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More Than Just Fluff!
Submitted by Leo Kolivakis, publisher of Pension Pulse.
What
a hockey game between Team Canada and Switzerland. The Swiss really
played well and it went into overtime, and then a shootout where our
star, Sidney Crosby, scored the game winner.
If
we play like that against the Russians, they're going to have us for
lunch. Hockey is a game of momentum and when the tide shifts, you could
find yourself in an awkward spot very quickly.
This brings me to tonight's topic. At 4:30 this afternoon, I received the now famous release from the Federal Reserve:
The
Federal Reserve Board on Thursday announced that in light of continued
improvement in financial market conditions it had unanimously approved
several modifications to the terms of its discount window lending
programs.
Like the closure of a number of extraordinary credit
programs earlier this month, these changes are intended as a further
normalization of the Federal Reserve's lending facilities. The
modifications are not expected to lead to tighter financial conditions
for households and businesses and do not signal any change in the
outlook for the economy or for monetary policy, which remains about as
it was at the January meeting of the Federal Open Market Committee
(FOMC). At that meeting, the Committee left its target range for the
federal funds rate at 0 to 1/4 percent and said it anticipates that
economic conditions are likely to warrant exceptionally low levels of
the federal funds rate for an extended period.
The
changes to the discount window facilities include Board approval of
requests by the boards of directors of the 12 Federal Reserve Banks to
increase the primary credit rate (generally referred to as the discount
rate) from 1/2 percent to 3/4 percent. This action is effective on
February 19.
In addition, the Board announced
that, effective on March 18, the typical maximum maturity for primary
credit loans will be shortened to overnight. Primary credit is provided
by Reserve Banks on a fully secured basis to depository institutions
that are in generally sound condition as a backup source of funds.
Finally, the Board announced that it had raised the minimum bid rate
for the Term Auction Facility (TAF) by 1/4 percentage point to 1/2
percent. The final TAF auction will be on March 8, 2010.
Easing the terms of primary credit was one of the Federal Reserve's
first responses to the financial crisis. On August 17, 2007, the
Federal Reserve reduced the spread of the primary credit rate over the
FOMC's target for the federal funds rate to 1/2 percentage point, from
1 percentage point, and lengthened the typical maximum maturity from
overnight to 30 days. On December 12, 2007, the Federal Reserve created
the TAF to further improve the access of depository institutions to
term funding. On March 16, 2008, the Federal Reserve lowered the spread
of the primary credit rate over the target federal funds rate to 1/4
percentage point and extended the maximum maturity of primary credit
loans to 90 days.
Subsequently, in response to improving
conditions in wholesale funding markets, on June 25, 2009, the Federal
Reserve initiated a gradual reduction in TAF auction sizes. As
announced on November 17, 2009, and implemented on January 14, 2010,
the Federal Reserve began the process of normalizing the terms on
primary credit by reducing the typical maximum maturity to 28 days.
The increase in the discount rate announced Thursday widens the spread
between the primary credit rate and the top of the FOMC's 0 to 1/4
percent target range for the federal funds rate to 1/2 percentage
point. The increase in the spread and reduction in maximum maturity
will encourage depository institutions to rely on private funding
markets for short-term credit and to use the Federal
Reserve's primary credit facility only as a backup source of funds. The
Federal Reserve will assess over time whether further increases in the
spread are appropriate in view of experience with the 1/2 percentage
point spread.
So why is the Fed removing
liquidity? What does this mean for the bond, stock, currency and
commodities markets? Everyone is wondering whether this the seismic
shift that will jolt markets?
Relax. All the Fed is doing so far
is removing excess liquidity that was in place in light of
extraordinary circumstances. The Fed did not do this to support the
greenback since the US dollar was already rallying prior to this move,
no doubt helped by the troubles in Europe.
To understand why the
Fed is beginning to tighten, all you have to do is look at the recovery
that is going on right now in the United States. First, the Conference Board Leading Economic Index (LEI) for the U.S. increased 0.3 percent in January, following a 1.2 percent gain in December, and a 1.1 percent rise in November:
Says
Ataman Ozyildirim, Economist at The Conference Board: "The U.S. LEI has
risen steadily for nearly a year, led by an improvement in financial
markets and a manufacturing upturn. Consumer expectations and housing
permits have also contributed to these gains over this period, but to a
lesser extent — especially in recent months. Current economic
conditions, as measured by The Conference Board Coincident Economic Index
(CEI), have also improved modestly since July 2009, helped by
strengthening industrial production, despite continued weakness in
employment."
Adds Ken Goldstein, Economist at The Conference
Board: "The cumulative change in the U.S. LEI over the past six months
has been a strong 9.8 percent, annualized. This signals continued
economic recovery at least through the spring."
