Census Bureau

The media lamented the ugly housing-starts number. But for the market to heal, it should be near zero. In Japan, land prices are still declining 20 years after the bubble burst, and even the Yakuza are complaining.

With the FOMC meeting currently in full swing, speculation is rampant what will be announced tomorrow at 2:15 pm, with the market exhibiting its now traditional schizophrenic mood swings of either pricing in QE 6.66, or, alternatively, the apocalypse, with furious speed. And while many are convinced that at least the "Twist" is already guaranteed, as is an IOER cut, per Goldman's "predictions" and possibly something bigger, as per David Rosenberg who thinks that an effective announcement would have to truly shock the market to the upside, the truth is that the Chairman's hands are very much tied. Because, all rhetoric and political posturing aside, at the very bottom it is and has always been a money problem. Specifically, one of "credit money." Which brings us to the topic of this post. When the Fed released its quarterly Z.1 statement last week, the headlines predictably, as they always do, focused primarily on the fluctuations in household net worth (which is nothing but a proxy for the stock market now that housing is a constant drag to net worth) and to a lesser extent, household credit. Yet the one item that is always ignored, is what is by and far the most important data in the Z.1, and what the Fed apparatchiks spend days poring over, namely the update on the liabilities held in the all important shadow banking system. And with the data confirming that the shadow banking system declined by $278 billion in Q2, the most since Q2 2010, it is pretty clear that Bernanke's choice has already been made for him. Because with D.C. in total fiscal stimulus hiatus, in order to offset the continuing collapse in credit at the financial level, the Fed will have no choice but to proceed with not only curve flattening (to the detriment of America's TBTF banks whose stock prices certainly reflect what a complete Twist-induced flattening of the 2s10s implies) but offsetting the ongoing implosion in the all too critical, yet increasingly smaller, shadow banking system. And without credit growth, at either the commercial bank, the shadow bank or the sovereign level, one can kiss GDP growth, and hence employment, and Obama's second term goodbye.

Let's take a closer look at poverty in America....

While President Obama is pressing the bloc's big countries to show leadership, the U.S. actually is in dire need of extraordinary leadership with a sharp strategic focus to turn the country around. 

Trillionaires. Just the sound of it! It's beautiful, Ben. But without your help, we'll never get there. So, at your big meeting next week, think about us. Because the way you make trillionaires is by printing money.

The market has become dominated by rumors. The primary rumor is of China supporting Europe. We saw similar rumors in 2008 for Wall Street banks. Those purchases all resulted in massive losses for the funds in question. And yet we are seeing similar rumors inciting large rallies in stocks today, this time the rumors pertaining to China and Japan buying Europe.

All you need to read.

The US Census Bureau has released its annual Income (not so much), Poverty (much) and Health Insurance Coverage report for 2010. The full thing is below but the highlights are as follows: i) Real median household income in the United States in 2010 was $49,445, a 2.3 percent decline from the 2009 median. ii) The nation's official poverty rate in 2010 was 15.1 percent, up from 14.3 percent in 2009 ? the third consecutive annual increase in the poverty rate.  There were 46.2 million people in poverty in 2010, up from 43.6 million in 2009 ? the fourth consecutive annual increase and the largest number in the 52 years for which poverty estimates have been published; and iii) The number of people without health insurance coverage rose from 49.0 million in 2009 to 49.9 million in 2010, while the percentage without coverage ?16.3 percent - was not statistically different from the rate in 2009. Breaking it down by ethnicity, living in poverty were 27.4% of all blacks, and 26.6% of all Hispanics. White, non Hispanics and Asians were doing better at 9.9% and 12.1% respectively. At this point we could interject with a joke about the "wealth effect", "edible iPads", and/or "health insurance", but frankly, all those are way overused by now. Hence, we leave such creativity to our readers.

All you need to read.

