He sees sees the Chinese economy hitting a brick will too, with a sharp slowdown in their economy, and an explosion in the deficit.
The question in China is what level of social unrest will follow.
As always, I highly recommend anything Roubini writes.
H/T 傻冒儿 Stupid Hat aka ShaMao’er for the link.
You know that old saying about releasing bad news on a Friday, because everyone is looking toward the weekend?
It’s one of those Fridays.
Let’s start with Ireland, where the Anglo Irish Bank, the 3rd largest in that country has been declared insolvent and nationalized. I’m beginning to think that the “Celtic Tiger” is on its way back to poetic poverty, particularly now that places like Poland and Slovakia are cheaper labor markets.
In the world of recession/deflation, we have the CPI falling 0.7% and industrial production falling 2% in December.
I’m beginning to think that the US will start to resemble Ireland…Without the Poetry bit.
We also have a couple of updates courtesy of Calculated Risk, with Los Angeles Area Port Traffic falling sharply and office vacancy rate rising in Q4.
Note that there are predictions of a 30% drop in office rents, and that exports are dropping more than imports, so this is not a turn around on the deficit.
In retail, we have Toyota North America announcing cuts in production, and Circuit City is going to liquidate, as in, no more Circuit City, no kidding.
In currency, more bailouts to banks means more concerns about the dollar, so it fell today.
In energy, oil was up slightly today, but down most of the day, after the IEA predicted that demand would continue to fall, and retail gasoline was up again, which means that it’s gone up around $0.20/gal since New Years day.
The PPI was down 1.9% for the month of December, and was down 0.9% for the year.
While some of the year over year drop was a collapse in energy prices, much of the decline is simple deflation from a shrinking economy.
I missed this earlier, normally it would go in my economic update.
You can find the full text here.
My quick take, is that I would like to see:
That’s based on a 15 minute read of the summary, though.
Well, weekly first time jobless claims at rose to 524,000, and the 4 week moving average was down 8000 to 518,500, and continued claims fell slightly, from 4.6 to 4.5 million. (Scary graph pr0n on right)
I’m not sure how much of this is being effected by the short weeks of Christmas and new years, but it should sort out in the next few weeks.
Not unsurprisingly, the Federal Reserve’s Beige Book, a collection of anecdotal economic information reported by the various Federal Reserve banks, was really quote grim.
Unsurprising, considering that foreclosure filings rose 81% in 2008 over 2007.
Housing is not recovering in the near term, even with mortgage rates hitting another record low.
One of the reasons that there will not be a recovery is that commercial real estate is imploding right now, with the volume of loans for office space and rental properties defaulting or becoming delinquent expected to triple in 2009.
In international finance, S&P downgraded Greek sovereign debt, from A to A-, and the ECB cut its benchmark rate to 2%, an all time low.
Not surprisingly, both of these pushed the dollar up today.
The juxtaposition of economic weakness with a stronger dollar drove oil down too.
It’s official: retail sales just cratered. Retail sales fell 2.7% from November to December, and this is after November was adjusted down to 2.1 from the previously reported as a 1.8% drop.
It’s a 9.8% year over year drop, but adjusting for inflation declined by 11.3%. It’s a record, and a very scary one.
It’s why Nissan is moving its Auto plants to a 4-day week. No one is buying anything.
Expect to see more bankruptcies increasing in retail.
The department store Gottschalks and the clothing store Goody’s are filing for bankruptcy.
We will see more of this as retailers realize realize that the Christmas season did them in.
Also, note that part of the reason for this is that the credit crunch appears to be easing, which means that getting debtor in possession financing, which allows continuing operations under reorg, is easier, which makes bankruptcy easier.
That being said, the bankruptcy filing by Nortel still surprises me.
I’m not sure how much of this is the economy, how much is that it never recovered from the dot-bomb collapse in 2000, and how much is that it’s still very much a telephone equipment company.
In real estate foreclosure activity just spiked again in California, they recently passed a law to delay foreclosures by 45 days, and the 60 days are up now.
Even with low rates, which drove refinancing to a 5½ year record last week, are no help for homeowners who are under water.
In energy, oil fell on reports of large stockpiles.
In currency, the dollar was mixed, and the Ruble was devalued again on reports of a continued impasse in the Russia/Ukraine spat.
And Old Pinko drops me an email, because it’s about economics, and I post a fair amount about this, but I’m not an economist.
On Truthout, we have an article written by Joshua Holland, Was the “Credit Crunch” a Myth Used to Sell a Trillion-Dollar Scam?.
The thesis here is that there wasn’t a credit crunch, but rather that it was all smoke and mirrors in order to steal $350 billion to $750 billion and siphon it off to their friends.
I think that this is wrong for a number of reasons. It’s like saying that 911 was a DoJ covert operation, because they wanted toe Patriot act passed.
