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Rosie's Observations On The GDP Number, On Bernanke's Address, And On The Market
David Rosenberg has provided his typically succinct summary of the day's heavy dataflow, starting with the GDP number, parsing though Bernanke's speech, and concluding with a broad overview of where the market is heading, which is now so disconnected form a bond-implied FV in the upper 700s it is no longer funny.
On GDP:
GDP BETTER THAN EXPECTED, BUT …
Boy oh boy, 1.6% never felt so good. Bonds are getting hammered and the stock market is surging on a GDP growth number that basically represents stagnation in real per capita terms. But the consensus was looking for 1.4% and the “whispered” number was actually below 1%, so for Mr. Market, at least on a day-to-day basis, it is all about how things do benchmarked against expectations. The data were weak but not a disaster and so we are seeing a temporary bounce in yields and equity prices, which likely won’t last for very long once Q3 GDP estimates grind down from their current 2.5% forecast to something closer to 0% — or even negative — by the time the first report is published at the end of October.
The bright light in the Q2 revision was the uptick to consumer spending, to a 2% annual rate from 1.6%, while at the same time we had the inventory line revised lower to a $63.2 billion build from $75.7 billion. This configuration is alleviating concerns that a move to take inventories down in the third quarter will be necessary since household spending held up better than earlier expected.1.5% increase. Strip out the energy components, and consumer spending did not improve at all from the last Q2 report we were issued a month ago. In other words, if not for the fact that more of the household budget was diverted to the energy bill in Q2, consumer spending would have shown a 1.6% growth rate and GDP would have actually come in BELOW consensus, at +1.3%. Notably, consumer spending on big-ticket durable goods came in lower than initially estimated — trimmed to a 6.9% annual rate from 7.5%.
Business spending on equipment and software (capex) improved to a 24.9% annual rate from 21.9% on the prior report, and this was flagged by the upward revisions we just saw in the July durables report. But commercial construction was marked down to a near flat figure (+0.4%) from the initial read of +5.2%. Outside of the fact that net exports showed an even deeper deterioration on the back of higher import growth and lower export growth (subtracting 3.4 percentage points from headline GDP growth versus the 2.8 percentage point drag shown in the prior ‘advanced’ report), there were no sizeable revisions.
Here’s what is important to take away:
- We had 5% real GDP growth in the fourth quarter of last year, followed by 3.7% in Q1, 1.6% in Q2 and now what looks to be little better than 0% this quarter. So the notion that the economy has hit stall speed has not changed in this report —if anything, it was enhanced.
- Real final sales — GDP excluding inventories — was actually marked down in this report to a meager 1% annual rate. That is really soft and underscores the overall weakness in the demand guts of the economy. We know from the monthly data that much of this paltry 1.6% growth in Q2 was baked into April — four months ago! — and that the pace of activity has weakened markedly ever since.
- The monthly GDP data have actually shown declines for two months running and there is a negative “build in” so far for Q3. There is practically no growth in real consumer spending heading into the current quarter and we know that back-to-school sales so far have been sluggish.
- From the durable goods report for July we see that capital spending intentions, the lynchpin for the economy, are slowing markedly as we move into Q3. And the manufacturing surveys strongly suggest that the mini-inventory cycle is behind us (and even with the revised markdown, this line-item still managed to account for almost 40% of the GDP growth we saw last quarter).
- Nothing is happening in commercial construction to get us excited and we know from the latest batch of data that housing is back plumbing the depths.
- The cutbacks at the State and Local government level will also be a very big drag in Q3 after what seems to have been a statistical Q2 respite
So, we are looking for a flat reading on Q3 GDP (possibly negative) at a time when the consensus is at 2.5% and our best guess is that the stock market is looking for 1.5-2.0%. We have no visibility on Q4, but again it would seem as though the 2½% consensus forecast is going to have to come down.
One more comment on Q2 — just to put 1.6% into context. Historically, four quarters following a bottom in GDP, growth is running over a 6% annual rate. Rejoicing over 1.6% because it wasn’t 1.4%, particularly in the context of the most radical bailout, monetary and fiscal stimulus in U.S. history, totally misses the point that we are operating in a totally abnormal and fragile economic environment.
