Friday, August 28, 2009
Thursday, August 27, 2009
From Ambrose-Pritchard at the Daily Telegraph:
Two facts that should give pause for thought.
1) Japanese data released on Thursday showed that exports fell yet again in July. They are down 39.5pc to the US, and 26.5pc to China.
Japan is the world’s second biggest economy. It lives on exports. It is also a key part of the supply chain for the Chinese economy. How can this hard data be reconciled with the extreme V-shaped recovery already priced in by the markets?
By the way, Toyota is suspending a key production line at its Takaoka plant in central Japan. It is cutting global capacity by 1m vehicles.
2) The Baltic Dry Index measuring freight rates for bulk goods and commodities has been falling almost continuously for eleven weeks, dropping from 4,290 to 2,778 on Thursday.
Is this just a glut of ships or is this telling us what the Shanghai market is also telling us, that credit tightening by the Chinese government is pulling the rug from underneath the latest commodity bubble?
There is something wrong with the entire recovery tale, which ignores the fact that excess plant is still at the highest level since the Great Depression (capacity use is 70pc in Europe, 68pc in the US, 65pc in Japan, and as low as 50pc in some countries, according to the World Bank’s Justin Lin). Companies will have to cut jobs and investment.
Soaring “confidence” indicators have decoupled from reality. The world economy is still prostrate. GDP has shrunk 4pc, 6pc, 8pc, even 12pc or more in a large group of countries. There it more or less sits, like a deflated soufflé.
An end to technical recession in France, Germany, and Japan because Q2 ( and undoubtedly Q3 to come) ekes out a rise from a collapsed base does not mean anything – except that zero interest rates worldwide, and a massive fiscal stimulus that is pushing public debts towards 100pc across the OECD states (and cannot easily be repeated once the first sugar rush subsides), has mercifully prevented the Great Contraction from turning into an immediate catastrophe.
As the Bank of England’s Governor Mervyn King puts it: “It’s the level, stupid”. The level of economic activity is years away from full recovery.
The Bundesbank’s Axel Weber says it will take until 2013 for Germany to get back to where it was. He also warns, by the way, that there will be a second wave of the credit crisis as Germany’s home-grown troubles come to the fore. Round one was imported havoc from the US: round two will be rising defaults at home and a credit squeeze as ratings downgrades force banks to set aside fresh capital. (I enclose the Weber link for German readers http://www.sueddeutsche.de/finanzen/916/484353/text/)
I have no idea when stock markets and commodities – especially base metals – will reflect the hard facts on the ground (ie, an end to the Chinese construction bubble). Timing is not my forte. Nor is the market.
But I am absolutely convinced that those who think we can return to the status quo ante of the credit bubble as if nothing has happened are delusional. As almost every central banker in Jackson Hole reminded us over the weekend, it is going to be a very long hard slog.
Wednesday, August 26, 2009
Tuesday, August 25, 2009
Aug. 25 (Bloomberg) -- U.S. unemployment will surge to 10 percent this year and the budget deficit will be $1.5 trillion next year, both higher than previous Obama administration forecasts because of a recession that was deeper and longer than expected, White House budget chief Peter Orszag said.
The Office of Management and Budget forecasts a weaker economic recovery than it saw in May as the gross domestic product shrinks 2.8 percent this year before expanding 2 percent next year, according to the administration’s mid-year economic review issued today. The Congressional Budget Office, in a separate assessment, forecast the economy will grow 2.8 percent next year. Both see the GDP expanding 3.8 percent in 2011.
“While the danger of the economy immediately falling into a deep recession has receded, the American economy is still in the midst of a serious economic downturn,” the White House report said. “The long-term deficit outlook remains daunting.”
The budget shortfall for 2010 would mark the second straight year of trillion-dollar deficits. Along with the unemployment numbers, the deficit may complicate President Barack Obama’s drive for his top domestic priority, overhauling the U.S. health care system.
industry by another $4.5 billion over the next decade, bringing the total to
nearly $36 billion, according to its mid-year budget review released Tuesday.
