Yellen’s Myth (Part 2)

While Fed Chair Janet Yellen is apparently not able to “see anything in the underlying strength of the economy that would lead me to be concerned” about recession, let’s take a look at just a few data points that may support the apparent myth that expansions "die of old age".

First, as part of the Census Department's "Manufacturing and Trade Inventories and Sales" report we find that the general ratio of inventory to sales has been climbing since late 2014 to currently stand at the highest level since mid-2009 indicating that inventories are likely mounting in the face of diminished demand.


Rail Freight Carloads, as published by the U.S. Bureau of Transportation Statistics, is currently reflecting a similar likely pullback in general demand with carloads registering annual declines for all of 2015, falling to a level last seen in early 2010.


Finally, the Dow Jones Transportation Average, a stock index representing the U.S. transportation sector, is now down over 20% from it's most recent high, the most substantial pullback seen since 2008's Great Recession.

The Farce Is Strong with this Fed Chair

The dot-com boom went bust… the housing boom went bust… now we have the Fed boom.

These booms are all identical in that they were all founded on an irrationally exuberant belief in some fundamental story that, eventually, gives way to the cold hard truth of reality.

The Fed boom farce is founded on a belief that the “masters of the universe” at the Fed can, from the comfort of their FOMC meeting room in Washington DC, not just plan the most fundamental trends in our massive macro-economy (namely prices and employment) but also manage to erase all the errors accumulated by millions of foolish and fraudulent participants (households and firms) during past economic tumult.

One very problematic way that this boom is different though is that it’s not a belief in a single industry sector or a particular asset class but in the institution that many believe currently backstops the entire system itself.

When the trends turn on this boom… look out!

So, that begs the question… Does Janet Yellen, a frail diminutive academic, have what it takes to meet the demands of the ensuing crisis?

I think not...

The Fed is going to need a new Chairman.

Yellen’s Myth (Part 1)

Notwithstanding Fed Chair Yellen’s certainty about her “myths”, recession indicators are continuing to accumulate as the current U.S. economic expansion continues to clearly trend into its twilight period.

While Yellen is apparently not able to “see anything in the underlying strength of the economy that would lead me to be concerned” about recession, let’s take a look at just a few points of interest that she clearly must have missed.

First, there has been notable protracted weakness in industrial production which is now showing a year-over-year decline of over 1%, a VERY strong indicator of fundamental weakness that is virtually always associated either directly with current or looming recession.


Additionally, both Industrial Production and Capacity Utilization have now show simultaneous notable year-over-year declines, an event that is literally associated with every recession since both data sets have been tracked.


Next, jobless claims appear to have hit the low for this expansion which, as we know from all other past expansions, generally does not stay at this level for very long.

In fact, population adjusted Continued Jobless Claims (continued claims as a percentage of non-institutional population) is at the lowest level since 1969, a strong indicator that insurance claims, and by proxy the general employment situation, has reached its best levels of the expansion.