Category: Economy

An Interesting Concept

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From the Classic WKRP Episode

If we are in a deflationary spiral, aka a “liquidity trap,” and I believe that we are, then one of the questions is how does one get us out.

suggests that it is essential for the Federal Reserve to engage in actions that make it blindingly clear that holding to cash will be long term disastrous.

The problem right now is that, with inflation being negative, people are all too willing to sit on their cash.

John Hempton has a most unorthodox proposal, that we literally drop large amounts of currency onto the streets of American cities:

You need to convince people not to hold money. You need to convince them that cash is trash.
And to do that you need to convince the public that there will be inflation (the above gross leverage argument notwithstanding).
To do that the Federal Reserve has to be credibly irresponsible. It is not enough to print a couple of trillion dollars (which they have) because everyone thinks (with some justification) that they will suck back the money supply when the crisis is over.
No – you have to be more visibly reckless than that. You have to really convince people that there will be inflation.
So the suggestion in my title is literal. The Federal Reserve should hire a couple of hundred helicopters and load each one 10 million dollars in neatly bound parcels of $1000 each. Total cost $2 billion plus trivial helicopter hire.

Well, running the numbers, a dollar bill weighs about a gram, so let’s bundle 10 $100 bills together, so as not to create an “As God as my witness, I thought turkeys could fly,” issue.

So, $1000.00 would weigh about 11 grams (adding 1g for the wrapper), which means that if you have a helicopter carrying 4400kg in currency, they would be carrying $400,000,000.00.

So he’s wrong. You would only need 5 medium to heavy lift helicopters, or 1 Mi-26, which has a payload of 22 metric tonnes.

You probably want to spread it a bit further out, but still you are well under 100 helicopters, particularly if you allow them to make multiple trips.

Heck, even a Robinson R22 helicopter could carry more than $10 million per sortie.

Economics Update (Yesterday Too)

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H/t Calculated Risk


Empire State Manufacturing Index


H/t Calculated Risk


The Power of Computers Over Inventory


H/t Calculated Risk

Sorry about missing yesterday, life intervened.

Well, retail sales rose in October, (1st pic)up 1.4% from September’s anemic post “cash for clunkers” numbers.

September was down 2.3%, so you can do the math.

We also had the Federal Reserve Bank of New York’s Empire State Manufacturing Index falling in November, though it is still above zero, indicating continued growth. (2nd pic)

This is consistent with the small rise in industry capacity utilization. (3rd Pic)

Additionally, we have business inventories falling September, (4th Pic) and it looks like inventory restocking won’t be the thing that makes this a v-shaped recovery.

One interesting note on this graph: You can see a generally downward trend in the ratio of inventory to sales, and it is likely a result of the increasing computerization of retail.

Once you have a better picture of what you need, and when, you need to keep less as a backup.

In real estate, today’s news was grim, with delinquencies on commercial mortgage backed securities (CMBS) rising 28 basis points (0.28%) in October, to 3.86%, or about 1 in 30.

In home mortgages, delinquencies hit a new record, with 6.25%, or about 1 in 16 mortgages being 60 days or further delinquent, which is a very scary number.

We also have the National Association of Home Builders/Wells Fargo Housing Market Index flat in November, at 17, which is a pretty awful number. (5th Pic)

Finally, in currency and energy, the dollar rose on comments by Ben Bernanke which imply support of a strong dollar policy by the fed, and oil rose, largely on the expectation of more demand to support retail activity during the holiday season.

1937 All Over Again

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This business will get out of control. It will get out of control and we’ll be lucky to live through it.

Barack Obama and His Stupid Minions™ are looking at budget cuts to reduce the deficit.

Dude, we are in a liquidity trap, take your foot off the accelerator now, and we are all toast.

You are talking about doing what Roosevelt did in 1937, and it will get very ugly if you do.

Don’t make me call out Freddie Dalton Thompson on you….Oops…too late.

The real lesson of the last stimulus package is to ignore the “moderates”, who will make a cut just to make a cut, and include tax cuts, which offer the smallest bang for the buck.

Economics Update (a Day Late)

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TIPS Spread


US Trade Deficit, h/t Calculated Risk

Notwithstanding all the chest pounding by folks claiming that the, “recession is over,” consumer sentiment is continuing to fall, with the Reuters/University of Michigan Surveys of Consumers falling to 66.0 in November, from 70.6 in October.

It also looks like real estate is in the same bind, with the US Home Purchase Index falling to a 9-year low last week, on concerns that the about what was going on with the new home buyer tax credit.

Basically, this is showing that the only thing keeping the home market from falling further, is massive government support.