Second, U.S. industrial production jumped 0.9% in January signaling an economic recovery:
Industrial
production in the U.S. climbed more than expected in January, marking a
sustained economic rebound for manufacturing, utilities and mining.Factories increased production of consumer goods and business equipment, highlighting advances in all major component indexes.
“Manufacturing
in general has looked good over the last several months,” said Russell
Price, senior economist with Ameriprise Financial Inc. in Detroit.
“Even though inventories remain tight, new orders continue to improve,
and the sector in general looks very positive.”The 0.9
percent increase follows a 0.7 percent gain in December, according to a
Federal Reserve report released Wednesday. Manufacturing rose 1
percent, while mining and utilities both climbed 0.7 percent.The increase beat expectations - economists polled by Bloomberg predicted a 0.7 percent jump.
The
capacity utilization rate, a measurement of industrial capacity and how
much of it is being used, rose 0.7 percentage points to 72.6 percent,
which is still well below its 80.6 percent average from 1972 to 2009.The
industrial production index, which is seasonally adjusted, is expressed
as a percentage of output relative to a base year. The current base
year is 2002 and equals 100. In January, the index was at 101.1,
meaning the economy has only just surpassed its level of industrial
production from almost eight years ago.January output was 0.9 percent above its year-earlier level of 100.1.
Industrial
production is a key determiner of the gross domestic product, and
therefore closely monitored by the Federal Reserve when setting
monetary policy.
And
it's not just manufacturing that's looking good. A couple of weeks ago,
Yanick Desnoyers, Assistant Chief Economist at the National Bank of
Canada, wrote that the U.S. recovery is more than just fluff. Importantly, I quote the following:
As
it turns out, surprisingly, real output in the service sector, the
heavy-weight component of the U.S. economy (66%), is no longer in
recovery mode but clearly already in expansion mode! As Chart 3 clearly
shows, in the United States, real activity in this sector is already up
1.7% relative to its level at onset of recession....
The
overall picture, then, is relatively simple. Service output is
expanding, activity in the goods sector is recovering rapidly, and
construction remains the weak link by far. However, this last sector accounts for less than 10% of activity.
In that weekly, Yanick also mentioned that U.S. monetary policy is too accommodating:
The
Federal Reserve’s real key rate stands at about -200 basis points. If
we factor in the expansion of the central bank’s balance sheet, we sink
to about -500 basis points, the same depth in the accommodating zone as
in 1975 (blue star in Chart 14). And everyone remembers what happened
next back then. Inflation literally ran away, forcing the Federal
Reserve to raise its key rate to a record high, which in turn caused
the recession of 1982.
On the basis of our measure of the
output gap, which is much closer to the situation that prevailed during
the 1991 recession, not because the downturn was less severe this time
but rather because of the unusual occurrence of capacity destruction in
the economy, monetary policy in the United States seems overly
accommodating right now.
Under
the circumstances, the recovery under way in the U.S. economy should
spur the Federal Reserve to action early in the second half of 2010,
that is, sometime around August.
Other forecasters
predicting no rate hikes before 2011 are assuming that potential GDP
was not affected during the crisis and that its growth will remain
strong going forward. With credit set to flow less freely in future, we
do not regard this as the most likely of assumptions.
Last week, Marco Lettieri , another economist at the National Bank of Canada, followed up with a weekly stating that U.S. inflation dynamics suggest policy is too accommodative and concluded by stating:
Though
we do not expect inflation to escalate out of control, it would be wise
to be forward looking and keep inflation expectations in check. The
current environment no longer warrants zero-percent interest rates to
allow the economy to grow and labour conditions to improve. In our
opinion, inflation may surprise on the upside, especially as the U.S.
economy tones up through the first half of 2010, revitalized by
increased business investment and an improving labour market. We
continue to expect the FOMC to begin normalizing interest rates at its
meeting of August 2010.
You can keep up-to-date with the latest from the National Bank of Canada's economic research team by going to their site. In my opinion, they are among the best economists out there, always looking forward, not backward.
So
while the markets might react negatively to the Fed's latest move,
please keep in mind that policy is still way too accommodating. This
means that dips in stocks will continue to be bought and there is still
a strong likelihood that speculative bubbles will percolate up in
certain sectors (my money is in alternative energy).
Forget what the bears and skeptics claim. The U.S. recovery is more than just fluff.
»
Leo,
You should stick to pensions. You seem to have good arguments for pensions but your economic data is fluff. You're not sleuthing enough.
