Misery Economic Theater 2011

[ewmayer]

Originally Posted by cheesehead

Guess what the top U.S. export is?

petroleum fuels (gasoline, diesel, and jet fuel)

Interesting - and here I thought it was weapons. (That article mentions over $100 Bln in planned sales for 2011, which would beat the figure for oil-related stuff if true.)

Originally Posted by Fusion_power

As a suggestion for 2012 Ewmayer, why not have a prognostication contest. In the first week of the year, post your 10 best predictions of what will happen to the economy at the local and world wide level. At the end of the year, see who scored the most hits. It would be nice to get participation from as many different countries as possible.

Good suggestion - I have typically started each annual installment of the MET thread with such predictions, but perhaps the framework should be better-defined. In accordance with your suggestion I shall open the MET2012K thread with a prediction list of Top Ten Macro Themes for 2012, coupled with a market call (see my note about my annual EOY coffee-shop bet below.)


On the subject of coming-year predictions: Just for end-of-year giggles I forced myself to watch Nightly Business Report on PBS last night - and note this is considered to be a pretty sober show as these "biznis showz" go. Just like last year they again trotted out chief equity strategerist (or whatever his real title is) Sam Stovall of Standard & Poors as their EOY special guest, and asked him what kind of year 2012 would be for equities (for Sam that means the S&P500, by definition). He confidently predicted a "low double-digit percentage gain" for the index in the coming year. The show host nodded in either agreement or in deference to the superior wisdom of Mr. Stovall, and of course utterly neglected to note that Mr. Stovall had predicted essentially the same thing for 2011 in his EOY appearance on NBR last year. In fact, the S&P finished the year almost exactly where it started. [ZeroHedge has a broader review of such asinine predictions by overpaid sellside shills here.]

As it happens I have some small interest in the YoY performance of the S&P500 because at the end of each of the past several years I have a made a small bet with 2 of my local-coffee-shop buddies, Dan S. and Hunter D., about what the coming year will bring for the economy and markets, as translated into the coming-year performance of the S&P500. If 2 or more of us predict similar things for the index we add a side bet as a tiebreaker. Last year Dan [a professional money manager, who to his credit has done a very good job at preserving his clients' wealth over the past years, including 2008-2009] predicted the S&P500 would finish the year up [= +5% or more]. Hunter and I, who are persistently (and often wrongly) more bearishly inclined than Dan, both predicted a flat year [-5% to +5%], and added the EOY per-barrel price of oil [specifically light sweet crude] as a tiebreaker, in case or S&P500 prediction was closer to the actual YoY result than Dan's was. I predicted oil above $95, Hunter said below. So I won this year's coffee-shop bet, which means I get to buy coffee for the group tomorrow. I neglected to post that bet in my 2011-opening post here, however; this year I will include it with (or sonn after) my opening Top Ten Macro Themes for 2012.

Now, time to review my 2011 predictions opening this thread - I admit these were broader (unkind people might say "wishy-washy") than one would like from a highly-paid investment newsletter writer such as myself. :) Here they are (in italics), with my comments interspersed:

1. Governments and central banks in major debt-wracked countries will continue doing everything in their power (and quite a few things outside it) to protect the global banking and financial cabal. In the U.S., I expect in particular to see an attempt to retroactively legalize (or forgive on exceedingly lenient terms) the colossal fraud now coming to light which permeated the entire mortgage-involved financial food chain during the housing bubble, from home appraisals to mortgage processing to securitization and now to foreclosure. This could get very interesting, though, because many of the pension and investment funds which ended up buying the toxic result of the process have deep pockets and are lawyering up in a big way.

Bingo - There were several multibillion-dollar mortgage-fraud settlements in 2011, but there was also a concerted effort to get all 50 state attorneys general to sign off on a sweeping agreement which would give the banks broad immunity from further legal actions in exchange for what is (in relative terms) a wrist-slap fine. Currently the flaw in that ointment is that 2 states hit especially hard by the housing bubble-and bust, Nevada and California, are resisting the get-out-of-jail-nearly-free 'solution'.

