Economic Commentary

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Recessions don’t end until the first derivative improves

As you know, we more or less share this view. It is just reassuring to see

someone with heft like Feldstein agree with it as the markets move increasingly

against this bearish interpretation of the economic backdrop. Our view of the

situation is that what is getting investors excited right now is the improvement in

the second derivative in a variety of economic data points that were released in

March, showing basically that the economy is no longer falling off a cliff. However,

what history teaches us is that recessions don’t end until the first derivative

improves, and bear markets do not reach their final climax until we are four

months away from the end of the recession.

Data points were coming off a catastrophic trend

Over the past month, the data, for the most part, have looked better because

they’re being calculated off a trend at the end of 2008 and early 2009 that can

only be described as catastrophic. On a three-month basis, towards the end of

last year and early this year, we had retail sales running at a -30% annual rate,

industrial production collapsing at a 21% annual rate, housing starts tumbling at

an 85% annual rate and new home sales falling at a 60% annual rate.

The magnitude of the declines had no precedent

The ISM had sunk a low as 32.9 and was down at a 70% annual rate less than

three months ago. So now, a 36 print looks fantastic – it’s only the fourth worst

ISM in the past 27 years. Durable goods orders and exports were both sinking at

a 50% annual rate. So let’s just say, that even for us, these numbers were almost

impossible to comprehend. In fact the magnitude of the declines had absolutely

no precedent in the post-WWII era.

Economy transitioning back to its pre-Lehman trajectory

What happened, of course, is that the economy went into freefall right after the

Lehman failure last September. While it now looks very clear that we have worked

through the post-Lehman collapse that caused credit to freeze up, consumers to

go comatose and businesses to dramatically pare their inventories, the economy

is now transitioning back to its pre-Lehman trajectory.
 
Bankruptcy filings surge

Take a look at page B5C of today’s Wall Street Journal, “Bankruptcies Rise

Sharply”. The number of businesses seeking bankruptcy protection hit its highest

level in more than two years in March. There were about 7,800 commercial

bankruptcy filings in March – a 23% jump against February levels.

Commodity upturn may be over … for now

Don’t look now, but the Baltic Dry Index has fallen for 20 straight days – a losing

streak not seen in five months. The shipping rate index has collapsed to a twomonth

low and has slipped below its 50-day moving average. The CRB has

begun to falter too but has some catching up to do over the near term. May be

time to take some profits.

The good, the bad, and the ugly

We just got the JOLTS data (Job Opening Labor Turnover survey) for February

and there were 86k more job openings than there were in January. The bad is

that the number of hires fell 100,000, the worst decline since November. The ugly

is that the number of firings (separations less quits) totaled 62,000, the most

since Jan/08.

Consumer credit contraction

Well, if public policy is aimed at resurrecting a new credit-creation cycle, then we

suppose the grade it deserves is a big fat F. Then again, to think that we can

actually embark on a whole new credit cycle at a time when the outstanding

volume of private sector debt is equivalent to a record 180% of national income,

well above the 120% long-run norm, is perhaps just a little pie-in-the-sky.

Households, in particular, are choking on an amount of debt and debt-service

relative to net worth and cash flows that is practically without precedent, so why

would they line up for more even with the government doing all it can to entice

them to borrow and spend? Indeed, consumer credit fell $7.5 billion or at a 3.5%

annual rate, the fourth decline in the past five months. Over this time, outstanding

consumer credit has contracted at a record $45 billion annual rate (-1.7% SAAR).

RC

Attached files
 
RICHARD RUSSELL

April 8, 2009

Debt, debt, everywhere, and nobody knows how to fix it. Check this out. The US national debt is now 11.03 trillion. In case you forgot, a trillion is a thousand billion. One year ago the national debt was 9.383 trillion. That means that during the last year we've added 1.652 trillion dollars to the US national debt. Interest must be paid on the debt. We are now COMPOUNDING the national debt at a terrifying, unsustainable rate. As I see it, we are compounding ourselves into national bankruptcy. That or we are in the process of destroying our beloved dollar.

