Bad Seats, Hey Buddy!
Posted By thestatedtruth.com on January 5, 2012
This is what can happen on a bad day in the stock market……..bad seats, hey buddy! Buuuddy was the Cat.
A 2012 Macro View Of The Economy From The Masters Of The Universe
Posted By thestatedtruth.com on January 5, 2012
Bridgewater Review For 2012
This Bridgewater review of 2012 is highly regarded. I have highlighted it below…..everyone should print this out and post it in a viewable place. These guys run the largest hedge fund in the world and are among the top 5 smartest managers anywhere. They’re not always right, but they are right more often then anybody else we know of, year in and year out. Capice!
Here Are Exerts From The Wall Street Journal:
Founded in 1976 by Ray Dalio, Bridgewater manages $125 billion and has 1,400 employees. The firm’s clients are institutions such as pension funds and endowments, along with foreign governments and central banks.
Robert Prince, co-chief investment officer at Bridgewater, and his managers at the world’s biggest hedge fund firm are preparing for at least a decade of slow growth and high unemployment for the big developed economies. Mr. Prince describes those economies the U.S. and Europe, in particular as “zombies” and says they will remain that way until they work through their mountains of debt.
“What you have is a picture of broken economic systems that are operating on life support,” Mr. Prince says. “We’re in a secular deleveraging that will probably take 15 to 20 years to work through and we’re just four years in.”
In Europe, “the debt crisis is [a] long ways from over,” he says. The economic and financial morass will mean interest rates in the U.S. and Europe will essentially be locked at zero for years.
The views of Bridgewater are keenly watched by other investors, given the firm’s elevated status in the competitive world of hedge-fund investing. Bridgewater’s flagship Pure Alpha Strategy fund is considered one of the top funds in the world. As of the end of November, it was up 25% since the start of the year, according to people familiar with the situation. The average macro fund had lost 3.7%, according to Hedge Fund Research.
Currently, the fund is positioned for higher gold prices, stronger Asian emerging-market currencies and lower yields across high-quality government bond markets, Mr. Prince says.
In 2011, it profited from owning gold, but cut back on that position during the third quarter. It correctly pivoted from being bearish on U.S. Treasurys early in the year to positioning for a rally. It also benefited from rallies in core European bond markets and avoided ugly losses sustained by other macro funds that had bet the euro would fall against the dollar. Instead, it rightly bet that the euro would fall against the Japanese yen.
Pure Alpha has been up each year since 2000, and has recorded just three negative calendar years since 1991. In 2008, the fund returned 9.4% after fees, and after a 2% gain in 2009, its smallest of the decade, Bridgewater posted a 44.8% return in 2010.
In a conference room at Bridgewater’s headquarters, Mr. Prince paints a grim picture of the challenges facing the U.S. and European economies.
Recent better-than-expected news on the U.S. economy is unlikely to be the start of a healthy expansion, he says. The uptick in economic growth has been fueled by a decline in the savings rate, which, without material income and employment gains, is unlikely to be sustainable as long-term credit growth also remains weak, he says.
The problem for the U.S, says Mr. Prince, is that it is on the wrong side of a long-term debt cycle.
“We were in a leveraging-up period for 60 years, from the early 1950s to 2008,” he says. This debt bubble was self-reinforcing on the way up, and “when it tipped over, it set about a self-reinforcing process on the way down.”
As evidence for the long slog facing the U.S economy, he notes that the level of leverage, as measured by comparing household income to net worth, is still higher than it was before 2008.
“The most likely environment is moderate growth with wiggles up and down and this is one of those wiggles up,” he says.
Against this backdrop, the Federal Reserve will need to do more quantitative easing, buying of government bonds, but Mr. Prince says the purchases will probably be sporadic.
Europe, meanwhile, is headed into a potentially deep recession, with policy makers boxed in by an interconnected banking and sovereign-debt crisis.
“You’ve got insolvent banks supporting insolvent sovereigns and insolvent sovereigns supporting insolvent banks,” he says.
Meanwhile, gold prices should resume a rally amid continued printing of money by the Fed and other central banks, Mr. Prince says. Those efforts effectively devalue those countries’ currencies compared with gold.
A moribund economic outlook “is pretty priced in right now,” he says. “If we have a long, drawn out deleveraging process without substantial air pockets, chances are equities are a pretty good bet, ironically.”
Gasoline Demand Plunges
Posted By thestatedtruth.com on January 5, 2012
Folks, this is starting to look like a trend. It may be a combination of things, i.e., less driving, newer cars with better mpg, and older demographics in play (which means less driving) or….it could just be a freak of nature? Never the less, prices have come down, but not as much as one would surmise in retrospect. We’ll remind everyone that while the peek driving season into Memorial Day lies dead ahead, so do seasonally higher gas prices.
From Bloomberg:
When it comes to determining real consumer purchasing power, the real answer lies at the pump. According to MasterCard, U.S. gasoline demand sank 14 percent from the prior week to the lowest level in more than seven years of records. “Drivers bought 8.16 million barrels a day of gasoline in the week ended Dec. 30, down from 9.46 million the week before, according to MasterCard’s SpendingPulse report. MasterCard’s data goes back to July 2004.”
Tech Guru Gene Inger Digs Into Next Weeks (Much Awaited) Consumer Electronics Show In Las Vegas
Posted By thestatedtruth.com on January 5, 2012
Our good friend Gene Inger of www.ingerletter.com is heading out West to the annual Consumer Electronics Show in Las Vegas next week. Gene has been reporting on this show for as long as we can remember, and knows his electronics well. We think this review will be well worth reading. In fact, we know of no one that reports and understands this show better!
CES Preview – preparing for CES next week, I’m already envisioning what all my colleagues in the analyst and press will likely be ‘buzzing’ about. Will it be a ‘glasses free 3D LED/LCD HDTV’, such as Toshiba will be showing; or the LG (rapidly on Samsung and Sony’s heels with the best passive 3D at lower price points, and with excellent 2D to 3D conversion), and their impressive 84″ LED 3D set; the world’s largest that will be priced under 10k (well under later in ’12).
Or will it be an upcoming Intel chip which integrates graphics within the chipset using 3D transistor 28 nm wafers; or maybe even the latest hybrid ‘ultrabooks’, with touchpad screens and detachable keyboards allowing use as a tablet (yes this differs from iPad or others as these will be full Intel-powered computers; as will have more power for any use), as these typically will attempt to nibble at the ‘thin notebook’ McBook Air market, even as most realize ultrabooks won’t be a decent seller, at least until Windows 8 appears, presumably later in 2012.
Maybe the talk will be about a combo smartphone / attachable screen (such as last year’s Motorola Atrix, which I too liked, but given that it was a hard-wired connection, not wireless, was a drawback in my view) and of course the wider deployment of LTE (super high speed, and we use it every day with a Verizon wireless mobile hotspot) for cellular data speeds that are almost incredible for wireless systems (slightly shy of cable/fiber, but LTE is ‘tier-based’ data billing; so it’s very expensive to use (in the manner we actually do; about a GB a day).
All of these promise interesting revolutions or evolutions. We even hear that Sony will be showing a new screen that is thinner and higher resolution (the LG is too) than anything ever seen outside of medical or military applications.
Actually ‘connected TV’s, which means integrating television and the internet, will be the rage; or worries about where that’s going will cause rage. So far the best systems at least allow checking internet sites, apps, etc., without shifting ‘source’ (inputs) to the TV, as was needed only a couple years ago. LG has a very well integrated method of doing this, on models with standard WiFi, and a ‘Wii’-like remote that requires no fumbling for buttons but controls a blue cursor on the screen for changes. The new model to be shown will add ‘voice’ so that it becomes possible to direct your TV, sort of like ‘Siri’ on an iPhone 4s.
This is going to take me to what I suspect will be the rage, or nerve-wracking, chatter at CES. For a few years now; Apple always gets buzz, even while they have not attended (aside all the accessory exhibitors of which hundreds are present). Everyone is speculating about ‘Apple TV’ (not the current add-on; but even it is rumored to have a major upgrade coming this year). Rumors suggest the first version will be a 32″ (too small for prime-time living rooms) LED unit; with voice command.
We think LG sort of one-upped them on this with ‘voice command’ as close as they could competitively; and if Apple indeed only tops-out the first year at 32″ (I don’t believe that and think it’s a ploy to cause large-panel makers to believe that Apple will not start-out with a larger screen . . . especially since I hear they contracted with LG for the screen panels). Ironically if they only did a 32″ unit, it will leave LG with the only button-less capability (depends how integration of voice and motion functions diminish some need for a cable or satellite remote). The term for these integrated sets is iTV (funny; in England that’s a network).
What Apple has going for them if my guess is right (and we may hear more this year at MacWorld, which they ARE participating in again) is ‘Siri’integration (of course that’s a Nuance-based voice system using Apple’s ‘cloud’ data center in North Carolina, which is why it works far more reliably on WiFi than 3 or 4G as very little is done on one’s phone or forthcoming device, but on the big Servers of course). This will allow an Apple TV to function like a gigantic iPad but with a live or DVR-based TV and ‘sync’ capability that will likely be automatic through the cloud and easier than any of the systems others have shown so far.