Someone sent me a chart this week, trying to convince me there was no real estate bubble in Canada because over the last 25 years mortgage loan growth has been over 9% and over the last 10 years it has ONLY been 7.4%.
I went to get the Statcan demographics data and stumped him. Over the last decade the number of people 25-50 (usually 1st time buyers and upgrader) has declined by something like 500K and the number of people over 50-75 (usually downsizers)has increased by more than 2 million. Thus, logically, real estate loans should have declined over the last decade since more people should have been paying them off than taking them on. To the contrary something like 75-80% of loanshave been taken on by over 50 year olds. Hmmmm.
To top that off, many employees are now set to start contributing to their pension funds again. So let's say to the tune of 2000-5000K per year; that would mean maybe 1000 to 2500K less money to spend. Now if their 1.5% variable rate goes up to 4% on their 200K mortgage, that would also mean 6K less to spend for crap. For a total of maybe 7-8K less of diposable income. Multiply that by millions and you've got some weak consumer sales ahead.
Maybe you are right Leo, but it is not by regurgitating meaningless government data that you will convince us skeptics. Go kick some tires.
Moneta
I do believe I wrote about Canada's housing bubble last Friday.
I wish I knew where the jobs are going to come from to recover.
Manufacturing could get going again, I guess. Maybe the world needs more fighter aircraft (another 1050 gone today at Boeing) or heavy equipment. Unfortunately there is nothing that can't be made better and cheaper overseas.
What scares me is the 73% in the service industry. Financial services are flying, health care is not avoidable, but what about the rest? If manufacturing makes value (raw mats + labour + ingenuity), service really just divides that value around - can't create value in this sector can you? Rich guy works, makes money, pays gardener, financial planner, pool boy, restaurants, health club, car washer, renovator, etc. All is fine until we realize all of that can go away in a flash. There will always be rich people to pay for services, but will the middle class drop them completely? If you now realize you aren't retiring any time soon, then you probably cut your own grass, paint your own fence, do your own taxes and eat at home.
In Nov 2009 WalMart sold more food than all of the other grocers in North America combined. Since they are putting up new stores or converting old stores this trend will continue and get much worse. With Walmart's supply chain (few hops to product) and non-union labor they could drop 10% out of their prices and still make money. This would rock most of their competition into the ground.
Gap, Best Buy and most major retailers are really setup to sell from warehouses and drop the oh-so-important glitzy stores - lets call it Amazon'ization. Right now jeans on Gap.com are the same price as going into a giant pretty Gap store with 10 people running around them. A Best Buy store needs > $500,000 in sales each month for their typical 50,000sf store to break even. Obviously both are still pushing their brand (Khakis and royal blue signs), but tomorrow they could price down all their products at the web store, close 2000 stores (out of 3100) and on they go.
Maybe the great Green movement will save us all, except the fact that to 'be Green' means to reduce and reuse. Green is not an industry that can be financed, sold and milked. It basically means to reduce your standard of living - walk more/drive less, air-conditioning shut off, no sports cars, pool heater off, etc. Besides renewable energy products - solar, wind - there is no green product that will come out that the world will desperately need. Maybe the Volt will save us (lol) but every neighborhood will need a nuke plant to produce the electrical horsepower - a 300hp Yukon is 225kW ... your home is using 2kW - obviously you can't drive large vehicles electrically but you get the point.
Leo, let's talk about hockey instead.
Canada plays the US on Sunday. What's your bet? Canada will win by one goal is my prediction.
The Russians got beat by the Slovaks. Dark horse for this tourney?
Saw that. Hoping for a Canada-Russia finale. Tickets are already going for $2,500 a pop! Crazy but this is the best hockey you'll see so enjoy it while we have it.
Brutal....
Leo, I get you.
How much has your portfolio increased from March '09 because you were on the right side of the trade? With your unabashed optimism you would have been long since March and well into December. Nice profit. Take it now as long as you still can would be my advise.
Chinese Solars are your friend apparently. What about coal? The Chinese are putting more new coal plants online than anyone else and their supply for coal is running out. Solar is never going to be able to meet their demand for energy and the Chinese have no problem with pollution because there's no Green movement allowed. People could drop like flies from pollution and the government wouldn't give a shit.
It's a country under complete censorship and people would rather force themselves into eternal slavery than to default on a loan. End of the day though, the bad loans increase.
The UK debt problem is said to be even bigger than Greece. Nobody even talks about Portugal or Spain anymore because they're toast and the EU is in damage control mode.
I'm bullish on gold because I understand it. Gold has intrinsic value. Nothing else does. Maybe silver and platinum. When people start to riot, shelves are bare, unemployment hits 30% than I know where to store my wealth. It won't be a Chinese solar company I can tell you that much and it certainly won't be any bond or other government "promise" on paper.