The ridiculous war between Obama and S&P, which escalated last night following disclosure by the NYT that S&P was being investigated for its muni ratings, has just taken another turn for ths surreal after S&P announced that it would most likely downgrade munis as soon as the final US budget is finalized. Granted that could very well mean never. To quote S&P: "In our opinion, the longer-term deficit reduction  framework adopted as part of the Budget Control Act of 2011 (BCA) could undermine the already fragile economic recovery and complicate aspects of state and local government fiscal management. Either of these outcomes could potentially weaken our view of certain individual credit profiles of obligors across the sector." The sector being the US munis. And from Bloomberg: "The company, which said earlier this month that states and local governments could remain AAA even after the U.S. cut, said in a report today downgrades could come after reductions in federal funding or changed policy. Ratings changes would come based on “differing levels of reliance on federal funding, and varying management capabilities,” and, after the Budget Control Act of 2011, will be felt “unevenly across the sector,” S&P said. "Experience tells me I would expect there to be some downgrades,” said S&P credit analyst Gabriel Petek in a telephone interview. “These cuts are coming in addition to the losses of revenue that already came during the recession."" Bottom line: the longer this downgrade over up to 7000 issues is deferred, and it is very much overdue right now, the bigger it will be when it finally arrives, and the greater the gloating by Meredith Whitney will be when it finally arrives.

July retail sales came in line with expectations at 0.5%, which is to be expected: after all, as Bank of America most recent implosion demonstrates all too vividly suddenly, there is a favorable trade off to millions of Americans not paying their mortgage, and also maxing out their credit cards a unprecedented rates. Naturally, the negative one is that BAC and all other mortgage lenders will need to resort to TARP 2 soon but that's in the unforeseeable future. For now: buy, buy, buy. As expected, futures surge because the ex-cars numbers rose from a revised 0.2% to 0.5%, on expectations of 0.3%. Somehow this minute beat is enough for stocks which blatantly ignored yesterday's trade data which indicates that Q2 GDP will be revised to about 0.6% from 1.3%. But this is the kind of robotic myopia we have all grown to know and love that dominates what was once a carbon-lifeform dominated stock market.

After decades of a debt financed contest to display the gaudiest plumage, is the average American happier? Considering more than 10% of all Americans are on anti-depressant drugs, I’d say not. The rat race for status, the appearance of wealth and visible faux displays of success do not increase well-being. If most of our earnings are spent on an empty game of status, we should not expect much improvement in our quality of life. There is something perverse about having more than enough. When we have more, it is never enough. It is always somewhere out there, just out of reach. This is the attitude that drives the criminals on Wall Street and politicians in Washington DC to constantly seek more power and wealth. The more we acquire, the more elusive enough becomes. Much of the debt financed purchases of consumer trinkets, baubles and gadgets is nothing more than an expensive anesthetic to deaden the pain of empty lives. Meanwhile, millions of Americans cling to their borrowed peacock feathers as the butcher of reality bears down upon them. The end won’t be pretty. The brave conquerors of strip malls across the land can enjoy their toys, gadgets, and treasures for awhile longer, but they need to remember one thing – Glory is fleeting and death can come suddenly.

When we reported on the record surge in Chinese exports over the weekend we said that "the official read of the US trade deficit which will be reported on
Tuesday, will almost certainly spike, pushing GDP expectations lower yet
again." Sure enough, the US May trade deficit just exploded to $50.2 billion, far above the consensus of $44.1 billion, and much worse than April's revised $43.6 billion. Imports, not surprisingly, surged to an all time high $225.1 billion with exports lagging, even despite the relatively weak dollar in May, which declined modestly to $174.9 billion. From the report: "The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total May exports of $174.9 billion and imports of $225.1 billion resulted in a goods and services deficit of $50.2 billion, up from $43.6 billion in April, revised. May exports were $1.0 billion less than April exports of $175.8 billion. May imports were $5.6 billion more than April imports of $219.4 billion." Accoding to Bloomberg's Brusuelas, the key culprits were petroleum and industrial supplies. For those wondering what America exports and imports: "In May, the goods deficit increased $6.7 billion from April to $64.9 billion, and the services surplus increased $0.1 billion to $14.7 billion." So why do people care about the manufacturing CPI again? Bottom line: the bean counters will now be forced to revise their Q2 GDP forecasts well lower. And while Q2 is now a scratch, the problem is that this weakness is now continuing into Q3.

Manufacturing is stagnating because of a lack of "real" investment. Which means manufacturing growth is not so organic as it is export related, which is entirely based on the "advantage" of a cheap dollar. This would help explain why industrial production is declining.

Summary: As our research illustrated in explicit detail 5 months ago, Facebook’s growth is slowing after an outrageously rich offering of private shares. Now, I’m sure that GS can put on the ole’ shuck & jive show to garner enough interest to cause an initial IPO pop, but then you are basically gambling on - I mean,,, investing in Goldman’s marketing talents and not the fundamental prospects of Facebook, no?