Shop Thru Us! Save Money!




It may be August and the dog days of summer for trading interest, but the economic numbers this week are important. At least for now. They’ll determine how we spend the balance of the month characterizing the economy. Whether September has any relevance for Fed fund futures traders. And if the mindless buying of equities and risk continues apace.

Weak numbers follow strong ones, ad seriatum, and no one seems to have any credible idea why. The economic surprise index is knocking the cover off the ball, while mixed in we get the odd and horrific non-farm payroll report or GDP print.

Confidence in economic projections is low. That makes data dependence a dangerous conceit. Signal quality is bad, unreliable and with no shelf life.

Given the season, it’s hard not to worry whether the economy has caught the equivalent of the “sweating sickness.” Merry at breakfast, dead by dinner. And nary a soul could name a cause nor a cure. And that remains true 500 years later. Of course in matters economic we’ll get explanations by lunch time and everyone will have seen it coming, if only they’d been listened to.

Last week’s 2Q GDP guess came in at less than half the expert forecast. The market sliced a quick 10% off pricing for a rate-hike at the next meeting and left December at a paltry 35%.

Cue the Fed speakers. Williams, Kaplan and Dudley said what’s one number, don’t rule out a hike. That’s a real problem. No one understands the numbers so numbers don’t mean anything. But that’s how we’re meant to measure the economy and make investment decisions They need to spend more time trying to understand why no one “gets” the economy than where they hope its going. Finger-crossing shouldn’t be an input to an econometric model.

The ISM surveys and Friday’s payroll report will do a lot to script how Fed Chair Janet Yellen writes her Jackson Hole presentation and tell us how to trade the next few weeks. At least until the next set of data.


In our household, we measure inflation with the "Burrito Index": How much has the cost of a regular burrito at our favorite taco truck gone up?

Since we keep detailed records of expenses (a necessity if you’re a self-employed free-lance writer), I can track the real-world inflation of the Burrito Index with great accuracy: the cost of a regular burrito from our local taco truck has gone up from $2.50 in 2001 to $5 in 2010 to $6.50 in 2016.

That’s a $160% increase since 2001; 15 years in which the official inflation rate reports that what $1 bought in 2001 can supposedly be bought with $1.35 today.

If the Burrito Index had tracked official inflation, the burrito at our truck should cost $3.38—up only 35% from 2001. Compare that to today's actual cost of $6.50—almost double what it “should cost” according to official inflation calculations.

Since 2001, the real-world burrito index is 4.5 times greater than the official rate of inflation—not a trivial difference.

Between 2010 and now, the Burrito Index has logged a 30% increase, more than triple the officially registered 10% drop in purchasing power over the same time.

Those interested can check the official inflation rate (going back to 1913) with the BLS Inflation calculator by clicking here.

My Burrito Index is a rough-and-ready index of real-world inflation. To insure its measure isn’t an outlying aberration, we also need to track the real-world costs of big-ticket items such as college tuition and healthcare insurance, as well as local government-provided services. When we do, we observe results of similar magnitude.

The takeaway? Our money is losing its purchasing power much faster than the government would like us to believe.

Comparing Burritos to Burritos: A Staggering Divergence of Reality and Official Inflation

According to official statistics, inflation has reduced the purchasing power of the dollar by a mere 6% since 2011: barely above 1% a year. We’ve supposedly seen our purchasing power decline by 27% in the 12 years since 2004—an average rate of 2.25% per year.

But our real-world experience tells us the official inflation rate doesn’t reflect the actual cost increases of everything from burritos to healthcare.

The cost of a regular taco was $1.25 in 2010. By official standards, it should cost a dime more. Oops—it’s now $2 each, a 60% increase, six times the official rate.

The cost of a Vietnamese-style sandwich (banh mi) at our favorite Chinatown deli has jumped from $1.50 in 2001 to $2 in 2004 to $3.50 in 2016.  That $1.50 increase since 2004 is a 75% jump, roughly triple the official 27% reduction in purchasing power.

