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Goldman's Roadmap Of The Progressive Economic Deterioration
Like a rabid bulldog that refuses to let go, Goldman's Ed McKelvey has bitten on the fact that the US economy continues to deteriorate, despite the occasional data point which the feedback loopers latch on to, only to find out the data was either manipulated or "estimated", and provides a "roadmap" for how the ongoing depression will manifest itself over the next two quarters. As his economic team has been more correct than all others, investors will be paying far more attention to his estimates, than those of a now ridiculous David Greenlaw of Morgan Stanley, who after downgrading the economy three weeks ago, upgraded Q3 GDP from 2.1% to 2.4%. High Frequency Forecast adjustments anyone? According to McKevley the ongoing weakness in the economy will manifest itself along these five key verticals: consumer spending, housing start weakness, industrial activity, ongoing labor market deterioration, and deflation. Of course, this should be sufficient to get bizarro stocks higher by a few percent today. Then again, nobody gives a rat's ass what stocks do anymore.
From Goldman Sachs:
Despite the fact that our US outlook has been well below consensus, most indicators have surprised us to the downside over the past three months. In this comment, we summarize those results relative to our early June “road map” and extend this road map into early 2011.
The list of weaker-than-expected indicators is extensive, covering consumer spending except auto sales, confidence, housing activity, durable goods orders, payrolls, claims, and the all-items CPI. In fact, only industrial output and the Institute for Supply Management’s (ISM’s) manufacturing index surprised us significantly to the strong side, though the unemployment rate and core inflation were also firmer than expected (i.e., lower for unemployment).
Looking ahead to the fourth quarter of 2010 and the first quarter of 2011, we expect: (1) sluggish consumer spending, (2) rebounds in starts and sales from post-tax-credit paybacks (but further declines in construction outlays), (3) a stall in industrial activity, (4) renewed (but modest) labor market deterioration, and (5) a slight slowing in core inflation.
Three months ago we issued a road map for the slowdown in US growth that we anticipated for the second half of 2010. As has become our custom, we evaluate the progress to date, and are extending the road map into early 2011. With the slowdown already in place, the revised road map becomes one that we think will be consistent with a sluggish 1½% annualized growth rate.
Despite the fact that our US outlook three months ago was well below the “consensus” view, most indicators surprised us to the downside. In particular, reports on housing activity, consumer spending on items other than motor vehicles, and consumer confidence came in well below the levels we regarded as consistent with our forecast for real GDP growth to slow from a 3% annual rate in the first half of 2010 to a 1½% rate in the second half; data on initial claims, payrolls, and durable goods were also weaker than we expected. Upside surprises were confined mainly to industrial production and the Institute for Supply Management’s (ISM’s) manufacturing index; in this latter case the jury is still out, as our milepost was for the ISM index to fall below 55 in the fourth quarter. Core inflation was also firmer than we expected. On balance, these results are consistent with the fact that real GDP growth was weaker in the second quarter than we then expected and could still have downside risk in the current quarter despite this morning’s better-than-expected trade balance. Meanwhile, about a month ago we marked up our core inflation forecast modestly, reflecting the higher-than-expected results and upward revisions to data stretching back much farther.
Looking ahead, we envision a road map for the fourth quarter of 2010 and the first quarter of 2011 with the following landscape:
1. Very slow growth in consumer spending. For both quarters, we expect real consumer spending to increase only 1% at an annual rate, which implies gains of slightly less than 0.1% per month. Vehicle sales will probably rise somewhat faster, though we do not expect them to crack the 12-million annualized barrier on a sustained basis. In turn, the implication for (nominal) nonauto retail sales is for increases averaging 0.2% per month. Confidence indexes, which suffered unexpected setbacks in recent months, are apt to fluctuate around their latest readings.
2. Rebounds in housing starts and home sales from severe post-tax-credit paybacks, but to levels that remain depressed. The latest observations on home sales and, to a lesser extent, housing starts reflect an unexpectedly sharp payback following the expiration of the homebuyer tax credit. The levels to which sales have fallen are thus well below their ultimate settling points in our view. We therefore expect some improvement, albeit to sales rates that remain extremely low by longer-term historical standards – about 375,000 to 400,000 for the annual rate of new home sales and about 5 million for sales of existing units. Starts of single-family units should exhibit a similar, though less pronounced pattern. Reflecting the decline in starts and the weak fundamentals in other sectors of the construction industry, outlays for construction projects should trend lower throughout the period.
