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Is There a Bear in the Auto Industry?

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A fresh new set of auto sales data has come out in the beginning of August detailing the past month's activity in the buying and selling of motor vehicles. As expected, auto stocks traded lower when the disappointing results were revealed. According to Reuters, shares of General Motor (GM), Fiat Chrysler (FCHA), and Ford (F) traded more that 3 percent lower last week. Reports of March light vehicle sales at about 16.6 million where analyst expectations had drifted slightly above 17 million. Since the financial crisis, automakers have enjoyed a steep expansion in auto sales, but in the past couple of months, that expansion has stopped.

In 2011, a global auto industry exchange traded fund (CARZ) was created to follow the price movement of some of the largest automobile companies in the world. GM and Ford account for over 15 percent of the fund's holdings with Toyota and Honda (both of which rely on U.S. demand) making the ETF very sensitive to auto sales in the United States. Af…

The Federal Reserve Decides to Diet

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In a press conference on April 5th, 2017, Federal Reserve officials announced their desire to start reducing the size of the Federal Reserve's balance sheet this year. Since the financial crisis in 2008, the size balance sheet has grown to $4.5 trillion worth of bonds and other assets bought up during the period of quantitative easing following the crash of the financial system. In the latest Fed minutes voiced this idea saying, "Provided that the economy continued to perform about as expected, most participants anticipated that gradual increases in the federal funds rate would continue and judged that a change to the Committee's reinvestment policy would likely be appropriate later this year." Since 2009, the members of the Federal Reserve have used various techniques to maintain loose policy as the economy reflated. Lately, though, these mouthpieces have been used to institute a "normalization" policy that will allow interest rates to rise while keeping i…

American Health Care Act: Shifting the Structure of Health Care

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Last week, the Congressional Budget Office (CBO) released their cost estimates for the American Health Care Act. The piece of legislature is looking to be passed in the House of Representatives but is struggling to obtain the support to pass it. Speaker Paul Ryan recently said that his bill would need to change to secure the votes it needs to pass. The CBO report has done its part to affect the bill’s popularity and proven it deserves some review.

The federal budget deficit continues to be one of the divisive issues in the two-party system with Republicans and Democrats blaming the opposition for its death of financial accountability. When the CBO mentions that the bill will reduce federal deficits by $337 billion, ears perk up. In a ten-year period, estimates predict that $1.2 trillion of spending would be erased with most that reduction coming from $880 billion in federal outlays for Medicaid. Much of the opposition to the bill comes at this point where the program that supports tho…

Chart of the Day: OPEC Price, Output, and Revenue

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While doing some research for my book earlier this month, I came across an interesting graphic created by Dermot Gately in his paper "Lessons from the 1986 Oil Price Collapse." The chart provided a useful perspective on the equilibrium price of a barrel of oil during a period where OPEC sought to control the price by cutting production after it fell to lows in the 1970's. Revenue levels for the oil cartel declined to almost $50 billion endangering the health of many economies that relied on its natural resources for survival.  As more members began to feel the pain of tighter trade balances, more support for a supply cut forced the hand of the swing producer, Saudi Arabia. The price control worked until 1986 when prices crashed again.

Normalization Versus Rate Hike Policy

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The steadfast Federal Reserve is at it again. After a meeting on November 2nd, the committee of ten concluded with the federal funds rate and the discount rate held steady at the status quo. In the release, they say that “the case for an increase in the federal funds rate has continued to strengthen,” but of course, confidence wasn’t strong enough for the economy to off of low-interest rate life support. Three hesitant words stuck out to in particular: the labor market is expected to “strengthen somewhat further,” economic activity well grow “at a moderate pace,” and market risks “appear roughly balanced.” To me, these filler words indicate that the Federal Reserve recognizes the signs of a cyclical peak and seeks to diffuse tension in an economy that is moving flatly. The S&P 500, Dow Jones Industrial Average, and Nasdaq indices are trending at all-time highs, valuations continue to rise, and economic numbers paint an ambivalent picture of the economy. It’s not hard to conclude …

Italy Industrial Production and Chaos Theory

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Yes, I'm eating spaghetti today for lunch in honor of Italy's second straight month in a row of beating industrial production expectations. A positive trend in this industry will bode well for President Renzi's hope for the passing of his constitutional referendum to pass next week. In August, output rose 1.7 percent, a positive surprise over the -0.1 percent expected. In July, expectations were also beaten with a 0.7 percent jump. Such meager statistics are not trivial, for those who doubt my need for celebration, as any positive growth trend is critical in a world that has been deemed "low growth." This will be especially true for the ailing Italians who have been in perplexing economic and political positions for some time now. Renzi's cut in corporate taxes will hope to rectify business sentiment that has drifted with low growth. GDP of the ninth largest economy in the world has stagnated over the past four years with growth finally positive midway throug…

Preparing for September

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Last week ended with another heavy statement from the Federal Reserve Chairwoman, Janet Yellen, addressing her fellow central bankers at an annual conference at Jackson Hole. Her words, "In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months," were enough to inject a small dose of volatility into trading on Friday. Equities which had grown earlier in the day weakened in later trading, and the dollar jumped against foreign currencies.

Trading opened the week with Yellen's remarks in mind and a fresh batch of economic data in the morning. Income and inflation metrics met consensus estimates with earlier estimates revised slightly upward. Personal income and consumer spending inched upward in the last reported month showing signs that the economy has begun to stabilize, but a small increase will fuel pessimism surroundi…