by ilene - February 14th, 2011 11:46 am
Excellent article comparing current situation with lead up to the Great Depression. Well worth reading. – Ilene
Courtesy of Jim Quinn at The Burning Platform
by ilene - September 7th, 2010 5:15 pm
Courtesy of The Pragmatic Capitalist
Whitney Tilson of T2 Partners says the global economy is set to “muddle through” as the excesses of the last few decades are worked off. Tilson detailed his macro outlook in his most recent investor letter for August. Tilson believes the worst of the credit crisis is behind us, however, the heavy lifting is not over yet. Tilson is very concerned about the macro risks, particularly the sovereign debt crisis in Europe and US housing. Tilson says the US housing
“We think we have gone through the most difficult economic period in the United States and the world since the Great Depression. We think the worldwide debt bubble — this was not just a US housing crisis or bubble, but a worldwide debt bubble — was unprecedented in the degree of depravity that took place, in the amount of leverage that built up in the system all over the world, and we’re very skeptical that we have somehow successfully managed our way through the aftermath of that bubble and that everything is rosy now.
We think the aftermath of this bubble will be with us for many years and that will continue to cause disruptions and turmoil in various markets. The sovereign debt crisis in Europe is a good example of that just in the past few months; we think the US housing market is already in a double dip right now, though because there is a lag in the data, most people haven’t yet realized it. We don’t think it’s going to be anything like the first dip, which really took world economy over a cliff, but there are 7 million people not paying their mortgages right now and we have not resolved that problem and that’s going to continue to be a headwind for our financial system. There are probably six or eight major risk factors, two of which are the sovereign debt issues and the US housing market. These make us very nervous and we don’t know how it’s going to play out (and we’re skeptical that anyone knows how it’s going to play out), so in light of these major problems, we think it’s wise to be prudent.”
by ilene - September 6th, 2010 4:10 pm
Courtesy of Mish
It’s Labor Day. The markets are closed. Those working for government, banks, schools etc have the day off. All totaled, 17.3 million citizens do not have a job today nor a job they can return to on Tuesday. Another 8.9 million will not work as many hours as they would like, this week, next week, or the week after that.
How NOT to End the Great Recession
In a New York Times Op-Ed, Robert B. Reich, a secretary of labor in the Clinton administration, and professor of public policy at the University of California, Berkeley comes to all the wrong conclusions about where we are, how we got here, and what to do about it. (Robert Reich’s "The Real Lesson of Labor Day" here.)
Please consider How to End the Great Recession
Reich: THIS promises to be the worst Labor Day in the memory of most Americans. Organized labor is down to about 7 percent of the private work force. Members of non-organized labor — most of the rest of us — are unemployed, underemployed or underwater.
Mish Comment: When organized labor is at 0%, both public and private, we will be on our way to prosperity. Organized labor in conjunction with piss poor management bankrupted GM and countless other manufacturing companies. Now, public unions, in cooperation with corrupt politicians have bankrupted countless cities and states.
Reich: The Labor Department reported on Friday that just 67,000 new private-sector jobs were created in August, while at least 125,000 are needed to keep up with the growth of the potential work force.
The national economy isn’t escaping the gravitational pull of the Great Recession. None of the standard booster rockets are working: near-zero short-term interest rates from the Fed, almost record-low borrowing costs in the bond market, a giant stimulus package and tax credits for small businesses that hire the long-term unemployed have all failed to do enough.
That’s because the real problem has to do with the structure of the economy, not the business cycle. No booster rocket can work unless consumers are able, at some point, to keep the economy moving on their own. But consumers no longer have the purchasing power to buy the goods
by ilene - September 5th, 2010 2:45 am
Courtesy of Robert Reich
Welcome to the worst Labor Day in the memory of most Americans. Organized labor is down to about 7 percent of the private work force. Members of non-organized labor — most of the rest of us — are unemployed, underemployed or underwater. The Labor Department reported on Friday that just 67,000 new private-sector jobs were created in August, which, when added to the loss of public-sector (mostly temporary Census worker jobs) resulted in a net loss of over 50,000 jobs for the month. But at least 125,000 net new jobs are needed to keep up with the growth of the potential work force.
