The Mess That Greenspan Made

State jobless rates in motion

2009-07-18T10:37:00.000-07:00

This interactive graphic on state jobless rates over at the Wall Street Journal seemed to be calling out for someone to animate it (at least that's what I heard).
You can control it yourself over at the Journal - it's in the free area.

Judge to The Donald: You're dismissed!

2009-07-17T17:00:00.000-07:00

The weekend can officially begin after this story about Donald Trump is noted for the record. Not much of a fan of the man, but a watcher of the TV show up until it transformed into a cross between The Surreal Life and the original Apprentice, this news is somehow very fitting.

A Superior Court judge today dismissed a lawsuit filed by Donald Trump alleging that he was financially damaged by an author whose book suggested Trump was simply a multi-millionaire - not a billionaire.

Trump's lawyer, Marc E. Kasowitz, said he will appeal the ruling.

Superior Court Judge Michele M. Fox in Camden County read her decision into the record as she granted the request to dismiss the lawsuit against Timothy O'Brien, author of TrumpNation: The Art of Being the Donald.
...
In the book, O'Brien cited three anonymous sources who estimated Trump's net worth to be $150 million to $250 million. Trump alleges his public image has been harmed because he is actually a billionaire. He has said he lost huge business deals that were under negotiation when the book was published.

O'Brien maintained his sources gave him reliable information.

In today's ruling, the judge did not rule on the accuracy of the information, but decided the lawsuit should be dismissed because she found no "actual malice."

Season three of The Celebrity Apprentice (the 9th season overall) is set to air next spring.

The Economist on the failure of economics

2009-07-17T11:47:00.000-07:00

The venerable Economist magazine must be feeling at least a little bit tarnished after the heavy (and well-deserved) criticism that has been directed toward the profession that they have represented since 1843 though, admittedly, they cover much more than economics.

In this report, they offer up a heavy dose of introspection:

What went wrong with economics

OF ALL the economic bubbles that have been pricked, few have burst more spectacularly than the reputation of economics itself. A few years ago, the dismal science was being acclaimed as a way of explaining ever more forms of human behaviour, from drug-dealing to sumo-wrestling. Wall Street ransacked the best universities for game theorists and options modellers. And on the public stage, economists were seen as far more trustworthy than politicians. John McCain joked that Alan Greenspan, then chairman of the Federal Reserve, was so indispensable that if he died, the president should “prop him up and put a pair of dark glasses on him.”

Yes, the profession clearly peaked (along with the housing bubble) when Freakonomics was published in 2006, but, more importantly, it's been some time since I've thought about that quip from a very different John McCain in late-1999.

It's aging well...

From Wikiquote comes the complete text and a reference at CNN. McCain said, "I would not only reappoint Mr. Greenspan -- if Mr. Greenspan should happen to die, God forbid -- I would do like was did in the movie, 'Weekend at Bernie's.' I'd prop him up and put a pair of dark glasses on him and keep him as long as we could".

That may have produced a better outcome that what actually occurred between 2000 and 2006 when the former Fed Chairman retired.

Hmmm... back to The Economist:

In the wake of the biggest economic calamity in 80 years that reputation has taken a beating. In the public mind an arrogant profession has been humbled. Though economists are still at the centre of the policy debate—think of Ben Bernanke or Larry Summers in America or Mervyn King in Britain—their pronouncements are viewed with more scepticism than before. The profession itself is suffering from guilt and rancour. In a recent lecture, Paul Krugman, winner of the Nobel prize in economics in 2008, argued that much of the past 30 years of macroeconomics was “spectacularly useless at best, and positively harmful at worst.” Barry Eichengreen, a prominent American economic historian, says the crisis has “cast into doubt much of what we thought we knew about economics.”
...
There are three main critiques: that macro and financial economists helped cause the crisis, that they failed to spot it, and that they have no idea how to fix it.

The first charge is half right. Macroeconomists, especially within central banks, were too fixated on taming inflation and too cavalier about asset bubbles. Financial economists, meanwhile, formalised theories of the efficiency of markets, fuelling the notion that markets would regulate themselves and financial innovation was always beneficial. Wall Street’s most esoteric instruments were built on these ideas.
...
The charge that most economists failed to see the crisis coming also has merit. To be sure, some warned of trouble. The likes of Robert Shiller of Yale, Nouriel Roubini of New York University and the team at the Bank for International Settlements are now famous for their prescience. But most were blindsided. And even worrywarts who felt something was amiss had no idea of how bad the consequences would be.

That was partly to do with professional silos, which limited both the tools available and the imaginations of the practitioners. Few financial economists thought much about illiquidity or counterparty risk, for instance, because their standard models ignore it; and few worried about the effect on the overall economy of the markets for all asset classes seizing up simultaneously, since few believed that was possible.
...
What about trying to fix it? Here the financial crisis has blown apart the fragile consensus between purists and Keynesians that monetary policy was the best way to smooth the business cycle. In many countries short-term interest rates are near zero and in a banking crisis monetary policy works less well. With their compromise tool useless, both sides have retreated to their roots, ignoring the other camp’s ideas. Keynesians, such as Mr Krugman, have become uncritical supporters of fiscal stimulus. Purists are vocal opponents. To outsiders, the cacophony underlines the profession’s uselessness.

They would have been well served to make the point that many Wall Street economists (and whatever the equivalent street is in London) are bound to serve their masters who much prefer rosy predictions than the alternative.