In addition, the White House estimated that the budget deficit would
increase to $1.5 trillion in fiscal 2010 and to a $9 trillion deficit from
2010 to 2019. It also estimated that the fiscal 2009 deficit would total $1.58
trillion. The large deficits for this year and next are a result of the $787
billion economic stimulus bill which passed in February, the White House said.
The jump in oil taxes from the previous estimates, which the Office of
Management and Budget put out in May, is largely made up of increases in two
Repeals for expensing of intangible drilling costs more than doubled to
nearly $7 billion from 2010 to 2019, representing an increase of $3.65 billion
from the May estimates.
The Obama administration also aims to repeal percentage depletion, which
lets companies recover capital investment over time, for oil and natural gas
wells further, increasing estimates from May by $784 million. The May total
was $8.25 billion over the next decade while the estimates released Tuesday
were $9.04 billion.
The White House aims to have all of the oil and gas tax increases in
place beginning fiscal 2011.
OMB also kept in place revenue expected to be raised from a national
cap-and-trade system for greenhouse gas emissions currently under
consideration. The total released Tuesday included $627 billion in "climate
revenue" from 2012 to 2019, up $3 billion from the May budget estimate. The
original budget outline President Barack Obama released in February contained
$646 billion in climate revenue.
Some $15 billion annually will go toward developing low-carbon
technologies, while between $62 billion and $65 billion will go toward the
"making work pay" tax credit designed to give a tax break for low- and
Despite dropping back, the price of crude is still right at the upper reaches of its trading range, suggesting that a break-out higher is likely soon. The price of crude is mirroring stocks somewhat. The Dollar is steady, however!
It will be interesting to see what revelations come from this development, and how it affects the financial markets.
Aug. 25 (Bloomberg) -- The Federal Reserve must for the first time identify the companies in its emergency lending programs after losing a Freedom of Information Act lawsuit.
Manhattan Chief U.S. District Judge Loretta Preska ruled against the central bank yesterday, rejecting the argument that loan records aren’t covered by the law because their disclosure would harm borrowers’ competitive positions.
The Fed has refused to name the financial firms it lent to or disclose the amounts or the assets put up as collateral under 11 programs, most put in place during the deepest financial crisis since the Great Depression, saying that doing so might set off a run by depositors and unsettle shareholders. Bloomberg LP, the New York-based company majority-owned by Mayor Michael Bloomberg, sued on Nov. 7 on behalf of its Bloomberg News unit.
“The Federal Reserve has to be accountable for the decisions that it makes,” said Representative Alan Grayson, a Florida Democrat on the House Financial Services Committee, after Preska’s ruling. “It’s one thing to say that the Federal Reserve is an independent institution. It’s another thing to say that it can keep us all in the dark.”
The judge said the central bank “improperly withheld agency records” by “conducting an inadequate search” after Bloomberg News reporters filed a request under the information act. She gave the Fed five days to turn over documents it told the reporters it located, including 231 pages of reports, and said it must look for more at the Federal Reserve Bank of New York, which runs most of the loan programs.
The central bank “essentially speculates on how a borrower might enter a downward spiral of financial instability if its participation in the Federal Reserve lending programs were to be disclosed,” Preska wrote. “Conjecture, without evidence of imminent harm, simply fails to meet the Board’s burden” of proof.
David Skidmore, a Fed spokesman who said the board’s staff was reviewing the 47-page ruling, declined to comment on whether the central bank would appeal.
Bloomberg said in the suit that U.S. taxpayers need to know the terms of Fed lending because the public became an “involuntary investor” in the nation’s banks as the financial crisis deepened and the government began shoring up companies with capital injections and loans. Citigroup Inc. and American International Group Inc. are among those who have said they accepted Fed loans.
“When an unprecedented amount of taxpayer dollars were lent to financial institutions in unprecedented ways and the Federal Reserve refused to make public any of the details of its extraordinary lending, Bloomberg News asked the court why U.S. citizens don’t have the right to know,” said Matthew Winkler, the editor-in-chief of Bloomberg News. “We’re gratified the court is defending the public’s right to know what is being done in the public interest.”
