Category: Finance

Economics Update

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The Institute for Supply Management’s Chicago Purchasers’ Index beat expectations,
rising to 50, where 50 is the dividing line between contraction and expansion.

It’s the highest number since last September, but it has been goosed a bit for cash for clunkers, which has me wondering what the number will look this September.

I would say that we have a pretty good indicator for the cynics among us (hi there) that the stock market rally will soon be ending, as insiders are now selling their stocks 30.6 times more than they are buying, and when the insiders sell, it generally means that some sort of disappointment is on the way.

We are getting mixed signals from Asia, with both Chinese and Japanese industrial production rising, but South Korean exports falling this month, giving a 20.6% year over year drop.

In energy, closed at $69.96/bbl, as falling stocks led to demand concerns, and in currency, the biggest mover was the Yen, on the election news.

When Pump and Dump Fails

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In this case, it’s Cerberus, the secretive (aren’t they all) hedge fund that bought Chrysler, and then took it into bankruptcy.

As I noted at the time, they bought Chrysler because they were hoping to buy it on the cheap, and when the likely purchaser, General Motors, turned out to be in almost as bad a shape as
Chrysler, they took a bath, as well as taking a hit on their investment in GMAC.

So now, investors are clamoring for the exits, (also here) because even though Cerberus is chock full of former government insiders, they do not believe that they will make money with the firm.

It’s clear that they bet on government bailouts that would be extremely favorable to them, and they were not, and now they are experiencing a run on the bank.

Release of Federal Reserve Sh&%pile for Cash Purchases Stayed

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Federal Judge Loretta Preska has stayed her order for the Federal Reserve to release information on the emergency loans that it made:

The U.S. Federal Reserve won a delay of a federal judge’s order that it reveal the names of the banks that have participated in its emergency lending programs and the sums they received.

Chief Judge Loretta Preska of the U.S. District Court in Manhattan stayed her August 24 order in favor of Bloomberg News, which had sought the information under the federal Freedom of Information Act, so that the central bank could appeal.

The Fed asked for the stay claiming that releasing the information would cause grave damage to the financial system, but that was also their argument for not complying with Bloomberg News’ Freedom of Information Act (FOIA) request in the 1st place, so what is really going on here is a pretty standard stay pending appeal.

I fully expect this to go all the way to the Supreme Court, and if this information gets released, I fully expect it to reveal that the Federal Reserve has been lying, as their standard behavior has been to assume that you can’t handle the truth, so the truth must be suppressed.

As I have said before, this is why central banks powers need to be limited: While the interest rate/inflation fighting function must be thoroughly insulated from politics, because the act of taking away the proverbial punch bowl is inherently politically suicidal, any other function that does not require that level of political isolation must be vested in a more accountable institution.

Background here.

Aleynikov Wants Deferred Prosecution

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Sergey Aleynikov is the programmer alleged to have taken Goldman Sachs’ high speed trading computer code, and his lawyers are asking prosecutors for a delayed prosecution, which basically means that if he keeps his nose clean, he gets a dismissal in a few years.

It sounds to me like he is going to get it, based on the refusal of Goldman Sachs to turn over his personnel file.

I’m wondering if this was a case where GS was worried about his competing with them in this market in his new job, and decided that filing a dodgy complaint with the FBI would shut him down, and then realized that if they turned over personnel records, that they would out themselves for some sort of crime.

Background here (or it will be when “the Google” fixes the blogger search function).

Economics Update

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Consumer confidence is at a 4 month low for August, Reuters/University of Michigan Surveys of Consumers, which compares with the Conference Board’s reading, which was up a few days back.

Both results are consistent in that they beat expectations, but this confuses the hell out of me. I think that future sentiment has a bigger role in the Conference Board’s survey, which may explain the difference.

We saw consumer spending rise by 0.2% in July, though income was flat, but this should be taken with a grain of salt, as the increase was entirely a consequence of the “Cash for Clunkers” program.

Meanwhile, in banking, the Federal Reserve is reducing the size of its Term Auction Facility (TAF) cash for sh$#pile auctions to banks, largely on the basis of reduced demand for them:

Banks are increasing lending to buyers of high-yield company loans and mortgage bonds at what may be the fastest pace since the credit-market debacle began in 2007.

……

“I am surprised by how quickly the market has become receptive to leverage again,” said Bob Franz, the co-head of syndicated loans in New York at Credit Suisse. The Swiss bank has seen increasing investor demand for financing to buy loans in the past two months, he said.

I’m not surprised. Modern investment banking is about making big bucks by scamming rubes like the one pictured on the right.

