European government debt has been sold at negative interest rates recently. The United States Treasury has now come as close to that as possible with 0% 3 month T-bills in the latest auction.
The incredible policies that have created such loose credit has the world so flooded with money searching for somewhere to go that 0% is seen as attractive. This excess cash is dangerous. It is a condition that makes bubbles inflate.
Low interest rates are good for businesses seeking capital to invest. These super low rates for so long are almost certainly creating much more debt for no good purpose. And likely even very bad purposes since cash is so cheap.
One thing I didn’t realize until last month was that while the USA Federal Reserve stopped pouring additional capital into the markets by buying billions of dollars in government every month they are not taking the interest and maturing securities and reducing the massive balance sheet they have. They are actually reinvesting the interest (so in fact increasing the debt load they carry) and buying more debt anytime debt instruments they hold come due.
The Fed should stop buying even more debt than they already hold. They should not reinvest income they receive. They should reduce their balance sheet by at least $1,500,000,000,000 before they consider buying new debt.
Unless the failure to address too-big-to-fail actions (and systems that allow such action) results in another great depression threat. And if that happens again they should not take action until people responsible are sitting in jail without the possibly of bail. The last bailout just resulted in transferring billions of dollars from retires and other savers to the pockets of those creating the crisis. Doing that again when we knew that was fairly likely without changing the practices of the too-big-to-fail banks. But I would guess we will just bail them out while they sit in one of the many castles their actions at the too-big-to-fail banks bought them and big showered with more cash in the bailout from the next crisis.
How to invest in these difficult times is not an easy question to answer. I would put more money in stocks for yield (real estate investment trusts, drug companies, dividend aristocrats), I would also keep cash even if it yields 0% and actually a new category for me – peer to peer lending (which I will write about soon). Recently many dividend stocks have been sold off quite a bit (and then on top of that drug stocks sold off) so they are a much better buy today than 4 months ago. Still nothing is easy in what I see as a market with much more risk than normal.
I am almost never a fan of long term debt. I would avoid it nearly completely today (if not completely). For people that are retired and living off their dividends and interest I may have some long term debt but I would have much more in cash and short term assets (even with the very low yields). Peer to peer lending has risks but given what the fed has done to savers I would take that risk to get the larger yields. The main risk I worry about is the underwriting risk – the economic risks are fairly well known, but it is very hard to tell if the lender starts doing a poor job of underwriting.
Related: The Fed Should Raise the Fed Funds Rate – Too-Big-to-Fail Bank Created Great Recession Cost Average USA Households $50,000 to $120,000 – Buffett Calls on Bank CEOs and Boards to be Held Responsible – Historical Stock Returns
the Census Bureau predicts the working-age population will grow just 50,000 per month over the next 15 years.
The amount of time I spend focusing on economic data is fairly limited (compared to people doing so for a living or as a large part of their job). I stick with general rules of thumb that I can tweak a bit to let me keep up with economic conditions without a huge amount of time devoted to such efforts.
Due to my temperament; to my belief that markets often overreact in the short term; and partially to my less detailed understanding of economic data (that professionals focused on it all day) leads me to get less excited about individual data points. This is helpful for my overall investing performance, I believe.
Occasionally changing conditions require changing those rules of thumb. The 150,000 figure is one I have used for a long time; though I also adjust that for major medium term influences (such as the great recession dumped so many people out of jobs that I bumped up my “we need to add” monthly job figure to 175,000 to 200,000 to bring those people on board.
My 175,000 to 200,000 included a slight adjustment down from the 150,000 that I had made. In addition to using simple ideas like 150,000 monthly job baseline I incorporate the idea of not overreacting to variation in short term data as well as tweaking those numbers for medium term economic conditions (things like recovering from the great recession – though that is about the largest “tweaking” factor that I remember).
This article made me realize how much I should adjust my expectations for a neutral job growth reading in the USA going forward. I also gather data and opinions as I think about making major adjustments to my thinking. I’ll adjust from what I had been using of a base of 125,000 plus 50,000+ for great recession recovery to 75,000 + 50,000 for great recession recovery now (and adjust more later if other sources indicate it makes sense). The great recession recovery factor will likely go down to 25,000 for me by the end of this year.