You don't have to go to China to witness pollution. Just smell the 2 pack a day fresh air in LA; yet muti-millionaires still live there.
The globe will become a toxic dump before anything is done to fix pollution.
So LK is Canadian, heh? That explains alot, as Canada has been pumping like crazy, creating a housing bubble that is just as big as the one in the U.S. (read David Rosenberg).
No wonder LK feels flush and wonders what's wrong with all us Americans?
Leo, Leo, Leo. Another sheep following the sheep in front of him, off the cliff, onto the rocks, into the chute, to the slaughter house... Now just hold your head still while a central banker shoves this wand like device up your nose... You won't be able to feel a thing, at least before... zzzaaaaappppp......
leo, it is NEVER going back to what it was in 2006-2007
don't you get it yet????? you're pumping nothing that is fundamentally going to change the debt problem, the lack of job growth and income growth, and the millions of college grads every year looking for jobs
More than fluff?? You mean .... fluffer?
Sometimes I feel like the ZH crowd wants total destruction. After that, bulls away! I realize many of you are either unemployed or have dealt with some serious economic hardship. Toughest thing is to stay objective. Trust me, don't let your personal situation cloud your thinking. Cheers.
If this crisis has taught me something, that's the one. People are quick to let their own personal situation cloud their mind. It is all about I, me and myself. Cant expand beyond. If it is not true for them, then it is not true for the rest.
Nothing new but I did not suspect this happened at such a high level.
And then, others of us have niche businesses that are doing just fine despite the rec/depression, and long for nothing more than a return to the perceived prosperity of 3-5 years ago. Unfortunately I can't look at the current situation and honestly expect anything other than a continued deterioration. Sure, some finance guys in NYC are partying like it's 1999, but locally more businesses are closing, more people are getting laid off, government debt is growing to insurmountable levels, and pension claims are looking more like Enron than like future security. In fact, Enron is looking like a fairly transparent company in comparison to much of what I see today.
Crises happen in various ways. Some, like 9/11, supposedly come out of nowhere. (Never mind the federal prediction of such an attack years earlier.) Some grind slowly for decades, like glaciers - the social security/medicare/entitlement crisis that has been building since the programs were created. I think our current situation is a tsunami. The triggering quake was a few years ago, and now the wave is in deep open water where it's barely perceptible. But it will find the shore all too soon, and break with enormous destructive force.
Do I want this? NO! But do I expect it - sadly, yes.
Your silly leading indicators include in big measure stock market performance (pushed by special agents to these heights) and yield curve (manipulated by fed). What percentage of GDP were financials in, lets say 2007, now they're pumped up with taxpayers money and they show big rebound in profits. How long they will milk penniless people with all those fees, penalties, increased rates and so on? Services are expanding? Who services who? Oh, probably you're talking about unemployment counselling and retraining!
Leo, this is my first post here. Really you have to stop with this, there are sites that you could publish your opinions on that would be a better fit. I feel embarrassed for you and worse I feel embarrassed for zero-hedge. Come on man, let it go.
CS
Look theres Leo
http://www.youtube.com/watch?v=wcW_Ygs6hm0
AndyC
Yup, 5 months ago the house was in foreclosure, the Benz was hooked by the repo guy, I was + 90 on just about every bill I owed, I had given up on the search for a job and even the pet store came and took back Fu-Fu because I still owed them a grand. Then things changed, My neighbor Ben Berskanke lent me a hundred grand to invest in my Solar company that didn't really exist. I then made 3 payments on the house, I got the Benz back from the Dealer and even had them detail it before I picked it up, I paid some bills to keep the phone from ringing and Fu-Fu is sitting pretty on my lap. I even had 12 grand left so I invited 40 of my best friends over, all of which had no idea of my situation and we cooked Steaks and Lobster and drank Dom till the wee hours of the morning. Now that the money has dried up the house is about to get re-keyed again, the Benz has already been auctioned, the phone is ringing off the hook and I have to hide everytime I see my neighbor outside because I have no way to pay him back. Oh well it sure was nice the last few months to be able to strut around the neighborhood like a Tycoon and pretend I was somebody that I wasn't.
lol. that about sums it up.
Leo, Understand you must remain optimistic and am sorry to hear of your medical condition but the lower 48 is not in very good shape. We have a ineffective government (not just this one but for the last 20 years) who have no clue on how to get out of this mess apart from printing money and to give it to the greedy bankstas to gamble in the markets with.
We are quickly moving to a two class society just like our latin brothers in the South, sure there will be some middle class left to do the work and run the businesses that survive but everyone else will be either super rich or a welfare case.
