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

With markets that are no longer oversold (now more neutral) and sentiment numbers that are mixed (rather than the contrarian standpoint of bearish) as measured by the II and AAII data, the markets don’t have these technical crutches to stand on right now. This makes them very vulnerable to anything negative as it becomes more clear that we are now in a bear market as the violence of these moves typically happen only in one. European markets started to roll over at around 5am led by banks due to a few reasons. In no particular order, the WSJ highlighted the growing focus of the Fed on the US divisions of European banks, the ECB’s Nowotny said he fears an economic replay of Japan, “a long term period of limited economic growth combined with low inflation rates,” a Swedish regulatory official said while it’s not that serious of a concern right now, “it won’t take much for the interbank market to collapse” and banks should prepare. While 3 mo Euribor and Euro 3 mo LIBOR have been stable, the demand for $’s is becoming clearly evident in US$ 3 mo LIBOR as it rose for the 18th straight day to the highest since April. Also, Greek 2 yr yields are at a 4 week highs as its being reported that now Austria wants collateral backing from Greece for any loan given to them as part of the July 21st bailout package. This follows Finland but Finland had their agreement in place when the bailout was first announced

click for updated Stock Futures:

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A 3-5% collapse in European bank shares is leading to worldwide pressure on equities. US Futures down 2%.

Also, I am out of the office today traveling East for the day — you know what that means!

Markets in Europe opened down 2.5%. Leading the decliners are Banks and Miners, and nearly all sectors are in the red. US regulators are looking into the local operations of Europe’s largest banks concerning possible funding issues (see WSJ).

More in a moment . . .

Bloomberg

Hat tip Pragmatic Capitalism

Invictus here (leave Ritholtz out of this):

The notion of a Texas Miracle — that employment in Texas somehow defied the grips of the Great Recession — has been debunked thoroughly here, here, here and here, just to cite four examples.

So, putting employment aside, I thought I’d examine some other metrics by which states are measured.  Using the excellent database at the Council of State Governments (which I’ve written about previously), I took a look at a dozen “quality of life” metrics to see how Texas ranks relative to its peers.

In each case, I ranked the 50 states in a manner where “1″ is the best score achievable and “50″ the worst (e.g., the highest high school graduation rate would garner a “1,” the lowest incidence of STD’s would also garner a “1.”  In other words, if you’re a governor — a state’s CEO, as it were — you always want to be #1 and, conversely, nowhere near #50.).

That said, let’s have a look at how Governor Perry’s Texas ranks in a dirty dozen metrics (and keep in mind that Perry has held the governorship for 11 years):

(Source citations for all statistics above are readily available at the CSG website.  Rankings by author.)

I don’t see much to be proud of in Perry’s stewardship of Texas.  And yes, I’ve highlighted some particularly poor scores, but believe me, Texas doesn’t fare much better in most of the others at the CSG database.  And these are all clearly issues over which a governor, given his/her influence on policy matters, could absolutely make a difference.  These rankings are, frankly, unacceptable, and now he wants to spread this record nationally?  And his “D” in Principles of Economics doesn’t hearten me, either.

ADDING (Aug. 18):  Quite a lot of commentary on this one, so a few things:

I am sympathetic to the immigrant argument, but am not in touch with data that would allow me to factor it in, so it is very difficult to quantify.  As there are three other border states, that may be one way to go.  I’d also point out that many states have their own particular idiosyncracies that influence their performance for better or worse.  I’d also note that immigration has been a problem in Texas longer than Perry has been governor — what steps has he taken to address it and why have they apparently not worked?  I’m open to suggestions on how to solve for these issues.

I don’t have the time to track the progress Texas has made (or not) over any period of time.  If I could easily pull data from, say, 2004 and make a five year comparison, that would be great.  But I think we should be able to agree that if Texas is currently ranked 50th in anything (which it is), its situation has clearly not improved in that particular metric; it can only have gotten worse.  Agreed?

The name-calling is juvenile.

My afternoon reading material:

• How volatile has the market really been? (Market Watch)
• High-tech boom brings a sense of déjà vu in San Francisco (LA Times)
• Why Permanent Zero is toxic and leads to depression (Credit Writedowns)
• 10 investing rules tailor-made for tough markets (Market Watch)
• Why Reagan Raised Taxes and We Should, Too: Echoes (Bloomberg)
• Bank of America Death Watch: Unloading “Non-Core” Assets Aggressively (Naked Capitalism)
• Committee publishes further written evidence on phone-hacking (Parliament)
• Here’s How to Rejigger the U.S. Credit-Rating System (WSJ)
• Steve Jobs Biography To “Launch” In November (Tech Crunch)
• The Sexperience (Sexperience)

What are you reading?

