White House

The long-term problem in the horrendous jobs report is the strangely inconspicuous "Employment-Population Ratio" that has been nosediving for over a decade. It's the definition of a comatose economy.

It always seems that just when there is a lull in news of geopolitcal tension, we get an update that the Iranian situation gets that more unstable. After a nearly year long hiatus brought courtesy of allegedly Israeli supervirus Stuxnet taking out Iran's entire nuclear infrastructure offline for many months, the topic of Iran's nuclear capability is once again back, and starting to stink up the join. The NYT has just reported that in an attempt to preempt a possible air strike by the US or Israel, "Iran is moving its most critical nuclear fuel production to a heavily defended underground military facility outside the holy city of Qum, where it is less vulnerable to attack from the air and, the Iranians hope, the kind of cyberattack that crippled its nuclear program, according to intelligence officials." Not surprisingly, Iran has ceased any ties with the US in terms of nuclear fuel delivery: "We will no longer negotiate a fuel swap and a halt to our production of fuel,” head of Iran’s atomic energy agency, Fereydoon Abbasi said “The United States is not a safe country with which we can negotiate a fuel swap or any other issue." Well, it took the US minutes to respond: "Tommy Vietor, a spokesman for the National Security Council, said that the Iranian plan “to install and operate centrifuges at Qum,” in a facility whose existence President Obama and Europeans leaders made public two years ago, “is a violation of their United Nations security obligations and another provocative act." Next up: an update of US Naval assets in the just passed week. Time to start focusing on those Straits of Hormuz again.

• White House sharply cuts U.S. growth forecast (Reuters)
• U.S. judge pans rush in BofA $8.5 billion mortgage pact (Reuters)
• Italy cobbles together austerity compromise (FT)
• Fresh Scrutiny of BofA (WSJ)
• Fed asks BofA to list contingency plan: report (Reuters)
• Germany backs calls to widen IMF currency basket (FT)
• U.K. Warns Scotland on Costs of a Split (WSJ)
• U.S. Is Set to Sue a Dozen Big Banks Over Mortgages (NYT)
• US Deficit forecast falls below estimates (FT)

All you need to read.

Let's take a quick look at some numbers: 8, 160, 400, 350, 12 and 5. There have only been 8 weeks out of last 160 weeks that unemployment claims have been below 400 thousand claims. In normal circumstances we are worried about recessions when claims are rising above 350 thousand claims. Furthermore, jobless claims tend to plunge below 350 thousand a week within 12 months after the end of a recession. Currently we are still holding above 400 thousand claims after more than two full years since the recession statistically ended. Those are some pretty ugly numbers, but the most important number is 5. The reason that we think unemployment might move sharply higher is that every time the STA Composite Employment Index drops to a level of 5 or less the economy has been in a recession. Of course, it is during recessions that unemployment claims rise sharply as businesses cut back on their labor force to reduce costs. This is clearly seen in the chart.

• Worse than expected manufacturing PMI figures from core Eurozone countries dented risk-appetite
• Equities came under further pressure following news that Credit Agricole is removed from EuroSTOXX 50 Index, whereas Societe Generale, Intesa Sanpaolo and Unicredit are removed from STOXX Europe 50 Index
• Risk-aversion was enhanced following a lack-lustre 5-year bond auction from Spain
• The French/German spread continued to widen throughout the session partly on the back of weaker manufacturing PMI from France
• According to an article in FT, citing European source, the IMF has estimated European banks could face a capital shortfall of EUR 200bln. However, Eurozone officials strongly disagreed with the IMF’s analysis.

All you need  to read

A very positive spin on things from the CBO. Of course, politics has nothing to do with it.

Today, the CBO whipped out its trusty old magic 8 ball, and released its revised forecast of the future. Since there is a substantial difference from the March forecast for the cumulative 10 year deficit over the 2012-2021 period, to the tune of $3.250 trillion, or just about 50% of the last deficit forecast of $6,737 billion, which is now a ridiculous $3.5 trillion, it is about that time for us to, in turn, whip out trusty old history and demonstrate just how worthless and criminally incompetent the CBO's estimates of the future are. Here is what we posted two short weeks ago: "While we reserve judgment for S&P's effectiveness at being accurate in anything they do (they are, after all a rating agency and as such they goal seek results to comply with what their paying groupthink seeking customers demand), we would like to redirect to the modest topic of CBO predictive efficiency (the organization that is at the basis of the current credibility spat between Treasury and S&P, and which, incidentally has created the baseline forecast against which the debt ceiling compromise plan is supposed to cut $2.1 trillion over the next decade), by pointing out according to the same CBO back in 2001, net US indebtedness in 2011 would be negative $2.436 trillion, the ratio of debt held by the public to GDP would be 4.8%, total budget surplus would be $889 billion, and GDP would be $16.9 trillion. We won't comment on the error interval in CBO forecasts when compared to actual 2011 results, and we most certainly won't comment on the idiocy of the Treasury chastising someone, anyone, for erring, or disputing, forecasts." We will comment now: the CBO was off by tens of trillions. And it will be again. Expect massive future revisions to the August CBO baseline, which just cut the future decade cumulative deficit by 50%, however with one caveat: even the CBO admits it will most likely be horribly wrong.

