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

If you think you are seeing double, you are right. Looking exactly the same, the world’s first cloned sniffer dogs reported for work in Seoul’s Incheon airport on Monday. Video courtesy of Reuters.

“There is a real danger this is going to be a double dip and that after six months or so we’ll have some more bad news.  We could slide down again in the fourth quarter.”

-Martin Feldstein

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Normally, I don’t get too excited when some economist or another makes these proclamations. However, Feldstein is not your ordinary economist. He was, up until recently, the head of the National Bureau of Economic Research. And he was very forthcoming in 2007 about the housing mess. Last year, he openly discussed the likelihood of a recession. He also dissed the government’s GDP inflation and employment data. (my kinda guy).

So when Feldstein starts talking double dip, I consider his analysis very closely . . .

Here’s an excerpt:

“The U.S. recession may not be coming to an end and there is a risk the economy may experience a “double-dip” contraction, said Martin Feldstein, a professor of economics at Harvard University.

The economy could “flatten out” or “even be positive” in the third quarter, and then it’s likely to contract again in the last three months of the year as the effects of the federal stimulus program wear off and companies finish rebuilding inventories, he said.

“There isn’t going to be enough to sustain a really solid recovery,” he said, even though recent data has provided some “good news” on the economy. . . “

Ignore him at your own risk . . .

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Previously:
Martin Feldstein on the Housing/Credit/Economic Mess (September 12th, 2007)

http://www.ritholtz.com/blog/2007/09/martin-feldstein-on-the-housingcrediteconomic-mess/

Feldstein Says U.S. Economic Indicators ‘Pointing Down’
(May 31st, 2008)

http://www.ritholtz.com/blog/2008/05/feldstein-says-us-economic-indicators-pointing-down/

Feldstein: U.S. ‘Sliding’ Into Recession (May 7th, 2008)

http://www.ritholtz.com/blog/2008/05/feldstein-us-sliding-into-recession/

Source:
Harvard’s Feldstein Sees Risk of ‘Double-Dip’ Recession in U.S.
Bob Willis and Betty Liu
Bloomberg, July 21 2009

http://www.bloomberg.com/apps/news?pid=20601087&sid=a3IpfKeeveVM

Misleading growth statistics give false comfort
Martin Feldstein
FT, May 7 2008 18:54

http://www.ft.com/cms/s/0/4ae9ee60-1c36-11dd-8bfc-000077b07658.html

Dennis Gartman’s letter today hit so many key points with an economy of words that I have excerpted it and scratched my own text on Bernanke’s testimony. Dennis doesn’t mention the changes in “velocity” which is too technical a subject for this missive. Maybe later. He does perfectly characterize our Congress.

Go, Dennis, go. Give me a chance and I will vote for you. Next year we will get you on the annual fishing retreat when your calendar is not so conflicted. For the rest of our readers, on Friday, August 7, CNBC will start in the early morning with Steve Liesman and a live truck at the annual fishing gathering at Leen’s Lodge in Maine.

Readers are encouraged to try the Gartman letter. The subscription is well worth the price. See: www.thegartmanletter.com.

On July 21, 2009, Dennis Gartman wrote:

“That having been said, we do indeed note that Dr. Bernanke is headed to “The Hill” today and this should make for very interesting testimony, firstly before the House Financial Services Committee and then tomorrow before the Senate Banking Committee [Ed. Note: We always look to the first “performance” for the real meat of what Dr. Bernanke…or any Fed Governor for that matter… shall say, for they repeat their comments almost entirely when before the other house of Congress the following day. However, we look especially forward to the House’ questioning of Dr. Bernanke today for we can never underestimate the sheer idiocy of House members when it comes to all things economic. We have an especially “warm” spot in our hearts for Ms. Maxine Waters (D. California), who is capable of the most fantastically idiotic statements at almost any time. One must always be alert when Ms. Waters speaks. One never knows what idiocy shall come forth.].

This shall be especially interesting testimony from Dr. Bernanke for the market is concerned that his position is somewhat in jeopardy, and an awkward appearance today and tomorrow could do damage to the odds of him being reappointed for a full term in office. Dr. Bernanke will update the Congress on the Fed’s macroeconomic views and will of course be asked how long the Fed expects the recession to last. The House members, unable to understand the seriousness of the situation, will likely ask the Fed Chairman his views on salaries on Wall Street, on the Madoff Affair, and other such effluvia, and Dr. Bernanke will try his very best not to appear angry or despairing as he answers these questions. Quite honestly, we do not know how he retains his honour and dignity at some of the questions, and does not leap over the table, grab one of the Congressmen or women who ask these idiotic questions by the neck and shake them from limb to congressional limb; but he does retain his composure and his answers will be measured a bit more seriously this time than previously.

The real debate, and the one we think shall not be made, is what the Fed can do and intends to do in withdrawing the excess reserves from the system when the time comes for that to be done. Firstly, we shall go on record and say that the time to withdraw these excess sums of money (and by “money” we mean the adjusted monetary base) injected forcefully into the system last autumn is not now, and it shall not be until such time as unemployment has begun to turn down rather than marching inexorably upward as it is at present. However, why this debate is so shrouded in obscure language is quite beyond us, for the Fed has several very clear tools with which to withdraw these reserves. It can sell Treasury securities, or Agencies, or whatever collateral it has accumulated back into the system through direct sales to Fed dealers, or it can withdraw the money via long term “reverse” repurchase agreements. We suspect that the Fed shall use both methods, for the former is a permanent change and the latter is a shorter term, reversible one that will allow the authorities to fine tune its actions.

