report marks the fifth-straight month of expansion, as employment growth accelerated but the expansion in new orders decelerated.

Another Covid-19 vaccine on track (Nov 16, 2020)

Moderna Inc. (MRNA $98) rallied after announcing that preliminary analysis of Phase-3 trial results of its COVID-19 vaccine candidate met statistical criteria with a efficacy rate of 94.5%. MRNA said based on these interim safety and efficacy data, it intends to submit for an Emergency Use Authorization (EUA) with the U.S. Food and Drug Administration (FDA) in the coming weeks and anticipates having the EUA informed by the final safety and efficacy data. MRNA also said it plans to submit applications for authorizations to global regulatory agencies.

Moderna's announcement comes after last Monday's news from Pfizer Inc. (PFE $37) and its partner BioNTech SE (BNTX $92) of their investigational COVID-19 vaccine that also showed a 90%+ efficacy rate. PFE and BNTX traded lower.

The news bolstered a recent rotation into cyclically-natured and value stocks that have underperformed the high-flying mega-cap growth stocks and equities that had benefitted from the shift to a work-from-anywhere standard of living that was ushered in by the pandemic.

Retail sales miss, import prices subdued (Nov. 17, 2020)

Advance retail sales for October increased 0.3% month-over-month (m/m), below the Bloomberg forecast of a 0.5% increase following September's downwardly-adjusted 1.6% gain. Last month's sales ex-autos rose 0.2% m/m, compared to expectations of a 0.6% rise and September's negatively-revised 1.2% gain. Sales ex-autos and gas were up 0.2% m/m, compared to estimates of a 0.6% increase, and September's reading was adjusted downward to a 1.2% rise. The control group, a figure used to calculate GDP, ticked 0.1% higher m/m, south of projections of a 0.5% increase and versus September's negatively-adjusted 0.9% increase.



The Import Price Index dipped 0.1% m/m for October, versus expectations of a flat reading, and compared to September's downwardly-revised 0.2% gain. Compared to last year, prices were down 1.0%, versus forecasts of a 0.8% decrease and a slight recovery from September's negatively-revised 1.4% fall.

Industrial production and housing data upbeat (Nov 17, 2020)

The Federal Reserve's industrial production rose 1.1% m/m in October, just above estimates of a 1.0% gain, and versus September's favorably-revised 0.4% decrease. Manufacturing output rose solidly and utilities production jumped, while mining output declined. Capacity utilization increased to 72.8% from the prior month's upwardly-revised 72.0% rate, compared to forecasts of 72.3%. Capacity utilization is 7.0 percentage points below its long-run average, but 8.6 percentage points north of the low set in April.

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment in November unexpectedly improved to another record high, jumping to 90, versus forecasts calling for it to match October's 85 level. A level north of 50 depicts positive conditions. The index notched a record high for the third month in a row and the NAHB noted that this reflects that housing is a bright spot for the economy. "However, affordability remains an ongoing concern, as construction costs continue to rise and interest rates are expected to move higher as more positive news emerges on the coronavirus vaccine front," the NAHB added.

Housing construction activity data mixed, mortgage applications dip (Nov. 18, 2020)

Housing starts for October rose 4.9% month-over-month (m/m) to an annual pace of 1,530,000 units, above the Bloomberg forecast of 1,460,000 units, and compared to September's upwardly-revised pace of 1,459,000 units. However, building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, came in flat m/m at an annual rate of 1,545,000, south of expectations of 1,567,000 units.

The MBA Mortgage Application Index dipped by 0.3% last week, following the prior week's 0.5% decline. The modest decline came as a 1.8% drop in the Refinance Index more than offset a 3.5% gain in the Purchase Index. The average 30-year mortgage rate ticked 1 basis point (bp) higher to 2.99%.

Weekly initial jobless claims (Nov. 19, 2020)

Weekly jobless claims came in at a level of 742,000 for the week ended November 14th, above the Bloomberg estimate of 700,000 and the prior week's upwardly-revised 711,000 level. The four-week moving average declined by 13,750 to 742,000, while continuing claims for the week ended November 7th fell by 429,000 to 6,372,000, below estimates of 6,400,000. The four-week moving average of continuing claims dropped by 525,000 to 7,054,500.

Leading Economic Indicators (Nov. 19, 2020)

The Conference Board's Index of Leading Economic Indicators (LEI) for October rose 0.7% month-over-month (m/m), matching September's unrevised gain and expectations. The LEI has been positive for six-straight months after the plunges in March and April, due to positive contributions from ISM new orders, jobless claims, stock prices, credit conditions and the interest rate spread.

Existing homes sales increase  (Nov. 19, 2020)

Existing home sales unexpectedly increased in October, rising 4.3% m/m to an annual rate of 6.85 million units—the fifth-straight monthly gain—versus expectations of a decline to 6.47 million units from September's modestly-revised 6.57 million rate. Existing home sales are up 26.6% y/y.

Manufacturing indexes mixed  (Nov. 19, 2020)

The Philly Fed Manufacturing Index declined but remained solidly in expansion territory (a reading above zero) for November, decreasing to 26.3 versus estimates of a decline to 22.5 from October's 32.3 level. New orders, shipments and delivery times all fell but continued to depict expansion, while employment growth accelerated.

The November Kansas City Fed Manufacturing Activity Index dipped but remained at a level depicting expansion (a reading above zero). The index declined to 11 from October's 13 reading, matching forecasts.

Crude Oil Reports (Nov 19, 2020 and Nov. 20, 2020)

U.S. crude oil stocks remained near or above their 5-year range, as reported by the EIA on Nov. 19.

Total active drilling rigs in the U.S. fell by 2 rigs to 310, Baker Hughes says in its latest survey.
U.S. oil rigs fell by 5 to 231, while gas rigs added 3 to 76 and 3 rigs remain classified as miscellaneous.
The total count remains 61% below year-ago levels.