The Fed’s balance sheet about doubled after lending standards were relaxed in the wake of the collapse of Lehman Brothers Holdings Inc. on Sept. 15, 2008. For the week ended Aug. 19, Fed assets rose 2.3 percent to $2.06 trillion as it continued to buy mortgage-backed securities under a program allowing the central bank to purchase non-government securities for the first time.
The U.S. House may vote as soon as next month on a bill to require the Fed to submit to audits by the Government Accountability Office, said Representative Scott Garrett, a New Jersey Republican on the Financial Services Committee.
The judge’s ruling “is strikingly good news,” Garrett said. “This is what the American people have been asking for.”
The Freedom of Information Act obliges federal agencies to make government documents available to the press and public. The Bloomberg suit, filed in New York, didn’t seek money damages.
“The public deserves to know what’s being done with the money,” said Lucy Dalglish, executive director of the Arlington, Virginia-based Reporters Committee for Freedom of the Press. “This ought to be a wake-up call for the public that they need to be far more educated about this.”
The case is Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan).
Aug. 25 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke, who led the biggest expansion of the central bank’s power in its 95-year history to battle the worst economic slump since the Great Depression, will be nominated to a second term by President Barack Obama.
Bernanke “has led the Fed through one of the worst financial crises that this nation and this world have ever faced,” Obama said in remarks prepared for delivery today in Martha’s Vineyard, Massachusetts, where Bernanke is to join him.
“As an expert on the causes of the Great Depression, I’m sure Ben never imagined that he would be part of a team responsible for preventing another,” Obama said. “But because of his background, his temperament, his courage, and his creativity, that’s exactly what he has helped to achieve.”
Monday, August 24, 2009
from Washington Times:
President Obama is the most radical leader in U.S. history. Much of the public is focused on his ambitious plan to nationalize health care. The more they hear about it, the less they like it. Hence, Mr. Obama's poll numbers are dropping like a stone.
Yet his environmentalist agenda is just as dangerous. If passed, it will destroy America's free-market system. Like most liberal elitists, Mr. Obama is an incremental socialist. He does not believe in revolutionary change through blood and iron -- as did Soviet dictator Josef Stalin or Cuban despot Fidel Castro. Rather, Mr. Obama champions evolutionary socialism: the state's gradual takeover of key sectors of private industry. He is anti-capitalist and pro-big-government.
His cap-and-trade initiative seeks to severely limit carbon-dioxide emissions. Every business involved in carbon emissions would be required to purchase permits from the government. Over time, emissions allowed would be curbed, making the permits increasingly valuable -- and expensive. Companies would be allowed to trade or sell them on the open market.
Cap-and-trade would impose huge costs on the economy and undermine job creation. Moreover, it would transform America into an impoverished socialist superstate. It would create a new ruling class that would oversee economic development, forcing an eco-friendly lifestyle on every resident.
The House of Representatives already has passed the draconian legislation. It faces an uphill fight in the Senate. However, if Mr. Obama gets his way on health care reform, that may generate unstoppable momentum for his environmental package.
The carbon-trading scheme is built on the myth of man-made global warming. It is not based on sound science, but leftist ideology.
To compel Americans to accept a massive expansion of government power and tax increases, the left has resorted to a campaign of fear and hysteria: Global-warming theory claims carbon-dioxide emissions cause a "greenhouse" atmospheric effect, leading to rising Earth temperatures. The result, it says, will be a global catastrophe of biblical proportions -- the melting of ice caps, rising sea levels, the flooding of entire islands and coastal cities, droughts, economic devastation, mass starvation and death.
Yet leading scientists from around the world have debunked the theory of human-caused global warming. Environmentalists cannot answer a basic question: Why is it that for centuries the Earth's temperature has ticked slightly up and down, constantly repeating the same cycle even before the emergence of the Industrial Revolution? Therefore, curtailing the use of fossil fuels -- oil, coal and natural gas -- would not stop climate change.
It would, however, dramatically erode our standard of living. In a rare, candid moment during the 2008 election campaign, Mr. Obama admitted his goal was to scale back Americans' consumption, including driving big cars, using air conditioning and eating cheeseburgers: He wants to reduce our prosperity.
