Category: International Commerce

Economics Update

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There is no wealth creation for ordinary folk, just bubble creation, h/t Calculated Risk


Crude prices, h/t OilEnergy

So, today is “Jobless Thursday, and initial unemployment claims spiked unexpectedly to 474,000.

Truth be told, it’s not a surprise. Non-farm payrolls need to rise at about 300,000 a month, so the “really good” NFP numbers in November, which had a -11,000 number indicates that things still really suck.

We have seen a drop in the U.S. trade deficit in November, which has been driven by export growth, though falling oil prices (see lower pic), and the fact that US consumers are still not in the mood to buy anything, including imports.

We have some good news on household net worth which grew by $2.7 trillion in the 3rd quarter, largely on the recent stock market bubble rally.

In real estate, the 30-year fixed mortgage rate rose this week, and
foreclosures fell in November, though, as the article notes, this may be a a pause more than anything else:

“They’re artificially low because of underlying causes,” said Rick Sharga, vice president of RealtyTrac.

He cites three reasons why foreclosures have dropped in certain states: The holiday season, when foreclosures typically slow down; the government’s mortgage modification program, which has created a slowdown in delinquent loans; and mandatory mediation in more states between homeowners and lenders before going into foreclosure.

In the world of central banks, the Bank of England left its benchmark rate unchanged at ½%, while maintaining its asset purchase (printing money) program.

Something interesting occurring in the world of US Treasurys though, the yield curve is the steepest since 1980.

The nickel tour is that when you buy a 2-year bond, you get less interest than if you buy a 30-year bond, because the risks of a 30-year bond are higher, not in terms of default, but because your money is locked up, and interest rates can go up, or you can need the money in a hurry, etc.

The difference is now 373 basis points (3.73%), with average over the past 5 years being 132 basis points.

It may be a market burp, or it may be inflationary concerns.

In currency, the dollar was essentially unchanged, while in energy, oil fell for the 7th day in a row on economic concerns.

Economics Update

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The Consumer Price Index is up again, largely on rising fuel prices, with CPI up 0.3%, and down -0.2% year over year, and the “core” CPI, which strips out food and energy, is up 0.2%, up 1.7% year over year for the core rate.

This is raising concerns about inflation (stupid, but it’s the way that these folks think) because energy is still about 14% lower than it was last year, so if equilibrium in oil prices is higher than it is now we may see non trivial (over 2% annual according to the inflation hawks) inflation rates.

Meanwhile, the bad news continues along (see graph pr0n), with housing starts and applications for building permits falling unexpectedly in October. (pics 1, 2, 3, and 4)

Additionally, the Architecture Billings Index (ABI) while rising, remained below 50, indicating a continuing contraction in future commercial real estate construction. The ABI leads construction by 9-12 months, so 2010 looks bleak for non-residential building. (pic 5)

There is also the fact that rents are continuing to fall, and since the best metric of house prices is their ratio to renting, this indicates that there housing in general, not just the price of a single family dwelling are still overpriced, and have a way to fall.

Additionally, I think that home sellers are running out of buyers, as mortgage applications fell even though rates were down this week.

The inflation that I mention has spooked the bond market, driving prices down and yields up.

And some news on the weird side, monoliner insurer Ambac announced in its SEC filing that its capital levels were well in excess of regulatory requirements.

Everyone figured that they were due for a takeover by regulators…I guess that “everyone” was wrong.

We are seeing some signs of recovery in international trade, with the Baltic Dry Index, an indicator of the demand for shipping hitting a high for this year.

It appears to be driven by increased Chinese demand for raw materials, and the fact that there are large fleets of ships that have been mothballed that won’t be able to address marked demand for months.

Meanwhile, in energy, oil rose above $80/bbl on a drop in US inventories, and in currency, the dollar fell on statements by a Federal Reserve member that rates would stay low.

Economics Update (a Day Late)

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TIPS Spread


US Trade Deficit, h/t Calculated Risk

Notwithstanding all the chest pounding by folks claiming that the, “recession is over,” consumer sentiment is continuing to fall, with the Reuters/University of Michigan Surveys of Consumers falling to 66.0 in November, from 70.6 in October.

It also looks like real estate is in the same bind, with the US Home Purchase Index falling to a 9-year low last week, on concerns that the about what was going on with the new home buyer tax credit.

