Peter Schiff: There’s A BIG Problem With The Economy, ‘Americans Are BROKE’

Financial analyst Peter Schiff says there’s a big problem with the economy even though the mainstream media is reporting that rising interest rates are a good thing.  The problem, however, is that Americans are broke, and those interest rates could have a major impact on some of our wallets.

“The bad news is, we are going to live through another Great Depression and it’s going to be very different. This will be in many ways, much much worse, than what people had to endure during the Great Depression,” Schiff says. “This is going to be a dollar crisis.”

“When you are talking about the magnitude of the debt we have, that extra money [raising interest rates] is big. That’s going to be a big drain on the economy to the extent that we have to pay higher interest to international creditors…a lot of this phony GDP is coming from consumption, while the average American who is consuming is deeply in debt and they are going to impacted dramatically in the increase in the cost of servicing that debt…given how much debt we have, and how much debt is going to be marketed the massive increase in supply will argue for interest rates that are higher.” –Peter Schiff

 

Retail sales “unexpectedly” fell again in February even though most media outlets are touting a booming economy that can support raising the interest rates. It was the third straight monthly drop and the first time the US economy has seen three straight months of declining retail sales since 2012.

Sales fell 0.1% in February even though analysts had expected an uptick of 0.3%. According to CNBC, households cut back on purchases of motor vehicles and other big-ticket items, pointing to a slowdown in economic growth in the first quarter. But Peter Schiff won’t sugarcoat this one for us: Americans are broke.

And the worse things get, the less investors seem to notice.

What makes matters even worse is on Friday, we got the “too good to be true” and “just what the doctor ordered” Goldilocks jobs report that said 1 million people got jobs. Schiff said this “good news” report doesn’t make any sense, actually.

“So why didn’t any of those million people take their paychecks and spend them at a retailer? I mean, Trump is talking about all the great jobs, and all the raises that people have, and all the tax cuts. Why are retail sales down for three months in a row?” –Peter Schiff

Unfortunately, we also saw Americans running up record high levels of debt at the same time that the government is running massive deficits.

Last month, the New York Fed released the latest data on US household debt, revealing it has grown to a record $13 trillion. So yes, Americans have been spending, but they’ve been putting a lot of it on plastic. Credit card balances grew by $24 billion in the last quarter of 2017 alone. Could it be that Americans have maxed out the plastic?

At some point, a house of credit cards will collapse.

Schiff is hard on Donald Trump too, and rightfully so.  Lower taxes are always a good thing, the lower the better, in fact.  But Republicans refused to cut any government spending while instead, increasing it to the point of running massive deficits, making them worse than Democrats when it comes to being fiscally conservative.

The cold truth is that a back plan is needed, and most Americans don’t have that.  Many would be in some serious trouble during a financial downturn, and the country is most definitely headed that way.

American Purchases Of "Stuff They Don"t Need" Hits 17 Year High

Anyone who has been paying attention to the New York Fed’s Quarterly Report on Household Debt and Credit is probably aware that Americans are drowning in debt...

...Aggregate household debt climbed $116 billion during the third quarter to $12.96 trillion, edging past its previous peak from Q3 2008. But even as millennials struggle to pay down an insurmountable pile of student debt...

...CNBC is reporting that holiday spending this season is on track to hit a 12-year high, according to an annual survey of consumer spending habits. Keep in mind, that survey was taken before Comcast, Boeing, Fifth-Third Bank and AT&T announced they would be handing out last-minute holiday bonuses to rank-and-file employees...

But as both debt and holiday-related spending rise in tandem (suggesting that the former is being utilized to finance the latter), one Bloomberg columnist has estimated that, instead of paying down debt, one-fifth of consumer spending in Q3 went to items that people don’t really need...

Back in the 1950s, the economist John Kenneth Galbraith made a bleak argument about modern capitalism: Advertising can create artificial wants -- say, for the latest gadget or skin cream -- that spur ever-greater consumption without actually making people better off. As a result, economies can grow without improving the lot of humanity.

 

Whether or not he’s right -- it remains a matter of debate -- the idea raises an interesting empirical question: How much of what we consume is related to wants rather than needs?

 

This isn’t easy to answer using even the most detailed data on consumer spending, because many categories could go either way. A car, for example, could be pure transportation or a Ferrari. That said, a number of categories -- such as gambling, hairdressers and recreational vehicles -- are pretty clearly nonessential. Following them consistently over time can give at least a sense of trend.

 

So how are we doing? In the third quarter of this year, nonessential items (of my own subjective selection 1) accounted for almost 18.5 percent of total U.S. consumer spending. That’s the highest share since June 2000.

According to the column’s author, Mark Whitehouse, this nonessential spending has reached its highest level in 17 years...