On top of the above, it now requires six dollars of debt to produce one dollar of Gross Domestic Product. But despite our growing debt, our GDP is actually declining. This is tantamount to running up the down escalator. In the end, faith in the dollar must collapse. The dollar, the world's reserve currency, is our "secret weapon." We need materials and goods from overseas. Easy, we can print the dollars to pay for those materials, and our kindly overseas creditors accept our "home-made" dollars in payment. It's a great racket. And it will continue to be -- as long as the dollar is accepted as safe and fair payment. But I have to wonder, how long can this go on? Not forever, in my thinking..

Today I read this in the Financial Times, "China and Argentina in Currency Swap." China, which is pushing to end the dominance of the dollar as a worldwide reserve, has agreed to a renminbi 70 billion dollar swap with Argentina that will allow it to receive renminbi instead of dollars for its exports to the Latin American Countries."

"Beijing has signed $95 billion of deals since December with Malaysia, South Korea, Hong Kong, Belarus, Indonesia and now Argentina in an attempt to unblock trade financing that has been severely curtailed by this crisis."

Russell comment -- China doesn't want a lot more of the US dollars, and would prefer to deal with other currencies.

And I ask myself, could this be the beginning of the battle to take away the reserve status of the dollar?

" ... it now requires six dollars of debt to produce one dollar of Gross Domestic Product. But despite our growing debt, our GDP is actually declining."

" ... it now requires six dollars of debt to produce one dollar of Gross Domestic Product. But despite our growing debt, our GDP is actually declining."

" ... it now requires six dollars of debt to produce one dollar of Gross Domestic Product. But despite our growing debt, our GDP is actually declining."
 
"If you keep doing what you have been doing, you will keep getting what you have been getting." And that is what is in store for America, more of the same, unless we fundamentally reassess our approach to this crisis

The Theft of a Nation

Stewart Dougherty

Apr 10, 2009

Fifty years ago, on March 23, 1959, Ian Fleming's novel, Goldfinger was published to great popular acclaim. In the movie released five years later, arch villain Auric Goldfinger attempts to detonate a nuclear device inside the gold depository at Fort Knox, radioactively contaminating the nation's gold reserves for decades and making them untouchable. Goldfinger's motive is to drive up the value of his personal gold holdings. He has deposited 20 million British Pounds' worth of gold in Amsterdam, Caracas, Hong Kong and Zurich, and estimates that the value of his bullion will increase by ten times after the U.S. gold supply is neutralized. So he stands to profit by his crime in the amount of 180 million British Pounds, or $504 million at the then conversion rate of $2.80 per Pound.

The book and subsequent movie were blockbuster successes. The world was gripped by Goldfinger's daring scheme, dubbed "Operation Grand Slam," and its larger-than-life mastermind and villain. People viewed Goldfinger's plan as the boldest criminal adventure of all times, at least as of that time.

In the 1964 movie, Goldfinger delivered a stirring address to several U.S. gangsters he sought to enlist as partners. He exclaimed: "Man has climbed Mount Everest, gone to the bottom of the ocean. He's fired rockets at the moon, achieved miracles in every field of human endeavor - EXCEPT CRIME!"

What a difference fifty years make. In the context of today's metastasizing epidemic of financial crime, Goldfinger's $504 million theft could only be regarded as completely insignificant. Crime has not merely climbed Mount Everest, it has been launched to Mars.

On March 19, 2009, nearly 50 years to the day after the publication of Goldfinger, Neil Barofsky, Special Inspector General of the TARP Programs (SIGTARP) made the following comments in testimony presented to the United States House Ways and Means Committee:

"We stand on the precipice of the largest infusion of Government funds over the shortest period of time in our Nation's history. History teaches us that an outlay of so much money in such a short period of time will inevitably attract those seeking to profit criminally. If, by percentage terms, some of the estimates of fraud in recent government programs apply to the TARP programs, we are looking at the potential exposure of hundreds of billions of dollars in taxpayer money lost to fraud."

