Saturday, July 10, 2010

50 Statistics the Media Won't Report

Here's mine to add.

The Federal individual income tax revenue and the federal budget were nearly equal in 2009. That means that just to break even, Obama would have to double the income tax on every single taxpayer immediately.

By Michael Snyder
Blacklisted News

Most Americans know that the U.S. economy is in bad shape, but what most Americans don’t know is how truly desperate the financial situation of the United States really is.  The truth is that what we are experiencing is not simply a “downturn” or a “recession”.  What we are witnessing is the beginning of the end for the greatest economic machine that the world has ever seen.
Our greed and our debt are literally eating our economy alive.  Total government, corporate and personal debt has now reached 360 percent of GDP, which is far higher than it ever reached during the Great Depression era.  We have nearly totally dismantled our once colossal manufacturing base, we have shipped millions upon millions of middle class jobs overseas, we have lived far beyond our means for decades and we have created the biggest debt bubble in the history of the world.  A great day of financial reckoning is fast approaching, and the vast majority of Americans are totally oblivious.
But the truth is that you cannot defy the financial laws of the universe forever.  What goes up must come down.  The borrower is the servant of the lender.  Cutting corners always catches up with you in the end.
Sometimes it takes cold, hard numbers for many of us to fully realize the situation that we are facing.
So, the following are 50 very revealing statistics about the U.S. economy that are almost too crazy to believe….
#50) In 2010 the U.S. government is projected to issue almost as much new debt as the rest of the governments of the world combined.
#49) It is being projected that the U.S. government will have a budget deficit of approximately 1.6 trillion dollars in 2010.
#48) If you went out and spent one dollar every single second, it would take you more than 31,000 years to spend a trillion dollars.
#47) In fact, if you spent one million dollars every single day since the birth of Christ, you still would not have spent one trillion dollars by now.
#46) Total U.S. government debt is now up to 90 percent of gross domestic product.
#45) Total credit market debt in the United States, including government, corporate and personal debt, has reached 360 percent of GDP.
#44) U.S. corporate income tax receipts were down 55% (to $138 billion) for the year ending September 30th, 2009.
#43) There are now 8 counties in the state of California that have unemployment rates of over 20 percent.
#42) In the area around Sacramento, California there is one closed business for every six that are still open.
#41) In February, there were 5.5 unemployed Americans for every job opening.
#40) According to a Pew Research Center study, approximately 37% of all Americans between the ages of 18 and 29 have either been unemployed or underemployed at some point during the recession.
#39) More than 40% of those employed in the United States are now working in low-wage service jobs.
#38) According to one new survey, 24% of American workers say that they have postponed their planned retirement age in the past year.
#37) Over 1.4 million Americans filed for personal bankruptcy in 2009, which represented a 32 percent increase over 2008.  Not only that, more Americans filed for bankruptcy in March 2010 than during any month since U.S. bankruptcy law was tightened in October 2005.
#36) Mortgage purchase applications in the United States are down nearly 40 percent from a month ago to their lowest level since April of 1997.
#35) RealtyTrac has announced that foreclosure filings in the U.S. established an all time record for the second consecutive year in 2009.
#34) According to RealtyTrac, foreclosure filings were reported on 367,056 properties in March 2010, an increase of nearly 19 percent from February, an increase of nearly 8 percent from March 2009 and the highest monthly total since RealtyTrac began issuing its report in January 2005.
#33) In Pinellas and Pasco counties, which include St. Petersburg, Florida and the suburbs to the north, there are 34,000 open foreclosure cases.  Ten years ago, there were only about 4,000.
#32) In California’s Central Valley, 1 out of every 16 homes is in some phase of foreclosure.
#31) The Mortgage Bankers Association recently announced that more than 10 percent of all U.S. homeowners with a mortgage had missed at least one payment during the January to March time period.  That was a record high and up from 9.1 percent a year ago.
#30) U.S. banks repossessed nearly 258,000 homes nationwide in the first quarter of 2010, a 35 percent jump from the first quarter of 2009.
#29) For the first time in U.S. history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together.
#28) More than 24% of all homes with mortgages in the United States were underwater as of the end of 2009.
#27) U.S. commercial property values are down approximately 40 percent since 2007 and currently 18 percent of all office space in the United States is sitting vacant.
#26) Defaults on apartment building mortgages held by U.S. banks climbed to a record 4.6 percent in the first quarter of 2010.  That was almost twice the level of a year earlier.
#25) In 2009, U.S. banks posted their sharpest decline in private lending since 1942.
#24) New York state has delayed paying bills totalling $2.5 billion as a short-term way of staying solvent but officials are warning that its cash crunch could soon get even worse.
#23) To make up for a projected 2010 budget shortfall of $280 million, Detroit issued $250 million of 20-year municipal notes in March. The bond issuance followed on the heels of a warning from Detroit officials that if its financial state didn’t improve, it could be forced to declare bankruptcy.
#22) The National League of Cities says that municipal governments will probably come up between $56 billion and $83 billion short between now and 2012.
#21) Half a dozen cash-poor U.S. states have announced that they are delaying their tax refund checks.
#20) Two university professors recently calculated that the combined unfunded pension liability for all 50 U.S. states is 3.2 trillion dollars.
#19) According to, 32 U.S. states have already run out of funds to make unemployment benefit payments and so the federal government has been supplying these states with funds so that they can make their  payments to the unemployed.
#18) This most recession has erased 8 million private sector jobs in the United States.
#17) Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of 2010.
#16) U.S. government-provided benefits (including Social Security, unemployment insurance, food stamps and other programs) rose to a record high during the first three months of 2010.
#15) 39.68 million Americans are now on food stamps, which represents a new all-time record.  But things look like they are going to get even worse.  The U.S. Department of Agriculture is forecasting that enrollment in the food stamp program will exceed 43 million Americans in 2011.
#14) Phoenix, Arizona features an astounding annual car theft rate of 57,000 vehicles and has become the new “Car Theft Capital of the World”.
#13) U.S. law enforcement authorities claim that there are now over 1 million members of criminal gangs inside the country. These 1 million gang members are responsible for up to 80% of the crimes committed in the United States each year.
#12) The U.S. health care system was already facing a shortage of approximately 150,000 doctors in the next decade or so, but thanks to the health care “reform” bill passed by Congress, that number could swell by several hundred thousand more.
#11) According to an analysis by the Congressional Joint Committee on Taxation the health care “reform” bill will generate $409.2 billion in additional taxes on the American people by 2019.
#10) The Dow Jones Industrial Average just experienced the worst May it has seen since 1940.
#9) In 1950, the ratio of the average executive’s paycheck to the average worker’s paycheck was about 30 to 1.  Since the year 2000, that ratio has exploded to between 300 to 500 to one.
#8) Approximately 40% of all retail spending currently comes from the 20% of American households that have the highest incomes.
#7) According to economists Thomas Piketty and Emmanuel Saez, two-thirds of income increases in the U.S. between 2002 and 2007 went to the wealthiest 1% of all Americans.
#6) The bottom 40 percent of income earners in the United States now collectively own less than 1 percent of the nation’s wealth.
#5) If you only make the minimum payment each and every time, a $6,000 credit card bill can end up costing you over $30,000 (depending on the interest rate).
#4) According to a new report based on U.S. Census Bureau data, only 26 percent of American teens between the ages of 16 and 19 had jobs in late 2009 which represents a record low since statistics began to be kept back in 1948.
#3) According to a National Foundation for Credit Counseling survey, only 58% of those in “Generation Y” pay their monthly bills on time.
#2) During the first quarter of 2010, the total number of loans that are at least three months past due in the United States increased for the 16th consecutive quarter.
#1) According to the Tax Foundation’s Microsimulation Model, to erase the 2010 U.S. budget deficit, the U.S. Congress would have to multiply each tax rate by 2.4.  Thus, the 10 percent rate would be 24 percent, the 15 percent rate would be 36 percent, and the 35 percent rate would have to be 85 percent.

