Every day at 2 PM Eastern time, Gallup.com publishes summary data of polling related to the economy. I visit daily, as it is free. My single favorite statistics are whether people see their firms hiring or not hiring (layoffs or a hiring freeze leading to fewer workers), and daily spending as self-recalled without counting routine recurring monthly bills etc. Of the two, the jobs data is the most important. About 16 months ago, as unemployment started a rapid rise, the ratio of hiring:not hiring moved from a pre-recession 4:1 to close to 2:1. Almost a year ago, it went to a bit below 1:1, that is, more firms not hiring or net firing than net hiring. About 2 weeks ago, that ratio began to move just a bit in the favorable side of things.
Today this number is back to -1, meaning marginally more people seeing their firms reducing headcount than gaining workers. There has only been one quarter of GDP growth, and much of that was of the "command and control" nature, with the government saying to people: borrow and spend now, or you may never get such a good deal again. The homebuyer tax credit, which is really what the administration cares about because of the benefits it gives the financial community, looks to be in an extension mode, and the Fed continues to buy mortgage-backed securities.
The administration has also responded to various analyses of the cost per job saved or created by the "stimulus" bill (ARRA). From Politico.com:
. . . Jared Bernstein, the chief economist and senior economic advisor to Vice President Joe Biden, said he is confident that the stimulus bill “saved or created over a million jobs, and we’re on track to save or create the 3.5 million jobs we estimated over the life of the recovery act.”
The article continues:
That boils down to a cost per job of $92,000, Bernstein said.
Different analyses give different numbers. Let us say $100,000 per job. What am I missing? Isn't this a money-loser? Wouldn't unemployment insurance have been less expensive? How about Christina Romer's own research that tax cuts have a much greater economic multiplier effect than government spending?
Why are various measures of consumer confidence deep in traditional recession, not recovery mode? Do the people not know their own job situation and that of their family, friends and neighbors, and what they see their employers doing?
Has Team Obama given a scintilla of thought that perhaps their efforts have been making the economy worse, in part by saying how terrible things were when they came into power and then with all the "stimulus", bailouts, etc.? Perhaps their economists were correct when they predicted an 8.5% peak unemployment rate if the administration had done nothing!
Maybe, just maybe, the economy is not following the script because the administration is focused on solutions for a traditional industrial recession caused by inventory imbalances and deliberate Fed tightening, not one caused by gross malfeasance and incompetence in the financial markets. One in which Goldman Sachs can "earn" $9 B in one quarter while the economy continues shedding jobs rapidly.
If the stockholders and their bondholders of Team Finance simplify their balance sheets, dump all Level 3 mark to "whatever" assets, provide proof of balance sheet strength, then the smart money may well return to the U. S. from its unproductive use in Swiss gold vaults and want to reinvest in the U. S.
Till then, perhaps all that's happened is that the winds have died down from hurricane strength to tropical storm strength but remain, doing damage all the same.
Copyright (C) Long Lake LLC 2009
Showing posts with label Team Obama. Show all posts
Showing posts with label Team Obama. Show all posts
Sunday, November 1, 2009
Tuesday, October 6, 2009
"Stimulus" That Did Not Stimulate May Be Regifted to Americans Under a New Brand
Bloomberg.com is reporting that another "stimulus" program is under active consideration by Team Obama. The title of the article suggests that Team O thinks we are all fools: Obama Weighs Spending to Stem Job Cuts Without Second Stimulus.
None dare call it stimulus! (Well, EBR didn't, always trying to put the term in quotes. The March "stimulus" bill, known more formally as ARRA, was a mix of humanitarian relief measures such as support for Medicaid and a silly reprise of the failed 2008 one-time hand-outs to taxpayers and non-taxpayers alike, plus allegedly "shovel-ready" roads projects (Seinfeld fans cannot help but have been reminded of Elaine being "sponge-ready" whenever the shovel-ready term came up) and other such boondoggles such as a multi-billion dollar high-speed rail system to take Angelenos to Vegas so they could lose their money with less travel time.
Regular EBR readers know that we have been bullish on Treasuries for some months. That is changing. The incoherence of the Obama administration on policy, the horrible jobs data, the impossibility of understanding the solvency level of the large complex financial institutions, the likelihood that the real economy will in one way or another sop up some excess liquidity, and the large move down in 10-30 year rates the past few months suggest that traders should consider taking profits. As detailed in several current posts at Mish's site and in Dave Rosenberg's posts at Gluskin Sheff, however, deflationary pressures persist. In other words, the economy really is not so hot. It is 10 months since the Economic Research Institute's "Long Leading Indicators" turned up. And last month well over 700,000 jobs were lost according to the Labor Department's household survey. In one month! And supposedly the "recession" (EBR says depression) is over, perhaps as long ago as May. As Stanley Kowalski said in "Streetcar", Ha! I say Ha!