Study shows masks not significant in preventing Covid-19

The Danish study on the effectiveness of masks – or lack thereof – in protecting us from COVID-19 was just published yesterday in the Annals of Internal Medicine.

Researchers in Denmark reported on Wednesday that surgical masks did not protect the wearers against infection with the coronavirus in a large randomized clinical trial. But the findings conflict with those from a number of other studies, experts said, and is not likely to alter public health recommendations in the United States.

The study, published in the Annals of Internal Medicine, did not contradict growing evidence that masks can prevent transmission of the virus from wearer to others. But the conclusion is at odds with the view that masks also protect the wearers — a position endorsed just last week by the Centers for Disease Control and Prevention.

Critics were quick to note the study’s limitations, among them that the design depended heavily on participants reporting their own test results and behavior, at a time when both mask-wearing and infection were rare in Denmark.

From early April to early June, researchers at the University of Copenhagen recruited 6,024 participants who had been tested beforehand to be sure they were not infected with the coronavirus.

Half were given surgical masks and told to wear them when leaving their homes; the others were told not to wear masks in public.

At that time, 2 percent of the Danish population was infected — a rate lower than that in many places in the United States and Europe today. Social distancing and frequent hand-washing were common, but masks were not.

Characteristics of Participants Completing the Study

Source: Henning Bundgaard, DMSc, et al.

The participants in the face mask group were all given high-quality surgical masks with a filtration rate of 98%. Worth noting is that this quality of mask is even better than the N95 masks that some use today, and it is many times better than the cloth masks that we are told to wear “for our own safety.”

The members of the control group did not wear masks.

What were the results?
  • 1.8% of those who wore masks got infected with COVID-19.
  • 2.1% of those who did not wear masks got infected with COVID-19.
Almost exactly the same. Dr. Mette Kalager, a researcher at Telemark Hospital in Norway and the Harvard School of Public Health, was persuaded. The study showed that “although there might be a symbolic effect,” she wrote in an email, “the effect of wearing a mask does not substantially reduce risk” for wearers.

Dr. Christine Laine, editor in chief of the Annals of Internal Medicine, described the previous evidence that masks protect wearers as weak. “These studies cannot differentiate between source control and personal protection of the mask wearer,” she said.

Dr. Laine said the new study underscored the need for adherence to other precautions, like social distancing. Masks “are not a magic bullet,” she said. “There are people who say, ‘I’m fine, I’m wearing a mask.’ They need to realize they are not invulnerable to infection.”


Here is the conclusion of the Danish study in the authors’ words:

"Our results suggest that the recommendation to wear a surgical mask when outside the home among others did not reduce, at conventional levels of statistical significance, the incidence of SARS-CoV-2 infection in mask wearers in a setting where social distancing and other public health measures were in effect…"

Wednesday, November 18, 2020

Housing market strong, but home prices high relative to income

 The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment in November unexpectedly improved to another record high, jumping to 90, versus forecasts calling for it to match October's 85 level. A level north of 50 depicts positive conditions. The index notched a record high for the third month in a row and the NAHB noted that this reflects that housing is a bright spot for the economy. "However, affordability remains an ongoing concern, as construction costs continue to rise and interest rates are expected to move higher as more positive news emerges on the coronavirus vaccine front," the NAHB added.

Housing starts for October rose 4.9% month-over-month (m/m) to an annual pace of 1,530,000 units, above the Bloomberg forecast of 1,460,000 units, and compared to September's upwardly-revised pace of 1,459,000 units. However, building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, came in flat m/m at an annual rate of 1,545,000, south of expectations of 1,567,000 units.

The MBA Mortgage Application Index dipped by 0.3% last week, following the prior week's 0.5% decline. The modest decline came as a 1.8% drop in the Refinance Index more than offset a 3.5% gain in the Purchase Index. The average 30-year mortgage rate ticked 1 basis point (bp) higher to 2.99%.

Millennials’ homeownership rate trend — which has largely lagged prior generations — has started to reverse with the rate jumping in 2020. Demand from millennials should remain strong for years. Another possible driver for young buyers could come from housing policy. Biden has proposed a $15,000 tax credit for first-time homebuyers, which could lead to even greater housing demand. Waning stimulus and government housing programs, high unemployment among the young, and falling affordability (chart below) are risks for Homebuilders.





Sunday, November 15, 2020

Money is a lifeline

1. Follow a budget. Live beneath your means.

2. Be debt free. Pay cards in full.

3. Have an emergency savings account.

4. Negotiate salary.

5. Save for retirement -- now. 

https://youtu.be/8jkri0AeZWQ




Analysis of Biden's Energy Policy

From National Law Review (Nov. 14, 2020):

One of the noteworthy moments of the recent Presidential campaign came in the candidates’ last debate, when Vice President Biden made the following comment on energy: “I would transition away from the oil industry, yes. The oil industry pollutes, significantly. It has to be replaced by renewable energy over time.”

While much was made of that remark, the term “transition” was an unmistakable reference to specific language in his campaign’s July energy plan calling for a net-zero carbon economy by 2050, coupled with an intermediate net-zero commitment for the power sector by 2035. While reasonable minds may differ as to whether those goals are achievable without major technological breakthroughs or robust use of offset mechanisms (or both), the language of a “transition over time” is familiar. Echoes of such a transition can be found in the climate policies of oil & gas and power sector companies and in policy debates happening in the halls of major trade associations.

Exactly how significant change in the energy sector ultimately becomes under a Biden administration lies in large part on the outcome of a number of external factors. What can reasonably be done to affect the national energy mix pursuant to executive authority? How persuasive can former Senator Biden be in convincing one-time colleagues to walk a potentially risky path on energy? Finally, who will a Biden administration rely upon to develop and implement his energy policy, both at the White House and within the Cabinet?

