Because she just gave a speech saying that she was moving away from Hoovernomics, and that the German government would take direct stimulus action, as opposed to the tax cut she has been keeping in her pocket for election time.
Category: Economy
Economics Update
The big news, the Fed basically giving up and lowering its rates to what is effectively zero, I just posted, but that’s not the only central bank news today.
The European Central Bank is considering cutting its overnight deposit rate, and the Bank of Japan is looking at ‘quantitative’ monetary easing, things like buying commercial paper outright.
I think that we may see the printing presses cranking up fairly soon, and as I’ve said before, this might not be a bad thing: inflating our way out of the housing crunch as a way to staunch the bleeding in the credit bubble. (I think I just violated some regulations on mixing metaphors, and the English Instructor Swat Team will come after me, red pencils blazing)
In any case, the Federal reserve cutting rates by ¾% has pushed the dollar down today and pushed treasury yields down to new lows.
That second one is part of the goal, the idea that lower yields will move people to more risky investments, but since people have already accepted negative yields, I’m not sure that it will make a difference.
In the mean time, those who worry about a deflationary spiral, are not relaxed folks today, with the CPI in the United States dropping by 1.9% (non-seasonably adjusted) and 1.7% (seasonably adjusted), the biggest drops since 1932 and 1947 respectively.
Anytime you hear an economic statistic, followed by, “since 1932,” it is not a good thing….I’m just saying…
Needless to say, this is hitting with real estate too, with housing construction starts falling 18.9% in November, to 625K, the lowest number since records started being kept on this in 1959.
Anytime you hear an economic statistic, followed by, “since 195,” or, “since records started being kept,” it is not a good thing either….I’m just saying…
In Southern California, one of the areas hardest hit by the housing bubble, prices are down 5% for October-November, and 35% from November last year.
I’ve seen a few stories about how selling is picking up in California, but this really is people scavenging foreclosures and oft-mentioned the dead cat bounce.
In energy, OPEC meeting opened with calls to cut production by 2 million bbl/day, which, along with the falling dollar and Fed rate cut, pushed oil up, but only by a bit less than a dollar.
Retail gasoline was up again today, but still has not moved more than a penny above its recent low.
More Economic Journamalism
So here we have a story on the brighter side of a near complete collapse of our credit system, which opens with this ‘graph”
Dec. 15 (Bloomberg) — Bill Clinton was forced to abandon spending initiatives to boost the economy at the start of his presidency when advisers warned him that the borrowing needed to fund the programs would push interest rates higher. President- elect Barack Obama may not have the same problem.
No, he was forced to back off those initiatives because Alan Greenspan threatened crushing interest rate increases if Clinton actually tried fiscal stimulus, because he opposed such policy on philosophical grounds.
To suggest anything else means that you are a liar or too stupid to cut your own meat.
Economic Journamalism
First we have economist Dean Baker makes the observation that the gross number is driven largely by utilities, and consumption of utilities is driven by weather, which is what typically happens in November relative to October.
Then he notes that frequently when a month is revised downward, it makes the next month looks better, which is what did happen this October.
But still we get stories like this headline, “Manufacturing Still Dismal, But Not as Bad as Feared.”
Economics Update
It’s Monday, so let’s start with real estate.
The first is this story on San Francisco real estate. It’s falling like a poleaxed steer, so both of the most desirable locations on both coasts are hit by the slump, which should come as no surprise.
Additionally, we have the NAHB reporting that builder confidence is staying at a record this month, which makes sense: If builders are not near suicidally depressed they are crazier than Rod Blagojevich.
Of course, it appears that Fitch ratings is actually crazier than Blago, or perhaps just dumber, because only now have they adjusted their ratings of Alt-A mortgage backed securities, which have been collapsing for at least 6 months.
In the rest of the economy, we have New York Federal Reserve’s Empire State Manufacturing Survey deteriorating significantly, which, considering the capital intensive nature of manufacturing, is probably why business bankruptcies are jumping, with 58,000 through the end of November, as compared with 43,000 for all of 2007.
Quick math says that we are looking about 61K for the year, or about a 40% increase.
Under these conditions, its inevitable that a flight to safety would drive 30-year US bonds to record low yields, below 3%.
In currencies, we have another devaluation of the ruble, and the dollar is at a 2 month low on the expectation of a Fed rate cut.
