Thursday, July 31, 2008

2nd Half of Year Recovery

One month down, five more to go.

U.S. Economy: Growth Rate Falls Short of Forecasts (Update3)

July 31 (Bloomberg) -- The U.S. economy shrank at the end of 2007 and grew less than forecast in this year's second quarter, signaling that the country is in worse shape than investors had anticipated.

``We're in a recession,'' Allen Sinai, chief economist at Decision Economics Inc. in New York, said in a Bloomberg Television interview. ``It's going to widen, it's going to deepen.''

Any word on the when the 2nd half of year recovery will recover? It is like we've sent a rescue team out to save the stranded mountain climbers and now the rescue team itself needs saving. Surely we can send out a few more helicopters to drop some freshly printed cash on them. If we do it enough times, they can burn it to keep themselves warm until the storm passes.

``Exports are making the difference between a near recession, or mild recession, and a deep recession,'' Nariman Behravesh, chief economist at Global Insight Inc., a Lexington, Massachusetts, forecasting firm, said in an interview with Bloomberg Television. ``We don't really see a recovery until some time in the spring or summer'' of 2009 for the economy, he said.

It is almost like the growth in exports is somehow related to the growth in the decline of our dollar (see "weekly view" chart). Yeah, almost exactly like that. Therefore, one would imagine that in order to keep the growth rate up in exports we'll also need to keep the growth rate up in our own currency destruction. We'll know we're doing a good job on this front if oil continues to cost significantly more than the year before. Even with the recent pullback in oil prices, lookin' good so far! Oil averaged just $64.20 a barrel last year.

Initial claims for unemployment insurance jumped by 44,000 to 448,000, the Labor Department said today. The department tomorrow may say payrolls declined by 75,000 in July, bringing total job losses so far this year to over 500,000.

Perhaps an increase in government jobs can help offset those losses.

California cuts 20,000 jobs over budget stalemate

SAN FRANCISCO (AFP) — California Governor Arnold Schwarzenegger on Thursday axed 20,000 temporary state employees and slashed the pay of 200,000 more workers in the latest twist to a budget stand-off.

Then again, maybe not. It would seem 220,000 government workers suddenly feel the urge to spend less. This no doubt marks the bottom in California's real estate market.

Warning: Keep this dose of sarcasm and all related sarcasm out of reach of children. The use of this sarcasm by more than one person may spread infection and/or hysteria.

Monday, July 28, 2008

The Government Did It?

The Government Did It

All of these government factors contributed to creating a situation in which millions of people were buying homes they could not afford, in which the participants experienced the illusion of prosperity, in which billions upon billions of dollars were going into bad investments. Eventually the bubble burst; the rest is history.

I don't find it very hard to not believe in the illusion of prosperity theory.

I have obfuscated my thoughts in honor of Alan Greenspan.

Thursday, July 24, 2008

More Stagflationary Thoughts

2 million Americans get a raise today; Federal minimum wage rises 70 cents to $6.55 an hour

The new minimum is less than the inflation-adjusted 1997 level of $7.02, and far below the inflation-adjusted level of $10.06 from 40 years ago, according to a Labor Department inflation calculator.

The anti-stagflationists must be sighing in relief that this 12% boost in minimum wages isn't keeping up with inflation.

But he said he did not expect the change to have a major impact on the economy because recent increases in productivity, which enables companies to produce more with fewer workers, are keeping labor costs in check.

As I extrapolate to the logical conclusion, the productivity miracle of automation and outsourcing should see that there are no jobs someday. Based on the last six months of job reports, these must be truly miraculous times.

That makes it unlikely the minimum wage increase will trigger a "wage-price spiral," in which workers facing higher costs demand more pay, which in turn causes companies to raise prices higher, sending inflation coursing through the economy.

Wages can't seem to keep up with inflation any more now than they did in the 1970s. I refer you to the following chart. Inflation adjusted wages peaked in the early 1970s, well before much of the stagflation actually hit.

Historical Real Hourly Wages

Rather than focus on wages attempting (and failing) to keep up with inflation, I'd prefer to simply look at the vast amount of actual money sloshing around the world as we ship dollars overseas in exchange for goods. We do have a massive trade deficit.

Global Trade Imbalances

We might want to look where the jobs were/are actually being created. China has wage pressure. That's where we buy our finished goods. Right?

Inflation is Asia's problem, not the world's

"The increase in meat consumption by emerging markets as incomes rise is true but it is a 20- to 50-year phenomenon," says Cassard. "You can't use it to explain a three-month phenomenon."