Also, it is amazing that everyone continues to focus on Apple’s great hardware with of course the great multi-product synergy. Capturing the music industry is profitable for everyone; but recording labels failed to understand the revolution iTunes was creating. More importantly, Sony failed to integrate and has trouble as a result (now they are trying; but not quite there yet; so need to surprise us).
We think Apple TV is probably almost ready, with this hitch: movie studios don’t want to repeat the capitulation the record companies did; which is why even as Apple doesn’t own a label or studio (unlike Sony Pictures or Music, the former Columbia Pictures and Records), this time they have not been able to sign the major studios onto this, at least not ‘yet’. They may have to ‘pay up’ to get the rights they seek; which may go beyond what you’ve seen available thus far (at this point release of HD or 3D films for download/streaming the first day DVD’s are available is the best available; Apple seeks to change that we suspect).
It is rumored negotiating to offer ‘a la cartenetworking programming; which will take the battle directly to Comcast and others, if they can secure TV rights on top of film studio rights. According to sources close to motion pictures and TV in LA (I’m meeting with a couple in Las Vegas at a Varietygathering); cable as well as all over-air and cable/satellite-networks are are aware of this threat and believe Apple seeks to destroy their business models entirely. Let’s say that all you want is CNBC and Bloomberg as well as CNN and Fox and the networks all are free as they have local stations in your community. You could purchase just those; and skip all the rest.
Consumer costs would instantly become a fraction of current monthly Comcast or comparable bills, and Apple will have done to cable what it did to music. Any wonder Comcast bought part of NBC-Universal; could it be just so they could in fact deflect Apple? No body says that; but I’m thinking it. So many marginal cable networks survive on a combination of ‘adds’ and per-subscriber monthly fees whether the cable user ever watches a channel or not; many probably go out of business in time if Apple is or were to be successful. Apple becomes the electronic ‘WalMart’of media; offering what you want at the expense of others. I also just thought of the WalMart analogy; let’s see if that resonates anywhere, as I think that’s essentially their master plan.
They also did it in smartphones; as all others are vastly improved; but Apple set-the-barvery high and forced a redesign of everyone else’s products. All of those manufacturers scrambled to catch-up; and now iPhone 5 (probably late 2012 at the earliest, with the new low-power-consumption LTC chip, and new higher resolution and a modified form-factor with aluminum on the rear and a rubberized strip around the unit to separate the halves and assist easy grip) is on the horizon to re-set that bar yet again. So all the new products will wonder if they’ll be new come 2012’s holiday shopping season, which is the biggest smartphone sales period of any year.
Finally, we think nobody has integrated AirPlay like Apple has; and that means that a new Apple TV (we hear 50″ is sitting in their development lab not just 32″ models) will integrate with everything from Siri, to iPhones, to voice command, to iMacs, to even gaming, etc. ALL of this links through the giant data center.
Notice that most of this related to Apple (a non-CES participant); and not Ford, who will display a new simplified Sync (we suspect); or Audi (yes they’re there) or Microsoft. In their last exhibit (and as Microsoft departs CES it may be a bit like when IBM pulled-out and years ago the prurient-side of the business was forced to leave; that’s why the Adult Video Show & Awards occurs concurrently at the Venetian (of course I wouldn’t dream of attending that). Seriously; years ago Shelly Adelson sold what was then Comdex, used the money to buy the old Sands, demolished all but the convention part, and built Venetian/Pallazzo.
The shows thusly separated actually allow Adelson to profit on the adult expo. to this day. (Las Vegas Sands was one of our best short-sales in 2007; from well over 100 to almost nothing; and now they are doing a bit better; mostly of course due to Macao, not Las Vegas.) Anyway, for any curious of CES history, there it is. But I intended to mention Microsoft.
Microsoft is rapidly advancing their X-box ‘Kincect Controller’, which also has voice navigation, and we think gravitates more into entertainment venues too; even as most think that Microsoft ‘bowing out’ of CES means nothing new to announce. We think it’s just that trade shows are less relevant for all buy retail firm ‘buyers’; as this is the internet era which eliminates lows of middlemen and trade shows; and further makes ‘sales reps’ for manufacturers visiting retailers mostly a thing of the past. The margins are just too tight to allow this; which we think is why there will be a focus not only on iTV, but 3D passive (better than active by a 4×1 vote; and no headaches) and when cheaper; glasses free.
For myself every year I think, well, maybe this will be my last CES. Each time, starting with running into an old RCA engineer who remembered me from NYC television, and turning me onto DirecTV (then Hughes Electronics which was a very profitable selection back in the mid-’90’s), or CheckPoint (also profitable); or some others; you never know what conversations one will have and what is going to be ‘slipped’ (like the Broadcom / Qualcommbattle where I learned just a bit last year about integrating ‘world phones’ in a single CDMA / GSM / LTE chip, from one of those firm’s senior guys seated next to me after just coaxing him to enjoy a couple extra Jack Daniels cocktails.
So that’s my preview (won’t even touch on the myriad of wireless speakers or AirPlay capable devices expected) of the main focus coming up next week. I’ll touch on matters as they unfold (given available time); but this year due to the schedule being more intense personally than usual; I may just summarize the salient developments after the Show. Perhaps I mostly just did so in-advance.
Gene Inger www.ingerletter.com
FOMC Minutes: Fed To Start Releasing Official Fed Funds Rate Forecasts
Posted By thestatedtruth.com on January 3, 2012
Hmm…..things are good, until they’re not! Then it’s to late to save anybody.
Bloomberg:
- SEVERAL ON FOMC FAVORED CHANGE TO MID-2013 RATE VOW BEFORE LONG
- FOMC SAID GLOBAL FINANCIAL STRAINS POSE `SIGNIFICANT’ RISK
- FED PLANS TO RELEASE OFFICIALS’ FED FUNDS RATE FORECASTS
- FOMC MEMBERS SAW LONG-TERM INFLATION EXPECTATIONS AS STABLE
- FOMC MEMBERS SAW ECONOMY `EXPANDING AT A MODERATE RATE’
- FOMC MEMBERS SAID CONSUMER SPENDING `STRONGER THAN EXPECTED’
- MOST FOMC MEMBERS PREDICTED INFLATION WOULD `MODERATE’
- ‘A NUMBER’ OF FOMC MEMBERS SAW POSSIBLE NEED FOR MORE EASING
The Future May Be In Natural Gas…But That’s Also The Problem
Posted By thestatedtruth.com on December 31, 2011
At the close of 2011, U.S. natural gas prices sat at their lowest point in more than two years and the lowest winter price in ten years. All the while natural gas production in the lower 48 states hit an all time record of 71.3 billion cubic feet a day in October, according to the latest U.S. Department of Energy data. To make matters worse, “American natural gas production growth is essentially useless at this particular point in time since you can’t make any profit on North American natural gas,” this according to EOG Resources Inc. Chief Executive Mark Papa.
Prices for natural gas have been under pressure over the last couple of years, as new drilling techniques unlocked vast new stores of natural gas from shale formations and other so-called unconventional reservoirs.
But in the last two months, the steady price decline has turned into a free-fall, as unusually mild temperatures across much of the U.S. have damped demand for gas to heat homes and offices.
Natural gas for February delivery settled Friday at $2.989 per million British thermal units, the lowest closing price for the commodity since September 2009. It closed below $3 in the winter for the first time in nearly a decade.
“The sub-$3 levels for gas prices in the winter really point to the incredible amount of nonconventional gas that has come onto the market the last two years,” said Gene McGillian, analyst at Tradition Energy in Stamford, Conn. “Our production levels, our mild winter and the gas we have in storage have combined to crush natural gas prices this month.”
Natural gas traded as high as $13 per million British thermal units in July 2008. But in recent years, domestic production boomed, with horizontal drilling techniques and hydraulic fracturing, or “fracking,” helping producers unleash a flood of gas from shale formations in Pennsylvania, Arkansas and elsewhere.
The number of rigs in the U.S. targeting gas reservoirs has fallen to 809, down 110 from a year ago, oilfield services company Baker Hughes Inc. said Thursday. Many of those rigs have been steered to more profitable oil basins; the number targeting oil has rocketed to 1,193, up 428 from a year ago, according to Baker Hughes.
Mild Weather Blankits Most Of The U.S. On New Years Day
Posted By thestatedtruth.com on December 31, 2011
Unusual weather patterns are creating an interesting twist to normally harsh winter areas in the United States….Just 19.6 percent of the continental United States is covered in snow, according to the latest snow analysis by NOAA, compared with 50.3 percent this time last year.
From the Washington Post:
At the National Arboretum, the white petals of snowdrops — normally an early spring flower — have unfurled. In Maine’s Acadia National Park, lakes still have patches of open water instead of being frozen solid. And in Donna Izlar’s back yard in downtown Atlanta, the apricot tree has started blooming.
It’s not in your imagination. The unusually mild temperatures across several regions of the country in the past few months are disrupting the natural cycles that define the winter landscape.
What began as elevated temperatures at the start of fall in parts of the United States have become “dramatically” warmer around the Great Lakes and New England, according to Deke Arndt, chief of the Climate Monitoring Branch at the National Oceanic and Atmospheric Administration’s National Climatic Data Center. And in the Washington area, the region is on track for its fourth-warmest year on record, along with its seventh-warmest December.