Face it: The national economy isn’t escaping the gravitational pull of the Great Recession. None of the standard booster rockets are working. Near-zero short-term interest rates from the Fed, almost record-low borrowing costs in the bond market, a giant stimulus package, along with tax credits for small businesses that hire the long-term unemployed have all failed to do enough.
That’s because the real problem has to do with the structure of the economy, not the business cycle. No booster rocket can work unless consumers are able, at some point, to keep the economy moving on their own. But consumers no longer have the purchasing power to buy the goods and services they produce as workers; for some time now, their means haven’t kept up with what the growing economy could and should have been able to provide them.
1. The Origin of the Crisis
This crisis began decades ago when a new wave of technology — things like satellite communications, container ships, computers and eventually the Internet — made it cheaper for American employers to use low-wage labor abroad or labor-replacing software here at home than to continue paying the typical worker a middle-class wage. Even though the American economy kept growing, hourly wages flattened. The median male worker earns less today, adjusted for inflation, than he did 30 years ago.
But for years American families kept spending as if their incomes were keeping pace with overall economic growth. And their spending fueled continued growth. How did families manage this trick? First, women streamed into the paid work force. By the late 1990s, more than 60 percent of mothers with young children worked outside the home (in 1966,…
by ilene - September 3rd, 2010 4:30 pm
Courtesy of Charles Hugh Smith, Of Two Minds
Nobody knows the future, so the best we can do is strive for an open mind and flexibility in our thinking and responses.
In 1904, the "fact-based" consensus was that rising prosperity would stretch into the future as far as imagination allowed. The prosperity was so widespread that war, it seemed, had been abolished as bad for business.
In 1904, Imperial Tsarist Russia, though suffering from the usual spot of bother now and again, was stable and enduring. In 1904, Great Britain viewed France as its continental rival.
Ten years later, advanced, peaceful, hopeful Europe stumbled into the Great War, and three years into that war Tsarist Russia fell to revolution.
In 1928, permanent prosperity was again the consensus. Two years later, that hope was reduced to ashes.
In 1930, Germany and Japan were economically troubled, as were the other great nations of the world, but neither were seen as threatening. Less than ten years later, the two nations had declared war on the world.
In 1980, fear of a sudden massive Soviet tank attack on West Germany sparked a series of "what if" books and a push for short-range nuclear-armed missiles in Germany--a U.S. plan which galvanized the Western European peace movement.
Ten years later, the Soviet Empire had crumbled into dust and abandoned gulags.
In 1975, scholars and pundits confidently declared that the "cult of Mao" which fueled China’s Culutral Revolution was so entrenched, so pervasive and so central to China’s Communist regime that would outlast Mao the mortal and thus into the next century.
Three years later, Mao was dead and the Gang of Four lost power. Ten years after 1975, when the Cult of Mao was universally viewed as a permanent feature of China, that nation was four years into the state-controlled, limited-capitalist model of engaging the world that created its present-day pre-eminence.
I think you see my point: consensus predictions of what the future holds are generally wrong. The consensus in the U.S. about the world of 2020 is that it won’t be much different from the world of 2010. All the actuarial tables of Social Security run to 2040 and beyond, as if the road ahead will be an extension of the past sixty years of American global dominance and credit-based prosperity.
by ilene - August 14th, 2010 1:15 am
Courtesy of Rick Davis at Consumer Metrics Institute
We have mentioned before that our year-over-year indexes are effected by both the current level of consumer activities and the year-ago levels of that same activity. Even if current levels remain dead flat, changing levels from the prior year can impact the year-over-year numbers. The bottom line, however, is that almost all economic measures ultimately use prior levels as reference points, and it is the annualized growth rates that we actually remember from the GDP reports.
Nothing demonstrates this phenomenon more clearly than our Automotive Index, which experienced a tremendous upward spike at this time last year from the ‘cash for clunkers’ stimulus package. Looking back at the chart for that index from a couple of months ago the spike is glaringly obvious:
Now fast forward to the current chart, where the upward ‘blip’ from the consumer oriented stimulus has inexorably shifted to the left and is half off the chart:
There are several conclusions that can be drawn from the above chart:
- Some portion of the recent drop in our Domestic Autos Sub-Index is the result of current consumer demand comparing poorly year-over-year to the level of stimulated demand during the year-ago period.