Whitehouse does list one interesting caveat: Because he calculates the value of nonessential goods in nominal dollars, the overall spending on nonessential items may have been constant in real terms...

...Of course, anyone who has sat through one of the Federal Reserve’s press conferences this year understands that inflation has been receding - not advancing - this year. Which means, if anything, 17% is a lowball figure.

To be sure, spending on life’s little luxuries is still far below its post-WWII peak (according to Whitehouse, conspircuous consumption in the US peaked in 1959)...

...But the fact that this subset of discretionary household spending is still growing, even as household debt rockets to all-time highs, is indicative of how consumers are burning the fiscal candle at both ends...
 

America"s Painful Self-Delusion

Authored by Allen Marshall (Crimson Avenger) via Defiant Living blog,

America is the only nation brought forth by a set of beliefs, and those beliefs, captured so eloquently in our founding documents, are some of the most powerful and inspiring ever conceived. We consider this to be the land of the free, where the individual is supreme and nothing prevents us from going as far as our talents can take us. That image of America – that “brand” – is incredibly strong.

However, there’s a very large gap between that long-held image and the reality of America today.

What was once a government built for the people is now a government run for the rich and powerful, one that throws the people under the bus whenever their interests differ from those of the corporate and political leaders who run the show.

And living in one world (the corrupt) while stubbornly believing you live in another (the ideal), despite mounds of evidence, causes a distinct kind of stress, often called cognitive dissonance.

Psychologists suggest that when people are in a state of cognitive dissonance, they’ll search for a way to resolve it, either by rejecting one view or the other as either wrong or unimportant. If you’re a smoker looking at the link between smoking and cancer, for example, you’ll either quit smoking or decide that the research is biased, wrong, or doesn’t apply (in other words, that you’re smart enough to quit before the long-term damage is done).

But what happens if you can’t resolve the two?

For most of us Americans, resolving our cognitive dissonance would mean either accepting that we’re impotent and living futile (and feudal) lives, or rejecting our lifestyles and actively fighting the rot in the system.

If we’re not willing to do either of those, the dissonance stays – and eats at us.

People carrying this kind of ongoing, underlying stress find ways of coping with it; in America we’re doing it with self-medication, compulsive behaviors and distractions. Consider the following examples of the way we cope with the ever-present stress in our lives:

• Drugs – Our country is awash in drugs, both legal and illegal, that keep us numb. In 2014, there were 245 million prescriptions filled for opioid pain relievers. The number of deaths from drug overdoses has risen from around 30,000 in 2005 to 64,000 in 2016. And communities across the country are being devastated by the opioid epidemic, as explained in this in-depth reporting by Cincinnati.com.


• Drinking – People don’t only use drugs to self-medicate; drinking does the trick as well, and we’re doing a lot more of it than we used to. According to a new study in JAMA Psychiatry, overall drinking in the US increased by 11% between 2002-13, while high-risk and problem drinking rose even higher: high-risk drinking rose by 29.9%, while problem drinking rose by 50%.


• Mental Illness – In 2015, 17.9% of adults held a diagnosis for a mental disorder, while a 2010 study found that 46.3% of children ages 13-18 had a mental disorder at some point in their young lives, and the majority of those adults and children are given prescriptions. This includes a dramatic increase in ADHD diagnoses for children: According to SharpBrains, “Among children aged 5 to 18, between 1991-92 and 2008-09, rates of ADHD diagnosis increased nearly 4-fold among boys – from 39.5 to 144.6 per 1000 – and nearly 6-fold for girls – from 12.3 and 68.5 per 1000 visits.”


• Obesity – If drinking and drugs aren’t your thing – or even if they are – more of us are coping with stress by overeating, and it’s showing up on our waistlines. From 1990 to 2016, the average percentage of obese adults increased from 11.1% to 29.8%; when you add in the number of people who are overweight but not obese, it rises to more than two in three adults.


• Sleeping problems – Sleep has a significant impact on our physical and mental health, and in America we’re not getting enough of it: The CDC states that 50-70 million American adults have a sleep or wakefulness disorder.


• Media Usage – Is there any better distraction from life’s problems than media? We certainly spend a lot of our time being passively entertained: In 2016, Americans consumed an average of 10 hours of media per day, compared with 7.5 hours per day globally. Nielson reports that lower income adults spend much more time with media than do affluent adults, with adults in households with include under $25,000 watching 211 hours/month of television, versus 113 hours/month for adults in households earning $75,000 or more. (The trend is similar across other media as well.)


• The Disease of Debt – According to the New York Fed, household debt reached a new peak in the third quarter of 2017, at $12.8 trillion. Part of our debt problem comes from the compulsive shopping we do as a distraction; the other results from denying the reality that our wages aren’t keeping up with the increase in the cost of living, meaning that we use debt to plug the gap rather than reducing our living standards to align with our reality.

