Warsh: False Optimism on U.S. Economy
By Barry Ritholtz - June 17th, 2009, 6:30AM
Our quote of the day:
“The panic’s hasty retreat should not be confused with robust recovery. The rather indiscriminate bounce off the bottom — across virtually all assets and geographies — may be more indicative of a one-time reset, which may or may not be complete.”
-Federal Reserve Governor Kevin Warsh, remarks to the Institute of International Bankers annual meeting in New York.
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Sources:
Defining Deviancy
Governor Kevin Warsh
Institute of International Bankers Annual Meeting, New York, June 16, 2009
http://federalreserve.gov/newsevents/speech/warsh20090616a.htm
Fed’s Warsh warns of false optimism on U.S. economy
Ros Krasny
Reuters Jun 16, 2009 5:41pm EDT
http://www.reuters.com/article/smallBusinessNews/idUSTRE55F5FR20090616
June 17th, 2009 at 7:21 am
It all comes down to the 70% of the economy is the consumer thingy….over the years, for the reasons most of us know, we’ve moved as a mature economy into moving money around to make a living. The consumer is king, and this really is about his problems. Retirement less…check. House less valuable…check. Job in danger or could be…check. Global involvement…check. Until we have data points that show improvement, it is only sensible to be cautious.
BTW…industrial production yesterday down another 1.1% and capacity utilization drops again yesterday…not close to green.
June 17th, 2009 at 8:22 am
The consumer thingy can’t improve before the job thingy especially with the home ATM closed and credit card lines being reigned in. Dropping from 650K jobs lost to “only” 625K or 600K is no cause for joy because the effects are cumulative.
I still haven’t heard an argument for what will break us out of this financial death spiral, the first great depression required a world war.
Gary Shilling was on Bloomberg again talking up his “buy a home, get a greencard idea”, it would help.
June 17th, 2009 at 8:58 am
Current account balance released today…total exports minus total imports…
Hmmm….Lefty, have you looked at this lately…at the revisions, and the size of our problem?
http://www.smartmoney.com/marketcalendar/?story=events&event=Current%20Account%20Balance&wdate=6%2F17%2F2009
Release Release Date Released For Actual Value Consensus Value Revised From Prior Value
Current Account Balance 6/17/2009 Q1 -$101.5B -$85.0B -$132.8B -$154.9B
Current Account Balance 3/18/2009 Q4 -$132.8B -$137.1B -$174.1B -$181.3B
June 17th, 2009 at 10:00 am
unrelated but I thought this was interesting
http://www.earthtimes.org/articles/show/273611,google-searches-helps-researchers-calculate-unemployment.html
Do you think google uses BLS birth death model?
June 17th, 2009 at 10:36 am
Only monkeys pick [their] bottoms, (Video, Hugh Hendry) http://economicedge.blogspot.com/2009/05/hugh-hendry-on-latest-rally.html
June 17th, 2009 at 10:36 am
Regarding his speech:
Interesting read but once again I am very disappointed in a leading economist (in this case a Fed governor). Not once in this speech did he mention the word “debt.” No recognition that the debt binge was at the root of this and no mention of it’s role in the recovery. Instead he characterized it just as a “panic”, not the unraveling of unsustainable levels of debt that climaxed in the housing bubble.
Also he makes no mention of loose monetary policy by the Fed that is at the root of the debt binge/bubble. He talks about the possible choice of stability vs. growth in policy choices ahead, but does not recognize that Fed policy of easing at every hint of economic weakness over the last 25 years was an attempt to avoid any economic discomfort (i.e. to keep things stable) and led to greater and greater dislocations in the economy due to short circuited recessions that would have led to healthy shake outs of the economy. I could go on.
Mostly I see this as a political speech that is attempting to head off regulation of the banking industry. And no recognition of Fed policy errors that blew great bubbles in our economy. Very self serving, IMO.
June 17th, 2009 at 11:00 am
Onlooker,
Good observation. This is why the Fed policy will ultimately fail. They are only going after symptoms, not the problem itself, which as you say, is debt.
Also, Fed Ex didn’t look very green shooty this morning and the CPI, like the PPI yesterday spelled deflation.
June 17th, 2009 at 11:11 am
How exciting, I posted this article in a thread yesterday.
June 17th, 2009 at 11:30 am
ben
It just makes me crazy to see the lack of acknowledgment and/or understanding of the root problems here. And that just keeps the general public in the dark and misled about what the problems are and what the risks are. Nothing new under the sun, of course. But endlessly frustrating to watch/observe.
June 17th, 2009 at 11:42 am
Onlooker,
I think everyone knows inside that the private and public debt is unsustainable but the consequences are painful. Certainly too painful for MSM discussion or for people to admit in conversation. Unless you are a Bear, of course.
ben
The reflation has been overstated for now, although there is some inflation coming down the line. The death of Treasuries was clearly exaggerated. Green shooty talk will be less evident now that banks are recapitalized.
June 17th, 2009 at 11:54 am
Everyone must be on another thread.
Yeah, Bruce, world trade is collapsing. Chinese and Asia depend on exporting to us and that is going away. Saw something in the past couple of weeks that the Japanese might be willing to further destroy their own currency to encourage exports.
Oh, BTW, new Chinese regulation requires local governments to spend stimulus on Chinese goods unless the item required is not available in China. I’m sure it was for domestic political reasons, but they forget there is an internet. So much for Chinese grousing about “Buy America.” And the beginning of the trade wars.
Two interesting columns I was notified of by google:
“May Mac sales better than expected, iPod worse”
http://apple20.blogs.fortune.cnn.com/2009/06/15/may-mac-sales-better-than-expected-ipod-worse/
In sum, it says sales were crappy, but beat expectations. But, Piper Jaffray is certain things will pick up in June, so it’s bullish.
And this:
http://www.moneyweek.com/news-and-charts/economics/the-threat-of-deflation-hasnt-gone-away-14908.aspx
Explains how keeping up earnings by cutting jobs and costs is just robbing future earnings because there will not be anyone to buy the products. I had trying telling a bullish friend this two years ago to no avail.
June 17th, 2009 at 12:04 pm
This should bode well for commercial real estate and all those new REIT investors….
http://zerohedge.blogspot.com/2009/06/green-street-advisors-on-cre-nothing-is.html
June 17th, 2009 at 12:10 pm
The time for SRS and IYR puts is approaching, if not already here.
June 17th, 2009 at 1:24 pm
LB
IYR is breaking down through the 50 EMA today. Maybe a revisit of 22 or worse in the future. Think it’s time for the move to short?
June 18th, 2009 at 9:08 am
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