Basically, this is showing that the only thing keeping the home market from falling further, is massive government support.

We have some good news on inflation, unless you are like me, and see a period of sustained inflation as a way to monetize debts paralyzing our economy.

Paul Krugman has looked at the TIPS Spread, (top pic) basically the spread between the interest demanded by bond buyers on Treasury Inflation Protected Securities (TIPS), and regular Tressuries, and notes that recent widening of the gap between the two interest rates is because the rates for TIPS has fallen, as opposed to the rates for normal treasuries having gone up, which is kind of the opposite of what you would expect if the bond market was pricing in inflation.

In terms of international trade, we are seeing that the GDP of the Euro Zone has gone positive, and the US trade deficit jumped in September, (bottom pic) both of which indicate improvements in international commerce.

Basically, this news drove the dollar down, because traders were less interested in a safe haven, and oil fell to $76.35/bbl on Thursday’s strong inventory numbers.

The Big Story that is Not a Big Story

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It turns out that there is a significant inaccuracy in GDP figures, it has to do with the way that imports are accounted for in GDP:

The fundamental shortcoming is in the way imports are accounted for. A carburetor bought for $50 in China as a component of an American-made car, for example, more often than not shows up in the statistics as if it were the American-made version valued at, say, $100. The failure to distinguish adequately between what is made in America and what is made abroad falsely inflates the gross domestic product, which sums up all value added within the country.

American workers lose their jobs when carburetors they once made are imported instead. The federal data notices the decline in employment but fails to revalue the carburetors or even pinpoint that they are foreign-made. Because it seems as if $100 carburetors are being produced but fewer workers are needed to do so, productivity falsely rises — in the national statistics.

“We don’t have the data collection structure to capture what is happening in a real time way, or what is being traded and how it is affecting workers,” said Susan Houseman, a senior economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich., who has done pioneering research in the field. “We have no idea how to measure the occupations being offshored or what is being inshored.”

In terms of GDP, this is, for now at least, a pretty small part of the picture, well under 1%, which makes it a small story.

On the other hand, one of the arguments for offshoring is that by shipping jobs to China, where worker and environmental protections are weak, and an under valued currency further subsidizes these imports, is that it allows us to focus on what we are good at, and thus boost productivity and GDP.

The bottom line is, as William Alterman, the assistant commissioner for international prices at the BLS notes, “What we are measuring as productivity gains may in fact be changes in trade.”

This is a big part of the story, because the argument for free trade is that it creates, or at least increases, overall well being in our society.

The problem is that the delta from free trade may be grossly overstated, or not exist at all.

Zimbabwe Update

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It’s been about 3 weeks, so it’s time to update everyone on the hell hole that Bobby Mugabe made again.

On the bright side, the UK is saying that they will give Zimbabwe $100 million in aid, though I wonder if recent developments (see below) may interfere with this.

First, we have the case of deputy agriculture minister-designate Roy Bennett, who has been imprisoned on what are clearly trumped up charges, with an improperly filed indictment for, “possessing weapons for the purposes of insurgency and banditry,” a crime that carries the death sentence. (See also here)

While he was finally granted bail, this was one of the proximate causes of Tsvangirai and his MDC-T
disengaging from the ZANU-PF, which means that they are no longer attending cabinet meetings.

It should be noted that Deputy Prime Minister Arthur Mutambara and his MDC-M are also participating in the boycott of cabinet meetings.

Tsvangirai is Trying to get the Southern African Development Community (SADC) to intervene on what has increasingly become a phony power sharing arrangement.

Meanwhile, ZANU-PF harassment of the MDC and human rights activists continues apace with raids on MDC offices in Harare (also here) claiming that they were looking for arms…..Shades of Bennett’s kangaroo court.

Inter party talks between the MDC and ZANU-PF have broken off without a resolution, and the human rights situation in the country has gone straight into the twilight zone with Mugabe detaining, and then expelling the “UNHRC special rapporteur on torture and other cruel, inhuman or degrading treatment” Manfred Nowak.

Meanwhile, the Marange diamond fields, which are one of the few sources of hard currency available to Mugabe to keep his supporters paid off, are under a Kimberly process investigation for widespread torture, forced labor, and smuggling, which could lead to ban on the export of their gems.

