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Jeffrey P. Snider

Jeffrey P. Snider

As Head of Global Investment Research for Alhambra Investment Partners, Jeff spearheads the investment research efforts while providing close contact to Alhambra’s client base.

Articles by Jeffrey P. Snider

Labor Leverage

January 18, 2017

Earned income rates adjusted for inflation have been near zero growth for two months in a row. Real average weekly earnings were revised significantly lower in November 2016, turning a small 0.5% gain into just 0.2%. The latest figures for December estimate the same lack of growth to end the year. In seasonally-adjusted terms, weekly earnings did not keep pace with largely oil prices all throughout last year. Weekly earnings started out 2016 at $368.80 (constant 1982-84 dollars) and ended at just $366.95.
This is, of course, nothing new. It has been a constant feature the whole of what should have been recovery, where first and foremost the lack of income growth suggests “something” seriously wrong

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The Monetary Surprise

January 18, 2017

In May 1999, Milton Friedman gave an interview to Forbes Magazine back when it was an actual magazine. It was an auspicious time, of course, and what he had to say then resonated, though as much in an unflattering way as that which might reflect well on him. But we are not commit the logical fallacy so often deployed to try to discredit an argument; being wrong about some things doesn’t make one wrong about everything.
As to the bad, during the interview Friedman thought there was no recession on the horizon, and maybe there wasn’t at that moment (the official dot-com recession was just less than two years ahead), but more so that he saw Japan moving toward full-blown recovery. It was somewhat

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More Slumping Durables In August—–The New Abnormal

September 28, 2016

Durable goods continue to suggest a weak economy that only seems to remain in that state. Year-over-year, unadjusted estimates for new orders rose slightly for the first time since May, while seasonally adjusted total orders (including the transportation sector) were fractionally lower at $226.9 billion. That amount was 2% less than January 2016 and 4.3% below August 2014. Once again we find that the seriousness of the slump is not defined by its depth but its length, especially since there aren’t any signs that it is letting up even though there is every mainstream reason to expect differently.
U.S. factories reported flat demand for big-ticket goods in August, suggesting the economy continues to be restrained by sluggish business spending.

The Commerce Department said Wednesday orders

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Good Job, Mario! NIRP Slams Commerzbank And 9,000 Jobs

September 27, 2016

On August 31, 2008, Germany’s Commerzbank announced that it was purchasing ailing rival Dresdner Bank from Allianz SE. As usual, however, the deal wasn’t described in those terms as nothing ever is so honest in public. Then-Allianz CEO Michael Diekmann said at the time of the announcement:
As a strong bank, the new company can safeguard jobs in the long term. With a stake of nearly 30 percent Allianz will be the largest shareholder of the new bank and will gain access to a powerful distribution network for its insurance products. The move will also secure the further success of its bancassurance strategy.
Just four months later, Commerzbank was becoming partially nationalized due to the “strong bank.” By taking in €10 billion from SOFFIN, Germany’s bank bailout vehicle, at the outset of

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It’s Not Really About Deutsche Bank

September 26, 2016

It is never a good thing when official sources either named or unnamed are quoted in the media as denying bailout discussions. For any bank such rumors and denials are harmful because, obviously, they are a reflection of common perception. Furthermore, most people know all-too-well the true nature of any denials, thus reinforcing only that much more the troubling perceptions in the first place.
For Deutsche Bank to be the institution in question is altogether different. When Germany’s Commerzbank, for example, was forced to request a capital injection from the state’s bailout fund SOFFIN in November 2008 that was a sign of the times. It was just another bad sign in an ocean of them. Should Deutsche Bank even get connected to something like that is perhaps a sign of renewal of those

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Monetary Insanity: When It Doesn’t Work——Just Promise To Keep Doing It Until It Does

September 21, 2016

On July 14, 2006, the Bank of Japan raised its benchmark overnight rate off zero for the first time since introducing the world to ZIRP in 1999. In doing so, the BoJ noted that the Japanese economy in its view continued to “expand moderately” and that risks inside the economy were “balanced.” The central bank also sought to reassure, further commenting that despite one 25 bps rate hike “an accommodative monetary environment ensuing from very low interest rates will probably be maintained for some time.”
These words, all of them, should sound frighteningly familiar, as they are being redeployed in nearly exactly the same phrasing by the Federal Reserve. Whether or not the FOMC votes for a second rate hike today still remains to be seen, as before that “news” there is first the BoJ once

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Memo To Kuroda: It Doesn’t Work!