It is no coincidence that most bearish economists in recent years have few ties to the banking industry, financial media outlets like CNBC, or investment banking where optimism seems to be a prerequisite for the job.

Putnam Investments: Ratings, if not returns

2009-07-17T09:56:00.000-07:00

If you're going to buy stocks (which most people still seem to think they have to do), then Putnam Investments would like you to buy their stock mutual funds.

And if you're thinking of buying Putnam stock mutual funds, they'd prefer you look at their Lipper ratings rather than their performance and it's easy to understand why as shown below from yesterday's WSJ ad, the performance data (via Yahoo! Finance) added by yours truly.
Of course, instead of paying management fees for Mr. Thakore's and Mr. Ewing's hard work and taking a loss, you could have had positive returns over the last 1-, 3-, 5-, and 10-year spans by simply leaving your money in Certificates of Deposit or money market accounts.

But, they'd probably prefer you stick with stocks...

Here's the whole ad along with the respective improvement in Lipper ratings and performance thru June 30th (see PVOYX, PGRWX, PINOX, PEYAX, PNRAX, and POGAX).

Click to enlarge

If this is "some of the finest investment talent" and these are the results that this talent produces, I'd hate to see what other companies' mutual fund performance looks like.

Not your typical Kansas bank

2009-07-17T09:09:00.000-07:00

Teri Buhl at the Bank Implode-O-Meter files this report on the odd goings on at a Kansas bank and their very unique relationship with the Office of Thrift Supervision.

Executives at Olathe, Kan.-based Security Savings Bank have screamed foul for several years—but the Kansas Regional Office of Thrift Supervision has been turning a blind eye to alleged misconduct at the bank, according to numerous sources.
As confidence erodes in the nation’s banking system, and taxpayers have watched as banking giants Washington Mutual and IndyMac fail, many are now left wondering how government regulators could not have seen this coming.
...
But what about a case where a bank’s own executives have continued to proactively knock on their primary regulator’s door, with little to no response? Kansas’ Security Savings Bank appears to be one such case—and now the thrift is booking ongoing million dollar quarterly losses, distributions have dried up, and investors in the bank’s holding company recently settled in their favor in a suit against the banks chairman- they had sued for securities fraud.

The Kansas-based, federally-chartered savings bank is chaired and owned by longtime real estate developer and home builder Donald H. Bell, Sr. In a brochure touting the bank’s purpose in the community it serves, Bell markets the fact that “God had directed him” to buy a small Kansas bank, so that he may forward the bank’s profits towards Godly ends.

It's a pretty interesting read with the added bonus of a nice collection of the bank's promotional material, neatly assembled into a collage, grain fields and all.

Housing starts improve a little more

2009-07-17T06:09:00.000-07:00

The Census Bureau reported(.pfd) a jump in housing starts and permits for new construction in June, however, the increase leaves new home construction at levels that are still far, far below that seen during any previous housing downturn in data going back 50 years.
Starts rose 3.6 percent in June to a seasonally adjusted, annualized rate of 582,000 units following a jump of 17.3 percent in May. The June increase was paced by single-family homes, up 14.4 percent for the month. Housing starts are now down 46 percent on a year-over-year basis, 75 percent below the peak in September of 2005.

Permits for new construction, a leading indicator for the homebuilding industry, were up 8.7 percent last month to a rate of 563,000 units after a 4.0 percent increase the month before. From year-ago levels, permits are now down 52 percent, a full 74 percent off the fastest rate of permit issuance back in January of 2006.

While the recent improvement in new home construction is certainly good news for the ailing home building industry, it's important to put the data into its proper context.

As noted here earlier in the year, it is difficult to appreciate just how depressed current levels of home building are without looking closely at historical comparisons. While the current level of housing starts are up 13 percent from the April lows and permit issuance has increased 22 percent since that time, the April readings were the lowest levels since 1959 and by a very wide margin.

Prior to 2008, the record low for housing starts had been an annualized rate of 798,000 in January of 1991, putting April's new all-time low 43 percent below that mark. Starts in June are still are still 29 percent below the 1991 level and, in population adjusted terms, more than 40 percent worse.

It's going to be hard to get too excited about the new home construction data until we at least get a little bit closer to the pre-2008 all-time lows.

Friday morning links

2009-07-17T05:31:00.000-07:00

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MARKETS/INVESTING
• Oil slips below $62 as traders eye company results - AP
• Gold falls on stronger dollar, higher equities - MarketWatch
• Financial struggles of lender CIT to 'test capital markets' - USA Today
• Gold/silver ratio soars but bearish signal unclear - Globe Investor
• Jim Cramer Generates 134.79% Return! - Falkenblog

ECONOMY
• Housing Starts Climb to Highest Level in Seven Months - Bloomberg
• Recession Lesson: Share and Swap Replaces Grab and Buy - Wash. Post
• Obama’s Tax-and-Spend Tastes Seduce Democrats - Bloomberg
• U.S. may need another stimulus - Roubini - CNN/Money
• What went wrong with economics - Economist

INTERNATIONAL
• Bernanke Is Said to Plan Assuring China at Summit - Bloomberg
• China still buying U.S. assets despite rhetoric - MarketWatch
• China Debt Auction Falls Short for Third Time - Bloomberg
• China’s 7.9% Triumph Tarnished by Rio Tinto Mess - Bloomberg
• Locke presses China to speed up yuan float - MarketWatch
• IMF warns pound could be at risk from uncertainty - Telegraph
• Iceland's parliament backs applying for EU membership - AFP
• The Big Mac index: Cheesed off - Economist

