Mish's Global Economic Trend Analysis

Lies and More Lies: Another Look at Obama's State of the Union Address
Spotlight on the "Con" in Consumer Confidence: Confidence Improves Hooray!
Drink Up: Record $108 Billion Bond Offering in Mega Brewer Takeover of SABMiller by Anheuser-Busch
Drivers Not Needed: Tesla "Autopilot" Software Allows Self-Parking Without Driver; Completely Driverless Public Transport Test in Arizona

Lies and More Lies: Another Look at Obama's State of the Union Address

Posted: 13 Jan 2016 05:05 PM PST

Lies and More Lies

I commented on Obama's state of the union address in Brilliant Bullshit!

Let's check out an alternative viewpoint. In the video below, the CATO administration comments on Obama's SOTU address.

Link if video does not play: Cato Institute Scholars Respond to Obama's Final State of the Union Address.

Obama's Successes

Right around the 7:10 mark, CATO scholar Emma Ashford mentioned Obama's successes.

"The Obama administration has actually had some big foreign policy successes, mostly in the realm of diplomacy. Things like the Iranian nuclear deal .... Things like lifting the Cuban embargo, a 50 year old failed policy," said Ashford.

When writing my post I said "Obama's treaty with Iran is his single most positive accomplishment in eight years".

I failed to mention another Obama success. Cuba.

Otherwise, the CATO assessment is pretty much in line with my comments.

I called Obama's speech Brilliant Bullshit!

Outside of a couple foreign policy decisions, CATO seems to think I had one word too many in my assessment.

Mike "Mish" Shedlock

Spotlight on the "Con" in Consumer Confidence: Confidence Improves Hooray!

Posted: 13 Jan 2016 12:44 PM PST

Confidence Improves Hooray!

The consumer conference board says Consumer Confidence Index Improves in December.

The Conference Board Consumer Confidence Index® now stands at 96.5, up from 92.6 in November.

How did the board determine confidence was up?

"The Consumer Confidence Survey uses an address-based mail sample design. The CCS mailing is scheduled so that the questionnaires reach sample households on or about the first of each month. The targeted responding sample size—approximately 3,000 completed questionnaires—has remained essentially unchanged throughout the history of the CCI."

Deep Meaning

Amazingly, a mail sample of 3,000 is sufficient to determine the confidence of the entire nation. You can buy the data if you want. I'll take a pass.

The Fed would have you believe consumer confidence numbers have some deep meaning. Many others believe confidence is a leading indicator of spending which makes confidence a leading indicator of the economy.

Bloomberg states "Consumer sentiment is directly related to the strength of consumer spending."

Yellen's Confidence

In a December speech The Economic Outlook and Monetary Policy Fed Chair Janet Yellen commented on "confidence" (both consumer confidence and hers) several times.

Job growth has bolstered household income, and lower energy prices have left consumers with more to spend on other goods and services. These same factors likely have contributed to consumer confidence that is more upbeat this year than last year. Increases in home values and stock market prices in recent years, along with reductions in debt, have pushed up the net worth of households, which also supports consumer spending.
Ongoing gains in the labor market, coupled with my judgment that longer-term inflation expectations remain reasonably well anchored, serve to bolster my confidence in a return of inflation to 2 percent as the disinflationary effects of declines in energy and import prices wane.
On balance, economic and financial information received since our October meeting has been consistent with our expectations of continued improvement in the labor market. And, as I have noted, continuing improvement in the labor market helps strengthen confidence that inflation will move back to our 2 percent objective over the medium term.

Consumer Board Confidence Chart

Given that confidence is purportedly so strong, inquiring minds may wish to see the numbers in graphical form.

Here's a nice chart from the Advisor Perspectives report Consumer Confidence Improved in December.

click on chart for sharper image

Take Aways

Recessions can start at any confidence level
Confidence plunges during recessions
The current level is just about average

Gallup Economic Confidence

Inquiring minds are no doubt interested in other confidence measures. The Gallup Economic Confidence Index is one such measure.

Gallup's Economic Confidence Index is the average of two components: how Americans rate the current economy and whether they feel the economy is getting better or getting worse. The index has a theoretical maximum of +100, if all Americans rate the economy as excellent or good and improving; and a theoretical minimum of -100, if all Americans rate the economy as poor and getting worse.

The Gallup Economic Confidence Index hit a multi-year high of +7 about a year ago. It is now at -11. Interestingly, the index turndown happens to match the turndown in manufacturing and the slowdown in US GDP.

Consumer Spending Expectations

Rather than survey consumers on how confident they are, why not survey them on how much they intend to spend?

Actually, the New York Fed does just that.

Please consider One-Year Ahead Household Spending Growth Expectations.

Spotlight on the "Con" in Consumer Confidence

Fancy that. Consumers said they would spend less and they did. The timing corresponds to Gallup. Timing also corresponds to the manufacturing recession.

Rather than believe its own direct survey on spending, the Fed puts its faith in indirect measures of confidence and its own unjustified beliefs.

Mike "Mish" Shedlock

Drink Up: Record $108 Billion Bond Offering in Mega Brewer Takeover of SABMiller by Anheuser-Busch

Posted: 13 Jan 2016 09:33 AM PST

Blockbuster Brewery Merger Coming Up

A record $5 trillion jumbo bond offerings hit the books in 2015. Will 2016 be another record year?