The Keynesians had their chance. They controlled the Presidency and both houses of Congress. A Keynesian runs the Federal Reserve. They implemented everything they proposed. The $862 billion porkulus program, the $700 billion TARP program, home buyer tax credits, energy efficiency credits, loan modification programs, zero interest rates, QE1 and QE2. They increased social welfare transfers for Social Security, Unemployment Compensation, food stamps, Medicare, Medicaid, and Veterans by $600 billion since 2007, a 35% increase in four years. No one has foiled their plans. The Tea Party didn’t really exist until 2010. They didn’t lose the House until November 2010. They cannot blame the Tea Party extremists, but they do. The Keynesians have successfully increased Federal spending by $1.1 trillion, or 41% since 2007, and are running deficits exceeding 10% of GDP, but they call the Tea Party extremists. Domestic investment is still 9% below 2008 levels as the Federal government has crowded out the small businesses that create the jobs in this country. And now the Keynesians declare we need more stimulus, more programs, more debt, more quantitative easing and lower interest rates. It just wasn’t enough the first time. None of the Keynesian solutions worked during this crisis, just as they didn’t work during the Great Depression. The solution was simple, yet painful. The banking system needed to be saved, not the banks. The bad debt needed to be purged from the system. Wall Street criminals needed to be prosecuted. Bondholders and stockholders needed bear the losses from their foolish investments. Saving and investment in the country needed to be encouraged, while borrowing and consuming needed to be discouraged. Our leaders have failed to lead.

• Bernanke to aid recovery with gradual boost in dosage (Reuters)
• China factory output cools in August: HSBC (Reuters)
• German court to rule on Sept 7 on euro, Greek bailouts (Reuters)
• European Banks Must Pay Up to Borrow $100B (Bloomberg)
• A ‘no-growth’ boom will follow 2012 global crash (Market Watch)
• Merkel and Sarkozy Relationship Betrays Europe Crisis (Bloomberg)
• White House to Scale Back Regulations on Businesses (WSJ)

Those of us who are history buffs, specifically World War II, including events that preceded and postdated that war (1937-1947), tend to look at the Nuremberg Trials (1945-6) with different degrees of criticism.  One does not need to be a legal scholar to realize that much of the Nuremberg proceedings simulated more a lynching party, or a guillotine exhibition, than a trial conducted according to universal precepts of common law.  The defendants, prisoners of war, were not allowed to challenge the fairness of the judges, nor were they given the right to appeal.  Many of the crimes for which they were charged, and convicted of, had been and were being committed by the accusers, or their governments; at times such crimes falling under retrospective law.  And, to top it all, the trials were conducted under their own, and unchallengeable, rules of evidence. Yet, even if History ultimately renders the Nuremberg Trials as illusory justice, or even a mockery of justice, the argument will remain strong that an important purpose was served by these trials: placating the demands for justice of a bleeding continent which had shed 40 million lives and experienced ruinous destruction; even if in reality it was a victors’ justice, it was by most accounts a remarkable improvement over past historical situations where post-war resolution usually amounted to no more than vengeance over an entire nation or people.

The president, after a whirlwind media tour, has begun his much deserved vacation at Martha's Vineyard. We wonder what is the market bloodbath threshold for Obama to announce he is cancelling it, and is rolling up his sleeves to get stocks higher -3%? -5%? Here is the president's complete daily schedule:

• 10:30 am - Meets with senior economic advisers
  
• 11:50 am - Meets with national security team
  
• 3:30 pm - Departs White House
  
• 5:15 pm - Arrives Martha’s Vineyard

By then the market should be, thankfully, closed.

Relevant news

What a show Perry is putting on. Did Bernanke see this coming? Maybe