Econ 2009

[cheesehead]

Originally Posted by Fusion_power

Cheesehead,

While I don't entirely agree with ewmayer re his economic bearishness, I do agree with what he has posted re unemployment being a far worse picture than the govt is painting. < snip >

Did you intend that post to be addressed to a different individual, or to the forum in general?

[cheesehead]

Originally Posted by ewmayer

Did you actually bother to look deeper into the BLS data?

Did you bother to notice that I haven't disputed your recent analyses except on a few very specific points?

That I have called attention to some factors not mentioned by you or others does not mean that I disagree with what you post other than the few specific items I've explained.

So, why offer to "help" me?

[flouran]

Originally Posted by cheesehead

Did you bother to notice that I haven't disputed your recent analyses except on a few very specific points?

That I have called attention to some factors not mentioned by you or others does not mean that I disagree with what you post other than the few specific items I've explained.

So, why offer to "help" me?

Calm down, cheesehead. There is no reason to get POed so easily.

[ewmayer]

Retail Sales in U.S. Unexpectedly Fall on Concern Over Job Losses, Income: Sales at U.S. retailers unexpectedly fell in July as a boost from the cash-for-clunkers automobile incentive program failed to overcome cuts in other spending.

Retail sales were projected to rise 0.8 percent after an initially reported 0.6 percent gain in June, according to the median estimate of 76 economists in a Bloomberg News survey. Forecasts ranged from a decline of 0.9 percent to a gain of 2 percent.

Excluding automobiles, the drop in sales was the biggest since March. They were forecast to increase 0.1 percent, according to the survey median.

Americans cut back on furniture, electronics, building materials, groceries and sporting goods in July, according to the report. The drop in sales at department stores, at 1.6 percent, was the biggest this year.

My Comment: Despite with the big borrowed-money boost from the C4C program and the expected boost from the start of basck-to-school shopping, sales dropped ... including at deep discount behemoth Wal-Mart. Strangely, I saw nothing like the "11-cent drop in average price for a gallon of gasoline" the article mentions in my area - quite the opposite, in fact.

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Foreclosure Filings in U.S. Climb to Record for Third Time in Five Months: Foreclosure filings in the U.S. climbed to a record for the third time in five months in July as falling home prices and the recession left more homeowners unable to keep up payments or refinance.

My Comment: Markets sold off hard in the first hour on the above news, but then, "as if by magic" rallied and wiped out their first-hour losses. Amazingly "resilient", these markets are ... so "resilient" in fact that Wednesday`s losses were more than nullified in the first few hours yesterdays, on ONE-FIFTH the total trading volume. Interesting asymmetry there.

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And, our morning quick-glance at the market and economic headlines would simply not be complete without a nice dose of titillating Wall Street schmutz, involving none other than Bernard "Love Machine" Madoff and a certain Hadassah-hottie former client of his:

Madoff Had Affair With Ex-Hadassah CFO, Stole Life Savings, Her Book Says: An accountant who has publicly blamed imprisoned con man Bernard Madoff for stealing her family’s savings has written a book that will disclose a secret she previously withheld -- they once had an extramarital affair.

Sheryl Weinstein’s account, “Madoff’s Other Secret: Love, Money, Bernie, and Me,” will be published Aug. 25 by St. Martin’s Press. Amazon.com Inc. and Barnes & Noble Inc. are accepting advance orders through Web site listings that disclose no details about their relationship and say that the author is “to be announced.” The author is Weinstein, said John Murphy, spokesman for New York-based St. Martin’s.

Weinstein, 60, has denounced Madoff publicly at least four times this year, including at the June 29 court hearing where he was sentenced to 150 years in federal prison for masterminding the largest Ponzi scheme in history. Weinstein told the judge she met Madoff 21 years ago when she was chief financial officer at Hadassah, the Women’s Zionist Organization of America Inc.

“I now view that day as perhaps the unluckiest day of my life because of the many events set into motion that would eventually have the most profound and devastating effect on me, my husband, my child, my parents, my in-laws and all of those who depended on us,” Weinstein said at the New York hearing.

In addition to details of the affair, the hardcover book will include photographs and some intimate descriptions of Madoff, Murphy said. He declined to provide an advance copy of the book, which he said was “a fast read’ that will run about 200 pages and was ghostwritten. The cover price is $23.99.