I agree with BK, go to South Florida or any number of places in the U.S where the real unemployment rate is close to 17%. Crime has skyrocketed in Florida as can be expected.
BTW - Government jobs produce nothing for the economy.
Police Forces are being cut in massive numbers so crime naturally will increase. Vallejo Ca's force has been cut from 150 to 100 and another 15 are soon to be cut. Vallejo now has the highest crime rate in the bay area. Another good reason to own a gun and get proper training.
But Leo may be correct, just noticed an add on zh that informs me I can turn $15k into $3.5 million trading stocks.
And the class is Free! So our problem is solved.
Distribute $4.5T dollars to 300 million americans who can then trade stocks and turn that seed money into $4,500T dollars. Only problem is, how do we find a classroom big enough to hold 300 million people, one third of whom are obese? I smell buttcrack....
Sorry but you really need to get out more.
You can't have almost half your working force unemployed or under employed and expect anything to improve.
wall st and the bankers only exist to siphon as much money into their pockets as possible, only a imbecile would expect any real improvement there, so we are left with the question where is your imaginary recovery coming from??????
Pixiedust anyone...... Just another delusional dreamer
Corporations are flush with cash. There is another M&A boom on its way. That's tonight's topic. Cheer up folks, you Americans were living beyond your means for years. Reality bites, but you will come out of this recession in better shape (hopefully).
capital outlays have been declining over the past
year - i do not see any reports showing an increase
in either small or big business capital investment....
the cash is being held tightly for specific reasons...
the usa economy is not a place in which to invest it...
You mean physical shape? Oh, yes, there is no doubt we cutting on all those fattening things, they're most expensive.
With trillions upons trillions being printed by every nation in the G20, why WOULDN'T growth "appear" to be returning? Debase those currencies while you can so we can goose the S&P back to 1520 in nominal terms so the public gets sucked back in. Special...
We will officially double dip by the 3Q or 4Q this year - we will be in a depression soon.
But Leo, a fellow 'zip a dee doo dah' guy spies a fly in the ointment....
http://anonymousmonetarist.blogspot.com/2009/12/interview-with-james-grant.html
Real income less transfer payments is still falling, down by 0.4% after one quarter from our June trough, compared to a one-quarter increase of 1.3% for all previous postwar recessions. In the post-1945 era, real income less transfer payments has never declined in the first quarter of a recovery, although it did come close in what turned out to be a pretty fair recovery, that of 1975. In the cases of 1982, 1991, and 2001, through one quarter, growth in real wages and salaries (which includes employer contributions to retirement and Social Security, proprietors' income, rental income and interest and dividend income) was higher by 0.5%, 0.4% and 0.3%, respectively. Another series we like, manufacturing and trade sales, sends no clear signal about our cyclical progress or lack thereof.
Bank lending has fallen by 4.2% in the past five months. Loans and leases were flattish in the opening months of the recoveries from the recessions of 1981-1982, 1991 and 2001, but in no case was there weakness on the scale of today's. Also money supply is troubling. We have collected data back to 1959. Therefore, looking at recessions of 1961-vintage and after, we find that M-2 has risen by an average of 9.2% in the 12 months following a cycle trough. This time around, over the last four months, M-2 has fallen slightly. There is a risk too, that debt destruction, or de-leveraging, might get rolling again, crushing jobs and incomes as it proceeds. There has only been one sustained de-leveraging since the 1920s. From 1933 to the early 1950s, the debt-to-GDP ratio fell from around 260% to 130%. Yet, over, the same period, real GDP grew at an average compound average rate of 6.1%. That was a notably different world of course. Today, the ratio of total credit market debt to GDP weighs in at more than 370%. Any takers on the proposition that a massive new cycle of de-leveraging would form the credit backdrop for another 20 years of wonderful growth? We wouldn't bet that way.
A couple of problems with the LEI's is that they are heavily weighted towards recent market performance, and accomodative monetary policy.
ECRI's numbers, which have traditionally been MUCH better than the conference boards, have been headed south for a couple of months now after peaking last fall.
Just sayin'
global warming redux lol
your up to your eye balls in cold .. but wait global warming is coming say the keynesian warming experts ...
you know summer ,, and the hollowed out landscape of jobs.. move along nothing here
Leo, I think it's time you updated your avatar picture.
http://img297.imageshack.us/img297/8030/leos.jpg
LOL!!!!!!!!!!!! That's a good one! Bruce et al., I know things are tough in the US. My cousin lives in Detroit, a city roiled by high unemployment. I would caution all of you to stop looking at foreclosures, and start looking at LEADING indicators. There are sectors of your economy that are underwater but others are growing fast. Keep the faith - it's ALWAYS darkest before dawn!
