Sep 16, 2016 | Macroeconomics
“The stupider one is, the closer one is to reality. The stupider one is, the clearer one is. Stupidity is brief and artless, while intelligence wriggles and hides itself. Intelligence is a knave, but stupidity is honest and straightforward.” –Fyodor Karamazov, in Dostoevsky’s The Brothers Karamazov The Karamazov father in Dostoevsky’s seminal novel is always promising to change his shameless ways. The only problem is that he never does, and soon enough, it becomes clear that Fyodor Karamazov is incapable of telling the truth. He cannot even confess something to a priest without changing his story in the same breath. So it comes as no surprise that, eventually, no one believes what he says anymore. Here is a headline from January about the Federal Reserve: “Fed Policy is Looking Hawkish” (hawkish meaning the Fed will raise interest rates). No rate hike. How about March? “Wall Street in for a Hawkish Surprise: Goldman.” No rate hike. May? “Fed likely to hike in June if data improve: Minutes.” Was the data good in June? From CNBC, “US created 287K jobs in June vs. 175K expected.” That sounds good! No rate hike. Shall I go on? The refrain is always the same: the economy is great! It’s humming along! The Fed is, time and again, “inclined” to raise rates. Then they don’t. There’s always a stated reason, of course: first it was China not doing well, then the first quarter growth was not so great, then Brexit came, and so on. But like any relationship expert will tell you, if your friend keeps finding a reason why he or she can’t make...
Dec 8, 2015 | Macroeconomics
The Future of Retail, Fashion, and Data The news rarely gets a break, and it just thrives on “issues” such as ISIS, The Donald, and illegal immigration. Retail has had its fair share in the spotlight, but here at BTA, we think it deserves, perhaps, a little more attention than it’s getting. First Step: What’s going on? Not unlike watching a Rex Ryan defense, there are times when we, as citizens, just have no clue what is going on. The headlines lately are surrounding Macy’s and Nordstrom, the faces of the big retailers who aren’t performing as well as they have in the past. Reports are circulating of drops in the stock market prices of large retailers following the Thanksgiving shopping weekend. Consumer confidence declined in both October and November, according to the Consumer Confidence Index (CCI). Bloomberg reported on November 24th that the CCI fell to the lowest in more than a year. While a good portion of that uncertainty is driven by lack of confidence in the job market, an overall insecurity about the economy in general prevailed in reports as well: “Plans to buy durable goods, such as appliances and televisions, depended on discounts, the report showed. The share of Americans this month who cited low prices as a reason to purchase long-lasting goods was 45 percent, among the highest readings in the past fifty years, said [Richard] Curtin [director of the University of Michigan consumer survey].” This type of uncertainty is not unique to America alone. Canadian consumer confidence is also declining, all just weeks after both Japan and Brazil entered recessions. Gotta’ Stay Positive As you may...
Nov 19, 2015 | Macroeconomics
Loomings “Whenever I find myself growing grim about the mouth; whenever it is a damp, drizzly November in my soul; whenever I find myself involuntarily pausing before coffin warehouses… I account it high time to get to sea as soon as I can” – Herman Melville, from Moby-Dick The most interesting thing about the opening chapter of Herman Melville’s classic masterpiece, Moby-Dick, is that we, as readers, know from the beginning that something is horribly wrong when our narrator is a man who decides to go whaling with a maniac because he would otherwise be a suicidal sociopath who likes funerals and other people’s top hats. We question how reliable he is, just like economic data. Economic numbers are always such a tiny portion of the greater feast. It would be like judging a meal by tasting the lemon the chef squeezed on one of the dishes at the last moment. We have to keep digging to attain a clearer picture of what is going on. “Hurrahs!” have been thrown around quite recently. Praises for the economy have been sung, with expectations of FED hikes coming on the heels of the new employment numbers. Yet globally, while the China Shanghai Composite Index (data from Yahoo! Finance) has stabilized somewhat since its crash earlier this summer, there are still looming issues for the FED to consider. For one thing, as The Economist and others report, South Korean exports “shrank by the largest annual amount in six years, down 14.7% last month from a year earlier to under $40 billion, according to the ministry of trade, industries and energy.” South Korea...