HOUSING
• Buttonwood: Dropping a brick - Economist
• July NAHB Housing Index Rises Two Points to 17 - Forbes
• Mortgage rates drop for 3rd week: Freddie Mac - Reuters
• Median home price up in June - Signs on San Diego

FED/TREASURY/BANKING
• Fed balance sheet rises back above $2 trillion - Reuters
• Paulson endures tough day on Hill on BofA, Merrill deal - USA Today
• Bank Earnings: Beauty Is Skin-Deep - Forbes
• Banks and bonuses: Going overboard - Economist

INTERESTING
• Starbucks unveils a new drink: Booze - CNN/Money
• Harley-Davidson Headed the Way of Indian? - MarketWatch
• How The Huffington Post Can Pay Its Bloggers - Huffington Post
• The search for dark matter: Ethereal yet weighty - Economist

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Economists say "Lay off the Fed"

2009-07-16T15:06:00.000-07:00

What's funny about this WSJ report($) telling of the 250+ economists who signed a petition urging Congress to stop meddling in the affairs of the central bank? They all sound a little bit like former Fed chief Alan Greenspan - as if they were just casual observers, innocent bystanders as another enormous asset bubble inflated right under their noses and then burst.

"The interactions with Congress are becoming increasingly hostile," said Anil Kashyap, a University of Chicago finance economist who was among the initiators of the 185-word petition. "Competent monetary policy needs to be forward looking. So at some point the Fed is going to have to act to tighten policy before the economy is booming. If that gets stopped for political reasons it would be a disaster, and just the perception that it might be stopped could be costly."

Arguing that the independence of the central bank is "essential for controlling inflation," the petition urges Congress not to meddle when the Fed decides to raise short-term interest rates or reverse its purchases of Treasury debt and mortgage-backed securities, which will tend to push up longer-term interest rates.

"When the Federal Reserve judges it's time to begin tightening monetary conditions, it must be allowed to do so without interference," the economists said.

Ummm... "Competent monetary policy" and "would be a disaster"? What we've been through over the last two years or so has been an unmitigated disaster. Even if Congress did wrest complete control of monetary policy from the central bank, how could they possibly do any worse than the Fed did the last time around?

"Audit us, and we'll raise your interest rates"

2009-07-16T12:19:00.000-07:00

Judge Napolitano talks to Ron Paul about Fed Vice Chairman Donal Kohn's recent comment that auditing the Fed, as required in HR 1207: Federal Reserve Transparency Act of 2009, will result in much higher interest rates (spotted over at The Daily Bail).

Paul: "I think one thing an audit might reveal would be all the communication between the Fed and Goldman Sachs. Just think of what kind of communications we might find there ... what kind of promises were made and how Goldman Sachs came out so 'golden'."

Iacono Research "Free Trials" end today!

2009-07-16T11:43:00.000-07:00

As part of a long overdue and ongoing makeover now underway over at the companion investment website Iacono Research, the 30-Day Free Trials that have been quite popular over the last few years are being brought to an end TODAY.

For those of you who may be interested in having a month-long, no-obligation, absolutely-free look around the website, I'd like to invite you to do so by following the simple instructions on the sign up page before midnight tonight.

It's free. There is no obligation to purchase anything. And it won't be available again.

What have you got to lose?

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Rosenberg on stock-commodity cycles

2009-07-16T08:49:00.000-07:00

In Cocktails with Dave (.pdf -registration required), Gluskin-Sheff's David Rosenberg waxes philosophically on the public's enduring (but clearly misguided) fascination with equities now that we have about reached the mid-way point in what can only be characterized as a secular (long-term, as in 18 year average) bear market.

The following graphic is provided as Exhibit "A".
Rosenberg notes: "This does not mean that cyclical bull markets cannot occur – they did even in the 1930s and in Japan in the 1990s ... But what is critical is that in secular bear markets, rallies are to be rented, not owned; whereas in secular bull markets, selloffs are to be treated as opportunities to build long-term positions at better price levels."

More "misleading median" home prices

2009-07-16T06:59:00.000-07:00

Unless we see another big leg down in credit markets and financial markets (which is entirely possible), it could well be that the worst of the median home price declines are now behind us in many parts of the country.

However, that doesn't mean that home prices are going to stop falling anytime soon.

A good example of this dynamic - where an increase in the number of higher price homes in the sales mix pushes the median price up as prices, generally, continue to decline - can be seen in the latest Dataquick report on June real estate sales for Southern California.

Fortunately, most news outfits seem to be addressing this issue up front and they are to be commended for that. Both the DataQuick report and this story in the LA Times were quick to attribute the increase in the median price to a changing sales mix.

But, how real estate sales agents use this information is an entirely different matter. As a good salesman will always look for ways to "motivate" a prospective buyer, it would seem that this is all too easy a piece of data to be used in a less than honest manner.

Here's what median home prices look like for all six Southern California counties:
At this point, it's important to remember that, while median home prices have now risen for two or three months according to DataQuick, the S&P Case-Shiller Home Price Index for the Los Angeles area is still falling - down almost one percent from March to April, according to the most recent data, and almost 22 percent below year-ago levels.