The reports are that, once again, the Kimberly process will wimp out and do nothing , even after members of the Zimbabwe delegation to the meeting threatened and harassed witnesses at the meeting.

Finally, we have the ZANU-PF ordering the state run media to stop covering any MDC activities.

Economics Update

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Unemployment Chart Pr0n Courtesy Calculated Risk


Adjusted vs. Nonadjusted Claims Courtesy of J. Bradford DeLong


10 Year SA vs NSA, H/t The Reconstruction

It’s what Atrios calls “New Jobless Day,” and initial claims rose by 11K to a seasonally adjusted 531,000, but the 4-week moving average, which I consider to be a better metric, was basically flat, falling by 750 to 532,250, and continuing claims fell 98K to 5.92 million.

BTW, look at the graphs of the seasonally adjusted vs the non-seasonally adjusted numbers on the right.

I’m not sure how well the adjustments work in the current crisis, but it does smooth out the numbers somewhat, but you can clearly see some artifacts, January 2009, of the adjustments.

It’s even clearer in the bottom graph which goes back 10 years: Seasonal adjustment generally works, except when it doesn’t.

There is a potential cloud on the horizon from China, where authorities are starting to talk about reducing their economic stimulus package because of inflation concerns.

There is a possibility that a reduction in stimulus may have an oversize effect, particularly since official Chinese economic numbers are pretty Mickey Mouse.

If this is the case, it might put a further crimp in world trade.

In any case, the Conference Board’s Index of Leading Economic Indicators rose for the 6th straight month in September.

Calculated Risk: Apartment Rents “Plunge” in the West: also means that house prices have to fall to get back in line with rent to own ratios

In any case, the unemployment numbers drove oil prices down slightly, to $81.19/bbl, and the dollar strengthened slightly vs the Euro and yen.

Economics Update

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Unemployment by State, h/t Calculated Risk


Architectural Billings Index, h/t Calculated Risk

Permanent Layoffs, h/t macroblog, which led Calculated risk to note that that it’s not a jobless recovery, it’s a “job-loss” recovery

The Federal Reserve’s Beige Book, a collection of “anecdotal” data (it’s really more than “anecdotal”, but you know economists) about the economy, was released today, and it shows that the economy is stabilizing, with that data showing either flat, or slight upticks, in economic activity.

We also got the state by state unemployment report for September, and it is ugly. (see bottom pic)

In real estate, mortgage applications fell sharply on higher rates, and the Architectural Billings Index rose, but remained below 50, indicating further contraction in nonresidential construction

The news in the Far East was pretty good though, with the decline in Japanese exports slowing to a 10-month best, and China’s GDP growing by 8.9% year over year, though Chinese statistics are always somewhat suspect.

In energy, oil rose to a 1-year high, $81.37/bbl, and the dollar weakened to a 14 month low, hitting $1.5014:€1.0000, so the buck and a half barrier is broken again.

Economics Update (a Day Late)

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H/T Calculated Risk for the Graph Pr0n


Yeah, CR again, this time LA Port Traffic

Notwithstanding green shoots, it still appears that consumers, who account for 70% of GDP,* remain pessimistic, with the Consumer Sentiment Index falling to 69.4, down from August’s 73.5, and well below the forecast that the number would be flat.

On the other hand, industrial production rose 0.7% in September, and capacity utilization (see top graph) rose to 70.5%.

You also have a secondary indicator of the economy, port traffic for the LA/Long Beach ports continues to fall.

Additionally, the banks who actually do make loans to real people, as opposed to the Wall Street parasites, are not doing well, with Bank of America posting a loss, and credit card delinquencies are rising.

Wall Street may be doing fine, but main street is still being hammered.

Meanwhile, in energy, the industrial production numbers drove oil to a 12-month high, and the US dollar recovered a bit, though it is still down for the week

*Or maybe not, see here.

Law Change on F-22 Exports Proposed

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You know, 10 years ago, this might have meant somehing:

The Senate Appropriations Committee voted unanimously Thursday to approve an fiscal 2010 Defense spending bill that would allow the Defense Department to develop an export version of the radar-evading F-22 Raptor fighter jet.

Now, not so much.