In energy, retail gasoline was down again, after yesterday’s bump that followed 86 days of decline, while oil fell about 2%, though it was above $50/bbl earlier today, and OPEC is saying that they are really serious about cutting production this time….Yeah sure.
Weekend Economics Update
Just because it’s the end of a very long streak, I have to note that retail gasoline prices rose Sunday from $1.66/gal to $1.663/gal following 86 straight days of declines.
In currency, the dollar dropped, largely on the entire auto industry bailout clusterf%$# that the Republicans made, and the Pound fell below the Euro for the first time ever.
I think that the Pound breaking 1€ is actually the most significant thing here.
While “The Street” in London is smaller than Wall Street in New York, it is a much larger portion of the UK economy, and so the damage is relatively larger.
People no longer have faith in the international institutions that are the exemplars of what is called “Anglo-Saxon Capitalism”, nor the governments that are shoveling increasingly large amounts of (soon to be debased?) currency in their direction.
Economics Update
Well, retail sales numbers for November are grim, down 7.4% from November 2007, and that’s with an adjustment for a late Thanksgiving that is probably excessive, so it is likely worse.
Consumer sentiment rose, but is still at a pretty awful number.
We also saw wholesale prices fall, which can be either good news, moderating inflation, or bad news, deflation.
Overseas, we have the EU found agreement on an economic stimulus pack, with even Angela Merkel backing off Hoovernomics by a half step.
In Japan, a new economic stimulus package has been announced.
Russia, however, is being hammered by low oil prices, and senior officials are now saying that the nation is in recession.
As to currencies, the dollar was mixed, up versus the Pound, down a smidge versus the Euro, and at a 13 year low versus the Yen.
I’m not sure how much of this is all just a reaction to the Senate auto bailout follies, and the the same goes for the price of oil, which was down, but was likely driven by yesterday’s filibuster.
Additionally, retail gasoline is now below $2 a gallon in the lower 48, with New York State crossing that line today.
Once Again, the Germans Are a Menace to the Civilized World
I know, Godwin’s law, but I completely with Paul Krugman calling out the Germans on economic policy.
Specifically, he calls out Peer Steinbrueck, the Germany finance minister, who suggests that spending programs are “Crass Keynesianism”, and indirectly he calls out Angela Merkel, who is strongly resisting spending to stimulate the economy, and is instead keeping, “her trump card – tax cuts – in reserve.”
So in the middle of the biggest financial crisis since the Great Depression, Merkel and Steinbrueck are advocating Hoovernomics.
I understand the hyperinflation of the 1920s and how it shaped German thought, but this is insane.
Economics Update
Woah, new claims for jobless benefits just jumped by 58,000, to 573,000, a 26 year high.
Continuing claims, which is a far less noisy metric, also jumped to a 26 year high, 4.43 million, up from 4.09 million.
In real estate, the average rate for a 30-year fixed mortgage hit 5.47%, a 4½ year low, and forclosures fell in November, but this appears to be as a result of new state laws requiring more time for the process and/or temporary moratoriums, so there will likely be a significant spike in the next few months.
In the more general economy, we have a first, or at least a first since the Federal Reserve began collecting the data in 1951, the level of consumer debt held in the US has fallen, by 0.8%.
Of course, consumer net worth fell by 4.7%, so it’s a net loss.
In international finance, the Swiss Central Bank cut its interest rate by 50 basis point, and China’s exports fell 2.2% year over year, the steepest drop in nearly a decade.
In currency, the dollar weakened significantly, by about 4¢.
My guess is that it was some combination of extremely low interest rates in the US, or the demonstration of batsh%$ insanity by the Republican senators on the auto bailout vote.
In energy, oil is back above $45/bbl on strong calls by OPEC for production cuts, and retail gasoline prices continued their slide.
Joseph E. Stiglitz on Free Market Evangelicals
Read his article, and you will understand that this is not a failure of regulation or legislation, but one of world view:
The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal. Looking back at that belief during hearings this fall on Capitol Hill, Alan Greenspan said out loud, “I have found a flaw.” Congressman Henry Waxman pushed him, responding, “In other words, you found that your view of the world, your ideology, was not right; it was not working.” “Absolutely, precisely,” Greenspan said. The embrace by America—and much of the rest of the world—of this flawed economic philosophy made it inevitable that we would eventually arrive at the place we are today.
It’s also a very entertaining read.
Economics Update
Well, now we have a report from MasterCard saying that gasoline consumption rose year over year for the first time since April, which I guess gives us an indication of just how quickly American consumers go back to their old ways when fuel prices fall.