I can't? In my opinion, the credit crisis was a 20- to 50-year phenomenon in the making. The bulk of the crisis hit one day in August of last year and we're still stuck with it.

Top 25 Quotes of the 2007 Credit Crisis

3. For the second time in seven years, the bursting of a major-asset bubble has inflicted great damage on world financial markets. In both cases--the equity bubble in 2000 and the credit bubble in 2007--central banks were asleep at the switch. The lack of monetary discipline has become a hallmark of unfettered globalization. Central banks have failed to provide a stable underpinning to world financial markets and to an increasingly asset-dependent global economy. - Stephen Roach, Morgan Stanley

I'm stagflationary for yet another day it seems. I just don't find the the wage-price spiral theory of inflation all that convincing. The massive amount of dollars already sloshing around in the global system and looking for some kind of "real return" home seems far more important to me. Some of it realized a few years ago that the return of capital was becoming more important than the return on capital. This can be seen in my own pantry. The canned goods are holding their value.

Monday, July 21, 2008

Must See British Horror Movie!

I can't seem to find the listing. Perhaps it is some sort of reality based made for TV movie?

British economic 'horror movie' to continue: think-tank

"As with any horror movie, there is an escape route but it is not an easy one," the report read.

"It is imperative that wage increases remain restrained, despite the tremendous pressure from food and energy cost inflation... A general outbreak of wage inflation would spell disaster, requiring much higher interest rates and a recession in output to get inflation back under control."

Surely there must be something the government can do to ease wage pressure.

Unemployment, meanwhile, will rise to two million by 2010, compared to 1.6 million at the end of last year.

Zimbabwe 's wage pressure would seem rather low given its 80% unemployment. We anxiously await its inflation rate to drop a few million percent.

Magic Ponies for the win!

It Is Different This Time

Stagflation Could Be Making A Comeback, But It Is Different This Time Around

It is different this time? Okay. Convince me. I'm all ears. I should point out that I will be particularly skeptical based on the particular phrase though. "This time it is different" has a lousy track record. It is similar to betting on the glue horse to win.

First, this stagflation is far less severe. Compared with the 70s, Shapiro said, unemployment is far less. And the inflation rate is nothing like the double-digit rates seen during the disco era.

As the stagflation of the 1970s grew worse, I'm confident that there was a time in the 1970s when its severity matched our current situation. What's to stop this current stagflation from becoming more severe? Unemployment is rising and the employment reports continue to show job losses. Then there is inflation. Even after oil's selloff this week, it is still substantially higher than this time last year. The future price of goods will no doubt have at least some of that baked in. Import prices even excluding oil aren't looking all that good. Due to our massive and unsustainable trade deficit, import prices should be even more of a concern to us than in the 1970s.

So, what is ahead? Shapiro said the Fed should hope economic growth picks up enough in the next several months to justify raising interest rates to kill inflation. If that does not happen, he said, perhaps the slowdown itself will be enough to keep prices from rising too much.

Hope? Seriously? Based on what?

The first scenario has growth miraculously pick up somehow. The good news is that if growth picks up the Fed can squash it with rising interest rates? That's the good news? Won't that just put a fork in housing? Too bad housing already has about 17 forks stuck in it already (just a "crude" ballpark estimate).

The second scenario has growth continue to slow down. We already know what the government's response will be. It seems likely that more money will be printed in the form of tax rebate checks. In my opinion, that really kick started the price of oil higher. Everyone loves free money but it was the oil traders who loved it most.

If neither of those scenarios comes to pass, policymakers might have to make some very tough choices.

Well, he made it fairly clear that those two scenarios were based on hope. My bet is on this last option. Neither is just predicting more of the same. Policymakers have been having to make some very tough choices for the past decade. I don't see much that will change it going forward. Surprisingly, Bernanke did want the job though. Go figure.

For now, Shapiro said, the government’s economic stimulus package seems to be having a positive effect. But the effect probably won’t be long-lasting and could have the effect of “papering over” some of the economy’s problems.

The last paragraph of the article (presumably the conclusion) uses the "positive effect" of printing more money and "papering over" to show why it is different this time? Needless to say, I think I shall remain stagflationary for yet another day (week, month, year, and/or lifetime). And lastly, if the effect probably won't be long-lasting as he suggests, then why should the Fed be hoping for a pickup in economic growth? I'd really like to know.

Monetary Pyramid Scheme (Musical Tribute)

Behold the penny pyramid.

One never knows what the pyramid will be worth from one month to the next.

On the one hand it is constructed from a currency backed by the full faith and credit of the U.S. government. On the other hand it is constructed from an industrial metal backed by the full faith and credit of the global economy.

These days it is beginning to look like the same hand.