The DataQuick data is showing a sharp decline in year-over-year home price declines, ranging from -11 percent in Orange County to -42 percent in San Bernardino County where, apparently, they just don' t have enough higher priced homes to sell.
Foreclosures accounted for just 45.3 percent of all sales in June, down from over 50 percent in recent months, an indication that while conditions are still very far from normal, they are "less bad" than they were earlier in the year.

Since Marshall "almost all if not all of those gains are here to stay" Prentice is now retired, new DataQuick President John Walsh provides this month's commentary:

The rising median should still be viewed mainly as a sign the market’s moving back toward a more normal distribution of sales across the home price spectrum. Sales in many higher-cost neighborhoods couldn’t have gotten much lower, so this recent uptick in activity should come as no surprise. The recession and problem mortgages are fueling more high-end distress, hence more high-end ‘bargains.’ What’s missing, still, is a wide-open financing spigot for the would-be buyers of these more expensive homes.

It would be nice if they would just come out and say, "Prices are not going up even though median prices are rising. In fact, home prices are still going down".

But, clearly that would be too much to ask.

Thursday morning links

2009-07-16T05:13:00.001-07:00

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MARKETS/INVESTING
• Verleger Sees $20 Oil This Year on ‘Devastating’ Glut - Bloomberg
• Gold a better inflation hedge: World Gold Council - Commodity Online
• Despite the Economy's Struggles, Stock Market Soars - Time
• U.S. Mint coin sales 'temporarily suspended' - again - Mineweb
• Should you still be holding stocks? - MSN Money
• The Game Changer? - Butler, Investment Rarities

ECONOMY
• New unemployment claims drop, skewed by autos - USAToday
• Nine Reasons the Economy is Not Getting Better - U.S. News
• Why Do We Worry About Inflation Right Now? - SafeHaven
• Fed Sees Heightened Joblessness Drawing Out Recovery - Wash. Post
• Geithner: U.S. Can’t Afford to Apply Brakes Too Soon - Bloomberg

INTERNATIONAL
• China’s Market Value Overtakes Japan - Bloomberg
• Chinese boost for base metals to cool: GFMS - Mineweb
• Mexico GDP May Shrink 7% This Year - Bloomberg
• China GDP grows 7.1% in first half '09 - CHINADaily
• Nigerian Peace Remains Elusive After Oil Region Truce - Bloomberg
• Beijing's office building suffers rising vacancy rate - CHINADaily
• China’s PBOC Sells Bills at Highest Yields This Year - Bloomberg
• World Bank warns of deflation spiral - Telegraph

HOUSING
• Foreclosures up despite moratorium - MarketWatch
• Southern California median home sales price surges in June - Times
• 1.9 Million Foreclosure Filings Reported in First Half - RealtyTrac
• Brooklyn "Luxury" Real Estate Tanks - ClusterStock

FED/TREASURY/BANKING
• Freedom for the Fed! - Breaking Views
• Geithner sees 'durable' signs of stability - AP
• Call for Fed transparency grows louder - FT
• What If? - McCulley, Pimco

INTERESTING
• Talks fail to break California budget impasse - Reuters
• Goldman Sachs caves in to critical blogger - Telegraph
• 40 Years After Moon Landing: Why Can't We Cure Cancer? - LiveScience
• Bruce Jenner & Family On His Plastic Surgery - Yahoo! TV

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A sign of the times in Bend, Oregon

2009-07-15T16:44:00.000-07:00

We were out and about earlier today and happened to go look at the latest golf course that was built here in Bend, Oregon. Going by the name Tetherow, it had the misfortune of opening up last summer, just in time for the financial market meltdown and the subsequent rethinking by tens of millions of Americans about how much money they spend and where.

Right next to the Tetherow sign on the main road was an Open House sign, so we followed it.

The golf course looked absolutely gorgeous, as it should for the amount of money they are charging the public to play there (between about $115 and $195), management having long since given up trying to make a go of it as a private club.

Though there were about a half dozen homes under construction, we arrived at what appeared to be the only completed home, part of a planned 380 home development that is clearly going nowhere fast.

As it happens, there's a big "Tour of Homes" in the area over the next two weeks, sponsored by the local homebuilders to feature their fine work and, hopefully boost new home sales. The tour was announced loudly in the local paper today with an enormous supplement shown above (an online version of the guide can be seen here).

Anyway, arriving at the open house and noting that the price had just been reduced from somewhere around $1.4 million to around $1.1 million, we asked if the home was going to be featured on the Tour of Homes in the weekends ahead.

The gentlemen greeting prospective buyers replied, "No, but it was on it last summer".

Jane Quinn on investing in commodities

2009-07-15T16:06:00.001-07:00

It's not clear exactly why this Bloomberg article about investing in commodities struck me as being so odd (well, aside from the fact that you'd never hear this sort of thing from Caroline Baum), but Jane Bryant Quinn's mostly positive slant on this sector was, well, refreshing.
About half way through, Ms. Quinn asks, "If you buy, do you want an ETF or an ETN?"

Most financial journalists still poo-poo the whole idea of having some crude oil futures or gold bars counted as part of your investment portfolio - it's nice to see this is changing.

The recession is over?

