US farm income expected to decline by 32%
According to the US Department of Agriculture, low crop prices and increasing expenses are making a dent in farm income, which is expected to fall by over 30% this year, a drop of a magnitude not seen since 2009. This will be the second year in a row that farm income has declined. It is expected to be about $74 billion this year, down from $108 billion in 2014, which was down from a record $129 billion in 2013. The over 30% drop roughly doubles the rate income fell in 2014.
Citigroup faces a crucial Federal Reserve stress test in March
Citigroup was the only major bank to fail the stress test last year. If it fails this year, there’s no telling what might happen. Fear grips the banking community (gasp!). But since a failure is already being reported as catastrophic, failure would be anything but. It may mean the Fed requires a breakup. That would take years—perhaps longer than it will take for the next financial crisis to be resolved. Don’t be naive. Citigroup, the flagship bank of the American Empire, the US’s poor cousin to the British Empire’s HSBC, is indispensable to the designs of American capitalists and their political lackeys. Citigroup will fail, or barely pass, but it won’t mean a thing. Those American capitalists will get what they want. Or else.
Oil prices remain in flux as supplies build even as rig counts drop
A partial rebound in oil prices over the last month following a 60% crash since June suggests market participants are seeing light at the end of the tunnel and growing confident that spending cuts by oil companies will lead to a market recovery. The market rallied in late January on news of a steep drop in the US rig count. Since then, oil companies provided market participants with further insights in their quarterly earnings report into the full scope of their budget cuts. Yet supplies so far remain abundant, and it will take time for investment cuts to make more than a relatively small dent on production. In the meantime, inventories are likely to build further. Barring any unforeseen disruption, OECD stocks may by mid-2015 come close to revisiting the all-time high of 2.83 billion barrels reached in August 1998, shortly before WTI prices sank to an average monthly low of $11.22/bbl.
Obama asks Congress for authority to fight ISIL
Because things have gone so well in the 25 years that the US has been militarily engaged in the Levant and Mesopotamia, President Obama has decided that we should reenergize our commitment to the region in order to fight the ISIL, or ISIS, or whatever the hell acronym you’d like to use for the Islamic jihadists trying to fill the power void on the frontier between Syria and Iraq, as each of the failed states have done what failed states do, and been forced to reduce the footprint over which they claim dominion. The real fight here is between Iranian-backed Shiites and the Sunni combatants left over from the days when Sunnis ruled Iraq. The US will essentially be fighting to preserve Iranian hegemony in the Levant, which it unintentionally provided when it destroyed the existing power structure in Iraq. After it secures the Levant for Iran, again, it will undoubtedly be forced to unwind the effects of its Iranian welfare in the same manner as it unwound the effects of its Iraqi support during the Hussein regime.
Thus the US stokes the flames of conflict in the Middle East like a hobo in January stokes the flames of a campfire to keep from freezing. And like the hobo, the flames succor its existential needs. The latent ironies of geopolitics would be hilarious if they weren’t so deadly.
With at least one war flaring somewhere, the Military Industrial Complex’s hero-generation machine can keep on churning out courageous, altruistic heroes for our adulation. Note to the hero wannabes—being a sniper, “protecting” your fellow soldiers like a god slinging thunderbolts at their enemies, is now considered heroic, especially if you write a memoir dripping with self-aggrandizing, comic-book platitudes. You may even have a movie made of your “legendary” exploits.
To reiterate, because of the currency wars the Fed won’t raise rates this year, or next year, or the year after, or the year after that…
Just so it doesn’t seem I’m a kook when I say the Fed won’t be raising rates, I offer as authority both Warren Buffett and Goldman Sach’s CEO, Gary D Cohn, who have each explained that raising rates would be impossible with the dollar already so strong internationally. Don’t think for a moment that the Fed isn’t listening. The Fed works for the likes of Buffett and Goldman.
There is a currency war afoot. The combatants are all the developed economies that, ironically, depend on the US for providing the safety and security upon which world commerce depends. The US can’t ignore this battle with its allies, not if it is to remain strong enough to bring a measure of stability to world hotspots (Ukraine, the Levant, East and Central sub-Saharan Africa, etc.). It must engage the battle, and do whatever it takes to reduce the value of the dollar internationally. But if it succeeds in doing so, it will weaken the economies of its allies and trading partners, which will cause money to flow into the US , because of its safe haven status and because it is the only economic system faring reasonably well. Which will cause the dollar to appreciate. Which will require further measures (a helicopter ride, anyone?) to reduce its value. Which will cause the rest of the world’s economy to suffer, which will cause the dollar to appreciate, ad infinitum. A currency war is a hamster wheel to nowhere.
Currency wars, or mercantilist strategies, as they were known in the earlier centuries of the Industrial Revolution, are self-defeating (see previous paragraph) admissions of defeat. No, that’s not redundant. To a currency warrior country, life is a zero-sum game (i.e., it is an admission of defeat). The currency warrior gives up on finding ways to expand demand organically and accepts that the pie of demand is more or less a fixed quantity, the biggest pieces of which go to the countries with the cheapest currencies.
