Its been a while since we had an open thread — so let’s get to it. v
Whats on your mind? What economic/market/stock issues are you thinking about?
What say ye?
Sen. Tom Coburn, R-Okla., explains his objections to Sen. Chris Dodd’s financial reform bill including what he believes is insufficient attention to federal bailouts and fixing too big to fail.
Visit msnbc.com for breaking news, world news, and news about the economy
Professor Mark Perry, at his Carpe Diem blog, posted an excerpt from a lengthy story by Steven Malanga about how unions have essentially destroyed California’s economy.
Without addressing the merits of Mr. Malanga’s argument, I do take exception to the “evidence” Professor Perry uses to support it, which is a chart of the unemployment rate of the United States vs. that of California:
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While there may — or may not — be a correlation between the degree of unionization of a state’s workforce and the strength of that state’s economy, as Mr. Malanga argues, I do not believe that correlation is best reflected by a simple comparison of unemployment rates.
California, as we well know, was among the ground-zero sand states that saw their real estate markets go supernova. Consequently, California saw the percentage of its workforce in construction significantly exceed that of the other 49 states — and then come back down to earth:
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Source: BLS.gov, Series: SMS06000000000000001, SMS06000002000000001,
CES0000000001, CES2000000001
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As that excess has been — and continues to be — worked off, it stands to reason that Cali’s unemployment rate would disproportionately suffer (having nothing to do with unions). I would respectfully submit this is a more likely scenario than simply pointing a wayward finger at unions.
But, as we know, it’s all about what’s politically expeditious and ideologically convenient, not necessarily what’s true . . .
We learn today that 79 year old Leonard Nimoy is retiring from acting.
I know of no better tribute to him then Star Trek Cribs.
As April starts heading into May, its time to start looking at the Seasonal — sell in May, then go away – Trade.
Here are the numbers dating back to 1928:
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via the Chart Store
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Its not October (as many people fear), it is September that’s a bitch . . .
The latest bad meme to develop legs is the idea that strategic mortgage defaults are goosing retail sales. We looked at this last week in Are Defaults Really Driving Retail Spending? as an idea driven mostly by anecdote (some quite ugly), but unsupported by any hard data.
To those pushing this idea, I ask this: Are these mortgage mod requests from egregiously irresponsible spendthrifts the exception, or the rule? And, if they are more than an exception, would you please produce actual data supporting this thesis?
After my post on this, I got dozens of emails with anecdotal stories of defaulting homeowners going on spending sprees. Many were so similar that I presumed they were email forwards from the same source. Also, Bill Gates wants to send me to Disneyland.
I started hunting for more info on this. I came across three items that are worth discussing. (if you know of any other data sources in this, feel free to mention in comments)
The first item was a quote from Mark Zandi in Monday’s WSJ:
How much can the world count on the U.S. consumer?
U.S. consumers remain the single largest source of global demand, even if their clout isn’t what it once was. J.P. Morgan estimates U.S. consumer spending will account for one-fourth of the global total in 2010, down from about 35% in 2003. Still, the global recession spread to Latin America and Asia when U.S. buyers put away their credit cards.
In recent months, U.S. consumer spending has turned upward and may continue that way for some time, says Economy.com economist Mark Zandi, who figures pent up demand will boost car and home sales. But the long-term outlook is hardly solid. Part of the reason for Mr. Zandi’s short-term bullishness is that he figures about five million households aren’t making payments on their mortgages, giving them as much as $60 billion to spend—for now. -WSJ
Zandi appears to have come up with his $60 billion figure (as far as I can tell) by taking 5 million delinquent home owners X a ballpark $1000 per month mortgage X 12 months = $60B.
Let’s take a closer look at Zandi’s analysis to see if it holds water.
- The March 2010 NFP report data had 15.0 million unemployed persons; the number of “long-term unemployed” rose to 6.5 million — 44.1% of total unemployed. An additional 9.1 million people working part time because full time work was unavailable.