The DoJ had the Patriot act on their wish list waiting for the right time, just as the Financial industry, in this personified by Henry “Hank” Paulson, is always on the lookout for a big score with other people’s money.
I would suggest that this was rather more like Naomi Kline’s thesis in The Shock Doctrine, where there is a statistical certainty that something bad will happen somewhere, and the people most interested in enriching themselves have contingencies to both personally profit from the system, and further the cause of Friedman/Rand free marketeers.
The first thing to understand is that even before massive deregulation and the rise of the shadow banking system, fractional reserve banking is a lot like juggling.
Your basic bank has far less money in its accounts that what the account balances say, the rest is out in the form of loans to other people.
It’s why even a relatively small run can take a bank down. They borrow short term from their depositors who can generally withdraw money at any time, and lend long term on things like business loans (5 or so years) and mortgages (30 years).
This is very much like juggling, and when you start dropping balls, it’s game over.
He contradicts himself, saying that the increase in wealth was false, but the reduction in lending was false.
So, if we don’t have a credit crunch, what is all this?
Well, Mr. Holland maintains that:
While I agree that with Mr. Holland’s prescription, specifically that any aid should be directed toward financial institutions, as opposed to the financial industry (I have suggested that the financial industry is the gangrenous limb of the body economic, and so should be amputated), I think that discussions of a vast conspiracy distract from the solutions, and make the speaker look like a complete tool.
Henry Paulson and his associates are not predators, they are opportunistic scavengers, and they keep things like this in their back pocket for when the inevitable crisis.
These people don’t create a crisis to put forward their agenda, that would be an expensive and risky endeavor. They get their ducks in a row, and wait for a crisis, and then step in with a “solution” that is really a wish list.
This distinction matters, because the vision of the grand criminal mastermind distracts us from the very real activities of the banal vulture.
We are dealing but with Professor Moriarty but rather Chauncey Gardner.
The U.S. trade deficit fell by 28.7% in November, not because we are exporting more, but because consumption is falling so quickly. This is why you don’t see decoupling in the world economies (see chart pr0n)
While we are on the topic of international capital flows, it appears that Standard and Poor’s is threatening to downgrade the debt of Spain and Portugal because of increasing deficits.
Of course, and I am not a deficit hawk right not, it does beg the question about what to do with the US government shortfall, as it was $485.2 billion in the first quarter of fiscal year 2009 (October 1, 2008 – December 31, 2008), which is more than the deficit for all of FY 2008.
When is S&P going to warn us, and when is S&P going to be prosecuted for its recent fraud on the public? After the meltdown of various instruments that S&P saw fit to declare AAA, one wonders why. I would not employ any of the major ratings agencies as pastry chefs.
We have some good news though, the TED spread fell to 98 basis points (0.98%), dropping below 1% for the first time since August 15.
The TED spread is the difference between 3 month treasuries and 3 month interbank loans, and the spread goes up as uncertainty about getting your money back goes up.
BTW, homes won’t be turning around any time soon, Beazer Homes is reporting a 53.2% drop in home sales Q4 2007 to Q4 2008.
So with all of this uncertainty, people are pulling money out of palces like Spain and Portugal and putting it in the US, which drove the dollar up today.
Oilrose too, largely on promises of large production cuts by the House of Saud.
Calculated risk makes a very good point on any potential economic stimulus plan, you don’t just have to spend on building things, you can spend on tearing them down too.
He’s talking about spending money to demolish houses in neighborhoods with high vacancy rates.
They are actually doing this in Youngstown, where the city council has finally abandoned hairbrained growth schemes, and they are pulling down phone lines, demolishing roads, and buying people out from abandoned neighborhoods so as to live within their means.
Bush to Seek Rest of TARP Money At Obama’s Request
We live in strange times.
Well, it looks like cutting defense spending to help the economy may not work, S&P is threatening to downgrade New Zealand’s AA Credit Rating.
By the time this is over, I would not be at all surprised if we see a number of countries out there like Australia and New Zealand with rating in the “B”s.
Well, we’ve got another retailer bankruptcy, Shane Co., a Jeweler with 23 stores in 14 states….We’ll see a lot more of this.
The Dollar rose, because traders are expecting the ECB to cut rates.
Also, Oil is back below $40/bbl.
The big news was the employment data, which I blogged on earlier, but here is the rest:
Wholesale inventories, and wholesale prices fell sharply in November. Even so, the “stock-to-sales ratio” rose because of less buying.
Looks like wholesale deflation to me.
Oil fell on the jobs news, because the unemployed don’t consume much oil.
The Dollar was mixed, losing against the Pound and Yen, and gaining against the Euro.
