The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

This has been a helluva week of travel — NY to Dallas to Austin to Detroit. This post is set to launch after I takeoff for San Francisco. I will return home early next week.

My mind is brimming with ideas — About asset management, travel, investing, politics, speaking engagements, food. I had many stimulating conversations this week with some intriguing people. Perhaps I will address these interesting ideas in the near future. I have seen some really cool stuff, met some clever folks. Its all fodder for the mental machinery that requires a steady diet of intellectual input.

I like to connect the dots — and I continue to find some very distant and disparate dots that require connecting.

More next week . . .

While I am waiting for my delayed flight (crew is late arriving form orlando), I have some quik thoughts on NFP.

The data today was pretty ugly — 10.2% Unemployment rate, 17.5% under employed, the highest on record.

The recession that began in December 2007 has now shed over 7.3 million jobs. Out of the total numbers, 5.6 million are out of work six months or longer — 35.6% of the unemployed. That is a record.

The labor continues to shrink. This might be a major demographic realignment of the work force in the US.  Just 58.5% of adults are working, the lowest since 1983 (down from~63% 2 years ago).

The most positive news were the gains in temp work. That is a leading indicator.

The bad news? We remain at record lows in weekly hours worked at 33. Consider what that does to future hiring — its devastating to job growth. Why bring on a new body (with all its associated costs) when we can simply add hours to our underutilized work force?

These are butt ugly:

click for larger graphics

Charts via RM

Chart by CalculatedRisk

These employment situation reports, courtesyof Jake at Econompic, are simply fugly:

Average Weekly Hours

click for ginormous charts

The hours worked are horrible, even as the Labor pool gets smaller.

Labor Participation Rate

Ratio between Hours Worked and Labor Participation Rate hits an all time low:

Here’s another one of those stories that will make your blood pressure boil: Instead of moving forward with broad regulatory protections of economics system, we are undoing effective regulations that protect investors.

Floyd Norris has the details. Under the guise of helping small businesses, the accounting requirements of Sarbanes-Oxley are being watered down to near nothing.

So long economic collapse, hello accounting fraud:

“Sarbanes-Oxley was passed, almost unanimously, by a Republican-controlled House and a Democratic-controlled Senate. Now a Democratic Congress is gutting it with the apparent approval of the Obama administration.

The House Financial Services Committee this week approved an amendment to the Investor Protection Act of 2009 — a name George Orwell would appreciate — to allow most companies to never comply with the law, and mandating a study to see whether it would be a good idea to exempt additional ones as well.

Some veterans of past reform efforts were left sputtering with rage. “That the Democratic Party is the vehicle for overturning the most pro-investor legislation in the past 25 years is deeply disturbing,” said Arthur Levitt, a Democrat who was chairman of the Securities and Exchange Commission under President Bill Clinton. “Anyone who votes for this will bear the investors’ mark of Cain.”

Note that many of the problems that led to near systemic collapse involved special exemptions from existing legislation. The 5 banks that were exempted from leverage rules, the giant banks that pushed for exemptions from Glass Steagall. Even the CMFA was essentially a special exemption for an entire class of financial instruments — derivatives — that were to be treated differently than typical financial instruments.

The aggressive lobbyists are pushing for less transparency, less accurate reporting, less accounting oversights. Consider:

“This year, a subcommittee of the House Financial Services Committee held a hearing at which legislators sought no facts but instead threatened dire action if the chairman of the financial accounting board did not promptly make it easier for banks to ignore market values of the toxic securities they owned. The board caved in, which may be one reason why banks are reporting fewer losses these days.

But the board’s retreat was not enough to satisfy the banks. The American Bankers Association is now pushing Congress to give a new systemic risk regulator — either the Federal Reserve or some panel of regulators — the power to override accounting standards. The view of the bankers is that the financial crisis did not stem from the fact that the banks made lots of bad loans and invested in dubious securities; it was caused by accounting rules that required disclosure when the losses began to mount.”

This is a shameless attempt for a freer hand to avoid responsibility and correct marking of assets.

If we really wanted to just help small companies reduce their reporting burdens and maintain acceptable financial controls, how hard is it to exempt an appropriate number of firms with modest revenue.

Instead, this is yet another grab for control by the same groups that helped caused the previosu accounting crisis in the 1990s and 2000s.

The gall is simply unimaginable.

>

Source:
Goodbye to Reforms of 2002
FLOYD NORRIS
NYT: November 5, 2009
http://www.nytimes.com/2009/11/06/business/06norris.html

By the time NFP gets released, I will be presenting at the Detroit Book Fair.

Feel free to report on, and dissect, the BLS report (here).