The pattern is most pronounced in eastern Montana, northeastern Minnesota and parts of North Dakota, Arndt said, where December temperatures so far have averaged 10 degrees above normal. But the mild weather extends to other Great Lakes states, along with New England and the mid-Atlantic, with temperatures this month averaging between six and eight degrees above normal.
Demographic Poop
Posted By thestatedtruth.com on December 29, 2011
Here is one of the reasons for slow world growth dead ahead, and from the looks of things, it will last a long long time! The baby boomer generation was the last of the demographic growth cycles and that was back from the 1950’s thru the 1970’s. Now the baby boomers are debt ridden as they enter retirement age, and face a prolonged period of forced downward spending habits.
U.S. Navy Says Any Disruption To Straits Of Hormuz “Will Not Be Tolerated”
Posted By thestatedtruth.com on December 28, 2011
The message is clear….
Reuters: U.S. FIFTH FLEET SAYS ANY DISRUPTION OF NAVIGATION IN HORMUZ STRAIT “WILL NOT BE TOLERATED”
The U.S. Fifth Fleet said on Wednesday it will
not allow any disruption of traffic in the Strait of Hormuz, after Iran
threatened to stop ships moving through the strategic oil route.
“The free flow of goods and services through the Strait of Hormuz is
vital to regional and global prosperity,” a spokesperson for the
Bahrain-based fleet said in a written response to queries from Reuters
about the possibility of Iran trying to close the waterway.
“Anyone who threatens to disrupt freedom of navigation in an
international strait is clearly outside the community of nations; any
disruption will not be tolerated.”
An Iranian navy chief said earlier:
Closing off the Gulf to oil tankers will be “easier than drinking a glass of water” for Iran if the Islamic state deems it necessary, state television reported on Wednesday, ratcheting up fears over the world’s most important oil chokepoint.
“Closing the Strait of Hormuz for Iran’s armed forces is really easy … or as Iranians say it will be easier than drinking a glass of water,” Iran’s navy chief Habibollah Sayyari told Iran’s English language Press TV.
“But right now, we don’t need to shut it as we have the Sea of Oman under control and we can control the transit,” said Sayyari, who is leading 10 days of exercises in the Strait.
Merry Christmas To Our Friends Around The World
Posted By thestatedtruth.com on December 25, 2011
May it be your best Christmas ever!
From TheStatedTruth.com
PIMCO’s Co-founder El-Erian Sees Real Risk That Europe May Spark Lehman-Like Financial Crisis
Posted By thestatedtruth.com on December 22, 2011
The head of the world’s biggest bond fund said he sees a more than 1 in 3 chance that the euro zone will break apart and trigger a financial crisis akin to the one that devastated the global economy in 2008.
From Bloomberg:
“It would be the equivalent of a sudden stop in which financial markets seized up, Mohamed El-Erian, chief executive officer of Pacific Investment Management Co. in Newport Beach, California, said. It would be really, really messy.
The global economy suffered its worst recession since World War II after the collapse of Lehman Brothers Holdings Inc. in September 2008 triggered steep falls in global stock markets. Gross domestic product in the U.S., the world’s largest economy, shrank by 5.1 percent.
El-Erian said in a Bloomberg interview that the crisis in Europe is no longer just about what will happen to periphery nations like Greece. It is now a crisis for the euro zone as a whole,he said.
He said the most likely outcome — with a 1 in 2 chance — is that European policy makers get their act together and manage the transition to a smaller currency union. The least likely is that the 17-nation euro zone stays intact: the possibility of that occurring is just 15 percent, he said.
El-Erian said that policy makers in Europe are still behind the curve in their efforts to contain the turmoil in the financial markets.
“The contamination has been allowed to travel from the outer core all the way in and threaten the inner core, he said.
The premium that France must pay over Germany to borrow for 10 years has gotten to levels that were once deemed unthinkable, he said. That spread today stood at 113 basis points, up from 40 basis points at the end of last year though down from a high of more than 200 points earlier this quarter.
Credit ratings of many European nations are also under review, El-Erian said and he singled out nine countries that might remain in the currency union if policy makers decide to downsize it — Austria, Belgium, Finland, France, Germany, Italy, Luxembourg, the Netherlands and Spain.
“The critical issue is whether Italy and Spain will be included, he said.
Pimco expects Europe’s economy to shrink by 1 percent to 2 percent in the coming year, with the risks to that forecast skewed to the downside, El-Erian added.
He voiced skepticism that the recent acceleration in U.S. growth will prove sustainable and forecast that the world’s largest economy will expand little, if at all, over the next year. He said the recent growth spurt had been fueled by a drop in savings that he doesn’t expect to last.
“Currently projections are for 3 to 3.5 percent economic growth in the fourth quarter, El-Erian said. It wouldn’t surprise me if we end up below that.
The National Association Of Realtors Has A History Of Not Being Truthful
Posted By thestatedtruth.com on December 22, 2011
NAR proving what most everyone knew:………. the sales numbers are inflated.
NAR: EXISTING U.S. HOME SALES REVISED DOWN BY 14% FROM 2007-2010
NAR: EXISTING HOME SALES REVISED DOWN BY 15% IN 2010 TO 4.19 MLN
PIMCO’s 2012 Economic Forecast
Posted By thestatedtruth.com on December 22, 2011
PIMCO’s latest thoughts are highlighted below…..rather sobering to say the least!
Here are the just released 2012 forecasts by Bill Gross, via Bloomberg and the WSJ:
- PIMCO SEES RISK-OFF PHASE IN FIRST PART OF 2012, EL-ERIAN SAYS
- PIMCO: U.S. TO GROW BETWEEN 0% AND 1 % IN 2012
- PIMCO SEES GLOBAL ECONOMY GROWING 1.0%-1.5% IN 2012
- PIMCO SEES CHINA GROWING 7% IN 2012
- PIMCO SAYS EUROZONE ECONOMY CANNOT HANDLE SOVEREIGN AND BANKING DELEVERAGING AT THE SAME TIME
- PIMCO SAYS ECB MUST BECOME LENDER OF LAST RESORT
Full Pimco forecast:
PIMCO Cyclical Outlook: Deleveraging, Austerity and Europe’s Potential Minsky Moment
- As things stand today, it is more likely that the ECB will leap to a rescue only when it is too late. Absent any increase in private or external sources of aggregate demand, the eurozone economy will likely experience a recession in 2012.
- Chinese deleveraging and rebalancing could mean much slower Chinese growth and a smaller impact of Chinese aggregate demand on the global economy.
- We expect the global economy to grow by 1% to 1.5% in 2012. This is significantly slower than the 2.5% growth rate achieved in 2011 and the 4.1% rate achieved in 2010.
The year ahead will likely be very challenging for the global economy. Growth faces several hurdles that we believe collectively will impose a sense of greater uncertainty and increased volatility on financial markets. These hurdles include the need for accelerated balance sheet deleveraging, slowly creeping but surely rising risks of financial and economic de-globalization, and the constant drum beat of re-regulation, particularly in developed country banking systems.
Global balance sheet deleveraging will play the dominant role in PIMCO’s current cyclical economic outlook. Front and center in this regard is the rapidly progressing sovereign debt crisis in the eurozone, the debt deflationary feedback loop associated with it, and the quality and quantity of policy responses applied to contain it. As goes the eurozone deleveraging, so goes the global economy over the next six to 12 months.
The eurozone is facing an accelerated reversal of imbalances accumulated over several years after the creation of the euro. These imbalances are the product of differing real trends in productivity, labor flexibility, and national savings and investment rates across the member nations of the eurozone. Prior to the implementation of the single European currency, current members had individual currencies and individual control of their respective money supply, making it relatively easy to absorb real economic differences via relative currency value changes and inflation differentials. Today, however, those countries that adopted the euro do not possess the same degree of flexibility needed to smoothly diffuse frictions along these fault-lines. With one common currency and one common central bank, but individual fiscal agents and differentiated trends in economic performance and governance, the full burden of reversing sovereign deficit and debt imbalances falls onto the shoulders of only the fiscal agents. And as we see it, fiscal agents have one option and one option alone: deleverage the government balance sheet by practicing secular austerity.
To judge the impact of eurozone deleveraging on the global economy, we must answer three questions. First, how much austerity will the eurozone impose upon itself to restore the balance between debtors and creditors? Second, will eurozone sovereign haircuts or defaults remain a part of the deleveraging process? And third, what role will the European Central Bank (ECB) play in controlling the depth, breadth and velocity of sovereign debt deleveraging?
Stress Testing the Plan
Eurozone governments are about to legislate a plan of significant fiscal austerity over the coming years. By PIMCO estimates, austerity programs across both healthy and unhealthy balance sheet countries in the eurozone will pose a drag on growth to the tune of 1.5 to 2 percentage points over the next 12 to 24 months. This means that, absent any increase in private or external sources of aggregate demand, the eurozone economy will likely experience a recession in 2012. Indeed, PIMCO expects the eurozone economy to shrink by 1% to 1.5% in 2012.
