August 14, 2009
No New Normal JPMorgan Sees V-Shaped Recovery in U.S. (Update1)
The worst recession since the 1930s has created a reservoir of demand that will buoy the economy, say a growing number of economists led by James Glassman at JPMorgan Chase & Co., former Federal Reserve Governor Laurence Meyer and Stephen Stanley at RBS Securities Inc.
“Whenever we have plunged off a cliff and fallen into a deep hole in the past, for a while the economy has a tendency to bounce back very quickly,” said Glassman, a senior economist at JPMorgan in New York. Glassman and his colleagues this month said forecasts of 3 percent to 4 percent growth in coming quarters may be too low given “pent-up” consumer demand.
I asked my unemployed girlfriend how much "pent-up" consumer demand she had and her answer somewhat contradicted the opinion of James Glassman. Her "reservoir" appears mostly empty. Go figure. I therefore offer you this glimpse down memory lane to see how at least one of his previous predictions panned out.
January 16, 2008
US may avoid recession
"If there is any further decline at this point, it will probably be very marginal," predicted Lawrence Yun, chief economist of the National Association of Realtors, an industry trade group.
He noted the index had shown stability even after credit markets seized up in August.
If pending home sales are stabilizing, that would imply that existing home sales will begin to steady soon and there will be less need in the future for builders to cut back, Yun said.
James Glassman, an economist at JPMorgan in New York, agrees with Yun that the downturn in the housing sector appears to be nearing a bottom.
"Even if housing just stabilizes, the damage to the economy will start to ease," he said.
For the record, hindsight shows the DJIA is STILL down 25% from that day, we'd actually entered the recession one month earlier, AND last but certainly not least we're STILL looking for housing to stabilize (over a year and a half later)! Other than that, his predictions were right on the money. Hahaha!
August 11, 2009
U.S. home prices fall, but rate slows: report
Even so, stabilization of the hard-hit housing market, which is seen as key to an economic recovery in the United States, is not yet in view, with mounting foreclosures and a high level of "underwater" mortgages still posing threats, Zillow said.
August 13, 2009
South Florida home sales increase, but prices fall
Building on a months-long trend that analysts say is a sign of improved health in the housing market, existing home sales surged by 75 percent in Miami-Dade and 35 percent in Broward as steep price declines, low interest rates and tax incentives continue to drive demand.
Prices down on extremely high volume? That would be considered a panic on Wall Street's stock market, but in the wacky realm of real estate it is apparently considered a "sign of improved health". Who knew!
James Glassman and Lawrence Yun, dynamic duo of the 'anti' Cassandra syndrome, everyone (OK, not everyone) believes them but they are seldom (if ever?) correct.
ReplyDelete"It's a great time to buy!!!"...toilet paper.
Stag,
ReplyDeletehttp://www.bloomberg.com/apps/news?pid=20601087&sid=axsovog3CuAE
From the above link:
Aug. 12 (Bloomberg) -- Home price declines in the U.S. accelerated in the second quarter, dropping by a record 15.6 percent from a year earlier...
We're losing millions of jobs and adding trillions in debts. I don't see anything encouraging about either of those trends.
Bernanke is certifiably insane. Totally mad. Off the reservation. He's handing out trillions and bailing out financial fraud and he expects "stability"?????
watchtower,
ReplyDeleteYun isn't half the cheerleader that David Lereah was. Yet! ;)
mab,
The trend isn't our friend!
I just love the hole idea behind our economy. Pun intended!
Stag,
ReplyDeleteI just love the hole idea behind our economy.
It's a great system - if you are a banker or financier!
Banks create credit and the fed creates the interest (base money) that is due on said credit. So if banks pool loans, they all get a guaranteed piece of the inflation no matter how foolish or non-economic the loans. If things go sour, the banks either all go down together (yeah right) or all get bailed out together. That's some serious financial innovation as it eliminates the need for under writing. Greenspan was right, the banks were spreading risk - to EVERYONE ELSE!
But it gets better. Rather than support new investment and innovation (risky business), banks have a much easier go of it if they collectively extend credit against existing assets like property or companies.
Syndicated loans are pools of credit/loans from multiple banks against existing entities and are used to fund what used to be called leveraged buyouts. Leveraged buyouts are now known by the much warmer name private equity. Over the last cycle > $1 trillion in loans were extended to private equity hustlers so they could "improve" existing companies. The "improvement" process involves stripping assets from companies, under funding pensions, cutting benefits, laying off employees, loading a company up with debt, taking a 2%/yr management fee, paying special management dividends and playing games with corporate balance sheets for temporary appearances.