ECRI Index Continues Fall to -8.3

The dreaded level that predicts a recession with 13 weeks (approximately 3 months) is -10. We're getting close!

Friday, July 9, 2010

Consumer Credit Continued Contraction

"Consumer credit contracted a sharp $9.1 billion in May with April revised to show an even more severe $14.9 billion contraction. The April revision is very surprising given the initial reading of a $1.0 billion gain!

Revolving credit contracted $7.4 billion in May and contracted $8.3 billion in April. Non-revolving credit shows a $1.8 billion contraction in May on top of a $6.5 billion contraction in April. Neither category is likely to show much improvement in June given indications from today's soft store sales report and last week's soft unit vehicle sales.

Consumer credit had been leveling earlier this year but now appears to be on a double dip. This report could set stocks in reverse during the last hour of trading. " - ECONODAY

The person who sent me this also said, "Get ready folks, hell is coming to breakfast..."

Thursday, July 8, 2010

Plunge Protection Team Interfering With Market?

Retail Sales Gloom Along With Consumer Confidence

What a shift from yesterday:

NEW YORK (MarketWatch) -- June's retail sales proved less than inspiring.
Deep discounts ruled, as retailers tried to sell through summer gear to prepare for fall merchandise (hello, it's July -- we don't need sweaters yet) and there are concerns that the second half of the year could be difficult.
It looks like economic gloom has overtaken the consumer.
The results from June aren't terrible, 44% of retailers beat Wall Street's targets, although 56% of them missed. Overall, sales rose 3.1%, slightly below the average expectation of 3.2%, according to Thomson Reuters.

Confidence among U.S. consumers sank more than forecast in June and employment fell for the first time this year, reflecting a drop in federal census workers and a smaller-than- forecast gain in the private sector, the Labor Department said July 2. Sales of new homes plunged in May to a record low.
Consumer Concerns
“Economic growth and consumer spending are slowing at a troubling time for U.S. retailers who are staring at a long string of more difficult comparisons once they get by July’s easy 4.7 percent drop” a year earlier, Perkins said.

Will the Rally Hold?

It's looking iffy at the moment!

IMF Tells USA to Begin Austerity

WASHINGTON (AFP) – The International Monetary Fund on Thursday urged the United States to rein in its ballooning budget deficit without putting the "modest" economic recovery at risk.
"The central challenge is to develop a credible fiscal strategy to ensure that public debt is put -- and is seen to be put -- on a sustainable path without putting the recovery in jeopardy," the IMF said in a report.
Amid jitters that high levels of unemployment may force a double dip recession, the IMF warned the slow recovery would continue.
"While still modest by historical standards, the recovery has proved stronger than we had earlier expected.
"The outlook has improved in tandem with the recovery, but remaining household and financial balance sheet weaknesses -- along with elevated unemployment -- are likely to continue to restrain private spending."

The Washington-based lender said that despite the continued economic woes, the United States should move to put its budget in order.
President Barack Obama has plowed nearly a trillion dollars into the economy to spur economic growth, exploding the US deficit.
The IMF praised US efforts to cut the long-term deficit through health system reform, but said more needed to be done.
"The authorities' commitment to halve the budget deficit by 2013, and intention to stabilize public debt at just over 70 percent of GDP by 2015 are welcome, although much remains to be done to achieve these aims."
At a recent summit of the Group of 20 leading economies in Toronto, the Obama vowed to halve the deficit within three years.
But the IMF projects that the deficit will stand at 64 percent of gross domestic product this year, rising to just over 96 percent by 2020.

Weekly Jobless Claims Moderate

New jobless claims dropped modestly last week, but stocks are rallying in response. I don't see this as helpful, but the market has been aching for a rally the past few weeks, and is taking this as another opportunity to move higher.

Baltic Dry Index Continues to Fall

This index is a great leading indicator because it measures global trade. This is not a good sign.This is the longest ever decline in the index.

TOKYO (MarketWatch) -- You'd never know that a key marine freight index was plunging by looking at Asian shipping shares' year-to-date performances, and some analysts remain upbeat on freight rates in the long term.
Most Asian shipping shares extended their gains Thursday, as broader markets rallied in the wake of a strong advance on Wall Street.
But the Baltic Dry Index, which tracks sea freight rates to ship dry commodities, fell for the 30th straight day through Wednesday to its lowest level since May 2009. According to the Baltic Exchange, which compiles the index, the BDI fell 5.1% to 2,018 points --down to less than half of its May 26 peak of 4,209.
"It is the longest decline in six years," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman. "The main driver seems to be concerns about the cooling of China's steel sector. Steel is the biggest user of iron ore. Iron ore and coking coal account for more than a third of the Baltic dry freight."
Economists still view the index as a barometer of global productivity trends, but "it appears there are some growing concerns about its usefulness today versus its usefulness, say, two years ago. And it's all down to shipping supply," Izabella Kaminska at FT Alphaville wrote on Wednesday.

Wednesday, July 7, 2010

All In!

Time to jump back in the pool. But I'm staying close to the edge for at least the first few days. My study of history suggests that the biggest dive of all is still yet ahead!

Facts Rule Over Opinion

by David Stockman at Marketwatch:

David Stockman served in the House of Representatives and was President Reagan's budget director. He was a founding partner at The Blackstone Group and now runs Heartland Industrial Partners, a private-equity fund. This article first appeared on .
GREENWICH, Conn. (MarketWatch) -- Daniel Patrick Moynihan once said that policy advocates are entitled to their own opinions, but not their own facts.
A possible corollary in the context of the present rip-roaring debate about the macroeconomic impact of our dawning age of fiscal consolidation and austerity is that Nobel Laureates, especially, aren't allowed to make up their own history.
So Professor Joseph Stiglitz please get out your copy of "Historical Statistics of the United States" and, after perusal of the GNP and government finance tables, consider retracting your preposterous statement on CNBC last week that federal spending cutbacks caused the Great Depression. Perhaps you might copy Professor Krugman while you're at it.
In 1929, the nation's GNP was $104 billion and by 1932 it had plunged to $59 billion. But there isn't a snowball's chance that changes in federal spending had anything to do with this huge 43% decline in national output. In the first place, federal spending in 1929 was just $3.1 billion, or a mere 3% of GNP. It took another 80 years to erect today's leviathan state at 26% of GDP.
More importantly, federal spending wasn't reduced as the economy tumbled into depression during the next three years but, in fact, it grew by 50% to $4.6 billion in 1932. To be sure, there was a debate about whether the resulting shift in federal finances from a sizable surplus in 1929 to a deficit in 1932 would help or hinder recovery. Yet the plain fact is that federal finances in these fiscally antediluvian times were a rounding error in the national economy's scheme of things.
By contrast, the statistical source of the $45 billion decline of GNP during the descent into the Great Depression is readily evident, as is the likely train of causation. Between 1929 and 1932, private fixed investment plummeted by an astonishing 94% while durables consumption dropped by 61% and exports by 65%.
n dollar terms, the sum of these three components, which had been $33 billion in 1929, dwindled to only $7 billion by 1932. Now that's a depression-scale collapse. Furthermore, this means that nearly three-fifths of the decline in GNP over 1929-1932 was accounted for by private fixed investment, exports, and durables-consumption spending.
This isn't coincidental because these three components were the epicenter of the unsustainable 1920s boom that had been spawned by the Fed's easy-money policies. Exports collapsed in part because of foreign retaliation after the passage of Smoot-Hawley in June 1930, but mainly because America's original experiment in vendor finance of exports failed miserably after the 1929 stock market collapse. During the preceding Wall Street boom, massive issuance of foreign bonds by governments from Peru to Poland and Germany -- that era's equivalent of sub-prime borrowers -- had artificially financed a huge build-up in US exports to countries which otherwise couldn't pay their bills (like China's vendor-financed exports to the US and Europe in the present era). But when the underwriting boom on Wall Street abruptly ended in 1929 (and the price of most of the foreign bonds soon fell to cents on the dollar), export orders in Pittsburg, Detroit, and Kansas City dried up shortly thereafter. Thus, not for the first time did an outbreak of capital market speculation stimulated by central bank largess ultimately result in a devastating liquidation of jobs and production on Main Street.
The 94% annihilation of private fixed investment spending flowed from the same cause. There was a legitimate investment boom in American industry during the 1920s -- especially in capacity to produce the new technologies of automobiles, radio, electric power, and consumer appliances.
But by 1929, the Fed had created such a massive bubble on Wall Street that corporations could obtain both equity and debt capital virtually for free. Consequently, industry got massively overbuilt, speculative real estate development was rampant, and inventory accumulation reached precarious levels.
Indeed, so great was the over-investment that "payback" time came with a vengeance: During 1932-1934, total private fixed investment including business equipment, structures, and residential housing averaged less than $2 billion per year -- or just 3% of GNP compared to 16% at the 1929 peak. Read Minyanville's "Investors Gaga for Government Debt."
Finally, Main Street Americans were introduced to the twin wonders of consumer installment credit and stock market margin accounts during the 1920s.
When the public's new-found enthusiasm for autos, appliances, and home goods couldn't be funded by these new lines of credit, winnings from the stock market were available to make up the difference. While buying durables and stocks on credit is not an original sin, a central bank policy that caused consumers to plunge off the deep end into unaffordable debt possibly is. In any event, after the music stopped in late 1929, durable goods purchases virtually ceased through the mid-1930s. Read Minyanville's "Five Things You Need to Know: The Modern Stealth Depression Revisited."
In short, the Great Depression had nothing to do with fiscal policy mistakes because the "fisc" in question was self-evidently too small to make a difference. Instead, it was the product of a classic boom and bust cycle that originated in the inflationary finance policies of central banks -- first to fund the carnage of World War I with printing-press money and then to layer on the speculative merriment of the Roaring Twenties.
When viewed in this framework, it's also evident that nostrums about the Great Depression offered by the non-Keynesian catechisms are equally off the mark.
The monetarists, following the teachings of Uncle Milton (Friedman), say that the Fed caused the depression. And it did -- but by means of its inflationary monetary policies of 1917-1927, not on account of its stinginess in the provision of money after October 1929.
In fact, the Fed was reasonably "easy" in its management of the monetary base after the stock market crash, permitting it to grow by 3% per year during the descent into the Great Depression from late 1929 to January 1933. Thus, the fact that the stock of money fell by nearly 25% during the same period wasn't due to a policy mistake by the Fed in its provision of reserves; rather, the Fed found itself "pushing on a string" in the face of massive loan liquidation owing to defaults and working capital contraction -- the same headwinds thwarting the Fed's hyperactive money string pushing today.
As for the supply-siders, it should be noted that neither Herbert Hoover nor the supply side patron saint, Treasury Secretary Andrew Mellon, committed the heresy of raising the tax burden, either. In 1929 Federal revenues were 3.7% of GNP and declined to 3.2% in 1932. Moreover, with his tax-cutting days of the 1920s long behind him and the reality of a classic boom and bust cycle everywhere evident, the patron saint remained as cogent as ever.
In his infamous advice to Hoover in 1932, Mellon admonished: "...liquidate labor, liquidate stocks, liquidate the farmer, and liquidate real estate... " His advice is as good now as it was then.

Stocks Are "In" Again!

A 165-point rally yesterday on bad news, and a 120-point rally today on no news suggests that market sentiment has shifted, and stocks are back in vogue. Commodities too! The risk trade is back!

Stocks Adrift

from WSJ:
U.S. stock futures pointed to a lower open Wednesday, following weak sessions in Europe and Asia as fears over global growth continued to dent investor sentiment.
More than two hours before the start of trading, Dow Jones Industrial Average futures were 26 points lower at 9656. The S&P 500 futures slipped 2.9 points to 1021.3 and Nasdaq 100 futures fell 11.5 points to 1723. Changes in futures do not always accurately predict early market moves after the opening bell.
On Tuesday, the main U.S. stock benchmarks survived a late afternoon selloff after disappointing ISM nonmanufacturing data underscored concerns over global growth. The Dow Jones Industrial Average finished up 57.14 points, or 0.6%, at 9743.62, to snap a seven-session losing streak, led by consumer discretionary stocks.
Jim Reid, strategist with Deutsche Bank, said the ISM data weighed on overseas markets overnight.
"This disappointing data and also the uncertainties around what will be (or not be) disclosed around the stress test seems to have kept risk takers on the back foot overnight," he said in a note to investors.
European shares were weak, especially among resource stocks. Asian markets were mostly lower after weak U.S. data refueled worries about the strength of the global economic recovery.
"It's the same story from before; the market can't free itself from recent worries about slowing growth in the U.S. and China," said Samsung Securities analyst Oh Hyun-seok in Seoul. "The U.S. market's weakness toward the end of (Tuesday's session) is also negatively affecting sentiment."
There are no major economic reports due out Wednesday that could help shake the market from its recent doldrums by providing a sign that strong growth is imminent. The Labor Department will release its weekly report on initial jobless claims and retailers will disclose monthly June sales results on Thursday.
Those reports could provide a spark for stocks because high unemployment and slowing consumer spending remain the biggest stumbling blocks to a stronger rebound.
Major indexes have fallen in recent months following a steady stream of economic reports that have fallen short of forecasts. The data does show the economy is growing, though not as fast as investors had hoped earlier this year. Private spending hasn't been able to make up for the inflated growth that came from government stimulus programs like the home buyer tax credit that expired at the end of April.
The dollar rose against the euro, changing hands around $1.2570. Gold futures were down $8.30 to $1,186.80 an ounce, while crude oil futures fell four cents to $71.94 a barrel.