2009-07-15T08:52:00.001-07:00

In the spirit of equal time for disparate opinions, the dour outlook from Mort Zuckerman posted just a short time ago is followed by this uplifting view from Daniel Gross at Slate:

Could our long national nightmare be over? The economic contraction, this Great Recession, began in December 2007, and there's no apparent end in sight. As the unemployment rate has spiked, analysts have thrown cold water on Federal Reserve Chairman Ben Bernanke's March sighting of "green shoots." The stock market's spring rally has fizzled.

But in this season of doubt, I'm prepared to declare that the recession is really, most probably over. Why? Well, it's not because the economists surveyed by the Wall Street Journal believe it'll end in this quarter. (These guys wouldn't know an economic inflection point if it hit them upside the head. All through 2008, when the economy was contracting, they projected growth for the year.)

No, two of the best and most objective forecasters, who are not connected to investment banks or to the CNBC noise machine, have recently called the upturn. Macroeconomic Advisers, the St. Louis-based consulting firm that compiles a monthly GDP index, reported to its clients Monday that while second-quarter GDP was tracking at negative 0.1 percent (recession), the third quarter was tracking at 2.4 percent growth.

Uh-oh. Here comes the "this recession is just like all the previous ones" argument where we can all just dismiss the profound, if somewhat slow to develop, changes underway in the consumer sector and the depths of the labor market troubles.

Do so at your own peril, as they seem anxious to do at the ECRI.

The folks at the Economic Cycles Research Institute agree enthusiastically. It's not because they've detected green pea shoots in Central Park. Rather, it's because we've seen the three P's, says Lakshman Achuthan, managing director at ECRI, which has been studying business cycles for decades and was one of the few outfits to call the last two recessions with any degree of accuracy.

The economic data that get the most play in the news— unemployment, retail sales—are coincident or lagging indicators and historically have not revealed much about directional changes in the economy. ECRI's proprietary methodology breaks down indicators into a long-leading index, a weekly leading index, and a short-leading index. "We watch for turning points in the leading indexes to anticipate turning points in the business cycle and the overall economy," says Achuthan. It's tough to recognize transitions objectively "because so often our hopes and fears can get in the way." To prevent exuberance and despair from clouding vision, ECRI looks for the three P's: a pronounced rise in the leading indicators; one that persists for at least three months; and one that's pervasive, meaning a majority of indicators are moving in the same direction.

The long-leading index—which goes back to the 1920s and doesn't include stock prices but does include measures related to credit, housing, productivity, and profits—hits bottom and starts to climb about six months before a recession ends. The weekly leading index calls directional shifts about three to four months in advance. And the short-leading index, which includes stock prices and jobless claims, is typically the last to turn up.

All three are now flashing green...

At this point, it's probably important to remind everyone of the name of the book Daniel Gross had published a couple years ago: Pop! Why Bubbles Are Great For The Economy.

Publisher: HarperBusiness; 1 edition (May 8, 2007)

The economy is worse than you think?

2009-07-15T08:21:00.000-07:00

Mortimer Zuckerman, chairman and editor in chief of U.S. News & World Report, comments on the prospects for an economic recovery in this WSJ op-ed piece, listing ten reasons why the labor market is worse than it appears.

- June's total assumed 185,000 people at work who probably were not. The government could not identify them; it made an assumption about trends. But many of the mythical jobs are in industries that have absolutely no job creation, e.g., finance. When the official numbers are adjusted over the next several months, June will look worse.

- More companies are asking employees to take unpaid leave. These people don't count on the unemployment roll.

- No fewer than 1.4 million people wanted or were available for work in the last 12 months but were not counted. Why? Because they hadn't searched for work in the four weeks preceding the survey.

The notion that employment is a lagging economic indicator is being put to the test during this recession and, as Zuckerman indicates, that doesn't factor in the many nuances in the labor market, some of which have never been seen before to their current extent.

Probably the most striking of these many nuances is reason number four discussed directly below - "underemployment" - and those affected by the sharp increase in underemployment would likely disagree with this being characterized as a "nuance".

- The number of workers taking part-time jobs due to the slack economy, a kind of stealth underemployment, has doubled in this recession to about nine million, or 5.8% of the work force. Add those whose hours have been cut to those who cannot find a full-time job and the total unemployed rises to 16.5%, putting the number of involuntarily idle in the range of 25 million.

- The average work week for rank-and-file employees in the private sector, roughly 80% of the work force, slipped to 33 hours. That's 48 minutes a week less than before the recession began, the lowest level since the government began tracking such data 45 years ago. Full-time workers are being downgraded to part time as businesses slash labor costs to remain above water, and factories are operating at only 65% of capacity. If Americans were still clocking those extra 48 minutes a week now, the same aggregate amount of work would get done with 3.3 million fewer employees, which means that if it were not for the shorter work week the jobless rate would be 11.7%, not 9.5% (which far exceeds the 8% rate projected by the Obama administration).

- The average length of official unemployment increased to 24.5 weeks, the longest since government began tracking this data in 1948. The number of long-term unemployed (i.e., for 27 weeks or more) has now jumped to 4.4 million, an all-time high.

There are a few more items in the list and an assessment of just how difficult the road ahead will be given all the headwinds now faced by the no longer indefatigable consumer sector.

It's hard to imagine how any sort of a sustainable recovery can be mounted this time around if it's supposed to look anything like recoveries from the last few recessions.

