Tesla Investor's General Macroeconomic / Market Discussion

[ckessel]

Next up, here's what is keeping Janet Yellen up right now (or should): look at the portion of US jobs that were created largely from this recent shale boom, and imagine what happens to the US economy if those jobs vanish:

View attachment 65704

This chart makes no sense. It says that unemployment wouldn't have improved anywhere except Texas since the end of 2008. Or even budged significantly this year, which individual state employment numbers even from just this last year seem to contradict (Over-the-Year Change in Unemployment Rates for States).

And how can Texas employment go up 12%? What was it's unemployment before, 15%? Unless HUGE quantities of people have relocated to Texas and only Texas.

Something is very odd about that graph. I won't outright call it a falsehood since I don't know the source or the method the numbers were derived, but it could certainly use more context.

 

[Robert.Boston]

It means that a lot of companies and people moved to Texas in the past decade. It's not all oil, either; Austin was the fastest growing major city recently, and most of those jobs are tech and education. Good article on this: Why everybody is moving to Texas - Sep. 29, 2014

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Some posts were shifted to http://www.teslamotorsclub.com/showthread.php/29648-Tesla-Investor-s-General-Macroeconomic-Analysis-Market-Discussion-Thread

 

[GenIIIBuyer]

2008 oil price decline was demand-driven, this is clearly supply-driven this time around.. Very different implications..

 

[FluxCap]

2008 oil price decline was demand-driven, this is clearly supply-driven this time around.. Very different implications..

It is not so much the cause of the decline as the effect that is worrisome to me, as it relates to the massive amount of capital thrown at this industry/commodity, and the very real risk of corporate and/or national defaults that have cascading effects on the banks that backed them. Food for thought:

Or this:

Simple.

I’ve heard things are simple.
The dollar is ripping. Oil is dropping. Gas is getting cheaper.
Everybody is going to have extra money when they leave the gas station. They can leave Shell and hit Applebee’s.
Buy US consumer retail equities.
But aren’t other things simple too? Why did we have the great recession? What ended it?
For the last 40 years or more, 5% of GDP has come from housing (Residential Fixed Investment GDP). It was hitting 6-7% in the bubble. It dropped to around 2.5% and we had a terrible recession. In 2014 it has recovered to a little over 3% of GDP. (Source: NAHB)
Not much of a housing recovery. Yet GDP is growing again.
So what replaced housing?
Exports and oil.
13.5% of GDP now comes form exports. Energy accounts for 15% of corporate debt (depending on how you calculate it).
What happens when the dollar goes up?
Exports decline.
What happens when oil goes down?
Corporations reliant on $100 oil who borrowed money run in to trouble.
This isn’t good kids. This is not your parent’s economy.
The US economy has never been this reliant on exports and oil. Expenses have moved to the revenue line — and housing isn’t yet strong enough to replace them when they decline.
We will get a pick-up in consumer spending in the short term and people will be excited. But what happens in a few months when the oil patch capital spending stops, borrowers run in to trouble and US exports decline?
Simple: US GDP declines.

Crisis 2.0?

Once upon a time – well – a few short years ago, the market was burned by something called correlation risk (among other things). Things that were deemed not to be correlated were.
Tranches of mortgage loans were impaired simultaneously. Players assumed defaults could not climb above a certain level. They suddenly found that defaults could indeed climb that high and higher – and quickly.
It became a big problem for those who were levered and over-exposed to the asset class.
The rest is history.
In the aftermath we implemented legislation and monetary policies that were intended to expedite an economic recovery and prevent another crisis. One result of these policies has been tight credit spreads.
The market currently rationalizes the credit spread environment by assuming that bond market participants are cautious and realistic – that tight credit spreads represent a reality of 1) low default risk and 2) high recoveries.
Which brings me to the current commodity and currency market moves.
This is what is scaring me: If commodities/currencies stay here, bond market participants are wrong. Very wrong.
Think about what happens if these commodity/currency moves are not done AND prolonged/permanent.
Basically, any levered player with commodity exposure has a credit impairment and/or a default.
The ramifications of this are dramatic. There is a crap-load of paper in this sector - and it all becomes impaired. The current tight spread environment (both high yield and investment grade) is rationalized based on the assumption that default rates will 1) be low and 2) have high recoveries.
A prolonged commodity rut will turn that assumption on it heels, and I think the market is just starting to digest that reality. It’s not hard to envision a scenario where cross-default risk balloons - coal, mining, E&P, Frackers, MLPs, etc, etc — it’s basically Crisis 2.0.
What killed us last cycle was cross-default risk. We all assumed things weren’t correlated and they were.
This is clearly not a tomorrow trade, but something worth thinking about.

