The following link is a great read from RGE Monitor, regarding the Outlook for the US Economy. It points to the potential for a Double-Dip or W-Shaped Recession.
http://www.rgemonitor.com/economonitor-monitor/257243/rge_monitor__us_economic_outlook_q2_2009_update
Copy and paste it into your browser window.
Wednesday, July 29, 2009
Tuesday, July 28, 2009
New Home Sales
New home sales came in at 384K in June, up 11% from May, vs. consensus of 350K. Sales were down 21.3% vs. the previous year. The median home price of $206,200 was down from May's $221,600. Inventory of 281K homes represents an 8.8 month supply, down from 10.2 months in May.
Monday, July 27, 2009
Bernanke Defends Fed.
In a PBS Town Hall forum that taped on Sunday and will be aired this week, Bernanke defended the Federal Reserve's actions of the past year, telling participants "I was not going to be the Federal Reserve chairman who presided over the second Great Depression." Bernanke said he was 'disgusted' by the circumstances leading up to the rescue of some large firms and called for new legislation to allow non-bank financial firms to fail without going into bankruptcy. SeekingAlpha.com
In a move to keep with his idea of transparency, Mr. Bernanke held a "town hall" meeting in St. Louis. In addition to his comments above he noted that there is no current need to increase rates, i.e. no inflation concerns.
In a move to keep with his idea of transparency, Mr. Bernanke held a "town hall" meeting in St. Louis. In addition to his comments above he noted that there is no current need to increase rates, i.e. no inflation concerns.
Wednesday, July 22, 2009
Martin Feldstein on a Double Dip
As reported on seekingalpha.com:
More and more are converting to our view - Martin Feldstein has been a reasonable voice through much of this mess, unlike the traditional punditry (including the economists class) normally sourced. [Apr 2, 2009: Martin Feldstein - Economic Recovery Has Long Way to Go]
On my end, I just call this one big Great Recession, already by multiples longer than anything we've faced post World War II, that most likely will "technically" be classified as double dip due to the massive amount of government spending that will buffet official government statistics and paper over damage for a few quarters. So after we clap and cheer about the GDP turning positive perhaps in Q3, we'll see much of it was due to a massive drop in imports combined with massive government transfer payments. Yee haw.
Unless I am completely wrong and the engine of the world (the US consumer) acts very differently than I anticipate, unless we are going to do multiple $500-$750B type stimuli each year, we're just going back to having a stagnant situation. A year from now we'll have to ask - what bone are we going to cut to prop up earnings now that all the muscle has been chopped, and in China we'll be asking what the outcomes of all the loan growth have been; their property and stock markets are flying as government money is sprouting in all directions. The misallocation of said loans should begin to be an "issue" 12-24 months out.
Further, we've been discussing the state budget disasters coming for 2 years now - many states used this year's stimulus as a "stop gap" to plug holes in their budget. What for next year? This is why I believe a new stimulus will be upon us again by next winter.
We keep trying to get around the fact that Americans need to rebuild their savings, and we are content to hide this fact by stealing more and more from future generations to create false demand for homes, cars, et al. We just keep repeating the same errors and burdening grandkids with ever increasing bills. All we have is paper printing prosperity. [May 19, 2009: Paper Printing Prosperity Defined]
Via Bloomberg:
The U.S. recession may not be coming to an end and there is a risk the economy may experience a “double-dip” contraction, said Martin Feldstein, a professor of economics at Harvard University.
“There is a real danger this is going to be a double dip and that after six months or so we’ll have some more bad news,” Feldstein, the former head of the National Bureau of Economic Research and Reagan administration adviser, said today in an interview on Bloomberg Television. “We could slide down again in the fourth quarter.”
The economy could “flatten out” or “even be positive” in the third quarter, and then it’s likely to contract again in the last three months of the year as the effects of the federal stimulus program wear off and companies finish rebuilding inventories, he said. “There isn’t going to be enough to sustain a really solid recovery,” he said, even though recent data has provided some “good news” on the economy.
More and more are converting to our view - Martin Feldstein has been a reasonable voice through much of this mess, unlike the traditional punditry (including the economists class) normally sourced. [Apr 2, 2009: Martin Feldstein - Economic Recovery Has Long Way to Go]
On my end, I just call this one big Great Recession, already by multiples longer than anything we've faced post World War II, that most likely will "technically" be classified as double dip due to the massive amount of government spending that will buffet official government statistics and paper over damage for a few quarters. So after we clap and cheer about the GDP turning positive perhaps in Q3, we'll see much of it was due to a massive drop in imports combined with massive government transfer payments. Yee haw.
