Category: Economy

Economics Update

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Well, the Employment Trends Index is down again. That 11 down over the past 12 months.

In energy, oil prices briefly brok $140/bbl on the downside before settling at $141.37, but the price of retail gasoline continues upward unabated.

Unsurprisingly, the dollar strengthened today, though I am unclear why. The fundamentals underlying the dollar, trade and budget deficits, would seem to point further down.

I wonder what happens when we run out of Dutch boys’ fingers to put in the levee.*

Meanwhile, I think that all those folks who said that it was only residential real estate that was crashing are now desperately trying to find their happy place, because we just saw the the worst Q2 in commercial rentals in 30 years.

*No, I’m not going there.

Economics Update

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In case you are wondering about inflation, retail gasoline just hit a new high, breaking $4.10/gallon, even thoughoil prices backed off a little bit.

FWIW, it’s not just oil. BHP Billiton and China’s Baosteel just negotiated a 96.5%rate hike.

The currency markets are predicting that the ECB won’t raise rates again, so the dollar strengthened a bit.

Finally, in real estate, we are seeing soaring home equity line of credit delinquencies.

Economics Update

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As expected, today was a busy day, we had the ECB raising its benchmark interest rate 25 basis points to 4.25%, though investors were heartened that the accompanying statement appeared to make further hikes less likely.

We also had 62,000 jobs lost in the US, though the statistical witches brew known as the official unemployment rate stayed at 5.5%.

Of course, the “adjustment” for April and May added another 52K lost jobs.

Once again, I have to point you to Barry Ritholtz, who notes that the adjustments to that number are sick:

June 2008 was 177k versus June 2007 155k
Construction Gains +29k
Professional & Business Services +22k
Leisure and Hospitality +86k

Construction gained workers? Leisure and hospitality picked up 86K jobs? When the number of people traveling is dropping?

We need a truth and reconciliation commission for our economic stats generating agencies.

I would also note, as Mr. Ritholtz does, that the number of new unemployment claims jumped to 404,000, which does not include those people who will now get an additional 13 weeks.

What’s more, the SM nonmanufacturing index fell to 48.2% from 51.7%, indicating the service sector is taking it on the chin too.

It appears, however, that investors expected worse, as the dollar actually strengthened after all this.

Behold the power of low expectations.

However, despite the dollar strengthening, oil hit a new record, hitting $145.85/bbl mid day, and retail gasoline hit a new record too.

In real estate, we are seeing home mortgage rates down for the first time in 3 weeks, and we have demand for office space shrinking.

Chart pr0n:

No Problem With the Fed, Just Alan “Bubbles” Greenspan

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Economist and former Clinton deputy assistant secretary of the U.S. Treasury Brad Delong asks, “Is the Federal Reserve too volatile and hair-trigger? Or is the ECB too sluggish?“

I think that a more accurate answer is that Alan “Bubbles” Greenspan is an idiot, you will notice that the volitility, except for the steep decline at the end, is all under his watch, and “Helicopter Ben” throwing money out the window is as a result of Greenspan’s disastrous policies.

I would also note that the ECB is not charged with maintaining employment, just keeping inflation down, so they would naturally be slower to reduce rates. They have no balance to keep for them.

Economics Update

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It’s a pretty slow day news wise, because everyone is waiting on the ECB’s decision on interest rates, and the latest unemployment numbers.

That being said, both Oil and gasoline hit new records, and the dollar is mixed.

Of more interest is, and some alarm, is that the the National Employment Report from Automatic Data Processing shows that 79,000 private sector jobs were lost in June, worse than the expected 40K jobs, and the worst number since 2002.

We also have factory orders rising, which sounds like good news, until you look closer and realize it’s all energy costs.

Economics Update

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I’ve been saying this for a while, but as I am an engineer, not an economist, dammit,*, but still, I have to wonder why it’s taken so long for the Bank for International Settlements to see that the world economy is in serious trouble, with a possibility of a world wide recession.

When one considers spiking oil prices and a new record for gasoline prices, the news is not going to be good.

Given the dollar’s rather unclear future, along with increased Euro-Zone inflation, which implies more rate hikes, and hence downward pressure on the dollar, things are pretty twitchy out there.

The Chicago Purchasing Manager Index is up, to 49.6 from 49.1 last month, but any number below 50 still represents a contraction.