Eurozone sovereign haircuts and defaults will likely remain a part of the deleveraging outlook. The acceleration of the European Stability Mechanism (ESM) and the introduction of collective action clauses on newly issued sovereign debt under the ESM mean that future haircuts, write-downs and private-sector subordination are still possible — and probable. This, in turn, means that eurozone banks — which have been the chief private-sector financiers of eurozone sovereigns — will need a substantial amount of new capital to maintain their own balance sheets and provide ongoing credit to the real economy for growth. This new capital will be needed primarily to fill the ex ante equity hole generated by now “risky” sovereign credit exposures. It will also be a necessary condition for maintaining an effective monetary policy transmission mechanism to the eurozone real economy. If eurozone banks remain under-capitalized for much longer, their borrowing costs could climb too high for credit growth, and they would be forced to deleverage private credit commitments at a time when eurozone sovereigns are attempting to do the same with fiscal policy.
To be clear: The eurozone economy cannot bear a concomitant deleveraging in sovereign and banking system balance sheets, given an already weak growth outlook.
The ECB, therefore, must play the critical role of deleveraging police in the year ahead. Only the ECB has a balance sheet large enough, credible enough, and flexible enough to prevent the eurozone sovereign and banking system deleveraging from turning into an uncontrolled Minsky Moment (referencing economist Herman Minsky and referring to the inflection point when investors must sell assets to pay off debts, pushing down asset prices across the board). An acceleration of the debt deflationary feedback loop will be the odds-on outcome if the ECB continues to play coy with its own balance sheet. The ECB must, at some juncture in the not so distant future, become a lender of last resort to eurozone sovereigns. And, equally important, it must do so with a transparent and credible plan such that private sector demand for eurozone sovereign debt is crowded back in before it is permanently destroyed.
But what will it take for the ECB to make this leap from a bankers’ banker to a sovereigns’ banker? To begin to answer this question, we have to consider the mandate of the ECB and the “game of chicken” being played between European fiscal agent and the ECB.
The ECB’s Evolving Mission
First, the ECB has a clear mandate of maintaining price stability and nothing else. In the best traditions of the German Bundesbank, the ECB maintains fierce independence from fiscal policy and financing sovereign deficits and does not believe it is responsible for shaping cyclical real growth outcomes (unlike the U.S. Federal Reserve). A key question, however, is whether the ECB’s mandate is symmetrical around low and stable inflation? Will the ECB act aggressively to combat deflation, as it does to combat above-target inflation when the time comes? And if it will, what tools will it be willing to use, especially if policy rates are already at the zero-bound and the transmission mechanism of policy is broken? At this point, the rate of inflation in the eurozone is too high for the ECB’s liking and is thus likely to prevent the ECB from taking any dramatic steps to pre-emptively combat the forward deflation risks arising from a deteriorating economic outlook across the eurozone.
Second, the ECB is engaged in a dangerous but necessary game of chicken with eurozone fiscal agents, which prevents it from becoming a transparent and credible lender of last resort to eurozone sovereigns. On the one hand, with the credit transmission mechanism broken and bank balance sheets stressed, the ECB recognizes that it must prevent sovereign bond prices from falling too far. On the other hand, the ECB remains fearful of introducing secular moral hazard into the process of enhancing fiscal unity and stability across the eurozone by pre-emptively financing fiscal deficits. This game cannot continue for too much longer. If it does, we believe either the deteriorating economic prospects for the eurozone will accelerate the feedback loop to its Minsky Moment, at which point sovereigns and banks will enter a race to try to out-deleverage the other; or the ECB will take pre-emptive action to become a transparent and credible lender of last resort to sovereigns thereby stabilizing the eurozone banking system and the eurozone economy. As things stand today, it is more likely that the ECB will leap to a rescue only when it is too late. As a result, the odds of a European Minsky Moment are uncomfortably high now.
Chinese Growth Levels Off as U.S. Deleveraging Continues
Moving from Europe to Asia, China has joined the U.S., the eurozone, Japan, and the UK in some form of balance sheet deleveraging. However, we expect Chinese deleveraging to be rather benign as long as policymakers use their substantial financial resources to manage the process over time. China for the last two years has engaged in an accelerated program of domestic investment via rapid credit creation in its domestic banking system. This has provided the global economy with a substantial and much-needed boost to aggregate demand at a time when developed economies were all undergoing private sector deleveraging. But this source of global aggregate demand is slowing significantly now.
Due to a combination of issues ranging from excess capacity, rising income inequality and bank capital stresses that will require a slowdown in the rate of credit creation, China is likely to slow future domestic investment in favor of a more balanced and stability focused growth model. China is likely to use its substantial public financial resources to address imbalances between domestic investment and consumption, between capital and labor shares of national income, and to slowly re-capitalize its banking system as non-performing loans crystallize to losses. The major implication for the global economy is that the process of Chinese deleveraging and rebalancing could mean much slower Chinese growth and a smaller impact of Chinese aggregate demand on the global economy. PIMCO expects the Chinese economy to grow by just 7% in 2012, significantly below consensus expectations of 8% to 8.5% real growth.
And what of the States? The U.S. economy continues to make steady progress in private sector deleveraging, but little to no progress when public sector balance sheets are included. U.S. households and banks have generally reduced debt either via defaults or orderly recapitalizations, and many companies have benefitted tremendously from a weaker dollar and strong growth in global trade via the emerging market economies. Despite the progress made to date, the process of U.S. deleveraging is not nearly complete. This is especially the case given that the U.S. government continues to run large structural deficits to support private sector aggregate demand, and that demographically driven unfunded liabilities are starting to crystallize onto public balance sheets at a faster rate.
Were it not for the brewing crisis in the eurozone, and the expected slowdown in aggregate demand in China (and other emerging economies), the outlook for the U.S. economy might have been relatively sanguine for the year ahead. In 2011, U.S. GDP grew by a modest but decent 1.5% to 1.75%. But with global headwinds gathering — and U.S. expansionary fiscal policy becoming much more difficult to maintain — we think the U.S. economy will only manage 0% to 1% growth in 2012. This is substantially below the industry consensus expectation of 2% to 2.5% growth.
Turning from deleveraging to de-globalization, we believe the most important component of this creeping process is occurring in global finance. Global imbalances between savings and investment have long been sustained via cross-border intermediation across an integrated global banking system. European banks have played the major role in this process, with American and Asian banks being perhaps a degree less important. We have discussed the potential impact of European bank deleveraging on the eurozone economy, but have not spent much time on how they might impact the global economy in a direct way. The eurozone banking system is 2.5 times as large as the U.S. banking system, in part because it plays an important role in intermediating global savings. At $41 trillion in total balance sheet assets, the impact of a eurozone banking system deleveraging would dwarf the effect of any successful re-leveraging of the U.S. banking system, which is only about $16 trillion in size. The race to higher capital ratios combined with sovereign stresses means that the global banking system will likely turn inward and the process of cross-border savings intermediation could slow substantially in the year ahead. This is yet another hurdle for global growth.
A second component of de-globalization is the glacial but observable increase in trade skirmishes between the U.S. and China. There have been a series of tit-for-tat tariff increases lately, and the U.S. political machine has begun to increase calls for a more transparent and open Chinese economy only to be summarily rebuffed by Chinese officials. This glacial trend is an important one to watch, as trade between U.S. and China has been a very important source of strength for large portions of the global economy.
Finally, the cyclical outlook would not be complete without a mention of MF Global and the implications thereof on financial re-regulation. We have long suggested that the developed world financial system has begun a gradual process of returning to “utility banking,” a boring destination where the financial system largely separates deposit taking and loan making from the riskier endeavors of leveraged finance and asset price speculation. MF Global is likely to spark an acceleration in this process, only because it has shown that the regulatory changes planned (and yet to be fully implemented) after the collapse of Lehman Brothers in 2008 have done little to protect investors from concentrated financial system risks. We expect to see changes in the regulatory architecture of capital markets that may reduce system-wide liquidity, increase financial transaction costs and de-risk balance sheets even further. Think of this as an incremental source of friction to global growth in the year ahead.
In sum, we expect the global economy to grow by 1% to 1.5% in 2012. This is significantly slower than the 2.5% growth rate achieved in 2011 and the 4.1% rate achieved in 2010. The risks to this forecast lay to the downside, which speaks to the question of inflation expectations. We expect global inflation to slow to 2% in 2012 from 3.1% in 2011.
PIMCO’s Bill Gross
Posted By thestatedtruth.com on December 22, 2011
PIMCO’s Bill Gross has become very negative on the U.S. and World economies growth rates. Todays tweet from him……..dissing the European LTRO (Long Term Repo Operation) to save European banks….the hope is that the banks take this money and leverage it up many times to buy Piigs (five Eurozone nations, Portugal,Ireland,Italy, Greece and Spain) sovereigns HIGH risk debt, presto…debt problems solved. If it doesn’t work, then the whole system comes down. Oh well, we’ve all been warned.
Is the biggest Nash Equilibrium collapse in “developed world” history coming?
Government Morons…Unbelievable, Simply Unbelievable!
Posted By thestatedtruth.com on December 18, 2011
Extend and pretend, benefit extentions looked all set to go….but not so fast, they may not get approved after all. On Sunday House Speaker John Boehner flatly ruled out approval of a Senate agreement to temporarily extend the payroll tax cut through February.
