Well, it appears to be a slow news day, with the only major news being that it appears that the ratings agencies are trying to get their sh&% together, as yesterday Moody’s started uprating government bonds, and today Moody’s downgraded its ratings for Fannie and Freddie preferred stock.
As to commodities and currency, oil down, gasoline down, and dollar up.
It appears that by late last yearIsrael scaled back arms sales to Georgia last year, because they saw a war between Georgia and Russia brewing.
Based on what I’ve read at this point, it appears that, with the South Ossetians, there was no one within 1500 km who did not know that the Georgians were preparing for an invasion of the breakaway province.
Meanwhile, Georgia is suffering economically, both as a result of transportation disruptions and a flight of foreign capital.
Meanwhile, in response to NATO’s downgrade of relations, the Russians have frozen cooperation with NATO, which includes things like anti-drug operations and supply routes to Afghanistan.
On the military side, while the Russian counter-offensive was clearly successful, there are accusations that the Russian Air Force was unprepared, with little or no effort made in the initial stages of the war to take out surface to air missile and radar sites.
Mikhail Gorbachev has written a blistering editorial excoriating the west and the western media, that he feels was in the pocket of Georgia.
It looks like the promised Russian pullout is procedeeding, albeit slowly, though Georgian president Mikheil Saakashvili is claiming that the pullout is widening the occupation of Georgia.
I think that it’s clear at this point, despite Saakashvili’s fluent English and his Columbia University degree, which counts for way more than it should in US diplomacy, he’s just a bit…..well….nuts.
Ummm….This is not a day for pleasant economic news.
First, the Leading Economic Indicators indicate a bigger slowdown than anticipated, dropping 3x more than expectations, and then the Philly Fed index fell for the 9th straight month.
Employment isn’t good either. While new unemployment claims fell, the 4 week rolling average rose, and in any case at 432,000 claims (seasonally adjusted, which is the elephant in the room), it’s still too damn high.
If you are a monetarist, then we have more bad news, because the growth rate for M3 has dropped off a cliff (chart pr0n below):
Note that this is a graph or the rate of growth, not the money supply, so the effect on the overall money supply is less than it appears, but, “As a rule of thumb, the data gives a one-year advance signal on economic growth, and a two-year signal on future inflation.”
The chart is a rolling 3 month average of the annual rate, and the rate for May-July is 2.1%, indicating a contraction of the M3 money supply in real terms, which would suggest downward pressure in housing and financial markets.
We also have the Reuters/Jefferies CRB Index of commodities making the biggest weekly jump in over 30 years and oil up by 6 bucks, along with the dollar falling which seems to indicate that the past few weeks might just have been profit taking…a breather before an ascent to the summit, though
gasoline is down over a dollar today.
As it always is in times of crisis, we are seeing a flight to government bonds. Everything else appears too dicey, with mortgage applications at a nearly 8 year low, estimated food inflation for this year may be at a 28 year high, and home prices in high priced areas falling like a stone, even if volume is up a bit.
In energy and currency, the dollar is up a bit, as is oil, though neither are up significantly, and gasoline is down for the 34th straight day, and it’s now down about 10% from the peak.
the producer price index rose 1.2% in July, that comes to about 15% inflation, and the year over year rate was 9.8%.
Inflation is back….Truth be told, it was never gone, it’s just that the government statistics concealed it, and we are now running into the limits of such accounting artistry.
We also are seeing housing starts at a 17 year low, so it looks like stagflation to me.
I just hope that it isn’t an Argentina/USSR style collapse.
I would note that a lot of this inflation is commodities, and they are down.
Both oil and gasoline (33rd straight day) fell again.
That being said, the dollar was down again today. Those inflation numbers probably scared traders.
Finally it looks like Lehman may be forced to sell its money management division in order to raise capital to offset its losses.