Perhaps not, but if the proposed Anheuser-Busch takeover of SABMiller goes through, it will be the largest bond offering ever.

The $108 billion jumbo brewery offering will more than double the 2013 previous record bond deal of $49 billion by Verizon.

Please consider Blockbuster US Bond Offering Brews.

Mega-brewer Anheuser-Busch InBev has tested investor appetite for a potential blockbuster bond offering later this week, as the group lines up financing for its $108bn takeover of rival SABMiller.

Bankers in New York and London have been gauging investor interest in what could be a record breaking debt offering, potentially eclipsing the watershed $49bn issue completed by telecom provider Verizon in 2013.

The volume of so-called jumbo bonds, or more than $10bn in value, surged last year as a mergers and acquisitions boom drove companies to try to lock in cheap financing before the Federal Reserve raised interest rates from near-zero levels.

Investors have also preferred large bond deals as they increasingly fret about liquidity in the bond market and an inability to sell their portion of smaller issues without dramatically moving the price on offer downwards.

Budweiser, Miller Not Under Same Roof

The LA Times reports Beer Merger will not bring Budweiser, Miller Under Same Roof.

The world's two biggest beer makers will join forces to create a company that produces almost a third of the world's beer. But in the U.S., the deal will not bring arch rivals Budweiser and Miller under the same roof.

To ease concerns the brewing behemoth might get a stranglehold of the U.S. market, SABMiller will sell its 58% stake in a venture with fellow brewer Molson Coors for $12 billion. The deal includes rights to the Miller brand name and gives Molson Coors full control of operations.

The combined company — which as yet does not have a name — will also need to address regulatory issues in China, where SABMiller has a leading position with a 49% stake in the Chinese beer Snow. China is the focus of intense interest, as it already drinks a quarter of the world's beer.

The new company will be listed in Belgium, with secondary listings in Johannesburg, Mexico and New York.

The deal gives the new company 29% of the 198 billion liter global beer market — and makes it three times bigger than its nearest rival, Heineken, with a mere 9%, said Jeremy Cunnington, the senior alcoholic drinks analyst at Euromonitor International.

But to make the deal work, savings will need to be made. AB InBev expects to cut costs by $1.4 billion.

"AB InBev are second to none in being able to cut costs," Cunnington said. "And they are utterly ruthless."

Record Breaking Bonds Deals

Can the first $1 trillion bond offering be that far off?

Mike "Mish" Shedlock

Drivers Not Needed: Tesla "Autopilot" Software Allows Self-Parking Without Driver; Completely Driverless Public Transport Test in Arizona

Posted: 13 Jan 2016 08:43 AM PST

"Autopilot" Self-Parking

Hate parking cars in tight spaces in garages or streets? I certainly do. Tesla has a solution: Software Upgrade Lets Cars Park Themselves With No Driver.

Owners of Model S and Model X sedans will be able to park them while standing outside the vehicle if it's within 33 feet (10 meters) of a garage or narrow space, Tesla said Sunday on the eve of the Detroit auto show. The cars can also be summoned from a parking spot, according to the company, which said the tools remain in a beta, or test, version.

Tesla, co-founded by billionaire Elon Musk, has distinguished itself by automatically pushing over-the-air software updates to customers, refreshing the vehicles with new and enhanced functions.

Force of Competition

What starts with Tesla, won't stay with Tesla.

GM, Ford, Toyota, BMW will all soon have this feature. Competition guarantees that outcome.

Automation won't stop at 33 feet, or with parking in general. Driverless transport to and from airports and around college campuses is the logical next step.

I have been making such statements for several years, and every time I do, I get copious numbers of emails citing a litany of reasons why I am wrong.

Actually, it now appears this may happen even sooner than I thought.

Completely Driverless Public Transport Test in Arizona

Spectrum reports Uber Could Be First to Test Completely Driverless Cars in Public

Uber CEO Travis Kalanick has made no secret about wanting robots to replace human drivers in his rideshare service—and now he's found somewhere to develop them. Last month, the governor of Arizona, Doug Ducey, paved the way for the world's first driverless taxis on public roads.

Several U.S. states already permit autonomous vehicle tests but all require a human in the driver's seat should the technology unexpectedly fail. While safety drivers might suit auto makers like Tesla that are building "autopilots" to help motorists avoid accidents on boring motorway journeys, Uber ultimately wants to eliminate human drivers altogether.

Governor Ducey championed ridesharing regulations that allowed Uber to operate legally in Arizona, and Uber opened a customer service center in the state in June. During August's press conference, the company announced a US $25,000 donation to the University of Arizona, and committed to fund research into mapping and self-driving technologies there.

Ducey's executive order looks to have been written with Uber in mind. It requires that Arizona's driverless vehicle pilot programmes take place on the campuses of public universities, such as the University of Arizona. It also directs the state's Department of Transportation, Department of Public Safety and "all other agencies" to "undertake any necessary steps to support the testing and operation of self-driving vehicles on public roads within Arizona."

This means that when Uber does reveal its self-driving taxi, it should be able to legally drive paying customers around the University from day one, which may not be too far off.

Drivers Not Needed

Once again, competition is in play, this time between states, not companies.

Take things to the proper conclusion: Paid taxi drivers will vanish.

Mike "Mish" Shedlock

Economy News

13.1.16

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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