Related: There is No Such Thing as “True Unemployment Rate” – Long Term View of Manufacturing Employment in the USA (2012) – USA Individual Earnings Levels for 2011: Top 1% $343,000, 5% $154,000, 10% $112,000, 25% $66,000 – GDP Growth Per Capita for Selected Countries from 1970 to 2010 (Korea, China, Singapore, Indonesia, Brazil
The 10 publicly traded companies with the largest market capitalizations. Since October of last year the top 20 list has seen quite a bit of profit for stockholders (mainly in Apple and Chinese companies).
|4||Exxon Mobil||USA||$352 billion|
|5||Berkshire Hathaway||USA||$346 billion|
|6||China Mobile||China||$340 billion*|
|7||Industrial & Commercial Bank of China||China||$306 billion**|
|8||Wells Fargo||USA||$292 billion|
|10||Johnson & Johnson||USA||$273 billion|
Apple’s market cap is up $115 billion since the last list was created in October of 2014. That increase is more than 50% of the value of the 14th most valuable company in the world (in October 2014).
China Mobile increased $100 billion and moved into 6th place. Industrial and Commercial Bank of China (ICBC) increased $78 billion to move into 7th place.
Exxon Mobil lost over $50 billion (oil prices collapsed as OPEC decided to stop attempting to hold back supply in order to maximize the price of oil). Alibaba (the only non-USA company in the last list) and Walmart dropped out of the top 10.
The total value of the top 20 increased from $5.722 trillion to $6.046 trillion, an increase of $324 billion. Several companies have been replaced in the new top 20 list.
The next ten most valuable companies:
|11||JPMorgan Chase||USA||$250 billion|
|12||China Construction Bank||China||$250 billion**|
|13||Novartis (NVS)||Switzerland||$246 billion|
|14||Petro China||China||$237 billion|
|19||Hoffmann-La Roche (ROG.VX)||Switzerland||$231 billion|
Market capitalization shown are of the close of business last Friday, as shown on Yahoo Finance.
The current top 10 includes 8 USA companies and 2 Chinese companies. The 11th to 20th most valuable companies includes 4 Chinese companies, 3 Swiss companies and 3 USA companies. Facebook (after increasing $21 billion), China Construction Bank (increasing $68 billion – it is hard for me to be sure what the value is, I am not sure I am reading the statements correctly but this is my best guess) and Tencent moved into the top 20; which dropped Procter & Gamble, Royal Dutch Shell and Chevron from the top 20.
A few other companies of interest (based on their market capitalization):
Solar energy capacity has been growing amazingly quickly the last few years. Part of the reason for this is the starting point was so low, making it easy to have large gains.
As with so many macro economic measures China has made enormous investments in solar energy the last few years. China’s increase in 2013 was larger than the USA’s total capacity at the end of 2013. Since solar energy use on a large scale is still small investments are quickly ramping up. Europe was a few years ahead of others putting countries like Germany, Spain and Italy far in the lead. China, the USA and Japan have been investing huge amounts the last few years and will likely leave those other than Germany (which already has such a large capacity) far behind very shortly.
In the USA, even after growing 60% in 2008, 53% in 2009, 71% in 2010, 86% in 2011, 83% in 2012 and 64% in 2013 solar energy capacity only totaled 1% of USA total electrical capacity. In 2013 hydropower was 6.8%, wind was 5.3% and biomass was 1.3%. The increase in solar capacity should continue to grow rapidly and is starting to make significant contributions to the macroeconomic energy picture.
When you look at total electricity generation solar only represented .5% (compared to 6.6% for hydropower 4.1% for wind and 1.5% for biomass).
USA data based on only solar capacity that is connected to the grid (and my guess would be that is the measure used in other countries too). Data is largely from that Department of energy report, with historical data for other countries pulled from previous editions.
The US Energy Information Agency (USEIA) expects the USA to add (net) 9,841 MW of wind capacity; 4,318 MW of natural gas capacity and 2,235 MW of solar in 2015. In 2015 they also predict a net decline of 12,922 MW of coal capacity. They also share that nuclear plants and natural gas combined-cycle generators having utilization factors 3 to 5 times those of wind and solar generators, which means capacity measures are significantly different from actually produced electricity measures.
The USEIA has predicted “global solar PV capacity seen rising from 98 GW in 2012 to 308 GW in 2018.” They predicted in 2018 China would have the most solar PV capacity followed by Germany, Japan and the USA.
The Solar Energy Industries Association (USA) states that 5,000 MW of solar capacity was added in the USA in 2013 and 7,000 MW in 2014. They forecast 8,000 MW to be added in 2015 and 12,000 MW in 2016.
Related: Solar Direct Investing Bonds – Chart of Global Wind Energy Capacity by Country 2005 to 2013 – Leasing or Purchasing a Solar Energy System For Your House – Nuclear Power Generation by Country from 1985-2010 – Google Invests $168 million in Largest Solar Tower Power Project (2011) – Molten Salt Solar Reactor Approved by California (2010) – 15 Photovoltaics Solar Power Innovations (2008)
USA health care spending increased at a faster rate than inflation in 2013, yet again; increasing 3.5%. Total health expenditures reached $2.9 trillion, 17.4% of the nation’s Gross Domestic Product (GDP) or $9,255 per person.
