Divergence in thinking.
Ruminations on the Fed, the Dollar, ZIRP, QE and Math vs Magic - Hey, Even Harry Potter Has Problems...Submitted by Reggie Middleton on 10/04/2012 11:15 -0400
Yeah, even if you do believe in math over magic, remember that even Harry Potter had his issues with it...
- China Output Growth Slows as Leadership Handover Looms (Bloomberg); Weak China trade data raises Beijing spending stakes (Reuters)
- Italy Q2 GDP revised down to -0.8% year-on-year on weak domestic demand (Economic Times)
- Troika disagreed with €2 billion in Greek "cuts" (Reuters)
- No Greek bottom in sight yet: Greek IP, Manufacturing Output plunge compared to year earlier (WSJ)
- France's Hollande sees 2013 growth forecast about 0.8 pct (Reuters), France plots tax hikes of up to 20 bln euros (Reuters)
- Euro Crisis Faces Tests in German Court, Greek Infighting (Bloomberg)
- Geithner sells more AIG stock (FT)
- Japan infuriates China by agreeing to buy disputed isles (Reuters)
- Euro crisis to worsen, Greece could exit euro: Swedish FinMin Anders Borg (Economic Times)
- ‘Lead or leave euro’, Soros tells Germany (FT)
- German MP makes new court complaint against euro plans (Reuters)
- Obama super-Pac in push to raise $150m (FT)
The three "de's:" deregulation, desupervision, and de facto decriminalization.
This is looking more and more like a modem-day depression. After all, last month alone, 85,000 Americans signed on for Social Security disability cheques, which exceeded the 80,000 net new jobs that were created: and a record 46 million Americans or 14.8% of the population (also a record) are in the Food Stamp program (participation averaged 7.9% from 1970 to 2000, by way of contrast) — enrollment has risen an average of over 400,000 per month over the past four years. A record share of 41% pay zero national incomes tax as well (58 million), a share that has doubled over the past two decades. Increasingly, the U.S. is following in the footsteps of Europe of becoming a nation of dependants. Meanwhile, policy stimulus, whether traditional or non-conventional, are still falling well short of generating self-sustaining economic growth.
- Lieborgate fallout: Bank of England Governor Sir Mervyn King faces MPs (Telegraph)
- Yahoo's brand new CEO to seek maternity leave shortly (NYT)
- China’s Foreign Investment Drops 6.9% In June (Bloomberg)
- Falling property investment drives China H1 FDI drop (Reuters)
- German Court Delays Ruling on Fund (WSJ)
- Fed's George Says U.S. Growth May Not Exceed 2% in 2012 (Bloomberg)
- China Echoes 2009 Stimulus Planned Railway Spending Boost (Bloomberg)
- ZEW: Investor Outlook For German Econ At Six-Month Low (MNI)
- Fed Shifts Focus To Jobs As Unemployment Stalls Above 8% (Bloomberg)
- Goldman Builds Private Bank (WSJ) - lock in those deposits asap
- UniCredit, Intesa Among 13 Italian Banks Cut By Moody’s (Bloomberg)
Potential employers have to respond to the incentives and disincentives that exist in today's world, and those do not favor conventional permanent employees. We know you're hard-working, motivated, tech-savvy and willing to learn. The reason we can't hire you has nothing to do with your work ethic or skills; it's the high-cost of the Status Quo, and the many perverse consequences of maintaining a failing Status Quo. The sad truth is that it's costly and risky to hire anyone to do anything, and "bankable projects" that might generate profit/require more labor are few and far between. The economy is different now, and wishing it were unchanged from 30 years ago won't reverse the clock. We have to respond to the incentives and disincentives that exist in today's world, and those do not favor conventional permanent employees except in sectors that are largely walled off from the market economy: government, healthcare, etc. But these moated sectors cannot remain isolated from the deflationary market economy forever.
If we pursue the line of inquiry established by Chris Martenson’s recent call to Buckle Up -- Market Breakdown in Progress, we come to these basic questions: When will the market reflect the fundamental weakness of the global economy? And when will the market finally hit bottom? Clearly, the correlation between market action and the underlying economy is weak. While many would declare the stock market to be a “lagging indicator” of recession, even that may be overstating the connection. If we have learned anything in the past three years, it’s that weakening the dollar to foster the illusion of rising corporate profits, central bank monetary easing (QE), and central state borrow-and-spend stimulus can goose the market higher even as the underlying economy remains weak or recessionary. Will the Fed continue to support the U.S. market with QE programs every time it sags? Will QE always work as well as it did in 2010 and 2011? If the history of the deflationary-era Nikkei is any guide (and the BoJ's unprecedented monetary easing while the central government has borrowed and spent unprecedented sums on fiscal stimulus), the bottom could be a year away.