All we do know is that the Fed seems already to have begun the process of removing those reserves for the monetary base has not grown since the turn of this year. The Base stood last week (as accounted for by the Fed St. Louis, the “keeper” of such data) stood at $1700 billion, and that is almost perfectly where it stood at the end of December. In other words, the Fed has clearly not increased the base, and that is the first step toward reducing it.”

We thank Dennis and his counsel for giving us permission to quote him today.

Tuesday linkage  — something for everyone:

•  Bernanke Disarms Lawmakers With Garage Meetings, Credit Repairs (Bloomberg) see also Bernanke Heads to Congress Battling Calls to Tame the Fed (WSJ)

• Are Manufacturers Also Too Big to Fail? (NYT)

• At N.Y. Fed, Blending In Is Part of the Job: Some Fear Wall Street Too Heavily Influences The Financial Enforcer  (Washington Post)

• Why Japan Isn’t Rising (Newsweek)

• Distressed Assets Market and FDIC Closures (Real Property Alpha)

• Morgan Stanley’s Albatross: Real Estate (WSJ)

• Bailout Overseer Says Banks Misused TARP Funds (Washington Post)• Is Something Wrong with Certain Kinds of Trading? (Cassandra Does Tokyo)

• Patternicity: Finding Meaningful Patterns in Meaningless Noise (Scientific American)

• Yahoo to Launch New Homepage (WSJ)

• 10 Worst Evolutionary Designs (Wired)

Why did I miss — anything linkworthy?

There is a very interesting front page NYT article on the Big Apple’s damaged Retail sector. Some of the data points were quite surprising:

• Manhattan’s vacancy rate is 6.5%, and is expected to surpass 10% sometime next year;

• The vacancy rate is now the highest since the early 1990s;

• In Soho, 1 in 10 stores are empty;

• In Brooklyn and Queens, the overall vacancy rate is 7-10%;

• By the end of 2009, the expected vacancy rate for the Outer Boroughs is 12-15%;

• In some of the worst hit neighborhoods, vacancies range from 25-40%;

• Store closings have hit NYC tax base by 3%, lowering it from over $4.3 billion to $4.15B.

Not a surprise, but shocking nonetheless

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Graphic courtesy of NYT

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Source:
Stores Go Dark Where Buyers Once Roamed
CHRISTINE HAUGHNEY
NYT July 20, 2009

http://www.nytimes.com/2009/07/21/nyregion/21vacancies.html

Here’s an excerpt from my latest update on the slow transition from printed books to electronic books. The course of technological innovation never did run smooth:

When it comes to ebooks, no one seems to be able to keep a level head. Publishers are in self-induced swivet; Amazon is being a shortsighted bully, and the press is entering the silly season when just about anything qualifies as news. But to understand why the scheduling of a few ebooks creates so much worry, it is worth understanding the current context of book publishing.

We’ll know more in a few weeks when the Q2 earnings come through for the publishers and booksellers. But even if the quarter shows some strength—and that’s magical thinking—it won’t offset the beating all but one of the major firms took at the beginning of the year. Large publishing houses are like pyramids: Best-sellers are the pointy top and backlist is the burly base. Together they support the great mass of unmemorable titles in between.

Except that turns out to be the old publishing business. The recession and deleveraging and the death of retail have created a new business that looks more like a diamond with best-sellers on top and a smaller backlist on the bottom, you know, just the  perennials like 1984 and Animal Farm. (I’ve tried to outline some of those forces here and here.)

In between is a large and unwieldy cost structure—warehouses and sales forces and marketing staffs that are overbuilt for the streamlined retail environment of Amazon, Costco (COST), and fewer and fewer superstores; large staffs in expensive Midtown Manhattan offices; as well as a mass of books bought for wishful-thinking advances that are still clogging the publishing pipeline—that can’t be brought quickly back into balance.

Kindle Under Fire
Marion Maneker
The Big Money; July 21, 2009

http://www.thebigmoney.com/features/kindle-chronicles/2009/07/20/kindle-under-fire

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I am on my way to the Agora Financial Investment Symposium, where I will be one of the keynote speakers (along with Boom Doom and Gloom’s Marc Faber, BIll Bonner and Addison Wiggins.

I will be doing both a keynote speech Wednesday morning, and a Bailout Nation discussion later that day.

If you are in the Vancouver area, swing by and say hello!

Bernanke in his speech is saying most of what we already know about the economy and specifies that its the household/spending outlook that is the “important downside risk” which we know is the disease of the credit crisis. He says the unemployment rate will remain elevated even as the economy recovers (we need to generate 125k+ jobs per month to see a reduction). He reiterates his belief that inflation will remain subdued for the next few years. He seems confident on the steps the Fed has taken and the relative calmness (although “conditions remain stressed”) in the capital markets and says the Fed can remove their extraordinary stimulus in a “smooth, timely” fashion in order to avoid inflation. He passes on some words to Congress and the President in saying that they ‘must plan now for restoring fiscal balance.’ He also defends the independence of the Fed. The Q&A is where the drama is, if any.