2. The U.S. government will continue to try to work the structural economic problems facing the nation from the completely wrong end, that is, continuing to stimulate consumer overconsumption, that is, trying to borrow and spend the nation out of a deep economic hole caused by too much borrowing and spending.

An admittedly embarrassingly easy call. Interestingly, while still-debt-laden consumers are resisting leveraging up in most areas, one place where the government has been 'successful' in creating another giant debt bubble is student loans.

3. The mainstream media will continue furiously pumping the" everything's coming up roses" meme - collective bullishness and the amount of self-congratulatory back-slapping at the end of 2010 are both at highs not seen since 2007 - and very, very few of the mainstream media and economic pundits will seriously address the central issue of: "If there is not the earnings power to sustain it, how can it be sustained?" But I suspect behind the scenes in the circles of power an increasing number of people will be asking "if this is a recovery, where are the jobs?" and perhaps wonder whether the fact that the "jobless recovery" phenomenon has gotten progressively worse coming out of each of the past 3 recessions. At the same time, the manipulation of official government data in order to present a rosy illusion will reach ridiculous extremes - for example, the very last weekly jobless claims numbers of 2010 "looked great" as they dropped below 400,000, but that number included a whopping "seasonal adjustment" which reduced the actual claims by 150,000, with no credible explanation why the SA was so much larger than both for the previous week and for the same week of the previous year. (The non-SA claims number in fact deteriorated, but that number was lost in the glare of the manipulated "headline" number.)

Another easy call, though the permabull thesis was challenged by a persistent backdrop of negative news from the rapidly worsening situation in Europe. In the U.S., the official unemployment rate dropped below 9% (and a whopping 0.4% in the last monthly report for the calendar year, the one for November), and the fact that none of the drop was due to any actual net *hiring* (total employment is lower than it was a year ago) was roundly ignored by the mainstream media.

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Lastly, allow me to close out the year here on a lighter note: ZeroHedge has a funny take on a popular modern parable about debt which has been making the internet rounds:

Friday Humor: Unspinning The "€100 Bill" Or How The European Bailout REALLY 'Works'

The unlampooned (first) version of the parable is actually a good way to illustrate misconceptions about money and debt, albeit not in the way the politicians and bankers would have one believe. See if you can figure it out. (Hint: Think in terms of net debt).

Happy New Year, everyone - see you on the other side! I shall post the 2012 thread in a few hours.

[Prime95]

Originally Posted by ewmayer

there was also a concerted effort to get all 50 state attorneys general to sign off on a sweeping agreement which would give the banks broad immunity from further legal actions in exchange for what is (in relative terms) a wrist-slap fine. Currently the flaw in that ointment is that 2 states hit especially hard by the housing bubble-and bust, Nevada and California, are resisting the get-out-of-jail-nearly-free 'solution'.

The Florida AG is also fighting hard against this. She firmly believes that NO penalty should be paid at all!! A stern talking to is all that's required. She fired the 2 lead mortgage fraud investigators.

[cheesehead]

Originally Posted by Fusion_power

That article is very misleading cheesehead.

I don't see how it's misleading or contradicts what you wrote. Are you making that accusation simply because it doesn't explicitly mention that exported gasoline includes blended ethanol? ("single biggest reason" seems like a judgment call rather than established fact.)

What proportion of exported gasoline includes blended ethanol?

[cheesehead]

Originally Posted by ewmayer

Interesting - and here I thought it was weapons. (That article mentions over $100 Bln in planned sales for 2011, which would beat the figure for oil-related stuff if true.)

Perhaps you're right, but I read the $88 billion fuel export figure as being for the first ten months of 2011 rather than the estimate for the whole year. _If_ that's the case, then 1.2 * $88 billion = $105.6 billion for twelve months, which beats the $103 billion estimate for weapons.