So let’s play Devil’s Advocate and suggest that these extraordinary increases are limited to “food purchased away from home,” to use the official jargon for meals purchased at fast-food joints, delis, cafes, microbreweries and restaurants.

Well, how about public university tuition? That’s not something you buy every week like a burrito. Getting out our calculator, we find that the cost for four years of tuition and fees at a public university will set you back about 8,600 burritos. Throw in books (assume the student lives at home, so no on-campus dorm room or food expenses) and other college expenses and you’re up to 10,000 burritos, or $65,000 for the four years at a public university.

University of California at Davis:

2004 in-state tuition $5,684 
2015 in state tuition $13,951 

That’s an increase of 145% in a time span in which official inflation says tuition in 2015 should have cost 25% more than it did in 2004, i.e. $7,105.  Oops—the real world costs are basically double official inflation—a difference of about $30,000 per four-year bachelor’s degree per student.

Here’s my alma mater (and no, you can’t get a degree in surfing, sorry):

University of Hawaii at Manoa:

2004 in-state tuition: $4,487
2016 in-state tuition: $10,872

Sure, some public and private universities offer tuition waivers and financial aid to needy or talented students, but the majority of households/students are on the hook for a big chunk of these costs. And remember that many students are paying living expenses, which doubles the cost of the diploma.

If you think I cherry-picked these two public universities, check out this article:

So the divergence between real-world costs and official inflation isn’t limited to burritos; it’s just as bad in items that cost tens of thousands of dollars.

The Official Fantasy of Hedonic Adjustments

In the official calculation of inflation, hedonic adjustments offset soaring costs: that 160% increase in the cost of a burrito is offset by the much lower cost for computers, especially when the greater processing power and memory are accounted for.

Clothing has also gotten cheaper, and this theoretically offsets higher costs elsewhere.

The problem with this is sort of calculation is that we have to eat every day and we have to pay higher education costs if we want our kids to remain in the middle class, but we only buy a new “cheaper” computer once every few years, and we don’t even have to buy new clothing at all, given the proliferation of used clothing outlets, swap meets, etc. (I do my annual clothing shopping at Costco: two pair of jeans for $15 each , one pair of shoes for $15, etc.)

The savings on $100 of new clothing per year or a $600 computer every three years does not offset the doubling or tripling of costs for items we consume daily or big-ticket essentials such as higher education, rent and healthcare.

Official Inflation: A Flawed Metric

Official inflation also assumes that consumers will actively substitute a cheaper alternative for whatever is soaring in price. If a burrito doubles in cost, then the consumer is supposed to buy a banh misandwich instead. (Oops, that doubled in price, too. So much for substitution gimmicks.)

The problem is pretty obvious: there are no alternatives for big-ticket essentials. There is no “cheaper” substitute for a four-year public university diploma or meaningful healthcare insurance. There is also no alternative to renting a roof over your head if you can’t afford to buy a house (or don’t want to gamble in the housing-bubble casino).

The scale of the costs matters. If I bought a burrito every working day (5 per week, with two weeks of vacation annually) for four years, that’s 250 per year or 1,000 burritos over four years. That’s one-tenth the cost of a university degree—assuming I can get all the classes needed to graduate in four years.

I can always lower the cost of lunch by making a peanut-butter-and-jelly sandwich at home rather than buying a burrito for $6.50, but there are limited ways to reduce the cost of a public university, which is already the “cheaper” alternative to private universities.

Even stripped-down healthcare insurance has soared in multiples of the official inflation rate.

Inflation in big-ticket items adds up to tens of thousands of dollars—costs that can’t be offset by choosing a cheaper mobile phone, cheaper clothing  or substituting a peanut butter sandwich made at home for a burrito at the taco truck.

Even if you skip buying lunch for four years, you’ve only offset 1/10th of the cost of a university diploma, a four-year stint in which the student lives at home and also eats peanut-butter-and-jelly sandwiches every day for four years (at least in in our barebones example of books, tuition and fees only, no dorm or university-provided food expenses).

As for healthcare: feast your eyes on this chart of medical expenses.