So, Treasuries are "OK" for now per this blog's opinion but are no longer on the bargain counter.
The stock market continues to be lunatic. Consider GE. 90 days ago, consensus earnings estimates were $1.00 and $0.95 for 2009 and 2010, respectively. These are now down to $0.97 and $0.89. (Some economic recovery!) This should not be great for a stock that had already doubled from its 12-month low. Well, this is no ordinary time. The stock is merely up another 30+% in the past 3 months. It is something approaching escape from Earth orbit when you compound an over 30% quarterly gain.
GE allegedly is worth $168 Billion but has a tangible book value of only $13 B, with unbelievable leverage in the half of its business that is the financial business and that might have gone pffft last year and this winter without extraordinary help from you and me.
In another sign of "investor" complacency, the giant pharmacy chain CVS announced a significant business reverse Monday, yet the stock sold off only 1.5%. It only yields 0.9% and has virtually no tangible book value. CVS is what is known as a roll-up. It shows growth by acquiring whatever business it takes to show growth, incurring both cash and non-cash "one-time" expenses which compliant "analysts" tell you to ignore, and rewards its insiders much better than the actual owners of the company, the shareholders. In a "normal" stock market, CVS stock would have been down much more, especially because the whole company may (or may not) be little more than thin air. Could CVS be another AIG? Could GE be another AIG?
I have no idea where stock prices are going. However, for the first time, I know few people who know anything about how the financial world works today and/or how the real business world is (or is not) working who has any real interest in exposing an increased percentage of his/her financial assets to stocks. This is a major sea change from past years. This may well be more than fear vs. greed. It may just be indifference added on to the realization that most people with financial assets are already heavily exposed to "the market" and just do not want to increase that exposure. (Such is NOT the same for gold.)
Nancy Pelosi mumbled something about convening a "Pecora Commission" to investigate Wall Street abuses when the heat was on many months ago. What have you heard lately from her or Sen. Reid, or from the President who posed as a populist when he was candidate Obama, about truly getting to the bottom of the minor matter of how we got into the current mess? Nada, gornischt, nothing. Any hearings that might be held will likely not be worth the cost of the electricity needed to run your TV to listen to them or your (more valuable) time.
In any case, Team Obama would not be leaking to the press about another non-stimulus "stimulus" if it believed that the ECRI was correct and that a strong, durable economic recovery is underway. (On the other hand, a contrarian would say that Larry Summers et al may be so inept that if they are pessimistic, we should be optimistic!)
The only current beneficiary of the current situation is, sadly, gold. Since gold is money (though not a transactional form of money) - according to the Fed, the Treasury, the IMF, amongst others, for those skeptics who think it little but a barbarous relic or a raw material for jewelry- all gold can do is change relative value against other assets, such as Federal Reserve notes that Americans transact business in (i.e., dollars). It is thus not a dynamic asset as a well-priced equity can be, or as a truly undervalued junk bond can be if the underlying business is turning upwards; gold is therefore sterile and rises for the "wrong" reasons. However . . .
As the most inept Congress in memory (except for the prior couple of Congresses before it) continues to do little more than (maybe) fiddle with healthcare while the economy continues to shed jobs at an unbelievable pace, and while the geniuses at the White House who only 7 months ago forecast an 8.5% peak unemployment rate even without "stimulus" demonstrate so little imagination that apparently all they can do is think of repeating the first failed "stimulus" and failed follow-ons such as a ludicrously expensive first-time homebuyer credit but remarket these once-failed policies under a non-stimulus brand, it is hard to see the contrarians who have been bullish on the dollar primarily because everyone else was bearish stay contrarianly bullish. Sometimes the majority is simply correct.
The time is out of joint (said Hamlet). And there is a growing perception that Hamlet II is running the show in the most important nation in the world.
Not good.
Copyright (C) Long Lake LLC 2009
None dare call it stimulus! (Well, EBR didn't, always trying to put the term in quotes. The March "stimulus" bill, known more formally as ARRA, was a mix of humanitarian relief measures such as support for Medicaid and a silly reprise of the failed 2008 one-time hand-outs to taxpayers and non-taxpayers alike, plus allegedly "shovel-ready" roads projects (Seinfeld fans cannot help but have been reminded of Elaine being "sponge-ready" whenever the shovel-ready term came up) and other such boondoggles such as a multi-billion dollar high-speed rail system to take Angelenos to Vegas so they could lose their money with less travel time.
