Econ 2009

[__HRB__]

Originally Posted by R.D. Silverman

Oh... And the middle class winds up getting squeezed between the two
groups.......

Aw, the poor middle class...

Unfortunately the middle class is the median voter, so they are 100% responsible for every nonsense policy in this democracy.

So, why doesn't the middle class use it's power? Because they're a bunch of misanthropic beta-humans:

Half the middle class votes socialist, because they want to improve their relative social standing by taxing the more successful.

The other half votes conservative, because they want to improve their relative social standing by not subsidizing the less successful.

[flouran]

I don't know if this is one of Obama's many bullshits, but according to:
http://www.msnbc.msn.com/id/32301569...khart_project/

President Barack Obama said Wednesday that the economy had stabilized and was beginning a slow recovery, telling NBC News in an exclusive interview that it was now his job to "make sure that ordinary people have some relief."

[ewmayer]

Merchants get punished in July: Retailers suffered their second-worst monthly sales in July, a crucial month for sellers since it also starts the back-to-school shopping period.

NEW YORK (CNNMoney.com) -- Merchants suffered their second-worst monthly sales of the year in July -- a trend that could signal that the back-to-school shopping season, the second-biggest selling period of the year, will be much weaker than expected.

Several of the nation's leading retail chains -- including mall-based specialty sellers, teen clothing chains, department store chains and even discounters -- suffered declining same-store sales last month as consumers continue to shun non-essential discretionary purchases.
...
July's slump marked the 11th consecutive month of same-store sales declines. The firm said more than half of the retailers it tracks missed their sales estimates for the month.

Last month's result was also the second worst monthly performance of the year following January's monthly same-store sales decline of 5.7%.

My Comment: Let`s see how this gets spun as a "green shoot" (or at least as "not as bad as it seems") - ah, here we go, very next paragraph:

Cooler-than-expected weather in July combined with more parents waiting to commence their school-related shopping in August when the tax-free shopping events take place hurt sales volumes last month, said Jharonne Martis, senior research analyst with Thomson Reuters.

My Comment: And, and, the dog ate my checkbook and so I had to run home and get a new one and that made me miss the end-of-July back-to-school sale, and then my credit card coughed up, like, a three-pound hairball, and stuff...here, it`s all in this note from my, um, Mom, I try to write nice like her, that`s why the writing looks my mine...

Seriously, let me get this straight - it's only warm in most of the U.S. as opposed to frickin` hot, and all of a sudden everyone stays home? That`s the best you can do, Jharonne? And you`re saying tax-free shopping events are a brand-new innovation? Oh yeah, we never had those last year...


Fed Caught Flagrantly Monetizing

(Hat tip to ZeroHedge for this link) ... In the ongoing discussion related to the Fed`s apparent commitment to "sneakily" monetize the trillions in newly-issued sovereign debt which 2009 brings us, once again in a story you will in all likelihood not hear about in any of the mainstream media, former research-biochemist-and-Pfizer-VP-turned-economic-blogger Chris Martenson has uncovered a metaphorical smoking gun this week, of the Fed monetizing debt within ONE WEEK of its issuance by way of repurchasing it via its continuing (and continually increasing-in-size) "permanent open market operations" or POMOs. Take a good look at those figures, they give you a better idea of how to parse the data published on the Fed website - of course Uncle Ben and his band of Merry Monetizers are counting on the fact that digging around the separate Treasury and Fed websites and comparing the CUSIP numbers of the various debt spitwads is an exercise only a handful of paranoid cranks (none of whom hopefully has a very big soapbox) will have the patience for:

Chris Martenson | Fed Caught Brazenly Monetizing U.S. Debt

Here's a recent example illustrating that the Fed's actions are more consistent with financial desperation than economic health.

In concert with the claims I made in the prior Martenson Insider post, The Fed bought $7 billion in Treasuries today and even more yesterday.

This is at the upper end of their recent range of already exceptional purchasing activity.

If things are so rosy that every single dip is being bought in the stock market with a vengeance, I wonder why these printing operations are really necessary?