September 21, 2016

What good is a target or even an emphatic commitment to it if you have already proven you can’t achieve it?
So far the only “market” that really counts isn’t buying the new promises, either. We’ll see if that is just a knee-jerk reaction or if it re-ignites the contrary “dollar” trend that had so plagued Abenomics going back to last summer.

As of Bank of Japan’s end of period balance for July, the combination of QQE and whatever odds and ends of minor “extraordinary” policies implemented along the way leaves the Japanese banking system with ¥271.37 trillion in bank reserves. That is an increase of ¥218.76 trillion (418%) since the start of QQE. The CPI in July was recently updated to show a second straight month of -0.48% “inflation.” Excluding fresh food, the CPI fell to the same

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China’s Red Ponzi Was Built On The Biggest Dollar Short Ever

September 20, 2016

As if we needed more evidence, the Chinese liquidity system is stuck. As much as authorities in China might complain about the global credit-based reserve currency system, as PBOC Governor Zhou Xiaochuan put it in March 2009, and quietly seek out its replacement, they not only allowed it to happen they quite eagerly participated in it so long as it appeared to fuel their economic “miracle.” The monetary system in China is not Chinese; it is at most translated into RMB as its basis is derived elsewhere. And in the world of the late 20th century and especially the first decade of the 21st that means primarily “dollars.”
It is perhaps one of the biggest shocks to traditional thinking where you can very easily observe the eurodollar system’s decay by looking at nothing more than the People’s

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More Data For The ‘Data Dependent’ Fed To Ignore

September 16, 2016

The University of Michigan released its September update for their surveys of consumers. The overall index of consumer “sentiment” was unchanged from August at 89.8, and up just 3% from last September. This “confidence” index peaked in January 2015 at 98.1 and has been sideways to lower ever since. Most of the internals were practically unchanged throughout, leading Chief Economist Richard Curtin to note:
…modest gains in the outlook for the national economy have been offset by small declines in income prospects as well as buying plans
Not everything in the surveys was so uninteresting. Inflation expectations dropped yet again, as both short-term and intermediate consumer projections for the rate of prices changes continue to sink. The surveyed result for the inflation rate next year fell

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When The ‘Risk-Free’ Rate Is Risk…

September 14, 2016

Treasury bill rates have been trading notably higher of late, with the 3-month bill equivalent yield as much as 37 bps this week. Though it was the highest rate since November 2008, a true reading of bill history shows that it is not a matter of Fedearl Reserve policy “normalization.” Trading in bills, especially the 3-month, makes indications of risk somewhat more obscured. For example, though “dollar” liquidity was clearly problematic and getting worse from mid-July 2015 all the way through the liquidations late in August, the TED spread was actually falling during that time. The reason was not that interbank markets were being restored and acting robustly, rather it was the curious nature of T-bill trading leading up to what was a Chinese-led “dollar” event.

It happened again to start

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More Bad Economic News From The Oil Patch

September 13, 2016

At the end of August, the US Energy Information Administration reported that it had been overstating domestic demand for oil and energy products to a considerable degree. Using imprecise and lagging data, the calculations for the amount of product being exported overseas was understated by an average of 16%. That meant more output was being used elsewhere, thus less product being used here. While that is a positive for US producers being able to ship wherever they can, it was a more savage reflection on the economy especially this year.
In other words, nothing terribly surprising in oil unless you are expecting dramatic improvement for the US economy through something like a “full employment” liftoff. Instead, viewing oil as a primary intersection between finance and economy, the “rising

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The JOLTS Phantom: Hires or Job Openings?