Energy prices push consumer prices higher

2009-07-15T06:52:00.000-07:00

The Labor Department reported the sharpest monthly increase in consumer prices since last July, prior to the financial market meltdown, driven largely by a jump in energy costs.
Overall inflation rose 0.7 percent in June following an increase of 0.1 percent in May and, on a year-over-year basis, headline CPI is now down 1.4 percent (on an unadjusted basis), the largest annual decline since 1950.

Energy prices soared 7.4 percent in June paced by a 17.3 percent rise in gasoline prices while home heating oil gained only 2.0 percent and piped gas and electricity declined 1.2 percent.

As shown below, energy prices have declined more than 25 percent from year-ago levels, gasoline prices reaching their peak one year ago at over $4 a gallon.
Prices for apparel jumped 0.7 percent and recreation gained 0.5 percent, both of these categories gaining just 1.5 percent from a year ago.

In the housing category, both rent and owners' equivalent rent rose by 0.1 percent in June and are now up 2.7 percent and 1.9 percent, respectively, from year ago levels, figures that would appear to be at odds with nearly every regional and anecdotal account of generally falling rent due to the glut in housing.

Wednesday morning links

2009-07-15T05:45:00.000-07:00

TOP STORIES
• U.S. mulls temporary loan for CIT: source - Reuters
• Calpers Sues Over Ratings of Securities - NY Times
• Intel rallies after adjusted results top estimates - MarketWatch
• Shadow Banking: What It Is, How it Broke, and How to Fix It - The Atlantic
• The events preceding Goldman Sachs' new "blowout profits" - Salon
• Market for California IOUs poised to launch this week - MarketWatch
• Goldman payouts on track to pass 2007 - MarketWatch
• Goldman’s Gain, America’s Risk - Room for Debate

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MARKETS/INVESTING
• Oil rises above $60 as traders eye US inventories - AP
• Greenlight Holds Bullion, Buys Reinsurance Stocks - Bloomberg
• Curbing speculative oil trading is a good move - Dallas Morning News
• S&P 500 avoids breakdown, rises to next test - MarketWatch
• Your 401(k): Getting back what you lost - CNN/Money
• Meredith Whitney is our leader - FT Alphaville

ECONOMY
• Gasoline Pushes Up U.S. Consumer Prices - NY Times
• Manufacturing in NY Area Shrank at Slower Pace - Bloomberg
• Time to tackle the real evil: too much debt - FT
• The Trickle-Down Effect - Wash. Post
• The Recession Is Over! - Gross, Slate

INTERNATIONAL
• U.K. unemployment rate hits 7.6% - MarketWatch
• China’s Reserves Surge, Exceeding $2 Trillion - Bloomberg
• Germany Has Been Slow to Fix Its Banks - NY Times
• US treasury chief in UAE to drum up support - AP
• American Express suspends payments into UK pensions - Telegraph
• Irish Central Bank chief predicts no recovery until 2011 - Independent
• Russia scrambles to contain Volga oil spill - AFP
• Singapore's economy bounces back - BBC

HOUSING
• Upscale home sales lag as jumbo loans are hard to get - USA Today
• Banks start foreclosure on 2,500 mortgages - WSJ Developments
• Bill would suspend new home appraisal standards - SF Gate
• Banks moving slowly on foreclosures - LA Land

FED/TREASURY/BANKING
• The Bernanke Market - Wall Street Journal
• Mortgages Are Now a Bank’s Best Friend - NY Times
• Concerns about the Fed's New Balance Sheet - EconBrowser
• What the Fed's Exit Strategy Will Mean for the Economy - Green Faucet

INTERESTING
• Sound effect: how cats exploit the human need to nurture - Guardian
• CA home buying frenzy - Orange County house gets 135 bids - Zillow Blog
• WSJ Tramples Chinese Toes in its Xinjiang, China Coverage - China Stakes
• Automated Smile Police Monitor Employees - LiveScience

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Dennis Kneale is bullish on America

2009-07-14T22:06:00.000-07:00

Peter Schiff is not...

Five reasons to fear inflation

2009-07-14T12:45:00.000-07:00

While the debate rages over whether the years ahead will be dominated by in-flation, de-flation, or some combination of the two, a quick look at the reasons why so many people are so terrified of inflation is in order.

This is not meant to be an all-inclusive discussion, simply an overview.

1. They've been printing so much money, it's got to go somewhere

Yes, I know, the newly created trillions of dollars that monetary authorities around the world have sent out to failing banks, auto companies, insurance companies, and others - much of that money is currently just sitting there as bank reserves, not entering the economy in the form of new bank loans that would have this sum leveraged up to who knows how many tens of trillions of dollars.

Of course, that's today's story.

Tomorrow's story (probably sometime next year) will be one of economies that have hit bottom, at which time, banks will be more willing to lend and consumers more willing to borrow. That's when all the newly printed money starts to create inflation.

The doubling of oil prices seen earlier this year is just a teaser for what's to come since central banks quickly lose control over where the money goes once it starts to move again. Of course, if there is no economic recovery, that money will just sit there and there will be little or no inflation. But, if we do manage to pull ourselves up out of this mess, we'll see the highest inflation in generations as policymakers will be loathe to repeat the mistakes that led to the 1937 recession, following the Great Depression.

2. The government's inflation numbers are bogus

When inflation does come roaring back, you probably won't see too much of it showing up in the government's Consumer Price Index (CPI) data since this measure has been systematically neutered over the last thirty years to make rising prices seem as though they're not all that bad compared to what we saw back in the 1970s.