If the line gets restarted, here is what you have to do:

  • Replace almost every chip on the plane with one that whose line wasn’t shut down in the past 5 years (the US fleet has spent large amounts on building up inventories of these chips prior to shutdown of their lines).
    • Rewrite the software for the new chips.
    • Rewrite the software so that potential opponents will not be able to get critical information on the functioning of the US F-22 fleet.
  • Improve the reliability of the coatings.
  • Develop a new sensor suite so that potential opponents will not be able to get critical information on the functioning of the US F-22 fleet.
  • Integrate non-US weapons (France & UK mostly) into the airframe.
  • Keep the cost per plane at current levels.
  • Be able to deliver the plane in less than 5 years.

If we are asking for all that, how about a pony too?

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.

Economics Update

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We have some pieces of good news. The 1st is that non-farm productivity rose at a 6.4% annual rate, the highest rate since 2003, the 2nd is that wholesale inventories fell at more than twice the predicted rate, and the 3rd is that the Hotel Industry’s Pulse index (HIP) rose in July, for the first time in 19 months.

Both of these numbers are generally positive, though the numbers for productivity include a reduction in hours worked and worker pay, and a reduction in inventories is only a good thing to the degree to which we get to the end of that process.

On the less encouraging side of the spectrum, we have demand for US Treasuries increasing, which indicates a return to risk aversion, and the Baltic Dry Index has fallen for a 9th straight day, which indicates a big drop in international trade.

In energy, we have oil falling below $70/bbl, and in currency, the dollar fell, particularly against the Yen.

Economics Update (Yesterdays)

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Temporary Help Numbers, H/T The Big Picture

I was going to post, but thunder storms came through, and even with a surge protector, I shut down.

It was a big day for central bank news, with reports that the Federal Reserve sending signals that it will stop purchasing Treasuries, which means that while rate hikes are not on the horizon, that quantitative easing (printing money) will be ended over the next few months.

Meanwhile, the granddaddy of zero interest rate central banks, the Bank of Japan, has decided to keep its rate at 0.1% (basically 0%), as the Bank Governor, Masaaki Shirakawa, says that he does not see a strong recovery once stimulus measures fade, “I can’t be confident about the strength of final demand after inventory adjustments and policy measures run their course.”

The Bank of Korea is of the same mind, with it keeping its benchmark rate at 2%, an all time low for the institution.

In employment, the decline in temporary workers seems to be moderating a bit (see graph).

In real estate, it looks like commercial real estate (CRE)is on a path to crash more catastrophically than residential real estate, Fitch Ratings predicting that delinquencies could exceed 5% by year’s end.

Basically, CRE is in a worse place than residential, because they typically take out 5 year mortgages that they have to refinance at the end of the term. If real estate prices go down, they cannot refinance, while in residential real estate, once you have a mortgage, you have one until the loan is paid off.

In China, exports have declined for the 9th straight month, and new loans fell, indicating that they are not out of the woods yet.

Meanwhile, in currency, there has been a flight to safety, driving up the US dollar, and to an even larger degree, the Japanese Yen.

In energy, oil fell, though it is still above $70/bbl, and gasoline prices have spiked, up 15¢ in the past two weeks.

Economics Update

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While the (only relative to prior months) good job numbers for July got their own post, there is other news out there.

Most notably, conflicting figures on two important economic indicators, with the Baltic Dry Index hitting a 10 month low, indicating that international shipping is hurting, but the July Manufacturing hour numbers up.

Not surprisingly, the job numbers increased risk appetite, and so Treasuries fell, and their yields rose, as people pulled out of them in search of a greater return.

Currency and energy have me confused…..Good jobs news should push the dollar down, as there is less of a flight to safety, and oil up, as it signals increased demand, but today, the dollar rose sharply, and oil fell.

You know, as much as I blog about this stuff, I really don’t have a damn clue.

Russia Sends Warning of Georgia

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Considering the heated rhetoric on this issue, this is pretty mild.

What they are saying is that they will cut military and diplomatic ties with nations that sell Russian built or Russian designed weapons to Georgia.

All in all, this a remarkably narrowly drawn statement, that it will not be offering support or spares to nations that ship Russian, and one would assume Soviet, weapons to Georgia.

Compared to earlier statements made where various government officials appeared to insult each other over parentage and penis size, it’s a major step forward.