Stocks Still in Funk

Asian stocks largely declined Wednesday after weak U.S. data refueled worries about the strength of the global economic recovery. Technology shares dropped, unimpressed by Samsung Electronics' forecast of a record operating profit.
"It's the same story from before; the market can't free itself from recent worries about slowing growth in the U.S. and China," said Samsung Securities analyst Oh Hyun-seok in Seoul. "The U.S. market's weakness toward the end of (Tuesday's session) is also negatively affecting sentiment."

and from WSJ:
LONDON—European stocks fell Wednesday, taking their cue from a weak Asian session as fears about global growth continued to dent sentiment.
"Disappointing data and also the uncertainties around what will be [or not be] disclosed around the stress tests seems to have kept risk takers on the back foot," Deutsche Bank said in a strategy note.
The pan-European Stoxx Europe 600 Index was down 1% at 240.35. London's FTSE 100 Index fell 1% to 4914.67, Frankfurt's DAX slipped 0.7% to 5897.67, and Paris's CAC-40 Index traded 1.1% lower at 3387.29.
Traders said another round of disappointing U.S. data in the form of Tuesday's Institute for Supply Management nonmanufacturing figures has reignited fears that the U.S. economy is losing steam, adding to worries about the global recovery. "Concerns over the growth outlook for the U.S. have resurfaced and are unsurprising in light of the slew of weaker-than-expected data points of late," said Goodbody Stockbrokers. "By all accounts, activity is entering the third quarter on a weaker footing."
In Asia, shares ended mostly lower in choppy trade Wednesday following the disappointing ISM data. Japan's Nikkei Stock Average, Australia's S&P/ASX 200 and South Korea's Kospi Composite all ended down 0.6%, while Hong Kong's Hang Seng Index lost 1.1%.
In Europe, banking stocks were among the worst performers, with Crédit Agricole down 1.9% and BNP Paribas slipping 1.3%. The sector was in focus as EU regulators prepared to outline how bank stress tests are being conducted in an attempt to revive confidence in the sector and allay fears of political meddling. The results of the stress tests are due on July 23.

Another Leading Indicator: Rock Concert Cancelations

from Rolling Stone:
The worst-selling summer concert season in recent memory has claimed another victim — Lilith Fair, which on Thursday canceled 10 shows, adding to a grim list that includes U2, Christina Aguilera, Limp Bizkit, Simon & Garfunkel, certain Eagles stadium dates and Rihanna's tour opener originally scheduled for tonight. "It's the reality of this summer," says Terry McBride, Lilith Fair's co-founder. "It's just across the board. Main Street is still in recession. We're not out of this yet. Did we see that four months ago? I don't think anyone did."

Another Ominous Leading Economic Indicator?

Spotty, declining global demand for steel is not a good sign!s

from WSJ:
Steel prices in the U.S. are declining after holding firm for months, potentially a bad omen for the nation's economy as manufacturing activity slows and consumers grow more cautious about big-ticket purchases, such as cars and appliances.
Steel prices tumbled in June, and U.S. steel mills are responding by cutting production. Earlier this year they were ramping up capacity to meet the growth in demand they hoped would emerge from the economic recovery. Instead, demand has been spotty.

Gold Continues to Edge Lower for 3 of 4 Days on Central Banking Selling

from the WSJ:
Central banks are pawning their gold to the Bank for International Settlements at a record rate, taking advantage of the precious metal's historically high value to raise cash.
A little-noticed data point at the back of a 216-page report released last week by the BIS shows the international agency has taken 349 metric tons of gold since December—allowing central banks to raise a record $14 billion.
The number surprised the market, which had assumed most central banks had retained their holdings of gold. Instead, the BIS data show that they have been entering these gold swaps—exchanging their gold with the ...

Tuesday, July 6, 2010

Roubini Anticipates "Global Slowdown"

European governments face the quandary of being unable to afford to bail out banks that are still considered too big to fail, while the global economy is heading for a slowdown in the second half of the year, economist Nouriel Roubini of Roubini Global Economics told CNBC Tuesday.
Governments are running out of ways to counter a "massive slowdown" or the risk of a double-dip recession, Roubini said.
"A year ago we had all these policy bullets," he said. "We could push down rates to zero, we had (quantitative easing), we could do a budget deficit of 10 percent of GDP (or) backstop the financial system."
"Banks at this point are too big to fail, but also too big to be bailed, especially in Europe where the sovereigns are in trouble and therefore the ability to backstop the financial system is not there," he said.
Roubini said he was unimpressed with the June US employment report, pointing out that the jobless rate fell because of a large number of discouraged workers leaving the labor force, and also noted recently weak data on manufacturing, retail sales and housing.
"Everything signals a slowdown of the US, a slowdown of Europe, a slowdown of Japan and a slowdown of China," he said.
The US economy will grow at a rate of 1.5 percent, while the euro zone and Japan will see growth close to 0 and China will grow at a rate of 7 percent, he said.
Dr. Dismal?
While not predicting a double-dip recession, with economic growth at a rate of 1.5 percent "everything becomes worse," Roubini said.
The unemployment rate goes higher, the budget deficit is larger, home prices don't stabilize, but fall further and trade tensions with China will be bigger, he said.
"You don't need to have a double dip recession to have a situation that is dismal," he said.
The economy was strong in the first half because of the stimulus and inventory build-up, but "once these things become a drag on the economy, balance-sheet constraints imply deleveraging by houses, deleveraging by the financial system and deleveraging by governments," Roubini said.
"We're going to have a global slowdown," he said.

Investing for the Collapse of the American Empire

Investing for the Fall of the American Empire. Adrian Day of Adrian Day Asset Management says that you should be restructuring your portfolio to reflect the ongoing economic decline of the West and the rise of the East. The US is now in a period that historically parallels Great Britain at the end of WWII, when a pound cost $5, on its way to $1, some 37 years later.
While we are seeing some dollar strength now, this is only a fleeting move in a secular bear market (UDN). Central banks have cut their holdings of the greenback from 70% to 65%, and we could be on our way to 50% or lower. They no longer wish to hold such a heavy weighting of the currency of a country with such a large and worsening structural deficit. This will not be achieved through some great cataclysmic sell off, but a slow and steady diversion of new money into other assets. Adrian especially likes the Singaporean and Hong Kong dollars and the Chinese Yuan (CYB). Ownership of Canadian and Australian dollars, and gold, is rising. He is not a fan of the yen or the euro.
Day is extremely cautious about global stock markets for the time being, but likes emerging markets long term, which will be driven by a rising middle class in the decades to come. Brazil (EWZ) is a top choice, with vast improvements in governance since the bad old days of the eighties, and one of the world’s strongest currencies. He’s out now, awaiting an election that could bring a leftist tilt. He likes real estate mortgage lender Gafisa (GFE), in which Chicago mogul San Zell is the largest investor (click here for more depth ). Adrian clearly adores Singapore (EWS), where companies have believable accounting and super strong balance sheets. Day has nothing in Africa or Eastern Europe.
Adrian is also a big gold bull (GLD), as it now is a defensive holding that does well in every economic scenario. He doesn’t see the retail rush to buy the barbaric relic as a fiat currency replacement any time soon. And then there’s the central bank bidding war. Ben Bernanke and Alan Greenspan are in denial, still don’t understand the Fed’s role in creating the credit bubble, and until they do, investors have no reason to trust in paper currencies.
The cerebral Englishman wants to buy oil and gas during the traditional summer weakness, as well as commodity producers. He worships Freeport McMoRan (FCX), the top copper miner, as one of the best managed companies in the world. He is bullish on food (CORN), ags like Potash (POT), and water (PHO) (click here for my piece on H2O). He also likes business development companies such as Apollo Investments (AINV) and Ares Capital (ARCC).
After getting a degree from the prestigious London School of Economics, Adrian devoted a lifetime to uncovering undervalued investment opportunities around the world. Today Adrian runs his own money management firm which focuses on global diversification for institutional clients. He is about to release a book entitled Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks. You can learn more about Adrian’s firm by visiting his site at .
To listen to my interview with Adrian on Hedge Fund Radio in full, please click on the “PLAY” arrow above.