That last point in particular merits attention. We think a Biden administration is more likely to trust its experts to develop the components of a national energy policy than to release top-down dictates that prove less than durable in their impact. As a wise Washingtonian once said, “Personnel is policy.”

We expect a deliberate, but gradual—rather than radical—approach to the energy transition from a Biden administration. Consider the following:

  • Biden White House officials and Cabinet appointments are likely to reflect Biden’s own left-of-center, but not revolutionary, views on the role of government as change agent.
  • The memory of 2009-2010, when the cap-and-trade bill failed but helped precipitate major mid-term losses, is still fresh in the minds of Biden and Democratic Congressional leadership.
  • Regardless of the outcome of the Senate run-off races in Georgia, Senate Democrats will lack a sufficient margin to pass sweeping and dramatic reforms of energy and environmental policy, particularly if the filibuster remains in place. Senator Joe Manchin (D-WV), for example, seems like to oppose major change and is on record in favor of keeping the filibuster in place in any event.
  • ESG investors are already pushing corporate leaders to establish “net neutral” climate goals, taking some pressure off Congress.
Thus, we think you can count on some or all of the following:
  • Biden is not opposed to continued use of fossil fuels in any form. His position on hydraulic fracturing on federal lands became increasingly clear as the campaign wore on, and his strong belief in the importance of removing energy leverage from Russia while fostering more favorable trade relations with China can create a path forward for export markets for U.S. natural gas. Also, the close relationship between the building-trades unions and the Biden campaign and transition team suggests that policies undermining energy and manufacturing growth will fail to gain traction, at least as long as the U.S. seeks a path of sustainable economic recovery. Even the incoming administration’s support for carbon capture and sequestration, which will likely spur some exciting new projects on the path to net-zero emissions, can be seen as a desire to keep the fossil-fuel sector alive and well.
  • Biden the technological optimist. Biden clearly supports the expansion of renewable energy sources, from the more familiar like solar and wind to the cutting-edge like hydrogen applications in manufacturing, power, gas and transportation. Look for that optimism to show up in support for legislative priorities like Clean Energy Standards; energy efficiency expansion; green tax provisions that extend or create new incentives for clean technologies; green infrastructure provisions; and appropriations to support research, development and deployment priorities. While past efforts fostered early-stage innovation, Biden’s ARPA-C approach would center on actual commercialization.
  • Biden transportation policy seems broadly positioned. It’s tempting to focus solely on electric vehicle (EV) support thanks to the candidate’s oft-repeated commitment for 500,000 new charging stations. We think an EV infrastructure-based commitment coupled with tax credits fits better within a Biden energy policy rubric than an outright mandate or ban on internal combustion engines, which would be more likely to trigger consumer acceptability issues. Yet Biden has spoken of enhanced energy efficiency for cars and trucks more broadly, and counts the inclusion of CAFÉ standards in the auto bailout as one of his early Obama administration victories. Beyond EVs, look for commitments to advanced liquid motor fuels, increasing octane to support efficiency objectives, and alternative technologies like hydrogen fuel cells.
  • A different offshore? While the offshore oil and gas sector will continue to see choppy waters from market conditions and a skeptical administration, other opportunities may emerge. Offshore wind (OSW) developers can look forward to leaving much of today’s disruptive federal permitting uncertainty behind, while doing their part to reduce the intermittency of the renewable resource base. The best-in-class Gulf Coast offshore energy industry may also find new opportunity in OSW, as well as more aggressive schedules for plugging and abandonment activities.
  • Going nuclear. Past Democratic administrations have not been particularly kind to the nuclear sector. During the campaign, while noting the need for effective treatment and storage of waste, the Biden team also expressed support for advanced nuclear technology like small modular reactors. While part of the puzzle, we think the new administration will have to grapple with creating a favorable environment for the existing nuclear fleet for that 2035 intermediate power-sector decarbonization goal to stay within reach. Look for Biden to bring leadership into the Department of Energy with particular nuclear expertise.
In sum, a Biden energy policy will push the envelope of what can be done, channeling FDR’s Great Depression-era New Deal and using the economic recovery and even the pandemic as rationales to “Build Back Better.” Yet much of what Biden wants to achieve in the energy arena will require legislation and appropriations, testing his team’s skills at legislative negotiation. For executive action, while climate change and environmental justice considerations may add challenges to some permitting, Biden’s countervailing interests in economic recovery, union support and even foreign policy will likely produce a more balanced approach.

Friday, November 13, 2020

Weekly Economic Reports: Week ending Nov. 13, 2020


Vaccine Study Results Boost Stocks (Nov. 9, 2020)

U.S. stocks are surging to kick off the week, with several media reports declaring that Joe Biden won the 2020 presidential election offering some clarity on the contentious political front. However, the big boost for stocks today comes courtesy of Pfizer and BioNTech reporting that a Phase 3 trial of their COVID-19 vaccine achieved more than 90% efficacy.

Value and cyclical stocks are leading the charge, along with those tied to industries that had been severely disrupted by the pandemic, while some of the secular growth and work-from-anywhere stocks are lagging behind. Treasury yields are rising sharply as bond prices are falling, and crude oil prices are surging. Gold is falling and the U.S. dollar has turned higher. The economic calendar is void of any major releases today but in other equity news, Dow member McDonald's posted stronger-than-expected Q3 earnings. Asia finished nicely higher and Europe is jumping broadly.

Employment trends continue to improve (Nov. 9, 2020)

The Conference Board’s Employment Trends Index (ETI) increased 1.3% in October, continuing to recover from its trough in April. Six of the eight ETI components made positive continuations last month, led by a jump in temporary hiring and fewer initial jobless claims. This was the sixth consecutive increase in the ETI, but the smallest in that sequence, a sign that the pace of labor market recovery is slowing. With new COVID cases surging across the country, there is a heightened risk of consumers disengaging from the economy, which may slow the pace of labor market improvement. 