And as much is more or less true among the developed world these days. Aggregate demand can’t grow, or not by much, when the population is in stasis or decline. And populations are in stasis or decline practically all over the developed world (e.g., Japan, Europe, etc.) and into the developing world (China, etc.). Part of why the US is doing so well is because its population is still slowly growing, though mainly through immigration.
Tesla loses 14 cents per share, a bit off the expected profit of 32 cents per share
Elon Musk (the CEO of Tesla) is a visionary, or so he thinks. Many compare him to Steve Jobs. Except that Steve Jobs made Apple Computer one of the most profitable companies in the world. Musk’s Tesla, not so much, at least not yet. Tesla expects to sell about 50,000 cars this year, about a quarter of what Toyota will sell in Camry’s alone. Their cars are all- electric, eliminating the need for spewing greenhouse gases through a tailpipe, which seems to reduce the carbon footprint of the automobile relative to gas-guzzling Suburbans, but only if you don’t count the carbons emitted by the power plant that generates the electricity to charge the car. Or the ones generated to create the massive batteries that power the vehicles.
In other words, the notion that Tesla’s cars are environmentally less damaging than regular old cars is tenuous at best. But Musk has some measure of followers who believe in his vision and herald him as a savior who will lead us to a promised land where fossil fuels are a historical relic. It is almost cultish, the adoration he receives. But it won’t last long if Tesla can’t make money. And at anything less than about $100 oil, it’s hard to see where Tesla makes money or sense.
Missing the Street’s expectations of profit by about 144% caused Tesla stock to fall about 5%. Shares that had risen eightfold (yes, that’s right–eight times) over 18 months to Sept. 4, had lost a quarter of their value by Wednesday’s close, before the fourth-quarter results were announced. Tesla claimed it had difficulties cracking the Chinese market, contributing to its loss. The Chinese don’t seem as enamored with a car that takes several hours to charge as were the first-adopting, status-conscious Americans and Europeans comprising the Tesla’s initial market.
Tesla is a good stock to watch to figure larger trends, if only because it is so hypersensitive to swings in sentiment. Tesla has never made a full-year profit, and claims it won’t do so until 2020, and especially now that it’s building its own battery factory. Buying Tesla stock expresses a mixture of visceral optimism and hubris. You have to believe that you are smart enough to know whether Tesla is the next big thing (Elon Musk claims it will have a market cap as big as Apple in ten years) or a flash in the pan. If the hubris or latent optimism fails, all bets are off so far as the company’s stock goes. Tesla, in other words, is a confidence game. The question is whether Elon Musk is a con-man or a visionary. Time will tell.
Russia and Ukraine and the Ukrainian rebels reach a tentative cease-fire agreement
Everyone involved agreed to quit shooting on February 15, 2015. The Ukrainian rebels, otherwise known as Russian proxies, have been pounding Ukraine’s regular forces, and have carved out a more or less autonomous zone for themselves in Eastern Ukraine, which Ukraine conceded in the cease fire. Donetsk and Luhansk, the two largest cities in the Donetsk Region, will be in the autonomous region in Eastern Ukraine. Ukraine will be forced to treat the region’s people as Ukrainian citizens when it comes to doling out government benefits, without the authority of governance.
All in all, this is a big win for Putin, which translates on the ground to a bonanza for the Ukrainian insurgents. Putin got all that he could have hoped for, short of having actually invaded and won a military victory. Ukraine is not conclusively reestablished in Russia’s orbit as is Putin’s ultimate goal, but it is now wary that as much is within the Russian Bear’s grasp. And it should by now know that it can’t look to the West to prevent its eventual re-annexation. The West has offered nothing more than platitudes (Obama observing that Putin had a twentieth century mindset really helped Ukraine battle Russian-equipped and backed rebels) and mealy economic sanctions and surely won’t now agree to allow Ukraine to join Nato. If the West didn’t want the fight before, it surely doesn’t want the fight now.
Thus this match goes to Putin. It’s taken a while, but he’s probed and prodded and found the West’s soft underbelly: It can’t imagine fighting another Great Power war on the European Continent.
The West believes human history is linear and progressive, rejecting all the evidence to the contrary that it is instead circular and cyclical. For the West, a problem once solved, such as the existential threat presented by the old Soviet Union, cannot arise again. The West cannot imagine the return of wholesale bloodshed as engulfed the Continent less than a century ago, or of Russia throwing its imperial weight around, so it does not prepare for such things, mentally or materially, and its lack of preparation makes it more likely that just those same problems come around again. History did not end when the Berlin Wall fell, but the West likes to pretend that it did, and that sort of thinking leaves it profoundly vulnerable, as now, when the Russian Bear has awakened from a long hibernation.
It would seem the two and a half decades the West has spent running in circles in Iraq ought to clue it in to the inherently cyclical nature of history, but apparently not. The futility of its effort in Mesopotamia contributes to the distaste for muscular military interventions the world over, particularly in Ukraine. Putin gets all this. The West’s politicians don’t realize even today how vulnerable and weak their position has become.