While this remains bad news the rate at which heath care is increasingly costing those in the USA has been slower the last 5 years than it has been in past years. Basically the system is getting worse at a slower rate than we used to be, so while that isn’t great, it beats getting worse as quickly as we used to be. For the last 5 years the rate of increase has been between 3.6% and 4.1%.
GDP has increased more than inflation. As the GDP grows the economy has more production for society to split. The split between the extremely wealthy and the rest of society has become much more weighted to the extremely wealthy (they have taken most of the gains to the overall economy in the last 20 years). Health care has a similar track record of devouring the gains made by the economy. This has resulted in health care spending soaring over the decades in an absolute basis and as a percentage of GDP.
The slow down in how badly the health care system has performed in the USA has resulted in the share of GDP taken by the health care system finally stabilizing. Health care spending has remained near 17.4% since 2009. While hardly great news, this is much better news than we have had in the last 30 years from the USA health care system. The percentage of GDP taken by the USA health care system is double what other rich countries spend with no better health results.
It is similar to if a team started as a championship team and then got worse every year and now they have finally stopped getting even worse. Granted they have become the worst team in the league but if, say, their record has now been 5-55 for 3 years in a row, they at least are not winning fewer game in each subsequent year anymore. But you can hardly think you are doing a great job when you are clearly the worst team each and every year.
Obviously there is a need for much much more improvement in the USA health care system. Still stopping the growth in spending, as a percent of GDP, is a positive step toward drastically decreasing it to reach a level more in live with all other rich countries. Even this goal is only to have the USA reach a level of mediocrity. If you actually believe the USA can to better than mediocre that would imply a combination of drastic declines in spending (close to 50%) and drastic gains in outcomes. Decreasing spending by 50% would put the USA at essentially the definition of mediocre – middling result with average spending.
Health Spending by Type of Service or Product
- Hospital Care: Hospital spending increased 4.3% to $936.9 billion in 2013 compared to 5.7% growth in 2012. The lower growth in 2013 was influenced by growth in both prices and non-price factors (which include the use and intensity of services).
- Physician and Clinical Services: Spending on physician and clinical services increased 3.8% in 2013 to $586.7 billion, from 4.5% growth in 2012. Slower price growth in 2013 was the main cause of the slowdown, as prices grew less than 0.1%, due in part to the sequester and a zero-percent payment update.
The 10 publicly traded companies with the largest market capitalizations.
|2||Exxon Mobil||USA||$405 billion|
|5||Berkshire Hathaway||USA||$337 billion|
|6||Johnson & Johnson||USA||$295 billion|
|7||Wells Fargo||USA||$270 billion|
Alibaba makes the top ten, just weeks after becoming a publicly traded company. The next ten most valuable companies:
|11||China Mobile||China||$240 billion*|
|12||Hoffmann-La Roche||Switzerland||$236 billion|
|13||Procter & Gamble||USA||$234 billion|
|14||Petro China||China||$228 billion|
|15||ICBC (bank)||China||$228 billion**|
|16||Royal Dutch Shell||Netherlands||$227 billion|
|19||JPMorgan Chase||USA||$224 billion|
Petro China reached to top spot in 2010. I think NTT (Japan) also made the top spot (in 1999); NTT’s current market cap is $66 billion.
Market capitalization shown are of the close of business today, as shown on Yahoo Finance.
According to this March 2014 report the USA is home to 47 of the top 100 companies by market capitalization. From 2009 to 2014 that total has ranged from 37 to 47.
The range (during 2009 to 2014) of top 100 companies by country: China and Hong Kong (8 to 11), UK (8 to 11), Germany (2 to 6), France (4 to 7), Japan (2 to 6), Switzerland (3 to 5).
Related: Stock Market Capitalization by Country from 1990 to 2010 – Global Stock Market Capitalization from 2000 to 2012 – Investing in Stocks That Have Raised Dividends Consistently – The Economy is Weak and Prospects May be Grim, But Many Companies Have Rosy Prospects (2011)
A few other companies of interest:
Facebook, USA, current market cap is $210 billion.
Pfizer, USA, $184 billion.
Toyota, Japan, $182 billion.
The article, What’s the Real U.S. Unemployment Rate? We Have No Idea, provides interesting information on the process for calculating the unemployment rate.
But it also misleads in saying “real US unemployment rate.”
It is important to update measures to avoid using proxies that lose value.
