Wednesday, December 9, 2015

Calculon's Rivets: the future's so bright I wear my sunglasses at night

Calculon's Rivets - I wear my sunglasses at night. Bill McBride's still not worried about the US economy. Let's go through all his data points, one by one, and I'll simulate a retarded hedge fund MBA crackhead's typical response:

Demographics and household formation suggests starts will increase to around 1.5 million over the next few years. That means starts will probably increase another 40% or so from the October 2015 level of 1.06 million starts (SAAR).

Residential investment and housing starts are usually the best leading indicator for the economy, so this suggests the economy will continue to grow in 2016.

OMG! Residential investment and housing starts are a leading indicator! Sell sell sell!

In 2013, state and local government employment increased slightly, and in 2014, state and local government employment increased by 85,000.

This year, through November 2015, state and local employment is up 70,000. So, in the aggregate, state and local government layoffs are over - and the economic drag on the economy is over. However state and local government employment is still 561,000 below the pre-recession peak.

OMG! The government employment drag on the economy is over! Sell sell sell!

There will be some more deleveraging ahead for certain households (mostly from foreclosures and distressed sales), but in the aggregate, household deleveraging ended more than 2 years ago.

OMG! Household deleveraging ended 2 years ago! Sell sell sell!

The overall Debt Service Ratio has been moving sideways and is near the record low. Note: The financial obligation ratio (FOR) is also near a record low.

Also the DSR for mortgages (blue) are near the low for the last 30 years. This ratio increased rapidly during the housing bubble, and continued to increase until 2007. With falling interest rates, and less mortgage debt (mostly due to foreclosures), the mortgage ratio has declined significantly.

This data suggests household cash flow is in much better shape than several years ago.

OMG! Household cash flow is in better shape! Sell sell sell!

And for commercial real estate, here is the AIA Architecture Billings Index. This is usually a leading indicator for commercial real estate, and the readings over the last year suggest more increases in CRE investment in 2016 (except oil and power with the recent decline in oil prices).

OMG! The billing index suggests more increases in CRE investment! Sell sell sell!

The prime working age population peaked in 2007, and appears to have bottomed at the end of 2012. The good news is the prime working age group has started to grow again, and should be growing solidly by 2020 - and this should boost economic activity in the years ahead.

OMG! The prime working age group has started to grow again! Sell sell sell!

Now, yes it's understandable to get all worked up about rising interest rates. First, most of these hedge fund clowns probably didn't start trading until 2007, so they've never seen a rate increase; second, usually in the past the Fed has raised rates with the explicit intent of pushing the US economy into a recession, so it's understandable traders would be piddling themselves.

But in this case, J-dog is raising rates to end accommodationary policy because she thinks the US economy has made it out of its huge hole and is operating at capacity again. At this point she needs to start moving rates back to a neutral level, otherwise output goes above its natural rate and you start to get accelerating inflation.

And she has data, and as one of the better economists out there she probably likes to read it. And heck, she probably even understands it.

But hedgies are cokeheads, and (as you've probably learned) being a cokehead means having a massive fucking ego, and so all the hedge fund clowns think they're smarter than Janet.

(And of course the peanut-gallery bloggers also think they're all smarter than Janet, because she's full of that Manhattan Jew book-larnin' while these boys have gool ol' Yankee Doodle common sense. And the cokeheads love reading them blogs.)

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