AFL-CIO Secretary-Treasurer Richard Trumka just cut Bob Rubin a new one:
Blaming unfettered global trade and inadequate government regulation for lost manufacturing jobs and a staggering economy, Trumka’s presentation cautions that “it will do us little good if, when the next Democrat moves into the White House, Wall Street takes command of our country’s economic policy.”
Trumka leaves no doubt that the rebuke is aimed at Rubin, Wall Street’s most prominent Democrat. It’s “hard to tell the difference” between Rubin and Republican Treasury Secretary Henry Paulson, the presentation says. Trumka’s critique reflects the concern among organized-labor officials that Rubin and like- minded Democrats may win the behind-the-scenes battle to shape Obama’s economic thinking.
“I’m hearing Rubin’s name more and more associated with the campaign’s economic policy,” says James Torrey, a top Obama fundraiser and chief executive officer of New York-based Torrey Associates LLC, a hedge-fund investor.
Further down in the article, it notes that Obama is talking up a strong dollar policy, a shibboleth of Bob Rubin.
This is a bad sign, and not just because it indicates a tilt toward Rubin. It’s also no longer sustainable, and tremendously damaging to the economy, at least if you are not a big ticket stock broker like Bob Rubin.
The fact is that much of the Clinton administrations economic policy was driven by Rubin, and it was not Democratic Party economics, it was Eisenhower Republican economics, and the credit crunch is largely a function of these policies now coming home to roost.
It looks like concerns about GSEs are roiling the markets again, so one wonders when the government will nationalize Fannie and Freddie.
It won’t happen under Bush and His Evil Minions™, needless to say, but I see it as inevitable for the next president.
Meanwhile, energy is still trending downwards, with oil falling as the path of Fay becomes clearer, and gasoline falling fo the 32nd straight day.
The dollar is down a bit, but I’m not sure if this is a pause in a rally as people take profits, or a change in direction.
In any case, it looks like labor day air travel is going to be way down, yet another sign of the slowing economy, and the fact that airlines have become so bloody awful.
Finally, home prices in the UK fell by 4.8% year over year, showing again just how well the “Anglo Saxon Model” of capitalism works when things go bad.
When we talk about how the falling dollar has increased exports, they rarely note what it is that the US actually exports.
We are exporting, “decidedly low-luster commodities like corn, wheat, ore and scrap metal. Commodities are 42% of export increase in the first half of 2008, and manufactured goods, only 12% (Note that this is only the percentage of the delta, percentage of the whole is 26% commodities and 40% manufactured goods).
Part of the reason for this is that much of the manufacturing capability of the US no longer exists. It has been shut down and either shipped overseas or sold as scrap, so there are very real limits to the degree that US manufacturing can take advantage of the dollar in the short term.
They call him Dr. Doom.
It’s a rather nice profile of Dr. Roubini, though I agree with Paul Krugman that his prediction of a housing crash was hardly unique, and that they missed what was special about his predictions, that there would be as Krugman says, “there would be large “knock-on” effects from the bursting bubble on the financial system”, i.e. the credit crunch as we are currently experiencing it.
Interestingly enough, it looks like the crisis will exceed Roubini’s most pessimistic projections, which is kind of scary.
You know that the economy is bad when you go broke filling people’s Jones for chocolate chip cookies, but Mrs. Fields cookies is filing for reorg under chapter 11.
The dollar is down a bit, because there is concern that the Fed won’t raise interest rates soon.
Honestly, they won’t raise rates before the election, because that is what the Fed does.
Oil is up a bit, on concerns of the effects of tropical storm Fay on rigs in the Caribbean.
In 1983 they stopped counting actually counting housing costs in the consumer price index (CPI) and started using something called owners’ equivalent rent.
The argument was that it gave a better picture of inflation, but in reality, it just gave a smaller picture of inflation.
Among other things, it would have had the Fed tightening sooner, because inflation would have been high enough in early 2004-2005.
Go to the link for the chart pr0n. Of particular interest is that core inflation would be negative right now if we used the old metric.
The inestimable Barry Ritholtz finds a a very interesting bit of stock trivia: that 300 point rallies in the dow only occur in bear markets.