Gafisa.png picture by madhedge



Ken Rogoff: "It's Too Much Prophylaxis"

Perched on the Precipice

PORT WASHINGTON, N.Y. (MarketWatch) -- Midyear finds the economy at a crossroads, perched precariously between growth and recession.
There is no longer any doubt that economic growth has petered out. Growth in the first quarter, at 2.7%, was less than half of the fourth quarter's 5.6% pace. Data available since then suggest that the second quarter was even weaker.
As a matter of fact, considering the recent declines in housing, employment, consumer spending, exports and local government spending -- not to mention the plunge in stock prices -- about the only thing keeping the economy from slipping backward in the quarter just ended was a rise in business inventories.
PORT WASHINGTON, N.Y. (MarketWatch) -- Midyear finds the economy at a crossroads, perched precariously between growth and recession.
There is no longer any doubt that economic growth has petered out. Growth in the first quarter, at 2.7%, was less than half of the fourth quarter's 5.6% pace. Data available since then suggest that the second quarter was even weaker.
As a matter of fact, considering the recent declines in housing, employment, consumer spending, exports and local government spending -- not to mention the plunge in stock prices -- about the only thing keeping the economy from slipping backward in the quarter just ended was a rise in business inventories.
Events since then have only served to reinforce the likelihood of a double-dip. The plunge in stock prices has affected the wealthy, while lack of jobs has depressed just about everyone else.
And while it thinks it is doing the right thing, the Obama administration is actually making things worse, first by creating economic uncertainty, and now by adding in political uncertainty as well.
On the economic side, the administration's initiatives dealing with health care, energy, financial reform, climate, regulations and taxes have caused business people to pull in their horns, since they don't have a handle on how much these will cost.
The political uncertainty comes from the administration's wavering over the issue of budget deficits.
By acknowledging the Group of 20's communiqué stating the need to reduce budget deficits, the president has caused many Democrats in Congress to be wary of supporting any legislation that would help the economy but would increase the budget deficit. ( See last week's column.)
This could well be the straw that breaks the economy's back. The economy is already facing a measure of fiscal restraint with the lapse in jobless benefits, the expiration of credits for buying autos and houses, and, soon, the end of the Bush tax cuts.

Monday, July 5, 2010

Mauldin on Deflation -- What the Fed Will Do

The unemployment numbers this morning were just bad, even though the spin doctors were out in force. Of course we knew that because of census workers being laid off the number would be negative, and it was, down 125,000. But the "bright spot" we were told about was that private payrolls came in at 83,000 new jobs. Let's look at what you did not see or hear.
First, last month's dismal (there's that word again) private job-creation number was revised down from 41,000 to 33,000. So in two months, total private job creation is 116,000 jobs. We need 125,000 jobs per month just to keep up with population growth.
But it is worse than that. The headline number we look at is from the Establishment Survey. That means they call up existing businesses they know about and ask them how many people are working for them, etc. One of the first things I do when the employment numbers come out is look at the birth/death assessment on the BLS (Bureau of Labor Statistics) web site.
For new readers, the birth/death assessment has nothing to do with people dying, but rather is the BLS's attempt to estimate the number of new businesses that have been created or have "died" within the last month, and they use these numbers to adjust the employment total. They use historical, seasonal numbers to create a model from which they make these estimates. There is nothing conspiratorial about the numbers - they have to make an attempt at such an estimate, otherwise the employment number would be badly off. But the birth/death number can skew the totals a lot more than is typically realized.
Take the last two months. Using the birth/death model, the BLS assumes that 362,000 jobs were created somewhere. That is three times the number of jobs in the headlines we read. Those extra jobs were added into the total because that is what the model told them to do. And over a complete business and employment cycle, those numbers will average out to be pretty close to right. But as I said, they can also be misleading in the short term. Let's look closer at some of the details.

The B/D adjustments say that we added 65,000 construction jobs in the last two months, over half the total number of jobs created. Really? US single-family homes set an all-time low sales number this week. Mortgage applications are way down. Home construction is off. Commercial real estate construction is down. Where are those construction jobs?
158,000 new jobs have supposedly been created in the hospitality and leisure industry in the last two months. And that is consistent with what normally happens in summer time. Typically, these are lower-paying jobs. (I worked a few myself while in college.) In the actual numbers, as surveyed, they estimated only 33,000 new jobs in L&H, so the B/D adjustment accounted for nearly all the positive number.
But what happens is that most of those L&H jobs go away in the fall, so then the B/D adjustment goes negative. Further, I am not sure we can assume a typical cycle here, to base the B/D number on.
(One more thing to complicate all this. The headline number we see is seasonally adjusted, but the B/D assessment isn't. And we just won't go there. That's way too much "inside baseball" sort of trivia.)
But look at this chart from my favorite data maven, Greg Weldon ( It shows that the number of people planning vacations is way down, dropping by over 35% in the last three years, for the second lowest number ever. Ever.

That is not consistent with a typical hospitality and leisure job-growth pattern. I have three kids working in that field, and the talk is not of robust job creation or lots of overtime. (By the way, my Tulsa readers should go to Los Cabos for some good Mexican food and leave my daughters Abigail and Amanda some really big tips! And make sure they get your name and address.)

Unemployment Went Down?
We were told that the unemployment number dropped from 9.7% to 9.5%. That's a good thing, right? Well, no, not really. The number dropped because the number of people counted as being in the labor force dropped. If you haven't looked for work for four weeks, you are not counted as unemployed. If you add those who were taken off the rolls back in, the unemployment number would have risen to 9.9%. In the past two months nearly one million people have dropped out of the labor market.
If you counted all the people who would take a job if they could find one as unemployed, the unemployment number would be closer to 11%. As an aside, if I have any real beef with the BLS over how they create their data, it is this last point. If you would take a job if you could get one, you should be counted as unemployed. Period.
The Household Survey was rather dismal. (This is where they call households and ask about their employment situation.) The survey showed a loss of 301,000 jobs, or 363,000 jobs if you adjust it to match the Establishment Survey. Not pretty.
Maybe a better way to look at unemployment is to look at the percentage of the total population that has a job. That number has been rising off and on for almost 50 years as more and more women have moved into the labor force. But notice the large drop over the last year - almost 5% of working people in the US have lost their jobs.