This $14 billion plus buying activity by the Fed represents fresh money created out of this [sic] air that was exchanged for the sovereign debt of the US. However, since the Fed has, for all practical purposes, never undone its permanent operations (hey, that's why they are called "POMOs") we can consider these additions of money as good as permanent themselves.

http://www.chrismartenson.com/files/u4/Pomo_1b.jpg

http://www.chrismartenson.com/files/u4/POMO_2b.jpg

Looking at the maturity range we can see that these are all long-dated bonds with the one today specifically offering us a tantalizing clue as to how the shell game is being played.

Here's the Treasury announcement for the 7-year auction that came out on July 30 (last Thursday). Please note the specific CUSIP number circled. Every bond in this auction carries this specific identifying number.

http://www.chrismartenson.com/files/u4/POMO_3.jpg

And now let's look at the detail for this most recent POMO:

http://www.chrismartenson.com/files/u4/POMO_4.jpg

Good grief! Just last week, when the auction results were announced it was trumpeted to great fanfare that there was "more than sufficient" bid-to-cover, "strong demand" and all the rest.

And now it turns out that 47% (!) of the bonds that were taken by the primary dealers in that auction have been quietly bought by the Fed and permanently secreted to its balance sheet.

They didn't even wait a full week! A more honest and open approach would have been for the Fed to simply buy them outright at the auction but this way, using "primary dealers" and "POMOs" and all these other extra steps the basic fact that the Fed is openly monetizing US government debt is effectively hidden from a not-too-terribly inquisitive US press and public.

The speed of the shell game is accelerating.

This immediate repurchase of newly auction bonds by the Fed tells us that demand for these bonds is not nearly as high as advertised, and that things are not quite as strong as represented.

And oh, by the way, don't expect any stock market weakness while so many billions are being shoveled out the Fed and into the pockets of the primary dealers. They'll have to do something with all that freshly minted cash.....

My Comment: In related news, ever since Fannie and Freddie`s balance sheets blew up, the Fed has been purchasing GSE debt on a scale which implies that the U.S. government is now effectively acting as the lender of las resort for 95% of the entire U.S. mortgage market. As with so many other credit markets (but here on a truly staggering scale), here we have a "healing" (Bernanke`s pet word) credit market which is in fact completely moribund except for the continued IV drip of steroids and amphetamines from Uncle Sam intended to keep the Dead shuffling along in a zombie-like state until something, anything, happens to magically revive Lazarus.

End-of-Day Hat Tip: To whichever bunch of Joose-fueled prop-trading 20-somethings at GS/JPM/MS/etc did the pair of intraday stop-loss takedowns last-hour ramp job on Shittigroup shares today, congrats on a job well done - hey, no need to apologize, you can't expect to be able to run up MegaZombieInsuraCorpAIG shares 70% per day every day now, can you?

[ewmayer]

Originally Posted by flouran

I don't know if this is one of Obama's many bullshits

Uh, those are Bullshoots, my skeptical friend - you have to be careful to spell it right, otherwise you might get reported...

--------------

In related news, the White House is sponsoring a report-your-neighbor-for-healthcare-proposal-thoughtcrime program: straight from the WH web site:

There is a lot of disinformation about health insurance reform out there, spanning from control of personal finances to end of life care. These rumors often travel just below the surface via chain emails or through casual conversation. Since we can’t keep track of all of them here at the White House, we’re asking for your help. If you get an email or see something on the web about health insurance reform that seems fishy, send it to flag@whitehouse.gov.

My Comment: And just in case White House webpages which prove an embarrassment turn out to be "not quite so stubborn things", I saved a screen shot. LOL, love the link titled A New Era of Responsibility: FY 2010 Budget on the WH page, complete with inspirational quote from The Big O himself:

"A budget is more than simply numbers on a page. It is a measure of how well we are living up to our obligations to ourselves and one another." -- President Barack Obama

Indeed, a budget is more than simply numbers on a page ... it`s a bunch of 13-digit-big (rounded to the nearest Ponzi Finance Unit or PFU, chemical symbol "$") negative numbers spread out over hundreds of pages, apparently.

[flouran]

Originally Posted by ewmayer

Uh, those are Bullshoots, my skeptical friend - you have to be careful to spell it right, otherwise you might get reported...

My bad. It was a spelling mistake on my part
Is it possible for you to edit my post to bullshoots, please?