We can wait for tomorrow’s Institute for Supply Management’s June manufacturing survey to get a better picture.

*I LOVE IT when I get to go all Doctor McCoy!!!

Economics Update

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Consumer spending jumped 0.8% in May, largely driven by the income tax rebates, though one wonders how much of that spending went into people’s gas tanks.

What’s more, given that oil hitting a new record, even if retail gasoline is edging a bit lower, it’s highly unlikely that the giant sucking sound coming from our cars will change.

What’s more, this is continuing to drive the dollar lower.

At the core of the American economy, we have been living beyond our means for many years, and there will be some painful adjustments.

Unbelievably F&%$ing Bad Ideas: London Stock Exchange Edition

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So it appears the bright young (but evil) men from Lehman have been talking to the bright young (but evil) men from the London Stock Exchange, and they will be working together to make our world a worse place:

London Stock Exchange Group said Thursday that it would create a pan-European trading system in partnership with Lehman Brothers, as the exchange sought to regain its leading role in the region.

The deal creates a system for so-called dark liquidity pool trading. The exchange, known as the LSE, said the trading facility, to be named Baikal, would be open to other investors and was expected to begin operating in the first quarter of 2009. Lehman, based in New York, operates its own dark pool network. It is bringing sophisticated trading technology and an established customer base to the table.

……..

Dark liquidity pools are off-market trading networks where large orders can be executed anonymously, without divulging prices to public exchanges. Off-market trading has always existed in the form of over-the-counter transactions, but the technology now exists to bring investors together electronically in anonymity. Dark liquidity in European equities is growing rapidly, according to the LSE, and currently accounts for around €12 billion, or nearly $19 billion, in daily trading value.

…….

…..

David Shrimpton, head of equity market development at the London Stock Exchange, said that the LSE was hoping to bring other investors aboard as partners, and the response to the announcement had been “very positive.”

He said it might be possible for a quite a few trading systems to co-exist. “You’ve got 50 broker dark pools in the U.S.,” he added, “and they share about 10 percent of the market.”

…..

Yep. There’s a recommendation. Let’s get into a new anonymous and unregulated type of exchange pioneered by the Americans, whose toxic financial products currently threaten to poison the world financial systems.

Evil, unregulated, dangerous, and will likely be disasterous.

Economics Update

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Weekly Jobless claims hold steady at 384,000, though the less volatile 4 week moving average went up a bit, 2,250 to 378,250.

In energy, we have oil hitting a new record. It has broken $140/bbl.

Retail gasoline is flat today.

Existing home sales are up for 2nd time in 10 months, though I think that a lot of that may be short sales and REOs.

We have the latest figures for Q1 GDP, and they show that GDP increased at a 1% annual rate. Note that core inflation was 2.3%, and 1% minus 2.3% does not give one a positive number.

It’s more spending on food and fuel, not real growth.

All this news has the dollar down a bit, and I’m sure that European Central Bank President Jean-Claude Trichet strongly implying more rate hikes did hastened the decline.

Economics Update

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Just a few weeks ago, analysts were saying that the worst of the banking problems were over, but now they are saying oops! The banking downturn still has a way to go, so their “buy” message was premature.

This is not surprising, considering that analysts are low looking at something like $30 billion in additional losses just for WAMU for home mortgages, commerical loans, and credit cards.

I think that the only bank’s revenue remaining stream is check bounce fees, it appears.

Not surprising, considering that real estate is still crashing, with mortgage applications continuing to crater, and new home sales falling 40% from this time last year (and off 63% from the 2005 peak).

It’s no wonder that the changes in regulation allowing for Fannie Mae and Freddie Mac to repackage jumbo loans has had little effect, with the GSEs choosing instead to focus on repurchasing some of their own mortgage backed securities, which serves to minimize potential losses.

In terms of Jumbo loans, those over $417K, Fannie wrote $24 million and Freddie wrote $220 million since they could in March.

By comparison, in April alone, they spent $32.4 billion to buy back their old securities.

Nothing is moving until the players have a reasonable assurance that this is not all smoke and mirrors that they are dealing with.

Of course, the whole housing bubble breaking is not just academic. It now appears that a lot of the early babl boomers will have very little to live on retirement because of the housing crash.

In the wonderful world of energy prices, oil is down a bit on high inventory levels, and retail gas prices continue their downward path.

This lack of confidence, and lack of money, is probably why durable goods orders remain anemic.