- The historical portions of the chart clearly show that a consumer oriented stimulus can have a measurable effect on select sectors of the economy.
But, at least for domestic autos during this recovery:
Without stimulus, significantly increased consumer demand has not been sustained. We see no signs of ‘organic’ or structural recovery yet in the either of two key durable goods sectors: Automotive and Housing:
The above chart is for the demand for new loans for newly acquired residential property (i.e., it excludes refinancing activities — which have remained strong). Again the impact of consumer oriented stimuli can be seen in the historical left side of the chart, but the right side tells us a great deal about whether the stimuli actually primed the Housing pump, or merely moved sales forward several quarters. If Housing is to become a real engine of economic growth again, this chart would have to move back into substantially positive territory and stay there without benefit of congressional give-aways.
by ilene - August 11th, 2010 2:33 pm
Courtesy of Tyler Durden
Nassim Taleb is out making waves once again, this time at the Discovery Invest Leadership Summit in Johannesburg today, where he said he was “betting on the collapse of government bonds” and that investors should avoid stocks. To be sure this is not a new position for Nassim, who in February had the same message, when he said that "every single human being" should be short U.S. treasuries. Indeed since then bonds have gone up in a straight line as the bond bubble has grown to record levels, and with the ongoing help of the Fed, is it any wonder. The only question is when will this last bubble also pop.
More from Bloomberg:
“I’m very pessimistic,” he said at the . “By staying in cash or hedging against inflation, you won’t regret it in two years.”
Treasuries have rallied amid speculation the global economic recovery is faltering, driving yields on two-year notes to a record low of 0.4892 percent today. The Federal Reserve yesterday reversed plans to exit from monetary stimulus and decided to keep its bond holdings level to support an economic recovery it described as weaker than anticipated. The Standard & Poor’s 500 Index retreated 16 percent between April 23 and July 2, the biggest slump during the bull market.
The financial system is riskier that it was than before the 2008 crisis that led the U.S. economy to the worst contraction since the Great Depression, Taleb said.
Will the Black Swan author be correct? Perhaps (and given enough time, certainly), although as virtually everyone is expecting a dire outcome in both the public and private sector, courtesy of the untenable balance sheet, the surprise will most certainly have to come from some other place. And with even The Atlantic now posting cover stories on the Iran war spark, it is increasingly less likely that geopolitics will be the issue. Is every possible dire outcome priced in? If so, Taleb should focus his formidable intellect on answering just what the market is missing.
by ilene - August 11th, 2010 1:49 pm
Excellent analysis by Jesse covering a number of items, including Robert Prechter’s successes and failures, the contraction in credit, gold, the Federal Reserve, the financial elite, and the sad truth that America’s dominant industry is financial fraud. - Ilene
Courtesy of JESSE’S CAFÉ AMÉRICAIN
First, Richard Russell does not ‘slam’ Prechter because he is a gentleman and doesn’t really ‘slam’ anyone. Fights between pundits can be fun in a voyeuristic way, but they are largely unproductive and generally used as a means of gaining attention, and providing distraction from what really matters, in the manner of panem et circenses. And sometimes people use provocative headlines to garner interest as well, in the manner of the New York Post and Daily News.
What Russell is saying is that Prechter is wrong in his interpretation of how deflation will play out, and what the endgame will look like. And he is saying almost the same thing that others, including Eric Janszen and myself, have been saying for quite some time, but in a slightly different ways.
Second, what Bob Prechter does not realize is that a contraction in credit does not imply a one for one decrease in ‘money’ just as an increase in credit these days does not result in a one for one increase in money. That is because credit is not money, it is the potential for money. Why more people don’t get that is beyond me. They trumpet the diminishing returns of money production for each marginal dollar of credit, but they don’t admit that this credit is vaporous, and as it dissipates it does not reduce money supply one for one either.
Third, and probably most importantly of all, even as the credit contracts, and the money supply contracts at some lesser rate as show in the money supply figures, the ‘basis of value’ of the money is also contracting. Since the US dollar is not based on gold, we have to look at what is providing the basis of its value. And what are those things, and what is happening to THEIR value.