But the leading indicators are piffle. Rosenberg noted today that the Leading Economic Indicator index was ONLY positive because the yield curve hasn't inverted. He noted that the yield curve doesn't have to improve or rates go down to make a positive contribution to the LEI. And without the contribution of the yield curve, the LEI would have been negative last month.
His further analysis was that manufacturing employment was up, but manufacturing represents only 11% of the jobs in America. Services are the biggest, and with Wal-Mart announcing dropping sales, do you seriously think retail is making a comeback? When the world's biggest and cheapest retailer is losing ground, THAT'S a leading indicator I pay attention to.
I beg to differ...
http://deco-01.slide.com/r/1/228/dl/4CitO0l3yj9LmTXsmu31VkhZfa3ydx5E/wat...
And why would anyone in their right mind live in Detroit? If your cousin is Canadian, Windsor is bad enough; if he's American, why not go - anywhere else?
She marrried someone who owns a car parts company. He got hit hard in the recession but his business is up in the last six months.
Hi Leo;
Good post. Just a few things that come to mind :
- Corporations are sitting on 1 trillion+ of cash (with nothing to spend it on except buying back their own shares and buying each other - lots of unused capacity sitting around and not enough demand)
- the Fed (after the Freddie and Fannie caps got lifted) is now in a position to start selling the best of their MBS back out to (effectively) the cash in the money market funds to drain liquidity in a nice smooth manner
- IMHO Europe is using the Greece thing (IMHO tiny) to trash the Euro for a while
- Dubai has provided an important and useful precedent - thanks!
- It looks like China will probably revalue the Yuan +5% (good timing and IMHO they've earned the increase in their purchasing power with good management and hard work)
- the Yen is currency's "Comedy Central" (last I checked, big companies in Japan are now trading below their book value! Aka free money for the vulture 'strip and flip' gangs)
- Fannie and Freddie can now use 'deed-for-lease' to put a floor on housing prices (still expensive historically but now is the time to stabilise and let inflation over the next couple of years catch up to current prices (the Alt-A etc and CRE roll-over phase will take a couple of years).
Oh, and the tax loss carry forwards ensure lovely profit and dividend management over the next 5 years.
Oh. And half the population of the world is under the age of 25. A little bit of demand side push, as it were.
Basically, stocks will inflate while commodities stay steady for the next couple of years?
Obviously, I personally consider the quarter point signal as a good thing. In an old blog post (now deleted) I saw it as an essential signal to send so that the MBS can be backed out of the Fed while the Treasury still needs to top up by a couple of trillion.
The bad news : IMHO this will not create many jobs. The productivity wave (and I don't just mean "squeeze the workers") is in full force now. People and companies have finally decided that things like "paying for a different charger for every cell phone you buy" is a bit too much on the stupid side of life.
The good news : The government can easily convert unemployment insurance payments into payments conditional on work of some sort of "job" attendance. IMHO It doesn't have to be the most efficient work in the world right now. But I think the big theme as the election approaches (and will unite both Democrats and the Republicans) will be this : the government has to stop giving people money for nothing when they are unemployed. At least 20 hours a week of some sort of community charity work (with a simple paper trail) should be required to collect the money. (some will fraud it, most won't - believe it or not, many people like their communities, like working, like being with other people and the policy itself - at the community level - is self-policing).
Pensions : With housing prices stabilising, inflation stable and the stock markets on a steady upward roll, the pension funding crisis (nominal) should pretty much take care of itself now (over the next couple of years?
Last but not least : I wouldn't be surprised if the MBS flip (of many asset classes) became a formal part of Fed strategy. It is the only way that the Fed can slap down an asset inflation bubble in realtime. The flip would allow them to do more than just drain/manage liquidity. It would put them in a position to easily annihilate dollars (money supply) if they find that excess money supply is creating a bubble in an asset class. Leaving it to "the government" and "government regulators" alone (obviously) doesn't work?
So, Leo, thanks for your blog posts. And thanks to ZH. And thanks to ZH commentors. Gee, I'm in a good mood today...
And to Bernanke : smooth move just before opex. For what it's worth (ie nothing really) I consider this the smartest and best executed thing that that Bernanke has done since he became Chairman of the Fed.
Just a few random thoughts appropriate to a pleasant Summer's day...
all the best from
Namke von Federlein
Some good comments, but one point on pensions: it's not just about assets, but about liabilities. That's why I truly believe the powers that be are trying to reflate this economy and even create slight inflation. This and massive budget deficits will cause interest rates to eventually rise, which will reduce the future liabilities of pensions. Always keep assets and liabilities in mind when discussing pensions.