My Comment: This may just mark the birth of a brand-new literary genre: "Ponzi Porn": "After a nice dinner - the matzoh-ball soup was *divine* - and some hot portfolio-return- and Women's-Zionist-oriented love chat (oh my, what a naughty dog, that one is), Bernie showed me his [alleged] liquid assets, while I cooed and stroked his slicked-backed thinning hair and thought of the 10%-or-more per year returns, guaranteed ... then I completely forgot myself and succumbed to his rascally charms..."

"Rumors that Madoff may respond with a written-in-prison OJ-style apologia titled 'Why I did her' elicited a terse 'no comment' from Madoff’s attorney Ira Sorkin"...

[ewmayer]

10 Year U.S. Net Private-Sector Job Creation = ZERO

FOR the first time since the Depression, the American economy has added virtually no jobs in the private sector over a 10-year period. The total number of jobs has grown a bit, but that is only because of government hiring.

The accompanying charts show the job performance from July 1999, when the economy was booming and companies were complaining about how hard it was to find workers, through July of this year, when the economy was mired in the deepest and longest recession since World War II. For the decade, there was a net gain of 121,000 private sector jobs, according to the survey of employers conducted each month by the Bureau of Labor Statistics. In an economy with 109 million such jobs, that indicated an annual growth rate for the 10 years of 0.01 percent.

Until the current downturn, the long-term annual growth rate for private sector jobs had not dipped below 1 percent since the early 1960s. Most often, the rate was well above that.

My Comment: Things look even worse when you factor in the population growth over the past decade ... over 30 million more people in the population, roughly 17 million more people in the U.S. civilian labor force, and a miniscule 121.000 net new private-sector jobs created for those 17 million new entrants into the labor force. The words "complete disaster" spring to mind.

Another interesting way to look at the same data is via the so-called "employment ratio", which (when multiplied by 100%) is the percentage of the civilian labor force which is currently working. Below is a historical chart of this from the St. Louis Fed, with recessions highlighted via dark gray vertical stripes. The ratio rises starting in the early 1960s, and goes from the mid-50% to an all-time high of ~64% in 2000, via the combination of more women entering the workforce in those 5 decades and the 2-decade-long "Greenspan secular bull market" of the 80s and 90s (Which not coincidentally coincided with the largest consumer and government debt expansion is U.S. history). By the late 80s the percentage of women in the workforce has effectively plateaued, so the remaining pop is mostly the secular Bull at work. Now notice something very interesting about the recession data: In all the recessions there is a sharp drop in the employment ratio. In all the recessions up to and including the nasty 1981-1982 one, there is also a sharp rise during the recovery, and the end of the job losses coincides very accurately with the official end of the recession (as determined by GDP stats). That correlation begins to break down in the 1990-1991 recession, where the job losses continue for 1-2 years before reversing, and coming out of the 2001-2002 recession (dotcom bubble pop + 9/11) the "jobless recovery" trend is even pronounced. With the current downturn due to to an unprecedented level of debt overhang (and hence excess economic capacity which needs to be wrung out), there is no more bubble the government can blow which will lead to organic (i.e. sustainable private-sector) jobs creation. Thus, many of the pundits who were proved right about the housing and credit bubble are predicting not even a "jobless recovery" coming out of this one, but rather a "job loss recovery", due to the huge excess capacity issue. (Think of homebuilding and auto manufacturing for prime examples of the latter - even with the one-time cash4clunkers.com program there will be nearly 50% fewer vehicles sold in the U.s. this year than at the height of the housing/credit bubble. With the U.S. consumer mired in debt, that demand for cars and homes and All Things Asian Sweatshop ain`t coming back any time soon.

Here is the historical employment ratio chart from the St. Louis Fed:

[ewmayer]

The news out central and eastern Europe continues to worsen - on top of the latest downgrades of Latvia and Estonia`s debt to various shades of "junk" and the former country reporting that their GDP shrank at a deflationary-depression-style annual rate of around 20% in the past several quarters, one of the banks having huge loan exposure to that part of the world is seeing its bad-loan percentages skyrocket:

Raiffeisen Profit Plummets on Bad Loan Provisions

Aug. 13 (Bloomberg) -- Raiffeisen International Bank- Holding AG, the Austrian bank that operates in 17 former communist countries in eastern Europe, posted a 93 percent decline in second-quarter profit as it set aside more money to cover bad loans.

