Category: Economy

Economics Update

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The British economy just posted its largest quarterly loss since 1979, 1.9 % for the quarter, and 4.1% year over year.

We had Moody’s downgrade American Express debt from A2 to A3, because of lower earnings from fewer purchases made with its cards, and more bad loans.

Unsurprisingly, the same thing is happening with the stress tested banks, where PNC Financial says that bad assets are expected to triple.

We do have some good news with Ford Motors beating expectations, though the numbers are still awful, and corporate borrowing costs falling below last October’s numbers.

In currency, the dollar weakened again, and this had traders bidding up the price of oil.

Economics Update

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Well, we have the new jobless claims out, and again, they are grim, with initial claims raising from 613K to 640K, though the 4 week moving average, which is a better indicator, dropped to 646,750 from 651,000.

Continuing claims hit another record, up 93K to 6.137 million, worse than the forecast.

The fact that mass layoffs, more than 50 people, hit a record, with 2,933 in March, probably had something to do with this.

In world finance, we have Moody’s downgrading the debt of the Baltic Republics Lithuania and Latvia, indicating a bumpy way ahead.

In real estate March existing home sales fell, and with mortgage rates inching up, I would not expect a significant improvement in the situation.

Meanwhile, oil is up, and the dollar is down, for reasons not clear to me.

Economics Update

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Well, the IMF has updated its recession forecast for 2009, and their estimate has become much more pessimistic, with their estimate for contraction at -1.3%, down from -0.5%, they are also anticipating credit losses on the order of $4.1 trillion, and that the financial system will not stabilize until sometime in 2010.

Honestly, I still think that the new estimate is overly optimistic, but I’m a born bear.

This is born out by the fact that official UK economic predictions are that the British Isles will experience their fastest contraction since the end of the WW II, and Japanese exports are down year over year by almost ½.

That being said, we have some good news in real estate, with the Architecture billings index rising last month, and home were up 0.7%month to month in February, though prices are still down 6.5% year over year, but it’s the first two month price gain in about 2 years.

Additionally, mortgage applications are up, though this is largely refi activity, and the delay in foreclosures in California have returned with a vengeance, now that the little “holiday” created by the law changes that lengthened the time line from default to eviction has passed.

Banking still sucks though with Fannie and Freddie losses from defaults rising, Capital One’s losses on credit card defaults were worse than expected, as were Morgan Stanley’s losses (the cut dividends too), though Wells Fargo, who largely eschewed the high flying ways of the other large banks, had record profit and displaced Bank of America as the nation’s top lender.

In energy, oil rose slightly, despite reports of a growing inventory, and in currency, the dollar fell on reduced investor worries.

Economics Update

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Scare Pic of the Day, Courtesy of The Big Picture

So, Timothy “Eddie Haskell” Genthner spoke before Congress, and said that most banks are adequately capitalized.

I guess that all depends on the definition of “banks”, “most”, and “adequately capitalized.”

At the same time, the inspector general charged with investigating the TARP says that there is a lack of transparency and safeguards in the program.

Once again, it looks like the only folks who are doing their job for the tax payers are the FDIC who are in discussions with Citi about firing CEO Vikram Pandit.

In energy, oil is up, but we are dealing with the switch over to June delivery contracts, and the dollar was mixed on unexpectedly high business sentiment in Germany.

On a note unrelated to economics, but related to the the article on Geithner, there was following picture, where you see the Code Pink protesters in the background.

These people piss me off. They seem to be dedicated to nothing more than mutual intellectual masturbation as guerrilla theater, and they do nothing but to convince decision makers that anyone who has less Wall Street friendly ideas is a DFH who does not deserve to be listened to.

These folks are playing to lose, but we all lose when they do so.

Park Dae-sun Acquitted

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He is a prominent Korean economic blogger who was was brought up on charges for making dire predictions:

Mr. Park, an unemployed 31-year-old, gained an almost prophet-like status among many South Koreans after he correctly predicted the collapse of the U.S. investment bank Lehman Brothers, the crash of the South Korean currency — the won — and the effects on South Korea of the U.S. subprime mortgage crisis.

It appears that he also published some data in error, such as when he, “wrote that the government had banned financial firms and major companies from buying dollars in an effort to arrest the fall of the Korean won,” and the government charged him with, “spreading false data in public with a harmful intent,” and faced up to 5 years in prison. (!)

Considering my accuracy, I’d be facing life without parole.