On Bernanke's Jackson Hole speech:
BERNANKE PLAYS THE ROLE OF THE ‘TWO HANDED ECONOMIST’
As wishy-washy as it gets, but in the end, hope won out over despair.
The speech by Fed Chairman Bernanke was all over the map and was noncommittal in terms of offering an iron clad forecast despite the title being The Economic Outlook and Monetary Policy.The sermon was littered with caveats in the form of “should”, “despite”, “although”, “possibly”, and “however” — but in the end, he expressed optimism (then again, what else can he do in public?). He obviously learned his lesson from using words such as “unusually uncertain”, which he used to describe the economic outlook at his recent Congressional testimony in July when the Dow responded by diving 109 points (as if things haven’t become even more uncertain since, but why tell anyone?).
Here are some of the snippets from the speech — Mr. Bernanke seems to have a different crystal ball than we do, as he is optimistic that growth will be sustained in the second half of this year and improve next year. At the same time, he acknowledges that the economy has not improved as much as the Fed was forecasting earlier (that is old news). But what really stood out in his speech was the extent to which it was so “on the one hand, but then on the other hand”, which of course is why economists are constantly ridiculed.
On the one hand …
“For a sustained expansion to take hold, growth in private final demand — notably, consumer spending and business fixed investment — must ultimately take the lead. On the whole, in the United States, that critical handoff appears to be under way.”
“Expansionary fiscal policies and a powerful inventory cycle, helped by a recovery in international trade and improved financial conditions, fueled a significant pickup in growth.”
“Stronger balance sheets should in turn allow households to increase their spending more rapidly as credit conditions ease and the overall economy improves.”
“I expect the economy to continue to expand in the second half of this year, albeit at a relatively modest pace.”
“Despite this recent slowing, however, it is reasonable to expect some pickup in growth in 2011 and in subsequent years.” [Ed note: the markets picked up on this].
“Despite the weaker data seen recently, the preconditions for a pickup in growth in 2011 appear to remain in place.”
“Consumers are reducing their debt and building savings, returning household wealth-to-income ratios near to longer-term historical norms. Stronger household finances, rising incomes, and some easing of credit conditions will provide the basis for more-rapid growth in household spending next year.”
… But on the other hand
“However, although private final demand, output, and employment have indeed been growing for more than a year, the pace of that growth recently appears somewhat less vigorous than we expected.”
“Notwithstanding some important steps forward, however, as we return once again to Jackson Hole, I think we would all agree that, for much of the world, the task of economic recovery and repair remains far from complete.”
“At best, though, fiscal impetus and the inventory cycle can drive recovery only temporarily.”
“Incoming data on the labor market have remained disappointing. Private-sector employment has grown only sluggishly, the small decline in the unemployment rate is attributable more to reduced labor force participation than to job creation, and initial claims for unemployment insurance remain high. Firms are reluctant to add permanent employees, citing slow growth of sales and elevated economic and regulatory uncertainty. In lieu of adding permanent workers, some firms have increased labor input by increasing workweeks, offering full-time work to part-time workers, and making extensive use of temporary workers.”
The prospect of high unemployment for a long period of time remains a central concern of policy. Not only does high unemployment, particularly long-term unemployment, impose heavy costs on the unemployed and their families and on society, but it also poses risks to the sustainability of the recovery itself through its effects on households' incomes and confidence.”
“Although what I have just described is, I believe, the most plausible outcome, macroeconomic projections are inherently uncertain, and the economy remains vulnerable to unexpected developments.” [Ed note: the market did not pick up on this].
In the final analysis, if there was a commitment made, it is that Mr. Bernanke will use all of his power to ensure that the recovery will remain intact:
“The Committee will certainly use its tools as needed to maintain price stability--avoiding excessive inflation or further disinflation--and to promote the continuation of the economic recovery …. the Federal Reserve remains committed to playing its part to help the U.S. economy return to sustained, noninflationary growth.”
What is interesting is the choice of the word “return” to “sustained” growth, which implies that despite his high hopes for the future, this is a state (the word “return” by definition means “revert to a previous state”) we have to achieve (sustainable growth) which is remarkable when one considers all the radical efforts that the central bank and the government have made to bolster the economy. As we are finding out, even with an extremely aggressive central bank, just because you turn the key doesn’t mean the engine turns over.