We’re collectively doing so much damage to ourselves, solely to protect our psyches from the reality that the America that used to be is no longer the America we have. And who does that help? As you can see from the points above, it doesn’t help us: Instead, it helps the rich and powerful who are subverting the system. They’re corrupting everything this country once was, and by willfully refusing to acknowledge that reality, we’re inadvertently helping them to do it.

The best thing we can do – for our mental and physical health, as well as for our country – is to open our eyes to what America has become, not what we wish it still was. It’s time to face reality and take action.

The Fed Isn"t "Confused" About Inflation... It WANTS You In the Dark!

The Fed claims it’s “confused” as to why inflation remains so low.

The Fed isn’t confused at all. It intentionally measures inflation in ridiculous ways to guarantee that the “official number” remains nowhere near reality.

On top of this, we have factual evidence that Fed is in fact well aware that inflation is clocking in well above its 2% "target.”

Indeed, the New York Fed’s UIG inflation measure (which includes a “full data set,” unlike the ridiculous CPI which ignores most costs of living) records inflation between 2.25% and 3%.

-the UIG measures currently estimate trend CPI inflation to be in the 2.25% to 3.00% range, with both registering above the actual twelve-month change in the CPI.

Source: the New York Fed

So the New York Fed, the branch of the Fed that is in charge of market operations, is well aware that inflation is well over 2%.

It"s not the only Central Bank is aware of this either. The Central Banks of China, Russia, and Germany also know inflation is in fact higher than the Fed claims... which is why ALL of them are loading up on Gold by the ton.

What do they see coming?

A $USD collapse like this:

Put simply, BIG INFLATION is THE BIG MONEY trend today. And smart investors will use it to generate literal fortunes.

Imagine if you"d prepared your portfolio for a collapse in Tech Stocks in 2000... or a collapse in banks in 2008? Imagine just how much money you could have made with the right investments.

THAT is the kind of potential we have today. And if you"re not already taking steps to prepare for this, it"s time to get a move on.

We just published a Special Investment Report concerning FIVE secret investments you can use to make inflation pay ou as it rips through the financial system in the months ahead

The report is titled Survive the Inflationary Storm. And it explains in very simply terms how to make inflation PAY YOU.

We are making just 100 copies available to the public.

To pick up yours, swing by:

https://www.phoenixcapitalmarketing.com/inflationstorm.html

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

Fire Breaks Out On The Roof Of The New York Fed

Dozens of firefighters are fighting a blaze which broke out on the top of the Federal Reserve Bank of New York, NBC New York reports. The fire broke out sometime before 8:40 p.m. on the roof of the 14-story building at 33 Liberty St. in Lower Manhattan, the location of the world"s biggest gold vault as Simon Gruber knows too well.

Manhattan: *2 Alarm Fire* Box 061 at 33 Liberty St, heavy fire of a federal reserve bank. Fire on the roof.

— NYC Scanner (@NYScanner) October 8, 2017

Several videos show numerous fire trucks at the scene around 9 p.m. 

Uh the Federal Reserve is kinda on fire. pic.twitter.com/fK5ndqnzPd

— the ghost of jay (@jaydestro) October 8, 2017

Contrary to recurring rumors that the fire was created from excess money creation, the FDNY said that a generator on the roof of the building caused the fire in a chimney, although the severity of the damage to the building is not known.

Just a fire atop the Federal Reserve @nytimes @wsj @nypost anyone know what"s going on pic.twitter.com/mgODXKtlAB

— Daniel Feldstein (@feldstein) October 8, 2017

No injuries have been reported.

Must be a fire going on at the Federal Reserve... Never seen so many fire trucks in my life at least 15 pic.twitter.com/CByRumxRWN

— Michael Rothman (@TheRealRothman) October 8, 2017

NYC News Fire Erupts on Roof of Federal Reserve Bank https://t.co/1E1GB65iVc pic.twitter.com/QVwfDEDZ9i

— NYC NewsChannel (@NYC_NC) October 8, 2017

The Federal Reserve Bank of New York is the most important of the 12 regional Reserve Banks that are part of the Federal Reserve system, the central banking system of the United States. As previously reported, the world"s most important trading desk, also known as the "Plunge Protection Team", is located on the 9th floor of the New York Fed.

Here are some snapshots.

Blake Gwinn, left, and James White in the operations room at the Federal Reserve Bank of New York (source)

A Trader Monitors Four Computer Screens on the Open Market Trading Desk at the Federal Reserve Bank of New York (source)

Open Market Trading Floor at the Federal Reserve Bank of New York (source)

And just because...

