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s plus canadian oil production looks a bit like the chart of asset backed commercial paper outstanding prior to the financial crisis of 2008 the high yield bond market has been hard hit by the sudden risk aversion of investors particularly those who bought energy related bonds many have been seeking safety in lower yielding us treasuries the bank of america merrill lynch us high yield corporate bond yield rose from the year s low of 5 15 on june 24 to friday s 7 04 the highest since july 27 2012 the spread over 10 year treasury yields widened over this period by 237bps from 257bps to 494bps today s morning briefing the energy bubble 1 worrying about the middle east in the midwest 2 too much of a good thing 3 us consumers are happy shoppers 4 widespread shopping spree 5 consumers of last resort 6 definition of a bubble fits oil s boom bust 7 high yield market highly stressed 8 capital is drying up for drillers 9 submerging oil economies 10 fed in 2015 none and done 11 can us offset all the rest 12 iranian surrogates threatening saudis 13 still bullish 14 focus on market weight rated s p 500 retailers more for subscribers posted by dr ed yardeni at 12 05 am no comments email this blogthis share to x share to facebook share to pinterest thursday december 11 2014 zombies in china excerpt in the 11 17 morning briefing titled the great deflators i wrote about zombies in their effort to moderate the business cycle central bankers have a tendency to keep zombies alive these are the walking dead business borrowers who borrowed too much and are hemorrhaging cash they need to die and should be buried instead easy money keeps them in business allowing them to continue producing more with their excess and unprofitable capacity today china is full of zombies there are plenty in the global mining industries if you look hard enough you ll find zombies just about everywhere it certainly would be easier to spot them if central banks started to tighten their monetary policies that might explain why central banks aren t likely to do so deflation may be the most telling sign of the zombie problem by fighting deflation the central banks are keeping the zombies alive the latest chinese data and policy response confirm my analysis during november the cpi rose just 1 4 y y the lowest since november 2009 the ppi fell 2 7 y y the 33rd consecutive monthly decline ppi deflation continued to be widespread in november as follows raw materials 4 7 manufacturing 2 3 heavy industry 3 0 light industry 0 3 chemicals 2 5 coal 11 6 ferrous metals 16 6 nonferrous metals 2 8 durable goods 0 7 and daily use articles 0 1 on november 21 the people s bank of china pboc cut its benchmark one year loan interest rate to 5 6 from 6 0 and cut its benchmark one year deposit rate to 2 75 from 3 00 the nation s central bank also hiked the upper limit on deposit interest rates to 1 2 times the benchmark rate from 1 1 times the benchmark rate the bank said it took the unexpected actions which were the first such changes since july 2012 in response to expensive borrowing costs rather than any direct worries about the economy s slowdown who are they kidding obviously the pboc is worried about slowing growth and persistent deflation however there they go again keeping zombies alive they also triggered a mini bubble in the stock market as i discussed yesterday today s morning briefing china s zombies 1 many small winners and a few big losers 2 strong dollar partially offsetting lower oil prices overseas 3 opec losing market share 4 opec budgets getting squeezed 5 capital spending will get slashed in oil patch 6 energy analysts slashing estimates 7 us oil stockpiles at seasonal high 8 saudis live in a dangerous neighborhood 9 china s zombies deflating ppi 10 pboc keeping zombies alive 11 china s latest purge is depressing economy 12 oecd leading indicators continue to muddle along more for subscribers posted by dr ed yardeni at 12 05 am no comments email this blogthis share to x share to facebook share to pinterest wednesday december 10 2014 chinese imports suggest much weaker economy excerpt late on monday china s securities clearinghouse banned investors from using low grade corporate bonds as collateral for short term financing the move is part of beijing s structural reforms aimed at shoring up the financial system the shanghai composite dropped 5 4 to 2 856 27 suggesting that the recent stock bubble may be bursting already the retail dominated market is still up 35 this year the chinese have a huge savings rate they ve cooled off to putting their money into properties and wealth management products instead they ve been pouring funds into the stock market yesterday s ft reported the balance of outstanding margin loans has risen more than two thirds since the beginning of september to rmb575bn by the end of last week banks were themselves among the worst fallers on tuesday with the financial sector off 7 6 per cent while energy shares dropped 7 