September 9, 2016

In all honesty, I could start almost any piece I write with the phrase “economists are stumped.” It has become something of a baseline where there is some element or condition of the global economy that doesn’t make sense to them. The latest update in JOLTS for July continues to be faithful to the seeming contradiction. By view of the Job Openings portion of the report, the labor market is beyond robust, hitting a new record high and perhaps suggesting the economy is not damaged by the “rising dollar.” The pace of hiring activity, however, leaves a much different impression.
One of the labor market’s biggest mysteries just got deeper: The number of job openings available at the end of July climbed to a new record of 5.9 million. Yet the number of people actually being hired into one of

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July Factory Orders Didn’t Rebound Strongly—-More Misleading Spin

September 7, 2016

Factory orders rose in July in seasonally-adjusted terms from a downward revised June level. As has been the case with a number of economic data points this summer, that was a drastically different result than the unadjusted comparison. Since only the narrowest monthly interpretation makes it into most commentary about the economy, let alone manufacturing, the headlines leave a lot to be desired; sowing only further confusion as to how the economy could be getting worse when every uptick in factory orders or whatever else is trumpeted as the latest in an unending string of optimistic outcomes that never seem to get anywhere.
New orders for U.S. factory goods recorded their largest increase in nine months in July as demand increased broadly, in a hopeful sign for the embattled

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More Indications of Labor Slowing—-Yellen’s Favorite Index Hits The Skids

September 7, 2016

The Federal Reserve’s Labor Market Conditions Index (LMCI) fell to contraction again in August. After rebounding in July for the first positive reading of 2016, the LMCI dropped to -0.7 in the latest update. As usual, revisions have reshaped the levels of indicated problems throughout the past two years, but overall the trend remains. From this view of the labor market, the economy is surely slowing even if taking two years to suggest by how much.

As I wrote earlier today, I believe that is the natural tension between an economy that “wants” to grow but can’t due to monetary suppression. This is nothing to do with quantitative easing or “stimulus” in broad terms, except that it further shows that no form of central bank policies has had the effect of increasing the money supply to the

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The Real Economy: What The Interest Rate Fallacy Truly Means

September 6, 2016

Just a little over a year ago, the Institute for Supply Management (ISM) released its purchasing manager index for the services sector for August 2015. Though the level was down slightly from July, coming amidst the immediate aftermath of the “shocking” financial quakes starting in China and spreading to markets all over the world, the 59.0 non-manufacturing PMI was welcome relief. In the mainstream narrative where the unemployment rate was meaningful, any positive indication about the services economy allowed economists and policymakers to assert that any weakness was either temporary or isolated.
When oil prices first dropped starting in late 2014, the narrative was far more the former (“transitory”). By August last year, when financial markets far beyond WTI were drawn inward into the

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Below The August Jobs Headline—-Even More Weakness

September 4, 2016

In the technical notes for the Employment Situation Report, the payroll numbers that everyone obsesses over in fine detail, the BLS still shows a 90% confidence interval at 1.6 standard deviations that works out to +/- 115k. That means that whatever number gets splashed onto every headline and worked into every major commentary piece isn’t really the number of payroll changes. It is a statistical estimate that only anchors that confidence interval.
What the BLS actually reported for August was that if they gathered all the data again and again100 times, it is expected that in ninety of those the payroll gain would fall in a range of +266k at the upper end of the confidence interval and +36k at the lower end. That changes the interpretation dramatically from the certainty that is reported

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Economic Slowing—– Jobs Now, Autos Next

September 4, 2016

If the labor market were slowing as the wider perspective of the payroll reports suggest, then it would make sense to find increasing difficulties even among the few bright spots in this otherwise anemic economy. Yesterday and earlier it was reported increasing signs of slowing in real estate, both construction and resales of homes (particularly dwindling inventory). In the past few months, that possible consumer strain was also observed in auto sales, the one part of the manufacturing economy that had appeared immune from depressionary forces plaguing much of the rest.
The word “plateau” has been used recently in describing predictions for consumer spending on autos the rest of this year, given to us by Ford officials who remain in their position that sideways is the worst we can expect

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Slowing And Even Contracting——Hours And Earnings

September 4, 2016

The primary symptom of the economic malaise or depression that has developed since the Great Recession (which wasn’t a recession) is an economy that works less and thus earns less. Such a condition would suggest a shrunken system or at least vastly diminished potential. That much is well-established even in the orthodox literature though it isn’t ever talked about publicly. What happens, however, when an economy that is already working and earning less starts to reduce even further?