Economics Update

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Well, let’s start with the good news, that the Conference Board’s consumer confidence index has risen to a 7 month high, I think largely on Obama being president more than anything else, seeing as how the manufacturing reports from the
New York and Philadelphia Federal Reserve Banks, continue to show contraction, though the press is still crowing about how these reports show that the rate of contraction is easing, despite the fact that manufacturing fell in March by the largest amount since VE day, almost 64 years ago.

Taking the rate of change month to month is stupid, it’s the noisiest way to measure things, but there is real pressure to report prosperity “just around the corner,” because the alternative is to make real systemic changes that would have to be to the disadvantage of people like bank and brokerage presidents.

The fact that housing starts fell again, (top pic) and the weekly jobless numbers remained at very high levels, they dropped a bit, but continuing claims (bottom pic) remained at scary numbers. (click pics to be taken to the Calculated Risk posts in question)

CRE is suffering too, with office vacancies rising to a 3 year high.

Citi actually reported better quarterly numbers than expected, losing about 18¢ a share, less than the forecast 32¢.

Part of the problem is that we are still seeing distressed bonds selling for 3.5¢ on the dollar:

Credit-default swaps traders set a value of 3.25 cents on the dollar for bonds of an AbitibiBowater Inc. unit to settle derivatives linked to the newsprint maker that’s now in bankruptcy protection.

The price means sellers of credit swaps guaranteeing as much as $1.1 billion against a default by the Abitibi- Consolidated unit would pay 96.75 cents on the dollar to settle the contracts. Eleven dealers, including JPMorgan Chase & Co., Barclays Plc and Morgan Stanley, bid in the auction, which was administered by Markit Group Ltd. and broker Creditex Group Inc.

Oh…..My…..Ghod!

This might explain why BankUnited has been given 20 days by regulators to find a buyer, or they will be shut down.

Meanwhile, oil rose slightly on the consumer confidence numbers, as did the US dollar and Pound Sterling.

Economics Update

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We have a bumpy road ahead on the economy, with
retail sales falling 1.1% and the Producer Price Index (PPI) falling 1.2%, both of which indicating that there are still deflationary and recessionary pressures out there.

In regulation, there is finally an Obama choice to run the TARP, Fannie Mae CEO Herb Allison, replacing Bush holdover Neel “Cash and Carry” Kashkari, who along with Hank Paulson, should be in jail for the fraud perpetrated on the US taxpayers.

We also have some news from the moniliner insurers, after a long break, with Moody’s downgrading Ambac to junk status.

Dead man walking.

That being said, there are more signs that credit is thawing, with the LIBOR, the rate big banks charge each other for loans, falling at the fastest rate in 3 months.

In currency, we have news from Asia, where Singapore has devalued its currency by lowering interest rates in an attempt to stem its recession, the idea being that its export based economy would be boosted by a falling currency.

This is a fairly limited option for most nations, as many nations that need the help are debtor nations, while Singapore is a creditor nation.

Meanwhile, the US dollar is up vs. the Euro and down vs the Yen.

Oil fell below $50/bbl today.

Economics Update

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Well, we are seeing more signs that China is slowly walking back from its massive investment in the US Dollar, with the world’s most populous nation decreasing its holdings in US securities in January and February of this year.

Of note is the rather Panglossian panic in the tone of this article, which appears to make some fairly epic leaps in order to suggest that this is all really good news for the United States and the US dollar.

If there is really a Chinese pullout of US assets for any extended period, the dollar will fall significantly, and inflation will increase, as the cost of imports, including will increase markedly.

This may not be a rush to the exits, but if it’s a major player in the currency markets tiptoeing towards the door, it’s a much bigger deal than the authors let on.

In any case, it appears that Goldman Sachs will sell about $5 billion in new shares, it’s current market cap is around $60 billion, in order to evade the executive pay limits.

I would argue that this is managers not acting in the best interests of the shareholders, particularly since Warren Buffet’s deal with Goldman is more costly, as they are theoretically required to, but the idea that shareholders actually own a financial firm, and that management works for the shareholders, is apparently for suckers.

In energy, oil fell on projections from the IEA that demand would continue to fall, though this has had little effect on retail gasoline, which is up 10¢ over the past few weeks.

In currency, the dollar is down, in light trading.

Zimbabwe Update

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Not a whole bunch of conflict lately, and inflation is beginning to moderate, though much of that is because the economy is moving off the local currency.

It’s a good sign, as are reports that media restrictions will be relaxed.

It also looks like the MDC majority in Parliament is actually doing something, as they are looking to probe reports of police abuses.

We also have the Blanket gold mine reopening.