In the meantime, Calculated Risk’s Credit Crisis Indicators have shown a bit of improvement, though with people taking negative interest to be in US treasuries, I’m not sure how reassuring that it.
In any case, it’s now clear that last week’s surge in mortgage applications was from people scrambling to lock in rates and this week, we have the application rate plunge, because this week’s applicants rushed to apply last week.
Meanwhile, consumer spending looks to post the biggest drop since just after Pearl Harbor, which is really pretty scary when you think of it.
And there won’t be much help on the export markets, with both China and Europe showing more signs of slowing themselves.
Which leads one to wonder when they will stop lending to us, because the U.S. budget deficit was $164.4 billion in November, up from $98.2 billion in November 2007.
Finally, we have oil rising on a Saudi supply cut, retail gasoline dropping for the 84th straight day, and the Dollar was mixed again today.
Economics Update
We already knew that Japan was in a recession, but the updated data is worse than the initial data. The preliminary number was 0.1%, the prediction was 0.2%, and it came in at 0.5%.
Barry Ritholtz notes that the 4 Week T-Bill was paying 0%, down from 0.4%, and notes that the only reason to do this is if you expect that the next 4 week T-Bill will have a negative interest rate, i.e. that you pay the government money for the honor of lending them your money.
Turns out that he was a a little bit premature, because the 3 month T-Bills actually traded at negative interest rates, “If you invested $1 million in three-month bills at today’s negative discount rate of 0.01 percent, for a price of 100.002556, at maturity you would receive the par value for a loss of $25.56.”
If you want to feel concerned note that this is the Lowest Rate Since 1929…1929….That year sounds familiar.
In the meantime, the Bank of Canada cut its key rate by 75 basis points to a 50-year low, because they are in recession too.
In real estate, the Pending Home Sales index fell, though not by much, and listing prices for homes have continued to fall.
Calculated Risk has a summary of the commercial real estate market, and it ain’t pretty.
In energy, oil is down a bit, likely spooked by the complications on a bailout deal.
The dollar was mixed today, up a bit vs the Pound and Euro, and down a bit vs. the Yen.
A Better Employment Metric
Of course, it is also a very scary metric.
But I agree with Paul Krugman, workforce participation is one of the better metrics that we have to describe the unemployment situation.
However, I do have a problem with the graph, which is that the delta is magnified, by focusing on a range, in this case 61%-65%, as opposed to showing the full range from 1-100%.
I think that these sort of “broken range” graphs serve to overemphasize deltas….though that is a really scary picture, even if it’s done on a full 1-100 scale.
It shows that employment never recovered from the 2001 downturn, and that it’s headed down fast now.
Economics Update
Well, I will start of with Mr. Ritholtz’s trenchant analysis of the scary statistics I’ve been throwing about recently. He looks at them and, concludes that the employment numbers are tweaked to make things look less dire.
Basically, he is saying that the birth/death (of small firms, not people) adjustments and the seasonal adjustments are bunk, and the numbers on workforce participation as a percentage of the economy bear him out.
Additionally, you have people leaving the labor force, or being underemployed, which is not counted in the normally covered statistics.
BTW, the fact that foreclosures rose 76% year over year in the 3rd quarter bodes ill for the housing to recover any time soon. (chart pr0n captured by Barry Ritholtz, I highly recommend his site)
Of course, the results of Manpower, Inc. survey of employers does not point to an increasing in hiring in any segment of the economy.
About the only bright news is that looks poised to approve the various bank rescue plans in the Euro zone, they just approved France’s plan.
Going further east, however, things get grim, with S&P downgrading Russian government debt and downgrading 6 of the larger Russian banks.
Despite the news, oil was up today, largely on reports of a bailout of the Big 3 (Big 2½), but retail gasoline is continuing to head down.
Gasoline will continue to lag oil on the way down for 2 reasons: It takes time for oil to get shipped from a refinery and become gasoline, and people are extracting profits on the way down, because what was expensive seems cheap to the consumer now.
Obama Goes for Massive Infrastructure Spending
This is not a surprise. It’s a good way to prime the pump, and the needs in terms of deferred maintenance on roads, bridges, water supplies, etc. are very real.
One thing that does concern me is that some of this infrastructure spending is on broadband (good), but they are (at least according to what I heard on Marketplace Money Sunday) planning to use incentives to private firms.