Oct 15, 2015 | Macroeconomics
Real Wages: What are they? One of the biggest economic concerns in recent years has been the stagnation of wages, but many times, simply looking at those numbers on a paycheck—the nominal wage—is not enough to tell if wages have really gone up or down. Sometimes, it is necessary to look at real wages. Real wages measure your purchasing power—how effective the money you make is, rather than simply the nominal (or dollar) amount. It does this by subtracting inflation from nominal wage. For instance, if you are receiving the same amount of money, but everything costs more, then your real wages have actually gone down. Investopedia gives an example of real rages (or real income) thus: “if you received a 2% salary rise over the previous year and inflation for the year was 1%, then your real income only rose 1%. Conversely, if you received a 2% raise in salary and inflation stood at 3%, then your real income would have shrunk 1%.” So then, what’s the deal with real wages in the US? Well, Business Insider has an article arguing that, despite not having been paid more, you are being paid more. The above chart shows that, while nominal wages have not increased in the past year, real wages (nominal minus inflation) have. That is because inflation has been decreasing. The Liquid Gold Factor One major factor that may be influencing this type of real wage growth is the price of oil, which plummeted recently and has stayed low for quite a while. Here are the August Consumer Price Index (CPI) numbers from the Bureau of Labor...
Sep 18, 2015 | Macroeconomics
Imagine you are a football player, and you just sacked the opposing team’s quarterback for a ten-yard loss. You are pumped, doing your little sack-dance, when suddenly you see the yellow flag flying and the referees come sailing in. Turns out, the NFL just changed the rules. You’re not allowed to hit the quarterback unless you’re one of the defensive linemen, and you’re just a linebacker. You now have an idea what it may be like to be in the markets following the Federal Reserve (FED)’s decision not to raise interest rates in yesterday afternoon’s press conference. FED Chair Janet Yellen made a number of remarks that raise the question: has the FED changed the rules in the middle of the game? The Former Rules The dual mandate given to the FED by Congress has long been seen as the “rulebook,” and the FED, by this rulebook, has two goals: Maximum sustainable employment Price stability, also viewed as low, stable inflation Let’s tackle employment first. The unemployment rate in August was 5.1%, and has been trending downward in the past few months, down 0.6% since January. Yellen stated in her press conference that “the labor market has shown further progress so far this year towards our objective of maximum employment,” but that “the participation rate is still below estimates of its underlying trend, involuntary part-time employment remains elevated, and wage growth remains subdued.” As far as inflation is concerned, the committee seems quite insistent on a 2% inflation target, as Yellen stated, “Inflation has continued to run below our 2% objective, partly reflecting declines in energy and import prices”...
Aug 28, 2015 | Macroeconomics
In William Shakespeare’s A Midsummer’s Night Dream, two young men are passionately pursuing the same girl through a magical forest, while another poor friend of the girl is loved by neither. After some comedic chaos, the two “correct” pairs marry at the end and all is good… except for one detail. An astute observer or reader will notice that behind the curtain of these lovebirds is a fairy king who secretly put a love potion in one of the young male’s eyes so he would fall in love with the correct woman. More on this later… Act I: Set the Stage GDP numbers released seem to indicate positive growth in the US economy. Whew! After seeing the Stock markets here and abroad taking severe nose-dives and discussions of the Fed possibly changing its mind about raising interest rates, the Bureau of Economic Analysis’ newest news release sent waves of cool air down the sweaty neck of the financial world. Now, unlike Shakespeare’s play, the probability that there is a secret fairy king who is increasing Personal Consumption Expenditures for the benefit of the GDP is extremely low. Nevertheless, it would be fruitful to pull back the curtain to see behind the GDP stage before jumping to any conclusions. Act II: What does the number really mean? Enter center stage: the GDP number. What is it? What does it signify? It is usually just tied up straight to economic growth. The economy is growing again at a rate of 3.7%. Well… not quite. It is growing at a rate of 3.7% annualized rate. That means that the economy would...