Unemployment numbers are in, and they are grim:
524,000 jobs were lost, and unemployment jumped from 6.8% to 7.2%, the highest number in 16 years.
Note also that the 2.6 Million job loss in 2008 is the largest since 1945.
Also note that the U6, the broadest measure of unemployment, jumped from 12.6% in November to 13.5% in December. It was 8.7% in December, 2007.
Also note that this number is worse than it looks, because the prior months have been revised down:
The change in total nonfarm employment for October was revised from -320,000 to -423,000, and the change for November was revised from -533,000 to -584,000. Monthly revisions result from additional sample reports and the monthly recalculation of seasonal factors.
The same report also notes the explosion of involuntary part timers:
In December, the number of persons who worked part time for economic reasons (some- times referred to as involuntary part-time workers) continued to increase, reaching 8.0 million. The number of such workers rose by 3.4 million over the past 12 months. This category includes persons who would like to work full time but were working part time because their hours had been cut back or because they were unable to find full- time jobs.
According this pretty picture, that number is worse than it was in the Reagan Recession of the early 1980s. (H/T Calculated Risk for the graph pr0n)
Initial claims for unemployment fell unexpectedly to 467,000, but continuing claims increased to 4.6 million, the highest number since 1982.
We also saw Monster.com’s Online Job Index Stumbles falling in December, which is another indication that we are nowhere near the bottom.
In retail, holiday sales were grim, with even Wal-Mart missing sales predictions.
This is far from surprising when you consider the fact that consumer credit fell by a record amount in November.
People are not buying, they are paying down debt.
Surveys in Europe are showing a precipitous drop in sentiment too.
We are also seeing a rather precipitous drop in port traffic in 2008, it looks to be about 8%, to the lowest level since 2004, according to the National Retail Federation (NRF)
Consumers are buying less, and domestic manufacturers are drawing down inventories, and both of these reduce the demand for imports.
As such, it is no surprise that the Bank of England cut its benchmark rate by 50 basis points (½%), the lowest since its founding…..In 1694.
Interest rates are still trending down here, with the 30-year fixed mortgage rate hitting a record low.
I’m not sure how long the low rates will last though, as Moody’s is reporting that the Federal Home Loan Banks (FHLB) are experiencing serious losses in mortgage backed bonds, and may fall below required capital minimums as a result.
While failure is not imminent, the spreads between their bonds and treasuries are rising as a result.
BTW, we are also seeing holes in one of the panglossian predictions of real estate professionalw, residential rents are dropping too, “apartment rents fell in 54 out of 79 U.S. metropolitan areas in the fourth quarter of 2008.”
We are also getting rumblings that the Chinese are losing their appetite for US debt, though Brad Setser says that this article is bogus, and he has the number to show this.
Really, the important thing here is not that people are not investing in US debt, it’s that they are talking about not investing, in the New York Times no less, which is the first step to a drying up of foreign lending.
The only foreign lending that does not seem to be decline is that of central banks to commercial banks. Case in point: the Bank of Japan decided to shovel $13 Billion to banks in the hopes of jumpstarting their lending.
In currency, the dollar fell today, largely because the 50 basis point cut of the BoE was less than had been predicted.
In energy, oil fell again, on the expectation that the recession would continue to suppress demand.
Umm….Holy excrement?
The payroll firm ADP Employer Services just released its report as to job losses in December, 693,000 jobs lost…..In one month…..The ironically named Challenger, Gray & Christmas is also saying that layoffs reached a 5 year high in 2008.
The BLS will release its numbers on Friday, but I rather expect them to hew pretty closely to ADP’s numbers, particularly since ADP has been working to make its survey match the government numbers.
It’s no wonder that late loan payments are higher than at any point since 1980, there are a lot of people out of work.
In retail, we saw U.S. retail sales fell 0.8% YOY in the week following Christmas, and mall vacancies are at a 10 year high, rising from 6.6% to 7.1%, the highest quarterly jump ever recorded, and the highest vacancy rate ever recorded.
We are also seeing mortgage applications down for the first time in 4 weeks, though that could people waiting for the Federal Reserve’s purchase of mortgage backed securities to drive rates lower.
We are seeing similarly grim economic data in Europe too.
About the only bright news is that GM is saying that it does not expect to need more in the way of loans…After $13.4 billion in tax dollars to GM and $6 Billion to GMAC, I would certainly hope so.
The jobs number drove the dollar down, and traders are starting to go long on the Canadian dollar, which implies that they expect commodities, oil and timber come to mind for Canada, to start going up again.
That being said, expectations were not met today, with oil falling by 12% on reports of large inventories…..They are literally running out of tanks to store the stuff.
Retail gasoline, however has risen for the 9th straight day, and is now higher than it was a month ago…..My thinking here is that there was an overshoot on the way down, and (assuming that oil stays around $50/bbl) we will be looking at $2/gal gas.