I don’t know if anyone knows the answer to that question since in many ways it is unprecedented; though I suspect we are about to find out. The process of deceleration from such low growth after shrinking has taken so far about two years, an arduously shallow decent that has caused enormous difficulty in

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ISM Summer

September 2, 2016

Because of the linearity that is presumed a fact of cyclicality, economists and the media continue to be shocked that what seemed like improvement one month doesn’t mean much for the economy in the coming months. And so time and again we find where conditions appear to progress and are thus extrapolated into the long sought after rebound from “transitory” weakness. That improvement, however, properly understood was nothing more than the economic unevenness that permeates every corner of the global “dollar” economy.
This stunning lack of awareness across these parameters is exposed by the ease in which the unstable nature is seen. It has become a visible seasonal pattern that the economy appears better in spring when compared to winter – but then worse in summer as compared to spring. That

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Weak Construction As Another Data Point For The Shaken Consumers of Global Turmoil

September 2, 2016

Total construction spending was essentially flat year-over-year in July 2016. Public construction at both the state and local and also the federal government levels declined more than 3% Y/Y. Excluding the public sector, private construction spending (NSA) was up just 3.9% in July for the second month in a row. That was the lowest increase since the housing rebound started in the summer of 2011.
While total private construction includes both residential and non-residential activity, it has been the residential side that is responsible for the dramatic slowdown this year. Year-over-year growth (NSA) was almost 21% in July 2015, but just 1.7% in July 2016, following a revised 1.8% in June. Like overall construction, those were the lowest gains by far during this housing rebound.

In

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RIP: Oil ‘Supply Glut’

September 1, 2016

The most remarkable aspect of the WTI crude oil futures curve this month has been its amazing ability to maintain its shape no matter which direction or by how much. Previously, as “dollar” pressures either built or ebbed, the futures curve would either steepen at the front (liquidation pressure) or flatten toward more normal backwardation (easing of the “dollar” difficulties). That was the case since June 8 when the WTI curve was at its flattest in well over a year; but as funding pressures built primarily, I believe, via Japan (increasingly negative and record negative cross currency basis swaps) the curve morphed from nearly flat to once more highly angular contango in the tell-tale sign of the “dollar.”
In short, the Japanese end of the Asian “dollar” had become distressingly

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From Euphoria To Despair And Getting Nowhere

September 1, 2016

For October 2014, the ISM estimated that its Chicago Business Barometer was a blistering 66.2. Encompassing much of the Midwest and a good deal of auto and parts production, that level seemed to make sense. As any economist would say then, the US economy was on the verge of a breakout and according to the labor statistics maybe even one of unusually good strength and duration. Two months later, however, the Chicago BB was down almost eight points to 58.3; just two months after that, for February 2015, the PMI was shockingly below 50 and quite far below at 45.8.
Since then, the index has been all over the place. It almost counts more as entertainment than actual meaningful interpretation from month to month, but there is, I think, something useful to the overall sawtooth of the past two

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The Monetary Wildfires In Canada

August 31, 2016

The massive wildfires in Alberta earlier this year had a tremendously negative effect upon not just the oil sector but all of Canada. Not surprisingly, Canadian GDP released today was abysmal. Falling 1.6% in Q2, that was the worst quarter since 2009. Fortunately for the Bank of Canada who had been “stimulating” again since last July when it cut the overnight rate by 25 bps to 0.50%, the wildfires give its policies some cover to explain what would have been otherwise already dismal.
Pre-report estimates showed that the wildfires were expected to contribute about 1% to 1.1% of the GDP decline. Thus, even without the hellish conflagration across a huge chunk of Alberta’s oil production fields Canadian GDP would still have contracted in Q2. After such an atrocious and devastating year last

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Between The Lines Of Yellen’s Speech—–Do You Really Need Us?