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Nice piece in the monthly St. Louis Fed’s Monetary Trends, for September.

A prominent view in economics is that malfunctioning credit markets “are not simply passive reflections of a declining real economy, but are in themselves a major factor depressing economic activity.”1 This view has greatly influenced monetary policy.

A clear example is the recent “Great Recession,” when financial markets became volatile and illiquid and the viability of some of the world’s leading financial institutions was seriously in doubt. Federal Reserve policymakers responded aggressively by lowering interest rates to near zero, implementing lending facilities, and instituting multiple rounds of quantitative easing, parts of which were aimed directly at supporting the functioning of the financial system. Analyses linking the performance of financial markets to aggregate economic activity typically have a financial accelerator mechanism at their core. Fed Chairman Ben Bernanke eloquently summarizes the workings of this mechanism in a recent speech.2 Here, I interpret movements in business credit demand and liquid asset holdings in terms of this theory.

The key links between the workings of the financial system and real economic activity are easily understood. Entrepreneurs may develop profitable projects and firms may find it profitable to expand or invest more. Both actions typically require tapping credit markets to obtain required resources. Access to credit, however, is limited by the presence of asymmetric information and principal-agent problems, which are natural in credit relations. Financial institutions appropriately monitor borrowers to help overcome these frictions.”

The regular monthly Monetary Trends PDF is chock full of wonderful charts and graphs . . .

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Source:
How Credit Affects the Business Cycle
Adrian Peralta-Alva
Monetary Trends, September 2011
Federal Reserve Bank of St. Louis, August 2011
http://research.stlouisfed.org/publications/mt/

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1 Bernanke, Ben S.; Gertler, Mark and Gilchrist, Simon. “The Financial Accelerator
in a Quantitative Business Cycle Framework,” in John B. Taylor and Michael
Woodford, eds., Handbook of Macroeconomics. Chap. 21. Amsterdam: Elsevier,
pp. 1341-393.

2 Bernanke, Ben S. “The Financial Accelerator and the Credit Channel.” Presented
at the Federal Reserve Bank of Atlanta Conference, Credit Channel of Monetary
Policy in the Twenty-First Century, June 15, 2007; www.federalreserve.gov/
newsevents/speech/Bernanke20070615a.htm

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Hey you XM Satellite Radio listeners!

I will be guest hosting for Pete Dominick today, and for the next  Wednesdays, from 3-6PM ET on P.O.T.U.S. SiriusXM 124

Be sure to call in with a question if you have time — we have NYT’s Joe Nocera, Reagan Advisor Bruce Bartlett, and more, as guests.

Should be lots of fun!

Column Five for Focus:

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click for ginormous graphic

Hat tip The Atlantic

Financial gains over the last decade in the United States have been mostly made at the “tippy-top” of the economic food chain as more people fall out of the middle class. The top 20 percent of Americans now holds 84 percent of U.S. wealth, as Paul Solman found out as part of a Making Sen$e series on economic inequality.

Watch the full episode. See more PBS NewsHour.

Fed Pres Fisher, the 3rd member to dissent against the Aug 9 FOMC decision, today is also the 3rd to give their reason for it. After cutting the fed funds rate from 5.25% to basically zero, cutting the discount rate spread from 100 bps to 50bps and expanding their balance sheet from $900b to $2.9T by buying MBS, Agency debt and US Treasuries, Fisher finally said enough is enough and didn’t want to put a date on the length of the zero rate policy. On the economy, he thinks “nonmonetary factors, not monetary policy, are retarding the willingness and ability of job creators to put to work the liquidity that we have provided…Those with the capacity to hire American workers are immobilized. Not because they lack entrepreneurial zeal or do not wish to grow; not because they can’t access cheap and available credit. Rather, they simply cannot budget or manage for the uncertainty of fiscal and regulatory policy.” He also blames the debt ceiling debacle as creating major hesitancy on the part of business to do business. “What is restraining our economy is not monetary policy but fiscal misfeasance in Washington…Pointing fingers at the Fed only diminishes credibility.” While I agree with Fisher’s points on fiscal and regulatory policy, deflecting criticism AWAY from the Fed only diminishes his credibility.