 

"What Are We Going To Do?" Puerto Rico In Chaos As Cash Runs Out

Most Puerto Ricans haven’t had access to electricity, cell service or financial services for nearly two weeks now. And as we reported yesterday, residents who didn’t stockpile enough cash have been struggling after Hurricane Maria essentially knocked the island’s economy into the 1950s, forcing some to forgo essential supplies - or worse - resort to looting. For those who do have access to working ATMs and banks, long lines have sapped cash reserves as the country has effectively reverted to a "cash only" economy.

Those whose access to cash has been limited - or cut off entirely - are becoming desperate as they start to wonder how they will begin the process of rebuilding their trashed homes - or even where their next meal will come from. As Reuters reports, cash has become just one of many scarce resources on the island (food, medical supplies and gas are also in incredibly short supply).

With electricity and internet down in Yauco, southwestern Puerto Rico, Nancy and Caesar Nieve said they could not access paychecks directly deposited into their bank accounts.

“What are we going to do when we don’t have any cash? The little cash we have, we have to save for gas,” said Nancy.

Cash demand spiked in the first few days after the hurricane as merchants were unable to accept other modes of payment. First BanCorp, one of the island’s largest banks, said that nearly two-thirds of its 48 branches remained closed, and that electronic transactions had resumed at only 25% of its ATMs.

Apparently, word of these privations made its way back to the New York Fed, which has assured the world via the Wall Street Journal that the central bank has plenty of physical cash to keep banks on the island stocked for the forseeable future - lowering the likelihood that anybody will suffer for lack of access to cash. Notably, the WSJ didn"t explain where that money was being held, how long supplies are expected to last or how it got there in the first place.  Indeed, the central bank said only that it"s "prepared to meet elevated currency demand following the natural disaster." Reuters noted that the central bank ships cash to a depot on the island, and that before the storm it increased the size of its shipments.

As WSJ explains, Puerto Rico is in the New York Fed’s district despite its location in the Caribbean. In times of economic stress or a natural disaster, Fed regional banks plan ahead to make sure area banks have enough cash.

Of course, none of this matters if you can"t get to a bank or an ATM. But at least, if they somehow manage to find an open bank branch or working ATM, Puerto Ricans can rest assured that it will be freshly stocked with cash.

But Puerto Ricans might want to hold off before thanking Bill Dudley for his foresight. It’s worth asking exactly how long the island’s cash inventories will last. After all, the storm tore up roads and leveled buildings, potentially complicating deliveries of cash. And with authorities still focusing on search-and-rescue missions and other aspects of the preliminary response, it could take for some areas of the island to return to some semblance of normalcy.  

Furthermore, looting has become increasingly common across the island, increasing the danger that deliveries of cash could be intercepted by bands of robbers.

In a statement, the New York Fed said armored-car services are able to reach banks with cash, and automated teller machines are “once again active.”

With any luck, the recovery effort will soon kick into high gear after President Donald Trump on Thursday suspended the Jones Act, which will allow more ships to assist in the international relief effort. It’s unclear why the administration hesitated to waive the law.

But is the Fed really doing all it can to alleviate the crisis in Puerto Rico? With the bankrupt island nation facing a $30 billion cleanup effort – and potentially more if it’s entire power grid needs to be upgraded – maybe the central bank could help monetize some of these expenditures.

Oh wait…
 

"As Much Gold As You Can Eat..."

Over six years ago, former-Goldmanite and head of The New York Fed Bull Dudley proudly proclaimed how the price of iPads was dropping when confronted by an unruly audience demanding to know why their food costs were soaring, prompting guffaws and widespread murmuring from the audience, with one audience member calling the comment "tone deaf," and another quipping "I can"t eat an iPad."

Dudley"s infamous ignorance will never be forgotten and as The Fed continues to pump the prices of stocks up (which you also cannot eat) and the price of putting a roof over your head is soaring (also non-edible), Martin Armstrong put us straight on one potential inflation hedge... that it turns out you can eat...

I am working from the Abu Dhabi office this week meeting with clients in town.

I thought I would post something unusual.

In the Emirates Palace, you can have a cup of coffee with gold on top you can drink.

You can also order ice cream made from camel milk top with real gold you can eat.

Interesting use of gold.

The Fed Issues A Warning As Household Debt Hits New All Time High

After we first reported last week that US credit card debt hit a new all time high with both student and auto loans rising to fresh records with every new report...

... it won"t come as a surprise that according to the just released latest quarterly household debt and credit report by the NY Fed, Americans" debt rose to a new record high in the second quarter on the back of an increase in every form of debt: from mortgage, to auto, student and credit card debt. Aggregate household debt increased for the 12th consecutive quarter, and are now $164 billion higher than the previous peak of $12.68 trillion set in Q3, 2008. As of June 30, 2017, total household indebtedness was $12.84 trillion, or 69% of US GDP: a $114 billion (0.9%) increase from the first quarter of 2017 and up $552 billion from a year ago. Overall household debt is now 15.1% above the Q2 2013 trough.

