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

Two interesting front page articles this morning expand on several of our favorite themes.

The first, the NYT’s A Reluctance to Spend May Be a Legacy of the Recession, treads over some well worn ground with anecdotes and data.  The anecdotal stuff is the usual mix of sad tales, and psychology, some signs of improvement and recovery.

Two data points worth noting are:

“Between 2003 and 2007 — prime years of the housing boom — the net worth of an American household expanded to about $540,000, from about $400,000, according to an analysis of federal data by Moody’s Economy.com.

Now, the wealth effect is working in reverse: by the first three months of this year, household net worth had dropped to $421,000 . . .

As recently as the middle of 2007, Americans saved less than 2 percent of their income, according to the Bureau of Economic Analysis. In recent months, the rate has exceeded 4 percent.”

What is omitted from the article is the why:  3 asset class collapses (Stocks, Housing, then Stocks again) will wreak havoc with yor psychology. Add to it shrinking Real Income, and voila! Consumers find frugality to be their new mantra.

The WSJ takes a different tack, looking at the advantages of larger versus smaller firms — but using the same anecdotal hooks to tell the story (I omit anecdotes for the obvious reasons):

The U.S. recovery is a tale of two economies. At one extreme of Corporate America is a cadre of companies and banks, mostly big, united by an enviable access to credit. At the other end are firms, chiefly small, with slumping sales that can’t borrow or are facing stiff terms to do so.

On Main Street, there are consumers with rock-solid jobs — but also legions of debt-strapped individuals struggling to keep their noses above water.

This split helps explain the patchiness of the recovery that appears to be taking hold after the worst recession in a half-century . . .”

Both of these are well worth your Saturday morning reading time . . .

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Sources:

A Reluctance to Spend May Be a Legacy of the Recession
PETER S. GOODMAN
NYT, August 28, 2009

http://www.nytimes.com/2009/08/29/business/economy/29consumer.html

Halting Recovery Divides America in Two
CARI TUNA, LIZ RAPPAPORT and JULIE JARGON
WSJ, August 29, 2009

http://online.wsj.com/article/SB125150649639668499.html

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The Jewish Buddha says:

If there is no self, whose arthritis is this?

Be here now. Be someplace else later. Is that so complicated?

Drink tea and nourish life; with the first sip, joy; with the second sip, satisfaction; with the third sip, peace; with the fourth, a Danish.

Wherever you go, there you are. Your luggage is another story.

Accept misfortune as a blessing. Do not wish for perfect health, or a life without problems. What would you talk about?

The journey of a thousand miles begins with a single Oy.

There is no escaping karma. In a previous life, you never called, you never wrote, you never visited. And whose fault was that?

Zen is not easy. It takes effort to attain nothingness. And then what do you have? Bupkis.

The Tao does not speak. The Tao does not blame. The Tao does not take sides. The Tao has no expectations. The Tao demands nothing of others. The Tao is not Jewish.

Breathe in. Breathe out. Breathe in. Breathe out. Forget this and attaining Enlightenment will be the least of your problems.

Let your mind be as a floating cloud. Let your stillness be as a wooded glen. And sit up straight. You’ll never meet the Buddha with such rounded shoulders.

Deep inside you are ten thousand flowers.  Each flower blossoms ten thousand times. Each blossom has ten thousand petals.  You might want to see a specialist.

Be aware of your body. Be aware of your perceptions.  Keep in mind that not every physical sensation is a symptom of a terminal illness.

The Torah says, Love your neighbor as yourself.  The Buddha says, There is no self.  So … maybe we’re off the hook?

Highlights and transcript from FOX Business Network’s interview with SEC Chair Mary Schapiro.

SEC CHAIR SCHAPIRO TELLS FOX BUSINESS NETWORK THAT THE AGENCY DOES “NOT HAVE ALL THE TOOLS” THEY’D LIKE TO HAVE

SEC Chair Mary Schapiro spoke with FOX Business Network’s Liz Claman in an interview to air at 3pm ET and said that the SEC “is not as big as it needs to be” and is lacking tools she’d like it to have to get the job done.

SEC Chair Schapiro, Part I

Link

Part II

Link

Part III

Link

Below are highlights from the interview:

Read the rest of this entry »

Blast from the past: This is now 2 years old:  The Ongoing Impact of the Housing Sector

“The economic weakness has shown up first in retail spending figures. Especially hard hit have been the number one and two retailers in the U.S., Wal-Mart and Home Depot. But its not just those two retailers. As the chart below shows, the U.S. consumer appears to be getting tired. Housing is already in a recession, and Automobile Sales are on the verge of one, if not already there. Not just GM and Ford, but Toyota and Honda have seen year over year sales drops in the U.S.

Slowing economic activity here has been offset by strength abroad. Robust growth in Asia, Europe and Latin America, along with a weak U.S. dollar, has been a huge boon to American exporters. U.S. corporate profits are actually quite strong, albeit at a cyclical high. The corporate sector has not been hit by Housing – yet.