According to official inflation calculations, the $12,214 annual medical costs for a family of four in 2005 “should cost” $14,963 today in 2016.

Oops—the actual cost is $25,826, $10,863 higher than official inflation, which adds over $100,000 in cash outlays above and beyond official inflation in the course of a decade.

So let’s add the $30,000 per university student above and beyond inflation for two college students over a decade and the $100,000 in healthcare costs that are above and beyond inflation over that decade, and we get $160,000.

Since deductions for education and healthcare don’t completely wipe out income taxes, the household has to earn close to $200,000 more over the decade to net out the $160,000 to pay typical college and healthcare costs above and beyond what education and healthcare “should cost” if inflation in big-ticket items had actually tracked official inflation.

$100,000 here, $100,000 there and pretty soon you’re talking real money in a nation in which median household income is around $57,000 annually.

So if a household’s income kept up with official inflation over a decade, that household would have to earn at least $20,000 more per year just to keep pace with real-world, big-ticket cost increases.

That’s the problem, isn’t it? If the household’s wages only kept up with inflation, there isn’t another $20,000 a year in additional income needed to pay these soaring big-ticket costs. So the shortfall has to be borrowed, burdening the household with debt and interest payments for decades to come, or the kids don’t attend college and the household goes without healthcare insurance.

I’ve done some real-world apples-to-apples  calculations on our household’s costs of healthcare insurance, which we buy ourselves without any subsidies because we’re self-employed and we earn too much to qualify for ACA/Obamacare subsidies. (I would have qualified easily for the subsidies due to low earnings for the 20 years prior to Obamacare, but weirdly, as soon as ACA passed my income increased. Go figure.)

We’ve bought our stripped-down healthcare insurance from one of the more competitive non-profit providers, Kaiser Permanente, for the past 25 years. We’ve had the same plan (no meds, eyewear or dental coverage, and a $50 co-pay for any visit) for the entire quarter century. (Our plan is now grandfathered; the ACA equivalent is more expensive.) To keep the comparisons apples-to-apples, I compared identical coverage for the same-age person from year to year.

In 1996, the monthly cost to insure a 43-year old was $95. Now, the same plan for a 43-year old is $416 per month—more than four times as much for the same coverage.  If the costs had risen only in line official inflation, (52% since 1996), the monthly costs would be $145, not $416.

The cost of insurance for a 55-year old in 2008 was $325 per month. Today, the same plan for a 55-year old is $558, a 72% increase over a time span that officially only logged an 11% increase in inflation.

Last but not least, let’s look at a government-provided service—weekly trash pickup.  Since 2011, our trash fees have gone up 34.5%, compared to the official reduction in purchasing power of 6% since 2011.

Once again, real-world costs have soared at a rate that is almost six times higher than the official rate of inflation.

The reality is real-world inflation in big-ticket essentials is crushing every household that doesn’t qualify for government subsidies of higher education, rent and healthcare.

In Part 2: How To Beat Inflation, we examine a number of strategies for offsetting the soaring costs of everything from burritos to healthcare -- with particular focus on the investments and actions you can take today, inside and outside of the markets, to preserve the purchasing power of your wealth from the nefarious "stealth tax" placed on your money by the kind of inflation discussed above.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)


Submitted by: Charles Hugh-Smith via


Yesterday Goldman revealed its latest bearish call on stocks, issuing a tactical "Sell" on equities over the next three months. Today it is JPM's turn, as equity strategist Mislav Matejka echoed Goldman's concerns, urging clients not to "overstay their welcome" in cyclical stocks, and generally saying that the "medium-term upside for equities is limited and equities are likely to keep underperforming most other asset classes", adding that "Longer term picture is not very attractive; one should use current rally to ultimately sell into."


Here are JPM's numerous reasons why the top is here:

Q2 earnings hurdle rate was low, but the profit projections appear too optimistic for 2H and for 2017, this is a medium-term constraint...