Commodities: It's Oil, Again

And copper, the other significant indicator of industrial demand, fell, posting a second straight weekly decline as supplies rose and economic growth slowed in China, the world's largest consumer of the metal.

That being said, one wonders how much longer China is willing to send us hard goods in exchange for an endless supply of paper US dollars. There's talk of "Peak" oil, metals, food, and so on. Why is it we never hear of Peak Dollars in the news?

Google Results for "Peak Dollars"

Friday, July 18, 2008

Competitive Gloominology vs. Goldilocks

A trip down memory lane...

October 15, 1979
Shrinking Role for U.S. Money

Though the greenback strengthened a bit late last week as the markets anticipated new dollar defense moves, worry remains deep about the future of the monetary system that helped create the world's postwar prosperity. The central problem is the roughly 1 trillion footloose dollars that slosh around banks and currency markets outside the U.S. For many years during the 1950s and 1960s, Europeans complained about a "dollar gap." Greenbacks were the only currency that was accepted everywhere, though there were not enough of them around to finance world trade and development. But the dollar gap has since become a dollar glut. Due to heavy foreign spending, first to pay for the Viet Nam War, more recently for oil imports, the U.S. has exported enough dollars in the past decade to boost the reserves held by foreign central banks from $24 billion to $300 billion. Private international banks hold another $600 billion in Eurodollars, which are dollars loaned abroad.

Heavy foreign spending (Wal-Mart)? Paying for a war (Iraq)? Oil imports? $300 billion though? Those were the days. We've already burned through half that much with the tax rebate checks alone. We didn't even break a sweat.

Reported TIME Correspondent Friedel Ungeheuer: "An undercurrent of fear and confusion about what has been happening on the money markets ran through the corridors of the modern Sava Center, where the I.M.F. sessions were held. Cecil de Strycker, governor of Belgium's central bank, confided: 'The only thing that is certain is that nothing is certain any more.' Many delegates joined in what Britain's Chancellor of the Exchequer, Sir Geoffrey Howe, aptly described as a kind of 'competitive gloominology.' "

Competitive gloominology for the win!

Tuesday, July 15, 2008

Illusion of Solvency

UPDATE 1-Pierre Foods files for Chapter 11 bankruptcy

"As a result of rising raw material prices experienced throughout our industry, it is necessary for Pierre Foods to create a capital structure more appropriate for both our operations and the current marketplace," Chief Executive Norbert Woodhams said in a statement.

For the current marketplace, what could be more appropriate than bankruptcy?

Steve & Barry's Files Bankruptcy, Another Blow to Mall Landlords

In the announcement press release, Steve & Barry's said it has "performed very well" in terms of sales, and blamed the Chapter 11 filing on a "liquidity shortfall as a result of credit market volatility and general economic conditions."

The more you sell the more you save.

Jim Palmer Trucking to file Chapter 11 bankruptcy

The Associated Press quoted lawyers for Jim Palmer Trucking as saying a poor economy and high fuel prices have left the company as much as $2 million behind in repaying loans and other debts. The president of the 44-year-old company says he’s just looking for a little “breathing room” and fully intends to continue operating.

Let's just hope everyone doesn't gasp for air at the same time.

Wyo Ethanol parent files for bankruptcy

In a prepared statement to stockholders, Thomas stressed that despite the financial difficulties, the company’s existing business continues to grow and has seen annualized sales volume growth of over 60 percent since year’s end.

That's fantastic news for the stockholders no doubt.

How To Collect From Deadbeats

"Especially in this economy, don't wait 120 days to get help if a debtor has been non-communicative, bounced checks or made several broken promises of payment," says Hartleb. "The debtor could be looking at filing some kind of insolvency and you don't want them to go bankrupt before you get paid."

Especially in this economy? What's that supposed to mean? I thought this was supposed to be the Goldilocks era.

Spain's Crisis

Bankruptcy of property firm adds to Spain's economic woes (Roundup)

Prime Minister Jose Luis Rodriguez Zapatero has admitted that the economy has entered into a 'crisis,' after avoiding that word for weeks.

Weeks? Surely it has been months at the very least.

Rafael Pacheco vs. Ash

You cannot speak of a crisis. - Rafael Pacheco, Housing Director, Spanish Government, October, 2007

Bernanke vs. Buffett

Bernanke Abandons Assessment of Lessening Growth Risk (Update3)

July 15 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke abandoned his June assessment that the threat of an economic downturn had diminished, telling lawmakers that growth and inflation risks are increasing.