And on the market in general:
Well, the bulls took heart on Wednesday because the market rallied in the face of adverse news (new orders, home sales). The hope was that it was a sign that a lot of bad news was already priced-in or that this market had just become so oversold that the selling pressure had exhausted itself.
Then, we get what appeared to be a better than expected jobless clams report, and what does the market do? It took the Dow back below the 10,000 mark for the umpteenth time and the S&P 500 trading perilously close to that 1,040 line in the sand. And, what more can you say about the bond market; both the 10- and 30-year bonds rallying back six basis points.
There has been some talk that the recent wave of M&A activity is bullish for the equity market but from our lens, this is happening primarily because companies know that they can’t grow revenues adequately in a deflationary backdrop; therefore, they are “buying” a greater revenue stream via acquisition. It says nothing about the market but says a lot about the amount of excess capacity lingering in many sectors. Moreover, there are other sources of supply coming from equity mutual fund redemptions, which continue unabated. As Fidelity recently disclosed, a growing share of 401(k) participants are liquidating, and the IPO calendar, which has been quite active this year (171 companies have become public so far this year and that compares to 120 filings in 2009 and 153 in 2008). Be that as it may, the pipeline has thinned of late in light of the jitters that has gripped the market (it is, after all, down 14% from the interim April highs).
As for the bond market, the yield on the U.S. 10-year Treasury note seems to have hit some major resistance at the 2.5% level — look at how far it is come in four months: down a whopping 150 basis points. A rest would not be out of the question but the trend in yields is still clearly down. With so much air still under the current consensus estimates on GDP growth and corporate earnings, the odds that we see a resumption of this monster bull market in Treasuries is very high, in our view. And people should actually want this to happen — it is totally a humanitarian cause to be bullish on bonds because when they rally, good stuff happens, like mortgage rates get pulled down (the 30-year fixed-rate just hit a new low of 4.36% for the past week). Everyone seems to view equity market bears as pariahs but in fact, the bond bears are the real enemy. How exactly do higher borrowing costs end up helping out the market for homes, autos and other big-ticket items?
Yesterday’s economic data flow had some interesting details. While everyone gazed at the headline jobless claims figures, what stuck out beneath the surface was the total backlog of continuing claims, which moved back above the 10 million mark and is sure to expand even more in coming weeks and months (this number soared 260,000 during that survey week, which was two weeks ago). This goes to show how there is absolutely no hiring going on — an assertion backed up by the JOLTS data and Challenger survey we have discussed in this space recently.
With respect to the housing and mortgage data, lenders initiated 279,685 foreclosures in July, up sharply from 225,700 in June (and the highest in six months). The banks are getting more aggressive because these folks now being foreclosed on have been living for free for an average of 15 months (no wonder retail sales have held in, but this sweet deal is coming to an end.By living for free these borrowers in serious delinquency were able to make their credit card payments on time — a fascinating comment on human behaviour — as credit card losses are falling fast — see Surprise Slowdown in Credit Card Losses on the front page of today’s FT). This is both good and bad — the good is that the sooner the backlog is cleared, the sooner we will be able to achieve some equilibrium in the real estate market. The bad part is that this new supply, at a time when demand is still faltering, will exert more downward pressure on home prices over the near- and intermediate-term; ‘For Sale’ signs will be in full view.
The number of people who are “upside” down on their mortgage is still around 11 million or 23% of the mortgage population. That number has actually come down in part because of some have defaulted and others are moving to pay down debt — but further home depreciation could well cause this number of people “under water” to start to rise again. Meanwhile, 14.4% of borrowers have missed at least one mortgage payment or are in the foreclosure process, which is a tad better than the 14.7% in Q1 but amazingly still higher than the 13.5% share a year ago when the economy was still struggling to get out of recession.
The op-ed section of the WSJ today is chock full of good material; Time For Obama to Pull a Clinton (as if) on page A15, Public Pensions and Our Fiscal Future on page A17 (by Arnold!) and the one right beside that titled FDR and the Lessons of the Depression. And, as we always say, you don’t have to like Paul Krugman, or agree with him, but you’re doing yourself a real disservice by ignoring him or dismissing what he has to say — have a read of his This is Not a Recovery piece on page A19 of the NYT.