4 per cent the 7 11 wsj reported that china s banking regulator imposed fresh requirements on banks to keep their wealth management product business in check in another step to tighten its grip on a once loosely regulated part of the shadow banking business banks must separate their wealth management product business from retail lending business by setting up separate accounting statistical analysis risk management and performance appraisal systems banks had until the end of september to complete the setup of the independent wealth management departments wealth management products have been popular because they offer higher yields than deposits but they are obviously risky the wsj reported that over 400 banks had a total of 13 97 trillion yuan 2 25 trillion in outstanding wealth management products at the end of may the more fundamental problem in china is that the economy may be slowing faster than widely recognized last wednesday i reviewed the country s imports data through october november data were released on monday showing that imports remain flat this year using the 12 month moving average that s mirrored in china s imports from australia brazil japan taiwan and the us only imports from the european union and south korea remain on uptrends though they started to look toppy in november today s morning briefing downsides in 2015 1 from the upbeat scenario to the downbeat risks 2 the bull is still prone to mood swings 3 considerable time is running out of time 4 yellen s 6 month horizon 5 more upbeat labor market indicators 6 next fed qe in corporate bonds 7 is china s mini bubble bursting already 8 china s imports showing no growth all year 9 draghi renews his vows to do whatever it takes 10 greeks breaking plates again 11 will there be blood in the oil patch 12 oil majors vs frackers 13 the russian bear is wounded 14 the jury is still out on abenomics more for subscribers posted by dr ed yardeni at 12 05 am no comments email this blogthis share to x share to facebook share to pinterest tuesday december 9 2014 big windfall for us consumers excerpt according to the wsj yesterday the imf is raising its forecast for us growth next year to 3 5 from its last estimate of 3 1 partly because of expected lower energy costs the nearby futures prices for gasoline and heating oil are down 45 and 33 from their summer highs last year consumers spent 371 billion on gasoline and 27 billion on heating oil so they could save a total of about 175 billion or 1 510 per household at an annual rate payroll employment gains have averaged 227 830 per month during the 12 months through november up from 205 100 per month last november and the most since march 2006 inflation adjusted wages and salaries in personal income rose 2 9 y y to a record high during october as i showed yesterday our earned income proxy suggests that they continued to rise sharply during november today s morning briefing 2015 is coming 1 reassessing 2015 2 lower oil prices widely deemed to be a net positive for growth 3 1 5 trillion windfall 4 winners and losers by countries 5 imf raising us growth for 2015 6 better growth with lower inflation 7 bond yields and crude oil should stabilize but the dollar could soar some more 8 fed s lift off may be delayed or downsized 9 still targeting 2300 for s p 500 in 2015 10 net earnings revisions down for energy up for transportation 11 focus on overweight rated s p 500 transportation more for subscribers posted by dr ed yardeni at 12 05 am no comments email this blogthis share to x share to facebook share to pinterest monday december 8 2014 us employment old normal excerpt as i do every month i cut to the chase when analyzing the employment report by calculating our earned income proxy which is highly correlated with both private sector wages and salaries as well as retail sales our proxy is simply the average workweek times payrolls times average hourly earnings in the private sector it jumped 1 0 m m during november as the workweek rose 0 1 hours payrolls jumped 314 000 and wages rose 0 4 revisions have added 44 000 jobs to the preliminary estimates for september and october now showing gains of 271 000 and 243 000 respectively during the first 10 months of this year nine of the months were revised higher some cranky observers question november s strength noting that it might have been boosted more than usual by seasonal workers in retailing transportation and warehousing others question the seasonal adjustment factor then again odds are that november s number will be revised higher anyway what about wages november s 0 4 m m increase was the best monthly gain since june 2013 however it remained stuck around 2 on a y y basis so far upward pressures seem to be building up only in construction 2 5 and leisure hospitality 3 6 manufacturing 1 1 remains remarkably moderate retail trade 2 3 and wholesale trade 2 5 are in line with the average trend financial services 3 8 and transportation and warehousing 2 9 are relatively high while natural resources 1 4 