Greenspan's negative real interest rates were a boon for private equity. It's glorified house flipping with a 20% cut of the gains after the flip. And the Fed provides the interest for these bogus ventures which enrich the few at the expense of the many.
In essence, Fed printed interest allows private equity to dump the employees, the bad debts, the health insurance obligations, the pension obligations, etc. on the government. The notion that they make companies more efficient is a canard to get access to massive bank loans and Fed generated interest. A high stakes game where financiers can make billions, but the public is guaranteed to lose. Repeat the process over a few cycles and watch the wealth (bank credit and fed interest) get concentrated to fewer and fewer while the burden dumped on the gov't gets ever larger.
Is it any wonder that banks are making fewer loans to fund start-ups that want to compete with existing companies? More debt with no additional competition for the Fed's printed interest is a sure thing. Merger deals work the same way.
The entire private equity sham is based on the notion that venal Wall St. hustlers working as a cartel with printed fiat money from the Fed are more efficient than a free market. That more debt and less competition are the path to prosperity. Only a mad man could CONclude that.
The employer at my first job out of college raided my pension. I lost > 90%. I was young and had only worked there for 3 years, but the loss was still huge for me. People I new who had been there for > a decade were crushed. In the end, they became part of the Government's Pension Benefit Guaranty program. I didn't have enough work years to qualify for the program. I got next to nothing so that a few insiders could take a shot at the big brass ring. What a system.
mab,
ReplyDeleteSorry to hear that. I'm reminded of...
Chainsaw Al
http://www.businessweek.com/1999/99_42/b3651099.htm
Corporate America has been on a chainsaw binge in recent years (falling revenue, rising income). It's putting Al to shame. That light at the end of the tunnel might be a bankrupt "Sunbeam" though. Sigh.
Stag,
ReplyDeleteI know Chainsaw Al all too well. While living in the Philadelphia area, I knew a few people that got layed off (right-sized) from Scott Paper. I also had a business partner that lost some of our money investing in the Chainsaw AL Sunbeam turnaround story. A few years back I was invited by a CA real estate mogul to bid on the demolition of a large Scott Paper facility at the Phila Airport. Apparently, the Scott Paper company became so "efficient" that they were able to liquidate the entire office and industrial facility and have it tranformed into airport parking!
Here's something to consider. Absent shams and bubbles, it appears our non-financial corporate businesses really don't make much money:
http://research.stlouisfed.org/fred2/series/NFCPATAX
mab,
ReplyDeleteThat's a great link. I'm inspired to adjust it for inflation and/or debt! I may do just that in the coming days.
If you feel so inclined, add the CPI series to the chart (on a log scale). The CPI looks a lot like a long-term trend line and profits are STILL above it. Oh oh. Makes me like TIPS even more.
Stag,
ReplyDeleteIf you feel so inclined, add the CPI series to the chart (on a log scale).
Very telling. Another caution flag.
I've played around with Shiller's S&P 500 spread sheet. I didn't trust Shiller's 10yr price earnings ratio due to all the recent bubbles so I made a few adjustments like adding a 20yr p/e. A few observations. Real dividends barely increase with time and real earnings increase at ~ 2% annually (3% decades ago, but less than 2% in recent decades). The current 20 yr p/e is ~ 20 vs. Shiller's 10yr p/e of ~16. Neither are cheap historically. And the current dividend yield of 2.14% is so low it has no historical precedent outside of the dot.con era. A ten yr treasury yield of 3.5% to 4% is historically quite normal absent policies of sustained inflation.
Moreover, and I know we disagree on this, I don't think the CPI reflects reality. Not that I buy the numbers from Shadow Stats either (way too high imo), but I do think imputations, hedonics and owner equivalent rent under-state true inflation (maybe by 1% to 1.5%annually). Who knows for sure though?
In any event, on an inflation (and population) adjusted basis, real S&P 500 earnings just don't grow that much. Inflation has fooled and mislead an entire generation of investors. Main stream eCONomists have fooled and misled a generation of folks too! I believe many stopped saving as they believed wall st. and their house was saving for them.
mab,
ReplyDelete"I believe many stopped saving as they believed wall st. and their house was saving for them."
And the rest are either semi-permanently flooding the sidelines with cash (me?) OR think that day trading is a sustainable profession (not me!).