While Obama is correct in saying that it’s unconscionable for the US to be number 15 in broadband penetration, the idea that the private sector would save this is absurd and misguided.
This was tried in the 1990s, with the incumbent telcos getting over $100 billion in incentives, but they spent the money that they got on cementing their position as incumbents, rather than on improving the communications infrastructure.
This is not surprising. Monopoly and near-monopoly generate the best profits, which is the objective in a capitalist system.
I do believe in competition in broadband, from the curb to the home phone/TV/PC, where the incumbent advantages are small, but in the last mile from the “central office” to the curb, having a private entity in running the business is an epic fail, and it is why the US lags behind state owned Telcos in both performance and price in places like Korea and Japan.
Roubini is an Optimist?
Nassim Taleb, author of The Black Swan says that he thinks that Nouriel Roubini is actually underestimating the magnitude of the financial collapse that we are seeing here.
If he’s right, we don’t need to stock up on gold, we need to stock up on ammunition and canned goods.
Another Bank Failure
First Georgia Community Bank, Jackson, GA
Just so you know, there was 1 bank failure in January, 1 in March, 2 in May, 3 in July, 3 in August, 4 in September, 4 in October, and 5 in November.
This one in the first week of December makes 25.
So, It Appears that We Have the First Catfight of the New Administration
Timothy Geithner, U.S. Treasury Secretary nominee, is seeking to dump dump Sheila Bair as Federal Deposit Insurance Corp. (FDIC) Chairman.
Normally, I would think that this is a good thing, as she was appointed by George W. Bush, but she has been remarkably honest and competent, working on behalf of homeowners rather than investors, and by publically debunking the myth that the meltdown is was caused by the Community Reinvestment Act caused the meltdown, said myth being Republican speak for, “It’s all the fault of the n*gg*rs.”
So, while Geithner has been mute on the people brought in by Henry Paulson to (mis)manage the bailout, he wants her gone ASAP, which raises the obvious question, “Why this target in such a target rich environment?”
After all Hank Paulson and His Evil Minions™ all seem to be white dudes who are either bald or have shaved heads, and so are easily identified.
Well, the answer seems to be small and petty:
Geithner, president of the Federal Reserve Bank of New York, has argued Bair isn’t a team player and is too focused on protecting her agency rather than the financial system as a whole, according to two congressional officials and a person familiar with his thinking. Bair has battled with Geithner and fellow regulators over aid to Citigroup Inc. and other emergency actions, making her enemies in the Bush administration.
“The idea of having an independent actor on the stage with you who might not be singing the same tune can make you nervous,” said Wayne Abernathy, a former Treasury official who is now executive vice president with the American Bankers Association in Washington. “They recognize that she’s a very independent person.”
It isn’t clear that Obama would ask Bair to step down. Such a move would be fraught with political risk for the new administration, especially on Capitol Hill, where Bair’s campaign to rework mortgages for struggling homeowners has won respect from top lawmakers, including Senate Banking Committee Chairman Christopher Dodd and Barney Frank, his counterpart in the House.
Not a team player, when the team is the hole in the head gang, is a recommendation, not a condemnation.
It seems that Greithner, who has spent his entire career being second fiddle to someone, is offended by the fact that she has different opinions, and she is, well, more correct on these issues than any of the other players, including Mr. Greithner.
Basically, it sounds like we have someone who expects sycophancy from people who are nominally under his authority, in this case FDIC Chair to Secretary of the Treasury, because that has been what he does.
But maybe I’m over analyzing the psychology of the situation, and Barney Frank’s assesment, that it’s No Girls Allowed’ on the bailout team is accurate.
I’m not sure if Bair should be fired, but it is clear that she is the best of the lot on the job today, and based on the complaints that I have heard, which have generally come from Wall Street finance types, she may even be competent and conscientious.
Hmmmm….Why Do the Airlines Need Another Bone Yard?
Someone thinks that there is a need, because someine is aggressively marketing Morocco’s Errachidia Airport for long term desert storage (i.e. boneyard).
Because thinks that there is a need to have a place to park hundreds, or perhaps thousands of aircraft.
Someone is betting on recession here.
No.
So, now we have reports that The Obama transition team is participating in talks between Treasury and Congress over the 2nd $350 billion installment of baulout money.
More accurately, frack no.
Not only has he shown himself incapable of fixing things, he has, through his incompetence and cronyism, consistently made things worse.
Not one cent where Paulson has control.