He has further analysis here and here.
His basic thesis is that bear markets are more volatile than bull markets.
Today has actually been a good news day, with US industrial production increasing by 0.2% in July, though one should remember that inflation is 0.8%, the the consumer sentiment index rose in Augst, though July was a 28 year low, and the New York Fed Manufacturing Index rose. (no qualifiers on this one, it really appears to be good news)
Good news on all my standard metrics too, oil down, gas down, and dollar up.
Inflation is the fly in the ointment, as Dean Baker notes, because the increased inflation means that the 3rd quarter will almost certainly be a contraction.
I would, however be remiss if I did not note that commodity prices are falling very sharply, which may bring moderation in inflation in the coming months.
In the economic scandals section, we have Wachovia joining the parade of banks and investment houses settling on auction rate securities, to the tune of $5.5 billion.
In the “It should be a scandal,” category, we have S&P deciding not to downgrade MBIA and Ambac, even though anyone with two brain cells to rub together knows that the monoliner insurers are junk
I would also note that I’m wondering if we will see a Peso rally, because Mexico’s central bank just increased rates for the 3rd straight month.
And The Onion is a national treasure:
Weekly initial jobless claims came in higher than expected, at 450K as opposed 432K, and the 4 week moving average is 440.5K, the highest number since 2002.
At the same time, the CPI numbers are grim, with prices up 0.8% in July, and 5.6% year over year.
The Europeans are not doing much better, with GDP declining 0.2% in the 2nd quarter.
The European weakness, meant a Euro weakness, with the dollar gaining against the Euro.
These indications of a global slowdown have pushed oil prices lower, and Gasoline is down too.
Don’t expect a real estate recovery to save the economy though, foreclosures are up 8% for the month, and 55% year over year, and home prices have fallen 7.6% year over year.
Nouriel Roubini, in The Decline of the American Empire, and Harold Meyerson, in The Drums of Change, both make a very similar point: that America’s time as the sole unchallanged “hyperpower” is coming to an end.
I would have to say that Meyerson is far less interesting than Roubini, he simply notes that the Chinese are growing more powerful by the day, and that Russia is exerting its muscles in its immediate neighborhood.
Roubini, on the other hand, makes it clear that he believes that, “three factors suggest that the US has squandered its unipolar moment and that the decline of the American Empire – as the US was in effect a global empire – has started.” (emphasis mine)
His factors are:
He notes that the movement of foreign reserves from Treasuries to sovereign wealth funds in search of better returns is indicative of the fact that those creditors are nearing a point where they will make demands.
Speaking for myself, and not the good Dr., I would also note that the American way of life, or more accurately the standards of living for the top 1% and the phony economy of Wall Street, have not been sustainable for decades, and the transformation of the US from the largest creditor nation into the largest debtor nation during the Reagan administration shows this.
Let’s start with the really scary numbers that you need to know:
Meanwhile in Japan, their economy contracted at a 2.4% annual rate, once again showing that decoupling from the US economy is a failed theory.
Still, the president of the ECB, Jean- Claude Trichet is sending out signals that imply that there will be no Euro zone rate cuts, which would imply that the dollar may not have much strengthening left in it.
I would note that businesses don’t put much stock in the economy right now. Inventories increased, but at a less than ½ the rate than the rebate juiced spending by consumers in June, implying that they are expecting a major slowdown.
The saying that, “When the US economy gets the sniffles, the rest of the world gets a cold,” still applies, and so we are still seeing capital flight into the US dollar, which is why it strengthened today.
In energy, oil rose on thighter than expected inventory reports, and retail gasoline has continued its unbroken downward streak.
The U.S. trade deficit unexpectedly fell in June, though I wonder how much of that will go away now that the dollar is about 6% stronger than it was that month.
I just wonder when people are going to start noticing that the Fed is printing money like a SOB with it’s aid to the financial industry.
Today’s bit of additional money comes to $25 billion with their financial toxic waste for cash exchange program, better known as the, “discount window borrowing facility”.