The initial unemployment claims 4-week moving average stubbornly refuses to go down any further. It has essentially gone sideways for over 6 months.

If you go back and look at the data from the last 45 years, the current level is typical of recessions.

Earnings Take a Hit
No, not business earnings, which seem to be holding up, but personal earnings. Average hourly earnings dropped 0.1% in June, something that David Rosenberg notes is a 1-in-50 event. The trend is downward, with annual growth of less than 1.7%. Average hours worked were also slightly down.
My friend and Maine fishing buddy Bill Dunkelberg, chief economist at the National Federation of Independent Businesses, has produced his monthly survey, and there was not much to cheer about from a future employment perspective. Over the next 3 months, 8 percent of the businesses surveyed plan to reduce employment (up 1 point), and 10 percent plan to create new jobs (down 4 points), yielding a seasonally adjustednet 1 percent of owners planning to create new jobs, unchanged from May and only the second positive reading in 20 months - but barely so.

From Dunk's email: "Since January, 2008, the seasonally adjusted average change in employment per firm has been negative in every month, with a seasonally adjusted loss of 0.3 workers per firm reported in June for the prior three month period. Most firms did not change employment, 5% (down 3 points from May) increased average employment by 3.4 employees, but 15% (down 5 points) reduced their workforces by an average of 3.3. "Job creation" still hasn't crossed the 0 line in the small business sector. Government (including health care and education) and manufacturing (a large firm activity) has been providing what few jobs are created, weak given the magnitude of employment loss during the recession. And now the elimination of temporary Census jobs will make the picture look more bleak, although more accurate. A few more private sector jobs is not enough, we need 225,000 every month for 3 years to re-employ 8 million workers who lost their jobs and another 125,000 a month to keep up with population growth."

A few more data points from this week, and then let's look at some of the implications. The numbers from the Conference Board survey were weak. The total of people planning to buy a major appliance is at an almost 16-year low. Car sales were low last month, and the survey says they may go lower, as plans to buy a car are down from 6% to 3.7%. In fact, in almost all categories plans to buy were down. Which makes sense, as 17% of people say their incomes are decreasing.
New home inventory is back up to 8.5 months of supply. As noted above, single-family sales hit an all-time low, as anyone who wanted to buy a home did so in order to get the government incentive. Just as with Cash for Clunkers, all we did was bring buying forward; we did not create actual new buyers, at least not in any significant numbers.
Money Supply Concerns
After the explosion in the money supply by the Fed in the depths of the Great Recession, growth in the money supply has gone flat. We recently looked at the fact that M-3 (the broadest measure of money supply) has turned negative for the first time in many decades. Look at the adjusted monetary base, below.

And now let's look at MZM, or Money of Zero Maturity. MZM is a measure of the liquid money supply within an economy. MZM represents all money in M2, less the time deposits, plus all money market funds. MZM has become one of the preferred measures of money supply because it better represents money readily available for spending and consumption. This measurement derives its name from its mixture of all the liquid and zero-maturity money found within the "three M's" (Investopedia). Notice that it too has gone flat, for over a year now.

These charts suggest that deflation is in the wind.
A Central Banker's Nightmare
Let's recap. Unemployment is high and is in reality going higher if you count those who would take a job if they could get one. Incomes are weak. Plans to purchase discretionary items are falling. Housing is likely in for a further drop in prices. The stock market is not exactly booming. Treasury yields are falling, not from a credit crisis or a flight to quality, but because of economic conditions (deflation). Money supply is flat or falling. Prices are under pressure. The list goes on, and all factors are indicative of deflation.
As noted last week, the data suggests we could see weak growth in the last half of the year. Over two-thirds of the past quarter's 2.7% growth was from inventory rebuilding, which surveys seem to show is abating as inventories begin to stabilize.
I was on Larry Kudlow's show (links below) last Tuesday, and he gave me some time to air my views. My main concern, as readers know, is that we may have a weak economy in the latter half of the year and then introduce a large tax increase, which my reading of the economic studies on tax increases suggests will throw us into recession. Recessions are by definition deflationary. (Not to mention what another one would do to unemployment and the stock market!) With inflation at less than 1%, could we see the central banker's nightmare of outright deflation? We very well could. I think that is what the bond market is saying.
How would the Fed react? For an answer, we need to go back to Ben Bernanke's famous helicopter speech of November 2002, entitled "Deflation: Making Sure 'It' Doesn't Happen Here." (By the way, I have always been convinced that his remark about printing presses and helicopters was an attempt at economist humor, which is why we don't get many offers from comedy clubs.)
I did a fuller assessment of that speech in my weekly letter at But I want to pull out a few quotes from the speech. You can read the speech itself at:
Let's sum up the helicopter section: You can create inflation by printing a lot of money. But that is not the interesting part of the speech. Quoting from my letter:
"Let's look at what Bernanke really said. First, he begins by telling us that he believes the likelihood of deflation is remote. But, since it did happen in Japan, and seems to be the cause of the current Japanese problems, we cannot dismiss the possibility outright. Therefore, we need to see what policies can be brought to bear upon the problem.
"He then goes on to say that the most important thing is to prevent deflation before it happens. He says that a central bank should allow for some 'cushion' and should not target zero inflation, and speculates that this is over 1%. Typically, central banks target inflation of 1-3%, although this means that in normal times inflation is more likely to rise above the acceptable target than fall below zero in poor times.
"Central banks can usually influence this by raising and lowering interest rates. But what if the Fed Funds rate falls to zero? Not to worry, there are still policy levers that can be pulled. Quoting Bernanke:
"'So what then might the Fed do if its target interest rate, the overnight federal funds rate, fell to zero? One relatively straightforward extension of current procedures would be to try to stimulate spending by lowering rates further out along the Treasury term structure - that is, rates on government bonds of longer maturities....
"'A more direct method, which I personally prefer, would be for the Fed to begin announcing explicit ceilings for yields on longer-maturity Treasury debt (say, bonds maturing within the next two years). The Fed could enforce these interest-rate ceilings by committing to make unlimited purchases of securities up to two years from maturity at prices consistent with the targeted yields. If this program were successful, not only would yields on medium-term Treasury securities fall, but (because of links operating through expectations of future interest rates) yields on longer-term public and private debt (such as mortgages) would likely fall as well.
"'Lower rates over the maturity spectrum of public and private securities should strengthen aggregate demand in the usual ways and thus help to end deflation. Of course, if operating in relatively short-dated Treasury debt proved insufficient, the Fed could also attempt to cap yields of Treasury securities at still longer maturities, say three to six years.'
"He then proceeds to outline what could be done if the economy falls into outright deflation and uses the examples, and others, cited above. It seems clear to me from the context that he is making an academic list of potential policies the Fed could pursue if outright deflation became a reality. He was not suggesting they be used, nor do I believe he thinks we will ever get to the place where they would be contemplated. He was simply pointing out the Fed can fight deflation if it wants to."
(And now, in 2010, that question might become more than academic.)
With the above as background, we can begin to look at what I believe is the true import of the speech. Read these sentences, noting my bold-faced words:
"... a central bank, either alone or in cooperation with other parts of the government, retains considerable power to expand aggregate demand and economic activity even when its accustomed policy rate is at zero.
"The basic prescription for preventing deflation is therefore straightforward, at least in principle: Use monetary and fiscal policy as needed to support aggregate spending...." (As Keynesian as you can get.)
Again: "... some observers have concluded that when the central bank's policy rate falls to zero - its practical minimum - monetary policy loses its ability to further stimulate aggregate demand and the economy.
"To stimulate aggregate spending when short-term interest rates have reached zero, the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys."
Now let us go to his conclusion:
"Sustained deflation can be highly destructive to a modern economy and should be strongly resisted. Fortunately, for the foreseeable future, the chances of a serious deflation in the United States appear remote indeed, in large part because of our economy's underlying strengths but also because of the determination of the Federal Reserve and other U.S. policymakers to act preemptively against deflationary pressures. Moreover, as I have discussed today, a variety of policy responses are available should deflation appear to be taking hold. Because some of these alternative policy tools are relatively less familiar, they may raise practical problems of implementation and of calibration of their likely economic effects. For this reason, as I have emphasized, prevention of deflation is preferable to cure. Nevertheless, I hope to have persuaded you that the Federal Reserve and other economic policymakers would be far from helpless in the face of deflation, even should the federal funds rate hit its zero bound."
And there you have it. All the data pointing to a slowing economy? It puts us closer to deflation. It is not the headline data per se we need to think about. We need to start thinking about what the Fed will do if we have a double-dip recession and start to fall into deflation. Will they move out the yield curve, as he suggested? Buy more and varied assets like mortgages and corporate debt? What will that do to markets and investments?
Note that last bolded line: "For this reason, as I have emphasized, prevention of deflation is preferable to cure." If he is true to his words, that means he may act in advance of the next recession if the data continues to come in weak and deflation starts to actually become a threat. That is the thing we don't see in all the economic data - the potential for new Fed action. Let's hope that, like the deflation scare in 2002, it doesn't come about. Stay tuned.