You hear a lot about how economic policies have "defeated" inflation over the last few decades when, in fact, much of the lower inflation numbers have to do with cheap oil from the Middle East, cheap imported goods from Asia, and, most importantly, changes in the way the Bureau of Labor Statistics calculates the inflation statistics.

Since home prices were stripped out of the index in 1983, it's hard to imagine how we could ever see inflation over ten percent again since housing rental costs now account for more than 30 percent of the index. With the glut in housing due to the recently popped bubble (a bubble that would not have been possible if home prices had not been stripped from the inflation data), we'll have downward pressure on rents for years to come.

The bad news is that domestic services and energy will keep on rising and this will feel like 20 percent inflation even when the government says it's only six.

3. Peak oil is real and it is near

The ongoing recession/depression has been a boon to those who have long scoffed at the whole notion of Peak Oil - that cheap energy, fossil fuel that comes gushing up from out of the ground with little or no effort and has served as the very foundation of the world economy over the last 80 years or so, will soon be a thing of the past.

Of course, the fact that economic growth is now declining for the first time since the Great Depression puts a whole new spin on things, albeit, just a temporary one.

That is, unless what we've seen over the last nine months is what we'll be seeing for years and years and years.

Since changes in global energy consumption are inextricably tied to changes in economic growth, the only way that peak oil is not going to be a problem in the years ahead is if the global economy grows at a much slower pace. Slow growth means less jobs which mean lots of people have lots of idle time on their hands and governments don't generally like that.

Look for item #1 above to solve many of the world's economic problems in the near-term while creating even bigger inflation problems in the long-term as a return to world-wide economic growth once again stresses the relatively limited energy production capacity as it did last year.

4. Rich, smart people are buying gold

I don't know about you, but when I hear about people like John Paulson of Paulson and Company buying billions of dollars in gold bullion for his hedge fund and when stories begin to circulate about very wealthy individuals buying bullion by the truck load, apparently OK with the whole idea that it neither earns interest or pays a dividend - then I start to worry a little bit.

Most of the rich people in the world are rich for one very good reason - because they're smart.

And even though most of the investment world still doesn't have much of a clue about the nature of money and how, after almost four decades, a very long experiment with a world overflowing with fiat money is now going horribly wrong, a lot of smart people with a lot of money have figured it out.

In private clubs, board meeting rooms, and social gatherings all around the world, the likes of which neither you nor I will ever experience, they are swapping stories about how to buy and store gold because rich, smart people know the long history of paper money.

Paper money, issued by government fiat and backed by nothing other than confidence in the issuing government to act responsibly, has never endured. Governments always abuse this power and to think that it will be different this time is not only not very smart, it is naive.

5. The central bank does not fear inflation

The single most important reason to fear inflation is that the Federal Reserve and its minions of economists, accountants, and ne'er do wells do not fear it.

Never before have there been so many signs of impending financial calamity that have been missed by so many central bankers, economists, and policy makers around the world that there is absolutely no reason to think that they will be any better able to spot early signs of rip-roaring inflation than they were able to spot signs of a stock market bubble, a credit bubble, or a housing bubble.

In fact, even if there are indications of monstrous price increases on the horizon, the Federal Reserve and others will likely embrace the arrival of rising prices since what they really fear is de-flation. On this side of the Atlantic, they are determined to avoid a repeat of the 1930s when a sound money system had a completely different set of dynamics and they are loathe to do anything substantive to combat inflation until they are sure that they have vanquished their nemesis - de-flation.

Sure, they'll keep talking about "exit strategies" and how to "remove the accommodation" that has been provided over the last year or so in the form of trillions of newly created dollars, but they don't really mean it.

In the next few years we'll be creating a whole new chapter of economic history, one where inflation will play a central role. When the historians look back at 2009 they'll wonder, "Why wasn't anyone worried about inflation back then? When they could have done something about?"

Spitzer: Banks made a "bloody fortune"

2009-07-14T09:50:00.000-07:00

Former New York Governor Elliot Spitzer was on Bloomberg earlier today talking about earnings at Goldman Sachs and wondering what it means for the broader economy.

Click to play in a new window.

Spitzer asks, "If all they're doing is going back to proprietary trading - buying bonds and selling them in this volatility ... if that's all they're doing, then policymakers need to say ... this isn't going to create jobs ... Their job should be, from a macroeconomic perspective, to raise capital and put it into those sectors that create jobs. If they're not getting that done, then why are we supporting them the way we have been?"

Goldman's knock-out Q2 earnings

2009-07-14T08:49:00.000-07:00

Some thought was given to commenting on Goldman Sachs' superb performance during the second quarter, announced a few hours ago in what some are now heralding as a return to the good 'ol days of big Wall Street profits and a resumption of the trend whereby the nation's brightest college grads seek fame and fortune by shuffling money from one dark pool to another, but Jim Kunstler put it much better in this commentary from yesterday.

The cat coming out of the bag this week -- a frazzled, flaming, rabid, death-dealing cat -- is the news that Goldman Sachs will announce impressive second-quarter profits, and set aside $18 billion or so for employee bonuses averaging $600,000 per head (though, of course, not evenly distributed among them). There probably are not fifty-three people in the USA who can explain how this development figures in with last fall's bailout gift from the US treasury, or the $13 billion GS received on the backside of US gift payments to the failed AIG insurance company, plus the reams of necrotic securitized debt paper rotting in the back of the GS vaults. This is a company playing with the fire of world history.