The unemployment rate certainly has proxy issues. But there is no “true unemployment rate.” There are ways to change the process to focus on different things (make the proxy better matched to certain issues). But also it seems to me, unemployment rate needs to have other related measures that are considered in concert with the unemployment rate (such as the labor force participation rate, perhaps some measure of under-employment etc.).
Those paying much attention do use other measures in concert but the last few years I read lots of different people complaining that the unemployment rate doesn’t capture various aspects of how the job market is poor (and often claiming the unemployment rate was “inaccurate” as though there was a platonic form of the actual rate divorced from the measure process.
In 2013 the addition to wind power capacity slowed a great deal in most countries. Globally capacity was increased just 13% (the increases in order since 2006: 26%, 27%, 29%, 32%, 25%, 19% and again 19% in 2012). China alone was responsible for adding 16,000 megawatts of the 25,838 total added globally in 2013.
At the end of 2013 China had 29% of global capacity (after being responsible for adding 62% of all the capacity added in 2013). In 2005 China had 2% of global wind energy capacity.
The 8 countries shown on the chart account for 81% of total wind energy capacity globally. From 2005 to 2013 those 8 countries have accounted for between 79 and 82% of total capacity – which is amazingly consistent.
Wind power now accounts for approximately 4% of total electricity used.
Related: Chart of Global Wind Energy Capacity by Country 2005 to 2012 – In 2010 Global Wind Energy Capacity Exceeded 2.5% of Global Electricity Needs – Global Trends in Renewable Energy Investment – Nuclear Power Generation by Country from 1985-2010
This is a startling piece of data, from The nagging fear that QE itself may be causing deflation:
The situations have many differences, for example, China is a poor country growing rapidly, Japan was a rich country growing little (though in 1990 it showed more growth promise than today). Still this one of the more interesting pieces of data on how much a bubble China real estate has today. Japan suffered more than 2 decades of stagnation and one factor was the problems created by the real estate price bubble.
The global economic consequences of the extremely risky actions taken to bail out the failed too-big-too-fail banks including the massive quantitative easing are beyond anyones ability to really understand. We hope they won’t end badly that is all it amounts to. Noone can know how risky the actions to bail out the bankers is. The fact we not only bailed them out, but showered many billions of profit onto them (even after taking billions in fines for the numerous and continuing violations of law by those bailed out bankers), leaves me very worried.
It seems to me we have put enormous risk on and the main beneficiaries of the policies are the bankers that caused the mess and continue to violate laws without any consequences (other than taking a bit of the profit them make on illegal moves back sometimes).
The West ignored pleas for restraint at the time, then left these countries to fend for themselves. The lesson they have drawn is to tighten policy, hoard demand, hold down their currencies and keep building up foreign reserves as a safety buffer. The net effect is to perpetuate the “global savings glut” that has starved the world of demand, and that some say is the underlying of the cause of the long slump.
I hope things work out. But I fear the extremely risky behavior by the central banks and politicians could end more badly than we can even imagine.
Related: Continuing to Nurture the Too-Big-To-Fail Eco-system – The Risks of Too Big to Fail Financial Institutions Have Only Gotten Worse – USA Congress Further Aids The Bankers Giving Those Politicians Piles of Cash and Risks Economic Calamity Again – Investment Options Are Much Less Comforting Than Normal These Days
The data, from IMF, does not include China or India.
The chart shows data for net debt (gross debt reduced by certain assets: gold, currency deposits, debt securities etc.).
Bloomberg converted [broken link was removed] the data to look at debt load per person (looking at gross debt – estimated for 2014). Japan has ill-fortune to lead in this statistic with $99,725 in debt per person (242% of GDP), Ireland is in second with $60, 356 (121% of GDP). USA 3rd $58,604 (107%). Singapore 4th $56,980 (106%). Italy 6th $46,757 (133%). UK 9th $38,939 (95%). Greece 12th $38,444 (174%). Germany 14th $35,881 (78%). Malaysia 32nd $6,106 (57%). China 48th $1,489 (21%). India 53rd $946 (68%). Indonesia 54th $919 (27%).
I think the gross debt numbers can be more misleading than net debt figures. I believe Singapore has very large assets so that the “net” debt is very small (or non-existent). Japan is 242% in gross debt to GDP but 142% of net debt (which is still huge but obviously much lower). The USA in contrast has gross debt at 107% with a net debt of 88%.
Related: Government Debt as Percent of GDP 1998-2010 for OECD – Gross Government Debt as Percentage of GDP 1990-2009: USA, Japan, Germany, China – Chart of Largest Petroleum Consuming Countries from 1980 to 2010 – Top Countries For Renewable Energy Capacity