Thanks!

[ewmayer]

Originally Posted by Fusion_power

The news today is trumpeting the 'fall' in new unemployment claims. Unfortunately, this just means that there are not quite as depressingly many as we had a month ago. Spin doctoring converts this into some kind of positive. Removing the spin finds that govt measured unemployment ratcheted up another 1/10'th of a percent to about 9.6 which means that true unemployment is now nearing 18%. Compounding the problem is the expiration of benefits for about 500,000 people who can't find a job in the current economic climate. At current flow, unemployment should hit an official govt count of 10% in either November or December. Welcome to the wonderful world of semantics.

"Negative is the new positive!"

Or, as Al What-me-Worry Greenspeuman might have said,

"A moderating trend in the ostensible rate of negativization - when properly adjusted for seasonality and hedonic effects - is a possible portent of positive growth trends at some future date. Any questions?"

Originally Posted by flouran

My bad. It was a spelling mistake on my part
Is it possible for you to edit my post to bullshoots, please?

Thanks!

Too late - your dangerous grammatical heresy has already been reported to the Staatsgeheimpolizei via their public-reporting e-mail address, flag-at-whitehouse-dot-gov. You should soon be receiving either an F-bomb-filled personal phone message from Mr. Rahm Emanuel, or a personal visit by several grim men in large black SUVs.

[markr]

An article about comments by Adrian Blundell-Wignall, an economist at the OECD, worried about the risk of a "double-dip recession": http://www.theaustralian.news.com.au...-30538,00.html

"Unfortunately, we have a massive solvency problem in the financial system and that has not been dealt with," says Blundell-Wignall. Past financial crises suggest US and European governments need to take three key steps. First, stop the panic by guaranteeing the troubled banks -- so northern hemisphere governments have taken on contingent banking liabilities equal to 80 per cent or so of GDP. Second, remove the toxic assets from bank balance sheets -- which, even with the promising US Geithner plan, has not been carried through. Third, recapitalise the banks and exit the government stake -- which will require even more money to offset the underlying losses.

But pain-averse policy is now trying to muddle though without tackling step two of dealing with the toxic bank assets.

A more simplified report at http://www.abc.net.au/news/stories/2...07/2649723.htm

[ewmayer]

Originally Posted by markr

An article about comments by Adrian Blundell-Wignall, an economist at the OECD, worried about the risk of a "double-dip recession": http://www.theaustralian.news.com.au...-30538,00.html

Thanks for the links ... I asked Uncle Bennie over at the Fed what he thought about this, and he said (rough translation from Yiddish) "solvency, shmolvency - it's all about liquidity, Tier 1 capital ratios and getting banks to lend (at 10:1 leverage to their proprietary-trading desks), my boy."

A cynic (which fortunately I am not ;) might ask, "How can you have a double-dip when the first dip never really ended?" Becasue based on the actual numbers over the past year, all we've seen is at best a rate of slowing of the declines in various real-economic indicators (of which the DJIA is most certainly not one). Well, if you consider a classic decaying algebraic function like e^-x or x^-2, guess what? Even though the function relentlessly goes to zero as x --> oo and the first derivative is negative all the way, the rate of decay (i.e. the second derivative) is *positive*. The green-shoots propagandists and their paid mouthpieces in the mainstream media appear to all have been focusing on second derivatives - when they are looking at actual data (as opposed to e.g. corporate-earnings "guidance") at all.

Not that I'm saying we are headed to zero on the economic front - that is a property mainly reserved to leveraged ETFs in the investing world - but the find-an-Nth-derivative-you-like phenomenon is the same in both cases.

On to today's major news, the latest US jobs data...

-------------------

Stocks in U.S. Gain, Treasuries Drop After Better-Than-Estimated Jobs Data: [i]U.S. stocks jumped after the unemployment rate fell for the first time since April 2008, bolstering speculation that a recovering economy justifies the steepest rally in equities in seven decades. Commodities and the dollar also advanced, while Treasuries retreated.[.i]

In addition to today’s jobs data, reports this month showed better-than-estimated sales of cars and existing homes and a contraction in manufacturing that was smaller than economists forecast. The Conference Board’s index of leading economic indicators has risen three straight months.