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two playlists for your listening pleasure
A yin and a yang
limit down (a boom filled playlist): http://www.youtube.com/view_play_list?p=39E281A11EE2D483
down the boulevard (a smooth filled playlist): http://www.youtube.com/view_play_list?p=D99EC6935E5AF32A
FYI...i'm thinking next weekend will be the last organized Friday playlist day
#2
Cheese, Gromit, Cheese. It's a lovely bit of cheese.
Cheese, Gromit, Cheese. It's a lovely bit of cheese.
My household finance would be stronger if I could secure a job.
Obamacare taxes look to reduce next years net disposable income.
Yes, in the easing of the credit conditions, I look to the latest I've heard: FHA Launches Refinance Opportunity for Underwater Homeowners
Appraiser News Online Headlines
Last Updated: August 11, 2010
Vol. 11, No. 15/16
FHA Launches Refinance Opportunity for Underwater Homeowners
Homeowners underwater on their mortgages could be getting relief through a government program designed to encourage principal write-downs for responsible borrowers, according to a Department of Housing and Urban Development news release issued Aug. 6.
In an effort to help responsible but struggling homeowners, HUD has detailed adjustments to its refinance program, which the agency hopes will enable lenders to provide additional refinancing options to homeowners who owe more than their home is worth.
Starting Sept. 7, the Federal Housing Administration will offer certain underwater non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least 10 percent of the unpaid principal balance of the first mortgage, the opportunity to qualify for a new FHA-insured mortgage, according to the HUD news release.
"We're throwing a life line out to those families who are current on their mortgage and are experiencing financial hardships because property values in their community have declined," FHA Commissioner David H. Stevens said in the HUD news release. "This is another tool to help overcome the negative equity problem facing many responsible homeowners who are looking to refinance into a safer, more secure mortgage product."
The FHA Short Refinance option is one of several Obama administration initiatives introduced as part of an administration plan to help stabilize residential markets by helping 3 to 4 million struggling homeowners through the end of 2012.
To be eligible for a new loan, the homeowner must owe more on their mortgage than their home is worth, be current on their existing mortgage, qualify for the new loan under standard FHA underwriting requirements, have a credit score equal to or greater than 500, and the property must be their primary residence. Also, the borrower's existing first lien holder must agree to write off at least 10 percent of the borrower’s unpaid principal balance, bringing that borrower's combined loan-to-value ratio to no greater than 115 percent.
Existing FHA-insured loans cannot be refinanced, and the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent.
To facilitate the refinancing of new FHA-insured loans under this program, the Treasury Department will provide incentives to existing second lien holders who agree to provide principal write-downs. To be eligible for the program, servicers are required to execute a Servicer Participation Agreement with Fannie Mae on or before Oct. 3.
"...principal write-downs for responsible borrowers..."
Synonym for Oxymoron
Can we have a seperate thread to discuss this topic?
I find it fascinating how there's political will to continue the 'killing me softly' theme of home"owners" that have too much debt and the government insists they keep that debt but get a chance to refinance. Seriously? Do they get a cash back with that offer or some other incentive as the cherry on top of that whipping cream?
If they're at 115% LTV they will be a slave to that debt for decades to come. Doesn't matter how they refinance that package going forward.
Ah, the shackles of debt controlled by the government.
Just get it over with and declare jubilee for people that are responsible homeowners, bought the propaganda of "real estate will always hold its value or go up" nonsense and got caught in a bank failing depression. Same banks that were eager to make those loans at over 100% LTV in the first place. Same banks that had billions in profits for many years before the crash.
How disgusting and completely irresponsible of government to keep the people enslaved to that debt which by further consideration is close to being illegitimate or "odius" debt.
There's political pressure globally to forgive debts of 3rd world countries because their "ruthless" governments amassed the debt for self glorification.
How is the US any different in that sense?
Jubilee and new balls please.
Wow! 2 junks and counting.
Must have hit a nerve with the brown shirt bloggers on Obama's payroll.
What don't you guys like? The fact that I'm calling the debts illegitimate?
I hear ya. I got junked up above.
Little pricks get their panties in a bunch when you hit a nerve.