OECD U.S. CLI shows economy clawing its way back (Nov. 9, 2020)

The OECD U.S. Composite Leading Indicator (CLI) picked up 0.3 points in October, its sixth straight gain, to 98.8, the best level since February, as the outlook for broad economic growth continued to improve. On a six-month annualized basis, the CLI surged an impressive, record-shattering 14.3%, reflecting the rebound in activity as the economy reopened in the spring. However, the CLI level is still firmly below 100, as it has been continuously since January 2019, indicating that economic activity is still below its long-term trend.

Small business optimism steady (Nov. 10,2020)

The NFIB Small Business Optimism Index was unchanged at 104.0 in October, its best reading since February. But uncertainty about future business conditions hit its highest point since November 2016, reportedly driven by risks related to the presidential election and the pandemic. The cautious level of optimism was evident in the mixed NFIB components, with four improving, five declining, and one unchanged. 

Actual earnings recovered to their pre-pandemic level, and sales expectations for the next three months turned up, both of which are signs of strengthening demand. Amid ongoing supply chain and delivery issues, the net percent of firms reporting their inventories were too low matched its second highest level ever, while the net share of firms planning to increase their inventories in the near term jumped to 12%, a record high. But owners’ optimism about the outlook for the economy cooled slightly. Current job openings and hiring plans also pulled back, which could translate into a slower pace of decline in the unemployment rate over the next few months. 

Worker compensation was steady, while compensation plans edged up slightly, but both were well below their pre-recession levels, reflecting the large labor market slack created by the pandemic. Current prices were back to their level at the start of the year and price plans moved up, a sign of pricing power amid stronger demand, which bodes well for profit margins. 

JOLTS: Labor market continues to recover (Nov 11, 2020)

The number of hires ticked down 1.4% in September to 5.871 million, about in line with its pre-recession level, following several months of significant volatility around the lockdown and reopening of the economy in the spring. Layoffs and discharges declined further. Both indicators suggest that the labor market continued to move toward normalization. 

The number of job openings edged up 1.3% to 6.436 million, up in four of the past five months, but that still left it 8.1% below where it was in February, a sign that labor demand has a ways to go before it fully comes back. The number of unemployed per job opening continued to move down, but at 1.96 it shows a significant labor market slack that is putting downward pressure on compensation growth and inflation.

Mortgage applications dip (Nov. 11, 2020)

The MBA Mortgage Application Index declined by 0.5% last week, following the prior week's 3.8% gain. The decline came as a 0.6% rise in the Refinance Index was more than offset by a 2.6% drop in the Purchase Index. The average 30-year mortgage rate decreased 3 basis points (bps) to 2.98%.

Jobless claims continue to moderate, consumer price inflation subdued (Nov. 12, 2020)

Weekly initial jobless claims (chart) came in at a level of 709,000 for the week ended November 7th, below the Bloomberg estimate of 731,000, and the prior week's upwardly-revised 757,000 level. The four-week moving average declined by 33,250 to 755,250, while continuing claims for the week ended October 31st fell by 436,000 to 6,786,000, south of estimates of 6,825,000. The four-week moving average of continuing claims dropped by 653,000 to 7,575,750.

The Consumer Price Index (CPI) came in flat month-over-month (m/m) in October, below estimates of a 0.1% gain, and compared to September's unrevised 0.2% increase. The core rate, which strips out food and energy, also was little changed m/m, versus expectations calling for it to match September's unadjusted 0.2% rise. Y/Y, prices were 1.2% higher for the headline rate, south of forecasts projecting a 1.3% increase and compared to September's unadjusted 1.4% rise. The core rate was up 1.6% y/y, below projections to match September's unrevised 1.7% gain.

November consumer sentiment unexpectedly falls, wholesale price inflation mixed (Nov 13, 2020)

The November preliminary University of Michigan Consumer Sentiment Index (chart) fell to 77.0 versus the Bloomberg expectation of a slight improvement to 82.0 from October's 81.8 reading. The index fell back to levels seen in the summer as both the current conditions and the expectations portions of the index both came in well below estimates. The 1-year inflation forecast rose to 2.8% from October's 2.6% rate, and the 5-10 year inflation forecast also increased to 2.6% from the prior month's 2.4% level.

The Producer Price Index (PPI) showed prices at the wholesale level in October rose 0.3% month-over-month (m/m), versus forecasts calling for a 0.2% gain and September's unrevised 0.4% increase. The core rate, which excludes food and energy, ticked 0.1% higher m/m, just shy of estimates of a 0.2% gain and compared to September's unadjusted 0.4% rise. Y/Y, the headline rate was 1.1% higher, compared to projections to match the prior month's unadjusted 1.2% increase. The core PPI gained 0.8% y/y last month, below estimates of a 0.9% increase, and compared to September's unrevised 0.7% rise.

Budget deficit continues to swell 

The U.S. federal government started fiscal year 2021 with a budget deficit of $284.1 billion, a record for the month of October. On a 12-month total basis, the deficit swelled to $3.3 trillion, representing 15.6% of GDP, also a record. COVID and the deep recession expanded the 12-month total federal outlays at a record 49.6% y/y rate. Spending on income security and health care surged. At the same time, 12-month total receipts fell 1.2% y/y. Both individual and corporate income tax receipts fell, as unemployment remained high and corporate profits continued to struggle. With President-elect Biden supporting a sizeable increase in fiscal spending to battle the health crisis and to reset economic priorities, the deficit will continue to expand in coming years. This is not an issue in the near-term, as economic activity is well below potential and interest rates remain near rock-bottom levels. In the long-term, however, it may become inflationary or interfere with the government’s options to respond to future crises.