Its reasonable to surmise that there is a huge overlap between the 24 million people either unemployed or under employed, and the 5 million foreclosures, and 6 million+ late mortgage payers. We can reasonably make a connection between a fall in income and foreclosures and defaults.
-Confusing cause and effect. Most people don’t default to get more money; they default because they have run out of money.
When your income plummets — in 15 million case above, by 100% — you stop spending except for necessities. The majority of hard working Americans who are unemployed (or under employed) and who are delinquent on their mortgages because they have run out of money. Merely failing to pay that liability, does not men you therefore have lots of extra cash burning a hole in your pocket.
- Therefore, Liabilities — what is owed by defaulting homeowners — are not the same as Disposable Income. Not paying that liability is not a windfall — its a sign of economic distress. That $60 billion is a collective measure of how much homeowners owe, not how much they have.
And this is coming from me, the guy who advocated that the economy needs more foreclosures . . .
The second item was from Minyanville’s James Kostohryz. He blamed the idea on Perma-Bears, stating they are “running out of excuses for why retail sales rose so strongly in March of 2010” (Are Mortgage Deadbeats Juicing Up the Economic Numbers?).
But James takes it a step further, crunching the numbers to determine, if true, how much this could be impacting spending. His conclusion? The most that strategic defaults are helping retail sales is about $228 million per month — “~0.026% of monthly Personal Consumption Expenditures (PCE) which are averaging about $863 billion per month.” Hardly enough to explain the significant uptick in retail sales.
It was the best of times, it was the worst of times. Yes it’s the 1st line of the Dickens classic “A Tale of Two Cities,” but it also describes the tale of two economies that we seem to be having in the US. On one hand, we have the world of Apple, emerging markets, a pick up in manufacturing, an 18 month high in the S&P 500 and a bounce in consumer spending and on the other, a still tough job hiring picture and a US consumer that doesn’t feel so good. In the face of the seemingly positive economic outlook, ABC confidence fell 3 pts to -50, matching the lowest level since Oct ’09 and is just 4 pts from the record low dating back to 1985. It has fallen 7 pts in just the past two weeks. While the survey said the economy is not getting worse, only 26% said it’s getting better. This follows last week’s UoM confidence figure which fell to the lowest since Nov ’09.
Greece continues to implode before our eyes. The Greek 10 yr bond yield is rising another 40 bps to 8.25%, the highest since Oct ’98, the 2 yr yield is up 35 bps to 7.65% and 5 yr cds is up 25 bps to 485 bps and is fast approaching the Ukraine. Portugal continues to get dragged into the mud as their 10 yr yield is up 17 bps to 4.79%, the highest since March ’09 and 5 yr cds is up 20 bps to 220 bps. This action comes even as the EU/IMF begin their discussions. The market is telling us that a debt restructuring could be on the table rather than just a straight loan used to refinance upcoming maturities. Following the rate hike from India and hint at one in Canada, the Bank of South Korea Gov said the country must be ready for inflation led by higher energy prices. They have left rates unch for a while. The MBA said purchases rose 10.1% just two weeks before the tax credit expires and refi’s bounced by 15.8% from its lowest level since early Jan.
II: Bulls 53.3 vs 51.1 Bears 17.4 v 18.9, bulls just shy of highest since Dec ’07 and bears lowest since Jan 20th
"I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." -Thomas Jefferson (letter to John Taylor in 1816)
After 3 quarters in a row that averaged just 1.2%, Q4 GDP grew 2.8%, a touch below expectations of 3.0% BUT Nominal GDP grew well below forecasts. Because the price deflator was up just .4% vs the estimate of 1.9%, Nominal GDP was up 3.2% vs the estimate of 4.9%. Personal Consumption rose 2.0% vs the forecast of 2.4%. Fixed Investment rose 3.3% helped by a 5.2% increase in equipment and software spending and residential construction rose by 10.9%. Trade was a slight drag on GDP growth and government spending was as well led by a 12.5% decline on national...
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