Barofsky repeated this warning in testimony before the Senate Finance Committee on March 31, 2009. Nothing had occurred in the 12 days since his prior testimony to change his mind that potential TARP fraud was in the "hundreds of billions of dollars." So much for Goldfinger and his previous arch-villain status. Time turned him into a piker, and the hurricane of history hurled him aside.

A universal fact is that all life forms seek to expand and thrive. This applies not just to the organisms of the human body and natural world, but also to the organisms of the human mind. Just as the forces of good seek to prevail, so do those of evil. Avarice, theft and corruption are life forms, just like restraint, honesty and truthfulness. They all strive for greatness, triumph and glory.

When then-Treasury Secretary Paulson first proposed the $700 billion TARP 1 Program in September, 2008, a collective sense of incredulity gripped America, and the world. The dollar amount of the request was astonishing, and Congress's initial response to the proposal was a flat out "No." Faced with defeat, Paulson arranged a closed-door session with top Congressional representatives. During that meeting, he outlined a "nuclear winter" scenario if the $700 billion funding request were denied. Shaken by Paulson's predictions, which included bank closures, empty ATMs, mass unemployment and social chaos, Congress did an about-face and approved the enormous $700 billion plan.

At the time, $700 billion appeared to be a staggering and surely-adequate amount of money to fix the nation's banking and economic problems. Only a tiny number of economic experts, including Nouriel Roubini of NYU, predicted that the cost of the bailout would ultimately be measured in many trillions of dollars, not mere hundreds of billions.

Now, only six months later, direct and indirect bailout costs exceed $13 trillion dollars, more than eighteen times the original, then-huge amount approved for TARP 1. And bailout costs are escalating as the economy continues to contract, and, in certain sectors, crater.

To put these numbers in perspective, the United States of America, or, more precisely, The American people, are said to own 261 million ounces of gold, supposedly stored in the same Fort Knox vault that Goldfinger found so appealing. At $1,000 per ounce, the people's gold has a value of $261 billion dollars. TARP 1 alone has cost 270% of the entire value of that singular, tangible American asset. The total $13 trillion bailout cost thus far is 4,980% of the value of America's gold asset. Fort Knox has been robbed, not by Goldfinger, but by the cheats who concocted the nuclear financial waste that has crippled America's financial system and economy.
 
- continued

To place the numbers in additional perspective, Special Inspector General Barofsky now tells us that something close to the entire amount of TARP 1 ("hundreds of billions of dollars," in his words, and likely around $500 billion by our estimates), will be consumed by fraud, or stolen. In other words, roughly twice the value of the nation's entire gold supply will be wiped out not by the original fraud, but by the fraud associated with the bailout money designated to deal with the original fraud. Fraud upon fraud upon fraud, in a mind-numbing daisy chain of crime, corruption and greed.

While Mr. Barofsky spoke about anti-fraud measures the government hopes to implement to mitigate this fraud, it is difficult to have much confidence in them, particularly since he also referred in the same speech to problems the government is experiencing in hiring competent auditors and regulators to oversee bailout spending. After 25 years of regulatory failure, from the S&L crisis, to the dot con scandals, to epic fraud at Enron, Worldcom, and other major corporations, to blatant, illegal Comex precious metals short concentrations and related price manipulation, to the Madoff Ponzi scheme, to the current banking and credit emergencies, it is clear that government has simply been incapable of getting ahead of financial fraud in America. In each and every case cited above, government regulators arrived at the crime scenes long after the frauds had been committed and the money had disappeared. The defrauded have been fortunate to receive fractions of pennies for each lost dollar. Sadly, financial regulation in America is an after-the-fact phenomenon. So Mr. Barofsky's fraud warnings must be taken seriously.

The current cost of the bailout and associated guarantees now exceeds $13 trillion, with no end in sight. The expenditure of every bailout dollar is 100% experimental because the nation has never before faced a financial catastrophe like this, and is therefore flying blind. Given the bailout cost, it is now clear that the equivalent of the nation's entire economy has been plundered. While in the past thieves have concentrated their criminal energies on robbing a bank, art museum, or Brink's vault, the criminals behind our current crisis decided to steal a first-world nation's entire economy. They committed the unthinkable: the theft of a nation.