Wednesday, November 11, 2020

What you need to know about Social Security for 2021


In one of the smallest annual cost-of-living adjustments on record, Social Security benefits will increase by 1.3% in 2021, boosting average benefits by $20 per month to $1,553 and increasing the maximum benefit for someone retiring at full retirement age in 2021 to $3,148 compared to this year’s maximum of $3,011 per month.

The standard Medicare Part B premium, which covers doctor’s visits and other outpatient services, will increase to $148.50 per month in 2021, up $3.90 from this year’s monthly premium of $144.60.

Of course, it's not just Part B premiums that are rising. The annual deductible for Part B is also going up from $198 in 2020 to $203 in 2021. And the Part A deductible per hospital benefit period is increasing, too, from $1,408 to $1,484 -- a $76 jump.


Higher-income Medicare beneficiaries will pay more. In 2021, individuals with modified adjusted gross income of $88,000 or more and married couples with MAGIs of $176,000 or more will pay additional surcharges ranging from $59.40 per month to $356.40 per month on top of the standard Part B premium. Married couples where both spouses are enrolled in Medicare will pay twice as much.

High-income surcharges for 2021, officially known as income-related monthly adjustment amounts or IRMAA, are based on income reported on 2019 federal tax returns. Income brackets that trigger IRMAA surcharges will increase slightly in 2021 as a result of inflation adjustments.

The $3.90 increase in the monthly Part B premium for 2021 is much less than had been expected earlier this year when Medicare spending soared due to the COVID-19 pandemic. But Congress stepped in with emergency spending legislation to offset a rise in the premium that CMS actuaries projected could have been as much as $50 per month for some beneficiaries in 2021.

High-income retirees are also subject to monthly surcharges on their Medicare prescription drug plans, ranging from an extra $12.30 per month per person to an extra $77.10 per month per person on top of their monthly premium. Medicare drug plans are run by private insurers and costs vary widely.

Earnings limit increase

Individuals who claim Social Security before full retirement age and who continue to work can earn up to $18,960 in 2021 without forfeiting any benefits, up from $18,240 this year. If they earn more than that limit, they will temporarily lose $1 in benefits for every $2 earned over $18,960. Benefits lost to excess earnings are restored in the form of larger monthly payments beginning at full retirement age.

Full retirement age increases to 66 and 2 months in 2021. Workers who were born in 1955 and who will attain their full retirement age next year can earn up to $50,520 in the months before they reach that milestone. If they earn more than $50,520, they will forfeit $1 in benefits for every $3 earned over that limit. Earnings restrictions disappear at full retirement age.

Payroll taxes rise

In 2021, workers and their employers will each pay 7.65% of the first $142,800 of gross pay to FICA taxes that fund Social Security and Medicare, up from $137,700 this year. That means up to $5,100 of additional income will be subject to payroll taxes next year and some higher-income workers will an extra $390 in taxes.

The 1.45% portion that funds the Medicare hospital insurance trust fund applies to all earnings, even those above the $142,800 taxable wage base in 2021. In addition, individuals with earned income over $200,000 and married couples with earned income over $250,000 pay an additional 0.9% of payroll in Medicare taxes.

Self-employed individuals pay both the employer and employee share of the payroll tax. The 15.3% self-employment rate consists of two parts: 12.4% for Social Security and 2.9% for Medicare. In 2021, the combined rate is applied to the first $142,800 income and the 2.9% Medicare portion applies to all income. Self-employed individuals can deduct the employer portion of their payroll taxes to calculate their adjusted gross income for income tax purposes.

Monday, November 9, 2020

Happiness is a Choice You Make



Key insights from

Happiness is a Choice You Make: Lessons from a Year Among the Oldest Old

By John Leland

What you'll learn

This book began as a series of in-depth interviews that New York Times reporter John Leland conducted called "85 and Up." The book's title is just one of the numerous lessons that Leland gleaned through research and time spent with his newfound mentors.


Read on for key insights from Happiness is a Choice You Make: Lessons from a Year Among the Oldest Old.

1. The elderly are not problems to be fixed but sources of tremendous wisdom.

For the majority of human history, the word of an elder carried serious weight and their decisions were respected. Age was a sign of distinction and reason to show someone honor. The elderly were taken in and cared for by the family. Grandchildren witnessed decline and death in the home.

This is still the pattern in many parts of the world, but in American culture, this is an atypical arrangement. The elderly are often described as "cute" and quaint, and they say the funniest things. Do we actually take them seriously? Just because they haven't figured out social media doesn't mean that they have nothing to offer. The late author May Sarton, in a book published in the autumn of her life, compared old age to a foreign country with a language unfamiliar to the young and middle-aged. Sarton quips that, "The trouble is old age is not interesting until one gets there." 

A study from Cornell professor Karl Pillemer found that people are more likely to have a friend of another race than to have a friend who's more than ten years older, let alone forty years. The fact is that we miss out when we don't spend time with the elderly and take them seriously. They are a source of wisdom with hard-earned perspective to offer if we would only ask.

2. Even with declining health and a shrinking pool of options, the elderly are some of the happiest people on earth.

When one reaches the final years of life, there's no need to stress about the future and potential paths because those major decisions were made a long time ago. There's less uncertainty. The final certainty of death is one that most have come to accept. It is no longer an abstraction for the '85 and Up' club, and so most have made peace with it in one way or another. 

Studies reveal that despite declining health and the shrinking social circles typically accompanying old age, the elderly tend to be among the happiest humans on earth. What accounts for this contentment? Interviews reveal remarkable changes in values: rather than social mingling and rubbing shoulders with strangers, the elderly tend to be more choosy about their activities and the relationships in which they invest time and energy. They also tend to become less preoccupied with self and the perceptions that others may have of them. Periods of solitude become viewed less as conditions of loneliness and more as opportunities for quiet reflection.