This year, we called for two tactical risk-on trades, on 15th February and on 11th July, but beyond these our core view was to overweight low beta, as we expected bond yields to move further lower. We think the medium-term upside for equities is limited and believe equities are likely to keep underperforming most other asset classes:

1). Equity valuations are not offering much room for error. Global P/E multiples are elevated, in outright expensive territory. The P/S metric is higher today than it was at any time in the ‘07-’08 period, also  outright expensive. Peak P/S on peak sales? Bond yields staying low might not result in ever higher P/E multiples - low bond yields will typically over time spill over into ever-decreasing nominal growth rates.


2). US bank lending standards have tightened for three quarters in a row – supply of credit is worsening. Credit spreads might be at risk of widening again, given the recent rollover in oil price.
Corporate balance sheets have leveraged up, median US net debt-to-equity ratio is much higher than it was in ’07.



3). US profit margins are deteriorating. Profitability improvement was one of the key drivers of the 7-yearlong equity rally. This is likely finished, as the profit margin proxy – the difference between corporate pricing and the wage growth – is worsening. Buybacks have flattered earnings for a while now, but as a share of EBIT, buybacks are near historical highs, similar to the levels seen in ‘07. We would be surprised if they stay a potent support. Indeed, announced buybacks so far ytd are tracking 47% lower versus a year ago.


4). Growth – Policy trade-off is poor. Global economic activity remains subdued, and at the same time, the Fed is not injecting liquidity into the system anymore. Any spell of better dataflow is met with the Fed opening the doors to hikes, which brings stronger USD, acting as an automatic dampener for equities. On the other hand, spells of weaker dataflow put in question the earnings delivery. Not a great combination.


5). Structural Chinese backdrop remains challenging, in particular in terms of credit excess. Given these shaky foundations, it is difficult to extrapolate any pickup in Chinese activity with much conviction.


6). Politics are likely to stay messy in our view, not only in the UK, but also across Europe, and in the US.

…weakening profitability to keep final demand subdued; this calls for a shift in policy focus, towards fiscal boost

And the summary:


We have been highlighting a clear leading relationship between corporate profits and the economic dataflow over the past months. Profits and credit conditions have tended to drive both capex and the labour market. This is the conduit through which the weakness could spread to the rest of the economy, in our view. We note that the lead-lag was typically substantial, of the order of 2-4 quarters, but the equity market is clearly far from pricing in much of the risk of broader economic slowdown, in our view. The US consumer cyclicals sector remains the strongest performer in this bull market. If the economy does weaken over the next few quarters, this would likely have a very material impact, as it is not the mainstream base case.


Overall, we believe the following three powerful forces that led to the tripling of S&P500 over the past seven years are changing: 1) profit margins moving from record lows since World War II to record highs; 2) HY and HG credit spreads tightening dramatically; and 3) the Fed expanding its balance sheet.


All three of those drivers are finished from a medium-term perspective. US HY credit spreads have widened since June ‘14, and this move is not only due to the Energy sector. Ex-Energy, spreads are 170bp wider. US corporate balance sheets have deteriorated, in contrast to Europe. Profit margins are coming under pressure, given signs of increasing wage growth and weaker top lines than expected. Productivity is staying low, driving ULCs higher. The NIPA profits data has shown weakening in all the main divisions: domestic, foreign, financial and non-financial earnings.


Given all the above, we think the policy focus might shift away from predominantly the monetary push, and more towards fiscal and infrastructure stimulus. US public fiscal investment is at 60-year lows and productivity has been underdelivering in the current cycle. Fiscal deficits are high, as are debt burdens, but with cost of financing at record low for governments, the spread between returns on public infrastructure spending and the financing cost is likely to be clearly positive.

And so, another bank tries to top-tick the market for a variety of all too realistic, fundamental reasons - the only problem is that with activist central banks propping up stock markets, fundamentals have become utterly meaningless. Finally, a quick reminder: the last time both Goldman and JPM were on the same - bearish - side of the trade, stocks exploded to new all time highs. Maybe this time will be different.


Something happened on the way when the concept of “home” transmogrified to a financialized “asset class” whose price the government, the Fed, and the industry conspire to inflate into the blue sky, no matter what the consequences. And here are the consequences.