Unfortunately, said rube has the power to make every American taxpayer pay for his decisions.

Meanwhile, on the other side of both ponds, we have record unemployment and record deflation, while businesses in the UK cut investment spending at a record rate, so there is not much in the way of green shoots there.

In currency, the dollar fell, and more significantly, the “cost of borrowing dollars for three months slipped below the rate on similar loans in yen for the first time since 1993,” which implies that in the event of a flight to safety, that money will go toward Japan, where returns are now marginally higher.

In energy, oil rose slightly.

While I Would Not Trust Ron Paul with My Lunch Box,

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When Barney Frank says that he supports an audit of the Federal Reserve, and that the bill will pass the House in October, and I believe that his assesment is an honest one.

That being said, I think that the Senate is more receptive to Bernanke’s protestations as to the need for opacity independence, and have been more thoroughly bribed by Wall Street are more concerned about market repercussions, while Obama’s economic advisors are Wall Street stooges and influence peddlers very supportive of the current regime at the Fed, which makes his signing a bill dubious.

As to Representative Paul, it’s a case of a stopped clock being right twice a day.

Economics Update, Yesterday’s

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And actually Tuesday’s too.

Between helping my kids try out recipes for a cooking contest, and general laziness, I’ve let it slide.

In any case, the big news is that consumer confidence beat expectations, and actually went into “optimistic” territory, though as Dean Baker observesmost of the increse in the index is, “Attributable to a 10.1 percentage point increase in the expectations index,” which, “is much more volatile than the current conditions index and has little relationship to spending,” so the numbers are not about hopped up consumers bringing on a recovery.

We also have reports that home sales and durable goods orders have increased, and the American Trucking Association’s Tonnage Index (top pic) all increased in July, though I will address how the home sales/prices may be a Chimera in a later post, and the durable goods orders are not as good as they appears, ex-Boeing and defense, they actually fall:

Orders for non-defense capital goods excluding aircraft, a barometer of business investment, fell 0.3 percent in July after rising 3.6 percent in June.

Additionally, the Philadelphia Fed State Coincident Indicator numbers came out (bottom pic), and all but 4 states are still contracting.

It should be noted that mortgage apps were up slightly this week.

We also had a major downgrade of an insurer, Massachusetts Mutual Life Insurance, which had its rating cut from AAA to AA+ by S&P.

I expect there to be more of this in insurance.

Despite a near record auction, US Treasuries were basically unchanged.

Meanwhile, the consumer confidence drove the dollar up, though oil fell, on the expectation of increases in inventories in today’s report.

Holy Crap. The Fed is Going 1937 on Us

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It’s the Recession all over again, with the Fed tightening money as something resembling a recovery begins:

Guess what? The Federal Reserve has not only stopped depositing copious amounts of liquidity into the economy — it now appears to be in the process of making a sizable withdrawal.

A close look at quantitative measures of monetary policy reveals a sudden change in trend. After growing at unprecedented rates for well over a year, these aggregates stopped rising several months ago and have since declined, according to data provided by the Federal Reserve Bank of St. Louis.

For example, the monetary base — the raw material for the money supply — has fallen at a seasonally adjusted annual rate of 8% from early April of this year through mid-August, after soaring at a 187% pace during the previous eight months.

I’m a pessimist, and I do not believe that the current recovery is “real”. I think that it is largely being driven by the Fed laundering money and pushing it into the equities markets (stocks), which has pushed up the indices, and that the rising stock market is creating the perception* of a recovery.

But even if I’m wrong, and the recovery is real, if very anemic, this is absolutely the wrong time to put your foot on the break.

*Yes, I know, perception is a BIG percentage of what constitutes a recession, but it is not everything.

Judge Orders Federal Reserve to Release Documents under FOIA.

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District Judge Loretta Preska has ordered the Federal Reserve to turn over loan and collateral data for their emergency loans under the Freedom of Information Act.

This is very important news for a number of reasons:

  • It means that the public will get to review what was actually in this part of the Fed’s “sh$%pile for cash” program.
  • It will spawn other FOIA suits.

And most importantly:

  • Is an unequivocal ruling by the courts that the Federal Reserve is a federal agency and has to abide by federal rules how they do business.

I’m fairly certain that the Fed will take this all the way to the Supreme Court if it can, because those folks really believe that seeing the man behind the curtain would destroy the United States of America.

They are wrong, of course, but it is clear that this is what they believe.

A Bit of Meta, and Philosophy

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Portrait of the Blogger as a Young Aardvark

I post in my own name, with my own face, albeit a face* from 30 years ago.