ECRI Falls Again

ECRI dropped from -6.9% to -7.7% last week. More bad news!

Wayne Allen Root: Obama, the Great Jobs Killer

As former President Ronald Reagan might have said, "Obama, there you go again."
The current occupant of the White House claims to know how to create jobs. He claims jobs have been created. But so far the score is Great Obama Depression 2.2 million lost jobs, Obama 0 -- a blowout.
Obama is as hopeless, helpless, clueless and bankrupt of good ideas as the manager of the Chicago Cubs in late September. This "community organizer" knows as much about private-sector jobs as Pamela Anderson knows about nuclear physics.
It's time to call Obama what he is: The Great Jobs Killer. With his massive spending and tax hikes -- rewarding big government and big unions, while punishing taxpayers and business owners -- Obama has killed jobs, he has killed motivation to create new jobs, he has killed the motivation to invest in new businesses, or expand old ones. With all this killing, Obama should be given the top spot on the FBI's Most Wanted List.
Meanwhile, he has kept the union workers of GM and Chrysler employed (with taxpayer money). He has made sure that most government employee union members got their annual raises for sleeping on the job (with taxpayer money). He made sure that his voters got handouts mislabeled as "tax cuts" even though they never paid taxes (with taxpayer money). And he made sure that major campaign contributors collected billions off government stimulus (with taxpayer money).
As far as the taxpayers -- the people who actually take risks with our own money to create small businesses and jobs and pay most of the taxes -- we require protection under the Endangered Species Act.
You won't find proof of the damage Obama is doing on Wall Street, but rather on Main Street. My friends are all part of the economic engine of America: Small business. Small business creates 75 percent of new jobs (and a majority of all jobs). I called one friend who was a wealthy restaurant owner. He says business is off by 60 percent. He's drowning in debt. He won't last much longer. His wealth is gone.
I called another friend in the business of home improvement. He says business is off 90 percent from two years ago. My contractor just filed personal bankruptcy. She won't be building any more homes. The hair salon where I've had my hair cut for years closed earlier this year. Bankrupt. But here's the clincher -- ESPN Zone just closed all their restaurants across the country. If they can't make it selling cheap food and overpriced beer with 100 big screens blaring every sporting event on the planet to a sports-crazed society, we are all in deep, deep trouble.
I've polled all my friends who own small businesses -- many of them in the Internet and high-tech fields. They all agree that in this new Obama world of high business taxes, income taxes, payroll taxes, capital gains taxes, and workers compensation taxes, the key to success is to avoid employees. The only way to survive as a business owner today is by keeping the payroll very low and by hiring only independent contractors or part-time employees provided by temp agencies.
The days of jobs in the private sector with big salaries, full benefits, and pensions are over. We've all seen where those kinds of jobs get you as a business owner -- in Bankruptcy Court or surviving on government welfare like GM and Chrysler. Or in the case of government itself -- completely insolvent, but surviving by ripping off taxpayers and fraudulently running printing presses at the Fed all day and night to print money by the trillions.
Unfortunately, small businesses don't have the power to impose taxes or print money. So unlike government, we'll just have to cut employees and run lean and mean.
It has now become clear that, outside of the burgeoning field of Census takers, there will be no major increase in new jobs for years to come. Outside government, Obama has created a wasteland of economic ruin and depression that looks much like the landscape of Mel Gibson's first movie "Mad Max." Without a printing press in Obama's world, you're just plain out of luck.
The days of believing the Obama propaganda about a jobs recovery are over. The trillion-dollar corporate handouts (neatly named "stimulus") may have kept big business in the money for the past 18 months, and artificially propped up the stock market, but small business is the real canary in the coal mine.
My small business-owning friends aren't creating one job. Not one. They are shedding jobs. They are learning to do more with fewer employees. They are creating high-tech businesses that don't need employees. And many business owners are making plans to leave the country. In a high-tech world where businesses can be run from anywhere, Obama has a problem. His one-trick pony -- raise taxes, raise taxes, raising taxes -- is chasing away the business owners he desperately needs to pay his bills.
So who is going to pay Obama's taxes? Not his voters. They want government to pay them. Who is going to create Obama's jobs? Not his voters -- they've never created a job in their lives.
So what is Obama going to do? Maybe he can get Pamela Anderson on the line.

Dow Depression History Repeats Itself

The Dow Jones Industrial Average is repeating a pattern that appeared just before markets fell during the Great Depression, Daryl Guppy, CEO at, told CNBC Monday.

“Those who don’t remember history are doomed to repeat it…there was a head and shoulders pattern that developed before the Depression in 1929, then with the recovery in 1930 we had another head and shoulders pattern that preceded a fall in the market, and in the current Dow situation we see an exact repeat of that environment,” Guppy said.
The Dow retreated 457.33 points, or 4.5 percent last week, to close at 9,686 Friday. Guppy said a Dow fall below 9,800 confirmed the head and shoulders pattern.
The Shanghai Composite is seeing a very rapid collapse, falling below 2,500, which suggests the major fall in the Dow, he added.
In the European markets, Guppy says Frankfurt's Dax is witnessing a different pattern to London's FTSE.
Guppy uses the broad trading band as measurement- giving the Dax a downsize target of 1,500. The same head and shoulders pattern seen in the Dow can also being seen in the FTSE, he added.