August 29, 2016

In case you need any assistance in trying to figure out when Janet Yellen spoke, or at least when the text of her speech was released from embargo, here is a hint:

It seems her stream of consciousness was somewhat consistent with the old Greenspan idea of “fedspeak.” People and investors appear to have taken from it what they wished, with some commentary talking about its apparent “hawkishness” before being overwhelmed by others claiming its clear “dovishness.” I don’t think either of those terms apply, and certainly not in the fashion with which they are leveled by the continued conventions of mainstream perspective about monetary policy.
What I found in the speech is some good indication for what I wrote yesterday, though you as the reader should be equally suspicious about whether I

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The Reckoning—–The Central Bankers Really Don’t Know What They Are Doing

August 25, 2016

As I have written many, many times, the “unexpected” events of January and February were a dramatic wake-up call for central banks. Last August’s global liquidation they could at least try to ignore because it could possibly fit within the paradigm of “transitory”, a one-off aberration that was some mysterious Chinese viral contagion and thus of not any great, lingering importance. The recurrence in the first part of 2016, though, destroyed those assertions and a lot of people noticed; and you can bet the Fed noticed that a lot of people noticed.
What is happening this year is astounding. After saying year after year after year that the recovery is coming, and even doing so to the point of condescension, the admissions of wrongfulness are starting to roll in, if only softly at first. How

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The Product of NIRP: Exposing Psuedo-Science

August 25, 2016

It wasn’t the introduction of statistics that led to the dire state of “science”, rather it was the jettison of common sense in favor of, and the total deference to, statistics. This was not a single event or a clean break, of course, as it happened slowly over decades. But in the 21st century what is often talked about and written up as science is almost exclusively some form of statistical study.
The true measure of science is repeated observation leading to prediction that can be replicated by anyone anywhere. While a gold standard for scientific inquiry, it just doesn’t apply so readily in the softer sciences of the humanities. Quantum physics has made a significant contribution to our daily lives from nothing more than statistics, even over the objections of luminaries such as

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The Inequality of Logic Behind The Increasingly Emphasized Magic Numbers

August 22, 2016

It is a basic element of logic that if A = B and B = C, then A must also equal C. In terms of action, if I do a thing and that thing always leads to a predictable outcome, not seeing that outcome causes one to question whether or not one actually did that thing. In other words, A must not have equaled B.
Central bankers all over the world are stumped. Nothing they have done has led to what was expected when one does such things. In very basic terms, we all know, as history has shown, that money printing leads to inflation. In most cases, it leads to the most extreme forms of inflation, which is why human history in financial and economic terms is really a study in how to keep official efforts from ever going in that direction (gold worked the best, which is why it survived for so long).

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It’s Not A Cycle Nor Did “Stimulus” Work—–All The Answers Were There in 2012 China

August 22, 2016

The simple fact of the matter is that 2012 wasn’t supposed to happen. By every orthodox prediction and theory about the set of tools deployed after the Great Recession (after it, the first clue) there was no reason to suspect anything but the usual cyclical occurrences. Sure, the recovery would be weak because the recession large, but retrenchment was never even considered. The recovery might be somewhat shallow, but there was no way it could be bent or durably altered.
The first rebuke to the mainstream came from Europe. Though the European economy would fall right back into recession so soon after the “Great” one, it was easily dismissed as a product of Greece, debt, and the demographics of Greek debt. So tantalizing was its allure, the European debt crisis of 2012 even made its

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Broader Alarm And Business Cycles

August 17, 2016

The NBER does not define a recession as two consecutive quarters of contracting GDP. That is the mainstream definition that largely survives as a coping mechanism to deny what might otherwise be quite apparent. That was certainly true in 2008, as only Q1 GDP declined and it wasn’t until Q4 2008 that this mythical “technical” definition was met. The NBER only made it worse by waiting until December that year to declare what was by then obvious to everyone, already one year in length.
The organization actually employs a Business Cycle Dating Committee whose job it is to decide both cycle peaks and troughs. The Committee, according to the NBER, considers a broad range of data that includes GDP, but relies primarily on four sources or accounts. The first two are broad monthly figures, real

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Housing Starting To Suggest Where Autos Already Are?

August 16, 2016

In yet another data point that identifies depression rather than a Great Recession, the Wall Street Journal reported last week what most people outside the economics profession had realized a long time ago. Janet Yellen likes to say that the housing …

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