All posts by Alexander Gloy

Two Versions of the US Fiscal Deficit

The US (federal) fiscal deficit has been deteriorating recently. This is an odd thing during the late stages of an economic recovery. The budget for 2016/17 (September 30) has been missed by around 10%, and the current fiscal year target (440bn) looks far off.

While spending continues to increase, receipts (government income) have leveled off since the beginning of 2016:

Individual income taxes have peaked at $ 1.6 trillion:

Meanwhile, corporate income taxes peaked in early 2015 and are now flat at $ 300 billion:

The deteriorating fiscal deficit, combined with a persistent trade deficit, would be bad enough. However, adding up the ‘official’ fiscal deficits since 2007, and comparing that number with the increase in federal government debt, something does not add up:

The fiscal deficit was actually 41% higher than stated. The difference stems from shifting certain expenses into “investments”.

With significant increases in spending on military, Veterans’ Affairs and Homeland Security the fiscal situation is likely to get only worse. Once foreign investors (private and central banks / sovereign wealth funds) stop financing the US twin deficits a current account crisis will occur. As the Federal Reserve is likely to keep a lid on bond yields the foreign exchange market will be the only available valve for adjustment. A significant devaluation of the US dollar is likely.

High Frequency Trading – Around the World in 0.13 Seconds

We look at the following points:

  1. What is “High Frequency Trading”
  2. What is not “High Frequency Trading”
  3. US Market Structure
  4. Where is Wall Street?
  5. First Encounter with an Algorithm
  6. It’s a man’s machines’ world
  7. The “SIP” versus Direct Feed
  8. Race for Speed, Bandwidth and Computing Power
  9. Flash Crashes
  10. Share Buy-Backs
  11. Are Stock Prices Representative?
  12. Conclusions

US Macro Report – April 2017

Is the US economy heading into a recession?

Most investors won’t know until it is too late. The National Bureau of Economic Research (NBER) declares beginning and end of recessions, but often with a delay of more than a year.

The Economic Cycle Research Institute (ECRI) famously called a recession in September 2011 which never materialized.

The Federal Reserve Bank System calculates a recession probability based on only four indicators (payrolls, industrial production, real personal income and real sales). Those data are prone to revisions.

Lighthouse has developed its own 13-factor recession probability indicator. Instead of fixed thresholds it uses ranges, and weighs each indicator based on timeliness and accuracy.

The Lighthouse Recession Probability Indicator provides early warning signals, yet has not made any false positive calls when backtested to 1971.

US Macro Report – April 2017