Mortgage balances, the largest component of household debt, increased again during the first quarter to $8.69 trillion, an increase of $64 billion from the first quarter of 2017. Balances on home equity lines of credit (HELOC) were roughly flat, and now stand at $452 billion. Non-housing balances were up in the second quarter. Auto loans grew by $23 billion and credit card balances increased by $20 billion, while student loan balances were roughly flat.

• Confirming the slowdown in mortgage activity, mortgage originations in Q2 declined to $421 billion from $491 billion. Meanwhile, there were $148 billion in auto loan originations in the second quarter of 2017, an uptick from the first quarter and about the same as the very high level in the 2nd quarter of 2016.


• Auto loan balances increased by $23 billion, continuing their 6-year trend. Auto loan delinquency rates increased slightly, with 3.9% of auto loan balances 90 or more days delinquent on June 30. The aggregate credit card limit rose for the 18h consecutive quarter, with a 1.6% increase.


• Outstanding student loan balances rose modestly, and stood at $1.34 trillion as of June 30, 2017. The second quarter typically witnesses slow or no growth in student loan balances due to the academic cycle. As discussed previously, a perilously high 11.2% of aggregate student loan debt was 90+ days delinquent or in default in 2017 Q2.

In a troubling development, the report noted that the distribution of the credit scores of newly originating mortgage and auto loan borrowers shifted downward somewhat, as the median score for originating borrowers for auto loans dropped 8 points to 698, and the median origination score for mortgages declined to 754. For now this credit score decline has not impacted the credit market: about 85,000 individuals had a new foreclosure notation added to their credit reports in the second quarter as foreclosures remained low by historical standards.

And while much of the report was in line with recent trends, and the overall debt that was delinquent, at 4.8%, was on par with the previous quarters, the NY Fed did issue a red flag warning over the transitions of credit card balances into delinquency, which the New York Fed said "ticked up notably."

Discussing the troubling deterioration in credit card defaults, first pointed out here in April, the New York Fed said that credit card balance flows into both early and serious delinquencies increased from a year ago, describing this as "a persistent upward movement not seen since 2009." As shown in the chart below, the transition into 30 and 90-Day delinquencies has, over the past two quarters, surged to the highest rate since the first quarter of 2013, suggesting something drastically changed in the last three quarters when it comes to US consumer behavior.

“While relatively low, credit card delinquency flows climbed notably over the past year,” said Andrew Haughwout, senior vice president at the New York Fed. “This is occurring within the context of loosening lending standards, as borrowers with lower credit scores recover their ability to access credit cards. The current state of credit card delinquency flows can be an early indicator of future trends and we will closely monitor the degree to which this uptick is predictive of further consumer distress.”

That bolded statement, is the first official warning by the Fed that the US consumer is sick, and the Fed has no way reasonable explanation for this troubling jump in delinquencies. Timestamp it, because this will certainly not the be the last time the Fed warns about the dangerous consequences of all-time high credit card debt.

As for the "further uptick in consumer distress", we are just guessing but the fact that credit card defaults are jumping at a time when sales at fast food and other restaurants have declined for 17 consecutive quarters, and when $250 billion in US household savings was just "revised" away, may all be connected.

NY Fed Crashes Trump's Party, Slashes Q2 GDP Forecast

A day after President Trump proclaimed Q2 GDP "numbers are going to be shockingly good," The New York Fed has slashed its forecast for America"s growth to just 1.86%.

Wednesday...

"I think this quarter"s GDP numbers are going to be shockingly good given all the facts we"re seeing"

Thursday...

“I think some very good numbers are going to be announced, by the way, in the very near future, as to GDP,”

Friday...

Thanks to the collapse in housing data this morning, The New York Fed has slashed its growth expectations for Q2 GDP to just 1.86% (from 3% in March)...

NOTE - the factors weakening the forecast are "hard" data points (red squares) while the surveys are adding to GDP.

It is hardly surprising that both The Atlanta Fed (which cut its guess from 3.2% to a series low 2.878%) and New York Fed are cutting their expectations as US macro data disappoints gravely...

Given the plunge in US Macro data, we wonder if President Trump meant the GDP numbers are going to be "shocking."

Puerto Rico's Population Drain Since 2013 Equivalent To US Losing 20 Million People

Puerto Rico’s economic decline and, now bankruptcy, has triggered an astonishing exodus as thousands flee the commonwealth in search of economic opportunity in the Continental US, Bloomberg reported.

The population has been declining rapidly. The island has lost 2 percent of its people in each of the past three years, a comparable departure in the 50 states would mean 18 million people moving out since 2013. About 400,000 fewer Puerto Ricans live on an island of 3.4 million today compared with a decade ago, when its economy began contracting, Bloomberg reports.