3. A stall in industrial activity. Although manufacturing output and the ISM’s index for that sector have surprised us to the upside in recent months, both our analysis of the inventory cycle (if it’s not over, then it’s moving into a phase of unintended and/or unsustainable accumulation) and key indicators (differences between indexes of new orders and inventories in various surveys, including the ISM’s) point to a significant deceleration in the near term. Specifically, we look for the ISM index to drop to 50 or below by the first quarter of 2011 and for industrial output to grind to a virtual halt on a similar timetable. As durable goods orders have already signaled in coming months, we expect little net change in such orders, with risks tilted to the downside.
4. Renewed labor market deterioration. As business firms seek to protect margins in an environment of sluggish growth, net hiring is apt to come close to stalling as well, putting the unemployment rate under renewed upward pressure. Specifically, we expect payroll gains to slow to 25,000 per month (ex Census workers) and the jobless rate to drift up to 10% over the next half year. Initial claims have never fallen to a rate that was consistent with payroll growth. That plus the presumption that control over headcount will focus on limited hiring rather than renewed firing suggests that claims will remain roughly where they have been during most of 2010.
5. A slight slowing in core inflation. As already noted, core inflation has been a bit higher than we anticipated in recent months, though the pattern is still one of gradual—if uneven--deceleration. We expect that to continue in coming months (quarters, years, and possibly decades), with monthly increases slipping once again below 0.1% on average in early 2011.
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Hey now, come on. I know 1 station and a bunch of anchors (very loosely put here) that give MANY rat's asses.
I have CNBS on background as I'm reading this and someone's clearly operating in a different reality.
Snowing yet?
I think Mandy should get her own show
Only one?
Excellent!!
Yee - ha!
Although in the 'old normal' this was called 'channel stuffing' to gussy up sales.
Ooops, the cat's out of the bag. If you recall there were quite a few misses on the revenue side of quarterly reporting even though the companies 'beat' the forecast EPS or proforma net income ... so the 3rd and 4th Qtrs are payback time.
The curtain is drawn back SLOWLY to avoid too many unpleasant and difficult adjustments (riots).
Just got back from Europe where a Greek friend told me government workers are still getting roughly the same size paycheques and the bars are still full - except that the government doesn't withhold your taxes anymore (!!!) so people will have to pay all that at year end. Another ouzo please - and let's hope the Germans pick up the tab.
I wish we could modify the tax code to have all taxpayers write a quarterly check to the IRS. I can picture the rage of the populace as they write their quarterly 5 - 6 digit check to sustain the extravagant lifestyle of greedy bureaucrats.
It's always amusing reading in a forum populated by people who buy and sell money for a comfortable living at worst talking about greedy government bureaucrats, the vast majority of whom gross less than $70,000 per year.
While we're redoing the tax code, how about we label everything in society paid for by tax money so people don't forget what that money is paying for? Or shut it down for a week. No driving on the highways, either.
It will be shut down... for days, weeks, months, permanently... eventually, you reach a tipping point in which the productive can no longer carry the rest on their coat tails. We were there long ago, but through credit creation, we've prolonged the inevitable exhaustion. What's left of Mr. Production is about to give out and his will is slowly seccumbing to the counter forces.
Also, you presume that private enterprise would be incapable of handling government jobs and substituting its services. I hate to break it to you, but anyone can put you on hold endlessly only to answer, transfer you to a half a dozen people before reaching someone who has any authority to do as you request, and then when the "manager" speaks, you had better get on your knees and pray because johnny jr. high now has a position of authority. Or maybe private enterprise can get paid to lean on shovels? Fight needless wars? Or be too chickenshit to directly tax us and call it a tax and, instead, convince us they are stealing money from our paychecks for our own good for "retirement"... that will never be repaid or, if so, with purposefully inflated currency? I'm pretty sure private enterprise can do at worst just as poorly...
You're trying to make a statement on the difference in salaries without making a threshold determination whether the governmental position should exist...
Next time you turn on your tap, flush your toilet, drive on a paved road, a plowed road or call 911, thank a greedy bureaucrat.