and educational health services 1 6 are relatively low today s morning briefing sheik out 1 sheiks vs shale 2 the world s lowest cost producer 3 offshore drillers tend to have highest costs 4 shale drillers are more nimble and tech savvy 5 no bust for frackers 6 saudis facing iranian surrogates in yemen 7 saudis draw 60 line in the sand 8 frackers still pumping 9 weak oil price boosting dollar 10 em oil consumers are winners 11 back to the old normal in the labor market 12 the theory of everything more for subscribers posted by dr ed yardeni at 12 00 am no comments email this blogthis share to x share to facebook share to pinterest thursday december 4 2014 us valuation no bargains excerpt does low inflation justify higher valuation multiples there are many valuation models for stocks they mostly don t work very well or at least not consistently well over the years i ve come to conclude that valuation like beauty is in the eye of the beholder for many investors stocks look increasingly attractive the lower that inflation and interest rates go however when they go too low that suggests that the economy is weak which wouldn t be good for profits widespread deflation would almost certainly be bad for profits it would also pose a risk to corporations with lots of debt even if they could refinance it at lower interest rates let s review some of the current valuation metrics which we monitor in our stock market valuation metrics models 1 reversion to the mean on tuesday the forward p e of the s p 500 was 16 1 that s above its historical average of 13 7 since 1978 2 rule of 20 one rule of thumb is that the forward p e of the s p 500 should be close to 20 minus the y y cpi inflation rate on this basis the rule s p e was 18 3 during october 3 misery index there has been an inverse relationship between the s p 500 s forward p e and the misery index which is just the sum of the inflation rate and the unemployment rate the index fell to 7 4 during october that s the lowest reading since april 2008 and arguably justifies the market s current lofty multiple 4 market cap ratios the ratio of the s p 500 market cap to revenues rose to 1 7 during q3 the highest since q1 2002 that s identical to the reading for the ratio of the market cap of all us equities to nominal gdp today s morning briefing inflating inflation 1 dudley expects fed to hit inflation target next year 2 it all depends on resource utilization 3 what if demand side models are flawed 4 supply side models explain persistence of deflationary pressures 5 inflationary expectations falling in tips market 6 bond market has gone global 7 valuation and beauty contests 8 rule of 20 says stocks still cheap 9 other valuation models find no bargains 10 cheaper stocks abroad but for lots of good reasons 11 us economy humming along more for subscribers posted by dr ed yardeni at 12 05 am no comments email this blogthis share to x share to facebook share to pinterest wednesday december 3 2014 crude oil seasonal adjustment excerpt i m an economist by training i ve seen pictures of oil rigs but never seen one up close as an economist i have a tendency to use seasonally adjusted data to analyze the economy for example on my website i have a publication titled us petroleum weekly it shows data compiled by the us department of energy doe for domestic production and usage as well as exports and imports i ve been using the seasonally adjusted series rather than the unadjusted data compiled by doe one of our accounts noted that the seasonally adjusted production numbers show a decline of 0 4mbd over the past 10 weeks through the week of november 21 to 9 0mbd while the unadjusted data continued to rise by 0 3mbd to 9 1mbd the former suggest that the plunge in oil prices may be depressing production already while the latter suggest that s not so the unadjusted data for the key oil producing states especially texas and north dakota show production still rising i will continue to monitor usage as well as exports and imports on a seasonally adjusted basis however i will focus on the unadjusted data for production to assess whether the drop in oil prices is depressing us oil field output for now my conclusion is that the us oil industry intends to play the saudis game of chicken today s morning briefing china s soft landing 1 us oil production still going strong 2 saudis game of chicken 3 secular stagnation in eurozone weighing on global economic growth 4 chinese imports suggest growth weaker than shown by gdp 5 emerging markets hard hit by china slowdown 6 china still dependent on export led growth 7 chinese crude oil demand and railway freight traffic also weak 8 s p 500 earnings and revenues remain on bullish trends 9 dudley s upbeat outlook 10 focus on market weight rated s p 500 auto related industries more for subscribers posted by dr ed yardeni at 12 05 am no comments email this blogthis share to x share to facebook share to pinterest tuesday december 2 2014 glob...
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