More Footsteps Toward the Exits

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Specifically, this regards the US dollar, and the leader of the Japanese opposition party, which is currently leading in the polls, is saying that, “the nation should consider shifting its $1 trillion of foreign reserves away from the dollar and buying International Monetary Fund bonds,” and we have increasing evidence that China is taking baby steps away from the US dollar too, increasingly moving toward bilateral trade deals in which the currencies in question are increasingly directly exchanged, as opposed to dollar denominated.

I think that there has always been a synergy between the US financial industry and the US dollars status as the world’s preeminent reserve currency, and what has shaken it lately is not the US deficits, but the spectacle of a dysfunctional and corrupt finance industry which has our government so in its thrall that it tarnishes both the industry and the currency.

Economics Update

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So, the Michigan swurvey of consumer sentiment is down. Perhaps the average person knows something that the “green shoots” folks don’t, or maybe it’s that average people pay more attention to the unemployment rate, which is a lagging indicator.

One interesting thing is that U.S. trade deficit in May fell to its lowest level in a decade, and it was falling imports, along with an increase in exports, that appears to have driven this.

The implication here, assuming that this is not a 1 month blip in the stats, is that the US is lagging the rest of the world in economic recovery, which is not what it has been historically.

It does seem that investors are heading for safety, which drove bond prices up, and bond yields down.

These concerns have led to the biggest weekly drop in oil prices in 6 months, and a strengthening of the Yen and dollar, as a result of demand and safety concern.

Is Goldman Sachs Running a Scam Right out of The Sting?

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Yes, we now have a case of what appears to be industrial espionage, or perhaps geeky security breaches, this is once more pulling back a part of the masque from that great vampire squid wrapped around the face of humanity*, Goldman Sachs.

Specifically, a former programmer at Goldman Sachs, one Sergey Aleynikov, is alleged to have stolen the proprietary program trading software that they use and stored it on a server somewhere in Germany. (Also here and here)

What is interesting is what this software actually does:

The platform is one of the things that apparently gives Goldman a leg-up over the competition when it comes to rapid-fire trading of stocks and commodities. Federal authorities say the platform quickly processes rapid developments in the markets and uses top secret mathematical formulas to allow the firm to make highly-profitable automated trades.

Or as is noted in the criminal complaint:

The Financial Institution has devoted substantial resources to developing and maintaining a computer platform that allows the Financial Institution to engage in sophisticated high-speed, and high-volume trades on various stock and commodities markets. Among other things, the platform is capable of quickly obtaining and processing information regarding rapid developments in these markets.

So basically, we have high speed software to execute computer driven trades in response to market fluctuations, to the tune of about 60% of all of these trades, about $100 million a day,

We also have this tidbit from the prosecutor, “The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways.”

The reality here is that it is being used to manipulate markets in unfair ways, by Goldman Sachs.

Vet74 at Daily Kos explains in a fairly technical way, but basically, this is the scam within a scam from the Paul Newman/Robert Redford movie The Sting, where the man they are cheating, murderous gangster Doyle Lonnegan, believes that they are delaying the ticker tape of race results so as to place bets on horses that have already won.

When they note that the software, “quickly processes rapid developments in the markets,” what they really mean is that this software can pick up on large orders in process, and get their orders in ahead of those orders already in process, and generate profits.

If this were a human transaction, with the agent doing it to a client, it would be called front-running, and it would be a felony.

I’m pretty sure that Goldman does not want everything to come out in court, because, even if it’s legal, the revelations would likely lead to calls for additional regulatory reform.

They just want this gut to cop a plea, extract some sort of non-disclosure agreement, and then make him disappear.

You can tell this, because they are playing some serious hardball here.

They discovered the loss of the code some time in mid June, but held off on notifying authorities until July 1, pretty much guaranteeing that the arrest, and setting of bail would take place over the holiday, and he would have to spend the weekend in jail.

He is out on bail now, but I expect a plea, or a convenient suicide, because the exposure in open court of what amounts to a massive, pervasive, and thoroughly corrupt insider trading scheme is something that the squids* will find unacceptable.

Then again, I am a bit tinfoil hat on such things.

*Alas, I cannot claim credit for this bon mot, it was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm, The Great American Bubble Machine.