But, Senate Majority Leader Harry Reid (D., Nev.) said if Mr. Boehner rejected the Senate agreement, forged with Senate Minority Leader Mitch McConnell (R., Ky.), then he would be responsible for a $1,000 tax increase on almost every working American next year.
The bright guys who came up with this plan have a mechanism to pay for it. They’re going to charge homeowners a new fee for the next ten years. If you get a mortgage from one of the federal agencies (90% of mtg. market) you’ll pay an extra price. It comes to $15 a month if your mortgage is less than $220k. But if you live on either coast or in any big city, the cost of housing will force you to pay a bigger price. $45-50 a month is a more realistic way to consider the implications. What’s an extra $600 a year? It’s just another nail in the coffin for housing.
The legislation results in mortgagors directly subsidizing doctor’s Medicare reimbursement rates! How stupid is that? What are these people thinking of? This is terrible economic policy, and every legislator who signs the Bill, knows that fact.
The bumbling fools in D.C. have done it again. They’ve screwed us all one more time.
On Saturday the Senate agreed to a bill that would A) extend unemployment benefits B) extend the 2% payroll tax deduction and C) delay a cut in Medicare reimbursement rates. The deciders agreed to do all the extending, delaying and pretending for two lousy months. In other words, Congress will be back at it over these critical issues in less than six weeks.
The two-month extension amounts to $33b that will be retained in the economy. I would not be surprised if the benefit of the stimulus will be lost by the continued uncertainty that is being caused by D.C. What has been “accomplished” is just a loss.
The bright guys who came up with the plan have a mechanism to pay for it. They’re going to charge homeowners a new fee for the next ten years. If you get a mortgage from one of the federal agencies (90% of mtg. market) you’ll pay an extra price. It only comes to $15 a month if your mortgage is less than $220k. But if you live on either coast or in any big city, the cost of housing will force you to pay a bigger price. $45-50 a month is a more realistic way to consider the implications. What’s an extra $600 a year? It’s just another nail in the coffin for housing.
By far and away the weakest link in the economy is housing. There is not much that can be done about it. It takes time and there will be pain. But there is no excuse for congress to force homeowners to absorb the full cost of the stimulus. The legislation results in mortgagors directly subsidizing doctor’s Medicare reimbursement rates! How stupid is that? What are these people thinking of? This is terrible economic policy, and every legislator who signs the Bill, knows that fact.
Gasoline Prices Are Dropping, As Demand Falls
Posted By thestatedtruth.com on December 18, 2011
A new recession is coming, as we’re seeing all the signs of it ahead of time.
“The U.S. gasoline market continues to receive down pressure from falling gasoline demand.” according to Trilby Lundberg, president of Lundberg Survey in Camarillo, California.
Gasoline demand at the pump in the week ended Dec. 9 was 8.76 million barrels a day, down 4.6 percent from a year earlier, according to MasterCard Inc.’s SpendingPulse report on Dec. 13. Year-to-date demand is down 1.6 percent from a year earlier.
U.S. gasoline stockpiles jumped 3.82 million barrels to 218.8 million in the week ended Dec. 9, the highest level since March, the Energy Department rported Dec. 14. Inventories have risen 14.7 million barrels, or 7.2 percent
The highest price in the lower 48 U.S. states among the cities surveyed was in San Francisco, where customers paid an average of $3.57 a gallon. The lowest price was in Albuquerque, New Mexico, where a gallon averaged $2.83, Lundberg said.
The Consumer Predicament Means Years In The Dog House
Posted By thestatedtruth.com on December 17, 2011
The U.S.consumer debt situation remains a major problem and is far from its normal boundaries. It will remain so for some time to come, and we mean years!
Here’s an updated look at the U.S. consumer. During the housing boom, consumer leverage rose at nearly twice the rate of corporate and banking leverage. Even after all the foreclosures and bankruptcies, U.S. household debt is equal to nearly 100% of U.S. total GDP.
To put U.S. household debt levels into a historical perspective, in order for U.S. households to return to their long-term average for leverage ratios and their historic relationship to GDP growth we’d need to write off between $4-4.5 TRILLION in household debt (an amount equal to about 30% of total household debt outstanding).
Going into this recession, total U.S. credit market debt was at its highest level of all time at over 350% of GDP. In comparison, during Roosevelt’s New Deal during the Great Depression we hit only 300% of total GDP.
The True Grit…Of 2011
Posted By thestatedtruth.com on December 16, 2011
Here are 50 significant stats for 2011….
#1 A staggering 48 percent of all Americans are either considered to be “low income” or are living in poverty.
#2 Approximately 57 percent of all children in the United States are living in homes that are either considered to be “low income” or impoverished.
#3 If the number of Americans that “wanted jobs” was the same today as it was back in 2007, the “official” unemployment rate put out by the U.S. government would be up to 11 percent.
#4 The average amount of time that a worker stays unemployed in the United States is now over 40 weeks.
#5 One recent survey found that 77 percent of all U.S. small businesses do not plan to hire any more workers.
#6 There are fewer payroll jobs in the United States today than there were back in 2000 even though we have added 30 million extra people to the population since then.
#7 Since December 2007, median household income in the United States has declined by a total of 6.8% once you account for inflation.
#8 According to the Bureau of Labor Statistics, 16.6 million Americans were self-employed back in December 2006. Today, that number has shrunk to 14.5 million.
#9 A Gallup poll from earlier this year found that approximately one out of every five Americans that do have a job consider themselves to be underemployed.
#10According to author Paul Osterman, about 20 percent of all U.S. adults are currently working jobs that pay poverty-level wages.
#11 Back in 1980, less than 30% of all jobs in the United States were low income jobs. Today, more than 40% of all jobs in the United States are low income jobs.
#12 Back in 1969, 95 percent of all men between the ages of 25 and 54 had a job. In July, only 81.2 percent of men in that age group had a job.
#13 One recent survey found that one out of every three Americans would not be able to make a mortgage or rent payment next month if they suddenly lost their current job.
#14 The Federal Reserve recently announced that the total net worth of U.S. households declined by 4.1 percent in the 3rd quarter of 2011 alone.
#15According to a recent study conducted by the BlackRock Investment Institute, the ratio of household debt to personal income in the United States is now 154 percent.
#16 As the economy has slowed down, so has the number of marriages. According to a Pew Research Center analysis, only 51 percent of all Americans that are at least 18 years old are currently married. Back in 1960, 72 percent of all U.S. adults were married.
#17 The U.S. Postal Service has lost more than 5 billion dollars over the past year.
#18 In Stockton, California home prices have declined 64 percent from where they were at when the housing market peaked.
#19 Nevada has had the highest foreclosure rate in the nation for 59 months in a row.
#20 If you can believe it, the median price of a home in Detroit is now just $6000.
#21 According to the U.S. Census Bureau, 18 percent of all homes in the state of Florida are sitting vacant. That figure is 63 percent larger than it was just ten years ago.
#22 New home construction in the United States is on pace to set a brand new all-time record low in 2011.
#23 As written about previously, 19 percent of all American men between the ages of 25 and 34 are now living with their parents.
#24 Electricity bills in the United States have risen faster than the overall rate of inflation for five years in a row.
#25 According to the Bureau of Economic Analysis, health care costs accounted for just 9.5% of all personal consumption back in 1980. Today they account for approximately 16.3%.
#26 One study found that approximately 41 percent of all working age Americans either have medical bill problems or are currently paying off medical debt.
#27 If you can believe it, one out of every seven Americans has at least 10 credit cards.
#28 The United States spends about 4 dollars on goods and services from China for every one dollar that China spends on goods and services from the United States.
#29 It is being projected that the U.S. trade deficit for 2011 will be 558.2 billion dollars.
#30 The retirement crisis in the United States just continues to get worse. According to the Employee Benefit Research Institute, 46 percent of all American workers have less than $10,000 saved for retirement, and 29 percent of all American workers have less than $1,000 saved for retirement.
#31 Today, one out of every six elderly Americans lives below the federal poverty line.
#32 According to a study that was just released, CEO pay at America’s biggest companies rose by 36.5% in just one recent 12 month period.
#33 Today, the “too big to fail” banks are larger than ever. The total assets of the six largest U.S. banks increased by 39 percent between September 30, 2006 and September 30, 2011.
#34 The six heirs of Wal-Mart founder Sam Walton have a net worth that is roughly equal to the bottom 30 percent of all Americans combined.
#35 According to an analysis of Census Bureau data done by the Pew Research Center, the median net worth for households led by someone 65 years of age or older is 47 times greater than the median net worth for households led by someone under the age of 35.
#36 If you can believe it, 37 percent of all U.S. households that are led by someone under the age of 35 have a net worth of zero or less than zero.
#37 A higher percentage of Americans is living in extreme poverty (6.7%) than has ever been measured before.
#38 Child homelessness in the United States is now 33 percent higher than it was back in 2007.
#39 Since 2007, the number of children living in poverty in the state of California has increased by 30 percent.
#40 Child poverty is absolutely exploding all over America. According to the National Center for Children in Poverty, 36.4% of all children that live in Philadelphia are living in poverty, 40.1% of all children that live in Atlanta are living in poverty, 52.6% of all children that live in Cleveland are living in poverty and 53.6% of all children that live in Detroit are living in poverty.