Swedish sociologist Lars Tornstam termed this phase of life "gerotranscendance"—rather than a season of decline, it is a time of rising above pettiness and self-consciousness that plague and paralyze so many of the young and middle-aged. In a series of interviews with elderly subjects, the majority considered their lives greatly improved since they were fifty. Most said they were less concerned with superficial relationships and material possessions, and experienced greater joy and depth of inner life. This shift is largely attributed to wisdom. It's a clearer grasp of what matters and what can be set aside, something that is best learned through lived experience. Wisdom correlates positively with well-being. The energies furiously invested in shallow endeavors are now dedicated to the cultivation of the more enduring aspects of personhood. Expectations are more aligned with reality, which means less disappointment and anger. 

This was the case for the six interviewees for the recent New York Times series as well. Those who accept what comes with old age are happier than the ones who wish they were forever young.

3. Gratitude contributes heavily to physical, psychological, and spiritual well-being.

G.K. Chesterton once described gratitude as "happiness doubled by wonder." It is a central virtue of numerous world religions and ancient philosophies. Cicero considered gratitude the parent of all other virtues. Everyone's grateful at least some of the time, but for some, it appears to become a lifestyle, as natural as breathing. 

What's amazing is that gratitude—an inherently relational virtue—lights up not just the brain's reward center, but also the regions that govern moral and social processing. So if you eat a cake you bought from the store, your brain's reward center will light up, but not the moral-social region. If a friend brings you a freshly baked cake, however, both the reward center and moral-social portions will light up—even if the cake is small and tastes terrible. Science confirms that it truly is the thought that counts. The recognition of kindness holds more weight than the thing itself.

This is why suffering and gratitude can coexist. One interviewee for the '85 and Up' series, Fred, had ample reason to brood over problems and complain, but he chose thankfulness for what he still had. A kind greeting from a neighbor or an extra helping of dessert were reason enough to be thankful.

Studies have shown that gratitude can be learned, and that people who kept a log of things for which they were thankful for several weeks tended to become more optimistic about the future, were more likely to help others, to get restful sleep, and make time for exercise. These results held—even for people who tended toward pessimism. Gratitude has also been linked to lower blood pressure, reduced inflammation, improved immunity, and decreased amounts of cortisol—the stress hormone.

4. As life's pace slows down, the elderly find greater joy in simple pleasures.

People are living longer, but are they actually able to enjoy the extra years? In the 1970's, Johns Hopkins professor Ernest Gruenberg posited that the United States' medical system mistakenly prioritizes extending life rather than improving it. We've gotten rid of diseases that kill quickly, only to deal with chronic conditions that lead to a long, painful decline. Gruenberg terms this the "failures of success." We don't have to worry about the threat of large carnivorous mammals or polio, but an unnecessarily prolonged limp.

Ezekiel Emanuel, one of the chief architects of the Affordable Care Act, echoed this opinion more recently in his essay, "Why I Hope I Die at 75." In it, he paints a dismal picture of increased longevity, and argues that the elderly eek out existences that are only marginally preferable to death. He writes that this stage of life "robs us of our creativity and ability to contribute to work, society, the world…We are no longer remembered as vibrant and engaged, but as feeble, ineffectual, even pathetic." 

Emanuel is dismissive of stats that indicate higher rates of happiness among the demographic he claims is enduring a miserable existence. The survey results fail to capture the atmosphere of the nursing home, dementia and general suffering, he argues. The piece elicited strong push-back from, among others, the elderly who had lived beyond Emanuel's golden marker of seventy-five years.

Emanuel's perspective assumes that life is worth living so long as you're still able to live as you do now—with memory, mobility, and independence still intact. The truth is that for many of the old and oldest old, aging is not a story of loss but trade-offs. The loss of mobility, memory, and vigor is often the seedbed for a more mature perspective of life and for the enjoyment of what remains.

One of the six interviewees, Fred, admitted that the later years haven't been as good as his younger days. He humorously reflected that he now has a small bag of potato chips instead of a big one, but he still has potato chips, and he thanks God for them every morning. It sure beat death, which offers no potato chips whatsoever. There's an unlearned vanity to Emanuel's view. It just might take the process of aging for his view to soften and mature.

5. There are more sexually active seniors than people think.

The thought of the elderly making love is not one that people relish. It fails to get airtime in Hollywood or advertising. A common myth surrounding old age is that the elderly no longer have sex. This view is not only patronizing, but ignores the data, which suggests sexual vitality among a significant number of seniors. According to a 2010 study, between a quarter and a third of men and women over eighty engage in sexual activity.

These recent discoveries have led to discussions about relationships and love-making in nursing homes and assisted living facilities. The implications of dementia for assessing mutual consent, for example, is a discussion that some institutions have had to broach with residents and their families. In the interest of fostering intimate relationships, some homes make erotic literature and videos available to residents. Dating services have met with mixed success in the homes where they've been introduced because many who have gone through the sad, taxing ordeal of caring for a dying spouse are not eager to look for love again. They're more likely to seek out meaningful friendships, a cadre with which they can share daily activities. 

It is also worth noting that impotency isn't the soul-rending loss that many young people fearfully anticipate. Most seniors take it in stride. There are other expressions of togetherness that mean more and other activities that are harder to give up, like mobility.

6. Overthinking gets us nowhere, and blocks our enjoyment of purposeful existence.

Many people have come to accept the inner noise and worry as essential to the fabric of life. But all the interviewees, in one way or another, had managed to put aside the noise and fears. By doing so, they discovered that life was full of wonder.

Perhaps no one embodied this better than Jonas, a ninety-two year-old who came to the United States as a Lithuanian refugee when he was twenty-seven. Even now, Jonas is still active in the world of literature and the arts. He writes and performs poetry at clubs in New York City, has written and directed numerous films, and has published an autobiography. He also founded and fund raises for the Anthology Film Archives, still considered a premier theater for experimental films.