You are missing the point. Banks can keep these mortgages on their books at fantasy values as long as they don't foreclose. It's not about helping the underwater homeowner. It's about keeping the fantasy, and the banks, alive for one more day.
well said....cracks me up that the banks have to give up 10%, off the top of a $450,000 mortgage on a house now worth around $200,000 and still falling in value. this person, david stevens of the fha is so totally clueless as to how far the rug has been pulled out from under the citizens! hey david did you say 10%....this sir only proves you are as dumb as a box of rocks...seeing how home values have fallen some where in the area of 50%. resign and let someone who can do the simple math take over...get your money back for your schooling dude....your ciphering is none to good!!!!!
Government anounces, "they'll pay for everything, citizens not to worry.
Well if this were Jeopardy, I would have to say "What is #2?" as I still believe MIT has street cred - as alway, TF, right on the money -
And the correct Jeopardy answer is, "What the world economy is up to its nostrils in."
"rising incomes"?--Get the straight jacket for BB.
Here's the problem that makes that statement delusional and intentionally misleading:
Consumer debt is indeed contracting, a crushing blow to a consumerist, deficit-spending dependent economy. This signals the inability to carry debt, not just the unwillingness to do so. Because wealth-to-income ratios are not returning. Incomes are stagnant, many Americans have depleted their savings and drawn on their retirement nest eggs just to stay solvent. the "savings" is illusory: Not leveraging your income isn't the same as saving.
Unfortunately Bernanke is in the camp of Richard Koo and others who believe that "fixing balance sheets" is all that it will take for Americans (and Japanese) to be back on their merry way to binge spending and shop-till-you-drop. Not the case. Even if balance sheets get fixed buying power is getting cratered by deflating incomes, real estate, retirement assets and employment opportunities combined with rising fixed costs of living and doing business.
There's been a sea change and Japan was a clear harbinger for many reasons. However unlike Japan we don't have a massive manufacturing infrastructure with all the related feeder and support industries that go along with it. We have a massive trade deficit.
These are not my words, they are from Dan Norcini at JSM. Perfect.
"Seriously, it is hard to hide my contempt of this disgusting scene. This band of fools somehow believes that prosperity can be created by printing money without any consequences whatsoever. The US is sinking under a mountain of indebtedness and the Fed chairman tells us that it stands ready to engage in even more QE should the need arise. Flash to Ben – the need shall arise. China is already balking at buying US debt meaning you are going to have to buy it all yourself Ben.
What we are witnessing is the death throes of a debt-based monetary system of which those presiding over it apparently have come to believe their own delusions. The US public is learning what our grandfathers learned as a result of the Great Depression – Debt is something to be avoided – not heaped up and accumulated. That the borrower becomes the lender’s slave and that living beyond ones own means is inherently foolish and dangerous. That saddling one’s children and grandchildren with a debt burden that they did not create is immoral and wicked. Yet, all of this is lost upon the monetary lords who have their noses so close to the ground sniffing out the scent that they cannot see the path ahead leads off the edge of an abyss from which there is no escape. Or perhaps they do see and are attempting to secure their own parachutes before leading the rest of the masses over the edge.
I repeat – if lasting prosperity could be created by printing money and giving it away, previous generations that were wiser and more frugal than ours would long ago have stumbled upon this axiom."
I call it the "Thelma and Louise" theory of government finance.
i think i gotta lay a number 2 here too, turd. (pardon the pun)
i think we've all been in a situation at one time or another where you are scrambling to hold things together day by day, or even minute by minute. Maybe not on such a grand scale like this - though some vets here may disagree.
I'd say he has got to be shittin bricks every day but of course he will come out clean somehow. He's got enough paper.
replied under the wrong comment. oops.
was supposed to be for the first turdism here.
dupe
God I hate fed-speak.
Mommy? When will the little unicorn fly over our house so I can have some of the rainbow skittleshits to eat, too?
Skittle farting unicorns...
Jesus, All this confusion about what Bernanke said. All you guys had to do was to ask me to translate his speech...Here it is. The economy sucks, But I will print more money so the Dow can go to 36,000. Now go home and get your fucking shine box.