Unless I am completely wrong and the engine of the world (the US consumer) acts very differently than I anticipate, unless we are going to do multiple $500-$750B type stimuli each year, we're just going back to having a stagnant situation. A year from now we'll have to ask - what bone are we going to cut to prop up earnings now that all the muscle has been chopped, and in China we'll be asking what the outcomes of all the loan growth have been; their property and stock markets are flying as government money is sprouting in all directions. The misallocation of said loans should begin to be an "issue" 12-24 months out.
Further, we've been discussing the state budget disasters coming for 2 years now - many states used this year's stimulus as a "stop gap" to plug holes in their budget. What for next year? This is why I believe a new stimulus will be upon us again by next winter.
We keep trying to get around the fact that Americans need to rebuild their savings, and we are content to hide this fact by stealing more and more from future generations to create false demand for homes, cars, et al. We just keep repeating the same errors and burdening grandkids with ever increasing bills. All we have is paper printing prosperity. [May 19, 2009: Paper Printing Prosperity Defined]
Via Bloomberg:
The U.S. recession may not be coming to an end and there is a risk the economy may experience a “double-dip” contraction, said Martin Feldstein, a professor of economics at Harvard University.
“There is a real danger this is going to be a double dip and that after six months or so we’ll have some more bad news,” Feldstein, the former head of the National Bureau of Economic Research and Reagan administration adviser, said today in an interview on Bloomberg Television. “We could slide down again in the fourth quarter.”
The economy could “flatten out” or “even be positive” in the third quarter, and then it’s likely to contract again in the last three months of the year as the effects of the federal stimulus program wear off and companies finish rebuilding inventories, he said. “There isn’t going to be enough to sustain a really solid recovery,” he said, even though recent data has provided some “good news” on the economy.
Monday, July 20, 2009
The Fed's Next Tool - The Dollar
Below is a great article from SeekingAlpha.com, http://seekingalpha.com/article/149817-is-the-u-s-dollar-the-fed-s-next-weapon?source=email
The second anniversary of the credit crisis has arrived and, in the light of the plethora of fiscal and monetary policy initiatives, it makes for interesting reading to reflect upon how the U.S. economic landscape has changed since the start of the crunch.
• Fed funds rate: down from 5.25% to zero
• Fiscal deficit: up from 2% to 13%
• Mortgage rates: down from 6.5% to 4.7%
• Home affordability: 70% improvement
• Fed’s balance sheet: up from $850 billion to $2 trillion
Yes, the Fed has tried just about everything, and yet real GDP growth is negative at about 5% and the unemployment rate has doubled to almost 10% over the past two years.
David Rosenberg, chief economist and strategist of Gluskin Sheff & Associates, points out that there is one policy tool that is practically unchanged since two years ago … the U.S. dollar:
It is the only policy tool that has not budged one iota since the crisis erupted two years ago. But we are sure that as the unemployment rate makes new highs and increasingly poses a political hurdle in a mid-term election year, it would make perfect sense for a country that always operates in its best interest - even if it may not be in everyone’s best interest - to sanction a U.S. dollar devaluation as a means to stimulate the domestic economy.
It follows that Rosenberg is of the opinion the greenback has significant downside potential. He therefore suggests that investors should start thinking about protecting their portfolios against a declining dollar by taking positions in commodities, gold, the Canadian dollar, resource stocks and U.S. sectors that have high foreign exposure (materials, industrials, staples, health care).
The second anniversary of the credit crisis has arrived and, in the light of the plethora of fiscal and monetary policy initiatives, it makes for interesting reading to reflect upon how the U.S. economic landscape has changed since the start of the crunch.
• Fed funds rate: down from 5.25% to zero
• Fiscal deficit: up from 2% to 13%
• Mortgage rates: down from 6.5% to 4.7%
• Home affordability: 70% improvement
• Fed’s balance sheet: up from $850 billion to $2 trillion
Yes, the Fed has tried just about everything, and yet real GDP growth is negative at about 5% and the unemployment rate has doubled to almost 10% over the past two years.
David Rosenberg, chief economist and strategist of Gluskin Sheff & Associates, points out that there is one policy tool that is practically unchanged since two years ago … the U.S. dollar:
It is the only policy tool that has not budged one iota since the crisis erupted two years ago. But we are sure that as the unemployment rate makes new highs and increasingly poses a political hurdle in a mid-term election year, it would make perfect sense for a country that always operates in its best interest - even if it may not be in everyone’s best interest - to sanction a U.S. dollar devaluation as a means to stimulate the domestic economy.