"We can't drive our SUVs, and eat whatever we want, and keep our homes at 72 [degrees] all the time, whether we live in the desert or the tundra, and keep consuming 25 percent of the world's resources with just 4 percent of the world's population, and expect the rest of the world to say 'You just go ahead. We'll be fine.' That's not leadership. That's not going to happen."
By the administration's own estimates, cap-and-trade would cost taxpayers at least $645 billion. Other estimates say the burden would be threefold higher. This would cost every American $2,100 to $6,300.
Carbon-trading is a large indirect tax on businesses, forcing them to purchase expensive emissions permits. The policy would increase the price of gas, oil and electricity to encourage consumers to use alternative energy sources. This would mean higher prices at the pump, soaring heating bills and rising food costs. Mr. Obama and liberal Democrats want Americans to consume less electricity (mostly produced by coal, oil and natural gas). The result of this would be less use of computers, iPods, microwaves, cell phones, washers and dryers, dishwashers, air conditioners and refrigerators -- the very conveniences of modern life.
For years, the left has railed against the military-industrial complex. Yet cap-and-trade is an integral part of what environmentalist skeptic Bjorn Lomborg calls the "green-industrial complex" -- the unholy alliance of the powerful green lobby, special business interests, scientific research and government policy. Billions of dollars are to be made in selling and trading carbon permits. And everyone -- from Al Gore to George Soros to now-bankrupt Lehman Brothers Holdings Inc. -- wants a slice of the action.
Environmentalism has very little to do with protecting the environment. It is green socialism. Its objective is to achieve what red communism couldn't: the conquest of capitalism. Instead of central planning and a command economy, we would have a highly regulated, highly taxed bureaucratic corporatism that would stifle economic growth and individual initiative.
Beginning in the 19th century, much of the Western intelligentsia lost faith in God. The 20th century saw numerous attempts - Marxism, fascism, national socialism -- to construct a society without God. They failed. Now the West's liberal elites are seeking to infuse the radical secular project with new meaning and purpose -- man's salvation through the worship of Gaea, Mother Earth.
The green movement is a form of pantheism. It hopes to sacrifice prosperity, abundance and wealth at the altar of a false god.
Mr. Obama is its prophet of doom. And America is its victim.
Jeffrey T. Kuhner is a columnist at The Washington Times and president of the Edmund Burke Institute, a Washington-based think tank.
from Washington Times:
The other day, wending my way from Woodsville, N.H., 40 miles south to Plymouth, I came across several "stimulus" projects -- every few miles, and heralded by a two-tone sign, a hitherto rare sight on Granite State highways. The orange strip at the top said, "Putting America Back to Work" with a silhouette of a man with a shovel, and the green part underneath informed readers that what they were about to see was a "Project Funded by the American Recovery and Reinvestment Act." There then followed a few yards of desolate, abandoned scarified pavement, followed by an "End of Road Works" sign, until the next "stimulus" project a couple of bends down a quiet rural blacktop.
I don't know why one of the least fiscally debauched states in the union needs funds from the American Recovery and Reinvestment Act to repair random stretches of highway, especially stretches that were perfectly fine until someone came along to dig them up in order to access "stimulus" funding. I would have asked one of those men with a shovel, as depicted on the sign. But there were none to be found. Usually in New Hampshire, they dig up the road and regrade or repave it while flagmen stand guard until it's all done. But here a certain federal torpor seemed to hang in the eerie silence.
Still, what do I know? Evidently, this has stimulated the sign-making industry, putting America back to work by putting up "Putting America Back to Work" signs every 200 yards across the land. At $300 a pop, the signage alone should be enough to launch an era of unparalleled prosperity, assuming America's gilded sign magnates don't spend their newfound wealth on Bahamian vacations and European imports.
Perhaps if President Obama were to have his all-seeing O logo lovingly hand-painted onto each sign, it would stimulate the economy even more, if only when they were taken down and auctioned on eBay.