#41 Today, one out of every seven Americans is on food stamps and one out of every four American children is on food stamps.
#42 In 1980, government transfer payments accounted for just 11.7% of all income. Today, government transfer payments account for more than 18 percent of all income.
#43 A staggering 48.5% of all Americans live in a household that receives some form of government benefits. Back in 1983, that number was below 30 percent.
#44 Right now, spending by the federal government accounts for about 24 percent of GDP. Back in 2001, it accounted for just 18 percent.
#45 For fiscal year 2011, the U.S. federal government had a budget deficit of nearly 1.3 trillion dollars. That was the third year in a row that our budget deficit has topped one trillion dollars.
#46 If Bill Gates gave every single penny of his fortune to the U.S. government, it would only cover the U.S. budget deficit for about 15 days.
#47 Amazingly, the U.S. government has now accumulated a total debt of 15 trillion dollars. When Barack Obama first took office the national debt was just 10.6 trillion dollars.
#48 If the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 440,000 years to pay off the national debt.
#49 The U.S. national debt has been increasing by an average of more than 4 billion dollars per day since the beginning of the Obama administration.
#50 During the Obama administration, the U.S. government has accumulated more debt than it did from the time that George Washington took office to the time that Bill Clinton took office.
From the Ecopnomic Collapse Blog
Fannie Mae And Freddie Mac, The Turd In The Punch Bowl
Posted By thestatedtruth.com on December 16, 2011
Uh, so how do you underestimate your sub-prime loans number by 238 billion dollars from 2006 to 2008 and then allow yourself nice bonuses off those false numbers. Lucky for us tax payers some of those bonuses were clawed back’ by the government. Anybody out there think these guys missed the numbers by accident? No, it was no accident!
From Bloomberg:
Daniel Mudd, the former chief executive officer of Fannie Mae, and Richard Syron, ex-CEO of Freddie Mac, were sued by the U.S. Securities and Exchange Commission for understating by hundreds of billions of dollars the subprime loans held by the agencies.
In April 2007, Mudd said in testimony before lawmakers that the firm’s exposure to subprime loans “remains minimal, less than 2.5 percent of our book.”
At the same hearing, Syron said his firm hadn’t “been heavily involved in subprime all along.”
Within 18 months, U.S. regulators seized Fannie Mae and Freddie Mac after losses on the soured loans pushed them to the brink of insolvency.
The lawsuits filed today in Manhattan federal court were followed by an SEC statement that it had entered into non-prosecution agreements with each lender. Fannie Mae, the government-sponsored enterprise which issues almost half of all mortgage-backed securities, and Freddie Mac, the McLean, Virginia-based mortgage-finance company, had “agreed to accept responsibility” for their conduct, the SEC said.
In the lawsuits, the SEC said Syron, Mudd and others understated the lenders’ exposure to subprime mortgage loans. From 2007 to 2008, Freddie Mac executives said the company’s exposure was between $2 billion and $6 billion when it was actually as high as $244 billion, according to one SEC complaint. From 2006 to 2008, Washington-based Fannie Mae executives said the firm’s exposure to subprime mortgage and reduced documentation loans was about $4.8 billion, according to the regulator.
“Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,” Robert Khuzami, director of the SEC’s enforcement division, said today in a statement. “These material misstatements occurred during a time of acute investor interest in financial institutions’ exposure to subprime loans, and misled the market about the amount of risk on the company’s books.”
During Mudd’s tenure as CEO of Fannie Mae, from 2004 through its government takeover in 2008, the firm ramped up its business with lower-quality mortgages. Mudd said in a 2006 interview that he planned to expand the companies’ holdings to include more higher-risk loans. Anything else would be“counterproductive,” he told investors in March of that year.
Australian Banks Have Been Told To Assume A Worst Case Scenario Concerning A European Union Debt Crisis And Currency Meltdown
Posted By thestatedtruth.com on December 15, 2011
According to the Australian Finance Review, banks down under “have been given 1 week by regulators to stress test how they would handle a spike in joblessness and a plunge in home prices spurred by EU debt crisis.”
Bloomberg First Word describes for us what the article says:
- Australian Prudential Regulation Authority envision worst-case scenario of 12% unemployment, 30% drop in house prices, 40% fall in commercial property values, AFR says
- Banks will assume that write-offs, other mitigation measures are unavailable; later stress tests might allow for such steps, AFR says
- Australia’s banks have A$87.2b of exposure to Europe, or 2.7% of assets, with A$74.6b of it mostly tied to bank borrowers in France, Germany, Netherlands, AFR says, citing RBA statistics.
Tax Receipts Foretell An Economic Contraction And New Recession
Posted By thestatedtruth.com on December 14, 2011
A sharp decline in withholding tax receipts signals an imminent recession is dead ahead!
The forward indicators that produce the most reliable signals with respect to recession forecasting continue to indicate that a return to economic contraction is highly likely in early 2012. Our computer models have been predicting the likely start of a new recession in the US for the past several months and the data trends continue to weaken as we approach the end of the year, suggesting that the recession scenario is becoming even more likely. One indicator that has weakened significantly during the last two months is the trend in Federal withholding tax deposits. Economist John Williams of Shadow Government Statistics discussed the deterioration in this data set in a recent commentary.
A sharp downturn in the annual change in withholding tax receipts by the U.S. Treasury is signaling a deterioration in personal income. The shift in tax revenues began to surface in Treasury reporting of October 2011 and has continued through the latest available numbers, as of December 7th.
Although the relationship between employment, income and these tax receipts is a complex one, essentially, one would expect to see the year-to-year change in the tax receipts run in parallel to the year-over-year change in total payroll earnings (jobs times average earnings), as estimated by the Bureau of Labor Statistics (BLS). This was the case during most of 2011, but, starting in October, a divergence developed: Whereas year-to-year change in BLS estimated payroll earnings continued at a more-or-less constant, positive level, tax receipts fell quite markedly.
FOMC Summary
Posted By thestatedtruth.com on December 13, 2011
Here we go with today’s Fed release…..
Fed Headline Summary:
- FED: FINANCIAL STRAINS STILL POSE `SIGNIFICANT DOWNSIDE RISKS’
- FED REPEATS `EXCEPTIONALLY LOW’ RATES THROUGH AT LEAST MID-2013
- FED SAYS ECONOMY `EXPANDING MODERATELY’ AS GLOBAL GROWTH SLOWS
- FED LEAVES OPERATION TWIST PROGRAM UNCHANGED
- FED SAYS CONSUMER SPENDING `HAS CONTINUED TO ADVANCE’
- FED SAYS UNEMPLOYMENT RATE TO DECLINE `ONLY GRADUALLY’
- FED EXPECTS `MODERATE PACE’ OF GROWTH IN COMING QUARTERS
- FED: FINANCIAL STRAINS STILL POSE `SIGNIFICANT DOWNSIDE RISKS’
- EVANS DISSENTS FROM FOMC DECISION, PREFERRING MORE EASING
President To Iranians….We Want Our Drone Back. Pretty Please
Posted By thestatedtruth.com on December 12, 2011
The President says…”We want our Drone back!” But… It’s more likely that the clone masters in China have already bought the original and built a million cheap imatation drones.
ABC reports in connection with President Obama’s handling of this embarrassing predicament, “”We’ve asked for it back. We’ll see how the Iranians respond,” the President said at a news conference. He wouldn’t comment further “on intelligence matters that are classified.”
The Real Picture Of Unemployment
Posted By thestatedtruth.com on December 5, 2011
A picture is worth a thousand words, especially on this subject!
Rutgers University Working Paper
Categorizing the Unemployed by the Impact of the Recession
By Dr. Cliff Zukin, Dr. Carl E. Van Horn, and Charley Stone
In August 2009, the John J. Heldrich Center for Workforce Development at Rutgers, The State University of New Jersey began following a nationally representative sample of American workers who lost a job during the height of the Great Recession.
The research began with a cross-sectional sample of 1,202 who had said they had lost a job at some point in the preceding 12 months (between August 2008 and 2009). They were resurveyed in March 2010, again in November 2010, and then in August 2011.
A total of 3,972 individual surveys were completed over the two years. Well over half of the original respondents participated in all four waves of the project, meaning they spent, on average, 50 minutes of their time responding to roughly 200 questionnaire items.
This resulting measure combines an assessment of the respondent/family’s current economic status with the magnitude of change in the quality of daily life, with an assessment of whether this change represents a new normal or is a temporary stay in limbo. Combining answers to these three questions result in a typology with five groups, defined as follows:
46.3 Million Americans Are Now On Foodstamps…Yep, That’s Right!
Posted By thestatedtruth.com on December 5, 2011
The latest update from the Supplemental Nutrition Assistance Program (SNAP) shows 423,000 more Americans just found their way to the Food Stamp train from Uncle Sam. This should be good for Walmart.
Problem Banks, Next Up…Germany’s Commerzbank
Posted By thestatedtruth.com on December 4, 2011
Banks are a moving target for a reason in the new World normal…
Pressure is growing on Berlin over the weekend as there are rumors that COMMERZBANK, Germany’s second largest bank, will have to be nationalized. It means that the solvency of GERMAN banking is being challenged. If COMMERZBANK fails then one of the most levered banks in Europe, DEUTSCHE BANK, will move to center stage.