Regular EBR readers know that we have been bullish on Treasuries for some months. That is changing. The incoherence of the Obama administration on policy, the horrible jobs data, the impossibility of understanding the solvency level of the large complex financial institutions, the likelihood that the real economy will in one way or another sop up some excess liquidity, and the large move down in 10-30 year rates the past few months suggest that traders should consider taking profits. As detailed in several current posts at Mish's site and in Dave Rosenberg's posts at Gluskin Sheff, however, deflationary pressures persist. In other words, the economy really is not so hot. It is 10 months since the Economic Research Institute's "Long Leading Indicators" turned up. And last month well over 700,000 jobs were lost according to the Labor Department's household survey. In one month! And supposedly the "recession" (EBR says depression) is over, perhaps as long ago as May. As Stanley Kowalski said in "Streetcar", Ha! I say Ha!
So, Treasuries are "OK" for now per this blog's opinion but are no longer on the bargain counter.
The stock market continues to be lunatic. Consider GE. 90 days ago, consensus earnings estimates were $1.00 and $0.95 for 2009 and 2010, respectively. These are now down to $0.97 and $0.89. (Some economic recovery!) This should not be great for a stock that had already doubled from its 12-month low. Well, this is no ordinary time. The stock is merely up another 30+% in the past 3 months. It is something approaching escape from Earth orbit when you compound an over 30% quarterly gain.
GE allegedly is worth $168 Billion but has a tangible book value of only $13 B, with unbelievable leverage in the half of its business that is the financial business and that might have gone pffft last year and this winter without extraordinary help from you and me.
In another sign of "investor" complacency, the giant pharmacy chain CVS announced a significant business reverse Monday, yet the stock sold off only 1.5%. It only yields 0.9% and has virtually no tangible book value. CVS is what is known as a roll-up. It shows growth by acquiring whatever business it takes to show growth, incurring both cash and non-cash "one-time" expenses which compliant "analysts" tell you to ignore, and rewards its insiders much better than the actual owners of the company, the shareholders. In a "normal" stock market, CVS stock would have been down much more, especially because the whole company may (or may not) be little more than thin air. Could CVS be another AIG? Could GE be another AIG?
I have no idea where stock prices are going. However, for the first time, I know few people who know anything about how the financial world works today and/or how the real business world is (or is not) working who has any real interest in exposing an increased percentage of his/her financial assets to stocks. This is a major sea change from past years. This may well be more than fear vs. greed. It may just be indifference added on to the realization that most people with financial assets are already heavily exposed to "the market" and just do not want to increase that exposure. (Such is NOT the same for gold.)
Nancy Pelosi mumbled something about convening a "Pecora Commission" to investigate Wall Street abuses when the heat was on many months ago. What have you heard lately from her or Sen. Reid, or from the President who posed as a populist when he was candidate Obama, about truly getting to the bottom of the minor matter of how we got into the current mess? Nada, gornischt, nothing. Any hearings that might be held will likely not be worth the cost of the electricity needed to run your TV to listen to them or your (more valuable) time.
In any case, Team Obama would not be leaking to the press about another non-stimulus "stimulus" if it believed that the ECRI was correct and that a strong, durable economic recovery is underway. (On the other hand, a contrarian would say that Larry Summers et al may be so inept that if they are pessimistic, we should be optimistic!)
The only current beneficiary of the current situation is, sadly, gold. Since gold is money (though not a transactional form of money) - according to the Fed, the Treasury, the IMF, amongst others, for those skeptics who think it little but a barbarous relic or a raw material for jewelry- all gold can do is change relative value against other assets, such as Federal Reserve notes that Americans transact business in (i.e., dollars). It is thus not a dynamic asset as a well-priced equity can be, or as a truly undervalued junk bond can be if the underlying business is turning upwards; gold is therefore sterile and rises for the "wrong" reasons. However . . .
As the most inept Congress in memory (except for the prior couple of Congresses before it) continues to do little more than (maybe) fiddle with healthcare while the economy continues to shed jobs at an unbelievable pace, and while the geniuses at the White House who only 7 months ago forecast an 8.5% peak unemployment rate even without "stimulus" demonstrate so little imagination that apparently all they can do is think of repeating the first failed "stimulus" and failed follow-ons such as a ludicrously expensive first-time homebuyer credit but remarket these once-failed policies under a non-stimulus brand, it is hard to see the contrarians who have been bullish on the dollar primarily because everyone else was bearish stay contrarianly bullish. Sometimes the majority is simply correct.
The time is out of joint (said Hamlet). And there is a growing perception that Hamlet II is running the show in the most important nation in the world.