“I had to choose for my family,’’ said Aledie Amariah Navas Nazario, 39, a pediatric pulmonologist, told Bloomberg. She left behind young asthma patients when she, her husband and two small daughters moved to Orlando, Florida.
Reasons for leaving were compelling enough for Navas Nazario, who treated asthma on an island where it’s more prevalent than anywhere else in the U.S.

Puerto Rico’s economy had taken yet another leg down, and she was worried about her future income because of uncertainty about health insurance.

“I’m sad about not being able to take care of those kids anymore,’’ said Navas Nazario, who keeps in touch with former patients on Facebook. “You have to make a hard decision to leave relationships with friends and family just to get out, just because you need a better life.’’

Departures like Navas Nazario’s have trapped the commonwealth’s economy in a downward spiral, Bloomberg reports.

Joblessness at 11.5 percent, and a $74 billion mountain of debt that pushed the island to insolvency have made collecting taxes key to an economic rebound, Bloomberg said. At the same time, more Puerto Ricans from all walks of life are moving away to better their lives, meaning government revenue is dwindling.

The island’s debt has grown 87% since 2006, and one easy way to avoid paying any of the debt is for Puerto Ricans to leave the island. But one telling sign for anyone who owns Puerto Rican debt: The government’s official turnaround plan – a path to sustainability approved by a US oversight board – assumes the population will shrink by just 0.2% each year for the next decade.

The government is using this number as the basis for its projections of tax receipts and economic growth. Expect it to fall far short on both measures.

“Most people believe that those forecasts in the fiscal plan are really, really optimistic and probably would have to be revised at some point,’’ said Sergio Marxuach, public policy director at the Center for the New Economy in San Juan, told Bloomberg.

And professionals aren’t the only ones leaving: The exodus includes blue-collar construction workers and taxi drivers. Research by the New York Fed found that college graduates make up roughly the same proportion of emigres as they do the broader population, suggesting, as Bloomberg reports, that the departures have touched “every corner” of the commonwealth.

The reason for leaving is obvious: The earnings disparity between PR and the mainland can be wide. John Starkey, a principal of the Lafayette International Community High School in upstate Buffalo, New York, told Bloomberg he traveled to the island to recruit teachers after it started shutting down schools to save money. On the mainland, Starkey said, educators find they can double or triple their earnings, even if it means trading a balmy Caribbean island for the frigid shores of Lake Erie.

“Many of the candidates wanted to stay on the island to help their community,’’ Starkey said. “Our pitch was: come up to Buffalo and you’ll be able to better provide for your family, but you’ll also be able to help your community here.’’

The commonwealth applied for Title III protection from its creditors last month in what will be the largest-ever US municipal debt restructuring, further complicating the territory’s efforts to pull itself out of a financial crisis.

The Puerto Rico restructuring would be far larger than Detroit’s record-setting bankruptcy, with little to no details how long a court proceeding would last or what cuts would are imposed on bondholders. The island’s financial recovery plan covers less than a quarter of the debt payments due over the next decade.

The island has been a U.S. possession since American troops invaded in the Spanish-American War, and Puerto Ricans have been U.S. citizens since 1917. That means there’s little to prevent them from seeking better prospects on the mainland, something they’ve always done, just not to this extent.

Migration to the US mainland is by far the biggest driver of the island’s declining population, but a declining fertility rate isn’t helping either. The natural population increase -- excess births over deaths -- fell to 3,000 last year from 20,000 a decade ago, as families facing poorer economic prospects and the threat of the Zika virus put off having kids, Bloomberg reported. At the same time, younger generations of child-bearing age are more likely to take off for the mainland.
 

Household Spending Growth Expectations Crash To Cycle Lows

Despite record high stock prices, soaring consumer sentiment measures, and the constant Fed-spun narrative that incomes will rise amid "full-employment", the latest survey of Americans by The New York Fed signals hope is collapsing for a spending renaissance...

Median household spending growth expectations tumbled from 3.29% in March to 2.58% in April, lowest level in data going back to June 2013..

Still, as long as NFLX, AAPL, AMZN, and GOOG are rallying, this is nothing to worry about, right?

Stockman Warns "'Stimulus-Blinded' Mules Don't See What's Coming At All"

Authored by David Stockman via Bonner & Partners,

Reagan’s top economic adviser David Stockman explains why Trump’s tax cuts... and his stimulus plan... are dead on arrival.

The mules of Wall Street were back at it again, buying the dips after the overnight whoosh downward in the futures market. Apparently, it will take an actual two-by-four between the eyes to break a habit that has been working for 96 months now since the March 2009 post-crisis bottom.