The dollar is down a bit today, but I see it as profit taking, as opposed to the realization that we in the US print more money than toilet paper though.
In energy, oil is down, even though BP closed its Georgia pipeline as a precaution.
Gasoline is down tow, by about $0.30 from peak.
Real estate, on the other hand, is beginning to look grim, with people finally noticing that prime mortgages are defaulting at higher rates too.
It explains why JP Morgan lost $1.5 billion on mortgage backed securities in July.
Well, we are now seeing reports that the FDIC is going to have to raise premiums to cover losses from bank failures.
They should have started last year.
Meanwhile, the Chinese economy is showing signs of significant inflation, with China’s wholesale prices rising 10% year over year in July.
The problem here is that the obvious solution, the central bank raising interest rates, will server to further weaken the dollar, which will drive their exports down….Catch 22.
Meanwhile, it appears that Morgan Stanley has problems, because Moody’s just cuts its credit rating to A1 from Aa3 because of losses in the mortgage market.
Interestingly enough, even though Georgia and Russia are in something very close to a war, and the Georgian pipeline is a crucial link for Europe, oil is down, largely on the Iranians agreeing to a new round of negotiations on their Uranium enrichment program.
Gasoline is down again, for the 25th day in a row.
The dollar rose today, probably as a result of concerns about the conflict between Georgia and Russia, which tends to send money fleeing to the relative safety of the US dollar.
And in the, “Funnier if it weren’t so true” department:
Well, Fannie Mae just posted a $2.3 billion loss, cut its dividend, and is will no longer buy and resell Alt-A mortgages.
That sound you hear is the housing market seizing up, and it does look like mortages will be getting more expensive, and given that the spread between LIBOR and Treasury Bills, the so called “TED Spread”, remains at near historic highs, I don’t really see any unfreezing in the near to medium future.
However, the the US dollar is on a tear right now, and a strong dollar attracts investment, which means that there is more money out there to lend, which might make loans cheaper.
I still think that current interest rates are unsustainably low, but YMMV.
Oil and gasoline are down, as are commodities like copper, silver, and gold.
This points to declining inflation, good news, but only because there are real signs of a deep, hard recession, which is bad news.
The fact that Productivity growth has slowed points to a slowdown too.
I wonder what the moderation in commodities will do to wholesale inventory numbers, which have been up because of price appreciation in said commodities.
BTW, a monoliner insurer just went belly up. ACA Capital Holdings Inc. just terminated $65 billion in credit default contracts, and turned itself over to creditors.
BTW, as a result of the IndyMac implosion, people are starting to split their bank accounts among multiple banks, to ensure that they are all completely covered by FDIC insurance.
I think that we are seeing a generational shift in the attitudes of people about finance and investing.
Well, the jobless numbers came out, and they suck. The weekly numbers rose by 7,000 to 455,000, a 6 year high, when predictions were for a drop to 433K, and the 4 week moving average, which is less noisy, rose to 419,500, a 5 year high.
At least our misery has company, with the ECB holding rates steady, saying that “risks to economic growth were starting to materialize”, which is a signal that Euro zone rates will remain steady.
Of course, our relentlessly optimistic financial press has to try to make s%$# into Shinola in housing, where they are touting a 5.3% month to month gain, which as Barry Ritholtz so eloquently notes, this is unmitigated crap, and driven by seasonal differences more than anything else, and the numbers are down year over year.
Additionally, we do not know how many of these are short sales in lieu of foreclosure.
We also have retail experiencing major suckitude now that the rebate checks have run out. To the degree that people are spending any more, it’s on necessities, and they are running up their credit cards to do this, because the banks are cutting back on HELOCs.
Meanwhile, oil rose on supply concerns after Kurdish rebels blew up a Turkish pipeline, though gasoline is down for the 21st straight day.
In the world of insurance, the largest US insurer, American International Group wrote down more than $11 billion in holdings, and is making noises about selling more shares to raise capital.