The Census Bureau, which has been tracking homeownership rates in its data series going back to 1965 on a non-seasonally adjusted basis, just reported that in the second quarter 2016, the homeownership rate dropped to 62.9%, the lowest point on record.

It matches the low point in Q1 and Q2 of 1965 when the data series began. At no time in between did it ever fall this low. And it was down half a percentage point from 63.4% a year ago.

The relentless slide has lasted for 12 years, from its peak of 69.2% in Q4 2004, which was when the Greenspan Fed’s low interest rates were boosting speculation in the housing sector, and prices were going haywire. At the time, the concept of “home” had already become an asset class that can never lose money, financialized and later shorted by Wall Street, subsidized by government agencies, and backstopped by the Fed.

The chart above shows what happened to homeownership rates afterwards.

The 1.9 percentage point drop from Q3 2014 (65.3%) to Q2 2015 (63.4%) was the largest two-year drop in the history of the data series. It also coincided with steep increase in home prices.

On a seasonally adjusted basis, the homeownership rate dropped to 63.1% in Q2, the lowest in the non-seasonally-adjusted data series going back to 1985.



At 2051 EDT, Japanese government bond futures suddenly halted trading. There was no limit moves or sudden surge in volume and the Osaka Exchange has confirmed it is investigating the reasons for the halt. Following the earlier flash-crash in USDJPY, one wonders just what is going on.. and what is coming?



And sure nough once everyone started to look:


Following this week's terrible tail in the 2Y JGB auction, and repeated claims by primary dealers that BoJ had killed the JGB market, it is unsurprising that such a 'glitch' could happen... but within an hour of the biggest BoJ announcement in history is too suspicious.


A video purportedly showing one of the men involved in the murder of a French priest has been released by a news agency linked to Islamic State.

The recording, made before the attack at the church in Normandy, is said by AMAQ to feature Abdel-Malik Nabir Petitjean.

He is seen addressing French President Francois Hollande and Prime Minister Manuel Valls.

He says: "The times have changed. You will suffer what our brothers and sisters are suffering. We are going to destroy your country."

Adel Kermiche and Abdelmalik Petitjean

Petitjean, 19, was formally identified as one of the men who killed Father Jacques Hamel in Saint-Etienne-du-Rouvray before being shot dead by police.

He and his accomplice Adel Kermiche, also 19, were previously purported to have appeared in another video pledging their allegiance to IS leader Abu Bakr al Baghdadi.

The emergence of the latest video comes as holidaymakers in Cannes have been told they will no longer be allowed to take large bags onto the beach, in an attempt to prevent terror attacks.

France remains in a state of emergency after 84 people were killed when a jihadist drove a lorry through a crowd celebrating Bastille Day in the nearby city of Nice.

Adel Kermiche

Pressure on the government has intensified after it emerged that Petitjean and Kermiche were known to security officials.

Petitjean had been on a terror watch list since 29 June after Turkish officials spotted him at an airport heading to Syria.

For unknown reasons he returned to France.

On 22 July, four days before the church assault, the French anti-terror organisation Uclat issued a photo of an unnamed man - who turned out to be Petitjean - warning that the person "could be ready to participate in an attack on national territory".

Nice remembers the victims of the Bastille Day attack
 Nice Remembers The Bastille Day Victims


Kermiche, who had also previously attempted to travel to Syria, was awaiting trial on terror charges and had been fitted with an electronic tag, despite calls from the prosecutor for him not to be released.

Opposition politicians have voiced strong criticism of the government's security record, with potential presidential candidate Nicolas Sarkozy calling for the detention or e-tagging of all militant Islamist militants.

Interior minister Bernard Cazeneuve has said that public events should be cancelled "if conditions do not allow for optimal security".

Page 8 of 27

Shop thru Us - Save $




c/o Attorney Ronald G. Russo


26 Broadway  - 19th Fl.

New York, NY  10004


(24/7 News Assignment Desk)

Tel.: 917-655-2681 

News Related e-mail:

Editorial Related e-mail:

Web site Administrator:



News Archives (All)