Ambrose Evans-Pritchard: U.S. Trapped In Depression

People queue for a job fair in New York. The share of the US working-age population with jobs in June fell from 58.7pc to 58.5pc. The ratio was 63pc three years ago.
"The economy is still in the gravitational pull of the Great Recession," said Robert Reich, former US labour secretary. "All the booster rockets for getting us beyond it are failing."
"Home sales are down. Retail sales are down. Factory orders in May suffered their biggest tumble since March of last year. So what are we doing about it? Less than nothing," he said.
California is tightening faster than Greece. State workers have seen a 14pc fall in earnings this year due to forced furloughs. Governor Arnold Schwarzenegger is cutting pay for 200,000 state workers to the minimum wage of $7.25 an hour to cover his $19bn (£15bn) deficit.
Can Illinois be far behind? The state has a deficit of $12bn and is $5bn in arrears to schools, nursing homes, child care centres, and prisons. "It is getting worse every single day," said state comptroller Daniel Hynes. "We are not paying bills for absolutely essential services. That is obscene."
Roughly a million Americans have dropped out of the jobs market altogether over the past two months. That is the only reason why the headline unemployment rate is not exploding to a post-war high.
Let us be honest. The US is still trapped in depression a full 18 months into zero interest rates, quantitative easing (QE), and fiscal stimulus that has pushed the budget deficit above 10pc of GDP.
The share of the US working-age population with jobs in June actually fell from 58.7pc to 58.5pc. This is the real stress indicator. The ratio was 63pc three years ago. Eight million jobs have been lost.
The average time needed to find a job has risen to a record 35.2 weeks. Nothing like this has been seen before in the post-war era. Jeff Weninger, of Harris Private Bank, said this compares with a peak of 21.2 weeks in the Volcker recession of the early 1980s.
"Legions of individuals have been left with stale skills, and little prospect of finding meaningful work, and benefits that are being exhausted. By our math the crop of people who are unemployed but not receiving a check amounts to 9.2m."
Republicans on Capitol Hill are filibustering a bill to extend the dole for up to 1.2m jobless facing an imminent cut-off. Dean Heller from Vermont called them "hobos". This really is starting to feel like 1932.
Washington's fiscal stimulus is draining away. It peaked in the first quarter, yet even then the economy eked out a growth rate of just 2.7pc. This compares with 5.1pc, 9.3pc, 8.1pc and 8.5pc in the four quarters coming off recession in the early 1980s.
The housing market is already crumbling as government props are pulled away. The expiry of homebuyers' tax credit led to a 30pc fall in the number of buyers signing contracts in May. "It is cataclysmic," said David Bloom from HSBC.
Federal tax rises are automatically baked into the pie. The Congressional Budget Office said fiscal policy will swing from
a net +2pc of GDP to -2pc by late 2011. The states and counties may have to cut as much as $180bn.
Investors are starting to chew over the awful possibility that America's recovery will stall just as Asia hits the buffers. China's manufacturing index has been falling since January, with a downward lurch in June to 50.4, just above the break-even line of 50. Momentum seems to be flagging everywhere, whether in Australian building permits, Turkish exports, or Japanese industrial output.
On Friday, Jacques Cailloux from RBS put out a "double-dip alert" for Europe. "The risk is rising fast. Absent an effective policy intervention to tackle the debt crisis on the periphery over coming months, the European economy will double dip in 2011," he said.
It is obvious what that policy should be for Europe, America, and Japan. If budgets are to shrink in an orderly fashion over several years – as they must, to avoid sovereign debt spirals – then central banks will have to cushion the blow keeping monetary policy ultra-loose for as long it takes.
The Fed is already eyeing the printing press again. "It's appropriate to think about what we would do under a deflationary scenario," said Dennis Lockhart for the Atlanta Fed. His colleague Kevin Warsh said the pros and cons of purchasing more bonds should be subject to "strict scrutiny", a comment I took as confirmation that the Fed Board is arguing internally about QE2.
Perhaps naively, I still think central banks have the tools to head off disaster. The question is whether they will do so fast enough, or even whether they wish to resist the chorus of 1930s liquidation taking charge of the debate. Last week the Bank for International Settlements called for combined fiscal and monetary tightening, lending its great authority to the forces of debt-deflation and mass unemployment. If even the BIS has lost the plot, God help us.

Sunday, July 4, 2010

Double Dip Trouble

NEW YORK (MarketWatch) -- The recent steep rally in U.S. Treasury bonds, helped by investor jitters over European debt and weakening U.S. economic data, isn't likely to last, say some bond investors and strategists.
They expect longer-term rates to rise in coming months as investors pull back from bonds -- whose prices rise when their yields fall -- because growth turns out to be better than markets anticipate. This shift should support the stock market.
Short-term Treasury yields dropped to a new record low in recent sessions as bad news piled up about consumer confidence, manufacturing and the job market. In the six months ended Wednesday, an index of Treasury debt had the biggest half-year gains since 1995.

SAN FRANCISCO (MarketWatch) -- The second quarter brought investors in U.S. stock funds face-to-face with some ruthless mean girls -- April, May and June -- and the meeting wasn't pretty.
June busted stock mutual-fund portfolios all over, May unleashed mayhem, and April, if it wasn't the cruelest month, came close to it. The benchmark Standard & Poor's 500-stock index /quotes/comstock/21z!i1:in\x (SPX 1,023, -4.79, -0.47%) fell 11.4% in the quarter, including reinvested dividends. The more concentrated Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (DJIA 9,686, -46.05, -0.47%) lost 9.4%, also including dividends.
Taken together, the three-month stretch slammed U.S. stock fund shareholders with their worst quarterly loss since December 2008. The average domestic stock fund tumbled 10.7% in the period through June 30, according to preliminary data from investment researcher Morningstar Inc.
Moreover, the dismal showing wiped out the gains fund investors enjoyed in the year's first three months. For the year through June, U.S. stock funds were down 5.4% on average.
"The market has lost confidence in the growth story," said David Bianco, U.S. equities strategist for Bank of America Merrill Lynch. "It's given up on growth prospects and is fearful of a double-dip recession. That's a long way from where we were in April."

Large-cap stocks, with their global footprint and strong financial shape, were widely thought to have staying power in a downturn, but that proved not to be the case. Large-cap growth funds lost 12% in the quarter, while large-cap value counterparts shed 11.7%, as a stronger U.S. dollar, the eurozone debt crisis and concerns about the global economy weighed on stock prices.
 More domestically rooted midcap and small-cap funds made a relatively better showing; midcap growth funds, for instance, fell 9.7%, and small-cap growth portfolios dropped 9.1%.
In fact, only a handful of retail-oriented U.S. stock funds finished the quarter in the black, according to Morningstar. These include midcap-growth focused Monteagle Informed Investor Growth Fund /quotes/comstock/10r!mggax (MGGAX 12.53, +0.06, +0.48%) , up 2.7%, and two large-cap oriented offerings: Stadion Managed Portfolio Fund /quotes/comstock/10r!etffx (ETFFX 9.64, 0.00, 0.00%) , which invests in exchange-traded funds and was up 0.5%, and Wasatch Heritage Value Fund /quotes/comstock/10r!wahvx (WAHVX 8.88, 0.00, 0.00%) , which eked out a 0.2% gain.