My Comment: Better-than-expected car sales ... well, duh, of course if you spike the market by thowing 3-4 grand at every warm body willing to trade in their sub-18-mpg Amerosaur for a "new, fuel-sipping" model getting at least - pardon me while I snicker - 22 mpg, car sales will end up being "better than expected". You've also pulled forward demand by roughly as many cars as were sold due to the free-E-printed-money gievaway, making it all that much harder for the carmakers once they will again have to stand on their own. (Whether that will ever happen is now not a frivolous question). The other data cited are highly massegd by the government and that bastion of cold hard statistics without spin, the NAR.


U.S. Payroll Cuts Slow, Jobless Rate Unexpectedly Falls as Recession Eases: The pace of U.S. job losses slowed more than forecast last month and the unemployment rate dropped for the first time in more than a year, the clearest signs yet the worst slump since the Great Depression may be ending.

Mish Shedlock`s taske on the BLS numbers is here:

The official unemployment rate is 9.4% and rising. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

It reflects how unemployment feels to the average Joe on the street. U-6 is 16.3%. Both U-6 and U-3 (the so called "official" unemployment number) are poised to rise further although most likely at a slower pace than earlier this year.

Looking ahead, there is no driver for jobs and states in forced cutback mode are making matters far worse.

My Comment: Correction: The official unemployment rate actually ticked down by 0.1% this month - I think he copied most of the above from his regular monthly postings on the same data release and forgot to change the wording in a few places. But the downtick was not in any way related to actual jobs being created - the rate of losses slowed slightly, but more importantly, there were simply more out-of-work folks whom the BLS stopped counting than of the new-minted variety. For hard numbers on that, see the quote below with the Civilian Labor Force numbers - unlike headline unemployment and phony BLS-black-box "birth/death-model-imputed" jobs, those are difficult to fudge.

An anonymous ZeroHedge reader comments thusly:

We have officially entered full scale propaganda mode

Obama has moved 'All-in' on the "recession has ended" play
He has bet his presidency right here, right now

If he's wrong, he's done. There's no coming back from this, if the economy slips further.

Friday Cartoon: One of my favorite editorial cartoonists, Mike Luckovich of the Atlanta Journal-Constitution, offers this "Cash For Clunkers, in Pictures":

[cheesehead]

Originally Posted by ewmayer

A cynic (which fortunately I am not ;) might ask, "How can you have a double-dip when the first dip never really ended?"

< snip >

Even though the function relentlessly goes to zero as x --> oo and the first derivative is negative all the way, the rate of decay (i.e. the second derivative) is *positive*. The green-shoots propagandists and their paid mouthpieces in the mainstream media appear to all have been focusing on second derivatives - when they are looking at actual data (as opposed to e.g. corporate-earnings "guidance") at all.

Should we not find a mathematical "green shoot" in this surge of second-derivative awareness?

It used to be that folks rarely knew what derivatives were. Then they were all over the news (CDOs, ...). Now we are having widespread acknowledgment (the "double-dip" reference) of second-derivatives!

I say we should celebrate these recent advances in public mathematical comprehension, given the long-standing deficit in U.S. student math scores compared to other nations.

Our long national nightmare of innumeracy may be drawing to a close!

[garo]

David Rosenberg on the latest jobless data:

U.S. nonfarm payroll surprise but less than meets the eye Today's employment report is being treated as a 'green shoot' of major proportions. While it was by far the best jobs performance of the year, much of the better-than-expected tally in nonfarm payrolls reflected the bounce in auto production as well as the distortion from the federal census workers. Combined, these two influences effectively "added" 100,000 to the headline number, so net-net, the consensus view of -325,000 was not as far off the mark as the market believed at first glance.