We think it is plain as day, however, that we are in a new ball game that the "stimulus-blinded” mules don’t see coming at all. To wit, they have been juiced for eight years running by the Keynesian apparatchiks at the Fed who needed permission from exactly no one to run the printing presses full tilt or to rescue the market with a new round of QE or an extension of ZIRP whenever the indices began to wobble.

But now, even the money printers have made it clear in no uncertain terms that they are done for this cycle, anyway, and that they will be belatedly but consistently raising interest rates for what ought to be a truly scary reason.

That is, the denizens of the Eccles Building have finally realized that they have not outlawed the business cycle after all and need to raise rates toward 2-3% so that they have headroom to "cut" the next time the economy slides into the ditch.

In effect, the Fed is saying to Wall Street: "Price in" a recession because we are!

After all, our monetary central planners are not reluctantly allowing interest rates to lift off the zero bound because they have become converts to the cause of honest price discovery—-nor are they fixing to liberate money rates, debt yields, and the prices of stocks and other financial assets to clear on the free market.

Instead, they are merely storing up monetary ammo for the next downturn.

But the Wall Street mules keep buying the dips anyway because they are under the preposterous delusion that one source of "stimulus" is just as good as the next.

And since the gamblers have now decreed that the "stimulus" baton be handed off to fiscal policy, it only remains for Congress and the White House to shape up and get the job done with all deliberate speed.

But they won’t.

Not in a million years.

The massive Trump tax cut and infrastructure stimulus is DOA because Uncle Sam is broke and the U.S. economy has slithered into moribund old age.

In that context, it’s not remotely the same as the 12  members of the FOMC sitting behind closed doors for two days jawing about the short-term economic weather; and then at the conclusion of their gabfest, ordering the New York Fed’s open market desk to flood the canyons of Wall Street with cash by buying another $80 billion of bonds with digital credits conjured from thin air.

Au contraire. Fiscal policy is inherently an exercise in herding cats and an especially impossible one when the cupboards are bare.

The essence of the matter at the present state of play is the legislative equivalent of "no ticky, no washy."

Without a 10-year budget resolution for FY [fiscal year] 2018 and associated reconciliation instructions, there is no possibility of passing a tax bill or even an infrastructure spending boondoggle.

But hammering out a budget resolution, passing it in each house, and reconciling the differences in conference would take months under the best of circumstances. But given the parlous state of Uncle Sam’s fiscal condition and the partisan acrimony that already suffuses Washington in the era of Trump, passage of a budget resolution by summer would be a miracle in itself.

Indeed, even the thought of surmounting this next daunting legislative obstacle course puts to rest this week’s particular Wall Street fantasy. Namely that after being burned by the Freedom Caucus on Obamacare Lite, the Trump White House will now "pivot" to the middle and form a coalition with the Democrats to make a deal on corporate tax cuts and infrastructure spending.

Yes, and if dogs could whistle, the world would be a chorus.

That is to say, there is no conceivable fiscal policy menu that could be agreed upon by Speaker Ryan, Nancy Pelosi, Chuck Schumer, and the Donald, and then be shoe-horned into a 10-year budget resolution.

Yet without a budget resolution and reconciliation instructions, there is not a fiscal stimulus "ticky" and no grand bipartisan compromise on building airports and slashing corporate tax rates.

So what lies directly ahead, therefore, is another bumbling attempt by the White House and Congressional Republicans to hammer out an FY 2018 budget resolution and what amounts to a 10-year fiscal plan. And it is there where the whole fantasy of the Trump Stimulus comes a cropper.

There are not remotely 218 GOP votes for what would be a $12 trillion-13 trillion add to the national debt with the Trump Stimulus program over the next decade—-even with all the "dynamic" scoring and revenue "reflows" that are imaginable.

To be sure, this is why the GOP Congressional leadership stoutly insists on a deficit-neutral tax cut. They are keenly aware of the debt monster they have been kicking down the road—-even if the headline-reading robo-traders of Wall Street are not.

What that means, in turn, of course, is that the rapidly fracturing Trump/Republican coalition must find the offsets on the spending side of the ledger.

In short, the whole enterprise amounts to budgetary madness and demonstrates the monumental magnitude of the Debt Trap that has enveloped the Imperial City.

And the “buy the dip” crowd will soon be getting that two-by-four between the eyes.

So now is not the time to buy.

Morgan Stanley Finds A "Stunning Divergence" In The Economic Data

Since we first highlighted the data, there has been a great deal of attention paid to the post-election divergence between the so-called soft (sentiment) data in the US, and the hard (quantifiable) data.

Morgan Stanley"s chief equity and rates strategists note "the divergence is stunning."

Upside surprises appear to be completely driven by the soft data while hard data are simply coming in about as expected. This was underscored by the fact the Fed made little revision to its economic forecasts at the March FOMC meeting. Essentially, the hard data are unfolding in line with the Fed"s 2017 outlook.