We have some good news on inflation, unless you are like me, and see a period of sustained inflation as a way to monetize debts paralyzing our economy.

Paul Krugman has looked at the TIPS Spread, (top pic) basically the spread between the interest demanded by bond buyers on Treasury Inflation Protected Securities (TIPS), and regular Tressuries, and notes that recent widening of the gap between the two interest rates is because the rates for TIPS has fallen, as opposed to the rates for normal treasuries having gone up, which is kind of the opposite of what you would expect if the bond market was pricing in inflation.

In terms of international trade, we are seeing that the GDP of the Euro Zone has gone positive, and the US trade deficit jumped in September, (bottom pic) both of which indicate improvements in international commerce.

Basically, this news drove the dollar down, because traders were less interested in a safe haven, and oil fell to $76.35/bbl on Thursday’s strong inventory numbers.

Another Economic Indicator

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One of those friends that I’ve never met in meat space, Bill Volk of the mobile device software company Playscreen was at the AdTech converence in New York city. His ovservation (along with his pic on the right):

The AdTech conference in NYC is JAMMED. The line to get badges for pre-registered attendees was over 1000 people long with a one hour wait.

Advertising can be a leading indicator.

He lives in California, and noted that he had the first real bagel since the last time he was in NYC.

You can get them here, in Baltimore, Goldbergs Bakery, where you can sometimes watch them boil the bagels before baking.

Anyone know where real bagels can be found in Southern California?

Economics Update

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Unemployment, H/t Calculated Risk

Today is Jobless Thursday, and new jobless claims fell to 503,000, down from 514,000 (revised from 512K_) the lowest since January, with the 4 week moving average falling to 519,750 from last week’s 524,250, and continuing claims fell to 5.63 million.

This is good news, but we need to be down to about 400K a week to be in jobless recovery, as opposed to “job-loss recovery”, mode, (see graph pr0n, right) so there is still a way to go.

I would note that the metrics that involve moving physical objects, like port and truck traffic, and this week’s report on rail traffic from the AAR are still week. with traffic in October down 15.3% from a year ago, and down 0.3% from September.

It looks like bad news for the monoliner bond insurers is heating up, with French bond insurer CIFG is on a path to an insolvency filing.

In real estate, mortgage applications hit a 9-year low, despite the fact that the 30-year fixed mortgage fell again.

Additionally, we have dueling headlines, with CNBC saying, “Foreclosures Fall Again,” (true, though the call the improvement “fleeting”) but Bloomberg saying that, “U.S. Foreclosure Filings Surpass 300,000 for 8th Straight Month.” (also true.

Your call as to hed is the right one.

Meanwhile, there was an auction for 30 year Treasuries, and prices fell, because….Hell, I don’t know why they fell….Maybe inflation concerns, since the 3 and 10-year auctions were fairly well received.

Then we have our last bit, energy and currency, and oil fell, largely on an unexpectedly high inventory numbers, and the dollar rose, as investors looked for a safe haven.

Economics Update

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I’m not a gold bug, but Rolf Winkler’s graph pr0n is interesting. It could imply that gold has further up to go, or that the stock market is overvalued. Your call.

Slow news day today, with biggest news that the People’s Bank of China has modified the language it uses to describe its position on the Yuan, which implies that the currency will be allowed to appreciate over the near term.

In Australia employment increased by 24,500 in September, s not inconsiderable number for a country with a total population in the 22 million range.

Meanwhile, Japan appears to continue to be in a deflationary mode, with producer prices falling for the 10th month, down 6.7% year over year.

In currency, driven partly by the Bank of China statements, the dollar weakened to more than $1.50:€1.00, though it settled at $1.4961 when trading ended.

In either case, it appears that people are still betting on a recovering economy, as crude oil rose again today.

And for you gold bugs, as well as for the graph pr0n, gold hit a new record in trading today, $1,121.9/oz (troy).

Economics Update (a Day Late) (Again!)

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Ambac share prices

MBIA Share price

We are Unbelievably Screwed, H/t The Big Picture


Job Turnaround? Perhaps the End of the Beginning, but Not the Beginning of the End

For a bit of Auld Lang Syne, let’s start with an update on the monoliner insurers…I’ve posted on them just once since May.

Ambac’s share price is collapsing on reports that it will file for bankruptcy, and MBIA posted a $728 million loss, which comes to about $3.50/share, and the shares are trading at about $3.69 right now….ouch.

The monoliner business model is that you create a company, get an AAA rating, and then make money by renting out that credit rating.