As for jobs, we need a new industrial revolution. I don't know where or how, but policymakers need to promote job growth in certain sectors of the economy.
And people need to think about future needs when looking for work. Let me give you an example, I took a cab the other day where the cab driver asked me why I was limping. One thing led to another, and he told me that he works almost exclusively with disabled and elderly who need to go for their kidney dialysis. He is among the smarter cab drivers I've met in Montreal. Instead of waiting around for hours at a stand, his day is already planned the night before. All he had to do was take an easy course to get certified. But he knows ahead of time how much money he's guaranteed to make the following day just based on his bookings. This helps him plan his budget.
All this to tell you that there are needs out there in certain fields. From teachers, to MRI technicians, to whatever, you need to think carefully about the future when looking for employment. Don't wait for the government to find you a job.
Liabilities? Hmmm, never heard of them... lol
all the best from
Namke von Federlein
So is this "recovery" the reason that both clients and financial institutions are delaying payments I'm owed, and falsely claiming "the check is in the mail"? Because, you know, liquidity and solvency issues are a sure sign of an economic recovery.
And on a more general note, if our economy has been driven by consumer debt for the last 20 years or more, how do you believe a recovery will function with consumer debt frozen and shrinking?
In my city, someone built a new small mall, with about a dozen store fronts, several years ago. It opened with two tennants. Since then number of tennants remains the same. All recovery talk is wishful thinking, statistical manipulation.
In each of the prior three months, a restaurant we frequently went to has closed down. Did you notice the predictions of the coming Commercial Real Estate (CRE) loan defaults? You call that business recovery?
Leo,
We are a nation of 325mm people. Everyone of us consumes something everyday. Food, water, gas electricity,transportation,clothes,cars. Consumption fell off the wagon for a while. But we are still here and we need "stuff". So it is to be expected that we see some reversal to the mean of consumption. Given how much was lost it is is even reasonable to assume that we might have some higher than average numbers for a while. We have to eat, we need clothes on our back and we need some transportation to get to work.
But you are missing the broader picture I think. You live in Canada where things are not so bad as they are here. You don't drive around and see the evidence of our problems on a daily basis. I worry that you are becoming like like the Califia Beach Smokinator who sees every number and says, "That's the evidence I was looking for!"
Travel around the US and you see a much different picture than you do by looking at numbers on a computer. You see something that is both depressing and scary.
Contrary to what you believe things have not gotten bettern in the US. We are continuing to slide backward. Go to any city. You will see the closed up commercial RE wherever you go. It is boarded up and empty. Leave the cities and you see the same. Strip malls that are now half closed. Gas stations closing everywhere. Hotels that are half empty. Sure CVS is doing ok, but there are thousands of independant drug stores that are just closing by the day.
Go to NYC, Miami,Atlanta,Detroit,Denver, all of Cali. It is the same all over.
For 75% plus of our population homeownership was a way to rise the up economic ladder. That is a dead concept at this point. Anyone who thinks that owning RE is a good idea is just going to lose money for the next ten years.
It costs a lot to own RE in this country. We all pay big RE taxes. The cost of energy and maintainence is killing us. The only way it worked for all these years is that RE was going up in value and it was hiding the fact we were were all going broke owning our biggest asset. But that has changed now. The expenses of ownership are no longer offset by ever increasing asset values. We are collectively getting more broke everyday.
Our debts are getting bigger every day. Every man woman and child owes $42,000 of federal debt. That number will go to $80k in five years. We are drowning in a sea of red ink. This is not temporary. It is permanent.We are looking at Trillion dollar deficits for as far as we can see. Unless something is done soon SS will sink us by 2015.
There is a social asect to this. We see it all the time. A very substantial portion of the country is just flat out fed up with everything that is going on. Some are crazy enough to fly a plane into a building. But a more relevant observation comes today, only 21% of believe in what we are.The whole notion of work hard, get ahead, buy a house, send the kids to college so they can have a better life and we can retire to a nice secure future is just bullshit.
We know that we are leaving our children with a weight of debt that they can't possibly pay. College has doubled in cost in just a few years. Our kids have to compete to get in to the best schools with the tens of thousands of asian kids who have the cash to pay for it. Go take a walk around Cornell. You will se what I mean. Heath insurance will double in the next three years. It doubled in the the last five years.
I have some medical issues too. How much does it cost me a month to get insurance? $1,475. 18k a year. The average American makes $39k. We can't afford to be healthy. And we know it.
You know that Canada is a terrible place to be in March. I suggest you take a road trip. Someplace warm. South Florida is nice this time of year. Go to Lake Worth. Just south of very tony Palm Beach. When you drive a few blocks from the water you will see the empty homes, for sale signs and shuttered commercial RE.