Net income dropped to 22 million euros ($31 million) from 311.3 million euros a year earlier, the Vienna-based lender said today in a statement. Earnings missed the 24.1 million-euro median estimate of 16 analysts surveyed by Bloomberg.

Western banks with units in eastern Europe are facing increased loan losses as the global economic crisis threatens to destabilize economies where growth based on debt funding and exports has stalled. Raiffeisen International, which last month raised 1.25 billion euros from its majority shareholder, increased provisions for bad loans almost fivefold to 523 million euros.

...
The proportion of non-performing customer loans rose to 6.8 percent, up 3.7 percentage points from 2008, the company said in an investor presentation.

My Comment: I am afraid that a half-billion Euros will not be anywhere near enough, but Raiffeisen shares rose over 3% on this great news, probably due to the bullish spin by RI`s delusional (or lying) CEO Herbert Stepic, as quoted here [title translation mine] in Austria`s Kurier newspaper:

Raiffeisen: "Eastern Europe remains highly attractive"

...and here in the above Bloomberg article:

“Our group is well equipped in the event that the economic headwinds should continue to be strong -- and we are very well- positioned if the economic bad weather in the region actually begins to recede in 2010, as expected,” Chief Executive Officer Herbert Stepic said in the statement.

My Comment: Ten demerits for gratuitous abuse of meteorological metaphors ... but Dude, the only thing your group is well-positioned for is a rapid descent into insolvency, followed by pleas for a huge government/EU bailout.

Eastern Europe bears close watching - The spark needed to set off the next wave of the global financial crisis may very well come from there, and then ripple rapidly around the global to the interconnectedness of modern finance. It is, however, strangely gratifying to see that investors in that part of the world are no less delusionally hopefully than elsewhere:

Eastern Europe Stocks Rally as Recession Eases : Eastern European stocks surged, pushing indexes in the Czech Republic and Bulgaria to the highest levels in at least nine months, as signs Europe’s recession is ending boosted speculation earnings will improve.

Shares rallied in 15 of the region’s 17 markets and the Polish zloty strengthened after reports showed the euro region’s economy barely contracted in the second quarter as Germany and France unexpectedly returned to growth, suggesting Europe’s worst recession since World War II is coming to an end. Germany accounts for almost a third of Czech exports.

“Signs that the economy will stabilize are helping cyclical stocks such as banks,” said Radim Kramule, a Prague- based equity analyst at Ceska Sporitelna AS, a unit of Erste Group Bank AG. “The optimism was fueled by better than expected data from Germany and investors expect this will be reflected also in the Czech economy.”

The Czech statistical office will report second-quarter growth tomorrow, with economists expecting the economy to shrink an annual 4.2 percent.

My Comment: "Unexpectedly returned to growth" = European government money-printing, bailouts and economic data funny-numbering. (Denninger notes that much of the announced "better than expected" GDP was due to a collapse in imports (consumers ratcheting back), i.e. a similar phenomenon occurred with Western European GDP numbers as here in the U.S. with the July unemployment numbers. So Europe is "out of the recession", eh? Let`s get together again at year`s end and see how that panned out, shall we?

[Uncwilly]

Originally Posted by ewmayer

10 Year U.S. Net Private-Sector Job Creation = ZERO

.

Originally Posted by Uncwilly

What we may be seeing is a resetting of the economy back to a pre-WW2 style socio-economic layout.

[__HRB__]

Originally Posted by ewmayer

[...]Raiffeisen[...]

And once again Austria has sent Eastern-Europe a great man to solve a Lebensraum Wohnraum problem.

[S485122]

Originally Posted by ewmayer

"Unexpectedly returned to growth" = European government money-printing

Please note that the governments of the EURO zone have relinquished their right to "print" money. Only the European Central Bank has that right and it is "independant" from member governments, European Council and European Commission. (Of course the actual printing of banknotes is done by the different countries but it is not the same kind of printing.)