Well, real estate sucks, with pending home sales falling by 4% (BTW, Manhattan apartment prices fell 4% too, so ain’t nothing going up.)
Manufacturing data is out too, and it’s grim, with factory orders falling twice what was forecast in November, and Toyota deciding to idle its plants for 11 days over February and March.
The last time Toyota did this was in the early 1990s recession, and they did it for one day.
Services did better than expected, with the Institute for Supply Management’s (ISM) non-manufacturing index rising. The prediction was that it would fall from 37.3 to 37 in November, but it rose to 40.6.
Better than expected, but any number below 50 still counts as contraction.
A bit of up news is that Calculated Risk’s Credit Crisis Indicators are showing improvement today.
But with all this going on it is no surprise that consumer bankruptcies rose by nearly a third in 2008.
The problem with the 2005 act was that people don’t declare bankruptcy on a whim, they declare bankruptcy when they fall of the tight rope that is middle class existence in the United States, and there is no safety net to catch them.
In currency, the dollar rose against the Euro, largely on the expectations of further rate cuts by the ECB.
In energy, oil finished the day down, but it spent part of the day above $50/bbl for the first time in about a month.
Silvio Berlusconi dis something that George W. Bush could only dream of, he partially privatized the Italian social security system.
Well, the “beneficiaries”, of the policy, the roughly 1.2 million people who made the switch to privately managed accounts, are now screaming like defrauded Italians, (which they are) because their accounts have gone south with the markets, and the management fees have taken most of what is left, and now they want their bailout.
How many times does this have to happen until people realize that taking a safety net, and making it a revenue stream for a broker is a bad thing?
When I started predicting a financial meltdown 5 years ago, I didn’t know a CDO, CDS, or MBS from a hole in the wall.
Truth be told, I’m only barely past that now.
What I was predicting was a real-estate crash followed by a recession, followed by a loss of status as a reserve currency, which would drive the dollar down and interest rates up.
So, I was really only right on one thing, the real estate crash, at least for now, which I figure is pretty good for someone with one economics course under his belt.
That being said, the recommendation by Akio Mikuni, president of the Japanese credit ratings agency Mikuni & Co., that Japan should unwind its holding in US Treasuries could be seen as a first step for the rest of the sequence:
The dollar may lose as much as 40 percent of its value to 50 yen or 60 yen from the current spot rate of 90.40 today in Tokyo unless Japan takes “drastic measures” to help bail out the U.S. economy, Mikuni said. Treasury yields, which are near record lows, may fall further without debt relief, making it difficult for the U.S. to borrow elsewhere, Mikuni said.
Interestingly enough, Mikuni is not suggesting flight from the US market, but rather that, “Japan should also invest in U.S. roads and bridges to support personal spending and secure demand for its goods as a global recession crimps trade.”
He’s talking about a Marshall Plan for America.
I’m wondering if this is just one (rather influential) guy spouting off, or the first few steps in a rush to the exits.
Just so you know, the whole auto industry is in a tailspin.
All the auto manufacturers are seeing sales fall by more than 30%, with Chrysler falling by a whopping 53%, year-over-year.
My guess as to Chrysler is that the American public realizes on some unconscious level that Cerberus is a pump and dump operation that cannot be trusted.
In real estate, construction spending was down by 0.6% from October to November, which was better than the consensus estimate of 1.4%, which to my mind is a serious WTF number. 1.4% a month is Sta-Puft Marshmallow man time.
In central-bank land, we have reports that the Federal Reserve and the ECB are working together to avoid deflation, which indicates that central bankers on the both sides of the pond are scared.
The ECB’s only charter is to control inflation, but now they are trying to figure out how to get inflation back into their economies.
No surprise that we are still seeing a flight to safety that is driving the dollar up against both the Euro and Yen.
In energy, oil is up again, largely on concerns about the Middle East, and retail gasoline was up 1.4¢/gal, the 6th straight day in a row, which seems to indicate that gas prices will be rising in the near future.
Finally, here is a pretty picture:
It’s a measure of the ISM Manufacturing index (I mentioned this last week). The graph is courtesy of The Bonddad Blog, and he accurately describes this as “cliff diving”.
Well, the Institute for Supply Management, released its manufacturing index: 32.4 in December, a 18 year low. Europe , Russia, China, and Australia had similar declines in similar indices.
In currencies, the dollar strengthened against both the Euro and Yen, while the Pound continued its slide.
Meanwhile, in energy, oil is above $46/bbl, and retail gasoline prices rose for the 3rd straight day.
An interesting side note to this is that they are adding 12 million to the strategic petroleum reserve, which implies to me that someone there thinks that we are near bottom, and that it is a good time to buy.