• Payrolls came in at -247k in July — the consensus was at -325k
• Upward revisions by 43k to the back data
• Unemployment rate down to 9.4% from 9.5% (but as in Canada, due to a sliding labour force — down 422k in the U.S.)
• We are going to see a big increase in industrial production for July — manufacturing workweek jumped 0.8% MoM
• Income was surprisingly strong — average weekly earnings rose 0.5% MoM (after a 0.3% decline in June)

The auto sector added 28,200 to the industry payroll in July, which was the highest tally in 11 years. To show you just how big that really is, it is a 69% annualized surge. Normally, the industry, which is in secular decline, posts job losses of between 20,000 and 30,000 consistently, so this alone represented roughly a 50,000 swing. We estimate that there was about a 30,000 swing in the rest of the manufacturing sector due to the spillover from the current inventory adjustment in the motor vehicle industry. The 0.3% MoM increase in the workweek was also skewed by the 4.1% MoM jump in the auto sector.

[T]here have been large fluctuations in the federal government payroll too. After hiring a slew of Census workers in the spring, there were 57,000 layoffs in May-June and then we saw in today’s report that 12,000 federal workers were “hired” in July. Again, mathematically, this contributed about 20,000 to today’s headline number. In other words, and we have no intent on raining on anyone’s parade, there was about 100,000 non-recurring payrolls in that top-line figure. It may be dangerous to extrapolate today’s report into a view that we are about to fully turn the corner on the job market front.

To be sure, the drop in the unemployment rate was a surprise, but it was all due to the slide in the labour force — the employment-to-population ratio gives a more accurate picture of the slack in the labour market and the hidden secret in today’s report was that this metric slid to a 25-year low of 59.4% from 59.5% in June and 61.0% at the turn of the year. Of those unemployed, 33.8% of them have been unemployed now for over 27 weeks — a record amount (was at 29.0% in June and was at 17.5% at the start of this recession).

[ewmayer]

Consumer Bankruptcy Filings Hit Highest Level In 4 Years

The facts as reported by the American Bankruptcy Institute: consumer bankruptcy filings reached 126,434 in July, a 34.3% increase year over year, and a 8.7% increase sequentially (116,365 in June). July's number is the highest monthly bankruptcy total since the October 2005 bankruptcy reform aka the Bankruptcy Abuse Prevention and Consumer Protection Act.

My Comment: The significance of the "since 2005" bit was that 2005 marked the passage of the credit-card-industry-cosponsored Bankruptcy Reform Act (a.k.a. Debt Slavery Act - the fact that the USDOJ had to make a special *waiver* of enforcement so as to not "punish" victims of Hurricane Katrina pretty much sums it up, just substitute "life-threatening illness" for Hurricane Katrina and you get another example of where an extremely common cause of personal bankruptcy filings will frequently cause the victim to flunk the law`s "means test"), which reformed personal bankruptcy laws in similar fashion as the Enron-cosponsored 2000 Commodity Futures Modernization Act "modernized" the business of commodities speculation.


The Misunderstood Paulson/Goldman Man-Love Story

Paulson’s Calls to Goldman Tested Ethics

Before he became President George W. Bush’s Treasury secretary in 2006, Henry M. Paulson Jr. agreed to hold himself to a higher ethical standard than his predecessors. He not only sold all his holdings in Goldman Sachs, the investment bank he had run, but also specifically said that he would avoid any substantive interaction with Goldman executives for his entire term unless he first obtained an ethics waiver from the government.

But today, seven months after Mr. Paulson left office, questions are still being asked about his part in decisions last fall to prop up the teetering financial system with tens of billions of taxpayer dollars, including aid that directly benefited his former firm. Testifying on Capitol Hill last month, he was grilled about his relationship with Goldman.

“Is it possible that there’s so much conflict of interest here that all you folks don’t even realize that you’re helping people that you’re associated with?” Representative Cliff Stearns, Republican of Florida, asked Mr. Paulson at the July 16 hearing.

“I operated very consistently within the ethic guidelines I had as secretary of the Treasury,” Mr. Paulson responded, adding that he asked for an ethics waiver for his interactions with his old firm “when it became clear that we had some very significant issues with Goldman Sachs.”

Mr. Paulson did not say when he received a waiver, but copies of two waivers he received — from the White House counsel’s office and the Treasury Department — show they were issued on the afternoon of Sept. 17, 2008.

That date was in the middle of the most perilous week of the financial crisis and a day after the government agreed to lend $85 billion to the American International Group, which used the money to pay off Goldman and other big banks that were financially threatened by A.I.G.’s potential collapse.