It follows that Rosenberg is of the opinion the greenback has significant downside potential. He therefore suggests that investors should start thinking about protecting their portfolios against a declining dollar by taking positions in commodities, gold, the Canadian dollar, resource stocks and U.S. sectors that have high foreign exposure (materials, industrials, staples, health care).
Wednesday, July 15, 2009
Historical Perspective of the Bull-Bear Market Cycles
Below is part of an article from Louis Navellier. He points out that we are in the midst of a 17 year Bear Market Cycle, for which I agree. Please don't take me wrong - History doesn't repeat but it sure does rhyme.
As you will note the Bull Markets are founded on low taxes less government with the opposite occurring for Bears. Bear Markets are marked with high taxes and an oppressive government.
Navellier writes:
The Five (and a half) 17-Year Bull and Bear Markets since the Birth of the Fed
Market cycles are not locked in stone for any demographic or mystical reason, but in the 95 years since the birth of the Federal Reserve, the stock market has swung in very wide bull and bear market trends.
In shorthand terms, the government has played a major hand in each of these wide market swings:
(1) The 1920s bull market (over 500%) was fueled mostly by tax cuts and credit expansion
(2) The 1929-42 bear market (-75%) was exacerbated by high tariffs and credit contraction
(3) The 1949-66 bull market (over 500%) was created by free trade policies under GATT
(4) The 1966-82 bear market (-22%) was deepened by profligate fiscal and monetary policy
(5) The 1982-99 bull market (over 1400%) was inspired by tax cuts and a war on inflation.
(6) The current bear market (-30% so far) is due to deregulation, plus a revival of Guns & Butter
The Market’s Wide 17-Year Swings
Since the Birth of the Federal Reserve
1914 to 1929 Bull market +617%
1929 to 1947 Bear market -57%
1949 to 1966 Bull market +516%
1966 to 1982 Bear market -22%
1982 to 1999 Bull market +1409%
Since 1999 (Bear market) -30% *
* All figures based on the Dow Jones Industrial Average, which does not account for dividends or inflation. The declines in 1966-82 (and since 1999) would be much worse after inflation, which rose faster than dividend yields.
How Government Policies Caused the Major Bull and Bear Market Inflection Points
1930: Smoot-Hawley tariffs and the Fed’s deflationary policies killed the market recovery. Six months after the 1929 crash, in April, 1930, the Dow had climbed all the way back to 294, about 50% above its mid-November 1929 panic low. But then the Smoot-Hawley trade bill was signed into law on June 17. That day, the Dow Jones index fell by a massive 19.64 points (-8%), from nearly 250 to 230. The world retaliated against Smoot-Hawley by passing their own tariffs, leading to isolationism and World War II.
1947: GATT and the Marshall Plan rescued global economies and our stock market. In a mirror image of the protectionist Smoot-Hawley trade bill of 1930, the birth of the General Agreement on Tariffs and Trade (GATT) in 1947 created postwar prosperity. Politically, in a mirror image of the punitive Treaty of Versailles, the world helped rebuild Germany and Japan with the Marshall Plan and other temporary relief measures. The Dow rose six-fold from 163 in mid-1947 (and 161 in mid-1949) to nearly 1,000 in 1966.
1966: Fiscal (Guns & Butter) policies and profligate monetary policies doomed the stock market. LBJ escalated the war in Vietnam while launching multiple new domestic programs. He also took silver out of U.S. coins and enlisted the Federal Reserve to inflate money to fuel a phony prosperity. Nixon followed suit, closing the gold window and instituting wage and price controls, while fighting wars and launching new welfare programs. The result was a decade of “stagflation” (inflation and no growth) in the 1970s.
1982: The worst postwar recession included unemployment, interest rates and inflation in double-digits. The economy had declined in eight of the previous 12 quarters, since Fed Chairman Paul Volcker had spent three years choking off the money supply to kill the inflationary beast. But that medicine worked. In August 1982, he stopped the punishment and began easing the Discount Rate dramatically, while the President and Congress were cutting taxes to fuel a strong economic recovery and stock bull market.
1999: Fears of Y2K caused the Fed to expand liquidity way too fast in late 1999 (and then they raked in that money too rapidly in early 2000), adding to the tech bubble and making its “pop” bigger. In addition, the Gramm-Leach-Bliley Financial Services Modernization Act (passed overwhelmingly by Congress) was signed by President Clinton on November 12, 1999, right before the stock market’s peak. It allowed the creation of mortgage-backed securities, collateralized debt obligations (CDOs) and Structured Investment Vehicles (SIVs) – all those names which have become infamous by now – but there is more:
2007: The market decline of 2007-09 was also caused by massive government spending (Guns and Butter II) under President George W. Bush and a Republican Congress. Trying to fight two wars while also trying to solve a variety of social ills – and never vetoing a bill – Bush’s administration was a reflection of the same kind of hubris which destroyed Johnson’s first Guns and Butter efforts back in the late 1960s.