It brings back the question, which has loomed dimly at the margins of America's collective consciousness, as to whether we can get through the long emergency ahead without going through a wringer of domestic political convulsion. At this rate, sooner or later, anything identified with wealth could become a target for the wrath of the unemployed and foreclosed. The first rock that flies through an East Hampton window, or the first firebomb tossed into the lobby of Goldman Sachs Manhattan headquarters could ignite a chain of events that shoves all economic policy out of the political arena and quickly divides everyone at the center of power into armies out for blood.

What the nation -- including President Obama -- can't seem to get through its head is that the USA has entered a period of epochal economic contraction.

There's more on electric cars and other other energy issues - the image of the Goldman Sachs cat coming out of the bag in that first paragraph is a tough one to shake...

Retail sales rise on autos, gasoline

2009-07-14T07:02:00.000-07:00

The Census Bureau reported that sharply higher gasoline prices and improved automobile sales pushed retail sales 0.6 percent higher in June, up from a 0.4 percent increase in May, the best reading on the broadest measure of consumer spending in five months.
Excluding automobiles and gasoline, however, sales declined for the fourth straight month in yet one more reminder that this sector remains weak, cautious consumers continuing to reduce discretionary purchases and favoring essentials such as food and fuel.

Gasoline station sales soared 5.0 percent in June after a similar increase in May, during which time the cost of unleaded gasoline increased from just above $2.00 a gallon to a high of $2.69 a gallon two weeks ago. From year ago levels, when the price at the pump was over $4 a gallon, gasoline station sales are now down 31.6 percent.

As has been the case since the middle of the decade, this volatile component of the retail sales data has an outsized impact on the headline number, often producing misleading results.

Sales at auto dealerships and parts stores rose 2.3 percent last month, the biggest increase since January, however, this comes after dramatically lower sales earlier in the year, overall auto sales still down more than 15 percent from this time last year. Both Chrysler and General Motors have experienced declines of two to three times this amount after entering and exiting bankruptcy.

After sales at building material and garden equipment stores posted a 0.4 percent rebound in May, the first monthly increase in 11 months, the long-term trend reasserted itself in June and sales declined 0.9 percent.
Business at such well-known stores as Lowes and Home Depot is now down 13.0 percent from a year ago with little hope for a major rebound as the nation's housing market continues to search for a bottom.

Tuesday morning links

2009-07-14T06:00:00.000-07:00

TOP STORIES
• Goldman Reports Big Profit, Beating Forecasts - NY Times
• Oil's Puzzling Spring Surge Reignites Debate About Speculators - Wash. Post
• CIT Rises on ‘Active’ Talks for U.S. Aid Before Debt Maturity - Bloomberg
• Don't Buy Brown and Sarkozy's Oil 'Speculations' - Real Clear Markets
• Lingering questions Wall Street needs to answer - MarketWatch
• Big banks try to extend winning streak - CNN/Money
• Options dwindle for cashing California IOUs - AP
• Wobble Time - Kunstler, CFN

Get these links delivered to your inbox every day.

MARKETS/INVESTING
• Crude futures rise, rebounding after recent declines - MarketWatch
• Rising gold-gold stocks ratio and what it means? - Commodity Online
• Speculators leave oil market as regulator mulls crackdown - MarketWatch
• U.S. banks still dominate COMEX gold, silver shorts - Stockhouse
• Are your retirement assumptions realistic? - CNN/Money
• “Getting, Keeping, Losing!” - Saut, Raymond James

ECONOMY
• Retail sales rose 0.6 percent in June - Reuters
• Producer Prices Rose in June as Gasoline Surged - Bloomberg
• Stimulus spending finally starts to trickle down - USA Today
• Here comes the recovery. Honest. - CNN/Money
• Debt and Deflation - Investor Insight

INTERNATIONAL
• Euro industry output down 17 pct in May - AP
• China Needs to Keep Reining in Loans, Researcher Say - Bloomberg
• Trichet: Why the ECB Isn’t Acting Like the Fed - WSJ Economics Blog
• Mexico Faces ‘Unsustainable’ Gap, Morgan Stanley Says - Bloomberg
• As China hoards, concern grows about recovery - Globe Investor
• DPJ’s Nakagawa Says Japan Should Diversify Reserves - Bloomberg
• Medvedev given first coin of future supranational currency - Ria Novasti
• China Casts an Acquisitive Eye on U.S. Assets - Time

HOUSING
• U.S. mulling mortgage aid for unemployed - Reuters
• Assessor: Taxes can rise when home values fall - O.C. Register
• Best Places to Live, 2009 Edition - CNN/Money
• The Billyburg Bust - New York Magazine

FED/TREASURY/BANKING
• US budget deficit tops $1t for 1st time - ChinaDaily
• Treasuries Fall as Rally in Asia Stocks Erodes Demand for Debt - Bloomberg
• U.S. Considers Rescue of Major Small-Business Lender - Wash. Post
• Fed Independence or Fed Secrecy? - Texas Straight Talk

INTERESTING
• Madoff on his way to the slammer - CNN/Money
• Even in Downturn, a London Banker’s Party Goes On - Dealbook
• BusinessWeek won't be last big title up for sale - MarketWatch
• L.A. to pick up its tab for Jackson memorial, mayor says - LA Times

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