You will go back to Canada with a nice tan. You will also go back with an understanding of how deep our problems are. Then you will understand the frustration of the ZH readers who say you are are all wet. There is nothing good happening here. Things are actually getting worse again. We will likely have 8mm foreclosures this year. Our true wealth is going up in smoke. We don't have knitting mills any more to make our clothes.
Read what you like from the numbers. But you have to go on a road trip before you can trust those numbers.
bk
Or he can come to So Cal, Phoenix, Las Vegas, etc...
I will do my consumer duty today. If Walmart has any 9mm today, I will buy another 200 rounds. (Winchester owned by Olin Corp (OLN))
Leo you sound like the old school Merril Lynch mob still trying to sell us Enron and Worldcom stocks. LOL
When the US Congress can manipulate FASB rules to whatever they want them to be to make banks look good then no stats from them can be taken seriously. It is all jive baby.
BTW - FSLR is down 8% this morning already. Go Solar!
If the people at the National Bank of Canada (which, for those who don't know, is neither "national" as it's based mostly in Quebec, nor affiliated with government. The Bank of Canada is our central bank.) are so smart, why is it considered the weakest of the Big 6 banks? These bright economists clearly gave them the best possible advice.
What's gonna happen? The answer to me is two-fold: the combined effects of undereducation and substance abuse. My kids participate in the Kumon program, which teaches them discipline and drill. Virtually every kid in the class is Asian; hardly any white kids. (This is just north of Toronto; in my suburb that aren't many blacks or Hispanics.) The softening of the education system in North America is a tragedy; kids are pumped up full of self-esteem, but little knowledge. See if the kid at McDonald's can figure out your change without looking at the register. That means the transition from manufacturing work to "high value" jobs is impossible for most people. You're going to be looking at 10+ million Americans unemployed for years. We only need so many car wash attendants and burger flippers.
And what's going to happen when these kids realize that their personal reality is not the great job and big house that their parents had? Our educational establishment has systematically decoupled kids from reality, so these unhappy kids are going to turn to the alternate reality of substance abuse (just look at how many of them retreat into the alternate reality of World of Warcraft, and other games). I have no doubt that the government will get Big Pharma to invent some form of non-injectable opiate (to avoid another AIDS outbreak), and market with taxes low enough to drive the smack/crack dealers out of business, but high enough to give them another source of much needed revenue. This idea is not new; see, for example, Huxley's Brave New World.
You should also read some of William Gibson's later works (Johnny Mnemonic doesn't count). He describes a bifurcated world with a dense, seedy underclass, and an overclass of the rich and privileged; there won't be a middle class as we know it. Our smart kids, and we do have them, will continue to create new products and ideas, and they will do well. Our not-so smart kids - well, we're going to keep them one step out of poverty and anasnethized so they don't revolt. But there's lots more of the latter then there are the former, and as long as the NEA and other establishments are more interested in reducing teachers' hours, plumping up their pensions, and reducing any type of demands that the kids actually learn, we're in, on average, for a huge fall in living standards.
And I don't think China is going to have this problem, because Chinese mothers are like Jewish mothers, always pushing their kids to do well, and if you deal or do drugs in China, they shoot you. Some think this is barbaric; I think it's pragmatic. Years of being soft on drug dealers here has turned Mexico, Burma, and Afghanistan into virtual narco-states.
I realize this is pretty gloomy, but as you profess to do, I call it like I see it.
thnks.
wold (US) economy based on services is not going anywhere....
PS canada will lose for sure..too much pression on em... winner US or Sweden...
LEO LEO leo. I really try not to comeo down against you as you have enough of that from everyone else. But you are a glutton for punishment. Your view on the US, from Canada, is wrong on so many levels.
the rebound was natural-it occurred in the 30's too.
After a historically insane credit expansion(credit=money supply) it all imploded.
All these numbers are relative-and from ground zero. And some are Canadian too boot, which is an export resource economy. The US is a consumer, financial services economy. IE: it doesn't make or export anything. It just pickpockets the other central banks and extends credit as a way to inflate the economy. If you have no exports, you have no jobs and you make money from credit and derivatives.
There is NO recovery and employment is a leading indicator in depressionary implosions.
Manufacturing is picking up .I see it in job posting for Machinists and Engineering fields. A lot of it is defense and aerospace related ,Boeing.
You're right, Leo, it IS more than fluff - it's complete and utter fabricated bullshit.
At least it's something, coming at the direct expense of anyone but the rich.
Grab your pom-pom's we got more than fluff, we have the next sucker.