I came to the decision not to use pseudonyms when I was at school, and I realized that everyone was calling me by my computer ID, Cerebus, as in Dave Sim’s comic book Aardvark, so I spent 2-3 years getting people to call me “Matthew” again.

So, now I stick with my name. It is a matter of personal aesthetics, not integrity, and no level of truth or integrity is intended by my use of my own name.

If you think that I am right, follow the links, and confirm.

If you think that I am wrong, follow the links, and confirm.

In any case, one of the writers (probably multiple writers, according to Felix Salmon) who posts as “Tyler Durden” at the blog financial zero hedge, got outed by the New York Post.

I figure an anonymous blogger who generates enough buzz to have someone hunt them down and out them deserves a look by me.

Zero hedge is now on my blogroll. They have an attitude, and I like attitude.

*And hair, which I miss.

Economics Update

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The Big Picture looks at the sales numbers

Seeing as how I did not post on Friday, there was a tornado watch, and my kids were freaking, I’ll start with the big story from last week, which was that existing home sales rose to a 2 year high.

Of course, the 1st thing that comes to mind is that the National Association of Realtors (NAR) are supplying this data, and it’s suspect.

The 2nd thing that comes to mind is that a remarkably large portion of these sales are distressed.

The Big Picture runs the numbers more fully (chart pr0n is from this link, click to see full size), and while mentioning these two points, notes some other interesting bits of information:

  • “If not for a surprise and suspect 16k increase in Northeast condo sales, Existing Home Sales would have been lower month-over-month and only up 12k units from July 2008, which was the worst year on record for housing.”
  • Non-seasonally adjusted data actually shows a decrease, and given the high proportion of foreclosures and short sales, seasonal adjustment is actually not going to be accurate right now; the market is just too fracked right now.
  • Prices are still falling.
  • Sales less foreclosure activity (bottom pic) is way down.

Furthermore, we are also seeing the effect of the housing cash for clunkers tax credit, which allows a 10% tax credit (max $8K) on purchases for “New” (not owned a house in 3 years) buyers, but the home has to close before November 30, which really means having the sale done in the next 8 weeks or so, so it’s another blip, unless, as CR notes, the NAR and NAHB manage to successfully bribe lobby for an extension.

Note that the tax credit can be used for a down-payment, which further distorts the market.

He have a housing market that is really still heading down, albeit more slowly, despite massive federal subsidies.

If there were really a return to health in the housing market, then Taylor Bean, the 12th largest mortgage company in the US, would not be filing for bankruptcy.

As to housing news for the rest of us, the rate at which mortgage holders who have fallen behind catch up on their payments, the so-called “cure rate”, for holders of prime mortgages, has fallen to 6.6%, down from 45% in the years 2000-2006, and very close to the rate for Alt-A (4.3%) and sub-prime (5.3%).

Meanwhile, treasuries have risen again, driving yields down, though it is unclear how much is risk aversion increasing, and how much is the Federal Reserve buying more of the securities.

It does mean that investors believe that the Fed won’t be raising rates for a while yet, though the Bank of Israel just raised its benchmark rate, which indicates optimism on their part.

My guess is that they are wrong, simply because they are the 1st central bank to do so, and my money is on any first mover jumping the gun.

Then again, they could be right. The Chicago Fed July National Activity Index rose sharply in July, increasing to -0.74 in July from -1.82.

Even though the numbers still show contraction, the delta is impressive.

Meanwhile, in energy, crude oil is at a 10-month high on “green shoots” in the economy, and retail gasoline prices have remained basically unchanged, despite falls at the wholesale level.

The dollar was up slightly, largely in a holding pattern as traders wait for new consumer spending and housing data.

Here’s Hoping for Some Real Gail Time

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I’ve been following the tussle between the Swiss Bank UBS and the IRS over account for information for some time, and the fact that there is now a settlement which involves handing over account information for about 4500 people, and that prosecutors are working on over 150 criminal tax evasion cases is a very good thing.

Even better is the fact that there is an amnesty deadline in September, and neither UBS nor the Feds are revealing which accounts have turned over, which is having the rich pig tax evaders running around like chickens with their heads cut off, wondering whether or not they are among those accounts turned over.

One of the effects of the tax amnesty program is that about a dozen more banks have now been fingered as having aided clients in evading taxes.

Let’s be clear, for this to have a meaningful effect, there need to be dozens of prosecutions, and a significant number of people both imprisoned and made paupers by this process.

That is the only way that repeat fraud will be deterred.