Robert Reich, President Clinton’s Secretary of Labor Reviews Friday Jobs Report…
Posted By thestatedtruth.com on December 3, 2011
Robert Reich, President Clinton’s Secretary of Labor says not so fast about the big positives on the Friday jobs report. The jobless rate fell partly because around 315,000 people who had been looking for jobs dropped out of the job market in November. Remember: If you’re not actively looking, you’re not counted as unemployed on the household survey.
In brief: The Bureau of Labor Statistics’ household survey shows unemployment at 8.6 percent, and the payroll survey shows 120,000 new jobs in November (140,000 from the private sector, and a loss of 20,000 in the public sector). BLS also revised upward its job numbers for September and October.
What does it mean? We’re not out of the woods but we might be seeing some daylight.
Maybe. Here’s what you need to worry about:
First, this rate of job growth is barely enough to keep up with the growth in the working-age population. So we’re not making progress on the backlog of more than 13 million jobless Americans, and another 11 million working part-time who’d rather have full-time jobs.
Second, retail jobs constituted a third of new private-sector employment in November. Retail jobs tend to be unstable, temporary, and low-paying. Although the BLS is supposed to adjust for seasonal employment (i.e. Christmas), it doesn’t take account of the fact that more and more Americans have been pushing up their Christmas buying to before Thanksgiving. So some of these jobs may not be around very long.
Third, the jobless rate fell partly because around 315,000 people who had been looking for jobs dropped out of the job market in November. Remember: If you’re not actively looking, you’re not counted as unemployed on the household survey.
Fourth, hourly earnings are down, as are real wages. So to some extent Americans have been substituting lower wages for lost jobs – either by accepting lower wages at their current place of employment, or getting the boot and settling for lower wages elsewhere. A job is better than no job, of course, but a job with a lower wage isn’t nearly as good as a job with at the same or better wage.
Fifth, another reason for November’s job growth is that American consumers – whose spending accounts for about 70 percent of the economy – increased their spending. But this can’t continue because, as noted, wages are dropping. They spent more by cutting into their meager savings. Don’t expect this to last.
Finally, there’s the wild card of the rest of the global economy – the European debt crisis and the high likelihood of recession in Europe, the slowdown in China and India, slower growth in developing nations. Some of our jobs depend on exports, which will drop. Others are keyed to the financial sector, which is being hit directly.
Two final wild cards closer to home: The Fed, and Congress. The Fed meets in two weeks to decide on further monetary easing. With today’s report, the odds of easing are down, unfortunately. Believe it or not, several Fed members are worried about inflation.
And if Congress refuses to extend the payroll tax cut and/or unemployment benefits by December 30, it will create another drag on the economy. When people ask me what Congress is likely to do I always say the same thing: The odds are in favor of nothing.
So while today’s jobs report is in the right direction, it’s way too early to break out the champagne.
Robert Reich is Chancellor’s Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written thirteen books, including The Work of Nations, Locked in the Cabinet, Supercapitalism, and his most recent book, Aftershock.
Bill Gross Of PIMCO Says Interest Rates Will Stay Low For A Long Time
Posted By thestatedtruth.com on December 2, 2011
Bill Gross of PIMCO says (despite today’s positive unemployment news) things continue to be bad, and interest rates will likely stay at record lows for another four years.
From Bloomberg:
Pacific Investment Management Co.’s Bill Gross said U.S. employment growth won’t prevent the Federal Reserve from signaling that borrowing rates will remain lower longer than policy makers have already indicated.
The Fed will keep the target rate for overnight loans at current levels for as long as four years, up from the through the middle of 2013 period outlined, Gross, manager of the world’s biggest bond fund, said in a radio interview on“Bloomberg Surveillance” with Tom Keene and Ken Prewitt.
.“The Fed is focusing on the problems in euro land and the potential lock-up of the financial markets. The QE3 that I expect is really not an increased amount of purchasing in terms of the Fed’s balance sheet but an extended period language that allows the market to anticipate a two, three, or four years period of time where fed funds stay at 25 basis points.”
“The Fed is going to stay low for a long, long time, and that keeps twos and fives and actually tens fairly well anchored,” Gross said. “But it’s the 30-year that will reflect these reflationary efforts not only from the Fed but from the ECB” and other European central banks working in conjunction with the International Monetary Fund to support the highly-indebted peripheral European nations.
Gross advised investors to keep their money in only the safest investments, such as government debt of the U.S. or Canada, or even in cash. High-dividend paying shares from companies such as Coca-Cola Co. (KO) and Procter & Gamble Co. (PG) are also attractive, he said.
“To the extent that you can get 3.5 or 4 percent from an electric utility or a Coke or a Procter and a very stable cash-flow-type of company relative to 2 percent 10-year Treasury,”it’s an attractive investment, Gross said. “One has to be suspicious in terms of the risk premium because markets go up 2 or 3 percent a day.”
Do As We Say, Not As We Do…The U.S. Senate Sends A Message To Federal Workers
Posted By thestatedtruth.com on November 30, 2011
It’s fine to go this route, but these Senate buffoons had better not give themselves a pay raise during the discussed timeline. Capice! Secondly, we would question the math analysis from the Congressional Budget Office, as their math skills have proven to be lacking over the years!
Republicans in the U.S. Senate want to cover the estimated $119.6 billion cost of extending a payroll tax cut by freezing federal workers’ pay for three more years, reducing the federal workforce and instituting means-testing for unemployment compensation.
The proposal, offered by Senator Dean Heller, a Nevada Republican, would extend the payroll tax cut for employees through 2012. It counters Democratic efforts to pay for the extension by imposing a 3.25 percent surtax on millionaires. Both proposals might face a procedural vote in the Senate as soon as tomorrow.
Under the Republican proposal, most of the tax break extension would be offset by freezing pay for federal workers, according to an analysis from the Congressional Budget Office. The Republican plan would save $221 billion over 10 years from discretionary funding, which would include the federal payroll. The plan would save $9.3 billion from changes to direct spending, which includes unemployment compensation and food stamps.
Did A Large European Bank Almost Fail Last Night?
Posted By thestatedtruth.com on November 30, 2011
Hmm…this is speculative in nature, but here’s an interesting question: Just how bad was the situation, if the global central banking cabal had to intervene all over again, and just what was not being told to the general public?
Forbes may have one explanation: “It appears that a big European bank got close to failure last night. European banks, especially French banks, rely heavily on funding in the wholesale money markets. It appears that a major bank was having difficulty funding its immediate liquidity needs. The cavalry was called in and has come to the successful rescue.”
Six Central Banks Save The World…Again!
Posted By thestatedtruth.com on November 30, 2011
From PIMCO cofounder Mohamed El-Erian: The coordinated action “lowers the cost of emergency funding and increases the scope,” Central banks “are seeing something in the functioning of the banking system that worries them”.
Six central banks led by the Federal Reserve made it cheaper for banks to borrow dollars in emergencies in a global effort to ease Europe’s sovereign-debt crisis.
The premium banks pay to borrow dollars overnight from central banks will fall by half a percentage point to 50 basis points, the Fed said today in a statement in Washington. The so-called dollar swap lines will be extended by six months to Feb. 1, 2013. The Fed coordinated the move with the European Central Bank and the central banks of Canada, Switzerland, Japan and the U.K.
The six central banks also agreed to create temporary bilateral swap programs so funding can be provided in any of the currencies “should market conditions so warrant.” Those swap lines were also authorized through Feb. 1, 2013.
Ron Paul Statement On The Fed’s Bailout Of Europe:
Rather than calming markets, these arrangements should indicate just how frightened governments around the world are about the European financial crisis. Central banks are grasping at straws, hoping that flooding the world with money created out of thin air will somehow resolve a crisis caused by uncontrolled government spending and irresponsible debt issuance. Congress should not permit this type of open-ended commitment on the part of the Fed, a commitment which could easily run into the trillions of dollars. These dollar swaps are purely inflationary and will harm American consumers as much as any form of quantitative easing.
Lottery Sales Hit Records In 17 States
Posted By thestatedtruth.com on November 30, 2011
It’s called “Take a shot”….“We have a situation where a lot of people are struggling financially — the last thing we should be doing is telling people to go out and gamble,” said Hann, a Republican from Eden Prairie. Now Walmart wants to sell lottery tickets, and no doubt soon the food stamp money will be “taking a shot” too.
Overall, states got an average 2.4 percent of revenue from lotteries and other forms of gambling in 2009, according to a report last year from the Albany, New York-based Nelson A. Rockefeller Institute of Government.
California is poised to have its best year of lottery sales ever after a 2010 law signed by then-Governor Arnold Schwarzenegger allowed bigger prize payouts, spurring interest in the games and supporting higher-priced tickets.
Sales increased 13 percent in the year that ended June 30 – – the second-highest growth rate in the country behind Arkansas, where the lottery was in its first full year of operation. At the California Lottery, the popularity of a new $10“Scratchers” ticket introduced last month is expected to push sales this year above $4 billion, said Alex Traverso, a spokesman.
“This is shaping up to be a record year,” he said.