What a great movie: http://www.youtube.com/watch?v=d7LERhz-s8k&feature=related
Outstanding movie. That line , Get your fucking shine box is up there with " were gonna need a bigger boat"
Concise, Direct....Emily Dickenson meets Archie Bunker - Ever consider a career writing Cliff Notes (well done!) - I wasted all that time reading Ben's speech...now if I could only afford a pair of shoes....
Hey buddy, can I shine your feet?
At the moment he/the Fed doesn't even NEED to print. All he's got to do is suggest that he/the Fed will, and the markets will respond accordingly.
BUT, this seems counter to the suggestion that he WANTS a lower market and lower gold price in order to justify more QE. Why doesn't he just keep quiet until the markets fall to a level where (more blatant than now!) QE can be done?
Either way, his hints have been enough to keep the Dow above 10,000 and the S&P above 1040.
DavidC
Low and stable interest rates are good. Falling interest rates are not. What happens if rates rise? Who gets screwed? Lenders, anyone who buys a bond or puts money into a CD.
When rates fall, borrowers get screwed. Since almost every business has debt, and the liquidation value of the debt rises when rates fall, this takes capital out of almost every business.
While there are certainly other causes (e.g. regulation, lawsuits, unions, taxes, etc.) the destruction of capital of every business with debt by the falling rate structure over the past 28 years certainly deserves a big share of the blame.
How can more of this be good??
+1
The rising liquidation value of existing debt is something most people do not understand.
Once debt saturation has occurred (and it has), lower interest rates are actually a slow-acting economic poison.
DING DONG, GET LONG. IT'S ALL GOOD!!!
I used to hope BB would get shot by one of the "crazy right wing home-grown terrorists" but now I hope he lives a long life. I want him to live in shame once everyone wakes up to the fact that he is indeed the worst Fed Sec ever.
The MSM will just "forget" and/or re-write history. Just like they've done with Barney Fwank & Co.
I expect we'll be seeing anti-Bush shows through Nov 2.
Katrina, Abu Grhaib, Water torture etc etc.
Sigh, what a bunch of pawns...
http://aaeblog.com/2009/04/18/tea-and-sympathy/
The world is coming unglued. No, it has already come unglued and the pieces are falling way, talking heads swear 300,000+ claims a victory, tent cities, DoD wants to invade Yemen (see Telegraph today) the Dems are screaming its all Bush's fault, the Repubs have not a clue, everybody's claiming the Tea Party to be racisits, Keith Olberman's still on TV, Obama wants dearly to be FDR and FDR was crippled so why's he golfing (?) and the Fed and world's most credible monetary (or so they say) policy makers (well, guess that are policy makers, just are they credible...sorta circular, no?) are vacationing in Jackson Hole, talking, eating, fishing, horse back riding, whilst the current administration has successfully proven once and for all that trickle down economics doesn't work, and the folks on CNBS are talking about what a grand idea it is for the gubamint to guarantee every last piece of ABS paper, including my dog's poopie wrapping (using paper like a good little ecochild) and they wonder why we're all going slowly bat shit fucking crazy, wondering why its We Who Are Out Of Touch With Washington?
(blank stare)
How many more days is it till elections?
+100
And now the EPA is considering banning lead bullets in favor of more environmentally sound projectiles.
http://latimesblogs.latimes.com/outposts/2010/08/firearms-industry-responds-to-petition-filed-seeking-to-ban-lead-ammunition-and-fishing-tackle.html
Bullshit.
It's not about banning lead.
If they can't constitutionally take your guns away from ya', they'll take the bullets.
Said years ago, it's all about "Ammo and Anchovies".
Anchovies gonna get real expensive as dollar tanks.
Ammo gonna get scarce.
Truth.
Oh, What the Fuck. Depleted Uranium.
I-Must-Have-Depleted-Uranium-Ammunition.
http://www.youtube.com/watch?v=ACGUasFWVsI
Fuck Ammo. Toss a slamo
http://www.youtube.com/watch?v=50oGwupvKMg
http://aaeblog.com/2009/04/18/tea-and-sympathy/
I wonder if bad news is coming this weekend?
It's a joke gang. This is a gift for the shorts. Let them rally into next Wednesday and then brutalize the whores. The technical picture will only change if they rally it 1800 points.