Economics Update

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Historical unemployment, courtesy Calculated Risk

Today is Jobless Thursday, and initial jobless claims unexpectedly rose by 15,000 to 576,000, (click pic for full size image) with the 4 week moving average, and the continuing claims were up marginally, to 6.241 million from 6.239 million, but it should be noted that as people move to extended benefits, or lose benefits completely, they are dropped from that number.

Closely related to this is the fact that mortgage delinquencies are rising, to 9.24% of all outstanding loans on 1-4 unit residences in the 2nd quarter, up .12% from the 1st quarter, and up 2.83% from last year, and loans overdue by more than 90 days, which is when foreclosure begins, are at an all time high of 7.97%.

Not surprisingly, “Helicopter” Ben Bernanke is on another buying binge, with Federal reserve assets up by 2.3% this week, buying treasuries, which is an how the Fed pumps up the stock market, and mortgage backed securities, which is how they are trying to cover up the increasing collapse in mortgages.

Still, there is good news, with the Federal Reserve Bank of Philadelphia’s general economic index giving an unexpectedly strong showing of +4.2, well above the predicted -2.0, and this is a real indicator of growth, not just a decline in the rate of decline, and the cost of insuring corporate bonds fell, on the expectation of better growth.

Oil and energy looked at the different numbers, with the dollar falling on the Philadelphia Fed data, which has people feeling less need for a safe haven, and oil falling on the new jobless numbers, which indicates that demand will still remain low for a while.

Economics Update

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Well, mortgage applications rose this week as rates fell 23 basis points (0.23%), not too surprising.

The Architecture Billings Index, one of the leading indicators of future construction activity, rose in July, (click pic for full size) but remained below 50, indicating continued contraction roughly 12 months out.

Meanwhile, we are seeing near record drops in producer prices in Germany, adding more weight to the idea that the current concern should be deflation, not inflation.

Energy is kind of confusing, with prices falling below $69/bbl today, largely on a 5% drop in prices in Chinese stocks, but prices rise to nearly $72/bbl tomorrow on reports of shrinking inventories.

It’s an international dateline thing. The drop was at market close in New York, and the increase was from places where it is tomorrow.

Meanwhile, the dollar is down on optimism about the world economy.

Economics Update

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Housing Starts, Courtesy Calculated Risk

I guess that it’s time to rejoice, because the IMF’s chief economist is saying that the global recession is over…Seeing as how they handled things like the Asian Financial Crisis of the 1990s, I’m inclined to believe that they are not a reliable source.

I would also note that he has a huge caveat in this, “we may not go back to the old growth path … potential output may be lower than it was before the crisis,” which to my mind sounds like a permanent decline in economic activity, and thus the recession might be over because normalcy is being redefined.

That being said, we are seeing signs of either a recovery, or a pause in the path downward, with credit card defaults moderating somewhat, so, for example, BoA’s charge-off rate dropped to 13.81% last month, down 0.05% from the level in June.

Basically, the numbers are still pretty horrible, but they aren’t getting any worse…yet.

We also have a stronger consumer confidence level in August, with the Investor’s Business Daily and TechnoMetrica Market Intelligence (IBD/TIPP) Economic Optimism Index rising to 50.3 in August from 46.3 last month, and this is a real positive number as 50 is the dividing line between optimism and pessimism.

In inflation, producer prices fell by -0.9% from the previous month, and the year over year price decline was -6.8%, beating the predictions of -0.3% and -5.9% respectively.

Meanwhile, in the UK, consumer inflation remained steady at 1.8%, but it had been predicted to drop to 1.5%.

Real estate is confusing, or at least the reporting of it is.

The data came out today, and the coverage is interesting, with Bloomberg noting that single-family housing starts rose for the 5th straight month, but CNN noting that housing starts and building permits declined with only single family housing starts showing an improvement, and that the year over year numbers are way down.

I’d go with CNN here, because:

  • We know that more than a third of single family home sales are distressed.
    • As an aside, we know that people are coming out of the woodwork looking for distressed sales, and prices are still falling, driven by foreclosures and short sales, as evidenced by the latest data out of California.
  • The month to month numbers are seasonally adjusted, but I think that the current market is so out of whack that the seasonal adjustments do not serve their intended purpose.
  • The drop in multi-residential buildings indicates that fewer people are moving into condos/townhouses, from which they would trade up to single family structures.

Then again, YMMV, and I always see the economic glass as half empty.

Oil was briefly back above $70/bbl before settling at $69.19, largely on a report that US crude inventories have dropped, and the dollar and Yen both fell against the Euro, largely on more optimistic business sentiment in Germany.