Among other things, it’s a way to soften the blow of the comparatively low credit ratings that states and municipalities get, and it allows for another revenue stream for the parasites on Wall Street to tap.

I think think that the entire business is essentially corrupt, and should be outlawed.

In any case, we do have news that might be a cause for optimism, with China’s industrial output and retail sales grew sharply in October, and the US Department of Labor’s Job Openings and Labor Turnover Survey rose slightly in both September and October.

On the down side are the continued fall in retail sales (see 3rd chart down), and the vacancy rate in housing is at a 44-year high.

The recent news does not seem to have effected the price of Treasurys, though which were basically flat.

In energy, we have weather, specifically the fact that Ida was pretty weak by the time that it hit oil producing areas, driving oil down, and China’s gangbuster economic report drove the US dollar down.

The Big Story that is Not a Big Story

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It turns out that there is a significant inaccuracy in GDP figures, it has to do with the way that imports are accounted for in GDP:

The fundamental shortcoming is in the way imports are accounted for. A carburetor bought for $50 in China as a component of an American-made car, for example, more often than not shows up in the statistics as if it were the American-made version valued at, say, $100. The failure to distinguish adequately between what is made in America and what is made abroad falsely inflates the gross domestic product, which sums up all value added within the country.

American workers lose their jobs when carburetors they once made are imported instead. The federal data notices the decline in employment but fails to revalue the carburetors or even pinpoint that they are foreign-made. Because it seems as if $100 carburetors are being produced but fewer workers are needed to do so, productivity falsely rises — in the national statistics.

“We don’t have the data collection structure to capture what is happening in a real time way, or what is being traded and how it is affecting workers,” said Susan Houseman, a senior economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich., who has done pioneering research in the field. “We have no idea how to measure the occupations being offshored or what is being inshored.”

In terms of GDP, this is, for now at least, a pretty small part of the picture, well under 1%, which makes it a small story.

On the other hand, one of the arguments for offshoring is that by shipping jobs to China, where worker and environmental protections are weak, and an under valued currency further subsidizes these imports, is that it allows us to focus on what we are good at, and thus boost productivity and GDP.

The bottom line is, as William Alterman, the assistant commissioner for international prices at the BLS notes, “What we are measuring as productivity gains may in fact be changes in trade.”

This is a big part of the story, because the argument for free trade is that it creates, or at least increases, overall well being in our society.

The problem is that the delta from free trade may be grossly overstated, or not exist at all.

Economics Update (a Day Late)

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It’s not just bankruptcies in the US that are on the rise. Personal insolvencies in the UK just rose to a new record.

In the US, Advanta filed for bankruptcy, which may seem like a minor thing, except for the fact that they were a huge player in small business credit cards, or rather, they were until they shut that down because of excessive defaults in May.

In energy, oil rose, largely on concerns about the potential effects of Tropical Storm Ida, and in currency, the IMF is suggesting that the Dollar has a way to go, so the dollar went down.

Economics Update

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Perspective from the Wall Street Journal:
Falling Hours & Wages Drove Productivity Numbers Up


Long Term Unemployment


Unemployment vs. the Stress Tests, H/T Calculated Risk


Employment:Population Ratio, H/t Calculated Risk


Average Weekly Hours, h/t The Big Picture

Well, I already mentioned that unemployment (U3) broke 10%, with non-farm payrolls falling by 190,000, (better than September), so the next thing is the productivity number, where, “Non-farm business sector labor productivity increased at a 9.5 percent annual rate during the third quarter of 2009.” OMFG, that is a huge number.

Normally, this would be good news, but soaring productivity means fewer workers needed for a task, so in the short term it would tend to stall any recovery in the labor markets.

On the brighter side, we are now getting reports that hiring of temporary workers are increasing, which might presage a more general hiring increase, as temps tend to be hired earlier, because they are easier to get rid of.

On the other hand, US consumer credit fell for the 8th straight month in September, which indicates that the consumer is continuing to deleverage an pay down their debts.

It appears that wholesalers are deleveraging too, as wholesale inventories fell in September, though less than anticipated, and retail sales did rise, but inventories are at an all time low, 1.18 months.

In any case, the unemployment numbers drove a flight to safety, which drove Treasuries up, and their yields down.

This flight to safety has also drive both the dollar and the Yen up, while concerns about recovery has driven oil down.

Unemployment Breaks 10 %

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Up 0.4% to 10.2%. Yeah, bailing out the banks worked so well.

BTW, U6, the most expansive measure of unemployment, hit 17.5%.

Note, however, that U6 is still more restrictive than the metric used in the Great Depression, which, for example counted WPA workers as unemployed.