“Public debt is an enemy for the country”
Bloomberg viewers estimate that Ron Paul was the winner of the clash of the Pauls. But that is very much beside the point. This wasn’t really a debate. Other than the fascinating moment where Krugman denied defending the economic policies of Diocletian, very little new was said, and the two combatants mainly talked past each other. The real debate happened early last decade.
Better stock up on the Depends now.
Household net worth has recovered (nominally) around $8.0tn of the $16.4tn lost during the crisis but there has been a regime-shift in terms of the volatility of household net worth since the late 90s. As Credit Suisse notes, this hugely increased and skewed volatility has fueled heightened risk aversion among consumers and retail investors. Just as non-financial corporations are hoarding cash (on the back of their memories of the credit crisis contraction in the money markets), the lesson corporate America will not soon forget is just as resonant with Households as they value liquidity and cash (and safety) much more highly now than ever before.
No Record Profits For Old Assets: Jim Montier On Unsustainable Parabolic Margin Expansion For DummiesSubmitted by Tyler Durden on 03/20/2012 21:37 -0400
It is widely known that US corporate profits recently hit an all time high. What is less known is that in Q4, profit margins for the first time rolled over by 27 bps, and double that if one excludes Apple. What is very much irrelevant, is that to Wall Street none of this matters, and the consensus (of which GMO's Jim Montier says "the Wall Street consensus has a pretty good record of being completely and utterly wrong") believes that Q4 will be largely ignored, and margins will continue soaring ever higher. Well, the same Montier, has a thing or two to say about this consensus surge in profits ("it is almost unthinkable that it will remain at current levels over the course of the next few years"). More importantly he looks at the Kalecki profits equation, and finds something rather peculiar. Namely Japan. Because while taking the profits equation at its face value would surely explain the 10.2% in corporate profits, of which a whopping 75% is thanks to America's burgeoning deficit, it would imply that Japanese corporate profitability, where there has been not only a long-running current account surplus, but zero household savings, and massive fiscal deficits, should be off the charts. Instead it is collapsing. Why? Montier has some ideas which may force Wall Street to renounce its bullish views, although probably won't. However, the implications of his conclusion are far more substantial, and if appreciated by corporate America (whose aging asset base is the problem), may ultimately result in a revitalization of the corporate asset base, however not before the dividend chasing frenzy pops in the latest and greatest bubble collapse.
Americans have an illogical love affair with their vehicles. There are 209 million licensed drivers in the U.S. and 260 million vehicles. The U.S. has a higher number of motor vehicles per capita than every country in the world at 845 per 1,000 people. Germany has 540; Japan has 593; Britain has 525; and China has 37. The population of the United States has risen from 203 million in 1970 to 311 million today, an increase of 108 million in 42 years. Over this same time frame, the number of motor vehicles on our crumbling highways has grown by 150 million. This might explain why a country that has 4.5% of the world’s population consumes 22% of the world’s daily oil supply. This might also further explain the Iraq War, the Afghanistan occupation, the Libyan “intervention”, and the coming war with Iran. Automobiles have been a vital component in the financial Ponzi scheme that has passed for our economic system over the last thirty years. For most of the past thirty years annual vehicle sales have ranged between 15 million and 20 million, with only occasional drops below that level during recessions. They actually surged during the 2001-2002 recession as Americans dutifully obeyed their moron President and bought millions of monster SUVs, Hummers, and Silverado pickups with 0% financing from GM to defeat terrorism. Alan Greenspan provided the fuel, with ridiculously low interest rates. The Madison Avenue media maggots provided the transmission fluid by convincing millions of willfully ignorant Americans to buy or lease vehicles they couldn’t afford. And the financially clueless dupes pushed the pedal to the metal, until everyone went off the cliff in 2008.
It was literally a matter of hours following the release of the now historic Greg Smith "Muppets" Op-Ed, before the true criminals enabling the slow motion trainwreck of the Keynesian klepto-fascist experiment became heard. Sure enough, here is Elijah Cumming indicating he has the most to gain by scapegoating a firm that between Vampire Squids and Muppets is slowly being mocked into the same relevancy as an HR Giger petting zoo.