What’s Next? The bottom line of this brief history lesson is that specific financial blunders in 1930, 1965 and 1999 led to deep and long market declines, while enlightened policies in 1948 and 1982 led to long, powerful market surges. What will be the government’s next big mistake – or enlightened breakthrough?
The future is not locked in stone. The decisions that President Obama, Congress and the Fed make in the next year will determine if we have 7 to 10 more bad years or maybe only one more flat year before the next bull market. Voters also have a say: The mid-term elections of 2010 may help rescue our portfolios.
As you will note the Bull Markets are founded on low taxes less government with the opposite occurring for Bears. Bear Markets are marked with high taxes and an oppressive government.
Navellier writes:
The Five (and a half) 17-Year Bull and Bear Markets since the Birth of the Fed
Market cycles are not locked in stone for any demographic or mystical reason, but in the 95 years since the birth of the Federal Reserve, the stock market has swung in very wide bull and bear market trends.
In shorthand terms, the government has played a major hand in each of these wide market swings:
(1) The 1920s bull market (over 500%) was fueled mostly by tax cuts and credit expansion
(2) The 1929-42 bear market (-75%) was exacerbated by high tariffs and credit contraction
(3) The 1949-66 bull market (over 500%) was created by free trade policies under GATT
(4) The 1966-82 bear market (-22%) was deepened by profligate fiscal and monetary policy
(5) The 1982-99 bull market (over 1400%) was inspired by tax cuts and a war on inflation.
(6) The current bear market (-30% so far) is due to deregulation, plus a revival of Guns & Butter
The Market’s Wide 17-Year Swings
Since the Birth of the Federal Reserve
1914 to 1929 Bull market +617%
1929 to 1947 Bear market -57%
1949 to 1966 Bull market +516%
1966 to 1982 Bear market -22%
1982 to 1999 Bull market +1409%
Since 1999 (Bear market) -30% *
* All figures based on the Dow Jones Industrial Average, which does not account for dividends or inflation. The declines in 1966-82 (and since 1999) would be much worse after inflation, which rose faster than dividend yields.
How Government Policies Caused the Major Bull and Bear Market Inflection Points
1930: Smoot-Hawley tariffs and the Fed’s deflationary policies killed the market recovery. Six months after the 1929 crash, in April, 1930, the Dow had climbed all the way back to 294, about 50% above its mid-November 1929 panic low. But then the Smoot-Hawley trade bill was signed into law on June 17. That day, the Dow Jones index fell by a massive 19.64 points (-8%), from nearly 250 to 230. The world retaliated against Smoot-Hawley by passing their own tariffs, leading to isolationism and World War II.
1947: GATT and the Marshall Plan rescued global economies and our stock market. In a mirror image of the protectionist Smoot-Hawley trade bill of 1930, the birth of the General Agreement on Tariffs and Trade (GATT) in 1947 created postwar prosperity. Politically, in a mirror image of the punitive Treaty of Versailles, the world helped rebuild Germany and Japan with the Marshall Plan and other temporary relief measures. The Dow rose six-fold from 163 in mid-1947 (and 161 in mid-1949) to nearly 1,000 in 1966.
1966: Fiscal (Guns & Butter) policies and profligate monetary policies doomed the stock market. LBJ escalated the war in Vietnam while launching multiple new domestic programs. He also took silver out of U.S. coins and enlisted the Federal Reserve to inflate money to fuel a phony prosperity. Nixon followed suit, closing the gold window and instituting wage and price controls, while fighting wars and launching new welfare programs. The result was a decade of “stagflation” (inflation and no growth) in the 1970s.
1982: The worst postwar recession included unemployment, interest rates and inflation in double-digits. The economy had declined in eight of the previous 12 quarters, since Fed Chairman Paul Volcker had spent three years choking off the money supply to kill the inflationary beast. But that medicine worked. In August 1982, he stopped the punishment and began easing the Discount Rate dramatically, while the President and Congress were cutting taxes to fuel a strong economic recovery and stock bull market.