Meanwhile, in Brazil, India, China, Japan and much of Continental Europe, the recession has ended. In the second quarter this year, both the French and German economies grew by 0.3 percent, while the U.S. economy shrank by 1 percent. How can that be? Unlike America, France and Germany had no government stimulus worth speaking of; the Germans declined to go the Obama route on the quaint grounds that they couldn't afford it.
They did not invest in the critical signage-in-front-of-holes-in-the-road sector. Yet their recession has gone away. Of the world's biggest economies, only those of the U.S., Britain and Italy are still contracting. All three nations are big stimulators, though Prime Ministers Gordon Brown of England and Silvio Berlusconi of Italy can't compete with Mr. Obama's $800 billion porkapalooza. The president has borrowed more money to spend to less effect than anybody on the planet.
Actually, when I say "to less effect," that's not strictly true: Thanks to Mr. Obama, one of the least indebted developed nations is now one of the most indebted -- and getting ever more so. We've become the third-most-debt-ridden country after Japan and Italy. According to last month's International Monetary Fund report, general government debt as a percentage of gross domestic product will rise from 63 percent in 2007 to 88.8 percent this year and 99.8 percent next year.
Of course, the president retains his formidable political skills, artfully distracting attention from his stimulus debacle with his health care debacle. However, there are diminishing returns to his serial thousand-page, trillion-dollar boondoggles.
They may be too long for your representatives to bother reading before passing into law, but, whatever the intricacies of Section 417(a) xii on Page 938, people are beginning to spot what all this stuff has in common: He's spending your future. And by "future" I don't mean 2070, 2060, 2040, but the day after tomorrow.
Democrats can talk about only raising taxes on "the rich," but more and more Americans are beginning to figure out what percentage of them will wind up in "the richest 5 percent" before this binge is over. According to Gallup, nearly 70 percent of Americans now expect higher taxes under Mr. Obama.
But the silver-tongued salesman sails on.
Why be scared of a government health program? After all, the president says, "Medicare is a government program that works really well," and if "we're able to get something right like Medicare," we should have more "confidence" about being able to do it for everyone.
On the other hand, the president says, Medicare is "unsustainable" and "running out of money."
By the way, unlike your run-of-the-mill politician's contradictory statements, these weren't made a year or even a week apart, but during the same presidential speech in Portsmouth, N.H. At any rate, in order to "control costs," Mr. Obama says we need to introduce a new $1 trillion government entitlement. It's a good thing he's the smartest president of all time and the greatest orator since Socrates because otherwise one might easily confuse him with some birdbrained Bush type. But, if we take him at his word, a $1 trillion public expenditure that "controls costs" presumably means he's planning on reducing private health expenditure -- such as, say, your insurance plan -- by at least $1 trillion. Or he'll be raising $1 trillion worth of revenue. Either way, nothing is certain under Mr. Obama but death panels and taxes -- i.e., a vast enervating statism and the confiscation of the fruits of your labors required to pay for it.
That's why the "stimulus" flopped. It didn't just fail to stimulate, it actively deterred stimulation because it was the first explicit signal to America and the world that the Democrats' political priorities override everything else.
If you're a business owner, why take on extra employees when cap-and-trade is promising increased regulatory costs and health "reform" wants to stick you with an 8 percent tax for not having a company insurance plan? Mr. Obama's leviathan sends a consistent message to business and consumers alike: When he's spending this crazily, maybe the smart thing for you to do is hunker down until the dust has settled and you get a better sense of just how broke he's going to make you. For this level of "community organization," there aren't enough of "the rich" to pay for it. That leaves you.
For Mr. Obama, government health care is the fastest way to a permanent left-of-center political culture in which all elections and most public discourse will be conducted on Democratic terms. It's no surprise that the president can't make a coherent economic or medical argument for Obamacare, because that's not what it's about -- and for all his cool, he can't quite disguise that. Apropos a new poll, Associated Press reports that Americans "are losing faith in Barack Obama."
"Losing faith"? Oh, no! Fall on your knees and beseech the One: "Give me a sign, O Lord!"
But he has. They're all along empty highways across rural New Hampshire: "This Massive Expansion of Wasteful Statism Brought to You by Obama Marketing, Inc."
Mark Steyn is the author of the New York Times best-seller "America Alone."