Jacob

[garo]

True but the ECB is printing money in effect. For instance it has accepted all sorts of garbage securities from Irish banks as collateral.

[ewmayer]

As gar notes, there are numerous ways for a central bank to effectively "print money" without appearing to do so. Anything which takes bad assets off banks books (or allows them to artificially value them higher than mark-to-market accounting would) and this allows them to increase/resume lending amounts to a form of money-printing, thanks to the "miracle" of fractional reserve banking.

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Stocks slump on sentiment slide: Wall Street pulls retreats after a surprise plunge in consumer sentiment. Stocks are vulnerable after ending the previous session at 10-month highs.

Shortly after the start of trading, the University of Michigan released its consumer sentiment index for August. Sentiment fell to 63.2 versus forecasts for a rise to 69. Sentiment stood at 66 in late July.

Consumer prices in largest annual fall since '50: The government's index of prices paid by consumers was unchanged in July from the previous month, but the closely watched inflation gauge recorded its largest over-the-year decline in 59 years.

The decline was led by a sharp drop in energy prices, which are down 28.1% from July 2008, when both gasoline and oil prices were at record highs.

But if you factor out volatile energy and food prices -- which is known as the Core CPI -- consumer prices rose 1.5% on an annual basis.

On a monthly basis, Core CPI gained 0.1% in July while the basic CPI was unchanged. Both measures matched economists' expectations.

"The drop in CPI is mainly due to lower gasoline prices and lower grocery store prices," said Mark Vitner, an economist at Wells Fargo Economics Group.

My Comment: Translation: "If people just switched from buying the things they have to buy on a weekly basis to buying stuff at Macy`s, inflation would return to 'normal' levels and all would be well."


Banks May Reach Point of No Return as Toxic Loans Exceed 5% of Holdings: More than 150 publicly traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bank’s equity and threaten its survival.


No New Normal as JPMorgan Sees V-Shaped Recovery With Growth Accelerating: Instead of a so-called New Normal of subdued growth, the U.S. may be heading for a robust recovery.

The worst recession since the 1930s has created a reservoir of demand that will buoy the economy, say a growing number of economists led by James Glassman at JPMorgan Chase & Co., former Federal Reserve Governor Laurence Meyer and Stephen Stanley at RBS Securities Inc.

“Whenever we have plunged off a cliff and fallen into a deep hole in the past, for a while the economy has a tendency to bounce back very quickly,” said Glassman, a senior economist at JPMorgan in New York. Glassman and his colleagues this month said forecasts of 3 percent to 4 percent growth in coming quarters may be too low given “pent-up” consumer demand.

My Comment: Excuse me while I laugh ... "reservoir of demand" ... sure, if you call a historically unprecedented level of consumer indebtedness "demand". Praytell, from whence is all that robust consumer demand to leverage up again going to come from? Regarding the ludicrous claim that in the deepest downturns "the economy has a tendency to bounce back very quickly", the 1930s just called on the psychic hotline and said that they beg to differ. No, like so many inside-the-bubble Wall Streeters, Glassman makes the usual mistake (if it really is a mistake rather than a deliberate deception) of confusing the equity market indices with the real economy: Yes, in every historically-deep bear market there has been at least a 50% bounce-back market rally, which ended with the markets making new lows. In the wake of the 1929 crash, the markets roughly doubled in the following year, before plunging nearly 90% as it became clear that the real economy and the credit markets were in a state of wreckage. Hmmm, you don`t think JPM might be talking their own book and looking to unload some of their now-bubble-priced market-long positions on Joe Retail Bagholder now, do you?

Raiffeisen Update:

Regarding my posting yesterday about Austria`s big Raiffeisen bank, my sister who lives in Austria writes:

The inside poop here in Austria has been that one of the big 5 banks will be "allowed" to fail. Which one was the subject of a lot of back-room dealing since the bank heads are affiliated with different political parties. Guess Raiffeisen drew the short straw.

Now merely because RB announced a huge increase in its loan-loss provisions this week is not a smoking gun that it will be "the one", but recent rumors on ZeroHedge also indicate that something is up with Raiffeisen. If it is "allowed to fail", I wonder what kind of ripple effects and "unexpected consequences" that will have for the European credit markets and other banks.