Unfortunately, at least on the symbolic level, 19 MDC ministers have accepted the offer of Mercedes Benz autos from Mugabe, which looks very bad.

We also have the IMF doing what it does best, making a financial disaster worse, and crushing the ordinary people beneath its treads.

What Mugabe won’t destroy, the IMF will.

South Africa has relaxed restrictions on Zimbabwean refugees, offering a 6 month visa.

Economics Update

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We have a report that consumer confidence is improving, according to the IBD/TIPP economic optimism index, which rose to 49.1 from 45.3, which is only slightly pessimistic, 50 being neutral.

I have no idea if the folks at at Investors Business Daily/TIPP actually run a good poll, but it does look like consumer confidence is up a bit, though the Federal Reserve’s view of the economy remains gloomy.

Certainly with wholesale inventories falling by 1.5% in February, the largest drop in 17 years, there are some bright spots here, because as inventories fall, orders have to be made to restock.

The same cannot be said for commercial real estate, with
mall vacancies at a 10-Year high, and office t rents falling significantly in San Francisco.(-24% year over year !)

Rents fell for apartments in Southern California and nation wide too, which tends to mitigate the impetus for people to buy homes, so I think that the continued increase in mortgage applications is still largely Refi activity.

The credit markets still suck which is why the Fed is looking at offering longer term loans at a higher interest rate for TALF, even as participation in the program is less than anticipated, indicating that investors are still leery of investing in things like mortgage backed securities.

In international finance, Fitch has followed S&P’s lead, and downgraded Ireland’s sovereign debt.

The Treasury has expanded TARP to cover insurance companies, including some of the very big names, such as Hartford, Prudential, and Met Life.

This Problem is getting smaller, not bigger.

Finally, both oil and the US dollar rose today, on a less then expected inventory for the former, and a flight to safety for the latter.

Economics Update

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Scary Picture of the Day, Industrial Production, Courtesy of Naked Capitalism

The big news is that there are rumors of GM preparing for bankruptcy, and mark my words, if they do go into bankruptcy, it will be because of the bond holders, not the union, and I do not see it working as a prepackaged filing, so we would see massive disruptions amongst all the auto plants of all brands in the US.

Were it not for the GM rumors, the lede would be the continued implosion of consumer credit, with grim February reports showing that U.S. consumer credit falling by $7.48 billion, an annual rate of 3.5%, and homeowner mortgage default rates have increased to 7%, up more than 50% from a year ago.

That being said, it’s not just consumers and homeowners in trouble, as the default rate of “speculative-grade corporate borrowers” hit the highest rate since the depression in March.

Meanwhile in a harbinger of things to come in commercial real estate, New York City office rents fell 6% in the Q1 of 2009, and the vacancy rate is at 9.6%, up from 6.1% a year ago.

It is therefore unsurprising that the Business Roundtable’s survey of CEOs is showing falling confidence.

In the meantime, uncertainty, particularly the GM rumors have driven both the Yen and the US Dollar up, and has driven oil down.

When Immigration Policy and Stimulus Intersect

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Matthew Yglesias has a post up on the stimulative effects to the economy of legalizing various activities. Item 7 is “Liberalized immigration”.

Undoubtedly, this will grow the GDP. That is not the question. The question is whether it will grow the per capita GDP, which is how the overall benefit to society should be defined.

As I noted before, the post Black Death prosperity in Europe was almost certainly at a lower aggregate GDP than before the plague, but because population fell faster than GDP, wages, and standard of living, went up.

Scary Quote of the Day

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Courtesy of The Big Picture“

In fact, let’s learn from history. The only times we have ever seen the stock market surge close to this much in such a short time frame were:

  • December 1929
  • June 1931
  • August 1932
  • May 1933
  • July 1938
  • September 1982

Only in September 1982 and in May 1933 was the equity market embarking on a new bull phase.

Oh Belgium!

Dead Cat Bounce.

Economics Update

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Scary Economic Pic of the Day Courtesy of Brad Delong
And, yes, the really bad line is right now

The first bit of news is kind of “inside Baseball,” with
the central banks of the US, UK, EU, and Switzerland agreeing to currency swaps totaling $285 billion with each other.

Basically this means the banks can borrow that amount from each other in various currencies and then use it to stabilize their currencies.

Truth be told, I have no clue as to what it means, except that there have been rumblings that the Swiss are near a deflationary spiral, and might want to depress the CHF to forestall that.

Since it looks like commodities prices are down significantly, most notably copper and oil over the past 6 months or so, the worries about deflation are not just an abstract concept here.