Not good.
Copyright (C) Long Lake LLC 2009
Wednesday, September 23, 2009
Out, Out, Damned Debt
There are many "must read" articles referenced in the blogosphere. Courtesy of Ed Harrison's Credit Writedowns, here is a "must view" chart in John Lounsbury's The Hidden Depression of the 2000s.
The article is a great read, but this one chart makes the point. Mr. Lounsbury's point is that it was debt, debt and more debt that produced all the growth in the economy this decade. Clearly that fits with the theme of EBR: "In equity, veritas".
I don't know if blood, sweat and tears is quite the correct phrase to invoke, but America needs to produce more than it consumes for some time to come.
Underconsuming from an economic standpoint is sort of like a successful diet: fun when you get the hang of it, because you know you're helping yourself. First, though, you have to truly want to break the habit. There has been NO leadership from Team Obama in this regard, though. Perhaps they will do better on the obesity and overweight epidemic than on the debt habit.
Hope springs eternal.
Underconsuming from an economic standpoint is sort of like a successful diet: fun when you get the hang of it, because you know you're helping yourself. First, though, you have to truly want to break the habit. There has been NO leadership from Team Obama in this regard, though. Perhaps they will do better on the obesity and overweight epidemic than on the debt habit.
Hope springs eternal.
Copyright (C) Long Lake LLC 2009
Tuesday, June 16, 2009
What You Think You Know is Sometimes Precisely What You Don't Know
The perils of predictions:
Here is a chart I was Emailed, but I cannot identify the original source.
The chart shows the Obama administration's predictions at the time the "stimulus" ("ARRA") was going through Congress. The figures reflect the thinking of the best minds that Team Obama could find.
Making predictions about the past is a lot easier than doing so about the future, even the near future.
Many things have changed in the financial world recently, just as they changed in 1979-81 when first Paul Volcker and then Ronald Reagan came to the fore with new strategies for the financial system and the economy. It is not, however, 1982, when it became clear that neither Volcker nor Reagan was "for turning" and when the 16-year bear market in financial assets came to a loud end that was so obvious that the New York Times headlined it when it happened (August, 1982).
What sort of "flations" face us, and in what sequence; and how much like Japan post-bubble will be the U. S. economy's intermediate-term course, are murky. Usually yours truly does NOT believe in much financial diversification; usually trends in motion worth joining appear clear. Not now. Thus the recommendation for overweighting in cash, with the rest of one's funds in high-quality assets that provide a yield, with the exception of gold.
Copyright (C) Long Lake LLC 2009
Sunday, January 11, 2009
FuturEcon
The Levy Economics Institute of Bard College is an excellent independent source for no-fee information and analysis. Leon Levy, a/the founder of the Oppenheimer family of mutual and other funds, emphasized the importance of profits in economic analysis, and left among his legacies the Levy Institute, which has many activities and is worth visiting on-line periodically. Two recent analyses should be looked at:
Strategic Analysis from this month: "Flow of Funds Figures Show the Largest Drop in Household Borrowings in the Last 40 Years". The Levy Institute's Economic model projects that this sort of drop in borrowings will have long-lasting effects.
DoctoRx comments that we should accept that too much "growth" has been created by borrowing and lending. We need to "sacrifice" (in Mr. Obama's term) growth for a restoration of a more reasonable debt level.
Strategic Analysis from December 2008: "Prospects for the U.S. and the World: A Crisis that Conventional Remedies Cannot Resolve". The first sentence reads:
"The prospects for the U.S. economy have become uniquely dreadful, if not frightening."
The second sentence is not much more hopeful:
"In this paper we argue, as starkly as we can, that the United States and the rest of the world's economies will not be able to achieve balanced growth and full employment unless they are able to agree (upon) and implement an entirely new way of running the global economy."
DoctoRx here: I am not an economist, but the record of independent experts such as those working at the Levy Institute over the past two years gives them real credibility. In contrast, the Fed, the Congressional Budget Office, the White House, and Wall Street have, let us say charitably, missed the boat. So I'll give an unhappy thumbs up to the above.
In addition, there is a Working Paper at the Levy Institute from August 2008 titled, "Keynes's Approach to Full Employment: Targeted or Aggregate Demand?"