Ain't happenin'.
there is no rally...this is controlled distribution
they realized that now monkeys like buying crap "on sale", so distribution above 'major' support seems feasible and will produce better results than doing it under 'major' resistance
QE2 is a definite. Every single hope dream that Ben put out there is already getting crushed. So it's a question of how many Trillions. I say SuperSize Me!!! Let's go for some macho, shock n awe, go-ahead-make-my-day QE: let's go for the Quad! One QuaDrillllllion dollars!
When I was in BSchool, the difference between 1.6 and 1.4 was a called "rounding error", not a "celebration".
I guess we are so desperate that we'll grab at anything that looks great.
web bot
Re: Historically, four quarters following a bottom in GDP, growth is running over a 6% annual rate. Rejoicing over 1.6% because it wasn’t 1.4%, particularly in the context of the most radical bailout, monetary and fiscal stimulus in U.S. history, totally misses the point that we are operating in a totally abnormal and fragile economic environment.
Fragile, yes, but not abnormal. This is the new normal.
Amid all the talk of QE2, Federal Deficits, Fed Balance Sheet, housing starts, yadda, yadda, yadda,... The missing element is job offshoring and the resultant trade deficit. This was a deliberate policy of the Federal government in collusion with global corporations and financial institutions. The bottom line is that those jobs will not come back unless and until the Federal government recognizes that inequalities in workplace regulations, environmental standards, currency manipulations, and housing standards must be addressed at the border in the form of tarriffs. The alternative is the descent of the American standard of living to 3rd world levels.
Until these facts are recognized and addressed, this is the new normal: 20% real unemployment and 40 million people on food stamps.
Heli, well put. You get a star...
"The bottom line is that those jobs will not come back unless and until the Federal government recognizes that inequalities in workplace regulations, environmental standards, currency manipulations, and housing standards must be addressed at the border in the form of tarriffs."
Well, not sure how to break it to you, but... "those jobs" ain't coming back. Further, "those jobs" are from an era that is dead and dying. You want US workers to build more automobiles that rely on energy that comprises roughly 50% of US trade deficit? Or, maybe you're thinking that those financial jobs need to come back, you know, the ones that resulted in pumping up US GDP (look at the weighting in the markets), that maybe we need more of Those jobs? Or, maybe we need more tech jobs so that we can automate MORE people out of work?
It's a lost cause. The law of averages (brought to us by the realities of physical boundaries- read "no such thing as perpetual growth on a finite planet"), the one that has 2/3 of the world's population, you know, those "other people," those back-assward "3rd worlders," live on $3/day or less? Yeah, Americans, who represent 4% of the world's population, are entitled to continue to consume 25% of the world's resources. FAIL!
Thanks for playing!
No way. Ass backwards. I remember Michael Porter, Economist magazine and the other Globalization theorists telling us that the 2/3s world will raise up toward US level not that US will drop toward the them. I mean, why can't Chindians consume oil on a per capita basis like Americans? Why? It's just technology...and substitution...and demand. What limits are you talking about? I think you're referring to externalities, model parameters and assumptions....they've been double checked and they're all good.
In all seriousness, nice post Seer. I agree, it's all fucked. I heard Dimitry Orlov say recently (C-Realm podcast) that it's toxic and immoral to even try and fix the current arrangement. Just try and prepare oneself emotionally and physically as far as possible, disengage and let the beast die. I like the 'Going Dark' metaphor that was mentioned on ZH recently.
I'm on it, stroker :-) Been a while since I caught C-Realm... so much to watch/listen/read, and so little time...
Seer, I would have junked your post, but why bother?
You have the results of gov/fed policy correct: loss of jobs in USA. thru an idiotic tariff policy,
tax incentivised off shoring of industry, out of control regulation and taxes on in country business.
You miss out on the fix..your give it up, we can never get jobs back, hopelessness is what the NWO elites want us to feel and think..
solutions to our employment and current economic debacle are very clear and not particularly complex.
It is your mind set and the plans of elites that cannot allow or comprehend the solutions that benefit US workers and economy. those solutions are the very thing that the elites have worked against since 1913.
When turning up the heat it's important to do it slow enough to keep the frogs from jumping out of the pot...