More recently, banking and finance companies have felt the sting of the housing slowdown. Indeed, it is not just the retailers and auto dealers who have been affected by Real Estate – the entire financial system is being impacted. Let’s look at how that came to be.”

Whenever people tell me no one saw it coming, this is one of the many links I send to them . .  .

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Source:
The Ongoing Impact of the Housing Sector
Barry Ritholtz
August 24, 2007

http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2007/08/27/the-ongoing-impact-of-the-housing-sector.aspx

Some reading for your end of week pleasure

Experiment:  (I am going to try to create this in real time, so refresh this page frequently) Finished !

Linkage:

• Leverage Rising on Wall Street at Fastest Pace Since ‘07 Freeze (Bloomberg) Banks are increasing lending to buyers of high-yield company loans and mortgage bonds at what may be the fastest pace since the credit-market debacle began in 2007

• What’s C Worth? (Krasting)

•  Big is Back: The Return of the Corporate Giant (The Economist) Today the balance of advantage may be shifting again. To a degree, the financial crisis is responsible. It has devastated the venture-capital market, the lifeblood of many young firms. Governments have been rescuing companies they consider too big to fail, such as Citigroup and General Motors. Recession is squeezing out smaller and less well-connected firms. But there are other reasons too, which are giving big companies a self-confidence they have not displayed for decades.

• Is The Fed Enabling Foreign Central Banks To Swap Out Their Agency Debt Into Treasuries? (Zerohedge)

• Consumers’ debt-tactic changes may hurt banks (Daily Herald) Wall Street may be repeating the mistakes that felled American International Group Inc., which sold the equivalent of cheap lottery tickets in the belief that no one ever would hit the winning number. These tickets are credit default swaps, derivatives that insure against a company default on its debt. The problem is banks and brokers look as if they are selling these swaps too cheaply, at least for a raft of industrial companies.

• Has the tide turned for corporate profits? (Economist)

• AIG’s Swaps Blunder Now Replaying on Wall Street (Bloomberg) Wall Street may be repeating the mistakes that felled American International Group Inc., which sold the equivalent of cheap lottery tickets in the belief that no one ever would hit the winning number. These tickets are credit default swaps, derivatives that insure against a company default on its debt. The problem is banks and brokers look as if they are selling these swaps too cheaply, at least for a raft of industrial companies. The willingness to gamble like this may be symptomatic of the exuberance that has gripped markets this summer.

• Fannie, Freddie soar on opportunistic day traders (Reuters)

• Best of Wikipedia

• Nation’s Unemployment Outlook Improves Drastically After Fifth Beer (The Onion)

Anything else linkworthy?

Have a good weekend~!

Barney Frank answers a question about HR 1207 and the Federal Reserve.

According to Frank, the timeline for passage of the bill is ‘probably in October’, but scheduling in the House is notoriously difficult to pin down. Frank discusses working with Ron Paul to get this done.

There are a lot of reasons the Fed will be audited, but at the end of the day, Chairman Frank recognizes that there is a lot of skepticism around the recent activities of the Federal Reserve, and that 281 cosponsors of HR 1207 is meaningful democratic input. There is still the Senate and the White House, of course, and Wall Street has begun to mobilize through its opposition to Bloomberg’s FOIA lawsuit. But those of you who worked to increase co-sponsorships and exposed the problems of this institution deserve a lot of credit. Rep. Grayson was consistently going to the floor every few days and bringing back lists of members he had persuaded or talked to, and the work done by many of you on this inspired him to do that.

As the stock market hits resistance, investors will benefit from a contrarian approach. Barron’s Steve Sears reports.

The Advance/Decline Line has now returned to levels seen pre-Lehman Brothers collapse:

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Advance/Decline Line SPX

Chart via Ron Griess of The Chart Store.

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July Income was flat vs expectations of a gain of .1% but June was revised higher by .2% to a decline of 1.1%. Spending rose .2%, in line with forecasts and June was revised up by .2%. Because the headline PCE was flat, REAL spending rose by .2% (vs .1% gain in June) and with flat income, the Savings Rate fell to 4.2% from 4.5%. Over the past 30 years, the Savings Rate has averaged 5.6% and before 1995 it averaged 7.7%. Headline PCE fell .8% y/o/y and is negative for a 3rd straight month. The core PCE though rose .1% m/o/m and is up 1.4% y/o/y, the lowest since Sept ’03 but it clearly didn’t get to the deflationary levels that headline PCE has achieved. This highlights the impact that commodity prices have had on inflation just within the past year. Bottom line, Q3 GDP will see positive growth but the contribution from the consumer side will be muted as income growth remains lacking.

“The Human Ticker”

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Source:
“The Human Ticker”: StockTwits and the Power of Social Leverage
Aaron Task
Aug 26, 2009 04:13pm
http://finance.yahoo.com/tech-ticker/article/311907/”The-Human-Ticker”-StockTwits-and-the-Power-of-Social-Leverage