Jonas was a farm boy in Lithuania. He said that work was not work until the Soviets invaded and dubbed everyone "workers." Until then, he was just doing what needed to be done. He insists on being a doer rather than a thinker, someone who lives according to instincts. As he sees it, ideas have landed humanity in a lot of trouble. "When you're from a farmer's background—village life—people live, they don't analyze themselves."

He had a strong sense of purpose to live for, and he refused to think about death. Life, he said, was still going. He'd have time enough to think about death when he was actually dying. Until then, there was life to be lived.

7. There is joy to be found in the chaos of adventure and uncertainty, as well as in the simplicity of another uneventful day.

All six seniors with whom the author spent substantial time lived through the year. Their respective struggles and bright spots remained mostly constant. No one had rip-roaring adventures abroad. No one tried his or her hand at extreme sports. They had simple pleasures like visits from family and friends, and this seemed to be enough. Ezekiel Emanuel, the man hoping for swift decline at age seventy-five, belittles—and probably fears—the prospect of an ever-narrowing range of aspirations, activities, and responsibilities. A life in which quietly listening to audiobooks or doing Sudoku puzzles are hallmarks is overwhelmingly underwhelming for Emanuel.

It's very likely that he's not alone in this fear, but let's consider the contrast between two novels for a moment: James Joyce's Ulysses, a story that chronicles a day in the life of a small town, and Leo Tolstoy's sweeping epic War and Peace, which details a saga spanning decades full of gunpowder, treason, and plot. The world of Ulysses carries a sacred sense of rhythm. There's a comfort and beautiful simplicity to the finitude of a single day. The world of War and Peace, by contrast, is full of adventure and intrigue, but also chaos and uncertainty. No one would deny that there is a deep richness to both stories. Indeed, great wonder awaits the person who looks through a telescope or a microscope.

This newsletter is powered by Thinkr, a smart reading app for the busy-but-curious. For full access to hundreds of titles — including audio — go premium and download the app today.







Saturday, November 7, 2020

Dividend investing for $1,000 a month income

This is a good video explaining the principles of dividend investing. In my own portfolio, my own focus has been on dividend, or income, investing for the last few years. I'm getting $12,000 in dividends annually on less total assets than this video says you need, but with more risk. Check it out.




Friday, November 6, 2020

Weekly Economic Reports: Nov. 6, 2020


 ISM manufacturing charges on (Nov. 2, 2020)

The ISM Manufacturing Index shot up 3.9 points in October to 59.3, its highest level since September 2018, and above the consensus of 56.0, as factory activity gained significant momentum. It was the biggest increase since May 2009, excluding the post-lockdown surge in June. Of the 18 ISM industries, 15 expanded, matching the highest number since March 2019, and indicating broad-based growth. The report also noted that five of the six largest industries posted strong growth. The ISM index is bullish for manufacturing output and broad economic growth. 

Construction spending disappoints (Nov. 2, 2020)

Construction spending ticked up 0.3% in September, the least in four months, and below the consensus of 1.0%. Private sector spending rose 0.9%, led by residential investment which posted another strong month, up 2.8%. But private nonresidential construction spending, which accounts for about 1/5 of capex, fell a broad-based 1.5%. Public construction dropped 1.7%, led by cuts in highway and street, public safety, and conservation and development spending. On a y/y basis, total construction spending eased to 1.5%, as the public sector spending shrank 1.3%, the most since June 2017. Nonresidential construction spending sank 6.0% y/y, the second most since May 2011. 

Bankruptcy fillings still low (Nov. 2, 2020)

Total U.S. bankruptcy filing ticked up only 1.4% in Q3 to 126,243, the third lowest level on record. There was a slight increase in business filings, up 7.1% to 5,521, but that was also close to historic lows. As we discussed in the 10/20/2020 U.S. Focus, the low level of bankruptcy fillings is partly due to the large monetary and fiscal stimulus, which extended a lifeline to both households and businesses struggling with the fallout from the pandemic. But with fiscal stimulus waning and bank lending standards tightening significantly, we could see a rise in bankruptcy filings late this year and into 2021.

Factory orders increase (Nov. 3, 2020) 

Factory orders increased 1.1% in September, up for the fifth consecutive month, and slightly above the consensus of 1.0%. Nondurable goods orders ticked up 0.3%, while durable goods orders rose 1.9%, unchanged from the advance estimate. The increase in durables was led by transportation equipment, as civilian aircraft orders turned positive again. Nondefense capital goods orders ex-aircraft, a proxy for capex, rose 1.0%, also its fifth consecutive gain, although the smallest in that sequence. 

On a y/y trend basis, factory orders declined 5.1%, led by a steeper slide in nondurables. However, the negative momentum has diminished in the past several months, in tandem with the improvement in the ISM Manufacturing Index, signaling a strengthening of factory activity. 

Shipments rose 0.3%, while inventories were unchanged. As a result, the I/S ratio edged down to 1.42 from 1.43, inching closer to its pre-recession level of 1.40.

US Crude Inventories Fall the Most in 2 Months (Nov. 4, 2020)

US crude oil inventories fell by 7.998 million barrels in the week ended October 30th 2020, following a 4.32 million rise in the previous period and compared to market expectations of a 0.89 million increase, according to the EIA Petroleum Status Report. That was the steepest decline in crude stocks since the week ended August 28th. Meantime, gasoline inventories were up by 1.541 million barrels, while markets had forecast a drop of 0.871 million.


ISM services activity moderates slightly (Nov. 4, 2020)

The ISM Non-Manufacturing Index (NMI) gave back 1.2 points in October to 56.6, below the consensus of 57.5, as services activity grew for the fifth consecutive month but at a slower pace. The pullback comes amid a resurgence of COVID cases nationwide, which may lead to reduced mobility and disengagement of consumers from the economy, potentially weighing on the pace of the recovery.