"For a sustained expansion to take hold"
EVERYTHING past this point is null and void. It's like "magic happens" then everyone's attention is cast toward technical evaluations, which have absolutely no traceability to reality. Bad premise = bad outcome.
I usually enjoy reading Rosie but this is the most asinine statement I have ever read.
Everyone seems to view equity market bears as pariahs but in fact, the bond bears are the real enemy. How exactly do higher borrowing costs end up helping out the market for homes, autos and other big-ticket items?
The artificially low interest rates are making everyone take far more risk in the market than they should have to.
How many seniors have lost most of their investment income because of low rates?
How many pension plans are under water?
What is the current savings rate in the US?
How much debt has been created because people can borrow far more than they would be allowed to if interest rates were normalized?
What we need is for the government to get out of the way and let the market set interest rates.
so... you want rates to be higher? Come on, please.... what do you think will happen to gdp then? Who exactly is taking more risk than they otherwise would? Retail investors have left the equity market in droves. Seniors may have "lost" their investment income, but think of the capital gains they have made intheir bond funds!
You guys have got to stop hating bonds... learn to love them. You'll be much happier! The fact they were too low previously does not automatically mean that NOW they should be higher. Higer rates now won't correct the mistakes of the greenspan era.
Casey,
in a way you are right. In defense of Rosie, imagine the real interest rate would go up to say 3% with credit interest starting at 6%. If even the banks would have to pay that money to refinance it would be game over immediately. That is an argument for low rates while praying for a smooth transition.
Rates are being held down until after the next wave of ARM resets occur. I'm pretty sure that this is the timing...
The low rates provide more rope to extend those deficits out that much further. The growth of central government is the most pernicious activity being financed at these rates today. Talk about malinvestment. How about some more regulators, with guaranteed for life highly paid jobs, superb benefits, early retirement, and the rest? Fantastic! Stagnation all around!
Gotta love the "bond implied" statement.. It's perfectly clear.. All you gotta know about S&P's "fair value" is where bonds aer.. As simple as that.. nothing more to it..
What a joke..
Hanging on Ben's every word.
Its getting to be a bit ridiculous.
I attribute the words to Ben but realistically this is a group crafted document.
He expects an upturn in 2011 but does not connect the dots from where we are today.
I guess I am going to call BS on his statements, and here are my reasons:
The discount rate is already zero, and the T rates are the lowest in over a decade. What further reduction in rates is he looking to achieve? More importantly, the overall benefit of the new T buy from MBS to the economy must be very very small.
The reason the economy stalled is due to the inefficiencies of stimulus in creating a long term effect. Meaning; Keynes was wrong in a debt de-leverage cycle.
The FED really does not have the tools to increase employment. It cannot effectively be committed to something it cannot directly control. This is utter FED crap.
As far as price stability (manipulation and destruction of a fair market), a lot of money was wasted to influence real estate prices. It is clear that housing price without massive stimulus is in deflation. Ben just cannot bring himselve to say that he has lost the battle on housing price inflation.
Lastly I will focus on this statement
"First, the FOMC will strongly resist deviations from price stability in the downward direction. Falling into deflation is not a significant risk for the United States at this time, but that is true in part because the public understands that the Federal Reserve will be vigilant and proactive in addressing significant further disinflation. It is worthwhile to note that, if deflation risks were to increase, the benefit-cost tradeoffs of some of our policy tools could become significantly more favorable."
The public understands?????????? The general public has no idea what the FED does, and if it did would probably be burning down the building.
Benefit-cost tradeoffs, what????? The FED is not audited, nobody except the FED really knows the costs.
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Even the optimistic FED watchers, based on this speech, must see that the FED has no idea of what to do. For a turn around from where we are today, cause and effect is not discussed, and we cannot corroberate policy to their true financial position.
The trust is gone. Especially for the unemployed, the FED is a failure.
Mark Beck
Once again the guvmnt doesn't give a shit about you and me; it's all about saving the banks. If the FHA can keep home values from dropping another 15% by buying off second loan holders with write down incentives and guaranteeing loans to folks with 500 credit scores, basically they are bailing out the banks, again. As long as they continue to bailout the banks the downward spiral will continue. Time to roll out the guillotines in Washington...Geithner to the front of the line!