It is common, of course, for regulators to be in contact with market participants to gather valuable industry intelligence, and financial regulators had to scramble very quickly last fall to address an unprecedented crisis. In those circumstances it would have been difficult for anyone to follow routine guidelines.

While Mr. Paulson spoke to many Wall Street executives during that period, he was in very frequent contact with Lloyd C. Blankfein, Goldman’s chief executive, according to a copy of Mr. Paulson’s calendars acquired by The New York Times through a Freedom of Information Act request.

During the week of the A.I.G. bailout alone, Mr. Paulson and Mr. Blankfein spoke two dozen times, the calendars show, far more frequently than Mr. Paulson did with other Wall Street executives.

On Sept. 17, the day Mr. Paulson secured his waivers, he and Mr. Blankfein spoke five times. Two of the calls occurred before Mr. Paulson’s waivers were granted.

My Comment: Related threads with lots of user commentary at Ritholtz.com and ZeroHedge (try to ignore the faux-author-name rude pun at the latter site, Tyler & Co have an distressing tendency to let their sophomoric instincts run wild in order to lighten the mood. On behalf of our more sober-minded readership, I apologize on their behalf for the gratuitous silliness). ZH tongue-in-cheekily suggests that rather than being a colossal breach of ethics rules and probable indicator of the Goldman-favoring collusive behavior on the part of Hammerin` Hank many have long suspected, that it was really a reflection of the deep man-love HH and Lloyd "I`m drawing a" Blankfein feel for other, Hank probably needing to call Lloyd every hour for comforting words and playfully naughty guy-on-guy banter during what surely must have been an extremely stressful time. After all, it`s not every day that you find the entire global financial system on the brink of a meltdown, and have to make hard choices like whether to bail out 2 of the chief competitors of the firm you recently ran (sorry, but the answer is no) or to bail out said firm first indirectly by way of guaranteeing AIG`s credit-default swaps and then directly, by allowing said former firm to reinvent itself as a Bank Holding Company (while magically having the leverage rules such institutions are legally subject to waived) in order to gain access to the various Fed-provided government-cash-for-financial-clunkers backstop programs. (We are please to report a 'yes' on both counts - sorry, Lehman and Merrill, tough times call for tough choices, etc).


Trading Notes: Here`s Why Freddie Mac (FRE) is Up Over 100% Today

Freddie Mac Says Its Loss From Taylor Bean May Be ‘Significant’

Aug. 10 (Bloomberg) -- Freddie Mac, the mortgage-finance company under government control being supported by taxpayers, said the collapse of lender Taylor, Bean & Whitaker Mortgage Corp. may cause it “significant” losses.

Taylor Bean, the 12th-largest U.S. mortgage originator, shuttered its lending business last week after being suspended by U.S. agencies and Freddie Mac. The Federal Housing Administration cited possible financial-statement fraud.

The Ocala, Florida-based lender accounted for about 5.2 percent of Freddie Mac’s single-family mortgage purchases last year, according to a Securities and Exchange Commission filing by the McLean, Virginia-based company on Aug. 7. Freddie Mac can force lenders to repurchase defaulted loans that weren’t of the credit quality they represented, a use of its contracts already made harder by the collapses of IndyMac Bancorp., Washington Mutual Inc. and Lehman Brothers Holdings Inc., the company said.

“We are in the process of determining our total exposure to TBW in the event it cannot perform its contractual obligations to us,” Freddie Mac said in the filing. “The amount of our losses in such event could be significant.”

Lenders bought back $1.7 billion of home loans from Freddie Mac during the first six months of this year, up from $737 million during the same period of 2008, according to the filing. Lenders also can promise to cover Freddie Mac’s losses on bad mortgages without repurchasing the debt, the company said.

Also on Aug. 7, Freddie Mac, which has taken $50.7 billion of capital under a U.S. lifeline since being seized by regulators in September, reported its first profit in two years and said that it wouldn’t seek more U.S. Treasury aid.

My Comment: What could be green-shootier that that? Note the lovely leading verbiage in the last sentence of the quoted snip - translation: "We do not intend to seek more UST aid ... however, if more UST aid is forced upon us due to the continuing deterioration in our overleveraged loan portfolio, we have no choice but to accept it..."