It also looks like Canada is moving toward quantitative easing (printing money) which is pushing the Loonie down, and the dollar rose against other currencies as well, as people moved into a perceived safe haven.

Massive Rally in Ukraine Triggers Yuschenko Backdown on Elections

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I’m not sure how much of this is gamesmanship and how much is unrest over an economy falling at a double digit rate, but Ukrainian President Viktor Yushchenko has now said that he is open to new elections, which is a big walk back, seeing as how he is at 3% in the former Soviet Republic.

Honestly, Ukraine needs to develop a slightly less adversarial relationship with Russia, even if they are not fond of Russians themselves, a stance which the more pragmatic (and less batsh^% insane) Prime Minister, Yulia Tymoshenko, Yushchenko’s chief rival understands while he does not.

Economics Update

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Scare Pic of the day courtesy of Calculated Risk

Today’s lede has to be the unemployment numbers with non farm payrolls dropping 663,000 in March and unemployment (U-3) hitting 8.5%.

It should be noted that if you use the broader U-6 metric, then unemployment is 15.6% up 6.3% from last March’s 9.3%.

We also have the number of involuntary part-time workers increasing from climbed by 423,000, to 9.0 million, and the contraction of service industries is accelerating.

The best metric of the employment situation may be the employment-population ration, and it fell to 59.9%, the lowest level since 1985.

BTW, remember when I posted about UK house prices going up for the first time since 2007 in March? Not sop much, alternate data shows another fall in prices.

The dollar rose on a flight to safety after the crappy jobs report, and oil fell for the same reason.

Economics Update

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We have the weekly unemployment claims report, and it is not pretty, with 669,000 new claims, an increase of 12,000, the 4 week moving average was up 6,500 to 656,750, and the continuing claims hit 5,728,000, up 161,000.

Note that the initial claims number constitutes a 26½ year high, and continuing claims are at the 9th all time record level in 9 weeks.

Meanwhile, the credit news is not good, with Calculated Risk’s Credit Crisis Indicators somewhat improved, though still at pretty awful levels, but Moody’s downgraded $1.76 trillion in corporate debt in the first quarter of 2009, and both credit card charge-offs and home equity loan delinquencies have climbed to record levels.

In real estate commercial real estate defaults hit a new record, and the formerly unassailable real estate of Manhattan is sales volume falling 48%, though house prices rose in the UK for the first time since 2007.

Additionally, the Feds efforts to lower mortgage rates appear to be working, with the 30 year fixed mortgage rate hitting a new low.

In the meantime, auto industry analysts are doing handsprings over the March auto sales figures, because annualized sales figures rose to 9.86 million up from February’s rate of 9.12 million, though dealer incentives also rose 5%.

Your call as to whether an 8% increase of awful, the normal annual sales runs at about 16 million, is something to crow about.

In either case, other manufacturing had an uptick, with Chinese manufacturing increasing for the first time in 4 months, and US factory orders rising for the first time in 7 months.

In Yurp, the European Central Bank cut its rates by only 25 basis points (¼%), less than expected, and as a result the Euro strengthened vs the US dollar, though the ECB President has said that more rates might be forthcoming

In energy, the rising stock market (Dow above 8k for the first time in about 7 weeks) has driven oil higher.

Economics Update

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Well, the job loss report from payroll processor ADP is out, and according to them, there were 742,00 job losses in March, well above the 655K forecast.

Part of this is driven by continued declines in construction spending, as Calculated Risk notes and graphs (see graph pr0n).

As he notes, non-residential construction spending is following residential spending off a cliff.

There was also an increase in the NAR’s pending home sales index, though it remains firmly in the horrible range, at 82.1, up from 80.4, with 100 being the average level of pending home sales in 2001.

Still, mortgage applications are up again, though this is largely still refi activity.

The Institute for Supply Management’s Manufacturing Index mirrors the pending home sales index, in that it is up, to 36.3 from 35.8, but still in a firmly contracting posture, as 50 is neutral.

On the other side of the Pacific, we are seeing Japanese business confidence numbers fall to record lows.

The news in the auto industry, whether foreign or domestic is grim, with sales numbers for GM, Toyota, Ford, Chrysler, Honda, and Nissan all falling significantly.

We also see the Fed printing money to buy $6 billion in Treasuries, so as to keep the interest rates down.

In currency, the dollar is up on risk aversion again. Investors are concerned about the G-20 meeting, though I’m not sure if the concern is about nothing being done, or something being done….Maybe it’s a bit of both.

In energy, oil fell on strong inventory reports.