Sensors in retail stores can detect a package of chewing gum being shoplifted. Payment verification systems can spot a bad check in a tenth of a second. Credit card authorization programs can instantaneously detect an irregular spending pattern, and shut down a compromised account. "Eye in the sky" casino cameras can zoom in on a dealer lifting a $1.00 chip, or a blackjack player rearranging cards to personal advantage. IRS computers, watching a nation of 300 million people, can pick up in seconds a $50.00 mismatch between 1099- and tax return-reported interest income. Fraud detection has become an advanced science and practice throughout the world that can prevent even the smallest of crimes.

But for more than a decade, a multi-trillion dollar Wall Street fraud raged with such virulence and intensity that it has crippled not just the economy of the world's most-powerful nation, but now the global economy. United States regulatory authorities, funded by taxpayers at a cost of billions of dollars per year, never spotted anything, until the entire system, according to Paulson, nearly collapsed.

Is this plausible? Is it plausible that an entire economy could be looted for a decade without regulators, politicians, or banking insiders knowing or doing anything about it? Does that make any kind of logical sense whatsoever? Or is this the colossal kind of crime that billions of dollars' worth of political contributions and lobbyist influence, combined with epic greed, criminality, money know-how and malicious intent, can buy?

In a time of crisis, it is difficult for people to see the obvious. They mourn for better days, which have disappeared. They cling to hope that their circumstances, which have collapsed, will miraculously improve. But it is false hope, because the vacuum of the future has inhaled their past, and that past is never coming back.

What is obvious is this: the creation out of thin air of billions of dollars of bailout money, "hundreds of billions of dollars" of which will be stolen by the same criminals who looted the country in the first place, cannot re-start an economy whose capital has been stolen. There is a saying: "If you keep doing what you have been doing, you will keep getting what you have been getting." And that is what is in store for America, more of the same, unless we fundamentally reassess our approach to this crisis.

If knowledge sets one free, the first thing the people need to know now is that the current economic emergency was not an accident; it was a crime. It was the theft of a nation, and the victims are its people.

Accepting this, they must respond. They must reconsider every idea they have about money, financial security, and the competence of the state to protect their welfare. This process inevitably will result in a paradigm shift on the subject of money. It will lead to the adoption by the people of a new reserve currency: the People's reserve currency. And most likely, they will gravitate to the financial security provided by money that has a 5,000 year history of international value, stability, acceptance and prestige: gold.

From the beginning of civilization, only 5 billion ounces of gold have been produced, in a world of 6.5 billion people, and hundreds of trillions of dollars' worth of paper currencies and paper assets backed by nothing: in other words, anti-money. The people are going to rediscover economic truth, and in particular, the power of the theory of supply and demand. When they do, the paradigm shift will be enacted, as they replace currencies that have utterly failed them with true money that can restore their financial health and set them free.
 
Federal Reserve Chairman Ben Bernanke said on Tuesday that policy-makers at the U.S. central bank are confident they can withdraw the enormous liquidity they have pumped into the economy in time to forestall inflation.

"I can assure you that monetary policy-makers are fully committed to acting as needed to withdraw on a timely basis the extraordinary support now being provided to the economy, and we are confidence in our ability to do so,'' Bernanke said in remarks prepared for delivery at Morehouse College in Atlanta.
 
His confidence is so reassuring. After all, he's been so insightful and knowledgeable up until this point, I trust him fully :ahhh:
 
With the amount of paper currency already out there and Fed/Treasury still printing like crazy, I have no reason to believe the fed will be able to control inflation once the economy start recovering. A lot people saying we dont have to worry about inflation until years later, it's almost like saying I will worry about my health after I get cancer! Buy Gold.
 
More yellow weeds than green shoots in today’s data-flow

At some point in the not-too-distant future, we believe the markets will begin to

second-guess the widespread view that the economy is heading into sustained

recovery mode. It may take more than what we saw today, but we continue to

hold the view that investors are confusing an ‘improvement’ relative to the post-

Lehman shock when the economy was literally falling off a cliff to an actual

improvement that would lead us to believe that a renewed upturn is at hand.