My Prediction on Fed Rate Setting

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Even if inflation were not an issue, and it is, they would not cut rates, because they have already cut them so far that the market is no longer effected by this.

The economic news lately has been awful, so they won’t raise rates.

Thus, they will do nothing, though my guess is that their statement will be more hawkish on inflation.

We will know in about 14 hours.

Energy and Speculation…A Problem….Not So Much

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Well, we have analysts saying that oil and gas are have had twice their price doubled by speculation, but I think that this is a load of crap. I agree with Paul Krugman, that the effects are smaller than that. If you were to argue that there were a 5% effect on the price over the short term, I would buy that, but 50% is way out of ling.

Krugman had a nice picture on the relationship between oil futures, contracts for later delivery, and spot prices, where the oil is delivered immediately:
Simply put, there would be more of a spread if there were more of a speculative effect.

That being said, market volatility, which aggressive speculation exacerbates, does a lot of damage otherwise, so I do support some of the measures that the Congressis considering in order to reign in excessive speculation.

That being said, at its core, we have demand for raw materials outstripping supply. That’s why we are seeing things like a 96% jump in iron ore prices, a market in which there are no futures contracts.

Economics Update

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Consumer confidence plunges to the 5th lowest level ever, 50.4, as opposed to the predicted 57, from 58.1 last month.

Considering that home prices are down yet again, this time the Case-Shiller index was down 1.4% from March, and 15.3% year over year, it’s natural that people won’t feel confident.

These numbers spooked the currency markets too, with the dollar trending down.

Oil prices are up again, largely because of concerns of instability in Nigeria, though retail gas prices are down $0.003 from yesterday.

And just in case you are wondering, energy inflation is hitting prices more generally, with Dow Chemical raising prices 25%, even though it raised prices 20% last month, and UPDATE: Lowe’s is seeing “unprecedented” price hikes from its suppliers.

Stagflation, here we come.

As to the “stag” part, the fact that Toyota is scaling back its sales goals because of weakness in the economy, even though there are are months long waiting lists for the Prius, would indicate that no one is making good sales right now.

In the interest of fairness though, there are reports that Toyota is cutting back on Prius shipments to the US, because they can get more money in Europe.

There Is More Than a Dime’s Difference, Go Figure

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Kevin Drum got a press release via email describing side by side interviews of Obama and McCain.

What do you see as the gravest long-term threat to the U.S. economy?

Obama: If we don’t get a handle on our energy policy, it is possible that the kinds of trends we’ve seen over the last year will just continue. Demand is clearly outstripping supply. It’s not a problem we can drill our way out of. It can be a drag on our economy for a very long time unless we take steps to innovate and invest in the research and development that’s required to find alternative fuels. I think it’s very important for the federal government to have a role in that process.

McCain: Well, I would think that the absolute gravest threat is the struggle that we’re in against Islamic extremism, which can affect, if they prevail, our very existence. Another successful attack on the United States of America could have devastating consequences.

A noun, a verb, and 911 from McCain. Truly pathetic.

Economics Update

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I missed this when it was announced late Friday afternoon, but two moremonoliners hit junk status, FGIC and XL Capital and XL Financial.

I wonder when all of the monoliners will be junk rated, and I also wonder why this is not true now.

This means more than just that these insurers can no longer realistically write policies. These downgrades come with significant penalties, as MBIA’s statement that’s it downgrade will force it to make $4.7 billion in payments to creditors.

When they got downgraded, the terms of their loans changed.

In energy we have oil up despite the Saudi meeting, and retail gas prices falling. Hopefully this will bring a few months of stability at the pump.

The dollar strengthened, largely on crappy growth in the Euro zone, which would suggest that the ECB will hold off rate hikes for a while.

In real estate, we have Lehman predicting more losses for Fannie Mae and Freddie Mac, which should come as no surprise at all.

After when ¼ of Bay Area home sales in May had been in foreclosure, and statewide home sales hit a 13-year low, it’s not like there will be a whole bunch of players making money.

It’s why George W. Bush’s ownership is becoming a Pwnership society, with home ownership falling to below where it was when he announced the initiative to get people to buy houses.

BTW, if you think that this won’t effect you, you are wrong. We now have an estimate of properties falling by $1.46 Trillion, which, by my quick envelope calculation, means that state and local governments are looking at revenue shortfalls on property taxes on the order of $1.5 billion/month.