The Florida Lottery, which is rebranding to counter slow growth, is also looking at potentially record-setting sales above $4.17 billion in fiscal 2012 after the lottery went where no state lottery had gone before: Wal-Mart Stores Inc. (WMT) Tickets went on sale in about 30 smaller Wal-Mart grocery markets inFlorida last month — a pilot program being watched by lottery officials nationwide.
Consumer Confidence Jumps Most In Eight Years
Posted By thestatedtruth.com on November 29, 2011
Knock yourself out with these polls, personal savings are dropping and household earnings are less then last year, how long is this dopey optimism of unrealistic expectations going to last? Right you are, about long enough to get a poke in the eye! Geez
Here is what Fed Gov Janet Yellen said today: “Very high debt to income ratios in the U.S. make it less likely the U.S. will be an economic growth engine!” So…if we’re not growing, then we’re either stagnating or declining. Capice!
The rise in consumer confidence this morning is the largest absolute jump since April 2003. It went from prior revised 40.9 to 56 and on a percentage basis, only the April 2009 reversion was higher. This represents a 4 standard deviation elevation from its long-term mean. Of course, its all about expectations, as the sub-index jumped from 50 to 67.8 – which only gets things back to July 2011 levels.
Charts by Bloomberg
Housing Heading Down Again, While Interest Rates Are At Record Lows
Posted By thestatedtruth.com on November 29, 2011
CASE SHILLER HOUSING MAIN POINTS:
1. The Case-Shiller 20-city house price index declined by 0.6% (month-over-month, seasonally adjusted) in September, a larger drop than expected by the consensus. Estimates for earlier months were also revised lower. On a year-over-year basis, prices were down 3.6%. The seasonally adjusted version of the index fell to a new low for the cycle, and prices are now at their lowest level since April 2003 (the non-seasonally adjusted version of the index is still slightly above lows reached in the spring months of 2009 and 2011).
2. Results were mixed across regions. Prices fell sharply in Atlanta (-4.1% mom, seasonally adjusted), and declined in 15 of the 20 cities in the index. House prices continued to rise in Washington DC, where the index is up 1% year-over-year.
September’s Case-Shiller home price index fell year-over-year as the Non-seasonally adjusted price index fell for the first time month-over-month since February. The overall index dropped 3.9% YoY, compared to expectations of a 3.1% drop. The more narrowly focused 20 City Index also missed expectations, falling 3.59% (relative to expectations of -3.00%). The index value is back below 142 (back at 2003 levels), its lowest in 3 months, as prices muddle along the bottom here with the mix, most likely holding us from a more vertical drop. The second derivative crowd will note the -3.9% drop is slower than the -5.79% drop of Q2, but October and November have been tumultuous months and we suspect the acceleration top the downside will revert – especially given recent rises in delinquencies to record highs.
Charts:Bloomberg
American Airlines Goes Nite Nite (Bankrupt)
Posted By thestatedtruth.com on November 29, 2011
American Airlines Files For Bankruptcy
The list of bankruptcies is likely to get longer over the next year or two. We would expect it to include a major Bank, a major Insurance Company, Major Industrial Companies, (for a starter Eastman Kadak comes to mind on that one)…. and Brokerages similar to MF Global, (one big, bad bet in the markets and you can stick a fork in them). In addition, many smaller companies are just hanging in the wind. It’s the new normal. Time to be aware of the surroundings.
Frequent flier miles which are now a General Unsecured Claim on thee company and will likely result in an exchange rate of 1 million miles for one round trip flight… tht’s not offical though!
The Facts:
- AMR CORP. FILES BANKRUPTCY IN NEW YORK
- AMR, HOLDING COMPANY FOR AMERICAN AIRLINES, FILES CHAPTER 11
- AMR COPR. LISTS DEBTS OF $29.5 BILLION IN BANKRUPTCY FILING
- AMR HAS $4.1B IN CASH
- AMR TO START FURTHER TALKS WITH UNION TO CUT LABOR COSTS
- AMR NAMES THOMAS HORTON CHAIRMAN, CEO; GERALD ARPEY TO RETIRE
Euro Could Go Bye Bye At Any Time…Hello, Anybody Listening?
Posted By thestatedtruth.com on November 26, 2011
The time to prepare for a disaster, is before the disaster happens. Capice?
Britain’s Foreign Office Prepares For Riots In Europe
British Embassies are being warned in Europe of dire consequences of an eventual Euro breakup. Analysts at UBS, an investment bank earlier this year warned that the most extreme consequences of a break-up include risks to basic property rights and the threat of civil disorder. “When the unemployment consequences are factored in, it is virtually impossible to consider a break-up scenario without some serious social consequences,” UBS said.
The Telegraph: Prepare for riots in euro collapse, Foreign Office warns:
British embassies in the eurozone have been told to draw up plans to help British expats through the collapse of the single currency, amid new fears for Italy and Spain.
As the Italian government struggled to borrow and Spain considered seeking an international bail-out, British ministers privately warned that the break-up of the euro, once almost unthinkable, is now increasingly plausible.
Diplomats are preparing to help Britons abroad through a banking collapse and even riots arising from the debt crisis.
The Treasury confirmed earlier this month that contingency planning for a collapse is now under way.
A senior minister has now revealed the extent of the Government’s concern, saying that Britain is now planning on the basis that a euro collapse is now just a matter of time.
“It’s in our interests that they keep playing for time because that gives us more time to prepare,” the minister told the Daily Telegraph.
Recent Foreign and Commonwealth Office instructions to embassies and consulates request contingency planning for extreme scenarios including rioting and social unrest.
Greece has seen several outbreaks of civil disorder as its government struggles with its huge debts. British officials think similar scenes cannot be ruled out in other nations if the euro collapses.
Diplomats have also been told to prepare to help tens of thousands of British citizensin eurozone countries with the consequences of a financial collapse that would leave them unable to access bank accounts or even withdraw cash.
Fuelling the fears of financial markets for the euro, reports in Madrid yesterday suggested that the new Popular Party government could seek a bail-out from either the European Union rescue fund or the International Monetary Fund.
There are also growing fears for Italy, whose new government was forced to pay record interest rates on new bonds issued yesterday.
The yield on new six-month loans was 6.5 per cent, nearly double last month’s rate. And the yield on outstanding two-year loans was 7.8 per cent, well above the level considered unsustainable.
Italy’s new government will have to sell more than EURO 30 billion of new bonds by the end of January to refinance its debts. Analysts say there is no guarantee that investors will buy all of those bonds, which could force Italy to default.
The Italian government yesterday said that in talks with German Chancellor Angela Merkel and French President Nicolas Sarkozy, Prime Minister Mario Monti had agreed that an Italian collapse “would inevitably be the end of the euro.”
The EU treaties that created the euro and set its membership rules contain no provision for members to leave, meaning any break-up would be disorderly and potentially chaotic.
If eurozone governments defaulted on their debts, the European banks that hold many of their bonds would risk collapse.
Some analysts say the shock waves of such an event would risk the collapse of the entire financial system, leaving banks unable to return money to retail depositors and destroying companies dependent on bank credit.
The Financial Services Authority this week issued a public warning to British banks to bolster their contingency plans for the break-up of the single currency.
Some economists believe that at worst, the outright collapse of the euro could reduce GDP in its member-states by up to half and trigger mass unemployment.
Analysts at UBS, an investment bank earlier this year warned that the most extreme consequences of a break-up include risks to basic property rights and the threat of civil disorder.
“When the unemployment consequences are factored in, it is virtually impossible to consider a break-up scenario without some serious social consequences,” UBS said.
A Little Bit Of History
Posted By thestatedtruth.com on November 24, 2011
The history of Thanksgiving…..
In the United States, the modern Thanksgiving holiday tradition traces its origins to a 1621 celebration at Plymouth in present-day Massachusetts.
The initial thanksgiving observance at Virginia in 1619 was prompted by the colonists’ leaders on the anniversary of the settlement. The 1621 Plymouth feast and thanksgiving was prompted by a good harvest. In later years, the tradition was continued by civil leaders such as Governor Bradford who planned a thanksgiving celebration and fast in 1623. While initially, the Plymouth colony did not have enough food to feed half of the 102 colonists, the Wampanoag Native Americans helped the Pilgrims by providing seeds and teaching them to fish. The practice of holding an annual harvest festival like this did not become a regular affair in New England until the late 1660s.
Thanksgiving in the era of the Founding Fathers until the time of Lincoln had been decided by each state, and set on various dates. The first Thanksgiving celebrated on the same date by all states was in 1863 by presidential proclamation. The final Thursday in November had become the customary date of Thanksgiving in most U.S. states by the beginning of the 19th century. And so, in an effort by President Abraham Lincoln (influenced by the campaigning of author Sarah Josepha Hale who wrote letters to politicans trying to make it an official holiday), hoping to foster a sense of American unity between the Northern and Southern states, Lincoln proclaimed the date for thanksgiving to be the final Thursday in November.
It was not until December 26, 1941 that the unified date changed to the fourth Thursday (and not always final) in November—this time by federal legislation. President Franklin D. Roosevelt, signed a bill into law with Congress, making Thanksgiving a national holiday on the fourth Thursday in November of every year. President Roosevelt said his intent was to help business merchants kick off the holiday retail season a week early as the country came out of the great depression.
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