These are two different events in terms of asset mix, risk assessment, the

direction of bond yields and sector allocation.

Small business optimism sinks to a new low

The NFIB index for March was released earlier this morning. This is a monthly

survey of small business sentiment and it declined for the fourth month in a row to

88.7 from 90.4 in February. The last time it was this low was back in April 1980.

While it was inflation and not deflation that was public enemy #1 at that time, we

seem to recall that the next sustainable economic expansion and bull market was,

oh, only more than two years away.
 
GDP estimates going down

Retail sales came in markedly weaker than expected in March, down 1.1% M/M

versus estimates for a modest gain. These figures have prompted us to lower our

1Q GDP forecast from -5.6% Q/Q annualized to -5.9% on weaker consumption

growth (now 0.6% Q/Q versus 1.1% previously). Further, the 2Q is also tracking

weaker with GDP now at -4.7% (versus -4.2% previously) with real consumption

growth of -3.7% Q/Q (versus -2.9% previously). Today’s results also suggest that

the majority of tax refunds (up 15% Y/Y) are being directed toward paying down

debt or savings at the expense of spending.

Necessity spending rules the day

Details were unanimously weak with declines in every category save food (up

0.5% M/M) and health care (up 0.4% M/M). The gains in these two areas clearly

reflect the trend into necessity-based spending. The sharpest declines were seen

in electronics (-5.9% M/M), clothing (-1.8% M/M) and restaurants (-1.4% M/M)

while gas station sales fell 1.6% on pricing and volumes. Auto sales surprisingly

posted a 2.3% drop after a strong gain was seen in unit sales – seasonal factors

and record incentives were likely at play. We also suspect that heavy discounting

and ongoing promotions depressed sales across the board for retailers, although

traffic has notably been lighter as of late.

2Q shaping up for a larger drop in spending

Core retail sales (ex building materials, gasoline and auto dealers) which feed

directly into GDP unexpectedly fell 0.9% M/M. While January and February

figures were revised slightly higher, 1Q spending was clearly a disappointment.

Heading into 2Q, ongoing layoffs and the end of the tax filing season suggest a

sharper decline in consumption will unfold.
 
from the Beige Book report today

Inflation is not only under control but deflation may be an issue. Downward pressure on prices was reported across a number of Districts. There is no improvement in labor markets. Wage and salary pressures eased as labor markets weakened in all Districts, and many contacts continued to report job cuts and wage and hiring freezes. Employment continued to decline across a range of industries, with only scattered reports of hiring.
Click to expand...

i personally think we're going the way of inflation but what do you guys think?
 
I think that with all the job losses and asset losses, and capacity utilization registered it's lowest level in 40 years, if the best we can get is a 0.4% CPI decrease or a 1.8% increase ex food and energy, we are in trouble.
 
caycifish said:
celebrity-pictures-richard-dean-anderson-the-economy.jpg
Click to expand...

NOT

MacGruber financial skits, Saturday Night Live
 
A long way from declaring the end of the recession

Once again, we see data analysis today (mostly on bubble-vision and the

commentary we get second-hand from other parts of the Street) that barely

scratches the surface and is disingenuous at best (though we do recognize the

innate desire to be optimistic). No doubt, the incoming data are not longer

showing an economy in free-fall. But for investors, we are still quite a long way

towards declaring that we are anywhere close to this recession coming to a close.

Housing starts at their second lowest level on record

The first piece of data we gleaned today was housing starts for February. While

starts did come in below expected, down 10.8% to 510,000 annualized units, the

pundits are claiming that the number was a market-positive on two fronts: (i), the

decline in new construction activity is good from a supply perspective since it

shows that the builders are making even more headway at shaving the unsold

inventory and (ii), all the decline in March was in multi-family, which collapsed

29%. Single-family starts actually held on to the February surge and stabilized at

358,000 units. The fact that (i) and (ii) are just a tad contradictory does not seem

to matter. While it may well be true that starts have bottomed – they aren’t going

to zero – the bottom line is that housing starts are at their second lowest level on

record despite the best affordability conditions in over a generation (data going

back to 1959).
 
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