It means that we are much closer to the 25% peak in the 1930’s than we would like to think.

[on edit]

Full disclosure, I am among that 10.2%

Economics Update

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The Defendants in the Galleon Case….So Far
Click for PDF from SEC


H/t The Bondad Blog

It’s jobless Thursday, and initial jobless were better than forecast, 512,000, down from a revised 532,000 the prior week, comparing the initial numbers from last week, it’s 512K from 530K, a still quite impressive 18,000 drop.

The 4 week moving average fell 3000, to 523,750, and the continuing claims fell to 5,749,000, down 68,000 from last week’s number 5,817,000, though the initial figure there was 5,797,000m which is a 48K drop.

We are still seeing repercussions of the the Fed’s extended zero rate interest in energy and currency, with people worrying that the run up in commodities may be coming to an end, which pushed the dollar and Yen up, and oil down.

Economics Update

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The Notch is the Bankruptcy law change
H/t Calculated Risk

The FOMC has met, and they are keeping their benchmark rate at essentially 0%, and they have clearly said that they will keep rates low for an extended period of time.

Meanwhile the Bank of Japan has issued a statement that its walk-back on emergency programs to bolster the credit market are not a precursor to a rate hike.

In employment, ADP’s private sector job survey reports that 203K jobs were cut in October, the smallest cut in over a year, and Challenger, Gray, & Christmas is reporting that announced that planned layoffs fell to 55,6799 in October, down 16% from September.

Meanwhile, in New Zealand, where they are supposed to be out of the recession, their jobless rate hit a 9-year high, 6½%.

Meanwhile, the Institute for Supply Management’s Non-Manufacturing survey fell to 50.6, down from September’s 50.9, but any number above 50 indicates expansion., though, as Calculated Risk notes, “the Non-Manufacturing Employment Index for October registered 41.1 percent. This reflects a decrease of 3.2 percentage points when compared to the 44.3 percent registered in September,” so the sector expanded, while employment in the sector shrank.

Still, even after the draconian legislation enacted in 2005, personal bankruptcies rose 9% in October, to a new post law change high (see graph pr0n). (American Bankruptcy Institute report)

One interesting thing on all this is that the the market is pricing in increasing inflation expectations, as indicated by the spread between Treasury Inflation-Protected Securities (TIPS), and generic Treasuries. It’s at 2.08%, the highest level in over a year.

Unsurprisingly, the statement by the Fed regarding rates, juxtaposed with the increased inflation concerns, pushed Treasuries down, and hence their yields up.

The Fed’s statement pushed the dollar down, as investors looked for higher returns, though this was abated somewhat when Fitch cut Ireland’s credit rating to AA- from AA+, which put a downward pressure on the Euro.

As is customary, the falling dollar drove oil prices up, but only by about 1%, to $80.40/bbl.

Full Federal Reserve Open Market Committee statement after break.

Press Release

Release Date: November 4, 2009

For immediate release

Information received since the Federal Open Market Committee met in September suggests that economic activity has continued to pick up. Conditions in financial markets were roughly unchanged, on balance, over the intermeeting period. Activity in the housing sector has increased over recent months. Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt purchases, while somewhat less than the previously announced maximum of $200 billion, is consistent with the recent path of purchases and reflects the limited availability of agency debt. In order to promote a smooth transition in markets, the Committee will gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities and anticipates that these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Economics Update

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The Misery Index Continues to Rise
H/t My Budget 360

Today will be a slow news day, because everyone is waiting on the Federal Reserve Open Market Committee’s (FOMC) statement tomorrow afternoon.

I think that the big news is that Warren Buffet’s Berkshire Hathaway has bought the Burlington Northern-Santa Fe Railroad, betting on recovery while further reducing his stake in Moody’s Investors Service.

Warren Buffet does not invest in things that he cannot get his head around, which is why he missed the dot com implosion, he couldn’t figure out how they could make money.

So now, he is dumping a financial company for rail, which implies to me that he sees a lot more trouble ahead for the banking industry, even as the economy recovers, and the demand for goods and services increases.

This is further reinforced by the September new factory orders rising by 0.9%.

Also the numbers for automobile sales were remarkably good, considering the “cash for clunkers” sales hangover.

There was strong sales growth for and strong October sales numbers from Ford, GM, Nissan, Hyundai and Kia, while sales for Toyota and Honda were basically flat.


Bummer of a birth mark, Chrysler

As for Chrysler, well…..”Bummer of a birthmark, Hal.

BTW, if you’ve been reading the financial press, you may not that they are touting a 4.4% increase in the MIT Center for Real Estate’s transaction-based index (TBI) index for the 3rd quarter.