Do you want to rest your argument on the exception or the rule? Precarious position sir...
Hey, worked last time. The Germans are even bullying the poor Slovaks to kick in.
Volume chart anyone?
Progressive economic deterioration? Certainly better than expected...resume market bubble blowing as scheduled.
theinventory number is either as rediculous as the "jobs" report or chalk it up to the growing pig in the python
When is Eric King going to interview the CEO of Lululemon??
This stock has gone from $5 to $40 since the March 2009 lows.
Time to short!!!
Yeah, a stock with 40 P/E will do awesome in the new global slowdown.
You know who are not altering their spending patterns? Upper middle-class white women between the ages of 30-50, and that is Lululemon's core demographic. Most of my wife's friends and both of her sisters have housekeepers, gardeners, nannies, personal trainers - and the combined household income for all of them is less than $150K. Every month or so I have to listen from my wife about why we should get a housekeeper. She finds my reasoning "Every time I clean the house I'm paying myself" unsatisfying.
Trade her in for a penny pinching country gal. Or, if not, then convince her of the unsustainability of their actions... start picking at the seems of the other people... there will be examples of where they cannot pay for shit, I can assure you.
The other issue is that without menial repair and maintenance tasks, you lose track of your belongings and they begin to own you...
You could also try and convince her it's her wively duty... but by the time you met her, she was probably already trained otherwise.
Moody's taking off like a scalded dog.
Mark Zandi must be knee deep in booze and hookers these days for all of his rosy economic forecasts.
Another short!!
Moodys? Aren't they the devil?
The economy means nothing to Wallstreet and GS. The economy will die and the Stockmarket will go to Pluto. GS will make sure of that. They run the machine.
Notice how the word "Progressive" is always used to fool people into thinking something is much better than it really is...
See:
-Progressive Taxes
-Progressive Disease
-Progressive Politics (Today's "Liberals")
Point being, labeling things "Progressive" masks (or hides) the true destruction. Makes it feel like a softer, friendlier demise.
I would like to add progressive house, although that is actually something which makes it better. To understand what i mean:
http://www.youtube.com/watch?v=dAJAIxaV7a8
Sorta like "Conservative"
Folks:
As I said before, I am getting out of the stock market and into annuities whose growth (not loss) is based on the S&P.
But realisticially, in a depressed economy, isn't the stock market the last bubble of all bubbles?
If 1 % of the people own 50% of the stocks, they are going to do everything they can to protect their interests.
Don Levit
Yep protect their interests by printing more and more money ensuring their propping has to exponentially increase to even keep the same 'value', yea thats a real good idea thats always ended so well.
GS is just as culpable to this New World Scam as the usual suspects at the Fed and Team Obama.
If there was any justice in the this world, those deceitful pukes and their families would be trod out onto some misty morning manicured lawn and shot out of a cannon into a lake of piranha. Maybe there would be sharks with frick'in lasers on their heads too!
But as we all live and breath each day, there is no justice.
So never you mind.
Nobody is coming to help you.
on a related note, didn't GS used to be referred to as "giant squid" on this site? now their missives run on a daily basis. did TD negotiate forsaking the "squid" appellation for access to GS writings? I know I am being impertinent, but it concerns me...
Laser guided or laser 'equipped'?
I like your thinking here...
.
dupe
dupe (newbie)
Plug and Play:
The ECRI Weekly Leading Index rises to 122 (a four-week high) from 120.5, but it's still pointing to anything but an accelerating recovery. Its annualized growth rate rose to -10.1% from -10.2%.
...beating expectations. Woohoo!
Ny opinions on the ecri? They have been quiet to claim a recession but -10 seems to be a lock for it. Esp. When compared to other indicators pointing down.
Time to fade Barry's speech.
I just read where Barrys teleprompter is going to take repubs to task over the collapsed economy and tax cuts? Have we lurched into some alternate universe where utter insanity is just accepted as normal?
He just told us were in a recession. I thought they ended that. What give Barry?
Uh oh, back in recession today? Last week there was no recession, we'd 'turned the corner' or something...oh well all Is covered by 'its all Bushs and the republicans fault' while most all americans are in a Xanax stupor.
GS is scum...there may be few inside who are good ( or pretending), but overall they represent everything that is wrong with the system....
only their sacrifice will help us regain confidence in ourselves...and also help remind people that greed may not always be good.