 

[The Blue Owl]

It is not so much the cause of the decline as the effect that is worrisome to me, as it relates to the massive amount of capital thrown at this industry/commodity, and the very real risk of corporate and/or national defaults that have cascading effects on the banks that backed them. Food for thought:

Is the food for thought link publicly available? I'd be interested to read the whole thing.

 

[FluxCap]

This chart makes no sense. It says that unemployment wouldn't have improved anywhere except Texas since the end of 2008. Or even budged significantly this year, which individual state employment numbers even from just this last year seem to contradict (Over-the-Year Change in Unemployment Rates for States).

And how can Texas employment go up 12%? What was it's unemployment before, 15%? Unless HUGE quantities of people have relocated to Texas and only Texas.

Something is very odd about that graph. I won't outright call it a falsehood since I don't know the source or the method the numbers were derived, but it could certainly use more context.

ckessel, that is not a graph of the unemployment rate. It is a graph of relative change in employment in Texas.

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Is the food for thought link publicly available? I'd be interested to read the whole thing.

Snagged from this tweet, sorry I don't have the source yet.

 

[RobStark]

We are still a net importer of oil and energy. With lower prices perhaps knocking out 20% of frackers our net imports should increase. Overall, low oil/energy prices should still be good for the US economy.

 

[GenIIIBuyer]

It is not so much the cause of the decline as the effect that is worrisome to me, as it relates to the massive amount of capital thrown at this industry/commodity, and the very real risk of corporate and/or national defaults that have cascading effects on the banks that backed them. Food for thought:

I agree there will be some contagion/cascading effects. However, it is different that 2008 mortgage-crisis. 1) The debts that will go bad are rated BBB or lower, not AAA as the mortage bonds were. This implies a different class of investor (presumably more sophisticated). 2) Not drilling an additional oil well due to reduced corporate cap-ex budget has much less dire cascading economic consequences than foreclosing on a home.

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Big Fed Day tomorrow folks, FOMC statement released at ~ 2:15 PM at http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm

with a Yellen Press conference in the afternoon following the release. On the table is whether or not to remove 'considerable time' from when to begin raising short-term interest rates. The market believes considerable time to be about "6 months", removing it would open the door to raising rates early summer 2015.

Oil would probably break below $50/barrel if considerable time is removed. God knows where the Ruble would end up.

 

[yesla]

Deleted - I should not read itsh in the middle of the night on my phone. It really looked legit... and gives an inside story to whats happening now... economic warfare. Anyways... yeah.. its stupid.

 

[Robert.Boston]

The Bricso vs. the US Dollar: What will Happen to the Global Economy if BRICS Announce Launch of New Currency? | Global Research

Summary. Brics create their own currency on January 2014 to combat the petrodollar and Putin, on behalf of the other BRIC countries, puts it down at the conference. Is anyone picking this up?

You do realize that this is (a) a fictional "wouldn't it be interesting if..." opinion piece, not news, and (b) published 14 months ago? No country today would want to be in a currency union with Russia.

 

[FluxCap]

On today's Fed release, I agree with Krugman's guesses here (as usual).

FOMC minutes released at 2pm or shortly thereafter. All eyes are on two words being included or excluded: "considerable time." Here is where you can read the note yourself (links will go live next to the "December 16-17" row):

FRB: Meeting calendars, statements, and minutes (2009-2015)

Look for equities markets to react sharply at 2pm EST.

 

[mershaw2001]

thank you flux for providing us with a background of what is going on in the larger pic.

 

[FluxCap]

thank you flux for providing us with a background of what is going on in the larger pic.

Quite welcome! Glad people find this useful.

 

[MikeC]

Quite welcome! Glad people find this useful.

Definitely useful. Did they keep "considerable time"? Can't find any news.

 

[FluxCap]

It's in there:

"Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October"

FRB: Press Release--Federal Reserve issues FOMC statement--December 17, 2014

 

[MikeC]

It's in there:

"Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October"

FRB: Press Release--Federal Reserve issues FOMC statement--December 17, 2014

Actually, it looks like they replaced it with "patient" and then said that was consistent with "considerable time", right? Which is a little different from reiterating "considerable time".

 

[FluxCap]

Actually, it looks like they replaced it with "patient" and then said that was consistent with "considerable time", right? Which is a little different from reiterating "considerable time".

Well, the market ate it up like sweet sugary candy. S&P ripped higher, I think maybe highest one-day % gain of all year?

 

[austinEV]

She should have changed it to "appreciable period" just for the head scratching...

 

[The Blue Owl]

She should have changed it to "appreciable period" just for the head scratching...

Or, she could have said "we will start normalizing rates at 12:00 am on July 1, 2015, unless stuff gets worse than we think it will". I mean, everyone knows it already. I wonder what would happen if they spoke clearly and unambiguously for a change.

 

[FluxCap]

Latest from the world of the dinosaur juice market:

Saudi's Naimi says OPEC will not cut output however far oil falls - MEES - Yahoo Finance