One should note, as Calculated Risk does, that this is not the But this isn’t the monthly Moody’s/REAL Commercial Property Price Index (CPPI), which actually showed a drop.

This is an index of, “commercial properties sold by major institutional investors,” and these institutional investors are likely avoiding the distressed properties like the plague.

It should be noted that things are still bad, with business bankruptcy filings rising 7% in October, a change from the drops in filings in August and September.

Gold surges to an all-time high – Nov. 3, 2009: “

Here’s a bonus for the gold bugs, gold hit a new high, $1,084.90/oz (troy) after the Reserve Bank of India announced that it was bought 200 metric tonnes of gold from the IMF. (What’s up with this? Really, I have no clue.)

In energy and currency, both oil and the dollar rose today.

Economics Update

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Commercial Real Estate Delinquencies
$ billion


Percentage
CRE Data H/t Realpoint (PDF) and FT Alphaville


ISM Employment Index v BLS Manufacturing Employment H/t Calculated Risk


Construction Spending

Yeah, we are in some sort of recovery, though I still think that the underlying problems, particularly as pertain to finance and real estate, have not been addressed.

The Institute for Supply Management’s Manufacturing index rose to 55.7 in October, up from September’s 52.6 and its Manufacturing Employment index rose to 53.1, the first time that this index has broken 50, showing expansion, since April 2006.

On the other side of the Pacific, we have Chinese manufacturing growing for the 8th straight month.

Real estate news appears to be improving too, with construction spending rising in September, and the NAR’s Pending Home Sales Index rising for the 8th month in a row.

This news has had the anticipated effects in currency and energy, with the dollar falling on an increased risk appetite, and oil rising in expectation of increased demand.

Economics Update

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Too True!
H/t Calculated Risk,
The Artist should have his website up shortly


Fannie Mae Single Family Delinquencies..OUCH

You know with this recession being over and all, maybe someone should tell the consumer, because consumer spending fell by 0.5% in September, the biggest drop in 9-months.

So consumers are skittish, as a new consumer sentiment survey, this time the Reuters / University of Michigan Survey of Consumer Sentiment Survey, fell in October, down to U Michigan survey, 70.6 from 73.5 in September.

So, that’s like 3 different consumer sentiment surveys that I’ve seen in the past 3 days, one up, and two down.

You have permission to be confused.

There are still a lot of people hurting out there, as shown by the Fannie Mae single family delinquency numbers for August. (see graph pr0n)

I am not seeing even a smidgen of a moderation there.

In the central bank world, the banks appear to be slowly walking back from the extreme measures that they took a year ago, with the Federal reserve re-instituting regulations that it suspended which allowed banks to supply capital to affiliates, which is generally a no-no, and the Bank of Japan is slowly pulling out of the credit markets.

Basically, they are trying to slow-walk their quantitative easing (printing money) measures.

It does not mean that they will be raising rates soon, but it does mean that there is a very gradual tightening of money going on.

In any case, the consumer spending numbers have rattled the markets, pushing US treasuries higher.

In stocks, the VIX, an index of stock volatility spiked upward by 24%, which indicates that market participants are expecting major swings in the stock market.

The bearish news today also pushed oil down, on demand concerns, and pushed the dollar up, on a flight to safety.

Economics Update

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Employment Chart H/t Calculated Risk

Home Vacancy, Home Ownership Rates, and Rental Vacancy Rates Also Courtesy of Calculated Risk


Some Improvement on Homeowner Vacancy Rates


Note that the Rental Vacancy Rate is an All Time High

Thursday is the new jobless day, and new unemployment claims were basically flat, falling from 531,000 initial claims to 530,000. The 4 week moving average, a generally better metric, was down to 526,250, from the previous week’s 532,250, and continuing claims fell to 5,797,000 down 148,000 from last week’s 5,945,000.

All in all, generally good news.

Additionally, US GDP increased at a 3.5% annual rate in the 3rd, which is a solid, though not stellar, growth rate.

By way of example, the recovery in the early 1980s was around 7% for a full year.

There is also the question about how much of this was driven by cash for clunkers driven auto sales, and the first time home buyer’s tax credit.

The former has expired, and the is due to expire, though I would only give it a 1:2 chance that Congress won’t renew it.

In any case, the 30-year fixed mortgage was basically flat this week.

The market’s reaction to the GDP news was as expected.

There was movement from safety to higher rates of return, which drove US Treasuries down, and their yields up, and the Dollar fell.

Anticipation of a recovery also drove oil higher, to back above $80/bbl.