Theres going to be sacrifice? How are we going to sacrifice them? Is this going to involve a stone alter and obsidian knifes? Will there be virgins? I think there should be virgins. They can drag the GS scum to the alter and do the half-time show. Will it be televised? Hey, this could be bigger than football.
Makes me think of this.
http://www.youtube.com/watch?v=VSwWy4E6I04
Chris Whalen says that 'The income foregone by individual and corporate savers and transferred to the banks is something closer to $600 billion annually or nearly $1 trillion in total.'
You mean that the failure to liquidate the insolvent banksters, to dip rich folks' bad speculative bets into the acid bath of price discovery, has liquidated a large part of the productive economy?
Seriously hoocoodanode?
Just for the heck of it asked Senor Google how many hits on the intertubes come up for say QSPE and Wells Fargo over the last three months... answer? ... 7! And one was from me per ZH blog on 04/09/2010! My oh my Alice. If 1.7 trillion or so worth less than 50 cents on the dollar can vanish down the randomwalkers' rabbithole without even a gasp verily anything is possible.
Mark Pittman is convulsing in his tomb.
At no time do their hands leave their arms folks; the middle class for their next trick as the 'vanishing bird' smashed at the bottom of the now empty cage.
Just for chuckles, prithee what are the comics saying today?
Deutsche dilutes itself 30% cause Basel might make 'em not count the secret capital?
Donaudampfschiffahrtsgesellschaftskapitän preparing for River Styx!
SEC reignites that 'investigation' into Lehman's fraudulent conveyance mimicry cause Dickie Fuld won't stop griping?
'The lights are growing dim Otto. I know a life of crime has led me to this sorry fate, and yet, I blame society. Society made me what I am.'
- Duke (Repo Man)
Motorcycle Cop: Whatcha got in the trunk?
J. Frank Parnell: Oh... You don't wanna look in there.
(Repo Man)
In the GM IPO the carservatorship's (patent still pending) total equity of $23.9 billion includes $30.2 billion of goodwill? From Goverment Motors to Goodwill Motors?
My God...it's full of cars.
Equities drift up 'cause, after levering, the Federales hedge fund at Eccles spins about 50 billion from straw to maw this past week?
I couldn't do that. Could you do that? Why can they do it? Who are those guys?
BLS pulls a number out of their tailbone (why even fabricate an effort eh? gosh just one hour a week constitutes part-time employment dontchaknow), half of all youngsters are unemployed, deceleration widespread, plutocracy warns that the arsonists may burn again if the waterall (tax cuts) are turned off, the repubs who chortled that when Obama was coming in that the subpoenas will fly (what? did somebody do something wrong?) are now threatening that, vuja de, if they get in the subpoenas will fly and Feddie Mac is introducing ... wait for it... minimal down payments, lower minimum credit stores, no appraisals and no mortgage insurance!!!
Have you left no sense of decency?
Electile dysfunction, Nancy Capitalists sans compunction, raconteuring with gumption.
Damn dirty apes..
"My God...it's full of cars." nice one.
So, taking "Goodwill" out of the picture means the IPO is actually $6.3B of debt????
HA, even if the numbers are reversed, it's an IPO of only $6.3B of "equity"????
Wowsers- maybe there are still some 85 year olds out there holding onto their paper GM stock certificates from the 60s & 70s waiting for the IPO with baited breath?
baited and switched (with a mean little cat o' nine)
dup
http://keynesianfailure.wordpress.com/2010/09/10/delayed-deleveraging-meets-the-keynesian-endpoint/
I finally get what they meant during the Great Depression when they talked about "The Forgotten Man".
We're just starting to get there, with tens of millions of chronically and hopelessly unemployed who's voice is never heard.
The banksters and politicians wish they'd just go ahead and die already and get the hell off the rolls so that they wouldn't have to actually make choices and decisions, or deviate from their oblivious path.
Hey just think people...enough pumping has been done to keep the panic away for at least a month. More back and front door liquidty injections from the govt.. Just gives me more time to stockpile. November might be interesting.
GS, although completely without class, simply does what every other U.S. business would do if they could, and that's the problem. Only when people get over the notion that they should be able to get something for nothing, will anything change.
this would be a buy signal
Thank u, i found this for a long time.
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