Here is the abstract:
"This paper argues that John Maynard Keynes had a targeted (as contrasted with aggregate) demand approach to full employment. Modern policies, which aim to “close the demand gap,” are inconsistent with the Keynesian approach on both theoretical and methodological grounds. Aggregate demand tends to increase inflation and erode income distribution near full employment, which is why true full employment is not possible via traditional pro-growth, pro-investment aggregate demand stimuli. This was well understood by Keynes, who preferred targeted job creation during expansions. But even in recessions, he did not campaign for wide-ranging aggregate demand stimuli; this is because different policies have different employment creation effects, which for Keynes was the primary measure of their effectiveness. There is considerable evidence to argue that Keynes had an “on the spot” approach to full employment, where the problem of unemployment is solved via direct job creation, irrespective of the phase of the business cycle."
This interpretation appears to argue against the Democratic effort to more or less throw a lot of money in a broad-brush fashion at construction jobs and other politically-chosen priorities. It supports the contention made repeatedly at this blog that the political process has failed us. Neither Congress nor the Bush Administration, nor the Fed, appears to have taken this credit crunch/financial crisis seriously enough to do real research and develop a coherent plan.
This perspective is supported by the first Strategic Analysis linked to above. If a relatively mild drop in consumer borrowing, to a historically very high level, can produce a long-lived drop in GDP, then society needs to move rapidly to develop plans for where to put its efforts, but can take the time to think this through. (Congress should have been doing this for many months by now.) Moving to a lower-debt economy will be good in the long-run, but will be associated with a slow economy for years to come. In that situation, what is needed is to do what doctors do all the time: triage. In the economy, the clear emergency is the imploding financial system (see yesterday's post, Hex and the Citi). Almost everything else is secondary.
I hope that Team Obama and Team Congress recognize this.
Copyright (C) Long Lake LLC
Strategic Analysis from this month: "Flow of Funds Figures Show the Largest Drop in Household Borrowings in the Last 40 Years". The Levy Institute's Economic model projects that this sort of drop in borrowings will have long-lasting effects.
DoctoRx comments that we should accept that too much "growth" has been created by borrowing and lending. We need to "sacrifice" (in Mr. Obama's term) growth for a restoration of a more reasonable debt level.
Strategic Analysis from December 2008: "Prospects for the U.S. and the World: A Crisis that Conventional Remedies Cannot Resolve". The first sentence reads:
"The prospects for the U.S. economy have become uniquely dreadful, if not frightening."
The second sentence is not much more hopeful:
"In this paper we argue, as starkly as we can, that the United States and the rest of the world's economies will not be able to achieve balanced growth and full employment unless they are able to agree (upon) and implement an entirely new way of running the global economy."
DoctoRx here: I am not an economist, but the record of independent experts such as those working at the Levy Institute over the past two years gives them real credibility. In contrast, the Fed, the Congressional Budget Office, the White House, and Wall Street have, let us say charitably, missed the boat. So I'll give an unhappy thumbs up to the above.
In addition, there is a Working Paper at the Levy Institute from August 2008 titled, "Keynes's Approach to Full Employment: Targeted or Aggregate Demand?"
Here is the abstract:
"This paper argues that John Maynard Keynes had a targeted (as contrasted with aggregate) demand approach to full employment. Modern policies, which aim to “close the demand gap,” are inconsistent with the Keynesian approach on both theoretical and methodological grounds. Aggregate demand tends to increase inflation and erode income distribution near full employment, which is why true full employment is not possible via traditional pro-growth, pro-investment aggregate demand stimuli. This was well understood by Keynes, who preferred targeted job creation during expansions. But even in recessions, he did not campaign for wide-ranging aggregate demand stimuli; this is because different policies have different employment creation effects, which for Keynes was the primary measure of their effectiveness. There is considerable evidence to argue that Keynes had an “on the spot” approach to full employment, where the problem of unemployment is solved via direct job creation, irrespective of the phase of the business cycle."
This interpretation appears to argue against the Democratic effort to more or less throw a lot of money in a broad-brush fashion at construction jobs and other politically-chosen priorities. It supports the contention made repeatedly at this blog that the political process has failed us. Neither Congress nor the Bush Administration, nor the Fed, appears to have taken this credit crunch/financial crisis seriously enough to do real research and develop a coherent plan.
This perspective is supported by the first Strategic Analysis linked to above. If a relatively mild drop in consumer borrowing, to a historically very high level, can produce a long-lived drop in GDP, then society needs to move rapidly to develop plans for where to put its efforts, but can take the time to think this through. (Congress should have been doing this for many months by now.) Moving to a lower-debt economy will be good in the long-run, but will be associated with a slow economy for years to come. In that situation, what is needed is to do what doctors do all the time: triage. In the economy, the clear emergency is the imploding financial system (see yesterday's post, Hex and the Citi). Almost everything else is secondary.
I hope that Team Obama and Team Congress recognize this.
Copyright (C) Long Lake LLC
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