There is a Record Gap Between the Strength of "Hard" and "Soft" US Macro Data

Simply put, the hard data on the economy is still looking far too soft.

Morgan Stanley offers an additional compelling take on capturing this hard versus soft divergence.

Compare the New York Federal Reserve Bank’s current 1Q GDP tracking vs ours - FRBNY is currently tracking 1Q GDP at 3.0% versus us around 1%. The difference is larger than usual and is being driven by the fact that the New York Fed incorporates soft data into its tracking (attempting to tie it econometrically to GDP, a very hard thing to do especially in real-time). Our method translates the incoming hard data into its GDP equivalent. Note that the Atlanta Fed’s GDPNow tracking also focuses on hard data and is currently tracking 1% for 1Q GDP (Exhibit 2).

Will the hard and soft data reconcile, and in what direction? Optically, a 2Q GDP bounce back would perhaps be taken by markets as the hard data correcting to the soft data—in other words, risk appetite may find renewed inspiration as positive hard data unfolds. But from an economist’s point of view, smoothing through the volatility simply looks like the outlook for around 2% growth remains intact. Moreover, we do expect that the breadth of the 2Q rebound in hard data will be fairly limited, with a swing in consumption as the main driver of the expected 2Q upside, followed by a slightly better net trade and inventory profile. As a consequence, we would not necessarily expect "hard data" surprise indices to start racing higher if the factors behind the 2Q growth rebound remain narrowly confined to a few sectors as we expect.

Additionally, as we noted previously, the problem - for the hope enthusiasts - is the last 5 times that the gap between perceived economic reality and actual economic reality was near this high, the S&P 500 had a troblesome few weeks/months after:

• JUL 2007 -12%


• JUN 2009 -9%


• APR 2010 -17%


• MAR 2011 -19%


• NOV 2014 -6%

Still, this time will probably be different.

NY Fed: "Oil Prices Fell Due To Weakening Demand"

When it comes to the price of oil, both the sellside and oil producers have been adamant that the only variable that matters is supply, i.e., how much oil is produced at any given moment which was also the justification behind the Vienna production cut deal: reduce supply enough, and the record global inventory glut will decline by bringing markets into equilibrium, boosting prices in the process. Alternatively, another explanation has been the recent liquidation of oil positions by speculators (read hedge funds), who tend to amplify moves in the world"s most financialized commodity. Indeed, the sharp move lower over the past three weeks was largely attributed to selling be levered entities who unable to push the price of oil higher, had no choice but to take the other side of the trade.

Throughout this, one aspect of price formation that is rarely mentioned is demand, which is generally assumed to be unwavering and trending higher with barely a hiccup. The reason for this somewhat myopic take is that while OPEC has control over supply, demand is a function of global economic growth and trade (or lack thereof) over which oil producers have little, if any control.

And yet, according to the latest oil price dynamics report issued by the Fed, it was declining global demand that pushed prices lower in the most recent, volatile period.

As the New York Fed report in its March 27 report, "Oil prices fell owing to weakening demand" and explains as follows: "A decline in demand expectations together with a decreasing residual drove oil prices down over the past week."

While there was some good news, namely that "in 2016:Q4, oil prices increased on net as a consequence of steadily contracting supply and strengthening, albeit volatile, global demand" offsetting the "modest decline in oil prices during 2016:Q3 caused by weakening global demand expectations and loosening supply conditions," the Fed"s troubling finding is that the big move lower since 2014 has been a function of rising supply as well as declining demand:

Overall, since the end of 2014:Q2, both lower global demand expectations and looser supply have held oil prices down.

And while this trend appeared to have reversed in 2016:Q2 and 2016:Q4, recent indications suggest that demand may once again be slowing, which in turn has pressured oil prices back to levels last seen shortly after OPEC"s Vienna deal.

The Fed shares the following decomposition table on imputed supply/demand recent data:

It is curious that according to the NY Fed, at a time when OPEC vows it is cutting production, the Fed has instead found "loose" supply to be among the biggest contributors to the latest decline in oil prices.

But what may be concering to oil bulls is that as the decomposition chart below shows, while oil demand was solidly in the green ever since Trump"s election victory, in recent weeks it appears to have also tapered off along with the supply contribution to declining oil prices.

This seems to suggest that along with most other "animal spirits" that were ignited following the Trump victory, only to gradually fade, oil demand, and thus price, may be the next to take another leg lower unless of course Trump manages to reignite the Trumpflation trade which, however, over the past month appears to have completely faded. Finally, in an environment of rising interest rates, and with Obamacare repeal delayed indefinitely - which as a reminder will soak up potential discretionary spending on other goods and services - one can argue that the decline in demand observed going into last year, coupled with a potential disappointment from the failure of Trump to implement his full fiscal policy, the decline in demand will only accelerate in the coming weeks.