Retail sales in January down 0.8%; Consumer sentiment falls
The US Census Bureau announced February 12, 2015 that US retail and food services sales for January, adjusted for seasonal variations but not price changes, declined 0.8% from December, 2014, but up 3.3% from January of 20014. Far and away the biggest declines were experienced by gasoline stations, which were down 23.5% from a year earlier.
The long-only business news media (the WSJ, Bloomberg, etc.) can’t figure out what’s going on. The economy is humming. People are back at work, and incomes are finally now climbing. The gas station declines are understandable, but the decline in spending there should show up as an increase elsewhere, but didn’t. Without the gas retailers, spending was up a measly 0.1% from December, 2014.
It is hard to say what’s happening. All we really know for sure is that retail sales declined. My guess is that lower gas prices are not an unmitigated good for retail consumers. People who make their living in the energy industry—everyone from roughnecks on oil rigs to clerks at the minimarts–are also retail consumers. The extra cash that other consumers have in their pockets over lower gas prices is translated to less cash in theirs.
Whatever explains the decline in retail sales probably also explains the decline in consumer sentiment, which dropped from an eleven-year high last month to a level three points below what even the most pessimistic economist polled by Bloomberg thought would happen. Consumer sentiment was 98.1 last month, and declined to 93.6 in this month’s poll (the range of 69 economists polled by Bloomberg was 96-100). The last time sentiment was above 100 was from 1996 to 2000, in the midst of the dotcom boom. That perennial bogeyman, bad weather was blamed for part of the fall, but curiously, it wasn’t cited as a problem when the automobile markets saw record sales last month. Note to readers: When it comes to figuring the whyfores of economic figures, it is never, never, never about weather or the holidays or any other extraneous thing. And a corollary: Not much of anything can be inferred from one data set. Everything must be considered in a context that can mainly ignore stuff like snowstorms, hurricanes, droughts, etc. The US economic system is well enough geographically diversified that local weather phenomenon generally counterbalance each other.
Stocks, bonds and interest rates
The S & P 500, the Dow Industrial Average and Nasdaq have all retraced the ground lost in January, the worst month in a year, and are poised to exceed all-time highs by healthy margins by the end of the month, unless of course they don’t. Bonds declined as interest rates climbed, the ten-year US treasury settling at about 1.9%. After days on end of price swings in the 5-6% range for the bond markets, things seem to have settled down to almost where they started. Mortgage rates have bounced off lows in January that hadn’t been seen since 2013.
And from the social cesspool—
The story of the Jackie Robinson West Little League team from, like bad, bad, Leroy Brown, the Southside of Chicago, was supposed to have been a heart-warming tale of how black kids in the inner city learned how to win in life by winning at baseball. Everyone in Chicago was rooting for them to win; even Cub’s players were caught between innings of their own games watching the team play, perhaps so they might learn something of how championships are won. The team visited Obama in the White House after winning the US championship.
Alas, the team turned out to be a fraud. It was not comprised solely of kids from the inner-city neighborhoods that comprised its territory. It sua sponte redrew its territorial lines (i.e., without league approval) so that it could pull in kids from the suburbs. When Little League officials finally found out about it and investigated, they vacated its wins.
Thus the kids were taught a very good rule for life: Cheating wins championships, but only if you don’t get caught. But don’t blame the kids. It was the rabidly competitive adults who are to blame, as Obama correctly pointed out. Vacating the kids’ wins seems a bit harsh in that regard. The problem is how to reward the kids for their efforts while simultaneously punishing the adults.
But isn’t it about time we become a bit less credible and gullible? How many times do these heartwarming tales have to turn into jaw-grinding frauds until we learn our lesson? The hearts of the team’s supporters won’t be swayed. They are already claiming, with Jesse Jackson and Rahm Emanuel’s help, that the championship should be reinstated, another example of what should by now be called the OJ principle, a principle which essentially acknowledges that the Scottish philosopher David Hume got things right in the eighteenth century–the head is the handmaiden of the heart. Once the heart has decided upon a thing, it won’t allow the head to even consider evidence to the contrary.
Another way of putting things is how St. Augustine described the best approach to Christianity: Believe so that you might understand. Which might work in matters of faith. But in the secular world of baseball (and most other things), I’d prefer that we drew our conclusions from the evidence.
Fifty Shades of Grey opens in theaters this weekend; A.O. Scott’s review in the New York Times all but says don’t bother
The first paragraph of Scott’s review:
At the end of a recent New York sneak preview of “Fifty Shades of Grey” — in the blackout between the final lines of dialogue (“Anastasia!” “Christian!”) and the first breathy notes of the last Beyoncé song — a lot of the audience burst out laughing. The source of that laughter continues to puzzle and intrigue me, perhaps more than the actual movie did. Was it delight? Derision? Embarrassment? Surprise? All of the above?
Laughter? Over what Scott calls “commoditized fetishism”? Need you really know more? Seems the serious business of kinky sex doesn’t transfer well to the big screen. Or maybe the laughter is something like whistling past the graveyard, an attempt to pretend to fellow movie goers that light S & M is not arousing in the least, while secretly finding it a bit interesting (otherwise explain the novel’s phenomenal success), but not when displayed in a respectable movie theater which the preacher and the neighbor might attend.