And finally, there is a huge overhang of eurodollars out there, that are largely parked in Treasuries mostly of a moderate duration of three to ten years. By buying the Three and Ten year notes the Fed is ‘monetizing them’ and taking…
Albert Edwards Explains How The Leading Indicator Is Already Back Into Recession Territory And Why The Japan “Ice Age” Is Coming
by ilene - August 8th, 2010 6:54 pm
Albert Edwards Explains How The Leading Indicator Is Already Back Into Recession Territory And Why The Japan "Ice Age" Is Coming
Courtesy of Tyler Durden
Albert Edwards reverts to his favorite economic concept, the "Ice Age" in his latest commentary piece, presenting another piece in the puzzle of similarities between the Japanese experience and that which the US is currently going through. A.E. boldly goes where Goldman only recently has dared to tread, by claiming that he expects negative GDP – not in 2011, but by the end of this year. After all, if one looks beneath the headlines of even the current data set, it is not only the ECRI, but the US Coference Board’s Leading Index, Albert explains, that confirms that we are already in a recesion.
If one takes out the benefit of the steep yield curve as an input to the Leading Indicator metric, and a curve inversion physically impossible due to ZIRP and the zero bound already reaching out as far out as the 2 Year point (it appears the 2 Year may break below 0.5% this week), the result indicates that the US economy is already firmly in recession territory. Edwards explains further: "one of the key components for Conference Board leading indicator is the shape of the yield curve (10y-Fed Funds). This has been regularly adding 0.3-0.4% per month to the overall indicator, which is now falling mom! The simple fact is that with Fed Funds at zero, it is totally ridiculous to suggest there is any information content in the steep yield curve, which will now never predict a recession. Without this yield curve nonsense this key lead indicator is already predicting a recession."
All too obvious double dip aside, Edwards focuses on the disconnect between bonds and stocks, and synthesizes it as follows: "investors are finally accepting that what is going on in the West is indeed very similar to Japan a decade ago. For years my attempts to draw this parallel have been met with hoots of derision but finally the penny is dropping." The primary disconnect in asset classes as the Ice Age unravels, for those familiar with Edwards work, is the increasing shift away from stocks and into bonds, probably best summarized by the chart below comparing global bond and equity yields – note the increasing decoupling. This is prefaced as follows:…
by ilene - August 6th, 2010 4:10 pm
Courtesy of MIKE WHITNEY at CounterPunch
The economy has gone from bad to worse. On Friday the Commerce Department reported that GDP had slipped from 3.7% to 2.4% in one quarter. Now that depleted stockpiles have been rebuilt and fiscal stimulus is running out, activity will continue to sputter increasing the likelihood of a double dip recession. Consumer credit and spending have taken a sharp downturn and data released on Tuesday show that the personal savings rate has soared to 6.4%. Mushrooming savings indicate that household deleveraging is ongoing which will reduce spending and further exacerbate the second-half slowdown. The jobs situation is equally grim; 8 million jobs have been lost since the beginning of the recession, but policymakers on Capital Hill and at the Fed refuse to initiate government programs or provide funding that will put the country back to work. Long-term "structural" unemployment is here to stay.
The stock market has continued its highwire act due to corporate earnings reports that surprised to the upside. 75% of S&P companies beat analysts estimates which helped send shares higher on low volume. Corporate profits increased but revenues fell; companies laid off workers and trimmed expenses to fatten the bottom line. Profitability has been maintained even though the overall size of the pie has shrunk. Stocks rallied on what is essentially bad news.
This is from ABC News:
"Consumer confidence matched its low for the year this week, with the ABC News Consumer Comfort Index extending a steep 9-point, six-week drop from what had been its 2010 high….The weekly index, based on Americans’ views of the national economy, the buying climate and their personal finances, stands at -50 on its scale of +100 to -100, just 4 points from its lowest on record in nearly 25 years of weekly polls…It’s in effect the death zone for consumer sentiment."
Consumer confidence has plunged due to persistent high unemployment, flat-lining personal incomes, and falling home prices. Ordinary working people do not care about the budget deficits; that’s a myth propagated by the right wing think tanks. They care about jobs, wages, and providing for their families. Congress’s unwillingness to address the problems that face the middle class has led to an erosion of confidence in government. This is from the Wall Street Journal:
"The lackluster job market continued to weigh on confidence. The share of