ADP payrolls recovery slows (Nov. 4, 2020)

 ADP private payrolls increased 365,000 in October, up for the sixth consecutive month, but below the consensus of 600,000. It was the smallest gain in the past three months, as companies have slowed the pace of hiring amid a new resurgence of COVID cases. So far, ADP payrolls have recovered 49% of the loss in March and April, as coming back from the lockdown is proving difficult amid the continuing health crisis.

Trade deficit narrows (Nov. 4, 2020)

The trade deficit narrowed by $3.2 billion in September to $63.9 billion, close to the consensus of $63.6 billion. Exports rose 2.6%, led by soybeans and capital goods, partly due to increased flows to China under the phase-one trade deal. Imports inched up 0.5%, as a notable increase in vehicles was partly offset by a decrease in imports of consumer goods and some industrial supplies and materials. 

Despite narrowing in September, the trade deficit increased in Q3 to its highest level in 14 years. On a 12-month total basis, it widened to its highest level since March 2009. 

The 12-month total deficit with China continued to narrow to its smallest level since March 2012. But the deficit with some other trading regions widened, including with NICs, where it reached its highest level since March 1988. This implies that the trade war with China has shifted U.S. imports from China to other countries, but not necessarily bringing production back to the U.S.

Natural Gas inventory draw tops estimates (Nov. 5, 2020)

EIA Natural Gas Inventory: -36 bcf vs. -26 bcf consensus. Last week saw a 29 bcf increase. 

A cyclical surge in productivity (Nov. 5, 2020)

Nonfarm productivity increased at a 4.9% annual rate in Q3, below the consensus of 7.2%. It followed a 10.6% surge in Q2, resulting in the biggest two-quarter increase since Q4 1965, as lockdowns ended and fiscal and monetary stimulus filtered through to the economy. Both nonfarm output and hours worked rebounded at record rates in Q3, but output outpaced hours. Manufacturing productivity jumped at a record 19.0% annual rate. 

Fewer layoffs, but levels still above pre-recession (Nov. 5, 2020)

Challenger layoff announcements fell 32.1% in October to 80,666, but that was still greater than pre-recession, and near the highest level since July 2015. Year-to-date, there have been 2.163 million job cuts announced, the highest annual total on record. The bulk of announcements was still in the leisure and hospitality and retail sectors. On a 12-month average basis, job cut plans were at a record high, reflecting the large displacement of labor earlier this year.

Initial jobless claims fell 7,000 last week to 751,000, above the consensus of 741,000. Continuing claims in the prior week declined 538,000 to 7.285 million, while the insured jobless rate slipped to 5.0% from 5.3%. Despite the improvement, all these indicators continue to run several times higher than pre-recession. Moreover, a total of 21.509 million people continued to received some form of unemployment assistance, as labor market conditions are far from normal. 

Light vehicle sales hit a ceiling (Nov. 5, 2020)

Light vehicle sales fell 0.5% in October, its first decline in six months, to a 16.2 million unit annual rate. While the sales rate has nearly doubled since the trough in April, it is still 3.3% short of what it was in February. Light truck sales pulled back last month, partly offset by higher auto sales. On a y/y basis, light vehicle sales were down 3.3%.

Fed keeps monetary policy steady (Nov. 5, 2020)

In a unanimous vote, the Federal Open Market Committee (FOMC) announced no change to the fed funds rate—which remains in a range of 0% to 0.25%—or asset purchases—which remain at $80 billion of Treasuries and $40 billion of agency mortgage-backed securities (MBS) each month. In its statement, the FOMC noted: “Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year.” That sentence was a slight tweak relative to the September FOMC statement, which noted that the economy and jobs had “picked up in recent months.” The Committee also removed the prior language about its easy monetary policies not being an “unconditional commitment.”

Rig count rises again (Nov. 6, 2020)

Total active drilling rigs in the U.S. increased for the eighth week in a row, up 4 to 300, according to the latest report from Baker Hughes. U.S. oil rigs added 5 to 226, while gas rigs fell by 1 to 71 and 3 rigs remain classified as miscellaneous. Half the week's increase in oil rigs is in the Permian Basin, where units rose by 5 to 146.


Labor market recovery continues (Nov. 6, 2020)

Once again, the employment report exceeded forecasts. Nonfarm payrolls recovered a net of 638,000 jobs in October, above the consensus of 530,000. The gap between the private and public sectors continued to grow. Private sector payrolls increased by 906,000, above our estimate of 745,000. Government payrolls shrank by 268,000, which included a reduction of 147,000 temporary Census jobs. The remainder of the public job cuts were in education. The unemployment rate tumbled one full point to 6.9%, below the consensus of 7.7% and our projection of 7.4%. Under a divided government scenario, the chances of getting a large stimulus bill through, following this report, is small. But certain industries, municipalities, and workers could use additional support. That will put pressure on the Fed to do more with its asset purchases and extend the expiration date of the Municipal Liquidity Facility.

Wholesale inventories increase (Nov. 6, 2020)

Wholesale inventories increased 0.4% in September, its second consecutive gain, and contrary to the consensus of -0.1%. It was led by nondurable goods (mostly farm products, drugs, and petroleum). The revival in import growth suggests wholesale inventories will continue to increase in the near-term, which is positive for economic growth in the early months of expansions. Wholesale sales rose 0.1%. As a result the I/S ratio was unchanged at 1.31, basically where it was pre-recession. 

Used car prices continue to rise (Nov. 6, 2020)

The Manheim Used Vehicle Value Index ticked up 0.4% in October, but was up 15.4% y/y, near its fastest pace since January 2010. Prices rose from a year ago across all major market segments, with luxury cars and pickup trucks outperforming the overall market. The increase in wholesale used car values suggests sustained upward pressure on the CPI for used cars and trucks in the near-term.

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