This morning, we get the Employment Situation released at 8:30. Consensus estimates are for a loss of 175,000 jobs, and a range of 105,000 to 250,000.

I suspect those numbers might be too optimistic. As the Fed stated, we will have “Exceptionally low rates for extended periods of time.” That implies to me that whatever early look the FOMC had at prelim NFP data was not very encouraging.

Indeed, what set off yesterday’s 200 point rally was in large part expectations that the Fed will retain an accommodative stance. Indeed, even the Bank of England expanded their quantitative easing activities by £25bn.

We stand at one of those odd junctions, when bad news will be perversely good news. A weak NFP report will be more confirmationt hat QE will continue deep into 2010, and the Fed will keep the liquidity spigots wide open. Too strong an improvement — a less bad report — raises the spectre of the end of easy money. Mr. Market may not like that too much . . .

Tonight, I am winging my way to Detroit, where I am one of the speakers at the Detroit Jewish Book Fair tomorrow, one of the oldest and largest of its kind.

Meanwhile, we have not had an Open Thread in a while.

So what’s on your minds? No holds barred, post what you want, no limitations (please be civil).

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What say ye?

Fascinating case with my buds over Mortgage Implode-Explode as defendants. This might impact if bloggers have the same first amendment rights as traditional journalists; Also, can blog websites protect the identities of those who post comments anonymously?

At issue are postings on the website called Mortgage lender Implode-O-meter. That’s a Las Vegas blog that tracks the mortgage lending industry. Last year, the blog reported the Plaistow-based Mortgage Specialists had been sanctioned by the state banking department, and posted a confidential document the company had sent to regulators. In response to that posting, someone calling themselves brianbattersby then posted that Mortgage Specialists President Mike Gill was under a tax lien, and had bought his way out of a fraud committed in 2002. The lawyer for Mortgage Specialists says neither claim is true. Mortgage Specialists asked the blog’s editor to remove the confidential document, which he did, and asked for him to identify brianbattersby, which he didn’t. A Superior Court Judge ordered the website to permanently remove the posts and reveal brianbattersby’s identity — a ruling the website’s attorney, Jeremy Eggleton, told the justices was wrong-headed, in the extreme.

“The trial courts order violates basic principles the 1st amendment, of the US constitution and essentially tramples on the rights both of implode explode both to speak, and to publish and to speak, as well as on the rights of the public to receive information and speak anonymously.”

The court seemed to have some fun with this, with justices leery of drawing any bright lines.

Justice Gary Hicks:

“But the information is newsworthy; people want to know about trends in the mortgage industry, and secondary markets, credit-default swaps.”

Justice James Duggan:

“So they print rumors, right? So does the national enquirer, and that’s a newspaper.”

“It’s a newspaper.”

“Not that I read it (laughs).”

I (obviously) think blogs should be afforded the same protections . . .

>

Source:
Fight Over Blog Comments Hits High Court
Josh Rogers
NHPR, November 5, 2009
http://nhpr.org/node/27722

As of today, our automated tool to gather FDIC bank call reports and generate Stress Index ratings has gathered data on some 5,063 institutions. Users of the professional version of the IRA Bank Monitor can see the ratings on a list we have built on the Bank Monitor home page that is sorted by assets. The largest institution CALL reports in so far start with the Ally Bank unit of GMAC, followed by a unit of Toronto Dominion Bank (NYSE:TD).

Perhaps most important is the fact that the overall level of observed stress in the industry is not rising significantly. You can see the public widget we have built that shows the preliminary ratings for the current quarter and the final ratings for the past quarter by clicking here.  One of these days, when Barry actually joins our affiliate program, we are going to build him some little toys using our web technology for visitors to The Big Picture theme park.

The current bank stress index for the smaller banks in the US banking industry is 6.45 vs. 1 for the benchmark year of 1995. Being more than half an order of magnitude above the mean for banking stress is not good. But given that the preliminary rating in Q2 2009 was 6.7, this when we had about 7,000 bank CALL reports available, the overall message from the Stress Index is that levels of pain in the banking industry are about where they were in Q2 2009. You can read our public comment about the Q2 2009 ratings in the Institutional Risk Analyst.

While it is possible that the overall level of industry stress could rise or fall as we see the rest of the FDIC bank units report for Q3 in the next three weeks, we think that this preliminary result confirms the general trend in the industry toward moderating loss rate increases. Since only the 19 Stress Text banks were really under pressure to window dress Q3 results for compliance purposes with the Fed’s SCAP stress tests, the inference we draw is that the rate of change in terms of stress throughout the industry was likewise more moderate in Q3.

Chris