Buffett Says He's Concerned About U.S. `Stagflation' (Update4)

June 25 (Bloomberg) -- Billionaire investor Warren Buffett says he's concerned about ``stagflation,'' or slowing in the U.S. economy while inflation accelerates.

``We're right in the middle of it right now,'' said Buffett, chairman of Omaha, Nebraska-based Berkshire Hathaway Inc., in an interview on Bloomberg Television today. ``I think the `flation' part will heat up and I think the `stag' part will get worse.''

Bernanke's Forecast vs. Mine

Bernanke foresees slow U.S. growth

The U.S. economy is in for slow growth for the next several years, and there is much uncertainty even in that prediction, U.S. Federal Reserve chairman Ben Bernanke said Tuesday.

If the forecast is wrong, there is a greater chance that growth will be slower than expected, rather than faster, he told the Senate Banking Committee.

The sun is out today. I'm forecasting 173 degree heat here in Renton, WA. If my forecast is wrong, there is a greater chance that the temperature will be lower than expected, rather than higher.

I'm also predicting that gasoline prices will be $117.73 per gallon the next time I fill up my tank. If my forecast is wrong, there is a greater chance that the price will be lower than expected, rather than higher.

And lastly, I just ate a granola bar. I'm predicting that I gained 2,721 pounds when I check the bathroom scale a few moments from now. If my forecast is wrong, there is a greater chance I'll be lighter than expected, rather than heavier.

Here's hoping all my forecasts are wrong.

Monday, July 14, 2008

Up the Rhine River Without a Paddle (Musical Tribute)

Sector Snap: Regional bank shares tumble

NEW YORK (AP) -- Several regional bank stocks were among the biggest decliners on the New York Stock Exchange Monday as investors worried about the prospect of more bank failures after the government's takeover of IndyMac Bancorp Inc.

It ain't over 'til the fat lady sings

This phrase in turn refers to the impression by many that at the end of every opera, an aria is sung by a heavy-set woman dressed like a valkyrie. A famous example of this is Wagner's Der Ring des Nibelungen (aka the Ring cycle). This is a set of four separate operas (lasting about 15 hours), in which the final scene includes Brünnhilde (a very large Valkyrie) singing, and then riding onto Siegfried's funeral pyre. The set collapses and the entire cycle ends up in the Rhine river, where it started. The "fat lady" is often illustrated with a horned helmet, a spear, possibly a shield, and possibly blond braids (to suggest Scandinavian ancestry).

I think this is where most contrarians make their mistake. It technically ain't over until the fat lady stops singing. She's belting out quite a tune right now and doesn't even seem the slightest bit winded.

15 hours? Seriously? And this is just act three of four? Somebody wake me when it is truly over.

Sunday, July 13, 2008

Reasons for Hope! (Musical Tribute)

Don't Panic - Buy Index Funds and Real Estate

There are still reasons for hope. Exports are phenomenally strong. Minerals and agriculture are strong. Medical is strong. The government sector is large and robust. Sadly, military must remain strong indefinitely.

The government is running an immense deficit, and this is stimulative. True, finance is in tatters, as is transportation, refining, and home building. These are large sectors. They may fall so much that they bring the economy into recession.

But think about this...

Buy real estate and pin our hopes on a large and robust government sector running an immense deficit? Forget ethanol and wind energy. Brain power can fuel our cars!

Brain Power

Did I mention I was drunk
When I thought it up

Friday, July 11, 2008

Pop Goes the Weasel (Musical Tribute)

Japan's Lost Decade Threatens to Be Global Norm: William Pesek

A balance needs to be found. The world may require a bit less John Maynard Keynes and bit more Milton Friedman. Keynesian stimulus will only delay a necessary slowdown and lead to even more of the monetary-fueled inflation of which Friedman warned.

Policy makers are merely putting off the inevitable and treating the symptoms of what ails the global economy. If they aren't careful, Japan's experience during the 1990s will become a familiar one.

``It's not a scenario many expect for the West or for Asia,'' Chan says. ``But I'm not sure it can be ruled out.''

Nobody expects the weasel.

Pop Goes the Weasel

The original theme seems to have been a darkly humorous vignette of the cycle of poverty among workers in the environs of London. The "weasel" may refer to a spinner's weasel, a mechanical yarn measuring device consisting of a spoked wheel with an internal ratcheting mechanism that clicks every two revolutions and makes a "pop" sound after the desired length of yarn is measured. "Pop goes the weasel", in this meaning, describes the repetitive sound of a machine governing the tedious work of textile workers toiling for subsistence wages. In the context of the rhyme then the first three lines of each verse describe various ways of spending one's meager wages, with "pop goes the weasel" indicating a return to unpleasant labour.