1999: Fears of Y2K caused the Fed to expand liquidity way too fast in late 1999 (and then they raked in that money too rapidly in early 2000), adding to the tech bubble and making its “pop” bigger. In addition, the Gramm-Leach-Bliley Financial Services Modernization Act (passed overwhelmingly by Congress) was signed by President Clinton on November 12, 1999, right before the stock market’s peak. It allowed the creation of mortgage-backed securities, collateralized debt obligations (CDOs) and Structured Investment Vehicles (SIVs) – all those names which have become infamous by now – but there is more:
2007: The market decline of 2007-09 was also caused by massive government spending (Guns and Butter II) under President George W. Bush and a Republican Congress. Trying to fight two wars while also trying to solve a variety of social ills – and never vetoing a bill – Bush’s administration was a reflection of the same kind of hubris which destroyed Johnson’s first Guns and Butter efforts back in the late 1960s.
What’s Next? The bottom line of this brief history lesson is that specific financial blunders in 1930, 1965 and 1999 led to deep and long market declines, while enlightened policies in 1948 and 1982 led to long, powerful market surges. What will be the government’s next big mistake – or enlightened breakthrough?
The future is not locked in stone. The decisions that President Obama, Congress and the Fed make in the next year will determine if we have 7 to 10 more bad years or maybe only one more flat year before the next bull market. Voters also have a say: The mid-term elections of 2010 may help rescue our portfolios.
Monday, July 13, 2009
Cap and Trade
What Does it Mean?
A regulatory system that is meant to reduce certain kinds of emissions and pollution and to provide companies with a profit incentive to reduce their pollution levels faster than their peers. Under a cap-and-trade program, a limit (or "cap") on certain types of emissions or pollutions is set, and companies are permitted to sell (or "trade") the unused potion of their limits to other companies that are struggling to comply.
So it's an informal TAX. Or better yet a redistribution of wealth.
A regulatory system that is meant to reduce certain kinds of emissions and pollution and to provide companies with a profit incentive to reduce their pollution levels faster than their peers. Under a cap-and-trade program, a limit (or "cap") on certain types of emissions or pollutions is set, and companies are permitted to sell (or "trade") the unused potion of their limits to other companies that are struggling to comply.
So it's an informal TAX. Or better yet a redistribution of wealth.
Wednesday, July 8, 2009
Where is the Dow Heading
Click on the attached link for additional perspective.
In summary, it looks like we are in for a pullback. The video presentation attached has us pulling back to around 7,600 on the Dow. I see a potential for a great decline.
http://broadcast.ino.com/education/dow_update_200907/?campaignid=3
In summary, it looks like we are in for a pullback. The video presentation attached has us pulling back to around 7,600 on the Dow. I see a potential for a great decline.
http://broadcast.ino.com/education/dow_update_200907/?campaignid=3
Tuesday, July 7, 2009
U.S. Needs Plan for More Stimulus, Obama Adviser Says...
The $787 billion economic stimulus might not be enough to bring the U.S. out of recession, and the government should start planning for a second round in case it is needed, said Laura D'Andrea Tyson, a member of a group advising President Barack Obama on the economic downturn. "We should be planning, on a contingency basis, for a second round of stimulus," she said. Reuters (07 Jul.)
That's because the spending of the money doesn't occur until 2010 and 2012. I wonder what happens in those years...ELECTIONS. Talk about try to stack the deck.
That's because the spending of the money doesn't occur until 2010 and 2012. I wonder what happens in those years...ELECTIONS. Talk about try to stack the deck.
Wednesday, July 1, 2009
S&P/Case-Shiller Housing Price Update
The S&P/Case-Shiller 20-City Composite Index fell 18.1% y/y in April 2009 after declining 18.7% y/y in March. The m/m pace of decline in April was slower than in March for 19 cities, while 13 of 20 cities covered in the survey showed an improvement in the y/y returns in April (Standard and Poor's)
As of April 2009, average home prices are at similar levels to what they were in mid-2003. From the peak in mid-2006, the 10-City Composite is down 33.6% and the 20-City Composite is down 32.6%.
Residential R/E is bottoming.
Commercial R/E is the next shoe to drop. It lags Residential R/E by about 18 months. Rubin has recently reported that NYC commercial rents are down by 30 to 45%. Commercial R/E is prices are calculated using discounted cash flows. Therefore, NYC Commercial R/E should drop proportionately.
As of April 2009, average home prices are at similar levels to what they were in mid-2003. From the peak in mid-2006, the 10-City Composite is down 33.6% and the 20-City Composite is down 32.6%.
Residential R/E is bottoming.
Commercial R/E is the next shoe to drop. It lags Residential R/E by about 18 months. Rubin has recently reported that NYC commercial rents are down by 30 to 45%. Commercial R/E is prices are calculated using discounted cash flows. Therefore, NYC Commercial R/E should drop proportionately.
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